DINSMORE & SHOHL Regional and National Law Firm Offices: Ohio, Kentucky, Pennsylvania and West Virginia

1. DINSMORE & SHOHL Regional and National Law Firm Offices: Ohio, Kentucky, Pennsylvania and West Virginia 300 Lawyers (40 in Intellectual Property, 160 in Litigation, 100 in Business/Tax/Real Estate/Banking, etc.) Clients: 60 Foreign clients with offices in the USA Clients: 60 Non-U.S. clients who do business in the USA without official offices

2. Harvey Jay Cohen, Esq. harvey.cohen@dinslaw.com Telephone 1-513-977-8144 Facsimile 1-513-977-8423 At Dinsmore & Shohl for more than 18 years Georgetown University A.B. Cum Laude 1982 Columbia University, Master International Affairs, Magna Cum Laude 1984 University of Cincinnati, Juris Doctor, Order of the Coif 1987 Please do not hesitate to ask questions during out presentation and afterwards by e-mail or telephone

3. FUNDAMENTALS OF BUILDING YOUR BUSINESS: Principal Questions for Chinese/Non U.S. companies doing business in the USA Many services provided are faster, easier and cheaper in the USA . . . Lawyers Accountants Banks Registrations with the Government Regulation of products is less stringent in many areas. This laxity varies greatly depending on the type of products and whether they are for sale to consumers or businesses Distribution of products, even across and into a vast market Taxes, unemployment insurance

4. Entry into US, Initial Advice Always use a top-notch lawyer, not just a Los Angeles or New York, etc. A Delaware Corporation is not necessary For example, Procter & Gamble, large oil companies and other U.S. large companies are Ohio corporations. The vast majority of public corporations are not Delaware corporations Do not double your expenses and administrative burden

5. First Steps Hire an Accountant/Tax advisor, register patents and trademarks and fulfill immigration formalities Create a PRC or offshore subsidiary to make U.S. sales or to own the U.S. entities, isolate the mother company from liability from the USA

6. State vs. Federal (Washington, D.C.) Law Uniform Commercial Code (state law on sales) Each state has its own Corporation/Business Code Each state is different in some ways, some important and some insignificant

7. Competition Competition/Anti-trust laws and enforcement are lax It is illegal for competitors to agree on purchase or sales prices A principal may not require a reseller to sell at a specified price. A principal also may not establish resale price floors and ceilings in most cases Typically, a seller may not require that other goods be purchased along with a desired product

8. Credit It is difficult to recover lent money or accounts receivable, as federal and state laws favor the debtor, especially in bankruptcy

9. Protect Yourselves Retain a Security Interest for sales of inventory and equipment (you cannot retain title) Consider credit insurance Do not give liberal credit terms Be careful on all payment terms or else operate at your peril Do not continue to ship goods if past invoices are not paid Use well-drafted sales documentation, security interests and safe payment structures You can charge interest on past due invoices. Typically 18%, depending on state law

10. Product Liability It is often said that this is a problem in the USA, and it is true Lawyers for victims are not paid by the hour, but take 33% of all awards Product liability insurance is essential Again, it is key to operate in an affiliated structure, reducing risk to the parent

11. Sales Laws The UN convention on the International Sales of Goods (CISG) applies in the USA. Pay attention. If a governing law clause in a contract designates a State (UCC) or PRC law, without specifically opting out of the CISG, the CISG will control and apply as the CISG automatically substitutes for state and PRC law. Pay attention to these clauses and opt out of the CISG if you wish.

12. Jurisdiction/Courts In contracts, it is possible: To be silent on venue Or to designate a PRC tribunal, i.e., Peoples Court of Beijing Or to choose a State/County court in the U.S. Or to choose mediation Or to choose arbitration Or to require business executives escalation between parties before commencing litigation

13. Forms of Contracts Insist that all contracts be complete and signed. Avoid verbal contracts or those on “scrap paper”/“cocktail napkins” In the USA you can choose the law to apply Conclusion: Freedom of contract is the rule in the U.S. You should use this freedom to your advantage

14. Contract Clauses You can limit damages to the value of the products or services sold You can limit warranties, e.g., the only warranty is performance to specifications for 90 days You can limit types of damages, e.g., eliminate consequential, indirect and punitive damages You can have an internal statute of limitations, e.g., after one year an aggrieved party cannot sue the other party It is possible to exclude all other guarantees/warranties, sometimes, it is even possible to sell “as is” without a warranty Contracts for services are similar

15. Shipping/Transportation We recommend using Incoterms shipping terms defined by the International Chamber of Commerce. For example ExWorks, Seller dock (I.C.C. Incoterms 2000). The Seller is only responsible until the goods sold cross over his dock, and then title and all risk of loss transfer to the Buyer

16. Customs Country of Origin must be clearly indicated on each product or its container You may not artificially reduce the value of imported or exported goods to pay lower duties

17. Distributors/Re-Sellers and Sales Representatives Use a carefully written-contract Keep the term short No automatic renewals Register al marks, URLs, Patents, etc. Non-competition clauses are essential and may continue after expiration/termination Minimum sales levels to retain exclusivity Use a list of objective standards, which if breached, leads to termination You can terminate a Distributor or Sales Representative Agreement more simply than in other countries with less fear of damages. This result, depends on state law.

18. Entities Corporation Limited Liability Company (LLC) General Partnership (Partnership) Branch office of foreign entity (Branch)

19. Articles of a Company filed with State Government All forms of entity are granted/governed on receipt by states. No application process, approvals, financial statements, feasibility studies, etc. In Ohio, this happens on same day service. US state laws in general are more liberal, less regulatory and less rigid, especially the LLC (you can almost do anything from a governance standpoint Little or no required capitalization No requirements for an annual audit or filing of financial statements The identity of offices and director is secret Financial results are secret

20. Conclusion In general, it is more simple, fast, easy, less regulated and cheaper to do business in the USA If you need assistance in the USA, please call us early in the process to use us to your maximum advantage 1164883 1164883v1