1.- GENERAL STEPS

A.- Standard Structure of Maquiladora Operation

Normaly a U.S. or non-Mexican corporation (we will called on this "Parent Corporation"), forms a Mexican maquiladora Corporation (we will called on this "Maquiladora Corporation") under the termsof the aplicable Mexican law relating to the maquiladora industry . The capital stock of the Maquiladora Corporation would be almost one hundred percent (100%) owned by the Parent Corporation (Mexican law requires that a Mexican corporation have at least two (2) stockholders, so one (1) stockholder of the Maquiladora Corporation would have to be an entity or indivudual with a legal identity separate from the Parent Corporation). There is no limit as to the maximum number of shareholders.

The minimum capital required for a Mexican corporation, "Sociedad Anonima" is Fifty Thousand Pesos (about $5,000.00 US Dollars).

There is another type of entity, different form pure corporation which in many ways is similar to an L.L.C. in the United States, this is the so-called 'Sociedad de Responsabilidad Limitada.' The minimum capital is Three Thousand Pesos (about $300 US Dollars.) This type of entity does not issue shares but cetificates of participation instead, which are non-negotiable instruments; also the number of 'shareholders' in this type of entity is limited to a maximum of 50. For pratical purposes we will refer to the Mexican entity, disregarding whether it is a Sociedad Anonima or a Sociedad de Resposabilidad Limitada, as Maquiladora Corporation througout this document.

The Maquiladora Corporation would then take any and allsteps necessary to commence operations. The Maquiladora Corporation would also enter into consignment or sercives agreement (the "Agreement") with the Parent Corporation. Under the terms of the Agreement, the Parent Corporation would sonsign goods to the Maquiladora Corporation to be assembled or manufactured. Title to the consigned goods would not be transferred to the Maquiladora Corporation. Title to the assembled goods would bot be in the name of the Parent Corporation also.

The Maquiladora Corporation would assemble or manufacture the goods, and the finished product would be shipped to the Parent Corpotation. The Maquiladora Corporation would charge the Parent Corporation a service fee for the assembly or manufacture. The service fee would cover all costs of production, plus a profit. The arrangement between the Maquiladora Corporation and the Parent Corporation should be structured in such a way to meet Mexico's new regulations converning "transfer pricing" this means that the transaction between the two companies must be on an "arms-length basis". Therefore, the transaction must show a resonable profit to be realized by the Maquladora Corporation. The Mexican Government considers 5% fo the total value of the assests used by the Maquiladora Corporation as resonable profit; however, special rulings may be obtained form the Mexican tax authorities in cases where lower profits are realized and the petitioning company demonstrates that that the lower profit is, indeed, resonable. This profit wold then be taxed at the rate of 34%.

Since the Maquiladora Corporation will have very little capital. In order to acquire land and construct a facility, it will require an infusion of capital. Normally, the Maquiladora Corporation will reveive the needed infusion of capital from the Parent Corporation. Since the Maquiladora Corporation does not generate enough capital to pay back the money it receives, the Maquiladora Corporation will issue capital stock in the name of the Parent Corporation, in an amount equal to the capital it received. The above transacion can take place each time the Maquiladora Corporation requires additional capital and would need to be evidenced by the necessary corporate documents.

The Maquiladora Corporation may also use its profit to pay the Parent corporation for the infused capital. As a practical matter, however, it would be very difficult to reimpurse the Parent Corporation for this capital with the small profit generated by the Maquiladora Corporation. For Mexican tax reasons, it is not convenient for the Maquiladora Corporation to keep accounts payable in favor of the Parent Corporation for longer than necessary.

The Maquiladora Corporation will also need capital infusion to pay for day-to-day operating expenses. The Parent Corporation will advance operating expenses to the Maquiladora Corporation. The parent Corporation will be reimbursed for all the operating expenses advanced with assembled products sent by the Maquiladora Corporation. The Parent Corporation will advance operating expenses in return for assembled goods, while a Maquiladora Corporation remains in operation.

B.- Basic Steps for the Establishment of a Maquiladora Operation.

1. Formation of a Mexican Corporation.

As discussed above, to establish a maquiladora, a separate legal entity is required.

2. Government Registrations.

The Mexican corporation is requred to register with several federal, state, and local government authorities. These regulations relate to reporting, taxation, payment of merchanisms, importing, exporting and other aspects of the operation of the Mexican corporation.

3. Maquila Sercives Agreement.

The Maquila Services Agreement (the "Agreement") is a central document which will govern the terms of the import/export (consignment) relationship between the Mexican Corporation and the corresponding foreign corportation. This Agreement will contain the information of ownership of equipment, machinery, raw materials, and finished goods.

4. Maquila Program Approval and Import Permits.

Once the Maquila Services Agreement is prepared, an application for required approvals and permits will need to be prepared and submitted. This application will form the basis for the "duty free" treatment of equipment, parts, tools,a nd raw materials imported by the Mexican corporation for use in the maquiladora operation. This application will include an economic plan and an estimate of your company's purchase of Mexican currency for the operation of the maquiladora. The preparation of this application will require the full cooperation of your staff in developing financial data and detailed lists of the equipment, parts, tools and raw materials that will be imported.

5. Lease or Acquisition of Land.

The maquiladora corporation will need to lease or acquire suitable space. These items are discussed in Section III.

6. Employment Agreement.

A collective bargaining agreement will need to be entered into with each labor union that supplies Mexian employees for the maquiladora operation. In addition, separate emplyment agreements will need to be entered into with all non-union Mexican employees, know as "confidential employees," that are to word at the maquiladora plant.

7. Immigration and Work Permits.

Management personnel of the maquiladora operation, who are not residents of Mexico, will need work permits issued by the Mexican government prior to begining their word in Mexico.

8. Communication and Utility Contracts.

Separate contracts will need to be prepared and submitted for communication and utility services to be provided to the maquiladora operation, including telephone, electric, gas and water sercices.

9. Enviormental and Sanitation Permits.

Prior to commencing operation important enviormental and sanitation permits required under Mexican law will have to be obtained.

10. Timetable.

It generally takes approximately ninety (90) to one hundred and twenty (120) days to establish a maquiladora plant.

If your maquila corporation sells a product in Mexico and the final destination of that product is Mexico, such a procedure is considered a "sale" in Mexico. If, on the other hand, you sell a product in Mexico which will eventually be exported, the sale is considered a "transfer." Different rules govern "sales" and "transfers" in Mexico. It is becoming more common for maquiladora corportaions to make both "sales" and "transfers" in Mexico.

A. Sales in Mexico.

The following information relates to sales in Mexico by a maquiladora corporation. Our explanation discusses eligibility for sales, as well as the means of calculating amounts that may be sold in Mexico.

If your maquila corporation sells a product in Mexico and the final destination of that product is Mexico, such a transaction is considered a sale in Mexico. It is important to understand how a maquiladora corporation determines if it may sell in Mexico and how it calculates the amount it is allowed to sell in Mexico.

In principle, all maquiladora coroporations may sell their products in Mexico, regardless of whether or not there exist other Mexican manufaturers of the same product. No degree of national content is specifically required before a maquiladora corporation may sell inMexico. Under the Decree for the Maquiladora Export Industry (the "Decree"), the amount of goods that may be sold in Mexico will be determined as follows:

1. During 1998, up to 75% of the total vaule of products exported during the previous year (1997);

2. During 1999, up to 80% of the total value of products exported during the previous year (1998);

3. During 2000, up to 85% of the total value of products exported during the previous year (1999);

4. Beginning in 2001 sales by maquiladoras in Mexico will be unristricted.

Un fortunately, the Decree does not define the concept of "value of export products". The Mexican Dpartment of Commerse and Industrial Development ("SECOFI") defines the "value of export products" as the Mexican value plus the value of U.S. materials incoporated in the products.

In order for us to determine the number of units which you may be authorized to sell in Mexico, we would need to know the following information:

1. The value of the products exported in the previous twelve (12)month period. Such should include the Mexican claue added and the value of non-Mexican components incorporated into these products.

2. The value of non-Mexican materials and components per unit of the products to be sold in Mexico. This figure should include the value of the import duties that will be applied to the non-Mexican materials and components.

3. The intended sales price perunit for the products to be sold in Mexico.

Once the above information has been supplied, we should be able to more accurately predict the number of units that you can sell in Mexico.

It is important to remember that all sales made by maquiladoras in Mexico must be reported to SECOFI on a bi-monthly basis. It should be noted that the percentage on sales is over and above the amount you currently export. You must therefore increase production to be eligible for sales in Mexico.

If you sell in Mexico, such sales will be fully taxed in Mexico. At present the corporate income tax is thirty-fou percent (34%) of net profit. You will also need to pay dutied on the goods sold in Mexico based on the value of the foreign content in such products.

You may invoice such sales in either U.S. dollar or Mexican pesos. If you choose to reveice pesos, you may be used to pay operating expenses.

B. Transfers.