Building the Future ofCommunications Technology Together

Quality Products, Good Faith Cooperation

Preliminary Mattersz Implementation of a Coordination

and Communications Committeez Monitor and implement joint initiatives

for further cooperationz Ongoing consultation

Agenda1.

Sale of Integrated Circuits Division(ICD)2.

Long-Term Agreement

3.

Joint Venture Company

Red Company, Inc.
z World leader in electronic

component manufacturez Strong Balance Sheetz Steady Growthz Visionary R&D Departmentz Consistent record of innovation inproduct developmentz Long business relations with BlueNegolandz GDP Growth of 3% to 6% for thepast 5 years
z Pool of Human Resourcesz Economic and Trade Relationshipz FTA Negotiations between Negoland
and Arbitria

Sale of Integrated Circuits DivisionInternationally renowned, world’s mostadvanced Integrated Circuits for mobilephones and audio equipmentz High-Tech and Modern Facilityz Efficient Research and Development
Teamz Established product sales market
z Established supply lineszFacility

Integrated Circuits Departmentz Global Leaders in the Developmentof Circuits

Research and Development Teamz Development of IC’s since 1970z Leader in IC Technologyz LSI Specializationz Customized for Blue’s Mobile Phonesz Dominant Market Share for Audio

Equipmentz 50 Highly Skilled and InnovativeResearchers

Value of Integrated Circuit Division
Based on Investment Bank Formula,if growth continues at 6%, thevalue of the ICD totals:

US$ 1.05 Billion

Investment Bank Formula

Evaluation = 4.5 X 108 + Growth Rate X 1010

*Measurement: Nego Dollars

Negoland GDP
z GDP growth rate at 3% to 6% inthe past 5 years;z Increase of 1% after signing Free

Trade Agreement (FTA)Valuation based on GDP Growth Rate
12001050
950

1000800850750600
40020003%4%*Measurement in million US Dollars

5%6%Saturation of Arbitria Market

172013*measurement in Millions

Untapped Global Market
z The fast-growing global market

passed 800 million sales by the endof 2005.[1]z Purchase would thus lead to a morecompetitive Blue with an optimistic
outlook as to future profits.
[1] http://news.com.com/Mobile+phone+sales+pass+800+million/21001039_3-6037984.html. last retrieved, 11/29/2006.

Red’s Continuous Sales Growth
7,000

7,000

2005

2006

6,000

6,000
5,000

7,000

5,000

5,000

4,000
3,000
2,000
1,000
02002

20032004

Current Mobile Phone Salesm obile phone sales ofB lue
1000

1000
800700600400500600

40020002001

2002

2003

2004

Year*measures in ten thousand cases

2005

Great Potential to Gain Larger Portionof Global Market Sharez

IDC (a subsidiary of IDG) Report on the2005 mobile phone market
z –specific semiconductor market grew 4%,

to $18.5 billion

Texas Instruments and QUALCOMM remain in
the number 1 and 2 positions.[1]z Blue can build on the power of the integrated
circuit department to increase revenues.
z[1] http://www.electronics.ca/reports/ic/phone_semiconductors.html,last retrieved, 11/29/2006.

Liability of Red After Salez Limited Scopez Consequential Losses Excluded
z Limited to Cost for Exchange andRepair of Defected Assets

Period for Claiming Damages
z Limitedto Period of Three Monthsz Once sale complete, Red has no control

over operations, facility standards, andadherence to manufacturing protocols
z Due Diligence PeriodJob Securityz

Job Security of 2 Years for Red Employees After Salez

HOW: Blue to operate out of existing facility inNegoland for the two year period.
would “ease the transition” for Blue.
z No severance issues
zzz

once purchase is complete they’re subject to Nego law whichis arguably more employee-friendly than Arbitria

Employees are an asset:
z difficult to replace a skilled workforce
z avoids delays inherent in re-trainingz staff is knowledgeable with our developed
technology and processes

Maintenance of Existing
Employment Conditions
zSame Level of Benefits Maintained for
Existing Employees During 2 year
Job-Security Periodzz

If utilize Red’s facility, Negoland social safetynet will generally make up for any differencesbetween Red/Negoland and Blue/Arbitria
benefit packages

Difference in Negoland (40%) and Arbitria(35%) corporate income tax negated bysavings in employee benefits, facility
start-up, etc.

Long Term Cooperative Agreement

Duration of Agreementz 3 Years Subject to Extensionz Cooperation with an Eye to EventualFormation of Joint Venture Companyz More Flexible for BOTH Parties

R & D Facilityz Picture
QuickTime™ and aTIFF (Uncompressed) decompressor
are needed to see this picture.

QuickTime™ and a
TIFF (Uncompressed) decompressor
are needed to see this picture.

Benefits of Red’s Facility
z There are too many unknowns in constructing anew facility

Oil, Steel, and Copper prices are on the risez World-wide labour shortagez Construction costs are usually underestimated, and tend
to go over budget
z Further delays can result from permit, engineering, andinspection issues
zz Delays and unforeseeable costs hamper R&D which

in turn hampers our ability to take a share of thecommunications market.

The Rising Cost of Commodities<www.washingtonpost.com>: Bill Torque, Rising Costs Throw Wrench Into Counties' Building(April 28, 2006)

The Rising Cost of Commodities“As the worldwide demand for steel increased, shortages in theU.S. market drove cost hikes. … shortage affected not only
structural steel but also miscellaneous specialty products suchas those used in the mechanical and electrical trades. Indeed,throughout most of last year, steel suppliers wouldn’t holdprices for longer than a week …”“It’s extremely difficult to predict a project’s cost if theprice of a universal material such as steel can’t beaccurately forecast well in advance of the contract
award.”<http://f1.grp.yahoofs.com/v1/QLRrRWEdfG0cCsSlFYlE8FW8PntgKSXoVLGs9RKTqh4UK3Nf8srf
7SJEhbF2kgYtFqMmOv-JBIouPY0kYcJPZQ/CONSTRUCTION%20COSTS.htm>: Curt Miller,
Managers need to buff crystal ball to forecast construction costs.

The Rising Cost of Commodities•Zinc: Average prices are 62% higher than in 2005. Consumption
projections for 2006 could lead to an unprecedented record deficit on
the market (567 000 tons).
•Copper: Average prices are 34% higher than in 2005. But
consumption fell in the first two months of this year, potentiallysignalling a trend break.
•Lead: prices have fallen slightly since the beginning of the year, but
are still at historically high levels.
•Nickel: by far the most striking rise. Prices reached fifteen-year
highs already in 2003. Since then, they have remained very high andnew price increases occurred at the beginning of 2006.
•Gold: prices reached $676.25 per ounce in early May - the highest
price since October 1980. The World Gold Council (WGC) sees theprice of gold reaching $850 an ounce over the next 18 months.
http://www.unctad.org/TEMPLATES/Page.asp?intItemID=3824&lang=1: 23 May 06 - Metal
prices reach record levels

DELAYS HARM THE
INTERESTS OFBOTHRED AND BLUE

Benefits of Red’s Facilityz If Red’s pre-existing building is used, R&D can startalmost immediately

z If any re-fitting is required to accommodate theresearch plan, it will almost certainly be cheaperand faster than constructing an entirely newbuildingz It’s unavoidable that starting up joint R&D will taketime:z Personnel training, establishment of research
protocol, etc.
z WHY ADD TO THIS TIME BY

CONSTRUCTING A NEW FACILITY?

Benefits of Red’s Facility
THE BOTTOM LINE:
Red is adopting significant risk in offering
this facility
Our integrated circuits department israpidly growing
We could use the research space, but are
willing to offer the facility in order thatboth Red AND Blue may quickly realize on
the benefits of a strong joint R&D program.

Value of Red’s Facilityz Cost of New Faciltiy is 20 Million
z Unlikley to be constructed to budget:z Thus fair to value Red‘s existingfacility at 20 Million.

Calculation of Red’s ContributionTotal

1st Year 2nd Year 3rd Year

Facility

20

6.7

6.7

6.7

Cash

25

8.3

8.3

8.3

Total

45

151515% ofYearly
R&D

50%50%50%

50%

Depreciated Value of Red’s Facilityz Cost of New Facility estimated at 20Million

z Value of Red’s existing facility can bedepreciated to account for age.

Calculation of Red’s Contribution:
5% Depreciation
Total

1st Year 2nd Year 3rd Year

Facility

19

6.33

6.33

6.33

Cash

26

8.67

8.67

8.67

Total

45

1515

15% ofYearly
R&D

50%50%50%

50%

Calculation of Red’s Contribution:
10% DepreciationTotal

1st Year 2nd Year 3rd Year

Facility

18666Cash

30

999Total

45151515% ofYearlyR&D

50%50%50%50%

Calculation of Red’s Contribution:
15% Depreciation
Total

1st Year 2nd Year 3rd Year

Facility

17

5.67

5.67

5.67

Cash

28

9.33

9.33

9.33

Total

45

1515

15% ofYearlyR&D

50%50%50%50%

Calculation of Red’s Contribution:
25% Depreciation
Total

1st Year 2nd Year 3rd Year

Facility

15

555

Cash

30

101010Total

45151515% ofYearly
R&D

50%50%50%50%

Joint Venture Company

Presidentz

Mr. Az Head of Integrated Circuits Departmentz Proving Leader in IC Developmentz Extensive Technical and AdministrativeSkills

Company Namez

Red & Bluez Our name is synonymous with top ofthe line ICs.
z International Distribution

Target Market
z Go global!
z Maintain market share in Arbitria
z Expanding in International Market

Gender Equalityz Must ensure that the workplaceenvironment adheres to thestandards found in Negoland, andthose set by Arbitrian legislation

Advantage of Investing More Cash
R &D

R &D

info& com 's R & D funds

14,00012,00010,000
8,000
6,000
4,000

3131.943081.08

3525.00

3869.054333.33

2,00002002

2003

Measurement: Arbs or Nego

200420052006

Annual Contribution per Year
assets value
101086.67

65442023

Measurement: million US Dollar

45Composition of Red’s Contribution
1614
1258.33

10

10
1086

contribution inkind1046.67

254

15

140
15

contribution incash

15

Measurement: million US Dollar

Composition of Contributions
3025

1515151420
Red15Blue
1015

15

15

16234550

Measurement: Million Dollar