PRICESMART INC, 10-12G, 1997-07-03

PRICESMART INC
10-12G, 1997-07-03

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1997

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934

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PRICESMART, INC.

(name of registrant as specified in its charter)

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<S> <C>
DELAWARE 33-0628530
(State of incorporation or (IRS Employer
organization) Identification
No.)
</TABLE>

4649 MORENA BLVD.
SAN DIEGO, CALIFORNIA 92117

(Address, including zip code, of principal executive offices)

(619) 581-4530
(Registrant's telephone number, including area code)

------------------------

Securities to be registered pursuant to Section 12(b) of the Act: None

Securities to be registered pursuant to Section 12(g) of the Act:

Common Stock, $0.0001 par value
(Title of Class)

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<PAGE>
INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10

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ITEM
ITEM NO. CAPTION LOCATION IN INFORMATION STATEMENT
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1. Business................................. "SUMMARY"; "THE DISTRIBUTION--Background and Reasons for the
Distribution"; "BUSINESS OF PRICESMART" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
2. Financial Information.................... "SUMMARY"; "RISK FACTORS"; "PRO FORMA COMBINED CAPITALIZATION";
"UNAUDITED PRO FORMA FINANCIAL INFORMATION"; "SELECTED
HISTORICAL FINANCIAL DATA"; "SELECTED UNAUDITED PRO FORMA
FINANCIAL DATA"; "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "FINANCIAL
STATEMENTS."
3. Properties............................... "RISK FACTORS"; "BUSINESS OF PRICESMART-- Real Estate and
Related Assets--Properties Held for Sale"; "--Corporate
Headquarters."
4. Security Ownership of Certain Owners and "MANAGEMENT" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
Management............................... OWNERS AND MANAGEMENT."
5. Directors and Executive Officers......... "SUMMARY"; "THE DISTRIBUTION--Background and Reasons for the
Distribution"; "RISK FACTORS" and "MANAGEMENT."
6. Executive Compensation................... "MANAGEMENT--Executive Compensation."
7. Certain Relationships and Related None.
Transactions.............................
8. Legal Proceedings........................ "BUSINESS OF PRICESMART--Legal Proceedings."
9. Market Price of and Dividends on the "SUMMARY"; "THE DISTRIBUTION--Quotation and Trading of Company
Registrant's Common Equity and Related Common Stock; Dividend Policy" and "RISK FACTORS-- Dividend
Stockholder Matters...................... Policy."
10. Recent Sales of Unregistered None.
Securities...............................
11. Description of Registrant's Securities to "PRICESMART CERTIFICATE OF INCORPORATION AND BYLAWS" and
be Registered............................ "DESCRIPTION OF THE COMPANY'S CAPITAL STOCK."
12. Indemnification of Directors and "MANAGEMENT--Indemnification Agreements"; "PRICESMART
Officers................................. CERTIFICATE OF INCORPORATION AND BYLAWS--Indemnification and
Advancement of Expenses" and "LIABILITY AND INDEMNIFICATION OF
OFFICERS AND DIRECTORS OF THE COMPANY."
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM
ITEM NO. CAPTION LOCATION IN INFORMATION STATEMENT
- --------- ----------------------------------------- ----------------------------------------------------------------
<C> <S> <C>
13. Financial Statements and Supplementary "SUMMARY"; "UNAUDITED PRO FORMA FINANCIAL INFORMATION";
Data..................................... "SELECTED HISTORICAL FINANCIAL DATA"; "SELECTED UNAUDITED PRO
FORMA FINANCIAL DATA"; "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"; and
"FINANCIAL STATEMENTS."
14. Disagreements with Accountants on None.
Accounting and Financial
Disclosure...............................
15. Financial Statements and Exhibits........
(a) Financial Statements and Schedule
(1) Financial Statements: "FINANCIAL STATEMENTS."
(2) Schedule II "VALUATION AND QUALIFYING ACCOUNTS"
(b) Exhibits:
<CAPTION>

EXHIBIT
NUMBER DESCRIPTION
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<C> <S> <C>
2.1 Form of Distribution Agreement.
3.1 Form of Amended and Restated of Incorporation of PriceSmart,
Inc. (included as Annex I to Information Sheet).
3.2 Form of Amended and Restated Bylaws of PriceSmart, Inc.
(included as Annex II to Information Statement).
10.1 Form of PriceSmart, Inc. 1997 Stock Incentive Plan (included as
Annex III to Information Sheet).
10.2 Agreement Regarding 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* Employment Agreement between PriceSmart, Inc. and Robert M.
Gans.
10.4* Employee Benefits Allocation Agreement (to be included as
Exhibit B to the Distribution Agreement).
10.5* Tax Sharing Agreement (to be included as Exhibit G to the
Distribution Agreement).
10.6* Asset Management and Disposition Agreement.
21* Subsidiaries of PriceSmart, Inc.
23.1 Consent of Ernst & Young.
27 Financial Data Schedule.
</TABLE>

*To be filed by amendment.
<PAGE>
PRICE ENTERPRISES, INC.

4649 Morena Blvd.
San Diego, CA 92117
619/581-4530
, 1997

Dear Stockholder:

The Board of Directors of Price Enterprises, Inc. ("PEI") has approved the
distribution (the "Distribution") to holders of PEI Common Stock, through a
special dividend, of the Common Stock of PriceSmart, Inc. ("PriceSmart").
PriceSmart will own PEI's merchandising businesses (the "Merchandising
Businesses"), the real properties currently held for sale by PEI, notes
receivable from various municipalities and agencies, secured notes receivable
from buyers of properties formerly owned by PEI, a portion of the cash held by
PEI and its subsidiaries and all other assets and liabilities of PEI not
specifically associated with PEI's core real estate business (other than certain
tax-related assets). The Merchandising Businesses include PEI's international
merchandising businesses, which license and, in some cases, own membership
stores in Latin America and Asia, and PEI's domestic merchandising businesses
consisting of an auto referral program and a travel program. PEI will continue
its core real estate business with an initial asset base of 27 retail properties
and $40 million of cash following the Distribution. The Board of Directors of
PEI believes that the Distribution will permit PEI to elect to be taxed for
Federal income tax purposes as a real estate investment trust ("REIT").

The Board of Directors of PEI believes that the Distribution is in the best
interest of PEI stockholders. The completion of the Distribution will permit
each of PriceSmart and PEI to concentrate on its core business with separate
management teams. The Board of Directors of PEI believes that the Distribution
also will allow financial markets to better understand and recognize the merits
of the two businesses. Each company will be separately quoted and traded on The
Nasdaq Stock Market's National Market System.

If you are a holder of PEI Common Stock of record at the close of business
on , 1997, you will receive as a dividend one share of PriceSmart
Common Stock for every four shares of PEI Common Stock you hold. The
Distribution is scheduled to occur on or about August , 1997. We expect to
mail the PriceSmart Common Stock certificates shortly thereafter. Stockholders
of PEI on the record date must retain their PEI share certificates which will
continue to represent shares of PEI Common Stock.

The enclosed Information Statement contains information about the
Distribution and about PriceSmart. We urge you to read it carefully. Holders of
PEI Common Stock are not required to take any action to participate in the
Distribution. A stockholder vote is not required in connection with this matter
and, accordingly, your proxy is not being sought.

Sincerely,

Robert E. Price
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PRICE ENTERPRISES, INC.
<PAGE>
INFORMATION STATEMENT
PRICESMART, INC.
COMMON STOCK

This Information Statement (the "Information Statement") is being furnished
in connection with the distribution (the "Distribution") to holders of common
stock, par value $.0001 per share ("PEI Common Stock"), of Price Enterprises,
Inc. ("PEI") of all of the outstanding shares of common stock, par value $.0001
per share (the "Company Common Stock"), of PriceSmart ("PriceSmart" or the
"Company") pursuant to the terms of a Distribution Agreement to be entered into
by the Company and PEI (the "Distribution Agreement"). PriceSmart will own PEI's
merchandising businesses, the real properties currently held for sale by PEI,
notes receivable from various municipalities and agencies, secured notes
receivable from buyers of properties formerly owned by PEI, a portion of the
cash held by PEI and its subsidiaries and all other assets and liabilities of
PEI not specifically associated with PEI's core real estate business (other than
certain tax-related assets). See "RISK FACTORS" and "BUSINESS OF PRICESMART."

Shares of Company Common Stock will be distributed to holders of record of
PEI Common Stock as of the close of business on , 1997 (the "Record
Date"). Each such holder will receive one share of Company Common Stock for
every four shares of PEI Common Stock held on the Record Date. The Distribution
is scheduled to occur on or about August , 1997 (the "Distribution Date"). No
consideration will be paid by holders of PEI Common Stock for shares of Company
Common Stock. See "THE DISTRIBUTION--Manner of Effecting the Distribution."

There is no current trading market for Company Common Stock, although a
"when issued" market may develop prior to the Distribution Date. The Company has
applied to have the shares of Company Common Stock approved for quotation and
trading on The Nasdaq Stock Market's National Market System (the "Nasdaq NMS")
under the symbol "PSMT." See "THE DISTRIBUTION--Quotation and Trading of Company
Common Stock; Dividend Policy."

------------------------

NO STOCKHOLDER APPROVAL OF THE DISTRIBUTION IS REQUIRED OR SOUGHT.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT.
------------------------

THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.

------------------------

Stockholders of PEI with inquiries related to the Distribution should
contact Daniel T. Carter, Executive Vice President and Chief Financial Officer,
Price Enterprises, Inc., 4649 Morena Blvd., San Diego, CA 92117, telephone:
(619) 581-4530; or PEI's stock transfer agent, ChaseMellon Shareholder Services,
Stock Transfer Department, 400 South Hope Street, Fourth Floor, Los Angeles,
California 90071, telephone (800) 522-6645. ChaseMellon Shareholder Services is
also acting as Distribution Agent for the Distribution.

THE DATE OF THIS INFORMATION STATEMENT IS , 1997.
<PAGE>
INFORMATION STATEMENT
TABLE OF CONTENTS

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PAGE
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AVAILABLE INFORMATION..................................................................................... 2
SUMMARY OF CERTAIN INFORMATION............................................................................ 3
SELECTED HISTORICAL AND PRO FORM FINANCIAL INFORMATION.................................................... 8
THE DISTRIBUTION.......................................................................................... 10
Background and Reasons for the Distribution............................................................. 10
Distribution Agent...................................................................................... 11
Manner of Effecting the Distribution.................................................................... 11
Results of the Distribution............................................................................. 12
Material Federal Income Tax Aspects of the Distribution................................................. 12
Quotation and Trading of Company Common Stock; Dividend Policy.......................................... 15
Conditions; Termination................................................................................. 15
Reasons for Furnishing the Information Statement........................................................ 16
RISK FACTORS.............................................................................................. 17
RELATIONSHIP BETWEEN PRICESMART AND PEI AFTER THE DISTRIBUTION............................................ 23
PRELIMINARY TRANSACTIONS.................................................................................. 25
REGULATORY APPROVALS...................................................................................... 26
PRO FORMA COMBINED CAPITALIZATION......................................................................... 26
UNAUDITED PRO FORMA FINANCIAL INFORMATION................................................................. 27
SELECTED HISTORICAL FINANCIAL DATA........................................................................ 31
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA............................................................... 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................................................... 35
BUSINESS OF PRICESMART.................................................................................... 39
MANAGEMENT................................................................................................ 49
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................................... 58
PRICESMART CERTIFICATE OF INCORPORATION AND BYLAWS........................................................ 59
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK................................................................ 62
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE COMPANY.................................... 63
INDEX TO FINANCIAL STATEMENTS............................................................................. F-1
ANNEX I--AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF PRICESMART.................................. I-1
ANNEX II--AMENDED AND RESTATED BYLAWS OF PRICESMART....................................................... II-1
ANNEX III--1997 STOCK OPTION PLAN OF PRICESMART........................................................... III-1
</TABLE>

1
<PAGE>
AVAILABLE INFORMATION

PriceSmart has filed a Registration Statement on Form 10 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with
respect to the Company Common Stock. This Information Statement does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information, reference is made hereby to the
Registration Statement and such exhibits and schedules. Statements contained
herein concerning any documents are not necessarily complete and, in each
instance, reference is made to the copies of such documents filed as exhibits to
the Registration Statement. Each such statement is qualified in its entirety by
such reference. Copies of these documents may be inspected without charge at the
principal office of the Commission at 450 5th Street, N.W., Washington, D.C.
20549, and at the Regional Offices of the Commission at Seven World Trade
Center, Suite 1300, New York, New York 10048 and at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and copies of all or any part thereof may be
obtained from the Commission upon payment of the charges prescribed by the
Commission. Copies of this material should also be available through the
Internet by using the "Quick Forms Lookup" at the SEC EDGAR Archive, the address
of which is http:// www.sec.gov.

Following the Distribution, the Company will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. The Company will also be subject to the proxy
solicitation requirements of the Exchange Act and, accordingly, will furnish
audited financial statements to its stockholders in connection with its annual
meetings of stockholders.

NO PERSON IS AUTHORIZED BY PEI OR THE COMPANY TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED.

2
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SUMMARY OF CERTAIN INFORMATION

THIS SUMMARY IS QUALIFIED BY THE MORE DETAILED INFORMATION AND COMBINED
FINANCIAL STATEMENTS SET FORTH ELSEWHERE IN THIS INFORMATION STATEMENT.
CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN
THIS INFORMATION STATEMENT. UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN
THIS INFORMATION STATEMENT TO THE COMPANY OR PRICESMART PRIOR TO THE
CONSUMMATION OF THE DISTRIBUTION INCLUDE PEI'S MERCHANDISING BUSINESSES (AS
DEFINED BELOW) AND THE OTHER ASSETS TO BE TRANSFERRED TO PRICESMART PURSUANT TO
THE DISTRIBUTION AGREEMENT, AND REFERENCES TO THE COMPANY OR PRICESMART AFTER
CONSUMMATION OF THE DISTRIBUTION INCLUDE PRICESMART AND ITS SUBSIDIARIES.

THE DISTRIBUTION

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Distributing Company.............. Price Enterprises, Inc., a Delaware corporation ("PEI").
References herein to PEI include its consolidated
subsidiaries except where the context otherwise
requires. Following the Distribution, PEI will continue
to conduct its core real estate business which will
consist of initial asset base of 27 properties and $40
million of cash upon consummation of the Distribution
(the "Real Estate Business").

Distributed Company............... PriceSmart, Inc. ("PriceSmart" or the "Company"), which
currently is a wholly-owned subsidiary of PEI, and
which, as of the Distribution Date, will own PEI's
merchandising businesses (the "Merchandising
Businesses"), the real properties currently held for
sale by PEI (the "Unsold Properties"), notes receivable
from various municipalities and agencies, secured notes
receivable from buyers of properties formerly owned by
PEI, a portion of the cash currently owned by PEI and
its subsidiaries and all other assets and liabilities of
PEI not specifically associated with the Real Estate
Business (other than certain tax-related assets). The
Merchandising Businesses include PEI's international
merchandising businesses which license and, in some
cases, own membership stores in Latin America and Asia
and PEI's domestic merchandising businesses consisting
of an auto referral program and a travel program. See
"BUSINESS OF PRICESMART."

Distribution Ratio................ One share of Company Common Stock for every four shares
of PEI Common Stock held on the Record Date.

Shares to be Outstanding Following
the Distribution................ Based on shares of PEI Common Stock
outstanding on the Record Date, approximately
shares of Company Common Stock. The Company Common Stock
to be distributed will constitute all of the outstanding
Common Stock of the Company immediately after the
Distribution.

Fractional Share Interests........ Fractional shares of Company Common Stock will not be
distributed. Fractional shares of Company Common Stock
will be aggregated and sold in the public market by the
Distribution Agent and the aggregate net cash proceeds
will be distributed ratably to those stockholders
entitled to fractional interests. See "THE
DISTRIBUTION--Manner of Effecting the Distribution."
</TABLE>

3
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Record Date....................... August , 1997 (5:00 p.m. Eastern Standard Time).

Distribution Date................. August , 1997.

Mailing Date...................... Certificates representing the shares of Company Common
Stock to be distributed pursuant to the Distribution
will be delivered to the Distribution Agent on the
Distribution Date. The Distribution Agent will mail
certificates representing the shares of Company Common
Stock to holders of PEI Common Stock as soon as
practicable thereafter. Holders of PEI Common Stock
should not send stock certificates to PEI, the Company
or the Distribution Agent (as defined below). See "THE
DISTRIBUTION--Manner of Effecting the Distribution."

Conditions to the Distribution.... The Distribution is conditioned upon, among other
things, declaration of the special dividend by the Board
of Directors of PEI (the "PEI Board"). The PEI Board has
reserved the right to waive any conditions to the
Distribution or, even if the conditions to the
Distribution are satisfied, to abandon, defer or modify
the Distribution at any time prior to the Distribution
Date. See "THE DISTRIBUTION--Conditions; Termination."

Reasons for the Distribution...... The PEI Board has structured the Distribution to permit
PEI (which will consist of PEI's Real Estate Business,
$40 million of cash and certain tax-related assets
following the Distribution) to elect to be taxed as a
real estate investment trust ("REIT") under the Internal
Revenue Code of 1986, as amended (the "Code"). In order
to qualify as a REIT, PEI must divest certain assets
unrelated to its real estate business and distribute an
amount of taxable dividends at least equal to its
current and accumulated earnings and profits ("E&P").
The PEI Board expects the Distribution to satisfy these
two requirements. PEI currently intends to make an
election to be taxed as a REIT beginning September 1,
1997. By qualifying as a REIT, PEI would substantially
eliminate taxation on corporate income from the Real
Estate Business. In addition, the Distribution is
designed to separate two types of businesses with
distinct financial, investment and operating
characteristics so that each can adopt strategies and
pursue objectives appropriate to its specific needs. The
Distribution will (i) permit investors to make more
focused investment decisions based on the specific
attributes of each of the two businesses; (ii) enable
the management of each of PEI and PriceSmart to
concentrate its attention and financial resources on the
core businesses of each company; and (iii) enable each
business to develop employee compensation programs that
better fit its operations, including stock-based and
other incentive programs, which will more directly
reward employees of each business based on the success
of that business. See "THE DISTRIBUTION--Background and
Reasons for the Distribution."
</TABLE>

4
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Federal Income Tax Consequences to
PEI Stockholders................ The Distribution will be a taxable event to PEI's
stockholders for Federal income tax purposes. The amount
of the Distribution received by each PEI stockholder
will be treated as a dividend (i.e., as ordinary income)
to such stockholder to the extent of such stockholder's
pro rata share of PEI's current and accumulated earnings
and profits. The amount of the Distribution received by
each PEI stockholder that is not treated as a dividend
will first be treated as a nontaxable return of capital
to the extent of such stockholder's basis in his or her
PEI Common Stock, and then generally as capital gain.
The amount of the Distribution received by each PEI
stockholder for Federal income tax purposes will be the
fair market value of the Company Common Stock received
by such stockholder as of the Distribution Date. PEI
will make a determination of the fair market value of
the Company Common Stock as of the Distribution Date
after such date based on a number of factors that will
include, without limitation, the trading price of
Company Common Stock at or near the Distribution Date.
PEI will report the amount of the Distribution received
by each stockholder to such stockholder and to the
Internal Revenue Service ("IRS") on IRS Form 1099-DIV.
There is no assurance that the IRS or the courts will
agree with the amount determined by PEI. PEI
stockholders are urged to consult their own tax advisors
as to the specific tax consequences to them of the
Distribution. See "THE DISTRIBUTION--Material Federal
Income Tax Consequences of the Distribution."

Federal Income Tax Consequences to Depending on the fair market value of Company Common
PEI............................. Stock on the Distribution Date, the Distribution may be
a taxable event to PEI for Federal income tax purposes.
PEI will recognize gain upon the Distribution equal to
the excess, if any, of the fair market value of the
Company Common Stock on the Distribution Date over PEI's
tax basis in such stock. PEI will not recognize any loss
upon the Distribution, even if its tax basis in the
Company Common Stock that is distributed to its
stockholders exceeds the fair market value of such stock
on the Distribution Date. See "THE
DISTRIBUTION--Material Federal Income Tax Consequences
of the Distribution."

Trading Market.................... There is currently no public market for the Company's
Common Stock. The Company has applied to have the
Company Common Stock approved for quotation and trading
on the Nasdaq NMS under the symbol "PSMT." See "THE
DISTRIBUTION--Quotation and Trading of the Company
Common Stock; Dividend Policy" and "RISK FACTORS--
Absence of Prior Trading Market for Company Common
Stock; Potential Volatility."

Distribution Agent and Transfer
Agent for the Company Common
Stock........................... ChaseMellon Shareholder Services, L.L.C.
</TABLE>

5
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Dividends......................... The Company's dividend policy will be established by the
Board of Directors of the Company (the "Company Board")
from time to time based on the results of operations and
financial condition of the Company and such other
business considerations as the Company Board considers
relevant. The Company presently intends to retain future
earnings to finance the growth and development of all of
its business segments; and, therefore, the Company does
not currently anticipate paying any cash dividends. Any
future determination relating to dividend policy will be
made at the discretion of the Company Board. See "THE
DISTRIBUTION--Quotation and Trading of Company Common
Stock; Dividend Policy"; "RISK FACTORS-- Dividend
Policy."

Anti-Takeover Provisions.......... The Certificate of Incorporation and Bylaws of the
Company, as well as Delaware statutory law, contain
provisions that may have the effect of discouraging an
acquisition of control of the Company not approved by
the Company Board. These provisions have been designed
to enable the Company to develop its business and foster
its long-term growth without disruptions caused by the
threat of a takeover not deemed by the Company Board to
be in the best interests of the Company and its
stockholders. Such provisions may also have the effect
of discouraging third parties from making proposals
involving an acquisition or change of control of the
Company, although such proposals, if made, might be
considered desirable by a majority of the Company's
stockholders. Such provisions could further have the
effect of making it more difficult for third parties to
cause the replacement of the current management of the
Company without the concurrence of the Company Board.
See "RISK FACTORS--Certain Anti-Takeover Features,"
"DESCRIPTION OF THE COMPANY'S CAPITAL STOCK" and
"PRICESMART CERTIFICATE OF INCORPORATION AND BYLAWS."

Risk Factors...................... See "RISK FACTORS" for a discussion of factors that
should be considered in connection with the Company
Common Stock received in the Distribution.

Preliminary Transactions.......... Prior to the Distribution, PEI intends to transfer to
the Company all of the capital stock of PGT, Inc. and
Price Ventures, Inc., as well as the Unsold Properties,
PEI's notes receivable from various municipalities and
agencies, PEI's secured notes receivable from buyers of
properties formerly owned by PEI, a portion of the cash
held by PEI and its subsidiaries and all other assets
and liabilities of PEI not specifically associated with
PEI's core real estate business (other than certain
deferred tax assets). See "PRELIMINARY TRANSACTIONS."
</TABLE>

6
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<TABLE>
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Relationship with PEI after the PEI will have no stock ownership in the Company upon
Distribution.................... consummation of the Distribution. For purposes of
governing certain ongoing relationships between the
Company and PEI after the Distribution and to provide
for an orderly transition, the Company and PEI have
entered into or will enter into certain agreements. Such
agreements include: (i) the Distribution Agreement
providing for, among other things, the Distribution and
the division between the Company and PEI of certain
assets and liabilities; (ii) the Employee Benefits
Allocation Agreement, providing for certain allocations
of responsibilities with respect to employee
compensation, benefits and labor matters; (iii) the Tax
Sharing Agreement pursuant to which the Company and PEI
will agree to allocate tax liabilities that relate to
periods prior to the Distribution Date; (iv) an Asset
Management and Disposition Agreement pursuant to which
PEI will manage and sell the Unsold Properties for a fee
to be paid by the Company; and (v) a lease pursuant to
which the Company will lease space for its corporate
headquarters from PEI. PEI may also provide certain
services to the Company on a transitional basis. See
"RELATIONSHIP BETWEEN PRICESMART AND PEI AFTER THE
DISTRIBUTION."

Board of Directors................ Effective as of the Distribution, the Company Board will
consist of Robert E. Price, who is currently Chairman,
President and Chief Executive Officer of PEI and who
will serve in the same positions with the Company,
Katherine L. Hensley, Leon C. Janks and two additional
directors not currently affiliated with PEI. See
"MANAGEMENT."
</TABLE>

7
<PAGE>
PRICESMART, INC.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following selected historical and pro forma financial information of
PriceSmart should be read in conjunction with PriceSmart's historical and pro
forma combined financial statements and notes thereto included elsewhere in the
Information Statement. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The pro forma financial
information may not necessarily reflect the results of operations or the
financial position of PriceSmart which would have actually resulted had the
Distribution occurred as of the date and for the periods indicated, nor should
it be taken as indicative of the future results of operations or the future
financial position of PriceSmart.

HISTORICAL

<TABLE>
<CAPTION>
FORTY WEEKS ENDED
FISCAL YEARS --------------------
------------------------------------------ JUNE 9, JUNE 8,
1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data
Merchandise sales............................. $ 28,671 $ 53,015 $ 66,573 $ 36,211 $ 29,578 $ 46,239
International royalties and fees.............. -- -- 553 2,164 816 2,222
Auto and travel program revenues.............. 3,713 5,846 8,769 9,875 7,549 9,198
Costs of goods sold........................... 27,233 49,449 62,756 34,644 28,302 44,110
Selling, general and administrative........... 7,745 15,095 33,337 31,069 24,406 21,057
Operating loss................................ (2,594) (5,683) (20,198) (17,463) (14,765) (7,508)
Real estate operations,
net income (loss)........................... 684 (16,354) (2,238) (8,359) (498) 293
Interest and other income..................... 4,649 6,636 6,031 7,663 6,870 2,029
Income (loss) before provision/benefit for
income taxes................................ 2,739 (15,401) (16,405) (18,159) (8,393) (5,186)
Net income (loss)............................. 1,616 (9,087) (12,517) (11,423) (5,922) (23,189)

Balance Sheet Data (at period end)
Cash and cash equivalents..................... -- -- -- -- --
Total assets.................................. 135,698 188,431 107,085 97,981 80,063
Long-term debt................................ -- -- -- -- --
Investment by Price Enterprises............... 106,781 129,389 92,556 86,990 63,081
</TABLE>

8
<PAGE>
PRICESMART, INC.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

PRO FORMA (a)

<TABLE>
<CAPTION>
YEAR ENDED FORTY WEEKS
AUGUST 31, ENDED JUNE 8,
1996 1997
----------- -------------
<S> <C> <C>
Income Statement Data
Merchandise sales................................................................... $ 36,211 $ 46,239
International royalties and fees.................................................... 2,164 2,222
Auto and travel program revenues.................................................... 9,875 9,198
Cost of goods sold.................................................................. 34,644 44,110
Selling, general and administrative................................................. 32,069 21,807
Operating loss...................................................................... (18,463) (8,258)
Real estate operations, net......................................................... (8,359) 293
Interest and other income........................................................... 7,663 2,029
Loss before benefit for income taxes................................................ (19,159) (5,936)
Net loss............................................................................ (19,159) (5,936)
Net loss per common share(b)........................................................ (3.23) (1.00)

Balance Sheet Data (at period end)
Cash and cash equivalents........................................................... 50,000
Total assets........................................................................ 130,063
Long-term debt...................................................................... --
Stockholders' equity................................................................ 112,581
</TABLE>

- ------------------------

(a) The pro forma financial information reflects the pro forma adjustments
described in "PriceSmart, Inc. Unaudited Pro Forma Financial Information."

(b) Assumes approximately 5,940,000 shares outstanding, the estimated number of
shares expected to be outstanding after the Distribution.

9
<PAGE>
THE DISTRIBUTION

BACKGROUND AND REASONS FOR THE DISTRIBUTION

PEI's principal business is its real estate business, which historically has
involved acquiring, developing, owning and selling certain real estate assets
including shopping centers and power centers leased to major retail tenants. PEI
also operates certain merchandising businesses through a number of subsidiaries
(the "Merchandising Businesses") and owns certain real estate properties held
for sale by PEI (the "Unsold Properties"), certain notes receivable from various
municipalities and agencies (the "City Notes") and certain secured notes
receivable from buyers of properties formerly owned by PEI (the "Other Notes,"
and together with the City Notes, the "Notes"). The Merchandising Businesses
include PEI's international merchandising businesses which license and, in some
cases, own membership stores in Latin America and Asia and PEI's domestic
merchandising businesses consisting of an auto referral program (the "Auto
Referral Program") and a travel program (the "Travel Program").

The PEI Board has determined that it is in the best interests of PEI and its
stockholders, for the reasons set forth below, to separate PEI's core real
estate business and its merchandising businesses. PEI will continue to conduct
its real estate business which will consist of an initial asset base of 27
retail properties and approximately $40 million of cash (the "Retained Cash
Amount") following the Distribution (the "Real Estate Business"). The PEI Board
expects the Real Estate Business to engage in a combination of acquiring,
developing, owning, managing and/or selling real estate assets following the
Distribution. The Company will conduct the Merchandising Businesses and own the
Notes, all cash balances of PEI as of the Distribution Date other than the
Retained Cash Amount, and all other assets and liabilities of PEI (other than
certain tax-related assets) not specifically associated with the Real Estate
Business (the "Other Assets"). The Merchandising Businesses, the Notes and the
Other Assets are sometimes referred to below as the "PriceSmart Business."

The PEI Board has concluded that it would be in the best interests of PEI's
stockholders if PEI's Real Estate Business were to qualify for Federal tax
treatment as a real estate investment trust ("REIT"). In order to qualify as a
REIT, PEI must (i) divest certain assets not related to its real estate
business, such as the Merchandising Businesses, and (ii) distribute an amount of
taxable dividends at least equal to its current and accumulated earnings and
profits, much of which represents an allocation from Costco Companies, Inc.
("Costco"), formerly Price/Costco, Inc., as a result of the spin-off by Costco
of PEI in December 1994. The PEI Board expects the Distribution to satisfy these
two requirements. By qualifying as a REIT, PEI would substantially eliminate the
taxation on corporate income from the Real Estate Business. In addition, the PEI
Board also has considered strategic alternatives for its Real Estate Business,
including the possibility of a merger or the sale of the post-Distribution PEI
as a whole. Although no such transactions have been agreed upon, the PEI Board
believes that PEI will be best positioned for such a transaction if PEI were to
operate as a REIT. Accordingly, PEI, which will consist solely of the Real
Estate Business following the Distribution, intends to elect to be taxed as a
REIT under Section 856 through 860 of the Code following the Distribution. The
Board of Directors of PEI believes that commencing with PEI's taxable year
beginning September 1, 1997, PEI will be organized and operating in such a
manner as to qualify for taxation as a REIT. To maintain REIT status, an entity
must meet a number of organizational and operational requirements, including a
requirement that it currently distribute at least 95% of its REIT taxable income
(determined without regard to the so-called "dividends paid deduction" and by
excluding net capital gains) to its stockholders. PEI intends to make regular
quarterly dividends to holders of PEI Common Stock following its REIT election.
The PEI Board's selection of assets to be transferred to the Company has been
determined in part by the PEI Board's desire to exclude assets that would
prevent PEI from qualifying as a REIT.

Moreover, the Real Estate Business and Merchandising Businesses have
markedly different profiles, in terms of operating objectives, profit margins
and number and type of employees. The two businesses are operated by separate
management teams, and separation of the businesses should result in greater
focus of

10
<PAGE>
the management teams on the core strengths of the respective companies.
Separation of the two businesses will (i) permit investors to make more focused
investment decisions based on the specific attributes of each of the two
businesses; (ii) enable the management of each of PEI and the Company to
concentrate its attention and financial resources on the core businesses of each
company; and (iii) enable each business to develop employee compensation
programs that better fit its operations, including stock-based and other
incentive programs, which will more directly reward employees of each business
based on the success of that business.

The PEI Board recognized in its planning that the Distribution would result
in a transaction taxable to PEI stockholders and possibly to PEI depending on
the fair market value of Company Common Stock on the Distribution Date. Due to
the nature of the Merchandising Businesses and the other assets to be
transferred to the Company and the amount and duration of PEI's holdings
thereof, PEI and the Company are not positioned to effect the Distribution on a
tax-free basis. The Board has considered that PEI's substantial tax basis in
Company Common Stock (and prior to their transfer to the Company, in the assets
to be transferred) would minimize taxable gains, if any, to PEI that would
otherwise be recognized. Upon review of this and other relevant factors, the PEI
Board concluded that the benefits of the Distribution would more than offset any
negative tax consequences of the Distribution. See "THE DISTRIBUTION-- Material
Federal Income Tax Consequences of the Distribution."

DISTRIBUTION AGENT

The distribution agent ("Distribution Agent") is ChaseMellon Shareholder
Services, L.L.C., Stock Transfer Department, 400 South Hope Street, Fourth
Floor, Los Angeles, California 90071, telephone (800) 522-6645.

MANNER OF EFFECTING THE DISTRIBUTION

The general terms and conditions relating to the Distribution are set forth
in the Distribution Agreement (the "Distribution Agreement") that will be
executed on or prior to the Distribution Date between PEI and the Company.

PEI will effect the Distribution on the Distribution Date by delivering all
outstanding shares of the Company Common Stock to the Distribution Agent for
distribution to the holders of record of PEI Common Stock as of the close of
business on the Record Date. The Distribution will be made on the basis of one
share of the Company Common Stock for every four shares of PEI Common Stock held
as of the close of business on the Record Date. Based on shares of PEI
Common Stock on the Record Date, approximately shares of Company
Common Stock will be distributed to PEI stockholders. The shares of the Company
Common Stock will be fully paid and nonassessable, and the holders thereof will
not be entitled to preemptive rights. See "DESCRIPTION OF THE COMPANY'S CAPITAL
STOCK." It is expected that certificates representing shares of the Company
Common Stock will be mailed to holders of PEI Common Stock as soon as
practicable after the Distribution Date.

HOLDERS OF PEI COMMON STOCK SHOULD NOT SEND CERTIFICATES TO THE COMPANY, PEI
OR THE DISTRIBUTION AGENT. THE DISTRIBUTION AGENT WILL MAIL THE STOCK
CERTIFICATES REPRESENTING SHARES OF COMPANY COMMON STOCK AS SOON AS PRACTICABLE
AFTER THE DISTRIBUTION DATE. PEI STOCK CERTIFICATES WILL CONTINUE TO REPRESENT
SHARES OF PEI COMMON STOCK AFTER THE DISTRIBUTION IN THE SAME AMOUNT SHOWN ON
THE CERTIFICATES.

No certificates or scrip representing fractional interests in shares of the
Company Common Stock ("Fractional Shares") will be issued to holders of PEI
Common Stock as part of the Distribution. The Distribution Agent, acting as
agent for holders of PEI Common Stock otherwise entitled to receive in the
Distribution certificates representing fractional shares, will aggregate and
sell in the open market all

11
<PAGE>
fractional shares at then prevailing prices and distribute the net proceeds to
the stockholders entitled thereto. PEI will pay the fees and expenses of the
Distribution Agent in connection with such sales.

No holder of PEI Common Stock will be required to pay any cash or other
consideration for the shares of the Company Common Stock to be received in the
Distribution or to surrender or exchange shares of PEI Common Stock or to take
any other action in order to receive the Company Common Stock pursuant to the
Distribution.

RESULTS OF THE DISTRIBUTION

After the Distribution, the Company will be a separate public company which
will own and operate the Merchandising Businesses and certain other assets
formerly owned by PEI. See "BUSINESS OF PRICESMART." The number and identity of
the holders of Company Common Stock immediately after the Distribution will be
substantially the same as the number and identity of the holders of PEI Common
Stock on the Record Date. Immediately after the Distribution, the Company
expects to have approximately holders of record of the Company Common Stock
and approximately shares of the Company Common Stock outstanding based
on the number of PEI stockholders of record, the outstanding shares of PEI
Common Stock as of the close of business on , 1997 and the
distribution ratio of one share of Company Common Stock for every four shares of
PEI Common Stock.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION

The discussion set forth below is a summary of certain of the material
federal income tax consequences of the Distribution. This summary does not,
however, purport to be a complete analysis of all of the potential tax effects
of the Distribution or of ownership of Company Common Stock following the
Distribution. The summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), currently applicable Treasury
regulations, and judicial and administrative decisions and rulings. There can be
no assurance that the Internal Revenue Service ("IRS") will not take a contrary
view, and no ruling from the IRS has been or will be sought. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements or conclusions set forth herein. Any such
changes or interpretations could be retroactive and could affect the tax
consequences to the stockholders.

The summary does not purport to deal with all aspects of United States
federal income taxation that may affect particular stockholders in light of
their individual circumstances, and is not intended for stockholders subject to
special treatment under the United States federal income tax law, such as life
insurance companies, tax-exempt organizations, regulated investment companies, S
corporations, financial institutions, broker-dealers in securities, stockholders
who hold their stock as part of a hedge, straddle or conversion transaction,
stockholders who do not hold their stock as capital assets, stockholders who
have acquired their stock upon the exercise of options or otherwise as
compensation, foreign entities, and nonresident alien individuals.

THE TAX CONSEQUENCES TO PEI STOCKHOLDERS OF RECEIVING THE DISTRIBUTION AND
OWNING COMPANY COMMON STOCK MAY VARY DEPENDING ON A STOCKHOLDER'S PARTICULAR
SITUATION. STOCKHOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES TO THEM OF RECEIPT OF THE DISTRIBUTION AND
OWNERSHIP OF COMPANY COMMON STOCK, INCLUDING BUT NOT LIMITED TO THE APPLICATION
TO THEM OF FEDERAL ESTATE AND GIFT, STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS.

RECEIPT OF THE DISTRIBUTION BY PEI STOCKHOLDERS. The Distribution will be a
taxable event to PEI's stockholders for Federal income tax purposes. The amount
of the Distribution received by each PEI stockholder for Federal income tax
purposes will be the fair market value of the Company Common Stock (including
fractional shares) received by such stockholder as of the Distribution Date.
With respect to each

12
<PAGE>
PEI stockholder, such amount will be treated as a dividend (i.e., as ordinary
income) to the extent of such stockholder's pro rata share, based on such
stockholder's percentage ownership of PEI Common Stock, of PEI's current and
accumulated earnings and profits as computed for Federal income tax purposes
("E&P"). The portion of the Distribution received by each PEI stockholder that
is not treated as a dividend will first be treated as a nontaxable return of
capital to the extent of such stockholder's basis in its PEI Common Stock, and
then as an amount received by such stockholder from the sale or exchange of
property. The amount that is treated as received by a PEI stockholder from the
sale or exchange of property will generally be capital gain or loss, which will
be long-term capital gain or loss if the stockholder has held its PEI stock for
more than one year.

Based on PEI's current level of E&P, it is believed that all or a
substantial amount of the Distribution will result in the recognition by PEI's
stockholders of ordinary income. Each PEI stockholder will acquire an initial
tax basis in such stockholder's Company Common Stock equal to the fair market
value thereof, i.e., the value of the Company Common Stock received by such
stockholder as of the Distribution Date. Each such stockholder's holding period
for Company Common Stock received in the Distribution will begin on the
Distribution Date. Following the Distribution, PEI will make a determination of
the fair market value of the Company Common Stock as of the Distribution Date
after such date based on a number of factors that will include, without
limitation, the trading price of Company Common Stock at or near the
Distribution Date. PEI will report the amount of the Distribution received by
each stockholder to such stockholder and to the IRS on IRS Form 1099-DIV.

There is no assurance that the IRS or the courts will agree that the amount
of the Distribution received by a PEI stockholder is equal to the amount
determined by PEI, or that the amounts received by PEI stockholders are not
greater than the amounts reported to them by PEI. If the IRS were to challenge
the amount of the Distribution reportable by any PEI stockholder on such
stockholder's Federal income tax return, such stockholder would have to bear the
expense and effort of defending against or otherwise resolving such challenge.

SPECIAL RULES APPLICABLE TO CORPORATE STOCKHOLDERS--DEDUCTION FOR DIVIDENDS
RECEIVED. In computing its taxable income for the tax year in which the
Distribution occurs, a corporate holder of PEI Common Stock generally will be
entitled to a deduction in an amount equal to 70 percent of the amount of the
Distribution received by such holder that constitutes a dividend. The dividends
received deduction will be available only for dividends received on shares of
PEI Common Stock that the corporate holder has held for at least 46 days. A
corporate holder's holding period for these purposes generally will be reduced
by periods during which (i) such holder has an option to sell, is under a
contractual obligation to sell, or has made (but not closed) a short sale of
substantially identical stock or securities, (ii) such holder is the grantor of
an option to purchase substantially identical stock or securities, or (iii) such
holder's risk of loss with respect to the shares is considered diminished by
reason of the holding of one or more positions in substantially similar or
related property. In addition to the foregoing, no dividends received deduction
will be allowed to a corporate holder of PEI Common Stock for a dividend
received by such holder with respect to such stock to the extent that such
holder is obligated (whether pursuant to a short sale or otherwise) to make
related payments with respect to positions in substantially similar or related
property. Further, the dividends received deduction allowed to a corporate
holder of PEI Common Stock with respect to all dividends received by such holder
during the tax year in which the Distribution occurs (not only dividends
received with respect to such holder's PEI Common Stock) will be limited to a
specified percentage of the holder's taxable income (subject to certain
adjustments) for such year. Finally, the dividends received deduction allowed to
a holder in whose hands the PEI Common Stock is "portfolio stock" may be reduced
or eliminated in accordance with the rules set forth in Section 246A of the Code
if such holder has indebtedness that is directly attributable to its investment
in such stock.

Special rules may apply to a corporate holder of PEI Common Stock if the
amount of the Distribution received by such holder is considered to be an
"extraordinary dividend" within the meaning of Section 1059 of the Code. If the
amount of the Distribution received by a corporate holder constitutes an

13
<PAGE>
extraordinary dividend with respect to such holder's PEI Common Stock, and if
the holder has not held such stock for more than two years before PEI declared,
announced, or agreed to the amount or payment of such dividend, whichever is
earliest, then the holder's basis in such stock will be reduced (but not below
zero) by any non-taxed portion of the dividend (which generally is the amount of
the dividends received deduction attributable to such stock). For purposes of
determining if PEI Common Stock has been held for more than two years, rules
similar to those used to calculate the holding period of stock for purposes of
the dividends received deduction will apply. Upon the sale or disposition of PEI
Common Stock, any part of the non-taxed portion of an extraordinary dividend
received with respect to such stock that has not been applied to reduce basis
because of the limitation on reducing basis below zero will be treated as gain
from the sale or exchange of such stock. The amount of the Distribution received
by a corporate holder of PEI Common Stock generally will constitute an
"extraordinary dividend" with respect to its stock if the amount received by
such holder (i) equals or exceeds 10 percent of the holder's adjusted basis in
such stock, treating all dividends received with respect to such stock having
ex-dividend dates within an 85-day period as one dividend, or (ii) exceeds 20
percent of the holder's adjusted basis in such stock (determined without regard
to any reduction for the non-taxed portion of other extraordinary dividends),
treating all dividends received with respect to such stock having ex-dividend
dates within a 365-day period as one dividend. A holder may elect to use the
fair market value of the stock, rather than its adjusted basis, for purposes of
applying the 10 percent and 20 percent limitations, if the holder is able to
establish such fair market value to the satisfaction of the IRS.

In addition to the foregoing rules, a corporate holder of PEI Common Stock
in general may be required, for purposes of computing its alternative minimum
tax liability, to include in its alternative minimum taxable income the amount
of any dividends received deduction allowed in computing regular taxable income.

PAYMENT OF THE DISTRIBUTION BY PEI. PEI may recognize a gain, but will not
recognize any loss, as a result of the Distribution. PEI's taxable gain, if any,
should be measured by the extent to which, at the time of the Distribution, the
fair market value of the Company Common Stock exceeds PEI's basis in such stock.
If, however, PEI's tax basis in such stock equals or exceeds the fair market
value thereof on the Distribution Date, no gain or loss will be recognized by
PEI on the Distribution.

TAX CONSEQUENCES OF DISTRIBUTION TO THE COMPANY. Immediately preceding the
Distribution, PEI will transfer the Merchandising Businesses not already owned
by the Company and the other designated assets to the Company in exchange for
Company Common Stock which the Company will issue to PEI. In that transaction
the Company will acquire a tax basis in the transferred assets that, in general,
is equal to PEI's tax basis in such assets increased by any gain recognized by
PEI on the transfer. It is anticipated that PEI will not recognize any gain on
the transfer of the transferred assets and transferred liabilities to the
Company, in which case the Company's tax basis in the transferred assets will be
the same as PEI's tax basis in such assets. The Distribution by PEI to its
stockholders of Company Common Stock will have no tax consequences to the
Company.

TAX REPORTING. As indicated above, PEI will report the amount of the
dividend received by each stockholder to such stockholder and to the IRS on IRS
Form 1099-DIV.

BACKUP WITHHOLDING. Pursuant to Section 3406 of the Code and applicable
regulations thereunder, PEI generally will be required to withhold an amount
equal to 31 percent of the dividend portion of the amount of the Distribution
paid to a holder of PEI Common Stock ("payee") with respect to such stock if (i)
such payee fails to furnish or certify a taxpayer identification number to the
payor, (ii) the IRS notifies the payor that the taxpayer identification number
furnished by the payee is incorrect, (iii) there has been a "notified payee
underreporting" described in Section 3406(c) of the Code, or (iv) there has been
a "payee certification failure" described in Section 3406(d) of the Code. Any
amounts withheld under the backup withholding rules from a payment to a
stockholder will be allowed as a credit against the stockholder's Federal income
tax liability or as a refund.

14
<PAGE>
QUOTATION AND TRADING OF COMPANY COMMON STOCK; DIVIDEND POLICY

There is not currently a public market for the Company Common Stock. Prices
at which the Company Common Stock may trade prior to the Distribution on a
"when-issued" basis or after the Distribution cannot be predicted. Until the
Company Common Stock is fully distributed and an orderly market develops, the
prices at which trading in such stock occurs may fluctuate significantly. The
prices at which the Company Common Stock trades will be determined by the
marketplace and may be influenced by many factors, including, among others, the
success of the PriceSmart Business, the depth and liquidity of the market for
the Company Common Stock, investor perception of the Company and the industries
in which the Company participates, the Company's dividend policy and general
economic and market conditions. Such prices may also be affected by certain
provisions of the Company's Certificate of Incorporation and Bylaws, as each
will be in effect following the Distribution, which may have an anti-takeover
effect. See "RISK FACTORS--Absence of Prior Trading Market for Company Common
Stock; Potential Volatility"; "--Dividend Policy" and "PRICESMART CERTIFICATE OF
INCORPORATION AND BYLAWS."

The Company has applied to have the Company Common Stock approved for
quotation and trading on the Nasdaq NMS. The Company initially will have
approximately stockholders of record based upon the number of stockholders
of record of PEI as of , 1997. For certain information regarding
options to purchase the Company Common Stock that will be outstanding after the
Distribution, see "RELATIONSHIP BETWEEN THE COMPANY AND PEI AFTER THE
DISTRIBUTION-- Employee Benefits Allocation Agreement."

The Company presently intends to retain future earnings to finance the
growth and development of all of its business segments; and, therefore, the
Company does not currently anticipate paying any cash dividends. Any future
determination relating to dividend policy will be made at the discretion of the
Company Board. Such determinations will depend on a number of factors, including
the future earnings, capital requirements, financial condition and prospects of
the Company, possible loan or financing covenant restrictions, and such other
factors as the Board of Directors of the Company may deem relevant.

The Company consists of certain assets transferred from PEI as described in
"THE DISTRIBUTION--Background and Reasons for the Distribution." Nothing herein
should be construed to suggest that the trading price of PEI Common Stock at any
point in time may be used as a substitute for the trading price of Company
Common Stock. No assurance can be given that Company Common Stock will trade at
a price per share reflecting the earnings per share or other multiple, or other
attributes, of PEI. See "RISK FACTORS--Absence of Prior Trading Market for
Company Common Stock; Potential Volatility."

PEI filed a request for a no-action letter with the staff of the Securities
and Exchange Commission on July 3, 1997, setting forth, among other things,
PEI's view that the Distribution of the Company Common Stock does not require
registration under the Securities Act of 1933, as amended (the "Securities
Act"). It is the Company's belief that the Company Common Stock distributed to
PEI's stockholders in the Distribution will be freely transferable, except for
securities received by persons who may be deemed to be "affiliates" of PEI
within the meaning of Rule 144 in which case such persons may not publicly offer
or sell the Company Common Stock received in connection with the Distribution
except pursuant to a registration statement under the Securities Act or pursuant
to Rule 144.

CONDITIONS; TERMINATION

The PEI Board has conditioned the Distribution upon, among other things, (i)
the transfers of assets and liabilities contemplated by the Distribution
Agreement to occur prior to the Distribution having been consummated in all
material respects; (ii) the Company Board having been elected by PEI as sole
stockholder of the Company, and the Certificate of Incorporation and the Bylaws
of the Company, as each will be in effect after the Distribution, having been
adopted and being in effect; (iii) the Registration

15
<PAGE>
Statement on Form 10 with respect to the Company Common Stock (the "Form 10
Registration Statement") having become effective under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"); and (iv) receipt of any necessary
consents to the Distribution from third-parties, except for those the failure of
which to obtain would not have a material adverse effect on the Company or PEI.
The Company believes that there are no third-party consents which if not
obtained would have a material adverse effect on the Company, PEI or the
Distribution. Any of the conditions to the Distribution may be waived in the
discretion of the PEI Board. Even if all of the above conditions are satisfied,
the PEI Board has reserved the right to abandon, defer or modify the
Distribution or the other elements of the Distribution at any time prior to the
Distribution Date; however, the PEI Board will not waive any of the conditions
to the Distribution or make any changes in the terms of the Distribution unless
the PEI Board determines that such changes would not be materially adverse to
the PEI stockholders. See "RELATIONSHIP BETWEEN THE COMPANY AND PEI AFTER THE
DISTRIBUTION--Distribution Agreement."

REASONS FOR FURNISHING THE INFORMATION STATEMENT

This Information Statement is being furnished by PEI solely to provide
information to PEI stockholders who will receive the Company Common Stock in the
Distribution. It is not, and is not to be construed as, an inducement or
encouragement to buy or sell any securities of PEI or the Company. The
information contained in this Information Statement is believed by PEI and the
Company to be accurate as of the date set forth on its cover. Changes may occur
after that date, and neither the Company nor PEI will update the information
except in the normal course of their respective public disclosure practices.

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<PAGE>
RISK FACTORS

Certain statements in this Information Statement that are not historical
fact constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results of the Company to be materially different from historical
results or from any results expressed or implied by such forward-looking
statements. Such risks, uncertainties and other factors include, but are not
limited to, the following risks:

LIMITED OPERATING HISTORY AND RECENT LOSSES

The Company has only a limited operating history upon which an evaluation of
the Company and its prospects can be based, and this limited operating history
makes the prediction of future operating results difficult or impossible. The
Company has operated its international merchandising businesses through its
Price Global and Price Ventures subsidiaries since August 1994. The Company's
international merchandising businesses have entered into license agreements with
five entities in Latin America and Asia, and six membership stores have been
opened pursuant to such agreements. One of these membership stores has been
opened by a Panama joint venture of which the Company owns a 51% interest. Four
of such stores have been open for less than one year. Consequently, operating
results achieved to date may not be indicative of the results that may be
achieved in the future. The Company's international merchandising businesses
have incurred significant operating losses to date and there can be no assurance
that the Company's international operations will be profitable in the future, or
that if profitability is achieved, it will be sustained. The Company's Auto
Referral Program and Travel Program also have limited operating histories, and
although they have achieved limited profitability, there can be no assurance
that such profitability can be sustained. The Company's prospects must be
considered in light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in the early stages of development,
particularly companies in new and evolving markets. To continue to address these
risks, the Company must, among other things, continue to locate and enter into
agreements with experienced, reliable licensees in developing international
markets, establish and maintain relationships with automobile dealers and travel
service providers, respond to competitive developments, and continue to attract,
retain and motivate qualified personnel. There can be no assurance that the
Company will be successful in addressing such risks. See "MANAGEMENT'S
DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "BUSINESS OF
PRICESMART."

LACK OF INDEPENDENT OPERATING HISTORY

Although the Company's Merchandising Businesses have been historically
operated through separate subsidiaries of PEI, the Merchandising Businesses and
other operations transferred to the Company have neither been operated as a
stand-alone business nor conducted without the benefit of the financial and
other resources of PEI. There can be no assurance that the Company will not
encounter financial, managerial or other difficulties as a result of its lack of
independent operating history or inability to continue to rely on the financial
and other resources of PEI.

HISTORICAL MERCHANDISING RESULTS

Historical and pro forma financial results for the Merchandising Businesses
include operating losses from the Company's electronic shopping program, a
merchandising effort that was discontinued in January 1997. As a result,
although the historical results of the Merchandising Businesses illustrate the
developmental nature of the Company's Merchandising Businesses, such historical
results may not be indicative of future operating results. See "BUSINESS OF
PRICESMART."

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RISKS INHERENT IN INTERNATIONAL OPERATIONS

The Company increasingly will be subject to risks inherent in conducting
international business as the Company expands its international merchandising
businesses, in particular its PriceSmart-TM- membership store concept. Such
risks include the imposition of governmental controls, the need to comply with a
wide variety of foreign and U.S. export laws, political and economic
instability, trade restrictions, changes in tariffs and taxes, longer payment
cycles typically associated with international sales, and greater difficulty of
administering business overseas.

Success of the international business is subject to additional factors,
including the availability of suitable sites, the negotiation of acceptable
lease or purchase terms for such sites, permitting and regulatory compliance,
the ability to meet construction schedules, the ability to hire and train
qualified management and store personnel, the financial and other capabilities
of the Company's licensees, and general economic and business conditions.
Further, the Company's management has had limited experience owning or licensing
membership stores outside of the United States. There can be no assurance that
any of these factors will not have a material adverse effect on the Company's
business, financial condition or results of operations. See "BUSINESS OF
PRICESMART--International Merchandising Businesses."

INTERNATIONAL OPERATIONS; DEPENDENCY ON FOREIGN LICENSEES AND ASSOCIATED RISKS

Several of the risks associated with the international merchandising
business will be within the control (in whole or in part) of the Company's
licensees or may be affected by the acts or omissions of Company's licensees.
There can be no assurance that such licensees will successfully implement the
Company's PriceSmart membership store concept or that they will be successful in
their respective markets. Furthermore, in the event one or more licensees are
unsuccessful or otherwise displeased with their relationship with the Company,
such licensees could seek to terminate their relationships with the Company or
make claims against the Company alleging that the Company acted, or failed to
act, in a manner that damaged such licensees. The termination by any of the
Company's licensees of its relationship with the Company would have a material
adverse effect on the Company's business, financial condition and results of
operation. Moreover, while the Company has never been involved in litigation
with any of its licensees, there can be no assurance that a dissatisfied
licensee would not file litigation, that the Company would prevail if any such
litigation were filed or that such litigation would not have a material adverse
effect on the Company's business, financial condition and results of operation.
See "BUSINESS OF PRICESMART--International Merchandising Businesses."

AUTO REFERRAL PROGRAM DEPENDENT ON DEALERSHIP NETWORK

To date, substantially all of the Company's revenues from its Auto Referral
Program have been derived from fees paid by subscribing dealerships. Subscribing
dealers generally may terminate their affiliation with the Company for any
reason without notice, including any such dealer's unwillingness to accept the
Company's subscription terms or to join other marketing programs. A material
decrease in the number of participating dealerships, or slower than expected
growth in the number of subscribing dealerships, would have a material adverse
effect on the results of operation of the Company's Auto Referral Program. See
"BUSINESS OF PRICESMART--Auto Referral Program."

In addition, the success of the Company's Auto Referral Program depends on
its participating dealerships' adherence to the Company's consumer oriented
sales practices. The Company devotes significant efforts to train participating
dealerships in such practices which are intended to increase consumer
satisfaction. If the Company were unable to train dealerships effectively, or if
participating dealerships failed to adopt such practices, respond rapidly and
professionally to vehicle purchase requests, or sell vehicles in accordance with
the Company's marketing strategies, the Company could experience low consumer
satisfaction, which would have a material adverse effect on the results of
operations of the Company's Auto Referral Program. See "BUSINESS OF
PRICESMART--Auto Referral Program."

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<PAGE>
TRAVEL PROGRAM DEPENDENT ON TRAVEL PROVIDERS

The Company's Travel Program is dependent upon certain travel providers,
wholesalers and high volume travel agencies for access to reduced-price travel
products. Such access enables the Company to price its travel services more
competitively. The Company's agreements with travel providers, wholesalers and
high volume travel agencies generally can be cancelled or modified upon
relatively short notice. The loss of a contract, changes in the Company's
pricing agreements or commission schedules or more restricted access to
reduced-price travel products would have a material adverse effect on the
Company's Travel Program. See "BUSINESS OF PRICESMART--Travel Program."

RELIANCE ON COSTCO FOR AUTO REFERRAL AND TRAVEL PROGRAMS

The Company currently operates its Auto Referral and Travel Programs
exclusively at Costco warehouses, and the Company offers such programs to Costco
members. The Company's rights to conduct Auto Referral and Travel Programs at
Costco warehouses are set forth in an Agreement Concerning Transfer of Certain
Assets (the "Asset Transfer Agreement") between Costco and its affiliates and
PEI and its affiliates. Pursuant to the Asset Transfer Agreement, the Company's
rights to operate such programs at Costco warehouses terminate automatically on
October 31, 1999 unless earlier terminated by the Company pursuant to an early
termination provision. There can be no assurance that the Company and Costco
will agree to extend the Company's rights to conduct the Auto Referral and
Travel Programs beyond October 31, 1999 or that the Company will be able to
develop sufficient alternatives to Costco for operating its Auto Referral and
Travel Programs. The failure to renew its rights with Costco or to find
alternatives to Costco would have a material adverse effect on the Company's
business, results of operations and financial condition. See "BUSINESS OF
PRICESMART--Relationship with Costco."

COMPETITION

Each of the Company's Merchandising Businesses faces competition unique to
its line of business. The Company's international merchandising businesses
compete with exporters, wholesalers and trading companies in various
international markets. The Company's Auto Referral Program competes with
affinity programs offered by several companies, Internet vehicle buying services
and automobile brokerage firms. The Company's Travel Program competes with a
variety of other providers of travel and travel-related products and services,
including telemarketing travel companies, traditional travel agencies and
various on-line services available on the Internet.

Many of the Company's current and potential competitors have longer
operating histories, greater name recognition and significantly greater
financial and marketing resources than the Company. Such competitors could
undertake more aggressive and costly marketing campaigns than the Company, which
may adversely affect the Company's marketing strategies, which, in turn, could
have a material adverse effect on the Company's business, results of operations
or financial condition. There can be no assurance that the Company can compete
successfully against current or future competitors nor can there be any
assurance that competitive pressures faced by the Company will not result in
loss of market share or otherwise will not materially adversely affect its
business, results of operations and financial condition. See "BUSINESS OF
PRICESMART--Competition."

NOTES RECEIVABLE

The Company holds the City Notes. Repayment of each City Note by the
relevant municipality is generally made based on that municipality's allocation
of sales tax revenues generated by retail businesses located on a particular
property associated with such City Note. For accounting purposes, the carrying
value of $24 million of such notes represents management's estimate of
discounted cash flow from the City Notes. Management's analysis of the
discounted cash flows from the City Notes assumes no payment at maturity,
because, under the terms of the City Notes, the unpaid balance of the note is
forgiven at its

19
<PAGE>
maturity date. Consequently, there can be no assurance that the full book value
of the City Notes will be repaid.

MANAGEMENT'S DISCRETION OVER CASH HOLDINGS

The Company will hold a large quantity of cash and other liquid securities.
The Company has no current specific plan for such cash, other than for working
capital and general corporate purposes. As a consequence, the Company's
management will have discretion over such cash for the foreseeable future and
will have the power without prior stockholder approval to deploy such cash in
investment opportunities.

TAX CONSEQUENCES OF THE DISTRIBUTION

The Distribution may be a taxable event to PEI for Federal income tax
purposes. PEI will recognize gain upon the Distribution equal to the excess, if
any, of the fair market value of the Company Common Stock on the Distribution
Date over PEI's tax basis in such stock. PEI will not recognize any loss upon
the Distribution, even if its tax basis in the Company Common Stock that is
distributed to its stockholders exceeds the fair market value of such stock on
the Distribution Date. See "THE
DISTRIBUTION--Material Federal Income Tax Consequences of the Distribution."

The Distribution will be taxable to PEI stockholders to the same extent as
any other dividend distribution made by PEI to its stockholders. Based on PEI's
current level of E&P it is believed that all or a substantial amount of the
Distribution will result in the recognition by PEI's stockholders of ordinary
income. Because this estimate is based, in part, on future events, there can be
no assurance as to the portion of the value of the Distribution that will be
taxable as ordinary income. The remainder of the value of the shares of Company
Common Stock received in the Distribution will either constitute a return of
capital (reducing basis in the shares of PEI Common Stock) or capital gain. Each
PEI stockholder's holding period for Company Common Stock received in the
Distribution will begin on the Distribution Date. For a more detailed
explanation, see "THE DISTRIBUTION--Material Federal Income Tax Consequences of
the Distribution."

EFFECTS ON PEI COMMON STOCK

After the Distribution, the PEI Common Stock will continue to be traded on
the Nasdaq NMS. As a result of the Distribution, the trading price of PEI Common
Stock may vary from the trading price of the PEI Common Stock immediately prior
to the Distribution. The combined trading prices of PEI Common Stock and Company
Common Stock after the Distribution may be less than, equal to or greater than
the trading prices of PEI Common Stock prior to the Distribution. In addition,
until the market has fully analyzed the operations of PEI without the PriceSmart
Business, the price at which the PEI Common Stock trades may fluctuate
significantly.

CONTROL OF PRICESMART BY CERTAIN STOCKHOLDERS

Robert E. Price, who is Chairman of the Board, President and Chief Executive
Officer of PEI, and Sol Price, a significant stockholder of PEI and the father
of Robert E. Price, beneficially own an aggregate of shares, or
approximately %, of the outstanding PEI Common Stock, and will own an
aggregate of shares, or approximately %, of the outstanding Company
Common Stock following the Distribution. See "SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT." 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,
such ownership could discourage acquisition of Company Common Stock by potential
investors, and could have an anti-takeover effect, possibly depressing the
trading price of Company Common Stock.

20
<PAGE>
ABSENCE OF PRIOR TRADING MARKET FOR COMPANY COMMON STOCK; POTENTIAL VOLATILITY

There is no existing market for Company Common Stock. Although the Company
has applied for quotation of Company Common Stock on the Nasdaq NMS, no
assurance can be given that an active trading market for Company Common Stock
will develop. Prices at which Company Common Stock may trade cannot be
predicted. Nothing herein should be construed to suggest that the trading price
of PEI Common Stock at any point in time may be used as a substitute for the
trading price of Company Common Stock. The prices at which the Company Common
Stock trades will be determined by the marketplace and may be influenced by many
factors, including, among others, the success of the PriceSmart Business, the
depth and liquidity of the market for the Company Common Stock, investor
perception of the Company and the industries in which the Company participates,
the Company's dividend policy and general economic and market conditions. The
depth and liquidity of the market for the Company Common Stock may be affected
by the aggregate ownership by Robert E. Price and Sol Price of approximately
% of Company Common Stock. See "--Control of PriceSmart by Certain
Stockholders." The prices at which the Company Common Stock trades may also be
affected by certain provisions of the Company's Certificate of Incorporation and
Bylaws, as each will be in effect following the Distribution, which may have an
anti-takeover effect. See "--Certain Anti-takeover Features."

In addition, the stock market has experienced extreme price and volume
fluctuations which have affected the market price of many companies and which
have at times been unrelated to the operating performance of the specific
companies whose stock is traded. Broad market fluctuations and general economic
conditions may adversely affect the market price of Company Common Stock.

CERTAIN ANTI-TAKEOVER FEATURES

Upon consummation of the Distribution, certain provisions of the Company's
Certificate of Incorporation and Bylaws, along with certain provisions of
Delaware statutory law, could discourage potential acquisition proposals and
could delay or prevent a change in control of the Company. Such provisions could
diminish the opportunities for a stockholder to participate in tender offers,
including tender offers at a price above the then current market value of the
Company Common Stock. Such provisions also may inhibit fluctuations in the
market price of the Company Common Stock that could result from takeover
attempts. See "PRICESMART CERTIFICATE OF INCORPORATION AND BYLAWS."

DEPENDENCE ON KEY PERSONNEL

The Company is dependent on the efforts of its executive management team.
While the Company believes that it could find replacements for these key
personnel, the loss of their services could have a temporary adverse effect on
the operations of the Company. Only the Company's Executive Vice President and
General Counsel, Robert M. Gans, has entered into an employment agreement with
the Company. See "MANAGEMENT--Employment Agreements." The Company has not
purchased "key man" insurance with respect to any members of its executive
management team and does not anticipate purchasing such insurance in the future.

SHARES ELIGIBLE FOR FUTURE SALE

The approximately shares of Company Common Stock distributed to PEI
stockholders in the Distribution will be freely transferable, except for the
shares distributed to persons who may be deemed to be "affiliates" of the
Company under the Securities Act of 1933, as amended (the "Securities Act").
Such affiliates will be permitted to sell their shares of Company Common Stock
pursuant to Rule 144 under the Securities Act beginning 90 days after the
Distribution, subject to certain volume limitations, manner of sale limitations,
notice requirements and the availability of current public information about the
Company. In addition, immediately following the Distribution, options to
purchase 600,000 shares of Company Common Stock will be granted or available for
grant under the 1997 Stock Option Plan

21
<PAGE>
of PriceSmart, Inc. (the "PriceSmart Stock Option Plan"). Shares issued pursuant
to the exercise of options granted under the PriceSmart Stock Option Plan will
be freely transferable without restriction, subject, in the case of sales by
affiliates, to compliance with Rule 144.

The Company is unable to estimate the number of shares that may be sold in
the future by its stockholders or the effect, if any, that sales of shares by
such stockholders will have on the market price of the Company Common Stock
prevailing from time to time. Sales of substantial amounts of Company Common
Stock, or the prospect of such sales, could adversely affect the market price of
the Company Common Stock.

DIVIDEND POLICY

The future payment of dividends by the Company will depend on decisions that
will be made by the Company Board from time to time based on the results of
operations and financial condition of the Company and such other business
considerations as the Company Board considers relevant. The Company presently
anticipates that it will retain all available funds for use in the operation and
expansion of its business and does not anticipate paying any dividends in the
foreseeable future.

VALUE OF REAL ESTATE DEPENDENT ON MANY FACTORS

The Company holds certain real estate and related assets. Real estate
investments are subject to varying degrees of risk. The value of real estate can
be affected by changes in the national, regional and local economic climate,
local conditions such as an oversupply of space or a reduction in demand for
real estate in the area, the attractiveness of the properties to tenants and
competition from other available space. In addition, real estate values can be
affected by such factors as government regulations and changes in real estate,
zoning or tax laws, interest rate levels, availability of financing and
potential liability under environmental and other laws.

UNINSURED LOSS

Each of the Unsold Properties is covered by comprehensive liability, fire,
earthquake, flood, extended coverage and rental loss insurance, with policy
specifications and insured limits customarily carried for similar properties.
The Company believes that the Unsold Properties are adequately insured in
accordance with industry standards. Should an uninsured loss occur, the Company
could lose invested capital in, and anticipated profits from, the property.

LIABILITIES FOR ENVIRONMENTAL MATTERS

The Company's ownership of real estate could subject the Company to certain
environmental liabilities. Certain sites owned by the Company are located in
areas of current or former industrial activity where environmental contamination
may have occurred. Even if not currently known, the Company subsequently could
discover potential environmental liabilities arising from its sites or from
neighboring facilities. In addition, undeveloped sites may be affected by
regulations enacted to protect sensitive environmental resources, including
threatened and endangered species and wetlands, so as to restrict the Company's
development and/or diminish the value of those sites. See "BUSINESS OF
PRICESMART--Real Estate and Related Assets--Environmental Matters." The Company
has agreed to indemnify PEI for all of PEI's environmental liabilities arising
out of PEI's prior ownership and/or operation of the Unsold Properties. See
"RELATIONSHIP BETWEEN PRICESMART AND PEI AFTER THE DISTRIBUTION--Distribution
Agreement."

22
<PAGE>
RELATIONSHIP BETWEEN PRICESMART AND PEI
AFTER THE DISTRIBUTION

For the purpose of governing certain of the ongoing relationships between
the Company and PEI after the Distribution and to provide mechanisms for an
orderly transition, the Company and PEI have entered or will enter into the
various agreements, and will adopt policies, as described in this section.

DISTRIBUTION AGREEMENT

Prior to the Distribution Date, the Company and PEI will enter into the
Distribution Agreement, which provides for, among other things, (i) the division
between the Company and PEI of certain assets and liabilities; (ii) the
Distribution; and (iii) certain other agreements governing the relationship
between the Company and PEI following the Distribution.

Subject to certain exceptions, the Distribution Agreement provides for,
among other things, assumptions of liabilities and cross-indemnities designed to
allocate to the Company and its subsidiaries, effective as of the Distribution
Date, financial responsibility for the liabilities arising out of or in
connection with the PriceSmart Business and to allocate to PEI and its
subsidiaries financial responsibility for the liabilities arising out of or in
connection with the Real Estate Business. The agreements to be executed in
connection with the Distribution Agreement set forth certain specific
allocations of liabilities between the Company and PEI. See "--Employee Benefits
Allocation Agreement" and "--Tax Sharing Agreement" below. Under the
Distribution Agreement, all cash and cash equivalent balances of PEI and its
subsidiaries, as of the close of business on the Distribution Date, will be
distributed to the Company, except for the Retained Cash Amount.

The Distribution Agreement also provides that by the Distribution Date, the
Company's Certificate of Incorporation and Bylaws shall be in the forms attached
hereto as Annex I and II, respectively, and that the Company and PEI will take
all actions which may be required to elect or otherwise appoint, as directors of
the Company, the persons indicated herein. See "PRICESMART CERTIFICATE OF
INCORPORATION AND BYLAWS" and "MANAGEMENT."

The Distribution Agreement also provides that each of the Company and PEI
will be granted access to certain records and information in the possession of
the other, and requires the retention by each of the Company and PEI for a
period of ten years following the Distribution of all such information in its
possession, and thereafter requires that each party give the other prior notice
of its intention to dispose of such information. In addition, the Distribution
Agreement provides for the allocation of shared privileges with respect to
certain information and requires each of the Company and PEI to obtain the
consent of the other prior to waiving any shared privilege.

The Distribution Agreement provides that, except as otherwise set forth
therein or in any related agreement, all costs and expenses in connection with
the Distribution will be charged to the party for whose benefit the expenses are
incurred, with any expenses that cannot be allocated on such basis to be split
equally between the parties.

EMPLOYEE BENEFITS ALLOCATION AGREEMENT

The Distribution Agreement calls for PEI and the Company to enter into an
Employee Benefits Allocation Agreement containing a number of provisions
relating to current and former employees of PEI. The Employee Benefits
Allocation Agreement generally contemplates that the Company will assume no
obligations or liabilities with respect to employee plans or benefits prior to
the Distribution Date and that after the Distribution Date, the Company will be
responsible for providing employee benefits for the PEI personnel who become
employees of the Company.

23
<PAGE>
On or concurrently with the Distribution, the Company intends to adopt The
PriceSmart Profit Sharing and 401(k) Plan (the "Plan"). For a discussion of the
principal terms and conditions of the Plan, see "MANAGEMENT--Profit Sharing and
401(k) Plan."

The Plan will have terms and conditions substantially similar to the Price
Enterprises, Inc. Profit Sharing and 401(k) Plan (the "PEI Plan"), and all PEI
personnel who are eligible for participation in the PEI Plan and who become
employees of the Company will be eligible for participation in the Plan.

PEI, as sole stockholder of the Company, has approved the adoption by the
Company of the 1997 Stock Option Plan of PriceSmart, Inc. (the "PriceSmart Stock
Option Plan") for purposes of granting awards of Company Common Stock to
employees of the Company and its subsidiaries in connection with and subsequent
to the Distribution. PEI has also approved the reservation of 600,000 shares of
Company Common Stock under the PriceSmart Stock Option Plan. For a discussion of
the principal terms and conditions of the PriceSmart Stock Option Plan, see
"MANAGEMENT--PriceSmart Stock Option Plan."

Pursuant to the Employee Benefits Allocation Agreement, and consistent with
the terms of The Price Enterprises 1995 Combined Stock Grant and Stock Option
Plan (the "PEI Stock Option Plan") and The Price Enterprises Directors' 1995
Stock Option Plan (the "PEI Directors Plan"), all employees, officers and
directors of PEI who will leave PEI to become employees, officers or directors
of the Company are expected to exercise all vested options held by them under
the PEI Stock Option Plan or the Directors Plan prior to the Distribution or
within 90 days thereafter. Vested and unvested options held by employees,
officers and directors of PEI who will remain with PEI will be equitably
adjusted for the effects of the Distribution on the Aggregate Spread (as defined
below) of such options. Unvested PEI options held by employees, officers and
directors of PEI who will become employees, officers and directors of the
Company will be cancelled as of the Distribution Date. In lieu of such cancelled
options, the employees, officers and directors becoming employees, officers and
directors of the Company will receive options under the PriceSmart Stock Option
Plan. Each replacement option granted to an employee, officer or director under
the PriceSmart Stock Option Plan will contain substantially equivalent terms as
the existing PEI option of such employee, officer or director, except that the
exercise price of and number of shares covered by the new option will be set to
preserve the Aggregate Spread in value attributed to the existing PEI options
held by such employee, officer or director. The "Aggregate Spread" represents
the difference between the exercise price of an exiting PEI option and the per
share price for PEI Common Stock immediately prior to the Distribution
multiplied by the number of shares underlying the existing PEI option.

The Company will assume, with respect to employees of PEI who will become
employees of the Company all responsibility for liabilities and obligations as
of the Distribution Date for medical and dental plan coverage and for vacation
and welfare plans. With respect to PEI employees remaining with PEI, PEI will
remain responsible for all liabilities and obligations as of the Distribution
Date for medical and dental plan coverage and for vacation and welfare plans.

TAX SHARING AGREEMENT

PEI and the Company will enter into a tax sharing agreement defining the
parties' rights and obligations with respect to tax returns and tax liabilities,
including, in particular, federal and state income tax returns and liabilities,
for taxable years and other taxable periods ending on or before the Distribution
Date. In general, PEI will be responsible for (i) filing all federal and state
income tax returns of PEI, the Company and any of their subsidiaries for all
taxable years ending on or before or including the Distribution Date and (ii)
paying the taxes relating to such returns (including any deficiencies proposed
by applicable taxing authorities), to the extent attributable to
pre-Distribution Date periods. PEI and the Company will each be responsible for
filing its own returns and paying its own taxes for post-Distribution Date
periods. PEI and the Company will cooperate with each other and share
information in preparing income tax returns and in dealing with other tax
matters.

24
<PAGE>
TRANSITIONAL SERVICES AGREEMENT

The Company and PEI will enter into an agreement pursuant to which PEI or
the Company may provide certain services to the other for a transitional period
on an as needed basis. The fee for such services will be based on hourly rates
designed to reflect the cost for providing such services plus reimbursement of
certain direct out of pocket expenses. Subject to the termination provisions of
the agreement, the Company will be free to procure such services from outside
vendors or may develop an in-house capability in order to provide such services
internally. In general, the transitional services agreement will terminate prior
to the end of 1998. The transitional services to be provided to the Company
pursuant to such agreements may include cash management services, certain
accounting services, litigation management or any other similar services that
the Company may require.

POLICIES AND PROCEDURES FOR ADDRESSING CONFLICTS

The on-going relationships between the Company and PEI may present certain
conflict situations for Robert E. Price who will serve as Chairman of the Board
of Directors, President and Chief Executive Officer of the Company and Chairman
of PEI. Mr. Price and other executive officers and directors of PEI and the
Company also own (or have options or other rights to acquire) a significant
number of shares of common stock in the Company and PEI. PEI and the Company
will adopt appropriate policies and procedures to be followed by the Board of
Directors of each company to limit the involvement of Mr. Price (or such
executive officers and other directors having a significant ownership interest
in the companies) in conflict situations, including matters relating to
contractual relationships or litigation between the Company and PEI. Such
procedures include requiring Mr. Price (or such executive officers or other
directors having a significant ownership interest in the companies) to abstain
from voting as a director of both Companies with respect to matters that present
a significant conflict of interest between the companies. Whether or not a
significant conflict of interest situation exists will be determined on a
case-by-case basis depending on such factors as the dollar value of the matter,
the degree of personal interest of Mr. Price (or such executive officers and
other directors having a significant ownership interest in the companies) in the
matter and the likelihood that resolution of the matter has significant
strategic, operational or financial implications for the business of the
Company.

PRELIMINARY TRANSACTIONS

The following transactions will be consummated prior to the Distribution:
First, PEI will transfer all of the issued and outstanding capital stock of
Price Ventures, Inc. (which owns all of the issued and outstanding capital stock
of Venture Services Inc.) to PGT, Inc. such that Price Ventures, Inc. will
become a wholly owned subsidiary of PGT, Inc. PGT, Inc. currently owns a 51%
interest in Price Global Trading L.L.C., which, in turn, owns a 51% interest in
a Panama joint venture. Second, PEI will transfer to the Company all of PEI's
and its subsidiaries' right, title and interest in the following: (i) the Notes,
(ii) the Other Assets; (iii) the trademarks, servicemarks, goodwill and other
intangible properties and rights to be conveyed to the Company pursuant to the
Distribution Agreement; and (iv) the books and records (including computerized
records) of the Company and books and records owned by PEI and its subsidiaries
that relate to the PriceSmart Business or are necessary to operate the
PriceSmart Business. PEI also will allocate to the Company, out of the domestic
and international cash bank balances and short-term investments of PEI and its
subsidiaries (the "PEI Cash"), all of the PEI Cash other than the Retained Cash
Amount. Third, the Company will transfer its 49% interest in Price Global
Trading, L.L.C. to PGT, Inc., effecting a liquidation of Price Global Trading,
L.L.C. into PGT, Inc. Fourth, PGT, Inc. will adopt a plan of liquidation and
merger pursuant to which Price Ventures Inc. will be merged with and into PGT,
Inc., with Venture Services Inc. surviving as a wholly owned subsidiary of PGT,
Inc. Fifth, PEI will transfer all of the issued and outstanding capital stock of
PGT, Inc. to the Company. Sixth, the Company will cause PGT, Inc. and Price
Quest, L.L.C. to adopt a plan of liquidation and merger pursuant to which Price
Quest, L.L.C. will be merged with and into PGT, Inc. and PGT, Inc.'s name will
be changed to Price Ventures U.S.A., Inc.

25
<PAGE>
Price Ventures U.S.A., Inc. will own all of the issued and outstanding capital
stock of Venture Services Inc. and a 51% interest in the Panama joint venture.

REGULATORY APPROVALS

The Company does not believe that any material federal or state regulatory
approvals will be necessary in connection with the Distribution.

PRO FORMA COMBINED CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
8, 1997, the adjustments required to give effect to the Distribution and the pro
forma capitalization of the Company at such date. The table should be read in
conjunction with the historical and pro forma combined financial statements and
the notes thereto contained elsewhere herein.

<TABLE>
<CAPTION>
JUNE 8, 1997
--------------------------------------
ACTUAL PRO FORMA PRO FORMA
--------- ADJUSTMENTS -----------
--------------
(IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity
Investment by Price Enterprises, Inc................................ $ 63,081 $ 50,000(a) $ --
(500 (b)
(110,331 (b)
Common stock........................................................ 1(b) 1
Capital surplus..................................................... 110,330(b) 112,580
--------- -------------- -----------
Total stockholders' equity........................................ 63,081 49,500 112,581
--------- -------------- -----------
Total capitalization............................................ $ 63,081 $ 49,500 $ 112,581
--------- -------------- -----------
--------- -------------- -----------
</TABLE>

- ------------------------

(a) Reflects estimated cash balances to be contributed to PriceSmart in
connection with the Distribution. The actual cash contributed will be based
on closing balances upon consummation of the Distribution.

(b) Reflects the formation of PriceSmart, including organizational costs of
$500,000 and the issuance of 5,940,000 shares ($0.0001 par value) of common
stock, the estimated number of shares expected to be outstanding after the
Distribution.

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<PAGE>
PRICESMART, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS)

The following unaudited pro forma condensed combined balance sheet of
PriceSmart as of June 8, 1997 and unaudited pro forma condensed combined
statements of operations for the forty weeks ended June 8, 1997 and the year
ended August 31, 1996 have been prepared to reflect the results of the
Distribution. The unaudited pro forma condensed combined balance sheet has been
prepared as if the Distribution occurred on June 8, 1997. The unaudited pro
forma condensed combined statements of operations have been prepared as if the
Distribution occurred on the first day of fiscal 1996. The unaudited pro forma
condensed combined financial information is not necessarily indicative of the
results that actually would have occurred if the Distribution had been
consummated as of June 8, 1997 or at the beginning of fiscal 1996.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 8, 1997

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- --------------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ -- $ 50,000(1) $ 50,000
Other current assets............................................... 12,982 12,982
Property held for sale............................................. 27,209 27,209
----------- --------------- -----------
Total current assets............................................. 40,191 50,000 90,191

Property and equipment, net.......................................... 9,247 9,247

Notes receivable..................................................... 30,625 30,625
----------- --------------- -----------
$ 80,063 $ 50,000 $ 130,063
----------- --------------- -----------
----------- --------------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY

Total current liabilities............................................ $ 11,532 $ 500(2) $ 12,032
Minority interest.................................................... 5,450 5,450

Stockholders' equity
Investment by Price Enterprises, Inc............................... 63,081 50,000(1) --
(500)(2)
(110,331)(4)
Common stock....................................................... 1(4) 1
Capital surplus.................................................... 110,330(4) 112,580
----------- --------------- -----------
Total stockholders' equity....................................... 63,081 49,500 112,581
----------- --------------- -----------
$ 80,063 $ 50,000 $ 130,063
----------- --------------- -----------
----------- --------------- -----------
</TABLE>

See accompanying notes and assumptions.

27
<PAGE>
PRICESMART, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

YEAR ENDED AUGUST 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS `PRO FORMA
---------- ----------- -----------
<S> <C> <C> <C>
Revenues
Merchandise sales......................................................... $ 36,211 $ $ 36,211
International royalties and other fees.................................... 2,164 2,164
Auto referral and travel programs......................................... 9,875 9,875
---------- ----------- -----------
Total revenues.......................................................... 48,250 48,250

Expenses
Cost of goods sold........................................................ 34,644 34,644
Selling, general and administrative....................................... 31,069 1,000(3) 32,069
---------- ----------- -----------
Total expenses.......................................................... 65,713 1,000 66,713
---------- ----------- -----------

Operating loss............................................................ (17,463) (1,000) (18,463 )

Other
Real estate operations, net............................................... (8,359) (8,359 )
Interest income........................................................... 3,076 3,076
Minority interest......................................................... 4,587 4,587
---------- ----------- -----------
Total other............................................................. (696) (696 )
---------- ----------- -----------
Loss before benefit for income taxes........................................ (18,159) (1,000 ) (19,159 )
Benefit for income taxes.................................................... 6,736 (6,736 (5) --
---------- ----------- -----------
Net loss.................................................................... $ (11,423) $ (7,736 ) $ (19,159 )
---------- ----------- -----------
---------- ----------- -----------
Net loss per common share................................................... $ (3.23 )
-----------
-----------
Number of shares used in calculation........................................ 5,940
-----------
-----------
</TABLE>

See accompanying notes and assumptions.

28
<PAGE>
PRICESMART, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FORTY WEEKS ENDED JUNE 8, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
<S> <C> <C> <C>
Revenues
Merchandise sales........................................................ $ 46,239 $ $ $46,239
International royalties and other fees................................... 2,222 2,222
Auto referral and travel programs........................................ 9,198 9,198
---------- ----------- -----------
Total revenues......................................................... 57,659 57,659

Expenses
Cost of goods sold....................................................... 44,110 44,110
Selling, general and administrative...................................... 21,057 750(3) 21,807
---------- ----------- -----------
Total expenses......................................................... 65,167 750 65,917
---------- ----------- -----------

Operating loss............................................................. (7,508) (750) (8,258)

Other
Real estate operations, net.............................................. 293 293
Interest income.......................................................... 2,102 2,102
Minority interest........................................................ (73) (73)
---------- ----------- -----------
Total other............................................................ 2,322 2,322
---------- ----------- -----------
Loss before benefit for income taxes....................................... (5,186) (750) (5,936 )
Provision for income taxes................................................. (18,003) (2,127 (5) --
20,130 (6)
---------- ----------- -----------
Net loss................................................................... $ (23,189) $ 17,253 $ (5,936 )
---------- ----------- -----------
---------- ----------- -----------
Net loss per common share.................................................. $ (1.00 )
-----------
-----------
Number of shares used in calculation....................................... 5,940
-----------
-----------
</TABLE>

See accompanying notes and assumptions.

29
<PAGE>
PRICESMART, INC.
NOTES AND ASSUMPTIONS TO UNAUDITED PRO FORMA FINANCIAL INFORMATION

(1) Reflects the estimated cash balances to be contributed to PriceSmart in
connection with the Distribution. The actual cash contributed will be based
on closing balances upon consummation of the Distribution.

(2) To record the accrual for estimated organizational costs which have been
treated as a reduction of stockholders' equity.

(3) To reflect the estimated additional corporate administrative expenses
associated with PriceSmart becoming a separate public company.

(4) To reflect the formation of PriceSmart and the issuance of 5,940,000 shares
($0.0001 par value) of common stock, the estimated number of shares expected
to be outstanding after the Distribution.

(5) To eliminate the historical federal and state income tax benefits since such
benefits would not have been realized on a stand-alone basis.

(6) To eliminate the valuation allowance for deferred tax assets established
during the forty weeks ended June 8, 1997 as a result of the Distribution.

30
<PAGE>
PRICESMART, INC.

SELECTED HISTORICAL FINANCIAL DATA

(IN THOUSANDS)

PriceSmart has historically operated as a separate unit of Price
Enterprises. Only after completion of transactions provided for in the
Distribution Agreement will PriceSmart directly own and operate its businesses.
Accordingly, the financial data of PriceSmart included herein has been prepared
on an historical basis as though PriceSmart has been a stand-alone business
operating the Merchandising Businesses and other assets acquired in the
Distribution Agreement during all periods presented. Certain pro forma
adjustments required as a result of the distribution are not reflected in the
PriceSmart historical financial data. See "PRICESMART, INC. SELECTED UNAUDITED
PRO FORMA FINANCIAL DATA" and "PRICESMART, INC. UNAUDITED PRO FORMA FINANCIAL
INFORMATION." See Footnote 1 of "PriceSmart, Inc. Notes to Combined Financial
Statements" included in this Information Statement for a description of the
businesses and assets included in PriceSmart's historical financial statements.

The following table sets forth selected historical financial data of
PriceSmart for the four fiscal years ended August 31, 1996 and for the forty
weeks ended June 9, 1996 and June 8, 1997. The selected historical financial
data as of August 31, 1995, August 31, 1996 and June 8, 1997 and for each of the
two years ended August 31, 1996 and the forty weeks ended June 8, 1997 have been
derived from the audited financial statements of PriceSmart. The selected
historical financial data as of August 31, 1993, August 31, 1994 and June 9,
1996 and for each of the two fiscal years ended August 31, 1994 and the forty
weeks ended June 9, 1996 have been derived from the unaudited books and records
of PriceSmart, and in the opinion of management, include all adjusting entries
(consisting of only normal and recurring adjustments) necessary to present
fairly the information set forth therein. The results for the forty weeks ended
June 8, 1997 may not be indicative of results for the full year.

<TABLE>
<CAPTION>
FORTY WEEKS ENDED
FISCAL YEARS(1) ----------------------
---------------------------------------------- JUNE 9, JUNE 8,
1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data
Merchandise sales(2)................... $ 28,671 $ 53,015 $ 66,573 $ 36,211 $ 29,578 $ 46,239
International royalties and fees....... -- -- 553 2,164 816 2,222
Auto and travel program revenues....... 3,713 5,846 8,769 9,875 7,549 9,198
Cost of goods sold(2).................. 27,233 49,449 62,756 34,644 28,302 44,110
Selling, general and
administrative(3).................... 7,745 15,095 33,337 31,069 24,406 21,057
Operating loss......................... (2,594) (5,683) (20,198) (17,463) (14,765) (7,508)
Real estate operations, net income
(loss)(4)............................ 684 (16,354) (2,238) (8,359) (498) 293
Interest and other income(5)........... 4,649 6,636 6,031 7,663 6,870 2,029
Income (loss) before provision/ benefit
for income taxes..................... 2,739 (15,401) (16,405) (18,159) (8,393) (5,186)
Net income (loss)...................... 1,616 (9,087) (12,517) (11,423) (5,922) (23,189)

Balance Sheet Data (at period end)
Cash and cash equivalents.............. -- -- -- -- --
Total assets........................... 135,698 188,431 107,085 97,981 80,063
Long-term debt......................... -- -- -- -- --
Investment by Price
Enterprises(6)....................... 106,781 129,389 92,556 86,990 63,081
</TABLE>

31
<PAGE>
PRICESMART, INC.

SELECTED HISTORICAL FINANCIAL DATA

(IN THOUSANDS)

(1) PriceSmart reports its financial position and results of operations
utilizing a 52 or 53 week fiscal year which ends on the Sunday nearest
August 31. All fiscal years were 52 weeks except 1995, which was 53 weeks.
For ease of presentation, all fiscal years in this Information Statement are
referred to as having ended on August 31.

(2) Merchandise sales and cost of goods sold relate to international and
electronic merchandising businesses.

(3) Price Enterprises historically provided services to PriceSmart. Amounts
allocated to PriceSmart for corporate administrative expenses for fiscal
years 1993, 1994, 1995 and 1996 and for the forty weeks ended June 9, 1996
and June 8, 1997 were $705, $752, $1,363 and $1,350 and $1,145, and $1,310,
respectively.

(4) Real estate operations relates to properties held for sale by Price
Enterprises which are to be transferred to PriceSmart pursuant to the
Distribution Agreement and reflects only the rental revenue, rental
expenses, loss on sale of properties and provisions for asset impairment
related to these properties.

(5) Interest and other income includes interest income, loss on sale of
investment, equity in the losses of international joint ventures and
minority interest of partners in merchandising joint venture businesses.

(6) Investment by Price Enterprises represents the net assets transferred and
the earnings of the businesses and assets comprising PriceSmart on a
historical basis.

32
<PAGE>
PRICESMART, INC.

SELECTED UNAUDITED PRO FORMA FINANCIAL DATA

(IN THOUSANDS, EXCEPT PER SHARE DATA)

The selected unaudited pro forma financial data of PriceSmart set forth
below has been derived from "PRICESMART, INC. UNAUDITED PRO FORMA FINANCIAL
INFORMATION," which is included elsewhere in this Information Statement, and
includes certain pro forma adjustments to the historical financial data of
PriceSmart required as a result of the Distribution. The selected unaudited pro
forma financial information is not necessarily indicative of the results of
operations of the financial position of PriceSmart that actually would have
occurred had the Distribution been consummated as of the date and/ or the period
indicated, nor should it be taken as indicative of the future results of
operations or the financial position of PriceSmart.

<TABLE>
<CAPTION>
YEAR ENDED FORTY WEEKS
AUGUST 31, ENDED JUNE 8,
1996 1997
----------- -------------
<S> <C> <C>
Income Statement Data
Merchandise sales(2)...................................................... $ 36,211 $ 46,239
International royalties and fees.......................................... 2,164 2,222
Auto and travel program revenues.......................................... 9,875 9,198
Cost of goods sold(2)..................................................... 34,644 44,110
Selling, general and administrative(3).................................... 32,069 21,807
Operating loss............................................................ (18,463) (8,258)
Real estate operations, net income (loss)(4).............................. (8,359) 293
Interest and other income(5).............................................. 7,663 2,029
Loss before benefit for income taxes...................................... (19,159) (5,936)
Net loss.................................................................. (19,159) (5,936)
Net loss per common share................................................. (3.23) (1.00)
Number of shares used in calculation...................................... 5,940 5,940

Balance Sheet Data (at period end)(1)
Cash and cash equivalents................................................. 50,000
Total assets.............................................................. 130,063
Long-term debt............................................................ --
Stockholders' equity...................................................... 112,581
</TABLE>

- ------------------------

(1) As more fully described herein under "PRICESMART, INC. UNAUDITED PRO FORMA
FINANCIAL INFORMATION," the unaudited pro forma adjustments to the income
statement data record certain additional corporate general and
administrative expenses and related income tax effects. The unaudited pro
forma adjustment to the balance sheet data includes the accrual of estimated
organization costs in fiscal 1997 and the estimated cash balances to be
contributed to PriceSmart in connection with the Distribution. The actual
cash contributed will be based on closing balances upon consummation of the
Distribution.

(2) Merchandise sales and cost of goods sold relate to international and
electronic merchandising businesses.

(3) Price Enterprises historically provided services to PriceSmart. Amounts
allocated to PriceSmart for corporate general and administrative expenses
for fiscal years 1993, 1994, 1995 and 1996 and for the forty weeks ended
June 9, 1996 and June 8, 1997 were $705, $752, $1,363 and $1,350 and $1,145
and $1,310, respectively.

33
<PAGE>
PRICESMART, INC.

SELECTED UNAUDITED PRO FORMA FINANCIAL DATA

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(4) Real estate operations related to properties held for sale by Price
Enterprises which are to be transferred to PriceSmart pursuant to the
Distribution Agreement and reflects only the rental revenues, rental
expenses, loss on sale of properties and provisions for asset impairment
related to these properties.

34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion and analysis compares the results of operations for
the 40 weeks ended June 8, 1997 and June 9, 1996 and each of the fiscal years
ended August 31, 1996 and 1995, and it should be read in conjunction with the
combined financial statements and the accompanying notes included elsewhere in
this report. The Company's merchandising businesses include Price Quest, Price
Global Trading and Price Ventures activities. In those instances where changes
are attributed to more than one factor, the factors are presented in descending
order of importance. All dollar amounts are in thousands.

MERCHANDISE SALES

<TABLE>
<CAPTION>
INTERNATIONAL PERCENT ELECTRONIC PERCENT
SALES CHANGE SHOPPING SALES CHANGE
------------ ----------- -------------- -----------
<S> <C> <C> <C> <C>
Fiscal 1997--3rd Quarter Y-T-D.............................. $ 45,281 125% $ 958 -90%
Fiscal 1996--3rd Quarter Y-T-D.............................. 20,157 -- 9,421 --

Fiscal 1996................................................. 25,541 -35% 10,670 -61%
Fiscal 1995................................................. 39,343 -- 27,230 --
</TABLE>

During the first 40 weeks of fiscal 1997, international sales increased due
to the opening of the Panama City location in October 1996, the sales of which
are reflected in the Company's combined financial statements, and due to
increases in the sales of U.S.-sourced products to licensees operating existing
and new stores in Saipan, Guam, China (Beijing) and Indonesia. With respect to
the electronic shopping business, sales during fiscal 1997 declined sharply as a
result of the Company's decision to discontinue such business in January 1997.

During fiscal 1996, international sales declined primarily due to the
elimination of the export trading business which had been selling U.S.-sourced
goods to customers in Hong Kong and Mexico. Such export sales declined from
$33.7 million in fiscal 1995 to $2.2 million in fiscal 1996. Offsetting much of
this decline in international sales were shipments to the Saipan licensee which
rose from $5.7 million in fiscal 1995 to $23.4 million in fiscal 1996. With
respect to the electronic shopping business, sales declined significantly in
fiscal 1996 largely due to the discontinuance of display samples of merchandise
at the Costco locations that participated in the kiosk-based merchandising
program.

MERCHANDISE GROSS MARGIN

<TABLE>
<CAPTION>
PERCENT PERCENT OF ELECTRONIC PERCENT PERCENT OF
INTERNATIONAL CHANGE SALES SHOPPING CHANGE SALES
------------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1997--3rd Quarter Y-T-D........... $ 2,964 280% 6.55% $ (835) -- -87.16%
Fiscal 1996--3rd Quarter Y-T-D........... 781 -- 3.87% 495 -- 5.25%

Fiscal 1996.............................. 992 -32% 3.88% 575 -76% 5.39%
Fiscal 1995.............................. 1,456 -- 3.70% 2,361 -- 8.67%
</TABLE>

During the first 40 weeks of fiscal 1997, international gross margins
increased due to the opening in October 1996 of the Panama City location, which
operates at a higher gross margin than earned on exports of U.S.-sourced
products, and due to increased shipments of U.S.-sourced products to foreign
licensees. With respect to electronic shopping, gross margins were negatively
impacted by reserves of $0.9 million associated with markdowns to sell certain
returned and discontinued merchandise.

During fiscal 1996, the amount of international gross margin declined
primarily due to the elimination of the export trading business, offset by gross
margins earned on shipments to the Saipan licensee. With respect to the
electronic shopping business, gross margins declined due to the significant
reduction in sales

35
<PAGE>
and reserves of $1.0 million associated with markdowns to sell certain returned
and discontinued merchandise.

OTHER REVENUES

<TABLE>
<CAPTION>
INTERNATIONAL AUTO AND
ROYALTIES PERCENT TRAVEL PERCENT
& FEES CHANGE PROGRAMS CHANGE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Fiscal 1997--3rd Quarter Y-T-D................................... $ 2,222 172% $ 9,198 22%
Fiscal 1996--3rd Quarter Y-T-D................................... 816 -- 7,549 --

Fiscal 1996...................................................... 2,164 291% 9,875 13%
Fiscal 1995...................................................... 553 -- 8,769 --
</TABLE>

During the first 40 weeks of fiscal 1997, international royalties and fees
increased primarily as a result of the newly established licensee operations in
Indonesia and China (Beijing). With respect to the auto and travel programs,
increases in cruise sales to Costco members and increases in car rental referral
commissions accounted for substantially all of the revenue increase.

During fiscal 1996, international royalties and fees increased primarily as
a result of the newly established licensee operations in Saipan and Guam, as
well as certain fees for the Indonesia and China (Beijing) license arrangements.
With respect to the auto and travel programs, commissions from the newly
established car rental referral program more than offset revenue reductions
incurred when the Company discontinued its airline ticketing program in February
1995.

SELLING, GENERAL AND ADMINISTRATIVE

<TABLE>
<CAPTION>
AUTO AND
PERCENT ELECTRONIC PERCENT TRAVEL PERCENT
INTERNATIONAL CHANGE SHOPPING CHANGE PROGRAMS CHANGE
------------- ------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1997--3rd Quarter Y-T-D.............. $ 8,200 30% $ 4,129 -58% $ 7,418 3%
Fiscal 1996--3rd Quarter Y-T-D.............. 6,308 -- 9,748 -- 7,205 --

Fiscal 1996................................. 8,196 47% 12,098 -31% 9,425 6%
Fiscal 1995................................. 5,567 -- 17,546 -- 8,861 --
</TABLE>

During the first 40 weeks of fiscal 1997, international expenses rose
largely due to increased staffing and higher travel expenses to support the
needs of licensees in Indonesia and China (Beijing), as well as expenses related
to the Company's pursuit of international licensing opportunities in additional
countries. At the end of fiscal 1996, expenses associated with the electronic
shopping program declined significantly upon the expiration of certain
contractual obligations to pay Costco $4.5 million per year for marketing-
related activities and location rent expense. Auto and travel program expenses
were generally consistent with the prior year's comparable period as expansion
of the car rental referral and Costco cruise programs did not generate any
significant increase in expenses.

During fiscal 1996, international expenses increased primarily as a result
of redirecting much of the Price Club Mexico merchandising support group towards
new international markets. Prior to the Company's sale of its investment in
Price Club Mexico in April 1995, expenses associated with these employees were
generally reimbursed by Price Club Mexico. With respect to the electronic
shopping programs, expenses associated with the Costco kiosk-based program were
significantly reduced when display samples and in-store sales staffing were
discontinued during fiscal 1996 and when central office staffing was reduced. In
addition, electronic shopping expenses for fiscal 1995 reflected approximately
$2.3 million of equipment and fixture write-downs related to the decision to
remodel the display sample areas within the Costco locations. Auto and travel
program expenses were generally consistent with the prior year's

36
<PAGE>
comparable period as expense reductions associated with discontinuing the
airline ticketing program were offset by increased costs for cruise sales
support and by costs to develop the car rental referral program.

CORPORATE ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>
PERCENT
AMOUNT CHANGE CHANGE
--------- ----------- -----------
<S> <C> <C> <C>
Fiscal 1997--3rd Quarter Y-T-D.................................................... $ 1,310 $ 165 14%
Fiscal 1996--3rd Quarter Y-T-D.................................................... 1,145 -- --

Fiscal 1996....................................................................... 1,350 (13) -1%
Fiscal 1995....................................................................... 1,363 -- --
</TABLE>

The Company has historically operated as a unit of PEI. Certain general and
administrative costs of PEI are allocated to the Company, principally based on
PEI's specific identification of individual cost items or otherwise based upon
estimated levels of effort devoted by its general and administrative departments
to individual entities or relative measures of size of entities. During the
first 40 weeks of fiscal 1997, corporate expenses rose primarily due to
increases in professional fees and slightly higher staffing costs, while fiscal
1996 expenses were essentially unchanged from prior year levels.

REAL ESTATE OPERATIONS (NET)

<TABLE>
<CAPTION>
PROVISION
GAIN(LOSS) FOR ASSET
REVENUES EXPENSES ON SALES IMPAIRMENT TOTAL
----------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Fiscal 1997--3rd Quarter Y-T-D..................... $ 2,236 $ (2,010) $ 67 $ 0 $ 293
Fiscal 1996--3rd Quarter Y-T-D..................... 2,207 (2,325) 240 (620) (498)

Fiscal 1996........................................ 2,798 (3,355) 240 (8,042) (8,359)
Fiscal 1995........................................ 2,868 (3,530) 24 (1,600) (2,238)
</TABLE>

Real estate operations reflect the historical operating results of only
those real estate assets held for sale which will be transferred to the Company
pursuant to the Distribution Agreement. As such, these results do not include
the operations of the 27 properties comprising of the investment portfolio which
will be retained by PEI or the operations of properties previously owned by PEI
but which were sold prior to June 1997.

During the first nine months of fiscal 1997, real estate financial
operations were generally consistent with the comparable period of the prior
year, except for a $0.6 million provision for asset impairments. During fiscal
1996 and 1995, noncash charges of approximately $8.0 million and $1.6 million,
respectively, were taken to write down the carrying value of real estate
properties which are being held for sale and which are expected to generate net
sales proceeds below their book values.

OTHER

INTEREST INCOME. Interest income for the Company reflects earnings on City
Notes and certain secured notes receivable from buyers of properties formerly
owned by PEI; however, it does not include PEI's earnings on cash balances or
the Atlas Note which was repaid during fiscal 1997. Interest income for the
first nine months of fiscal 1997 declined as a result of principal repayments of
specific City Notes during the end of fiscal 1996 and early fiscal 1997.

LOSSES FROM MEXICO JOINT VENTURE. During fiscal 1995, losses from the Price
Club Mexico business of approximately $2.4 million were allocated to the
Company's 25.5% interest in the business. While the business had previously
reported operating profits, the peso devaluations that began in December 1994
lead to significant deterioration of the business' financial performance that
continued through the sale of

37
<PAGE>
the Company's investment and beyond. During fiscal 1995, the Company recognized
a pretax loss of approximately $2.6 million on the sale of its interest in Price
Club Mexico to Costco in April 1995.

MINORITY INTEREST. During fiscal 1995 and 1996, minority interest
represents the allocation of Price Quest and Price Global Trading losses to
Costco until the time that the cumulative amount of such losses equaled the
cumulative amount of Costco's capital contributions. Once the book value of
Costco's investment reached zero during the third quarter of fiscal 1996, the
Company began to absorb 100% of losses from these joint ventures which were
funded with stockholder advances by the Company. For fiscal 1997, minority
interest relates to an allocation of the Panama joint venture earnings to the
49% partner in this venture.

BENEFIT (PROVISION) FOR INCOME TAXES. During fiscal 1995, the income tax
provision was negatively impacted by the nondeductible losses from its
investment in Price Quest, Price Global Trading and Price Club Mexico. As a
result, the effective income tax benefit rate was only 23.7% for fiscal 1995.
During the first quarter of fiscal 1996, Price Quest and Price Global Trading
were restructured as limited liability companies and subsequent to that date
have been treated as partnerships for income tax purposes. As a result of this
change, the Company's effective income tax benefit rate rose to 37.1% for fiscal
1996. In fiscal 1997, deferred tax assets of approximately $20 million were
charged to income tax expense because the realization of deferred tax assets is
no longer more likely than not, and therefore, a valuation allowance was
established.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations to date primarily from PEI's real
estate business. Cash used in the Company's operations for the 40 weeks ended
June 8, 1997 and June 9, 1996 and for the two fiscal years ended August 31, 1996
and 1995 was $4.2 million, $1.4 million, $8.1 million and $18.9 million,
respectively.

While the Company is well positioned to finance its business activities
through a variety of sources, it expects to satisfy short-term liquidity
requirements through the cash distributed to the Company by PEI pursuant to the
Distribution Agreement and cash from operations of the Merchandising Businesses.
The Company also expects to generate cash from sales of the Unsold Properties,
and the cash flow that may ultimately be generated by sales of these properties
represents a major source of additional capital resources. To the extent that
investment opportunities exceed available cash flow from these sources, the
Company's unleveraged balance sheet should enable it to access significant
amounts of capital through bank credit facilities and/or securitized debt
offerings, or the Company may choose to seek additional funds through future
public equity offerings.

The Company estimates that it will have $50 million in cash, cash
equivalents, and short-term investments immediately following the Distribution.

The Company's future capital requirements are not expected to exceed $27-37
million over the next 12 months. During fiscal 1998, the Company anticipates
investing approximately $20-30 million in the international merchandising
businesses conducted by Price Global and Price Ventures (as defined below),
approximately $2 million in the Company's Auto Referral Program and $1 million
in the Company's Travel Program. Actual capital expenditures, investment in
merchandising businesses and gross proceeds realized from property sales for
fiscal 1998 may vary from estimated amounts depending on business conditions and
other risks and uncertainties to which the Company and its businesses are
subject.

The Company believes that the Company's cash balances immediately following
the Distribution and net cash provided by operating activities and sales of
Unsold Properties will be sufficient to meet its working capital and capital
expenditure requirements for at least the next 12 months. Management intends to
invest the Company's cash in excess of current operating requirements in
short-term, interest-bearing, investment-grade securities.

38
<PAGE>
BUSINESS OF PRICESMART

The Company was formed in August 1994 as a subsidiary of PEI in connection
with the spin off of PEI from Costco. PEI began to operate as a separate company
from Costco effective August 29, 1994 and became a separate publicly-traded
company on December 21, 1994 upon the completion of the voluntary exchange offer
made by Costco to its stockholders whereby such stockholders were given the
choice to either continue to own shares of Costco or exchange all or a portion
of their holdings into an equal number of shares of PEI. PriceSmart initially
operated under the name Price Quest, Inc. and until recently was operating under
the name PQI, Inc.; however, the Company changed its name to PriceSmart, Inc.
effective June 30, 1997 in anticipation of the proposed restructuring of PEI
into two separate and distinct businesses that will operate as two separate
publicly-held companies. Unless otherwise indicated, references in this section
to PriceSmart or the Company refer to the Merchandising Businesses, the Unsold
Properties, the Notes, all cash balances of PEI as of the Distribution Date
except for the Retained Cash Amount, and the Other Assets.

The Company owns and manages international merchandising businesses which
license and, in some cases, own membership stores using the trade name
"PriceSmart" in most markets and "PriceCostco" in a limited number of other
markets. The international merchandising businesses focus on emerging consumer
markets in Latin America and Asia. The Company also operates domestic
merchandising businesses including the Company's Auto Referral Program and its
Travel Program. The Company's Auto Referral Program and Travel Program offer
discounts on new cars and on travel services to Costco members pursuant to an
exclusive agreement between Costco and the Company.

Costco and the Company are parties to an Agreement Concerning Transfer of
Certain Assets (the "Asset Transfer Agreement"), which, among other things,
provides for limited use by the Company of the PriceCostco name in the Northern
Mariana Islands, Guam and Panama, sets forth the terms of certain covenants not
to compete between Costco and PEI, and describes the parties' respective rights
and obligations relating to the Auto Referral and Travel Programs conducted by
the Company. See
"--International Merchandising Businesses," "--Auto Referral Program," "--Travel
Program" and
"--Relationship with Costco."

BUSINESS STRATEGY

The Company's strategy is to develop its existing merchandising businesses
and to invest in, acquire or create new merchandising businesses consistent with
the experience and talents of its management. Specifically, key elements of the
Company's business strategy include:

PROVIDE LOWER PRICES IN THE MARKETPLACE. Overriding all of the Company's
businesses is a philosophy of bringing lower prices to the consumer. Future
development of the Company's business will be directed to market opportunities
for lowering the costs of goods and services to consumers.

INCREASE MARKET SHARE IN DEVELOPING MARKETS. The Company believes that it
is well positioned to take advantage of growth in developing markets due to its
capital resources and experience with membership stores in Latin America and
Asia. The Company intends to license its know-how and trademarks to local
business people in developing markets in order to take advantage of the growing
demand for consumer goods in such markets. The Company also intends to open new
stores in Panama and other Latin American countries. If the Company's Panama
joint venture proves successful, the Company may seek to enter into additional
joint venture relationships and to open additional membership stores through
such joint ventures.

DEVELOP AFFINITY MARKETING PROGRAMS. The Company's strategy for its
domestic merchandising businesses is to establish and operate businesses that
offer preferred pricing on products or services to customers of another company.
The Company has established such an affinity relationship with Costco, pursuant
to which the Company offers its Auto Referral and Travel Programs to Costco
members. The

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<PAGE>
Company intends to continue to develop businesses compatible with affinity
programs and to explore strategic relationships with other companies to
implement programs similar to the Company's existing Auto Referral and Travel
Programs or new programs that may be developed by the Company.

AUTO REFERRAL PROGRAM STRATEGY. The evolution of new car buying practices
present significant business opportunities for the Company's Auto Referral
Program. To take advantage of such opportunities, the Company intends to expand
its participating dealership base. The Company also intends to refine its
training program for its participating dealerships which includes the initial
and ongoing training of dealership representatives and emphasizes rapid response
times to customer inquiries, a firm competitive price quote and fair and honest
treatment of its customers. The Company regularly solicits consumer feedback and
monitors dealership compliance with the Company's Auto Referral Program.

TRAVEL PROGRAM STRATEGY. The Company's strategy for its Travel Program is
to provide low prices on travel products for consumers who are customers of
other companies with which the Company has established affinity relationships.
The Company plans to maintain and enhance its relationships with travel service
providers in order to offer the best possible prices on travel services to its
customers. The Company will continue to operate as efficiently as possible by
referring its customers directly to travel service providers whenever possible.
The Company currently provides direct customer service for its cruise program
because the Company has concluded that such an approach offers its cruise
customers the best combination of service and value.

INTERNATIONAL MERCHANDISING BUSINESSES

The Company owns and manages international merchandising businesses which
license and, in some cases, own membership stores using the trade name
"PriceSmart" in most markets and "Price Costco" in a limited number of other
markets. The Company historically has conducted its international merchandising
businesses through its Price Global Trading, L.L.C. ("Price Global") and Price
Ventures Inc. ("Price Ventures") subsidiaries. Prior to the Distribution, such
entities will be consolidated into the Company's Price Ventures U.S.A., Inc.
subsidiary. See "PRELIMINARY TRANSACTIONS." Price Global licenses membership
store businesses in the Northern Mariana Islands and Guam and owns a 51%
interest in a Panama joint venture that has opened one store in Panama and plans
to open an additional store in Panama. Price Ventures has focused on developing
international merchandising businesses in other global markets. To date, Price
Ventures has entered into licensing arrangements relating to know-how and
trademarks to be used in operating membership stores with entrepreneurs in the
Peoples Republic of China, Indonesia and the Philippines. Price Ventures'
licensees currently operate a total of three stores: two in Indonesia and one in
the Peoples Republic of China. The Company plans to invest $20-30 million in its
international merchandising businesses during fiscal 1998 (beginning September
1, 1998). Such funds will be used to fund expansion of the Panama joint venture,
for start-up costs associated with the establishment of new licensing
arrangements and the opening of new stores by the Company's Price Ventures'
licensees and for general working capital requirements.

The membership stores sell basic consumer goods with an emphasis on quality,
low prices and efficient operations. By offering low prices on brand name
merchandise, such stores seek to generate sales volumes high enough to enable
the stores to operate profitably at relatively low gross margins. The typical
stores are no-frills warehouse-type buildings which range in size from 40,000 to
65,000 square feet. Stores are generally 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.
The target customers are consumers and small businesses. The shopping format
includes an annual membership fee which varies by market from $25 to $35.

Typically, Price Global or Price Ventures, as the case may be, enters into
licensing and technology transfer agreements ("Licensing Agreements") with local
business people and provides licensees with the Company's know-how package,
which includes product sourcing agreements. The Company believes that

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<PAGE>
its licensees have been interested in 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.

Each Licensing Agreement includes a license of certain trade secrets and
know-how useful in the design, establishment, management and operation of
membership stores. The license also includes the right to use the "PriceSmart"
mark and certain other trademarks. The Company also grants its licensees access
to its computer software systems for purposes of data entry and report
generation and trains its licensees in the use of such systems. Each Licensing
Agreement requires Price Global or Price Ventures (or its affiliate) to supply
initial training, follow-up training and management support to its licensee.
Price Ventures assists its licensees in evaluating building design, layout and
construction specifications and advises its licensees in the preparation,
development and updating of their business plans. Licensees are required to
submit their business plans to Price Global or Price Ventures, as the case may
be, for approval and to abide by certain policies with respect to maintenance
and condition of stores. Each Licensing Agreement contains provisions regarding
confidentiality and covenants by licensees not to compete during the term of the
Licensing Agreement and for a period of years thereafter. In consideration for
such licenses and providing such services, licensees pay an initial license fee,
a royalty based on a percentage of annual gross sales and product sourcing fees.
In some cases, licensees also are required to pay separate trademark royalties
and computer software system fees.

The Licensing Agreement between Price Global and its licensee requires Price
Global to sell merchandise to its licensee for resale in its allotted
territories. Price Global's licensee is required to submit purchase orders on
forms provided by Price Global, and such purchase orders are deemed to have no
effect until accepted in writing by Price Global. Price Global designates
merchandising employees and buyers based in the United States to assist its
licensee with product sourcing, selection and merchandising. Prices for such
merchandise are set by Price Global on a "gross margin" basis and are intended
to cover Price Global's costs for such merchandise plus taxes, duties, shipping
costs, any insurance charges incurred by Price Global and a reasonable profit
margin. Payments for goods are required to be in United States dollars.

Price Ventures supplies merchandise and provides services to its licensees
pursuant to Sourcing Program Agreements. Under a typical Sourcing Program
Agreement, Price Ventures' licensee would develop a quarterly merchandising plan
setting forth its needs for merchandise and related services as well as a budget
for the quarter. Price Ventures then would respond with changes to the plan or
accept the plan. To the extent that Price Ventures and the licensee agree on a
category of goods in the plan, such agreement is deemed an accepted order from
the licensee and an "open to buy" authorization to ship. Price Ventures has the
right and responsibility to select and ship merchandise within categories
specified by the licensee. In addition to supplying merchandise, Price Ventures
also provides a number of services to its licensees, including, among other
things, the selection of a menu of products and the establishment of pricing and
terms with the vendor of such products; management of planned inventory levels;
negotiation of ocean shipments on behalf of the licensee; and preparation of
documents to fulfill product registration requirements. Each Sourcing Program
Agreement also includes exclusivity provisions which require the licensee to
purchase merchandise from Price Ventures unless (i) the licensee receives a bona
fide offer to sell merchandise from a supplier outside the United States
previously approved by Price Ventures or from another U.S. supplier and (ii)
Price Ventures does not exercise its right to match such offer with comparable
merchandise.

AUTO REFERRAL PROGRAM

The Company's Auto Referral Program offers Costco members a low-price, "no
haggle" alternative for buying a new car. The Company has established
relationships with approximately 1,600 new car dealerships in Costco markets in
the United States. Under the Company's Auto Referral Program, Costco

41
<PAGE>
members are given the opportunity to meet with selected sales representatives at
participating dealerships and to purchase cars based on a fixed price. The
Company's alternative to traditional vehicle retailing dramatically reduces
participating dealerships' selling costs per vehicle and increases sales volumes
by channeling a large number of ready-to-buy, well-informed consumers to
participating dealerships.

OVERVIEW OF NEW VEHICLE RETAILING. The Company believes that the vehicle
sales process has not changed significantly in the last 25 years, and that
consumers dissatisfied with sales tactics viewed as self serving, unfair,
intimidating or overbearing are increasingly turning to alternative methods for
buying a car. At the same time, car dealerships are exploring methods for
reducing their costs per vehicle sold while continuing to generate sufficient
sales leads.

ADVANTAGES OF AUTO REFERRAL PROGRAM. The Company believes that changes in
the way in which consumers purchase new and used cars provide significant
opportunities for the Company's Auto Referral Program. Many consumers prefer to
purchase their cars in a straightforward and simple way without the difficulties
of the traditional car buying experience. The Company's Auto Referral Program is
designed to lower the cost of buying a car and to provide a consumer-friendly
experience. Independent car dealerships are facing increasing competition from
national used car dealers such as Auto Nation and Car Max. The Company's Auto
Referral Program provides efficient marketing for independent car dealers, which
helps them compete more effectively.

The Company has provided automotive referral services to Costco members on
an exclusive basis since 1994. The Company provides information about
participating dealers to Costco members through brochures distributed at Costco
warehouses, through advertisements in "The Costco Connection" and through
promotional materials linked to and from Costco's Internet home page. See "--
Relationship with Costco." The Costco Connection is mailed each month to
Costco's approximately three million business customers and is distributed to
Costco's approximately nine million "gold star" members at Costco warehouses.
The brochures and advertisements direct Costco members to make appointments to
meet with specified sales representatives at participating dealerships and to
present their Costco membership cards at the meetings. Upon presentation of
their cards, Costco members receive fixed prices on cars about which they
inquire. The Company generates revenues from its Auto Referral Program
exclusively from advertising fees charged to participating dealers. The Company
generated revenues of $5.5 million from operations of the Auto Referral Program
during the 40 weeks ended June 8, 1997. The Company has allocated up to $2
million to invest in its Auto Referral Program for fiscal year 1998.

TRAVEL PROGRAM

The Company's Travel Program offers discounted prices on airline tickets,
cruises, travel packages, car rentals and hotels to Costco members. The
Company's operating strategy is based on generating large sales volume rather
than high margins on individual sales. The Company has been successful in
obtaining discounts not available to most travel agencies because of the large
volume of reservations made through the Company's Travel Program. The Company's
strategy allows it to satisfy its customers' demands for low-price travel
products while the Company benefits from the higher commissions and additional
incentives available to high-volume travel agencies. The Company has limited the
scope of its Travel Program to products on which it can offer discounts to its
customers.

TRAVEL INDUSTRY OVERVIEW. The U.S. travel industry is a highly fragmented
industry comprised of numerous small agencies, but trending towards large volume
agencies, according to the Travel Weekly 1996 U.S. travel agency survey. In
contrast to 1985, when smaller agencies were responsible for 62% of all U.S.
travel agency revenues, in 1995 such agencies were responsible for only 41% of
all U.S. travel agency revenues.

ADVANTAGES OF TRAVEL PROGRAM. The Company believes its Travel Program is
well positioned to take advantage of anticipated further growth in the travel
industry. The Company has established relationships

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<PAGE>
with travel providers, wholesalers and high volume travel agencies. Because of
the Company's large sales volumes, the Company frequently is able to purchase
travel products at attractive prices.

The Company has operated the Travel Program since 1994 pursuant to an
operating agreement with Costco. The Company provides information about travel
products and prices to Costco members through brochures distributed at Costco
warehouses, through advertisements in "The Costco Connection" and through
promotional materials linked to and from Costco's Internet home page. See "--
Relationship with Costco." The brochures and advertisements direct Costco
members to contact the Company for assistance with cruises and to call companies
with which the Company has obtained preferential pricing for airline tickets,
travel packages, hotels and car rentals. Since its customers do not visit the
Company's reservation center in San Diego, the Company does not need to
construct and maintain expensive travel agent locations.

The Company's Travel Program generates revenues from commissions as a
function of sales and co-op promotions from certain suppliers, including car
rental companies and hotels. In addition, the Company has entered into
agreements with certain travel service providers for the payment of override
commissions above the standard commissions the Company receives. Under such
agreements, additional commissions are generally awarded if the volume of sales
exceeds certain agreed upon thresholds. The Company generated revenues of $3.7
million from the Travel Program during the 40 weeks ended June 8, 1997. The
Company has allocated up to $1 million for investment in the Travel Program in
fiscal 1998.

RELATIONSHIP WITH COSTCO

Under the Asset Transfer Agreement, Costco has agreed to refrain from
conducting membership store businesses in the Northern Mariana Islands and Guam
through the earlier of October 31, 1999 and termination of the Company's license
with Joeten Enterprises, Inc. and has agreed to refrain from conducting
membership store businesses in Panama through the earlier of October 31, 1999
and termination of the Company's license with PriceCostco Panama, S.A. Pursuant
to a License Agreement with Costco, which was modified by the Asset Transfer
Agreement, the Company has an exclusive (including against Costco), royalty-free
license in the Northern Mariana Islands and Guam to use "Price Club" and
"PriceCostco" marks in connection with the development, operation, advertising
and promotion of the Company's business activities in such areas, subject to
certain restrictions on the use of the marks and quality control and
confidentiality provisions. The Company currently owns rights to the name
"PriceCostco" in Panama, and the Company has agreed, subject to the outcome of
trademark applications in Panama, to transfer to Costco its rights to the name
"PriceCostco." If the Company transfers such rights to Costco, Costco will
license back to the Company the right to use the name "PriceCostco" in Panama
upon the same terms as the Northern Mariana Islands and Guam licenses. The Asset
Transfer Agreement, however, requires the Company to use diligent and reasonable
efforts to negotiate with its licensee in the Northern Mariana Islands and Guam
and Price Global's joint venture partner in Panama to terminate such licensees'
rights to use the "Price Club" and "PriceCostco" names and marks by October 3,
1998, or, if that does not occur, at the earliest possible date before December
12, 2009 for the Northern Mariana Islands and Guam and December 21, 2015 for
Panama. The Company's rights to use such names and marks in Panama are further
subject to the outcome of trademark application proceedings in Panama, which
could result in earlier termination of the Company's rights.

The Asset Transfer Agreement also gives the Company the exclusive right to
operate its Auto Referral Program and Travel Program in certain Costco
warehouses, through advertisements published in "The Costco Connection" and
through promotional materials linked to and from Costco's Internet home page.
The Company currently operates its Auto Referral and Travel Programs in
approximately 200 Costco warehouses. The Asset Transfer Agreement provides for
the expansion of the Auto Referral Program and the Travel Program into as many
as ten additional Costco warehouses (to the extent they exist) in each of the
fiscal years ended August 1997, 1998 and 1999. Costco has the right to select
the warehouses for expansion, subject to the Company's reasonable consent. The
agreement requires Costco to provide

43
<PAGE>
sufficient space to display a brochure rack and to use its best efforts to
provide sufficient space to display an automobile. Costco also is required to
maintain and stock the brochure rack and to provide security for the rack and
for any displayed automobiles. The Company's rights under the Asset Transfer
Agreement to conduct the Auto Referral and Travel Programs in Costco warehouses,
through "The Costco Connection" and through Costco's Internet home page will
extend until October 31, 1999 unless earlier terminated by the Company upon 60
days prior written notice to Costco.

The Asset Transfer Agreement requires the Company to pay Costco, for the
Auto Referral Program, 20% of the gross revenues derived from the Costco Auto
Program Internet site linked to and from Costco's Internet home page and 55% of
the gross revenues derived from all other advertising or promotion via Costco
warehouses, "The Costco Connection" or other media which utilize the "Costco"
name or mark. Likewise, the Asset Transfer Agreement requires the Company to pay
Costco, for car rentals, hotel bookings and other travel services other than
vacation packages and cruises, 15% of the received commissions derived from any
advertising or promotion via Costco warehouses, "The Costco Connection," the
Costco Travel Program Internet site linked to and from Costco's Internet home
page or other media which use the "Costco" name or mark. For vacation packages
and cruises, the Company is required to pay Costco 1% of the net sales derived
from any such advertising or promotion. The Company is required to use "Costco
Auto Program" and "Costco Travel Program" marks in connection with the sales and
promotional activities described above.

The Asset Transfer Agreement does not limit the Company's ability to own or
operate any automobile related or travel service related businesses as long as
such businesses do not use the names or marks "PriceCostco," "PriceClub" or
"Costco" and do not operate, through October 31, 1999, from locations owned or
operated by Sam's Warehouse Club, BJ's Wholesale Club or Wal-Mart or any of
their affiliates. Costco has the right under the Asset Transfer Agreement to
sell automobiles (but not by referral to a third party) and vacation packages
(but not cruises) and airline tickets directly to its members. Costco also may
investigate and experiment with other concepts in auto and travel businesses.

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."

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<PAGE>
REAL ESTATE AND RELATED ASSETS

PROPERTIES HELD FOR SALE. PEI's business strategy has been to retain
properties that have high-quality, long term tenants and that are, or soon will
be fully developed. PEI has designated properties that do not meet its
investment objectives as properties held for sale. Such properties historically
have been separately classified in PEI's financial statements. Pursuant to the
Distribution Agreement, PEI will transfer approximately $27 million of such
properties to the Company prior to the Distribution. The Company expects to sell
such properties within the next twelve months. Proceeds from sales of such
properties may be used to fund the Company's Merchandising Businesses and the
Company's general working capital requirements.

The table set forth below describes the portfolio of Unsold Properties to be
held by the Company immediately following the Distribution. Amounts shown for
annual minimum rents are based on executed leases as of May 31, 1997. Due to the
nature of real estate investments, actual rental income may differ from amounts
shown in this table.

<TABLE>
<CAPTION>
LEASES IN EFFECT AS OF MAY 31, 1997
-----------------------------------------------------------------
LAND GROSS PERCENT NET BOOK ANNUAL
ACREAGE LEASABLE LEASED VALUE MINIMUM
----------- AREA (SQ FT) ----------- 5/31/97 RENT
------------- ----------- -----------
(000S) ($000S) ($000S)
<S> <C> <C> <C> <C> <C>
PROPERTIES WITH BUILDINGS
Bakersfield, CA.......................................... 15.7 143.5 74% $ 6,527 $ 809
Worcester, MA............................................ 11.4 115.0 100% 5,821 690
Sacramento/65th Expressway, CA........................... 13.6 139.7 0% 5,160 --
Mesa/Broadway, AZ........................................ 6.5 24.2 100% 1,288 183
Riverside/Third St., CA.................................. 4.9 17.9 100% 394 147
Milwaukee, WI (leased)................................... 8.8 115.0 100% 64 --
----- ----- --- ----------- -----------
Subtotal............................................... 60.9 555.3 68% 19,254 1,829

UNIMPROVED LAND
Fresno, CA............................................... 15.0 -- -- 3,680 --
Gaithersburg, MD......................................... 5.2 -- -- 1,500 --
Richmond, VA............................................. 11.7 -- -- 1,457 --
Sterling, VA............................................. 9.0 -- -- 1,406 --
Carlsbad, CA............................................. 5.1 -- -- 1,351 --
East Mesa/Superstition Springs, AZ....................... 18.7 -- -- 981 --
Santa Clarita, CA........................................ 2.2 -- -- 900 --
Sacramento/Rancho Cordova, CA............................ 6.7 -- -- 570 --
Palm Desert, CA.......................................... 2.0 -- -- 500 --
Fountain Valley, CA...................................... 2.5 -- -- 475 --
Rancho Cucamonga, CA..................................... .9 -- -- 405 --
Tucson, AZ............................................... 7.6 -- -- 400 --
Denver/Westminster, CO................................... 3.3 -- -- 305 --
Rohnert Park, CA......................................... .7 -- -- 300 --
Denver/Aurora, CO........................................ 1.0 -- -- 112 --
----- ----- --- ----------- -----------
Subtotal............................................... 91.6 -- -- 14,342 --

Deferred rents and leasing costs, net...................... -- -- -- 1,023 --
Provision for Asset Impairments............................ -- -- -- (7,410) --
----- ----- --- ----------- -----------
Total...................................................... 152.5 555.3 68% $ 27,209 $ 1,829
----- ----- --- ----------- -----------
----- ----- --- ----------- -----------
</TABLE>

PENDING REAL ESTATE TRANSACTIONS. As of May 31, 1997, the Company was under
contract to sell nine properties and a portion of one other property. The
Company expects to generate $15 million in aggregate

45
<PAGE>
gross proceeds from such sales. The Company expects such transactions to be
completed within the next four months; however, given the nature of such sales
activities, these can be no assurance that these potential sales will be
completed by their expected dates or that such proceeds will be fully realized.

ENVIRONMENTAL MATTERS. The Company's ownership of real properties could
subject it to certain environmental liabilities. As discussed below, certain
Unsold Properties are located in areas of current or former industrial activity,
where environmental contamination may have occurred. The Company has agreed to
indemnify PEI against and hold PEI harmless from all environmental liabilities
that relate to or arise out of the Unsold Properties.

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 which 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 Unsold Properties. The Company is unaware of any environmental
liability or noncompliance with applicable environmental laws or regulations
arising out of the Unsold Properties 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.

CITY NOTES AND OTHER NOTES RECEIVABLE. The Company will also own the City
Notes and certain other notes receivable. As of June 8, 1997, the carrying value
of the City Notes was approximately $24 million. The City Notes carry interest
rates which range from 7% to 10%. Repayment of each City Note is generally based
on the relevant municipality's allocation of sales tax revenues generated by
retail businesses located on a particular property associated with such City
Note. For accounting purposes, the carrying value of $24 million of such notes
represents management's estimate of discounted cash flow from the City Notes.
Management's analysis of the discounted cash flow from the City Notes assumes no
payment at maturity, because, under the terms of the City Notes, the unpaid
balance of the note is forgiven at its maturity date. If actions taken by
Costco, such as closure or relocation of a particular Costco warehouse, would
entitle the governmental agency to withhold payment, the Company would be
entitled to cause Costco to purchase such City Note at an amount equal to 72% of
the June 5, 1994 book balance, less any subsequent principal repayments, plus
all accrued and unpaid interest from June 5, 1994. The Company holds certain
other notes receivable with a carrying value of approximately $6.6 million as of
June 8, 1997. See "RISK FACTORS--Notes Receivable."

COMPETITION

Each of the Company's Merchandising Businesses faces competition unique to
its line of business. The Company's international merchandising businesses
compete with exporters, wholesalers and trading

46
<PAGE>
companies in various international markets. Specifically, the Company's
international merchandising businesses compete with Makro, Carrefour, Wal-Mart,
Costco and local chain store operations. The Company's Auto Referral Program
competes with affinity programs offered by several companies such as Wal-Mart;
Internet vehicle buying services such as Auto By Tel; and automobile brokerage
firms. The Company's Travel Program competes with a variety of other providers
of travel and travel-related products and services, including telemarketing
travel companies, traditional travel agencies and various on-line services
available on the Internet.

INTELLECTUAL PROPERTY RIGHTS

It is the Company's policy to obtain appropriate proprietary rights
protection for trademarks and significant new technology acquired or developed
by the Company. 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
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.

Price Ventures has filed applications to register the mark "PriceSmart" 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
Price Ventures will obtain such registrations or that Price Ventures has
proprietary rights to the mark. In addition, as noted above, the Company has
limited rights to use the "PriceCostco" name in connection with its
international merchandising businesses and certain Costco marks with its Auto
Referral and Travel Programs. The Asset Transfer Agreement requires the Company
to attempt to phase out the use of the PriceCostco name and related marks in the
Northern Mariana Islands, Guam and Panama. See "--International Merchandising
Businesses."

EMPLOYEES

Following the Distribution, the Company will employ approximately 146
employees, 89 of which will be assigned to the Company's international
merchandising businesses, 47 to Auto Referral and Travel Programs and 10 in
corporate administrative activities. The Company believes that its future
prospects will depend, in part, on its ability to continue to attract and retain
skilled management personnel.

The individuals employed in the cruise division of the Company's Travel
Program recently joined a union. The Company currently is negotiating a
collective bargaining agreement with such employees. The

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<PAGE>
Company has never experienced any business interruption as a result of labor
disputes. The Company believes that its relations with its employees are good.

SEASONALITY

The Merchandising Businesses are subject to traditional retail sales trends
associated with the calendar year-end holiday season. The Company's real estate
operations are not generally subject to seasonal fluctuations.

CORPORATE HEADQUARTERS

The Company maintains its headquarters at 4649 Morena Blvd., San Diego,
California 92117. The Company leases 42,000 square feet of office space from PEI
at a rate of $.60 per month per square foot pursuant to a triple net lease. The
initial term of the lease will be three years with three renewal options of
three years each. During the first year, PEI will not charge rent to the Company
on 6,000 square feet of space. 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.

LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings other than various
claims and lawsuits arising in the ordinary course of its business which, in the
opinion of the Company's management, are not individually or in the aggregate
material to its business.

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<PAGE>
MANAGEMENT

BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD

Upon consummation of the Distribution, the Company's Board of Directors is
expected to be comprised of five directors: Robert E. Price, Katherine L.
Hensley, Leon C. Janks and two additional directors to be elected prior to the
Distribution. Such directors will serve until the next Annual Meeting of
Stockholders of the Company and until their respective successors have been duly
elected and qualified.

The table below indicates the name, position with the Company and age of
each nominee for Director.

Robert E. Price has been Chairman of the Board, President and Chief
Executive Officer of the Company since July 1997 and has held the same positions
with the Company since July 1994. Mr. Price also serves as Chief Executive
Officer of Price Real Estate, Price Global Trading and Price Quest. Mr. Price
was Chairman of the Board of Price/Costco, Inc. from October 1993 to December
1994. Mr. Price also serves as director of Price Real Estate, Price Global
Trading, Price Quest and Price Ventures. 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 its
President from 1976 until December 1990.

Katherine L. Hensley has been a director of the Company since July 1997 and
has served as a director of PEI since . 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. Ms. Hensley is 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 since . He has been a Partner in the
accounting firm of Alder, Green & Hasson in Los Angeles, California since 1980.
Mr. Janks has extensive experience in domestic and international business
serving a wide variety of clients in diverse businesses.

COMMITTEES OF THE BOARD OF DIRECTORS OF THE COMPANY

AUDIT COMMITTEE. The Audit Committee will consist of Messrs. Janks and
. The Audit Committee will review the annual audits of the
Company's independent public accountants, review and evaluate internal
accounting controls, recommend the selection of the Company's independent public
accountants, review and pass upon (or ratify) related party transactions, and
conduct such reviews and examinations as it deems necessary with respect to the
practices and policies of, and the relationship between, the Company and its
independent public accountants.

COMPENSATION COMMITTEE. The Compensation Committee, will consist of Mr.
and Ms. Hensley. The Compensation Committee will review salaries,
bonuses and stock options of senior officers of the Company, and administer the
Company's executive compensation policies and stock option plans.

NOMINATING COMMITTEE. The Nominating Committee will consist of Ms. Hensley
and Mr. Price. The Nominating Committee will recommend candidates to fill
vacancies on the Board of Directors or any

49
<PAGE>
committee thereof, which vacancies may be created by the departure of any
directors, or the expansion of the number of members of the Board. The
Nominating Committee will give appropriate consideration to qualified persons
recommended by stockholders for nomination as Directors provided that such
recommendations are accompanied by information sufficient to enable the
Nominating Committee to evaluate the qualifications of the nominee.

EXECUTIVE COMMITTEE. The Executive Committee will consist of Messrs. Price
and . The Executive Committee will have all powers and rights
necessary to exercise the full authorities of the Board of Directors in the
management of the business and affairs of the Company, except as provided in the
Delaware General Corporation Law or the Bylaws of the Company.

FINANCE COMMITTEE. The Finance Committee will consist of Messrs. Price and
Janks. The Finance Committee will review and make recommendations with respect
to (i) annual budgets, (ii) investments, (iii) financing arrangements and (iv)
the creation, incurrence, assumption or guaranty by the Company of any
indebtedness, obligation or liability, except, in each case, for any such
transactions entered into in the ordinary course of business of the Company.

COMPENSATION OF THE BOARD OF DIRECTORS

Each non-employee director of the Company will receive $20,000 per year for
serving on the Board of Directors and an additional $5,000 per year for serving
as chairman of any committee of the Company Board. In addition, non-employee
directors who serve on committees of the Company Board (in a capacity other than
chairman of a committee) will receive $500 for each meeting attended. The
chairman or vice chairman of any committee may receive additional compensation
to be fixed by the Company Board. Each director is eligible to receive stock
grants and stock options pursuant to the PriceSmart Stock Option Plan.

Directors also will receive reimbursement for travel expenses incurred in
connection with their duties as directors.

EXECUTIVE OFFICERS

Set forth below are the names, positions and ages of the individuals who
will become executive officers of the Company and key officers of its
subsidiaries following the Distribution:

<TABLE>
<CAPTION>
NAME POSITION WITH PRICESMART AGE
- ----------------------------- ----------------------------------------------------- ---
<S> <C> <C>
Robert E. Price.............. Chairman of the Board, President and Chief Executive 54
Officer
Robert M. Gans............... Executive Vice President, General Counsel 48
Daniel L. Brockman........... Vice President--Finance, Chief Accounting Officer 42
Joseph J. Tebo............... President of Price Ventures 60
Theodore Wallace............. Chief Executive Officer of Price Ventures 48
</TABLE>

Robert E. Price has been Chairman of the Board, President and Chief
Executive Officer of PEI since July 1994. Mr. Price also serves as Chief
Executive Officer of Price Real Estate, Price Global Trading and Price Quest.
Mr. Price was Chairman of the Board of PriceCostco, Inc. from October 1993 to
December 1994. Mr. Price also serves as director of Price Real Estate, Price
Global Trading, Price Quest and Price Ventures. 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 its President from 1976 until December 1990.

Robert M. Gans has been Executive Vice President, General Counsel for PEI
since October 17, 1994. Mr. Gans graduated from the UCLA School of Law in 1975
and actively practiced law in private practice

50
<PAGE>
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.

Daniel L. Brockman has been with PEI since October 1994, initially as the
Director of Internal Audit. Mr. Brockman later became the Chief Financial
Officer of Price Quest, Price Global and Price Ventures. From 1989 to 1994, Mr.
Brockman worked for TPC and Costco in a variety of financial executive
positions, including Director of Internal Audit, Director of Finance and
Director of Financial Planning. Mr. Brockman graduated from the San Diego State
University with a BS in Accounting in 1977 and is a Certified Public Accountant.

Joseph J. Tebo has been the President of Price Ventures since November 14,
1994. From May 1994 to November 1994, Mr. Tebo was President of the Tebo Group,
an international retail consulting firm. From January 1990 to April 1994, Mr.
Tebo was President and Chief Executive Officer of AM/PM International, a wholly
owned subsidiary of Atlantic Richfield Company (ARCO), which has developed
licensing and joint venture arrangements for AM/PM convenience stores in 10
countries throughout the Pacific Rim and the Americas. Mr. Tebo spent more than
30 years in the Atlantic Richfield domestic and international sales and
marketing organizations, and was instrumental in developing the AM/PM Mini-Mart
concept and the PayPoint electronic payment system.

Theodore Wallace has been an Executive Vice President of PEI since November
1994 and serves as Chief Executive Officer of Price Ventures. From October 1993
to November 1994, Mr. Wallace was Executive Vice President of PriceCostco
overseeing international expansion into the Pacific Rim and other markets. Mr.
Wallace became an Executive Vice President of TPC in 1984 and, from 1988 until
Fall 1992, he was Chief Operating Officer (East Coast) of TPC. He was a director
of TPC from October 1988 to October 1993. He joined TPC as a warehouse manager
in September 1977 and was its Vice President of Operations from 1983 to 1988.

EXECUTIVE OFFICER COMPENSATION

Prior to the Distribution, the individuals who have managed the
Merchandising Businesses have been employed by PEI. The following Summary
Compensation Table sets forth a summary of the compensation paid during the past
three fiscal years by PEI to the individuals serving as PEI's chief executive
officer and the four next most highly compensated executive officers (the "Named
Executive Officers"). The compensation amounts in the following tables represent
all compensation paid to each such individual in connection with his position
with PEI.

51
<PAGE>
SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
------------------------------------------ UNDERLYING
NAME AND PRINCIPAL OTHER ANNUAL OPTIONS/ ALL OTHER
POSITION(S) FISCAL YEAR SALARY($) BONUS($) COMPENSATION($)(1) SARS(#) COMPENSATION($)(2)
- ---------------------------- ----------- --------- ----------- ------------------ ------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Price, 1996 225,000 -0- -0- -0- 4,422
President and Chief 1995 243,340 -0- -0- -0- 9,500
Executive Officer 1994 295,385 -0- -0- 34,100 16,759

Theodore Wallace, 1996 200,000 -0- -0-(3) -0- 3,960
Executive Vice- 1995 215,191 -0- 100,000 100,000 9,500
President 1994 259,584 36,000 70,528(4) 20,000 16,759

Robert M. Gans,
Executive Vice- 1996 150,000 35,000 -0- -0- 250
President and General 1995 132,693 25,000 -0- 75,000 -0-
Counsel 1994 N/A N/A N/A N/A N/A

Joseph J. Tebo 1996 159,808 -0- -0- -0- -0-
President of Price 1995 162,176 -0- -0- 100,000 -0-
Ventures 1994 N/A N/A N/A N/A N/A
</TABLE>

- ------------------------

(1) Except as otherwise indicated, perquisites to each officer did not exceed
the lesser of $50,000 or 10% of the total salary and bonus for such officer.

(2) The amounts shown for fiscal 1996 constitute contributions to The Price
Enterprises Profit Sharing and 401(k) Plan for the period of September 4,
1995 through December 31, 1995, and the Company's 401(k) matching
contribution of $250 for fiscal 1996 on behalf of each Named Executive
Officer. During fiscal 1996, the "plan year" for The Price Enterprises
Profit Sharing and 401(k) Plan was converted to a calendar year from a
fiscal year.

(3) Amount constitutes a retention bonus paid to Mr. Wallace for agreeing to
transfer employment from Costco to the Company in fiscal 1995.

(4) Represents $52,190 paid to reimburse Mr. Wallace for a decline in the market
value of his home which was sold in connection with his relocation at
Costco's request (net of a mortgage prepayment penalty which was paid by Mr.
Wallace) and $18,338 paid to reimburse Mr. Wallace for income taxes related
to such payments.

AGGREGATED STOCK OPTION EXERCISES AND YEAR-END VALUE. The table below sets
forth, on an aggregated basis, information regarding the exercise during the
1996 fiscal year of options to purchase PEI Common Stock by each of the
applicable persons listed in the Summary Compensation Table above and the value
on September 1, 1996 of all unexercised options held by such individuals.

52
<PAGE>
OPTION EXERCISES IN FISCAL 1996 AND SEPTEMBER 1, 1996 OPTION VALUES

<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SEPTEMBER 1, SEPTEMBER 1,
1996(#) 1996($)(1)
NUMBER OF SHARES --------------- ----------------
ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ----------------------- ----------------- ------------------- --------------- ----------------
<S> <C> <C> <C> <C>
Robert E. Price N/A N/A N/A N/A

Theodore Wallace -0- -0- 20,000/80,000 95,000/380,000

Robert M. Gans -0- -0- 15,000/60,000 71,250/285,000

Joseph J. Tebo -0- -0- 20,000/80,000 95,000/380,000
</TABLE>

(1) Based on a price of $16.00 per share, the last reported sales price of the
Company's Common Stock on August 30, 1996, as quoted by the Nasdaq NMS.

CERTAIN OTHER OFFICERS

Set forth below are the names, positions and ages of certain individuals who
are expected to become significant employees of the Company following the
Distribution:

<TABLE>
<CAPTION>
NAME POSITION WITH PRICESMART, INC. AGE
- ----------------------------- --------------------------------------------------------- -----------
<S> <C> <C>
Kevin C. Breen Vice President of Operations 37
Connie H. Depew Vice President of Service Centers 40
Edward H. Depew, III Vice President of Distribution and Logistics 52
Glen C. Dobi Director--Travel Program 36
Walt H. Green Director--Auto Buying Program 54
Thomas L. Hammer Vice President of Int'l Buying and Merchandising 42
Thomas D. Martin Vice President of Merchandising 40
</TABLE>

Kevin C. Breen has been Executive Vice President of Price Ventures since
February 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 with responsibility
for managing the 17-location region in Southern Los Angeles and Orange County.
From September 1991 until the merger with Costco, he was Vice President of TPC
with regional operations responsibilities. Mr. Breen began his career with TPC
in March 1979 and became a warehouse manager in December 1984.

Connie H. Depew has been with PEI since its inception in August 1994 as the
Director of Warehouse Operations. From February 1983 to August 1994, Ms. Depew
worked for TPC and Costco where she worked in various warehouse administrative
roles and ultimately Warehouse Manager for Signal Hill. Prior to joining TPC,
Ms. Depew worked as a internal auditor for FedMart.

Edward H. Depew, III is responsible for export distribution and
transportation worldwide. Prior to his current position, Mr. Depew worked for
Costco as Vice President of International Distribution, focusing on Costco's
Mexican and Korean operations. From 1989 to 1993, Mr. Depew was Vice President
of West Coast distribution for TPC. Mr. Depew possesses over 25 years of
experience in warehousing and transportation management.

Glen C. Dobi joined PEI in August 1994 as the Director of the PriceCostco
Realty, overseeing an affinity-based business offering home selling services to
Costco members. During 1995, the program was discontinued and Mr. Dobi began to
work with for the Costco Travel Program, a program he currently manages. From
September 1991 to 1994, Mr. Dobi worked for TPC and Costco where he was a
financial

53
<PAGE>
analyst for TPC's chief financial officer. Mr. Dobi graduated from the
University of Texas with an MBA degree and a BS degree in engineering.

Walt H. Green has been with PEI since its inception in August 1994 as the
Director of the Auto Referral Program. From November 1988 to August 1994, Mr.
Green worked for TPC and Costco where he worked as an automotive products buyer.
Prior to joining TPC, Mr. Green spent seven years with Select-A-Car, Inc. as a
customer representative and manager for related business at a local credit union
location. Mr. Green graduated from the University of Wisconsin with a B.A.
degree in marketing and economics in 1967.

Thomas L. Hammer has been Executive Vice President of Price Ventures since
February 1997, overseeing the buying and merchandising areas for the
international merchandising business, with specific focus on U.S.-sourced brand
name and private label goods. Prior to joining PEI as Vice President in July
1994, Mr. Hammer served as Vice President of Costco, overseeing the
merchandising area of Price Club Mexico. He joined TPC in July 1983 as a buyer
and has served in various management roles in TPC's buying offices.

Thomas D. Martin has been Executive Vice President of Price Ventures since
February 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 July 1994, Mr.
Martin served as Vice President of Costco and directed the merchandising efforts
for Price Club Korea and PriceCostco Saipan. He joined TPC in May 1977 and has
served in various management roles in both buying and store operations for TPC.

INDEMNIFICATION AGREEMENTS

The Company will enter into indemnification agreements with its directors
and certain executive officers (each, an "Indemnified Person"). An Indemnified
Person is specifically indemnified and held harmless under such agreements for
costs and expenses, including without limitation, damages, judgments, amounts
paid in settlement, reasonable costs of investigation, reasonable attorneys
fees, costs of investigative, judicial or administrative proceedings or appeals,
costs or attachment of similar bonds, fines, penalties, and excise taxes
assessed with respect to employee benefit plans actually and reasonably incurred
in connection with a threatened, pending or completed claim, action, suit or
proceeding by reason of the fact that (i) he or she is or was a director,
officer, employee and/or agent of the Company; or (ii) is or was serving as a
director, officer, employee, trustee and/or agent of another corporation or
entity at the request of the Company. To qualify for indemnification, the claim
must not be: (i) based solely upon an Indemnified Person's gaining in fact any
personal profit or advantage to which he or she was not legally entitled; (ii)
an accounting for profits made from the purchase or sale of securities pursuant
to Section 16(b) of the Exchange Act; and (iii) based solely upon knowingly
fraudulent, deliberately dishonest, or willful misconduct on the part of the
Indemnified Person. The Company will indemnify the Indemnified Person to the
extent that (i) the Indemnified Person gives the Company prompt written notice
of any claim; (ii) expenses have not been advanced pursuant to Article Eighth of
the Company's Amended and Restated Certificate of Incorporation; (iii) the
Indemnified Person has not already received payment pursuant to collectible
insurance policies; and (iv) indemnification is not unlawful.

Under such indemnification agreements, the Company will advance costs and
expenses incurred by the Indemnified Person in advance of the final disposition
of an action, suit or proceeding if he or she undertakes to repay amounts
advanced if it is ultimately determined by a court of competent jurisdiction
that he or she is not entitled to be indemnified by the Company. The Company
will advance costs and expenses related to defending or investigating an action,
suit or proceeding unless a determination is made that (i) the Indemnified
Person did not act in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the Company; (ii) the
Indemnified Person intentionally breached his or her duty to the Company or its
stockholders; (iii) with respect to any criminal action or

54
<PAGE>
proceeding, the Indemnified Person had reasonable cause to believe his or her
conduct was unlawful. Such determination will be made by a majority vote of a
quorum of the Board consisting of directors not a party to the suit, action or
proceeding, by a written opinion of independent legal counsel, by the
stockholders or by a final, nonappealable adjudication in a court of competent
jurisdiction. If the Company advances costs and expenses of any action, suit or
proceeding, the Company reserves the right to assume the defense of such action,
suit or proceeding upon written notice to the Indemnified Person of its
intention to do so. After delivery of such notice, the Company shall not be
liable for any costs or expenses incurred by the Indemnified Person in retaining
separate counsel unless (i) the employment of separate counsel was previously
authorized by the Company; (ii) the Indemnified Person reasonably concludes that
joint representation would entail a conflict of interest; or (iii) the Company
shall not, in fact, have employed counsel to assume the defense of such action,
suit or proceeding. The indemnification provisions and provisions for advancing
expenses in such agreements are expressly not exclusive of any other rights of
indemnification or advancement of expenses pursuant to the DGCL and the
Company's Certificate of Incorporation and Bylaws.

PRICESMART PRICESMART STOCK OPTION PLAN

In July 1997, the Company adopted the 1997 PriceSmart Stock Option Plan of
PriceSmart, Inc. (the "PriceSmart Stock Option Plan"). The PriceSmart Stock
Option Plan was approved by PEI as sole stockholder of the Company as of
, 1997. The principal purposes of the PriceSmart Stock Option Plan
are to provide incentives for officers, employees and consultants of the Company
and its subsidiaries through the granting of options ("Options"), thereby
stimulating their personal and active interest in the Company's development and
financial success, and inducing them to remain in the Company's employ. In
addition to Options granted to officers, employees or consultants, the
PriceSmart Stock Option Plan permits the granting of Options ("Director
Options") to the Company's independent non-employee directors.

The Company intends to grant, at prices to be determined based on the
trading price of the Company Common Stock during the 20 consecutive trading days
following the Distribution, to certain executive officers Options to purchase an
aggregate of shares of Common Stock.

Under the PriceSmart Stock Option Plan, not more than 600,000 shares of
Common Stock (or the equivalent in other equity securities) are authorized for
issuance upon exercise of Options. Furthermore, the maximum number of shares
which may be subject to Options granted under the PriceSmart Stock Option Plan
to any individual in any calendar year cannot exceed .

The principal features of the PriceSmart Stock Option Plan are summarized
below, but the summary is qualified in its entirety by reference to the
PriceSmart Stock Option Plan, which is attached hereto as Annex III.

ADMINISTRATION. Following the Distribution, the Compensation Committee of
the Board or another committee thereof (the "Committee") will administer the
PriceSmart Stock Option Plan with respect to grants to employees or consultants
of the Company and the full Company Board will administer the PriceSmart Stock
Option Plan with respect to Director Options. The Committee will consist of at
least two members of the Company Board, each of whom is a "non-employee
director" for purposes of Rule 16b-3 under the Securities Exchange Act of 1934,
as amended ("Rule 16b-3"), and, with respect to Options which are intended to
constitute performance-based compensation under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), an "outside director" for the
purposes of Section 162(m) of the Code. Subject to the terms and conditions of
the PriceSmart Stock Option Plan, the Company Board or Committee has the
authority to select the persons to whom Options are to be granted, to determine
the number of shares to be subject thereto and the terms and conditions thereof,
and to make all other determinations and to take all other actions necessary or
advisable for the administration of the PriceSmart Stock Option Plan. Similarly,
the Company Board has discretion to determine the terms and

55
<PAGE>
conditions of Director Options and to interpret and administer the PriceSmart
Stock Option Plan with respect to Director Options. The Committee (and the
Company Board) are also authorized to adopt, amend and rescind rules relating to
the administration of the PriceSmart Stock Option Plan.

ELIGIBILITY. Options under the PriceSmart Stock Option Plan may be granted
to individuals who are then officers or other employees of the Company or any of
its present or future subsidiaries. Such Options also may be granted to
consultants of the Company selected by the Company Board or Committee for
participation in the PriceSmart Stock Option Plan. Non-employee directors of the
Company may be granted NQSOs (as defined herein) by the Company Board.

OPTIONS UNDER THE PRICESMART STOCK OPTION PLAN. The PriceSmart Stock Option
Plan provides that the Committee may grant or issue stock Options. Each grant
will be set forth in a separate agreement with the person receiving the award
and will indicate the type, terms and conditions of the grant.

Nonqualified Stock Options ("NQSOs") will provide for the right to purchase
Common Stock at a specified price which, except with respect to NQSOs intended
to qualify as performance-based compensation under Section 162(m) of the Code,
may be less than fair market value on the date of grant (but not less than par
value), and usually will become exercisable (in the discretion of the Company
Board or Committee) in one or more installments after the grant date, subject to
the participant's continued employment with the Company and/or subject to the
satisfaction of individual or Company performance targets established by the
Company Board or Committee. NQSOs may be granted for any term specified by the
Company Board or Committee.

Incentive Stock Options ("ISOs"), will be designed to comply with the
provisions of the Code and will be subject to certain restrictions contained in
the Code. Among such restrictions, ISOs must have an exercise price not less
than the fair market value of a share of Common Stock on the date of grant, may
only be granted to employees, must expire within a specified period of time
following the optionee's termination of employment, and must be exercised within
the ten years after the date of grant. ISOs may be subsequently modified to
disqualify them from treatment as ISOs. In the case of an ISO granted to an
individual who owns (or is deemed to own) at least 10% of the total combined
voting power of all classes of stock of the Company, the PriceSmart Stock Option
Plan provides that the exercise price must be at least 110% of the fair market
value of a share of Common Stock on the date of grant and the ISO must expire
upon the fifth anniversary of the date of its grant.

SECURITIES LAWS AND FEDERAL INCOME TAXES. The PriceSmart Stock Option Plan
is intended to conform to the extent necessary with all provisions of the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and any and all regulations and rules promulgated by the
Securities and Exchange Commission thereunder, including without limitation Rule
16b-3. The PriceSmart Stock Option Plan will be administered, and Options will
be granted and may be exercised, only in such a manner as to conform to such
laws, rules and regulations. To the extent permitted by applicable law, the
PriceSmart Stock Option Plan and Options granted thereunder shall be deemed
amended to the extent necessary to conform to such laws, rules and regulations.

Under current federal tax laws, in general, recipients of grants of NQSO's
under the PriceSmart Stock Option Plan are taxable under Section 83 of the Code
upon their receipt of Common Stock or cash with respect to such grants and,
subject to Section 162(m) of the Code, the Company will be entitled to an income
tax deduction with respect to the amounts taxable to such recipients. Under
Sections 421 and 422 of the Code, recipients of ISOs are generally not taxable
on their receipt of Common Stock upon their exercises of ISOs if the ISOs and
option stock are held for certain minimum holding periods and, in such event,
the Company is not entitled to income tax deductions with respect to such
exercises. Participants in the PriceSmart Stock Option Plan will be provided
with detailed information regarding the tax consequences relating to the various
types of grants under the plan.

56
<PAGE>
In general, under Section 162(m) of the Code ("Section 162(m)"), income tax
deductions of publicly-held corporations may be limited to the extent total
compensation (including base salary, annual bonus, stock option exercises and
non-qualified benefits paid) for certain executive officers exceeds $1 million
(less the amount of any "excess parachute payments" as defined in Section 280G
of the Code) in any one year. However, under Section 162(m), the deduction limit
does not apply to certain "performance-based compensation" established by an
independent compensation committee which is adequately disclosed to, and
approved by, stockholders. In particular, stock options will satisfy the
"performance-based compensation" exception if the options are granted by a
qualifying compensation committee, the plan sets the maximum number of shares
that can be granted to any person within a specified period and the compensation
is based solely on an increase in the stock price after the grant date (i.e. the
option exercise price is equal to or greater than the fair market value of the
stock subject to the award on the grant date). Under a Section 162(m) transition
rule for compensation plans of corporations which are privately held and which
become publicly held, the Stock Option Plan will not be subject to Section
162(m) until the earlier of (i) the material modificaiton of the Stock Option
Plan; (ii) the issuance of all employer stock and other compensation that has
been allocated under the Stock Option Plan; or (iii) the first meeting of
stockholders at which directors are to be elected that occurs after December 31,
1999 (the "Transition Date").

The Company has attempted to structure the Stock Option Plan in such a
manner that, after the Transition Date, subject to obtaining stockholder
approval for the stock options, the remuneration attributable to stock options
which meet the other requirements of Section 162(m) will not be subject to the
$1,000,000 limitation. The Conpany has not, however, requested a ruling from the
IRS or an opinion of counsel regarding this issue.

PROFIT SHARING AND 401(K) PLAN

Upon or prior to the Distribution, the Company intends to adopt The
PriceSmart Profit Sharing and 401(k) Plan (the "Plan") which will contain terms
substantially similar to The Price Enterprises Inc. Profit Sharing and 401(k)
Plan (the "PEI Plan"). The Plan is a profit-sharing plan designed to be a
"qualified" plan under applicable provisions of the Internal Revenue Code of
1986, as amended (the "Code"), covering all [non-union] employees who have
completed one year of service, as defined in the Plan. Under the Plan, the
Company may, in its discretion, make annual contributions which shall not exceed
for each participant the lesser of: (a) 25% of the participant's compensation
for such year, or (b) the greater of (i) 25% of the defined benefit dollar
limitation then in effect under section 415(b)(1) of the Code or (ii) $30,000.
In addition, participants may make voluntary contributions. The Plan also
permits employees to defer (in accordance with section 401(k) of the Code) a
portion of their salary and contribute those deferrals to the Plan.

All participants in the Plan are fully vested in their voluntary
contributions and earnings thereon. Vesting in the remainder of a participant's
account is based upon his or her years of service with the Company. A
participant initially is 20% vested after the completion of two years of service
with the Company and an additional 20% vested after the completion of each of
his or her next four years of service, so that the participant is 100% vested
after the completion of six years of service. It is anticipated that all
employees of the Company who are participants in the PEI Plan will have their
accounts transferred to the Plan.

A participant becomes fully vested in his or her entire account upon
retirement due to permanent disability, attainment of age 65 or death. In
addition, the Plan provides that the Board of Directors of the Company may at
any time declare the Plan partially or completely terminated, in which event the
account of each participant with respect to whom the Plan is terminated will
become fully vested.

The Board of Directors also has the right at any time to discontinue
contributions to the Plan. If the Company fails to make one or more substantial
contributions to the Plan for any period of three

57
<PAGE>
consecutive years in each year of which the Company realized substantial current
earnings, such failure will automatically be deemed a complete discontinuance of
contributions. In the event of such a complete discontinuance of contributions,
the account of each participant will become fully vested.

EMPLOYMENT CONTRACTS

Robert M. Gans is the only Named Executive Officer that presently has an
employment agreement with the Company. Mr. Gans entered into an employment
agreement with PEI for a term of three years commencing October 17, 1994.
Pursuant to his agreement, Mr. Gans received a base annual salary of $150,000
through fiscal year 1996. This base salary was increased by PEI's Compensation
Committee to $175,000 beginning fiscal year 1997. On April 28, 1997 the term of
the employment agreement was extended an additional year to October 16, 1998.
PEI has assigned Mr. Gans' employment agreement to the Company pursuant to the
assignment provisions contained in the agreement. Under the agreement, Mr. Gans
may not engage in any activities, with or without compensation, that would
interfere with the performance of his duties or that would be adverse to the
Company's interests, without the prior written consent of the Company. The
agreement provides that Mr. Gans will be eligible to participate in the
Company's bonus plan and receive all other benefits offered to officers under
the Company's standard company benefits practices and plans. Mr. Gans may
terminate his agreement at any time on 90 days' prior written notice. The
Company may terminate the agreement for cause upon immediate notice thereof, or
upon the death or disability of Mr. Gans. In the event that the Company
terminates an agreement for any reason other than cause, Mr. Gans shall be
entitled for the remainder of the term of the agreement to the continuation of
his base salary payable in conformity with the Company's normal payroll period,
and to inclusion in the stock option plan, profit sharing and 401(k) plan and
medical plans of the Company for the remainder of the term of the agreement. The
foregoing severance benefits are the exclusive benefits that would be payable to
Mr. Gans by reason of his termination, and the Company is not obligated to
segregate any assets or procure any investment in order to fund such severance
benefits. The agreement also contains confidentiality provisions and other terms
and conditions customary to executive employment agreements.

SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the number of shares of Company Common Stock
expected to be beneficially owned immediately following the Distribution by (i)
the Named Executive Officers (as hereinafter defined) and directors of the
Company, (ii) all of the Company's executive officers and directors as a group
and (iii) all other stockholders known by PEI to own beneficially more than five
percent of the Common Stock, based upon the beneficial ownership by such person
of PEI Common Stock as of , 1997. A list of the individuals who are
expected to be executive officers of the Company immediately following the
Distribution is set forth under the heading "MANAGEMENT." Except as otherwise
indicated, each individual named is expected to have sole investment and voting
power with respect to the securities shown.

<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL BENEFICIALLY
NAME AND ADDRESS OWNERSHIP OWNED
- ---------------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Katherine L. Hensley....................................................................
Robert E. Price.........................................................................
Leon C. Janks...........................................................................
Robert M. Gans..........................................................................
Joseph J. Tebo..........................................................................
Theodore Wallace........................................................................
Sol Price...............................................................................
Jeffrey S. Halis........................................................................
All Executive Officers and Directors as a group
</TABLE>

- ------------------------------

Less than 1% beneficially owned.

58
<PAGE>
PRICESMART CERTIFICATE OF INCORPORATION AND BYLAWS

The following is a summary of the Amended and Restated Certificate of
Incorporation of Company (the "Company Certificate") and the Amended and
Restated Bylaws of Company (the "Company Bylaws") and is qualified in its
entirety by reference to the complete text of the Company Certificate as set
forth on Annex I hereto, and the Company Bylaws as set forth in Annex II.

AUTHORIZED STOCK

The Company Certificate provides that the Company is authorized to issue
17,000,000 shares of stock, consisting of 15,000,000 shares of Company Common
Stock, and 2,000,000 shares of preferred stock, par value $.0001 per share
("Company Stock"). Shares of Company Preferred Stock may be issued from time to
time, in one or more series, each of which series shall have such voting powers,
designations, preferences and rights, and the qualifications, limitations or
restrictions relating thereto, as shall be authorized by the Board of Directors
of the Company. See "DESCRIPTION OF THE COMPANY'S CAPITAL STOCK."

DIRECTORS

The Company Bylaws provides that the number of directors shall consist of
three or more members, the exact number of which shall be fixed by the Board of
Directors from time to time. Initially, the Board will have five members. The
Company Bylaws provide that, except as otherwise provided by law or the Company
Certificate, a quorum of the Board for the transaction of business shall consist
of a majority of the entire Board of Directors. The act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. The Company Certificate and Bylaws do not provide for a
classified Board or for cumulative voting in the election of directors to the
Board. The Company Bylaws provide that vacancies and any newly-created
directorships resulting from an increase in the authorized number of directors
may be filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director.

LIABILITY FOR MONETARY DAMAGES

The Company Certificate provides that no director will be personally liable
to the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director, other than liability for breach of the duty of loyalty to
the Company or its stockholders, acts or omissions not in good faith,
intentional misconduct, a knowing violation of law, certain unlawful dividends,
stock repurchased or redemptions or any transaction from which the director
derived an improper personal benefit. Any repeal or modification of such
provision by the stockholders of the Company will not adversely affect any right
or protection of a director existing at the time of such repeal or modification
with respect to acts or omissions occurring prior to such repeal or
modification.

ANTI-TAKEOVER EFFECT OF AUTHORIZED BUT UNDESIGNATED PREFERRED STOCK

As described above, the Company Board will be authorized to provide for the
issuance of shares of Company Preferred Stock, in one or more series, and to fix
by resolution of the Company Board and to the extent permitted by the DGCL, the
terms and conditions of each such series. The Company believes that the
availability of Company Preferred Stock will provide the Company with increased
flexibility in structuring possible future financings and acquisitions and in
meeting other corporate needs which might arise from time to time. The
authorized shares of Company Preferred Stock, as well as authorized but unissued
shares of Company Common Stock, will be available for issuance without further
action by Company stockholders, unless such action is required by applicable law
or the rules of any stock exchange or automated quotation system on which any
class of Company stock may then be listed for trading.

Although the Board has no present intention of doing so, it could issue a
series of Company Preferred Stock that could, depending on its terms, either
impede or facilitate the completion of a merger, tender

59
<PAGE>
offer or other takeover attempt. For instance, such new shares might impede a
business combination by including class voting rights which would enable the
holder to block such transaction or facilitate a business combination by
including voting rights which would provide a required percentage vote of
stockholders. The Board will make any determination to issue such shares based
on its judgment as to the best interests of the Company and its then existing
stockholders. The Board, in so acting, could issue Company Preferred Stock
having terms which would discourage an acquisition attempt or other transaction
that some or a majority of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock over
the then market price of such stock.

INDEMNIFICATION AND ADVANCEMENT OF EXPENSES

The Company Certificate provides for the indemnification of present and
former directors and officers of the Company and persons serving as directors,
officers, employees or agents of another corporation or entity at the request of
the Company (each, an "Indemnified Party") to the fullest extent permitted by
the DGCL. Indemnified Parties are specifically indemnified in the Company
Certificate and the Company Bylaws (the "Indemnification Provisions") for
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by an Indemnified Party (i) in
connection with a threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the fact
that he or she is or was a director or officer of the Company or is or was
serving as a director, officer, employee or agent of another corporation or
entity at the request of the Company, or (ii) in connection with the defense or
settlement of a threatened, pending or completed action or suit by or in right
of the Company, provided that such indemnification is permitted only with
judicial approval if the Indemnified Party is adjudged to be liable to the
Company. Such Indemnified Party must have acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
subject corporation and, with respect to any criminal action or proceeding, must
have had no reasonable cause to believe his or her conduct was unlawful. Any
indemnification under the Indemnification Provisions must be authorized based on
a determination that the indemnification is proper if the applicable standard of
conduct has been met by the Indemnified Party, provided that no such
authorization is required, and indemnification is mandatory, where a director or
officer of the Company is successful in the defense of such action, suit or
proceeding or any claim or matter therein. Otherwise, such determination will be
made by a majority vote of a quorum of the Board consisting of directors not a
party to the suit, action or proceeding, by a written opinion of independent
legal counsel or by the stockholders. In the event that a determination is made
that a director or officer is not entitled to indemnification under the
Indemnification Provisions, the Indemnification Provisions provide that the
Indemnified party may seek a judicial determination of his or her right to
indemnification. The Indemnification Provisions further provide that the
Indemnified Party is entitled to indemnification for all expenses (including
attorneys' fees) incurred in any proceeding seeking to collect from the Company
an indemnify claim under the Indemnification Provisions if such Indemnified
Party is successful. Other than proceedings to enforce rights to
indemnification, the Company is not obligated to indemnify any person in
connection with a proceeding initiated by such person, unless authorized by the
Board of Directors.

The Company will pay expenses incurred by a director or officer of the
Company, or a former director or officer of the Company, in advance of the final
disposition of an action, suit or proceeding, if he or she undertakes to repay
amounts advanced if it is ultimately determined that he or she is not entitled
to be indemnified by the Company.

The Indemnification Provisions and provisions for advancing expenses in the
Company Certificate are expressly not exclusive of any other rights of
indemnification or advancement of expenses. The Indemnification Provisions and
provisions for advancing expenses in the Company Bylaws and the Company
Certificate are expressly not exclusive of any other rights of indemnification
or advancement of expenses pursuant to any agreement, vote of the stockholders
or disinterested directors or pursuant to judicial

60
<PAGE>
direction. The Company is authorized to purchase insurance on behalf of an
Indemnified Party for liabilities incurred, whether or not Company would have
the power or obligation to indemnify him or her pursuant to the Company
Certificate, the Company Bylaws or the DGCL.

In addition, Company will enter into indemnification agreements with its
directors and certain of its executive officers pursuant to which such persons
are indemnified for costs and expenses actually and reasonably incurred by such
persons in connection with a threatened, pending or completed claim arising out
of service as a director, officer, employee, trustee and/or agent of the Company
or another entity at the request of the Company. See "MANAGEMENT--
Indemnification Agreements."

AMENDMENT OF THE COMPANY CERTIFICATE OF INCORPORATION AND BYLAWS

The DGCL provides that approval of a majority of the stockholders entitled
to vote thereon is required to amend the Company Certificate. A bylaw may be
amended or repealed, or a new bylaw adopted, by (i) the affirmative vote of the
holders of a majority of the stock entitled to vote thereon or (ii) a majority
of the entire Board of Directors.

TRANSACTIONS WITH INTERESTED OFFICERS OR DIRECTORS

The Company Bylaws and the DGCL provide that contracts or transactions
between Company and a director or officer of Company or a corporation or entity
in which such officer or director is also an officer or director or has a
financial interest, are not void or voidable solely for such reason or solely
because the Company officer or director is present at or participates in any
meeting of the Board which authorizes the transaction or contract, or solely
because such officer's or director's vote is counted for such purpose, if (i)
the material facts as to his or her relationship or interest are disclosed or
are known to the Board or a committee and the Board or a committee in good faith
authorizes such contract or transaction; (ii) the material facts as to his or
her relationship or interest are disclosed or are known to the stockholders
entitled to vote thereon and the stockholders in good faith specifically approve
such contract or transact; or (iii) the contract or transaction is fair to
Company at the time it is authorized, approved or ratified by the Board, a
committee or the stockholders. In addition, the Company Bylaws provide that any
transactions with interested directors or officers or their affiliates shall be
made on commercially reasonable terms substantially equivalent to terms
available from third parties in an arm's-length transaction in the competitive
marketplace.

61
<PAGE>
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK

GENERAL

The Company's authorized capital stock consists of 1,000 shares of Company
Common Stock, of which 100 shares are issued and outstanding and are owned by
PEI. Prior to the Distribution Date, the Company's Certificate of Incorporation
will be amended by the Company Board and by PEI, as sole stockholder of the
Company. Under such restated Certificate of Incorporation, which will be
substantially in the form set forth in Annex I to this Information Statement
(the "Company Certificate"), the total number of shares of all classes of stock
that the Company will have authority to issue will be 17,000,000, of which
2,000,000 will be shares of preferred stock, $0.0001 par value per share, and
15,000,000 will be shares of Company Common Stock. Based on the number of shares
of PEI Common Stock outstanding at , 1997, approximately
shares of Company Common Stock, constituting approximately % of the
authorized Company Common Stock, will be issued to PEI and distributed to
stockholders of PEI in the Distribution. All of the shares of Company Common
Stock issued in the Distribution will be validly issued, fully paid and
non-assessable.

The Company Certificate will provide that the Company Board is authorized to
provide for the issuance of shares of preferred stock, from time to time, in one
or more series, and to fix any voting powers, full or limited or none, and the
designations, preferences and relative, participating, optional or other special
rights, applicable to the shares to be included in any such series and any
qualifications, limitations or restrictions thereon. No shares of preferred
stock of the Company will be outstanding directly following the Distribution.

There will be no material differences between the rights of holders of
capital stock of the Company and the rights of holders of capital stock in PEI
following the Distribution.

COMMON STOCK

VOTING RIGHTS. Each holder of Company Common Stock will be entitled to one
vote for each share registered in his name on the books of the Company on all
matters submitted to a vote of stockholders. Except as otherwise provided by
law, the holders of Company Common Stock will vote as one class. The shares of
Company Common Stock will not have cumulative voting rights. As a result,
subject to the voting rights, if any, of the holders of any shares of the
Company's preferred stock which may at the time be outstanding, the holders of
Company Common Stock entitled to exercise more than 50% of the voting rights in
an election of directors will be able to elect 100% of the directors to be
elected if they choose to do so. In such event, the holders of the remaining
shares of Company Common Stock voting for the election of directors will not be
able to elect any persons to the Company Board. The Company Certificate and
Bylaws contain certain provisions that could have an anti-takeover effect. See
"PRICESMART CERTIFICATE OF INCORPORATION AND BYLAWS"

DIVIDEND RIGHTS. Subject to the rights of the holders of any shares of the
Company's preferred stock which may at the time be outstanding holders of the
Company Common Stock will be entitled to such dividends as the Company Board may
declare out of funds legally available therefor. Because portions of the
operations of the Company will be conducted through wholly-owned subsidiaries,
the Company's cash flow and consequent ability to pay dividends on the Company
Common Stock are dependent to some degree upon the earnings of such subsidiaries
and on dividends and other payments therefrom.

LIQUIDATION RIGHTS AND OTHER PROVISIONS. Subject to the prior rights of
creditors and the holders of any Company preferred stock which may be
outstanding from time to time, the holders of Company Common Stock are entitled
in the event of liquidation, dissolution or winding up to share pro rata in the
distribution of all remaining assets.

62
<PAGE>
The Company Common Stock is not liable for any calls or assessments and is
not convertible into any other securities. In addition, there are no redemption
or sinking fund provisions applicable to the Company Common Stock.

The transfer agent and registrar for the Company Common Stock will be
ChaseMellon Shareholder Services, L.L.C.

LIABILITY AND INDEMNIFICATION OF
OFFICERS AND DIRECTORS OF THE COMPANY

Articles Eighth and Ninth of the Company Certificate and Article VIII of the
Company Bylaws (the "Director Liability and Indemnification Provisions") limit
the personal liability of the Company's directors to the Company or its
stockholders for monetary damages for breach of fiduciary duty. The Director
Liability and Indemnification Provisions are substantially identical to
comparable provisions contained in the PEI Certificate and the PEI Bylaws.

The Director Liability and Indemnification Provisions define and clarify the
rights of certain individuals, including the Company's directors and officers,
to indemnification by the Company in the event of personal liability or expenses
incurred by them as a result of certain litigation against them. Such provisions
are consistent with Section 102(b)(7) of the DGCL, which is designed, among
other things, to encourage qualified individuals to serve as directors of
Delaware corporations by permitting Delaware corporations to include in their
articles or certificates of incorporation a provision limiting or eliminating
directors' liability for monetary damages and with other existing DGCL
provisions permitting indemnification of certain individuals, including
directors and officers. The limitations of liability in the Director Liability
and Indemnification Provisions may not affect claims arising under the federal
securities laws.

In performing their duties, directors of a Delaware corporation are
obligated as fiduciaries to exercise their business judgment and act in what
they reasonably determine in good faith, after appropriate consideration, to be
the best interests of the corporation and its stockholders. Decisions made on
that basis are protected by the "business judgment rule." The business judgment
rule is designed to protect directors from personal liability to the corporation
or its stockholders when business decisions are subsequently challenged.
However, the expense of defending lawsuits, the frequency with which unwarranted
litigation is brought against directors and the inevitable uncertainties with
respect to the outcome of applying the business judgment rule to particular
facts and circumstances mean that, as a practical matter, directors and officers
of a corporation rely on indemnity from, and insurance procured by, the
corporation they serve as a financial backstop in the event of such expenses or
unforeseen liability. The Delaware legislature has recognized that adequate
insurance and indemnity provisions are often a condition of an individual's
willingness to serve as director of a Delaware corporation. The DGCL has for
some time specifically permitted corporations to provide indemnity and procure
insurance for its directors and officers.

The Director Liability and Indemnification Provisions will be approved,
along with the rest of the Company Certificate and the Company Bylaws, by PEI,
as sole stockholder of the Company prior to the Distribution Date.

Set forth below is a description of the Director Liability and
Indemnification Provisions. Such description is intended as a summary only and
is qualified in its entirety by reference to the Company Certificate and the
Company Bylaws.

ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES. Article Ninth of the
Company Certificate protects directors against monetary damages for breaches of
their fiduciary duty of care, except as set forth below. Under the DGCL, absent
Article Ninth directors could generally be held liable for gross negligence for
decisions made in the performance of their duty of care but not for simple
negligence. Article Ninth eliminates director liability for negligence in the
performance of their duties, including gross negligence. Directors remain liable
for breaches of their duty of loyalty to the Company and its stockholders, as
well as

63
<PAGE>
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law and transactions from which a director derives improper
personal benefit. Article Ninth does not eliminate director liability under
Section 174 of the DGCL, which makes directors personally liable for unlawful
dividends or unlawful stock repurchases or redemptions and expressly sets forth
a negligence standard with respect to such liability.

While Article Ninth provides directors with protection from awards of
monetary damages for breaches of the duty of care, it does not eliminate the
directors' duty of care. Accordingly, Article Ninth will have no effect on the
availability of equitable remedies such as an injunction or rescission based
upon a director's breach of the duty of care. The provisions of Article Ninth
which eliminate liability as described above will apply to officers of the
Company only if they are directors of the Company and are acting in their
capacity as directors, and will not apply to officers of the Company who are not
directors. The elimination of liability of directors for monetary damages in the
circumstances described above may deter persons from bringing third-party or
derivative actions against directors to the extent such actions seek monetary
damages.

INDEMNIFICATION AND INSURANCE. Under Section 145 of the DGCL, directors and
officers as well as other employees and individuals may be indemnified against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits or proceedings, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation--a "derivative action") if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the Company, and with respect to any criminal action or proceeding,
had no reasonable cause to believe their conduct was unlawful. A similar
standard of care is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) incurred in
connection with defense or settlement of such an action, and the DGCL requires
court approval before there can be any indemnification where the person seeking
indemnification has been found liable to the Company.

Article VIII of the Company Bylaws provides that all directors and officers
of the Company are entitled to indemnification as set forth in the Company
Certificate.

Article Eighth of the Company Certificate provides that each person who was
or is made a party to, or is involved in any action, suit or proceeding by
reason of the fact that he is or was a director, officer of employee of the
Company will be indemnified by the Company against all expenses and liabilities,
including counsel fees, paid in settlement actually and reasonably incurred by
him in connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Article
Eighth also provides that the right of indemnification shall be in addition to
and not exclusive of all other right to which such director, officer or employee
may be entitled. See "PRICESMART CERTIFICATE OF INCORPORATION AND
BYLAWS--Indemnification and Advancement of Expenses."

64
<PAGE>
PRICESMART, INC.
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FINANCIAL STATEMENTS

Report of Ernst & Young LLP, Independent Auditors........................................................ F-2

Combined Balance Sheets as of August 31, 1996 and June 8, 1997........................................... F-3

Combined Statements of Operations for each of the two years in the period ended August 31, 1996 and the
forty weeks ended June 9, 1996 (unaudited) and June 8, 1997............................................ F-4

Combined Statements of Changes in Investment by Price Enterprises, Inc. for each of the two years in the
period ended August 31, 1996 and the forty weeks ended June 8, 1997.................................... F-5

Combined Statements of Cash Flows for each of the two years in the period ended August 31, 1996 and the
forty weeks ended June 9, 1996 (unaudited) and June 8, 1997............................................ F-6

Notes to Combined Financial Statements................................................................... F-7
</TABLE>

F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
PriceSmart, Inc.

We have audited the accompanying combined balance sheets of PriceSmart, Inc.
as of August 31, 1996 and June 8, 1997 and the related combined statements of
operations, changes in investment by Price Enterprises, Inc. and cash flows for
each of the two years in the period ended August 31, 1996 and the forty weeks
ended June 8, 1997. These combined financial statements are the responsibility
of PriceSmart management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 combined financial position of PriceSmart, Inc. as
of August 31, 1996 and June 8, 1997, and the combined results of their
operations and their cash flows for each of the two years in the period ended
August 31, 1996 and the forty weeks ended June 8, 1997 in conformity with
generally accepted accounting principles.

ERNST & YOUNG LLP

San Diego, California
July 2, 1997

F-2
<PAGE>
PRICESMART, INC.

COMBINED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
AUGUST 31, JUNE 8,
1996 1997
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, net................................................................. $ 5,506 $ 7,411
Merchandise inventories.................................................................. 2,011 4,179
Prepaid expenses and other current assets................................................ 1,854 1,392
Property held for sale, net.............................................................. 28,507 27,209
----------- ---------
Total current assets....................................................................... 37,878 40,191

Property and equipment:
Land..................................................................................... -- 2,250
Building and improvements................................................................ 1,844 4,277
Fixtures and equipment................................................................... 5,647 4,549
----------- ---------
7,491 11,076
Less accumulated depreciation............................................................ (3,347) (1,829)
----------- ---------
4,144 9,247

Other assets:
City notes receivable.................................................................... 29,091 24,027
Other notes receivable................................................................... 6,617 6,598
Deferred income taxes.................................................................... 20,251 --
----------- ---------
55,959 30,625
----------- ---------
$ 97,981 $ 80,063
----------- ---------
----------- ---------
LIABILITIES AND INVESTMENT BY PRICE ENTERPRISES, INC.
Current liabilities:
Accounts payable, trade.................................................................. $ 3,883 $ 5,062
Accrued expenses......................................................................... 3,166 3,625
Other current liabilities................................................................ 2,197 2,845
----------- ---------
Total current liabilities.................................................................. 9,246 11,532

Minority interest.......................................................................... 1,745 5,450

Commitments

Investment by Price Enterprises, Inc....................................................... 86,990 63,081
----------- ---------
$ 97,981 $ 80,063
----------- ---------
----------- ---------
</TABLE>

See accompanying notes.

F-3
<PAGE>
PRICESMART, INC.

COMBINED STATEMENTS OF OPERATIONS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FORTY WEEKS ENDED
YEARS ENDED AUGUST 31, -----------------------
---------------------- JUNE 8,
1995 1996 1997
---------- ---------- JUNE 9, ----------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Sales:
International................................................ $ 39,343 $ 25,541 $ 20,157 $ 45,281
Electronic shopping.......................................... 27,230 10,670 9,421 958
International royalties and other fees......................... 553 2,164 816 2,222
Auto referral and travel programs.............................. 8,769 9,875 7,549 9,198
---------- ---------- ----------- ----------
Total revenues................................................... 75,895 48,250 37,943 57,659

Expenses
Cost of goods sold:
International................................................ 37,887 24,549 19,376 42,317
Electronic shopping.......................................... 24,869 10,095 8,926 1,793
Selling, general and administrative:
International................................................ 5,567 8,196 6,308 8,200
Electronic shopping.......................................... 17,546 12,098 9,748 4,129
Auto referral and travel programs............................ 8,861 9,425 7,205 7,418
Corporate administrative expenses............................ 1,363 1,350 1,145 1,310
---------- ---------- ----------- ----------
Total expenses................................................... 96,093 65,713 52,708 65,167
---------- ---------- ----------- ----------

Operating loss................................................... (20,198) (17,463) (14,765) (7,508)

Other
Real estate operations, net.................................... (2,238) (8,359) (498) 293
Interest income................................................ 2,832 3,076 2,283 2,102
Losses from Mexico joint venture............................... (4,988) -- -- --
Minority interest.............................................. 8,187 4,587 4,587 (73)
---------- ---------- ----------- ----------
Total other...................................................... 3,793 (696) 6,372 2,322
---------- ---------- ----------- ----------

Loss before benefit (provision) for income taxes................. (16,405) (18,159) (8,393) (5,186)
Benefit (provision) for income taxes............................. 3,888 6,736 2,471 (18,003)
---------- ---------- ----------- ----------
Net loss......................................................... $ (12,517) $ (11,423) $ (5,922) $ (23,189)
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>

See accompanying notes.

F-4
<PAGE>
PRICESMART, INC.

COMBINED STATEMENTS OF CHANGES IN INVESTMENT BY
PRICE ENTERPRISES, INC.

(IN THOUSANDS)

<TABLE>
<CAPTION>
<S> <C>
Investment by PEI at August 31, 1994.............................................. $ 129,389
Net loss........................................................................ (12,517)
Net return to PEI............................................................... (24,316)
----------
Investment by PEI at August 31, 1995.............................................. 92,556
Net loss........................................................................ (11,423)
Net investment by PEI........................................................... 5,857
----------
Investment by PEI at August 31, 1996.............................................. 86,990
Net loss........................................................................ (23,189)
Net return to PEI............................................................... (720)
----------
Investment by PEI at June 8, 1997................................................. $ 63,081
----------
----------
</TABLE>

See accompanying notes.

F-5
<PAGE>
PRICESMART, INC.

COMBINED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FORTY WEEKS ENDED
YEARS ENDED AUGUST 31, -----------------------
---------------------- JUNE 8,
1995 1996 JUNE 9, 1997
---------- ---------- 1996 ----------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss......................................................... $ (12,517) $ (11,423) $ (5,922) $ (23,189)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization.................................. 2,295 2,259 1,667 1,145
Provision for asset impairments................................ 1,600 8,042 620 --
Losses from Mexico joint venture............................... 4,988 -- -- --
Income tax (benefit) charge.................................... (3,888) (6,736) (2,471) 18,003
Minority interest.............................................. (8,187) (4,587) (4,587) 73
Change in accounts receivable and other assets................. (26,696) 4,332 5,572 (4,873)
Change in accounts payable and other liabilities............... 24,231 209 4,166 3,327
Change in property held for sale............................... (705) (190) (414) 1,298
---------- ---------- ----------- ----------
Net cash flows used in operating activities...................... (18,879) (8,094) (1,369) (4,216)

INVESTING ACTIVITIES
Additions to property and equipment............................ (3,480) (2,560) (1,913) (7,372)
Proceeds from sale of property and equipment................... -- 147 88 83
Proceeds from Mexico joint venture............................. 4,000 -- -- --
Investment in Mexico joint venture............................. (3,883) -- -- --
Additions to notes receivable.................................. -- (1,337) -- --
Payments of notes receivable................................... 2,897 3,105 986 5,083
---------- ---------- ----------- ----------
Net cash flows used in investing activities...................... (466) (645) (839) (2,206)

FINANCING ACTIVITIES
Net investment by Price Enterprises............................ 6,850 6,994 738 2,790
Costco equity contributions to subsidiaries.................... 12,495 -- -- --
Contributions by Panama JV partner............................. -- 1,745 1,470 3,632
---------- ---------- ----------- ----------
Net cash flows provided by financing activities.................. 19,345 8,739 2,208 6,422
---------- ---------- ----------- ----------
Net increase in cash............................................. -- -- -- --

Cash and cash equivalents at beginning of year................... -- -- -- --
---------- ---------- ----------- ----------
Cash and cash equivalents at end of year......................... $ -- $ -- $ -- $ --
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>

See accompanying notes.

F-6
<PAGE>
PRICESMART, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

(INFORMATION FOR THE FORTY WEEKS ENDED JUNE 9, 1996 IS UNAUDITED)

NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION

FORMATION OF THE COMPANY

PriceSmart, Inc. ("PriceSmart" or "the Company"), a Delaware corporation,
was originally formed in August 1994 as a subsidiary of Price Enterprises, Inc.
("PEI") to operate certain businesses which were spun out from Costco Companies,
Inc. ("Costco") effective August 29, 1994. On June 27, 1997, the Board of
Directors of PEI approved in principle, subject to formal declaration of a
dividend at a later date, a plan for the distribution (the "Distribution") to
holders of PEI's Common Stock of 100% of the outstanding shares of Common Stock
of PriceSmart. On or prior to the date of Distribution, PEI will transfer
certain businesses and assets to PriceSmart.

The following assets will be transferred to PriceSmart:

- Interest in essentially all businesses which historically formed the
merchandising business segment of PEI, primarily the international
merchandising activities and the Costco auto referral program and the
Costco travel program.

- Certain real estate properties held for sale which, as of June 8, 1997,
had not yet been sold.

- Notes receivable from various municipalities and agencies ("City Notes")
and certain secured notes receivable from buyers of properties formerly
owned by PEI.

- Cash and cash equivalents held by PEI as of June 8, 1997, less
approximately $40 million to be kept by PEI for use in its real estate
business.

- All other assets and liabilities not specifically associated with PEI's
portfolio of 27 investment properties ("Investment Portfolio"), except for
current corporate income tax assets and liabilities.

On July 2, 1997, PEI announced that it intends to distribute to its
stockholders through a special dividend all outstanding shares of PriceSmart
("Distribution"). Prior to the Distribution, the various assets shown above will
be transferred to PriceSmart. By fiscal year-end 1997, or shortly thereafter,
PEI intends to consummate the Distribution to its stockholders of one share of
PriceSmart common stock for every four shares of PEI common stock held on the
applicable record date. The Distribution is conditioned upon declaration of the
special dividend by PEI's Board of Directors.

The Company's authorized stock consists of 1,000 shares of $0.01 par value
common stock and will be increased to provide for the shares to be issued in
connection with the Distribution.

BASIS OF PRESENTATION

These financial statements present the financial position, results of
operations, and cash flows for the Company as if it were a separate entity of
PEI for all periods presented. PEI's historical basis in the assets and
liabilities of the Company has been carried over. Changes in investment by PEI
represent the net income (loss) of the Company plus the net change in cash and
non-cash items transferred between the Company and PEI.

The combined financial statements include the assets, liabilities and
operations to be transferred to the Company in connection with the Distribution.
All significant intercompany accounts and transactions have been eliminated.

F-7
<PAGE>
PRICESMART, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION FOR THE FORTY WEEKS ENDED JUNE 9, 1996 IS UNAUDITED)

NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
The Company's operations are primarily in the merchandising business. The
international merchandising business licenses and, in some cases, owns warehouse
stores in Latin American and Asia. The Company's auto referral and travel
programs offer discounts on new cars and on travel services to Costco members.

The Company operates as a unit of PEI, utilizing PEI's centralized systems
for cash management, payroll, employee benefit plans, insurance and
administrative services. Certain operating expenses, capital expenditures and
other cash requirements of the Company were paid by PEI and charged directly or
allocated to the Company, principally based on PEI's specific identification of
individual cost items and otherwise based upon estimated levels of effort
devoted by its corporate administrative departments to individual entities or
relative measures of size of entities. Such allocated amounts are included in
corporate administrative expenses and were $1.4 million for each of the years
ended August 31, 1995 and 1996, and $1.1 million and $1.3 million for the forty
weeks ended June 9, 1996 and June 8, 1997, respectively. In the opinion of
management, the methods for allocating corporate administrative expenses and
other direct costs are reasonable. It is not practical to estimate the costs
that would have been incurred by the Company if it had operated on a stand-alone
basis.

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES

FISCAL YEAR

The Company reports on a 52/53 week fiscal year which ends on the Sunday
nearest August 31. For ease of presentation, all fiscal years in this report are
referred to as having ended on August 31.

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:

<TABLE>
<S> <C>
10-25
Building and improvements....................................... years
Fixtures and equipment.......................................... 3-5 years
</TABLE>

MERCHANDISE INVENTORIES

Merchandise inventories, which include merchandise for resale and display
samples, are valued at the lower of cost (average cost) or market.

REVENUE RECOGNITION

The Company recognizes international sales upon shipment. Revenues from auto
referral are recognized ratably over the life of the contract and revenues from
travel programs are recognized as services are performed.

INCOME TAXES

Income taxes have been provided for in accordance with SFAS No. 109,
"Accounting for Income Taxes." That standard requires companies to account for
deferred taxes using the asset and liability

F-8
<PAGE>
PRICESMART, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION FOR THE FORTY WEEKS ENDED JUNE 9, 1996 IS UNAUDITED)

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
method. Accordingly, deferred income taxes are provided to reflect temporary
differences between financial and tax reporting, including asset write-downs of
real estate and related assets, accelerated tax depreciation methods, and
international fees. Additionally, deferred taxes were transferred to the Company
as a result of the Costco spin out in 1994.

The Company is included in the consolidated federal and in various combined
state tax returns of PEI. The Company is allocated the benefit of its tax net
operating losses used in PEI's consolidated or combined tax returns. Benefits
realized by PEI were not paid to the Company but were deemed to be reductions in
PEI's investment in the Company.

ASSET IMPAIRMENT

Beginning with fiscal 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," SFAS No. 121 requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. No such indicators of impairment were present in
fiscal 1996. SFAS No. 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Company estimated the sales value, net
of related selling costs, on its real estate properties which are being held for
sale and recorded impairment losses of $8.0 million in fiscal 1996. No
impairment loss was recorded for the forty weeks ended June 8, 1997. Impairment
losses of $1.6 million in fiscal 1995 were based on a risk adjusted discounted
cash flow to estimate fair value. See Note 3.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles 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.

CONCENTRATION OF CREDIT RISK

The Company sells its merchandise primarily to its international licensees.
Credit is generally extended based on letters of credit. Credit losses have been
minimal and within management's expectations.

STOCK-BASED COMPENSATION

In October 1995, the Financial Accounting Standards Board issued "Accounting
for Stock-Based Compensation" ("SFAS No. 123"). The statement is effective for
fiscal years beginning after December 1995. Under Statement No. 123, stock-based
compensation expense is measured using either the intrinsic-value method as
prescribed by Accounting Principle Board Opinion No. 25 or the fair-value method
described in SFAS No. 123. The Company intends to implement SFAS No. 123 in
fiscal 1997 using the intrinsic-value method; accordingly, upon adopting SFAS
No. 123 there will be no effect on the Company's financial position or results
of operations.

F-9
<PAGE>
PRICESMART, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION FOR THE FORTY WEEKS ENDED JUNE 9, 1996 IS UNAUDITED)

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM FINANCIAL INFORMATION

The accompanying financial statements for the forty weeks ended June 9, 1996
are unaudited but include all adjustments (consisting only of normal recurring
adjustments) which the Company considers necessary for a fair statement of the
financial position at such date and the operating results and cash flows for
this period. Interim results are not necessarily indicative of results for the
entire year or future periods.

NOTE 3--PROPERTY HELD FOR SALE

Property held for sale, which generally represents former membership
warehouse club facilities and unimproved land, consists of the following:

<TABLE>
<CAPTION>
AUGUST 31, JUNE 8,
1996 1997
----------- ---------
<S> <C> <C>
Land and land improvements............................................. $ 23,667 $ 22,181
Building and improvements.............................................. 16,110 16,363
Construction in progress............................................... 520 20
Deferred rents......................................................... 547 606
Deferred leasing costs, net............................................ 346 417
----------- ---------
41,190 39,587

Accumulated depreciation............................................... (4,641) (4,968)
Provision for asset impairments........................................ (8,042) (7,410)
----------- ---------
$ 28,507 $ 27,209
----------- ---------
----------- ---------
</TABLE>

Because the properties are held for sale, the net results of the real estate
operations are presented on the combined statement of operations, and consist of
the following:

<TABLE>
<CAPTION>
YEARS ENDED AUGUST FORTY WEEKS ENDED
31, ----------------------
-------------------- JUNE 8,
1995 1996 1997
--------- --------- JUNE 9, ---------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Rental income..................................... $ 2,868 $ 2,798 $ 2,207 $ 2,236
Gains on sales of real estate..................... 24 240 240 67
--------- --------- ----------- ---------
Total revenue................................... 2,892 3,038 2,447 2,303

Operating, maintenance and administrative......... 1,427 1,724 1,079 1,004
Property taxes.................................... 884 857 660 599
Depreciation and amortization..................... 1,219 774 586 407
Provision for asset impairments................... 1,600 8,042 620 --
--------- --------- ----------- ---------
Total expenses.................................. 5,130 11,397 2,945 2,010
--------- --------- ----------- ---------
Real estate operations, net....................... $ (2,238) $ (8,359) $ (498) $ 293
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>

Provision for asset impairments represent noncash charges taken to
write-down the carrying value of real estate properties which are being held for
sale or redevelopment, and which are expected to generate

F-10
<PAGE>
PRICESMART, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION FOR THE FORTY WEEKS ENDED JUNE 9, 1996 IS UNAUDITED)

NOTE 3--PROPERTY HELD FOR SALE (CONTINUED)
net sales proceeds below their book values. In 1995, the provision for asset
impairments was directly written off against the related properties held for
sale.

Certain properties held for sale generate future minimum rental income of
approximately $1.8 million per year. These properties are leased under
noncancelable leases with remaining terms ranging from less than one year to 17
years.

NOTE 4-- NOTES RECEIVABLE

The City Notes include amounts loaned to municipalities and agencies to
facilitate real property acquisition and improvements and carry interest rates
which range from 7% to 10%. Repayment of the majority of these notes is
generally based on that municipality's allocation of sales tax revenues
generated by retail businesses located on a particular property associated with
such City Note. City Note repayments are calculated in accordance with specific
revenue sharing agreements; and, under the terms of most City Notes, the unpaid
balance of the note is forgiven on its maturity date. The carrying values of
these notes are based on projected discounted cash flows to be received and
assume no payout at maturity. At August 31, 1996 and June 8, 1997, the aggregate
stated principal value plus compounded interest amounted to $71 million and $67
million, respectively. As a result, the total carrying value of the City Notes
is less than the stated principal value and interest by $42 million and $43
million, respectively.

NOTE 5--PROFIT SHARING AND 401(K) PLAN

Substantially all of the employees of the Company are participants in PEI's
defined contribution profit sharing and 401(k) plan. Profit sharing
contributions, if any, are based on a discretionary amount determined by the
Board of Directors and are allocated to each participant based on the relative
compensation of the participant, subject to certain limitations, to the
compensation of all participants. The Company makes a matching 401(k)
contribution equal to 50% of the participant's contribution up to an annual
maximum matching contribution of $250.

Profit sharing contributions of approximately $504,000, 158,000 and $406,000
were made for the benefit of PriceSmart plan participants during fiscal 1995,
1996, and 1997, respectively. Employer contributions to the 401(k) plan were
approximately $31,000, $31,000 and $24,000 during fiscal 1995, 1996 and 1997,
respectively.

NOTE 6--STOCK OPTION PLANS

Certain directors and employees of the Company participated in PEI stock
option plans. Upon the consummation of the Distribution, certain PEI stock
options held by Company directors and employees will be cancelled and the
Company intends to issue PriceSmart stock options to such participants.

F-11
<PAGE>
PRICESMART, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION FOR THE FORTY WEEKS ENDED JUNE 9, 1996 IS UNAUDITED)

NOTE 7--INCOME TAXES

The benefit (provision) for income taxes consist of the following (in
thousands):

<TABLE>
<CAPTION>
YEARS ENDED AUGUST
31, FORTY WEEKS
-------------------- ENDED JUNE 8,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
Current:
Federal................................................... $ 161 $ 3,431 $ 3,510
State..................................................... 262 807 --
--------- --------- -------------
423 4,238 3,510
Deferred:
Federal................................................... 3,513 1,935 (20,852)
State..................................................... (48) 563 (661)
--------- --------- -------------
3,465 2,498 (21,513)
--------- --------- -------------
Total benefit (provision)................................... $ 3,888 $ 6,736 $ (18,003)
--------- --------- -------------
--------- --------- -------------
</TABLE>

A reconciliation between the federal statutory rate and the effective tax
rate follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED AUGUST
31, FORTY WEEKS
-------------------- ENDED JUNE 8,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
Federal taxes (benefit) at the statutory rate.............. $ 5,742 $ 6,355 $ 1,815
State taxes, net of federal benefit........................ 638 1,091 312
Tax losses of 51% owned subsidiaries....................... (1,538) (708) --
Valuation allowance........................................ -- -- (20,130)
Price Club Mexico operations............................... (893) -- --
All other, net............................................. (61) (2) --
--------- --------- -------------
Total benefit (provision).............................. $ 3,888 $ 6,736 $ (18,003)
--------- --------- -------------
--------- --------- -------------
</TABLE>

F-12
<PAGE>
PRICESMART, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION FOR THE FORTY WEEKS ENDED JUNE 9, 1996 IS UNAUDITED)

NOTE 7--INCOME TAXES (CONTINUED)
The significant components of deferred income taxes are attributable to the
following temporary differences (in thousands):

<TABLE>
<CAPTION>
AUGUST 31, JUNE 8,
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Real estate properties.............................................. $ 10,217 $ 8,999
City notes receivable............................................... 11,756 11,756
Net operating losses................................................ 5,437 5,437
International revenues and expenses................................. 241 369
Inventory and equipment reserves.................................... 304 --
All other, net...................................................... 470 1,034
----------- -----------
Total deferred tax assets......................................... 28,425 27,595

Deferred tax liabilities:
Deferred rental income.............................................. (214) (1,428)
Deferred state income taxes......................................... (1,261) (600)
----------- -----------
Total deferred tax liabilities.................................... (1,475) (2,028)
Valuation allowance................................................... (5,437) (25,567)
----------- -----------
Net deferred tax assets........................................... $ 21,513 $ --
----------- -----------
----------- -----------
</TABLE>

As a result of the Distribution, the Company will no longer be a member of
the PEI consolidated or combined group for federal or state income tax purposes.
As such, realization of deferred tax assets is no longer more likely than not
and therefore a valuation allowance was established for the net amount of
deferred tax assets at June 8, 1997. For the forty weeks ended June 8, 1997
there was a decrease in the net deferred tax asset of approximately $1.4 million
prior to the adjustment for an increase in the valuation allowance.

At August 31, 1996, the Company had combined net operating loss (NOL)
carryforwards of approximately $13.7 million for federal income tax purposes
which may be applied against future taxable income. A valuation allowance was
established for potential tax benefit of these NOL carryforwards as the
certainty of their ultimate utilization is not sufficient to allow for deferred
tax assets to be recorded. These NOL carryforwards will expire in 2009 unless
previously utilized.

During fiscal 1996, deferred tax assets of $351,000, representing Costco's
interest in such assets, was offset against Costco's minority interest in Price
Quest, LLC. In addition, a short-term deferred tax asset of $1.3 million is
included in current assets at August 31, 1996.

NOTE 8--SALE OF INTEREST IN MEXICO JOINT VENTURE

In April 1995, the Company completed the sale of its interest in the Mexico
joint venture in return for cash of $4 million and cancellation of debt of $30.5
million. The sale of the interest in the Mexico joint venture resulted in a $2.6
million loss ($2.1 million after-tax) which is included in losses from Mexico
joint venture in fiscal 1995.

F-13
<PAGE>
PRICESMART, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION FOR THE FORTY WEEKS ENDED JUNE 9, 1996 IS UNAUDITED)

NOTE 8--SALE OF INTEREST IN MEXICO JOINT VENTURE (CONTINUED)
The investment by PEI at August 31, 1994 is net of a charge of $1.7 million
for the accumulated foreign currency translation related to the Company's
investment in the Mexico joint venture.

NOTE 9--COMMITMENTS

The Company leases one former warehouse club property. This lease expires in
2002. Future minimum payments, net of sublease income of approximately $385,000
per year, are $132,500 per year through fiscal 2001 and $22,000 in fiscal 2002.

Rent expense for the years ended August 31, 1995 and 1996 was $112,000 and
$115,000, net of sublease income of $389,000 and $385,000, respectively. Rent
expense for the forty week periods ended June 9, 1996 and June 8, 1997 was
$86,000 and $96,000, net of sublease income of $289,000 and $289,000,
respectively.

NOTE 10--GEOGRAPHIC AREAS AND MAJOR CUSTOMERS

<TABLE>
<CAPTION>
FORTY WEEKS
ENDED JUNE 8,
1997
-------------
<S> <C>
Revenues:
United States................................................................ $ 41,703
Latin America................................................................ 15,956
-------------
$ 57,659
-------------
-------------
Operating income (loss):
United States................................................................ $ (7,657)
Latin America................................................................ 149
-------------
$ (7,508)
-------------
-------------
Identifiable assets............................................................
United States................................................................ $ 68,028
Latin America................................................................ 12,035
-------------
$ 80,063
-------------
-------------
</TABLE>

Foreign operations were not significant in fiscal 1995 and 1996. The Latin
American operations consist of a 51% interest in a joint venture in Panama whose
currency is the U.S. dollar.

Export sales were approximately $39.3 million and $25.5 million for the
years ended August 31, 1995 and 1996, respectively and $45.3 million for the
forty weeks ended June 8, 1997. Approximately 27% of revenues in the year ended
August 31, 1995, 48% of revenues in the year ended August 31, 1996 and 39% of
revenues in the forty weeks ended June 8, 1997 were from a single customer.

F-14
<PAGE>
SCHEDULE II

PRICESMART, INC.
VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT END
PROVISION FOR ASSET IMPAIRMENTS PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ----------------------------------------------- ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Year ended August 31, 1995..................... $ -- $ 1,600,000 $ (1,600,000 (1) $ --
Year ended August 31, 1996..................... -- 8,042,000 -- 8,042,000
Forty weeks ended June 8, 1997................. 8,042,000 -- (632,000 (2) 7,410,000
</TABLE>

- ------------------------

(1) Provision for asset impairments was directly written off against the related
properties held for sale.

(2) Provision for asset impairments related to the sale of a portion of one
property.

S-1
<PAGE>
SIGNATURE

Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.

PRICESMART, INC.
Dated: July 2, 1997

By /s/ ROBERT E. PRICE
-----------------------------------------
Robert E. Price
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
<PAGE>
ANNEX I
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PRICESMART, INC.

PRICESMART, INC., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:

1. The Corporation's original Certificate of Incorporation was filed on
August 17, 1994. An amendment to said Certificate of Incorporation was filed
on November 27, 1995 changing the name of the Corporation to PQI, Inc. A
further amendment to said Certificate of Incorporation was filed on June ,
1997 changing the name of the Corporation to PriceSmart, Inc.

2. That by action taken by unanimous written consent of the Board of
Directors on , 1997, resolutions were duly adopted setting forth a
proposed amendment and restatement of the Certificate of Incorporation of
the Corporation, declaring said amendment and restatement to be advisable
and directing its officers to submit said amendment and restatement to the
sole stockholder of the Corporation for consideration thereof. The
resolution setting forth the proposed amendment and restatement is as
follows:

"THEREFORE, BE IT RESOLVED, that the Certificate of Incorporation of the
Corporation is hereby amended to read in its entirety as follows, subject to
the required consent of the sole stockholder of the corporation:

FIRST: The name of the Corporation is PriceSmart, Inc. (hereinafter the
"Corporation").

SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at that address is The
Corporation Trust Company.

THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware (the "GCL").

FOURTH: The total number of shares of stock which the Corporation shall
have the authority to issue is 17,000,000, which shall consist of 15,000,000
shares of Common Stock, each having a par value of $.0001 (the "Common
Stock") and 2,000,000 shares of Preferred Stock, each having a par value of
$.0001 (the "Preferred Stock").

The Board of Directors is hereby authorized from time to time to provide
by resolution for the issuance of shares of preferred stock in one of more
series not exceeding in the aggregate the number of shares of Preferred
Stock authorized by this Certificate of Incorporation, as amended from time
to time; and to determine with respect to each such series the voting
powers, if any (which voting powers, if granted, may be full or limited),
designations, preference and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions relating
thereto, including without limiting the generality of the foregoing, the
voting rights relating to shares of Preferred Stock of any series (which may
be one of more votes per share or a fraction of a vote per share, which may
vary over time and which may be applicable generally or only upon the
happening and continuance of stated events or conditions), the rate of
dividend to which holders of Preferred Stock of any series may be entitled
(which may be cumulative or noncumulative), the rights of holders of
Preferred Stock of any series in the event of liquidation, dissolution or
winding up of the affairs of the Corporation, the rights, if any, of holders
of Preferred Stock of any series to convert or exchange such shares of
Preferred Stock of such series for shares of any other class or series of
capital stock or for any other securities, property or assets of the
Corporation or any subsidiary (including the determination of the

I-1
<PAGE>
price or prices or the rate or rates applicable to such rights to convert or
exchange and the adjustment thereof, the time or times during which the
right to convert or exchange shall be applicable and the time or times
during which a particular price or rate shall be applicable), whether or not
the shares of that series shall be redeemable, and, if so, the terms and
conditions of such redemption, including the date or dates upon or after
which they shall be redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions and at
different redemption dates, and whether any shares of that series shall be
redeemed pursuant to a retirement or sinking fund or otherwise and the terms
and conditions of such obligation.

Before the Corporation shall issue any shares of Preferred Stock of any
series, a certificate setting forth a copy of the resolution or resolutions
of the Board of Directors, fixing the voting powers, designations,
preferences, the relative, participating, optional or other rights, if any,
and the qualifications, limitations and restrictions, if any, relating to
the shares of Preferred Stock of such series, and the number of shares of
Preferred Stock of such series authorized by the Board of Directors to be
issued shall be made under seal of the Corporation and signed by and shall
be filed and a copy thereof recorded in the manner prescribed by the GCL.
The Board of Directors is further authorized to increase or decrease (but
not below the number of such shares of such series then outstanding) the
number of shares of any series subsequent to the issuance of shares of that
series.

FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and
of its directors and stockholders:

(a) The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors.

(b) The directors shall have concurrent power with the stockholders
to make, alter, amend, change, add to or repeal the Bylaws of the
Corporation.

(c) The number of directors of the Corporation shall be as from time
to time fixed by, or in the manner provided in, the Bylaws of the
Corporation. The election of directors need not be by written ballot
unless the Bylaws so provide.

(d) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered
to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless, to the
provisions of the GCL, this Certificate of Incorporation, and any Bylaws
adopted by the stockholders; PROVIDED, HOWEVER, that no Bylaws hereafter
adopted by the stockholders shall invalidate any prior act of the
directors which would have been valid if such Bylaws had not been
adopted.

SIXTH: Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the Corporation may be
kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the Bylaws of the Corporation.

SEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Corporation in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.

EIGHTH: (a) Subject to Article EIGHTH (c), the Corporation shall
indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of the Corporation) by reason of the fact that he
is or was a director or officer of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or

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agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.

(b) Subject to Article EIGHTH (c), the Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of
the Corporation to procure a judgment in its favor by reason of the fact
that he is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation; except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or
such other court shall deem proper.

(c) Any indemnification under this Article EIGHTH (unless ordered by
a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director
or officer is proper in the circumstances because he has met the
applicable standard of conduct set forth in Article EIGHTH (a) or Article
EIGHTH (b), as the case may be. Such determination shall be made (i) by
the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or
(ii) if such a quorum is not obtainable, or, even if obtainable, a quorum
of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however,
that a present or former director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Article EIGHTH (a) or Article EIGHTH (b), or in
defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith, without the necessity of
authorization in the specific case.

(d) Notwithstanding any contrary determination in the specific case
under Article EIGHTH (c), and notwithstanding the absence of any
determination thereunder, any present or former director or officer of
the Corporation may apply to any court of competent jurisdiction in the
State of Delaware for indemnification to the extent otherwise permissible
under Article EIGHTH (a) and Article EIGHTH (b). The basis of such
indemnification by a court shall be a determination by such court that
indemnification of such person is proper in the circumstances because he
has met the applicable standards of conduct set forth in Article EIGHTH
(a) or Article EIGHTH (b), as the case may be. Neither a contrary
determination in the specific case under Article EIGHTH (c) nor the
absence of any determination thereunder shall be a defense

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to such application or create a presumption that such person seeking
indemnification has not met any applicable standard of conduct. Notice of
any application for indemnification pursuant to this Article EIGHTH (d)
shall be given to the Corporation promptly upon the filing of such
application. If successful, in whole or in part, such person seeking
indemnification shall also be entitled to be paid the expense of
prosecuting such application.

(e) Expenses incurred by a person who is or was a director or officer
of the Corporation in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of
an undertaking by or on behalf of such person to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified
by the Corporation as authorized in this Article EIGHTH.

(f) The indemnification and advancement of expenses provided by or
granted pursuant to this Article EIGHTH shall not be deemed exclusive of
any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any Bylaw, agreement, contract, vote of
stockholders or disinterested directors or pursuant to the direction
(howsoever embodied) of any court of competent jurisdiction or otherwise,
both as to action in his official capacity and as to action in another
capacity while holding such office, it being the policy of the
Corporation that indemnification of the persons specified in Article
EIGHTH (a) and Article EIGHTH (b) shall be made to the fullest extent
permitted by law. The provisions of this Article EIGHTH shall not be
deemed to preclude the indemnification of any person who is not specified
in Article EIGHTH (a) or Article EIGHTH (b) but whom the Corporation has
the power or obligation to indemnify under the provisions of the GCL, or
otherwise.

(g) The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director or officer of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising
out of his status as such, whether or not the Corporation would have the
power or the obligation to indemnify him against such liability under the
provisions of this Article EIGHTH or Section 145 of the GCL.

(h) For purposes of this Article EIGHTH, references to "the
Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence
had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or
officer of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, shall stand in the same
position under the provisions of this Article EIGHTH with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued. For
purposes of this Article EIGHTH, references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit
plan; and references to "serving at the request of the Corporation" shall
include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such person
with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted
in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article EIGHTH. For purposes of any determination
under Article EIGHTH (c), a person shall be deemed to have acted in good
faith in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal
action or proceeding, to

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have had no reasonable cause to believe his conduct was unlawful, if his
action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of
the Corporation or another enterprise in the course of their duties, or
on the advice of legal counsel for the Corporation or another enterprise
or on information or records given or reports made to the Corporation or
another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the
Corporation or another enterprise. The term "another enterprise" is used
in this Article EIGHTH (h) shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other
enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, employee or agent. The provisions of
this Article EIGHTH (h) shall not be deemed to be exclusive or to limit
in any way the circumstances in which a person may be deemed to have met
the applicable standard of conduct set forth in Article EIGHTH (a) or
(b), as the case may be.

(i) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article EIGHTH shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be
a director or officer of the Corporation and shall inure to the benefit
of the heirs, executors and administrators of such a person.

(j) Notwithstanding anything contained in this Article EIGHTH to the
contrary, except for proceedings to enforce rights to indemnification
(which shall be governed by Article EIGHTH (d)), the Corporation shall
not be obligated to indemnify any person in connection with a proceeding
(or part, thereof) initiated by such person unless such proceeding (or
part thereof) was authorized or consented to by the Board of Directors of
the Corporation.

(k) The Corporation may, to the extent authorized from time to time
by the Board of Directors, provide rights to indemnification and to the
advancement of expenses to employees and agents of the Corporation
similar to those conferred in this Article EIGHTH to directors and
officers of the Corporation.

NINTH: No director shall be personally liable to the Corporation or any
of its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) pursuant to Section 174 of the GCL, or (iv) for any
transaction from which the director derived an improper personal benefit.
Any repeal or modification of this Article NINTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a director
of the Corporation existing at the time of such repeal or modification with
respect to acts or omissions occurring prior to such repeal or
modification."

3. That thereafter, by consent of the sole stockholder of all of the issued
and outstanding shares of stock of the Corporation in accordance with Section
228 of the General Corporation Law of the State of Delaware, all of the shares
of the Corporation were voted in favor of the amendment.

4. That said Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware.

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<PAGE>
IN WITNESS WHEREOF, PRICESMART, INC. has caused this Certificate to be
signed by , its President and , its
Secretary, this day of , 1997.

PRICESMART, INC.

a Delaware corporation

By: ____________________________

Name:

Title: President

ATTEST

Name:

Title: Secretary

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<PAGE>
ANNEX II
AMENDED AND RESTATED
BYLAWS OF
PRICESMART, INC.
(HEREINAFTER CALLED THE "CORPORATION")
ARTICLE I
OFFICES

SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
shall be established and maintained in the City of Wilmington, County of New
Castle, State of Delaware.

SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.

ARTICLE II
MEETINGS OF STOCKHOLDERS

SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.

SECTION 2. ANNUAL MEETINGS. The Annual Meetings of Stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which meeting
the stockholders shall elect Directors in the manner provided in the Certificate
of Incorporation and in the Bylaws, and transact such other business as may
properly be brought before the meeting. Written notice of the Annual Meeting
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting.

SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or by the
Certificate of Incorporation, Special Meetings of Stockholders, for any purpose
or purposes may be called by either (i) the Chairman, (ii) the Vice Chairman,
(iii) the President, (iv) any Vice President, (v) the Secretary or (vi) any
Assistant Secretary, if there be one, and shall be called by any such officer at
the request in writing by a majority of the entire Board of Directors, or at the
request in writing of stockholders owning a majority of the capital stock of the
Corporation issued and outstanding and entitled to vote. Such request ball state
the purpose or purposes of the proposed meeting. Written notice of a Special
Meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting.

SECTION 4. QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. A quorum, once established, shall
not be broken by the withdrawal of enough votes to leave less than a quorum and
the votes present may continue to transact business until adjournment. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is

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fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder entitled to vote at the meeting.

SECTION 5. VOTING. Unless otherwise required by law, the Certificate of
Incorporation or these Bylaws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Each stockholder represented at
a meeting of stockholders shall be entitled to cast one vote for each share of
the capital stock entitled to vote thereat held by such stockholder. Such votes
may be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.

SECTION 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless otherwise
provided in the Certificate of Incorporation, any action required or permitted
to be taken at any Annual or Special Meeting of Stockholders of the Corporation,
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.

SECTION 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.

SECTION 8. STOCK LEDGER. The stock ledger of the Corporation shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.

ARTICLE III
DIRECTORS

SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of Directors shall
consist of three or more members, the exact number of which shall be fixed from
time to time by the Board of Directors. Except as provided in Section 2 of this
Article, directors shall be elected by a plurality of the votes cast at Annual
Meetings of Stockholders, and each director so elected shall hold office until
the Annual Meeting in which his term expires and until his successor is duly
elected and qualified, or until his earlier resignation or removal. Any director
may resign at any time upon written notice to the Corporation. Directors need
not be stockholders.

SECTION 2. VACANCIES. Vacancies, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director. The directors so chosen shall hold office until the
next annual election of directors and until their successors are duly elected
and qualified, or until their earlier resignation or removal. If there are no
directors in office, then an election of directors may be held in the manner
provided by statute.

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SECTION 3. DUTIES AND POWERS. The business of the Corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these Bylaws
directed or required to be exercised or done by the stockholders.

SECTION 4. MEETINGS. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman, the Vice Chairman, the President, or any director. Notice thereof
stating the place, date and hour of the meeting shall be given to each director
either by mail, telephone, facsimile or telegram not less than forty-eight (48)
hours before the date of the meeting.

SECTION 5. QUORUM. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these Bylaws, at all meetings of the
Board of Directors a majority of the entire Board of Directors shall constitute
a quorum for the transaction of business. The act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time without notice other than announcement at the meeting, until a quorum shall
be present.

SECTION 6. ACTIONS OF BOARD. Unless otherwise provided by the Certificate
of Incorporation or these Bylaws, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.

SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless otherwise
provided by the Certificate of Incorporation or these Bylaws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 7 shall constitute
presence in person at such meeting.

SECTION 8. COMMITTEES. The Board of Directors may, by resolution passed by
a majority of the entire Board of Directors, designate one or more committees,
each committee to consist of one or more of the Directors of the Corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of any such committee. Any committee, to the extent allowed by law and
provided in these Bylaws or the resolution establishing such committee, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation; but no committee
shall have the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
Bylaws of the Corporation; and, unless the resolution or the Certificate of
Incorporation expressly so provides, no committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Each
committee shall keep regular minutes and report to the Board of Directors when
required.

SECTION 9. COMPENSATION. The directors may be paid their expenses, if any,
of attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.

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SECTION 10. INTERESTED DIRECTORS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
that reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board of Directors,
a committee thereof or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction. Any
such contract or transaction shall be made on commercially reasonable terms
substantially equivalent to terms available from third parties in an
arm's-length transaction in the competitive marketplace.

ARTICLE IV
OFFICERS

SECTION 1. GENERAL. The executive officers of the Corporation shall be
chosen by the Board of Directors and shall include a Chairman of the Board of
Directors, a President and Chief Executive Officer, a Secretary and a Chief
Financial Officer. The Board of Directors, in its discretion, may also choose
one or more Executive Vice Presidents (each of whom shall also be an executive
officer), a Treasurer (who shall also be an executive officer) and Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any
number of offices may be held by the same person, unless otherwise prohibited by
law, the Certificate of Incorporation or these Bylaws. The officers of the
Corporation need not be stockholders of the Corporation nor, except in the case
of the Chairman of the Board of Directors and the Vice Chairman of the Board of
Directors, need such officers be directors of the Corporation.

SECTION 2. ELECTION. The Board of Directors at its first meeting held
after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the entire Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by a majority
of the entire Board of Directors. The salaries of all executive officers of the
Corporation shall be fixed by the Board of Directors.

SECTION 3. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board
of Directors shall preside at all meetings of the stockholders and of the Board
of Directors. Except where by law the signature of the President is required,
the Chairman of the Board of Directors shall possess the same power as the
President to sign all contracts, certificates and other instruments of the
Corporation which may be authorized by the Board of Directors. During the
absence or disability of the President, the Chairman of the Board of Directors
shall exercise all the powers and discharge all the duties of the President. The
Chairman of the Board of Directors shall also perform such other duties and may
exercise such other powers as from time to time may be assigned to him by these
Bylaws or by the Board of Directors. The Chairman of the Board of Directors may
only be appointed or removed by a majority of the entire Board of Directors.

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SECTION 4. VICE CHAIRMAN OF THE BOARD OF DIRECTORS. The Vice Chairman of
the Board of Directors shall, in the absence or disability of the Chairman of
the Board of Directors, preside at meetings of the stockholders and the Board of
Directors. The Vice Chairman of the Board of Directors shall also perform such
other duties and may exercise such other powers as from time to time may be
assigned to him by these Bylaws or by the Board of Directors.

SECTION 5. PRESIDENT. The President shall, subject to the control of the
Board of Directors, have general supervision of the business of the Corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. He shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these Bylaws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors or the Vice Chairman of the Board of Directors, or if there be none,
the President shall preside at all meetings of the stockholders and the Board of
Directors. The President shall be the Chief Executive Officer of the
Corporation. The President shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these Bylaws or
by the Board of Directors. The President may only be appointed or removed by a
majority of the entire Board of Directors.

SECTION 6. EXECUTIVE VICE PRESIDENTS AND VICE PRESIDENTS. At the request
of the President or in his absence or in the event of his inability or refusal
to act (and if there be no Chairman of the Board of Directors), the Senior
Executive Vice President, and then the Executive Vice President or the Executive
Vice Presidents if there is more than one (in the order designated by the Board
of Directors) shall perform the duties of the President, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
President. Each Vice President (including Senior Executive and Executive Vice
Presidents) shall perform such other duties and have such other powers as the
Board of Directors from time to time may prescribe. If there be no Chairman of
the Board of Directors and no Vice President, the Board of Directors shall
designate the officer of the Corporation who, in the absence of the President or
in the event of the inability or refusal of the President to act, shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President.

SECTION 7. SECRETARY. The Secretary shall attend all meetings of the Board
of Directors and all meetings of stockholders and record all the proceedings
thereat in a book or books to be kept for that purpose; the Secretary shall also
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or President, under whose
supervision he or she shall be. If the Secretary shall be unable or shall refuse
to cause to be given notice of all meetings of the stockholders and special
meetings of the Board of Directors, and if there be no Assistant Secretary, then
either the Board of Directors or the President may choose another officer to
cause such notice to be given. The Secretary shall have custody of the seal of
the Corporation and the Secretary or any Assistant Secretary, if there be one,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his signature. The Secretary shall see that all books,
reports, statements, certificates and other documents and records required by
law to be kept or filed are properly kept or filed, as the case may be.

SECTION 8. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall also
serve as the Treasurer unless Treasurer shall be separately appointed by the
Board of Directors and shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. The Chief
Financial Officer shall disburse the funds of the Corporation as may be ordered
by the Board of

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<PAGE>
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as Chief
Financial Officer and of the financial condition of the Corporation.

SECTION 9. ASSISTANT SECRETARIES. Except as may be otherwise provided in
these Bylaws, Assistant Secretaries, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the Board
of Directors, the President, any Vice President, if there be one, or the
Secretary, and in the absence of the Secretary or in the event of his disability
or refusal to act, shall perform the duties of the Secretary, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the Secretary.

SECTION 10. ASSISTANT TREASURERS. Assistant Treasurers, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President if
there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer.

SECTION 11. OTHER OFFICERS. Such other officers as the Board of Directors
may choose shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.

ARTICLE V
STOCK

SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate signed, in the name of the Corporation
(i) by the Chairman or Vice Chairman of the Board of Directors, or the President
or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation. If the Corporation shall be authorized
to issue more than one class of stock or more than one series of any class, the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations, or restrictions of such preferences and/or rights shall be set
forth in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in section 202 of the General Corporation Law
of Delaware, in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the Corporation shall issue to
represent such class or series of stock, a statement that the Corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.

SECTION 2. SIGNATURES. Where a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employee, or (ii) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed, or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.

SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost stolen or destroyed (unless otherwise authorized by the Board). When
authorizing such issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent to the issuance

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<PAGE>
thereof, require the owner of such lost, stolen or destroyed certificate, or his
legal representative, to advertise the same in such manner as the Board of
Directors shall require and/or to give the Corporation a bond in such sum as it
may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.

SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these Bylaws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall be
issued.

SECTION 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.

SECTION 6. BENEFICIAL OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.

ARTICLE VI
NOTICES

SECTION 1. NOTICES. Whenever written notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given personally
or by telegram, telex, facsimile or cable, in which event notice shall be deemed
given upon receipt.

SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Neither the business
transacted or to be transacted at, nor the purpose of any meeting need be
specified in any written waiver of notice thereof.

ARTICLE VII
GENERAL PROVISIONS

SECTION 1. DIVIDENDS. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, and may be
paid in cash, in property, or in shares of the capital stock. Before payment of
any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion, deems

II-7
<PAGE>
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for any proper purpose, and the Board of Directors may modify or abolish any
such reserve.

SECTION 2. DISBURSEMENTS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.

SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.

SECTION 4. CORPORATE SEAL. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.

ARTICLE VIII
INDEMNIFICATION

The power, right and obligation of the Corporation to indemnify any director
or officer of the Corporation and employees and agents of the Corporation shall
be as set forth in Article EIGHTH of the Certificate of Incorporation. All
directors and officers of the Corporation shall be entitled to indemnification
as set forth in the Certificate of Incorporation.

ARTICLE IX
AMENDMENTS

SECTION 1. These Bylaws may be altered, amended or repealed, in whole or in
part, or new Bylaws may be adopted by the stockholders or by the Board of
Directors; provided, however, that notice of such alteration, amendment, repeal
or adoption of new Bylaws be contained in the notice of such meeting of
stockholders or Board of Directors as the case may be. All such amendments must
be approved by either the holders of a majority of the outstanding capital stock
entitled to vote thereon or by a majority of the entire Board of Directors.

II-8
<PAGE>
ANNEX III
THE 1997 STOCK OPTION PLAN
OF
PRICESMART, INC.

PriceSmart, Inc., a Delaware corporation, has adopted The 1997 Stock Option
Plan of PriceSmart, Inc. (this "Plan"), effective , 1997, for the
benefit of its eligible employees, consultants and directors.

The purposes of this Plan are as follows:

(1) To provide an additional incentive for directors, key Employees and
consultants to further the growth, development and financial success of the
Company by personally benefiting through the ownership of Company stock which
recognizes such growth, development and financial success.

(2) To enable the Company to obtain and retain the services of directors,
key Employees and consultants considered essential to the long range success of
the Company by offering them an opportunity to own stock in the Company which
will reflect the growth, development and financial success of the Company.

ARTICLE I
DEFINITIONS

1.1 GENERAL. Wherever the following terms are used in this Plan they shall
have the meanings specified below, unless the context clearly indicates
otherwise.

1.2 AWARD LIMIT. "Award Limit" shall mean shares of Common Stock,
as adjusted pursuant to Section 7.3.

1.3 BOARD. "Board" shall mean the Board of Directors of the Company.

1.4 CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended.

1.5 COMMITTEE. "Committee" shall mean the Compensation Committee of the
Board, or another committee or subcommittee of the Board, appointed as provided
in Section 6.1.

1.6 COMMON STOCK. "Common Stock" shall mean the common stock of the
Company, par value $.0001 per share.

1.7 COMPANY. "Company" shall mean PriceSmart, Inc., a Delaware
corporation.

1.8 CORPORATE TRANSACTION. "Corporate Transaction" shall mean any of the
following stockholder-approved transactions to which the Company is a party:

(a) a merger or consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change
the State in which the Company is incorporated, form a holding company or
effect a similar reorganization as to form whereupon this Plan and all
Options are assumed by the successor entity;

(b) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, in complete liquidation or
dissolution of the Company in a transaction not covered by the exceptions to
clause (a), above; or

(c) any reverse merger in which the Company is the surviving entity but
in which securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities are
transferred or issued to a person or persons different from those who held
such securities immediately prior to such merger.

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<PAGE>
1.9 DIRECTOR. "Director" shall mean a member of the Board.

1.10 DISTRIBUTION. "Distribution" shall mean the distribution of Common
Stock to the stockholders of Price Enterprises, Inc.

1.11 EMPLOYEE. "Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company, or of
any corporation which is a Subsidiary.

1.12 EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.

1.13 FAIR MARKET VALUE. "Fair Market Value" of a share of Common Stock as
of a given date shall be (i) the closing price of a share of Common Stock on the
principal exchange on which shares of Common Stock are then trading, if any (or
as reported on any composite index which includes such principal exchange), on
the trading day previous to such date, or if shares were not traded on the
trading day previous to such date, then on the next preceding date on which a
trade occurred, or (ii) if Common Stock is not traded on an exchange but is
quoted on Nasdaq or a successor quotation system, the mean between the closing
representative bid and asked prices for the Common Stock on the trading day
previous to such date as reported by Nasdaq or such successor quotation system;
or (iii) if Common Stock is not publicly traded on an exchange and not quoted on
Nasdaq or a successor quotation system, the Fair Market Value of a share of
Common Stock as established by the Committee (or the Board, in the case of
Options granted to Independent Directors) acting in good faith.

1.14 INCENTIVE STOCK OPTION. "Incentive Stock Option" shall mean an option
which conforms to the applicable provisions of Section 422 of the Code and which
is designated as an Incentive Stock Option by the Committee.

1.15 INDEPENDENT DIRECTOR. "Independent Director" shall mean a member of
the Board who is not an Employee of the Company.

1.16 NON-QUALIFIED STOCK OPTION. "Non-Qualified Stock Option" shall mean
an Option which is not designated as an Incentive Stock Option by the Committee.

1.17 OPTION. "Option" shall mean a stock option granted under Article III
of this Plan. An Option granted under this Plan shall, as determined by the
Committee, be either a Non-Qualified Stock Option or an Incentive Stock Option;
PROVIDED, HOWEVER, that Options granted to Independent Directors and consultants
shall be Non-Qualified Stock Options.

1.18 OPTIONEE. "Optionee" shall mean an Employee, consultant or
Independent Director granted an Option under this Plan.

1.19 PLAN. "Plan" shall mean The 1997 Stock Option Plan of PriceSmart,
Inc.

1.20 QDRO. "QDRO" shall mean a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder.

1.21 RULE 16B-3. "Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended from time to time.

1.22 SECTION 162(M) PARTICIPANT. "Section 162(m) Participant" shall mean
any key Employee designated by the Committee as a key Employee whose
compensation for the fiscal year in which the key Employee is so designated or a
future fiscal year may be subject to the limit on deductible compensation
imposed by Section 162(m) of the Code.

1.23 SUBSIDIARY. "Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain then owns stock possessing
50 percent or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain.

III-2
<PAGE>
1.24 TERMINATION OF CONSULTANCY. "Termination of Consultancy" shall mean
the time when the engagement of an Optionee as a consultant to the Company or a
Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, by resignation, discharge, death or retirement; but
excluding terminations where there is a simultaneous commencement of employment
with the Company or any Subsidiary. The Committee, in its absolute discretion,
shall determine the effect of all matters and questions relating to Termination
of Consultancy, including, but not by way of limitation, the question of whether
a Termination of Consultancy resulted from a discharge for good cause, and all
questions of whether a particular leave of absence constitutes a Termination of
Consultancy. Notwithstanding any other provision of this Plan, the Company or
any Subsidiary has an absolute and unrestricted right to terminate a
consultant's service at any time for any reason whatsoever, with or without
cause, except to the extent expressly provided otherwise in writing.

1.25 TERMINATION OF DIRECTORSHIP. "Termination of Directorship" shall mean
the time when an Optionee who is an Independent Director ceases to be a Director
for any reason, including, but not by way of limitation, a termination by
resignation, failure to be elected, death or retirement. The Board, in its sole
and absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Directorship with respect to Independent Directors.

1.26 TERMINATION OF EMPLOYMENT. "Termination of Employment" shall mean the
time when the employee-employer relationship between an Optionee and the Company
or any Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death, disability or retirement; but excluding (i) terminations where
there is a simultaneous reemployment or continuing employment of an Optionee by
the Company or any Subsidiary, (ii) at the discretion of the Committee,
terminations which result in a temporary severance of the employee-employer
relationship, and (iii) at the discretion of the Committee, terminations which
are followed by the simultaneous establishment of a consulting relationship by
the Company or a Subsidiary with the former employee. The Committee, in its
absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Employment, including, but not by way of limitation,
the question of whether a Termination of Employment resulted from a discharge
for good cause, and all questions of whether a particular leave of absence
constitutes a Termination of Employment; PROVIDED, HOWEVER, that, unless
otherwise determined by the Committee in its discretion, a leave of absence,
change in status from an employee to an independent contractor or other change
in the employee-employer relationship shall constitute a Termination of
Employment if, and to the extent that with respect to Incentive Stock Options,
such leave of absence, change in status or other change interrupts employment
for the purposes of Section 422(a)(2) of the Code and the then applicable
regulations and revenue rulings under said Section. Notwithstanding any other
provision of this Plan, the Company or any Subsidiary has an absolute and
unrestricted right to terminate an Employee's employment at any time for any
reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.

ARTICLE II
SHARES SUBJECT TO PLAN

2.1 SHARES SUBJECT TO PLAN.

(a) The shares of stock subject to Options shall be Common Stock. The
aggregate number of such shares which may be issued upon exercise of such
Options or rights or upon any such awards under the Plan shall not exceed
600,000. The shares of Common Stock issuable upon exercise of such Options may
be either previously authorized but unissued shares or treasury shares.

(b) The maximum number of shares which may be subject to Options granted
under the Plan to any individual in any fiscal year shall not exceed the Award
Limit. To the extent required by Section 162(m) of the Code, shares subject to
Options which are canceled continue to be counted against the Award Limit

III-3
<PAGE>
and if, after grant of an Option, the price of shares subject to such Option is
reduced, the transaction is treated as a cancellation of the Option and a grant
of a new Option and both the Option deemed to be canceled and the Option deemed
to be granted are counted against the Award Limit.

2.2 ADD-BACK OF OPTIONS. If any Option to acquire shares of Common Stock
under this Plan expires or is canceled without having been fully exercised, or
is exercised in whole or in part for cash as permitted by this Plan, the number
of shares subject to such Option but as to which such Option was not exercised
prior to its expiration, cancellation or exercise may again be optioned
hereunder, subject to the limitations of Section 2.1. Furthermore, any shares
subject to Options which are adjusted pursuant to Section 7.3 and become
exercisable with respect to shares of stock of another corporation shall be
considered cancelled and may again be optioned hereunder, subject to the
limitations of Section 2.1. Shares of Common Stock which are delivered by the
Optionee or withheld by the Company upon the exercise of any Option under this
Plan, in payment of the exercise price thereof, may again be optioned hereunder,
subject to the limitations of Section 2.1. Notwithstanding the provisions of
this Section 2.2, no shares of Common Stock may again be optioned if such action
would cause an Incentive Stock Option to fail to qualify as an incentive stock
option under Section 422 of the Code.

ARTICLE III
GRANTING OF OPTIONS

3.1 ELIGIBILITY. Any Employee or consultant selected by the Committee
pursuant to Section 3.4(a)(i) shall be eligible to be granted an Option. Each
Independent Director of the Company shall be eligible to be granted Options at
the times and in the manner set forth in Section 3.4(d).

3.2 DISQUALIFICATION FOR STOCK OWNERSHIP. No person may be granted an
Incentive Stock Option under this Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
then existing Subsidiary or parent corporation (within the meaning of Section
422 of the Code) unless such Incentive Stock Option conforms to the applicable
provisions of Section 422 of the Code.

3.3 QUALIFICATION OF INCENTIVE STOCK OPTIONS. No Incentive Stock Option
shall be granted to any person who is not an Employee.

3.4 GRANTING OF OPTIONS

(a) The Committee shall from time to time, in its absolute discretion, and
subject to applicable limitations of this Plan:

(i) Determine which Employees are key Employees and select from among
the key Employees or consultants (including Employees or consultants who
have previously received Options under this Plan) such of them as in its
opinion should be granted Options;

(ii) Subject to the Award Limit, determine the number of shares to be
subject to such Options granted to the selected key Employees or
consultants;

(iii) Subject to Section 3.3, determine whether such Options are to be
Incentive Stock Options or Non-Qualified Stock Options and whether such
Options are to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code; and

(iv) Determine the terms and conditions of such Options, consistent with
this Plan; PROVIDED, HOWEVER, that the terms and conditions of Options
intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall include, but not be limited to, such
terms and conditions as may be necessary to meet the applicable provisions
of Section 162(m) of the Code.

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<PAGE>
(b) Upon the selection of a key Employee or consultant to be granted an
Option, the Committee shall instruct the Secretary of the Company to issue the
Option and may impose such conditions on the grant of the Option as it deems
appropriate. Without limiting the generality of the preceding sentence, the
Committee may, in its discretion and on such terms as it deems appropriate,
require as a condition on the grant of an Option to an Employee or consultant
that the Employee or consultant surrender for cancellation some or all of the
unexercised Options or other rights which have been previously granted to him
under this Plan or otherwise. An Option, the grant of which is conditioned upon
such surrender, may have an Option price lower (or higher) than the exercise
price of such surrendered Option or other award, may cover the same (or a lesser
or greater) number of shares as such surrendered Option or other award, may
contain such other terms as the Committee deems appropriate, and shall be
exercisable in accordance with its terms, without regard to the number of
shares, price, exercise period or any other term or condition of such
surrendered Option or other award.

(c) Any Incentive Stock Option granted under this Plan may be modified by
the Committee to disqualify such option from treatment as an "incentive stock
option" under Section 422 of the Code.

(d) During the term of the Plan, each person who is an Independent Director
as of the date of the the Distribution automatically shall be granted (i) an
Option to purchase ( ) shares of Common Stock (subject to
adjustment as provided in Section 7.3) on the date of the Distribution and (ii)
an Option to purchase ( ) shares of Common Stock (subject to
adjustment as provided in Section 7.3) on the date of each annual meeting of
stockholders after such initial public offering at which the Independent
Director is reelected to the Board. During the term of the Plan, a person who is
initially elected to the Board after the consummation of the Distribution and
who is an Independent Director at the time of such initial election
automatically shall be granted (i) an Option to purchase ( )
shares of Common Stock (subject to adjustment as provided in Section 7.3) on the
date of such initial election and (ii) an Option to purchase ( )
shares of Common Stock (subject to adjustment as provided in Section 7.3) on the
date of each annual meeting of stockholders after such initial election at which
the Independent Director is reelected to the Board. Members of the Board who are
employees of the Company who subsequently retire from the Company and remain on
the Board will not receive an initial Option grant pursuant to clause (i) of the
preceding sentence, but to the extent that they are otherwise eligible, will
receive, after retirement from employment with the Company, Options as described
in clause (ii) of the preceding sentence.

ARTICLE IV
TERMS OF OPTIONS

4.1 OPTION AGREEMENT. Each Option shall be evidenced by a written Stock
Option Agreement, which shall be executed by the Optionee and an authorized
officer of the Company and which shall contain such terms and conditions as the
Committee (or the Board, in the case of Options granted to Independent
Directors) shall determine, consistent with this Plan. Stock Option Agreements
evidencing Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code shall contain such terms and
conditions as may be necessary to meet the applicable provisions of Section
162(m) of the Code. Stock Option Agreements evidencing Incentive Stock Options
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 422 of the Code.

4.2 OPTION PRICE. The price per share of the shares subject to each Option
shall be set by the Committee; PROVIDED, HOWEVER, that such price shall be no
less than the par value of a share of Common Stock, unless otherwise permitted
by applicable state law, and (i) in the case of Options intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code,
such price shall not be less than 100% of the Fair Market Value of a share of
Common Stock on the date the Option is granted; (ii) in the case of Incentive
Stock Options such price shall not be less than 100% of the Fair

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Market Value of a share of Common Stock on the date the Option is granted (or
the date the Option is modified, extended or renewed for purposes of Section
424(h) of the Code); (iii) in the case of Incentive Stock Options granted to an
individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary or parent corporation thereof (within the meaning of
Section 422 of the Code), such price shall not be less than 110% of the Fair
Market Value of a share of Common Stock on the date the Option is granted (or
the date the Option is modified, extended or renewed for purposes of Section
424(h) of the Code); and (iv) in the case of Options granted to Independent
Directors, such price shall equal 100% of the Fair Market Value of a share of
Common Stock on the date the Option is granted; PROVIDED, HOWEVER, that the
price of each share subject to each Option granted to Independent Directors on
the date of the Distribution shall equal the average of the trading price for
the Common Stock for the first [twenty] days after the effective date of the
Distribution.

4.3 OPTION TERM. The term of an Option shall be set by the Committee in
its discretion; PROVIDED, HOWEVER, that, (i) in the case of Options granted to
Independent Directors, the term shall be ten (10) years from the date the Option
is granted, without variation or acceleration hereunder, but subject to Section
5.6, and (ii) in the case of Incentive Stock Options, the term shall not be more
than ten (10) years from the date the Incentive Stock Option is granted, or five
(5) years from such date if the Incentive Stock Option is granted to an
individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary or parent corporation thereof (within the meaning of
Section 422 of the Code). Except as limited by requirements of Section 422 of
the Code and regulations and rulings thereunder applicable to Incentive Stock
Options, the Committee may extend the term of any outstanding Option in
connection with any Termination of Employment or Termination of Consultancy of
the Optionee, or amend any other term or condition of such Option relating to
such a termination.

4.4 OPTION VESTING

(a) The period during which the right to exercise an Option in whole or in
part vests in the Optionee shall be set by the Committee and the Committee may
determine that an Option may not be exercised in whole or in part for a
specified period after it is granted; PROVIDED, HOWEVER, that, unless the
Committee otherwise provides in the terms of the Option or otherwise, no Option
shall be exercisable by any Optionee who is then subject to Section 16 of the
Exchange Act within the period ending six months and one day after the date the
Option is granted; and PROVIDED, FURTHER, that Options granted to Independent
Directors shall become exercisable in cumulative annual installments of 25% on
each of the first, second, third and fourth anniversaries of the date of Option
grant, without variation or acceleration hereunder except as provided in Section
7.3(b). At any time after grant of an Option, the Committee may, in its sole and
absolute discretion and subject to whatever terms and conditions it selects,
accelerate the period during which an Option (except an Option granted to an
Independent Director) vests.

(b) No portion of an Option which is unexercisable at Termination of
Employment, Termination of Directorship or Termination of Consultancy, as
applicable, shall thereafter become exercisable, except as may be otherwise
provided by the Committee in the case of Options granted to Employees or
consultants either in the Stock Option Agreement or by action of the Committee
following the grant of the Option.

(c) To the extent that the aggregate Fair Market Value of stock with respect
to which "incentive stock options" (within the meaning of Section 422 of the
Code, but without regard to Section 422(d) of the Code) are exercisable for the
first time by an Optionee during any calendar year (under the Plan and all other
incentive stock option plans of the Company and any parent or subsidiary
corporation (within the meaning of Section 422 of the Code) of the Company)
exceeds $100,000, such Options shall be treated as Non-Qualified Options to the
extent required by Section 422 of the Code. The rule set forth in the preceding
sentence shall be applied by taking Options into account in the order in which
they were

III-6
<PAGE>
granted. For purposes of this Section 4.4(c), the Fair Market Value of stock
shall be determined as of the time the Option with respect to such stock is
granted.

4.5 CONSIDERATION. In consideration of the granting of an Option, the
Optionee shall agree, in the written Stock Option Agreement, to remain in the
employ of (or to consult for or to serve as an Independent Director of, as
applicable) the Company or any Subsidiary for a period of at least one year (or
such shorter period as may be fixed in the Stock Option Agreement or by action
of the Committee following grant of the Option) after the Option is granted (or,
in the case of an Independent Director, until the next annual meeting of
stockholders of the Company). Nothing in this Plan or in any Stock Option
Agreement hereunder shall confer upon any Optionee any right to continue in the
employ of, or as a consultant for, the Company or any Subsidiary, or as a
director of the Company, or shall interfere with or restrict in any way the
rights of the Company and any Subsidiary, which are hereby expressly reserved,
to discharge any Optionee at any time for any reason whatsoever, with or without
good cause.

ARTICLE V
EXERCISE OF OPTIONS

5.1 PARTIAL EXERCISE. An exercisable Option may be exercised in whole or
in part. However, an Option shall not be exercisable with respect to fractional
shares and the Committee (or the Board, in the case of Options granted to
Independent Directors) may require that, by the terms of the Option, a partial
exercise be with respect to a minimum number of shares.

5.2 MANNER OF EXERCISE. All or a portion of an exercisable Option shall be
deemed exercised upon delivery of all of the following to the Secretary of the
Company or his office:

(a) A written notice complying with the applicable rules established by the
Committee (or the Board, in the case of Options granted to Independent
Directors) stating that the Option, or a portion thereof, is exercised. The
notice shall be signed by the Optionee or other person then entitled to exercise
the Option or such portion of the Option;

(b) Such representations and documents as the Committee (or the Board, in
the case of Options granted to Independent Directors), in its absolute
discretion, deems necessary or advisable to effect compliance with all
appli-cable provisions of the Securities Act of 1933, as amended, and any other
federal or state securities laws or regulations. The Committee or Board may, in
its absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation, placing
legends on share certificates and issuing stop-transfer notices to agents and
registrars;

(c) In the event that the Option shall be exercised pursuant to Section 7.1
by any person or persons other than the Optionee, appropriate proof of the right
of such person or persons to exercise the Option; and

(d) Full cash payment to the Secretary of the Company for the shares with
respect to which the Option, or portion thereof, is exercised. However, the
Committee (or the Board, in the case of Options granted to Independent
Directors), may in its discretion (i) allow a delay in payment up to thirty (30)
days from the date the Option, or portion thereof, is exercised; (ii) allow
payment, in whole or in part, through the delivery of shares of Common Stock
owned by the Optionee, duly endorsed for transfer to the Company with a Fair
Market Value on the date of delivery equal to the aggregate exercise price of
the Option or exercised portion thereof; (iii) allow payment, in whole or in
part, through the surrender of shares of Common Stock then issuable upon
exercise of the Option having a Fair Market Value on the date of Option exercise
equal to the aggregate exercise price of the Option or exercised portion
thereof; (iv) allow payment, in whole or in part, through the delivery of
property of any kind which constitutes good and valuable consideration; (v)
allow payment, in whole or in part, through the delivery of a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest

III-7
<PAGE>
under the Code) and payable upon such terms as may be prescribed by the
Committee or the Board; (vi) allow payment, in whole or in part, through the
delivery of a notice that the Optionee has placed a market sell order with a
broker with respect to shares of Common Stock then issuable upon exercise of the
Option, and that the broker has been directed to pay a sufficient portion of the
net proceeds of the sale to the Company in satisfaction of the Option exercise
price; or (vii) allow payment through any combination of the consideration
provided in the foregoing subparagraphs (ii), (iii), (iv), (v) and (vi). In the
case of a promissory note, the Committee (or the Board, in the case of Options
granted to Independent Directors) may also prescribe the form of such note and
the security to be given for such note. The Option may not be exercised,
however, by delivery of a promissory note or by a loan from the Company when or
where such loan or other extension of credit is prohibited by law.

5.3 CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The Company shall not be
required to issue or deliver any certificate or certificates for shares of stock
purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:

(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed;

(b) The completion of any registration or other qualification of such shares
under any state or federal law, or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body
which the Committee or Board shall, in its absolute discretion, deem necessary
or advisable;

(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee (or Board, in the case of
Options granted to Independent Directors) shall, in its absolute discretion,
determine to be necessary or advisable;

(d) The lapse of such reasonable period of time following the exercise of
the Option as the Committee (or Board, in the case of Options granted to
Independent Directors) may establish from time to time for reasons of
administrative convenience; and

(e) The receipt by the Company of full payment for such shares, including
payment of any applicable withholding tax.

5.4 RIGHTS AS STOCKHOLDERS. The holders of Options shall not be, nor have
any of the rights or privileges of, stockholders of the Company in respect of
any shares purchasable upon the exercise of any part of an Option unless and
until certificates representing such shares have been issued by the Company to
such holders.

5.5 OWNERSHIP AND TRANSFER RESTRICTIONS. The Committee (or Board, in the
case of Options granted to Independent Directors), in its absolute discretion,
may impose such restrictions on the ownership and transferability of the shares
purchasable upon the exercise of an Option as it deems appropriate. Any such
restriction shall be set forth in the respective Stock Option Agreement and may
be referred to on the certificates evidencing such shares. The Committee may
require the Employee to give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(i) two years from the date of granting (including the date the Option is
modified, extended or renewed for purposes of Section 424(h) of the Code) such
Option to such Employee or (ii) one year after the transfer of such shares to
such Employee. The Committee may direct that the certificates evidencing shares
acquired by exercise of an Option refer to such requirement to give prompt
notice of disposition.

5.6 LIMITATIONS ON EXERCISE OF OPTIONS GRANTED TO INDEPENDENT
DIRECTORS. No Option granted to an Independent Director may be exercised to any
extent by anyone after the first to occur of the following events:

(a) The expiration of twelve (12) months from the date of the Optionee's
death;

III-8
<PAGE>
(b) the expiration of twelve (12) months from the date of the Optionee's
Termination of Directorship by reason of his permanent and total disability
(within the meaning of Section 22(e)(3) of the Code);

(c) the expiration of three (3) months from the date of the Optionee's
Termination of Directorship for any reason other than such Optionee's death or
his permanent and total disability, unless the Optionee dies within said
three-month period; or

(d) The expiration of ten years from the date the Option was granted.

ARTICLE VI
ADMINISTRATION

6.1 COMPENSATION COMMITTEE. The Compensation Committee (or another
committee or a subcommittee of the Board assuming the functions of the Committee
under this Plan) shall consist solely of two or more Independent Directors
appointed by and holding office at the pleasure of the Board, each of whom is
both a "non-employee director" as defined by Rule 16b-3 and an "outside
director" for purposes of Section 162(m) of the Code. Appointment of Committee
members shall be effective upon acceptance of appointment. Committee members may
resign at any time by delivering written notice to the Board. Vacancies in the
Committee may be filled by the Board.

6.2 DUTIES AND POWERS OF COMMITTEE. It shall be the duty of the Committee
to conduct the general administration of this Plan in accordance with its
provisions. The Committee shall have the power to interpret this Plan and the
agreements pursuant to which Options are granted or awarded, and to adopt such
rules for the administration, interpretation, and application of this Plan as
are consistent therewith and to interpret, amend or revoke any such rules.
Notwithstanding the foregoing, the full Board, acting by a majority of its
members in office, shall conduct the general administration of the Plan with
respect to Options granted to Independent Directors. Any such grant or award
under this Plan need not be the same with respect to each Optionee. Any such
interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under this Plan except with respect to
matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations
or rules issued thereunder, are required to be determined in the sole discretion
of the Committee.

6.3 MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. The Committee shall act by a
majority of its members in attendance at a meeting at which a quorum is present
or by a memorandum or other written instrument signed by all members of the
Committee.

6.4 COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS. Members of
the Committee shall receive such compensation, if any, for their services as
members as may be determined by the Board. All expenses and liabilities which
members of the Committee incur in connection with the administration of this
Plan shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers, or other
persons. The Committee, the Company and the Company's officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee or the Board in good faith shall be final and binding upon all
Optionees, the Company and all other interested persons. No members of the
Committee or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to this Plan or Options, and all
members of the Committee and the Board shall be fully protected by the Company
in respect of any such action, determination or interpretation.

III-9
<PAGE>
ARTICLE VII
MISCELLANEOUS PROVISIONS

7.1 NOT TRANSFERABLE. Options under this Plan may not be sold, pledged,
assigned, or transferred in any manner other than by will or the laws of descent
and distribution or pursuant to a QDRO, unless and until such options have been
exercised, or the shares underlying such options have been issued, and all
restrictions applicable to such shares have lapsed. No Option or interest or
right therein shall be liable for the debts, contracts or engagements of the
Optionee or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by operation of
law by judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect, except to the extent that such disposition is
permitted by the preceding sentence.

During the lifetime of the Optionee, only he may exercise an Option (or any
portion thereof) granted to him under the Plan, unless it has been disposed of
pursuant to a QDRO. After the death of the Optionee, any exercisable portion of
an Option may, prior to the time when such portion becomes unexercisable under
the Plan or the applicable Stock Option Agreement or other agreement, be
exercised by his personal representative or by any person empowered to do so
under the deceased Optionee's will or under the then applicable laws of descent
and distribution.

7.2 AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN. Except as otherwise
provided in this Section 7.2, this Plan may be wholly or partially amended or
otherwise modified, suspended or terminated at any time or from time to time by
the Board or the Committee. However, without approval of the Company's
stockholders given within twelve months before or after the action by the Board
or the Committee, no action of the Board or the Committee may, except as
provided in Section 7.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under this Plan, and no action of
the Board or the Committee may be taken that would otherwise require stockholder
approval as a matter of applicable law, regulation or rule. Furthermore, no
modification of the Award Limit shall be effective prior to the approval of the
Company's stockholders. No amendment, suspension or termination of this Plan
shall, without the consent of the holder of Options, alter or impair any rights
or obligations under any Options theretofore granted or awarded, unless the
award itself otherwise expressly so provides. No Options may be granted or
awarded during any period of suspension or after termination of this Plan, and
in no event may any Incentive Stock Option be granted under this Plan after the
first to occur of the following events:

(a) The expiration of ten years from the date the Plan is adopted by the
Board; or

(b) The expiration of ten years from the date the Plan is approved by the
Company's stockholders under Section 7.4.

7.3 CHANGES IN COMMON STOCK OR ASSETS OF THE COMPANY, ACQUISITION OR
LIQUIDATION OF THE COMPANY AND OTHER CORPORATE EVENTS.

(a) Subject to Section 7.3(d), in the event that the Committee (or the
Board, in the case of Options granted to Independent Directors) determines that
any dividend or other distribution (whether in the form of cash, Common Stock,
other securities, or other property), recapitalization, reclassification, stock
split, reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer,
exchange or other disposition of all or substantially all of the assets of the
Company (including, but not limited to, a Corporate Transaction), or exchange of
Common Stock or other securities of the Company, issuance of warrants or other
rights to purchase Common Stock or other securities of the Company, or other
similar corporate transaction or event, in the Committee's sole discretion (or
in the case of Options granted to Independent Directors, the Board's sole
discretion),

III-10
<PAGE>
affects the Common Stock such that an adjustment is determined by the Committee
to be appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with respect
to an Option, then the Committee (or the Board, in the case of Options granted
to Independent Directors) shall, in such manner as it may deem equitable, adjust
any or all of

(i) the number and kind of shares of Common Stock (or other securities
or property) with respect to which Options may be granted under the Plan,
(including, but not limited to, adjustments of the limitations in Section
2.1 on the maximum number and kind of shares which may be issued and
adjustments of the Award Limit),

(ii) the number and kind of shares of Common Stock (or other securities
or property) subject to outstanding Options, and

(iii) the grant or exercise price with respect to any Option.

(b) Subject to Sections 7.3(b)(vi) and 7.3(d), in the event of any Corporate
Transaction or other transaction or event described in Section 7.3(a) or any
unusual or nonrecurring transactions or events affecting the Company, any
affiliate of the Company, or the financial statements of the Company or any
affiliate, or of changes in applicable laws, regulations, or accounting
principles, the Committee (or the Board, in the case of Options granted to
Independent Directors) in its discretion is hereby authorized to take any one or
more of the following actions whenever the Committee (or the Board, in the case
of Options granted to Independent Directors) determines that such action is
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with respect
to any option under this Plan, to facilitate such transactions or events or to
give effect to such changes in laws, regulations or principles:

(i) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the case
of Options granted to Independent Directors) may provide, either by the
terms of the agreement or by action taken prior to the occurrence of such
transaction or event and either automatically or upon the optionee's
request, for either the purchase of any such Option for an amount of cash
equal to the amount that could have been attained upon the exercise of such
Option, or realization of the optionee's rights had such Option been
currently exercisable or payable or fully vested or the replacement of such
Option with other rights or property selected by the Committee (or the
Board, in the case of Options granted to Independent Directors) in its sole
discretion;

(ii) In its sole and absolute discretion, the Committee (or the Board,
in the case of Options granted to Independent Directors) may provide, either
by the terms of such Option or by action taken prior to the occurrence of
such transaction or event that it cannot vest, be exercised or become
payable after such event;

(iii) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the case
of Options granted to Independent Directors) may provide, either by the
terms of such Option or by action taken prior to the occurrence of such
transaction or event, that for a specified period of time prior to such
transaction or event, such Option shall be exercisable as to all shares
covered thereby, notwithstanding anything to the contrary in (i) Section 4.4
or (ii) the provisions of such Option;

(iv) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the case
of Options granted to Independent Directors) may provide, either by the
terms of such Option or by action taken prior to the occurrence of such
transaction or event, that upon such event, such Option be assumed by the
successor or survivor corporation, or a parent or subsidiary thereof, or
shall be substituted for by similar Options covering the stock of the

III-11
<PAGE>
successor or survivor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices; and

(v) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the case
of Options granted to Independent Directors) may make adjustments in the
number and type of shares of Common Stock (or other securities or property)
subject to outstanding Options and/or in the terms and conditions of
(including the grant or exercise price), and the criteria included in,
outstanding Options and Options which may be granted in the future.

(c) Subject to Section 7.3(d) and 7.8, the Committee (or the Board, in the
case of Options granted to Independent Directors) may, in its discretion,
include such further provisions and limitations in any Option as it may deem
equitable and in the best interests of the Company.

(d) With respect to Options which are granted to Section 162(m) Participants
and are intended to qualify as performance-based compensation under Section
162(m)(4)(C), no adjustment or action described in this Section 7.3 or in any
other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause the Plan to violate Section 422(b)(1) of the
Code or would cause such option to fail to so qualify under Section
162(m)(4)(C), as the case may be, or any successor provisions thereto.
Furthermore, no such adjustment or action shall be authorized to the extent such
adjustment or action would result in short-swing profits liability under Section
16 or violate the exemptive conditions of Rule 16b-3 unless the Committee (or
the Board, in the case of Options granted to Independent Directors) determines
that the option is not to comply with such exemptive conditions. The number of
shares of Common Stock subject to any option shall always be rounded to the next
whole number.

7.4 APPROVAL OF PLAN BY STOCKHOLDERS. This Plan will be submitted for the
approval of the Company's stockholders within twelve months after the date of
the Board's initial adoption of this Plan. Options may be granted prior to such
stockholder approval, provided that such Options shall not be exercisable prior
to the time when this Plan is approved by the stockholders, and provided further
that if such approval has not been obtained at the end of said twelve-month
period, all Options previously granted under this Plan shall thereupon be
canceled and become null and void.

7.5 TAX WITHHOLDING. The Company shall be entitled to require payment in
cash or deduction from other compensation payable to each Optionee of any sums
required by federal, state or local tax law to be withheld with respect to the
issuance, vesting, exercise or payment of any Option. The Committee (or the
Board, in the case of Options granted to Independent Directors) may in its
discretion and in satisfaction of the foregoing requirement allow such Optionee
to elect to have the Company withhold shares of Common Stock otherwise issuable
under such Option (or allow the return of shares of Common Stock) having a Fair
Market Value equal to the sums required to be withheld.

7.6 LOANS. The Committee may, in its discretion, extend one or more loans
to key Employees in connection with the exercise or receipt of an Option granted
under this Plan. The terms and conditions of any such loan shall be set by the
Committee.

7.7 FORFEITURE PROVISIONS. Pursuant to its general authority to determine
the terms and conditions applicable to awards under the Plan, the Committee (or
the Board, in the case of Options granted to Independent Directors) shall have
the right (to the extent consistent with the applicable exemptive conditions of
Rule 16b-3) to provide, in the terms of Options made under the Plan, or to
require the recipient to agree by separate written instrument, that (i) any
proceeds, gains or other economic benefit actually or constructively received by
the recipient upon any receipt or exercise of an Option, or upon the receipt or
resale of any Common Stock underlying such Option, must be paid to the Company,
and (ii) the Option shall terminate and any unexercised portion of such Option
(whether or not vested) shall be forfeited, if (a) a Termination of Employment,
Termination of Consultancy or Termination of Directorship occurs prior to a
specified date, or within a specified time period following receipt or exercise
of the

III-12
<PAGE>
Option, or (b) the recipient at any time, or during a specified time period,
engages in any activity in competition with the Company, or which is inimical,
contrary or harmful to the interests of the Company, as further defined by the
Committee (or the Board, as applicable).

7.8 LIMITATIONS APPLICABLE TO SECTION 16 PERSONS AND PERFORMANCE-BASED
COMPENSATION. Notwithstanding any other provision of this Plan, this Plan, and
any Option granted to any individual who is then subject to Section 16 of the
Exchange Act, shall be subject to any additional limitations set forth in any
applicable exemptive rule under Section 16 of the Exchange Act (including any
amendment to Rule 16b-3) that are requirements for the application of such
exemptive rule. To the extent permitted by applicable law, the Plan and Options
granted hereunder shall be deemed amended to the extent necessary to conform to
such applicable exemptive rule. Furthermore, notwithstanding any other provision
of this Plan, any Option which is granted to a Section 162(m) Participant and is
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall be subject to any additional limitations set
forth in Section 162(m) of the Code (including any amendment to Section 162(m)
of the Code) or any regulations or rulings issued thereunder that are
requirements for qualification as performance-based compensation as described in
Section 162(m)(4)(C) of the Code, and this Plan shall be deemed amended to the
extent necessary to conform to such requirements.

7.9 EFFECT OF PLAN UPON OPTIONS AND COMPENSATION PLANS. The adoption of
this Plan shall not affect any other compensation or incentive plans in effect
for the Company or any Subsidiary. Nothing in this Plan shall be construed to
limit the right of the Company (i) to establish any other forms of incentives or
compensation for Employees, Directors or Consultants of the Company or any
Subsidiary or (ii) to grant or assume options or other rights otherwise than
under this Plan in connection with any proper corporate purpose including but
not by way of limitation, the grant or assumption of options in connection with
the acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, partnership, limited liability
company, firm or association.

7.10 COMPLIANCE WITH LAWS. This Plan, the granting and vesting of Options
under this Plan and the issuance and delivery of shares of Common Stock and the
payment of money under this Plan or under Options granted hereunder are subject
to compliance with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law and federal
margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
this Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and Options granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such laws, rules
and regulations.

7.11 TITLES. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of this Plan.

7.12 GOVERNING LAW. This Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Delaware without regard to conflicts of laws thereof.

* * *

I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of PriceSmart, Inc. on , 1997.

Executed on this day of , 1997.

--------------------------------------

Secretary

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<PAGE>

Exhibit 2.1

DISTRIBUTION AGREEMENT

between

PRICE ENTERPRISES, INC.

and

PRICESMART, INC.

dated as of

__________, 1997

<PAGE>

DISTRIBUTION AGREEMENT

This DISTRIBUTION AGREEMENT (this "Agreement") is made as of this ___
day of __________, 1997 between Price Enterprises, Inc., a Delaware corporation
("PEI"), and PriceSmart, Inc., a Delaware corporation and wholly-owned
subsidiary of PEI ("SpinCo").

RECITALS
WHEREAS, PEI, directly and through subsidiaries, (i) acquires,
develops and owns certain real estate assets, including shopping centers and
power centers leased to major retail tenants (as more specifically defined
herein, the "Retained Business"), (ii) holds certain other real estate-related
assets (as more specifically defined herein, the "Other Real Estate Assets"),
(iii) holds certain notes issued in connection with loans to municipalities,
agencies and other entities (as more specifically defined herein, the "Notes"),
and (iv) operates certain merchandising businesses and programs (the
"Merchandising Business," and together with the Other Real Estate Assets and the
Notes, the "SpinCo Business");

WHEREAS, the Board of Directors of PEI has determined that it is in
the best interests of PEI and the stockholders of PEI to separate the Retained
Business and the SpinCo Business and, in order to effect such separation, to
transfer to SpinCo the stock of certain PEI subsidiaries principally engaged in
the SpinCo Business and certain other assets relating principally to the SpinCo
Business (the "Asset Transfers"), and thereafter to distribute all of the
outstanding shares of common stock, par value $.0001 per share, of SpinCo to the
holders of PEI common stock (the "Distribution"); and

WHEREAS, in connection with the Distribution, PEI and SpinCo have
determined that it is necessary and desirable to set forth the principal
corporate transactions required to effect the Asset Transfers and the
Distribution, and to set forth the agreements that will govern certain matters
following the Distribution.

<PAGE>

NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:

ARTICLE I.

DEFINITIONS

Section 1.011 GENERAL. As used in this Agreement, the following
terms shall have the following meanings:

ACTION: Any action, claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.

AFFILIATE: With respect to any specified Person, any other Person
directly or indirectly controlling or controlled by, or under direct or indirect
common control with, such specified Person. For purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" shall have meanings correlative to the foregoing.
Notwithstanding the foregoing, (i) the Affiliates of PEI shall not include
SpinCo, the SpinCo Subsidiaries or any other Person which would be an Affiliate
of PEI by reason of PEI's ownership of the capital stock of SpinCo prior to the
Distribution or the fact that any officer or director of SpinCo or any of the
SpinCo Subsidiaries shall also serve as an officer or director of PEI or any of
the Retained Subsidiaries, and (ii) the Affiliates of SpinCo shall not include
PEI, the Retained Subsidiaries or any other Person which would be an Affiliate
of SpinCo by reason of PEI's ownership of the capital stock of SpinCo prior to
the Distribution or the fact that any officer or director of SpinCo or any of
the SpinCo Subsidiaries shall also serve as an officer or director of PEI or any
of the Retained Subsidiaries.

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<PAGE>

AGENT: The distribution agent appointed by PEI to distribute the
SpinCo Common Stock pursuant to the Distribution.

ASSIGNMENT AGREEMENT: The Assignment Agreement between PEI and
SpinCo, pursuant to which PEI will convey certain intellectual property rights
to SpinCo, which agreement shall be entered into on or prior to the Distribution
Date in substantially the form of Exhibit A attached hereto.

COMMISSION: The Securities and Exchange Commission.

CONVEYANCING AND ASSUMPTION INSTRUMENTS: Collectively, the various
agreements, instruments and other documents to be entered into to effect the
Asset Transfers and the assumption of Liabilities in the manner contemplated by
this Agreement and the Related Agreements.

DISTRIBUTION DATE: The date determined by the PEI Board as the date
on which the Distribution shall be effected, which Distribution Date is
contemplated by the PEI Board to occur on or about __________, 1997.

DISTRIBUTION RECORD DATE: The date established by the PEI Board as
the date for taking a record of the Holders of PEI Common Stock entitled to
participate in the Distribution, which Distribution Record Date has been
established as __________, 1997, subject to the fulfillment on or before
__________, 1997 of certain conditions to the Distribution as provided in
Section 4.02.

EMPLOYEE BENEFITS ALLOCATION AGREEMENT: The Benefits and Other
Employment Matters Allocation Agreement between PEI and SpinCo, which agreement
shall be entered into on or prior to the Distribution Date in substantially the
form of Exhibit B attached hereto.

EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.

HOLDERS: The holders of record of PEI Common Stock as of the
Distribution Record Date.

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<PAGE>

INSURANCE PROCEEDS: Those moneys (i) received by an insured from an
insurance carrier or (ii) paid by an insurance carrier on behalf of the insured,
in either case net of any applicable premium adjustment, retrospectively-rated
premium, deductible, retention, cost or reserve paid or held by or for the
benefit of such insured.

INSURED CLAIMS: Those Liabilities that, individually or in the
aggregate, are covered within the terms and conditions of any of the Policies,
whether or not subject to deductibles, co-insurance, uncollectability or
retrospectively-rated premium adjustments, but only to the extent that such
Liabilities are within applicable Policy limits, including aggregates.

LIABILITIES: Any and all debts, liabilities and obligations, absolute
or contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, including all costs and expenses
relating thereto, and including, without limitation, those debts, liabilities
and obligations arising under any law, rule, regulation, Action, threatened
Action, order or consent decree of any governmental entity or any award of any
arbitrator of any kind, and those arising under any contract, commitment or
undertaking.

NASDAQ: The National Stock Market's National Market System.

NOTES: The notes listed on Schedule 1.01(a).

OTHER REAL ESTATE ASSETS: The real estate assets listed on Schedule
1.01(b).

PEI BOARD: The Board of Directors of PEI.

PEI BOOKS AND RECORDS: The books and records (including computerized
records) of PEI and the Retained Subsidiaries and all books and records owned by
PEI and its Subsidiaries which relate to the Retained Business, are necessary to
operate the Retained Business, or are required by law to be retained by PEI,
including, without limitation, all such books and records relating to Retained
Employees, all files relating to any Action pertaining to the Retained
Liabilities, original corporate minute books, stock ledgers and certificates and
corporate seals, and all licenses, leases, agreements

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<PAGE>

and filings, relating to PEI, the Retained Subsidiaries or the Retained Business
(but not including the SpinCo Books and Records, provided that PEI shall have
access to, and shall have the right to obtain duplicate copies of, the SpinCo
Books and Records in accordance with the provisions of Article VII).

PEI COMMON STOCK: The common stock, par value $.0001 per share, of
PEI.

PEI GROUP: PEI and the Retained Subsidiaries, collectively.

PEI INITIAL CASH BALANCE: Forty Million Dollars ($40,000,000).

PEI PRO FORMA BALANCE SHEET: The Pro Forma Consolidated Balance Sheet
for PEI as of __________, 1997 attached hereto as Exhibit C.

PERSON: Any individual, corporation, partnership, association, trust,
estate or other entity or organization, including any governmental entity or
authority.

POLICIES: Insurance policies and insurance contracts of any kind
relating to the SpinCo Business or the Retained Business as conducted prior to
the Distribution Date, including without limitation primary and excess policies,
comprehensive general liability policies, automobile and workers' compensation
insurance policies, and self-insurance and captive insurance company
arrangements, together with the rights, benefits and privileges thereunder.

PRIVILEGES: All privileges that may be asserted under applicable law,
including, without limitation, privileges arising under or relating to the
attorney-client relationship (including but not limited to the attorney-client
and work product privileges), the accountant-client privilege, and privileges
relating to internal evaluative processes.

PRIVILEGED INFORMATION: All Information as to which PEI, SpinCo or
any of their Subsidiaries are entitled to assert the protection of a Privilege.

RELATED AGREEMENTS: All of the agreements, instruments,
understandings, assignments or other arrangements which are entered into in
connection with the transactions contemplated hereby and which are set forth in
a writing, including, without limitation (i) the Conveyancing and

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<PAGE>

Assumption Instruments, (ii) the Employee Benefits Allocation Agreement, (iii)
the Tax Sharing Agreement, (iv) the Assignment Agreement, and (v) the
Transitional Services Agreements.

RETAINED ASSETS: The assets of PEI other than the SpinCo Assets,
including without limitation (i) the capital stock of the Retained Subsidiaries,
(ii) assets relating to the Retained Business, determined on a basis consistent
with the determination of assets included on the PEI Pro Forma Balance Sheet (as
reflected in the "Distribution Pro Forma" column), (iii) all of the assets
expressly allocated to PEI or any of the Retained Subsidiaries under this
Agreement or the Related Agreements, including those set forth on Schedule
1.01(c), and (iv) any other assets of PEI and its Affiliates relating to the
Retained Business.

RETAINED BUSINESS: The businesses conducted by PEI and its
Subsidiaries pursuant to or utilizing the Retained Assets, including without
limitation the acquisition, development and ownership of real estate assets,
including shopping centers and power centers leased to major retail tenants.

RETAINED EMPLOYEES: The employees listed on Schedule 1.01(d).

RETAINED LIABILITIES: (i) All of the Liabilities arising out of or in
connection with the Retained Assets or the Retained Business, determined on a
basis consistent with the determination of the Liabilities of PEI included on
the PEI Pro Forma Balance Sheet (as reflected in the "Distribution Pro Forma"
column), (ii) all of the Liabilities of PEI under, or to be retained or assumed
by PEI or any of the Retained Subsidiaries pursuant to, this Agreement or any of
the Related Agreements, including those set forth on Schedule 1.01(e), and (iii)
all Liabilities for the payment of outstanding drafts of PEI attributable to the
Retained Business existing as of the Distribution Date.

RETAINED POLICIES: All Policies, current or past, which are owned or
maintained by or on behalf of any member of the PEI Group (or any of its
predecessors) which relate to the Retained Business but do not relate to the
SpinCo Business.

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<PAGE>

RETAINED SUBSIDIARIES: Price Real Estate, Inc., a Delaware
corporation, and Price Self Storage, L.L.C., a Delaware limited liability
company.

SHARED POLICIES: All Policies, current or past, which are owned or
maintained by or on behalf of PEI or any of its Subsidiaries or their respective
predecessors which relate to both the Retained Business and the SpinCo Business,
and all other Policies not constituting SpinCo Policies or Retained Policies.

SPINCO BOARD: The Board of Directors of SpinCo.

SPINCO BOOKS AND RECORDS: The books and records (including
computerized records) of SpinCo and the SpinCo Subsidiaries and all books and
records owned by PEI and its Subsidiaries which relate to the SpinCo Business or
are necessary to operate the SpinCo Business, including, without limitation, all
such books and records relating to SpinCo Employees, all files relating to any
Action being assumed by SpinCo as part of the SpinCo Liabilities, original
corporate minute books, stock ledgers and certificates and corporate seals, and
all licenses, leases, agreements and filings, relating to SpinCo, the SpinCo
Subsidiaries or the SpinCo Business (but not including the PEI Books and
Records, provided that SpinCo shall have access to, and have the right to obtain
duplicate copies of, the PEI Books and Records in accordance with the provisions
of Article VII).

SPINCO BYLAWS: The Bylaws of SpinCo, substantially in the form of
Exhibit D, to be in effect at the Distribution Date.

SPINCO CERTIFICATE: The Restated Certificate of Incorporation of
SpinCo, substantially in the form of Exhibit E, to be in effect at the
Distribution Date.

SPINCO COMMON STOCK: The common stock, par value $.0001 per share, of
SpinCo.

SPINCO EMPLOYEES: All of the PEI employees at the time of the
Distribution, other than the Retained Employees.

SPINCO GROUP: SpinCo and the SpinCo Subsidiaries, collectively.

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<PAGE>

SPINCO LIABILITIES: (i) All of the Liabilities of the SpinCo Group
under, or to be retained or assumed by SpinCo or any of the SpinCo Subsidiaries
pursuant to, this Agreement or any of the Related Agreements, including those
set forth on Schedule 1.01(f), (ii) all Liabilities arising out of or in
connection with any lawsuits relating to the Distribution (other than those
Liabilities relating to employee claims which shall be allocated pursuant to the
Employee Benefits Allocation Agreement), (iii) all Liabilities for payment of
outstanding drafts of PEI attributable to the SpinCo Business existing as of the
Distribution Date, (iv) all Liabilities arising out of or in connection with any
of the SpinCo Assets or the SpinCo Business, determined on a basis consistent
with the determination of the Liabilities of SpinCo included on the SpinCo Pro
Forma Balance Sheet (as reflected in the "Distribution Pro Forma" column), and
(v) all other Liabilities of PEI not constituting Retained Liabilities.

SPINCO POLICIES: All Policies, current or past, which are owned or
maintained by or on behalf of PEI or any of its Affiliates or predecessors,
which relate to the SpinCo Business but do not relate to the Retained Business,
and which Policies are either maintained by the SpinCo Group or assignable to
the SpinCo Group.

SPINCO PRO FORMA BALANCE SHEET: The Pro Forma Consolidated Balance
Sheet for SpinCo as of __________, 1997 attached hereto as Exhibit F.

SPINCO SUBSIDIARIES: The Transferred Subsidiaries and all
Subsidiaries of SpinCo or the Transferred Subsidiaries at the time of the
Distribution.

SUBSIDIARY: With respect to any Person, (a) any corporation of which
at least a majority in interest of the outstanding voting stock (having by the
terms thereof voting power under ordinary circumstances to elect a majority of
the directors of such corporation, irrespective of whether or not at the time
stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly,

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<PAGE>

owned or controlled by such Person, by one or more Subsidiaries of such Person,
or by such Person and one or more of its Subsidiaries, or (b) any non-corporate
entity in which such Person, one or more Subsidiaries of such Person, or such
Person and one or more Subsidiaries of such Person, directly or indirectly, at
the date of determination thereof, has at least majority ownership interest.

TAX SHARING AGREEMENT: The Tax Sharing Agreement between SpinCo and
PEI, which agreement shall be entered into on or prior to the Distribution Date
in substantially the form of Exhibit G attached hereto.

TRANSFERRED SUBSIDIARIES: The Subsidiaries identified on Schedule
1.01(g).

TRANSFERRED SUBSIDIARY STOCK: All of the issued and outstanding
capital stock of the Transferred Subsidiaries.

TRANSITIONAL SERVICES AGREEMENTS: The agreements to be entered into
between PEI and SpinCo on or prior to the Distribution Date, providing for
furnishing of certain services by SpinCo after the Distribution Date, in
substantially the forms of the following: the Employee Benefits Administration
Agreement attached hereto as Exhibit H and the Tax Administration Agreement
attached hereto as Exhibit I.

Section 1.02. TERMS DEFINED ELSEWHERE IN AGREEMENT.

Each of the following terms is defined in the Section set forth
opposite such term:

TERM SECTION
---- -------

Asset Transfers Recitals
Consents 4.01(c)
Distribution Recitals
Indemnifiable Loss 5.02
Indemnifying Party 5.03
Indemnitee 5.03
Information 7.02
Merchandising Business Recitals
PEI Recitals
PEI Cash 2.06(a)
PEI Indemnitees 5.02

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<PAGE>

Pending Action 5.04(h)
Remaining Cash 2.06(c)
SpinCo Recitals
SpinCo Assets 2.01
SpinCo Business Recitals
SpinCo Indemnitees 5.01
Third-Party Claim 5.04(a)

ARTICLE II.

TRANSFER OF ASSETS

Section 2.01 TRANSFER OF ASSETS TO SPINCO. Prior to the Distribution
Date, PEI shall take or cause to be taken all actions necessary to cause the
transfer, assignment, delivery and conveyance to SpinCo of all of PEI's and its
Subsidiaries' right, title and interest in the SpinCo Assets. The "SpinCo
Assets" shall consist of the following assets:

(a) the Transferred Subsidiary Stock;
(b) the Other Real Estate Assets;
(c) the Notes;
(d) the PEI Cash, other than the PEI Initial Cash Balance;
(e) the trademarks, servicemarks, goodwill and other intangible
properties and rights to be conveyed to SpinCo pursuant to the Assignment
Agreement;
(f) the SpinCo Books and Records;
(g) all of the other assets to be assigned to SpinCo under this
Agreement or the Related Agreements; and
(h) all other assets relating to the SpinCo Business, determined on a
basis consistent with the determination of the assets included on the SpinCo Pro
Forma Balance Sheet (as reflected in the "Distribution Pro Forma" column).

Section 2.02 TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTION. To
the extent that any transfers contemplated by this Article II shall not have
been fully effected on the Distribution Date,

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<PAGE>

the parties shall cooperate to effect such transfers as promptly as shall be
practicable following the Distribution Date. Nothing herein shall be deemed to
require the transfer of any assets or the assumption of any Liabilities which by
their terms or operation of law cannot be transferred or assumed; PROVIDED,
HOWEVER, that PEI and SpinCo and their respective Subsidiaries and Affiliates
shall cooperate in seeking to obtain any necessary consents or approvals for the
transfer of all assets and Liabilities contemplated to be transferred pursuant
to this Article II. In the event that any such transfer of assets or
Liabilities has not been consummated effective as of the Distribution Date, the
party retaining such asset or Liability shall thereafter hold such asset in
trust for the use and benefit of the party entitled thereto (at the expense of
the party entitled thereto) and retain such Liability for the account of the
party by whom such Liability is to be assumed pursuant hereto, and take such
other actions as may be reasonably required in order to place the parties,
insofar as reasonably possible, in the same position as would have existed had
such asset been transferred or such Liability been assumed as contemplated
hereby. As and when any such asset or Liability becomes transferable, such
transfer and assumption shall be effected forthwith. The parties agree that,
except as set forth in this Section 2.02, as of the Distribution Date, each
party hereto shall be deemed to have acquired complete and sole beneficial
ownership over all of the assets, together with all rights, powers and
privileges incidental thereto, and shall be deemed to have assumed in accordance
with the terms of this Agreement all of the Liabilities, and all duties,
obligations and responsibilities incidental thereto, which such party is
entitled to acquire or required to assume pursuant to the terms of this
Agreement.

Section 2.03 COOPERATION RE: ASSETS. In the case that at any time
after the Distribution Date, SpinCo reasonably determines that any of the
Retained Assets are essential for the conduct of the SpinCo Business, or PEI
reasonably determines that any of the SpinCo Assets are essential for the
conduct of the Retained Business, and the nature of such assets makes it
impracticable for SpinCo or PEI, as the case may be, to obtain substitute assets
or to make alternative

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<PAGE>

arrangements on commercially reasonable terms to conduct their respective
businesses, and reasonable provisions for the use thereof are not already
included in the Related Agreements, then SpinCo (with respect to the SpinCo
Assets) and PEI (with respect to the Retained Assets) shall cooperate to make
such assets available to the other party on commercially reasonable terms, as
may be reasonably required for such party to maintain normal business operations
(provided that such assets shall be required to be made available only until
such time as the other party may reasonably obtain substitute assets or make
alternative arrangements on commercially reasonable terms to permit it to
maintain normal business operations).

Section 2.04 NO REPRESENTATIONS OR WARRANTIES; CONSENTS. Each of the
parties hereto understands and agrees that no party hereto is, in this Agreement
or in any other agreement or document contemplated by this Agreement or
otherwise, representing or warranting in any way (i) as to the value or freedom
from encumbrance of, or any other matter concerning, any assets of such party or
(ii) as to the legal sufficiency to convey title to any asset transferred
pursuant to this Agreement or any Related Agreement, including, without
limitation, any Conveyancing and Assumption Instruments. It is also agreed and
understood that there are no warranties, express or implied, as to the
merchantability or fitness of any of the assets either transferred to or
retained by the parties, as the case may be, and all such assets shall be "as
is, where is" and "with all faults" (provided, however, that the absence of
warranties shall have no effect upon the allocation of liabilities under this
Agreement). Similarly, each party hereto understands and agrees that no party
hereto is, in this Agreement or in any other agreement or document contemplated
by this Agreement or otherwise, representing or warranting in any way that the
obtaining of any consents or approvals, the execution and delivery of any
amendatory agreements and the making of any filings or applications contemplated
by this Agreement will satisfy the provisions of any or all applicable laws or
judgments or other instruments or agreements relating to such assets.
Notwithstanding the

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<PAGE>

foregoing, the parties shall use their good faith efforts to obtain all consents
and approvals, to enter into all reasonable amendatory agreements and to make
all filings and applications which may be reasonably required for the
consummation of the transactions contemplated by this Agreement, and shall take
all such further reasonable actions as shall be reasonably necessary to preserve
for each of the SpinCo Group and the PEI Group, to the greatest extent feasible,
the economic and operational benefits of the allocation of assets and
liabilities provided for in this Agreement. In case at any time after the
Distribution Date any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party to
this Agreement shall take all such necessary or desirable action.

Section 2.05 CONVEYANCING AND ASSUMPTION INSTRUMENTS. In connection
with the Asset Transfers and the assumptions of Liabilities contemplated by this
Agreement, the parties shall execute or cause to be executed by the appropriate
entities the Conveyancing and Assumption Instruments in such forms as the
parties shall reasonably agree, including the transfer of real property with
deeds as may be appropriate, and the assignment of trademarks and other
intellectual property rights. The transfer of capital stock shall be effected
by means of delivery of stock certificates and executed stock powers and
notation on the stock record books of the corporation or other legal entities
involved and, to the extent required by applicable law, by notation on public
registries.

Section 2.06. CASH ALLOCATION; CASH MANAGEMENT.

(a) CASH ALLOCATION ON THE DISTRIBUTION DATE. As of the close of
business on the Distribution Date, PEI shall retain, out of the domestic and
international cash bank balances and short-term investments of PEI and its
Subsidiaries recorded on the books of PEI and its Subsidiaries (the "PEI Cash"),
an amount of PEI Cash equal to the PEI Initial Cash Balance, and SpinCo shall be
allocated all other PEI Cash. To the extent practicable, the parties shall use
their reasonable best efforts to take all necessary action to cause the cash
balances of PEI and the Retained Subsidiaries

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<PAGE>

immediately prior to consummation of the Distribution to equal the PEI Initial
Cash Balance. In the event the actual cash balances of PEI and the Retained
Subsidiaries as of the Distribution are less than the PEI Initial Cash Balance,
the amount of the deficiency shall be recorded in the accounts of PEI and SpinCo
as of the Distribution Date as a payable from SpinCo to PEI (which payable will
be paid as promptly as practicable following the Distribution); and in the event
the actual cash balances of PEI and the Retained Subsidiaries as of the
Distribution Date exceed the PEI Initial Cash Balance, the amount of such excess
shall be recorded in the accounts of PEI and SpinCo as of the Distribution Date
as a payable from PEI to SpinCo (which payable will be paid as promptly as
practicable following the time it is determinable).

(b) CASH MANAGEMENT AFTER THE DISTRIBUTION DATE. SpinCo shall
establish and maintain a separate cash management system and accounting records
with respect to the SpinCo Business effective as of 12:01 a.m. on the day
following the Distribution Date; thereafter, (i) any payments by PEI or the
Retained Subsidiaries on behalf of SpinCo or the SpinCo Subsidiaries in
connection with the SpinCo Business (including, without limitation, any such
payments in respect of Liabilities or other obligations of SpinCo or the SpinCo
Subsidiaries under the Employee Benefits Allocation Agreement) shall be recorded
in the accounts of the SpinCo Group as a payable from the SpinCo Group to the
PEI Group; (ii) any payments by SpinCo or the SpinCo Subsidiaries on behalf of
PEI or the Retained Subsidiaries in connection with the Retained Business
(including, without limitation, any such payments in respect to Liabilities or
other obligations of PEI or the Retained Subsidiaries under the Employee
Benefits Allocation Agreement) shall be recorded in the accounts of the PEI
Group as a payable from the PEI Group to the SpinCo Group; (iii) any cash
payments received by PEI and the Retained Subsidiaries relating to the SpinCo
Business or the SpinCo Assets shall be recorded in the accounts of the PEI Group
as a payable from the PEI Group to the SpinCo Group; (iv) any cash payments
received by SpinCo or the SpinCo Subsidiaries relating to the Retained

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<PAGE>

Business or the Retained Assets shall be recorded in the accounts of the SpinCo
Group as a payable from the SpinCo Group to the PEI Group; (v) SpinCo and PEI
shall make adjustments for late deposits, checks returned for not sufficient
funds and other post-Distribution Date transactions as shall be reasonable under
the circumstances consistent with the purpose and intent of this Agreement; and
(vi) the net balance due to the PEI Group or the SpinCo Group, as the case may
be, in respect of the aggregate amounts of clauses (i), (ii), (iii), (iv) and
(v) shall be paid by SpinCo or PEI, as appropriate, as promptly as practicable.
For purposes of this Section 2.06(b), the parties contemplate that the Retained
Business and the SpinCo Business, including but not limited to the
administration of accounts payable and accounts receivable, will be conducted in
the normal course.

(c) All transactions contemplated in this Section 2.06 shall be
subject to audit by the parties, and any dispute thereunder shall be resolved by
Ernst & Young LLP (or, if Ernst & Young LLP is not available, by such other
independent firm of certified public accountants mutually acceptable to PEI and
SpinCo), whose decision shall be final and unappealable.

ARTICLE III.

ASSUMPTION AND SATISFACTION OF LIABILITIES

Section 3.01. ASSUMPTION AND SATISFACTION OF LIABILITIES. Except as
set forth in the Employee Benefits Allocation Agreement, the Tax Sharing
Agreement or the other Related Agreements, effective as of and after the
Distribution Date, (a) SpinCo shall, and/or shall cause the SpinCo Subsidiaries
to, assume, pay, perform and discharge in due course all of the SpinCo
Liabilities and (b) PEI shall, and/or shall cause the Retained Subsidiaries to,
pay, perform and discharge in due course all of the Retained Liabilities.

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<PAGE>

ARTICLE IV.

THE DISTRIBUTION

Section 4.01. COOPERATION PRIOR TO THE DISTRIBUTION.

(a) PEI and SpinCo shall cooperate in preparing, filing with the
Commission and causing to become effective any registration statements or
amendments thereof which are appropriate to reflect the establishment of, or
amendments to, any employee benefit plans and other plans contemplated by the
Employee Benefits Allocation Agreement.

(b) PEI and SpinCo shall take all such action as may be necessary or
appropriate under the securities or blue sky laws of states or other political
subdivisions of the United States in connection with the transactions
contemplated by this Agreement and the Related Agreements.

(c) PEI and SpinCo shall use all reasonable efforts to obtain any
third-party consents or approvals necessary or desirable in connection with the
transactions contemplated hereby ("Consents").

(d) PEI and SpinCo will use all reasonable efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, all things necessary
or desirable under applicable law, to consummate the transactions contemplated
under this Agreement and the Related Agreements.

Section 4.02. PEI BOARD ACTION; CONDITIONS PRECEDENT TO THE
DISTRIBUTION. The PEI Board shall, in its discretion, establish any appropriate
procedures in connection with the Distribution. In no event shall the
Distribution occur unless the following conditions shall have been satisfied:

(a) the transactions contemplated by Section 2.01 shall have been
consummated in all material respects;

(b) the SpinCo Board, comprised as contemplated by Section 6.01,
shall have been elected by PEI, as sole stockholder of SpinCo, and the SpinCo
Certificate and SpinCo Bylaws shall have been adopted and shall be in effect;

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<PAGE>

(c) PEI and SpinCo shall have obtained all Consents, the failure of
which to obtain would, in the determination of the PEI Board, have a material
adverse effect on PEI or SpinCo;

(d) the Registration Statement on Form 10 under the Exchange Act
filed by SpinCo shall have been declared effective by the Commission;

(e) the SpinCo Common Stock shall have been approved for trading on
Nasdaq subject to official notice of issuance; and

(f) PEI and SpinCo shall have entered into the Related Agreements;
PROVIDED, HOWEVER, that (i) any such condition may be waived by the PEI Board in
its sole discretion, and (ii) the satisfaction of such conditions shall not
create any obligation on the part of PEI or any other party hereto to effect the
Distribution or in any way limit PEI's power of termination set forth in Section
9.07 or alter the consequences of any such termination from those specified in
such Section.

Section 4.03. THE DISTRIBUTION. On the Distribution Date, subject to
the conditions and rights of termination set forth in this Agreement, PEI shall
deliver to the Agent a share certificate representing all of the then
outstanding shares of SpinCo Common Stock owned by PEI and shall instruct the
Agent to distribute, on or as soon as practicable following the Distribution
Date, such SpinCo Common Stock to the Holders. SpinCo agrees to provide all
share certificates that the Agent shall require in order to effect the
Distribution.

Section 4.04. CASH IN LIEU OF FRACTIONAL SHARES. No certificate or
scrip representing fractional shares of SpinCo Common Stock shall be issued as
part of the Distribution and in lieu thereof, each holder of PEI Common Stock
who would otherwise be entitled to receive a fractional share of SpinCo Common
Stock will receive cash for such fractional share. PEI shall instruct the Agent
to determine the number of whole shares and fractional shares of SpinCo Common
Stock

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allocable to each holder of record of PEI Common Stock as of the Distribution
Record Date. PEI shall instruct the Agent to aggregate all such fractional
shares into whole shares and sell the whole shares obtained thereby in the open
market as soon as practicable following the Distribution Date at then prevailing
prices on behalf of Holders who otherwise would be entitled to receive
fractional share interests and to distribute to each such Holder such Holder's
ratable share of the proceeds of such sale as soon as practicable after the
Distribution Date. PEI shall bear the costs of commissions incurred in
connection with such sales.

ARTICLE V.

INDEMNIFICATION

Section 5.01. INDEMNIFICATION BY PEI. Except as otherwise
expressly set forth in a Related Agreement, PEI shall indemnify, defend and
hold harmless SpinCo and each of the SpinCo Subsidiaries, and each of their
respective directors, officers, employees, agents and Affiliates and each of
the heirs, executors, successors and assigns of any of the foregoing (the
"SpinCo Indemnitees") from and against the Retained Liabilities and any and
all losses, Liabilities, damages, including, without limitation, the costs
and expenses of any and all Actions, threatened Actions, demands,
assessments, judgments, settlements and compromises relating to the Retained
Liabilities and attorneys' fees and any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any such
Actions or threatened Actions (collectively, "SpinCo Indemnifiable Losses"
and, individually, a "SpinCo Indemnifiable Loss") of the SpinCo Indemnitees
arising out of or due to the failure or alleged failure of PEI or any of its
Affiliates prior to or after the Distribution Date to pay, perform or
otherwise discharge in due course any of the Retained Liabilities.

Section 5.02. INDEMNIFICATION BY SPINCO. Except as otherwise
expressly set forth in a Related Agreement, SpinCo shall indemnify, defend and
hold harmless PEI and each of the Retained Subsidiaries, and each of their
directors, officers, employees, agents and Affiliates and each

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of the heirs, executors, successors and assigns of any of the foregoing (the
"PEI Indemnitees") from and against the SpinCo Liabilities and any and all
losses, Liabilities, damages, including, without limitation, the costs and
expenses of any and all Actions, threatened Actions, demands, assessments,
judgments, settlements and compromises relating to the SpinCo Liabilities and
attorneys' fees and any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any such Actions or threatened
Actions (collectively, "PEI Indemnifiable Losses" and, individually, a "PEI
Indemnifiable Loss") of the PEI Indemnitees arising out of or due to the
failure or alleged failure of SpinCo or any of its Affiliates prior to or
after the Distribution Date to pay, perform or otherwise discharge in due
course any of the SpinCo Liabilities. The "SpinCo Indemnifiable Losses" and
the "PEI Indemnifiable Losses" are collectively referred to as the
"Indemnifiable Losses."

Section 5.03. INSURANCE PROCEEDS. The amount which any party (an
"Indemnifying Party") is or may be required to pay to any other Person (an
"Indemnitee") pursuant to Section 5.01 or Section 5.02 shall be reduced
(including, without limitation, retroactively) by any Insurance Proceeds or
other amounts actually recovered by or on behalf of such Indemnitee in reduction
of the related Indemnifiable Loss. If an Indemnitee shall have received the
payment required by this Agreement from an Indemnifying Party in respect of an
Indemnifiable Loss and shall subsequently actually receive Insurance Proceeds,
or other amounts in respect of such Indemnifiable Loss as specified above, then
such Indemnitee shall pay to such Indemnifying Party a sum equal to the amount
of such Insurance Proceeds or other amounts actually received.

Section 5.04. PROCEDURE FOR INDEMNIFICATION.

(a) Except as may be set forth in a Related Agreement, if an
Indemnitee shall receive notice or otherwise learn of the assertion by a Person
(including, without limitation, any governmental entity) who is not a party to
this Agreement or to any of the Related Agreements of any claim or of the
commencement by any such Person of any Action (a "Third-Party Claim") with

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<PAGE>

respect to which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Agreement, such Indemnitee shall give such
Indemnifying Party written notice thereof promptly after becoming aware of such
Third-Party Claim; PROVIDED that the failure of any Indemnitee to give notice as
required by this Section 5.04 shall not relieve the Indemnifying Party of its
obligations under this Article V, except to the extent that such Indemnifying
Party is prejudiced by such failure to give notice. Such notice shall describe
the Third-Party Claim in reasonable detail, and shall indicate the amount
(estimated if necessary) of the Indemnifiable Loss that has been or may be
sustained by such Indemnitee.

(b) An Indemnifying Party may elect to defend or to seek to settle or
compromise, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel, any Third-Party Claim, provided that the Indemnifying Party
must confirm in writing that it agrees that the Indemnitee is entitled to
indemnification hereunder in respect of such Third-Party Claim. Within 30 days
of the receipt of notice from an Indemnitee in accordance with Section 5.04(a)
(or sooner, if the nature of such Third-Party Claim so requires), the
Indemnifying Party shall notify the Indemnitee of its election whether to assume
responsibility for such Third-Party Claim (provided that if the Indemnifying
Party does not so notify the Indemnitee of its election within 30 days after
receipt of such notice from the Indemnitee, the Indemnifying Party shall be
deemed to have elected not to assume responsibility for such Third-Party Claim),
and such Indemnitee shall cooperate in the defense or settlement or compromise
of such Third-Party Claim. After notice from an Indemnifying Party to an
Indemnitee of its election to assume responsibility for a Third-Party Claim,
such Indemnifying Party shall not be liable to such Indemnitee under this
Article V for any legal or other expenses (except expenses approved in advance
by the Indemnifying Party) subsequently incurred by such Indemnitee in
connection with the defense thereof; PROVIDED that if the defendants in any such
claim include both the Indemnifying Party and one or more Indemnitees and in
such

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<PAGE>

Indemnitees' reasonable judgment a conflict of interest between such Indemnitees
and such Indemnifying Party exists in respect of such claim, such Indemnitees
shall have the right to employ separate counsel and in that event the reasonable
fees and expenses of such separate counsel (but not more than one separate
counsel reasonably satisfactory to the Indemnifying Party) shall be paid by such
Indemnifying Party. If an Indemnifying Party elects not to assume
responsibility for a Third-Party Claim (which election may be made only in the
event of a good faith dispute that a claim was inappropriately tendered under
Section 5.01 or 5.02, as the case may be) such Indemnitee may defend or (subject
to the following sentence) seek to compromise or settle such Third-Party Claim.
Notwithstanding the foregoing, an Indemnitee may not settle or compromise any
claim without prior written notice to the Indemnifying Party, which shall have
the option within ten days following the receipt of such notice (i) to
disapprove the settlement and assume all past and future responsibility for the
claim, including reimbursing the Indemnitee for prior expenditures in connection
with the claim, or (ii) to disapprove the settlement and continue to refrain
from participation in the defense of the claim, in which event the Indemnifying
Party shall have no further right to contest the amount or reasonableness of the
settlement if the Indemnitee elects to proceed therewith, or (iii) to approve
the amount of the settlement, reserving the Indemnifying Party's right to
contest the Indemnitee's right to indemnity, or (iv) to approve and agree to pay
the settlement. In the event the Indemnifying Party makes no response to such
written notice from the Indemnitee, the Indemnifying Party shall be deemed to
have elected option (ii).

(c) If an Indemnifying Party chooses to defend or to seek to
compromise any Third-Party Claim, the Indemnitee shall make available to such
Indemnifying Party any personnel and any books, records or other documents
within its control or which it otherwise has the ability to make available that
are necessary or appropriate for such defense.

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(d) Notwithstanding anything else in this Section 5.04 to the
contrary, an Indemnifying Party shall not settle or compromise any Third-Party
Claim unless such settlement or compromise contemplates as an unconditional term
thereof the giving by such claimant or plaintiff to the Indemnitee of a written
release from all liability in respect of such Third-Party Claim (and provided
further that such settlement may not provide for any non-monetary relief by
Indemnitee without the written consent of Indemnitee). In the event the
Indemnitee shall notify the Indemnifying Party in writing that such Indemnitee
declines to accept any such settlement or compromise, such Indemnitee may
continue to contest such Third-Party Claim, free of any participation by such
Indemnifying Party, at such Indemnitee's sole expense. In such event, the
obligation of such Indemnifying Party to such Indemnitee with respect to such
Third-Party Claim shall be equal to (i) the costs and expenses of such
Indemnitee prior to the date such Indemnifying Party notifies such Indemnitee of
the offer to settle or compromise (to the extent such costs and expenses are
otherwise indemnifiable hereunder) PLUS (ii) the lesser of (A) the amount of any
offer of settlement or compromise which such Indemnitee declined to accept and
(B) the actual out-of-pocket amount such Indemnitee is obligated to pay
subsequent to such date as a result of such Indemnitee's continuing to pursue
such Third-Party Claim.

(e) Any claim on account of an Indemnifiable Loss which does not
result from a Third-Party Claim shall be asserted by written notice given by the
Indemnitee to the applicable Indemnifying Party. Such Indemnifying Party shall
have a period of 15 days after the receipt of such notice within which to
respond thereto. If such Indemnifying Party does not respond within such 15-day
period, such Indemnifying Party shall be deemed to have refused to accept
responsibility to make payment. If such Indemnifying Party does not respond
within such 15-day period or rejects such claim in whole or in part, such
Indemnitee shall be free to pursue such remedies as may be available to such
party under applicable law or under this Agreement.

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<PAGE>

(f) In addition to any adjustments required pursuant to Section 5.03,
if the amount of any Indemnifiable Loss shall, at any time subsequent to the
payment required by this Agreement, be reduced by recovery, settlement or
otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnitee to the
Indemnifying Party.

(g) In the event of payment by an Indemnifying Party to any
Indemnitee in connection with any Third-Party Claim, such Indemnifying Party
shall be subrogated to and shall stand in the place of such Indemnitee as to any
events or circumstances in respect of which such Indemnitee may have any right
or claim relating to such Third-Party Claim against any claimant or plaintiff
asserting such Third-Party Claim. Such Indemnitee shall cooperate with such
Indemnifying Party in a reasonable manner, and at the cost and expense of such
Indemnifying Party, in prosecuting any subrogated right or claim.

(h) Notwithstanding anything else in this Section 5.04 to the
contrary, with respect to any Action pending at the time of the Distribution (a
"Pending Action") with respect to which an Indemnifying Party may be obligated
to provide indemnification pursuant to this Agreement, PEI or SpinCo shall, at
the request of the other party, cause the Retained Employee(s) or SpinCo
Employee(s), as the case may be, who were handling the defense, compromise or
settlement of such Pending Action prior to the Distribution to continue to
handle such defense, compromise or settlement following the Distribution
(subject to the last two sentences of subsection (b) above). If such employees
are employed by the Indemnitee, the Indemnitee shall keep the Indemnifying Party
reasonably informed of the progress of, and the Indemnifying Party shall
cooperate in, such defense, compromise or settlement.

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<PAGE>

Section 5.05. REMEDIES CUMULATIVE. The remedies provided in this
Article V shall be cumulative and shall not preclude assertion by any Indemnitee
of any other rights or the seeking of any and all other remedies against any
Indemnifying Party.

Section 5.06. SURVIVAL OF INDEMNITIES. The obligations of each of
SpinCo and PEI under this Article V shall survive the sale or other transfer by
it of any assets or businesses or the assignment by it of any Liabilities with
respect to any Indemnifiable Loss of the other related to such assets,
businesses or Liabilities.

ARTICLE VI.

CERTAIN ADDITIONAL MATTERS

Section 6.01. SPINCO BOARD. SpinCo and PEI shall take all actions
which may be required to constitute, effective as of the Distribution Date, the
board of directors of SpinCo with the persons listed on Schedule 1.01(h).

Section 6.02. EMPLOYEE MATTERS.

(a) On the Distribution Date, except to the extent retained or
assumed by PEI under this Agreement, the Employee Benefits Allocation Agreement
or any other agreement relating to the Distribution, SpinCo shall retain or
assume, as the case may be, responsibility as employer for the SpinCo Employees.
On the Distribution Date, except to the extent retained or assumed by SpinCo
under this Agreement, the Employee Benefits Allocation Agreement or any other
agreement relating to the Distribution, PEI shall retain or assume, as the case
may be, responsibility as employer for the Retained Employees.

(b) SpinCo shall cause all of the SpinCo Employees to resign,
effective as of the Distribution Date, from all positions as officers or
employees of PEI or any of the Retained Subsidiaries in which they serve. PEI
shall cause all of the Retained Employees to resign, effective

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<PAGE>

as of the Distribution Date, from all positions as officers or employees of
SpinCo or any of its Subsidiaries in which they serve.

Section 6.03. CERTIFICATE AND BYLAWS. On or prior to the
Distribution Date, SpinCo shall adopt the SpinCo Certificate and the SpinCo
Bylaws, and shall file the SpinCo Certificate with the Secretary of State of the
State of Delaware.

ARTICLE VII.

ACCESS TO INFORMATION AND SERVICES

Section 7.01. PROVISION OF CORPORATE RECORDS.

(a) Except as may otherwise be provided in a Related Agreement, PEI
shall arrange as soon as practicable following the Distribution Date, to the
extent not previously delivered in connection with the transactions contemplated
in Article II, for the transportation (at SpinCo's cost) to SpinCo of the SpinCo
Books and Records in its possession, except to the extent such items are already
in the possession of SpinCo or a SpinCo Subsidiary. The SpinCo Books and
Records shall be the property of SpinCo, but shall be available to PEI for
review and duplication until PEI shall notify SpinCo in writing that such
records are no longer of use to PEI.

(b) Except as otherwise provided in a Related Agreement, SpinCo shall
arrange as soon as practicable following the Distribution Date, to the extent
not previously delivered in connection with the transactions contemplated in
Article II, for the transportation (at PEI's cost) to PEI of the PEI Books and
Records in its possession, except to the extent such items are already in the
possession of PEI. The PEI Books and Records shall be the property of PEI, but
shall be available to SpinCo for review and duplication until SpinCo shall
notify PEI in writing that such records are no longer of use to SpinCo.

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<PAGE>

Section 7.02. ACCESS TO INFORMATION. Except as otherwise provided in
a Related Agreement, from and after the Distribution Date, PEI shall afford to
SpinCo and its authorized accountants, counsel and other designated
representatives reasonable access (including using reasonable efforts to give
access to persons or firms possessing information) and duplicating rights during
normal business hours to all records, books, contracts, instruments, computer
data and other data and information relating to pre-Distribution operations
(collectively, "Information") within PEI's possession insofar as such access is
reasonably required by SpinCo for the conduct of its business, subject to
appropriate restrictions for classified or Privileged Information. Similarly,
except as otherwise provided in a Related Agreement, SpinCo shall afford to PEI
and its authorized accountants, counsel and other designated representatives
reasonable access (including using reasonable efforts to give access to persons
or firms possessing information) and duplicating rights during normal business
hours to Information within SpinCo's possession, insofar as such access is
reasonably required by PEI for the conduct of its business, subject to
appropriate restrictions for classified or Privileged Information. Information
may be requested under this Article VII for the legitimate business purposes of
either party, including, without limitation, audit, accounting, claims
(including claims for indemnification hereunder), litigation and tax purposes,
as well as for purposes of fulfilling disclosure and reporting obligations and
for performing this Agreement and the transactions contemplated hereby.

Section 7.03. PRODUCTION OF WITNESSES. At all times from and after
the Distribution Date, each of SpinCo and PEI shall use reasonable efforts to
make available to the other, upon written request, its and its Subsidiaries'
officers, directors, employees and agents as witnesses to the extent that such
persons may reasonably be required in connection with any Action.

Section 7.04. REIMBURSEMENT. Except to the extent otherwise
contemplated in any

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Related Agreement, a party providing Information or witness services to the
other party under this Article VII shall be entitled to receive from the
recipient, upon the presentation of invoices therefor, payments of such amounts,
relating to supplies, disbursements and other out-of-pocket expenses (at cost)
and direct and indirect expenses of employees who are witnesses or otherwise
furnish assistance (at cost), as may be reasonably incurred in providing such
Information or witness services.

Section 7.05. RETENTION OF RECORDS. Except as otherwise required by
law or agreed to in a Related Agreement or otherwise in writing, each of PEI and
SpinCo may destroy or otherwise dispose of any of the Information, which is
material Information and is not contained in other Information retained by PEI
or SpinCo, as the case may be, at any time after the tenth anniversary of this
Agreement, provided that, prior to such destruction or disposal, (a) it shall
provide no less than 90 or more than 120 days prior written notice to the other,
specifying in reasonable detail the Information proposed to be destroyed or
disposed of and (b) if a recipient of such notice shall request in writing prior
to the scheduled date for such destruction or disposal that any of the
Information proposed to be destroyed or disposed of be delivered to such
requesting party, the party proposing the destruction or disposal shall promptly
arrange for the delivery of such of the Information as was requested at the
expense of the party requesting such Information.

Section 7.06. CONFIDENTIALITY. Each of PEI and its Subsidiaries on
the one hand, and SpinCo and its Subsidiaries on the other hand, shall hold, and
shall cause its consultants and advisors to hold, in strict confidence, all
Information concerning the other in its possession or furnished by the other or
the other's representatives pursuant to this Agreement (except to the extent
that such Information has been (i) in the public domain through no fault of such
party or (ii) later lawfully acquired from other sources by such party), and
each party shall not release or disclose such Information to any other person,
except its auditors, attorneys, financial advisors, rating agencies, bankers and
other consultants and advisors, unless compelled to disclose by judicial or
administrative

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<PAGE>

process or, as reasonably advised by its counsel or by other requirements of
law, or unless such Information is reasonably required to be disclosed in
connection with (x) any litigation with any third-parties or litigation between
the PEI Group and the SpinCo Group, (y) any contractual agreement to which the
PEI Group or the SpinCo Group are currently parties, or (z) in exercise of
either party's rights hereunder.

Section 7.07. PRIVILEGED MATTERS. PEI and SpinCo recognize that
legal and other professional services that have been and will be provided prior
to the Distribution Date have been and will be rendered for the benefit of both
the PEI Group and the SpinCo Group and that both the PEI Group and the SpinCo
Group should be deemed to be the client for the purposes of asserting all
Privileges. To allocate the interests of each party in the Privileged
Information, the parties agree as follows:

(a) PEI shall be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information which relates
solely to the Retained Business, whether or not the Privileged Information is in
the possession of or under the control of PEI or SpinCo. PEI shall also be
entitled, in perpetuity, to control the assertion or waiver of all Privileges in
connection with Privileged Information that relates solely to the subject matter
of any claims constituting Retained Liabilities, now pending or which may be
asserted in the future, in any lawsuits or other proceedings initiated against
or by PEI, whether or not the Privileged Information is in the possession of or
under the control of PEI or SpinCo.

(b) SpinCo shall be entitled, in perpetuity, to control the assertion
or waiver of all Privileges in connection with Privileged Information which
relates solely to the SpinCo Business, whether or not the Privileged Information
is in the possession of or under the control of PEI or SpinCo. SpinCo shall
also be entitled, in perpetuity, to control the assertion or waiver of all
Privileges in connection with Privileged Information which relates solely to the
subject matter of any

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<PAGE>

claims constituting SpinCo Liabilities, now pending or which may be asserted in
the future, in any lawsuits or other proceedings initiated against or by SpinCo,
whether or not the Privileged Information is in the possession of SpinCo or
under the control of PEI or SpinCo.

(c) PEI and SpinCo agree that they shall have a shared Privilege,
with equal right to assert or waive, subject to the restrictions in this Section
7.07, with respect to all Privileges not allocated pursuant to the terms of
Sections 7.07(a) and (b). All Privileges relating to any claims, proceedings,
litigation, disputes or other matters which involve both PEI and SpinCo in
respect of which PEI and SpinCo retain any responsibility or liability under
this Agreement shall be subject to a shared Privilege.

(d) No party may waive any Privilege which could be asserted under
any applicable law, and in which the other party has a shared Privilege, without
the consent of the other party, except to the extent reasonably required in
connection with any litigation with third-parties or as provided in subsection
(e) below. Consent shall be in writing, or shall be deemed to be granted unless
written objection is made within 20 days after notice upon the other party
requesting such consent.

(e) In the event of any litigation or dispute between a member of the
PEI Group and a member of the SpinCo Group, either party may waive a Privilege
in which the other party has a shared Privilege, without obtaining the consent
of the other party, provided that such waiver of a shared Privilege shall be
effective only as to the use of Information with respect to the litigation or
dispute between the PEI Group and the SpinCo Group, and shall not operate as a
waiver of the shared Privilege with respect to third-parties.

(f) If a dispute arises between the parties regarding whether a
Privilege should be waived to protect or advance the interest of either party,
each party agrees that it shall negotiate in good faith, shall endeavor to
minimize any prejudice to the rights of the other party, and shall not

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<PAGE>

unreasonably withhold consent to any request for waiver by the other party.
Each party specifically agrees that it will not withhold consent to waiver for
any purpose except to protect its own legitimate interests.

(g) Upon receipt by any party of any subpoena, discovery or other
request which arguably calls for the production or disclosure of Information
subject to a shared Privilege or as to which the other party has the sole right
hereunder to assert a Privilege, or if any party obtains knowledge that any of
its current or former directors, officers, agents or employees have received any
subpoena, discovery or other requests which arguably calls for the production or
disclosure of such Privileged Information, such party shall promptly notify the
other party of the existence of the request and shall provide the other party a
reasonable opportunity to review the Information and to assert any rights it may
have under this Section 7.07 or otherwise to prevent the production or
disclosure of such Privileged Information.

(h) The transfer of the SpinCo Books and Records and the PEI Books
and Records and other Information between PEI and its Subsidiaries and SpinCo
and its Subsidiaries is made in reliance on the agreement of PEI and SpinCo, as
set forth in Sections 7.06 and 7.07, to maintain the confidentiality of
Privileged Information and to assert and maintain all applicable Privileges.
The access to information being granted pursuant to Sections 7.01 and 7.02, the
agreement to provide witnesses and individuals pursuant to Section 7.03 and the
transfer of Privileged Information between PEI and its Subsidiaries and SpinCo
and its Subsidiaries pursuant to this Agreement shall not be deemed a waiver of
any Privilege that has been or may be asserted under this Agreement or
otherwise.

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<PAGE>

ARTICLE VIII.

INSURANCE

Section 8.01. POLICIES AND RIGHTS INCLUDED WITHIN THE SPINCO ASSETS.
Without limiting the generality of the definition of the SpinCo Assets set forth
in Section 2.01 or the effect of Section 2.01, the SpinCo Assets shall include
(a) any and all rights of an insured party under each of the Shared Policies,
specifically including rights of indemnity and the right to be defended by or at
the expense of the insurer, with respect to all injuries, losses, liabilities,
damages and expenses incurred or claimed to have been incurred on or prior to
the Distribution Date by any party in or in connection with the conduct of the
SpinCo Business or, to the extent any claim is made against SpinCo or any of its
Subsidiaries, the Retained Business, and which injuries, losses, liabilities,
damages and expenses may arise out of insured or insurable occurrences or events
under one or more of the Shared Policies; PROVIDED, HOWEVER, that nothing in
this Section 8.01 shall be deemed to constitute (or to reflect) the assignment
of the Shared Policies, or any of them, to SpinCo, and (b) the SpinCo Policies.

Section 8.02. POST-DISTRIBUTION DATE CLAIMS. If, subsequent to
the Distribution Date, any person, corporation, firm or entity shall assert a
claim against SpinCo or any SpinCo Subsidiary with respect to any injury,
loss, liability, damage or expense incurred or claimed to have been incurred
on or prior to the Distribution Date in or in connection with the
Distribution or the conduct of the SpinCo Business or, to the extent any
claim is made against SpinCo or any of its Subsidiaries, the Retained
Business, and which injury, loss, liability, damage or expense may arise out
of insured or insurable occurrences or events under one or more of the Shared
Policies, PEI shall at the time such claim is asserted be deemed to assign,
without need of further documentation, to SpinCo any and all rights of an
insured party under the applicable Shared Policy with respect to such
asserted claim, specifically including rights of indemnity and the right to
be defended by or at the expense of the insurer; PROVIDED,

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<PAGE>

HOWEVER, that nothing in this Section 8.02 shall be deemed to constitute (or to
reflect) the assignment of the Shared Policies, or any of them, to SpinCo.

Section 8.03. ADMINISTRATION AND RESERVES.

(a) Notwithstanding the provisions of Article III, but subject to any
contrary provisions of any Related Agreement, from and after the Distribution
Date:

(i) SpinCo shall be entitled to any reserves established by PEI
or any of its Subsidiaries, or the benefit of reserves held by any
insurance carrier, with respect to the SpinCo Liabilities; and

(ii) PEI shall be entitled to any reserves established by PEI or
any of its Subsidiaries, or the benefit of reserves held by any insurance
carrier, with respect to the Retained Liabilities.

(b) INSURANCE PREMIUMS. SpinCo shall have the right but not the
obligation to pay the premiums, to the extent that PEI does not pay premiums
with respect to Retained Liabilities (retrospectively-rated or otherwise), with
respect to Shared Policies and the SpinCo Policies, as required under the terms
and conditions of the respective Policies, whereupon PEI shall forthwith
reimburse SpinCo for that portion of such premiums paid by SpinCo as are
attributable to the Retained Liabilities. PEI shall provide continued coverage
under its director and officer liability insurance policy for a period of not
less than three years for acts which took place or were alleged to have taken
place prior to the Distribution Date covering persons who were directors and
officers of PEI prior to the Distribution Date. Fifty percent of the additional
premiums, if any, for such coverage shall be reimbursed by SpinCo within 15 days
of the Distribution Date.

(c) ALLOCATION OF INSURANCE PROCEEDS. Insurance Proceeds received
with respect to claims, costs and expenses under the Policies shall be paid to
SpinCo with respect to the SpinCo Liabilities and to PEI with respect to the
Retained Liabilities. Payment of the allocable portions of

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<PAGE>

indemnity costs of Insurance Proceeds resulting from the liability policies will
be made to the appropriate party upon receipt from the insurance carrier. In
the event that the aggregate limits on any Shared Policies are exceeded, the
parties agree to provide an equitable allocation of Insurance Proceeds received
after the Distribution Date based upon their respective bona fide claims. The
parties agree to use their best efforts to cooperate with respect to insurance
matters.

Section 8.04. AGREEMENT FOR WAIVER OF CONFLICT AND SHARED DEFENSE.
In the event that Insured Claims of both SpinCo and PEI exist relating to the
same occurrence, SpinCo and PEI agree to jointly defend and to waive any
conflict of interest necessary to the conduct of that joint defense. Nothing in
this Section 8.04 shall be construed to limit or otherwise alter in any way the
indemnity obligations of the parties to this Agreement, including those created
by this Agreement, by operation of law or otherwise.

ARTICLE IX.

MISCELLANEOUS

Section 9.01. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement,
including the Schedules and Exhibits and the Related Agreements and other
agreements and documents referred to herein, shall constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and shall supersede all previous negotiations, commitments and writings
with respect to such subject matter. Notwithstanding any other provisions in
this Agreement to the contrary, in the event and to the extent that there shall
be a conflict between the provisions of this Agreement and the provisions of the
Related Agreements, the Related Agreements shall control.

Section 9.02. EXPENSES. Except as otherwise set forth in this
Agreement or any Related Agreement, all costs and expenses in connection with
the preparation, execution, delivery and implementation of this Agreement, the
Distribution and with the consummation of the transactions contemplated by this
Agreement shall be charged to the party for whose benefit the expenses are

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<PAGE>

incurred, with any expenses which cannot be allocated on such basis to be split
equally between the parties.

Section 9.03. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without regard
to the principles of conflicts of laws thereof.

Section 9.04. NOTICES. All notices and other communications
hereunder shall be in writing and shall be delivered by hand or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other addresses for a party as shall be
specified by like notice) and shall be deemed given on the date on which such
notice is received:

To SpinCo:

PriceSmart, Inc.
4649 Morena Boulevard
San Diego, California 92117
Attention: __________

To PEI:

Price Enterprises, Inc.
4649 Morena Boulevard
San Diego, California 92117
Attention: __________

Section 9.05. AMENDMENTS. This Agreement may not be modified or
amended except by an agreement in writing signed by the parties.

Section 9.06. SUCCESSORS AND ASSIGNS. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns. The parties acknowledge
and agree that any party into which PEI or SpinCo merges or which acquires all
or substantially all of PEI's or SpinCo's assets in a sale transaction would
constitute a permitted assign for purposes of this Section 9.06.

34
<PAGE>

Section 9.07. TERMINATION. This Agreement may be terminated and the
Distribution abandoned at any time prior to the Distribution Date by and in the
sole discretion of the PEI Board without the approval of SpinCo or of PEI's
stockholders. In the event of such termination, no party shall have any
liability to any other party pursuant to this Agreement.

Section 9.08. SUBSIDIARIES. Each of the parties hereto shall cause
to be performed, and hereby guarantees the performance of, all actions,
agreements and obligations set forth herein to be performed by any Subsidiary of
such party which is contemplated to be a Subsidiary of such party on and after
the Distribution Date.

Section 9.09. NO THIRD-PARTY BENEFICIARIES. Except for the
provisions of Article V relating to Indemnities, this Agreement is solely for
the benefit of the parties hereto and their respective Subsidiaries and
Affiliates and should not be deemed to confer upon third-parties any remedy,
claim, Liability, reimbursement, claim of action or other right in excess of
those existing without reference to this Agreement.

Section 9.10. TITLES AND HEADINGS. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.

Section 9.11. EXHIBITS AND SCHEDULES. The Exhibits and Schedules
shall be construed with and as an integral part of this Agreement to the same
extent as if the same had been set forth verbatim herein.

Section 9.12. LEGAL ENFORCEABILITY. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without
prejudice to any rights or remedies

35
<PAGE>

otherwise available to any party hereto, each party hereto acknowledges that
damages would be an inadequate remedy for any breach of the provisions of this
Agreement and agrees that the obligations of the parties hereunder shall be
specifically enforceable.

Section 9.13. ARBITRATION OF DISPUTES.

(a) Any controversy or claim arising out of this Agreement, or any
breach of this Agreement, including any controversy relating to a determination
of whether specific assets constitute SpinCo Assets or Retained Assets or
whether specific Liabilities constitute SpinCo Liabilities or Retained
Liabilities, shall be settled by arbitration in accordance with the Rules of the
American Arbitration Association then in effect, as modified by this Section
9.13 or by the further agreement of the parties.

(b) Such arbitration shall be conducted in San Diego, California.

(c) Any judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The arbitrators shall not,
under any circumstances, have any authority to award punitive, exemplary or
similar damages, and may not, in any event, make any ruling, finding or award
that does not conform to the terms and conditions of this Agreement.

(d) Nothing contained in this Section 9.13 shall limit or restrict in
any way the right or power of a party at any time to seek injunctive relief in
any court and to litigate the issues relevant to such request for injunctive
relief before such court (i) to restrain the other party from breaching this
Agreement or (ii) for specific enforcement of this Section 9.13. The parties
agree that any legal remedy available to a party with respect to a breach of
this Section 9.13 will not be adequate and that, in addition to all other legal
remedies, each party is entitled to an order specifically enforcing this Section
9.13.

(e) The parties hereby consent to the jurisdiction of the federal
courts located in San Diego, California for all purposes under this Agreement.

36
<PAGE>

(f) Neither party nor the arbitrators may disclose the existence or
results of any arbitration under this Agreement or any evidence presented during
the course of the arbitration without the prior written consent of both parties,
except as required to fulfill applicable disclosure and reporting obligations,
or as otherwise required by law.

(g) Each party shall bear its own costs incurred in the arbitration.
If either party refuses to submit to arbitration any dispute required to be
submitted to arbitration pursuant to this Section 9.13, and instead commences
any other proceeding, including, without limitation, litigation, then the party
who seeks enforcement of the obligation to arbitrate shall be entitled to its
attorneys' fees and costs incurred in any such proceeding.

37
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.

PRICE ENTERPRISES, INC.

By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------

PRICESMART, INC.

By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------

<PAGE>

AGREEMENT CONCERNING

TRANSFER OF CERTAIN ASSETS

Between And Among

PRICE/COSTCO, INC., PRICE ENTERPRISES, INC.,
THE PRICE COMPANY, PRICE COSTCO INTERNATIONAL, INC.,
COSTCO WHOLESALE CORPORATION, PRICE GLOBAL TRADING, L.L.C.,
PGT, INC., PRICE QUEST, L.L.C., AND PQI., INC.

Dated As Of

November ,1996
---

<PAGE>

TABLE OF CONTENTS

Page
----

1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2. ACTIONS CONCERNING PRICE GLOBAL . . . . . . . . . . . . . . . . . . . 6
2.1 Price Costco Global Marks . . . . . . . . . . . . . . . . . . . 6
2.2 Future Assignments For Costa Rica & Panama. . . . . . . . . . . 6
2.3 Marianas, Guam & Panama License . . . . . . . . . . . . . . . 11
2.4 Interest In Price Global. . . . . . . . . . . . . . . . . . . 13
2.5 Price Global Operating Agreement. . . . . . . . . . . . . . . 13

3. ACTIONS CONCERNING PRICE QUEST. . . . . . . . . . . . . . . . . . . 14
3.1 Price Quest Marks . . . . . . . . . . . . . . . . . . . . . . 14
3.2 Price Quest License . . . . . . . . . . . . . . . . . . . . . 14
3.3 Interest In Price Quest . . . . . . . . . . . . . . . . . . . 14
3.4 Price Quest Operating Agreement . . . . . . . . . . . . . . . 15
3.5 Quest Operations At PriceCostco . . . . . . . . . . . . . . . 15
3.6 Auto & Travel Operations at PriceCostco . . . . . . . . . . . 15

4. NON-COMPETITION COVENANTS . . . . . . . . . . . . . . . . . . . . . 20
4.1 Termination of Non-Compete Agreements . . . . . . . . . . . . 20
4.2 Marianas, Guam & Panama Non-compete . . . . . . . . . . . . . 20
4.3 Auto/Travel Limits on PriceCostco . . . . . . . . . . . . . . 20
4.4 Auto/Travel Limits on PEI and PriceCostco . . . . . . . . . . 21
4.5 Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . 21

5. COSTS & OTHER MATTERS CONCERNING THE TRANSFERS. . . . . . . . . . . 21
5.1 Fees & Costs. . . . . . . . . . . . . . . . . . . . . . . . . 21
5.2 Representations . . . . . . . . . . . . . . . . . . . . . . . 22
5.3 Trademark Documents . . . . . . . . . . . . . . . . . . . . . 23
5.4 Interim Safeguards. . . . . . . . . . . . . . . . . . . . . . 23

6. CERTAIN "PRICE" MARKS . . . . . . . . . . . . . . . . . . . . . . . 25
6.1 "PriceSmart" Agreement. . . . . . . . . . . . . . . . . . . . 25
6.2 Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.3 Registration Preclusion . . . . . . . . . . . . . . . . . . . 26
6.4 Claims to "Price" Marks . . . . . . . . . . . . . . . . . . . 26

7. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . 27
7.1 Further Assurances. . . . . . . . . . . . . . . . . . . . . . 27
7.2 Affiliate Compliance. . . . . . . . . . . . . . . . . . . . . 27
7.3 Guaranties. . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.4 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 28

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Page
----

7.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.7 Amendment; Waiver . . . . . . . . . . . . . . . . . . . . . . 29
7.8 Binding Effect; No Assignments. . . . . . . . . . . . . . . . 30
7.9 Severability. . . . . . . . . . . . . . . . . . . . . . . . . 30
7.10 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . 30
7.11 Complete Agreement. . . . . . . . . . . . . . . . . . . . . . 30
7.12 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 30
7.13 Termination . . . . . . . . . . . . . . . . . . . . . . . . . 30

-ii-

<PAGE>

AGREEMENT CONCERNING TRANSFER OF CERTAIN ASSETS

This AGREEMENT, dated as of November ___, 1996, is by and between
Price/Costco, Inc. ("PRICECOSTCO"); Price Enterprises, Inc. ("PEI"); The
Price Company, a California corporation and wholly-owned subsidiary of
PriceCostco ("TPC"); Price Costco International, Inc., a Nevada corporation
and wholly-owned subsidiary of PriceCostco ("PCII"); Costco Wholesale
Corporation, a Washington corporation and a wholly-owned subsidiary of Price
Costco ("CWC"); Price Global Trading, L.L.C., a Delaware limited liability
company ("PRICE GLOBAL"); PGT, Inc., a Delaware corporation and wholly-owned
subsidiary of PEI ("PGT"); Price Quest, L.L.C., a Delaware limited liability
company ("PRICE QUEST"); and PQI, Inc., a Delaware corporation and
wholly-owned subsidiary of PEI ("PQI").

WHEREAS:

A. PriceCostco and PEI are parties to an Amended and Restated
Agreement of Transfer and Plan of Exchange dated as of November 14, 1994
(the "1994 TRANSFER AGREEMENT"). In connection with the 1994 Transfer
Agreement, PriceCostco, TPC, PEI, and the predecessors of Price Global and
Price Quest entered into various agreements (including operating agreements,
stockholders agreements and trademark assignments and licenses), which set
forth certain rights and obligations of the parties with respect to Price
Quest, Inc., Price Global Trading, Inc. and their assets and operations, and
which transferred several foreign trademarks and service marks from
PriceCostco and its Affiliates to PEI and its Affiliates.

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<PAGE>

B. In November 1995, PriceCostco (through TPC) and PEI (through PGT
and PQI) formed two limited liability companies, Price Quest and Price
Global, which succeeded to the rights, liabilities, assets, businesses and
operations of Price Quest, Inc. and Price Global Trading, Inc., respectively.

C. This Agreement is being executed simultaneously with a Stipulation
of Settlement of this date among PriceCostco, PEI and certain other parties
to effect a settlement of litigation entitled IN RE PRICECOSTCO SHAREHOLDER
LITIGATION, Case No. C-94-1874C, pending in the United States District Court
for the Western District of Washington (the "STIPULATION OF SETTLEMENT").

D. On the terms set forth in this Agreement, PriceCostco and PEI now
desire to modify their relationship, effective as of the Effective Date
defined in the Stipulation of Settlement ("Effective Date"), by transferring
and assigning certain trademarks and assets (including, in particular, a
transfer of foreign trademarks and service marks back to PriceCostco and its
Affiliates), by terminating certain of the non-compete agreements between the
parties, and modifying or terminating certain other agreements between or
among the parties concerning the operations of Price Quest and Price Global.

NOW, THEREFORE, for good and adequate consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

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<PAGE>

1. DEFINITIONS

1.1 "AUTO REFERRAL PROGRAM" and "TRAVEL PROGRAM" mean,
respectively, (i) the automobile advertising/referral program and (ii) the
travel program, both as operated by Price Quest under the "PriceCostco" name
as of the date of this Agreement.

1.2 "EFFECTIVE DATE" shall have the meaning set forth in the
Stipulation of Settlement.

1.3 "PRICECOSTCO WAREHOUSE" means a "Costco" or "Price Club"
warehouse location at which PriceCostco or its Downstream Affiliates operate
a Club Business.

1.4 "PRICE COSTCO GLOBAL MARKS" means all rights of Price Global,
PGT and PEI and its Affiliates in and to the names, trade names, commercial
names, trademarks and service marks "PRICE CLUB," "PRICE COSTCO" and "PRICE
CLUB COSTCO" in the Specified Geographical Areas, including by not limited to
all stylized presentations of PRICE CLUB, PRICE CLUB COSTCO and PRICE COSTCO,
all designs, logos and marks containing those names, and all pending
applications and registrations for the aforementioned names and marks that
have been made by Price Global, PQI or PEI or its Affiliates.

1.5 "PRICE GLOBAL LLC AGREEMENT" means the Limited Liability
Company Agreement of Price Global Trading, L.L.C. dated as of 27 November
1995, between TPC and PGT.

1.6 "PRICE GLOBAL LICENSE AGREEMENT" means The License Agreement
made as of August 28, 1994 by and among PriceCostco, TPC, Price Global
Trading,

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<PAGE>

Inc. and PEI, relating among other things to the "PRICE CLUB" and "PRICE COSTCO"
trademarks in the Northern Mariana Islands (including Guam and Saipan) and the
U.S. Virgin Islands.

1.7 "PRICE GLOBAL OPERATING AGREEMENT" means the Operating Agreement
by and among Price Global Trading, Inc., PEI, PriceCostco and TPC dated as of
August 28, 1994.

1.8 "PRICE GLOBAL'S JOETEN LICENSE" means the License, Software,
Merchandise & Technical Support Agreement entered into as of December 12, 1994
by and among Price Global Trading, Inc. and Joeten Enterprises, Inc.

1.9 "PRICE GLOBAL'S PANAMA LICENSE" means the License, Software,
Merchandise & Technical Support Agreement entered into as of September 21, 1995
by and between Price Global Trading, Inc. and PriceCostco Panama, S.A.

1.10 "PRICE QUEST MARKS" means all rights of Price Quest, PQI and PEI
and its Affiliates in and to the names, trademarks and service marks "PRICE CLUB
QUEST," "PRICE QUEST" and "QUEST" worldwide, including but not limited to all
stylized presentations of "PRICE CLUB QUEST," "PRICE QUEST" and "QUEST" and all
pending applications and registrations for the aforementioned names and marks
that have been made by Price Quest, PQI or PEI or its Affiliates.

1.11 "PRICE QUEST LLC AGREEMENT" means the Limited Liability Company
Agreement of Price Quest, L.L.C. dated as of 27 November 1995, between TPC and
PQI.

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<PAGE>

1.12 "PRICE QUEST LICENSE AGREEMENT" means The License Agreement made
as of August 28, 1994 by and among PriceCostco, TPC, Price Quest, Inc. and PEI.

1.13 "PRICE QUEST OPERATING AGREEMENT" means the Operating Agreement
by and among Price Quest, Inc., PEI, PriceCostco and TPC dated as of August 28,
1994.

1.14 "STIPULATION OF SETTLEMENT" shall have the meaning set forth in
Recital C above.

1.15 "1994 TRANSFER AGREEMENT" shall have the meaning set forth in
Recital A above.

1.16 The definitions in Article I of the 1994 Transfer Agreement, in
Section 1 of the Price Global Operating Agreement and in Section 1 of the Price
Quest Operating Agreement among certain of the parties to the extent not
inconsistent with this Agreement, are hereby incorporated by reference and made
a part of this Agreement; EXCEPT that

(a) "SPECIFIED GEOGRAPHICAL AREAS" shall no longer include
Mexico and after the Effective Date shall mean only the Commonwealth of the
Northern Mariana Islands, Guam, Costa Rica and Panama, and

(b) "SPECIFIED COMPANIES" shall mean after the Effective Date
only Sam's Warehouse Club, BJ's Wholesale Club, and Wal-Mart Stores, Inc. and
each of its Affiliates.

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<PAGE>

2. ACTIONS CONCERNING PRICE GLOBAL

2.1 PRICE COSTCO GLOBAL MARKS. As of the Effective Date, Price
Global, PGT and PEI hereby convey, transfer and assign to PCII, free and clear
of any liens or encumbrances (but without warranty of registrability,
enforceability or lack of conflict with any third party's trademarks or service
marks), all of their rights, title and interest to and in the Price Costco
Global Marks, and in all applications, registrations and claims relating to
those marks; PROVIDED THAT the "PRICE COSTCO" mark in Costa Rica and Panama will
be assigned only as set forth in paragraph 2.2 below. Contemporaneously with
this Agreement, PEI, PGT and Price Global shall execute the Trademark
Assignments at Exhibits 2.1A through 2.1H hereto, but PCII shall not attempt to
file the Assignments with any governmental authority before the Effective Date.

2.2 FUTURE ASSIGNMENTS FOR COSTA RICA & PANAMA. As shown in Exhibit
5.2A, PGT has five pending applications in both Panama and Costa Rica for the
"PRICE COSTCO" mark in classes 16, 37, 39, 40 and 42. The parties understand
that (1) under present Panamanian law registrations on the five applications in
Panama can issue only if registrations for those same marks first issue in Costa
Rica in the name of Price Global Trading, Inc., (2) the five applications for
those marks have been rejected in Costa Rica and those rejections have been
appealed, and (3) it is in the interest of all of the parties to determine if
the registrations will be issued on these pending applications before they are
assigned to PriceCostco or its Affiliates hereunder. Based on these
understandings, the parties agree as follows:

(a) As of the date of this Agreement and until both the "PRICE
COSTCO" mark for Costa Rica and Panama is assigned to PCII and the rights of
Price

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<PAGE>

Global's joint venturer in Panama to use that mark are terminated, PEI, PGT and
Price Global will have the rights and duties (i) diligently to pursue and
prosecute the five pending applications and appeal in Costa Rica, and the five
pending applications in Panama, listed in Exhibit 5.2A for Costa Rica and Panama
covering the "PRICE COSTCO" mark, (ii) to promptly give PriceCostco notice of
all government actions in Costa Rica and in Panama relating to such applications
and appeal; (iii) to oppose Almacenes Cosco's use of and applications for
tradenames, commercial names, service marks and trademarks in Panama which may
in Price Global's view infringe upon the "PRICE COSTCO" mark or otherwise be
confusingly similar thereto; (iv) to take all reasonable steps against Almacenes
Cosco and any other Person using, or filing any application to register as a
trademark, service mark, tradename or commercial name in Panama, the "PRICE
COSTCO" mark or any mark or name which in Price Global's view is confusingly
similar thereto; (v) to promptly inform PriceCostco of any use, application or
registration in Panama of any mark or name of which it is aware and which
infringes or is substantially similar to the "PRICE COSTCO" mark; and (vi) to
promptly inform PriceCostco of the steps it takes to carry out its rights and
duties under this paragraph 2.2, including providing PriceCostco with copies of
all related correspondence and other documents;

(b) In the event PriceCostco believes that PEI, PGT or Price
Global has not taken, but should be taking some action under paragraph 2.2(a),
PriceCostco may so inform PEI; if then PEI, PGT or Price Global declines or
fails to commence such action within fourteen (14) days thereafter, then
PriceCostco may take such action. PEI, PGT and Price Global will provide any
requested consents, and

-7-

<PAGE>

PriceCostco shall promptly inform Price Global of the steps it so takes,
including providing PEI with copies of all related correspondence and other
documents. PEI, PGT and Price Global (i) shall have liability under paragraph
2.2(a) only for gross negligence and willful acts or willful omissions where
such negligence, acts or omissions materially adversely affect the "PRICE
COSTCO" mark, or any right, application or registration in or for such mark,
and (ii) may assert as a defense that any loss or damage could have been
mitigated or avoided if PriceCostco had taken action under this paragraph
2.2(b);

(c) As a "safety net" in case registrations on PGT's pending
applications are denied, PriceCostco or PCII will (i) promptly file and
diligently pursue and prosecute in Panama applications for the "PRICE COSTCO"
mark in classes 16, 37, 39, 40 and 42, and PEI, PGT and Price Global will
provide any requested consents; (ii) promptly give PEI notice of all government
actions in Panama relating to such applications; (iii) promptly inform PEI of
the steps it takes to carry out its rights and duties of any party under this
paragraph 2.2(c), including providing PEI with copies of all related
correspondence and other documents;

(d) Each party agrees to promptly sign, and to cause its
Downstream Affiliates to promptly sign, any documentation (including consents)
reasonably necessary to carry out the rights and duties of any party under
paragraphs 2.2(a), (b) and (c), to provide all evidence reasonably necessary,
and to otherwise cooperate, and to cause its Downstream Affiliates to cooperate,
with the other party;

(e) PriceCostco, PCII and CWC may pursue applications in Panama
for "COSTCO", "PRICE CLUB" and "PRICE CLUB COSTCO" trademarks, service marks,
tradenames and commercial names, respond to opposition thereto, and

-8-

<PAGE>

in consultation with Price Global oppose Almacenes Cosco's and other Persons'
uses of and applications for tradenames, commercial names, service marks and
trademarks in Panama which may in PriceCostco's view infringe upon any "COSTCO",
"PRICE CLUB" and "PRICE CLUB COSTCO" names or marks; PROVIDED THAT PriceCostco,
PCII and CWC will provide any requested consents regarding PGT's pending
applications for the "PRICE COSTCO" mark in Panama; and PROVIDED also that
nothing in this paragraph 2.2(e) shall be deemed to affect any party's position
concerning any claim of right of PriceCostco and its Affiliates to operate a
business in Panama while Price Global has the right to use the "PRICE COSTCO"
mark in Panama;

(f) All action undertaken by Price Global and its Affiliates
pursuant to paragraphs 2.2(a) through (e) shall be at Price Global's expense,
and all action undertaken by PriceCostco and its Affiliates pursuant to
paragraphs 2.2(a) through (e) shall be at PriceCostco's expense; PROVIDED,
however, that if there is a termination of all rights to use the "PRICE COSTCO"
mark by Price Global's joint venturer in Panama before any of the dates listed
below, the reasonable expenses that are described above and have been incurred
solely with respect to the "PRICE COSTCO" marks will be totalled and PriceCostco
and Price Global shall pay (and reimburse each other for) those expenses in the
following proportions:

IF BEFORE PRICECOSTCO PAYS PRICE GLOBAL PAYS
--------- ---------------- -----------------

10/31/97 100% 0%
10/31/98 66.7% 33.3%
10/31/99 33.3% 66.7%

-9-
<PAGE>

PROVIDED ALSO THAT a party whose reasonable expenses are to be paid or
reimbursed shall first provide to the reimbursing party detailed invoices
from and proofs of payment to the payee of each such expense;

(g) As of the Effective Date, PEI, PGT, Price Global and their
Affiliates will not use the "PRICE COSTCO" mark in Costa Rica (except to
pursue the five pending applications there) or allow any other Person to use
them;

(h) PEI, PGT and Price Global will promptly assign to PCII the "PRICE
COSTCO" mark for Costa Rica and for Panama, and promptly execute assignments
in the form requested by PCII if, for all of the five Classes of marks for
which applications are pending (whether in Costa Rica or in Panama), any of
the following has occurred after the Effective Date: (1) a rejection that has
become final after appeal of a pending application in Costa Rica or in
Panama, (2) issuance of a registration in Panama, (3) a termination of rights
to use the "PRICE COSTCO" mark by Price Global's joint venturer in Panama, or
(4) a determination by an arbitrator that PEI or its Affiliates have
materially breached any of its duties under paragraphs 2.2(a) through (g)
subject to the standard set out in paragraph 2.2(b); PROVIDED THAT PCII shall
not attempt to file the assignments in Panama until registrations have issued
in Panama. As an example of the conditions described in items (1) and (2) of
this paragraph, if registrations are issued in Panama for the marks in
Classes 16 and 37 and if applications are denied in Costa Rica for marks in
Classes 39, 40, 42, the conditions for assignment to PCII under this
paragraph 2.2(h) will have been satisfied; and

(i) Price Global shall use diligent and reasonable efforts to
negotiate with its licensee in the Northern Mariana Islands and Guam and with
its joint

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<PAGE>

venturer in Panama termination dates of their rights to use the Price Costco
Global Marks by October 3, 1998; and, if that does not occur, at the earliest
possible date before December 12, 2009 for the Northern Mariana Islands and
Guam and December 21, 2015 for Panama.

(j) PEI and its Downstream Affiliates shall use diligent and
reasonable efforts to obtain from Price Global's joint venture partner in
Panama, and from that partner's Affiliates, all applications, registrations,
marks and commercial names containing the words "Price Costco" and "Price
Club." Upon acquiring the same and at the time the "PRICE COSTCO" mark for
Panama is to be assigned under paragraph 2.2(h) above, PEI and its Downstream
Affiliates shall promptly assign to PCII such applications, registrations,
marks and commercial names and promptly execute assignments in the form
requested by PCII. Until and unless such marks and names have been assigned
to Price Global or PGT, PriceCostco and its Downstream Affiliates may oppose
or challenge such applications, registrations, marks or commercial names, but
will discontinue any opposition or challenge upon such assignment to Price
Global or PGT.

2.3 MARIANAS, GUAM & PANAMA LICENSE. As of the Effective Date, the Price
Global License Agreement is hereby amended as follows:

(a) The definition of "Territory" in such license agreement is
modified to mean only the Commonwealth of the Northern Mariana Islands and
Guam and no other territory or country, PROVIDED THAT if the "PRICE COSTCO"
mark for Panama is assigned to PCII, or if registration is granted upon the
"safety net" applications described in paragraph 2.2(c) above, before the
earliest of the dates

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<PAGE>

determined under paragraph 2.3(c) below, then Panama shall also be included in
the definition of "Territory" and the definition of "Marks" shall include the
"PRICE COSTCO" mark in Panama;

(b) The Commonwealth of the Northern Mariana Islands and Guam shall
be deleted from the definition of "Territory" in such license agreement on
the earlier of (i) December 12, 2009 (or any earlier date negotiated under
paragraph 2.2(i) above), or (ii) a termination of the rights of Price
Global's licensee in the Northern Mariana Islands and Guam to use the Price
Costco Global Marks under Price Global's Joeten License;

(c) Panama shall be deleted from the definition of "Territory" in
such license agreement on the earlier of (i) December 21, 2015 (or any earlier
date negotiated under paragraph 2.2(i) above), or (ii) a termination of the
rights of Price Global's joint venturer in Panama to use the "PRICE COSTCO"
mark under Price Global's Panama License;

(d) With respect to Panama, the Marks licensed shall include only the
"PRICE COSTCO" mark; and paragraphs 2.2(a), (b), (d), (e), (f) and (i) above
are incorporated by reference and made a part of the Price Global License
Agreement if and so long as Panama is a "Territory" under such license
agreement;

(e) The Price Global License Agreement shall terminate without any
right to renew when all of the Commonwealth of the Northern Mariana Islands,
Guam and Panama have been deleted from, or are not included within, the
definition of "Territory" in such license agreement;

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(f) Except as expressly stated above, the Price Global License
Agreement shall remain in full force and effect;

(g) Any party to the Price Global License Agreement will upon
request sign a reasonable amendment to the Price Global License Agreement
that incorporates the provisions of this paragraph 2.3.

2.4 INTEREST IN PRICE GLOBAL. For one dollar and other good and
valuable consideration the receipt of which is hereby acknowledged, and as of
the Effective Date, TPC hereby sells, conveys, transfers and assigns to PEI
(or to PEI's Downstream Affiliate that PEI has so designated by written
notice to PriceCostco before the Effective Date), free and clear of any liens
or encumbrances, TPC's 49% ownership interest in Price Global, at which time
PEI (or such Downstream Affiliate that PEI has designated above) shall assume
all rights and liabilities of TPC as an LLC member of Price Global; PROVIDED
THAT, with respect to any act, occurrence or communication before the
Effective Date, TPC shall be entitled to enforce Sections 3.15 and 7.5 of the
Price Global LLC Agreement (respectively, concerning "Indemnification" and
"Confidentiality") and shall remain subject to the obligations of said
Section 7.5.

2.5 PRICE GLOBAL OPERATING AGREEMENT. The Price Global Operating
Agreement is hereby terminated and shall be of no further force and effect as
of the Effective Date; EXCEPT that Section 2.2(e) thereof concerning
"Confidentiality" shall remain in effect; EXCEPT that Price Global and PEI
shall, within thirty (30) days of the Effective Date, return to PriceCostco
any information received from PriceCostco or its Affiliates under
Section 2.2(a), (f) & (g) thereof without retaining any copies thereof; and
EXCEPT that PriceCostco and PEI (and their Downstream Affiliates) shall
permit the

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continuation of reciprocal shopping privileges with respect to stores
operated under the Price Costco Global Marks and owned (i) by Joeten
Enterprises, Inc. in the Commonwealth of the Northern Mariana Islands or
Guam, or (ii) by PriceCostco Panama, S.A. in Panama, until the Price Costco
Global Marks are no longer licensed under paragraph 2.3 above for the
territory in which the particular stores are located.

3. ACTIONS CONCERNING PRICE QUEST

3.1 PRICE QUEST MARKS. As of the Effective Date, Price Quest, PQI
and PEI hereby convey, transfer and assign to TPC, free and clear of any
liens or encumbrances (but without warranty of registrability, enforceability
or lack of conflict with any third party's trademarks or service marks), all
of their rights, title and interest to and in the Price Quest Marks, and in
all applications, registrations and claims relating to those marks.
Contemporaneously with this Agreement, PEI, PQI and Price Quest shall execute
the Trademark Assignment at Exhibit 3.1 hereto, but TPC shall not attempt to
file the Assignment with any governmental authority before the Effective
Date. After the Effective Date, Price Quest, PEI and their Affiliates will
not use the names "Quest," "Price Quest" or "Price Club Quest" as a trademark
or service mark, but Price Quest may use the words "Price Quest" solely in
its LLC name.

3.2 PRICE QUEST LICENSE. As of the Effective Date, the Price
Quest License Agreement is hereby terminated.

3.3 INTEREST IN PRICE QUEST. For one dollar and other good and
valuable consideration the receipt of which is hereby acknowledged, and as of
the Effective date, TPC hereby sells, conveys, transfers and assigns to PEI
(or to PEI's

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Downstream Affiliate that PEI has so designated by written notice to
PriceCostco before the Effective Date), free and clear of any liens or
encumbrances, TPC's 49% ownership interest in Price Quest, at which time PEI
(or such Downstream Affiliate that PEI has designated above) shall assume all
rights and liabilities of TPC as an LLC member of Price Quest; PROVIDED THAT,
with respect to any act, occurrence or communication before the Effective
Date, TPC shall be entitled to enforce Sections 3.15 and 7.5 of the Price
Quest LLC Agreement (respectively, concerning "Indemnification" and
"Confidentiality") and shall remain subject to the obligations of said
Section 7.5.

3.4 PRICE QUEST OPERATING AGREEMENT. The Price Quest Operating
Agreement is hereby terminated and of no further force and effect as of the
Effective Date; EXCEPT as stated in paragraph 3.6 below, and EXCEPT that
Section 2.5(f) concerning "Confidentiality" shall remain in effect, and that
Price Quest and PEI shall, within thirty (30) days of the Effective Date and
subject to 3.6(j) below, return to PriceCostco any information and materials
received from PriceCostco or its Affiliates under Section 2.2(a) and 2.3(a)
thereof.

3.5 QUEST OPERATIONS AT PRICECOSTCO. From and after the Effective
Date, neither PEI nor its Affiliates shall operate any part of the Quest
Business in PriceCostco Warehouses or otherwise in connection with or with
reference to PriceCostco except as stated in paragraph 3.6 below.

3.6 AUTO & TRAVEL OPERATIONS AT PRICECOSTCO. From and after the
Effective Date, PEI (or PEI's Downstream Affiliate that PEI has so designated
by written notice to PriceCostco) shall have the right and duty to operate
the Auto Referral Program and the Travel Program, and shall do so only in
those PriceCostco Warehouses in the

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United States in which they are currently operated by Price Quest (or which
are added under paragraph 3.6(d) below), through advertisements published in
The PriceCostco Connection and through promotional materials linked to and
from PriceCostco's Internet home page, under the following terms and
conditions:

(a) The Auto Referral Program and the Travel Program shall be
operated in substantially the same manner, at the same or higher level of
quality and value, and using the same or equivalent space in PriceCostco
Warehouses, as on the date of this Agreement (and, in each such warehouse,
PriceCostco shall (i) provide sufficient space to display one brochure rack
for the Auto Referral Program and one brochure rack and display panel for the
Travel Program and (ii) use best efforts to provide sufficient space to
display one automobile); PROVIDED THAT PEI (or its Downstream Affiliate)
shall provide to PriceCostco, for PriceCostco's prior review and approval
(which approval shall not be unreasonably withheld, or delayed if PriceCostco
has received reasonable advance notice), all brochures, flyers, display
panels, advertisements in The PriceCostco Connection, promotional materials
on the Internet, and other materials concerning these programs, prior to any
publication or distribution thereof to PriceCostco members or to others when
using any PriceCostco name or mark;

(b) PEI (or its Downstream Affiliate) may purchase advertising
for these programs in The PriceCostco Connection on the same terms, net of
discounts, as other advertisers for equivalent advertising space purchased;

(c) PriceCostco will, in PriceCostco Warehouses and in
substantially the same manner as on the date of this Agreement, maintain and
stock

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brochure racks for the Auto Referral Program and Travel Program and provide
for security of these racks and of displayed automobiles;

(d) In each of the fiscal years ending August 1997, 1998 and
1999, PriceCostco shall permit the Auto Referral Program and the Travel
Program to expand into as many as ten (10) additional PriceCostco Warehouses
in the United States (to the extent they exist) which will be selected by
PriceCostco with PEI's consent (which consent shall not be unreasonably
withheld), utilizing space equivalent to the space so used in existing
PriceCostco Warehouses, unless otherwise agreed by the parties.

(e) PEI (or its Downstream Affiliate) may without liability
terminate its rights and duties set forth in this paragraph 3.6 with respect
to either the Auto Referral Program or the Travel Program or both, upon sixty
(60) days written notice to PriceCostco, and such rights and duties will
terminate without any right to renew sixty (60) days from such notice. If
not earlier terminated, all rights and duties under this paragraph 3.6 with
respect to both the Auto Referral Program and the Travel Program will
terminate on October 31, 1999, without any right to renew;

(f) From all operations of these programs that occur before
these rights terminate, PEI (or its Downstream Affiliate) shall pay to
PriceCostco each of the following: (i) for the Auto Program, 20% of the gross
revenues derived from the PriceCostco Auto Program Internet site linked to
and from PriceCostco's Internet home page, and 55% of the gross revenues
derived from all other advertising or promotion via PriceCostco Warehouses,
The PriceCostco Connection or other medium which utilizes the "PriceCostco"
name or mark; (ii) for car rentals, hotel bookings and other travel

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services besides vacation packages and cruises, 15% of the received
commissions derived from any advertising or promotion via PriceCostco
Warehouses, The PriceCostco Connection, the PriceCostco Travel Program
Internet site linked to and from PriceCostco's Internet home page, or other
medium which utilizes the "PriceCostco" name or mark; and (iii) for vacation
packages and cruises, 1% of the net sales derived from any advertising or
promotion via PriceCostco Warehouses, The PriceCostco Connection, the
PriceCostco Travel Program Internet site linked to and from PriceCostco's
Internet home page, or other medium which utilizes the "PriceCostco" name or
mark;

(g) All such amounts shall be paid within fourteen (14)
calendar days of the end of PriceCostco's four-week accounting period in
which the revenues, commissions or sales payments are received by PEI (or its
Downstream Affiliate);

(h) Pursuant to and solely in accordance with the License
Agreement at Exhibit 3.6(h) which PEI shall execute contemporaneously with
this Agreement, PEI (or its Downstream Affiliate) (i) shall only use a
"PriceCostco Auto Program" mark and a "PriceCostco Travel Program" mark in
connection with these programs, and (ii) shall use these marks solely in
flyers and brochures and on brochure racks and display panels placed in
PriceCostco Warehouses, in advertisements in The PriceCostco connection and
in promotional materials linked to and from the PriceCostco Internet home
page, and in non-public communications with auto dealers and travel service
providers;

(i) To the extent they are not inconsistent with the above or
with any other provision of this Agreement, Sections 2.2(b), 2.4(a)(i), and 2.7

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of the Price Quest Operating Agreement are hereby incorporated by reference
EXCEPT that all references to the Quest Business shall be deemed to mean only
the Auto Referral Program and the Travel Program;

(j) Price Quest may retain only such membership information from
PriceCostco's membership database that has become a part of its own customer
database pursuant to Section 2.7 of the Price Quest Operating Agreement, and
neither it nor PEI nor its Affiliates may market or describe its membership
information to others as originating from or including data of PriceCostco or
its Affiliates; and

(k) Notwithstanding any other provisions of this Agreement, PEI (and
its Affiliates) may own and operate any automobile related businesses, any
travel related businesses, and any other Quest Business, in any manner, using
any medium, and in any location (and without any monetary obligation to
PriceCostco), provided that such businesses do not use in any way the names
or marks "PriceCostco," "Price Club" or "Costco," and provided further that
any such activity is not precluded under Section 4.4 of this Agreement.

(l) Price Quest has registered Internet domain names containing the
words "Price Costco Auto" and "Price Costco Travel." PEI and its Downstream
Affiliates will promptly assign to Price Costco (or to a Downstream Affiliate
designated by PriceCostco) or relinquish as directed by PriceCostco (i) the
Internet domain name(s) containing the words "Price Costco Auto" upon any
termination of the Auto Referral Program under Paragraph 3.6(e) above or of
the license to use the mark "Price Costco Auto Program" mentioned in
Paragraph 3.6(h), and (ii) the Internet domain name(s) containing the words
"Price Costco Travel" upon any termination of the Travel Program

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under paragraph 3.6(e) above or of the license to use the mark "Price Costco
Travel Program" mentioned in Paragraph 3.6(h)

4. NON-COMPETITION COVENANTS

4.1 TERMINATION OF NON-COMPETE AGREEMENTS. All agreements and
covenants not to compete between (i) PriceCostco or its Affiliates and
(ii) PEI or its Affiliates (including without limitation Section 6.6 of the
1994 Transfer Agreement) are hereby terminated as of the Effective Date and
shall be of no further force and effect, except as explicitly stated in
paragraphs 4.2, 4.3 and 4.4 below.

4.2 MARIANAS, GUAM & PANAMA NON-COMPETE. As of the Effective Date the
covenants not to compete in Section 6.6(b)(i) of the 1994 Transfer Agreement
and in Section 2.1(a) of the Price Global Operating Agreement shall continue
only (i) within the Commonwealth of the Northern Mariana Islands, Guam and
Panama, and (ii) in duration as follows:

(a) With respect to the Northern Mariana Islands and Guam, only
until the earlier of October 31, 1999, or a termination of Price Global's
Joeten License, and

(b) With respect to Panama, only until the earlier of October 31,
1999, or a termination of Price Global's Panama License.

4.3 AUTO/TRAVEL LIMITS ON PRICECOSTCO. As of the Effective Date until
October 31, 1999, PriceCostco and its Downstream Affiliates may not conduct,
and will not allow any third party to conduct, the Auto Referral Program and
the Travel Program or substantially similar programs in the United States
through PriceCostco

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Warehouses, The PriceCostco Connection or the Internet; PROVIDED THAT
PriceCostco and its Downstream Affiliates may without restriction (i) sell
directly to their members automobiles (but not by referral to a third party
other than a PriceCostco Downstream Affiliate), vacation packages (but not
cruises) and airline tickets, and (ii) investigate, experiment with and
develop other concepts in the auto and travel businesses.

4.4 AUTO/TRAVEL LIMITS ON PEI AND PRICECOSTCO. From the Effective Date
until October 31, 1999, neither PEI nor its Downstream Affiliates, nor
PriceCostco nor its Downstream Affiliates, shall operate or conduct the Auto
Referral Program, the Travel Program or a substantially similar program with,
or from within a location that is owned or operated by, any of the Specified
Companies.

4.5 INJUNCTIVE RELIEF. In the event of a breach or threatened breach
of paragraphs 4.2, 4.3 or 4.4 by any party, the parties agree that money
damages, alone, would be an inadequate remedy, and that the aggrieved party
may, pending arbitration or as part of an arbitral award under paragraph 7.4
below, apply for and obtain injunctive and other equitable relief without
necessity of bond or other security, to prevent or remedy such breach.

5. COSTS & OTHER MATTERS CONCERNING THE TRANSFERS

5.1 FEES & COSTS. Fees and costs shall be paid as follows:

(a) Paragraphs 5.4 below shall apply to certain fees and costs
incurred between the date of this Agreement and the Effective Date with
respect to interim safeguards;

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(b) Paragraph 2.2(f) above shall apply to certain fees and
costs incurred with respect to Panama;

(c) Except as provided in paragraph 2.2(f) for Panama, TPC and
PCII will prepare the documentation for, and cause the filing and recordation
of, the assignments to them under this Agreement, and reimburse those
reasonable fees and costs that PEI and its Affiliates incur to third parties
in connection with such assignments after the Effective Date for acts taken
at the express direction of TPC or PCII; PROVIDED THAT PEI provides detailed
invoices from and proofs of payment to the payee of each expense covered by
this paragraph 5.1(c); and

(d) Otherwise, each party shall be solely responsible for all
fees and costs it incurs with respect to any act or transaction contemplated
by this Agreement.

5.2 REPRESENTATIONS. PEI, PGT, PQI, Price Global and Price Quest
warrant and represent that:

(a) Complete and accurate lists of all applications and
registrations of the Price Costco Global Marks, and of the Price Quest Marks,
that they or their Affiliates own or have filed with any governmental
authority (or that were previously assigned by PriceCostco or its
Affiliates), and of the file numbers, trademark or service mark classes,
registration dates, application dates and status thereof, appear respectively
in Exhibit 5.2A and Exhibit 5.2B hereof;

(b) PGT or Price Global own each of the Price Costco Global
Marks, and neither they nor their Affiliates have (i) licensed or
sub-licensed any of the Price Costco Global Marks except to Joeten
Enterprises, Inc. pursuant to Price Global's Joeten License and to
PriceCostco Panama, S.A. pursuant to Price Global's Panama

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License, or (ii) assigned any of the Price Costco Global Marks (except that
PGT has previously assigned certain of these Marks to Price Global); and

(c) Neither PEI, PQI nor Price Quest nor their Affiliates have
(i) licensed or sub-licensed any of the Price Quest Marks, or (ii) assigned
any of the Price Quest Marks (except that PQI has previously assigned certain
of these Marks to Price Quest).

5.3 TRADEMARK DOCUMENTS. After the Effective Date, PEI, Price
Global and Price Quest shall (i) promptly deliver to PriceCostco all file
wrappers, applications, registrations, files of trademark counsel, and
correspondence to or from any governmental authority that are in their
custody or control and that concern the Price Costco Global Marks and the
Price Quest Marks, and (ii) will promptly sign, and to cause their Downstream
Affiliates to promptly sign, any documentation reasonably necessary to file,
perfect or transfer to PriceCostco and its Affiliates (e.g., PCII and TPC)
any applications or registrations that concern those marks, to provide all
evidence reasonably necessary for these purposes, and to otherwise cooperate,
and to cause their Downstream Affiliates to cooperate, with PriceCostco and
its Affiliates, and use diligent and reasonable efforts to cause their other
Affiliates to do each of the foregoing; PROVIDED THAT this paragraph 5.3 will
apply to the "PRICE COSTCO" mark in Costa Rica and Panama when assignment of
such mark is required under paragraph 2.2(h) above.

5.4 INTERIM SAFEGUARDS. Between the date of this Agreement and the
Effective Date, Price Global, Price Quest, PEI and their Downstream
Affiliates shall

(a) As to Panama, apply paragraphs 2.2(a) through 2.2(f) of
this Agreement as if it applied between the date of this Agreement and the
Effective Date;

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PROVIDED that no reimbursement of expenses will occur if the settlement
referred to in Recital C does not become final;

(b) As to all other countries in the Specified Geographical
Areas, take all necessary or appropriate steps to preserve all applications
and registrations, including all rights and claims relating to those
applications and registrations, with respect to the Price Costco Global
Marks, or the Price Quest Marks, so that no such right, claim application or
registration is abandoned or materially adversely affected, and will at the
request of PriceCostco make filings to preserve rights with respect to the
marks and take steps to oppose uses, applications and registrations that in
PriceCostco's view conflict with any such marks, and PriceCostco will
reimburse PEI for the costs of those steps which are taken between the date
of this Agreement and the Effective Date, which PriceCostco has approved in
advance (which approval may not be unreasonably withheld if PEI gives
reasonable advance notice of the estimated costs and of the specific services
for which such costs will be incurred), and for which PEI provides detailed
invoices from and proofs of payment to the payee of each such expense;
PROVIDED THAT, whether or not the settlement referred to in Recital C becomes
final, PriceCostco will reimburse such costs incurred for new applications
filed at PriceCostco's request and for actions taken at PriceCostco's request
to oppose uses, applications and registrations in countries where PGT or
Price Global do not have applications listed in Exhibit 5.2A; and PROVIDED
further that no other reimbursement will occur if the settlement referred to
in Recital C does not become final; and

(c) Promptly inform PriceCostco of any use, application or
registration in the Specified Geographical Areas (except Panama) of any mark
or name

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of which they are aware and which infringes or is substantially similar to
any of the Price Costco Global Marks, and, at PriceCostco's election,
direction and expense, prosecute or oppose any such use, application or
registration; PROVIDED, however that Price Global, Price Quest, PEI and their
Affiliates may elect to so prosecute or oppose such use, at their own
direction and expense.

5.6 Any reference to a "mark" in this Agreement shall be deemed to
include any stylized form of the mark and any logo or design that includes
the mark.

5.7 Nothing in this Agreement shall affect any rights or
liabilities between or among the parties arising from any tax allocation
agreement, or from any balances owed on previous commercial transactions
between PriceCostco or any of its Downstream Affiliates and either Price
Global, PGT, Price Quest, or PQI.

6. CERTAIN "PRICE" MARKS

6.1 "PRICESMART" AGREEMENT. PriceCostco on behalf of itself and
its Downstream Affiliates and PEI on behalf of itself and its Downstream
Affiliates agree that PEI and its Downstream Affiliates may use the name
"Price" in a "PriceSmart" mark, but they shall not use a "PriceSmart" mark
for or in connection with a Club Business or any other membership activity
named "PriceSmart" in the United States, Canada or Mexico; no such limitation
applies outside the United States, Canada or Mexico.

This limitation as to use of the name "Price" and the mark
"PriceSmart" shall no longer apply commencing 24 months after PriceCostco and
its Downstream Affiliates cease their use of the names and marks "Price
Costco" and "Price Club."

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6.2 PROMOTION. PEI and its Downstream Affiliates shall not in any
way promote their businesses using the "PriceCostco" or "Price Club" names or
marks, or the goodwill associated with those names and marks except as
otherwise in this Agreement provided.

Nothing contained herein shall restrict the employees of PEI or its
Downstream Affiliates from truthfully referencing their prior employment and
responsibilities with PriceCostco or its Downstream Affiliates if, at the
same time, they expressly disclaim any present association with PriceCostco
and Price Club.

6.3 REGISTRATION PRECLUSION. PEI and its Downstream Affiliates and
PriceCostco and its Downstream Affiliates shall each take reasonable steps
and cooperate with each other so that

(a) any application or registration of the "PriceSmart" mark
does not preclude any application or registration by PriceCostco or its
Downstream Affiliates of the "Price Costco" or "Price Club" marks; and

(b) any application or registration of the "Price Costco" or
"Price Club" marks does not preclude any application or registration by PEI
or its Downstream Affiliates of the "PriceSmart" mark.

6.4 CLAIMS TO "PRICE" MARKS. Neither this Agreement, nor the
License Agreement to be executed under paragraph 3.6(h) above, nor any
trademark assignments to be executed pursuant to this Agreement, nor any
Exhibit to this Agreement, nor the Stipulation of Settlement will

(a) Affect any existing or future rights or liabilities of
any party, or between or among the parties, concerning PEI's or its
Affiliates' application for, or

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registration or use of, or any claim of right or cause of action by any of
them to apply for, register or use, currently or in the future, the "PRICE
ONLINE" mark or any other mark or name of which the word "PRICE" is an
element, or any claims, causes of action, oppositions, and objections of
PriceCostco and its Affiliates with respect thereto--except as explicitly
provided in paragraphs 6.1 through 6.3 above and in the licenses and
assignments to be executed pursuant to this Agreement (and said licenses and
assignments shall not be deemed to affect marks or names other than those
which are the subjects of those licenses and assignments); or

(b) Be deemed a waiver of or estoppel with respect to any
rights or liabilities, or an acquiescence in any act or circumstance, with
respect to any such marks.

7. GENERAL PROVISIONS

7.1 FURTHER ASSURANCES. Subject to the terms and conditions of
this Agreement, parties shall (i) use all reasonable efforts to take or cause
to be taken all actions, and do or cause to be done all things, that are
necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement, (ii) to promptly execute any
assignments, documents, instruments or conveyances of any kind which may be
reasonably necessary or advisable to carry out any of the transactions
contemplated hereunder, and (iii) to cooperate with each other in connection
with the foregoing.

7.2 AFFILIATE COMPLIANCE. PriceCostco and PEI shall each cause
each of their Downstream Affiliates, whether now existing or hereafter formed
and whether

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or not named herein, and shall use best efforts to cause any Person who may
hereafter control either of them as well as any such Person's Downstream
Affiliates, (i) to comply with the terms of this Agreement, and (ii) to take
no act that would interfere or be inconsistent with any of the terms of this
Agreement; and shall use diligent and reasonable efforts to cause their other
Affiliates to do each of the foregoing.

7.3 GUARANTIES. To the extent any Downstream Affiliates of PEI or Price-
Costco perform any duties or assume any liabilities hereunder, PEI and Price-
Costco each hereby guarantee the performance of such duties and the discharge
of such liabilities by its respective Downstream Affiliates.

7.4 ARBITRATION. All claims and disputes between or among the parties
to this Agreement relating in any way to this Agreement or its performance,
interpretation, validity, breach or subject matter (including any contract,
tort or statutory claim), shall be resolved by binding arbitration in the
manner set forth in Section 10.3 of the 1994 Transfer Agreement, which is
hereby incorporated by reference and made a part of this Agreement. Before a
party commences any arbitration, it will give the opposing party or parties
written notice of the claim or dispute, and, during the seven (7) days
following the notice, the parties concerned will make diligent and reasonable
efforts to confer at least once (by telephone or in person) in an attempt to
resolve the claim or dispute.

7.5 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New York (regardless of the laws that might be applicable under
principles of conflicts of law) as to all matters, including but not limited
to matters of validity, construction, effect, performance and remedies.

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7.6 NOTICES. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed duly given upon (a)
transmitter's confirmation of a receipt of a facsimile transmission,
(b)confirmed delivery by a standard overnight carrier or (c) the expiration
of five (5) business days after the day when mailed by certified or
registered mail, postage prepaid, addressed to the following addresses (or at
such other address as PriceCostco or PEI shall specify by like notice):

If to PriceCostco or TPC, to:

Price/Costco, Inc.
999 Lake Drive
Issaquah, Washington 95027

Attention: James D. Sinegal
and
Joel Benoliel

If to PEI, Price Global or Price Quest, to:

Price Enterprises, Inc.
4649 Morena Boulevard
San Diego, California 92117

Attention: Robert E. Price
and
Robert M. Gans

Any matter or material for which consent or approval is sought or required
under paragraph 5.4(b) of this Agreement shall first be sent under this
notice provisions to the party from whom consent or approval is sought.

7.7 AMENDMENT: WAIVER. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto. Any agreement on
the part of a party hereto to an extension or waiver with respect to any
obligation or

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condition hereunder shall be valid only if set forth in an instrument in
writing signed on behalf of such party.

7.8 BINDING EFFECT: NO ASSIGNMENTS. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. No party may
assign any of its rights or delegate any of its duties hereunder, except as
expressly stated herein or except to a party's Downstream Affiliate.

7.9 SEVERABILITY. If any provision of this Agreement shall be held
invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not
affect any other provision hereof.

7.10 INTERPRETATION. The descriptive headings contained in this
Agreement are solely for convenience of reference, and do not constitute a
part of this Agreement and shall not in any way affect the meaning or
interpretation of this Agreement.

7.11 COMPLETE AGREEMENT. This Agreement and the Stipulation of
Settlement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior agreements and understandings
with respect thereto.

7.12 COUNTERPARTS. This Agreement may be executed in two or more
counterparts all of which shall be considered one and the same agreement and
each of which shall be deemed an original.

7.13 TERMINATION. This Agreement will terminate and be of no further
force or effect if, before the Effective Date, the Stipulation of Settlement
terminates.

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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the day and year
first above written.

PRICE/COSTCO, INC.

By: /s/ James D. Sinegal
----------------------------------------