PRODUCTION SHARE AGREEMENT

 

                                                                   Exhibit 10.44

 

                           PRODUCTION SHARE AGREEMENT

 

      This PRODUCTION SHARE AGREEMENT (the "Agreement") is entered into and is

effective October 9, 2003 (the "Effective Date") by and among North American

Production Sharing, Inc., a California corporation ("North American"),

Industrias Unidas de B.C., S.A. de C.V. ("North American Mexican Affiliate") and

Fiberstars, Inc., a California Corporation ("Client").

 

             WHEREAS, Client is the owner of certain technical knowledge,

processes, trade names, trademarks, and information concerning parts, materials

and equipment used in the manufacture and/or assembly of fiber optic lighting

systems and related equipment and components thereof (the "Products");

 

            WHEREAS, Client desires to secure certain administrative and

manufacturing services from North American and North American Mexican Affiliate

(the "Services"), including labor services and the use of manufacturing

facilities for the purpose of manufacturing and/or assembling the Products in

the Republic of Mexico;

 

            WHEREAS, North American Mexican Affiliate is a controlled subsidiary

of North American;

 

            WHEREAS, North American and North American Mexican Affiliate desire

to provide, the Services in Mexico through North American Mexican Affiliate,

together with other services as described in this Agreement;

 

            WHEREAS, the parties desire to enter into this Agreement in order to

memorialize their understanding concerning the above:

 

            NOW, THEREFORE, in consideration of the foregoing facts and mutual

covenants herein contained and other good and valuable consideration, the

receipt and legal sufficiency of which is hereby acknowledged, the parties agree

as follows:

 

ARTICLE I: LABOR SERVICES

 

      1.1 Personnel. North American Mexican Affiliate shall provide

manufacturing services to Client with employees in Mexico, all of whom shall be

trained and skilled in the operations for which they are employed (individually,

an "Employee," and collectively, the "Personnel"). The Personnel may consist of

one or more of the following:

 

            a. Direct Personnel. North American shall bill Client for production

workers ("Direct Personnel") in accordance with the hourly rate structure

attached hereto at Exhibit A and incorporated herein by this reference. The

foregoing notwithstanding, commencing upon the earlier to occur of (i) North

American Mexican Affiliate having at least twenty (20) Direct Personnel employed

at the Facility (as defined below) or (ii) ninety (90) days after the

commencement of actual production at the Facility, North American shall bill

Client a minimum fee based upon twenty (20) Direct Personnel at a forty-eight

(48) hour work week, regardless of

 

 

                                       -1-

<PAGE>

 

shift variations or deviations (the "Minimum Personnel.") The parties recognize

that the official Mexican minimum wage level is insufficient compensation to

acquire the requisite Personnel and as a result, Personnel shall receive a wage

greater than the minimum wage in Mexico.

 

            b. Managerial Personnel. Upon Client's written request, North

American shall provide Client with the services of managerial and supervisory

personnel as deemed necessary by Client at such prevailing rates as the parties

hereto shall agree and shall schedule at Exhibit A, including amendments thereto

(the "Managerial Personnel"). North American shall invoice Client for all

Managerial Personnel consistent with the rate structure specified in Exhibit A.

 

      1.2 Hiring of Personnel. North American and North American Mexican

Affiliate shall have the discretion to provide Personnel Services to Client

either through a transfer from another North American related entity or a new

hire of such Personnel by North American Mexican Affiliate. Upon any such

transfer, however, transferred Employees shall become employees of North

American Mexican Affiliate.

 

      1.3 Mexican Personnel. The parties agree that all Personnel provided by

North American under this Agreement shall be formally employed by North American

Mexican Affiliate and, accordingly, shall at all times and for all legal

purposes be under the direction, control, supervision and economic dependence of

North American Mexican Affiliate, and that no labor or employment relationship

shall exist or be deemed to exist between Client and said Personnel. The Fee for

Personnel, at the rate structure specified in Exhibit A, shall apply to all

Personnel at the Facility. North American Mexican Affiliate shall pay all

Personnel by check or direct deposit and shall maintain such records as to

permit Client to audit the precise gross and net amounts paid to each Employee

each pay period.

 

      1.4 Administration of Personnel. North American and North American Mexican

Affiliate, subject to written objectives provided by Client to North American,

shall be responsible for the administration of Personnel matters and shall pay

and perform all labor and other responsibilities that may arise with respect to

Personnel including adherence to applicable health and safety standards, payment

of agreed salaries and wages, taxes and other obligations. Client shall not

intervene with regard to any matters related to Personnel administration,

including, but not limited to, North American Mexican Affiliate's faithful

adherence to Mexican Labor Law, Mexican Policies, and/or North American

Personnel policies, hiring, firing and disciplining of Personnel, paying bonuses

and wages to, and making appropriate wage adjustments with regard to, Personnel,

all consistent with Exhibit A hereto.

 

      North American shall, as reasonably necessary for the achievement of

Client objectives: coordinate and carry out the interviewing and hiring of all

Personnel; recommend adjustments to the salary and wage structures for all

Personnel set forth at Exhibit A; obtain the execution of employment agreements;

administer, prepare and process the weekly payroll and ensure timely payment of

the payroll and all other payroll obligations for Personnel; and advise Client

concerning hiring and dismissal policies in accordance with Mexican law.

 

      From time to time at Client's request, North American and North American

Mexican Affiliate shall provide Client with documentation evidencing the full

and timely discharge of all labor and employment obligations owing to Personnel

and with regard to Personnel under this

 

 

                                       -2-

<PAGE>

 

Agreement.

 

      1.5 Adjustments in Personnel Levels. Should Client desire to increase or

decrease the number of Personnel employed at the Facility (a "Request"), the

following procedures shall be followed:

 

            a. Increases in Direct Personnel. A Request to increase the number

of Direct Personnel shall be made in writing delivered to North American (a

"Request to Increase"). If Client makes such a Request to Increase, North

American Mexican Affiliate shall increase the number of Direct Personnel subject

to the following instructions:

 

                  (1) Permanent Requests. If the Request to Increase is for the

number of Personnel hired on a permanent basis, then the Request to Increase

shall so indicate and indicate the quantity of additional employees requested

and any special screening requirements.

 

                  (2) Temporary Requests. If the Request to Increase is for the

number of Personnel hired on a temporary basis, then the Request to Increase

shall so indicate and indicate the quantity of additional employees requested,

the specific time frame required to complete the project, and any special

screening requirements.

 

            b. Decreases in Direct Personnel. A Request to decrease the number

of Direct Personnel shall be made in writing delivered to North American (a

"Request to Decrease"). If Client makes a Request to Decrease, North American

Mexican Affiliate shall decrease the number of Direct Personnel as requested

subject to the following:

 

                  (1) The initial decrease shall be limited to a maximum of ten

percent (10%) of the total number of Direct Personnel then employed ( the

"Initial Decrease");

 

                  (2) The Initial Decrease shall occur within fourteen (14) days

after a written Request to Decrease has been received by North American; and,

 

                  (3) Any decrease in the number of Direct Personnel which takes

place after the Initial Decrease shall occur within fourteen (14) days after

receipt by North American of a written Request to Decrease, and shall not

decrease the number of Direct Personnel by more than ten percent (10%) of the

then remaining Direct Personnel. Normal attrition of Direct Personnel occurring

during the fourteen (14) day period after receipt of the Request to Decrease

shall count toward the total decrease to be effected by North American Mexican

Affiliate.

 

                  (4) Notwithstanding any other provision contained herein

(including without limitation Section 1.6, below), in the event of a Request to

Decrease, North American Mexican Affiliate and/or North American shall adsorb

and not pass through to Client any Severance Pay (as defined below), together

with related expenses, costs and fees (including attorney's fees) arising

therefrom, for the first twenty-five percent (25%) of terminated Personnel. This

twenty-five percent threshold shall be determined based on the average number of

Personnel employed at the Facility during the thirty (30) day period immediately

prior to the date of any particular Request to Decrease. Client shall be

responsible for the payment, as pass through costs, of all applicable Severance

Pay and any related costs and expenses for that number of terminated Personnel

which

 

 

                                       -3-

<PAGE>

 

exceeds such twenty-five percent as determined with respect to a given Request

to Decrease. Upon termination of the employment of a Mexican employee without

justifiable cause, Mexican Labor Law currently requires a minimum liability of

three (3) months severance pay for each employee who has worked for less than

one (1) year and twenty (20) additional days severance pay per year of

employment for each employee who has worked longer than one year. Severance pay

is computed on the employees' gross income, plus applicable payroll taxes

(collectively "Severance Pay"). Severance Pay shall at all times be computed

consistent with then applicable Mexican Labor Law.

 

                  (5) In no event shall Direct Personnel be decreased to a

number less than the Minimum Personnel.

 

                  (6) All decreases in Personnel shall be performed on the basis

of reverse seniority of the applicable Personnel in an effort to minimize

liability for Severance Pay.

 

      c. Decreases in Managerial Personnel. Subject to the provisions contained

in Section 1.6 below North American Mexican Affiliate shall promptly implement a

reduction in Managerial Personnel consistent with written instructions delivered

by Client to North American.

 

 

      1.6 Employee Terminations. At Client's direction and subject to the

provisions for work force reductions described in Section 1.5, above, North

American shall perform any necessary terminations of Personnel in accordance

with Mexican Labor Law. Except as provided at Section 1.5, at all times

throughout the term of this Agreement and upon expiration or earlier termination

of this Agreement, Client shall be responsible for all financial liability for

Severance Pay under Mexican law, including, but not limited to Severance Pay,

expenses, costs and fees including, reasonable attorneys' fees incurred in

connection therewith and Client shall indemnify North American with respect to

any Severance Pay obligations and all related fees, costs and expenses in

accordance with Section 10.1 of this Agreement. Notwithstanding the foregoing,

North American and North American Mexican Affiliate shall employ good faith

efforts to minimize Client's Severance Pay obligations and related fees, costs

and expenses; and, provided further, that neither North American Mexican

Affiliate nor North American shall pay, or permit the payment of, Severance Pay

to any Personnel except to the extent, and then in the minimum amount, required

by Mexican law then in effect.

 

      1.7 Wage Deposits.

 

            a. Initial Wage Deposit. Upon commencement of production, Client

shall pay North American a refundable wage deposit (the "Initial Wage Deposit")

equal to the Minimum Personnel for a period of fourteen (14) days computed on

the basis of twenty (20) Direct Personnel at a forty-eight (48) hour work week

multiplied by the prevailing base rate structure.

 

            b. Additional Wage Deposit. Client shall pay North American an

additional refundable wage deposit (the "Additional Wage Deposit") equal to the

billing for a period of fourteen (14) days for each additional Employee

(computed on the basis of a 48 hour work week). The Additional Wage Deposit

shall be computed on not greater than a quarterly basis and charged at that

time. If the computation results in a reduction of the required deposit, a

refund shall

 

 

                                        -4-

<PAGE>

 

promptly issue. The deposit on hand shall never be less than the Initial Wage

Deposit.

 

            c. Refund or Offset. The Initial Wage Deposit and the Additional

Wage Deposit (collectively, the "Wage Deposits") shall be retained by North

American while this Agreement remains in effect and shall be refunded to Client

within sixty (60) days after termination or expiration of this Agreement, unless

this Agreement is terminated by North American as a result of the default or

breach by Client of any provision under this Agreement, in which case the Wage

Deposits shall be applied to offset outstanding amounts owed by Client, if any.

Any such offset applied by North American shall not to be construed as an

election of remedies or as a waiver of Client's other payment obligations, if

any, outstanding under this Agreement.

 

      1.8 Hourly Rate Structure. The hourly base rate structure for North

American's fees for Personnel is set forth at Exhibit A, attached hereto and

incorporated herein by this reference.

 

      1.9 Billing Practices - Labor Services. North American shall bill Client

on a weekly basis (NET 7 DAYS) in accordance with the hourly rate structure set

forth at Exhibit "A." Subject to Section 1.1(a), Client shall be billed for the

aggregate Personnel labor hours.

 

      The standard work week in Mexico is based on six (6) days at eight (8)

hours per day, or forty-eight (48) hours per employee per week for day shifts.

However, the regular work schedule will be modified to a five (5) day work week,

subject to mutual agreement between North American and Client. In no case shall

the work schedule be less than forty-eight hours per week for day shifts.

 

      Overtime shall be worked only at Client's request. "Overtime" is defined

as hours worked in excess of the normal work day to a maximum of three hours per

day or nine hours per week and pursuant to Mexican labor law, employees who work

overtime shall be paid at the rate of double the base rate for overtime hours

worked up to three hours over the normal work day or up to nine hours per week

over the normal work week and at the rate of triple the base rate for hours

worked in excess of three hours over the normal work day or over nine hours per

week over the normal work week. Overtime shall also include any hours worked on

holidays, Saturdays and Sundays. North American shall bill Client for Overtime

at the rate structure set forth in Exhibit A to the extent it is actually paid.

Due to the lengthened work week of forty-eight (48) hours used in Mexico, the

parties agree that Overtime shall be used only as necessary by Client.

 

      For the purposes of calculating the service fee to be paid to North

American as referenced in Exhibit A, each overtime hour worked will be treated

as a standard labor hour.

 

      1.10 Licenses, Permits North American and North American Mexican Affiliate

shall acquire all appropriate licenses, permits and other authorizations

required in order to duly employ all of the Personnel in Mexico at the Facility

(as defined below).

 

      1.11 Human Resource Assistant. North American will provide Client, at

North American's sole cost and expense, an in-house human resource supervisor to

be domiciled in Client's Facility on a full-time basis upon commencement of

production. If within three (3) months after the commencement of production, or

at any time thereafter in which the number of Direct Personnel is

 

 

                                       -5-

<PAGE>

 

less than forty (40), then the in-house human resource supervisor shall be

employed at the Facility on a part-time basis and his/her hours shall be

adjusted accordingly.

 

 

ARTICLE II:   FACILITIES

 

      2.1 Plant Facility. North American and North American Mexican Affiliate

shall provide Client with plant facilities available to North American and North

American Mexican Affiliate and located at Calle Antigua a Tecate # 16760 Nave

25, Parque Industrial Los Pinos, Colonia Ninos Heroes Este, Tijuana. B.C. in the

Republic of Mexico (the "Facility") where Services for Client's sole benefit

will be provided. Client hereby approves the Facility selection. Client shall be

responsible for payment of all lease expenses and shall pay North American

directly for all lease expenses, and, without prejudice to North American's

right to seek reimbursement of the same from Client, North American shall timely

make all lease expense payments to the Facility lessor. Lease expenses shall be

billed to Client at North American or, as applicable, North American Mexican

Affiliate's cost and are not included in the labor rates set forth in Exhibit A.

 

      2.2 Execution of Lease. North American or its North American Mexican

Affiliate shall enter into a lease for the Facility (the "Lease"), which lease

shall be approved by Client. The parties shall abide by all covenants,

conditions, representations, promises and other agreements set forth in the

Lease. Upon expiration or termination of the Lease, Client shall, in compliance

with the Lease: (i) remove all Equipment or other personal property from the

Facility; (ii) be responsible for the cost of such removal; and (iii) restore

the Facility to the condition required pursuant to the Lease to the extent such

restoration reasonably arises from use and occupation of the Facility for the

sole benefit of Client.

 

      2.3 Rental Deposit. Upon execution of the Lease for the Facility, Client

shall pay North American a deposit which will be equal to the security deposit

North American is required to pay to the landlord for the Facility (the "Rental

Deposit").

 

      2.4 Facility Maintenance. North American and North American Mexican

Affiliate shall manage the following services to or for the Facility:

 

            a. Hook-up of all Facility Utilities (as defined below);

 

            b. Facility security customary to one of its kind and location;

 

            c. Leasehold improvements and modifications to the Facility as the

            parties may from time to time agree in writing; and,

 

            d. Reasonable Facility repairs and maintenance allocated to tenant

            pursuant to the Lease.

 

      2.5 Facility Costs/Improvements. Client shall be responsible for payment

of all leasehold improvements, lease costs, and expenses resulting from the

services referenced in Section 2.4 of this Agreement, so long as those expenses

are first approved in writing by Client.

 

 

 

                                       -6-

<PAGE>

 

      2.6 Facility Permits. North American shall obtain all necessary Facility

and environmental related permits. Client shall be responsible for payment of

all Facility and environmental related permits including but not limited to

Health permit, SEDESOL permit, Ecology permit and Fire station registration.

 

      2.7 Guarantee of Lease. If requested by the owner of the Facility, Client

shall execute a guarantee of the Lease for the Facility entered into by North

American or North American Mexican Affiliate for the benefit of Client.

 

      2.8 Facility Access. The parties agree that Client shall have the right,

at all times during normal business hours, to enter the Facility for any lawful

purpose and North American and North American Mexican Affiliate shall provide

Client, as well as the persons designated from time to time by the latter as its

representatives, with access to the Facility for any such purpose.

 

ARTICLE III:   EQUIPMENT

 

      3.1 Equipment. Client shall furnish North American Mexican Affiliate

without charge, the use of, without limitation, all such tools, machinery,

equipment and expendable items (the "Equipment"), as are necessary to

manufacture and/or assemble the Products. Client will also provide other

property, including raw materials, component parts, and supplies (the

"Materials"), necessary to manufacture and/or assemble the Products

(collectively with the Equipment and Products located at the Facility, the

"Inventory").

 

      3.2 Inventory Use. All Inventory provided by Client to North American

Mexican Affiliate shall be subject to the terms and conditions set forth herein.

 

            a. The Inventory shall be provided rent free.

 

            b. North American Mexican Affiliate shall use the Inventory solely

for Client's benefit in connection with the Services contemplated by this

Agreement. The Inventory shall be kept at all times at the Facility and shall

not be removed from the Facility without the written consent of Client.

 

            c. Title to each item of the Inventory shall remain in Client's name

at all times. All items of the Inventory shall be deemed personal property,

notwithstanding that any item may become affixed to realty. All scrap items are

to remain the property of the Client, unless Client specifically requests that

North American dispose of such scrap. Client shall notify North American in

writing prior to removing Equipment from the Facility.

 

            d. Title to any goods purchased by North American or North American

Mexican Affiliate under the direction of the Client shall immediately be

transferred to, and owned by, the Client.

 

            e. All additions, attachments, accessories, and repairs at any time

made to or placed upon the Equipment shall become part of the Equipment and

shall be the property of Client.

 

            f. North American and/or North American Mexican Affiliate shall pay

any and all

 

 

                                        -7-

<PAGE>

 

sales taxes, use taxes, personal taxes, assessments, and all other Mexican

governmental exactions of any nature, whether charged to Client or to North

American or others, in connection with the Inventory or its use (the "Tax

Payments"). Client shall reimburse North American for any such Tax Payments.

 

      3.3 Inventory List. A list describing the Inventory shall be furnished by

Client and attached hereto at Exhibit C and made part of this Agreement at the

time the Commodatum Agreement is executed. Client shall supplement the list of

Inventory from time to time to reflect changes, if any, in the Equipment and

Materials provided to North American by Client. All additional items furnished

shall immediately become Inventory under this Agreement and shall be subject to

the terms associated therewith.

 

      3.4 Commodatum Agreement. It is a condition subsequent to this Agreement

that, before any Inventory is to be delivered to the Facility, that the parties

shall have executed and ratified the Commodatum Agreement before a Mexican

Public Notary in a form reasonably acceptable to the parties hereto. In the

event of a conflict between the Commodatum Agreement and this Agreement, the

Commodatum shall control.

 

ARTICLE IV:   SHIPPING AND CUSTOMS

 

      4.1 Administrative Services. North American shall provide necessary

administrative services for shipment of the Inventory and the Products under

this Agreement between Mexico and the United States using information supplied

by Client. Such services shall include, but not be limited to, preparation of

required U.S. and Mexican Customs documentation. Upon Client's request, North

American shall arrange for transportation of Client's goods or Products

utilizing carriers selected by Client to locations designated by Client.

 

      4.2 United States Customs. Client shall be the importer and exporter of

record for U.S. Customs purposes. Client shall obtain any validated export

licenses required by U.S. export laws and regulations. Client shall be

responsible for all compliance and all costs relating to compliance with U.S.

Customs regulations, including but not limited to, any and all U.S. import

bonds; U.S. Customs duties, import fees and taxes; fines and penalties; and U.S.

customhouse brokerage fees.

 

      4.3 Mexican Customs. North American Mexican Affiliate shall be the

importer and exporter of record for Mexican Customs purposes and shall obtain

all necessary licenses and permits to import Client's Inventory and Products and

shall comply with all record keeping and reporting obligations.

 

      4.4 Record Keeping. Client shall maintain all records that substantiate

the information contained in the documents required in connection with the

exportation or importation of the Inventory and the Products, in accordance with

the time limits required by applicable laws and sufficiently detailed to permit

U.S. Customs authorities to perform their duties, including but not limited to

audits.

 

      4.5 Customs Broker. Client shall, with the assistance of North American,

employ such Customs broker(s) to assist in the customs brokerage functions as

defined below. "Customs brokerage functions," in both the U.S. and Mexico,

include but are not limited to, completion and

 

 

                                       -8-

<PAGE>

 

submission to the applicable Customs authority of the importer's official entry

forms, follow-up with the Customs authority regarding those entry forms, and

representation of the importer during the Customs authority's routine

inspections of the importer's shipments. It is understood that North American is

not providing U.S. or Mexican Customs brokerage services to the Company. In the

event that Client utilizes a U.S. and/or Mexican Customs broker, North American

shall cooperate with the customs broker(s) and provide such assistance as the

broker(s) may reasonably require.

 

      4.6 Fees. Client shall reimburse North American for all costs incurred by

North American relating to compliance with United States or Mexican Customs

regulations, including but not limited to, import bonds, duties, import fees and

taxes, fines and penalties and brokerage fees.

 

      4.7 Required Information. The Customs broker(s) and North American shall

provide Client with written guidelines prepared in accordance with U.S. and

Mexican government import and export laws and regulations. Client shall provide

North American, on a timely basis, information detailed in the guidelines,

including but not limited to the following:

 

            a. A detailed listing of all capital Equipment, tooling and

supplies, including technical nomenclature, make, model, serial number,

replacement value and book value, and projected volume and usage.

 

            b. Production process and production time standards for each of the

Products;

 

             c. Initial cost bills of materials and periodic update including

assembly numbers, component part numbers, unit values, quantity per assembly,

country of manufacturing origin for each component part and projected volume;

 

            d. Cost packing slips for each shipment of Client goods to and from

Mexico, including description; part number and/or identification number;

quantity shipped; containers; weight; and value; and,

 

            e. Any other pertinent information concerning the Products as

required by North American to perform under the covenants of this Agreement,

including but not limited to, Material Safety Data Sheets for hazardous

materials.

 

      4.8 Periodic Reporting. At Client's option, Client shall either prepare

all U.S. Customs required periodic reports or provide to North American, on a

timely basis, the information required to prepare such reports as an

administrative service to Client.

 

      4.9 Accuracy of Information. Client represents and warrants that the

information to be provided to North American for analysis by U.S. and Mexican

Customs shall be accurate and correct. All Customs data must be provided in

legible print, endorsed and dated by an officer or duly authorized

representative of the Client.

 

      Should litigation, or any civil, criminal or administrative proceeding(s)

result from inaccurate information provided by Client, then Client shall be

responsible for all judicial, administrative costs, fees, charges, penalties and

additional duties together with all related costs,

 

 

                                       -9-

<PAGE>

 

expenses, and fees including reasonable attorneys' fees and Client shall

indemnify North American pursuant to Section 10.1 in connection therewith.

 

      4.10 Product Marking. Client shall comply with all U.S. regulations

concerning country of origin marking on imported products. Unless exempted or

waived in writing by U.S. Customs, U.S. law requires that the country of origin

be legibly, permanently and conspicuously marked on the imported Products and

their respective containers.

 

      4.11 Transportation. Subject to Section 9.2, at the request of Client,

North American shall arrange for transportation of Client's Products to a

location designed by Client utilizing carriers selected by Client. Client shall

reimburse North American for the actual costs incurred by North American

relating to transportation of Equipment, Products, Inventory and any other

matters in any way connected with this Agreement. Client shall bear all risk of

loss to the Products, Inventory and Equipment transported or on behalf of Client

and Client shall be responsible for maintaining all related insurance.

 

ARTICLE V:   INSURANCE

 

      5.1 Insurance Maintained by North American on Behalf of Client. On

Client's behalf, North American shall maintain insurance on the Facility,

leasehold improvements, Inventory and Products, as well as property damage and

liability insurance in such coverages and amounts as is requested by Client for

the protection of the Inventory or Products while in the care, custody and

control of North American (including that of any of its affiliates) outside of

the United States. North American and North American Mexican Affiliate shall not

be responsible for any damage, loss or theft to Client's property, the Products,

Inventory or Equipment while the same is in the care, custody or control of

North American, North American Mexican Affiliate or of the affiliated companies

except to the extent such loss, damage or theft arises from the negligence or

willful misconduct of North American Mexican Affiliate or North American. North

American Mexican Affiliate and North American shall be responsible for the

timely payment of all premiums on said insurance on a cost pass-through basis at

actual cost, without prejudice to North American's seeking reimbursement of the

same. North American Mexican Affiliate and North American shall be additional

named insureds under such insurance policies as shall the Facility landlord to

the extent, and if, required by the Lease. Any such insurance policies procured

in connection with this Agreement on behalf of Client shall provide for thirty

(30) days advance written notice to North American prior to cancellation of said

policies.

 

      Notwithstanding the foregoing, North American Mexican Affiliate, North

American and Client each hereby waive any and all rights of recovery against

each other, or against the respective shareholders, directors, officers,

employees, agents and representatives of the other for any loss or damage to

such waiving party or its property or the property of the other under its

control to the extent that such loss or damage is covered under any insurance

policy in force at the time of such loss or damage and the insurance company or

companies providing such coverage pays the party sustaining such loss or damage.

The parties hereto shall give notice to the applicable insurance carrier or

carriers that the foregoing mutual waiver of subrogation is contained in this

Agreement.

 

      To the extent Client chooses to procure its own primary insurance coverage

on the Products and/or Inventory which provides coverage while the same are

located in Mexico, North American

 

 

                                      -10-

<PAGE>

 

shall be released from its obligation to obtain insurance for the same. In such

event, and upon request, Client shall (i) provide North American with a written

waiver which confirms that North American is not obliged to obtain such primary

insurance coverage and (ii) deliver written proof that such insurance was

obtained by Client.

 

      5.2 Insurance Maintained by Client. Client shall be responsible for all

insurance which insures against property damage or liability occurring or

arising within the United States.

 

 

ARTICLE VI:   OTHER COSTS AND SERVICES

 

      6.1 Utilities. North American and North American Mexican Affiliate shall

be responsible for the timely payment of all monthly expenses at the Facility

for electricity, water and telephone services (the "Utilities"). Client shall

reimburse North American for all expenses incurred for Utilities at the actual

cost incurred. Utilities shall be invoiced and delivered to Client on a monthly

basis. Client will reimburse North American for initial utilities fees and

hook-up charges. Client shall be responsible for the payment of any deposits

required by the Utility providers.