Acer Incorporated

OFFERING CIRCULAR

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

US$300,000,000 Zero Coupon Convertible Bonds Due 2015US$200,000,000 Zero Coupon Convertible Bonds Due 2017

The US$300,000,000 Zero Coupon Convertible Bonds due 2015 (the “2015 Bonds”) and the US$200,000,000 Zero Coupon Convertible Bonds due2017 (the “2017 Bonds”) (the 2015 Bonds and the 2017 Bonds, collectively the “Bonds”, will be issued by Acer Incorporated (“Acer Inc.”, the “Company”,“we”, “us” or “our”). Unless the Bonds have been previously redeemed, repurchased and canceled or converted, the Company will redeem the 2015 Bondsat 102.171% of their principal amount at maturity and the 2017 Bonds at 118.995% of their principal amount at maturity. The Bonds may be redeemed,in whole or in part (in the principal amount of US$100,000 or any integral multiple thereof), at the option of the Company at any time on or after August10, 2013 at the 2015 Early Redemption Amount (as defined herein) in the case of the 2015 Bonds or the 2017 Early Redemption Amount (as defined herein)in the case of the 2017 Bonds, in each case, under the circumstances described in this Offering Circular. Each series of Bonds may also be redeemed inwhole but not in part at the option of the Company at any time at the relevant Early Redemption Amount if more than 90% in principal amount of suchseries of Bonds has already been redeemed, repurchased and cancelled, or converted. In addition, the Bonds may be redeemed in whole but not in part atany time at the option of the Company at the relevant Early Redemption Amount in the event of certain changes relating to taxation in the Republic of China(the “ROC”).

Unless previously redeemed, repurchased and cancelled, or converted, (i) each holder of the 2015 Bonds shall have the right, at such holder’soption, to require the Company to redeem, in whole or in part, the 2015 Bonds held by such holder on August 10, 2013 at the 2015 Early RedemptionAmount and each holder of the 2017 Bonds shall have the right, at such holder’s option, to require the Company to redeem, in whole or in part, the 2017Bonds held by such holder on August 10, 2015 at the 2017 Early Redemption Amount and (ii) each holder of the Bonds shall have the right, at such holder’soption, to require the Company to redeem, in whole or in part, the Bonds held by such holder at the relevant Early Redemption Amount if the CommonShares are officially delisted from the Taiwan Stock Exchange or upon the occurrence of a Change of Control of the Company.

The Bonds will be direct and unconditional obligations of the Company, and will rank at least pari passu in right of payment with all other unsecuredand unsubordinated debt of the Company, except as otherwise provided herein. The Bonds will not bear interest. Holders of the Bonds (the “Holders”) mayconvert the Bonds into common shares, par value of NT$10 per share, of the Company (the “Common Shares”) at any time, unless the Bonds have beenpreviously redeemed, repurchased and canceled, or converted and except during a Closed Period (as defined herein) on or after September 20, 2010 andup to (and including) July 31, 2015 in the case of the 2015 Bonds or up to (and including) July 31, 2017, in the case of the 2017 Bonds. The conversionprice will initially be NT$110.760 per Common Share for the 2015 Bonds and NT$113.955 per Common Share for the 2017 Bonds (in each case, subjectto the adjustment as described herein), with a fixed exchange rate of NT$31.83= US$1.00 (“Fixed Exchange Rate”). The outstanding Common Shares arelisted on the Taiwan Stock Exchange (“TSE”) and application will be made to list the Common Shares issued on conversion of the Bonds on the TSE. Theclosing price per Common Share on the TSE on August 5, 2010 was NT$85.2.

See “Risk Factors” on page 12 for a discussion of certain factors to be considered in connection with an investment in the Bonds.

The Bonds have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and are being offeredand sold to non-U.S. persons in offshore transactions outside the United States in reliance on Regulation S under the Securities Act (“Regulation S”). Fora further description of certain restrictions on the offering and sale of the Bonds, see “Description of the Bonds”, “Transfer Restrictions” and “Plan ofDistribution”.

Each series of Bonds will be evidenced by a single Global Certificate (as defined herein), and will be fully issued in registered book-entry formand registered in the name of a nominee of Citibank Europe PLC, as common depositary (the “Common Depositary”) for Euroclear Bank S.A./N.V.(“Euroclear”) and Clearstream Banking, société anonyme, Luxembourg (“Clearstream, Luxembourg”). Except as described herein, beneficial interests inthe Global Certificate will be shown on, and transfers thereof will be effected only through, records maintained by Euroclear and Clearstream, Luxembourgand their direct or indirect participants.

Approval in-principle has been received for the listing of the Bonds on the Singapore Exchange Securities Trading Limited (“SGX-ST”). TheSGX-ST assumes no responsibility for the correctness of any statements made, opinions expressed or reports contained in this Offering Circular. Admissionof the Bonds to the Official List of the SGX-ST and quotation of the Bonds on the SGX-ST are not to be taken as an indication of the merits of the Bonds,Acer Inc. and its subsidiaries or associated companies (if any). Delivery of the Bonds in book-entry form will be made on or about August 10, 2010.

Offering Price: 100%

Sole Global Coordinator

J.P. Morgan

Joint Bookrunners

J.P. Morgan Citi

Offering Circular dated August 5, 2010

TABLE OF CONTENTS

Page

Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

Certain Defined Terms, Conventions and Currency of Presentation . . . . . . . . . . . . . . . . . . . . . . . v

Enforceability of Foreign Judgments in the ROC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

The Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Summary Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Selected Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . 27

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Market Price of the Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Exchange Rate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Dividends and Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Changes in Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Description of the Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

The Global Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Description of the Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

Summary of Certain Significant Differences Between ROC GAAP and US GAAP . . . . . . . . . . . . 114

Appendix A — Foreign Investment and Exchange Controls in the ROC . . . . . . . . . . . . . . . . . . . A-1

Appendix B — The Securities Markets of the ROC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1

Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1

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You should review carefully this entire Offering Circular before making an investment decision.

This Offering Circular has been prepared by us solely for use in connection with the proposed offeringof the Bonds (the “Offering”). We reserve the right to reject any offer to purchase, in whole or in part, forany reason, or to sell less than all of the Bonds offered by this Offering Circular. J.P. Morgan Securities Ltd.and Citigroup Global Markets Limited (the “Initial Purchasers”) will act as initial purchasers with respect tothe offering of the Bonds. This Offering Circular does not constitute an offer to the public generally tosubscribe for or otherwise acquire securities.

This Offering Circular is intended solely for the purpose of soliciting expressions of interest in theBonds from qualified investors and does not purport to summarize all of the terms, conditions, covenants andother provisions contained in the indenture, the Bonds and other transaction documents. The informationprovided is not all-inclusive and may not contain all the information that may be relevant to you. ThisOffering Circular may only be used for the purposes for which it has been published.

The Initial Purchasers, the Trustee (as defined in the section “Description of the Bonds”) and the Agents(as defined in the section “Description of the Bonds”) make no representation or warranty, express orimplied, as to the accuracy or completeness of the information contained in this Offering Circular. Nothingcontained in this Offering Circular is, or shall be relied upon as, a promise or representation by the InitialPurchasers, the Trustee or the Agents as to the past or future. We have furnished the information containedin this Offering Circular. The Initial Purchasers, the Trustee and the Agents assume no responsibility for theaccuracy or completeness of any such information.

This Offering Circular contains summaries intended to be accurate with respect to certain terms ofcertain documents, but reference is made to the actual documents, all of which will be made available to youupon request to us when available, for complete information with respect thereto, and all such summaries arequalified in their entirety by such reference.

Neither we nor the Initial Purchasers have authorized anyone to provide you with any information otherthan that contained or incorporated by reference in this Offering Circular. We take no responsibility for, andcan provide no assurance as to the reliability of, any other information that others may give you. Theinformation contained in this Offering Circular or in any document attached hereto is accurate only as of thedate of this Offering Circular or the date of such document, regardless of the time of delivery of this OfferingCircular or of any sale of the Bonds. Neither the delivery of this Offering Circular nor any sale madehereunder shall under any circumstances imply that there has been no change in our affairs, or that theinformation set forth herein or in any document attached hereto is correct as of any date subsequent to thedate hereof or thereof, as the case may be.

In making an investment decision, you must rely on your own examination of our business and theterms of this Offering, including the merits and risks involved. The Bonds and the Common Shares tobe issued upon conversion of the Bonds have not been approved or disapproved by the U.S. Securitiesand Exchange Commission (the “SEC”), any state securities commission in the U.S. or any other U.S.regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits ofthe offering of the Bonds or the accuracy or adequacy of this Offering Circular. Any representation tothe contrary is a criminal offence in the U.S.

This Offering Circular does not constitute an offer to sell, or a solicitation of an offer to buy, any ofthe Bonds offered hereby by any person in any jurisdiction in which it is unlawful for such person to makean offer or solicitation.

The Bonds are subject to restrictions on transferability and resale and may not be transferred or resoldexcept as permitted under the Securities Act and the applicable state securities laws pursuant to registrationor exemption therefrom. As a prospective purchaser, you should be aware that you may be required to bearthe financial risks of this investment for an indefinite period of time. Please refer to the sections in thisOffering Circular entitled “Transfer Restrictions” and “Plan of Distribution.”

Payment on the Bonds and all deliveries of Common Shares made on conversion of the Bonds will bemade without withholding for or on account of certain taxes of the ROC or such jurisdiction in which we orany successor is then organized and we will pay additional amounts in respect of such withholding to theextent set forth under “Description of the Bonds”.

ii

In connection with the Offering of the Bonds, the Initial Purchasers or any of their affiliates maypurchase the Bonds 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 Bondsand/or our securities, and (ii) equity derivatives and stock loan transactions relating to our Common Shares.Such transactions may occur either at the same time as the offer and sale of the Bonds, or in secondary markettransactions. Such transactions would be carried out as bilateral transactions with selected counter-parties andseparately from any existing sale or resale of the Bonds to which this Offering Circular relates(notwithstanding that such selected counter-parties may also be purchasers of the Bonds). In connection withthe Offering of the Bonds, we may enter into a derivative transaction with the Initial Purchasers (or anaffiliated entity designated by them) to hedge our foreign currency risk.

See “Risk Factors” in this Offering Circular for a description of certain factors relating to an investmentin the Bonds. Neither we, the Initial Purchasers nor any of our or their respective representatives is makingany representation to you regarding the legality of an investment by you under applicable legal investmentor similar laws. You should consult with your own advisors as to legal, tax, business, financial and relatedaspects of a purchase of the Bonds.

iii

FORWARD-LOOKING STATEMENTS

This Offering Circular contains “forward-looking statements”. Although these forward-lookingstatements, which may include statements regarding our future results of operations, financial condition orbusiness prospects, are based on our own information and information from other sources we believe to bereliable, you should not place undue reliance on these forward-looking statements, which apply only as ofthe date of this Offering Circular. The words “anticipate,” “believe,” “expect,” “intend,” “seek,” “plan,”“estimate” and similar expressions, as they relate to us, are intended to identify a number of theseforward-looking statements. Our actual results of operations, financial condition or business prospects maydiffer materially from those expressed or implied in these forward-looking statements for a variety of reasons,including, among other things and not limited to:

• the impact of the global economic and financial crisis and the resulting slowdown in the globaleconomy;

• the cyclical nature of our industry;

• further declines in average selling prices;

• our dependence on introducing new products which will gain market acceptance on a timely basis;

• our dependence on growth in the demand for our products;

• changes in technology and competing products;

• our ability to ensure product quality, reliability and to control cost;

• our ability to acquire sufficient raw materials and key components;

• our ability to compete effectively;

• our ability to expand into new businesses or industries;

• our ability to undertake mergers and acquisitions or investments;

• our dependence on key personnel;

• general political and economic conditions;

• litigation and regulatory investigations against us;

• possible disruptions in commercial activities caused by natural and human-induced disasters,including terrorist activity and armed conflict;

• fluctuations in foreign currency exchange rates; and

• other factors in the section entitled “Risk Factors” beginning on page 12 of this Offering Circular.

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CERTAIN DEFINED TERMS, CONVENTIONS AND CURRENCY OF PRESENTATION

All references to “Taiwan” or the “ROC” are to the island of Taiwan and other areas under the effectivecontrol of the Republic of China. All references herein to the “ROC Government” or the “ROC CompanyLaw” are references to the government of the Republic of China and the Company Law of the Republic ofChina, respectively. All references to the “PRC” are to the People’s Republic of China, and “RMB” are toRenminbi, the legal currency of PRC.

We have prepared the audited consolidated financial statements as of and for the years ended December31, 2007, 2008 and 2009, and the unaudited consolidated financial statements as of and for the three monthsended March 31, 2009 and 2010 herein. These financial statements were prepared in conformity with the“Rules Governing Preparation of Financial Statements of Securities Issuers” and generally acceptedaccounting principles in the ROC (together referred to herein as “ROC GAAP”), which differ in certainmaterial respects from generally accepted accounting principles in the U.S. (“US GAAP”). See “Summaryof Principal Differences Between ROC GAAP and US GAAP.”

We publish our financial statements in New Taiwan Dollars, the lawful currency of the ROC. Allreferences herein to “United States Dollars”, “U.S. dollars” and “US$” are to United States dollars,references to “New Taiwan Dollars”, “NT dollars” and “NT$” are to New Taiwan dollars. Unless otherwisespecified, where financial information in relation to the Company has been translated into US dollars, it hasbeen so translated, for convenience only, at the exchange rate of NT$31.819 = US$1.00 (the exchange rateused in the financial statements for convenience translation) which exchange rate is sourced from the CentralBank of the Republic of China, Taiwan (“CBC”) on March 31, 2010. All amounts translated into US dollarsas described above are provided solely for the convenience of the reader and no representation is made thatthe NT dollar or US dollar amounts referred to herein could have been or could be converted into US dollarsor NT dollars, as the case may be, at any particular rate or at all. For further information relating to exchangerates, see “Exchange Rate Information.”

v

ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC

We are a company limited by shares and incorporated under the Company Law of the ROC (the“Company Law”). Most of our directors and executive officers, supervisors and certain other parties namedherein are residents of the ROC and such persons are located in the ROC. As a result, it may not be possiblefor investors to effect service of process upon us or such persons outside the ROC, or to enforce against anyof them judgments obtained in courts outside the ROC including those predicated upon the civil liabilityprovisions of the securities laws of the U.S. or any state or territory within the U.S.

We have been advised by Tsar & Tsai Law Firm, our legal adviser in the ROC, that any final judgmentobtained against us or such persons in any court other than the courts of the ROC in respect of any legal suitor proceeding arising out of or relating to the Bonds or the Common Shares, will be enforced by the courtsof the ROC without further review of the merits only if the court of the ROC in which enforcement is soughtis satisfied that: (i) the court rendering the judgment has jurisdiction over the subject matter according to thelaws of the ROC; (ii) the judgment and the court procedures based on which such judgment was rendered arenot contrary to the public order or good morals of the ROC; (iii) the judgment is a final judgment for whichthe period for appeal has expired or from which no appeal can be taken; (iv) if the judgment was renderedby default by the court rendering the judgment and (x) we or such persons were duly served during areasonable time within the jurisdiction of such court in accordance with the procedural rules under suchjurisdiction, provided that such service of process has provided sufficient protection to us or such persons todefend the claim/proceeding brought by the plaintiff or (y) process was served on us or such persons withthe judicial assistance of the ROC; and (v) judgments of the courts of the ROC are recognized andenforceable in the jurisdiction of the court rendering the judgment on a reciprocal basis. Moreover, a partyseeking to enforce a foreign judgment in the ROC would, except under limited circumstances, be requiredto obtain foreign exchange approval from the CBC for the remittance out of the ROC of any amountsrecovered in respect of such judgment denominated in a currency other than NT dollars.

vi

SUMMARY

This summary highlights information presented in greater detail elsewhere in this Offering Circular.This summary is not complete and does not contain all the information you should consider before investingin the Bonds. You should carefully read this entire Offering Circular before investing, including the sectionof this Offering Circular entitled “Risk Factors”.

Overview

We are one of the largest PC vendors in the world with no. 2 global market share in total PC and mobilePC shipments in the first quarter of 2010*, according to Gartner, Inc. (“Gartner”). Our product offeringencompasses a broad range of product categories, including desktop and mobile PCs, LCD monitors,projectors, servers and smartphones. We have a global customer base spread across Europe, Middle East andAfrica (“EMEA”), the Americas, Asia Pacific, China and Taiwan.

Over the past few years, we have demonstrated strong growth momentum in our PC shipments.According to 2009 PC shipment data by Gartner, we maintained steady annual growth of 29.0%, securing ourposition as the world’s no. 2 total PC vendor. According to Gartner, for the first quarter of 2010 in EMEA,we were one of the top vendors in the total PC and the top vendor in mobile PC markets in shipments, with20.3% and 25.8% market share, respectively. In the US, we were among the top three vendors in the totalPC and mobile PC markets in shipments, with 13.6% and 16.8% market share, respectively. Likewise, in theAsia Pacific region, we were among the top four vendors in the total PC market and the top three vendorsin the mobile PC market in shipments, with 8.1% and 13.1% market share, respectively.*

Since our inception in 1976, we have grown from a single Acer brand to a diversified portfolio of fourbrands — Acer, Gateway, Packard Bell and eMachines. The mergers of Gateway in 2007 and Packard Bellin 2008 completed our global footprint by strengthening our presence in the U.S. and giving us a deeperpenetration into the European and Asian markets and allowed us to launch a multi-brand strategy to targetdifferent geographic and consumer segments. Our multi-brand strategy allows each brand to offer adifferentiated set of product characteristics to effectively target each of the major market segments of theglobal PC market. In 2009, we were voted Reader’s Digest gold-medal Computer TrustedBrand in Asia forthe 11th consecutive year, which is a reflection of the strength of our brand. We were also one of the sponsorsof the Winter Olympic Games in Vancouver in 2010 and are one of the sponsors of the forthcoming SummerOlympic Games to be held in London in 2012. In 2008, we acquired E-Ten, a decision that reflects ouranticipation of the accelerating convergence between PC and handheld communication devices in the nextfew years. In response to the market’s increasing demand for more portable and powerful mobile devices, weare continuously developing and introducing innovative products, including e-readers, smartphones andtablets equipped with Google’s latest Android operating system.

Our channel business model (“CBM”) has been instrumental to our success by encouraging first-classsuppliers and channel partners to collaborate in a winning formula of supply chain management. Our CBMprevents duplicative efforts by us and our suppliers, leverages our channel partners’ expertise and resourcesto effectively manage our global logistics and minimizes our overall operating expenses.

Our consolidated net sales was NT$462.1 billion, NT$546.3 billion and NT$574.0 billion (US$18.0billion) for the year ended December 31, 2007, 2008 and 2009, respectively. Our net sales for the threemonths ended March 31, 2010 was NT$162.1 billion (US$5.1 billion). As of March 31, 2010, we had a globalworkforce of approximately 6,612 employees.

On August 5, 2010, our market capitalization was NT$229,118.3 million (US$7,200.7 million) basedon the closing price of our Common Shares on the TSE.

* Gartner, Inc. Personal Computer Quarterly Statistics Worldwide By Region: Final Database, C.G. Lee Mikako Kitagawa, 27 May2010

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Competitive Strengths

Our strengths are as follows:

• Global and geographically diversified scale. We are one of the largest PC vendors in the world,with no. 2 global market share in total PC and mobile PC shipments in the first quarter of 2010*.Through the successful mergers of Gateway in 2007 and Packard Bell in 2008, we have completedour global footprint by fortifying our position in the U.S. and enhancing our already strongpositions in Europe and Asia. Our global scale and geographic diversity has allowed us tomaximize regional growth opportunities and to benefit from growing worldwide demand.

• Multi-brand strategy. The successful acquisitions of Gateway in 2007 and Packard Bell in 2008together marked the beginnings of a new era for us by helping us to create a multi-brand strategythat targets different geographic and consumer segments. As one of the first PC vendors to adopta multi-brand approach, we have been able to penetrate major segments of the InformationTechnology and Communications market through the launch of products with differentiatedproduct designs. Each of our brands enjoys strong brand recognition within their respective targetmarkets, and the combined brand portfolio is highly complementary and provides optimalpositioning within the fast-changing PC market.

• Sustainable and profitable business model. We adhere to a CBM that involves collaboration withfirst-class suppliers and distributors, leveraging their resources and ultimately, sharing the successamong all our partners. Consistent with this approach, we have avoided using a direct sales modelin order to avoid competition with our channel partners. Cooperation with channel distributorslessens our operating expenses, helps us to maintain a lean organization and allows us to bettercontrol inventories.

• Strong innovation capability and customer-centric business model. Our business model iscentered on delivering products designed around customer needs. To ensure our products meet theneeds of our customers, we have cultivated a strong culture of innovation and product design.This means understanding exactly what our customers want and where consumer preferences willtrend, and then using our knowledge and skills to exceed their expectations by making ourproducts simple to use, stylish to own and accessible to everyone.

• Proven management with solid delivery track record. Led by an experienced management team,we have performed strongly and have grown into one of the largest PC and smart handheldvendors in the world. Our leadership team was one of the first to focus on notebook PC platforms,before desktop-to-notebook PC substitution trends were widely anticipated, which has resulted inour significant global market share in notebook PC shipments. Our management also had theforesight to develop the Aspire One netbook PC series, which created a new industry paradigmin netbook PC design and functionality and better met the preferences of consumers thancompeting products available in the market at the time.

Business Strategies

Our strategies are as follows:

• Continue to invest in our leading brands. We plan to continue pursuing our multi-brand strategyto more effectively target a broader range of geographic and customer segments. We will continueto invest in our brands — Acer, Gateway, Packard Bell and eMachines — to further raise theirmarket recognition and acceptance, and increase consumer understanding of their individualvalue propositions. We plan to continue marketing our brands across a wide variety of media,ranging from traditional channels such as print and television media, to promotional events,exhibitions, and various sponsorships.


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• Continue to grow global market share with focus on profitability. We believe that the PC andsmart handheld device markets will continue to grow, with increasing global penetration andexpansion into new market segments. We plan to continue to be a part of this growth and capturean increasing share of global PC and smart handheld device shipment volume, with a particularfocus on large emerging markets such as Brazil, Russia, India, Indonesia and China. In China inparticular, we have recently launched several initiatives to develop dedicated products, expanddistribution channels and market our brand in order to capture a higher share of this increasinglysignificant market.

• Invest and capitalize on proliferation of mobile and cloud computing. In order to capitalize onthe proliferation of mobile and cloud computing trends, we have put particular focus onintroducing new mobility solutions with a variety of form factors. Upcoming product launchesinclude the release of the new Timeline X, which we expect will satisfy customer demand for athin and light notebook PC with a long battery life that does not compromise on CPUperformance. In addition, the acquisition of E-ten in 2008 has helped us penetrate the smarthandheld device market successfully, and we will soon be introducing new Internet-enableddevices with high levels of interactivity and connectivity.

• Enhance partnerships and business operations. We plan to continue to enhance our operationsto maximize efficiency and competitiveness while reducing costs. Of particular focus is thecontinued refinement of our order fulfillment and global logistics network to meet the demandsof the global PC and smart handheld device markets and ensure timely delivery, while minimizingunnecessary processes and overhead costs. We also intend to continue to seek out newpartnerships which complement our business strategies, while ensuring that we are achieving fullsynergies from our existing relationships.

Recent Developments

Preliminary financial results

On August 4, 2010, we announced certain unaudited preliminary financial results for the second quarterand first half of 2010.

Our net sales increased by 26.1% from NT$119.1 billion for the three months ended June 30, 2009 toNT$150.2 billion for the three months ended June 30, 2010. Operating income increased by 35.8% fromNT$3.0 billion for the three months ended June 30, 2009 to NT$4.1 billion for the three months ended June30, 2010. Net income increased by 53.5% from NT$2.3 billion for the three months ended June 30, 2009 toNT$3.6 billion for the three months ended June 30, 2010. Earnings per share increased by 53.4% fromNT$0.88 for the three months ended June 30, 2009 to NT$1.35 for the three months ended June 30, 2010.

Our net sales increased by 31.1% from NT$238.2 billion for the six months ended June 30, 2009 toNT$312.4 billion for the six months ended June 30, 2010. Operating income increased by 51.7% fromNT$5.6 billion for the six months ended June 30, 2009 to NT$8.5 billion for the six months ended June 30,2010. Net income increased 57.8% from NT$4.4 billion for the six months ended June 30, 2009 to NT$6.9billion for the six months ended June 30, 2010. Earnings per share increased by 56.6% from NT$1.66 for thesix months ended June 30, 2009 to NT$2.60 for the six months ended June 30, 2010.

Strengthening of relationship with PKU Founder Group Ltd.(“PKU Founder Group”), FounderTechnology Group Corp. (“Founder Tech”) and its subsidiaries (collectively, herein after “Founder”)

On August 4, 2010, we announced that following a memorandum of mutual understanding we signedwith Founder in late May 2010, PKU Founder Group granted us a license to use the“Founder” brand in themutually agreed PC business and we have agreed to work with Founder Tech on the development of productsfor the China market. We will also utilize Founder’s comprehensive channel network to target our productsat different cities, rural markets and commercial markets in China. We believe that our relationship withFounder will help us widen our service network coverage and allow us to provide faster services to ourcustomers at lower costs.

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Corporate Information

Our registered office is located at 7F, No.137, Sec.2, Chien Kuo N. Road, Taipei, Taiwan, ROC and ourtelephone number is +886-2-2509-2368.

Our Common Shares have been listed on the TSE since September 18, 1996 under the number “2353.”Our Global Depositary Receipts have been listed on the London Stock Exchange under the symbol “ACID”since November 1, 1995.

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THE OFFERING

The following is only a summary and is qualified in its entirety by reference to the sections entitled“Description of the Bonds”. Capitalized terms used herein and not defined have the meaning given to themin “Description of the Bonds”.

Issuer ................................................ Acer Incorporated

The Offering..................................... US$300,000,000 aggregate principal amount of zero couponconvertible bonds due 2015 (the “2015 Bonds”) andUS$200,000,000 aggregate principal amount of zero couponconvertible bonds due 2017 (the “2017 Bonds,” together with the2015 Bonds, the “Bonds”) are being offered to non-U.S. personsoutside the United States in reliance on Regulation S.

Initial Purchasers .............................. J.P. Morgan Securities Ltd. and Citigroup Global Markets Limited

Issue Price ........................................ 100% of principal amount.

Original Issue Date........................... August 10, 2010

Maturity Dates.................................. August 10, 2015 for the 2015 Bonds, August 10, 2017 for the2017 Bonds

Interest.............................................. The Bonds will not bear interest except under the limitedcircumstances set forth under “Description of the Bonds —Default Interest”.

Ranking ............................................ The Bonds will (i) be our direct, unsecured, unsubordinated andunconditional obligations, (ii) rank pari passu in right of paymentwith all our other unsecured and unsubordinated debt and (iii) besenior in right of payment to all our debt that is expressed to besubordinated in right of payment to the Bonds.

Conversion........................................ Each Holder will have the Conversion Right during the relevantConversion Period to convert all its Bonds (or any portion in theprincipal amount of US$100,000 or any integral multiple thereof)into our newly issued Common Shares, provided, however, thatthe Conversion Right during any Closed Period (as definedherein) shall be suspended and the Conversion Period shall notinclude any such Closed Period. We will neither issue fractions ofCommon Shares.

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“Closed Period” means: (i) the 60-day period prior to the date ofany annual general shareholders’ meeting of the Company; (ii) the30-day period prior to the date of any special shareholders’meeting of the Company; (iii) the period beginning on the 15thTrading Day prior to the five-day period before a record date fordistribution of rights, dividends or other benefits to the date ofsuch record date; (iv) in the event of a capital decrease of theCompany, the period beginning on the record date for the capitaldecrease up to one day prior to the Trading Day of the CommonShares reissued after the capital decrease; and (v) such otherperiods during which the Company may be required to close itsshareholders’ register or to suspend conversion under ROC lawsand regulations applicable from time to time.

Conversion Price .............................. The conversion price for the 2015 Bonds will initially beNT$110.760 per Common Share and the conversion price for the2017 Bonds will initially be NT$113.955 per Common Share, ineach case, with a fixed exchange rate of NT$31.83 = US$1.00,subject to adjustment in the manner provided in “Description ofthe Bonds — Conversion — Adjustments”.

Redemption Amount at Maturity ...... Unless previously redeemed, repurchased and cancelled, orconverted, the 2015 Bonds will be redeemed on the 2015 MaturityDate at a redemption price equal to 102.171% of the unpaidprincipal amount thereof.

Unless previously redeemed, repurchased and cancelled, orconverted, the 2017 Bonds will be redeemed on the 2017 MaturityDate at a redemption price equal to 118.995% of the unpaidprincipal amount thereof.

See “Description of the Bonds — Redemption, repurchase andcancellation — Redemption at Maturity”.

Redemption at the Option of theHolders ......................................... Unless previously redeemed, repurchased and cancelled, or

converted, each holder of the 2015 Bonds shall have the right, atsuch holder’s option, to require the Company to redeem, in wholeor in part, the 2015 Bonds held by such holder on August 10, 2013at the 2015 Early Redemption Amount.

Unless previously redeemed, repurchased and cancelled, orconverted, each holder of the 2017 Bonds shall have the right, atsuch holder’s option, to require the Company to redeem, in wholeor in part, the 2017 Bonds held by such holder on August 10, 2015at the 2017 Early Redemption Amount.

See “Description of the Bonds — Redemption, repurchase andcancellation — Redemption at the Option of the Holders”.

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Redemption at the Option of theCompany....................................... At any time on or after August 10, 2013 and prior to the relevant

Maturity Date, the Company may, redeem (i) the 2015 Bonds, inwhole or in part, at the 2015 Early Redemption Amount on therelevant date of redemption or (ii) the 2017 Bonds, in whole or inpart, at the 2017 Early Redemption Amount on the relevant dateof redemption; provided, however, that in each case, no suchredemption may be made unless the Closing Price of the CommonShares, translated into US Dollars at the Prevailing Rate, on any20 consecutive Trading Days, the last of which occurs not morethan five Trading Days prior to the date upon which notice of suchredemption is given, is at least 130% of the 2015 EarlyRedemption Amount, in the case of a redemption of the 2015Bonds, or the 2017 Early Redemption Amount, in the case of aredemption of the 2017 Bonds, in each case, divided by theprevailing Conversion Ratio.

Notwithstanding the foregoing, at any time, the Company may,redeem either series of Bonds, in whole but not in part, at therelevant Early Redemption Amount if more than 90% in principalamount of the relevant series of Bonds has already beenredeemed, repurchased and cancelled, or converted as hereinprovided.

Redemption upon Delisting orChange of Control ........................ A Bondholder shall have the right, at such Bondholder’s option, to

require us to redeem in whole or in part, such Bondholder’s Bondsat the relevant Early Redemption Amount, (i) if the CommonShares are officially delisted from the TSE; or (ii) upon theoccurrence of a Change of Control of the Company. See“Description of the Bonds — Redemption, repurchase andcancellation — Redemption in the Event of Delisting” and“Description of the Bonds — Redemption, repurchase andcancellation — Redemption in the Event of a Change of Control”.

Tax Redemption ............................... The Bonds may be redeemed, in whole but not in part, at ouroption, at any time, at the relevant Early Redemption Amount if,as a result of certain changes relating to the tax laws in the ROCor such other jurisdiction in which we or any successor is thenorganized, we are required to pay Additional Amounts.Bondholders may elect not to have their Bonds redeemed but withno entitlement to any Additional Amounts or reimbursement ofAdditional Amounts.

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Delivery and Form of Bonds............ Each series of Bonds will be represented by a single GlobalCertificate, which will be deposited with, and registered in thename of the Common Depositary. Euroclear and Clearstream,Luxembourg will credit their respective accountholders with therespective principal amounts of the individual interestsrepresented by such Global Certificate. Such accounts will bedesignated initially by or on behalf of the Initial Purchasers.Ownership of beneficial interests in the Global Certificate will belimited to persons who have accounts with Euroclear orClearstream, Luxembourg or persons who hold interests throughsuch accountholders. Ownership of beneficial interests in eachGlobal Certificate will be shown on, and the transfer of thatownership will be effected only through, the records maintainedby Euroclear and Clearstream, Luxembourg (with respect tointerests of their respective accountholders) and the records ofsuch accountholders (with respect to interests of persons otherthan such accountholders).

The securities codes for the 2015 Bonds and 2017 Bonds are asfollows:

ISIN Common Code

2015 Bonds.............................. XS0528416232 0528416232017 Bonds.............................. XS0528416315 052841631

Negative Pledge................................ We will not create or permit to remain outstanding, and will notpermit our Principal Subsidiaries to create or permit to remainoutstanding, security for the benefit of holders of anyInternational Investment Securities or for any guarantee orindemnity in respect thereof without granting equivalent securityfor the Bonds. See “Description of the Bonds — Certaincovenants — Negative Pledge”.

Events of Default ............................. Certain events will permit acceleration of payment of the sum ofthe principal amount and interest (if any) of the Bonds. See“Description of the Bonds — Events of Default”.

Use of Proceeds................................ We estimate that the net proceeds from the sale of the Bonds willbe approximately US$497,500,000 after deducting estimatedInitial Purchasers’ discounts and offering expenses. We intend touse the net proceeds to procure raw materials overseas to supportour business growth.

Listing .............................................. Approval in-principle has been received for the listing of theBonds on the SGX-ST. The Bonds will be traded on the SGX-STin a minimum board lot size of US$200,000 for so long as theBonds are listed on the SGX-ST and the rules of the SGX-ST sorequire. The Common Shares are listed on the TSE andapplication will be made for the Common Shares issuable uponconversion of the Bonds to be listed on the TSE.

Governing Law................................. Each of the Bonds and the Indenture is governed by, andconstrued in accordance with, the laws of the State of New York.

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Lock-up ............................................ We have agreed that for a period of 90 days after the date of thisOffering Circular, we will not, without the Initial Purchasers’prior written consent, offer, sell, contract to sell or otherwisedispose of any of our securities that are substantially similar to theBonds or Common Shares, including but not limited to anysecurities that are convertible into or exchangeable for, or thatrepresent the right to receive, Common Shares or any suchsubstantially similar securities (other than the sale of the Bonds,the issuance of our Common Shares upon conversion of the Bondsoffered hereunder and any shares of our common stock issuedupon the exercise of options granted under our existing employeestock option incentive plans).

Trustee .............................................. Citicorp International Limited

Registrar ........................................... Citigroup Global Markets Deutschland AG

Principal Paying, Transfer andConversion Agent ......................... Citibank, N.A., London Branch

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SUMMARY FINANCIAL INFORMATION

The following tables set out summary financial information derived from our (i) audited consolidatedfinancial statements as of and for the years ended December 31, 2007, 2008 and 2009, and (ii) unauditedconsolidated financial statements as of and for the three months ended March 31, 2009 and 2010, eachincluded in this Offering Circular. Our financial statements are prepared in conformity with ROC GAAP,which differs in certain material aspects from US GAAP. See “Summary of Principal Differences BetweenROC GAAP and US GAAP.” The amounts expressed in US dollars do not form part of any of our consolidatedand unconsolidated financial statements and are provided solely for the convenience of the reader.

The table below sets forth certain financial data under ROC GAAP for the periods and as of the datesindicated.

Year Ended and As of December 31,

Three Months Ended and

As of March 31,

2007 2008 2009 2009 2010

NT$ NT$ NT$ US$ NT$ NT$ US$

(audited) (unaudited)

(in millions, except per share data)

Consolidated Statement of Income:Net sales ....................................................... 462,066.1 546,274.1 573,982.5 18,039.0 119,086.4 162,129.9 5,095.4Cost of sales ................................................. (414,647.8) (488,988.4) (515,654.6) (16,205.9) (107,168.0) (146,416.1) (4,601.6)

Gross profit .................................................. 47,418.3 57,285.7 58,327.9 1,833.1 11,918.4 15,713.8 493.8Operating expenses....................................... (37,233.2) (43,213.4) (42,988.4) (1,351.0) (9,347.8) (11,328.4) (356.0)

Operating income ........................................ 10,185.1 14,072.3 15,339.5 482.1 2,570.6 4,385.4 137.8Non-operating income and gains.................. 6,699.7 5,353.0 1,719.0 54.0 467.7 360.5 11.3Non-operating expenses and losses .............. (1,776.2) (4,618.6) (2,075.5) (65.2) (282.9) (587.2) (18.4)

Income from continuing operations beforeincome tax ............................................... 15,108.6 14,806.7 14,983.0 470.9 2,755.4 4,158.7 130.7

Income tax expense ...................................... (2,665.6) (3,169.4) (3,630.1) (114.1) (729.7) (864.2) (27.2)Income from discontinued operations .......... 517.9 99.8 — — — — —

Net income ................................................... 12,960.9 11,737.1 11,352.9 356.8 2,025.7 3,294.5 103.5

Earnings (loss) per share—Basic(1) .............. 5.27 4.67 4.31 0.14 0.77 1.25 0.04Earnings (loss) per share—Diluted .............. 5.27 4.60 4.26 0.13 0.76 1.23 0.04

Consolidated Balance Sheet Data:Current assets ............................................... 191,626.2 186,390.6 232,107.9 7,294.6 199,892.4 222,417.2 6,990.1Long-term investment .................................. 11,202.7 6,773.5 8,872.8 278.8 7,445.6 8,698.7 273.4Net property, plant and equipment ............... 8,636.4 9,336.2 8,676.2 272.7 9,262.1 8,567.4 269.3Intangible assets ........................................... 25,926.5 34,746.8 35,444.1 1,113.9 37,656.4 34,823.6 1,094.4Property not used in operation ..................... 3,806.1 2,996.7 2,971.5 93.4 2,990.5 2,938.3 92.3Other financial assets ................................... 961.4 868.8 789.7 24.8 796.0 904.4 28.4Deferred charges and other assets ................ 1,124.0 2,329.6 2,162.5 68.0 2,586.9 2,418.6 76.0

Total assets ................................................... 243,283.3 243,442.2 291,024.7 9,146.2 260,629.9 280,768.2 8,823.9

Current liabilities.......................................... 142,842.5 149,315.1 179,846.5 5,652.2 162,839.5 167,693.2 5,270.3Long-term liabilities ..................................... 23,031.8 11,249.5 18,300.5 575.1 11,548.3 18,208.0 572.2

Total liabilities ............................................. 165,874.3 160,564.6 198,147.0 6,227.3 174,387.8 185,901.2 5,842.5

Total shareholders’ equity and minorityinterest ..................................................... 77,409.0 82,877.6 92,877.7 2,918.9 86,242.1 94,867.0 2,981.4

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Year Ended and As of December 31,

Three Months Ended and

As of March 31,

2007 2008 2009 2009 2010




Consolidated Statement of Cash Flows:Cash flow from operating activities ............. (6,560.8) (5,166.4) 38,192.1 1,200.3 31,465.4 (16,854.2) (529.7)Cash flow from investment activities........... 2,741.2 8,747.1 (1,788.3) (56.2) (287.0) 80.8 2.5Cash flow from financing activities ............. (3,899.4) (17,955.1) (5,725.1) (179.9) 975.4 1,307.7 41.1

Net increase (decrease) in cash and cashequivalents .............................................. (7,719.0) (14,374.4) 30,678.7 964.2 32,153.8 (15,465.7) (486.1)

Effects of exchange rate changes ................. 979.1 (1,429.2) 795.7 24.9 (381.9) (1,511.8) (47.4)Cash and cash equivalents at beginning of

year/period ............................................... 44,685.2 37,945.3 22,141.7 695.9 22,141.7 53,616.1 1,685.0

Cash and cash equivalents at end ofyear/period ............................................... 37,945.3 22,141.7 53,616.1 1,685.0 53,913.6 36,638.6 1,151.5

(1) Basic EPS is computed by dividing net income by the weighted-average number of common shares outstanding during the year.The weighted average outstanding shares are retroactively adjusted for the effects of stock dividends transferred from retainedearnings and capital surplus to common stock, and employee stock bonuses issued prior to January 1, 2009. Effective January1, 2009, EPS are not retroactively adjusted for employee stock bonuses.

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RISK FACTORS

You should carefully consider the risks described below before making an investment decision. Beforemaking an investment decision, you should carefully consider all of the information contained in this OfferingCircular, including the following risk factors.

RISKS RELATING TO OPERATIONS

Our operating results are dependent on a variety of factors in the industry in which we operate, any ofwhich could materially affect our net sales and/or profitability or lead to higher variability of ourquarterly or annual operating results.

Our operating results are affected by a wide variety of factors that could materially affect our net salesand/or profitability or lead to higher variability of quarterly or annual operating results. These factors include,among others: economic and market conditions in the PC industry; seasonality; customer demand and marketacceptance of our products; new product introductions, the production capabilities of our original equipmentmanufacturers (“OEM”)/original design manufacturers (“ODM”) suppliers to produce new products; productobsolescence; component price fluctuation and availability; product mix and design cycle duration; ourability to manage product transitions, inventory levels and manufacturing processes; our ability to distributeproducts quickly and efficiently to meet customer demands; our expansion plans; capital requirements andthe availability of funding; technological changes and changes in testing processes; timing of orders anddelays in shipments to customers; volume of orders relative to our suppliers’ production capacity; our abilityto obtain adequate testing equipment on a timely basis; the availability of key personnel and skilledemployees; international political or economic events or developments; and currency fluctuations.Unfavorable changes in these or other factors could materially and adversely affect our results of operationsor financial condition.

We experience intense competition and pricing pressure which could have a material and adverseimpact on our net sales, profitability and growth prospects.

The industry in which we operate is highly competitive and is characterized by a large number ofcompetitors, rapidly changing customer demand patterns, the frequent introduction of new products, shortproduct life cycles, continuous improvement in performance characteristics, reductions in product pricingand high price sensitivity on the part of customers. As a result, we have experienced constant and intensepressure on our selling prices.

The industry has also experienced rapid technological advances in software functionality and hardwareperformance and features based on existing or emerging industry standards. For example, manufacturers ofPCs that adhere to industry standards, including us, generally have access to and make use of many of thesame components, often from the same group of suppliers. At times, the industry has experienced shortagesin the supply of certain components, such as the current shortages in LCD panels and Double Data RateDynamic Random Access Memory (“DDR DRAM”), which have led to higher component prices and in turnhave affected our operating margins and results of operations. Over time, however, the prices of manycomponents have declined periodically and the general practice of PC manufacturers, including us, is toreduce the prices of PC products to reflect these component price declines.

We have also experienced, and may experience in the future, gross margin declines in certainbusinesses, reflecting factors such as competitive pricing pressures, inventory write downs and increases incomponent and manufacturing costs due to higher labor and material costs borne by our suppliers that, as aresult of the competitive nature of our industry, we are unable to pass on to our customers.

We may take additional initiatives to maintain the profitability of our products and mitigate the effectsof price reductions, including improving our product mix, putting greater emphasis on different markets,reducing component costs, reducing inventory carrying costs, lowering operating costs, improving inventorymanagement, increasing product differentiation, and diversifying our product supply sources to decreasesupply cost and procurement risk. However, there can be no assurance that these initiatives will be effectivein stimulating higher levels of sales, will reduce costs to offset the adverse effects of pricing pressure on ourgross margins or will not have a material adverse effect on our results of operations or financial condition.

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Failure to enhance or expand our product offerings or the inability to manage our product transitionsmay adversely affect our net sales.

We may not be able to develop the right kind of products that reflect rapid technological advances orrapidly changing customer preferences. To maintain our competitive position, we must continue to enhanceour existing products while developing new products. To do so, we must develop and incorporate into ourproduct line new hardware, software, communications and peripheral technologies. We must develop orobtain the necessary intellectual property and invest in significant resources. Our product strategy focuses inpart on marketing products that comply with evolving industry performance standards, meet customer qualityexpectations while being priced affordably to appeal to a broad customer base. Because of the pace oftechnological advances in the PC industry, we must introduce on a timely basis new products that offercustomers the latest competitive technologies, but at the same time, we must prudently manage the marketingcycles of our existing product portfolio. There can be no assurance that we will be able to deliver commercialquantities of new products in a timely manner or that new products introduced by us will achieve marketacceptance.

The risks associated with transitioning to new products include but are not limited to: costs associatedwith introducing new products or upgrading existing products, potential defects in new products, thereduction in the price of existing products, existing products becoming obsolete; the failure to align oursupply chain and inventory with customer demands; and our competitors introducing the right type andvolume of products before we do. Any of these risks could adversely and materially affect our financialcondition and results of operations.

Our net sales mix by product, customer, and geographic sales mix and seasonal sales trends mayadversely affect our business.

Our net sales, gross margin and profit vary among our products, customer groups and geographicmarkets and therefore may be different in future periods than our current results. In addition, our businessis subject to certain seasonal sales trends. For example, sales are typically stronger in the third and fourthfiscal quarters, but often weaker in the first and second fiscal quarters. As a result of these factors, our overallprofitability for any particular period may be adversely affected by the mix of products, customers, andgeographic markets for that period, as well as by seasonal trends.

Uncertain or weak economic conditions or financial instability could have a material and adverseimpact on our net sales, growth and profitability.

Our net sales, growth and profitability may be materially and adversely affected by uncertain or weakeconomic conditions or financial instability, the insolvency of our key suppliers, the inability of ourcustomers to obtain financing or credit, and reduced corporate capital expenditure budgets, all of which maylead to weak or fluctuating demand for PCs and other products in the markets in which we compete andoperate. Unfavorable economic conditions may also cause us to incur restructuring costs and cause ourincome and expenses to vary materially from expectations depending on changes in interest rates, borrowingcosts, currency exchange rates, hedging expenses and the fair value of derivative instruments.

If we are unable to control or manage our costs and expenses, our profitability may suffer and we maybecome less competitive.

While we are focused on managing our costs, we may not be successful in managing or controllingcosts such as our operating expenses, total procurement costs and product design costs. As a result, we maynot achieve our expected cost savings in the time anticipated, or at all. Consequently, we may become lesscompetitive and our results of operations and profitability may be materially and adversely affected.

Our reliance on third party suppliers for products and components could harm our business byadversely affecting product quality, specification, delivery, reliability and cost.

Our business relies heavily upon outsourced manufacturers such as OEMs and ODMs to manufactureour products and is therefore dependent upon the continuing operations of those outsourced manufacturersto fulfill demand for our products, including PCs. While we will attempt to ensure the quality and reliability

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of our outsourcing suppliers, there can be no assurance that (i) potential or existing outsourcing suppliers willqualify or continue to qualify for our certification of suppliers and outsourced products, (ii) our outsourcingsuppliers will be able to modify and manufacture products to meet our specifications or (iii) our outsourcedproducts will be free of defects. Defective parts and products from outsourcing suppliers could reduce ourproduct reliability and harm our reputation and brands.

There can be no assurance that the delivery of outsourced products will not incur delays or that ouroutsourcing suppliers will have sufficient logistic capabilities to make deliveries directly from theirmanufacturing facilities to our customers. If our outsourcing suppliers are unable to quickly adjust theiroperation or financial condition in response to changes to the nature or volume of orders, there may beshortages or delays in their delivery of our outsourced products. If shortages or delays persist, the price ofthese components may increase and we may be exposed to quality issues or the components may not beavailable at all. We may not be able to secure enough components at reasonable prices or of acceptablequality to produce products or provide services in a timely manner in the quantities or according to thespecifications needed. Accordingly, our net sales and gross margin could suffer as we could losetime-sensitive sales, incur additional freight costs or be unable to pass on price increases to our customers.If we cannot adequately address supply issues, we might have to reengineer some products or serviceofferings, resulting in further costs and delays and potentially loss in market share.

Failure to procure components and products in a timely and reliable manner from single-source orlimited-source suppliers could have an adverse and material impact on our business operations.

Our production process requires certain software and quality components that are licensed and procuredfrom single-source or limited-source suppliers. Reliance on single-source or limited-source suppliersgenerally involves several risks, including the possibility of defective parts, component shortages, increasesin component costs and reduced control over delivery schedules, any or all of which could adversely affectour financial results. The lack of timely availability and reliable supply of components from these supplierscould adversely affect our business. Where alternative sources are available, qualification of the alternativesuppliers and establishment of reliable supply schedules from such sources may result in delays and couldadversely affect our results of operations.

We occasionally experience delays in receiving certain components, which can cause delays in theshipment of some products to our customers. In addition, we occasionally experience quality problems withcertain defective components, which can affect the reliability and reputation of our products and brands.There can be no assurance that we will be able to continue to obtain additional supplies of reliablecomponents in a timely or cost-effective manner.

Our international sales and operations depend on factors that are beyond our control, each of whichcould have a material or adverse impact on our financial condition and results of operation.

We have significant operations overseas and sales outside the ROC represented approximately 95.3%of our consolidated net sales for the year ended December 31, 2009. Thus, our future growth and success arehighly dependent on the continued growth of our business outside of the ROC, including EMEA, theAmericas and Asia Pacific. The success and profitability of our international activities depend on factorsincluding but not limited to business and trade requirements, procedures and regulations that will affect themarketing, development, pricing, transportation and procurement of our products; changes in consumers’preferences, requirements or financial capacity; adverse or material developments in financial, legal, trade,tax, regulatory, labor, economic, political, military or social conditions of a country or region; unpredictableaccounts receivable days; ability to manage a geographically dispersed workforce; and ability to repatriatecash generated abroad.

We are exposed to the risks of currency exchange rate fluctuations.

Approximately 59.4% of our consolidated net sales was denominated in Euros and US dollars for theyear ended December 31, 2009, while the majority of our costs are denominated in US dollars. Given thatour financial statements are expressed in NT dollars, changes in the rate of exchange between thesecurrencies and the NT dollar will affect our gross profits and operating margins and could result in exchange

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losses. Depreciation of the NT dollar against the Euro and US dollar generally results in foreign exchangegains for us because a large portion of our net sales is denominated in Euros and US dollars. The impact offuture exchange rate fluctuations on our results of operations cannot be accurately predicted. From time totime, we have engaged in, and may continue to engage in, certain exchange rate hedging activities. Theeffectiveness of our hedges depends on our ability to accurately forecast future cash flows, which isparticularly difficult during periods of uncertain demand for our products and services and high exchange ratevolatility. As a result, we could incur significant losses from our hedging activities if our forecasts areincorrect. In addition, our hedging activities may be ineffective or may not offset any adverse financialimpact resulting from currency variations. Gains or losses associated with hedging activities may also impactour net sales and to a lesser extent our cost of sales and financial condition.

If we fail to manage the distribution of our products properly, our net sales, gross margin andprofitability could suffer.

We rely on our CBM, an indirect sales method, to distribute our products to our customers. Successfullymanaging our CBM partners to reach various potential end market customer segments for our products andservices is a challenging process. Since each distribution method, whether indirect sales like the CBM ordirect sales, has distinct risks and financial impact, our failure to implement the most advantageous balancein the delivery model for our products and services could adversely affect our net sales and gross marginsand therefore our profitability.

We may undertake mergers, acquisitions or investments to expand our business that may pose risks toour business.

We have sought and may continue to seek non-organic growth through mergers and acquisitions whenopportunities arise. Mergers, acquisitions or investments that we have entered in, and may enter into in thefuture entail a number of risks that could materially and adversely affect our business, operating and financialresults, including, among others: problems integrating the acquired operations, technologies or products intoour existing business and products; diversion of management’s time and attention from our core business;conflicts with management at acquired companies or joint venture partners; adverse effects on our existingbusiness relationships with customers; need for financial resources above our planned investment levels;failures in realizing anticipated synergies; difficulties in retaining business relationships with suppliers andcustomers of the acquired company; risks associated with entering markets in which we lack experience;potential loss of key employees of the acquired company; and potential write-offs of acquired assets. Ourfailure to address these risks successfully may have a material adverse effect on our financial condition andresults of operations.

Volatility in the debt and equity capital markets could affect our ability to access capital.

While we use cash flows generated from operations to support our business and future expansion, wemay need external funding from time to time. Our ability to obtain sufficient external funding in a timelymanner depends on many factors, including conditions in the securities and credit markets and economicconditions generally, our future operational and financial performance, tightening lending standards, changesin financial services regulations. Our failure to access the capital markets could unfavorably affect our netsales, profitability, and cash flows.

Our stock price has historically fluctuated and may continue to fluctuate, which may make future pricesof our stock difficult to predict.

Our stock price, like that of other technology companies, can be volatile. Some of the factors that couldaffect our stock price include but are not limited to:

• speculation in the press or investment community about, or actual changes in, our business,strategic position, market share, organizational structure, operations, financial condition,financial reporting and results, effectiveness of cost cutting efforts, value or liquidity of ourinvestments, exposure to market volatility, prospects, business combination or investmenttransactions, or executive team;

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• the announcement of new products, services, technological innovations or acquisitions by us orour competitors;

• quarterly increases or decreases in net sales, gross margin, earnings or cash flow from operations,changes in estimates by the investment community or guidance provided by us, and variationsbetween actual and estimated financial results;

• announcements of actual and anticipated financial results by our competitors and other companiesin the Information Technology and Communication industry; and

• the timing and amount of share repurchases by us.

General or industry specific market conditions or stock market performance or domestic orinternational macroeconomic and geopolitical factors unrelated to our performance also may affect the priceof our common stock. For these reasons, investors should not rely on recent trends to predict future stockprices, financial condition, results of operations or cash flows. In addition, following periods of volatility ina company’s securities, securities class action litigation against a company is sometimes instituted. Ifinstituted against us, this type of litigation could result in substantial costs and the diversion of managementtime and resources.

We are dependent on our ability to attract and retain qualified personnel.

As is common in the technology industry, our success depends to a significant extent upon, among otherfactors, the continued service of our key senior executives and research and development, engineering,marketing, sales, production, support and other personnel and on our ability to continue to attract, retain andmotivate qualified personnel. The competition for such employees is intense and the loss of the services ofany of these key personnel without adequate replacement or the inability to attract new qualified personnelcould have a material adverse effect on our results of operations or financial condition. We are attemptingto minimize the risk and magnitude of problems associated with shortages of qualified managementpersonnel by training and developing a number of qualified general managers. In addition, equity-basedemployee incentive plans were established in 2008 and 2009 for our employees. However, there can be noassurance that such measure will prevent the loss of our key personnel in the future. See “Business —Employees”.

Our net sales, cost of sales, and expenses may suffer if we cannot continue to license or enforce theintellectual property rights on which our businesses depend or if third parties assert that we violate theirintellectual property rights.

From time to time, companies and individuals assert patent, copyright, trademark and other intellectualproperty rights to technologies that are important to the industry in which we operate our business. Weevaluate each claim relating to our products and, if appropriate, seek a license to use the protectedtechnology. There can be no assurance, however, that we will be able to obtain or renew our existing licensesto the intellectual property of third parties on commercially reasonable terms, or at all. In addition, we couldbe at a disadvantage if our competitors obtain licenses for protected technologies on more favorable termsthan us. If we or our suppliers are unable to license protected technology used in our products, we could beprohibited from marketing those products or may have to market products without desirable features. Wecould also incur substantial costs to redesign our products or to defend any legal action taken against us. Ifour products should be found to infringe protected technology, we could be enjoined from furtherinfringement and may be required to pay damages to the owner of the infringed intellectual property rights.Any of the foregoing could have a material adverse effect on our results of operations or financial condition.

An adverse outcome in legal proceedings could have a material and adverse impact on our results ofoperations and financial condition.

We are parties to various claims, suits, investigations, and legal proceedings that arise from time to timein the ordinary course of our business and that are not yet resolved. Additional legal claims or regulatorymatters may arise in the future. The unpredictable and time-consuming nature of litigation is disruptive toour business and an adverse outcome in legal proceedings could affect our business and cash flows. In

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addition, our business, operating results and financial condition could be adversely affected if anyinfringement or other intellectual property claim made against us by any third party is successful, or if wefail to develop non-infringing technology or license the proprietary rights on commercially reasonable termsand conditions.

Certain existing shareholders have significant influence over us.

Mr. Stan Shih, our founder and former Chairman, and his immediate family will continue to have thepower to exercise significant influence over our management and policies. Mr. Stan Shih and his family ownor control approximately 3.44% of our outstanding Common Shares as of April 20, 2010. Under the ROCSecurities Exchange law, if a person along with his family or nominees holds more than 10% of a company’sshares, then such a person will be deemed as a major shareholder (see “Principal Shareholders”). To our bestknowledge, there are no persons who, directly or indirectly, jointly or severally, exercise or could exercisecontrol over us.

Business disruptions could seriously harm our future net sales and financial condition and increase ourcosts and expenses.

Our operations could be subject to earthquakes, power shortages, telecommunications failures, breachesof data security, infrastructure disruptions, water shortages, tsunamis, floods, hurricanes, typhoons, fires,extreme weather conditions, military actions, economic volatility, business uncertainties, labor disruptions,environmental changes, political disruptions, public health concerns (including epidemics such as SevereAcute Respiratory Syndrome, the H1N1 influenza or avian influenza) or pandemics and other natural ormanmade disasters or business interruptions. The occurrence of any of these business disruptions couldseriously harm our net sales and financial condition and increase our costs and expenses. The ultimate impacton us and our significant suppliers, particularly given the geographic concentration of certain operations andour general infrastructure of being concentrated in certain geographical areas is unknown.

Our business may be adversely affected by changes in environmental and safety laws.

Our businesses are regulated by environmental and safety rules and regulations. Our product design andprocurement operations must comply with new and future requirements relating to the materials composition,energy efficiency and collection, recycling, treatment, transportation and disposal of our electronics products,including restrictions on mercury, lead, cadmium, lithium metal, lithium ion and other substances. If we failto comply with applicable rules and regulations regarding the transportation, use and sale of such regulatedsubstances, we could be subject to liability. The costs and timing of costs under environmental and safetylaws are difficult to predict, but could have an unfavorable impact on our business.

RISKS RELATING TO THE ROC

The value of our Common Shares may be adversely affected by the volatility of the ROC securitiesmarket.

The ROC securities markets are smaller and more volatile than the securities markets in the U.S.,Europe and certain other countries. The TSE has had substantial fluctuations in the prices and volumes oflisted securities and there are currently limits on the range of daily price movement on the Taiwan StockExchange. The TSE Index peaked at 8,356.89 points in January 15, 2010 and subsequently fell to a low of7,071.67 points in June 9, 2010. The TSE is particularly volatile during times of political instability includingwhen relations on certain occasions between Taiwan and the PRC are strained. Moreover, the TSE hasexperienced problems such as market manipulation, insider trading and payment defaults. The recurrence ofthese or similar problems could adversely affect the market price and liquidity of securities of ROCcompanies, including our Common Shares, in both domestic and international markets.

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Shareholders may have more difficulty protecting their interests under ROC law than they would underU.S. law.

Our corporate affairs are governed by our Articles of Incorporation and by the laws governingcorporations incorporated in the ROC. The rights of shareholders and the responsibilities of management andthe members of the board of directors of ROC companies are different from those applicable to a corporationincorporated in the U.S. Holders of our securities may have more difficulty in protecting their interests inconnection with actions taken by our management or the members of our board of directors than they wouldas public shareholders of a U.S. corporation.

The imposition of foreign exchange restrictions may have an adverse effect on foreign investors’abilities to acquire ROC securities, including the Bonds and the Common Shares, or to repatriate theinterest, dividends or sale proceeds from those 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 ROCgovernment experiences extreme difficulty in stabilizing the balance of payments or where there aresubstantial disturbances in the financial and capital markets in Taiwan. These restrictions may require foreigninvestors to obtain the ROC government’s approval before acquiring ROC securities, repatriating the interestor dividends from those securities or repatriating the proceeds from the sale of those securities. No assurancecan be given that these restrictions, if imposed, will not adversely affect, among other things, the secondarymarket price of the Bonds.

Foreign exchange approvals may be required.

Under existing ROC law, foreign exchange transactions must be reported to the CBC on apayment-by-payment basis, including but not limited to the conversion into foreign currencies of either: (i)the net proceeds realized from sale of the Common Shares issued on conversion of the Bonds or (ii) any cashdividends or other cash distributions in respect of such Common Shares or (iii) any inward remittances ofsubscription payments in connection with a rights issue. There can be no assurance that ROC law willcontinue to permit such transactions without regulatory approval. See “Appendix A — Foreign Investmentand Exchange Controls in the ROC”.

Holders of our securities may have difficulty enforcing any judgment obtained in the U.S. against usor our directors, supervisors or executive officers.

We are incorporated under ROC law. Many of our directors, supervisors and executive officers residein Taiwan. In addition, a significant portion of our assets and the assets of those persons are located inTaiwan. As a result, it may not be possible for holders of our securities to effect service of process upon usor those persons within the U.S., or it may be difficult to enforce against us or them judgments obtained inthe U.S. courts, including those based upon the civil liability provisions of the federal securities laws of theU.S. In addition, we have been advised that there is doubt as to whether ROC courts will enter judgmentsin original actions brought in ROC courts based solely upon the civil liability provisions of the federalsecurities laws of the U.S.

The political state of relations between the ROC and the PRC may affect us.

The ROC has a unique international political status. Both the ROC and the PRC assert sovereignty overall of China (i.e., Taiwan, certain other islands and all of mainland China). The PRC Government does notrecognize the legitimacy of the ROC Government. Although significant economic and cultural relations havebeen established during recent years between the ROC and the PRC, the PRC has refused to renounce thepossibility that it may at some point use force to gain control over Taiwan. Certain past developments inrelations between the ROC and the PRC have on occasion adversely affected the value of the Taiwan StockExchange Weighted Stock Index (the “TSE Index”). Specifically, the PRC has in the past threatened militaryintervention in response to positions espoused by political groups in the ROC that the ROC be formally

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declared independent of the PRC. The state of the relations between the ROC and the PRC in general, maymaterially and adversely affect our results of operations, the market price and liquidity of our CommonShares, the availability of the PRC as an export market for our products, and our ability to implement presentand future plans for our expansion in the PRC.

We are subject to ROC GAAP, which differs from US GAAP.

We are subject to financial reporting requirements in the ROC that differ in significant respects fromthose applicable to companies in certain other countries, including European countries. In addition, ourfinancial statements are prepared in accordance with ROC GAAP, which differ in certain material respectsfrom US GAAP.

We have not quantified or identified the impact of the differences between ROC GAAP and US GAAP.See “Summary of Certain Significant Differences between ROC GAAP and US GAAP”. Potential investorsshould consult their own professional advisors for an understanding of the differences between ROC GAAPand US GAAP and how they might affect the financial information contained herein.

RISKS RELATING TO THE PRC

We are subject to the political and economic situation and legal developments in the PRC.

We have increased, and will continue to increase over time, the scope of our business activities in thePRC. There are economic and political risks associated with doing business in the PRC. The PRC economyhas experienced significant growth in the past decade, but such growth has been uneven across geographicand economic sectors and has recently been slowing. There can be no assurance that such growth will notcontinue to decrease or that any slowdown will not have a negative effect on our business.

The PRC economy differs from the economies of most developed countries in many respects, includingthe structure, level of government involvement, level of development, foreign exchange control andallocation of resources. The PRC economy has been transitioning from a planned economy to a moremarket-oriented economy and is growing rapidly. For the past two decades, the PRC government hasimplemented economic reform measures emphasizing utilization of market forces in the development of thePRC economy and also adjusted its macroeconomic control policies from time to time. These policies haveled and may continue to lead to changes in market conditions. For example, as a result of the global financialcrisis, the PRC government announced a RMB4 trillion economic stimulus package in 2009 which includedsome measures favorable to our business, such as subsidies for purchases of televisions in rural areas inChina. Although we believe these reforms will have a positive effect on our overall operations in the PRC,we cannot predict whether changes in the PRC’s political, economic and social conditions, laws, regulationsand policies will have any adverse effect on our current or future operations in the PRC.

The PRC has only recently permitted greater provincial and local economic autonomy and privateeconomic activities, and the Government of the PRC continues to exercise substantial control over virtuallyevery sector of the PRC economy through regulation and state ownership. There can be no assurance that ourbusiness in the PRC will not be adversely affected by changes in political, economic and social conditionsin the PRC, including changes in political leadership.

In addition, there are currency exchange risks associated with doing business in the PRC. AlthoughPRC governmental policies were introduced in 1996 to allow greater convertibility of the RMB, the currencyof the PRC, significant restrictions, including those relating to the repatriation of foreign currencydenominated investments, still remain. No assurances can be made that the PRC regulatory authorities willnot impose greater restrictions on the convertibility of the RMB.

We are subject to risks associated with the PRC legal system.

Since 1979, many laws and regulations dealing with general economic matters or particular economicactivities have been promulgated in the PRC. However, enforcement of existing laws and regulations may beuncertain and sporadic, and implementation and interpretation thereof may be inconsistent. The outcome oflitigation in PRC courts may be uncertain. Further, it may be difficult to obtain swift and equitableenforcement or to obtain enforcement of a judgment by a court of another jurisdiction. The introduction of

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new PRC laws and regulations and the interpretation of existing ones may be subject to policy changesreflecting domestic political or social changes. As the PRC legal system develops, there can be no assurancethat changes in such regulation or interpretation will not have a material adverse effect on our business,financial condition, results of operations and future prospects.

RISKS RELATING TO THE BONDS AND THE COMMON SHARES

An active trading market for the Bonds may not develop.

The Bonds constitute a new issue of securities for which there is no existing market. Approvalin-principle has been received for the listing of the Bonds on the SGX-ST. There can be no assurance thatsuch listing (which is not a condition of issuance) will provide liquidity for the Bonds. Although the InitialPurchasers have advised us that they currently intend to make a market in the Bonds, they are not obligatedto do so and any market-making activity with respect to the Bonds, if commenced, may be discontinued atany time.

There can be no assurance that a trading market for the Bonds will develop in the future. If such amarket were to develop, the Bonds could trade at prices that may be higher or lower than the price youoriginally paid for them depending on many factors, including but not limited to:

• prevailing interest rates;

• our financial position;

• the price of the Common Shares;

• the financial condition and stability of Taiwan and other Asian financial sectors;

• political, legal and economic developments in the United States, Taiwan and elsewhere in theworld; and

• the market conditions for similar securities.

There are limitations on the ability of Holders to exercise Conversion Rights.

The Bonds are convertible into Common Shares at the option of the Holders pursuant to the terms ofthe Bonds. Purchasers of the Bonds will not be able to exercise their Conversion Right during (i) the 60-dayperiod prior to the date of any of our annual general shareholders’ meeting; (ii) the 30-day period prior tothe date of any of our special shareholders’ meeting; (iii) the period beginning on the 15th Trading Day priorto the five-day period before a record date for distribution of rights, dividends or other benefits to the dateof such record date; (iv) in the event of a capital decrease, the period beginning on the record date for thecapital decrease up to one day prior to the trading day of the shares reissued after the capital decrease; and(v) such other periods during which we may be required to close our shareholders’ register or to suspendconversion under ROC laws and regulations applicable from time to time.

Under current ROC laws, regulations and policies, with respect to PRC Bondholders, except forQualified Domestic Institutional Investors (the “QDIIs”), PRC persons are not permitted to convert the Bondsor to register as our shareholders.

Holders of the Bonds will bear the risk of fluctuations in the price of the Common Shares.

The market price of the Bonds at any time will be affected by fluctuations in the price of the CommonShares. It is impossible to predict how the price of the Common Shares will change. Trading prices of theCommon Shares will be influenced by, among other things, our results of operations and political, economic,financial and other factors that affect capital markets generally. Any decline in the price of the CommonShares would adversely affect the market price of the Bonds.

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Fluctuations in the exchange rate between the NT dollar and the U.S. dollar may have a materialadverse effect on the value of the Bonds in U.S. dollar terms.

Although the principal amount of the Bonds is denominated in U.S. dollars, the Common Shares arelisted on the TSE, which quotes and trades the Common Shares in NT dollars. As a result, fluctuations in theexchange rate between the NT dollar and the U.S. dollar will affect, among other things, the market price ofthe Bonds and the U.S. dollar equivalent of the Common Shares received upon conversion of the Bonds.

Holders of the Bonds will have no rights as shareholders until they acquire the Common Shares uponconversion of the Bonds.

Unless and until the holders of the Bonds acquire the Common Shares upon conversion of the Bonds,the holders of the Bonds will have no rights as shareholders, including any voting rights or rights to receiveany dividends or other distributions with respect to the Common Shares. Subject to the indenture and otherapplicable ROC laws, holders of the Bonds who acquire the Common Shares upon the exercise of theirConversion Rights will be entitled to exercise the rights of shareholders only as to actions for which theapplicable record date occurs after the Conversion Date.

An account number of Taiwan Depository & Clearing Corporation (“TDCC”) must be specified in anyconversion notice.

Delivery of our Common Shares into which the Bonds may be converted will only be made through thebook entry system maintained by the TDCC. No physical share certificates will be delivered to the convertingHolder (or its designee) upon conversion. Thus, a book entry account number of TDCC maintained by theconverting Holder or its designee must be specified in the conversion notice. The Paying Agent (as definedherein) will deem any conversion notice that does not include an account number of TDCC incomplete andwill reject such conversion notice in accordance with the terms of the Indenture and will have no liability toany Holder or any other person for so doing. If the non-ROC converting Holder (or its designee) does nothave a TDCC book entry account, the conversion notice executed by such converting Holder will not becomevalid unless and until such Holder (or its designee) registers with the TSE as an offshore foreign institutionalor individual investor, obtains a foreign investor investment I.D. (“Foreign Investor Investment I.D.”) andopens a TDCC account. We will deliver our Common Shares through the book entry system maintained bythe TDCC within five trading days after such account being opened.

Non-ROC Bondholders who exercise their conversion rights with respect to the Bonds will be requiredto register with the TSE and appoint a local agent, a tax guarantor and a custodian in the ROC as wellas when applicable obtain the relevant regulatory approval.

Under current ROC law, if a non-ROC person (other than a PRC person) wishes to convert the Bondsand hold the Common Shares, such non-ROC person will be required to register with the TSE to obtain theForeign Investor Investment I.D. for making investments in the ROC securities market prior to withdrawingshares or converting the Bonds into Common Shares. In addition, a non-ROC person (other than a PRCperson) will be required to appoint an eligible agent in the ROC to open a securities trading account with alocal brokerage firm and a TDCC book entry account and a bank account, to pay ROC taxes, remit funds,exercise shareholders’ rights and perform such other functions as such person may designate upon withdrawalor conversion. In addition, a non-ROC person (other than a PRC person) will be required to appoint acustodian bank in the ROC to hold the securities in safekeeping, make confirmation, settle trades and reportall relevant information. Without obtaining the Foreign Investor Investment I.D. and opening such accounts,a non-ROC person would be unable to hold or subsequently sell the Common Shares converted from theBonds on the TSE or otherwise. In addition, these regulations may change from time to time. There can beno assurance that a non-ROC person (other than a PRC person) will be able to register with the TSE and openthe requisite accounts in a timely manner.

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When a non-ROC Bondholder exercises its conversion right with respect to the Bonds in order toreceive Common Shares, that holder will be required to appoint an agent (a “Tax Guarantor”) in the ROC.Such Tax Guarantor will be required to meet the qualifications set by the ROC Ministry of Finance and willact as the guarantor of such holder’s tax payment obligations. Generally, evidence of the appointment of aTax Guarantor and the approval of such appointment may be required as a condition to such holder’srepatriation of profits. There can be no assurance that non-ROC holders of Bonds will be able to appoint andobtain approval for a Tax Guarantor in a timely manner.

Pursuant to the Regulations Governing Securities Investment and Futures Trading in Taiwan byMainland Area Investors, or the Mainland Investors Regulations, only the Mainland area qualified domesticinstitutional investors (“QDIIs”) approved by the China Securities Regulatory Commission and registeredwith the TSE or Taiwan Futures Exchange, are permitted to convert the Bonds and hold our Common Shares,and similar to other non-ROC person, in order to hold our Common Shares, such QDIIs are required toappoint the agent, custodian and tax guarantor as required by the Mainland Investors Regulations. If theaggregate amount of our Common Shares to be held by any QDII or our Common Shares to be received byany QDII upon single conversion will result in 10% or more of our total issued and outstanding shares, suchQDII must obtain the prior approval from the Investment Commission of the ROC Ministry of EconomicAffairs.

Further issues of our Common Shares, including pursuant to employee stock bonuses or options, coulddilute your holdings and associated rights with respect to the Common Shares.

Companies in the ROC generally pay bonuses (in the form of cash or stock) to their employees. OurArticles of Incorporation provide that, after deducting accumulated deficit, payment of taxes and duties andsetting aside legal reserves and special reserves, no less than 5% of the remaining balance of our annual netincome (if any) can be distributed as employee bonuses. We paid employees’ bonuses in stock of NT$330.0million from 2007 earnings, NT$162.3 million from 2008 earnings and NT$26.5 million (US$0.8 million)from 2009 earnings. As of the 2008 earnings distribution, the number of Common Shares issuable was beingcalculated by reference to the market price of our Common Shares the day prior to our shareholders’ meeting.Such distributions in the form of new Common Shares or further issuances of new Common Shares will dilutethe holdings and associated rights of holders of the Bonds who convert the Bonds to Common Shares. Fromtime to time, we may also grant stock options to our employees. Pursuant to employee stock option plans,we granted stock options exercisable for 23.8 million and 14.0 million Common Shares in 2008 and 2009,respectively. Under our 2010 employee stock option plan, which was approved at the Annual Shareholders’Meeting held on June 18, 2010, the total number of options to be issued under this plan is 14,000 options,where each option gives employee the right to purchase 1,000 Common Shares. The issuance of newCommon Shares upon exercise of such employee stock options will effectively dilute the holdings andassociated rights of holders of the Bonds who convert the Bonds to Common Shares.

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USE OF PROCEEDS

We estimate that the net proceeds from the sale of the Bonds will be approximately US$497,500,000after deducting estimated Initial Purchasers’ discounts and offering expenses.

We intend to use the net proceeds to procure raw materials overseas to support our business growth.

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CAPITALIZATION

The following table sets forth our total consolidated long-term debt and stockholders’ equity as ofMarch 31, 2010 on an actual basis and on an as adjusted basis under ROC GAAP to give effect to the netproceeds received by us from the sale of the Bonds, after deducting underwriting discounts and commissionsand estimated offering expenses. The following table should be read in conjunction with our unauditedconsolidated financial statements as of and for the three months ended March 31, 2010 included elsewherein this Offering Circular. The amounts in US dollars do not form part of any of our financial statements andare provided solely for the convenience of the reader.

As of March 31, 2010

Unaudited

Pro forma as adjusted for the

issuance of Convertible Bonds

in this offering*

NT$ US$ NT$ US$

(in millions)

ROC GAAPLong-term debt:

Bonds payable ................................................... — — 15,228.8 478.6Long-term debt excluding current portion .......... 12,361.5 388.5 12,361.5 388.5

Total long-term debt ............................................... 12,361.5 388.5 27,590.3 867.1

Stockholders’ equity:Common stock: NT$10 par value; Authorized:

3,500.0 million shares; issued andoutstanding: 2,688.2 million shares................. 26,882.3 844.9 26,882.3 844.9

Capital surplus .................................................... 38,616.5 1,213.5 39,297.6 1,234.9Retained earnings................................................ 31,869.5 1,001.6 31,869.5 1,001.6Foreign currency translation adjustment ............. (305.1) (9.6) (305.1) (9.6)Minimum pension liability adjustment ............... (4.4) (0.1) (4.4) (0.1)Unrealized gain (loss) on financial instruments . 861.0 27.1 861.0 27.1Treasury stock..................................................... (3,522.6) (110.7) (3,522.6) (110.7)

Total stockholders’ equity ............................... 94,397.2 2,966.7 95,078.3 2,988.1

Total capitalization .......................................... 106,758.7 3,355.2 122,668.6 3,855.2

* The related pro forma adjustments for the offering of the Bonds were based on the measurement made by the Company as of June10, 2010 of the equity and liability components of the Bonds payable.

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SELECTED FINANCIAL INFORMATION

The following tables set out selected financial information derived from our (i) audited consolidatedfinancial statements as of and for the years ended December 31, 2007, 2008 and 2009, and (ii) unauditedconsolidated financial statements as of and for the three months ended March 31, 2009 and 2010, eachincluded in this Offering Circular. Our financial statements are prepared in conformity with ROC GAAP,which differs in certain material aspects from US GAAP. See “Summary of Principal Differences BetweenROC GAAP and US GAAP.” The amounts expressed in US dollars do not form part of any of our consolidatedfinancial statements and are provided solely for the convenience of the reader.

The table below sets forth certain financial data under ROC GAAP for the periods and as of the datesindicated.

Year Ended and As of December 31, Three Months Ended March 31,

2007 2008 2009 2009 2010




Consolidated Statement of Income:Net sales ....................................................... 462,066.1 546,274.1 573,982.5 18,039.0 119,086.4 162,129.9 5,095.4Cost of sales ................................................. (414,647.8) (488,988.4) (515,654.6) (16,205.9) (107,168.0) (146,416.1) (4,601.6)

Gross profit .................................................. 47,418.3 57,285.7 58,327.9 1,833.1 11,918.4 15,713.8 493.8Operating expenses....................................... (37,233.2) (43,213.4) (42,988.4) (1,351.0) (9,347.8) (11,328.4) (356.0)

Operating income ........................................ 10,185.1 14,072.3 15,339.5 482.1 2,570.6 4,385.4 137.8Non-operating income and gains.................. 6,699.7 5,353.0 1,719.0 54.0 467.7 360.5 11.3Non-operating expenses and losses .............. (1,776.2) (4,618.6) (2,075.5) (65.2) (282.9) (587.2) (18.4)

Income from continuing operations beforeincome tax ............................................... 15,108.6 14,806.7 14,983.0 470.9 2,755.4 4,158.7 130.7

Income tax expense ...................................... (2,665.6) (3,169.4) (3,630.1) (114.1) (729.7) (864.2) (27.2)Income from discontinued operations .......... 517.9 99.8 — — — — —

Net income ................................................... 12,960.9 11,737.1 11,352.9 356.8 2,025.7 3,294.5 103.5

Earnings (loss) per share—Basic(1) .............. 5.27 4.67 4.31 0.14 0.77 1.25 0.04Earnings (loss) per share—Diluted .............. 5.27 4.60 4.26 0.13 0.76 1.23 0.04

Consolidated Balance Sheet Data:Current assets ............................................... 191,626.2 186,390.6 232,107.9 7,294.6 199,892.4 222,417.2 6,990.1Long-term investment .................................. 11,202.7 6,773.5 8,872.8 278.8 7,445.6 8,698.7 273.4Net property, plant and equipment ............... 8,636.4 9,336.2 8,676.2 272.7 9,262.1 8,567.4 269.3Intangible assets ........................................... 25,926.5 34,746.8 35,444.1 1,113.9 37,656.4 34,823.6 1,094.4Property not used in operation ..................... 3,806.1 2,996.7 2,971.5 93.4 2,990.5 2,938.3 92.3Other financial assets ................................... 961.4 868.8 789.7 24.8 796.0 904.4 28.4Deferred charges and other assets ................ 1,124.0 2,329.6 2,162.5 68.0 2,586.9 2,418.6 76.0

Total assets ................................................... 243,283.3 243,442.2 291,024.7 9,146.2 260,629.9 280,768.2 8,823.9

Current liabilities.......................................... 142,842.5 149,315.1 179,846.5 5,652.2 162,839.5 167,693.2 5,270.3Long-term liabilities ..................................... 23,031.8 11,249.5 18,300.5 575.1 11,548.3 18,208.0 572.2

Total liabilities ............................................. 165,874.3 160,564.6 198,147.0 6,227.3 174,387.8 185,901.2 5,842.5

Total shareholders’ equity and minorityinterest ..................................................... 77,409.0 82,877.6 92,877.7 2,918.9 86,242.1 94,867.0 2,981.4

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Year Ended and As of December 31, Three Months Ended March 31,

2007 2008 2009 2009 2010




Consolidated Statement of Cash Flows:Cash flow from operating activities ............. (6,560.8) (5,166.4) 38,192.1 1,200.3 31,465.4 (16,854.2) (529.7)Cash flow from investment activities........... 2,741.2 8,747.1 (1,788.3) (56.2) (287.0) 80.8 2.5Cash flow from financing activities ............. (3,899.4) (17,955.1) (5,725.1) (179.9) 975.4 1,307.7 41.1

Net increase (decrease) in cash and cashequivalents .............................................. (7,7190.0) (14,374.4) 30,678.7 964.2 32,153.8 (15,465.7) (486.1)

Effects of exchange rate changes ................. 979.1 (1,429.2) 795.7 24.9 (381.9) (1,511.8) (47.4)Cash and cash equivalents at beginning of

year/period ............................................... 44,685.2 37,945.3 22,141.7 695.9 22,141.7 53,616.1 1,685.0

Cash and cash equivalents at end ofyear/period ............................................... 37,945.3 22,141.7 53,616.1 1,685.0 53,913.6 36,638.6 1,151.5

(1) Basic EPS is computed by dividing net income by the weighted-average number of common shares outstanding during the year.The weighted average outstanding shares are retroactively adjusted for the effects of stock dividends transferred from retainedearnings and capital surplus to common stock, and employee stock bonuses issued prior to January 1, 2009. Effective January1, 2009, EPS are not retroactively adjusted for employee stock bonuses.

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

You should read the following discussion of our financial condition and results of operations togetherwith the audited consolidated financial statements and the notes to such statements as of and for the yearsended December 31, 2007, 2008 and 2009, and the unaudited consolidated financial statements and the notesto such statements as of and for the three months ended March 31, 2009 and 2010 included in this OfferingCircular. Our audited consolidated financial statements and unaudited consolidated financial statements areprepared in accordance with ROC GAAP, which differ in many material respects from US GAAP. For adiscussion of these differences, see “Summary of Certain Significant Differences between ROC GAAP and USGAAP.” The amounts expressed in US dollars do not form part of any of our audited consolidated financialstatements and unaudited consolidated financial statements and are provided solely for the convenience ofthe readers.

Overview

We are one of the largest PC vendors in the world with no. 2 global market share in total PC and mobilePC shipments in the first quarter of 2010*, according to Gartner. Our product offering encompasses a broadrange of product categories, including desktop and mobile PCs, LCD monitors, projectors, servers andsmartphones. We have a global customer base spread across EMEA, the Americas, Asia Pacific, China andTaiwan.

Over the past few years, we have demonstrated strong growth momentum in our PC shipments.According to 2009 PC shipment data by Gartner, we maintained steady annual growth of 29.0 %, securingour position as the world’s no. 2 total PC vendor. According to Gartner, for the first quarter of 2010 in EMEA,we were one of the top vendors in the total PC and the top vendor in mobile PC markets in shipments, with20.3% and 25.8% market share, respectively. In the US, we were among the top three vendors in the totalPC and mobile PC markets in shipments, with 13.6% and 16.8% market share, respectively. Likewise, in theAsia Pacific region, we were among the top four vendors in the total PC market and the top three vendorsin the mobile PC market in shipments, with 8.1% and 13.1% market share, respectively.*


Our CBM has been instrumental to our success by encouraging first-class suppliers and channelpartners to collaborate in a winning formula of supply chain management. Our CBM prevents duplicativeefforts by us and our suppliers, leverages our channels’ expertise and resources to effectively manage ourglobal logistics and minimizes our overall operating expenses.


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Our consolidated net sales was NT$462.1 billion, NT$546.3 billion and NT$574.0 billion (US$18.0billion) for the year ended December 31, 2007, 2008 and 2009, respectively. Our net sales for the threemonths ended March 31, 2010 was NT$162.1 billion (US$5.1 billion). Our consolidated net income wasNT$13.0 billion, NT$11.7 billion and NT$11.4 billion (US$356.8 million) in 2007, 2008 and 2009,respectively. Our consolidated net income for the three months ended March 31, 2010 was NT$3.3 billion(US$103.5 million). As of March 31, 2010, we had total stockholders’ equity of NT$94.4 billion (US$3.0billion), net of NT$3.5 billion (US$110.7 million) of treasury stock. As of March 31, 2010, we had a globalworkforce of approximately 6,612 employees.


Consolidated Results of Operations

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2010

Net Sales

Net sales increased by 36.1% from NT$119.1 billion for the three months ended March 31, 2009 toNT$162.1 billion (US$5.1 billion) for the three months ended March 31, 2010, primarily as a result of anincrease in shipments of notebook PCs reflecting a recovery in demand following the financial crisis. Thisdemand trend also influenced our netbook PC, desktop PC and display businesses and led to increases in netsales in each group.

Net sales for our notebook and netbook PC business increased by 38.5% from NT$78.6 billion for thethree months ended March 31, 2009 to NT$108.8 billion (US$3.4 billion) for the three months ended March31, 2010. Net sales for our desktop PC business increased by 48.5% from NT$19.5 billion for the threemonths ended March 31, 2009 to NT$29.0 billion (US$911.2 million) for the three months ended March 31,2010. Net sales for our display business increased by 4.3% from NT$13.6 billion for the three months endedMarch 31, 2009 to NT$14.2 billion (US$445.5 million) for the three months ended March 31, 2010.

Cost of Sales

Cost of sales increased by 36.6% from NT$107.2 billion for the three months ended March 31, 2009to NT$146.4 billion (US$4.6 billion) for the three months ended March 31, 2010. The increase in cost of saleswas due primarily to the aforementioned increase in shipments in each of our product lines, especiallynotebook PCs.

Cost of sales for our notebook and netbook PC business increased by 38.3% from NT$70.9 billion forthe three months ended March 31, 2009 to NT$98.0 billion (US$3.1 billion) for the three months endedMarch 31, 2010. Cost of sales for our desktop PC business increased by 47.4% from NT$18.2 billion for thethree months ended March 31, 2009 to NT$26.8 billion (US$843.1 million) for the three months ended March31, 2010. Cost of sales for our display business increased by 6.7% from NT$12.6 billion for the three monthsended March 31, 2009 to NT$13.4 billion (US$421.4 million) for the three months ended March 31, 2010.

Gross Profit

Gross profit increased by 31.8% from NT$11.9 billion for the three months ended March 31, 2009 toNT$15.7 billion (US$493.8 million) for the three months ended March 31, 2010. Gross margin was 10.0%for the three months ended March 31, 2009 as compared to 9.7% for the three months ended March 31, 2010.

Operating Expenses

Operating expenses increased by 21.2% from NT$9.3 billion for the three months ended March 31,2009 to NT$11.3 billion (US$356.0 million) for the three months ended March 31, 2010. Operating expensesconsist of research and development, administrative and selling expenses.

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Research and development expenses increased by 47.1% from NT$191.4 million for the three monthsended March 31, 2009 to NT$281.5 million (US$8.8 million) for the three months ended March 31, 2010,primarily due to an increase in research and development personnel hired to support the development of oursmartphone business.

Administrative expenses increased by 29.5% from NT$1.5 billion for the three months ended March 31,2009 to NT$2.0 billion (US$61.5 million) for the three months ended March 31, 2010, mainly due to anincrease in employee bonuses.

Selling expenses increased by 18.9% from NT$7.6 billion for the three months ended March 31, 2009to NT$9.1 billion (US$285.7 million) for the three months ended March 31, 2010, primarily due to anincrease in warranty accrual as a result of revenue growth.

Operating Income

As a result of the foregoing factors, operating income increased by 70.6% from NT$2.6 billion for thethree months ended March 31, 2009 to NT$4.4 billion (US$137.8 million) for the three months ended March31, 2010.

Non-operating Income and Gains

Non-operating income and gains decreased by 22.9% from NT$467.7 million for the three monthsended March 31, 2009 to NT$360.5 million (US$11.3 million) for the three months ended March 31, 2010.The decrease of non-operating income and gains was primarily due to net foreign currency exchange gain andvaluation gain on financial instruments decreasing from NT$204.1 million for the three months ended March31, 2009 to nil for the three months ended March 31, 2010, principally due to the depreciation of the Euroagainst the NT dollar. This decrease was partially offset by net gain on disposal of investments increasingfrom nil for the three months ended March 31, 2009 to NT$97.6 million (US$3.1 million) for the threemonths ended March 31, 2010. The increase in net gain on disposal of investments was primarily becauseof unfavorable market conditions in the first quarter of 2009, resulting in no disposal activities except for oneliquidation during the three-month period.

Non-operating Expenses and Losses

Non-operating expenses and losses increased by 107.6% from NT$282.9 million for the three monthsended March 31, 2009 to NT$587.2 million (US$18.5 million) for the three months ended March 31, 2010,principally due to net foreign currency exchange loss and valuation loss on financial instruments ofNT$296.7 million (US$9.3 million) in the three months ended March 31, 2010 as a result of the depreciationof the Euro against the NT dollar.

Net Income

Net income increased by 62.6% from NT$2.0 billion for the three months ended March 31, 2009 toNT$3.3 billion (US$103.5 million) for the three months ended March 31, 2010 as a result of the foregoingfactors.

Consolidated Results of Operations

Year Ended December 31, 2008 Compared to Year Ended December 31, 2009

Net Sales

Net sales increased by 5.1% from NT$546.3 billion in 2008 to NT$574.0 billion (US$18.0 billion) in2009 primarily as a result of an increase in shipments of notebook and netbook PCs.

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Net sales for our notebook and netbook PC business increased by 11.8% from NT$352.8 billion in 2008to NT$394.3 billion (US$12.4 billion) in 2009, primarily as a result of an increase in shipments. Net salesfor our desktop PC business increased by 0.9% from NT$87.9 billion in 2008 to NT$88.6 billion (US$2.8billion) in 2009, primarily as a result of an increase in shipments. Net sales for our display business decreasedby 20.2% from NT$70.4 billion in 2008 to NT$56.2 billion (US$1.8 billion) in 2009, primarily as a resultof a decrease in average selling price of displays.

Cost of Sales

Cost of sales increased by 5.5% from NT$489.0 billion in 2008 to NT$515.7 billion (US$16.2 billion)in 2009. The increase in cost of sales was due primarily to an increase in the shipment of notebook, netbookand desktop PCs.

Cost of sales for our notebook and netbook PC business increased by 11.8% from NT$317.9 billion in2008 to NT$355.3 billion (US$11.2 billion) in 2009. Cost of sales for our desktop PC business increased by3.5% from NT$79.4 billion in 2008 to NT$82.1 billion (US$2.6 billion) in 2009. The foregoing increaseswere partially offset by the decrease of the cost of sales of our display business. Cost of sales for our displaybusiness decreased by 19.8% from NT$65.4 billion in 2008 to NT$52.5 billion (US$1.6 billion) in 2009,primarily as a result of our efforts to control cost.

Gross Profit

As a result of the factors discussed above, gross profit increased by 1.8% from NT$57.3 billion in 2008to NT$58.3 billion (US$1.8 billion) in 2009. Gross margin was 10.5% in 2008 as compared to 10.2% in 2009.

Operating Expenses

Operating expenses decreased by 0.5% from NT$43.2 billion in 2008 to NT$43.0 billion (US$1.4billion) in 2009. The decrease in operating expenses was attributable principally to the decrease inadministrative expenses as part of our efforts to control costs during the financial crisis.

Research and development expenses increased by 61.2% from NT$550.0 million in 2008 to NT$886.5million (US$27.9 million) in 2009 primarily due to our acquisition of E-Ten, which was an acquisitionprimarily to expand our research and development efforts in the smartphone business.

Administrative expenses decreased by 7.6% from NT$6.9 billion in 2008 to NT$6.4 billion (US$200.3million) in 2009 mainly due to a decrease in employee bonuses as part of our efforts to control costs duringthe financial crisis.

Selling expenses remained stable over the period decreasing by 0.1% from NT$35.8 billion in 2008 toNT$35.7 billion (US$1.1 billion) in 2009.

Operating Income

As a result of the foregoing factors, operating income increased 9.0% from NT$14.1 billion in 2008 toNT$15.3 billion (US$482.1 million) in 2009.


Non-operating income and gains decreased by 67.9% from NT$5.4 billion in 2008 to NT$1.7 billion(US$54.0 million) in 2009 primarily as a result of the following factors.

Interest income decreased by 70.1% from NT$1.2 billion in 2008 to NT$361.7 million (US$11.4million) in 2009, primarily because of a decrease in overall interest rates. Net gain on disposal of investmentsdecreased by 97.1% from NT$2.7 billion in 2008 to NT$79.2 million (US$2.5 million) in 2009, primarilybecause of reduced disposals of our equity investments due to unfavorable market conditions in 2009. Netgain on disposal of property and equipment decreased from NT$515.3 million in 2008 to nil in 2009 primarilydue to the sale of an office building in Singapore during the first quarter of 2008. Other income decreasedby 21.6% from NT$516.2 million in 2008 to NT$404.5 million (US$12.7 million) in 2009 primarily because

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of a one-time earn out of NT$174.0 million paid to us in connection with the sale of an investee companyin 2008. The foregoing decreases were partially offset by an increase in net foreign currency exchange gainand valuation gain on financial instruments from nil in 2008 to NT$473.6 million (US$14.9 million) in 2009,primarily because of the appreciation of the Euro against the NT dollar.


Non-operating expenses and losses decreased by 55.1% from NT$4.6 billion in 2008 to NT$2.1 billion(US$65.2 million) in 2009, principally due to NT$1.6 billion of restructuring costs incurred as a result ofmerging Gateway into our Pan America operations in 2008. Interest expense decreased from NT$1.3 billionin 2008 to NT$622.1 million (US$19.6 million) in 2009 primarily because of a decrease in overall interestrates. Net foreign currency exchange loss and valuation loss on financial instruments decreased fromNT$866.3 million in 2008 to nil in 2009 primarily because of the appreciation of the Euro against the NTdollar.

Net Income

Consolidated net income decreased by 3.3% from NT$11.7 billion in 2008 to NT$11.4 billion(US$356.8 million) in 2009 as a result of the foregoing factors.

Year Ended December 31, 2007 and Year Ended December 31, 2008

Net Sales

Net sales increased by 18.2% from NT$462.1 billion in 2007 to NT$546.3 billion in 2008 primarily asa result of the increase in shipment of notebook and netbook PCs. The net sales for our desktop PC anddisplay business also increased as a result of the increase in shipments.

Net sales for our notebook and netbook PC business increased by 27.2% from NT$277.5 billion in 2007to NT$352.8 billion in 2008. Net sales for our desktop PC business increased by 25.4% from NT$70.1 billionin 2007 to NT$87.9 billion in 2008. Net sales for our display business increased 1.0% from NT$69.7 billionin 2007 to NT$70.4 billion in 2008.

Cost of Sales

Cost of sales increased by 17.9% from NT$414.6 billion in 2007 to NT$489.0 billion in 2008. Theincrease in cost of sales was due primarily to the aforementioned increase in shipments in each of our productlines, especially notebook and netbook PCs.

Cost of sales for our notebook and netbook PC business increased by 29.0% from NT$246.4 billion in2007 to NT$317.9 billion in 2008. Cost of sales for our desktop PC business increased by 25.0% fromNT$63.5 billion in 2007 to NT$79.4 billion in 2008.

Gross Profit

As a result of the factors discussed above, gross profit increased by 20.8% from NT$47.4 billion in2007 to NT$57.3 billion in 2008. Gross margin was 10.3% in 2007 as compared to 10.5% in 2008.

Operating Expenses

Operating expenses increased by 16.1% from NT$37.2 billion in 2007 to NT$43.2 billion in 2008. Theincrease in operating expenses was attributable principally to an increase in personnel expenses following theacquisitions of Gateway and Packard Bell and the adoption of Interpretation (2007) 052 issued by theAccounting Research and Development Foundation of the Republic of China effective in 2008 which requiresemployee bonus and remunerations to directors and supervisors to be expensed.

Research and development expenses increased by 57.3% from NT$349.7 million in 2007 to NT$550.0million in 2008 primarily due to the expansion of our research and development efforts and the acquisitionof E-Ten in 2008.

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Administrative expenses increased by 66.0% from NT$4.2 billion in 2007 to NT$6.9 billion in 2008mainly due to an increase in personnel expenses following the acquisitions of Gateway and Packard Bell andthe adoption of Interpretation (2007) 052 issued by the Accounting Research and Development Foundationof the Republic of China effective in 2008 which requires employee bonus and remunerations to directors andsupervisors to be expensed and recognized on the income statement.

Selling expenses increased by 9.3% from NT$32.7 billion in 2007 to NT$35.8 billion in 2008, primarilydue to an increase in promotion expenses as a result of the increase in sales following the acquisitions ofGateway and Packard Bell.

Operating Income

As a result of the foregoing factors, operating income increased by 38.2% from NT$10.2 billion in 2007to NT$14.1 billion in 2008.


Non-operating income and gains decreased by 20.1% from NT$6.7 billion in 2007 to NT$5.4 billionin 2008, primarily due to a decrease in the net gain on disposal of investments. Net gain on disposal ofinvestments decreased by 33.0% from NT$4.0 billion in 2007 to NT$2.7 billion in 2008 as a result of adecrease in the disposal of our equity investments. Net investment gain recognized using equity method alsodecreased by 41.9% from NT$695.7 million in 2007 to NT$404.2 million in 2008, primarily because of adecrease in the holding ratio of our stake in several investee companies. The foregoing decreases werepartially offset by an increase in net gain on disposal of property and equipment by 324.4% from NT$121.4million in 2007 to NT$515.3 million in 2008 primarily because of a disposal gain of NT$788.9 milliongenerated from the sale of our office building in Singapore in 2008.


Non-operating expenses and losses increased by 160.0% from NT$1.8 billion in 2007 to NT$4.6 billionin 2008, principally due to the interest expenses incurred in connection with the loan facility we entered intowith Citibank, N.A. to fund the acquisition of Gateway and NT$1.6 billion of restructuring costs incurred asa result of merging Gateway into our Pan America operations in 2008. Other investment loss increased fromnil in 2007 to NT$416.4 million in 2008 primarily because of the write down of several long-terminvestments.

Net Income

Consolidated net income decreased by 9.4% from NT$13.0 billion in 2007 to NT$11.7 billion in 2008as a result of the foregoing factors.

Liquidity and Capital Resources

Our principal sources of cash have been net cash provided by operating activities and bank borrowings.Our primary use of cash has been funding working capital requirements related to our sales growth andexpansion.

Accounts receivable and inventories are significant components of our current assets and requiresignificant working capital. Notes and accounts receivable from third parties and related parties, net ofallowance for doubtful accounts, were NT$102.3 billion, NT$108.7 billion and NT$112.5 billion (US$3.5billion) as of December 31, 2007, 2008 and 2009, respectively. Notes and accounts receivable from thirdparties and related parties, net of allowance for doubtful account were NT$117.6 billion (US$3.7 billion) asof March 31, 2010. Notes and accounts receivable turnover days were 68 days, 70 days and 70 days in 2007,2008 and 2009, respectively. Notes and accounts receivable turnover days were 65 days for the three monthsended March 31, 2010.

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Inventories were NT$33.8 billion, NT$40.0 billion and NT$51.2 billion (US$1.6 billion) as ofDecember 31, 2007, 2008 and 2009, respectively. Inventories were NT$51.7 billion (US$1.6 billion) as ofMarch 31, 2010. Inventories turnover days were 26 days, 28 days and 32 days in 2007, 2008 and 2009,respectively. Inventories turnover days were 32 days for the three months ended March 31, 2010.

Notes and accounts payable from third parties and related parties were NT$80.8 billion, NT$72.1billion and NT$106.1 billion (US$3.3 billion) as of December 31, 2007, 2008 and 2009, respectively. Notesand accounts payable from third parties and related parties were NT$93.9 billion (US$3.0 billion) as ofMarch 31, 2010. Notes and accounts payable days were 64 days, 57 days and 63 days in 2007, 2008 and 2009,respectively. Notes and accounts payable days were 62 days for the three months ended March 31, 2010.

Operating Activities

For the three months ended March 31, 2010, our net cash used in operating activities was NT$16.9billion (US$529.7 million). Cash used for the three months ended March 31, 2010 primarily reflected adecrease in notes and accounts payable of NT$12.6 billion (US$394.5 million), an increase in notes andaccounts receivable of NT$4.9 billion (US$154.0 million) and an increase in other financial assets,prepayments and other current assets of NT$2.0 billion (US$63.4 million), partially offset by consolidatednet income of NT$3.3 billion (US$103.5 million).

In 2009, our net cash provided by operating activities was NT$38.2 billion (US$1.2 billion). Cashprovided by operating activities for the year ended December 31, 2009 primarily reflected the consolidatednet income of NT$11.4 billion (US$356.8 million), an increase in notes and accounts payable of NT$31.5billion (US$988.9 million), and an increase in royalties payable, accrued expenses and other currentliabilities of NT$6.6 billion (US$206.3 million), partially offset by an increase in inventories of NT$11.2billion (US$351.2 million) and an increase in notes and accounts receivable of NT$4.0 billion (US$126.7million).

In 2008, our net cash used in operating activities was NT$5.2 billion. Cash used in operating activitiesfor the year ended December 31, 2008 primarily reflected a decrease in notes and accounts payables ofNT$16.1 billion and an increase in inventories of NT$4.9 billion, partially offset by consolidated net incomeof NT$11.7 billion and an increase in payables to related parties of NT$2.4 billion.

In 2007, our net cash used in operating activities was NT$6.6 billion. Cash used in operating activitiesfor the year ended December 31, 2007, primarily reflected an increase in notes and accounts receivable ofNT$20.3 billion and an increase in inventory of NT$6.9 billion, partially offset by the consolidated netincome of NT$13.0 billion, the increase of royalties payable, accrued expenses and other current liabilitiesof NT$12.0 billion.

Investing Activities

For the three months ended March 31, 2010, our net cash provided by investing activities was NT$80.8million (US$2.5 million). Cash provided by investing activities for the three months ended March 31, 2010primarily reflected the proceeds from disposal of available-for-sale financial assets of NT$212.9 million(US$6.7 million) and proceeds from capital return and liquidation of investees of NT$131.7 million (US$4.1million), partially offset by the increase in long-term investments of NT$149.8 million (US$4.7 million).

In 2009, our net cash used in investing activities was NT$1.8 billion (US$56.2 million). Cash used ininvesting activities for the year ended December 31, 2009 primarily reflected the increase of intangible assetsand other assets of NT$3.1 billion (US$96.7 million), partially offset by the decrease in restricted depositsof NT$922.8 million (US$29.0 million).

In 2008, our net cash provided by investing activities was NT$8.7 billion. Cash provided by investingactivities for the year ended December 31, 2008 primarily reflected the proceeds from disposal of long-terminvestments of NT$3.4 billion, proceeds from disposal of available-for-sale financial assets of NT$2.9billion, proceeds from disposal of property, plant and equipment and property not used in operation ofNT$2.1 billion and a decrease in restricted deposits of NT$1.8 billion, partially offset by the considerationof NT$719.0 million for the acquisition of subsidiaries and the additions to property, plant and equipmentsand property not used in operation of NT$597.5 million.

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In 2007, our net cash provided by investing activities was NT$2.7 billion. Cash provided by investingactivities for the year ended December 31, 2007 primarily reflected proceeds from disposal of available-for-sale financial assets of NT$12.3 billion and proceeds from disposal of long-term investments of NT$7.0billion, partially offset by consideration of NT$15.1 billion for the acquisition of subsidiaries.

Financing Activities

For the three months ended March 31, 2010, our net cash provided by financing activities was NT$1.3billion (US$41.1 million), which primarily reflected the increase in short-term borrowings of NT$1.3 billion(US$41.4 million).

In 2009, our net cash used in financing activities was NT$5.7 billion (US$179.9 million). Cash usedin financing activities for the year ended December 31, 2009 primarily reflected the distribution of cashdividends of NT$5.2 billion (US$163.9 million).

In 2008, our net cash used in financing activities was NT$18.0 billion. Cash used in financing activitiesfor the year ended December 31, 2008 primarily reflected the distribution of cash dividends of NT$8.5billion, the decrease in short-term borrowings of NT$4.3 billion and the repayment of long-term debt ofNT$4.4 billion.

In 2007, our net cash used in financing activities was NT$3.9 billion. Cash used in financing activitiesfor the year ended December 31, 2007 primarily reflected the repayment of long-term debt of NT$9.7 billionand distribution of cash dividends of NT$8.9 billion, partially offset by an increase in long-term debt ofNT$16.5 billion.

In 2007, we entered into a NT$16.5 billion syndicated credit facility, for which Citibank acted as theagent bank, for the purpose of funding the acquisition of Gateway. An advance repayment of NT$4.3 billionwas made in the first quarter of 2008. The syndication agreement for this facility contains covenants thatrequire us to maintain certain financial ratios. As of March 31, 2010, NT$12.2 billion (US$383.4 million) wasoutstanding under this credit facility.

Foreign Currency Exposure

In 2007, 2008 and 2009, our net sales outside the ROC was, NT$423.8 billion (or 91.7% of our netsales), NT$521.0 billion (or 95.4% of our net sales) and NT$547.0 billion (US$17.2 billion) (or 95.3% of ournet sales), respectively. For the three months ended March 31, 2010, our net sales outside the ROC wasNT$155.0 billion (US$4.9 billion) (or 95.6% of our net sales). Such sales were settled mainly in Euros andUS dollars. Consequently, a portion of our net income is affected by fluctuations in the exchange rates amongUS dollars, Euros and NT dollars. The effects of such fluctuations are partially mitigated by our hedging offoreign currency exposure through foreign currency options and exchange rate forward contracts.

Income Tax

We have operations in Taiwan as well as in other countries including Asia Pacific, EMEA and the US.Accordingly, we are subject to the statutory tax rate applicable to us despite our enjoyment of certainpreferential tax treatments in certain aspects. For a discussion of the income tax rate applicable to us in theROC as well as the tax credit granted to us, please see Note 19 to the Notes to the Audited FinancialStatements as of and for the years ended December 31, 2007, 2008 and 2009.

Income tax expense increased 18.4% from NT$729.7 million for the three months ended March 31,2009 to NT$864.2 million (US$27.2 million) for the three months ended March 31, 2010, primarily due tothe 50.9% increase in profit before tax. Income tax expense increased 14.5% from NT$3.2 billion in 2008to NT$3.6 billion (US$114.1 million) in 2009, primarily due to the increase in profit before tax of ouroperations in ROC which attracted a higher income tax rate as compared to the profit generated fromoperations outside the ROC. Income tax expense increased 18.9% from NT$2.7 billion in 2007 to NT$3.2billion in 2008, primarily due to the increase in profit before tax of our operations in ROC which attracteda higher income tax rate as compared to the profit generated from operations outside the ROC.

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BUSINESS

Overview

We are one of the largest PC vendors in the world with no. 2 global market share in total PC and mobilePC shipments in the first quarter of 2010*, according to Gartner. Our product offering encompasses a broadrange of product categories, including desktop and mobile PCs, LCD monitors, projectors, servers andsmartphones. We have a global customer base spread across EMEA, the Americas, Asia Pacific, China andTaiwan.

Over the past few years, we have demonstrated strong growth momentum in our PC shipments.According to 2009 PC shipment data by Gartner, we maintained steady annual growth of 29.0 %, securingour position as the world’s no. 2 total PC vendor. According to Gartner, for the first quarter of 2010 in EMEA,we were one of the top vendors in the total PC and the top vendor in mobile PC markets in shipments, with20.3% and 25.8% market share, respectively. In the US, we were among the top three vendors in the totalPC and mobile PC markets in shipments, with 13.6% and 16.8% market share, respectively. Likewise, in theAsia Pacific region, we were among the top four vendors in the total PC market and the top three vendorsin the mobile PC market in shipments, with 8.1% and 13.1% market share, respectively.*


Our CBM has been instrumental to our success by encouraging first-class suppliers and channelpartners to collaborate in a winning formula of supply chain management. Our CBM prevents duplicativeefforts by us and our suppliers, leverages our channel expertise and resources to effectively manage ourglobal logistics and minimizes our overall operating expenses.

Our consolidated net sales was NT$462.1 billion, NT$546.3 billion and NT$574.0 billion (US$18.0billion) for the years ended December 31, 2007, 2008 and 2009, respectively. Our net sales for the threemonths ended March 31, 2010 was NT$162.1 billion (US$5.1 billion). As of March 31, 2010, we had a globalworkforce of approximately 6,612 employees.


Competitive Strengths

We believe the following strengths have successfully differentiated us from our competitors, andpositioned us to capture the enormous business opportunities in the fast growing global InformationTechnology and Communications market.


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Global and geographically diversified scale

We are one of the largest PC vendors in the world, with no. 2 global market share in total PC and mobilePC shipments in the first quarter of 2010†. Through the successful mergers of Gateway in 2007 and PackardBell in 2008, we have completed our global footprint by fortifying our position in the U.S. and enhancingour already strong positions in Europe and Asia. Our global scale and geographic diversity has allowed usto maximize regional growth opportunities and to benefit from growing worldwide demand. Moreover, ourglobally diversified revenue base provides resilience against local market conditions.

Our market leadership position has also increased our relevance within the PC supply chain and allowedus to realize significant economies of scale and cost advantages through availability of volume-baseddiscounts from key component suppliers. In addition to strengthening our cost advantages, this preferentialpositioning with suppliers results in enhanced business stability given the potentially higher availability ofkey components to us even during supply shortages.

Multi-brand strategy

The successful acquisitions of Gateway in 2007 and Packard Bell in 2008 together marked thebeginnings of a new era for us by helping us to create a multi-brand strategy that targets different geographicand consumer segments. As one of the first PC vendors to adopt a multi-brand approach, we have been ableto penetrate major segments of the Information Technology and Communications market through the launchof products with differentiated product designs. Each of our brands enjoys strong brand recognition withintheir respective target markets, and the combined brand portfolio is highly complementary and providesoptimal positioning within the fast-changing PC market.

Through leveraging our different brands, we are able to take advantage of all available growthopportunities in the markets in which we operate. In the past several years, we have demonstrated stronggrowth momentum, increasing our market share of global PC shipments from 4.6% in 2005 to 13.1% in thefirst quarter of 2010*. In addition to PC market share gains, we successfully launched smart handheld devicesin 2009.

Sustainable and profitable business model

We adhere to a CBM that involves collaboration with first-class suppliers and distributors, leveragingtheir resources and ultimately, sharing the success among all our partners. Consistent with this approach, wehave avoided using a direct sales model in order to avoid competition with our channel partners. Cooperationwith channel distributors lessens our operating expenses, helps us to maintain a lean organization and allowsus to better control inventories.

Our policy of maintaining low capital and operating expenses has been beneficial to the steady growthof our business operations. We have developed a flexible and efficient global logistics management systemto reduce inventory pressure, and we benefit from just-in-time delivery of products from our suppliers.Combined with an approach to product design centered on improving technology features and design ratherthan customization, we are able to offer our customers high performance-to-price products.

We have increased our profitability through our focus on being first to market with the latest in newtechnology and innovative designs. To ensure we consistently develop new products that meet consumerpreferences rapidly, we have built up leading-edge research and development capabilities and developedlong-standing relationships with the local supply chain. We benefit from our proximity to and position withinthe local electronics supply chain, and through collaboration with our suppliers, we can quickly develop androll out new products and respond to any anticipated changes in market trends. For example, our strong ODMrelationships have allowed us to quickly introduce new netbook PC products, which have achievedsignificant sales and have set new standards in netbook PC design and functionality.

† Gartner, Inc. Personal Computer Quarterly Statistics Worldwide By Region: Final Database, C.G. Lee Mikako Kitagawa, 27 May2010

36

Strong innovation capability and customer-centric business model

Our business model is centered on delivering products designed around customer needs. To ensure ourproducts meet the needs of our customers, we have cultivated a strong culture of innovation and productdesign. This means understanding exactly what our customers want and where consumer preferences willtrend, and then using our knowledge and skills to exceed their expectations by making our products simpleto use, stylish to own and accessible to everyone.

Throughout our operating history, we have consistently been a first mover with new technologylaunches, including the first dual Intel Pentium PC in 1994, the first full line of Intel Centrino notebook PCsin 2006, the launch of the first Convertible Tablet PC in 2002, the first notebook PCs equipped with Dolbysurround sound in 2008, and the first notebook PCs with long 8+ hour battery life. Most importantly, ourearly recognition of the emerging trend towards mobile computing has resulted in our current leadershipposition in the global notebook PC market. We continue to innovate in the mobile computing space byfocusing on the key customer requirements of longer battery life, stylish design, new features and a varietyof form factors.

Proven management with solid delivery track record

Led by an experienced management team, we have performed strongly and have grown into one of thelargest PC and smart handheld vendors in the world. Our leadership team was one of the first to focus onnotebook PC platforms, before desktop-to-notebook PC substitution trends were widely anticipated, whichhas resulted in our significant global market share in notebook PC shipments. Our management also had theforesight to develop the Aspire One netbook PC series, which created a new industry paradigm in netbookPC design and functionality and better met the preferences of consumers than competing products availablein the market at the time.

Across the organization, management has instilled a culture of smooth internal communication, quickresponse times and fast decision making. Through the execution of several transformational acquisitions andour demonstrated ability to integrate our acquisitions and create synergies, management has positioned thecompany for long-term success with a complete mobility platform and multi-brand portfolio.

Above all, management has helped the company maintain strong growth and margin performancedespite market conditions and intense competition. With a healthy balance sheet and well-managed financialoperations, we will be able to continue to promptly respond to the fast-changing global economic climate andevolving PC market.

Business Strategies

Continue to invest in our leading brands

We plan to continue pursuing our multi-brand strategy to more effectively target a broader range ofgeographic and customer segments. We will continue to invest in our brands — Acer, Gateway, Packard Belland eMachines — to further raise their market recognition and acceptance, and increase consumerunderstanding of their individual value propositions. We plan to continue marketing our brands across a widevariety of media, ranging from traditional channels such as print and television media, to promotional events,exhibitions, and various sponsorships. Our flagship brand, “Acer”, will continue to sponsor teams and eventssuch as the Scuderia Ferrari Formula One team and the Olympics. We were one of the sponsors of the WinterOlympic Games in Vancouver in 2010 and we are one of the sponsors of the forthcoming Summer OlympicGames to be held in London in 2012.

Continue to grow global market share with focus on profitability

We believe that the PC and smart handheld device markets will continue to grow, with increasing globalpenetration and expansion into new market segments. We plan to continue to be a part of this growth andcapture an increasing share of global PC and smart handheld device shipment volume, with a particular focuson large emerging markets such as Brazil, Russia, India, Indonesia and China. In China in particular, we haverecently launched several initiatives to develop dedicated products, expand distribution channels and marketour brand in order to capture a higher share of this increasingly significant market.

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As we continue to expand our global market share, we will further benefit from scale economies andrevenue diversification, and we remain focused on the markets in which we can extract the most profit.Therefore, we will pay particular attention to certain emerging markets where we benefit from relativelyhigher margins and lower costs, while maintaining a steady growth policy for more mature markets.

Invest and capitalize on proliferation of mobile and cloud computing

In order to capitalize on the proliferation of mobile and cloud computing trends, we have put particularfocus on introducing new mobility solutions with a variety of form factors. Upcoming product launchesinclude the release of the new Timeline X, which we expect will satisfy customer demand for a thin and lightnotebook PC with a long battery life that does not compromise on CPU performance. In addition, theacquisition of E-Ten in 2008 has helped us penetrate the smart handheld device market successfully, and wewill soon be introducing new Internet-enabled devices with high levels of interactivity and connectivity.Furthermore, in anticipation of the accelerating convergence trend between PC and handheld communicationdevices, we have also introduced a consistent Acer user interface across notebook and netbook PCs, internetdevices and smart handheld devices to improve user experience and customer loyalty for Acer-brandeddevices.

Enhance partnerships and business operations

We plan to continue to enhance our operations to maximize efficiency and competitiveness whilereducing costs. Of particular focus is the continued refinement of our order fulfillment and global logisticsnetwork to meet the demands of the global PC and smart handheld device markets and ensure timely delivery,while minimizing unnecessary processes and overhead costs.

We also intend to continue to seek out new partnerships which complement our business strategies,while ensuring that we are achieving full synergies from our existing relationships. For example, we recentlyannounced an alliance with Founder Group in China to leverage their broad distribution channel to sell Acerproducts in key Chinese growth cities and improve our market share in these regions. Going forward, we willcontinue to actively seek partnerships that enable us to strengthen and improve our position in the globalInformation Technology and Communications market.

Our Brands

We design and market a range of desktop PCs, notebook and netbook PCs, displays, servers and mobiledevices under our four brands, Acer, Gateway, Packard Bell and eMachines. Having a selection of brandsallows us to cater to a variety of consumer preferences at a wide range of price points. This multi-brandstrategy allows each brand to offer a differentiated set of product characteristics to effectively target each ofthe major market segments of the global PC market.

Acer

The Acer brand appeals to users who want the latest technologies that are timely and help them bettercontrol and simplify their lives. Acer’s notebooks PCs are targeted at customers who use PCs for everydaytasks and home entertainment as well for business. Acer’s desktop PCs are targeted at customers who use PCsfor home entertainment, gaming, everyday tasks, photo organization and home video editing as well as forcommercial purposes. In addition to the desktop and notebook PC models, Acer’s Aspire One netbook PCsfocus on portability and productivity, featuring 3G connectivity and built-in webcam while weighing lessthan 3 pounds. In response to the market’s increasing demand for more portable and powerful mobile devices,Acer is continuously developing and introducing innovative products, including e-readers, smartphones andtablets equipped with Google’s latest Android operating system.

Gateway

The Gateway brand appeals to users who like cutting edge design and social recognition. For example,in 2009, Gateway introduced the FHD series monitors with sizes ranging from 21.5-inch to 24-inch wide. Onevery FHD monitor, an edge-to-edge screen is framed by a black bezel with metallic-silver highlights and issupported by a sturdy L-shaped stand with a brushed-aluminum finish. Fitted with premium features such as

38

a USB hub, built-in digital speakers and an HDMI interface, the FHD series focuses on providing acomprehensive entertainment experience. For power gamers, Gateway introduced FX series desktop PCs inFebruary 2010 with a high-end quad core processor, pro media creation and vast ports and storage features.

Packard Bell

Packard Bell focuses on products that combine design and usability for high performance computing.For example, Packard Bell’s EasyNote series notebook PCs provide a wide range of smart notebook PCsolutions and styles to target the diverse needs and tastes of each user, while combining easy usability anda comprehensive feature set for all-around digital enjoyment. Packard Bell desktop PCs are popular forend-users who want expandability for storing large amounts of multimedia files and maximum power forworking with graphic intensive applications. The desktop PC experience offers viewing comfort on awidescreen monitor. In addition, Packard Bell monitors have been designed to deliver high-qualityperformance and style as well as sharing a unique thin and sleek design to match its range of desktop andnotebook PCs. For example, the Maestro range of monitors is designed with seamless edge-to-edge glassenclosure, dynamic contrast ratios, true 16:9 widescreen aspect ratio and clear viewing for games, movies andgraphic-intensive applications.

eMachines

The eMachines brand is targeted at users with a pragmatic approach toward technology and who expectPCs to be efficient, convenient and, most importantly, affordable. eMachines markets a wide range of budgetdesktop PCs for energy-efficient computing, everyday multitasking and media management. Its all-in-one EZseries addresses a family’s basic computing needs in an easy to use, affordable, elegant and space-savingdesign.

Products

The following table sets forth, for the periods indicated, the percentage breakdown of our net sales interms of the total net sales generated by the sales of our notebook and netbook PCs, desktop PC, displaysand others (collectively the “IT Business Group”). The IT Business Group accounts for more than 90% ofour total operating net sales. The Non-IT Business Group consists of projectors, LCD televisions, digitalcameras, e-business solutions and automotive navigation systems.

IT Business Group Net Sales Breakdown

Year Ended December 31,

2007 2008 2009

NT$

% of net

sales of

IT

Business

Group NT$

% of net

sales of

IT

Business

Group NT$ US$

% of net

sales of

IT

Business

Group

(expressed in billions of NT$ and US$)

IT Business GroupNotebook and Netbook PC............. 277.5 64% 352.8 66% 394.3 12.4 70%Desktop PC..................................... 70.1 16% 87.9 17% 88.6 2.8 16%Display ........................................... 69.7 16% 70.4 13% 56.2 1.8 10%Others ............................................. 18.0 4% 20.3 4% 19.8 0.6 4%

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Three months ended March 31,

2009 2010

NT$

% of net

sales of IT

Business

Group NT$ US$

% of net

sales of IT

Business

Group


IT Business GroupNotebook and Netbook PC ........................... 78.6 68% 108.8 3.4 69%Desktop PC................................................... 19.5 17% 29.0 0.9 18%Display.......................................................... 13.6 12% 14.2 0.4 9%Others ........................................................... 4.0 3% 6.2 0.2 4%

Notebook and Netbook PCs

We design, produce and market a wide range of smart notebook PC solutions and styles to target diverseuser needs and tastes, while combining usability and comprehensive feature set for all-around digitalenjoyment. Our 14-inch notebook PC series emphasizes portability, while our 15.6-inch notebook PCs bettersuit users who only go mobile occasionally, and the 17.3-inch series is designed as a desktop replacement andis suitable for home entertainment.

Weighing less than 3 pounds, our netbook PC series emphasizes portability and efficiency and isequipped with the latest Intel Atom processor and Windows 7 operating system, featuring 10.1- and 11.6-inchscreens. We plan to introduce a new series of netbook PCs running Google’s Chrome operating system.

Moreover, we market a special high-end product series designed to target business users, featuring anIntel Core2 Duo, Intel Celeron, AMD Turion II Dual-Core Mobile, or AMD Athlon X2 Dual-Core processor.We are also focusing on developing a new series of notebook PCs with cutting-edge innovation such as atouch keyboard, all-day battery, frameless ultra-thin design, and the capacity for gaming and 3D technology.For example, the Ferrari series is an ultra-thin lightweight netbook PC featuring 1.6-inch high definition LCDscreen and exclusive Ferrari-engraved touchpad with multi-gesture functionality for ultrafast navigation. TheFerrari series also comes with our Grid Vista, which can simultaneously show eight windows on a dualdisplay.

Desktop PCs

Each series and model is differentiated by various features such as the CPU type and clock speed, thestandard size and expandability of RAM memory, cache memory and ROM, the availability and extent ofexpansion bus, the nature of the graphics accelerator, the qualities of the I/O connectivity, the storage space,dimensions, security features and the capacity to support various monitors. They are also substantiallydifferentiated by available features, price points within market category and, in certain cases, geographiclocation.

Many of our models are equipped with our own eDataSecurity Management, eLock Management,ePerformance Management, eRecovery Management and eSetting Management technologies for advancedmanageability features, solid reliability and ease of upgrading. We have also developed Acer TouchPortal, thenext-generation touch-screen technology, to offer high performance in a space-saving, all-in-one PC design.Our TouchPortal technology is an intuitive interface that lies on top of Windows 7 to serve as the startingpoint for managing Acer TouchGadgets, a suite of one-touch “gadgets”, and Microsoft touch applications.Acer TouchGadgets provides quick access to music, videos, photos and social media networks, and includes:TouchMusic, Touch Photo, TouchMediaShare, TouchFriends and Touch Media. In addition, the TouchPortalincludes several third party applications optimized for Windows 7 multi-touch, including Cyberlink YouCam3.0, a program that provides extra features for webchats, and WildTangent games, a suite of touch-basedgames.

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The newest addition to our desktop PC range is the iMedia XS. The iMedia XS is a new space-savingproduct called nettop that can be attached on the rear of any monitor, or placed on its foot stand andconnected to a TV set for an all-in-one multimedia solution. This product emphasizes enhanced webbrowsing, social networking, entertainment and casual gaming.

We focus on developing products that combine design and usability with high performance computing.For instance, media ports and shortcut buttons are placed on the top front of the chassis for easy access, astorage deck offers space for plugging in external devices and storing personal items, such as MP3 players,digital cameras or video cameras, and a smart cable management system hides USB cables.

Displays

We design, produce and market a range of LCD monitors to complement our desktop and notebook PCsand mobile devices. We offer a wide selection of LCD monitors for a range of viewing requirements, frombasic e-mail and word processing, to complex spreadsheets and intricate graphics design. Monitor sizes rangeup to 27-inches and offer wide screens with flicker-free viewing and low response times. In February 2010,we introduced a new Acer GD235HZ display that can also perform as a full HD 3D display when combinedwith NVIDIA 3D Vision active-shutter glasses to enable users to view high-definition 3D games, Blu-raymovies and other multimedia. We expect sales of 3D-enabled monitors to increase in the future.

In addition to our wide range of LCD displays, we offer four series of projectors to target the differentneeds of diverse user groups. Each series offers different feature sets to target users’ needs for affordability,commercial solutions, portability, as well as a comprehensive entertainment experience. For example, Acer’snew H5360 projector is equipped with DLP 3D viewing option to meet the increasing demands for 3D homeentertainment.

Others - Server

The server market continues to shift towards standards-based architectures as proprietary hardware andoperating systems are replaced by industry standard server platforms that typically offer compelling price andperformance advantages by leveraging standards-based operating systems and microprocessor designs. At thesame time, critical business functions continue to demand scalability and reliability. We aim to optimize thecombined product solutions required by different customers and provide solutions for a wide range ofoperating environments. The key features of our server products are their hassle-free installation andconfiguration, high scalability, and comprehensive range of tools and utilities.

Others - Mobile Devices

In response to the increasing consumer demand for portability and data accessibility, we provide a widerange of mobile devices, including e-readers, smartphones and mobile storage solutions. In May 2010, weannounced our first e-reader device. We offer books on a 6-inch E Ink display via wireless and 3Gconnectivity options. We currently market a range of smartphones based on Google’s Android or WindowsMobile operating system and are in the process of developing a 7-inch tablet featuring Google’s Androidoperating system.

In 2008, we acquired E-Ten, a company that had demonstrated a long-history of successful operationsin Taiwan based on its strong research and development ability, including designing smart phones thatfeatured combinations of GPRS, Wi-Fi, Bluetooth, GPS, and 3.5G GSM functionality with its exclusivein-house developed software applications. With the acquisition we have been able to focus on expanding ourmobile device businesses, especially on enhancing our research and development capacity andcompetitiveness in the worldwide smartphone market.

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Sales, Marketing and Distribution

Our products are designed around customer needs and we have the capability to deliver products in atimely manner. In response to the market’s increasing demand for more portable and powerful mobiledevices, we are continuously developing and introducing innovative products, including e-readers,smartphones and tablets equipped with Google’s latest Android operating system. In 2006, we led the globalindustry trend with the first generation of Aspire Gemstone notebook PCs by incorporating Dolby� Surroundsound into the full consumer product line; the trend was followed six months later by other major notebookPC companies.

Our global marketing and branding structure consists of sales in our major geographic areas (EMEA,the Americas, Asia Pacific and China), brand management (Acer, Packard Bell, Gateway and eMachines),product marketing (stationary and mobile products), market insight and sponsorships.

An integral aspect of our marketing strategy is our multi-brand approach. Based on our understandingof key factors of the purchasing process, we engage in geographic brand positioning strategy in which weplace multiple brands strategically in different geographical areas. For example, we target the Acer, Gatewayand eMachines brands in the Americas and Asia Pacific and we target the Acer, Packard Bell and eMachinesbrands in EMEA. This positioning also encompasses product differentiation. For instance, Packard Bellappeals to those who seek trendy, simple and easy-to-use PCs, while eMachines is targeted at users with apredominantly pragmatic approach toward technology and who expect PCs to be efficient, convenient and,most importantly, affordable.

We continuously invest in our brands to further raise brand recognition and acceptance. One of oursignificant marketing initiatives is our sponsorship of the Olympic Games. We were one of the sponsors ofthe Winter Olympic Games in Vancouver in 2010 and we are one of the sponsors of the forthcoming SummerOlympic Games to be held in London in 2012.

Another integral aspect of our marketing strategy lies in our CBM, a mechanism that not onlyefficiently distributes our products but also enables us to better understand our customers and potentialbuyers through our CBM partners. Our CBM partners include retailers that sell our products to the publicthrough their own physical or Internet stores and independent distributors that sell our products intogeographies or customer groups in which we have little or no presence. These CBM partners are highlyinvaluable as they provide us with market intelligence on consumer preferences and demands which allowus to anticipate and produce the right type and volume of products. From our CBM partners, we learn howto tailor sales, marketing and distribution to match the buying patterns of different customers in differentregional markets. We are focused on driving the depth and breadth of our coverage in addition to efficiencyand productivity gains. Our distribution is also primarily based on CBM. Our CBM clearly defines theretailer’s responsibility, provides strong incentives to those retailers and distributors by allowing them toshare in the revenues generated from the sale of our products, reduces cost and promotes efficiency, andencourages retailers to be highly attuned to consumer needs. In addition, since our CBM partners’ retail salespersonnel drive a significant portion of our sales in stores, we have invested heavily in training thosepersonnel. The model prevents duplicative efforts by us and our distributors, leverages our channel expertiseand resources, effectively manages our global logistics, and minimizes overall operating and capitalexpenditures. This high-efficiency win-win collaboration rewards us and our long-term channel partners.

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The following table sets forth for the periods indicated the percentage breakdown of our total ITBusiness Group net sales, categorized by geographic areas.

Year Ended December 31,

2007 2008 2009

NT$

% of net

sales of

IT

Business

Group NT$

% of net

sales of

IT

Business

Group NT$ US$

% of net

sales of

IT

Business

Group


EMEA ........................................... 236.4 54% 280.5 53% 287.9 9.0 52%Pan America .................................. 106.3 24% 150.5 28% 151.7 4.8 27%Asia Pacific (excluding China and

Taiwan) ...................................... 59.6 14% 67.6 13% 79.4 2.5 14%China ............................................. 21.5 5% 22.0 4% 26.2 0.8 5%Taiwan ........................................... 11.4 3% 10.7 2% 13.8 0.4 2%Total .............................................. 435.2 100% 531.4 100% 559.0 17.6 100%

Three months ended March 31,

2009 2010

NT$

% of net

sales of IT

Business

Group NT$ US$

% of net

sales of IT

Business

Group


IT Business GroupEMEA .......................................................... 56.3 49% 77.8 2.4 49%Pan America ................................................ 34.9 30% 42.9 1.3 27%Asia Pacific (excluding China and Taiwan) 16.5 14% 25.5 0.8 16%China ........................................................... 5.2 5% 7.8 0.2 5%Taiwan ......................................................... 2.8 2% 4.0 0.1 3%Total ............................................................ 115.7 100% 158.2 5.0 100%

Supply and ProcurementWe leverage our ODM capabilities to jointly develop, design and assemble products that are tailored

towards our marketing strategy and production priority. Our supply chain operations are tailored towardsmeeting customer demands through a seamless demand planning process. Our demand planning enables usto coordinate with CBM and ODM partners to reach out to our potential customers in a more direct way,receive instant feedback, and precisely anticipate the type and volume of products that our customers need.Based on such demand planning, we are able to plan and execute for the necessary supplies to meet customerdemands seamlessly in a cost effective way. For our key components, such as panel, memory, CPU, wemanage and then consign them to our ODM partners.

CompetitionThe industry in which we operate is characterized by intense competition on the basis of brand,

technology, price, quality, distribution, customer training, and service and support. Our primary competitorsfor branded PCs are Hewlett-Packard, Dell Inc., Lenovo, Toshiba Corporation and other PC vendors. We willcontinue to leverage our competitive advantages, such as our global and geographically diversified scale, ourmulti-brand strategy, our sustainable and profitable CBM, strong innovation capability and customer-centricbusiness model to compete with our key competitors in every aspect.

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Manufacturing and Materials

We are a pioneer in spinning off our manufacturing operations. We divided our company into two unitsseveral years ago, using the Acer name for our branded PC business, while spinning off our main contractmanufacturing arm into a separate company. Spinning off our manufacturing operations not only allowed usto concentrate all our resources on building our brand name business, but also enabled us to achieve our goalsof generating cost efficiencies, delivering products faster, improving our customer service in certain groupsand geographic areas, and establishing a world-class supply chain.

Research and Development

Developing and designing products that reflect technology trends and meet our customers’ needs arecentral to our research and development strategy. We are committed to developing and providing innovativeproducts to maintain our competitive position. Our acquisition of E-Ten in 2008 enhanced our research anddevelopment capabilities pertaining to mobile devices. Our research and development expenses wereNT$886.5 million (US$27.9 million) in fiscal 2009, NT$550.0 million in fiscal 2008 and NT$349.7 millionin fiscal 2007. Our research and development expenses were NT$281.5 million (US$8.8 million) for the firstquarter of 2010.

Patents, Trademarks, and Licenses

As of June 2010, we held a worldwide portfolio of more than a thousand patents with hundreds ofadditional patent applications pending. We also hold licenses to use numerous third-party patents. Theinventions claimed in our patents and patent applications cover aspects of our current and possible futurecomputer system products and related technologies. While we utilize our patented portfolio and also licensepatents to others, we are not substantially dependent on any single patent or group of related patents. Inaddition, we have also entered into a variety of intellectual property licensing and cross-licensing agreementswith other companies.

We have obtained trademark registrations for the ACER, Gateway, Packard Bell, and eMachines wordmarks and logo marks in various countries. We have also obtained work mark registration for varioussub-brands. In addition to the registration, we also had pending applications in certain countries, as webelieve that the establishment of the corporate word mark and logo mark worldwide is material to ouroperations.

From time to time, other companies and individuals assert exclusive patent, copyright, trademark, orother intellectual property rights to technologies or marks that are important to the technology industry or ourbusiness. We evaluate each claim relating to our products and, if appropriate, seek a license to use theprotected technology. The licensing agreements generally do not require the licensor to assist us induplicating its patented technology, nor do these agreements protect us from trade secret, copyright, or otherviolations by us or our suppliers in developing or selling these products.

Employees

As of March 31, 2010, we had approximately 6,612 total employees worldwide, 22.6% of whom heldadvanced degrees, compared to approximately 6,624 total employees as of December 2009 andapproximately 6,727 total employees as of December 2008. We have employee stock option plans whicheligible employees may participate in. 23.8 million and 14.0 million stock options were granted in 2008 and2009, respectively. As of March 31, 2010, there were 32.4 million stock options outstanding with 1.0 millionstock options exercisable. See Note 4(20) of Notes to the Audited Consolidated Financial Statements as ofand for the years ended December 31, 2007, 2008 and 2009 and Note 4(17) of Notes to the UnauditedConsolidated Financial Statements as of and for the three months ended March 31, 2009 and 2010. Under our2010 employee stock option plan, which was approved at the Annual Shareholders’ Meeting held on June 18,2010, the total number of options to be issued under this plan is 14,000 options, where each option givesemployee the right to purchase 1,000 Common Shares. We also established individual noncontributorydefined benefit retirement plans pursuant to ROC Labor Standards Law which provide for lump-sumretirement benefits to retiring employees based on length of service, age, and certain other factors. Inaddition, under the ROC Labor Pension Act, which was promulgated and became effective on July 1, 2005,

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we established contribution retirement plans in which we and our subsidiaries located in the ROC contributemonthly an amount equal to 6% of each participating employee’s monthly salary to the employee’s individualpension fund account. For our retirement plans, see Note 2(22) of Notes to the Audited ConsolidatedFinancial Statements as of and for the years ended December 31, 2007, 2008 and 2009. Most of our foreignsubsidiaries adopt defined contribution retirement plans. These plans are funded in accordance with theregulations of their respective countries.

Legal Proceedings

From time to time, we may be a party to various legal proceedings. We are not currently a party to anypending legal proceedings, the outcome of which, we believe will have a material and adverse effect, eitherindividually or in the aggregate, on our business, financial condition or results of operations.

Our evaluation of the materiality of a proceeding may include various factors, for example, whethersuch proceeding may lead to suspension, restriction or prohibition (whether or not it is a temporary one) ofour products to enter into any major markets, the importance of such intellectual property rights in relationto our products, components, or parts used therein, and/or the legality and reasonableness of the claimedamount, etc.

Similar to many companies in our industry, we, including some of our subsidiaries, investee companiesand affiliates, have from time to time received letters from third parties alleging infringement of intellectualproperty rights. Most of these letters have requested royalty payments based on the sales of our products. Weevaluate each claim related to our products and, if appropriate, seek a license to use the protected technology.If we enter into such license agreements and are required to pay royalties, there can be no assurance that thepayment of such royalties would not have a material adverse effect on our business, results of operations orfinancial condition.

Principal Subsidiaries and Investees

The following table sets forth certain information as of March 31, 2010 regarding our principalsubsidiaries and investee companies of which total assets or net sales accounted for more than 5% of ourconsolidated total assets or net sales as of or for the year ended December 31, 2009.

Company Main business

Place of

incorporation

Registered share

capital as of

March 31, 2010

The

Company’s

consolidated

equity

interest

(%)

Acer America Corporation ..... Sale of computer andrelated products

California,U.S.A

NT$7,374,191,472 99.92

Acer Computer GmbH ........... Sale of computer andrelated products

Germany NT$625,923,341 100

Gateway, Inc. ......................... Sale of computer andrelated products

U.S.A. NT$32 100

Acer Europe SA ..................... Sale of computer andrelated products

Switzerland NT$47,197,748 100

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MANAGEMENT

Directors and Supervisors

The ROC Company Law and our Articles of Incorporation provide that our directors are to be electedby the shareholders for three-year terms in a shareholders’ meeting at which a quorum, consisting of amajority of all issued and outstanding Common Shares, is present. The chairman is a director elected fromand among the directors.

The term of office of the directors and the supervisors is three years. They may serve any number ofconsecutive terms and may be removed from office at any time by a resolution adopted at a meeting ofshareholders. Normally, all members of the board of directors are elected at the same time, except where theposts of one-third or more of the directors are vacant, at which time a special meeting of shareholders shallbe convened to elect directors to fill the vacancies. The board of directors has ultimate responsibility for themanagement of our business and affairs.

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

At present, there are seven directors and two supervisors who are elected by our shareholders at thegeneral shareholders’ meeting. The chairman is our legal representative under the ROC Company Law.Pursuant to our Articles of Incorporation, we expect to elect two independent directors (out of a total of sevenseats of the directors) when the term of our current Board expires in 2011.

The following table sets forth information regarding the present board of directors and the supervisorsas elected by the meeting of shareholders on June 13, 2008 for three-year terms expiring on June 13, 2011:

Name TitleNumber ofShares held

Percentageof issued andoutstandingShares held Current Position(s) in Other Companies

J.T. Wang ................................ Chairman 14,617,542 0.54 Chairman of Hitrust.com Inc.

Stan Shih ................................ Director 74,761,958 2.78 Director of Dragon Investment Co.,Ltd., Director of Qisda Corp.,Director of Wistron Corp., Directorof Acer Investment Inc.,Independent director of TSMC Co,Ltd., Director of Acer SoftCapital

Gianfranco Lanci .................... Director 551,200 0.02 —

Walter Deppeler ..................... Director 0 0 —

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Name TitleNumber ofShares held

Percentageof issued andoutstandingShares held Current Position(s) in Other Companies

Hsin-I Lin ................................ Director 0 0 Independent director of SinyiRealty Inc., Independent director ofNan Ya Plastics Co., Director ofYulon Motor Co, Ltd., Director ofChina Motor Corp. Co.,Independent director of E.SunFinancial Holdings Co. Ltd.

Philip Peng (Representative ofSmart Capital Corp.)............

Director 11,249 0 Director of Cross CenturyInvestment, Director ofMultiventure Investment Inc.,Supervisor of Acer LaboratoriesInc., Supervisor of AspireIncubation Venture Capital, Directorof Wistron Corp., Supervisor ofApacer Technology Inc., Director ofiDSoftCapital Inc., Supervisor ofDragon Investment Co., Ltd.,Chairman of Acer Capital Corp.

Hung Rouan InvestmentCorp. .................................... Director 67,731,471 2.52 —

George Huang.......................... Supervisor 6,255,589 0.23 Director of Apacer Technology Inc.,Independent Supervisor of LesEnphants Ltd., IndependentSupervisor of Mtech Industries Inc.,Independent Supervisor of PChomeOnline Inc., Director of ChinaProductivity Center, IndependentDirector of Golden Harvest Corp.

Carolyn Yeh(1) ......................... Supervisor 17,689,688 0.66 Director of Aspire IncubationVenture Capital, Chairman ofiDSoftCapital Inc., Supervisor ofAcer Capital Corp.

Total......................................... 181,618,697 6.75

(1) Carolyn Yeh is wife of Stan Shih.

As of April 20, 2010, the directors and the supervisors had a registered holding of 6.75% of our issuedshares. The aggregate remuneration paid to our directors and supervisors in their capacities as such, inaccordance with the resolution in the shareholders’ meeting, in 2007, 2008 and 2009, was approximatelyNT$94.8 million, NT$116.6 million and NT$85.8 million (US$2.7 million), respectively. The aggregateremuneration paid to our executive officers in 2007, 2008 and 2009 was NT$614.2 million, NT$436.4million, and NT$587.9 million (US$18.5 million), respectively. At the Annual Shareholders’ Meeting held onJune 18, 2010, NT$122.1 million was approved as remuneration to directors and supervisors.

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Key Managers

The following table sets forth information regarding our key managers as of March 31, 2010:

Name Position Current position since

Gianfranco Lanci ............... CEO of Acer Inc. & Corporate President January 1, 2005Walter Deppeler ................. Senior Corporate Vice President & EMEA Deputy

PresidentSeptember 29, 2007

Aymar de Lencqueaing ...... Senior Corporate Vice President & SHBG President January 1, 2009Jim Wong........................... Senior Corporate Vice President & ITGO President November 1, 2001Rudi Schmidleithner .......... Corporate Vice President & PA President September 29, 2007Steve Lin ........................... Corporate Vice President & AP President November 1, 2001Oliver Ahrens .................... Corporate Vice President & ACCN President April 1, 2009Gianpiero Morbello ........... Corporate Vice President, Marketing & Branding May 1, 2008Scott Lin ............................ Corporate Vice President, TWN Operation President November 1, 2001James Chiang..................... Corporate Vice President & CBG President January 1, 2002Simon Hwang .................... Corporate Vice President & ETBG President September 1, 2008Ben Wan ............................ EBG President May 16, 2002Che-Min Tu ....................... CFO December 1, 2009Campbell Kan .................... Vice President of ITGO March 28, 2007Jackson Lin........................ Vice President of ITGO February 16, 2004Towny Huang .................... Vice President of ITGO January 1, 2008Wayne Ma.......................... Vice President of ITGO November 1, 2008Peter Shieh ........................ Vice President of TWN Operation November 1, 2001Jafa Lin.............................. Vice President of TWN Operation July 1, 1996Angelina Hwang ................ Vice President of EBG September 1, 2002Michael Wang.................... Vice President of EBG November 1, 2008PH Wu ............................... Head of Branch Office January 12, 2006TC Yang............................. Head of Branch Office January 12, 2006YS Shiau............................ Head of Branch Office January 12, 2006

Biographies of Directors, Supervisors and Executive Officers

J.T. Wang has served as our Chairman since 2005 and Chief Executive Officer of Acer Group since2008. Prior to his present position, he was President of Acer Inc. Mr. Wang has been with Acer for more than25 years and served in many managerial roles. Mr. Wang is also the Chairman of Hitrust.com Inc. He holdsa Bachelor’s degree in Electrical Engineering from National Taiwan University and an Executive MBA fromTaiwan’s National Cheng-Chi University.

Stan Shih is the founder of Acer Group and is currently one of our directors. Prior to his presentposition, he was our Chairman. Mr. Shih is also a Director of Dragon Investment Co., Ltd, Qisda Corp,Wistron Corp, Acer Investment Inc. and Acer SoftCapital and an Independent Director of TSMC Co., Ltd.He holds a Master’s degree in Electronical Engineering from National Chiao Tung University, Taiwan. Heis the husband of Carolyn Yeh, who is one of our Supervisors.

Gianfranco Lanci has served as our Chief Executive Officer since June 2008. He is also our CorporatePresident and one of our directors since 2005. Mr. Lanci has been with Acer for more than 10 years andserved in many managerial roles in Acer Group, including as President of our International OperationsBusiness Group and President of Acer EMEA. He holds a Bachelor’s degree in Civil Engineering from theUniversity of Turin, Italy.

Walter Deppeler has served as our Senior Corporate Vice President, EMEA Deputy President and is oneof our directors. Prior to joining us, he was the Manager in charge of the Central & Eastern Europe Divisionof Texas Instruments. He received his MBA from Ockreal Zurich.

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Hsin-I Lin is one of our directors. Prior to joining us, he was Chairman of Industrial technologyResearch Institute. He is also an Independent Director of Sinyi Realty Inc., Nan Ya Plastics Co and E.SunFinancial Holdings Co., Ltd and he is also a Director of Yulon Motor Co., Ltd and China Motor Corp. Co.He holds a Master’s degree in Business Administration from Oklahoma City University, America.

Philip Peng is currently one of our directors. Prior to his present position, he was our Chief FinancialOfficer. He is also a Director of Cross Century Investment, Multiventure Investment Inc., Wistron Corp,iDSoftCapital Inc. and Acer Capital Corp and a supervisor of Acer Laboratories Inc., Aspire IncubationVenture Capital, Apacer Technologies Inc. and Dragon Investment Co., Ltd. He holds a Master’s degree inBusiness Administration from National Cheng Chi University, Taiwan.

George Huang is one of our supervisors. Prior to his present position, he was one of our directors. Heis also a Director of Apacer Technology Inc. and China Productivity Center and an Independent Supervisorof Les Enphants Ltd, Mtech Industries Inc., PChome Online Inc., and Golden Harvest Corp. He holds aBachelor’s degree in Communications Engineering from National Chiao Tung University, Taiwan.

Carolyn Yeh is one of our supervisors. Prior to her present position, she was our administrative officer.She is also a Director of Aspire Incubation Venture Capital, Chairman of iDSoftCapital Inc., and a Supervisorof Acer Capital Corp. She is the wife of Stan Shih, who is our founder and currently serves as our director.She holds a Bachelor’s degree in Business Administration from Fu Jen Catholic University, Taiwan.

Aymar de Lencqueaing has served as our Senior Corporate Vice President and SHBG President sinceJanuary 1, 2009. Prior to joining us, Mr. de Lencqueaing was the President and CEO of Packard Bell.

Jim Wong has served as our Senior Corporate Vice President and ITGO President since November 1,2001. Prior to his present position, Mr. Wong was the General Manager of our Information Products Group.He is also the Director of E-Ten. Mr. Wong received his Master’s degree in Information Engineering fromEmory University, U.S.A.

Rudi Schmidleithner has served as our Corporate Vice President and PA President since September 29,2007. Prior to joining us, Mr. Schmidleithner was the General Manager of Texas Instruments.

Steven Lin has served as our Corporate Vice President and AP President since November 1, 2001. Priorto his present position, he was the General Manager in charge of our Asia-Pacific Regional OperationsDivision. Mr. Lin received his Bachelor’s degree in Computer Science from Tamkang University, Taiwan.

Oliver Ahrens has served as our Corporate Vice President and ACCN President since April 1, 2009.Prior to his present position, Mr. Ahrens was the Product Business Director in charge of Peripheral BusinessUnit, Acer EMEA.

Gianpiero Morbello has served as our Corporate Vice President of Marketing and Branding since May1, 2008. Prior to his present position, Mr. Morbello was Marcom & Channel Marketing Director of AcerEMEA.

Scott Lin has served as our Corporate Vice President and TWN Operation President since November 1,2001. Prior to his present position, Mr. Lin was the General Manager in charge of our Information Division.He is also the Chairman of Minly Corp. Mr. Lin received his Bachelor’s degree in Business Administrationfrom National Chengchi University, Taiwan.

James Chiang has served as our Corporate Vice President and CBG President since January 1, 2002.Prior to his present position, he was our General Manager. Mr. Chiang is also the Chairman of WeblinkInternational Inc. and a Director of Lottery Technology Service Corp. and Minly Corp. Mr. Chiang receivedhis Bachelor’s degree in Electrical Engineering from National Cheng Kung University, Taiwan.

Simon Hwang has served as our Corporate Vice President and ETBG President since September 1,2008. Mr. Hwang is also the Chairman of E-Ten. Mr. Hwang received his Bachelor’s degree in ElectricalEngineering from National Taiwan University.

Ben Wan has served as our EBG President since May 16, 2002. Prior to joining us, Mr. Wan was theDirector and General Manager of ARC. He is also the Director of Acer Cyber Center Services Ltd. Mr. Wanobtained his MBA from the University of Southern California, U.S.A.

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Che-Min Tu has served as our Chief Financial Officer since December 1, 2009. Prior to his presentposition, Mr. Tu was the Chief Financial Officer in charge of our EMEA Division. Mr. Tu is also the Directorof Lottery Technology Service Corp., Multiventure Investment Inc., Acer Digital Service Co., Cross CenturyInvestment Limited and Acer Worldwide Inc. Mr. Tu obtained his MBA from University of Manchester, U.K.He was also part of the MBA Exchange Program of Leonard N. Stern School of Business, New YorkUniversity, U.S.A.

The business address of each of our directors, supervisors and key managers is our registered office.

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MARKET PRICE OF THE COMMON SHARES

Our Common Shares have been listed on the TSE since September 18, 1996. Our Global DepositaryReceipts have been listed on the London Stock Exchange since November 1, 1995.

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

Price per Share TSE Index

High Low High Low

2005 First Quarter................... NT$34.87 NT$32.68 6259.69 5771.48Second Quarter............... 42.70 32.87 6373.86 5693.01Third Quarter ................. 48.23 39.78 6455.57 5925.54Fourth Quarter................ 62.41 48.60 6575.53 5632.97

2006 First Quarter................... 61.75 43.63 6742.39 6364.60Second Quarter............... 46.19 37.12 7474.05 6299.59Third Quarter ................. 45.85 32.93 6946.27 6257.80Fourth Quarter................ 56.30 44.34 7823.72 6874.98




2010 First Quarter................... 99.13 81.32 8356.89 7212.87Second Quarter............... 89.98 70.74 8171.94 7071.67Through August 5 ......... 89.00 71.31 7972.66 7254.06

Source: Bloomberg.

On August 5, 2010, the reported closing price of the Common Shares was NT$85.2 per Common Shareand the TSE Index closed at 7,936.85.

There is no public market outside Taiwan for the Common Shares. The TSE has experiencedfluctuations in the prices of listed securities and there are currently limits on the range of daily pricemovements.

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EXCHANGE RATE INFORMATION

Fluctuations in the exchange rate between NT dollars and US dollars will affect the US dollarequivalent of the NT dollar price of our Common Shares on the TSE and, as a result, are likely to affect themarket price of the Bonds. In certain parts of this Offering Circular, we have translated NT dollar amountsinto US dollars. The rate we used for the translation, unless otherwise noted, was NT31.819=US$1.00, whichwas the exchange rate used in the financial statements for convenience translation.

The following table sets forth the average, high, low and period-end Interbank Spot Market ClosingRates announced by the Central Bank of the Republic of China, Taiwan for the periods indicated. Norepresentation is made that the NT dollar amounts actually represent such US dollar amounts or could havebeen, or could be, converted into US dollars at the rate indicated, any other rate or at all. The Interbank SpotMarket Closing Rates on August 5, 2010 was NT$31.85=US$1.00.

Interbank Spot Market Rate (in NT dollars per US dollar)

Year Ended December 31, Average High Low At Period End

2003 ........................................................................ 34.41 34.94 33.71 33.982004 ........................................................................ 33.41 35.16 31.92 31.922005 ........................................................................ 32.19 33.77 30.79 32.852006 ........................................................................ 32.54 33.32 31.34 32.602007 ........................................................................ 32.84 33.40 32.27 32.442008 ........................................................................ 31.54 33.55 30.01 32.862009 ........................................................................ 33.04 35.17 32.03 32.03November ............................................................... 32.34 32.58 32.12 32.19December................................................................ 32.28 32.38 32.03 32.032010January.................................................................... 31.90 32.08 31.76 31.99February.................................................................. 32.09 32.20 32.00 32.09March...................................................................... 31.88 32.05 31.75 31.82April ....................................................................... 31.52 31.79 31.36 31.42May......................................................................... 31.96 32.39 31.46 32.23June ....................................................................... 32.31 32.53 32.00 32.28July ......................................................................... 32.17 32.30 32.05 32.05August (through August 5) ..................................... 31.86 31.87 31.85 31.85

Source: Central Bank of the Republic of China, Taiwan.

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DIVIDENDS AND DIVIDEND POLICY

Pursuant to the ROC Company Law and our Articles of Incorporation, payment of any dividend by usis subject to approval by our shareholders and in the case of stock dividends, approval by the relevantgovernment authorities in the ROC. No assurance can be given that we will pay any dividends to ourshareholders in the future.

All dividend payments are subject to a legally required minimum reserve. Dividends may be distributedeither in cash, Common Shares or a combination of cash and Common Shares. The ratio between any cashdividend and shares dividend is proposed by the board of directors and approved by the shareholders at ashareholders’ meeting. Under our Articles of Incorporation, not less than 10% of the dividends to bedistributed shall be in the form of cash, if the distribution plan as approved by the shareholders includes adistribution of cash dividend.

The dividends paid by us from 2007 through 2009 are set out in the following table.

Year

Aggregate Number

of Shares(1)

Cash Dividends

Per Share

Stock Dividends Per

Share

2007.................................................................. 2,405,490,426 3.60 0.152008.................................................................. 2,642,855,993 2.00 0.102009.................................................................. 2,688,228,278 3.10 0.01

(1) Aggregate number of Common Shares outstanding on the record date for the dividend payment.

We have devised a long-term capital policy to ensure continuous development and steady growth; wehave adopted the remainder appropriation method as our dividend policy, which was approved at theshareholders’ meeting on May 23, 2000. The proposed dividend distribution plan, agreed by the board ofdirectors, was effected upon the approval of shareholders at the Annual Shareholders’ Meeting on June 18,2010 in which we proposed to appropriate NT$8,336,834,532 from 2009 retained earnings for shareholders’dividend and bonus as cash dividend. Under such proposal, the cash dividend of NT$3.1 per share will bedistributed to our listed shareholders based on their holdings. Another NT$26,893,010 from 2009 retainedearnings will be distributed to shareholders through issuance of shares. The stock dividend will be distributedto our listed shareholders at the ratio of one shares for every one thousand shares held. Both cash and stockdividend are subject to adjustment if the number of our total issued and outstanding shares increases ordecreases before the dividend record dates. The cash value of employee bonus (either in cash or in stock) willbe booked as an expense of the Company in the year in which the profits were generated.

Our Articles of Incorporation require that our net income, after paying taxes due, deducting previousyears’ losses and setting aside any legal and special reserve, may be distributed as dividends to holders ofCommon Shares and as employee bonuses after approval at a shareholders’ meeting in the following manner:

(i) no less than 5% as bonus for employees (including employees of our affiliates meeting certaincriteria set by our board of directors, if such bonus is distributed in the form of Common Shares.);

(ii) 1% as cash remuneration for our directors and supervisors; and

(iii) the remainder may (after retaining a certain portion for business considerations) be distributed asa dividend (in the form of cash, Common Shares or both) to all shareholders.

The ROC Company Law requires that 10% of annual net income (less prior year losses), after paymentof taxes and duties, be set aside as a legal reserve until the accumulated legal reserve equals our total paid-incapital. Our Articles of Incorporation require that no less than 5% of net income, after (a) covering prioryears’ operating losses, if any, (b) paying any taxes due, (c) setting aside 10% of the remaining amount asa legal reserve after deduction (a) and (b), and (d) setting aside a special reserve if required under the lawsor by the government authorities, must be allocated as a bonus to employees.

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PRINCIPAL SHAREHOLDERS

Our principal shareholders as of April 20, 2010 are as follows:

Name Number of Shares

Held Percentage of

Share Capital

JPMorgan Chase Bank N.A. Taipei Branch in custody for CapitalWorld Growth and Income Fund Inc................................................ 127,236,451 4.73%

Acer GDR ............................................................................................ 82,947,962 3.08%JPMorgan Chase Bank N.A. Taipei Branch in custody for Capital

Income Builder, Inc. ......................................................................... 76,420,444 2.84%Stan Shih(1)........................................................................................... 74,761,958 2.78%Hung Rouan Investment Corp. ............................................................. 67,731,471 2.52%JPMorgan Chase Bank N.A. Taipei Branch in custody for

EuroPacific Growth Fund ................................................................. 60,547,830 2.25%JPMorgan Chase Bank N.A., Taipei Branch in custody for Saudi

Arabian Monetary Agency - Credit Agricole Asset Management asexternal fund manager ...................................................................... 54,450,241 2.02%

JPMorgan Securities Ltd. ..................................................................... 43,368,893 1.61%JPMorgan Chase Bank N.A. Taipei Branch in custody for Emerging

Markets Growth Fund, Inc. .............................................................. 33,953,950 1.26%Fidelity Funds ...................................................................................... 33,056,400 1.23%

(1) Stan Shih is our director.

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RELATED PARTY TRANSACTIONS

We from time to time have engaged in a variety of transactions with related parties. For additionalinformation relating to such transactions, see Note 5 of Notes to the Audited Consolidated FinancialStatements as of and for the years ended December 31, 2007, 2008 and 2009 and Note 5 of Notes to theUnaudited Consolidated Financial Statements as of and for the three months ended March 31, 2009 and2010.

Our policy on transactions with related parties is that such transactions shall be conducted on termssubstantially as favorable to us as would be obtainable at the time in a comparable arm’s length transactionwith a person other than a related party.

The following table sets forth names and relationships of our related parties:

Name Relationships with Us

Wistron Corporation (“Wistron”)................................................ Investee accounted for by equity methodCowin Worldwide Corporation (“COWIN”)............................... Subsidiary of WistronBluechip Infotech Pty Ltd. (“SAL”)........................................... Investee accounted for by equity methode-Life Mall Corp (“eLIFE”) ....................................................... Investee accounted for by equity methodiDSoftCapital Inc. ....................................................................... Its chairman is one of our supervisors

Net Sales Net sales to our related parties amounted to NT$1,536.7 million (US$48.3 million) in 2009.This amount consisted of NT$768.4 million (US$24.1 million) to SAL, NT$690.7 million (US$21.7 million)to eLIFE and NT$77.6 million (US$2.4 million) to others. The sales prices and payment terms to relatedparties were not significantly different from those of sales to non-related parties.

Notes and Accounts Receivable As of December 31, 2009, we had notes and accounts receivable ofNT$600.3 million (US$18.9 million) from our related parties. This amount consisted of NT$315.9 million(US$9.9 million) from COWIN, NT$116.2 million (US$3.7 million) from SAL, NT$109.1 million (US$3.4million) from eLIFE, NT$43.3 million (US$1.4 million) from Wistron and NT$15.8 million (US$0.5 million)from others.

Purchases In 2009, purchases from our related parties amounted to NT$32.4 billion (US$1.0 billion),the bulk of which was from Wistron. The trading terms with related parties are not comparable to the tradingterms with third parties as the specifications of products are different. We sold raw material to Wistron andits subsidiaries and purchased back the finished goods after being manufactured.

Notes and Accounts Payable As of December 31, 2009, we had NT$10.2 billion (US$321.6 million) ofnotes and accounts payable to related parties, the bulk of which came from Wistron.

Spin-off of Assets On February 28, 2002, we spun off our design, manufacturing and services businessfrom our brand business and transferred the related operating assets and liabilities to Wistron. We agreed withWistron that Wistron is obligated to pay for the deferred income tax assets being transferred only when theyare actually utilized. In 2006, the ROC income tax authorities examined and rejected Wistron’s claim ofinvestment credits transferred from the spin-off in the income tax returns for the years from 2002 to 2004.Wistron disagreed with the assessment and filed a recheck with the tax authorities for a reexamination of theaforementioned income tax returns. We recognized income tax expense of NT$875.8 million based on the taxexposure estimated in 2006 and provided a valuation allowance against the receivables from Wistron.

In 2008 and 2009, the tax authorities subsequently concluded that Wistron could utilize portions of theaforementioned deferred tax assets resulting from the spin-off. Based on the tax authorities’ conclusion, wecollected the outstanding receivables from Wistron in 2009. Additionally, the valuation allowance wasreversed to current income tax benefit in the amount of NT$511.4 million and NT$72.4 million for the yearsended December 31, 2008 and 2009, respectively.

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Other Expense We paid iDSoftCapital Inc. management service fees amounting to NT$49.3 million forthe year ended December 31, 2009.

Advances to/from Related Parties We paid certain expenses on behalf of related parties. Additionally,related parties paid certain expenses and accounts payable on behalf of us. As of December 31, 2009, we hadaggregate receivables from related parties of NT$21.5 million and payables to related parties of NT$92.2million resulting from these transactions.

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CHANGES IN SHARE CAPITAL

The following table shows the changes in our issued share capital since August 2006:

Record-Date

Number of Shares

Issued Type of Issue

Number of Shares

Outstanding After

Issue

August 2006 ......... 82,544,976 From retained earnings 2,337,063,681August 2007 ......... 68,427,345 From retained earnings 2,405,490,426July 2008.............. 69,082,344 From retained earnings 2,474,572,770September 2008.... 168,158,878 Share exchange with E-Ten 2,642,731,648November 2008.... 124,345 Exercise of stock options by E-Ten employees 2,642,855,993April 2009 ............ 127,000 Exercise of stock options by E-Ten employees 2,642,982,993August 2009 ......... 42,663,596 Retained earnings 2,685,646,589November 2009.... 2,581,689 Exercise of stock options by E-Ten employees 2,688,228,278April 2010 ............ 953,801 Exercise of stock options by E-Ten employees 2,689,182,079

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DESCRIPTION OF THE BONDS

The following are the terms and conditions (subject to amendment and except for the sentences initalics) of the Bonds (the “Conditions”), which are a part of, and are subject to, the more detailed provisionsof the Indentures referred to below. Holders of the Bonds should read the Indentures in their entirety as theydefine the rights and obligations of the Holders of the Bonds. Attention of the holders of the Bonds is alsodrawn to the section entitled “Global Certificates” to understand their rights with respect to the Bonds inglobal form. Capitalized terms used in these conditions without definition are used as defined in theIndentures.

The issue of US$300,000,000 Zero Coupon Convertible Bonds due 2015 (the “2015 Bonds”) andUS$200,000,000 Zero Coupon Convertible Bonds due 2017 (the “2017 Bonds” and together with the 2015Bonds, the “Bonds”) was authorized by a resolution of the Board of Directors of Acer Incorporated (the“Company”) adopted on May 31, 2010. Each series of Bonds will be issued pursuant to an indenture (eachan “Indenture” and together, the “Indentures”) to be dated August 10, 2010 (the “Issue Date”) betweenthe Company and Citicorp International Limited, as trustee (the “Trustee”, which term shall include allpersons for the time being appointed as trustee or trustees under the Indentures) for the holders of the Bonds.The Company will also enter into a paying and conversion agency agreement for each series of Bonds (the“Agency Agreements”) to be dated the Issue Date with the Trustee and Citibank, N.A., London Branch, asthe registrar, principal paying, conversion and transfer agent appointed thereunder (collectively, the“Agents” in relation to the Bonds). The registrar, principal paying agent, paying agents, conversion agentsand transfer agents for the time being are referred to below as the “Registrar”, the “Principal PayingAgent”, the “Paying Agents” (which expression shall include the Principal Paying Agent), the “ConversionAgents” (which expression shall include the Principal Paying Agent) and the “Transfer Agents” (whichexpression shall include the Registrar), respectively. The statements of these Conditions include summariesof, and are subject to, the detailed provisions of the Indentures. In the event of any inconsistency between theterms of the Indentures and these Conditions or between the terms of the Indentures and the AgencyAgreements, the terms of the Indentures shall govern. Copies of the Indentures and the Agency Agreementswill be available after the Issue Date for inspection by holders of the Bonds during normal business hoursat the principal office of the Trustee being at the date hereof at 39/F, ICBC Tower, Citibank Plaza, 3 GardenRoad, Central, Hong Kong, and at the specified offices of each of the Agents. The holders of the Bonds shouldread the Indentures and the Agency Agreements in their entirety, as they are bound by, and are deemed tohave notice of, all the provisions of the Indentures and the Agency Agreements.

1. STATUS

The Bonds constitute direct, unconditional, unsubordinated and, subject to the provisions of Condition3(A), unsecured obligations of the Company and shall at all times rank pari passu and without any preferenceor priority among themselves and, subject to the provisions of Condition 3(A), with all other present andfuture direct, unconditional, unsubordinated and unsecured obligations of the Company, except anyobligation preferred by mandatory provisions of law.

The Bonds shall not be entitled to the benefit of a sinking fund.

2. FORM, DENOMINATION AND TITLE

(A) Form and Denomination

The Bonds shall be issued in registered form, without coupons, in the denomination of US$100,000 oran integral multiple in excess thereof. The Bonds shall be offered, sold and transferred in the principalamount of US$100,000 or an integral multiple in excess thereof. Each series of Bonds shall initially berepresented by a single global registered certificate (each a “Global Certificate”, collectively the “GlobalCertificates”), and only under the limited circumstances described in the Global Certificate and theIndentures shall definitive bond certificates (each a “Definitive Certificate”) be issued to holders of the

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Bonds in respect of their individual registered holdings. Each Definitive Certificate, if issued, shall beserially numbered and shall have an identifying number which shall be recorded on the relevant Certificateand in the register of holders of the relevant series of Bonds (each, a “Bond Register”), which the Companyshall procure to be kept by the Registrar.

For the purposes of these Conditions, a “Certificate” means a Definitive Certificate or the GlobalCertificate.

Each series of Bonds shall initially be represented by a Global Certificate and deposited with, andregistered in the name of a nominee of, Citibank Europe PLC, as common depositary for Euroclear andClearstream. Each Global Certificate shall contain or incorporate by reference the Conditions.

Except in the limited circumstances described under “Global Certificates — Individual DefinitiveCertificates,”, the Bonds will only be issued in book-entry form and owners of interests in the Bondsrepresented by the Global Certificates will not be entitled to receive Definitive Certificates in respect of theirindividual registered holdings of the Bonds. The Bonds are not issuable in bearer form.

(B) Title

The Bonds shall be registered instruments, and title to the Bonds shall pass only by transfer andregistration of title in the relevant Bond Register. The holder of any Bond shall, except as otherwise requiredby law, be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of anynotice of ownership, trust or any interest in it or any writing on, or the theft or loss of, the DefinitiveCertificate issued in respect of it), and no person shall be liable for so treating the holder. In these Conditions,“holder of the Bonds”, “holder” and “Bondholder” in relation to a Bond shall mean the person in whose namea Bond is registered in the relevant Bond Register.

(C) Interest

The Bonds do not bear interest other than relevant Redemption Premium as defined in Condition 7(B),and in the limited circumstances set forth in Condition 6(E).

(D) Further Issues

The Company may from time to time without the consent of the holders of the Bonds, to the extentpermitted under the laws of the ROC, create and issue further securities having the same terms and conditionsas the Bonds in all respects (except for the issue date, issue price and to the extent necessary, certaintemporary securities law transfer restrictions) so that such further issues shall be consolidated and form asingle series with the outstanding Bonds.

3. CERTAIN COVENANTS

(A) Negative Pledge

So long as any of the Bonds remains outstanding, the Company shall not, and shall not permit any ofits Principal Subsidiaries (as defined below) to, create or permit to subsist any mortgage, charge, pledge, lienor other form of encumbrance or security interest (“Security”) upon the whole or any part of the property,assets or revenues of the Company or such Principal Subsidiary, as the case may be, present or future, tosecure for the benefit of the holders of any International Investment Securities (as defined below) anypayment of any sum due in respect of or under any guarantee of or payment under any indemnity or otherlike obligation relating to any such International Investment Securities, unless, in any such case, at the sametime or prior thereto, either (i) the same Security is granted to the holders of the Bonds equally and ratablyor (ii) effective provision is made to secure the Bonds with a guarantee, indemnity or other like obligationor such other security as shall be approved by holders of not less than a majority of the principal amount ofthe Bonds then outstanding.

For the purposes of these Conditions:

“International Investment Securities” means bonds, debentures, notes or other similar investmentsecurities of the Company or any of its Principal Subsidiaries evidencing indebtedness with a maturity of not

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less than one year that (a) either (i) are by their terms payable, or confer a right to receive payment, in anycurrency other than NT Dollars or (ii) are denominated or payable in NT Dollars and more than 50% of theaggregate principal amount thereof is initially distributed outside the ROC by or with the authorization of theissuer; and (b) are for the time being, or are capable of being, quoted, listed, ordinarily dealt in or traded onany stock exchange, quotation system or over-the-counter or other similar securities market outside the ROC.

“Principal Subsidiary” in relation to the Company means any corporation or other business entity 50%or more of the outstanding voting stock of which is for the time being owned directly or indirectly by theCompany and either (a) the operating revenues of which, as shown by the accounts (consolidated in the caseof an entity which itself has subsidiaries) of such entity upon which the most recent audited consolidatedaccounts of the Company have been based, are at least 5% of the consolidated operating revenues of theCompany as shown by such audited consolidated accounts; or (b) the total assets of which, as shown by theaforementioned accounts, are at least 5% of the consolidated total assets of the Company, as shown by suchaudited consolidated accounts.

(B) Merger, Amalgamation or Consolidation

So long as any of the Bonds remains outstanding, the Company shall not merge, amalgamate orconsolidate with or into any other corporation or entity (if the Company is not the continuing entity) or sellor transfer all, or substantially all, of its assets, whether as a single transaction or a number of transactions,related or not, to any corporation, entity or person or to one or more members of any group under the commoncontrol of any corporation, entity or person (the consummation of any such event, a “Merger”) unless:

(i) the Company has notified the holders of the Bonds of such event in accordance with Condition14;

(ii) the Company and the corporation, entity or person resulting from such merger, amalgamation orconsolidation or the corporation or the entity which has acquired such assets (the “SuccessorCompany”), as the case may be, have executed an indenture supplemental to the relevantIndenture, in form and substance satisfactory to the Trustee, and the supplemental indentureincludes the following: (a) the express assumption by the Successor Company of the Company’sobligations under the Bonds, the relevant Indenture and the relevant Agency Agreement,including the covenants contained in this Condition 3(B) relating to any subsequent Mergers; (b)provisions for the convertibility of each Bond then outstanding (during the period in which suchBond shall be convertible) into the class and amount of shares and other securities, cash and otherproperty receivable upon such Merger by a holder of the number of Common Shares into whichsuch Bonds would have been convertible immediately prior to such Merger (assuming for suchpurpose that the Bonds were convertible at the time of such Merger) at the relevant ConversionPrice as adjusted from time to time pursuant to the relevant Indenture; and (c) provisions foradjustments that shall be as nearly equivalent as may be practicable to the adjustments providedfor in Condition 5(C); and

(iii) immediately after giving effect to such Merger, no Event of Default (as defined in Condition 9)shall have occurred and be continuing or would result therefrom.

In the event of any such Merger, the provisions described under Conditions 7(C) and 8 shall beapplicable to the Successor Company and jurisdiction of incorporation or tax residence of the SuccessorCompany (the “Successor Jurisdiction”) as if the Successor Company were the Company, the SuccessorJurisdiction were the ROC and, for purposes of Condition 7(C), the issue date were the date of assumptionby the Successor Company of the Company’s obligations under the relevant Indenture, and the aboveprovisions of this Condition 3(B) shall apply in the same way to any subsequent Mergers.

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4. TRANSFERS OF BONDS; ISSUE OF CERTIFICATES

(A) Transfers

Subject to Condition 4(D), a Bond may be transferred as follows: (i) in the case of a Bond representedby a Definitive Certificate, by depositing such certificate at the specified office of any Transfer Agent, withthe form of transfer on the back of such certificate duly completed and signed, and (ii) in the case of a Bondrepresented by the Global Certificate, by depositing a form of transfer obtainable from any Transfer Agent,duly completed and executed, at such office. In each case, such deposit shall be accompanied by any otherevidence that such Transfer Agent may reasonably require.

The form of transfer referred to in clause (ii) above will be available after the Issue Date at the specifiedoffices of the Transfer Agents during normal business hours. Transfers of interests in the Bonds evidencedby a Global Certificate will be effected in accordance with the rules of the relevant clearing systems. Thetransfer, exchange or replacement of the Bonds represented by Definitive Certificates will be effected inaccordance with the terms and conditions set forth in “Global Certificates — Individual DefinitiveCertificates.”

(B) Delivery of New Definitive Certificates

Each new Definitive Certificate to be issued upon transfer of the Bonds shall, within five TransferBusiness Days (as defined below) of receipt by the relevant Transfer Agent of the duly completed and signedform of transfer, be mailed by uninsured mail at the risk of the holder entitled to the Bonds to the addressspecified in the form of transfer.

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

For the purposes of this Condition 4:

“Transfer Business Day” means a day (other than a Saturday or Sunday) on which banks are open forbusiness in the city in which the specified offices of the relevant Transfer Agent with whom a DefinitiveCertificate is deposited in connection with a transfer and the Registrar are located.

Except in the limited circumstances described in the Global Certificate, owners of interests in the Bondsrepresented by the Global Certificate will not be entitled to receive Definitive Certificates in respect of theirindividual holdings in the Bonds. Issues of Definitive Certificates upon transfer of the Bonds are subject tocompliance by the transferor and transferee with the certification procedures described in the AgencyAgreements.

(C) Formalities Free of Charge

Registration of transfer of the Bonds shall be effected without charge to holders of the Bonds by or onbehalf of the Company or any of the Agents, subject to payment (or the giving of such indemnity as theCompany or any of the Agents may require) in respect of any tax or other governmental charges which maybe imposed in relation to it.

(D) Restricted Transfer Period

No holder of the Bonds may require the transfer of a Bond to be registered (i) during the period of 15days ending on the due date for any payment in respect of the Bond pursuant to Condition 7(A), (ii) after suchBond has been selected for redemption pursuant to Condition 7(B) or 7(C), (iii) following exercise by theholder of its option to require the Company to redeem the Bonds pursuant to Conditions 7(D), 7(E) or 7(F)or (iv) following exercise by the holder of its option to convert its Bonds pursuant to Condition 5(A).

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(E) Provisions on Transfer

All transfers of the Bonds and entries on the Bond Register shall be made subject to the detailedprovisions concerning transfer of the Bonds (the “Regulations”) set forth in the Agency Agreements. TheRegulations may be changed by the Company, with the prior written approval of the Trustee and theRegistrar. A copy of the current Regulations shall be mailed at the Company’s expense by the Registrar toany holder of the Bonds upon written request.

5. CONVERSION

The Company will, within five Trading Days (as defined in Condition 5(A)(i)) from each ConversionDate (as defined in Condition 5(B)(i)), issue and deliver the Common Shares, through book-entry to theconverting holder or its designee, subject to applicable law and the provisions of the Indentures and theAgency Agreements relating to the conversion.

The Indentures provide, in summary, that the term “Common Share” or “Common Shares” means,when used to refer to the class or classes of the Company’s capital stock into which the Bonds are convertibleand when used in certain other instances, only the Company’s common shares, NT$10 par value per share,and does not include the Company’s global depositary shares representing the Company’s common shares,but that when used elsewhere, including in Condition 5(C), such term also includes shares of any other classor classes of the Company’s share capital authorized after the Issue Date that have no preference in respectof dividends or of amounts payable in the event of any voluntary or involuntary liquidation or winding-upof the Company.

(A) Conversion Right

(i) Conversion Period

Subject to the terms set forth herein and in the Indentures, each holder of the Bonds has the right(the “Conversion Right”) under the Indentures to convert any Bond into Common Shares. Holders ofthe Bonds do not have the right to convert any Bond into the Company’s global depositary sharesrepresenting the Common Shares. Subject to and upon compliance with the provisions of this Condition5, the Conversion Right attaching to any Bond may be exercised, at the option of the holder of theBonds and to the extent provided herein, at any time (a) on or after September 20, 2010 and prior tothe close of business (at the place where such Bond is deposited for conversion) on July 31, 2015, inthe case of the 2015 Bonds, or July 31, 2017, in the case of the 2017 Bonds (or, in each case, if suchday shall not be a Conversion Business Day (as defined below) at such place, on the immediatelypreceding Conversion Business Day at such place) (but in no event thereafter) or (b) if such Bond shallhave been called for redemption prior to July 31, 2015, in the case of the 2015 Bonds, or July 31, 2017,in the case of the 2017 Bonds, then up to the close of business (at the place aforesaid) on the fifthConversion Business Day prior to the date fixed for redemption thereof (the “Conversion Period”);provided, however, that the Conversion Right during any Closed Period (as defined below) shall besuspended and the Conversion Period shall not include any such Closed Period.

The Company shall give no less than 14 days notice of the commencement of any Closed Periodto holders of the Bonds in accordance with Condition 14 and to the Trustee and all Conversion Agentsin accordance with the provisions of the relevant Indenture and the relevant Agency Agreement.


“Closed Period” means: (i) the 60-day period prior to the date of any annual generalshareholders’ meeting of the Company; (ii) the 30-day period prior to the date of any specialshareholders’ meeting of the Company; (iii) the period beginning on the 15th Trading Day prior to thefive-day period before a record date for distribution of rights, dividends or other benefits to the dateof such record date; (iv) in the event of a capital decrease of the Company, the period beginning on the

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record date for the capital decrease up to one day prior to the Trading Day of the shares reissued afterthe capital decrease; and (v) such other periods during which the Company may be required to closeits shareholders’ register or to suspend conversion under ROC laws and regulations applicable fromtime to time.

“Trading Day” means a day when the Taiwan Stock Exchange (the “TSE”) is open for tradingof securities.


“Conversion Business Day” means a day (other than a Saturday or Sunday) on whichcommercial banks are open for business in the city in which the specified office of the relevantConversion Agent is located.

Pursuant to the Regulations Governing Securities Investment and Futures Trading in Taiwan byMainland Area Investors, or the Mainland Investors Regulations, only the Mainland area qualifieddomestic institutional investors (“QDIIs”) approved by the China Securities Regulatory Commissionand registered with the TSE or Taiwan Futures Exchange, are permitted to convert the Bonds and holdour Common Shares, and in order to hold our Shares, such QDIIs are required to appoint the agent andcustodian as required by the Mainland Investors Regulations. If the aggregate amount of our CommonShares to be held by any QDII or our Common Shares to be received by any QDII upon singleconversion will be 10% or more of our total issued and outstanding shares, such QDII must obtain theprior approval from the Investment Commission of the Ministry of Economic Affairs.

Under current ROC law, a non-ROC converting holder of the Bonds, before exercising hisconversion right to convert the Bonds into Common Shares, is required to register with the TSE. Undercurrent ROC law, a non-ROC converting holder of any Bond, when exercising its conversion right toconvert its Bond into Common Shares, is also required to obtain and appoint an agent, referred to asa tax guarantor, in the ROC. The tax guarantor will be required to meet the qualifications set by theROC Ministry of Finance and will act as the guarantor of the holder’s tax payment requirements. Inaddition, the holder must also appoint a local agent in the ROC with such qualifications as are set bythe ROC Financial Supervisory Commission (“FSC”). The local agent has the power to take thefollowing actions on behalf of and as agent for the converting holder: open a securities trading accountwith a local brokerage firm and an NT Dollar bank account, pay ROC withholding taxes, makeconfirmation or settlement, remit funds, exercise shareholders’ rights, and perform such other mattersas may be designated by the converting holder. In addition, such non-ROC converting Bondholder mustalso appoint a custodian bank to hold the securities and any cash proceeds in safekeeping, confirm andsettle trades and report all relevant information. Without meeting these requirements, the convertingholder would not be able to receive, hold, sell or otherwise transfer the Common Shares into which theBonds may have been converted on the TSE or otherwise. See “Appendix B — Foreign Investment andExchange Controls in the ROC” and “Description of the Common Shares”.

(ii) Number of Common Shares Issuable on Conversion

The number of Common Shares issuable upon conversion of any Bond shall be determined bydividing the principal amount of the Bond (translated into NT Dollars at a fixed exchange rate ofNT$31.83 = US$1.00, the “Fixed Exchange Rate”) by the relevant Conversion Price (as defined inCondition 5(A)(iii)) in effect on the Conversion Date (as defined in Condition 5(B)(i)). If more thanone Bond shall be deposited for conversion at any one time by the same holder of the Bonds, thenumber of Common Shares to be issued upon conversion thereof shall be calculated on the basis of theaggregate principal amount of the Bonds so deposited. Fractions of Common Shares shall not be issuedon conversion, but cash adjustments calculated to the nearest NT Dollar shall be made in respect thereofby the Company. Notwithstanding the foregoing, in the event of a consolidation or reclassification ofCommon Shares by operation of law or otherwise that occurs after the Issue Date, the Company shallupon conversion of the Bonds pay in US Dollars a sum equal to such portion of the principal amountof the Bonds deposited for conversion as corresponds to any fraction of a Common Share not issuedas aforesaid if such sum exceeds US$10. For the purpose of calculating the amount of such payment,the Company shall use the Fixed Exchange Rate.

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(iii) Initial Conversion Price

The price at which Common Shares shall be issued upon conversion of the 2015 Bonds (asadjusted from time to time, the “2015 Conversion Price”) shall initially be NT$110.760 per CommonShare, but shall be subject to adjustment in the manner provided in Conditions 5(C) and 5(D).

The price at which Common Shares shall be issued upon conversion of the 2017 Bonds (asadjusted from time to time, the “2017 Conversion Price”) shall initially be NT$113.955 per CommonShare, but shall be subject to adjustment in the manner provided in Conditions 5(C) and 5(D).

“Conversion Price” as used in this “Description of the Bonds” and the Indentures shall refer tothe 2015 Conversion Price or the 2017 Conversion Price, as the context requires.

(iv) Survival on Default

Notwithstanding the provisions of Condition 5(A)(i), if an Event of Default (as defined inCondition 9) occurs, the Conversion Right attaching to a Bond shall continue to be exercisable up toand including the close of business (at the place where the relevant Conversion Notice (as defined inCondition 5(B)(i)) is deposited for conversion) on the date upon which (a) the full amount of the moniespayable in respect of such Bond has been duly received by the Trustee or the Principal Paying Agentand (b) notice of such receipt has been duly given to the holders of the Bonds in accordance withCondition 14.

(B) Conversion Procedures

(i) Exercise Procedures; Conversion Notice; Deposit Date; Conversion Date

To exercise the Conversion Right attaching to any Bond, a holder of the Bond shall deposit thefollowing at its own expense between 9:00 a.m. and 3:00 p.m. (local time at the specified office referredto below) on any Conversion Business Day during the Conversion Period at the specified office of aConversion Agent outside the ROC:

(a) a notice of conversion (a “Conversion Notice”) in duplicate, duly completed and signed, inthe then current form obtainable from the specified office of any Conversion Agent, togetherwith the relevant Definitive Certificate, if issued, in respect of the relevant Bond;

(b) any certificates and other documents as may be required under the law of the ROC or thejurisdiction in which such Conversion Agent shall be located; and

(c) any amount required to be paid by the holder of the Bond referred to in Condition 5(B)(ii)below.

Any of the above items deposited after 3:00 p.m. as specified above or on a day that is not aConversion Business Day shall for all purposes be deemed to have been deposited with that Agent onthe immediately succeeding Conversion Business Day. Any of the above items deposited on the dayimmediately prior to a Closed Period or during the Closed Period shall for all purposes be deemed tohave been deposited with that Agent on the first Conversion Business Day immediately after the endof the Closed Period. The Conversion Notice shall contain, among other things: (1) contact informationof the local agent appointed by the converting holder; (2) an irrevocable instruction to convert theBonds into Common Shares; and (3) other information required by ROC laws and regulations. Oncedeposited, the Conversion Notice may not be withdrawn without the Company’s written consent. Theprice at which such Bond shall be converted shall be the relevant Conversion Price in effect on theConversion Date (as defined below).

The Company, or a Conversion Agent on its behalf, may reject any incomplete or incorrectConversion Notice or any Conversion Notice that is not accompanied by any amount payable underCondition 5(B)(ii). All costs and expenses incurred or caused by an incomplete or incorrect ConversionNotice shall be for the account of the relevant holder.

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“Deposit Date” means the date on which (i) any Definitive Certificate, if issued, in respect of aBond, (ii) the duly signed and completed Conversion Notice, in duplicate, relating thereto, (iii) anycertificates or other documents, as may be required, and (iv) the payments referred to in Condition5(B)(ii) below, as may be required, have all been deposited with a Conversion Agent.

“Conversion Date” means the first Trading Day following the Deposit Date that is not within aClosed Period.

(ii) Taxes and Expenses

As conditions precedent to the exercise of the Conversion Right attaching to any Bond, togetherwith the delivery of the documents referred to in Condition 5(B)(i) above, the holder of the Bond mustpay directly to the authorities all stamp, issue, registration and similar taxes and duties, if any, arisingon conversion in the country in which the Bond is deposited for conversion or payable in anyjurisdiction upon the issue or delivery of Common Shares or any other property or cash uponconversion to or to the order of a person other than the converting holder of the Bond. Except asaforesaid, the Company shall pay the expenses arising in the ROC on the issue of Common Shares uponconversion of the Bond and all charges of the Conversion Agents in connection therewith as providedin the Agency Agreements.

(iii) Transfer of Common Shares

Subject to the Conditions and subject further to any applicable limitations then imposed by ROClaws and regulations and the obtaining of TSE approval, if required, the Company shall procure that theCommon Shares, which are or will be listed on the TSE, shall be transferred to the local agent appointedby the holder of Bonds or any person designated by the holder of Bonds, as soon as practicable and inany event on a date not later than five Trading Days (or such number of Trading Days as stipulated byrelevant laws and regulations applicable from time to time) after the relevant Conversion Date, togetherwith any other property required to be delivered upon exchange and such assignments and otherdocuments (if any) as may be required by law to effect the delivery thereof.

(iv) Holder of Record

With effect from the opening of business in the ROC on the Conversion Date, the Company shalldeem the converting holder of a Bond as indicated in the Conversion Notice, or its designee, to havebecome the holder of record of the number of Common Shares to be issued upon such conversion(disregarding any retroactive adjustment of the relevant Conversion Price referred to below prior to thetime such retroactive adjustment shall have become effective). At such time, subject to Condition5(B)(v), the rights of such converting holder with respect to the Bond deposited for conversion shallcease, except rights arising under Condition 5(B)(vi).

(v) Delivery of Common Shares

On the Conversion Date, the Company shall register the converting holder of a Bond or itsdesignee, in the Company’s register of shareholders as the owner of the number of Common Shares tobe issued pursuant to Condition 5(B)(iv) upon conversion of the Bonds deposited by such holder.Subject as set forth below and subject further to any applicable limitations then imposed by ROC lawsand regulations (including any limitation on foreign ownership of Common Shares) and the obtainingof TSE approval, if any, in accordance with the request made in the relevant Conversion Notice, theCompany shall deliver as soon as practicable, and in any event within five Trading Days after theConversion Date, for the benefit of the converting holder, the following:

(a) the relevant Common Shares, through book-entry transfer to an account registered in thename of the converting holder or its designee at Taiwan Depository & Clearing Corporation(“TDCC”) or its successor, or, if the converting holder does not have an account with theTDCC, the Company will settle with the converting holder after such an account has beenset up;

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(b) any other property or cash (including, without limitation, cash payable pursuant toCondition 5(A)(ii)) required to be delivered upon conversion to the local agent appointedby the converting holder; and

(c) such documents as may be required by law to effect the delivery thereof to the local agentappointed by the converting holder.

(vi) Retroactive Adjustment of the Relevant Conversion Price

If (a) the Conversion Date in relation to any Bond falls on or after a date with effect from whichan adjustment to the relevant Conversion Price takes retroactive effect pursuant to any of the provisionsreferred to in Condition 5(C) and the Indentures and (b) the relevant Conversion Date falls on a datewhen the relevant adjustment has not been reflected in the relevant Conversion Price, the Companyshall, within 20 days after the date of such adjustment of the relevant Conversion Price, issue anddeliver to the local agent appointed by the converting holder of the Bond such number of CommonShares as is equal to the excess of (1) the number of Common Shares that would have been requiredto be issued on conversion of such Bond if the relevant retroactive adjustment had been made as of thesaid Conversion Date over (2) the number of Common Shares previously issued pursuant to suchconversion; and in such event and in respect of such number of Common Shares, references inConditions 5(B)(iv) and 5(B)(v) to the Conversion Date shall be deemed to refer to the date upon whichsuch retroactive adjustment becomes effective, disregarding the fact that the adjustment becomeseffective retroactively. Fractions of Common Shares shall not be issued but cash adjustment to thenearest NT Dollar shall be made in respect thereof.

(vii) Dividend and Other Entitlement

Common Shares issued on conversion of Bonds (if applicable) will in all respects rank pari passuwith the Common Shares in issue on the relevant Conversion Date (except for any right the record datefor which precedes such Conversion Date and except for any other right excluded by mandatoryprovisions of applicable law).

The converting holder shall be entitled to the Company’s annual dividends on the Common Sharesissuable upon conversion of the Bonds deposited by such holder if the Conversion Date falls prior tothe 15th Trading Day before the record date for determining the identity of shareholders who areentitled to such dividend distributions.

(viii) Conversion Agents

The Company reserves the right, subject to the provisions of the Agency Agreements, at any time,to vary or terminate the appointment of any Conversion Agent and to appoint other Conversion Agents;provided that the Company shall at all times maintain Conversion Agents having specified offices inLondon. Notice of any such termination or appointment and of any changes in the specified offices ofthe Conversion Agents shall be given promptly by the Company to the holders of the Bonds inaccordance with Condition 14 and to the Trustee in accordance with the Indentures.

(ix) Satisfaction of the Company’s Obligations

The Company’s delivery to the converting Bondholder of the number of Common Shares intowhich such converting Bondholder’s Bonds are convertible will be deemed to satisfy the Company’sobligation to pay the principal and premium (if any) of the Bonds at maturity, upon redemption oracceleration in accordance with the Indentures.

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

(a) the person to be registered as a shareholder is a “related party” of the Company underStatements of Financial Accounting Standard No. 6 of the ROC and such person beneficiallyowns Common Shares converted from the Bonds; or

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(b) the person to be registered as shareholder will hold, immediately following such conversion,more than 10% of the total number of the Common Shares issuable upon the conversion ofthe aggregate principal amount of the 2015 Bonds or 2017 Bonds, as the case may be, atthe time of issue.

The information that the holders of the Bonds are required to provide includes the name andnationality of the person to be registered as shareholder and the total number of Common Shares suchperson has or will receive in connection with the Bonds such person is converting or has converted inthe past.

(C) Adjustments to Conversion Price

Each of the 2015 Conversion Price and the 2017 Conversion Price shall be subject to adjustment asfollows (each such adjustment, an “Anti-dilution Adjustment”):

(i) Free Distribution and Bonus Issue of Common Shares and Declaration of Dividend in CommonShares:

If the Company shall (a) make a free distribution of Common Shares, (b) make a bonus issue ofits Common Shares (excluding Common Shares issued pursuant to any employee stock bonus orprofit-sharing arrangements described in Condition 5(C)(ix)) or (c) declare a dividend in CommonShares, then the Conversion Price shall be adjusted in accordance with the following formula:

NCP = OCP x [N/(N+n)]

where:

NCP = the Conversion Price after such adjustment.

OCP = the Conversion Price in effect (1) on the date when such distribution, bonus issue ordividend is declared or (2) on the relevant record date (if the Company has fixed aprior record date for the determination of shareholders entitled to receive any suchdistribution, bonus issue or dividend).

N = the number of Common Shares outstanding (having regard to Condition 5(C)(xvi)) (1)at the time of issuance of such dividend or bonus issue or distribution or (2) at theclose of business in the ROC on the relevant record date, as the case may be.

n = the number of Common Shares to be distributed to shareholders as a dividend, bonusissue or distribution.

No account is to be taken of, or credit given for, the par value of Common Shares issued in adividend in Common Shares in calculating the appropriate conversion price adjustment, so that the fulldilutive effect is provided for.

Effective date of adjustment: An adjustment made pursuant to this Condition 5(C)(i) shall becomeeffective 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 freedistribution or bonus issue of Common Shares or dividend in Common Shares which must, underapplicable laws of the ROC, be submitted for approval to a general meeting of shareholders or beapproved by a meeting of the board of directors of the Company before being legally paid or made, andwhich is so approved after the record date fixed for the determination of shareholders entitled to receivesuch distribution, bonus issue or dividend, such adjustment shall, immediately upon such approvalbeing given by such meeting, become effective retroactively to immediately after such record date.

(ii) Division, Consolidation and Reclassification of Common Shares:

If the Company shall (a) divide its outstanding Common Shares, (b) consolidate its outstandingCommon Shares into a smaller number of Common Shares, or (c) re-classify any of its Common Sharesinto other securities of the Company, then each Conversion Price shall be appropriately adjusted so thatthe holder of any Bond, the Conversion Date in respect of which occurs after the coming into effect ofthe adjustment described in this Condition 5(C)(ii), shall be entitled to receive on exercise of the

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Conversion Right the number of Common Shares and/or other securities of the Company which hewould have held or have been entitled to receive after the happening of any of the events describedabove had such Bond been converted immediately prior to the happening of such event (or, if theCompany has fixed a prior record date for the determination of shareholders entitled to receive any suchfree distribution or bonus issue of Common Shares or other securities issued upon any such division,consolidation or reclassification, immediately prior to such record date), but without prejudice to theeffect of any other adjustment to the Conversion Price made with effect from the date of the happeningof such event (or such record date) or any time thereafter.

For the avoidance of doubt, in the event the Company shall divide its outstanding CommonShares, the Conversion Price shall be adjusted in accordance with the following formula:

NCP = OCP x [N/(N+n)]

where:


OCP = the Conversion Price in effect (1) at the time such division occurs or (2) on therelevant record date for determining the Common Shares subject to such division.

N = the number of Common Shares outstanding (having regard to Condition 5(C)(xvi)) (1)at the time of such division or (2) at the close of business in the ROC on the relevantrecord date, as the case may be.

n = the number of Common Shares outstanding after such division.

Effective date of adjustment: An adjustment made pursuant to this Condition 5(C)(ii) shall becomeeffective 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 adivision, consolidation or reclassification of Common Shares which must, under applicable laws of theROC, be submitted for approval to a general meeting of shareholders or be approved by a meeting ofthe board of directors of the Company before being legally paid or made, and which is so approved afterthe record date fixed for the determination of shareholders entitled to receive such distribution or bonusissue of Common Shares or other securities issued upon such consolidation or reclassification, suchadjustment shall, immediately upon such approval being given by such meeting, become effectiveretroactively 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, CommonShares, which dividend, distribution or issue is to be paid or made to shareholders as of a record datewhich is also:

(a) the record date for the issue of any rights or warrants which requires an adjustment of theConversion Price pursuant to Condition 5(C)(iv), 5(C)(v) or 5(C)(vi);

(b) the day immediately before the date of issue of any securities convertible into orexchangeable for Common Shares which requires an adjustment of the Conversion Pricepursuant to Condition 5(C)(viii);

(c) the day immediately before the date of issue of any Common Shares which requires anadjustment of the Conversion Price pursuant to Condition 5(C)(ix) or (if applicable) therecord date for the determination of stock dividend entitlement as referred to in Condition5(C)(ix);

(d) the day immediately before the date of issue of any rights, options or warrants whichrequires an adjustment of the Conversion Price pursuant to Condition 5(C)(x); or

(e) determined by the Company and notified by the Company to the Trustee in writing to be therelevant date for an event or circumstance which requires an adjustment to the ConversionPrice pursuant to Condition 5(C)(xii),

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then (except where such dividend, free distribution or bonus issue gives rise to a retroactive adjustmentof the Conversion Price under Condition 5(C)(i)) no adjustment of the Conversion Price in respect ofsuch dividend, free distribution or bonus issue shall be made under Condition 5(C)(i), but in lieu thereofan adjustment shall be made under Condition 5(C)(iv), 5(C)(v), 5(C)(vi), 5(C)(viii), 5(C)(ix) or 5(C)(x)(as the case may require) by including in the denominator of the fraction described therein the aggregatenumber of Common Shares to be issued pursuant to such dividend, free distribution or bonus issue.

(iv) Rights Issues to Shareholders:

If the Company shall grant, issue or offer to the holders of Common Shares rights entitling themto subscribe for or purchase Common Shares (a “Rights Issue”, which expression shall include thoseCommon Shares which are required to be offered to employees and persons other than shareholders inconnection with such grant, issue or offer):

(a) at a consideration per Common Share receivable by the Company (determined as providedin Condition 5(C)(xv)) which is fixed on or prior to the record date mentioned below andis less than the Current Market Price (as defined in Condition 5(C)(xiv)) per Common Shareat such record date; or

(b) at a consideration per Common Share receivable by the Company which is fixed after therecord date mentioned below and is less than the Current Market Price per Common Shareon 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 determinationof shareholders entitled to receive such rights or (in a case within (b) above) on the date the Companyfixes the said consideration shall be adjusted in accordance with the following formula:

NCP = OCP x [(N+v)/(N+n)]

where:


OCP = the Conversion Price before such adjustment.

N = the number of Common Shares outstanding (having regard to Condition 5(C)(xvi)) atthe 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 Common Shares issued pursuant to the Rights Issue at the saidconsideration.

v = the number of Common Shares which the aggregate consideration receivable by theCompany (determined as provided in Condition 5(C)(xv)) would purchase at suchCurrent Market Price per Common Share specified in (a) or, as the case may be, (b)above.

Effective date of adjustment: Subject as provided below, such adjustment shall become effectiveimmediately upon the issue of Common Shares pursuant to the Rights Issue but retroactively toimmediately after the record date mentioned above.

(v) Warrants Issued to Shareholders:

If the Company shall grant, issue or offer to the holders of Common Shares warrants entitlingthem to subscribe for or purchase Common Shares:

(a) at a consideration per Common Share receivable by the Company (determined as providedin Condition 5(C)(xv)) which is fixed on or prior to the record date for the determinationof shareholders entitled to receive such warrants and is less than the Current Market Priceper Common Share at such record date; or

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(b) at a consideration per Common Share receivable by the Company which is fixed after therecord date mentioned above and is less than the Current Market Price per Common Shareon 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 determinationof shareholders entitled to receive such warrants or (in a case within (b) above) on the date theCompany fixes the said consideration shall be adjusted in accordance with the following formula:


where:

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


n = the number of Common Shares to be issued upon exercise of such warrants at the saidconsideration which, where no applications by shareholders entitled to such warrantsare required, shall be based on the number of warrants issued. Where applications byshareholders entitled to such warrants are required, the number of such CommonShares shall be calculated based upon (aa) the number of warrants which underwritershave agreed to underwrite as referred to below or, as the case may be, (bb) the numberof warrants for which applications are received from shareholders as referred to belowsave to the extent already adjusted for under (aa).


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, upontheir 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 afterthe Company fixes the said consideration but in all cases retroactively to immediately after the recorddate mentioned above.

Warrants not subscribed for by shareholders: If, in connection with a grant, issue or offer to theholders of Common Shares of warrants entitling them to subscribe for or purchase Common Shares inthe circumstances described in (a) and (b) of this Condition 5(C)(v), any warrants which are notsubscribed for or purchased by the shareholders entitled thereto are underwritten by others prior to thelatest date for the submission of applications for such warrants, an adjustment shall be made to theConversion Price in accordance with the above provisions which shall become effective immediatelyafter the date the underwriters agree to underwrite the same or (if later) immediately after the Companyfixes 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 Common Shares of warrants entitlingthem to subscribe for or purchase Common Shares, any warrants which are not subscribed for orpurchased by the underwriters who have agreed to underwrite as referred to above or by theshareholders entitled thereto (or persons to whom shareholders have transferred the right to purchasesuch warrants) who have submitted applications for such warrants as referred to above are offered toand/or subscribed by others, no further adjustment shall be made to the Conversion Price by reason ofsuch offer and/or subscription.

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(vi) Issues of Rights or Warrants for Equity-Related Securities to Shareholders:

If the Company shall grant, issue or offer to the holders of Common Shares rights or warrantsentitling them to subscribe for or purchase any securities convertible into or exchangeable for CommonShares:

(a) at a consideration per Common Share receivable by the Company (determined as providedin Condition 5(C)(xv)) which is fixed on or prior to the record date mentioned below andis less than the Current Market Price per Common Share at such record date; or

(b) at a consideration per Common Share receivable by the Company (determined as aforesaid)which is fixed after the record date mentioned below and is less than the Current MarketPrice per Common 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 determinationof shareholders entitled to receive such rights or warrants or (in a case within (b) above) on the datethe Company fixes the said consideration shall be adjusted in accordance with the following formula:


where:



n = the number of Common Shares initially to be issued upon exercise of such rights orwarrants and conversion or exchange of such convertible or exchangeable securitiesat the said consideration being, in the case of rights, (aa) the number of CommonShares initially to be issued upon conversion or exchange of the number of suchconvertible or exchangeable securities which the underwriters have agreed tounderwrite as referred to below or, as the case may be, (bb) the number of CommonShares initially to be issued upon conversion or exchange of the number of suchconvertible or exchangeable securities for which applications are received fromshareholders as referred to below save to the extent already adjusted for under (aa) andwhich, in the case of warrants, where no applications by shareholders entitled to suchwarrants are required, shall be based on the number of warrants issued. Whereapplications by shareholders entitled to such warrants are required, the number of suchCommon Shares shall be calculated based upon (x) the number of warrants whichunderwriters have agreed to underwrite as referred to below or, as the case may be, (y)the number of warrants for which applications are received from shareholders asreferred to below save to the extent already adjusted for under (x).


Effective date of adjustment: Subject as provided below, such adjustment shall become effective(a) where no applications for such warrants are required from shareholders entitled to the same, upontheir issue and (b) where applications by shareholders entitled to the warrants are required as aforesaidand in the case of convertible or exchangeable securities by shareholders entitled to the same pursuantto such rights, 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 toimmediately after the record date mentioned above.

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Rights or warrants not taken up by shareholders: If, in connection with a grant, issue or offer tothe holders of Common Shares of rights or warrants entitling them to subscribe for or purchasesecurities convertible into or exchangeable for Common Shares in the circumstances described in thisCondition 5(C)(vi), any convertible or exchangeable securities or warrants which are not subscribed foror purchased by the shareholders entitled thereto are underwritten by others prior to the latest date forthe submission of applications for such convertible or exchangeable securities or warrants, anadjustment shall be made to the Conversion Price in accordance with the above provisions which shallbecome 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 therecord date mentioned above.

If, in connection with a grant, issue or offer to the holders of Common Shares or of rights orwarrants entitling them to subscribe for or purchase securities convertible into or exchangeable forCommon Shares, any convertible or exchangeable securities or warrants which are not subscribed foror purchased by the underwriters who have agreed to underwrite as referred to above or by theshareholders entitled thereto (or persons to whom shareholders have transferred such rights or the rightto purchase such warrants) who have submitted applications for such convertible or exchangeablesecurities or warrants as referred to above are offered to and/or subscribed by others, no furtheradjustment shall be made to the Conversion Price by reason of such offer and/ or subscription.

(vii) Capital Distribution:

If the Company shall pay or make to its shareholders any Capital Distribution (as defined below)consisting in whole or in part of assets other than cash, then the Conversion Price shall be adjusted inaccordance with the following formula:

NCP = OCP x [(CMP-fmv)/CMP]

where:

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

CMP = the Current Market Price per Common Share on the record date for the determinationof shareholders entitled to receive the Capital Distribution.

fmv = the aggregate fair market value on the date of such announcement, as determined ingood faith by a leading independent investment bank of international repute selectedby the Company and acting as an expert, of the portion of the Capital Distributionattributable to one Common Share.

If the Company shall pay or make to its shareholders any Capital Distribution in cash only then,in such case, the Conversion Price shall be adjusted in accordance with the following formula:

NCP = OCP x [(M-C)/M]

where:

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

M = the Current Market Price per Common Share on such record date.

C = the amount of Capital Distribution in cash so distributed, applicable to one CommonShare, provided that with respect to any purchases of Capital Stock by the Company,C shall be equal to the excess of the price per Common Share paid by the Companyover the then current trading price per Common Share on the TSE on the applicableTrading Day.

Effective date of adjustment: Any adjustment required by a Capital Distribution shall becomeeffective immediately after the record date for the determination of shareholders entitled to receive suchCapital Distribution; provided that (a) in the case of such a Capital Distribution which must, underapplicable law of the ROC, be submitted for approval to a general meeting of shareholders or beapproved by a meeting of the Board of Directors of the Company before such Capital Distribution maylegally be made and is so approved after the record date fixed for the determination of shareholders

72

entitled to receive such Capital Distribution, such adjustment shall, immediately upon such approvalbeing 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 fixedfor the determination of shareholders entitled to receive such Capital Distribution, such adjustmentshall, immediately upon such fair market value being determined, become effective retroactively toimmediately after such record date.

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

“Capital Distribution” means any cash dividend, distribution of cash, distribution of assets inspecie or other property (whenever paid or made and however described) or payment on redemption,or for the purchase of, Capital Stock of the Company made by the Company for any fiscal year,provided that with respect to any purchases of Capital Stock by the Company, it shall not be a CapitalDistribution where the price per Common Share paid by the Company does not exceed the then currenttrading price per Common Share on the TSE on the applicable Trading Day.

“Capital Stock” means, with respect to the Company, any and all shares, interests, participationor other equivalents (however designated), including all common stock and all preferred stock of theCompany.

(viii) Issue of Convertible or Exchangeable Securities Other than to Shareholders or on Exercise ofWarrants:

If the Company shall issue any securities initially convertible into or exchangeable for CommonShares (other than the Bonds, or in any of the circumstances described in Condition 5(C)(vi) andCondition 5(C)(x)), and the consideration per Common Share receivable by the Company (determinedas provided in Condition 5(C)(xv)) shall be less than the Current Market Price per Common Share onthe date in the ROC on which the Company fixes the said consideration (or, if the issue of suchsecurities is subject to approval by a general meeting of shareholders, on the date on which the Boardof Directors of the Company fixes the consideration to be recommended at such meeting), then theConversion Price in effect immediately prior to the date of issue of such convertible or exchangeablesecurities shall be adjusted in accordance with the following formula:


where:

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

N = the number of Common Shares outstanding (having regard to Condition 5(C)(xvi)) atthe close of business in the ROC on the day immediately prior to the date of suchissue.

n = the number of Common Shares to be issued upon conversion or exchange of suchconvertible or exchangeable securities at the initial conversion or exchange price orrate.

v = the number of Common Shares which the aggregate consideration receivable by theCompany (determined as provided in Condition 5(C)(xv)) would purchase at suchCurrent Market Price per Common Share.

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

(ix) Other Issues of Common Shares:

If the Company shall issue any Common Shares, including, without limitation, in exchange forshares of another company, as consideration for a merger or pursuant to any employee stock bonus orprofit sharing arrangements (but other than Common Shares issued upon conversion or exchange of anyconvertible or exchangeable securities (including the Bonds) issued by the Company or upon exerciseof any rights or warrants granted, offered or issued by the Company or in any of the circumstances

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described in Conditions 5(C)(i) and 5(C)(ii)) for a consideration per Common Share receivable by theCompany (determined as provided in Condition 5(C)(xv)) less than the Current Market Price perCommon Share on the date in the ROC on which the Company fixes the said consideration (or, if theissue of such Common Shares is subject to approval by a general meeting of shareholders, on the dateon which the Board of Directors of the Company fixes the consideration to be recommended at suchmeeting), then the Conversion Price in effect immediately prior to the issue of such additional CommonShares shall be adjusted in accordance with the following formula:


where:


N = the number of Common Shares outstanding (having regard to Condition 5(C)(xvi)) atthe close of business in the ROC on the day immediately prior to the date of issue ofsuch additional Common Shares.

n = the number of additional Common Shares issued as aforesaid.


Effective date of adjustment: Such adjustment shall become effective as of the calendar day in theROC of the issue of such additional Common Shares or, in the case of (i) an issue to employees underany employee stock bonus or profit sharing arrangements, where such an issue is announced at the sametime as a stock dividend, such adjustment shall become effective as of the record date for determinationof the identity of the shareholders entitled to receive any such dividend, (ii) a merger, such adjustmentshall become effect as of the record date of such merger, or (iii) a share exchange, such adjustment shallbecome effect as of the record date of such share exchange.

(x) Issue of Equity-Related Securities:

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


where:


N = the number of Common Shares outstanding (having regard to Condition 5(C)(xvi)) atthe close of business in the ROC on the day immediately prior to the date of suchissue.

n = the number of Common Shares to be issued on exercise of such rights or warrants and(if applicable) conversion or exchange of such convertible or exchangeable securitiesat the said consideration.


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

(xi) Capital Reduction

Upon a capital reduction by the Company (other than by means of cancelling any Common Sharesrepurchased by us as treasury shares or by means of cancelling any Common Shares and returningcapital in cash to shareholders) then the Conversion Price shall be adjusted in accordance with thefollowing formula:

NCP = OCP x [N/n]

where:


N = the number of Common Shares outstanding immediately prior to the record date forsuch capital reduction

n = the number of Common Shares outstanding immediately after the record date for suchcapital reduction

For the avoidance of doubt, no adjustment to the Conversion Price under this Condition 5(C)(xi)will be required if we cancel any Common Shares repurchased by us as treasury shares or if werepurchase any Common Shares for the purposes of transferring to the employees or for conversion byholders of the convertible bonds issued by us.

Such adjustment shall become effective on the record date of such capital reduction.

(xii) Analogous Events and Modifications:

If (a) the rights of conversion or exchange, purchase or subscription attaching to any options,rights or warrants to subscribe for or purchase Common Shares or any securities convertible into orexchangeable for, or which carry rights to subscribe for or purchase Common Shares, are modified(other than pursuant to and as provided in the terms and conditions of such options, rights, warrants orsecurities) or (b) the Company determines or written notice has been given to the Trustee that any otherevent or circumstance has occurred which has or would have an effect on the position of the holdersof the Bonds as a class compared with the position of the holders of all the securities (and options andrights relating thereto) of the Company, taken as a class which is analogous to any of the events referredto in Conditions 5(C)(i) to 5(C)(xi), then, in any such case, the Company shall notify the Trustee thereofor if the Trustee has been notified under (b), the Trustee shall notify the Company thereof and theCompany shall consult with a leading independent investment bank of international repute selected bythe Company as to what adjustment, if any, should be made to the Conversion Price (and the timing ofany such adjustment) to preserve the value of the Conversion Right and will make any such adjustment.

(xiii) Simultaneous Issues of Different Classes of Common Shares:

In the event of simultaneous issues of two or more classes of share capital comprising CommonShares or rights or warrants in respect of, or securities convertible into or exchangeable for, two or moreclasses of share capital comprising Common Shares, then, for the purposes of this Condition 5(C)(xiii),the formula:

NCP = OCP x ((N+v)/(N+n))

shall be restated as:

NCP = OCP x [(N+v1+v2+v3)/(N+n1+n2+n3)]

where v1 and n1 shall have the same meanings as “v” and “n” but by reference to one class of CommonShares, v2 and n2 shall have the same meanings as “v” and “n” but by reference to a second class ofCommon Shares, v3 and n3 shall have the same meanings as “v” and “n” but by reference to a thirdclass of Common Shares and so on.

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(xiv) Current Market Price Per Common Share:

For the purpose of these Conditions, the “Current Market Price”, in relation to the CommonShares, for any date means the arithmetic average of the Closing Prices (as defined below) of therelevant Common Shares for the 30 consecutive Trading Days commencing 45 Trading Days beforesuch date; provided, however, if no Closing Price is available for one or more Trading Days, such dayor days shall be disregarded in any relevant calculation and shall be deemed not to have existed whenascertaining any period of consecutive Trading Days.

If the Company has more than one class of share capital comprising Common Shares, then therelevant Current Market Price for Common Shares shall be the price for that class of Common Sharesthe issue of which (or of rights or warrants in respect of, or securities convertible into or exchangeablefor, that class of Common 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 ofwhich the adjustment of the Conversion Price in question shall be effected, any event (other than theevent which requires the adjustment in question) shall occur which gives rise to a separate adjustmentto the Conversion Price under the provisions of these Conditions, then the Current Market Price asdetermined above shall be adjusted in such manner and to such extent as a leading independentinvestment bank of international repute selected by the Company shall deem appropriate and fair tocompensate for the effect thereof.

For the purpose of these Conditions, “Closing Price”, in relation to the Common Shares, for eachTrading Day means the last reported transaction price or, if no transaction takes place on such day, thelast available reported transaction price of the Common Shares on the TSE in effect on the Trading Dayimmediately preceding such day or, if the Common Shares are not at that time listed or admitted totrading on the TSE, the average of the closing bid and offered prices of the Common Shares for suchday as furnished by a leading independent securities firm licensed to trade on the TSE selected by theCompany for that purpose.

(xv) Consideration Receivable by the Company:

For the purposes of any calculation of the consideration receivable by the Company pursuant toCondition 5(C), the following provisions shall be applicable:

(a) in the case of the issue of Common Shares for cash, the consideration shall be the amountof such cash, provided that in no such case shall any deduction be made for anycommissions or any expenses paid or incurred by the Company for any underwriting of theissue or otherwise in connection therewith;

(b) in the case of the issue of Common Shares for a consideration in whole or in part other thancash, the consideration other than cash shall be the net value per share calculated based onthe latest audited or reviewed financial statements prior to the record date of merger or shareexchange, as the case may be, times share exchange ratio or, if pursuant to applicable lawof the ROC such determination is to be made by application to a court of competentjurisdiction, 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) ofsecurities convertible into or exchangeable for Common Shares, the aggregate considerationreceivable by the Company shall be deemed to be the consideration received by theCompany for such securities and (if applicable) rights or warrants plus the additionalconsideration (if any) to be received by the Company upon (and assuming) the conversionor exchange of such securities at the initial conversion or exchange price or rate and (ifapplicable) the exercise of such rights or warrants at the initial subscription or purchaseprice (the consideration in each case to be determined in the same manner as provided in(a) and (b) above) and the consideration per Common Share receivable by the Company

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shall be such aggregate consideration divided by the number of Common Shares to be issuedupon (and assuming) such conversion or exchange at the initial conversion or exchangeprice or rate and (if applicable) the exercise of such rights or warrants at the initialsubscription or purchase price;

(d) in the case of the issue of rights or warrants to subscribe for or purchase Common Shares,the aggregate consideration receivable by the Company shall be deemed to be theconsideration received by the Company for any such rights or warrants plus the additionalconsideration to be received by the Company upon (and assuming) the exercise of suchrights or warrants at the initial subscription or purchase price (the consideration in each caseto be determined in the same manner as provided in (a) and (b) above) and the considerationper Common Share receivable by the Company shall be such aggregate considerationdivided by the number of Common Shares to be issued upon (and assuming) the exerciseof 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 Condition5(C)(xv) is receivable in a currency other than NT Dollars, such consideration shall (in anycase where there is a fixed rate of exchange between the NT Dollar and the relevantcurrency for the purposes of the issue of the Common Shares, the conversion or exchangeof such securities or the exercise of such rights or warrants) be translated into NT Dollarsfor the purposes of this Condition 5(C)(xv) at such fixed rate of exchange and shall (in allother cases) be translated into NT Dollars at the mean of the exchange rate quotations (beingquotations for the cross rate through US Dollars if no direct rate is quoted) by a leading bankin the ROC for buying and selling spot units of the relevant currency by telegraphic transferagainst NT Dollars on the date as of which the said consideration is required to be calculatedas aforesaid;

(f) in the case of the issue of Common Shares (other than to employees under any employeestock bonus or profit sharing arrangements) credited as fully paid out of retained earningsor capitalization or reserves at their par value, the aggregate consideration receivable by theCompany shall be deemed to be zero (and accordingly the number of Common Shares whichsuch aggregate consideration receivable by the Company could purchase at the relevantCurrent Market Price per Common Share shall also be deemed to be zero) and in the eventof a free distribution of shares or stock splits, the aggregate consideration receivable by theCompany shall be deemed to be zero; and

(g) in the case of the issue of Common Shares to employees under any employee stock bonusor profit sharing arrangements, the aggregate consideration receivable by the Company shallbe deemed to be the number of Common Shares issued multiplied by the closing price ofthe Common Shares on the TSE on the date immediately prior to the date of theshareholders’ meeting approving such issuance.

(xvi) Cumulative Adjustments:

If, at the time of computing an adjustment (the “later adjustment”) of the Conversion Pricepursuant to any of Conditions 5(C)(i), 5(C)(iv), 5(C)(v), 5(C)(viii), 5(C)(ix) and 5(C)(x), theConversion Price already incorporates an adjustment made (or taken or to be taken into accountpursuant to the proviso to Condition 5(C)(xvii)) to reflect an issue of Common Shares or of securitiesconvertible into or exchangeable for Common Shares or of rights or warrants to subscribe for orpurchase Common Shares or securities, to the extent that the number of such Common Shares orsecurities taken into account for the purposes of calculating such adjustment exceeds the number ofsuch Common Shares in issue at the time relevant for ascertaining the number of outstanding CommonShares for the purposes of computing the later adjustment, such excess Common Shares shall bedeemed to be outstanding for the purposes of making such computation.

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(xvii) Minor Adjustments:

No adjustment of any Conversion Price will be made where such adjustment would be less than1% of the relevant Conversion Price then in effect; provided, however, that any adjustment that byreason of this Condition 5(C)(xvii) is not required to be made will be carried forward and taken intoaccount (as if such adjustment had been made at the time when it would have been made but for theprovision of this Condition 5(C)(xvii)) in determining any subsequent adjustment. Except as otherwisedescribed below, each Conversion Price may at any time be reduced by the Company.

(xviii) Minimum Conversion Price:

Notwithstanding the provisions of this Condition 5(C), each Conversion Price shall not bereduced below the par value of the Common Shares (NT$10 at the date hereof) as a result of anyadjustment made hereunder, unless, under applicable law then in effect, the Bonds could be convertedat such reduced Conversion Price into legally issued, fully paid and non-assessable Common Shares.

(xix) Reference to “Fixed”:

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

(xx) Trustee and Agents not Obliged to Monitor:

The Trustee and the Agents shall not be under any duty to monitor whether any event orcircumstance has occurred or exists that might fall within this Condition 5(c) and shall not beresponsible to the Bondholders for any loss arising from any failure by them to do so.

(xxi) Calculations:

All calculations relating to adjustment of the relevant Conversion Price shall be performed by theCompany. All calculations under this Condition 5(C) shall be made to the nearest .001 of a share ofsecurities or other property or nearest cent of a dollar, as the case may be. If any doubt shall arise asto the appropriate adjustment to the Conversion Price, a certificate from a leading independentinvestment bank of international repute selected by the Company shall be conclusive and binding onall concerned save in the case of manifest error.

(xxii) Certification to Trustee:

The Company shall send to the Trustee a certificate setting out the particulars relating to eachadjustment of the Conversion Price in accordance with the Indentures. The Company shall also causea notice containing the same information to be given to Holders.

(xxiii) Treasury Shares:

In determining the number of Common Shares outstanding under this Condition 5(C), anytreasury share purchased by the Company, which has not been cancelled, shall be excluded in suchdetermination. No adjustment shall be made to the Conversion Price under this Condition 5(C) uponthe cancellation of any treasury shares held by it in accordance with ROC laws and regulations.

(D) Conversion Undertakings

(i) Listing of the Common Shares:

The Company will use its best efforts to ensure that it maintains a listing for all Common Shares,including the Common Shares issued upon conversion of the Bonds, on the TSE.

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(ii) Closed Periods:

The Company undertakes to ensure (to the extent of any discretion it has in respect of the lengthof any Closed Period) that any Closed Period is for as short a period as is reasonably practicable havingregard to applicable laws, regulations and practices.

(iii) Notice:

In the event of an adjustment to either Conversion Price in accordance with this Condition 5, theholders of the relevant series of Bonds will be notified in accordance with Condition 14.

(iv) Protection of Conversion Rights:

The Company has also given certain other undertakings in the Indentures for the protection of theConversion Rights.

6. PAYMENTS

(A) Manner of Payment

Payment in respect of a Bond shall be made (i) by transfer to the registered account of the holder ofthe Bond or (ii) if such holder does not have a registered account, by a US Dollar check drawn on a bankin New York City mailed to its registered address. Payments of principal, interest (if any) and premium (ifany), however, under a Bond represented by a Definitive Certificate shall only be made after surrender of therelevant certificate at the specified office of an Agent.

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

(B) Registered Account and Address

The registered account and address of a holder of the Bonds means its US Dollar account maintainedby or on behalf of it with a bank in New York City and address appearing on the Bond Register at the closeof business on the second Payment Business Day (as defined below) before the due date for payment.

(C) Fiscal Laws

All payments are subject in all cases to any applicable fiscal or other laws and regulations, but withoutprejudice to the provisions of Condition 8. No commissions or expenses shall be charged to the holders ofthe Bonds in respect of such payments.

(D) Date of Payment

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

For the purposes of this Condition 6 and Condition 7:

“Payment Business Day” means a day (other than a Saturday or Sunday) on which commercial banksare open for business in New York City, London and Taipei and, in the case of the surrender of a DefinitiveCertificate, in New York City and in the place where the Definitive Certificate is surrendered.

(E) Default Interest and Payment Delay

If the Company fails to pay any sum in respect of the Bonds when the same becomes due and payableunder these Conditions, interest shall accrue on the overdue sum at the rate of 5.50% per annum from the duedate and ending on the date on which payment is made to the holders of the Bonds in respect thereof (bothdates inclusive). Such default interest shall accrue on the basis of the actual number of days elapsed and a360-day year consisting of 12 months of 30 days each.

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

(F) Partial Payments

If the amount of principal and premium (if any) which is due on the Bonds is not paid in full, theRegistrar will annotate the Bond Register with a record of the amount of principal and/or premium, in factpaid.

7. REDEMPTION, REPURCHASE AND CANCELLATION

(A) Redemption at Maturity

Unless previously redeemed, repurchased and cancelled, or converted as herein provided, the Companyshall redeem (i) the 2015 Bonds at a redemption price of 102.171% of their principal amount in US Dollarson August 10, 2015 (the “2015 Maturity Date”) and (ii) the 2017 Bonds at a redemption price of 118.995%of their principal amount in US Dollars on August 10, 2017 (the “2017 Maturity Date”), or if the 2015Maturity Date or the 2017 Maturity Date (each, a “Maturity Date”) is not a Payment Business Day, on theimmediately preceding Payment Business Day. The Bonds may be redeemed prior to the relevant MaturityDate only as provided in Conditions 7(B), 7(C), 7(D), 7(E) and 7(F) below, but without prejudice toCondition 9.

(B) Redemption at the Option of the Company

At any time on or after August 10, 2013 and prior to the relevant Maturity Date, the Company may,having given not less than 30 nor more than 60 days’ notice to the holders of the relevant series of Bonds(which notice shall be irrevocable and delivered in accordance with Condition 7(I) and Condition 14), redeem(i) the 2015 Bonds, in whole or in part (being US$100,000 in principal amount or an integral multiplethereof), at the 2015 Early Redemption Amount (as defined below) on the relevant date of redemption or (ii)the 2017 Bonds, in whole or in part (being US$100,000 in principal amount or an integral multiple thereof),at the 2017 Early Redemption Amount (as defined below) on the relevant date of redemption; provided,however, that in each case, no such redemption may be made unless the Closing Price (as defined inCondition 5(C)) of the Common Shares, translated into US Dollars at the Prevailing Rate, on any 20consecutive Trading Days, the last of which occurs not more than five Trading Days prior to the date uponwhich notice of such redemption is given, is at least 130% of the 2015 Early Redemption Amount, in the caseof a redemption of the 2015 Bonds, or the 2017 Early Redemption Amount, in the case of a redemption ofthe 2017 Bonds, in each case, divided by the prevailing Conversion Ratio.

“Prevailing Rate” means the fixing rate at 11 a.m. for the purchase of US Dollars with NT Dollarsquoted by Taipei Forex Inc. on each Trading Day.

“2015 Early Redemption Amount” of a 2015 Bond as of any date means an amount equal to 100%of the principal amount of the 2015 Bond plus the 2015 Redemption Premium at the relevant date. “2015Redemption Premium” as of any date means an amount that is determined so that such 2015 RedemptionPremium represents for each 2015 Bondholder a gross yield of 0.43% per annum (which is identical to thegross yield for the 2015 Bonds in the case of redemption at maturity), calculated on a semi-annual basis. The2015 Early Redemption Amount for each US$100,000 principal amount of 2015 Bonds is calculated inaccordance with the following formula, rounded (if necessary) to two decimal places with 0.005 beingrounded upwards (provided that if the date fixed for redemption is a Semi-Annual Date (as set out below),such 2015 Early Redemption Amount shall be as set out in the table below in respect of such Semi-AnnualDate):

2015 Early Redemption Amount = Previous 2015 Early Redemption Amount x (1+r/2)d/180

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where:

Previous 2015 RedemptionAmount

= the 2015 Early Redemption Amount for each US$100,000principal amount on the Semi-Annual Date immediatelypreceding the date fixed for redemption as set out below(or if the 2015 Bonds are to be redeemed prior to February10, 2011 (the first Semi-Annual Date), US$100,000):

Semi-Annual Date

2015 Early

Redemption Amount

US$

February 10 2011 ........................................................................................................ 100,215.00August 10 2011 .......................................................................................................... 100,430.46February 10 2012 ........................................................................................................ 100,646.39August 10 2012 .......................................................................................................... 100,862.78February 10 2013 ........................................................................................................ 101,079.63August 10 2013 .......................................................................................................... 101,296.95February 10 2014 ........................................................................................................ 101,514.74August 10 2014 .......................................................................................................... 101,733.00February 10 2015 ........................................................................................................ 101,951.72

r = 0.43% expressed as a decimal

d = number of days from and including the immediately preceding Semi-Annual Date (or if the2015 Bonds are to be redeemed prior to the first Semi-Annual Date, from and including theIssue Date) to, but excluding, the date fixed for redemption, calculated on the basis of a360-day year consisting of 12 months of 30 days each and, in the case of an incompletemonth, the number of days elapsed.

“2017 Early Redemption Amount” of a 2017 Bond as of any date means an amount equal to 100%of the principal amount of the 2017 Bond plus the 2017 Redemption Premium at the relevant date. “2017Redemption Premium” as of any date means an amount that is determined so that such 2017 RedemptionPremium represents for each 2017 Bondholder a gross yield of 2.50% per annum (which is identical to thegross yield for the 2017 Bonds in the case of redemption at maturity), calculated on a semi-annual basis. The2017 Early Redemption Amount for each US$100,000 principal amount of 2017 Bonds is calculated inaccordance with the following formula, rounded (if necessary) to two decimal places with 0.005 beingrounded upwards (provided that if the date fixed for redemption is a Semi-Annual Date (as set out below),such 2017 Early Redemption Amount shall be as set out in the table below in respect of such Semi-AnnualDate):

2017 Early Redemption Amount = Previous 2017 Early Redemption Amount x (1+r/2)d/180

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where:

Previous 2017 RedemptionAmount

= the 2017 Early Redemption Amount for each US$100,000principal amount on the Semi-Annual Date immediatelypreceding the date fixed for redemption as set out below (or ifthe 2017 Bonds are to be redeemed prior to February 10, 2011(the first Semi-Annual Date), US$100,000):

Semi-Annual Date

2017 Early

Redemption Amount

US$

February 10 2011 ........................................................................................................ 101,250.00August 10 2011 .......................................................................................................... 102,515.63February 10 2012 ........................................................................................................ 103,797.07August 10 2012 .......................................................................................................... 105,094.53February 10 2013 ........................................................................................................ 106,408.22August 10 2013 .......................................................................................................... 107,738.32February 10 2014 ........................................................................................................ 109,085.05August 10 2014 .......................................................................................................... 110,448.61February 10 2015 ........................................................................................................ 111,829.22August 10 2015 .......................................................................................................... 113,227.08February 10 2016 ........................................................................................................ 114,642.42August 10 2016 .......................................................................................................... 116,075.45February 10 2017 ........................................................................................................ 117,526.39

r = 2.50% expressed as a decimal

d = number of days from and including the immediately preceding Semi-annual Date (or if the2017 Bonds are to be redeemed prior to the first Semi-annual Date, from and including theIssue Date) to, but excluding, the date fixed for redemption, calculated on the basis of a360-day year consisting of 12 months of 30 days each and, in the case of an incompletemonth, the number of days elapsed.

“Early Redemption Amount” shall refer to the 2015 Early Redemption Amount or the 2017 EarlyRedemption Amount, as the context requires and “Redemption Premium” shall refer to the 2015Redemption Premium or the 2017 Redemption Premium, as the context requires.

“Conversion Ratio” means the principal amount of each Bond translated into NT dollars at the FixedExchange Rate divided by the applicable Conversion Price.

Notwithstanding the conditions to the Company’s right to redeem the Bonds set forth in theimmediately preceding paragraph, at any time, the Company may, having given not less than 30 nor morethan 60 days’ notice to the holders (which notice shall be irrevocable and delivered in accordance withCondition 7(I) and Condition 14), redeem either series of Bonds, in whole but not in part, at the relevantEarly Redemption Amount if more than 90% in principal amount of the relevant series of Bonds has alreadybeen redeemed, repurchased and cancelled, or converted as herein provided.

No notice of redemption given under this Condition 7(B) shall be effective if it specifies a date forredemption which falls during a Closed Period (as defined in Condition 5(A)). Upon the expiry of anyeffective notice of redemption, the Company will be bound to redeem the Bonds to which such notice relatesat the date fixed for redemption.

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(C) Redemption for Taxation Reasons

At any time, the Company may, having given not less than 30 nor more than 60 days’ notice (a “TaxRedemption Notice”) to the holders of each series of the Bonds (which notice shall be irrevocable anddelivered in accordance with Condition 7(I) and Condition 14), subject to the provisions of the last paragraphof this Condition 7(C), redeem each series of the Bonds, in whole but not in part, at the relevant EarlyRedemption Amount, on the date fixed for redemption in the Tax Redemption Notice (the “Tax RedemptionDate”), provided that the Company satisfies the Trustee that, immediately prior to the giving of such notice:

(i) the Company has or shall become obliged to pay Additional Amounts (as defined in Condition 8)in respect of taxes at a rate in excess of 15%, as a result of any change in, or amendment to, thelaws or regulations of the ROC or any political subdivision or any authority thereof or thereinhaving power to tax, or any change in the general application or official interpretation of suchlaws or regulations, which change or amendment becomes effective after the Issue Date; and

(ii) such obligation cannot be avoided by the Company taking reasonable measures available to it.Notwithstanding the foregoing, no such Tax Redemption Notice shall be given earlier than 30days prior to the earliest date on which the Company would be obliged to pay such AdditionalAmounts, were a payment on the Bonds then due.

Prior to the delivery of any Tax Redemption Notice pursuant to this Condition 7(C), the Company shalldeliver to the Trustee (1) a certificate signed by two Authorized Officers stating that the obligation referredto in clause (i) above cannot be avoided by taking reasonable measures available to it, and (2) an opinionaddressed to the Trustee by an independent law firm of recognized standing admitted to practice in the ROCor written advice of a qualified tax adviser of recognized standing in the ROC to the effect that the Companyhas or will become obligated to pay such Additional Amounts as a result of such change or amendment, andthe Trustee shall be entitled to accept without further enquiry such certificate and opinion or advice assufficient and conclusive evidence of the fulfillment of the conditions precedent referred to in this Condition7(C), in which event it shall be conclusive and binding on the holders of the Bonds. The Bonds in respectof which a notice of redemption has been given under Condition 7(B), 7(D), 7(E) or 7(F) shall not be affectedby any notice given subsequently under this Condition 7(C).

If the Company gives a Tax Redemption Notice under this Condition 7(C), each holder of the Bondsshall have the right (the “Non-Redemption Option”) to elect that all or a portion (being US$100,000 inprincipal amount or an integral multiple thereof) of its Bonds not be redeemed. Upon the exercise of theNon-Redemption Option with respect to such Bonds, no Additional Amounts referred to in Condition 8 shallbe payable on the payments due after the relevant Tax Redemption Date and, subject to Condition 8, suchpayments shall be made subject to the deduction or withholding required under the laws or regulations of theROC. For the avoidance of doubt, any Additional Amount that had been payable in respect of the Bonds underCondition 8 as a result of the laws or regulations of the ROC in effect on the Issue Date shall continue tobe payable to such holders of the Bonds.

To exercise the Non-Redemption Option pursuant to this Condition 7(C), the holder of the relevantBond must complete, sign and deposit at the specified office of any Paying Agent a duly completed andsigned current notice of exercise, obtainable from the specified office of any Paying Agent, together with theDefinitive Certificate, if one has been issued, on or before the day falling 10 days prior to the Tax RedemptionDate.

(D) Redemption at the Option of the Holders

Unless previously redeemed, repurchased and cancelled, or converted as herein provided, each holderof the 2015 Bonds shall have the right (“2015 Holders’ Put Right”), at such holder’s option, to require theCompany to redeem, in whole or in part (being US$100,000 in principal amount or an integral multiplethereof), the 2015 Bonds held by such holder on August 10, 2013 (“2015 Holders’ Put Date”) at the 2015Early Redemption Amount.

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Unless previously redeemed, repurchased and cancelled, or converted as herein provided, each holderof the 2017 Bonds shall have the right (“2017 Holders’ Put Right” and together with the 2015 Holders’ PutRight, the “Holders’ Put Rights”, and each a “Holder Put Right”), at such holder’s option, to require theCompany to redeem, in whole or in part (being US$100,000 in principal amount or an integral multiplethereof), the 2017 Bonds held by such holder on August 10, 2015 (“2017 Holders’ Put Date” and the 2015Holders’ Put Date, each a “Holders’ Put Date”) at the 2017 Early Redemption Amount.

(E) Redemption in the Event of Delisting

Unless previously redeemed, repurchased and cancelled, or converted as herein provided, in the eventthat the Common Shares are officially delisted from the TSE (a “Delisting”), each holder shall have the right(a “Delisting Put Right”), at such holder’s option, to require the Company to redeem such holder’s Bonds,in whole or in part, at the 2015 Early Redemption Amount, in the case of the 2015 Bonds, or at the 2017 EarlyRedemption Amount, in the case of the 2017 Bonds, on the 20th Payment Business Day following the dateon which the Company provides written notice to the Trustee of the Delisting in accordance with Condition7(I)(ii).

The Trustee shall not be required to take any steps to ascertain whether a Delisting or any event whichcould lead to the occurrence of a Delisting has occurred and will not be responsible or liable to Holders forany loss arising from any failure to do so.

(F) Redemption in the Event of a Change of Control

Unless previously redeemed, repurchased and cancelled, or converted as herein provided, if a Changeof Control (as defined below) occurs, each holder shall have the right (a “Change-of-Control Put Right”),at such holder’s option, to require the Company to redeem such holder’s Bonds, in whole or in part, at the2015 Early Redemption Amount, in the case of the 2015 Bonds, or at the 2017 Early Redemption Amount,in the case of the 2017 Bonds, on the 20th Payment Business Day following the date on which the Companyprovides written notice to the Trustee of the Change of Control in accordance with Condition 7(I)(ii).

For the purposes of this Condition 7(F):

“Control” means the right to appoint and/or remove all or a majority of the members of the board ofdirectors or other governing body of the Company, whether such right is obtained directly or indirectly byownership of share capital, the possession of voting rights, contract or otherwise.

A “Change of Control” occurs when:

(a) any person or persons, whether individually or acting in concert as a group, acquires Controlof the Company and such person or persons does not or do not have, and would not bedeemed to have, Control of the Company on the Issue Date;

(b) the Company consolidates with or merges into or sells or transfers all or substantially all ofthe Company’s assets to any other person, unless the consolidation, merger, sale or transfershall not result in the other person or persons acquiring Control over the Company or thesuccessor entity; or

(c) one or more other persons acquires the legal or beneficial ownership of all or substantiallyall of the Company’s capital stock;

except that a Change of Control shall not be deemed to have occurred if the Closing Price per Common Sharefor any five Trading Days within the period of 10 consecutive Trading Days beginning immediately followingthe later of the Change of Control or the public announcement of the Change of Control equals or exceeds110% of both Conversion Prices in effect on each of those five Trading Days.

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

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“Subsidiary” in relation to the Company means any corporation or other business entity of which theCompany owns or controls (either directly or indirectly) more than 50% of the issued share capital or otherownership interest having ordinary voting power to elect directors, managers or trustees of such company orother business entity (whether or not capital stock or other ownership interest of any other class or classesshall or might have a voting power upon the occurrence of any contingency) or any company or otherbusiness entity which at the relevant time has its accounts consolidated with those of such Person as asubsidiary company, or which, under ROC law or generally accepted accounting principles of the ROC fromtime to time in effect, should have its accounts consolidated with those of the Company as a subsidiarycompany.

(G) Repurchase and Cancellation

The Company may at any time and from time to time repurchase the Bonds in the open market orotherwise at any price. The Company shall promptly surrender any Bonds so purchased to the PrincipalPaying Agent for cancellation.

(H) Cancellation

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

(I) Redemption Procedures

(i) Notice of Exercise of the Company’s Option to Redeem

To exercise its right to redeem the Bonds in accordance with Condition 7(B) or 7(C), theCompany shall provide the notice required to be given pursuant to Condition 7(B) or 7(C) to the Trusteewith sufficient time in advance to enable the Trustee to comply with Condition 7(I)(vi) in the case ofa partial redemption pursuant to Condition 7(B) and to enable the Trustee to provide such notice to eachholder of one or both series of Bonds, as the case may be, not less than 30 nor more than 60 days priorto the redemption date. Such notice shall be irrevocable upon its dispatch by the Trustee to the holders.Such notice shall be provided in accordance with Condition 14.

(ii) Notice of Put Rights

The Company shall provide a notice containing the relevant information to the Trustee withsufficient time in advance (or, in the case of a Delisting or Change of Control, promptly after theCompany’s becoming aware, but in any event within seven days, of such an event) to enable the Trusteeto provide such notice to each holder of one or both series of Bonds, as the case may be (a) in the caseof a redemption in accordance with Condition 7(D), not less than 30 or more than 60 days prior to therelevant Holders’ Put Date or (b) in the case of a redemption in accordance with Condition 7(E) or 7(F),20 Payment Business Days prior to the Bondholder’s redemption date thereunder. Any such notice shallbe provided in accordance with Condition 14.

(iii) Form of Notice

The notice mentioned in clauses (i) and (ii) above shall state, as appropriate:

(a) the redemption date;

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

(c) in the case of a Change of Control, the date of such Change of Control and, briefly, theevents causing such Change of Control;

(d) the date by which the Put Notice (as defined in Condition 7(I)(iv)), if applicable, must begiven by the holder;

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(e) the Closing Price of the Common Shares on the most recent practicable Trading Day forwhich such Closing Price can be provided;

(f) the redemption price and the method by which such amount shall be paid;

(g) the names and addresses of all Paying Agents;

(h) briefly, the Conversion Rights of the holders of the Bonds and the Conversion Price then ineffect for the relevant series of Bonds;

(i) the procedures that a holder must follow and the requirements that such holder must satisfyin order to exercise any of the Holders’ Put Rights, Delisting Put Rights or Change-of-Control Put Rights, if applicable, and the Conversion Rights attached to its Bonds;

(j) the procedures that a holder who has delivered a Put Notice must follow in order towithdraw such notice;

(k) the principal amount of the Bonds outstanding as of the latest practicable date prior to thedelivery of the notice;

(l) any identifying numbers of the Bonds and/or Definitive Certificates to be redeemed;

(m) the place or places of payment; and

(n) that payment will be made upon presentation and surrender of the Bonds to be redeemed.

(iv) Exercise of Put Rights

To exercise a Holders’ Put Right, Delisting Put Right or Change-of-Control Put Right, as the casemay be, a holder must deliver a written notice of the exercise of such right in the form obtainable fromany of the Agents (a “Put Notice”), together with the Definitive Certificate, if any, in respect of therelevant Bond, to any Paying Agent on any Payment Business Day that is not fewer than 10 PaymentBusiness Days prior to the relevant redemption date. Once deposited, a Put Notice may not bewithdrawn without the consent of the Company.

(v) Payment for Bonds Represented by Definitive Certificates

Payment of the relevant redemption price upon exercise of a Holders’ Put Right, Delisting PutRight or Change-of-Control Put Right attaching to any Bond represented by a Definitive Certificate forwhich a Put Notice has been delivered is conditioned upon the delivery of such Definitive Certificate(together with any necessary endorsements) to any Paying Agent. Payment shall be made promptlyfollowing the later of the relevant redemption date and the time of delivery of such DefinitiveCertificate. If the Paying Agent holds on the relevant redemption date money sufficient to pay theredemption price for a Bond for which a Put Notice has been delivered, then, whether or not theDefinitive Certificate representing such Bond is delivered to the Paying Agent, on and after the relevantredemption date, (a) such Bond shall cease to be outstanding; (b) the interest, if any, on such Bond shallcease to accrue; (c) such Bond shall be deemed paid; and (d) all other rights of the holder shallterminate, other than the right to receive the redemption price.

(vi) Partial Redemption

In the case of a redemption of less than all of the Bonds then outstanding pursuant to Condition7(B), the Bonds shall be redeemed pro rata or selected individually by lot by the Principal PayingAgent, in such place as the Trustee shall approve and in such manner as the Trustee shall deem to beappropriate and fair, not more than 70 days nor less than 40 days prior to the date fixed for redemption.

(vii) Precedence of Notices

If more than one notice is given pursuant to this Condition 7 pursuant to which a series of Bondsis or are to be redeemed, the first of such notices to be given shall prevail.

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8. TAXATION

Unless otherwise exempted under any applicable tax treaty, interest (if any) and premium (if any)payable on the Bonds to non-residents of the ROC is currently subject to a withholding tax in the ROC equalto 15% of the gross amount of such interest (if any) and premium (if any). A securities transaction tax of 0.3%levied on proceeds from the sale of common shares will be payable by the seller of the common shares.

All payments in respect of the Bonds by the Company shall be made free and clear of, and without anydeduction or withholding for or on account of, any present or future taxes, duties, assessments orgovernmental charges of whatever nature (“Taxes”) imposed, levied, collected, withheld or assessed by oron behalf of the government of the ROC or any authority thereof or therein having power to tax unless suchwithholding or deduction is required by law. If such deduction or withholding from any such payment isrequired by law, the Company shall pay such additional amounts (“Additional Amounts”) as will result inthe receipt by the holders of the Bonds of the amounts that would have been receivable in the absence of anysuch deduction or withholding, except that no Additional Amounts shall be payable in respect of any Bond:

(i) to, or on behalf of, a holder of the Bond or its beneficial owner who is subject to such taxes,duties, assessments or governmental charges in respect of such Bond by reason of its beingconnected with the ROC otherwise than merely by holding such Bond or by the receipt ofpayments in respect of the Bond;

(ii) to or on behalf of a holder of the Bond or its beneficial owner to the extent that such holder orbeneficial owner would not be liable for or subject to such deduction or withholding by makinga declaration of non-residence or other claim for exemption to the relevant tax authorities if suchholder or beneficial owner is eligible to make such declaration or claim and, such holder orbeneficial owner fails to timely do so;

(iii) if the Definitive Certificate, if issued, in respect of the Bond is presented for payment (wherepresentation is required) more than 30 days after the relevant date (as defined below) except tothe extent that the holder would have been entitled to such Additional Amounts on surrenderingthe relevant certificate for payment on the last day of such 30-day period;

(iv) where such withholding or deduction is imposed on a payment to an individual and is requiredto be made pursuant to European Council Directive 2003/48/EC or any other European UnionDirective implementing the conclusions of the ECOFIN Council meeting of November 26—27,2000 on the taxation of savings income or any other law implementing or complying with, orintroduced in order to conform to, such Directive or other Directive;

(v) to or on behalf of a holder who would have been able to avoid such withholding or deduction bypresenting (where presentation is required) the relevant Bond to another Paying Agent; or

(vi) any estate, inheritance, gift, sale, transfer, stamp, personal property or similar tax, assessment orother governmental charge.

In addition, the Company shall not be obligated to pay Additional Amounts if the holder of the Bondis a fiduciary, partnership or other than the sole beneficial owner of any payment to the extent that abeneficiary or settler with respect to a fiduciary, a member of a partnership or the beneficial owner of thatpayment would not have been entitled to the Additional Amounts if it had been the holder of the Bond.


“Relevant date” in relation to any Bond means (a) the due date for payment in respect thereof, or (b)if the full amount of the monies payable on such due date has not been received by the Trustee or the PrincipalPaying Agent on or prior to such due date, the date on which notice is duly given to the holders of the Bondsthat such monies have been so received.

References in these Conditions to principal, redemption price, premium, interest and any other amountspayable in respect of the Bonds shall be deemed also to refer to any Additional Amounts that may be payablein respect thereof under this Condition 8.

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9. EVENTS OF DEFAULT

(A) Definition

An “Event of Default” occurs if:

(i) the Company fails to make any payment in respect of Bonds within five days after the same shallbecome due and payable;

(ii) the Company fails to deliver Common Shares as and when such Common Shares are required tobe delivered upon the conversion of a Bond and such failure is not remedied within five TradingDays;

(iii) the Company defaults in performance or observance of or compliance with any of its otherobligations set out in the Bonds or the Indentures, which default is incapable of remedy or is notremedied within 30 days after written notice of such default shall have been given to the Companyby the Trustee or the holders of at least 25% in aggregate principal amount of either series ofBonds then outstanding;

(iv) there shall have been entered against the Company or any of its Principal Subsidiaries (as definedin Condition 3) a final judgment, decree or order by a court of competent jurisdiction for thepayment of money in excess of US$10,000,000 with respect to the Company or any of itsPrincipal Subsidiaries (or its equivalent in any other currency or currencies) and 60 days shallhave passed since the entry of the order without it being bonded, satisfied, discharged or stayed;

(v) (a) any other present or future indebtedness of the Company or any of its Principal Subsidiaries(as defined in Condition 3) for or in respect of monies borrowed or raised becomes due andpayable prior to its stated maturity by reason of any actual or potential default or event of default,howsoever described, or any such indebtedness is not paid when due or, as the case may be, withinany applicable grace period originally provided for or (b) the Company or any of its PrincipalSubsidiaries fails to pay when due any amount payable by the Company or such PrincipalSubsidiary, as the case may be, under any present or future guarantee or indemnity or arrangementor obligation having a like or similar effect, howsoever described, for any monies borrowed;provided that the aggregate amount of the relevant indebtedness or amount payable in respect ofwhich one or more events mentioned above in this paragraph (v) have occurred equals or exceedsUS$10,000,000 or its equivalent in any other currency (determined as provided below), andprovided further that where two or more of the Company and/or its Principal Subsidiaries areliable for the payment of the same relevant indebtedness or guarantee (whether liable jointly andseverally, by way of guarantee, surety or otherwise), any such amount shall be counted once only;

(vi) an encumbrancer takes possession or a receiver, manager or other similar officer is appointed, ora distress, execution or seizure before judgment is levied, enforced or sued out upon, against orin respect of the whole or any substantial part of the undertaking, property, assets or revenues ofthe Company or any of its Principal Subsidiaries and the same is not stayed, discharged, releasedor satisfied (as the case may be) within 60 days of such taking of possession, appointment,levying, enforcement or suing out (as the case may be);

(vii) a decree or order by a court having jurisdiction shall have been entered adjudging the Companyor any of its Principal Subsidiaries bankrupt or insolvent, or approving a petition seeking theCompany’s reorganization or that of any of its Principal Subsidiaries under any applicablebankruptcy, insolvency or reorganization law, or for the appointment of an administrator or areceiver or liquidator or trustee or assignee in bankruptcy or insolvency of, or all or a substantialpart of the business or assets of, or for the winding-up or liquidation of the affairs of, theCompany or any of its Principal Subsidiaries and in any such case such decree or order shall havecontinued undischarged and unstayed for a period of 60 days;

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(viii) an order is made or an effective resolution shall be passed for the winding-up, dissolution orliquidation of the Company or that of any of its Principal Subsidiaries, or the Company or anyof its Principal Subsidiaries becomes capable of being dissolved under the laws of its place ofincorporation (except for the purpose of and followed by a solvent reconstruction, merger,consolidation, amalgamation or other similar arrangement the terms of which are approved byholders of not less than 75% in principal amount of each series of the Bonds outstanding), or theCompany or any of its Principal Subsidiaries shall institute proceedings to be adjudicated as avoluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shallfile a petition or answer or consent seeking reorganization or arrangement under any applicablebankruptcy, insolvency or reorganization law, or shall consent to the filing of any such petition,or shall consent to the appointment of a receiver or liquidator or trustee or assignee in bankruptcyor insolvency of it or of all or a substantial part of its business or assets, or shall make a generalassignment for the benefit of creditors, or shall admit in writing its inability to pay its debtsgenerally as they become due, or the Company or any of its Principal Subsidiaries becomesbankrupt, insolvent or is unable to pay its debts as they mature, or the Company or any of itsPrincipal Subsidiaries stops or threatens to cease to carry on its business or a substantial part ofits business, or corporate action shall be taken by the Company or any of its Principal Subsidiariesin furtherance of any of the aforesaid purposes;

(ix) proceedings shall have been initiated against the Company or any of its Principal Subsidiariesunder any applicable bankruptcy, insolvency, or reorganization law and such proceedings shallnot have been discharged or stayed within a period of 60 days;

(x) a moratorium is agreed or declared in respect of any indebtedness of the Company or any of itsPrincipal Subsidiaries or any governmental authority or agency condemns, seizes, compulsorilypurchases or expropriates all or a substantial part of the assets or shares of the Company or anyof its Principal Subsidiaries; or

(xii) any action, condition or thing (including the obtaining or effecting of any necessary consent,approval, authorization, exemption, filing, license, order, recording or registration) at any timerequired to be taken, fulfilled or done in order to (i) enable the Company lawfully to enter into,exercise its rights and perform and comply with its obligations under the Bonds and the relevantIndenture, (ii) ensure that those obligations are legally binding and enforceable and (iii) make theBonds and the relevant Indenture admissible in evidence in the courts of the ROC is not taken,fulfilled or done, and such case is incapable of remedy or, if capable of remedy, is not remediedwithin 30 days.

For the purposes of clauses (iv) and (v) above, any indebtedness which is in a currency other than USDollars shall be translated into US Dollars at the spot rate for the sale of US Dollars against the purchaseof the relevant currency quoted by any leading bank in the relevant market selected by the Trustee on anyday when the Trustee requests such a quotation for such purposes. If no direct spot rate is available, a rateshall be calculated by reference to the cross-rates through US Dollars of the relevant currency.

(B) Duties and Powers of Trustee

The Trustee shall notify all holders of the Bonds in accordance with Condition 14 of the occurrence ofany Default or Event of Default as soon as reasonably practicable after, but in any event within 30 days of,the date on which the Trustee shall have received written notice of such Default or Event of Default, unlessthe Trustee shall determine in its absolute discretion that failure to give such notice is in the best interestsof the holders of the Bonds or such Default has been cured or waived and the Trustee shall have been sonotified in writing before the giving of such notice. If an Event of Default occurs and is continuing, then andin every such case, the Trustee in its sole discretion may, and if so requested in writing by the holders of notless than 25% in principal amount of either series of the Bonds then outstanding shall, subject to the Trustee’sright to be indemnified and/or secured by the holders of the Bonds to the Trustee’s satisfaction, declare allthe Bonds of such series then outstanding to be due and payable immediately by a notice in writing to theCompany (and to the Trustee if such notice is given by the Holders). The Trustee shall also give notice ofsuch acceleration to holders of the Bonds of such series in accordance with Condition 14. Notwithstanding

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the foregoing, if any of the events specified in clauses (vii), (viii) and (ix) above shall have occurred, theBonds shall forthwith become immediately due and payable at the Early Redemption Amount, plus anyoverdue interest payable in accordance with Condition 6(E), without regard to the giving of any such notice.

For purposes of these Conditions:

“Default” means any event, condition or act has occurred that, which the giving of notice and/or thepassage of time, would constitute an Event of Default.

(C) Obligations of Company

The Company shall furnish to the Trustee annually, and otherwise at the request of the Trustee within14 days of such request, a statement concerning the performance and observance of its obligations under theBonds or the Indentures. In addition, the Company shall be required to file with the Trustee written noticeupon the occurrence of any Default or Event of Default.

(D) Bondholder Searches

In relation to the Bonds, the Trustee may, without the prior consent of the Holders, request disclosurefrom any clearing system through which the Bonds are being held (Euroclear, Clearstream Luxembourg, andthe Depository Trust Company) as to the identity of the accountholder(s) at such clearing system holding anyinterest in such Bonds.

10. PRESCRIPTION

Claims against any payment in respect of the Bonds shall be prescribed unless made within six yearsfrom the relevant date of payment in respect thereof.

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

11. ENFORCEMENT

At any time after the Bonds shall have become due and payable, the Trustee may, at its discretion andwithout further notice, take such proceedings against the Company as it may think fit to enforce payment inrespect of the Bonds, including any premium and interest, and to enforce the provisions of the Indentures;provided, however, that the Trustee shall not be bound to take any such actions unless (a) it shall have beenso requested in writing by the holders of at least 25% in principal amount of either series of Bonds thenoutstanding or by a resolution of a duly called meeting of the holders by persons entitled to vote a majorityin principal amount of the outstanding Bonds of either series; and (b) it shall have been indemnified and/orsecured to its satisfaction. No holder of the Bonds shall be entitled to proceed directly against the Company,unless (a) the Trustee, having become bound to take proceedings against the Company (as described in theIndentures), fails to do so and such failure shall have continued for a period of 60 days and (b) no directioninconsistent with the Trustee taking such proceedings has been given to the Trustee during such 60-dayperiod by the holders of at least 50% in principal amount of the relevant series of Bonds then outstanding.

12. MEETINGS OF BONDHOLDERS, MODIFICATION AND WAIVER

(A) Quorums for Meetings

The Indentures contain provisions for convening meetings of the holders to consider any matteraffecting their interests, including the approval of certain amendments or modifications of the terms of eitherseries of Bonds or the provisions of the relevant Indenture, upon either the written consent of the holders ofa majority in principal amount of the outstanding Bonds of such series or the approval at a duly calledmeeting of the holders by persons entitled to vote a majority in principal amount of the outstanding Bondsof such series. The quorum at any such meeting shall be one or more persons entitled to vote a majority inprincipal amount of the outstanding Bonds of such series.

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(B) Modification with Consent of Holders

Modifications and amendments of the relevant Indenture or either series of Bonds may be made by theCompany and the Trustee with the written consent of the holders of not less than a majority in principalamount of the outstanding Bonds of such series; provided that no such modification or amendment may,without the consent of less than 75% in principal amount of the outstanding Bonds of such series:

(i) modify the relevant Maturity Date;

(ii) reduce the principal amount or the rate of interest, if any, on, any Bond or increase the relevantConversion Price (as adjusted in accordance with Condition 5(C));

(iii) change the place or currency of payment of principal amount, or premium, if any, or interest, ifany, on, any Bond or the method of calculating any such payment;

(iv) impair the right to institute suit for the enforcement of any payment on any Bond;

(v) alter the Company’s obligations relating to negative pledge, Mergers or the payment of AdditionalAmounts as described in Conditions 3(A), 3(B) and 8, respectively;

(vi) except to the extent permitted by Condition 12(C) or 12(D) below, modify, cancel or adverselyaffect the Conversion Right, the relevant Holders’ Put Right, Delisting Put Right, Change-of-Control Put Right or Non-Redemption Option;

(vii) reduce the above-stated percentage of outstanding Bonds the consent of whose holders isnecessary to modify or amend the relevant Indenture;

(viii) reduce the percentage or aggregate principal amount of outstanding Bonds the consent of whoseholders is necessary for waiver of compliance with provisions of the relevant Indenture or forwaiver of an Event of Default under the relevant Indenture;

(ix) modify any of the voting or quorum requirements under the relevant Indenture for meetings ofholders of Bonds; or

(x) release the Company from any obligation under the relevant Indenture other than in accordancewith the provisions of the relevant Indenture, or amend or modify any provision relating to suchrelease.

The Trustee shall provide, at the Company’s expense, any notice of convocation for a meeting ofholders of either series of Bonds in accordance with Condition 14.

With respect to each series of Bonds, the Indentures provide that, in determining whether the holdersof the Bonds representing the requisite principal amount of Bonds then outstanding are present at a meetingof holders of the Bonds for quorum purposes or have given any request, demand, authorization, direction,notice, consent or waiver under the Indentures, Bonds owned by the Company or any other obligor upon theBonds or any affiliate of the Company or such other obligor shall be disregarded and deemed not to beoutstanding; provided that in the making of any such determination, the Trustee shall be fully protected if itdisregards only such Bonds as to which the Trustee has received actual notice that such Bonds are owned bythe Company or such other obligor or any affiliate of the Company or such other obligor.

(C) Modification of Conversion Right

Notwithstanding Condition 12(B) above, the Trustee may agree to, without the consent of the holdersof either series of Bonds, any modification to the Conversion Right that (i) is necessary or desirable to effector facilitate conversion as contemplated in these Conditions and (ii) is not materially prejudicial to theinterests of the holders of the Bonds. The Trustee’s agreement may be subject to any condition which theTrustee requires, including but not limited to the delivery of an opinion of a financial or legal or other expertof recognized standing in the applicable jurisdiction, and shall be binding on the holders of the Bonds. Anysuch modification shall be notified by the Company to the holders of the Bonds as soon as practicablethereafter in accordance with Condition 14.

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(D) Other Modifications and Waivers

The Trustee may also agree to, without the consent of the holders of the Bonds, among other things,(i) any modification of, or the waiver or authorization of any breach or proposed breach of, the Bonds, theIndentures or the Agency Agreements that is not, in the Trustee’s opinion, materially prejudicial to theinterests of the holders of the Bonds or (ii) any modification of the Bonds, the Indentures or the AgencyAgreements that, in the Trustee’s opinion, is of a formal, minor or technical nature or to correct a manifesterror or to comply with mandatory provisions of law.

In connection with such modification, waiver or authorization, the Trustee may require a certificatefrom the Company signed by two Authorized Officers certifying, and a legal opinion from a legal adviser ofrecognized international standing stating, that the modification, waiver or authorization is of a formal, minoror technical nature or to correct a manifest error or to comply with mandatory provision of law. Any suchmodification, waiver or authorization shall be binding on the holders of the Bonds, and shall be notified bythe Company to the holders of the Bonds as soon as practicable thereafter in accordance with Condition 14.

(E) Waiver of Default

The holders of the Bonds, through the written consent of not less than a majority in principal amountthe Bonds then outstanding of a series (or such lesser principal amount of the Bonds then outstanding as shallhave acted at a meeting pursuant to the provisions of the relevant Indenture and shall have made the initialrequest for the acceleration, provided that such lesser amount, which shall not be less than 25% of theprincipal amount of the Bonds then outstanding, is more than the principal amount of the Bonds held byholders who had made such request), may, on behalf of the holders of all the Bonds of such series, waive anyexisting Default and its consequences, except for (i) any Default in any payment on the Bonds of such series,(ii) any Default with respect to the Conversion Rights or (iii) any Default with respect to certain covenantsor provisions in the relevant Indenture that may not be modified without the consent of the holders of 75%in principal amount of the outstanding Bonds of such series as described in Condition 12(B) above. Whena Default is waived, it is deemed cured and shall cease to exist, but no such waiver shall extend to anysubsequent or other Default or impair any consequent right.

The right of a holder (i) to receive payment in respect of its Bonds, (ii) to receive Common Shares onor after any Conversion Date, (iii) to exercise its Conversion Right or (iv) to bring suit for the enforcementof any such right, shall not be impaired or adversely affected without such holder’s consent.

(F) Exercise of Trustee’s Functions

Where the Trustee is required in connection with the exercise of its powers, trusts, authorities, dutiesand discretions to have regard to the interests of the holders of the Bonds, it shall have regard to the interestsof the holders of the Bonds as a class and, in particular but without prejudice to the generality of theforegoing, the Trustee shall not have regard to, or be in any way liable for, the consequences of such exercisefor any individual holders of Bonds. In connection with any such exercise, the Trustee shall not be entitledto require, and no holder of Bonds shall be entitled to claim, from the Company, the Trustee or any otherperson any indemnification or payment in respect of any tax consequences of any such exercise uponindividual holders of the Bonds.

13. REPLACEMENT OF CERTIFICATES

Any replacement of mutilated, defaced, destroyed, stolen or lost Definitive Certificates shall take placeat the specified offices of the Registrar and Paying Agents in accordance with the provisions of theIndentures, which provisions include the following:

(i) replacement certificates shall only be issued upon payment by the claimant of such costs as maybe incurred in connection therewith and on such terms as to evidence and indemnity as theCompany and the Registrar may reasonably require;

(ii) mutilated or defaced certificates must be surrendered before replacements will be issued; and

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(iii) in the event any Bonds represented by a mutilated, destroyed, lost or stolen Definitive Certificatehas become or is about to become due and payable, the Company in its discretion may, insteadof issuing a new Definitive Certificate representing such Bonds, make payment as considerationfor the cancellation of the Bonds represented thereby in accordance with the Indentures.

14. NOTICES

All notices to holders of the Bonds shall be validly given if (i) made in writing in English and mailedto them at their respective addresses in the Bond Register; and (ii) published in the Wall Street Journal Asia.

In addition, for so long as the Bonds are listed on the SGX-ST and the rules of the SGX-ST so require,notices to holders of the Bonds will be valid if published in a leading newspaper having general circulationin Singapore (which is expected to be The Business Times, Singapore edition).

Any such notice shall be deemed to have been given on the later of the date of such publication andthe seventh day after being so mailed.

So long as the Bonds are represented by the Global Certificate and the Global Certificate is held onbehalf of Euroclear or Clearstream or a successor clearing system, notices to holders of the Bonds may begiven by delivery of the relevant notice to Euroclear or Clearstream or the successor clearing system, forcommunication by it to entitled accountholders in substitution for notification as required by the Conditions,provided (i) that such notice is also delivered to the SGX-ST; and (ii) so long as the Bonds are listed on theSGX-ST and the rules of the SGX-ST so require, publication will also be made in a leading daily newspaperhaving general circulation in Singapore (which is expected to be The Business Times, Singapore edition) oron the website of the SGX-ST.

15. INDEMNIFICATION

The Indentures contain provisions for the indemnification of the Trustee and for its relief fromresponsibility, including provisions relieving it from taking proceedings to enforce any provisions of theBonds or the Indentures unless indemnified and/or secured to its satisfaction. The Trustee is entitled to enterinto business transactions with the Company and any entity related to the Company without accounting forany profit.

16. AGENTS

The Company reserves the right, subject to the provisions of the Agency Agreements, at any time tovary or terminate the appointment of Agents; provided that it shall at all times maintain a Registrar who willmaintain the Bond Register at a specified office in New York City and an Agent having a specified office inLondon. 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 Agentshall be given promptly by the Company to the holders of the Bonds in accordance with Condition 14 andto the Trustee in accordance with the provisions of the Indentures.

17. GOVERNING LAW AND JURISDICTION; THIRD PARTY RIGHTS

(A) Governing Law

The Indentures, the Agency Agreements and the Bonds are governed by and shall be construed inaccordance with the laws of the State of New York.

(B) Jurisdiction

The courts of the State of New York sitting in the Borough of Manhattan, The City of New York, andthe federal courts of the United States sitting in the Borough of Manhattan, The City of New York are to havenon-exclusive jurisdiction to settle any disputes that may arise out of or in connection with the Bonds andaccordingly any legal action or proceedings arising out of or in connection with the Bonds (“Proceedings”)may be brought in any such court. The Company has in the Indentures irrevocably submitted to thenon-exclusive jurisdiction of such courts.

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(C) Agent for Service of Process

The Company has irrevocably appointed National Corporate Research, Ltd., whose offices are currentlylocated at 10E. 40th Street, 10th Floor, New York, NY10016, as its authorized agent for receipt of processin any Proceedings based on any of the Bonds.

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THE GLOBAL CERTIFICATE

Capitalized terms used in this section and not otherwise defined shall have the meanings given to themin “Description of the Bonds” and the Indenture.

The Global Certificate

Each Global Certificate will be deposited with, and registered in the name of the Common Depositaryand Euroclear and Clearstream, Luxembourg will credit their respective accountholders with the respectiveprincipal amounts of the individual interests represented by such Global Certificate. Such accounts will bedesignated initially by or on behalf of the Initial Purchasers. Ownership of beneficial interests in the GlobalCertificate will be limited to persons who have accounts with Euroclear or Clearstream, Luxembourg orpersons who hold interests through such accountholders. Ownership of beneficial interests in the GlobalCertificate will be shown on, and the transfer of that ownership will be effected only through, the recordsmaintained by Euroclear and Clearstream, Luxembourg (with respect to interests of their respectiveaccountholders) and the records of such accountholders (with respect to interests of persons other than suchaccountholders).

Payments of the principal of the Global Certificate will be made to the Common Depositary or itsrespective nominees as the registered owners thereof. Payments of principal, interest and premium (if any)in respect of Bonds represented by the Global Certificate will be made without presentation or if no furtherpayment falls to be made in respect of the Bonds, against presentation and surrender of the Global Certificateto or to the order of the Principal Paying, Transfer and Conversion Agent or such other Paying Agent as shallhave been notified to the holders of the Bonds for such purpose. Neither we, the Trustee, the CommonDepositary, the Registrar, the Principal Paying Agent, the Paying Agents, any custodian, any transfer agentnor any other agent of us will have any responsibility or liability for the accuracy of any of the recordsrelating to, or payments made on account of, ownership interests in the Global Certificate or for any noticepermitted or required to be given to holders of the Bonds or any consent given or actions taken by suchregistered holders of the Bonds. We expect that upon receipt of any payment of principal in respect of aGlobal Certificate representing any Bonds held by it or its nominee or the Common Depositary, as the casemay be, will promptly credit Euroclear and Clearstream, Luxembourg, in the case of the Common Depositary,with payments in amounts proportionate to their respective interests in the principal amount of the GlobalCertificate as shown on their respective records.

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

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

Conversion of the Bonds will be effected through the respective direct and indirect participants inEuroclear and Clearstream, Luxembourg in accordance with their respective rules and operating procedures.

Neither we, the Trustee, the Common Depositary, the Registrar, the Principal Paying, Transfer andConversion Agent, the Paying Agents, any custodian, any transfer agent, any registrar nor any other agent ofours will have any responsibility for the performance of Euroclear or Clearstream, Luxembourg or theirrespective direct participants, indirect participants or accountholders of their respective obligations under therules and procedures governing their operations.

So long as the Bonds are represented by the Global Certificate and the Global Certificate is held onbehalf of Euroclear and Clearstream, Luxembourg, notices required to be given to the holders of the Bondsmay be given by delivery of the relevant notice to Euroclear and Clearstream, Luxembourg forcommunication by it to the entitled account holders in substitution for notification as required by theIndenture or as described in the section entitled “Description of the Bonds.”

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No selection of the Bonds will be required in the event of a redemption in the manner described in“Description of the Bonds” in respect of less than the aggregate principal amount of the Bonds in respect ofwhich the Global Certificate is issued. Instead, there will be a pro rata allocation of the Bonds to be redeemedamong the accounts in Euroclear and Clearstream, Luxembourg in accordance with the rules and proceduresof the clearing systems.

Cancellation of any Bond following its redemption, conversion or purchase by us will be effected bya reduction in the principal amount of the Bonds in the register of holders of Bonds.

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

For so long as the Bonds are evidenced by the Global Certificate, beneficial owners of the Bonds shallbe recognized as the beneficiaries of the trusts set out in the Indenture, to the extent of the principal amountof their interest in the Bonds set out in a certificate executed and delivered by the registered holder, as if theywere themselves the holders of Bonds in such principal amounts.

The registered holder of the Global Certificate will be treated as two persons for the purposes of anyquorum requirements of a meeting of holders of the Bonds and, at any such meeting, as having one vote inrespect of each US$100,000 in principal amount of Bonds for which the Global Certificate is issued.

For so long as the Bonds are evidenced by the Global Certificate, notices required to be delivered byholders of the Bonds may be given by facsimile rather than by depositing such notices at the specified officeof the Principal Paying, Transfer and Conversion Agent as required by the Indenture.

Individual Definitive Certificates

If either Euroclear or Clearstream, Luxembourg or a successor clearing system is closed for businessfor a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announcesan intention permanently to cease business or does in fact do so, we will issue individual certificates inregistered form in exchange for the Global Certificate. We will use our best efforts to make arrangements forthe exchange of interests in the Global Certificate for individual definitive certificates and cause therequested individual definitive certificates to be executed and delivered to the Registrar in sufficientquantities and authenticated by the Registrar for delivery to holders. Persons exchanging interests in theGlobal Certificate for individual definitive certificates will be required to provide to the Registrar, throughthe relevant clearing system, written instructions and other information required by us and the Registrar tocomplete, execute, authenticate and deliver such individual definitive certificates. Individual definitivecertificates delivered in exchange for the Global Certificate or beneficial interests therein will be registeredin the names, and issued in any approved denominations, requested by the relevant clearing system.

In the case of individual definitive certificates issued in exchange for the Global Certificate, suchindividual definitive certificates will bear, and be subject to, such legends as we require in order to assurecompliance with any applicable law. The holder of a restricted individual definitive certificate may transferthe Bonds represented by such certificate, subject to compliance with the provisions of such legend. Uponthe transfer, exchange or replacement of certificates bearing the legend, or upon specific request for removalof the legend on a certificate, we will deliver only certificates that bear such legend, or will refuse to removesuch legend, as the case may be, unless there is delivered to us such satisfactory evidence, which may includean opinion of counsel, as may reasonably be required by us that neither the legend nor the restrictions ontransfer set forth therein are required to ensure compliance with the provisions of the Securities Act.

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For so long as the Bonds are listed on the SGX-ST and the rules of the SGX-ST so require, we shallappoint and maintain a Paying Agent in Singapore, where the Bonds may be presented or surrendered forpayment or redemption, in the event that a Global Certificate is exchanged for individual definitivecertificates. In addition, in the event that a Global Certificate is exchanged for individual definitivecertificates, an announcement of such exchange shall be made by or on behalf of us through the SGX-ST andsuch announcement will include all material information with respect to the delivery of the individualdefinitive certificates, including details of the Paying Agent in Singapore, so long as the Bonds are listed onthe SGX-ST and the rules of the SGX-ST so require.

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TRANSFER RESTRICTIONS

Because of the following restrictions, purchasers are advised to consult legal counsel prior to makingany offer, resale, pledge or other transfer of Bonds or the Common Shares issuable upon conversion of theBonds.

The Bonds may not be offered or sold directly or indirectly in the ROC. The Bonds and the CommonShares issuable upon conversion of the Bonds have not been registered under the Securities Act and theBonds may not be offered or sold within the United States or to, or for the account or benefit of, U.S. personsexcept pursuant to an exemption from, or in a transaction not subject to, the registration requirements of theSecurities Act. Therefore, the Bonds are being offered and sold outside the United States in accordance withRule 903 or Rule 904 of Regulation S under the Securities Act.

Except in certain limited circumstances, interests in the Bonds may only be held through interests inthe Global Certificate. Such interests in the Global Certificate will be shown on, and transfers thereof willbe effected only through, records maintained by Euroclear and Clearstream, Luxembourg and their respectivedirect and indirect participants.

Transfer Restrictions on the Bonds

Each purchaser of the Bonds, by accepting delivery of such Bonds, will be deemed to haveacknowledged and represented to and agreed as follows (terms used herein that are defined in Regulation Sare used as defined therein):

1. The Bonds and the Common Shares issuable upon conversion of the Bonds have not been and arenot expected to be registered under the Securities Act or with any securities regulatory authorityof any state of the United States and are subject to significant restrictions on transfer.

2. Each owner purchasing during the Distribution Compliance Period (as defined below) ispurchasing the Bonds in an offshore transaction meeting the requirements of Rule 903 or 904 ofRegulation S.

3. The Bonds and the Common Shares issuable upon conversion of the Bonds may not be sold,pledged or transferred to, or for the account or benefit of, any U.S. person during the DistributionCompliance Period (as defined below).

4. Such owner will not offer, sell, pledge or otherwise transfer any interest in the Bonds or theCommon Shares issuable upon conversion of the Bonds except as permitted by the applicablelegend set forth in paragraph (5) below.

5. The Bonds will bear legends to the following effect, unless we determine otherwise in compliancewith applicable law, and that it will observe the restrictions contained therein:

THE BONDS (“BONDS”) EVIDENCED HEREBY AND THE COMMON SHARES OFACER INCORPORATED (THE “COMPANY”) ISSUABLE UPON CONVERSION OFTHE BONDS HAVE NOT BEEN AND ARE NOT EXPECTED TO BE REGISTEREDUNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE“SECURITIES ACT”), AND PRIOR TO THE EXPIRATION OF 40 DAYS AFTER THELATER OF THE COMMENCEMENT OF THE OFFERING OF BONDS AND THE LASTRELATED CLOSING DATE (THE “DISTRIBUTION COMPLIANCE PERIOD”), SUCHBONDS MAY NOT BE CONVERTED INTO COMMON SHARES OF THE COMPANYAND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED TOANY U.S. PERSON. EACH HOLDER AND BENEFICIAL OWNER, BY ITSACCEPTANCE OF THE BONDS EVIDENCED HEREBY, REPRESENTS THAT ITUNDERSTANDS AND AGREES TO THE FOREGOING AND FOLLOWINGRESTRICTIONS.

UPON THE EXPIRATION OF THE DISTRIBUTION COMPLIANCE PERIOD, THISLEGEND SHOULD BE REMOVED AND THE BONDS EVIDENCED HEREBY AND THECOMMON SHARES OF THE COMPANY ISSUABLE UPON CONVERSION OF THEBONDS SHALL NO LONGER BE SUBJECT TO THE RESTRICTIONS PROVIDED IN

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THIS LEGEND, PROVIDED THAT AT SUCH TIME AND THEREAFTER THE OFFEROR SALE OF THE BONDS EVIDENCED HEREBY AND THE COMMON SHARES OFTHE COMPANY ISSUABLE UPON CONVERSION OF THE BONDS WOULD NOT BERESTRICTED UNDER ANY APPLICABLE SECURITIES LAWS OF THE UNITEDSTATES OR OF THE STATES OR TERRITORIES OF THE UNITED STATES.

6. Except in certain limited circumstances, interests in the Bonds may only be held through interestsin the Global Certificate. Such interests in the Bond will be shown on, and transfers thereof willbe effected only through, records maintained by Euroclear and Clearstream, Luxembourg andtheir respective direct and indirect participants. See “Description of the Bonds.”

7. Any resale or other transfer, or attempted resale or other transfer, of the Bonds representedthereby made other than in compliance with the above-stated restrictions shall not be recognizedby us.

Other Provisions Regarding Transfer of the Bonds

The provisions of the Indenture, including those set forth in the above legend, prohibit or restrict certaintransfers of the Bonds. Interests in the Bonds evidenced by the Global Certificate will be freely transferablewithin Euroclear and Clearstream, Luxembourg, subject to the regulations thereof.

Except in the limited circumstances described in the Indenture, no person will be entitled to receivephysical delivery of definitive Bonds. The Bonds are not issuable in bearer form.

Any resale or other transfer, or attempted resale or other transfer, made other than in compliance withthe above-stated restrictions shall not be recognized by us.

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DESCRIPTION OF THE COMMON SHARES

Set forth below is certain information relating to our share capital, including brief summaries of certainprovisions of the Articles of Incorporation, the ROC Securities and Exchange Law and the regulationspromulgated thereunder and the ROC Company Law as at the date of this Offering Circular.

1. General

As of April 20, 2010, our authorized share capital is NT$35,000,000,000 divided into 3,500,000,000shares, of which 250,000,000 shares have been reserved for issuance in connection with the employee stockoptions, and our paid-in share capital was NT$26,891,820,790, divided into 2,689,182,079 shares, all ofwhich were in registered form and were issued and outstanding. Under our 2010 employee stock option plan,which was approved at the Annual Shareholders’ Meeting on June 18, 2010, the total number of options tobe issued under this plan is 14,000 options, where each option gives employees the right to purchase 1,000Common Shares. In our Annual Shareholders’ Meeting held on June 18, 2010, a proposal presented to ourshareholders to distribute NT$26,893,010 from retained earnings to shareholders through issuance of newshares was approved by our shareholders. However, we are required to obtain the approval from the relevantgovernmental authority in the ROC before issuing such new such shares. As a general principle, the newCommon Shares issued as a result of conversion of the Bonds, if any, will be reflected in our filing andregistration with the Ministry of Economic Affairs (“MOEA”) on a quarterly basis.

2. Dividends and Distributions

Except in limited circumstances under the ROC Company Law, we are not permitted to distributedividends or make other distributions to shareholders in respect of any year in which it did not record currentor retained earnings. The ROC Company Law also requires that 10% of annual net income (less prior years’losses and any gains on the disposal of properties), after payment of taxes and duties, be set aside as a legalreserve until the accumulated legal reserve equals our paid-in capital. In addition, our Articles ofIncorporation require that before a dividend is paid out of our annual net income (balance of annual incomeless taxes, previous years’ losses and 10% legal reserve), no less than 5% of such net income should be paidto our employees as bonuses, and 1% of its annual net income should be paid to our directors and supervisorsas remuneration.

At the annual general meeting of shareholders, the board of directors submits to the shareholders fortheir approval our financial statements for the preceding fiscal year and any proposal for the distribution ofa dividend or the making of any other distribution to shareholders from our net income (subject to compliancewith the requirements mentioned above) for the preceding fiscal year. All Common Shares outstanding andfully paid as of the relevant record date are entitled to share equally in any dividend or other distribution soapproved. Dividends may be distributed in cash, in the form of common shares or a combination thereof, asdetermined by the shareholders at such meeting. In addition to the approval by our shareholders, approvalfrom the relevant government authorities in the ROC and compliance with applicable ROC laws are requiredbefore we can issue any new shares as stock dividend or employee stock bonus.

In addition to permitting dividends to be paid out of net income, the ROC Company Law permits usto make distributions to our shareholders of additional Common Shares by capitalizing reserves (includingthe legal reserve and capital reserve), if we incur no loss. However, the capitalized portion payable out of ourlegal reserve is limited to 50% of the total accumulated legal reserve and such capitalization can only beeffected when the accumulated legal reserve exceeds 50% of our paid-in capital.

For information on the dividends paid by us in recent years, see “Dividends and Dividend Policy”. Forinformation as to ROC taxes on dividends and distributions, see “Taxation”.

3. Changes in Share Capital and Preemptive Rights

The ROC Company Law and the ROC Securities and Exchange Law provide that any change in theauthorized share capital of a company limited by shares, such as us, requires an amendment to its Articlesof Incorporation (which requires approval at a shareholders’ meeting) and, in the case of a public company

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such as us, the approval of the FSC is required (if a capital increase is effected at the same time). Authorizedbut unissued Common Shares may be issued at such time and, subject to the provisions of the ROC CompanyLaw and the ROC Securities and Exchange Law mentioned below, upon such terms as our board of directorsmay determine.

Under the ROC Company Law, when an ROC company issues new shares for cash, our employees,whether or not they are shareholders, have rights to subscribe for 10% to 15% of the new issue as determinedby our board of directors, and, subject to certain exceptions, our existing shareholders who are listed on theshareholders’ register as of the record date have preemptive rights to subscribe for the remaining portion ofnew issue in proportion to their existing shareholdings. Any new shares that remain unsubscribed at theexpiration of the subscription period may be offered to the persons selected by the board of directors. Thepreemptive rights provisions, however, do not apply to shares issued upon conversion of convertible bondsor exercise of warrants or stock option.

In addition, in accordance with the ROC Securities and Exchange Law, a public company, such as us,whose securities are listed on the TSE or traded in the over-the-counter market, that intends to offer newshares for cash must offer to the public at least 10% of the shares to be sold. This percentage can be increasedby a resolution passed at a shareholders’ meeting, thereby diminishing the number of new shares subject tothe preemptive rights of existing shareholders.

4. Transfer of Shares

Under the ROC Company Law, Common Shares in registered form are transferred by endorsement anddelivery of the related share certificates. In order to assert shareholders’ rights against us, transferees musthave their names and addresses registered on the company’s register. Shareholders are required to file theirrespective specimen seals with our share registrar. The settlement of trading of our Common Shares on theTSE is carried out on the book-entry system maintained by Taiwan Depository & Clearing Corporation.

5. Acquisition of its own Shares by the Company

With limited exceptions, we may not acquire our Common Shares under the ROC Company Law.However, under an amendment to the Securities and Exchange Law, which took effect on July 21, 2000, wemay, by a board resolution adopted by majority consent at a meeting with two-thirds of our directors present,purchase our Common Shares on the TSE or by a tender offer, in accordance with the procedures prescribedby the ROC FSC, for the following purposes:

(1) to transfer Common Shares so purchased to our employees;

(2) to transfer Common Shares so purchased upon conversion of bonds with warrants, preferredshares with warrants, convertible bonds, convertible preferred shares or certificates of warrants(collectively, the “Convertible Securities”) issued by us; and

(3) if necessary, to maintain our credit and our shareholders’ equity; provided that the CommonShares so purchased shall be cancelled thereafter.

Common Shares purchased pursuant to items 1 and 2 above shall be transferred to our employees orholders of Convertible Securities, as the case may be, within three years after the date of such purchase.Common Shares purchased pursuant to item 3 above shall be cancelled within six months after the date ofsuch purchase.

We are not allowed to purchase more than 10% of our total issued and outstanding Common Shares.In addition, we may not spend more than the aggregate amount of the retained earnings, the premium fromissuing stock and the realized portion of the capital reserve to purchase our Common Shares.

We may not pledge or hypothecate any purchased Common Shares. In addition, we may not exerciseany shareholders’ rights attaching to such Common Shares. In the event that we purchase our Common Shareson the TSE, our affiliates, directors, supervisors, managers and their respective spouses and minor childrenand/or nominees are prohibited from selling any of our Common Shares during the period in which wepurchase our Common Shares.

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According to the ROC Company Law, as amended and effective from November 14, 2001, an entity,referred to as a controlled entity, in which we directly or indirectly own more than 50% of the voting sharesor paid-in capital, may not purchase our Common Shares. Also, if we and a controlled entity jointly own,directly or indirectly, more than 50% of the voting shares or paid-in capital of another entity, referred to asa third party, the third party may not purchase shares in either us or a controlled entity. This restriction doesnot, however, affect any of our Common Shares acquired by a controlled entity or a third-party entity priorto November 14, 2001.

6. Transfer Restrictions

There are certain transfer restrictions imposed upon shares issued by a public company through privateplacement, and upon certain shareholders of a public company under the ROC Securities and Exchange Lawand related securities regulations depending on their shareholding and/or other factors, including, withoutlimitation, transfer restrictions on our Insiders (as defined below). The ROC Securities and Exchange Lawrequires (i) each director, supervisor, manager or shareholder holding 10% or more of the outstanding shares(including the shareholding of the spouse, minor children and nominees) of a public company (collectivelyas the “Insiders” or individually as the “Insider”) to report any changes in that person’s shareholding and anyshare pledge to the company and (ii) that person, subject to limited exemptions, may only transfer his/hershares in one of the following methods: (x) to offer to the public following the approval from or an effectivefiling with the ROC FSC; (y) after expiration of the 6-month period commencing on the date of obtainingthe Insider status, to transfer shares, at least three days after the filing with the ROC FSC but within the onemonth period as reported, on TSE pursuant to the limitation on the transferable amount per exchange daypromulgated by ROC FSC, provided however a transfer of less than 10,000 shares per exchange day isexempted from this limitation; and (z) to transfer, within three days after the filing with the ROC FSC, todesignated persons satisfying the qualifications prescribed by the ROC FSC. The current limitation describedin the item (y) above are: (i) for a company with no more than 30 million outstanding common shares, 0.2%of the outstanding common shares of the company; for a company with more than 30 million outstandingcommon shares, the aggregate amount of 0.2% of the 30 million common shares plus 0.1% of the outstandingshares exceeding 30 million common shares, or (ii) 5.0% of the average trading volume (number of commonshares) on the TSE for the 10 consecutive trading days preceding the reporting day on which any Insiderreports the intended share transfer to the SFC.

7. Meetings of Shareholders

General meetings of shareholders may be ordinary or extraordinary. Ordinary meetings of ourshareholders are generally held in Taipei, Taiwan, within six months following the end of each fiscal year.Extraordinary meetings may be convened by the board of directors by resolution or by the board of directorsupon the written request of any shareholder or shareholders who have held 3% or more of the outstandingCommon Shares for more than one year. Extraordinary meetings of shareholders may also be convened bya supervisor. Notice in writing of general meetings of shareholders, stating the place, time and purposethereof, must be dispatched to each shareholder of record at least 30 days (in the case of ordinary meetings)and 15 days (in the case of extraordinary meetings) prior to the date set for each such meeting.

8. Voting Rights

Subject to certain exceptions, the ROC Company Act provides that a holder of Common Shares has onevote for each Common Share. There is cumulative voting for the election of directors and supervisors. Ballotsfor the election of directors are cast separately from those for the election of supervisors. Candidates for theelection of directors and supervisors are nominated by our shareholders at the shareholders’ meeting at whichballots for such election are cast. Except as otherwise provided by law, a resolution can be adopted by theholders of at least a majority of the Common Shares represented at a shareholders’ meeting at which theholders of a majority of all issued and outstanding Common Shares are present. Under the ROC CompanyLaw, however, in order to approve certain major corporate actions, including any amendment to the Articlesof Incorporation (which is required, inter alia, for any increase in authorized share capital), the dissolutionor amalgamation of a company, the transfer of the whole or an important part of its business, the taking overof the whole of the business of any other company, the merger or division (spin-off), or the distribution of

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any stock dividend, a meeting of the shareholders must be convened with a quorum of holders of at leasttwo-thirds of all issued and outstanding Common Shares at which the holders of at least a majority of theCommon Shares represented at the meeting vote in favor thereof. Alternatively, the ROC Company Lawprovides that in the case of a public company, such as us, such a resolution may be adopted by the holdersof at least two-thirds of the Common Shares represented at a meeting of shareholders at which holders of atleast a majority of issued and outstanding Common Shares are present.

A shareholder may be represented at an ordinary or extraordinary meeting by proxy if a valid proxyform is delivered to us at least five days prior to the commencement of the ordinary or extraordinary meeting.Voting rights attached to our Common Shares that are exercised by our shareholders’ proxy shall be subjectto ROC proxy regulations.

Any shareholder who has a personal interest in a matter to be distributed at our shareholders’ meeting,the outcome of which may impair our interest, shall not vote or exercise voting rights nor vote or exercisevoting rights on behalf of another shareholder on such matter.

9. Register of Shareholders and Record Dates

We act as our own share registrar and maintain the register of our shareholders at our offices in Taipei,Taiwan, and enter transfers of Common Shares in such register upon presentation of, among other documents,certificates in respect of the Common Shares transferred.

Under the ROC Company Law and our Articles of Incorporation, we may, by giving advance publicnotice, set a record date and/or close the register of shareholders for a specified period (60 days, 30 days and5 days respectively, immediately before each ordinary meeting of shareholders, extraordinary meeting ofshareholders and the relevant record date) in order for us to determine the shareholders that are entitled tocertain rights pertaining to the Common Shares.

10. Annual Financial Statements

For a period of at least 10 days prior to the annual ordinary meeting of shareholders, our annualconsolidated and non-consolidated financial statements must be available at its principal office in Taipei forinspection by the shareholders.

11. Liquidation Rights

In the event of liquidation, the assets remaining after payment of all debts, liquidation expenses andtaxes will be distributed pro rata to the shareholders in accordance with the ROC Company Law and ourArticles of Incorporation.

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TAXATION

ROC Tax Considerations

The following summarizes the principal ROC tax consequences of owning and disposing of shares ifyou are not a resident of Taiwan. You will be considered a non-resident of Taiwan for the purposes of thissection if:

• you are an individual and you are not physically present in Taiwan for 183 days or more duringany calendar year; or

• you are an entity and you are organized under the laws of a jurisdiction other than Taiwan andhave no fixed place of business or other permanent establishment in Taiwan.

You should consult your own tax advisors concerning the tax consequences of owning bonds or sharesin Taiwan and any other relevant taxing jurisdiction to which you are subject.

Bonds

Premium and Possible Interest Payment. Payments of premium or interest, if any, on the Bonds to aNon-ROC Holder are subject to ROC withholding tax, currently at a rate of 15%, at the time of payment. Wehave agreed to pay additional amounts in respect of such withholding tax on the payments of interest orpremium, if any. See “Description of the Bonds.”

Sale. There is no securities transaction tax imposed on the sale of the Bonds. Gains on sale of propertyin the ROC are generally subject to ROC income tax. Under current ROC law, however, capital gains fromthe sale of securities issued by ROC companies and received by non-residents of the ROC are exempt fromincome tax. This exemption applies to capital gains derived from the sale of the Bonds. The reintroductionof a capital gains tax requires the Legislative Yuan to engage in the full legislative process for the amendmentof the ROC Income Tax Law.

Conversion. ROC law currently provides no specific provisions regarding the ROC income taxconsequences of a conversion of the Bonds into our Common Shares. Without clarification from the ROC taxauthorities, it is impossible to conclude definitively that gains on conversion of the Bonds into our shares willnot be deemed as taxable gains, additional interest income — which is subject to the withholding tax at a rateup to 20% — or otherwise subject to other ROC taxes. There is no ROC stamp, issue or registration taximposed on the issuance of our shares upon conversion of the Bonds.

Shares

Dividends. Dividends, whether in cash or stock, declared by us out of retained earnings and distributedto a Non-ROC Holder in respect of our Common Shares are subject to ROC withholding tax, currently at arate of 20% on the amount of the distribution, in the case of cash dividends, or on the par value of thedistributed shares, in the case of stock dividends. Currently, distributions of stock dividends out of capitalreserves are not subject to ROC withholding tax.

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

Estate and Gift Tax

Subject to allowable exclusions, deductions and exemptions, ROC estate tax is payable on any propertywithin the ROC of a deceased individual, and ROC gift tax is payable on any property within the ROCdonated by any individual. Estate tax and gift tax are currently payable at a fixed rate of 10%. Under ROCestate and gift tax laws, shares issued by ROC companies, such as our shares, are deemed located in the ROCregardless of the location of the holder.

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Preemptive Rights

Distributions of statutory preemptive rights for shares in compliance with the ROC Company Law arenot subject to ROC tax. Proceeds derived from sales of statutory preemptive rights evidenced by securitiesby a non-resident are currently exempt from income tax, but may be subject to an ROC securities transactiontax, discussed above. Proceeds derived from sales of statutory preemptive rights that are not evidenced bysecurities are subject to income tax at the rate of:

• 20% of the gains realized by non-Taiwan entities; and

• 20% of the gains realized by non-Taiwan individuals.

Subject to compliance with ROC law, we have the sole discretion to determine whether statutorypreemptive rights are evidenced by securities or not.

Retained Earnings Tax

Under the ROC Income Tax Laws, we are subject to a 10% retained earnings tax on our after-taxearnings generated after January 1, 1998 that are not distributed in the following year. Any retained earningstax so paid will further reduce the retained earnings available for future distribution. When we declaredividends out of those retained earnings, the retained earnings tax we are subject to may be credited againstthe withholding tax imposed on the non-resident holders of our shares.

Tax Treaty

Taiwan does not have an income tax treaty with the United States. Taiwan has tax treaties for theavoidance of double taxation with Indonesia, Singapore, South Africa, Australia, Netherlands, Belgium,Denmark, Vietnam, New Zealand, Malaysia, Macedonia, Swaziland, Gambia, United Kingdom, Senegal,Sweden, and Israel, which may limit the rate of ROC withholding tax on dividends paid with respect to ourshares.

EU Directive on the Taxation of Savings Income

Under EC Council Directive 2003/48/EC on the taxation of savings income, each Member State isrequired to provide to the tax authorities of another Member State details of payments of interest or othersimilar income paid by a person within its jurisdiction to, or collected by such a person for, an individualresident or certain limited types of entity established in that other Member State; however, for a transitionalperiod, Austria, Belgium and Luxembourg may instead apply a withholding system in relation to suchpayments, deducting tax at rates rising over time to 35%. The transitional period is to terminate at the endof the first full fiscal year following agreement by certain non-EU countries to the exchange of informationrelating to such payments.

A number of non-EU countries, and certain dependent or associated territories of certain MemberStates, have adopted similar measures (either provision of information or transitional withholding) in relationto payments made by a person within its jurisdiction to, or collected by such a person for, an individualresident or certain limited types of entity established in a Member State. In addition, the Member States haveentered into provision of information or transitional withholding arrangements with certain of thosedependent or associated territories in relation to payments made by a person in a Member State to, orcollected by such a person for, an individual resident or certain limited types of entity established in one ofthose territories.

On 13 November, 2008 the European Commission published a proposal for amendments to theDirective, which included a number of suggested changes which, if implemented, would broaden the scopeof the requirements described above. Investors who are in any doubt as to their position should consult theirprofessional advisors.

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PLAN OF DISTRIBUTION

We are offering the Bonds described in this Offering Circular through a number of Initial Purchasers.J.P. Morgan Securities Ltd. and Citigroup Global Markets Limited are acting as joint book-running managersof the offering and as representatives of the Initial Purchasers. We have entered into a purchase agreementwith the Initial Purchasers. Subject to the terms and conditions of the purchase agreement, we have agreedto sell to the Initial Purchasers, and each Initial Purchaser has severally agreed to purchase, at the publicoffering price less the underwriting discounts and commissions set forth on the cover page of this OfferingCircular, the amount of 2015 Bonds and 2017 Bonds listed next to its name in the following tables:

2015 Bonds

Name Principal Amount

J.P. Morgan Securities Ltd ........................................................................................... $150,000,000Citigroup Global Markets Limited............................................................................... $150,000,000Total ............................................................................................................................ $300,000,000

2017 Bonds

Name Principal Amount

J.P. Morgan Securities Ltd. .......................................................................................... $100,000,000Citigroup Global Markets Limited............................................................................... $100,000,000Total ............................................................................................................................ $200,000,000

The Initial Purchasers are committed to purchase all the Bonds offered by us if they purchase anyBonds. The purchase agreement also provides that if an Initial Purchaser defaults, the purchase commitmentsof non-defaulting Initial Purchasers may also be increased or the offering may be terminated.

The purchase price of the Bonds will be the initial offering price set forth on the cover of this OfferingCircular, less underwriting discounts and commissions.

The Bonds have not been and will not be registered under the Securities Act for offer or sale as partof their distribution and may not be offered or sold within the United States or to, or for the account or benefitof, U.S. persons except in certain transactions exempt from the registration requirements of the SecuritiesAct.

We have been advised by the Initial Purchasers that each of the Initial Purchasers proposes to resell theBonds outside the United States in offshore transactions in reliance on Regulation S and in accordance withapplicable law. Terms used above have the meanings given to them by Regulation S under the Securities Act.

An Offering Circular in electronic format may be made available on the web sites maintained by oneor more Initial Purchasers, or selling group members, if any, participating in the offering. The InitialPurchasers may agree to allocate Bonds to Initial Purchasers and selling group members for sale to theironline brokerage account holders. Internet distributions will be allocated by the representatives to InitialPurchasers and selling group members that may make Internet distributions on the same basis as otherallocations.

For a period of 90 days after the date of this Offering Circular, we will not (i) offer, pledge, sell,contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant anyoption, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, or file with theSEC a registration statement under the Securities Act relating to, any Common Shares or any securitiesconvertible into or exercisable or exchangeable for Common Shares, or publicly disclose the intention tomake any offer, sale, pledge, disposition or filing, or (ii) enter into any swap or other agreement that transfers,in whole or in part, any of the economic consequences of ownership of the Common Shares or any such othersecurities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery ofCommon Shares or such other securities, in cash or otherwise, without the prior written consent of J.P.Morgan Securities Ltd. and Citigroup Global Markets Limited, other than the Bonds to be sold hereunder and

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provided that (A) we may issue employee bonus shares and stock dividends consistent with past practice, (B)we may implement stock splits and employee stock option plans or employee share purchase plans, (C) wemay issue common stock issuable upon the conversion of securities or the exercise of warrants outstandingas of the date of this Offering Circular and as described in this Offering Circular, and (iv) we may make anyapplication or filing with any applicable regulatory authority for issuance and offering of new common sharesapproved by the shareholders prior to the date of this Offering Circular. Notwithstanding the foregoing, if (A)during the last 17 days of the 90-day restricted period, we issue an earnings release or material news or amaterial event relating us occurs; or (B) prior to the expiration of the 90-day restricted period, we announcethat we will release earnings results during the 16-day period beginning on the last day of the 90-day period,the restrictions described above shall continue to apply until the expiration of the 18-day period beginningon the issuance of the earnings release or the occurrence of the material news or material event.

The Bonds and the Common Shares issuable upon conversion thereof have not been registered underthe Securities Act and may not be offered or sold within the U.S. or to, or for the account or benefit of, U.S.persons (as defined in Regulation S under the Securities Act) except in transactions exempt from, or notsubject to, the registration requirements of the Securities Act. For a description of restrictions on transfersor hedging of the Bonds and Common Shares issuable upon conversion thereof see “Transfer restrictions.”

The Bonds are a new issue of securities, and there is currently no established trading market for theBonds. In addition, the Bonds are subject to certain restrictions on resale and transfer as described in thisOffering Circular under “Transfer restrictions.” The Initial Purchasers have advised us that they intend tomake a market in the Bonds, but they are not obligated to do so. The Initial Purchasers may discontinue anymarket making in the Bonds at any time in their sole discretion. Accordingly, we cannot assure you that aliquid trading market will develop for the Bonds, that you will be able to sell your Bonds at a particular timeor that the prices that you receive when you sell will be favorable.

You should be aware that the laws and practices of certain countries require investors to pay stamp taxesand other charges in connection with purchases of securities.

United Kingdom

This document is only being distributed to and is only directed at (i) persons who are outside the UnitedKingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and MarketsAct 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net worth entities, and other personsto whom it may lawfully be communicated, falling with Article 49(2)(a) to (d) of the Order (all such personstogether being referred to as “relevant persons”). The Bonds are only available to, and any invitation, offeror agreement to subscribe, purchase or otherwise acquire such Bonds will be engaged in only with, relevantpersons. Any person who is not a relevant person should not act or rely on this document or any of itscontents.

European Economic Area

In relation to each Member State of the European Economic Area which has implemented theProspectus Directive (each, a “Relevant Member State”), from and including the date on which the EuropeanUnion Prospectus Directive (the “EU Prospectus Directive”) is implemented in that Relevant Member State(the “Relevant Implementation Date”) an offer of securities described in this Offering Circular may not bemade to the public in that Relevant Member State prior to the publication of a prospectus in relation to theBonds which has been approved by the competent authority in that Relevant Member State or, whereappropriate, approved in another Relevant Member State and notified to the competent authority in thatRelevant Member State, all in accordance with the EU Prospectus Directive, except that it may, with effectfrom and including the Relevant Implementation Date, make an offer of Bonds to the public in that RelevantMember State at any time:

• to legal entities which are authorized or regulated to operate in the financial markets or, if not soauthorized 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 thelast financial year; (2) a total balance sheet of more than C= 43,000,000 and (3) an annual netturnover of more than C= 50,000,000, as shown in its last annual or consolidated accounts;

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• to fewer than 100 natural or legal persons (other than qualified investors as defined in the EUProspectus Directive) subject to obtaining the prior consent of J.P. Morgan Securities Ltd. andCitigroup Global Markets Limited for any such offer; or

• in any other circumstances which do not require the publication by us of a prospectus pursuantto Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression “an offer of securities to the public” in relation to anysecurities in any Relevant Member State means the communication in any form and by any means ofsufficient information on the terms of the offer and the securities to be offered so as to enable an investorto decide to purchase or subscribe for the securities, as the same may be varied in that Member State by anymeasure implementing the EU Prospectus Directive in that Member State and the expression “EU ProspectusDirective” means Directive 2003/71/EC and includes any relevant implementing measure in each RelevantMember State.

United States

The Bonds have not been and will not be registered under the Securities Act and may not be offeredor sold in the United States except pursuant to an effective registration statement or in accordance with anapplicable exemption from the registration requirements of the Securities Act. Accordingly, the Bonds arebeing offered and sold by the Initial Purchasers only outside the United States in reliance upon RegulationS.

Each Initial Purchaser has agreed that, except as permitted by the Purchase Agreement, it will not offer,sell or deliver any Bonds as part of its distribution at any time or otherwise until 40 days after the later ofthe commencement of the offering and the Closing Date, except in either case in accordance with RegulationS under the Securities Act, within the United States or to, or for the account or benefit of, U.S. persons.Accordingly, neither the Initial Purchasers, their affiliates nor any persons acting on their behalf haveengaged or will engage in any directed selling efforts (within the meaning of Regulations S) with respect tothe Bonds, and the Initial Purchasers, their affiliates and any such persons have complied and will complywith the offering restrictions requirement of Regulations S. Each Initial Purchaser has severally agreed that,at or prior to confirmation of a sale of Bonds, it will have sent to each distributor, dealer or person receivinga selling concession, fee or other remuneration that purchases Bonds from or through it during the restrictedperiod a confirmation or other notice setting forth the restrictions on offers and sales of the Bonds within theUnited States or to, or for the account or benefit of, U.S. persons.

As used in the immediately preceding paragraph, the term “United States” has the meaning given to itby Regulation S under the Securities Act.

Switzerland

This document, as well as any other material relating to the Bonds which are the subject of the offeringcontemplated by this Offering Circular, do not constitute an issue prospectus pursuant to Article 652a and/or1156 of the Swiss Code of Obligations. The Bonds will not be listed on the SIX Swiss Exchange and,therefore, the documents relating to the Bonds, including, but not limited to, this document, do not claim tocomply with the disclosure standards of the listing rules of SIX Swiss Exchange and correspondingprospectus schemes annexed to the listing rules of the SIX Swiss Exchange. The Bonds are being offered inSwitzerland by way of a private placement, i.e., to a small number of selected investors only, without anypublic offer and only to investors who do not purchase the Bonds with the intention to distribute them to thepublic. The investors will be individually approached by us from time to time. This document, as well as anyother material relating to the Bonds, is personal and confidential and does not constitute an offer to any otherperson. This document may only be used by those investors to whom it has been handed out in connectionwith the offering described herein and may neither directly nor indirectly be distributed or made availableto other persons without our express consent. It may not be used in connection with any other offer and shallin particular not be copied and/or distributed to the public in (or from) Switzerland.

Hong Kong

The Bonds may not be offered or sold by means of any document other than (i) in circumstances whichdo not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of

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Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance(Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do notresult in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Lawsof Hong Kong), and no advertisement, invitation or document relating to the Bonds may be issued or maybe in the possession of any person for the purpose of issue (in each case 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 laws of Hong Kong) other than with respect to Bonds which are orare intended to be disposed of only to persons outside Hong Kong or only to “professional investors” withinthe meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules madethereunder.

Japan

The Bonds have not been and will not be registered under the Financial Instruments and Exchange Lawof Japan, as amended (the “Financial Instruments and Exchange Law”), and the Bonds will not be offeredor sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as usedherein means any person resident in Japan, including any corporation or other entity organized under the lawsof Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, exceptpursuant to any exemption from the registration requirements of, and otherwise in compliance with, theFinancial Instruments and Exchange Law and any other applicable laws, regulations and ministerialguidelines of Japan.

PRC

This Offering Circular does not constitute a public offer of the Bonds, whether by sale or bysubscription, in the PRC. The Bonds will not be offered or sold within the PRC by means of this OfferingCircular or any other document.

ROC

Each of the Initial Purchasers has severally represented and agreed that it has not offered, sold ordelivered, and will not offer, sell or deliver, at any time, directly or indirectly, any Bonds acquired by it aspart of the offering in the ROC or to, or for the account or benefit of, any resident of the ROC.

Singapore

Each of the Initial Purchasers has acknowledged that this Offering Circular has not been registered asa prospectus with the Monetary Authority of Singapore. Accordingly, each of the Initial Purchasers hasrepresented, warranted and agreed that it has not offered or sold any Bonds or caused such Bonds to be madethe subject of an invitation for subscription or purchase and will not offer or sell the Bonds or cause theBonds to be made the subject of an invitation for subscription or purchase, and has not circulated ordistributed, nor will it circulate or distribute, this Offering Circular or any other document or material inconnection with the offer or sale, or invitation for subscription or purchase, of the Bonds, whether directlyor indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of theSecurities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant toSection 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specifiedin Section 275, of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any otherapplicable provision of the SFA.

Note:

This Offering Circular has not been registered as a prospectus with the Monetary Authority ofSingapore. Accordingly, this Offering Circular and any other document or material in connection with theoffer or sale, or invitation for subscription or purchase, of the Bonds and/or the Shares may not be circulatedor distributed, nor may the Bonds and/or the Shares be offered or sold, or be made the subject of an invitationfor subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an

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institutional investor under Section 274 of the SFA, (ii) to a relevant person pursuant to Section 275(1), orany person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, ofthe SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicableprovision of the SFA.

Where the Bonds are subscribed or purchased under Section 275 of the SFA by a relevant person whichis:

(a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the solebusiness of which is to hold investments and the entire share capital of which is owned by oneor more individuals, each of whom is an accredited investor; or

(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investmentsand each beneficiary of the trust is an individual who is an accredited investor,

securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest(howsoever described) in that trust shall not be transferred within six months after that corporation or thattrust has acquired the Bonds pursuant to an offer made under Section 275 of the SFA except:

(1) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to anyperson arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

(2) where no consideration is or will be given for the transfer;

(3) where the transfer is by operation of law; or

(4) as specified in Section 276(7) of the SFA.

Certain of the Initial Purchasers and their affiliates have provided in the past to us and our affiliates andmay provide from time to time in the future certain commercial banking, financial advisory, investmentbanking and other services for us and such affiliates in the ordinary course of their business, for which theyhave received and may continue to receive customary fees and commissions. In addition, from time to time,certain of the Initial Purchasers and their affiliates may effect transactions for their own account or theaccount of customers, and hold on behalf of themselves or their customers, long or short positions in our debtor equity securities or loans, and may do so in the future.

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GENERAL INFORMATION

Listing

Approval in-principle has been received for the listing of the Bonds on the SGX-ST. The Bonds willbe traded on the SGX-ST in a minimum board lot size of US$200,000 for so long as the Bonds are listed onthe SGX-ST and the rules of the SGX-ST so require. The SGX-ST assumes no responsibility for thecorrectness of any statements made, opinions expressed or reports contained in this Offering Circular.Admission of the Bonds to the Official List of the SGX-ST and quotation of the Bonds on the SGX-ST arenot to be taken as an indication of the merits of the Bonds, Acer Inc. and its subsidiaries or associatedcompanies (if any). Our Common Shares have been listed on the TSE since September 18, 1996 under thenumber “2353”. The GDRs have been listed on the LSE under the symbol “ACID” since November 1, 1995.

Authorizations

This Offering and the issue of the Bonds were authorized and approved by our board of directors onMay 31, 2010 and by the ROC FSC on June 29, 2010.

Clearing Systems

The Bonds have been accepted for clearance through the facilities of Euroclear and Clearstream. TheISIN for the 2015 Bonds and 2017 Bonds is XS0528416232 and XS0528416315, respectively and theCommon Code number for the 2015 Bonds and 2017 Bonds is 052841623 and 052841631, respectively.

Action by the Trustee

The Bonds provide that the Trustee will take action on behalf of the holders thereof in certaincircumstances, but only if the Trustee is indemnified and/or secured to its satisfaction. It may not be possiblefor the Trustee to take certain actions and, accordingly, in such circumstances the Trustee will be unable totake such actions, notwithstanding the provision of an indemnity and/or security satisfactory to it, and it willbe for holders of the Bonds to take such actions directly.

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LEGAL MATTERS

Certain legal matters in connection with the offered Bonds will be passed upon for us by Tsar & TsaiLaw Firm, ROC counsel to the company, and for the Initial Purchasers by Davis Polk & Wardwell LLP, U.S.counsel for the Initial Purchasers.

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INDEPENDENT AUDITORS

Our consolidated financial statements as of and for the years December 31, 2007, 2008 and 2009included in this Offering Circular have been audited by KPMG, whose audit report included herein containsan explanatory paragraph relating to the adoption of new accounting principle in 2008.

Our unaudited condensed consolidated interim financial statements as of March 31, 2010 and for thethree-month periods ended March 31, 2010 and 2009 included in this Offering Circular have been reviewedin accordance with Republic of China Statement of Auditing Standards No. 36, “Engagements to ReviewFinancial Statements” by KPMG, whose report is included herein.

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SUMMARY OF CERTAIN SIGNIFICANT DIFFERENCES BETWEENROC GAAP AND US GAAP

Our consolidated financial statements have been prepared in conformity with ROC GAAP, which differin certain significant respects from US GAAP. A brief description of certain significant differences betweenROC GAAP and US GAAP is set out below. The regulatory organizations that promulgate ROC GAAP andUS GAAP have projects ongoing that could have a significant impact on future comparisons such as thecomparison below.

The summary is not intended to provide a comprehensive listing of all existing or future differencesbetween ROC GAAP and US GAAP, including those specifically related to us and our subsidiaries or to theindustries in which we operate. No attempt has been made to identify (a) future differences between ROCGAAP and US GAAP that may arise as a result of prescribed changes in accounting standards, or (b)disclosure, presentation or classification differences that would affect the manner in which transactions andevents are reflected in our financial statements, or the financial statements of any of our subsidiaries, or therespective notes thereto. Further, had we undertaken to identify the differences specifically affecting thefinancial statements presented in this Offering Circular, other potentially significant differences may havecome to our attention which are not provided in the following summary. Accordingly, this summary is notintended to provide a complete description of all differences which may have a significant impact on ourfinancial statements. US GAAP is generally more restrictive and comprehensive than ROC GAAP regardingthe recognition and measurement of transactions, account classification and disclosure requirements.

The following discussion refers to our historical practices in preparing our financial statements inaccordance with ROC GAAP. We expect that we will follow comparable practices when preparing ourfinancial statements in the future.

In making an investment decision, investors must rely upon their own examination of us, the terms ofthe offering and the financial information. Potential investors shall consult their own professional advisorsfor an understanding of the differences between ROC GAAP and US GAAP and how these differences mightaffect the financial information included herein.

Management has not quantified the effects of the differences between ROC GAAP and US GAAP onour financial results or the financial results of any of our subsidiaries.

ROC GAAP US GAAP

Bonuses to Employees, Directors and Supervisors

Under the ROC regulations and the company’sArticles of Incorporation, a portion of distributableearnings should be set aside as bonuses to employees,directors and supervisors. Bonuses to directors andsupervisors are always paid in cash. However,bonuses to employees may be granted in cash orshares or both. Shares issued as part of these bonusesare not necessarily recorded at fair value as they arenormally determined based on a fixed amountdetermined and approved by the Board of Directorsand Shareholders and the number of shares thereofare determined by simply dividing such fixed amountby the par value per share of NT$10. All of theseappropriations are charged against retained earningsafter such appropriations are formally approved bythe shareholders in the following year.

Bonuses and remuneration are generally estimatedand expensed as services are rendered. Shares issuedas part of these bonuses are recorded at fair marketvalue. There is no “true-up” to the actual outcome.

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ROC GAAP US GAAP

Effective January 1, 2008, the directors’ andsupervisors’ remunerations and employee bonuses areestimated and expensed in the period when servicesare rendered under ROC GAAP. This change inaccounting principle is accounted for prospectively inaccordance with ARDF Interpretation No. 2007-052.

However, a “true-up” (prior year) adjustment is madeif the estimated amounts of employee bonus anddirectors’ and supervisors’ remuneration and actualoutcomes resolved by the board of directors thereofdiffer.

Stock dividends

Under ROC GAAP, stock dividends are recorded as areduction to retained earnings using the par value ofthe stock issued, and the same amount is recorded tothe common stock account. Unlike US GAAP, there isno such de minimis test for recording stock dividendsusing fair value method and for determining stocksplit.

Under US GAAP, when the ratio of distribution is lessthan 20% or 25% of shares of the same classoutstanding, stock dividends are generally recordedbased on the fair value method, with the par valuerecorded in the capital stock accounts and the excessof fair value over the par value being recorded asadditional paid-in capital. Distribution in excess of20% or 25% is generally considered as stock split.

Equity-method investments and other-than-temporary impairment

Under ROC GAAP, in accordance with ROC SFASNo. 35, an equity-method investment is considered tobe impaired if there is objective evidence ofimpairment as a result of one or more events that hadoccurred as of the balance sheet date indicating thatthe recoverable amount is below the carrying amountof the investment. Impairment is assessed at theindividual security level. The recoverable amount isdetermined based on one of the two followingapproaches: (1) the discounted expected future netcash flows from the investee company; or (2) thecombination of expected cash dividends from theinvestee company and the discounted cash flows fromthe ultimate disposal of the investment. Theimpairment loss is recorded in profit or loss. If therecoverable amount increases in the future period, theamount previously recognized as impairment losscould be reversed and recognized as a gain in profit orloss.

Under US GAAP, an equity-method investment isconsidered to be impaired if such impairment is otherthan temporary. The amount of the impairment loss iscalculated by reference to the excess of the carryingvalue of the equity-method investment over its fairvalue. In determining whether a decline in value isother than temporary, the duration and severity of thedecline in value, the financial condition of theinvestee, the extent of recovery in market valuesubsequent to the reporting date, and reports ofexternal market analysts for the investee and/or theindustry that the investee operates in were considered.Unlike ROC GAAP, an impairment loss recognizedcannot be reversed subsequently.

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ROC GAAP US GAAP

Accounting for changes in ownership interest ininvestee companies

Under ROC GAAP, when an investee company issuesadditional shares and the investor’s ownershipinterest changes as a result, any resulting differencebetween the investor’s investment balance and itsproportionate share of the investee company’s netequity is adjusted to the investor’s investment accountagainst the investor’s capital reserve or retainedearnings if the related capital reserve balance isinsufficient. Upon subsequent disposition of theinvestment, amounts previously recorded to capitalreserve or retained earnings relating to the respectiveinvestment will be reversed and recorded as part ofthe gain or loss on disposal.

Under US GAAP, if the reduction in the investor’sequity interest occurs due to a public offering by theinvestee company to external investors, gainrecognition is permitted provided the transaction isnot ‘a part of a broader corporate reorganization’planned by the investor company. Gains and lossesarising from issuances by an investee company of itsown stock should be presented as a separate line itemin the consolidated income statement and clearly bedesignated as non-operating income.

Examples of situations where gain recognition wouldnot be appropriate are:

(a) where subsequent capital transactions arecontemplated that raise concerns about theinvestor realizing the gain that arises; or

(b) where the investee company is a start-upcompany, a research and development companyor an entity with going concern problems.

In such cases, realization is not assured and so thechange in the investor’s proportionate share of aninvestee’s equity should be accounted as an equitytransaction, i.e. through reserves.

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

Reversal of losses is permitted in certaincircumstances, but no reversal is permitted forimpairment of goodwill.

Reversals of impairment losses are prohibited.

Accounting for financial instruments

ROC GAAP allows classification of any financialasset or financial liability with an available publicmarket price as financial assets/liabilities at fair valuethrough profit or loss.

There is no such provision under US GAAP.

Reversals of impairment losses for held-to-maturityare permitted in certain circumstances.

Reversals of impairment losses are prohibited forheld-to-maturity.

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ROC GAAP US GAAP

Cost of sales

Under ROC GAAP, the unrealized gross profitgenerated from downstream intercompanytransactions for equity method investees is eliminatedand presented as a reconciling item of realized grossprofit in the statement of income. A correspondingliability is recorded for the amount of the unrealizedgross profit in the balance sheet.

Under US GAAP, the unrealized gross profitgenerated from downstream transactions is generallycharged against cost of sales and credited to theinvestment account.

Segment information

ROC GAAP requires disclosure of segmentalinformation in the footnotes to the financialstatements according to industry and geographicinformation, which need not necessarily be the sameas the management’s approach for reportingsegmental information to the company’s chiefoperating decision makers that are used internally forevaluating segmental performance and decidingresource allocation to segments.

Under US GAAP, a public business enterprise isrequired to present segmental information based onoperating segments. Several operating segments may,provided aggregation criteria are met, be aggregatedto reportable segments for which the requiredinformation is disclosed. Disclosure is based on themanagement’s approach for reporting segmentalinformation to the company’s chief operating decisionmakers that are used internally for evaluatingsegmental performance and deciding resourceallocation to segments.

Statement of cash flows

Under ROC GAAP, certificates of time deposits withoriginal maturities of greater than three months andwithin one year are classified as cash and cashequivalents.

Under US GAAP, certificates of time deposits withoriginal maturities of over three months are classifiedas available-for-sale securities.

Under ROC GAAP, prior to January 1, 2008,remuneration to directors and supervisors andemployee bonuses are presented under financingactivities in the consolidated statement of cash flows.Effective January 1, 2008, such remuneration orbonuses are presented under operating activities inthe consolidated statement of cash flows.

Under US GAAP, remuneration to directors andsupervisors and employee bonuses are presentedunder operating activities in the consolidatedstatement of cash flows.

Under ROC GAAP, cash flows from the derivativefinancial instrument transactions are presented underoperating activities in the consolidated statement ofcash flows.

Under US GAAP, cash flows from the derivativefinancial instrument transactions are presented underinvesting activities in the consolidated statement ofcash flows.

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ROC GAAP US GAAP

Comprehensive income

Under ROC GAAP, there is currently no specificstandard for accounting and reporting ofcomprehensive income.

Comprehensive income and its components(revenues, expenses, gains and losses) must bepresented in a full set of financial statements underUS GAAP. Comprehensive income includes allchanges in stockholders’ equity during a periodexcept for those resulting from investments by ordistributions to owners, including certain items notincluded in the current results of operations.

Valuation of inventory

Prior to January 1, 2009, inventory is valued at thelower of cost or market. Market is determined on thebasis of replacement cost or net realizable value. Anywrite-down of inventory that is no longer requiredmust be reversed.

Inventory is valued at the lower of cost or market,with market limited to an amount that is not morethan net realizable value nor less than net realizablevalue less a normal profit margin. Any write-down ofinventory that is no longer required must not bereversed.

Effective January 1, 2009, under the amended ROCSFAS No. 10, “Inventory”, market is determined onthe basis of net realizable value.

Employee stock options

Prior to January 1, 2008, the employee stock optionswere accounted for based on Interpretations (92) 070,071 and 072 issued by the Accounting Research andDevelopment Foundation, under which, the intrinsicvalue method is adopted to recognize thecompensation cost, which is the difference betweenthe market price of the stock and the exercise price ofthe employee stock option on the measurement date.Any compensation cost is charged to expense over theemployee vesting period and increases thestockholders’ equity accordingly.

Effective from January 1, 2008, under ROC SFAS No.39, “Accounting for Share-based Payment,” share-based payment transactions are measured at fair valueand charged against profit and loss.

Before the revised U.S. SFAS 123 became effective in2006, US GAAP offered a choice of two methods toaccount for share based compensation (includingstock options): either the intrinsic value method or thefair value method; under the intrinsic value methodcompensation cost is measured as the excess, if any,of the quoted price of the stock at the measurementdate over the amount paid by the employee. Under thefair value method, compensation cost is measured atthe fair value of the award on the applicablemeasurement date. U.S. SFAS 123 (R), which iseffective for the annual reporting beginning afterDecember 15, 2005, establishes fair value as themeasurement objectives in accounting for share-based payment arrangements (including employeestock options) and requires all entities to apply afair-value based measurement method in accountingfor share-based transactions with employees, exceptfor equity instruments held by employee shareownership plans. However, it provides certainexceptions to that measurement method if it is notpossible to reasonably estimate the fair value of anaward at the grant date.

Treasury stock

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ROC GAAP US GAAP

When a company acquires its outstanding shares astreasury stock, the acquisition cost is debited to thetreasury stock account if the shares are purchased.The carrying value of treasury stock is calculated byusing the weighted average approach according to thesame class of treasury stock (common stock orpreferred stock).

Only cost method is allowed under ROC GAAP.

Under ROC GAAP, for a stock purchase plan that iseffective prior to January 1, 2008, the difference, ifany, between the cost paid by the company for thetreasury stock and the cash received from employeesis charged to a shareholders’ equity account.However, the ARDF Interpretation No. 96-266,“Accounting for treasury stock purchased byemployees” issued in 2008, requires recognition ofcompensation expenses on treasury stock sold toemployees from the stock purchase plan that iseffective from January 1, 2008.

Two general methods of handling treasury stock in theaccounts are the cost method and the par valuemethod. Both methods are generally acceptable. Thecost method is debiting the Treasury Stock accountfor the reacquisition cost and reporting this account asa deduction from the total paid-in capital and retainedearnings on the balance sheet. The par value methodrecords all transactions in treasury shares at their parvalue and reports the treasury stock as a deductionfrom capital stock only. An excess of purchase priceover par value may be allocated between capitalsurplus and retained earnings. Alternatively, theexcess may be charged entirely to retained earnings.An excess of par value over purchase price should becredited to capital surplus.

Income tax

ROC SFAS No. 22 “Accounting for Income Taxes”which was issued in June 1994, is substantiallysimilar to US GAAP. However, under ROC GAAP,the criteria for determining whether a valuationallowance is required are less stringent as comparedto US GAAP.

Under US GAAP, current tax liabilities arerecognized for estimated taxes payable for the currentperiod. U.S. SFAS No. 109 requires that all temporarydifferences between the carrying amounts of assetsand liabilities and their respective tax bases berecognized as deferred tax liabilities or assets. Avaluation allowance is not provided on tax assets tothe extent that it is not “more likely than not” thatsuch deferred tax assets will be realized. Under USGAAP, if a company has experienced cumulativelosses in recent years, it is not generally able toconsider projections of future operating profits for thepurpose of determining the valuation allowance fordeferred income tax assets. A change in tax rate or lawrequires an adjustment to such deferred tax assets andliabilities in the period of enactment and is reportedas part of the results of operations.

Under ROC GAAP, in accordance with ROC SFAS22, there are no differences in the calculation ofincome tax provision and the same corporate incometax rate of 25% is adopted for both periods betweenannual financial statements and interim quarterlyfinancial statements.

Under US GAAP, tax provisions in interim quarterlyfinancial statements are provided based on anestimated effective tax rate expected to be applicableto the full fiscal year. Such estimated effective taxrate takes into account all anticipated tax attributesfor the full fiscal year.

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ROC GAAP US GAAP

Companies in the ROC are subject to a 10% tax onprofits retained and earned after December 31, 1997.If the retained profits are distributed to theshareholders in the following fiscal year, no 10%surtax is due. Under ROC GAAP, income tax expenseis recorded in the statement of operations in thefollowing fiscal year if the earnings are notdistributed to the shareholders.

Under US GAAP, income tax expense related to the10% retained profit tax is recorded in the statement ofincome in the year that the profits were earned basedon management’s estimate of the amount of profits tobe retained. The income tax expense, including thetax effects of temporary differences, is measured byusing the rate that includes the estimated tax onundistributed earnings.

Earnings per share

Under ROC GAAP, basic earnings per share arecalculated by dividing net income attributable tocommon shareholders by the weighted averagenumber of shares outstanding during the year. Theshares distributed for employee bonus are treated asoutstanding at the beginning of each period. Dilutedearnings per share are calculated by taking basicearnings per share into consideration plus additionalcommon shares that would have been outstanding ifthe dilutive share equivalents had been issued. Netincome is also adjusted for the interest and otherincome or expenses derived from any underlyingdilutive share equivalents. The weighted averageshares outstanding are adjusted retroactively for stockdividends issued, capitalization of additional paid-incapital and employee bonus. Anti-dilutive effects arenot included in the dilutive EPS calculation. Underthe ARDF Interpretation No. 97-169 “Impacts ofEmployee Stock Bonuses on Earnings Per Share”which took effect in 2008, the shares distributed foremployee bonus are treated as outstanding as of theirgrant date in the calculation of basic earnings pershare after 2008. For employee bonus that may bedistributed in shares, the number of shares to bedistributed is taken into consideration assuming thedistribution will be made entirely in shares whencalculating for diluted earnings per share in and after2008. Commencing from 2009, distribution ofemployees’ bonus in the form of shares is not adjustedretroactively.

Under US GAAP, when a simple capital structureexists, basic earnings per share is based on theweighted average number of shares outstanding.When a complex capital structure exists, dilutedearnings per share is based on the weighted averagenumber of shares outstanding plus the number ofadditional shares that would have been outstanding ifdilutive potential common shares had been issued,with appropriate adjustments to income or loss thatwould result from the assumed conversions of thosepotential common shares. The materiality of thedilutive effect is not considered.

Disclosure of new accounting pronouncements

Under ROC GAAP, disclosure of recently issuedaccounting standards but not yet effective as of thebalance sheet date is not required.

US GAAP requires disclosure of the impact thatrecently issued accounting standards will have on thefinancial statement of the company when adopted inthe future

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APPENDIX A — FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN THE ROC

The information provided in this appendix has been extracted from various government and otherpublicly available publications that have not been prepared or independently verified by us, the InitialPurchasers or any of their respective affiliates or advisers in connection with the offering of the Bonds.References to the ROC Financial Supervisory Commission (“ROC FSC”) in this section include the ROCSecurities and Futures Bureau and its two predecessors, the ROC Securities and Exchange Commission andROC Securities and Futures Commission.

Foreign Investment

Besides the general restriction against direct investment by non-ROC persons (excluding a PRC personwhich is subject to separate investment restrictions as mentioned below) in ROC companies, non-ROCpersons (except in certain limited cases) are currently prohibited from investing in certain industries in theROC pursuant to a Negative List, as amended by the Executive Yuan. The prohibition on foreign investmentin the prohibited industries specified in the Negative List is absolute in the absence of specific exemptionfrom the application of the Negative List. Pursuant to the Negative List, certain other industries are restrictedso that non-ROC persons (except in certain limited cases) may invest in any company of such industries onlyup to a specified level and with the specific approval of the relevant competent authority which is responsiblefor enforcing the relevant legislation which the Negative List is intended to implement.

Foreign Investment in ROC Securities Market

Historically, foreign investment in the ROC securities markets has been restricted. Since 1983, the ROCgovernment has periodically enacted legislation and adopted regulations to permit foreign investment in theROC securities market.

Regulations Governing Investment in Securities By Overseas Chinese and Foreign Nationals (the“Regulations”), which was approved by the Executive Yuan on May 26, 1983 and has been amended fromtime to time, is one of the major regulations governing foreign investment in Taiwan securities market.

Under the Regulations, foreign investors are classified as either “onshore foreign investors” and“offshore foreign investors” according to their respective geographical location. Both onshore and offshoreforeign investors are allowed to invest in ROC securities after they register with the TSE. The Regulationsfurther classify foreign investors into foreign institutional investors and foreign individual investors.“Foreign institutional investors” refer to those investors incorporated and registered in accordance withforeign laws outside of the ROC (i.e., offshore foreign institutional investors) or their branches set up andrecognized within the ROC (i.e., onshore foreign institutional investors). Offshore foreign institutionalinvestors were previously required to apply for an approval from the CBC, in addition to the registration withthe TSE. However, the amendment to the Regulations, which took effect on July 15, 2004, abolished suchrequirement. Offshore overseas Chinese and foreign individual investors are subject to a maximuminvestment ceiling that will be separately determined by the ROC FSC after consultation with the CBC. Onthe other hand, foreign institutional investors are not subject to any ceiling for investment in the ROCsecurities market.

On April 30, 2009, the ROC FSC promulgated regulations allowing PRC institutional investors thatmeet the qualifications imposed by PRC financial regulators for Qualified Domestic Institutional Investors(“QDII”) and certain other PRC persons (together with the ODII, “Qualified PRC Person”) to invest insecurities of ROC companies. However, Qualified PRC Persons are currently prohibited from investing incertain industries in the ROC pursuant to a PRC Investors Negative List promulgated by the ROC FSC.Pursuant to the PRC Investors Negative List, certain other industries are restricted so that Qualified PRCPersons may invest in any company of such industries only up to a specified level and/or with the specificapproval of the relevant competent authority which is responsible for enforcing the relevant legislation whichthe PRC Investors Negative List is intended to implement. In addition, if the aggregated amount or any singleinvestment of a Qualified PRC Person in a listed company will be 10% or more of the issued and outstandingshares of such listed company, prior approval from the Investment Commission of the ROC Ministry ofEconomic Affairs (“ROC MOEA”) is required.

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Overseas Corporate Bonds

Since 1989, the ROC FSC has approved a series of overseas bonds issued by ROC companies listed onthe TSE in offerings outside the ROC. Under current ROC law, subject to and certain special restrictions inrelation to person of the PRC, such overseas corporate bonds can be (i) converted by bondholders, into sharesof ROC companies or (ii) subject to ROC FSC approval and other applicable laws, may be converted intodepositary receipts issued by the same ROC company or by the issuing company of the exchange shares, inthe case of exchangeable bonds, depending on the issuer’s plan of issuance as approved by the ROC FSC.The relevant regulations also permit public issuing companies to issue corporate debt in offerings outside theROC. Proceeds from the sale of the shares converted from overseas convertible bonds may be used forreinvestment in securities listed on the TSE or traded on the GTSM, subject to registration with the TSE.

Under current ROC law, a non-ROC converting bondholder, when exercising his conversion right toconvert bonds into common shares, is required to register with the TSE and appoint a local agent (with suchqualifications as are set by the ROC FSC) to open a securities trading account with a local brokerage firm,pay ROC taxes, make confirmations and settlement, remit funds, exercise rights relating to the securities andperform such other matters as may be designated by such converting bondholder on behalf of and as agentfor such converting bondholder. Also, any such converting bondholder is also required to appoint a custodianbank to hold the securities and any cash proceeds in safekeeping, to make confirmations, to settle trades andto report all relevant information. In addition, such converting bondholder is required to appoint a taxguarantor for filing tax returns and making tax payments.

Subject to ROC FSC and CBC approval on the issuance of the bonds, an ROC company may, withoutobtaining further approvals from the CBC or any other government authority of the ROC, convert NT dollarsto other non-ROC currencies, including US dollars, for making payments in respect of redemption of thebonds or repayment of principal of and interest on the bonds. A non-ROC converting bondholder may,through its local agent and without obtaining prior approval from the CBC, convert into foreign currenciesnet proceeds realized from the sale of converted entitlement certificates, common shares or any stockdividends relating to such shares, or any cash dividend or other cash distribution in respect of such commonshares.

Pursuant to the Regulations Governing Securities Investment and Futures Trading in Taiwan byMainland Area Investors, or the Mainland Investors Regulations, only the Mainland area QDIIs approved bythe China Securities Regulatory Commission and registered with the TSE or Taiwan Futures Exchange, arepermitted to convert the Bonds and hold our Common Shares, and, similar to other non-ROC person, in orderto hold our Common Shares, such QDIIs are required to appoint the agent, custodian and tax guarantor asrequired by the Mainland Investors Regulations. If the aggregate amount of our Common Shares to be heldby any QDII or our Common Shares to be received by any QDII upon single conversion will be 10% or moreof our total issued and outstanding shares, such QDII must obtain the prior approval from the InvestmentCommission of the ROC MOEA.

Other Foreign Investment

Foreign investors who wish to make direct investments in the shares of ROC listed companies for 10%or more of its share capital or in any ROC non-listed companies are required to submit a Foreign InvestmentApproval application to the Investment Commission of the ROC MOEA. In addition, depending on the typeof industries of the invested company, and/or percentage of the proposed shareholding in the investedcompany, separate applications may be required to be submitted to other government authorities for theirprior approvals. The Investment Commission or such other government authority reviews each applicationand approves or disapproves each application after consultation with other governmental agencies (such asthe CBC and the ROC FSC).

Historically, PRC investors were banned from making direct investment in ROC companies. Taiwanauthorities have recently announced a separate set of laws and regulations governing the direct investmentspermitted for PRC investors (other than the permitted investment in the ROC securities market under theRegulations Governing Securities Investment and Futures Trading in Taiwan by Mainland Area Investors).According to current laws, the PRC persons are current prohibited from making direct investment inindustries in the ROC unless for those which have been specifically specified in a Positive List, as amended

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by the Executive Yuan. The prohibition on PRC investment in the industries in the ROC other than thosespecified in the Positive List is absolute in the absence of specific exemption from the application of thePositive List. Limited to those industries specified in the Positive List, for investment in the share of a ROClisted company for 10% or more of its share capital or in any ROC non-listed companies, a PRC investor mustobtain a PRC Investment Approval from the Investment Commission of the ROC MOEA.

Under current law, any non-ROC person possessing a Foreign Investment Approval or a PRCInvestment Approval may remit capital for the approved investment and is entitled to repatriate annual netprofits, interest and/or cash dividends attributable to such investment, provided that such non-ROC personshall submit certain required documents, including a declaration to CBC, to the remitting bank, andinvestment capital and capital gains attributable to such investment may be repatriated after approvals of theInvestment Commission or other authorities have been obtained.

Exchange Controls

The Foreign Exchange Control Statute and regulations provide that all foreign exchange transactionsmust be executed by banks designated to handle such business, by the Ministry of Finance and by the CBC.Current regulations favor trade-related foreign exchange transactions and Foreign Investment Approvalinvestments. Consequently, foreign currency earned from exports of merchandise and services may now beretained and used freely by exporters, and all foreign currency needed for the importation of merchandise andservices may be purchased freely from the designated foreign exchange banks.

Trade aside, ROC companies and resident individuals may, without foreign exchange approval, remitoutside the ROC foreign currency of up to US$50,000,000 (or its equivalent) and US$5,000,000 (or itsequivalent) respectively in each calendar year. In addition, ROC companies and resident individuals may,without foreign exchange approval, remit into the ROC foreign currency of up to US$50,000,000 (or itsequivalent) and US$5,000,000 (or its equivalent) respectively in each calendar year. Furthermore, anyremittance of foreign currency into the ROC by a ROC company or resident individual in a year will be offsetby the amount remitted out of the ROC by the company or individual (as applicable) within its annual quotaand will not use up its annual inward remittance quota to the extent of such offset. The above limits applyto remittances involving a conversion of NT dollars to a foreign currency and vice versa. A requirement isalso imposed on all enterprises to register medium-and long-term foreign debt with the CBC.

In addition, foreign persons may, subject to certain requirements, but without foreign exchangeapproval of the CBC, remit outside and into the ROC foreign currencies of up to US$100,000 (or itsequivalent) for each remittance. The above limit applies to remittances involving a conversion of NT dollarsto a foreign currency and vice versa.

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APPENDIX B — THE SECURITIES MARKETS OF THE ROC

The information provided in this appendix has been extracted from various government and otherpublicly available publications that have not been prepared or independently verified by us, the InitialPurchasers or any of their respective affiliates or advisers in connection with the offering of the Bonds.References to the ROC Financial Supervisory Commission (“ROC FSC”) in this section include the ROCSecurities and Futures Bureau and its two predecessors, the ROC Securities and Exchange Commission andthe ROC Securities and Futures Commission.

In September 1960, the ROC government established the ROC Securities and Exchange Commissionto supervise and control all aspects of the existing domestic securities market and the TSE began to takeshape soon thereafter. In the 1970s and the early 1980s, the ROC government implemented a number of stepsdesigned to upgrade the quality and importance of the ROC securities markets, such as encouraging listingon the TSE and establishing an over-the-counter securities exchange. In the mid-1980s, the ROC governmentbegan to revise its laws and regulations in a manner designed to facilitate the gradual internationalization ofthe ROC securities markets. In 1997, the ROC Securities and Exchange Commission was renamed the ROCSecurities and Futures Commission. Effective from July 1, 2004, the ROC Securities and FuturesCommission was further renamed the ROC Securities and Futures Bureau, under the Financial SupervisoryCommission.

The Taiwan Stock Exchange

In 1961, the ROC FSC, working together with private interests, established the TSE to provide amarketplace for securities trading. The TSE is a corporation owned by government-controlled and privatebanks and enterprises. The TSE is independent of entities transacting business through it, each of which paysa user’s fee. Subject to limited exceptions, all transactions in listed securities by brokers, traders andintegrated securities firms (firms which are permitted to combine the activities of brokerage, dealing andunderwriting) must be made through the TSE.

The TSE commenced operations in 1962 and during the remainder of the 1960’s grew at a slow pace,largely due to lack of experience among issuers and investors and an unwillingness on the part of ROCbusinesses to offer their shares to the public. During the early 1980’s, the ROC FSC more activelyencouraged new listings on the TSE and the number of listed companies grew from 119 in 1983 to 741 bythe end of 2009. As of the end of 2009, the total market value of shares listed on the TSE was approximatelyNT$21 trillion.

The TSE requirements for listing are primarily 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;

• profitability; and

• certain negative criteria.

However, special listing criteria apply to technology companies and key businesses engaging innational economic development and foreign issuers.

Under certain circumstances, TSE may place its listing securities under an altered trading method,including, among others, suspension of margin purchase, short sales, and stock lending/borrowing, orsuspend trading, which may affect shareholders’ right of transfer or the ability to borrow shares.

The GreTai Securities Market

To complement the TSE, an over-the-counter securities market was established in September 1982 onthe initiative of the ROC FSC. In early 1988, the ROC FSC promulgated regulations designed to encouragetrading of unlisted securities of companies whose securities do not qualify for listing on the TSE. As of theend of 2009, the total market value of shares listed on the GTSM was around NT$1.9 trillion.

B-1

Taiwan Stock Exchange Index

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

The weighting of each stock in the index is fixed as long as the number of shares outstanding remainsconstant. When the total number of shares outstanding changes, the weight of each stock is adjusted.Automatic adjustment is made for stock splits and stock dividends. Cash dividends are not included in thecalculation.

The following table sets forth, for the periods indicated, information relating to the Taiwan StockExchange Index:

Period Ended December 31,

No. of Listed

Companies

at Period

End

Trading

Values Index High Index Low

Index at

Period End

(in NT$

billions)

1999 .............................................................. 462 29,291.50 8,608.91 5,474.79 8,448.842000 .............................................................. 531 30,526.60 10,202.20 4,614.63 4,739.092001 .............................................................. 584 18,354.90 6,104.24 3,446.26 5,551.242002 .............................................................. 638 21,874.00 6,462.30 3,850.04 4,452.452003 .............................................................. 669 20,332.20 6,142.32 4,139.50 5,890.092004 .............................................................. 697 23,875.37 7,304.10 5,316.87 6,139.692005 .............................................................. 691 18,818.90 6,575.53 5,632.97 6,548.342006 .............................................................. 688 23,900.36 7,823.72 6,257.80 7,823.722007 .............................................................. 698 33,043.85 9,809.88 7,344.56 8,506.282008 .............................................................. 718 26,115.40 9,259.20 4,089.53 4,591.222009 .............................................................. 741 29,680.47 8,188.11 4,242.61 8,188.11

Source: Taiwan Stock Exchange.

As indicated above, the performance of securities traded on the Taiwan Stock Exchange has in recent yearsbeen characterized by extreme price volatility. On August 5, 2010, the Taiwan Stock Exchange Index closedat 7,936.85.

Price Limits, Commissions, Transaction Tax and Other Matters

Fluctuations in the price of securities traded on the Taiwan Stock Exchange are currently subject to arestriction of 7% above and below the previous day’s closing price (or a reference price set by the TaiwanStock Exchange if the previous day’s closing price is not available because of lack of trading activity) in thecase of equity securities and 5% in the case of debt securities. The ROC FSC has announced that limitationson price fluctuations will be relaxed with a view towards eventually abolishing all share price fluctuationcontrols. Brokerage commissions are set by the TSE. The current approved maximum brokerage commissionis 0.1425% of the transaction price for equity securities and between 0.05% and 0.1% of the transaction pricefor debt securities. A securities transaction tax, currently levied at the rate of 0.3% of the transaction price,is payable by the seller of equity securities. Such securities transaction taxes are withheld at the time of thetransaction giving rise to such taxes. Sales of shares of companies listed on the TSE are currently sold in‘‘round lots’’ of 1,000 shares. Investors who desire to sell less than 1,000 shares of a listed companyoccasionally experience delays in effecting such sales. Transactions that include 500 trading lots (500,000shares) or more must be registered and executed pursuant to certain TSE guidelines.

B-2

Regulation and Supervision

The ROC FSC has extensive regulatory authority over companies listed on the TSE, companies listedon the GTSM and unlisted public issuing companies generally. Such companies are generally required toobtain approval from, or register with, the ROC FSC for all securities offerings. The ROC FSC haspromulgated regulations requiring, unless otherwise exempted, periodic reporting of financial and operatinginformation by all public companies. In addition, the ROC FSC is responsible for the establishment ofstandards for financial reporting and carries out licensing and supervision with respect to the otherparticipants in the ROC securities market.

The ROC FSC has responsibility for implementation of the Securities and Exchange Law and foroverall administration of governmental policies in the ROC securities market. It has extensive regulatoryauthority over the offering, issue and trading of securities. In addition, the Securities and Exchange Lawspecifically empowers the ROC FSC to promulgate rules under certain circumstances.

The Securities and Exchange Law prohibits market manipulation. It permits an issuer to recover certainshort-swing trading profits made through purchases and sales (or sales and purchases) within six months bydirectors, managerial personnel, supervisors and shareholders holding more than 10% of the outstandingshares of the issuer. The Securities and Exchange Law prohibits trading by “insiders” based on non-publicinformation that materially affects share price movements. The Securities and Exchange Law also prohibitstrading by “insiders” based on such material information within 18 hours after such information is madepublic. Pursuant to the Securities and Exchange Law, the term “insiders” includes directors, supervisors,managers and shareholders holding more than 10% of the outstanding shares of the issuing company and theirspouses, minor children and nominees, (the prohibition also applies to above person(s) within 6 months afterhe/she has lost such “insider” status) any person who has learned such information due to an occupationalor controlling relationship with the issuing company and any person who has learned such information fromany of the foregoing. Sanctions include prison terms. In addition, damages may be awarded to persons injuredby the transaction. Notwithstanding these regulatory requirements, there have been recurring press reports oninsider trading and manipulation of stock prices in the ROC.

The Securities and Exchange Law also imposes criminal liability on certified public accountants andlawyers who make false certifications in their examination and audit of an issuer’s contracts, reports andother evidentiary documents that are related to securities transactions. ROC FSC regulations require thatfinancial reports of listed companies be audited by qualified accounting firms as approved by the ROC FSCand be signed by at least two certified public accountants.

The Securities and Exchange Law was amended in January 1988 to provide for, among other things,new regulations relating to public offerings of securities; measures to strengthen the capital structure ofissuers; civil liability for material misstatements or omissions made by issuers; more stringent regulation ofthe securities activities of officers, directors and major shareholders of issuers; regulations regarding tenderoffers; and a significant expansion of the prohibitions against insider trading, including the imposition oftreble civil damages and criminal sanctions.

The Securities and Exchange Law was further amended on July 19, 2000. Such amendments included,among other provisions, allowing companies to hold treasury stock under certain situations and to providefor criminal liabilities on certain personnel of a company for directly or indirectly causing the company toconduct trading not in the ordinary business operation of the company and against the company’s interest.

The ROC FSC does not have criminal or civil enforcement powers under the Securities and ExchangeLaw. Criminal actions may be pursued by the district prosecutors upon the complaint of the ROC FSC. UnderROC law, subject to limited exception, civil actions may only be brought by plaintiffs who assert that theyhave suffered damage. The ROC FSC is directly empowered to curb abuses and violations of applicable lawsand regulations only through administrative measures such as the issuance of warnings, temporarysuspension of operation, imposition of administrative fines and revocation of licenses.

B-3

In addition to providing a market for securities trading, the TSE has the primary responsibility forreviewing applications by ROC issuers to list securities on the Taiwan Stock Exchange. In addition, the ROCSecurities and Futures Bureau reviews all securities offerings by listed companies. The TSE may, with theapproval of the ROC FSC, delist securities of these issuers that violate relevant laws and regulations orencounter significant difficulties.

B-4

INDEX TO FINANCIAL STATEMENTS

Page

Audited Consolidated Financial Statements as of December 31, 2007, 2008 and 2009

Independent Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2

Consolidated Balance Sheets as of December 31, 2007, 2008 and 2009 . . . . . . . . . . . . . . . . . . . . F-3

Consolidated Statements of Income for the years ended December 31, 2007, 2008 and 2009 . . . . . F-6

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2007,2008 and 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8

Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2008 and 2009 . . F-11

Notes to Consolidated Financial Statements as of and for the years ended December 31, 2007,2008 and 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14

Unaudited Consolidated Financial Statements as of March 31, 2009 and 2010

Independent Auditors’ Review Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-61

Consolidated Balance Sheets as of March 31, 2009 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-62

Consolidated Statements of Income for the three-month periods ended March 31, 2009 and 2010 . F-65

Consolidated Statements of Changes in Stockholders’ Equity for the three-month periodsended March 31, 2009 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-66

Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2009 and 2010 . F-67

Notes to Consolidated Financial Statements as of March 31, 2009 and 2010 . . . . . . . . . . . . . . . . F-69

F-1

INDEPENDENT AUDITORS’ REPORT

The Board of DirectorsAcer Incorporated:

We have audited the accompanying consolidated balance sheets of Acer Incorporated (the “Company”)and subsidiaries as of December 31, 2007, 2008 and 2009, and the related consolidated statements of income,changes in stockholders’ equity, and cash flows for the years then ended. These consolidated financialstatements are the responsibility of the Company’s management. Our responsibility is to express an opinionon these financial statements based on our audits.

We conducted our audits in accordance with the “Regulations Governing Auditing and Certification ofFinancial Statements by Certified Public Accountants” and auditing standards generally accepted in theRepublic of China. Those regulations and standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significant estimates madeby management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to in the first paragraph present fairly, inall material respects, the financial position of Acer Incorporated and subsidiaries as of December 31, 2007,2008 and 2009, and the results of their consolidated operations and their consolidated cash flows for the yearsthen ended, in conformity with accounting principles generally accepted in the Republic of China.

As discussed in note 3 to the consolidated financial statements, effective January 1, 2008, AcerIncorporated and subsidiaries recognized, measured and disclosed employee bonuses and directors’ andsupervisors’ remunerations according to Interpretation (2007) 052 issued by the Accounting Research andDevelopment Foundation of the Republic of China. The adoption of this new accounting principle decreasedthe consolidated net income and basic earnings per share for the year ended December 31, 2008, byNT$1,483,776 thousand and NT$0.59, respectively.

The consolidated financial statements as of and for the year ended December 31, 2009, have beentranslated into United States dollars solely for the convenience of the readers. We have audited thetranslation, and in our opinion, the consolidated financial statements expressed in New Taiwan dollars havebeen translated into United States dollars on the basis set forth in note 2(26) to the consolidated financialstatements.

KPMGTaipei, Taiwan (the Republic of China)March 19, 2010, except for note 2(26) of the notes to the consolidated financial statements,which is dated March 31, 2010.

Note to Readers

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

F-2

ACER INCORPORATED AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSDECEMBER 31, 2007, 2008 AND 2009

(Expressed in thousands of New Taiwan dollars and US dollars)

2007 2008 2009

NT$ NT$ NT$ US$

AssetsCurrent assets:

Cash and cash equivalents (note 4(1)) .............. 37,945,339 22,141,725 53,616,067 1,685,033Notes and accounts receivable, net of

allowance for doubtful accounts ofNT$898,972, NT$2,356,672 andNT$1,681,844 as of December 31, 2007,2008 and 2009, respectively (note 4(2)) ......... 101,898,281 107,826,311 111,858,366 3,515,458

Notes and accounts receivable from relatedparties (note 5) ................................................ 448,481 841,465 600,306 18,866

Other receivable from related parties (note 5).... 59,403 45,173 21,507 676Other receivables (note 4(3)) .............................. 7,375,569 8,807,454 9,263,152 291,120Financial assets at fair value through profit or

loss—current (notes 4(5) and 4(25)) ............... 19,982 354,751 157,659 4,955Available-for-sale financial assets—current

(notes 4(4) and 4(25)) ..................................... 2,852,061 591,444 223,437 7,022Hedging purpose derivative financial

assets—current (notes 4(6) and 4(25)) ............ 235,198 1,022,782 1,275,157 40,075Inventories (note 4(7)) ........................................ 33,815,697 40,028,195 51,184,953 1,608,629Prepayments and other current assets

(note 4(8)) ....................................................... 2,828,601 1,525,555 1,694,058 53,240Deferred income tax assets—current

(note 4(19)) ..................................................... 1,914,006 2,282,943 2,213,215 69,556Restricted deposits (note 6) ................................ 2,233,583 922,794 — —

Total current assets ....................................... 191,626,201 186,390,592 232,107,877 7,294,630

Long-term investments:Investments accounted for using equity method

(note 4(10)) ..................................................... 4,689,684 2,928,790 3,314,950 104,181Available-for-sale financial assets—noncurrent

(notes 4(11) and 4(25)) ................................... 3,370,847 1,160,487 3,306,742 103,924Financial assets carried at cost

(notes 4(9) and 4(25)) ..................................... 3,142,121 2,684,270 2,251,058 70,746

Total long-term investments ......................... 11,202,652 6,773,547 8,872,750 278,851

F-3

2007 2008 2009

NT$ NT$ NT$ US$

Property, plant and equipment(notes 4(12) and 6):Land ................................................................... 1,560,568 2,678,408 2,509,029 78,853Buildings and improvements............................... 3,627,214 5,294,056 5,386,921 169,299Computer equipment and machinery .................. 4,367,924 3,348,086 3,059,222 96,145Transportation equipment.................................... 114,923 120,069 110,866 3,484Office equipment ................................................ 985,679 1,128,167 977,582 30,723Leasehold improvements..................................... 487,647 816,904 959,257 30,147Other equipment ................................................. 723,029 1,136,428 1,171,560 36,820Construction in progress and advance payments

for purchases of property and equipment........ 490,749 30,692 83,680 2,630

12,357,733 14,552,810 14,258,117 448,101Less: accumulated depreciation .......................... (3,446,629) (4,922,662) (4,904,235) (154,129)

accumulated impairment............................ (274,663) (293,927) (677,709) (21,299)

Net property, plant and equipment........ 8,636,441 9,336,221 8,676,173 272,673

Intangible assets (note 4(14)) ............................... 25,926,493 34,746,765 35,444,068 1,113,928Property not used in operation (note 4(13)) ....... 3,806,103 2,996,721 2,971,542 93,389Other financial assets (notes 4(15), 4(25)

and 6) ................................................................. 961,393 868,760 789,711 24,819Deferred charges and other assets (notes 4(18)

and 4(19))........................................................... 1,124,059 2,329,619 2,162,567 67,965

Total assets ..................................................... 243,283,342 243,442,225 291,024,688 9,146,255

F-4

2007 2008 2009

NT$ NT$ NT$ US$

Liabilities and Stockholders’ EquityCurrent liabilities:

Short-term borrowings (notes 4(16) and 6) ........ 5,372,109 1,086,851 548,059 17,224Current portion of long-term debt

(notes 4(17) and 6).......................................... 17,366 8,250,000 — —Notes and accounts payable .............................. 76,259,412 64,365,616 95,831,720 3,011,777Notes and accounts payables to related parties

(note 5)............................................................ 4,583,615 7,750,220 10,232,364 321,580Financial liabilities at fair value through profit

or loss—current (notes 4(5) and 4(25)) .......... 1,395,142 1,011,739 162,539 5,108Other payables to related parties (note 5) .......... 609,717 189,964 92,187 2,898Hedging purpose derivative financial

liabilities—current (notes 4(6) and 4(25)) ...... 66,786 872,038 196,714 6,182Royalties payable ................................................ 11,670,600 13,228,769 16,337,817 513,461Accrued expenses and other current liabilities

(note 4(13)) ..................................................... 42,158,130 51,903,351 55,764,403 1,752,551Deferred income tax liabilities—current

(note 4(19)) ..................................................... 709,697 656,610 680,714 21,393

Total current liabilities.................................. 142,842,574 149,315,158 179,846,517 5,652,174

Long-term liabilities:Long-term debt, excluding current portion

(notes 4(17), 4(25) and 6) ............................... 16,790,876 4,134,920 12,371,856 388,820Other liabilities (note 4(18)) ............................... 1,121,524 840,433 384,706 12,090Deferred income tax liabilities—noncurrent

(note 4(19)) ..................................................... 5,119,374 6,274,099 5,543,947 174,234

Total long-term liabilities.............................. 23,031,774 11,249,452 18,300,509 575,144

Total liabilities ............................................... 165,874,348 160,564,610 198,147,026 6,227,318

Stockholders’ equity and minority interest:Common stock (notes 4(20) and 4(21)) .............. 24,054,904 26,428,560 26,882,283 844,850Capital surplus (notes 4(10) and 4(20)).............. 29,898,983 37,129,952 38,494,118 1,209,784Retained earnings

Legal reserve ................................................... 7,490,689 8,786,583 9,960,796 313,045Special reserve ................................................ — — 1,991,615 62,592Unappropriated earnings (note 3).................... 13,551,024 13,985,318 16,622,600 522,411

Other equity componentsForeign currency translation adjustment ............. 2,733,899 1,241,058 959,621 30,159

Minimum pension liability adjustment............ (173,364) (283) (7,908) (249)Unrealized gain (loss) on financial

instruments (notes 4(6) and 4(11)) .............. 2,524,499 (1,729,631) 1,014,317 31,878Treasury stock (note 4(20)) ................................ (3,270,920) (3,522,598) (3,522,598) (110,707)

Total stockholders’ equity ............................. 76,809,714 82,318,959 92,394,844 2,903,763Minority interest ................................................ 599,280 558,656 482,818 15,174

Total stockholders’ equity and minorityinterest ........................................................ 77,408,994 82,877,615 92,877,662 2,918,937

Commitments and contingencies (note 7)Total liabilities and stockholders’ equity ..... 243,283,342 243,442,225 291,024,688 9,146,255

F-5

ACER INCORPORATED AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009(Expressed in thousands of New Taiwan dollars and US dollars, except for per share data)

2007 2008 2009

NT$ NT$ NT$ US$

Net sales (note 5)................................................ 462,066,080 546,274,115 573,982,544 18,038,988Cost of sales (notes 4(7) and 5) ........................ (414,647,770) (488,988,455) (515,654,684) (16,205,874)

Gross profit ....................................................... 47,418,310 57,285,660 58,327,860 1,833,114

Operating expenses(notes 4(14), 4(18), 4(21), 5 and 10)Selling ............................................................. (32,727,126) (35,764,261) (35,729,296) (1,122,892)Administrative ................................................ (4,156,402) (6,899,059) (6,372,585) (200,276)Research and development ............................. (349,659) (550,038) (886,513) (27,861)

Total operating expenses ............................ (37,233,187) (43,213,358) (42,988,394) (1,351,029)

Operating income ...................................... 10,185,123 14,072,302 15,339,466 482,085

Non-operating income and gains:Interest income ............................................... 1,343,523 1,207,826 361,656 11,366Investment gain recognized using equity

method, net (note 4(10)) .............................. 695,660 404,184 400,098 12,574Gain on disposal of property and equipment,

net (note 4(12)) ............................................ 121,418 515,272 — —Gain on disposal of investments, net

(notes 4(4), 4(9), 4(10) and 4(11))............... 4,045,981 2,709,524 79,162 2,488Foreign currency exchange gain and valuation

gain on financial instruments, net (notes4(5) and 4(6)) ............................................... — — 473,648 14,886

Other income (note 4(10)) ............................... 493,089 516,232 404,473 12,712

6,699,671 5,353,038 1,719,037 54,026

Non-operating expenses and losses:Interest expense ............................................... (759,907) (1,305,746) (622,080) (19,551)Other investment loss (notes 4(9) and 4(10)) .. — (416,404) (231,934) (7,289)Loss on disposal of property and equipment,

net (note 4(12)) ............................................ — — (103,055) (3,239)Restructuring cost (note 4(22)) ........................ — (1,582,408) (164,595) (5,173)Foreign currency exchange loss and valuation

loss on financial instruments, net (notes4(5) and 4(6)) ............................................... (455,385) (866,315) — —

Impairment of non-financial assets(notes 4(12) and 4(13)) ................................ — (221,931) (395,109) (12,417)

Other loss (note 4(10)) .................................... (560,865) (225,809) (558,747) (17,560)

(1,776,157) (4,618,613) (2,075,520) (65,229)

F-6

2007 2008 2009

NT$ NT$ NT$ US$

Income from continuing operations beforeincome taxes ................................................... 15,108,637 14,806,727 14,982,983 470,882

Income tax expense (note 4(19)) ....................... (2,665,578) (3,169,446) (3,630,123) (114,087)

Income from continuing operations ................. 12,443,059 11,637,281 11,352,860 356,795Income from discontinued operations (net of

income taxes of NT$23,120 in 2007 andNT$0 in both 2008 and 2009) (note 4(23)) ... 517,866 99,843 — —

Consolidated net income .................................. 12,960,925 11,737,124 11,352,860 356,795

Net income attributable to:Shareholders of parent company .................... 12,958,933 11,742,135 11,353,374 356,811Minority shareholders ...................................... 1,992 (5,011) (514) (16)

12,960,925 11,737,124 11,352,860 356,795

NT$ NT$ NT$ US$

Earnings per common share(in New Taiwan dollars) (note 4(24)):Basic earnings per common

share—retroactively adjusted .................... 5.27 4.67 4.31 0.14

Diluted earnings per common share............. 5.27 4.60 4.26 0.13

F-7

ACER INCORPORATED AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009(Expressed in thousands of New Taiwan dollars and US dollars)

Retained earnings

CommonStock

Capitalsurplus

Legalreserve

Specialreserve

Unappropriatedearnings

Foreigncurrency

translationadjustment

Minimumpensionliability

adjustment

Unrealizedgain (loss) on

financialinstruments

Treasurystock

Minorityinterest

Totalstockholders’

equity

NT$ NT$ NT$ NT$ NT$ NT$ NT$ NT$ NT$ NT$ NT$

Balance at January 1, 2007 ... 23,370,637 29,947,020 6,468,865 283,921 11,531,479 1,335,500 — 4,361,608 (3,270,920) 1,527,673 75,555,7832007 net income....................... — — — — 12,958,933 — — — — 1,992 12,960,925Appropriation approved by the

stockholders (note 4(20)):Legal reserve ..................... — — 1,021,824 — (1,021,824) — — — — — —Stock dividends and

employee bonuses instock............................ 684,267 — — — (684,267) — — — — — —

Special reserve................... — — — (283,921) 283,921 — — — — — —Cash dividends .................. — — — — (8,997,695) — — — — — (8,997,695)Directors’ and supervisors’

remuneration ............... — — — — (94,804) — — — — — (94,804)Employee bonuses in cash. — — — — (424,719) — — — — — (424,719)

Foreign currency translationadjustment.......................... — — — — — 1,398,399 — — — — 1,398,399

Unrealized gain on qualifyingcash flow hedge................. — — — — — — — 28,616 — — 28,616

Decrease in capital surplusresulting from long-termequity investmentsaccounted for using theequity method (note4(10)) ................................. — (169,810) — — — — — — — — (169,810)

Cash dividends distributed tosubsidiaries ........................ — 121,773 — — — — — — — — 121,773

Unrealized loss on available-for sale financial assets ..... — — — — — — — (1,865,725) — — (1,865,725)

Minimum pension liabilityadjustment.......................... — — — — — — (173,364) — — — (173,364)

Decrease in minority interest ... — — — — — — — — — (930,385) (930,385)

F-8

Retained earnings

CommonStock

Capitalsurplus

Legalreserve

Specialreserve


Foreigncurrency



adjustment



Treasurystock

Minorityinterest


equity


Balance at December 31,2007 ................................... 24,054,904 29,898,983 7,490,689 — 13,551,024 2,733,899 (173,364) 2,524,449 (3,270,920) 599,280 77,408,994

2008 net income....................... — — — — 11,742,135 — — — — (5,011) 11,737,124Appropriation approved by the

stockholders (note 4(20)):Legal reserve ..................... — — 1,295,894 — (1,295,894) — — — — — —Stock dividends and

employees’ bonuses instock............................ 690,823 — — — (690,823) — — — — — —

Cash dividends .................. — — — — (8,659,766) — — — — — (8,659,766)Directors’ and supervisors’

remuneration ............... — — — — (116,630) — — — — — (116,630)Employees’ bonuses in

cash ............................. — — — — (544,728) — — — — — (544,728)Foreign currency translation

adjustment.......................... — — — — — (1,492,841) — — — — (1,492,841)Unrealized loss on qualifying

cash flow hedge................. — — — — — — — (289,401) — — (289,401)Cash dividends distributed to

subsidiaries ........................ — 114,832 — — — — — — — — 114,832Decrease in capital surplus

resulting from long-terminvestments accounted forusing the equity method(note 4(10))........................ — (78,255) — — — — — — — — (78,255)

Unrealized valuation loss onavailable-for-sale financialassets ................................. — — — — — — — (3,964,729) — — (3,964,729)

Minimum pension liabilityadjustment.......................... — — — — — — 173,081 — — — 173,081

Issuance of stock foracquisitions (note 4(20)).... 1,681,589 7,155,678 — — — — — — — — 8,837,267

Issuance of stock fromexercising stock options(note 4(20))........................ 1,244 858 — — — — — — — — 2,102

Stock-based compensation cost(note 4(21))........................ — 37,856 — — — — — — — — 37,856

Treasury stock held bysubsidiaries ........................ — — — — — — — — (251,678) — (251,678)


F-9

Retained earnings

CommonStock

Capitalsurplus

Legalreserve

Specialreserve


Foreigncurrency



adjustment



Treasurystock

Minorityinterest


equity


Balance at December 31,2008 ................................... 26,428,560 37,129,952 8,786,583 — 13,985,318 1,241,058 (283) (1,729,631) (3,522,598) 558,656 82,877,615

2009 net income....................... — — — — 11,353,374 — — — — (514) 11,352,860Appropriation approved by the

stockholders (note 4(20)):Legal reserve ..................... — — 1,174,213 — (1,174,213) — — — — — —Special reserve................... — — — 1,991,615 (1,991,615) — — — — — —Stock dividends to

shareholders ................ 264,298 — — — (264,298) — — — — — —Cash dividends .................. — — — — (5,285,966) — — — — — (5,285,966)

Employees’ bonuses in stock ... 162,338 737,662 — — — — — — — — 900,000Foreign currency translation

adjustment.......................... — — — — — (281,437) — — — — (281,437)Unrealized gain on qualifying

cash flow hedge................. — — — — — — — 285,963 — — 285,963Cash dividends distributed to

subsidiaries ........................ — 70,510 — — — — — — — — 70,510Increase in capital surplus

resulting from long-terminvestments accounted forusing the equity method(note 4(10))........................ — 180,899 — — — — — — — — 180,899

Unrealized valuation gain onavailable-for-sale financialassets ................................. — — — — — — — 2,457,985 — — 2,457,985

Minimum pension liabilityadjustment.......................... — — — — — — (7,625) — — — (7,625)

Issuance of stock fromexercising stock options(note 4(20))........................ 27,087 76,503 — — — — — — — — 103,590

Stock-based compensation cost(note 4(21))........................ — 298,592 — — — — — — — — 298,592


Balance at December 31,2009 ................................... 26,882,283 38,494,118 9,960,796 1,991,615 16,622,600 959,621 (7,908) 1,014,317 (3,522,598) 482,818 92,877,662

Balance at December 31,2009 (in US$).................... 844,850 1,209,784 313,045 62,592 522,411 30,159 (249) 31,878 (110,707) 15,174 2,918,937

F-10

ACER INCORPORATED AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009(Expressed in thousands of New Taiwan dollars and US dollars)

2007 2008 2009

NT$ NT$ NT$ US$

Cash flows from operating activities:Consolidated net income ........................................ 12,960,925 11,737,124 11,352,860 356,795Adjustments to reconcile net income to cash

provided by (used in) operating activities:Depreciation ........................................................ 591,189 955,880 846,303 26,597Amortization ....................................................... 551,280 1,245,561 1,860,284 58,465Loss (gain) on disposal of property and

equipment, net ................................................. (121,418) (515,272) 103,055 3,239Property and equipment reclassified to

expenses .......................................................... 4,369 — — —Liquidation of investments ................................. — — (4,236) (133)Gain on disposal of investments, net .................. (4,476,991) (2,709,524) (79,162) (2,488)Net investment gain on equity method

investments, net of cash dividends received ... (875,415) (146,392) (320,773) (10,081)Other investment loss ......................................... — 416,404 231,934 7,289Gain on disposal of intangible assets ................. — — (46,037) (1,447)Impairment of non-financial assets ..................... — 221,931 395,109 12,417Restructuring cost ............................................... — 1,582,408 164,595 5,173Stock-based compensation cost........................... — 37,856 298,592 9,384Deferred income tax expense (benefit) ............... (61,297) 786,086 (951,327) (29,898)Changes in operating assets and liabilities:

Notes and accounts receivable ........................ (20,253,180) 452,252 (4,032,056) (126,719)Receivables from related parties ..................... (335,002) (327,579) 241,158 7,579Inventories....................................................... (6,921,700) (4,882,424) (11,173,624) (351,162)Other financial assets, prepayments and other

current assets ............................................... (1,055,734) (2,070,311) (720,480) (22,643)Other financial assets—noncurrent.................. 224,925 186,604 69,926 2,198Notes and accounts payable ............................ (1,826,219) (16,097,164) 31,466,106 988,909Payables to related parties .............................. 3,409,436 2,447,835 2,384,367 74,935Royalties payable, accrued expenses and

other current liabilities ................................ 12,015,179 1,831,291 6,563,601 206,279Other liabilities ............................................... (391,122) (319,014) (458,091) (14,397)

Cash provided by (used in) operatingactivities .................................................. (6,560,775) (5,166,448) 38,192,104 1,200,291

F-11

2007 2008 2009

NT$ NT$ NT$ US$

Cash flows from investing activities:Proceeds from disposal of available-for-sale

financial assets—current ................................. 12,332,596 2,891,868 480,068 15,087Proceeds from disposal of long-term

investments .................................................... 7,018,429 3,449,388 562,612 17,682Proceeds from sale of discontinued operations... 868,222 — — —Increase in long-term investments ...................... (217,140) (171,717) (259,905) (8,168)Proceeds from capital return and liquidation of

investees .......................................................... 495,253 462,551 231,897 7,288Proceeds from disposal of property, plant and

equipment and property not used inoperation.......................................................... 1,220,389 2,068,099 75,067 2,359

Additions to property, plant and equipmentsand property not used in operation ................. (534,626) (597,526) (771,575) (24,249)

Increase in intangible assets and other assets ..... (1,427,547) (435,746) (3,077,879) (96,731)Proceeds from disposal of intangible assets ....... — — 25,000 786Decrease (increase) in advances to related

parties .............................................................. 14,771 (14,230) 23,666 744Decrease (increase) in restricted deposits ........... (1,958,585) 1,813,448 922,794 29,001Acquisition of subsidiaries, net of cash

acquired ........................................................... (15,070,542) (719,026) — —

Cash provided by (used in) investingactivities .................................................. 2,741,220 8,747,109 (1,788,255) (56,201)

Cash flows from financing activities:Decrease in short-term borrowings ..................... (968,414) (4,285,258) (538,792) (16,933)Increase in long-term debt .................................. 16,500,000 — — —Repayment of long-term debt ............................. (9,739,562) (4,423,321) (10,702) (336)Distribution of cash dividends ............................ (8,875,922) (8,544,934) (5,215,456) (163,910)Distribution of employees’ bonus ...................... (424,719) (544,728) — —Distribution of directors’ and supervisors’

remuneration.................................................... (94,804) (116,630) — —Proceeds from exercise of employee stock

option .............................................................. — 2,102 103,590 3,256Decrease in minority interests ............................ (296,018) (42,354) (63,768) (2,004)

Cash used in financing activities .............. (3,899,439) (17,955,123) (5,725,128) (179,927)

Net increase (decrease) in cash and cashequivalents ........................................................ (7,718,994) (14,374,462) 30,678,721 964,163

Effects of exchange rate changes ......................... 979,122 (1,429,152) 795,621 25,005Cash and cash equivalents at beginning of

year..................................................................... 44,685,211 37,945,339 22,141,725 695,865

Cash and cash equivalents at end of year .......... 37,945,339 22,141,725 53,616,067 1,685,033

Supplemental disclosures of cash flowinformationInterest paid ........................................................ 1,052,609 1,275,330 444,067 13,956

Income taxes paid ............................................... 1,395,005 1,977,802 3,196,014 100,444

F-12

2007 2008 2009

NT$ NT$ NT$ US$

Supplemental disclosures of non-cash investingand financing activities:Change in unrealized valuation gain (loss) on

available-for-sale financial assets.................... (1,865,725) (3,964,729) 2,457,985 77,249

Current portion of long-term debt ...................... 17,366 8,250,000 — —

Supplemental disclosures of partial cash inflowfrom investing activities:Proceeds from disposal of intangible assets ....... — — 75,000 2,357Less: other receivables ...................................... — — (50,000) (1,571)

Cash received...................................................... — — 25,000 786

Gateway Inc.

Packard Bell

B.V.

Cash acquired from acquisition ofsubsidiaries.:Cash consideration .............................................. 23,507,016 3,172,080Non-cash assets acquired .................................... (35,589,573) (10,560,058)Liabilities assumed ............................................. 37,173,295 10,704,787Goodwill ............................................................. (16,654,264) (1,774,172)

Cash acquired from acquisition ................... 8,436,474 1,542,637

E-Ten

Information

Systems

Co., Ltd.

Issuance of shares for acquisitions ..................... 8,837,267Non-cash assets acquired .................................... (7,288,921)Liabilities assumed ............................................. 1,263,892Goodwill ............................................................. (1,901,821)

Cash acquired from acquisition ................... 910,417

F-13

ACER INCORPORATED AND SUBSIDIARIESNotes to Consolidated Financial Statements

As of and for the years ended December 31, 2007, 2008 and 2009(amounts expressed in thousands of New Taiwan dollars and US dollars,except for earnings per share information and unless otherwise noted)

1. Reporting Entities of the Consolidated Financial Statements and Their Business Scopes

Acer Sertek Inc. (the “Company”) was incorporated on August 1, 1976, as a company limited by shares under the laws of theRepublic of China (“ROC”). The Company merged with Acer Incorporated (“AI”) on March 27, 2002, with the Company as thesurviving entity from the merger but renaming itself Acer Incorporated. After the merger, the principal activities of the Company focuson globally marketing its brand-name IT products, and promoting E-commerce solutions to clients.

The Company completed the acquisition of 100% ownership of Gateway, Inc. (including eMachines brand), a personal computercompany in the U.S., through its indirectly wholly owned subsidiary on October 15, 2007. The Company also acquired the 100%ownership of Packard Bell B.V., a personal computer company in Europe, through its indirectly wholly owned subsidiary on March 14,2008 and June 30, 2008. Post the acquisitions of Gateway and Packard Bell, the Company has defined a clear path for its multi-brandstrategy. Additionally, as of September 1, 2008, the Company then entered the market for smart phones following the acquisition ofE-Ten Information Systems Co., Ltd.

The reporting entities of the consolidated financial statements include the Company and its subsidiaries (hereinafter referred tocollectively as the “Consolidated Companies”). As of December 31, 2007, 2008 and 2009, the Consolidated Companies had 6,271, 6,727and 6,624 employees, respectively. The Consolidated Companies are summarized below according to their primary business activity.

(1) Sale of “Acer”, “Gateway”, “eMachines”, and “Packard Bell” brand-name information technology products:

Percentage of Ownershipat December 31,

Investor 2007 2008 2009

(a) Acer Incorporated

(b) Acer Greater China (B.V.I.) Corp. (“AGC”, British VirginIslands) and subsidiaries............................................................. The Company 100.00 100.00 100.00

• Acer Market Services Limited (“AMS”, Hong Kong) .... AGC 100.00 100.00 100.00

• Acer Computer (Far East) Limited(“AFE”, Hong Kong)....................................................... AGC 100.00 100.00 100.00

• Acer Information (Zhong Shan) Co., Ltd.(“AIZS”, China) .............................................................. AMS 100.00 100.00 100.00

• Beijing Acer Information Co., Ltd. (“BJAI”, China) ...... AMS 100.00 100.00 100.00

• Acer Computer (Shanghai) Ltd. (“ACCN”, China) ......... AMS 100.00 100.00 100.00

(c) Acer European Holding B.V. (“AEH”, Netherlands Antilles )and subsidiaries .......................................................................... The Company 100.00 100.00 100.00

• Acer Europe B.V. (“AHN”, the Netherlands).................. AEH 100.00 100.00 100.00

• Acer Computer B.V. (“ACH”, the Netherlands).............. AEH 100.00 100.00 100.00

• Acer CIS Incorporated (“ACR”, British Virgin Islands) . AEH 100.00 100.00 100.00

• Acer BSEC Inc. (“AUA”, British Virgin Islands) ........... AEH — 100.00 100.00

• Acer Computer (M.E.) Limited (“AME”, British VirginIslands) ........................................................................... AEH 100.00 100.00 100.00

• Acer Africa (Proprietary) Limited(“AAF”, South Africa) ................................................... AEH 100.00 100.00 100.00

• Acer Computer France S.A.S.U. (“ACF”, France) .......... AHN 100.00 100.00 100.00

• Acer U.K. Limited (“AUK”, the United Kingdom) ........ AHN 100.00 100.00 100.00

• Acer Italy S.R.L. (“AIT”, Italy) ...................................... AHN 100.00 100.00 100.00

• Acer Computer GmbH (“ACG”, Germany)..................... AHN 100.00 100.00 100.00

• Acer Austria GmbH (“ACV”, Austria) ............................ AHN 100.00 100.00 100.00

• Acer Europe Services S.R.L. (“AES”, Italy)................... AHN 100.00 100.00 100.00

• Acer Europe AG (“AEG”, Switzerland) .......................... AHN 100.00 100.00 100.00

• Acer Czech Republic S.R.O. (“ACZ”, Czech Republic) . AHN 100.00 100.00 100.00

• Esplex Limited (“AEX”, the United Kingdom)............... AHN 100.00 100.00 100.00

• Acer Computer Iberica, S.A. (“AIB”, Spain) .................. AHN 100.00 100.00 100.00

F-14


Investor 2007 2008 2009

• Acer Computer (Switzerland) AG(“ASZ”, Switzerland) ...................................................... AHN 100.00 100.00 100.00

• Acer Slovakia s.r.o. (“ASK”, Slovakia) .......................... AHN 100.00 100.00 100.00

• Acer International Services GmbH(“AIS”, Switzerland) ....................................................... AHN 100.00 100.00 100.00

• Asplex Sp. z.o.o. (“APX”, Poland) ................................. AHN — — 100.00

• Acer Marketing Services LLC (“ARU”, Russia) ........... AHN — — 100.00

• PB Holding Company S.A.R.L.(“PBLU”, Luxembourg)................................................... AHN — 100.00 100.00

• Acer Computer Norway AS (“ACN”, Norway)............... ACH 100.00 100.00 100.00

• Acer Computer Finland Oy (“AFN”, Finland) ................ ACH 100.00 100.00 100.00

• Acer Computer Sweden AB (“ACW”, Sweden).............. ACH 100.00 100.00 100.00

• Acer Denmark A/S (“ACD”, Denmark) .......................... ACH 100.00 100.00 100.00

• Packard Bell B.V. (“PBHO”, the Netherlands)................ PBLU — 100.00 100.00

• Packard Bell Finance B.V. (“PBFN”, the Netherlands)... PBHO — 100.00 100.00

• Packard Bell Netherland B.V.(“PBNL”, the Netherlands).............................................. PBHO — 100.00 100.00

• Packard Bell Services s.a.r.l (“PBSV”, France) .............. PBHO — 100.00 100.00

• Packard Bell Angers s.a.r.l (“PBAN”, France) ................ PBHO — 100.00 100.00

• Packard Bell France s.a.s (“PBFR”, France) ................... PBHO — 100.00 100.00

• Packard Bell (UK) Ltd. (“PBUK”, the UnitedKingdom)......................................................................... PBHO — 100.00 100.00

• Packard Bell Scotland Ltd. (“PBSC”, the UnitedKingdom)......................................................................... PBHO — 100.00 100.00

• Packard Bell Italia s.r.l (“PBIT”, Italy)........................... PBHO — 100.00 100.00

• Packard Bell Deutschland GmbH (“PBDE”, Germany) .. PBHO — 100.00 100.00

• Packard Bell Belgium BVBA (“PBBE”, Belgium) ......... PBHO — 100.00 100.00

• Packard Bell Sverige AB (“PBSE”, Sweden).................. PBHO — 100.00 —

• Packard Bell Norden AS (“PBNO”, Norway) ................. PBHO — 100.00 100.00

• Packard Bell Schweiz GmbH (“PBCH”, Switzerland) .... PBHO — 100.00 100.00

• ZDS Europe s.a.r.l (“PBFE”, France).............................. PBHO — 100.00 —

• NEC Computers South Africa (Pty) Ltd. (“PBZA”,South Africa) ................................................................... PBHO — 50.81 50.81

• Packard Bell Electronic Technical Services (Shanghai)Co., Ltd. (“PBCN”, China).............................................. PBHO — 100.00 —

• Packard Bell Iberica s.l (“PBES”, Spain)........................ AIB — 100.00 100.00

(d) Boardwalk Capital Holding Limited (“Boardwalk”, BritishVirgin Islands) and subsidiaries.................................................. The Company 100.00 100.00 100.00

• Acer Computer Mexico, S.A. de C.V. (“AMEX”,Mexico) ........................................................................... Boardwalk 99.89 99.92 99.92

• Acer Latin America, Inc. (“ALA”, U.S.A.)..................... Boardwalk 99.89 100.00 100.00

• Acer American Holding Corp. (“AAH”, USA) ............... Boardwalk 100.00 100.00 100.00

• AGP Tecnologia em Informatica do Brasil Ltda.(“ATB”, Brazil) ............................................................... Boardwalk — — 100.00

• Aurion Tecnologia, S.A. de C.V. (“Aurion”, Mexico)..... AMEX 100.00 99.92 99.92

• Gateway, Inc. (“GWI”, U.S.A.) ...................................... AAH 100.00 100.00 100.00

• Acer America Corporation. (“AAC”, U.S.A.) ................. GWI 100.00 99.92 99.92

• Acer Service Corporation (“ASC”, U.S.A.) .................... GWI 100.00 100.00 100.00

• Gateway US Retail, Inc. (“GRA”, U.S.A.) ..................... GWI 100.00 100.00 100.00

• Gateway Diect, Inc. (“GDA”, U.S.A.) ............................ GWI 100.00 100.00 100.00

• Gateway Manufacturing LLC (“GMA”, U.S.A.) ............. GWI 100.00 100.00 100.00

• Gateway International Holdings, Inc. (“GIH”, U.S.A.) ... GWI 100.00 100.00 100.00

• Gateway de Mexico S. de R.L. de C.V.(“GMX”, Mexico)............................................................ GWI 100.00 100.00 100.00

F-15


Investor 2007 2008 2009

• Gateway Hong Kong Ltd. (“GHK”, Hong Kong) ........... GWI 100.00 100.00 100.00

• Gateway Bermuda LP (“GBM”, Bermuda) ..................... GWI 100.00 100.00 —

• Gateway Asia, Inc. (“GAI”, U.S.A.) ............................... GWI 100.00 100.00 100.00

• Gateway KK (“GJP”, Japan) ........................................... GRA 100.00 100.00 100.00

• Gateway Ltd. (“GUK”, the United Kingdom) ................. GRA 100.00 100.00 100.00

• Gateway France SAS (“GFR”, France) ........................... GRA 100.00 100.00 —

• eMachines Internet Group (“EMA”, U.S.A.) .................. GRA 100.00 100.00 100.00

• Gateway Europe B.V. (“GEBV”, U.S.A.)........................ GRA 100.00 100.00 100.00

• Gateway Computers Ireland Ltd. (“GCI”, the UnitedKingdom)......................................................................... GRA 100.00 100.00 100.00

• Gateway International Computers Limited (“GIC”, theUnited Kingdom) ............................................................. GIH 100.00 100.00 100.00

• Gateway Canada Corporation (“GCA”, Canada)............. GIC 100.00 100.00 100.00

• Servicio Profesionales de Aceso S. de R.L.(“GSMX”, Mexico) ........................................................ EMA 100.00 100.00 100.00

(e) Acer Holding International, Incorporated (“AHI”, BritishVirgin Islands) and subsidiaries.................................................. The Company 100.00 100.00 100.00

• Acer Computer Co., Ltd. (“ATH”, Thailand) .................. AHI 100.00 100.00 100.00

• Acer Japan Corp. (“AJC”, Japan).................................... AHI 100.00 100.00 100.00

• Acer Computer Australia Pty. Limited (“ACA”,Australia) ......................................................................... AHI 100.00 100.00 100.00

• Acer Sales and Service Sdn Bhd (“ASSB”, Malaysia) ... AHI 100.00 100.00 100.00

• Acer Asia Pacific Sdn Bhd (“AAPH, Malaysia”)............ AHI 100.00 100.00 100.00

• Acer Computer (Singapore) Pte. Ltd. (“ACS”,Singapore)........................................................................ AHI 100.00 100.00 100.00

• Acer Computer New Zealand Ltd. (“ACNZ”, NewZealand)........................................................................... AHI 100.00 100.00 100.00

• PT Acer Indonesia (“AIN”, Indonesia)............................ AHI 100.00 100.00 100.00

• Acer India Private Limited (“AIL”, India) ...................... AHI 100.00 100.00 100.00

• Acer Vietnam Co., Ltd. (“AVN”, Vietnam) ..................... AHI 100.00 100.00 100.00

• Acer Philippines, Inc. (“APHI”, Philippines) .................. AHI 100.00 100.00 100.00

• Acer Finance Australia Pty. Ltd. (“AFA”, Australia) ...... ACA 100.00 100.00 —

• Highpoint Australia Pty. Ltd. (“HPA”, Australia)............ ACA 100.00 100.00 100.00

• Highpoint Service Network Sdn Bhd (“HSN”,Malaysia) ......................................................................... ASSB 100.00 100.00 100.00

• Logistron Service Pte Ltd. (LGS, Singapore) ................ ACS 100.00 100.00 100.00

(f) Acer Computer International Ltd. (“ACI”, Singapore)............... The Company 100.00 100.00 100.00

(g) Acer Sales & Distribution Ltd. (“ASD”, Hong Kong) ............... The Company 100.00 100.00 100.00

(2) Sale and distribution of computer products and electronic communication products:


Investor 2007 2008 2009

(a) Weblink International Inc. (“WII”, Taiwan) ............................... The Company 99.79 99.79 99.79

(b) Weblink (H.K.) International Ltd. (“WHI”, Hong Kong)........... WII 99.79 99.79 99.79

(c) Weblink Shanghai International Limited (“WSHI”, China)........ WHI 99.79 99.79 —

(d) Servex (Malaysia) Sdn Bhd (“SMA”, Malaysia) ...................... ASSB 100.00 100.00 100.00

(e) Servex International (Thailand) Co., Ltd. (“STH”, Thailand) .... ATH 100.00 100.00 100.00

(f) Megabuy Sdn Bhd (“MGB”, Malaysia)...................................... ASSB 100.00 100.00 100.00

F-16

(3) Investing and holding companies:

(a) Multiventure Investment Inc. (“MVI”, Taiwan) .........................ADSC andThe Company 100.00 100.00 100.00

(b) Acer Digital Service Co. (“ADSC”, Taiwan) ............................. The Company 100.00 100.00 100.00

(c) Acer Worldwide Incorporated (“AWI”, British Virgin Islands).. The Company 100.00 100.00 100.00

(d) Cross Century Investment Limited (“CCI”, Taiwan).................. The Company 100.00 100.00 100.00

(e) Acer SoftCapital Incorporated (“ASCBVI”, British VirginIslands) ....................................................................................... The Company 100.00 100.00 100.00

(f) Acer Capital Corporation (“ACT”, Taiwan) ............................... The Company 100.00 100.00 100.00

(g) Aspire Incubation Venture Capital (“AIVC”, Taiwan) ............... The Company 100.00 100.00 100.00

(h) Acer Digital Services (B.V.I.) Holding Corp. (“ADSBH”,British Virgin Islands) ................................................................ The Company 100.00 100.00 100.00

(i) Acer Digital Services (Cayman Islands) Corp. (“ADSCC”,Cayman Islands) ......................................................................... ADSBH 100.00 100.00 100.00

(j) Nicholas Insurance Company Ltd. (“NIC”, Bermuda) ............... GWI 100.00 100.00 100.00

(k) Acer Capital Australia Pty Ltd. (“ACAP”, Australia) ................ ACBVI 100.00 100.00 —

(l) Acer Venture Associates (“AVA”, Cayman islands) ................... ASCBVI 100.00 — —

(m) Acer Capital Limited (“ACBVI”, British Virgin Islands) .......... ASCBVI 100.00 100.00 —

(n) ASC Cayman, Limited (“ASCCAM”, Cayman Islands)............. ASCBVI 100.00 100.00 100.00

(o) Acer Technology Venture Asia Pacific Ltd. (“ATVAP”,Cayman Islands) ......................................................................... ASCBVI 100.00 100.00 100.00

(p) AGP Insurance (Guernsey) Limited. (“AGU”, BritishGuernsey Island) ....................................................................... AHN — — 100.00

(q) Acer EMEA Holdings B.V. (AHB, the Netherlands) ................ The Company — — 100.00

(r) Eten International Holdings Ltd. (“EIH”, British VirginIslands) ....................................................................................... ETEN — 100.00 100.00

(s) Eten Investment Co., Ltd. (“ETO”, Taiwan) .............................. ETEN — 100.00 —

(t) Protek Investment Co., Ltd. (“PTO”, Taiwan)............................ ETEN — 100.00 —

(u) Toptek Investment Co., Ltd. (“DTO”, Taiwan) .......................... ETEN — 100.00 —

(4) Research, design, and sale of smart handheld products:


Investor 2007 2008 2009

(a) E-ten Information System Co., Ltd. (“ETEN”, Taiwan)............. The Company 100.00 100.00 100.00

(b) Eten China Information System Co., Ltd. (“CETEN”, China) ... EIH 100.00 100.00 100.00

(c) AGP Technology AG (“AGP”, Switzerland) .............................. AHN — 100.00 100.00

(d) Acer Information Technology R&D (Shanghai) Co., Ltd.(“ARD”, China) .......................................................................... AGC — — 100.00

(5) Property development:

(a) Acer Property Development Inc. (“APDI”, Taiwan) .................. ADSC 100.00 100.00 100.00

(b) Aspire Service & Development Inc. (“ASDI”, Taiwan) ............. ADSC 100.00 100.00 100.00

(6) Electronic data supply or processing service, data storage and processing:

(a) EB Easy Business Services Limited (“AGES”, Hong Kong) ..... ADSCC 85.00 85.00 —

(b) EB Easy (TWN) Corp. (“AGEST”, Taiwan) .............................. AGES 85.00 — —

(c) Acer Cyber Center Services Ltd. (“ACCSI”, Taiwan) ............... The Company 100.00 100.00 100.00

(d) Lottery Technology Service Corp. (“LTS”, Taiwan) .................. The Company 100.00 100.00 100.00

(e) Minly Corp. (“MINLY”, Taiwan) ............................................... The Company 100.00 100.00 100.00

F-17

(7) Software research, development, design, trading and consultation:

(a) TWP Corporation (“TWP”, Taiwan)........................................... The Company 100.00 — —

(b) Acer TWP Invocation Information Co., Ltd. (“ATIM”,Taiwan) ....................................................................................... TWP 100.00 — —

(c) TWP International Inc. (“TWP BVI”, British Virgin Islands) .... ACCSI 100.00 100.00 100.00

(d) Acer Third Wave Software (Beijing) Co., Ltd.(“TWPBJ”, China) ...................................................................... TWPBVI 100.00 100.00 100.00

In 2009, the subsidiaries namely PBSE, PBFE, PBCN, GBM, GFR, AFA, WSHI, ACAP, ACBVI, and AGES were liquidated andwere excluded from consolidation since the Company ceased control thereof. Additionally, the Company established new subsidiariesnamely APX, ARU, ATB, AGU, ARD, and AHB in 2009.

In June 2008, the Company completed its acquisition of 100% equity ownership of PB Holding Company S.A.R.L and itssubsidiaries. In September 2008, the Company completed its acquisition of 100% equity ownership of E-ten Information System Co.,Ltd. and its subsidiaries. The results of operations of these acquired entities were included in the consolidated financial statements asof the date of each acquisition. Additionally, the Company established a new subsidiary namely AGP in 2008.

On October 15, 2007, the Company completed its acquisition of 100% of equity ownership of Gateway, Inc. The results ofoperations of Gateway, Inc. and its subsidiaries were included in the consolidated financial statements from the date of acquisition.Additionally, the Company established a new subsidiary namely AAPH in 2007.

In July 2007 and September 2007, the Company sold all its ownership interest in Sertek Incorporated (“SNX”) and DigitalComputer System Co. (“DCS”), respectively. As a result, SNX and DCS were excluded from the consolidated financial statementseffective from the respective date of sale.

In October 2007, the Company reduced its investment in AMT to an ownership interest of less than 50% and no longer held acontrolling interest in AMT. Therefore, AMT was excluded from the consolidated financial statements from the date of sale.

2. Summary of Significant Accounting Policies

(1) Accounting principles and consolidation policy

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the Republicof China. These consolidated financial statements are not intended to present the financial position and the related results of operationsand cash flows of the Consolidated Companies based on accounting principles and practices generally accepted in countries andjurisdictions other than the ROC.

The consolidated financial statements include the accounts of the Company and subsidiaries in which the Company is able toexercise control over the subsidiary’s operations and financial policies. The operating activity of the subsidiary is included in theconsolidated statements of income from the date that control commences until the date that control ceases. All significant inter-companybalances and transactions are eliminated in consolidation.

(2) Use of estimates

The preparation of the accompanying consolidated financial statements requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidatedfinancial statements and reported amounts of revenues and expenses during the reporting periods. Economic conditions and events couldcause actual results to differ significantly from such estimates.

(3) Foreign currency transactions and translations

The Company’s reporting currency is the New Taiwan dollar. The Consolidated Companies record transactions in their respectivelocal currencies of the primary economic environment in which these entities operate. Non-derivative foreign currency transactions arerecorded at the exchange rates prevailing at the transaction date. At the balance sheet date, monetary assets and liabilities denominatedin foreign currencies are translated into New Taiwan dollars using the exchange rates on that date. The resulting unrealized exchangegains or losses from such translations are reflected in the accompanying statements of income. Non-monetary assets and liabilitiesdenominated in foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of thetransaction. Non-monetary assets and liabilities denominated in foreign currency that are measured at fair value are reported at the ratethat was in effect when the fair values were determined. Subsequent adjustments to carrying values of such non-monetary assets andliabilities, including the effects of changes in exchange rates, are reported in profit or loss for the period, except that if movement infair value of a non-monetary item is recognized directly in equity, any foreign exchange component of that adjustment is also recognizeddirectly in equity.

In preparing the consolidated financial statements, the foreign subsidiaries’ financial statements are initially remeasured into thefunctional currency and the remeasuring differences are accounted for as exchange gains or losses in the accompanying statements ofincome. Translation adjustments resulting from the translation of foreign currency financial statements into the Company’s reportingcurrency and a monetary item that forms part of the Company’s net investment in a foreign operation are accounted for as cumulativetranslation adjustment, a separate component of stockholders’ equity.

F-18

(4) Classification of current and non-current assets and liabilities

Cash or cash equivalents, and assets that are held primarily for the purpose of being traded or are expected to be realized within12 months after the balance sheet date are classified as current assets; all other assets are classified as non-current assets.

Liabilities that are held primarily for the purpose of being traded or are expected to be settled within 12 months after the balancesheet date are classified as current liabilities; all other liabilities are classified as non-current liabilities.

(5) Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, cash in banks, miscellaneous petty cash, and other highly liquid investmentswhich do not have a significant level of market or credit risk from potential interest rate changes.

(6) Allowance for doubtful accounts

Allowance for doubtful accounts is provided based on the collectibility, aging and quality analysis of notes and accountsreceivable.

(7) Inventories

Effective January 1, 2009, the Consolidated Companies adopted the newly revised Republic of China Statement of FinancialAccounting Standards (SFAS) No. 10 “Accounting for Inventories”. Under this revised accounting principle, the cost of inventoriescomprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. Inventoriesare measured individually at the lower of cost and net realizable value. Net realizable value is determined based on the estimated sellingprice in the ordinary course of business, less all estimated costs of completion and selling expenses. Cost of inventory is determinedusing the weighted-average method.

Prior to January 1, 2009, inventories were stated at the lower of weighted-average cost or market value. Market value representsnet realizable value. Any write-down was made based on the aggregate amounts of inventories.

(8) Financial instruments

The Consolidated Companies adopted transaction-date accounting for financial instrument transactions. At initial recognition,financial instruments are evaluated at fair value plus, in the case of a financial instrument not at fair value through profit or loss,transaction costs that are directly attributable to the acquisition or issue of the financial instrument. Subsequent to initial recognition,financial instruments are classified into the following categories in accordance with the purpose of holding or issuing of such financialinstruments:

(a) Financial assets/liabilities at fair value through profit or loss

An instrument is classified as at fair value through profit or loss if it is held for trading or is designated as such upon initialrecognition. Derivatives that do not meet the criteria for hedge accounting are classified as financial assets or liabilities at fair valuethrough profit or loss. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein arerecognized in profit or loss.

(b) Hedging purpose derivative financial assets / liabilities

Hedging purpose derivative financial assets / liabilities represent derivatives that are intended to hedge the risk of changes inexchange rates resulting from operating activities denominated in foreign currency and meet the criteria for hedge accounting.

(c) Available-for-sale financial assets

Available-for-sale financial assets are measured at fair value and changes therein, other than impairment losses and foreignexchange gains and losses on available-for-sale monetary items, are recognized in a separate line item in stockholders’ equity. Whenan investment is derecognized, the cumulative unrealized gain or loss recognized in equity is transferred to profit or loss. If there isobjective evidence which indicates that a financial asset is impaired, a loss is recognized in profit or loss. If, in a subsequent period,events or changes in circumstances indicate that the amount of impairment loss decreases, reversal of a previously recognizedimpairment loss for equity securities is charged to equity; while for debt securities, the reversal is allowed through profit or loss providedthat the decrease is clearly attributable to an event which occurred after the impairment loss was recognized.

(d) Financial assets carried at cost

Equity investments whose fair value cannot be reliably measured are carried at original cost. If there is objective evidence whichindicates that an equity investment is impaired, a loss is recognized. A subsequent reversal of such impairment loss is prohibited.

F-19

(9) Hedging activities and hedge accounting

Hedge accounting recognizes the offsetting effects on profit or loss of changes in the fair values of the hedging instrument andthe hedged item. The designated hedging instruments that conform to the criteria for hedge accounting are accounted for as follows:

(a) Fair value hedges

Changes in the fair value of a hedging instrument designated as a fair value hedge are recognized in profit or loss. The hedgeditem is also stated at fair value in respect of the risk being hedged, with any gain or loss being recognized in profit or loss.

(b) Cash flow hedges

Changes in the fair value of a hedging instrument designated as a cash flow hedge are recognized directly in equity. If a hedgeof a forecasted transaction subsequently results in the recognition of an asset or a liability, then the amount recognized in equity isreclassified into profit or loss in the same period or periods during which the asset acquired or liability assumed affects profit or loss.

(10) Noncurrent assets held for sale and discontinued operation

Noncurrent assets and groups of assets and liabilities which comprise disposal groups are classified as held for sale when theassets are available for immediate sale in their present condition subject only to terms that are usual and customary for sales of suchassets (or disposal groups), and their sale within one year is highly probable. Noncurrent assets or disposal groups classified as held forsale are measured at the lower of their book value or fair value less costs to sell, and ceased to be depreciated or amortized. Noncurrentassets or disposal groups classified as held for sale are shown separately and excluded from the individual line items of the consolidatedbalance sheets. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale are continued tobe recognized.

An impairment loss is recognized for any initial or subsequent write-down of the assets (or disposal groups) to fair value lesscosts to sell in the consolidated statements of income. A gain from any subsequent increase in fair value less costs to sell of an asset(or a disposal group) is recognized, but not in excess of the cumulative impairment loss that has been recognized.

A discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale. A componentof an entity comprises operations and cash flows that can be distinguished clearly, both operationally and for financial reportingpurposes, from the rest of the entity. A component that previously was held for use will have been one or more cash-generating units.

(11) Equity method investments

Long-term equity investments in which the Consolidated Companies, directly or indirectly, own 20% or more of the investee’svoting shares, or less than 20% of the investee’s voting shares but are able to exercise significant influence over the investee’s operatingand financial policies, are accounted for using the equity method. Prior to January 1, 2006, differences between the acquisition cost andnet equity of the investee that could not be attributed to any reason were amortized over five years as investment income or losses.

Effective January 1, 2006, the Consolidated Companies adopted amended SFAS No. 5 “Accounting for Long-term Investmentsunder Equity Method”, under which, the investment cost in excess of fair values of identifiable net assets is recorded as investor-levelgoodwill. Investor-level goodwill is no longer amortized but tested for impairment. Differences between investment cost and net equityof the investee in the previous investments that cannot be attributed to any reason and were originally amortized over five years are nolonger amortized starting from January 1, 2006.

When an equity-method investment is disposed of, the difference between the selling price and the book value of theequity-method investment is recognized as disposal gain or loss in the accompanying consolidated statements of income. If there arecapital surplus and separate components of shareholders’ equity resulting from such equity investments, they are charged as a reductionto disposal gain/loss based on the disposal ratio of investments.

If an investee company issues new shares and the Company does not acquire new shares in proportion to its original ownershippercentage, the Company’s equity in the investee’s net assets will be changed. The change in the equity interest is used to adjust thecapital surplus and long-term investment accounts. If the Company’s capital surplus is insufficient to offset the adjustment to long-terminvestment, the difference is charged as a reduction of retained earnings.

Unrealized gains and losses resulting from transactions between the Consolidated Companies and investees accounted for underthe equity method are deferred to the extent of the Company’s ownership. The gains and losses resulting from depreciable or amortizableassets are recognized over the estimated useful lives of such assets. Gains and losses from other assets are recognized when realized.

(12) Capital leases

For capital leases, where the Consolidated Companies act as the lessor, the Consolidated Companies account for all periodicrental payments plus bargain purchase price or estimated residual value as lease payment receivables. The present value of all leasepayment receivables, discounted at the implicit interest rate, is recorded as revenue. The difference between the lease paymentreceivables and the revenue is the unearned interest revenue, which is recognized over the lease term using the effective interest method.

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(13) Property, plant and equipment, property leased to others, and property not in use

Property, plant and equipment are stated at acquisition cost. Interest expense related to the purchase and construction of property,plant and equipment is capitalized and included in the cost of the related asset. Significant renewals, improvements and replacementsare capitalized. Maintenance and repair costs are charged to expense as incurred. Gains and losses on the disposal of property, plant andequipment are recorded in the non-operating section in the accompanying consolidated statements of income.

Commencing from November 20, 2008, the Company capitalizes retirement or recovery obligation for newly acquired propertyand equipment in accordance with Interpretation (2008) 340 issued by the Accounting Research and Development Foundation. Acomponent which is significant in relation to the total cost of the property and equipment and for which a different depreciation methodor rate is appropriate is depreciated separately. The estimated useful lives, depreciation method and residual value are evaluated at theend of each year and any changes thereof are accounted for as changes in accounting estimates.

Depreciation is provided for property, plant and equipment, property leased to others, and property not used in operation overthe estimated useful life using the straight-line method. The estimated useful lives of the respective classes of assets are as follows:buildings and improvements: 30 to 50 years; computer equipment and machinery: 3 to 5 years; transportation equipment: 3 to 5 years;office and other equipment: 3 to 10 years; and leasehold improvement: 1 to 10 years.

Property leased to others and property not used in operation are classified to other assets and continue to be depreciated and aresubject to an impairment test.

(14) Intangible assets

Goodwill is recognized when the Purchase price exceeds the fair value of identifiable net assets acquired in a businesscombination. In accordance with the SFAS No. 25 “Accounting for Business Combinations”, goodwill is no longer amortized but istested for impairment annually.

Other intangible assets, including patents, trademarks and trade names, customer relationships, developed technology andpurchased software, are initially stated at cost. Intangible assets with finite useful lives are amortized over the following estimated usefullives using the straight-line method from the date that the asset is available for use: patents: 4 to 16 years; acquired software: 1 to 3years; customer relationships: 7 to 10 years; developed technology: 10 years; and trademarks and trade names: 20 years.

The Gateway, Packard Bell and Eten trademarks and trade names are intangible assets with indefinite useful lives. Suchintangible assets are not amortized, but are tested for impairment annually. The useful life of an intangible asset not subject toamortization shall be reviewed annually at each fiscal year-end to determine whether events and circumstances continue to support anindefinite useful life assessment for that asset. Any change in the useful life assessment from indefinite to finite is accounted for as achange in accounting estimate.

(15) Non-financial asset impairment

The Consolidated Companies assess at each balance sheet date whether there is any indication that an asset may have beenimpaired. If any such indication exists, the Consolidated Companies estimate the recoverable amount of the assets. An impairment lossis recognized for an asset whose carrying amount is higher than the recoverable amount. If there is any evidence that the impairmentloss no longer exists or has decreased, the amount previously recognized as impairment is reversed and the carrying amount of the assetis increased to the recoverable amount. The increase in the carrying amount shall not exceed the depreciated or amortized balance ofthe assets had no impairment loss been recognized in prior periods.

Goodwill and assets that have an indefinite useful life are tested annually for impairment. An impairment loss is recognized forthe amount by which the asset’s carrying amount exceeds its recoverable amount. A subsequent reversal of the impairment loss isprohibited.

(16) Deferred charges

Deferred charges are stated at cost and primarily consist of improvements to office buildings and other deferred charges. Thesecosts are amortized using the straight-line method over their estimated useful lives.

(17) Treasury stock

Common stock repurchased by the Company is accounted for at acquisition cost. Upon disposal of the treasury stock, the saleproceeds in excess of cost are accounted for as capital surplus—treasury stock. If the sale proceeds are less than cost, the deficiencyis accounted for as a reduction of the remaining balance of capital surplus—treasury stock. If the remaining balance of capitalsurplus—treasury stock is insufficient to cover the deficiency, the remainder is recorded as a reduction of retained earnings. The costof treasury stock is computed using the weighted-average method.

If treasury stock is retired, the weighted-average cost of the retired treasury stock is written off to offset the par value and thecapital surplus premium, if any, of the stock retired on a pro rata basis. If the weighted-average cost written off exceeds the sum of thepar value and the capital surplus, the difference is accounted for as a reduction of capital surplus—treasury stock, or a reduction ofretained earnings for any deficiency where capital surplus—treasury stock is insufficient to cover the difference. If the weighted-averagecost written off is less than the sum of the par value and capital surplus, if any, of the stock retired, the difference is accounted for asan increase in capital surplus—treasury stock.

F-21

The Company’s common stock held by its subsidiaries is accounted for as treasury stock. Cash dividends paid by the Companyto its consolidated subsidiaries that hold the treasury stock are accounted for as capital surplus—treasury stock.

(18) Revenue recognition

Revenue from sales of products is recognized at the time products are delivered and the significant risks and rewards ofownership are transferred to customers. Revenue generated from service is recognized when the service is provided and the amountbecomes billable.

(19) Employee bonuses and directors’ and supervisors’ remuneration

Employee bonuses and directors’ and supervisors’ remuneration appropriated after January 1, 2008, are accounted for accordingto Interpretation (2007) 052 issued by the Accounting Research and Development Foundation. According to this Interpretation, theCompany estimates the amount of employee bonuses and directors’ and supervisors’ remuneration and recognizes it as operatingexpense. Differences between the amount approved in the shareholders’ meeting and recognized in the financial statements, if any, areaccounted for as changes in accounting estimates and recognized in profit or loss.

(20) Share-based payment transactions

Effective January 1, 2008, the Consolidated Companies adopted SFAS No. 39 “Accounting for Share-based Payment” for itsshare-based payments granted on or after January 1, 2008.

Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant dateof the equity-settled share-based payments is expensed over the vesting period, with a corresponding increase in equity. The vestingperiod is the period during which all the specified vesting conditions of the share-based payment arrangement are to be satisfied. Vestingconditions include service conditions and performance conditions (including market conditions). When estimating the fair value of anequity-settled share-based award, only the effect of market conditions is taken into account.

For cash-settled share-based payments, a liability equal to the portion of the services received is recognized at its current fairvalue determined at each balance sheet date and at the date of settlement, with any changes in the fair value recognized in profit or lossof the period.

Fair value of share-based award is measured using the Black-Scholes or the binomial option pricing model, taking into accountmanagement’s best estimate of the exercise price, expected term, underlying share price, expected volatility, expected dividends,risk-free interest rate, and any other inputs to the model.

(21) Administrative expenses

The Company’s administrative expenses include direct expenses incurred for the business unit within the ConsolidatedCompanies and expenses incurred for managing the investee companies. To reflect the operating income of the Consolidated Companies,administrative expenses are divided into two parts. The first part, representing the direct expenses incurred for the ConsolidatedCompanies, is included as administrative expenses in the accompanying consolidated statements of income. The second part,representing expenses incurred for managing the investee companies, is presented as a reduction of net investment income (loss) in theconsolidated statements of income.

(22) Retirement plans

(a) Defined benefit retirement plans

Pursuant to the ROC Labor Standards Law, the Company and subsidiaries located in the Republic of China established individualnoncontributory defined benefit retirement plans (the “Plans”) and retirement fund administration committees. The Plans provide forlump-sum retirement benefits to retiring employees based on length of service, age, and certain other factors. The funding of retirementplans by the Company and subsidiaries located in the Republic of China is based on a percentage of employees’ total salaries. The fundsare deposited with Bank of Taiwan or other banks.

For the defined benefit retirement plan, the Consolidated Companies recognize a minimum pension liability equal to the amountby which the actuarial present value of the accumulated benefit obligation exceeds the fair value of the retirement plan’s assets. TheConsolidated Companies also recognize the net periodic pension cost based on an actuarial calculation.

(b) Defined contribution retirement plans

Starting from July 1, 2005, pursuant to the ROC Labor Pension Act (the “New System”), employees who elected to participatein the New System or commenced working after July 1, 2005, are subject to a defined contribution plan under the New System. Forthe defined contribution plan, the Company and subsidiaries located in the Republic of China contribute monthly an amount equal to6% of each employee’s monthly salary to the employee’s individual pension fund account at the ROC Bureau of Labor Insurance.

Most of the Company’s foreign subsidiaries adopt defined contribution retirement plans. These plans are funded in accordancewith the regulations of their respective countries.

Contributions for the defined contribution retirement plans are expensed as incurred.

F-22

(23) Income taxes

Income taxes are accounted for under the asset and liability method. Deferred income tax is determined based on differencesbetween the financial statements and tax basis of assets and liabilities using enacted tax rates in effect during the years in which thedifferences are expected to reverse. The income tax effects resulting from taxable temporary differences are recognized as deferredincome tax liabilities. The income tax effects resulting from deductible temporary differences, net operating loss carryforwards, andincome tax credits are recognized as deferred income tax assets. The realization of the deferred income tax assets is evaluated, and ifit is considered more likely than not that the asset will not be realized, a valuation allowance is recognized accordingly. When the incometax rate changes due to income tax law revision, the Company recalculates the deferred tax assets and liabilities using the new tax rateand any resulting variances are recognized as income tax expense or benefit of continuing operating segment.

Classification of the deferred income tax assets or liabilities as current or noncurrent is based on the classification of the relatedasset or liability. If the deferred income tax asset or liability is not directly related to a specific asset or liability, then the classificationis based on the asset’s or liability’s expected realization date.

The investment tax credits granted for purchases of equipment, research and development expenses, and training expenses arerecognized using the flow-through method.

According to the ROC Income Tax Act, undistributed earnings, if any, earned after June 30, 1997, are subject to an additional10% retained earnings tax. The surtax is accounted for as income tax expense in the following year when the stockholders decide notto distribute the earnings.

(24) Earnings per common share

Basic EPS are computed by dividing net income by the weighted-average number of common shares outstanding during the year.The Company’s employee stock options and employee stock bonuses to be issued after January 1, 2010 are potential common stock.In computing diluted EPS, net income and the weighted-average number of common shares outstanding during the year are adjusted forthe effects of dilutive potential common stock, assuming dilutive shares equivalents had been issued. The weighted average outstandingshares are retroactively adjusted for the effects of stock dividends transferred from retained earnings and capital surplus to commonstock, and employee stock bonuses issued prior to January 1, 2009. Effective January 1, 2009, EPS are not retroactively adjusted foremployee stock bonuses.

(25) Business combination

Business combinations are accounted for in accordance with SFAS No. 25 “Business Combinations”. Acquisition costs representthe amount of cash or cash equivalents paid and the fair value of the other purchase consideration given, plus any costs directlyattributable to the acquisition. The excess of acquisition cost over the fair value of the net identifiable tangible and intangible assets isrecognized as goodwill.

(26) Convenience translation into U.S. dollars

The consolidated financial statements are stated in New Taiwan dollars. Translation of the 2009 New Taiwan dollar amounts intoU.S. dollar amounts, using the spot rate of Central Bank of Taiwan on March 31, 2010, of NT$31.819 to US$1, is included solely forthe convenience of the readers. The convenience translations should not be construed as representations that the New Taiwan dollaramounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.

3. Accounting Changes

Effective January 1, 2009, the Consolidated Companies adopted the newly revised SFAS No. 10, “Accounting for Inventories.”The adoption of this new accounting principle did not have significant effect on the Company’s consolidated financial statements as ofand for the year ended December 31, 2009.

Effective January 1, 2008, the Consolidated Companies recognized and measured employee bonuses, and directors’ andsupervisors’ remuneration according to Interpretation (2007) 052 issued by the Accounting Research and Development Foundation. Theadoption of this interpretation, which resulted in recognition of employee bonus and directors’ and supervisors’ remuneration ofNT$1,586,563, decreased consolidated net income after tax and basic earnings per share by NT$1,483,776 and NT$0.59, respectively,for the year ended December 31, 2008.

Effective January 1, 2008, the Consolidated Companies adopted SFAS No. 39, “Accounting for Share-based Payment,” whichrequires the Consolidated companies to record share-based payment transactions in the financial statements at fair value. The adoptionof this new accounting principle did not have significant effect on the Company’s consolidated financial statements as of and for theyear ended December 31, 2008.

F-23

4. Significant Account Disclosures


December 31,

2007 2008 2009

NT$ NT$ NT$ US$Cash on hand ......................................................................................... 55,207 878,683 8,217 258

Bank deposits......................................................................................... 14,908,552 13,690,489 34,278,393 1,077,293

Time deposits......................................................................................... 22,981,580 7,572,553 19,329,457 607,482

37,945,339 22,141,725 53,616,067 1,685,033

(2) Notes and accounts receivable

The Consolidated Companies entered into factoring contracts with several banks to sell part of accounts receivable withoutrecourse. As of December 31, 2007, 2008 and 2009, details of these contracts were as follows:

December 31, 2007

BuyerFactoredamount

Factoringcredit limit

Advanceamount

(Derecognizedamount) Interest rate Collateral

ABN AMRO Bank........................................................ $ 72,068 72,068 72,068 Nil

La Caixa Bank .............................................................. 4,415,967 6,577,855 4,415,967 Nil

Ifitalia Factor S.P.A. ..................................................... 4,598,145 12,183,229 — Nil

Standard Chartered Bank .............................................. 596,346 1,777,960 596,346 Nil

China Trust Bank.......................................................... 254,498 1,800,000 254,498 note 7(4)

Taipei Fubon Bank........................................................ 823,824 1,000,000 823,824 note 7(4)

$10,760,848 23,411,112 6,162,703 1.62%~6.00%

December 31, 2008

BuyerFactoredamount


Advanceamount


NT$ NT$ NT$IFITALIA...................................................................... 10,018,176 11,226,373 2,866,914 Nil

ABN AMRO Bank........................................................ 2,292,296 7,314,804 2,292,296 Nil

Standard Chartered Bank .............................................. 2,213,795 6,563,600 2,213,795 Nil

Emirates Bank International ......................................... 415,867 1,082,994 415,867 Nil



15,736,545 29,152,771 8,494,560 1.51%~5.9%

F-24

December 31, 2009

BuyerFactoredamount


Advanceamount



ABN AMRO Bank........................................................ 3,480,028 7,881,189 3,227,242 Nil

La Caixa Bank .............................................................. 3,200,041 3,724,657 3,200,041 Nil

Emirates Bank International ......................................... — 960,900 — Nil


Taipei Fubon Bank........................................................ 442,145 968,500 442,145 note 7(4)

14,218,705 26,505,088 9,179,434 0.83%~5%

(3) Other receivable

December 31,

2007 2008 2009

NT$ NT$ NT$ US$Refundable income tax and VAT receivable .......................................... 2,780,212 2,001,212 1,690,263 53,121

Receivables of patent royalty allocated to others .................................. 220,795 2,061,655 1,164,992 36,613

Other receivable..................................................................................... 4,374,562 4,744,587 6,407,897 201,386

7,375,569 8,807,454 9,263,152 291,120

(4) Available-for-sale financial assets—current

December 31,

2007 2008 2009

NT$ NT$ NT$ US$Mutual funds.......................................................................................... 662,096 — — —

Publicly traded equity securities............................................................ 2,112,196 145,147 223,437 7,022

Money market funds and others ............................................................ 77,769 446,297 — —

2,852,061 591,444 223,437 7,022

In 2007, 2008 and 2009, the Consolidated Companies disposed of portions of these investments and recognized gains on disposalthereof of NT$2,057,447, NT$1,187,156 and NT$24,022, respectively. The gains were recorded as “gain on disposal of investments”in the accompanying consolidated statements of income.

(5) Financial assets and liabilities at fair value through profit or loss—current

December 31,

2007 2008 2009

NT$ NT$ NT$ US$Financial assets at fair value through profit or loss—current:

Foreign currency forward contracts .................................................. 14,999 339,817 139,515 4,385

Foreign exchange swaps ................................................................... — 7,113 — —

Cross currency swaps........................................................................ — 7,821 — —

Foreign currency options .................................................................. 4,983 — 18,144 570

19,982 354,751 157,659 4,955

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December 31,

2007 2008 2009

NT$ NT$ NT$ US$Financial liability at fair value through profit or loss—current:

Foreign currency forward contracts .................................................. (1,394,549) (1,011,739) (157,848) (4,961)

Foreign currency options ................................................................. (593) — (4,691) (147)

(1,395,142) (1,011,739) (162,539) (5,108)

For the years ended December 31, 2007, 2008 and 2009, unrealized gains (losses) resulting from the changes in fair value of thesederivative contracts amounted to NT$(272,939), NT$718,172 and NT$652,108, respectively.

The Consolidated Companies entered into derivative contracts to manage foreign currency exchange risk resulting from operatingactivities. As of December 31, 2007, 2008 and 2009, the derivative financial instruments that did not conform to the criteria for hedgeaccounting and were classified as financial assets and liabilities at fair value through profit or loss consisted of the following:

(a) Foreign currency forward contracts

December 31, 2007

Buy Sell

Contractamount (inthousands) Maturity period

USD/ZAR ............................................................................................................... USD24,222 2008/01/02~2008/02/29

USD/SGD ............................................................................................................... USD15,000 2008/01/16~2008/03/31

USD/EUR ............................................................................................................... EUR663,000 2008/01/16~2008/02/29

USD/INR ................................................................................................................ USD50,536 2008/01/16~2008/05/30

USD/JPY ................................................................................................................ USD16,500 2008/01/15~2008/05/16

USD/RMB .............................................................................................................. USD15,000 2008/01/30~2008/03/31

USD/THB ............................................................................................................... USD18,000 2008/01/15~2008/02/15

USD/MYR .............................................................................................................. USD21,865 2008/01/15~2008/03/17

USD/NTD............................................................................................................... USD24,000 2008/01/09~2008/01/31

December 31, 2008

Buy Sell


USD/SGD ............................................................................................................... USD7,000 2009/01/14~2009/02/26

USD/CAD............................................................................................................... USD47,806 2009/01/28~2009/02/26

EUR/CHF ............................................................................................................... EUR19,000 2009/01/05~2009/03/30

USD/EUR ............................................................................................................... EUR720,000 2009/01/15~2009/02/27

USD/INR ................................................................................................................ USD61,600 2009/01/06~2009/05/29

USD/MYR .............................................................................................................. USD19,138 2009/01/14~2009/02/17

USD/PHP................................................................................................................ USD500 2009/01/15

USD/THB ............................................................................................................... USD28,700 2009/01/14~2009/05/29

USD/RMB .............................................................................................................. USD70,000 2009/02/02~2009/03/30

USD/JPY ................................................................................................................ USD5,000 2009/01/14

USD/NTD............................................................................................................... USD5,000 2009/01/09~2009/01/22

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December 31, 2009

Buy Sell


USD/SGD ............................................................................................................... USD12,600 2010/01/19~2010/03/15

USD/MXN.............................................................................................................. USD96,100 2010/01/15~2010/03/26

USD/EUR ............................................................................................................... EUR47,000 2010/02/26

USD/INR ................................................................................................................ USD55,992 2010/01/15~2010/03/31

USD/MYR .............................................................................................................. USD15,400 2010/01/19~2010/03/31

USD/THB ............................................................................................................... USD20,670 2010/01/15~2010/02/19

USD/JPY ................................................................................................................ USD68,300 2010/01/15~2010/04/15

USD/RUB............................................................................................................... USD124,000 2010/01/15~2010/04/15

USD/PHP................................................................................................................ USD100 2010/01/08

USD/ZAR ............................................................................................................... USD21,500 2010/01/15~2010/03/31

USD/NTD............................................................................................................... USD5,000 2010/01/11~2010/02/10

EUR/NOK .............................................................................................................. EUR17,403 2010/01/15~2010/04/15

EUR/SEK ............................................................................................................... EUR48,400 2010/01/15~2010/04/15

EUR/PLN ............................................................................................................... EUR23,000 2010/01/15

RUB/USD............................................................................................................... USD36,689 2010/01/15

MXN/USD.............................................................................................................. USD2,900 2010/01/29

(b) Foreign exchange swaps

December 31, 2008

Contract amount(in thousands)

Maturityperiod

Swap-in USD / Swap-out NTD................................................................... USD 160,000 / NTD 5,243,200 2009/01/15

(c) Cross currency swaps

December 31, 2008

Contract amount (in thousands)Maturity

Date Interest Interest due date

Swap-in SGD35,000/.................................... 2009/01/23 Pay fixed rate in USD of 0.66% Principal and interest are

Swap-out USD 24,221 ................................. Receive fixed rate in SGD of1.00%

paid in full when due

(d) Foreign currency options

(i) Long position

December 31, 2007

Contract amount(in thousands) Maturity period

EUR CALL/GBP PUT ..................................................................... EUR3,487 2008/02/27

F-27

December 31, 2009


USD Call/EUR Put........................................................................... USD22,500 2010/01/27~2010/02/12

USD Call/RUB Put .......................................................................... USD5,000 2010/02/24

(ii) Short position

December 31, 2007


GBP CALL/EUR PUT ..................................................................... EUR3,835 2008/02/27

December 31, 2009


EUR Call/USD Put........................................................................... USD22,500 2010/01/27~2010/02/12

RUB Call/USD Put .......................................................................... USD7,500 2010/02/24

(6) Hedging purpose derivative financial assets and liabilities

December 31,

2007 2008 2009

NT$ NT$ NT$ US$Hedging purpose derivative financial assets — current:

Foreign currency forward contracts .................................................. 235,198 962,268 1,275,157 40,075

Foreign currency options .................................................................. — 60,514 — —

235,198 1,022,782 1,275,157 40,075

Hedging purpose derivative financial liabilities — current:

Foreign currency forward contracts .................................................. (66,786) (848,726) (196,714) (6,182)

Foreign exchange swaps ................................................................... — (14) — —

Foreign currency options .................................................................. — (23,298) — —

(66,786) (872,038) (196,714) (6,182)

The Consolidated Companies entered into derivative contracts to hedge foreign currency exchange risk associated with arecognized asset or liability or with a highly probable forecast transaction.

As of December 31, 2007, 2008 and 2009, hedged items designated as fair value hedges and fair value of their respective hedgingderivative financial instruments were as follows:

Fair value of hedging instrumentsDecember 31,

Hedged Items Hedging instruments 2007 2008 2009

NT$ NT$ NT$

Accounts receivable/payable denominatedin foreign contracts currencies .............

Foreign currency forward 152,576 386,420 1,066,045

Foreign exchange swaps — (14) —

Foreign currency options — 37,903 —

152,576 424,309 1,066,045

For the years ended December 31, 2007, 2008 and 2009, the unrealized gains (losses) resulting from the changes in fair valueof hedging instruments amounted to NT$394,271, NT$271,733 and NT$641,736, respectively.

F-28

As of December 31, 2007, 2008 and 2009, hedged items designated as cash flow hedges and fair value of their respective hedgingderivative financial instruments were as follows:

December 31, 2007

Hedged items Hedging instruments

Fair value ofhedging

instruments

Expectedperiod ofcash flow

Expectedperiod of

recognitionin earnings

NT$

Accounts receivable/payable denominatedin foreign currencies ............................ Foreign currency forward contracts 15,836

Jan. ~ Apr.2008

Jan. ~ Apr.2008

December 31, 2008



instruments


Expectedperiod of


NT$

Accounts receivable/payable denominatedin foreign currencies .............................

Foreign currency forward contracts (272,878)Jan. ~ May

2009Jan. ~ May

2009

Foreign currency options (687) Feb.2009 Feb.2009

(273,565)

December 31, 2009



instruments


Expectedperiod of


NT$

Accounts receivable/payable denominatedin foreign currencies ............................. Foreign currency forward contracts 12,398

Jan. ~ May.2010

Jan. ~ May.2010

As of December 31, 2007, 2008 and 2009, unrealized gains (losses) on derivative financial instruments effective as cash flowhedges, amounted to NT$15,836, NT$(273,565) and NT$12,398, respectively, which were recognized in “unrealized gain (loss) onfinancial instruments”, a separate component of stockholder’s equity.

Details of hedging derivative financial instruments described above that were outstanding as of December 31, 2007, 2008and 2009 were as follows:


December 31, 2007

Buy SellContract amount

(in thousands) Maturity period

EUR / NOK EUR9,000 2008/01/15

EUR / SEK EUR8,500 2008/01/15

EUR / GBP EUR170,577 2008/01/31~2008/04/16

USD / EUR USD77,666 2008/01/01~2008/03/31

USD / AUD USD50,268 2008/01/11~2008/02/28

USD / NZD USD5,940 2008/01/31~2008/03/31

AUD / NZD AUD3,531 2008/01/07~2008/02/05

USD / CAD USD4,094 2008/02/19~2008/02/28

F-29

December 31, 2008



USD / AUD USD68,190 2009/01/30~2009/05/29

AUD / USD USD11,867 2009/01/30~2009/04/30

USD / CAD USD39,095 2009/02/26~2009/04/30

EUR / DKK EUR94 2009/01/15

USD / EUR EUR252,798 2009/01/30~2009/03/31

EUR / GBP EUR165,369 2009/01/15~2009/02/27

EUR / NOK EUR14,311 2009/01/13~2009/02/27

USD / NZD USD4,500 2009/01/30~2009/05/29

EUR / SEK EUR19,612 2009/01/13~2009/02/27

USD / JPY USD70,000 2009/01/15~2009/05/29

USD / ZAR USD17,300 2009/01/15~2009/03/31

USD / MXN USD90,000 2009/01/09~2009/04/17

December 31, 2009



USD / AUD USD51,000 2010/01/29~2010/02/26

USD / CAD USD58,265 2010/01/29~2010/02/25

USD / EUR EUR870,918 2010/01/15~2010/03/16

EUR / GBP EUR237,105 2010/01/15~2010/03/31

USD / NZD USD3,900 2010/01/29~2010/03/31

AUD / NZD AUD2,150 2010/01/29~2010/02/26

USD / RMB USD160,000 2010/01/18~2010/04/29

USD / NTD USD25,000 2010/01/19

(b) Foreign currency options

(i) Long position

December 31, 2008


USD Call/AUD Put ..................................................................................... USD6,445 2009/01/28~2009/02/25

EUR Call/GBP Put ...................................................................................... EUR43,257 2009/01/30~2009/03/31

USD Call/EUR Put...................................................................................... USD6,000 2009/01/30

NZD Call/USD Put ..................................................................................... USD1,000 2009/01/28~2009/02/25

EUR Call/NOK Put ..................................................................................... EUR4,200 2009/01/15

EUR Call/SEK Put ...................................................................................... EUR3,900 2009/01/15

(ii) Short position

December 31, 2008


AUD Call/USD Put ..................................................................................... USD6,445 2009/01/28~2009/02/25

GBP Call/EUR Put ...................................................................................... EUR55,984 2009/01/30~2009/03/31

EUR Call/USD Put...................................................................................... USD6,000 2009/01/30

USD Call/NZD Put ..................................................................................... USD1,000 2009/01/28~2009/02/25

NOK Call/EUR Put ..................................................................................... EUR4,200 2009/01/15

SEK Call/EUR Put ...................................................................................... EUR5,850 2009/01/15

F-30

(c) Foreign exchange swap

December 31, 2008Contract amount

(in thousands)Maturity

date

Swap-in SEK/Swap-out EUR ...................................................................... SEK17,000/EUR1,554 2009/01/15

(7) Inventories

(a) Inventories (net of provision for obsolescence and slow-moving inventories) as of December 31, 2007, 2008 and 2009,were as follows:

December 31,

2007 2008 2009

NT$ NT$ NT$ US$Raw materials ........................................................................................ 12,452,588 14,528,727 18,489,941 581,098

Work in process ..................................................................................... 27,322 49,437 45,089 1,417

Finished goods and merchandise ........................................................... 9,723,211 14,122,367 15,471,217 486,226

Spare parts ............................................................................................. 3,982,372 2,093,862 2,477,522 77,863

Inventories in transit .............................................................................. 7,630,204 9,233,802 14,701,184 462,025

33,815,697 40,028,195 51,184,953 1,608,629

(b) The details of inventories write downs for the years ended December 31, 2008 and 2009 were as follows:

December 31,

2007 2008 2009

NT$ NT$ NT$ US$Write-down of inventories to net realizable value................................. 4,527,940 7,781,927 3,278,468 103,035

Net loss on scrap and physical inventory ............................................. 64,177 101,224 128,506 4,039

4,592,117 7,883,151 3,406,974 107,074

(8) Noncurrent assets held for sale

In December 2007, the Company’s subsidiary ACI planned to sell its office building located in Singapore. As a result, such officebuilding, with carrying value of NT$764,718, was reclassified to noncurrent asset held for sale under “prepayments and other currentassets” in the accompanying consolidated balance sheet as of December 31, 2007. In March 2008, the sale of this office building wascompleted.

F-31

(9) Financial assets carried at cost—noncurrent

December 31,

2007 2008 2009

NT$ NT$ NT$ US$Investment in non-publicly traded equity securities:

National Securities Corp. .................................................................. 12,188 — — —

Prosperity Venture Capital Corp. ..................................................... 28,000 21,000 21,000 660

Sheng-Hua Venture Capital Corp. ..................................................... 30,000 20,000 11,900 374

Legend Technology ........................................................................... 27,205 15,235 11,235 353

W.I. Harper International Corp. ........................................................ 20,650 15,050 14,359 451

InCOMM Technologies Co., Ltd....................................................... 2,360 2,360 2,360 74

IP Fund II.......................................................................................... 32,400 32,400 32,400 1,018

Dragon Investment Co. Ltd............................................................... 323,000 217,000 217,000 6,820

World Venture, Inc. ........................................................................... 300,000 262,000 262,000 8,234

iD Reengineering Inc. ....................................................................... 199,900 174,900 174,900 5,497

HiTRUST. COM Inc. ........................................................................ 90,818 — — —

DYNA Fund II .................................................................................. 23,459 23,736 23,166 728

IP Fund III ........................................................................................ 195,161 131,862 128,696 4,045

iD5 Fund LTP ................................................................................... 73,879 74,751 72,956 2,293

IP Cathay One, L.P. .......................................................................... 194,610 295,362 258,558 8,126

IP Fund One L.P................................................................................ 1,274,713 907,431 736,379 23,143

MPC Corporation .............................................................................. 231,100 — — —

Apacer Technology Inc. .................................................................... — 45,340 45,340 1,425

New Century Infocomm Tech Co., Ltd. .......................................... — 341,663 131,340 4,128

Trimode Technology Inc. .................................................................. — 12,264 11,038 347

Others................................................................................................ 82,678 91,916 96,431 3,030

3,142,121 2,684,270 2,251,058 70,746

In 2007 and 2008, the Consolidated Companies increased their equity investments in IP Cathay One, L.P. and other investees byNT$217,140 and NT$97,876, respectively. The Consolidated Companies also invested NT$359,759 in New Century Infocomm TechCo., Ltd., Trimode Technology Inc., and other investees through the acquisition of E-Ten in 2008.

In 2009, IP Cathay One, L.P., IP Fund One, L.P., Legend Technology, W.I. Harper International, and Sheng-Hua Venture capitaland other investees returned capital of NT$170,716 to the Consolidated Companies. In 2008, IP Fund One, L.P., Legend Technology andW.I. Harper International Corp. returned capital of NT$462,552 to the Consolidated Companies.

In 2007, the Consolidated Companies sold portion of their investments in Taiwan Fixed Network Corp., InCOMM TechnologiesCo., Ltd. and other investees, which resulted in an aggregate disposal gain of NT$44,593. In 2008, the Consolidated Companies soldportion of their investments in Apacer Technology Inc. and other investees, which also resulted in an aggregate disposal gain ofNT$80,462.

For the year ended December 31, 2009, the Consolidated Companies recognized impairment losses on the investments in NewCentury Infocomm Tech Co., Ltd. and other investees in the amount of $231,934. For the year ended December 31, 2008, theConsolidated Companies recognized impairment losses on the investments in Dragon Investment Co. Ltd., iD Reengineering Inc., MPCCorp. and other investees in the amount of $409,141. The aforementioned impairment losses were recorded under “other investmentloss” in the accompanying consolidated statements of income.

F-32

(10) Investments accounted for using equity method

December 31, 2007 2007

Percentageof ownership

Carryingamount

Investmentincome (loss)

% NT$ NT$Wistron Corporation (“Wistron”).................................................................................... 9.13 2,987,685 668,653

e-Life Mall Corp. .......................................................................................................... 21.82 682,475 116,160

The Eslite Bookstore ...................................................................................................... 18.62 395,411 34,465

Apacer Technology Inc. (“Apacer”) ............................................................................... 34.40 313,410 (141,642)

Aegis Semiconductor Technology Inc. .......................................................................... 44.03 165,235 —

ECOM Software Inc. ...................................................................................................... 33.93 50,830 10,798

Bluechip Infotech Pty Ltd. ............................................................................................. 33.41 77,811 11,698

HiTRUST.COM Inc. (“HiTRUST.COM”) ...................................................................... — — 122,012

Other ............................................................................................................................... 24,843 (22,892)

Deferred credits .............................................................................................................. (8,016) 27,009

4,689,684 826,261

Less: Allocation of corporate expense ............................................................................ (130,601)

695,660

December 31, 2008 2008


Carryingamount


% NT$ NT$Wistron Corporation ...................................................................................................... 4.92 1,814,166 471,792

E-Life Mall Corp. .......................................................................................................... 14.27 442,291 70,763

The Eslite Bookstore ...................................................................................................... 18.62 304,361 (72,508)

Apacer Technology Inc. .................................................................................................. — — (18,962)

Aegis Semiconductor Technology Inc. ........................................................................... 44.03 165,235 —



FuHu Inc......................................................................................................................... 9.00 72,518 (987)

Other ............................................................................................................................... — 36,087 1,994

Deferred credits .............................................................................................................. — 12,896

2,928,790 470,678


404,184

F-33

December 31, 2009 2009

Percentageof ownership Carrying amount Investment income (loss)

% NT$ US$ NT$ US$Wistron Corporation .................................................... 4.40 2,334,164 73,358 424,441 13,339

E-Life Mall Corp. ........................................................ 14.27 434,174 13,645 55,976 1,759

Aegis Semiconductor Technology Inc. ......................... 44.03 165,235 5,193 — —

ECOM Software Inc. .................................................... 33.93 36,310 1,141 3,791 119

Bluechip Infotech Pty Ltd. ........................................... 33.41 72,303 2,272 4,605 145

FuHu Inc....................................................................... 25.00 172,982 5,436 (26,740) (840)

Olidata S.p.A ................................................................ 29.90 116,579 3,664 — —

Others ........................................................................... — (16,797) (528) 1,737 54

3,314,950 104,181 463,810 14,576

Less: Allocation of corporate expense.......................... (63,712) (2,002)

400,098 12,574

Deferred credits of long-term equity investments represent the unamortized balance of deferred gains and losses derived fromthe sale of equity investment among the affiliated companies. Such deferred gains and losses are realized upon disposal of theequity-method investments to non-consolidated entities.

In 2008, the Consolidated Companies invested NT$73,841 in FuHu Inc. In 2009, the Consolidated Companies invested in OlidataS.p.A. and increased investment in FuHu Inc. for an aggregate amount of NT$244,702.

In October 2007, the Company reduced its investment in Apacer to an ownership interest of less than 50% and no longer helda controlling interest in Apacer. Consequently, Apacer was excluded from the consolidated financial statements, and the investments inApacer were accounted for using the equity method. The Consolidated Companies continuously decreased their ownership in Apacerin 2008, and commencing on August 1, 2008, the Consolidated Companies lost their ability to exercise significant influence overApacer’s operating and financial policies. Therefore, the investments in Apacer were reclassified as “financial assets carried atcost—noncurrent”.

On December 31, 2007 and January 1, 2009, the Consolidated Companies decreased their ownership interest in HiTRUST.COMand The Eslite Bookstore, respectively, and thus lost the ability to exercise significant influence over HiTRUST.COM and The EsliteBookstores’ operating and financial policies. Consequently, the equity investments in HiTRUST.COM and The Eslite Bookstore werereclassified as “financial assets carried at cost—noncurrent”.

In 2007, the Consolidated Companies sold portion of their investments in Wistron, Apacer, HiTRUST. COM, and other investees,and recognized an aggregate gain thereon of NT$1,834,450. In 2008, the Company sold portion of its investment in Wistron andrecognized a gain thereon of NT$1,441,906. In 2009, the Consolidated Companies sold all of their investments in The Eslite Bookstoreand recognized an aggregate loss thereon of NT$5,455.

The Consolidated Companies recognized an investment loss of NT$7,263 in 2008 and an investment gain of NT$4,236 in 2009due to liquidation of EB EASY (TWN) Corp. and Hungtung Venture Capital, respectively. The loss was recorded under “other loss” andthe gain was recorded under “other gain” in the accompanying consolidated statements of income.

The Consolidated Companies’ capital surplus was increased (reduced) by NT$(169,810), NT$(78,255) and NT$180,899 in 2007,2008 and 2009, respectively, as the Consolidated Companies did not make additional investments proportionally to the issuance of newshares by the investee companies or the Consolidated Companies recognized changes in investees’ equity accounts in proportion to itsownership percentage.

(11) Available-for-sale financial assets—noncurrent

December 31,

2007 2008 2009

NT$ NT$ NT$ US$Investment in publicly traded equity securities:

Qisda Corporation (“Qisda”)............................................................. 2,655,514 520,718 1,606,215 50,480

Silicon Storage Technology Inc. (“Silicon”) ..................................... 10,571 8,192 8,938 281

Yosun Industrial Corp. ...................................................................... 704,762 386,660 844,416 26,538

RoyalTek Co., Ltd............................................................................. — 93,390 539,319 16,950

Quanta Computer Inc. ....................................................................... — 151,527 307,854 9,675

3,370,847 1,160,487 3,306,742 103,924

F-34

On July 1, 2007, the Company sold all its ownership interest in a subsidiary, Sertek Inc. Refer to note 4(23) related to thediscussion of discontinued operations. The selling price was payable in cash and 27,000,000 shares of Yosun Industrial Corp.

In September 2008, the Consolidated Companies invested in RoyalTek Co., Ltd. and Quanta Computer Inc. through theacquisition of E-Ten.

In 2007, the Consolidated Companies sold portion of their investments in Qisda, Silicon and other investees, and recognized anaggregate gain thereon of NT$109,491. In 2008, no disposal activities occurred. In 2009, the Consolidated Companies sold portion oftheir investments in Yosun Industrial and recognized a gain thereon of NT$57,894.

As of December 31, 2007, 2008 and 2009, the unrealized gain (losses) resulting from re-measuring available-for-sale financialassets (including current and non-current) to fair value amounted to NT$2,508,663, NT$(1,456,066) and NT$1,001,919, respectively,which were recognized as a separate component of stockholders’ equity.

(12) Property, plant and equipment

The Company’s subsidiary, ACI, sold its office building located in Singapore in March 2008, with a disposal gain of NT$788,944.Additionally, the Company’s subsidiary, Gateway Inc., disposed of computer equipment and machinery in 2008 and 2009 with a disposalloss of NT$269,057 and NT$102,532, respectively. The net gain (loss) was recorded under “gain/loss on disposal of property andequipment, net” in the accompanying consolidated statements of income.

In 2009, the Consolidated Companies recognized an impairment loss of NT$395,109 for the buildings and improvements of theE-Ten and Gateway Inc., as the recoverable amount was less than the carrying amount of such assets.

(13) Property not used in operation

December 31,

2007 2008 2009

NT$ NT$ NT$ US$Leased assets—land ............................................................................... 818,630 807,538 807,538 25,379

Leased assets—buildings ...................................................................... 2,855,547 2,827,810 2,827,810 88,872

Damaged office premises....................................................................... 457,558 457,558 463,181 14,556

Property held for sale and development ................................................ 1,761,173 1,391,260 1,415,014 44,471

Others .................................................................................................... — 29,019 — —

Less: Accumulated depreciation ............................................................ (543,805) (570,088) (595,606) (18,718)

Accumulated impairment.............................................................. (1,543,000) (1,946,376) (1,946,395) (61,171)

3,806,103 2,996,721 2,971,542 93,389

Damaged office premises are office premises damaged by fire. As of December 31, 2008, the Consolidated Companies concludedthat the possibility for the damaged office premises to be fully repaired was remote; hence, the accrual for repair cost of NT$161,308,recorded under “other current liabilities”, in the accompanying consolidated balance sheet as of December 31, 2007 was reclassified asaccumulated asset impairment, and an additional impairment loss of NT$221,931 was recognized in 2008.

For certain land acquired, the ownership registration has not been transferred to the land acquirer, APDI, a subsidiary of theCompany. To protect APDI’s interests, APDI has obtained signed contracts from the titleholders assigning all rights and obligationsrelated to the land to APDI. Additionally, the land title certificates are held by APDI, and APDI has registered its liens thereon.

F-35


Goodwill Patents

Trademarksand trade

namesCustomer

Relationships Others Total

NT$ NT$ NT$ NT$ NT$ NT$Balance at January 1, 2007.................. 244,328 171 — — 152,183 396,682

Additions ............................................. — 415,701 — — 78,168 493,869

Acquisitions from businesscombination..................................... 16,654,264 1,116,481 5,504,220 1,551,042 570,729 25,396,736

Disposals.............................................. — (120) — — (3,410) (3,530)

Effect of exchange rate changes .......... (7,876) 553 73 494 3,356 (3,400)

Amortization ....................................... — (59,074) (6,054) (40,457) (248,279) (353,864)

Balance at December 31, 2007 ............ 16,890,716 1,473,712 5,498,239 1,511,079 552,747 25,926,493

Additions ............................................. — 89,177 — — 80,147 169,324

Acquisitions from businesscombination..................................... 3,675,993 — 2,634,244 151,100 1,871,300 8,332,637

Adjustments made subsequent tobusiness acquisition......................... 1,844,038 — — — — 1,844,038

Disposals.............................................. (32,532) — — — (4,339) (36,871)

Reclassification .................................... — (727,381) — — (453,200) (1,180,581)

Effect of exchange rate changes .......... 195,825 (20,326) (32,122) 11,722 (14,327) 140,772

Amortization ....................................... — (122,344) (32,805) (156,552) (137,346) (449,047)

Balance at December 31, 2008 ............ 22,574,040 692,838 8,067,556 1,517,349 1,894,982 34,746,765

Additions ............................................. — 369,000 — — 2,536,507 2,905,507

Adjustments made subsequent tobusiness acquisition......................... (138,067) — — — — (138,067)

Disposals.............................................. (9,624) (39,275) — — (9,759) (58,658)

Reclassification .................................... — — — — 16,867 16,867

Effect of exchange rate changes .......... (448,895) (3,073) (161,298) (28,110) (6,842) (648,218)

Amortization ....................................... — (217,701) (43,793) (178,933) (939,701) (1,380,128)

Balance at December 31, 2009 ............ 21,977,454 801,789 7,862,465 1,310,306 3,492,054 35,444,068

(a) Acquisitions

(i) Gateway, Inc.

On October 15, 2007, the Company completed the acquisition of 100% equity ownership of Gateway, Inc., a personal computercompany in the U.S., through its indirectly wholly owned subsidiary Acer American Holding, at a price of US$1.90 (dollars) pershare. The total purchase price amounted to US$711,420, which was inclusive of direct transaction costs.

The acquisition was accounted for in accordance with ROC SFAS No. 25 “Accounting for Business Combinations”, under which,the excess of the purchase price and direct transaction costs over the fair value of the net identifiable assets was recognized asgoodwill.

F-36

The following represents the allocation of the purchase price to the assets acquired, liabilities assumed, and goodwill at the dateof acquisition:

NT$ NT$

Purchase Price.......................................................................................................................................... 23,507,016

The identifiable assets acquired and liabilities assumed:

Current assets ...................................................................................................................................... 32,139,646

Investments carried at cost.................................................................................................................. 277,057

Property, plant and equipment ............................................................................................................ 2,808,517

Intangible assets-trademarks of Gateway and eMachines ................................................................... 5,504,220

Intangible assets-customer relationships ............................................................................................. 1,551,042

Intangible assets-others ....................................................................................................................... 1,687,210

Other assets ......................................................................................................................................... 58,355

Current liabilities ................................................................................................................................ (24,576,616)

Long-term liabilities............................................................................................................................ (9,673,377)

Other liabilities ................................................................................................................................... (2,923,302) 6,852,752

Goodwill .................................................................................................................................................. 16,654,264

Within one year from the acquisition date (the “allocation period”), the Company identified adjustments, after the initialrecognition, to certain property and equipment and pre-acquisition contingent liabilities. These adjustments decreased property,plant and equipment by NT$77,564 and increased current liabilities by NT$1,766,474, which also increased goodwill byNT$1,844,038.

The Gateway trademark has an indefinite useful life and, accordingly, is not subject to amortization. The eMachines trademarkis being amortized using the straight-line method over 20 years, the estimated period of its economic benefits. Customerrelationships are being amortized using the straight-line method over the estimated useful life of 10 years.

(ii) Packard Bell B.V.

In March and June of 2008, the Company completed the acquisition of 100% equity ownership of Packard Bell B.V., a personalcomputer company in Europe, through its indirectly wholly owned subsidiary Acer Europe B.V., at a total purchase price of Euro66,117, which was inclusive of direct transaction costs.



NT$ NT$

Purchase Price.......................................................................................................................................... 3,172,080


Current assets ...................................................................................................................................... 9,587,790

Property, plant and equipment ............................................................................................................ 351,162

Intangible assets — Packard Bell trademark ..................................................................................... 2,163,744


Other liabilities ................................................................................................................................... (39,609) 1,397,908

Goodwill .................................................................................................................................................. 1,774,172

The Packard Bell trademark has an indefinite useful life and, accordingly, is not subject to amortization.

Within the allocation period, the Company made adjustments to decrease deferred charges by NT$33,768 and to decrease currentliabilities by NT$174,307, which also decreased goodwill by NT$140,539.

(iii) E-Ten Information Systems Co., Ltd

On September 1, 2008, the Company completed its acquisition of 100% equity ownership of E-TEN, a handheld device companyin Taiwan. The Company offered to exchange one share of its stock for every 1.07 shares of outstanding E-Ten stock, and issueda total of 168,158,878 common shares. E-Ten then became the Company’s direct wholly owned subsidiary.

F-37



NT$ NT$

Purchase Price:

Fair value of common shares issued ................................................................................................... 8,700,751

Fair value of outstanding employee stock options ............................................................................

assumed .............................................................................................................................................. 136,516 8,837,267


Current assets ...................................................................................................................................... 2,574,588

Long-term investment ........................................................................................................................ 789,753


Intangible assets — ETEN trademark ................................................................................................. 450,900

Intangible assets — customer relationship.......................................................................................... 151,100

Intangible assets — developed technology ......................................................................................... 1,802,500

Intangible assets — others .................................................................................................................. 88,400

Other assets ......................................................................................................................................... 485,261

Current liabilities ................................................................................................................................ (1,263,892) 6,935,446

Goodwill .................................................................................................................................................. 1,901,821

The ETEN trademark for Financial PDA has an indefinite useful life and, accordingly, is not subject to amortization. Thecustomer relationship is subject to amortization using the straight-line method over 7 years. The developed technology is subjectto amortization using the straight-line method over 10 years, the estimated period of its economic benefits.

Within the allocation period, the Company made adjustments to increase the fair value of outstanding employee stock optionsassumed through the acquisition, which also increased goodwill by NT$2,472.

(b) Pro forma information

The following unaudited pro forma financial information of 2007 and 2008 presents the combined results of operations as if theacquisitions of Gateway Inc., Packard Bell B.V., and E-Ten had occurred as of the beginning of each of the fiscal years presented:

2007 2008

NT$ NT$Revenue ................................................................................................................................................... 574,749,174 550,172,239

Income from continuing operations before income tax ........................................................................... 17,498,019 14,676,395

Income from continuing operations after income tax .............................................................................. 14,343,978 11,521,166

Basic earnings per common share (in dollars) ........................................................................................ 5.66 4.43

(c) Impairment test

For the purpose of impairment testing, goodwill and trademarks and trade names with indefinite useful lives are allocated to theConsolidated Companies’ cash-generating units (CGUs) that are expected to benefit from the synergies of the business combination. Thecarrying amounts of significant goodwill and trademarks and trade names with indefinite useful lives and the respective CGUs to whichthey are allocated as of December 31, 2007, 2008 and 2009, were as follows:

December 31, 2007

Acer Pan-Americabusiness

group

Packard Bellbrand

businessgroup

E-TenInformation

Systemgroup

NT$ NT$ NT$Goodwill ......................................................................................................................... 16,654,264 — —

Trademarks & trade names ............................................................................................. 4,930,120 — —

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December 31, 2008


group

Packard Bellbrand

businessgroup

E-TenInformation

Systemgroup

NT$ NT$ NT$Goodwill ......................................................................................................................... 18,768,929 1,699,593 1,901,821

Trademarks & trade names ............................................................................................. 4,988,336 2,067,836 450,900

December 31, 2009

ITRO-EMEA ITRO-PA ITRO-AAP ITRO-China ITRO-TWN E-Ten SHBG

NT$ NT$ NT$ NT$ NT$ NT$ NT$Goodwill ..................... 12,061,458 4,698,297 2,511,387 137,919 646,380 221,424 1,682,869

Trademarks & tradenames ..................... 3,328,857 2,308,646 1,149,623 45,180 62,867 450,900 —

Each CGU to which the goodwill is allocated represents the lowest level within the Consolidated Companies at which thegoodwill is monitored for internal management purposes. In 2009, the Company reorganized cash-generating units to which goodwilland trademark and trade names with indefinite useful lives were allocated, as a result, the Company reallocated the aforementionedintangible assets to the related cash-generating units. Based on the results of impairment tests conducted by the Company’s management,there was no evidence of impairment of goodwill and trademarks and trade names as of December 31, 2007, 2008 and 2009. Therecoverable amount of a CGU is determined based on the value in use, and the related key assumptions were as follows:

Years 2007 and 2008:

(i) The cash flow projections were based on historical operating performance, future financial budgets approved bymanagement covering a 5-year period.

(ii) Discounted rates used to determine the value in use for each of the CGUs were as follows:


group

Packard Bellbrand

businessgroup

E-TenInformation

Systemgroup

2007 ................................................................................................................................ 12.0% — —

2008 ................................................................................................................................ 13.7% 11.8% 18.7%

Year 2009:

(i) The cash flow projections were based on historical operating performance, future financial budgets approved bymanagement covering a 5-year period.

(ii) Discounted rates used to determine the value in use for each of the CGUs were as follows:

ITRO-EMEA ITRO-PA ITRO-AAP ITRO-China ITRO-TWN E-Ten SHBG

12.9% 10.9% 16.9% 20.4% 15.7% 19.7% 16.0%

(d) On December 6, 2007, the Consolidated Companies entered into a Basic Term Agreement with the International OlympicCommittee regarding participation in the Olympic Partners Program (the “Top Programme”). Pursuant to such agreement,the Consolidated Companies have agreed to pay a certain amount of money in cash, merchandise and service to obtainmarketing rights and become one of the partners in “Top Porgramme” across the period from January 1, 2009 to December31, 2012. Such expenditure on sponsorship was capitalized as “intangible assets” in the accompanying consolidatedfinancial statements, and amortized using the straight-line method during the aforementioned four-year period.

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(15) Other financial assets—noncurrent

December 31,

2007 2008 2009

NT$ NT$ NT$ US$Refundable deposits ............................................................................... 687,109 781,080 771,957 24,261Noncurrent receivables .......................................................................... 274,284 87,680 17,754 558

961,393 868,760 789,711 24,819

(16) Short-term borrowings

December 31,

2007 2008 2009

NT$ NT$ NT$ US$Bank loans ............................................................................................. 5,372,109 1,086,851 548,059 17,224

The Consolidated Companies pledged certain assets as collateral for these loans according to the bank loan contracts. Refer tonote 6 for a description of the pledged assets.

(17) Long-term debts

December 31,

2007 2008 2009

NT$ NT$ NT$ US$Syndicated loan...................................................................................... 16,500,000 12,200,000 12,200,000 383,419Other bank loans.................................................................................... 308,242 184,920 171,856 5,401Less: current installments ...................................................................... (17,366) (8,250,000) — —

16,790,876 4,134,920 12,371,856 388,820

The Company entered into a syndicated loan agreement with Citibank, the managing bank of the syndicated loan, on October11, 2007, and the terms of this loan agreement were as follows:

December 31,

Type of Loan Creditor Credit Line Term

2007 2008 2009

NT$ NT$ NT$Unsecured loan .............. Citibank and

other banksTerm tranche ofNT$16.5 billion;fire-year limitduring whichrevolving creditsdisallowed

Repayable in 4semi-annualinstallments startingfrom April 2009. Anadvance repaymentof NT$4.3 billionwas made in thefirst quarter of 2008.In May 2009, anamendment to theagreement wasmade, under which,the loan is repayablein 4 semi-annualinstallments startingfrom April 2011. 16,500,000 12,200,000 12,200,000

Revolving tranche ofNT$3.3 billion;three-year limit

One-time repaymentin full in October2010. — — —

Less: currentinstallment................. — (8,250,000) —

16,500,000 3,950,000 12,200,000

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The above syndicated loan bore interest at a rate of 3.02% in 2007, 3.06% in 2008 and 1.67% in 2009. According to the loanagreement, the Company is required to maintain certain financial ratios calculated based on annual and semi-annual audited financialstatements. If the Company fails to meet any of the financial ratios, the managing bank will request the Company in writing to take actionto improve within agreed days. No assertion of breach of contract will be tenable if the financial ratios are met within agreed days. Asof December 31, 2009, the Company was in compliance with all such financial covenants.

(18) Retirement plans

The following table sets forth the actuarial information related to the Consolidated Companies’ defined benefit retirement plans:

(a) Reconciliation of funded status of the plans to prepaid pension cost (accrued pension liabilities):

2007

Plan assetsin excess ofaccumulated

benefitobligation

Accumulatedbenefit

obligation inexcess of

plan assets

NT$ NT$Benefit obligation:

Vested benefit obligation..................................................................................................................... — (108,087)

Nonvested benefit obligation .............................................................................................................. — (491,318)

Accumulated benefit obligation .......................................................................................................... — (599,405)

Projected compensation increases ....................................................................................................... — (559,351)

Projected benefit obligation ................................................................................................................ — (1,158,756)

Plan assets at fair value ........................................................................................................................... — 507,358

Funded status ........................................................................................................................................... — (651,398)

Unrecognized prior service cost .............................................................................................................. — 558

Unrecognized pension loss ...................................................................................................................... — 730,346

Unrecognized transition (assets) obligation ............................................................................................. — 1,829

Minimum pension liability adjustment .................................................................................................... — (172,784)

Accrued pension liabilities ...................................................................................................................... — (91,449)

2008

Plan assetsin excess ofaccumulated

benefitobligation

Accumulatedbenefit

obligation inexcess of

plan assets

NT$ NT$Benefit obligation:

Vested benefit obligation..................................................................................................................... (124,967) (33,041)

Nonvested benefit obligation .............................................................................................................. (469,607) (100,237)

Accumulated benefit obligation .......................................................................................................... (594,574) (133,278)

Projected compensation increases ....................................................................................................... (335,873) (52,666)

Projected benefit obligation ................................................................................................................ (930,447) (185,944)

Plan assets at fair value ........................................................................................................................... 643,793 59,610

Funded status ........................................................................................................................................... (286,654) (126,334)

Unrecognized prior service cost .............................................................................................................. — 6,596

Unrecognized pension loss ...................................................................................................................... 459,393 39,982

Unrecognized transition (assets) obligation ............................................................................................. (2,187) 25,426

Minimum pension liability adjustment .................................................................................................... — 659

Prepaid pension cost (accrued pension liabilities) ................................................................................... 170,552 (53,671)

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2009

Plan assets in excess ofaccumulated benefit

obligation

Accumulated benefitobligation in excess of plan

assets

NT$ US$ NT$ US$Benefit obligation:

Vested benefit obligation................................................................... (180,819) (5,683) (22,077) (694)

Nonvested benefit obligation ............................................................ (385,033) (12,101) (45,676) (1,435)

Accumulated benefit obligation ........................................................ (565,852) (17,784) (67,753) (2,129)

Projected compensation increases ..................................................... (319,849) (10,052) (114,991) (3,614)

Projected benefit obligation .............................................................. (885,701) (27,836) (182,744) (5,743)

Plan assets at fair value ......................................................................... 664,033 20,869 60,408 1,898

Funded status ......................................................................................... (221,668) (6,967) (122,336) (3,845)

Unrecognized pension loss .................................................................... 434,772 13,664 43,661 1,372

Unrecognized transition (assets) obligation ........................................... (1,592) (50) 20,799 654

Minimum pension liability adjustment .................................................. — — (3,731) (117)

Prepaid pension cost (accrued pension liabilities) ................................. 211,512 6,647 (61,607) (1,936)

Accrued pension liabilities are included in “other liabilities” in the accompanying consolidated balance sheets. Prepaid pensioncost is included in “deferred charges and other assets” in the accompanying consolidated balance sheets.

(b) The components of the net periodic pension cost were as follows:

2007 2008 2009

NT$ NT$ NT$ US$Service cost............................................................................................ 32,894 49,808 51,634 1,623

Interest cost ........................................................................................... 20,671 34,453 26,954 847

Actual return on plan assets .................................................................. (12,147) (18,586) (6,087) (191)

Amortization and deferral ...................................................................... 17,133 31,937 7,222 227

Effect of pension plan curtailments ....................................................... — — 52,502 1,650

Net periodic pension cost ...................................................................... 58,551 97,612 132,225 4,156

(c) The principal actuarial assumptions used were as follows:

2007 2008 2009

Discount rate................................................................................................................... 2.75% 2.50% 2.25%

Rate of increase in future compensation ........................................................................ 3.00%-3.50% 3.00% 3.00%

Expected rate of return on plan assets............................................................................ 2.75% 2.50% 2.25%

In 2007, 2008 and 2009, pension cost under the defined contribution retirement plans amounted to NT$258,870, NT$367,626 andNT$331,469, respectively.

(19) Income taxes

(a) The components of income tax expense from continuing operations were as follows:

2007 2008 2009

NT$ NT$ NT$ US$Current income tax expense .................................................................. 2,726,875 2,383,360 4,581,450 143,985

Deferred income tax (benefit) expense.................................................. (61,297) 786,086 (951,327) (29,898)

2,665,578 3,169,446 3,630,123 114,087

(b) The statutory income tax rate applicable to the Company and its subsidiaries located in the ROC is 25%. Effective January1, 2006, an alternative minimum tax (“AMT”) in accordance with the Income Basic Tax Act is calculated. Other foreignsubsidiary companies calculated income tax in accordance with local tax law and regulations. The amended Article 5 ofthe ROC Income Tax Act announced on May 27, 2009, requires that the income tax rate of profit-seeking enterprises will

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be reduced from 25% to 20%, effective in 2010. The Company and its domestic subsidiaries which are subject to the ROCIncome Tax Act had recalculated their deferred tax assets in accordance with the amended Article and adjusted theresulting difference to income tax expense. The income tax calculated on the pre-tax income from continuing operationsat the Company’s statutory income tax rate (25%) was reconciled with the income tax expense of continuing operationsreported in the accompanying consolidated statements of income as follows.

2007 2008 2009

NT$ NT$ NT$ US$

Expected income tax.............................................................................. 3,777,159 3,701,682 3,745,746 117,721

Effect of different tax rates applied to the Company’s subsidiaries...... 1,786,743 720,278 1,032,938 32,463

Tax-exempt investment income from domestic investees...................... (592,587) (154,526) (86,873) (2,730)

Prior-year adjustments ........................................................................... (53,756) 52,938 523,617 16,456

Loss (gain) on disposal of marketable securities not subject toincome tax......................................................................................... (1,226,553) (697,934) 124,873 3,924

Investment tax credits ............................................................................ 30,696 295,939 198,804 6,248

Change in valuation allowance ............................................................. (699,088) 225,493 (350,794) (11,025)

Tax-exempt investment income from operational headquarters andinvestment income from foreign investees not be distributed in theforeseeable future .............................................................................. (1,132,967) (1,386,033) (2,556,360) (80,341)

Surtax on unappropriated retained earrings .......................................... — 165,109 17,646 555

Deferred tax assets resulting from spin offadjustment (set note 5(2) (c)) ........................................................... — (511,425) (72,449) (2,277)

Gain on disposal of land not subject to income tax .............................. (29,476) — — —

Alternative minimum tax ....................................................................... 404,858 44,430 1,417 45

Effect of change in income tax rate ...................................................... — — 438,368 13,777

Others .................................................................................................... 400,549 713,495 613,190 19,271

Income tax expense ............................................................................... 2,665,578 3,169,446 3,630,123 114,087

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(c) The components of deferred income tax assets (liabilities) as of December 31, 2008 and 2009, were as follows:

December 31,

2007 2008 2009

NT$ NT$ NT$ US$Deferred income tax assets — current:

Unrealized cost of sales .................................................................... 631,360 1,093,887 902,570 28,366

Inventory provisions ........................................................................ 394,505 620,737 1,058,032 33,252

Loss (gain) on valuation of financial instruments ............................ 338,995 156,932 (279,622) (8,788)

Accrued advertising expense............................................................. 293,552 181,323 87,747 2,758

Warranty provision ............................................................................ 345,131 980,400 778,287 24,460

Allowance for doubtful accounts ...................................................... 169,001 397,292 118,924 3,738

Accrued restructuring cost ................................................................ 149,637 89,865 64,102 2,014

Accrued non-recurring engineering cost ........................................... 102,485 111,826 58,825 1,849

Deferred revenue............................................................................... 40,742 34,904 5,614 176

Accrued royalty................................................................................. 707,937 82,975 494 16

Net operating loss carryforwards ...................................................... — 77,977 143,674 4,515

Investment tax credits ....................................................................... — — 64,027 2,012

Unrealized foreign exchange (gains) ...............................................

losses ................................................................................................. (201,717) (386,944) 299,738 9,420

Others................................................................................................ 493,166 377,603 481,969 15,146

3,464,794 3,818,777 3,784,381 118,934

Valuation allowance .......................................................................... (1,550,788) (1,535,834) (1,571,166) (49,378)

1,914,006 2,282,943 2,213,215 69,556

December 31,

2007 2008 2009

NT$ NT$ NT$ US$

Deferred income tax liabilities — current:

Inventory provisions.......................................................................... (88,624) (125,802) (84,598) (2,659)

Allowance for doubtful accounts ...................................................... (473,449) (462,980) (559,274) (17,577)

Unrealized foreign exchange gains ................................................... (9,385) (58,994) (15,078) (473)

Others................................................................................................ (138,239) (8,834) (21,764) (684)

(709,697) (656,610) (680,714) (21,393)

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December 31,

2007 2008 2009

NT$ NT$ NT$ US$

Deferred income tax assets — non-current:

Investment loss under the equity method ......................................... 80,374 44,649 66,861 2,101

Difference in depreciation for tax and financial purposes ................ 12,042 20,638 16,462 517

Net operating loss carryforwards ...................................................... 624,286 773,919 410,104 12,889

Accumulated asset impairment ........................................................ 293,190 — — —

Investment tax credits ....................................................................... 686,658 — — —

Other ................................................................................................. (15,430) 117,235 101,897 3,203

1,681,120 956,441 595,324 18,710

Valuation allowance .......................................................................... (1,615,282) (826,526) (387,735) (12,186)

65,838 129,915 207,589 6,524

December 31,

2007 2008 2009

NT$ NT$ NT$ US$Deferred income tax liabilities — non-current:

Difference in amortization of intangible assets for tax andfinancial purposes......................................................................... (3,101,316) (2,705,258) (3,507,908) (110,246)

Investment income under the equity method .................................... (2,697,304) (3,804,043) (2,867,839) (90,130)

Net operating loss carryforwards ...................................................... 14,028,055 14,326,766 13,313,903 418,426

Difference in depreciation for tax and financial purposes ................ 939,410 1,026,013 811,822 25,514

Accumulated asset impairment ........................................................ 293,190 313,148 245,347 7,711

Investment tax credits ....................................................................... — 418,227 — —

Software development cost ............................................................... — 731,804 28,553 897

Unrealized investment loss ............................................................... 241,569 244,421 239,877 7,539

Foreign currency translation adjustment ........................................... — — (237,330) (7,459)

Other ................................................................................................. 147,919 463,409 316,950 9,961

9,851,523 11,014,487 8,343,375 262,213

Valuation allowance .......................................................................... (14,970,897) (17,288,586) (13,887,322) (436,447)

(5,119,374) (6,274,099) (5,543,947) (174,234)

(d) The domestic Consolidated Companies were granted investment tax credits for the purchase of automatic machinery andequipment, for research and development expenditures, and for personnel training expenditures. These tax credits may beapplied over a period of five years. The amount of the credit that may be applied in any year is limited to 50% of theincome tax payable for that year, but there is no limitation on the amount of investment tax credit that may be appliedin the final year.

As of December 31, 2009, investment tax credits available to the Consolidated Companies were as follows:

Expiration date NT$ US$

December 31, 2012.................................................................................................................................. 1,646 52

December 31, 2013.................................................................................................................................. 49,412 1,553

December 31, 2014.................................................................................................................................. 12,969 407

64,027 2,012

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(e) The tax effects of net operating loss carryforwards available to the Consolidated Companies as of December 31, 2009,were as follows:

Expiration date NT$ US$

December 31, 2010.................................................................................................................................. 845 26

December 31, 2011 .................................................................................................................................. 805,840 25,326

December 31, 2012.................................................................................................................................. 1,042,362 32,759

December 31, 2013.................................................................................................................................. 579,938 18,226

Thereafter................................................................................................................................................. 11,438,696 359,493

13,867,681 435,830

(f) Information about the integrated income tax system

Beginning in 1998, an integrated income tax system was implemented in the Republic of China. Under the new tax system,the income tax paid at the corporate level can be used to offset Republic of China resident stockholders’ individual income tax.The Company is required to establish an imputation credit account (ICA) to maintain a record of the corporate income taxes paidand imputation credit that can be allocated to each stockholder. The credit available to Republic of China resident stockholdersis calculated by multiplying the dividend by the creditable ratio. The creditable ratio is calculated based on the balance of theICA divided by earnings retained by the Company since January 1, 1998.

Information related to the ICA is summarized below:

December 31,

2007 2008 2009

NT$ NT$ NT$ US$

Unappropriated earnings:

Earned before January 1, 1998 ......................................................... 6,776 6,776 6,776 213

Earned after January 1, 1998 ............................................................ 13,544,248 13,978,542 16,615,824 522,198

13,551,024 13,985,318 16,622,600 522,411

Balance of ICA ................................................................................ 165,036 198,401 611,323 19,212

The estimated creditable ratio for the 2009 earnings distribution to ROC resident stockholders is approximately 13.35%;and the actual creditable ratio for the 2007 and 2008 earnings distribution was 4.01% and 5.01% respectively.

(g) The ROC income tax authorities have examined the income tax returns of the Company for all fiscal years through 2006.However, the Company disagreed with the assessments of its income tax returns from fiscal 2004 to 2006 regarding theadjustments of certain expenses and investment tax credits and has filed a request with the tax authorities for areexamination. The reexamination of income tax returns was still in process, and the Company has accrued an additionaltax liability related to the disallowed expenses and provided a valuation allowance on deferred tax assets based on theamount of assessed investment tax credits.

(20) Stockholders’ equity

(a) Common stock

As of December 31, 2007, 2008 and 2009, the Company’s authorized common stock consisted of 2,800,000,000, 3,500,000,000and 3,500,000,000 shares, respectively, of which 2,405,490,426 shares 2,642,855,993 shares and 2,688,228,278 shares, respectively,were issued and outstanding. The par value of the Company’s common stock is NT$10 per share.

As of December 31, 2007, 2008 and 2009, the Company had issued 8,229 thousand units, 8,412 thousand units and 18,284thousand units, respectively, of global depository receipts (GDRs). The GDRs were listed on the London Stock Exchange, and each GDRrepresents five shares of common stock.

In 2008 and 2009, the Company issued 124 thousand and 2,709 thousand common shares, respectively, upon the exercise ofemployee stock options. Additionally, on September 1, 2008, the Company issued 168,159 thousand common shares for acquiring 100%equity ownership of E-Ten Information Systems Co., Ltd.

The Company’s shareholders in the meeting on June 14, 2007, resolved to distribute stock dividends of NT$350,559 andNT$333,708 to shareholders and to employees, respectively. As a result, a total of 68,427 thousand new shares were issued. The stockissuance was authorized by and registered with the governmental authorities.

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The Company’s shareholders in the meeting on June 13, 2008, resolved to distribute stock dividends of NT$360,823 andNT$330,000 to shareholders and to employees, respectively. As a result, a total of 69,082 thousand new shares were issued. The stockissuance was authorized by and registered with the governmental authorities.

The Company’s shareholders in the meeting on June 19, 2009, resolved to distribute stock dividends of NT$264,298 toshareholders. Additionally, the shareholders approved the distribution of bonuses to employees in stock of NT $900,000 with an issuanceof 16,234 thousand new shares. The stock issuance was authorized by and registered with the governmental authorities.

(b) Treasury stock

As of December 31, 2007, 2008 and 2009, details of the GDRs (for the implementation of an overseas employee stock optionplan) held by AWI and the common stock held by the Company’s subsidiaries namely CCI and E-Ten were as follows (expressed inthousands of shares and New Taiwan dollars):

December 31, 2007 December 31, 2008 December 31, 2009

Numberof Shares

BookValue

MarketPrice

Numberof Shares

BookValue

MarketPrice

Numberof Shares

BookValue

MarketPrice

NT$ NT$ NT$ NT$ NT$ NT$

Common stock ........... 17,057 798,663 1,083,128 21,571 1,050,341 918,946 21,787 1,050,341 2,095,930

GDRs .......................... 4,860 2,472,257 1,655,241 4,933 2,472,257 1,100,893 4,982 2,472,257 2,393,831

3,270,920 2,738,369 3,522,598 2,019,839 3,522,598 4,489,761

Movements of the Company’s treasury stock were as follows (expressed in thousands of shares or units):

2007

DescriptionBeginningBalance Additions Disposal

EndingBalance

Common Stock ...................................................................................... 16,805 252 — 17,057

GDRs ..................................................................................................... 4,788 72 — 4,860

2008


EndingBalance

Common Stock ...................................................................................... 17,057 4,514 — 21,571

GDRs ..................................................................................................... 4,860 73 — 4,933

2009


EndingBalance

Common Stock ...................................................................................... 21,571 216 — 21,787

GDRs ..................................................................................................... 4,933 49 — 4,982

Upon the acquisition of E-Ten in September 2008, the Company issued 4,259 thousand common shares to E-Ten’s subsidiariesin exchange of E-Ten’s common shares owned by the subsidiaries. Such shares were accounted for as treasury stock.

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(c) Capital surplus

December 31,

2007 2008 2009

NT$ NT$ NT$ US$

Share premium:

Paid-in capital in excess of par value ............................................... 856,901 857,759 1,784,258 56,075

Surplus from merger ......................................................................... 22,781,719 29,800,881 29,800,881 936,575

Premium on common stock issued from conversion ofconvertible bonds ......................................................................... 4,552,585 4,552,585 4,552,585 143,077

Forfeited interest from conversion of convertible bonds .................. 1,006,210 1,006,210 1,006,210 31,623

Surplus related to treasury stock transactions by subsidiarycompanies ..................................................................................... 316,329 431,161 501,671 15,767

Employee stock options ................................................................... — 174,372 360,630 11,334

Other:

Surplus from equity-method investments ........................................ 385,239 306,984 487,883 15,333

29,898,983 37,129,952 38,494,118 1,209,784

According to the ROC Company Act, any realized capital surplus could be transferred to common stock as stock dividends afterdeducting accumulated deficit, if any. Realized capital surplus includes share premium and donations from shareholders. Distributionof stock dividends from realized capital surplus is subject to certain restrictions imposed by the governmental authorities.

(d) Legal reserve, unappropriated earnings, and dividend policy

The Company’s articles of incorporation stipulate that at least 10% of annual net income after deducting accumulated deficit, ifany, must be retained as legal reserve until such retention equals the amount of authorized common stock. In addition, a special reservein accordance with applicable laws and regulations shall be set aside. The remaining balance of annual net income, if any, can bedistributed as follows:

• at least 5% as employee bonuses; employees entitled to stock bonus may include subsidiaries’ employees that meet certaincriteria set by the board of directors;

• 1% as remuneration to directors and supervisors; and

• the remainder, after retaining a certain portion for business considerations, as dividends to stockholders.

Since the Company operates in an industry experiencing rapid change and development, distribution of earnings shall be madein view of the year’s earnings, the overall economic environment, the related laws and decrees, and the Company’s long-termdevelopment and steady financial position. The Company has adopted a steady dividend policy, in which a cash dividend comprises atleast 10% of the total dividend distributed.

According to the ROC Company Act, the legal reserve can be used to offset an accumulated deficit and may be distributed inthe following manner: (i) when it reaches an amount equal to one-half of the paid-in capital, it can be transferred to common stock atthe amount of one-half of legal reserve; and (ii) when it reaches an amount exceeding one-half of the authorized common stock,dividends and bonuses can be distributed from the excess portion of the legal reserve.

Pursuant to regulations promulgated by the Financial Supervisory Commission, and effective from the distribution of earningsfor fiscal year 1999 onwards, a special reserve equivalent to the total amount of items that are accounted for as deductions to thestockholders’ equity shall be set aside from current earnings, and not distributed. This special reserve shall be made available forappropriation to the extent of reversal of deductions to stockholders’ equity in subsequent periods. As of December 31, 2009, theCompany appropriated a special reserve of NT$1,991,615 that is equal to the sum of the amount by which the market price of thetreasury stock was less than the book value thereof and other deduction items of shareholder’s equity.

F-48

The appropriation of 2006, 2007 and 2008 earnings was approved by the shareholders at meetings on June 14, 2007, June 13,2008, and June 19, 2009, respectively. The appropriations of employee bonus and remuneration to directors and supervisors anddividends per share were as follows:

2006 2007 2008

NT$ NT$ NT$Dividends per share:

Cash dividends ........................................................................................................... 3.85 3.60 2.00

Stock Dividends ......................................................................................................... 0.15 0.15 0.10

4.00 3.75 2.10

Employee bonus — stock .......................................................................................... 333,708 330,000 900,000

Employee bonus — cash............................................................................................ 424,719 544,728 600,000

Remuneration to directors and supervisors ............................................................... 94,803 116,630 85,763

853,230 991,358 1,585,763

The 2008 employee bonus in stock of 16,234 thousand common shares was determined by the closing price of the Company’scommon shares (after considering the effect of dividends) on the day preceding the shareholder’s meeting, which was NT$58 (dollars).The above appropriations were consistent with the resolutions approved by the Company’s directors.

The Company estimated and accrued employee bonus of NT$1,000,000 and directors’ and supervisors’ remuneration ofNT$122,096 for the year ended December 31, 2009 based on the total amount of bonus expected to be distributed to employees and theCompany’s article of incorporation, under which, remuneration for directors and supervisors is distributed at 1% of the remainder ofannual net income. If the actual amounts subsequently resolved by the stockholders differ from the estimated amounts, the differencesare treated as a change in accounting estimate and are recorded as income or expense in the year of stockholder’s resolution. If bonusto employees is resolved to be distributed in stock, the number of shares is determined by dividing the amount of stock bonus by theclosing price (after considering the effect of dividends) of the shares on the day preceding the shareholder’s meeting.

Distribution of 2009 earnings has not been proposed yet by the board of directors and is still subject to approval by thestockholders. After the resolutions, related information can be obtained from the public information website.

(21) Stock-based compensation plans

As of December 31, 2009, details of the employee stock option plans (“ESOP”) were as follows:

Stock Options

Employeestock option

plan 1


plan 2


plan 3


plan 4

Grant date .............................................................................................. 2008/11/31 2008/09/01(note 1)

2008/09/01(note 1)

2009/10/30

Granted shares (in thousands)................................................................ 14,000 8,717 1,067 14,000

Contractual life (in years)...................................................................... 3 4.97 2 3

Vesting period ........................................................................................ 2 years ofservice

subsequent togrant date

1~3 years ofservice


1 year ofservice


2 years ofservice


Qualified employees .............................................................................. (note 2) (note 3) (note 3) (note 2)

Note 1: The Company assumed the employee stock option plans 2 and 3 through the acquisition of E-Ten on September 1,2008.

Note 2: The options are granted to eligible employees of the Company and its domestic or foreign subsidiaries, in which theCompany directly or indirectly, owns 50% or more of the subsidiary’s voting shares.

Note 3: The options are granted to eligible employees of the Company’s subsidiaries, in which the Company directly orindirectly owns 50% or more of equity interests.

F-49

The Consolidated Company utilized the Black-Scholes or the binomial option pricing model to value the stock options granted,and the fair value of the option and main inputs to the valuation models were as follows:

2008 2009


plan 1


plan 2


plan 3


plan 4

Exercise price (NT$) ............................................................................. 25.28 44.50 16.90 42.90

Expected remaining contractual life (in years) .................................... 3 4.26 0.56 3

Fair market value for underlying securities—Acer shares (NT$).......... 45.95 59.10 59.10 78.00

Fair value of options granted (NT$)...................................................... 25.124 25.47~26.11 42.20~42.58 40.356

Expected volatility ................................................................................. 45.01% 34.98 % 37.35 % 40.74%

Expected dividend yield ........................................................................ note 4 note 4 note 4 note 4

Risk-free interest rate ............................................................................ 2.50% 2.40 % 1.84 % 1.03%

Note 4: According to the employee stock option plan, the option prices are adjusted to take into account dividends paid on theunderlying security. As a result, the expected dividend yield is excluded from the calculation.

Movements in number of stock options outstanding:

2008

The Company’s employeestock option plan

E-Ten’s Employee stockoption plan

Number ofoptions (inthousands)

Weighted-averageexercise

price (NT$)



price (NT$)Outstanding, beginning of year.............................................................. — — — —

Granted .................................................................................................. 14,000 25.28 9,784 41.49

Forfeited ................................................................................................ — — (518) —

Exercised ............................................................................................... — — (173) 16.90

Outstanding, end of year ....................................................................... 14,000 25.28 9,093 41.66

Exercisable, end of year ........................................................................ — 406

2009

The Company’s employeestock option plan

E-Ten’s Employee stockoption plan



price (NT$)



price (NT$)Outstanding, beginning of year.............................................................. 14,000 25.28 9,093 41.90

Granted .................................................................................................. 14,000 42.90 — —

Forfeited ................................................................................................ — — (890) —

Exercised ............................................................................................... — — (3,083) 38.12

Outstanding, end of year ....................................................................... 28,000 33.62 5,120 41.52

Exercisable, end of year ........................................................................ — 1,541

In 2008 and 2009, the Consolidated Companies recognized the compensation costs from the employeestock option plans of NT$37,856 and NT$298,952, respectively, which were accounted for under operatingexpenses.

(22) Restructuring chargesIn 2008 and 2009, due to the acquisition of Gateway Inc. and Packard Bell B.V., the Consolidated

Companies recognized restructuring charges of NT$1,582,408 and NT$164,595, respectively, which wereaccounted for under “restructuring cost” of non-operating expenses and losses in the accompanyingstatements of income. These restructuring charges were associated with severance payments to employeesand integration of the information technology system.

F-50

(23) Net income from discontinued operations

On July 1, 2007, the Company disposed of all its ownership interest in a subsidiary, Sertek Inc. Therefore, the operations ofSertek Inc. were classified as discontinued operations. The relevant income (loss) and cash flows from this discontinued operations forthe year ended December 31, 2007 were as follows:

NT$

Net revenues ..................................................................................................................................................................... 9,398,700

Cost of revenues and operating expenses ......................................................................................................................... (9,224,222)

Non-operating income and expenses ................................................................................................................................ (64,502)

Income before income taxes ............................................................................................................................................. 109,976

Income tax expense .......................................................................................................................................................... (23,120)

Net income from discontinued operations ........................................................................................................................ 86,856

Gain from disposal of discontinued operations ................................................................................................................ 431,010

Total net income from discontinued operations................................................................................................................ 517,866

Discontinued operations’ cash flows:

Cash provided by (used in) operating activities .......................................................................................................... (69,408)

Cash used in investing activities.................................................................................................................................. (645)

Cash used in financing activities ................................................................................................................................. (118,307)

According to the sales agreement, if Sertek Inc. is able to achieve a stipulated profit in 2007, the Company would be entitledto a contingent consideration. Therefore, the Company received a contingent consideration in cash of NT$99,843 in 2008.

(24) Earnings per common share (“EPS”)

2007

Amount

Weighted- averagenumber of outstanding

shares of common stock(in thousands)

EPS (indollars)

NT$ NT$

Basic EPS—after retroactive adjustments:

Net income attributable to common shareholders of parent company. 12,958,933 2,456,921 5.27

Diluted EPS—after retroactive adjustments:

Net income attributable to common shareholders of parent company. 12,958,933 2,456,921 5.27

F-51

2008

Amount

Weighted-average

number ofoutstanding

shares ofcommonstock (in

thousands)EPS (indollars)

NT$ NT$

Basic EPS—after retroactive adjustments

Net income attributable to common shareholders of parent company ....................... 11,742,135 2,512,122 4.67

Diluted EPS

Effect of dilutive potential common shares:

Employee bonus ........................................................................................................ — 39,042

Employee stock option plan....................................................................................... — 1,286

Net income attributable to common shareholders of parent company............................ 11,742,135 2,552,450 4.60

2009

Amount (in thousand)

Weighted-average

number ofoutstanding

shares ofcommonstock (in

thousands) EPS (in dollars)

NT$ US$ NT$ US$


Net income attributable to common shareholdersof parent company............................................... 11,353,374 356,811 2,632,379 4.31 0.14

Diluted EPS


Employee bonus ...................................................... — — 23,175

Employee stock option plan..................................... — — 10,953

Net income attributable to common shareholders ofparent company ........................................................ 11,353,374 356,811 2,666,507 4.26 0.13

(25) Disclosure of financial instruments

(a) Fair values of financial instruments

The book value of short-term financial instruments is considered to be the fair value because of the short-term maturity of theseinstruments. Such method is applied to cash and cash equivalents, notes and accounts receivable (including receivables from relatedparties), other receivables (including receivables from related parties), notes and accounts payables (including payables to relatedparties), short-term borrowings, current installments of long-term debt, payables to related parties and royalties payable.

F-52

The estimated fair values and carrying amounts of all other financial assets and liabilities as of December 31, 2007, 2008 and2009 were as follows:

2007 2008 2009

Carryingamount Fair value



NT$ NT$ NT$ NT$ NT$ NT$

Non-derivative financialinstruments

Financial assets:

Available-for-sale financialassets—current............................ 2,852,061 2,852,061 591,444 591,444 223,437 223,437

Available-for-sale financialassets—noncurrent ...................... 3,370,847 3,370,847 1,160,487 1,160,487 3,306,742 3,306,742

Financial assets carried at cost ....... 3,142,121 see below (b) 2,684,270 see below (b) 2,251,058 see below (b)

Refundable deposits (classified as“other financial assets”) ............. 687,109 687,109 781,080 781,080 771,957 771,957

Noncurrent receivables (classifiedas “other financial assets”) ......... 274,284 274,284 87,680 87,680 17,754 17,754

Financial liabilities:

Long-term debt................................ 16,790,876 16,790,876 4,134,920 4,134,920 12,371,856 12,371,856

Derivative financial instrumentsFinancial assets:

Foreign currency forwardcontracts ..................................... 250,197 250,197 1,302,085 1,302,085 1,414,672 1,414,672

Foreign exchange swap ................... — — 7,113 7,113 — —

Cross currency swap ....................... — — 7,821 7,821 — —

Foreign currency options ................ 4,983 4,983 60,514 60,514 18,144 18,144


Foreign currency forwardcontracts ..................................... 1,461,335 1,461,335 1,860,465 1,860,465 354,562 354,562

Foreign currency options ................ 593 593 23,298 23,298 4,691 4,691

Foreign exchange swap ................... — — 14 14 — —

The fair values of financial instruments shown above were based on valuation techniques, except for available-for-sale financialassets, which were based on public quoted prices.

(b) The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

(i) Available-for-sale financial assets—current and non-current

The fair value of publicly traded stocks is based on the closing quotation price at the balance sheet date. The fairvalue of open-end mutual funds is based on the net asset value of the mutual funds at balance sheet date.

(ii) Financial assets carried at cost—non-current

Financial assets carried at cost represent privately held stock. It is not practicable to estimate the fair value ofprivately held stock as it is not traded in an active public market.

(iii) Refundable deposits

The fair values are the book values as the date of expiry cannot be determined.

(iv) Non-current receivables

The fair values are their present value discounted at the market interest rate.

(v) Long-term debt

Long-term debt is obtained at floating interest rates. The carrying value of long-term debt approximates the marketvalue.

F-53

(vi) Derivative financial instruments

The fair values of derivative financial instruments are estimated using a valuation technique, with estimates andassumptions consistent with those used by market participants and are readily available to the Consolidated Companies.

(c) For the years ended December 31, 2007, 2008 and 2009, valuation gain on financial assets and liabilities using a valuationtechnique amounted to NT$121,332, NT$989,905 and NT$1,293,844, respectively.

(d) Disclosure of financial risks

(i) Market risk

Open-end mutual funds and publicly traded stocks held by the Consolidated Companies classified as “available-for-sale financial assets” are valued at fair value. Therefore, the Consolidated Companies were exposed to the risk of pricefluctuation in the securities market.

The Consolidated Companies engaged in purchase and sale transactions which are denominated in US dollars andEuros, respectively. Hence, the Consolidated Companies entered into foreign currency forward contracts, foreign currencyoptions, foreign exchange swap and cross currency swap for hedging purposes. The length and amounts of aforementionedderivative transactions were in line with the settlement date of the Consolidated Companies’ recorded foreign currencyassets and liabilities and future cash flows. Gains or losses from these hedging derivatives are expected to substantiallyoffset those from the hedged assets or liabilities. Therefore, management believes that market risk related to the changesin exchange rates is not significant.

(ii) Credit risk

The Consolidated Companies’ credit risk is mainly from potential breach of contract by the counter-partyassociated with cash, equity investment, and derivative transactions. In order to control its exposure to the credit risk ofeach financial institution, the Consolidated Companies maintain cash with various financial institutions and hold equityinvestments in the form of mutual funds and stocks issued by companies with high credit quality. As a result, theconcentration of credit risks related to cash and equity investments is not significant. Furthermore, the banks undertakingthe derivative transactions are reputable financial institutions; therefore, the exposure related to the potential default bythose counter-parties is not considered significant.

The Consolidated Companies primarily sell and market the multi-branded IT products to a large number ofcustomers in different geographic areas. As a result, the Consolidated Companies have no significant concentrations ofcredit risk, and in order to lower the credit risk, the Consolidated Companies continuously evaluate the credit quality oftheir customers.

(iii) Liquidity risk

The Consolidated Companies’ capital and operating funds are sufficient to fulfill their contract paymentobligations. Therefore, management believes that there is no significant liquidity risk.

The available-for-sale financial assets held by the Consolidated Companies are equity securities and mutual funds,which are publicly traded and can be liquidated quickly at a price close to the fair market value. In contrast, the financialassets carried at cost are not publicly traded and are exposed to liquidity risk.

The Consolidated Companies’ derivative financial instruments are intended to hedge the exchange rate riskresulting from assets and liabilities denominated in foreign currency and cash flows resulting from anticipated transactionsin foreign currency. The lengths of the contracts are in line with the payment date of the Consolidated Companies’ assetsand liabilities denominated in foreign currency and the anticipated cash flows. At the maturity date of the derivativecontract, the Consolidated Companies will settle these contracts using the foreign currencies arising from the hedgedassets and liabilities denominated in foreign currency, and therefore, the liquidity risk is not significant.

(iv) Cash flow risk related to the fluctuation of interest rates

The Consolidated Companies’ short-term borrowings and long-term debt carried floating interest rates. As a result,the effective rate changes along with the fluctuation of the market interest rates and thereby influences the ConsolidatedCompanies’ future cash flow. As of December 31, 2009, if the market interest rate increases by 1%, cash outflows inrespect of these interest payments would increase by approximately NT$129,199 per annum.

F-54

5. Transactions with Related Parties

(1) Names and relationships of related parties with the Consolidated Companies

Name Relationship with the Company

Wistron Corporation (“Wistron”) ................................................................... Investee of the Company accounted for by equitymethod

Cowin Worldwide Corporation (“COWIN”) .................................................. Subsidiary of Wistron

Wistron InfoComm (Kunshan) Co., Ltd. (“WKS”)........................................ Subsidiary of Wistron

Wistron InfoComm Technology (Kunshan) Co., Ltd. (“WIKS”) ................... Subsidiary of Wistron

Bluechip Infotech Pty Ltd. (“SAL”) .............................................................. Investee of the Consolidated Companies accounted forby equity method

e-Life Mall Corp. (“eLIFE”).......................................................................... Investee of the Company accounted for by equitymethod

iDSoftCapital Inc. .......................................................................................... Its chairman is one of the Company’s supervisors

Directors, supervisors, chief executive officers and vice presidents.............. The Consolidated Companies’ executive officers

(2) Significant transactions with related parties as of and for the years ended December 31, 2007, 2008 and 2009 were asfollows:

(a) Net sales and related notes and accounts receivable

(i) Net sales to:

2007 2008 2009

NT$ NT$ NT$ US$

SAL ........................................................... 1,088,886 758,797 768,379 24,149

eLIFE ........................................................ 992,647 885,662 690,738 21,708

COWIN ..................................................... 153,920 462,430 — —

WKS.......................................................... 358,247 — — —

WIKS......................................................... 185,804 — — —

Other (individually less than 5%) ............. 266,334 114,486 77,605 2,439

3,045,838 2,221,375 1,536,722 48,296

The sales prices and payment terms to related parties were not significantly different from those of salesto non-related parties.

(ii) Notes and accounts receivable from:

December 31,

2007 2008 2009

NT$ NT$ NT$ US$

COWIN ..................................................... 86,676 329,848 315,929 9,929

SAL ........................................................... 82,230 64,529 116,156 3,651

eLIFE ........................................................ 190,277 159,182 109,090 3,428

Wistron ...................................................... — 248,930 43,305 1,361

Others (individually less than 5%)............ 89,298 38,976 15,826 497

448,481 841,465 600,306 18,866

F-55

(b) Purchases and related notes and accounts payable

(i) Purchases from:

2007 2008 2009

NT$ NT$ NT$ US$Wistron .................................................................................................. 14,788,985 25,228,683 32,351,566 1,016,737

Others .................................................................................................... 296,079 270 214 7

15,085,064 25,228,953 32,351,780 1,016,744

The trading terms with related parties are not comparable to the trading terms with third parties as thespecifications of products are different.

The Consolidated Companies sold raw material to Wistron and its subsidiaries and purchased back the finishedgoods after being manufactured. To avoid double-counting, the revenues and sales of raw materials to Wistron and itssubsidiaries amounting to NT$58,666,096, NT$88,579,887 and NT$127,377,990 for the years ended December 31, 2007,2008 and 2009, respectively, were excluded from the consolidated revenues and cost of goods sold. Having enforceablerights, the Consolidated Companies offset the outstanding receivables and payables resulting from the above-mentionedtransactions. The offset resulted in a net payable balance.

(ii) Notes and accounts payable to:

December 31,

2007 2008 2009

NT$ NT$ NT$ US$Wistron .................................................................................................. 4,510,376 7,681,059 10,172,553 319,700

Others .................................................................................................... 73,239 69,161 59,811 1,880

4,583,615 7,750,220 10,232,364 321,580

(c) Spin-off of assets

On February 28, 2002, the Company spun off its design, manufacturing and services business from its brand business andtransferred the related operating assets and liabilities to Wistron. The Company agreed with Wistron that Wistron is obligated to pay forthe deferred income tax assets being transferred only when they are actually utilized. In 2006, the ROC income tax authorities examinedand rejected Wistron’s claim of investment credits transferred from the spin-off in the income tax returns for the years from 2002 to2004. Wistron disagreed with the assessment and filed a recheck with the tax authorities for a reexamination of the aforementionedincome tax returns. The Company recognized income tax expense of NT$875,802 based on the tax exposure estimated in 2006 andprovided a valuation allowance against the receivables from Wistron.

In 2008 and 2009, the tax authorities subsequently concluded that Wistron could utilize portions of the aforementioned deferredtax assets resulting from the spin-off. Based on the tax authorities’ conclusion, the Company collected the outstanding receivables fromWistron in 2009. Additionally, the valuation allowance was reversed to current income tax benefit in the amount of NT$511,425 and$72,449, for the years ended December 31, 2008 and 2009, respectively.

(d) Other expenses

The Consolidated Companies paid iDSoftCapital Inc. management service fees amounting to NT$69,333, NT$61,633 andNT$49,333 for the years ended December 31, 2007, 2008 and 2009, respectively.

(e) Advances to/from related parties

The Consolidated Companies paid certain expenses on behalf of related parties. Additionally, related parties paid certain expensesand accounts payable on behalf of the Consolidated Companies. As of December 31, 2007, 2008 and 2009, the Consolidated Companieshad aggregate receivables from related parties of NT$59,403, NT$45,173 and NT$21,507, respectively, and payables to related partiesof NT$609,717, NT$189,964 and NT$92,187, respectively, resulting from these transactions.

F-56

(3) Compensation to executive officers

For the years ended December 31, 2007, 2008 and 2009, compensation paid to the Consolidated Companies’ executive officersincluding directors, supervisors, president and vice-presidents was as follows:

2007 2008 2009

Amount Amount Amount

NT$ NT$ NT$ US$Salaries .................................................................................................. 178,334 249,243 339,997 10,685

Cash awards and special allowances ..................................................... 69,669 134,574 175,655 5,521

Business service charges........................................................................ 6,520 1,989 1,080 34

Employee bonuses ................................................................................. 482,825 360,581 443,855 13,949

737,348 746,387 960,587 30,189

The aforementioned compensation included the accruals for employee bonus and directors’ and supervisors’ remuneration asdiscussed in note 4(20).

6. Pledged Assets

Carrying amountat December 31,

Pledged assets Pledged to secure 2007 2008 2009

NT$ NT$ NT$ US$

Cash in bank and time deposits ........ Contract bidding, projectfulfillment and security forletter of credit 398,459 1,032,380 61,939 1,947

Property, plant and equipment .......... Credit lines of bank loans 1,692,140 4,902 — —

2,090,599 1,037,282 61,939 1,947

As of December 31, 2007, 2008 and 2009, the above pledged cash in bank and time deposits were classified as “restricteddeposits” and “other financial assets” in the accompanying consolidated balance sheets.

In 2007, the Consolidated Companies intended to acquire Packard Bell B.V., a company in Europe, in cash. As of December 31,2007, the Consolidated Companies had deposited NT$1,958,585 to an escrow account for the purpose of business acquisition. Thisescrow deposit was recorded as “restricted assets — current” in the accompanying consolidated balance sheets. Refer to note 4(14) forthe details of acquisition of Packard Bell B.V. The business combination was completed on March 14, 2008.

7. Commitments and Contingencies

(1) Royalties

(a) The Company has entered into a patent cross license agreement with International Business Machines Corporation (IBM).Under this agreement, both parties have the right to make use of either party’s global technological patents to manufactureand sell personal computer products. The Company agrees to make fixed payments periodically to IBM, and the Companywill not have any additional obligation for the use of IBM patents other than the agreed upon fixed amounts of payments.

(b) The Company and Lucent Technologies Inc. (Lucent) entered into a Patent Cross License agreement. This licenseagreement in essence authorizes both parties to use each other’s worldwide computer-related patents for manufacturingand selling personal computer products. The Company agrees to make fixed payments periodically to Lucent, and theCompany will not have any additional obligation for the use of Lucent patents other than the agreed upon fixed amountsof payments.

(c) On June 6, 2008, the Company entered into a Patent Cross License agreement with Hewlett Packard DevelopmentCompany (HP). The previous patent infringement was settled out of court, and the Company agreed to make fixedpayments periodically to HP. The Company will not have any additional obligation for the use of HP patents other thanthe agreed upon fixed amounts of payments.

(d) The Company has entered into royalty license agreements with Microsoft Licensing, GP, MPEG LA, LLC, DolbyLaboratories Licensing Corporation and Cyberlink Corp. The Company has complied with these agreements.

(2) As of December 31, 2007, 2008, and 2009, the Consolidated Companies had provided performance bonds totaling NT$133,085,NT$133,304 and NT$269,957, respectively, for purposes of bids and contracts.

F-57

(3) The Consolidated Companies have entered into several operating lease agreements for warehouses, land and office buildings.Future minimum lease payments were as follows:

Year NT$ US$

2010 ......................................................................................................................................................... 624,358 19,622

2011 ......................................................................................................................................................... 388,781 12,219

2012 ......................................................................................................................................................... 212,284 6,671

2013 ......................................................................................................................................................... 167,010 5,249

2014 and thereafter .................................................................................................................................. 169,701 5,333

1,562,134 49,094

(4) As of December 31, 2007, 2008 and 2009, the Consolidated Companies had provided promissory notes amounting toNT$23,429,875, NT$29,150,262 and NT$28,552,820, respectively, as collateral for factored accounts receivable and forobtaining credit facilities from financial institutions.

8. Significant Loss from Casualty:

None

9. Subsequent Events:

None

10. Labor cost, depreciation and amortization

2007 2008 2009

Operatingexpense

Cost ofsales Total

Operatingexpense

Cost ofsales Total

Operatingexpense

Cost ofsales Total

NT$ NT$ NT$ NT$ NT$ NT$ NT$ NT$ NT$Labor cost:

Salaries ....................... 7,499,729 1,479,738 8,979,467 11,363,684 1,559,145 12,922,829 10,691,422 2,203,906 12,895,328

Insurance..................... 776,209 94,721 870,930 1,259,823 149,681 1,409,504 1,103,299 202,810 1,306,109

Pension ....................... 260,829 56,592 317,421 448,196 17,042 465,238 438,401 25,293 463,694

Other........................... 569,843 74,330 644,173 10,464 131,997 142,461 927,649 104,031 1,031,680

Depreciation ..................... 557,376 33,813 591,189 917,394 38,486 955,880 797,215 49,088 846,303

Amortization .................... 549,545 1,735 551,280 791,510 454,051 1,245,561 1,847,624 12,660 1,860,284

11. Segment Information

(1) Industry segment

The main business of the Consolidated Companies is to sell brand-name computers and other related IT products, whichrepresents a single reportable operating segment.

F-58

(2) Geographic information

2007

TaiwanNorth

America Europe Asia Eliminations Consolidated

NT$ NT$ NT$ NT$ NT$ NT$Area income:

Customers........................................ 60,651,079 106,413,405 236,237,471 61,256,183 — 464,558,138

Inter-company ................................. 264,931,647 4,101 7,242,154 11,096 (272,188,998) —

325,582,726 106,417,506 243,479,625 61,267,279 (272,188,998) 464,558,138

Area profit (loss) before income taxes 264,812,614 926,347 15,381,028 2,194,840 (272,187,926) 11,126,903

Net investment income ........................ 695,660

Gain on disposal of investments, net... 4,045,981

Interest expense ................................... (759,907)

Consolidated income before incometaxes ................................................ 15,108,637

Area identifiable assets........................ 100,327,411 58,022,952 88,086,758 28,618,423 (53,352,602) 221,702,942

Equity method investments.................. 4,689,684

Goodwill .............................................. 16,890,716

Total assets ................................. 243,283,342

Depreciation and amortization ............. 1,008,239 32,112 11,239 10,879 — 1,142,469

Capital expenditures ............................ 665,555 59,128 140,593 185,388 — 1,050,664

2008

TaiwanNorth



Customers........................................ 25,879,015 152,469,649 279,790,219 90,925,741 — 549,064,624

Inter-company ................................. 341,107,152 3,203 6,057,224 13,642 (347,181,221) —

366,986,167 152,472,852 285,847,443 90,939,383 (347,181,221) 549,064,624

Area profit (loss) before income taxes 342,361,748 (1,044,322) 15,501,048 3,361,512 (347,181,221) 12,998,765

Net investment income by the equitymethod............................................. 404,184

Gain on disposal of investments, net... 2,709,524

Interest expense ................................... (1,305,746)




Goodwill .............................................. 22,574,040

Total assets ................................. 243,442,225

Depreciation and amortization ............. 685,120 1,090,051 290,210 136,060 — 2,201,441

Capital expenditures ............................ 171,677 220,011 154,207 205,397 — 751,292

F-59

2009

TaiwanNorth



Customers........................................ 32,527,383 153,258,163 294,783,234 107,213,050 — 587,781,830

Inter-company ................................. 404,809,061 187,495 6,404,956 7,297 (411,408,809) —

437,336,444 153,445,658 301,188,190 107,220,347 (411,408,809) 587,781,830

Area profit (loss) before income taxes 354,733,460 (3,051,275) 71,362,909 3,489,518 (411,408,809) 15,125,803

Net investment income by the equitymethod............................................. 400,098

Gain on disposal of investments, net... 79,162

Interest expense ................................... (622,080)




Goodwill .............................................. 21,977,454

Total assets .......................................... 291,024,688

Depreciation and amortization ............. 1,064,578 667,269 847,796 126,944 — 2,706,587

Capital expenditures ............................ 413,968 30,381 243,081 84,145 — 771,575

(3) Export sales

Export sales of the domestic operating segments do not exceed 10% of the consolidated revenues, hence no disclosure is required.

(4) Major customers:

No sales to individual customers accounting for more than 10% of the consolidated revenues in 2007, 2008 and 2009.

F-60

INDEPENDENT AUDITORS’REVIEW REPORT

The Board of DirectorsAcer Incorporated:

We have reviewed the consolidated balance sheets of Acer Incorporated (the “Company”) andsubsidiaries as of March 31, 2010 and 2009, and the related consolidated statements of income, changes instockholders’ equity, and cash flows for the three-month periods then ended. These consolidated financialstatements are the responsibility of the Company’s management. Our responsibility is to issue a report onthese consolidated financial statements based on our reviews.

We conducted our reviews in accordance with Republic of China Statement of Auditing Standards No.36 “Engagements to Review Financial Statements”. A review consists principally of applying analyticalprocedures to financial data and 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 auditingstandards, the objective of which is the expression of an opinion regarding the financial statements taken asa whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modification that should be made to theconsolidated financial statements referred to in the first paragraph in order for them to be in conformity withOrder VI-0960064020 issued by the Financial Supervisory Commission under the Executive Yuan effectiveNovember 15, 2007, and accounting principles generally accepted in the Republic of China.

The accompanying consolidated financial statements as of and for the three-month periods endedMarch 31, 2010, have been translated into United States dollars solely for the convenience of the readers. Wehave reviewed the translation, and based on our review we are not aware of any material modifications thatshould be made to such translation for it to be inconformity with the basis set forth in note 2(1) to theconsolidated financial statements.

KPMGTaipei, Taiwan (the Republic of China)April 23, 2010

Note to Readers

The accompanying consolidated financial statements are intended only to present the financial position, results of operations and cashflows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any otherjurisdictions. The standards, procedures and practices to review such consolidated financial statements are those generally accepted andapplied in the Republic of China.

F-61

REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITHGENERALLY ACCEPTED AUDITING STANDARDS

ACER INCORPORATED AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS

MARCH 31, 2009 AND 2010(in thousands of New Taiwan dollars)

2009.3.31 2010.3.31

NT$ NT$ US$

AssetsCurrent assets:

Cash and cash equivalents (note 4(1)) ...................................... 53,913,648 36,638,645 1,151,471Notes and accounts receivable, net of allowance for doubtful

accounts of NT$1,690,336 and NT$2,308,937 as of March31, 2010 and 2009, respectively (note 4(2)) ......................... 97,280,340 116,759,611 3,669,493

Notes and accounts receivable from related parties (note 5) .... 717,081 869,628 27,330Other receivable from related parties (note 5) .......................... 61,005 16,324 513Other receivables (note 4(3)) .................................................... 8,983,357 11,009,651 346,009Inventories (note 4(7)) .............................................................. 33,621,700 51,701,626 1,624,866Financial assets at fair value through profit or loss—current

(notes 4(5) and 4(19)) ........................................................... 136,620 106,388 3,344Available-for-sale financial assets—current

(notes 4(4) and 4(19)) ........................................................... 157,790 203,929 6,409Hedging purpose derivative financial assets—current

(notes 4(6) and 4(19)) ........................................................... 327,360 545,773 17,152Prepayments and other current assets ...................................... 1,966,872 2,765,076 86,900Deferred income tax assets—current ........................................ 2,624,868 1,800,572 56,589Restricted deposits (note 6)....................................................... 101,736 — —

Total current assets ............................................................. 199,892,377 222,417,223 6,990,076

Long-term investments:Investments accounted for using equity method (note 4(9))..... 2,760,316 3,392,495 106,619Prepayments for long-term investments (note 4(9)).................. — 137,560 4,323Available-for-sale financial assets—noncurrent

(notes 4(10) and 4(19)) ......................................................... 1,643,267 2,999,947 94,282Financial assets carried at cost—noncurrent

(notes 4(8) and 4(19)) ........................................................... 3,042,000 2,168,684 68,156

Total long-term investments................................................ 7,445,583 8,698,686 273,380

F-62

2009.3.31 2010.3.31

NT$ NT$ US$

Property, plant and equipment:Land ......................................................................................... 2,677,144 2,507,867 78,817Buildings and improvements ..................................................... 5,290,717 5,332,019 167,573Computer equipment and machinery......................................... 3,386,992 3,085,472 96,969Transportation equipment .......................................................... 122,659 119,180 3,746Office equipment....................................................................... 1,049,994 926,331 29,113Leasehold improvements ........................................................... 830,835 936,133 29,421Other equipment........................................................................ 1,110,178 1,154,739 36,290Construction in progress and advance payments for purchases

of property and equipment .................................................... 63,228 115,218 3,621

14,531,747 14,176,959 445,550Less: accumulated depreciation ................................................ (4,993,427) (4,934,085) (155,067)

accumulated impairment .................................................. (276,253) (675,508) (21,230)

Net property, plant and equipment .............................. 9,262,067 8,567,366 269,253

Intangible assets (note 4(12)) ..................................................... 37,656,421 34,823,623 1,094,429Property not used in operation (note 4(11)) ............................. 2,990,463 2,938,305 92,344Other financial assets (notes 4(13), 4(19) and 6) ...................... 796,003 904,447 28,425Deferred charges and other assets ............................................ 2,586,940 2,418,558 76,010

Total assets ..................................................................... 260,629,854 280,768,208 8,823,917

F-63

2009.3.31 2010.3.31

NT$ NT$ US$

Liabilities and Stockholders’ EquityCurrent liabilities:

Short-term borrowings (note 4(14)) .......................................... 2,080,970 1,866,051 58,646Notes and accounts payable ..................................................... 73,264,679 83,279,473 2,617,288Notes and accounts payables to related parties (note 5)........... 7,202,232 10,599,257 333,111Financial liabilities at fair value through profit or

loss—current (notes 4(5) and 4(19)) ..................................... 911,987 536,311 16,855Other payables to related parties (note 5)................................. 41,644 49,398 1,552Hedging purpose derivative financial liabilities—current

(notes 4(6) and 4(19)) ........................................................... 442,374 187,624 5,897Royalties payable ...................................................................... 13,975,650 15,007,307 471,646Accrued expenses and other current liabilities ......................... 56,052,666 55,529,755 1,745,176Current portion of long-term debt (note 4(15)) ........................ 8,250,000 — —Deferred income tax liabilities—current ................................... 617,252 638,009 20,051

Total current liabilities ........................................................ 162,839,454 167,693,185 5,270,222

Long-term liabilities:Long-term debt, excluding current portion

(notes 4(15) and 4(19)) ......................................................... 4,116,219 12,361,548 388,496Other liabilities ......................................................................... 975,039 332,417 10,447Deferred income tax liabilities—noncurrent ............................. 6,457,060 5,514,026 173,293

Total long-term liabilities........................................................ 11,548,318 18,207,991 572,236

Total liabilities ..................................................................... 174,387,772 185,901,176 5,842,458

Stockholders’ equity and minority interest:Common stock (notes 4(16) and 4(17)) .................................... 26,428,560 26,882,283 844,850Capital surplus (notes 4(16) and 4(17)) .................................... 37,203,104 38,616,522 1,213,631Retained earnings

Legal reserve ......................................................................... 8,786,583 9,960,796 313,046Special reserve ...................................................................... — 1,991,615 62,592Unappropriated earnings........................................................ 16,011,048 19,917,077 625,949

Other equity componentsForeign currency translation adjustment ............................... 1,844,113 (305,102) (9,588)Minimum pension liability adjustment .................................. (283) (4,367) (138)Unrealized gain (loss) on financial instruments

(notes 4(6) and 4(10))........................................................ (1,085,579) 860,955 27,058Treasury stock (notes 4(16)) ................................................. (3,522,598) (3,522,598) (110,707)

Total stockholders’ equity ............................................... 85,664,948 94,397,181 2,966,693Minority interest .......................................................................... 577,134 469,851 14,766

Total stockholders’ equity and minority interest .................. 86,242,082 94,867,032 2,981,459

Commitments and contingencies (note 7)Total liabilities and stockholders’ equity ............................... 260,629,854 280,768,208 8,823,917

F-64


ACER INCORPORATED AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2009 AND 2010(in thousands of New Taiwan dollars, except earnings per share data)

2009 2010

NT$ NT$ US$

Net sales (note 5) ......................................................................... 119,086,448 162,129,895 5,095,380Cost of sales (notes 4(7) and 5).................................................. (107,168,081)(146,416,109) (4,601,531)

Gross profit ................................................................................ 11,918,367 15,713,786 493,849

Operating expenses (notes 4(12), 4(17) and 5)Selling ...................................................................................... (7,645,353) (9,090,068) (285,681)Administrative .......................................................................... (1,511,076) (1,956,786) (61,497)Research and development ....................................................... (191,364) (281,538) (8,848)

Total operating expenses ..................................................... (9,347,793) (11,328,392) (356,026)

Operating income ............................................................... 2,570,574 4,385,394 137,823

Non-operating income and gains:Interest income ........................................................................ 123,621 95,335 2,996Investment gain recognized using equity method, net

(note 4(9)) ............................................................................. 78,684 109,859 3,453Gain on disposal of investments, net (notes 4(9) and 4(10)).... — 97,567 3,066Foreign currency exchange gain and valuation gain on

financial instruments, net (notes 4(5) and 4(6)) .................... 204,068 — —Other income............................................................................. 61,293 57,773 1,816

467,666 360,534 11,331

Non-operating expenses and loss:Interest expense......................................................................... (206,759) (173,219) (5,444)Loss on disposal of property and equipment ............................ (432) (2,007) (63)Foreign currency exchange loss and valuation loss on

financial instruments, net (notes 4(5) and 4(6)) .................... — (296,665) (9,324)Other loss ................................................................................. (75,712) (115,294) (3,623)

(282,903) (587,185) (18,454)

Income from continuing operations before income taxes ........ 2,755,337 4,158,743 130,700Income tax expense .................................................................... (729,666) (864,189) (27,160)

Consolidated net income ........................................................... 2,025,671 3,294,554 103,540

Net income attributable to:Shareholders of parent company .............................................. 2,025,730 3,294,477 103,538Minority shareholders ............................................................... (59) 77 2

2,025,671 3,294,554 103,540

NT$ NT$ US$

Earnings per common share(in New Taiwan dollars) (note 4(18)):Basic earnings per common share—retroactively adjusted ....... 0.77 1.25 0.04

Diluted earnings per common share.......................................... 0.76 1.23 0.04

F-65


ACER INCORPORATED AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2009 AND 2010(Expressed in thousands of New Taiwan dollars)

Retained earnings Other equity components

Commonstock

Capitalsurplus

Legalreserve

Specialreserve


Foreigncurrency



adjustment



Treasurystock


equity ofparent

companyMinorityinterest


equity

NT$ NT$ NT$ NT$ NT$ NT$ NT$ NT$ NT$ NT$ NT$ NT$

Balance at January 1,2009.............................. 26,428,560 37,129,952 8,786,583 — 13,985,318 1,241,058 (283) (1,729,631) (3,522,598) 82,318,959 558,656 82,877,615

Stock-based compensationcost .............................. — 72,883 — — — — — — — 72,883 — 72,883

2009 net income .................. — — — — 2,025,730 — — — — 2,025,730 (59) 2,025,671Unrealized valuation gain

on available-for-salefinancial assets ............. — — — — — — — 499,387 — 499,387 — 499,387

Unrealized gain onqualifying cash flowhedge ............................ — — — — — — — 144,665 — 144,665 — 144,665

Foreign currency translationadjustment .................... — — — — — 603,055 — — — 603,055 — 603,055

Increase in minorityinterest .......................... — — — — — — — — — — 18,537 18,537

Decrease in capital surplusresulting from long-term investmentsaccounted for using theequity method............... — 269 — — — — — — — 269 — 269

Balance at March 31,2009.............................. 26,428,560 37,203,104 8,786,583 — 16,011,048 1,844,113 (283) (1,085,579) (3,522,598) 85,664,948 577,134 86,242,082

Balance at January 1,2010.............................. 26,882,283 38,494,118 9,960,796 1,991,615 16,622,600 959,621 (7,908) 1,014,317 (3,522,598) 92,394,844 482,818 92,877,662

Stock-based compensationcost .............................. — 118,481 — — — — — — — 118,481 — 118,481

2010 net income .................. — — — — 3,294,477 — — — — 3,294,477 77 3,294,554Unrealized valuation loss on

available-for-salefinancial assets ............. — — — — — — — (197,372) — (197,372) — (197,372)

Unrealized gain onqualifying cash flowhedge ............................ — — — — — — — 44,010 — 44,010 — 44,010

Minimum pension liabilityadjustment .................... — — — — — — 3,541 — — 3,541 — 3,541

Foreign currency translationadjustment .................... — — — — — (1,264,723) — — — (1,264,723) — (1,264,723)

Decrease in minorityinterest .......................... — — — — — — — — — — (13,044) (13,044)

Increase in capital surplusresulting from long-term investmentsaccounted for using theequity method............... — 3,923 — — — — — — — 3,923 — 3,923

Balance at March 31,2010.............................. 26,882,283 38,616,522 9,960,796 1,991,615 19,917,077 (305,102) (4,367) 860,955 (3,522,598) 94,397,181 469,851 94,867,032

Balance at March 31, 2010(in US$) ....................... 844,850 1,213,631 313,046 62,592 625,949 (9,588) (138) 27,058 (110,707) 2,966,693 14,766 2,981,459

F-66


ACER INCORPORATED AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2009 AND 2010(in thousands of New Taiwan dollars)

2009 2010

NT$ NT$ US$

Cash flows from operating activities:Consolidated net income ........................................................... 2,025,671 3,294,554 103,540Adjustments to reconcile net income to cash provided by

operating activities:Depreciation .......................................................................... 213,654 175,103 5,503Amortization.......................................................................... 446,393 444,240 13,961Stock-based compensation cost ............................................. 70,411 118,481 3,724Net investment gain on equity method investments.............. (92,464) (119,916) (3,769)Cash dividends received from equity method investees........ 3,663 — —Loss on disposal of property and equipment, net ................. 432 2,007 63Gain on disposal of investments, net .................................... — (97,567) (3,066)Deferred income tax expense (benefit) ................................. (478,762) 293,282 9,217Changes in operating assets and liabilities:

Notes and accounts receivable........................................... 10,545,971 (4,901,245) (154,035)Receivables from related parties........................................ 124,384 (269,322) (8,464)Inventories ......................................................................... 6,406,495 (516,673) (16,238)Other financial assets, prepayments and other current

assets .............................................................................. (838,287) (2,018,879) (63,449)Noncurrent receivable (under other financial

assets—noncurrent) ........................................................ 43,885 (100,969) (3,173)Notes and accounts payable............................................... 8,899,063 (12,552,247) (394,489)Payables to related parties ................................................. (696,308) 324,104 10,186Other financial liabilities, accrued expenses and other

current liabilities ............................................................ 4,656,609 (876,837) (27,557)Other liabilities .................................................................. 134,606 (52,289) (1,643)

Cash provided by (used in) operating activities ........ 31,465,416 (16,854,173) (529,689)

Cash flows from investing activities:Proceeds from disposal of available-for-sale financial assets ... 446,297 212,859 6,690Increase in long-term investments ............................................ (33,912) (149,797) (4,708)Proceeds from disposal of long-term investments ................... 3,638 14,684 461Proceeds from capital return and liquidation of investees ........ 17,277 131,666 4,138Additions to property, plant and equipments and property not

used in operation ................................................................... (80,588) (87,584) (2,753)Proceeds from disposal of property, plant and equipment and

property not used in operation .............................................. — 36,838 1,158Decrease (increase) in advances to related parties.................... (15,832) 5,183 163Decrease in restricted deposits .................................................. 1,813,448 — —Increase in refundable deposit, deferred charges and other

assets ..................................................................................... (2,437,358) (83,079) (2,611)

Cash provided by (used in) investing activities................. (287,030) 80,770 2,538

F-67

2009 2010

NT$ NT$ US$

Cash flows from financing activities:Increase in short-term borrowings ............................................ 994,119 1,317,992 41,422Repayment of long-term debt ................................................... (18,701) (10,308) (324)

Cash provided by financing activities ................................ 975,418 1,307,684 41,098

Net increase (decrease) in cash and cash equivalents ............. 32,153,804 (15,465,719) (486,053)Effects of exchange rate changes ............................................... (381,881) (1,511,703) (47,509)Cash and cash equivalents at beginning of period................... 22,141,725 53,616,067 1,685,033

Cash and cash equivalents at end of period ............................. 53,913,648 36,638,645 1,151,471

Supplemental disclosures of cash flow informationInterest paid .............................................................................. 220,700 156,990 4,934

Income taxes paid ..................................................................... 733,893 569,154 17,887

Supplemental disclosures of non-cash investing andfinancing activities:Change in unrealized gain (loss) on financial instruments ....... 644,052 (153,362) (4,820)

Current portion of long-term debt............................................. 8,250,000 — —

F-68

ACER INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009 AND 2010(amounts expressed in thousands of New Taiwan dollars and US dollars,except for earnings per share information and unless otherwise noted)

1. Reporting Entities of the Consolidated Financial Statements and Their Business Scopes

Acer Sertek Inc. (the “Company”) was incorporated on August 1, 1976, as a company limited by shares under the laws of theRepublic of China (“ROC”). The Company merged with Acer Incorporated (“AI”) on March 27, 2002, with the Company as thesurviving entity from the merger but renaming itself Acer Incorporated. After the merger, the principal activities of the Company focuson globally marketing its brand-name IT products, and promoting E-commerce solutions to clients.

The Company completed the acquisition of 100% ownership of Gateway, Inc. (including eMachines brand), a personal computercompany in the U.S., through its indirectly wholly owned subsidiary on October 15, 2007. The Company also acquired the 100%ownership of Packard Bell B.V., a personal computer company in Europe, through its indirectly wholly owned subsidiary on March 14,2008. Post the acquisitions of Gateway and Packard Bell, the Company has defined a clear path for its multi-brand strategy. Additionally,as of September 1, 2008, the Company then entered the market for smart phones following the acquisition of E-Ten Information SystemsCo., Ltd.

The reporting entities of the consolidated financial statements include the Company and its subsidiaries (hereinafter referred tocollectively as the “Consolidated Companies”). On March 31, 2009 and 2010, the number of employees of the Consolidated Companieswas 6,743 and 6,612, respectively. The Consolidated Companies are summarized below according to their primary business activity.

(1) Sale of “Acer”, “Gateway”, “eMachines”, and “Packard Bell” brand-name information technology products:

Percentage of Ownership

At March 31

Investor 2009 2010(a) Acer Incorporated

(b) Acer Greater China (B.V.I.) Corp.(“AGC”, British Virgin Islands) and subsidiaries .................... The Company 100.00 100.00

● Acer Market Services Limited (“AMS”, Hong Kong).. AGC 100.00 100.00

● Acer Computer (Far East) Limited (“AFE”, HongKong) ............................................................................ AGC 100.00 100.00

● Acer Information (Zhong Shan) Co., Ltd. (“AIZS”,China) ........................................................................... AMS 100.00 100.00

● Beijing Acer Information Co., Ltd. (“BJAI”, China) ... AMS 100.00 100.00

● Acer Computer (Shanghai) Ltd. (“ACCN”, China) ...... AMS 100.00 100.00

(c) Acer European Holding B.V. (“AEH”, Netherlands Antilles )and subsidiaries........................................................................ The Company 100.00 100.00

● Acer Europe B.V. (“AHN”, the Netherlands) ............... AEH 100.00 100.00

● Acer Computer B.V. (“ACH”, the Netherlands) ........... AEH 100.00 100.00

● Acer CIS Incorporated (“ACR”, British Virgin Islands). AEH 100.00 100.00

● Acer BSEC Inc. (“AUA”, British Virgin Islands) ........ AEH 100.00 100.00

● Acer Computer (M.E.) Limited (“AME”, British VirginIslands) ........................................................................ AEH 100.00 100.00

● Acer Africa (Proprietary) Limited (“AAF”, SouthAfrica) ......................................................................... AEH 100.00 100.00

● Acer Computer France S.A.S.U. (“ACF”, France) ....... AHN 100.00 100.00

● Acer U.K. Limited (“AUK”, the United Kingdom)...... AHN 100.00 100.00

● Acer Italy S.R.L. (“AIT”, Italy) ................................... AHN 100.00 100.00

● Acer Computer GmbH (“ACG”, Germany) .................. AHN 100.00 100.00

● Acer Austria GmbH (“ACV”, Austria) ......................... AHN 100.00 100.00

F-69


At March 31

Investor 2009 2010

● Acer Europe Services S.R.L. (“AES”, Italy) ................ AHN 100.00 100.00

● Acer Europe AG (“AEG”, Switzerland) ....................... AHN 100.00 100.00

● Acer Czech Republic S.R.O. (“ACZ”, Czech Republic). AHN 100.00 100.00

● Esplex Limited (“AEX”, the United Kingdom)............ AHN 100.00 100.00

● Acer Computer Iberica, S.A. (“AIB”, Spain) ............... AHN 100.00 100.00

● Acer Computer (Switzerland) AG (“ASZ”,Switzerland) .................................................................. AHN 100.00 100.00

● Acer Slovakia s.r.o. (“ASK”, Slovakia)........................ AHN 100.00 100.00

● Acer International Services GmbH (“AIS”,Switzerland) .................................................................. AHN 100.00 100.00

● Asplex Sp. z.o.o. (“APX”, Poland)............................... AHN — 100.00

● Acer Marketing Services LLC (“ARU”, Russia) ......... AHN — 100.00

● Acer Computer Norway AS (“ACN”, Norway)............ ACH 100.00 100.00

● Acer Computer Finland Oy (“AFN”, Finland) ............. ACH 100.00 100.00

● Acer Computer Sweden AB (“ACW”, Sweden) ........... ACH 100.00 100.00

● Acer Denmark A/S (“ACD”, Denmark)........................ ACH 100.00 100.00

● PB Holding Company S.A.R.L. (“PBLU”,Luxembourg) ............................................................... AHN 100.00 100.00

● Packard Bell B.V. (“PBHO”, the Netherlands)............. PBLU 100.00 100.00

● Packard Bell Finance B.V. (“PBFN”, the Netherlands). PBHO 100.00 100.00

● Packard Bell Netherland B.V. (“PBNL”, theNetherlands).................................................................. PBHO 100.00 100.00

● Packard Bell Services s.a.r.l (“PBSV”, France)............ PBHO 100.00 100.00

● Packard Bell Angers s.a.r.l (“PBAN”, France) ............. PBHO 100.00 100.00

● Packard Bell France s.a.s (“PBFR”, France) ................ PBHO 100.00 100.00

● Packard Bell (UK) Ltd.(“PBUK”, the UnitedKingdom) ...................................................................... PBHO 100.00 100.00

● Packard Bell Scotland Ltd. (“PBSC”, the UnitedKingdom) ...................................................................... PBHO 100.00 —

● Packard Bell Iberica s.l (“PBES”, Spain) ..................... AIB 100.00 100.00

● Packard Bell Italia s.r.l (“PBIT”, Italy) ........................ PBHO 100.00 100.00

● Packard Bell Deutschland GmbH (“PBDE”, Germany). PBHO 100.00 100.00

● Packard Bell Belgium BVBA (“PBBE”, Belgium)....... PBHO 100.00 100.00

● Packard Bell Sverige AB (“PBSE”, Sweden) ............... PBHO 100.00 —

● Packard Bell Norden AS (“PBNO”, Norway) .............. PBHO 100.00 100.00

● Packard Bell Schweiz GmbH (“PBCH”, Switzerland) . PBHO 100.00 100.00

● ZDS Europe s.a.r.l (“PBFE”, France) ........................... PBHO 100.00 —

● NEC Computers South Africa (Pty) Ltd. (“PBZA”,South Africa) ................................................................ PBHO 50.81 50.81

● Packard Bell Electronic Technical Services (Shanghai)Co., Ltd. (“PBCN”, China)........................................... PBHO 100.00 —

F-70


At March 31

Investor 2009 2010

(d) Boardwalk Capital Holding Limited (“Boardwalk”, BritishVirgin Islands) and subsidiaries ............................................... The Company 100.00 100.00

● Acer Computer Mexico, S.A. de C.V. (“AMEX”,Mexico)......................................................................... Boardwalk 99.92 99.92

● Acer Latin America, Inc. (“ALA”, U.S.A.) .................. Boardwalk 100.00 100.00

● Acer American Holding Corp. (“AAH”, USA) ............ Boardwalk 100.00 100.00

● AGP Tecnologia em Informatica do Brasil Ltda.(“ATB”, Brazil)............................................................. Boardwalk — 100.00

● Aurion Tecnologia, S.A. de C.V. (“Aurion”, Mexico).. AMEX 99.92 99.92

● Gateway, Inc. (“GWI”, U.S.A.) ................................... AAH 100.00 100.00

● Acer America Corporation. (“AAC”, U.S.A.)............... GWI 99.92 99.92

● Acer Service Corporation (“ASC”, U.S.A.).................. GWI 100.00 100.00

● Gateway US Retail, Inc. (“GRA”, U.S.A.)................... GWI 100.00 100.00

● Gateway Diect, Inc. (“GDA”, U.S.A.).......................... GWI 100.00 100.00

● Gateway Manufacturing LLC (“GMA”, U.S.A.) .......... GWI 100.00 100.00

● Gateway International Holdings, Inc. (“GIH”, U.S.A.). GWI 100.00 100.00

● Gateway de Mexico S. de R.L. de C.V. (“GMX”,Mexico)......................................................................... GWI 100.00 100.00

● Gateway Hong Kong Ltd. (“GHK”, Hong Kong) ........ GWI 100.00 100.00

● Gateway Bermuda LP (“GBM”, Bermuda)................... GWI 100.00 —

● Gateway Asia, Inc. (“GAI”, U.S.A.)............................. GWI 100.00 100.00

● Gateway KK (“GJP”, Japan) ........................................ GRA 100.00 100.00

● Gateway Ltd. (“GUK”, the United Kingdom) .............. GRA 100.00 100.00

● Gateway France SAS (“GFR”, France) ........................ GRA 100.00 —

● eMachines Internet Group (“EMA”, U.S.A.)................ GRA 100.00 100.00

● Gateway Europe B.V. (“GEBV”, U.S.A.) ..................... GRA 100.00 100.00

● Gateway Computers Ireland Ltd. (“GCI”, the UnitedKingdom) ...................................................................... GRA 100.00 100.00

● Gateway International Computers Limited (“GIC”, theUnited Kingdom) .......................................................... GIH 100.00 100.00

● Gateway Canada Corporation (“GCA”, Canada) .......... GIC 100.00 100.00

● Servicio Profesionales de Aceso S. de R.L. (“GSMX”,Mexico) ....................................................................... EMA 100.00 100.00

(e) Acer Holding International, Incorporated (“AHI”, BritishVirgin Islands) and subsidiaries ............................................... The Company 100.00 100.00

● Acer Computer Co., Ltd. (“ATH”, Thailand) ............... AHI 100.00 100.00

● Acer Japan Corp. (“AJC”, Japan) ................................. AHI 100.00 100.00

● Acer Computer Australia Pty. Limited (“ACA”,Australia) ...................................................................... AHI 100.00 100.00

● Acer Sales and Service Sdn Bhd (“ASSB”, Malaysia). AHI 100.00 100.00

● Acer Asia Pacific Sdn Bhd (“AAPH, Malaysia”)......... AHI 100.00 100.00

F-71


At March 31

Investor 2009 2010

● Acer Computer (Singapore) Pte. Ltd. (“ACS”,Singapore)..................................................................... AHI 100.00 100.00

● Acer Computer New Zealand Ltd. (“ACNZ”, NewZealand) ........................................................................ AHI 100.00 100.00

● PT Acer Indonesia (“AIN”, Indonesia) ......................... AHI 100.00 100.00

● Acer India Private Limited (“AIL”, India) ................... AHI 100.00 100.00

● Acer Vietnam Co., Ltd. (“AVN”, Vietnam) .................. AHI 100.00 100.00

● Acer Philippines, Inc. (“APHI”, Philippines) ............... AHI 100.00 100.00

● Acer Finance Australia Pty. Ltd. (“AFA”, Australia) ... ACA 100.00 —

● Highpoint Australia Pty. Ltd. (“HPA”, Australia) ......... ACA 100.00 100.00

● Highpoint Service Network Sdn Bhd (“HSN”,Malaysia) ...................................................................... ASSB 100.00 100.00

● Logistron Service Pte Ltd. (LGS, Singapore) ............. ACS 100.00 100.00

(f) Acer Computer International Ltd. (“ACI”, Singapore) ............ The Company 100.00 100.00

(g) Acer Sales & Distribution Ltd. (“ASD”, Hong Kong) ............ The Company 100.00 100.00

(2) Sale and distribution of computer products and electronic communication products:


At March 31

Investor 2009 2010

(a) Weblink International Inc. (“WII”, Taiwan) ............................ The Company 99.79 99.79

(b) Weblink (H.K.) International Ltd. (“WHI”, Hong Kong) ........ WII 99.79 99.79

(c) Servex (Malaysia) Sdn Bhd (“SMA”, Malaysia) .................... ASSB 100.00 100.00

(d) Servex International (Thailand) Co., Ltd. (“STH”, Thailand) . ATH 100.00 100.00

(e) Megabuy Sdn Bhd (“MGB”, Malaysia) ................................... ASSB 100.00 100.00

(3) Investing and holding companies:


At March 31

Investor 2009 2010

(a) Multiventure Investment Inc. (“MVI”, Taiwan)....................... ADSC 100.00 100.00

(b) Acer Digital Service Co. (“ADSC”, Taiwan) .......................... The Company 100.00 100.00

(c) Acer Worldwide Incorporated (“AWI”, British Virgin Islands). The Company 100.00 100.00

(d) Cross Century Investment Limited (“CCI”, Taiwan) ............... The Company 100.00 100.00

(e) Acer SoftCapital Incorporated (“ASCBVI”, British VirginIslands)..................................................................................... The Company 100.00 100.00

(f) Acer Capital Corporation (“ACT”, Taiwan) ............................ The Company 100.00 100.00

(g) Aspire Incubation Venture Capital (“AIVC”, Taiwan)............. The Company 100.00 100.00

(h) Acer Digital Services (B.V.I.) Holding Corp. (“ADSBH”,British Virgin Islands).............................................................. The Company 100.00 100.00

F-72


At March 31

Investor 2009 2010

(i) Acer Digital Services (Cayman Islands) Corp.(“ADSCC”, Cayman Islands)................................................... ADSBH 100.00 100.00

(j) Nicholas Insurance Company Ltd. (“NIC”, Bermuda) ............ GWI 100.00 100.00

(k) Acer Capital Australia Pty Ltd. (“ACAP”, Australia) ............. ACBVI 100.00 —

(l) Acer Capital Limited (“ACBVI”, British Virgin Islands)........ ASCBVI 100.00 —

(m) ASC Cayman, Limited (“ASCCAM”, Cayman Islands) .......... ASCBVI 100.00 100.00

(n) Acer Technology Venture Asia Pacific Ltd. (“ATVAP”,Cayman Islands) ...................................................................... ASCBVI 100.00 100.00

(o) AGP Insurance (Guernsey) Limited. (“AGU”, BritishGuernsey Island) ..................................................................... AHN — 100.00

(p) Acer EMEA Holdings B.V. (AHB, the Netherlands) .............. The Company — 100.00

(q) Eten International Holdings Ltd. (“EIH”, British VirginIslands)..................................................................................... ETEN 100.00 100.00

(r) Eten Investment Co., Ltd. (“ETO”, Taiwan)............................ ETEN 100.00 —

(s) Protek Investment Co., Ltd. (“PTO”, Taiwan)......................... ETEN 100.00 —

(t) Toptek Investment Co., Ltd. (“DTO”, Taiwan)........................ ETEN 100.00 —

(4) Research, design, and sale of smart handheld products:


At March 31

Investor 2009 2010

(a) E-ten Information System Co., Ltd. (“ETEN”, Taiwan) .......... The Company 100.00 100.00

(b) Eten China Information System Co., Ltd. (“CETEN”, China). EIH 100.00 100.00

(c) AGP Technology AG (“AGP”, Switzerland)............................ AHN 100.00 100.00

(d) Acer Information Technology R&D (Shanghai) Co., Ltd.(“ARD”, China) ....................................................................... AGC — 100.00

(5) Property development:


At March 31

Investor 2009 2010

(a) Acer Property Development Inc. (“APDI”, Taiwan)................ ADSC 100.00 100.00

(b) Aspire Service & Development Inc. (“ASDI”, Taiwan) .......... ADSC 100.00 100.00

(6) Electronic data supply or processing service, data storage and processing:


At March 31

Investor 2009 2010

(a) EB Easy Business Services Limited (“AGES”, Hong Kong) .. ADSCC 85.00 —

(b) Acer Cyber Center Services Ltd. (“ACCSI”, Taiwan)............. The Company 100.00 100.00

(c) Lottery Technology Service Corp. (“LTS”, Taiwan)................ The Company 100.00 100.00

(d) Minly Corp. (“MINLY”, Taiwan) ............................................ The Company 100.00 100.00

F-73

(7) Software research, development, design, trading and consultation:


At March 31

Investor 2009 2010

(a) TWP International Inc. (“TWPBVI”, British Virgin Islands) .. ACCSI 100.00 100.00

(b) Acer Third Wave Software (Beijing) Co., Ltd. (“TWPBJ”,China) ...................................................................................... TWPBVI 100.00 100.00

For the three-month period ended March, 31 2010 or in 2009, the subsidiaries namely PBSC, PBSE, PBFE, PBCN, GBM, GFR,AFA, ACBVI, WSHI, ACAP, AGES, ETO, PTO, and DTO were liquidated and were excluded from consolidation because the Companyceased control thereof. Additionally, the Company established new subsidiaries namely APX, ARU, ATB, AGU, ARD, and AHB in 2009.

2. Summary of Significant Accounting Policies

The accompanying consolidated financial statements have been prepared in conformity with Order VI-0960064020 issued by theFinancial Supervisory Commission under the Executive Yuan effective November 15, 2007 (which allows Taiwan companies not todisclose certain accounting policies and information in their consolidated financial statements for the first and third quarter of each year)and accounting principles generally accepted in the Republic of China. Due to limited disclosures in the consolidated financialstatements for the first quarter and third quarter of each year, the consolidated financial position, consolidated results of operations andconsolidated cash flows in each of these quarters every year can be understood by reading them together with the ConsolidatedCompanies’ audited annual consolidated financial statements. The significant accounting policies are the same as those disclosed in its2009 annual consolidated financial statements, except for the following:

(1) Convenience translation into U.S. dollars

The consolidated financial statements are stated in New Taiwan dollars. Translation of the March 31, 2010 New Taiwan dollaramounts into U.S. dollar amounts, using the spot rate of Central Bank of Taiwan on March 31, 2010, of NT$31.819 to US$1, is includedsolely for the convenience of the readers. The convenience translations should not be construed as representations that the New Taiwandollar amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.

3. Accounting Changes

Effective January 1, 2009, the Consolidated Companies adopted the revised SFAS No. 10, “Accounting for Inventories.” Theadoption of this new accounting principle did not have significant effect on the Company’s consolidated financial statements as of andfor the three-month period ended March 31, 2009.

4. Significant Account Disclosures


March 31,2009 March 31, 2010

NT$ NT$ US$Cash on hand .................................................................................................................. 10,304 10,634 334

Bank deposits.................................................................................................................. 34,785,215 26,136,319 821,406

Time deposits.................................................................................................................. 19,118,129 10,491,692 329,731

53,913,648 36,638,645 1,151,471

F-74

(2) Notes and accounts receivable

The Consolidated Companies entered into factoring contracts with several banks to sell part of accounts receivable withoutrecourse. As of March 31, 2009 and 2010, details of these contracts were as follows:

March 31, 2009

BuyerFactoredamount


Advance(derecognized)

amount Interest rate Collateral


ABN AMRO Bank........................................................ 1,197,005 5,804,789 1,197,005 Nil

Standard Chartered Bank .............................................. 132,911 3,391,200 132,911 Nil

Emirates Bank International ......................................... 180,148 1,119,096 180,148 Nil



10,541,514 24,001,194 4,429,572 0.89%~6%

March 31, 2010

BuyerFactoredamount


Advance(derecognized)

amount Interest rate Collateral



Taipei Fubon Bank........................................................ 500,119 968,500 500,119 note 7(4)

La Caixa Bank .............................................................. 4,301,785 5,008,044 3,875,320 Nil

11,803,709 16,925,869 6,597,938 0.84%~5%

(3) Other receivable

March 31,2009 March 31, 2010

NT$ NT$ US$Refundable income tax and sales tax ............................................................................. 1,525,300 2,376,869 74,700

Receivables of patent royalty allocated to others ........................................................... 1,781,346 1,034,581 32,515

Other receivable.............................................................................................................. 5,676,711 7,598,201 238,794

8,983,357 11,009,651 346,009

(4) Available-for-sale financial assets—current

March 31,2009 March 31, 2010

NT$ NT$ US$Publicly traded equity securities..................................................................................... 157,790 203,929 6,409

F-75

(5) Financial assets and liabilities at fair value through profit or loss—current

March 31,2009 March 31, 2010

NT$ NT$ US$Financial assets at fair value through profit or loss—current:

Foreign currency forward contracts ........................................................................... 130,224 88,619 2,785

Foreign exchange swaps ............................................................................................ 6,396 — —

Foreign currency options ........................................................................................... — 17,769 559

136,620 106,388 3,344

March 31,2009 March 31, 2010

NT$ NT$ US$Financial liability at fair value through profit or loss—current:

Foreign currency forward contracts ........................................................................... (908,630) (514,102) (16,157)

Foreign exchange swaps ............................................................................................ (704) — —

Cross currency swaps................................................................................................. (2,653) — —

Foreign currency options .......................................................................................... — (22,209) (698)

(911,987) (536,311) (16,855)

For the three-month periods ended March 31, 2009 and 2010, unrealized losses resulting from the changes in fair value of thesederivative contracts amounted to NT$118,379 and NT$425,043, respectively.

The Consolidated Companies entered into derivative contracts to manage foreign currency exchange risk resulting from operatingactivities. As of March 31, 2009 and 2010, the derivative financial instruments that did not conform to the criteria for hedge accountingand were classified as financial assets and liabilities at fair value through profit or loss consisted of the followings:


March 31, 2009

Buy Sell

Contractamount (inthousand) Maturity period

USD/SGD ............................................................................................................... USD13,500 2009/04/15~2009/06/15

USD/CAD............................................................................................................... USD34,558 2009/04/15~2009/06/29

USD/EUR ............................................................................................................... EUR610,000 2009/04/16~2009/06/01

USD/MYR .............................................................................................................. USD25,000 2009/04/14~2009/05/29

USD/THB ............................................................................................................... USD42,000 2009/04/10~2009/06/29

USD/JPY ................................................................................................................ USD71,000 2009/04/15~2009/07/13

USD/NTD............................................................................................................... USD2,000 2009/04/10~2009/04/24

USD/INR ................................................................................................................ USD41,924 2009/04/30~2009/07/31

USD/MXN.............................................................................................................. USD90,500 2009/04/08~2009/08/14

F-76

March 31, 2010

Buy Sell

Contractamount (inthousand) Maturity period

USD/SGD ............................................................................................................... USD16,500 2010/04/15~2010/06/17

USD/MXN.............................................................................................................. USD77,000 2010/04/16~2010/07/16

USD/EUR ............................................................................................................... EUR7,356 2010/04/15~2010/05/28

USD/INR ................................................................................................................ USD103,084 2010/04/15~2010/08/31

USD/MYR .............................................................................................................. USD50,295 2010/04/14~2010/05/27

USD/THB ............................................................................................................... USD20,000 2010/04/12~2010/05/14

USD/JPY ................................................................................................................ USD71,000 2010/04/13~2010/07/13

USD/RUB............................................................................................................... USD186,910 2010/04/02~2010/07/15

USD/ZAR ............................................................................................................... USD29,080 2010/04/01~2010/06/30

USD/NTD............................................................................................................... USD3,000 2010/04/09~2010/04/26

USD/BRL ............................................................................................................... USD70,000 2010/05/31

EUR/NOK .............................................................................................................. EUR9,500 2010/04/15~2010/06/15

EUR/SEK ............................................................................................................... EUR34,986 2010/04/15~2010/05/17

EUR/CHF ............................................................................................................... EUR30,000 2010/04/01~2010/07/30

RUB/USD............................................................................................................... USD4,617 2010/04/02

NOK/EUR .............................................................................................................. EUR2,738 2010/04/15

(b) Foreign exchange swaps

March 31, 2009

Contract amount (in thousands) Maturity date

Swap-in USD / Swap-out NTD................... USD135,500/NTD4,588,747 2009/04/10

(c) Cross currency swaps

March 31, 2009

Contract amount (in thousands) Maturity Date Interest Interest due date

Swap-in SGD35,000/ ........................ 2009/04/30 Pay fixed rate in USD of 0.82% Principal and interest are

Swap-out USD 23,041 ...................... Receive fixed rate in SGD of 0.6% payable in full on maturity

(d) Foreign currency options

(i) Long position

March 31, 2010

Contractamount

(inthousands) Maturity period

USD Call/EUR Put ................................................................................................. USD49,188 2010/04/06~2010/06/11

USD Call/RUB Put................................................................................................. USD20,000 2010/04/13~2010/05/26

USD Call/BRL Put ................................................................................................. USD10,000 2010/05/31

F-77

(ii) Short position

March 31, 2010

Contractamount

(inthousands) Maturity period

EUR Call/USD Put ................................................................................................. USD65,076 2010/04/06~2010/06/11

RUB Call/USD Put................................................................................................. USD20,000 2010/04/13~2010/05/26

BRL Call/USD Put ................................................................................................. USD10,000 2010/05/31

(6) Hedging purpose derivative financial assets and liabilities

March 31,2009 March 31, 2010

NT$ NT$ US$Hedging purpose derivative financial assets — current:

Foreign currency forward contracts ........................................................................... 183,625 545,773 17,152

Foreign currency options ........................................................................................... 143,735 — —

327,360 545,773 17,152

Hedging purpose derivative financial liabilities — current

Foreign currency forward contracts ........................................................................... (285,450) (187,624) (5,897)

Foreign currency options ........................................................................................... (156,924) — —

(442,374) (187,624) (5,897)

The Consolidated Companies entered into derivative contracts to hedge foreign currency exchange risk associated with arecognized asset or liability or with a highly probable forecast transaction.

As of March 31, 2009 and 2010, hedged items designated as fair value hedges and fair value of their respective hedging derivativefinancial instruments were as follows:

Fair value of hedginginstruments

Hedged Items Hedging instrumentsMarch 31,

2009March 31,

2010

NT$ NT$

Accounts receivable/payable denominated in foreigncurrencies

Foreign currency forward contracts (22,530) 301,741

Foreign currency options 36,416 —

13,886 301,741

For the three-month periods ended March 31, 2009 and 2010, the unrealized losses resulting from the changes in fair value ofhedging instruments amounted to NT$410,423 and NT$764,304, respectively.

F-78

As of March 31, 2009 and 2010, hedged items designated as cash flow hedges and fair value of their respective hedging derivativefinancial instruments were as follows:

March 31, 2009



instruments


Expectedperiod of


NT$Accounts receivable/payable denominated in

foreign currenciesForeign currency forward contracts (79,295) Apr.~Oct.

2009Apr.~Oct.

2009

Foreign currency options (49,605) Apr.~Jul.2009

Apr.~Jul.2009

(128,900)

March 31, 2010



instruments


Expectedperiod of


NT$Accounts receivable/payable denominated in

foreign currenciesForeign currency forward contracts 56,408 Apr.~Jun.

2010Apr.~Jun.2010

As of March 31, 2009 and 2010, unrealized gains (losses) on derivative financial instruments effective as cash flow hedges,amounted to NT$(128,900) and NT$56,408, respectively, which were recognized as “unrealized gain (loss) on financial instruments”,a separate component of stockholder’s equity.

Details of hedging derivative financial instruments described above that were outstanding as of March 31, 2009 and 2010, wereas follows:


March 31, 2009

Buy Sell

Contractamount

(in thousand) Maturity period

USD/CNY............................................................................................................... USD67,000 2009/04/29~2009/07/30

USD/AUD .............................................................................................................. USD61,675 2009/04/30~2009/08/31

USD/EUR ............................................................................................................... EUR147,410 2009/04/14~2009/06/30

USD/NZD............................................................................................................... USD6,000 2009/04/30~2009/07/31

AUD/NZD .............................................................................................................. AUD2,000 2009/04/09~2009/07/31

AUD/USD .............................................................................................................. USD5,000 2009/04/30~2009/05/29

EUR/GBP ............................................................................................................... EUR134,241 2009/04/30~2009/07/25

EUR/CHF ............................................................................................................... EUR26,000 2009/04/03~2009/10/26

EUR/NOK .............................................................................................................. EUR14,364 2009/04/15~2009/06/15

EUR/PLN ............................................................................................................... EUR21,804 2009/04/15~2009/05/29

EUR/SEK ............................................................................................................... EUR19,167 2009/04/15~2009/06/15

EUR/USD ............................................................................................................... EUR23,493 2009/04/14

USD/ZAR ............................................................................................................... USD23,500 2009/04/15~2009/06/30

F-79

March 31, 2010

Buy Sell

Contractamount


USD/CAD............................................................................................................... USD78,856 2010/04/30~2010/06/30

USD/EUR ............................................................................................................... EUR867,284 2010/04/01~2010/06/30

USD/NZD............................................................................................................... USD5,300 2010/04/30~2010/06/30

USD/AUD .............................................................................................................. USD80,250 2010/04/30~2010/06/30

AUD/NZD .............................................................................................................. AUD1,250 2010/04/30~2010/05/28

USD/CNY............................................................................................................... USD200,000 2010/04/29~2010/07/29

EUR/GBP ............................................................................................................... EUR263,109 2010/04/15~2010/06/30

EUR/PLN ............................................................................................................... EUR33,200 2010/04/15~2010/07/15

PLN/EUR ............................................................................................................... EUR7,730 2010/04/15

(b) Foreign currency options

(i) Long position

March 31, 2009

Contractamount


EUR Call/GBP Put ................................................................................................. EUR63,090 2009/04/28~2009/07/13

USD Call/EUR Put ................................................................................................. USD24,000 2009/04/28~2009/05/27

EUR Call/PLN Put ................................................................................................. EUR13,985 2009/04/28~2009/05/27

EUR Call/USD Put ................................................................................................. EUR53,214 2009/04/28~2009/06/26

(ii) Short position

March 31, 2009

Contractamount


GBP Call/EUR Put ................................................................................................. EUR76,302 2009/04/28~2009/07/13

EUR Call/USD Put ................................................................................................. USD37,000 2009/04/28~2009/05/27

PLN Call/EUR Put ................................................................................................. EUR19,226 2009/04/28~2009/05/27

USD Call/EUR Put ................................................................................................. EUR71,048 2009/04/28~2009/06/26

(7) Inventories

(a) Inventories (net of provision for obsolescence and slow-moving inventories) as of March 31, 2009 and 2010, were as follows:

March 31,2009 March 31, 2010

NT$ NT$ US$Raw materials ................................................................................................................. 10,710,355 17,958,413 564,393

Work in process .............................................................................................................. 68,295 16,559 520

Finished goods and merchandise .................................................................................... 11,358,269 18,954,647 595,702

Spare parts ...................................................................................................................... 2,357,878 2,678,653 84,184

Inventories in transit ....................................................................................................... 9,126,903 12,093,354 380,067

33,621,700 51,701,626 1,624,866

F-80

(b) The details of inventories write downs for the years ended March 31, 2009 and 2010 were as follows:

March 31,2009 March 31, 2010

NT$ NT$ US$Write-down of inventories to net realizable value.......................................................... 588,599 432,214 13,583

Net gain (loss) on physical inventory ........................................................................... (24,831) 21,071 662

Scrap loss ...................................................................................................................... 22,560 19,621 617

586,328 472,906 14,862

(8) Financial assets carried at cost—noncurrent

March 31,2009 March 31, 2010

NT$ NT$ US$Investment in non-publicly traded equity securities:

Prosperity Venture Capital Corp. .............................................................................. 21,000 21,000 660

Sheng-Hua Venture Capital Corp. .............................................................................. 20,000 11,900 374

Legend Technology .................................................................................................... 15,235 11,235 353

W.I. Harper International Corp. ................................................................................. 15,050 14,359 451

InCOMM Technologies Co., Ltd................................................................................ 2,360 2,360 74

IP Fund II................................................................................................................... 32,400 32,400 1,018

Dragon Investment Co. Ltd........................................................................................ 217,000 217,000 6,820

World Venture, Inc. .................................................................................................... 262,000 262,000 8,234

iD Reengineering Inc. ................................................................................................ 174,900 174,900 5,497

DYNA Fund II ........................................................................................................... 24,527 23,013 723

IP Fund III ................................................................................................................. 136,258 127,848 4,018

iD5 Fund LTP ............................................................................................................ 77,243 72,476 2,278

IP Cathay One, L.P. ................................................................................................... 305,208 256,854 8,072

IP Fund One L.P......................................................................................................... 944,787 645,452 20,285

ID5 Annex I Fund ...................................................................................................... — 12,184 383

Apacer Technology Inc. ............................................................................................. 45,340 45,340 1,425

New Century Infocomm Tech Co., Ltd. ................................................................... 341,663 131,340 4,128

The Eslite Bookstore.................................................................................................. 304,555 — —

Trimode Technology Inc. ........................................................................................... 12,264 11,038 347

Others ......................................................................................................................... 90,210 95,985 3,016

3,042,000 2,168,684 68,156

During the three-month period ended March 31, 2010, IP Fund One, L.P. returned capital of NT$85,036 to the ConsolidatedCompanies, and the Consolidated Companies invested NT$12,184 in ID5 Annex I Fund.

In the fourth quarter of 2009, the Consolidated Companies sold all of their investments in The Eslite Bookstore and recognizedan aggregate loss thereon of NT$5,455.

F-81

(9) Investments accounted for using equity method

March 31, 20092009



Carryingamount


E-Life Mall Corp. .......................................................................................................... 14.27 465,404 23,113


ECOM Software Inc. ...................................................................................................... 33.93 37,098 328


FuHu Inc......................................................................................................................... 13.00 106,787 (2,063)

Other ............................................................................................................................... — 18,982 (119)

2,760,316 92,464


78,684

March 31, 20102010



Carryingamount


E-Life Mall Corp. .......................................................................................................... 13.98 404,069 21,586




FuHu Inc......................................................................................................................... 25.00 161,801 (10,058)

Olidata S.p.A .................................................................................................................. 29.90 109,252 —

Others ............................................................................................................................. — (16,175) (13,775)

3,392,495 119,916


109,859

Prepayments for long-term investments:

Fizzle Investment Limited.......................................................................................... 137,560 —

Deferred credits of long-term equity investments represent the unamortized balance of deferred gains and losses derived fromthe sale of equity investment among the affiliated companies. Such deferred gains and losses are realized upon disposal of theequity-method investments to non-consolidated entities.

On January 1, 2009, the Consolidated Companies lost the ability to exercise significant influence over The Eslite Bookstore’soperating and financial policies. Therefore, the investments in The Eslite Bookstore were reclassified as “financial assets carried atcost—noncurrent” as of January 1, 2009.

During the three-month period ended March 31, 2010, the Company sold portion of its investment in E-Life Mall Corp. andrecognized a disposal gain thereon of NT$7,559.

During the three-month period ended March 31, 2010, E-Life Mall Corp. returned capital of NT$46,630 to the ConsolidatedCompanies. During the three-month period ended March 31, 2009, Tai Yi Digital Broadcasting Co., Ltd. was liquidated and returnedcapital of NT$17,277 to the Consolidated Companies.

During the three-month period ended March 31, 2009, the Consolidated Companies increased investment in FuHu Inc. byNT$33,912. In the fourth quarter of 2009, the Consolidated Companies invested NT$109,252 in Olidata S.p.A.

The Consolidated Companies planned to firstly undertake to acquire a 20% interest in Fizzle Investment Limited and investedNT$137,560 in this entity during the three-month period ended March 31, 2010. As of March 31, 2010, this investment was accountedfor under “prepayment for long-term investments” as the related registration processes were not completed.

F-82

(10) Available-for-sale financial assets—noncurrent

March 31,2009 March 31, 2010

NT$ NT$ US$Investment in publicly traded equity securities:

Qisda Corporation (“Qisda”)...................................................................................... 797,099 1,433,978 45,067

Silicon Storage Technology Inc. (“Silicon”) .............................................................. 6,099 10,578 332

Yosun Industrial Corp. ............................................................................................... 537,367 1,056,235 33,195

RoyalTek Co., Ltd...................................................................................................... 115,045 258,905 8,137

Quanta Computer Inc. ................................................................................................ 187,657 240,251 7,551

1,643,267 2,999,947 94,282

During the three-month period ended March 31, 2010, the Consolidated Companies sold portions of their investments in YosunIndustrial, RoyalTek and Quanta Computer and recognized a gain thereon of NT$90,008. No disposal activities occurred during thethree-month period ended March 31, 2009.

As of March 31, 2009 and 2010, the unrealized gain (losses) resulting from re-measuring available-for-sale financial assets(including current and noncurrent) to fair value amounted to NT$(956,679) and NT$804,547, respectively, which were recognized asa separate component of stockholders’ equity.

(11) Property not used in operation

March 31,2009 March 31, 2010

NT$ NT$ US$Leased assets—land ........................................................................................................ 807,538 805,001 25,299

Leased assets—buildings ............................................................................................... 2,827,810 2,830,347 88,951

Damaged office premises................................................................................................ 457,558 457,558 14,380

Property held for sale and development ......................................................................... 1,391,386 1,364,783 42,892

Others ............................................................................................................................. 29,019 29,019 912

Less: Accumulated depreciation.................................................................................... (576,471) (602,008) (18,920)

Accumulated impairment ..................................................................................... (1,946,377) (1,946,395) (61,170)

2,990,463 2,938,305 92,344

For certain land acquired, the ownership registration has not been transferred to the land acquirer, APDI, a subsidiary of theCompany. To protect APDI’s interests, APDI has obtained signed contracts from the titleholders assigning to APDI all rights andobligations related to the land. Additionally, the land title certificates are held by APDI, and APDI has registered its liens thereon.

F-83


Goodwill Patents

Trademarksand trade

namesCustomer

Relationships Others Total

NT$ NT$ NT$ NT$ NT$ NT$Balance at January 1, 2009.................. 22,574,040 692,838 8,067,556 1,517,349 1,894,982 34,746,765

Adjustment made subsequent tobusiness acquisition......................... 36,240 — — — — 36,240

Additions ............................................. — — — — 2,399,847 2,399,847

Disposals.............................................. (9,271) — — — — (9,271)

Reclassification .................................... — — — 5,680 5,680

Effect of exchange rate changes .......... 593,442 7,926 124,779 45,830 29,170 801,147

Amortization ....................................... — (33,069) (18,464) (45,827) (226,627) (323,987)

Balance at March 31, 2009.................. 23,194,451 667,695 8,173,871 1,517,352 4,103,052 37,656,421

Balance at January 1, 2010.................. 21,977,454 801,789 7,862,465 1,310,306 3,492,054 35,444,068

Additions ............................................. — — — — 2,897 2,897

Reclassification .................................... — — — — 2,569 2,569

Effect of exchange rate changes .......... (223,642) (894) 48,640 (7,660) (113,686) (297,242)

Amortization ....................................... — (56,928) (7,273) (43,432) (221,036) (328,669)

Balance at March 31, 2010.................. 21,753,812 743,967 7,903,832 1,259,214 3,162,798 34,823,623

(a) Acquisitions

(i) Packard Bell B.V.

In March and June of 2008, the Company completed the acquisition of 100% equity ownership of Packard Bell B.V., a personalcomputer company in Europe, through its indirectly wholly owned subsidiary Acer Europe B.V., at a total purchase price of Euro 66,117,which was inclusive of direct transaction costs.

The acquisition was accounted for in accordance with ROC SFAS No. 25 “Accounting for Business Combinations”, under which,the excess of the purchase price and direct transaction costs over the fair value of the net identifiable assets was recognized as goodwill.


NT$ NT$

Purchase Price.......................................................................................................................................... 3,172,080


Current assets ...................................................................................................................................... 9,587,790

Property, plant and equipment ............................................................................................................ 351,162

Intangible assets — Packard Bell trademark ..................................................................................... 2,163,744


Other liabilities ................................................................................................................................... (39,608) 1,397,908

Goodwill .................................................................................................................................................. 1,774,172

The Packard Bell trademark has an indefinite useful life and, accordingly, is not subject to amortization.

Within the allocation period, the Company made adjustments to decrease deferred changes by NT$33,768, which also increasedgoodwill by NT$33,768.

(ii) E-Ten Information Systems Co., Ltd

On September 1, 2008, the Company completed its acquisition of 100% equity ownership of E-TEN, a handheld device companyin Taiwan. The Company offered to exchange one share of its stock for every 1.07 shares of outstanding E-Ten stock, and issued a totalof 168,158,878 common shares. E-Ten then became the Company’s direct wholly owned subsidiary.

The acquisition was accounted for in accordance with ROC SFAS No. 25 “Accounting for Business Combinations”, under which,the excess of the purchase price and direct transaction costs over the fair value of the net identifiable assets was recognized as goodwill.

F-84


NT$ NT$

Purchase Price.......................................................................................................................................... 8,837,267

Fair value of common shares issued ................................................................................................... 8,700,751

Fair value of outstanding employee stock options assumed .............................................................. 136,516


Current assets ...................................................................................................................................... 2,574,588

Long-term investment ........................................................................................................................ 789,753


Intangible assets — ETEN trademark ................................................................................................. 450,900

Intangible assets — customer relationship.......................................................................................... 151,100

Intangible assets — developed technology ......................................................................................... 1,802,500

Intangible assets — others .................................................................................................................. 88,400

Other assets ......................................................................................................................................... 485,261

Current liabilities ................................................................................................................................ (1,263,892) 6,935,446

Goodwill .................................................................................................................................................. 1,901,821

The ETEN trademark for the stock trading PDA product has an indefinite useful life and, accordingly, is not subject toamortization. The customer relationship is subject to amortization using the straight-line method over 7 years. The developed technologyis subject to amortization using the straight-line method over 10 years, the estimated period of its economic benefits.

Within the allocation period, the Company made adjustments to increase the fair value of outstanding employee stock optionsassumed through the acquisition, which also increased goodwill by NT$2,472.

(b) On December 6, 2007, the Consolidated Companies entered into a Basic Term Agreement with the International OlympicCommittee regarding participation in the Olympic Partners Program (the “Top Programme”). Pursuant to such agreement, theConsolidated Companies have agreed to pay a certain amount of money in cash, merchandise and service to obtain marketingrights and become one of the partners in “Top Porgramme” across the period from January 1, 2009 to December 31, 2012. Suchexpenditure on sponsorship was capitalized as “Intangible assets” in the accompanying consolidated financial statements, andamortized using the straight-line method during the aforementioned four-year period.

(13) Other financial assets—noncurrent

March 31,2009 March 31, 2010

NT$ NT$ US$Refundable deposits ........................................................................................................ 752,209 783,046 24,609

Noncurrent receivables ................................................................................................... 43,794 121,401 3,816

796,003 904,447 28,425

(14) Short-term borrowings

March 31,2009 March 31, 2010

NT$ NT$ US$Bank loans ...................................................................................................................... 2,080,970 1,866,051 58,646

For the three-month periods ended March 31, 2009 and 2010, the average annual interest rates on short-term borrowings rangedfrom 0.9% to 1.33% and from 0.9% to 11.95%, respectively. As of March 31, 2009 and 2010, unused credit facilities amounted toNT$2,136,420 and NT$2,097,317, respectively.

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(15) Long-term debts

March 31,2009 March 31, 2010

NT$ NT$ US$Citibank syndicated loan................................................................................................. 12,200,000 12,200,000 383,419

Other bank loans............................................................................................................. 166,219 161,548 5,077

Less: current installments ............................................................................................... (8,250,000) — —

4,116,219 12,361,548 388,496

The Company entered into a syndicated loan agreement with Citibank, the managing bank of the syndicated loan, on October11, 2007, and the terms of this loan agreement were as follows:

March 31,2009

March 31,2010

Type of Loan Creditor Credit Line Term NT$ NT$

Unsecured loan................. Citibank andother banks

Term tranche of NT$16.5billion; fire-year limitduring which revolvingcredits disallowed

Repayable in 4 semi-annualinstallments starting fromApril 2009. An advancerepayment of NT$4.3billion was made in thefirst quarter of 2008. InMay 2009, an amendmentto the agreement was made,under which, the loan isrepayable in 4 semi-annualinstallments starting fromApril 2011.

12,200,000 12,200,000

Revolving tranche ofNT$3.3 billion; three-yearlimit

One-time repayment in fullin October 2010.

— —

Less: current installment .. (8,250,000) —

3,950,000 12,200,000

The above syndicated loan bore an average interest rate of 1.70% and 1.67% for the three-month periods ended March 31, 2009and 2010, respectively. According to the loan agreement, the Company is required to maintain certain financial ratios calculated basedon annual and semi-annual audited financial statements. If the Company fails to meet any of the financial ratios, the managing bank willrequest the Company in writing to take action to improve within agreed days. No assertion of breach of contract will be tenable if thefinancial ratios are met within agreed days. As of December 31, 2009, the Company was in compliance with all such financial covenants.

(16) Stockholders’ equity

(a) Common stock

As of March 31, 2009 and 2010, the Company’s authorized common stock consisted of 3,500,000,000 shares, respectively, ofwhich 2,642,855,993 shares and 2,688,228,278 shares, respectively, were issued and outstanding. The par value of the Company’scommon stock is NT$10 per share.

As of March 31, 2009 and 2010, the Company had issued 9,928 thousand units and 16,872 thousand units, respectively, of globaldepository receipts (GDRs). The GDRs were listed on the London Stock Exchange, and each GDR represents five shares of commonstock.

The Company‘s shareholders in a meeting on June 19, 2009, resolved to distribute stock dividends of NT$264,298 tostockholders. Additionally, the shareholders approved the distribution of bonuses to employees in stock of NT $900,000 with an issuanceof 16,234 thousand new shares. The stock issuance was authorized by and registered with the governmental authorities.

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(b) Treasury stock

As of March 31, 2009 and 2010, details of the GDRs (for the implementation of an overseas employee stock option plan) heldby AWI and the common stock held by the Company’s subsidiaries namely CCI and E-Ten were as follows (expressed in thousands ofshares and New Taiwan dollars):

March 31, 2009 March 31, 2010

Number ofShares Book Value Market Price

Number ofShares Book Value Market Price

NT$ NT$ NT$

NT$

Common stock .................................... 21,571 1,050,341 1,100,146 21,787 1,050,341 2,043,640

GDRs ................................................... 4,933 2,472,257 1,221,238 4,982 2,472,257 2,330,500

3,522,598 2,321,384 3,522,598 4,374,140

Movements of the Company’s treasury stock were as follows (expressed in thousands of shares or units):

2009


EndingBalance

Common Stock ...................................................................................... 21,571 — — 21,571

GDRs ..................................................................................................... 4,933 — — 4,933

2010


EndingBalance

Common Stock ...................................................................................... 21,787 — — 21,787

GDRs ..................................................................................................... 4,982 — — 4,982

(c) Capital surplus

March 31,2009 March 31, 2010

NT$ NT$ US$Share premium:

Paid-in capital in excess of par value ........................................................................ 878,765 1,804,408 56,709

Surplus from merger .................................................................................................. 29,800,881 29,800,881 936,575

Premium on common stock issued from conversion of convertible bonds................ 4,552,585 4,552,585 143,078

Forfeited interest from conversion of convertible bonds ........................................... 1,006,210 1,006,210 31,623

Surplus related to treasury stock transactions by subsidiary companies.................... 431,161 501,671 15,766

Employee stock options ............................................................................................ 226,249 458,961 14,424

Other:

Surplus from equity-method investments ................................................................. 307,253 491,806 15,456

37,203,104 38,616,522 1,213,631

According to the ROC Company Act, any realized capital surplus could be transferred to common stock as stock dividends afterdeducting accumulated deficit, if any. Realized capital surplus includes share premium and donations from shareholders. Distributionof stock dividends from realized capital surplus is subject to certain restrictions imposed by the governmental authorities.

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(d) Legal reserve, special reserve, unappropriated earnings, and dividend policy

The Company’s articles of incorporation stipulate that at least 10% of annual net income after deducting accumulated deficit, ifany, must be retained as legal reserve until such retention equals the amount of authorized common stock. In addition, a special reservein accordance with applicable laws and regulations shall be set aside. The remaining balance of annual net income, if any, can bedistributed as follows:

● at least 5% as employee bonuses; employees entitled to stock bonus may include subsidiaries’ employees that meet certaincriteria set by the board of directors;

● 1% as remuneration to directors and supervisors; and

● the remainder, after retaining a certain portion for business considerations, as dividends to stockholders.

Since the Company operates in an industry experiencing rapid change and development, distribution of earnings shall be madein consideration of the year’s earnings, the overall economic environment, the related laws and decrees, and the Company’s long-termdevelopment and steady financial position. The Company has adopted a steady dividend policy, in which a cash dividend comprises atleast 10% of the total dividend distribution.

According to the ROC Company Act, the legal reserve can be used to offset an accumulated deficit and may be distributed inthe following manner: (i) when it reaches an amount equal to one-half of the paid-in capital, it can be transferred to common stock atthe amount of one-half of legal reserve; and (ii) when it reaches an amount exceeding one-half of the authorized common stock,dividends and bonuses can be distributed from the excess portion of the legal reserve.

Pursuant to regulations promulgated by the Financial Supervisory Commission, and effective from the distribution of earningsfor fiscal year 1999 onwards, a special reserve equivalent to the total amount of items that are accounted for as deductions to thestockholders’ equity shall be set aside from current earnings, and not distributed. This special reserve shall be made available forappropriation to the extent of reversal of deductions to stockholders’ equity in subsequent periods. As of March 31, 2010, the Companyappropriated a special reserve of NT$1,991,615 that is equal to the sum of the amount by which the market price of the treasury stockwas less than the book value thereof and other deduction items of shareholder’s’ equity.

The appropriation of 2008 earnings was approved by the shareholders at a meeting on June 19, 2009. The appropriations ofemployee bonus and remuneration to directors and supervisors and dividends per share were as follows:

2008

NT$Dividends per share (in New Taiwan dollars)

Cash dividends.................................................................................................................................................................. 2.00

Stock Dividends................................................................................................................................................................ 0.10

2.10

Employee bonus � stock ................................................................................................................................................. 900,000

Employee bonus � cash .................................................................................................................................................. 600,000

Remuneration to directors and supervisors ..................................................................................................................... 85,763

1,585,763

The 2008 employee bonus in stock of 16,234 thousand common shares was determined by the closing price of the Company’scommon shares (after considering the effect of dividends) on the day preceding the shareholder’s meeting, which was NT$58 (dollars).The above appropriations were consistent with the resolutions approved by the Company’s directors.

Distribution of 2009 earnings has not been proposed yet by the board of directors and is still subject to approval of resolutionby the stockholders. After the said resolution, related information can be obtained from the public information website.

Based on the total amount of bonus expected to be distributed to employees and the Company’s article of incorporation, underwhich, remuneration for directors and supervisors is distributed at 1% of the annual net income, the Company estimated and accruedemployee bonus of NT$250,000 and NT$375,000 and directors’ and supervisors’ remuneration of NT$18,263 and NT$29,337 for thethree-month periods ended March 31, 2009 and 2010, respectively. If the actual amounts subsequently resolved by the stockholdersdiffer from the estimated amounts, the differences are treated as a change in accounting estimate and are recorded as income or expensein the year of stockholder’s resolution. If bonus to employees is resolved to be distributed in stock, the number of shares is determinedby dividing the amount of stock bonus by the closing price (after considering the effect of dividends) of the shares on the day precedingthe shareholder’s meeting.

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(17) Stock-based compensation plans

As of March 31, 2010, details of the employee stock option plans (“ESOP”) were as follows:

Employee stockoption plan 1




Grant date............................................................... 2008/11/31 2008/09/01(note 1)

2008/09/01(note 1)

2009/10/30

Granted shares (in thousands) ................................ 14,000 8,717 1,067 14,000

Contractual life (in years) ...................................... 3 4.97 2 3

Vesting period ........................................................ 2 years of servicesubsequent to

grant date

1~3 years ofservice subsequent

to grant date

1 year of servicesubsequent to

grant date

2 years of servicesubsequent to

grant date

Qualified employees............................................... (note 2) (note 3) (note 3) (note 2)

Note 1: The Company assumed the employee stock option plans 2 and 3 through the acquisition of E-Ten on September 1, 2008.

Note 2: The options are granted to eligible employees of the Company and its domestic or foreign subsidiaries, in which the Companydirectly or indirectly, owns 50% or more of the subsidiary’s voting shares.

Note 3: The options are granted to eligible employees of the Company’s subsidiaries, in which the Company directly or indirectly owns50% or more of equity interests.

The Consolidated Company utilized the Black-Scholes or the binomial option pricing model to value the stock options granted,and the fair value of the option and main inputs to the valuation models were as follows:





Exercise price (NT$) .............................................. 25.28 44.50 16.90 42.90

Expected remaining contractual life (in years) ..... 3 4.26 0.56 3

Fair market value for underlying securities —Acer shares (NT$) ............................................. 45.95 59.10 59.10 78.00

Fair value of options granted (NT$) ...................... 25.124 25.47 ~ 26.11 42.20 ~ 42.58 40.356

Expected volatility ................................................. 45.01% 34.98% 37.35% 40.74%

Expected dividend yield ......................................... note 4 note 4 note 4 note 4

Risk-free interest rate ............................................. 2.50% 2.40% 1.84% 1.03%

Note 4: According to the employee stock option plan, the option prices are adjusted to take into account dividends paid on theunderlying security. As a result, the expected dividend yield is excluded from the calculation.

Movements in number of stock options outstanding:

For the three-month period ended March 31, 2009

The Company’s employee stockoption plan

E-Ten’s Employee stock optionplan

Number ofoptions

(in thousands)

Weighted-average exercise

price (NT$)

Number ofoptions

(in thousands)


price (NT$)

Outstanding, beginning of year ....................................... 14,000 25.28 9,093 41.90

Granted ............................................................................ — — — —

Forfeited .......................................................................... — — (134) —

Exercised ......................................................................... — — (78) 16.90

Outstanding, end of year ................................................. 14,000 25.28 8,881 40.60

Exercisable, end of year .................................................. — 328

F-89


The Company’s employee stockOption plan

E-Ten’s Employee stock optionplan

Number ofoptions

(in thousands)


price (NT$)

Number ofoptions

(in thousands)


price (NT$)

Outstanding, beginning of year ....................................... 28,000 33.62 5,120 41.52

Granted ............................................................................ — — — —

Forfeited .......................................................................... — — (224) —

Exercised ......................................................................... — — (530) 34.29

Outstanding, end of year ................................................. 28,000 33.62 4,366 42.33

Exercisable, end of year .................................................. — 1,009

For the three-month periods ended March 31, 2009 and 2010, the Consolidated Companies recognized the compensation costsfrom the employee stock option plans of NT$72,883 and NT$118,481, respectively, which were accounted for under operating expenses.

(18) Earnings per common share (“EPS”)


Amount

Weighted-average numberof outstanding

common shares(in thousands) EPS (in dollars)

NT$ NT$


Net income attributable to common shareholders of parent company ...... 2,025,730 2,622,634 0.77

Diluted EPS


Employee bonus .................................................................................. — 37,473

Employee stock option ......................................................................... — 6,843

Net income attributable to common shareholders of parent company ...... 2,025,730 2,666,950 0.76

F-90


Amount (in thousand)

Weighted-average numberof outstanding

common shares(in thousands) EPS (in dollars)

NT$ US$ NT$ US$


Net income attributable to commonshareholders of parent company ........... 3,294,477 103,538 2,642,374 1.25 0.04

Diluted EPS

Effect of dilutive potential commonshares:

Employee bonus .................................. — — 15,128

Employee stock option ........................ — — 20,409

Net income attributable to commonshareholders of parent company ........... 3,294,477 103,538 2,677,911 1.23 0.04

(19) Disclosure of financial instruments

(a) Fair values of financial instruments

The book value of short-term financial instruments is considered to be the fair value because of the short-term maturity of theseinstruments. Such method is applied to cash and cash equivalents, notes and accounts receivable (including receivables from relatedparties), other receivables (including receivables from related parties), notes and accounts payables (including payables to relatedparties), short-term borrowings, current installments of long-term debt, payables to related parties and royalties payable.

F-91

The estimated fair values and carrying amounts of all other financial assets and liabilities as of March 31, 2009 and 2010 wereas follows:

2009.3.31 2010.3.31

Fair value Fair value

Carryingamount

Publicquoted price

Valuationamount

Carryingamount

Publicquoted price

Valuationamount

NT$ NT$ NT$ NT$ NT$ NT$Non-derivative financial

instrumentsFinancial assets:

Available-for-sale financialassets—current............................ 157,790 157,790 — 203,929 203,929 —

Available-for-sale financialassets—noncurrent ...................... 1,643,267 1,643,267 — 2,999,947 2,999,947 —

Financial assets carried at cost ....... 3,042,000 — see below (b) 2,168,684 — see below (b)

Refundable deposits (classified as“other financial assets”) ............. 752,208 — 752,208 783,046 — 783,046

Noncurrent receivables (classifiedas “other financial assets”) ......... 43,795 — 43,795 121,401 — 121,401


Long-term debt................................ 4,116,219 — 4,116,219 12,361,548 — 12,361,548

Derivative financial instrumentsFinancial assets:

Foreign currency forwardcontracts ..................................... 313,849 — 313,849 634,392 — 634,392

Foreign exchange swap ................... 6,396 — 6,396 — — —

Foreign currency options ................ 143,735 — 143,735 17,769 — 17,769


Foreign currency forwardcontracts ..................................... 1,194,080 — 1,194,080 701,726 — 701,726

Foreign currency options ................ 156,924 — 156,924 22,209 — 22,209

Foreign exchange swap ................... 704 — 704 — — —

Cross currency swap ....................... 2,653 — 2,653 — — —

(b) The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

(i) Available-for-sale financial assets—current and non-current

The fair value of publicly traded stocks is the closing quotation price at the balance sheet date. The fair value of open-end mutualfunds is based on the net asset value of the mutual funds at balance sheet date.

(ii) Financial assets carried at cost — non-current

Financial assets carried at cost represent privately held stock. It is not practicable to estimate the fair value of privately held stockas it is not traded in an active public market.

(iii) Refundable deposits

The fair values are the book values as the date of expiry cannot be determined.

(iv) Non-current receivables

The fair values are their present value discounted at the market interest rate.

(v) Long-term debt

Long-term debt is obtained at floating interest rates. The carrying value of long-term debt approximates the market value.

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(vi) Derivative financial instruments

The fair values of derivative financial instruments are estimated using a valuation technique, with estimates and assumptionsconsistent with those made by market participants and are readily available to the Consolidated Companies.

(c) For the three-month periods ended March 31, 2009 and 2010, valuation loss on financial assets and liabilities using avaluation technique amounted to NT$528,802 and NT$1,189,347, respectively.

(d) Disclosure of financial risks

(i) Market risk

Open-end mutual funds and publicly traded stocks held by the Consolidated Companies classified as “available-for-sale financialassets” are valued by fair value. Therefore, the Consolidated Companies were exposed to the risk of price fluctuation in the securitiesmarket.

The Consolidated Companies engaged in purchase transactions which are denominated in US dollars and sale transactions whichare denominated in Euros and other foreign currency. Hence, the Consolidated Companies entered into foreign currency forwardcontracts and other derivative contracts for hedging purposes. The lengths and amounts of aforementioned derivative transactions werein line with the settlement date of the Consolidated Companies’ recorded foreign currency assets and liabilities and future cash flows.Gains or losses from these hedging derivatives are expected to substantially offset those from the hedged assets or liabilities. Therefore,management believes that market risk related to the changes in exchange rates was not significant.

(ii) Credit risk

The Consolidated Companies’ credit risk is mainly from potential breach of contract by the counter-party associated with cash,equity investment, and derivative transactions. In order to control its exposure to the credit risk of each financial institution, theConsolidated Companies maintain cash with various financial institutions and hold equity investments in the form of mutual funds andstocks issued by companies with high credit quality. As a result, the concentration of credit risks related to cash and equity investmentsis not significant. Furthermore, the banks undertaking the derivative transactions are reputable financial institutions; therefore, theexposure related to the potential default by those counter-parties is not considered significant.

The Consolidated Companies primarily sell and market the multi-branded IT products to a large number of customers in differentgeographic areas. As a result, the Consolidated Companies have no significant concentrations of credit risk, and in order to lower thecredit risk, the Consolidated Companies continuously evaluate the credit quality of their customers.

(iii) Liquidity risk

The Consolidated Companies’ capital and operating funds are sufficient to fulfill their contract payment obligations. Therefore,management believes that there is no significant liquidity risk.

The available-for-sale financial assets held by the Consolidated Companies are equity securities and mutual funds, which arepublicly traded and can be liquidated quickly at a price close to the fair market value. In contrast, the financial assets carried at costare not publicly traded and are exposed to liquidity risk.

The Consolidated Companies’ derivative financial instruments are intended to hedge the exchange rate risk resulting from assetsand liabilities denominated in foreign currency and cash flows resulting from anticipated transactions in foreign currency. The lengthsof the contracts are in line with the payment date of the Consolidated Companies’ assets and liabilities denominated in foreign currencyand the anticipated cash flows. At the maturity date of the derivative contract, the Consolidated Companies will settle these contractsusing the foreign currencies arising from the hedged assets and liabilities denominated in foreign currency, and therefore, the liquidityrisk is not significant.

(iv) Cash flow risk related to the fluctuation of interest rates

The Consolidated Companies’ short-term borrowings and long-term debt carried floating interest rates. As a result, the effectiverate changes along with the fluctuation of the market interest rates and thereby influences the Consolidated Companies’ future cash flow.If the market interest rate increases by 1%, cash outflows in respect of these interest payments would increase by approximatelyNT$142,276 per annum.

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5. Transactions with Related Parties

(1) Names and relationships of related parties with the Consolidated Companies

Name Relationship with the Company

Wistron Corporation (“Wistron”) ............................... Investee of the Company accounted for by equity method

Cowin Worldwide Corporation (“COWIN”) .............. Subsidiary of Wistron

Bluechip Infotech Pty Ltd. (“SAL”) .......................... Investee of the Consolidated Companies accounted for by equity method

e-Life Mall Corp. (“eLIFE”)...................................... Investee of the Company accounted for by equity method

iDSoftCapital Inc. ...................................................... Its chairman is one of the Company’s supervisors

(2) Significant transactions with related parties:

(a) Net sales and related notes and accounts receivable

(i) Net sales to:

For the three-month periods ended

March 31,2009

March 31,2010

NT$ NT$ US$SAL................................................................................................................................. 192,129 339,707 10,676

eLIFE .............................................................................................................................. 228,614 200,063 6,288

Wistron ........................................................................................................................... — 35,281 1,109

Other (individually less than 5%)................................................................................... 22,317 2,384 74

443,060 577,435 18,147

The sales prices and payment terms to related parties were not significantly different from those of salesto non-related parties.

(ii) Notes and accounts receivable from:

March 31,2009

March 31,2010

NT$ NT$ US$COWIN........................................................................................................................... 423,822 478,977 15,053

SAL................................................................................................................................. 125,832 124,472 3,912

eLIFE .............................................................................................................................. 141,262 143,003 4,494

Wistron ........................................................................................................................... 67 112,879 3,548

Others (individually less than 5%) ................................................................................. 26,098 10,297 323

717,081 869,628 27,330

(b) Purchases and related notes and accounts payable

(i) Purchases from:

For the three-month periods ended

March 31,2009

March 31,2010

NT$ NT$ US$Wistron ........................................................................................................................... 6,527,547 7,884,634 247,796

Others ............................................................................................................................. 14 — —

6,527,561 7,884,634 247,796

The trading terms with related parties are not comparable to the trading terms with third parties as thespecifications of products are different.

F-94

The Consolidated Companies sold raw materials to Wistron and its subsidiaries and purchased back thefinished goods after being manufactured. To avoid double-counting, the sales of raw materials to Wistron and itssubsidiaries amounting to NT$17,809,365 and NT$37,518,878 for the three-month periods ended March 31, 2009and 2010, respectively, were excluded from the consolidated revenues and cost of goods sold. Having enforceablerights, the Consolidated Companies offset the outstanding receivables and payables resulting from the above-mentioned transactions. The offset resulted in a net payable balance.

(ii) Notes and accounts payable to:

March 31,2009

March 31,2010

NT$ NT$ US$Wistron ........................................................................................................................... 7,038,790 10,592,885 332,911

Others ............................................................................................................................. 163,442 6,372 200

7,202,232 10,599,257 333,111

(c) Other expenses

The Consolidated Companies paid iDSoftCapital Inc. management service fees amounting to NT$12,958 andNT$9,042 for the three-month periods ended March 31, 2009 and 2010, respectively.

(d) Advances to/from related parties

The Consolidated Companies paid certain expenses on behalf of related parties. Additionally, related parties paidcertain expenses and accounts payable on behalf of the Consolidated Companies. As of March 31, 2009 and 2010, theConsolidated Companies had aggregate receivables from related parties of NT$61,005 and NT$16,324, respectively, andpayables to related parties of NT$41,644 and NT$49,398, respectively, resulting from these transactions.

6. Pledged Assets

Carrying amount at March 31,

Pledged assets Pledged to secure 2009 2010

NT$ NT$ US$Other financial assets—certificate of time

deposit ..................................................Contract bidding, project fulfillment and

security for letter of credit 67,000 82,966 2,607

Refundable deposits—Certificate of timedeposit .................................................. Contract bidding and project fulfillment 48,076 — —

115,076 82,966 2,607

As of March 31, 2009 and 2010, the above pledged cash in bank and time deposits were classified as “other financial assets”and “restricted deposits” in the accompanying consolidated balance sheets.

7. Commitments and Contingencies

(1) Royalties

(a) The Company has entered into a patent cross license agreement with International Business Machines Corporation (IBM).Under this agreement, both parties have the right to make use of either party’s global technological patents to manufactureand sell personal computer products. The Company agrees to make fixed payments periodically to IBM, and the Companywill not have any additional obligation for the use of IBM patents other than the agreed upon fixed amounts of payments.

(b) The Company and Lucent Technologies Inc. (Lucent) entered into a Patent Cross License agreement. This licenseagreement in essence authorizes both parties to use each other’s worldwide computer-related patents for manufacturingand selling personal computer products. The Company agrees to make fixed payments periodically to Lucent, and theCompany will not have any additional obligation for the use of Lucent patents other than the agreed upon fixed amountsof payments.

(c) On June 6, 2008, the Company entered into a Patent Cross License agreement with Hewlett Packard DevelopmentCompany (HP). The previous patent infringement was settled out of court, and the Company agreed to make fixedpayments periodically to HP. The Company will not have any additional obligation for the use of HP patents other thanthe agreed upon fixed amounts of payments.

(d) The Company has entered into royalty license agreements with Microsoft Licensing, GP, MPEG LA, LLC, DolbyLaboratories Licensing Corporation and Cyberlink Corp. The Company has complied with these agreements.

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(2) As of March 31, 2009 and 2010, the Consolidated Companies had provided performance bonds totaling NT$122,858 andNT$258,408, respectively, for purposes of bids and contracts.

(3) The Consolidated Companies have entered into several operating lease agreements for warehouses and office buildings. Futureminimum lease payments were as follows:

Periods NT$ US$

2010.4~2010.12 ....................................................................................................................................... 468,269 14,717

2011 ......................................................................................................................................................... 391,735 12,311

2012 ......................................................................................................................................................... 237,901 7,477

2013 ......................................................................................................................................................... 168,440 5,294

2014 ........................................................................................................................................................ 77,031 2,421

2015 and thereafter .................................................................................................................................. 93,087 2,925

1,436,463 45,145

(4) As of March 31, 2009 and 2010, the Consolidated Companies had provided promissory notes amounting to NT$30,761,808 andNT$30,300,452, respectively, as collateral for factored accounts receivable and for obtaining credit facilities from financialinstitutions.

8. Significant Loss from Casualty: None

9. Subsequent Events: None

10. Other

(1) In accordance with Order VI-0960064020 issued by the Financial Supervisory Commission under the Executive Yuan onNovember 15, 2007, an enterprise is not required to disclose the related information about income taxes, accrued pensionliability and the total personnel, depreciation and amortization expenses in its first and third quarter consolidated financialstatements of each year.

(2) Certain accounts in the consolidated financial statements as of and for the three-month period ended March 31, 2009, havebeen reclassified to conform to the 2010 financial statement presentation for comparison purposes. These reclassificationsdo not have a significant impact on the consolidated financial statements.

11. Segment Information

In accordance with ROC SFAS No 23, “Interim Financial Reporting”, an enterprise is not required to comply with the disclosurerequirements prescribed under ROC SFAS No. 20, “Segment Reporting”, when preparing interim financial statements.

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REGISTERED OFFICE OF ACER INCORPORATED

Acer Incorporated7F, No.137, Sec.2, Chien Kuo N. Road

Taipei, Taiwan, ROC

TRUSTEE

Citicorp International LimitedRegistered office: 50/F Citibank Tower,Citibank Plaza, 3 Garden Road, Central,

Hong Kong

Correspondence office: 39/F ICBCTower, Citibank Plaza, 3 Garden Road,

Central, Hong Kong

REGISTRAR ANDPRINCIPAL PAYING, TRANSFER

AND CONVERSION AGENT

Citibank, N.A., London Branch(as Principal Paying, Transfer and

Conversion Agent)c/o Citibank, N.A., Ireland

Ground Floor, 1 North Wall Quay,Dublin 1, Ireland

Citigroup Global MarketsDeutschland AG (as Registrar)Reuterweg 16, 60323 Frankfurt,

Germany

INDEPENDENT AUDITORS

KPMG68F, Taipei 101 Tower, No. 7, Sec. 5,

Xinyi Road, Taipei, 11049, Taiwan, ROC

LEGAL ADVISORS

ROC Legal Counsel to the Company US Legal Counsel to the Initial Purchasers

Tsar & Tsai Law Firm8/F, 245 DunHua S. Road,

Sec.1, Taipei 106, Taiwan, ROC

Davis Polk & Wardwell LLP18th Floor

The Hong Kong Club Building3A Chater Road

Hong Kong

Counsel to the Trustee andPrincipal Paying, Transfer and Conversion Agent

Clifford Chance28th Floor

Jardine HouseOne Connaught Place, Central

Hong Kong

Documents

Acer Incorporated