1. Jackson Walker L.L.P.Strategic Issues and Legal Challenges in Global Business and Foreign Investments October 15, 2009Arcie I. Jordan Jackson Walker L.L.P. 100 Congress, Suite 1100 Austin, Texas 78701 512.236.2209 (p) ajordan@jw.com

2. For International Business The opportunities are exciting. The potential rewards are great. But for those that do not recognize & deal with the legal challenges, significant problems may arise. Adequate advance research & planning are absolutely essential in dealing with such challenges. 3. For example: U.S. exporters need to be VERY vigilant and must comply with U.S. export control laws. Some buyers are determined to circumvent U.S. law: Inthe case of Aviation Services International, B.V. ("ASI"), anaircraft parts supply company, the buyers were using falseend-user certifications & third countries as trans-shipmentpoints for controlled goods to Iran without a license. U.S. exporters cannot self-blind and ignore red flags. Even when the U.S. exporter may not know that the buyeris not being truthful, if the U.S. exporter does not have asystematic approach to compliance with export controls, itmay also have a problem. 4. And, it isnt just the bad guys who get in trouble Thermon Manufacturing Company, San Marcos, TX remitted $14,613.24 to settle allegations of violations of the Sudanese Sanctions Regulations occurring in three separate transactions in 2004 & 2005, and involving the export and/or re-export of heat tracing equipment, and facilitation of such exports and/or re-exports. Note: This settlement followed a voluntarily disclosure byThermon to OFAC and the adoption of corrective measures andimprovements to its OFAC compliance procedures. More importantly: This matter was resolved according toOFAC's 2003 enforcement guidelines that set the maximumpenalty at $11,000 per violation. The current maximum penaltyfor violating the Sudanese Sanctions Regulations is $250,000per violation. 5. So U.S. business persons need to: Do their homework in advance Budget for compliance initiatives sooner rather than later Prioritize compliance throughout the life of their international business activities Be vigilant in maintaining compliance in the face of evolving standards & requirements 6. Strategic Issue: Compliance with U.S. Laws a. Sector-specific regulatory requirements (e.g., FDAregistration/approval) b. Federal Trade Regulations (FTRs) Old SED filing requirement Now EEI filings in Automated Export System (AES)required c. Export controls d. Anti-bribery & Anti-corruption prohibitions Foreign Corrupt Practices Act Target country laws OECD Convention 7. U.S. Export Controls The Bureau of Industry and Security (BIS), within Department of Commerce, responsible for implementing & enforcing the Export Administration Regulations (EARs), which regulate export and re-export of most commercial items. Often referred to as "dual-use since items often have bothcommercial and military or proliferation applications Include technology and software, including encryptionsoftware and high performance computers Encryption items have special provisions 8. Goods Subject to the EARs EARs provide all items in the U.S., including in a U.S. FTZ or moving in transit through the U.S. are subject to the EARs, unless they are subject to a more specific jurisdiction. A license to export an item subject to the EARs will depend on the item's technical characteristics, the export destination, the end- user and the end-use. To determine if a license is required, the item must be classified under the Commerce Control List (CCL) and a determination must be made that it does not fall under the United States Munitions List Items in the USML include items that are specifically designed for military purposes. Manufacturers may self-classify their products, but only way to obtain a binding classification is by submitting a formal Commodity Classification Request to the BIS. 9. Export Control Violations Administrative penalties include termination of export privileges and suspension and/or termination of government contracting privileges. Monetary penalties of: For criminal (knowing) violations Up to $1 million per company Up to $250 thousand per individual For civil (negligent) violations Up to $12 thousand dollars per company or individual. 10. A Key Dont Don't make an intentionally false or misleading statement to BIS. Carol Wilkins individually fined $15,000 for doing so.(Her employer, RF Micro Devices, Inc., separatelyfined $190,000.) From 2002-2003, RF Micro Devices, Inc. exportedspread-spectrum modems (which are classified asECCN 5A001) to China, without a license. 11. Bribery A company that encounters a bribe request or considers offering a bribe faces four risks: Criminal prosecution Dysfunctional relationships Damage to reputation Destruction of markets (political/economicdestabilization Development of individual corporate codes/policies and incorporating them into corporate culture is paramount. 12. FOREIGN CORRUPT PRACTICES ACT 15 U.S.C 78 dd-1 et seq. (Enforced by the SEC & Department of Justice) What Does the FCPA Prohibit? The foreign corrupt practices prohibited by the FCPA consist offive elements. The use of an instrumentality of interstate commerce (e-mail,telephone, fax air transportation, mail in furtherance of; a payment or an offer to pay anything of value directly orindirectly; to any foreign official, foreign political party of foreign politicalcandidate; if the purpose of the payment is the corrupt one of gettingsuch person to act or refrain from acting or otherwisesecuring an improper advantage; in order to assist the company in obtaining or retainingbusiness or in directing business to any particular person. 13. The FCPA Permits Certain Facilitating or Expediting Payments Obtaining permits, licenses to qualify an entity to do business ina foreign country Processing papers, such as visas Providing police protection, mail service, certain inspections Providing utility services, loading or unloading cargo As long as they do not violate the foreign countrysdomestic laws. Travel & Promotional Expenses Must be reasonable and bona fide expenses Travel and lodging expenses must be directly related topromotion, demonstration, explanation of products, technology. Provided payments that are lawful under the written lawsand regulations of the recipients country. 14. Strategic Issue: Understanding Target Market a. Cultural issues (e.g., certain goods unacceptable)b. Preference for local company vs. attraction of aforeign companyc. Legal framework1) Local partner legal requirements2) Foreign investment restrictions3) Entity-level registrations or permits4) Industry regulations5) Business structuring options 15. Business Structuring Options Direct Foreign Driven by: Presence Target country regulations,e.g.: Local presence requirement Foreign subsidiary Domestic entity requirement Branch office But, also by: Representative office Tax considerations Joint Venture Corporate image concerns Partnership(i.e., being a goodcorporate citizen) Bilateral & Multilateraltreaty provisions 16. Business Structuring Options Indirect Foreign Considerations Presence Local Restrictions Ability to Terminate Noncompetition DistributionRestrictions Agency Exclusivity & Territory Marketing Permanent representative Establishment Issues Franchise Disclosure Licensing/FranchisingObligations U.S. Law Local Law 17. Business Structuring Options No Foreign Presence Of paramount importance Export by U.S. directly contracts for the sale of to foreign purchasergoods Transmission of information via Basics: internet/computer Terms of Sale networks Allocation of Costs &Risks Delivery & Payment 18. Additional Contract Issues U.N. Convention on the International Sale of Goods (CISG) Gap filling rules Provides for rights & obligations of buyers & sellers Applies to international sales of goods (not services, not consumer goods) when buyer & seller have places of business in different states that are parties to the Treaty Law of the State since it is a Treaty ICC INCOTERMS 2000 International commercial terms re: Risk of loss, Insurance & Freight not Title In the process of being revised; new version expected by Jan. 01, 2011 19. Additional Contract Issues Governing Law Payment Issues Authority (Apparent/Express) Enforceability Issues Governing Language Notifications Dispute Force Majeure Resolution/Jurisdiction Formalities Required Currency Restrictions 20. Governing Law Applicable laws: U.S. mandatory laws What law will control validity (tax, export controls,and performance of contract? antitrust) Where is the contract likely to Foreign mandatorybe enforced? laws (tax, customs, Does foreign jurisdiction labor, environment)involved recognize/uphold International lawchoice of law by parties? (Treaties) Evidentiary issues in foreignjurisdiction. Dual law and jurisdictionclauses. Possibility of a neutral choiceof law. 21. Governing Language Enforceability concerns Registration Requirements Interpretation issues Dual Language Contracts 22. Strategic Issue: Movement & Protection of Goods and Intellectual Property a. Registrations, licenses & prior permits b. Duties, quotas, & taxes c. Local/international registration of trademarks &patents & enforcement d. Property involved Know How Trademarks Patents Domain Names Copyrights Trade Secretse. Transfer pricing and super royalties f. IP - Export controls 23. Strategic Issue: Personnel Issues a. Target country immigration and labor & employmentrequirementsb. U.S. immigration and labor & employment issues 24. Strategic Issue: Tax Planninga. Target country tax issues b. U.S. taxation Income vs. value added vs.excise taxes vs. asset taxes Withholding obligations Gross-up provisions Unbundling Treaty vs. Domestic & Foreign laws 25. Strategic Issue: Exit Strategies a. Buy-Out Provisionsb. Dissolution Provisionsc. Repatriation of funds 26. Final Thoughts Entrepreneurial spirit should be encouraged Business risk analysis is appropriate But Short term gains may not justify the real costs thatnow accompany violations in a variety of areas And always remember An ounce of prevention may be a betterinvestment than a pound of cure!