TempleMemo.10(JV)

MEMORANDUM

To: Mr. John Proudman

From: Thomas Blackacre, Esq.

Re: Proposed Production Project in Japan

Date: April 2, 1994

_____________________________________________________________

Attached is the final letter of intent (Memorandum of Understanding) with Muttsubishi Corporation as executed as of April 1, 1994. You will note that while the Memorandum of Understanding covers many of the important points regarding the establishment of our Asian production base (e.g., form, territories, ownership and committed technologies), a number of issues remain pending with Muttsubishi. Notable among these are royalty pricing, management structure, termination conditions and various technical issues such as dispute resolution. Set forth below are the positions you have indicated that senior USM management should seek during the actual Joint Venture negotiations later this week in Tokyo.
Executive CompensationWe would like the Joint Venture to pay the relevant costs for expatriate personnel seconded to the Joint Venture (in accordance with an international accounting firm's recommendations). However, if MC objects, we would accept that such executives will be compensated at their relevant levels in Japan by the Joint Venture and USM will pay any additional benefits provided to such expatriates.
Termination We may need to exit the Joint Venture if the partnership with MC does not work out. We would propose a process whereby if the Joint Venture does not have a net profit for more than 5 consecutive years commencing the third year of the Joint Venture, either party may propose to buy-out the other party at a specified price for the other's outstanding shares in the Joint Venture. If the other party refuses to sell the relevant shares at such offered price, such party must purchase the offeror's shares at said price per share. Outstanding technology licenses shall continue for a period of 5 years following any such buy-out. Dispute Resolution

Issue USM Position

Management Structure We must keep close watch over the management of the Joint Venture. Consequently, we would prefer a board of directors of 8 persons (4 from MC and 4 from USM). We would like a USM expatriate to hold the legal position of Representative Director and the official position of Chairman or President. We also wish to have USM expatriates hold the positions of Vice President-Finance and Vice-President-Operations.

Japan Sales Royalty for USM technology We want a 6% of net sales royalty on products incorporating USM technology but are willing to accept 4% if Muttsubishi can produce results.

Sales Royalty on Asian sales incorporating USM technology We would like to see a 6% of net sales royalty on products incorporating USM manufacturing technology but we should be flexible based on market needs.

CLASI Technology Royalty We want a royalty of 7 or 8% of net sales and certainly not lower than 5% of net sales of Products incorporating this technology.

ACE Technology
Royalty
We are willing to pay up to 6% of net sales for this technology but would like to pay less.

Financing Our cost of funds from our United States banks for the ¥2,500 billion portion of the Joint Venture loan is 120 basis points over the Yen long term prime rate. The maximum maturity such banks would lend to us is 10 years. We would like to obtain a longer term (20 years if possible) and a lower spread.

Rental Rate Our sources suggest that factory land in the Yokosuka-Zushi area is currently renting for between ¥8,000 and ¥14,000 per tsubo and that the MC land is well situated. We would like a rental rate as near to ¥8,000 as possible since rent payments will take funds out of the Joint Venture (another source of return to MC on this Joint Venture).

Of course, there are a variety of other issues which may need to be resolved during the Joint Venture negotiations and these should be taken up after the above primary issues are resolved in the first negotiating session.

I am distributing a copy of this Memorandum to the negotiators for their reference.

-End-

Issue	USM Position
Management Structure	We must keep close watch over the management of the Joint Venture. Consequently, we would prefer a board of directors of 8 persons (4 from MC and 4 from USM). We would like a USM expatriate to hold the legal position of Representative Director and the official position of Chairman or President. We also wish to have USM expatriates hold the positions of Vice President-Finance and Vice-President-Operations.
Japan Sales Royalty for USM technology	We want a 6% of net sales royalty on products incorporating USM technology but are willing to accept 4% if Muttsubishi can produce results.
Sales Royalty on Asian sales incorporating USM technology	We would like to see a 6% of net sales royalty on products incorporating USM manufacturing technology but we should be flexible based on market needs.
CLASI Technology Royalty	We want a royalty of 7 or 8% of net sales and certainly not lower than 5% of net sales of Products incorporating this technology.
ACE Technology Royalty	We are willing to pay up to 6% of net sales for this technology but would like to pay less.
Financing	Our cost of funds from our United States banks for the ¥2,500 billion portion of the Joint Venture loan is 120 basis points over the Yen long term prime rate. The maximum maturity such banks would lend to us is 10 years. We would like to obtain a longer term (20 years if possible) and a lower spread.
Rental Rate	Our sources suggest that factory land in the Yokosuka-Zushi area is currently renting for between ¥8,000 and ¥14,000 per tsubo and that the MC land is well situated. We would like a rental rate as near to ¥8,000 as possible since rent payments will take funds out of the Joint Venture (another source of return to MC on this Joint Venture).