Question
From: (redacted)
Sent:Wednesday, March 19, 2008 10:20 AM
To:Verne, B. Michael
Subject: Question aboutassessing foreign versus US sales under 802.51
Mike,
I have a question relatingto whether certain sales do not qualify as sales in or into the US underRule 802.51. The target is a foreign issuer that sells furniture manufacturedin China ("Target"). A significant portion of the sales are to UScustomers. Target's only US assets are certain US IP rights relating to thefurniture. These US assets have a fair market value of less than $63.1million. The furniture is manufactured by three joint ventures in China whichthe Target does not control. Prior to sale to its customers, Target takes titleto the furniture at port in China. Title and risk of loss is then transferred to theultimate buyers while the furniture is still in China once the furniture isloaded onto container ships. Target has a relationship with a sales representativethat is affiliated with Target but controlled by a separate UPE from Target. Theissuer holding the sales representative is being sold to the same buyer as isacquiring Target through a separate purchase agreement. This salesrepresentative acts as the sales agent solely for Target in various regionsincluding the US. These facts are similar to those in PNO Manualopinion 215 (4th ed.), which found sales in similar circumstances not to be USsales. I also understand that although the products may be designed withspecific customers in mind or to include features requested by specificcustomers, the products are not specifically designed for the US market asin the example in PNO Manual opinion 216. In fact, the products are designed tomeet more stringent standards than those specified by the relevant US tradeassociation.
Other facts that maybe relevant are that: (i) negotiations with customers are carried out by thesales representative in consultation with the Target's office in China and nosales are final without the approval of the pricing, terms and conditions ofthe proposed sale by a non-US subsidiary of Target; and (ii) a non-USsubsidiary of Target executes the sales agreements outside the US. I believethat on these facts the sales of furniture in China by Target to US customersare not US sales. Please let me know if you agree.