SECRET INSTRUCTIONS FOR NEB
The President of NEB places great importance on the proposed license and distribution agreement with MBC. He considers penetration of the Japanese market critical to maintaining NEBís leading market position in the world. In particular it is essential that the agreement assure NEB brand products full access to MBC repair and replacement and wheel aftermarket sales networks.
The President of NEB believes that MBCís distribution network could never be duplicated by MBC at any price and its long-term access to the network must be assured. Eventually, NEB would like to acquire this network from MBC, but the President knows this can only be discussed after many years of close cooperation with MBC. The license and distribution agreement is a first step in establishing a close NEB/MBC alliance in Japan. NEB would like to have as long a license and distribution term as possible.
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NEB wishes to obtain a grant-back license for any improvements in know-how and patents developed by MBC using NEBís technology.
On NEB brand products produced by MBC for distribution in Japan, NEB would like 7% of Net Sales but would agree to as little as 5% of Net Sales. In order to make sure that MBC promotes NEB brand products and maintains their quality (NEB Products enjoy strong brand recognition and a quality reputation internationally), NEB wishes to have the right to supply up to 50% of all NEB Products from facilities outside Japan. MBC will also be required to maintain a minimum annual level of sales through its network. NEB minimum and target objectives for the first five years of the NEB/MBC relationship are as follows (based on NEBís market research):
Products Sales Plan
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
Minimum Sales | 100 | 400 | 700 | 1,000 | 1,300 |
Target Sales | 500 | 1,000 | 2,000 | 4,500 | 7,500 |
ìBest Caseî Sales | 800 | 2,000 | 4,500 | 7,500 | 11,000 |
NEB wishes to protect its international market sales from competitive sales of MBC produced NEB Products and from MBC produced Products using its and NEBís technology. Under no circumstances can MBC be permitted to export Products made using NEB technology (whether NEB brand or MBC brand Products) to the North America or European markets. NEB would prefer that such Products also not be sold to South and South-East Asia markets where NEB has on-going expansion plans. NEB has no objection to MBC sales to Korea continuing (as currently undertaken by MBC) and would be willing to permit sales to Taiwan, the Philippines and Malaysia if necessary to secure a distribution capacity in Japan. Sales to China might be considered, but NEB strongly wishes to discourage MBCís overseas expansion in this area because of its significant future potential.
The President hopes you can arrange as lucrative a license and distribution agreement as possible without compromising NEBís international objectives or losing sight or NEBís long-term objectives in Japan.