-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Oom7rYGdWZmNIKQbZyW5lxvV+KSR56pq9DLclur/zy8dO0lyJzRKpYPYqkiVZVgz B92Opuw0VkrImmASAXjHEw== 0000912057-01-508871.txt : 20010417 0000912057-01-508871.hdr.sgml : 20010417 ACCESSION NUMBER: 0000912057-01-508871 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20010228 FILED AS OF DATE: 20010416 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICESMART INC CENTRAL INDEX KEY: 0001041803 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 330628530 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22793 FILM NUMBER: 1602998 BUSINESS ADDRESS: STREET 1: 4649 MORENA BLVD CITY: SAN DIEGO STATE: CA ZIP: 92117 BUSINESS PHONE: 6195814530 MAIL ADDRESS: STREET 1: 4649 MORENA BLVD CITY: SAN DIEGO STATE: CA ZIP: 92117 10-Q 1 a2045570z10-q.txt 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 2001 Or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________to ___________ COMMISSION FILE NUMBER 0-22793 PRICESMART, INC. (Exact name of registrant as specified in its charter) Delaware 33-0628530 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4649 Morena Boulevard San Diego, California 92117 (Address of principal executive offices) (858) 581-4530 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X] Yes [ ] No The registrant had 6,108,085 shares of its common stock, par value $.0001 per share, outstanding at April 12, 2001. PRICESMART, INC. INDEX TO FORM 10-Q PART I - FINANCIAL INFORMATION
Page ---- ITEM 1. FINANCIAL STATEMENTS........................................................ 3 Condensed Consolidated Balance Sheets....................................... 11 Condensed Consolidated Statements of Operations............................. 12 Condensed Consolidated Statements of Cash Flows............................. 13 Condensed Consolidated Statements of Stockholders' Equity................... 14 Notes to Condensed Consolidated Financial Statements........................ 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................... 3 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................................................. 7 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS............................................................ 8 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.................................................................. 8 ITEM 3. DEFAULTS UPON SENIOR SECURITIES.............................................. 8 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................................... 8 ITEM 5. OTHER INFORMATION............................................................ 9 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................. 9
Page 2 ITEM 1. FINANCIAL STATEMENTS PriceSmart, Inc.'s ("PriceSmart" or the "Company") unaudited condensed consolidated balance sheet as of February 28, 2001, the condensed consolidated balance sheet as of August 31, 2000, and the unaudited condensed consolidated statements of operations, cash flows and stockholders' equity for the three months ended February 28, 2001 and February 29, 2000 are included elsewhere herein. Also included within are notes to the unaudited condensed consolidated financial statements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report contains forward-looking statements concerning the Company's anticipated future revenues and earnings, adequacy of future cash flow and related matters. These forward-looking statements include, but are not limited to, statements containing the words "expect", "believe", "will", "may", "should", "project", "estimate", "scheduled", and like expressions, and the negative thereof. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including the following risks: the Company's financial performance is dependent on international operations; the success of the Company's business requires effective assistance from local business people with whom the Company has established strategic relationships; any failure by the Company to manage its growth could adversely affect its business; the Company faces significant competition; the Company may encounter difficulties in the shipment of goods to its warehouses; the Company is exposed to weather and other risks associated with Central American, Caribbean and Asian operations; declines in the economies of the countries in which the Company operates its warehouse stores would harm its business; the loss of key personnel could harm the Company's business; and the Company is subject to volatility in foreign currency exchange; as well as the other risks described in the Company's SEC reports, including the Company's Form 10-K filed pursuant to the Securities Exchange Act on November 29, 2000. The following discussion and analysis compares the results of operations for the three and six months ended February 28, 2001 (fiscal 2001) and February 29, 2000 (fiscal 2000), and should be read in conjunction with the condensed consolidated financial statements and the accompanying notes included within. As of February 28, 2001, the Company had seventeen warehouse stores in operation in seven countries (four in Panama, three each in Costa Rica and the Dominican Republic, two each in El Salvador, Honduras, and Guatemala and one in Trinidad) of which the Company owns at least a majority interest. Subsequent to the end of the quarter, the Company opened an eighteenth warehouse on the island of Aruba. The Company currently anticipates opening a total of four additional warehouse stores (one each in the U.S. Virgin Islands, the Philippines, Guatemala and Barbados) bringing the total number of warehouses in operation to 22 by the end of fiscal 2001. In fiscal 2000, the Company increased its ownership from 51% to 100% in the operations in Panama on March 27, 2000 and increased its ownership from 60% to 100% in the operations in Costa Rica, Dominican Republic, El Salvador and Honduras on July 7, 2000. During the first six months of fiscal 2001, the Company opened one new US-style membership shopping warehouse in East Santo Domingo, Dominican Republic on October 12, 2000, bringing the total number of warehouse stores in operation to seventeen as of February 28, 2001. During the first six months of fiscal 2000, the Company opened four US-style membership shopping warehouses, bringing the total number of warehouses in operation to nine as of February 29, 2000. Also, there were six warehouse stores in operation (five in China and one in Saipan, Micronesia) licensed to and operated by local business people at the end of the second quarter of fiscal 2001, versus five licensed warehouse stores (four in China and one in Saipan, Micronesia) at the end of the second quarter of fiscal 2000. Page 3 The Company's strategy is to dominate metropolitan areas in emerging market countries by rapidly saturating these areas with second and third stores. Same-store-sales (where at least one-third of its stores have comparative prior period sales in metropolitan markets that have not had additional store openings), representing six of the seventeen warehouse stores in operation, increased 3.4% in the second quarter of fiscal 2001. As of February 28, 2001, the average life of the seventeen warehouses in operation was fourteen months. COMPARISON OF THE THREE MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000 Net warehouse sales increased 61% to $121.3 million in the second quarter of fiscal 2001, from $75.5 million in the second quarter of fiscal 2000. The increase is primarily attributable to the opening of eight new warehouses since the end of the second quarter of fiscal 2000. The Company benefits from seasonal holiday sales in the second quarter of each fiscal year, primarily in the month of December. The Company's warehouse gross profit margins (defined as net warehouse sales less associated cost of goods sold) in the second quarter of fiscal 2001 increased to 14.6% from 12.4% in the second quarter of fiscal 2000. The increase in gross profit margins is a result of the Company's increased purchasing power and an increase in sales penetration of higher margin holiday U.S. products, non-food items and anticipated lower margins in the prior year quarter as the Company entered new markets. Warehouse gross profit margins are expected to exceed prior fiscal year margins during the remainder of fiscal 2001. There were no export sales to the Company's licensee warehouses in Asia in the second quarter of fiscal 2001 compared to $146,000 in the second quarter of fiscal 2000. The Company does not anticipate significant export sales to its licensees in future periods. Membership fees and other revenue, including royalties earned from licensees, increased 70% to $3.4 million in the second quarter of fiscal 2001 from $2.0 million in the second quarter of fiscal 2000. Membership fees and other income (which includes rental income, advertising revenues and vendor promotions) increased to $3.0 million, or 2.5% of net warehouse sales, in the second quarter of fiscal 2001 from $1.7 million, or 2.3% of net warehouse sales, in the second quarter of fiscal 2000. The increase between quarters was primarily a result of the eight new warehouse openings between the periods presented, which resulted in an increase in the total memberships to 448,000 from 264,000, or an increase of 70%, and increases in rental income and advertising revenues. The Company sold its travel program in March 2000 (fiscal 2000), accounting for the decrease in travel program revenues over the prior period from $2.4 million in the second quarter of fiscal 2000 to none in the second quarter of fiscal 2001. Warehouse operating expenses increased to $12.0 million, or 9.9% of net warehouse sales, in the second quarter of fiscal 2001 from $7.8 million, or 10.3% of net warehouse sales, in the second quarter of fiscal 2000. The increase in warehouse operating expenses is attributable to the eight additional warehouses opened since the second quarter of fiscal 2000. The decrease in operating expenses as a percentage of net warehouse sales is attributable to the leveraging of centralized warehouse costs over additional warehouses, general payroll savings and general operating cost reduction initiatives. General and administrative expenses were $4.4 million, or 3.6% of net warehouse sales, in the second quarter of fiscal 2001 compared with $4.4 million, or 5.8% of net warehouse sales, in the second quarter of fiscal 2000. As a percentage of net warehouse sales, general and administrative expenses have declined due to higher sales from the eight additional warehouse store openings between the periods presented. General and administrative expenses are anticipated to decrease on a quarter over quarter comparative basis for the remainder of fiscal 2001 as a result of certain one-time costs incurred in the prior fiscal year related to the Company's planned growth, offset slightly by anticipated expenses in connection with the Company's sales growth. Preopening expenses, which represent expenses incurred before a warehouse store is in operation, decreased to $704,000 in the second quarter of fiscal 2001 from $905,000 in the second quarter of fiscal 2000. Preopening expenses have decreased as the Company anticipates opening a total of six warehouses in fiscal 2001 (one of Page 4 which opened in the first quarter) compared to eleven new warehouses that were opened in fiscal 2000 (two of which opened in the second quarter). Interest income reflects earnings primarily on cash and cash equivalents, marketable securities and certain secured notes receivables from buyers of formerly owned properties. Interest income increased to $910,000 in the second quarter of fiscal 2001 from $839,000 in the second quarter of fiscal 2000. The change in interest income is due to the change in amounts between interest-bearing instruments held by the Company between the periods presented and the interest rate earned on those instruments. Interest expense primarily reflects borrowings by the Company's majority or wholly owned foreign subsidiaries to finance the capital requirements of new warehouse store operations. Interest expense increased to $1.9 million in the second quarter of fiscal 2001 compared with $506,000 in the second quarter of fiscal 2000. The increase is directly attributable to an increase in the amount of debt and interest expense incurred on amounts borrowed between the periods presented. Minority interest relates to an allocation of the joint venture income (losses) to the minority interest shareholders' respective interests. During the second quarter of fiscal 2001, the Company sold excess real estate properties primarily owned by its majority owned foreign subsidiary in Trinidad. The sale of the excess land resulted in a gain of $648,000, of which the Company's share was $505,000. On January 13, 2001 an earthquake, and subsequent aftershocks, occurred in Central America that impacted most particularly El Salvador. The Company has two warehouses operating in El Salvador, in the cities of San Salvador and Santa Elena. These two facilities had no structural damage and each was reopened shortly after the initial earthquake. The total losses sustained, net of reimbursable insurance amounts totaled approximately $120,000. Net warehouse sales for the operations in El Salvador were not impacted and did not have a materially adverse impact on the overall financial operating results of the Company. COMPARISON OF THE SIX MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000 Net warehouse sales increased 80% to $226.6 million in the first half of fiscal 2001, from $125.9 million in the first half of fiscal 2000. The increase is primarily attributable to the opening of eight new warehouses since the end of the second quarter of fiscal 2000. The Company's warehouse gross profit margins (defined as net warehouse sales less associated cost of goods sold) in the first half of fiscal 2001 increased to 14.2% from 12.5% in the first half of fiscal 2000. The increase in gross profit margins is a result of the Company's increased purchasing power and an increase in sales penetration of higher margin holiday U.S. products, non-food items and anticipated lower margins in the same prior year period as the Company entered new markets. Warehouse gross profit margins are expected to exceed prior fiscal year margins during the remainder of fiscal 2001. There were no export sales to the Company's licensee warehouses in Asia in the first half of fiscal 2001 compared to $421,000 in the first half of fiscal 2000. The Company does not anticipate significant export sales to its licensees in future periods. Membership fees and other revenue, including royalties earned from licensees, increased 100% to $6.6 million in the first half of fiscal 2001 from $3.3 million in the first half of fiscal 2000. Membership fees and other income (which includes rental income, advertising revenues and vendor promotions) increased to $5.9 million, or 2.6% of net warehouse sales, in the first half of fiscal 2001 from $2.9 million, or 2.3% of net warehouse sales, in the first half of fiscal 2000. The increase between quarters was primarily a result of the eight new warehouse openings between the periods presented, which resulted in an increase in the total memberships to 448,000 from 264,000, or an increase of 70%, and increases in rental income and advertising revenues. The Company sold its travel program in March 2000 (fiscal 2000), accounting for the decrease in travel program revenues over the prior period from $4.0 million in the first half of fiscal 2000 to none in the first half of fiscal 2001. Warehouse operating expenses increased to $23.2 million, or 10.2% of net warehouse sales, in the first half of fiscal 2001 from $13.7 million, or 10.9% of net warehouse sales, in the first half of fiscal 2000. The increase in warehouse operating expenses is attributable to the eight additional warehouses opened since the second quarter of fiscal 2000. The decrease in operating expenses as a percentage of net warehouse sales is attributable to the Page 5 leveraging of centralized warehouse costs over additional warehouses, general payroll savings and general operating cost reduction initiatives. General and administrative expenses were $8.7 million, or 3.8% of net warehouse sales, in the second quarter of fiscal 2001 compared with $8.5 million, or 6.7% of net warehouse sales, in the second quarter of fiscal 2000. As a percentage of net warehouse sales, general and administrative expenses have declined due to higher sales from the eight additional warehouse store openings between the periods presented. General and administrative expenses are anticipated to decrease on a quarter over quarter comparative basis for the remainder of fiscal 2001 as a result of certain one-time costs incurred in the prior fiscal year related to the Company's planned growth, offset slightly by anticipated expenses in connection with the Company's sales growth. Preopening expenses, which represent expenses incurred before a warehouse store is in operation, decreased to $1.2 million in the first half of fiscal 2001 from $3.3 million in the first half of fiscal 2000. Preopening expenses have decreased as the Company anticipates opening a total of six warehouses in fiscal 2001 (one of which opened in the first quarter) compared to eleven new warehouses that were opened in fiscal 2000, (four of which opened in the first and second quarters). Interest income reflects earnings primarily on cash and cash equivalents, marketable securities and certain secured notes receivables from buyers of formerly owned properties. Interest income decreased to $1.7 million in the first half of fiscal 2001 from $1.9 million in the first half of fiscal 2000. The change in interest income is due to the change in amounts between interest-bearing instruments held by the Company between the periods presented and the interest rate earned on those instruments. Interest expense primarily reflects borrowings by the Company's majority or wholly owned foreign subsidiaries to finance capital requirements of new warehouse store operations. Interest expense increased to $3.9 million in the first half of fiscal 2001 compared with $817,000 in the first half of fiscal 2000. The increase is directly attributable to an increase in the amount of debt and interest expense incurred on amounts borrowed between the periods presented. Minority interest relates to an allocation of the joint venture income (losses) to the minority interest shareholders' respective interests. During the first half of fiscal 2001, the Company sold excess real estate properties owned by its wholly owned foreign subsidiaries in the Dominican Republic, Costa Rica and its majority owned foreign subsidiary in Trinidad. The sale of the excess land resulted in a gain of $1.8 million, of which the Company's share was $1.3 million. On January 13, 2001 an earthquake, and subsequent aftershocks, occurred in Central America that impacted most particularly El Salvador. The Company has two warehouses operating in El Salvador, in the cities of San Salvador and Santa Elena. These two facilities had no structural damage and each was reopened shortly after the initial earthquake. The total losses sustained, net of reimbursable insurance amounts totaled approximately $120,000. Net warehouse sales for the operations in El Salvador were not impacted and did not have a materially adverse impact on the overall financial operating results of the Company. LIQUIDITY AND CAPITAL RESOURCES The Company's primary capital requirements are the financing of land, construction and equipment costs associated with new warehouse stores, plus the cost of preopening and working capital requirements. For fiscal 2001, the Company's current intention is to spend an aggregate of approximately $50.4 million, which includes $39.0 million for construction, equipment and working capital for six new warehouses and approximately $11.4 million for the redemption of common stock of the Company. Actual capital expenditures for new warehouse locations and operations may vary from estimated amounts depending on the number of new warehouses actually opened, business conditions and other risks and uncertainties to which the Company and its businesses are subject. The Company, primarily through its foreign subsidiaries, intends to borrow approximately $26 million during fiscal 2001, and to use these proceeds, as well as excess cash and cash equivalents and cash generated from existing operations, to finance these expenditures. In March 2000, the Company entered into a Stock Purchase Agreement to acquire the remaining interest in the PriceSmart Panama majority owned subsidiary ("Panama Acquisition"), which previously had been 51% owned by the Company and 49% owned by BB&M International Trading Group ("BB&M"), whose principals are several Panamanian businessmen, including Rafael Barcenas, a director of PriceSmart. In exchange for BB&M's Page 6 49% interest, PriceSmart issued to BB&M's principals 306,748 shares of PriceSmart common stock. As a result of this acquisition, PriceSmart, Inc. increased its guarantee for the outstanding loans related to the Panama operations to 100%. Under the Stock Purchase Agreement, as amended, related to the Panama Acquisition, the Company agreed to redeem the shares of the Company's common stock issued to BB&M at a price of $46.86 per share following the one-year anniversary of the completion of the acquisition upon the request of BB&M's principals. On April 5, 2001, the Company repurchased 242,144 shares of its common stock, par value $.0001 par value per share, for an aggregate of approximately $11.4 million in cash. The Company has agreed to redeem, at its option for cash or additional stock, the remaining 64,604 shares following the second anniversary of the completion of the acquisition at the price of $46.86 per share upon the holders' request. On January 25, 2001, the Company entered into two loan agreements with the International Finance Committee ("IFC") for a total of $32.0 million and has received commitments from the Overseas Private Investment Corporation ("OPIC") to loan to the Company $10.0 million for a total of $42.0 million. Approximately $28.0 million will be used to repay certain existing loans outstanding with the remainder to be used to finance new warehouse expenditures as described above. The funding of the IFC and OPIC loans is subject to the execution of loan agreements (in the case of OPIC) and the fulfillment of all approved conditions, which include the perfection of the underlying security for these loans. The Company expects initial funding of the IFC loan to occur shortly, with the funding of the balance of the IFC loan and the OPIC loan to follow shortly thereafter. Subsequent to the end of the quarter, the Company entered into a loan agreement for $6.0 million to finance the construction of a new warehouse located in St. Thomas, U.S. Virgin Islands. The Company believes that borrowings under its current and future credit facilities, together with its other sources of liquidity (including the IFC and OPIC loans), will be sufficient to meet its working capital and capital expenditure requirements for the foreseeable future. However, if such sources of liquidity are insufficient to satisfy the Company's liquidity requirements, the Company may need to sell equity or debt securities, obtain additional credit facilities or reduce the number of anticipated warehouse openings. Furthermore, the Company has and will continue to consider sources of capital, including the sale of equity or debt securities to strengthen its financial position and liquidity. There can be no assurance that such financing alternatives will be available under favorable terms, if at all. SEASONALITY Historically, the Company's merchandising businesses have experienced moderate holiday retail seasonality in their markets. In addition to seasonal fluctuations, the Company's operating results fluctuate quarter-to-quarter as a result of economic and political events in markets served by the Company, the timing of holidays, weather, timing of shipments, product mix, and currency effects on the cost of U.S.-sourced products which may make these products more expensive in local currencies and less affordable. Because of such fluctuations, the results of operations of any quarter are not indicative of the results that may be achieved for a full fiscal year or any future quarter. In addition, there can be no assurance that the Company's future results will be consistent with past results or the projections of securities analysts. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company, through its majority or wholly owned subsidiaries, conducts foreign operations primarily in Central America and the Caribbean, and as such is subject to both economic and political instabilities that cause volatility in foreign currency exchange rates or weak economic conditions. As of February 28, 2001, the Company had a total of seventeen warehouses operating in seven foreign countries. For the first half of fiscal 2001, approximately 70% of the Company's net warehouse sales were in foreign currencies. The Company currently has operations in Panama and will have operations in the U.S. Virgin Islands, both of which are U.S. dollar denominated currencies. In addition, effective January 1, 2001, the government of El Salvador changed its currency to the U.S. dollar. The Company plans to enter into additional foreign countries in the future, which may involve similar economic and political risks as well as challenges that are different from those currently encountered by the Company. The Page 7 Company believes that because its present operations and expansion plans involve numerous countries and currencies, the effect from any one-currency devaluation may not significantly impact the overall financial or operating results of the Company. However, there can be no assurance that the Company will not experience a materially adverse effect on the Company's financial condition as a result of the economic and political risks of conducting an international merchandising business. Translation adjustments from the Company's non-U.S. denominated majority or wholly owned subsidiaries were $794,000 and $388,000 as of February 28, 2001 and August 31, 2000, respectively. Foreign currencies in most of the countries where the Company operates have historically devalued against the U.S. dollar and are expected to continue to devalue. Managing foreign exchange is critical for operating successfully in these markets and the Company at times manages its risks through a combination of hedging currencies through Non Deliverable Forward Exchange Contracts (NDFs) and internal hedging procedures. For the three months ended February 28, 2001, the Company had not entered into any NDFs. However, the Company may purchase NDFs in the future to mitigate foreign exchange losses, but due to the volatility and lack of derivative financial instruments in the countries the Company operates, significant risk from unexpected devaluation of local currencies exists. Foreign exchange transaction losses realized, which are included as a part of the costs of goods sold in the condensed consolidated statements of operations, for the six months ended February 28, 2001were not material as foreign currency rates have been relatively stable and any devaluation has been mitigated through internal hedging procedures. The Company is also exposed to changes in interest rates on various bank loan facilities. A hypothetical 100 basis point adverse change in interest rates along the entire interest rate yield curve would adversely affect the Company's pretax net income (loss) by approximately $575,000. PART II - OTHER INFORMATION Item 1. Legal Proceedings From time to time, the Company is subject to legal proceedings and claims arising in the ordinary course of business. The Company currently is not aware of any such legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results. Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Stockholders was held on January 24, 2001 at the Hilton San Diego Mission Valley in San Diego, California. Stockholders of record at the close of business on November 28, 2000 were entitled to notice of and to vote in person or by proxy at the Annual Meeting. As of the record date there were 6,296,182 shares outstanding and entitled to vote. The matter presented for vote received the required votes for approval and had the following total votes for and withheld, as noted below. Page 8 1. To elect directors for the ensuing year, to serve until the next Annual Meeting of Stockholders and until their successors are elected and have qualified:
Votes For Votes Withheld -------------------- -------------------- Rafael E. Barcenas 5,328,317 19,258 James F. Cahill 5,338,895 8,680 Murray L. Galinson 5,338,868 8,707 Katherine L. Hensley 5,338,820 8,755 Leon C. Janks 5,338,878 8,697 Lawrence B. Krause 5,338,645 8,930 Jack McGrory 5,337,946 9,629 Gilbert A. Partida 5,338,842 8,733 Robert E. Price 5,338,795 8,780 Edgar A. Zurcher 5,338,543 9,032
Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 10.1 Fourth Amendment of Employment Agreement between the Company and K.C. Breen, dated January 24, 2001. 10.2 Fourth Amendment of Employment Agreement between the Company and Thomas Martin, dated January 24, 2001. 10.3 Master Agreement between PriceSmart, Inc. and Payless ShoeSource Holdings, Ltd., dated November 27, 2000. 10.4 Licensee Agreement - PRC Technology License Agreement, as amended, between PriceSmart, Inc. and Novont Holdings Co., LTD. and Novont Inc., dba Timetone International Group and Cheng Cheng Import Export Co., Ltd., dated February 28, 2001. 10.5 (a) Loan Agreement by and between CitiBank, N.A. and PriceSmart (Guatemala), S.A., dated December 19, 2000 for $1.5 million (in Spanish). 10.5 (b) Loan Agreement by and between CitiBank, N.A. and PriceSmart (Guatemala), S.A., dated December 19, 2000 for $1.5 million (in English). 10.6 Loan Agreement among PriceSmart, Inc., PSMT Caribe, Inc., PSMT Trinidad / Tobago Limited, and International Finance Corporation, dated January 26, 2001 for $22 million. 10.7 Loan Agreement among PriceSmart, Inc., PSMT Caribe, Inc., PSMT Trinidad / Tobago Limited, and International Finance Corporation, dated January 26, 2001 for $10 million. 10.8 Escrow Account Agreement among PriceSmart, Inc., International Finance Corporation and The Bank of New York, dated January 26, 2001 for $7.5 million. (b) No reports on Form 8-K were filed for the three months ended February 28, 2001 Page 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PriceSmart, Inc. Date: April 16, 2001 /s/ Gilbert A. Partida ---------------------- Gilbert A. Partida President and Chief Executive Officer Date: April 16, 2001 /s/ Allan C. Youngberg ---------------------- Allan C. Youngberg Executive Vice President, Chief Financial Officer Page 10 PRICESMART, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
February 28, August 31, 2001 2000 ---------- ---------- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 21,967 $ 24,503 Marketable securities 5,514 5,482 Receivables, net of allowance for doubtful accounts 1,855 1,732 Other receivables 5,455 -- Merchandise inventories 53,726 54,949 Prepaid expenses and other current assets 5,937 5,405 Property held for sale 726 1,652 ---------- ---------- Total current assets 95,180 93,723 Restricted cash 12,485 12,698 Property and equipment, net 140,561 128,985 Goodwill, net 18,693 19,178 Notes receivable and other 2,824 6,816 ---------- ---------- TOTAL ASSETS $ 269,743 $ 261,400 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings $ 10,000 $ 9,493 Accounts payable 45,339 43,312 Accrued salaries and benefits 3,130 3,086 Deferred membership income 3,479 3,892 Other accrued expenses 5,714 5,946 Long-term debt, current portion 7,964 8,773 ---------- ---------- Total current liabilities 75,626 74,502 Long-term debt 50,345 50,532 ---------- ---------- Total liabilities 125,971 125,034 ---------- ---------- Minority interest 7,943 4,683 Commitments and contingencies -- -- STOCKHOLDERS' EQUITY: Preferred stock, $.0001 par value, 2,000,000 shares authorized, none issued -- -- Common stock, $.0001 par value, 15,000,000 shares authorized, 6,884,438 and 6,812,485 shares issued and outstanding at February 28, 2001 and August 31, 2000, respectively 1 1 Additional paid-in capital 149,562 148,970 Notes receivable from stockholders (1,000) (1,000) Deferred compensation (493) (679) Accumulated other comprehensive loss (794) (695) Accumulated deficit (2,948) (6,308) Less: Treasury stock at cost, 548,231 and 555,093 shares at February 28, 2001 and August 31, 2000, respectively (8,499) (8,606) ---------- ---------- Total stockholders' equity 135,829 131,683 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 269,743 $ 261,400 ========== ========== See accompanying notes.
Page 11 PRICESMART, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED - DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended --------------------------------- ------------------------------- February 28, February 29, February 28, February 29, 2001 2000 2001 2000 --------------- --------------- --------------- --------------- Revenues: Sales: Net warehouse $ 121,305 $ 75,458 $ 226,558 $ 125,940 Export -- 146 -- 421 Membership fees and other 3,405 1,963 6,558 3,341 Travel program -- 2,384 -- 3,964 --------------- --------------- --------------- --------------- Total revenues 124,710 79,951 233,116 133,666 --------------- --------------- --------------- --------------- Expenses: Cost of goods sold: Net warehouse 103,592 66,131 194,307 110,170 Export -- 139 -- 405 Selling, general and administrative: Warehouse operations 11,952 7,842 23,230 13,709 General and administrative 4,388 4,384 8,711 8,463 Travel program expenses -- 394 -- 1,520 Goodwill amortization 243 -- 485 -- Preopening expenses 704 905 1,181 3,290 --------------- --------------- --------------- --------------- Total expenses 120,879 79,795 227,914 137,557 --------------- --------------- --------------- --------------- Operating income (loss) 3,831 156 5,202 (3,891) Other income (expense): Interest income 910 839 1,741 1,940 Interest expense (1,906) (506) (3,884) (817) Other income (expense) (9) 32 (9) (156) Gain on sale of real estate 648 -- 1,776 -- Minority interest (249) (227) (869) 449 --------------- --------------- --------------- --------------- Total other income (expense) (606) 138 (1,245) 1,416 --------------- --------------- --------------- --------------- Income (loss) before provision for income taxes and extraordinary item 3,225 294 3,957 (2,475) Provision for income taxes 591 87 477 87 --------------- --------------- --------------- --------------- Income (loss) before extraordinary loss 2,634 207 3,480 (2,562) Extraordinary loss (120) -- (120) -- --------------- --------------- --------------- --------------- Net income (loss) $ 2,514 $ 207 $ 3,360 $ (2,562) =============== =============== =============== =============== Basic earnings (loss) per share: Income (loss) before extraordinary loss $ 0.42 $ 0.04 $ 0.55 $ (0.50) Extraordinary loss $ (0.02) $ -- $ (0.02) $ -- Net income (loss) $ 0.40 $ 0.04 $ 0.53 $ (0.50) Diluted earnings (loss) per share: Income (loss) before extraordinary loss $ 0.39 $ 0.04 $ 0.52 $ (0.50) Extraordinary loss $ (0.02) $ -- $ (0.02) $ -- Net income loss $ 0.38 $ 0.04 $ 0.50 $ (0.50) Shares used in computation (000's): Basic 6,323 5,114 6,293 5,100 Diluted 6,696 5,734 6,716 5,100
Page 12 PRICESMART, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED - DOLLARS IN THOUSANDS)
Six Months Ended ------------------------------ February 28, February 29, 2001 2000 ------------- ------------- OPERATING ACTIVITIES Net income (loss) $ 3,360 $ (2,562) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 4,063 1,948 Goodwill amortization 485 -- Gain on sale of real estate (1,776) -- Allowance for doubtful accounts 20 (106) Income tax charge 477 87 Minority interest 869 (470) Compensation expense recognized for stock options 186 302 Change in operating assets and liabilities: Restricted cash 213 6,445 Receivables and other assets (4,939) (6,583) Accounts payable and other liabilities 784 1,814 ------------- ------------- Net cash flows provided by operating activities 3,742 875 INVESTING ACTIVITIES Sale of marketable securities -- 12,156 Additions to property and equipment (17,037) (39,437) Payments of notes receivable 3,992 361 Proceeds from sale of real estate 3,339 -- Proceeds from property held for sale 926 440 Other 62 103 ------------- ------------- Net cash flows used in investing activities (8,718) (26,377) FINANCING ACTIVITIES Net proceeds from issuance of debt 6,089 23,416 Repayments of debt (6,578) (707) Contributions by minority interest shareholders 2,391 4,157 Proceeds from exercise of stock options 699 1,197 Payment on notes receivable from stockholders -- 100 ------------- ------------- Net cash flows provided by financing activities 2,601 28,163 Effect of exchange rate changes on cash and cash equivalents (161) 41 ------------- ------------- Net increase (decrease) in cash and cash equivalents (2,536) 2,702 Cash and equivalents beginning of period 24,503 14,957 ------------- ------------- Cash and equivalents end of period $ 21,967 $ 17,659 ============= ============= Supplemental disclosure of cash flow information Cash paid during the period for: Interest (excludes amounts capitalized) $ 3,543 $ 690 Income taxes $ 729 $ 423 See accompanying notes.
Page 13 PRICESMART, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED FEBRUARY 28, 2001 (UNAUDITED - DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
Additional Notes Receivable Other Common stock Paid-in from Deferred Comprehensive Shares Amount Capital Stockholders Compensation Loss ---------------------------------------------------------------------------------------- Balance at August 31, 2000 6,813 $1 $148,970 $(1,000) $(679) $(695) Exercise of stock options 71 -- 592 -- -- -- Amortization of deferred compensation -- -- -- -- 186 -- Net income -- -- -- -- -- -- Net unrealized gain on marketable securities -- -- -- -- -- 62 Translation adjustment -- -- -- -- -- (161) Comprehensive income -- -- -- -- -- -- ---------------------------------------------------------------------------------------- Balance at February 28, 2001 6,884 $1 $149,562 $(1,000) $(493) $(794) ========================================================================================
Less: Treasury stock Total Accumulated at Cost Stockholders' Deficit Shares Amount Equity ----------------------------------------------------- Balance at August 31, 2000 $(6,308) 555 $(8,606) $131,683 Exercise of stock options -- (7) 107 699 Amortization of deferred compensation -- -- -- 186 Net income 3,360 -- -- 3,360 Net unrealized gain on marketable securities -- -- -- 62 Translation adjustment -- -- -- (161) ----------------- Comprehensive income -- -- -- 3,261 ----------------------------------------------------- Balance at February 28, 2001 $(2,948) 548 $(8,499) $135,829 =====================================================
See accompanying notes. Page 14 PRICESMART, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) February 28, 2001 NOTE 1 - COMPANY OVERVIEW AND BASIS OF PRESENTATION PriceSmart, Inc.'s ("PriceSmart" or the "Company") business consists of international membership shopping stores similar to, but smaller in size than, warehouse clubs in the United States. As of February 28, 2001, the Company had seventeen warehouse stores in operation in seven countries (four in Panama, three each in Costa Rica and the Dominican Republic, two each in El Salvador, Honduras, and Guatemala and one in Trinidad) of which the Company owns at least a majority interest. Subsequent to the end of the quarter, the Company opened an eighteenth warehouse on the island of Aruba. During fiscal year 2000, the Company increased its ownership from 51% to 100% in the operations in Panama on March 27, 2000 and increased its ownership from 60% to 100% in the operations in Costa Rica, Dominican Republic, El Salvador and Honduras on July 7, 2000 (see Note 8). In addition, there were six warehouse stores in operation (five in China and one in Saipan) licensed to and operated by local business people as of February 28, 2001. Additionally, until March 1, 2000 of fiscal 2000, the Company operated a domestic travel program (see Note 7). NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION: The condensed consolidated interim financial statements of the Company included herein include the assets, liabilities and results of operations of the Company's majority and wholly owned subsidiaries as listed below. All significant intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated interim financial statements have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"), and reflect all adjustments that are, in the opinion of management, necessary to fairly present the financial position, results of operations, and cash flows for the interim period presented. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. The results for interim periods are not necessarily indicative of the results for the full year. The interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's audited consolidated financial statements for the year ended August 31, 2000 filed on Form 10-K.
Ownership Basis of Presentation --------- --------------------- Ventures Services, Inc. 100.0% Consolidated PriceSmart Panama 100.0% Consolidated PriceSmart US Virgin Islands 100.0% Consolidated PriceSmart Guatemala 66.0% Consolidated PriceSmart Trinidad 62.5% Consolidated PriceSmart Aruba 60.0% Consolidated PriceSmart Barbados 60.0% Consolidated PriceSmart Philippines 60.0% Consolidated PSMT Caribe, Inc.: Costa Rica 100.0% Consolidated Dominican Republic 100.0% Consolidated El Salvador 100.0% Consolidated Honduras 100.0% Consolidated
USE OF ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS: Cash and cash equivalents represent cash and short-term investments with maturities of three months or less when purchased. Page 15 PriceSmart, Inc. Notes to Condensed Consolidated Financial Statements (Continued) RESTRICTED CASH: Restricted cash represents time deposits that are pledged as collateral for majority-owned subsidiary loans and amounts deposited in escrow for future asset acquisitions. MERCHANDISE INVENTORIES: Merchandise inventories, which include merchandise for resale, are valued at the lower of cost (average cost) or market. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, as follows: Building and improvements 10-25 years Fixtures and equipment 3-15 years FOREIGN CURRENCY TRANSLATION: In accordance with SFAS No. 52 "Foreign Currency Translation", the assets and liabilities of the Company's foreign operations are translated to U.S. dollars using the exchange rates at the balance sheet date, and revenues and expenses are translated at average rates prevailing during the period. Related translation adjustments are recorded as a component of accumulated comprehensive income. BUSINESS COMBINATIONS: For business combinations accounted for under the purchase method of accounting, the Company includes the results of operations of the acquired business from the date of acquisition. Net assets of the acquired business are recorded at their fair value at the date of acquisition. The excess of the purchase price over the fair value of tangible net assets acquired is included in goodwill in the accompanying consolidated balance sheets, and is being amortized over a 20 year period. RECLASSIFICATIONS: Certain prior period interim condensed consolidated financial statement amounts have been reclassified to conform to current period presentation. NOTE 3 - PROPERTY AND EQUIPMENT Property and equipment consist of the following (in thousands):
February 28, August 31, 2001 2000 --------------- --------------- Land $ 28,272 $ 29,779 Building and improvements 68,010 61,649 Fixtures and equipment 46,189 40,299 Construction in progress 10,607 5,712 --------------- --------------- 153,078 137,439 Less: accumulated depreciation (12,517) (8,454) --------------- --------------- Property and equipment, net $ 140,561 $ 128,985 =============== ===============
Building and improvements includes capitalized interest of $1.0 million and $891,000 as of February 28, 2001 and August 31, 2000, respectively. Page 16 PriceSmart, Inc. Notes to Condensed Consolidated Financial Statements (Continued) NOTE 4 - EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share are computed based on the weighted average shares outstanding in the period. Diluted earnings (loss) per share is computed based on the weighted average shares outstanding in the period and the effect of dilutive securities (options) except where the inclusion is antidilutive (dollars in thousands, except per share data):
Three Months Ended Six Months Ended ------------------------------ ---------------------------- February 28, February 29, February 28, February 29, 2001 2000 2001 2000 -------------- ------------- ------------ ------------- Income (loss) before extraordinary loss $ 2,634 $ 207 $ 3,480 $ (2,562) Extraordinary loss (120) -- (120) -- -------------- ------------- ------------ ------------- Net income (loss) $ 2,514 $ 207 $ 3,360 $ (2,562) ============== ============= ============ ============= Determination of shares (000's): Average common shares outstanding 6,323 5,114 6,293 5,100 Assumed conversion of stock options 373 620 423 -- -------------- ------------- ------------ ------------- Dilutive average common shares outstanding 6,696 5,734 6,716 5,100 Basic earnings (loss) per share: Income (loss) before extraordinary loss $ 0.42 $ 0.04 $ 0.55 $ (0.50) Extraordinary loss $ (0.02) $ -- $ (0.02) $ -- Net income (loss) $ 0.40 $ 0.04 $ 0.53 $ (0.50) Dilutive earnings (loss) per share: Income (loss) before extraordinary item $ 0.39 $ 0.04 $ 0.52 $ (0.50) Extraordinary item $ (0.02) $ -- $ (0.02) $ -- Net income (loss) $ 0.38 $ 0.04 $ 0.50 $ (0.50)
NOTE 5 - COMMITMENTS AND CONTINGENCIES From time to time, the Company is subject to legal proceedings and claims arising in the ordinary course of business. The Company currently is not aware of any such legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results. NOTE 6 - SHORT-TERM BORROWINGS AND DEBT As of February 28, 2001, the Company, through its majority or wholly owned subsidiaries, had $11 million outstanding in short-term bank borrowings through six separate facilities, which are secured by certain assets of its subsidiaries and are guaranteed by the Company up to its respective ownership percentage. Each of the facilities expires during the year and typically are renewed. As of February 28, 2001, the Company had drawn down the full amounts for five of the facilities and had availability of approximately $10 million under the sixth. All debt is collateralized by certain land, building, fixtures and equipment of each respective subsidiary and guaranteed by the Company up to its respective ownership percentage, except for approximately $11.3 million as of February 28, 2001, which are secured by collateral deposits for the same amount and are included in restricted cash on the balance sheet (see Note 10). On January 25, 2001, the Company entered into two loan agreements with the International Finance Committee ("IFC") for a total of $32.0 million. Under the $22.0 million facility, the term of the loan is for a period of ten years and interest is calculated on the basis of LIBOR plus 4.0% and due semi-annually. Beginning in March Page 17 PriceSmart, Inc. Notes to Condensed Consolidated Financial Statements (Continued) 2003, minimum principal payments of $1.4 million are due semi-annually. Under the $10 million facility, the term of the loan is for a period of ten years and interest is calculated on the basis of LIBOR plus 2.0% and due semi-annually. The full principal amount of the loan is due at the end of the term. The loan agreements are to be secured by certain land, building, fixtures and equipment, a pledge of the Company's equity interests underlying the loans as well as $7.5 million to be held in escrow. The loans are also subject to certain financial and operating covenants. The funding of the IFC loans is subject to fulfillment of all approved conditions, which include the perfection of the underlying security of these loans. The Company anticipates the funding of these loans to occur shortly, of which approximately $28 million will be utilized to extinguish certain existing debt with the remainder to be used to finance new warehouse expenditures. NOTE 7 - SALE OF ASSETS On March 1, 2000, the Company sold its travel program for $1.5 million to Club-4U, Inc. under an asset purchase agreement ("purchase agreement"). Under the purchase agreement, Club-4U, Inc. acquired the assets primarily used in connection with the travel program, subject to liabilities under the travel program's existing contracts, resulting in a gain of approximately $1.1 million. NOTE 8 - ACQUISITION OF MINORITY INTERESTS In March 2000, the Company entered into a Stock Purchase Agreement to acquire the remaining interest in the PriceSmart Panama majority owned subsidiary ("Panama Acquisition"), which previously had been 51% owned by the Company and 49% owned by BB&M International Trading Group ("BB&M"), whose principals are several Panamanian businessmen, including Rafael Barcenas, a director of PriceSmart. In exchange for BB&M's 49% interest, PriceSmart issued to BB&M's principals 306,748 shares of PriceSmart common stock. As a result of this acquisition, PriceSmart, Inc. increased its guarantee for the outstanding loans related to the Panama operations to 100% (see Note 10). In July 2000, the Company acquired the 40% interest in PSMT Caribe, Inc. not held by the Company. PSMT Caribe is the holding company formed by PriceSmart and PSC, S.A. (a Panamanian company with shareholders representing five Central American and Caribbean countries, including Edgar Zurcher, a director of PriceSmart as of November 2000), to hold their respective interests in the PriceSmart membership warehouse clubs operating in Costa Rica, El Salvador, Honduras and the Dominican Republic. As consideration for the acquisition of the 40% interest, PriceSmart issued to PSC, S.A. 679,500 shares of PriceSmart common stock, half of which are restricted from sale for one year. As a result of this acquisition, the Company has increased its guarantee for the outstanding loans related to the warehouses operating in Costa Rica, El Salvador, Honduras and the Dominican Republic to 100%. The acquisitions were accounted for as purchases under Accounting Principles Board Opinion No. 16 (APB No. 16). In accordance with APB No. 16, the Company allocated the purchase prices of the acquisitions based on the fair value of the assets acquired. The excess of the purchase price over the fair value of assets acquired was $19.4 million and is reflected in goodwill, net of accumulated amortization of $708,000 and $223,000, as of February 28, 2001 and August 31, 2000, respectively, in the accompanying condensed consolidated balance sheets and is being amortized on a straight-line basis over a period of 20 years. As disclosed in Note 10, the subsequent transaction related to the Panama Acquisition results in an incremental goodwill adjustment of approximately $1.0 million, which will occur in the third quarter. Page 18 PriceSmart, Inc. Notes to Condensed Consolidated Financial Statements (Continued) NOTE 9 - EXTRAORDINARY ITEM On January 13, 2001 an earthquake, and subsequent aftershocks, occurred in Central America that impacted most particularly El Salvador. The Company has two warehouses operating in El Salvador, in the cities of San Salvador and Santa Elena. These two facilities had no structural damage and each was reopened shortly after the initial earthquake. The total losses sustained, net of reimbursable insurance amounts totaled approximately $120,000. Net warehouse sales for the operations in El Salvador were not impacted and did not have a materially adverse impact on the overall financial operating results of the Company. NOTE 10 - SUBSEQUENT EVENTS REDEMPTION OF COMMON STOCK: Under the Stock Purchase Agreement, as amended, related to the Panama Acquisition, the Company agreed to redeem the shares of the Company's common stock issued to BB&M at a price of $46.86 per share following the one-year anniversary of the completion of the acquisition upon the request of BB&M's principals. On April 5, 2001, the Company repurchased 242,144 shares of its common stock, par value $.0001 par value per share, for an aggregate of approximately $11.4 million in cash. The Company has agreed to redeem, at its option for cash or additional stock, the remaining 64,604 shares following the second anniversary of the completion of the acquisition at the price of $46.86 per share upon the holders' request. ADDITIONAL DEBT: In early April 2001, the Company, entered into a loan agreement with Royal Merchant Bank and Finance Company Limited for $6.0 million to finance the construction of a warehouse located in St. Thomas, U.S. Virgin Islands. The term of the loan is for 10 years and interest is calculated on the basis of three month LIBOR plus 4.0%. Minimum principal payments of $150,000 and interest payments are due quarterly. The loan is collateralized by the building, fixtures and equipment of the warehouse and guaranteed by the Company. The loan is also subject to certain financial and operating covenants. Page 19 EX-10.1 2 a2045570zex-10_1.txt EXHIBIT 10.1 Exhibit 10.1 FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT This Fourth Amendment to Employment Agreement is made and entered into as of January 24, 2001, by and between PriceSmart, Inc., a Delaware Corporation ("Employer") and K.C. Breen ("Executive"). RECITALS A) On March 31, 1998 an Employment Agreement was made and entered into by and between Employer and Executive. B) On March 31, 1999, a First Amendment to Employment Agreement was made and entered into by and between Employer and Executive. C) On October 1, 1999, a Second Amendment to Employment Agreement was made and entered into by and between Employer and Executive. D) On January 11, 2000, a Third Amendment to Employment Agreement was made and entered into by and between Employer and Executive. E) Pursuant to a Memorandum dated August 1, 2000, Executive's Base Salary was increased to $170,000, effective as of November 1, 2000. F) Employer and Executive now desire to further amend the Employment Agreement, as set forth hereinbelow: AGREEMENT 1. Section 3.1 of the Agreement which provides: 3.1 TERM. The term of Executive's employment hereunder shall commence on April 1, 1998 and shall continue until March 31, 2001 unless sooner terminated or extended as hereinafter provided. is hereby amended, effective January 24, 2001, to provide as follows: 3.1 TERM. The term of Executive's employment hereunder shall commence on April 1, 1998 and shall continue until March 31, 2002 unless sooner terminated or extended as hereinafter provided. 2. All other terms of the Employment Agreement, as amended, shall remain unaltered and fully effective. Executed in San Diego, California, as of the date first written above. EXECUTIVE EMPLOYER PRICESMART, INC. K.C. Breen By: /s/ Gilbert A. Partida ------------------------------- /s/ Kevin C. Breen Name: Gilbert A. Partida - --------------------- Its: President and Chief Executive Officer EX-10.2 3 a2045570zex-10_2.txt EXHIBIT 10.2 Exhibit 10.2 FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT This Fourth Amendment to Employment Agreement is made and entered into as of January 24, 2001, by and between PriceSmart, Inc., a Delaware Corporation ("Employer") and Thomas Martin ("Executive"). RECITALS A) On March 31, 1998 an Employment Agreement was made and entered into by and between Employer and Executive. B) On March 31, 1999 a First Amendment to Employment Agreement was made and entered into by and between Employer and Executive. C) On November 22, 1999, a Second Amendment to Employment Agreement was made and entered into by and between Employer and Executive. D) On January 11, 2000, a Third Amendment to Employment Agreement was made and entered into by and between Employer and Executive. E) Employer and Executive now desire to amend the Employment Agreement, as set forth hereinbelow: AGREEMENT 1) Section 3.1 of the Employment Agreement, which provides: 3.1 TERM. The term of Executive's employment hereunder shall commence on April 1, 1998 and shall continue until March 31, 2001 unless sooner terminated or extended as hereinafter provided (the "Employment Term"). is hereby amended, effective as of January 24, 2001, to provide as follows: 3.1 TERM. The term of Executive's employment hereunder shall commence on April 1, 1998 and shall continue until March 31, 2002 unless sooner terminated or extended as hereinafter provided (the "Employment Term"). 2) All other terms of the Employment Agreement, as amended, shall remain unaltered and fully effective. Executed in San Diego, California, as of the date first written above. EXECUTIVE EMPLOYER PRICESMART, INC. Thomas Martin By: /s/ Gilbert A. Partida ---------------------------------- /s/ Thomas Martin Name: Gilbert A. Partida - ------------------------- Its: President and Chief Executive Officer EX-10.3 4 a2045570zex-10_3.txt EXHIBIT 10.3 Exhibit 10.3 MASTER AGREEMENT This Master Agreement ("Agreement") is entered into this 27th day of November, 2000 by and between PriceSmart, Inc., a Delaware corporation (hereinafter "PriceSmart"), and Payless ShoeSource (BVI) Holdings, Ltd., a British Virgin Islands international business company (hereinafter "Payless"), and with PriceSmart and Payless collectively referred to herein as the "Parties". WHEREAS, PriceSmart operates a number of existing retail stores d/b/a "PriceSmart" which are located in Central America and the Caribbean; WHEREAS, Payless desires to operate retail shoe stores d/b/a "Payless ShoeSource" in Central America and the Caribbean; and WHEREAS, PriceSmart and Payless are desirous of working together for the purpose of the opening of Payless ShoeSource stores adjacent to existing and future PriceSmart stores. NOW THEREFORE, in consideration of the mutual benefit to the Parties and for good and valuable consideration, the receipt of which is hereby acknowledged by PriceSmart and Payless, the Parties agree as follows: 1. RECITALS. The above recitals are fully incorporated herein. 2. EXISTING PRICESMART STORES. Attached hereto as Exhibit A and fully incorporated herein, is a listing of all existing PriceSmart stores located within Central America and the Caribbean for the countries listed in Paragraph 3 below. PriceSmart warrants that as of the date hereof, the attached list of PriceSmart stores is a complete and accurate list of operating and existing stores located within Central America and the Caribbean for the countries listed in Paragraph 3 below. Within forty-five (45) days of the date of execution hereof, by written notice by PriceSmart to Payless, PriceSmart shall identify each store location listed on Exhibit A which PriceSmart is unwilling or unable (in its sole discretion) to offer to Payless as a potential location for an adjacent Payless ShoeSource store. All such stores shall be clearly designated on a revised Exhibit A as "UNAVAILABLE". All PriceSmart store locations on the revised Exhibit A which are NOT designated UNAVAILABLE in the PriceSmart notice shall be available to Payless ("Available PriceSmart Location") for purposes of a determination by Payless as to whether it desires to add a Payless ShoeSource store to any of such available locations. 3. ACCEPTANCE OR REJECTION OF PAYLESS SHOESOURCE STORES AT EXISTING PRICESMART LOCATIONS. PriceSmart shall deliver to Payless the premises for the "Test Store" (as defined herein below), in the condition described in Article III of Exhibit C attached hereto, on or before December 1, 2000. Provided possession of the premises of the Test Store is delivered to Payless on or before December 1, 2000, on or before December 15, 2000 Payless shall open the Test Store (defined to be the initial Payless ShoeSource store adjacent to the PriceSmart store located within the city of Zapote, Costa Rica). Payless shall evaluate the sales and anticipated future profitability of the Test Store. Based upon the foregoing evaluation, Payless, at its sole discretion, but acting in good faith, shall decide whether to continue operating the Test Store and, shall so notify PriceSmart of its decision on or before February 1, 2001. In the event Payless decides to continue to operate the Test Store, Payless shall undertake an evaluation of each location identified as an Available PriceSmart Location and accept or reject any Available PriceSmart Location for the purpose of operating an adjacent Payless ShoeSource store. Notwithstanding the foregoing, Payless shall notify PriceSmart in writing of Payless' decision to operate ("Acceptance Notice") or not operate ("Rejection Notice") a Payless ShoeSource store adjacent to each Available PriceSmart location based upon the following notice schedule for the following countries: ACCEPTANCE OR REJECTION NOTICE DATE COUNTRY - ------------------------ ------- February 1, 2001 Costa Rica April 1, 2001 Dominican Republic April 1, 2001 El Salvador April 1, 2001 Guatemala April 1, 2001 Trinidad June 1, 2001 Honduras In the event Payless sends PriceSmart a Rejection Notice with respect to an Available PriceSmart Location, or fails to send an Acceptance Notice on or before the above-specified date for the applicable countries, Payless shall have no further right whatsoever to have a Payless ShoeSource store constructed and operating at such location, unless expressly agreed to by PriceSmart in writing, with any such agreement at PriceSmart's sole discretion. Upon PriceSmart's receipt of an Acceptance Notice from Payless of its desire to operate an adjacent Payless ShoeSource store at an Available PriceSmart location, the Parties shall promptly commence to exercise all diligence and reasonable efforts to facilitate the opening of the Payless ShoeSource store on the dates specified in the below schedule. Such efforts to facilitate the opening of each Payless ShoeSource store shall include the signing of a lease for the location pursuant to Section 8, below, and the commencement and completion of construction of the store, all in accordance with the terms hereof. 2 OPEN DATE COUNTRY - --------- ------- August 1, 2001 Costa Rica October 1, 2001 Dominican Republic October 1, 2001 El Salvador October 1, 2001 Guatemala October 1, 2001 Trinidad December 1, 2001 Honduras With respect to the above-specified Opening Date(s), the Parties may, by a writing signed by the Parties, agree to open any particular Payless ShoeSource store prior to the Open Date specified for the associated country. In the event the Parties agree to open any particular Payless ShoeSource store prior to the above-specified relevant Open Date, the Parties shall exercise good faith and due diligence in satisfying such agreed opening date, and upon the opening of the Payless ShoeSource store, all rent obligations and all other lease obligations under the subject lease shall commence. In all circumstances where no opening date prior to the relevant Open Date specified above has been agreed upon, the Payless ShoeSource store shall open no later than the relevant Open Date, but in all such circumstances, the lessee shall not be obligated to open its Payless ShoeSource store nor shall its rent and lease obligations accrue prior to the schedule of Opening Date(s) specified above. Notwithstanding the foregoing, in all circumstances where no opening date prior to the relevant Open Date specified above has been agreed upon, the lessee shall have a maximum of thirty (30) days from the date the lessor finishes the build-out of the Payless ShoeSource store and delivers the same to the lessee in accordance with Article III of Exhibit C attached hereto, to open its store; and for each day that is less than thirty (30) days prior to the relevant Open Date specified above that the lessor does not deliver the respective premises to lessee, the Open Date shall be extended on a day for day basis. For example, if premises are delivered to the lessee on August 15, 2001 for a store opening in Costa Rica, the lessee shall be obligated to open for business and pay rent commencing no later than September 15, 2001. 4. PANAMA, BARBADOS AND ARUBA. With respect to the countries of Panama, Barbados and Aruba, if and when Payless obtains a business license to do business in any of these countries, Payless may send written notice thereof to PriceSmart and PriceSmart shall, within thirty (30) days of receipt of such notice, provide Payless a written notice of a list of the PriceSmart stores operating in any such country and which locations which PriceSmart is willing (Available PriceSmart Location) and which locations PriceSmart is not willing ( at PriceSmart's sole discretion) to offer Payless as a potential location for an adjacent Payless ShoeSource Store. Within thirty (30) days of receipt of such list from PriceSmart, Payless shall send an Acceptance Notice or Rejection Notice with respect to each such location and with respect to those locations for which Payless sends an Acceptance Notice, the Parties shall promptly commence to exercise all diligence and reasonable efforts to facilitate the opening of the new Payless ShoeSource store (including the signing of a lease for the 3 location, pursuant to Section 8, below), at the: (i) earliest reasonably possible date, or if later, (ii) such other date as specified by Payless, but such other date shall be no later than one hundred twenty (120) days from the date of the Acceptance Notice. In the event Payless sends PriceSmart a Rejection Notice with respect to an Available PriceSmart Location, or fails to send an Acceptance Notice within the above-specified thirty (30) day time period, Payless shall have no further right whatsoever to have a Payless ShoeSource store constructed and operating at such location, unless expressly agreed to by PriceSmart in writing, with any such agreement at PriceSmart's sole discretion. The size of each Payless ShoeSource store in all of the countries referenced in Paragraphs 2 through 4, above, and 5, below, shall be not less than 2,000 square feet and not more than 2,500 square feet, the precise size to be determined by the Parties with respect to each store. 5. FUTURE PRICESMART LOCATIONS. On or before thirty (30) days prior to PriceSmart commencing construction on a new PriceSmart store location in Costa Rica, Dominican Republic, El Salvador, Guatemala, Trinidad and Honduras, PriceSmart shall advise Payless in writing of the anticipated commencement and completion of the construction and anticipated opening for business of the new store, and whether PriceSmart has designated (in its sole discretion) the location UNAVAILABLE. In the event the location is not designated UNAVAILABLE, it shall be available to Payless (Available PriceSmart location) and Payless shall, within thirty (30) days receipt of such notice, advise PriceSmart of its decision on whether to add an adjacent Payless to the PriceSmart location. If Payless elects to add a Payless ShoeSource store to any such future PriceSmart location, the Parties shall promptly commence to exercise due diligence to facilitate the opening of the Payless ShoeSource store simultaneously with the date of the opening of the PriceSmart store (including the signing of a lease for the location, pursuant to Section 8, below), or if such simultaneous opening is not possible, the earliest reasonably possible date after the opening of the PriceSmart Store. In the event Payless sends PriceSmart a Rejection Notice with respect to an Available PriceSmart Location, or fails to send an Acceptance Notice on or before its above-specified thirty (30) day time period, Payless shall have no further right whatsoever to have a Payless ShoeSource store constructed and operating at such location, unless expressly agreed to by PriceSmart in writing, with any such agreement at PriceSmart's sole discretion. 6. NOTICES. All notices, requests, or demands required or contemplated by this Agreement shall be in writing and shall be delivered to the notice address specified below, or such other notice address as specified by one party to the other in accordance with the notice requirements herein specified: 4 PRICESMART: Attention: Brud Drachman Senior Vice President of Real Estate and Construction PriceSmart, Inc. 4649 Morena Blvd. San Diego, California 92117 With a copy of all legal notices to: Attention: General Counsel PriceSmart, Inc. 4649 Morena Blvd. San Diego, CA 92117 PAYLESS: Attention: Beric Christiansen Vice President of Store Development (PriceSmart) Payless ShoeSource, Inc. 3231 East 6th Avenue P.O. Box 3560 Topeka, Kansas 66601-9923 with a copy of all legal notices to: Attention: General Counsel Payless ShoeSource, Inc. (PriceSmart) 3231 East 6th Avenue P.O. Box 1189 Topeka, Kansas 66601-9923 All notices shall be sent by national airborne courier or by certified mail, and if sent by airborne courier, such notices shall be deemed delivered on the second (2nd) business day from the date of mailing, and if sent by certified mail, such notices shall be deemed delivered on the fifth (5th) business day from the date of mailing. If any such notice is sent by both national airborne courier and certified mail, the date of delivery of notice shall be deemed to have occurred on the second (2nd) day from the date of the airborne mailing. 7. DISCOUNT ON PAYLESS MERCHANDISE. Provided that all of the following conditions are fully satisfied, Payless will provide PriceSmart "members" a ten per cent (10%) discount from all regular prices and sales prices on all merchandise sold by Payless, as follows: A. The PriceSmart member proves their membership by displaying a current, valid PriceSmart membership card; B. The customer must purchase two or more pairs of shoes for the discount to apply to any particular sales transaction; 5 C. The 10% discount shall apply to all Payless ShoeSource stores located within any country in Central America and the Caribbean where at least one Payless ShoeSource store operates adjacent to a PriceSmart store (i.e. for any country within Central America and the Caribbean that does not contain a Payless ShoeSource store operating adjacent to a PriceSmart store, the 10% discount shall not apply to any Payless ShoeSource stores operating within any such country); D. The 10% discount will apply through the use of coupons issued by PriceSmart. PriceSmart members CANNOT use more than one 10% discount coupon per transaction or combine the 10% discount coupon with any other coupon offers (i.e., PriceSmart members cannot use two 10% discount coupons to obtain a 20% discount, or combine a 10% discount coupon with a $2.00 off coupon, etc.); E. All coupons shall contain the standard terms set forth on Exhibit B hereto; F. Any changes to the amount of the discount or the discount process or to the standard terms of the coupons must be approved by Payless and PriceSmart in writing; and G. Payless shall review and approve in writing and at Payless' sole discretion, all PriceSmart advertising and the use of the Payless trademarks or name with respect to PriceSmart's advertising of the discount coupons. Likewise, any Payless advertising or other use of the PriceSmart name or trademarks shall first be subject to PriceSmart's review and written approval, at PriceSmart's sole discretion. 8. FORM LEASE AGREEMENT. With respect to each Available PriceSmart Location that is the subject of an Acceptance Notice, the Parties shall enter into a lease agreement for each such location. PriceSmart or its subsidiaries or affiliates shall be the "Landlord" or "Lessor", and Payless or its subsidiary or affiliates shall be the "Tenant" or "Lessee" with respect to the lease for each such location. For the purposes of this Agreement, any reference to Lessor shall mean PriceSmart or its subsidiaries or affiliates, and any reference to Lessee shall mean Payless, or its subsidiaries or affiliates. Attached as Exhibit C is a "form" lease agreement which shall apply to each Available PriceSmart location which is the subject of an Acceptance Notice. The Parties understand and agree that, for practical purposes, the actual lease for each location may not include all of the terms set forth on Exhibit C; nonetheless, the Parties further agree that all such terms set forth in Exhibit C shall be deemed to be a part of each lease for each such location, and shall be enforceable pursuant to the terms of this Agreement. The terms as set forth in Exhibit C may not be modified and shall govern over any particular lease except if modifications are required due to unique circumstances pertaining to any particular location or jurisdiction and as agreed to by the Parties; and in any such event, the Parties will execute an amendment to this Agreement, pertaining to the subject location. 6 9. VENUE AND APPLICABLE LAW AND CONSTRUCTION. With respect to any disputes that arise under this Agreement, including any lease for any Available PriceSmart location entered into between the Parties or their subsidiaries or affiliates, the dispute shall be resolved pursuant to Paragraph 16 below. The laws of the State of California shall govern the validity, performance and enforcement of this Agreement and of any lease for any Available PriceSmart Location (regardless of any conflict of laws statute of California, or of any State of the United States, or the United States, or of any country in which the subject leased property is located, the application thereof being expressly waived by the Parties). 10. POWER TO ENTER INTO THIS AGREEMENT; SUCCESSORS AND ASSIGNS;TERMINATION Each party to this Agreement represents and warrants that they have full power and authority to enter into this Agreement and fully bind their respective party. Each party covenants and agrees not to enter into any other Agreement which would be inconsistent with or conflict with this Agreement, or preclude or interfere with the ability of the party to perform under this Agreement. Subject to Paragraph 11, below, the Parties hereto and their respective successors and assigns shall be fully bound by this Agreement. In the event either party desires to assign its interest under this Agreement to another entity, the assignor must advise the other party of the assignment and provide the other party a copy of the relevant assignment document effecting the transfer. Further, with respect to any assignment by Payless of its interest under this Agreement to another party, PriceSmart, at its sole discretion, may reject any such assignment and upon such rejection such assignment shall be void, and of no force and effect. Notwithstanding the foregoing, Payless may assign its interest without first obtaining PriceSmart's consent if such assignment is to: (a) any majority owned and controlled subsidiary of Payless as long as such subsidiary remains owned and controlled by Payless; (b) the purchaser of all or substantially all of the assets of Payless ShoeSource, Inc., a Missouri corporation; (c) any successor company if Payless ShoeSource, Inc., a Missouri corporation merges or consolidates with another entity; and (d) to Payless ShoeSource, Inc., a Missouri corporation, or any of its wholly owned subsidiaries. Notwithstanding anything to the contrary contained in this Agreement, but excepting Payless' shares being offered in a public offering, in the event that at any time Payless ShoeSource, Inc., a Delaware corporation (hereinafter "PSS", the shares of which corporation are traded on the New York Stock Exchange under the symbol PSS), directly or indirectly owns less than fifty percent (50%) of the ownership interests of Payless and 7 the lessee under any lease for any Available PriceSmart location, or otherwise does not control Payless and the lessee under any lease for any Available PriceSmart location, PriceSmart may terminate this Agreement immediately, and also immediately terminate any or all leases entered into between the Parties or their respective subsidiaries or affiliates based upon or resulting from this Agreement. For purposes of clarification, presently Payless is a fifth (5th) tier sixty percent (60%) owned subsidiary of PSS. Accordingly, at the present time, the ownership interest of PSS in Payless is an indirect one, whereby Payless is controlled by affiliates of PSS which are controlled by PSS. With respect to any assignment by PriceSmart of its interest under this Agreement to any third party, PriceSmart may do so, but within sixty (60) days of Payless' receipt of the assignment documentation required to be delivered to it by PriceSmart, Payless may terminate this Agreement, which termination shall be effective against PriceSmart and any such Assignees. Notwithstanding the foregoing, PriceSmart may assign its interest under this Agreement without any right of Payless to terminate this Agreement due to such assignment, provided such assignment is to: (a) any majority owned and controlled subsidiary of PriceSmart provided such subsidiary remains owned and controlled; (b) the purchaser of all or substantially all of the assets of PriceSmart; and (c) any successor entity if PriceSmart merges or consolidates with another entity. 11. SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall not affect or impair any other provision. If any provision of this Agreement is capable of two constructions, one of which would render the provision invalid and the other of which would make the provision valid, then the provision shall have the meaning which renders it valid. 12. EXPENSES AND ATTORNEY FEES. If either party hereto incurs any expense, including reasonable attorney fees and expert witness fees in connection with the exercise of the mechanism for resolving disputes specified in Paragraph 16 hereof by either party to protect, enforce or defend rights or obligations under this Agreement, or under any lease agreement between the Parties and their respective subsidiaries or affiliates or assigns, the prevailing party in such proceeding shall recover its reasonable expenses from the other. 13. INTERPRETATION. The terms of this Agreement and any lease agreement entered into between the Parties may not be construed against the drafting party. The Parties agree that each has participated equally in drafting the preparing this Agreement and the form lease agreed upon between the Parties. 8 14. ENGLISH OFFICIAL LANGUAGE. All lease agreements entered into between the Parties shall be written in English. If the lease agreement is translated into another language other than English, the English language version shall control and govern the lease agreement. 15. MODIFICATIONS. This Agreement embodies the entire agreement and understanding between the Parties, and supersedes all prior negotiations, agreements and understandings. Any provision of this Agreement may only be modified, waived or discharged only be an instrument in writing signed by the Party against which enforcement of such modification, waiver or discharge is sought. 16. ARBITRATION AND MEDIATION. In the event any dispute arises under this Agreement or under any lease entered into between the Parties or their respective subsidiaries or affiliates for any Available PriceSmart Location, the dispute shall be submitted to binding arbitration. The binding arbitration shall take place in San Diego, California in accordance with the rules of The American Arbitration Association or its successor organization. The Parties agree to abide by the result of the binding arbitration, and in the event any judgment upon the award rendered by the arbitrator is not satisfied within thirty (30) days of the granting of the award, the judgment may be entered in any court having jurisdiction of the matter; the Parties expressly further agree that the result of such arbitration shall be fully enforceable in the country in which the subject property is located, as well as in the United States. In the event any award is granted in favor of Payless, whereby PriceSmart, its subsidiaries or affiliates owes Payless, its subsidiaries or affiliates money, Payless, its subsidiaries or affiliates may offset such amount of the award from any rent owed PriceSmart or any of its subsidiaries or affiliates under any lease entered into between Payless or any of its subsidiaries or affiliates and PriceSmart or any of its subsidiaries or affiliates. 17. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which shall together constitute one and the same instrument. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and year first above written. WITNESS: PRICESMART, INC. /s/ Patricia A. Sweeney By: /s/ Robert M. Gans - ---------------------------- ---------------------------------- Attest: Patricia A. Sweeney WITNESS: Payless ShoeSource (BVI) Holdings, Ltd. Pamela M. Nichol By: /s/ Duane Cantrell ---------------------------------- EX-10.4 5 a2045570zex-10_4.txt EXHIBIT 10.4 Exhibit 10.4 FEBRUARY 28, 2001 PRICESMART, INC. AND NOVONT HOLDINGS CO., LTD. AND NOVONT, INC., dba TIMETONE INTERNATIONAL GROUP AND CHENG CHENG IMPORT EXPORT CO., LTD. =========================================================== PRC TECHNOLOGY LICENSE AGREEMENT (AMENDED) =========================================================== CONTENTS 1. Definitions And Interpretation..........................................6 2. License.................................................................7 3. Computer Software Systems...............................................8 4. Technical Support Service..............................................10 5. Consideration for License and Rights...................................12 6. Additional Duties of Licensee..........................................14 7. Merchandising..........................................................17 8. Protection of Intellectual Property Rights.............................19 9. Indemnities............................................................20 10. Confidential Information And Non-competition...........................22 11. Term; Termination......................................................23 12. Termination............................................................23 13. Arbitration............................................................25 14. General Provisions.....................................................26 15. Restriction on Transfers...............................................27 16. [Intentionally deleted]................................................28 17. Change Of Control Of Licensor..........................................28 Exhibit A Agency Agreement between Novont Holdings Co., Ltd. andCheng Cheng Import-Export Co., Ltd.......................................................31 Exhibit B Territory.......................................................32 Exhibit C J.D. Edwards Agreement..........................................33 Exhibit D Form Of Gross Sales Report......................................34 Exhibit E Territory Outlet Openings.......................................35 Exhibit F Current Policies, Procedures and Quality Standards..............36 Exhibit G Employee's Confidential Information Agreement...................41 Exhibit H Key Employee's Confidentiality and Non-Competition Agreement ("Agreement")................................................................42 THIS AGREEMENT, dated as of February 28, 2001, is made: BETWEEN (1) PRICESMART, INC. a corporation organized and existing under the laws of the State of Delaware, United States of America (USA), with a principal office and place of business at 4649 Morena Blvd., San Diego, CA 92117, USA (LICENSOR); (2) NOVONT HOLDINGS CO., LTD., a limited liability company, organized and existing under the laws of the People's Republic of China (PRC), with its registered address at Xuhai Building, Room 601, No. 86 Haidian Road, Haidian District, Beijing, PRC (LICENSEE); (3) NOVONT, INC., dba TIMETONE INTERNATIONAL GROUP, a corporation organized and existing under the laws of the State of California, USA, with its registered address at 444 South Flower St., Los Angeles, CA., 90071 (US LICENSEE); (4) Cheng Cheng Import-Export Co., Ltd. a company organized and existing under the laws of the PRC possessing valid foreign trade rights, with its registered address at No. 18 Xueqing Road, Haidian District, Beijing, PRC, as agent on behalf of Licensee for the importation of the relevant technology and goods under this Agreement (IMPORT AGENT); the Agency Agreement between Licensee and the Import Agent is attached hereto as Exhibit A. WHEREAS (A) Licensor owns the rights to certain trade secrets, know-how and other intellectual property which have proven sufficient for the design, establishment, management and operation of a business engaged in the sale of general merchandise, food and related products and services (the MERCHANDISE BUSINESS SYSTEM); and (B) Licensee desires that Licensor provide to Licensee the right to establish the Merchandise Business System in the Territory and the right to receive certain merchandising and technical support from Licensor, including training of Licensee's personnel in the methods of establishing and operating the Merchandise Business System; (C) Licensor is willing to provide such rights to Licensee, subject to the terms and conditions set forth below; 5 (D) US Licensee is willing to and agrees to facilitate the implementation of this Agreement as may be necessary or appropriate; (E) The Import Agent has agreed to act as import agent for Licensee with regard to Licensee's import requirements; (F) This Agreement is intended to and shall supercede the PRC Technology License Agreement entered into on January 4, 1999 between Licensor, Licensee's predecessor in interest BEIJING PRICESMART MEMBERSHIP SHOPPING ENTERPRISES GROUP, US Licensee and Import Agent. IT IS AGREED AS FOLLOWS: 1. DEFINITIONS AND INTERPRETATION 1.1 In this Agreement: AFFILIATE shall mean in relation to any individual, organization (unincorporated or incorporated), association, trust, entity or partnership (collectively a PERSON) any other Person which it controls or which controls it or with which it is under common control. For this purpose, CONTROL means the direct or indirect ownership or control of fifty percent (50%) or more of the interest or equity of the relevant Person. APPROVAL AUTHORITY shall mean the Ministry of Foreign Trade and Economic Cooperation or its subsidiary agency, as applicable. BUSINESS PLAN shall mean an operating plan prepared by Licensee for the establishment and operation of the Merchandise Business System in the Territory, including among other things, expenses and revenues. GOVERNMENTAL APPROVAL shall mean any consent, permission, approval, authorization, order or expiration of waiting period following filing or notification, of any agency or instrumentality of the government(s) of the PRC that is required in order for the parties to this Agreement to carry out all provisions of this Agreement. PERSON shall mean any individual, organization (unincorporated or incorporated), association, trust, entity or partnership. PRICESMART INTELLECTUAL PROPERTY shall mean all intangible proprietary rights owned by or controlled by Licensor relating to the ownership and operation of the Merchandise Business System in the PRC, including, without limitation, Licensor Trademarks, intellectual property, copyrights, trade dress, patents and/or trademarks or service marks, 6 private labels and brand names, trade secrets, know-how and technical expertise. TERRITORY shall mean the People's Republic of China, excluding Hong Kong, Macao and Taiwan. TERRITORY OUTLET shall means a store established and operated in the Territory by Licensee using the Merchandise Business System. TRANSACTION shall mean, whether in one or a series of transactions, the sale, transfer or other disposition, directly or indirectly, of all or a significant portion (defined as at least a 50% interest, taking into account any right or option to acquire an interest in Licensor subsequent to a Transaction) of the business, assets or securities of Licensor whether by way of a merger or consolidation, reorganization, recapitalization or restructuring, tender or exchange offer, negotiated purchase, leveraged buyout, minority investment or partnership, collaborative venture or otherwise, or any other extraordinary corporate transaction involving Licensor. YEAR shall mean a twelve-month period and each anniversary thereof. 1.2 In this Agreement: (a) references to clauses are to clauses of this Agreement; (b) words importing a gender include every gender; and (c) headings are inserted for convenience only and shall not affect the construction of this Agreement. 2. LICENSE 2.1 License. Subject to the terms and conditions of this Agreement, to Licensee's compliance with and observance of all such terms and conditions, and to the terms of existing agreements to which Licensor and its Affiliates may be parties, Licensor hereby grants to Licensee an exclusive license to use in the Territory and for the Merchandise Business Systems only, such of the PriceSmart Intellectual Property as is reasonably required to develop and operate the Territory Outlets for so long as this Agreement shall remain in effect but not thereafter, solely in connection with the establishment and operation of Territory Outlets. 2.2 Rights Reserved. All rights not granted by Licensor hereunder are reserved to Licensor. Any use by Licensee of the PriceSmart Intellectual Property beyond the rights herein granted shall be a material breach of this Agreement by Licensee. 7 2.3 Scope of License. This license shall remain in effect for the term of this Agreement only. The scope of this license shall be subject to contractual and legal licensing restrictions to which Licensor is subject, which restrictions may limit the ability of Licensor to make certain PriceSmart Intellectual Property available to Licensee under this Agreement. 2.4 No Right of Sub-license. Licensee shall have no right to sub-license any of the rights granted to Licensee herein without first obtaining the express written approval of Licensor. However, Licensee may sub-license its rights under clause 2.1 to a Person in which Licensee directly holds 50% or more of the voting equity, provided: (i) Licensor approves in advance the other equity owners of such sub-licensee, who shall be issued equity in sub-licensee solely in exchange for a contribution of real property (or the rights to use the same) for use by sub-licensee as a Territory Outlet; (ii) Licensor approves the sub-license agreement and the terms of any other agreements between Licensee and sub-licensee in advance; and (iii) sub-licensee agrees to be bound by all obligations of Licensee hereunder. Licensee shall be liable for all obligations of sub-licensee under any sub-licence agreement or any other agreement between Licensee and sub-licensee. Licensor may, but shall not be obliged to, prepare all sub-licensing agreements between Licensee and sub-licensee. 3. COMPUTER SOFTWARE SYSTEMS 3.1 Transfer. Licensor shall transfer to Licensee, for use solely in connection with the operation of Territory Outlets, (i) the Source Code for the interface to the point of sale system; and (ii) the Source Code for the PC-based membership application system; and (iii) all historic data directly related to Licensee's master file records and Licensee's transaction records residing in Licensor's AS-400 System (collectively, the "Transferred Data"). 3.2 One Time Transfer Fee. Concurrent with the execution of this Agreement, Licensor shall pay to Licensee a one time transfer fee of US$52,630 as consideration for the Transferred Data. 3.3 Access to Computer Systems. If so requested by Licensee, Licensor shall allow Licensee to have continued access (in the same manner as such access has existed immediately prior to the execution of this Agreement) to the computer software systems based at Licensor's headquarters up to May 1, 2002. If Licensee requests Licensor for such access for a full year, Licensee shall pay to Licensor a fee of US$58,480 commencing 1 May 2001 for the first Territory Outlet and US$17,544 for each additional Territory Outlet. The fee shall be paid in advance on a 8 monthly basis, prorated for any portion of the year for which Licensee requests and receives such access. Licensee shall also reimburse Licensor for any amounts which it is required to pay to the licensor of the computer software systems in order to allow Licensee to access such computer software systems. 3.4 Programming Errors. If Licensee requests access to the computer software systems pursuant to clause 3.1 above, and in the event the computer software systems fail during such period to properly support the subject systems functions during such period, Licensor shall, at its expense, promptly fix any Licensor programming error in the software comprising the computer software systems, which causes the computer software systems not to function as intended. 3.5 Data Link. If Licensee requests access to Licensor's computer software systems, then Licensee shall be solely responsible for providing and maintaining the data communications link to provide remote access, as approved by Licensor, between the computer system in San Diego, California which operates the computer software systems and the Licensee computer equipment in the Territory. Licensee shall bear the costs associated with obtaining, installing and maintaining such data communications link. 3.6 Confidentiality and Other Terms. Licensee shall maintain in confidentiality and shall not transfer, sub-license or otherwise disclose the Transferred Data to any third party. Licensee shall not use the Transferred Data to compete, directly or indirectly, individually or in conjunction with other persons or entities, with Licensor outside of the Territory. Licensee agrees that it shall be bound by the terms and conditions of the Software License Agreement attached hereto as Exhibit C with respect to the computer software systems; provided, that Licensee shall not be deemed to receive any rights or benefits under such agreement by agreeing to be bound by its terms. All of Licensee's rights to access the computer software systems shall arise pursuant to this Agreement. The transfer of the Source Codes referenced in Section 3.1(i) and (ii) is on a non-exclusive basis. 3.7 Limitation of Damages. The Parties acknowledge that Licensor provides access to the computer software systems on an "as is" basis, pursuant to and subject to Licensor's Software License Agreement with J.D. Edwards & Company, attached hereto as Exhibit C. As such, Licensor's liability towards Licensee for the computer software systems shall be subject to the same terms and conditions as the liability of J.D. Edwards & Company to Licensor under such Software License Agreement. Licensee agrees to execute an "Affiliate Amendment", 9 whereby Licensee affirms to J.D. Edwards that Licensee has agreed to be bound to the applicable terms of said Software License Agreement. 4. TECHNICAL SUPPORT SERVICE 4.1 Design Services. (a) Licensor shall be available to assist Licensee by evaluating building design, building layout and construction specifications for each Territory Outlet. Licensor shall also provide design specifications (and updated revisions thereof) for the trade dress, brand identification, fixtures and equipment used by Licensor in the operation of its own business, to the extent applicable to the Territory Outlets. Licensee shall reimburse Licensor for all architectural, engineering and related fees paid to third parties in connection with the design services provided under this subsection. (b) The services provided by Licensor to Licensee pursuant to Section 4.1(a) shall not include any construction management services, including without limitation, the sourcing of contractors or construction materials necessary for the construction of the Territory Outlets. In the event that Licensor provides such services to Licensee, Licensee shall reimburse Licensor for all direct and indirect cost associated with providing such services, including without limitation, the cost of salaries and employee benefits, travel, lodging and living expenses for the Licensor staff members which provide such services. 4.2 Licensor Executive Support. Licensor's senior staff will available to advise Licensee's officers in the preparation, development and updating of the Business Plan. Licensor's senior staff shall make at least two visits per Year (commencing as of the date of this Agreement) to the PRC to evaluate the progress of the Territory Outlets and to advise Licensee management concerning operational issues. Additionally, a Senior Country Manager shall be appointed by Licensor, to serve as the liaison between Licensor and Licensee. 4.3 Management Training. At the request of Licensee, Licensor shall train key management staff of Licensee (including Store Managers, Buying Managers and Central Staff), on Licensor's premises (in stores designated by Licensor or in the central offices of Licensor). The total of such trainees shall not exceed three in any three month period. Such training shall consist of "on the job" experience under standard supervision (for clarity, no "one-on-one training, nor classroom training, nor specialized training documents or materials). Licensee shall be fully 10 and solely responsible for all travel, lodging and any related personal expenses of such trainees, as well as any out of pocket expenses which may be incurred by Licensor arising from such training. 4.4 Advisory Services. During the term of this Agreement, Licensee from time to time may request Licensor to provide advisory services over and above the services provided elsewhere in this Agreement which entail brief additional visits by Licensor personnel to the Territory. If Licensor agrees to provide such services, Licensee shall reimburse Licensor for all travel, lodging, and living expenses incurred by Licensor in connection with such visits and, except for reimbursements of such expenses, there shall be no additional fees for such services. 4.5 New Technology. (a) If and when Licensor develops or obtains new Licensor Intellectual Property (including Intellectual Property related to marketing, merchandising, construction and design matters, but not including any computer software systems or matters related thereto) relevant to the Territory Outlets, Licensor shall inform Licensee and shall make such new Licensor Intellectual Property available to Licensee. Licensee may, but is not obligated to, accept such new Licensor Intellectual Property for use in the Territory Outlets during the term of this Agreement. If Licensee accepts such new Licensor Intellectual Property, Licensor shall provide Licensee with the right to use such new Licensor Intellectual Property in the Territory Outlets without payment of any additional consideration; however, if Licensor incurs any third-party license fee or royalty in connection with Licensee's use, Licensee shall reimburse Licensor in full that amount. Notwithstanding the foregoing, if Licensor is unable, due to contractual or other restrictions, to make any of the foregoing available to Licensee, Licensor shall have no obligation to do so. Further, notwithstanding the foregoing, if Licensor desires that Licensee utilizes the new Licensor Intellectual Property, Licensee shall do so, but Licensee then need not pay any additional third party license fee or royalty. (b) If and when Licensee develops or obtains new knowledge, know-how or technology relevant to the Merchandise Business System or the Territory Outlets, Licensee shall make such new knowledge, know-how or technology available to the Licensor. Licensor may, but is not obligated to, accept such new knowledge, know-how or technology. If Licensor accepts such new knowledge, know-how or technology, Licensee shall provide Licensor a world-wide (excluding the Territory) royalty-free license to use and sublicense 11 during the term of this Agreement such new knowledge, know-how or technology; provided that if Licensee incurs any unrelated third-party license fee or royalty in connection with Licensor's use, Licensor shall reimburse Licensee in full that amount. Notwithstanding the foregoing, if Licensee is unable, due to contractual or other restrictions, to make any of the foregoing available to Licensor, Licensee shall have no obligation to do so. 4.6 Invoicing and Payment. Licensor shall invoice Licensee monthly for any reimbursement of expenses owed under this Section 4. Licensee shall remit payment to Licensor within fourteen (14) days of receipt of each such invoice. 5. CONSIDERATION FOR LICENSE AND RIGHTS 5.1 Annual Royalty. In consideration of rights granted to Licensee by Licensor and all training, trade secrets, technical data, know-how and other PriceSmart Intellectual Property to be provided by Licensor, during the term of this Agreement, Licensee shall pay to Licensor an annual flat fee , commencing April 1, 2001 and thereafter extending throughout the term of this Agreement, in the amount of US$116,960 for each Territory Outlet (the ANNUAL ROYALTY). The Annual Royalty shall be paid on a quarterly basis in arrears (on June 30, September 30, December 31 and March 31 of each Year) and shall be prorated for newly-opened Territory Outlets. (Sums due through March 30, 2001 under the PRC Technology License Agreement which is referenced in clause F of the Recitals of this Agreement shall be due and paid pursuant to that agreement.) 5.2 Gross Sales Report. Within fifteen (15) days of the end of each calendar month, Licensee will transmit the monthly sales information shown on Exhibit D to Licensor in San Diego, California. 5.3 Payment in U.S. Dollars. Licensee shall pay each quarterly instalment of the Annual Royalty and all other payments to be made by Licensee to Licensor under this Agreement in U.S. Dollars. 5.4 Method of Payment. All payments made by Licensee to Licensor under this Agreement, shall be made by wire transfer, as Licensor shall direct. Any amounts not paid when due shall bear interest until paid at a rate that is four percent (4%) per annum above the prime lending rate of Bank of America, N.A. Such interest shall be compounded daily until paid in full. 5.5 [Intentionally deleted] 12 5.6 No Withholdings. Licensee shall make all payments free and clear and without subtraction of any taxes, deductions, withholdings, conversion fees, wire transfer fees or offset of any kind, other than required withholding in the PRC for business tax and for passive income tax withholding pursuant to Article 19 of the Foreign Enterprises Tax Law. Licensee may not offset, deduct or withhold amounts owed it by Licensor. In the event of a change in PRC law that results in Licensor receiving reduced payments under this Agreement, the Parties agree to take such measures as are necessary to ensure that Licensor receives the amounts contemplated by the Parties. 5.7 Annual Sales Report. Not later than sixty (60) days after the end of each calendar year, Licensee shall send to Licensor by facsimile or data transmission, a report in English, verified by an independent auditor, showing the calculation of annual gross sales for the immediately preceding calendar year for Licensee as a whole and for each Territory Outlet in United States Dollars (the "Annual Sales Report"). The Annual Sales Report shall be accompanied by an audited balance sheet and profit and loss statement for Licensee prepared in accordance with United States generally accepted accounting principles. The cost of the Annual Sales Report shall be paid by Licensee. 5.8 Shortfall Fee. Licensee acknowledges that it intends to open and operate Territory Outlets during the term hereof at a rate no less than the schedule shown on Exhibit E. To the extent the Licensee fails for any reason to open and operate the minimum number of Territory Outlets as shown on the aforesaid Exhibit E in any "Shortfall Year" (as defined in this Section 5.8), Licensee shall pay Licensor a "Shortfall Fee" US$116,960 for each Territory Outlet not opened or operated. (A "Shortfall Year" shall mean each twelve (12) month period from April 1, 2001, and from each anniversary of such date.) The number of Territory Outlets shall be measured as of the end of each Shortfall Year for which such number of Territory Outlets is required and such Shortfall Fee, if any, shall be due and payable within thirty (30) days after the end of each Shortfall Year for which such number of Territory Outlets is not achieved. No Shortfall Fee shall be payable if the total number of Territory Outlets open at the end of the Shortfall Year in question is at or above the minimum set forth on Exhibit E. 5.9 Additional Remedies. In addition to all other remedies, but subject to Section 5.9(a), Licensor may, at its option, terminate this Agreement, or terminate the exclusivity granted by this Agreement, so that, upon notice, it will revert to a non-exclusive license if Licensee fails for any reason to have at least twenty-five Territory Outlets operating as of April 1, 2006. In the event Licensor opts to continue this Agreement on a non-exclusive basis, Licensee may continue to use the rights 13 licensed under this Agreement on a non-exclusive basis and all other provisions hereof and all remedies of this Agreement remain in full force and effect, except that Section 5.8 shall no longer apply and Licensee thereafter only shall open new Territory Outlets with Licensor's prior written consent. (a) The foregoing notwithstanding, Licensor's remedies under Section 5.9 shall not apply for so long as the failure to have a sufficient number of Territory Outlets operating is delayed or prevented by an act of God, a governmental prohibition (aside from Licensee's failure to obtain available permits or licenses), a strike, a flood, a riot or a war (declared or undeclared ) ("Force Majeure Event"), provided that: (i) In order to excuse such delay or failure hereunder the Licensee shall promptly notify Licensor of the Force Majeure Event, specifying the nature and particulars thereof and its expected duration; and (ii) Within ten (10) days after the cessation of such Force Majeure Event, Licensee shall give notice to Licensor specifying the date of cessation thereof; and (iii) Upon cessation of the Force Majeure Event the remedies of Section 5.9 shall remain effective with all time periods contained therein deemed extended by the length of time between the notice of force Majeure Event and the cessation of the Force Majeure Event. 6. ADDITIONAL DUTIES OF LICENSEE 6.1 Compliance with Business Plan Licensee shall provide a Business Plan to Licensor during October of each Year for the ensuing two (2) calendar Years, and Licensee will use its best efforts to comply with the Business Plan. 6.2 Territory Outlets' Name. All Territory Outlets shall be operated under the name "PriceSmart". The name, and its Chinese counterpart, shall remain the exclusive property of Licensor, and shall be considered part of PriceSmart's Intellectual Property. Licensor shall not unilaterally require Licensee to operate the Territory Outlets under a different name. If it becomes necessary for Licensor to require Licensee to change the name of the Territory Outlets, Licensor shall consult with Licensee and obtain its consent to the change (which shall not be unreasonably withheld), otherwise Licensor shall be deemed to have breached this 14 Agreement and shall compensate Licensee for its costs, expenses and losses resulting therefrom. 6.3 Observance of Licensor Policies and Corrective Action (a) In establishing and operating Territory Outlets, Licensee shall comply with all reasonable policies, procedures and quality standards established by Licensor for operation of a Territory Outlet. Current policies, procedures and quality standards are contained in Exhibit F. Such policies, procedures and quality standards may be supplemented and amended from time to time by Licensor in its reasonable discretion. A material failure to conform thereto shall be a material breach of this Agreement. (b) Licensee agrees that, consistent with Licensor's policies, it shall maintain the condition and appearance of Territory Outlets as clean, attractive, modern, sanitary, convenient and efficiently operated stores selling high-quality products. If at any time, in Licensor's reasonable judgement, the general state of repair, appearance or cleanliness of a Territory Outlet or any aspect thereof, does not meet Licensor's standards, Licensor shall notify Licensee of such breach. Notice under this subsection shall be deemed a notice of breach under Section 12.1(d)Licensor may exercise all of its remedies hereunder for breach, including among other things, termination under Section 12.1. In addition, Licensor shall have the right, but not the obligation, to enter the premises of the Territory Outlet, after reasonable notice to Licensee and at reasonable hours, to effect the repairs and other changes to bring the Territory Outlet into conformity, and Licensee shall reimburse Licensor for all reasonable costs connected thereto. 6.4 Compliance With Laws, Taxes. In establishing and operating Territory Outlets, Licensee shall observe and abide by all applicable laws, ordinances, rules, regulations, and licensing requirements of any governmental or quasi-governmental entity. Licensee shall prepare and file, at its own expense, all filings required by applicable tax and other laws in the PRC, and shall pay all taxes required to be paid in connection with the establishment and operation of Territory Outlets, their property and the income derived therefrom. Licensee will fully cooperate and use good faith, diligent efforts to assist Licensor with regard to securing all Governmental Approvals (including that of the Approval Authority), as well as the registration of this Agreement, if such registration is required by law. Licensee agrees to comply with Licensor's policies on ethical business conduct. Licensee shall not give anything of value to any government official to obtain or retain business. Licensee shall ensure that any individual working for Licensee but who is an employee of 15 Licensor or any of Licensor's affiliates shall not be required to do any of the following actions: offer to give or give anything of value to any government official to influence any act or decision of such official or government, or to obtain or retain business. 6.5 Insurance. Licensee will obtain and maintain, at its expense, a policy or policies of property, general liability and products liability insurance, with endorsements naming as additional insured Licensor, and any other Licensor Affiliate designated by Licensor. The policy or policies shall be in such amounts, with such companies and containing such other provisions which shall be reasonably satisfactory to Licensor. All such policies shall provide that the coverage thereunder shall not be terminated without at least thirty (30) days' prior written notice to Licensor and the other additional insured. Licensee shall provide copies of certificates of insurance to Licensor evidencing compliance with this Section. 6.6 Records. Licensee will maintain, in the English language, complete financial and other records of all transactions involving the Territory Outlets and this Agreement for at least seven (7) Years after each such record has been created. All records shall be filed in such a way that Licensor shall be able to access and use such records. 6.7 Inspections. Licensee shall allow (i) Licensor employees, at any reasonable time and from time to time and (ii) Licensor's designated representatives, including without limitation, auditors, financial advisors and legal advisors, at any reasonable time upon twenty-four (24) hours prior notice and from time to time, to enter any Territory Outlet or other business premises of Licensee and/or its Affiliates and examine or inspect such premises and Licensee's and/or its Affiliates' books and records, for the purpose of determining whether Licensee is complying in all respects with this Agreement. Licensee shall, and shall cause its Affiliates, employees and representatives to, cooperate fully with such inspections to ensure that Licensor and its designated representatives have access to all information they consider necessary to verify compliance by Licensee with this Agreement. Each party shall bear its own costs in connection with such inspections. 6.8 Injunctive Relief. Licensee acknowledges that damages would be an inadequate remedy for any breach of the provisions of Sections 6.3, 6.4 and 6.7. Therefore, the obligations of Licensee hereunder shall be specifically enforceable and Licensor shall be entitled to an injunction, restraining order or other equitable relief, restraining any party from committing any violations of the provisions of Sections 6.3, 6.4 and 6.7 above, and the prevailing party at any of such proceedings for injunctive relief shall be entitled to all costs, expenses, and fees (including, without 16 limitation, attorneys' fees) incurred in connection with such action. Such remedies shall be cumulative and not exclusive, and shall be in addition to any other remedy any party may have. 6.9 Visas and Work Permits. Licensee shall fully cooperate with Licensor to assure availability of visas and, if applicable, work permits from the relevant governmental entities in the PRC to enable personnel of Licensor to perform Licensor's rights and obligations hereunder. 6.10 Membership Cards: Reciprocal Memberships. Licensee shall issue membership cards to its members, and shall design its membership cards in the format, graphics, and size reasonably specified by Licensor. Licensor and Licensee agree to permit reciprocal shopping privileges between members of the Territory Outlets and members of any other outlets licensed or operated by Licensor. 7. MERCHANDISING. 7.1 Licensor Product Sourcing Program. Licensor shall allow Licensee to participate in a product sourcing program whereby Licensee purchases from Licensor goods (LICENSOR GOODS) from the United States and certain other locations outside the PRC. When Licensee purchases Licensor Goods from Licensor, Licensor will utilize its systems to provide to Licensee integrated cost, and efficient distribution methods with regard to such Licensor Goods, including assistance in negotiating shipping rates and tracking landed costs for such Licensor Goods. Licensor shall designate, in its discretion, Licensor merchandising employees who shall assist Licensee in such program. As to any particular order for Licensor Goods, neither party shall be obligated to purchase from or sell to the other party, except to the extent a purchase order is submitted by Licensee and accepted by Licensor in its discretion under Section 7.2. 7.2 Purchase Orders. Orders for Licensor Goods shall be placed by Licensee utilizing a form of purchase order to be provided for this purpose by Licensor. Each purchase order, if accepted by Licensor, shall be deemed a separate sale between Licensor and Licensee. No purchase order for Licensor Goods shall have any effect, legal or otherwise, until and unless it is accepted in writing by Licensor. 7.3 Payment. Prices and payments for Licensor Goods shall be in United States Dollars. Payments shall be made through electronic funds transfers or pursuant to the provisions of an irrevocable commercial letter of credit, as determined by Licensor in its discretion. Any such letter of credit shall be issued only by a bank approved in writing by Licensor in its discretion, and shall contain only such terms and 17 conditions approved in writing by Licensor in its discretion. Licensee shall obtain any reasonable amendments to such letter of credit requested from time to time by Licensor. Licensee shall bear all expenses for any letter of credit or wire transfers, except amendments requested by Licensor after it has approved the terms and conditions of such letter of credit. 7.4 Prices. Prices for all Licensor Goods shall be determined by Licensor. Licensor shall set each price to cover Licensor costs for the Licensor Goods and profit plus taxes, duties, shipping costs, any insurance incurred by Licensor, and any extra costs directly related to such purchase, including customary overhead. Shipping costs will include freight, handling, packing, loading, unloading, drayage, port, harbor, brokerage, freight forwarding and all other costs, charges, fees, and payments of any kind relating to the shipment of the Licensor Goods. Prices shall be on a "free carrier" ("FCA") or "free on board" ("FOB") Licensor's distribution center basis, as defined in Incoterms 2000, but shall also include costs prepaid by Licensor (e.g., prepaid airfreight, refrigerated freight and the like). 7.5 Risk of Loss. Title to and all risk of loss of Licensor Goods shall pass to Licensee when such Licensor Goods are delivered to and accepted by the common carrier at the port of discharge or at the carrier's warehouse designated by Licensee. All costs thereafter, including shipping costs (as described in 7.4 above), insurance, duties, taxes, brokerage, etc., shall be borne by Licensee. 7.6 Shipment. At Licensee's request, Licensor will arrange shipment by common carrier of the Licensor Goods for Licensee at Licensee's risk and expense. Any carrier selected by Licensor is not an agent of Licensor, and Licensor does not assume any risk of loss associated with the actions of such carrier. 7.7 Storage. Licensor may for any reason and in its discretion store, at its premises or elsewhere, Licensor Goods ordered by Licensee and incur reasonable storage charges which shall be at Licensee's expense. 7.8 Importation. Licensee shall be solely responsible for compliance with any and all legal, regulatory and governmental requirements in the PRC, and shall obtain all governmental approvals, relating in any way to importation of the Licensor Goods. 7.9 Resale. All Licensor Goods purchased by Licensee from Licensor shall be used solely for resale in the Territory Outlets or otherwise in connection with the Merchandise Business System. Licensee shall not export any Licensor Goods from the PRC. 18 8. PROTECTION OF INTELLECTUAL PROPERTY RIGHTS 8.1 Filings. Licensor shall have the exclusive right to file and maintain, or to cause to be filed and maintained, in each instance at its sole discretion, any and all trademark and other registrations required to protect PriceSmart Intellectual Property in the PRC. Licensee shall cooperate with Licensor in such filings. 8.2 Applications. All applications, registrations, renewals and extensions relating to PriceSmart Intellectual Property shall be in Licensor's name, or the name of such other party as Licensor deems appropriate, and shall be made at Licensor's sole cost and expense. 8.3 Assistance. At Licensor's request, Licensee shall execute all such documents, and supply Licensor with any documents, samples or other materials, as are reasonably necessary or expedient to aid Licensor in preparing, obtaining, filing, recording or maintaining any such application, registration, renewal or extension, and the costs of Licensee's assistance under this Section 8.3 shall be borne by Licensee. 8.4 Ownership. Licensee acknowledges that, as between it and Licensor, the computer software systems, the Source Codes referenced in Section 3.1 of this Agreement and all other PriceSmart Intellectual Property are owned by Licensor, and Licensee will not challenge any right, title and interest of Licensor to any of them. Licensee shall not in any manner represent that it has ownership of any PriceSmart Intellectual Property. Any use by Licensee of PriceSmart Intellectual Property shall inure to the benefit of Licensor. Licensee shall not register or attempt to register any item of PriceSmart Intellectual Property or any similar trade name or trademark under the laws of any jurisdiction. Licensee shall not at any time do or cause to be done any act or thing in any way impairing or tending to impair any part of Licensor's right, title and interest in any item of PriceSmart Intellectual Property, whether or not the same are registered in the PRC or in any other jurisdiction. 8.5 Notwithstanding any other provision of this Agreement, Licensee will not directly or indirectly use any PriceSmart Intellectual Property acquired from Licensor in connection with the ownership and operation of the Territory Outlets to establish, own or operate a business of any kind in any geographical area other than the Merchandise Business System in the Territory or to assist or advise in any manner any other Person with respect to the ownership or operation of a business of any kind in any geographical area. 8.6 Third Party Infringement 19 (a) In the event that Licensee discovers that any other person or entity is infringing or is making or has made any use of any portion of the computer software systems or any PriceSmart Intellectual Property, Licensee shall promptly notify Licensor of such use and shall cooperate fully with Licensor's efforts to enforce its rights against such user. (b) Licensor, at its discretion, or if requested by Licensee and after giving reasonable consideration to such request, shall promptly decide whether or not to institute any legal action against any alleged infringer of PriceSmart's' Intellectual Property or the computer software systems in the People's Republic of China (an INFRINGER). (c) Licensee shall, if requested by Licensor, and at Licensor's expense, be a co-plaintiff, assign its right to Licensor, or take such reasonable and necessary steps to allow Licensor to bring such legal actions and enforce the legal rights of both parties. (d) Whether or not Licensee is requested by Licensor to join any such action, Licensee shall cooperate fully with Licensor in any legal action taken by Licensor. (e) Licensee shall not take action on behalf of PriceSmart Intellectual Property against an infringer without Licensor's prior written consent. 8.7 Third Party Infringement Claims. Each party hereto shall promptly notify the other party in writing of any legal proceeding instituted, or written claim or demand asserted, by any third party, of which such party becomes aware, with respect to the infringement of any patent, copyright, trademark or other intellectual or commercial property right, or misappropriation of any trade secret or act of unfair competition, which is alleged to result from the use of any of the computer software systems or the PriceSmart Intellectual Property in the PRC (a THIRD PARTY CLAIM). 9. INDEMNITIES 9.1 Indemnity and Hold Harmless. Licensee hereby indemnifies Licensor, its Affiliates, officers, directors, shareholders, employees and representatives (each, a LICENSOR INDEMNIFIED PARTY) against, and releases and holds each Licensor Indemnified Party harmless from, any and all claims, costs, losses, damages, liabilities and expenses incurred by such party, including, without limitation, settlement costs and reasonable attorneys' fees and disbursements (LICENSOR LIABILITY), provided Licensee does not, and shall not be obligated to, indemnify any 20 Licensor Indemnified Party against, release or hold any Licensor Indemnified Party harmless from, any Licensor Liability if such liability arises as a result of the willful misconduct, reckless action, gross negligence or breach of this Agreement by or attributable to Licensor or any such Licensor Indemnified Party. Licensor shall notify Licensee in writing of any claim or threatened claim of Licensor Liability within seven (7) days of receiving notice of such claim. Licensor agrees to cooperate in good faith and to use its best efforts to assist Licensee in the defense or prosecution of any action, proceeding or claim that relates to any Licensor Liability. 9.2 Infringement Indemnity. Licensor hereby indemnifies Licensee, its Affiliates, officers, directors, shareholders, employees and representatives (each, a LICENSEE INDEMNIFIED PARTY) against, and releases and holds each Licensee Indemnified Party harmless from, any and all claims, costs, losses, damages, liabilities and expenses incurred by such party, including, without limitation, settlement costs and reasonable attorneys' fees and disbursements (LICENSEE LIABILITY), arising out of or relating to the infringement of any patent, trademark right or any other Intellectual Property right, copyright of any third party caused by Licensee's use of the PriceSmart Intellectual Property, except any claim of infringement resulting from (i) any modification or alteration of the PriceSmart Intellectual Property made by Licensee or (ii) the use of the PriceSmart Intellectual Property in a manner not contemplated by this Agreement. Licensee shall notify Licensor in writing of any claim or threatened claim of infringement within seven (7) days of receiving notice of such claim. Licensor shall solely control and defend or settle, at its discretion, any claim or suit for which Licensee may seek indemnification hereunder. Licensor may effect a settlement of any such claim by (1) acquiring for Licensee's benefit a license or other rights for the prior use of any such infringing property, and, at Licensor's sole discretion, either (2) acquiring for Licensee's benefit a license or other rights for the continued use of the infringing property, or (3) rendering any such property non-infringing with no substantial loss of functional capability, or (4) replacing any such infringing property with non-infringing property of substantially the same functional capability. Licensee agrees to cooperate in good faith and to use its best efforts to assist Licensor in the defense or prosecution of any action, proceeding or claim that Licensee's use of the PriceSmart Intellectual Property infringes any patent, trademark right or any other intellectual property right, copyright of any third party. 9.3 Survival. The indemnity obligations in this Section 9 shall survive expiration or termination of this Agreement for any reason. 21 10. CONFIDENTIAL INFORMATION AND NON-COMPETITION. 10.1 Confidentiality. In addition to and not in lieu of its other obligations under this Agreement, during the term of the Agreement and for five (5) Years thereafter, Licensee and its Affiliates shall maintain in strict confidence all information it has obtained or shall obtain from Licensor or its Affiliates, pursuant to this Agreement or otherwise, relating to the business, operations, properties, assets, products, condition (financial or otherwise), liabilities, employee relations, customers, suppliers, prospects, technology, or trade secrets of Licensor and its Affiliates (LICENSOR CONFIDENTIAL INFORMATION); except to the extent such information (i) is in the public domain through no act or omission of Licensee, (ii) is required to be disclosed by law, or (iii) is independently learned by Licensee outside of this relationship. Licensee agrees to cause its employees, agents or representatives who may have access to such Licensor Confidential Information to enter into an appropriate written confidentiality and proprietary rights agreement, in the form attached hereto as Exhibit G or in another form acceptable to Licensor and Licensee, prior to disclosing any Licensor Confidential Information to such employees, agents or representatives. Licensor shall be a third party beneficiary of such agreements. Licensee shall use its best efforts to protect the Licensor Confidential Information, and shall not use the Licensor Confidential Information for its own benefit or the benefit of any other person or entity, except as may be specifically permitted in the Agreement. 10.2 Key Employees. At the request of Licensor, Licensee shall identify all directors, and officers and all other management personnel of Licensee ("Key Employees"). 10.3 Non-Competition. In order to preserve for the benefit of Licensor the value of Licensor Confidential Information, Licensee agrees that neither it, its Affiliates nor its Key Employees shall engage in, be employed by, consult for or invest in a business anywhere in the PRC which is similar to or with the Merchandise Business System, including, among other things, warehouse stores and hypermarkets, during the term of this Agreement. Notwithstanding the foregoing, Licensee may develop and operate complimentary businesses that would: both (i) add value to the Territory Outlets and their members; and (ii) not compete with the business of the Territory Outlets. It shall be the obligation of Licensee, no later than ninety (90) days following the date of this Agreement, to procure from all Affiliates and Key Employees their written agreement to abide by this covenant in the form attached hereto as Exhibit H or in another form acceptable to Licensor and Licensee, and Licensor shall be a third party beneficiary of each such written agreement. If Licensor terminates this Agreement early because 22 Licensee has failed to comply with its material obligations under this Section 10.3, the parties to this Agreement agree that all rights and obligations under this Agreement shall cease (except such items as survive termination of this Agreement as set forth in Section 12.3(e)) and Licensee shall have no further rights to use the Merchandise Business System and shall immediately cease to do so. Notwithstanding the foregoing, after such termination by the Licensor, Licensee may continue to operate its then-existing stores in a manner similar to the Merchandise Business System, provided that Licensee shall continue to pay the Annual Royalty pursuant to Sections 5.1-5.6 hereof; and provided further that Licensee shall not operate its then-existing stores under a name which is confusingly similar to the then-authorized PriceSmart trademark. 10.4 Injunctive Relief. In the event of a breach or threatened breach of this Section 10, the parties agree that money damages, alone, would be an inadequate remedy, and that Licensor may apply for and obtain injunctive and other equitable relief without necessity of bond or other security, to prevent or remedy such breach. 11. TERM; TERMINATION Unless terminated earlier pursuant to the terms of this Agreement, this Agreement shall have an initial term consisting of ten (10) Years commencing on the effective date as referred to in Section 14.6 of this Agreement (the INITIAL TERM). The term shall automatically extend, subject to the requirements of the then-applicable PRC laws and regulations, for a period of ten (10) Years, unless either party notifies the other in writing at least ninety (90) days prior to the termination of the Initial Term that it desires to terminate this Agreement. 12. TERMINATION 12.1 Termination of Agreement; Termination by Licensee or Licensor. This Agreement (i) may be terminated pursuant to Sections 5.9, 10.3, or 17 of this Agreement; or (ii) may be terminated upon written notice, immediately, by Licensee or Licensor if any of the following occur: (a) A receiver is appointed for the other party or its property; (b) The other party becomes insolvent or unable to pay its debts as they mature in the ordinary course of business or makes an assignment for the benefit of creditors; (c) Any proceedings are commenced against the other party under any bankruptcy, insolvency or debtor relief law and such 23 proceedings are not vacated or set aside within sixty (60) days from the date of commencement thereof; (d) The other party materially breaches or fails to perform any obligation or covenant in this Agreement and fails to cure such breach or failure within thirty (30) days following notice thereof by the party; provided, that if such breach or failure cannot be cured within such thirty (30) day period, then the other party shall not be deemed to be in breach hereunder if it has commenced a cure within such thirty (30) day period and the other party diligently completes such cure as soon as possible, and within a sixty (60) day period; (e) The other party materially breaches or fails to perform any obligation or covenant in this Agreement for the third time during any twelve (12) month period; or (f) Any other agreement between Licensor and Licensee relating directly to this Agreement, including but not limited to the PRC Trademark License Agreement, is terminated due to a breach by the either party of such agreement. 12.2 Termination by Licensor. This Agreement may be terminated upon written notice, effective immediately, by Licensor if either of the following occur: (a) There shall occur, in a single transaction or series of transactions, any sale or other disposition of all or substantially all of the assets, or more than fifty percent (50%) of the capital stock, of Licensee, or any other act that transfers direct or indirect control of Licensee; or (b) Licensor exercises its option to terminate under Section 5.9, 10.3 and 17. 12.3 Effect of Termination. Subject to the other provisions of this Section 12, and of Sections 5.9, 10.3 and 17 of this Agreement, upon termination or expiration of this Agreement for any reason: (a) The license referred to in Section 2.1, the rights of access referred to in Section 3.3 and the services referred to in Sections 4 and 7 shall terminate forthwith and automatically. The foregoing notwithstanding, (i) if Licensor terminates this Agreement without cause by ninety (90) day notice under Section 11, Licensee shall be deemed to retain a perpetual, royalty-free license to use the then-authorized servicemark on its then-existing Territory Outlets, subject to the applicable terms of this Agreement 24 (including Licensee's compliance with the policies, procedures and quality standards as set forth in Exhibit F), and (ii) if this Agreement is terminated by Licensor pursuant to Sections 12.1 or 12.2, Licensee shall retain a non-exclusive license to use the then-authorized servicemark on its then-existing Territory Outlets for ninety (90) days after the date of termination, subject to the applicable terms of this Agreement (including Licensee's compliance with the policies, procedures and quality standards as set forth in Exhibit F); (b) Each party shall return to the other all proprietary and confidential information obtained from such other party in connection with this Agreement; (c) Each party shall forthwith pay to the other all amounts due hereunder; (d) Licensee shall otherwise cease forthwith to use any Licensor Trademarks and other PriceSmart Intellectual Property and shall return all materials, written or otherwise, delivered by Licensor to Licensee in connection with this Agreement; and (e) All obligations of the parties hereunder shall terminate prospectively forthwith (other than those set forth in Sections 6.6, 6.7, 6.8, 7.9, 8, 9, 10 and 13, which shall survive indefinitely or as specified therein). 12.4 Legal Remedies. The termination or expiration of this Agreement shall not affect the legal rights or remedies of either party arising from any material breach of this Agreement prior to such termination. 13. ARBITRATION 13.1 All disputes, claims and controversies concerning the validity, interpretation, performance, termination and/or breach of this Agreement ("Dispute(s)") shall be referred for final resolution to arbitration in Stockholm, Sweden under the Arbitration Institute of the Stockholm Chamber of Commerce in accordance its Arbitration Rules then in force (the "Rules"). The parties hereby agree that arbitration hereunder shall be the parties' exclusive remedy and that the arbitration decision and award, if any, shall be final, binding upon, and enforceable against, the parties, and may be confirmed by the judgement of a court of competent jurisdiction. All proceedings shall be conducted in the English language. In the event of any conflict between the Rules and this paragraph, the provisions of this paragraph shall govern. 25 13.2 The parties agree that the arbitrator(s) may issue any interim or conservatory measure they deem appropriate pending completion of the arbitration, including preliminary injunctive relief as provided in Sections 6.8 and 10.4 above, and the parties agree to be bound by any such interim order. In the event that either party does not comply with any such interim order, the other party may apply to any court of competent jurisdiction to enforce such award and the non-complying party shall be liable for all costs (including attorney's fees) thereby incurred. 13.3 The prevailing party in any dispute settlement proceeding shall be awarded its reasonable attorneys' fees against the non-prevailing party or parties. 14. GENERAL PROVISIONS 14.1 Relationship of Licensee and Licensor. Neither Licensee nor Licensor shall be deemed to be an agent or representative of the other; both acknowledge that the relationship between them shall be and at all times remain one of an independent contractor. The relationship between Licensee and Licensor shall not be construed to place them in the position of partners or joint ventures. Except as otherwise provided herein, neither party shall have the right or authority to assume, create or enlarge any obligations or commitment on behalf of the other party and shall not represent itself as having the authority to bind the other party in any manner. 14.2 Assignment. Except as expressly provided herein, neither party shall assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of the other party; provided, that Licensor may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement to an Affiliate, and/or in conjunction with a Transaction, without Licensee's prior written consent. 14.3 Amendments. Amendments to or modifications of this Agreement may be made only by mutual agreement of the parties in writing and shall be subject to whatever approvals of the appropriate authorities as are required by applicable law. 14.4 No Waiver. The failure of either party to insist upon the strict observance and performance of the terms, provisions or conditions of this Agreement shall not be deemed a waiver of other obligations hereunder, nor shall it be considered a future or continuing waiver of the same terms, provisions or conditions. 26 14.5 Notice. All notices and other communications under the Agreement shall be in writing, shall be delivered by facsimile transmission, air courier service, in person or by registered or certified mail with return receipt requested, and shall be deemed to have been duly given on the date of any receipt or record maintained by the service or person making delivery. Delivery shall be to the address set forth below or such other address or facsimile number as may hereafter be furnished in writing by either party to the other. The current address for each party is set forth below the signatures, hereinbelow. 14.6 Effectiveness of Agreement. This Agreement shall be effective as of the date it is executed by all of the parties to this Agreement. In the event any provision, or portion thereof, of this Agreement is otherwise held by a court having proper jurisdiction to be for any reason unenforceable or invalid, the remaining provisions, or portions thereof, of this Agreement shall continue to exist and shall remain in full force and effect. 14.7 Entire Agreement. This Agreement shall constitute the entire agreement between the Parties relating to the supply of technology by Licensor to Licensee (not including matters related to the licensing of Licensor Trademarks) and all previous agreements relating to the direct or indirect supply of technology by Licensor to Licensee and all rights and obligations under any such previous agreements are null and void (subject only to the last sentence of Section 5.1 of this Agreement). 14.8 Applicable Law. This Agreement shall be interpreted in accordance with, and all questions concerning the validity, interpretation, performance or breach of this Agreement shall be governed by the laws of Hong Kong. 14.9 Language. This Agreement is executed in English and Chinese versions; in the event of discrepancy the English version shall prevail. 15. RESTRICTION ON TRANSFERS 15.1 Licensee shall not directly or indirectly transfer, sell, assign, pledge or otherwise encumber ("Transfer") any of its shares to (i) any person or entity which has been the subject of bankruptcy proceedings or insolvency during the prior five (5) Years, (ii) any person or entity with a criminal record, or (iii) any of Wal-Mart Stores Inc., Target Stores, Kmart Corporation, Costco Companies, Inc., The Home Depot, Inc. and Office Depot, Inc. and each of their respective Affiliates. This provision shall cease to apply in the event that Licensee becomes a publicly traded company 15.2 [Intentionally deleted] 27 15.3 Any transfer or issuance in violation of this Agreement shall be deemed to be a material breach hereof. 16. [INTENTIONALLY DELETED] 17. CHANGE OF CONTROL OF LICENSOR In the event Licensor enters into a Transaction with another entity, then: (i) at the sole discretion of Licensor or such other entity this Agreement, and all rights and obligations of the parties under this Agreement, shall terminate immediately upon notice of such termination by Licensor or such other entity to Licensee, excepting only as follows: (a) If this Agreement is so terminated then, at Licensee's sole discretion, and provided that Licensee pays in advance to such other entity an annual fee of US$116,960, Licensee may notify Licensor and such other entity of Licensee's election to retain throughout the remaining term of this Agreement (calculated as if no such termination had occurred) the exclusive right to utilize the "PriceSmart" name on its existing and future Territory Outlets in the Territory. Such notice and payment by Licensee is to be delivered within fifteen calendar days of Licensee's receipt of the aforementioned notice of termination. In such event: (i) the applicable provisions of this Agreement relating to such right to use this "PriceSmart" name shall remain in effect; but (ii) Licensee shall not retain any other right or rights under this Agreement; and (iii) such right to utilize the "PriceSmart" name shall be terminable by Licensor or by said other entity in the event Licensee fails to comply with the policies, procedures and quality standards set forth in Exhibit F. (b) At the expiration of such remaining term, and provided that Licensee is, and remains, in compliance with the aforementioned applicable provisions of this Agreement, Licensee shall be entitled to retain a perpetual, royalty-free license to use the "PriceSmart" name on its then existing and future Territory Outlets in the Territory; provided, however, that such right to utilize the "PriceSmart" name shall be terminable by Licensor or by said other entity in the event Licensee fails to comply with the policies, procedures and quality standards set forth in Exhibit F. (c) In the event the circumstances referenced in clause (a) of this Section 17 occur, then Licensee and such other entity shall promptly prepare an Amendment to this Agreement, memorializing the new relationship between Licensee and such 28 other entity, as described in clauses (a) and (b) of this Section 17 of this Agreement. IN WITNESS WHEREOF, the parties, having full power and authority to enter into this Agreement, have executed this Agreement on February 28, 2001: LICENSEE NOVONT HOLDINGS CO., LTD. By ---------------------------------- (Print Name and Title) Xuhai Building, Room 601 No. 86 Haidian Road, Haidian District, Beijing, PRC Fax Number: ---------------------- 29 LICENSOR: PRICESMART, INC. - ------------------------ By -------------------------------------- (Print Name and Title) 4649 Morena Blvd. San Diego, CA. 92117 Fax Number: (619)581-4707 US LICENSEE NOVONT, INC., DBA TIMETONE INTERNATIONAL GROUP BY: -------------------------------------- (Print Name and Title) 444 South Flower Street Los Angeles, California 90071 Fax Number: ---------------------- IMPORT AGENT: CHENG CHENG IMPORT-EXPORT CO., LTD. BY: -------------------------------------- (Print Name and Title) No. 18 Xueqing Road, Haidian District Beijing, PRC Fax Number: ---------------------- 30 EXHIBIT A AGENCY AGREEMENT BETWEEN NOVONT HOLDINGS CO., LTD. AND CHENG CHENG IMPORT-EXPORT CO., LTD. 31 EXHIBIT B TERRITORY [Intentionally deleted] 32 EXHIBIT C J.D. EDWARDS AGREEMENT 33 EXHIBIT D FORM OF GROSS SALES REPORT GROSS SALES REPORT (RMB)
------------------------------------------------------------- SALES: LOCATION 1 LOCATION 2 LOCATION 3 LOCATION 4 TOTAL ============================================================= Product Sales Membership Sales Other Sales Less: Value Added Tax ------------------------------------------------------------- Gross Sales: -------------------------------------------------------------
34 EXHIBIT E TERRITORY OUTLET OPENINGS SCHEDULE FOR OPENING TERRITORY OUTLETS:
- ---------------------------------------------------------------------- YEAR NUMBER OF NEW TOTAL NUMBER DATE MUST BE STORES OF STORES OPENED BY: - ---------------------------------------------------------------------- 2001 5 10 1 April 2002 - ---------------------------------------------------------------------- 2002 3 13 1 April 2003 - ---------------------------------------------------------------------- 2003 4 17 1 April 2004 - ----------------------------------------------------------------------
35 EXHIBIT F CURRENT POLICIES, PROCEDURES AND QUALITY STANDARDS 36 PRICESMART, INC. POLICIES, PROCEDURES AND QUALITY STANDARDS INTRODUCTION Licensees are responsible for upholding PriceSmart standards of operation and complying with all applicable laws. This must be done in the context of properly managing people, merchandise, financials and facility. The following applies to the management of all departments of Licensee. EVALUATION STANDARDS PEOPLE 1. Employee Relations a. Treating Employees Fairly and Justly - this must be one of the most basic philosophies of the Licensee. Treating employees fairly means: paying fair wages to permit employees to live a decent life; providing proper benefits health care, pension, vacation, sick leave and bonus opportunity; timely and thoughtful employee evaluations to improve employee performance and morale, fair disciplinary actions, avoidance of favoritism, low turnover rate, and opportunity to be promoted. b. Playing by the Rules - it is expected that the Licensee will adhere to the letter and spirit of any agreed to Union Agreement or Company Employee Handbook. c. Employee Morale - Happy, dedicated employees are the key to successful results. Employees are happy when they are treated fairly, trained properly, well informed and welcomed as part of the team. The Licensee has the ultimate responsibility for employee morale. All managers must be the champions of his or .her employees and show strong leadership characteristics. Deserving employees must receive positive feedback for a job well done. d. Management Development - The Licensee is expected to have qualified people in all staff positions and to develop staff personnel and managers for the company. The keys to management development are: good hiring, teaching, evaluating and giving periodic status reports regarding people available for promotion and transfer to meet the needs of all parts of the business and future growth. 2. Member Relations We are in business to serve our members. The standards we set for serving our members and how well we achieve those standards are directly related to the success of our business. a. Check-Stand Service - the basic rule at the check-stands is one member at the register and no more than three waiting in line. Members must be checked out quickly, accurately and courteously. The manager and the staff must always be alert and attentive to giving the right service at the front-end. b. Membership Service - the first impression of a new member must be a good one. The manager must assure prompt and courteous service. Nonqualified prospective members must be assisted to join, or turned over to a manager to sponsor, if needed. c. Sales Service - Managers must have sufficient well-trained sales people in the selling and service departments. 37 d. Entrance and Exit Service - the first and last impressions must be good ones. These employees must understand their jobs, greet the members, and thank them as they leave. e. Complaints - the manager must teach staff and employees to handle complaints courteously and attentively, and to seek assistance from senior staff when needed. f. Following the Rules - The Licensee and staff must observe company rules and all international, state and local laws. 3. Membership a. Sign Ups - Membership is the foundation of our business. Members are customers who fuel our sales. Membership criteria should be set to attract the type of customers we want. Then the goal must be to sign up as many members as possible. b. Membership Income - Membership fees should be viewed as a segment of gross margin. The fee policy needs to be set to achieve the lowest possible gross margin on merchandise by using the fee to compensate for the lower margin. c. Renewal Follow Up - Non-renewed membership is lost sales and income. Renewal must be maximized; a replacement for a non-renewed member is more expensive than renewing a current member. d. Additional Card -Extra cards equate to additional members shopping and number of cardholders. Cards per membership must be maximized. e. Goal Setting and Strategy Development - Marketing programs influence the number of cardholders, shopping frequency and sales. Membership goals should be set to maximize the member base and a marketing strategy developed to accomplish these goals. 4. Safety Provide a safe working and shopping environment. Monitor working conditions and habits of employees to minimize accidents and expense. a. Emergency Procedures - The Licensee needs to be sure that all staff and employees are familiar with emergency plans and ready to handle robberies, fire or other major problems. b. Hold regular Safety Meetings and produce written minutes. Warehouse Manager to take immediate corrective action to cure unsafe conditions. c. Public Liability - Ensure building and warehouse parking lot is free of any unsafe condition to minimize losses. d. Avoid serious accidents through good teaching and vigilance. MERCHANDISE 1. Merchandising a. The policy of the Licensee must be to sell first quality name brand and private label merchandise, stored and displayed in a clean, attractive manner. The merchandise must meet all governmental requirements. b. Wholesaling - The Licensee's business includes a wholesale business catering to the needs of small businesses. Product selection, packaging and pricing will reflect appropriate merchandising for these small businesses. 38 c. Pricing - The philosophy of the Licensee should be to save members as much money as possible, consistent with providing a fair return on corporate investment. At all times, the Licensee is responsible to reduce the price of merchandise by buying better, distributing more efficiently and reducing operating expenses to continue to add value to Membership. 2. Inventory Management a. The Licensee will purchase inventory to maintain adequate in-stock position while accelerating inventory turnover. b. Food Service - Food service (food courts) are a basic feature of our business. Food will be handled in a healthful manner and the area will be maintained in a clean condition. c. Excitement - Merchandising is partly entertainment. Good merchandising requires creativity and change in merchandising presentation, and in keeping with seasonal trends. d. 6 Rights - The 6 Rights of merchandising must be applied to achieve the highest standards possible. - The Right Merchandise, in the Right Place, at the Right Time, in the Right Quantity, in the Right Condition, at the Right Price. e. Communications - Warehouse locations, local buying group and local Central must provide quality communication to each other to improve the merchandise program. f. Protection of Merchandise - this includes careful handling to minimize markdowns and proper systems and controls to achieve an annualized shrinkage result of .8% of sales or better. g. Business Margins - Margins must be set and consistently reviewed so pricing is always competitive and provides Members with value. There must be a low price perception in the market about PriceSmart. Pricing umbrella should be known in all categories. h. Protection of Cash - Minimize cash short, NSF check write-offs and losses from robberies. FINANCIALS 1. Financial Standards a. Financial statements must be produced on a regular basis for local management to review and react in a timely manner. b. Payment - all invoices to be paid on time with proper control on discrepancies. c. Insurance - Maintain proper insurance coverage to protect assets of company. d. Planning - annual capital and operating budgets should be completed in a timely and accurate manner. FACILITY 1. Construction and Facilities a. Quality - Commercial grade facility. Duty worthy for 25-year life expectancy as operating warehouse style store. b. Appearance - Simplistic design and strong appearance representing no frills, basic warehouse look. 39 c. Interior - Ease of access to the entrance and exit. Proper orientation to allow shoppers good visibility to merchandise, adequate travel paths, focus and directed shopping pattern. Good lighting levels and reflective surfaces allowing the merchandise to be presented in its best form to maximize sales potential. d. Slab. Structure and Roof - Critical areas of Operations built to established and successfully executed means and methods. e. Product Refrigeration - Installation and operation of product refrigeration systems that present the product well, hold proper temperatures for quality integrity, and offer superior energy efficiencies. f. Facility Equipment - Facility equipment that has been successfully utilized in this application. Time and duty tested components specifically developed for the warehouse store industry. g. Construction - Employ trustworthy competent contractors, experienced in building for the retailing industry. Contractors understanding the quality, schedule, and Operational interface required for timely and cost effective completion of the project. h. Care of Facility and Equipment - it is the Licensee's responsibility to provide regular maintenance and care to maintain equipment facility in good working in order, to decrease downtime, to avoid costly repairs and to provide high standard fixtures and equipment for employees and members. Facility to be maintained in a clean, orderly fashion. i. Repairs and Replacement - Repairs or replacement must be accomplished as needed and promptly. j. Additional Fixtures/Equipment - must be planned for and purchased. k. Safety - All facilities shall be constructed, maintained, and operated so as to provide a safe environment for all employees and members. EVALUATION METHODS Audit Reports - Twice yearly audits of warehouse locations and Central operations will be conducted by PriceSmart San Diego Management and written review provided to local management. The local manager's timely response to audit reports and appropriate correction to problems will be a key part of the performance evaluation. 40 EXHIBIT G EMPLOYEE'S CONFIDENTIAL INFORMATION AGREEMENT 41 EXHIBIT H KEY EMPLOYEE'S CONFIDENTIALITY AND NON-COMPETITION AGREEMENT ("AGREEMENT") In consideration of my employment or continued employment by ________________ ________________ (hereinafter "the company") and in consideration of the salary, wages or other compensation to be paid for my services during such employment, I hereby agree as follows: 1. As used in this Agreement the term "confidential information" means information relating to the business, operations, properties, assets, products, condition (financial or otherwise), liabilities, employee relations, customers, suppliers, prospects, technology, or trade secrets of PriceSmart, Inc. or its affiliates; except to the extent such information (i) is in the public domain through no act or omission by me; (ii) is required to be disclosed by law, or (iii) is independently learned by me outside of my employment by the company. 2. During the term of my employment by the company, I will not, except as my duties to the company may require, disclose any confidential information to others. 3. After the term of my employment by the company, I will not disclose any confidential information to others unless such disclosure first has been authorized in writing by the company and by PriceSmart, Inc. 4. On termination of my employment by the company, or at any time it may so request, I will promptly deliver to the company all copies of any memoranda, notes, records, reports, manuals, catalogs, price lists or other documents relating to or containing any confidential information which I possess or may have under my control. 5. I am familiar with the Merchandise Business System licensed by PriceSmart to Novont Holdings Co., Ltd. under the agreement between them dated February 28, 2001. I agree that during the term of my employment by the company and for three years thereafter, I shall not engage in, be employed by, consult for or invest in a business which is similar to or 42 competitive with the Merchandise Business System, including among other things, discount stores, warehouse stores, and hypermarkets; except, however, that I may engage in, be employed by, consult for or invest in businesses that would: both (i) add value to the Territory Outlets and their members; and (ii) not compete with the business of Territory Outlets. 6. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their successors and assigns, and to the benefit of PriceSmart, Inc. who may enforce it as a "third party beneficiary." 7. Damages are an inadequate remedy for a breach of this Agreement. I, therefore, agree that should a breach or threatened breach of this Agreement occur, the company and/or PriceSmart, Inc. may without prejudice to any other remedies which they may have, immediately obtain and enforce injunctive relief prohibiting me from violating this Agreement. 8. This is the only agreement between these parties on this subject matter. 9. This Agreement can be modified or rescinded only by a writing signed by both parties and by PriceSmart, Inc. I have read the foregoing, agree thereto, and hereby acknowledge receipt of a copy of this Agreement. --------------------------- Signature of Employee WITNESS: - -------------------------- By ------------------------ Title Date -------------------- ------------ 43 EX-10.5(A) 6 a2045570zex-10_5a.txt EXHIBIT 10.5(A) Exhibit 10.5 (a) NUMERO SESENTA Y UNO. (61).- En la ciudad de Guatemala, el diecinueve de diciembre del ano dos mil, Ante mi: GUILLERMO ANDRES CASTILLO RUIZ, Notario, comparece por una parte el senor JUAN ANTONIO MIRO LLORT, de cuarenta y seis anos de edad, casado, banquero, salvadoreno, de este domicilio, quien interviene en su calidad de Vice-Presidente y Mandatario General con Representacion de CITIBANK, N.A., calidades que acredita con los siguientes documentos, respectivamente: I) primer testimonio de la escritura publica numero noventa y tres (93), autorizada en esta ciudad el nueve de diciembre de mil novecientos noventa y ocho por el Notario Fernando Quezada Toruno, que contiene Acta de Protocolizacion de Acta Notarial autorizada por la Notaria Karin Johanna Herman Zachrisson el nueve de julio de mil novecientos noventa y ocho en la ciudad de Nueva York, Estado de Nueva York, Estados Unidos de America, y que contiene su nombramiento como Vice-Presidente. El documento quedo debidamente inscrito en el Registro Mercantil General de la Republica al numero ciento cincuenta mil doscientos veintinueve (150,229) folio trescientos noventa y ocho (398) del libro setenta y cinco (75) de Auxiliares de Comercio con fecha veintiuno de diciembre de mil novecientos noventa y ocho; y, II) primer testimonio de la escritura publica numero cuarenta y nueve (49) autorizada en esta ciudad por la Notaria Annabella Bruni de Bermudez, el dia cuatro de septiembre de mil novecientos noventa y seis, la cual contiene Protocolizacion del Mandato General con Representacion otorgado por CITIBANK, N.A. a favor del senor Juan Antonio Miro Llort, documento que quedo inscrito en la Direccion del Archivo General de Protocolos al numero cuatrocientos dieciseis mil ochocientos treinta y siete (416,837), el dia diecisiete de septiembre de mil novecientos noventa y seis; el mismo documento quedo inscrito en el Registro Mercantil General de la Republica, al numero veintiun mil quinientos diecisiete (21,517), folio trescientos veinticuatro (324) del libro quince (15) de Mandatos, con fecha diecinueve de septiembre de mil novecientos noventa y seis. Por la otra parte, comparece el senor MICHAEL EDWARD ASCOLI GIRON, quien dice ser de cuarenta y siete anos de edad, casado, guatemalteco, ejecutivo, de este domicilio, quien se identifica con cedula de vecindad numero de orden A guion uno y de registro quinientos catorce mil novecientos ochenta y cinco (A-1 514,985), extendida por el Alcalde Municipal de Guatemala, quien actua en sus calidades de: a) GERENTE GENERAL y como tal en representacion de la entidad PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, lo cual acredita con acta notarial de su nombramiento autorizada en esta ciudad el veinticinco de septiembre de mil novecientos noventa y ocho por la Notario Beatriz Beltranena Wer, la cual esta debidamente inscrita en el Registro Mercantil General de la Republica al numero ciento cuarenta y cuatro mil cuatrocientos dos (144,402), folio ciento veintiuno (121) del libro setenta y cinco (75) de Auxiliares de Comercio. Asimismo, manifiesta que esta debidamente facultado para el otorgamiento del presente contrato, lo cual acredita con Acta Notarial autorizada en esta ciudad el quince de diciembre del ano dos mil, por la Notario Liliana Yolanda Sanchez Mack, la cual transcribe la autorizacion del Consejo de Administracion de PRICESMART (GUATEMALA), SOCIEDAD ANONIMA; y b) MANDATARIO GENERAL con Representacion de la entidad GRUPO SOLID, S.A. (constituida con iniciales), calidad que acredita con el primer testimonio de la escritura publica numero trece (13), autorizada en la ciudad de Guatemala el catorce de febrero de mil novecientos noventa y cuatro por el Notario Mario Rodolfo Virula Boy, que Protocoliza el Acta Notarial de fecha veintiuno de enero de mil novecientos noventa y cuatro, autorizada en la ciudad de Panama, Capital de la Republica de Panama, por la Notario Publico Decimo, Noemi Moreno Alba, la cual contiene Mandato General con Representacion otorgado por GRUPO SOLID, S.A. (constituida con iniciales), a favor del senor Michael Edward Ascoli Giron, documento que quedo inscrito en la Direccion del Archivo General de Protocolos al numero cuatrocientos treinta y ocho mil setecientos quince (438,715), el dia veintiseis de febrero de mil novecientos noventa y siete; el mismo documento quedo inscrito en el Registro Mercantil General de la Republica, al numero numero veintidos mil trescientos cuatro (22,304) folio cuatrocientos quince (415) del libro quince (15) de Mandatos, con fecha diez de marzo de mil novecientos noventa y siete. DOY FE: de conocer con anterioridad al primer compareciente, no asi al segundo quien se identifica la cedula de vecindad arriba identificada, que las representaciones que se ejercen son suficientes de conformidad con la ley y a mi juicio para el otorgamiento del presente contrato; que de acuerdo con declaracion que hacen los senores Juan Antonio Miro Llort y Michael Edward Ascoli Giron, dichas representaciones estan vigentes y sus nombramientos y mandatos no han sufrido restriccion ni modificacion que les impida o condicione el otorgamiento de esta escritura; que tengo a la vista los documentos que las acreditan; y que asegurandome todos encontrarse en el libre ejercicio de sus derechos civiles, me manifiestan que por el presente acto otorgan el CONTRATO DE CREDITO Y CONSTITUCION GARANTIA PRENDARIA SOBRE EMPRESA MERCANTIL conforme las clausulas siguientes: PRIMERA: ANTECEDENTES. Declaran los senores Juan Antonio Miro Llort y Michael Edward Ascoli Giron que CITIBANK, N.A. a traves de su FACILIDAD BANCARIA INTERNACIONAL ("INTERNATIONAL BANKING FACILITY" o "IBF") que constituye un juego de libros de contabilidad utilizados por Citibank, N.A. de conformidad con la Regulacion D emitida por la Junta de Gobernadores del Sistema de la Reserva Federal de los Estados Unidos de America, entidad que en lo sucesivo de la presente escritura tambien se podra denominar "EL BANCO", otorga un credito a PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, entidad que en esta escritura tambien podra ser identificada como LA DEUDORA, por la cantidad de UN MILLON QUINIENTOS MIL DOLARES DE LOS ESTADOS UNIDOS DE AMERICA ($1,500,000.00), que sera desembolsada y entregada a la Deudora al dia siguiente de la fecha en que se presente al Banco el testimonio de esta escritura en que conste la razon de inscripcion de las garantias prendarias puesta por el Registrador Mercantil General de la Republica en la forma indicada mas adelante, asi como certificacion de ese mismo Registro de las Empresas Mercantiles pignoradas y que las prendas a que se refiere este instrumento ocupan el primer lugar. La fecha de presentacion conjunta de esos documentos sera la que conste en el sello de recepcion del Banco. SEGUNDA: ESTIPULACIONES DEL CREDITO. El credito referido en la clausula precedente se sujeta entre otras, a las siguientes estipulaciones: a) Destino: La deudora destinara el credito a refinanciar deudas con los accionistas. b) Plazo: El plazo del credito es de UN (1) ANO contado a partir del dia de hoy, por lo que vencera el dieciocho de diciembre del ano dos mil uno. Si dicho dia fuere inhabil, el plazo concluira el dia bancario habil inmediato anterior. c) Forma de Pago: La Deudora pagara el credito de la siguiente forma: TRES (3) PAGOS TRIMESTRALES Y CONSECUTIVOS DE CIENTO DOCE MIL QUINIENTOS DOLARES DE LOS ESTADOS UNIDOS DE AMERICA ($112,500.00) CADA UNO, EN LOS MESES DE MARZO, JUNIO, Y SEPTIEMBRE TODOS DEL ANO DOS MIL UNO; Y EL SALDO AL VENCIMIENTO DE LA PRESENTE OBLICACION. Tales montos no incluyen los intereses correspondientes al periodo de tiempo transcurrido, y los pagos deberan efectuarse el ultimo dia habil del mes en que corresponda hacer el pago de capital, de conformidad con lo establecido en esta clausula. Durante el plazo del presente contrato, no le es permitido a la Deudora efectuar pagos anticipados de capital durante los Periodos de Interes (como se define mas adelante), pactados. Si a pesar de esta prohibicion, la deudora manifiesta su deseo de realizar pago anticipado de capital, queda obligada a pagar un recargo que el banco le imponga por dicho pago anticipado. d) INTERESES : Sobre la cantidad adeudada o sus saldos se pagara intereses a razon de una tasa igual a la tasa ofrecida para depositos igual o lo mas cercano a NOVENTA (90) DIAS calendario, en Dolares de los Estados Unidos de America en el Mercado Interbancario de Londres, Inglaterra, (TASA LIBO), a las once horas de la manana, hora de Londres, el segundo dia habil anterior al inicio del periodo de intereses al cual se aplicara la tasa, incrementado en TRES PUNTO SETENTA Y CINCO puntos porcentuales (3.75%), segun aparece en la pagina tres mil setecientos cincuenta (3750) de Telerate. Si la Tasa Libo no puede ser determinada de acuerdo con lo arriba previsto, Tasa Libo significara una tasa anual igual a la tasa indicada en la pagina "LIBOR" de la Pantalla Reuters (o cualquier otra pagina que sustituya la mencionada pagina de tiempo en tiempo) a partir de las once horas antes del meridiano (11:00 A.M). (hora de Londres) el segundo dia habil anterior al inicio del periodo de intereses al cual se aplicara la tasa, para depositos en Dolares de los Estados Unidos igual o mas cercano a la duracion de dicho periodo de interes. En el caso de que una o mas tasas de interes aparezcan en la pagina tres mil setecientos cincuenta (3750) o "LIBOR", como sea el caso, la Tasa Libo sera el promedio (redondeado al multiplo entero superior mas cercano al 1/16 del 1% anual, si dicho promedio no es un multiplo) de dichas tasas ofertadas. Para efectos de esta clausula, `Periodo de interes' significara el periodo que comienza el diecinueve de diciembre del ano dos mil y termina tres meses despues, es decir el diecinueve de marzo del ano dos mil uno, y asi sucesivamente, y que termina cada periodo sucesivo de tres meses, comenzando en la fecha de vencimiento del periodo de interes inmediato anterior. Los intereses seran pagaderos en forma MENSUAL el ultimo dia habil de cada uno de los meses indicados. La variacion en la tasa de interes para cada periodo de intereses surtira efectos automaticamente sin necesidad de ningun requisito formal, aunque, para efectos puramente informativos, se le debera enviar a la deudora una comunicacion escrita a la direccion que senala en este documento. Los intereses seran calculados sobre la base de un ano de trescientos sesenta (360) dias y cobrados por los dias efectivamente transcurridos en el periodo en el que tales intereses son pagaderos. e) Intereses Moratorios: En caso que la parte deudora incurra en mora en cualesquiera de las obligaciones que le corresponden por virtud del credito, pagara sobre los saldos deudores, intereses moratorios a razon de una tasa de interes igual a la tasa LIBO definida en el inciso anterior, vigente en la fecha efectiva de pago, incrementada en SIETE PUNTO CINCUENTA puntos porcentuales (7.50%), que se calculara a partir del primer dia en que se haya incurrido en mora hasta el dia en que el Banco reciba a su entera satisfaccion las cantidades adeudadas, y sin perjuicio del derecho de este a dar por vencido anticipadamente el plazo del contrato y demandar judicialmente el pago de la obligacion. f) Disposiciones comunes a la forma de pago. El capital e intereses se pagaran en Dolares de los Estados Unidos de America por tratarse de una obligacion de pago desde Guatemala hacia el extranjero, sin necesidad de cobro o requerimiento alguno en la cuenta del Banco que este indique a la Deudora, en sus oficinas ubicadas en la Ciudad de Nueva York, Estado de Nueva York, Estados Unidos de America, que la Deudora ya conoce, o en las oficinas de la sucursal en Guatemala en el dia que corresponda hacer el pago conforme al credito. Los pagos de capital e intereses en todos los casos, se realizaran en o antes de las doce horas, hora de la ciudad de Nueva York, Estado de Nueva York de los Estados Unidos de America. En el evento que una fecha de vencimiento fuere un dia bancario inhabil, la obligacion debera cumplirse el primer dia habil bancario anterior y los intereses se calcularan y pagaran hasta tal fecha. Por dia inhabil bancario se entiende un dia en que los bancos deben dejar de atender al publico en el Estado de Nueva York, Estados Unidos de America y en la Ciudad de Guatemala, Republica de Guatemala. Todo pago que deba hacerse de conformidad con el credito se hara libre de toda y cualquier retencion o deduccion de tributos, comisiones de cambio, cargos, gastos o cualquier concepto, presentes o futuros, que impliquen una disminucion de la cantidad que el Banco debe recibir de conformidad con dicho credito. En consecuencia, la deudora pagara a quien corresponda todas las obligaciones frente a terceros que afecten o incidan, actualmente o en el futuro, en las cantidades adeudadas al Banco de acuerdo con el presente contrato de credito. En el eventual caso que por disposicion de la ley estuviere prohibido a la deudora hacer los pagos adeudados al Banco sin efectuar deducciones o retenciones o pagar cualquier otra cantidad o reembolsar al Banco las cantidades pagadas por dichos conceptos, se aumentaran los pagos por intereses adeudados a partir de la fecha de tal pago en la cantidad necesaria para que, una vez cumplidas las obligaciones por los conceptos indicados, el Banco reciba en forma integra las cantidades establecidas en el presente contrato de credito. La deudora tambien debera proporcionar al Banco, en el plazo arriba indicado, copia autentica de las constancias de haber negociado las divisas derivadas de este prestamo por medio del sistema bancario nacional o entidades autorizadas por la Junta Monetaria de Guatemala para operar el cambio de divisas. En el caso que la deudora no cumpla con alguno de los pagos citados y que como consecuencia el Banco se encuentre obligado a efectuar los mismos, aquella reembolsara al Banco dentro de los tres (3) dias habiles siguientes de haber sido avisada que el Banco ha efectuado uno, varios o todos esos pagos, las cantidades que por dichos conceptos haya pagado, mas intereses a razon de una tasa igual a la pactada para el importe del credito, y en su caso, los gastos y comisiones causados. TERCERA: DE LA PROPIEDAD DE LOS BIENES QUE SE DARAN EN PRENDA: El senor MICHAEL EDWARD ASCOLI GIRON, en representacion de la entidad PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, declara bajo juramento y advertido por el Infrascrito Notario de las penas relativas al delito de perjurio, que su representada, PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, es la unica propietaria de las siguientes Empresas Mercantiles: a) PRICESMART PLAZA, ubicada en la sexta avenida cero guion setenta y nueve de la zona cuatro, ciudad de Guatemala (6ta Avenida 0-79, zona 4) registrada bajo el numero doscientos treinta y cinco mil cuatrocientos noventa y cuatro (235,494), folio doscientos treinta y seis (236), libro ciento noventa y siete (197) de Empresas Mercantiles, expediente numero dieciocho mil ciento noventa y tres guion dos mil (18,193-2000); y b) PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, ubicada en la veintiuna avenida siete guion noventa de la zona once, ciudad de Guatemala (21 Avenida 7-90, zona 11) registrada bajo el numero ciento noventa mil doscientos vientisiete A (190,227 A), folio noventa (90), libro ciento cincuenta y cinco (155) de Empresas Mercantiles, expediente numero veintiocho mil novecientos treinta y cuatro guion mil novecientos noventa y ocho (28,934-1998 ). Manifiesta el senor MICHAEL EDWARD ASCOLI GIRON,en la calidad con que actua: a) Que acredita la propiedad de las Empresas Mercantiles propiedad de PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, mediante la presentacion al Infrascrito Notario, de los documentos consistentes en Certificaciones emitidas por el Registro Mercantil General de la Republica de fechas veintinueve de noviembre y cinco de diciembre del ano en curso, referentes a las Empresas Mercantiles descritas e identificadas en los incisos "a" y "b" de esta clausula, en las que se establece que la propietaria de estas es PRICESMART (GUATEMALA), SOCIEDAD ANONIMA; b) Que todos los impuestos de cualquier clase que existen actualmente y que estan vigentes, que los cargos e impuestos contra todas y cada una de las Empresas Mercantiles exigidos por cualquier autoridad gubernamental de la Republica de Guatemala o cualquier autoridad politica o fiscal, han sido completa y finalmente pagados o provisionados, especialmente el Impuesto a las Empresas Mercantiles y Agropecuarias; c) Que las Empresas Mercantiles propiedad de su representada, PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, se encuentran libres y sobre ellas no pesan gravamenes, anotaciones, arrendamientos, impedimentos, embargos, cargas, derechos en contra, prenda, uso o usufructo o limitaciones que pudieran afectar derechos de terceros, excepto la prenda constituida sobre inventario variable no perecedero consistente en mercaderia, que garantiza el ciento veinticinco por ciento del margen del prestamo con Banco Uno, por el monto de dos millones de dolares de los Estados Unidos de America. Agrega el senor MICHAEL EDWARD ASCOLI GIRON que las declaraciones hechas corresponden a los bienes pignorados. El Notario le advierte las responsabilidades civiles y penales en que incurre en caso que las anteriores declaraciones no esten apegadas a la verdad. CUARTA: CONSTITUCION DE PRENDA DE EMPRESAS MERCANTILES. a) El senor MICHAEL EDWARD ASCOLI GIRON, manifiesta que su representada, PRICESMART (GUATEMALA), SOCIEDAD ANONIMA constituye a favor de CITIBANK, N.A., en garantia del pago de la totalidad de las obligaciones aqui contraidas por la entidad PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, incluyendo capital, intereses, costas, gastos de cobranza y cualesquiera otras obligaciones exigibles en virtud de la ley y de este contrato PRIMERA, UNICA Y ESPECIAL PRENDA sobre las Empresas Mercantiles propiedad de su representada, descritas e identificadas en los incisos "a" y "b" de la clausula tercera inmediata anterior de este instrumento, asi como sobre todos los frutos y rendimientos que produzcan dichas Empresas Mercantiles. Ademas, declara en nombre de su representada, que en la prenda se incluyen todos los elementos de las Empresas Mercantiles, los inventarios, todos los activos y todas las cuentas por cobrar ordinarias y extraordinarias de PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, (especialmente cuentas por cobrar derivadas de titulos de credito) que de hecho y por derecho le corresponde a PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, asi como a sus citadas Empresas Mercantiles; agrega que, de conformidad con el articulo seiscientos cincuenta y cinco (655) del Codigo de Comercio, se entiende por Empresa Mercantil el conjunto de trabajo, de elementos materiales y de valores incorporeos coordinados, para ofrecer al publico con proposito de lucro o de manera sistematica, bienes o servicios. Asimismo, la prenda de Empresa Mercantil incluye todos los elementos que establece el articulo seiscientos cincuenta y siete (657) del Codigo de Comercio. Continua manifestando MICHAEL EDWARD ASCOLI GIRON, en la calidad con que actua, que su representada, PRICESMART (GUATEMALA), SOCIEDAD ANONIMA ha pactado expresamente con el Citibank, N.A., que la prenda de Empresas Mercantiles, tambien comprende las patentes de invencion, los secretos de fabricacion y del negocio, las exclusivas y las concesiones, asi como todos los registros mantenidos en relacion con los BIENES PIGNORADOS, incluyendo cualquiera y todos los diarios, libros, registros de operacion, ventas y mantenimiento y otra informacion relacionada con estos, asi como todos los derechos, titulos e intereses de PRICESMART (GUATEMALA), SOCIEDAD ANONIMA con los bienes pignorados, todas las autorizaciones, permisos, ordenanzas, consentimientos, privilegios, inmunidades, licencias y derechos de toda clase, descripcion y caracteres, opciones, registro, inspecciones, documentos que actualmente o en el futuro sean propiedad o controlados por PRICESMART (GUATEMALA), SOCIEDAD ANONIMA para uso en conexion con la vigencia, el uso, operacion y mantenimiento de los BIENES PIGNORADOS y todo lo demas anteriormente indicado. Queda entendido entre las partes del presente contrato que la deudora no tendra limitacion o impedimento para la compra y venta de productos asi como para todas las operaciones que sean del giro ordinario de las Empresas Mercantiles; b) Saldo Insoluto. Las partes convienen que MICHAEL EDWARD ASCOLI GIRON en representacion de GRUPO SOLID, S.A. (constituida con iniciales), y Pricemart (Guatemala), Sociedad Anonima, responderan con todos sus bienes presentes y futuros por cualquier saldo insoluto que pudiere dejar la prenda, de forma mancomunada y solidaria; c) Deposito. Los contratantes designan como depositario de los bienes pignorados a PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, quien a traves de su representante legal, Michael Edward Ascoli Giron, manifiesta que esta enterado de las obligaciones inherentes a ese cargo, y que lo acepta desempenar gratuitamente. El depositario declara que esta en efectiva y total posesion de las Empresas Mercantiles pignoradas. Asimismo, expresa que se compromete a permitir que las personas o entidades designadas por el Banco puedan en cualquier tiempo inspeccionar el estado de las mismas y si se encontraren sufriendo dano o deterioro o no se les este prestando debida atencion y mantenimiento o se encuentren en estado de abandono, todo a juicio del Banco, este podra acudir a un Juez para solicitar que le substituya inmediatamente en el cargo de depositario, solicitud que se resolvera de plano, sin formar articulo, previa y unica audiencia al interesado. En caso de ejecucion, el depositario podra ser removido por el juez mediante simple solicitud en tal sentido por parte del Banco. En este caso, se nombrara como depositario a la persona que este proponga. El depositario que se designe a solicitud del Banco, estara exento de la prestacion de cualquier fianza o garantia para el desempeno de su cargo. d) La Deudora queda obligada a responder por saneamiento por eviccion y por vicios ocultos de los bienes afectados con la prenda. e) Seguro. La Deudora se obliga a contratar y mantener vigente durante el plazo del contrato y sus prorrogas, y en todo caso hasta el pago efectivo del capital, intereses, comisiones, recargos, gastos y cualquier otra cantidad debida de conformidad con este contrato, un seguro con cualquiera de las aseguradoras autorizadas para operar en el pais - que previamente haya sido aceptada expresamente por el Banco - por las cantidades y contra los riesgos que puedan afectar al bien o los bienes pignorados que sean acostumbrados, incluyendo caso fortuito, fuerza mayor y dano malicioso, extremos que, en caso de discrepancia entre las partes, seran determinados por el Banco. El seguro debera contratarse a favor del Banco como beneficiario del seguro y debera cubrir, como minimo el importe total del credito e intereses o el saldo adeudado de tiempo en tiempo. La Deudora debera proporcionar al Banco copia autentica de la poliza de seguro con todos sus endosos y documentos conexos en los que conste el monto deducible y demas condiciones del seguro. Ademas, debera enviar fotocopia autentica del recibo del pago de la prima y si esta fuere pagada en forma fraccionada, se obliga a enviar al Banco copia de los recibos dentro de los cinco (5) dias habiles siguientes a la fecha de pago fijada en la poliza. Tambien se compromete a enviar al Banco una constancia autentica suscrita por el representante legal de la aseguradora en el sentido de que en caso de siniestro, la indemnizacion sera pagada directamente al Banco, una vez se hayan deducido los pagos por tributos, comisiones y cualquier otro concepto que este legalmente obligada a cancelar la aseguradora antes de pagar la indemnizacion. La Deudora debera proporcionar al Banco los anteriores documentos dentro de los tres dias habiles siguientes de firmado este contrato y, si correspondiera hacer una renovacion o prorroga o cualquier modificacion y/o endoso del seguro durante el plazo del contrato, la entrega se hara dentro de los quince (15) dias habiles siguientes de la renovacion, prorroga, modificacion y/o endoso. Si a juicio del Banco el estimado del remanente de la eventual indemnizacion fuere insuficiente para cubrir el valor comercial de los bienes asegurados en caso de siniestro, por cualquier razon, la deudora contratara conforme a las instrucciones del Banco un seguro adicional por la diferencia o garantizara la misma constituyendo fianza u otra garantia a satisfaccion del Banco. En todo caso, si el Banco considerara por cualquier motivo o circunstancia que el seguro es insuficiente, o en caso de que la Deudora no contrate y/o mantenga vigente el seguro en la forma indicada, el Banco tendra el derecho, aunque no la obligacion, de solicitar y contratar el seguro por cuenta de la Deudora, quien por este acto autoriza dicha solicitud y contratacion. f) En tal virtud los otorgantes solicitan por este medio al Senor Registrador Mercantil General de la Republica, se sirva inscribir y anotar a favor de CITIBANK, N.A., la prenda de Empresas Mercantiles, de acuerdo al testimonio de la presente escritura, en las inscripciones registrales correspondientes de PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, y que se haga constar en el testimonio respectivo las prendas que por este acto se constituyen, asi como que estas ocupan el primer lugar. g) Por su parte, el senor Juan Antonio Miro Llort, en nombre y representacion de CITIBANK, N.A. acepta las prendas que por este acto se constituye a su favor. QUINTA: OTRAS ESTIPULACIONES. a) Se conviene que durante la vigencia del credito y hasta la total cancelacion de las cantidades adeudadas al Banco, la propietaria de los bienes no podra, sin contar con la autorizacion previa y escrita de este, enajenar, arrendar, gravar, constituir usufructo, ceder a cualquier titulo o gravar de nuevo las Empresas Mercantiles pignoradas, bajo sancion de nulidad de los actos o contratos que se celebren y sin perjuicio del derecho del Banco para dar por terminado anticipadamente el plazo del credito. b) Queda expresamente convenido que la prenda por este acto constituida permanecera vigente y surtira todos sus efectos hasta la efectiva cancelacion de la totalidad del credito y sus prorrogas. c) Mantenimiento de la Prenda. La Deudora se obliga a mantener las Empresas Mercantiles pignoradas en perfecto estado de operacion, conservacion y mantenimiento imponiendo igual obligaciones a sus empleados y dependientes. La Deudora comunicara al Banco, de inmediato, es decir, en el dia en que ocurra o el primer dia habil siguiente si ocurriese en un dia inhabil, la existencia de cualquier riesgo o menoscabo de cualquiera de los BIENES PIGNORADOS. SEXTA: DECLARACIONES Y OBLIGACIONES. Sin perjuicio de las demas declaraciones y obligaciones contraidas conforme a este contrato de credito, el representante legal de la deudora declara y asegura por este acto: a) Que su representada es una sociedad mercantil debidamente organizada, existente y en buen estado de solvencia de conformidad con las leyes de la Republica de Guatemala y que se obliga a conservar y mantener durante toda la vigencia del credito su existencia legal y personalidad juridica, asi como todos sus derechos, incluyendo privilegios, nombres comerciales, y a conducir sus negocios en una forma ordenada, eficiente y regular; b) que esa sociedad tiene capacidad para ser duena de sus propiedades y para llevar a cabo sus negocios en la forma que actualmente los lleva; c) que la ejecucion y cumplimiento de este contrato no contraviene ningun precepto legal o contractual que constituya un caso de incumplimiento de conformidad con otro contrato o instrumento en que su representada sea parte, o por obligacion que esta hubiere contraido, ni que le este prohibido por otra razon; d) Que los estados financieros de su representada para el ano fiscal que termino el treinta de junio del ano dos mil fueron preparados de conformidad con los principios de contabilidad generalmente aceptados y aplicados en una base consistente para el periodo especificado, y presentan razonablemente la situacion financiera de la deudora a la fecha de este contrato; e) Sin perjuicio de lo anterior, la Deudora se obliga a proporcionar al Banco sus estados financieros en cualquier tiempo que este lo solicite. En todo caso, se obliga a proporcionar al Banco dentro de los ciento veinte (120) dias calendario siguientes al cierre fiscal de cada uno de los anos durante el plazo del credito o sus prorrogas y hasta la cancelacion total del credito, sus estados financieros para el ano correspondiente, incluyendo el balance general, estado de perdidas y ganancias, estados de cambios de capital de los accionistas y estado de cambios en la situacion financiera de la Deudora. Los estados financieros referidos correspondientes a cada ano fiscal se presentaran auditados por una firma de auditores y contadores publicos independientes de reconocido prestigio y aceptable para el Banco, y seran preparados de conformidad con los principios de contabilidad generalmente aceptados y calculados en una base consistente para los periodos especificados y presentaran razonablemente la situacion financiera de la Deudora a la fecha de los mismos. Si la Deudora fuere requerida por el Banco, debera proporcionar o poner a disposicion del Banco, a eleccion de este, los libros de actas, libros de contabilidad y el respaldo documental correspondiente, prestandole toda la colaboracion necesaria a los expertos que designe el Banco para la debida comprension de los mismos. De esa cuenta, dichos peritos podran entrevistarse con personas y funcionarios de la Deudora para que den explicaciones sobre su situacion financiera; f) La direccion registrada de la deudora es veintiuna avenida siete guion noventa de la zona once, ciudad de Guatemala, y que esta direccion corresponde exactamente a la ubicacion en donde se encuentran sus principales oficinas y sede de actividades; g) Que el contrato contenido en este instrumento obliga legalmente a la Deudora conforme a cada una de sus clausulas siendole exigible su cumplimiento; h) Expresa el representante legal de la Deudora que desde la fecha de los estados financieros y estado patrimonial presentados al Banco al solicitar el credito en mencion hasta el dia de hoy, no ha habido cambios materiales adversos en los activos, obligaciones (contingentes u otras), ni en la situacion financiera o negocios de la Deudora. Esta se obliga a proporcionar al Banco, dentro de los tres (3) dias habiles siguientes a la fecha en que tengan conocimiento de un cambio sustancial adverso en su situacion financiera, un informe detallado y preciso que contenga, por lo menos, la naturaleza del cambio, la obligacion u obligaciones que afecten la situacion o situaciones en mora en que se hubiere incurrido, el tiempo en que haya estado en mora, las medidas propuestas para remediar esa situacion y demas informacion relacionada con la situacion financiera adversa; i) La deudora se obliga a pagar puntualmente todos los impuestos, tasas, arbitrios, contribuciones o cualquier otro tributo al que estuviere obligada, salvo aquellos que de buena fe hubiere decidido impugnar, circunstancia que comunicaran al Banco inmediatamente, o por lo menos un dia antes del vencimiento del plazo para presentar la impugnacion. Cuando se trate de tributos que graven los bienes pignorados, y/o el contrato de credito, y con el proposito de comprobar que los mismos han sido debidamente pagados, la deudora se obliga a entregar al Banco dentro de los quince dias habiles siguientes de efectuado el pago, copia autentica de los recibos que acrediten el cumplimiento de dichas obligaciones. En el caso que la deudora no cumpla con alguno de los pagos citados en esta literal, autoriza desde ahora al Banco para hacer esos pagos por cuenta de ella, siempre que el Banco optare por hacerlo. En este evento, reembolsara al Banco dentro de los tres dias habiles siguientes de haber sido avisada que el Banco ha efectuado dicho pago, las cantidades que por dichos conceptos este haya pagado, mas intereses a razon de una tasa igual a la pactada para el importe del credito, y en su caso, los gastos y comisiones causados; j) Los bienes pignorados podran ser inspeccionados periodicamente por la persona o personas que designe el Banco, y en todo caso no menos de dos (2) veces al ano. La propietaria permitira a tales personas el acceso al lugar y les proporcionara la colaboracion y auxilio que le sea requerido para efectos de la inspeccion; k) La deudora mantendra vigentes los contratos y/o relaciones de trabajo o de servicios con el equipo gerencial actual, pudiendo sustituirlo unicamente con personal de iguales calidades o mejor calificado que el presente; l) Que no existe ningun litigio o procedimiento administrativo pendiente ante tribunal o autoridad o arbitros que pueda afectar en forma negativa o adversa la situacion financiera de la Deudora, ni la legitimidad, validez o exigibilidad de este contrato. La deudora informara al Banco en forma inmediata de cualquier asunto litigioso en que pudiere llegar a ser parte, y al dia siguiente de ser notificados de toda accion y/o diligencia judicial entablada en su contra. Tratandose de medidas precautorias, informara al Banco en forma inmediata al tener conocimiento de las mismas. Tambien informara al Banco de cualquier obligacion contingente que tuviere; m) La Deudora no contraera obligaciones hipotecarias, prendarias u otras obligaciones de cualquier naturaleza que conlleven gravamenes o limitaciones sobre sus bienes actuales o los que adquiera en el futuro, sin el consentimiento previo y escrito del Banco; n) La Deudora cumplira todas las regulaciones, reglamentos, leyes, ordenes y en general, con las normas de toda naturaleza emitidas por autoridad competente que le sean aplicables; o) la Deudora dara pronto aviso en forma escrita al Banco, a mas tardar el dia siguiente de ocurrido, de cualquier incumplimiento acompanando una declaracion de la accion propuesta por la Deudora para remediar el incumplimiento; p) La Deudora no vendera, arrendara o de alguna forma dispondra de una porcion sustancial de sus activos en cualquier ejercicio fiscal excepto con el consentimiento previo y escrito del Banco; y q) Al finalizar el periodo fiscal del ano dos mil uno, LA DEUDORA debe mantener y reflejar la siguiente situacion financiera: i) Que su Razon de cobertura de servicio de deuda sea en cualquier momento menor de uno punto cinco (1.5) a uno (1.00). Para el proposito del calculo de "Razon de Cobertura de Servicio de Deuda" debera calcularse anualmente a partir del ultimo dia de cada ano fiscal de la Deudora para el periodo de un ano finalizando en la fecha de determinacion de este y debera definirse, como las ganancias de la Deudora antes de los intereses, tributos, depreciacion y amortizacion (EBITDA), sobre la suma de los pagos de intereses, capital, y la porcion corriente de la deuda de largo plazo (aquellos pagos de deuda que se van a hacer durante el periodo siguiente a aquel para el cual se llevo a cabo dicha determinacion, todo determinado de acuerdo con los principios contables generalmente aceptados y aplicados de forma consistente; ii) Que su Razon de Endeudamiento o Apalancamiento sea en cualquier momento no mayor de tres punto ocho (3.80) a uno (1.00). Para el proposito de su calculo, debera definirse la "Razon de Endeudamiento", como el total de pasivos de la Deudora (incluyendo las obligaciones debidas a la casa matriz, PriceSmart Inc. y cualquier otra empresa relacionada a la casa matriz), sobre las ganancias de la Deudora antes de los intereses, tributos, depreciacion y amortizacion (EBITDA), todas segun se determina de acuerdo con los principios contables generalmente aceptados y aplicados de forma consistente; y iii)Que el nivel maximo del total de deuda de la Deudora, sobre las ganancias de la Deudora antes de los intereses, tributos, depreciacion y amortizacion (EBITDA), no puedan ser en cualquier momento mayor de dos punto cinco (2.5) a uno (1.00). Para el proposito de su calculo, debera definirse "Total de deuda" como deuda a los bancos, deudas a corto y largo plazo, mas cualquier otro monto adeudado a PriceSmart Inc. y cualquier otra empresa relacionada a la casa matriz. SEPTIMA: INCUMPLIMIENTO Y TERMINACION PREMATURA: El Banco podra, a su discrecion, dar por vencido el plazo del contrato en forma prematura y exigir el pago de capital, intereses, gastos y en su caso, costas judiciales asi como cualquier obligacion o pago adeudado conforme este contrato, en el evento de suceder cualquiera de los supuestos siguientes: a) Si la deudora incumple con pagar intereses o capital, gastos o comisiones al Banco cuando sean debidos o pagaderos, sea a su vencimiento o en cualquier fecha fijada para su pago; b) Por incumplimiento de la deudora a cualquiera de las obligaciones que asumio en este contrato de credito, o de aquellas que conforme a la ley le corresponde asumir; c) Por incumplimiento de la deudora PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, de cancelar en su totalidad, el credito bancario otorgado por Banco Uno, Sociedad Anonima, por la cantidad de hasta dos millones de dolares de los Estados Unidos de America, en la fecha de su vencimiento, marzo diecinueve del ano dos mil uno; d) Cuando ocurra un cambio material adverso en la condicion financiera o en los negocios de la deudora, que a opinion del Banco, afecte su garantia o incrementare su riesgo; e) Cuando ocurra un cambio material en la situacion politica, economica, monetaria o de cualquier otra indole en la Republica de Guatemala que en opinion del Banco, incremente su riesgo; f) Si la deudora fuere objeto de demanda, embargo, secuestro o intervencion, o si fuese declarada en quiebra o si promueve concurso voluntario de acreedores o se entabla en su contra concurso forzoso de acreedores o quiebra; g) Si cualquiera de los bienes de la deudora, pero especialmente los muebles pignorados, sufre tal depreciacion o merma que ya no constituyen respaldo suficiente al Banco, salvo que esta ofrezca y efectivamente constituya una garantia que sea satisfactoria para el Banco; h) Si la deudora reduce su capital, amortiza o adquiere sus propias acciones, entra en disolucion, liquidacion, se fusiona por absorcion o por consolidacion en o con otra persona sin previo conocimiento y aprobacion del Banco; i) Si la asamblea de accionistas de la deudora acuerda distribuir dividendos en cada periodo fiscal, ya sea que provengan de las utilidades corrientes, retenidas y/o acumuladas por un monto superior a la cantidad equivalente al sesenta por ciento (60%) de su ingreso neto anual positivo; j) Si la deudora enajena una parte sustancial de sus bienes a cualquier otro titulo sin autorizacion previa del Banco; k) Si la Deudora no cumpliera con el pago de cualquier otra deuda incluyendo capital, intereses, primas o comisiones o incumpliera en cualquier otra forma sus obligaciones a su cargo y a favor del Banco, sea al vencimiento de su plazo natural o en caso de vencimiento anticipado; l) Si la Deudora incumpliera con el pago de cualquier otra deuda contraida con terceros a medida que se hagan exigibles, si cesa en el pago de sus obligaciones o si efectua una cesion general a favor de sus acreedores; m) Si se dictara alguna sentencia u orden contra la Deudora exigiendo el pago de mas de la cantidad de UN MILLON DE DOLARES DE LOS ESTADOS UNIDOS DE AMERICA ($1,000,000.00), o su equivalente en otra moneda; n) Si alguna autoridad gubernamental, judicial o de cualquier otro orden de la Republica de Guatemala inicia acciones para expropiar, secuestrar, o apoderarse de todos o una parte sustancial de los bienes de la deudora o de otra manera asume la custodia o control de sus bienes sea por intervencion o de otra forma y/o restringe, limita o veda a la Deudora el manejo y facultad de controlar sus negocios; y o) Si la deudora se fusionara con otra sociedad o si de cualquier otra forma transfiere las empresas mediante las cuales realiza sus actividades y lleva a cabo sus negocios. OCTAVA: AUTORIZACION PARA DEBITAR. Si el credito contra la Deudora es exigible en virtud de cualquier caso previsto como un incumplimiento por este contrato o por la ley, el Banco podra retener los bienes de la Deudora que se encuentren en su poder o estuvieren a su disposicion. Asimismo, si llegare a ocurrir el incumplimiento citado, la Deudora autoriza de manera irrevocable al Banco para debitar cualesquiera cuentas de depositos que esta mantenga con el Banco a efecto de extinguir cualquier deuda a su cargo, y hasta por el monto maximo necesario para extinguir las cantidades adeudadas. NOVENA: CESION. La deudora acepta y reconoce expresamente que el Banco podra ceder, gravar o negociar en cualquier forma sus derechos derivados del credito y sobre las garantias prendarias, sin necesidad de previo ni posterior aviso o consentimiento de la Deudora, debiendo unicamente notificarle el nombre del nuevo acreedor y el lugar en que debera efectuar los pagos tanto de capital como de intereses. La Deudora no podra ceder o transferir los derechos y obligaciones que le corresponde de acuerdo con este contrato, ni directa ni indirectamente sin el previo consentimiento del Banco. DECIMA: RENUNCIAS. Ninguna falta o retraso del Banco en el ejercicio de cualquier derecho o facultad que le corresponda conforme a este contrato, producira efectos de una renuncia de los mismos. Tampoco impedira por ese mismo motivo cualquier otro derecho o futuro ejercicio de tales derechos o de una facultad, accion, pretension, excepcion ni recurso. Asimismo no sucedera ese efecto por el parcial ejercicio de ellos. Los derechos, acciones, pretensiones, excepciones y recursos establecidos en este contrato no excluyen cualesquiera otros previstos por la ley. DECIMA PRIMERA: HONORARIOS Y GASTOS. Los honorarios y gastos que se causen con motivo del presente negocio y de la inscripcion de la prenda en el Registro Mercantil General de la Republica asi como los judiciales y extrajudiciales relacionados con su cobro, seran por cuenta de la deudora. DECIMA SEGUNDA: LEY SUSTANTIVA APLICABLE. Este contrato sera regulado, gobernado e interpretado de conformidad con las leyes de la Republica de Guatemala. DECIMA TERCERA: EFECTOS PROCESALES. La Deudora reconoce como titulo ejecutivo perfecto e inobjetable el testimonio de la presente escritura, renuncia al fuero de su domicilio y se somete expresamente a la competencia de los tribunales del Departamento de Guatemala, Republica de Guatemala, que elija el Banco. Asimismo, la Deudora acepta como liquida, exigible y de plazo vencido la cantidad que el Banco le demande y como buenas y exactas las cuentas que el Banco le presente, con relacion a este credito. b) La Deudora exime al Banco de la obligacion de prestar fianza, garantia o contragarantia para el ejercicio de sus derechos o derivado de una medida precautoria. c) Para efectos de este contrato, la Deudora fija y senala como lugar para recibir notificaciones, citaciones, comunicaciones y correspondencia la direccion indicada en la clausula sexta del presente instrumento, y se obliga a comunicar por escrito al Banco cualquier cambio que de ella tuviere en el entendido de que si no lo hace, se consideraran validas y bien hechas todas las comunicaciones, citaciones y notificaciones que se envien, practiquen o se hagan en dicha direccion. DECIMA CUARTA: SUSTITUCION DE OTROS CONVENIOS. Este contrato y cualesquiera otros documentos suscritos como resultado o en cumplimiento de los mismos, expresan el entendimiento completo de las partes respecto a los negocios juridicos que han celebrado las partes en este instrumento. Toda prorroga, modificacion, ampliacion, novacion, renuncia de derechos y terminacion debera hacerse con la autorizacion y aprobacion escrita del Banco. DECIMA QUINTA: DIVISIBILIDAD. Si cualquier convenio del credito o de este contrato o la aplicacion de los mismos a cualquier persona, por cualquier circunstancia se considerara invalido, nulo, ineficaz o por cualquier otro motivo impida que surta sus efectos legales, dicha invalidez, nulidad, ineficacia o impedimento no afectara ningun otro convenio que pueda surtir efectos sin el convenio afectado. Para tal fin, los acuerdos, convenios, derechos y obligaciones contenidos en este contrato de credito seran divisibles. DECIMA SEXTA: SENTENCIA O AUTO: Si con el proposito de obtener una sentencia o auto final es necesario convertir los montos adeudados en Dolares de los Estados Unidos de America a otra moneda de conformidad con este contrato, las partes convienen que el tipo de cambio a ser utilizado sera aquel conforme al cual permita al Banco adquirir las divisas adeudadas de conformidad con procedimientos bancarios normales el dia habil anterior a aquel en que se dicte sentencia definitiva, o tratandose de la ejecucion en la via de apremio, el dia habil anterior a aquel en que se dicte el auto que resuelva en definitiva el proyecto de liquidacion de la deuda y las costas procesales. Sin perjuicio de que una sentencia o auto sea dictado en moneda que no sea Dolares de los Estados Unidos de America, la obligacion de la Deudora con respecto a cualquier suma adeudada al Banco de conformidad con este contrato sera considerada pagada solo si en el dia habil siguiente al dia en que el Banco haya recibido en esa otra moneda, algun monto tomado por el tribunal como adeudado bajo el presente contrato, el Banco puede de acuerdo con los procedimientos bancarios normales, comprar dolares de los Estados Unidos de America con esa otra moneda que satisfagan total o parcialmente lo adeudado. Si la deuda fuere satisfecha solo parcialmente en virtud de que los Dolares de los Estados Unidos de America asi comprados resultan de menor monto que la suma originalmente adeudada al Banco de conformidad con este contrato, la Deudora acuerda, como una obligacion diferente e independientemente de tal sentencia o auto, indemnizar al Banco por la diferencia que resulte entre los Dolares adquiridos y la cantidad efectivamente adeudada conforme a este contrato. DECIMA SEPTIMA: ACEPTACION. Los otorgantes, en la calidad con que actuan, manifiestan la aceptacion a las clausulas y estipulaciones de este instrumento. Yo, el Notario, DOY FE: a) de todo lo expuesto; b) que he tenido a la vista la documentacion relacionada, y las certificaciones emitidas por el Registro Mercantil General de la Republica, en que consta que los bienes muebles pignorados pertenecen a la Deudora; y c) que he leido lo escrito a los otorgantes, quienes despues de hacerlo personalmente, enterados de su contenido, objeto, validez, efectos legales y obligacion de registro, ratifican, aceptan y firman juntamente con el Infrascrito Notario. EX-10.105(B) 7 a2045570zex-10_105b.txt EXHIBIT 10.5(B) Exhibit 10.5 (b) AUGUST 16, 1941 15:15 hours FIRST PAGE STAMPED IN THE NATIONAL SHOP OF ENGRAVING IN STEEL. NUMBER SIXTY ONE (61). In the city of Guatemala, the nineteenth (19th) day of the year two thousand, Before me: GUILLERMO ANDRES CASTILLO RUIZ, Notary, appears on one hand Mr. JUAN ANTONIO MIRO LLORT, forty six, married, banker, Salvadorian, of this domicile, who intervenes in capacity of Vice-President and General Chairman with Representation of Citibank, N. A., capacity accredited with the following documents, respectively: I) first testimony of the public document number ninety three (93), authorized in this city the ninth day of December of the year nineteen hundred ninety eight by Notary Public Fernando Quezada Toruno, which contains the Protocol Act of Notarial Act authorized by Notary Karin Johanna Herman Zachrisson the ninth day of July of the year nineteen hundred ninety eight in the city of New York, State of New York, United States of America, and contains its appointment as Vice-President. The document remained duly subscribed in the General Mercantile Registration of the Republic to number one hundred fifty thousand two hundred twenty nine (150,229) folio three hundred ninety eight (398) of book seventy five (75) of Auxiliary of Commerce on the twenty first of December of the year nineteen hundred ninety eight; and II) first testimony of the public document number forty nine (49) authorized in this city by Notary Annabella Bruni de Bermudez, the fourth day of September of the year nineteen hundred ninety six, which contains Protocol of General Order with representation granted by Citibank, N. A. in favor of Mr. Juan Antonio Miro Llort, document which remained subscribed in the Offices of the General Archives of Protocols to number four hundred sixteen thousand eight hundred thirty seven (416,837), the seventeenth day of September of nineteen hundred ninety six, the same document remained subscribed in the General Mercantile Registration of the Republic, with number twenty one thousand five hundred seventeen (21,517), folio three hundred twenty four (324) of book fifteen (15) of Orders, with date nineteen of September of nineteen hundred ninety six. On the other hand, appears Mr. MICHAEL EDWARD ASCOLI GIRON, forty seven years old, married, Guatemalan, executive, of this domicile, bearer of personal identification number of order A dash one and of registration five hundred fourteen thousand nine hundred eighty five (A-1 514,985) issued by the Municipal Registrar of Guatemala, who acts in their capacities of: a) GENERAL MANAGER and as such in representation of the entity PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, which accredits with notarial act of its appointment authorized in this city the twenty fifth of September of nineteen hundred ninety eight by Notary Beatriz Beltranena Wer, which is duly subscribed in the General Mercantile Registration of the Republic with number one hundred forty four thousand four hundred two (144,402), folio one hundred twenty one (121) of book seventy five (75) of Auxiliary of Commerce. Likewise, it states that is duly faculted for the granting of this contract, which accredits wit Notarial Act authorized in this city the fifteenth of December of the year two thousand, for which Notary Liliana Yolanda Sanchez Mack, who transcribes the authorization of the Board of Directors of PRICESMART (GUATEMALA), SOCIEDAD ANONIMA; and b) GENERAL CHAIRMAN with Representation in the entity GRUPO SOLID, S. A. (constituted with initials), capacity which accredits with the first testimony of the public document number thirteen (13), authorized in the city of Guatemala the fourteenth day of February of nineteen hundred ninety four by Notary Mario Rodolfo Virula Boy, which Protocols the Notarial Act dated twenty first of January of nineteen hundred ninety four, authorized in the city of Panama, Capital of the Republic of Panama, by Notary Public Tenth, Noemi Moreno Alba, which contains General Order with Representation granted by GRUPO SOLID, S. A. (Constituted with initials), in favor of Mr. Michael Edward Ascoli Giron, document which remained subscribed in the Office of the General Archive of Protocols number four hundred thirty eight thousand seven hundred fifteen (438,715), the twenty sixth day of February of nineteen hundred ninety seven; the same document remained subscribed in the General Mercantile Registration of the Republic, number twenty two thousand three hundred four (22,304), folio four hundred fifteen (415) of book fifteen (15) of Orders, dated tenth of March of the year nineteen hundred ninety seven. ATTEST: to know the first deponent, not as well the second who identifies himself with personal identity card above identified, that the representations exercised are enough according to the law and to my judgment for the granting of this contract; that according to statement made by Messrs. Juan Antonio Miro Llort and Michael Edward Ascoli Giron, such representations are in effect and their appointments and orders have not suffered any restriction or amendment avoiding them or conditioning the granting of this document; that I have at sight the documents accrediting them; and assuring that all are in the free exercise of their civil rights, state that hereby they grant the CONTRACT OF CREDIT AND CONSTITUTION PLEDGE GUARANTEE OVER THE MERCANTILE COMPANY according to the following clauses: FIRST: BACKGROUND. Messrs. Juan Antonio Miro and Michael Edward Ascoli Giron state that CITIBANK, N. A. through its INTERNATIONAL BANKING FACILITY ("INTERNATIONAL BANKING FACILITY" or "IBF") constitutes a set of accounting books used by Citibank, N. A. according to the Regulation D issued by the Board of Governors of the System of Federal Reserve of the United States of America, entity that hereinafter this document shall also be named "THE BANK", grants a credit to PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, entity that in this document shall also be identified as THE DEBTOR, for the amount of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS OF THE UNITED STATES OF AMERICA ($1,500,000.00), which will be disbursed and delivered to the Debtor the next following day of the date in which the testimony of this document is presented to the Bank indicating the reason of the subscription of the pledge guarantees placed by the General Mercantile Registrator of the Republic in the indicated manner hereinafter, as certification of the same Registration of the Mercantile Companies encumbered and that the pledge to which this document refers are in first place. The date of the joint presentation of these documents shall be the one on the receipt stamp of the Bank. SECOND: STIPULATIONS OF CREDIT. The referred credit in the above clause is subject, along others, to the following stipulations: a) Destination: The debtor shall destine the credit to refinance debts with the shareholders. B) Term: The term of the credit is ONE (1) YEAR counted upon on this day, for which it will expire the eighteenth of December of the year two thousand one. If such date is holiday, the period shall conclude the immediate previous banking working day. C) Payment Method: The Debtor shall pay the credit in the following manner: THREE (3) QUARTERLY AND CONSECUTIVE PAYMENT OF ONE HUNDRED TWELVE THOUSAND FIVE HUNDRED DOLLARS OF THE UNITED STATES OF AMERICA ($112,500) EACH, IN MONTHS OF MARCH, JUNE AND SEPTEMBER ALL OF YEAR TWO THOUSAND ONE; AND THE BALANCE UPON EXPIRATION OF THE CURRENT OBLIGATION. Such amounts do not include the interests pertaining to the period of time elapsed, and the payments shall be made the last working day of the month to which corresponds the payment of capital, according to what is established in this clause. During the period of this contract, it is not permitted to the Debtor to make anticipated payments of capital during the Periods of Interests (as defined hereinafter), agreed. If notwithstanding this prohibition, the debtor expresses the desire to make anticipated advance of capital, it is bound to pay a recharge that the bank may impose over such anticipated payment. d) INTERESTS: Over the amount owed or their balances shall pay interest at rate equal to the rate offered for the deposits equal or close to NINETY (90) CALENDAR DAYS, in Dollars of the United States of America in the Interbanking Market of London, United Kingdom (LIBO RATE), at eleven hours in the morning, London time, the second previous working day prior to the beginning of the period of interests to which the rate will be applied, increasing in THREE POINT SEVENTY FIVE percentage points (3.75%), as appears on page three thousand seven hundred fifty (3750) of Telerate. If Libro Rate cannot be determined according to what is above established, Libo Rate shall mean an annual rate equal to the rate indicated in page "LIBOR" of the Reuters Screen (or any other page which substitutes the mentioned page from time to time) upon eleven hours before noon (11:00 A.M.) (London Time) the second previous working day prior to the beginning of the period of interests to which the rate will be applied, for deposits in Dollars of the United States equal or closer to the duration of such interest period. In the event that one or more interest rates appear on page three thousand seven hundred fifty (3750) or "LIBOR" as the case may be, the Libo Rate shall be the average (rounded to the superior multiple number closer to the 1/16 of the 1% annual, if such average is not a multiple) of such rates offered. For the effects of this clause, `Period of Interest' shall mean the period beginning the nineteenth of December of the year two thousand and ends three months after, that is, the nineteenth of March of the year two thousand, and ends each consecutive period of three months, beginning on the date of expiration of the immediate pervious interest period. Interests shall be paid in MONTHLY manner the last working day of each of the indicated months. The variation in the interest rate for each period of interests shall make effect automatically without need of any formal requirement, although, for the effects purely informative, it shall be sent to the debtor a written communication to the address stated in this document. The interests shall be calculated based on one year of three hundred sixty (360) days and collected for those days effectively elapsed in the period in which such interests are payable. E) Moratorium Interests: In the event that the debtor incurs in moratorium any of the obligations corresponding by virtue of the credit, shall pay over the balances owed, moratorium interests at an interest rate equal to the LIBO rate defined in the above clause, in effect on the date of payment, increased in SEVEN POINT FIFTY percentage point (7.50%), which shall be calculated upon the first date in which has incurred the moratorium until the date in which the bank receives upon complete satisfaction the amounts owed, and without prejudice to the right f this to give as expired in anticipation the period of the contract and demand judicially the payment of the obligation. F) Common dispositions to the payment method. The capital and interests shall be paid in Dollars of the United States of America since it is an obligation of payment from Guatemala to abroad, without need of collection or requirement in the account of the Bank that the first indicates to the Debtor, in the offices located in the City of New York, State of New York, United States of America, that the Debtor already knows, or in the offices of the branch in Guatemala on the date in which corresponds to make the payment according to the credit. The payments of capital and interests in all cases, shall be made on or before twelve hours, hour of the city of New York, State of New York of the United States of America. In the event that a date of expiration is a banking holiday, the obligation shall be complied the first previous working day and the interest shall be calculated and paid until such date. A banking holiday is a day in which the banks will not serve the public in the State of New York, United States of America and in the City of Guatemala, Republic of Guatemala. All payment that must be done according to the credit shall be free of any and all retention or reduction of the taxes, exchange commissions, charges, expenses or any concept, current or future, that implies one reduction in the amount that the Bank must receive according to such credit. In consequence, the debtor shall pay to whom corresponds all the obligations before third parties that affect or implies, currently or in the future, in the amounts owed to the Bank according to the current credit contract. In the eventual case that for disposition of law is prohibited to the debtor to make payments owed to the Bank without making deductions or retentions or payment of any other amount or reimburse to the Bank the amounts paid for such concept, the payments for interest owed upon the date of payment in the necessary amount in order to, once complied the obligations for those concepts indicated, the Bank receives in integral manner the amounts established in this credit contract. The debtor shall also provide the Bank, in the term above indicated, authenticated copy of the proofs of having negotiated the currencies derived of this loan by means of the national banking system or authorized entities by the Monetary Board of Guatemala to operate the change of currency. In the event that the debtor does not complies with any of the payments mentioned and as consequence the Bank is bound to make the same, the first shall reimburse the Bank within three (3) following working days after notice that the Bank has made one, several or all those payments, the amounts for such concepts have paid, plus interests under a rate equal to the one agreed for the total of the credit, and in such case, the expenses and commissions caused. THIRD: OF THE PROPERTIES OF THE GOODS THAT BE GIVEN IN PLEDGE: Mr. MICHAEL EDWARD ASCOLI GIRON, in representation of the entity PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, declares under faith of oath and advised by the Notary Undersigning of the penalties related to the fault for perjury, that its represented, PRICESMART (GUATEMALA): a) PRICESMART PLAZA, located in sixth avenue zero dash seventy nine of the zone four, city of Guatemala (6th Avenue 0-79, zone 4) registered under number two hundred thirty five thousand four hundred ninety four (235,494), folio two hundred thirty six (236) book one hundred ninety seven (197) of Mercantile Business, file number eighteen thousand one hundred ninety tree dash two thousand (18,193-2000); and b) PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, located in twenty first avenue seven dash ninety of zone eleven, city of Guatemala (21 Avenue 7-90, zone 11) registered under number one hundred ninety thousand two hundred twenty seven A (190,227 A), folio ninety (90), book one hundred fifty five (155) of Mercantile Business, file number twenty eight thousand nine hundred thirty four dash nineteen hundred ninety eight (28,934-1998). States Mr. MICHAEL EDWARD ASCOLI GIRON, in capacity in which acts: a) That accredits the property of Mercantile Business property of PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, through the presentation to the Notary Undersigned of the documents consisting in Certifications issued by the General Mercantile Registration of the Republic of dates twenty ninth of November and fifth of December of the current year, referring to Mercantile Business described and identified in clauses "a" and "b" of this clause, in which it is established that the owner of the same is PRICESMART (GUATEMALA), SOCIEDAD ANONIMA; b) That all taxes of any type currently existing and are in effect, that the charges and taxes against all and each of the Mercantile Business required by any governmental authority of the Republic of Guatemala or any political or fiscal authority, have been complete and finally paid or provisioned, specially in the Tax to Mercantile and Agropecuary Business; c) That Mercantile Business of its represented, PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, are free and over them there are no encumbrances, notes, leases, impediments, embargoes, charges, rights against, pledges, use or usufruct or limitations that may affect rights of third parties, except the pledge constituted over variable inventory not perishable consisting in merchandise, that guarantees the hundred twenty five percent of the margin of the loan with Banco Uno, for the amount of two million of dollars of the United States of America. Adds Mr MICHAEL EDWARD ASCOLI GIRON that the statements made correspond to the goods encumbered. The Notary advises the civil and penal responsibilities incurred in the event that the above statements are not true. FOURTH: CONSTITUTION OF PLEDGE OF MERCANTILE BUSINESS. A) Mr MICHAEL EDWARD ASCOLI GIRON, expresses that its represented, PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, constitutes in favor of CITIBANK, N. A., in guarantee of the payment of the totality of the obligations herein contracted by the entity PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, including capital, interests, fees, collection expenses and any other obligations demandable by virtue of law and this contract FIRST, SOLE AND SPECIAL PLEDGE over the Mercantile Business property of its represented, described and identified in paragraphs "a" and "b" of the third clause immediately previous to this instrument, as well as over all results and performances produced by such Mercantile Business. In addition, declares in name of its represented, that in the pledge are included all elements of the Mercantile Business, inventories, all assets and all accounts payable ordinary and extraordinary of PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, (particularly accounts receivables derived of credit titles) that in fact and right corresponds to PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, as well as the mentioned Mercantile Business; adds that, according to article six hundred fifty five (655) of the Code of Commerce, it is understood as Mercantile Business the set of work, of material elements and coordinated incorporating values, to offer the public with lucrative purpose or in systematic manner, goods or services. Likewise, the pledge of Mercantile Business include all the elements that establishes article six hundred fifty seven (657) of the Code of Commerce.. Continues stating MICHAEL EDWARD ASCOLI GIRON, in his capacity, that its represented, PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, has expressly contracted with Citibank, N. A. that the pledge of Mercantile Business, also includes copyrights, manufacturing secrets and the business, exclusive and concessions, as well as all registration maintained in regard to the GOODS PLEDGED, including any and all diaries, books, operations registry, sales and maintenance and other information related to these, as well as all rights, titles and interests of PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, with goods pledges, all the authorizations, permits, ordinances, consents, privileges, immunities, licenses, and rights of all type, description and characters, options, registration, inspection, documents currently are or in the future may be property or controlled by PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, for the use in connection to the effect, use, operation and maintenance of the GOODS PLEDGED and all other previously indicated. It is understood between the parties of this contract that the debtor shall not have limitation or prohibition for the purchase and sale of products as well as for all the operations that are of the ordinary draft of the Mercantile Business; b) Outstanding Balance. The parties convene that MICHAEL EDWARD ASCOLI GIRON in representation of GRUPO SOLID, S.A (constituted with initials), and Pricesmart (Guatemala), Sociedad Anonima, shall respond all the goods current and future for any outstanding balance that may be left in pledge, in a joint and solidary manner; c) Deposit. All contacting parties appoint PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, as depositary of the goods pledged, which through its legal representative, Michael Edward Ascoli Giron, expresses that is aware of the obligations pertaining to such position, and who accepts to take for free. The depositary declares that is in effective and total possession of the Mercantile Business encumbered. Likewise, declares that is bound to allow that the persons or entities appointed by the Bank may anytime inspect the status of the same and if found suffering damages or deterioration or are not receiving the pertaining attention and maintenance or are found in stage of abandonment, all upon the judgment of the Bank, the same may address to a Judge to request the immediate substitution in the charge of depositary, request tat shall be solved simply, without article, previous and sole audience to the interested party. In the event of execution, the depositary shall be removed by the judge through simple request in such sense by the Bank. In this case, it shall be named as depositary to the person proposed. The depositary assigned upon request of the Bank, shall be exempted from the payment of any bond or guarantee for the performance of the position. D) The debtor is bound to respond for the remedy for the eviction and other hidden causes of the goods affected by the pledge. E) Insurance. The Debtor is bound to contract and keep in effect during the period of the contract and all its extensions, and in all case until the effective payment of capital, interests, commissions, recharges, expenses and any other amount duly agreement of this contract, an insurance with any of the authorized insurers to operate in the country - that previously has been accepted expressly by the Bank - for the amounts and against the risks that may affect the good or properties pledged tat are accustomed, including accidents, force majeure and malicious prejudice, extremes that, in case of discrepancies between the parties, shall be determined by the Bank. The insurance shall be contracted in favor of the Bank as beneficiary of the insurance and shall cover, as minimum the total amount of the credit and interests or the balance outstanding from time to time. The Debtor shall provide to the Bank authenticated copy of the insurance policy with all endorsements and documents attached in which the deductible amount is stated and all other conditions of the insurance. In addition, the same shall sent authenticated copy of the receipt of payment of the premium and if this has been paid in installments, it is bound to send the Bank a copy of the receipts within the five (5) working days following the date of payment set in the policy. It is also bound to send to the Bank an authenticated proof subscribed by the legal representative of the insurer in the same that in the event of accident, the indemnization shall be paid directly to the Bank, once deducted the payments for taxes, commissions and any other concept that is legally bound to pay the insurer before paying the indemnization. The Debtor shall provide the Bank the above documents within the three following working days upon signing this contract and, if may correspond to make a renewal or extension or any amendment and/or endorsement of the insurance during the period of the contract, the delivery shall be within fifteen (15) working days following the renewal, extension, amendment and/or endorsement. If upon judgment of the Bank the estimate of the remaining of the eventual indemnization were not enough to cover the commercial value of the goods insured in the event of accident, for any reason, the debtor shall contract according to the instructions of the Bank an additional insurance for the difference or shall guarantee the same constituting bond or any guarantee upon satisfaction of the Bank. In any case, if the Bank considers for any reason or circumstance tat the insurance if not enough, or in the event that the Debtor does not contract and/or maintains in effect the insurance in the indicated manner, the Bank shall have the right, even though not the obligation, of requesting and contracting the insurance to the account of the Debtor, who through this act authorizes such request and contracting. F) By virtue of the grantors hereby request to Mr General Mercantile Registrator of the Republic, to register and note in favor of CITIBANK, N. A., the pledge of Mercantile Business, according to the testimony of this document, in the registration inscriptions pertaining to PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, and made certification in the respective testimony the pledges that through this act are constituted, as well as these occupy the first place. g) On his side, Mr. Juan Antonio Miro Llort, on behalf and representation of CITIBANK, N. A., accepts the pledges that through this act are constituted in his favor. FIFTH: OTHER STIPULATIONS. a) It is convened that the effect of the credit and until the cancellation of the amounts owed to the Bank, the owner of the goods may not, without the previous and written authorization of the same, encumber, lease, pledge, constitute usufruct, assign any title or pledge again the Mercantile Business already given as guarantee, under sanction of nullity of the acts or contracts that are held and without prejudice of the right of the Bank to consider as terminated in advance the period of the credit. B) It is expressly convened that the pledge constituted by this act shall remain in effect and will have all the effects until the effective cancellation of the totality of the credit and its extensions. C) Maintenance of the Pledge. The Debtor is bound to keep the Mercantile Business pledged in perfect state of operation, preservation, and maintenance imposing equal obligations of its employees and dependants. The Debtor shall communicate to the Bank, immediately, that is, the date in which occurs the first following working day in case of holiday, the existence of any risk of any of the GOODS PLEDGED. SIXTH: STATEMENTS AND OBLIGATIONS. Without prejudice to other statements and obligations contracted according to this credit contract, the legal representative of the debtor declares and assures through this act: a) That its represented is a mercantile society duly organized, existing and in good state of solvency according to the laws of the Republic of Panama and that is bound to keep and maintain in during the effect of the of the credit its legal existence and judicial personality, as well as all rights, including privileges, commercial names, and to conduct its business in an organized, efficient and regular manner; b) tat such entity has capacity to be owner of the properties and to carry out businesses in the manner currently kept; c) that the execution and compliance of this contract does not contravene any legal or contracting precept that constitutes an event of non-compliance according to other contract or instrument in which its represented is part of, or by obligation that may be contracted, or that is prohibited for another reason; d) That the financial statements of its represented for the fiscal year ended on the thirtieth of June of the year two thousand were prepared according to the principles of accounting generally accepted and applied upon a consistent basis for the specific period, and present reasonably the financial situation of the debtor to the date of this contract; e) Without prejudice of the above, the Debtor is bound to provide the Bank the financial statements in any period in which this may request so. In any case, it is bound to provide the Bank within the one hundred twenty (120) calendar days following the fiscal closing of each of the years during which the period of the credit or its extensions and until the total cancellation of the credit, the financial statements for the pertaining year, including the balance sheet, loss and profit statements, statements of change of capital of the shareholders and statement of change in the financial situation of the Debtor. The financial statements referred pertaining to each fiscal year shall be presented audited by an auditing firm and independent public accountants whose name is known and acceptable to the Bank, and shall be prepared according to the principles of accounting generally accepted and calculated upon a consistent basis for the specified periods and shall be presented reasonably the financial situation of the Debtor to the date of the same. If the Debtor may be required by the Bank, the same shall provide or place at the disposition of the Bank, upon choice of this latter, the books of the acts, accounting books and the documentation support, providing all the necessary cooperation with the experts appointed by the Bank for the duly understanding of the same. Of this account, such technicians shall interview with the persons and officers of the Debtor to provide explanations on the financial situation; f) The registered address of the debtor is twenty first avenue seven dash ninety of zone eleven, city of Guatemala, and this address belongs exactly to the location where the main offices and place of activities are found; g) That the contract contained in this document legally binds the Debtor according to each of the clauses demanding its compliance; h) States the legal representative of the Debtor that since the date of the financial statements and patrimony state presented to the Bank upon request of the credit herein mentioned until this date, there have been no material adverse changes in the assets, obligations (contingent or others) or in the financial situation or business of the Debtor. The same is bound to provide the Bank, within the following three (3) working days to the date in which is known a substantial adverse change in its financial situation, a detailed and precise report that contains, at least, the nature of the change, the obligation or obligations affecting the situation or situations in moratorium in which it may incurred, the time in which has been in moratorium, the proposed measures to remedy such situation and other information related to the adverse financial situation; I) The debtor is bound to pay on a timely basis, all taxes, rates, arbitrations, contributions or any other charges to which the same is bound, unless those in good faith may have decided to refute, circumstance that will communicate to the Bank immediately, or at least one day prior to the expiration of the period to present the refusal. When related to taxes over the pledged properties, and/or the credit contract, and with the purpose to prove that the same have been duly paid, the debtor is bound to deliver the Bank within the following fifteen working days of making the payment, the authenticated copy of the receipts accrediting the compliance of such obligations. In the event that the debtor does not comply with the payment mentioned in this literal, the same authorizes upon this moment the Bank to make such payment on its behalf, provided that the Bank may choose to do so. In this case, it shall reimburse the Bank within the next three working days after been advised that the Bank as made such payment, the quantities that for such concept this latter has paid, plus interests equivalent to an equal rate agreed for the amount of the credit, and in its case, the expenses and commissions caused; j) the goods pledged shall be inspected periodically by the person or persons appointed by the Ban, and in any case no less than twice (2) a year. The owner shall allow such persons to access the place and shall provide the cooperation and assistance that may be required for the effects of the inspection; k) The debtor shall keep in effect the contracts and/or work relations or services with the current management team, being able to substitute only with personnel of equal capacity or better qualified than the current; I) That there is no litigation or administrative procedure pending before the court or authority or arbitrators that may affect in negative or adverse manner the financial situation of the Debtor or the legitimacy, validity or demandability of this contract. The debtor shall inform the Bank in an immediate manner any litigious matter that may be part of, and the following day be notified of all action and/or judicial diligence placed against it. In regards precautious measures, the same shall inform the Bank immediately upon having knowledge of the same. It shall also inform the Bank of any obligation that the same may have; m) The Debtor shall not contact encumbrance, pledge or any other obligations, of any nature that may lead to encumbrances or limitations over the current properties or those that may acquire in the future, without the previous and written consent of the Bank; n) The Debtor shall comply all the regulations, rules, laws, orders and in general, all the standards of any nature issued by the competent authority that may be applicable; o) the Debtor shall provide notice in writing to the Bank, no later than the following day of the occurrence, any non-compliance accompanied by a statement of the action proposed by the Debtor to remedy the unfulfillment; p) The Debtor shall not sell, lease or in any manner dispose of a substantial portion of the assets in any fiscal exercise except with the previous and written consent of the Bank; and q) Upon concluding the fiscal period of the year two thousand one, THE DEBTOR may keep and reflect the next financial situation; i) That by reason of coverage of service of debt be in any moment less than one point five (1.5) to one (1.00). For the purpose of calculation of "Reason of Coverage of Debt Service" shall be calculated annually upon the last day of each fiscal year of the Debtor for the period of one year concluding in the date of determination of the same and shall be defined, as the guarantees of the Debtor prior to the interests, taxes, depreciation and amortization (EBITDA), over the amount of payment of interests, capital, and the current portion of the long term debt (those payments of debts to be made during the period following such for which the determination was carried out, all determined according to the principles of accounting generally accepted and applied in such consistent manner; ii) That for Debt or Leverage be in any moment no more than three point eight (3.80) to one (1.00). For the purpose of the calculation, it shall be defined the "Reason of Debt", as the total of liabilities of the Debtor (including the obligations owed to the headquarters, PriceSmart, Inc. and any other company related to the headquarter), over the profits of the Debtor before the interests, taxes, depreciation and amortization (EBITDA), all as determined according to the principles of accounting generally accepted and applied in consistent manner; and iii) That the maximum level of the total outstanding balance of the Debtor, over the profits of the Debtor before the interests, taxes, depreciation and amortization (EBITDA), may not be in any moment higher than two point five (2.5) to one (1.00). For the purpose of the calculation, it shall define "Total of the Debt" as debt with the banks, debts to banks, short and long term debts, plus any other amount owed to PriceSmart, Inc, and any other company related to the headquarters. SEVENTH: NON COMPLIANCE AND PREMATURE TERMINATION: The Bank shall, upon discretion, consider terminated the period of the contract in a premature manner and demand the payment of the capital, interests, expenses, and in its case, judicial fees as any other obligation or payment owed according to this contract, in the event of occurring any of the following issues: a) If the debtor does not comply with the payment of interests or capital, expenses or commissions to the Bank when are owed or payable, be it upon expiration or in any date established for its payment; b) For lack of compliance of the debtor to any of the obligations assumed in this credit contract, or those that according to the law corresponds to assume; c) For lack of compliance of the debtor PRICESMART (GUATEMALA), SOCIEDAD ANONIMA, to cancel in its totality, the banking credit granted by Banco Uno, Sociedad Anonima, for the amount of up to two million dollars of the United States of America, on the date of the expiration, March nineteen of the year two thousand one; d) When occurring a material adverse change in the financial condition or in the business of the debtor, that to the opinion of the Bank, affects the guarantee or increase the risk; e) When occurring a material change in the political, economic, monetary situation or of the other type in the Republic of Guatemala that in the opinion of the Bank, could increase the risk; f) If the debtor is object of demand, embargo, kidnap or intervention, or if declared in bankruptcy or if promoting voluntary bid of creditors or if is created against it a forced bid of creditors or bankruptcy; g) If any of the goods of the debtor, but specially the pledge movables, suffer such depreciation or reduction that does no longer constitute enough support to the Bank, unless the same offers and effectively constitutes a guarantee satisfactory to the Bank; h) If the debtor reduces its capital, amortizes or acquires its own shares, begins dissolution, liquidation, merges by absorption or consolidation in or with other person without previous consent and approval of the Bank; i) If the meeting of shareholders of the debtor agrees to distribute dividends in each fiscal period, be that these provide from current, retained and/or accumulated utilities for an amount superior to the amount equivalent to the sixty percent (60%) of the positive annual net income; j) If the debtor encumbers a substantial part of the goods to any other title without previous authorization of the Bank; k) If the debtor does not comply with the payment of any other debt including capital, interests, premiums or commissions or does not comply in any other manner its obligations in its charge and in favor of the Bank, be it upon expiration of the natural period or in case of anticipated expiration; l) If the Debtor does not comply with the payment of any other debt contracted with third parties while become demandable, if stops in the payment of its obligations or if it makes an general assignment in favor of its creditors; mm) If any sentence or order is dictated against the Debtor demanding the payment or more than the amount of ONE MILLION DOLLARS OF THE UNITED STATES OF AMERICA ($1,000,000.00), or its equivalent in other currency; n) If any governmental, judicial, or other authority of the Republic of Guatemala initiates actions to expropriate, kidnap, take over all or substantial part of the goods of the debtor or in other manner assumes the custody or control of the properties be it by execution or in any other manner and/or restricts, limits or prohibits the Debtor the handling and faculty to control its business; and o) If the debtor merges with other company or if in any other manner transfers the companies through which performs its activities and carries out businesses. EIGHTH: AUTHORIZATION TO DEBIT. If the credit against the Debtor is demandable by virtue of any case expected as non-compliance for this contract or by law, the Bank may retain the goods of the Debtor found in their power or at their disposition. Likewise, if the mentioned non-compliance occurs, the Debtor authorizes in an irrevocable manner to the Bank to debit any account of deposits that the same maintains with the Bank to the effect of extinguishing any debt to its charge, and until the maximum amount necessary to extinguish the amounts owed. NINT: ASSIGNMENT. The debtor accepts and recognizes expressly that the Bank may assign, encumber, or negotiate in any manner its rights derived from the credit and over the pledge guarantees, without need of previous or further notice or consent of the Debtor, by only notifying the name of the new creditor and the place in which such payment shall be made for both capital and interests. The Debtor shall not assign or transfer the rights and obligations that corresponds to the same according to this contract, direct or indirectly without the previous consent of the Bank. TENTH: RESIGNATION. No lack or delay of the Bank in the exercise of any right or faculty corresponding to the same according to this contract, shall produce effects of a resignation of these. It shall neither impede for the same reason any other right or future exercise of such rights or of a faculty, action, pretension, exception or resource. Likewise, shall effect shall not happen for the partial exercise of the same. The rights, actions, pretensions, exceptions and resources established in this contract do not exclude any other established by law. ELEVENTH: HONORARY AND EXPENSES. The honoraries and expenses that cause with reason the present business and the registration of the pledge in the General Mercantile Registration of the Republic as well as the judicial and extrajudicial related with its collection, shall be to the account of the debtor. TWELFTH: APPLICABLE LAW. This contract shall be ruled, governed, and interpreted according to the laws of the Republic of Guatemala. THIRTEENTH: PROCESSING EFFECTS. The Debtor recognizes as perfect executive title the testimony of this document, waiver of domicile and submits expressly to the competence of the courts of the Department of Guatemala, Republic of Guatemala, the one chosen by the Bank. Likewise, the Debtor accepts as liquid, demandable and of expired term the amount that the Bank demands and as good and precise the accounts that the Bank presents, in regards to the credit. b) The debtor exempts the Bank of the obligation to provide bond, guarantee or counterguarantee for the exercise of its rights or derived of a precautious measure. c) For the effects of this contract, the Debtor establishes and designates as place to receive notices, summons, communications and correspondence the address indicated in clause six of this document, and is bound to advise in writing to the Bank any change that may result in the understanding the if not doing so, shall be considered valid and well done the communications, summons and notices sent, practiced or destined to such address. FOURTEENTH: SUBSTITUTION OF OTHER CONVENTIONS. This contract and any other documents subscribed as result or in compliance of the same, express the complete understanding of the parties regarding the judicial business executed between the parties in this document. Any extension, amendment, innovation, resignation of right and termination shall be made with the written authorization and approval of the Bank. FIFTEENTH: SEVERABILITY. If any convention of credit or of this contract or the application of the same to any person, by any circumstance is considered invalid, void, inefficient or for any reason avoids legal effects, such invalidity, nullity, inefficiency or impediment shall not affect any other contract that may have effects without the affected agreement. For such purpose, the agreements, conventions, rights and obligations contained in this contract of credit shall be severable. SIXTEENTH: SENTECE OR AUTO: If with the purpose of obtaining a sentence or final act is necessary to convert the amounts owed in Dollars of the United States of America to another currency according to this contract, the parties convene that the type of exchange to be used shall be such which allows the Bank acquire all the proper currencies in accordance to the normal banking procedures the previous working day to such in which is dictated the final sentence, or related to the execution under judicial order, the previous working day to which is dictated in the auto solving definitely the liquidation project of the debt and the processing fees. Without prejudice that a sentence is dictated or not in Dollars of the United States of America, the obligation of the Debtor in regards to the any amount owed to the Bank according to this contract shall be considered paid only if on the following working day to the date in which Bank has received this other currency, any amount taken by the court as owed under this contract, the Bank may agree with the normal banking procedures, purchase dollars of the United States of America with such other currency which satisfy total or partially the balance outstanding. If the debt is covered only partially by virtue that the Dollars of the United States of America so compared result in a less amount than the total originally owed to the Bank according to this contract, the Debtor agrees, as an obligation different and independently of such sentence or auto, indemnize the Bank for the difference resulting from the Dollars acquired and the amount effectively owed according to this contract. SEVENTEENTH: ACCEPTANCE. The grantors, in capacity with those acting, state the acceptance of the clauses and stipulations of this document. I, the Notary, ATTEST: a) of total exposed; b) that I have seen the related documentation, and the certifications issued by the General Mercantile Registration of the Republic, in which are stated the movable goods pledge belonging to the Debtor; and c) that I have read what is written by the grantors, who after having personally be aware of its contents, objective, validity, legal effects and obligations, do confirm, accept and sign jointly with the Notary Undersigned. [Two illegible signatures] Before me: [Signature of the Notary] EX-10.6 8 a2045570zex-10_6.txt EXHIBIT 10.6 EXHIBIT 10.6 ================================================================================ INVESTMENT NUMBER 10296 LOAN AGREEMENT AMONG PRICESMART INC., PSMT CARIBE INC., PSMT TRINIDAD/TOBAGO LIMITED, AND INTERNATIONAL FINANCE CORPORATION DATED AS OF JANUARY 26, 2001 =============================================================================== TABLE OF CONTENTS
ARTICLE OR SECTION ITEM PAGE NO. ARTICLE I......................................................................1 DEFINITIONS AND INTERPRETATION.................................................1 Section 1.01. General Definitions..........................................1 Section 1.02. Financial Definitions.......................................10 Section 1.03. Financial Calculations......................................15 Section 1.04. Interpretation..............................................15 Section 1.05. Business Day Adjustment.....................................16 ARTICLE II....................................................................16 THE PROJECT, PROJECT COST AND FINANCIAL PLAN..................................16 Section 2.01. The Project.................................................16 Section 2.02. Project Cost and Financial Plan.............................16 ARTICLE III...................................................................17 THE A LOAN....................................................................17 Section 3.01. A Loan......................................................17 Section 3.02. Disbursement Procedure......................................17 Section 3.03. Interest....................................................18 Section 3.04. Default Rate Interest.......................................19 Section 3.05. Repayment...................................................20 Section 3.06. Prepayment..................................................20 Section 3.07. Fees........................................................21 Section 3.09. Currency and Place of Payments..............................22 Section 3.09. Allocation of Partial Payments..............................22 Section 3.10. Increased Costs.............................................22 Section 3.11. Unwinding Costs.............................................22 Section 3.12. Suspension or Cancellation by IFC...........................23 Section 3.13. Cancellation by Co-Borrowers................................23 Section 3.14. Taxes.......................................................24 Section 3.15. Expenses....................................................24 ARTICLE IV....................................................................26 REPRESENTATIONS AND WARRANTIES................................................26 Section 4.01. Representations and Warranties..............................26 Section 4.02. IFC Reliance................................................28
-ii-
ARTICLE OR SECTION ITEM PAGE NO. ARTICLE V.....................................................................29 CONDITIONS OF DISBURSEMENT....................................................29 Section 5.01. Conditions of First Disbursement............................29 Section 5.02. Conditions of All Disbursements.............................31 Section 5.03. Co-Borrowers' Certifications................................32 Section 5.04. Conditions for IFC Benefit..................................33 ARTICLE VI....................................................................33 PARTICULAR COVENANTS..........................................................33 Section 6.01. Affirmative Covenants.......................................33 Section 6.02. Negative Covenants..........................................35 Section 6.03. Reporting Requirements......................................41 Section 6.04. Insurance...................................................44 ARTICLE VII...................................................................46 EVENTS OF DEFAULT.............................................................46 Section 7.01. Acceleration after Default..................................46 Section 7.02. Events of Default...........................................46 Section 7.03. Bankruptcy..................................................49 ARTICLE VIII..................................................................49 MISCELLANEOUS.................................................................49 Section 8.01. Saving of Rights............................................49 Section 8.02. Notices.....................................................50 Section 8.03. English Language............................................51 Section 8.04. Term of Agreement...........................................51 Section 8.05. Applicable Law and Jurisdiction.............................51 Section 8.06. Disclosure of Information...................................53 Section 8.07. Successors and Assignees....................................54 Section 8.08. Joint and Several Liability.................................54 - Section 8.09. Amendments, Waivers and Consents............................54 Section 8.10. Counterparts................................................54
-iii-
ARTICLE OR SECTION ITEM PAGE NO. ANNEX A.......................................................................57 BORROWER/PROJECT AUTHORIZATIONS...............................................57 ANNEX B.......................................................................59 INSURANCE REQUIREMENTS........................................................59 ANNEX C.......................................................................60 ASSETS OF THE CO-BORROWERS TO BE GRANTED AS SECURITY.....................................................60 ANNEX D.......................................................................62 LIST OF LIENS.................................................................62 SCHEDULE 1....................................................................64 FORM OF CERTIFICATE OF INCUMBENCY AND AUTHORITY...............................64 SCHEDULE 2....................................................................66 FORM OF REQUEST FOR DISBURSEMENT (A LOAN).....................................66 SCHEDULE 3....................................................................70 FORM OF LOAN DISBURSEMENT RECEIPT.............................................70 SCHEDULE 4....................................................................71 FORM OF SERVICE OF PROCESS LETTER.............................................71 SCHEDULE 5(A).................................................................73 FORM OF LOCAL COUNSEL'S LEGAL OPINION.........................................73 SCHEDULE 5(B-1)...............................................................79 FORM OF LOCAL COUNSEL'S LEGAL OPINION.........................................79 SCHEDULE 5(B-2)...............................................................85 FORM OF LOCAL COUNSEL'S LEGAL OPINION.........................................85
-iv-
ARTICLE OR SECTION ITEM PAGE NO. SCHEDULE 5(B-3)...............................................................91 FORM OF LOCAL COUNSEL'S LEGAL OPINION.........................................91 SCHEDULE 5(C).................................................................94 FORM OF SPECIAL COUNSEL'S LEGAL OPINION.......................................94 SCHEDULE 5(B).................................................................99 FORM OF PRICESMART SPECIAL COUNSEL'S LEGAL OPINION............................99 SCHEDULE 6...................................................................104 FORM OF LETTER TO BORROWER'S AUDITORS........................................104 SCHEDULE 7...................................................................106 FORM OF CO-BORROWER'S CERTIFICATION ON DISTRIBUTION OF DIVIDENDS...................................106 SCHEDULE 8...................................................................108 FORM OF PROGRESS REPORT RE: PROJECT IMPLEMENTATION.......................................................108 SCHEDULE 9...................................................................109 INFORMATION TO BE INCLUDED IN ANNUAL REVIEW OF OPERATIONS..................................................109 SCHEDULE 10..................................................................110 FORM OF ANNUAL MONITORING REPORT.............................................110
LOAN AGREEMENT AGREEMENT, dated as of January 26, 2001, among: (1) PRICESMART INC., a corporation organized and existing under the laws of the State of Delaware, U.S.A. ("PriceSmart"); (2) PSMT CARIBE, INC., a company organized and existing under the laws of the Territory of the British Virgin Islands ("Caribe"); (3) PSMT TRINIDAD/TOBAGO LIMITED, a company organized and existing under the laws of the Republic of Trinidad and Tobago ("PSMT Trinidad" and PriceSmart, Caribe and PSMT Trinidad are collectively referred to herein as the "Co-Borrowers"); and (4) INTERNATIONAL FINANCE CORPORATION, an international organization established by Articles of Agreement among its member countries ("IFC"). ARTICLE I DEFINITIONS AND INTERPRETATION Section 1.01. GENERAL DEFINITIONS. Wherever used in this Agreement, the following terms have the meanings opposite them: "A Loan" the A Loan specified in Section 3.01 (THE A LOAN) or, as the context requires, its principal amount from time to time outstanding; "Accounting Principles" United States Generally Accepted Accounting Principles ("US-GAAP") promulgated by the Financial and Accounting Standards Board, together with its pronouncements thereon from time to time, and applied on a consistent basis; "Affiliate" any Person directly or indirectly controlling, controlled by or under common control with, any Co-Borrower (for purposes of this definition, "control" means the power to direct the management or policies of a Person, directly or indirectly, whether through the ownership of shares or other securities, by contract or otherwise, provided that the direct or indirect ownership of fifteen per cent -2- (15%) or more of the voting share capital of a Person is deemed to constitute control of that Person, and "controlling" and "controlled" have corresponding meanings); "Assignment of Insurance Proceeds" the agreement entitled Assignment Agreement of even date herewith, among the Co-Borrowers and IFC, whereby each of the Co-Borrowers assigns to IFC all of its right, title and interest in and to all insurance proceeds under insurance policies insuring the IFC Security; "Auditors" the firm that the Co-Borrowers appoint from time to time as its auditors pursuant to Section 6.01(d) (AFFIRMATIVE COVENANTS); "Authority" any national, supranational, regional or local government or governmental, administrative, fiscal, judicial, or government-owned body, department, commission, authority, tribunal, agency or entity, or central bank (or any Person, whether or not government owned and howsoever constituted or called, that exercises the functions of a central bank); "Authorization" any consent, registration, filing, agreement, notarization, certificate, license, approval, permit, authority or exemption from, by or with any Authority, whether given by express action or deemed given by failure to act within any specified time period and all corporate, creditors' and shareholders' approvals or consents; "Authorized Representative" any natural person who is duly authorized by each of the Co-Borrowers to act on each such Co-Borrower's behalf for the purposes specified in, and whose name and a specimen of whose signature appear on, the Certificate of Incumbency and Authority most recently delivered by the Co-Borrowers to IFC; "Business Day" a day when banks are open for business in New York, New York or, solely for the purpose of determining the Interest Rate other than pursuant to Section 3.03(d)(ii) (INTEREST), London, England ; "C Loan" the C Loan, made by IFC to the Co-Borrowers pursuant to the C Loan Agreement, in the principal amount of ten million Dollars ($10,000,000); "C Loan Agreement" the agreement of even date herewith, among the Co-Borrowers and IFC, setting for the terms and conditions of the C Loan; "C Loan Disbursement" the full disbursement of the C Loan; -3- "Capital Lease Obligation" of any Person as of the date of determination, the obligations of such Person to pay rent and other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under Accounting Principles; "Certificate of Incumbency and Authority" the certificate provided to IFC by each of the Co-Borrowers in the form of Schedule 1; "Charter" with respect to each Co-Borrower, its memorandum and articles of association or other constitutive document; "Country" with respect to: PriceSmart, the United States of America; with respect to Caribe, the British Virgin Islands; with respect to PSMT Trinidad, Trinidad and Tobago, or, as the context may require, all of the Countries previously mentioned; "Derivative Transaction" any swap agreement, cap agreement, collar agreement, futures contract, forward contract or similar arrangement with respect to interest rates, currencies or commoditY prices; "Disbursement" any disbursement of the A Loan; "Dollars" and "$" the lawful currency of the United States of America; "Environmental, Health and Safety Guidelines" the IFC General Health and Safety Guidelines, dated July 1998 and the World Bank General Environmental Guidelines, dated July 1998, a copy of which has been delivered to, and receipt of which has been acknowledged by, the Co-Borrowers by letter dated November 1, 2000 and is incorporated herein by reference; "Environmental and Social Policies" the IFC Operational Policy on Environmental Assessment (OP 4.01), dated October 1998 and the IFC Policy Statement on Forced Labor and Harmful Child Labor, dated March 1998, copies of which have been delivered to, and receipt of which has been acknowledged by, the Co-Borrowers by letter dated November 1, 2000 and is incorporated herein by reference; "Escrow Account" the Dollar-denominated bank account to be opened pursuant to the Escrow Account Agreement; -4- "Escrow Account Agreement" the agreement entitled "Escrow Account Agreement" to be entered into among the Co-Borrowers, The Bank of New York and IFC; "Event of Default" any one of the events specified in Section 7.02 (EVENTS OF DEFAULT); "Financial Plan" the proposed sources of financing for the Project set out in Section 2.02 (b) (PROJECT COST AND FINANCIAL PLAN); "Financial Year" the accounting year of the Co-Borrowers commencing each year on September 1 and ending on the following August 31, or such other period as the Co-Borrowers, with IFC's consent, from time to time designate as their accounting year; "IFC Security" the security, with a book value (a) on the date of the disbursement of the C Loan, of no less than one and one-half times the amount of the C Loan and (b) on the date of the first Disbursement, of no less than one and one-half (1.5) times the aggregate amount of the A Loan and the C Loan, created by or pursuant to the Security Documents to secure all amounts owing by the Co-Borrowers to IFC under this Agreement; "Increased Costs" the net incremental costs of, or reduction in return to, IFC in connection with the making or maintaining of the A Loan and the C Loan that result from any change in any applicable law or regulation or directive (whether or not having force of law) or in its interpretation or application by any Authority charged with its administration that, after the date of this Agreement, imposes on IFC any condition regarding the making or maintaining of the A Loan and the C Loan; "Increased Costs Certificate" a certificate provided from time to time by IFC certifying the amount of, and circumstances giving rise to, the Increased Costs; "Interest Determination Date" except as otherwise provided in Section 3.03(d)(ii) (INTEREST), the second Business Day before the beginning of each Interest Period; "Interest Payment Date" March 15 or September 15 in any year; "Interest Period" each period of six (6) months, in each case beginning on an Interest Payment Date and ending on the day immediately before the next following Interest Payment Date, except in the case of the first -5- period applicable to each Disbursement when it means the period beginning on the date on which that Disbursement is made and ending on the day immediately before the next following Interest Payment Date; "Interest Rate" for any Interest Period, the rate at which interest is payable on the A Loan during that Interest Period, determined in accordance with Section 3.03 (INTEREST); "Letter of Information" the letter of information, dated October 20, 2000, from the Co-Borrowers to IFC providing a detailed description of the Co-Borrowers and their respective Subsidiaries, the Project, the Financial Plan and the organization, status, operations and liabilities of the Co-Borrowers, and containing representations and warranties of all material facts concerning the Project, in form and substance acceptable to IFC; "LIBOR" the British Bankers' Association ("BBA") interbank offered rates for deposits in the Dollars which appear on the relevant page of the Telerate Service (currently page 3750) or, if not available, on the relevant pages of any other service (such as Reuters Service or Bloomberg Financial Markets Service) that displays such BBA rates; provided that if BBA for any reason ceases (whether permanently or temporarily) to publish interbank offered rates for deposits in the Dollars, "LIBOR" shall mean the rate determined pursuant to Section 3.03(d) (INTEREST); "Lien" any mortgage, pledge, charge, assignment, hypothecation, security interest, title retention, preferential right, trust arrangement, right of set-off, counterclaim or banker's lien, privilege or priority of any kind having the effect of security, any designation of loss payees or beneficiaries or any similar arrangement under or with respect to any insurance policy or any preference of one creditor over another arising by operation of law; "Life and Fire Safety Guidelines" IFC's Life and Fire Safety Guidelines, a copy of which has been delivered to the Co-Borrowers by fax letter dated January 22, 2001, and is incorporated herein by reference; "Loans" collectively the A Loan and the C Loan or, as the context requires, the principal amount from time to time outstanding under the A Loan and the C Loan; -6- "Material Adverse Effect" a material adverse effect on: (i) the Co-Borrowers, their assets or properties taken as a whole; (ii) the Co-Borrowers' business prospects or financial condition taken as a whole; (iii) the implementation of the Project, the Financial Plan or the carrying on of the Co-Borrowers' business or operations taken as a whole; or (iv) the ability of the Co-Borrowers (taken as a whole) to comply with their obligations under this Agreement or any other Transaction Document; "Official" any officer of a political party or candidate for political office in the Country or any officer or employee (i) of the Government (including any legislative, judicial, executive or administrative department, agency or instrumentality thereof) or (ii) of a public international organization; "OPIC" the Overseas Private Investment Corporation, a corporation organized pursuant to the Foreign Assistance Act of 1969 of the United States of America; "OPIC Loan" the loan, in the principal amount of ten million Dollars ($10,000,000) to be made by OPIC to one or more of the Co-Borrowers, evidenced by the OPIC Loan Agreement or, as the context requires, its principal amount from time to time outstanding; "OPIC Loan Agreement" the loan agreement to be entered into between one or more of the Co-Borrowers and OPIC; "Person" any natural person, corporation, company, partnership, firm, voluntary association, joint venture, trust, unincorporated organization, Authority or any other entity whether acting in an individual, fiduciary or other capacity; "Potential Event of Default" any event or circumstance which would, with notice, lapse of time, the making of a determination or any combination thereof, become an Event of Default; -7- "PriceSmart El Salvador" PriceSmart El Salvador, S.A. de C.V., a SOCIEDAD ANONIMA organized and existing under the laws of El Salvador; "PriceSmart Guatemala" PriceSmart (Guatemala), S.A., a SOCIEDAD ANONIMA organized and existing under the laws of Guatemala; "PriceSmart Pledge Agreements" the pledge agreements, each of even date herewith and entered into between PriceSmart and IFC, whereby PriceSmart pledges all of the shares it owns in each of PSMT Caribe, PSMT Trinidad and PSMT Barbados, respectively, as security for the Loans; "Prohibited Payments" any offer, gift, payment, promise to pay or authorization of the payment of any money or anything of value, directly or indirectly, to or for the use or benefit of any Official (including to or for the use or benefit of any other Person if any of the Co-Borrowers knows, or has reasonable grounds for believing, that the other Person would use such offer, gift, payment, promise or authorization of payment for the benefit of any such Official), for the purpose of influencing any act or decision or omission of any Official in order to obtain, retain or direct business to, or to secure any improper benefit or advantage for, any of the Co-Borrowers, any of their Affiliates or any other Person; provided that any such offer, gift, payment, promise or authorization of payment shall not be considered a Prohibited Payment if, in IFC's reasonable opinion, it (i) is lawful under applicable written laws and regulations or (ii) is made for the purpose of expediting or securing the performance of a routine governmental action (as such term is construed under applicable law); "Project" the project described in Section 2.01 (THE PROJECT); "Project Financial Completion Date" the last day of the month in which the following requirements have been fully satisfied: (i) in respect of the most recently completed four consecutive financial quarters after December 31, 2005, the Consolidated Total Debt to Equity Ratio is not in excess of 50:50, the Consolidated Current Ratio is not less than 1.2 and the Consolidated Long-term Debt Service Coverage Ratio is not less than 1.3. -8- (ii) all Authorizations required for the normal operation of the Project and the performance by the Co-Borrowers of their respective obligations under the Transaction Documents have been obtained and remain in full force and effect; (iii) no Event of Default or Potential Event of Default has occurred and is continuing; (iv) the Co-Borrowers have delivered to IFC a notice, together with supporting data, signed by an Authorized Representative and verified by a party acceptable to IFC, certifying that the requirements set out in paragraphs (i) through (vi) above have been fulfilled; and (v) IFC has notified the Co-Borrowers that the Co-Borrower's notice is acceptable to IFC; "PSMT Aruba" Islands Foods and Distributors N.V., a corporation organized and existing under the laws of Aruba; "PSMT Barbados" PSMT (Barbados) Inc., a company organized and existing under the laws of Barbados; "PSMT Caribe Pledge Agreements" the pledge agreements, each of even date herewith and entered into between PSMT Caribe and IFC, whereby PSMT Caribe pledges all of the shares it owns in PSMT Honduras, PriceSmart El Salvador, PSMT Costa Rica, and PSMT Dominicana, respectively, as security for the Loans; "PSMT Costa Rica" Prismar de Costa Rica, S.A., a SOCIEDAD ANONIMA organized and existing under the laws of Costa Rica; "PSMT Dominicana" PriceSmart Dominicana, S.A., a SOCIEDAD ANONIMA organized and existing under the laws of the Dominican Republic; "PSMT Honduras" PriceSmart Honduras, S.A., a SOCIEDAD ANONIMA organized and existing under the laws of Honduras; "PSMT Panama" PriceCostco de Panama, S.A., a SOCIEDAD ANONIMA organized and existing under the laws of Panama; "PSMT Philippines" PSMT Philippines, Inc., a corporation organized and existing under the laws of the Republic of the Philippines; -9- "Security Documents" the documents, each acceptable to IFC, providing for the IFC Security consisting of: (i) a first ranking mortgage over the immovable assets and equipment of the Co-Borrowers listed in Annex C; (ii) a first ranking pledge over the movable assets of the Co-Borrowers listed in Annex C; (iii) a first ranking security interest over the Escrow Account; (iv) the Assignment of Insurance Proceeds; (v) the PriceSmart Pledge Agreements; and (vi) the PSMT Caribe Pledge Agreements; "Share Retention Agreement" the agreement entitled "Share Retention Agreement" dated the date of this Agreement among PriceSmart, PSMT Caribe, PSMT Trinidad, PSMT Barbados, PSMT Philippines, PSMT Aruba, PriceSmart Guatemala, PSMT Honduras, PriceSmart El Salvador, PSMT Costa Rica, PSMT Dominicana, PSMT Panama and IFC; "Spread" four per cent (4%) per annum; "Subsidiary" with respect to any Person, any entity: (i) over 50% of whose capital is owned, directly or indirectly, by that Person; (ii) for which that Person may nominate or appoint a majority of the members of the board of directors or such other body performing similar functions; or (iii) which is otherwise effectively controlled by that Person; "Taxes" any present or future taxes, withholding obligations, duties and other charges of whatever nature levied by any Authority; "Transaction Documents" (i) this Agreement; (ii) Escrow Account Agreement; (iii) the Security Documents; -10- (iv) the Share Retention Agreement; and (v) the C Loan Agreement; "World Bank" the International Bank for Reconstruction and Development, an international organization established by Articles of Agreement among its member countries. Section 1.02. FINANCIAL DEFINITIONS. (a) Wherever used in this Agreement, unless the context otherwise requires, the following terms have the meanings opposite them: "Back-to-Back Loans" loans or other advances to any Co-Borrower or its Subsidiaries that are collateralized by cash or cash-equivalent deposits of any Co-Borrower or Subsidiary of a Co-Borrower; "Cash Generation" for any period, the aggregate of: (i) Consolidated Net Income after deduction of taxes, workers and employees' participation in profits, and provisions for losses during the relevant period; plus (ii) depreciation and amortization for the relevant period; plus/minus (iii) net working capital applications; minus (iv) any foreign exchange gain or loss or any other non-cash items included in such net income after tax; plus (v) any deferred taxes or other non-cash changes or provisions charged against Net Income; plus (vi) to the extent that the PriceSmart charges all pre-opening expenses in the year such expenses are incurred, expenses related to the pre-opening of particular deep-discount membership warehouses, owned and operated by a Co-Borrower; "Consolidated" or "Consolidated Basis" (with respect to any financial statements to be provided, or any financial calculation to be made, under or for the purposes of this Agreement and any other Transaction Document) the method referred to in Section 1.03(d) (FINANCIAL CALCULATIONS); and the -11- entities whose accounts are to be consolidated with the accounts of PriceSmart include all of its Subsidiaries; "Current Assets" as of the relevant date of calculation, Consolidated cash, marketable securities, trade and other receivables realizable within one year, inventories and prepaid expenses which are to be charged to income within one year, but excluding funds from any disbursement of the Loans and other Project loans temporarily on hand pending application to the Project; "Current Liabilities" as of the relevant date of calculation, Consolidated liabilities falling due on demand or within one year (including the portion of Long-term Debt falling due within one year), but excluding liabilities for the Project to the extent they are to be paid off with the proceeds of the Loans and any other Project loans that were excluded from the calculation of Current Assets; "Current Ratio" the result obtained by dividing Current Assets by Current Liabilities; "Indebtedness for Borrowed Money " all obligations (excluding Back-to-Back Loans) of the Co-Borrowers to repay money (other than that constituting trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices, operating lease obligations and other items commonly considered current payables under Accounting Principles) including, without limitation, with respect to: (i) borrowed money; (ii) the outstanding principal amount of any bonds, debentures, notes, loan stock, commercial paper, acceptance credits, bills or promissory notes drawn, accepted, endorsed or issued by the Co-Borrowers; (iii) any credit to a Co-Borrower from a supplier of goods or services under any installment purchase or other similar arrangement with respect to goods or services (except trade accounts that are payable in the ordinary course of business and included in Current Liabilities); (iv) non-contingent obligations of the Co-Borrowers to reimburse any other Person with respect to amounts paid by that\ Person under a letter of credit or similar instrument -12- (excluding any letter of credit or similar instrument issued for the benefit of the Co-Borrowers with respect to trade accounts that are payable in the ordinary course of business and included in Current Liabilities); (v) amounts raised under any other transaction having the financial effect of a borrowing and which would be classified as a borrowing (and not as an off-balance sheet financing) under the Accounting Principles including, without limitation, under leases or similar arrangements entered into primarily as a means of financing the acquisition of the asset leased; (vi) the amount of the Co-Borrowers' obligations pursuant to Derivative Transactions which consist of swap, collar and cap agreements entered into in connection with other Total Debt of the Co-Borrowers, provided that for the avoidance of double counting and for so long as any such swap, collar or cap agreement is in effect, that Total Debt will be included in Indebtedness for Borrowed Money pursuant to the terms of the relevant Derivative Transaction and not the terms of the agreement providing for that Total Debt when it was incurred; and (vii) any premium payable on a mandatory redemption or replacement of any of the foregoing obligations; "Interest Expense" as of the relevant date of calculation, all interest (excluding interest on Back-to-Back Loans) and charges paid or payable by the Co-Borrowers, on the aggregate Indebtedness for Borrowed Money during the period immediately preceding the date of calculation; "Long-term Debt" that part of the Consolidated Indebtedness for Borrowed Money (excluding Back-to-Back Loans) the final maturity of which, by its terms or the terms of any agreement relating to it, falls due more than one year after the date of its incurrence; "Long-term Debt Service Coverage Ratio" the ratio obtained by dividing: (i) the sum of the Cash Generation for the Financial Year preceding the date of calculation; by -13- (ii) the Long-term Debt Service Payments (principal and interest) due for payment of the Financial Year having the highest scheduled total annual Consolidated Long-term Debt principal payments by the Co-Borrowers during the life of the A Loan; "Long-term Debt Service Payments" as of the relevant date for calculation, for the Co-Borrowers, the aggregate of: (i) the amount of the payments of principal of all Long-term Debt (in accordance with the respective terms thereof) during the period for which the calculation is being made (excluding the C Loan bullet principal payment); and (ii) the Interest Expense for such period; "Long-term Debt to Equity Ratio" the result obtained by dividing Long-term Debt by Shareholders' Equity plus Long-term Debt; "Net Fixed Assets" the aggregate amount of assets which at any time would be reflected as Net Fixed Asssets of the Co-Borrowers (taken as a whole) on a Consolidated balance sheet of the Co-Borrowers prepared in accordance with Accounting Principles; "Net Income" as of the relevant date for calculation, the difference between revenues generated through the sale of goods delivered and services rendered, and the costs incurred in the process of production and delivery of those goods and services, during any Financial Year. (At IFC's sole discretion, extraordinary items, like goodwill and others, will be excluded from the above calculation, and reasonable expense provisioning for doubtful collection of receivables and inventory obsolescence will be included in the above calculation.); "Non-Cash Items" for any period, the net aggregate amount (which may be a positive or negative number) of all non-cash expenses and non-cash credits which have been subtracted or, as the case may be, added in calculating net income during that period, including, without limitation, depreciation, amortization, deferred taxes, provisions for severance pay of staff and workers, and credits resulting from revaluation of the assets' book value; -14- "Shareholders' Equity" the aggregate (as of the relevant date of calculation) of: (i) the amount paid up or credited as paid up on the Consolidated share capital of all of the Co-Borrowers; and (ii) the amount standing to the credit of the reserves of all of the Co-Borrowers (including, without limitation, any share premium account, capital redemption reserve funds and any credit balance on the accumulated profit and loss account); after deducting from that aggregate (A) any debit balance on the profit and loss account or impairment of the issued share capital of all of the Co-Borrowers (except to the extent that deduction with respect to that debit balance or impairment has already been made), (B) amounts set aside for dividends or taxation (including deferred taxation), and (C) amounts attributable to capitalized items such as goodwill, trademarks, deferred charges, licenses, patents and other intangible assets; "Short-term Debt" all Consolidated Indebtedness for Borrowed Money (as of the relevant date of calculation) other than Consolidated Long-term Debt; "Total Debt" the aggregate of all obligations (whether actual or contingent, but excluding Back-to-Back Loans) of the Co-Borrowers to pay or repay money (other than that constituting trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices, operating lease obligations and other items commonly considered current payables under Accounting Principles) including, without limitation: (i) all Indebtedness for Borrowed Money; (ii) the aggregate amount then outstanding of all liabilities of any party to the extent any of the Co-Borrowers guarantees them or otherwise directly or indirectly obligates itself to pay them; (iii) all liabilities of the Co-Borrowers (actual or contingent) under any conditional sale or a transfer with recourse or obligation to repurchase, including, without limitation, by way of discount or factoring of book debts or receivables; (iv) all liabilities of the Co-Borrowers (actual or contingent) under their respective Charters, any resolution of their -15- respective shareholders, or any agreement or other document binding on any Co-Borrower to redeem any of its shares; and (v) all Capital Lease Obligations of the Co-Borrowers; and "Total Debt to Equity Ratio" means the result obtained by dividing Total Debt by Shareholders' Equity plus Total Debt. Section 1.03. FINANCIAL CALCULATIONS. (a) All financial calculations to be made under, or for the purposes of, this Agreement and any other Transaction Document shall be determined in accordance with the Accounting Principles and, except as otherwise required to conform to any provision of this Agreement, shall be calculated from the then most recently issued quarterly financial statements which the Co-Borrowers are obligated to furnish to IFC under Section 6.03(a) (REPORTING REQUIREMENTS). (b) Where quarterly financial statements are used for the purpose of making certain financial calculations and those statements are with respect to the last quarter of a Financial Year then, at IFC's option, those calculations may instead be made from the audited financial statements for the relevant Financial Year. (c) If any material adverse change in the financial condition of any of the Co-Borrowers has occurred after the end of the period covered by the financial statements used to make the relevant financial calculations, that material adverse change shall also be taken into account in calculating the relevant figures. (d) If a financial calculation is to be made under or for the purposes of this Agreement or any other Transaction Document on a Consolidated Basis, that calculation shall be made by reference to the sum of all amounts of similar nature reported in the relevant financial statements of each of the entities whose accounts are to be consolidated with the accounts of the Co-Borrowers plus or minus the consolidation adjustments customarily applied to avoid double counting of transactions among any of those entities, including the Co-Borrowers. Section 1.04. INTERPRETATION. In this Agreement, unless the context otherwise requires: (a) headings are for convenience only and do not affect the interpretation of this Agreement; (b) words importing the singular include the plural and vice versa; (c) a reference to an Annex, Article, party, Schedule or Section is a reference to that Article or Section of, or that Annex, party or Schedule to, this Agreement; -16- (d) a reference to a document includes an amendment or supplement to, or replacement or novation of, that document but disregarding any amendment, supplement, replacement or novation made in breach of this Agreement; and (e) a reference to a party to any document includes that party's successors and permitted assigns. Section 1.05. BUSINESS DAY ADJUSTMENT. When the day on or by which a payment is due to be made is not a Business Day, that payment shall be made on or by the next succeeding Business Day unless, in the case of payments of principal or interest, that next succeeding Business Day falls in a different calendar month, in which case that payment shall be made on the immediately preceding Business Day. Interest, fees and charges (if any) shall continue to accrue for the period from the due date that is not a Business Day to that next succeeding Business Day. ARTICLE II THE PROJECT, PROJECT COST AND FINANCIAL PLAN Section 2.01. THE PROJECT. The project to be financed consists of the construction, equipping and placing into operation and the provision of working capital for thirteen (13) deep discount membership-shopping warehouses to be located in Central America and the Caribbean, as further described in the Letter of Information provided by the Co-Borrowers to IFC. Section 2.02. PROJECT COST AND FINANCIAL PLAN.* (a) The total estimated cost of the Project, including an increase of not less than the equivalent of $13,200,000 for working capital, is the equivalent of $127,000,000, as follows:
US$ PROJECT COST MILLIONS % ------------------------------------------------ ----------- ---------- (or equivalent) Land 24.5 19.3 Construction 49.2 38.7 Furniture, fixtures & equipment 29.7 23.3 Pre-opening 10.5 8.3 Working capital 13.2 10.4 ---- ---- TOTAL PROJECT COST 127.0 100.0 ------------------------------------------------ ----------- ----------
-17- (b) The proposed sources of financing for the Project are as follows:
US$ Financial Plan Million % ----------------------------------- ------------- ----------- (or equivalent) LONG TERM LOANS IFC A Loan $22.0 17.2% IFC C Loan 10.0 7.9% OPIC Loan 10.0 7.9% Other Long-term Debt (existing) 21.5 17.0% EQUITY Sponsor's Equity 63.6 50.0% TOTAL FINANCING $127.1 100.0% ----------------------------------- ------------- -----------
ARTICLE III THE A LOAN Section 3.01. A LOAN. Subject to the provisions of this Agreement, IFC agrees to lend, and the Co-Borrowers agree to borrow jointly and severally, the A Loan being twenty-two million Dollars ($22,000,000). Section 3.02. DISBURSEMENT PROCEDURE. (a) The Co-Borrowers may request Disbursements by delivering to IFC, at least ten (10) Business Days prior to the proposed date of Disbursement, a Disbursement request substantially in the form of Schedule 2 and a receipt substantially in the form of Schedule 3. (b) Each Disbursement shall be made by IFC at a bank in New York, New York for further credit to the Co-Borrowers' respective accounts at a bank in the respective Countries, or any other place acceptable to IFC, all as specified by the Co-Borrowers in the relevant Disbursement request; provided, however, that the first disbursement shall be made, in whole or -18- in part, by IFC to the credit of the Co-Borrowers' existing creditors, as the Co-Borrowers shall specify on the Disbursement request. (c) Each Disbursement (other than the last one) shall be made in an amount of not less than three million Dollars ($3,000,000). (d) Notwithstanding any provision in this Agreement, each of PSMT Caribe and PSMT Trinidad irrevocably appoints and designates PriceSmart as its agent for the purpose of receiving any notice or request and further authorizes PriceSmart to make the request provided in Section 3.02(b) or any other request permitted to be made by the Co-Borrowers under this Agreement, to receive all disbursements to be made hereunder, to sign the receipts provided for in Section 3.02(b), and to take any other action required or permitted to be taken on its behalf under this Agreement. Section 3.03. INTEREST. Subject to the provisions of Section 3.05 (DEFAULT RATE INTEREST), the Co-Borrowers shall pay interest on the A Loan in accordance with this Section 3.03: (a) During each Interest Period, the A Loan (or, with respect to the first Interest Period for each Disbursement, the amount of that Disbursement) shall bear interest at the applicable Interest Rate for that Interest Period. (b) Interest on the A Loan shall accrue from day to day, be prorated on the basis of a 360-day year for the actual number of days in the relevant Interest Period and be payable in arrears on the Interest Payment Date immediately following the end of that Interest Period; provided that with respect to any Disbursement made less than fifteen (15) days before an Interest Payment Date, interest on that Disbursement shall be payable commencing on the second Interest Payment Date following the date of that Disbursement. (c) The Interest Rate for any Interest Period shall be the rate which is the sum of: (i) the Spread; and (ii) LIBOR on the Interest Determination Date for that Interest Period for six (6) months (or, in the case of the first Interest Period for any Disbursement, for one (1) month, two (2) months, three (3) months or six (6) months, whichever period is closest to the duration of the relevant Interest Period (or, if two periods are equally close, the longer one)) rounded upward to the nearest three decimal places. (d) If, for any Interest Period IFC cannot determine LIBOR by reference to the Telerate Service or any other service that displays BBA rates, IFC shall notify the Co-Borrowers and shall instead determine LIBOR: -19- (i) on the second Business Day before the beginning of the relevant Interest Period by calculating the artimetic mean (rounded upward to the nearest three decimal places) of the offered rates advised to IFC on or around 11:00 a.m., London time, for deposits in Dollars and otherwise in accordance with Section 3.03(c)(ii), by any four (4) major banks active in Dollars in the London interbank market, selected by IFC; provided that if less than four quotations are received, IFC may rely on the quotations so received if not less than two (2); or (ii) if less than two (2) quotations are received from the banks in London in accordance with subsection (i) above, on the first day of the relevant Interest Period, by calculating the arithmetic mean (rounded upward to the nearest three decimal places) of the offered rates advised to IFC on or around 11:00 a.m. New York time, for loans in Dollars and otherwise in accordance with Section 3.03(c)(ii), by a major bank or banks in New York, New York, selected by IFC. (e) On each Interest Determination Date for any Interest Period, IFC shall determine the Interest Rate applicable to that Interest Period and promptly notify the Co-Borrowers of that rate. (f) The determination by IFC, from time to time, of the Interest Rate shall be final and conclusive and bind the Co-Borrowers (unless the Co-Borrowers show to IFC's satisfaction that the determination involves manifest error). Section 3.04. DEFAULT RATE INTEREST. (a) Without limiting the remedies available to IFC under this Agreement or otherwise (and to the maximum extent permitted by applicable law), if the Co-Borrowers fail to make any payment of principal or interest (including interest payable pursuant to this Section) or any other payment provided for in Section 3.07 (FEES) when due as specified in this Agreement (whether at stated maturity or upon acceleration), the Co-Borrowers shall pay interest on the amount of that payment due and unpaid at the rate which shall be the sum of two per cent (2%) per annum and the Interest Rate in effect from time to time; (b) Interest at the rate referred to in Section 3.04(a) shall accrue from the date on which payment of the relevant overdue amount became due until the date of actual payment of that amount (as well after as before judgment), and shall be payable on demand or, if not demanded, on each Interest Payment Date falling after any such overdue amount became due. -20- Section 3.05. REPAYMENT. (a) The Co-Borrowers shall repay the A Loan on the following dates and in the following amounts:
DATE PAYMENT DUE PRINCIPAL AMOUNT DUE March 15, 2003 $ 1,375,000 September 15, 2003 1,375,000 March 15, 2004 1,375,000 September 15, 2004 1,375,000 March 15, 2005 1,375,000 September 15, 2005 1,375,000 March 15, 2006 1,375,000 September 15, 2006 1,375,000 March 15, 2007 1,375,000 September 15, 2007 1,375,000 March 15, 2008 1,375,000 September 15, 2008 1,375,000 March 15, 2009 1,375,000 September 15, 2009 1,375,000 March 15, 2010 1,375,000 September 15, 2010 1,375,000 ----------- $22,000,000 ===========
(b) The dates for repayment of principal of the A Loan are intended to coincide with the Interest Payment Dates. (c) Upon each Disbursement, the amount disbursed shall be allocated for repayment on each of the respective dates for repayment of principal set out in the table in Section 3.05(a) in amounts which are PRO RATA to the amounts of the respective installments shown opposite those dates in that table (with IFC adjusting those allocations as necessary so as to achieve whole numbers in each case). Section 3.06. PREPAYMENT. Subject to Section 6.04(c), (a) the Co-Borrowers may prepay on any Interest Payment Date all or any part of the A Loan, on not less than forty-five (45) days' prior notice to IFC, but only if: (i) the Co-Borrowers simultaneously pay all accrued interest and Increased Costs (if any) on the amount of the A Loan to be prepaid, together with the prepayment premium specified in Section 3.06(b) and all other amounts then due and payable under this Agreement, including the amount payable under Section 3.11 (UNWINDING COSTS), if the prepayment is not made on an Interest Payment Date; -21- (ii) the Co-Borrowers simultaneously prepay a PRO RATA portion of the OPIC Loan; (iii) for a partial prepayment, that prepayment is in an amount not less than three million Dollars ($3,000,000); and (iv) if requested by IFC, the Co-Borrowers deliver to IFC, prior to the date of prepayment, evidence satisfactory to IFC that all necessary Authorizations with respect to the prepayment have been obtained. (b) On the date of any prepayment of the A Loan in accordance with Section 3.06 (a), the Co-Borrowers shall pay a prepayment premium consisting of an amount in Dollars equal to: at the Co-Borrowers' option, either: (i) one and one-half per cent (1 1/2%) of the prepaid amount times the number of years from the prepayment date to the scheduled final maturity date of the A Loan; or (ii) IFC's redeployment cost pursuant to Section 3.11. The determination by IFC of the prepayment premium shall be final and conclusive and bind the Co-Borrowers (unless the Co-Borrowers show, to the satisfaction of IFC, that such determination involved manifest error). (c) Amounts of principal prepaid under this Section shall be applied by IFC to all the respective outstanding installments of principal of the A Loan on a PRO-RATA basis. (d) Upon delivery of a notice in accordance with Section 3.06(a), the Co-Borrowers shall make the prepayment in accordance with the terms of that notice. (e) Any principal amount of the A Loan prepaid under this Agreement may not be re-borrowed. Section 3.07. FEES. (a) The Co-Borrowers shall pay to IFC a commitment fee at the rate of one-half of one per cent (1/2%) per annum on that part of the A Loan which from time to time has not been disbursed or cancelled. The commitment fee shall: (i) begin to accrue on the date of this Agreement; (ii) be PRO RATED on the basis of a 360-day year for the actual number of days elapsed; and (iii) be payable semi-annually, in arrears, on the Interest Payment Dates in each year, the first such payment to be due on March 15, 2001. (b) The Co-Borrowers shall also pay to IFC a front-end fee of two hundred twenty thousand Dollars ($220,000), to be paid upon the earlier of (x) the date which is thirty (30) days after the date of this Agreement and (y) the date immediately preceding the date of the first Disbursement. -22- Section 3.08. CURRENCY AND PLACE OF PAYMENTS. (a) The Co-Borrowers shall make all payments of principal, interest, fees, and any other amount due to IFC under this Agreement in Dollars, in same day funds, to Citibank, N.A., 111 Wall Street, New York, New York, U.S.A., ABA#021000089, for credit to IFC's account number 36085579, or at such other bank or account in New York as IFC from time to time designates. Payments must be received in IFC's designated account no later than 1:00 p.m. New York time. (b) The tender or payment of any amount payable under this Agreement (whether or not by recovery under a judgment) in any currency other than Dollars shall not novate, discharge or satisfy the obligation of the Co-Borrowers to pay in Dollars all amounts payable under this Agreement except to the extent that (and as of the date when) IFC actually receives funds in Dollars in the account specified in, or pursuant to, Section 3.08(a). (c) The Co-Borrowers shall indemnify IFC against any losses resulting from a payment being received or an order or judgment being given under this Agreement in any currency other than Dollars or any place other than the account specified in, or pursuant to, Section 3.08(a). The Co-Borrowers shall, as a separate obligation, pay such additional amount as is necessary to enable IFC to receive, after conversion to Dollars at a market rate and transfer to that account, the full amount due to IFC under this Agreement in Dollars and in the account specified in, or pursuant to, Section 3.08(a). (d) Notwithstanding the provisions of Section 3.08(a) and Section 3.08(b), IFC may require the Co-Borrowers to pay (or reimburse IFC) for any Taxes, fees, costs, expenses and other amounts payable under Section 3.14(a) (TAXES) and Section 3.15 (EXPENSES) in the currency in which they are payable, if other than Dollars. Section 3.09. ALLOCATION OF PARTIAL PAYMENTS. If at any time IFC receives less than the full amount then due and payable to it under this Agreement, IFC may allocate and apply the amount received in any way or manner and for such purpose or purposes under this Agreement as IFC in its sole discretion determines, notwithstanding any instruction that the Co-Borrowers may give to the contrary. Section 3.10. INCREASED COSTS. On each Interest Payment Date, the Co-Borrowers shall pay, in addition to interest, the amount which IFC from time to time notifies the Co-Borrowers in an Increased Costs Certificate as being the aggregate Increased Costs of IFC accrued and unpaid prior to that Interest Payment Date. Section 3.11. UNWINDING COSTS. (a) If IFC incurs any cost, expense or loss as a result of the Co-Borrowers: (i) failing to borrow in accordance with a request for Disbursement made pursuant to Section 3.02 (DISBURSEMENT PROCEDURE), or to prepay in accordance with a notice of prepayment; or -23- (ii) prepaying all or any portion of the A Loan on a date other than an Interest Payment Date; then the Co-Borrowers shall immediately pay to IFC the amount which IFC from time to time notifies to the Co-Borrowers as being the amount of those costs, expenses and losses incurred. (b) For the purposes of this Section, "costs, expenses or losses" include any premium, penalty or expense incurred to liquidate or obtain third party deposits or borrowings in order to make, maintain or fund all or any part of the A Loan. Section 3.12. SUSPENSION OR CANCELLATION BY IFC. (a) IFC may, by notice to the Co-Borrowers, suspend the right of the Co-Borrowers to Disbursements or cancel the undisbursed portion of the A Loan in whole or in part: (i) if the first Disbursement has not been made by July 25, 2001, or such other date as the parties agree; (ii) if any Event of Default has occurred and is continuing or if the Event of Default specified in Section 7.02(f) (EVENTS OF DEFAULT) is, in the reasonable opinion of IFC, imminent; (iii) if any event or condition has occurred which has or can reasonably be expected to have a Material Adverse Effect; or (v) on or after January 26, 2003. (b) Upon the giving of any such notice, the right of the Co-Borrowers to any further Disbursement shall be suspended or cancelled, as the case may be. The exercise by IFC of its right of suspension shall not preclude IFC from exercising its right of cancellation, either for the same or any other reason specified in Section 3.12(a). Upon any cancellation the Co-Borrowers shall, subject to paragraph (d) of this Section 3.12, pay to IFC all fees and other amounts accrued (whether or not then due and payable) under this Agreement up to the date of that cancellation. A suspension shall not limit any other provision of this Agreement. (c) Any portion of the A Loan that is cancelled under this Section 3.12 may not be reborrowed. (d) In the case of a partial cancellation of the A Loan pursuant to paragraph (a) of this Section 3.12, or Section 3.13(a) below, interest on the amount then outstanding of the A Loan remains payable as provided in Section 3.03 (INTEREST). Section 3.13. CANCELLATION BY THE CO-BORROWERS. (a) The Co-Borrowers may, by notice to IFC, irrevocably request IFC to cancel the undisbursed portion of the A Loan on the date specified in that notice (which shall be a date not earlier than thirty (30) days after the date of that notice). -24- (b) IFC shall, by notice to the Co-Borrowers, cancel the undisbursed portion of the A Loan effective as of that specified date if, subject to Section 3.12(d) above: (i) IFC has received all fees and other amounts accrued (whether or not then due and payable) under this Agreement up to such specified date; and (ii) if any amount of the A Loan is then outstanding, IFC is reasonably satisfied that the Co-Borrowers have sufficient long-term funding available, on terms satisfactory to IFC, to cause the Project Financial Completion Date to occur as scheduled. (c) Any portion of the A Loan that is cancelled under this Section 3.13 may not be reborrowed. Section 3.14. TAXES. (a) The Co-Borrowers shall pay or cause to be paid all Taxes other than taxes, if any, payable on the overall income of IFC on or in connection with the payment of any and all amounts due under this Agreement that are now or in the future levied or imposed by any Authority of the Country or by any organization of which the Country is a member or any jurisdiction through or out of which a payment is made. (b) All payments of principal, interest, fees and other amounts due under this Agreement shall be made without deduction for or on account of any Taxes. (c) If the Co-Borrowers are prevented by operation of law or otherwise from making or causing to be made those payments without deduction, the principal or (as the case may be) interest, fees or other amounts due under this Agreement shall be increased to such amount as may be necessary so that IFC receives the full amount it would have received (taking into account any Taxes payable on amounts payable by the Co-Borrowers under this subsection) had those payments been made without that deduction. (d) If Section 3.14 (c) applies and IFC so requests, the Co-Borrowers shall deliver to IFC official tax receipts evidencing payment (or certified copies of them) within thirty (30) days of the date of that request. Section 3.15. EXPENSES. (a) The Co-Borrowers shall pay or, as the case may be, reimburse IFC or its assignees any amount paid by them on account of, all taxes (including stamp taxes), duties, fees or other charges payable on or in connection with the execution, issue, delivery, registration or notarization of the Transaction Documents and any other documents related to this Agreement or any other Transaction Document. (b) The Co-Borrowers shall pay to IFC or as IFC may direct: (i) the reasonable fees and expenses of IFC's technical consultants incurred in connection with the investment by IFC provided for under this Agreement; -25- (ii) the fees and expenses of IFC's counsel in each of the Countries incurred in connection with: (A) the preparation of the investment by IFC provided for under this Agreement and any other Transaction Document; (B) the preparation and/or review, execution and, where appropriate, translation and registration of the Transaction Documents and any other documents related to them; (C) the giving of any legal opinions required by IFC under this Agreement and any other Transaction Document; (D) the administration by IFC of the investment provided for in this Agreement or otherwise in connection with any amendment, supplement or modification to, or waiver under, any of the Transaction Documents; (E) the registration (where appropriate) and the delivery of the evidences of indebtedness relating to the A Loan and its disbursement; and (F) the occurrence of any Event of Default or Potential Event of Default; (iii) in each calendar year thereafter upon receipt of a statement from IFC, the amount of twenty-five thousand Dollars ($25,000) on account of IFC's expenses in carrying out its annual supervision review of the Co-Borrowers and the Project; and (iv) the costs and expenses incurred by IFC in relation to efforts to enforce or protect its rights under any Transaction Document, or the exercise of its rights or powers consequent upon or arising out of the occurrence of any Event of Default or Potential Event of Default, including legal and other professional consultants' fees on a full indemnity basis. -26- ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.01. REPRESENTATIONS AND WARRANTIES. Each Co-Borrower represents and warrants that: (a) it is a company duly incorporated and validly existing under the laws of its Country and has the corporate power - and has obtained all required Authorizations - to own its assets, conduct its business as presently conducted and to enter into, and comply with its obligations under, the Transaction Documents to which it is a party or will, in the case of any Transaction Document not executed as at the date of this Agreement, when that Transaction Document is executed, have the corporate power to enter into, and comply with its obligations under, that Transaction Document; (b) each Transaction Document to which it is a party has been, or will be, duly authorized and executed by it and constitutes, or will, when executed constitute, a valid and legally binding obligation of such Co-Borrower, enforceable in accordance with its terms; (c) neither the making of any Transaction Document to which it is a party nor (when all the Authorizations referred to in Section 5.01(e) (CONDITIONS OF Disbursement) have been obtained) the compliance with its terms will conflict with or result in a breach of any of the terms, conditions or provisions of, or constitute a default or require any consent under, any indenture, mortgage, material agreement or other material instrument or arrangement to which it is a party or by which it is bound, or violate any of the terms or provisions of its Charter or any Authorization, judgment, decree or order or any statute, rule or regulation applicable to such Co-Borrower; (d) to the best of its knowledge after due inquiry: (i) the Authorizations specified in Annex A are all the Authorizations (other than Authorizations that are of a routine nature and are obtained in the ordinary course of business) needed by such Co-Borrower to conduct its business, carry out the Project and execute, and comply with its obligations under, this Agreement and each of the other Transaction Documents to which it is a party; (ii) all Authorizations specified in Section (1) of Annex A have been obtained and are in full force and effect; and (iii) the Co-Borrowers have applied (or are making arrangements to apply) for all Authorizations specified in Section (2) of Annex A, and have no reason to believe that they will not obtain those Authorizations in a timely manner; -27- (e) none of the Co-Borrowers' Charters have been amended since August 29, 1997 with respect to PriceSmart, October 21, 1999 with respect to PSMT Trinidad, and October 22, 1998 with respect to PSMT Caribe; (f) none of the Co-Borrowers nor any of their properties enjoys any right of immunity from set-off, suit or execution with respect to its assets or its obligations under any Transaction Document; (g) Since June 30, 2000, none of the Co-Borrowers: (i) has suffered any change that has a Material Adverse Effect or incurred any substantial loss or liability; (ii) has undertaken or agreed to undertake any substantial obligation outside of the ordinary course of business; (h) the Consolidated financial statements of the Co-Borrowers for the period ending on June 30, 2000: (i) have been prepared in accordance with the Accounting Principles, and present fairly the financial condition of the Co-Borrowers as of the date as of which they were prepared and the results of the Co-Borrowers' operations during the period then ended; (ii) disclose all liabilities (contingent or otherwise) of the Co-Borrowers required by US-GAAP, and the reserves, if any, for such liabilities and all unrealized or anticipated liabilities and losses arising from commitments entered into by the Co-Borrowers required by US-GAAP (whether or not such commitments have been disclosed in such financial statements); (i) none of the Co-Borrowers is a party to, or committed to enter into, any contract which would or might reasonably affect the judgment of a prospective Long-term Debt investor; (j) none of the Co-Borrowers has an outstanding Lien on any of its assets other than Liens arising by operation of law, and no contracts or arrangements, conditional or unconditional, exist for the creation by any of the Co-Borrowers of any Lien, except for the IFC Security and the liens set forth in Annex D; (k) all tax returns and reports of the Co-Borrowers required by law to be filed have been duly filed and all Taxes, obligations, fees and other governmental charges upon the Co-Borrowers, or their respective properties, or their respective income or assets, which are due and payable or to be withheld, have been paid or withheld, other than those presently payable without penalty or interest; -28- (l) none of the Co-Borrowers is engaged in or, to the best of their knowledge after due inquiry, threatened by, any litigation, arbitration or administrative proceedings, the outcome of which could reasonably be expected to have a Material Adverse Effect; (m) to the best of their knowledge and belief after due inquiry, none of the Co-Borrowers is in violation of any material statute or regulation of any Authority; (n) no judgment or order has been issued which has or may reasonably be expected to have a Material Adverse Effect; (o) to the best of its knowledge and belief, after due inquiry, the Co-Borrowers are not in violation of any of the Environmental, Health and Safety Guidelines or of the Environmental and Social Policies; (p) none of the Co-Borrowers has received nor is aware of any complaint, order, directive, claim, citation or notice from any Authority with respect to any matter of any Co-Borrower's compliance with the relevant environmental, health and safety laws and regulations in effect in any Country such as, without limitation, air emissions, discharges to surface water or ground water, noise emissions, solid or liquid waste disposal, or the use, generation, storage, transportation or disposal of toxic or hazardous substances or wastes; (q) none of the Co-Borrowers, nor any of their Affiliates, nor any Person acting on its or their behalf, has made, with respect to the Project or any transaction contemplated by this Agreement, any Prohibited Payment; and (r) none of the representations and warranties in this Section 4.01 omits any matter the omission of which makes any of such representations and warranties misleading in any material respect. Section 4.02. IFC RELIANCE. Each of the Co-Borrowers acknowledges that it makes the representations and warranties in Section 4.01 (REPRESENTATIONS AND WARRANTIES) with the intention of inducing IFC to enter into this Agreement and that IFC enters into this Agreement on the basis of, and in full reliance on, each of such representations and warranties. -29- ARTICLE V CONDITIONS OF DISBURSEMENT Section 5.01. CONDITIONS OF FIRST DISBURSEMENT. The obligation of IFC to make the first Disbursement is subject to the fulfillment prior to or concurrently with the making of that first Disbursement of the following conditions: (a) the following agreements, each in form and substance satisfactory to IFC, have been entered into by all parties to them and have become (or, as the case may be, remain) unconditional and fully effective in accordance with their respective terms (except for this Agreement having become unconditional and fully effective, if that is a condition of any of those agreements), and IFC has received a copy of each of those agreements to which it is not a party: (i) each Transaction Document; and (ii) the OPIC Loan Agreement; (b) the Co-Borrowers have certified to IFC that no amendment has been made to their respective Charters since August 29, 1997 with respect to PriceSmart, October 21, 1999 with respect to PSMT Trinidad, and October 22, 1998 with respect to PSMT Caribe, or if any such amendment was made, IFC has received a copy of each such Co-Borrower's amended Charter and determined, in its reasonable judgment, that it is not inconsistent with the provisions of any Transaction Document and does not have or may not reasonably be expected to have a Material Adverse Effect; (c) the IFC Security has been duly created and perfected/registered as first ranking security interests in all assets and rights subject to the Security Documents; (d) the Co-Borrowers have obtained, and provided to IFC copies of, all Authorizations listed in Section (1) and Section (2) of Annex A, and such other Authorizations not listed in those Sections that may become necessary for: (i) the Loans and the OPIC Loan; (ii) the business of each of the Co-Borrowers as it is contemplated to be carried on; (iii) the Project and the implementation of the Financial Plan; (iv) the due execution, delivery, validity and enforceability of, and performance by the Co-Borrowers of their respective obligations under, this Agreement and the other Transaction Documents, and any other -30- documents necessary or desirable to the implementation of any of those agreements or documents; and (v) the remittance to IFC or its assigns in Dollars of all monies payable with respect to the Transaction Documents; and all those Authorizations are in full force and effect; (e) IFC has received a legal opinion to the effect set out in Schedule 5(A), from IFC's counsel in each of the Countries and concurred in by counsel for the Co-Borrowers, and covering such other matters relating to the transactions contemplated by this Agreement as IFC may reasonably request; (f) IFC has received a legal opinion to the effect set out in Schedules 5(B-1), 5(B-2) and 5(B-3) from IFC's counsel in each of the Honduras, Guatemala, Aruba, the Philippines, El Salvador, Costa Rica, Panama, and Dominican Republic, and covering such other matters relating to the Share Retention Agreement and the PSMT Caribe Pledge Agreements, as IFC may reasonably request; (g) IFC has received a legal opinion to the effect set out in Schedule 5(C), from its special counsel in New York with regard to the law aspects of the Escrow Account Agreement; (h) IFC has received a legal opinion to the effect set out in Schedule 5(D), from PriceSmart's counsel in New York with regard to the law aspects of this Agreement and the other Transaction Documents; (i) IFC has received a certification from the Auditors confirming that, as at a date not earlier than sixty (60) days prior to the date of first Disbursement, the Co-Borrowers are in compliance with the provisions of Section 6.01(c) (AFFIRMATIVE COVENANTS) and containing a brief description of the systems and records in place; (j) IFC has received copies of all insurance policies required to be obtained pursuant to Section 6.04 (INSURANCE) and Annex B prior to the date of first Disbursement, and a certification of the Co-Borrowers' insurers or insurance agents confirming that such policies are in full force and effect and all premiums then due and payable under those policies have been paid; (k) IFC has received the fees specified in Section 3.07 (FEES) required to be paid before the date of the first Disbursement; (l) if IFC so requires, IFC has received the reimbursement of all invoiced fees and expenses of IFC's counsel as provided in Section 3.15(b)(ii) (EXPENSES) or confirmation that those fees and expenses have been paid directly to that counsel; -31- (m) IFC has received a copy of the authorization to the Auditors referred to in Section 6.01(e) (AFFIRMATIVE COVENANTS); (n) IFC has received a Certificate of Incumbency and Authority from PriceSmart; (o) the Co-Borrowers have delivered to IFC evidence, substantially in the form of Schedule 4, of appointment of an agent for service of process pursuant to Section 8.05(d) (APPLICABLE LAW AND JURISDICTION); (p) the C Loan has been fully disbursed; (q) the OPIC Loan shall have been disbursed pro rata with the A Loan; and (r) IFC shall have received a pay-off letter, in form and substance acceptable to IFC, from each creditor of the Co-Borrowers as reasonably agreed between the Co-Borrowers and IFC at the time of the first Disbursement. Section 5.02. CONDITIONS OF ALL DISBURSEMENTS. The obligation of IFC to make any Disbursement, including the first Disbursement, is also subject to the conditions that: (a) no Event of Default and no Potential Event of Default has occurred and is continuing; (b) the proceeds of that Disbursement are, at the date of the relevant request, needed by the Co-Borrowers for the purpose of the Project, or will be needed for that purpose within three (3) months of that date; (c) since the date of this Agreement nothing has occurred which has or can reasonably be expected to have a Material Adverse Effect; (d) since the date of this Agreement, the Co-Borrowers (taken as a whole) have not incurred any material loss or liability (except such liabilities as may be incurred in accordance with Section 6.02 (NEGATIVE COVENANTS )); (e) the representations and warranties made in Article IV are true and correct in all material respects on and as of the date of that Disbursement with the same effect as if those representations and warranties had been made on and as of the date of that Disbursement (but in the case of Section 4.01(c) (REPRESENTATIONS AND WARRANTIES), without the words in parentheses); (f) the proceeds of that Disbursement are not in reimbursement of, or to be used for, expenditures in the territories of any country which is not a member of the World Bank or for goods produced in or services supplied from any such country; -32- (g) IFC has received (if it so requires) a legal opinion or opinions in form and substance satisfactory to IFC, of IFC's counsel in the relevant Countries, and concurred in by counsel for the Co-Borrowers, with respect to any matters relating to that Disbursement; (h) after giving effect to that Disbursement, none of the Co-Borrowers would be in violation of: (i) its Charter; (ii) any provision contained in any document to which such Co-Borrower is a party (including this Agreement) or by which such Co-Borrower is bound; or (iii) any law, rule, regulation, Authorization or agreement or other document binding on such Co-Borrower directly or indirectly limiting or otherwise restricting its borrowing power or authority or its ability to borrow; (i) (without limiting the generality of Section 5.02(h)), after taking into account the amount of that Disbursement and any other Long-term Debt incurred by the Co-Borrowers and of any amounts of Shareholders' Equity paid into the Co-Borrowers after the date of the latest financial statements of the Co-Borrowers due pursuant to Section 6.03(a) (REPORTING REQUIREMENTS), (A) the Consolidated Current Ratio would not be less than 1.2, (B) the Consolidated Total Debt to Equity Ratio would not exceed 45:55, and (C) the Consolidated Long-term Debt Service Coverage Ratio would not be less than 1.3, provided that, with respect to any Disbursement requested to be made prior to the date of the first financial statements due pursuant to Section 6.03(a) (REPORTING REQUIREMENTS), the calculation of the Consolidated Current Ratio, Consolidated Total Debt to Equity Ratio and the Consolidated Long-term Debt Service Coverage Ratio shall be made on the basis of such information as IFC may reasonably request, verified, if IFC so requires, by the Auditors; and (k) the Co-Borrowers shall have deposited an amount equal to two hundred thirty-four thousand three hundred seventy-five Dollars ($234,375) into the Escrow Account for each one million Dollars ($1,000,000) disbursed. Section 5.03. CO-BORROWERS' CERTIFICATIONS. The Co-Borrowers shall deliver to IFC with respect to each request for Disbursement: (a) a certification, in the form included in Schedule 2, relating to the conditions specified in Section 5.02 (CONDITIONS OF ALL DISBURSEMENTS) (other than the condition in Section 5.02(g)) expressed to be effective as of the date of that relevant Disbursement, and in the case of Section 5.02(d), also certified by the Auditors if IFC so requires; and (b) such evidence as IFC may reasonably request of the proposed utilization of the proceeds of that Disbursement or the utilization of the proceeds of any prior Disbursement. -33- Section 5.04. CONDITIONS FOR IFC BENEFIT. The conditions in Section 5.01 through Section 5.03 are for the benefit of IFC and may be waived only by IFC in its sole discretion. ARTICLE VI PARTICULAR COVENANTS Section 6.01. AFFIRMATIVE COVENANTS. Unless IFC otherwise agrees, the Co-Borrowers shall: (a) carry out the Project and conduct its business with due diligence and efficiency and in accordance with sound engineering, financial and business practices; (b) cause the financing specified in the Financial Plan to be applied exclusively to the Project; (c) maintain an accounting and control system, management information system and books of account and other records, which together adequately reflect truly and fairly the financial condition of the Co-Borrowers and the results of their operations in conformity with the Accounting Principles; (d) appoint and maintain at all times a firm of independent public accountants acceptable to IFC as auditors of the Co-Borrowers; (e) irrevocably authorize, in the form of Schedule 6, the Auditors (whose fees and expenses shall be for the account of the Co-Borrowers) to communicate directly with IFC at any time regarding the Co-Borrowers' accounts and operations, and provide to IFC a copy of that authorization, and, no later than thirty (30) days after any change in Auditors, issue a similar authorization to the new Auditors and provide a copy thereof to IFC; (f) upon IFC's request, such request to be made with reasonable prior notice to the Co-Borrowers, except if an Event of Default or Potential Event of Default is continuing or if special circumstances so require, permit representatives of IFC, during normal office hours, to: (i) visit the Project site and any of the premises where the business of the Co-Borrowers is conducted; (ii) inspect all facilities, plant and equipment comprised in the Project; (iii) have access to the Co-Borrowers' books of account and records; and -34- (iv) have access to those employees and agents of each of the Co-Borrowers who have or may have knowledge of matters with respect to which IFC seeks information; (g) design, construct, operate, maintain and monitor all of its sites, plant, equipment and facilities: (i) in accordance with the Environmental and Social Policies, the Environmental, Health and Safety Guidelines and the Life and Fire Safety Guidelines; and (ii) in compliance with applicable environmental, occupational health and safety requirements, and any child labor and forced labor laws, rules and regulations (including any international treaty obligations, if any) of the Government of the Country and the local authorities; (h) no later than thirty (30) days after the date of this Agreement but in any event prior to the date of the C Loan disbursement: (i) provide IFC with all information necessary to enable IFC to update the document dated August 21, 2000 (Project ID No. 10296) entitled Environmental Review Summary ("ERS") by incorporating any modification or addition to that document relating to the Project; and (ii) display the updated ERS in appropriate public places in the Country acceptable to IFC for public access; and IFC shall be entitled to place a copy of that updated ERS in the World Bank public information center known as InfoShop for public access; (i) obtain and maintain in force (and where appropriate, renew in a timely manner) all Authorizations, including without limitation the Authorizations specified in Annex A, which are necessary for the implementation of the Project, the carrying out of the Co-Borrowers' businesses and operations generally and the compliance by each of the Co-Borrowers with all its obligations under the Transaction Documents and comply with all the conditions and restrictions contained in, or imposed on the Co-Borrowers by, those Authorizations; (j) from time to time, execute, acknowledge and deliver or cause to be executed, acknowledged and delivered such further instruments as may reasonably be requested by IFC for perfecting or maintaining in full force and effect the IFC Security or for re-registering the IFC Security or otherwise to enable each of the Co-Borrowers to comply with its obligations under the Transaction Documents; and -35- (k) install, to IFC's satisfaction, a wastewater treatment facility prior to the opening of any new store in an area where local/municipal facilities are not available or if required to do so by the government of the relevant Country. Section 6.02. NEGATIVE COVENANTS . Unless IFC otherwise agrees, none of the Co-Borrowers shall: (a) declare or pay any dividend or make any distribution on its share capital (other than dividends or distributions payable in shares of the Co-Borrowers or dividends or distributions payable to the minority shareholders of PSMT Trinidad), or purchase, redeem or otherwise acquire any shares of any of the Co-Borrowers other than PriceSmart or any option over them unless the proposed payment or distribution is out of retained earnings and the Co-Borrowers, no earlier than sixty (60) days nor later than thirty (30) days prior to doing so, certify to IFC in writing, in the form attached as Schedule 7, that: (i) no Event of Default or Potential Event of Default has occurred and is continuing; and (ii) after giving effect to any such action: (A) the Consolidated Current Ratio will not be less than 1.2; (B) the Consolidated Total Debt to Equity Ratio will not be in excess of 50:50; and (C) the Consolidated Long-term Debt Service Coverage Ratio will not be less than 1.3; provided always that: (A) the retained earnings out of which any of the payments or distributions referred to in this subsection may be made should in no event include any amount resulting from the revaluation of any of the Co-Borrowers' assets; (B) the Co-Borrowers shall not make any payments or distributions of the type referred to in this subsection if, after giving effect to it, the Co-Borrowers could not certify the matters referred to in Section 6.02(a)(i) and (ii); and (C) notwithstanding any limitation set forth in this Section 6.02(a) or elsewhere in the Transaction Documents, the Co-Borrowers shall at all times be permitted to purchase, redeem or otherwise acquire shares of any of their Subsidiaries engaged in the same line of business as the Co-Borrowers (including other Co-Borrowers) so -36- long as such activity is in furtherance of the Co-Borrowers' consolidation of such Subsidiaries; (b) incur expenditures or commitments for expenditures for fixed or other non-current assets, other than those required for carrying out the Project or necessary for repairs, replacements and maintenance of satisfactory operating conditions that are essential to the Co-Borrowers' businesses or operations, unless, after giving effect to such expenditures or commitments for expenditures, the Co-Borrowers will be in compliance with the ratios set forth in Section 6.02(a) above in the preceding Financial Year; (c) incur, assume or permit to exist any Total Debt except: (i) the Loans; (ii) other Total Debt specified in the Financial Plan; (iii) additional Long-term Debt which would not result in the Consolidated Long-term Debt to Equity Ratio exceeding 50:50 and the Consolidated Long-term Debt Service Coverage Ratio exceeding 1.3; (iv) Short-term Debt incurred in the ordinary course of business which, when aggregated with contingent liabilities arising from the discounting of trade receivables, would not result at the time it is incurred in the Consolidated Current Ratio falling below 1.2; (v) additional Total Debt among any of the Co-Borrowers, but only if and to the extent that such Total Debt is subordinated in full, in payment and liquidation, to the A Loan and the C Loan; and (vi) Long-term Debt or Short-term Debt obtained to replace any existing Long-term Debt or, as the case may be, any Short-term Debt component of then outstanding Total Debt, but then only to the extent that such new Total Debt is on terms and conditions (as to interest rate, other costs and tenor) at least as favorable to the Co-Borrowers as those of the Total Debt being replaced; (d) enter into any Capital Lease Obligations, except Capital Lease Obligations with respect to which the aggregate capital lease payments of all the Co-Borrowers do not exceed the equivalent of two million Dollars ($2,000,000) in any Financial Year ("Permitted Lease Amount") and only to the extent that, when such Permitted Lease Amount is treated as Long-term Debt, the Co-Borrowers' Consolidated Long-term Debt to Equity Ratio would not be in excess of 50:50 and the Consolidated Long-term Debt Service Coverage Ratio would not be less than 1.3; -37- (e) enter into any Derivative Transactions or assume the obligations of any party to any Derivative Transaction; provided, however, that the foregoing shall not apply to the following types of Derivative Transactions entered into by the Co-Borrowers so long as the currency and the amounts associated with such Derivative Transactions reasonably reflect the risk and/or exposure such Derivative Transactions are designed to hedge: (i) forward foreign exchange contracts (including non-deliverable forward foreign exchange contracts); (ii) currency swaps; and (iii) interest-rate swaps; (f) enter into any agreement or arrangement to guarantee or, in any way or under any condition, assume or become obligated for all or any part of any financial or other obligation of another Person, except guarantees by PriceSmart in the ordinary course of business in favor of its Subsidiaries so long as after any such guarantee the Co-Borrowers will be in compliance with the financial ratios set forth in Section 6.02(a); (g) create or permit to exist any Lien on any property, revenues or other assets, present or future, of the Co-Borrowers, except for: (i) the IFC Security; (ii) any Liens securing other senior lenders under the Financial Plan; (iii) the naming of IFC as loss payee/beneficiary under all of the Co-Borrowers' insurance policies; (iv) any Lien arising from any tax, assessment or other governmental charge or other Lien arising by operation of law, in each case if the obligation underlying any such Lien is not yet due or, if due, is being contested in good faith by appropriate proceedings so long as: (A) those proceedings do not involve any substantial danger of the sale, forfeiture or loss of any part of the Project, title thereto or any interest therein, nor interfere in any material respect with the use or disposition thereof or the implementation of the Project or the carrying on of the businesses of the Co-Borrowers; and (B) the Co-Borrowers have set aside adequate reserves sufficient to promptly pay in full any amounts that the Co-Borrowers may be ordered to pay on final determination of any such proceedings; (v) the Liens set forth on Annex D; -38- (vi) Liens with respect to Total Debt permitted under Section 6.02(c) and Capital Lease Obligations permitted under Section 6.02(d); (vii) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business; (viii) Liens related to purchase money obligations incurred in the ordinary course of business so long as such Liens only attach to property related to such purchase money obligations and secure only such property; and (ix) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which do not materially interfere with the ordinary conduct of the businesses of the Co-Borrowers conducted thereon; (h) enter into any transaction with any Person (including Affiliates of the Co-Borrowers) except in the ordinary course of business on the basis of arm's-length arrangements (including, without limitation, transactions whereby the Co-Borrowers might pay more than the ordinary commercial price for any purchase or might receive less than the full ex-works commercial price (subject to normal trade discounts) for its products); (i) establish any sole and exclusive purchasing or sales agency; (j) enter into any partnership, profit-sharing or royalty agreement or other similar arrangement whereby the Co-Borrowers' income or profits are, or might be, shared with any other Person; provided, however, PriceSmart may enter into such partnerships, profit-sharing or royalty agreements or other similar arrangements in the ordinary course of business; provided, further, that in the event of an Event of Default or Potential Event of Default, the amounts to be potentially paid under any such partnership, profit-sharing or royalty agreement or other similar arrangement may accrue but shall not be paid until the Event of Default or Potential Event of Default is cured, and such amounts shall not be paid but shall be deferred if after making any such payments, the Co-Borrowers would not be in compliance with the financial ratios set forth in Section 6.02(a); (k) enter into any management contract or similar arrangement whereby its business or operations are managed by any other Person; (l) form or have any Subsidiary, except for: (i) the Subsidiaries disclosed in the Letter of Information; (ii) Subsidiaries formed for purposes of the Project; and -39- (iii) Subsidiaries formed by PriceSmart in similar lines of business as the Co-Borrowers; (m) make or permit to exist loans or advances to, or deposits (except commercial bank deposits in the ordinary course of business) with, other Persons or enterprise other than: (i) short-term marketable securities acquired solely to give temporary employment to the Co-Borrowers' idle funds; (ii) advances or credit facilities in the ordinary course of business for payment of rentals of real estate leases or acquisition of real estate or working capital; (iii) extentions of trade credit in the ordinary course of busines; (iv) advances to employees in the ordinary course of business and in connection with management incentive plans; and (v) investments permitted under Section 6.02(b) and other investments that are not in excess of five per cent (5%) of the Co-Borrowers' Consolidated assets; provided always that, that after taking into account such advances or credit facilities the Consolidated Current Ratio shall not fall below 1.2; (n) change its Charter in any manner which would be inconsistent with the provisions of any Transaction Document; (o) change its Financial Year; (p) change the nature or scope of the Project or change the nature of its present and/or contemplated business or operations; (q) sell, transfer, lease or otherwise dispose of all or a substantial part of its assets, other than inventory, whether in a single transaction or in a series of transactions, related or otherwise other than (1) fixed assets of the Co-Borrowers with an aggregate value of less than ten per cent (10%) of the existing Net Fixed Assets in any Financial Year, and (2) assets that have become worn out or obsolete and are replaced or upgraded or that are no longer required for the purposes of carrying out the Project, in each case in the ordinary course of business and in a manner consistent with the Transaction Documents; (r) subject to those permitted under Section 6.02(a), undertake or permit any merger, spin-off, consolidation or reorganization; (s) terminate, amend or grant any waiver with respect to any provision of: -40- (i) any of the agreements listed in Section 5.01(a) (CONDITIONS OF FIRST Disbursement); or (ii) any document evidencing or securing any other senior loan set forth under the Financial Plan; (t) prepay (whether voluntarily or involuntarily) or repurchase any Long-term Debt (other than the Long-term Debt contemplated to be paid with the proceeds of the A Loan and the OPIC Loan) pursuant to any provision of any agreement or note with respect to that Long-term Debt unless: (i) that Long-term Debt is refinanced using new Long-term Debt on terms and conditions (as to interest rate, other costs and tenor) at least as favorable to the Co-Borrowers as those of the Long-term Debt being refinanced; or (ii) the Co-Borrowers give IFC at least thirty (30) days' advance notice of their intention to make the proposed prepayment and, if IFC so requires, the Co-Borrowers contemporaneously prepay a proportion of the A Loan equivalent to the proportion of the part of the Long-term Debt being prepaid, such prepayment to be made in accordance with the provisions of Section 3.06 (PREPAYMENT) except that there shall be no minimum amount, prepayment premium or advance notice period for that prepayment; provided that, after taking into account such prepayment for refinancing, the Consolidated Total Debt to Equity Ratio does not exceed 50:50 and the Consolidated Current Ratio shall not be less than 1.2; (u) use the proceeds of any Disbursement in the territories of any country which is not a member of the World Bank or for reimbursements of expenditures in those territories or for goods produced in or services supplied from any such country; (v) terminate, waive or materially amend any license agreements or trademarks with respect to the Project; (w) make (and shall not authorize or permit any Affiliate or any other Person acting on its behalf to make) with respect to the Project or any transaction contemplated by this Agreement, any Prohibited Payment. The Co-Borrowers further covenant that should IFC notify any Co-Borrower of its concerns that there has been a violation of the provisions of this Section or of Section 4.01(p) of this Agreement, each of them shall cooperate in good faith with IFC and its representatives in determining whether such a violation has occurred, and shall respond promptly and in reasonable detail to any notice from IFC, and shall furnish documentary support for such response upon IFC's request; -41- (x) allow the central office expenditures (before charge-backs) to exceed nineteen million two hundred thousand Dollars ($19,200,000) or two and one-half per cent (2.5%) of sales, whichever is greater, during the life of the A Loan; or (y) engage in any activities, including but not limited to those related to future expansions and other improvements, which might directly or indirectly result in the resettlement of individuals or businesses. Section 6.03. REPORTING REQUIREMENTS. Unless IFC otherwise agrees, the Co-Borrowers shall: (a) as soon as available but in any event within sixty (60) days after the end of each quarter of each Financial Year, deliver to IFC: (i) two (2) copies of their respective complete financial statements for such quarter prepared, on an unconsolidated basis and on a Consolidated Basis, in accordance with the Accounting Principles; (ii) during implementation of the Project, a report, in the form attached as Schedule 8, on the progress in implementation of the Project, including any factors that have or could reasonably be expected to have a Material Adverse Effect; (iii) after the Project Financial Completion Date has occurred, a report on any factors that have or could reasonably be expected to have a Material Adverse Effect; and (iv) a statement of all material transactions during that quarter between each Co-Borrower and each of its Affiliates (other than any other Co-Borrower), if any, and a certification by an Authorized Representative that those transactions were on the basis of arm's-length arrangements; at IFC's request, this statement shall be certified by the Auditors; (b) as soon as available but in any event within ninety (90) days after the end of each Financial Year, deliver to IFC: (i) two (2) copies of the complete and audited financial statements for that Financial Year which are in agreement with its books of account and prepared, on an unconsolidated basis and Consolidated Basis, in accordance with the Accounting Principles, together with the Auditors' audit report on them, all in form satisfactory to IFC; (ii) a management letter and such other communication from the Auditors commenting, with respect to that Financial Year, on, among other things, -42- the adequacy of the Co-Borrowers' financial control procedures, accounting systems and management information system; (iii) a report by the Auditors certifying that, on the basis of its financial statements, each Co-Borrower was in compliance with the covenants contained in Section 6.02 (NEGATIVE COVENANTS) as of the end of that Financial Year or, as the case may be, detailing any noncompliance; (iv) a report by the Co-Borrowers on their operations during that Financial Year, in the form of, and addressing the topics listed in, Schedule 9; and (v) a statement by the Co-Borrowers of all material transactions between the Co-Borrowers and each of its Affiliates (other than any other Co-Borrower), if any, during that Financial Year, and a certification by an Authorized Representative that those transactions were on the basis of arm's-length arrangements; (c) as soon as available but no later than sixty (60) days after the end of the first six months of each Financial Year and after the end of each Financial Year, provide to IFC a semi-annual report regarding Project implementation, including a description of Cash Generation and the funds raised from other sources of funds, invested in the Project; (d) deliver to IFC, promptly following receipt, a copy of any management letter or other communication sent by the Auditors (or any other accountants retained by the Co-Borrowers) to the Co-Borrowers or their management in relation to the Co-Borrowers' financial, accounting and other systems, management or accounts, if not provided pursuant to Section 6.03(b)(ii); (e) within ninety (90) days after the end of each Financial Year, deliver to IFC an annual monitoring report in the form of Schedule 10 (which form may be updated from time to time), confirming compliance with the applicable national or local requirements, the Environmental and Social Policies, the Environmental, Health and Safety Guidelines, and Section 6.01(g) and Section 6.01(h) or, as the case may be, detailing any noncompliance together with (A) the action being taken to ensure compliance and (B) a written report verifying the contents of that annual monitoring report, prepared by an independent third party consultant of the Co-Borrowers, acceptable to IFC; (f) as soon as possible but no later than three (3) days after its occurrence, notify IFC of any incident or accident which has or may reasonably be expected to have a material adverse effect on the environment, health or safety, including, without limitation, explosions, spills or workplace accidents which result in death, serious or multiple injury or major pollution, specifying, in each case, the nature of the incident or accident, the on-site and off-site impacts arising or likely to arise therefrom and the measures the Co-Borrowers are taking or plan to take to address those impacts; and keep IFC informed of the on-going implementation of those measures; -43- (g) give a fifteen (15) day prior notice to IFC of any Co-Borrower's notification to its shareholders, of any meeting of its shareholders, such notice to include the agenda of the meeting; and deliver to IFC two (2) copies of: (i) all notices, reports and other communications of the Co-Borrowers to their respective shareholders, whether any such communication has been made on an individual basis or by way of publication in a newspaper or other communication medium, as soon as available; and (ii) the minutes of all shareholders' meetings within 30 days of said shareholders' meeting; (h) promptly notify IFC of any proposed change in the nature or scope of the Project or the business or operations of the Co-Borrowers and of any event or condition which has or may reasonably be expected to have a Material Adverse Effect; (i) promptly upon becoming aware of any litigation or administrative proceedings before any Authority or arbitral body which has or may reasonably be expected to have a Material Adverse Effect, notify IFC by facsimile of that event specifying the nature of that litigation or those proceedings and the steps the Co-Borrowers are taking or propose to take with respect thereto; (j) promptly upon the occurrence of an Event of Default or Potential Event of Default, notify IFC by facsimile specifying the nature of that Event of Default or Potential Event of Default and any steps the Co-Borrowers are taking to remedy it; (k) provide to IFC, in a timely manner, the insurance certificates and other information referred to in Section 6.04(d) (INSURANCE); (l) promptly provide to IFC such other information as IFC from time to time reasonably requests about each of the Co-Borrowers, their respective assets and the Project; and (m) with respect to the Project, within thirty (30) days after the end of each Financial Year, provide a report by country with a confirmation that land acquisition has occurred on a willing seller/willing buyer basis and confirmation that no squatters and/or small merchants will be displaced, and if displacement occurs a description of the relevant Co-Borrower's compensation plan for all such Persons displaced. -44- Section 6.04. INSURANCE. (a) INSURANCE REQUIREMENTS AND CO-BORROWERS' UNDERTAKINGS. Unless IFC otherwise agrees, each of the Co-Borrowers shall: (i) insure and keep insured, with financially sound and reputable insurers, all its assets and business against all insurable losses to include the insurances specified in Annex B and any insurance required by law; (ii) punctually pay any premium, commission and any other amounts necessary for effecting and maintaining in force each insurance policy; (iii) promptly notify the relevant insurer of any claim by the Co-Borrower under any policy written by that insurer and diligently pursue that claim; (iv) comply with all warranties under each policy of insurance; (vi) not do or omit to do, or permit to be done or not done, anything which might prejudice the Co-Borrower's, or, where IFC is a loss payee or an additional named insured, IFC's right to claim or recover under any insurance policy; and (vii) not vary, rescind, terminate, cancel or cause a material change to insurance policy required to be maintained under this Agreement unless the same is replaced by other insurance satisfying the requirements of this Section 6.04; provided always that if at any time and for any reason any coverage required to be maintained under this Agreement shall not be in full force and effect, then IFC shall thereupon or at any time while the same is continuing be entitled (but have no such obligation) on its own behalf to procure that insurance at the expense of the relevant Co-Borrower and to take all such steps to minimize hazard as IFC may consider expedient or necessary. (b) POLICY PROVISIONS. Each insurance policy required to be obtained pursuant to this Section shall be on terms and conditions acceptable to IFC, and shall contain provisions to the effect that: (i) no policy can expire nor can it be cancelled or suspended by any Co-Borrower or the insurer for any reason (including failure to renew the policy or to pay the premium or any other amount) unless IFC and, in the case of expiration or if cancellation or suspension is initiated by the insurer, the relevant Co-Borrower receives at least thirty (30) days' notice (or such lesser period as IFC may agree with respect to cancellation, -45- suspension or termination in the event of war and kindred peril) prior to the effective date of termination, cancellation or suspension; (ii) IFC and all contractors working at the Project site are named as additonal named insureds on all liability policies; (iii) where relevant, all applicable provisions (except those relating to limits of liability) shall operate as if they were a separate policy covering each insured party; and (iv) on every insurance policy on the Co-Borrower's assets which are the subject of the IFC Security and for business interruption, IFC is named as loss payee for any claim of, or any series of claims arising with respect to the same event whose aggregate amount is, the equivalent of five hundred thousand Dollars ($500,000) or more; (c) APPLICATION OF PROCEEDS. (i) IFC may remit the proceeds of any insurance paid to it to the relevant Co-Borrower to repair or replace the relevant damaged assets or if in the reasonable judgment of IFC such insurable event creates a Material Adverse Effect then, at IFC's discretion, IFC may apply those proceeds towards any amount payable to IFC under this Agreement, including to repay or prepay all or any part of the A Loan in accordance with Section 3.07 (PREPAYMENT); provided that there shall be no minimum amount or notice period or prepayment premium for any such prepayment. (ii) Each of the Co-Borrowers shall use any insurance proceeds it receives (whether from IFC or directly from the insurers) for loss of or damage to any asset solely to replace or repair that asset. (d) REPORTING REQUIREMENTS. Unless IFC otherwise agrees, each of the Co-Borrowers shall provide to IFC the following: (i) as soon as possible after its occurrence, notice of any event which entitles the relevant Co-Borrower to claim for an aggregate amount exceeding the equivalent of five hundred thousand Dollars ($500,000) under any one or more insurance policies; (ii) within thirty (30) days after receipt of any insurance policy issued to any Co-Borrower, a copy of that policy incorporating any loss payee provisions required under Section 6.04(b)(iv) (unless that policy has already been provided to IFC pursuant to Section 5.01(i) (CONDITIONS OF FIRST DISBURSEMENT)); -46- (iii) not less than ten (10) days prior to the expiry date of any insurance policy (or, for insurance with multiple renewal dates, not less than ten (10) days prior to the expiry date of the policy on the principal asset), a certificate of renewal from the insurer, insurance broker or agent confirming the renewal of that policy and the renewal period, the premium, the amounts insured for each asset or item and any changes in terms or conditions from the policy's issue date or last renewal, and confirmation from the insurer that provisions naming IFC as loss payee or additional named insured, as applicable remain in effect; (iv) such evidence of premium payment as IFC may from time to time reasonably request; and (v) any other information or documents on each insurance policy as IFC reasonably requests from time to time. ARTICLE VII EVENTS OF DEFAULT Section 7.01. ACCELERATION AFTER DEFAULT. If any Event of Default occurs and is continuing (whether it is voluntary or involuntary, or results from operation of law or otherwise), IFC may, by notice to the Co-Borrowers, require the Co-Borrowers to repay the A Loan or such part of the A Loan as is specified in that notice. On receipt of any such notice, the Co-Borrowers shall immediately repay the A Loan (or that part of the A Loan specified in that notice) and pay all interest accrued on it, the prepayment premium specified in Section 3.06 on the amount of the A Loan whose payment is accelerated and any other amounts then payable under this Agreement. Each of the Co-Borrowers waives any right it might have to further notice, presentment, demand or protest with respect to that demand for immediate payment. Section 7.02. EVENTS OF DEFAULT. It shall be an Event of Default if: (a) the Co-Borrowers fail to pay when due any part of the principal of, or interest on, the A Loan and such failure continues for a period of five (5) days; (b) the Co-Borrowers fail to pay when due any part of the principal of, or interest on, the OPIC Loan and such failure continues beyond any applicable cure period; (c) the Co-Borrowers fail to pay when due any part of the principal of, or interest on, any loan from IFC to the Co-Borrowers other than the A Loan and any such failure continues for the relevant period of grace provided for in the agreement providing for that loan; -47- (d) any of the Co-Borrowers fails to comply with any of its obligations under this Agreement or any other Transaction Document or any other agreement between such Co-Borrower and IFC (other than for the payment of the principal of, or interest on, the A Loan or any other loan from IFC to any of the Co-Borrowers), and any such failure continues for a period of thirty (30) days after the date on which IFC notifies the Co-Borrowers of that failure; provided such 30-day cure period shall be extended up to an additional thirty (30) days if the Co-Borrowers provide to IFC evidence, satisfactory to IFC, that they are diligently proceeding in good faith to cure such failure; (e) any party to a Transaction Document (other than IFC or the Co-Borrowers) fails to observe or perform any of its obligations under that Transaction Document, and any such failure continues for a period of thirty (30) days after the date on which IFC notifies the Co-Borrowers of that failure; (f) any representation or warranty made in Article IV or in connection with the execution of, or any request (including a request for Disbursement) under, this Agreement or any other Transaction Document is found to be incorrect in any material respect; (g) any Authority condemns, nationalizes, seizes, or otherwise expropriates all or any substantial part of the property or other assets of the Co-Borrowers or of their respective share capital, or assumes custody or control of that property or other assets or of the businesses or operations of the Co-Borrowers or of their respective share capital, or takes any action for the dissolution or disestablishment of any Co-Borrower or any action that would prevent any Co-Borrower or its officers from carrying on all or a substantial part of its business or operations; (h) a decree or order by a court is entered against any Co-Borrower: (i) adjudging any such Co-Borrower bankrupt or insolvent; (ii) approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of, or with respect to, such Co-Borrower under any applicable law; (iii) appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of such Co-Borrower or of any substantial part of its property or other assets; or (iv) ordering the winding up or liquidation of its affairs; or any petition is filed seeking any of the above and is not dismissed within thirty (30) days; (i) any Co-Borrower: (i) requests a moratorium or suspension of payment of debts from any court; -48- (ii) institutes proceedings or takes any form of corporate action to be liquidated, adjudicated bankrupt or insolvent; (iii) consents to the institution of bankruptcy or insolvency proceedings against it; (iv) files a petition or answer or consent seeking reorganization or relief under any applicable law, or consents to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of such Co-Borrower or of any substantial part of its property; (v) makes a general assignment for the benefit of creditors; or (vi) admits in writing its inability to pay its debts generally as they become due or otherwise becomes insolvent; (j) an attachment or analogous process is levied or enforced upon or issued against any of the assets of any Co-Borrower for an amount in excess of the equivalent of five hundred thousand Dollars ($500,000) and is not discharged within thirty (30) days; (k) any other event occurs which under any applicable law would have an effect analogous to any of those events listed in Section 7.02(h) through Section 7.02(j); (l) any Co-Borrower fails to pay any of its Total Debt (other than the A Loan or any other loan from IFC to such Co-Borrower) or to perform any of its obligations under any agreement pursuant to which there is outstanding any Total Debt, and any such failure continues for more than any applicable period of grace or any such Total Debt becomes prematurely due and payable or is placed on demand; (m) any Authorization necessary for any Co-Borrower to perform and observe its obligations under any Transaction Document, or to carry out the Project, is not obtained when required or is rescinded, terminated, lapses or otherwise ceases to be in full force and effect, including with respect to the remittance to IFC or its assignees, in the Dollars, of any amounts payable under any Transaction Document, and is not restored or reinstated within thirty (30) days of notice by IFC to the Co-Borrowers requiring that restoration or reinstatement; (n) any Security Document or any of its provisions: (i) is revoked, terminated or ceases to be in full force and effect or ceases to provide the security intended, without, in each case, the prior consent of IFC; (ii) becomes unlawful or is declared void; or -49- (iii) is repudiated or its validity or enforceability is challenged by any Person and any such repudiation or challenge continues for a period of thirty (30) days and, during which period such repudiation or challenge has no effect; (o) any Transaction Document (other than a Security Document) or any of its provisions: (i) is revoked, terminated or ceases to be in full force and effect without, in each case, the prior consent of IFC, and that event, if capable of being remedied, is not remedied to the satisfaction of IFC within thirty (30) days of IFC's notice to the Co-Borrowers; or (ii) becomes unlawful or is declared void; or (p) any Transaction Document (other than a Security Document) is repudiated or the validity or enforceability of any of its provisions at any time is challenged by any Person and such repudiation or challenge is not withdrawn within thirty (30) days of IFC's notice to the Co-Borrowers requiring that withdrawal; provided that no such notice shall be required or, as the case may be, the notice period shall terminate if and when such repudiation or challenge becomes effective. Section 7.03. BANKRUPTCY. If any Co-Borrower is liquidated or declared bankrupt, the A Loan, all interest accrued on it and any other amounts payable under this Agreement will become immediately due and payable without any presentment, demand, protest or notice of any kind, all of which each Co-Borrower waives. ARTICLE VIII MISCELLANEOUS Section 8.01. SAVING OF RIGHTS. (a) The rights and remedies of IFC in relation to any misrepresentation or breach of warranty on the part of the Co-Borrowers shall not be prejudiced by any investigation by or on behalf of IFC into the affairs of the Co-Borrowers, by the execution or the performance of this Agreement or by any other act or thing which may be done by or on behalf of IFC in connection with this Agreement and which might, apart from this Section, prejudice such rights or remedies. (b) No course of dealing or waiver by IFC in connection with any condition of Disbursement of the A Loan under this Agreement shall impair any right, power or remedy of IFC with respect to any other condition of Disbursement, or be construed to be a waiver thereof; nor shall the action of IFC with respect to any Disbursement affect or impair any right, power or remedy of IFC with respect to any other Disbursement. -50- (c) Unless otherwise notified to the Co-Borrowers by IFC and without prejudice to the generality of Section 8.01(b), the right of IFC to require compliance with any condition under this Agreement which may be waived by IFC with respect to any Disbursement is expressly preserved for the purposes of any subsequent Disbursement. (d) No course of dealing and no failure or delay by IFC in exercising, in whole or in part, any power, remedy, discretion, authority or other right under this Agreement or any other agreement shall waive or impair, or be construed to be a waiver of or an acquiescence in, such or any other power, remedy, discretion, authority or right under this Agreement, or in any manner preclude its additional or future exercise; nor shall the action of IFC with respect to any default, or any acquiescence by it therein, affect or impair any right, power or remedy of IFC with respect to any other default. Section 8.02. NOTICES. Any notice, request or other communication to be given or made under this Agreement shall be in writing. Subject to Sections 6.03(i) and (h) (REPORTING REQUIREMENTS) and Section 8.05(f) (APPLICABLE LAW AND JURISDICTION), any such communication may be delivered by hand, airmail, facsimile or established courier service to the party's address specified below or at such other address as such party notifies to the other party from time to time, and will be effective upon receipt. For the Co-Borrowers: PriceSmart, Inc. 4649 Morena Blvd. San Diego, CA 92117-3650 Facsimile: (858) 581-4707 -51- For IFC: International Finance Corporation 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 United States of America Facsimile: (202) 974-4390 (202) 974-4461 Attention: Director, Latin America and Caribbean Department With a copy (in the case of communications relating to payments) sent to the attention of the Senior Manager, Financial Operations Unit, at: Facsimile: 202-974-4371. Section 8.03. ENGLISH LANGUAGE. (a) All documents to be provided or communications to be given or made under this Agreement shall be in the English language. (b) To the extent that the original version of any document to be provided, or communication to be given or made, to IFC under this Agreement or any other Transaction Document is in a language other than English, that document or communication shall be accompanied by an English translation certified by an Authorized Representative to be a true and correct translation of the original. IFC may, if it so requires, obtain an English translation of any document or communication received in another language other than English at the cost and expense of the Co-Borrowers. IFC may deem any such English translation to be the governing version between the Co-Borrowers and IFC. Section 8.04. TERM OF AGREEMENT. This Agreement shall continue in force until all monies payable under it have been fully paid in accordance with its provisions. Section 8.05. APPLICABLE LAW AND JURISDICTION. (a) This Agreement is governed by, and shall be construed in accordance with, the laws of the State of New York, United States of America. (b) Each Co-Borrower irrevocably agrees that any legal action, suit or proceeding arising out of or relating to this Agreement or any other Transaction Document to which it is a party may be brought by IFC in the courts of the United States of America located in the Southern District of New York. By the execution of this Agreement, each Co-Borrower irrevocably submits to the non-exclusive jurisdiction of any such court in any such action, suit or proceeding. Final judgment against the Co-Borrowers in any such action, suit or proceeding shall be conclusive and may be enforced in any other jurisdiction, including the Country, by suit on the -52- judgment, a certified or exemplified copy of which shall be conclusive evidence of the judgment, or in any other manner provided by law. (c) Nothing in this Agreement shall affect the right of IFC to commence legal proceedings or otherwise sue the Co-Borrowers in the Country or any other appropriate jurisdiction, or concurrently in more than one jurisdiction, or to serve process, pleadings and other legal papers upon the Co-Borrowers in any manner authorized by the laws of any such jurisdiction. (d) Each Co-Borrower hereby irrevocably designates, appoints and empowers CT Corporation System, 111 Eighth Avenue, 13th Floor, New York, NY 10011 as its authorized agent solely to receive for and on its behalf service of summons or other legal process in any action, suit or proceeding IFC may bring in the State of New York. (e) As long as this Agreement or any other Transaction Document to which the Co-Borrowers are a party remains in force, each Co-Borrower shall maintain a duly appointed and authorized agent to receive for and on its behalf service of any summons, complaint or other legal process in any action, suit or proceeding IFC may bring in New York, New York, United States of America, with respect to this Agreement or that other Transaction Document. Each Co-Borrower shall keep IFC advised of the identity and location of such agent. (f) Each Co-Borrower also irrevocably consents, if for any reason the Co-Borrower's authorized agent for service of process of summons, complaint and other legal process in any action, suit or proceeding is not present in New York, New York, to the service of such papers being made out of those courts by mailing copies of the papers by registered United States air mail, postage prepaid, to the Co-Borrowers at their addresses specified pursuant to Section 8.02 (NOTICES). In such a case, IFC shall also send by facsimile, or have sent by facsimile, a copy of the papers to the Co-Borrowers. (g) Service in the manner provided in this Section 8.05 in any action, suit or proceeding will be deemed personal service, will be accepted by the Co-Borrowers as such and will be valid and binding upon the Co-Borrowers for all purposes of any such action, suit or proceeding. (h) Each Co-Borrower irrevocably waives to the fullest extent permitted by applicable law: (i) any objection which it may have now or in the future to the laying of the venue of any action, suit or proceeding in any court referred to in this Section; and (ii) any claim that any such action, suit or proceeding has been brought in an inconvenient forum. -53- (i) To the extent that any Co-Borrower may be entitled in any jurisdiction to claim for itself or its assets immunity in respect of its obligations under this Agreement or any other Transaction Document to which each such Co-Borrower is a party from any suit, execution, attachment (whether provisional or final, in aid of execution, before judgment or otherwise) or other legal process or to the extent that in any jurisdiction that immunity (whether or not claimed) may be attributed to it or its assets, each Co-Borrower irrevocably agrees not to claim and irrevocably waives such immunity to the fullest extent permitted now or in the future by the laws of such jurisdiction. (j) Each Co-Borrower hereby acknowledges that IFC shall be entitled under applicable law, including the provisions of the International Organizations Immunities Act, to immunity from a trial by jury in any action, suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby or any other Transaction Document to which each such Co-Borrower is a party, brought against IFC in any court of the United States of America. Each Co-Borrower hereby waives any and all rights to demand a trial by jury in any action, suit or proceeding arising out of or relating to this Agreement or any other Transaction Document to which each such Co-Borrower is a party or the transactions contemplated by this Agreement or those Transaction Documents, brought against IFC in any forum in which IFC is not entitled to immunity from a trial by jury. (k) To the extent that any Co-Borrower may, in any suit, action or proceeding brought in any of the courts referred to in Section 8.05(b) or a court of the Country or elsewhere arising out of or in connection with this Agreement or any other Transaction Document to which each such Co-Borrower is a party, be entitled to the benefit of any provision of law requiring IFC in such suit, action or proceeding to post security for the costs of such Co-Borrower, or to post a bond or to take similar action, each Co-Borrower hereby irrevocably waives such benefit, in each case to the fullest extent now or in the future permitted under the laws of the Country or, as the case may be, the jurisdiction in which such court is located. Section 8.06. DISCLOSURE OF INFORMATION. (a) IFC may disclose any documents or records of, or information about, this Agreement or any other Transaction Document, or the assets, business or affairs of the Co-Borrowers to: (i) its outside counsel, auditors and rating agencies; and (ii) any other Person as IFC may deem appropriate in connection with any proposed sale, transfer, assignment or other disposition of IFC's rights under this Agreement or any Transaction Document or otherwise for the purpose of exercising any power, remedy, right, authority, or discretion relevant to this Agreement or any other Transaction Document. (b) Each Co-Borrower acknowledges and agrees that, notwithstanding the terms of any other agreement between such Co-Borrower and IFC, a disclosure of information by IFC in the circumstances contemplated by Section 8.06(a) does not violate any duty owed to the Co-Borrowers under this Agreement or under any such other agreement. -54- Section 8.07. SUCCESSORS AND ASSIGNEES. This Agreement binds and benefits the respective successors and assignees of the parties. However, the Co-Borrowers may not assign or delegate any of their rights or obligations under this Agreement without the prior consent of IFC. Section 8.08. JOINT AND SEVERAL LIABILITY. The liability of the Co-Borrowers under this Agreement shall be joint and several. Section 8.09. AMENDMENTS, WAIVERS AND CONSENTS. Any amendment or waiver of, or any consent given under, any provision of this Agreement shall be in writing and, in the case of an amendment, signed by the parties. Section 8.10 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which is an original, but all of which together constitute one and the same agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be signed in their respective names as of the date first above written. PRICESMART INC. By: /s/ Gilbert A. Partida Name: Gilbert A. Partida Title: President/CEO PSMT CARIBE INC. By: /s/ Allan C. Youngberg Name: Allan C. Youngberg Title: Treasurer/Chief Financial Officer PSMT TRINIDAD/TOBAGO LTD. By: /s/ Joseph Eseau Name: Joseph Eseau Title: Chairman -55- INTERNATIONAL FINANCE CORPORATION By: /s/ Mary Ellen Iskenderian Name: Mary Ellen Iskenderian Title: Manager Latin America and Caribbean Department -56- [Intentionally left blank] -57- ANNEX A Page 1 of 3 BORROWER/PROJECT AUTHORIZATIONS (See Sections 4.01(d) and 5.01(e) of the Loan Agreement) Section (1). AUTHORIZATIONS ALREADY OBTAINED (a) _______________ (b) _______________ (c) _______________ Section (2). AUTHORIZATIONS TO BE OBTAINED PRIOR TO FIRST DISBURSEMENT (d) _______________ (e) _______________ (f) _______________ (g) _______________ (h) _______________ (i) _______________ [Section (3). AUTHORIZATIONS TO BE OBTAINED NO LATER THAN [INSERT DATE] (j) _______________ (k) _______________ (l) _______________ (m) _______________ -58- -59- ANNEX B Page 1 of 1 INSURANCE REQUIREMENTS (See Section 6.04(a) of the Loan Agreement) Section (1). CONSTRUCTION PHASE (a) Construction All Risks, based on full contract value and including: (i) Riot and Strike (ii) Debris Removal (iii) Extra Expenses (iv) Maintenance (v) Third Party Liability (b) Advance Loss of Profits Section (2). OPERATIONAL PHASE (a) Fire and named perils or All Risks, based on replacement cost of assets (b) Business Interruption (c) Third Party Liability Section (3). AT ALL TIMES Such insurances as required by local legislation. -60- ANNEX C Page 1 of 2 ASSETS OF THE CO-BORROWERS TO BE GRANTED AS SECURITY COSTA RICA: 1. Immovable Assets and Equipment: PriceSmart Escazu Land Autopista Prospero Fernandez Building Del Peaje 200mts. oeste mano izquierda FF&E Escazu, Costa Rica, C.A. 2. Movable Assets: Inventory EL SALVADOR: 1. Immovable Assets and Equipment: PriceSmart Los Heroes Land Urbanizaci--n Siglo XXI, Blvd. Building Tutunichapa No. 1 FF&E San Salvador 2. Movable Assets: Inventory HONDURAS: 1. Immovable Assets and Equipment: PriceSmart Tegucigalpa FF&E Colonia Florencia Entre Ferreteria Rene J. Handal #3 Y Multi Plaza Mall Tegucigalpa, Honduras, C.A. 2. Movable Assets: Inventory -61- ANNEX C Page 2 of 2 DOMINICAN REPUBLIC: 1. Immovable Assets and Equipment: PriceSmart Dominicana S.A. Land Av. Charles Summer 54 Building Santo Domingo, Rep. Dominicana FF&E PriceSmart EastSide. Land Carretera Mella No. 43 Building Km. 91/2 Urb. Dona FF&E Idalia II, Santo Domingo, R.D. 2. Movable Assets: Inventory TRINIDAD Port of Spain Site. 1. Immovable Assets and Equipment Building 2. Movable Assets: FF&E -62- ANNEX D Page 1 of 2 PRICESMART, INC, PSMT CARIBE, INC & PSMT TRINIDAD/TOBAGO LTD. LIST OF LIENS
PROPERTY ADDRESS LIEN HOLDER AMOUNT EXPIRY (000's) COSTA RICA PriceSmart Zapote Citibank SA. Costa Rica. PriceSmart Costa Rica, SA Land, building and ff&e $5,254 10/04 Frente al Registro Nacional Zapote, San Jose, Costa Rica PriceSmart Escazu Banex SA. Costa Rica Autopista Prospero Fernandez Land, building and ff&e $5,900 05/06 Del Peaje 200mts. oeste mano izquierda Escazu, Costa Rica, C.A. PriceSmart Heredia Banco Cuscatlan, SA. Carretera Hacia Heredia Costa Rica De Atlas Electrica 300mts, Land, building and ff&e $3,760 06/05 norte mano derecha San Pablo de Heredia, Costa Rica, C.A. EL SALVADOR PriceSmart Santa Elena Citibank NA, Ubicacion Madre Selva San Salvador. Blvd. Santa Elena Sur Land, building and ff&e $4,562 12/04 Calle Cortez Blanco y Avenida El Pepeto Antiguo Cuscatlan, La Libertad
-63- ANNEX D Page 2 of 2
PROPERTY ADDRESS LIEN HOLDER AMOUNT EXPIRY (000's) HONDURAS PriceSmart San Pedro Sula Citibank SA. Honduras. Centro Comercial Mega Plaza, Banco Del Pais SA. Edifico Blanco de Londres Honduras. 3er y 4ato piso Boulevard Salida a La Lima, Cortes Land, building and ff&e $3,360 02/05 San Pedro Sula, Honduras PriceSmart Tegucigalpa Banco Ficohsa. Colonia Florencia Honduras Entre Ferreteria Rene J. Handal #3 Inventory $2,500 06/01 Y Multi Plaza Mall Tegucigalpa, Honduras, C.A. DOMINICAN REPUBLIC PriceSmart Santo Domingo Banco Del Progresso, SA. PriceSmart Dominicana S.A. Dominican Republic. Av. Charles Summer 54 Land, building, ff&e and $7,000 03/01 Santo Domingo, inventory $2,000 06/01 Rep. Dominicana Bancredito, SA. PriceSmart Dominicana S.A. Dominican Republic. Estrella Sadhala 22 Land, building, ff&e and $3,780 02/05 Santiago de los Caballeros, inventory $2,000 07/01 Rep. Dominicana TRINIDAD Chaguanas Royal Bank of Trinidad Off Endevour Flyover and Tobago. Trinidad. Chaguanas, Land, building, ff&e and $6,000 06/07 Trinidad, W.I. inventory
-64- SCHEDULE 1 Page 1 of 2 FORM OF CERTIFICATE OF INCUMBENCY AND AUTHORITY (See Section 1.01 and Section 5.01(m) of the Loan Agreement) [Borrower's Letterhead] [Date] International Finance Corporation 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 United States of America Attention: Director, Latin America and Caribbean Department Ladies and Gentlemen: CERTIFICATE OF INCUMBENCY AND AUTHORITY With reference to the Loan Agreement among PriceSmart Inc., PSMT Caribe Inc. and PSMT Trinidad/Tobago Limited, dated as of January 26, 2001 (the "Loan Agreement"), I, the undersigned [Chairman/Director] of PriceSmart Inc., duly authorized to do so, hereby certify that the following are the names, offices and true specimen signatures of the persons [each] [any two] of whom are, and will continue to be, authorized: (a) to sign on behalf of the Co-Borrowers the requests for the disbursement of funds provided for in Section 3.02 of the Loan Agreement (b) to sign the certifications provided for in Section 5.02 and Section 5.03 of the Loan Agreement; and -65- SCHEDULE 1 Page 2 of 2 (c) to take any other action required or permitted to be taken, done, signed or executed under the Loan Agreement or any other agreement to which IFC and the Co-Borrowers may be parties.
*NAME OFFICE SPECIMEN SIGNATURE --------------------- ---------------------- ---------------- --------------------- ---------------------- ---------------- --------------------- ---------------------- ----------------
You may assume that any such person continues to be so authorized until you receive authorized written notice from PriceSmart Inc. that they, or any of them, is no longer so authorized. Yours truly, PRICESMART INC. By ________________________ [Chairman/Director] - ---------- * Designations may be changed by the Borrower at any time by issuing a new Certificate of Incumbency and Authority authorized by the Board of Directors of the Borrower where applicable. -66- SCHEDULE 2 Page 1 of 4 FORM OF REQUEST FOR DISBURSEMENT (A LOAN) (See Section 3.02 and Section 5.03 of the Loan Agreement) [Borrower's Letterhead] [Date] International Finance Corporation 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 United States of America Attention: Director, Latin America and Caribbean Department Ladies and Gentlemen: Investment No. 10296 REQUEST FOR A LOAN DISBURSEMENT NO. [ ]* 1. Please refer to the Loan Agreement (the "Loan Agreement") dated as of January 26, 2001, among PriceSmart Inc., PSMT Caribe Inc. and PSMT Trinidad/Tobago Limited (the "Co-Borrowers") and International Finance Corporation ("IFC"). Terms defined in the Loan Agreement have their defined meanings whenever used in this request. PSMT Caribe Inc. and PSMT Trinidad Tobago Limited each have [nominated] [appointed] PriceSmart Inc. ("PriceSmart") as its agent for purposes of executing and delivering this Disbursement Request and the related Disbursement Receipt on behalf of the Co-Borrowers. [2. PriceSmart irrevocably request the disbursement on ____________, 200_ (or as soon as practicable thereafter) of the amount of ____________ Dollars ($____________) under the A Loan (the "Disbursement") in accordance with the provisions of Section 3.02 of the Loan Agreement. You are requested to pay such amount to the account in New York of PriceSmart Inc., [Name of correspondent Bank], Account No. ____________ at [Name and Address of Bank] for further credit to Co-Borrowers as follows: - ----------------------------------- * Each to be numbered in series. -67- SCHEDULE 2 Page 2 of 4 (a) $__________ to Account No. ___________ of PSMT Caribe Ltd. at [Name and Address of Bank] in the British Virgin Islands; and (b) $__________ to Account No. ____________ of PSMT Trinidad/Tobago Limited at [Name and Address of Bank] in [City], Trinidad and Tobago.(1) [2. PriceSmart irrevocably request the disbursement on ____________, 200_ (or as soon as practicable thereafter) of the amount of ____________ Dollars ($____________) under the A Loan (the "Disbursement") in accordance with the provisions of Section 3.02 of the Loan Agreement. You are requested to pay such amount to the account in New York of [CREDITOR], [Name of correspondent Bank], Account No. ____________ at [Name and Address of Bank] .] 3. There is enclosed a signed but undated receipt for the amount of the Disbursement. The Co-Borrowers authorize IFC to date such receipt with the date of actual disbursement by IFC. 4. For the purpose of Section 5.02 and Section 5.03 of the Loan Agreement, PriceSmart, as agent for each of the other Co-Borrowers, certifies as follows: (a) PriceSmart has been appointed as agent for each of the Co-Borrowers (other than PriceSmart) for purposes of making, on behalf of each such Co-Borrower, the certifications set forth herein; (b) no Event of Default and no Potential Event of Default has occurred and is continuing; (c) the proceeds of the Disbursement are at the date of this request needed by the Co-Borrowers for the purpose of the Project, or will be needed for such purpose within three (3) months of such date; - ---------------------------------- (1) Any exchange control consents, if required (e.g. for IFC to remit to overseas account), must be provided by the Co-Borrowers to IFC prior to disbursement. -68- SCHEDULE 2 Page 3 of 4 (d) since the date of the Loan Agreement nothing has occurred which has or could reasonably be expected to have a Material Adverse Effect; (e) since [insert date] [the date of the Loan Agreement]** none of the Co-Borrowers has incurred any material loss or liability (except such liabilities as may be incurred by the Co-Borrowers in accordance with Section 6.02 of the Loan Agreement); (f) the representations and warranties made in Article IV of the Loan Agreement are true on the date of this request and will be true on the date of Disbursement with the same effect as if such representations and warranties had been made on and as of each such date (but in the case of Section 4.01(c), without the words in parenthesis); (g) the proceeds of the Disbursement are not in reimbursement of, or to be used for, expenditures in the territories of any country which is not a member of the World Bank or for goods produced in or services supplied from any such country; (h) after giving effect to the Disbursement, none of the Co-Borrowers will be in violation of: (i) its Charter; (ii) any provision contained in any document to which it is a party (including the Loan Agreement) or by which it is bound; or (iii) any law, rule, regulation, Authorization or agreement or other document binding on it directly or indirectly, limiting or otherwise restricting its borrowing power or authority or its ability to borrow; and - ---------------------------- ** The date should be the same as is used in Section 4.01 (h)(i). Use the second formulation if the Borrower is a start-up company which did not deliver meaningful financial statements prior to the date of the Loan Agreement. -69- SCHEDULE 2 Page 4 of 4 (iv) since [insert the dates of the latest version of the respective Charters] no amendment has been made to the Charters of any of the Co-Borrowers [.] [, except for: (list all amendments).] The above certifications are effective as of the date of this Request for Disbursement and shall continue to be effective as of the date of the Disbursement. If any of these certifications is no longer valid as of or prior to the date of the requested Disbursement, the Co-Borrowers undertake to immediately notify IFC. Yours truly, PRICESMART INC. By ________________________ Authorized Representative Copy to: Manager, Financial Operations Unit International Finance Corporation -70- SCHEDULE 3 Page 1 of 1 FORM OF LOAN DISBURSEMENT RECEIPT (See Section 3.02 of the Loan Agreement) [Borrower's Letterhead] International Finance Corporation 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 United States of America Attention: Manager, Financial Operations Unit Ladies and Gentlemen: Investment No. 10296 DISBURSEMENT RECEIPT NO. [ ]* (A LOAN) We, PriceSmart Inc., hereby acknowledge on behalf of PriceSmart Inc., PSMT Caribe Inc. and PSMT Trinidad/Tobago Limited ("the Co-Borrowers"), receipt on the date hereof, of the sum of _________________ Dollars ($_________) disbursed to us by International Finance Corporation ("IFC") under the A Loan in the amount of twenty-two million Dollars ($22,000,000) provided for in the Loan Agreement dated as of January 26, 2001 among the Co-Borrowers and International Finance Corporation. Yours truly, PRICESMART INC. By ____________________________ Authorized Representative*** - -------------------------- * To correspond with number of the Disbursement request. See Schedule 2. *** As named in the Borrower's Certificate of Incumbency and Authority (see Schedule I). -71- SCHEDULE 4 Page 1 of 2 FORM OF SERVICE OF PROCESS LETTER [Letterhead of Agent for Service of Process] (See Section 5.01(n) of the Loan Agreement) [Date] International Finance Corporation 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 Attention: Director, Latin America and Caribbean Department Re: [Country/_________] Dear Sirs: Reference is made to Section 8.05 of the Loan Agreement dated as of January 26, 2001 (the "LOAN AGREEMENT") and Section 2.10 of the C Loan Agreement, among PriceSmart, Inc., PSMT Caribe Inc. and PSMT Trinidad/Tobago Limited (collectively, the "CO-BORROWERS") and International Finance Corporation ("IFC"). Unless otherwise defined herein, capitalized terms used herein shall have the meaning specified in the Loan Agreement. Pursuant to Section 8.05(d) of the Loan Agreement, each of the Co-Borrowers has irrevocably designated and appointed the undersigned, CT Corporation System, with offices currently located at 111 Eighth Avenue, 13th Floor, New York, New York 10011, as its authorized agent to receive for and on its behalf service of process in any legal action or proceeding with respect to the Loan Agreement and the other Transaction Documents to which it is a party in the courts of the United States of America for the Southern District of New York. The undersigned hereby informs you that it has irrevocably accepted that appointment as process agent as set forth in Section 8.05(d) of the Loan Agreement from January 26, 2001 until September 15, 2010 and agrees with you that the undersigned (i) shall inform IFC promptly in writing of any change of its address in New York, (ii) shall perform its obligations as such process agent in accordance with the relevant provisions of Section 8.05 of the Loan Agreement, and (iii) shall forward promptly to the Co-Borrowers any legal process received by the undersigned in its capacity as process agent. -72- SCHEDULE 4 Page 2 of 2 As process agent, the undersigned and its successor or successors agree to discharge the above-mentioned obligations and will not refuse fulfillment of such obligations as provided under Section 8.05 of the Loan Agreement. Very truly yours, [CT Corporation System] By: ____________________ Title: cc: PriceSmart Inc. PSMT Caribe Inc. PSMT Trinidad Tobago Limited -73- SCHEDULE 5(A) Page 1 of 6 FORM OF LOCAL COUNSEL'S LEGAL OPINION(2) (See Section 5.01(e) of the Loan Agreement) [Date] International Finance Corporation 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 U.S.A. RE: PRICESMART, INC. Dear Sirs, We have acted as legal counsel to International Finance Corporation ("IFC") in connection with (i) the loan to PriceSmart, Inc. ("PriceSmart"), PSMT Caribe, Inc. ("PSMT Caribe") and PSMT Trinidad/Tobago Limited ("PSMT Trinidad" and, collectively with PriceSmart and PSMT Caribe, the "Co-Borrowers"), as joint and several borrowers, in the principal amount of twenty-two million Dollars ($22,000,000) pursuant to the Loan Agreement dated January 26, 2001 (the "IFC A Loan Agreement") by and among the Co-Borrowers and IFC, and (ii) the loan to the Co-Borrowers jointly and severally in the principal amount of ten million Dollars ($10,000,000) pursuant to the IFC C Loan Agreement dated January 26, 2001 (the "IFC C Loan Agreement") by and among the Co-Borrowers and IFC. Unless otherwise defined herein, capitalized terms used herein shall have the meaning set forth in the IFC A Loan Agreement. This opinion is furnished to you pursuant to Section 5.01(e) of the IFC A Loan Agreement. In connection with the opinion set out below, we have examined the following documents: 1. the IFC A Loan Agreement; 2. the IFC C Loan Agreement; - ------------------------ (2) FORM OF LEGAL OPINION FROM LOCAL COUNSEL IN TRINIDAD & TOBAGO AND BRITISH VIRGIN ISLANDS. -74- SCHEDULE 5(A) Page 2 of 6 3. the Share Retention Agreement; 4. the Pledge of Shares Agreement, dated January 26, 2001, by and among PriceSmart, [PSMT Caribe][PSMT Trinidad] and IFC (the "Share Pledge Agreement"); 5. the asset pledge agreement(3), dated __________ (the "Asset Pledge Agreement"), among _______________ and IFC; 6. the mortgage agreement(4) dated __________________ (the "Mortgage Agreement"), among ______________ and IFC; 7. a certified copy of the minutes of the extraordinary general meeting of ____________________held on ________, ________, ________, and ________, respectively; 8. a certificate of ______, dated ________, and ___________, respectively, evidencing the registration of the Security Agreements (as defined below); 9. [insert relevant corporate documents]; and 10. such other documents as we have considered relevant for the purposes of issuing this opinion. The Asset Pledge Agreement, the Mortgage Agreement, and the Share Pledge Agreement, are hereinafter referred to collectively as the "Security Agreements"; the IFC A Loan Agreement, the IFC C Loan Agreement, and the Share Retention Agreement, and the Security Agreements are hereinafter referred to individually as a "Document" and collectively referred to as the "Documents". In connection with this opinion, we have examined the originals, or certified, conformed or reproduction copies, of all records, agreements, instruments and documents as we have deemed relevant or necessary as the basis for the opinions hereinafter expressed. In stating our opinion, we have assumed (i) the genuineness of all signatures on original or certified copies of all copies submitted to us as certified or reproduction copies, and (ii) that each of the Documents (other than the Security Agreements) are legal, valid, binding and enforceable under the laws of the State of New York, United States of America. Based upon the foregoing and subject to the qualifications and limitations set forth herein, we are of the opinion that: - ---------------------------- (3) This refers to the agreement evidencing the first ranking pledge of movable assets in favor of IFC. (4) This refers to the agreement evidencing the first ranking mortgage over all the fixed assets in favor of IFC. -75- SCHEDULE 5(A) Page 3 of 6 1. [PSMT Trinidad][PSMT Caribe] (the "Company") is a company duly organized and existing under the laws [Trinidad & Tobago][British Virgin Islands] and has full power and authority required by law to conduct its business in which it is engaged. 2. The Articles of Association of the Company are in full compliance with the laws and regulations of [Trinidad & Tobago][British Virgin Islands] and have not been amended since _______________; 3. The Company has a share capital in the amount of __________ ( ), divided into __________ shares of ________ par value each, which share capital is duly subscribed and entirely paid-in; to the best of our knowledge and on the basis of our review of the Company's [shareholders ledger], each of PriceSmart and [NAME OF MINORITY SHAREHOLDER] owns _________% and ___%, respectively, of the shares and voting rights constituting the share capital of the Company. 4. The Company has full power and authority to enter into and perform its obligations under each of the Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance by it of each of such Documents. 5. The Company has duly executed and delivered each of the Documents to which it is a party and each of such Documents constitutes its legal, valid and binding obligations enforceable in accordance with its terms. 6. The execution, delivery and performance by the Company of any Document to which it is a party will not violate (i) its Articles of Association or (ii) any provisions of the laws of [Trinidad & Tobago][British Virgin Islands], or (iii) to the best of my knowledge, after due inquiry, contravene or result in a breach of, or constitute a default under, any mortgage, conditional sales contract, bank loan, credit agreement or any other agreement or instrument to which the Company is a party or by which the Company or any of its properties may be bound. 7. Except as provided in Paragraph 8 below and except for licenses, permits and consents which are of a routine nature and which are customarily granted in due course after application, all governmental, corporate, creditors', shareholders' and other necessary licenses, approvals and consents have been obtained for: 7.1 the financing by IFC under the IFC A Loan Agreement and the IFC C Loan Agreement; 7.2 the carrying on of the business of the Company as it is presently carried on and is contemplated to be carried on; -76- SCHEDULE 5(A) Page 4 of 6 7.3 the due execution and delivery of, and the performance under, the Documents and any documents necessary or desirable in their implementation; and 7.4 the remittance to IFC in Dollars of all monies payable in respect of any of the Documents, the security created by the Security Agreements. 8. The Security Agreements have been duly executed and delivered in accordance with the laws of [Trinidad & Tobago][British Virgin Islands] and confer a first ranking perfected security interest over the assets described therein in favor of IFC; such Security Agreements have become unconditionally and fully effective and do not violate or exceed the corporate purpose of the Company, or contravene any provision of any applicable law or regulation binding on the parties thereo. 9. Under the laws of [Trinidad & Tobago][British Virgin Islands], neither the Company nor its property has any immunity from jurisdiction of any court or from set-off or any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution or otherwise). 10. To the best of our knowledge after due inquiry, no litigation, investigation or proceeding of or before any Authority is pending against the Company or its properties or revenue. 11. The choice of New York law as the governing law of the Documents (other than the Security Agreements) is valid under the laws of [Trinidad & Tobago][British Virgin Islands]; the submission to the jurisdiction of the State of New York, United States of America, and the appointment of the process agent contained in Section 8.05(d) of the IFC A Loan Agreement and Section 2.11 of the IFC C Loan Agreement is irrevocable binding on and enforceable against the Company. In this regard, we advice you that an action brought against the Company in the courts of the State of New York, in the manner contemplated by the Documents, would be considered an in personam action under [Trinidad & Tobago][British Virgin Islands] law. 12. A judgment rendered by any New York State or Federal court sitting in New York City against the Company in respect of the Documents, would be enforceable against the Company in the courts of [Trinidad & Tobago] [the British Virgin Islands], provided that the court in which enforcement is sought determines that: (a) such New York judgment has been rendered in an IN PERSONAM (as opposed to an in rem) action and is strictly for the payment of a certain sum of money; -77- SCHEDULE 5(A) Page 5 of 6 (b) the obligation for which enforcement is sought does not violate the law of [Trinidad & Tobago][the British Virgin Islands], public policy (ordern publico) of [Trinidad & Tobago][the British Virgin Islands], international treaties or agreements binding upon [Trinidad & Tobago][the British Virgin Islands] or generally accepted principles of international law; (c) process in the New York action has been served personally on the Company, or on the appropriate process agent; (d) the New York judgment is a final judgment according to the laws of the State of New York, United States of America; (e) the New York judgment fulfills the necessary requirements to be considered authentic by [Trinidad & Tobago][the British Virgin Islands]'s court; (f) the action on which the final judgment is rendered is not the subject matter of a lawsuit among the same parties pending before a court in [Trinidad & Tobago][British Virgin Islands]; (g) the court issuing the judgment is considered competent under internationally accepted rules which are compatible with the procedural laws of [Trinidad & Tobago][British Virgin Islands]; (h) the applicable procedures under the laws of [Trinidad][British Virgin Islands] with respect to the enforcement of foreign judgments (including the issuance of a letter rogatory by the competent authority of such jurisdiction requesting enforcement of such judgment and the certification of such judgment as authentic by the corresponding authorities of such jurisdiction in accordance with the laws thereof) is complied with; and (i) the courts of the United States would enforce judgments from [Trinidad & Tobago][British Virgin Islands] courts, as a matter of reciprocity. 13. On the basis of the immunities and privileges provided in Article VI of IFC's Articles of Agreement, all payments of principal, interest and other amounts due under the IFC A Loan Agreement and the IFC C Loan Agreement, are exempt from any taxes, fees or other charges of whatsoever nature now or at any time levied or imposed by the Government of [Trinidad & Tobago][British Virgin Islands] or by any department, agency, political subdivision or taxing authority thereof or therein or by any organization of which [Trinidad & Tobago][British Virgin -78- SCHEDULE 5(A) Page 6 of 6 Islands] is a member; and the payments referred to herein may be made free and clear of any deduction or withholding of whatever nature; there are no taxes, duties (including stamp duties), fees or other charges required to be paid under the laws of [Trinidad & Tobago][British Virgin Islands] in connection with the execution, issuance or delivery of any Document or the performance or observance of any of their respective terms. The above opinion is given upon and subject to the following qualifications and limitations: (a) the enforcement of the Documents may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting creditor's rights generally; (b) [insert other standard limitations] This opinion is limited to questions arising under the laws of [Trinidad & Tobago][British Virgin Islands] and we do not express any opinion as to the laws of any jurisdiction other than those of [Trinidad & Tobago][British Virgin Islands]. This opinion is solely for the benefit of IFC and may not be relied upon in any manner or for any purpose by any other person. Very truly yours, We(5), as [Trinidad & Tobago][British Virgin Islands] counsel to the Company concur with the opinions expressed hereinabove by [name of the law firm of IFC's local counsel]. Very truly yours, - ---------------------- (5) PriceSmart Counsel -79- SCHEDULE 5(B-1) Page 1 of 6 FORM OF LOCAL COUNSEL'S LEGAL OPINION(6) (See Section 5.01(f) of the Loan Agreement) [Date] International Finance Corporation 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 U.S.A. RE: PRICESMART, INC. Dear Sirs, We have acted as legal counsel to International Finance Corporation ("IFC") in connection with (i) the loan to PriceSmart, Inc. ("PriceSmart"), PSMT Caribe, Inc. ("PSMT Caribe") and PSMT Trinidad/Tobago Limited ("PSMT Trinidad" and, collectively with PriceSmart and PSMT Caribe, the "Co-Borrowers"), as joint and several borrowers, in the principal amount of twenty-two million Dollars ($22,000,000) pursuant to the Loan Agreement dated January 26, 2001 (the "IFC A Loan Agreement") by and among the Co-Borrowers and IFC, and (ii) the loan to the Co-Borrowers jointly and severally in the principal amount of ten million Dollars ($10,000,000) pursuant to the IFC C Loan Agreement dated January 26, 2001 (the "IFC C Loan Agreement") by and among the Co-Borrowers and IFC. Unless otherwise defined herein, capitalized terms used herein shall have the meaning set forth in the IFC A Loan Agreement. This opinion is furnished to you pursuant to Section 5.01(f) of the IFC A Loan Agreement. In connection with the opinion set out below, we have examined the following documents: 1. the IFC A Loan Agreement; 2. the IFC C Loan Agreement; - ------------------------ (6) FORM OF LEGAL OPINION TO BE DELIVERED BY IFC'S COUNSEL IN EL SALVADOR, DOMINICAN REPUBLIC, HONDURAS, AND COSTA RICA. -80- SCHEDULE 5(B-1) Page 2 of 6 3. the Share Retention Agreement; 4. the Pledge of Shares Agreement, dated January 26, 2001, by and among PSMT Caribe, [PriceSmart Dominicana][PriceSmart Honduras][PriceSmart El Salvador][PriceSmart Costa Rica](7) and IFC (the "Share Pledge Agreement"); 5. the asset pledge agreement(8), dated __________ (the "Asset Pledge Agreement"), among _______________ and IFC; 6. the mortgage agreement(9) dated __________________ (the "Mortgage Agreement"), among ______________ and IFC; 7. a certified copy of the minutes of the extraordinary general meeting of ____________________held on ________, ________, ________, and ________, respectively; 8. a certificate of ______, dated ________, and ___________, respectively, evidencing the registration of the Security Agreements (as defined below); 9. [insert relevant corporate documents]; and 10. such other documents as we have considered relevant for the purposes of issuing this opinion. The Asset Pledge Agreement, the Mortgage Agreement, and the Share Pledge Agreement are hereinafter referred to collectively as the "Security Agreements"; the IFC A Loan Agreement, the IFC C Loan Agreement, and the Share Retention Agreement, and the Security Agreements are hereinafter referred to individually as a "Document" and collectively referred to as the "Documents". In connection with this opinion, we have examined the originals, or certified, conformed or reproduction copies, of all records, agreements, instruments and documents as we have deemed relevant or necessary as the basis for the opinions hereinafter expressed. In stating our opinion, we have assumed (i) the genuineness of all signatures on original or certified copies of all copies submitted to us as certified or reproduction copies, and (ii) that each of the Documents (other than the Security Agreements) are legal, valid, binding and enforceable under the laws of the State of New York, United States of America. - ---------------------------- (7) As applicable. (8) This refers to the agreement evidencing the first ranking pledge of the movable assets in favor of IFC. (9) This refers to the agreement evidencing the first ranking mortgage over all the fixed assets in favor of IFC. -81- SCHEDULE 5(B-1) Page 3 of 6 Based upon the foregoing and subject to the qualifications and limitations set forth herein, we are of the opinion that: 1. [PriceSmart Guatemala][PriceSmart El Salvador][PriceSmart Honduras][PriceSmart Costa Rica] ("Company") is a company duly organized and existing under the laws of [Guatemala][El Salvador][Honduras][Costa Rica] and has full power and authority required by law to conduct its business in which it is engaged. 2. The Articles of Association of the Company are in full compliance with the laws and regulations of the jurisdiction of its incorporation and have not been amended since _______________. 3. The Company has a share capital in the amount of __________ ( ), divided into __________ shares of ________ par value each, which share capital is duly subscribed and entirely paid-in; to the best of our knowledge and on the basis of our review of the Company's [shareholders ledger], each of PSMT Caribe and [NAME OF MINORITY SHAREHOLDER] owns _________% and ___%, respectively, of the shares and voting rights constituting the share capital of the Company. 4. The Company has full power and authority to enter into and perform its obligations under each of the Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance by it of each of such Documents. 5. The Company has duly executed and delivered each of the Documents to which it is a party and each of such Documents constitutes its legal, valid and binding obligations enforceable in accordance with its terms. 6. The execution, delivery and performance by the Company of any Document to which it is a party will not violate (i) its Articles of Association or (ii) any provisions of the legislation of [Guatemala][El Salvador][Honduras][Costa Rica], or (iii) to the best of my knowledge, after due inquiry, contravene or result in a breach of, or constitute a default under, any mortgage, conditional sales contract, bank loan, credit agreement or any other agreement or instrument to which the Company is a party or by which the Company or any of its properties may be bound. 7. Except as provided in Paragraph 8 below and except for licenses, permits and consents which are of a routine nature and which are customarily granted in due course after application, all governmental, corporate, creditors', shareholders' and other necessary licenses, approvals and consents have been obtained for: -82- SCHEDULE 5(B-1) Page 4 of 6 7.5 the financing by IFC under the IFC A Loan Agreement and the IFC C Loan Agreement; 7.6 the carrying on of the business of the Company as it is presently carried on and is contemplated to be carried on; 7.7 the due execution and delivery of, and the performance under, the Documents and any documents necessary or desirable in their implementation; and 7.8 the remittance to IFC in Dollars of all monies payable in respect of any of the Documents, the security created by the Security Agreements. 8. The Security Agreements have been duly executed and delivered in accordance with the laws of [INSERT NAME OF JURISDISTION] and confer a first ranking perfected security interest over the assets described therein in favor of IFC; such Security Agreements have become unconditionally and fully effective and do not violate or exceed the corporate purpose of [INSERT THE NAME OF THE SUBSIDIARY WHOSE ASSET IS BEING PLEDGED], as the case may be, or contravene any provision of any applicable law or regulation binding on the parties thereo. 9. Under the laws of [NAME OF JURISDICTION], none of the Co-Borrowers or [NAME OF SUBSIDIARY WHOSE ASSET IS BEING PLEDGED], nor their respective property has any immunity from jurisdiction of any court or from set-off or any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution or otherwise). 10. To the best of our knowledge after due inquiry, no litigation, investigation or proceeding of or before any Authority is pending against the Co-Borrowers or [INSERT THE NAME OF THE SUBSIDIARY WHOSE ASSET IS BEING PLEDGED] or against their respective properties or revenues. 11. The choice of New York law as the governing law of the Documents (other than the Security Agreements) is valid under the laws of [Guatemala][El Salvador][Honduras][Costa Rica]; the submission to the jurisdiction of the State of New York, United States of America, and the appointment of the process agent contained in Section 8.05(d) of the IFC A Loan Agreement and Section 2.11 of the IFC C Loan Agreement is irrevocable binding on and enforceable against the Company or any Co-Borrower. In this regard, we advice you that an action brought against the Company or any Co-Borrower in the courts of the State of New York, in the manner contemplated by the Documents, would be considered an in personam action under [Guatemala][El Salvador][Honduras][Costa Rica] law. -83- SCHEDULE 5(B-1) Page 5 of 6 12. A judgment rendered by any New York State or Federal court sitting in New York City against the Company or any Co-Borrower in respect of the Documents, would be enforceable against the Company or any Co-Borrower in the courts of [Guatemala][El Salvador][Honduras][Costa Rica], provided that the court in which enforcement is sought determines that: (a) such New York judgment has been rendered in an IN PERSONAM (as opposed to an in rem) action and is strictly for the payment of a certain sum of money; (b) the obligation for which enforcement is sought does not violate the law or public policy (ordern publico) of [Guatemala][El Salvador][Honduras][Costa Rica], or international treaties or agreements binding upon [Guatemala][El Salvador][Honduras][Costa Rica] or generally accepted principles of international law; (c) process in the New York action has been served personally on the Company or any Co-Borrower, or on the appropriate process agent; (d) the New York judgment is a final judgment according to the laws of the State of New York, United States of America; (e) the New York judgment fulfills the necessary requirements to be considered authentic by [Guatemala][El Salvador][Honduras][Costa Rica]'s court; (f) the action on which the final judgment is rendered is not the subject matter of a lawsuit among the same parties pending before a court in [Guatemala][El Salvador][Honduras][Costa Rica]; (g) the court issuing the judgment is considered competent under internationally accepted rules which are compatible with the procedural laws of [Guatemala][El Salvador][Honduras][Costa Rica] [Trinidad] or [British Virgin Islands]; -84- SCHEDULE 5(B-1) Page 6 of 6 (h) the applicable procedures under the laws of [Guatemala][El Salvador][Honduras][Costa Rica] to the enforcement of foreign judgments (including the issuance of a letter rogatory by the competent authority of such jurisdiction requesting enforcement of such judgment and the certification of such judgment as authentic by the corresponding authorities of such jurisdiction in accordance with the laws thereof) is complied with; and (i) the courts of the United States would enforce judgments from [Guatemala][El Salvador][Honduras][Costa Rica] courts, as the case may be, as a matter of reciprocity. 13. On the basis of the immunities and privileges provided in Article VI of IFC's Articles of Agreement, all payments of principal, interest and other amounts due under the IFC A Loan Agreement and the IFC C Loan Agreement, are exempt from any taxes, fees or other charges of whatsoever nature now or at any time levied or imposed by the Government of [Guatemala][El Salvador][Honduras][Costa Rica] or by any department, agency, political subdivision or taxing authority thereof or therein or by any organization of which [Guatemala][El Salvador][Honduras][Costa Rica] is a member; and the payments referred to herein may be made free and clear of any deduction or withholding of whatever nature; there are no taxes, duties (including stamp duties), fees or other charges required to be paid under the laws of [Guatemala][El Salvador][Honduras][Costa Rica] in connection with the execution, issuance or delivery of any Document or the performance or observance of any of their respective terms. The above opinion is given upon and subject to the following qualifications and limitations: (a) the enforcement of the Documents may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting creditor's rights generally; (b) [insert other standard limitations] This opinion is limited to questions arising under the laws of [Guatemala][El Salvador][Honduras][Costa Rica] and we do not express any opinion as to the laws of any jurisdiction other than those of [Guatemala][El Salvador][Honduras][Costa Rica]. This opinion is solely for the benefit of IFC and may not be relied upon in any manner or for any purpose by any other person. Very Truly Yours, -85- SCHEDULE 5(B-2) Page 1 of 6 FORM OF LOCAL COUNSEL'S LEGAL OPINION(10) (See Section 5.01(f) of the Loan Agreement) [Date] International Finance Corporation 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 U.S.A. RE: PRICESMART, INC. Dear Sirs, We have acted as legal counsel to International Finance Corporation ("IFC") in connection with (i) the loan to PriceSmart, Inc. ("PriceSmart"), PSMT Caribe, Inc. ("PSMT Caribe") and PSMT Trinidad/Tobago Limited ("PSMT Trinidad" and, collectively with PriceSmart and PSMT Caribe, the "Co-Borrowers"), as joint and several borrowers, in the principal amount of twenty-two million Dollars ($22,000,000) pursuant to the Loan Agreement dated January 26, 2001 (the "IFC A Loan Agreement") by and among the Co-Borrowers and IFC, and (ii) the loan to the Co-Borrowers jointly and severally in the principal amount of ten million Dollars ($10,000,000) pursuant to the IFC C Loan Agreement dated January 26, 2001 (the "IFC C Loan Agreement") by and among the Co-Borrowers and IFC. Unless otherwise defined herein, capitalized terms used herein shall have the meaning set forth in the IFC A Loan Agreement. This opinion is furnished to you pursuant to Section 5.01(f) of the IFC A Loan Agreement. - --------------------- (10) FORM OF LEGAL OPINION TO BE DELIVERED BY IFC'S COUNSEL IN BARBADOS. -86- SCHEDULE 5(B-2) Page 2 of 6 In connection with the opinion set out below, we have examined the following documents: 1. the IFC A Loan Agreement; 2. the IFC C Loan Agreement; 3. the Share Retention Agreement; 4. the Pledge of Shares Agreement, dated January 26, 2001, by and among PriceSmart, PSMT Barbados and IFC (the "Share Pledge Agreement"); 5. a certified copy of the minutes of the extraordinary general meeting of ____________________held on ________,; 6. a certificate of ______________, evidencing the registration of the Share Pledge Agreement; 7. [insert relevant corporate documents]; and 8. such other documents as we have considered relevant for the purposes of issuing this opinion. The Share Pledge Agreement, the IFC A Loan Agreement, the IFC C Loan Agreement, and the Share Retention Agreement, are hereinafter referred to individually as a "Document" and collectively referred to as the "Documents". In connection with this opinion, we have examined the originals, or certified, conformed or reproduction copies, of all records, agreements, instruments and documents as we have deemed relevant or necessary as the basis for the opinions hereinafter expressed. In stating our opinion, we have assumed (i) the genuineness of all signatures on original or certified copies of all copies submitted to us as certified or reproduction copies, and (ii) that each of the Documents (other than the Security Agreements) are legal, valid, binding and enforceable under the laws of the State of New York, United States of America. Based upon the foregoing and subject to the qualifications and limitations set forth herein, we are of the opinion that: 1. PSMT Barbados ("Company") is a company duly organized and existing under the laws of Barbados and has full power and authority required by law to conduct its business in which it is engaged. -87- SCHEDULE 5(B-2) Page 3 of 6 2. The Articles of Association of the Company are in full compliance with the laws and regulations of the jurisdiction of its incorporation and have not been amended since _______________. 3. The Company has a share capital in the amount of __________ ( ), divided into __________ shares of ________ par value each, which share capital is duly subscribed and entirely paid-in; to the best of our knowledge and on the basis of our review of the Company's [shareholders ledger], each of PiceSmart and [NAME OF MINORITY SHAREHOLDER] owns _________% and ___%, respectively, of the shares and voting rights constituting the share capital of the Company. 4. The Company has full power and authority to enter into and perform its obligations under each of the Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance by it of each of such Documents. 5. The Company has duly executed and delivered each of the Documents to which it is a party and each of such Documents constitutes its legal, valid and binding obligations enforceable in accordance with its terms. 6. The execution, delivery and performance by the Company of any Document to which it is a party will not violate (i) its Articles of Association or (ii) any provisions of the legislation of Barbados, or (iii) to the best of my knowledge, after due inquiry, contravene or result in a breach of, or constitute a default under, any mortgage, conditional sales contract, bank loan, credit agreement or any other agreement or instrument to which the Company is a party or by which the Company or any of its properties may be bound. 7. Except as provided in Paragraph 8 below and except for licenses, permits and consents which are of a routine nature and which are customarily granted in due course after application, all governmental, corporate, creditors', shareholders' and other necessary licenses, approvals and consents have been obtained for: 7.9 the financing by IFC under the IFC A Loan Agreement and the IFC C Loan Agreement; 7.10 the carrying on of the business of the Company as it is presently carried on and is contemplated to be carried on; 7.11 the due execution and delivery of, and the performance under, the Documents and any documents necessary or desirable in their implementation; and -88- SCHEDULE 5(B-2) Page 4 of 6 7.12 the remittance to IFC in Dollars of all monies payable in respect of any of the Documents, the security created by the Share Pledge Agreement. 8. The Share Pledge Agreement has been duly executed and delivered in accordance with the laws of Barbados and confer a first ranking perfected security interest over the shares described therein in favor of IFC; such Share Pledge Agreement has become unconditionally and fully effective and do not violate or exceed the corporate purpose of PSMT Barbados or contravene any provision of any applicable law or regulation binding on the parties thereo. 9. Under the laws of Barbados, none of the Co-Borrowers or PSMT Barbados, nor their respective properties has any immunity from jurisdiction of any court or from set-off or any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution or otherwise). 10. To the best of our knowledge after due inquiry, no litigation, investigation or proceeding of or before any Authority is pending against the Co-Borrowers or PSMT Barbados or against their respective properties or revenues. 11. The choice of New York law as the governing law of the Documents (other than the Share Pledge Agreement) is valid under the laws of Barbados; the submission to the jurisdiction of the State of New York, United States of America, and the appointment of the process agent contained in Section 8.05(d) of the IFC A Loan Agreement and Section 2.11 of the IFC C Loan Agreement is irrevocable binding on and enforceable against the Company or any Co-Borrower. In this regard, we advice you that an action brought against the Company or any Co-Borrower in the courts of the State of New York, in the manner contemplated by the Documents, would be considered an in personam action under Barbados law. 12. A judgment rendered by any New York State or Federal court sitting in New York City against the Company or any Co-Borrower in respect of the Documents, would be enforceable against the Company or any Co-Borrower in the courts of Barbados, provided that the court in which enforcement is sought determines that: (a) such New York judgment has been rendered in an IN PERSONAM (as opposed to an in rem) action and is strictly for the payment of a certain sum of money; (b) the obligation for which enforcement is sought does not violate the law or public policy (ordern publico) of Barbados, or international treaties or agreements binding upon Barbados or generally accepted principles of international law; -89- SCHEDULE 5(B-2) Page 5 of 6 (c) process in the New York action has been served personally on the Company or any Co-Borrower, or on the appropriate process agent; (d) the New York judgment is a final judgment according to the laws of the State of New York, United States of America; (e) the New York judgment fulfills the necessary requirements to be considered authentic by Barbados courts; (f) the action on which the final judgment is rendered is not the subject matter of a lawsuit among the same parties pending before a court in Barbados; (g) the court issuing the judgment is considered competent under internationally accepted rules which are compatible with the procedural laws of Barbados; (h) the applicable procedures under the laws of Barbados to the enforcement of foreign judgments (including the issuance of a letter rogatory by the competent authority of such jurisdiction requesting enforcement of such judgment and the certification of such judgment as authentic by the corresponding authorities of such jurisdiction in accordance with the laws thereof) is complied with; and (i) the courts of the United States would enforce judgments from Barbados courts, as the case may be, as a matter of reciprocity. 13. On the basis of the immunities and privileges provided in Article VI of IFC's Articles of Agreement, all payments of principal, interest and other amounts due under the IFC A Loan Agreement and the IFC C Loan Agreement, are exempt from any taxes, fees or other charges of whatsoever nature now or at any time levied or imposed by the Government of Barbados or by any department, agency, political subdivision or taxing authority thereof or therein or by any organization of which Barbados is a member; and the payments referred to herein may be made free and clear of any deduction or withholding of whatever nature; there are no taxes, duties (including stamp duties), fees or other charges required to be paid under the laws of Barbados in connection with the execution, issuance or delivery of any Document or the performance or observance of any of their respective terms. -90- SCHEDULE 5(B-2) Page 6 of 6 The above opinion is given upon and subject to the following qualifications and limitations: (a) the enforcement of the Documents may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting creditor's rights generally; (b) [insert other standard limitations] This opinion is limited to questions arising under the laws of Barbados and we do not express any opinion as to the laws of any jurisdiction other than those of Barbados. This opinion is solely for the benefit of IFC and may not be relied upon in any manner or for any purpose by any other person. Very truly yours, -91- SCHEDULE 5(B-3) Page 1 of 3 FORM OF LOCAL COUNSEL'S LEGAL OPINION(11) (See Section 5.01(f) of the Loan Agreement) [Date] International Finance Corporation 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 U.S.A. Re: PriceSmart, Inc. Ladies and Gentlemen: We have acted as legal counsel to International Finance Corporation ("IFC") in connection with (i) the loan to PriceSmart, Inc. ("PriceSmart"), PSMT Caribe, Inc. ("PSMT Caribe") and PSMT Trinidad/Tobago Limited ("PSMT Trinidad" and, collectively with PriceSmart and PSMT Caribe, the "Co-Borrowers"), as joint and several borrowers, in the principal amount of twenty-two million Dollars ($22,000,000) pursuant to the Loan Agreement dated January 26, 2001 (the "IFC A Loan Agreement") by and among the Co-Borrowers and IFC, and (ii) the loan to the Co-Borrowers jointly and severally in the principal amount of ten million Dollars ($10,000,000) pursuant to the IFC C Loan Agreement dated January 26, 2001 (the "IFC C Loan Agreement") by and among the Co-Borrowers and IFC. Unless otherwise defined herein, capitalized terms used herein shall have the meaning set forth in the IFC A Loan Agreement. This opinion is furnished to you pursuant to Section 5.01(f) of the IFC A Loan Agreement. In connection with the opinion set out below, we have examined the following documents: 1. the IFC A Loan Agreement; 2. the IFC C Loan Agreement; 3. the Share Retention Agreement; - ----------------------------- (11) TO BE USED BY IFC'S COUNSEL IN GUATEMALA, ARUBA, PANAMA AND THE PHILIPPINES. -92- SCHEDULE 5(B-3) Page 2 of 3 4. a certified/conformed copy of] [an executed copy/original of] [LIST ALL OTHER DOCUMENTS REVIEWED, E.G ARTICLES OF INCORPORATION, ESTATUTOS, ETC.]. In connection with this opinion, we have examined the originals, or certified, conformed copies, of all records, agreements, instruments and documents as we have deemed relevant or necessary as the basis for the opinions hereinafter expressed. In stating my opinion, we have assumed (i) the genuineness of all signatures on original or certified copies of all copies submitted to us as certified or reproduction copies, and that the Share Retention Agreement and each of the other Transaction Documents constitutes a legal, valid, binding and enforceable obligation of each of the other parties thereto under the laws of the State of New York, United States of America. Based upon the foregoing and subject to the qualifications and limitations set forth herein, we are of the opinion that: 1. [Philippines, Inc.][PriceSmart (Guatemala), S.A.][Islands Foods and Distributors N.V.][PriceCosto de Panama, S.A.] (the "Company") is a company duly incorporated, validly existing and in good standing under the laws of [the Philippines][Aruba][Guatemala][Panama] and has full power and authority required by law to conduct its business in which it is engaged and to enter into the Share Retention Agreement and to perform its obligations thereunder. 2. The Company, represented by ________________ in his capacity as Chief Executive Officer, has full power and authority to enter into and perform its obligations under the Share Retention Agreement and has taken all necessary corporate action to authorize the execution, delivery and performance by it of the Share Retention Agreement. 3. The Company has a share capital in the amount of __________ , divided into __________ shares of ________ par value each, which share capital is duly subscribed and entirely paid-in; to the best of our knowledge and on the basis of our review of the Company's [shareholders ledger], each of PriceSmart and [NAME OF MINORITY SHAREHOLDER] owns _________% and ___%, respectively, of the shares and voting rights constituting the share capital of the Company. 4. The Share Retention Agreement has been authorized, executed and delivered by the Company and constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms. -93- SCHEDULE 5(B-3) Page 3 of 3 5. The execution and delivery of the Share Retention Agreement and performance of the obligations thereunder by the Company will not (i) violate the charter or other organizational documents of the Company, (ii) violate any provisions of the Company, or (iii) to the best of my knowledge, after due inquiry, contravene or result in a breach of, or constitute a default under, any mortgage, conditional sales contract, bank loan, credit agreement or any other agreement or instrument to which the Company is a party or by which the Company or any of its properties may be bound. 6. It is not required in order to ensure the validity, effectiveness or enforceability of any of the Share Retention Agreement that the same be notarized or filed, registered or recorded in a public office or elsewhere in [the Philippines][Aruba][Guatemala][Panama], or that any other instrument, document or notice relating thereto be executed, delivered, filed, registered, recorded or served in the Philippines. 7. No order, consent, approval, license, authorization or validation of, or registration, recording or filing with any governmental or public body or authority in [the Philippines][Aruba][Guatemala][Panama] is required in connection with (i) the execution or delivery of the Share Retention Agreement or the performance by the parties thereto of their respective obligations thereunder or (ii) the legality, validity, binding effect or enforceability of the Share Retention Agreement. Very truly yours, -94- SCHEDULE 5(C) Page 1 of 5 FORM OF SPECIAL COUNSEL'S LEGAL OPINION (See Section 5.01(g) of the Loan Agreement) -95- -96- -97- -98- -99- SCHEDULE 5(D) Page 1 of 5 FORM OF PRICESMART SPECIAL COUNSEL'S LEGAL OPINION (See Section 5.01(h) of the Loan Agreement) -100- -101- -102- -103- -104- SCHEDULE 6 Page 1 of 2 FORM OF LETTER TO BORROWER'S AUDITORS (See Section 5.01(l) and Section 6.01(e) of the Loan Agreement) [Borrower's Letterhead] [Date] [NAME OF AUDITORS] [ADDRESS] Ladies and Gentlemen: We hereby authorize and request you to give to International Finance Corporation of 2121 Pennsylvania Avenue, N.W., Washington, D.C. 20433, United States of America ("IFC"), all such information as IFC may reasonably request with regard to the Consolidated financial statements of the Co-Borrowers (as defined below), both audited and unaudited. We have agreed to supply that information and those statements under the terms of a Loan Agreement among PriceSmart Inc., PSMT Caribe Inc. and PSMT Trinidad/Tobago Limited (the "Co-Borrowers") and IFC dated as of January 26, 2001 (the "Loan Agreement"). For your information we enclose a copy of the Loan Agreement. We authorize and request you to send two copies of the audited accounts of the Co-Borrowers to IFC to enable us to satisfy our obligation to IFC under Section 6.03(b)(i) of the Loan Agreement. When submitting the same to IFC, please also send, at the same time, a copy of your full report on such accounts in a form reasonably acceptable to IFC. Please note that under Section 6.03(b)(ii) and (iii) and Section 6.03(c) of the Loan Agreement, we are obliged to provide IFC with: -105- SCHEDULE 6 Page 2 of 2 (a) a copy of the annual and any other management letter or other communication from you to the Co-Borrowers or their repective management commenting on, among other things, the adequacy of the Co-Borrowers' financial control procedures and accounting and management information system; and (b) a report by you certifying that, based upon their audited consolidated financial statements, the Co-Borrowers were in compliance with the financial covenants contained in Section 6.02 of the Loan Agreement as at the end of the relevant Financial Year or, as the case may be, detailing any noncompliance. Please also submit each such communication and report to IFC with the audited accounts. For our records, please ensure that you send to us a copy of every letter which you receive from IFC immediately upon receipt and a copy of each reply made by you immediately upon the issue of that reply. Yours truly, PRICESMART INC. By ______________________________ Authorized Representative Enclosure cc: Director Latin America and Caribbean Department International Finance Corporation 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 United States of America -106- SCHEDULE 7 Page 1 of 2 FORM OF CO-BORROWER'S CERTIFICATION ON DISTRIBUTION OF DIVIDENDS (See Section 6.02(a) of the Loan Agreement) [Co-Borrower's Letterhead] [Date] International Finance Corporation 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 Attention: Director, Latin America and Caribbean Department Re: [Country/_________] Dear Sirs: 1. Please refer to the Loan Agreement (the "Loan Agreement") dated as of January 26, 2001, between [Name of Relevant Co-Borrower] (the "Co-Borrower"), [Names of the other Co-Borrowers] and International Finance Corporation ("IFC"). Terms defined in the Loan Agreement have their defined meanings whenever used in this request. 2. This is to inform you that the Co-Borrower plans a distribution of dividends to its shareholders in the aggregate amount of ______________ (______), such distribution to commence on or about _________, 20__. Pursuant to Section 6.02(a) of the Loan Agreement, the Co-Borrower hereby certifies that, as at the date hereof: (a) the proposed distribution will be entirely out of retained earnings and such retained earnings do not include any amount resulting from the revaluation of the Co-Borrower's assets; (b) no Event of Default or Potential Event of Default has occurred and is continuing; -107- SCHEDULE 7 Page 2 of 2 (c) after giving effect to the proposed distribution: (i) the Consolidated Current Ratio would be at least 1.2; (ii) the Consolidated Total Debt to Equity Ratio would be greater than 50:50; and (iii) the Consolidated Long-term Debt Service Coverage Ratio would not be less than 1.5. 3. The Co-Borrower undertakes not to give effect to the proposed distribution or any part thereof if, at the time of so doing or after giving effect to it, the Co-Borrower could not certify the matters referred to in Section 2 of this certification. Yours truly, [NAME OF CO-BORROWER] By _______________________________ Authorized Representative -108- SCHEDULE 8 Page 1 of 1 PROGRESS REPORT RE: PROJECT IMPLEMENTATION (See Section 6.03(a)(iii) of the Loan Agreement) The Co-Borrowers shall provide an overview of the Project and highlight the major events for the reporting period. -109- SCHEDULE 9 Page 1 of 1 INFORMATION TO BE INCLUDED IN ANNUAL REVIEW OF OPERATIONS* (See Section 6.03(b)(iv) of the Loan Agreement) [(1) SHAREHOLDINGS. Information on significant changes in share ownership of the Co-Borrowers, the reasons for such changes, and the identity of major new shareholders. (2) COUNTRY CONDITIONS AND GOVERNMENT POLICY. Report on any material changes in local conditions, including government policy changes, that directly affect the Co-Borrowers (e.g. changes in government economic strategy, taxation, foreign exchange availability, price controls, and other areas of regulations.) (3) MANAGEMENT AND TECHNOLOGY. Information on significant changes in (i) the Co-Borrowers' senior management or organizational structure, and (ii) technology used by the Co-Borrowers, including technical assistance arrangements. (4) CORPORATE STRATEGY. Description of any changes to the Co-Borrowers' corporate or operational strategy, including changes in products, degree of integration, and business emphasis. (5) MARKETS. Brief analysis of changes in the Co-Borrowers' market conditions (both domestic and export), with emphasis on changes in market share and degree of competition. (6) OPERATING PERFORMANCE. Discussion of major factors affecting the year's financial results (sales by value and volume, operating and financial costs, profit margins, capacity utilization, capital expenditure, etc.). (7) FINANCIAL CONDITION. Key financial ratios for previous year, compared with ratios covenanted in the Loan Agreement.] - ---------------------------- * The content of this Schedule should be reviewed with the Investment Officer to determine any revisions appropriate for a particular transaction. -110- SCHEDULE 10 Page 1 of 9 FORM OF ANNUAL MONITORING REPORT (See Section 6.03(d) of the Loan Agreement) [See the following pages] EX-10.7 9 a2045570zex-10_7.txt EXHIBIT 10.7 Exhibit 10.7 ================================================================================ INVESTMENT NUMBER 10296 C LOAN AGREEMENT AMONG PRICESMART INC., PSMT CARIBE, INC., PSMT TRINIDAD/TOBAGO LIMITED, AND INTERNATIONAL FINANCE CORPORATION DATED AS OF JANUARY 26, 2001 ================================================================================ TABLE OF CONTENTS ARTICLE OR SECTION ITEM PAGE NO. - ---------- ---- -------- ARTICLE I......................................................................2 DEFINITIONS....................................................................2 Section 1.01. DEFINITIONS.................................................2 Section 1.02. INTERPRETATION..............................................3 ARTICLE II.....................................................................3 AGREEMENT FOR THE C LOAN.......................................................3 Section 2.01. AMOUNT......................................................3 Section 2.02. INTEREST....................................................3 Section 2.03. ADDITIONAL C LOAN INTEREST..................................3 Section 2.04. CAP ON INTEREST.............................................4 Section 2.05. FEES........................................................4 Section 2.06. DISBURSEMENT................................................4 Section 2.07. REPAYMENT...................................................5 Section 2.08. PREPAYMENT..................................................5 Section 2.09. LATE PAYMENT CHARGE.........................................6 Section 2.10. GENERAL.....................................................6 ARTICLE III....................................................................7 MISCELLANEOUS..................................................................7 Section 3.01. DURATION....................................................7 Section 3.02. COUNTERPARTS................................................7 SCHEDULE 1.....................................................................9 FORM OF C LOAN DISBURSEMENT REQUEST........................................9 SCHEDULE 2....................................................................13 FORM OF C LOAN DISBURSEMENT RECEIPT.......................................13 C LOAN AGREEMENT AGREEMENT, dated as of January 26, 2001, among: (1) PRICESMART INC., a company organized and existing under the laws of the State of Delaware, U.S.A. ("PriceSmart"); (2) PSMT CARIBE, INC., a company organized and existing under the laws of the Territory of the British Virgin Islands ("Caribe"); (3) PSMT TRINIDAD/TOBAGO LIMITED, a company organized and existing under the laws of the Republic of Trinidad and Tobago ("PSMT Trinidad and PriceSmart, Caribe and PSMT Trinidad are collectively referred to herein as the "Co-Borrowers"); and (4) INTERNATIONAL FINANCE CORPORATION, an international organization established by Articles of Agreement among its member countries ("IFC"). WHEREAS: (A) By a Loan Agreement of even date herewith among the Co-Borrowers and IFC (the "Loan Agreement"), IFC has agreed, subject to the terms and conditions thereof, to lend to the Co-Borrowers the sum of up to twenty-two million Dollars ($22,000,000) (the "A Loan"). (B) The Financial Plan set forth in the Loan Agreement also provides for the provision by IFC to the Co-Borrowers of a C Loan of ten million Dollars ($10,000,000) (the "C Loan"). (C) Pursuant to Section 5.01 of the Loan Agreement, it is a condition precedent to the first disbursement of the A Loan that this Agreement shall have been entered into, shall have become effective and the C Loan shall have been fully disbursed. (D) In order to induce IFC to make disbursements under the Loan Agreement, and in consideration thereof, the Co-Borrowers have agreed to undertake the obligations herein contained. NOW THEREFORE, the parties hereto agree as follows: -2- ARTICLE I DEFINITIONS Section 1.01. DEFINITIONS. Wherever used in this Agreement, unless the context shall otherwise require, terms defined in the Loan Agreement shall have the respective meanings therein set forth, and the following terms shall have the following meanings: "Additional Interest Payment Date" March 15 in each year, starting with March 15, 2003 or, in the case of any Additional Interest Period of less than six (6) months, any day which is the 15th day of the month in which the relevant Additional Interest Period ends; provided, that if such date is not a Business Day, then the relevant Additional Interest Payment Date shall be on the immediately succeeding Business Day; "Additional Interest Period" means, for each Additional Interest Payment Date, the immediately preceding completed Financial Year, the first such period beginning on the Financial Year starting on September 1, 2001; "Additional C Loan Interest" means the additional interest payable on the C Loan, in addition to the C Loan Interest, at the rate determined in accordance with the terms of Section 2.03; "Agreement" means this C Loan Agreement; "C Loan Interest" means the interest payable on the C Loan at the C Loan Interest Rate; "C Loan Interest Rate" means the interest rate determined in accordance with the terms of Section 2.02; and -3- "EBITDA" the Consolidated earnings of the Co-Borrowers and their respective Subsidiaries before interest, taxes, depreciation and amortization calculated in accordance with Accounting Principles. Section 1.02. INTERPRETATION. (a) In this Agreement, unless the context otherwise requires, words denoting the singular include the plural and vice versa, words denoting persons include corporations and partnerships, and references to a specified Article or Section shall be construed as a reference to that specified Article or Section of this Agreement. (b) In each part of this Agreement, the headings and the Index are inserted for convenience of reference only and shall not be used to define, interpret or limit any of the provisions of this Agreement. ARTICLE II AGREEMENT FOR THE C LOAN Section 2.01. AMOUNT. Subject to the terms and conditions of this Agreement, IFC agrees to lend to the Co-Borrowers and the Co-Borrowers agree jointly and severally to borrow from IFC the C Loan, that is, the amount of up to ten million Dollars ($10,000,000). SECTION 2.02. INTEREST. (a) The C Loan shall accrue interest (the "C Loan Interest") in respect of each Interest Period at a rate per annum which shall be the sum of two per cent (2.0%) per annum and LIBOR, on the Interest Determination Date for such Interest Period for six months (or, in the case of the first Interest Period, for one month, two months, three months or six months, whichever period is closest to the duration of the relevant Interest Period or, if two periods are equally close to the duration of the relevant Interest Period, the longer one) (the "C Loan Interest Rate"). (b) The C Loan Interest shall be determined on each Interest Determination Date and shall be paid on each Interest Payment Date as provided by the terms of the Loan Agreement, MUTATIS MUTANDIS. Section 2.03. ADDITIONAL C LOAN INTEREST. (a) In addition to the C Loan Interest, the Co-Borrowers shall also pay, in Dollars, on each Additional Interest Payment Date, the Additional C Loan Interest which shall be equal to two and -4- one-half per cent (2.5%) times EBITDA (before opening expenses) for the relevant Additional Interest Period, commencing on March 15, 2003. (b) Such Additional Interest shall be calculated by IFC on the basis of the Consolidated audited financial statements of the Co-Borrowers and their respective Subsidiaries for the previous Financial Year. Section 2.04. CAP ON INTEREST. Notwithstanding the provisions of Sections 2.02 and 2.03, the sum of the C Loan Interest and the Additional C Loan Interest paid on the C Loan shall not exceed in respect of each year an amount computed on the basis of the following interest rate percentages (with respect to the C Loan): YEAR CAP ---- --- 2003 11.5% 2004 14.0% 2005 16.5% 2006 19.0% 2007 & thereafter 20.0% Section 2.05. FEES. (a) The Co-Borrowers shall pay to IFC in Dollars a front-end fee of one hundred thousand Dollars ($100,000) in respect of the C Loan to be paid within thirty (30) days after the date of this Agreement (but, in any event, prior to the disbursement of the C Loan); (b) The Co-Borrowers shall also pay to IFC a commitment fee of one-half of one per cent (1/2%) per annum on that part of the C Loan which from time to time has not been disbursed or cancelled. The commitment fee shall: (i) begin to accrue on the date of this Agreement; (ii) be PRO RATED on the basis of a 360-day year for the actual number of days elapsed; and (iii) be payable semi-annually, in arrears, on the Interest Payment Dates in each year, the first such payment to be due on March 15, 2001. Section 2.06. DISBURSEMENT. (a) Subject to Section 5.01 (a)(i), (b), (c), (d)(i) (other than with respect to the OPIC Loan) through (d)(v), (e), (f) (other than legal opinions relating to the movable and immovable assets in jurisdictions other -5- than El Salvador and the Dominican Republic), (g), (h), (i), (j), (l), (m), (n) and (o) of the Loan Agreement, the disbursement of the full amount of the C Loan shall be made in one lump sum prior to or simultaneously with the first disbursement of the A Loan, but in no event later than July 26, 2001, at PriceSmart's bank account in New York, New York for further credit to the Co-Borrowers' respective accounts at a bank in the Countries, or any other place acceptable to IFC, or to the credit of the Co-Borrowers' existing creditors, all as specified by the Co-Borrowers in the C Loan Disbursement request. (b) Notwithstanding any provision in this Agreement, each of PSMT Caribe and PSMT Trinidad irrevocably appoints and designates PriceSmart as its agent for the purpose of receiving any notice or request and further authorizes PriceSmart to make the request provided in Section 2.06(a) or any other request permitted to be made by the Co-Borrowers under this Agreement, to receive all disbursements to be made hereunder, to sign the receipts provided for in Section 2.06(a), and to take any other action required or permitted to be taken on its behalf under this Agreement. Section 2.07. REPAYMENT. The C Loan shall be repaid in full in one installment on the later of (i) the date on which all amounts outstanding under the A Loan are repaid in full and (ii) March 15, 2011. Section 2.08. PREPAYMENT. (a) The C Loan may be prepaid on any Interest Payment Date after March 15, 2006 on not less than forty-five (45) days' prior notice to IFC, subject to the following terms and conditions: (i) for a partial prepayment, such prepayment is in an amount not less than three million Dollars ($3,000,000); (ii) the Co-Borrowers simultaneously pay the prepayment premium referred to in subsection (b); (iii) the Co-Borrowers simultaneously pay all accrued interest on the amount of the C Loan to be prepaid together with all other amounts then payable under this Agreement; and (iv) if IFC so requires, the Co-Borrowers deliver to IFC, prior to the date of prepayment, evidence satisfactory to IFC that all governmental approvals necessary in respect of the prepayment have been obtained. -6- (b) The Co-Borrowers shall pay, in respect of each portion of the C Loan prepaid in accordance with subsection (a), a prepayment premium equal to the result of multiplying (i) the principal amount of the C Loan being prepaid, (ii) by eighteen per cent 18%, and (iii) by the number of years (with any partial year calculated to the nearest one-hundredth of one year based upon a 360-day year) remaining until the maturity of the C Loan. Section 2.09. LATE PAYMENT CHARGE. If the Co-Borrowers fail to make any payment under this Agreement when due, the Co-Borrowers shall pay to IFC a late payment charge determined in accordance with Section 3.04 of the Loan Agreement, MUTATIS MUTANDIS, at the rates of (i) two per cent (2%) above the relevant C Loan Interest Rate, in effect from time to time in respect of any amount overdue (other than principal) relating to the C Loan, and (ii) two per cent (2%) on any overdue amount of principal of the C Loan or, in each case, such higher rate (not to exceed five per cent (5%) above the relevant C Loan Interest Rate in effect from time to time) of default interest as is charged to the Co-Borrowers by other lenders. Section 2.10. GENERAL. (a) Except as otherwise expressly provided in this Agreement, all the provisions of Sections 3.08, 3.09, 3.10, 3.11(a)(ii) and (b), 3.14 and 3.15 of the Loan Agreement and Articles IV, V (to the extent set forth in Section 2.06 hereof), VI, VII and VIII of the Loan Agreement shall apply MUTATIS MUTANDIS to the C Loan as if each reference therein to the A Loan and Loan Agreement is a reference as well to the C Loan and this Agreement, respectively, unless the context otherwise requires; accordingly, such provisions are incorporated herein by reference and this Agreement shall be construed and interpreted accordingly. (b) For the avoidance of doubt, any Event of Default or Potential Event of Default in respect of the A Loan shall constitute an Event of Default or Potential Event of Default in respect of the C Loan. -7- ARTICLE III MISCELLANEOUS Section 3.01. DURATION. This Agreement shall continue in force until all monies payable hereunder shall have been fully paid in accordance with the provisions hereof. Section 3.02. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. In seeking proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart signed by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names as of the date first above written. PRICESMART INC. By: /s/ Gilbert A. Partida ----------------------------------- Name: Gilbert A. Partida Title: President / CEO PSMT CARIBE INC. By: /s/ Allan C. Youngberg ----------------------------------- Name: Allan C. Youngberg Title: Treasurer / Chief Financial Officer -8- PSMT TRINIDAD/TOBAGO LTD. By: /s/ Joseph Eseau ----------------------------------- Name: Joseph Eseau Title: Chairman INTERNATIONAL FINANCE CORPORATION By: /s/ Mary Ellen Iskenderian Name: Mary Ellen Iskenderian Title: Manager Latin America and Caribbean Department -9- SCHEDULE 1 Page 1 of 4 FORM OF C LOAN DISBURSEMENT REQUEST (See Sections 3.02 and 5.03 of the Loan Agreement) [LETTERHEAD OF PRICESMART] [Date] International Finance Corporation 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 United States of America Attention: Director, Latin America and Caribbean Department Ladies and Gentlemen: Investment No. 10296 REQUEST FOR DISBURSEMENT 1. Please refer to the C Loan Agreement dated as of January 26, 2001 (the "C Loan Agreement") and the Loan Agreement dated as of January 26, 2001 (the "Loan Agreement"), each among PriceSmart Inc., PSMT Caribe Inc. and PSMT Trinidad/Tobago Limited (the "Co-Borrowers") and International Finance Corporation ("IFC"). 2. All terms defined in the Loan Agreement and the C Loan Agreement shall bear the same meanings herein. [3. The Co-Borrowers irrevocably request the disbursement, on ____________, 2001 (or as soon as practicable thereafter), of the amount of ten million Dollars ($10,000,000) under the C Loan (the "Disbursement") in accordance with the provisions of Section 2.06 of the C Loan Agreement. You are requested to pay such amount to the account in New York of PriceSmart Inc., [Name of correspondent Bank], Account No. ____________ at [Name and Address of Bank] [for further credit to Co-Borrowers' respective accounts as follows: -10- SCHEDULE 1 Page 2 of 4 (a) $__________ to Account No. ___________ of PSMT Caribe Ltd. at [Name and Address of Bank] in the British Virgin Islands; (b) $__________ to Account No. ____________ of PSMT Trinidad/Tobago Limited at [Name and Address of Bank] in [City], Trinidad and Tobago.(1) [3. The Co-Borrowers irrevocably request the disbursement, on ____________, 2001 (or as soon as practicable thereafter), of the amount of ten million Dollars ($10,000,000) under the C Loan (the "Disbursement") in accordance with the provisions of Section 2.06 of the C Loan Agreement. You are requested to pay such amount to the account in New York of [CREDITOR], [Name of correspondent Bank], Account No. ____________ at [Name and Address of Bank] 4. IFC has not heretofore disbursed any amounts under the C Loan to the Co-Borrowers. Following the disbursement of the amount hereby requested, the C Loan shall have been fully disbursed. 5. For purposes of Section 2.11 of the C Loan Agreement and Sections 5.02 and 5.03 of the Loan Agreement, PriceSmart, as agent for each of the other Co-Borrowers, certifies as follows: (a) PriceSmart has been appointed as agent for each of the Co-Borrowers (other than PriceSmart) for purposes of making, on behalf of each such Co-Borrower, the certifications set forth herein; (b) no Event of Default and no Potential Event of Default has occurred and is continuing; (c) the proceeds of the Disbursement are at the date of this request needed by the Co-Borrowers for the purpose of the Project, or will be needed for such purpose within three (3) months of such date; - --------- (1) Any exchange control consents, if required (e.g. for IFC to remit to overseas account) must be provided by the Co-Borrowers to IFC prior to disbursement. -11- SCHEDULE 1 Page 3 of 4 (d) since the date of the C Loan Agreement nothing has occurred which has or could reasonably be expected to have a Material Adverse Effect; (e) since June 30, 2000, none of the Co-Borrowers has incurred any material loss or liability (except such liabilities as may be incurred by the Co-Borrowers in accordance with Section 6.02 of the Loan Agreement); (f) the representations and warranties made in Article IV of the Loan Agreement are true on the date of this request and will be true on the date of Disbursement with the same effect as if such representations and warranties had been made on and as of each such date (but in the case of Section 4.01(c), without the words in parenthesis); (g) the proceeds of the Disbursement are not in reimbursement of, or to be used for, expenditures in the territories of any country which is not a member of the World Bank or for goods produced in or services supplied from any such country; (h) after giving effect to the Disbursement, none of the Co-Borrowers will be in violation of: (i) its Charter; (ii) any provision contained in any document to which it is a party (including the Loan Agreement) or by which it is bound; or (iii) any law, rule, regulation, Authorization or agreement or other document binding on it directly or indirectly, limiting or otherwise restricting its borrowing power or authority or its ability to borrow; and -12- SCHEDULE 1 Page 4 of 4 (iv) since [insert the dates of the latest version of the respective Charters] no amendment has been made to the Charters of any of the Co-Borrowers [.] [, except for: (list all amendments).] 6. The certifications in paragraph 5 above are effective as of the date of this request for disbursement and will continue to be effective as of the date of disbursement. If any of these certifications is no longer valid as of or prior to the date of the disbursement hereby requested, the Co-Borrowers will immediately notify IFC and will repay the amount disbursed upon demand by IFC if disbursement is made prior to the receipt of such notice. Yours truly, PRICESMART INC. By ----------------------------------- Authorized Representative Copy to: Manager, Financial Operations Unit International Finance Corporation -13- SCHEDULE 2 Page 1 of 1 FORM OF C LOAN DISBURSEMENT RECEIPT (See Section 3.02 of the Loan Agreement) [LETTERHEAD OF PRICESMART] International Finance Corporation 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 United States of America Attention: Manager, Financial Operations Unit Ladies and Gentlemen: Investment No. 10296 DISBURSEMENT RECEIPT We, PriceSmart Inc., hereby acknowledge on behalf of PriceSmart Inc., PSMT Caribe Inc. and PSMT Trinidad/Tobago Limited, receipt on the date hereof, of the sum of ten million Dollars ($10,000,000) disbursed to us by International Finance Corporation ("IFC") under the C Loan provided for in the C Loan Agreement dated as of January 26, 2001, among PriceSmart Inc., PSMT Caribe Inc. and PSMT Trinidad/Tobago Limited and International Finance Corporation. Yours truly, PRICESMART INC. By ----------------------------------- Authorized Representative*** *** As named in the Borrower's Certificate of Incumbency and Authority (see Schedule 1 of the Loan Agreement). EX-10.8 10 a2045570zex-10_8.txt EXHIBIT 10.8 Exhibit 10.8 ================================================================================ INVESTMENT NUMBER 10296 ESCROW ACCOUNT AGREEMENT AMONG PRICESMART INC. AND INTERNATIONAL FINANCE CORPORATION AND THE BANK OF NEW YORK DATED AS OF JANUARY 26, 2001 ACCOUNT NUMBER: GLA/111-565 SUB ACCOUNT: 293615 SHORT TITLE OF ACCOUNT: PRICESMART/IFC CORPORATE ESCROW ================================================================================ ESCROW ACCOUNT AGREEMENT ESCROW ACCOUNT AGREEMENT made as of the 26th day of January, 2001 by and between THE BANK OF NEW YORK (as agent for IFC and as secured party hereunder, the "Escrow Agent" and, as securities intermediary hereunder or in any other capacity, the "Securities Intermediary"), PRICESMART INC. ("PriceSmart"), and INTERNATIONAL FINANCE CORPORATION ("IFC"). WHEREAS: (A) By a Loan Agreement dated as of January 26, 2001 (hereinafter called the "IFC Loan Agreement") by and among the PriceSmart, PSMT Trinidad/Tobago Limited, PSMT Caribe Inc. (collectively, the "Co-Borrowers") and IFC, IFC has agreed, subject to the terms and conditions therein set forth to lend to the Co-Borrowers jointly and severally the amount of twenty-two million Dollars ($22,000,000) (hereinafter called the "A Loan"); (B) By a C Loan Agreement, dated as of January 26, 2001, by and among the Co-Borrowers and IFC (the "C Loan Agreement" and together with the IFC Loan Agreement, the "Loan Agreements"), IFC has agreed, subject to the terms and conditions therein set forth, to lend to the Co-Borrowers jointly and severally the amount of ten million Dollars ($10,000,000) (hereinafter called the "C Loan" and, together with the A Loan, the "Loans"); (C) The Escrow Agent has received a conformed copy of the Loan Agreements; and (D) As an inducement for IFC to make the Loans to the Co-Borrowers, PriceSmart has agreed to establish an escrow account with the Escrow Agent, to be funded and administered in accordance with the terms hereof, and to assign, pledge and grant a security interest in such account to IFC, as provided herein. NOW THEREFORE, IFC, PriceSmart and the Escrow Agent hereby agree that, in consideration of the mutual promises and covenants contained herein, the Escrow Agent shall hold in escrow and shall distribute Escrow Property (as defined herein) in accordance with and subject to the following Instructions, Security Interests and Terms and Conditions: -2- I. INSTRUCTIONS: 1. ESCROW PROPERTY (a) ESTABLISHMENT OF ESCROW ACCOUNT. (i) PriceSmart has established with the Securities Intermediary at the Securities Intermediary's office at 101 Barclay Street, 21 West, New York, New York 10286, a special segregated account numbered GLA/111-565, Sub Account No.293615 (the "Escrow Account"). The Escrow Account shall at all times remain an account at the Securities Intermediaries' office in New York, New York. (ii) The Escrow Account is in the name and under the control of the Escrow Agent. All right, title and interest in and to the Escrow Account, the cash amounts on deposit from time to time in the Escrow Account, and any investments from time to time held in the Escrow Account shall vest in and be under the control of the Escrow Agent and shall be disbursed to PriceSmart only in accordance with this Agreement. (iii) The Escrow Agent hereby confirms that the Escrow Account has been established and agrees to operate the Escrow Account and make distributions from the Escrow Account only in accordance with the provisions of this Agreement. (b) MINIMUM AMOUNT. (i) PriceSmart agrees to maintain a balance of funds in the Escrow Account at all times equal to or greater than the Minimum Amount (as defined below), until such time as IFC deliver to the Escrow Agent the notice contemplated by paragraph III.18(a). (ii) The minimum dollar amount which PriceSmart must maintain in the Escrow Account at any time (the "Minimum Amount") shall be the lesser of (A) the amount equal to (1) two hundred thirty-four thousand three hundred seventy-five Dollars ($234,375) multiplied by (2) the amount that has been disbursed plus any amount that has been requested to be disbursed under the Loan Agreements, as computed and notified by IFC to the Escrow Agent from time to time, divided by one million Dollars ($1,000,000) or (B) seven million five hundred thousand Dollars ($7,500,000). Upon receipt by the Escrow Agent of each such notice from IFC, the Minimum Amount shall be adjusted in accordance with the aggregate amount set forth in such notice, and the new Minimum Amount shall remain in effect until the Escrow Agent receives a further such notice from IFC. The Escrow Agent shall promptly give notice of the new Minimum Amount to IFC and PriceSmart. Except in the case of manifest error, any such notice of the Minimum Amount shall be conclusive and binding upon all the parties to this Agreement for the purposes of this Agreement. (c) The foregoing property and/or funds, plus all interest, dividends and other distributions and payments thereon (collectively the "Distributions") received by the -3- Escrow Agent, less any property and/or funds distributed or paid in accordance with this Escrow Agreement, are collectively referred to herein as "Escrow Property." 2. INVESTMENT OF ESCROW PROPERTY (a) The Escrow Agent shall invest or reinvest the Escrow Property, without distinction between principal and income, only in the following permitted investments ("Permitted Investments") as instructed in writing as provided in paragraphs (a), (b), (c) and (d) below: (i) readily marketable direct obligations of the United States or readily marketable obligations guaranteed by the United States or any agency thereof that mature within one hundred eighty (180) days after the date of acquisition thereof; (ii) commercial paper, in registered form, that matures within one hundred eighty (180) days after the date of acquisition rated at least A-1+ by Standard & Poor's Corporation ("S&P") and P-1 by Moody's Investors Service, Inc. ("Moody's"), issued by corporations organized in the United States or any state thereof, the outstanding long term senior unsubordinated indebtedness of which is then rated at least AA by S&P and Aaa by Moody's; (iii) time deposits that mature within one hundred eighty (180) days after the date of acquisition thereof with, including Dollar-denominated certificates of deposit issued by, the Securities Intermediary or any office located in the United States of any bank or trust company organized under the laws of the United States or any state thereof, which has capital, surplus and undivided profits aggregating at least $1,000,000,000 and the outstanding long term senior unsubordinated indebtedness of which is then rated at least AA by S&P and at least Aaa by Moody's; and (iv) shares in any money market mutual fund rated at least AAA by S&P or Aaa by Moody's; PROVIDED, that such investments are either: (A) evidenced by negotiable instruments or certificated securities and issued in the name of the Escrow Agent or indorsed to the Escrow Agent or in blank and in each case delivered to, and held by, the Escrow Agent or any agent thereof in the State of New York; (B) in the form of entries in the records of the Federal Reserve Bank of New York ("Government Securities") and credited to a securities account maintained by the Securities Intermediary with the Federal Reserve Bank of New York and as to which the Securities Intermediary shall have indicated by book entry that such Government Securities have been credited to the Escrow Account; -4- (C) "securities" within the meaning of Article 8 of the UCC (as defined below) as to which the Depositary Trust Company ("DTC") shall have indicated by book entry that such securities have been credited to an account with DTC of the Securities Intermediary or any affiliate thereof and the Securities Intermediary shall have indicated by book entry that such securities have been credited to the Escrow Account ("DTC Securities"); or (D) "uncertificated securities" within the meaning of Article 8 of the UCC (1) constituting validly issued shares not previously issued in a money market mutual fund ("Money Market Securities") and (2) as to which the Securities Intermediary has been registered as the owner on the books of the registrar and transfer agent of such money market mutual fund in its capacity as registrar and transfer agent of such money market mutual fund and as to which the Securities Intermediary shall have indicated by book entry that such Money Market Securities have been credited to the Escrow Account. (b) Unless IFC shall have given notice to the Escrow Agent that a Security Default has occurred and is continuing, the Escrow Agent shall invest and re-invest all funds in the Escrow Account in Permitted Investments as instructed from time to time in writing by PriceSmart. (c) If IFC shall have given notice to the Escrow Agent that a Security Default has occurred, and until the Escrow Agent receives notice from IFC that such Security Default no longer is continuing, the Escrow Agent shall invest and re-invest all funds in the Escrow Account in Permitted Investments only as instructed from time to time in a joint written notice from IFC. (d) If the Escrow Agent does not receive the instructions referred to in paragraphs (b) or (c) above from PriceSmart or IFC, as the case may be, by the close of business on the day of deposit of any funds, or the maturity of any investment, in the Escrow Account, the Escrow Agent shall invest and re-invest such funds and investments in U.S. Treasury Bills maturing not later than thirty (30) days after the acquisition thereof until such instructions are received from PriceSmart or IFC, as the case may be. (e) All earnings from investments of funds in the Escrow Account shall be deposited into the Escrow Account. (f) The Escrow Agent shall have no liability for any loss arising from or related to any such investment other than in accordance with paragraph III.4. 3. DISTRIBUTION OF ESCROW PROPERTY. The Escrow Agent is directed to hold and distribute the Escrow Property in the following manner: (a) WITHDRAWALS. (i) Unless a Security Default has occurred and is continuing, PriceSmart may withdraw funds and investments from the Escrow Account, but only if and to the extent that the amount of the Escrow Property is greater than seven million five hundred thousand Dollars ($7,500,000) as the date of withdrawal. -5- (ii) After the Escrow Agent has received notice from IFC that a Security Default has occurred, and until the Escrow Agent receives notice from IFC that such Security Default is no longer continuing, it shall not allow any withdrawals from the Escrow Account without the prior written consent of IFC. (b) DEFAULT. Without prejudice to the provisions of paragraph II.5, upon the occurrence and during the continuation of any Security Default, IFC may give notice to the Escrow Agent informing it of such Security Default and requiring the Escrow Agent to pay all amounts in the Escrow Account to IFC, as notified by IFC to the Escrow Agent, and thereupon the Escrow Agent shall pay such amounts as so instructed. Amounts so distributed to IFC may be applied by IFC to repayment of the Loans and payment of all other Secured Obligations (as defined in paragraph II.5), in such manner as each of them may decide in its sole discretion. 4. ADDRESSES All notices, instructions and other communications contemplated hereunder shall be sent in writing to the Escrow Agent, Corporate Trust Administration, 101 Barclay Street, Global Structured Products, 21 West, New York, New York 10286, and to PriceSmart and IFC as follows: For PriceSmart: PriceSmart, Inc. 4649 Morena Blvd. San Diego, CA 92117-3650 Facsimile: (858) 581-4707 -6- For IFC: International Finance Corporation 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 United States of America Attention: Director, Latin America and Caribbean Department Facsimile: +1-202-974-4371 With a copy (in the case of notices relating to payments) to the attention of the Senior Manager, Financial Operations Unit, at Facsimile: +1-202-974-4371 5. DISTRIBUTION OF ESCROW PROPERTY UPON TERMINATION Upon termination of this Escrow Agreement, the Escrow Property then held hereunder shall be distributed to PriceSmart or the parties otherwise entitled to it. 6. COMPENSATION (a) PriceSmart shall pay the Escrow Agent an acceptance fee of six thousand Dollars ($6,000.00) payable upon execution of this Agreement and thereafter on each anniversary date of this Agreement. (b) PriceSmart shall be responsible for and shall reimburse the Escrow Agent upon demand for all expenses, disbursements and advances incurred or made by the Escrow Agent in connection with this Agreement. (c) The Escrow Agent shall look solely to PriceSmart for payment of its fees and expenses hereunder. II. SECURITY INTERESTS 1. SECURITY. PriceSmart hereby assigns and pledges to the Escrow Agent, and grants to the Escrow Agent, for the benefit of IFC, as collateral security for the Co-Borrowers' obligations under the Loan Agreements and this Agreement (collectively, the "Secured Obligations"), a security interest in, all of its right, title and interest in the following (the "Collateral"): -7- (a) the Escrow Account; (b) all moneys from time to time deposited in or paid into the Escrow Account; (c) all property and investments, including without limitation Permitted Investments, from time to time held in or credited to the Escrow Account, whether now owned or hereafter acquired, and all earnings thereon; and (d) all proceeds thereof. 2. COVENANTS OF THE SECURITIES INTERMEDIARY; FINANCIAL ASSETS. (a) All funds or other property acquired by or deposited with the Securities Intermediary or the Escrow Agent hereunder will be credited by the Securities Intermediary to the Escrow Account, and the Securities Intermediary will indicate by book entry that such funds and property have been so credited. The parties agree that all property credited to the Escrow Account will be treated as financial assets under Article 8 of the UCC. (b) The Securities Intermediary will comply with all notifications it receives directing it to transfer or redeem any funds or other property in the Escrow Account (each an "Entitlement Order") originated by the Escrow Agent without further consent by PriceSmart. (c) The Securities Intermediary will not agree with any third party that the Securities Intermediary will comply with Entitlement Orders originated by such third party. (d) The Securities Intermediary will promptly notify IFC and the Escrow Agent if any other person claims that it has a property interest in, or asserts a lien or encumbrance against, the Escrow Account or any property in the Escrow Account. (e) The Securities Intermediary and the Escrow Agent shall not have, and hereby waive, any right of the banker's lien, set-off or counterclaim in respect of any of the funds or property in the Escrow Account, and the Securities Intermediary subordinates in favor of the Escrow Agent any security interest or other lien it may have, now or in the future, against the Escrow Account or any property therein. 3. FURTHER ASSURANCES; POWER OF ATTORNEY. PriceSmart shall, at its cost and expense, take all action and execute, deliver and file all financing statements or other documents necessary to perfect or maintain the perfection of the security interests granted in this Agreement or to enable the Escrow Agent and IFC to obtain the full benefits of this Agreement or to exercise and enforce any of their rights, powers and remedies hereunder with respect to any of the Escrow Property. PriceSmart hereby grants to IFC and the Escrow Agent the right to do all acts and things which either IFC or the Escrow Agent may deem necessary or desirable to perfect and continue the perfection of the -8- security interests provided by this Agreement, and PriceSmart hereby irrevocably appoints each of IFC and the Escrow Agent as its attorney-in-fact to do, jointly or separately, all acts and things necessary to accomplish the foregoing; it being understood that the Escrow Agent shall execute any financing statements or amendments thereto upon written instructions of IFC, but the Escrow Agent shall have no obligation to file any such statement or amendment. 4. COVENANTS OF PRICESMART. (a) PriceSmart shall not assign, pledge or create or permit to exist any lien, security interest, pledge, charge, privilege or priority of any kind, in or to the Escrow Account or any funds or property at any time held therein in favor of any person or entity other than IFC or the Escrow Agent for the benefit of IFC. (b) PriceSmart shall, at its expense, defend the Collateral against the claims of all persons other than IFC and the Escrow Agent. (c) PriceSmart shall pay any taxes of any kind now or hereafter levied against the funds or property deposited or held in the Escrow Account and any earnings thereon or any other Collateral, as and when the same shall become due, and PriceSmart shall, promptly upon request, deliver to IFC and the Escrow Agent evidence of such payments. (d) PriceSmart shall, promptly upon request, provide to the Escrow Agent and IFC all information and evidence they may request concerning the Collateral to enable the Escrow Agent and IFC to enforce the provisions of this Agreement. (e) PriceSmart shall keep full and accurate books and records relating to the Collateral and stamp or otherwise mark such books and records in such manner as IFC or the Escrow Agent may reasonably require to reflect the security interests granted under this Agreement. 5. SECURITY DEFAULT. (a) The following events shall constitute a default under this Agreement (a "Security Default"): (i) an Event of Default under any of the Loan Agreements shall have occurred and be continuing; (ii) any representation or warranty made by PriceSmart herein shall prove false in any material respect when made; (iii) any failure by PriceSmart to perform or observe fully the terms of this Agreement; or (iv) any seizure, attachment or levy upon the Escrow Account or any of the funds or investments therein shall have occurred. (b) If a Security Default has occurred and is continuing, at the written direction of IFC, the Escrow Agent may exercise on behalf of IFC all rights of a secured party under the UCC (whether or not in effect in the jurisdiction where such rights are -9- exercised) and, in addition, the Escrow Agent may, upon written direction of IFC, without being required to give any notice, except as herein provided or as may be required by mandatory provisions of law, withdraw all cash and investments in the Escrow Account and sell the Collateral or any part thereof at such prices as it shall deem satisfactory, and apply such cash and investments and the proceeds of such sale and other cash, if any, then held by it: (i) FIRST, to the payment of the expenses of such sale or other realization, and all expenses, liabilities and advances incurred or made by the Escrow Agent in connection therewith; (ii) SECOND, to the payment of all Secured Obligations owing to IFC under the Loan Agreements that are due (by acceleration or otherwise) and unpaid, PRO RATA in accordance with the amounts then due and payable to IFC under the IFC Loan Agreement and the C Loan Agreement; (iii) THIRD, to the payment of all other Secured Obligations, until all Secured Obligations shall have been paid in full; and (iv) FINALLY, to payment to PriceSmart or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining. 6. UCC TERMS. Wherever used in this Agreement, unless otherwise defined herein or unless the context otherwise requires, terms defined in the Uniform Commercial Code as in effect from time to time in the State of New York (the "UCC") shall have the same meanings when used in this Agreement. III. TERMS AND CONDITIONS: 1. The duties, responsibilities and obligations of the Escrow Agent shall be limited to those expressly set forth herein and no duties, responsibilities or obligations shall be inferred or implied. The Escrow Agent shall not be subject to, nor required to comply with, any other agreement between PriceSmart and IFC or to which any of them is a party, even though reference thereto may be made herein, or to comply with any direction or instruction (other than those contained herein or delivered in accordance with this Escrow Agreement) from any of PriceSmart or IFC or any entity acting on any of their behalf. The Escrow Agent shall not be required to, and shall not, expend or risk any of its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder. 2. This Agreement is for the exclusive benefit of the parties hereto and their respective successors hereunder, and shall not be deemed to give, either express or implied, any legal or equitable right, remedy or claim to any other entity or person whatsoever. -10- 3. If at any time the Escrow Agent is served with any judicial or administrative order, judgment, decree, writ or other form of judicial or administrative process which in any way affects the Escrow Property (including but not limited to orders of attachment or garnishment or other forms of levies or injunctions or stays relating to the transfer of the Escrow Property), the Escrow Agent is authorized to comply therewith in any manner as it or its legal counsel reasonably chosen by it deems appropriate; and if the Escrow Agent complies with any such judicial or administrative order, judgment, decree, writ or other form of judicial or administrative process, the Escrow Agent shall not be liable to any of the parties hereto or to any other person or entity even though such order, judgment, decree, writ or process may be subsequently modified or vacated or otherwise determined to have been without legal form or effect. 4. (a) The Escrow Agent shall not be liable for any action taken or omitted or for any loss or injury resulting from its actions or its performance or lack of performance of its duties hereunder in the absence of gross negligence or willful misconduct on its part. In no event shall the Escrow Agent be liable (i) for acting in accordance with or relying upon any instruction, notice, demand, certificate or document from PriceSmart or IFC which such party is entitled to deliver hereunder, (ii) for any consequential, punitive or special damages, or (iii) for the acts or omissions of its nominees, correspondents, designees, subagents or subcustodians appointed with due care. (b) As security for the due and punctual performance of any and all of PriceSmart's obligations to the Escrow Agent hereunder, now or hereafter arising, PriceSmart hereby pledges, assigns and grants to the Escrow Agent a continuing second priority security interest in, and a second priority lien on, the Escrow Property and all Distributions thereon or additions thereto (whether such additions are the result of deposits by PriceSmart or the investment of Escrow Property). The security interest of the Escrow Agent shall at all times be valid, perfected and enforceable by the Escrow Agent against PriceSmart and all third parties in accordance with the terms of this Escrow Agreement; PROVIDED, that, notwithstanding any other provision of this Agreement, such pledge, assignment and security interest (i) shall at all times be second in priority to the security interest granted to the Escrow Agent for the benefit of IFC hereunder and subordinate to the rights to IFC hereunder and (ii) shall not be enforced if enforcement thereof would cause the balance of the Escrow Property in the Escrow Account to be less than the Minimum Amount or at any time that a Security Default shall have occurred and be continuing. (c) The Escrow Agent may consult with legal counsel at the reasonable expense of PriceSmart as to any matter relating to this Escrow Agreement, and the Escrow Agent shall not incur any liability in acting in good faith in accordance with any advice from such counsel. (d) The Escrow Agent shall not incur any liability for not performing any act or fulfilling any duty, obligation or responsibility hereunder by reason of any occurrence beyond the control of the Escrow Agent (including but not limited to any act or provision -11- of any present or future law or regulation or governmental authority, any act of God or war, or the unavailability of the Federal Reserve Bank wire or telex or other wire or communication facility). 5. Unless otherwise specifically set forth herein, the Escrow Agent shall proceed as soon as practicable to collect any checks or other collection items at any time deposited hereunder. All such collections shall be subject to the Escrow Agent's usual collection practices or terms regarding items received by the Escrow Agent for deposit or collection. The Escrow Agent shall not be required, or have any duty, to notify anyone of any payment or maturity under the terms of any instrument deposited hereunder except as specifically provided in paragraph III.6 below, nor to take any legal action to enforce payment of any check, note or security deposited hereunder or to exercise any right or privilege which may be afforded to the holder of any such security. 6. (a) Not later than ten (10) days following the end of each calendar month, and from time to time upon request, the Escrow Agent shall provide to IFC and PriceSmart: (i) a statement of the amounts on deposit and the Permitted Investments held in the Escrow Account as of the end of the most recent calendar month; (ii) a statement of the current Minimum Amount; (iii) a statement of all transfers into and withdrawals from the Escrow Account during such month; and (iv) a statement of purchases and sales of Permitted Investments, and the receipt, application or existence of any income, dividends or capital gains with respect thereto, during such month. (b) The value of each Permitted Investment shall be determined as follows: (i) if such Permitted Investment is of the type defined in clause (i) of the definition of Permitted Investments, it shall be valued at the average of the closing bid and asked prices for the Business Day immediately prior to such valuation as set forth in THE WALL STREET JOURNAL (or if unavailable in THE WALL STREET JOURNAL for whatever reason, as set forth in any other recognized financial publication selected by the Escrow Agent in its discretion); (ii) if such Permitted Investment is of the type defined in clause (ii) of the definition of Permitted Investments, it shall be valued at cost plus accrued discount or accrued interest, as the case may be, through and including the date of such valuation; and (iii) if such Permitted Investment is of the type defined in clause (iii) or (iv) of the definition of Permitted Investments, it shall be valued at cost. -12- 7. The Escrow Agent shall not be responsible in any respect for the form, execution, validity, value or genuineness of documents or securities deposited hereunder, or for any description herein, or for the identity, authority or rights of persons executing or delivering or purporting to execute or deliver any such document, security or endorsement. 8. Notices, instructions or other communications shall be in writing and shall be given to the address set forth in the "Addresses" provision herein (or to such other address as may be substituted therefor by written notification to the Escrow Agent, PriceSmart or IFC). Notices to the Escrow Agent shall be deemed to be given when actually received by the Escrow Agent's Corporate Trust Department. The Escrow Agent is authorized to comply with and rely upon any notices, instructions or other communications believed by it to have been sent or given by PriceSmart or IFC or by a person or persons authorized by PriceSmart or IFC. Whenever under the terms hereof the time for giving a notice or performing an act falls upon a Saturday, Sunday or banking holiday, such time shall be extended to the next day on which the Escrow Agent is open for business. 9. PriceSmart shall be liable for and shall reimburse and indemnify the Escrow Agent and hold the Escrow Agent harmless from and against any and all claims, losses, liabilities, costs, damages or expenses (including reasonable attorneys' fees and expenses) (collectively, "Losses") arising from or in connection with or related to this Escrow Agreement or being the Escrow Agent hereunder (including but not limited to Losses incurred by the Escrow Agent in connection with its successful defense, in whole or in part, of any claim of gross negligence or willful misconduct on its part); PROVIDED, however, that nothing contained herein shall require the Escrow Agent to be indemnified for Losses caused by its gross negligence or willful misconduct. 10. (a) IFC may remove the Escrow Agent or the Securities Intermediary at any time by giving to the Escrow Agent thirty (30) calendar days' prior notice in writing signed by IFC. The Escrow Agent or Securities Intermediary may resign at any time by giving to PriceSmart and IFC thirty (30) calendar days' prior written notice thereof. Such removal or resignation shall be effective from the date specified in the relevant notice; PROVIDED, that such removal or resignation, as the case may be, shall not become effective until a Successor Escrow Agent or Successor Securities Intermediary (each as defined below) shall have succeeded to the rights and obligations of the Escrow Agent or Securities Intermediary, as the case may be, hereunder pursuant to subsection (b) below and, in the case of the resignation or removal of the Securities Intermediary, a new special segregated escrow account (a "Successor Escrow Account"), satisfactory to IFC, shall have been established with the Successor Securities Intermediary and the funds and investments in the Escrow Account shall have been transferred to the Successor Escrow Account. (b) If the position of the Escrow Agent or the Securities Intermediary shall become vacant for any reason, IFC shall have the right to appoint, upon consultation with -13- PriceSmart, a successor to its rights and duties hereunder (a "Successor Escrow Agent" or a "Successor Securities Intermediary," as the case may be), which shall be a commercial bank or trust company, located in New York, New York, organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $100,000,000. If no Successor Escrow Agent or Successor Escrow Intermediary shall have been so appointed by IFC, and shall have accepted such appointment, within one hundred twenty (120) days after the resigning Escrow Agent or Securities Intermediary gives notice of resignation, then the resigning Escrow Agent or Securities Intermediary may, on behalf of IFC, appoint a Successor Escrow Agent or Successor Securities Intermediary that complies with the criteria set forth in the preceding sentence. Upon the acceptance by the Successor Escrow Agent or Successor Securities Intermediary of its appointment hereunder, such Successor Escrow Agent or Successor Securities Intermediary shall thereupon succeed to, become vested with and assume all the rights, duties and obligations of the retiring Escrow Agent or Securities Intermediary, whether arising before or after the acceptance by the Successor Escrow Agent or Successor Securities Intermediary of such appointment, and all references herein to the Escrow Agent, Securities Intermediary or Escrow Account, as the case may be, shall thereafter apply to the Successor Escrow Agent, Successor Securities Intermediary, or Successor Escrow Account, and the retiring Escrow Agent or Securities Intermediary shall be discharged from its duties and obligations hereunder. 11. In the event of any ambiguity or uncertainty hereunder or in any notice, instruction or other communication received by the Escrow Agent hereunder, the Escrow Agent may, in its sole discretion, refrain from taking any action other than retain possession of the Escrow Property, unless the Escrow Agent receives written instructions, signed by IFC, which eliminates such ambiguity or uncertainty. 12. (a) This Agreement shall be governed by and interpreted, construed, enforced and administered in accordance with the laws of the State of New York. PriceSmart hereby submits to the personal jurisdiction of, and agrees that all proceedings relating hereto shall be brought in, courts located within the City and State of New York or elsewhere as the Escrow Agent may select. PriceSmart hereby waives the right to trial by jury and to assert counterclaims in any such proceedings. To the extent that in any jurisdiction PriceSmart may be entitled to claim, for itself or its assets, immunity from suit, execution, attachment (whether before or after judgment) or other legal process, PriceSmart hereby irrevocably agrees not to claim, and hereby waives, such immunity. PriceSmart waives personal service of process and consents to service of process by certified or registered mail, return receipt requested, directed to it at the address last specified for notices hereunder, and such service shall be deemed completed ten (10) calendar days after the same is so mailed. (b) PriceSmart hereby irrevocably designates, appoints and empowers CT Corporation System, 111 Eighth Avenue, 13th Floor, New York, New York 10011, United States of America, as its authorized agent to receive for and on its behalf service of summons or other legal process in any action or proceeding in New York, New York, United States of America. PriceSmart agrees that the failure of such agent to give notice -14- to PriceSmart of any such service shall not impair or affect the validity of such service or of any judgment rendered in any action or proceeding based thereon. PriceSmart further waives personal service of process by certified or registered airmail, postage prepaid, directed to it at the address last specified for notices hereunder, and such service shall be deemed completed ten (10) calendar days after the same is so mailed. 13. Except as otherwise permitted herein, this Escrow Agreement may be modified only by a written amendment signed by all the parties hereto, and no waiver of any provision hereof shall be effective unless expressed in a writing signed by the party to be charged. 14. The rights and remedies conferred upon the parties hereto shall be cumulative, and the exercise or waiver of any such right or remedy shall not preclude or inhibit the exercise of any additional rights or remedies. The waiver of any right or remedy hereunder shall not preclude the subsequent exercise of such right or remedy. 15. (a) IFC hereby represents and warrants (i) that this Escrow Agreement has been duly authorized, executed and delivered on its behalf and constitutes its legal, valid and binding obligation and (ii) that the execution, delivery and performance of this Escrow Agreement by it do not and will not violate any applicable law or regulation. (b) PriceSmart represents and warrants to IFC and the Escrow Agent as follows: (i) PriceSmart is a corporation duly organized and validly existing under the laws of the State of Delaware and has the requisite corporate power to enter into this Agreement and to perform its obligations hereunder. (ii) The execution and delivery by PriceSmart of this Agreement and the performance by PriceSmart of its obligations hereunder have been duly authorized by all necessary corporate action, will not violate any provision of its organizational documents or any agreement to which it is a party or by which it is bound, and this Agreement is the legal, valid and binding obligation of PriceSmart, enforceable against PriceSmart in accordance with its terms. (iii) PriceSmart has the right to assign, pledge and grant a first priority security interest in the Collateral to the Escrow Agent for the benefit of IFC. (iv) PriceSmart has rights in, and good and marketable title to, all of the existing Collateral, free and clear of any liens or encumbrances other than the security interests granted in this Agreement and as otherwise permitted under the Loan Agreements. (v) Price Smart has not performed any acts which might prevent IFC or the Escrow Agent from enforcing any of the terms of this Agreement or which will limit IFC or the Escrow Agent in any such enforcement. -15- (vi) This Agreement creates a valid security interest in the Collateral as security for the Secured Obligations; PROVIDED, that with respect to any item of Collateral in which PriceSmart has no present rights, such security interest will be created when PriceSmart acquires such rights. (vii) No action, including, but not limited to, any recording, filing, registration, giving of notice or other similar action, other than the execution and delivery of this Agreement is necessary to perfect the rights of the Escrow Agent for the benefit of IFC in and to the Collateral, except that a security interest in the Collateral consisting of Permitted Investments may be perfected only when: (A) in the case of Permitted Investments evidenced by instruments or certificated securities, the Escrow Agent takes possession of the instruments or certificated securities, and the instruments or certificated securities are indorsed to the Escrow Agent or in blank; (B) in the case of Government Securities, when the Federal Reserve Bank of New York makes an appropriate entry in its records crediting such Government Securities to an account of the Securities Intermediary, and the Securities Intermediary indicates by book entry that such Government Securities have been credited to the Escrow Account; (C) in the case of DTC Securities, when DTC indicates by book entry that such DTC Securities have been credited to an account with DTC of the Securities Intermediary, and the Securities Intermediary indicates by book entry that such DTC Securities have been credited to the Escrow Account; or (D) in the case of Money Market Securities, the Escrow Agent has been registered as the owner thereof or when the Securities Intermediary has been registered as the owner thereof and the Securities Intermediary has indicated by book entry that such Money Market Securities have been credited to the Escrow Account. (viii) The rights of the Escrow Agent for the benefit of IFC in the Collateral are and will remain prior to the rights of all other persons other than as permitted under the Loan Agreements. (ix) Under applicable law, each payment or distribution of funds or investments in the Escrow Account required to be made by the Escrow Agent hereunder may be made by the Escrow Agent free and clear of, and without deduction or withholding for or on account of, taxes. (c) The Securities Intermediary and the Escrow Agent represent and warrant to IFC as follows: -16- (i) The Escrow Account is a "securities account" within the meaning of Section 8-501(a) of the UCC, established and maintained pursuant to an agreement that is stated to be governed by the law of the State of New York, with respect to which the Escrow Agent is the "entitlement holder" within the meaning of Section 8-102(a)(7) of the UCC. (ii) The Securities Intermediary is a "securities intermediary" within the meaning of Section 8-102(a)(14) of the UCC. (iii) The responsible officers within the Corporate Trust Administration have not received notice of any lien, encumbrance or other claim to the Collateral, except for those created under this Agreement. (iv) The Securities Intermediary has not agreed to comply with entitlement orders originated by any party other than IFC or the Escrow Agent. 16. The invalidity, illegality or unenforceability of any provision of this Agreement shall in no way affect the validity, legality or enforceability of any other provision; and if any provision is held to be enforceable as a matter of law, the other provisions shall not be affected thereby and shall remain in full force and effect. 17. This Agreement shall constitute the entire agreement of the parties with respect to the subject matter and supersedes all prior oral or written agreements in regard thereto. 18. (a) Upon the earlier of the indefeasible payment in full of all Secured Obligations or the Project Financial Completion Date (as defined in the IFC Loan Agreement), IFC shall so notify the Escrow Agent and PriceSmart and, upon receipt by PriceSmart and the Escrow Agent of such notices, the security interests granted hereunder in Part II to the Escrow Agent for the benefit of IFC shall terminate and all rights to the Collateral granted thereby shall revert to PriceSmart. Upon any such termination of such security interests or release of Collateral to PriceSmart in accordance with the provisions of this Agreement, the Escrow Agent will, at the expense of PriceSmart, execute and deliver to PriceSmart such documents as PriceSmart shall reasonably request and provide to it to evidence the termination of the security interests or the release of such Collateral, as the case may be. (b) Upon any termination pursuant to paragraph (a) above of the security interests granted to the Escrow Agent for the benefit of IFC, the Escrow Agent shall distribute any remaining Escrow Property in accordance with Paragraph I.5 hereof. This Agreement shall terminate upon the distribution of all Escrow Property from the Escrow Account. 19. No printed or other material in any language, including prospectuses, notices, reports, and promotional material which mentions "The Bank of New York" by name or the rights, powers or duties of the Escrow Agent under this Agreement shall be -17- issued by any other parties hereto, or on such party's behalf, without the prior written consent of the Escrow Agent. 20. The headings contained in this Agreement are for convenience of reference only and shall have no effect on the interpretation or operation hereof. 21. This Escrow Agreement may be executed by each of the parties hereto in any number of counterparts, each of which counterpart, when so executed and delivered, shall be deemed to be an original and all such counterparts shall together constitute one and the same agreement. 22. The Escrow Agent does not have any interest in the Escrow Property deposited hereunder other than or expressly set forth herein. PriceSmart shall pay or reimburse the Escrow Agent upon request for any transfer taxes or other taxes relating to the Escrow Property incurred in connection herewith and shall indemnify and hold harmless the Escrow Agent any amounts that it is obligated to pay in the way of such taxes. Any payments of income from this Escrow Account shall be subject to withholding regulations then in force with respect to United States taxes. PriceSmart will provide the Escrow Agent upon request with appropriate W-9 forms for tax I.D., number certifications, or W-8 forms for non-resident alien certifications. It is understood that the Escrow Agent shall be responsible for income reporting only with respect to income earned on investment of funds which are a part of the Escrow Property and is not responsible for any other reporting. 23. The provisions of paragraphs I.3, III.9 and III.22 shall survive the termination of this Escrow Agreement or the registration or removal of the Escrow Agent. -18- IN WITNESS WHEREOF, each of the parties have caused this Escrow Agreement to be executed by a duly authorized officer as of the day and year first written above. PRICESMART, INC. By: /s/ Gilbert A. Partida --------------------------------------- Name: Gilbert A. Partida Title: President INTERNATIONAL FINANCE CORPORATION By: /s/ Mary Ellen Iskenderian --------------------------------------- Name: Mary Ellen Iskenderian Title: Manager Latin America & Caribbean Department THE BANK OF NEW YORK, as Escrow Agent and Securities Intermediary By: /s/ Dee Thakker --------------------------------------- Name: Dee Thakker Title: Assistant Treasurer -----END PRIVACY-ENHANCED MESSAGE-----