<PAGE>
SCHEDULE 14A INFORMATION
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
PRICESMART, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
NOT APPLICABLE
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
NOT APPLICABLE
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
NOT APPLICABLE
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
NOT APPLICABLE
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
NOT APPLICABLE
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
NOT APPLICABLE
------------------------------------------------------------------------
(3) Filing Party:
NOT APPLICABLE
------------------------------------------------------------------------
(4) Date Filed:
NOT APPLICABLE
------------------------------------------------------------------------
<PAGE>
PRICESMART, INC.
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS AND PROXY STATEMENT
TO THE STOCKHOLDERS OF PRICESMART, INC.:
Notice is hereby given that the Annual Meeting of the Stockholders of
PriceSmart, Inc. (the "Company"), will be held at 10:00 a.m. on Tuesday,
January 12, 1999 at the San Diego Hilton Beach and Tennis Resort, 1775 E.
Mission Bay Drive, San Diego, California 92109 for the following purposes:
1. To elect directors for the ensuing year, to serve until the next
Annual Meeting of Stockholders and until their successors are elected and
have qualified. The present Board of Directors of the Company has
nominated and recommends for election as directors the following six
persons:
Rafael E. Barcenas Lawrence B. Krause
Katherine L. Hensley Gilbert A. Partida
Leon C. Janks Robert E. Price
2. To approve the adoption of the 1998 Equity Participation Plan of
PriceSmart, Inc. and the reservation of 700,000 shares of the Company's
common stock for issuance thereunder.
3. To transact such other business as may be properly brought before
the Annual Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. The Board of Directors has fixed the
close of business on November 16, 1998 as the record date for the
determination of stockholders entitled to notice of and to vote at the Annual
Meeting. A list of such stockholders shall be open to the examination of any
stockholder at the Annual Meeting and for a period of ten days prior to the
date of the Annual Meeting at the offices of PriceSmart, Inc., 4649 Morena
Blvd., San Diego, California, 92117.
Accompanying this Notice is a Proxy. WHETHER OR NOT YOU EXPECT TO BE AT
THE ANNUAL MEETING, PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT
PROMPTLY. If you plan to attend the Annual Meeting and wish to vote your
shares personally, you may do so at any time before the Proxy is voted.
All stockholders are cordially invited to attend the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Robert M. Gans
SECRETARY
San Diego, California
December 2, 1998
<PAGE>
PRICESMART, INC.
4649 MORENA BLVD.
SAN DIEGO, CALIFORNIA 92117
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
JANUARY 12, 1999
The Board of Directors of PriceSmart, Inc., a Delaware corporation
(the "Company"), is soliciting the enclosed Proxy for use at the Annual
Meeting of Stockholders of the Company to be held on January 12, 1999 (the
"Annual Meeting"), and at any adjournments thereof. This Proxy Statement
will be first sent to stockholders on or about December 2, 1998. Unless
contrary instructions are indicated on the Proxy, all shares represented by
valid proxies received pursuant to this solicitation (and not revoked before
they are voted) will be voted for the election of the Board's nominees for
directors and for the approval of the adoption of The 1998 Equity
Participation Plan of PriceSmart, Inc. As to any other business which may
properly come before the Annual Meeting and be submitted to a vote of the
stockholders, Proxies received by the Board of Directors will be voted in
accordance with the best judgment of the holders thereof.
A Proxy may be revoked by written notice to the Secretary of the
Company at any time prior to the Annual Meeting, by executing a later Proxy
or by attending the Annual Meeting and voting in person.
The Company will bear the cost of solicitation of Proxies. In
addition to the use of mails, Proxies may be solicited by personal interview,
telephone or telegraph, by officers, directors, and other employees of the
Company. The Company also will request persons, firms, and corporations
holding shares in their names, or in the names of their nominees, which are
beneficially owned by others to send or cause to be sent Proxy material to,
and obtain Proxies from, such beneficial owners and will reimburse such
holders for their reasonable expenses in so doing.
The Company's mailing address is 4649 Morena Blvd., San Diego,
California 92117.
VOTING
Stockholders of record at the close of business on November 16,
1998 (the "Record Date") will be entitled to notice of and to vote at the
Annual Meeting or any adjournments thereof.
As of November 16, 1998, 5,315,794 shares of the Company's common
stock, $.0001 par value per share ("Common Stock"), were outstanding,
representing the only voting securities of the Company. Each share of Common
Stock is entitled to one vote.
Votes cast by Proxy or in person at the Annual Meeting will be
counted by the person appointed by the Company to act as Inspector of
Election for the Annual Meeting. The Inspector of Election will treat shares
represented by Proxies that reflect abstentions or include "broker non-votes"
as shares that are present and entitled to vote for purposes of determining
the presence of a quorum. Abstentions or "broker non-votes" do not
constitute a vote "for" or "against" any matter and thus will be disregarded
in the calculation of "votes cast." Any unmarked Proxies, including those
submitted by brokers or nominees, will be voted in favor of the nominees of
the Board of Directors and for the approval of the adoption of The 1998
Equity Participation Plan of PriceSmart, Inc., as indicated in the
accompanying Proxy card.
1
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of November 16, 1998 by (i) each
of the Company's directors, (ii) each of the Company's Named Executive
Officers (as defined herein), (iii) each person who is known by the Company
to own beneficially more than 5% of the Common Stock and (iv) all directors
and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
OF COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS(1) OWNED(2) OWNED
- ------------------------- --------- -----
<S> <C> <C>
Robert E. Price(3) 1,312,423 24.7%
Gilbert A. Partida(4) 34,550 *
Rafael E. Barcenas 2,716 *
Katherine L. Hensley(5) 6,253 *
Leon C. Janks(6) 6,087 *
Lawrence B. Krause(7) 3,666 *
Robert M. Gans(8) 37,569 *
Karen J. Ratcliff(9) 18,750 *
Theodore A. Wallace(10) 43,580 *
Performance Capital, L.P.(11)
767 Third Avenue, 16th Floor
New York, NY 10017 326,500 6.1%
Wynnefield Partners Small Cap Value,
L.P.(12)
One Penn Plaza, Suite 4720
New York, NY 10119 320,900 6.0%
Sol Price(13)
7979 Ivanhoe Avenue, Suite 520
La Jolla, CA 92037 1,780,249 33.5%
All executive officers and
directors as a group (10 persons)(14) 1,457,639 27.4%
</TABLE>
__________
* Less than 1%.
(1) Except as indicated, the address of each person named in the table is c/o
PriceSmart, Inc., 4649 Morena Blvd., San Diego, California 92117.
(2) Beneficial ownership of directors, officers and 5% or more stockholders
includes both outstanding Common Stock and shares issuable upon exercise of
options that are currently exercisable or will become exercisable within 60
days after the date of this table. Except as indicated in the footnotes to
this table and pursuant to applicable community property laws, the persons
named in the table have sole voting and investment power with respect to
all shares of Common Stock beneficially owned by them.
(3) Includes 1,278 shares held by Mr. Price as custodian for his minor children
(UGMA-CA), 320,434 shares held by the Robert and Allison Price Trust, of
which Mr. Price is a trustee, 312,500 shares held by the Robert & Allison
Price Charitable Trust, of which Mr. Price is a trustee, 22,566 shares held
by a trust for the benefit of Mr. Price's minor children, of which Mr.
Price is a trustee, and 655,645 shares held by the Price Family Charitable
Fund, of which Mr. Price is a director. Mr. Price disclaims beneficial
ownership of the shares held by the Price Family Charitable Fund.
(4) Includes 20,750 shares subject to options that are currently exercisable or
will become exercisable within 60 days after the date of this table. Also
includes 325 shares held in a tenants in common account with two other
individuals. Each of the individuals has dispositive power with respect to
the shares in the account.
(5) Includes 3,371 shares subject to options that are currently exercisable or
will become exercisable within 60 days after the date of this table.
2
<PAGE>
(6) Includes 3,371 shares subject to options that are currently exercisable or
will become exercisable within 60 days after the date of this table.
(7) Includes 2,716 shares held by the Krause Family Limited Partnership, of
which Mr. Krause is a general partner. Also includes 750 shares subject to
options that are currently exercisable or will become exercisable within 60
days after the date of this table.
(8) Includes 8,750 held for Mr. Gans' account in a profit sharing and 401(k)
plan maintained by his former employer. Also includes 28,819 shares
subject to options that are currently exercisable or will become
exercisable within 60 days after the date of this table.
(9) Includes 10,000 shares subject to options that are currently exercisable or
will become exercisable within 60 days after the date of this table.
(10) Includes 35,758 shares subject to options that are currently exercisable or
will become exercisable within 60 days after the date of this table.
(11) Includes 7,500 shares held by Performance Capital II, L.P. and 6,200 shares
held by Performance Offshore, Ltd.
(12) Includes 120,359 shares held by Wynnefield Partners Small Cap Value, L.P. -
I and 63,520 shares held by Wynnefield Small Cap Value Offshore Fund, Ltd.
(13) Includes 168,102 shares held by the Sol & Helen Price Trust, of which Mr.
Price is trustee, 911,190 shares held by the Price Family Charitable Trust,
of which Mr. Price is trustee, 655,645 shares held by the Price Family
Charitable Fund, of which Mr. Price is a director, 8,737 shares held by the
Marion Brodie Trust, of which Mr. Price is a trustee, and 36,575 shares
held by the Dorothy Goldberg Trust, of which Mr. Price is a trustee. Mr.
Price disclaims beneficial ownership of the shares held by the Price Family
Charitable Fund, the Marion Brodie Trust and the Dorothy Goldberg Trust.
(14) See notes (4)-(9). Also includes 26,875 shares beneficially owned by
Thomas D. Martin (including 11,857 shares subject to options that are
currently exercisable or will become exercisable within 60 days after the
date of this table) and 8,750 shares beneficially owned by Kurt A. May.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company has nominated and recommends
for election as directors the following six persons to serve until the next
Annual Meeting of Stockholders and until their respective successors shall
have been duly elected and shall qualify. All of the nominees are presently
directors of the Company, and following the Annual Meeting there will be no
vacancies on the Board. The enclosed Proxy will be voted in favor of the
persons nominated unless otherwise indicated. If any of the nominees should
be unable to serve or should decline to do so, the discretionary authority
provided in the Proxy will be exercised by the present Board of Directors to
vote for a substitute or substitutes to be designated by the Board of
Directors. The Board of Directors does not believe at this time that any
substitute nominee or nominees will be required. In the event that a nominee
for director is proposed at the Annual Meeting, the enclosed proxy may be
voted in favor of or against such nominee or any other nominee proposed by
the Board of Directors.
3
<PAGE>
The table below indicates the name, position with the Company and
age of each nominee for director:
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
Robert E. Price Chairman of the Board 56
Gilbert A. Partida President, Chief Executive Officer and 36
Director
Rafael E. Barcenas Director 54
Katherine L. Hensley Director 61
Leon C. Janks Director 49
Lawrence B. Krause Director 68
</TABLE>
INFORMATION REGARDING DIRECTORS
Robert E. Price has been Chairman of the Board of the Company since
July 1994 and served as President and Chief Executive Officer of the Company
from July 1994 until January 1998. Mr. Price also serves as Chairman of the
Board of Price Enterprises, Inc. ("PEI"), having held that position since
July 1994, and was President and Chief Executive Officer of PEI from July
1994 until September 1997. Mr. Price was Chairman of the Board of
Price/Costco, Inc. ("Costco") from October 1993 to December 1994. From 1976
to October 1993, he was Chief Executive Officer and a director of The Price
Company ("TPC"). Mr. Price served as Chairman of the Board of TPC from
January 1989 to October 1993, and as its President from 1976 until December
1990.
Gilbert A. Partida has been a director of the Company since July
1997 and has been President and Chief Executive Officer of the Company since
January 1998. Mr. Partida was President and Chief Executive Officer of the
Greater San Diego Chamber of Commerce from January 1993 until December 1997.
Prior to joining the Chamber of Commerce, Mr. Partida was an attorney with
the law firm of Gray, Cary, Ames & Frye in San Diego, California from 1987 to
1992.
Rafael E. Barcenas has been a director of the Company since April
1998. Mr. Barcenas has also been a director and officer of PriceCostco de
Panama, S.A., and P.B. Real Estate, S.A., which are subsidiaries of the
Company, since their formation in September 1995 and July 1997, respectively.
Additionally, Mr. Barcenas has been a principal of BB&M International
Trading Group, a Panamanian company (which is the 49% owner of both
PriceCostco de Panama, S.A. and P. B. Real Estate, S.A.) since March 1995.
Mr. Barcenas also has been Vice President of Boyd, Barcenas, S.A., the
largest advertising agency in Panama, since April 1971.
Katherine L. Hensley has been a director of the Company since July
1997 and served as a director of PEI from December 1994 until July 1997. She
is a lawyer and a retired partner of the law firm of O'Melveny & Myers in Los
Angeles, California. Ms. Hensley joined O'Melveny & Myers in 1978 and was a
partner from 1986 to February 1992. 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 from March 1995 until July 1997. 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.
Lawrence B. Krause has been a director of the Company since July
1997. Mr. Krause has been a Professor and the Director of the Korea-Pacific
Program at the Graduate School of International Relations and Pacific Studies
at the University of California, San Diego since 1986. He became a Professor
Emeritus in 1997. Mr. Krause also serves on advisory boards for a number of
institutions including the Institute for International Economics, the Korea
Economic Institute, the Committee on Asian Economic Studies and the U.S.
National Committee for Pacific Economic Cooperation.
4
<PAGE>
INFORMATION REGARDING THE BOARD
BOARD MEETINGS
The Company's Board of Directors held seven meetings during fiscal
1998. No nominee for director who served as a director during the past year
attended fewer than 75% of the aggregate of the total number of meetings of
the Board of Directors and the total number of meetings of committees of the
Board of Directors on which he or she served.
COMMITTEES OF THE BOARD
AUDIT COMMITTEE. The Audit Committee, which consists of Messrs.
Janks and Krause and Ms. Hensley, held two meetings during fiscal 1998. The
Audit Committee reviews the annual audits of the Company's independent public
accountants, reviews and evaluates internal accounting controls, recommends
the selection of the Company's independent public accountants, reviews and
passes upon (or ratifies) 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, which consists
of Ms. Hensley and Mr. Krause, held eleven meetings during fiscal 1998. The
Compensation Committee reviews salaries, bonuses and stock options of
executive officers of the Company, and administers the Company's executive
compensation policies and stock option plans.
NOMINATING COMMITTEE. The Nominating Committee, which consists of
Ms. Hensley and Mr. Price, held two meetings during fiscal 1998. The
Nominating Committee recommends candidates to fill vacancies on the Board of
Directors or any 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 gives 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, which consists of
Messrs. Price, Partida and Janks, held no meetings during fiscal 1998. The
Executive Committee has all powers and rights necessary to exercise the full
authority 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, which consists of
Messrs. Janks, Barcenas, Krause, Partida and Price and Ms. Hensley, held four
meetings during fiscal 1998. The Finance Committee reviews and makes
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 DIRECTORS
Each non-employee director of the Company receives $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 Board. In addition, non-employee
directors who serve on committees of the Board (in a capacity other than
chairman of a committee) receive $500 for each meeting attended. The
chairman or vice chairman of any committee may receive additional
compensation to be fixed by the Board. Each director is eligible to receive
stock grants and stock options pursuant to the Company's 1997 Stock Option
Plan and 1998 Equity Participation Plan.
5
<PAGE>
Directors also receive reimbursement for travel expenses incurred
in connection with their duties as directors.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
SLATE OF NOMINEES SET FORTH ABOVE. PROXIES SOLICITED BY THE BOARD OF
DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY OTHERWISE ON THE
ACCOMPANYING PROXY.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company and their ages as of December
2, 1998 are as follows:
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
Gilbert A. Partida President and Chief Executive Officer 36
Robert M. Gans Executive Vice President, Secretary and General 49
Counsel
Thomas D. Martin Executive Vice President 42
Kurt A. May Executive Vice President and Chief Operating 45
Officer
Karen J. Ratcliff Executive Vice President and Chief Financial 46
Officer
</TABLE>
Gilbert A. Partida has been a director of the Company since July 1997 and has
been President and Chief Executive Officer of the Company since January 1998.
Mr. Partida was President and Chief Executive Officer of the Greater San
Diego Chamber of Commerce from January 1993 until December 1997. Prior to
joining the Chamber of Commerce, Mr. Partida was an attorney with the law
firm of Gray, Cary, Ames & Frye in San Diego, California from 1987 to 1992.
Robert M. Gans has been Executive Vice President, General Counsel
and Secretary of the Company since August 1997 and was Executive Vice
President and General Counsel of PEI from October 1994 until July 1997. Mr.
Gans graduated from the UCLA School of Law in 1975 and actively practiced law
in private practice from 1975 until 1994. From 1988 until October 1994, Mr.
Gans was the senior member of the law firm of Gans, Blackmar & Stevens,
A.P.C., of San Diego, California.
Thomas D. Martin has been Executive Vice President of the Company
since October 1998 and served as Senior Vice President of the Company since
August 1997. Mr. Martin previously had served as Vice President of PEI from
August 1994 until July 1997, directing merchandising strategies and product
sourcing for its international merchandising business, in addition to
managing its trading company activities. Prior to joining PEI as Vice
President in August 1994, Mr. Martin served as Vice President of Costco from
October 1993 to December 1994 and had served in various management roles for
TPC.
Kurt A. May has been Executive Vice President and Chief Operating
Officer of the Company since October 1998. Prior to joining PriceSmart, Mr.
May was employed by GTE Corporation for twenty-three years, serving in a wide
range of functional disciplines including his most recent role as Area
President of GTE Wireless since 1995.
Karen J. Ratcliff has been Executive Vice President and Chief
Financial Officer of the Company since September 1997. From October 1995 to
September 1997, Ms. Ratcliff operated a financial advisory firm in Orange
County. From January 1991 to August 1995, Ms. Ratcliff worked for a publicly
traded company, Vans, Inc., serving first as Vice President and Controller
and, subsequently, as Vice President and Chief Financial Officer. Ms.
Ratcliff also spent a number of years working at the Securities and Exchange
Commission in Washington, D.C. and at KPMG Peat Marwick. Ms. Ratcliff
graduated from California State University at Dominguez Hills in 1983 with
Bachelor of Science Degrees in Accounting and Business Information Systems
and is a Certified Public Accountant.
6
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth certain information concerning
compensation for the fiscal year ended August 31, 1998 received by the Chief
Executive Officer and executive officers of the Company whose compensation
exceeded $100,000 for either of those years (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
---------------------------------- ---------------------------------------
NUMBER OF
OTHER SECURITIES
NAME AND FISCAL ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION OPTIONS(#)(1) COMPENSATION(2)
- ------------------ ------ --------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Price(3) 1998 $ 81,058 $ 0 $ 5,117(4) $ 0 $ 3,564
Former President and Chief
Executive Officer
Gilbert A. Partida(5) 1998 134,711 85,000 0 140,500 10,325
President and Chief Executive
Officer
Robert M. Gans 1998 167,708 25,000 0 82,725 3,583
Executive Vice President,
General Counsel and Secretary
Karen J. Ratcliff(6) 1998 119,163 20,000 0 76,250 22,012(7)
Executive Vice President and
Chief Financial Officer
Theodore Wallace 1998 104,167 0 0 61,966 103,583(8)
Former Executive Vice
President and Chief Operating
Officer
</TABLE>
_______________________
(1) In connection with the spin-off of the Company from PEI in August 1997, the
Company granted replacement options ("Replacement Options") to officers and
employees who left PEI to join the Company. The Replacement Options were
granted with exercise prices and with respect to numbers of shares of the
Company's Common Stock designed to retain the intrinsic value of the
options replaced. The number of securities shown in the column under the
heading "Number of Securities Underlying Options" includes Replacement
Options covering 46,475 shares of Common Stock issued to Mr. Gans and
Replacement Options covering 61,966 shares of Common Stock issued to Mr.
Wallace. The Number of Securities Underlying Options shown for Mr. Partida
include 3,000 shares of Common Stock underlying options granted to Mr.
Partida as an independent member of the Company's Board.
(2) Includes profit sharing and 401(k) matching contributions of $3,564 made by
the Company under the Company's Profit Sharing Plan to Mr. Price and profit
sharing and 401(k) matching contributions of $3,583 made by the Company
under the Company's Profit Sharing Plan to Messrs. Gans and Wallace.
(3) Mr. Price served as President and Chief Executive Officer of the Company
until January 11, 1998.
(4) Consists of health insurance premiums paid by the Company.
(5) Mr. Partida commenced employment with the Company on January 12, 1998. The
amount shown in the salary column reflects amounts actually paid to Mr.
Partida during fiscal 1998. The amount shown under the bonus column for
Mr. Partida includes a $50,000 signing bonus. The amount shown in the "All
Other Compensation" column includes $10,325 paid to Mr. Partida as director
fees prior to January 12, 1998.
7
<PAGE>
(6) Ms. Ratcliff commenced employment with the Company on September 29, 1997.
The amount shown in the salary column reflects amounts actually paid to Ms.
Ratcliff during fiscal 1998.
(7) Consists of $22,012 reimbursement of losses and expenses incurred by Ms.
Ratcliff in connection with the sale of her home prior to moving to San
Diego to assume her current position with the Company.
(8) Includes a severance payment of $100,000 paid to Mr. Wallace upon
termination of his employment on March 6, 1998. The Company has entered
into a two-year Independent Contractor Agreement dated as of March 6, 1998
with Mr. Wallace, pursuant to which he has agreed to perform consulting
services and to certain covenants not to compete. Under the Agreement, Mr.
Wallace will receive $110,000 upon termination of the Agreement and his
options will continue to vest during the term of the Agreement.
OPTION GRANTS DURING FISCAL 1998
The following table sets forth certain information with respect to
options to purchase Common Stock granted during the fiscal year ended August
31, 1998 to each of the Named Executive Officers. The Company does not have
any outstanding stock appreciation rights.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE OR PRICE APPRECIATION FOR
OPTIONS EMPLOYEES IN BASE PRICE PER EXPIRATION OPTION TERM(1)
NAME GRANTED (#) FISCAL YEAR(%) SHARE ($/SH) DATE 0% 5% 10%
- ------------------- ------------ -------------- -------------- ---------- ---- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Robert E. Price 0 N/A N/A N/A N/A N/A N/A
Gilbert A. Partida 3,000 0.3% $17.88 10/9/07 $ 0 $ 33,734 $ 85,488
100,000 8.5 17.00 1/12/04 0 578,163 1,311,654
37,500 3.2 15.50 8/7/04 0 197,681 448,470
Robert M. Gans 46,475 3.9 8.59 1/11/01 431,753 610,833 817,407
10,000 0.8 17.88 10/8/03 0 60,809 137,955
26,250 2.2 15.50 8/7/04 0 138,376 313,929
Karen J. Ratcliff 50,000 4.2 17.88 10/8/03 0 304,046 689,776
26,250 2.2 15.50 8/7/04 0 138,376 313,929
Theodore Wallace 61,966 5.2 8.59 1/11/01 575,664 814,435 1,089,865
</TABLE>
_______________________
(1) The potential realizable values are based on an assumption that the stock
price of the Company's Common Stock will appreciate at the annual rate
shown (compounded annually) from the date of grant until the end of the
option term. These values do not take into account amounts required to be
paid as income taxes under the Internal Revenue Code and any applicable
state laws or option provisions providing for termination of an option
following termination of employment, non-transferability or vesting. These
amounts are calculated based on the requirements promulgated by the
Commission and do not reflect the Company's estimate of future stock price
growth of the shares of the Company's Common Stock.
8
<PAGE>
OPTIONS EXERCISED DURING FISCAL 1998 AND OPTION VALUES
The following table sets forth certain information with respect to the
exercise of options to purchase Common Stock during the fiscal year ended
August 31, 1998, and the unexercised options held and the value thereof at
that date, for each of the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR FISCAL YEAR END
ACQUIRED END (#) ($)(1)
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Robert E. Price 0 0 0/0 $0/$0
Gilbert A. Partida 0 0 0/140,500 $0/$0
Robert M. Gans 0 0 7,163/75,562 $40,972/$224,865
Karen J. Ratcliff 0 0 10,000/66,250 $0/$0
Theodore Wallace 0 0 9,550/52,416 $54,626/$299,820
</TABLE>
____________
(1) Based on the closing sale price of the Common Stock on Monday, August 31,
1998 ($14.31), as reported by the Nasdaq National Market, less the option
exercise price.
PROFIT SHARING AND 401(k) PLAN
The Company recently established a new profit sharing and 401(k)
plan (the "PriceSmart Plan"). The PriceSmart Plan has terms and conditions
substantially similar to The PEI Profit Sharing and 401(k) Plan (the "PEI
Plan"), of which PriceSmart was a sponsor from the time of the spin-off of
the Company from PEI until the establishment of the PriceSmart Plan. The
PriceSmart Plan is a split up of that portion of the PEI Plan which is
attributable to employees of the Company.
The PriceSmart Plan is a profit-sharing plan designed to be a
"qualified" plan under applicable provisions of the Code, covering all
employees who have completed one year of service, as defined in the
PriceSmart Plan. Under the PriceSmart Plan, the Company may, in its
discretion, make annual contributions with respect to its employees which may
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 PriceSmart 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 PriceSmart Plan.
All participants in the PriceSmart 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, PEI, Costco, TPC and certain affiliated parties. A participant
initially is 20% vested after the completion of two years of service, 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. 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 PriceSmart Plan provides that the Board of
Directors of the Company may at any time declare the PriceSmart Plan
partially or completely terminated with respect to the
9
<PAGE>
employees of the Company in which event the account of each participant with
respect to whom the PriceSmart Plan is terminated will become fully vested.
1997 PRICESMART STOCK OPTION PLAN
In August 1997, the Company adopted the 1997 PriceSmart Stock
Option Plan of PriceSmart, Inc. (the "1997 Plan"). The PriceSmart Stock
Option Plan was approved by PEI as sole stockholder of the Company as of
August 7, 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, 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 provides for formula grants of Options
("Director Options") to the Company's independent non-employee directors.
The 1997 Plan provides for option grants covering up to 700,000
shares of the Company's Common Stock. As of November 16, 1998, options to
purchase an aggregate of 631,188 shares of Common Stock at prices ranging
from $8.59 to $17.88 were outstanding under the 1997 Plan. A total of 68,812
shares remain available for grant under the 1997 Plan.
COMPENSATION COMMITTEE MEMBERSHIP, INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, the Company's Compensation Committee (the
"Committee") initially consisted of Ms. Hensley, Mr. Krause and Mr. Partida.
Mr. Partida resigned from the Committee upon becoming President and Chief
Executive Officer of the Company on January 12, 1998, at which time Mr. Halis
became a member of the Committee. Mr. Halis remained a member until his
resignation from the Board of Directors in July 1998. Thereafter, the
Committee consisted of Ms. Hensley and Mr. Krause. There were no insider
participations nor compensation committee interlocks among the members of the
Committee during fiscal 1998. At all times the Committee has been and is
composed solely of independent non-employee directors.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation of the Chief Executive Officer, Chief Financial
Officer and other Executive Vice Presidents of the Company ("Executive
Officers") is reviewed by the Committee. The Committee is responsible for
reviewing salaries, bonuses and perquisites (if any) of the Executive
Officers. The Committee also administers the Company's compensation plans
for the Company's Executive Officers, including the Company's stock option
plans and the granting of options and any other awards thereunder.
GENERAL COMPENSATION PHILOSOPHY
The Company's executive compensation policies are designed to meet
the following objectives: (i) to attract and retain talented executives; (ii)
to reward appropriately individual achievement; and (iii) to enhance the
financial performance of the Company, and thus stockholder value, by
significantly aligning the financial interests of the Company's executives
with those of its stockholders. To accomplish these objectives the Company's
executive compensation program consists of: (i) annual base salaries; (ii)
cash bonuses; and (iii) stock option grants and a stock purchase program
aligned with stock option grants.
Executive Officers also participate in other benefit plans
available to employees generally, including the Company's Profit Sharing and
401(k) Plan and a medical plan.
10
<PAGE>
ANNUAL BASE SALARIES AND BONUSES
The Committee determines base salaries of the Executive Vice
Presidents by considering the recommendations of the Chief Executive Officer
together with such factors as job complexity, level of responsibility, how
the position relates to the Company's long-term strategic goals, and the
particular individual's skills, experience, background and performance.
While there are no pre-established weightings given to these factors,
particular importance is placed on attracting and retaining quality
individuals in order to establish and secure an effective executive team for
the Company. During the past fiscal year the Committee approved the base
salaries of the Company's new President and Chief Executive Officer (Gil
Partida), new Chief Financial Officer (Karen Ratcliff) and new Chief
Operating Officer and Executive Vice President (Kurt May). Additionally, the
Committee approved the terms of a severance agreement and a consulting
agreement for an Executive Officer (Ted Wallace) who terminated employment
with the Company in March 1998.
The Company's annual bonus program is designed to reward the
Company's Executive Officers for individual achievement in supporting the
fulfillment of corporate objectives. For the past fiscal year, the Committee
awarded bonuses to Messrs. Partida, Gans and Martin and Ms. Ratcliff.
STOCK OPTIONS AND STOCK PURCHASE PROGRAM
The long-term incentive aspect of the Company's executive
compensation program is realized primarily by the granting of stock options.
Stock option awards are viewed as a particularly effective tool to attract
experienced and talented employees and to encourage their long-term quality
performance with the Company. Since the value of the stock option is
dependent upon stock performance, the stock option program directly aligns
employee compensation with the interests of the Company's stockholders.
Stock options are granted by the Committee based upon the
recommendations of senior management. Stock options generally are granted at
a price equal to the fair market value of a share of the Company's Common
Stock as of the date of Committee approval of the grant or the effective date
of grant. The Company granted two types of options to officers and employees
following the spin-off of the Company from PEI: (i) standard options granted
at an exercise price equal to the average closing sale price of the Company's
Common Stock in the twenty trading days commencing with the sixth day
following the spin-off; and (ii) Replacement Options granted with terms,
including exercise price, meant to preserve the inherent value of PEI options
held by individuals employed by PEI prior to the spin-off. Stock options
generally are exercisable at the rate of 20% per year, thereby providing an
incentive for the grantee to remain with the Company; Replacement Options are
exercisable at a rate consistent with the PEI options that they replaced. In
the past year, the Company expanded its executive compensation program to
include an opportunity for executive officers to purchase stock directly from
the Company at fair market value. The Company provides financing for such
purchases and grants additional options to those executive officers who make
such purchases. In authorizing such stock purchases and in making option
grants, the Committee considers the anticipated future performance of the
employee and that individual's ability to impact positively the achievement
of the Company's objectives. During the past fiscal year the Committee
authorized stock purchases by Messrs. Gans, Martin and May and Ms. Ratcliff
and approved new stock option grants to Messrs. Partida, Gans, Martin and May
and Ms. Ratcliff; the Committee also approved the grant of Replacement
Options to Messrs. Gans and Martin.
11
<PAGE>
CHIEF EXECUTIVE OFFICER COMPENSATION
Gil Partida is the President and Chief Executive Officer of the
Company. The Committee considered Mr. Partida's background, abilities and
potential for successfully implementing the Company's business objectives in
its approval of Mr. Partida's annual base salary ($225,000), signing bonus
($50,000) and initial option grant (100,000 stock options). Mr. Partida's
performance bonus ($35,000) and additional option grant (37,500 stock
options) were awarded based upon: (i) the significant effort extended by Mr.
Partida in the refinement and implementation of the Company's business goals;
(ii) Mr. Partida's leadership in the internal re-organization of the Company
to effectuate the Company's business goals; and (iii) Mr. Partida's key role
in establishing new business opportunities for the Company, particularly in
Latin America. The Committee has not commissioned any independent surveys to
determine competitive compensation since the Committee considers Mr.
Partida's total compensation package to be reasonable in view of his position
and responsibilities with the Company, as well as the positive effect Mr.
Partida has had in positioning the Company for future growth.
Robert Price served as President and Chief Executive Officer of the
Company from August 1997 until January 1998. While the Company was still a
subsidiary of PEI, and shortly before the spin-off of the Company from PEI,
the entire Board of the Company approved Mr. Price's annual base salary of
$225,000. In so approving Mr. Price's salary, the Board noted that this
annual base salary was the same that Mr. Price had received as President and
Chief Executive Officer of PEI and that Mr. Price had declined to be
considered for cash bonuses or stock option grants. The Board also
recognized the continuing value of Mr. Price's expertise and important role
in connection with the spin-off of the Company from PEI as well as the
formation and initial implementation of the Company's business goals. The
Board did not commission any independent surveys to determine competitive
compensation since Mr. Price's annual base salary was and is considered to be
modest, in view of the position and responsibilities he held with the
Company. Mr. Price maintained and continues to maintain a personal economic
interest in the performance of the Company, as a result of Mr. Price's
ownership of a significant segment of the Company's outstanding Common Stock.
OMNIBUS BUDGET RECONCILIATION ACT IMPLICATIONS FOR EXECUTIVE COMPENSATION
It is the responsibility of the Board (or the Compensation
Committee) to address the issues raised by the tax laws which make certain
non-performance-based compensation to executives of public companies in
excess of $1,000,000 non-deductible to the Company. In this regard, a
determination must be made as to whether any actions with respect to this
limit should be taken by the Company. At this time, it is not anticipated
that any executive officer will receive compensation in excess of this limit.
Therefore, no action has been taken to comply with the limit other than the
Company's submission of the 1998 Equity Participation Plan to a vote of
stockholders at the Annual Meeting. See Proposal 2--Approval of the Adoption
of the 1998 Equity Participation Plan. Additional action will be taken if it
is warranted in the future.
SUMMARY
It is believed that the above-described cash compensation program
and long-term incentives (in the form of stock option awards and stock
purchase rights) provides appropriate alignment of the long-term interests of
the Company's Executive Officers, the Company and its stockholders.
Katherine Hensley
Lawrence Krause
12
<PAGE>
EMPLOYMENT CONTRACTS
Gilbert A. Partida entered into an employment agreement with the
Company for a term of two years commencing January 12, 1998. Pursuant to
this agreement Mr. Partida is entitled to receive a base annual salary of
$225,000, as well as a signing bonus of $50,000. Mr. Partida 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. Mr. Partida is
eligible to participate in the Company's bonus plan and to receive all other
benefits offered to officers under the Company's standard company benefits
practices and plans. Mr. Partida may terminate the agreement at any time on
120 days' prior written notice. The Company may terminate the agreement for
cause upon immediate notice thereof, or upon the death or disability of Mr.
Partida. In the event that the Company terminates the agreement for any
reason other than cause, death or disability, Mr. Partida will be entitled to
continuation of his base salary for one year, payable in conformity with the
Company's normal payroll period. If the agreement is not terminated, then,
upon expiration of the agreement, and if Mr. Partida's employment by the
Company does not thereafter continue upon mutually agreeable terms, Mr.
Partida will be entitled to continuation of his base salary for one year,
payable in conformity with the Company's normal payroll period; provided,
however, that the Company's obligation to pay such installments after
expiration of the agreement will cease concurrently with Mr. Partida having
commenced comparable employment with, or Mr. Partida receiving comparable
compensation from, another employer. The foregoing severance benefits are
the exclusive benefits that would be payable to Mr. Partida 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.
Robert M. Gans entered into an employment agreement with PEI in
1994, which was amended and subsequently assumed by the Company upon the
spin-off of the Company from PEI. The term of the agreement extends to
October 16, 2000. Pursuant to this agreement Mr. Gans is entitled to receive
a base annual salary of $175,000. 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. Mr. Gans is eligible to participate in
the Company's bonus plan and to receive all other benefits offered to
officers under the Company's standard company benefits practices and plans.
Mr. Gans may terminate the 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 the agreement for any reason other than cause,
death or disability, Mr. Gans will 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 1997 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.
Thomas D. Martin entered into an employment agreement with the
Company for a term of two years commencing April 1, 1998. Pursuant to this
agreement Mr. Martin is entitled to receive a base annual salary of $155,000.
Mr. Martin 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. Mr. Martin is eligible to participate in the Company's bonus plan
and to receive all other benefits offered to officers under the Company's
standard company benefits practices and plans. Mr. Martin may terminate the
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. Martin. In the event that the Company terminates
the agreement for any reason other than cause, death or disability, Mr.
Martin will 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. The foregoing severance benefits are the exclusive
benefits that would be
13
<PAGE>
payable to Mr. Martin 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.
Kurt A. May entered into an employment agreement with the Company
for a term of two years commencing October 19, 1998. Pursuant to this
agreement Mr. May is entitled to receive a base annual salary of $200,000.
Mr. May 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.
Mr. May is eligible to participate in the Company's bonus plan and to receive
all other benefits offered to officers under the Company's standard company
benefits practices and plans. Mr. May may terminate the 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. May. In the event that the Company terminates the
agreement for any reason other than cause, death or disability, Mr. May will
be entitled to continuation of his base salary for one year, payable in
conformity with the Company's normal payroll period. If the agreement is not
terminated, then, upon expiration of the agreement, and if Mr. May's
employment by the Company does not thereafter continue upon mutually
agreeable terms, Mr. May will be entitled to continuation of his base salary
for one year, payable in conformity with the Company's normal payroll period;
provided, however that the Company's obligation to pay such installments
after expiration of the agreement will cease concurrently with Mr. May having
commenced comparable employment with, or Mr. May receiving comparable
compensation from, another employer. The foregoing severance benefits are
the exclusive benefits that would be payable to Mr. May 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.
Karen J. Ratcliff entered into an employment agreement with the
Company for a term of two years commencing September 29, 1997. Pursuant to
this agreement, Ms. Ratcliff is entitled to receive a base annual salary of
$135,000. Ms. Ratcliff may not engage in any activities, with or without
compensation, that would interfere with the performance of her duties or that
would be adverse to the Company's interests, without the prior written
consent of the Company. Ms. Ratcliff is eligible to participate in the
Company's bonus plan and to receive all other benefits offered to officers
under the Company's standard company benefits practices and plans. Ms.
Ratcliff may terminate the 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 Ms. Ratcliff. In the
event that the Company terminates the agreement for any reason other than
cause, death or disability, Ms. Ratcliff will be entitled to the continuation
of her base salary for six months or for the remainder of the term of the
agreement, whichever is greater, payable in conformity with the Company's
normal payroll period; if the agreement is not terminated, then, upon
expiration of the agreement, and if Ms. Ratcliff's employment by the Company
does not thereafter continue upon mutually agreeable terms, Ms. Ratcliff will
be entitled to continuation of her base salary for six months, payable in
conformity with the Company's normal payroll period. Should Ms. Ratcliff
commence full-time employment as a financial officer with another company
prior to such termination payments becoming payable to Ms. Ratcliff, any
payments remaining payable to Ms. Ratcliff will then cease. The foregoing
severance benefits are the exclusive benefits that would be payable to Ms.
Ratcliff by reason of her 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.
PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on
the shares of the Company's Common Stock during fiscal year 1998 (commencing
on September 2, 1997, the date on which the Company became a publicly-held
corporation) with the cumulative total return of The Nasdaq Stock Market
Index (US)(1) and the Nasdaq Retail Trade Index(2) over the same period
(assuming the investment of $100 in the Common
14
<PAGE>
Stock, stocks comprising The Nasdaq Stock Market Index (US) and the stocks
comprising the Nasdaq Retail Trade Stocks Index on September 2, 1997 and the
reinvestment of all dividends).
COMPARISON OF CUMULATIVE TOTAL RETURNS SINCE SEPTEMBER 2, 1997
Among PriceSmart, Inc., The Nasdaq Stock Market Index (US)
and the Nasdaq Retail Trade Stocks Index
Edgar Representation of Data Points Used In Printed Graphic:
<TABLE>
<CAPTION>
Date Company Index Market Index Industry Index
---- ------------- ------------ --------------
<S> <C> <C> <C>
09/02/97 100.000 100.000 100.000
09/30/97 105.797 103.869 105.665
10/31/97 95.652 98.490 99.945
11/28/97 94.928 98.984 102.204
12/31/97 101.087 97.402 101.895
01/30/98 95.652 100.457 103.348
02/27/98 94.203 109.889 112.748
03/31/98 93.478 113.941 122.287
04/30/98 92.754 115.872 122.542
05/29/98 90.580 109.512 118.046
06/30/98 93.116 117.234 124.875
07/31/98 95.290 115.964 115.979
08/31/98 82.971 93.298 85.964
</TABLE>
____________
(1) The Nasdaq Stock Market Index (US) was prepared by the Center for
Research in Security Prices and includes all U.S. Nasdaq Stock
Market companies.
(2 The Nasdaq Retail Trade Stocks Index was prepared by the Center for
Research in Security Prices and includes all U.S. and foreign companies
quoted and traded on Nasdaq that have a primary Standard Industrial
Classification (SIC) Code in any of the following ranges: 5200-5599,
5700-5799 or 5900-5999.
(3) Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns. The lines on the graph
represent monthly index levels derived from compounded daily returns
including all dividends. The indices are reweighted daily, using market
capitalization on the previous trading day.
CERTAIN TRANSACTIONS
RELATIONSHIP WITH PRICE ENTERPRISES, INC.
On August 29, 1997 (the "Distribution Date") Price Enterprises,
Inc. ("PEI") separated its core real estate business and its merchandising
businesses pursuant to a spin-off in which the stockholders of PEI received
Common Stock of the Company through a distribution (the "Distribution").
Pursuant to the Distribution, the Company acquired the merchandising
businesses and PEI retained the real estate business.
Sol Price, who beneficially owns approximately 33.5% of the
Company's outstanding Common Stock, is the father of Robert E. Price, the
Chairman of the Board of the Company. Sol Price has beneficial ownership
through various family and charitable trusts of approximately 19.7% of the
Common Stock of PEI and 29.6% of its 8 3/4% Series A Cumulative Redeemable
Preferred Stock ("Series A Preferred Stock"), which votes together with the
Common Stock with one-tenth of one vote per share. Robert E. Price, who
beneficially owns approximately 24.7% of the Company's Common Stock and is
the Chairman of the Board of the Company also owns 19.8% of
15
<PAGE>
PEI's outstanding Common Stock and 16.1% of its Series A Preferred Stock and
is the Chairman of the Board of PEI.
ARRANGEMENTS WITH PEI RELATING TO 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 into the various agreements, and
have adopted policies, as described below.
The Company and PEI entered into a Distribution Agreement dated as
of August 26, 1997, 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.
PEI and the Company also entered into an Asset Management and
Disposition Agreement dated as of August 26, 1997 calling for PEI to provide
asset management services with respect to certain properties owned by the
Company. Among other things, PEI collects rents and pays operating expenses,
maintains and repairs such properties, prepares month-end financial
statements, hires brokers and prepares brokers' agreements, leases available
space within such properties and disposes of such properties. As
consideration for such services, the Company pays PEI management fees based
on annual rents from such properties, leasing fees based on the gross
leasable floor areas of each such properties, disposition fees based on
percentages of the sales prices for properties that are sold and developer's
fees of 3% of all "hard" construction costs managed by PEI on behalf of the
Company. The agreement has a two-year term; provided that either PEI or the
Company may terminate the agreement upon 60 days written notice.
The Company and PEI entered into a Transitional Services Agreement
dated as of August 26, 1997 pursuant to which PEI and the Company provided
certain services to one another. The fees for such transitional services
(which did not include real estate management services) were based on hourly
rates designed to reflect the costs (including indirect costs) of providing
such services. The transitional services provided to the Company and to PEI
pursuant to the agreement included cash management services, certain
accounting services and certain other similar services. The Transitional
Services Agreement, which originally was to terminate on December 31, 1997,
was extended by agreement of the parties through June 30, 1998, at which time
it expired in accordance with its terms.
The Company and PEI entered into a Tax Sharing Agreement dated as
of August 26, 1997 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 is
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.
The Company and PEI are each responsible for filing their own returns and
paying their own taxes for post-Distribution Date periods.
The ongoing relationships between the Company and PEI may present
certain conflict situations for Robert E. Price who serves as Chairman of the
Board of both the Company and PEI. PEI and the Company have adopted and will
continue to adopt appropriate policies and procedures to be followed by the
Board of Directors of each company to limit the involvement of Mr. Price in
conflict situations, including matters relating to contractual relationships
or litigation between the Company and PEI. Such procedures include requiring
Mr. Price to abstain from voting as a director of both companies with respect
to matters that present a significant conflict of interest between the
companies.
OTHER TRANSACTIONS WITH PEI. The Company leases 42,000 square feet
of office space from PEI to house the Company's headquarters. The Company
pays $25,704 per month pursuant to a two-year lease commencing
16
<PAGE>
August 26, 1997 with five renewal options of two years each. On December 1,
1997, the Company and PEI entered into an Office Services Agreement which
provided that the Company would provide certain office services (such as
receptionist, mail room, telecommunications and voice mail, utilities and
copy services) to PEI, which occupies space in the same building, for $13,450
per month for the first nine months and $7,600 per month for the last twelve
months of the term of the agreement. On June 1, 1998, PEI and the Company
terminated the Office Services Agreement and amended the headquarters lease
to provide that PEI would provide office services to the Company for a fee
based on a percentage of PEI's estimated expenses for providing such services.
On July 30, 1998, the Company sold to PEI a 15 acre parcel of real
estate in Fresno, California for $3,950,000.
SHARE REPURCHASE PROGRAM
In August and September 1998, the Company repurchased 700,000
shares of Common Stock to provide shares for the Company's 1998 Equity
Participation Plan. The Company repurchased 500,000 shares pursuant to its
share repurchase programs in block transactions at prevailing market prices.
The Company also repurchased 200,000 shares from the Sol & Helen Price Trust,
of which Sol Price is trustee, at a price of $15 per share in a privately
negotiated transaction.
PROPOSAL 2
APPROVAL OF THE ADOPTION OF
THE 1998 EQUITY PARTICIPATION PLAN
At the Annual Meeting, the stockholders of the Company will be
asked to consider and vote upon a proposal to approve the adoption of The
1998 Equity Participation Plan of PriceSmart, Inc. (the "Equity Plan") of the
Company described herein. The Equity Plan was adopted by the Board of
Directors on July 20, 1998, subject to approval by the stockholders at the
Annual Meeting.
GENERAL NATURE AND PURPOSES OF THE EQUITY PLAN
The principal purposes of the Equity Plan are to provide incentives
for officers, employees and consultants of the Company and its subsidiaries
through granting of options, restricted stock and other awards ("Awards"),
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 Awards made to officers, employees or
consultants, the Equity Plan provides for the granting of options ("Director
Options") to the Company's non-employee directors pursuant to a formula, as
described in further detail below.
A brief description of the principal features of the Equity Plan
follows, but the description is qualified in its entirety by reference to the
Equity Plan itself, a copy of which is included as Exhibit A to this Proxy
Statement.
ADMINISTRATION OF THE PLAN
The Equity Plan will be administered by the Compensation Committee
of the Company's Board of Directors or a subcommittee thereof (the
"Committee") with respect to options and other awards granted to employees or
consultants and by the full Board of Directors with respect to Director
Options. The Committee will consist of at least two members of the Board of
Directors, 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 an outside director for purposes of Section 162(m) of the Code. Subject
to the terms and conditions of the Equity Plan, the Committee has the
authority to select the persons to whom awards are to be made, 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
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necessary or advisable for the administration of the Equity Plan. Similarly,
the Board of Directors of the Company has discretion to determine the terms
and conditions of Director Options and to interpret and administer the Equity
Plan with respect to such options. The Committee (or the Board of Directors
with respect to Director Options) is also authorized to adopt, amend,
interpret and revoke rules relating to the administration of the Equity Plan.
SECURITIES SUBJECT TO THE EQUITY PLAN
The aggregate number of shares of Common Stock (or the equivalent
in other equity securities) which may be issued upon exercise of options,
stock appreciation rights ("SARs"), and other Awards, or upon vesting of
restricted or deferred stock awards granted under the Equity Plan will not
exceed 700,000. Furthermore, the maximum number of shares which may be
subject to options or SARs granted under the Equity Plan to any individual in
any calendar year cannot exceed 150,000.
The shares available under the Equity Plan upon exercise of stock
options, SARs and other Awards, and for issuance as restricted or deferred
stock awards, may be either previously unissued shares or treasury shares,
and may be equity securities of the Company other than Common Stock. The
Committee (or the Company's Board of Directors with respect to Director
Options) has the discretion to make appropriate adjustments in the number and
kind of securities subject to the Equity Plan and to outstanding Awards
thereunder to reflect dividends or other distributions; a recapitalization,
reclassification, stock split, reverse stock split, or reorganization, merger
or consolidation of the Company; the split-up, spin-off, combination,
repurchase, liquidation or dissolution of the Company; or disposition of all
or substantially all of the assets of the Company or exchange of Common Stock
or other securities of the Company; or other similar corporate transaction or
event (an "extraordinary corporate event").
At November 16, 1998, options covering an aggregate of 548,415
shares of the Company's Common Stock had been granted under the Equity Plan
(not including shares subject to options that have been cancelled), 79,317
shares of Common Stock had been issued under the stock purchase provisions of
the Equity Plan, and 72,268 shares remained available for future grant under
the Equity Plan, assuming stockholder approval of the adoption of the Equity
Plan.
If any portion of a stock option, SAR or other Award terminates or
lapses unexercised, or is cancelled upon grant of a new option, SAR or other
Award (which may be at a higher or lower exercise price than the option, SAR
or other Award so cancelled), the shares which were subject to the
unexercised portion of such option, SAR or other Award, will continue to be
available for issuance under the Equity Plan.
TERM OF EQUITY PLAN AND AMENDMENTS
The Equity Plan will expire on July 20, 2008, unless earlier
terminated. Amendments of the Equity Plan to increase the number of shares as
to which Awards may be made (except for adjustments resulting from stock
splits and the like, and mergers, consolidations and other corporate
transactions) require the approval of the Company's stockholders. In all
other respects the Equity Plan can be amended, modified, suspended or
terminated by the Committee or the Board of Directors, unless such action
would otherwise require stockholder approval as a matter of applicable law,
regulation or rule. Amendments of the Equity Plan will not, without the
consent of the participant, affect such person's rights under an Award
previously awarded, unless the Award agreement governing such Award itself
otherwise expressly so provides.
ELIGIBILITY
Options, SARs, restricted stock and other Awards under the Equity
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 Awards
also may be granted to consultants of the Company selected by the Committee
for participation in the Equity Plan. Approximately 150 employees are
eligible to participate in the Equity Plan. More than one option, SAR or
other
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Award may be granted to an employee or consultant, but to the extent the
aggregate fair market value of stock with respect to which ISOs (as defined
herein) (determined without regard to the vesting limitations contained in
Section 422(d) of the Code) are exercisable for the first time by an optionee
during any calendar year exceeds $100,000, such options will be taxed as
nonqualified stock options. For this purpose, the fair market value of stock
will be determined as of the time the option is granted. Non-employee
directors of the Company and its subsidiaries may be granted NQSOs (as
defined herein) in accordance with the Equity Plan.
PAYMENT FOR SHARES
The exercise or purchase price for all options, SARs, restricted
stock and other Awards that provide a right to acquire Common Stock, together
with any applicable tax required to be withheld, must be paid in full in cash
at the time of exercise or purchase or may, with the approval of the
Committee (or the Board of Directors with respect to Director Options), be
paid in whole or in part in shares of Common Stock valued at their fair
market value on the date of exercise (which may include an assignment of the
right to receive the cash proceeds from the sale of Common Stock subject to
an option or other right pursuant to a "cashless exercise" procedure) or by
delivery of other property, or by a recourse promissory note payable to the
Company, or by a combination of the foregoing.
AWARDS UNDER THE EQUITY PLAN
The Equity Plan provides that the Committee may grant or issue
stock options ("Options"), stock purchase rights, SARs, restricted stock,
deferred stock, dividend equivalents, performance awards, stock payments and
other stock related benefits, or any combination thereof.
NONQUALIFIED STOCK OPTIONS ("NQSOS"). 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 Committee, or the Board of Directors with respect to
Director Options) in one or more installments after the grant date, subject
to the participant's continued provision of services to the Company and/or
subject to the satisfaction of individual or Company performance targets
established by the Committee (or the Board of Directors with respect to
Director Options). NQSOs may be granted for any term specified by the
Committee (or the Board of Directors with respect to Director Options).
INCENTIVE STOCK OPTIONS ("ISOS"). ISOs will be designed to comply
with applicable 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; but 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 Equity Plan provides that the exercise price for
such ISO 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.
DIRECTOR OPTIONS. Director Options are NQSOs to purchase shares of
Common Stock granted to directors of the Company who are not employees of the
Company (each, an "Independent Director"). Director Options will become
exercisable in cumulative annual installments of 20% on each of the first,
second, third, fourth and fifth anniversaries of the date of Option grant,
without variation or acceleration; PROVIDED, HOWEVER, the Board may
accelerate the exercisability of Director Options upon the occurrence of
certain specified extraordinary corporate transactions or events. No portion
of a Director Option shall be exercisable after the sixth anniversary of the
date of grant and no portion of a Director Option shall be exercisable upon
the expiration of twelve months following termination of such director's
services as a director of the Company by reason of permanent and total
disability or death, or upon the expiration of three months following
termination of such director's services as a director of the
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Company by reason other than of permanent and total disability or death,
unless the Optionee dies within such three month period.
Each person who (i) is an Independent Director as of the date of
the adoption by the Board of the Equity Plan (an "Initial Independent
Director") and (ii) as of the date of such adoption, has purchased not less
than 500 shares of Common Stock (other than purchases pursuant to the
exercise of an option granted pursuant to any other stock option plan of the
Company) during the period beginning on September 1, 1997 and ending on the
date of such adoption, automatically shall be granted, as of the date of such
adoption, a NQSO to purchase a number of shares of Common Stock equal to
three times the number of shares of Common Stock actually purchased (other
than purchases pursuant to the exercise of an option granted pursuant to any
other stock option plan of the Company). Following the date of adoption by
the Board of the Equity Plan, on the date of the purchase of additional
shares of Common Stock (other than a purchase pursuant to the exercise of an
option granted pursuant to the Equity Plan or any other stock option plan of
the Company) (the date of each such purchase of additional shares, an
"Additional Purchase Date"), by each person who is an Initial Independent
Director and has purchased in the aggregate not less than 500 shares of
Common Stock (other than purchases pursuant to the exercise of an option
granted pursuant to the Equity Plan or any other stock option plan of the
Company) during the period beginning on September 1, 1997 and ending on the
applicable Additional Purchase Date, such person automatically shall be
granted, as of each such Additional Purchase Date, an Option to purchase a
number of shares of Common Stock equal to the difference between (i) three
times the number of such shares of Common Stock actually purchased and (ii)
the number of shares of Common Stock subject to Director Options previously
granted to such Independent Director under the Plan. No Independent Director
shall be granted an Option or Options under the Plan which, in the aggregate,
are exercisable for more than 8,146 shares of Common Stock.
In addition to the automatically granted Director Options described
in the preceding paragraph, the Board may from time to time, subject to
applicable limitations of the Plan, grant additional Director Options which
shall be NQSOs with such terms and conditions as may determined by the Board
in its absolute discretion.
RESTRICTED STOCK. The Committee is authorized to determine (i)
which key employees and consultants of the Company or any subsidiary should
be issued restricted stock, (ii) the number of shares of restricted stock to
be issued to such key employees and consultants and (iii) the terms and
conditions applicable to such restricted stock, consistent with the Equity
Plan. Restricted stock issued under the Equity Plan is subject to such
restrictions as the Committee may provide in the terms of each individual
restricted stock agreement, which restrictions may include, without
limitation, restrictions concerning voting rights and transferability and
restrictions based on duration of employment with the Company, Company
performance and individual performance; provided, however, that the Committee
may remove any or all of such restrictions after issuance of the restricted
stock. Restricted stock, typically, may be repurchased by the Company at the
original purchase price if the conditions or restrictions are not met and in
the event of the grantee's termination of employment or consultancy, although
the Committee may make exceptions, based on the reason for termination or on
other factors. In general, restricted stock may not be sold, or otherwise
transferred or hypothecated, until restrictions are removed or expire and in
no event until at least six months and one day have elapsed from the date on
which the restricted stock was issued.
DEFERRED STOCK. Deferred stock may be awarded to participants,
typically without payment of consideration, but subject to vesting conditions
based on continued employment or on performance criteria established by the
Committee. Like restricted stock, deferred stock may not be sold, or
otherwise transferred or hypothecated, until vesting conditions are removed
or expire. Unlike restricted stock, deferred stock will not be issued until
the deferred stock award has vested, and recipients of deferred stock
generally will have no voting or dividend rights prior to the time when
vesting conditions are satisfied.
SARS. The Committee may grant SARs having terms and conditions
consistent with the Equity Plan to employees or consultants in connection
with Options or other awards, or separately. SARs granted by the Committee
in connection with Options entitle the optionee to surrender unexercised to
the Company a portion of the Option which with the SAR relates in exchange
for an amount determined by multiplying (i) the difference obtained by
subtracting the Option purchase price from the fair market value of a share
of Common Stock on the
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date of exercise of the SAR by (ii) the number of shares of Common Stock with
respect to which the SAR has been exercised. SARs granted by the Committee
independent of Options granted under the Equity Plan entitle to grantee to
exercise all or a specified portion of the SAR (at the exercise price per
share of Common Stock subject to such SAR set by the Committee) in exchange
for an amount determined by multiplying (i) the difference obtained by
subtracting the SAR purchase price from the fair market value of a share of
Common Stock on the date of exercise of the SAR by (ii) the number of shares
of Common Stock with respect to which the SAR has been exercised. The
amounts determined above may be paid by the grantee of an SAR in cash, in
Common Stock (based on its fair market value as of the date the SAR is
exercised) or a combination of both, as determined by the Committee.
Except as required by Section 162(m) of the Code with respect to an
SAR intended to qualify as performance-based compensation as described in
Section 162(m) of the Code, there are no restrictions specified in the Equity
Plan on the exercise of SARs or the amount of gain realizable therefrom,
although restrictions may be imposed by the Committee in the SAR agreements.
The Committee may elect to pay SARs in cash or in Common Stock or in a
combination of both. Generally, an SAR which is unrelated to an Option
granted under the Equity Plan will not be exercisable during the first six
months after such SAR is granted if the grantee is then subject to Section 16
of the Exchange Act.
DIVIDEND EQUIVALENTS. The Committee may grant dividend equivalents
to any key employee or consultant selected by the Committee based on the
dividends declared on Common Stock during the period between the date an
Option, SAR, deferred stock or performance award is granted, and the date
such Option, SAR, deferred stock or performance award is exercised, vests or
expires, as determined by the Committee. With respect to dividend
equivalents granted with respect to Options intended to be qualified
performance-based compensation for purposes of Section 162(m) of the Code,
such dividend equivalents will be payable regardless of whether such Option
is exercised.
PERFORMANCE AWARDS. The Committee may grant performance awards to
any key employee or consultant selected by the Committee. Generally, these
Awards will be based upon specific performance targets and may be paid in
cash or in Common Stock or in a combination of both. Performance awards may
include "phantom" stock awards that provide for payments based upon increases
in the price of the Company's Common Stock over a predetermined period.
Performance awards may also include bonuses which may be granted by the
Committee on an individual or group basis and which may be payable in cash or
in Common Stock or in a combination of both, as determined by the Committee.
STOCK PAYMENTS. The Committee may grant stock payments to any key
employee or consultant of the Company in the form of shares of Common Stock
or an Option or other right to purchase Common Stock as part of a deferred
compensation arrangement in lieu of all or any part of compensation,
including bonuses, that would otherwise be payable in cash to the key
employee or consultant.
STOCK PURCHASE RIGHTS. The Committee may grant to any consultant
or employee the right to purchase shares of Common Stock under the Equity
Plan ("Stock Purchase Rights") from time to time, in such amounts and subject
to such terms and conditions as the Committee may determine, and, at the
discretion of the Committee, such determinations may include determining
categories of employees and the number of shares to be made available to
employees in each such category. The Committee shall determine the purchase
price for Common Stock purchased pursuant to Stock Purchase Rights granted
under the Equity Plan; provided, that the purchase price for shares of Common
Stock purchased pursuant to any Stock Purchase Right granted under the Equity
Plan shall be no less than the fair market value of the such Common Stock as
of the date of purchase.
Each person who is an Independent Director as of the date of the
adoption by the Board of the Plan automatically shall be granted, on the date
of such adoption, the Stock Purchase Right to purchase a number of shares of
Common Stock equal to the difference between (i) 2,716 shares of Common Stock
and (ii) the number of shares of Common Stock purchased by such Independent
Director since September 1, 1997 (other than purchases pursuant to the
exercise of an Option granted pursuant to any stock option plan of the
Company). During the term
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of the Equity Plan, a person who is initially elected to the Board after the
adoption by the Board of the Equity Plan and who is an Independent Director
at the time of such initial election automatically shall be granted a Stock
Purchase Right to purchase 2,716 shares of Common Stock on the date of such
initial election. The purchase price for shares of Common Stock purchased
pursuant to any Stock Purchase Right granted under the Equity Plan shall be
no less than the fair market value of the such Common Stock as of the date of
purchase.
An employee, Independent Director or consultant whom the Committee
has granted a Stock Purchase Right may only purchase such Common Stock while
he or she is an employee, Independent Director or consultant. In addition, an
employee, Independent Director or consultant may only purchase Common Stock
pursuant to a Stock Purchase Right upon delivery of all of the following to
the Secretary of the Company or his office (i) written notice complying with
the applicable rules established by the Committee stating the number of
shares of Common Stock to be purchased; (ii) such representations and
documents as the Committee, in its absolute discretion, deems necessary or
advisable to effect compliance with all applicable provisions of the
Securities Act and any other federal or state securities laws or regulations;
and (iii) full cash payment to the Secretary of the Company for the shares
being purchased. However, the Committee may in its discretion allow payment,
in whole or in part, through the delivery of a full recourse, limited
recourse or non-recourse (as determined by the Committee) promissory note
bearing interest (at no less than such rate as shall then preclude the
imputation of interest under the Code) and payable upon such terms as may be
prescribed by the Committee or the Board. The Committee may prescribe the
form of such promissory note and the security to be given for such note.
However, Common Stock may not be purchased pursuant to a Stock Purchase Right
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 or by any
agreement to which the Company is a party.
All Stock Purchase Rights are subject to stockholder approval of
the Plan. If such stockholder approval is not obtained within twelve months
after the date of the Board's initial adoption of the Plan, then all Common
Stock purchased by any employee, Independent Director or consultant pursuant
to any Stock Purchase Right shall be returned to the Company, all
consideration paid to the Company shall be returned to the employee,
Independent Director or consultant and all such purchases shall be canceled
and be null and void AB INITIO.
AGREEMENTS; CONSIDERATION TO THE COMPANY. Each Award will be set
forth in a separate agreement with the person receiving the Award and will
indicate the type, terms and conditions of the Award. The dates on which
options or other Awards under the Equity Plan first become exercisable and on
which they expire will be set forth in individual Award agreements setting
forth the terms of the Awards. Such agreements generally will provide that
options and other Awards expire upon termination of the participant's status
as an employee, consultant or director, although the Committee may provide
that options or other Awards granted to employees or consultants continue to
be exercisable following a termination without cause, or following a Change
in Control of the Company (as defined in the Equity Plan), or because of the
grantee's retirement, death, disability or otherwise.
In consideration of the granting of an option, SAR or other Award
under the Equity Plan, the employee, consultant or non-employee director to
whom such option, SAR or other Award is granted will agree, in such
agreement, to remain in the employ or (or to consult for or to serve as a
non-employee 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
agreement or by action of the Committee, or the Board of Directors with
respect to Director Options, following the grant of the option, SAR or other
Award) after the option, SAR or other Award is granted. Nothing in the
Equity Plan or in any such agreement will confer upon any optionee any right
to continue in the employ of, or as a consultant for, or as a director of the
Company or any subsidiary, or will interfere with or restrict in any way the
rights of the Company or any subsidiary to discharge any optionee at any time
for any reason whatsoever, with or without cause.
GENERAL TERMS OF AWARDS UNDER THE EQUITY PLAN
NON-ASSIGNABILITY. No option, SAR or other Award granted under the
Equity Plan may be assigned or transferred by the grantee, except by will,
the laws of descent and distributions or pursuant to a qualified domestic
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relations order, although the shares underlying such Awards may be
transferred if all applicable restrictions have lapsed. During the lifetime
of the holder of any option or right, the option or right may be exercised
only by the holder.
ADJUSTMENTS UPON CHANGE IN CAPITALIZATION. The Committee (or the
Board of Directors with respect to Director Options) has the discretion to
make appropriate adjustments in the number and kind of securities subject to
the Equity Plan and to outstanding awards thereunder to reflect dividends or
other distributions; a recapitalization, reclassification, stock split,
reverse stock split, or reorganization, merger or consolidation of the
Company; the split-up, spin-off, combination, repurchase, liquidation or
dissolution of the Company; or disposition of all or substantially all of the
assets of the Company or exchange of Common Stock or other securities of the
Company; or other similar corporate transaction or event (an "extraordinary
corporate event").
EXTRAORDINARY CORPORATE EVENTS. The Committee (or the Board of
Directors with respect to Director Options) has discretion under the Equity
Plan to provide that options and other rights to acquire Common Stock will
expire at specified times following, or become exercisable in full upon, the
occurrence of certain specified "extraordinary corporate events;" but in such
event the Committee (or the Board of Directors with respect to Director
Options) may also give optionees and other grantees the right to exercise
their outstanding options or rights in full during some period prior to such
event, even though the options or other Awards have not yet become fully
exercisable, and the Committee (or the Board of Directors with respect to
Director Options) may also provide that all restrictions imposed on some or
all shares of restricted stock and/or deferred stock shall lapse, and some or
all shares of restricted stock may cease to be subject to the Company's right
to repurchase after such event.
TRANSFER RESTRICTIONS. The Committee (or the Board of Directors
with respect to Director Options), in its discretion, may impose such
restrictions on the transferability of the shares purchasable upon the
exercise of an option as it deems appropriate. Any such other 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 stock, acquired by exercise of an ISO, within two years from the
date of granting such option or 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 ISO refer to such requirement to give
prompt notice of disposition.
LOANS TO PLAN PARTICIPANTS. The Equity Plan specifies that the
Company may make loans to participants to enable them to exercise options,
purchase shares or realize the benefits of other Awards granted under the
Equity Plan. The terms and conditions of such loans, if any are made, are to
be set by the Committee (or the Board of Directors with respect to Director
Options).
WITHHOLDING TAX OBLIGATIONS. As a condition to the issuance or
delivery of stock or payment of other compensation pursuant to the exercise
or lapse of restrictions of any option or other Award granted under the
Equity Plan, the Company requires participants to discharge applicable
withholding tax obligations. Shares held by or to be issued to a participant
may also be used to discharge tax withholding obligations related to exercise
of options or receipt of other Awards, subject to the discretion of the
Committee to disapprove such use. In addition, the Committee may grant to
employees a cash bonus in the amount of any tax related to awards.
SECURITIES LAW
The Equity 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 Equity 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 Equity Plan and options granted thereunder shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES WITH RESPECT TO THE EQUITY PLAN
The tax consequences of the Equity Plan under current federal law
are summarized in the following discussion which deals with the general tax
principles applicable to the Equity Plan, and is intended for general
information only. Alternative minimum tax and state and local income taxes
are not discussed. Tax laws are complex and subject to change and may vary
depending on individual circumstances and from locality to locality. The tax
information summarized is not tax advice.
NONQUALIFIED STOCK OPTIONS. For federal income tax purposes, an
optionee generally will not recognize taxable income on the grant of an NQSO
under the Equity Plan, but will recognize ordinary income, and the Company
generally will be entitled to a deduction, upon the exercise of an NQSO. The
amount of income recognized (and the amount generally deductible by the
Company) generally will be equal to the excess, if any, of the fair market
value of the shares at the time of exercise over the aggregate exercise price
paid for the shares, regardless of whether the exercise price is paid in cash
or in shares or other property. An optionee's basis for the stock for
purposes of determining his or her gain or loss upon a subsequent disposition
of the shares generally will be the fair market value of the stock on the
date of exercise of the NQSO, and any subsequent gain or loss will generally
be taxable as capital gains or losses.
INCENTIVE STOCK OPTIONS. An optionee generally will not recognize
taxable income upon either the grant or exercise of an ISO; however, the
amount by which the fair market value of the shares at the time of exercise
exceeds the exercise price will be an "item of tax preference" for the
optionee for purposes of the alternative minimum tax. Generally, upon the
sale or other taxable disposition of the shares of the Common Stock acquired
upon exercise of an ISO, the optionee will recognize income taxable as
capital gains in an amount equal to the excess, if any, of the amount
realized in such disposition over the option exercise price, provided that no
disposition of the shares has taken place within either (a) two years from
the date of grant of the ISO or (b) one year from the date of exercise. If
the shares of Common Stock are sold or otherwise disposed of before the end
of the one-year and two-year periods specified above, the difference between
the ISO exercise price and the fair market value of the shares on the date of
exercise generally will be taxable as ordinary income; the balance of the
amount realized from such disposition, if any, generally will be taxed as
capital gain. If the shares of Common Stock are disposed of before the
expiration of the one-year and two-year periods and the amount realized is
less than the fair market value of the shares at the date of exercise, the
optionee's ordinary income generally is limited to excess, if any, of the
amount realized in such disposition over the option exercise price paid. The
Company (or other employer corporation) generally will be entitled to a tax
deduction with respect to an ISO only to the extent the optionee has ordinary
income upon sale or other disposition of the shares of Common Stock.
STOCK APPRECIATION RIGHTS. No taxable income is generally
recognized upon the receipt of an SAR, but upon exercise of the SAR the fair
market value of the shares (or cash in lieu of shares) received generally
will be taxable as ordinary income to the recipient in the year of such
exercise. The Company generally will be entitled to a compensation deduction
for the same amount which the recipient recognizes as ordinary income.
RESTRICTED STOCK AND DEFERRED STOCK. An employee to whom
restricted or deferred stock is issued generally will not recognize taxable
income upon such issuance and the Company generally will not then be entitled
to a deduction, unless, in the case of restricted stock, an election is made
under Section 83(b) of the Code. However, when restrictions on shares of
restricted stock lapse, such that the shares are no longer subject to a
substantial risk of forfeiture, the employee generally will recognize
ordinary income and the Company generally will be entitled to a deduction for
an amount equal to the excess of the fair market value of the shares at the
date such restrictions lapse over the purchase price therefor. Similarly,
when deferred stock vests and is issued to the employee, the employee
generally will recognize ordinary income and the Company generally will be
entitled to a deduction for the amount equal to the fair market value of the
shares at the date of issuance. If an election is made under Section 83(b)
with respect to qualifying restricted stock, the employee generally will
recognize ordinary income at the date of issuance equal to the excess, if
any, of the fair market value of the shares at that date over the
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purchase price therefor and the Company will be entitled to a deduction for
the same amount. The Code does not permit a Section 83(b) election to be
made with respect to deferred stock.
DIVIDEND EQUIVALENTS. A recipient of a dividend equivalent award
generally will not recognize taxable income at the time of grant, and the
Company will not be entitled to a deduction at that time. When a dividend
equivalent is paid, the participant generally will recognize ordinary income,
and the Company will be entitled to a corresponding deduction.
PERFORMANCE AWARDS. A participant who has been granted a
performance award generally will not recognize taxable income at the time of
grant, and the Company will not be entitled to a deduction at that time.
When an award is paid, whether in cash or Common Stock, the participant
generally will recognize ordinary income, and the Company will be entitled to
a corresponding deduction.
STOCK PAYMENTS. A participant who receives a stock payment in lieu
of a cash payment that would otherwise have been made will generally be taxed
as if the cash payment has been received, and the Company generally will be
entitled to a deduction for the same amount.
STOCK PURCHASE RIGHTS. A recipient of a Stock Purchase Right will
not recognize taxable income at the time of grant, and the Company will not
be entitled to a deduction at that time. After stockholder approval of the
Equity Plan has been obtained, upon the purchase of Common Stock pursuant to
a Stock Purchase Right by delivery of a fully recourse promissory note or for
cash, the purchaser will recognize ordinary income at the date of purchase
equal to the excess, if any, of the fair market value of the Common Stock
purchased over the purchase price therefor and the Company will be entitled
to a deduction for the same amount.
Prior to the time that stockholder approval of the Equity Plan is
obtained, upon the purchase of Common Stock under the Equity Plan pursuant to
a Stock Purchase Right by delivery of a fully recourse promissory note or for
cash, the purchaser will not recognize taxable income upon such purchase and
the Company generally will not then be entitled to a deduction, unless an
election is made under Section 83(b) of the Code. However, when stockholder
approval of the Equity Plan is obtained, such that shares of Common Stock are
no longer subject to a substantial risk of forfeiture, the purchaser
generally will recognize ordinary income and the Company generally will be
entitled to a deduction for an amount equal to the excess, if any, of the
fair market value of the Common Stock purchased as of the date stockholder
approval of the Equity Plan is obtained over the purchase price therefor. If
an election under Section 83(b) with respect to Common Stock purchased
pursuant to a Stock Purchase Right by delivery of a fully recourse promissory
note or for cash is made prior to the time stockholder approval of the Equity
Plan is obtained, the purchaser generally will recognize ordinary income at
the date of purchase equal to the excess, if any, of the fair market value of
the Common Stock purchased as of the date of purchase over the purchase price
therefor and the Company will be entitled to a deduction for the same amount.
The federal income tax consequences of the purchase of Common Stock
pursuant to a Stock Purchase Right by delivery of a non-recourse or partially
recourse promissory note are less clear. Regulations promulgated under
Section 83 provide that if the purchase price for property transferred in
connection with the performance of services is an amount paid by indebtedness
secured by the property on which there is no personal liability to pay all or
a substantial part of such indebtedness, such a transaction may be treated
for federal income tax purposes in the same manner as a grant of a NQSO. In
such event, the purchase of Common Stock pursuant to a Stock Purchase Right
would be taxable in accordance with the rules described above in NONQUALIFIED
STOCK OPTIONS, with the option being treated as being exercised at the time
of payment by the purchaser of any non-recourse portion of the promissory
note. A purchaser of Common Stock pursuant to a Stock Purchase Right by
delivery of a non-recourse or partially recourse promissory note may not be
eligible to make an election under Section 83(b) with respect to the Common
Stock purchased.
SECTION 162(M) LIMITATION. 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, transfers of property and benefits paid
under nonqualified plans) for certain
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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."
Under Section 162(m), stock options and SARs will satisfy the
"performance-based compensation" exception if the Equity Plan is approved by
stockholders at the Meeting, the award of the options or SARs are made by a
Board of Directors committee consisting solely of two or more "outside
directors," 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 or SAR
exercise price is equal to or greater than the fair market value of the stock
subject to the award on the grant date). Other types of awards may only
qualify as "performance-based compensation" if such awards are only granted
or payable to the recipients based upon the attainment of objectively
determinable and pre-established performance goals which are established by a
qualifying committee and which relate to performance targets which are
approved by the corporation's stockholders.
The Equity Plan has been designed in order to permit the Committee
to grant stock options and SARs which will qualify as "performance-based
compensation." In addition, in order to permit Awards other than stock
options and SARs to qualify as "performance-based compensation," the Equity
Plan provides that the Committee may designate as "Section 162(m)
Participants" certain employees whose compensation for a given fiscal year
may be subject to the limit on deductible compensation imposed by Section
162(m) of the Code. The Committee may grant awards to Section 162(m)
Participants that vest or become exercisable upon the attainment of
performance targets which are related to one or more of the following
performance goals: (i) net income either before or after taxes, (ii) market
share, (iii) customer satisfaction, (iv) profits, (v) share price, (vi)
earnings per share, (vii) total stockholder return, (viii) return on assets,
(ix) return on equity, (x) operating income, (xi) return on capital or
investments, or (xii) economic value added (including, but not limited to,
any or all of such measures in comparison to the Company's competitors, the
industry, or some other comparator group).
OPTIONS GRANTED UNDER THE EQUITY PLAN
Options to purchase a total of 201,250 shares of Common Stock have
been granted under the Equity Plan to the Company's current executive
officers as a group. Robert E. Price, the Company's former President and
Chief Executive Officer, has not received any options under the Equity Plan;
Gilbert A. Partida, the Company's President and Chief Executive Officer,
received options to purchase 37,500 shares of Common Stock under the Equity
Plan, Robert M. Gans, the Company's Executive Vice President, General Counsel
and Secretary, received options to purchase 26,250 shares of Common Stock
under the Equity Plan, Karen J. Ratcliff, the Company's Executive Vice
President and Chief Financial Officer, received options to purchase 26,250
shares of Common Stock under the Plan and Theodore A. Wallace, the Company's
former Executive Vice President and Chief Operating Officer, has not received
any options under the Equity Plan. Rafael E. Barcenas, Lawrence B. Krause,
Katherine L. Hensley and Leon C. Janks, current directors and nominees for
director, each received options to purchase 8,146 shares of Common Stock
under the Equity Plan. The non-employee directors of the Company (Messrs.
Janks and Krause and Ms. Hensley) as a group received NQSOs to purchase an
aggregate of 24,438 shares of Common Stock pursuant to the terms of the
Equity Plan. All employees, including all current officers who are not
executive officers, as a group, received options to purchase 326,603 shares
of Common Stock.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
"FOR" THE APPROVAL OF THE ADOPTION OF THE 1998 EQUITY PARTICIPATION PLAN.
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GENERAL
INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Ernst & Young LLP to serve as
the Company's independent accountants for the 1999 fiscal year.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Under Section 16(a) of the Securities Exchange Act of 1934 (the
"Exchange Act"), as amended, directors, officers and beneficial owners of 10
percent or more of the Company's Common Stock ("Reporting Persons") are
required to report to the Securities and Exchange Commission (the
"Commission") on a timely basis the initiation of their status as a Reporting
Person and any changes with respect to their beneficial ownership of the
Company's Common Stock. Based solely on its review of such forms received by
it and the written representations of its Reporting Persons, the Company has
determined that no Reporting Persons known to it were delinquent with respect
to his or her reporting obligations as set forth in Section 16(a) of the
Exchange Act.
STOCKHOLDER PROPOSALS
A proposal to be considered for inclusion in the Company's proxy
statement for the next annual meeting must be received by the Secretary of
the Company not later than August 4, 1999 to be considered for inclusion in
the Company's proxy statement and form of proxy relating to that meeting. A
stockholder proposal submitted after October 18, 1999 will not be considered
timely. Holders of proxies which expressly confer discretionary authority
may vote for or against an untimely proposal.
ANNUAL REPORT
The Annual Report of the Company for the fiscal year ended August
31, 1998 will be mailed to stockholders of record on or about December 2,
1998. The Annual Report does not constitute, and should not be considered, a
part of this Proxy solicitation material.
If any person who was a beneficial owner of Common Stock of the
Company on the record date for the Annual Meeting of Stockholders desires
additional information, a copy of the Company's Annual Report on Form 10-K
will be furnished without charge upon receipt of a written request
identifying the person so requesting a report as a stockholder of the Company
at such date. Requests should be directed to PriceSmart, Inc., 4649 Morena
Blvd., San Diego, California 92117, Attention: Secretary.
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OTHER MATTERS
The Board of Directors does not know of any matter to be presented
at the Annual Meeting which is not listed on the Notice of Annual Meeting and
discussed above. If other matters should properly come before the meeting,
however, the persons named in the accompanying Proxy will vote all Proxies in
accordance with their best judgment.
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN AND RETURN
THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
Robert M. Gans
Secretary
Dated: December 2, 1998
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EXHIBIT A
THE 1998 EQUITY PARTICIPATION PLAN
OF
PRICESMART, INC.
PriceSmart, Inc., a Delaware corporation, has adopted The 1998 Equity
Participation Plan of PriceSmart, Inc. (the "Plan"), effective July 20, 1998,
for the benefit of its eligible employees, consultants and directors.
The purposes of the Plan are as follows:
(1) To provide an additional incentive for directors, Employees (as
such term is defined below) and consultants to further the growth, development
and financial success of the Company by personally benefiting through the
ownership of Company stock and/or rights which recognize such growth,
development and financial success.
(2) To enable the Company to obtain and retain the services of
directors, Employees and consultants considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company and/or rights 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 the Plan
they shall have the meanings specified below, unless the context clearly
indicates otherwise.
1.2. ADMINISTRATOR. "Administrator" shall mean the entity that
conducts the general administration of the Plan as provided herein. With
reference to the administration of the Plan with respect to Options granted to
Independent Directors, the term "Administrator" shall refer to the Board. With
reference to the administration of the Plan with respect to any other Award, the
term "Administrator" shall refer to the Committee unless the Board has assumed
the authority for administration of the Plan generally as provided in Section
11.1.
1.3. AWARD. "Award" shall mean an Option, a Restricted Stock award,
a Performance Award, a Dividend Equivalents award, a Deferred Stock award, a
Stock Payment award or a Stock Appreciation Right which may be awarded or
granted under the Plan (collectively, "Awards").
1.4. AWARD AGREEMENT. "Award Agreement" shall mean a written
agreement executed by an authorized officer of the Company and the Holder which
shall contain such terms and conditions with respect to an Award as the
Administrator shall determine, consistent with the Plan.
1.5. AWARD LIMIT. "Award Limit" shall mean 150,000 shares of Common
Stock, as adjusted pursuant to Section 12.3 of the Plan.
1.6. BOARD. "Board" shall mean the Board of Directors of the
Company.
1.7. CHANGE IN CONTROL. "Change in Control" shall mean a change in
ownership or control of the Company effected through either any of the following
transactions:
(a) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Company)
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directly or indirectly acquires beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's
outstanding securities pursuant to a tender or exchange offer made directly
to the Company's stockholders which the Board does not recommend such
stockholders to accept; or
(b) there is a change in the composition of the Board over
a period of thirty-six (36) consecutive months (or less) such that a
majority of the Board members (rounded up to the nearest whole number)
ceases, by reason of one or more proxy contests for the election of Board
members, to be comprised of individuals who either (i) have been Board
members continuously since the beginning of such period or (ii) have been
elected or nominated for election as Board members during such period by at
least a majority of the Board members described in clause (i) who were
still in office at the time such election or nomination was approved by the
Board.
1.8. CODE. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.9. COMMITTEE. "Committee" shall mean the Compensation Committee
of the Board, or another committee or subcommittee of the Board, appointed as
provided in Section 11.1.
1.10. COMMON STOCK. "Common Stock" shall mean the common stock of
the Company, par value $.0001 per share, and any equity security of the Company
issued or authorized to be issued in the future, but excluding any preferred
stock and any warrants, options or other rights to purchase Common Stock. Debt
securities of the Company convertible into Common Stock shall be deemed equity
securities of the Company.
1.11. COMPANY. "Company" shall mean PriceSmart, Inc., a Delaware
corporation.
1.12. 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 the
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.
1.13. DEFERRED STOCK. "Deferred Stock" shall mean Common Stock
awarded under Article VIII of the Plan.
1.14. DIRECTOR. "Director" shall mean a member of the Board.
1.15. DIVIDEND EQUIVALENT. "Dividend Equivalent" shall mean a right
to receive the equivalent value (in cash or Common Stock) of dividends paid on
Common Stock, awarded under Article VIII of the Plan.
1.16. 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.
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1.17. EXCHANGE ACT. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
1.18. 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 Administrator acting in good
faith.
1.19. GRANTEE. "Grantee" shall mean an Employee or consultant
granted a Performance Award, Dividend Equivalent, Stock Payment or Stock
Appreciation Right, or an award of Deferred Stock, under the Plan.
1.20. HOLDER. "Holder" shall mean a person who has been granted
or awarded an Award.
1.21. 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.
1.22. INDEPENDENT DIRECTOR. "Independent Director" shall mean a
member of the Board who is not an Employee of the Company.
1.23. NON-QUALIFIED STOCK OPTION. "Non-Qualified Stock Option"
shall mean an Option which is not designated as an Incentive Stock Option by the
Committee.
1.24. OPTION. "Option" shall mean a stock option granted under
Article IV of the Plan. An Option granted under the 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.
1.25. OPTIONEE. "Optionee" shall mean an Employee, consultant or
Independent Director granted an Option under the Plan.
1.26. PERFORMANCE AWARD. "Performance Award" shall mean a cash
bonus, stock bonus or other performance or incentive award that is paid in cash,
Common Stock or a combination of both, awarded under Article VIII of the Plan.
1.27. PERFORMANCE CRITERIA. "Performance Criteria" shall mean the
following business criteria with respect to the Company or any Subsidiary: (a)
net income, (b) pre-tax income, (c) operating income, (d) cash flow, (e)
earnings per share, (f) return on equity, (g) return on invested capital or
assets, (h) cost reductions or savings, (i) funds from operations, (j)
appreciation in the fair market value of Common Stock and (k) earnings before
any one or more of the following items: interest, taxes, depreciation or
amortization.
1.28. PLAN. "Plan" shall mean The 1998 Equity Participation Plan
of PriceSmart, Inc.
1.29. 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.
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1.30. RESTRICTED STOCK. "Restricted Stock" shall mean Common
Stock awarded under Article VII of the Plan.
1.31. RESTRICTED STOCKHOLDER. "Restricted Stockholder" shall mean
an Employee or consultant granted an award of Restricted Stock under Article VII
of the Plan.
1.32. 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.
1.33. 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.
1.34. SECURITIES ACT. "Securities Act" shall mean the Securities
Act of 1933, as amended.
1.35. STOCK APPRECIATION RIGHT. "Stock Appreciation Right" shall
mean a stock appreciation right granted under Article IX of the Plan.
1.36. STOCK PAYMENT. "Stock Payment" shall mean (a) a payment in
the form of shares of Common Stock, or (b) an option or other right to purchase
shares of Common Stock, as part of a deferred compensation arrangement, made in
lieu of all or any portion of the compensation, including without limitation,
salary, bonuses and commissions, that would otherwise become payable to a key
Employee or consultant in cash, awarded under Article VIII of the Plan.
1.37. 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 fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
1.38. TERMINATION OF CONSULTANCY. "Termination of Consultancy"
shall mean the time when the engagement of a Holder 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 the 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.
1.39. 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.
1.40. TERMINATION OF EMPLOYMENT. "Termination of Employment"
shall mean the time when the employee-employer relationship between a Holder 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 a Holder 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
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<PAGE>
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, with
respect to Incentive Stock Options, 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, 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
the 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 Awards or purchase under
Article X shall be Common Stock. The aggregate number of such shares which
may be issued upon exercise of Options or rights or Awards under the Plan
or upon the purchase of Common Stock pursuant to Article X, shall not
exceed 700,000. The shares of Common Stock issuable upon purchase,
exercise of Options or rights, or upon any such Awards may be either
previously authorized but unissued shares or treasury shares.
(b) The maximum number of shares which may be subject to
Awards granted under the Plan to any individual or which may be purchased
by such individual pursuant to Article X 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 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. Furthermore, to the extent required by Section
162(m) of the Code, if, after grant of a Stock Appreciation Right, the base
amount on which stock appreciation is calculated is reduced to reflect a
reduction in the Fair Market Value of the Common Stock, the transaction is
treated as a cancellation of the Stock Appreciation Right and a grant of a
new Stock Appreciation Right and both the Stock Appreciation Right deemed
to be canceled and the Stock Appreciation Right deemed to be granted are
counted against the Award Limit.
2.2. ADD-BACK OF OPTIONS AND OTHER RIGHTS. If any Option, or other
right to acquire shares of Common Stock under any other Award under the Plan,
expires or is canceled without having been fully exercised, or is exercised in
whole or in part for cash as permitted by the Plan, the number of shares subject
to such Option or other right but as to which such Option or other right was not
exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Awards which are adjusted pursuant to
Section 12.3 and become exercisable with respect to shares of stock of another
corporation shall be considered canceled and may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. Shares of Common
Stock which are delivered by the Holder or withheld by the Company upon the
exercise of any Award under the Plan, in payment of the exercise price thereof
or tax withholding thereon, may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. If any share of Restricted Stock is
forfeited by the Holder or repurchased by the Company pursuant to Section 7.5
hereof, such share may again be optioned, granted or awarded 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, granted or awarded
if such action would cause an Incentive Stock Option to fail to qualify as an
incentive stock option under Section 422 of the Code.
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ARTICLE III.
GRANTING OF AWARDS
3.1. AWARD AGREEMENT. Each Award shall be evidenced by an Award
Agreement. Award Agreements evidencing Awards 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. Award 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.
3.2. PROVISIONS APPLICABLE TO SECTION 162(M) PARTICIPANTS.
(a) The Committee, in its discretion, may determine whether
an Award is to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code.
(b) Notwithstanding anything in the Plan to the contrary,
the Committee may grant any Award to a Section 162(m) Participant,
including Restricted Stock the restrictions with respect to which lapse
upon the attainment of performance goals which are related to one or more
of the Performance Criteria and any performance or incentive award
described in Article VIII that vests or becomes exercisable or payable upon
the attainment of performance goals which are related to one or more of the
Performance Criteria.
(c) To the extent necessary to comply with the
performance-based compensation requirements of Section 162(m)(4)(C) of the
Code, with respect to any Award granted under Articles VII and VIII which
may be granted to one or more Section 162(m) Participants, no later than
ninety (90) days following the commencement of any fiscal year in question
or any other designated fiscal period or period of service (or such other
time as may be required or permitted by Section 162(m) of the Code), the
Committee shall, in writing, (i) designate one or more Section 162(m)
Participants, (ii) select the Performance Criteria applicable to the fiscal
year or other designated fiscal period or period of service, (iii)
establish the various performance targets, in terms of an objective formula
or standard, and amounts of such Awards, as applicable, which may be earned
for such fiscal year or other designated fiscal period or period of service
and (iv) specify the relationship between Performance Criteria and the
performance targets and the amounts of such Awards, as applicable, to be
earned by each Section 162(m) Participant for such fiscal year or other
designated fiscal period or period of service. Following the completion of
each fiscal year or other designated fiscal period or period of service,
the Committee shall certify in writing whether the applicable performance
targets have been achieved for such fiscal year or other designated fiscal
period or period of service. In determining the amount earned by a Section
162(m) Participant, the Committee shall have the right to reduce (but not
to increase) the amount payable at a given level of performance to take
into account additional factors that the Committee may deem relevant to the
assessment of individual or corporate performance for the fiscal year or
other designated fiscal period or period of service.
3.3. CONSIDERATION. In consideration of the granting of an Award
under the Plan, the Holder shall agree, in the Award 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 six months
(or such shorter period as may be fixed in the Award Agreement or by action of
the Administrator following grant of the Award) after the Award is granted (or,
in the case of an Independent Director, until the next annual meeting of
stockholders of the Company).
3.4. AT-WILL EMPLOYMENT. Nothing in the Plan or in any Award
Agreement hereunder shall confer upon any Holder 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 Holder at any time for any reason whatsoever, with or without
cause, except to the extent expressly provided otherwise in a written employment
agreement between the Holder and the Company and any Subsidiary.
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ARTICLE IV.
GRANTING OF OPTIONS TO EMPLOYEES,
CONSULTANTS AND INDEPENDENT DIRECTORS
4.1. ELIGIBILITY. Any Employee or consultant selected by the
Committee pursuant to Section 4.4(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 4.5.
4.2. DISQUALIFICATION FOR STOCK OWNERSHIP. No person may be granted
an Incentive Stock Option under the 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.
4.3. QUALIFICATION OF INCENTIVE STOCK OPTIONS. No Incentive Stock
Option shall be granted to any person who is not an Employee.
4.4. GRANTING OF OPTIONS TO EMPLOYEES AND CONSULTANTS.
(a) The Committee shall from time to time, in its absolute
discretion, and subject to applicable limitations of the Plan:
(i) Determine which Employees or consultants
(including Employees or consultants who have previously received
Awards under the Plan) 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
Employees or consultants;
(iii) Subject to Section 4.3, 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 the 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.
(b) Upon the selection of an 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, any other Award or
other rights which have been previously granted to him or her under the
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.
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(c) Any Incentive Stock Option granted under the Plan may
be modified by the Committee, with the consent of the Optionee, to
disqualify such Option from treatment as an "incentive stock option" under
Section 422 of the Code.
4.5. GRANTING OF OPTIONS TO INDEPENDENT DIRECTORS.
(a) Each person who (i) is an Independent Director as of
the date of the adoption by the Board of the Plan (each such person, an
"INITIAL INDEPENDENT DIRECTOR") and (ii) as of the date of such adoption,
has purchased not less than five hundred (500) shares of Common Stock
(other than purchases pursuant to the exercise of an option granted
pursuant any stock option plan of the Company) during the period beginning
on September 1, 1997 and ending on the date of such adoption, automatically
shall be granted, as of the date of such adoption, an Option to purchase a
number of shares of Common Stock equal to three times the number of shares
of Common Stock actually purchased (other than purchases pursuant to the
exercise of an option granted pursuant to any stock option plan of the
Company) by such person during the period beginning on September 1, 1997
and ending on the date of adoption by the Board of the Plan. Following the
date of adoption by the Board of the Plan, on the date of the purchase of
additional shares of Common Stock (other than a purchase pursuant to the
exercise of an option granted pursuant to the Plan or any other stock
option plan of the Company) (the date of each such purchase of additional
shares, an "ADDITIONAL PURCHASE DATE"), (x) by each person who (i) is an
Initial Independent Director and (ii) has purchased in the aggregate not
less than five hundred (500) shares of Common Stock (other than purchases
pursuant to the exercise of an option granted pursuant to the Plan or any
other stock option plan of the Company) during the period beginning on
September 1, 1997 and ending on the applicable Additional Purchase Date,
such person automatically shall be granted, as of each such Additional
Purchase Date, an Option to purchase a number of shares of Common Stock
equal to the difference between (I) three times the number of such shares
of Common Stock actually purchased (other than purchases pursuant to the
exercise of an option granted pursuant to the Plan or any other stock
option plan of the Company) by such person during the period beginning on
September 1, 1997 and (II) the number of shares of Common Stock subject to
options previously granted pursuant to this Section 4.5(a); and (y) by each
person who (i) becomes an Independent Director after the date of adoption
by the Board of the Plan and (ii) has purchased in the aggregate not less
than five hundred (500) shares of Common Stock (other than purchases
pursuant to the exercise of an option granted pursuant to the Plan or any
other stock option plan of the Company) during the period beginning on the
date such person became an Independent Director and ending on the
applicable Additional Purchase Date, such person automatically shall be
granted, as of each such Additional Purchase Date, an Option to purchase a
number of shares of Common Stock equal to the difference between (I) three
times the number of such shares of Common Stock actually purchased (other
than purchases pursuant to the exercise of an option granted pursuant to
the Plan or any other stock option plan of the Company) by such person
during the period beginning on the date such person became an Independent
Director and (II) the number of shares of Common Stock subject to options
previously granted pursuant to this Section 4.5(a). Notwithstanding
anything to the contrary in this Plan, no Independent Director shall be
granted an Option or Options under this Section 4.5(a) which, in the
aggregate, shall be exercisable for more than eight thousand one hundred
forty-six (8,146) shares of Common Stock (subject to adjustment as provided
in Section 12.3).
(b) In addition to the options granted pursuant to Section
4.5(a), during the term of the Plan, the Board shall from time to time, in
its absolute discretion, and subject to applicable limitations of the Plan:
(i) Select from among the Independent Directors
(including Independent Directors who have previously received
Options under the 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
Independent Directors;
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(iii) Subject to the provisions of Article V, determine
the terms and conditions of such Options, consistent with the
Plan.
4.6. GRANTING OF OPTIONS UPON STOCK PURCHASES. The Committee may
provide that upon the purchase of Common Stock by an Employee or consultant
pursuant to Article X, an Option shall automatically be granted to such Employee
or consultant which shall cover a number of shares and be subject to such terms
and conditions as shall be determined by the Committee in its discretion.
ARTICLE V.
TERMS OF OPTIONS
5.1. OPTION PRICE. The price per share of the shares subject to
each Option granted to Employees and consultants 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 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).
5.2. OPTION TERM. The term of an Option granted to an Employee or
consultant shall be set by the Committee in its discretion; PROVIDED, HOWEVER,
that, 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.
5.3. OPTION VESTING
(a) The period during which the right to exercise, in whole
or in part, an Option granted to an Employee or a consultant 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 Award Agreement 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. 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 granted to an Employee or consultant vests.
(b) No portion of an Option granted to an Employee or
consultant which is unexercisable at Termination of Employment or
Termination of Consultancy, as applicable, shall thereafter become
exercisable, except as may be otherwise provided by the Committee either in
the Award Agreement or by action of the Committee following the grant of
the Option.
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(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
granted. For purposes of this Section 5.3(c), the Fair Market Value of
stock shall be determined as of the time the Option with respect to such
stock is granted.
5.4 TERMS OF OPTIONS GRANTED TO INDEPENDENT DIRECTORS. The price
per share of the shares subject to each Option granted to an Independent
Director shall equal 100% of the Fair Market Value of a share of Common Stock on
the date the Option is granted. Subject to Section 6.6, the term of each Option
granted to an Independent Director shall be six (6) years from the date the
Option is granted, without variation or acceleration hereunder. Options granted
to Independent Directors shall become exercisable in cumulative annual
installments of 20% on each of the first, second, third, fourth and fifth
anniversaries of the date of Option grant, without variation or acceleration
hereunder except as provided in Section 12.3(b). No portion of an Option which
is unexercisable at Termination of Directorship shall thereafter become
exercisable.
ARTICLE VI.
EXERCISE OF OPTIONS
6.1. 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 Administrator may require that, by the terms of the
Option, a partial exercise be with respect to a minimum number of shares.
6.2. 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 Administrator 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
Administrator, in its absolute discretion, deems necessary or advisable to
effect compliance with all applicable provisions of the Securities Act and
any other federal or state securities laws or regulations. The
Administrator 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 12.1 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 Administrator, 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 which have been owned by the
Optionee for at least six months, 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
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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, limited recourse
or non-recourse (as determined by the Committee) promissory note bearing
interest (at no less than such rate as shall then preclude the imputation
of interest 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 Administrator 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.
6.3. 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 Administrator 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 Administrator 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 Administrator 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, which in the
discretion of the Committee or the Board may be in the form of
consideration used by the Optionee to pay for such shares under Section
6.2(d).
6.4. RIGHTS AS STOCKHOLDERS/DIVIDEND EQUIVALENTS. Optionees 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 Optionees. Notwithstanding the foregoing, any Optionee who is
an Employee or consultant selected by the Committee may be granted Dividend
Equivalents based on the dividends declared on Common Stock, to be credited as
of dividend payment dates, during the period between the date an Option is
granted, and the date such Option is exercised, vests or expires, as determined
by the Committee. Such Dividend Equivalents shall be converted to cash or
additional shares of Common Stock by such formula and at such time and subject
to such limitations as may be determined by the Committee. Dividend Equivalents
granted with respect to Options intended to be qualified performance-based
compensation for purposes of Section 162(m) of the Code shall be payable, with
respect to pre-exercise periods, regardless of whether such Option is
subsequently exercised.
6.5. OWNERSHIP AND TRANSFER RESTRICTIONS. The Administrator, 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
Award 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
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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 any such Option refer to such
requirement to give prompt notice of disposition.
6.6. 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;
(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 (10) years from the date the
Option was granted.
6.7. ADDITIONAL LIMITATIONS ON EXERCISE OF OPTIONS. Optionees may
be required to comply with any timing or other restrictions with respect to the
settlement or exercise of an Option, including a window-period limitation, as
may be imposed in the discretion of the Administrator.
ARTICLE VII.
AWARD OF RESTRICTED STOCK
7.1. ELIGIBILITY. Subject to the Award Limit, Restricted Stock may
be awarded to any Employee who the Committee determines is a key Employee or any
consultant who the Committee determines should receive such an Award.
7.2. AWARD OF RESTRICTED STOCK
(a) The Committee may from time to time, in its absolute
discretion:
(i) Determine which Employees are key Employees and
select from among the key Employees or consultants (including
Employees or consultants who have previously received other
awards under the Plan) such of them as in its opinion should be
awarded Restricted Stock; and
(ii) Determine the purchase price, if any, and other
terms and conditions applicable to such Restricted Stock,
consistent with the Plan.
(b) The Committee shall establish the purchase price, if any,
and form of payment for Restricted Stock; PROVIDED, HOWEVER, that such
purchase price shall be no less than the par value of the Common Stock to
be purchased, unless otherwise permitted by applicable state law. In all
cases, legal consideration shall be required for each issuance of
Restricted Stock.
(c) Upon the selection of a key Employee or consultant to be
awarded Restricted Stock, the Committee shall instruct the Secretary of the
Company to issue such Restricted Stock and may impose such conditions on
the issuance of such Restricted Stock as it deems appropriate.
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7.3. RIGHTS AS STOCKHOLDERS. Subject to Section 7.4, upon delivery
of the shares of Restricted Stock to the escrow holder pursuant to Section 7.6,
the Restricted Stockholder shall have, unless otherwise provided by the
Committee, all the rights of a stockholder with respect to said shares, subject
to the restrictions in his Award Agreement, including the right to receive all
dividends and other distributions paid or made with respect to the shares;
PROVIDED, HOWEVER, that in the discretion of the Committee, any extraordinary
distributions with respect to the Common Stock shall be subject to the
restrictions set forth in Section 7.4.
7.4. RESTRICTION. All shares of Restricted Stock issued under the
Plan (including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Award Agreement, be
subject to such restrictions as the Committee shall provide, which restrictions
may include, without limitation, restrictions concerning voting rights and
transferability and restrictions based on duration of employment with the
Company, Company performance and individual performance; PROVIDED, HOWEVER,
that, unless the Committee otherwise provides in the terms of the Award
Agreement or otherwise, no share of Restricted Stock granted to a person subject
to Section 16 of the Exchange Act shall be sold, assigned or otherwise
transferred until at least six months and one day have elapsed from the date on
which the Restricted Stock was issued, and PROVIDED, FURTHER, that, except with
respect to shares of Restricted Stock granted to Section 162(m) Participants, by
action taken after the Restricted Stock is issued, the Committee may, on such
terms and conditions as it may determine to be appropriate, remove any or all of
the restrictions imposed by the terms of the Award Agreement. Restricted Stock
may not be sold or encumbered until all restrictions are terminated or expire.
If no consideration was paid by the Restricted Stockholder upon issuance, a
Restricted Stockholder's rights in unvested Restricted Stock shall lapse upon
Termination of Employment or, if applicable, upon Termination of Consultancy
with the Company; PROVIDED, HOWEVER, that the Committee in its sole and absolute
discretion may provide that such rights shall not lapse in the event of a
Termination of Employment following a "change of ownership or control" (within
the meaning of Treasury Regulation Section 1.62-27(e)(2)(v) or any successor
regulation thereto) of the Company or because of the Restricted Stockholder's
death or disability; PROVIDED, FURTHER, except with respect to shares of
Restricted Stock granted to Section 162(m) Participants, the Committee in its
sole and absolute discretion may provide that no such right of repurchase shall
exist in the event of a Termination of Employment, or a Termination of
Consultancy, without cause or following any Change in Control of the Company or
because of the Restricted Stockholder's retirement, or otherwise.
7.5. REPURCHASE OF RESTRICTED STOCK. The Committee shall provide in
the terms of each individual Award Agreement that the Company shall have the
right to repurchase from the Restricted Stockholder the Restricted Stock then
subject to restrictions under the Award Agreement immediately upon a Termination
of Employment or, if applicable, upon a Termination of Consultancy between the
Restricted Stockholder and the Company, at a cash price per share equal to the
price paid by the Restricted Stockholder for such Restricted Stock; PROVIDED,
HOWEVER, that the Committee in its sole and absolute discretion may provide that
no such right of repurchase shall exist in the event of a Termination of
Employment following a "change of ownership or control" (within the meaning of
Treasury Regulation Section 1.162-27(e)(2)(v) or any successor regulation
thereto) of the Company or because of the Restricted Stockholder's death or
disability; PROVIDED, FURTHER, that, except with respect to shares of Restricted
Stock granted to Section 162(m) Participants, the Committee in its sole and
absolute discretion may provide that no such right of repurchase shall exist in
the event of a Termination of Employment or a Termination of Consultancy without
cause or following any Change in Control of the Company or because of the
Restricted Stockholder's retirement, or otherwise.
7.6. ESCROW. The Secretary of the Company or such other escrow
holder as the Committee may appoint shall retain physical custody of each
certificate representing Restricted Stock until all of the restrictions imposed
under the Award Agreement with respect to the shares evidenced by such
certificate expire or shall have been removed.
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7.7. LEGEND. In order to enforce the restrictions imposed upon
shares of Restricted Stock hereunder, the Committee shall cause a legend or
legends to be placed on certificates representing all shares of Restricted Stock
that are still subject to restrictions under Award Agreements, which legend or
legends shall make appropriate reference to the conditions imposed thereby.
7.8. SECTION 83(b) ELECTION. If a Restricted Stockholder makes an
election under Section 83(b) of the Code, or any successor section thereto, to
be taxed with respect to the Restricted Stock as of the date of transfer of the
Restricted Stock rather than as of the date or dates upon which the Restricted
Stockholder would otherwise be taxable under Section 83(a) of the Code, the
Restricted Stockholder shall deliver a copy of such election to the Company
immediately after filing such election with the Internal Revenue Service.
ARTICLE VIII.
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
DEFERRED STOCK, STOCK PAYMENTS
8.1. ELIGIBILITY. Subject to the Award Limit, one or more
Performance Awards, Dividend Equivalents, awards of Deferred Stock, and/or Stock
Payments may be granted to any Employee whom the Committee determines is a key
Employee or any consultant whom the Committee determines should receive such an
Award.
8.2. PERFORMANCE AWARDS. Any key Employee or consultant selected by
the Committee may be granted one or more Performance Awards. The value of such
Performance Awards may be linked to any one or more of the Performance Criteria
or other specific performance criteria determined appropriate by the Committee,
in each case on a specified date or dates or over any period or periods
determined by the Committee. In making such determinations, the Committee shall
consider (among such other factors as it deems relevant in light of the specific
type of award) the contributions, responsibilities and other compensation of the
particular key Employee or consultant.
8.3. DIVIDEND EQUIVALENTS. Any key Employee or consultant selected
by the Committee may be granted Dividend Equivalents based on the dividends
declared on Common Stock, to be credited as of dividend payment dates, during
the period between the date a Stock Appreciation Right, Deferred Stock or
Performance Award is granted, and the date such Stock Appreciation Right,
Deferred Stock or Performance Award is exercised, vests or expires, as
determined by the Committee. Such Dividend Equivalents shall be converted to
cash or additional shares of Common Stock by such formula and at such time and
subject to such limitations as may be determined by the Committee.
8.4. STOCK PAYMENTS. Any key Employee or consultant selected by the
Committee may receive Stock Payments in the manner determined from time to time
by the Committee. The number of shares shall be determined by the Committee and
may be based upon the Performance Criteria or other specific performance
criteria determined appropriate by the Committee, determined on the date such
Stock Payment is made or on any date thereafter.
8.5. DEFERRED STOCK. Any key Employee or consultant selected by the
Committee may be granted an award of Deferred Stock in the manner determined
from time to time by the Committee. The number of shares of Deferred Stock
shall be determined by the Committee and may be linked to the Performance
Criteria or other specific performance criteria determined to be appropriate by
the Committee, in each case on a specified date or dates or over any period or
periods determined by the Committee. Common Stock underlying a Deferred Stock
award will not be issued until the Deferred Stock award has vested, pursuant to
a vesting schedule or performance criteria set by the Committee. Unless
otherwise provided by the Committee, a Holder of Deferred Stock shall have no
rights as a Company stockholder with respect to such Deferred Stock until such
time as the Award has vested and the Common Stock underlying the Award has been
issued.
8.6. TERM. The term of a Performance Award, Dividend Equivalent,
award of Deferred Stock and/or Stock Payment shall be set by the Committee in
its discretion.
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8.7. EXERCISE OR PURCHASE PRICE. The Committee may establish the
exercise or purchase price of a Performance Award, shares of Deferred Stock, or
shares received as a Stock Payment; PROVIDED, HOWEVER, that such price shall not
be less than the par value for a share of Common Stock, unless otherwise
permitted by applicable state law.
8.8. EXERCISE UPON TERMINATION OF EMPLOYMENT OR TERMINATION OF
CONSULTANCY. A Performance Award, Dividend Equivalent, award of Deferred Stock
and/or Stock Payment is exercisable or payable only while the Holder is an
Employee or consultant; PROVIDED, HOWEVER, that the Committee in its sole and
absolute discretion may provide that the Performance Award, Dividend Equivalent,
award of Deferred Stock and/or Stock Payment may be exercised or paid subsequent
to a Termination of Employment following a "change of control or ownership"
(within the meaning of Section 1.162-27(e)(2)(v) or any successor regulation
thereto) of the Company; PROVIDED, FURTHER, that except with respect to
Performance Awards granted to Section 162(m) Participants, the Committee in its
sole and absolute discretion may provide that the Performance Awards may be
exercised or paid following a Termination of Employment or a Termination of
Consultancy without cause, or following a Change in Control of the Company, or
because of the Grantee's retirement, death or disability, or otherwise.
8.9. FORM OF PAYMENT. Payment of the amount determined under
Section 8.2 or 8.3 above shall be in cash, in Common Stock or a combination of
both, as determined by the Committee. To the extent any payment under this
Article VIII is effected in Common Stock, it shall be made subject to
satisfaction of all provisions of Section 6.3.
ARTICLE IX.
STOCK APPRECIATION RIGHTS
9.1. GRANT OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right
may be granted to any key Employee or consultant selected by the Committee. A
Stock Appreciation Right may be granted (a) in connection and simultaneously
with the grant of an Option, (b) with respect to a previously granted Option, or
(c) independent of an Option. A Stock Appreciation Right shall be subject to
such terms and conditions not inconsistent with the Plan as the Committee shall
impose and shall be evidenced by an Award Agreement. Without limiting the
generality of the foregoing, the Committee may, in its discretion and on such
terms as it deems appropriate, require as a condition of the grant of a Stock
Appreciation Right to an Employee or consultant that the Employee or consultant
surrender for cancellation some or all of the unexercised Options, awards of
Restricted Stock or Deferred Stock, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments, or other rights which have been
previously granted to him or her under the Plan or otherwise. A Stock
Appreciation Right, the grant of which is conditioned upon such surrender, may
have an exercise price lower (or higher) than the exercise price of the
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.
9.2. COUPLED STOCK APPRECIATION RIGHTS.
(a) A Coupled Stock Appreciation Right ("CSAR") shall be
related to a particular Option and shall be exercisable only when and to
the extent the related Option is exercisable.
(b) A CSAR may be granted to the Grantee for no more than
the number of shares subject to the simultaneously or previously granted
Option to which it is coupled.
(c) A CSAR shall entitle the Grantee (or other person
entitled to exercise the Option pursuant to the Plan) to surrender to the
Company unexercised a portion of the Option to which the CSAR relates (to
the extent then exercisable pursuant to its terms) and to receive from the
Company in exchange therefor an amount determined by multiplying the
difference obtained by subtracting the Option exercise price from the Fair
Market Value of a share of Common Stock on the date of exercise of the
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CSAR by the number of shares of Common Stock with respect to which the CSAR
shall have been exercised, subject to any limitations the Committee may
impose.
9.3. INDEPENDENT STOCK APPRECIATION RIGHTS.
(a) An Independent Stock Appreciation Right ("ISAR") shall
be unrelated to any Option and shall have a term set by the Committee. An
ISAR shall be exercisable in such installments as the Committee may
determine. An ISAR shall cover such number of shares of Common Stock as
the Committee may determine; provided, however, that unless the Committee
otherwise provides in the terms of the ISAR or otherwise, no ISAR granted
to a person subject to Section 16 of the Exchange Act shall be exercisable
until at least six months have elapsed from (but excluding) the date on
which the Option was granted. The exercise price per share of Common Stock
subject to each ISAR shall be set by the Committee. An ISAR is exercisable
only while the Grantee is an Employee or consultant; provided that the
Committee may determine that the ISAR may be exercised subsequent to
Termination of Employment or Termination of Consultancy without cause, or
following a Change in Control of the Company, or because of the Grantee's
retirement, death or disability, or otherwise.
(b) An ISAR shall entitle the Grantee (or other person
entitled to exercise the ISAR pursuant to the Plan) to exercise all or a
specified portion of the ISAR (to the extent then exercisable pursuant to
its terms) and to receive from the Company an amount determined by
multiplying the difference obtained by subtracting the exercise price per
share of the ISAR from the Fair Market Value of a share of Common Stock on
the date of exercise of the ISAR by the number of shares of Common Stock
with respect to which the ISAR shall have been exercised, subject to any
limitations the Committee may impose.
9.4. PAYMENT AND LIMITATIONS ON EXERCISE.
(a) Payment of the amount determined under Section 9.2(c)
and 9.3(b) above shall be in cash, in Common Stock (based on its Fair
Market Value as of the date the Stock Appreciation Right is exercised) or a
combination of both, as determined by the Committee. To the extent such
payment is effected in Common Stock it shall be made subject to
satisfaction of all provisions of Section 6.3 above pertaining to Options.
(b) Grantees of Stock Appreciation Rights may be required
to comply with any timing or other restrictions with respect to the
settlement or exercise of a Stock Appreciation Right, including a
window-period limitation, as may be imposed in the discretion of the
Committee.
ARTICLE X.
STOCK PURCHASES
10.1. ELIGIBILITY TO PURCHASE COMMON STOCK.
(a) The Committee may grant to any consultant or any
Employee the right to purchase Common Stock under this Plan from time to
time, in such amounts and subject to such terms and conditions as the
Committee may determine, and, at the discretion of the Committee, such
determinations may include determining categories of employees and the
number of shares to be made available to employees in each such category;
PROVIDED, HOWEVER, that the total number of shares granted in an action
taken by category must be readily determinable. The Committee shall
determine the purchase price for such Common Stock; PROVIDED, HOWEVER, that
the purchase price for Common Stock purchased under this Article X shall be
no less than the Fair Market Value of such Common Stock as of the date of
purchase.
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(b) Each person who is an Independent Director as of the date of
the adoption by the Board of the Plan automatically shall be granted, on
the date of such adoption, the right under this Article X to purchase a
number of shares of Common Stock equal to the difference between (i) two
thousand seven hundred sixteen (2,716) shares of Common Stock and (ii) the
number of shares of Common Stock purchased by such Independent Director
since September 1, 1997 (other than purchases pursuant to the exercise of
an option granted pursuant to any stock option plan of the Company);
provided that any Independent Director who has purchased more than two
thousand seven hundred sixteen (2,716) shares of Common Stock since
September 1, 1997 (without taking into account purchases pursuant to the
exercise of an option granted pursuant to any stock option plan of the
Company) shall not receive any grant under this Article X. During the term
of the Plan, a person who is initially elected to the Board after the
adoption by the Board of the Plan and who is an Independent Director at the
time of such initial election automatically shall be granted the right
under this Article X to purchase two thousand seven hundred sixteen (2,716)
shares of Common Stock (subject to adjustment as provided in Section 12.3)
on the date of such initial election. The purchase price for any Common
Stock to be purchased pursuant to this Section 10.1(b) shall be the Fair
Market Value of such Common Stock as of the date of purchase.
10.2. TERMINATION OF EMPLOYMENT, TERMINATION OF CONSULTANCY OR
TERMINATION OF DIRECTORSHIP. An Employee, Independent Director or consultant
whom the Committee has granted the right to purchase Common Stock under this
Article X may only purchase such Common Stock while he or she is an Employee,
Independent Director or consultant.
10.3. FORM OF PAYMENT. An eligible Employee, Independent Director
or consultant may purchase Common Stock pursuant to this Article X only upon
delivery of all of the following to the Secretary of the Company or his office:
(a) Written notice complying with the applicable rules
established by the Administrator stating the number of shares of Common
Stock to be purchased;
(b) Such representations and documents as the
Administrator, in its absolute discretion, deems necessary or advisable to
effect compliance with all applicable provisions of the Securities Act and
any other federal or state securities laws or regulations. The
Administrator 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; and
(c) Full cash payment to the Secretary of the Company for
the shares being purchased. However, the Administrator may in its
discretion allow payment, in whole or in part, through the delivery of a
full recourse, limited recourse or non-recourse (as determined by the
Committee) promissory note bearing interest (at no less than such rate as
shall then preclude the imputation of interest under the Code) and payable
upon such terms as may be prescribed by the Committee or the Board. The
Administrator may prescribe the form of such promissory note and the
security to be given for such note. Notwithstanding the foregoing,
however, Common Stock may not be purchased under this Article X 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.
10.4. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The Company
shall not be required to issue or deliver any certificate or certificates for
shares of Common Stock purchased under this Article X 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
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any other governmental regulatory body which the Administrator 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 Administrator shall,
in its absolute discretion, determine to be necessary or advisable; and
(d) The receipt by the Company of full payment for such
shares, including payment of any applicable withholding tax, which in the
discretion of the Committee or the Board may be in the form of
consideration used by the Employee or consultant to pay for such shares
under Section 10.3(c).
10.5. RIGHTS AS STOCKHOLDERS/ DIVIDEND EQUIVALENTS. An Employee,
Independent Director or consultant who is granted the right to purchase Common
Stock under this Article X shall not be, nor have any of the rights or
privileges of, stockholders of the Company in respect of any shares purchasable
pursuant to such right unless and until certificates representing such shares
have been issued by the Company to such Employee, Independent Director or
consultant.
10.6. STOCKHOLDER APPROVAL REQUIREMENTS. All rights to purchase
Common Stock pursuant to this Article X are subject to stockholder approval of
the Plan. If such stockholder approval is not obtained within twelve months
after the date of the Board's initial adoption of the Plan, then all Common
Stock purchased by any Employee, Independent Director or consultant pursuant to
this Article X shall be returned to the Company, all consideration paid to the
Company shall be returned to the Employee, Independent Director or consultant
and all such purchases shall be canceled and be null and void AB INITIO.
10.7. SECTION 83(b) ELECTION. If an Employee, Independent
Director or consultant makes an election under Section 83(b) of the Code, or any
successor section thereto, to be taxed with respect to the Common Stock
purchased pursuant to this Article X as of the date of transfer of such Common
Stock rather than as of the date or dates upon which such Employee, Independent
Director or consultant would otherwise be taxable under Section 83(a) of the
Code, he or she shall deliver a copy of such election to the Company immediately
after filing such election with the Internal Revenue Service.
ARTICLE XI.
ADMINISTRATION
11.1. COMPENSATION COMMITTEE. The Compensation Committee (or
another committee or a subcommittee of the Board assuming the functions of the
Committee under the 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.
11.2. DUTIES AND POWERS OF COMMITTEE. It shall be the duty of the
Committee to conduct the general administration of the Plan in accordance with
its provisions. The Committee shall have the power to interpret the Plan and
the agreements pursuant to which Awards are granted or awarded, and to adopt
such rules for the administration, interpretation, and application of the 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 the Plan need not be the same with respect to each Holder. 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 the Plan except with respect to matters
which under Rule
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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.
11.3. 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.
11.4. 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 the 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 Holders, 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 the Plan or Awards, 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.
ARTICLE XII.
MISCELLANEOUS PROVISIONS
12.1. NOT TRANSFERABLE.
(a) No Award under the Plan may be sold, pledged, assigned
or transferred in any manner other than by will or the laws of descent and
distribution or, subject to the consent of the Administrator, pursuant to a
QDRO, unless and until such Award has been exercised, or the shares
underlying such Award have been issued, and all restrictions applicable to
such shares have lapsed. No Option, Restricted Stock award, Deferred Stock
award, Performance Award, Stock Appreciation Right, Dividend Equivalent or
Stock Payment or interest or right therein shall be liable for the debts,
contracts or engagements of the Holder 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.
(b) During the lifetime of the Holder, only he or she may
exercise an Option or other Award (or any portion thereof) granted to him
or her under the Plan, unless it has been disposed of pursuant to a QDRO.
After the death of the Holder, any exercisable portion of an Option or
other Award may, prior to the time when such portion becomes unexercisable
under the Plan or the applicable Award Agreement, be exercised by his
personal representative or by any person empowered to do so under the
deceased Holder's will or under the then applicable laws of descent and
distribution.
12.2. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN. Except as
otherwise provided in this Section 12.2, the 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 12.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under the Plan. No amendment,
suspension or termination of the Plan shall, without the consent of the Holder
alter or impair any rights or obligations under any Award theretofore granted or
awarded, unless the Award itself otherwise expressly so provides. No Awards may
be granted or awarded during any period of suspension or after termination of
the Plan, and in no event may any Incentive Stock Option be granted under the
Plan after the first to occur of the following events:
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(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 12.4.
12.3. CHANGES IN COMMON STOCK OR ASSETS OF THE COMPANY,
ACQUISITION OR LIQUIDATION OF THE COMPANY, CHANGE IN CONTROL AND OTHER CORPORATE
EVENTS.
(a) Subject to Section 12.3(d), in the event that the
Administrator 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, affects the Common Stock
such that an adjustment is determined by the Administrator 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 Award, then the Administrator 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 Awards
may be granted or awarded or which may be purchased pursuant to
Article X (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) which may be purchased pursuant
to Article X or which are subject to outstanding Options,
Performance Awards, Stock Appreciation Rights, Dividend
Equivalents, or Stock Payments, and the number and kind of shares
of outstanding Restricted Stock or Deferred Stock, and
(iii) the grant, exercise price or purchase price
with respect to any Award or Common Stock which is purchasable
pursuant to Article X.
(b) Subject to Sections 12.3(b)(vii) and 12.3(d), in the
event of any Corporate Transaction or other transaction or event described
in Section 12.3(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 Administrator, in its sole
and absolute discretion, and on such terms and conditions as it deems
appropriate, either by the terms of the Award or by action taken prior to
the occurrence of such transaction or event and either automatically or
upon the Holder's request, is hereby authorized to take any one or more of
the following actions whenever the Administrator 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 Award under the Plan, to facilitate such
transactions or events or to give effect to such changes in laws,
regulations or principles:
(i) To provide for either the purchase of any such
Award for an amount of cash equal to the amount that could have
been attained upon the exercise of such Award or realization of
the Holder's rights had such Award been currently exercisable or
payable or fully vested or the replacement of such Award with
other rights or property selected by the Administrator in its
sole discretion;
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(ii) To provide that the Award cannot vest, be
exercised or become payable after such event;
(iii) To provide that such Award shall be exercisable
as to all shares covered thereby, notwithstanding anything to the
contrary in (A) Section 5.3 or 5.4 or (B) the provisions of such
Award;
(iv) To provide that such Award be assumed by the
successor or survivor corporation, or a parent or subsidiary
thereof, or shall be substituted for by similar options, rights
or awards covering the stock of the 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) To make adjustments in the number and type of
shares of Common Stock (or other securities or property) subject
to outstanding Awards, and in the number and kind of outstanding
Restricted Stock or Deferred Stock and/or in the terms and
conditions of (including the grant or exercise price), and the
criteria included in, outstanding options, rights and awards and
options, rights and awards which may be granted in the future.
(vi) To provide that, for a specified period of time
prior to such event, the restrictions imposed under an Award
Agreement upon some or all shares of Restricted Stock or Deferred
Stock may be terminated, and, in the case of Restricted Stock,
some or all shares of such Restricted Stock may cease to be
subject to repurchase under Section 7.5 or forfeiture under
Section 7.4 after such event.
(vii) None of the foregoing discretionary actions
taken under this Section 12.3(b) shall be permitted with respect
to Options granted under Section 4.5 to Independent Directors to
the extent that such discretion would be inconsistent with the
applicable exemptive conditions of Rule 16b-3. In the event of a
Change in Control or a Corporate Transaction, to the extent that
the Board does not have the ability under Rule 16b-3 to take or
to refrain from taking the discretionary actions set forth in
Section 12.3(b)(iii) above, each Option granted to an Independent
Director shall be exercisable as to all shares covered thereby
upon such Change in Control or during the five days immediately
preceding the consummation of such Corporate Transaction and
subject to such consummation, notwithstanding anything to the
contrary in Section 5.4 or the vesting schedule of such Options.
In the event of a Corporate Transaction, to the extent that the
Board does not have the ability under Rule 16b-3 to take or to
refrain from taking the discretionary actions set forth in
Section 12.3(b)(ii) above, no Option granted to an Independent
Director may be exercised following such Corporate Transaction
unless such Option is, in connection with such Corporate
Transaction, either assumed by the successor or survivor
corporation (or parent or subsidiary thereof) or replaced with a
comparable right with respect to shares of the capital stock of
the successor or survivor corporation (or parent or subsidiary
thereof).
(c) Subject to Section 12.3(d) and 12.8, the Administrator may,
in its discretion, include such further provisions and limitations in any
Award, agreement or certificate, as it may deem equitable and in the best
interests of the Company.
(d) With respect to Awards described in Article VII or VIII
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 12.3 or in any other
provision of the Plan shall be authorized to the extent that such
adjustment or action would cause such Award to fail to so qualify under
Section 162(m)(4)(C), or any successor provisions thereto. No adjustment or
action
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described in this Section 12.3 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. 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 Administrator
determines that the Award is not to comply with such exemptive conditions.
The number of shares of Common Stock subject to any Award shall always be
rounded to the next whole number.
12.4. APPROVAL OF PLAN BY STOCKHOLDERS. The 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 the Plan. Awards and rights
to purchase Common Stock pursuant to Article X may be granted or awarded prior
to such stockholder approval, provided that (i) such Awards shall not be
exercisable nor shall such Awards vest prior to the time when the Plan is
approved by the stockholders; (ii) if such approval has not been obtained at
the end of said twelve-month period, all Awards previously granted or awarded
under the Plan shall thereupon be canceled and become null and void; and
(iii) all rights to purchase Common Stock granted pursuant to Article X shall be
subject to cancellation as provided in Section 10.6. In addition, if the Board
determines that Awards other than Options or Stock Appreciation Rights which may
be granted to Section 162(m) Participants should continue to be eligible to
qualify as performance-based compensation under Section 162(m)(4)(C) of the
Code, the Performance Criteria must be disclosed to and approved by the
Company's stockholders no later than the first stockholder meeting that occurs
in the fifth year following the year in which the Company's stockholders
previously approved the Performance Criteria.
12.5. TAX WITHHOLDING. The Company shall be entitled to require
payment in cash or deduction from other compensation payable to each Holder 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 Award. The Administrator
may in its discretion and in satisfaction of the foregoing requirement allow
such Holder to elect to have the Company withhold shares of Common Stock
otherwise issuable under such Award (or allow the return of shares of Common
Stock) having a Fair Market Value equal to the sums required to be withheld.
12.6. LOANS. The Committee may, in its discretion, extend one or
more loans to Employees in connection with the exercise or receipt of an Award
granted or awarded under the Plan, or the issuance of Restricted Stock or
Deferred Stock awarded under the Plan. The terms and conditions of any such
loan shall be set by the Committee.
12.7. FORFEITURE PROVISIONS. Pursuant to its general authority to
determine the terms and conditions applicable to Awards under the Plan, the
Administrator shall have the right (to the extent consistent with the applicable
exemptive conditions of Rule 16b-3) to provide, in the terms of Awards made
under the Plan, or to require a Holder to agree by separate written instrument,
that (a) (i) any proceeds, gains or other economic benefit actually or
constructively received by the Holder upon any receipt or exercise of the Award,
or upon the receipt or resale of any Common Stock underlying the Award, must be
paid to the Company, and (ii) the Award shall terminate and any unexercised
portion of the Award (whether or not vested) shall be forfeited, if (b)(i) 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 Award, or (ii) the Holder 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 Administrator or the Holder incurs a
Termination of Employment, Termination of Consultancy or Termination of
Directorship for cause.
12.8. LIMITATIONS APPLICABLE TO SECTION 16 PERSONS AND
PERFORMANCE-BASED COMPENSATION. Notwithstanding any other provision of the
Plan, the Plan, and any Award granted or awarded 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 of the Exchange Act) that
are requirements for the application of such exemptive rule. To the extent
permitted by applicable law, the Plan and Awards granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such applicable
exemptive rule. Furthermore, notwithstanding any other provision of the Plan or
any Award described in Article VII or VIII which is granted to a Section 162(m)
Participant and is
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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 the Plan shall be deemed amended to the
extent necessary to conform to such requirements.
12.9. EFFECT OF PLAN UPON OPTIONS AND COMPENSATION PLANS. The
adoption of the Plan shall not affect any other compensation or incentive plans
in effect for the Company or any Subsidiary. Nothing in the Plan shall be
construed to limit the right of the Company (a) to establish any other forms of
incentives or compensation for Employees, Directors or Consultants of the
Company or any Subsidiary or (b) to grant or assume options or other rights or
awards otherwise than under the 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.
12.10. COMPLIANCE WITH LAWS. The Plan, the granting and vesting of
Awards under the Plan and the issuance and delivery of shares of Common Stock
and the payment of money under the Plan or under Awards granted or awarded
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 the 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 Awards granted or awarded
hereunder shall be deemed amended to the extent necessary to conform to such
laws, rules and regulations.
12.11. TITLES. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of the Plan.
12.12. GOVERNING LAW. The 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.
A-23
<PAGE>
PRICESMART, INC.
4649 Morena Boulevard
San Diego, California 92117
The undersigned stockholder of PriceSmart, Inc., a Delaware corporation (the
"Company"), hereby appoints Robert M. Gans and Karen J. Ratcliff, and each of
them, as proxies for the undersigned with full power of substitution in each of
them, to attend the Annual Meeting of the Stockholders of the Company to be held
on Tuesday, January 12, 1999 at 10:00 a.m. Pacific Standard Time, and any
adjournment or postponement thereof, to cast on behalf of the undersigned all
votes that the undersigned is entitled to cast at such meeting and otherwise to
represent the undersigned at the meeting with all powers possessed by the
undersigned if personally present at the meeting. The undersigned hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders and revokes
any proxy heretofore given with respect to such meeting.
The votes entitled to be cast by the undersigned will be cast as instructed
below. If this proxy is executed but no instruction is given, the votes entitled
to be cast by the undersigned will be cast "FOR" the following proposals:
(Continued and to Be Signed on the Reverse Side)
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FOLD AND DETACH HERE
<PAGE>
FOR ALL NOMINEES WITHHOLD
LISTED BELOW AUTHORITY
(except as to vote for all
marked to the nominees listed
contrary below) below
1. ELECTION OF DIRECTORS / / / /
Rafael E. Barcenas Lawrence B. Krause
Katherine L. Hensley Gilbert A. Partida
Leon C. Janks Robert E. Price
WITHHELD FOR: (To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
Please mark
your votes as /X/
indicated in
this example
FOR AGAINST ABSTAIN
2. APPROVAL OF ADOPTION OF 1998 / / / / / /
EQUITY PARTICIPATION PLAN
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NOTE: The proxies of the undersigned may vote according to their discretion on
any other matter that may properly come before the meeting.
I plan to attend the meeting / /
Please mark, sign, date and return the proxy
card promptly using the enclosed envelope.
Signature(s) Dated
------------------------------------------- ---------------
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
FOLD AND DETACH HERE
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