1. Strategic China Entry Deal Flow, Profit and IP Protection 登陆中国商务法律要旨 商盟利益知识产权保护 Presented By Kam W. Li HK Association of So CA/CA Society of CPA’S October 20, 2005 © Kam W. Li 2005 (619) 238-1900 kwl@procopio.com

2. Why Greater China Large economy Market Growth Desire for foreign technology and brands Desire for foreign market channels Want business know-how World’s manufacturing capital © Kam W. Li 2005 (619) 238-1900 kwl@procopio.com

3. Opportunities for U.S. Companies Contract manufacturing, outsourcing - most common Marketing and distribution of unique consumer goods – e.g. medical, health, wellness products Trend – Technologies, brands, entertainment, investments Technology transfer, IPR, strategic partnering Chinese presence in the U.S. © Kam W. Li 2005 (619) 238-1900 kwl@procopio.com

4. Business Objectives Outsourcing -Improve economic efficiency for production/Capture additional business/ Increase production capabilities/Increase R & D capabilities Market entry - Expand marketing network and channels Acquire new products Generate licensing opportunities Investment opportunities Financial resource © Kam W. Li 2005 (619) 238-1900 kwl@procopio.com

5. Lack of knowledge in the market, legal and regulation environment Lack legal protection IPR concerns Expatriation of profit Recouping investments Common Concerns © Kam W. Li 2005 (619) 238-1900 kwl@procopio.com

6. Assume laws and regulations are easy to deal with Assume expertise and qualifications of partners Rely on representations without checking Rely on assumed level of integrity, loyalty and fiduciary duty Pitfalls © Kam W. Li 2005 (619) 238-1900 kwl@procopio.com

7. Fail to understand differences in laws and cultures Fail to communicate – both ways Fail to manage the process and the relationship affecting management and project Remote control More Pitfalls © 2005 Kam W. Li (619) 238-1900 kwl@procopio.com

8. Strategic Objectives Local presence/strategic relationship/ market entry/share/penetration Fast product launch/expand marketing channel Reduce regulatory and cultural risks Reduce management and financial inefficiencies Ensure returns on investment (payment for goods/licensing fees and royalty Reduce IP risks Appropriate exit strategy © Kam W. Li 2005 (619) 238-1900 kwl@procopio.com

9. Strategic Initiatives Leverage on local partner’s strengths, infrastructure, market access and channels, regulatory know-how, government relationships Protect IPR Adopt risk allocation techniques Perform due diligence Define exit strategy © 2005 Kam W. Li (619) 238-1900 kwl@procopio.com

10. Actions Seek top-tier local partners with mature infrastructure, market reach and competent management Retain local counsel for legal and regulatory guidance Engage cross-cultural professionals with knowledge, expertise and track records for due diligence and relationship management Cultivate relationship with local government Use cultural relationship to drive business and enforcement of rights Manage the process © 2005 Kam W. Li (619) 238-1900 kwl@procopio.com

11. Sample Deals Outsourcing Medical device PhytoPharmaceuticals © 2005 Kam W. Li (619) 238-1900 kwl@procopio.com

12. Outsourcing - Manufacturing US Manufacturer Hong Kong Partner China Factory 20% Preferred Vendor Advantaged relationship Committed contract 100% Define cost/effectiveness Allocate production work Technical/production/quality support Logistics and transportation Production Materials Labor Shipping Increase earnings Shared savings Public offering Products © 2005 Kam W. Li (619) 238-1900 kwl@procopio.com

13. Patented PhytoPhamaceuticals German Pharmco HKJV China Pharmco Patent Portfolio Proven products Clinical studies Patent License Exclusive Supply Agreement 10% Patent Sublicense Exclusive Distributorship Agreement 90% Payment Market and Tech support Knowledge with SFDA Covers 350 hospitals Has international experience Pricing differential Public offering © 2005 Kam W. Li (619) 238-1900 kwl@procopio.com

14. Medical Device USLLC Holds patents Owns production facilities Hong Kong JV Logistics Chinese Co Regulatory approval Dist outlets NSTW Others Trademark 64% 18% 10% 2.5M Training Know-how Supply Agreement 18% Supply Agreement 100% $ $ © 2005 Kam W. Li (619) 238-1900 kwl@procopio.com

15. Why Hong Kong Common law jurisdiction Recognition of rule of law/confidence in legal system Free flow of money and Currency Exchange Mature banking system Second larges capital market Free flow of information My home town © 2005 Kam W. Li (619) 238-1900 kwl@procopio.com

16. Kam W. Li, Partner Procopio, Cory, Hargreaves & Savitch LLP (619) 238-1900 Email: kwl @procopio.com © 2005 Kam W. Li (619) 238-1900 kwl@procopio.com