TempleMemo.10(JV)

MEMORANDUM FOR JAPANESE NEGOTIATORS

Thank you for agreeing to assist in the second negotiating exercise being conducted as a portion of Temple Universityís Spring 1994 course entitled ìEast-West Negotiations.î We would request that you arrive at the Takadanobaba Campus (see map attached) of Temple University (2nd floor classroom) by 10:00 a.m. on April 9, 1994 for last minute orientation regarding the negotiation session.

A. Purpose of Memorandum

This Memorandum is intended to further orient you with respect to this second negotiation session. As with the prior session this session will last from 10:30 a.m. to 12:30 a.m. on April 9, 1994. You should review the materials for the prior negotiation session in conjunction with your review of the negotiating positions outlined below.

B. Scope of Intended Negotiation Session.

The second negotiating session is intended to simulate a joint venture's "kick off" negotiating session (i.e., the initial session at which various issues are sorted out prior to preparing first draft documentation). The issues are more specific than at the letter of intent stage and are typical of those which need to be considered before proceeding on to detailed document drafting.

C. Specific Negotiating Positions.

Set forth below are the positions which senior management of MC has indicated you should seek during the initial Joint Venture negotiations on April 9.
Executive CompensationMC personnel is absolutely unwilling to pay any additional benefits to expatriate personnel seconded to USM. MC's view is that such extraordinary "expat benefit packages" will destroy morale in the Japanese organization. MC's view is that all seconded expatriates must be compensated at the same level as their Japanese peers in the Joint Venture.

Dispute Resolution

Issue USM Position

Management Structure MC wishes to control the management of the Joint Venture and to reward certain senior employees with directorships on the board of the Joint Venture. Consequently, it prefers to have a large board of directors of 14 persons (7 from MC and 7 from USM) by which it expects exercise greater practical control in the Joint Venture. MC wishes to have its executives occupy the Vice-President-Personnel and Vice-President-Sales positions at minimum and would like to control the Vice President-Finance position as well.

Japan Sales Royalty for USM technology MC does not wish the Joint Venture to pay more than 3% of net sales royalty on products incorporating USM technology sold in Japan but are willing to accept 6% if necessary.

Sales Royalty on Asian sales incorporating USM technology MC does not wish the Joint Venture to pay more than 3% of net sales royalty on products incorporating USM technology sold outside Japan but are willing to accept 5% if necessary.

CLASI Technology Royalty MC does not wish to pay a royalty of more than 6% of net sales for CLASI technology Products and prefer a 4% royalty if possible.

ACE Technology
Royalty
MC desires a royalty of 6% of net sales for its license to USM of this technology but will not go lower than 4% (its rate to its preferred domestic customers).

Financing MC's finance department desires a rate of 200 basis points over Yen long term prime for the ¥2,500 billion loan to the Joint Venture, but will be satisfied with a rate of 60 basis point over Yen long term prime if USM insists (MC-Finance has estimated USM's normal Yen borrowing rate at 100 basis points over the Yen long term prime rate based on USM's S&P credit rating. MC-Finance will accept a maturity of up to 20 years for a higher spread on the loan. MC wishes to extract much of its return from the Joint Venture through the spread on the loan and rental rate on the leased property.

Rental Rate Factory land in the Yokosuka-Zushi area is currently renting for between ¥7,500 and ¥15,000 per tsubo according to MC's property development group. The MC site proposed for the Joint Venture is well situated for its proposed business. MC wishes a rental rate of ¥15,000 (top of the market) but will accept a lower rental rate from the Joint Venture because rental property values are dropping. Again, MC wishes to use the rental rate as a method of obtaining a return on its investment in the Joint Venture.

Termination MC has no particular views on this topic as it expects the Joint Venture to succeed.

MC would like all disputes resolved in Japanese courts. Alternatively, disputes could be resolved by arbitration in Japan in accordance with the rules of the Japan Commercial Arbitration Association. MC wishes to avoid expensive litigation in United States courts because of its bad experiences in the past.

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.

-End-

Issue	USM Position
Management Structure	MC wishes to control the management of the Joint Venture and to reward certain senior employees with directorships on the board of the Joint Venture. Consequently, it prefers to have a large board of directors of 14 persons (7 from MC and 7 from USM) by which it expects exercise greater practical control in the Joint Venture. MC wishes to have its executives occupy the Vice-President-Personnel and Vice-President-Sales positions at minimum and would like to control the Vice President-Finance position as well.
Japan Sales Royalty for USM technology	MC does not wish the Joint Venture to pay more than 3% of net sales royalty on products incorporating USM technology sold in Japan but are willing to accept 6% if necessary.
Sales Royalty on Asian sales incorporating USM technology	MC does not wish the Joint Venture to pay more than 3% of net sales royalty on products incorporating USM technology sold outside Japan but are willing to accept 5% if necessary.
CLASI Technology Royalty	MC does not wish to pay a royalty of more than 6% of net sales for CLASI technology Products and prefer a 4% royalty if possible.
ACE Technology Royalty	MC desires a royalty of 6% of net sales for its license to USM of this technology but will not go lower than 4% (its rate to its preferred domestic customers).
Financing	MC's finance department desires a rate of 200 basis points over Yen long term prime for the ¥2,500 billion loan to the Joint Venture, but will be satisfied with a rate of 60 basis point over Yen long term prime if USM insists (MC-Finance has estimated USM's normal Yen borrowing rate at 100 basis points over the Yen long term prime rate based on USM's S&P credit rating. MC-Finance will accept a maturity of up to 20 years for a higher spread on the loan. MC wishes to extract much of its return from the Joint Venture through the spread on the loan and rental rate on the leased property.
Rental Rate	Factory land in the Yokosuka-Zushi area is currently renting for between ¥7,500 and ¥15,000 per tsubo according to MC's property development group. The MC site proposed for the Joint Venture is well situated for its proposed business. MC wishes a rental rate of ¥15,000 (top of the market) but will accept a lower rental rate from the Joint Venture because rental property values are dropping. Again, MC wishes to use the rental rate as a method of obtaining a return on its investment in the Joint Venture.
Termination	MC has no particular views on this topic as it expects the Joint Venture to succeed.
MC would like all disputes resolved in Japanese courts. Alternatively, disputes could be resolved by arbitration in Japan in accordance with the rules of the Japan Commercial Arbitration Association. MC wishes to avoid expensive litigation in United States courts because of its bad experiences in the past.