OFFSHORE INTERNATIONAL, INC.
Business With The World Through Mexico
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777 E. MacArthur Circle, #1 Tucson, AZ 85714
Ph 520-889-0022/ Fax 520-573-9316
S H E L T E R P L A N
SERVICE AGREEMENT
This AGREEMENT entered into by and between Parlex Corporation a
corporation organized and existing under the laws of the State of
Massachusetts having offices at 145 Milk St., Methuen, MA 01844 hereinafter
referred to as CLIENT, and OFFSHORE INTERNATIONAL, INC., a corporation
organized and existing under the laws of the State of Arizona, hereinafter
referred to as OFFSHORE.
RECITALS:
OFFSHORE has an existing established contractual relationship with
Maquilas Teta Kawi S.A. de C.V., a Mexican corporation, for the furnishing
of manufacturing space, labor, and services in Guaymas/Empalme, Sonora,
Mexico, and has sufficient receiving warehouse space in Tucson, Arizona, for
consolidation of shipments.
CLIENT is desirous of using OFFSHORE'S services in connection with the
manufacture of CLIENT'S products, all on the terms and conditions set forth
herein.
AGREEMENTS:
ARTICLE I - MANUFACTURING AND WAREHOUSE SPACE
A. Within ten (10) days after the execution of this agreement, CLIENT
will deliver to OFFSHORE a complete list of CLIENT'S requirements for the
Mexican Facility and all other requirements for CLIENT'S manufacturing
operation. OFFSHORE will undertake the necessary steps to provide
facilities in Mexico and the United States that meet CLIENT'S requirements,
and will provide all necessary coordination between the Mexican contractors
and CLIENT.
B. CLIENT will provide OFFSHORE a written description of all CLIENT'S
equipment to be used in its manufacturing process in Mexico, together with
an explanation of all electrical requirements, not later than 30 days prior
to the date scheduled for installation of electrical utilities at the
Mexican Facility, as agreed to by the parties.
C. OFFSHORE will make available to CLIENT, for its use in carrying
out the manufacturing process in Mexico pursuant to this Agreement, a
Mexican Facility that consists of approximately 15,000* square feet of
manufacturing space for a period of twelve (12) months commencing May 1,
1998. At OFFSHORE'S options, and with sixty days notice, CLIENT agrees to
move into new manufacturing space of no less than 15,000 square feet, which
OFFSHORE shall make available in its new Guaymas/Empalme facility, estimated
to be completed in late 1998. In addition, OFFSHORE agrees to make
available to CLIENT dock space that is sufficient for CLIENT'S receiving and
shipping requirements. A compressor room, a chemical room, and a trash
area, if any, are included in the manufacturing facility. In addition, a
portion of the patio associated with the CLIENT'S space, if any, will be
part of the CLIENT'S facility.
___________________
* Exact amount to be determined by OFFSHORE and CLIENT.
D. OFFSHORE will provide an office for the CLIENT'S on-site manager
within the Manufacturing Facility.
E. Thirty (30) days prior to the scheduled date for commencement of
its operations at the Mexican Facility pursuant to this Agreement, CLIENT
may install in the Manufacturing Facility, its tools, machines, other
equipment that is necessary or appropriate for its manufacturing process,
and may stock the material, parts, and other property required in CLIENT'S
manufacturing operations.
F. OFFSHORE will also make available for CLIENT up to 1000 square
feet of shipping and receiving space at a facility in Tucson, Arizona.
Warehouse space or office space may be negotiated separately.
G. OFFSHORE will provide fire, casualty and such other insurance that
it deems necessary or appropriate for the building that will be the site of
CLIENT'S manufacturing operations in Mexico (the "Mexican Facility").
CLIENT will obtain and maintain any and all insurance that it deems
necessary or appropriate for its material and equipment, whether located in
the Mexican Facility or elsewhere. Upon CLIENT'S written request, OFFSHORE
will acquire, through qualified brokers and at CLIENT'S expense, Mexican
insurance covering CLIENT'S material and equipment.
ARTICLE II - SERVICES, REPAIR AND MAINTENANCE
A. In addition to the foregoing, OFFSHORE agrees that the following
items will be provided at the Mexican Facility during the term of this
Agreement: Lighting, electric power for light assembly equipment, power
tools, machines, and appliances; toilet rooms; water and adequate supplies
for toilet rooms; heating and cooling as appropriate.
B. OFFSHORE will furnish one (1) private telephone line and two (2)
extensions in the Mexican Facility. CLIENT agrees to reimburse OFFSHORE its
actual cost for any additional private lines installed at CLIENT'S request.
C. OFFSHORE will keep the Mexican Facility in good repair at all
times, it being expressly understood and agreed that all maintenance and
repairs of the premises will be the responsibility of OFFSHORE. However,
the cleaning of the production area within the Mexican Facility will be the
responsibility of CLIENT.
ARTICLE III - LABOR
A. OFFSHORE agrees to provide for CLIENT'S screening, acceptance, and
training, the personnel necessary to conduct CLIENT'S manufacturing
operations under this Agreement. The personnel are and shall remain
employees of OFFSHORE and are not in any sense employees of CLIENT.
B. CLIENT will have the right to select from the potential workers
provided by OFFSHORE, those who meet CLIENT'S minimum requirements. The
labor force will include production line workers, material handlers, group
leaders, and inspectors. In addition to the foregoing labor force, which
will be paid on an hourly basis, OFFSHORE will provide CLIENT with a pool of
workers from whom CLIENT can select such salaried personnel as CLIENT may
deem necessary for the better implementation of this Agreement.
Once CLIENT has accepted the workers, hourly or salaried, furnished by
OFFSHORE, CLIENT will have full authority and responsibility to train,
supervise, retain, and dismiss these workers. CLIENT represents, warrants
and agrees that CLIENT has sole responsibility and authority for assuring
that the manufacturing process and the products manufactured meet CLIENT'S
standards for product quality.
C. Since the workload hereunder may not be at a continuous and steady
rate, it may become necessary from time to time to fluctuate the total work
force utilized in CLIENT'S operations at the Mexican Facility. Accordingly,
OFFSHORE agrees to use its best efforts to assist the CLIENT, when requested
by CLIENT, in reducing the work force in order to minimize the labor charges
to CLIENT hereunder.
D. The labor rates paid by OFFSHORE to the Mexican workers are based
on Mexican Labor Laws (as described in Exhibit "A" attached hereto) and
include Social Security, taxes, and all other benefits prescribed by Mexican
Law. It is agreed that any increase in such wage caused by an act of the
Government of Mexico, or resulting from a collective bargaining agreement
between Offshore and the Union, or by direction of the CLIENT, will be paid
by CLIENT to OFFSHORE.
E. OFFSHORE warrants that in providing CLIENT with personnel for the
performance of this Agreement, it will in all respects conform to the laws,
rules, regulations, and orders of appropriate Mexican governmental
authorities.
ARTICLE IV - SHIPPING, CUSTOMS AND PERMITS
A. United States' Customs and Duties. CLIENT will retain title to
all of its materials, products, machinery, and equipment used in connection
with its operations hereunder. Therefore, for U.S. Customs purposes, CLIENT
will be the importer and exporter of record and will be responsible for all
U.S. tariffs, duties, bonds, and U.S. Customs broker's charges.
B. Mexican Customs and Duties. OFFSHORE will assist CLIENT in
arranging with Mexican officials the passage of CLIENT'S goods and equipment
to and from Mexico. CLIENT understands and agrees that, in order for
OFFSHORE to be able to fulfill its obligations under this subparagraph,
CLIENT must supply OFFSHORE, on a timely basis, with all pertinent
information, including, without limitation, complete descriptions, make,
model and serial numbers, weights, costs, and country of origin, in order
for OFFSHORE to process the shipments and obtain the necessary permits on
behalf of CLIENT. CLIENT will pay, promptly when due, all Mexican Customs
tariffs, duties, bonds, and Mexican Customs broker's charges. CLIENT hereby
acknowledges that it takes approximately thirty (30) days to obtain the
initial Mexican permits once the application process is commenced. Special
permits needed to meet CLIENT'S specific requirements may take a longer
period of time.
C. Administrative Services. OFFSHORE will provide necessary
administrative services to effect shipment of material to and from
Guaymas/Empalme, Sonora, Mexico.
D. Reimbursable Expenses. All freight charges, customs and brokerage
fees, tariffs, duties, other payments to the government of Mexico, and other
costs and expenses incurred by OFFSHORE in the performance of its duties
under this Agreement, are incurred for the account of CLIENT. CLIENT will
reimburse OFFSHORE for all amounts so paid for its account in accordance
with Article VI, subparagraph A.
ARTICLE V - FEES AND COSTS
A. CLIENT agrees to pay the following fees during the term of this
Agreement:
(i) Facilities Fee. A fee (the "Facilities Fee") of $.42 sq.
ft. for each month of CLIENT'S use of the Mexican Facility. The
Facilities Fee will be billed in the first weekly billing of the
month. In addition, OFFSHORE shall include in its first weekly bill
of the month an amount equal to 15% of the Facilities Fee. This
amount shall cover OFFSHORE'S obligation to Maquilas Teta Kawi to
advance Mexico's value added tax (IVA) on the space. OFFSHORE shall
credit CLIENT for the IVA paid on the Mexican facilities within 15
days of receiving reimbursement from the Mexican government. Credit
will be given to CLIENT at the peso/US dollar exchange rate that
applies on the date the IVA is credited to Maquilas Teta Kawi.
(ii) Shelter Plan Fee. CLIENT agrees to pay OFFSHORE a weekly
fee for its services hereunder (the "Shelter Plan Fee"), which will be
calculated as follows:
(1) By multiplying 1) the number of actual hours paid
during the week by CLIENT in its manufacturing process, by 2)
the applicable hourly rate set forth in the following schedule:
Offshore Shelter Plan Fee Schedule
per worker Hour *
No. of Employees Shelter Plan Fee
---------------- ----------------
1- 24 2.30
25- 49 2.05
50- 74 1.85
75- 99 1.65
100-124 1.50
125-149 1.40
150-199 1.35
200-299 1.25
300-400 1.10
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* CLIENT agrees that the rate to be used to determine the weekly Shelter
Plan Fee will be the rate applicable to the highest number of workers
employed in connection with the manufacture of CLIENT'S products
during any single day of the week for which payment is being
calculated. In calculating the Shelter Plan Fee, salaried personnel
shall be deemed to work 48 hours per week. In no event shall the
Shelter Plan Fee be less than $2,300.00 per week. The Shelter Plan Fee
shall commence once CLIENT has accepted the workers, hourly or
salaried, furnished by OFFSHORE, or by May 15th, 1998, whichever is
earlier.
B. Reimbursable Costs. CLIENT further agrees to reimburse OFFSHORE
for the following costs and charges incurred by OFFSHORE in connection with
this Agreement in accordance with the procedures described in Article VI
hereof:
(i) All payments made by OFFSHORE, for CLIENT'S account, for
the performance of this Agreement. CLIENT understands and agrees that
the payments for workers comprises wages, taxes, and personnel costs.
An example of the composition of these payments is set forth on
Exhibit "A" attached hereto. The actual amount of the payments (the
"Weekly Compensation Amount") will be computed weekly, and the
corresponding amount to be reimbursed to OFFSHORE will be based on the
U.S. dollar-Mexican peso exchange rate at which OFFSHORE purchased
pesos from a major Mexican and/or U.S. financial institution for the
applicable week.
CLIENT further agrees to reimburse OFFSHORE for any overtime hours
authorized by CLIENT at the overtime premium paid by OFFSHORE for CLIENT'S
account. This does not apply to salaried personnel. Overtime payments will
be calculated by the sum of (1) the applicable Shelter Plan Fee, and (2) the
wages and fringe benefits multiplied by 2 for double time (or multiplied by
3 for triple time).
Double time Example for the 201-300 worker range:
$1.30 + .733 + .733 = $2.766
Triple time Example for the 201-300 worker range:
$1.30 + .733 + .733 + .733 = $3.499
(ii) All costs incurred by OFFSHORE in connection with services
provided at CLIENT'S written request that are not otherwise referred
to herein. CLIENT'S request for additional services must be made in
writing on CLIENT'S "Purchase Requisition" form and must be signed by
CLIENT'S representative.
(iii) The cost of electrical power consumed by CLIENT in the
Mexican facility. OFFSHORE (at CLIENT'S cost) shall coordinate the
installation of an electrical meter for the facility.
(iv) All other payments made by OFFSHORE, for CLIENT'S account,
in the performance of this Agreement.
C. Worker Termination Costs. CLIENT will have the sole
responsibility to pay any and all costs associated with the severance or
termination of any and all workers, including production line workers,
material handlers, group leaders and inspectors, supervisory workers,
monthly salaried administrative, technical workers and confidential workers
hired at the request of the CLIENT. CLIENT will reimburse OFFSHORE for any
and all costs that OFFSHORE incurs in connection with the severance or
termination of any workers.
CLIENT hereby agrees to post a bond, letter of credit, or cash deposit
in favor of OFFSHORE in the amount of $50,000.00 to secure the payment of
the termination fee. Said bond, letter of credit, or cash deposit shall be
drawn upon in the event the CLIENT does not meet its obligation under this
paragraph C. The form and terms of the bond and letter or credit shall be
approved by OFFSHORE prior to the contracting of workers in Mexico. The
initial amount of $50,000.00 assumes a work force of 100 people. If CLIENT
shall contract more than 100 people, then CLIENT agrees to adjust upward the
amount in a like ratio.
D. Unless otherwise specifically stated herein, all monetary units
referred to herein are U.S. Dollars. All amounts payable to OFFSHORE
hereunder are to be paid in U.S. Dollars.
ARTICLE VI - INVOICES AND PAYMENT
A. OFFSHORE will submit invoices for amounts that it is owed under
this Agreement to CLIENT on a weekly basis, except for the monthly
Facilities Fee, which shall be included in the first weekly billing of the
month.
B. Each invoice will contain the following information:
(i) The total number of basic, non-overtime hours worked during
the relevant week;
(ii) The total overtime hours and the associated overtime
premium cost; and
(iii) A summary of costs incurred by OFFSHORE for the CLIENT'S
account pursuant hereto, including, but not limited to, a) freight for
moving CLIENT'S materials, equipment, and finished products across the
border; b) Mexican brokerage charges; and c) supplies.
C. Each invoice will be accompanied by paid receipts or third party
invoices for costs incurred by OFFSHORE for CLIENT'S account pursuant to
this Agreement and for which OFFSHORE is seeking reimbursement.
Additionally, with respect to costs incurred by OFFSHORE in Mexico (other
than freight and customs charges), the invoice will be accompanied by a
document signed by CLIENT'S on-site representative, whose signature will
conclusively signify the accuracy of (i) the number of basic and overtime
hours worked during the relevant work week, (ii) the number of workers
utilized during the relevant period, and (iii) the costs incurred in Mexico
(other than freight and customs charges) for which reimbursement is sought
in the invoice. The approval of such Mexican costs, as evidenced by the
signature of CLIENT'S on-site representative, will constitute the binding
agreement of CLIENT to reimburse OFFSHORE for the such approved Mexican
costs.
D. CLIENT hereby agrees to pay OFFSHORE the amount of each such
invoice within 10 days after the date of such invoice. If any portion of
the invoice is disputed by CLIENT, CLIENT agrees that it will pay the
undisputed portion of the invoice as if there were no such dispute about the
remainder of the invoiced amount.
ARTICLE VII - TERM AND TERMINATION
A. The term of this Agreement is for a period of one (1) year
commencing on the Contract Start Date.
B. This Agreement may be terminated by CLIENT at any time during the
first year of the term of this Agreement by giving OFFSHORE ninety (90) days
written notice of its intention to terminate. At the time of giving such
notice, CLIENT will pay OFFSHORE a termination fee equal to the immediately
preceding 90-day billing for the Shelter Plan Fee and the Facilities Fee
under Article V hereof. The parties agree that OFFSHORE will suffer damages
as a result of CLIENT'S early termination of this Agreement, and that such
damages will be difficult to accurately quantify. The termination fee is
intended to approximate the damages to be suffered by OFFSHORE as a result
of such termination and not as a penalty. CLIENT acknowledges that
termination of this agreement, whether during the first or subsequent years,
will give rise to certain termination and severance expenses relating to the
workers Offshore has employed at the request of the CLIENT. Such expenses
are the sole responsibility of the CLIENT, as stated in ARTICLE V, Section
C of this agreement. These expenses are in addition to any termination fee
owed by the CLIENT to Offshore as a result of the termination of this
agreement. Offshore will attempt to minimize severance expenses by any
means available including using it's best efforts to place client's
employee's in other facilities with other Offshore client companies.
ARTICLE VIII - OPTION TO RENEW
A. As long as there has not theretofore occurred an event of default
hereunder, CLIENT may renew this Agreement for four separate, additional
periods of one (1) year each. CLIENT may exercise its right to renew this
Agreement for the next succeeding year by giving OFFSHORE written notice of
its intention no fewer than one hundred twenty (120) days prior to the then
scheduled expiration of the Agreement.
B. Within ten (10) business days after receipt of CLIENT'S notice of
its intention to renew this Agreement, OFFSHORE will notify CLIENT of the
Shelter Plan Fee that will be applicable during the renewal term. The rate
modification will be determined in accordance with the procedure set forth
herein and will equal the percentage increase (or decrease), if any, in the
cost of living for the preceding year based upon the United States Consumer
Price Index - All Items - U.S. City Average, All Urban Consumers issued by
the Bureau of Labor Statistics of the United States Department of Labor (the
base year and price for said Index is 1967 equals 100). In the event the
Index ceases to be published, the most comparable substitute shall be used
thereafter as selected by the mutual agreement of the parties.
This Agreement may not be terminated by CLIENT during any renewal term
of this Agreement without the consent of OFFSHORE.
ARTICLE IX - PRODUCT LIABILITY
CLIENT hereby indemnifies, and agrees to protect, defend and hold
OFFSHORE harmless against all demands, obligations, claims, costs, expenses,
judgments, awards and liabilities of any nature, claimed or asserted by any
person, and against all losses in any way suffered, incurred, or paid or
that may be suffered, incurred, or paid by OFFSHORE as a result of, or in
any way arising out of, or consequential to the design, manufacture, use,
delivery, consumption, or integration into other products of any of CLIENT'S
products, whether such demands, obligations, claims, liabilities, or losses
arise in the context of products liability or otherwise.
ARTICLE X - LAWS, RULES AND REGULATIONS
OFFSHORE and Maquilas Teta Kawi S.A. de C.V. will comply with all the
laws, rules, and regulations of governmental authorities of Mexico. Nothing
contained herein shall constitute a representation by OFFSHORE of favorable
tax treatment of CLIENT'S activities by the Government of Mexico.
ARTICLE XI - APPLICABLE LAW
This Agreement will be interpreted and construed in accordance with,
and will be governed by, the laws of the State of Arizona.
ARTICLE XII - OWNERSHIP; BAILMENT
All right, title, and interest to materials, products, machinery,
tools, and equipment used in connection with CLIENT'S manufacturing process
at the Mexican Facility will remain at all times the property of CLIENT. If
and to the extent that OFFSHORE takes possession of any such materials,
products, machinery, tools, or equipment, it does so as bailee on behalf of
CLIENT. At no time will OFFSHORE be deemed to have any ownership interest
in such property.
ARTICLE XIII - SUBCONTRACT
Without in any way relieving it of any obligation or duty otherwise
undertaken hereunder, OFFSHORE will have the right to enter into a
subcontract with Maquilas Teta Kawi S.A. de C.V., a Mexican corporation, to
provide services hereunder in Mexico.
ARTICLE XIV - CONFIDENTIAL INFORMATION
The parties acknowledge and agree that the performance of this
Agreement by either of them, or of any subcontractor of either of them, will
not entail the disclosure, whether voluntarily or involuntarily, by either
party to the other of any trade secrets or any proprietary or confidential
information. In the event that at any time during the term of this
Agreement either party proposes to disclose to the other party, or to
utilize in connection with its operations under this Agreement, any such
trade secret or proprietary or confidential information, the disclosing
party will promptly notify the other party prior to making such disclosure
or utilization. The parties agree that, promptly after the receipt of such
notice, they will negotiate an amendment hereto providing for safeguarding
such trade secret or proprietary or confidential information.
ARTICLE XV - ARBITRATION
Any controversy arising between the parties or any person claiming
under either of them relating to this Agreement or the performance or breach
of any provisions hereof will be settled by arbitration in Pima County,
Arizona, in accordance with the governing rules of the American Arbitration
Association; provided, however, the parties will be entitled to pursue all
the discovery that would be available to them under, and in accordance with
the rules, applicable to actions in the Superior Court of Pima County,
Arizona.
Each party will be entitled to, and promptly after receipt of notice
of the filing of an arbitration claim, will appoint a person to act as
arbitrator from a panel of qualified arbitrators of the American Arbitration
Association. The two selected arbitrators will promptly appoint a third
arbitrator.
Judgment may be entered by any court of competent jurisdiction upon
any award or decree made by the arbitrators. The prevailing party in any
such matter will be entitled to recover its costs and expenses, including
attorneys' fees, from the non-prevailing party.
Nothing contained in this Article XV will limit the right of any party
to exercise self help remedies or to obtain any provisional or ancillary
remedies, including, but not limited to, injunctive relief or appointment of
a receiver, from a court of competent jurisdiction.
ARTICLE XVI - TIMING; SECURITY
A. Time is of the essence hereof of this Agreement.
B. CLIENT hereby agrees to deposit with OFFSHORE at the time of
execution of this Agreement the amount of $20,000.00(the "Security
Deposit"), which OFFSHORE may use, from time to time and in OFFSHORE'S sole
discretion, to pay amounts to be reimbursed by CLIENT hereunder. CLIENT is
not hereby relieved of the responsibility to pay all reimbursable costs when
requested by OFFSHORE in accordance with this Agreement. Any amount so
reimbursed after OFFSHORE has used the Security Deposit to pay such
reimbursable cost, will be used by OFFSHORE to replenish the Security
Deposit. OFFSHORE may intermingle the Security Deposit with its own funds
and is not required to pay interest thereon. As long as no Event of
Default, then exists hereunder, OFFSHORE will release the Security Deposit
to CLIENT at the termination of this Agreement.
C. As collateral security for CLIENT'S faithful performance of its
obligation hereunder, CLIENT hereby grants OFFSHORE a security interest in
all property of CLIENT (the "Collateral") that is in the possession or
control of OFFSHORE or Maquilas Teta Kawi S.A. de C.V., a Mexican
corporation.
ARTICLE XVII - DEFAULTS AND REMEDIES
If any of the Parties fail to pay or perform their duties in a
material manner under this Agreement, such material failure will be
considered to be an Event of Default hereunder. Failure by either party to
make a payment when due hereunder or to perform any other material
obligation hereunder within seven (7) days after written notice of such
failure to pay or perform from the non-defaulting party ( the "Default
Notice"), shall constitute an Event of Default hereunder; provided, however,
if the failure to perform a material obligation ( other than the payment of
any amounts due hereunder) cannot reasonably be cured within seven (7) days
after the Default notice, it shall not constitute an Event of Default if the
defaulting party commences reasonable steps to correct such failure within
such seven (7) day period and diligently pursues such corrective action to
its logical conclusions as soon as practical. Upon the occurrence of an
Event of Default, the non-defaulting party will be entitled to pursue all
remedies available to it under this Agreement or under the common law of the
State of Arizona, including but not limited to, the right of set-off. The
Parties agree that the non-defaulting party may pursue such remedies through
its agents.
No failure or delay on the part of the aggrieved party to exercise any
such right, power or remedy and no notice or demand which may be given to or
made with respect to any such remedies shall operate as a waiver thereof, or
limit or impair the aggrieved party's right to take any action or to
exercise any power or remedy hereunder, without notice or demand, or
prejudice its rights.
ARTICLE XVIII - ENTIRE AGREEMENT
The terms and provisions contained herein constitute the entire
Agreement between the parties and supersede all previous communications and
understandings, either oral or written, between the parties hereto with
respect to the subject matter hereof. No agreements or understandings
varying or extending the terms of this Agreement will be binding upon either
party hereto unless in writing signed by a duly authorized officer or
representative thereof of each party.
For purposes of this Agreement, the CONTRACT START DATE shall be March 6,
1998.
OFFSHORE INTERNATIONAL, INC.
an Arizona corporation
____________________________
Paul Karon, President
Date: May 3, 1998
Company: Parlex Corporation
By: ________________________
Its: President
[Client]
Date: March 6, 1998