-----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, RAYtMmgVf5IM9NHcJJL7CLKuawGdeSEiF/LWrg4SdVvYzOuNlBx5PURJUR/iQ/ph A3SmhOkKUD9okanLpK/LgA== 0000912057-01-541388.txt : 20020412 0000912057-01-541388.hdr.sgml : 20020412 ACCESSION NUMBER: 0000912057-01-541388 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 20010831 FILED AS OF DATE: 20011129 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-22793 FILM NUMBER: 1802626 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-K 1 a2064125z10-k.txt FORM 10-K U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. (Mark One) /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended August 31, 2001. / / Transitional 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 small business issuer in its charter) DELAWARE 33-0628530 (State of other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 4649 MORENA BLVD., SAN DIEGO, CA 92117 (Address of principal executive offices, Zip Code) Registrant's telephone number, including area code: (858) 581-4530 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.0001 PAR VALUE (Title of Class) Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the voting stock held by non-affiliates of the Registrant as of November 20, 2001 was $102,595,937, based on the last reported sale of $33.61 per share on November 20, 2001. As of November 20, 2001, a total of 6,262,220 shares of Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Annual Report for fiscal year ending August 31, 2001 are incorporated by reference into Part II of this Form 10-K. Portions of the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on January 16, 2002 are incorporated by reference into Part III of this Form 10-K. 1 TABLE OF CONTENTS Part I Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders Part II Item 5. Market for Common Stock and Related Stockholder Matters THE INFORMATION REQUIRED BY ITEM 5 IS INCORPORATED HEREIN BY REFERENCE FROM PRICESMART'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED AUGUST 31, 2001 UNDER THE HEADING "MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS." Item 6. Selected Financial Data THE INFORMATION REQUIRED BY ITEM 6 IS INCORPORATED HEREIN BY REFERENCE FROM PRICESMART'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED AUGUST 31, 2001 UNDER THE HEADING "SELECTED FINANCIAL DATA." Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations THE INFORMATION REQUIRED BY ITEM 7 IS INCORPORATED HEREIN BY REFERENCE FROM PRICESMART'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED AUGUST 31, 2001 UNDER THE HEADING "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." Item 7A. Quantitative and Qualitative Disclosures about Market Risk THE INFORMATION REQUIRED BY ITEM 7A IS INCORPORATED HEREIN BY REFERENCE FROM PRICESMART'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED AUGUST 31, 2001 UNDER THE HEADING "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK." Item 8. Financial Statements THE INFORMATION REQUIRED BY ITEM 8 IS INCORPORATED HEREIN BY REFERENCE FROM PRICESMART'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED AUGUST 31, 2001 UNDER THE HEADING "FINANCIAL STATEMENTS." Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure NONE Part III Item 10. Directors and Executive Officers of the Registrant THE INFORMATION REQUIRED BY ITEM 10 IS INCORPORATED HEREIN BY REFERENCE FROM PRICESMART'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JANUARY 16, 2002 UNDER THE HEADINGS "ELECTION OF DIRECTORS," "INFORMATION REGARDING DIRECTORS," "EXECUTIVE OFFICERS OF THE COMPANY" AND "COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT." Item 11. Executive Compensation THE INFORMATION REQUIRED BY ITEM 11 IS INCORPORATED HEREIN BY REFERENCE FROM PRICESMART'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JANUARY 16, 2002 UNDER THE HEADINGS "INFORMATION REGARDING THE BOARD," "EXECUTIVE COMPENSATION AND OTHER INFORMATION" AND "PERFORMANCE GRAPH." Item 12. Security Ownership of Certain Beneficial Owners and Management THE INFORMATION REQUIRED BY ITEM 12 IS INCORPORATED HEREIN BY REFERENCE FROM PRICESMART'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JANUARY 16, 2002 UNDER THE HEADING "SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 2 MANAGEMENT." Item 13. Certain Relationships and Related Transactions THE INFORMATION REQUIRED BY ITEM 13 IS INCORPORATED HEREIN BY REFERENCE FROM PRICESMART'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JANUARY 16, 2002 UNDER THE HEADING "CERTAIN TRANSACTIONS." Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 3 PART I ITEM 1. BUSINESS This Form 10-K 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 from the statements, including foreign exchange risks, political or economic instability of host countries, and competition as well as those risks described in the Company's SEC reports, including the risk factors referenced in this Form 10-K. See "Factors That May Affect Future Performance." 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 August 31, 2001, the Company had twenty-two warehouse stores in operation (four in Panama, three each in Guatemala, Costa Rica, and the Dominican Republic, two each in El Salvador and Honduras, and one each in Aruba, Barbados, the Philippines, Trinidad, and the U.S. Virgin Islands) of which the Company owns at least a majority interest. On July 24, 2001, the Company entered into agreements to increase its ownership from 62.5% to 90.0% in the operations in Trinidad. The Company entered into agreements to increase its ownership from 51% to 100% in the operations in Panama on March 27, 2000 and to increase its ownership from 60% to 100% in the operations in Costa Rica, the Dominican Republic, El Salvador and Honduras on July 7, 2000. In addition, there were nine warehouse stores in operation (eight in China and one in Saipan, Micronesia) licensed to and operated by local business people as of August 31, 2001. Additionally, until March 1, 2000, the Company operated a domestic travel program and until April 1, 1999, the Company operated a domestic auto referral business. In June 1997, the Price Enterprises, Inc. ("PEI") Board of Directors approved a plan to separate PEI's core real estate business from the merchandising businesses it operated through a number of subsidiaries. To effect such separation, PEI first transferred to the Company, through a series of preliminary transactions, the assets listed below. PEI then distributed on August 29, 1997 all of the Company's common stock pro rata to PEI's existing stockholders through a special dividend (the "Distribution"). Assets transferred to PriceSmart were comprised of: (i) the merchandising business segment of PEI; (ii) certain real estate properties held for sale (the "Properties"); (iii) notes receivable from buyers of properties; (iv) cash and cash equivalents of approximately $58.4 million; and (v) all other assets and liabilities not specifically associated with PEI's portfolio of investment properties, except for current corporate income tax assets and liabilities. BUSINESS STRATEGY The Company's strategy is to focus on development of the international merchandising business and to leverage existing capabilities and provide appropriate returns for its stockholders. Specifically, key elements of the Company's business strategy include: PROVIDE LOWER PRICES IN THE MARKET PLACE. The Company's principal business philosophy is to bring quality products and services at low prices to the consumer. Future development of the Company's business will be directed to markets in which the Company can compete effectively by lowering the costs of goods and services to consumers. INCREASE MARKET SHARE IN DEVELOPING MARKETS. The Company believes that it is well positioned to profit from the growth in developing markets due to its purchasing power and experience with membership warehouses in Central America, the Caribbean and Asia. The Company intends to continue to satisfy the growing demand for U.S. consumer goods in such markets by opening additional membership warehouses, principally in Latin America, the Caribbean and the Philippines. MARKET SATURATION. The Company seeks to establish significant market share in the metropolitan areas of emerging market countries by rapidly saturating these areas with multiple stores. 4 INTERNATIONAL MERCHANDISING BUSINESSES The Company owns and operates U.S.-style membership shopping warehouses through majority or wholly owned ventures operating in Central America, the Caribbean and Asia using the trade name "PriceSmart". In fiscal 2001, the Company opened six new U.S.-style membership shopping warehouses, one warehouse each in the Dominican Republic (October 2000), Aruba (March 2001), the US Virgin Islands (May 2001), the Philippines (May 2001), Guatemala (May 2001), and Barbados (August 2001) bringing the total number of warehouses in operation to twenty-two operating in eleven countries as of August 31, 2001. Subsequent to fiscal 2001, the Company opened one additional location in the Philippines in November 2001. Also, there were nine warehouse stores in operation (eight in China and one in Saipan, Micronesia) licensed to and operated by local business people at the end of fiscal 2001, through which the Company earns royalties and other fees in connection with certain licensing and technology transfer agreements. The warehouses sell basic consumer goods with an emphasis on quality, low prices and efficient operations. By offering low prices on brand name and private label merchandise, the warehouses seek to generate sufficient sales volumes to operate profitably at relatively low gross margins. The typical no-frills warehouse-type buildings range in size from 40,000 to 50,000 square feet of selling space and are located in urban areas to take advantage of dense populations and relatively higher levels of disposable income. Product selection includes perishable foods and basic consumer products. Ancillary services include food services, bakery departments, tire centers, photo centers, pharmacy and optical services. The target customers are consumers and small businesses. The shopping format includes an annual membership fee that varies by market from $20 to $35. Typically, when entering a new market the Company enters into licensing and technology transfer agreements with a joint venture company (whose majority stockholder is the Company and whose minority stockholders are local business people) pursuant to which the Company provides the Company's know-how package, which includes training and management support, as well as access to the Company's computer software systems. The license also includes the right to use the "PriceSmart" mark and certain other trademarks. The Company and its licensees also enter into product sourcing agreements. The Company receives a license fee based upon a percentage of the actual licensee sales. The Company believes that the local business people have been interested in entering into such joint ventures and obtaining such licenses for a variety of reasons, including the track record of the Company's management team, the opportunity to purchase U.S.-sourced products, the benefits of the Company's modern distribution techniques and the opportunity to obtain exclusive rights to use the Company's trademarks in the region. MEMBERSHIP POLICY PriceSmart's membership fee structure was specifically designed to allow pricing flexibility from country to country. Membership price points are attractive to our target consumer base. The value of Membership reinforces Member-Customer loyalty and membership fees provide a continuing source of revenue. PriceSmart has two primary types of Members: Business and Diamond (individual). Business owners and key managers qualify for Business Membership. PriceSmart promotes Business Membership through its merchandise selection and its marketing programs primarily targeting wholesalers, institutional buyers and retailers. Business Members pay an annual membership fee which averages $28 for a primary and spouse membership card and $12 for additional add-on membership cards. Individuals pay an annual membership fee, which averages $24. One add-on membership card is available for an additional $12. The Company recognizes membership fee revenues over the term of the membership, which is 12 months. Deferred revenue is presented separately on the face of the balance sheet and totaled $4.4 million and $3.9 million as of August 31, 2001 and August 31, 2000, respectively. PriceSmart's membership agreements contain an explicit right to a full refund if our customers are dissatisfied with their membership. The Company's historical rate of membership fee refunds has been less than 0.5% of membership income, or approximately $35,000, $26,000 and $8,000 for years ended August 31, 2001, 2000 and 1999, respectively. 5 EXPANSION PLANS The Company's expansion plans focus on opening new stores in foreign markets, through majority or wholly owned ventures, primarily in Latin America, the Caribbean and Asia. The Company believes such foreign markets offer significant opportunities for growth because they are often characterized by (i) significant geographic and logistical barriers to entry, (ii) existing higher-priced local competitors with minimal experience with modern operating processes in purchasing, distribution, merchandising and information technologies, and (iii) a demand for U.S. brand-name products that are not widely available in such markets. The Company anticipates opening four to six new warehouses in fiscal 2002. As a result of this growth, the Company believes that it is positioned to achieve approximately $650 million in revenues in fiscal 2002. Also, based upon demographics, the gross domestic product and retail sales in markets relative to the Company's performance in the eleven countries it currently operates, the Company has identified additional potential locations to open six to ten new stores in fiscal 2003. ACQUISITION OF MINORITY INTERESTS On July 24, 2001, the Company entered into agreements to acquire an additional 27.5% interest in the PriceSmart Trinidad majority owned subsidiary, which previously had been 62.5% owned by the Company. The purchase price of the 27.5% interest consisted of: (a) 20,115 shares of PriceSmart common stock; (b) a 9% interest in the PriceSmart Barbados subsidiary; (c) a 17.5% interest in the PriceSmart Jamaica subsidiary; (d) a promissory note of $314,000; (e) forgiveness of a note receivable due to the Company of $317,000 and (f) assumption of remaining contributions of $340,000 shown net of minority interest acquired. As a result of this additional interest acquired, the Company increased its guarantee proportionately for the outstanding long term debt related to the Trinidad operations. On March 27, 2000, the Company entered into an agreement to acquire the remaining interest in the PriceSmart Panama majority owned subsidiary, 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 (see Note 16). In exchange for BB&M's 49% interest, the Company issued to BB&M's principals 306,748 shares of PriceSmart common stock. As a result of this acquisition, the Company increased its guarantee for the outstanding long term debt 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 for an aggregate of approximately $11.4 million in cash, resulting in an incremental goodwill adjustment of approximately $1.1 million. 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 July 7, 2000, the Company agreed to acquire 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 were restricted from sale for one year (subject to certain conditions). As a result of this acquisition, PriceSmart, Inc. has increased its guarantee for the outstanding long term debt related to the warehouses operating in Costa Rica, El Salvador, Honduras and the Dominican Republic to 100%. Results from operations of the acquired minority interests have been included, based on sole ownership, in the financial results of the Company from the date of the transactions. RELATIONSHIP WITH COSTCO 6 In November 1996 PEI, Costco Companies, Inc. ("Costco") and certain of their respective subsidiaries, including the Company, entered into an Agreement Concerning Transfer of Certain Assets (the "Asset Transfer Agreement") in connection with the settlement of litigation arising from the spin-off of PEI from Costco and the prior merger between The Price Company and Costco. PEI and Costco agreed in the Asset Transfer Agreement to eliminate all noncompete and operating agreements and to terminate all trademark and license agreements between the parties, subject to certain exceptions. Costco agreed to refrain from conducting membership store businesses in the Northern Mariana Islands, Guam and Panama through October 31, 1999. The Company has an exclusive royalty-free right (including against Costco), in the Northern Mariana Islands and Guam to use "Price Club" and "PriceCostco" marks, and in Panama to use the "PriceCostco" mark, in connection with the development, operation, advertising and promotion of the Company's business activities in such areas, subject to certain restrictions. The Asset Transfer Agreement, however, requires the Company to use diligent and reasonable efforts to negotiate with its licensee in the Northern Mariana Islands, Guam and Panama to terminate such right to use the "Price Club" and "PriceCostco" names and marks at the earliest possible date before December 12, 2009 for the Northern Mariana Islands and Guam and December 21, 2015 for Panama. Costco has agreed in the Asset Transfer Agreement that PEI and its downstream affiliates may use the name "Price" in a "PriceSmart" mark, but PEI and its downstream affiliates may not use a "PriceSmart" mark in connection with a club business or other membership activity named "PriceSmart" in the United States, Canada or Mexico; provided that the limitations on the Company's rights to use the "PriceSmart" name in the United States, Canada and Mexico terminate 24 months after Costco and its downstream affiliates discontinue their use of the names "PriceCostco" and "Price Club." INTELLECTUAL PROPERTY RIGHTS It is the Company's policy to obtain appropriate proprietary rights protection for trademarks by filing applications for registrable marks with the U.S. Patent and Trademark Office, and in certain foreign countries. In addition, the Company relies on copyright and trade secret laws to protect its proprietary rights. The Company attempts to protect its trade secrets and other proprietary information through agreements with its joint ventures, employees, consultants and suppliers, and other similar measures. There can be no assurance, however, that the Company will be successful in protecting its proprietary rights. While management believes that the Company's trademarks, copyrights and other proprietary know-how have significant value, changing technology and the competitive marketplace make the Company's future success dependent principally upon its employees' technical competence and creative skills for continuing innovation. There can be no assurance that third parties will not assert claims against the Company with respect to existing and future trademarks, trade names and sales techniques. In the event of litigation to determine the validity of any third party's claims, such litigation could result in significant expense to the Company and divert the efforts of the Company's management, whether or not such litigation is determined in favor of the Company. The Company has filed applications to register under various classifications the mark "PriceSmart" (and certain other marks) in the U.S. Patent and Trademark Office, and in certain foreign countries; however, because of objections by one or more parties, there can be no assurance that the Company will obtain all such registrations or that the Company has proprietary rights to the marks. In August 1999, the Company and Associated Wholesale Grocers, Inc. ("AWG") entered into an agreement regarding the trademark "PriceSmart" and related marks containing the name "PriceSmart". The Company has agreed not to use the "PriceSmart" mark or any related marks containing the name "PriceSmart" in connection with the sale or offer for sale of any goods or services within AWG's territory of operations, including the following ten states: Kansas, Missouri, Arkansas, Oklahoma, Nebraska, Iowa, Texas, Illinois, Tennessee and Kentucky. The Company, however, may use the mark "PriceSmart" or any mark containing the name "PriceSmart" on the internet or any other global computer network whether within or outside said territory, and in any national advertising campaign that cannot reasonably exclude the territory, and the Company may use the mark in connection with various travel services. AWG has agreed not to oppose 7 any trademark applications filed by the Company for registration of the mark "PriceSmart" or related marks containing the name "PriceSmart", and AWG has further agreed not to bring any action for trademark infringement against the Company based upon the Company's use outside the territory (or with respect to the permitted uses inside the territory) of the mark "PriceSmart" or related marks containing the name "PriceSmart." EMPLOYEES As of August 31, 2001, the Company and its subsidiaries, had a total of 3,476 employees. Approximately 94% of the Company's employees were employed outside of the United States. SEASONALITY Historically, the Company's merchandising businesses have experienced 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. FACTORS THAT MAY AFFECT FUTURE PERFORMANCE THE COMPANY'S FINANCIAL PERFORMANCE IS DEPENDENT ON INTERNATIONAL OPERATIONS, WHICH EXPOSES IT TO VARIOUS RISKS. The Company's international operations account for nearly all of the Company's total sales. The Company's financial performance is subject to risks inherent in operating and expanding the Company's international membership concept which include: (i) changes in tariffs and taxes, (ii) the imposition of governmental controls,(iii) trade restrictions, (iv) greater difficulty and costs associated with international sales and the administration of an international merchandising business, (v) limitations on U.S. company ownership in foreign countries, (vi) permitting and regulatory compliance, (vii) volatility in foreign currency exchange rates, (viii) the financial and other capabilities of the Company's joint venturers and licensees, and (ix) general political as well as economic and business conditions. ANY FAILURE BY THE COMPANY TO MANAGE ITS GROWTH COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS. The Company began an aggressive growth strategy in April 1999 in Central America and the Caribbean. The Company has opened six new warehouses in fiscal 2001 and intends to open four to six additional new warehouses in fiscal 2002 (one of which was opened in November 2001). The success of the Company's growth strategy will depend to a significant degree on the Company's ability to: (i) expand the Company's operations through the opening of new warehouses, (ii) operate warehouses on a profitable basis and (iii) maintain positive comparable warehouse sales in the applicable markets. Some markets may present operational, competitive, regulatory and merchandising challenges that are similar to, or different from those previously encountered by the Company. Also, the Company might not be able to adapt the Company's operations to support these expansion plans, and the new warehouses may not achieve the profitability necessary for the Company to receive an acceptable return on investment. The Company's ability to open new warehouses on a timely basis will also depend on a number of factors, some of which may be beyond the Company's control, including the Company's ability to: (i) locate suitable warehouse sites, (ii) negotiate acceptable lease or acquisition terms, (iii) construct sites on a timely basis, and (iv) obtain financing in a timely manner and with satisfactory terms. The growth strategy also will require the Company to hire, train and retain skilled managers and personnel to support its planned growth, and the Company may experience difficulties hiring employees who possess the training and experience necessary to operate the Company's new warehouses, particularly in foreign markets where language, education and cultural factors may impose particular challenges. Further, the Company may encounter substantial delays, increased expenses or loss of potential sites due to the complexities, cultural differences, and local political issues associated with the regulatory and permitting processes in the international markets in which the Company 8 intends to locate new warehouses. The Company might not be able to open the planned number of new warehouses according to its schedule or continue to attract, develop and retain the personnel necessary to pursue the Company's growth strategy. Failure to do so could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the Company will need to continually evaluate the adequacy of the Company's existing systems and procedures, including warehouse management, financial and inventory control and distribution systems. Moreover, as the Company grows, it will need to continually analyze the sufficiency of the Company's inventory distribution methods and may require additional facilities in order to support the Company's planned growth. The Company may not adequately anticipate all the changing demands that its expanding operations will impose on these systems. The Company's failure to update the Company's internal systems or procedures as required could have a material adverse effect on the Company's business, financial condition and results of operations. THE COMPANY FACES SIGNIFICANT COMPETITION. The Company's international merchandising businesses compete with exporters, wholesalers, other membership merchandisers, local retailers and trading companies in various international markets. Some of the Company's competitors may have greater resources, buying power and name recognition. There can be no assurance that the Company's competitors will not decide to enter the markets in which the Company operates, or expects to enter, or that the Company's existing competitors will not compete more effectively against the Company. The Company may be required to implement price reductions in order to remain competitive should any of the Company's competitors reduce prices in any of the Company's markets. Moreover, the Company's ability to expand into and operate profitably in new markets, particularly small markets, may be adversely affected by the existence or entry of competing warehouse clubs or discount retailers. THE COMPANY MAY ENCOUNTER DIFFICULTIES IN THE SHIPMENT OF GOODS TO ITS WAREHOUSES. The Company is required to transport products over great distances, typically over water, which results in: (i) substantial lags between the procurement and delivery of product, thus complicating merchandising and inventory control methods, (ii) the possible loss of product due to theft or potential damage to, or destruction of, ships or containers delivering goods, (iii) tariff, customs and shipping regulation issues, and (iv) substantial ocean freight and duty costs. Moreover, only a limited number of transportation companies service the Company's regions. The inability or failure of one or more key transportation companies to provide transportation services to the Company, any collusion among the transportation companies regarding shipping prices or terms, changes in the regulations that govern shipping tariffs or any other disruption in the Company's ability to transport the Company's merchandise could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, many of the countries in which the Company operates require registration of imported products, which may result in additional delays in the Company's deliveries of products to its warehouses. THE SUCCESS OF THE COMPANY'S BUSINESS REQUIRES EFFECTIVE ASSISTANCE FROM LOCAL BUSINESS PEOPLE WITH WHOM THE COMPANY HAS ESTABLISHED STRATEGIC RELATIONSHIPS. Several of the risks associated with the Company's international merchandising business may be within the control (in whole or in part) of local business people with whom it has established formal and informal strategic relationships or may be affected by the acts or omissions of these local business people. In some cases, these local business people previously held minority interests in joint venture arrangements and now hold shares of the Company's common stock. No assurances can be provided that the Company's membership store concept will be implemented effectively or that these local business people will effectively help the Company penetrate their respective markets. The failure of these local business people to assist the Company in their local markets could harm the Company's business, financial condition and results of operations. THE COMPANY IS EXPOSED TO WEATHER AND OTHER RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. The Company's operations are subject to the volatile weather conditions and natural disasters which are encountered in the regions in which the Company's warehouse stores are located or are planned to be located, and which could result in delays in construction or result in significant damage to, or destruction of, the Company's warehouse stores. For example, the Company's two stores in El Salvador experienced minimal inventory loss and disruption of their business in January 2001 as a result of an earthquake that measured 7.6 on the Richter Scale and resulted in an 9 extraordinary loss of approximately $120,000. Losses from business interruption may not be adequately compensated by insurance and could have a material adverse effect on our business, financial condition and results of operations. DECLINES IN THE ECONOMIES OF THE COUNTRIES IN WHICH THE COMPANY OPERATES ITS WAREHOUSE STORES WOULD HARM ITS BUSINESS. The success of the Company's operations depends to a significant extent on a number of factors relating to discretionary consumer spending, including employment rates, business conditions, consumer spending patterns and customer preferences and other economic factors in each of the Company's foreign markets. Consumer spending in the Company's markets may be adversely affected by these factors, which would affect the Company's growth, sales and profitability. A decline in the national or regional economies of the foreign countries in which the Company currently operates, or will operate in the future, could have a material adverse effect on the Company's business, financial condition and results of operations. A FEW OF THE COMPANY'S STOCKHOLDERS HAVE SUBSTANTIAL CONTROL OVER THE VOTING STOCK, WHICH MAY MAKE IT DIFFICULT TO COMPLETE SOME CORPORATE TRANSACTIONS WITHOUT THEIR SUPPORT AND MAY PREVENT A CHANGE IN CONTROL. As of October 31, 2001, Robert E. Price, who is the Chairman of the Company's Board, and Sol Price, a significant stockholder of the Company and father of Robert E. Price, beneficially owned approximately 38% of the Company's outstanding common stock. As a result, these stockholders will effectively control the outcome of all matters submitted to the Company's stockholders for approval, including the election of directors. In addition, this ownership could discourage the acquisition of the Company's common stock by potential investors, and could have an anti-takeover effect, possibly depressing the trading price of the Company's common stock. THE LOSS OF KEY PERSONNEL COULD HARM THE COMPANY'S BUSINESS. The Company depends to a large extent on the performance of its senior management team and other key employees for strategic business direction. The loss of services of any members of the Company's senior management or other key employees could have a material adverse effect on the Company's business, financial condition and results of operations. THE COMPANY IS SUBJECT TO VOLATILITY IN FOREIGN CURRENCY EXCHANGE. The Company, through its majority or wholly owned subsidiaries, conducts operations primarily in Central America, the Caribbean and Asia, 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 August 31, 2001, the Company had a total of twenty-two warehouses (adding a twenty-third in November 2001) operating in eleven foreign countries. For fiscal 2001, 70% of the Company's net warehouse sales were in foreign currencies, and is expected to increase in fiscal 2002 to approximately 75%. The Company currently has operations in Panama, El Salvador and the U.S. Virgin Islands, which have 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 expects to enter into additional foreign countries in the future, which will increase the percentage of net warehouse sales denominated in foreign currencies, and which may involve similar economic and political risks as well as challenges that may be different from those currently encountered by the Company. There can be no assurance that the Company will not experience a materially adverse effect on its business, financial condition or result of operations as a result of the economic and political risks of conducting an international merchandising business. 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 manages its risks at times by hedging currencies through Non Deliverable Forward Exchange Contracts (NDFs). As of August 31, 2001, the Company had $2.0 million in NDFs outstanding. As there are no formal contemporaneous documentation for NDFs and provided no physical exchange of currency occurs at maturity (only the resulting gain or loss), they are not reflected on the balance sheet. If the NDFs were recorded based on their fair values, the effect would be immaterial. The Company may continue to 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 exist. Foreign exchange transaction losses realized, which are included as part of the costs of goods sold in the consolidated statements of operations, for fiscal 2001, fiscal 2000 and fiscal 1999 (including the cost of the NDFs) were $718,000, $1.3 million and $538,000, respectively. 10 THE COMPANY IS ENGAGED IN LITIGATION IN THE PHILIPPINES THAT QUESTIONS ITS RIGHT TO OPERATE WAREHOUSE STORES THERE. On May 18, 2001, the Company opened its first warehouse in Manila, Philippines. The warehouse is operated (through a joint venture of which the Company is the majority owner) under the name of "S&R Price Membership Shopping Warehouse." On June 15, 2001 the joint venture was served with a Complaint filed by a former Company licensee whose license was terminated by the Company in 1998. The Complaint alleges that the license was inappropriately terminated and that the former licensee therefore maintains the exclusive right for 20 years to own and operate warehouses licensed by the Company in the Philippines. On June 15 the joint venture was also served with a temporary restraining order issued in that action, requiring that the Company cease its operations in the Philippines. The Company closed the warehouse in accordance with the temporary restraining order, but reopened on June 19, 2001 after the Philippine Court of Appeals issued its own temporary restraining order staying enforcement of the restraining order that had closed the warehouse. The trial court judge subsequently issued an order lifting the restraining order. The parties currently are awaiting a decision from the Court of Appeals on the application, by the Company's joint venture, to dismiss or abate the lawsuit pending arbitration in Sydney, Australia, pursuant to a contractual arbitration clause previously agreed to by the parties. The Company maintains that the factual allegations and legal claims asserted in the Complaint are without merit and intends to defend them vigorously. Nevertheless, adverse rulings by the Philippine courts or in the arbitration proceedings, may suspend or shut-down current operations, delay or prevent future openings in the Philippines. ITEM 2. PROPERTIES WAREHOUSE PROPERTIES. The Company, through its majority or wholly owned ventures, has a combination of owned or leased properties for each country in which it operates warehouses. All buildings, both owned and leased, are constructed by independent contractors. The following is a summary of warehouse locations currently owned and / or leased by country:
Date Opened Country / Location or Anticipated Ownership / Lease - ------------------------------------------ ------------------------- --------------------------------- Panama: Los Pueblos October 25, 1996 Own land and building Via Brazil December 4, 1997 Lease land and building El Dorado November 11, 1999 Lease land and building David June 15, 2000 Own land and building Guatemala: Mira Flores April 8, 1999 Lease land and building Guatemala City August 24, 2000 Lease land and building Pradera May 29, 2001 Lease land and building Costa Rica: Zapote June 25, 2000 Own land and building Escazu May 12, 2000 Own land and building Heredia June 30, 2000 Own land and building Dominican Republic: Santo Domingo December 10, 1999 Own land and building Santiago December 14, 1999 Own land and building East Santo Domingo October 12, 2000 Own land and building El Salvador: Santa Elena August 26, 1999 Own land and building San Salvador April 13, 2000 Own land and building Honduras: San Pedro Sula September 29, 2000 Own land and building Tegucigalpa May 31, 2000 Lease land and building Aruba: Oranjestad March 23, 2001 Lease land and building Barbados: Bridgetown August 31, 2001 Lease land and building Philippines: Fort Bonifacio May 18, 2001 Lease land and building Ortigas November 8, 2001 Lease land and building Congressional Spring 2002 Lease land and building Aseana Fall 2002 Lease land and building Trinidad: Chaguanas August 4, 2000 Own land and building Port of Spain Fall 2001 Lease land and building US Virgin Islands: St. Thomas May 4, 2001 Lease land and building Guam Winter 2002 Lease land and building
CORPORATE HEADQUARTERS. The Company maintains its headquarters at 4649 Morena Blvd., San Diego, California 92117-3650. The Company leases 42,000 square feet of office 11 space from PEI at a rate $25,700 per month pursuant to a triple net lease. The current term expires on August 31, 2003, and the Company has three remaining renewal options of two years each. The Company also leases a 85,000 square foot facility in Miami, Florida at a rate of $39,000 per month that expires on May 31, 2003 with a renewal option of five years. The Company believes that its existing facilities are adequate to meet its current needs and that suitable additional or alternative space will be available on commercially reasonable terms as needed. PROPERTIES HELD FOR SALE. In connection with the Distribution, PEI transferred to the Company certain properties historically held for sale by PEI (the "Properties"). The one remaining Property is improved land which, when sold, is not expected to generate significant gains or losses. Proceeds from sales of such Property will be used to fund the Company's businesses and general working capital requirements. The Company expects such transaction to be completed within the next twelve months; however, given the nature of such sales activities, there can be no assurance that this potential sale will be completed by then or that such proceeds will be fully realized. ENVIRONMENTAL MATTERS. The Company has agreed to indemnify PEI for all of PEI's liabilities (including obligations to indemnify Costco with respect to environmental liabilities) arising out of PEI's prior ownership of the Properties and the real properties transferred by Costco to PEI that PEI sold prior to the Distribution. The Company's ownership of real properties and its agreement to indemnify PEI could subject it to certain environmental liabilities. As discussed below, certain Properties are located in areas of current or former industrial activity, where environmental contamination may have occurred. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and remediate releases or threatened releases of hazardous or toxic substances or petroleum products located at such property, and may be held liable to a governmental entity or to third parties for property damage and for investigation and remediation costs incurred by such parties in connection with the contamination. Under certain of these laws, liability may be imposed without regard to whether the owner knew of or caused the presence of the contaminants. These costs may be substantial, and the presence of such substances, or the failure to remediate properly the contamination on such property, may adversely affect the owner's ability to sell or lease such property or to borrow money using such property as collateral. Certain federal and state laws require the removal or encapsulation of asbestos containing material in poor condition in the event of remodeling or renovation. Other federal, state and local laws have been enacted to protect sensitive environmental resources, including threatened and endangered species and wetlands. Such laws may restrict the development and diminish the value of property that is inhabited by an endangered or threatened species, is designated as critical habitat for an endangered or threatened species or is characterized as wetlands. In 1994, Costco engaged environmental consultants to conduct Phase I assessments (involving investigation without soil sampling or groundwater analysis) at each of the properties that Costco transferred to PEI in 1994, including the Properties. The Company is unaware of any environmental liability or noncompliance with applicable environmental laws or regulations arising out of the Properties or the real properties transferred by Costco to PEI and sold prior to the Distribution that the Company believes would have a material adverse effect on its business, assets or results of operations. Nevertheless, there can be no assurance that the Company's knowledge is complete with regard to, or that the Phase I assessments have identified, all material environmental liabilities. The Company is aware of certain environmental issues, which the Company does not expect to have a material adverse effect on the Company's business, financial condition, operating results, cash flow or liquidity, relating to three properties transferred from Costco to PEI that were sold prior to the Distribution. The Company has agreed to indemnify PEI for environmental liabilities arising out of such properties. Set forth below are summaries of certain environmental matters relating to these properties. Phoenix (Fry's). The Phoenix (Fry's) site is a 37.1-acre site located in Phoenix, Arizona. The Phoenix (Fry's) site is located within the West Van Buren Study Area (the "WVBSA"). Volatile organic compounds ("VOCs") and petroleum hydrocarbons are present in groundwater in the WVBSA. To date, PEI (as successor to Costco) has not been identified as a potentially responsible party ("PRP") for the WVBSA. On March 8, 1995, 12 PEI sold the Phoenix (Fry's) site, and retained responsibility for certain environmental matters. Investigations conducted in connection with the sale of the property revealed some hydrocarbon contamination in an area previously occupied by a fuel pump island. Seven underground fuel storage tanks were removed in 1989. The Arizona Department of Environmental Quality ("ADEQ") has required additional testing of the site prior to granting closure of the site. An independent environmental firm recently completed the required additional tests and a risk assessment which were submitted to the ADEQ in October 2000, and the Company anticipates that closure of the site will be granted based on the test results. However, there can be no assurance that the ADEQ will grant closure or that additional work will not be required. Although designated by Arizona law as a "study area," the WVBSA is not a federal CERCLA site and is not listed on the National Properties List ("NPL"). Immediately to the east of the WVBSA, however, is the East Washington Study Area(the "EWSA"), which is listed on the NPL. VOCs are also present in groundwater in the EWSA. If the contamination plumes from the WVBSA and the EWSA merge, the possibility exists that the two study areas will be merged into one Federal CERCLA site. Meadowlands. The Meadowlands site is an unimproved, 12.9-acre site located in Meadowlands, New Jersey. A prior owner used this site as a debris disposal area. Elevated levels of heavy metals (including a small area contaminated with polychlorinated biphenyl) and petroleum hydrocarbons are present in soil at the Meadowlands site. PEI, however, has not been notified by any governmental authority, and is not otherwise aware, of any material noncompliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with the Meadowlands site. PEI sold the Meadowlands site on August 11, 1995. Nevertheless, PEI's previous ownership of the Meadowlands site creates the potential of liability for remediation costs associated with groundwater beneath the site. Silver City. The Silver City site contains or has contained petroleum hydrocarbons in the soil and groundwater. On March 20, 1996, PEI sold the Silver City site and retained responsibility for certain environmental matters. PEI is continuing to remediate the soil and groundwater at this property under supervision of local authorities. ITEM 3. LEGAL PROCEEDINGS From time to time the Company and its subsidiaries are subject to legal proceedings and claims in the ordinary course of business. The Company currently is not aware of any such legal proceedings or claims (other than disclosed below) that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition, operating results, cash flow or liquidity. On May 18, 2001, the Company opened its first warehouse in Manila, Philippines. The warehouse is operated (through a joint venture of which the Company is the majority owner) under the name of "S&R Price Membership Shopping Warehouse". On June 15, 2001 the joint venture was served with a Complaint filed by a former Company licensee whose license was terminated by the Company in 1998. The Complaint alleges that the license was inappropriately terminated and that the former licensee therefore maintains the exclusive right for 20 years to own and operate warehouses licensed by the Company in the Philippines. On June 15 the joint venture was also served with a temporary restraining order issued in that action, requiring that the Company cease its operations in the Philippines. The Company closed the warehouse in accordance with the temporary restraining order, but reopened on June 19, 2001 after the Philippine Court of Appeals issued its own temporary restraining order staying enforcement of the restraining order that had closed the warehouse. The trial court judge subsequently issued an order lifting the restraining order. The parties currently are awaiting a decision from the Court of Appeals on the application, by the Company's joint venture, to dismiss or abate the lawsuit pending arbitration in Sydney, Australia, pursuant to a contractual arbitration clause previously agreed to by the parties. The Company maintains that the factual allegations and legal claims asserted in the Complaint are without merit and intends to defend them vigorously. Nevertheless, adverse rulings by the Philippine courts or in the arbitration proceedings, may suspend or shut-down current operations, delay or prevent future openings in the Philippines. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13 The Company did not submit any matters to a vote of security holders during the fourth quarter of fiscal 2001. The Company's Annual Meeting of Stockholders is scheduled for 10:00 a.m. on January 16, 2002, at the Hilton San Diego Mission Valley in San Diego, California. Matters to be voted on will be included in the Company's definitive proxy statement to be filed with the Securities and Exchange Commission and distributed to stockholders prior to the meeting. PART II ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information required by Item 5 is incorporated herein by reference to PriceSmart's Annual Report for the fiscal year ended August 31, 2001 under the heading "Market for Common Stock and Related Stockholder Matters." ITEM 6. SELECTED FINANCIAL DATA The information required by Item 6 is incorporated herein by reference to PriceSmart's Annual Report for the fiscal year ended August 31, 2001 under the heading "Selected Financial Data." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by Item 7 is incorporated herein by reference to PriceSmart's Annual Report for the fiscal year ended August 31, 2001 under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by Item 7A is incorporated herein by reference to PriceSmart's Annual Report for the fiscal year ended August 31, 2001 under the heading "Quantitative and Qualitative Disclosures about Market Risk." ITEM 8. FINANCIAL STATEMENTS The information required by Item 8 is incorporated herein by reference to PriceSmart's Annual Report for the fiscal year ended August 31, 2001 under the heading "Financial Statements." ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 is incorporated herein by reference from PriceSmart's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on January 16, 2002 under the headings "Election of Directors," "Information Regarding Directors," "Executive Officers of the Company" and "Compliance with Section 16(a) of the Exchange Act." ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated herein by reference from PriceSmart's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on January 16, 2002 under the headings "Information Regarding the Board," "Executive Compensation and Other Information" and "Performance Graph." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated herein by reference from PriceSmart's definitive Proxy Statement for the Annual Meeting of Stockholders to be 14 held on January 16, 2002 under the heading "Securities Ownership of Certain Beneficial Owners and Management." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated herein by reference from PriceSmart's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on January 16, 2002 under the heading "Certain Transactions." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following financial statements are incorporated by reference into Part II, Item 8 of this Form 10-K under the respective headings from the annual report: Report of Independent Auditors Consolidated Balance Sheets as of August 31, 2001 and 2000 Consolidated Statements of Operations for the three years ended August 31, 2001 Consolidated Statements of Stockholders' Equity for the three years ended August 31, 2001 Consolidated Statements of Cash Flows for the three years ended August 31, 2001 Notes to Consolidated Financial Statements (b) Reports on Form 8-K: On April 6, 2001, the Company filed a Form 8-K under Item 5 announcing that the Company repurchased 242,144 shares of its common stock for an aggregate of approximately $11.4 million in cash resulting in an incremental goodwill adjustment of approximately $1.1 million. The Company repurchased these shares pursuant to its obligations under the Stock Purchase Agreement, as amended, relating to the Company's acquisition in March 2000 of the 49% minority interest in its Panamanian subsidiaries which previously had been owned by BB&M International Trading Group ("BB&M"). In exchange for BB&M's 49% interest, the Company issued to BB&M's principals 306,748 shares of the Company's common stock and agreed to redeem the shares 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. 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. (c) See Exhibit Index and Exhibits attached to this report (d) Financial Statement Schedules See "Schedule II: Valuation and Qualifying Accounts" attached to this report 15 SCHEDULE II PRICESMART, INC. VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND END OF OF PERIOD EXPENSES DEDUCTIONS PERIOD ----------- -------------- ----------- ------------- PROVISIONS FOR ASSET IMPAIRMENTS Year ended August 31, 1999 $ 225 $ - $ 225 (1) - Year ended August 31, 2000 - - - - Year ended August 31, 2001 - - - - ALLOWANCE FOR DOUBTFUL ACCOUNTS Year ended August 31, 1999 $ 414 $ 305 $ (275) (2) $ 444 Year ended August 31, 2000 444 239 (642) 41 Year ended August 31, 2001 41 248 (231) 58
(1) Deductions from asset impairments related to the sale of six properties. (2) Deductions from allowance for doubtful accounts primarily related to the recovery of prior year write down on accounts receivable. 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated: November 29, 2001 PRICESMART, INC. By: /S/ GILBERT A. PARTIDA ------------------------------ Title PRESIDENT AND CHIEF ------------------- EXECUTIVE OFFICER ----------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ ROBERT E. PRICE Chairman of the Board November 29, 2001 - ------------------------ Robert E. Price /s/ GILBERT A. PARTIDA President and Chief November 29, 2001 - ------------------------ Executive Officer Gilbert A. Partida (Principal Executive Officer) /s/ ALLAN C. YOUNGBERG Executive Vice President November 29, 2001 - ------------------------ and Chief Financial Officer Allan C. Youngberg (Principal Financial and Accounting Officer) /s/ RAFAEL E. BARCENAS Director November 29, 2001 - ------------------------ Rafael E. Barcenas /s/ JAMES F. CAHILL Director November 29, 2001 - ------------------------ James F. Cahill /s/ MURRAY L. GALINSON Director November 29, 2001 - ------------------------ Murray L. Galinson /s/ KATHERINE L. HENSLEY Director November 29, 2001 - ------------------------ Katherine L. Hensley /s/ LEON C. JANKS Director November 29, 2001 - ------------------------ Leon C. Janks /s/ LAWRENCE B. KRAUSE Director November 29, 2001 - ------------------------ Lawrence B. Krause /s/ JACK MCGRORY Director November 29, 2001 - ------------------------ Jack McGrory /s/ EDGAR A. ZURCHER Director November 29, 2001 - ------------------------ Edgar A. Zurcher
17 PRICESMART, INC. EXHIBIT INDEX AND EXHIBITS
EXHIBIT NUMBER DESCRIPTION - -------- ----------- 3.1(1) Amended and Restated Certificate of Incorporation of PriceSmart, Inc. 3.2(1) Amended and Restated Bylaws of PriceSmart, Inc. 10.1(1) 1997 Stock Option Plan of PriceSmart, Inc. 10.2(2) Agreement Concerning Transfer of Certain Assets dated as of November 1996 by and among Price Enterprises, Inc., Costco Companies, Inc. and certain of their respective subsidiaries 10.3(a)(3) Employment Agreement dated September 20, 1994 between Price Enterprises, Inc. and Robert M. Gans 10.3(b)(4) Third Amendment to Employment Agreement dated April 28, 1997 between Price Enterprises, Inc. and Robert M. Gans 10.3(c)(1) Fourth Amendment to Employment Agreement dated as of September 2, 1997 between the Company and Robert M. Gans 10.3(d)(5) Fifth Amendment to Employment Agreement dated as of March 31, 1999 between the Company and Robert M. Gans 10.3(e)(6) Sixth Amendment to Employment Agreement dated as of November 22, 1999 between the Company and Robert M. Gans 10.3(f)(6) Seventh Amendment to Employment Agreement dated as of July 18, 2000 between the Company and Robert M. Gans 10.3(g)(7) Eighth Amendment to Employment Agreement dated as of September 26, 2001 between the Company and Robert M. Gans 10.3(h)(7) Ninth Amendment to Employment Agreement dated as of October 16, 2001 between the Company and Robert M. Gans 10.4(8) Tax Sharing Agreement dated as of August 26, 1997 between the Company and Price Enterprises, Inc. 10.5(9) Form of Indemnity Agreement 10.6(1) Assignment and Assumption of Employment Agreement dated August 29, 1997 between the Company and Price Enterprises, Inc. 10.7(a)(10) Employment Agreement dated December 15, 1997 between the Company and Gilbert A. Partida 10.7(b)(6) First Amendment of Employment Agreement between PriceSmart, Inc. and Gilbert A. Partida, dated November 22, 1999 10.7(c)(11) Second Amendment of Employment Agreement between PriceSmart, Inc. and Gilbert A. Partida, dated January 10, 2000 10.7(d)(7) Third Amendment of Employment Agreement between PriceSmart, Inc. and Gilbert A. Partida, dated October 16, 2001 10.8(a)(12) Employment Agreement dated March 31, 1998 between the Company and Thomas D. Martin 10.8(b)(13) First Amendment to Employment Agreement between the Company and Thomas D. Martin, dated March 31, 1999
18 10.8(c)(6) Second Amendment of Employment Agreement between the Company and Thomas D. Martin, dated November 22, 1999 10.8(d)(11) Third Amendment of Employment Agreement between PriceSmart, Inc. and Thomas Martin dated January 11, 2000 10.8(e)(14) Fourth Amendment of Employment Agreement between PriceSmart, Inc. and Thomas Martin dated January 24, 2001 10.8(f)(7) Fifth Amendment of Employment Agreement between PriceSmart, Inc. and Thomas Martin dated October 16, 2001 10.9(12) Employment Agreement dated August 19, 1998 between the Company and Kurt A. May 10.9(a)(6) First Amendment of Employment Agreement between the Company and Kurt A. May dated November 22, 1999. 10.9(b)(6) Second Amendment of Employment Agreement between the Company and Kurt A. May dated July 18, 2000. 10.10(12) Members' Agreement dated September 14, 1998 between the Company and PSMT Caribe, Inc. 10.11(a)(15) Promissory Note (Includes schedule showing certain borrowers, dates of Notes, amounts of Notes and dates of Pledge Agreements) 10.11(b)(16) First Amendment to Promissory Note between the Company and Kevin C. Breen, dated June 1, 1999 10.11(c)(16) First Amendment to Promissory Note between the Company and Ron deHarte, dated June 1, 1999 10.11(d)(16) First Amendment to Promissory Note between the Company and Brud Drachman, dated June 1, 1999 10.11(e)(16) First Amendment to Promissory Note between the Company and Thomas D. Martin, dated June 1, 1999 10.11(f)(16) First Amendment to Promissory Note between the Company and Kurt A. May, dated June 1, 1999 10.11(g)(16) First Amendment to Promissory Note between the Company and Bill Naylon, dated June 1, 1999 10.11(h)(16) First Amendment to Promissory Note between the Company and Ed Oats, dated June 1, 1999 10.11(i)(16) Promissory Note between the Company and Allan C. Youngberg, dated July 27, 1999 10.12(a)(17) Pledge Agreement (Includes schedule showing certain borrowers, dates of Notes, amounts of Notes and number of pledged shares) 10.12(b)(16) Pledge Agreement between the Company and Allan C. Youngberg, dated July 27, 1999 10.13(18) 1998 Equity Participation Plan of PriceSmart, Inc. 10.14(a)(16) Employment Agreement dated as of July 23, 1999 between the Company and Allan C. Youngberg 10.14(b)(16) First Amendment of Employment Agreement between the Company and Allan C. Youngberg, dated July 26, 1999 10.14(c)(7) Second Amendment of Employment Agreement between the Company and Allan C. Youngberg, dated September 26, 2001
19 10.14(d)(7) Third Amendment of Employment Agreement between the Company and Allan C. Youngberg, dated October 16, 2001 10.15(a)(16) Employment Agreement dated as of March 31, 1998 between the Company and K.C. Breen 10.15(b)(16) First Amendment of Employment Agreement between the Company and K.C. Breen, dated March 31, 1999 10.15(c)(16) Second Amendment of Employment Agreement between the Company and K.C. Breen, dated October 1, 1999 10.15(d)(16) Third Amendment of Employment Agreement between the Company and K.C. Breen, dated January 11, 2000 10.15(e)(14) Fourth Amendment of Employment Agreement between the Company and K.C. Breen, dated January 24, 2001 10.15(f)(7) Fifth Amendment of Employment Agreement between the Company and K.C. Breen, dated October 16, 2001 10.16(16) Trademark Agreement between the Company and Associated Wholesale Grocers, Inc., dated August 1, 1999 10.17(11) Loan agreement by and between CitiBank and PRICSMARLANDCO, S.A., Prismar de Costa Rica. S.A., PSMT Caribe, Inc. Pricesmart, Inc., P.S.C., S.A., and Venture Services, Inc. dated October 12, 1999 for $5.9 million. 10.18(11) Line of credit between Bank of America and PriceSmart, Inc. dated January 10, 2000 for $8.0 million. 10.19(11) Loan agreement by and between CitiBank, N.A. and Imobiliaria PriceSmart, S.A. de C.V., PriceSmart El Salvador, S.A. de C.V., PSMT Caribe, Inc., PriceSmart, Inc., P.S.C., S.A., and Venture Services, Inc. dated December 21, 1999 for $5.0 million 10.20(a)(11) Loan agreement by and between The Chase Manhattan Bank and PriceSmart, Inc. and PB Real Estate, S.A. dated December 20, 1999 for $11.3 million (in Spanish) 10.20(b)(11) Loan agreement by and between The Chase Manhattan Bank and PriceSmart, Inc. and PB Real Estate, S.A. dated December 20, 1999 for $11.3 million (in English). 10.21(a)(11) Line of Credit for 180 days between Banco Nacional de Credito, S.A. and PriceSmart Dominicana, S.A. January 11, 2000 for $1.0 million (in Spanish). 10.21(b)(11) Line of Credit for 180 days between Banco Nacional de Credito, S.A. and PriceSmart Dominicana, S.A. dated January 11, 2000 for $1.0 million (in English). 10.21(c)(11) Line of Credit for 180 days between Banco Nacional de Credito, S.A. and PriceSmart Dominicana, S.A. dated January 11, 2000 for $1.0 million (in Spanish). 10.21(d)(11) Line of Credit for 180 days between Banco Nacional de Credito, S.A. and PriceSmart Dominicana, S.A. dated January 11, 2000 for $1.0 million (in English). 10.22(a)(11) Line of Credit for 180 days between Banco Del Progresso, S.A. and PriceSmart Dominicana, S.A. dated December 23, 1999 for $2.0 million (in Spanish). 10.22(b)(11) Line of Credit for 180 days between Banco Del Progresso and PriceSmart Dominicana, S.A. dated December 23, 1999 for $2.0 million (in English).
20 10.23(a)(11) Loan agreement by and between Commercial International Bank & Trust Co. Ltd. And PRICMARLANDCO, S.A. (Costa Rica) dated February 4, 2000 for $3.9 million (in Spanish). 10.23(b)(11) Loan agreement by and between Commercial International Bank & Trust Co. Ltd. And PRICMARLANDCO, S.A. (Costa Rica) dated February 4, 2000 for $3.9 million (in English). 10.24(a)(11) Loan agreement by and between Banco Nacional de Credito, S.A. and PriceSmart Dominicana, S.A. dated February 22, 2000 for $4.2 million (in Spanish). 10.24(b)(11) Loan agreement by and between Banco Nacional de Credito, S.A. and PriceSmart Dominicana, S.A. dated February 22, 2000 for $4.2 million (in English). 10.25(11) Loan agreement by and between CitiBank, N.A. and Inmobiliaria PriceSmart Honduras dated February 25, 2000 for $3.5 million. 10.26(11) Loan agreement by and between Banco Dominicano del Progreso, S.A., Inmobiliaria PriceSmart, S.A. and PriceSmart Dominicana, S.A. dated March 10, 2000 for $7.0 million. 10.27(a)(11) Agreement to acquire sole ownership of the Panama PriceSmart business dated March 22, 2000 between the Company and BB&M International Trading Group. 10.27(b)(6) Registration Rights Agreement dated as of March 15, 2000 by and among PriceSmart, Inc. and BB&M International Trading Group. 10.28(11) Loan agreement by and between Banco Bilbao Vizcaya, S.A. and PRICSMARLANDCO, S.A. dated May 27, 1999 for $3.75 million. 10.29(19) Promissory Note with Banco Bilbao Vizcaya, S.A. and Inmobiliaria PriceSmart S.A. DE C.V. (El Salvador) dated April 26, 2000 for $3.750 million. 10.30(a)(6) Stock Purchase Agreement dated as of June 5, 2000 by and among PriceSmart, Inc., PSC, S.A. and the Shareholders of PSC, S.A. 10.30(b)(6) Registration Rights Agreement dated as of June 5, 2000 by and among PriceSmart, Inc and the Shareholders of PSC, S.A. 10.31(6) Promissory Note between the Company and John Hildebrandt, dated April 18, 2000 10.32(6) Loan agreement by and between Royal Merchant Bank and Finance Company Limited and PSMT Trinidad/Tobago Limited dated June 21, 2000 for $3.5 million. 10.33(14) Master Agreement between PriceSmart, Inc. and Payless ShoeSource Holdings, Ltd., dated November 27, 2000. 10.34(14) 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. 10.35(a)(14) Loan Agreement by and between CitiBank, N.A. and PriceSmart (Guatemala), S.A., dated December 19, 2000 for $1.5 million (in Spanish). 10.35(b)(14) Loan Agreement by and between CitiBank, N.A. and PriceSmart (Guatemala), S.A., dated December 19, 2000 for $1.5 million (in English).
21 10.36(14) Loan Agreement among PriceSmart, Inc., PSMT Caribe, Inc., PSMT Trinidad / Tobago Limited, and International Finance Corporation, dated January 26, 2001 for $22.0 million. 10.37(14) Loan Agreement among PriceSmart, Inc., PSMT Caribe, Inc., PSMT Trinidad / Tobago Limited, and International Finance Corporation, dated January 26, 2001 for $10.0 million. 10.38(14) Escrow Account Agreement among PriceSmart, Inc., International Finance Corporation and The Bank of New York, dated January 26, 2001 for $7.5 million. 10.39(20) Common Stock Purchase Agreement entered into as of April 19, 2001 by and among PriceSmart, Inc., Whiffletree Partners L.P. and Benchmark Partners. 10.40(20) Common Stock Purchase Agreement entered into as of April 20, 2001 by and among PriceSmart, Inc., Caxton International Limited, Caxton Equity Growth (BVI) Ltd. and Caxton Equity Growth LLC. 10.41(7) Loan Agreement among PriceSmart, Inc., PSMT Caribe, Inc., Prismar de Costa Rica, S.A., Pricsmarlandco, S.A. and Overseas Private Investment Corporation, dated August 17, 2001 for $5 million. 10.42(a)(7) Employment Agreement between the Company and William Naylon, dated as of February 1, 2000 10.42(b)(7) First Amendment to Employment Agreement between the Company and William Naylon, dated as of January 24, 2001 10.42(c)(7) Second Amendment to Employment Agreement between the Company and William Naylon, dated as of October 16, 2001 10.43(a)(7) Employment Agreement between the Company and John D. Hildebrandt, dated as of June 1, 2001 10.43(b)(7) First Amendment to Employment Agreement between the Company and John Hildebrandt, dated as of October 16, 2001 10.44(7) Loan Agreement among Banco Popular de Puerto Rico, PSMT LLC and PriceSmart, Inc., dated September 7, 2001 for $2 million 10.45(7) Continuing Guaranty by PriceSmart, Inc. to Banco de Puerto Rico, date September 7, 2001 for $2 million 10.46(7) Loan Agreement between Metropolitan Bank and Trust Company and PSMT Philippines Inc., dated September 14, 2001, for 250 million pesos. 10.47(7) DSR Agreement among PriceSmart, Inc., The Bank of New York, and Overseas Private Investment Corporation, dated August 17, 2001 11.1(7) Computation of Net Income (Loss) Per Common Share (Basic and Diluted) 13.1(7) Portions of the Company's Annual Report to Stockholders for the year ended August 31, 2001 21.1(7) Subsidiaries of PriceSmart, Inc. 23.1(7) Consent of Ernst & Young LLP, Independent Auditors
- ---------------------- (1) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended August 31, 1997 filed with the Commission on November 26, 1997. (2) Incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form 10 filed with the Commission on July 3, 1997. (3) Incorporated by reference to Exhibit 10.14 to Amendment No. 1 to the 22 Registration Statement on Form S-4 of Price Enterprises, Inc. filed with the Commission on November 3, 1994. (4) Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q of Price Enterprises, Inc. for the quarter ended June 8, 1997 filed with the Commission on July 17, 1997. (5) Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999 filed with the Commission on July 15, 1999. (6) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended August 31, 2000 filed with the Commission on November 29, 2000. (7) Filed herewith. (8) Incorporated by reference to the Current Report on Form 8-K filed September 12, 1997 by Price Enterprises, Inc. (9) Incorporated by reference to Exhibit 10.8 to Amendment No. 1 to the Company's Registration Statement on Form 10 filed with the Commission on August 1, 1997. (10) Incorporated by reference to Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998 filed with the Commission on April 14, 1998. (11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 2000 filed with the Commission on April 11, 2000. (12) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended August 31, 1998 filed with the Commission on November 25, 1998. (13) Incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999 filed with the Commission on July 15, 1999. (14) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 2001 filed with the Commission on April 16, 2001. (15) Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1998 filed with the Commission on January 14, 1999. (16) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended August 31, 1999 filed with the Commission on November 29, 1999. (17) Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1998 filed with the Commission on January 14, 1999. (18) Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1999 filed with the Commission on April 14, 1999. (19) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2000 filed with the Commission on July 17, 2000. (20) Incorporated by reference to the Company's Registration Statement on Form S-3 filed with the Commission on May 11, 2001 23 EX-10.3(G) 3 a2064125zex-10_3g.txt EXHIBIT 10.3(G) EXHIBIT 10.3(g) EIGHTH AMENDMENT TO EMPLOYMENT AGREEMENT This Eighth Amendment to Employment Agreement is made and entered into as of September 26, 2001, by and between PriceSmart, Inc., a Delaware Corporation ("Employer") and Robert M. Gans ("Executive"). RECITALS A) On September 20, 1994 an Employment Agreement was made and entered into by and between Executive and Employer's Assignor, Price Enterprises, Inc. B) On April 11, 1996, Section 2.3 of the Employment Agreement was amended, such that Executive became entitled to three weeks paid vacation each year. C) On July 23 1996, Section 2.1 of the Employment Agreement was amended, such that Executive's annual base salary was increased to $175,000. D) On April 28, 1997, Section 3.1 of the Employment Agreement was amended, such that Executive's employment term was extended to October 16, 1998. E) On August 29, 1997, the Employment Agreement and amendments thereto were assigned by Price Enterprises, Inc. to Employer. F) On September 2, 1997, Section 3.1 of the Employment Agreement was amended, such that Executive's employment term was extended to October 16, 2000. G) Effective October 1, 1999, Section 2.1 of the Employment Agreement was amended, such that Executive's annual base salary was increased to $180,000. H) Effective July 18, 2000, Section 3.1 of the Employment Agreement was amended, such that Executive's employment term was extended to October 16, 2001. I) Employer and Executive now desire to further amend the Employment Agreement, as set forth hereinbelow: AGREEMENT 1) Section 3.1 of the Employment Agreement, which currently provides: 3.1 TERM. The term of Executive's employment hereunder shall commence on October 17, 1994 and shall continue until October 16, 2001 unless sooner terminated or extended as hereinafter provided (the "Employment Term"). is hereby amended, effective as of September 26, 2001, to provide as follows: 3.1 TERM. The term of Executive's employment hereunder shall commence on October 17, 1994 and shall continue until October 16, 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. Robert M. Gans By: /S/ GILBERT A. PARTIDA ---------------------- /S/ ROBERT M. GANS Name: GILBERT A. PARTIDA - ------------------ -------------------- Its: PRESIDENT/CEO --------------------- EX-10.3(H) 4 a2064125zex-10_3h.txt EXHIBIT 10.3(H) EXHIBIT 10.3(h)) PriceSmart, Inc. [Memorandum] 4649 Morena Blvd. San Diego, CA 92117 Tel 858 581-7485 Fax 858 581-4707 PriceSmart [Logo] To: Bob Gans From: Gil Partida /s/ GP Re: SALARY INCREASE Date: October 16, 2001 With reference to your Employment Agreement, this Memorandum will confirm that effective September 1, 2001, your annual base salary increased by $20,000, to $200,000. EX-10.7(D) 5 a2064125zex-10_7d.txt EXHIBIT 10.7(D) EXHIBIT 10.7(d) PriceSmart, Inc. [Memorandum] 4649 Morena Blvd. San Diego, CA 92117 Tel 858 581-7485 Fax 858 581-4707 PriceSmart [Logo] To: Gil Partida From: Bob Gans /s/ BG Re: SALARY INCREASE Date: October 16, 2001 With reference to your Employment Agreement, this Memorandum will confirm that effective September 1, 2001, your annual base salary increased by $80,000, to $355,000. EX-10.8(F) 6 a2064125zex-10_8f.txt EXHIBIT 10.8(F) FIFTH AMENDMENT 10.8(f) PriceSmart, Inc. [Memorandum] 4649 Morena Blvd. San Diego, CA 92117 Tel 858 581-7485 Fax 858 581-4707 PriceSmart [Logo] To: Tom Martin From: Bob Gans /s/ BG Re: SALARY INCREASE Date: October 16, 2001 With reference to your Employment Agreement, this Memorandum will confirm that effective September 1, 2001, your annual base salary increased by $20,000, to $190,000. EX-10.14(C) 7 a2064125zex-10_14c.txt EXHIBIT 10.14(C) EXHIBIT 10.14(c) FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This First Amendment to Employment Agreement is made and entered into as of September 26, 2001, by and between PriceSmart, Inc., a Delaware Corporation ("Employer") and Allan C. Youngberg ("Executive"). RECITALS A) On July 23, 1999, an Employment Agreement was made and entered into by and between Employer and Executive. B) 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 August 13, 1999 and shall continue until August 12, 2001, unless sooner terminated or extended as hereinafter provided (the "Employment Term"). is hereby amended, effective as of August 12, 2001, to provide as follows: 3.1 TERM. The term of Executive's employment hereunder shall commence on August 13, 1999 and shall continue until August 12, 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. Allan C. Youngberg By: /s/ GILBERT A. PARTIDA ---------------------- /s/ ALLAN C. YOUNGBERG Name: GILBERT A. PARTIDA - ---------------------- -------------------- Its: PRESIDENT/CEO -------------------- EX-10.14(D) 8 a2064125zex-10_14d.txt EXHIBIT 10.14(D) EXHIBIT 10.14(d) PriceSmart, Inc. [Memorandum] 4649 Morena Blvd. San Diego, CA 92117 Tel 858 581-7485 Fax 858 581-4707 PriceSmart [Logo] To: Allan Youngberg From: Bob Gans /s/ BG Re: Salary Increase Date: October 16, 2001 With reference to your Employment Agreement, this Memorandum will confirm that effective September 1, 2001, your annual base salary increased by $20,000, to $210,000. EX-10.15(F) 9 a2064125zex-10_15f.txt EXHIBIT 10.15(F) EXHIBIT 10.15(f) PriceSmart, Inc. [Memorandum] 4649 Morena Blvd. San Diego, CA 92117 Tel 858 581-7485 Fax 858 581-4707 PriceSmart [Logo] To: K.C. Breen From: Bob Gans /s/ BG Re: SALARY INCREASE Date: October 16, 2001 With reference to your Employment Agreement, this Memorandum will confirm that effective September 1, 2001, your annual base salary increased by $22,500, to $192,500. EX-10.41 10 a2064125zex-10_41.txt EXHIBIT 10.41 Exhibit 10.41 ================================================================================ LOAN AGREEMENT AMONG PRICESMART, INC., PSMT CARIBE, INC., PRISMAR DE COSTA RICA, S.A., PRICSMARLANDCO, S.A. AND OVERSEAS PRIVATE INVESTMENT CORPORATION DATED AS OF AUGUST 17, 2001 OPIC/515-2001-181-DI ================================================================================ TABLE OF CONTENTS
PAGE ARTICLE I DEFINITIONS AND INTERPRETATION......................................................................1 SECTION 1.01. DEFINITIONS AND INTERPRETATION........................................................1 ARTICLE II AMOUNT AND TERMS OF THE LOAN.......................................................................1 SECTION 2.01. AMOUNT AND DISBURSEMENT...............................................................1 SECTION 2.02. INTEREST; DEFAULT INTEREST............................................................2 SECTION 2.03. REPAYMENT OF THE LOAN.................................................................2 SECTION 2.04. VOLUNTARY PREPAYMENT..................................................................2 SECTION 2.05. MANDATORY PREPAYMENT..................................................................2 SECTION 2.06. LOAN FEES AND CANCELLATION............................................................3 SECTION 2.07. TAXES.................................................................................3 SECTION 2.08. MISCELLANEOUS.........................................................................4 ARTICLE III REPRESENTATIONS AND WARRANTIES....................................................................4 SECTION 3.01. REPRESENTATIONS AND WARRANTIES........................................................4 ARTICLE IV CONDITIONS PRECEDENT TO FIRST DISBURSEMENT.........................................................7 SECTION 4.01. AUTHORIZATION.........................................................................7 SECTION 4.02. FINANCING DOCUMENTS...................................................................8 SECTION 4.03. INVESTMENT............................................................................9 SECTION 4.04. CONSENTS..............................................................................9 SECTION 4.05. LAND..................................................................................9 SECTION 4.06. INSURANCE.............................................................................9 SECTION 4.07. ACCOUNTANTS...........................................................................9 SECTION 4.08. LEGAL OPINIONS.......................................................................10 SECTION 4.09. OTHER DOCUMENTS......................................................................10 SECTION 4.10. OTHER FINANCINGS.....................................................................10 ARTICLE V CONDITIONS PRECEDENT TO EACH DISBURSEMENT..........................................................10 SECTION 5.01. REPRESENTATIONS AND DEFAULTS.........................................................10 SECTION 5.02. CHANGE IN CIRCUMSTANCES..............................................................10 SECTION 5.03. DISBURSEMENT CERTIFICATE.............................................................10 SECTION 5.04. FINANCIAL INFORMATION AND PROJECT PROGRESS...........................................10 SECTION 5.05. PAYMENT OR REIMBURSEMENT OF EXPENSEs.................................................11 SECTION 5.06. CENTRAL BANK REGISTRATION............................................................11 SECTION 5.07. DEBT SERVICE RESERVE ACCOUNT.........................................................11 -i- ARTICLE VI AFFIRMATIVE COVENANTS.............................................................................11 SECTION 6.01. PROJECT COMPLETION...................................................................11 SECTION 6.02. COMPANY OPERATIONS...................................................................11 SECTION 6.03. MAINTENANCE OF RIGHTS AND COMPLIANCE WITH LAWS.......................................12 SECTION 6.04. MAINTENANCE OF INSURANCE.............................................................12 SECTION 6.05. ACCOUNTING AND FINANCIAL MANAGEMENT..................................................14 SECTION 6.06. FINANCIAL STATEMENTS AND OTHER INFORMATION...........................................14 SECTION 6.07. ACCESS TO RECORDS; INSPECTION; MEETINGS..............................................15 SECTION 6.08. NOTICE OF DEFAULT AND OTHER MATTERS..................................................15 SECTION 6.09. SECURITY DOCUMENTS...................................................................16 SECTION 6.10. FINANCIAL RATIOS; DEBT SERVICE RESERVE...............................................16 SECTION 6.11. ENVIRONMENTAL COMPLIANCE.............................................................16 SECTION 6.12. ERISA COMPLIANCE.....................................................................16 ARTICLE VII NEGATIVE COVENANTS...............................................................................16 SECTION 7.01. LIENS................................................................................16 SECTION 7.02. INDEBTEDNESS.........................................................................17 SECTION 7.03. NO ALTERATION OF AGREEMENTS..........................................................18 SECTION 7.04. RESTRICTED PAYMENTS..................................................................18 SECTION 7.05. CONDUCT OF BUSINESS WITH AFFILIATES..................................................18 SECTION 7.06. AFFILIATE PAYMENTS...................................................................19 SECTION 7.07 NO SALE OF ASSETS; MERGERS...........................................................19 SECTION 7.08. ORDINARY CONDUCT OF BUSINESS.........................................................19 SECTION 7.09. WORKER RIGHTS........................................................................20 SECTION 7.10. PENSION PLANS........................................................................21 ARTICLE VIII DEFAULTS AND REMEDIES...........................................................................21 SECTION 8.01. EVENTS OF DEFAULT....................................................................21 SECTION 8.02. REMEDIES UPON EVENT OF DEFAULT.......................................................23 SECTION 8.03. JURISDICTION AND CONSENT TO SUIT; WAIVERS............................................23 SECTION 8.04. JUDGMENT CURRENCY....................................................................24 SECTION 8.05. IMMUNITY.............................................................................24 -ii- ARTICLE IX MISCELLANEOUS.....................................................................................25 SECTION 9.01. NOTICES..............................................................................25 SECTION 9.02. ENGLISH LANGUAGE.....................................................................25 SECTION 9.03. GOVERNING LAW........................................................................25 SECTION 9.04. SUCCESSION; ASSIGNMENT...............................................................25 SECTION 9.05. SURVIVAL OF AGREEMENTS...............................................................26 SECTION 9.06. INTEGRATION; AMENDMENTS..............................................................26 SECTION 9.07. SEVERABILITY.........................................................................26 SECTION 9.08. NO WAIVER............................................................................26 SECTION 9.09. WAIVER OF JURY TRIAL.................................................................26 SECTION 9.10. INDEMNITY............................................................................27 SECTION 9.11. FURTHER ASSURANCES...................................................................27 SECTION 9.12. COUNTERPARTS.........................................................................27 SECTION 9.13. WAIVER OF LITIGATION PAYMENTS........................................................28
-iii- SCHEDULES - --------- X Definitions and Rules of Interpretation 1.01 Application 3.01(d)(i) Capitalization 3.01(d)(ii) Rights and Claims on Stock 3.01(d)(iii) Ownership Interests 3.01(j) Licenses, Trademarks, Patents 3.01(l)(i) Project Financial Plan 3.01(l)(ii) Corporate Financial Plan 4.02(a)(iii)(A) Liens in Favor of OPIC on Immovable and Movable Assets (Costa Rica) 4.02(a)(iii)(B) Liens in Favor of OPIC on Movable Assets (Costa Rica) 4.04 Consents 6.04(a)(i) Insurance 7.01(c) Liens 7.02(e) Indebtedness EXHIBITS A Form of Promissory Note B Form of Disbursement Request C(i), (ii), (iii), Form of Authorization Certificate (pursuant to and (iv) Section 4.01); C(i) with respect to PriceSmart, C(ii) with respect to PSMT Caribe, C(iii) with respect to PSMT Costa Rica, and C(iv) with respect to Costa Rica Landco D Form of Disbursement Certificate (pursuant to Section 5.03) E Form of Self-Monitoring Questionnaire F Form of Annual Operations Report
-iv- LOAN AGREEMENT THIS LOAN AGREEMENT, dated as of August 17, 2001 (this "AGREEMENT"), is made among PriceSmart, Inc., a corporation organized and existing under the laws of the State of Delaware, USA ("PRICESMART"), PSMT Caribe, Inc., a corporation organized and existing under the laws of the Territory of the British Virgin Islands ("PSMT CARIBE"), Prismar de Costa Rica, S.A., a corporation organized and existing under the laws of Costa Rica ("PSMT COSTA RICA"), and Pricsmarlandco, S.A., a corporation organized and existing under the laws of Costa Rica ("COSTA RICA LANDCO"), each a "BORROWER" and, collectively, the "BORROWERS", and OVERSEAS PRIVATE INVESTMENT CORPORATION, an agency of the United States of America ("OPIC"). The Borrowers intend to implement the Project (as defined herein) and has requested that OPIC provide a credit facility pursuant to Section 234(c) of the Foreign Assistance Act of 1961, as amended, which OPIC is willing to do on the terms and conditions set forth herein. Accordingly, in consideration of the foregoing and of the agreements contained herein, it is agreed as follows: ARTICLE I DEFINITIONS AND INTERPRETATION SECTION 1.01 DEFINITIONS AND INTERPRETATION. In this Agreement, (a) capitalized terms used but not otherwise defined have the meanings set forth in the attached Schedule X, and (b) the rules of interpretation set forth in Schedule X apply. ARTICLE II AMOUNT AND TERMS OF THE LOAN SECTION 2.01 AMOUNT AND DISBURSEMENT. (a) COMMITMENT. Subject to the terms and conditions hereof, OPIC agrees to make, and the Borrowers agree to accept, a Loan in a principal amount not to exceed $5,000,000. (b) DISBURSEMENT; TERM. During the Commitment Period, the Borrowers may request a Disbursement by delivering to OPIC a Disbursement Request substantially in the form of Exhibit B not less than ten (10) Business Days prior to the Closing Date. Each Disbursement shall be evidenced by a Note, dated the Closing Date, in the principal amount of the Disbursement and maturing on the Loan Maturity Date. The Loan shall not exceed the amount of the Commitment, and Loan amounts repaid may not be reborrowed. (c) NUMBER AND AMOUNT OF DISBURSEMENTS. There shall be no more than two (2) Disbursements. Each Disbursement shall be at least $2,500,000. (d) APPOINTMENT. Notwithstanding any provision in this Agreement, each of PSMT Caribe, PSMT Costa Rica, and Costa Rica Landco irrevocably appoints and designates PriceSmart as its attorney-in-fact for the purpose of receiving any notice or request and further authorizes PriceSmart to make the request provided in Section 2.01(b) or any other request permitted to be made by the Borrowers under this Agreement, to receive all disbursements to be made hereunder, and to take any other action required or permitted to be taken on its behalf under this Agreement. SECTION 2.02 INTEREST; DEFAULT INTEREST. (a) INTEREST RATE. The Borrowers shall pay interest, semi-annually in arrears, on the outstanding principal balance of each Note at the Interest Rate and at the times specified in each Note. (b) DEFAULT RATE. If the Borrowers fail to pay when due any amount due to OPIC under any Financing Document, such unpaid amount shall bear interest at the Default Rate from the date such amount is due until the date on which such amount is paid in full. SECTION 2.03 REPAYMENT OF THE LOAN. The Borrowers shall repay the Loan in sixteen (16) approximately equal semi-annual installments (collectively, the "PRINCIPAL INSTALLMENTS") on each Payment Date, commencing on March 15, 2003 and ending no later than the Loan Maturity Date. SECTION 2.04 VOLUNTARY PREPAYMENT. (a) On any Business Day following the last day of the Commitment Period, the Borrowers may, upon thirty (30) Business Days' prior notice to OPIC, prepay the Loan, in whole or in part, together with the payment to OPIC of (i) interest accrued to the date of prepayment on the portion of the principal amount of each Note that is to be prepaid, and (ii) a premium (the "PREPAYMENT PREMIUM"), calculated as a percentage of the Loan amount prepaid, in accordance with the following schedule:
YEAR FOLLOWING EXPIRATION OF COMMITMENT PERIOD PREPAYMENT PREMIUM Year 1 3% Year 2 2% Year 3 1% Year 4 and thereafter None
(b) All voluntary prepayments shall be applied to Principal Installments in the inverse order of maturity. (c) The minimum partial voluntary prepayment shall be $1,365,000, provided however, if OPIC fully disburses the $5,000,000 loan made to PriceSmart, PSMT Caribe, PriceSmart Dominicana, S.A. and Inmobiliaria PriceSmart, S.A. under loan agreement number OPIC/517-2001-181-DI, the minimum partial voluntary prepayment hereunder shall be reduced to $682,500. SECTION 2.05 MANDATORY PREPAYMENT. (a) The Borrowers shall prepay the Loan in the event that and in the amount by which: (i) the aggregate amount of insurance proceeds from property loss or damage claims, with respect to the pledged properties received by the Borrowers during any Fiscal Year that is not applied or committed to the repair or replacement of assets insured thereby within one hundred-eighty (180) days after receipt by the Borrowers exceeds $500,000. (ii) in any Fiscal Year (A) the aggregate amount of Restricted Payments and/or Affiliate Payments exceeds (B) fifty percent (50%) of Net Income for the preceding Fiscal Year. 2 (b) The Borrowers shall prepay the Loan pro rata with any prepayments of Indebtedness other than the IFC A Loan or the IFC C Loan by the Borrowers in any Fiscal Year that is not refinanced in accordance with Section 7.04(b). (c) The Borrowers shall simultaneously prepay the Loan pro rata with any prepayment of the IFC A Loan or IFC C Loan. Prepayments under this Section 2.05 shall have the same effect as if made pursuant to Section 2.04, except that with respect to Section 2.05 no Prepayment Premium shall be due. SECTION 2.06 LOAN FEES AND CANCELLATION. (a) COMMITMENT FEE. During the Commitment Period, the Borrowers shall pay to OPIC, in arrears, on each Payment Date and on the last day of the Commitment Period, a commitment fee (the "COMMITMENT FEE"), accruing on a daily basis at the rate of one-half of one percent (0.50%) per annum on the difference, calculated for each day during the Commitment Period, between (i) the amount of the Commitment, and (ii) the aggregate amount of the Loan outstanding on such day. (b) CANCELLATION FEE. The Borrowers may cancel all or any part of the Commitment at any time upon payment to OPIC of a cancellation fee (the "CANCELLATION FEE") equal to one percent (1.0%) of the amount of the Commitment canceled. Any part of the Commitment not disbursed at the end of the Commitment Period or that is terminated for any reason shall be deemed to have been canceled, and such Cancellation Fee shall be payable with respect thereto. (c) FACILITY FEE. The Borrowers shall pay OPIC a facility fee (the "FACILITY FEE") in the amount of $100,000 which shall be paid by the Borrowers upon the execution and delivery of this Agreement. (d) MAINTENANCE FEE. The Borrowers shall pay to OPIC an annual maintenance fee (the "MAINTENANCE FEE") in the amount of $7,500 on the first Payment Date following the first Disbursement and on each anniversary of such Payment Date for so long as any portion of the Loan remains outstanding. SECTION 2.07 TAXES. (a) All sums payable by the Borrowers hereunder and under any other Financing Document shall be paid in full, free of any deductions or withholdings for any and all present and future Taxes. If the Borrowers are required by law to deduct any Taxes from, or to withhold any Taxes in respect of, any amount payable to OPIC hereunder or thereunder, then the Borrowers shall pay such additional amount as may be necessary so that the actual amount received by OPIC after such deductions or withholdings equals the full amount stated to be payable under the Financing Documents. (b) The Borrowers shall pay directly to all appropriate taxing authorities any and all present and future Taxes with regard to any aspect of the transactions contemplated by this Agreement or any other Financing Document, except for any Taxes that any Borrower is contesting in good faith by appropriate proceedings and for which adequate reserves have been set aside in accordance with GAAP, PROVIDED, that the Borrowers hereby indemnify OPIC and hold OPIC harmless from and against any and all liabilities, fees, or additional expenses with respect to or resulting from any delay in paying, or omission to pay, any such Taxes. Within thirty (30) days after payment by the Borrowers of any Taxes, the Borrowers shall furnish OPIC with the original or a Certified copy of the receipt evidencing payment thereof, together with any other information OPIC may reasonably request. OPIC shall have the right, but 3 not the obligation, to pay any Taxes and the Borrowers shall, upon OPIC's demand, promptly reimburse OPIC in full for all such payments. SECTION 2.08 MISCELLANEOUS. (a) PAYMENT OR REIMBURSEMENT OF EXPENSES. Upon request, the Borrowers shall promptly pay, or reimburse OPIC for, all of OPIC's reasonable out-of-pocket costs and expenses incurred in connection with the negotiation, preparation, execution, delivery, and implementation of the Financing Documents, including (i) the fees and expenses of outside legal counsel and business consultants, and (ii) the costs of communications, preparation of any documents, authentication, registration, and recordation of any of the Financing Documents, preparation of bound volumes of the Financing Documents for OPIC's use, and termination of the Liens created pursuant to the Security Documents; PROVIDED, HOWEVER, that, to the extent of any portion of the Facility Fee that has been paid to OPIC, travel expenses incurred by OPIC shall be reimbursed out of such Facility Fee. The Borrowers shall also reimburse OPIC, upon demand, for all costs and expenses (including attorneys' fees and expenses, and the cost of travel) incurred by OPIC (A) in preserving in full force and effect, or enforcing its rights under, any of the Financing Documents or (B) in connection with the modification, amendment, or waiver of any provision of any Financing Document. (b) CURRENCY AND PLACE OF PAYMENT. All payments to OPIC shall be made in Dollars by wire transfer in immediately available funds without counterclaim, offset, or deduction, formatted as follows via a U.S. domestic bank: U.S. Treasury Department ABA No. 0210-3000-4 TREASNYC/CTR/BNF=AC71000001 OBI=OPIC Loan No. 515-2001-181-DI (c) COMPUTATION OF INTEREST ON NOTES AND OF CERTAIN FEES. Except as otherwise provided herein or in any Note, the Interest Rate, the Default Rate, the Commitment Fee and the Cancellation Fee shall accrue on a daily basis and shall be computed on the basis of 360-day years composed of twelve (12) thirty (30)-day months. (d) APPLICATION OF PAYMENTS TO OPIC. Except as otherwise provided herein or in any Note, payments received by OPIC under any of the Financing Documents shall be applied to amounts due to OPIC in such manner as OPIC in its sole discretion may determine. (e) OBLIGATIONS ARE JOINT AND SEVERAL. The Borrowers agree that all obligations of the Borrowers are joint and several. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.01 REPRESENTATIONS AND WARRANTIES. Each Borrower represents and warrants to OPIC on its behalf and on behalf of its Subsidiaries that: 4 (a) EXISTENCE AND POWER. (i) It (A) is a corporation or limited liability company, as appropriate, duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization; (B) is duly authorized to do business in each jurisdiction in which it conducts business; and (C) solely with respect to each Borrower and each Subsidiary that is a party to any Borrower Document, has the power to own its properties, carry on its business, borrow money, create Liens on its properties, and execute, deliver, and perform each of the Borrower Documents. (ii) Each of its Subsidiaries (A) is a corporation or limited liability company, as appropriate, duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization; (B) is duly organized to do business in each jurisdiction in which it conducts business; and (C) has the power to own its properties, carry on its business, create Liens on its properties. (b) AUTHORITY. Its execution, delivery, and performance of each of the Borrower Documents: (i) have been duly authorized by all necessary corporate action; (ii) will not violate any applicable law, regulation, or ruling of any governmental authority; (iii) will not breach, or result in the imposition of any Lien upon any of its assets (except as permitted by Section 7.01) under, any of its Charter Documents or any agreement or other requirement by which it or any of its properties may be bound or affected and (iv) will not violate any existing Indebtedness or other obligations of the Borrowers and their Subsidiaries. Each of the Borrower Documents has been duly executed and delivered by the Borrowers and is a legal, valid, and binding obligation of each of the Borrowers, enforceable in accordance with its terms. Except for Consents referred to in Section 4.04, no Consent of any Person is required in connection with each of the Borrower's execution, delivery, performance, validity, or enforceability of any of the Borrower Documents. Each of the Borrower's obligations hereunder and under the Notes will rank not less than PARI PASSU with all of the Borrowers' and Subsidiaries' other Indebtedness and obligations. (c) FINANCIAL CONDITION. PriceSmart's audited Consolidated Financial Statements for the fiscal year ending August 31, 2000, unaudited Consolidated Financial Statements for the nine months ending May 31, 2001, and PSMT Caribe's unaudited Consolidated Financial Statements for the nine months ending May 31, 2001, which have been furnished to OPIC, are complete and correct and fairly present the financial condition and results of operations for the period then ended. The Borrowers have no obligations, contingent or otherwise, of any kind except as disclosed in such Consolidated and unconsolidated Financial Statements. No change has occurred in PriceSmart's and PSMT Caribe's financial condition or prospects from that set forth in such Consolidated or unconsolidated Financial Statements that could have a Material Adverse Effect, and, since the date thereof, no dividend, Restricted Payment or Affiliate Payment has been declared or paid to any shareholders or any other Person. (d) CAPITALIZATION. (i) Each Borrower's and each Subsidiaries' authorized and issued capital stock is as set forth in Schedule 3.01(d)(i). All such capital stock has been duly authorized and validly issued and is fully paid and nonassessable. (ii) There are no rights or claims of any character that restrict the transfer of, require the issuance of, or otherwise relate to any class of each Borrower's or each Subsidiaries' capital stock, except as set forth in Schedule 3.01(d)(ii). (iii) Each Borrower's and each Subsidiaries' capital stock is owned beneficially and of record by the Persons in the percentage amounts set forth next to their names in Schedule 3.01(d)(i). Except as set forth in Schedule 3.01(d)(iii), none of the Borrowers and none of the Subsidiaries own or otherwise control any voting stock of, or have any ownership interest in, any other Person. (e) LIENS. The Security Documents are, or upon filing and registration will be, effective to create in favor of OPIC legal, valid, and enforceable first priority Liens on all of the Borrowers' assets intended to be covered thereby. None of the Borrowers nor any of the Subsidiaries owned and controlled by a Borrower has outstanding, nor is it contractually bound to create, any Lien on or with respect to any of its assets, rights, or revenues, except as permitted by Section 7.01. 5 (f) TAXES AND REPORTS. Each Borrower and each Subsidiary has filed all tax returns and reports required by applicable law to be filed and has paid (or adequately PROVIDED for) all Taxes due. (g) DEFAULTS. No Default or Event of Default has occurred and is continuing. Neither the Borrowers, nor the Subsidiaries, nor any other party is in breach of any provision of any contract to which any of the Borrowers or any of the Subsidiaries is a party, which breach could have a Material Adverse Effect. (h) LITIGATION. No action, suit, other legal or arbitral proceeding, or investigation is pending by or before any domestic or foreign court or governmental authority or in any arbitral or other forum or, to the best of its knowledge after due inquiry, is threatened, that (i) relates to any of the transactions contemplated by any Financing Document, or (ii) if adversely determined, could have a Material Adverse Effect. (i) COMPLIANCE WITH LAW; CORRUPT PRACTICES. (i) Each Borrower and each Subsidiary is conducting its business in compliance with all applicable laws, regulations, and authorizations of all relevant governmental authorities and in compliance with its Charter Documents. Schedule 4.04 sets forth each Consent necessary for the conduct of each Borrower's and each Subsidiaries' business, each of which is in full force and effect. (ii) Without limiting the effect of clause (i) above, each Borrower, and each of its respective officers, directors, employees, and agents have complied with all applicable Corrupt Practices Laws in obtaining any Consents in respect of the Project and are otherwise conducting the Project in compliance with applicable Corrupt Practices Laws. Each Borrower's internal management and accounting practices and controls are adequate to ensure compliance with applicable Corrupt Practices Laws. (j) EASEMENTS, PROPERTY INTERESTS, UTILITIES, ETC. All easements, leasehold, and other property interests and all utility and other services, means of transportation, facilities, other materials, and other rights that are or can reasonably be expected to be necessary for the conduct of the Borrowers' and the Subsidiaries' business in accordance with applicable law and the Financing Documents have been procured or are commercially available to the Borrowers or the Subsidiaries. No material licenses, trademarks, patents, or other similar agreements are necessary for the conduct of the Borrowers' and the Subsidiaries' business, except as set forth in Schedule 3.01(j). (k) ENVIRONMENTAL MATTERS. Each Borrower has duly complied, and its business, operations, and assets, and the Project, are materially in compliance, with the World Bank Guidelines and the provisions of all applicable environmental, health, and safety laws, codes and ordinances, and all rules and regulations promulgated thereunder, and OPIC's environmental policies. Each Project Company (i) has been issued and will maintain all required Consents relating to, (ii) has received no complaint, order, directive, claim, citation, or notice by any governmental authority or any Person with respect to, and (iii) has received no complaint or claim from any Person seeking damages, contribution, indemnification, cost recovery, compensation, or injunctive relief that in the Borrower's reasonable judgment could result in a Material Adverse Effect with respect to air emissions, discharges to surface water or ground water, noise emissions, solid or liquid waste disposal, the use, generation, storage, transportation, or disposal of toxic or hazardous substances or wastes, or other environmental, health, or safety matters. (l) (i) PROJECT COST AND COMPLETION. The Borrowers' estimate of the total cost of the Project (including contingencies) is the equivalent of $10,113,500 based on the financial plan set forth in Schedule 3.01(l)(i) (the "PROJECT FINANCIAL PLAN"). 6 (ii) CORPORATE EXPANSION PLAN COST AND COMPLETION. The Borrowers' estimate of the total cost of the Corporate Expansion Plan (including contingencies) is the equivalent of $199,670,000 based on the financial plan set forth in Schedule 3.01(l)(ii) (the "CORPORATE FINANCIAL PLAN"), and the Borrowers' good faith estimate of the date on which the Corporate Expansion Plan will be completed is August 31, 2002. (m) DISCLOSURE. All documents, reports, and other written information that have been furnished to OPIC are true and correct in all material respects and do not contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statements contained herein or therein not materially misleading. There is no fact known to the Borrowers or the Subsidiaries the existence of which could have a Material Adverse Effect. No condition has arisen since the date of the Application that has or could have a Material Adverse Effect. (n) SUSPENSION AND DEBARMENT. No event has occurred and no condition exists that is likely to result in the debarment or suspension of any of the Borrowers from contracting with the U.S. Government or any agency or instrumentality thereof, and none of the Borrowers is now or has been subject to any such debarment or suspension. (o) ERISA COMPLIANCE. PriceSmart is in compliance with all requirements of ERISA relating to its Plan and has not ever sponsored, maintained, administered, contributed to, participated in, or had an obligation to contribute to or any liability under any Multiemployer Plan. PSMT Caribe, PSMT Costa Rica, and Costa Rica Landco do not sponsor, maintain, administer, contribute to, participate in, or have any obligation to contribute to or any liability under, any Plan, or any Multiemployer Plan and PSMT Caribe, PSMT Costa Rica, and Costa Rica Landco have never sponsored, maintained, administered, contributed to, participated in, or had any obligation to contribute to or any liability under, any Plan, or any Multiemployer Plan. (p) INVESTMENT COMPANY ACT. None of the Borrowers nor any of their Affiliates is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (q) MARGIN REGULATION. No part of the proceeds of the Loan will be used for purchasing or carrying any margin stock with the meaning of Regulation U, or for any purpose that violates any Regulation, of the Board of Governors of the Federal Reserve System. ARTICLE IV CONDITIONS PRECEDENT TO FIRST DISBURSEMENT Unless OPIC otherwise agrees in writing, the obligation of OPIC to make the first Disbursement of the Loan is subject to the prior fulfillment, to OPIC's satisfaction in its sole discretion, of the following conditions precedent and to their continued fulfillment on the first Closing Date: SECTION 4.01 AUTHORIZATION. OPIC shall have received the certificate of an Authorized Officer of each Borrower dated the Closing Date, substantially in the form designated for each Borrower in Exhibits C(i) through (iv). 7 SECTION 4.02 FINANCING DOCUMENTS. OPIC shall have received the following documents, each of which shall be satisfactory to OPIC in form and substance, shall have been duly executed by the parties thereto, and shall be in full force and effect in accordance with its terms without default: (a) duly executed originals (or, at OPIC's election, Certified copies) of (i) the IFC A Loan Agreement and the IFC C Loan Agreement; and (ii) each of the following documents (the "LOAN DOCUMENTS"): (A) this Agreement; and (B) the Note issued in connection with the Disbursement; provided that any Note executed after the date hereof in connection with a subsequent Disbursement shall be included in the definition of "Loan Documents"; and (iii) each of the following documents (the "SECURITY DOCUMENTS"): (A) a Guaranty Trust agreement creating and perfecting in favor of OPIC a valid and enforceable, first-priority Lien on all of the immovable assets and equipment and all movable assets and equipment of the Borrowers in Costa Rica listed in Schedule 4.02(a)(iii)(A); (B) a Chattel Mortgage creating and perfecting in favor of OPIC a valid and enforceable, first-priority Lien on all of the movable assets and equipment of the Borrowers in Costa Rica listed in Schedule 4.02(a)(iii)(B); (C) documentation whereby the Borrowers assign in favor of OPIC all of the rights, title and interest in and to all insurance proceeds under the insurance policies insuring the assets provided as security for OPIC under the Security Documents; (D) the PriceSmart Stock Pledge and Share Retention Agreement; (E) the PSMT Caribe Costa Rica Stock Pledge and Share Retention Agreement; (F) the DSR Agreement; (G) the Security Sharing Agreement between OPIC and the IFC, if any; and (H) all such other agreements, documents, or actions that, in the opinion of counsel to OPIC, are necessary or advisable to secure the payment of all amounts due or to become due hereunder and under the Notes with valid, enforceable, first-priority Liens on the assets described in the applicable Security Documents. 8 Each Lien shall be of first priority and (i) to the extent it arises or attaches under the Uniform Commercial Code of any jurisdiction in the U.S., shall be perfected, and (ii) in all other cases, shall be enforceable against the Borrowers and third parties (including any holder of a subsequently established Lien). Each of the Security Documents shall be in full force and effect and shall have been duly filed and registered or recorded in every jurisdiction in which such filing and registration or recording is necessary to make valid and effective the Liens intended to be created thereby, and the rights of OPIC thereunder, and OPIC shall have received evidence satisfactory to it that such filing and registration or recording has been made. (b) intentionally omitted. The Loan Documents and the Security Documents, together with any other agreements or instruments entered into in connection with any of the foregoing or pursuant to which the Loan is made, are collectively referred to herein as the "FINANCING DOCUMENTS." SECTION 4.03 INVESTMENT. OPIC shall have received evidence satisfactory to it that (a) all equity investments set forth in the Project Financial Plan and Corporate Financial Plan have been made in cash in accordance with the Project Financial Plan and Corporate Financial Plan, and (b) the legal and beneficial title to such equity investment is held by the Persons and in the percentages set forth in Schedule 3.01(d)(i). SECTION 4.04 CONSENTS. OPIC shall have received Certified copies of any Consent (a) required by the government of the Project Country, (b) obtained in compliance with Sections 3.01(b) or (i), and (c) which is, in the opinion of legal counsel to OPIC, necessary or advisable, in each case, for (i) the Financing Documents, and the payment of all amounts due or to become due with respect thereto, not to be subject to any Taxes, (ii) the performance by each of the Borrowers of each of the Borrower Documents, (iii) all such other approvals, permits, and consents necessary for each of the Borrowers to carry out its business and the Project, (iv) the registration of the Loan with the central bank of the Project Country and the receipt of all foreign exchange consents necessary for the payment of all amounts payable under the Financing Documents, and (v) the arrangements contemplated by the DSR Agreement. Each such Consent is listed in Schedule 4.04. SECTION 4.05 LAND. OPIC shall have received evidence in form and substance satisfactory to it that the Project Companies, either directly or indirectly, have acquired satisfactory title to or leasehold or other rights in all real property necessary for each Project Company's conduct of its business, subject only to Liens permitted under Section 7.01. SECTION 4.06 INSURANCE. OPIC shall have received Certified copies of the certificates of insurance required by and issued in accordance with Section 6.04, together with evidence that such policies are in full force and effect without default. SECTION 4.07 ACCOUNTANTS. OPIC shall have received evidence that PriceSmart has irrevocably instructed its accountants to communicate directly with OPIC and to deliver to OPIC the financial information described in Section 6.06. 9 SECTION 4.08. LEGAL OPINIONS. OPIC shall have received favorable written opinions, dated the Closing Date, satisfactory to OPIC in form and substance, of (a) Vargas, Jimenez & Peralta, its legal counsel in Costa Rica, (b) Latham and Watkins, PriceSmart's legal counsel, and (c) Emmet, Marvin & Martin, LLP, legal counsel for the Bank of New York with respect to the DSR Agreement. SECTION 4.09 OTHER DOCUMENTS. OPIC shall have received such other certificates, opinions, agreements, and documents, each satisfactory to OPIC in form and substance, as it may reasonably request. SECTION 4.10 OTHER FINANCINGS. OPIC shall have received evidence satisfactory to it that (a) the Borrowers have requested the disbursement of the IFC A Loan simultaneously with the Disbursement of the Loan, (b) the IFC has made its pro rata disbursement under the IFC A Loan, and (c) the IFC C Loan has been fully disbursed. ARTICLE V CONDITIONS PRECEDENT TO EACH DISBURSEMENT Unless OPIC otherwise agrees in writing, the obligation of OPIC to make each Disbursement of the Loan (including the first Disbursement) is subject to the prior fulfillment, to OPIC's satisfaction in its sole discretion, of the following conditions precedent and to their continued fulfillment on each Closing Date: SECTION 5.01 REPRESENTATIONS AND DEFAULTS. The representations and warranties of each of the Borrowers set forth in this Agreement and in the other Financing Documents shall be true and correct in all material respects on such Closing Date as if made on such Closing Date, and on such Closing Date no Default or Event of Default shall have occurred and be continuing. SECTION 5.02 CHANGE IN CIRCUMSTANCES. At the time of each Disbursement, nothing shall have occurred and be continuing that could have a Material Adverse Effect. SECTION 5.03 DISBURSEMENT CERTIFICATE. PriceSmart shall have furnished OPIC with a certificate of an Authorized Officer, dated the Closing Date, substantially in the form of Exhibit D. SECTION 5.04 FINANCIAL INFORMATION AND PROJECT PROGRESS. Not less that ten (10) Business Days before the Closing Date, OPIC shall have received (a) all Consolidated and unconsolidated Financial Statements, reports, and other information that the Borrowers, pursuant to Section 6.06, would otherwise be required to furnish to OPIC on or before the Closing Date, and (b) a report, satisfactory to OPIC in form and substance, setting forth in reasonable detail the progress of the Corporate Expansion Plan, including the items described in Section 6.06(c). 10 SECTION 5.05 PAYMENT OR REIMBURSEMENT OF EXPENSES. All Fees and other amounts due, payable, or reimbursable by the Borrowers with respect to the Loan on or prior to the Closing Date shall have been paid in full. SECTION 5.06 CENTRAL BANK REGISTRATION. OPIC shall have received evidence satisfactory to it, as may be required by law with respect to each Disbursement, other than the first Disbursement, that each such Disbursement has been duly registered or recorded with the central bank of the Project Country, and that the Borrowers have taken all other steps necessary to obtain any Consents necessary with respect to each such Disbursement. OPIC shall have received copies of such certificates, legal opinions, or other documents, satisfactory to OPIC in form and substance, as OPIC shall have requested to evidence such Consents. SECTION 5.07 DEBT SERVICE RESERVE ACCOUNT. Debt Service Reserve Account shall be fully funded in accordance with the DSR Agreement and evidence of this funding shall be provided to OPIC. ARTICLE VI AFFIRMATIVE COVENANTS Unless OPIC otherwise agrees in writing, so long as the Commitment shall remain outstanding and until all amounts due and to become due hereunder and under the Notes shall have been paid, the Borrowers agree as follows: SECTION 6.01 PROJECT COMPLETION. The Borrowers shall, and shall cause the Subsidiaries to, (a) implement the Corporate Expansion Plan promptly in accordance with sound engineering, financial and business practices, (b) apply the proceeds of the Loan exclusively to the Project, and (c) use their best efforts to cause the Corporate Expansion Plan to be completed on or prior to August 31, 2002. If the Borrowers become unable to achieve the completion undertakings set out in the preceding sentence, or become unable to complete the Corporate Expansion Plan, or become unable to meet their other obligations prior to completion of the Corporate Expansion Plan, the Borrowers shall promptly so notify OPIC. SECTION 6.02 COMPANY OPERATIONS. Each of the Borrowers shall duly and punctually perform its obligations under each of the Borrower Documents. Each of the Borrowers shall, and shall cause the Subsidiaries to, conduct its operations in accordance with customary commercial practice and on an arm's-length basis, with due diligence and efficiency and under the supervision of qualified and experienced management. Each of the Borrowers shall, and shall cause the Subsidiaries to, repair, replace, and protect each of its assets so that its business can be conducted properly at all times. 11 SECTION 6.03 MAINTENANCE OF RIGHTS AND COMPLIANCE WITH LAWS. Each of the Borrowers shall, and shall cause the Subsidiaries to, (a) whenever in its power to do so, obtain, maintain in full force and effect, and renew all Consents, leases and other rights in land, and franchises necessary for the conduct of its business and the performance of its obligations hereunder and under the other Financing Documents; (b) conduct its business in compliance with all applicable laws and directives of governmental authorities having force of law, including Corrupt Practices Laws; and (c) duly pay before they become overdue all Taxes levied or imposed in any jurisdiction upon its property, earnings, or business that, if not paid, could have a Material Adverse Effect, and all Indebtedness and other liabilities in a timely manner in accordance with normal business practices and with the terms governing the same, except amounts being contested in good faith by appropriate proceedings diligently pursued for which adequate reserves shall have been set aside in accordance with GAAP. SECTION 6.04 MAINTENANCE OF INSURANCE. (a) Each of the Borrowers and Subsidiaries shall: (i) insure and keep insured, with financially sound and reputable insurers, all its assets and business against all insurable losses to include the insurance specified in Schedule 6.04(a)(i) 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 any Borrower or Subsidiary under any policy written by that insurer and diligently pursue that claim; (iv) comply with all warranties under each policy of insurance; (v) not do or omit to do, or permit to be done or not done, anything which might prejudice any Borrower's or Subsidiaries', or, where OPIC is a loss payee or an additional named insured, OPIC's right to claim or recover under any insurance policy; and (vi) 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 OPIC 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 Borrower or Subsidiary and to take all such steps to minimize hazard as OPIC may consider expedient or necessary. (b) Each insurance policy required to be obtained pursuant to this Section shall be on terms and conditions acceptable to OPIC, and shall contain provisions to the effect that: (i) no policy can expire nor can it be cancelled or suspended by any Borrower or any Subsidiary or the insurer for any reason (including failure to renew the policy or to pay premium or any other amount) unless OPIC and, in the case of expiration, or if cancellation or suspension is initiated by the insurer, the relevant Borrower or Subsidiary receives at least thirty (30) days' notice (or such lesser 12 period as OPIC may agree with respect to cancellation, suspension or termination in the event of war and kindred peril) prior to the effective date of termination, cancellation or suspension; (ii) OPIC and all contractors working on any store site are named as additional 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 Borrowers' assets which are subject to the Security Documents and for business interruption, OPIC 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) (i) OPIC may remit the proceeds of any insurance paid to it to the relevant Borrower to repair or replace the relevant damaged assets or if in the reasonable judgement of OPIC such insurable event creates a Material Adverse Effect then, at OPIC's discretion, OPIC may apply those proceeds towards any amount payable to OPIC under this Agreement, including to repay or prepay all or any part of the Loan in accordance with Section 2.05(a)(i); provided there shall be no minimum amount or notice period or prepayment premium for any such prepayment. (ii) Each of the Borrowers shall use any insurance proceeds it receives (whether from OPIC or directly from the insurers) for loss of or damage to any asset solely to replace or repair that asset. (d) Unless OPIC agrees otherwise, each of the Borrowers shall provide to OPIC the following: (i) as soon as possible after its occurrence, notice of any event which entitles the relevant 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 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 OPIC pursuant to Section 4.06); (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 OPIC as loss payee or additional named insured, as applicable remain in effect; (iv) such evidence of premium payment as OPIC may from time to time reasonably request; and (v) any other information or documents on each insurance policy as OPIC reasonably requests from time to time. 13 SECTION 6.05. ACCOUNTING AND FINANCIAL MANAGEMENT. (a) The Borrowers shall (i) maintain adequate accounting, management information and cost control systems, (ii) prepare their Consolidated and unconsolidated Financial Statements in accordance with GAAP, (iii) engage Ernst & Young, or other independent internationally recognized accountants satisfactory to OPIC as their regular independent auditors, (iv) notify OPIC of any change in such accountants and the reason therefor, and (v) instruct such accountants to communicate directly with OPIC regarding the Borrowers' accounts and operations. Without limiting the foregoing, each of the Borrowers shall, and shall cause the Subsidiaries to, maintain the systems described in clause (i) and related management and accounting policies in a manner adequate to ensure compliance with applicable Corrupt Practices Laws. (b) The Borrowers shall make arrangements satisfactory to OPIC for overseeing the financial operations of the Borrowers and the Subsidiaries, including their cash management, accounting, and financial reporting, and for overseeing the Borrowers' relationship with their lenders and independent accountants, which arrangements shall include employing a chief financial officer to oversee the financial operations of the Borrowers and Subsidiaries. SECTION 6.06 FINANCIAL STATEMENTS AND OTHER INFORMATION. At its cost, PriceSmart shall furnish to OPIC each of the following: (a) Within forty-five (45) days after the end of each fiscal quarter (including the fourth fiscal quarter) of each Fiscal Year, PriceSmart's and PSMT Caribe's respective unaudited Consolidated and unconsolidated Financial Statements and a comparison between such Financial Statements and the projections for such fiscal quarter furnished pursuant to Section 6.06(e), all certified by the chief financial officer of PriceSmart and PSMT Caribe as being complete and correct, together with such officer's certificate (i) that his or her review has not disclosed the existence any Default or Event of Default, or, if any such Default or Event of Default then exists, specifying the nature and period of existence thereof and what action PriceSmart or PSMT Caribe has taken or proposes to take with respect thereto, and (ii) demonstrating in reasonable detail PriceSmart's compliance with the ratios set forth in Sections 6.10(a) and (b) and the basis for such calculations; (b) Within ninety (90) days after the end of each Fiscal Year, PriceSmart's audited Consolidated Financial Statements and PSMT Caribe's unaudited Consolidated Financial Statements, together with a certificate by the independent accountants reporting thereon (i) describing briefly the scope of their examination (which shall include a review of the relevant terms of this Agreement) and certifying whether their examination has disclosed the existence of any Default or Event of Default and, if so, specifying the nature and period of existence thereof, and (ii) demonstrating in reasonable detail PriceSmart's compliance with the ratios set forth in Sections 6.10(a) and (b) and the basis for such calculations; (c) (i) Until the Corporate Expansion Plan is completed, within forty-five (45) days after the end of each fiscal quarter, a report, Certified by an Authorized Officer of PriceSmart, setting forth in reasonable detail the progress of the Corporate Expansion Plan, including (A) the financial plan for the remaining membership-shopping warehouse stores to be built and brought into operation, (B) expenditures of funds, (C) estimated future costs, (D) unexpended funds available to the Borrowers, (E) the progress and percentage of completion of the major phases of Corporate Expansion Plan construction and the total construction work of the Corporate Expansion Plan, (F) the acquisition of fixtures and equipment, and (G) such other information with respect to the Corporate Expansion Plan as OPIC may reasonably request from time to time; and 14 (ii) After the Corporate Expansion Plan is completed, within forty-five (45) days after the end of each fiscal quarter, a report, Certified by an Authorized Officer of PriceSmart, setting forth in reasonable detail any continued expansion of PriceSmart's business, including (A) the planned addition of any new membership-shopping warehouse stores, including the location, expected construction completion date and opening date of such membership-shopping warehouse store, (B) the financial plan for each such warehouse store, including the source, amount and term of any new Indebtedness, and the identity of local or other investors, if any, (C) the addition of new licensees, (D) identification of and explanation for the significant and on-going deterioration in the financial or operating performance of any membership-shopping warehouse store, and (E) such other information with respect to PriceSmart's continued expansion as OPIC may reasonably request from time to time; (d) Within forty-five (45) days after the end of each Fiscal Year, a report, Certified by an Authorized Officer of PriceSmart, setting forth in reasonable detail all Affiliate transactions excluding transactions (i) for inventory purchase by PriceSmart and sold to any Affiliate for commercial resale or (ii) inventory sold by one Affiliate to another Affiliate for commercial resale. (e) Not later than thirty (30) days prior to the beginning of each Fiscal Year, an annual operating forecast for PriceSmart and PSMT Caribe on an unconsolidated and Consolidated Basis, including their respective quarterly projections for such Fiscal Year, together with a statement of the assumptions on which such forecast is based; (f) Within ninety (90) days after the end of each Fiscal Year, the Self-Monitoring Questionnaire, Certified by an Authorized Officer of PriceSmart as true and complete; (g) Copies of all other annual or interim reports and management letters submitted to PriceSmart and PSMT Caribe by its independent accountants, and such other information and data with respect to PriceSmart's and PSMT Caribe's operations, condition (financial or otherwise), assets, and prospects (including supporting information as to compliance with this Agreement) as OPIC may reasonably request from time to time; and (h) Within forty-five (45) days after the end of each Fiscal Year, an annual review of operations, such report shall be substantially in the form of Exhibit F and acceptable to OPIC. SECTION 6.07 ACCESS TO RECORDS; INSPECTION; MEETINGS. The Borrowers shall, and shall cause the Subsidiaries to, upon OPIC's request, give, or cause to be given, to any representatives of OPIC access during normal business hours to, and permit them to (a) examine, copy, and make extracts from, any and all records and documents in the possession or subject to the control of the Borrowers or the Subsidiaries relating to their respective operations and financial affairs, and (b) inspect any of their respective facilities or properties. If OPIC so requests, the Borrowers shall give OPIC not less than fifteen (15) days' notice of, and shall permit an OPIC representative to attend, each meeting of the Borrowers' shareholders and of its directors. SECTION 6.08 NOTICE OF DEFAULT AND OTHER MATTERS. The Borrowers shall notify OPIC immediately of (a) the occurrence of any Default or Event of Default, and (b) any legal or arbitral proceedings against any Borrower or any Subsidiary that involve claims aggregating more than the equivalent of $3,000,000. 15 SECTION 6.09 SECURITY DOCUMENTS. Each of the Borrowers, at its own cost, shall take all actions necessary to maintain each of the Security Documents in full force and effect and enforceable in accordance with its terms, including all (a) filings and recordations, (b) payment of fees and other charges, (c) issuing supplemental documentation and continuation statements, (d) discharging of all Liens or other claims adversely affecting the rights of OPIC in the property subject to any Security Document, (e) publishing or otherwise delivering notice to third parties, and (f) depositing title documents. SECTION 6.10 FINANCIAL RATIOS; DEBT SERVICE RESERVE. (a) PriceSmart shall at all times maintain the following financial ratios on a Consolidated Basis: (i) the ratio of Adjusted Indebtedness to Tangible Net Worth shall not exceed 1 to 1; and (ii) the ratio of Current Assets to Current Liabilities shall not be less than 1.2 to 1. (b) PriceSmart shall at all times maintain, on a Consolidated Basis, for each four (4) consecutive fiscal quarters, taken as a single accounting period, (i) a ratio of Cash Flow to Debt Service of not less than 1.3 to 1; and (ii) a ratio of Cash Flow to Projected Debt Service (determined as of the last day of such period) of not less than 1.3 to 1. (c) PriceSmart shall at all times maintain funds or assets on deposit in the Debt Service Reserve Account with a market value at least equal to the Debt Service Reserve Requirement. SECTION 6.11 ENVIRONMENTAL COMPLIANCE. The Project Companies shall comply with, and shall conduct their business, operations, assets, equipment, property, leaseholds, and other facilities in compliance with, the provisions of the World Bank Guidelines, all applicable environmental, health, and safety laws, codes and ordinances and all rules and regulations promulgated thereunder, and OPIC's environmental policies. The Project Companies shall maintain all required Consents relating to: (a) air emissions; (b) discharges to surface water or ground water; (c) noise emissions; (d) solid or liquid waste disposal; (e) the use, generation, storage, transportation, or disposal of toxic or hazardous substances or wastes; and (f) other environmental, health, or safety matters. SECTION 6.12 ERISA COMPLIANCE. PriceSmart shall comply with all requirements of ERISA relating to its Plan. ARTICLE VII NEGATIVE COVENANTS Unless OPIC otherwise agrees in writing, so long as the Commitment shall remain outstanding and until all amounts due and to become due hereunder and under the Notes shall have been paid in full, the Borrowers agree as follows: SECTION 7.01 LIENS. The Borrowers shall not, and shall cause the Subsidiaries not to, directly or indirectly, create, assume, or otherwise permit to exist any Lien on any of their assets, whether now owned or hereafter acquired, or in any proceeds or income therefrom, except for: 16 (a) the Liens created under the Security Documents or pursuant to any other Financing Documents; (b) tax, mechanic's, worker's or other like Liens arising by mandatory provision of law securing obligations incurred in the ordinary course of business that are not yet overdue or that are being contested or litigated in good faith; (c) existing Liens as of the date of this Agreement as listed in Schedule 7.01; (d) Liens with respect to permitted Indebtedness under Section 7.02, to the extent that Section 7.02 permits secured Indebtedness; and (e) 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. SECTION 7.02 INDEBTEDNESS. The Borrowers shall not, and shall cause the Subsidiaries not to, incur, assume, guarantee, or permit to exist, or otherwise become liable for Indebtedness except: (a) the Loan; (b) Indebtedness fully subordinated to the Loan on terms satisfactory to OPIC; (c) Indebtedness consisting of trade credit from suppliers of goods or services incurred in the ordinary course of business on terms requiring payment in full in not more than one hundred and twenty (120) days; (d) Indebtedness consisting of unsecured short-term credit facilities from commercial banks requiring repayment in not more than three hundred and sixty (360) days; (e) existing Indebtedness as of the date of this Agreement as listed in Schedule 7.02; (f) Indebtedness obtained to replace any existing Indebtedness, but only to the extent such new Indebtedness is on terms and conditions (as to interest rate, other costs and tenor) at least as favorable to the Borrowers as those of the Indebtedness being replaced in accordance with Section 7.04(b); (g) for the purposes of hedging business risks and exposures only, the following types of Derivative Transactions entered into by the Borrowers: (i) forward foreign exchange contracts (including non-deliverable forward foreign exchange contracts); (ii) cross-currency swaps; and (iii) interest-rate swaps; and (h) Long-term Indebtedness 17 PROVIDED, that in no event shall any Indebtedness described in (i) clauses (c), (d), (e), (f) and (g) above, when incurred, cause PriceSmart to fail to meet the financial ratios set forth in Section 6.10; and (ii) clause (h) above, when incurred, cause PriceSmart to fail to meet, on a Consolidated Basis, (A) a Long-term Indebtedness to Tangible Net Worth ratio not to exceed 1 to 1 and (B) the financial ratios set forth in Section 6.10(b). SECTION 7.03 NO ALTERATION OF AGREEMENTS. The Borrowers shall not terminate, amend, grant any waiver of, or assign any of the respective duties or obligations under, any provision of any of the Financing Documents (other than amendments or waivers, either to correct manifest error or which are of a formal, minor, or technical nature and do not change materially any Person's rights or obligations, PROVIDED, that the Borrowers shall promptly give OPIC notice of such amendment or waiver). SECTION 7.04 RESTRICTED PAYMENTS. The Borrowers or Subsidiaries shall not: (a) make, or incur any obligation to make, any Restricted Payment until all amounts due or to become due hereunder or under the Notes have been paid in full; PROVIDED, HOWEVER, that after (i) the Corporate Expansion Plan is completed and (ii) the Borrowers have made at least one Principal Installment, the Borrowers and Subsidiaries may (subject to the mandatory prepayment provisions set forth in Section 2.05(a)(ii)) make Restricted Payments if, but only if, no earlier than sixty (60) days nor later than thirty (30) days prior to doing so, the Borrowers certify to OPIC in writing that after giving effect to each such Restricted Payment, (A) no Default or Event of Default shall have occurred and be continuing, and (B) PriceSmart shall be in compliance with the financial ratios set forth in Section 6.10; and (b) prepay (whether voluntarily or involuntarily) or repurchase any Indebtedness (other than the Indebtedness contemplated to be paid with the proceeds of the IFC A Loan) pursuant to any provision of any agreement or note with respect to that Indebtedness unless: (i) that Indebtedness is refinanced using new Indebtedness on terms and conditions (as to interest rate, other costs and tenor) at least as favorable to the Borrowers as those of the Indebtedness being refinanced; or (ii) the Borrowers give OPIC at least thirty (30) days' advance notice of their intention to make the proposed prepayment and, if OPIC so requires, the Borrowers contemporaneously prepay a proportion of the Loan equivalent to the proportion of the part of the Indebtedness being prepaid, such prepayment to be made in accordance with the provisions of Section 2.04 except that there shall be no minimum amount, prepayment premium or advance notice period for that prepayment. SECTION 7.05 CONDUCT OF BUSINESS WITH AFFILIATES. The Borrowers shall not, and shall cause the Subsidiaries not to, conduct any business with, or enter into any business transaction involving, any Affiliate, except on an arm's-length basis and subject to the reporting requirement set forth in Section 6.06(d). 18 SECTION 7.06 AFFILIATE PAYMENTS. Except for amounts permitted to be paid under Section 7.04, no Borrower or any Subsidiary shall make, or incur or assume any obligation to make, any Affiliate Payment; PROVIDED, HOWEVER, that the Borrowers and Subsidiaries may (subject to Section 7.04 and the mandatory prepayment provisions set forth in Section 2.05(a)(ii)) make such Affiliate Payments if, but only if, after giving effect to each such Affiliate Payment, (a) no Default or Event of Default shall have occurred and be continuing, and (b) PriceSmart shall be in compliance with the financial ratios set forth in Section 6.10. SECTION 7.07 NO SALE OF ASSETS; MERGERS. Each of the Borrowers shall not, and shall cause the Subsidiaries not to: (a) sell, assign, convey, lease, or otherwise dispose of all or a material portion of its assets, other than inventory, and except for (i) the replacement of a capital asset with a capital asset of equal or greater value; (ii) fixed assets of the Borrowers with an aggregate value of less than ten percent (10%) of the existing net fixed assets in any Fiscal Year; and (iii) 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 Corporate Expansion Plan, in each case in the ordinary course of business and in a manner consistent with the Financing Documents; (b) dissolve, liquidate, or otherwise cease to do business; or (c) merge, spin-off, reorganize or consolidate with any Person. SECTION 7.08 ORDINARY CONDUCT OF BUSINESS. Each of the Borrowers shall not, and shall cause each of the Subsidiaries not to: (a) change its Charter Documents in a manner that would be inconsistent with the provisions of any of the Financing Documents; (b) change its name or take any action that might adversely affect the Liens created by the Security Documents; (c) enter into any partnership, profit-sharing or royalty agreement, or other similar arrangement whereby its income or profits are, or might be, shared with any other Person; (d) create any subsidiaries, except for: (A) the subsidiaries disclosed in Schedule 3.01(d)(i); (B) subsidiaries formed for the purposes of the Corporate Expansion Plan; and (C) subsidiaries formed by PriceSmart in similar lines of business as the Borrowers; (e) except for Back-to-Back Loans, make or permit to exist any loans or advances to, or assume, guarantee, endorse, or otherwise become directly or contingently liable for, any obligation, Indebtedness of, any Person, other than the endorsement of negotiable instruments for collection in the ordinary course of business and the prudent investment of idle surplus funds in readily marketable Dollar-denominated debt securities; (f) enter into any Derivative Transactions other than those permitted pursuant to Section 7.02(g); 19 (g) fail to maintain its corporate existence and its right to carry on its operations; (h) adopt, establish, maintain, sponsor, administer, contribute to, participate in, or incur any liability under or obligation to contribute to, any Plan or incur any liability to provide post-retirement welfare benefits, except such liability to provide post-retirement welfare benefits as may be required by applicable law or other non-material post-retirement welfare benefits; (i) 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 Loan; (j) change the nature or scope of the Project, the Corporate Expansion Plan or change the nature of its business or operations; (k) terminate, amend or grant any waiver with respect to any provision of: (i) the IFC A Loan Agreement and the IFC C Loan Agreement; or (ii) any document evidencing or securing any other senior loan set forth under the Corporate Financial Plan; and (l) terminate, waive or materially amend any license agreements, trademarks or similar agreements set forth in Schedule 3.01(j). SECTION 7.09 WORKER RIGHTS. The Project Companies shall not take any action to prevent their respective employees from lawfully exercising their right of association and their right to organize and bargain collectively. The Project Companies further agree to observe applicable laws relating to a minimum age for employment of children, acceptable conditions of work with respect to minimum wages, hours of work, and occupational health and safety and the Project Companies shall not use forced labor. The Project Companies also agree that the Project shall employ no persons under the age of 18 for work involving hazardous activity (the "WORKER RIGHTS REQUIREMENTS"). The Project Companies shall require all Engineering, Procurement and Construction (EPC), Operation and Maintenance (O&M) contractors and subcontractors and each of its respective Project contractors to comply with the Worker Rights Requirements with respect to employees of such Project contractors, and with respect to employees of their respective subcontractors, that are performing work under contracts between the Project Companies and such Project contractors ("PROJECT CONTRACTS") in the Project Country. In the event that information concerning non-compliance or potential non-compliance with the Worker Rights Requirements with respect to employees under any Project Contract comes to the attention of a responsible officer of the Project Companies, the Project Companies shall give prompt notice thereof to OPIC. The Project Companies (a) shall use best efforts to cause the relevant contractor to cure such non-compliance and (b) shall terminate such contractor's Project Contract unless such non-compliance is cured within ninety (90) days after such notice. Notwithstanding the foregoing, the Project Companies shall not be responsible for non-compliance with the Worker Rights Requirements resulting from actions of a government. 20 SECTION 7.10 PENSION PLANS. PriceSmart shall not (a) establish a Defined Benefit Plan, (b) permit any condition to exist in connection with its Plan which might constitute grounds for the PBGC to institute proceedings to have such Pension Plan terminated or a trustee appointed to administer such Plan, (c) engage in, or permit to exist or occur, any condition, event or transaction with respect to its Plan which could result in the incurrence by PriceSmart of any liability, fine, or penalty which could reasonably be expected to have a Material Adverse Effect, or (d) establish or participate in a Multiemployer Plan. No Subsidiary of PriceSmart shall establish a Plan or establish or participate in a Multiemployer Plan. ARTICLE VIII DEFAULTS AND REMEDIES SECTION 8.01 EVENTS OF DEFAULT. Each of the following events or circumstances shall constitute an "EVENT OF DEFAULT": (a) PAYMENT DEFAULT. The Borrowers fail to pay when due any amount payable to OPIC pursuant to this Agreement, any Note, or any other Financing Document. (b) CROSS-DEFAULT. Any Borrower or Subsidiary fails to pay any principal of or interest on any of its Indebtedness (including any premium or fee thereon, but excluding Indebtedness evidenced by this Agreement and the Notes) when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) and such failure continues beyond the applicable grace period, if any; or a default occurs under any agreement or instrument evidencing, or under which the Borrowers or Subsidiaries have outstanding at the time, any such Indebtedness and such default continues beyond the applicable grace period, if any, if the effect of such default is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or any such Indebtedness shall be declared to be due and payable, or required to be prepaid, prior to the stated maturity thereof as a result of a default or other similar adverse event. (c) REPRESENTATION DEFAULT. Any representation or warranty made by a Borrower, on behalf of itself or a Subsidiary, or the Borrowers, on behalf of themselves or their Subsidiaries, in any Financing Document proves to have been incorrect in any material respect when made or deemed made. (d) COVENANT DEFAULT. A Borrower fails to comply with any covenant or provision set forth in Section 6.08, Section 6.09, Section 6.10, or Article VII. (e) OTHER OBLIGATION DEFAULT. Any Borrower fails to perform any of its obligations under any agreement pursuant to which there is outstanding any Indebtedness, and any such failure continues for more than any applicable grace period, if any, or any such Indebtedness becomes prematurely due and payable or is place on demand; (f) APPROVALS DEFAULT. Any Consent necessary for the execution, delivery, or performance of any of the Financing Documents or for the validity or enforceability of any of the Borrowers' obligations under any of the Financing Documents is not effected or given or is withdrawn or ceases to remain in full force and effect. 21 (g) OBLIGATION DEFAULT. A Borrower fails to comply with or perform any agreement or covenant contained herein other than those referred to in Sections 8.01(a), (b), (c), (d), (e) or (f) above and such failure continues for thirty (30) days after the occurrence thereof; (h) AGREEMENT DEFAULT. Any Financing Document at any time for any reason ceases to be in full force and effect, or is declared to be void or is repudiated, or the validity or enforceability thereof is at any time contested by the Borrower, or, in the case of a Security Document, ceases to give or provide the respective Liens, rights, titles, remedies, powers, or privileges intended to be created thereby. (i) EXPROPRIATION DEFAULT. Any governmental authority condemns, nationalizes, seizes, or otherwise expropriates any substantial portion of the assets or the capital stock of any Borrower or takes any action that would prevent any Borrower from carrying on any material part of its business or operations. (j) OTHER AGREEMENTS DEFAULT. The Borrowers or any other party fail to comply with or perform any of its material obligations or undertakings set forth in any Financing Document (other than this Agreement or the Notes) and such failure continues beyond the applicable grace period, if any. (k) VOLUNTARY BANKRUPTCY DEFAULT. Any of the Borrowers or any of the Subsidiaries, (i) request a moratorium or suspension of payment of debts from any court, (ii) applies for, or consents to the appointment of, a receiver, trustee, custodian, intervenor, or liquidator of itself or of all or a substantial part of its assets, (iii) files a voluntary petition in bankruptcy, admits in writing that it is unable to pay its debts as they become due, or generally fails to pay its debts as they become due, (iv) makes a general assignment for the benefit of creditors, (v) files a petition or answer seeking reorganization or an arrangement with creditors or to take advantage of any bankruptcy, reorganization, or insolvency laws, (vi) files an answer admitting the material allegations of, or consents to, or defaults in answering, a petition filed against it in any bankruptcy, reorganization, or insolvency proceeding where such action or failure to act will result in a determination of bankruptcy or insolvency against it, or (vii) takes any corporate action to authorize any of the foregoing. (l) INVOLUNTARY BANKRUPTCY DEFAULT. Without its application, approval, or consent, a proceeding is instituted in any court of competent jurisdiction or by or before any government or governmental agency of competent jurisdiction, seeking in respect of any of the Borrowers, or any of the Subsidiaries: adjudication in bankruptcy, reorganization, dissolution, winding up, liquidation, a composition or arrangement with creditors, a readjustment of Indebtedness, the appointment of a trustee, receiver, liquidator, or the like of it or of all or any substantial part of its property or assets, or other like relief in respect of it under any bankruptcy, reorganization, or insolvency law; and, if such proceeding is being contested by it in good faith, the same continues undismissed for a period of sixty (60) days. (m) JUDGMENT DEFAULT. A final judgment or litigation settlement for the payment of money in an aggregate amount in excess of $500,000 or its equivalent in another currency is rendered against, or entered into by, any of the Borrowers, and such judgment is not satisfied or discharged within sixty (60) days of entry. (n) ADVERSE EFFECT DEFAULT. Any event shall have occurred that, in the reasonable judgment of OPIC, could have a Material Adverse Effect. 22 (o) POLITICAL VIOLENCE DEFAULT. Any acts of war (whether declared or undeclared), revolution, insurrection, civil war, strife of a lesser degree, terrorism, or sabotage occur that cause the destruction, disappearance, or physical damage of a substantial portion of the assets of the Borrowers or prevent the Borrowers from carrying on any material part of their business or operations. (p) OWNERSHIP BY U.S. PERSONS. U.S. Persons acceptable to OPIC shall cease to retain an ultimate beneficial ownership interest in the Borrowers of at least twenty-five percent (25%). (q) CHANGE OF CONTROL DEFAULT. PriceSmart ceases to retain management control of any Subsidiary. SECTION 8.02 REMEDIES UPON EVENT OF DEFAULT. (a) Except as otherwise provided in Section 8.02(b), if any Event of Default has occurred and is continuing, OPIC may at any time do any one or more of the following: (i) suspend or terminate the Commitment, (ii) declare, by written demand for payment, any portion or all of the Loan to be due and payable, whereupon such portion or all of the Loan, together with interest accrued thereon and all other amounts due under the Financing Documents, shall immediately mature and become due and payable, without any other presentment, demand, diligence, protest, notice of acceleration, or other notice of any kind, all of which the Borrower hereby expressly waives, or (iii) without notice of default or demand, proceed to protect and enforce its rights and remedies by appropriate proceedings or actions, whether for damages or the specific performance of any provision of any Financing Document, or in aid of the exercise of any power granted in any Financing Document, or by law, or may proceed to enforce the payment of any Note. (b) Upon the occurrence of an Event of Default referred to in Sections 8.01(k) or (l), (i) the Commitment shall automatically terminate, and (ii) the Loan, together with interest accrued thereon and all other amounts due under the Financing Documents, shall immediately mature and become due and payable, without any other presentment, demand, diligence, protest, notice of acceleration, or other notice or action of any kind, all of which the Borrowers hereby expressly waive. SECTION 8.03 JURISDICTION AND CONSENT TO SUIT; WAIVERS. Each of the Borrowers hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and any other Financing Document, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, the courts of the United States of America located in the District of Columbia, the courts of any other jurisdiction where it or any of its property may be found, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; 23 (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to it c/o PriceSmart at the address set forth in Section 9.01 or at such other address of which OPIC shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) agrees that judgment against it in any such action or proceeding shall be conclusive and may be enforced in any other jurisdiction with or without the U.S. by suit on the judgment or otherwise as provided by law, a certified or exemplified copy of which judgment shall be conclusive evidence of the fact and amount of such Borrower's obligation. SECTION 8.04 JUDGMENT CURRENCY. This is an international loan transaction in which the specification of Dollars is of the essence and such currency shall be the currency of account in all events. The payment obligations of the Borrowers to OPIC under any Financing Document shall only be discharged by an amount paid in another currency, whether pursuant to a judgment or otherwise, to the extent of the amount in Dollars received by OPIC (after any premium and costs of exchange) on the prompt conversion to Dollars in the U.S. of the amount so paid in another currency under normal banking procedures. In the event that any payment by the Borrowers in another currency, whether pursuant to a judgment or otherwise, upon conversion and transfer, does not result in the payment of the amount of Dollars then due at the place such amount is due, OPIC shall be entitled to demand immediate payment of, and shall have a separate cause of action against the Borrowers for, the additional amount necessary to yield the amount of Dollars then due. In the event that OPIC, upon the conversion of a payment in another currency into Dollars, shall receive an amount greater than that to which it was entitled, the Borrowers shall be entitled to prompt reimbursement of the excess amount. SECTION 8.05 IMMUNITY. Each of the Borrowers represents and warrants that it is subject to civil and commercial law with respect to its obligations under each of the Borrower Documents, that the making and performance of such Borrower Documents and the borrowings by the Borrowers pursuant hereto constitute private and commercial acts rather than governmental or public acts, and that none of the Borrowers nor any of their respective properties or revenues has any right of immunity from suit, court jurisdiction, attachment prior to judgment, attachment in aid of execution of a judgment, set-off, execution of a judgment, or from any other legal process with respect to their respective obligations under such Borrower Documents. To the extent that the Borrowers may hereafter be entitled, in any jurisdiction in which judicial or arbitral proceedings may at any time be commenced with respect to any Borrower Document, to claim for itself or its revenues or assets any such immunity, and to the extent that in any such jurisdiction there may be attributed to a Borrower such an immunity (whether or not claimed), each Borrower hereby irrevocably agrees not to claim and hereby irrevocably waives such immunity. The foregoing waiver of immunity shall have effect under the United States Foreign Sovereign Immunities Act of 1976. 24 ARTICLE IX MISCELLANEOUS SECTION 9.01 NOTICES. Each notice, demand, or other communication relating to this Agreement shall be in writing, shall be hand-delivered or sent prepaid by mail or overnight delivery service or facsimile transmission (with a copy by mail to follow, receipt of which copy shall not be required to effect notice), and shall be deemed duly given when sent to the following addresses: To the Borrowers: c/o PriceSmart, Inc. 4649 Morena Blvd. San Diego, CA 92117-3650 (Attn.: General Counsel) (Facsimile: 858-581-4707) To OPIC: Overseas Private Investment Corporation 1100 New York Avenue, N.W. Washington, D.C. 20527 United States of America (Attn.: Vice President, Finance) Re: PriceSmart (Facsimile: 202-408-9866) Either party may, by written notice to the other, change the address to which such notices, demands, or other communications should be sent to it. SECTION 9.02 ENGLISH LANGUAGE. All documents to be furnished or communications made under each of the Financing Documents shall be in English or, if in another language, shall be accompanied by a Certified translation into English, which translation shall govern between the Borrowers and OPIC. SECTION 9.03 GOVERNING LAW. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA. SECTION 9.04 SUCCESSION; ASSIGNMENT. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the parties hereto, PROVIDED, HOWEVER, that the Borrowers shall not, without the prior consent of OPIC, assign or delegate all or any part of its interest herein or obligations hereunder. 25 SECTION 9.05 SURVIVAL OF AGREEMENTS. Each agreement, representation, warranty, and covenant contained or referred to in this Agreement shall survive any investigation at any time made by OPIC and shall survive all disbursements of the Loan, except for changes permitted hereby, and, except as otherwise provided in this Section, shall terminate only when all amounts due or to become due under the Financing Documents are paid in full. Without prejudice to the survival of any other agreement of the Borrowers hereunder, the agreements and obligations of the Borrowers contained in Sections 2.07 and 9.10 shall survive the payment in full of principal and interest hereunder and under the Notes. SECTION 9.06 INTEGRATION; AMENDMENTS. This Agreement and the agreements referred to herein embody the entire understanding of the parties and supersede all prior negotiations, understandings, and agreements between them with respect to the subject matter hereof. The provisions of this Agreement may be waived, supplemented, or amended only by an instrument in writing signed by the parties hereto. SECTION 9.07 SEVERABILITY. If any provision of this Agreement is prohibited or held to be invalid, illegal, or unenforceable in any jurisdiction, the parties hereto agree to the fullest extent permitted by law that it shall not affect the validity, legality, and enforceability of the other provisions of this Agreement and shall not render such provision prohibited, invalid, illegal, or unenforceable in any other jurisdiction. If, and to the extent that, any obligation of the Borrowers (including that under Section 9.10) is unenforceable for any reason, they agree, independently of any other obligation hereunder, to make the maximum contribution to the payment and satisfaction thereof as is permissible under applicable law. SECTION 9.08 NO WAIVER. (a) No failure or delay by OPIC in exercising any right, power, or remedy shall operate as a waiver thereof or otherwise impair any of its rights, powers, or remedies. No single or partial exercise of any such right, power, or remedy shall preclude any other or further exercise thereof or the exercise of any other legal right, power, or remedy. No waiver of any such right, power, or remedy shall be effective unless given in writing. (b) The rights, powers, or remedies provided for herein are cumulative and are not exclusive of any other rights, powers, or remedies provided by law. The assertion or employment of any right, power, or remedy hereunder, or otherwise, shall not prevent the concurrent assertion of any other right, power, or remedy. SECTION 9.09 WAIVER OF JURY TRIAL. EACH OF THE BORROWERS AND OPIC IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM ESTABLISHED BY ANY FINANCING DOCUMENT. 26 SECTION 9.10 INDEMNITY. Each of the Borrowers shall, at all times, indemnify and hold harmless OPIC and its directors, officers, and employees (each, an "INDEMNIFIED PERSON") in connection with any Loss (as defined below) and any Costs of Defense (as defined below) (the "BORROWER INDEMNITY"). The term "LOSS" shall mean any losses, claims, damages, penalties, or other costs relating to the Loan, this Agreement, any other Financing Document, or the Project to which an Indemnified Person may become subject. The term "COSTS OF DEFENSE" shall mean costs, fees, and expenses incurred by or imposed on any Indemnified Person in defending, analyzing, settling, or resolving a Loss or Potential Loss (as defined below), and the expenses associated with the making of any affirmative claim in connection therewith (PROVIDED, that costs, fees, and expenses in connection with a proceeding by any Indemnified Person to enforce his, her, or its rights under the Borrower Indemnity shall not be considered to be "Costs of Defense"). The term "POTENTIAL LOSS" shall mean any event, fact, condition, or circumstance that is reasonably likely to give rise to a Loss. The Borrower Indemnity shall not apply to the extent that a court or arbitral tribunal with jurisdiction over the Loss and each Indemnified Person who has a Loss or Costs of Defense in connection therewith renders a final determination that the Loss or Costs of Defense resulted from (a) the gross negligence or willful misconduct of the Indemnified Person, or (b) OPIC's failure to perform any act required of it relating to the Loan. The Borrower Indemnity is independent of and in addition to (i) any rights of any party hereto in connection with any Loss or Costs of Defense, and (ii) any other agreement, and shall survive the execution, modification, and amendment of this Agreement and the other Financing Documents, the expiration, cancellation, or termination of the Commitment, the disbursement and repayment of the Loan, and the provisions of any other indemnity. Any exclusion of an obligation to pay any amount under this Section shall not affect the requirement to pay such amount under any other Section hereof or under any other agreement. OPIC and each Indemnified Person shall have the right to control its, his, or her defense, PROVIDED, HOWEVER, that each Indemnified Person shall: (a) notify the Borrowers in writing as soon as practicable of any Loss, Potential Loss, or Cost of Defense, and (b) keep the Borrowers reasonably informed of material developments with respect thereto. In exercising the right and power to control his, her, or its actions in connection with a Loss or Potential Loss, including a decision to settle any such Loss, each Indemnified Person shall, taking into account the nature and policies of such Indemnified Person (i) consult with the Borrowers, and (ii) act as such Indemnified Person would act if the Costs of Defense or settlement were to be paid by such Indemnified Person. Each of the Borrowers acknowledge and agree that each Indemnified Person is an express, third-party beneficiary of the Borrowers' obligations under this Section 9.10. SECTION 9.11 FURTHER ASSURANCES. The Borrowers shall execute and deliver to OPIC such additional documents and take such additional action as OPIC may require to carry out the purposes of the Financing Documents, to cause the Financing Documents to be duly registered, notarized, and stamped in any applicable jurisdiction, and to preserve and protect OPIC's rights as contemplated herein or therein. SECTION 9.12 COUNTERPARTS. This Agreement may be executed in counterparts, each of which when so executed and delivered shall be deemed an original and all of which together shall constitute one and the same instrument. 27 SECTION 9.13 WAIVER OF LITIGATION PAYMENTS. In the event that any action or lawsuit is initiated by or on behalf of OPIC against the Borrowers or any other party to any Financing Document, the Borrowers, to the fullest extent permissible under applicable law, irrevocably waive their right to, and agree not to request, plead, or claim that OPIC and its successors, transfers, and assigns (any such Person, an "OPIC PLAINTIFF") post, pay, or offer, any CAUTIO JUDICATUM SOLVI bond, litigation bond, or any other bond, fee, payment, or security measure provided for by any provision of law applicable to such action or lawsuit (any such bond, fee, payment, or measure, a "LITIGATION PAYMENT"), and the Borrowers further waive any objection that it may now or hereafter have to an OPIC Plaintiff's claim that such OPIC Plaintiff should be exempt or immune from posting, paying, making, or offering any such Litigation Payment. 28 IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed and delivered on its behalf by its authorized representative as of the date first above written. PRICESMART, INC. By: ______________________________ Its: _____________________________ Authorized Officer PSMT CARIBE, INC. By: ______________________________ Its: _____________________________ Authorized Officer PSMT PRISMAR DE COSTA RICA, S.A. By:________________________________ Its:_______________________________ Authorized Officer PRICSMARLANDCO, S.A. By:________________________________ Its:_______________________________ Authorized Officer OVERSEAS PRIVATE INVESTMENT CORPORATION By: _______________________________ Its: ______________________________ Authorized Officer ) ) ss: ) I, ______________________, a notary public in and for _______________, DO HEREBY CERTIFY that ___________________________________, an Authorized Officer of PriceSmart, Inc. ("PRICESMART"), personally appeared before me in said _______________________, personally known to me and known by me to be the person who executed on behalf of PriceSmart the Loan Agreement annexed hereto, who acknowledged the same to be his or her own free act and deed and the free act and deed of PriceSmart, and that he or she had the necessary authority to do so. Given under my hand and notarial seal this _____ day of __________, 2001. ---------------------------------- ---------------------------------- ) ) ss: ) I, ______________________, a notary public in and for _______________, DO HEREBY CERTIFY that ___________________________________, an Authorized Officer of PSMT Caribe, Inc. ("PSMT CARIBE"), personally appeared before me in said _______________________, personally known to me and known by me to be the person who executed on behalf of PSMT Caribe the Loan Agreement annexed hereto, who acknowledged the same to be his or her own free act and deed and the free act and deed of the PSMT Caribe, and that he or she had the necessary authority to do so. Given under my hand and notarial seal this _____ day of __________, 2001. ---------------------------------- ---------------------------------- 2 ) ) ss: ) I, ______________________, a notary public in and for _______________, DO HEREBY CERTIFY that ___________________________________, an Authorized Officer of PSMT Prismar de Costa Rica, S.A. ("PSMT COSTA RICA"), personally appeared before me in said _______________________, personally known to me and known by me to be the person who executed on behalf of PSMT Costa Rica the Loan Agreement annexed hereto, who acknowledged the same to be his or her own free act and deed and the free act and deed of the PSMT Costa Rica, and that he or she had the necessary authority to do so. Given under my hand and notarial seal this _____ day of __________, 2001. ---------------------------------- ---------------------------------- 3 ) ) ss: ) I, ______________________, a notary public in and for _______________, DO HEREBY CERTIFY that ___________________________________, an Authorized Officer of Pricsmarlandco, S.A. ("COSTA RICA LANDCO"), personally appeared before me in said _______________________, personally known to me and known by me to be the person who executed on behalf of Costa Rica Landco the Loan Agreement annexed hereto, who acknowledged the same to be his or her own free act and deed and the free act and deed of the Costa Rica Landco, and that he or she had the necessary authority to do so. Given under my hand and notarial seal this _____ day of __________, 2001. ---------------------------------- ---------------------------------- 4 SCHEDULE X ---------- 1. DEFINED TERMS. As used in this Agreement and this Schedule X, the following terms shall have the following meanings. "ADJUSTED INDEBTEDNESS" means Indebtedness excluding trade liabilities incurred in the ordinary course of business, operating lease obligations, and other items commonly considered current payables according to GAAP. "AFFILIATE" means, with respect to any Person, (i) any other Person that is directly or indirectly controlled by, under common control with or controlling such Person; (ii) any other Person owning beneficially or controlling five percent (5%) or more of the equity interest in such Person; (iii) any officer or director of such Person; or (iv) any spouse or relative of such Person. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of partnership interests or voting securities, by contract or otherwise. "AFFILIATE PAYMENT" means any payment by any Borrower or any Subsidiary to any Affiliate of any Borrower, except for Back-to-Back Loan payments. "AGREEMENT" means this Loan Agreement as amended, modified, or supplemented from time to time. "APPLICATION" means PriceSmart's application to OPIC for the Loan, consisting of the Commitment Letter, and the items described in Schedule 1.01. "AUTHORIZED OFFICER" means, with respect to any Person, any officer designated in such Person's Charter Documents or otherwise in writing as having been authorized to execute and deliver any of the Financing Documents. "BACK-TO-BACK LOAN" means any loan or other advance to any Borrower or any Subsidiary that are collateralized by cash or cash-equivalent deposits of any Borrower or any Subsidiary. "BORROWERS" has the meaning set forth in the preamble to this Agreement. "BORROWER DOCUMENTS" means each of the Financing Documents to which the Borrowers are or will be a party. "BORROWER INDEMNITY" has the meaning set forth in Section 9.10. "BUSINESS DAY" means any day other than (i) a Saturday, Sunday, or day on which commercial banks are authorized by law to close in the City of New York or Washington, D.C., United States of America, (ii) with respect to any Disbursement or any payment or communication to OPIC, a day on which OPIC is not open for business, and (iii) solely for the purpose of Disbursement, a day when banks are not open for business in London, England. "CANCELLATION FEE" has the meaning set forth in Section 2.06(b). "CASH FLOW" of PriceSmart for any period, means the sum of (i) its Net Income for such period, PLUS (ii) all interest expense, any expense for any Commitment Fee, Facility Fee and Maintenance Fee, and depreciation, amortization, deferred income taxes, and other non-cash expenses for such period (but only to the extent deducted in determining Net Income), MINUS (iii) Changes in Working Capital. "CENTRAL OFFICE EXPENDITURES" means all costs related to the operations of offices located in Miami, Florida and San Diego, California. "CERTIFIED" means, in respect of any document, that it is being delivered accompanied by a certification from an Authorized Officer that it is true and complete (or a true and complete copy, as the case may be), including all amendments to date, and in full force and effect in accordance with its terms as of the date of certification. "CHANGE IN CIRCUMSTANCES" has the meaning set forth in Section 5.02. "CHANGES IN WORKING CAPITAL" means Working Capital at the end of any period MINUS Working Capital at the beginning of such period. "CHARGE-BACK" means any expense charged by PriceSmart to a Subsidiary or Joint Venture for Central Office Expenditures. "CHARTER DOCUMENTS" means, in respect of any Person, such Person's founding act, charter, articles of incorporation and by-laws, memorandum and articles of association, statute, or similar instrument. "CHATTEL MORTGAGE" means a security device which creates a valid and enforceable, first-priority lien over the movable assets secured by it. "CLOSING DATE" for any Disbursement means the Business Day on which a Disbursement is made. "CODE" means the Internal Revenue Code of 1986, as amended, and any successor statute and all rules and regulations promulgated thereunder. "COLLATERAL AGENT" means a U.S. financial institution acceptable to OPIC, as collateral agent under the DSR Agreement. "COMMITMENT" means OPIC's commitment to lend an amount up to $5,000,000 less (i) the portion thereof that pursuant to Section 2.06(b) has been canceled or has been deemed canceled, and (ii) any Loan amounts repaid or prepaid. "COMMITMENT FEE" has the meaning set forth in Section 2.06(a). "COMMITMENT LETTER" means the letter agreement, dated September 25, 2000, among OPIC and PriceSmart. "COMMITMENT PERIOD" means the period commencing on March 31, 2001, and expiring on the earlier of (i) the first date on which the amount of the Loan equals the amount of the Commitment and (ii) January 26, 2003. 2 "CONSENTS" means any registration, declaration, filing, consent, license, right, approval, authorization, or permit. "CONSOLIDATED" or "CONSOLIDATED BASIS" means financial statements that present the financial position of legally separate parent and subsidiary companies as if they were one economic entity and that eliminate inter-company transactions. "CORPORATE EXPANSION PLAN" means PriceSmart's plan to construct, equip and place into operation and the provision of working capital for twenty-four (24) deep discount membership-shopping warehouse stores. "CORPORATE FINANCIAL PLAN" means the financial plan for the Corporate Expansion Plan pursuant to Schedule 3.01(l)(ii). "CORRUPT PRACTICES LAWS" means (i) the Foreign Corrupt Practices Act of 1977 (Pub. L. No. 95-213,ss.ss.101-104), as amended, and (ii) any other law, regulation, order, decree or directive having the force of law and relating to bribery, kick-backs, or similar business practices. "COSTS OF DEFENSE" has the meaning set forth in Section 9.10. "CURRENT ASSETS" means assets of each Borrower treated as current assets under GAAP. "CURRENT LIABILITIES" means all Indebtedness of each Borrower and liabilities due on demand or to become due within one year and other liabilities of each Borrower treated as current liabilities under GAAP. "DEBT SERVICE" means, as of any date of determination, the sum of all payments of principal, interest, and fees made or required to be made by the Borrowers in respect of Long-term Indebtedness during the period of four (4) consecutive fiscal quarters immediately preceding such date of determination. "DEBT SERVICE RESERVE ACCOUNT" means a Dollar-denominated account established by PriceSmart in a U.S. financial institution acceptable to OPIC and pledged to OPIC pursuant to the terms of the DSR Agreement. "DEBT SERVICE RESERVE REQUIREMENT" has the meaning set forth in the DSR Agreement. "DEFAULT" means an event or condition that, with the passage of time or the giving of notice, or both, could constitute an Event of Default. "DEFAULT RATE" means a fixed interest rate equal to two percent (2%) PER ANNUM above the highest Interest Rate set forth in any Note outstanding at the time any amount due to OPIC under any Financing Document is not paid when due. "DEFINED BENEFIT PLAN" means a Plan that defines the benefits that employees will receive. "DERIVATIVE TRANSACTION" means any swap agreement, cap agreement, collar agreement, futures contract, forward contract or similar arrangement with respect to interest rates, currencies or commodities. 3 "DISBURSEMENT" means any disbursement of the Loan. "DISBURSEMENT REQUEST" means a request for disbursement of the Loan substantially in the form of Exhibit B. "DOLLARS" or "$" means U.S. dollars. "DSR AGREEMENT" means an agreement among PriceSmart, OPIC, and the Collateral Agent, satisfactory to OPIC in form and substance, providing, among other things, for the creation of a Lien in favor of OPIC on the Debt Service Reserve Account and all assets deposited or held therein, together with mechanisms for calculating the Debt Service Reserve Requirement and for determining how assets, including all foreign exchange revenues of the Borrowers, are to be deposited and held in the Debt Service Reserve Account and applied by the Collateral Agent. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute and all rules and regulations promulgated thereunder. References to sections of ERISA shall be construed to also refer to any successor sections. "ERISA AFFILIATE" shall mean (i) a corporation which is a member of a controlled group of corporations with the Borrowers within the meaning of Section 414(b) of the Code; (ii) a trade or business (including a sole proprietorship, partnership, trust, estate, or corporation) which is under common control with the Borrowers within the meaning of Section 414(c) of the Code or Section 4001(b)(1) of ERISA; (iii) a member of an affiliated service group with the Borrowers within the meaning of Section 414(m) of the Code; or (iv) an entity described in Section 414(o) of the Code. "EVENT OF DEFAULT" has the meaning set forth in Section 8.01. "FACILITY FEE" has the meaning set forth in Section 2.06(c). "FEES" means the Commitment Fee, the Cancellation Fee, the Facility Fee, and the Maintenance Fee. "FINANCIAL STATEMENTS" means, with respect to each Borrower, quarterly or annual balance sheet and statements of income, retained earnings, and sources and uses of funds for such fiscal period, together with all notes thereto and with comparable figures for the corresponding period of its previous Fiscal Year, each prepared in English and in Dollars in accordance with GAAP. "FINANCING DOCUMENTS" has the meaning set forth in Section 4.02. "FISCAL YEAR" means, with respect to each Borrower, the period beginning on September 1 and ending on August 31 of each year. "GAAP" means generally accepted accounting principles in the United States of America in effect from time to time, applied on a consistent basis both as to classification of items and amounts. "GUARANTY TRUST" means a legal entity in Costa Rica created by the grantor for the benefit of OPIC and which creates a valid and enforceable, first-priority lien on the assets included within it. "IFC A LOAN" means the loan made pursuant to the IFC A Loan Agreement. 4 "IFC C LOAN" means the loan made pursuant to the IFC C Loan Agreement. "IFC A LOAN AGREEMENT" means the Loan Agreement entered into among PriceSmart, Inc., PSMT Caribe, Inc., PSMT Trinidad/Tobago Limited, and International Finance Corporation dated January 26, 2001, in the principal amount of $22,000,000. "IFC C LOAN AGREEMENT" means the Loan Agreement entered into among PriceSmart, Inc., PSMT Caribe, Inc., PSMT Trinidad/Tobago Limited and International Finance Corporation dated January 26, 2001, in the principal amount of $10,000,000. "INDEBTEDNESS" means, with respect to any Person at any date, total liabilities as defined by GAAP, excluding Back-to-Back Loans, and any obligation created, issued, incurred, or assumed by such Person for borrowed money or arising out of any credit facility or financial accommodation, or for the deferred purchase price of goods or services, including, any Permitted Derivative Transactions, any credit to such Person under any conditional sale or other title retention agreement, all guaranties by such Person of liabilities or Indebtedness of any other Person, liabilities or Indebtedness of any other Person secured by any assets or revenue of such Person, and the net aggregate rentals under any lease by such Person as lessee that under GAAP would be capitalized on the books of the lessee or that is the substantial equivalent of the financing of the property so leased. "INDEMNIFIED PERSON" has the meaning set forth in Section 9.10. "INTEREST RATE" means, with respect to a Note, a fixed rate of interest equal to the borrowing cost charged to OPIC, for the Disbursement evidenced by such Note, by the U.S. Department of the Treasury plus four percent (4%) PER ANNUM. "IFC" means the International Finance Corporation, and international organization established by Articles of Agreement among its member countries, and a member of the World Bank Group. "JOINT VENTURE" means a legal entity to which PriceSmart and one or more Persons, other than an Affiliate, contribute assets, share risks, profits, and losses, have the right to direct and govern the policy of the undertaking all of which may altered by agreement. "LIEN" means any lien, pledge, mortgage, security interest, deed of trust, charge, assignment, hypothecation, title retention, or other encumbrance on or with respect to, or any preferential arrangement having the practical effect of constituting a security interest with respect to the payment of any obligation with, or from the proceeds of, any asset or revenue of any kind. "LITIGATION PAYMENT" has the meaning set forth in Section 9.13. "LOAN" means, on any date, the aggregate of the outstanding unpaid principal amounts of the Notes then outstanding. "LOAN DOCUMENTS" has the meaning set forth in Section 4.02(a)(ii). "LOAN MATURITY DATE" means September 15, 2010. "LONG-TERM INDEBTEDNESS" means, in accordance with GAAP, any Indebtedness, the final maturity of which, by its terms or the terms of any agreement related to it, falls due more than one year after the date of its incurrence. 5 "LOSS" has the meaning set forth in Section 9.10. "MAINTENANCE FEE" has the meaning set forth in Section 2.06(d). "MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) PriceSmart, (ii) the Project, (iii) the business, operations, prospects, condition (financial or otherwise), or property of PriceSmart or the Project or any other Person whose continuing viability is essential to PriceSmart or the Project, (iv) the ability of the Borrowers or any other party to perform in a timely manner its material obligations under any of the Financing Documents, (v) the validity or enforceability of any material provision of any Financing Document, (vi) the rights and remedies of OPIC under any of the Financing Documents, or (vii) the Liens provided to OPIC under the Security Documents. "MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA which is maintained for employees of PriceSmart or any ERISA Affiliate. "NET INCOME" means, on a Consolidated Basis with respect to PriceSmart, for any period, the net income (loss) of PriceSmart for such period, as determined in accordance with GAAP, PROVIDED, that there shall be excluded in such determination (i) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of income accrued during such period, (ii) any aggregate net gain during such period arising from the sale, conversion, exchange, or other disposition of capital assets, (iii) any gains resulting from the write-up of any assets, (iv) any net gain arising from the extinguishment, under GAAP, of any Indebtedness of PriceSmart, and (v) any net income or gain during such period resulting from (A) any change in accounting principles in accordance with GAAP, (B) any prior period adjustments resulting from any change in accounting principles in accordance with GAAP, (C) any extraordinary items, and (D) any discontinued operations or the disposition thereof. "NOTE" means any promissory note issued by the Borrowers pursuant to this Agreement substantially in the form of Exhibit A. "OPIC" has the meaning set forth in the preamble to this Agreement. "OPIC PLAINTIFF" has the meaning set forth in Section 9.13. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "PSMT CARIBE COSTA RICA STOCK PLEDGE AND SHARE RETENTION AGREEMENT" means the Stock Pledge and Share Retention Agreement among PSMT Caribe, PSMT Costa Rica, Costa Rica Landco, and OPIC, satisfactory to OPIC in form and substance. "PAYMENT DATE" means the 15th day of each March and September after the date hereof until the Loan and all amounts due hereunder or under the Notes are paid in full, unless such Payment Date is not a Business Day, in which case the Payment Date will be the next succeeding Business Day. "PERSON" means an individual, a legal entity, including, a partnership, a joint venture, a corporation, a trust, and an unincorporated organization, and a government or any department or agency thereof. "PERMITTED DERIVATIVE TRANSACTION" means any Derivative Transaction permitted in accordance with Section 7.02(g) of this Agreement. 6 "PLAN" shall mean any employee benefit plan within the meaning of Section 3(3) of ERISA, other than a Multiemployer Plan, subject to Title I of ERISA, which (i) is established, sponsored, maintained, or administered by a Borrower or any ERISA Affiliate, or for which a Borrower or any ERISA Affiliate has an obligation to contribute or any liability or in which a Borrower or any ERISA Affiliate participates, or (ii) has, since the date which is six years immediately preceding the date of this Agreement, been established, sponsored, maintained or administered for employees of a Borrower or any of its current or former ERISA Affiliates or for which a Borrower or any of its current or former ERISA Affiliates had an obligation to contribute or any liability or in which a Borrower or any of its current or former ERISA Affiliates participated. "POTENTIAL LOSS" has the meaning set forth in Section 9.10. "PREPAYMENT PREMIUM" has the meaning set forth in Section 2.04. "PRICESMART STOCK PLEDGE AND SHARE RETENTION AGREEMENT" means the Stock Pledge and Share Retention Agreement between PriceSmart, and OPIC, satisfactory to OPIC in form and substance. "PRINCIPAL INSTALLMENT" has the meaning set forth in Section 2.03. "PROJECT" means the construction, equipping and placing into operation and the provision of working capital for one deep discount membership-shopping warehouse store located in Heredia, Costa Rica. "PROJECT COMPANY" means either PSMT Costa Rica or Costa Rica Landco, collectively, "Project Companies". "PROJECT CONTRACTS" has the meaning set forth in Section 7.09. "PROJECT COUNTRY" means Costa Rica. "PROJECT FINANCIAL PLAN" means the financial plan for the Project pursuant to Schedule 3.01(l)(i). "PROJECTED DEBT SERVICE" means, as of any date of determination, the sum of all payments of principal, interest, and fees required to be made by the Borrowers in respect of Long-term Indebtedness during the period of four (4) consecutive fiscal quarters next succeeding such date of determination. "RESTRICTED PAYMENT" means any of the following made directly or indirectly by any Borrower or Subsidiary: (i) any dividend or distribution on any share of capital stock of PriceSmart, including any reduction of capital, (ii) any payment of principal or interest on any Indebtedness of any Borrower or Subsidiary to or for the benefit of any Affiliate, other than accounts payable for goods or services PROVIDED on an arm's-length basis, and (iii) any purchase, redemption, acquisition, or retirement of any shares of capital stock of any Borrower or any Subsidiary or any Indebtedness of any Borrower or any Subsidiary held by any Affiliate, except for the purchase of shares of capital stock of PriceSmart Subsidiaries by PriceSmart. "SECURITY DOCUMENTS" has the meaning set forth in Section 4.02(a)(iii). 7 "SECURITY SHARING AGREEMENT" means an undertaking between OPIC and the IFC by which they will cooperate in exercising any remedies in respect of the Loan, the IFC A Loan and the IFC C Loan and security granted therefor and share any recoveries thereunder. "SELF-MONITORING QUESTIONNAIRE" means the Annual Self-Monitoring Questionnaire attached as Exhibit E, as the same may be revised and supplemented by OPIC from time to time. "SUBSIDIARY" means with respect to PriceSmart, any entity: (i) over fifty percent (50%) of whose capital is owned, directly or indirectly, by PriceSmart; or (ii) for which PriceSmart may nominate or appoint a majority of the members of the board of directors or such other body performing similar function; or (iii) which is otherwise effectively controlled by that PriceSmart. "TANGIBLE NET WORTH" means, as of any date for the Borrowers, (i) the total stockholders equity (including capital stock, paid-in capital and retained earnings, after deducting treasury stock and reserves) that would appear on each Borrower's Financial Statements prepared as of that date, less (ii) the aggregate book value of all intangible assets shown on each Borrower's Financial Statements as of that date (including goodwill, patents, trademarks, trade names, copyrights, franchises, and unrealized appreciation of assets). "TAXES" means all taxes, charges, fees, levies or other assessments, including without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, value added, turnover, transfer, franchise, profits, license, withholding, payroll, employment, excise, estimated, severance, stamp, occupation, property or other taxes, customs duties, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any local taxing authority and any political subdivision, instrumentality, agency or similar body of any local taxing authority. "U.S." means the United States of America. "U.S. GOVERNMENT" means the government of the United States of America and its agencies and instrumentalities. "U.S. PERSON" means a: (i) United States citizen; or (ii) corporation, partnership or other association, including a nonprofit association, created under the laws of the United States or any state or territory thereof, or the District of Columbia, and more than fifty percent (50%) beneficially owned by United States citizens; or (iii) foreign corporation, partnership or other association wholly owned by one or more such United States citizens, corporations, partnerships, or other associations; provided, however, that the eligibility of such foreign corporation shall be determined without regard to any shares, aggregating less than five (5%) of the total of issued and subscribed share capital, held by other than the United States owners. 8 "WORKER RIGHTS REQUIREMENTS" has the meaning set forth in Section 7.09. "WORKING CAPITAL" means Current Assets (excluding all cash) MINUS Current Liabilities (excluding the current portion of all Indebtedness). "WORLD BANK GUIDELINES" means the International Finance Corporation's Environmental, Health and Safety Guidelines for Office Buildings, dated July 1, 1998. 2. RULES OF INTERPRETATION. In this Agreement and this Schedule X, unless otherwise indicated or required by the context: (a) reference to and the definition of any document (including this Agreement) shall be deemed a reference to such document as it may be amended, supplemented, revised, or modified from time to time; (b) all references to an "Article," "Section", "Schedule," or "Exhibit" are to an Article or Section of this Agreement or to a Schedule or an Exhibit attached thereto and shall be deemed to have been made a part thereof; (c) the table of contents and article and section headings and other captions are for the purpose of reference only and do not limit or affect the meaning of the terms and provisions thereof; (d) defined terms in the singular include the plural and vice versa, and the masculine, feminine and neuter gender include all genders; (e) accounting terms not defined in this Schedule X have the meanings given to them under GAAP; (f) the words "hereof," "herein" and "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement; (g) the words "include," "includes," and "including" mean include, includes and including "without limitation" and "without limitation by specification"; (h) terms capitalized for other than grammatical purposes that are defined in (i) the preamble, (ii) the recitals, or (iii) the Sections of this Agreement have the meanings ascribed to them therein; and (i) phrases such as "satisfactory to OPIC", "in such manner as OPIC may determine," "to OPIC's satisfaction," "at OPIC's election," and phrases of similar import authorize and permit OPIC to approve, disapprove, act or decline to act in its sole discretion. 9 EXHIBIT A [FORM OF] PROMISSORY NOTE $___________ Dated: [ ], 2001 FOR VALUE RECEIVED, the undersigned, PriceSmart, Inc., a corporation organized and existing under the laws of the State of Delaware, USA ("PriceSmart"), and PSMT Caribe, Inc., a corporation organized and existing under the laws of the Territory of the British Virgin Islands ("PSMT CARIBE"), Prismar de Costa Rica, S.A., a corporation organized and existing under the laws of Costa Rica ("PSMT COSTA RICA"), and Pricsmarlandco, S.A., a corporation organized and existing under the laws of Costa Rica ("COSTA RICA LANDCO"), each a "Borrower" and, collectively, the "Borrowers", HEREBY PROMISE TO PAY to the order of OVERSEAS PRIVATE INVESTMENT CORPORATION, an agency of the United States of America ("OPIC"), the principal sum of [______________] Dollars ($__________) or, if less, the principal amount of the Disbursement (as defined below) evidenced by this Promissory Note that is outstanding at any time, in substantially equal consecutive semi-annual installments on the fifteenth day of each March and September in each year, commencing on [_________] (each a "PAYMENT DATE"), and ending no later than [_______] (the "LOAN MATURITY DATE"); PROVIDED, HOWEVER, that the last such installment shall be in the amount necessary to repay in full the unpaid principal amount hereof; together with interest on the principal amount hereof from time to time outstanding from the date hereof until such principal amount is paid in full, payable semi-annually in arrears on the fifteenth day of each March and September and on the Loan Maturity Date at a fixed rate PER ANNUM equal at all times to [a fixed rate of interest equal to the borrowing cost charged to OPIC by the U.S. Department of Treasury plus four hundred basis points (4%) PER ANNUM] (the "INTEREST RATE") and, with respect to interest on any overdue amount due to OPIC under any Financing Document, payable on demand, at the Default Rate from the date that such amount was due to the date of payment thereof in full. Both principal and interest on the Disbursement are payable to OPIC in Dollars and otherwise as set forth in Section 2.03 of the Loan Agreement (as defined below). This Promissory Note is a Note referred to in, is issued under, and is subject to and entitled to the benefits of, the Loan Agreement dated as of [ ], 2001, among the Borrowers and OPIC (the "LOAN AGREEMENT"; the terms defined therein and not otherwise defined herein being used herein as therein defined). The Loan Agreement, among other things, (i) provides for the making of disbursements (each a "DISBURSEMENT") by OPIC to the Borrower, the indebtedness of the Borrower resulting from each Disbursement being evidenced by a Note, and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for voluntary and mandatory prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. No reference herein to the Loan Agreement and no provision of this Promissory Note or the Loan Agreement shall alter or impair the obligation of the Borrower to pay the principal of, interest on, and all other amounts due pursuant to this Promissory Note as provided herein. THIS PROMISSORY NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PRICESMART, INC. By: ________________________ Its: PSMT CARIBE, INC. By: ________________________ Its: PSMT PRISMAR DE COSTA RICA, S.A. By: ________________________ Its: PRICSMARLANDCO, S.A. By: ________________________ Its: 2 EXHIBIT B FORM OF DISBURSEMENT REQUEST PriceSmart, Inc. 4649 Morena Blvd. San Diego, California 92117 [DATE] Overseas Private Investment Corporation 1100 New York Avenue, N.W. Washington, D.C. 20527 United States of America Attention: Vice President for Finance with a copy to Treasurer DISBURSEMENT REQUEST Dear Sir or Madam: Reference is made to the Loan Agreement among PriceSmart, Inc. ("PRICESMART"), PSMT Caribe, Inc. ("PSMT CARIBE"), Prismar de Costa Rica, S.A. ("PSMT COSTA RICA"), Pricsmarlandco, S.A. ("COSTA RICA LANDCO"), each a "BORROWER" and, collectively, the "BORROWERS", and Overseas Private Investment Corporation ("OPIC") dated as of [___], 2001 (the "LOAN AGREEMENT"). Except as otherwise provided, capitalized terms used herein shall have the meanings set forth in the Loan Agreement. Each of PSMT Caribe, PSMT Costa Rica, and Costa Rica Landco has appointed PriceSmart as its attorney-in-fact for the purpose of executing and delivering this Disbursement Request. Pursuant to Section 2.01(b) of the Loan Agreement, notice is hereby given that: (i) the undersigned requests Disbursement of the Loan as follows: Amount of Disbursement: $__________ Closing Date: [NOT LESS THAN 10 BUSINESS DAYS FROM THE DATE OPIC RECEIVES THIS DISBURSEMENT REQUEST]; and (ii) there is a simultaneous request for pro-rata disbursement (as defined in the IFC A Loan Agreement) for the IFC A Loan, a copy of such request is attached. The proceeds of the Disbursement are needed for purposes of the Project to meet the following expenses (detailed in Exhibit A attached hereto and which also will be described in detail and documented in the Officer Certificate to be delivered on the Closing Date pursuant to Section 5.03): 1. [___] 2. [___] 3 As of the Closing Date, each of the conditions set forth in [Articles IV and VI][Articles V and VI] will be satisfied. Very truly Yours, PriceSmart, Inc. By:__________________________ Its: 4 EXHIBIT C(i) FORM OF CORPORATE AUTHORIZATION CERTIFICATE PriceSmart, Inc. 4649 Morena Blvd. San Diego, California 92117 --------------------------- OFFICER'S CERTIFICATE PURSUANT TO SECTION 4.01 --------------------------- I, [__________], Corporate Secretary of PriceSmart, Inc., a corporation organized and existing under the laws of the State of Delaware, USA ("PRICESMART"), DO HEREBY CERTIFY that: 1. Attached hereto as Exhibit A is a true and complete copy of the [Charter Documents] of PriceSmart, as amended to date, which are in full force and effect as of the date hereof [, together with [__________], evidencing that such documents have been approved by the competent governmental agencies and authorities in [_____]]. 2. Attached hereto as Exhibit B are true and complete copies of resolutions duly adopted by the [Board of Directors] of PriceSmart [and of all documents evidencing any other necessary corporate or shareholder action taken by PriceSmart] to authorize the execution, delivery and performance of the Loan Agreement among PriceSmart, PSMT Caribe, Inc., Prismar de Costa Rica, S.A., Pricsmarlandco, S.A., each a "BORROWER" and, collectively, the "BORROWERS", and Overseas Private Investment Corporation ("OPIC"), dated as of [_____], 2001 (the "LOAN AGREEMENT") (capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Loan Agreement), the Notes and each of the other Financing Documents to which it is or will be a party, and such resolutions are in full force and effect without amendment as of the date hereof. 3. The following named individuals whose specimen signatures and titles are set forth opposite their names are authorized to execute and deliver on behalf of PriceSmart the Loan Agreement, the Notes, each of the other Financing Documents to which PriceSmart is or will be a party and all other notices or instruments contemplated in the Loan Agreement: 5 - -------------------- -------------------- -------------------- Name Title Specimen Signature - -------------------- -------------------- -------------------- Name Title Specimen Signature - -------------------- -------------------- -------------------- Name Title Specimen Signature WITNESS my hand this [_____] day of [__________], 2001. ---------------------------- [Name] Corporate Secretary I, [__________], the Chairperson and Chief Executive Officer of PriceSmart, DO HEREBY CERTIFY that [Name of Corporate Secretary] is, and at all times since [__________], [199_ or 200_] has been, duly elected and qualified as Corporate Secretary of the Company, and that the signature of such Corporate Secretary set forth above is true and genuine. WITNESS my hand this [_____] day of [______], 2001. --------------------------- 6 United States of America ) ) ss: ) I, _____________________________, a [notary public in and for _________________________], DO HEREBY CERTIFY that [Name], the Chairperson and Chief Executive Officer of PriceSmart, Inc. ("PRICESMART"), personally appeared before me in [_____________________], personally known to me and known by me to be the person who executed on behalf of PriceSmart the Officer's Certificate annexed hereto, who acknowledged the same to be [his/her] own free act and deed and the free act and deed of PriceSmart, and that he had the necessary authority to do so. I DO FURTHER CERTIFY that [Name], Corporate Secretary of PriceSmart, personally appeared before me in [_______________________], personally known to me and known by me to be the person who executed on behalf of PriceSmart the Certificate of Corporate Secretary annexed hereto, who acknowledged the same to be [his/her] own free act and deed and the free act and deed of PriceSmart, and that [he/she] had the necessary authority to do so. Given under my hand and [notarial] seal this [_____] day of [__________], 2001. ------------------------------ ----------------------------- 7 EXHIBIT C(ii) FORM OF CORPORATE AUTHORIZATION CERTIFICATE PSMT Caribe, Inc. [Address] --------------------------- OFFICER'S CERTIFICATE PURSUANT TO SECTION 4.01 --------------------------- I, [__________], Corporate Secretary of PSMT Caribe, Inc., a corporation organized and existing under the laws of the Territory of the British Virgin Islands ("PSMT CARIBE"), DO HEREBY CERTIFY that: 1. Attached hereto as Exhibit A is a true and complete copy of the [Charter Documents] of PSMT Caribe, as amended to date, which are in full force and effect as of the date hereof [, together with [__________], evidencing that such documents have been approved by the competent governmental agencies and authorities in [_____]]. 2. Attached hereto as Exhibit B are true and complete copies of resolutions duly adopted by the [Board of Directors] of PSMT Caribe [and of all documents evidencing any other necessary corporate or shareholder action taken by PSMT Caribe]to authorize the execution, delivery and performance of the Loan Agreement among PriceSmart, Inc., PSMT Caribe, Inc., Prismar de Costa Rica, S.A., Pricsmarlandco, S.A., each a "BORROWER" and, collectively, the "BORROWERS", and Overseas Private Investment Corporation ("OPIC"), dated as of [_____], 2001 (the "LOAN AGREEMENT") (capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Loan Agreement), the Notes and each of the other Financing Documents to which it is or will be a party, and such resolutions are in full force and effect without amendment as of the date hereof. 3. The following named individuals whose specimen signatures and titles are set forth opposite their names are authorized to execute and deliver on behalf of PSMT Caribe the Loan Agreement, the Notes, each of the other Financing Documents to which PSMT Caribe is or will be a party and all other notices or instruments contemplated in the Loan Agreement: 8 - -------------------- -------------------- -------------------- Name Title Specimen Signature - -------------------- -------------------- -------------------- Name Title Specimen Signature - -------------------- -------------------- -------------------- Name Title Specimen Signature WITNESS my hand this [_____] day of [__________], 2001. ---------------------------- [Name] Corporate Secretary I, [__________], the Chairperson and Chief Executive Officer of PSMT Caribe, DO HEREBY CERTIFY that [Name of Corporate Secretary] is, and at all times since [__________], [199_ or 200_] has been, duly elected and qualified as Corporate Secretary of the Company, and that the signature of such Corporate Secretary set forth above is true and genuine. WITNESS my hand this [_____] day of [______], 2001. ---------------------------- 9 United States of America ) ) ss: ) I, _____________________________, a [notary public in and for _________________________], DO HEREBY CERTIFY that [Name], the Chairperson and Chief Executive Officer of PSMT Caribe, Inc. ("PSMT CARIBE"), personally appeared before me in [_____________________], personally known to me and known by me to be the person who executed on behalf of PSMT Caribe the Officer's Certificate annexed hereto, who acknowledged the same to be [his/her] own free act and deed and the free act and deed of PSMT Caribe, and that he had the necessary authority to do so. I DO FURTHER CERTIFY that [Name], Corporate Secretary of PSMT Caribe, personally appeared before me in [_______________________], personally known to me and known by me to be the person who executed on behalf of PSMT Caribe the Certificate of Corporate Secretary annexed hereto, who acknowledged the same to be [his/her] own free act and deed and the free act and deed of PSMT Caribe, and that [he/she] had the necessary authority to do so. Given under my hand and [notarial] seal this [_____] day of [__________], 2001. ------------------------------ ------------------------------ 10 EXHIBIT C(iii) FORM OF CORPORATE AUTHORIZATION CERTIFICATE Prismar de Costa Rica, S.A. [Address] --------------------------- OFFICER'S CERTIFICATE PURSUANT TO SECTION 4.01 --------------------------- I, [__________], Corporate Secretary of Prismar de Costa Rica, S.A., a corporation organized and existing under the laws of Costa Rica ("PSMT COSTA RICA"), DO HEREBY CERTIFY that: 1. Attached hereto as Exhibit A is a true and complete copy of the [Charter Documents] of PSMT Costa Rica, as amended to date, which are in full force and effect as of the date hereof [, together with [__________], evidencing that such documents have been approved by the competent governmental agencies and authorities in [_____]]. 2. Attached hereto as Exhibit B are true and complete copies of resolutions duly adopted by the [Board of Directors] of PSMT Costa Rica [and of all documents evidencing any other necessary corporate or shareholder action taken by PSMT Costa Rica] to authorize the execution, delivery and performance of the Loan Agreement among PriceSmart, Inc., PSMT Caribe, Inc., Prismar de Costa Rica, S.A., Pricsmarlandco, S.A., each a "BORROWER" and, collectively, the "BORROWERS", and Overseas Private Investment Corporation ("OPIC"), dated as of [_____], 2001 (the "LOAN AGREEMENT") (capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Loan Agreement), the Notes and each of the other Financing Documents to which it is or will be a party, and such resolutions are in full force and effect without amendment as of the date hereof. 3. The following named individuals whose specimen signatures and titles are set forth opposite their names are authorized to execute and deliver on behalf of PSMT Costa Rica the Loan Agreement, the Notes, each of the other Financing Documents to which PSMT Costa Rica is or will be a party and all other notices or instruments contemplated in the Loan Agreement: 11 - -------------------- -------------------- -------------------- Name Title Specimen Signature - -------------------- -------------------- -------------------- Name Title Specimen Signature - -------------------- -------------------- -------------------- Name Title Specimen Signature WITNESS my hand this [_____] day of [__________], 2001. ---------------------------- [Name] Corporate Secretary I, [__________], the Chairperson and Chief Executive Officer of PSMT Costa Rica, DO HEREBY CERTIFY that [Name of Corporate Secretary] is, and at all times since [__________], [199_ or 200_] has been, duly elected and qualified as Corporate Secretary of the Company, and that the signature of such Corporate Secretary set forth above is true and genuine. WITNESS my hand this [_____] day of [______], 2001. ---------------------------- 12 United States of America ) ) ss: ) I, ___________, a [notary public in and for_________________], DO HEREBY CERTIFY that [Name], the Chairperson and Chief Executive Officer of Prismar de Costa Rica, S.A. ("PSMT COSTA RICA"), personally appeared before me in [_____________________], personally known to me and known by me to be the person who executed on behalf of PSMT Costa Rica the Officer's Certificate annexed hereto, who acknowledged the same to be [his/her]own free act and deed and the free act and deed of PSMT Costa Rica, and that he had the necessary authority to do so. I DO FURTHER CERTIFY that [Name], Corporate Secretary of PSMT Costa Rica, personally appeared before me in [_______________________], personally known to me and known by me to be the person who executed on behalf of PSMT Costa Rica the Certificate of Corporate Secretary annexed hereto, who acknowledged the same to be [his/her] own free act and deed and the free act and deed of PSMT Costa Rica, and that [he/she] had the necessary authority to do so. Given under my hand and [notarial] seal this [_____] day of [__________], 2001. ------------------------------ ------------------------------ 13 EXHIBIT C(iv) FORM OF CORPORATE AUTHORIZATION CERTIFICATE Pricsmarlandco, S.A. [Address] --------------------------- OFFICER'S CERTIFICATE PURSUANT TO SECTION 4.01 --------------------------- I, [__________], Corporate Secretary of Pricsmarlandco, S.A., a corporation organized and existing under the laws of Costa Rica ("COSTA RICA LANDCO"), DO HEREBY CERTIFY that: 1. Attached hereto as Exhibit A is a true and complete copy of the [Charter Documents] of Costa Rica Landco, as amended to date, which are in full force and effect as of the date hereof [, together with [__________], evidencing that such documents have been approved by the competent governmental agencies and authorities in [_____]]. 2. Attached hereto as Exhibit B are true and complete copies of resolutions duly adopted by the [Board of Directors] of Costa Rica Landco [and of all documents evidencing any other necessary corporate or shareholder action taken by Costa Rica Landco] to authorize the execution, delivery and performance of the Loan Agreement among PriceSmart, Inc., PSMT Caribe, Inc., Prismar de Costa Rica, S.A., Pricsmarlandco, S.A., each a "BORROWER" and, collectively, the "BORROWERS", and Overseas Private Investment Corporation ("OPIC"), dated as of [_____], 2001 (the "LOAN AGREEMENT") (capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Loan Agreement), the Notes and each of the other Financing Documents to which it is or will be a party, and such resolutions are in full force and effect without amendment as of the date hereof. 3. The following named individuals whose specimen signatures and titles are set forth opposite their names are authorized to execute and deliver on behalf of Costa Rica Landco the Loan Agreement, the Notes, each of the other Financing Documents to which Costa Rica Landco is or will be a party and all other notices or instruments contemplated in the Loan Agreement: 14 - -------------------- -------------------- -------------------- Name Title Specimen Signature - -------------------- -------------------- -------------------- Name Title Specimen Signature - -------------------- -------------------- -------------------- Name Title Specimen Signature WITNESS my hand this [_____] day of [__________], 2001. ---------------------------- [Name] Corporate Secretary I, [__________], the Chairperson and Chief Executive Officer of Costa Rica Landco, DO HEREBY CERTIFY that [Name of Corporate Secretary] is, and at all times since [__________], [199_ or 200_] has been, duly elected and qualified as Corporate Secretary of the Company, and that the signature of such Corporate Secretary set forth above is true and genuine. WITNESS my hand this [_____] day of [______], 2001. ---------------------------- 15 United States of America ) ) ss: ) I, _______________, a [notary public in and for _____________], DO HEREBY CERTIFY that [Name], the Chairperson and Chief Executive Officer of Pricsmarlandco, S.A. ("COSTA RICA LANDCO"), personally appeared before me in [_____________________], personally known to me and known by me to be the person who executed on behalf of Costa Rica Landco the Officer's Certificate annexed hereto, who acknowledged the same to be [his/her]own free act and deed and the free act and deed of Costa Rica Landco, and that he had the necessary authority to do so. I DO FURTHER CERTIFY that [Name], Corporate Secretary of Costa Rica Landco, personally appeared before me in [_______________________], personally known to me and known by me to be the person who executed on behalf of Costa Rica Landco the Certificate of Corporate Secretary annexed hereto, who acknowledged the same to be [his/her] own free act and deed and the free act and deed of Costa Rica Landco, and that [he/she] had the necessary authority to do so. Given under my hand and [notarial] seal this [_____] day of [__________], 2001. ------------------------------ ------------------------------ 16 EXHIBIT D FORM OF DISBURSEMENT CERTIFICATE PriceSmart, Inc. 4649 Morena Blvd. San Diego, California 92117 --------------------------- OFFICER'S CERTIFICATE PURSUANT TO SECTION 5.03 --------------------------- I, [__________], the [Treasurer] of PriceSmart, Inc., a corporation organized and existing under the laws of the State of Delaware, USA (the "PRICESMART"), DO HEREBY CERTIFY that: A. I am familiar with the terms of the Loan Agreement among PriceSmart, PSMT Caribe, Inc. ("PSMT CARIBE"), Prismar de Costa Rica, S.A. ("PSMT COSTA RICA"), Pricsmarlandco, S.A. ("COSTA RICA LANDCO"), each a "BORROWER" and, collectively, the "BORROWERS", and Overseas Private Investment Corporation ("OPIC"), dated as of [__], 2001 (the "LOAN AGREEMENT") (capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Loan Agreement); B. Each of PSMT Caribe, PSMT Costa Rica, and Costa Rica Landco has appointed PriceSmart as its attorney-in-fact for the purpose of executing and delivering this Disbursement Certificate. C. I have read the covenants, representations, warranties and agreements of the Borrowers contained in the Loan Agreement and the IFC A Loan Agreement and each of the Borrowers has been represented by counsel in connection with the Loan Agreement and the IFC A Loan Agreement; D. I have made or caused to be made such examination or investigation as is necessary to enable me to express an informed opinion as to the matters set forth below; and pursuant to Section 5.03 of the Loan Agreement DO HEREBY CERTIFY that: 1. The representations and warranties set forth in Article III of the Loan Agreement are true and correct in all material respects on the date hereof as if made on the date hereof, and no Event of Default, and no event or condition which with lapse of time or the giving of notice, or both, would constitute an Event of Default, exists on the date hereof. 17 2. As of the date hereof, no circumstance exists, or change of law or regulation of any governmental authority has occurred, that would have a material adverse effect on (i) PriceSmart, (ii) the business, operations, prospects, condition (financial or otherwise), or property of PriceSmart or any other Person whose continuing viability is essential to PriceSmart, (iii) the ability of the Borrowers or any other party to perform in a timely manner their respective material obligations under any of the Financing Documents, (iv) the validity or enforceability of any material provision of any Financing Document, (v) the rights and remedies of OPIC, if any, under any of the Financing Documents, or (vi) the Liens provided to OPIC under the Security Documents; 3. Attached hereto as Exhibit A is a schedule setting forth the Project costs to which the prior Disbursement have been applied, for which the proceeds of this Disbursement are presently needed; 4. All conditions precedent to a disbursement under the IFC A Loan Agreement have been satisfied as of the date of this certificate. WITNESS my hand this [_____] day of [__________], 2001. ---------------------------- [Name] Treasurer 18 United States of America ) ) ss: ) I, _____________________________, a [notary public in and for _________________________], DO HEREBY CERTIFY that [Name], the Chairperson and Chief Executive Officer of PriceSmart, Inc. ("PRICESMART"), personally appeared before me in [_____________________], personally known to me and known by me to be the person who executed on behalf of the Borrowers the Officer's Certificate annexed hereto, who acknowledged the same to be [his/her] own free act and deed and the free act and deed of the Borrowers, and that he had the necessary authority to do so. I DO FURTHER CERTIFY that [Name], Corporate Secretary of PriceSmart, personally appeared before me in [_______________________], personally known to me and known by me to be the person who executed on behalf of PriceSmart the Certificate of Corporate Secretary annexed hereto, who acknowledged the same to be [his/her] own free act and deed and the free act and deed of PriceSmart, and that [he/she] had the necessary authority to do so. Given under my hand and [notarial] seal this [_____] day of [__________], 2001. ------------------------------ ----------------------------- 19 EXHIBIT E PRIVILEGED BUSINESS INFORMATION SELF MONITORING QUESTIONNAIRE FOR INSURANCE & FINANCE PROJECTS This form requests information from OPIC clients which is required by OPIC's governing legislation. The information provided in this questionnaire will allow OPIC to better assess the effects that OPIC-assisted projects have on the U.S. economy and employment, as well as the environment and economic development abroad. Complete responses to the collection of information in this form are mandatory, per the Foreign Assistance Act of 1961, as amended, Section 231(k)(2). Client information contained in this questionnaire will be deemed designated as privileged or confidential in accordance with OPIC's Freedom of Information Act (FOIA) regulations (22 CFR part 706) and will be treated as confidential to the extent permitted by the FOIA. An Agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid OMB control number with an expiration date that has not expired. PLEASE SEND COMPLETED FORM TO THE ATTENTION OF: Overseas Private Investment Corporation (An Agency of the United States Government) Statutory Review Department 1100 New York Avenue, NW; Washington DC 20527 Phone: (202) 336-8660 Fax: (202) 218-0246 ========================================================================= INSTRUCTIONS: Please answer all questions as completely as possible. If space is inadequate, please supply additional information on separate sheets of paper and attach them to this form. For all questions, the term "Project" refers to the NEW INVESTMENT associated with the OPIC insurance contract and/or finance agreement identified by number above. If this investment is an expansion of an existing enterprise, or otherwise only part of an enterprise, only the INCREMENTAL effects directly related to and resulting from the new investment should be provided. ========================================================================= U.S. CONTRACT/ SPONSOR LOAN # --------------------------------------- ---------------- FOREIGN ENTERPRISE COUNTRY -------------------------------------- ---------------- PROJECT DESCRIPTION --------------------------------------------------------------- NEW INVESTMENT (FROM ALL SOURCES) AMOUNT ACTUALLY IN FOREIGN INVESTED IN ENTERPRISE $ FOREIGN $ ORIGINALLY ENTERPRISE TO CONTEMPLATED DATE ---------------- ----------------- NOTICE: Public reporting burden for this collecting of information is estimated to average three hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden to Agency Forms Officer, Overseas Private Investment Corporation, 1100 New York Avenue, NW, Washington, DC 20527; and to the Office of Information and Regulatory Affairs, Office of Management and Budget, Washington, DC 20503. PRIVILEGED BUSINESS INFORMATION PRIVILEGED BUSINESS INFORMATION ------------------------------------------------------------------------------------------------ 1 Has the description of the Project changed since it was originally approved by OPIC? No|_| Yes|_| ------------------------------------------------------------------------------------------------ If Yes, please indicate the changes: ------------------------------------------------------------------------------------------------ 2 Has the Project become operational? Yes |_| No |_| If so, give date:__________________ ------------------------------------------------------------------------------------------------ Starting Ending 3 Please specify the Project's most recently completed fiscal Month/Yr: Month/Yr: year and USE DATA FROM THIS YEAR TO ANSWER THE FOLLOWING QUESTIONS. ------------------------------------------------------------------------------------------------ 4 What is the total value of remittances (dividends, profits, loans/interest, royalties, etc.) from the Project? ------------------------------------------------------------------------------------------------ a. To the United States? $ -------------------------------------------------------------------------------------------- b. To other countries, excluding the U.S. and Host Country? $ ------------------------------------------------------------------------------------------------ 5 What was the value of the Project's final destination sales to: (IF MULTIPLE PRODUCT LINES, PLEASE PROVIDE INFORMATION ON EACH ON SEPARATE SHEET. THIS QUESTION IS NOT APPLICABLE FOR BRANCH BANKS.) ------------------------------------------------------------------------------------------------ a. The host country $ -------------------------------------------------------------------------------------------- b. The U.S. $ -------------------------------------------------------------------------------------------- c. Other countries (IN DESCENDING ORDER OF VALUE): 1. ___________________________________________ $________________ 2. ___________________________________________ $________________ 3. ___________________________________________ $________________ 4. REMAINING SALES $________________ ------------------------------------------------------------------------------------------------ 6 Has there been any decrease in the number of U.S. employees of the Project's No|_| Yes|_| investors (or affiliates) producing, processing, and/or supporting goods/services comparable to those of the Project? ------------------------------------------------------------------------------------------------ If Yes, please explain the reason for the decrease: ------------------------------------------------------------------------------------------------ 7 a. How much did the Project pay to the host government in duties, taxes, $ etc.? -------------------------------------------------------------------------------------------- b. Were tax holidays in effect? No |_| Yes |_| -------------------------------------------------------------------------------------------- c. What are the estimated duties lost related to import substitution of $ the Project? ------------------------------------------------------------------------------------------------ 8 How many HOST COUNTRY NATIONALS were employed in the following categories: ------------------------------------------------------------------------------------------------ Management/Professional: employees Labor/Other: employees ------------------------------------------------------------------------------------------------ 9 a. Have there been any changes in the Project or the environment which No Yes have No Yes created new environmental, or occupational health & safety |_| |_| issues? (IF SO, PLEASE ATTACH A BRIEF DESCRIPTION OF THE CHANGES AND THE MEASURES TAKEN TO ADDRESS THEM.) ------------------------------------------------------------------------------------------------ b. Labor conditions -- please check any that applied within the last 12 months: 1. Labor Union_________ 2. Collective Labor Agreement________ 3. Strike________ 4. Age of Youngest Worker: Less than 14 Yrs.________ Less than 15 Yrs.________ Less than 16 Yrs.________ 5. Maximum Workweek Without Overtime: 40-44 Hrs. ________ 45-48 Hrs. ________ Greater than 48 Hrs. ________ ------------------------------------------------------------------------------------------------
PRIVILEGED BUSINESS INFORMATION PRIVILEGED BUSINESS INFORMATION 10.U.S. SUPPLIER AND PROCUREMENT INFORMATION: As indicated on the cover page, the client data you provide is privileged business information that OPIC treats as confidential, to the extent permitted by law. However, it is important for OPIC to be able to demonstrate some of the effects of your project. The historical U.S. supplier and procurement information in Section A of this question is particularly useful for OPIC to illustrate the specific benefits of your project for the U.S. economy. Unless you provide an attached sheet with a compelling reason why this information should not be made public, OPIC intends to use the information from Section A in public statements and releases.
- ------------------------------------------------------------------------------------------------ TYPE OF GOOD A. U.S. SUPPLIERS OR SERVICE MOST RECENT FISCAL YEAR INITIAL OPERATIONAL NAME OF SUPPLIER CITY STATE Please indicate PROCUREMENT(1) PROCUREMENT(2) if used --------------------------------------------------------------------------------------------- GENERAL --------------------------------------------------------------------------------------------- $ $ --------------------------------------------------------------------------------------------- $ $ --------------------------------------------------------------------------------------------- $ $ --------------------------------------------------------------------------------------------- $ $ --------------------------------------------------------------------------------------------- $ $ --------------------------------------------------------------------------------------------- SMALL BUSINESS(3) --------------------------------------------------------------------------------------------- $ $ --------------------------------------------------------------------------------------------- $ $ --------------------------------------------------------------------------------------------- $ $ --------------------------------------------------------------------------------------------- REMAINING PROCUREMENT $ $ ------------------------------------------------------------================================= TOTALS $ $ ---------------------------------
INITIAL PROCUREMENT OPERATIONAL PROCUREMENT B. HOST COUNTRY PROCUREMENT (MOST RECENT FISCAL YEAR) $_____________________ $_____________________ INITIAL PROCUREMENT OPERATIONAL PROCUREMENT C. THIRD COUNTRY PROCUREMENT (MOST RECENT FISCAL YEAR) $_____________________ $_____________________
11. PLEASE DETAIL ANY ADDITIONAL U.S. OR HOST COUNTRY BENEFITS OF THE PROJECT. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------- I HEREBY REPRESENT THE INFORMATION PROVIDED IN THIS DOCUMENT IS COMPLETE AND ACCURATE TO THE BEST OF MY KNOWLEDGE, AND THAT I AM AN AUTHORIZED REPRESENTATIVE OF THE INVESTOR. ------------------------------------------------------------------------------- Signature: Date: Telephone: ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Name and title: ------------------------------------------------------------------------------- PRIVILEGED BUSINESS INFORMATION - ------------------- (1) Procurement using funds from initial project funding. (2) On-going procurement funded by project revenues. (3) As of 1998, small businesses are defined by OPIC as companies with annual sales of less than $250 million, taking into account the consolidated sales of the parent company. If more space is needed for small business suppliers, include under "GENERAL" and denote with "(SB)" after supplier name, or attach a separate sheet. EXHIBIT F INFORMATION TO BE INCLUDED IN ANNUAL REVIEW OF OPERATIONS (See Section 6.06(h) of the Loan Agreement) (1) SHAREHOLDINGS. Information on significant changes in share ownership of the 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 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 Borrowers' senior management or organizational structure, and (ii) technology used by the Borrowers, including technical assistance arrangements. (4) CORPORATE STRATEGY. Description of any changes to the Borrowers' corporate or operational strategy, including changes in products, degree of integration, and business emphasis. (5) MARKETS. Brief analysis of changes in the 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. EX-10.42(A) 11 a2064125zex-10_42a.txt EXHIBIT 10.42(A) EXHIBIT 10.42(a) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of February 1, 2000 by and between PriceSmart, Inc., a Delaware corporation ("Employer"), and William Naylon, ("Executive"). RECITALS A. Employer (through its wholly-owned subsidiary Ventures Services, Inc.) currently employs and desires to continue to employ Executive as Senior Vice President of Employer. B. Executive desires to retain such position upon the terms and subject to the conditions herein provided. TERMS AND CONDITIONS NOW, THEREFORE, in consideration of the foregoing premises and mutual covenants and conditions hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I EMPLOYMENT AND DUTIES 1.1 POSITION AND DUTIES. Executive shall serve as Senior Vice President of Employer. Executive shall have such duties and authority as are customary for, and commensurate with, such position, and such other related duties and authority as may from time to time be delegated or assigned to him by the Chief Executive Officer or the Board of Directors of Employer. Executive shall discharge his duties in a diligent and professional manner. 1.2 OUTSIDE BUSINESS ACTIVITIES PRECLUDED. During his employment, Executive shall devote his full energies, interest, abilities and productive time to the performance of this 1 Agreement. Executive shall not, without the prior written consent of Employer, perform other services of any kind or engage in any other business activity, with or without compensation, that would interfere with the performance of his duties under this Agreement. Executive shall not, without the prior written consent of Employer, engage in any activity adverse to Employer's interests. 1.3 PLACE OF EMPLOYMENT. Unless the parties agree otherwise in writing, during the Employment Term (as defined in Section 3.1 below) Executive shall perform the services he is required to perform under this Agreement at Employer's offices located in Miami, Florida; provided, however, that Employer may from time to time require Executive to travel temporarily to other locations on Employer's business. ARTICLE II COMPENSATION 2.1 SALARY. For Executive's services hereunder, Employer shall pay as base salary to Executive the amount of $125,000 during each year of the Employment Term. Said salary shall be payable in equal installments in conformity with Employer's normal payroll period. Executive shall receive such salary increases, if any, as Employer, in its sole discretion, shall determine. 2.2 BONUS. During the Employment Term Executive shall be entitled to participate in Employer's Bonus Plan. 2.3 OTHER BENEFITS. Executive shall be entitled to participate in and receive benefits under Employer's standard company benefits practices and plans for officers of Employer, including medical insurance, long-term disability, life insurance, profit sharing and retirement plan, and Employer's other plans, subject to and on a basis consistent with the terms, conditions and overall administration of such practices and plans. Employer may from time to time in its sole discretion grant such additional compensation or benefits to Executive as it deems proper and desirable. 2 2.4 EXPENSES. During the term of his employment hereunder, Executive shall be entitled to receive prompt reimbursement for all reasonable business-related expenses incurred by him, in accordance with the policies and procedures from time to time adopted by Employer, provided that Executive properly accounts for such business expenses in accordance with Employer policy. 2.5 DEDUCTIONS AND WITHHOLDINGS. All amounts payable or which become payable under any provision of this Agreement shall be subject to any deductions authorized by Executive and any deductions and withholdings required by law. ARTICLE III TERM OF EMPLOYMENT 3.1 TERM. The term of Executive's employment hereunder shall commence on February 1, 2000 and shall continue until March 31, 2001 unless sooner terminated or extended as hereinafter provided (the "Employment Term"). 3.2 EXTENSION OF TERM. The Employment Term may be extended by written amendment to this Agreement signed by both parties. 3.3 EARLY TERMINATION BY EXECUTIVE. Executive may terminate this Agreement at any time by giving Employer written notice of his resignation ninety (90) days in advance; provided, however, that the Employer may determine upon receipt of such notice that the effective date of such resignation shall be immediate or some time prior to the expiration of the ninety day notice period. Executive's employment shall terminate as of the effective date of his resignation as determined by Employer. 3.4 TERMINATION FOR CAUSE. Prior to the expiration of the Employment Term, Executive's employment may be terminated for Cause by Employer, immediately upon delivery of notice thereof. For these purposes, termination for "Cause" shall mean termination because of Executive's (a) repeated and habitual failure to perform his duties or obligations hereunder; (b) engaging in any act that has a direct, substantial and adverse effect on Employer's 3 interests; (c) personal dishonesty, willful misconduct, or breach of fiduciary duty involving personal profit; (d) intentional failure to perform his stated duties; (e) willful violation of any law, rule or regulation which materially adversely affects his ability to discharge his duties or has a direct, substantial and adverse effect on Employer's interests; (f) any material breach of this contract by Executive; or (g) conduct authorizing termination under Cal. Labor Code ss. 2924. 3.5 TERMINATION DUE TO DEATH OR DISABILITY. Executive's employment hereunder shall terminate immediately upon his death. In the event that by reason of injury, illness or other physical or mental impairment Executive shall be: (a) completely unable to perform his services hereunder for more than three (3) consecutive months, or (b) unable to perform his services hereunder for fifty percent (50%) or more of the normal working days throughout six (6) consecutive months, then Employer may terminate Executive's employment hereunder immediately upon delivery of notice thereof. Executive's beneficiaries, estate, heirs, representatives, or assigns, as appropriate, shall be entitled to the proceeds, if any, due under any Employer-paid life insurance policy held by Executive, as determined by and in accordance with the terms of any such policy, as well as any vested benefits and accrued vacation benefits. ARTICLE IV BENEFITS AFTER TERMINATION OF EMPLOYMENT 4.1 BENEFITS UPON TERMINATION. Upon termination of this Agreement under Section 3.3 (Early Termination by Executive), Section 3.4 (Termination for Cause) or Section 3.5 (Termination Due to Death or Disability), all salary and benefits of Executive hereunder shall cease immediately. Upon termination of this Agreement by Employer for any reason other than those set forth in Section 3.4 or Section 3.5, Executive shall be entitled to the continuation of Executive's base salary for one (1) year, payable in equal installments in conformity with Employer's normal payroll period. If this Agreement is not terminated, then, upon expiration of the Employment Term, and if Executive's employment by Employer does not thereafter continue upon mutually agreeable terms, Executive shall be entitled to continuation of 4 Executive's base salary for one (1) year, payable in equal installments in conformity with Employer's normal payroll period; provided, however, that Employer's obligation to pay such installments after expiration of the Employment Term shall be reduced by the amount of employment compensation (if any) received by Executive from a subsequent employer of Executive during said one (1) year. During the period of this severance pay, Executive shall cooperate with Employer in providing for the orderly transition of Executive's duties and responsibilities to other individuals, as reasonably request by Employer. 4.2 RIGHTS AGAINST EMPLOYER. The benefits payable under this Article IV are exclusive, and no amount shall become payable to any person (including the Executive) by reason of termination of employment for any reason, with or without Cause, except as provided in this Article IV. Employer shall not be obligated to segregate any of its assets or procure any investment in order to fund the benefits payable under this Article IV. ARTICLE V CONFIDENTIAL INFORMATION 5.1 Executive acknowledges that Employer holds as confidential, and Executive may have access to during the Employment Term, certain information and knowledge respecting the intimate and confidential affairs of Employer in the various phases of its business, including, but not limited to, trade secrets, data and know-how, improvements, inventions, techniques, marketing plans, strategies, forecasts, pricing information, and customer lists. During his employment by Employer and thereafter, Executive shall not directly or indirectly disclose such information to any person or use any such information, except as required in the course of his employment during the Employment Term. All records, files, keys, documents, and the like relating to Employer's business, which Executive shall prepare, copy or use, or come into contact with, shall be and remain Employer's sole property, shall not be removed from Employer's premises without its written consent, and shall be returned to Employer upon the termination of this Agreement. 5 ARTICLE VI GENERAL PROVISIONS 6.1 ENTIRE AGREEMENT. This Agreement contains the entire understanding and sole and entire agreement between the parties with respect to the subject matter hereof, and supersedes any and all prior agreements, negotiations and discussions between the parties hereto with respect to the subject matter covered hereby. Each party to this Agreement acknowledges that no representations, inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding. This Agreement may not be modified or amended by oral agreement, but rather only by an agreement in writing signed by Employer and by Executive which specifically states the intent of the parties to amend this Agreement. 6.2 ASSIGNMENT AND BINDING EFFECT. Neither this Agreement nor the rights or obligations hereunder shall be assignable by Executive. Employer may assign this Agreement to any successor or affiliate of Employer, and upon such assignment any such successor or affiliate shall be deemed substituted for Employer upon the terms and subject to the conditions hereof. In the event of any merger of Employer or the transfer of all (or substantially all) of Employer's assets, the provisions of this Agreement shall be binding upon, and inure to the benefit of, the surviving business entity or the business entity to which such assets shall be transferred. 6.3 ARBITRATION. The parties hereto agree that any and all disputes (contract, tort, or statutory, whether under federal, state or local law) between Executive and Employer (including Employer's employees, officers, directors, stockholders, members, managers and representatives) arising out of Executive's employment with Employer, the termination of that employment, or this Agreement, shall be submitted to final and binding arbitration. Such arbitration shall take place in the County of San Diego, and may be compelled and enforced 6 according to the California Arbitration Act (Code of Civil Procedure ss.ss. 1280 ET SEQ.). Unless the parties mutually agree otherwise, such arbitration shall be conducted before the American Arbitration Association, according to its Commercial Arbitration Rules. Judgment on the award the arbitrator renders may be entered in any court having jurisdiction over the parties. Arbitration shall be initiated in accordance with the Commercial Arbitration Rules of the American Arbitration Association. 6.4 NO WAIVER. No waiver of any term, provision or condition of this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed or be construed as a further or continuing waiver of any such term, provision or condition, or as a waiver of any other term, provision or condition of this Agreement. 6.5 GOVERNING LAW; RULES OF CONSTRUCTION. This Agreement has been negotiated and executed in, and shall be governed by and construed in accordance with the laws of, the State of California. Captions of the several Articles and Sections of this Agreement are for convenience of reference only, and shall not be considered or referred to in resolving questions of interpretation with respect to this Agreement. 6.6 NOTICES. Any notice, request, demand or other communication required or permitted hereunder shall be deemed to be properly given when personally served in writing, or when deposited in the United States mail, postage pre-paid, addressed to Employer or Executive at his last known address. Each party may change its address by written notice in accordance with this Section. Address for Employer: PriceSmart, Inc. 4649 Morena Boulevard San Diego, CA. 92117 7 Address for Executive: ------------------------ ------------------------ ------------------------ 6.7 SEVERABILITY. The provisions of this Agreement are severable. If any provision of this Agreement shall be held to be invalid or otherwise unenforceable, in whole or in part, the remainder of the provisions or enforceable parts hereof shall not be affected thereby and shall be enforced to the fullest extent permitted by law. 6.8 ATTORNEYS' FEES. In the event of any arbitration or litigation brought to enforce or interpret any part of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees, as well as all other litigation costs and expenses as an element of damages. 6.9 FOREIGN ASSIGNMENT AGREEMENT. This Agreement supercedes and replaces the Foreign Assignment Agreement dated April 17, 1998 and the First Amendment to Foreign Assignment Agreement dated March 31, 1999, between Executive and Ventures Services, Inc., a wholly-owned subsidiary of Employer. IN WITNESS WHEREOF, this Agreement has been executed and delivered by the, parties hereto as of the date first above written. EMPLOYER EXECUTIVE PRICESMART, INC. Name: ____________________ William Naylon By: _________________________ Name:________________________ Title: ______________________ 8 EX-10.42(B) 12 a2064125zex-10_42b.txt EXHIBIT 10.42(B) EXHIBIT 10.42(b) FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This First Amendment to Employment Agreement is made and entered into as of January 24, 2001, by and between PriceSmart, Inc., a Delaware Corporation ("Employer") and William Naylon ("Executive"). RECITALS A) On February 1, 2000 an Employment Agreement was made and entered into by and between Employer and Executive. B) Employer and Executive now desire to 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 February 1, 2000 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 February 1, 2000 and shall continue until March 31, 2002 unless sooner terminated or extended as hereinafter provided. 2. All other terms of the Employment Agreement shall remain unaltered and fully effective. // // // // // // // // Executed in San Diego, California, as of the date first written above. EXECUTIVE EMPLOYER - --------- -------- PRICESMART, INC. William Naylon By: /s/ GILBERT A. PARTIDA ---------------------- /s/ WILLIAM NAYLON Name: GILBERT A. PARTIDA - ------------------ ------------------ Its: PRESIDENT/CEO ------------------- EX-10.42(C) 13 a2064125zex-10_42c.txt EXHIBIT 10.42(C) EXHIBIT 10.42(c) PriceSmart, Inc. [Memorandum] 4649 Morena Blvd. San Diego, CA 92117 Tel 858 581-7485 Fax 858 581-4707 PriceSmart [Logo] To: Bill Naylon From: Bob Gans /s/ BG Re: SALARY INCREASE Date: October 16, 2001 With reference to your Employment Agreement, this Memorandum will confirm that effective September 1, 2001, your annual base salary increased by $22,500, to $181,500. EX-10.43(A) 14 a2064125zex-10_43a.txt EXHIBIT 10.43(A) EXHIBIT 10.43(a) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of the 1st day of June, 2001, by and between PriceSmart, Inc., a Delaware corporation ("Employer"), and John D. Hildebrandt ("Executive"). RECITALS A. Employer (through its wholly-owned subsidiary Ventures Services, Inc.) currently employs, and desires to continue to employ Executive as Senior Vice President of Employer. B. Executive desires to accept such position upon the terms and subject to the conditions herein provided. TERMS AND CONDITIONS NOW, THEREFORE, in consideration of the foregoing premises and mutual covenants and conditions hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I EMPLOYMENT AND DUTIES 1.1 POSITION AND DUTIES. Executive shall serve as Senior Vice President of Employer. Executive shall have such duties and authority as are customary for, and commensurate with, such position, and such other related duties and authority as may from time to time be delegated or assigned to him by the Chief Executive Officer or the Board of Directors of Employer. Executive shall discharge his duties in a diligent and professional manner. 1.2 OUTSIDE BUSINESS ACTIVITIES PRECLUDED. During his employment, Executive shall devote his full energies, interest, abilities and productive time to the 1 performance of this Agreement. Executive shall not, without the prior written consent of Employer, perform other services of any kind or engage in any other business activity, with or without compensation, that would interfere with the performance of his duties under this Agreement. Executive shall not, without the prior written consent of Employer, engage in any activity adverse to Employer's interests. 1.3 PLACE OF EMPLOYMENT. Unless the parties agree otherwise in writing, during the Employment Term (as defined in Section 3.1 below) Executive shall perform the services he is required to perform under this Agreement at Employer's offices located in Miami, Florida; provided, however, that Employer may from time to time require Executive to travel temporarily to other locations on Employer's business. ARTICLE II COMPENSATION 2.1 SALARY. For Executive's services hereunder, Employer shall pay as base salary to Executive the amount of $157,000 per annum during each year of the Employment Term (pro-rated as to any partial Employment Term). Said salary shall be payable in equal installments in conformity with Employer's normal payroll period. Executive's salary shall be reviewed by Employer's Board of Directors from time to time at its discretion, and Executive shall receive such salary increases, if any, as Employer's Board of Directors, in its sole discretion, shall determine. 2.2 BONUS. In addition to the salary set forth in Section 2.1 above, during the Employment Term Executive shall participate in Employer's bonus plan for executive management personnel. All decisions regarding said bonus plan shall be made in the sole discretion of Employer's Board of Directors, or the Compensation Committee thereof. 2.3 OTHER BENEFITS. Executive shall be entitled to participate in and receive benefits under Employer's standard company benefits practices and plans for officers of 2 Employer, including medical insurance, long-term disability, life insurance, profit sharing and retirement plan, and Employer's other plans, subject to and on a basis consistent with the terms, conditions and overall administration of such practices and plans. Executive shall be entitled to a paid vacation each year, which will accrue and be paid out in conformity with Employer's normal vacation pay practices. Employer may in its sole discretion grant such additional compensation or benefits to Executive from time to time as Employer deems proper and desirable. 2.4 EXPENSES. During the term of his employment hereunder, Executive shall be entitled to receive prompt reimbursement for all reasonable business-related expenses incurred by him, in accordance with the policies and procedures from time to time adopted by Employer, provided that Executive properly accounts for such business expenses in accordance with Employer policy. 2.5 DEDUCTIONS AND WITHHOLDINGS. All amounts payable or which become payable under any provision of this Agreement shall be subject to any deductions authorized by Executive and any deductions and withholdings required by law. ARTICLE III TERM OF EMPLOYMENT 3.1 TERM. The term of Executive's employment hereunder shall commence on June 1, 2001 and shall continue until March 31, 2002, unless sooner terminated or extended as hereinafter provided (the "Employment Term"). 3.2 EXTENSION OF TERM. The Employment Term may be extended by written amendment to this Agreement signed by both parties. 3.3 EARLY TERMINATION BY EXECUTIVE. Executive may terminate this Agreement at any time by giving Employer written notice of his resignation ninety (90) days in advance; provided, however, that the Board of Directors may determine upon receipt of 3 such notice that the effective date of such resignation shall be immediate or some time prior to the expiration of the ninety-day notice period. Executive's employment shall terminate as of the effective date of his resignation as determined by the Board of Directors. 3.4 TERMINATION FOR CAUSE. Prior to the expiration of the Employment Term, Executive's employment may be terminated for Cause by Employer, immediately upon delivery of notice thereof. For these purposes, termination for "Cause" shall mean termination because of Executive's (a) repeated and habitual failure to perform his duties or obligations hereunder; (b) engaging in any act that has a direct, substantial and adverse effect on Employer's interests; (c) personal dishonesty, willful misconduct, or breach of fiduciary duty involving personal profit; (d) intentional failure to perform his stated duties; (e) willful violation of any law, rule or regulation which materially adversely affects his ability to discharge his duties or has a direct, substantial and adverse effect on Employer's interests; (f) any material breach of this contract by Executive; or (g) conduct authorizing termination under Cal. Labor Code Section 2924. 3.5 TERMINATION DUE TO DEATH OR DISABILITY. Executive's employment hereunder shall terminate immediately upon his death. In the event that by reason of injury, illness or other physical or mental impairment Executive shall be: (a) completely unable to perform his services hereunder for more than three (3) consecutive months, or (b) unable to perform his services hereunder for fifty percent (50%) or more of the normal working days throughout six (6) consecutive months, then Employer may terminate Executive's employment hereunder immediately upon delivery of notice thereof. Executive's beneficiaries, estate, heirs, representatives, or assigns, as appropriate, shall be entitled to the proceeds, if any, due under any Employer-paid life insurance policy held by Executive, as determined by and in accordance with the terms of any such policy, as well as any vested benefits and accrued vacation benefits. 4 ARTICLE IV BENEFITS AFTER TERMINATION OF EMPLOYMENT 4.1 BENEFITS UPON TERMINATION. Upon termination of this Agreement under Section 3.3 (Early Termination by Executive), Section 3.4 (Termination for Cause) or Section 3.5 (Termination Due to Death or Disability), all salary and benefits of Executive hereunder shall cease immediately. Upon termination of this Agreement by Employer for any reason other than those set forth in Section 3.4 or Section 3.5, Executive shall be entitled to the continuation of Executive's base salary for one (1) year, payable in equal installments in conformity with Employer's normal payroll period. If this Agreement is not terminated, then, upon expiration of the Employment Term, and if Executive's employment by Employer does not thereafter continue upon mutually agreeable terms, Executive shall be entitled to continuation of Executive's base salary for one (1) year, payable in equal installments in conformity with Employer's normal payroll period; provided, however, that Employer's obligation to pay such installments after expiration of the Employment Term shall be reduced by the amount of employment compensation (if any) received by Executive from a subsequent employer of Executive during said one (1) year. During the period of this severance pay, Executive shall cooperate with Employer in providing for the orderly transition of Executive's duties and responsibilities to other individuals, as reasonably request by Employer. 4.2 RIGHTS AGAINST EMPLOYER. The benefits payable under this Article IV are exclusive, and no amount shall become payable to any person (including the Executive) by reason of termination of employment for any reason, with or without Cause, except as provided in this Article IV. Employer shall not be obligated to segregate any of its assets or procure any investment in order to fund the benefits payable under this Article IV. 5 ARTICLE V CONFIDENTIAL INFORMATION 5.1 Executive acknowledges that Employer holds as confidential, and Executive may have access to during the Employment Term, certain information and knowledge respecting the intimate and confidential affairs of Employer in the various phases of its business, including, but not limited to, trade secrets, data and know-how, improvements, inventions, techniques, marketing plans, strategies, forecasts, pricing information, and customer lists. During his employment by Employer and thereafter, Executive shall not directly or indirectly disclose such information to any person or use any such information, except as required in the course of his employment during the Employment Term. All records, files, keys, documents, and the like relating to Employer's business, which Executive shall prepare, copy or use, or come into contact with, shall be and remain Employer's sole property, shall not be removed from Employer's premises without its written consent, and shall be returned to Employer upon the termination of this Agreement. ARTICLE VI GENERAL PROVISIONS 6.1 ENTIRE AGREEMENT. This Agreement contains the entire understanding and sole and entire agreement between the parties with respect to the subject matter hereof, and supersedes any and all prior agreements, negotiations and discussions between the parties hereto with respect to the subject matter covered hereby. Each party to this Agreement acknowledges that no representations, inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding. This Agreement may not be modified or amended by oral agreement, but rather only by an 6 agreement in writing signed by Employer and by Executive which specifically states the intent of the parties to amend this Agreement. 6.2 ASSIGNMENT AND BINDING EFFECT. Neither this Agreement nor the rights or obligations hereunder shall be assignable by the Executive. Employer may assign this Agreement to any successor or affiliate of Employer, and upon such assignment any such successor or affiliate shall be deemed substituted for Employer upon the terms and subject to the conditions hereof. In the event of any merger of Employer or the transfer of all (or substantially all) of Employer's assets, the provisions of this Agreement shall be binding upon, and inure to the benefit of, the surviving business entity or the business entity to which such assets shall be transferred. 6.3 ARBITRATION. The parties hereto agree that any and all disputes (contract, tort, or statutory, whether under federal, state or local law) between Executive and Employer (including Employer's employees, officers, directors, stockholders, members, managers and representatives) arising out of Executive's employment with Employer, the termination of that employment, or this Agreement, shall be submitted to final and binding arbitration. Such arbitration shall take place in the County of San Diego, and may be compelled and enforced according to the California Arbitration Act (Code of Civil Procedure Sections 1280 ET SEQ.). Unless the parties mutually agree otherwise, such arbitration shall be conducted before the American Arbitration Association, according to its Commercial Arbitration Rules. Judgment on the award the arbitrator renders may be entered in any court having jurisdiction over the parties. Arbitration shall be initiated in accordance with the Commercial Arbitration Rules of the American Arbitration Association. 6.4 NO WAIVER. No waiver of any term, provision or condition of this Agreement, whether by conduct or otherwise, in any one or more instances shall be 7 deemed or be construed as a further or continuing waiver of any such term, provision or condition, or as a waiver of any other term, provision or condition of this Agreement. 6.5 GOVERNING LAW; RULES OF CONSTRUCTION. This Agreement has been negotiated and executed in, and shall be governed by and construed in accordance with the laws of, the State of California. Captions of the several Articles and Sections of this Agreement are for convenience of reference only, and shall not be considered or referred to in resolving questions of interpretation with respect to this Agreement. 6.6 NOTICES. Any notice, request, demand or other communication required or permitted hereunder shall be deemed to be properly given when personally served in writing, or when deposited in the United States mail, postage pre-paid, addressed to Employer or Executive at his last known address. Each party may change its address by written notice in accordance with this Section. Address for Employer: PriceSmart, Inc. 4649 Morena Boulevard San Diego, CA. 92117 Address for Executive: ------------------------ ------------------------ ------------------------ 6.7 SEVERABILITY. The provisions of this Agreement are severable. If any provision of this Agreement shall be held to be invalid or otherwise unenforceable, in whole or in part, the remainder of the provisions or enforceable parts hereof shall not be affected thereby and shall be enforced to the fullest extent permitted by law. 6.8 ATTORNEYS' FEES. In the event of any arbitration or litigation brought to enforce or interpret any part of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees, as well as all other litigation costs and expenses as an element of damages. 8 IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto as of the date first above written. EMPLOYER EXECUTIVE PRICESMART, INC. Name: /S/ JOHN HILDEBRANDT -------------------- By: /S/ ROBERT M. GANS_ ---------------------------- Name: ROBERT M. GANS ------------------------- Title: Executive Vice President 9 EX-10.43(B) 15 a2064125zex-10_43b.txt EXHIBIT 10.43(B) EXHIBIT 10.43(b) PriceSmart, Inc. [Memorandum] 4649 Morena Blvd. San Diego, CA 92117 Tel 858 581-7485 Fax 858 581-4707 PriceSmart [Logo] To: John Hildebrandt From: Bob Gans /s/ BG Re: SALARY INCREASE Date: October 16, 2001 With reference to your Employment Agreement, this Memorandum will confirm that effective September 1, 2001, your annual base salary increased by $20,000, to $177,000. EX-10.44 16 a2064125zex-10_44.txt EXHIBIT 10.44 EXHIBIT 10.44 LOAN AGREEMENT THIS LOAN AGREEMENT is dated as of the ___ day of __________, 2001, by and among PSMT, LLC, a U.S. Virgin Islands limited liability company doing business as PriceSmart, whose mailing address is 6501 Red Hook Plaza, Suite 201, St. Thomas, U.S. Virgin Islands 00802 (the "Borrower"), PRICESMART, INC., a Delaware corporation, whose mailing address is 4649 Morena Blvd., San Diego, CA 92117 (the "Guarantor"), and BANCO POPULAR DE PUERTO RICO, a commercial banking institution whose mailing address is P.O. Box 8580, St. Thomas, U.S. Virgin Islands 00801 (the "Bank"). WHEREAS, the Bank has agreed to extend to the Borrower, and the Borrower has accepted, a revolving line of credit facility upon the terms and conditions hereinafter described (the "Line of Credit" or the "Loan"), to be used by the Borrower for (a) the funding of working capital requirements of the Borrower, and (b) closing costs associated with the Loan; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, the parties hereto agree as follows: 1. REPRESENTATIONS. The Borrower and the Guarantor, respectively, represent, covenant and warrant that: 1.1 COMPANY / CORPORATE EXISTENCE AND POWER. The Borrower is a limited liability company duly organized, validly existing and in good standing under the laws of the Territory of the U.S. Virgin Islands and has the power to make this Agreement and to borrow hereunder. The Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power to make this Agreement and to guaranty the Loan. 1.2 COMPANY / CORPORATE AUTHORITY. The making and performance by the Borrower and Guarantor of this Agreement has been duly authorized by all necessary corporate and company action and will not violate any provision of law or of their respective Articles of Organization, Articles of Incorporation, Limited Liability Company Agreement, Bylaws or other organizational documents or result in the breach of, or constitute a default under, or, except as hereinafter provided, result in the creation of any lien, charge or encumbrance upon any property or assets of the Borrower or Guarantor pursuant to any indenture or bank loan or credit agreement, or other agreement or instrument to which the Borrower or Guarantor is a party or by which the Borrower, Guarantor or the property or either may be bound or affected. LOAN AGREEMENT PAGE 2 1.3 FINANCIAL CONDITION. The most recent financial statements of the Borrower and Guarantor, and other related information, heretofore furnished to the Bank, are complete and correct and fairly present the financial condition of the Borrower and Guarantor and the results of operations for the period(s) specified therein. To the best of the Borrower's and Guarantor's knowledge and belief, neither the Borrower nor the Guarantor has any contingent obligations, liabilities for taxes, or unusual forward or long term commitments, except as herein specifically mentioned, or disclosed by, or reserved against, in said financial statements, and, at the present time, there are no material unrealized or anticipated losses from any unfavorable commitments of the Borrower or Guarantor. Said financial statements have been prepared in accordance with generally accepted accounting principles and practices consistently maintained by the Borrower and Guarantor throughout the period involved. Since the dates of such financial statements, and since the date of the other financial information provided to the Bank, there have been no material adverse changes in the financial condition of the Borrower or Guarantor from that set forth in said financial statements or in said other financial information as of the date thereof. 1.4 LITIGATION. Except as Bank has been advised in writing, there are no suits or proceedings pending, or, to the knowledge of the Borrower or Guarantor, threatened, against or affecting the Borrower or Guarantor which, if adversely determined, would have a material adverse effect on the financial condition or business of the Borrower or Guarantor, except as indicated in Exhibit "A" hereto. There are no proceedings by or before any governmental commission, bureau or other administrative agency pending, or to the knowledge of the Borrower or Guarantor threatened, against the Borrower or Guarantor. 1.5 TITLES; LIENS. The Borrower and Guarantor have exclusive good and marketable title to each of the fixed properties and assets reflected in their financial statements free and clear of all mortgages, liens and encumbrances, except (a) liens, if any, for current taxes, assessments and governmental charges not delinquent or whose validity is being contested at the time in good faith and by appropriate proceedings, and covenants, restrictions, rights, easements, liens, encumbrances and minor irregularities in title which, in their opinion, do not and will not interfere with the occupation, use and enjoyment of such properties and assets in the normal course of business as presently conducted or planned or materially impair the value of such properties and assets for the LOAN AGREEMENT PAGE 3 purpose of such business, (b) mortgages, liens and encumbrances disclosed in the financial statements provided in SUBSECTION 1.3 above, and (c) mortgages, liens and encumbrances in favor of the Bank. The Borrower is the sole owner of all assets located at the St. Thomas PriceSmart store free and clear of all liens and encumbrances except as specifically allowed in this subsection. 1.6 ENVIRONMENTAL COMPLIANCE. To the best of the Borrower's knowledge and belief, the Borrower has duly complied with, and the Borrower's business operations, assets, equipment, property, leaseholds or other facilities are in compliance with the provisions of all federal and territorial environmental, health, and safety laws, codes and ordinances, and all rules and regulations promulgated thereunder and the Borrower has been issued and will maintain all required federal and territorial permits, licenses, certificates, and approvals relating to (1) air emissions, (2) discharges to surface water or groundwater, (3) noise emissions, (4) solid or liquid waste disposal, (5) the use, generation, storage, transportation or disposal of toxic or hazardous substances or wastes (intended hereby and hereafter to include any and all such materials listed in any federal or territorial law, code or ordinance, and all rules and regulations promulgated thereunder, as hazardous or potentially hazardous), or (6) other environmental, health, or safety matters; and the Borrower has received no notice of, and neither knows of nor suspects, facts which might constitute any violations of any federal or territorial environmental, health, or safety laws, codes or ordinances, and any rules or regulations promulgated thereunder with respect to the Borrower's business, operations, assets, equipment, property, leaseholds, or other facilities; and, except in accordance with a valid governmental permit, license, certificate or approval, there has been no emission, spill, release, or discharge into or upon (1) the air, (2) soils or any improvements located thereon, (3) surface water or groundwater, or (4) the sewer, septic system or waste treatment, storage or disposal system servicing the Borrower's business or property, of any toxic or hazardous substances or wastes at or from the Borrower's business premises or other property, and accordingly, except for inventory of raw materials, supplies, work in progress and finished, that are to be used or sold in the ordinary course of business, the Borrower's business premises and other properties are free of all such toxic or hazardous substances or wastes and there has been no complaint, order, directive, claim, citation, or notice by any governmental authority or any person or entity with respect to (1) air emissions, (2) spills, releases, or discharges to soils or improvements located thereon, surface water, groundwater LOAN AGREEMENT PAGE 4 or the sewer, septic system or waste treatment, storage or disposal systems servicing the Borrower's business or properties; (3) noise emissions, (4) solid or liquid waste disposal, (5) the use, generation, storage, transportation, or disposal of toxic or hazardous substances or waste, or (6) other environmental, health, or safety matters affecting the Borrower or the Borrower's business, operations, assets, equipment, property, leaseholds, or other facilities. The Borrower has received no notice of indebtedness, obligation or liability, absolute or contingent, matured or not matured, with respect to the storage, treatment, cleanup, or disposal of any solid wastes, hazardous wastes, or other toxic or hazardous substances (including without limitation any such indebtedness, obligation or liability with respect to any current regulation, law or statute regarding such storage, treatment, cleanup, or disposal) not previously disclosed to and approved by the Bank in writing. 1.7 CONTRACT OBLIGATIONS. The Borrower is not a party to any contract or agreement which materially and adversely affects Borrower's business, properties, or assets, or Borrower's condition, financial or otherwise, except as herein specifically identified; and neither the execution and delivery of this Agreement, the consummation of the transactions contemplated herein, nor compliance with the terms, conditions and provisions of this Agreement, the Security Instruments referred to herein and the Note issued hereunder will conflict with or result in a breach of the terms, conditions, or provisions of any indenture or other agreement or instrument to which the Borrower is a party or by which the Borrower is bound or will result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower, except as permitted by the provisions hereof. 1.8 BUSINESS LICENSES AND GOVERNMENTAL PERMITS. The Borrower possesses all licenses, franchises and permits necessary for the conduct of Borrower's business without substantial known conflict with the rights of others. 1.9 USE OF LOAN PROCEEDS. The proceeds of the Loan shall be used solely for the purposes herein stated in accordance with the provisions hereof. 1.10 ENFORCEABILITY. This Agreement, the Note (as defined in SUBSECTION 2.7), the Security Instruments (as defined in SECTION 3) and other documents to be delivered and executed simultaneously herewith (collectively, the "Loan Documents") are the legal, valid and binding LOAN AGREEMENT PAGE 5 obligations of the Borrower and Guarantor, enforceable against the Borrower and Guarantor in accordance with their respective terms. 2. THE AGREEMENT TO LEND. 2.1 AMOUNT. The Bank agrees, on the terms and conditions of this Agreement, to extend to the Borrower a revolving line of credit in the aggregate maximum principal amount at any one time outstanding of TWO MILLION AND 00/100 DOLLARS ($2,000,000.00). 2.2 TYPE; ADVANCES UNDER LINE OF CREDIT. The Line of Credit shall be a revolving line of credit with interest payable monthly as hereinafter provided and principal and all unpaid and accrued interest due and payable on the date that is twelve (12) months from the date hereof. Each advance under the Line of Credit shall be evidenced by a draw request in accordance with this Agreement signed by the Borrower and approved by the Bank and the aggregate principal balance outstanding under the Line of Credit shall not exceed the aggregate maximum principal amount of the Line of Credit set forth above. As a revolving line of credit, provided that the Line of Credit and Borrower's right to draw thereunder shall not have expired or been terminated, any principal sums previously advanced by the Bank that shall have been repaid by the Borrower may subsequently be redrawn by the Borrower subject to the terms hereof. 2.3 REPAYMENT OF PRINCIPAL. If not previously repaid, the Borrower shall repay the entire principal balance of the Line of Credit and all unpaid interest thereon on the date that is twelve (12) months from the date hereof. All payments shall be applied first to late charges, if any, second to accrued interest and the remainder to the outstanding principal balance. 2.4 RENEWAL, TERMINATION AND MODIFICATION OF THE LINE OF CREDIT. On the first anniversary of the date hereof, and on each subsequent anniversary thereafter (if any), at the Borrower's request, the Bank shall review the terms, provisions and outstanding balance of the Line of Credit, the Borrower's use of, and overall performance under, the Line of Credit during the prior year, the financial statements and overall financial condition of the Borrower and the Guarantor, and such other documents and information as the Bank deems necessary or desirable for the purpose of determining whether the Line of Credit should be terminated, revised or renewed. The Bank shall have the right, in its sole discretion, to make such determination and shall advise the Borrower of LOAN AGREEMENT PAGE 6 any decision to renew, modify or terminate the Line of Credit. Upon any renewal, the Borrower shall pay to the Bank the renewal fee of $5,000.00. 2.5 ANNUAL CLEANUP FOR LINE OF CREDIT. In the event that the Bank agrees to extend or renew the term of the Line of Credit pursuant to SUBSECTION 2.4 hereof, during the first one hundred twenty (120) days of the twelve-month period following any such extension or renewal there shall be a period of thirty (30) days during which the Borrower shall have repaid to the Bank all outstanding principal and accrued interest and there shall be no principal or interest outstanding under the Line of Credit during said thirty (30) day period. 2.6 INTEREST. Advances under the Line of Credit shall bear interest at a rate per annum equal to one and one-half percent (1.50%) above the prime rate as it varies (any change in interest resulting from the change in the prime rate to be effective at the beginning of the day on which such change in the prime rate is announced). The term "prime rate" as used herein means that rate of interest from time to time announced by The Chase Manhattan Bank, N.A. at its principal offices in New York, New York as its commercial loan prime rate. Interest on advances under the Line of Credit shall be calculated daily on a three hundred sixty (360) day basis at the rate hereinabove set forth. Interest accrued on the principal sum from time to time outstanding under the Line of Credit at the rate hereinabove set forth shall be due and payable monthly on the first day of each month until the entire principal sum and all accrued interest are fully paid. Notwithstanding the foregoing, at any time that an Event of Default (as hereinafter defined) shall have occurred and be continuing, the Loan shall bear interest at a rate per annum equal to three and one-half percent (3.50%) above the prime rate as it varies (the "Default Rate") (any change in interest resulting from the change in the prime rate to be effective at the beginning of the day on which such change in the prime rate is announced). Interest at the Default Rate shall be calculated daily on a three hundred sixty (360) day basis and shall be due and payable monthly on the first day of each month as provided in the preceding paragraphs. Interest and late charges, if any, that are not paid when due shall be compounded monthly. 2.7 THE NOTE. The Line of Credit shall be evidenced by a Revolving Line of Credit Note of even date herewith in the maximum principal amount of the Line of Credit (the "Note"). LOAN AGREEMENT PAGE 7 2.8 PREPAYMENT. The Loan may be prepaid at any time, and from time to time, in whole or in part, without any premium or penalty therefor. All payments and prepayments shall be applied first to late charges (including any interest charged at the Default Rate), if any, second to other accrued interest and the remainder to the outstanding principal balance. 2.9 LATE CHARGE. Any payment due hereunder that is not actually received by the Bank within ten (10) business days after its due date, shall be subject to a late charge of five percent (5%) of such payment, which late charge shall be immediately due and payable to the Bank. 3. SECURITY. The Loan shall be secured by this Agreement and the following agreements, pledges, and assignments of the Borrower and Guarantor (collectively, the "Security Instruments"): 3.1 SECURITY AGREEMENT AND UCC-1 FINANCING STATEMENT. A Security Agreement in favor of the Bank (the "Security Agreement"), granting to the Bank a first priority security interest in all inventory and documents covering such inventory of the Borrower. The lien of said Security Agreement shall be perfected by a UCC-1 Financing Statement(s) to be executed of even date herewith by the Borrower and the Bank and filed with the Corporate Division of the Office of the Lieutenant Governor of the U.S. Virgin Islands. 3.2 UNLIMITED GUARANTY. The unlimited and unconditional guaranty (the "Guaranty") of the Guarantor, guaranteeing repayment of the Loan, and the Borrower's obligations under this Agreement and the Security Instruments securing the Note. 4. CONDITIONS OF LENDING. The obligation of the Bank to make any advance under the Loan is subject to and contingent upon the Borrower's and Guarantor's fulfillment of the following conditions precedent: 4.1 LOAN DOCUMENTS. The Bank shall have received fully executed and authorized originals in recordable form, as applicable, of this Agreement, the Note and the Security Instruments. 4.2 APPROVAL OF BANK COUNSEL. All legal matters incident to the transactions hereby contemplated shall be satisfactory to counsel for the Bank. 4.3 LOAN FEES AND OTHER FEES. The Bank shall have received from the Borrower a facility fee in the amount of Ten Thousand Dollars ($10,000.00) and an application fee of One Hundred Fifty Dollars ($150.00). Each year, if any, that the Line of Credit is renewed, the Bank shall have LOAN AGREEMENT PAGE 8 received from the Borrower a renewal fee in the amount of Five Thousand Dollars ($5,000.00) due and payable twelve months from the date hereof, if renewed, and every twelve (12) months thereafter that the Line of Credit is renewed. 4.4 GOVERNMENTAL LICENSES AND PERMITS. The Bank shall have received copies of all licenses and permits necessary for the operation of the Borrower's business. 4.5 PROOF OF CORPORATE / COMPANY ACTION. The Bank shall have received certified copies of all corporate and company organizational documents and all corporate and company action taken by the Borrower and Guarantor to authorize the execution and delivery of the Loan Documents and the borrowing and guaranteeing hereunder, and such other papers as the Bank shall reasonably request. 4.6 SUBORDINATION OF LOANS. If applicable, all members of the Borrower shall have executed and delivered to the Bank a subordination agreement, satisfactory in form and substance to the Bank and its counsel, subordinating their loans to the Borrower, if any, to the Loan. 4.7 INSURANCE. The Bank shall have received from the Borrower the following policies of insurance procured through agencies licensed to do business in the U.S. Virgin Islands, from insurance companies which shall be financially sound, reputable and satisfactory to the Bank: (a) Comprehensive General and Excess Liability Insurance coverage, including employer's liability "stop-gap", personal injury, hired and no-owned automobiles, products/completed operations, independent contractors (if any), blanket liability broad form, property damage and personal injury, in form, amount and coverage satisfactory to the Bank and its counsel. (b) Standard Multi-Peril insurance coverage, with extended coverage endorsementst, with respect to the property pledged to the Bank as collateral security for the Loan, naming the Bank as mortgagee/loss payee, for the full insurable value of such property. (c) Appropriate workers' compensation insurance in respect of all employees of the Borrower in accordance with U.S. Virgin Islands law. (d) If it is determined from the National Flood Insurance Report that the Borrower's business premises or any other area in which the personal property or any part thereof pledged as collateral security for the Loan is located in a designated flood prone area, Federal Flood Insurance LOAN AGREEMENT PAGE 9 naming the Bank as mortgagee/loss payee up to the maximum amount available covering such property. (e) Such other insurance with respect to such property and the Borrower's business in such amounts and against such insurable hazards as the Bank from time to time may reasonably require. (f) The foregoing insurance policies shall provide that they may not be canceled, or the amount(s) of coverage provided reduced, for any reason until not less than thirty (30) days written notice shall have been give to the Bank of the insurance company's intention to cancel or reduce the amount(s) of coverage provided under such policy or policies during which time the Borrower shall replace said policy or policies with new, substitute or successor policies to comply with the requirements of this SUBSECTION 4.7. The foregoing insurance policies shall be provided by a company with a current rating by A.M. Best & Co. of A- or better. 4.8 TAX CLEARANCE LETTER. The Bank shall have received evidence to the effect that all taxes, assessments, and governmental charges lawfully levied and assessed against the Borrower have been fully satisfied. 4.9 LIEN SEARCH. The Bank shall have received a satisfactory lien search showing no liens or judgments against the Borrower or its property. 4.10 OPINION OF COUNSEL FOR BORROWER AND GUARANTOR. The Bank shall have received from counsel for the Borrower and Guarantor a favorable opinion dated the same date hereof addressed to the Bank and satisfactory in scope, form and substance to the Bank and its counsel, covering the following matters: (a) BORROWER. The Borrower is a limited liability company duly formed, validly existing and in good standing under the laws of the U.S. Virgin Islands, has the legal capacity and authority to own and to pledge its real property and other property and to take such other actions and exercise such other powers to the extent required to properly and adequately conduct its business and to carry out its obligations under the Loan Documents and that no part of this transaction violates any restriction, term, condition or provision of the Borrower's organizational documents. (b) GUARANTOR. The Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the legal capacity and authority to LOAN AGREEMENT PAGE 10 take such action and exercise such powers to the extent required to properly and adequately conduct its business and to carry out its obligations under the Loan Documents and that no part of this transaction violates any restriction, term, condition or provision of the Guarantor's Articles of Incorporation, Bylaws or other organizational documents. (c) LOAN DOCUMENTS. The Loan Documents have been duly executed and delivered by the Borrower and Guarantor and constitute legal, valid and binding instruments except as may be limited by bankruptcy, insolvency, moratorium, reorganization and similar laws generally affecting the rights of creditors. (d) REMEDIES. The remedies contained within all the Loan Documents are effective and enforceable under the laws of the U.S. Virgin Islands. 4.11 OTHER DOCUMENTATION. The Bank shall have received from the Borrower and Guarantor such other items and documents required to be provided by the Borrower as may be set forth on the Closing Agenda utilized by the Bank and the Borrower to close the Loan, but not otherwise specifically referred to herein. 4.12 NO EVENT OF DEFAULT. No Event of Default (as defined in SECTION 7 hereof) shall have occurred and be continuing. 4.13 ADVANCES. The Bank shall make advances under the Line of Credit upon not less than three (3) business days prior written request from the Borrower to the Bank, and not more frequently than weekly in amounts not less than Fifty Thousand Dollars ($50,000.00) each. All advances shall be made at the principal office of the Bank or at such other place as the Bank may from time to time designate. The Bank shall have no obligation to make a requested advance unless and until the Borrower has complied to the satisfaction of the Bank and its counsel with all applicable terms and conditions of this Agreement. 5. AFFIRMATIVE COVENANTS. The Borrower and the Guarantor agree that so long as credit shall remain available hereunder and until payment in full of the Note, and until complete performance by the Borrower and Guarantor under the Loan Documents is satisfied, unless the Bank shall otherwise consent in writing, the Borrower and the Guarantor will: 5.1 PAYMENT OF TAXES. Pay and discharge, or cause to be paid and discharged, all taxes, assessments and governmental charges or liens imposed upon the Borrower or upon the income or LOAN AGREEMENT PAGE 11 profits of the Borrower, or upon any property belonging to the Borrower prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a lien or charge upon the property of the Borrower; provided that the Borrower shall not be required to pay any such tax, assessment, charge, levy or claim the payment of which is being contested in good faith and by proper proceedings and so long as Borrower furnishes the Bank, immediately upon such tax, assessment, charge, levy or claim becoming overdue, notice of that which Borrower intends to contest. 5.2 INSURANCE. Maintain, or cause to be maintained, the insurance coverage specified in SUBSECTION 4.7 above. 5.3 NOTICE OF LITIGATION, ETC. Promptly give notice in writing to the Bank of any material contingent liability of the Borrower and of all litigation and of all proceedings by or before any governmental regulatory agency, against or affecting the Borrower, where the amount in controversy exceeds $100,000.00 or which, if adversely determined, would otherwise have a material adverse effect on the financial condition or business of the Borrower. 5.4 LOAN PROCEEDS. Apply the proceeds of the Loan for the specific purposes provided for herein. 5.5 SUBORDINATION OF LOANS. Subordinate all existing and future members' loans and/or advances to the Loan; provided that the Borrower may make routine installment payments under such loans so long as (a) no Event of Default has occurred, and (b) interest on any such loans does not exceed the interest rate charged on the Note. 5.6 FINANCIAL STATEMENTS. Furnish the Bank (a) within ninety (90) days after the end of each fiscal year of the Borrower and Guarantor, audited financial statements of the Borrower, Guarantor and Guarantor's subsidiaries as of the close of such fiscal year; (b) within thirty (30) days after the end of each quarter, quarterly financial statements of the Borrower, Guarantor and Guarantor's subsidiaries as of the close of such quarter, prepared in such manner as is acceptable to the Bank, which quarterly financial statements if unaudited, shall be at least a review prepared by an independent CPA; and ( c) such additional other information regarding the business affairs and financial condition of the Borrower and Guarantor as may be requested by the Bank, at such times, and prepared in such manner and by such persons as are acceptable to the Bank. LOAN AGREEMENT PAGE 12 5.7 DEPOSITS. Maintain all direct and indirect depository accounts of the Borrower with the Bank. 5.8 INTERCOMPANY CHARGES. Restrict intercompany charges between Guarantor and Borrower to direct verifiable out-of-pocket expenses incurred by Guarantor in providing services to Borrower, which charges shall not in any event exceed in any calendar year an amount equal to 1.5% of Borrower's gross sales for such calendar year; and provide to the Bank documentation of any such charges promptly upon request. 5.9 DEBT SERVICE RATIO. Maintain a year-end debt service coverage ratio of 1.25:1.00, which ratio shall be the sum of operating income and depreciation less parent company management fees, divided by the sum of the current portion of long term debt and interest expense, for both Borrower and Guarantor. 5.10 ENVIRONMENTAL COMPLIANCE. Be and remain in compliance with the provisions of all federal, territorial, and local environmental, health, and safety laws, codes and ordinances, and all rules and regulations issued thereunder; notify the Bank immediately of any notice of a hazardous discharge or environmental complaint received from any governmental agency or any other party; notify the Bank immediately of any hazardous discharge from or affecting the Borrower's business premises or other property; immediately contain and remove the same, in compliance with all applicable laws; promptly pay any fine or penalty assessed in connection therewith; and at the Bank's request, and at the Borrower's expense, provide a report of a qualified environmental engineer, satisfactory in scope, form, and content to the Bank, and such other and further assurances reasonably satisfactory to the Bank that the condition has been corrected. 5.11 INSPECTION AND MAINTENANCE. Allow the Bank or its duly authorized representatives to inspect the books, records, assets, property, and operations of the Borrower at any reasonable time on reasonable notice and maintain said books, records, assets, property and operations of the Borrower to the satisfaction of the Bank. 5.12 LICENSES. Obtain and promptly renew from time to time all consents, licenses, approvals and authorizations as may be required under any applicable law or regulation for the Borrower's business operations and for the making, performance, validity and enforceability of the Security Instruments. LOAN AGREEMENT PAGE 13 5.13 SEC FILINGS. Upon filing with the Securities Exchange Commission, provide a copy to the Bank of the Guarantor's 10Q and 10K filings. 6. NEGATIVE COVENANTS. The Borrower and Guarantor hereby agree that so long as credit shall remain available hereunder and until payment in full of the Note, and all other credit advanced by the Bank to the Borrower, without the prior written consent of the Bank, Borrower and Guarantor will not: 6.1 LIMITATION OF LIENS. Sell, mortgage, pledge, hypothecate, assign, transfer, suffer to exist, or voluntarily subject to any lien or encumbrance to secure any indebtedness, any of the Borrower's assets, now owned or hereafter acquired, excluding, however, from the operation of this covenant, the Loan and other indebtedness of the Borrower to the Bank. 6.2 LIMITATION ON INDEBTEDNESS. Create or incur any indebtedness or obligation for borrowed money of the Borrower or issue or sell any obligations of the Borrower, excluding, however, from the operation of this covenant, the Loan hereunder, other loans made by the Bank and subordinated members' loans. 6.3 CONTINGENT LIABILITIES. Assume, guarantee, endorse or otherwise become liable upon the obligations of any person, firm, partnership, corporation or any other entity except by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business. 6.4 CONSOLIDATION OR MERGER. Merge the Borrower into or consolidate with or into any other corporation, partnership or business entity. For the purposes of this SUBSECTION 6.4, the acquisition by the Borrower of all or substantially all of the assets, together with the assumption of all or substantially all of the obligations and liabilities, of any other corporation or entity shall be deemed to be a consolidation of such corporation or entity with the Borrower. 6.5 DISPOSITION OF ASSETS. Lend, sell, lease, transfer or otherwise dispose of any of the assets of the Borrower (other than obsolete or worn-out property not used or useful in its business), whether now owned or hereafter acquired, except in the ordinary and regular course of the Borrower's business. 6.6 CHANGE IN BORROWER'S BUSINESS. Effect, cause or permit any change from the business now conducted by the Borrower. LOAN AGREEMENT PAGE 14 6.7 CHANGE IN OWNERSHIP. Effect, cause or permit any change in the ownership of Borrower or in the beneficiary or legal ownership of any membership or other interests in Borrower. 6.8 AMENDMENT TO COMPANY DOCUMENTS. Amend the Borrower's Articles of Organization, Limited Liability Company Agreement or other organizational documents. 7. DEFAULT. If any one of the following events (each an "Event of Default") shall occur: (a) any failure by the Borrower or Guarantor to comply with any term of this Agreement or any of the Security Instruments, which failure remains unremedied ten (10) business days after notice thereof from the Bank to the Borrower; (b) any failure by the Borrower to pay any of the principal of or interest (including late charges) on the Note, or of any other indebtedness, which term shall mean any obligation or liability for borrowed money, owing by the Borrower to the Bank now existing or hereafter incurred, when the same shall be due, which failure remains unremedied ten (10) business days after notice thereof from the Bank to the Borrower; (c) any representation or warranty made by the Borrower or Guarantor in connection with the Loan proves to have been incorrect in any material respect as of the date of this Agreement or as of the date on which it is made, or any statement, certificate or data furnished by the Borrower or Guarantor proves to have been incorrect in any material respect as of the date when the facts therein set forth were stated or certified; (d) a judgment for the payment of money shall be rendered against the Borrower or Guarantor and any such judgment shall remain unsatisfied and in effect for any period of sixty (60) consecutive days without a stay of execution; (e) the Borrower or Guarantor shall (i) apply for or consent to the appointment of a receiver, trustee or liquidator of the Borrower or Guarantor or of all or a substantial part of the assets of the Borrower or Guarantor, (ii) be unable, or admit in writing, the inability to pay debts as they mature, (iii) make a general assignment for the benefit of creditors; (iv) be adjudicated a bankrupt or insolvent, or (v) file a voluntary petition in bankruptcy or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage of any insolvency law or an answer admitting the material allegations of a petition filed against the Borrower or Guarantor in any LOAN AGREEMENT PAGE 15 bankruptcy, reorganization or insolvency law or an answer admitting the material allegations of a petition filed against the Borrower or Guarantor in any bankruptcy proceeding, reorganization or insolvency proceeding, or corporate action shall be taken by the Borrower or Guarantor for the purpose of effecting any of the foregoing; (f) an order, judgment or decree shall be entered, without the application, approval or consent of the Borrower or Guarantor, by any court of competent jurisdiction, appointing a receiver, trustee or liquidator of all or a substantial part of the assets of the Borrower or Guarantor, and such order, judgment or decree shall continue unstayed and in effect for any period of sixty (60) consecutive days; or (g) the financial condition of the Borrower or Guarantor shall adversely change in any material respect from the condition of any of the foregoing represented in the information and documentation submitted by the Borrower and Guarantor in support of the application for the Loan; THEN the Bank may by written notice to the Borrower (i) immediately terminate the commitments of the Bank hereunder, and (ii) declare the principal of and interest accrued on the Note, and all other liabilities of the Borrower and Guarantor to the Bank to be forthwith due and payable, whereupon the same shall become forthwith due and payable. 8. LOAN EXPENSES. The Borrower agrees to pay all reasonable expenses (including legal expenses and attorneys' fees) payable in connection with the execution and delivery of this Agreement and of the Note, and the Security Instruments herein referred to, as well as all expenses (including legal expenses and attorneys' fees) of every kind incidental to the collection or enforcement of this Agreement, the Note and the Security Instruments; and the Borrower shall indemnify the Bank against all reasonable claims for such fees, charges and commissions arising in connection with the transaction contemplated by this Agreement. 9. REPLACEMENT OF NOTE(S); DOCUMENT RE-EXECUTION. Upon the Bank's request and receipt of evidence reasonably satisfactory to the Borrower, of the loss, theft, destruction or mutilation of the Note and, in the case of any loss, theft or destruction, if the Borrower so requests, upon delivery of an indemnity agreement reasonably satisfactory to the Borrower, or, in the case of any such mutilation, upon surrender and cancellation of such Note, the Borrower will issue, in lieu thereof, a new Note, dated the date to which interest has been paid on the lost, stolen, LOAN AGREEMENT PAGE 16 destroyed or mutilated Note and otherwise of like tenor, with appropriate variations. Further, upon the Bank's request, the Borrower and Guarantor, will execute or re-execute any other document that should have been signed at or before the closing of the Loan, or which was incorrectly drafted and/or executed, or which has been lost, misplaced, stolen, damaged or destroyed. If the Borrower or Guarantor fails to comply with such request under this Section, the Borrower and Guarantor agree to be liable for any and all loss or damage which the Bank sustains by reason thereof, including but not limited to all attorneys' fees and costs incurred by the Bank. 10. NO WAIVER; REMEDIES CUMULATIVE. No failure to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and are not exclusive of any remedies provided by law. 11. ENTIRE AGREEMENT. The Borrower understands and agrees that this Agreement, along with the Note and Security Instruments, constitute the entire agreement of the parties with respect to the subject matter hereof, and supersede any and all prior agreements, written or oral, among the parties concerning the subject matter hereof (except that Commitment Letter dated June 19, 2001, and accepted July 2, 2001, the terms and provisions of which are incorporated herein by this reference, shall survive the closing of the Loan as set forth in Paragraph 21 of said Commitment Letter to the extent not inconsistent with the terms of the Loan Documents). 12. AMENDMENT TO LOAN AGREEMENT. This Agreement may not be changed orally, but only by an agreement in writing signed by both parties to this Agreement. Borrower may not assign its rights or obligations hereunder. 13. WAIVER OF RIGHT TO TRIAL BY JURY. THE BORROWER AND GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY WITH RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND THE LOAN DOCUMENTS, AND/OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, LOAN AGREEMENT PAGE 17 STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS BY ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK'S PERFORMANCE UNDER THIS AGREEMENT. FURTHER, THE BORROWER AND GUARANTOR HEREBY CERTIFY THAT NO REPRESENTATIVE OR AGENT OF THE BANK, NOR THE BANK'S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE BANK WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. NO REPRESENTATIVE OR AGENT OF THE BANK, NOR THE BANK'S COUNSEL HAS THE AUTHORITY TO WAIVE, CONDITION, OR MODIFY THIS PROVISION. 14. JURISDICTION. Should any one or more provisions of this Agreement be determined to be illegal or unenforceable, all other provisions shall remain effective. Any legal action or proceeding with respect to this Agreement or any other agreement executed in connection therewith may be brought in the courts of the U.S. Virgin Islands (including, without limitation, the Federal District Court for the District of the U.S. Virgin Islands), and by execution and delivery of this Agreement, the Borrower consents, for itself and in respect of its property, to the non-exclusive jurisdiction of those courts. The Borrower irrevocably waives any objection, including any objection to the laying of venue and any objection based on the grounds of FORUM NON CONVENIENS, which it may now or hereafter have to the bringing of any action or proceeding in such jurisdiction in respect of this Agreement or any other agreement executed in connection therewith. The Borrower waives personal service of any summons, complaint or other process, which may be made by any other means permitted by U.S. Virgin Islands law. This paragraph shall not be deemed to preclude any party from filing any such action, suit or proceeding in any other appropriate forum if the courts of the U.S. Virgin Islands decline jurisdiction. 15. MISCELLANEOUS. 15.1 DEFINITIONS. Any accounting term used herein shall, unless the context otherwise specifies, be defined as most commonly defined in accordance with generally accepted accounting principles. 15.2 NOTICE. Any notice or communication required herein shall be deemed to have been properly served if delivered by nationally-recognized overnight courier or if sent by United States LOAN AGREEMENT PAGE 18 first class certified mail, postage prepaid, return receipt requested, addressed as follows (or at such other address as such party shall have furnished to the other party in writing) if to the Borrower: PSMT, LLC 6501 Red Hook Plaza, Ste. 201 St. Thomas, Virgin Islands 00802 and if to the Guarantor: PriceSmart, Inc. 4649 Morena Blvd. San Diego, CA 92117 and if to Bank: (BY U.S. MAIL) (BY COURIER) Banco Popular de Puerto Rico Banco Popular de Puerto Rico Attn: J. Arthur Downing Attn: J. Arthur Downing Vice President Vice President P.O. Box 8580 No. 193 Estate Altona & Welgunst St. Thomas, U.S. Virgin Islands 00801 St. Thomas, U.S. Virgin Islands 00802
with a copy to: George H.T. Dudley, Esq. Dudley, Topper and Feuerzeig, LLP P.O. Box 756 St. Thomas, U.S. Virgin Islands 00804 Notice shall be deemed received upon delivery if sent by courier or three (3) days after deposit with the U.S. post office if sent by U.S. certified mail. LOAN AGREEMENT PAGE 19 15.3 CONSTRUCTION. This Agreement is being executed in and shall be construed in accordance with the laws of the United States Virgin Islands. IN WITNESS WHEREOF, the parties have caused these presents to be executed as of the date first above written. PSMT, LLC, Borrower By: PriceSmart, Inc., its sole member By: ____________________________________ ________________, __________________ (SEAL) Attest: ____________________________________ ________________, [Asst.] Secretary PRICESMART, INC., Guarantor By: ____________________________________ ________________, __________________ (SEAL) Attest: ____________________________________ _________________, [Asst.] Secretary BANCO POPULAR DE PUERTO RICO By: ____________________________________ ____________________, Vice President LOAN AGREEMENT PAGE 20 STATE OF CALIFORNIA ) ) SS: COUNTY OF ______________ ) On this ___ day of __________ , 2001, before me, the undersigned officer, personally appeared _____________________, who acknowledged himself/herself to be the duly authorized officer of PriceSmart, Inc., a Delaware corporation, as sole member of PSMT, LLC, a U.S. Virgin Islands limited liability company, and acknowledged that he/she, being authorized so to do, executed the foregoing instrument for the purposes therein contained on behalf of said limited liability company. IN WITNESS WHEREOF, I have set my hand and official seal. ---------------------------------- Notary Public STATE OF CALIFORNIA ) ) SS: COUNTY OF ______________ ) On this ___ day of __________ , 2001, before me, the undersigned officer, personally appeared _____________________, who acknowledged himself/herself to be the duly authorized officer of PriceSmart, Inc., a Delaware corporation, and acknowledged that he/she, being authorized so to do, executed the foregoing instrument for the purposes therein contained on behalf of said corporation. IN WITNESS WHEREOF, I have set my hand and official seal. ---------------------------------- Notary Public EX-10.45 17 a2064125zex-10_45.txt EXHIBIT 10.45 EXHIBIT 10.45 CONTINUING GUARANTY (UNLIMITED) FOR VALUABLE CONSIDERATION, the undersigned (the "Guarantor") unconditionally guarantees and promises to pay when and as due to BANCO POPULAR DE PUERTO RICO, whose mailing address is P.O. Box 8580, St. Thomas, U.S. Virgin Islands 00801 (the "Bank") or order, at its office set forth above or such other office as may be designated in writing by the Bank, in lawful money of the United States and in immediately available funds, any and all indebtedness (as defined in Paragraph 1 below) of PSMT, LLC, a U.S. Virgin Islands limited liability company (the "Borrower"), to the Bank anywhere, and to perform or caused to be performed any and all affirmative and negative covenants, conditions of lending and other obligations of the Borrower arising under that certain Loan Agreement of even date herewith by and between the Bank, the Borrower and the Guarantor (the "Loan Agreement") and the Note and Security Instruments defined in the Loan Agreement, upon the following terms: 1. The word "indebtedness" is used herein in its most comprehensive sense arising pursuant to the terms and provisions of the Loan Agreement and pursuant to the Note and Security Instruments referred to therein and includes without limitation any and all advances, debts, obligations and liabilities of Borrower heretofore, now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether secured or unsecured (and if secured, regardless of the nature and extent of the security), whether due or not due, absolute or contingent, liquidated or unliquidated, or determined or undetermined, whether Borrower may be liable individually or jointly with others, and whether recovery upon such indebtedness may become otherwise unenforceable for any reason whatsoever, including without limitation any act or failure to act of the Bank. This is a continuing guaranty relating to any indebtedness, including that arising under successive transactions renewing, increasing, extending or continuing the indebtedness, changing the interest rate or other terms of the indebtedness, or creating new or additional indebtedness, after prior indebtedness has been in whole or in part satisfied, regardless of any lapse of time. 2. The liability of Guarantor hereunder shall include the full amount of the indebtedness plus all interest thereon, charges and fees in respect thereof, any costs or expenses of the Guarantor for performance of the Borrower's obligations, covenants and agreements with the Bank set forth in the Loan Agreement, the Note or the Security Instruments and the attorneys' fees, costs and expenses referred to in paragraph 9 hereof. The obligations of Guarantor hereunder shall be in addition to any other obligations of any one or more of Guarantor or other guarantors under any other guaranties of the indebtedness of Borrower or any other persons heretofore or hereafter given to the Bank, and this Guaranty shall not affect or invalidate any such other guaranties, and the liability of Guarantor to the Bank shall be the aggregate liability of Guarantor under the terms of this Guaranty and all of said other guaranties. 3. The obligations of Guarantor hereunder are joint and several, and are primary and independent of the obligations of Borrower and any other Guarantor or other party, and a separate action or actions may be brought and judgment obtained against Guarantor without bringing action against Borrower or any other guarantor or other party and without joining any of them in any such action or actions. The liability of Guarantor hereunder shall be reinstated and revived, and the right CONTINUING GUARANTY (UNLIMITED) PAGE 2 of the Bank shall continue, with respect to any amount at any time paid on account of the indebtedness guaranteed hereby, which shall thereafter be restored or returned by the Bank, whether voluntarily or involuntarily, upon the bankruptcy, insolvency or reorganization of Borrower or of Guarantor or for any other reason, all as though such amount had not been paid. 4. The Bank may, without notice or demand and without affecting Guarantor's liability hereunder, from time to time (a) renew, compromise, extend, accelerate or otherwise change the time for payment of, or otherwise change the terms of the indebtedness or any part thereof, including increase or decrease of the rate of interest thereon; (b) take and hold security for payment of this Guaranty or the indebtedness and exchange, enforce, waive, release and apply the whole or any part of such security and direct the order and manner of sale thereof, all as the Bank in its discretion may at any time or from time to time determine; and (c) release or substitute any one or more endorser or guarantor including the Guarantor hereunder. The Bank may without notice assign this Guaranty in whole or in part. 5. Guarantor waives any right to require the Bank to (a) proceed against Borrower; (b) proceed against or exhaust any security held from Borrower or otherwise; or (c) pursue any other remedy in the Bank's power whatsoever. Guarantor waives any defense arising by reason of any disability or other defense of Borrower or of any other guarantor of the indebtedness of Borrower, or by reason of the cessation or unenforceability of the liability of Borrower or of any other guarantor from any cause whatsoever, including without limitation any such cessation or unenforceability of liability resulting from the exercise of any power of sale contained in any mortgage, deed of trust or other security instrument. Until all indebtedness of Borrower to the Bank shall have been paid in full, Guarantor shall have no right of subrogation or contribution, and Guarantor waives any right to enforce any remedy which the Bank now has or may hereafter have against Borrower, and also waives any benefit of any right to participate in any security now or hereafter held by the Bank. Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this Guaranty and of the existence, creation or incurring of new additional indebtedness. 6. Guarantor acknowledges and affirms that this Guaranty is not made in reliance on any representation or warranty, express or implied, by the Bank concerning the financial condition of Borrower, the nature, value or extent of any security for the indebtedness, or any other matter. Guarantor warrants and represents to the Bank that it has full knowledge of the financial condition of Borrower and agrees that Guarantor will continue to be fully cognizant of the financial condition of the Borrower during the entire duration of the indebtedness to the Bank, including any renewals, extensions or future indebtedness, and the Bank has no obligation, and Guarantor's obligations hereunder shall not be affected by the failure of the Bank, to advise Guarantor of any information relating to Borrower's financial condition or otherwise relating to Borrower or the indebtedness or any security therefor. 7. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon any default by Borrower in payment of the indebtedness CONTINUING GUARANTY (UNLIMITED) PAGE 3 or by Guarantor in payment of its obligations hereunder, the Bank is hereby authorized at any time or from time to time, without notice to Guarantor or to any other person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special, contingent or unmatured) and any other indebtedness at any time held or owing by any office of the Bank to or for the credit or the account of Guarantor, regardless of the currency of such deposits or other indebtedness, against or on account of the obligations and liabilities of Guarantor to the Bank under this Guaranty, including, without limitation, all claims of any nature or description arising out of or connected with this Guaranty, irrespective of whether or not the Bank shall have made any demand hereunder and, if such deposits or other indebtedness are in a currency other than U.S. dollars, the Bank is authorized to convert the same to U.S. dollars upon such set-off, appropriation and application. 8. Any indebtedness of Borrower now or hereafter due to Guarantor is hereby subordinated to the indebtedness of Borrower to the Bank; and such indebtedness of Borrower to Guarantor and any security therefor is assigned to the Bank as security for this Guaranty and the indebtedness guaranteed hereunder, and if the Borrower's payment of debt service on such indebtedness exceeds an amount reasonably satisfactory to the Bank or the amount allowed, if any, under the Loan Agreement, at the Bank's request, such payments of debt service shall be collected, enforced and received by Guarantor as trustee for the Bank and paid over to the Bank on account of the indebtedness of Borrower to the Bank but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty. Any notes or other instruments now or hereafter evidencing such indebtedness of Borrower to Guarantor, and any security therefor, shall be marked with a legend that the same are subject to this Guaranty and, if the Bank so requests, shall be delivered to the Bank. Guarantor will, and the Bank is hereby authorized in the name of Guarantor, from time to time to execute and file financing statements and continuation statements and execute such other documents and take such other action as the Bank deems necessary or appropriate to perfect, preserve or enforce the Bank's rights hereunder. Every right of set-off and lien shall continue in full force and effect until full, final and complete satisfaction of the indebtedness. 9. Guarantor agrees to pay reasonable attorneys' fees and all other costs and expenses which may be incurred by the Bank in the enforcement of this Guaranty or of the indebtedness. 10. Guarantor hereby represents and warrants to the Bank that (a) it has the requisite power and authority to execute and deliver this Guaranty; (b) its execution, delivery and performance of this Guaranty will not violate any law, rule, regulation or judgment applicable to or agreement binding upon it; (c) this Guaranty constitutes its legal, valid and binding obligation enforceable in accordance with its terms; (d) it is not in default under any other agreement binding upon it; (e) there are no material suits or proceedings pending or threatened against it before any court or governmental body; and (f) its most recent financial statement furnished to the Bank prior to the date hereof fairly presents its financial condition as of the date thereof and there has been no subsequent material adverse change in its business, operations or financial condition. CONTINUING GUARANTY (UNLIMITED) PAGE 4 11. Guarantor agrees immediately to notify the Bank in the event of any material change in Guarantor's financial condition and of any assignment, encumbrance, hypothecation or other transfer, whether voluntary or involuntary, of a substantial portion of Guarantor's property, including without limitation any merger, consolidation, divestiture, transfer into trust, division of community property, severance of joint tenancy property or other change in the nature of or title to the property of Guarantor. Guarantor further agrees to promptly furnish to the Bank such financial information as is set forth and required under the Loan Agreement. 12. Any notice given hereunder shall be deemed to have been properly served if sent in the manner required under the Loan Agreement. 13. No course of action or delay or omission of the Bank in exercising any right or remedy hereunder shall constitute or be deemed to be a waiver of any right or remedy hereunder, and a waiver on one occasion shall not operate as a bar to or waiver of any such right on any future occasion. This Guaranty is and at all times shall remain the property of the Bank. 14. Should any one or more provisions of this Guaranty be determined to be illegal or unenforceable, all other provisions shall remain effective. This Guaranty shall be governed by and construed in accordance with the laws of the U.S. Virgin Islands. Any legal action or proceeding with respect to this Guaranty or any other agreement executed in connection therewith may be brought in the courts of the U.S. Virgin Islands (including, without limitation, the Federal District Court for the District of the U.S. Virgin Islands), and by execution and delivery of this Guaranty, the Guarantor consents, for itself and in respect of its property, to the non-exclusive jurisdiction of those courts. The Guarantor irrevocably waives any objection, including any objection to the laying of venue and any objection based on the grounds of FORUM NON CONVENIENS, which it may now or hereafter have to the bringing of any action or proceeding in such jurisdiction in respect of this Guaranty or any other agreement executed in connection therewith. The Guarantor waives personal service of any summons, complaint or other process, which may be made by any other means permitted by U.S. Virgin Islands law. This paragraph shall not be deemed to preclude any party from filing any such action, suit or proceeding in any other appropriate forum if the courts of the U.S. Virgin Islands decline jurisdiction. 15. This Guaranty is intended to take effect as a sealed instrument, shall inure to the benefit of the Bank and its successors and assigns, and shall be binding upon Guarantor and heirs, executors, administrators, other legal representatives, successors and assigns of Guarantor. Guarantor may not assign or transfer its obligations hereunder. 16. In all cases where there is but a single Borrower or a single Guarantor, all words used herein in the plural shall be deemed to have been used in the singular where the context and construction so require; and when there is more than one Borrower named herein, or when this Guaranty is executed by more than one Guarantor, then the word "Borrower" and the word "Guarantor" respectively shall mean all and each and any of them. CONTINUING GUARANTY (UNLIMITED) PAGE 5 IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as an instrument under seal as of the ____ day of _____________, 2001. Address: 4649 Morena Blvd. PriceSmart, Inc., Guarantor San Diego, CA 92117 By: ________________________________ ______________, ________________ (SEAL) Attest: ________________________________ _____________, [Asst.] Secretary STATE OF CALIFORNIA ) ) SS: COUNTY OF _____________________ ) On this ___ day of ___________, 2001, before me, the undersigned officer, personally appeared _________________________, who acknowledged himself/herself to be the duly authorized officer of PriceSmart, Inc., a Delaware corporation, and acknowledged that he/she, being authorized so to do, executed the foregoing instrument for the purposes therein contained on behalf of said corporation. IN WITNESS WHEREOF, I have set my hand and official seal. ______________________________ Notary Public EX-10.46 18 a2064125zex-10_46.txt EXHIBIT 10.46 Exhibit 10.46 Loan Agreement by and between Metropolitan Bank and Trust Company and PSMT Phillipines, Inc. TABLE OF CONTENTS
Section Title 1 DEFINITIONS 2 THE LOAN 3 FUNDING AND YIELD PROTECTION 4 COLLATERALS 5 REPRESENTATIONS AND WARRANTIES 6 COVENANTS 7 CONDITIONS OF BORROWING 8 DEFAULT 9 GENERAL PROVISIONS SIGNATURES ACKNOWLEDGMENT EXHIBIT "A" - PROMISSORY NOTE EXHIBIT "B" - FORM OF NOTICE OF BORROWING EXHIBIT "C" - BORROWING CERTIFICATE EXHIBIT "D" - FORM OF OPINION OF COUNSEL TO THE BORROWER
Each execution copy of this Loan Agreement is signed in full by the signatories and the witnesses on the signature page and initialed on the other pages. 2 LOAN AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This Loan Agreement made and executed by and between: METROPOLITAN BANK AND TRUST COMPANY, a Philippine corporation with head office at Metrobank Plaza, Sen Gil J. Puyat Avenue, Makati, City, and hereinafter referred to as the "BANK"; -and- PSMT PHILIPPINES, INC., a Philippine corporation with head office at 32nd Street, 5th Avenue Fort Bonifacio Global City, Taguig, Metro Manila and hereinafter referred to as the "BORROWER". WITNESSETH: That, WHEREAS, the BORROWER has applied with the BANK for a five-year (5) year loan in the principal amount of PESOS: TWO HUNDRED FIFTY MILLION (PhP250,000,000.00), Philippine currency; WHEREAS, the BANK is willing to provide such loan to the BORROWER upon the terms and conditions herein set forth which the BORROWER accepts; NOW, THEREFORE, for and in consideration of the foregoing premises, which premises shall be an integral part of this Agreement, and of the mutual covenants and agreements hereinafter stated, the parties hereto agree as follows: SECTION 1. DEFINITIONS 1.01. DEFINED TERMS As used herein, the following terms shall have the following meanings: (a) "AFFILIATE(S)" shall mean any corporation or firm at least twenty percent (20%), but not more than Fifty percent (50%), of the outstanding voting stock of which is directly or indirectly owned, controlled or held by the BORROWER and the evaluation of which is a consideration for the granting of the LOAN. (b) "AGREEMENT" shall mean this Loan Agreement and any amendment or supplement hereto. (c) "ALTERNATIVE REFERENCE RATE" shall mean the simple average of the REFERENCE RATE and the PHIBOR. (d) "BORROWING" shall mean one or more drawdowns of the COMMITMENT pursuant to Section 2.01. (e) "BUSINESS DAY" shall mean a day on which the principal offices of the BANK in Makati City and the BORROWER in __________________ are not required or authorized by law to close for business. (f) "COMMITMENT" shall mean the aggregate principal amount of PESOS: TWO HUNDRED FIFTY MILLION (PhP250,000,000.00), Philippine currency, which 3 the BANK has agreed to lend to the BORROWER or, as the context may require, the obligation of the BANK to lend such amount in accordance with the terms of this AGREEMENT. (g) "COMMITMENT PERIOD" shall mean the period from the date hereof to and including the earliest of (i) six (6) months from the date of execution of this AGREEMENT, (ii) the date the COMMITMENT is fully availed of by the BORROWER, or (iii) the date the COMMITMENT terminates in accordance with the terms of this AGREEMENT. (h) "CURRENT INTEREST RATE" shall mean the REFERENCE RATE plus the SPREAD or the ALTERNATIVE REFERENCE RATE plus the SPREAD, whichever is applicable. (i) "EVENT OF DEFAULT" shall mean any of the events specified in Section 8.01. (j) "INTEREST PAYMENT DATE" shall mean the last day of an INTEREST PERIOD. (k) "INTEREST PERIOD" shall mean the period commencing on the date of initial BORROWING and having a duration of three (3) months and each period thereafter commencing upon the expiry of the immediately preceding INTEREST PERIOD and having a duration of three (3) months provided, that the first INTEREST PERIOD with respect to a BORROWING subsequent to the initial BORROWING shall commence on the date of such subsequent BORROWING and shall end on the last day of the current INTEREST PERIOD to synchronize all subsequent INTEREST PERIODS. (l) "INTEREST RATE SETTING DATE" shall mean the BUSINESS DAY on the date of BORROWING and each quarterly date occurring after such BUSINESS DAY but coinciding with the INTEREST PAYMENT DATE. (m) "LOAN" shall mean the aggregate principal amount of PESOS: TWO HUNDRED FIFTY MILLION (PhP250,000,000.00), granted by the BANK to the BORROWER hereunder or, as the context may require, the amount thereof then outstanding. (n) "NOTE(S)" shall mean the promissory note to be issued by the BORROWER pursuant to Section 2.03 and more specifically described in Exhibit "A" of this Agreement, or any promissory note thereafter delivered by the BORROWER at the request of the BANK in extension, renewal or substitution therefor and evidencing all or part of the LOAN. (o) "NOTICE OF BORROWING" shall mean a notice substantially in the form of Exhibit "B", duly completed and executed by the BORROWER and delivered to the BANK in accordance with Section 2.03. (p) "PARENT CORPORATION" shall mean a corporation or firm which owns, controls or holds, directly or indirectly, more than fifty percent (50%) of the outstanding voting stock of the BORROWER. (q) "PESOS" and the sign "PhP" shall mean the legal currency of the Republic of the Philippines. (r) "PHIBOR" shall mean the three (3)-month PHILIPPINE INTERBANK OFFERED RATE ("PHIBOR"), determined at approximately 11:00 a.m. in the Reuters PHIBOR page on an INTEREST RATE SETTING DATE. (s) "PURPOSE" shall mean the purpose stated in Section 2.02. (t) "REFERENCE RATE" shall mean the ninety-one (91)- day TREASURY BILL RATE (weighted average interest rate) as reported by the Bangko Sentral ng 4 Pilipinas and published within the seven (7)- day period prior to an INTEREST RATE SETTING DATE. (u) "REPAYMENT DATE" shall mean each of the dates occurring on the 8th, 9th, 10th, 11th, 12th, 13th, 14th, 15th, 16th, 17th, 18th, 19th, and 20th quarters after the date of the initial BORROWING, provided that each such date shall be adjusted to coincide with the INTEREST PAYMENT DATE occurring in the same calendar month. (v) "SPREAD" shall mean three percent (3%) above the applicable CURRENT INTEREST RATE. (w) "SUBSIDIARY(IES)" shall mean any corporation or firm more than Fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned, controlled or held by the BORROWER. (x) "SUBSTITUTE INTEREST RATE" shall mean the prevailing lending interest rate of the BANK. (y) "TAXES" shall mean present or future taxes, duties, levies, or other charges (excluding taxes imposed on the overall income of the BANK) imposed by the Republic of the Philippines or any political subdivision or taxing authority thereof. It shall include but is not limited to the gross receipts tax, value added tax ("VAT"), withholding tax, documentary stamp tax, and any other taxes, interests, surcharges, assessments, and/or fees, which shall or have been paid with respect to this AGREEMENT, the NOTE(S), and/or any other document/transaction related/ incidental thereto. (z) "TREASURY BILL RATE" shall mean the weighted average interest rate determined on the basis of the winning bids submitted to and accepted by the Bangko Sentral ng Pilipinas or its successor, for the sale of the Peso-denominated Treasury Bills. 1.02 INTERPRETATION The headings in this AGREEMENT are inserted for convenience of reference only and shall not limit or affect the interpretation of the provisions hereof. Unless the context otherwise requires, words denoting the singular number shall include the plural and vice versa, and words denoting persons shall include individuals, corporations, partnerships, joint ventures, trusts, unincorporated organizations and any political subdivision, agency or instrumentality. Unless otherwise provided herein, all terms of accounting used herein shall be construed in accordance with generally-accepted accounting principles in effect in the Republic of the Philippines on the date applied. References to Sections and Exhibits are to be construed as references to the Sections of and Exhibits to this AGREEMENT. SECTION 2. THE LOAN 2.01 COMMITMENT (a) The BANK agrees, upon the terms and subject to the conditions hereinafter set forth, to allow drawdowns on its COMMITMENT to the BORROWER on any BUSINESS DAY during the COMMITMENT PERIOD. (b) The BORROWER shall pay the BANK a commitment fee at the rate of one-half percent (0.50%) per annum based on the undrawn portion of the COMMITMENT from date hereof up to the date the COMMITMENT is fully availed of or terminates. 5 2.02 PURPOSE The BORROWER shall use the LOAN to partially finance the construction and operation of membership warehouse store(s) in Metro Manila. 2.03 NOTICE OF BORROWING (a) The BORROWER shall deliver the NOTICE OF BORROWING substantially in the form of Exhibit "B" to the BANK at least two (2) BUSINESS DAYS prior to the date of any proposed BORROWING. Such NOTICE OF BORROWING, once delivered, shall be irrevocable and shall commit the BORROWER to borrow the amount stated therein on the proposed date of BORROWING. (b) On the proposed date specified in the NOTICE OF BORROWING, and subject to the fulfillment of all conditions precedent set forth in Section 7, the BANK shall make the amount stated in the notice available to the BORROWER at the office of the BANK. 2.04 NOTE The LOAN shall be evidenced by the NOTE(S) of the BORROWER. The provisions of the NOTE(S) once executed shall be complemented by the terms and conditions of this AGREEMENT, provided, however, that in case of conflict between the NOTE(S) and this AGREEMENT, this AGREEMENT shall prevail. 2.05 REPAYMENT The BORROWER shall repay the LOAN in thirteen (13) equal or nearly equal quarterly installments with the last installment in an amount sufficient to fully pay the LOAN. Each such installment shall be made on a REPAYMENT DATE. 2.06 PREPAYMENT (a) The BORROWER may, at its option, prepay the LOAN in part or in full, together with accrued interest thereon, without premium or penalty, at any time during the term hereof, subject to the following conditions: (i) the BORROWER shall give the BANK written notice not less than thirty (30) days prior to such proposed prepayment, which notice shall be irrevocable and binding once received by the BANK; (ii) each partial prepayment shall be applied against the repayment installments of the LOAN in the inverse order of their maturities'; (iii) any partial payment shall be in an amount not less than Pesos: Twenty-Five Million (Php 25,000,000.00) and in excess thereof, in multiples, of Pesos: Five Million (Php 5,000,000.00). (b) All TAXES, surcharges, interests, and other assessments payable to the Bureau of Internal Revenue due to the prepayment shall be for the account of the BORROWER. (c) In case the BORROWER is unable, for reasons beyond its control, to perform any of its obligations hereunder, the BORROWER shall immediately inform the BANK in writing and shall prepay the LOAN in full, without premium or penalty, but with interest accrued thereon to the date of prepayment, within thirty (30) days from the occurrence of the event which would render the performance by the BORROWER hereunder unlawful. 6 2.07 INTEREST AND PENALTY (a) The BORROWER shall pay interest on the LOAN outstanding from time to time on each INTEREST PAYMENT DATE for the INTEREST PERIOD then ending at the rate equal to the REFERENCE RATE plus the SPREAD. If any INTEREST PAYMENT DATE would fall on any day which is not a BUSINESS DAY, the interest shall be payable on the next succeeding BUSINESS DAY and the interest shall be adjusted accordingly. (b) If the BORROWER fails to make payment when due of any sum hereunder (whether at the stated maturity, by acceleration or otherwise), the BORROWER shall pay penalty on such past due and unpaid amount/s at the rate of eighteen percent (18%) per annum, in addition to the interest rate provided in Sec. 2.07 (a) above, from due date until the date of payment in full (both before as well as after judgment). The penalty under this Section 2.07 (b) shall be payable from time to time and upon demand by the BANK. (c) All payments for interest(s), and penalties pursuant to Sections 2.06, and 2.07 shall be computed on the basis of a three hundred sixty (360)-day year and on the actual number of days elapsed. 2.08 ALTERNATIVE REFERENCE RATE In the event that during the seven (7) - day period prior to an INTEREST RATE SETTING DATE, the REFERENCE RATE cannot be determined for any reason or the difference between the REFERENCE RATE and the PHIBOR be equal or greater than 200 basis points, then the applicable interest rate for the INTEREST PERIOD shall be based on the ALTERNATIVE REFERENCE RATE plus the SPREAD. 2.09 SUBSTITUTE INTEREST RATE In the event the REFERENCE RATE or the ALTERNATIVE REFERENCE RATE, as the case may be, is not available for the INTEREST PERIOD in question or, together with the SPREAD, does not or will not accurately reflect the cost to the BANK of making or maintaining the LOAN during such INTEREST PERIOD or is no longer indicative of competitive interest rates for similar periods of borrowings (which determination shall be conclusive and binding upon the BORROWER), then the applicable interest rate shall be the "SUBSTITUTE INTEREST RATE". Such SUBSTITUTE INTEREST RATE shall be retroactive to and shall take effect from the beginning of the affected INTEREST PERIOD and shall be deemed as the interest rate for such INTEREST PERIOD. 2.10 PAYMENTS (a) All payments to be made by the BORROWER hereunder or under the NOTE(S) shall be made in PESOS and in immediately available and freely transferable funds at the principal office of the BANK or such place or account as the BANK may designate, not later than 11:00 A.M. of the due date. (b) Any payment made to the BANK hereunder shall be applied first against costs, expenses, fees and indemnities due hereunder; then against penalties and default interest, if any; then against interest due on the LOAN; then against the principal amount of the LOAN then due and payable. (c) The books of the BANK shall be deemed final and conclusive evidence concerning the outstanding LOAN of the BORROWER, absent manifest error. 7 SECTION 3. FUNDING AND YIELD PROTECTION 3.01 TAXES, DUTIES, FEES AND CHARGES (a) All payments due to the BANK hereunder or under the NOTE(S), whether of principal, interest, penalties or otherwise, shall be made without set-off or counterclaim and without any deduction or withholding on account of any and all TAXES, all of which shall be for the account of the BORROWER and paid by it when due. The BORROWER agrees to indemnify and reimburse the BANK on demand for any TAXES paid in respect of this AGREEMENT and the NOTE(S) or any payment received by the BANK hereunder or thereunder. In the event that the BORROWER is prohibited by law from making payments hereunder free of deductions or withholdings, then the BORROWER shall pay such additional amount as will result in the receipt by the BANK, after such deduction or withholding, of the amount that would have been received if such deduction or withholding had not been required. The BORROWER shall forward to the BANK certified copies of official receipts or other evidences acceptable to the BANK establishing the rate and payment of the TAXES within ten (10) days from such payment. (b) In the event the BANK shall be required to pay TAXES on or with regard to the execution, formalization or perfection of any documentation contemplated hereunder or delivered pursuant hereto, then the BORROWER shall, upon demand, reimburse the BANK for such TAXES paid. (c) The BORROWER's obligation hereunder shall survive the repayment of the LOAN to the extent that the obligations hereunder have not been fully discharged by the BORROWER to the prejudice of the BANK. 3.02 CHANGE IN CIRCUMSTANCES In the event that there shall hereafter occur any change in applicable law, rule, regulation or in the interpretation or administration thereof, which shall increase the cost of maintaining any reserves or special deposits against the COMMITMENT or the LOAN and any other cost of complying with any law, regulation or condition with respect to the COMMITMENT or the LOAN, and the result of the foregoing is to increase the costs to the BANK of making or maintaining the LOAN or to reduce the amount of any payment (whether of principal, interest or otherwise) received or receivable by the BANK hereunder, then the BORROWER shall pay or reimburse to the BANK such amounts as will compensate it for such additional cost or reduction of payment. If the BORROWER shall be required to pay or reimburse the BANK under this Section 3.02, then the BORROWER shall be free at any time within thirty (30) days after such payment or reimbursement is demanded by the BANK to prepay the LOAN in full without premium or penalty, together with accrued interest thereon to the date of prepayment, subject to giving the BANK not less than five (5) BUSINESS DAYS written notice thereof. SECTION 4. COLLATERALS 4.01 COLLATERALS To secure the payment of the LOAN and to assure the prompt and faithful performance by the BORROWER of all its obligations in this AGREEMENT and the NOTE(S), the BORROWER shall, at its expense, execute and deliver or cause to be executed and delivered, to the BANK, for its benefit, security and protection and in form and substance acceptable to it the following: 8 a) Real Estate Mortgage on the building(s) and improvements constructed or to be constructed on 32nd Street, 5th Avenue, Fort Bonifacio, Global City. b) Chattel Mortgage on the machinery, furniture, fixtures and equipment found in the real estate mentioned above; c) Corporate Guaranty of PriceSmart Inc. and E-Class Corporation; d) Assignment of the leasehold rights subject of the Contract of Lease dated ________ executed by the BORROWER and Fort Bonifacio Development Corporation. e) Deed of Assignment over continuing inventories. 4.02 MAINTENANCE OF COLLATERAL Ordinary wear and tear excluded, in the event of loss, destruction, impairment or diminution in value of the properties mortgaged/encumbered and/or pledged to the BANK at any time, while any part of the LOAN or any other obligation payable under this AGREEMENT remains unpaid, or that it is determined by the BANK that there is danger of loss, destruction, impairment or diminution in value, or that the mortgaged or encumbered properties are or have become insufficient or inadequate as security for the LOAN, the BORROWER, upon written demand by the BANK, agrees to give and deliver immediately to the BANK such other security(ies) as may be satisfactory to the BANK. SECTION 5. REPRESENTATIONS AND WARRANTIES 5.01 REPRESENTATIONS AND WARRANTIES The BORROWER represents and warrants to the BANK as follows: (a) The BORROWER is a corporation duly organized and validly existing under the laws of the Philippines, or is an entity qualified or registered to do business in every jurisdiction where such registration is necessary and has all the requisite power, authority and legal right to own its properties and assets and to carry on its business as now being conducted. (b) The BORROWER has full power, authority and legal right to execute and deliver this AGREEMENT, the NOTE(S) and all other relevant documents to be delivered hereunder, to perform its obligations hereunder, and has taken all necessary corporate and legal action to authorize the foregoing. (c) This AGREEMENT, the NOTE(S) and all other relevant documents to be delivered hereunder will constitute the legal, valid and binding obligations of the BORROWER, enforceable in accordance with the terms hereof and thereof, and none of the provisions thereof, or any of the procedures contemplated by any of the provisions thereof, is in contravention of, or is illegal, void, voidable, prohibited or unenforceable under the laws of the Republic of the Philippines. (d) The execution, delivery and performance of this AGREEMENT, the NOTE(S) and all other relevant documents to be delivered hereunder do not and will not violate in any respect any provision of, or result in the breach of, or constitute a default under (i) any law, rule, regulation, order, writ, decree, determination or award of any governmental authority, agency or court presently in effect having application to the BORROWER, (ii) the Articles of 9 Incorporation, By-Laws or other corporate rules of the BORROWER, or (iii) any agreement or other undertaking or instrument to which the BORROWER is a party or which purports to be binding upon it or its assigns. (e) Except as disclosed in writing by the BORROWER, no default or EVENT OF DEFAULT has occurred or is continuing with respect to the BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES . The BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES is/are not in default in the payment or performance of any of its/their obligations or any of the covenants or conditions to be performed pursuant to the terms of any agreement, undertaking or instrument to which it/they is/are a party or by which it/they may be bound. (f) All necessary consents, approvals and authorizations required in connection with the execution, delivery and performance by the BORROWER of this AGREEMENT, the NOTE(S) and all other relevant documents to be delivered hereunder or for the validity or enforceability hereof, have been obtained and are in full force and effect and true copies thereof delivered to the BANK prior to the relevant date of disbursement of the LOAN. (g) Except as disclosed in writing by the BORROWER, there are no legal actions, suits or proceedings pending or, to the knowledge of the BORROWER, threatened (i) with respect to any of the transactions contemplated by this AGREEMENT, or (ii) against or affecting the BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES and/or any of its/their properties or assets which, in the opinion of the BANK, could have a material adverse effect on the operation or financial condition of the BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES or impair the ability of the BORROWER to perform its obligations hereunder. (h) The audited financial statements of the BORROWER for the immediately preceding fiscal year, which have been furnished to the BANK, are correct and complete and fairly represent the financial condition of the BORROWER on the respective dates thereof and the results of operations and changes in the financial position for the respective periods then ended in accordance with generally-accepted accounting principles and practices in the Philippines. Except as has been previously disclosed to the BANK, since the latest date of such Financial Statements, there has been no material adverse change in the business, properties, assets or condition, financial or otherwise, of the BORROWER. (i) The BORROWER has good and marketable title to all its properties and assets as reflected in the most recent Financial Statements referred to in Section 5.01 (h), except as disclosed by the BORROWER in writing to the BANK, and except for such properties and assets as have been disposed of in the ordinary course of business. All such properties and assets are (i) free and clear of mortgages, liens, charges or other encumbrances except as noted in such Financial Statements or advised in writing to the BANK, and (ii) insured and insurance against operational risks and liabilities is in force, with coverage and amounts as is customary for businesses of like nature. SECTION 6. COVENANTS 6.01 AFFIRMATIVE COVENANTS The BORROWER covenants and agrees, unless the BANK shall otherwise consent in writing, that, so long as this AGREEMENT is in effect, and until payment in full and performance of all other obligations hereunder, the BORROWER shall act and shall perform the following: (a) Limit the application of the LOAN to the PURPOSE. 10 (b) Pay or discharge the TAXES imposed upon or assessed against it or upon its incomes or profits or upon any properties belonging to it (including, without limitation the TAXES in connection with the execution, delivery and/or performance of this AGREEMENT, the NOTE(S) and all other relevant documents to be delivered hereunder) such payment to be made prior to the date on which penalties attach to the TAXES and also pay and discharge when due all claims assessed which, if unpaid, would become a lien or charge upon the BORROWER's properties, provided that the BORROWER shall not be required to pay the TAXES which is/are being contested in good faith and by proper proceedings diligently conducted. (c) Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, and all its rights, licenses, franchises, permits, concessions, and privileges and to comply with or cause to be complied with, all laws, statutes, rules, regulations, orders and directives of any governmental authority having jurisdiction over the BORROWER or its business. (d) Keep proper and adequate books and records and accounting in accordance with generally accepted accounting principles and practices, consistently applied, and in compliance with the regulations of any governmental regulatory body having jurisdiction in the premises and permit representatives of the BANK, with prior written notice and at any reasonable time, to inspect the BORROWER's properties and to examine the BORROWER's book of accounts or records and make copies thereof. (e) Furnish the BANK, as soon as possible, and in any event within ninety (90) days after the end of every semester of each year, copies of the interim financial statements for such semester certified by its chief accountant. (f) Furnish the BANK, as soon as possible, but in any event within one hundred fifty (150) days after the end of each fiscal year (inclusive of year-end), its audited financial statements for such period, certified by independent public accountants acceptable to the BANK. (g) Maintain at all times a Current Ratio of at least 1.1 : 1.0 . For purposes hereof, "Current Assets" and "Current Liabilities" (including taxes and proper accruals) of the BORROWER shall be determined in accordance with generally accepted accounting principles and practices in the Philippines. (h) Maintain a debt-to-equity ratio not greater than 1.6 : 1.0 . For purposes hereof the term "Total Debt" shall mean all obligations of the BORROWER which, in accordance with generally accepted accounting principles and practices in the Philippines, are required to be included as liabilities of the BORROWER in its balance sheet, including accrued income taxes and other proper accruals, and the term "Equity" shall mean the equity interest of the owners of the capital stock of the BORROWER, computed in accordance with generally accepted accounting principles in the Philippines. (i) Maintain its properties and assets in good repair, working order, and condition and from time to time make all needed and proper repairs, renewals, replacements, betterments and improvements thereto. (j) Secure and maintain adequate insurance coverage for all the mortgaged buildings, furniture, fixtures, machineries and equipment from a reputable insurance company(ies) acceptable to the BANK with such coverage and in such manner and amounts as are customary for businesses of like nature, and maintain such other insurance as may be required by law and regulations. The BORROWER shall submit to the BANK, within ten (10) 11 days from the date of payment, the original copy(ies) of the official receipt(s) evidencing payment of premiums. (k) Promptly give written notice to the BANK of : (i) any litigation materially and adversely affecting the BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES; (ii) any labor controversy resulting in or threatening to result in a strike against it, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES and which would materially and adversely affect the BORROWER and/or the BORROWER's operation or financial condition; (iii) any dispute which may exist between the BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES and any governmental regulatory body or law enforcement authority which may materially and adversely affect its/their operation(s) and/or financial condition(s); (iv) any proposal by any governmental authority to acquire the properties, assets or business of the BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES which may materially and adversely affect any of its/their operations and/or financial conditions; (v) any EVENT OF DEFAULT, or any event which, upon a lapse of time or giving of notice or both, would become an EVENT OF DEFAULT, specifying the details and the steps which the BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES is/are taking or will take for the purpose of curing or preventing the occurrence of such an EVENT OF DEFAULT; and (vi) any other matter which has resulted or might result in a material adverse change in the operation(s) and/or financial condition(s) of the BORROWERs, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES. (l) Promptly give written notice to the BANK of any change in the composition of the BORROWER's Board of Directors, in so far as it arises out of a change in the ownership of the BORROWER. (m) Every sixty (60) days from the execution of this AGREEMENT, submit to the BANK a list of continuing inventories subject of the Deed of Assignment stated in Section 4.01 (e) of this AGREEMENT, which list shall be certified by an authorized officer of the BORROWER. (n) Every year for the first two (2) years of this AGREEMENT, submit to the BANK an updated appraisal report conducted by an appraisal company acceptable to the BANK, over the Collaterals stated in Sections 4.01 (a) and (b) of this AGREEMENT. Every year, thereafter, the BORROWER shall allow the BANK to conduct an appraisal over the Collaterals stated above, which cost shall be for the account of the BORROWER. (o) Promptly execute and deliver such additional reports, documents and other information respecting the business, properties, assets or condition, financial or otherwise, of the BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES as the BANK may reasonably require from time to time to perfect and confirm to the BANK all its rights, powers and remedies hereunder. (p )Give the BANK prior written notice of any change in its address and the addresses of its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES, at least five (5) days prior to such change. 6.02 NEGATIVE COVENANTS From and after the date of signing of this AGREEMENT and for as long as the LOAN is outstanding, the BORROWER, without the prior written consent of the BANK, (which consent shall not be unreasonably withheld) shall not: (a) Change the nature of its business as presently conducted, or liquidate or dissolve, or suspend its operation. (b) Enter into any consolidation or merger, except when in such consolidation or merger, the BORROWER is the surviving entity. (c) Permit any material change in the ownership or control of its capital stock. (d) Sell, lease or dispose of its business, properties or assets except in the ordinary course of business. (e) Enter into a management contract or any contract or arrangement whereby its business or operations are managed by any other person and/or enter into any profit sharing, joint venture or royalty agreements or other similar arrangements whereby its incomes or profits are, or might be, shared with any other person, firm or corporation and which will, in either case, materially and adversely affect the BORROWER'S ability to perform its obligations hereunder, in any way. (f) Declare or pay dividends to its stockholders (other than dividends payable solely in shares of its capital stock) if payment of any sum due the BANK hereunder is delayed. (g) Purchase, redeem, retire or otherwise acquire for value any of its capital stock now or hereafter outstanding (other than as a result of the conversion of any shares of capital stock into shares of any other class of capital stock) or return any capital to its stockholders as such (other than distribution payable in shares of its capital stock) or decrease or reduce its authorized capital stock. (h) Declare or pay management bonuses or profit sharing over and above existing employee benefits, if payment of any sum due the BANK hereunder is delayed, unless such benefits are required to be paid pursuant to individual or collective employee contracts or agreements already in existence prior to the execution of this AGREEMENT. (i) Purchase or repurchase (or agree, contingently or otherwise, to do so) the indebtedness of, or assume, guarantee, endorse or otherwise become liable, directly or indirectly, in connection with the obligations, stocks or dividends of any person, except (i) by the endorsement of negotiable instruments for deposit or collection in the ordinary course of business; (ii) contingent liabilities shown on its latest audited financial statements and in existence as of the date hereof; (iii) contingent liabilities incurred in connection with the opening of documentary letters of credit in the ordinary course of business; and (iv) purchases of money market instruments and short-term investments in the ordinary course of business; (j) Permit any indebtedness to be secured by or to benefit from any lien, pledge, mortgage or encumbrance unless the benefit of such lien, pledge, mortgage or encumbrance is at the same time extended equally and ratably to secure the payment of the principal, interest and other sums payable hereunder provided that the foregoing restriction shall not apply to (i) liens, pledges, mortgages or encumbrances in existence on the date hereof, and (ii) liens, pledges, mortgages or encumbrances upon and arising at substantially the time of acquisition of the property of the BORROWER to secure indebtedness incurred to finance the acquisition of such property. (k) Grant loans or advances to any of its directors, officers, and/or stockholders which in the aggregate will not materially and adversely affect the BORROWER'S ability to perform its obligations in this AGREEMENT. (l) Make any prepayment (whether voluntarily or involuntarily) or repurchase any long-term indebtedness (other than the LOAN) or make any repayment of any such indebtedness pursuant to any provision of any agreement or note which provides directly or indirectly for acceleration of repayment in time or amount, unless (i) it shall contemporaneously make a proportionate prepayment or repayment of the LOAN, or (ii) the BORROWER shall certify that; (1) such prepayment is necessary as the terms and conditions of the indebtedness to be prepaid is more onerous than the terms and conditions of the LOAN; (2) there is no intent to favor one creditor over another; (3) such prepayment is not a full prepayment of the indebtedness, and (4) the prepayment will not materially and adversely affect the financial condition of the BORROWER to comply with the terms and conditions of the LOAN. (m) Create, incur, obtain, assume, or suffer to exist any debt or avail of additional loan(s) with final maturity exceeding one year. (n) Make advances to or investments in its PARENT CORPORATION or any of its SUBSIDIARIES or AFFILIATES. SECTION 7. CONDITIONS OF BORROWING The obligation of the BANK to advance its COMMITMENT on the date of BORROWING is subject to the following terms and conditions: 7.01 The BORROWER shall be in compliance with all terms and provisions set forth herein on its part to be observed or performed, and no EVENT OF DEFAULT or any event which, with due notice or lapse of time or both, would become an EVENT OF DEFAULT shall have occurred and be continuing; 7.02 The representations and warranties contained in Section 5 shall be true and correct on the date of BORROWING as if made on and as of such date; and 7.03 The BANK shall have received (i) the NOTE(S) duly executed by the BORROWER, (ii) a BORROWING CERTIFICATE duly executed by the BORROWER substantially in the form of Exhibit "C" , and (iii) an opinion of counsel to the BORROWER substantially in the form of Exhibit "D". 7.04 The BANK shall have received the collaterals referred to in Section 4.01. SECTION 8. DEFAULT 8.01 EVENTS OF DEFAULT Each of the following events constitutes an EVENT OF DEFAULT hereunder: (a) The failure by the BORROWER to pay any installment of principal of the LOAN when due, or any interest thereon, or any penalty, fee or charge, or any other amount payable hereunder, as and when the same become due. (b) Any representation or warranty made by the BORROWER herein or otherwise in connection herewith shall prove to have been incorrect or misleading as of the time it was made or deemed to have been made. (c) The BORROWER fails to perform any other term, obligation or covenant contained in this AGREEMENT, or the NOTE(S), or the other relevant documents delivered hereunder, and such failure, if remediable, shall continue to be unremedied during the applicable grace period or, in the absence of such grace period, within thirty (30) days after written notice thereof shall have been given by the BANK. (d) The BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES shall admit in writing its/their inability to pay its/their debts generally as they become due, shall commit an act of bankruptcy or insolvency, or shall file any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law or any other law or laws for the relief of, or in relation to, debtors. (e) An involuntary petition shall be filed under any bankruptcy statute against the BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES, or a receiver or trustee shall be appointed to take possession of the properties or assets of the BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES, unless such petition or appointment is set aside or withdrawn or ceases to be in effect within thirty (30) days from the said filing or appointment. (f) Any act, deed or judicial or administrative proceedings, in the nature of an expropriation, confiscation, nationalization, intervention, acquisition, seizure, or condemnation of or with respect to the BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES, its/their businesses and operations, properties or assets or any substantial portion thereof shall be undertaken or instituted by any governmental authority, or any agency or instrumentality purporting to exercise governmental authority, present or future, of the Republic of the Philippines, and such act, deed or proceeding shall continue undismissed or unstayed for a period of more than thirty (30) days from the time of the commencement of such act, deed, or judicial or administrative proceedings. (g) Any authorization, consent, license, permit, validation, or approval of or exemption by any of the authorities required to authorize, or required in connection with, the execution, delivery and performance of this AGREEMENT, the NOTE(S) and the other relevant documents delivered hereunder or any certificates, instruments or agreements required in connection therewith or herewith, or the LOAN, or the taking of any action hereby or thereby contemplated shall not be in full force and effect, or shall be withdrawn or modified to an extent which may materially and adversely affect the paying capacity of the BORROWER, as may be determined by the BANK. (h) Any judgment, attachment, execution or garnishment is entered against the BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES or the BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES shall be involved in any litigation the contingent or accrued liability of which would materially and adversely affect its/their operations, financial conditions, or the BORROWER'S ability to perform its obligations under this AGREEMENT, unless such judgment, attachment, execution, garnishment or litigation is paid, discharged, fully bonded or vacated within thirty (30) days from date thereof. (i) Any violation of any term or condition of any contract executed by the BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES with any bank or financial institution, other persons, corporations or entities for the payment of borrowed money or the deferred purchase price of property which constitutes an event of default or, in general, any violation of any contract, law or regulation which results in the acceleration or declaration of the whole obligation to be due and payable prior to the stated date of maturity and which violation will, in the opinion of the BANK, adversely and materially affect the performance of the BORROWER under this AGREEMENT. (j) Any event or condition (including, without limitation, any material adverse change in the economic or financial condition of the BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES), shall occur which gives the BANK, after consultation with the BORROWER, reasonable grounds to believe that the BORROWER may not, or will not, be able to perform or observe in the normal course its obligations under this AGREEMENT and such event or condition remains unremedied for thirty (30) days after written notice thereof shall have been given by the BANK. 8.02 CONSEQUENCE OF DEFAULT If an EVENT OF DEFAULT shall have occurred, then any time thereafter, if any such event shall then be continuing, the BANK may, by written notice to the BORROWER (i) declare the COMMITMENT to be terminated, whereupon the obligation of the BANK to make or maintain the LOAN hereunder shall forthwith terminate, and (ii) declare the entire unpaid principal amount of the LOAN then outstanding, all interest accrued and unpaid thereon and all other amounts payable hereunder to be forthwith due and payable, whereupon all such amounts shall become and be forthwith due and payable without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the BORROWER. In addition, the BORROWER shall indemnify and hold harmless the BANK against any loss or expense which the BANK may sustain or incur as a consequence of the occurrence of any default or EVENT OF DEFAULT, including but not limited to, such amount as the BANK may certify, such certification being necessary to compensate the BANK for (i) any loss of interest incurred on account of such default from the date of such default until the same is paid, and (ii) any interest or fees paid or payable on account of any funds borrowed in order to cover the amount of the unpaid LOAN. SECTION 9. GENERAL PROVISIONS 9.01 EXPENSES AND TAXES The BORROWER agrees to pay all reasonable costs and expenses in connection with the negotiation, preparation, execution and delivery of this AGREEMENT and any other document or instrument required to be executed in relation hereto, as well as reasonable costs and expenses, if any, and any and all TAXES, in connection with the registration, notation, amendment and enforcement hereof and the issue of any consents or waivers in connection herewith, and to save the BANK from any and all liabilities with respect to or resulting from any delay or omission to pay the fees, expenses and TAXES, if any, which may be payable or determined to be payable in connection with the execution, delivery and enforcement of this AGREEMENT and all other documents or instruments related thereto. 9.02 WAIVER, CUMULATIVE RIGHTS No failure or delay on the part of the BANK in exercising any right, power or remedy accruing to it upon any breach or default of the BORROWER under this AGREEMENT shall impair any such right, power or remedy nor shall it be construed as a waiver of any breach or default thereafter occurring, nor shall a waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring, nor shall any single or partial exercise of any such right or power preclude any other or further exercise thereof or the exercise of any other right or power hereunder. Any waiver, permit, consent or approval of any kind or character on the part of the BANK of any breach of any provision or condition of this AGREEMENT, must be in writing and shall be effective only to the extent as specifically set forth in such writing. All remedies afforded the BANK under this AGREEMENT, by law or otherwise, shall be cumulative and not alternative. No notice to or demand on the BORROWER in any case, shall entitle it to any other or further notice or demand in similar or other circumstances. 9.03 VENUE FOR SUIT The BORROWER irrevocably consents that any legal action, suit or proceeding arising out of or relating to this AGREEMENT may be instituted, at the option of the BANK, in any competent court in Makati City. The foregoing, however, shall not limit or be construed to limit the right of the BANK to commence proceedings against the BORROWER in any other venue where assets of the BORROWER may be found. 9.04 GOVERNING LAW This AGREEMENT, the NOTE(S) and all other relevant documents to be delivered hereunder shall be governed by and construed in accordance with the laws of the Republic of the Philippines. 9.05 SEVERABILITY OF PROVISIONS If any one or more of the provisions contained in this AGREEMENT, or any document executed in connection herewith, shall be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall not in any way be affected or impaired thereby. 9.06 ASSIGNMENT This AGREEMENT shall be binding upon and shall be enforceable against the BORROWER and the BANK and their respective successors and assigns. The BORROWER shall not have the right to assign or transfer its rights or obligations hereunder except with the prior written consent of the BANK. 9.07 ENTIRE AGREEMENT: AMENDMENTS This AGREEMENT and the documents referred to herein constitute the entire agreement of the parties with respect to the subject matter hereof and shall supersede any prior expressions of intent or understanding with respect to this transaction. Any amendment to this AGREEMENT shall be in writing, signed by or on behalf of the party to be bound or burdened thereby. 9.08 NOTICES All communications and notices provided for hereunder shall be in writing and shall be delivered addressed as follows: To the BORROWER : Mr. Manuel Dacayan PSMT PHILIPPINES, INC. 32nd Street, 5th Avenue Fort Bonifacio Global City, Taguig, Metro Manila To the BANK : THE SENIOR EXECUTIVE VICE PRESIDENT MARKETING GROUP METROPOLITAN BANK & TRUST COMPANY Metrobank Plaza, Sen. Gil J. Puyat Avenue, Makati City Any party may change its address for purposes hereof by written notice to the other party. 9.09 LIEN/SET-OFF The BORROWER hereby gives the BANK a general lien upon, and/or right of set-off, and/or right to hold and/or apply to the obligations of the BORROWER all rights, titles and interests of the BORROWER in and to the balance of every deposit account, now or anytime hereafter existing, with the BANK, its agents or correspondents or any of its branches, subsidiaries or affiliates, or any other claims of the BORROWER against the BANK and in and to all money, negotiable instruments, commercial papers, notes, bonds, stocks, dividends, interests, credits, choses in action, claims, demands, or any interests therein, and in any other properties, rights and interests of the BORROWER or any evidence thereof, which have been or at any time shall be delivered to, or otherwise come into the possession, control or custody of the BANK or any of its agents or correspondents, or any of its branches, subsidiaries or affiliates for any purpose, whether or not accepted for the purpose or purposes for which they are delivered or intended. For this purpose, the BORROWER hereby appoints the BANK as irrevocable ATTORNEY-IN-FACT with full power of substitution/delegation, to sign and endorse any and all documents and perform any and all acts and things required or necessary in the premises. 9.10 APPLICATION OF PAYMENT The BORROWER waives its rights under Article 1252 of the Civil Code of the Philippines to designate the application of its payment and irrevocably authorizes the BANK to apply such payment to any of its existing obligations to the BANK, at the BANK'S discretion. 9.11 ATTORNEY'S FEES/COST OF COLLECTION The BORROWER shall pay to the BANK all expenses incidental to the enforcement or protection of the rights of the BANK hereunder upon the occurrence of any EVENT OF DEFAULT, inclusive of costs of collection and attorney's fees. IN WITNESS WHEREOF, the parties hereto have caused this AGREEMENT to be executed by their respective duly authorized signatories in ______________ on ____________________. METROPOLITAN BANK & TRUST CO. PSMT PHILIPPINES, INC. By: By: HELEN U. FARGAS BENJAMIN M. WOODS VICE-PRESIDENT VICE-PRESIDENT ASIA OPERATIONS HENRY M. SUN WILLIAM S. GO SENIOR EXECUTIVE VICE-PRESIDENT CHAIRMAN SIGNED IN THE PRESENCE OF: __________________________ ____________________________ ACKNOWLEDGMENT REPUBLIC OF THE PHILIPPINES) Makati City ) SS. BEFORE ME, personally appeared:
Name CTC No. Date Place of Issue Helen U. Fargas 02834426 3/02/01 Muntinlupa City Henry M. Sun 04566560 1/16/01 Caloocan City Benjamin M. Woods William S. Go METROPOLITAN BANK AND TRUST COMPANY 00198661 1/12/01 Makati City PSMT PHILIPPINES, INC.
known to me and to me known to be the same persons who executed the foregoing Loan Agreement and who acknowledged to me that the same is their free and voluntary act and deed and of the corporations they represent. WITNESS MY HAND AND SEAL on ______________ in Makati City. Doc. No. _____; Page No._____; Book No. ____; Series of 2001. EXHIBIT "A" PROMISSORY NOTE AMOUNT: P_________________ DATE: __________________ FOR VALUE RECEIVED, __________________________________ (the "BORROWER") unconditionally promises to pay to METROPOLITAN BANK AND TRUST COMPANY (the "BANK") at its principal office in Metrobank Plaza, Sen Gil J. Puyat Avenue, Makati City, the principal sum of ___________________________________ (P______________) payable in ________ (__) quarterly consecutive installments, each of the ________ (__) installments being in the amount of __________________________ (P_______________), and the last installment in the amount of ___________________, (P______________), commencing on________________. The BORROWER, further, promises to pay to the BANK, at the aforesaid office of the BANK, interest on the unpaid balance hereof, payable in arrears at the end of each INTEREST PERIOD as defined in the Loan Agreement (the "AGREEMENT") dated as of ______________, between the BORROWER and the BANK, from date hereof until paid in full, at the rate provided in the AGREEMENT. This Note is the NOTE referred to, and is entitled to the benefits of, the AGREEMENT. In case an EVENT OF DEFAULT shall occur, the principal amount of, and accrued interest on, this NOTE may be declared due and payable in the manner and with the effect provided in the AGREEMENT, presentment, demand, protest or notice or any kind being expressly waived by the BORROWER. Terms used herein and defined in the AGREEMENT shall have the same meaning ascribed to them therein, unless otherwise defined herein. Borrower By: Name : Title: Name : Title: EXHIBIT "B" NOTICE OF BORROWING Date: METROPOLITAN BANK AND TRUST COMPANY Metrobank Plaza, Sen. Gil J. Puyat Ave. Makati City Gentlemen: We hereby give notice, in accordance with Section 2.03 of our Loan Agreement dated as of _________________ (the "AGREEMENT") of our intent to borrow the amount of PhP_______________ on ___________________, or if that is not a BUSINESS DAY, on the next succeeding BUSINESS DAY. Kindly make available the proceeds of such borrowing by crediting the amount thereof to our Current Account No. __________ with you. Terms defined in the AGREEMENT bear the same meanings herein. BORROWER By: Name : Title: Name : Title: EXHIBIT "C" BORROWING CERTIFICATE Date: METROPOLITAN BANK AND TRUST COMPANY Metrobank Plaza, Sen. Gil J. Puyat Ave. Makati City Dear Sir: _______________________________ (the "BORROWER") hereby certifies to you (the "BANK")that as of the date hereof: (a) No event has occurred which constitutes or which, with the giving of notice or the lapse of time, or both, would constitute an EVENT OF DEFAULT under the Loan Agreement dated as of ________________ (the "AGREEMENT") between the BORROWER and the BANK except as disclosed in writing by the BORROWER; (b) All the representations and warranties of the BORROWER contained in Section 5 of the AGREEMENT are true and correct; and (c) All the following documents heretofore delivered by the BORROWER to the BANK shall continue in full force and effect: (i) Certified true copies of the Articles of Incorporation, By-Laws and other corporate rules of the BORROWER, and all resolutions, consents and authorizations necessary for the execution, delivery and performance of the AGREEMENT, the NOTE(S) and all relevant documents to be delivered thereunder; (ii) A certified true copy of the authorities and specimen signatures of the person/s who are authorized to execute the AGREEMENT, the NOTE(S) and such other documents as may be required thereunder; and (iii) Certified true copies of all governmental consents, approvals and authorizations necessary for the execution, delivery and performance of the AGREEMENT, the NOTE(S) and all relevant documents to be delivered thereunder Terms defined in the AGREEMENT bear the same meanings herein. Borrower By: Name : Title: Name : Title: EXHIBIT "D" OPINION OF COUNSEL TO THE BORROWER Date: METROPOLITAN BANK AND TRUST COMPANY Metrobank Plaza, Sen. Gil J. Puyat Ave. Makati City Dear Sir: This opinion is delivered to you in our capacity as legal counsel to, and at the request of ________________________________ (the "BORROWER") in connection with the Loan Agreement dated as of _____________ the ("AGREEMENT") between the BORROWER and you (the "BANK") upon the terms and conditions of which the BANK agreed to lend to the BORROWER the aggregate principal amount of ____________ ______________________ (PhP_____________), Philippine currency. Terms used herein have the meanings ascribed to them in the AGREEMENT. In connection therewith and in our capacity as legal counsel for the BORROWER, we have reviewed the pertinent laws, rules and regulations of the Republic of the Philippines, and examined the AGREEMENT and such documents, agreement, records and matters as we have considered necessary or desirable for the opinions hereafter expressed. Based upon the foregoing, we are of the opinion that: (a) The BORROWER is a corporation duly organized and validly existing under the laws of the Philippines, or is an entity qualified or registered to do business in every jurisdiction where such registration is necessary and has all the requisite power, authority and legal right to own its properties and assets and to carry on its business as now being conducted. (b) The BORROWER has full power, authority and legal right to execute and deliver this AGREEMENT, the NOTE(S) and all other relevant documents to be delivered hereunder, to perform its obligations hereunder, and has taken all necessary corporate and legal action to authorize the foregoing. (c) This AGREEMENT, the NOTE(S) and all other relevant documents to be delivered hereunder will constitute the legal, valid and binding obligations of the BORROWER, enforceable in accordance with the terms hereof and thereof, and none of the provisions thereof, or any of the procedures contemplated by any of the provisions thereof, is in contravention of, or is illegal, void, voidable, prohibited or unenforceable under the laws of the Republic of the Philippines. (d) The execution, delivery and performance of this AGREEMENT, the NOTE(S) and all other relevant documents to be delivered hereunder do not and will not violate in any respect any provision of, or result in the breach of, or constitute a default under (i) any law, rule, regulation, order, writ, decree, determination or award of any governmental authority, agency or court presently in effect having application to the BORROWER, (ii) the Articles of Incorporation, By-Laws or other corporate rules of the BORROWER, or (iii) any agreement or other undertaking or instrument to which the BORROWER is a party or which purports to be binding upon it or its assigns. (e) Except as disclosed in writing by the BORROWER, no default or EVENT OF DEFAULT has occurred or is continuing with respect to the BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES . The BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES is/are not in default in the payment or performance of any of its/their obligations or any of the covenants or conditions to be performed pursuant to the terms of any agreement, undertaking or instrument to which it/they is/are a party or by which it/they may be bound. (f) All necessary consents, approvals and authorizations required in connection with the execution, delivery and performance by the BORROWER of this AGREEMENT, the NOTE(S) and all other relevant documents to be delivered hereunder or for the validity or enforceability hereof, have been obtained and are in full force and effect and true copies thereof delivered to the BANK prior to the relevant date of disbursement of the LOAN. (g) There are no legal actions, suits or proceedings pending or, to the knowledge of the BORROWER, threatened (i) with respect to any of the transactions contemplated by this AGREEMENT, or (ii) against or affecting the BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES and/or any of its/their properties or assets which, in the opinion of the BANK, could have a material adverse effect on the operation or financial condition of the BORROWER, its PARENT CORPORATION, its SUBSIDIARIES, and/or its AFFILIATES or impair the ability of the BORROWER to perform its obligations hereunder. While this opinion is dated ___________________, you may rely on the correctness of the opinion expressed herein on and as of the date of BORROWING. Very truly yours, EX-10.47 19 a2064125zex-10_47.txt EXHIBIT 10.47 Exhibit 10.47 DSR AGREEMENT among PRICESMART, INC., THE BANK OF NEW YORK, and OVERSEAS PRIVATE INVESTMENT CORPORATION Dated as of August xx, 2001 ARTICLE I DEFINITIONS AND INTERPRETATION...............................................1 SECTION 1.01 DEFINITIONS AND INTERPRETATION.........................................1 ARTICLE II THE COLLATERAL ACCOUNT......................................................2 SECTION 2.01 STATUS OF ACCOUNT AND RELATIONSHIP OF PARTIES..........................2 SECTION 2.02 TREATMENT OF PROPERTY AS FINANCIAL ASSETS..............................2 SECTION 2.03 COMPLIANCE WITH ENTITLEMENT ORDERS OF OPIC.............................2 SECTION 2.04 FORM OF PERMITTED INVESTMENTS..........................................3 ARTICLE III ASSIGNMENT AND GRANT OF SECURITY INTEREST..................................4 SECTION 3.01 ASSIGNMENT AND GRANT OF SECURITY INTEREST..............................4 SECTION 3.02 SECURITY FOR OBLIGATIONS...............................................4 SECTION 3.03 COMPANY REMAINS LIABLE.................................................4 SECTION 3.04 DELIVERY OF COLLATERAL.................................................4 SECTION 3.05 SECURITY INTEREST ABSOLUTE.............................................5 ARTICLE IV INVESTMENT OF COLLATERAL ACCOUNT............................................6 SECTION 4.01 INVESTMENTS............................................................6 SECTION 4.02 LIQUIDATION OF INVESTMENTS.............................................6 ARTICLE V PAYMENTS FROM THE COLLATERAL ACCOUNT.........................................7 SECTION 5.01 DISBURSEMENTS AND LIMITATIONS ON DISBURSEMENTS TO THE COMPANY..........7 SECTION 5.02 DISBURSEMENTS TO OPIC..................................................8 ARTICLE VI CONCERNING THE INTERMEDIARY.................................................8 SECTION 6.01 POWERS, RIGHTS AND RESPONSIBILITIES OF INTERMEDIARY....................8 SECTION 6.02 COMPENSATION AND REIMBURSEMENT OF INTERMEDIARY........................10 SECTION 6.03 INTERMEDIARY'S WAIVER OF LIEN ON COLLATERAL AND SETOFF RIGHTS.........11 SECTION 6.04 ACCESS TO BOOKS; INSPECTION; STATEMENTS OF ACCOUNT....................11 SECTION 6.05 CLOSING OF COLLATERAL ACCOUNT.........................................12 ARTICLE VII REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INTERMEDIARY.............13 SECTION 7.01 REPRESENTATIONS AND WARRANTIES OF INTERMEDIARY........................13 SECTION 7.02 COVENANTS OF INTERMEDIARY.............................................14 ARTICLE VIII COMPANY REPRESENTATIONS, WARRANTIES AND COVENANTS........................16 SECTION 8.01 REPRESENTATIONS AND WARRANTIES MADE UPON EXECUTION OF THIS AGREEMENT..16 SECTION 8.02 REPRESENTATIONS AND WARRANTIES MADE UPON DELIVERY OF ANY COLLATERAL...17 SECTION 8.03 COMPANY COVENANTS.....................................................18 ARTICLE IX EVENT OF DEFAULT...........................................................19 SECTION 9.01 NOTICE OF EVENT OF DEFAULT............................................19 SECTION 9.02 REMEDIES UPON EVENT OF DEFAULT........................................19 ARTICLE X CERTAIN RIGHTS, POWERS AND REMEDIES; NO WAIVER..............................21 SECTION 10.01 OPIC APPOINTED ATTORNEY-IN-FACT......................................21 SECTION 10.02 OPIC MAY PERFORM.....................................................21 SECTION 10.03 CUMULATIVE RIGHTS....................................................21 SECTION 10.04 NO DUTIES............................................................22 SECTION 10.05 WAIVERS..............................................................22 ARTICLE XI CONTINUING OBLIGATION; TERMINATION.........................................22 SECTION 11.01 CONTINUING OBLIGATION................................................22 i SECTION 11.02 TERMINATION..........................................................23 ARTICLE XII MISCELLANEOUS.............................................................23 SECTION 12.01 JURISDICTION AND CONSENT TO SUIT; WAIVER OF OBJECTION TO FORUM.......23 SECTION 12.02 IMMUNITY.............................................................24 SECTION 12.03 NOTICES..............................................................24 SECTION 12.04 ENGLISH LANGUAGE.....................................................25 SECTION 12.05 GOVERNING LAW........................................................26 SECTION 12.06 SUCCESSION; ASSIGNMENT...............................................26 SECTION 12.07 SURVIVAL OF AGREEMENTS...............................................26 SECTION 12.08 INTEGRATION; AMENDMENTS..............................................26 SECTION 12.09 SEVERABILITY.........................................................26 SECTION 12.10 WAIVER OF JURY TRIAL.................................................27 SECTION 12.11 RIGHT OF SET-OFF.....................................................27 SECTION 12.12 INDEMNITY............................................................27 SECTION 12.13 LIMITATION ON DAMAGES................................................28 SECTION 12.14 FEES AND EXPENSES OF OPIC............................................28 SECTION 12.15 WAIVER OF LITIGATION PAYMENTS........................................29 SECTION 12.16 BENEFITS OF AGREEMENT................................................29 SECTION 12.17 ARM'S-LENGTH NEGOTIATIONS............................................29 SECTION 12.18 FURTHER ASSURANCES...................................................29 SECTION 12.19 FINANCING STATEMENTS.................................................30 SECTION 12.20 COUNTERPARTS.........................................................30
SCHEDULES AND EXHIBITS SCHEDULE X DEFINITIONS AND RULES OF INTERPRETATION SCHEDULE Y FEES PAYABLE TO INTERMEDIARY SCHEDULE Z-1 CERTIFICATE OF NAME, TITLE AND SPECIMEN SIGNATURES PRICESMART, INC. (THE "COMPANY") SCHEDULE Z-2 CERTIFICATE OF NAME, TITLE AND SPECIMEN SIGNATURES OVERSEAS PRIVATE INVESTMENT CORPORATION ("OPIC") SCHEDULE Z-3 CERTIFICATE OF NAME, TITLE AND SPECIMEN SIGNATURES THE BANK OF NEW YORK (THE "INTERMEDIARY") EXHIBIT A FORM OF EXCESS AMOUNT CERTIFICATE EXHIBIT B FORM OF NOTICE OF OBJECTION EXHIBIT C FORM OF NOTICE OF AUTHORIZATION EXHIBIT D FORM OF NOTICE OF EVENT OF DEFAULT EXHIBIT E FORM OF NOTICE OF CANCELLATION EXHIBIT F FORM OF OPIC DISBURSEMENT REQUEST EXHIBIT G FORM OF PERMITTED INVESTMENTS NOTICE ii DSR AGREEMENT DSR AGREEMENT, dated as of August 17, 2001 (this "Agreement"), by and among (i) PriceSmart, Inc, a corporation organized and existing under the laws of the State of Delaware (the "COMPANY"), (ii) The Bank of New York, a banking corporation organized and existing under the laws of the State of New York, (the "INTERMEDIARY"), and (iii) OVERSEAS PRIVATE INVESTMENT CORPORATION, an agency of the United States of America ("OPIC" and, together with the Company and the Intermediary, the "PARTIES"). R E C I T A L S: WHEREAS, under two loan agreements (OPIC/517-2001-181-DI and OPIC/515-2001181-DI) dated as of August17, 2001 (the "LOAN AGREEMENTS"), by and between OPIC and the Company, OPIC has agreed to lend up to U.S. $10,000,000 (the "LOANS") to the Company; WHEREAS, it is a condition precedent to the first disbursement under the Loan Agreements, that the Parties shall have entered into this Agreement and that the Company shall have opened a Collateral Account (as hereinafter defined), and that such Collateral Account shall be pledged to OPIC as security for the Loan and associated obligations; WHEREAS, the Company is entering into this Agreement to satisfy such condition to the first disbursement under the Loan Agreements; and WHEREAS, the Parties are entering into this Agreement to perfect OPIC's security interest in the Collateral Account and to provide for the management of the Account Assets (as hereinafter defined) held therein; NOW, THEREFORE, in consideration of the premises and of the mutual agreements contained herein, it is hereby agreed as follows: ARTICLE I DEFINITIONS AND INTERPRETATION SECTION 1.01 DEFINITIONS AND INTERPRETATION In this Agreement, (a) unless otherwise provided herein, all capitalized terms have the respective meanings specified in the Loan Agreements as of the date hereof; (b) capitalized terms used but not otherwise defined in the Loan Agreements have the meanings set forth in the attached Schedule X, and (c) the rules of interpretation set forth in Schedule X apply. ARTICLE II THE COLLATERAL ACCOUNT SECTION 2.01 STATUS OF ACCOUNT AND RELATIONSHIP OF PARTIES The Intermediary acknowledges and agrees that: (a) it has established and is maintaining on its books and records a segregated, non-interest bearing account with the account number A/C # 293644, designated the "Collateral Account, subject to the security interest of the Overseas Private Investment Corporation pursuant to the DSR Agreement among Overseas Private Investment Corporation, PriceSmart, Inc. and Bank of New York, dated as of August 17, 20001"; (b) the Collateral Account is a "securities account" within the meaning of Section 8-501(a) of the UCC, in respect of which the Intermediary is a "securities intermediary" within the meaning of Section 8-102(a)(14) of the UCC; and (c) the Company is the "entitlement holder" within the meaning of Section 8-102(a)(7) of the UCC, and the Intermediary has identified OPIC on its records as the party with "control" (within the meaning of Section 8-106(d) of the UCC) of the Company's security entitlements, with respect to the Collateral, in accordance with Sections 8-501(b) and 8-106(d)(2) of the UCC, and the Intermediary shall make all notations in its records pertaining to the Collateral that are necessary to reflect the security interest granted hereunder to OPIC. SECTION 2.02 TREATMENT OF PROPERTY AS FINANCIAL ASSETS The Intermediary agrees that each item of property (whether cash, a security, an instrument or any other property whatsoever, including any Permitted Investments) credited to the Collateral Account shall be treated as a "financial asset" under Article 8 of the UCC. SECTION 2.03 COMPLIANCE WITH ENTITLEMENT ORDERS OF OPIC The Intermediary agrees that it will comply with "entitlement orders" (within the meaning of Section 8-102(a)(8) of the UCC) originated by OPIC, as the secured party with respect to the Collateral, without further consent by the Company. Unless the Intermediary has received a Notice of Event of Default, OPIC hereby directs the Intermediary to permit the Company to direct the investment and reinvestment of any amounts in the Collateral Account in Permitted Investments in accordance with Section 4.01(a) and to liquidate Permitted Investments in accordance with Section 4.02(a). After receipt of a Notice of Event of Default, the Intermediary shall no longer comply with orders originated by, or other directions or instructions received from, or on behalf of, the Company with respect to the Collateral. SECTION 2.04 FORM OF PERMITTED INVESTMENTS To the extent applicable to the relevant Permitted Investments, the Intermediary shall treat Account Assets in the following manner: (a) CERTIFICATED SECURITIES. All certificated securities and other Account Assets in physical form shall be delivered to and thereafter held by the Intermediary as follows: (i) (x) in its custody or subject to its control, which shall include the holding of such assets on behalf of the Intermediary by a clearing corporation, its custodian, or a nominee of either of them, (and, if held on behalf of the Intermediary by another intermediary, credited to a securities account maintained in the name of the Intermediary); (y) in bearer form or indorsed in blank by an appropriate Person or registered by the Company in the name of, or payable to the order of, the Intermediary, its clearing corporation, its custodian bank, or a nominee of either of them on the books of the issuer; and (z) credited to the Collateral Account, for the benefit of OPIC as secured party; or (b) UNCERTIFICATED SECURITIES. All uncertificated securities and other Account Assets (other than cash balances) held in uncertificated form shall be registered by the Company on the books of the issuer thereof in the name of the Intermediary or, subject to the Intermediary's control, in the name of the Intermediary's clearing corporation, its custodian bank, or a nominee of either of them. In no case shall any Account Asset be registered in the name of, or payable to or to the order of, the Company or indorsed to or to the order of the Company, except to the extent the foregoing have been specially indorsed to or to the order of the Intermediary (or its clearing corporation, its custodian bank, or a nominee of either of them) or in blank. 3 ARTICLE III ASSIGNMENT AND GRANT OF SECURITY INTEREST SECTION 3.01 ASSIGNMENT AND GRANT OF SECURITY INTEREST The Company hereby pledges, assigns and grants to OPIC a first priority security interest and Lien upon all of its rights, title and interest in and to, the Collateral and all other rights of the Company in and arising out of the Collateral. SECTION 3.02 SECURITY FOR OBLIGATIONS The pledge, assignment, and grant in this Agreement is made by the Company to OPIC to secure the full payment and performance of the Obligations. All Collateral shall constitute security for the Obligations and shall not constitute payment of any Obligation until applied as set forth in this Agreement. SECTION 3.03 COMPANY REMAINS LIABLE Anything herein to the contrary notwithstanding, (i) the Company shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder, to the same extent as if this Agreement had not been executed, (ii) the exercise by OPIC and/or the Intermediary of any of the rights hereunder shall not release the Company from any of its duties or obligations under such contracts and agreements, and (iii) OPIC and/or the Intermediary shall not have any obligation or liability under such contracts and agreements or otherwise by reason of this Agreement, nor shall OPIC be obligated to perform any of the obligations or duties of the Company thereunder or to take any action to collect or enforce any claim assigned hereunder. SECTION 3.04 DELIVERY OF COLLATERAL (a) Unless otherwise specified herein, any and all funds, securities, certificates, instruments, investment property, and other property and assets from time to time that shall constitute or are intended to constitute or are obligated to become Account Assets shall be delivered by the Company to the Intermediary (i) by wire transfer as follows: The Bank of New York, ABA#: 021 000 018, A/C#: GLA 111-565, For further credit to A/C#: 293644 ______, Ref: Price/Smart/OPIC Collateral Account,or (ii) by physical delivery to The Bank of New York, 101 Barclay Street, 21W, New York, NY 10286, Attn: Vanessa Mack, Ref: PriceSmart/OPIC, within one (1) Business Day of the date on which they are required to be delivered, and shall be held in the Collateral Account in accordance herewith. 4 (b) All certificates or instruments or other physical evidence, if any, representing or evidencing the Collateral shall be held in the Collateral Account by the Intermediary, and, when delivered, shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to OPIC. OPIC shall have the right at any time to exchange certificates or instruments representing or evidencing Collateral for certificates or instruments of smaller or larger denominations. SECTION 3.05 SECURITY INTEREST ABSOLUTE The obligations of the Company under this Agreement are independent of the other obligations included in the definition of "Obligations" and a separate action or actions may be brought and prosecuted against the Company to enforce this Agreement, irrespective of whether any action is brought against any Sponsor or other collateral securing the obligations under the Loan Agreements, and irrespective of whether any Sponsor is joined in any such action or actions. Notwithstanding anything to the contrary contained herein and without limiting the generality of any other provision hereof, OPIC may, at any time and from time to time, either before or after the maturity of the Loan, make any agreement with a Party, for the extension, renewal, payment, compromise, discharge, release, or settlement of any of the terms hereof, without notice to or further consent by any other Party, and without in any way impairing or affecting the obligations and liabilities of any other Party. All rights of OPIC and the pledge, assignment and security interest hereunder, and all obligations of the Company hereunder, shall be absolute and unconditional (except as the same may be extinguished by payment and/or performance in full of the Obligations) irrespective of: (a) any lack of validity or enforceability of any Financing Document; (b) any change in the time, manner, or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from any Financing Document, including any increase in the Obligations resulting from the extension of additional credit to the Company or otherwise; (c) any taking, exchange, release, or non-perfection of any other collateral or any taking, release, or amendment or waiver of, or consent to departure from any guaranty, for all or any of the Obligations; (d) any manner of application of collateral, or proceeds thereof, to all or any of the Obligations or any manner of sale or other disposition of any collateral for all or any of the Obligations or any other assets of the Company or any Sponsor; (e) whether or not there are, at any given time, sufficient funds in the Collateral Account to meet the Company's Obligations; 5 (f) any change, restructuring, or termination of the corporate structure or existence of the Company; or (g) any other circumstances that might otherwise constitute a defense available to, or a discharge of, the Company or a third party grantor of a security interest. ARTICLE IV INVESTMENT OF COLLATERAL ACCOUNT SECTION 4.01 INVESTMENTS (a) Subject to Section 4.02(a), if no Notice of Event of Default is in effect, the Intermediary shall invest and reinvest all, or any portion of, amounts at any time credited to the Collateral Account in such Permitted Investments as shall be designated by the Company in a Permitted Investments Notice. In the absence of such designation, by no later than 1:00 p.m. New York City time on the Business Day following receipt of amounts in the form of same day funds, the Intermediary shall, to the extent possible, invest such amounts in (VALIANT TRSRY MMKT FD CL B (VN) (CUSIP NO.S99998860). OPIC may withdraw its authorization allowing the Company to designate investments hereunder, at any time, by notice to the Intermediary and the Company, in which case the Intermediary shall invest at the direction of OPIC. (b) Subject to Section 4.02(b), if a Notice of Event of Default is in effect, or if OPIC has provided notice to the Intermediary pursuant to the last sentence of Section 4.01(a), the Intermediary shall invest and reinvest all, or any portion of, amounts at any time credited to the Collateral Account in such Permitted Investments as shall be designated by OPIC in a Permitted Investments Notice. In the absence of such OPIC designation, by no later than 1:00 p.m. New York City time on the Business Day following receipt of such amounts in the form of same day funds, the Intermediary shall, to the extent possible, invest such amounts in direct obligations of, or obligations guaranteed by, the United States government or any agency or instrumentality thereof, maturing not later than seven (7) days after the date of such investment, and the Intermediary shall continue to re-invest any proceeds of such investments in like manner, until further direction from OPIC. SECTION 4.02 LIQUIDATION OF INVESTMENTS (a) If the Intermediary is required to disburse funds to the Company pursuant to Section 5.01(b) hereof, then on the Requested Payment Date, the Intermediary shall liquidate only those Account Assets specified in the related Excess Amount Certificate (as may be superseded pursuant to Section 5.01(c)) hereof, which are necessary to enable the Intermediary to disburse the Authorized Amount, in the order that has been specified by the Company; PROVIDED, THAT, if the cash that will be realized upon the liquidation of 6 the designated Account Assets is not sufficient to enable the Intermediary to make such disbursement, subject to the conditions set forth in Section 5.01(b), the Intermediary shall liquidate such Account Assets as instructed by OPIC in writing, so long as the Intermediary has first provided to OPIC a complete list of the Account Assets, as shall enable it to make such disbursement. Any amounts not required for disbursement received from such liquidation shall be invested in Permitted Investments indicated in the Excess Amount Certificate, or otherwise in accordance with Section 4.01(a). (b) If a Notice of Event of Default is in effect, not less than two (2) Business Days before a disbursement to OPIC from the Collateral Account is required pursuant to Section 5.02, OPIC shall deliver to the Intermediary an OPIC Disbursement Request designating the Account Assets to be liquidated. On the OPIC Disbursement Date, the Intermediary shall liquidate only those designated Account Accounts necessary to enable the Intermediary to disburse the amount indicated in the OPIC Disbursement Request, in the order specified therein; PROVIDED, THAT, if the cash that will be realized upon the liquidation of the designated Account Assets is not sufficient to enable the Intermediary to make such disbursement, the Intermediary shall liquidate such Account Assets selected by OPIC in writing, so long as the Intermediary has first provided to OPIC a complete list of the Account Assets, as shall enable it to make such disbursement within the time required for payment under Section 5.02. Any amounts not required for disbursement, received from such liquidation shall be invested in Permitted Investments indicated in the OPIC Disbursement Request, or otherwise in accordance with Section 4.01(b). ARTICLE V PAYMENTS FROM THE COLLATERAL ACCOUNT SECTION 5.01 DISBURSEMENTS AND LIMITATIONS ON DISBURSEMENTS TO THE COMPANY (a) Not less than fifteen (15) Business Days prior to a Requested Payment Date, the Company shall send an Excess Amount Certificate to to OPIC, setting forth the Requested Payment and designate the specific investments to be sold as necessary. At least two (2) Business Days prior to the Requested Payment Date, OPIC shall deliver either (i) to the Intermediary (with a copy to the Company), a Notice of Authorization in respect of and with a copy of the Excess Amount Certificate, or (ii) a Notice of Objection to the Company. (b) If OPIC has delivered a Notice of Authorization to the Intermediary, then the Intermediary shall make disbursements from the Collateral Account to the Company on the Requested Payment Date in the amount designated in the Notice of Authorization as the Authorized Amount; PROVIDED, HOWEVER, that the Intermediary shall make no such disbursement to the Company pursuant to this Section 5.01 if: 7 (i) the Intermediary receives a Notice of Event of Default from OPIC at any time prior to 11:00 a.m. New York City time on a Requested Payment Date, or (ii) the Intermediary has received a Notice of Objection before 11:00 a.m. New York City time on the Requested Payment Date. (c) If the Company elects to designate Account Assets for liquidation on the Requested Payment Date, other than those previously specified in an Excess Amount Certificate, the Company shall notify the Intermediary of such designation in writing, at least two (2) Business Days prior to a Requested Payment Date. (d) Unless otherwise instructed by the Company in writing, the Intermediary shall make all disbursements to the Company pursuant to this Agreement in accordance with the following wire transfer instructions: [Mellon Bank, 3 Mellon Bank Center, Pittsburgh, PA 15259. USA. ] ABA # 043 000 261. Account: Merrill Lynch, A/C No. 101-1730 "For further credit to the account of PriceSmart, Inc. Account No. 72B-07435" SECTION 5.02 DISBURSEMENTS TO OPIC If a Notice of Event of Default is in effect, the Intermediary shall make disbursements from the Collateral Account on the date and in the amount designated by OPIC in an OPIC Disbursement Request substantially in the form annexed hereto as Exhibit F on at least two (2) Business Days' prior written notice. The Intermediary shall conclusively rely upon and act in accordance with such OPIC Disbursement Request without notice to or consent of the Company. ARTICLE VI CONCERNING THE INTERMEDIARY SECTION 6.01 POWERS, RIGHTS AND RESPONSIBILITIES OF INTERMEDIARY (a) The Intermediary shall exercise its duties upon the express terms and conditions contained in this Agreement and in fulfillment of the duties and obligations of a securities intermediary, as set forth in Article 8. (b) The Intermediary shall be obligated to perform only such duties as are expressly set forth in this Agreement, including such duties as are incorporated herein by reference to the UCC. No covenants or obligations shall be implied or inferred from this 8 Agreement against the Intermediary, nor shall the Intermediary be bound by the provisions of any other agreement. (c) The Intermediary 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 intermediary be liable (i) for acting in accordance with or relying upon any instruction, notice, demand, certificate or document from any other Party hereto, but only to the extent that such Party may permissively give instructions, notices demands and the like pursuant to the provisions hereof, or any entity acting on behalf of any such Party, (ii) for any consequential, punitive or special damages, (iii) for the acts or omissions of its nominees, correspondents, designees, subagents or subcustodians chosen with due care, or (iv) for an amount in excess of the value of the securities or other property or assets deposited in or credited to the Collateral Account, valued as of the date of deposit. (d) The Intermediary shall be entitled to conclusively rely upon any order, judgment, certification, instruction, notice, direction, request, opinion, instrument or other ]writing delivered to it in compliance with the provisions of this Agreement, reasonably believed by the Intermediary to be authentic, and to be signed or sent by the proper Person without being required to determine the authenticity or the correctness of any fact stated therein. The Intermediary shall not be required to ascertain the propriety or validity of service with respect to the foregoing. (e) The Intermediary shall not be called upon to advise any Party as to selling or retaining, or taking or refraining from taking any action with respect to, any securities or other property and assets deposited in or credited to the Collateral Account pursuant hereto. (f) No provision of this Agreement shall require the Intermediary to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties or in the exercise of any of its rights or powers hereunder. (g) In the event of any ambiguity or uncertainty hereunder or in any notice, instruction or other communication received by the Intermediary hereunder, the Intermediary may, in its sole discretion, refrain from taking any action other than retain possession of the Account Assets, unless the Intermediary receives written instructions, signed by all other Parties, which eliminates such ambiguity or uncertainty. (h) The Intermediary may consult with legal counsel of its selection at the expense of the Company as to any matter relating to this Agreement, and 9 the Intermediary shall not incur any liability in acting in good faith in accordance with any advice from such counsel. (i) The Intermediary 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 Intermediary (including butnot limited to any act or provision 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. (j) The Intermediary 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 therein, or for the identity, authority or rights of persons executing or delivering or purporting to execute or deliver any such document, security or endorsement. The Intermediary shall not be required, or have any duty, to notify anyone of any payment or maturity under the terms of any instrument deposited hereunder, 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 such security. (k) If at any time the Intermediary 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 Collateral (including but not limited to orders of attachment or garnishment or other forms of levies or injunctions or stays relating to the transfer of Account Assets), the Intermediary shall immediately notify OPIC, provide copies of all documents served on it to enable OPIC to take appropriate action to protect its interests and confer with OPIC before complying. Thereafter, the Intermediary is authorized tom comply therewith in any manner as it or its legal counsel of its own choosing deems appropriate; and if the Intermediary complies with any such judicial or administrative order, judgment, decree writor other form of judicial or administrative process, the Intermediary shall not be liable to any of the other 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 force or effect. (m) The provisions of this Article shall survive termination of this Agreement, the resignation or removal of the Intermediary and the closing of the Collateral Account. SECTION 6.02 COMPENSATION AND REIMBURSEMENT OF INTERMEDIARY 10 (a) On or prior to the initial Closing Date, the Company shall pay the Intermediary the fees payable for the first year, and, not later than the annual anniversary thereof, the Company shall pay the Intermediary the fees then payable, in advance, for the upcoming year, pursuant to Schedule Y, as such schedule may be amended from time to time to reflect changes in the Intermediary's standard rates for such services, by the Intermediary's delivery of a new Schedule Y to the other Parties. (b) The Company shall reimburse the Intermediary, upon demand, for all expenses, disbursements, and advances incurred or made by the Intermediary in implementing any of the provisions of this Agreement, including any costs or expenses incurred by the Intermediary as a result of conflicting claims or notices involving the Parties, compensation and the expenses and disbursements of its counsel and agents, and all other costs and expenses incurred in connection with the execution, administration or enforcement of this Agreement, except any such expense, disbursement, or advance as may arise from the Intermediary's gross negligence or willful misconduct. (c) The Intermediary shall promptly notify OPIC of any failure by the Company to pay the Intermediary any fees and expenses or other amounts due and payable to the Intermediary pursuant to this Section 6.02 and Section 12.12. The Intermediary shall take no action against the Company with respect to any nonpayment, prior to thirty (30) Business Days from the date of notice to OPIC thereof, during which time OPIC may elect to pay the Intermediary the amounts due by the Company, as provided in Section 6.02(d). (d) OPIC shall have no liability to the Intermediary for any amounts payable pursuant to this Section 6.02 and Section 12.12; however, OPIC may, in its sole discretion, agree to pay amounts owed by the Company to the Intermediary, in which case such amount shall be deemed to be an Obligation secured by the Collateral. The foregoing is without prejudice to any right which OPIC may have under applicable law, upon OPIC's payment to the Intermediary, to be subrogated to the rights of the Intermediary against the Company. SECTION 6.03 INTERMEDIARY'S WAIVER OF LIEN ON COLLATERAL AND SETOFF RIGHTS The Intermediary acknowledges that it shall hold the Collateral solely in its capacity as securities intermediary hereunder, and the Intermediary irrevocably waives and agrees not to exercise any banker's lien, right of setoff, right of recoupment, right to combine accounts or any similar lien, claim or right, it may have against or on the Collateral, express or implied, statutory or otherwise, to satisfy any obligation which the Company may owe to the Intermediary, in any capacity. SECTION 6.04 ACCESS TO BOOKS; INSPECTION; STATEMENTS OF ACCOUNT 11 (a) Until one (1) year after the Intermediary has received notice from OPIC pursuant to Section 11.02 that all Obligations have been paid in full, the Intermediary shall, upon request of OPIC, give or cause to be given to an Authorized Officer of OPIC, access, during normal business hours, to examine, copy and make extracts from, in a manner that does not disrupt the Intermediary's normal business operations, any and all records and documents which are then in the possession or subject to the control of the Intermediary, relating to the Collateral. The Company shall pay the costs and expenses of OPIC and the Intermediary in connection with the exercise of OPIC's rights under this Section. If the Company fails to pay the Intermediary's costs and expenses, OPIC may do so in accordance with Section 10.02, and OPIC may then seek reimbursement from the Company under Section 12.14. (b) The Intermediary shall furnish to the Company and to an Authorized Officer of OPIC monthly transaction statements showing all credits and deposits to, and disbursements from, the Collateral Account during such month, and showing the Account Assets held by the Intermediary (identified by title or series, unpaid principal amount, maturity date and other relevant identifying features) as of the last Business Day of such period and the value thereof (valued in accordance with the Intermediary's customary methods for the valuation of such assets). The Company and OPIC shall each be entitled to communicate directly with the Intermediary and the Intermediary shall, upon the reasonable request of the Company or OPIC, from time to time, confirm the value of Account Assets. SECTION 6.05 CLOSING OF COLLATERAL ACCOUNT (a) The Intermediary may close the Collateral Account by giving at least ninety (90) days' prior written notice to the Company and OPIC. OPIC may enter into an agreement with a successor securities intermediary during such notice period. The Intermediary shall keep the Collateral Account open and hold all Account Assets in accordance with the terms of this Agreement, pending distribution to such successor securities intermediary, and shall promptly deliver all Account Assets to such successor upon notice from OPIC of OPIC's designation thereof. (b) OPIC may cause the Collateral Account to be closed upon written notice to the Intermediary. The Intermediary shall promptly deliver the Account Assets to OPIC or any successor securities intermediary designated by OPIC, in accordance with OPIC's instructions. The account closing shall take effect upon delivery of all Account Assets to OPIC as specified in clause (c) below or the designated successor securities intermediary, and the Intermediary shall thereupon be discharged from all further obligations under this Agreement and shall have no further duties or responsibilities in connection herewith. (c) If during the ninety (90) day notice period specified in clause (a) above or after forty-five (45) days following the date of delivery of OPIC's notice of closing pursuant to clause (b) above, the Intermediary has not received a written designation of a 12 successor securities intermediary then, after such period in each case, the Intermediary's sole responsibility shall be to promptly deliver all Account Assets to OPIC. (d) Pursuant to clauses (a) through (c) of this Section 6.05, and in accordance with the time periods specified in each such clause, as applicable, the Intermediary shall, upon instruction from OPIC and without notice to the Company: (i) transfer or cause its nominee to transfer to OPIC or its designee any and all Collateral in the Intermediary's possession or control, or maintained in the Intermediary's name, or on its behalf; and (ii) provide such documents to OPIC as may be reasonably required to register OPIC, a successor securities intermediary or another designee of OPIC, as the case may be, as the owner or registered pledgee (as directed by OPIC) of any uncertificated security or certificated security in registered form, then included in the Collateral. (e) The Intermediary shall close the Collateral Account upon termination of this Agreement and delivery of Account Assets to the Company pursuant to Section 11.02. ARTICLE VII REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INTERMEDIARY SECTION 7.01 REPRESENTATIONS AND WARRANTIES OF INTERMEDIARY The Intermediary represents and warrants as follows: (a) it is duly organized and validly existing the laws of the jurisdiction of its organization and incorporation and, if relevant under such laws, is in good standing; (b) it has the power to execute and deliver this Agreement and any other documentation relating to this Agreement to which it is a party or that it is required by this Agreement to deliver, and to perform its obligations under this Agreement, and it has taken all necessary action to authorize such execution, delivery and performance, and this Agreement has been, and each other such document shall be, duly executed, delivered and performed by it; (c) such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constituent documents, any order or 13 judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets; (d) all governmental and other consents that are required to have been obtained by it with respect to this Agreement have been obtained and are in full force and effect and it has complied with all conditions of any such consents; (e) its obligations under this Agreement constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms; (f) there is not pending or, to its knowledge, threatened against it or any of its affiliates any action, suit or proceeding at law or in equity before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or its ability to perform its obligations under this Agreement; (g) it is not a clearing corporation, as defined in Article 8; (h) its jurisdiction is New York for purposes of Section 8-110(e) of the UCC; (i) it has established the Collateral Account in the manner described in Section 2.01 and such Collateral Account is subject to this Agreement; and (j) it is not aware of any claim to or interest in the Collateral Account or any of the Collateral, including any other Person having "control" (as defined in Article 8) of such account or assets, other than those claims and interests of the Company and OPIC hereunder, and it has not entered into any other agreement with any Person relating to the Collateral pursuant to which it has agreed to comply with entitlement orders or other instructions with respect to the Collateral made by any Person or to limit or condition the obligation of the Intermediary to comply with entitlement orders or other instructions by OPIC. The Intermediary makes no representation as to the validity, value, genuineness or collectability of any security or other document or instrument held by or delivered to it. SECTION 7.02 COVENANTS OF INTERMEDIARY The Intermediary covenants as follows: (a) it shall not change its jurisdiction, as specified in Section 7.01(h), or the governing law provisions contained in the account agreement pursuant to which the Company opened the Collateral Account; (b) if any account agreement establishing the Collateral Account exists that does not specify New York as its governing law, this Agreement shall be attached 14 thereto, and shall be provided to any third parties making inquiries about the Collateral Account; (c) without the prior written consent of OPIC and notice to the Company, it shall not change the name or account number of the Collateral Account, or enter into any agreement under which the Intermediary agrees to comply with entitlement orders originated by any Person other than OPIC with respect to the Collateral; (d) subject to the terms of this Agreement, it shall comply with all entitlement orders and other orders of OPIC directing transfer, investment, redemption or withdrawal of any Collateral or other instructions originated by OPIC with respect to the Collateral, without further consent by the Company or any other Person, and notwithstanding any contrary instructions to the Intermediary from the Company or any other Person, and the Company shall have only such rights to transfer, invest, redeem or withdraw the Collateral as are specifically provided herein or in a written instruction by OPIC to the Intermediary; (e) it shall maintain all Account Assets in its exclusive control, subject to the terms of this Agreement; (f) it shall report all items of income (including dividends, interest and other distributions on Account Assets), gain, expense, and loss recognized in the Collateral Account in the name and under the tax identification number of the Company as shown on the Form W-9 to be delivered upon the execution hereof; (g) it shall accept and promptly credit all property delivered to it by or on behalf of the Company for credit to the Collateral Account, and all Permitted Investments, by an appropriate entry in its records; (h) it does not have any interest in the Collateral but is serving only as securities intermediary, and this is, and shall remain until termination of this Agreement pursuant to Section 11.02, the only agreement between the Intermediary and the Company relating to the Collateral (other than an agreement establishing the Collateral Account, a copy of which has been delivered to OPIC); (i) it shall not grant any Lien on the Collateral and it shall promptly notify OPIC and the Company if any Person requests the Intermediary to enter into an agreement with respect to the Collateral, or otherwise asserts or seeks to assert a lien, encumbrance or adverse claim against all or any portion of the Collateral; (j) it shall provide to OPIC and the Company, simultaneously, copies of all account statements, confirmations, and other correspondence relating to the Collateral Account, and a monthly transaction and valuation statement in accordance with Section 6.04(b), and it shall provide OPIC with any other reports, valuations or other correspondence that OPIC may reasonably request; 15 (k) it shall only accept Account Assets in the form specified in Section 2.04; (l) it shall maintain the Collateral Account and shall not terminate or close the Collateral Account without the prior written consent of OPIC and notice to the Company, except as provided in Section 6.05; and (m) it has not extended, and shall not extend, any credit to the Company. ARTICLE VIII COMPANY REPRESENTATIONS, WARRANTIES AND COVENANTS SECTION 8.01 REPRESENTATIONS AND WARRANTIES MADE UPON EXECUTION OF THIS AGREEMENT Upon execution of this Agreement, the Company represents and warrants as follows: (a) it has established the Collateral Account with the Intermediary subject to this Agreement and the Company is not a party to any agreement with respect to the establishment, management, or operation of the Collateral Account or investment of amounts credited thereto or held therein, except for this Agreement (other than an agreement establishing the Collateral Account, a copy of which has been delivered to OPIC); (b) this Agreement creates a legal, valid and enforceable Lien in favor of OPIC in the Collateral, securing the payment of the Obligations, enforceable against the Company and third parties; (c) the security interest created by this Agreement in the Collateral Account is perfected under the UCC, and such security interest, as so perfected, is first priority; (d) there are no conditions precedent to the effectiveness of this Agreement that have not been satisfied or waived; (e) no consent of any other Person and no authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required (x) for the execution, delivery, or performance of this Agreement by the Company, (y) for the perfection or maintenance of the security interest created hereby (including the first priority nature of such security interest), or (z) for the exercise by OPIC of the rights provided for in this Agreement; (f) the Company has no trade name; 16 (g) the Company has not (x) borrowed any money from, (y) been extended any credit by, or (z) become otherwise obligated to pay any money to, the Intermediary, other than the fees and expenses payable to the Intermediary pursuant to Section 6.02; and (h) the Company has, independently and without reliance upon the representations of OPIC or any other Person and based on such documents and information as it has deemed appropriate, made its own decision to enter into this Agreement. SECTION 8.02 REPRESENTATIONS AND WARRANTIES MADE UPON DELIVERY OF ANY COLLATERAL The Company represents and warrants as follows, upon delivery of any Collateral: (a) any Account Assets that are transferred to the Intermediary have been fully paid and are nonassessable, and all documentary, stamp, or other taxes or fees that may be owing in connection with the issuance, transfer, and pledge thereof have been paid by it or on its behalf; (b) the Company is the legal and beneficial owner of and has good title to the Collateral, free and clear of any Lien thereon, other than the Liens created hereby, and the Collateral is not subject to any agreement purporting to grant to any third party a Lien on the property or assets of the Company which would include the Collateral. No effective financing statement or other instrument similar in effect covering all or any part of such Collateral is on file in any recording office, except such as may have been filed in favor of OPIC relating to this Agreement; and (c) no consent of any other Person and no authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the pledge and assignment of, and grant of a security interest in, the Collateral or for the exercise by OPIC of the rights provided for in this Agreement or the remedies in respect of such Collateral pursuant to this Agreement (except as may be required in connection with any disposition of any portion of the Collateral by laws affecting the offering and sale of securities generally). 17 SECTION 8.03 COMPANY COVENANTS So long as any of the Obligations shall remain unpaid and until termination of this Agreement, unless OPIC shall otherwise consent in writing, the Company agrees as follows: (a) it shall not move its chief executive office without at least sixty (60) days prior written notice to OPIC; (b) it shall not make any withdrawal from or direct that any payment be debited from the Collateral Account other than as expressly permitted by this Agreement; (c) it shall not permit any Person other than OPIC to have control of the Collateral Account or any of the Account Assets, including as a result of the grant of a security interest to any Person acting as securities intermediary with respect to such Collateral; (d) it shall not (x) borrow any money from, (y) allow any credit to be extended to it by, or (z) become otherwise obligated to pay any money to, the Intermediary, other than the fees or expenses payable to the Intermediary pursuant to Section 6.02; (e) it shall pay all documentary, stamp, registration, or other duties, taxes or fees, if any, to which this Agreement may be subject or give rise, and shall indemnify OPIC and the Intermediary against any and all liabilities with respect to or resulting from any delay or omission on the part of the Company to pay any such duties, taxes, or fees; (f) it shall not knowingly take any action in connection with the Collateral that would materially impair the value of the Collateral or that would impair the interest or rights of OPIC therein; (g) it shall not sell, assign, transfer, charge, pledge, or encumber in any manner, or otherwise dispose of, or grant any option with respect to, any of the Collateral or the Company's interest therein, or allow to exist any Lien (other than a Lien created hereby) on such Collateral or any of the Company's interest therein; nor file, nor permit to be at any time on file in any recording office, any effective financing statement or other instrument similar in effect covering all or any part of such Collateral (except for filings permitted or required hereunder); (h) it shall at all times maintain or cause to be maintained in the Collateral Account, Account Assets at least equal in aggregate fair market value to the Collateral Maintenance Requirement, and it shall monitor the value of Account Assets on a daily basis to assure that the Collateral Maintenance Requirement is at all times maintained; and 18 (i) it shall furnish to OPIC, within forty-five (45) days after the end o each fiscal quarter (including the fourth fiscal quarter) of each Fiscal Year, statements and schedules further identifying and describing the Collateral and setting forth its fair market value, and, from time to time, it shall furnish such other reports in connection with the Collateral as OPIC may reasonably request, all in reasonable detail. ARTICLE IX EVENT OF DEFAULT SECTION 9.01 NOTICE OF EVENT OF DEFAULT Upon the occurrence of an Event of Default, under either of the Loan Agreements, OPIC may, in its sole discretion, deliver a Notice of Event of Default to the Intermediary, with a copy thereof delivered to the Company. A Notice of Event of Default delivered by OPIC shall become effective upon receipt thereof by the Intermediary. A Notice of Event of Default, once effective, shall remain in effect unless and until it is canceled by OPIC by delivery of a Notice of Cancellation to the Intermediary (with a copy thereof to the Company). The Company shall not be entitled to cancel any Notice of Event of Default. For the avoidance of doubt, the Intermediary is required to comply with OPIC's entitlement orders whether or not a Notice of Event of Default shall have been given; the mechanism of providing a Notice of Event of Default is used purely for ease of administering this Agreement and to reflect understandings with respect to directing investments, as set forth herein. SECTION 9.02 REMEDIES UPON EVENT OF DEFAULT (a) Upon the occurrence of an Event of Default, under either of the Loan Agreements, OPIC shall have the right, in its discretion and without notice to or consent of the Company, and whether or not it has delivered a Notice of Event of Default, to direct the Intermediary to transfer to OPIC or any of its nominees, all or any part of the Collateral. OPIC shall be entitled to exercise all of the rights, powers and remedies set forth in Article X and all rights and remedies it may have as a secured creditor under the UCC and other applicable law, in protecting and enforcing its rights hereunder, including, if an Event of Default, under either of the Loan Agreements, shall have occurred and be continuing, without notice, to sell, lease, assign, and deliver, or grant options to purchase, or otherwise dispose of, all or any part of the Collateral, at such place or places as OPIC may determine, at public or private sale, for cash or on credit and for present or future delivery (without thereby assuming any credit risk), and at such price or prices and upon such other terms as OPIC may deem commercially reasonable, it being agreed that the purchaser, lessee, assignee or recipient of any or all of the Collateral so disposed of at any public or private sale shall thereafter hold the same absolutely free from any claim or right of the Company of whatsoever kind, including any right of redemption, and any 19 obligation to see to the application of any part of the purchase money paid therefor or any liability for the misapplication or non-application thereof, and OPIC may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for such sale or other disposition, and such sale or other disposition may be made at any time or place to which the same may be so adjourned. As provided in Sections 1-102 and 9-501(3)(c) of the UCC, the duties of OPIC pursuant to Sections 9-504(3) and 9-505(1) of the UCC shall be deemed to be satisfied so long as the requirements of this Section are satisfied in connection with any disposition of Collateral pursuant to this Agreement. To the extent notice of sale or other disposition shall be required by law, at least ten (10) days notice to the Company of the time and place of any sale or other disposition shall constitute reasonable notice. (b) All cash proceeds received by OPIC in respect of any sale of, collection from, or other realization on or upon all or any part of the Collateral pursuant to Section 10.01, or any other payments made in respect of the Collateral and received by OPIC pursuant to Section 9.01(a), may, in the discretion of OPIC, be redelivered to the Intermediary as Collateral for, and then or as soon thereafter as is reasonably practicable applied in whole or in part by OPIC in accordance with Section 5.02 hereof, against, all or any of the Obligations in any manner elected by OPIC that is permitted by applicable law. Any surplus of such cash proceeds or other payments and interest accrued thereon, held by the Intermediary or OPIC and remaining after payment in full of all of the Obligations shall be promptly paid over (upon joint written instruction of the Company and OPIC) to the Company or to whomsoever else may be lawfully entitled to receive such surplus as directed by a court of competent jurisdiction; PROVIDED, HOWEVER, that neither the Intermediary nor OPIC shall have any obligation to invest or otherwise pay interest on any amounts held by it in connection with or pursuant to this Agreement. (c) If the proceeds of sale, collection or other realization of or upon the Collateral pursuant to clause (a) are insufficient to cover the costs and expenses of such sale, collection, or other realization and the payment in full of the Obligations, the Company shall remain liable for any deficiency. (d) To the extent permitted by law, OPIC may be a purchaser of the Collateral, or any part thereof, at any sale or other disposition carried out pursuant to the provisions of this Agreement, and may bid for and acquire all or any part of the Collateral and, in lieu of paying cash, may make settlement for the purchase price by crediting against the Obligations the net sales or realization price, after deducting the costs and expenses of such sale or other disposition. (e) Subject to compliance with any applicable law, OPIC may, at its option, enforce its rights hereunder without prior judicial or arbitral process or hearing, and, to the extent permitted by applicable law, the Company expressly waives any and all legal and equitable rights which might otherwise require OPIC to enforce its rights by judicial or arbitral process. 20 ARTICLE X CERTAIN RIGHTS, POWERS AND REMEDIES; NO WAIVER SECTION 10.01 OPIC APPOINTED ATTORNEY-IN-FACT The Company irrevocably appoints OPIC its agent and attorney-in-fact, coupled with an interest, with full authority in the Company's place and stead and in its name or otherwise, from time to time upon the occurrence and during the continuance of an Event of Default under either Loan Agreement or otherwise, to the extent that OPIC shall reasonably deem any action to be necessary in order to maintain the perfection and assure first priority of, and the ability to enforce, its security interest in the Collateral, in OPIC's discretion, to take any action and to execute any instrument which OPIC may deem necessary or advisable to accomplish the purposes of this Agreement, including, to ask, demand, collect, sue for, recover, compound, receive, and give acquittance and receipts for moneys due and to become due under or in connection with the Collateral, to receive, indorse, and collect any drafts or other instruments, documents, and chattel paper in connection therewith, to sign the Company's name on, and file financing statements as described in Section 12.19, and to file any claims or take any action or institute any proceedings which OPIC may deem necessary or desirable for the collection thereof. SECTION 10.02 OPIC MAY PERFORM If the Company fails to perform any agreement contained herein, including payment of fees and expenses of the Intermediary, OPIC may itself perform, or cause performance of, such agreement, and the payments made by OPIC and expenses incurred in connection therewith (including attorneys' fees and expenses) shall be payable by the Company to OPIC on demand, and shall be secured by the Collateral. In no event shall OPIC be responsible for any obligation of the Company pursuant to Section 12.12. SECTION 10.03 CUMULATIVE RIGHTS (a) OPIC shall be entitled to exercise all of the rights, powers, and remedies (whether vested in it by this Agreement, by law, in equity, by statute, or otherwise), to the maximum extent permitted by applicable law, for the protection and enforcement of OPIC's rights hereunder, including any proceeding in any court or other tribunal by an action at law, suit in equity, or other appropriate proceeding, whether for damages, for the specific performance of any term hereof, or otherwise in aid of the exercise of any power granted hereby or by law. (b) The rights, powers and remedies provided herein and in the other Financing Documents are cumulative and are in addition to any other rights, powers or remedies provided in any Financing Document or now or hereafter existing at law or in 21 equity or by statute. The assertion or employment of any right, power or remedy hereunder or otherwise, including any rights of setoff or rights under other Financing Documents or under applicable law shall not prevent the concurrent assertion of any other appropriate right, power or remedy and shall not diminish or otherwise affect the rights, powers and remedies conferred hereunder. No single or partial exercise of any right, power or remedy shall preclude any other or further exercise thereof or the exercise of any other right, power or remedy. SECTION 10.04 NO DUTIES Rights, powers and remedies conferred upon OPIC by this Agreement are to protect the interests of OPIC in the Collateral and shall not impose any duty upon OPIC to exercise any such rights, powers or remedies. Except as specifically provided herein, OPIC shall have no duty as to the collection or protection of Collateral, nor as to the preservation of any rights pertaining thereto, beyond the safe custody thereof (if Collateral is in OPIC's custody), and OPIC shall not be responsible for any loss attributable to the manner of realization of the value of any Collateral. Except for notices of sale or other notices required to be given by OPIC hereunder, OPIC shall be under no duty whatsoever to make or give any presentment, notice of dishonor, protest, demand for performance, notice of non-performance, notice of intent to accelerate, notice of acceleration, or take notice or demand in connection with any Collateral or the Obligations, or take any steps necessary to preserve any rights against the Company or any other Person. SECTION 10.05 WAIVERS No waiver of any right, power or remedy of any Party hereunder shall be effective unless given in writing. No delay of any Party hereunder in exercising any right, power or remedy shall operate as a waiver thereof or otherwise impair any of such Party's rights, powers or remedies. ARTICLE XI CONTINUING OBLIGATION; TERMINATION SECTION 11.01 CONTINUING OBLIGATION (a) This Agreement and the security interest created hereby is a continuing obligation and whether or not there are, at any time, sufficient assets in the Collateral Account to meet the Company's obligations to OPIC as they fall due, nothing in this Agreement shall be deemed in any way to lessen or absolve the Company from its obligations to OPIC to satisfy the Obligations in full as they fall due. This Agreement shall create a continuing pledge and assignment of, and security interest in, the Collateral 22 and shall be binding on the Company and shall remain in full force and effect until this Agreement is terminated in accordance with Section 11.02. For the avoidance of doubt, the security interest created hereby shall continue, notwithstanding closure of the Collateral Account pursuant to Section 6.05(a), (b) or (c) and transfer of Account Assets to a successor securities intermediary. (b) To the extent that any payments on the Obligations or proceeds of the Collateral are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law, other law or equitable cause, then to such extent the Obligations so satisfied shall be revived and continue as if such payment or proceeds had not been received by OPIC, and OPIC's security interests, rights, powers and remedies hereunder shall continue in full force and effect. In such event, this Agreement shall be automatically reinstated if it shall theretofore have been terminated. The provisions of this Section shall survive termination of this Agreement. SECTION 11.02 TERMINATION Except as otherwise stated herein, this Agreement shall remain in full force and effect until the date that the Obligations shall have been indefeasibly paid in full in Dollars and the Intermediary receives notice from OPIC thereof. Upon the indefeasible payment in full in Dollars of the Obligations, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to the Company. Upon any such termination, OPIC shall, at the Company's expense, execute and deliver to the Company such documents as the Company shall reasonably request to evidence such termination and promptly return any Collateral then in the possession or under the control of OPIC, and the Intermediary shall deliver any remaining Account Assets to the Company at the Company's direction, after deduction of any payments due from the Company to the Intermediary. ARTICLE XII MISCELLANEOUS SECTION 12.01 JURISDICTION AND CONSENT TO SUIT; WAIVER OF OBJECTION TO FORUM Each of the Company and the Intermediary hereby irrevocably and unconditionally: (a) submits itself and its property in any legal action or proceeding relating to this Agreement, or for recognition, protection, or enforcement of any judgment in respect hereof (any of the foregoing, an "ACTION") to the non-exclusive personal jurisdiction of the courts within the City and State of New York, 23 (b) consents that any such Action may be brought in such courts, and waives its right to request transfer of such Action and any objection that it may now or hereafter have to the venue of any such Action in any such court or that such Action was brought in an inconvenient court or one that lacked or had improper jurisdiction and agrees not to plead or claim the same; (c) agrees that service of process in any such Action may be effected by mailing a copy thereof by registered or certified mail (or overnight courier or any substantially similar form of mail), postage prepaid, to the Company at its address set forth in Section 12.03 or at such other address of which OPIC shall have been designated by notice pursuant thereto; (d) agrees that nothing herein shall affect OPIC's right to serve process or notice in any other manner permitted by law or shall limit OPIC's right to sue in any other jurisdiction; and (e) agrees that judgment against it in any such Action shall be final and may be enforced in any other jurisdiction within or without the U.S. by action to enforce the judgment or otherwise as provided by law, a certified or exemplified copy of which judgment shall be conclusive evidence of the fact and amount of the obligation of the Company or the Intermediary, as applicable. SECTION 12.02 IMMUNITY The Company represents and warrants that it is subject to civil and commercial law with respect to its obligations under this Agreement, that the making and performance of this Agreement constitute private and commercial acts rather than governmental or public acts and that neither the Company nor any of its properties or revenues has any right of immunity from suit, court jurisdiction, attachment prior to judgment, attachment in aid of execution of a judgment, set-off, execution of a judgment, or from any other legal process with respect to its obligations under this Agreement. To the extent that the Agreement may hereafter be entitled, in any jurisdiction in which judicial or arbitral proceedings may at any time be commenced with respect to any Financing Document, to claim for itself or its revenues or assets any such immunity, and to the extent that in any such jurisdiction there may be attributed to the Company such an immunity (whether or not claimed), the Company hereby irrevocably agrees not to claim and hereby irrevocably waives such immunity. The foregoing waiver of immunity shall have effect under the United States Foreign Sovereign Immunities Act of 1976. SECTION 12.03 NOTICES Each notice, demand, or other communication relating to this Agreement shall be in writing, shall be hand-delivered or sent prepaid by mail or overnight delivery service or electronically confirmed facsimile transmission (with a copy by mail to follow, receipt 24 of which copy shall not be required to effect notice), and shall be deemed duly given when actually delivered to the following addresses: TO THE COMPANY: PriceSmart, Inc. 4649 Morena Blvd. San Diego, CA 92117-3650 Attn.: General Counsel Facsimile: (858) 581-4707 Phone: (858) 581-7728 TO OPIC: Overseas Private Investment Corporation 1100 New York Avenue, N.W. Washington, D.C. 20527 United States of America Attn.: Vice President, Finance Re: PriceSmart, Inc. corporate expansion Facsimile: 1-202-408-9866 Phone: (202) 336-8480 TO THE INTERMEDIARY: The Bank of New York 101 Barclay Street 21W New York, NY 10286 Attn.: Vanessa Mack Ref: PriceSmart/OPIC Facsimile: (212) 815-4803 Phone: (212) 815-5346 Any Party may, by written notice to the other Parties, change the address to which such notices, demands, or other communications should be sent to it. Whenever hereunder the time for giving a notice or performing an act falls on a Saturday, Sunday or banking holiday, such time shall be extended to the next day on which the Intermediary is open for business. SECTION 12.04 ENGLISH LANGUAGE 25 All documents to be furnished or communications made under this Agreement shall be in English or, if in another language, shall be accompanied by a certified translation into English, which translation shall govern among the Parties hereto. SECTION 12.05 GOVERNING LAW THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES AGREE THAT THE "SECURITIES INTERMEDIARY'S JURISDICTION" (WITHIN THE MEANING OF SECTION 8-110(e)(1) OF THE UCC) IS THE STATE OF NEW YORK. SECTION 12.06 SUCCESSION; ASSIGNMENT This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Parties; provided, however, that neither the Company nor the Intermediary shall, without the prior consent of OPIC, assign or delegate all or any part of its interest herein or obligations hereunder. SECTION 12.07 SURVIVAL OF AGREEMENTS Each agreement, representation, warranty, and covenant contained or referred to in this Agreement shall survive any investigation at any time made by OPIC and shall survive disbursement of the Loan, except for changes permitted hereby, and, except as otherwise provided in this Section, shall terminate only in accordance with Section 11.02. Without prejudice to the survival of any other agreement of the Parties, the agreements and obligations contained in Sections 6.01(c) 6.02, 8.03(e), 12.12, 12.13, 12.14, 12.15 and 12.21 shall survive the payment in full of all of the other Obligations. SECTION 12.08 INTEGRATION; AMENDMENTS This Agreement embodies the entire understanding of the Parties and supersedes all prior negotiations, understandings, and agreements between or among them with respect to the subject matter hereof. The provisions of this Agreement may be waived, supplemented, or amended only by an instrument in writing signed by the Parties. The Parties agree to amend this Agreement to reflect commercial code changes or otherwise, in a manner consistent with the intent of this Agreement, if requested by OPIC. SECTION 12.09 SEVERABILITY 26 If any provision of this Agreement is prohibited or held to be invalid, illegal, or unenforceable in any jurisdiction, the Parties agree to the fullest extent permitted by law that such invalidity, illegality or enforceability shall not affect the validity, legality, and enforceability of the other provisions of this Agreement and shall not render such provision prohibited, invalid, illegal, or unenforceable in any other jurisdiction. If, and to the extent that, any obligation of the Company (including that under Article XI) is unenforceable for any reason, the Company agrees, independently of any other obligation hereunder, to make the maximum contribution to the payment and satisfaction thereof as is permissible under applicable law. SECTION 12.10 WAIVER OF JURY TRIAL THE COMPANY, OPIC AND THE INTERMEDIARY EACH IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN AND AMONG THEM ESTABLISHED BY THIS AGREEMENT. SECTION 12.11 RIGHT OF SET-OFF Upon the occurrence of any failure by the Company to perform any obligation under this Agreement, OPIC is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by OPIC to or for the credit or the account of the Company against any and all of the obligations of the Company now or hereafter existing under this Agreement, whether or not OPIC shall have made any demand under this Agreement and although such obligations may be contingent and unmatured. OPIC agrees to promptly notify the Company after any such set-off and application, PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of OPIC under this Section are in addition to other rights and remedies (including other rights of setoff) which OPIC may have. SECTION 12.12 INDEMNITY The Company shall, at all times, indemnify and hold harmless each of OPIC and the Intermediary and its directors, officers, agents and employees (each, an "INDEMNIFIED PERSON") in connection with any Loss (as defined below) and any Costs of Defense (as defined below) (the "INDEMNITY"). The term "LOSS" shall mean any losses, claims, damages, taxes, penalties, or other costs relating to this Agreement to which an Indemnified Person may become subject. The term "COSTS OF DEFENSE" shall mean costs, fees, and expenses incurred by or imposed on any Indemnified Person in defending, 27 analyzing, settling, or resolving a Loss or Potential Loss (as defined below), and the expenses associated with the making of any affirmative claim in connection therewith (PROVIDED, THAT, costs, fees, and expenses in connection with a proceeding by any Indemnified Person to enforce his, her, or its rights under this Indemnity shall not be considered to be "COSTS OF DEFENSE"). The term "POTENTIAL LOSS" shall mean any event, fact, condition, or circumstance that is reasonably likely to give rise to a Loss. This Indemnity shall not apply to the extent that a court or arbitral tribunal with jurisdiction over the Loss and each Indemnified Person who has a Loss or Costs of Defense in connection therewith renders a final determination that the Loss or Costs of Defense resulted from (i) the gross negligence or willful misconduct of the Indemnified Person, or (ii) OPIC's failure to perform any act required of it under this Agreement. The Indemnity is independent of and in addition to (i) any rights of any party hereto in connection with any Loss or Costs of Defense and (ii) any other agreement, and shall survive the execution, modification, and amendment of this Agreement and the other Financing Documents, the expiration, cancellation, or termination of the Commitment, the disbursement and repayment of the Loan, and the provisions of any other indemnity. Any exclusion of an obligation to pay any amount under this Section shall not affect the requirement to pay such amount under any other Section hereof or under any other agreement. OPIC and each other Indemnified Person shall have the right to control its, his, or her defense, PROVIDED, HOWEVER, that each Indemnified Person shall: (a) notify the Company in writing as soon as practicable of any Loss, Potential Loss, or Cost of Defense, and (b) keep the Company reasonably informed of material developments with respect thereto. In exercising the right and power to control his, her, or its actions in connection with a Loss or Potential Loss, including a decision to settle any such Loss, each Indemnified Person shall, taking into account the nature and policies of such Indemnified Person (i) consult with the Company, and (ii) act as such Indemnified Person would act if the Costs of Defense or settlement were to be paid by such Indemnified Person. The Company acknowledges and agrees that each Indemnified Person is an express, third-party beneficiary of the Company's obligations under this Section. SECTION 12.13 LIMITATION ON DAMAGES No claim may be made by the Company against the Intermediary or OPIC or any officer, agent, stockholder, partner, member, director or employee of either of them for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out or relating to this Agreement or the transactions contemplated hereby or any act, omission or event occurring in connection therewith, and the Company hereby waives, releases, and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. SECTION 12.14 FEES AND EXPENSES OF OPIC 28 The Company hereby agrees to pay OPIC on demand any and all costs and expenses (including attorneys' fees and expenses) incurred by OPIC in connection with this Agreement, including, without limitation, all costs and expenses incurred by OPIC in connection with collecting any amount due by the Company hereunder, defending against any claims or counterclaims by the Company, or enforcing or preserving any of OPIC's rights, powers, or remedies contained herein. SECTION 12.15 WAIVER OF LITIGATION PAYMENTS In the event that any action or lawsuit is initiated by or on behalf of OPIC against the Company or any other party to any Financing Document, the Company, to the fullest extent permissible under applicable law, irrevocably waives its right to, and agrees not to request, plead, or claim that OPIC and its successors, transfers, and assigns (any such Person, an "OPIC PLAINTIFF") post, pay, or offer, any CAUTIO JUDICATUM SOLVI bond, litigation bond, or any other bond, fee, payment, or security measure provided for by any provision of law applicable to such action or lawsuit (any such bond, fee, payment, or measure, a "LITIGATION PAYMENT"), and the Company further waives any objection that it may now or hereafter have to an OPIC Plaintiff's claim that such OPIC Plaintiff should be exempt or immune from posting, paying, making, or offering any such Litigation Payment. SECTION 12.16 BENEFITS OF AGREEMENT Nothing in this Agreement, express or implied, shall give to any Person, other than the Parties and the other Indemnified Persons and their respective successors and assigns, any benefit or any legal or equitable right or remedy under this Agreement. SECTION 12.17 ARM'S-LENGTH NEGOTIATIONS This Agreement is the product of arm's-length negotiations between and among the Parties. The Parties have entered into this Agreement freely, voluntarily and with the advice of legal counsel. No Party shall be deemed to have drafted this Agreement unilaterally. In the event a dispute arises regarding the meaning or application of any provision of this Agreement, such provision shall not be construed by reference to any doctrine calling for ambiguities to be construed against the drafter of a document. SECTION 12.18 FURTHER ASSURANCES The Company shall execute and deliver to OPIC such additional documents and take such additional action as OPIC may require, at the Company's expense, to carry out the purposes of this Agreement, to cause this Agreement to be duly registered, notarized, 29 and stamped in any applicable jurisdiction, and to perfect, preserve and protect OPIC's rights as contemplated herein. SECTION 12.19 FINANCING STATEMENTS The Company hereby further authorizes OPIC to file one or more financing or continuation statements, and amendments thereto (any such financing or continuation statements or amendments to be delivered by the Company to OPIC in form sufficient for filing), relating to all or any part of the Collateral without the signature of the Company, where permitted by law. A photographic or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. SECTION 12.20 COUNTERPARTS This Agreement may be executed in counterparts, each of which when so executed and delivered shall be deemed an original and all of which together shall constitute one and the same instrument. SECTION 12.21 NO PROMOTIONAL MATERIALS 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 Intermediaries under this Agreement shall be issued by any other parties hereto, or on such party's behalf, without the prior written consent of the Intermediary. 30 IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed and delivered on its behalf by its duly authorized representative as of the day and year first above written. PRICESMART, INC. By: ______________________________ Name: ____________________________ Title: ___________________________ THE BANK OF NEW YORK By: ______________________________ Name: ____________________________ Title: ___________________________ OVERSEAS PRIVATE INVESTMENT CORPORATION By: ______________________________ Name: ____________________________ Title: ___________________________ 31 EX-11.1 20 a2064125zex-11_1.txt EXHIBIT 11.1 EXHIBIT 11.1 PRICESMART, INC. COMPUTATION OF NET INCOME OR LOSS PER COMMON SHARE (BASIC AND DILUTED) (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED AUGUST 31, -------------------------------------------- 2001 2000 1999 ------------- ------------- ------------- Income (loss) before extraordinary loss $ 3,733 $(5,444) $(3,892) Extraordinary items, net of tax (349) - - ------------- ------------- ------------- Net income (loss) $ 3,384 $(5,444) $(3,892) ============= ============= ============= Determination of shares: Common shares outstanding 6,254 5,386 5,120 Assumed conversion of stock options 404 - - ------------- ------------- ------------- Diluted average common shares outstanding 6,658 5,386 5,120 Basic earnings (loss) per share: Income (loss) before extraordinary items $ 0.60 $ (1.01) $ (0.76) Extraordinary items $ (0.06) $ - $ - ------------- ------------- ------------- Net income (loss) $ 0.54 $ (1.01) $ (0.76) ============= ============= ============= Diluted earnings (loss) per share: Income (loss) before extraordinary items $ 0.56 $ (1.01) $ (0.76) Extraordinary items $ (0.05) $ - $ - ------------- ------------- ------------- Net income (loss) $ 0.51 $ (1.01) $ (0.76) ============= ============= =============
EX-13.1 21 a2064125zex-13_1.txt EXHIBIT 13.1 EXHIBIT 13.1 SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The following table sets forth selected consolidated financial data of the Company for the five fiscal years ended August 31, 2001. - --------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA (AMOUNTS IN THOUSANDS, EXCEPT EARNINGS (LOSS) PER SHARE) FISCAL YEARS ENDED AUGUST 31 (1) 2001 2000 1999 1998 1997(2) --------- --------- ---------- --------- --------- INCOME STATEMENT DATA: Net warehouse sales $473,127 $292,013 $89,184 $ 48,287 $ 21,750 Export sales 500 421 6,773 32,813 37,292 Membership fees and other 15,323 8,216 2,008 2,720 3,139 Travel and auto programs - 3,965 10,907 13,368 12,194 --------- --------- ---------- --------- --------- Total revenues 488,950 304,615 108,872 97,188 74,375 Cost of goods sold 405,721 256,652 84,638 74,684 55,947 Selling, general and administrative (3) 70,776 53,549 32,021 26,421 25,993 Goodwill amortization 998 223 - - - Preopening expenses 4,866 7,681 4,949 433 614 --------- --------- ---------- --------- --------- Operating income (loss) 6,589 (13,490) (12,736) (4,350) (8,179) Net interest and other income (expense)(4) (3,442) 7,927 9,034 7,492 1,237 --------- --------- ---------- --------- --------- Income (loss) before provision (benefit) for income taxes and extraordinary items 3,147 (5,563) (3,702) 3,142 (6,942) Net income (loss) $ 3,384 $ (5,444) $ (3,892) $ 3,028 $(24,843) EARNINGS (LOSS) PER SHARE: Basic (5) $ 0.54 $(1.01) $ (0.76) $ 0.51 $ (4.20) Diluted (5) 0.51 (1.01) (0.76) 0.50 (4.20) BALANCE SHEET DATA: Cash and cash equivalents $ 26,280 $ 24,503 $ 14,957 $ 5,639 $ 58,383 Marketable securities - 5,482 17,627 56,133 - Total assets 324,080 261,400 152,074 124,576 125,885 Long-term debt 79,303 50,532 7,787 - - Stockholders' equity(6) 130,110 131,683 93,861 103,081 107,172
- -------------------------------------------------------------------------------- (1) Effective September 1, 1997, the Company changed its 52/53 week fiscal year which ends on the Sunday nearest August 31 to a fiscal year end of August 31. For ease of presentation, all fiscal years in this report are referred to as having ended on August 31. (2) Prior to fiscal year 1998, the Company operated as certain subsidiaries of Price Enterprises, Inc. ("PEI"). Accordingly, the financial data of the Company prior to fiscal year 1998 has been prepared as though the Company had been a stand-alone business. (3) Prior to fiscal year 1998, PEI provided administrative services to the Company. The amount allocated to the Company for corporate administrative expenses for fiscal year 1997 was $1,065. (4) Net interest and other income (expense) includes interest income, gains and losses on sale of assets, interest on bank borrowings and minority interest of shareholders in joint venture businesses. (5) For fiscal year 1997, loss per share is based on the 5,908,235 shares issued in connection with the distribution (see Note 2). (6) Prior to fiscal year 1998, stockholders' equity represents the net assets transferred and the earnings of the businesses and assets comprising PriceSmart, Inc. on a historical basis. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Annual 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 from the statements, including foreign exchange risks, political or economic instability of host countries, and competition, as well as those risks described in the Company's reports filed with the Securities and Exchange Commission, including the Company's most recent Annual Report on Form 10-K filed pursuant to the Securities and Exchange Act of 1934. The following discussion and analysis compares the results of operations for each of the three fiscal years ended August 31, 2001 and should be read in conjunction with the consolidated financial statements and the accompanying notes included elsewhere in this report. In fiscal 2001, the Company opened six new US-style membership shopping warehouses operating in Central America, the Caribbean and Asia, with one each in the Dominican Republic (October 2000), Aruba (March 2001), the US Virgin Islands (May 2001), the Philippines (May 2001), Guatemala (May 2001), and Barbados (August 2001) bringing the total number of warehouses in operation to twenty-two operating in eleven countries as of August 31, 2001. This compares to sixteen warehouses operating in seven countries at the end of fiscal 2000 and five warehouses operating in four countries at the end of fiscal 1999. Subsequent to fiscal 2001, the Company opened one additional location in the Philippines in November 2001. Also, there were nine warehouse stores in operation licensed to and operated by local business people at the end of fiscal 2001, versus six licensed warehouse stores at the end of fiscal 2000 and four licensed warehouse stores at the end of fiscal 1999. The Company seeks to establish significant market share in the metropolitan areas of emerging market countries by rapidly saturating these areas with second and third stores. Same-store-sales (where at least one-third of the Company's stores have comparative prior period sales in metropolitan markets that have not had additional store openings), representing thirteen of the twenty-two warehouse stores in operation, increased 4.8% in fiscal 2001. Same store sales, including stores in metropolitan markets with additional store openings, representing fourteen warehouses, in the past year decreased 5.9%. As of August 31, 2001, the average life of the twenty-two warehouses in operation was eighteen months. Net warehouse sales increased 62% to $473.1 million in fiscal 2001 from $292.0 million in fiscal 2000. The increase was primarily a result of the six new warehouses opened throughout fiscal 2001 and a full year of operations from eleven new warehouses opened in the prior fiscal year. Net warehouse sales increased 227% to $292.0 million in fiscal 2000 from $89.2 million in fiscal 1999. The increase was primarily a result of eleven new warehouses opened during fiscal 2000 and a full year of operations related to three new warehouses opened in fiscal 1999. The Company's warehouse gross profit margins (defined as net warehouse sales less associated cost of goods sold) for fiscal 2001 were 14.4% compared to 12.3% for fiscal 2000. The increase in gross profit margins is a result of the Company's increased purchasing power resulting in lower costs of purchased goods, an increase in sales penetration of higher margin non-food items, lower shrink costs in fiscal 2001 and the planned lower margins associated with the rapid expansion in fiscal 2000. The Company's warehouse gross profit margins for fiscal 2000 were 12.3% compared to 12.4% for fiscal 1999. The change between fiscal 2000 and fiscal 1999 is primarily a result of anticipated lower margins during the initial entry into a market, which resulted from the Company opening eleven new warehouses in fiscal 2000, compared to three in fiscal year 1999. Export sales to the Company's licensee warehouses in Asia in fiscal 2001 were $500,000 compared to $421,000 and $6.8 million for fiscal years 2000 and 1999, respectively. The change between years is a factor of the number of licensees in operation and associated export sales. The Company anticipates export sales to its licensees to be $1.5 million in fiscal 2002. The Company's export sales gross margin for fiscal 2001 was 3.6% compared to 3.8% and 3.2% for fiscal years 2000 and 1999, respectively. The gross margin percentages on export sales are based on the varying agreements the Company has with its licensees and the gross margin amount that the Company can earn under these agreements. Membership fees and other, including royalties earned from licensees, increased 87% to $15.3 million in fiscal 2001 from $8.2 million in fiscal 2000. Membership fees (which include rental income, advertising revenues and vendor promotions) increased to $14.3 million, or 3.0% of net warehouse sales, from $7.4 million, or 2.5% of net warehouse sales, in fiscal year 2000. The increase was a result of the six new warehouses opened in fiscal 2001, which resulted in an increase in the total memberships to 524,000 at the end of fiscal 2001 from 414,000 at the end of fiscal 2000, and increases in rental and advertising revenues between the periods presented. Royalties increased to $1.0 million in fiscal 2001 from $840,000 in fiscal 2000. The increase in royalties was primarily due to the increase in number of licensees in fiscal 2001 compared with fiscal 2000. Membership fees and other, including royalties earned from licensees, increased 309% to $8.2 million in fiscal 2000 from $2.0 million in fiscal 1999. Membership fees (which include rental income, advertising revenues and vendor promotions) increased to $7.4 million, or 2.5% of net warehouse sales, from $1.3 million, or 1.5% of net warehouse sales, in fiscal year 1999. The increase was a result of the eleven new warehouses opened in fiscal 2000, which resulted in an increase in the total memberships to 414,000 at the end of fiscal 2000 from 148,000 at the end of fiscal 1999. Royalties increased to $840,000 in fiscal 2000 from $674,000 in fiscal 1999. The increase in royalties was primarily due to the increase in number of licensees in fiscal 2000 compared with fiscal 1999. The Company sold its travel program in March 2000 (fiscal 2000) and its auto referral program in March 1999 (fiscal 1999), accounting for the change in revenue for the periods presented. Warehouse operating expenses increased to $53.2 million, or 11.2% of net warehouse sales, for fiscal 2001 from $34.1 million, or 11.7% of net warehouse sales, for fiscal 2000. The increase in warehouse operating expenses is attributable to the six additional warehouses opened in fiscal 2001. The decrease in warehouse operating expenses as a percentage of net warehouse sales in fiscal 2001 is attributable to the leveraging of centralized warehouse costs over additional warehouses. Warehouse operating expenses increased to $34.1 million, or 11.7% of net warehouse sales, for fiscal 2000 from $9.6 million, or 10.8% of net warehouse sales, for fiscal 1999. The increase in warehouse operating expenses is attributable to the eleven additional warehouses opened in fiscal 2000. The increase in warehouse operating expenses as a percentage of net warehouse sales is primarily attributable to higher costs realized in the first year of operations of the eleven warehouses opened in fiscal 2000, and from cannibalization of sales from additional locations operating in the same metropolitan markets. General and administrative expenses decreased to $17.6 million, or 3.7% of net warehouse sales, for fiscal 2001 from $17.9 million, or 6.1% of net warehouse sales, for fiscal 2000, resulting primarily from operating cost reduction initiatives. As a percentage of net warehouse sales, general and administrative expenses declined in fiscal 2001 due to sales leverage from additional warehouse openings in fiscal 2001 and 2000. General and administrative expenses increased to $17.9 million, or 6.1% of net warehouse sales, for fiscal 2000 from $15.5 million, or 17.3% of net warehouse sales, for fiscal 1999. As a percentage of net warehouse sales, general and administrative expenses declined in fiscal 2000 due to sales leverage from the additional warehouse openings in fiscal 2000 and 1999. Travel and auto selling, general and administrative expenses represent the respective operating expenses incurred by both the travel and auto programs. The travel program was sold in March 2000 (fiscal 2000) and the auto referral program was sold in April 1999 (fiscal 1999), accounting for the change between the periods presented. Pre-opening expenses, which represent expenses incurred before a warehouse store is in operation, decreased to $4.9 million in fiscal 2001 from $7.7 million in fiscal 2000 and remained flat compared to fiscal 1999. The changes between the periods presented are a result of opening six, eleven and three new warehouses in fiscal 2001, 2000 and 1999, respectively. Interest income reflects earnings on marketable securities, cash and cash equivalent balances, City Notes (see "Notes to Consolidated Financial Statements") and certain secured notes receivable from buyers of formerly owned properties. Interest income decreased to $3.2 million in fiscal 2001 from $3.9 million and $5.3 million in fiscal 2000 and 1999, respectively. 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 warehouses, and was $7.7 million (net of capitalized interest of $730,000) for fiscal 2001 compared with $2.9 million (net of capitalized interest of $891,000) and $143,000 in fiscal 2000 and 1999, respectively. The increases in interest expense are a result of increased borrowings by the Company to finance the additional warehouses opened during each of the periods presented. In fiscal 2001, the Company sold excess real estate properties owned by its wholly owned foreign subsidiaries in the Dominican Republic, Costa Rica and Panama, and its majority owned subsidiary in Trinidad. The sale of the excess land resulted in a gain of $2.0 million, of which the Company's share was $1.5 million. During fiscal 2000, the Company sold its travel program and City Notes for $1.5 million and $22.5 million, respectively. The Company recognized gains arising from these transactions of $1.1 million and $3.9 million for the travel program and City Notes, respectively. In fiscal 1999, the Company sold its auto referral program and real estate properties resulting in gains of $798,000 and $1.8 million, respectively. During fiscal 2001, the Company recognized foreign net deferred tax assets of $2,238,000 as a result of transitioning most of the Company's foreign operations to profitability in fiscal 2001. The Company also incurred current income tax expense of $1,652,000 for a net tax benefit of $586,000. 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 2002, the Company's current intention is to spend an aggregate between $30 million to $44 million for land, construction and equipment for four to six new warehouses (one of which opened subsequent to the fiscal year-end). 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 increase bank borrowings by $20 million to $27 million during fiscal 2002, depending on the number of stores opened, and to use these proceeds, as well as excess cash and cash generated from existing operations, to finance these expenditures. On April 5, 2001, the Company repurchased 242,144 shares of its common stock for an aggregate of approximately $11.4 million in cash. The Company repurchased these shares pursuant to its obligations under the Stock Purchase Agreement, as amended, relating to the Company's acquisition in March 2000 of the 49% minority interest in its Panamanian subsidiaries which previously had been owned by BB&M International Trading Group ("BB&M"). In exchange for BB&M's 49% interest, the Company issued to BB&M's principals 306,748 shares of the Company's common stock and agreed to redeem the shares 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. The Company has agreed to redeem 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. In April 2001, the Company sold 67,700 shares of common stock previously held as treasury stock in a private placement for $39.00 per share for total proceeds of approximately $2.6 million. The Company believes that borrowings under its current and future credit facilities, together with its other sources of liquidity, 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 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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company, through its majority or wholly owned subsidiaries, conducts foreign operations primarily in Central America, the Caribbean, and Asia, and as such is subject to both economic and political instabilities that cause volatility in foreign currency exchange rates or weak economic conditions. At the end of fiscal 2001, the Company had a total of twenty-two warehouses operating in eleven foreign countries. Fifteen of the twenty-two warehouses operate in foreign currencies other than the U.S. dollar. For fiscal 2001, 70% of the Company's net warehouse sales were in foreign currencies. 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 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 business, financial condition, operating results, cash flow or liquidity, as a result of the economic and political risks of conducting an international merchandising business. In fiscal 2001, the foreign currency translation adjustment for the Company's non-U.S. denominated majority or wholly owned subsidiaries operating in Central America, the Caribbean and Asia increased to $962,000 from $633,000 and $245,000 at the end of fiscal 2000 and fiscal 1999, 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 manages its risks at times by hedging currencies through Non Deliverable Forward Exchange Contracts (NDF). As of August 31, 2001, the Company had $2.0 million in NDFs outstanding. As there is no formal contemporaneous documentation for NDFs and no physical exchange of currency occurs at maturity (only the resulting gain or loss), they are not reflected on the balance sheet. If the NDFs were recorded based on their fair values, the effect would be immaterial. The Company may continue to 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 exist. Foreign exchange transaction losses realized, which are included as a part of the costs of goods sold in the consolidated statements of operations, for fiscal 2001, fiscal 2000 and fiscal 1999 (including the cost of the NDFs) were $718,000, $1.3 million and $538,000, respectively. The Company is 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 by approximately $850,000. FINANCIAL STATEMENTS PRICESMART, INC. INDEX TO FINANCIAL STATEMENTS Report of Independent Auditors Consolidated Balance Sheets as of August 31, 2001 and 2000 Consolidated Statements of Operations for the three years ended August 31, 2001 Consolidated Statements of Stockholders' Equity for the three years ended August 31, 2001 Consolidated Statements of Cash Flows for the three years ended August 31, 2001 Notes to Consolidated Financial Statements REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS THE BOARD OF DIRECTORS AND STOCKHOLDERS PRICESMART, INC. We have audited the accompanying consolidated balance sheets of PriceSmart, Inc. as of August 31, 2001 and 2000 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended August 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of PriceSmart, Inc. at August 31, 2001 and 2000 and the consolidated results of its operations and its cash flows for each of the three years in the period ended August 31, 2001 in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP San Diego, California November 2, 2001 PRICESMART, INC. CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
August 31, ----------------------- 2001 2000 --------- --------- ASSETS Current assets Cash $ 26,280 $ 24,503 Marketable securities - 5,482 Receivables, net of allowance for doubtful accounts of $58 and $41 in 2001 and 2000, respectively 6,134 1,732 Merchandise inventories 71,297 54,949 Prepaid expenses and other current assets 6,249 5,286 Property held for sale 726 1,652 --------- --------- Total current assets 110,686 93,604 Restricted cash 24,207 12,698 Property and equipment, net 163,200 128,985 Goodwill, net 20,128 19,178 Deferred tax asset 2,357 119 Note receivable and other 3,502 6,816 --------- --------- TOTAL ASSETS $324,080 $261,400 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 22,205 $9,493 Accounts payable 60,789 43,312 Accrued salaries and benefits 3,551 3,086 Deferred membership income 4,371 3,892 Income tax payable 1,643 - Other accrued expenses 7,073 5,946 Long-term debt, current portion 6,842 8,773 --------- --------- Total current liabilities 106,474 74,502 Long-term debt, less current portion 79,303 50,532 --------- --------- Total liabilities 185,777 125,034 Minority interest 8,193 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, 6,928,690 and 6,812,485 shares issued and outstanding in 2001 and 2000, respectively 1 1 Additional paid-in capital 150,906 148,970 Notes receivable from stockholders (769) (1,000) Deferred compensation (307) (679) Accumulated other comprehensive loss (962) (695) Accumulated deficit (2,924) (6,308) Less: Treasury stock at cost 697,167 and 555,093 shares in 2001 and 2000, respectively (15,835) (8,606) --------- --------- Total stockholders' equity 130,110 131,683 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $324,080 $261,400 ========= =========
See accompanying notes. PRICESMART, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended August 31, --------------------------------------------- 2001 2000 1999 ----------- ----------- ------------- Revenues: Sales: Net warehouse $473,127 $ 292,013 $ 89,184 Export 500 421 6,773 Membership fees and other 15,323 8,216 2,008 Travel and auto programs - 3,965 10,907 ----------- ----------- ------------- Total revenues 488,950 304,615 108,872 Expenses: Cost of goods sold: Net warehouse 405,239 256,247 78,081 Export 482 405 6,557 Selling, general and administrative: Warehouse operations 53,215 34,133 9,588 General and administrative 17,561 17,896 15,469 Travel and auto expenses - 1,520 6,964 Goodwill Amortization 998 223 - Preopening expenses 4,866 7,681 4,949 ----------- ----------- ------------- Total expenses 482,361 318,105 121,608 ----------- ----------- ------------- Operating income (loss) 6,589 (13,490) (12,736) Other income (expense): Interest income 3,240 3,891 5,257 Interest expense (7,721) (2,866) (143) Other income (expense) (76) (61) 452 Gain on sale: Travel (related party) and auto - 1,133 798 City notes (related party) - 3,948 - Real estate 1,955 - 1,757 Minority interest (840) 1,882 913 ----------- ----------- ------------- Total other income (expense) (3,442) 7,927 9,034 Income (loss) before provision (benefit) for income taxes and extraordinary items 3,147 (5,563) (3,702) Provision (benefit) for income taxes (586) (119) 190 ----------- ----------- ------------- Income (loss) before extraordinary items $ 3,733 $ (5,444) $ (3,892) Extraordinary items, net of tax: Earthquake (120) - - Debt restructuring (229) - - ----------- ----------- ------------- Net income (loss) $ 3,384 $ (5,444) $ (3,892) =========== =========== ============= Basic earnings (loss) per share: Income (loss) before extraordinary items $ 0.60 $ (1.01) $ (0.76) Extraordinary items $ (0.06) $ - $ - ----------- ----------- ------------- Net income (loss) $ 0.54 $ (1.01) $ (0.76) =========== =========== ============= Diluted earnings (loss) per share: Income (loss) before extraordinary items $ 0.56 $ (1.01) $ (0.76) Extraordinary items $ (0.05) $ - $ - ----------- ----------- ------------- Net income (loss) $ 0.51 $ (1.01) $ (0.76) =========== =========== ============= Shares used in per share computation: Basic 6,254 5,386 5,120 =========== =========== ============= Diluted 6,658 5,386 5,120 =========== =========== =============
See accompanying notes. PRICESMART, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE THREE YEARS ENDED AUGUST 31, 2001 (AMOUNTS IN THOUSANDS)
Common Stock Additional Notes ------------------ paid-in receivable from Deferred Shares Amount capital stockholders Compensation ------- ------- ---------- ---------------- ------------ Balance at August 31, 1998 6,004 $ 1 $108,873 $ (697) $ - Issuance of common stock for cash and notes receivable 16 - 424 (387) - Exercise of stock options 51 - 585 - - Purchase of treasury stock - - - - - Cancellation of notes receivable from stockholders (4) - (65) 126 - Payment on notes receivable from stockholder - - - 8 - Deferred compensation related to grant of stock options - - 2,355 - (2,355) Amortization of deferred compensation - - - - 1,073 Compensation expense related to the issuance of common stock - - 485 - - Retirement of common stock held in treasury (76) - (1,174) - - Net loss - - - - - Net unrealized loss on marketable securities - - - - - Translation adjustment - - - - - Comprehensive loss - - - - - ------- ------- ---------- ---------------- ------------ Balance at August 31, 1999 5,991 1 111,483 (950) (1,282) Issuance of common stock for cash and notes receivable - - 92 (150) - Exercise of stock options 142 - 1,616 - - Issuance of stock in exchange for minority interest 680 - 35,779 - - Amortization of deferred compensation - - - - 603 Payment on notes receivable from stockholders - - - 100 - Net loss - - - - - Net unrealized gain on marketable securities - - - - - Translation adjustment - - - - - Comprehensive loss - - - - - ------- ------- ---------- ---------------- ------------ Balance at August 31, 2000 6,813 1 148,970 (1,000) (679) Exercise of stock options 96 - 922 - - Repurchase of common stock - Panama acquisition - - (884) - - Sale of treasury stock - - 1,103 - - Issuance of stock in exchange for minority interest 20 - 795 - - Payment on notes receivables from stockholders - - - 231 - Amortization of deferred compensation - - - - 372 Net income - - - - - Net unrealized gain on marketable securities - - - - - Translation adjustment - - - - - Comprehensive income - - - - - ------- ------- ---------- ---------------- ------------ Balance at August 31, 2001 6,929 $ 1 $150,906 $ (769) $ (307) ======= ======= ========== ================ ============
See accompanying notes.
Other Comprehensive Retained Treasury Stock at Cost Total income earnings --------------------- stockholders' (loss) (deficit) Shares Amount equity ------------- ----------- -------- -------- ----------- Balance at August 31, 1998 $ 519 $ 3,028 550 $ (8,643) $103,081 Issuance of common stock for cash and notes receivable - - - - 37 Exercise of stock options - - - - 585 Purchase of treasury stock - - 434 (6,605) (6,605) Cancellation of notes receivable from stockholders - - - - 61 Payment on notes receivable from stockholder - - - - 8 Deferred compensation related to grant of stock options - - - - - Amortization of deferred compensation - - - - 1,073 Compensation expense related to the issuance of common stock - - - - 485 Retirement of common stock held in treasury - - (76) 1,174 - Net loss - (3,892) - - (3,892) Net unrealized loss on marketable securities (727) - - - (727) Translation adjustment (245) - - - (245) ----------- Comprehensive loss - - - - (4,864) ------------- ----------- -------- -------- ----------- Balance at August 31, 1999 (453) (864) 908 (14,074) 93,861 Issuance of common stock for cash and notes receivable - - (4) 58 - Exercise of stock options - - (17) 265 1,881 Issuance of stock in exchange for minority interest - - (332) 5,145 40,924 Amortization of deferred compensation - - - - 603 Payment on notes receivable from stockholders - - - - 100 Net loss - (5,444) - - (5,444) Net unrealized gain on marketable securities 146 - - - 146 Translation adjustment (388) - - - (388) ----------- Comprehensive loss - - - - (5,686) ------------- ----------- -------- -------- ----------- Balance at August 31, 2000 (695) (6,308) 555 (8,606) 131,683 Exercise of stock options - - (32) 646 1,568 Repurchase of common stock - Panama acquisition - - 242 (9,413) (10,297) Sale of treasury stock - - (68) 1,538 2,641 Issuance of stock in exchange for minority interest - - - - 795 Payment on notes receivables from stockholders - - - - 231 Amortization of deferred compensation - - - - 372 Net income - 3,384 - - 3,384 Net unrealized gain on marketable Securities 62 - - - 62 Translation adjustment (329) - - - (329) ----------- Comprehensive income - - - - 3,117 ------------- ----------- -------- -------- ----------- Balance at August 31, 2001 $ (962) $(2,924) 697 $(15,835) $130,110 ============= =========== ======== ======== ===========
See accompanying notes. PRICESMART, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS)
Years Ended August 31, --------------------------------------------- 2001 2000 1999 ----------- ------------ ------------- OPERATING ACTIVITIES Net income (loss) $ 3,384 $(5,444) $ (3,892) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 9,414 4,610 1,622 Goodwill amortization 998 223 - Allowance for doubtful accounts 17 (443) 30 Gain on sale of City Notes (related party) - (3,948) - Gain on sale of travel program (related party) - (1,133) - Gain on sale of real estate (1,955) - - Extraordinary loss 349 - - Income tax provision (benefit) (586) (119) 190 Minority interest 840 (1,882) (1,096) Compensation expense recognized for stock options 372 603 1,558 Change in operating assets and liabilities: Restricted cash (11,509) (2,503) (7,191) Accounts receivable and other assets (25,227) (28,729) (18,778) Accounts payable and other liabilities 21,173 24,883 19,721 Other 62 146 (137) ----------- ------------ -------------- Net cash flows used in operating activities (2,668) (13,736) (7,973) INVESTING ACTIVITIES Purchase of marketable securities - - (44,638) Sale of marketable securities 5,482 12,145 82,417 Additions to property and equipment (45,421) (79,101) (37,156) Payment(disbursement)of notes receivable 3,768 (2,597) 2,027 Proceeds from sale of real estate 4,185 - - Proceeds from sale of City notes (related party) - 22,534 - Proceeds from sale of travel business (related party) - 1,500 - Proceeds from sale of property held for sale 926 440 2,760 Panama acquisition - repurchase of common stock (11,347) - - ----------- ------------ -------------- Net cash flows provided by (used in) investing activities (42,407) (45,079) 5,410 FINANCING ACTIVITIES Proceeds from bank borrowings 75,342 62,653 8,912 Repayment of bank borrowings (35,789) (2,350) (4,200) Contributions by minority interest shareholders 3,188 6,465 14,547 Distributions to minority shareholders - - (1,029) Proceeds from exercise of stock options 1,568 1,881 585 Issuance of common stock - - 37 Payment on notes receivable from stockholders 231 100 8 Sale (purchase) of treasury stock 2,641 - (6,605) Other - - (129) ----------- ------------ -------------- Net cash flows provided by financing 47,181 68,749 12,126 activities Effect of exchange rate changes on cash and cash equivalents (329) (388) (245) ----------- ------------ -------------- Net increase in cash and cash equivalents 1,777 9,546 9,318 Cash and cash equivalents at beginning of year 24,503 14,957 5,639 Cash and cash equivalents at end of year $ 26,280 $ 24,503 $ 14,957 =========== ============ ============== Supplemental disclosure of cash flow information Cash paid during the period for: Interest, net of amounts capitalized $ 6,801 $ 2,324 $ 143 Income taxes $ 1,739 $ 677 $ 129
See accompanying notes. PRICESMART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - COMPANY OVERVIEW 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 August 31, 2001, the Company had twenty-two warehouse stores in operation (four in Panama, three each in Guatemala, Costa Rica,and the Dominican Republic, two each in El Salvador and Honduras, and one each in Aruba, Barbados, the Philippines, Trinidad, and the U.S. Virgin Islands) of which the Company owns at least a majority interest. In fiscal 2001, the Company increased its ownership from 62.5% to 90% in the operations in Trinidad (see Note 13). In fiscal 2000, the Company increased its ownership from 51% to 100% in the operations in Panama and increased its ownership from 60% to 100% in the operations in Costa Rica, Dominican Republic, El Salvador and Honduras (see Note 13). In addition, there were nine warehouse stores in operation (eight in China and one in Saipan) licensed to and operated by local business people as of August 31, 2001. Additionally, until March 1, 2000, the Company operated a domestic travel program (see Note 9) and until April 1, 1999, the Company operated a domestic auto referral business (see Note 9). The Company principally operates under one segment in three geographic regions. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements 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.
OWNERSHIP BASIS OF PRESENTATION ----------------- ------------------------ Ventures Services, Inc. 100.0% Consolidated PriceSmart Panama (see Note 13) 100.0% Consolidated PriceSmart US Virgin Islands 100.0% Consolidated PriceSmart Guam 100.0% Consolidated PriceSmart Guatemala 66.0% Consolidated PriceSmart Trinidad (see Note 13) 90.0% Consolidated PriceSmart Aruba 60.0% Consolidated PriceSmart Barbados 51.0% Consolidated PriceSmart Jamaica 67.5% Consolidated PriceSmart Philippines 60.0% Consolidated PSMT Caribe, Inc. (see Note 13): 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. 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. MARKETABLE SECURITIES In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Debt and Equity Securities", marketable securities are classified as available-for-sale. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported in a separate component of the stockholders' equity. The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses in value judged to be other-than-temporary, if any, on available-for-sale securities are included in other income (expense). The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income. 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
LONG-LIVED ASSETS Long-lived assets are being amortized on a straight-line basis over the periods that expected economic benefits will be provided. Management estimates such periods of economic benefits based on undiscounted cash flows, profitability projections and the ability of the business to perform within those projections. The Company periodically reviews long-lived assets, including those assets that are anticipated of being disposed of. No such indicators of impairment were present in the fiscal years presented. REVENUE RECOGNITION The Company recognizes sales revenue when title passes to the customer. Membership fee income represents annual membership fees paid by the Company's warehouse members, which are recognized over the 12-month term of the membership. The historical membership fee refunds have been minimal and, accordingly, no reserve has been established for membership refunds for the periods presented. PRE-OPENING COSTS The Company expenses pre-opening costs (the costs of start-up activities, including organization costs) as incurrred. STOCK-BASED COMPENSATION SFAS No. 123, "Accounting for Stock-Based Compensation," establishes the use of fair value based method for stock-based compensation arrangements, under which compensation is determined using the fair value of stock-based compensation determined as of the grant date, and is recognized over the periods in which the related services are rendered. SFAS No. 123 also permits companies to elect to continue using the current intrinsic value accounting method specified in Accounting Principles Board Opinion ("APB") No. 25 to account for stock-based compensation. The Company has decided to retain the current intrinsic value based method, and has disclosed the pro forma effect of using the fair value based method for its stock-based compensation. When the exercise price of the stock option is less than the fair value price of the underlying stock on the grant date, deferred stock compensation is recognized and amortized to expense in accordance with FASB Interpretation No. 28 ("FIN 28"), "Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans",over the vesting period of the individual option. The Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 44 ("FIN 44"), "Accounting of Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25" ("APB 25"). FIN 44 clarifies the application of APB 25 for (a) the definition of employee for purposes of applying APB 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000, and did not have a material effect on the Company's financial position or results of operations. FOREIGN CURRENCY TRANSLATION In accordance with SFAS No. 52 "Foreign Currency Translation", the assets and liabilities of the Company's foreign operations are primarily 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 and intangible net assets acquired is included in goodwill in the accompanying consolidated balance sheets. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING TRANSACTIONS In fiscal 2001, the Company adopted Financial Accounting Standards Board ("FASB") Statements No. 133 ("SFAS 133") pertaining to the accounting for derivatives and hedging activities. SFAS 133 requires all derivatives to be recorded on the balance sheet at fair value and establishes accounting treatment for three types of hedges: hedges of changes in the fair value of assets, liabilities, or firm commitments; hedges of the variable cash flows of forecasted transactions; and hedges of foreign currency exposures of net investments in foreign operations. The adoption of SFAS 133 did not have a material impact on the Company's consolidated financial statements. ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB")issued Statements of Financial Accounting Standards No. 141, "Business Combinations", and No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of fiscal 2002. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of approximately $1.1 million per year. During fiscal 2002, the Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of February 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company. Accounting for the Impairment or Disposal of Long-Lived Assets - Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144) was issued in August 2001 and will become effective for the Company beginning in fiscal 2003. Prior period financial statements will not be restated upon the adoption of this Statement. This Statement establishes a number of rules for the recognition, measurement and display of long-lived assets which are impaired and either held for sale or continuing use within the business. In addition, the Statement broadly expands the definition of a discontinued operation to individual reporting units or asset groupings for which identifiable cash flows exist. RECLASSIFICATIONS Certain amounts in the prior period consolidated financial statements have been reclassified to conform to current period presentation. NOTE 3 - PROPERTY AND EQUIPMENT Property and equipment consist of the following (in thousands):
AUGUST 31, -------------------------------- 2001 2000 ------------- -------------- PROPERTY AND EQUIPMENT: Land $ 30,232 $ 29,779 Building and improvements 87,305 61,649 Fixtures and equipment 56,135 40,299 Construction in progress 7,396 5,712 ------------- -------------- 181,068 137,439 Less: accumulated depreciation (17,868) (8,454) ------------- -------------- Property and equipment, net $ 163,200 $ 128,985 ============= ==============
Building includes capitalized interest of $730,000 and $891,000 as of August 31, 2001 and 2000, respectively. 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 their inclusion is antidilutive (amounts in thousands, except per share data):
YEARS ENDED AUGUST 31, -------------------------------------------- 2001 2000 1999 ------------- ------------- ------------- Income (loss) before extraordinary loss $ 3,733 $(5,444) $(3,892) Extraordinary items, net of tax (349) - - ------------- ------------- ------------- Net income (loss) $ 3,384 $(5,444) $(3,892) ============= ============= ============= Determination of shares (000's): Common shares outstanding 6,254 5,386 5,120 Assumed conversion of stock options 404 - - ------------- ------------- ------------- Diluted average common shares outstanding 6,658 5,386 5,120 Basic earnings (loss) per share: Income (loss) before extraordinary items $ 0.60 $ (1.01) $ (0.76) Extraordinary items $ (0.06) $ - $ - ------------- ------------- ------------- Net income (loss) $ 0.54 $ (1.01) $ (0.76) ============= ============= ============= Diluted earnings (loss) per share: Income (loss) before extraordinary items $ 0.56 $ (1.01) $ (0.76) Extraordinary items $ (0.05) $ - $ - ------------- ------------- ------------- Net income (loss) $ 0.51 $ (1.01) $ (0.76) ============= ============= =============
NOTE 5 - MARKETABLE SECURITIES The following is a summary of marketable securities classified as available-for-sale as of August 31, 2000 (in thousands):
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUES ----------- ------------ ------------- ----------- 2000 Commercial company bonds $ 5,544 $ - $ (62) $ 5,482
The fair value of the marketable securities is based on quoted market prices for the same or similar type issues. For fiscal 2001, there were no gross realized gains or losses. Gross realized losses were $104,000 for fiscal 2000. NOTE 6 - RETIREMENT PLAN PriceSmart offers a defined contribution retirement and 401(k) plans to employees. Employees become eligible for these plans after one year of employment. Enrollment in these plans begins on the first of the month following the employee's one-year anniversary date. Prior to fiscal 2001, retirement contributions, if any, were based on a discretionary amount determined by the Board of Directors and were allocated to each participant based on the relative compensation of the participant, subject to certain limitations. During fiscal 2001, the plan was amended to eliminate discretionary contributions. Profit sharing contributions were $0, $321,000 and $361,000 for fiscal 2001, 2000 and 1999, respectively. The Company makes contributions that are nondiscretionary and equal to 100% of the participant's contribution up to an anuual maximum of 4% of base compensation that a participant contributes to the plan. Employer contributions to the 401(k) plan were $178,000, $25,000, and $27,000 during fiscal 2001, 2000 and 1999, respectively. NOTE 7 - STOCK OPTION PLAN AND EQUITY PARTICIPATION PLAN On August 6, 1997, the Company adopted the 1997 Stock Option Plan of PriceSmart, Inc. (the "1997 Plan") for the benefit of its eligible employees, consultants and independent directors. Under the 1997 Plan, 700,000 shares of the Company's common stock are authorized for issuance. The Compensation Committee of the Board of Directors administers the 1997 Plan with respect to grants to employees or consultants of the Company, and the full Company Board of Directors administers the Plan with respect to director options. Options issued under the 1997 Plan typically vest over five years and expire in six years. In January 1999, the Company adopted the 1998 Equity Participation Plan (the "Equity Plan") for the benefit of its eligible employees, consultants and independent directors. The Equity Plan authorizes 700,000 shares of the Company's common stock for issuance. Options issued under the Equity Plan typically vest over five years and expire in six years. The Equity Plan also allows the Company to make loans to participants for the purchase of shares. As of August 31, 2001, outstanding loans were $769,000. The loans are with full recourse and interest is payable semi-monthly at 5.85% with the principal due in six years. Total stock option activity relating to the 1997 Plan and Equity Plan was as follows: - --------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES EXERCISE PRICE ------------------ ---------------------- Balance at August 31, 1998 633,736 $13.94 Granted 729,185 19.45 Exercised (51,253) 11.43 Cancelled (116,867) 15.17 ------------------ ---------------------- Balance at August 31, 1999 1,194,801 $17.29 Granted 111,900 38.17 Exercised (158,891) 12.13 Cancelled (114,429) 20.97 ------------------ ---------------------- Balance at August 31, 2000 1,033,381 $19.94 Granted 102,770 36.68 Exercised (138,882) 13.68 Cancelled (60,346) 28.78 ------------------ ---------------------- Balance at August 31, 2001 936,923 $22.93
- -------------------------------------------------------------------------------- As of August 31, 2001, options to purchase 413,819 shares were exercisable and there were 1,026,173 shares, of Common Stock reserved for future issuance. The following table summarizes information about stock options outstanding at August 31, 2001: - --------------------------------------------------------------------------------
OUTSTANDING WEIGHTED-AVERAGE WEIGHTED- EXERCISABLE WEIGHTED- RANGE OF AS OF REMAINING AVERAGE AS OF AVERAGE EXERCISE PRICES 8/31/01 CONTRACTUAL LIFE EXERCISE PRICE 8/31/01 EXERCISE PRICE --------------- ----------- ---------------- -------------- ----------- ---------- $ 8.25 - $12.38 4,261 0.3 $ 11.64 4,261 $ 11.64 12.38 - 16.50 393,412 2.6 15.59 226,918 15.62 16.50 - 20.63 247,920 2.6 17.65 135,940 17.57 28.88 - 33.00 49,900 6.0 32.13 - - 33.00 - 37.13 27,900 5.7 35.02 2,980 35.00 37.13 - 41.25 213,530 4.9 39.06 43,720 38.33 --------------- ----------- ---------------- -------------- ----------- ---------- $ 8.25 - 41.25 936,923 3.4 $ 22.93 413,819 18.76
- -------------------------------------------------------------------------------- The weighted-average fair value of the stock options granted during 2001 and 2000 were $14.49 and $18.08, respectively. The Company recorded deferred compensation of $2.4 million in connection with the grants of certain stock options to employees during fiscal 1999. A total of 552,291 options were issued at a price lower than market on date of grant. On date of grant the market price was $20.25 while 81,250 options were issued with an exercise price of $16.25, 446,041 options were issued with an exercise price of $15.50 and 25,000 options were issued with an exercise price of $14.75. The deferred compensation is being amortized ratably over the vesting period of the respective options in accordance with FIN 28. Pro forma information regarding net income is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method prescribed by SFAS No. 123. The fair value of each option grant is estimated on the date of grant using the "Black-Scholes" option-pricing model with the following weighted average assumptions used for grants in fiscal 2001, 2000, and 1999: - --------------------------------------------------------------------------------
2001 2000 1999 ------- ------- ------- Risk free interest rate 6% 6% 6% Expected life 5 years 6 years 6 years Expected volatility 42.5% 42.6% 42.7% Expected dividend yield 0% 0% 0%
- -------------------------------------------------------------------------------- For the purpose of pro forma disclosures, the estimated fair value of the options granted is amortized to expense over the options' vesting period. The Company's pro forma information for the years ended August 31, 2001, 2000, and 1999 were as follows: - --------------------------------------------------------------------------------
2001 2000 1999 ------- ------- ------- Pro forma net income (loss) (in thousands) $ 2,911 $ (6,715) $ (5,072) Pro forma earnings (loss) per share diluted $ 0.44 $ (1.13) $ (0.99)
- -------------------------------------------------------------------------------- The pro forma effect on net income for 2001 and net losses for 2000 and 1999 is not likely to be representative of the pro forma effect on reported earnings in future years. NOTE 8 - CITY NOTES RECEIVABLE The City Notes, with interest rates ranging from 8% to 10%, which were sold in April 2000 (see Note 9), represent amounts loaned to U.S. municipalities and agencies to facilitate real property acquisition and improvements. Repayment of the majority of these notes were generally based on that municipality's allocation of sales tax revenues generated by retail businesses located on the particular property associated with such City Note. City Note repayments were calculated in accordance with specific revenue sharing agreements, and, under the terms of most City Notes, the unpaid balance of the note was to be forgiven on its maturity date. Interest income was recognized based upon the stated interest rates and amounted to $948,000 and $1.7 million for the years ended August 31, 2000 and 1999, respectively. NOTE 9 - SALE OF ASSETS During fiscal 2001, the Company, through its majority and wholly owned subsidiaries, sold $2.2 million in land. The properties were mainly excess land surrounding its warehouses. These sales resulted in a gain of approximately $2.0 million. On April 5, 2000, the Company sold its City Notes for $22.5 million to the Price Family Charitable Trust ("Trust"), a California trust (see Note 16). The Company recognized a gain of approximately $3.9 million arising from this transaction. On March 1, 2000, the Company sold its travel program for $1.5 million to Club-4U, Inc. (see Note 16) 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 existing contracts, resulting in a gain of approximately $1.1 million. In August 1998, the Company entered into an agreement to sell its auto referral business effective November 1, 1999. On March 29, 1999, the Company entered into an amendment to the purchase agreement to change the closing date of the sale to April 1, 1999. The Company operated the auto referral business through March 31, 1999. The sale resulted in a net gain of approximately $798,000. NOTE 10 - PROPERTY HELD FOR SALE Property held for sale includes improved land which the Company expects to dispose of in the next twelve months. Property held for sale was $726,000 and $1.7 million as of August 31, 2001 and 2000, respectively. As the property is held for sale, the net results of the real estate operations are included in other income (expense) on the consolidated statements of operations. The net results for fiscal 2001 and 2000 were not material, and for fiscal 1999 were $1.3 million. NOTE 11 - FOREIGN CURRENCY INSTRUMENTS PriceSmart transacts business primarily in various Central American and Caribbean foreign currencies. The Company, at times, enters into non deliverable forward currency exchange contracts that are generally for short durations of six months or less. The resulting gains or losses from the non deliverable forward currency exchange contracts entered into for the periods presented have not been material. As of August 31, 2001, the Company had $2.0 million in non deliverable forward currency exchange contracts outstanding. As there is no formal contemporaneous documentation for non deliverable forward currency exchange contracts and provided no physical exchange of currency occurs at maturity (only the resulting gain or loss), they are not reflected on the balance sheet. If the non deliverable forward exchange contracts were recorded based on their fair values, the effect would be immaterial. As of August 2000, the Company had no non deliverable forward exchange contracts outstanding. NOTE 12 - COMMITMENTS AND CONTINGENCIES The Company is committed under 17 non-cancelable operating leases for rental of facilities and land. These leases expire or become subject to renewal between 2003 and 2032. Rental expense charged to operations under operating leases totaled approximately $4.6 million, $2.2 million, and $1.4 million, for fiscal years 2001, 2000, and 1999, respectively. Future minimum lease commitments for facilities under these leases with an initial term in excess of one year are as follows (in thousands):
YEARS ENDED AUGUST 31, AMOUNT ---------------------- --------------- 2002 $ 6,373 2003 7,343 2004 7,335 2005 7,402 2006 7,419 Thereafter 106,760 --------------- Total $ 142,632 ===============
From time to time the Company and its subsidiaries are subject to legal proceedings and claims in the ordinary course of business. The Company currently is not aware of any such legal proceedings or claims (other than disclosed below) that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition, operating results, cash flow or liquidity. On May 18, 2001, the Company opened its first warehouse in Manila, Philippines. The warehouse is operated (through a joint venture of which the Company is the majority owner) under the name of "S&R Price Membership Shopping Warehouse". On June 15, 2001 the joint venture was served with a Complaint filed by a former Company licensee whose license was terminated by the Company in 1998. The Complaint alleges that the license was inappropriately terminated and that the former licensee therefore maintains the exclusive right for 20 years to own and operate warehouses licensed by the Company in the Philippines. On June 15 the joint venture was also served with a temporary restraining order issued in that action, requiring that the Company cease its operations in the Philippines. The Company closed the warehouse in accordance with the temporary restraining order, but reopened on June 19, 2001 after the Philippine Court of Appeals issued its own temporary restraining order staying enforcement of the restraining order that had closed the warehouse. The trial court judge subsequently issued an order lifting the restraining order. The parties currently are awaiting a decision from the Court of Appeals on the application, by the Company's joint venture, to dismiss or abate the lawsuit pending arbitration in Sydney, Australia, pursuant to a contractual arbitration clause previously agreed to by the parties. The Company maintains that the factual allegations and legal claims asserted in the Complaint are without merit and intends to defend them vigorously. Nevertheless, adverse rulings by the Philippine courts or in the arbitration proceedings, may suspend or shut-down current operations, delay or prevent future openings in the Philippines. NOTE 13 - ACQUISITION OF MINORITY INTERESTS On July 24, 2001, the Company entered into agreements to acquire an additional 27.5% interest in the PriceSmart Trinidad majority owned subsidiary, which previously had been 62.5% owned by the Company (see Note 16). The purchase price of the 27.5% interest consisted of: (a) 20,115 shares of PriceSmart common stock; (b) a 9% interest in the PriceSmart Barbados subsidiary; (c) a 17.5% interest in the PriceSmart Jamaica subsidiary; (d) a promissory note of $314,000; (e) forgiveness of a note receivable due to the Company of $317,000 and (f) assumption of remaining contributions of $340,000 shown net of minority interest acquired. As a result of this additional interest acquired, the Company increased its guarantee proportionately for the outstanding long term debt related to the Trinidad operations. On March 27, 2000, the Company entered into an agreement to acquire the remaining interest in the PriceSmart Panama majority owned subsidiary, 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 (see Note 16). In exchange for BB&M's 49% interest, the Company issued to BB&M's principals 306,748 shares of PriceSmart common stock. As a result of this acquisition, the Company increased its guarantee for the outstanding long term debt 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, resulting in an incremental goodwill adjustment of approximately $1.1 million. 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 July 7, 2000, the Company agreed to acquire 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) 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 were restricted from sale for one year. As a result of this acquisition, PriceSmart, Inc. has increased its guarantee for the outstanding long term debt related to the warehouses operating in Costa Rica, El Salvador, Honduras and the Dominican Republic to 100%. Results from operations of the acquired minority interests have been included, based on sole ownership, in the financial results of the Company from the date of the transactions, which occurred on July 24, 2001, March 27, 2000 and July 7, 2000 for Trinidad, Panama and PSMT Caribe, Inc., respectively. The acquisitions were accounted for as purchases under Accounting Principles Board Opinion No. 16 (APB No. 16) and SFAS 141. In accordance with APB No. 16 and SFAS 141, 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 $21.3 million and is reflected in goodwill, net of accumulated amortization of $1.2 million, in the accompanying consolidated balance sheets. The components of the purchase prices and allocations, as adjusted, for the acquisitions are as follows (in thousands):
PSMT TRINIDAD PANAMA CARIBE, INC. TOTAL ---------- ------------ ------------- ----------- Consideration and acquisition costs: Issuance of common stock $ 795 $ 2,617 $ 27,010 $30,422 Cash 314 11,347 - 11,661 Forgiveness of note receivable 317 - - 317 Interest in PriceSmart ventures 1,651 - - 1,651 Acquisition costs 225 35 341 601 ---------- ------------ ------------- ----------- Total $ 3,302 $ 13,999 $ 27,351 $44,652 ========== ============ ============= =========== Allocation of purchase price: Land $ 423 $ 806 $ 3,093 $ 4,322 Minority interest 2,167 6,234 10,580 18,981 Goodwill 712 6,959 13,678 21,349 ---------- ------------ ------------- ----------- Total $ 3,302 $ 13,999 $ 27,351 $44,652 ========== ============ ============= ===========
In connection with the acquisition of the Trinidad operations, the allocation of the purchase price is based on preliminary data and may change when final valuation information is obtained. The following unaudited pro forma data summarizes the results of operations for the periods presented as if the acquisitions of minority interests had been completed as of September 1, 1998. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisitions occurred as of the beginning of the periods presented or that may be obtained in the future (in thousands, except per share data).
YEARS ENDED AUGUST 31, ----------------------------------------------- 2001 2000 1999 ------------- ------------ -------------- Total revenue $488,950 $304,615 $108,872 Operating income (loss) 6,589 (13,490) (12,736) Net income (loss) $ 4,070 $ (7,515) $ (4,341) Basic earnings (loss) per share $ 0.65 $ (1.40) $ (0.85) Diluted earnings (loss) per share $ 0.61 $ (1.40) $ (0.85)
NOTE 14 - INCOME TAXES Significant components of the income tax provision (benefit) are as follows (in thousands):
YEARS ENDED AUGUST 31, ----------------------------------------- 2001 2000 1999 ----------- ----------- ---------- Current: Domestic - - - Foreign 1,652 - 190 ----------- ----------- ---------- 1,652 - 190 Deferred: Domestic (1,448) (2,484) (1,136) Foreign (679) (3,145) 15 Valuation Allowance (111) 5,510 1,121 ----------- ----------- ---------- (2,238) (119) - ----------- ----------- ---------- Total provision (benefit) $ (586) $ (119) $ 190 =========== =========== ==========
The reconciliation of income tax computed at the Federal statutory tax rate to the provision (benefit) for income taxes is as follows (in thousands):
YEARS ENDED AUGUST 31, ----------------------------------------- 2001 2000 1999 ----------- ----------- ---------- Federal taxes at statutory rates $ 951 $ (1,891) $ (1,259) State taxes, net of Federal benefit 163 (334) (222) Difference in foreign tax rates and permanent items (627) (1,364) 650 Increase (decrease) in valuation allowance for deferred tax assets and other (1,098) 4,055 1,121 All other, net 25 (585) (100) ----------- ----------- ---------- Total provision (benefit) $ (586) $ (119) $ 190 =========== =========== ==========
The change in the valuation allowance for 2001 and 2000 includes the future tax benefit of stock option deductions of approximately $987,000 and $1.5 million, respectively, which when recognized will be allocated to additional paid in capital. Significant components of the Company's deferred tax assets as of August 31, 2001, and 2000 are shown below. A valuation allowance of $30.3 million at August 31, 2001, has been recognized to offset the deferred tax assets as realization of such assets, is uncertain (in thousands).
AUGUST 31, -------------------------- 2001 2000 ----------- ----------- Deferred tax assets: Net operating loss carryforward $ 17,267 $ 16,185 Capital loss carryforward 10,137 10,137 International 3,936 3,257 Deferred compensation 816 668 All other, net 518 507 ----------- ----------- Total deferred tax assets 32,674 30,754 Deferred tax liabilities: Unrealized gains on marketable securities - (207) ----------- ----------- Total deferred tax liabilities - (207) Valuation allowance (30,317) (30,428) ----------- ----------- Net deferred tax assets $ 2,357 $ 119 =========== ===========
During fiscal 2001, management reassessed the valuation allowance recorded against net deferred tax assets generated in certain foreign jurisdictions. Based on the operating results of certain foreign entities, management believes it is more likely than not that the Company will realize deferred tax assets. Accordingly, the Company has recognized foreign net deferred tax assets of $2,238,000. As of August 31, 2001, the Company has Federal and state net operating loss carry-forwards of approximately $46.5 million and $16.6 million, respectively. The Federal and state tax loss carry forwards will begin expiring in 2001 and 2010, respectively, unless previously utilized. In addition, the Company incurred a Federal and state capital loss on the sale of the City Notes in fiscal 2000 totaling $25.4 million. The associated tax loss carryforward will expire in 2006. Pursuant to Section 382 of the Internal Revenue Code, annual use of $11.8 million of the Company's net operating loss carry forwards will be limited because of cumulative changes in ownership of more than 50% which occurred during 1995. However, the Company does not believe such change will have a material impact upon utilization of these carryforwards. NOTE 15 - DEBT As of August 31, 2001, the Company had $22.2 million outstanding in short-term bank borrowings as follows: In April 2000, the Company, through its Dominican Republic subsidiary, entered into a line of credit for $2.0 million, which was due in six months and subsequently renewed for another six months. Interest is payable monthly at 9% per annum. In June and July 2001, the Company, through its Dominican Republic subsidiary, entered into two separate line of credit facilities of $2.0 million each, both of which are due in six months. Interest on both facilities is payable monthly at 10.5% and 9% per annum, respectively. In June 2001, the Company, through its joint venture arrangement in Guatemala entered into a line of credit for approximately $1.9 million, which is due in twelve months. Interest is payable monthly at 15% per annum. In July 2001, the Company, through its joint venture arrangement in Guatemala, entered into a line of credit for approximately $2.6 million, which is due in twelve months. Interest is payable monthly at 13% per annum. In July 2001, the Company, through its Honduras subsidiary, entered into a line of credit for $2.0 million, which is due in six months. Interest is payable monthly at 11% per annum. In March 2001, the Company, through its El Salvador subsidiary, entered into a line of credit for $1.0 million, which was due in six months and subsequently renewed for another six months. Interest is payable monthly at 9% per annum. In March 2001, the Company, through its El Salvador subsidiary, entered into a line of credit for approximately $1.9 million, which is due in twelve months. Interest is payable monthly at 10% per annum. In July 2001, the Company, through its Costa Rica subsidiary, entered into a line of credit for $2.0 million, which is due in six months. Interest is payable monthly at 7.75% per annum. In August 2001, the Company through its Costa Rica subsidiary, entered into a line of credit for $3.0 million, which is due in six months. Interest is payable monthly and based on the prime rate plus 2% (8.5% at August 31, 2001). In May 2001, the Company, through its joint venture arrangement in the Philippines, entered into a line of credit for approximately $1.5 million, which is due in twelve months. Interest is payable monthly at 12.5% per annum. As of August 31, 2001, the full amounts were drawn for each of the facilities listed above. Each of the facilities is secured by certain assets of the respective subsidiary and $19.8 million of the total are guaranteed by the Company as of August 31, 2001. In October 2000, the Company entered into a new line of credit for $10 million, which expires in July 2002. As of August 31, 2001, $314,000 is outstanding and $9.7 million is available under the revolving line of credit. Interest is based on the 30-day dealer commercial paper rate plus 1.65% (5.15% at August 31, 2001) and is payable monthly. Long-term debt consist of the following (amounts in thousands):
AUGUST 31, ------------------------------ 2001 2000 -------------- ------------ 7.45% Note due October 2004 (six-month LIBOR + 4.0%) $ 4,126 $ 5,255 8.50% Note due June 2005 (prime + 2.0%) - 3,900 8.85% Note due May 2005 (six-month LIBOR + 5.4%) - 5,900 14.00% Note due May 2003 3,750 3,750 11.25% Note due August 2003 3,750 3,750 11.25% Note due May 2004 3,750 - 7.45% Note due September 2010 (six-month LIBOR + 4%) 22,000 - 7.45% Note due September 2010 (six-month LIBOR + 4%) 5,000 - 11.50% Note due upon demand 3,750 3,750 7.46% Note due December 2004 (three-month LIBOR + 4% 3,688 4,560 5.45% Note due March 2011 (six-month LIBOR + 2%) 10,000 - 8.59% Note due February 2005 (three-month LIBOR + 5.125%) 2,800 3,360 7.96% Note due November 2005 (three-month LIBOR + 4.5%) - 7,000 9.11% Note due February 2005 (three-month LIBOR + 5.645%) 2,907 3,780 7.46% Note due June 2007 (six-month LIBOR + 4.0%) 5,357 3,000 5.21% Note due October 2005 (three-month LIBOR + 1.75%) 9,417 11,300 7.46% Note due March 2011 (three-month LIBOR + 4.0%) 5,850 - -------------- ------------ Total 86,145 59,305 Less: current portion 6,842 8,773 -------------- ------------ Long-term debt $ 79,303 $ 50,532 ============== ============
All of the notes are collateralized by certain land, building, fixtures and equipment of each respective subsidiary and guaranteed by the Company, except for approximately $24.0 million and $11.3 million at August 31, 2001 and 2000, respectively, which are secured by a collateral deposit for the same amount and is included in restricted cash on the consolidated balance sheets. In addition, the Company drew on the $3.0 million that was available on one note at August 31, 2000. Annual maturities of long-term debt during the next five years are as follows (amounts in thousands):
YEARS ENDED ANNUAL AUGUST 31, MATURITY ------------------------- --------------- 2002 $ 6,842 2003 16,030 2004 10,218 2005 14,987 2006 5,209 Thereafter 32,859 --------------- Total $86,145 ===============
Under the terms of each of its note agreements, the Company must comply with certain covenants which include, among others, current ratio, debt service ratio, interest coverage ratio and leverage ratio. The Company is in compliance with most of these covenants and has obtained the necessary waivers from the lenders for the covenants for which the Company is out of compliance. NOTE 16 - RELATED PARTY TRANSACTIONS Mr. Edgar Zurcher is a director of the Company and has also been a director and officer of PSMT Caribe, Inc., a subsidiary of the Company. Mr. Zurcher is also the managing partner of the law firm Zurcher, Montoya and Zurcher, in Costa Rica, which the Company has utilized in legal matters and incurred legal expenses of $20,000 during fiscal 2001. Mr. Zurcher is also a director of a vendor from which the Company purchased approximately $258,200 and $227,000 of product during fiscal 2001 and fiscal 2000 respectively. In November 2000, the Company's subsidiary in the Dominican Republic sold to PSC, S.A., of which Mr. Zurcher is a director and minority shareholder, excess land at its Santo Domingo warehouse for approximately $249,000. In July 2001, the Company agreed to purchase a 5.0% interest in the PriceSmart Trinidad operations from PSC, S.A., in exchange for 7.5% of the Company's interest in the PriceSmart Jamaica operations and the assumption of $100,000 in remaining equity contributions due to the Trinidad operations. Mr. Zurcher is also Chairman of the Board of Banca Promerica (Costa Rica), which lent $900,000 as part of a $5.9 million syndicated loan to the Company in fiscal 2000, of which $700,000 is outstanding as of August 31, 2001. Additionally, Mr. Zurcher is a director of Banco Promerica (El Salvador), which entered into a $1 million short-term credit facility with the Company during fiscal 2000 and was repaid in January 2001. During fiscal 2001, the Company entered into a $1.9 million short-term credit facility with Banco Promerica (El Salvador), that is due in March 2002. Mr. Rafael Barcenas is a director of the Company and is also Vice President of Boyd, Barcenas, S.A., an advertising firm in Panama, to which the Company paid approximately $95,000 and $187,000 for services rendered during fiscal 2001 and fiscal 2000, respectively. In July 2001, the Company agreed to purchase a 2.5% interest in the PriceSmart Trinidad operations from an affiliate of Mr. Barcenas in exchange for 6,490 shares of the Company's common stock and assume $40,000 in remaining equity contributions due to the Trinidad operations. In November 2000, the Company sold excess land in Panama through its Panamanian subsidiary in David, Panama for approximately $471,000 to an affiliate of Mr. Barcenas. In March 2000, the Company acquired sole ownership of the PriceSmart Panama business, 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 Mr. Barcenas. In return for BB&M's 49% interest, PriceSmart conveyed to BB&M's principals 306,748 shares of common stock. In January 2000, the Company sold a five percent interest in PSMT Trinidad/Tobago Limited ("PSMT Trinidad"), which operates the Company's Trinidad and Tobago business, to an affiliate of Mr. Barcenas for $400,000. In April 2000 the Company sold its City Notes to the Price Family Charitable Trust ("Trust"), a California trust (see Note 9). Mr. Sol Price (a principal stockholder of PriceSmart, Inc.) and Mr. Robert Price (a principal stockholder and Chairman of the Board of PriceSmart, Inc.) are trustee and successor trustee, respectively, of the Trust. The Company secured an independent appraisal and marketed the City Notes through a third-party brokerage firm before selling the City Notes to the Trust. In March 2000 the Company sold its travel program to Club-4U, Inc. (see Note 9). Club-4U, Inc. is owned by Mr. Sol Price (a principal stockholder of the Company) and its directors include Mr. James Cahill and Mr. Murray Galinson, who are also directors of the Company. NOTE 17 - SEGMENTS The Company, through sole or majority ownership, is principally engaged in international membership shopping stores operating primarily in Central America, Caribbean and Asia (see Note 1) at the end of fiscal 2001. The Company has identified segments based on geographic area. All intercompany transactions between segments have been eliminated. Certain operating costs are incurred at the Company's corporate headquarters and are not allocated to the segment operating income (loss) presented below (in thousands).
YEARS ENDED AUGUST 31, ------------------------------------------------ 2001 2000 1999 ------------ ------------- -------------- Revenues: United States $ 1,840 $ 5,169 $ 18,933 Central America/Caribbean 476,425 299,446 89,939 Asia 10,685 - - ------------ ------------- -------------- $488,950 $ 304,615 $ 108,872 Operating income (loss): United States $ (7,594) $ (14,874) $ (9,684) Central America/Caribbean 14,428 1,384 (3,052) Asia (245) - - ------------ ------------- -------------- $ 6,589 $ (13,490) $ (12,736) Identifiable Assets: United States $ 53,395 $ 54,608 $ 52,787 Central America/Caribbean 251,083 206,792 99,287 Asia 19,602 - - ------------ ------------- -------------- $324,080 $ 261,400 $ 152,074 ============ ============= ==============
NOTE 18 - EXTRAORDINARY ITEMS Earthquake - 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. Debt restructuring - In fiscal 2001, the Company retired $15.9 million of high interest long-term debt with proceeds from three loans totaling $37 million ($22 million, $10 million and $5 million). The interest on these loans ranged between six-month LIBOR plus 2.0% and 4.0%. These debt retirements resulted in a loss of $229,000, net of tax. NOTE 19 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FISCAL 2001 THREE MONTHS THREE MONTHS THREE MONTHS THREE MONTHS YEAR ENDED ENDED ENDED ENDED ENDED (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) NOV. 30, 2000 FEB. 28, 2001 MAY 31, 2001 AUG. 31, 2001 AUG. 31, 2001 - --------------------------------------------------------------------------------------------------------------------------- Total net sales $ 108,163 $ 124,953 $ 119,660 $ 136,174 $ 488,950 Gross profit 17,691 21,118 20,439 23,981 83,229 Income (loss) before extraordinary items 846 2,634 (431) 684 3,733 Net income (loss) 846 2,514 (431) 455 3,384 Basic earnings (loss) per share before extraordinary items 0.14 0.42 (0.07) 0.11 0.60 Basic earnings (loss) per share 0.14 0.40 (0.07) 0.07 0.54 Diluted earnings (loss) per share before extraordinary items 0.13 0.39 (0.07) 0.10 0.56 Diluted earnings (loss) per share 0.13 0.38 (0.07) 0.07 0.51
FISCAL 2000 THREE MONTHS THREE MONTHS THREE MONTHS THREE MONTHS YEAR ENDED ENDED ENDED ENDED ENDED (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) NOV. 30, 1999 FEB. 29, 2000 MAY 31, 2000 AUG. 31, 2000 AUG. 31, 2000 - --------------------------------------------------------------------------------------------------------------------------- Total net sales $ 53,715 $ 79,951 $ 74,348 $ 96,601 $ 304,615 Gross profit 9,410 13,681 10,864 14,008 47,963 Income (loss) before extraordinary items (2,768) 207 1,703 (4,586) (5,444) Net income (loss) (2,768) 207 1,703 (4,586) (5,444) Basic earnings (loss) per share before extraordinary items (0.54) 0.04 0.32 (0.77) (1.01) Basic earnings (loss) per share (0.54) 0.04 0.32 (0.77) (1.01) Diluted earnings (loss) per share before extraordinary items (0.54) 0.04 0.28 (0.77) (1.01) Diluted earnings (loss) per share (0.54) 0.04 0.28 (0.77) (1.01)
PRICESMART, INC. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common stock has been quoted and traded on the NASDAQ National market under the symbol "PSMT" since September 2, 1997. As of November 9, 2001, there were approximately 430 holders of record of the common stock.
- ------------------------------------------------------------------------------- DATES STOCK PRICE ------------------------- ------------------------ FROM TO HIGH LOW ---------- ----------- ---------- ---------- 2000 CALENDAR QUARTERS First Quarter 9/1/99 11/30/99 $42.750 $34.500 Second Quarter 12/1/99 2/29/00 48.125 37.375 Third Quarter 3/1/00 5/31/00 49.250 32.688 Fourth Quarter 6/1/00 8/31/00 44.000 35.250 2001 CALENDAR QUARTERS First Quarter 9/1/00 11/30/00 38.938 26.750 Second Quarter 12/1/00 2/28/01 36.000 27.000 Third Quarter 3/1/01 5/31/01 43.350 30.500 Fourth Quarter 6/1/01 8/31/01 44.500 35.080 2002 CALENDAR QUARTERS First Quarter 9/1/01 11/9/01 43.930 28.750
- ------------------------------------------------------------------------------- The Company has never declared a cash dividend on its Common Stock and does not anticipate doing so in the foreseeable future. DIRECTORS The table below indicates the name, position with the Company and age of each director:
NAME POSITION WITH THE COMPANY AGE - ---- ----------------------------------------------------- --- Robert E. Price Chairman of the Board 59 Gilbert A. Partida President, Chief Executive Officer and Director 39 Rafael E. Barcenas Director 57 James F. Cahill Director 46 Murray L. Galinson Director 64 Katherine L. Hensley Director 64 Leon C. Janks Director 52 Lawrence B. Krause Director 71 Jack McGrory Director 52 Edgar A. Zurcher Director 51
ROBERT E. PRICE has been Chairman of the Board of the Company since July 1994 and served as President and Chief Executive Officer of the Company from July 1994 until January 1998. Mr. Price also served as Chairman of the Board of Price Enterprises, Inc. ("PEI") from July 1994 until November 1999 and was President and Chief Executive Officer of PEI from July 1994 until September 1997. Mr. Price was Chairman of the Board of Price/Costco, Inc. ("Costco") from October 1993 to December 1994. From 1976 to October 1993, he was Chief Executive Officer and a director of The Price Company ("TPC"). Mr. Price served as Chairman of the Board of TPC from January 1989 to October 1993, and as its President from 1976 until December 1990. GILBERT A. PARTIDA has been a director of the Company since July 1997 and has been President and Chief Executive Officer of the Company since January 1998. Mr. Partida was President and Chief Executive Officer of the Greater San Diego Chamber of Commerce from January 1993 until December 1997. Prior to joining the Chamber of Commerce, Mr. Partida was an attorney with the law firm of Gray, Cary, Ames & Frye in San Diego, California from 1987 to 1992. RAFAEL E. BARCENAS has been a director of the Company since April 1998. Mr. Barcenas has also been a director and officer of PriceSmart Panama, S.A.(formerly known as PriceCostco de Panama, S.A.) and PriceSmart Real Estate, S.A. (formerly known as PB Real Estate, S.A.), which are subsidiaries of the Company, since their formation in September 1995 and July 1997, respectively. Additionally, Mr. Barcenas has been a principal of BB&M International Trading Group, a Panamanian company (which previously owned 49% of both PriceCostco de Panama, S.A. and PB Real Estate, S.A.) from March 1995 until March 2000. Mr. Barcenas has been General Director of Boyd, Barcenas, S.A., the largest advertising agency in Panama, since April 1971. JAMES F. CAHILL has been a director of the Company since November 1999 and has served as a director of PEI since August 1997. In September 2001, PEI completed a merger transaction with its former parent, Excel Legacy Corporation, a Delaware corporation ("Legacy"), pursuant to which a subsidiary of PEI was merged with and into Legacy. Upon completion of the merger, Legacy became a wholly owned subsidiary of PEI, which changed its name to Price Legacy Corporation ("Price Legacy"), and Mr. Cahill continues to serve as a director. Additionally, Mr. Cahill has been Executive Vice President of Price Entities since January 1987. In this position he has been responsible for the oversight and investment activities of the financial portfolio of Sol Price, founder of TPC and related entities. Prior to 1987, Mr. Cahill was employed by TPC for ten years, with his last position being Vice President of Operations. MURRAY L. GALINSON has been a director of the Company since November 2000. Mr. Galinson served as a director of PEI from August 1994 until November 1999 and currently serves as director of Price Legacy. Additionally, Mr. Galinson has been Chairman of the Board of San Diego National Bank since May 1996 and has served as a director of San Diego National Bank since its inception in 1981. Mr. Galinson also served as President and Chief Executive Officer of San Diego National Bank from September 1984 to September 1997 and was Chairman of the Board and Chief Executive Officer of SDNB Financial Corporation from 1985 to 1997. KATHERINE L. HENSLEY has been a director of the Company since July 1997 and served as a director of PEI from December 1994 until July 1997. She is a lawyer and a retired partner of the law firm of O'Melveny & Myers in Los Angeles, California. Ms. Hensley joined O'Melveny & Myers in 1978 and was a partner from 1986 to February 1992. From 1994 to 2000, Ms. Hensley served as a trustee of Security First Trust, an open-end investment management company registered under the Investment Company Act of 1940. LEON C. JANKS has been a director of the Company since July 1997 and served as a director of PEI from March 1995 until July 1997. He has been a partner in the accounting firm of Green, Hasson & Janks LLP in Los Angeles, California since 1980. Mr. Janks also serves on the board of directors of Expert Ease Software, Inc., a privately held corporation. Mr. Janks has extensive experience in domestic and international business serving a wide variety of clients in diverse businesses and is a Certified Public Accountant. LAWRENCE B. KRAUSE has been a director of the Company since July 1997. Mr. Krause has been a Professor and the Director of the Korea-Pacific Program at the Graduate School of International Relations and Pacific Studies at the University of California, San Diego since 1986. He became a Professor Emeritus in 1997. Mr. Krause also serves on advisory boards for a number of institutions including the Institute for International Economics, the Korea Economic Institute, the Committee on Asian Economic Studies and the U.S. National Committee for Pacific Economic Cooperation. JACK MCGRORY has been a director of the Company since November 2000. Mr. McGrory serves as Chairman of the Board of Price Legacy, and was President and Chief Executive Officer of PEI from September 1997 until November 1999. Mr. McGrory also serves as a director of the San Diego Padres, L.P. and was its Executive Vice President and Chief Operating Officer from September 1999 until August 2000. He is also President of Downtown Development, Inc., which is responsible for coordinating construction of the new San Diego Padres ballpark and the San Diego Padres' commercial real estate activities. From March 1991 through August 1997, Mr. McGrory served as City Manager of San Diego. EDGAR A. ZURCHER has been a director of the Company since November 2000. Mr. Zurcher has also been a director and officer of PSMT Caribe, Inc., a subsidiary of the Company, since its inception in December 1998. Additionally, Mr. Zurcher has been a director of PSC, S.A. (which previously owned 49% of PSMT Caribe, Inc.) since its inception in September 1998. Mr. Zurcher is also the managing partner of the law firm Zurcher, Montoya and Zurcher in Costa Rica. Additionally, he is Chairman of Banca Promerica (Costa Rica) and is a director of Banco Promerica (El Salvador) and a director of Banco Promerica (Honduras). EXECUTIVE OFFICERS OF THE COMPANY The table below indicates the name, position and age of the executive officers of the Company:
NAME POSITION WITH THE COMPANY AGE - ---- ----------------------------------------------------- --- Gilbert A. Partida President, Chief Executive Officer and Director 39 Kevin C. Breen Executive Vice President-Operations 41 Robert M. Gans Executive Vice President, Secretary and General Counsel 52 John D. Hildebrandt Executive Vice President-Central American & Caribbean Operations 43 Thomas D. Martin Executive Vice President-Merchandising 45 William J. Naylon Executive Vice President-Merchandising 39 Allan C. Youngberg Executive Vice President and Chief Financial Officer 49
GILBERT A. PARTIDA has been a director of the Company since July 1997 and has been President and Chief Executive Officer of the Company since January 1998. Mr. Partida was President and Chief Executive Officer of the Greater San Diego Chamber of Commerce from January 1993 until December 1997. Prior to joining the Chamber of Commerce, Mr. Partida was an attorney with the law firm of Gray, Cary, Ames & Frye in San Diego, California from 1987 to 1992. KEVIN C. BREEN has been Executive Vice President of the Company since September 1999 and served as Senior Vice President of the Company from August 1997 to August 1999. Mr. Breen previously served as Executive Vice President of Price Ventures, Inc., a subsidiary of PEI, from February 1997 until August 1997, overseeing operational and construction management areas for the international merchandising business. Prior to joining PEI as Vice President in August 1994, Mr. Breen served as Vice President of Costco from October 1993 to December 1994 and previously served in various management roles for TPC. ROBERT M. GANS has been Executive Vice President, General Counsel and Secretary of the Company since August 1997 and was Executive Vice President and General Counsel of PEI from October 1994 until July 1997. Mr. Gans graduated from the UCLA School of Law in 1975 and actively practiced law in private practice from 1975 until 1994. From 1988 until October 1994, Mr. Gans was the senior member of the law firm of Gans, Blackmar & Stevens, A.P.C., of San Diego, California. JOHN D. HILDEBRANDT has been Executive Vice President-Central American and Caribbean Operations of the Company since July 2001 and served as Senior Vice President of the Company from September 2000 until July 2001. Mr. Hildebrandt previously served as Vice President of the Company from September 1998 until August 2000, overseeing oerations in Central America. Mr. Hildebrandt served as the Company's Country Manager in the Philippines and Panama from 1996 until August 1998. Prior to joining PEI as Country Manager in 1996, Mr. Hildebrandt was a Senior Operations Manager of Costco from 1994 through 1996, and had served in various management roles for TPC since 1979. THOMAS D. MARTIN has been Executive Vice President of the Company since October 1998 and served as Senior Vice President of the Company from August 1997 to September 1998. Mr. Martin previously served as Vice President of PEI from August 1994 until July 1997, directing merchandising strategies and product sourcing for its international merchandising business, in addition to managing its trading company activities. Prior to joining PEI as Vice President in August 1994, Mr. Martin served as Vice President of Costco from October 1993 to December 1994 and had served in various management roles for TPC. WILLIAM J. NAYLON has been Executive Vice President-Merchandising of the Company since July 2001 and served as Senior Vice President of the Company from March 1998 until July 2001. From September 1995 through February 1998, Mr. Naylon was Managing Director for PriceSmart's licensee warehouse club operation in Indonesia. Prior to joining PriceSmart, Mr. Naylon was a General Manager for Costco and had served in various management roles for TPC. ALLAN C. YOUNGBERG has been Executive Vice President and Chief Financial Officer of the Company since July 1999. From January 1993 until July 1999, Mr. Youngberg had been Executive Vice President, Chief Financial Officer, Secretary and Treasurer of Cost-U-Less, Inc. Prior to joining Cost-U-Less, Mr. Youngberg was President and shareholder of Youngberg & Schumacher, P.S., a certified public accounting firm in Bellevue, Washington, which Mr. Youngberg founded in 1984 and sold in December 1992. Mr. Youngberg is a Certified Public Accountant. EX-21.1 22 a2064125zex-21_1.txt EXHIBIT 21.1 EXHIBIT 21.1 LIST OF SUBSIDIARIES OF PRICESMART, INC. The following table sets forth a list of the Company's subsidiaries as of August 31, 2001:
JURISDICTION OF INCORPORATION OR NAME ORGANIZATION OWNERSHIP DBA - ------------------------------------------------ --------------------------- ----------- ---------------- Ventures Services, Inc. Delaware 100.0% PriceSmart PriceCostco PriceSmart Real Estate, S.A. Panama 100.0% PriceSmart PriceSmart Panama, S.A. Panama 100.0% PriceSmart PriceSmart (Guatemala), S.A. Guatemala 66.0% PriceSmart PSMT Caribe, Inc. British Virgin Islands 100.0% PriceSmart PriceSmart El Salvador, S.A. de C.V. El Salvador 100.0% PriceSmart Inmobiliaria PriceSmart El Salvador, S.A. de C.V. El Salvador 100.0% PriceSmart Prismar de Costa Rica, S.A. Costa Rica 100.0% PriceSmart Pricsmarlandco, S.A. Costa Rica 100.0% PriceSmart Promotora PS Escazu, S.A. Costa Rica 100.0% PriceSmart PriceSmart Honduras, S.A. Honduras 100.0% PriceSmart PriceSmart Dominicana, S.A Dominican Republic 100.0% PriceSmart Inmobiliaria PriceSmart, S.A. Dominican Republic 100.0% PriceSmart PriceSmart Exempt SRL Barbados 100.0% PriceSmart PSMT Trinidad/Tobago LTD Trinidad/St. Lucia 90.0% PriceSmart PriceSmart (Trinidad) LTD Trinidad 90.0% PriceSmart PS Operations, LTD Trinidad 90.0% PriceSmart PSMT, LLC U.S. Virgin Islands 100.0% PriceSmart PSMT Philippines, Inc. Philippines 60.0% PriceSmart PriceSmart Holdings, Inc. St. Lucia 51.0% PriceSmart PSMT (Barbados), Inc. Barbados 51.0% PriceSmart Island Foods and Distributors, N.V. Aruba 60.0% PriceSmart PSMT Guam, Inc. Guam 100.0% PriceSmart
EX-23.1 23 a2064125zex-23_1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K)of PriceSmart, Inc. of our report dated November 2, 2001, included in the 2001 Annual Report to Stockholders of PriceSmart, Inc. Our audits also included the financial statement schedule of PriceSmart, Inc. listed in Item 14(d). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-38345 and No. 333-61067) pertaining to the 1997 Stock Option Plan and the 1998 Equity Participation Plan and (Form S-3 No. 333-36546, No. 333-42374, No. 333-60812 and No. 333-67106) of PriceSmart, Inc. and in the related prospectus of our report dated November 2, 2001, with respect to the consolidated financial statements of PriceSmart, Inc. incorporated by reference in its Annual Report on Form 10-K for the year ended August 31, 2001 and the related financial statement schedule included therein, filed with the Securities and Exchange Commission. /S/ ERNST & YOUNG LLP San Diego, California November 27, 2001 -----END PRIVACY-ENHANCED MESSAGE-----