PRICE/COSTCO INC
SC 13E4, 1994-11-21
VARIETY STORES
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                 SCHEDULE 13E-4
                         ISSUER TENDER OFFER STATEMENT
     (PURSUANT TO SECTION 13(E) (1) OF THE SECURITIES EXCHANGE ACT OF 1934)

                               PRICE/COSTCO, INC.
                                (NAME OF ISSUER)

                               PRICE/COSTCO, INC.
                      (NAME OF PERSON(S) FILING STATEMENT)

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                         (TITLE OF CLASS OF SECURITIES)

                                   74143W102
                     (CUSIP NUMBER OF CLASS OF SECURITIES)

                            DONALD E. BURDICK, ESQ.
                               PRICE/COSTCO, INC.
                             10809 120TH AVENUE NE
                           KIRKLAND, WASHINGTON 98033
                                 (206) 803-8100
  (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES
        AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)

                                   COPIES TO:

<TABLE>
<S>                                               <C>
             JOSEPH J. GIUNTA, ESQ.                           JONATHAN K. LAYNE, ESQ.
      SKADDEN, ARPS, SLATE, MEAGHER & FLOM                    GIBSON, DUNN & CRUTCHER
             300 SOUTH GRAND AVENUE                            333 SOUTH GRAND AVENUE
         LOS ANGELES, CALIFORNIA 90071                     LOS ANGELES, CALIFORNIA 90071
</TABLE>

                               NOVEMBER 21, 1994
     (DATE TENDER OFFER FIRST PUBLISHED, SENT OR GIVEN TO SECURITY HOLDERS)

                           CALCULATION OF FILING FEE

<TABLE>
<S>                                               <C>
            TRANSACTION VALUATION(1)                            AMOUNT OF FILING FEE
                  $401,625,000                                        $80,325
- ------------
<FN>

(1)  Estimated  solely for purposes  of calculating the  filing fee and computed
     pursuant to Rule  0-11(a)(4) of  the Securities  Exchange Act  of 1934,  as
     amended.  This  amount assumes  the  acquisition by  Price/Costco,  Inc. of
     27,000,000 shares of its common stock for $14.875 per share, the average of
     the high and low prices of a  share of common stock of Price/Costco,  Inc.,
     as  reported by The  Nasdaq Stock Market's National  Market on November 17,
     1994.
</TABLE>

/X/ Check box if any  part of the fee is  offset as provided by Rule  0-11(a)(2)
and  identify  the filing  with which  the offsetting  fee was  previously paid.
Identify the previous filing  by registration statement number,  or the form  of
schedule and the date of its filing.

<TABLE>
<S>                                                              <C>
Amount Previously Paid: $143,729                                 Filing Party: Price
                                                                 Enterprises, Inc.
Form or Registration No.: Registration Statement on Form S-4     Date Filed: September 15, 1994
 Registration Statement of Price Enterprises, Inc. (No.
 33-55481)
</TABLE>

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<PAGE>
ITEM 1.  SECURITY AND ISSUER.

    (a)    The issuer  of  the securities  to  which this  statement  relates is
Price/Costco,  Inc.,  a  Delaware  corporation  ("PriceCostco").  The  principal
executive offices of PriceCostco are located at 10809 120th Avenue NE, Kirkland,
Washington 98033 and 4649 Morena Boulevard, San Diego, California 92117.

    (b)   This Schedule 13E-4 relates to an offer by PriceCostco to exchange one
share of common stock, par value $.0001 per share, of Price Enterprises, Inc., a
newly formed Delaware corporation  and an indirect,  wholly owned subsidiary  of
PriceCostco  ("Price Enterprises Common Stock"), for each share of common stock,
par value $.01 per share, of  PriceCostco ("PriceCostco Common Stock"), up to  a
maximum of 27 million shares of Price Enterprises Common Stock (constituting all
the  outstanding shares of  Price Enterprises Common Stock),  upon the terms and
subject to the conditions set forth in the Offering Circular/ Prospectus,  dated
November  21, 1994  (the "Offering Circular/Prospectus"),  the form  of which is
attached hereto as Exhibit (a)(1), and in the related Letter of Transmittal, the
form of which is  attached hereto as Exhibit  (a)(2) (which together  constitute
the  "Exchange Offer"). The information set forth on the front cover page of the
Offering Circular/Prospectus  and  in  the sections  thereof  entitled  "SPECIAL
CONSIDERATIONS/RISK  FACTORS  -- Special  Considerations  with Respect  to Price
Enterprises"; "THE TRANSACTION  -- The Exchange  Offer," "-- The  Distribution,"
"--  Certain Other  Information" and  "-- Background  of the  Transaction"; "THE
EXCHANGE OFFER -- Terms of the  Exchange Offer," "-- Conditions to the  Exchange
Offer"  and "-- Acceptance of PriceCostco Common Stock for Exchange; Delivery of
Price Enterprises Common Stock"; and "SECURITY OWNERSHIP -- PriceCostco" and "--
Price Enterprises" is incorporated herein by reference.

    (c)    The   information  set  forth   in  the  section   of  the   Offering
Circular/Prospectus  entitled  "COMPARATIVE  MARKET  PRICES  AND  DIVIDENDS"  is
incorporated herein by reference.

    (d)  This statement is being filed by the issuer.

ITEM 2.  SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.

    (a)  The consideration for the purchase of the maximum amount of PriceCostco
Common Stock for which  the tender offer  is being made  consists of 27  million
shares of Price Enterprises Common Stock. The information set forth on the front
cover  page  of the  Offering Circular/Prospectus  and  in the  sections thereof
entitled "THE TRANSACTION -- The Exchange Offer" and "-- Transactions Undertaken
Prior to  the Exchange  Offer"; "THE  EXCHANGE OFFER  -- Terms  of the  Exchange
Offer"  and "-- Acceptance of PriceCostco Common Stock for Exchange; Delivery of
Price Enterprises Common  Stock"; and  "THE AGREEMENT  OF TRANSFER  AND PLAN  OF
EXCHANGE" is incorporated herein by reference.

    (b)  Not applicable.

ITEM 3.  PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.

    The information set forth in the section of the Offering Circular/Prospectus
entitled "THE TRANSACTION -- Certain Effects of the Transaction" is incorporated
herein by reference.

    (a)  -  (c)   The  information set  forth in  the  sections of  the Offering
Circular/Prospectus  entitled  "SPECIAL  CONSIDERATIONS/RISK  FACTORS  --Special
Considerations  Applicable  to  All PriceCostco  Stockholders"  and  "-- Special
Considerations with Respect to Price Enterprises"; "THE TRANSACTION -- General,"
"-- The  Exchange Offer,"  "--  Transactions Undertaken  Prior to  the  Exchange
Offer,"  "--  The  Distribution," "--  Background  of the  Transaction"  and "--
Certain Effects of  the Transaction";  "THE AGREEMENT  OF TRANSFER  AND PLAN  OF
EXCHANGE --Transfer of Assets; Assumption of Liabilities"; "SELECTED INFORMATION
WITH   RESPECT  TO  PRICECOSTCO   --  Business  of   PriceCostco  Following  the
Transaction"; and "BUSINESS AND PROPERTIES OF PRICE ENTERPRISES -- General," "--
Real Estate Business," "-- Mexico Clubs," "-- Price Quest" and "-- Price Global"
is incorporated herein by reference.

    (d)    The  information   set  forth  in  the   sections  of  the   Offering
Circular/Prospectus  entitled "THE TRANSACTION  -- Other Actions  to be Taken in
Connection with the  Transaction," "--  Background of the  Transaction" and  "--
Interests of Certain Persons in the Transaction"; "THE AGREEMENT OF TRANSFER AND
PLAN   OF  EXCHANGE  --  Certain   Additional  Matters";  "SELECTED  INFORMATION
<PAGE>
WITH RESPECT TO PRICECOSTCO  -- Management of  PriceCostco"; and "MANAGEMENT  OF
PRICE  ENTERPRISES -- Board of Directors of Price Enterprises" and "-- Executive
Officers" is incorporated herein by reference.

    (e)    The   information  set  forth   in  the  section   of  the   Offering
Circular/Prospectus  entitled "THE TRANSACTION  -- Effect of  the Transaction on
Convertible Securities" is incorporated herein by reference.

    (f)  Not applicable.

    (g)    The  information   set  forth  in  the   sections  of  the   Offering
Circular/Prospectus  entitled "THE TRANSACTION  -- Other Actions  to be Taken in
Connection with  the  Transaction";  "THE  AGREEMENT OF  TRANSFER  AND  PLAN  OF
EXCHANGE  --The Closing"; and "SELECTED  INFORMATION WITH RESPECT TO PRICECOSTCO
- -- Amendment of PriceCostco Bylaws" is incorporated herein by reference.

    (h) - (j)  Not applicable.

ITEM 4.  INTEREST IN SECURITIES OF THE ISSUER.

    The information set forth in the section of the Offering Circular/Prospectus
entitled "THE TRANSACTION -- Interests of Certain Persons in the Transaction  --
INTEREST IN PRICECOSTCO COMMON STOCK" is incorporated herein by reference.

ITEM 5.  CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
         TO THE ISSUER'S SECURITIES.

    The    information   set   forth   in   the   sections   of   the   Offering
Circular/Prospectus entitled  "SPECIAL  CONSIDERATIONS/RISK FACTORS  --  Special
Considerations   with  Respect  to  Price   Enterprises";  "THE  TRANSACTION  --
Background of the Transaction"; and "SECURITY OWNERSHIP -- PriceCostco" and  "--
Price Enterprises" is incorporated herein by reference.

ITEM 6.  PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.

    The information set forth in the Offering Circular/Prospectus in the section
entitled  "THE EXCHANGE OFFER -- Payment  of Expenses" is incorporated herein by
reference.

ITEM 7.  FINANCIAL INFORMATION.

    (a)    The  information   set  forth  in  the   sections  of  the   Offering
Circular/Prospectus  entitled "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE";
"PRICECOSTCO SELECTED HISTORICAL FINANCIAL AND OPERATING DATA"; and "COMPARATIVE
PER SHARE DATA" is incorporated herein by reference.

    (b)    The  information   set  forth  in  the   sections  of  the   Offering
Circular/Prospectus entitled "PRICECOSTCO SELECTED UNAUDITED PRO FORMA FINANCIAL
DATA";  "COMPARATIVE  PER  SHARE  DATA"; and  "PRICECOSTCO  UNAUDITED  PRO FORMA
CONDENSED FINANCIAL INFORMATION" is incorporated herein by reference.

ITEM 8.  ADDITIONAL INFORMATION.

    (a)    The  information   set  forth  in  the   sections  of  the   Offering
Circular/Prospectus  entitled  "SPECIAL CONSIDERATIONS/RISK  FACTORS  -- Special
Considerations with Respect to Price Enterprises"; "THE TRANSACTION -- General,"
"-- The  Exchange Offer,"  "--  Transactions Undertaken  Prior to  the  Exchange
Offer,"  "-- The Distribution," "-- Background of the Transaction," "-- Analysis
of Financial Advisors to  PriceCostco" and "-- Interests  of Certain Persons  in
the  Transaction"; "THE  AGREEMENT OF TRANSFER  AND PLAN  OF EXCHANGE"; "CERTAIN
RELATED AGREEMENTS"; and "BUSINESS AND  PROPERTIES OF PRICE ENTERPRISES --  Real
Estate  Business," "-- Mexico Clubs," "-- Price  Quest" and "-- Price Global" is
incorporated herein by reference.

    (b)    The   information  set  forth   in  the  section   of  the   Offering
Circular/Prospectus  entitled  "THE  TRANSACTION  --  Regulatory  Approvals"  is
incorporated herein by reference.

                                       2
<PAGE>
    (c)  Not applicable.

    (d)   There  are no  material  pending  legal proceedings  relating  to  the
Exchange Offer.

    (e)   Reference is  hereby made to the  Offering Circular/Prospectus and the
related Letter of Transmittal, copies of  which are attached hereto as  Exhibits
(a)(1)  and (a)(2), respectively, and incorporated  herein by reference in their
entireties. PriceCostco is not aware of any jurisdiction in which the making  of
the Exchange Offer or the tender of shares of PriceCostco Common Stock would not
be  in  compliance  with the  laws  of such  jurisdiction.  However, PriceCostco
reserves the  right  to exclude  holders  in any  jurisdiction  in which  it  is
asserted that the Exchange Offer cannot lawfully be made. So long as PriceCostco
makes  a good faith effort to comply with any state law deemed applicable to the
Exchange Offer, if it cannot do  so, PriceCostco believes that the exclusion  of
holders   residing  in  such  state(s)   is  permitted  under  Rule  13e-4(f)(g)
promulgated under the Securities Exchange Act of 1934, as amended.

ITEM 9.  MATERIAL TO BE FILED AS EXHIBITS.

<TABLE>
<C>         <S>
    (a)(1)  Form of Offering Circular/Prospectus, dated November 21, 1994.
    (a)(2)  Form of Letter of Transmittal (with accompanying Guidelines for Certification
            of Taxpayer Identification Number on Substitute Form W-9).
    (a)(3)  Form of Notice of Guaranteed Delivery.
    (a)(4)  Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
            Other Nominees.(1)
    (a)(5)  Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust
            Companies and Other Nominees.(1)
    (a)(6)  Press Release issued by Price/Costco, Inc. on July 15, 1994 (incorporated
            herein by reference to Exhibit 99.1 to the Current Report on Form 8-K of
            Price/Costco, Inc. filed with the Commission on August 5, 1994).(1)
    (a)(7)  Press Release issued by Price/Costco, Inc. on July 28, 1994 (incorporated
            herein by reference to Exhibit 99.2 to the Current Report on Form 8-K of
            Price/Costco, Inc. filed with the Commission on August 5, 1994).(1)
    (a)(8)  Summary Advertisement, dated November 21, 1994.(1)
    (a)(9)  Form of letter to recordholders in certain states.
       (b)  Not applicable.
    (c)(1)  Letter to Price/Costco, Inc. from Jeffrey H. Brotman dated July 28, 1994.(1)
    (c)(2)  Letter to Price/Costco, Inc. from James D. Sinegal dated July 28, 1994.(1)
    (c)(3)  Amended and Restated Agreement of Transfer and Plan of Exchange, dated as of
            November 14, 1994, by and between Price/Costco, Inc. and Price Enterprises,
            Inc. (included as Annex II to the Offering Circular/Prospectus).
    (c)(4)  Revolving Credit Agreement, dated as of August 28, 1994, between Price/Costco,
            Inc. and Price Enterprises, Inc. (incorporated herein by reference to Exhibit
            10.10 to Amendment No. 1 to the Registration Statement on Form S-4 of Price
            Enterprises, Inc. filed with the Commission on November 3, 1994 (File No.
            33-55481)).(1)
    (c)(5)  Form of Operating Agreement by and among Mexico Clubs, L.L.C., Price
            Enterprises, Inc., Price/Costco, Inc. and The Price Company (incorporated
            herein by reference to Exhibit 10.21 to Amendment No. 2 to the Registration
            Statement on Form S-4 of Price Enterprises, Inc. filed with the Commission on
            November 17, 1994 (File No. 33-55481)).(1)
</TABLE>

                                       3
<PAGE>
<TABLE>
<C>         <S>
    (c)(6)  Operating Agreement, dated as of August 28, 1994, by and among Price Global
            Trading, Inc., Price Enterprises, Inc., Price/Costco, Inc. and The Price
            Company (incorporated herein by reference to Exhibit 10.7 to Amendment No. 1
            to the Registration Statement on Form S-4 of Price Enterprises, Inc. filed
            with the Commission on November 3, 1994 (File No. 33-55481)).(1)
    (c)(7)  Operating Agreement, dated as of August 28, 1994, by and among Price Quest,
            Inc., Price Enterprises, Inc., Price/Costco, Inc. and The Price Company
            (incorporated herein by reference to Exhibit 10.6 to Amendment No. 1 to the
            Registration Statement on Form S-4 of Price Enterprises, Inc. filed with the
            Commission on November 3, 1994 (File No. 33-55481)).(1)
    (c)(8)  Form of Limited Liability Company Agreement between The Price Company and
            Price Enterprises, Inc. (incorporated herein by reference to Exhibit 10.22 to
            Amendment No. 2 to the Registration Statement on Form S-4 of Price
            Enterprises, Inc. filed with the Commission on November 17, 1994 (File No.
            33-55481)).(1)
    (c)(9)  Stockholders Agreement, dated as of August 28, 1994, by and among Price Global
            Trading, Inc., The Price Company, Price/Costco, Inc. and Price Enterprises,
            Inc. (incorporated herein by reference to Exhibit 10.8 to Amendment No. 1 to
            the Registration Statement on Form S-4 of Price Enterprises, Inc. filed with
            the Commission on November 3, 1994 (File No. 33-55481)).(1)
   (c)(10)  Stockholders Agreement, dated as of August 28, 1994, by and among Price Quest,
            Inc. The Price Company, Price/Costco, Inc. and Price Enterprises, Inc.
            (incorporated herein by reference to Exhibit 10.9 to Amendment No. 1 to the
            Registration Statement on Form S-4 of Price Enterprises, Inc. filed with the
            Commission on November 3, 1994 (File No. 33-55481)).(1)
   (c)(11)  License Agreement, dated as of August 28, 1994, by and among Price/Costco,
            Inc., The Price Company, Price Quest, Inc. and Price Enterprises, Inc.
            (incorporated herein by reference to Exhibit 10.11 to Amendment No. 1 to the
            Registration Statement on Form S-4 of Price Enterprises, Inc. filed with the
            Commission on November 3, 1994 (File No. 33-55481)).(1)
   (c)(12)  License Agreement, dated as of August 28, 1994, by and among Price/Costco,
            Inc., The Price Company, Price Global Trading, Inc. and Price Enterprises,
            Inc. (incorporated herein by reference to Exhibit 10.12 to Amendment No. 1 to
            the Registration Statement on Form S-4 of Price Enterprises, Inc. filed with
            the Commission on November 3, 1994 (File No. 33-55481)).(1)
   (c)(13)  Form of lease between Price Enterprises, Inc. and The Price Company with
            respect to the Price Club at Pentagon Centre, Arlington County, Virginia
            (incorporated herein by reference to Exhibit 10.1 to Amendment No. 2 to the
            Registration Statement on Form S-4 of Price Enterprises, Inc. filed with the
            Commission on November 17, 1994 (File No. 33-55481)).(1)
   (c)(14)  Form of lease between Price Enterprises, Inc. and The Price Company with
            respect to the Price Club at 4605 Morena Boulevard, San Diego, California
            (incorporated herein by reference to Exhibit 10.18 to Amendment No. 2 to the
            Registration Statement on Form S-4 of Price Enterprises, Inc. filed with the
            Commission on November 17, 1994 (File No. 33-55481)).(1)
   (c)(15)  Form of lease between Price Enterprises, Inc. and The Price Company with
            respect to the Price Club at Wayne, New Jersey (incorporated herein by
            reference to Exhibit 10.19 to Amendment No. 2 to the Registration Statement on
            Form S-4 of Price Enterprises, Inc. filed with the Commission on November 17,
            1994 (File No. 33-55481)).(1)
</TABLE>

                                       4
<PAGE>
<TABLE>
<C>         <S>
   (c)(16)  Form of lease between Price Enterprises, Inc. and The Price Company with
            respect to the Price Club at Westbury, New York (incorporated by reference to
            Exhibit 10.20 to Amendment No. 2 to the Registration Statement on Form S-4 of
            Price Enterprises, Inc. filed with the Commission on November 17, 1994 (File
            No. 33-55481)).(1)
    (d)(1)  Opinion of Skadden, Arps, Slate, Meagher & Flom regarding certain income tax
            consequences of the Exchange Offer (incorporated herein by reference to
            Exhibit 8 to Amendment No. 2 to the Registration Statement on Form S-4 of
            Price Enterprises, Inc. filed with the Commission on November 17, 1994 (File
            No. 33-55481)).(1)
       (e)  Form of Offering Circular/Prospectus, dated November 21, 1994 (see Exhibit
            (a)(1) above).
       (f)  Not applicable.
<FN>
- ------------------------
(1)  Not mailed to stockholders
</TABLE>

                                       5
<PAGE>
                                   SIGNATURE

    After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.

Dated: November 18, 1994

                                          PRICE/COSTCO, INC.

                                          By:        /s/ RICHARD A. GALANTI

                                             -----------------------------------
                                              Name: Richard A. Galanti
                                             Title: Executive Vice President and
                                                   Chief Financial Officer

<PAGE>
                            [PriceCostco Letterhead]

   
                               November 21, 1994
    

Dear Stockholder:

   
    It  is  our pleasure  to  enclose for  your review  a  copy of  the Offering
Circular/Prospectus describing the transaction in which Price Enterprises,  Inc.
will  become  a  separate,  publicly-traded company.  The  transaction  has been
structured as an  exchange offer  so that PriceCostco  stockholders desiring  to
invest  in Price Enterprises may exchange shares of PriceCostco common stock for
shares of Price Enterprises common stock on a one-for-one basis, up to a maximum
of 27  million  shares  of  Price  Enterprises  Common  Stock.  All  PriceCostco
stockholders  are  being allowed  an equal  opportunity  to participate  in this
offer.
    

   
    PriceCostco has contributed to Price Enterprises its commercial real  estate
operations,  certain other real properties (including four PriceCostco warehouse
club facilities), the Atlas  Hotel note and certain  other notes receivable,  as
well  as  a  51%  interest  in (i)  the  Quest  interactive  electronic shopping
business, (ii) a  currently operating  export/import business and  the right  to
develop  a warehouse club business in  certain geographical areas outside of the
United States and (iii) PriceCostco's interest in its Mexican joint venture.
    

   
    Robert Price  has been  named Chairman  of the  Board, President  and  Chief
Executive  Officer  of  Price  Enterprises.  Mr.  Price  will  resign  from  the
PriceCostco Board of Directors upon the closing of the exchange transaction. Jim
Sinegal will remain President and Chief Executive Officer of PriceCostco.
    

   
    If more than 27 million shares of PriceCostco common stock are tendered  for
exchange, shares will be accepted for exchange on a pro rata basis. If less than
21.6  million shares  of Price Enterprises  common stock are  distributed in the
offer in exchange for shares of  PriceCostco common stock, the remaining  shares
of  Price Enterprises will be distributed by  PriceCostco on a pro rata basis to
all holders of record  of PriceCostco common  stock as of  a date following  the
expiration  of the offer. If more than  21.6 million shares of Price Enterprises
common stock, but less than 27 million  shares, are distributed in the offer  in
exchange  for shares of PriceCostco common  stock, PriceCostco may elect, at its
option, to either distribute  the remaining shares  of Price Enterprises  common
stock,  as described  in the  preceding sentence, or  sell such  shares to Price
Enterprises in exchange for a promissory note.
    

    The  attached  Offering  Circular/Prospectus  provides  you  with   detailed
information regarding the transaction. We urge you to read it carefully.

    NEITHER  PRICECOSTCO NOR THE BOARD OF  DIRECTORS MAKES ANY RECOMMENDATION TO
ANY  STOCKHOLDER  WHETHER  TO  TENDER  OR  REFRAIN  FROM  TENDERING  SHARES   OF
PRICECOSTCO  COMMON STOCK PURSUANT TO THE  EXCHANGE OFFER. EACH STOCKHOLDER MUST
MAKE HIS OR HER  DECISION WHETHER TO TENDER  SHARES OF PRICECOSTCO COMMON  STOCK
PURSUANT TO THE EXCHANGE OFFER AND, IF SO, HOW MANY SHARES TO TENDER.

Sincerely,

<TABLE>
<S>                                           <C>
Robert E. Price                               James D. Sinegal
Chairman of the Board                         President and Chief Executive Officer
</TABLE>
<PAGE>
   
OFFERING CIRCULAR/PROSPECTUS
    

                               PRICE/COSTCO, INC.
                               OFFERING CIRCULAR
                                ---------------

                            PRICE ENTERPRISES, INC.
                                   PROSPECTUS
                                ---------------

                               OFFER TO EXCHANGE
              ONE SHARE OF COMMON STOCK OF PRICE ENTERPRISES, INC.
              FOR EACH SHARE OF COMMON STOCK OF PRICE/COSTCO, INC.
                             ---------------------

   
               THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT,
                   NEW YORK CITY TIME, ON DECEMBER 20, 1994.
    
   
    Price/Costco,  Inc., a Delaware  corporation ("PriceCostco"), hereby offers,
upon the  terms  and  subject to  the  conditions  set forth  in  this  Offering
Circular/Prospectus  and  in  the  accompanying  Letter  of  Transmittal  (which
together constitute  the "Exchange  Offer"),  to exchange  one share  of  common
stock,  par value $.0001 per share  ("Price Enterprises Common Stock"), of Price
Enterprises, Inc., a newly formed  Delaware corporation and an indirect,  wholly
owned  subsidiary of PriceCostco ("Price Enterprises"), for each share of common
stock, par value $.01 per share ("PriceCostco Common Stock"), of PriceCostco, up
to  a  maximum  of  27  million   shares  of  Price  Enterprises  Common   Stock
(constituting  all of the outstanding shares of Price Enterprises Common Stock).
If more than 27 million shares of PriceCostco Common Stock are validly  tendered
and not withdrawn in the Exchange Offer prior to the Expiration Date, then, upon
the   terms  and  subject   to  the  conditions  set   forth  in  this  Offering
Circular/Prospectus and the  Letter of Transmittal,  PriceCostco will accept  27
million  shares for exchange on a pro rata basis and shares of Price Enterprises
Common Stock will  be exchanged therefor.  If less than  21.6 million shares  of
PriceCostco  Common  Stock  are validly  tendered  in the  Exchange  Offer, then
PriceCostco will accept such shares for exchange and will distribute to  holders
of PriceCostco Common Stock all the remaining shares of Price Enterprises Common
Stock  held by PriceCostco on a pro rata  basis. If at least 21.6 million shares
of PriceCostco  Common  Stock, but  less  than  27 million  shares  are  validly
tendered, then PriceCostco will accept such shares for exchange and will, at its
option,  either (i) distribute the remaining  shares of Price Enterprises Common
Stock held by PriceCostco, as set forth  in the previous sentence, or (ii)  sell
such  shares to Price Enterprises in exchange for a promissory note, all as more
fully described herein.  In such  event, PriceCostco currently  intends to  sell
such shares to Price Enterprises in exchange for a promissory note.
    
    FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PRICECOSTCO
STOCKHOLDERS  IN DECIDING WHETHER OR NOT  TO TENDER SHARES OF PRICECOSTCO COMMON
STOCK FOR SHARES OF  PRICE ENTERPRISES COMMON STOCK  IN THE EXCHANGE OFFER,  SEE
"SPECIAL CONSIDERATIONS/RISK FACTORS."

    The  Exchange Offer is not conditioned upon  any minimum number of shares of
PriceCostco Common Stock  being tendered  for exchange. The  Exchange Offer  is,
however, subject to certain other conditions described under "THE EXCHANGE OFFER
- -- Conditions to the Exchange Offer."

    NO  PERSON  HAS BEEN  AUTHORIZED  TO GIVE  ANY  INFORMATION OR  TO  MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS OFFERING  CIRCULAR/PROSPECTUS
IN  CONNECTION WITH THE  OFFERING OF SECURITIES MADE  BY THIS OFFERING CIRCULAR/
PROSPECTUS AND, IF GIVEN OR MADE,  SUCH INFORMATION OR REPRESENTATIONS MUST  NOT
BE  RELIED UPON AS  HAVING BEEN AUTHORIZED BY  PRICECOSTCO OR PRICE ENTERPRISES.
NEITHER THE DELIVERY OF THIS  OFFERING CIRCULAR/PROSPECTUS NOR ANY  DISTRIBUTION
OF   SECURITIES  MADE  HEREUNDER  SHALL   UNDER  ANY  CIRCUMSTANCES  CREATE  ANY
IMPLICATION THAT THERE HAS  BEEN NO CHANGE IN  THE INFORMATION SET FORTH  HEREIN
SINCE  THE DATE  OF THIS  OFFERING CIRCULAR/PROSPECTUS.  THIS OFFERING CIRCULAR/
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO  SELL, OR A SOLICITATION OF AN  OFFER
TO  BUY, ANY  SECURITIES BY ANYONE  IN ANY  JURISDICTION IN WHICH  SUCH OFFER OR
SOLICITATION IS  NOT AUTHORIZED  OR IN  WHICH THE  PERSON MAKING  SUCH OFFER  OR
SOLICITATION  IS NOT QUALIFIED TO DO  SO OR TO ANYONE TO  WHOM IT IS UNLAWFUL TO
MAKE SUCH SOLICITATION.
                            ------------------------

THESE SECURITIES HAVE  NOT BEEN APPROVED  OR DISAPPROVED BY  THE SECURITIES  AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
   AND  EXCHANGE COMMISSION OR ANY  STATE SECURITIES COMMISSION PASSED UPON
     THE ACCURACY OR ADEQUACY  OF THIS OFFERING CIRCULAR/PROSPECTUS.  ANY
                REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE  ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
      MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
                            ------------------------

   
      The date of this Offering Circular/Prospectus is November 21, 1994.
    
<PAGE>
                             AVAILABLE INFORMATION

    PriceCostco is subject to the  informational requirements of the  Securities
Exchange  Act  of  1934, as  amended  (the  "Exchange Act"),  and  in accordance
therewith files  reports,  proxy  statements  and  other  information  with  the
Securities  and  Exchange  Commission  (the  "Commission").  The  reports, proxy
statements and other information filed by PriceCostco with the Commission can be
inspected and  copied  at the  public  reference facilities  maintained  by  the
Commission  at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York,
New York  10048 and  at Northwestern  Atrium Center,  500 West  Madison  Street,
Chicago,  Illinois 60661-2511. Copies of such material also can be obtained from
the Public Reference  Section of the  Commission at Judiciary  Plaza, 450  Fifth
Street,  N.W., Washington, D.C. 20549 at prescribed rates. In addition, material
filed by PriceCostco can be inspected at the offices of the National Association
of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.

    Price Enterprises has filed with the Commission a Registration Statement  on
Form  S-4 (together with  any amendments thereto,  the "Registration Statement")
under the  Securities Act  of  1933, as  amended  (the "Securities  Act"),  with
respect  to the Price  Enterprises Common Stock  to be issued  pursuant to or as
contemplated by  this  Offering  Circular/Prospectus. PriceCostco  has  filed  a
Schedule  13E-4 Issuer Tender  Offer Statement (the  "Schedule 13E-4") under the
Exchange Act  with the  Commission  with respect  to  the Exchange  Offer.  This
Offering  Circular/Prospectus does not contain all  the information set forth or
incorporated by reference in the Registration Statement and the Schedule  13E-4,
and  the exhibits and schedules relating thereto, certain portions of which have
been omitted as permitted  by the rules and  regulations of the Commission.  For
further  information, reference  is made to  the Registration  Statement and the
Schedule 13E-4 and the exhibits filed  or incorporated as a part thereof,  which
are  on file  at the  offices of  the Commission  and may  be obtained  from the
Commission's principal office in Washington,  D.C. Statements contained in  this
Offering  Circular/Prospectus, or in any  document incorporated in this Offering
Circular/ Prospectus by reference, as to  the contents of any contract or  other
document referred to herein or therein are not necessarily complete, and in each
instance  reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or the Schedule 13E-4 or such  other
document; each such statement is qualified in all respects by such reference.

                                       2
<PAGE>
                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

    The following documents filed with the Commission by PriceCostco pursuant to
the   Exchange   Act   are   incorporated   by   reference   in   this  Offering
Circular/Prospectus:

   
    1.   PriceCostco's Annual  Report on  Form 10-K  for the  fiscal year  ended
       August 28, 1994;
    

   
    2.   PriceCostco's  Proxy Statement  dated December  8, 1993  for the annual
       meeting of stockholders held January 13, 1994; and
    

   
    3.  PriceCostco's Registration Statement on Form 8-A dated October 18, 1993.
    

    All documents  and reports  subsequently filed  by PriceCostco  pursuant  to
Section  13(a), 13(c), 14  or 15(d) of the  Exchange Act after  the date of this
Offering Circular/Prospectus and prior to the termination of the offering of the
shares of Price Enterprises Common Stock  shall be deemed to be incorporated  by
reference  in this Offering Circular/Prospectus and to be a part hereof from the
date of  filing of  such documents  or  reports. Any  statement contained  in  a
document  incorporated or deemed to be incorporated by reference herein shall be
deemed to be  modified or  superseded for  purposes of  this Offering  Circular/
Prospectus  to the  extent that  a statement  contained herein  or in  any other
subsequently filed document  which also is  or is deemed  to be incorporated  by
reference  herein modifies or  supersedes such statement.  Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Offering Circular/Prospectus.

   
    THIS OFFERING CIRCULAR/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE  WHICH
ARE  NOT  PRESENTED HEREIN  OR DELIVERED  HEREWITH.  SUCH DOCUMENTS  (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO  WHOM
THIS  OFFERING  CIRCULAR/PROSPECTUS IS  DELIVERED, ON  WRITTEN OR  ORAL REQUEST,
WITHOUT CHARGE, DIRECTED TO PRICE/COSTCO, INC., 10809 120TH AVENUE NE, KIRKLAND,
WASHINGTON  98033  (TELEPHONE  NUMBER  (206)  803-8100),  ATTENTION:  DONALD  E.
BURDICK,  VICE PRESIDENT. IN  ORDER TO ENSURE TIMELY  DELIVERY OF THE DOCUMENTS,
ANY REQUESTS SHOULD BE MADE BY DECEMBER 13, 1994.
    

                                       3
<PAGE>
                               TABLE OF CONTENTS
   
<TABLE>
<CAPTION>
                                                                 PAGE
                                                              ----------
<S>                                                           <C>
Summary of Offering Circular/Prospectus.....................           5
Price Enterprises, Inc. Selected Historical Financial
 Data.......................................................          11
Price Enterprises, Inc. Selected Unaudited Pro Forma
 Financial Data.............................................          13
PriceCostco Selected Historical Financial and Operating
 Data.......................................................          15
PriceCostco Selected Unaudited Pro Forma Financial Data.....          17
Comparative Per Share Data..................................          20
Comparative Market Prices and Dividends.....................          22
Special Considerations/Risk Factors.........................          24
The Transaction.............................................          31
  General...................................................          31
  The Exchange Offer........................................          31
  Transactions Undertaken Prior to the Exchange Offer.......          32
  The Distribution..........................................          34
  Other Actions to be Taken in Connection with the
   Transaction..............................................          35
  Certain Other Information.................................          35
  Background of the Transaction.............................          36
  Reasons for the Transaction...............................          42
  Certain Effects of the Transaction........................          43
  Analysis of Financial Advisors to PriceCostco.............          43
  Interests of Certain Persons in the Transaction...........          47
  Certain Federal Income Tax Consequences...................          49
  Anticipated Accounting Treatment..........................          50
  Regulatory Approvals......................................          51
  Quotation of Price Enterprises Common Stock on The Nasdaq
   Stock Market's National Market...........................          51
  Effect of the Transaction on Convertible Securities.......          52
The Exchange Offer..........................................          53
  Terms of the Exchange Offer...............................          53
  Expiration Date; Extensions; Termination..................          53
  Procedures for Tendering..................................          53
  Guaranteed Delivery Procedure.............................          55
  Conditions to the Exchange Offer..........................          55
  Withdrawal Rights.........................................          56
  Acceptance of PriceCostco Common Stock for Exchange;
   Delivery of Price Enterprises Common Stock...............          57
  Exchange Agent and Information Agent......................          58
  Financial Advisors........................................          58
  Payment of Expenses.......................................          58
The Agreement of Transfer and Plan of Exchange..............          59
Certain Related Agreements..................................          69
  Operating Agreements......................................          69
  Stockholders Agreements...................................          69
  Limited Liability Company Agreement.......................          69
  Tax Allocation Agreements.................................          69
  Advance Agreement.........................................          70

<CAPTION>
                                                                 PAGE
                                                              ----------
<S>                                                           <C>
Price Enterprises, Inc. Unaudited Pro Forma Financial
 Information................................................          71
PriceCostco Unaudited Pro Forma Condensed Financial
 Information................................................          74
Price Enterprises, Inc. Management's Discussion and Analysis
 of Financial Condition and Results of Operations...........          78
Selected Information with Respect to PriceCostco............          82
Business and Properties of Price Enterprises................          86
Management of Price Enterprises.............................         112
  Board of Directors of Price Enterprises...................         112
  Committees of Price Enterprises...........................         113
  Compensation of the Board of Directors....................         114
  Executive Officers........................................         114
  Certain Other Officers....................................         116
  Indemnification Agreements................................         116
  Compensation of Executive Officers........................         117
  Certain Relationships and Related Transactions............         122
  Information Concerning The Price Enterprises 1995 Combined
   Stock Grant and Stock Option Plan........................         122
  Continuation of PriceCostco Stock Options.................         126
  Information Concerning The Price Enterprises Directors'
   1995 Stock Option Plan...................................         127
  Retirement Plan...........................................         128
  Compensation Committee Interlocks and Insider
   Participation............................................         129
Security Ownership..........................................         129
  PriceCostco...............................................         129
  Price Enterprises.........................................         132
Price Enterprises' Certificate of Incorporation and
 Bylaws.....................................................         134
Description of Price Enterprises' Securities................         136
Comparison of Rights of Stockholders of PriceCostco and
 Price Enterprises..........................................         137
Legal Matters...............................................         138
Experts.....................................................         138
Independent Auditors........................................         138
Index to Price Enterprises, Inc. Financial Statements.......         F-1
Annex I -- Index to Defined Terms...........................         I-1
Annex II -- Amended and Restated Agreement of Transfer and
 Plan of Exchange...........................................        II-1
Annex III -- Form of Restated Certificate of Incorporation
 of Price Enterprises, Inc..................................       III-1
Annex IV -- Form of Amended and Restated Bylaws of Price
 Enterprises, Inc...........................................        IV-1
Annex V -- Form of Price/Costco, Inc. Amended and Restated
 Bylaws.....................................................         V-1
Annex VI -- The Price Enterprises 1995 Combined Stock Grant
 and Stock Option Plan......................................        VI-1
Annex VII -- The Price Enterprises Directors' 1995 Stock
 Option Plan................................................       VII-1
</TABLE>
    

                                       4
<PAGE>
                    SUMMARY OF OFFERING CIRCULAR/PROSPECTUS
   DEFINED TERMS USED IN THIS OFFERING CIRCULAR/PROSPECTUS, AND REFERENCES TO
   THE  PAGES HEREIN ON WHICH SUCH  TERMS ARE DEFINED, ARE LISTED IN
            AN INDEX WHICH IS ATTACHED TO   THIS  OFFERING
                        CIRCULAR/PROSPECTUS AS ANNEX I.

    THE  FOLLOWING IS  A SUMMARY OF  CERTAIN INFORMATION  CONTAINED ELSEWHERE IN
THIS OFFERING CIRCULAR/PROSPECTUS.  THIS SUMMARY IS  INTENDED ONLY TO  HIGHLIGHT
CERTAIN  INFORMATION CONTAINED IN  THIS OFFERING CIRCULAR/PROSPECTUS.  IT IS NOT
INTENDED TO BE COMPLETE IN ITSELF, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO   THE   DETAILED   INFORMATION   CONTAINED   ELSEWHERE   IN   THIS   OFFERING
CIRCULAR/PROSPECTUS,  THE DOCUMENTS REFERRED  TO HEREIN AND  THE ANNEXES HERETO,
INCLUDING THE TRANSFER AND EXCHANGE AGREEMENT (AS HEREINAFTER DEFINED)  ATTACHED
TO THIS OFFERING CIRCULAR/PROSPECTUS AS ANNEX II. STOCKHOLDERS ARE URGED TO READ
THIS OFFERING CIRCULAR/PROSPECTUS AND THE ANNEXES HERETO IN THEIR ENTIRETY.

THE COMPANIES

   
<TABLE>
<S>                                      <C>
Price/Costco, Inc.  ..................   PriceCostco  operates  cash  and  carry membership
  10809 120th Avenue NE                  warehouses.  As  a  result  of  the   Transaction,
  Kirkland, Washington 98033             PriceCostco's  business consists  primarily of its
  (206) 803-8100                         warehouse club  operations in  the United  States,
                                         Canada and the United Kingdom, and PriceCostco has
                                         ceased   to  have  any   significant  real  estate
                                         activities which are not  directly related to  its
                                         warehouse club business. See "SELECTED INFORMATION
                                         WITH RESPECT TO PRICECOSTCO."

Price Enterprises, Inc. ..............   The  principal business of Price Enterprises is to
  4649 Morena Boulevard                  acquire, develop, operate, manage, lease and  sell
  San Diego, California 92117            real  properties. Price Enterprises owns or leases
  (619) 581-4600                         79 properties, including numerous retail  shopping
                                         centers  and  other  commercial  properties,  four
                                         warehouse club properties  which have been  leased
                                         to  PriceCostco, two office properties and certain
                                         notes  receivable  related  to  its  real   estate
                                         business.  Of Price Enterprises' 79 properties, 18
                                         are fully developed, 35  are in various stages  of
                                         construction and development and 26 properties are
                                         unimproved.   As  of   August  28,   1994,  on  an
                                         historical  cost   basis,   real   estate   assets
                                         constituted approximately 85% of the book value of
                                         Price Enterprises' total assets.

                                         Price  Enterprises  also holds  a 51%  interest in
                                         Mexico  Clubs,  L.L.C,  a  newly  formed  Delaware
                                         limited  liability  company ("Mexico  Clubs"), and
                                         51% of the  outstanding capital stock  of each  of
                                         two  newly  formed  Delaware  corporations:  Price
                                         Quest,  Inc.  ("Price  Quest")  and  Price  Global
                                         Trading,  Inc. ("Price Global"  and, together with
                                         Mexico Clubs  and  Price  Quest,  the  "Subsidiary
                                         Corporations").  Mexico  Clubs  will  continue the
                                         development of warehouse club businesses in Mexico
                                         through its 50% interest  in Price Club Mexico,  a
                                         joint venture that develops, owns and operates ten
                                         Price  Clubs  in Mexico  as  of October  31, 1994.
                                         Price Quest owns the Quest interactive  electronic
                                         shopping business and related businesses presently
                                         conducted  in certain PriceCostco warehouse clubs.
                                         Price Global owns  an export  and import  business
                                         and  has certain rights  to develop warehouse club
                                         businesses  in  certain  specified   international
                                         markets.

                                         For  a further  description of  Price Enterprises,
                                         see   "BUSINESS    AND   PROPERTIES    OF    PRICE
                                         ENTERPRISES."
</TABLE>
    

                                       5
<PAGE>

   
<TABLE>
<S>                                      <C>
THE TRANSACTION

The Exchange Offer....................   Upon  the terms and subject  to the conditions set
                                         forth in this Offering Circular/Prospectus and the
                                         accompanying Letter of Transmittal, PriceCostco is
                                         offering  to   exchange   one   share   of   Price
                                         Enterprises   Common  Stock  for   each  share  of
                                         PriceCostco Common Stock,  up to a  maximum of  27
                                         million  shares of Price  Enterprises Common Stock
                                         (constituting all  of  the outstanding  shares  of
                                         Price  Enterprises Common Stock).  If more than 27
                                         million shares  of  PriceCostco Common  Stock  are
                                         validly tendered and not withdrawn in the Exchange
                                         Offer prior to the Expiration Date, then, upon the
                                         terms  and subject to the  conditions set forth in
                                         this Offering Circular/Prospectus  and the  Letter
                                         of Transmittal, PriceCostco will accept 27 million
                                         shares for exchange on a pro rata basis and shares
                                         of   Price  Enterprises   Common  Stock   will  be
                                         exchanged therefor.  See  "THE EXCHANGE  OFFER  --
                                         Terms of the Exchange Offer."

                                         IN  DECIDING WHETHER  OR NOT  TO TENDER  SHARES OF
                                         PRICECOSTCO COMMON STOCK IN EXCHANGE FOR SHARES OF
                                         PRICE  ENTERPRISES   COMMON  STOCK,   HOLDERS   OF
                                         PRICECOSTCO COMMON STOCK SHOULD CAREFULLY CONSIDER
                                         ALL  OF THE INFORMATION CONTAINED IN THIS OFFERING
                                         CIRCULAR/PROSPECTUS, INCLUDING THE  CONSIDERATIONS
                                         SET    FORTH   IN   "SPECIAL   CONSIDERATIONS/RISK
                                         FACTORS."

Background and Reasons for
 the Transaction......................   In  October  1993,  each  of  The  Price   Company
                                         ("Price")   and   Costco   Wholesale   Corporation
                                         ("Costco") merged  with a  separate, wholly  owned
                                         subsidiary  of PriceCostco pursuant to which Price
                                         and Costco each became  a wholly owned  subsidiary
                                         of   PriceCostco  (the  "Merger").  Following  the
                                         Merger, certain  basic  philosophical  differences
                                         developed between the former Costco executives and
                                         the  former Price  executives regarding management
                                         strategies   central   to    the   direction    of
                                         PriceCostco's   business  operations.  The  former
                                         Costco executives believed that PriceCostco should
                                         devote its  business  resources primarily  to  its
                                         core  warehouse club business,  whereas the former
                                         Price   executives   believed   that   substantial
                                         resources   should  be  devoted  to  PriceCostco's
                                         non-club real  estate  development,  non-warehouse
                                         activities  such  as  Quest  electronic  shopping,
                                         business delivery, the  Mexican joint venture  and
                                         various  ancillary  businesses  and  Pacific  Rim,
                                         Latin American and South American expansion. These
                                         differences were discussed in detail by the  Board
                                         of Directors and senior management of PriceCostco,
                                         but  not satisfactorily  resolved. Members  of the
                                         Board and  senior  management of  PriceCostco,  as
                                         well  as  Sol  Price,  a founder  of  Price  and a
                                         significant  stockholder  of  PriceCostco,  became
                                         concerned  that the philosophical differences that
                                         had developed since the Merger between the  former
                                         executives  of Costco and the former executives of
                                         Price and the  inability of the  Board to  resolve
                                         such   differences   would   hinder  PriceCostco's
                                         ability to compete  effectively and operate  effi-
                                         ciently,   and  impede   management's  ability  to
                                         continue  to  function  in  a  manner  capable  of
                                         maximizing the value of PriceCostco and, ultimate-
                                         ly,  stockholder  value. Following  meetings among
                                         various   PriceCostco   directors,   members    of
                                         PriceCostco senior management and various advisors
                                         to   PriceCostco,  the   Board  of   Directors  of
                                         PriceCostco  determined  that  the  best  way   to
                                         maximize available business opportunities
</TABLE>
    

                                       6
<PAGE>

   
<TABLE>
<S>                                      <C>
                                         would  be  to  effect the  Transaction.  While the
                                         Board   considered   certain   alternatives,    it
                                         concluded  that none of  the alternatives appeared
                                         to  be  as  attractive   as  the  Transaction   in
                                         resolving  such basic philosophical differences or
                                         in  maximizing  the  value  of  PriceCostco   and,
                                         ultimately,    stockholder    value.    See   "THE
                                         TRANSACTION -- Background of the Transaction"  and
                                         "-- Reasons for the Transaction."

                                         NEITHER  PRICECOSTCO NOR THE BOARD OF DIRECTORS OF
                                         PRICECOSTCO  MAKES  ANY   RECOMMENDATION  TO   ANY
                                         STOCKHOLDER  WHETHER  TO  TENDER  OR  REFRAIN FROM
                                         TENDERING  SHARES  OF  PRICECOSTCO  COMMON   STOCK
                                         PURSUANT  TO THE EXCHANGE  OFFER. EACH STOCKHOLDER
                                         MUST MAKE  HIS  OR  HER OWN  DECISION  WHETHER  TO
                                         TENDER SHARES OF PRICECOSTCO COMMON STOCK PURSUANT
                                         TO  THE EXCHANGE OFFER AND, IF SO, HOW MANY SHARES
                                         TO TENDER.

Possible Control of
 Price Enterprises by
 Certain Stockholders.................   Each of Robert  E. Price, who  is Chairman of  the
                                         Board,  President and  Chief Executive  Officer of
                                         Price Enterprises,  and Sol  Price, a  founder  of
                                         Price,  significant stockholder of PriceCostco and
                                         the  father  of  Robert  E.  Price,  has  informed
                                         PriceCostco that, while not agreeing to tender all
                                         shares  of  PriceCostco Common  Stock beneficially
                                         owned by him in  the Exchange Offer, he  currently
                                         intends  to tender substantially  all such shares,
                                         so long  as,  prior  to the  consummation  of  the
                                         Exchange  Offer,  there does  not occur  any event
                                         that materially impairs the assets or business  of
                                         Price  Enterprises.  If  Robert E.  Price  and Sol
                                         Price  each   tenders  all   of  the   shares   of
                                         PriceCostco  Common Stock he beneficially owns for
                                         exchange pursuant to the  Exchange Offer, and  the
                                         Exchange   Offer  is  fully   subscribed  but  not
                                         oversubscribed and subject to proration (i.e.,  27
                                         million  shares  of PriceCostco  Common  Stock are
                                         tendered   and    accepted   for    exchange    by
                                         PriceCostco),    or   the    Exchange   Offer   is
                                         undersubscribed and the remaining shares of  Price
                                         Enterprises   Common  Stock   are  distributed  to
                                         PriceCostco  stockholders,  then,  in  each  case,
                                         Messrs. Price would beneficially own approximately
                                         41.3%  of the  shares of  Price Enterprises Common
                                         Stock outstanding  immediately after  consummation
                                         of  the Exchange Offer. If  21.6 million shares of
                                         PriceCostco Common Stock are tendered and accepted
                                         for exchange  by PriceCostco,  each of  Robert  E.
                                         Price  and Sol Price tenders  all of the shares of
                                         PriceCostco Common Stock he beneficially owns  for
                                         exchange  pursuant to the Exchange Offer and Price
                                         Enterprises purchases  the remaining  5.4  million
                                         shares  of Price Enterprises Common Stock owned by
                                         PriceCostco (as described  in "THE TRANSACTION  --
                                         The   Distribution"),  then  Messrs.  Price  would
                                         beneficially own approximately 51.7% of the shares
                                         of  Price  Enterprises  Common  Stock  outstanding
                                         immediately  after  consummation  of  the Exchange
                                         Offer. See "SECURITY OWNERSHIP -- PriceCostco." In
                                         such cases, these  stockholders would  effectively
                                         control  the outcome  of all  matters submitted to
                                         Price  Enterprises'  stockholders  for   approval,
                                         including  the  election of  directors,  and could
                                         affect the  trading  price  of  Price  Enterprises
                                         Common  Stock.  See  "SPECIAL  CONSIDERATIONS/RISK
                                         FACTORS -- Special Considerations with Respect  to
                                         Price  Enterprises  -- POSSIBLE  CONTROL  OF PRICE
                                         ENTERPRISES BY CERTAIN STOCKHOLDERS" and "SECURITY
                                         OWNERSHIP -- PriceCostco."
</TABLE>
    

                                       7
<PAGE>

   
<TABLE>
<S>                                      <C>
Transactions Undertaken Prior to the
 Exchange Offer.......................   Pursuant to the  Transfer and Exchange  Agreement,
                                         as  of August 28, 1994, PriceCostco caused, or, in
                                         certain cases,  will cause  to be  transferred  to
                                         Price   Enterprises  the  Transferred  Assets.  In
                                         consideration for such transfer, Price Enterprises
                                         (i) issued  to Price  27 million  shares of  Price
                                         Enterprises Common Stock, which constitutes all of
                                         the outstanding shares of Price Enterprises Common
                                         Stock,   (ii)  assumed   certain  liabilities  and
                                         obligations of  PriceCostco and  its  subsidiaries
                                         relating  to  or  arising out  of  the Transferred
                                         Assets  and  (iii)   made  all  other   deliveries
                                         required  to be made by Price Enterprises pursuant
                                         to the Transfer and  Exchange Agreement. See  "THE
                                         TRANSACTION  --  Transactions Undertaken  Prior to
                                         the Exchange Offer."
                                         PriceCostco and Price  Enterprises have caused  to
                                         be  formed Mexico Clubs, of  which Price and Price
                                         Enterprises  own   a   49%   and   51%   interest,
                                         respectively.  PriceCostco has caused to be formed
                                         Price Global and Price Quest. PriceCostco has also
                                         caused  to  be   transferred  to  the   Subsidiary
                                         Corporations  certain assets, as described in "THE
                                         TRANSACTION --  Transactions Undertaken  Prior  to
                                         the  Exchange  Offer."  Each of  Price  Global and
                                         Price Quest has  issued 100 shares  of its  common
                                         stock  to  Price. PriceCostco  subsequently caused
                                         51% of the  outstanding capital stock  of each  of
                                         Price  Global and Price Quest to be transferred to
                                         Price Enterprises. See "THE TRANSACTION --  Trans-
                                         actions  Undertaken Prior  to the  Exchange Offer"
                                         and "BUSINESS AND PROPERTIES OF PRICE  ENTERPRISES
                                         -- General."
                                         The   following  table  summarizes  the  aggregate
                                         historical net book value of Price Enterprises  as
                                         of  August 28,  1994 as compared  to the aggregate
                                         estimated fair value  of its  real estate  assets.
                                         The estimated fair value of the Real Properties is
                                         based  on  the  appraisal  of 45  of  the  79 Real
                                         Properties by  Cushman &  Wakefield,  representing
                                         approximately  75% of the  aggregate book value of
                                         all  of  the  Real  Properties,  and  management's
                                         estimated   fair  value  of   the  other  34  Real
                                         Properties based  on  a  risk-adjusted  discounted
                                         cash  flow approach. See  "BUSINESS AND PROPERTIES
                                         OF PRICE ENTERPRISES -- Real Estate Business."
</TABLE>
    

   
<TABLE>
<CAPTION>
                                                                          AGGREGATE
                                                            AGGREGATE     ESTIMATED
                                             NUMBER OF      NET BOOK        FAIR
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)     PROPERTIES        VALUE         VALUE
                                          ---------------  -----------  -------------
<S>                                       <C>              <C>          <C>
Real Properties with estimated fair
 value higher than net book value.......            35      $     260     $     300
Real Properties adjusted downward to
 fair value.............................            44            183(1)         183
                                                    --
                                                           -----------        -----
    Subtotal............................            79            443     $     483
                                                    --
                                                    --
                                                                              -----
                                                                              -----
Notes receivable (Atlas and City
 Notes).................................                           73(1)
51% interest in Mexico Clubs.............................          35
Deferred income taxes....................................          23
Other assets and liabilities (net).......................           5
                                                           -----------
Net assets of Price Enterprises (Historical).............         579
Net pro forma adjustments................................          (5)
                                                           -----------
Pro forma net assets -- Price Enterprises................   $     574
                                                           -----------
                                                           -----------
Pro forma book value per common share....................   $   21.27(2)
<FN>
- ------------------------------
(1) Historical  net book  value of  real estate  properties and  related assets  were
    reduced  by an $80.5 million  change in estimate related  to the Transaction. See
    "Notes to Price Enterprises, Inc. Financial Statements."
(2) Does not give effect to the fair values of the properties with fair value  higher
    than  net book value, approximately  $40 million pre-tax, or  $.87 book value per
    pro forma common share after-tax effect.  For purposes of estimating its loss  on
    the  Transaction, PriceCostco used the price of  its own stock, $15.25 on October
    24, 1994,  as  the  estimate  of Price  Enterprises'  share  price,  since  Price
    Enterprises'  Common Stock  was not yet  trading. The $6.02  per share difference
    between the $21.27 unaudited pro forma book value per share of Price  Enterprises
    and the
</TABLE>
    

                                       8
<PAGE>

   
<TABLE>
<S>                                       <C>              <C>          <C>
    assumed  per share price of  $15.25 is attributable to  a combination of factors.
    These factors  include an  expectation that  Price Enterprises  Common Stock  may
    trade  at a discount from  its book value (although the  price at which shares of
    Price Enterprises will trade cannot be predicted). There may also be some premium
    to tendering  shareholders included  in  the exchange  ratio, although  any  such
    premium  cannot be objectively measured. See "SPECIAL CONSIDERATIONS/RISK FACTORS
    -- Special  Considerations  Applicable to  all  PriceCostco Stockholders  --  The
    Exchange  Ratio" and "THE  TRANSACTION -- Background of  the Transaction" and "--
    Anticipated Accounting Treatment."
</TABLE>
    

   
<TABLE>
<S>                                      <C>
The Distribution......................   If the  number  of shares  of  PriceCostco  Common
                                         Stock  validly tendered  in the  Exchange Offer by
                                         holders of PriceCostco Common  Stock is less  than
                                         21.6 million, PriceCostco will accept such validly
                                         tendered  shares for exchange  and will distribute
                                         the remaining shares  of Price Enterprises  Common
                                         Stock pro rata to holders of record of PriceCostco
                                         Common Stock as of a date no more than 20 business
                                         days  after  the Closing  Date.  If the  number of
                                         shares  of   PriceCostco  Common   Stock   validly
                                         tendered  in  the  Exchange  Offer  by  holders of
                                         PriceCostco Common  Stock  is  greater  than  21.6
                                         million,  but  less than  27  million, PriceCostco
                                         will  accept  such  validly  tendered  shares  for
                                         exchange  and  will,  at  its  option,  either (i)
                                         distribute   the   remaining   shares   of   Price
                                         Enterprises  Common Stock pro  rata to PriceCostco
                                         stockholders,  as  set  forth  in  the   preceding
                                         sentence,  or (ii)  sell such  remaining shares to
                                         Price Enterprises  in  exchange for  a  promissory
                                         note. In such event, PriceCostco currently intends
                                         to  sell  such  shares  to  Price  Enterprises  in
                                         exchange  for   a   promissory  note.   See   "THE
                                         TRANSACTION -- The Distribution."
Analysis of Financial Advisors to
 PriceCostco..........................   PriceCostco   has  engaged   Donaldson,  Lufkin  &
                                         Jenrette   Securities   Corporation   and   Lehman
                                         Brothers  Inc.  to  act jointly  as  its Financial
                                         Advisors  in  connection  with  the   Transaction.
                                         Representatives  of DLJ and Lehman assisted senior
                                         management  of  PriceCostco  in  structuring   the
                                         Transaction  and in analyzing the potential impact
                                         of the Transaction on  stockholder values of  both
                                         Price   Enterprises   and   PriceCostco  following
                                         consummation of  the Transaction.  In  particular,
                                         the  Financial Advisors gave  advice to management
                                         regarding the proposed number  of shares of  Price
                                         Enterprises  Common  Stock  to  be  issued  in the
                                         exchange and  with  respect to  other  significant
                                         terms   and  conditions  of  the  Exchange  Offer.
                                         Because of the  voluntary pro rata  nature of  the
                                         Transaction,  the Board  of Directors  did not ask
                                         for, and the Financial  Advisors did not  deliver,
                                         an  opinion as to  the fairness to  the holders of
                                         PriceCostco Common Stock,  from a financial  point
                                         of  view, of the Transaction. See "THE TRANSACTION
                                         -- Analysis of Financial Advisors to PriceCostco."
Certain Federal Income Tax
 Consequences.........................   PriceCostco and Price Enterprises will receive  an
                                         opinion,  based  upon  certain  representations of
                                         PriceCostco,   Price   Enterprises   and   certain
                                         significant   stockholders  of  PriceCostco,  from
                                         Skadden, Arps,  Slate,  Meagher  &  Flom,  to  the
                                         effect  that, although the  matter is not entirely
                                         free from doubt, the Transaction should qualify as
                                         a tax-free  distribution  for Federal  income  tax
                                         purposes.  See "THE TRANSACTION -- Certain Federal
                                         Income Tax Consequences." Each stockholder  should
                                         consult   his  or  her  tax   advisor  as  to  the
                                         particular consequences of the Transaction to such
                                         stockholder.
Regulatory Approvals..................   Except as set forth  below, PriceCostco and  Price
                                         Enterprises  do  not  believe  that  any  material
                                         Federal or  state  regulatory  approvals  will  be
                                         necessary  in connection with  the Transaction. No
                                         filings  under  the  Hart-Scott-Rodino   Antitrust
                                         Improvements  Act  of  1976  (the  "HSR  Act") are
                                         required in  connection  with the  Exchange  Offer
                                         generally.  To the extent  certain stockholders of
                                         PriceCostco decide to participate in the  Exchange
                                         Offer  and to acquire a  number of shares of Price
                                         Enterprises Common Stock that  exceeds one of  the
                                         thresholds stated in the regulations under the HSR
                                         Act,  and if exceptions under those regulations do
                                         not apply, such stockholders and PriceCostco would
                                         be required to make
</TABLE>
    

                                       9
<PAGE>

   
<TABLE>
<S>                                      <C>
                                         filings under the HSR Act, and the waiting  period
                                         requirements  under the  HSR Act would  have to be
                                         satisfied,   before   the   exchanges   by   those
                                         particular  stockholders  could  be  carried  out.
                                         Robert E.  Price and  PriceCostco, and  The  Price
                                         Family Charitable Trust (the "Price Family Trust")
                                         and  PriceCostco, have to  date made filings under
                                         the HSR  Act that  would, upon  expiration of  the
                                         required  waiting period under the HSR Act, enable
                                         Robert Price to  acquire $15 million  or more  but
                                         less  than  15  percent  of  the  shares  of Price
                                         Enterprises Common  Stock  and  the  Price  Family
                                         Trust  to acquire 25 percent or more but less than
                                         50 percent  of  the shares  of  Price  Enterprises
                                         Common   Stock.  These   amounts  and  percentages
                                         reflect the thresholds at which these filings have
                                         been made under the  HSR Act regulations. They  do
                                         not  necessarily indicate the  actual shares to be
                                         acquired by Mr. Price  or the Price Family  Trust,
                                         which  will  depend  on the  number  of  shares of
                                         PriceCostco Common Stock validly tendered and  not
                                         withdrawn by them and by other stockholders in the
                                         Exchange  Offer. Early termination  of the waiting
                                         period under  the HSR  Act  occurred for  each  of
                                         these  filings  on  November  9,  1994.  See  "THE
                                         TRANSACTION -- Regulatory Approvals."
Trading Markets.......................   Following the  Closing  Date,  PriceCostco  Common
                                         Stock will continue to be traded and quoted on The
                                         Nasdaq  Stock Market's  National Market  under the
                                         symbol "PCCW." There is currently no trading  mar-
                                         ket  for Price Enterprises Common Stock. Following
                                         the Closing  Date, it  is anticipated  that  Price
                                         Enterprises  Common Stock will  be publicly traded
                                         and quoted on The  Nasdaq Stock Market's  National
                                         Market under the symbol "PREN."
No Appraisal Rights...................   No  appraisal rights are available to stockholders
                                         in connection with the Transaction.
THE EXCHANGE OFFER
Expiration Date.......................   The Exchange Offer will expire at 12:00  midnight,
                                         New  York City time, on  December 20, 1994, unless
                                         extended   as    provided   in    this    Offering
                                         Circular/Prospectus.  See  "THE EXCHANGE  OFFER --
                                         Expiration Date; Extensions; Termination."
Procedures for Tendering..............   To be tendered  properly, certificates for  shares
                                         of  PriceCostco  Common  Stock,  together  with  a
                                         properly completed  and  duly executed  Letter  of
                                         Transmittal  (or facsimile thereof), and any other
                                         documents required by  the Letter of  Transmittal,
                                         or   an  Agent's  Message  in  connection  with  a
                                         book-entry transfer of shares, must be received by
                                         the Exchange  Agent at  one of  the addresses  set
                                         forth   on  the   back  cover   of  this  Offering
                                         Circular/Prospectus prior to 12:00 midnight on the
                                         Expiration Date, or stockholders must comply  with
                                         the  specific  procedures for  guaranteed delivery
                                         described  herein.  See  "THE  EXCHANGE  OFFER  --
                                         Procedures   for  Tendering"  and  "--  Guaranteed
                                         Delivery Procedure."
Conditions to the
 Exchange Offer.......................   The Exchange  Offer is  not conditioned  upon  any
                                         minimum  number  of shares  of  PriceCostco Common
                                         Stock being  tendered for  exchange. The  Exchange
                                         Offer   is,  however,  subject  to  certain  other
                                         conditions. See "THE EXCHANGE OFFER --  Conditions
                                         to the Exchange Offer."
Withdrawal Rights.....................   Subject to the conditions set forth herein, shares
                                         of  PriceCostco Common  Stock may  be withdrawn at
                                         any time prior to the Expiration Date and,  unless
                                         theretofore  accepted for  exchange by PriceCostco
                                         pursuant  to  the  Exchange  Offer,  may  also  be
                                         withdrawn  at any time after  the expiration of 40
                                         business days  from the  commencement of  the  Ex-
                                         change   Offer.   See  "THE   EXCHANGE   OFFER  --
                                         Withdrawal Rights."
Exchange Agent........................   First  Interstate  Bank  of  Washington,  N.A.  is
                                         serving  as Exchange Agent  in connection with the
                                         Exchange Offer.
Information Agent.....................   Georgeson & Company Inc. is serving as Information
                                         Agent in connection with the Exchange Offer.
</TABLE>
    

                                       10
<PAGE>
                            PRICE ENTERPRISES, INC.
                       SELECTED HISTORICAL FINANCIAL DATA
                                 (IN THOUSANDS)

    Price Enterprises' real estate business has historically been conducted as a
separate division of Price. Accordingly,  although Price Enterprises was  formed
in  1994  and  acquired its  business  and assets  as  of August  28,  1994, the
financial data of  Price Enterprises  included herein  has been  prepared on  an
historical  basis as  though Price Enterprises  has been  a stand-alone business
operating the  non-club  real  estate  and  other  businesses  acquired  in  the
Transaction during all periods presented. Certain pro forma adjustments required
as  a  result of  the Transaction  are  not reflected  in the  Price Enterprises
historical financial data. See "PRICE  ENTERPRISES, INC. SELECTED UNAUDITED  PRO
FORMA FINANCIAL DATA" and "PRICE ENTERPRISES, INC. UNAUDITED PRO FORMA FINANCIAL
INFORMATION."  See Footnote  1 of  "Price Enterprises,  Inc. Notes  to Financial
Statements" included in this Offering Circular/ Prospectus for a description  of
the  businesses and assets  included in Price  Enterprises' historical financial
statements.

   
    The following table sets forth  selected historical financial data of  Price
Enterprises  for the five fiscal years in  the period ended August 28, 1994. The
selected historical financial data  as of August 30,  1992, August 29, 1993  and
August 28, 1994 and for each of the four fiscal years in the period ended August
28,  1994  have been  derived  from the  audited  financial statements  of Price
Enterprises. The selected historical financial data as of September 2, 1990  and
September  1, 1991  and for the  fiscal year  ended September 2,  1990 have been
derived from the unaudited  books and records  of Price Enterprises.  Historical
per share data has not been presented.
    

   
<TABLE>
<CAPTION>
                                                                        FISCAL YEARS (1)
                                               -------------------------------------------------------------------
                                                  1990          1991          1992          1993          1994
                                               -----------   -----------   -----------   -----------   -----------
<S>                                            <C>           <C>           <C>           <C>           <C>
Income Statement Data
  Real estate rentals (2)....................    $  18,525     $  26,691     $  28,263     $  22,144     $  29,265
  Gains on sale of real estate (2)...........        1,409         6,149        15,078        21,540         5,474
  Merchandise sales (3)......................      --            --              8,212        28,671        53,015
  Real estate expenses (2)(4)................        7,581        14,889        13,855        13,310        17,623
  Merchandise costs and expenses (3).........      --            --              9,102        30,882        57,997
  General and administrative (5).............          700         1,000         1,300         1,500         1,600
  Provision for asset impairments (6)........      --            --            --            --             90,227
  Operating income (loss)....................       11,653        16,951        27,296        26,663       (79,693)
  Interest and other (7).....................        2,993         4,629         5,575         8,503         9,947
  Income (loss) before provision for income
   taxes.....................................       14,646        21,580        32,871        35,166       (69,746)
  Net income (loss)..........................    $   8,767     $  12,905     $  19,361     $  20,551     $ (41,479)
</TABLE>
    

   
<TABLE>
<CAPTION>
                                                SEPT. 2,      SEPT. 1,     AUGUST 30,    AUGUST 29,    AUGUST 28,
                                                  1990          1991          1992          1993          1994
                                               -----------   -----------   -----------   -----------   -----------
<S>                                            <C>           <C>           <C>           <C>           <C>
Balance Sheet Data
  Real estate assets, net (2)................   $236,132      $364,118      $  337,258    $  387,475    $  447,387
  Total assets...............................    319,109       429,420         454,063       499,867       650,553
  Long-term debt.............................     --            --             --            --            --
  Investment by PriceCostco (8)..............    303,533       412,585         429,672       454,357       578,788
<FN>
- ------------------------

(1)  Price  Enterprises reports its financial position and results of operations
     utilizing a 52  or 53 week  fiscal year  which ends on  the Sunday  nearest
     August 31. All fiscal years presented were 52 weeks.
(2)  Real  estate rentals and related expenses reflect all properties which were
     owned and  operated by  Price Enterprises  during the  respective  periods.
     Accordingly,  these amounts  include the  results of  operations of certain
     real estate  assets that  have  since been  sold,  which accounts  for  the
     fluctuation  in real estate rentals and expenses  and for the gains on sale
     of such real  estate in  the periods presented.  See footnote  9 of  "Price
     Enterprises,  Inc.  Notes  to Financial  Statements"  included  in Offering
     Circular/ Prospectus for a description  of real estate sales during  fiscal
     1992, 1993 and 1994.
</TABLE>
    

                                              (FOOTNOTES CONTINUED ON NEXT PAGE)

                                       11
<PAGE>
   
<TABLE>
<S>  <C>
(3)  Merchandise  sales,  costs  of  sales  and  operating  expenses  relate  to
     activities of Quest and CMI, each  of which commenced operations in  fiscal
     1992.

(4)  Real  estate  expenses  include  operating,  maintenance,  property  taxes,
     administrative expenses and depreciation and amortization.

(5)  PriceCostco historically provided  services to  Price Enterprises.  Amounts
     allocated  to Price Enterprises for general and administrative expenses for
     fiscal 1992, 1993 and  1994 were $1,300,  $1,500 and $1,600,  respectively.
     Costs incurred by PriceCostco on behalf of Price Enterprises are charged to
     Price  Enterprises by specific  identification or allocated  based on total
     assets or sales revenues. In the opinion of Price Enterprises'  management,
     the  aforementioned costs allocated to  Price Enterprises fairly represents
     its general and administrative expenses.
(6)  The provision for  asset impairments  of $90,200  pre-tax includes  $80,500
     pre-tax  ($47,500 after tax)  related to a  change in calculating estimated
     losses for assets which  are considered to  be economically impaired.  This
     change in accounting estimates results from the spin-off of the real estate
     segment  assets  to Price  Enterprises and  Price Enterprises'  decision to
     pursue business  plans and  operating strategies  as a  stand-alone  entity
     which are significantly different than the strategies of PriceCostco. Price
     Enterprises'  management believes that as  a separate operating business it
     will not  have  the same  access  to  capital as  PriceCostco  or  generate
     internal   funds  from  operations  to  the  same  extent  as  PriceCostco.
     PriceCostco's accounting policies with respect to estimating the amount  of
     impairments  on individual real  estate properties and  related assets were
     such that impairment losses would be recorded if the carrying amount of the
     asset could not be recovered from estimated future cash flows on an  undis-
     counted  basis. Price Enterprises' management believes  that in view of its
     strategies with respect to the number  and nature of properties that  would
     be  selected for  potential disposition,  it would  be more  appropriate to
     estimate impairment  losses  based  on  fair  values  of  the  real  estate
     properties  as determined  by appraisals and/or  a risk-adjusted discounted
     cash flow  approach.  In  determining impairment  losses,  individual  real
     estate  assets  were  reduced  to  estimated  fair  value,  if  lower  than
     historical cost. For  those assets which  have an estimated  fair value  in
     excess  of cost, the asset continues to be recorded at cost. The impairment
     losses recorded as a result of this change in accounting estimates  reduced
     the  book  basis  of  certain  of  the  real  estate  and  related  assets.
     Under the previous policy, PriceCostco and Price Enterprises had determined
     that a provision for asset impairments of approximately $9,700 was required
     relating to four  properties which were  under final contract  or in  final
     negotiations for sale.
(7)  Interest  and other includes  interest income from  notes receivable, other
     income, equity in  earnings of  joint ventures  and PriceCostco's  minority
     interest in the Subsidiary Corporations.

(8)  Investment  by PriceCostco  represents the  net assets  transferred and the
     earnings of the  businesses and  assets comprising Price  Enterprises on  a
     historical basis.
</TABLE>
    

                                       12
<PAGE>
                            PRICE ENTERPRISES, INC.
                  SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

   
    The  selected unaudited  pro forma financial  data of  Price Enterprises set
forth below has been derived from  "PRICE ENTERPRISES, INC. UNAUDITED PRO  FORMA
FINANCIAL   INFORMATION,"  which   is  included   elsewhere  in   this  Offering
Circular/Prospectus, and includes  certain pro forma  adjustments to  historical
financial data of Price Enterprises required as a result of the Transaction. The
selected  unaudited pro  forma income statement  data for the  fiscal year ended
August 28, 1994 have been prepared as  if the Transaction occurred on the  first
day  of fiscal 1994. The selected pro forma balance sheet data has been prepared
as if the Transaction  occurred on August 28,  1994. The selected unaudited  pro
forma  financial  data set  forth  below is  not  necessarily indicative  of the
financial position or results of operations that actually would have occurred if
the Transaction had been consummated as of the first day of fiscal 1994 or as of
August 28, 1994. The unaudited pro forma selected financial data should be  read
in  connection  with  "PRICE  ENTERPRISES, INC.  UNAUDITED  PRO  FORMA FINANCIAL
INFORMATION" and the related notes and assumptions.
    

   
<TABLE>
<CAPTION>
                                                                        FISCAL YEAR 1994 (1)
                                                              -----------------------------------------
                                                                              PRO FORMA
                                                              HISTORICAL   ADJUSTMENTS (2)   PRO FORMA
                                                              ----------   ---------------   ----------
<S>                                                           <C>          <C>               <C>
Income Statement Data
  Real estate rentals (3)...................................   $  29,265       $7,016         $ 36,281
  Gains on sale of real estate (3)..........................       5,474       --                5,474
  Merchandise sales.........................................      53,015       --               53,015
  Real estate expenses (3)(4)...............................      17,623          173           17,796
  Merchandise costs and expenses............................      57,997       --               57,997
  General and administrative................................       1,600        1,500            3,100
  Provision for asset impairments (5).......................      90,227       --               90,227
  Operating loss............................................     (79,693)       5,343          (74,350)
  Interest income and other, net (6)........................       9,947       --                9,947
  Loss before benefit for income taxes......................     (69,746)       5,343          (64,403)
  Net loss..................................................   $ (41,479)      $3,152         $(38,327)
  Net loss per common
   share (7)................................................                                  $  (1.42)(8)
  Number of shares used in
   calculation..............................................                                    27,000
</TABLE>
    

   
<TABLE>
<CAPTION>
                                                                           AUGUST 28, 1994
                                                              ------------------------------------------
                                                                              PRO FORMA
                                                              HISTORICAL   ADJUSTMENTS (2)    PRO FORMA
                                                              ----------   ----------------   ----------
<S>                                                           <C>          <C>                <C>
Balance Sheet Data
  Real estate assets, net...................................   $ 447,387       $  2,100        $449,487
  Total assets..............................................     650,553        (25,634)        624,919
  Long-term debt (7)........................................      --            --               --
  Investment by PriceCostco/Stockholders' equity (7)........     578,788         (4,519)        574,269
</TABLE>
    

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

(1) Price Enterprises reports its  financial position and results of  operations
    utilizing  a 52  or 53  week fiscal  year which  ends on  the Sunday nearest
    August 31.

   
(2) As more fully described herein under "PRICE ENTERPRISES, INC. UNAUDITED  PRO
    FORMA  FINANCIAL INFORMATION,"  the unaudited  pro forma  adjustments to the
    income statement data record (i) the inclusion of the Warehouse  Properties'
    rentals   and  related   expenses,  (ii)  certain   additional  general  and
    administrative expenses, (iii) a reduction of depreciation expense and  (iv)
    related  income tax effects. The unaudited  pro forma adjustments to balance
    sheet  data  include  the  elimination   of  working  capital  retained   by
    PriceCostco,  accrual of  estimated organization  costs and  the transfer of
    remaining real estate  assets purchased  and transferred  by PriceCostco  in
    fiscal 1995.
    

                                              (FOOTNOTES CONTINUED ON NEXT PAGE)

                                       13
<PAGE>
(3)  Real estate rentals and related  expenses reflect all properties which were
    owned and  operated  by Price  Enterprises  during the  respective  periods.
    Accordingly,  these amounts  include certain  real estate  assets which have
    been sold.

   
(4)  Real  estate  expenses  include  operating,  maintenance,  property  taxes,
    administrative expenses and depreciation and amortization.
    

   
(5)  The  provision  for asset  impairments  of $90,200  pre-tax  which includes
    $80,500 pre-tax ($47,500 after  tax or $1.76 net  loss per pro forma  common
    share)  related to a change in calculating estimated losses for assets which
    are considered  to  be  economically impaired.  This  change  in  accounting
    estimates  results from  the spin-off of  the real estate  segment assets to
    Price Enterprises and Price Enterprises'  decision to pursue business  plans
    and  operating strategies  as a  stand-alone entity  which are significantly
    different than the strategies of PriceCostco. Price Enterprises'  management
    believes  that as a  separate operating business  it will not  have the same
    access to capital as PriceCostco or generate internal funds from  operations
    to the same extent as PriceCostco.
    PriceCostco's  accounting policies with respect  to estimating the amount of
    impairments on individual  real estate  properties and  related assets  were
    such  that impairment losses would be recorded if the carrying amount of the
    asset could  not  be  recovered  from estimated  future  cash  flows  on  an
    undiscounted  basis. Price Enterprises' management  believed that in view of
    its strategies with  respect to  the number  and nature  of properties  that
    would be selected for potential disposition, it would be more appropriate to
    estimate  impairment  losses  based  on  fair  values  of  the  real  estate
    properties as  determined by  appraisals and/or  a risk-adjusted  discounted
    cash flow approach. In determining impairment losses, individual real estate
    assets  were reduced to estimated fair value, if lower than historical cost.
    For those assets which have an estimated  fair value in excess of cost,  the
    asset  continues to be recorded at cost. The impairment losses recorded as a
    result of this  change in  accounting estimates  reduced the  book basis  of
    certain of the real estate and related assets.
    Under  the previous policy, PriceCostco and Price Enterprises had determined
    that a provision for asset impairments of approximately $9,700 was  required
    relating  to four  properties which  were under  final contract  or in final
    negotiations for sale.
    

   
(6) Interest and other includes interest income from the notes receivable, other
    income, equity  in earnings  of joint  ventures and  PriceCostco's  minority
    interest in the Subsidiary Corporations.
    

   
(7)  Unaudited  pro  forma  net  loss  per  common  share,  long-term  debt  and
    stockholders' equity assumes  all shares of  Price Enterprises Common  Stock
    are  issued in the Exchange Offer or distributed to PriceCostco stockholders
    following  the  Exchange  Offer.  If  only  21.6  million  shares  of  Price
    Enterprises  Common  Stock  are  issued in  the  Exchange  Offer,  and Price
    Enterprises purchases the remaining 5.4 million shares of Price  Enterprises
    Common  Stock  from  PriceCostco  for  a note  in  the  principal  amount of
    approximately  $82.4  million  (assuming  a   per  share  price  for   Price
    Enterprises  Common Stock of $15.25, and an interest rate on the outstanding
    note of approximately  6%), then  unaudited pro  forma net  loss per  common
    share  for fiscal 1994 would be  $1.91, and long-term debt and stockholders'
    equity as of August 28, 1994 would be approximately $82.4 million and $491.9
    million, respectively.  See  "THE TRANSACTION  --  The Distribution"  for  a
    description of the terms of the notes.
    

   
(8)_Includes a provision for asset impairments of $90,200 pre-tax which includes
    $80,500  pre-tax ($47,500 after tax  or $1.76 net loss  per pro forma common
    share) related to a change in calculating estimated losses for assets  which
    are considered to be economically impaired. If the $80,500 pre-tax provision
    for  asset impairments were  excluded, pro forma net  income for fiscal 1994
    would have been approximately $9,173 or $.34 per common share.
    

                                       14
<PAGE>
   
                               PRICE/COSTCO, INC.
                SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
              (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
    

   
    The  consolidated  financial  statements  of  PriceCostco,  from  which  the
selected  historical  financial  data  have  been  derived,  have  been prepared
following the  pooling-of-interests method  of  accounting as  a result  of  the
Merger  and reflect  the combined  financial position  and operating  results of
Price and Costco for  all periods presented.  The selected historical  financial
and operating data of PriceCostco includes the financial position and results of
operations of Price Enterprises for all periods presented.
    

   
    The  following table sets forth  selected historical financial and operating
data of  PriceCostco  for the  five  fiscal years  ended  August 28,  1994.  The
selected  historical financial data  for the five fiscal  years ended August 28,
1994 have been  derived from  the audited consolidated  financial statements  of
PriceCostco.
    

   
<TABLE>
<CAPTION>
                                                                 FISCAL YEAR (1)
                                          --------------------------------------------------------------
                                             1990        1991         1992         1993         1994
                                          ----------  -----------  -----------  -----------  -----------
<S>                                       <C>         <C>          <C>          <C>          <C>
Income Statement Data (2)(3)
  Net sales.............................  $9,346,099  $11,813,509  $13,820,380  $15,154,685  $16,160,911
  Gross profit (4)......................     827,148    1,057,686    1,254,917    1,403,532    1,498,020
  Membership fees and other.............     185,144      228,742      276,998      309,129      319,732
  Operating expenses (5)................     737,137      952,259    1,156,493    1,347,832    1,457,613
  Operating income......................     275,155      334,169      375,422      364,829      360,139
  Other income (expense) (6)............         470        7,872       (6,567)     (28,366)     (36,584)
  Provisions for merger and
   restructuring expense................      --          --           --           --           120,000
Income from continuing operations.......  $  167,726  $   207,293  $   223,024  $   202,843  $   110,898
Discontinued operations
    Income (loss), net of tax (2).......       6,854       11,566       19,385       20,404      (40,766)
    Loss on disposal (3)................      --          --           --           --          (182,500)
Net income (loss).......................  $  174,580  $   218,859  $   242,407  $   223,247  $  (112,368)
Income (loss) per common and common
 equivalent share (fully diluted).......
  Continuing operations.................  $      .79  $       .93  $       .98  $       .92  $       .51(6)
  Discontinued operations
    Income (loss) net of tax (2)........         .03          .05          .08          .08         (.19)
    Loss on disposal (3)................      --          --           --           --              (.83)
                                          ----------  -----------  -----------  -----------  -----------
  Net income (loss).....................  $      .82  $       .98  $      1.06  $      1.00  $      (.51)
                                          ----------  -----------  -----------  -----------  -----------
                                          ----------  -----------  -----------  -----------  -----------
Operating Data
  Warehouses open at end of period
   (8)..................................         119          140          170          200          221
  Comparable warehouse sales increase
   (decrease) (9).......................           7%          10%           6%          (3%)          (3%)
</TABLE>
    

   
<TABLE>
<CAPTION>
                                           SEPT. 2,    SEPT. 1,    AUGUST 30,   AUGUST 29,   AUGUST 28,
                                             1990        1991         1992         1993         1994
                                          ----------  -----------  -----------  -----------  -----------
<S>                                       <C>         <C>          <C>          <C>          <C>
Balance Sheet Data
  Working capital (deficit).............  $   14,342  $   304,703  $   281,592  $   127,312  $  (113,009)
  Total assets..........................   2,029,931    2,986,094    3,576,543    3,930,799    4,235,659
  Long-term debt (10)...................     199,506      500,440      813,976      812,576      795,492
  Stockholders' equity (11).............     988,458    1,429,703    1,593,943    1,796,728    1,684,960
<FN>
- --------------------------
 (1) PriceCostco  reports  its  financial  position  and  results  of operations
     utilizing a 52  or 53 week  fiscal year  which ends on  the Sunday  nearest
     August 31. All fiscal years presented were 52 weeks.
</TABLE>
    

                                              (FOOTNOTES CONTINUED ON NEXT PAGE)

                                       15
<PAGE>

   
<TABLE>
<S>  <C>
(2)  The  fiscal 1994 loss from discontinued operations includes a provision for
     asset  impairments  of  $90,200  pre-tax  which  includes  $80,500  pre-tax
     ($47,500  after tax or $.22  per share) related to  a change in calculating
     estimated losses  for  assets  which  are  considered  to  be  economically
     impaired.  This change in accounting estimates results from the spin-off of
     the real estate segment assets to Price Enterprises and Price  Enterprises'
     decision to pursue business plans and operating strategies as a stand-alone
     entity   which  are   significantly  different   than  the   strategies  of
     PriceCostco. Price  Enterprises' management  believes  that as  a  separate
     operating  business  it  will  not  have  the  same  access  to  capital as
     PriceCostco or generate internal funds  from operations to the same  extent
     as PriceCostco.
     PriceCostco's  accounting policies with respect to estimating the amount of
     impairments on individual  real estate properties  and related assets  were
     such that impairment losses would be recorded if the carrying amount of the
     asset  could not be recovered from estimated future cash flows on an undis-
     counted basis. Price Enterprises' management  believes that in view of  its
     strategies  with respect to the number  and nature of properties that would
     be selected  for potential  disposition, it  would be  more appropriate  to
     estimate  impairment  losses  based  on  fair  values  of  the  real estate
     properties as determined  by appraisals and/or  a risk-adjusted  discounted
     cash  flow  approach.  In determining  impairment  losses,  individual real
     estate  assets  were  reduced  to  estimated  fair  value,  if  lower  than
     historical  cost. For  those assets which  have an estimated  fair value in
     excess of cost, the asset continues to be recorded at cost. The  impairment
     losses  recorded as a result of this change in accounting estimates reduced
     the  book  basis  of  certain  of  the  real  estate  and  related  assets.
     Under the previous policy, PriceCostco and Price Enterprises had determined
     that a provision for asset impairments of approximately $9,700 was required
     relating  to four  properties which were  under final contract  or in final
     negotiations for sale.
(3)  In the  fourth quarter  of fiscal  1994, as  a result  of the  Transaction,
     PriceCostco  reported its  non-club real  estate segment  as a discontinued
     operation resulting in income statement data being restated in every period
     presented. An  estimated  loss on  disposal  of the  non-club  real  estate
     segment  of approximately $182.5 million was recorded in the fourth quarter
     of fiscal  1994.  The estimated  loss  on  disposal is  calculated  as  the
     difference  between PriceCostco's net book  value of the Transferred Assets
     of $578.8 million (after a net reduction  for a change in the estimate  for
     calculating  asset impairments of  approximately $47.5 million  on an after
     tax basis) and  the estimated market  value of 27  million shares of  Price
     Enterprises  Common Stock of $411.8 million  (assuming a per share price of
     $15.25, the last reported sales price of Price Enterprises Common Stock  on
     October  24,  1994) and  direct  expenses and  other  costs related  to the
     Transaction of  approximately  $15.5  million.  The  actual  loss  will  be
     determined  following consummation  of the  Exchange Transaction,  at which
     time the estimated loss will be adjusted, as necessary. For a discussion on
     the computation of  the actual  loss, see "THE  TRANSACTION --  Anticipated
     Accounting Treatment."
(4)  Gross profit is comprised of net sales less merchandise costs.
(5)  Operating  expenses include  selling, general  and administrative expenses,
     preopening expenses and provision for estimated warehouse closing costs.

(6)  Other income (expense) includes interest expense, interest income and other
     income.
(7)  Includes a merger  and restructuring  charge of $120  million pre-tax  ($80
     million  or $.36  per share,  after tax),  related to  the Merger.  If such
     merger and restructuring charge were  excluded, net income for fiscal  1994
     would  have  been approximately  $190.9 million  or  $.87 per  share (fully
     diluted).
(8)  As of August 28, 1994, PriceCostco also operated eight warehouses in Mexico
     through a 50%  owned joint  venture. These are  not included  in the  above
     warehouses  because the joint  venture is accounted for  on an equity basis
     and  therefore  its  operations  are  not  consolidated  in   PriceCostco's
     financial  statements. See "BUSINESS AND PROPERTIES OF PRICE ENTERPRISES --
     Mexico Clubs."

(9)  Net sales  for the  eight-week period  ended October  23, 1994  were  $2.52
     billion,  an increase  of 11%  from $2.28  billion for  the same eight-week
     period of  the prior  fiscal  year. Comparable  warehouse sales  (sales  in
     warehouses  open for at least  a year) increased by  one percent during the
     eight-week period.
(10) Long-term debt includes convertible  subordinated debt and other  long-term
     debt.
(11) PriceCostco  did  not pay  any  dividends on  its  common stock  during the
     periods presented.
</TABLE>
    

                                       16
<PAGE>
   
                               PRICE/COSTCO, INC.
                  SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
    

   
    The following table sets forth  selected unaudited pro forma financial  data
of  PriceCostco giving effect to  the Transaction as of  August 28, 1994 and for
the fiscal  year  ended  August  28, 1994.  The  selected  unaudited  pro  forma
financial  data as of  and for the fiscal  year ended August  28, 1994 have been
derived from "PRICECOSTCO UNAUDITED PRO FORMA CONDENSED FINANCIAL  INFORMATION,"
which  is included elsewhere in  this Offering Circular/Prospectus. The selected
unaudited pro forma financial data set forth below may not be indicative of  the
results   that  would  actually  have  occurred  if  the  Transaction  had  been
consummated as of the first day of fiscal 1994. The selected unaudited pro forma
financial data  should be  read in  connection with  "PRICECOSTCO UNAUDITED  PRO
FORMA CONDENSED FINANCIAL INFORMATION" and the related notes and assumptions.
    

   
<TABLE>
<CAPTION>
                                                       FISCAL YEAR 1994 (1)
                                          ----------------------------------------------
                                                           PRO FORMA
                                           HISTORICAL    ADJUSTMENTS(2)     PRO FORMA
                                          ------------   -------------   ---------------
<S>                                       <C>            <C>             <C>
Income Statement Data (3)(4)
  Net sales.............................  $ 16,160,911   $     (53,015)  $    16,107,896
  Gross profit (5)......................     1,498,020          (3,566)        1,494,454
  Membership fees and other.............       319,732        --                 319,732
  Operating expenses (6)................     1,457,613          (4,680)        1,452,933
  Operating income......................       360,139           1,114           361,253
  Other income (expense) (7)............       (36,584)         (5,487)          (42,071)
  Provision for merger and restructuring
   expense..............................       120,000        --                 120,000
  Income from continuing operations.....       110,898          (2,580)          108,318
  Discontinued operations
    Loss, net of tax (3)................       (40,766)         40,766         --
    Loss on disposal (4)................      (182,500)        182,500         --
  Net income (loss).....................  $   (112,368)  $     220,686   $       108,318
  Net income (loss) per common and
   common equivalent share (fully
   diluted):
    Continuing operations...............          $.51(8)
    Discontinued operations
      Loss, net of tax (3)..............          (.19)
      Loss on disposal (4)..............          (.83)
                                          ------------
    Net loss............................         $(.51)
  Pro Forma income from continuing
   operations per common and common
   equivalent share (fully diluted)
   based on level of participation in
   Exchange Offer (9):
        100% (27.0 million shares)......                                 $           .56
        80% (21.6 million shares).......                                             .55(10)
        50% (13.5 million shares).......                                             .53
        0% (No shares tendered).........                                             .49
</TABLE>
    

   
<TABLE>
<CAPTION>
                                                       AS OF AUGUST 28, 1994
                                          -----------------------------------------------
                                                           PRO FORMA
                                           HISTORICAL    ADJUSTMENTS(2)      PRO FORMA
                                          ------------   --------------   ---------------
<S>                                       <C>            <C>              <C>
Balance Sheet Data
  Working capital (deficit).............   $  (113,009)    $    1,049      $     (111,960)
  Discontinued operations-net assets....       377,085       (377,085)          --
  Total assets..........................     4,235,659       (415,477)          3,820,182(10)
  Long-term debt (11)...................       795,492        --                  795,492(9)
  Stockholders' equity..................     1,684,960       (411,750)          1,273,210(10)
</TABLE>
    

                                                        (FOOTNOTES ON NEXT PAGE)

                                       17
<PAGE>
<TABLE>
<S>                                       <C>            <C>              <C>
<FN>
- ------------------------
 (1) PriceCostco  reports  its  financial  position  and  results  of operations
     utilizing a 52  or 53 week  fiscal year  which ends on  the Sunday  nearest
     August 31.
(2)  As  more fully described herein under "PRICECOSTCO UNAUDITED PRO FORMA CON-
     DENSED FINANCIAL INFORMATION," the unaudited  pro forma adjustments to  the
     income   statement  data  (i)  eliminate   the  operating  results  of  the
     Transferred Assets,  (ii) record  the Warehouse  Properties' lease  expense
     offset  by  elimination of  depreciation  expense and  (iii)  recognize the
     related income tax effects. The unaudited pro forma adjustments to  balance
     sheet  data  primarily  eliminates  the  net  assets  transferred  to Price
     Enterprises from PriceCostco.
(3)  In the  fourth quarter  of fiscal  1994, as  a result  of the  Transaction,
     PriceCostco  reported its  non-club real  estate segment  as a discontinued
     operation resulting in income statement data being restated in every period
     presented. An  estimated  loss on  disposal  of the  non-club  real  estate
     segment  of approximately $182.5 million was recorded in the fourth quarter
     of fiscal  1994.  The estimated  loss  on  disposal is  calculated  as  the
     difference  between PriceCostco's net book  value of the Transferred Assets
     of $578.8 million (after a net reduction  for a change in the estimate  for
     calculating  asset impairments of  approximately $47.5 million  on an after
     tax basis) and  the estimated market  value of 27  million shares of  Price
     Enterprises  Common Stock of $411.8 million  (assuming a per share price of
     $15.25, the  last  reported sales  price  of PriceCostco  Common  Stock  on
     October  24,  1994) and  direct  expenses and  other  costs related  to the
     Transaction of  approximately  $15.5  million.  The  actual  loss  will  be
     determined  following consummation  of the  Exchange Transaction,  at which
     time the estimated loss will be adjusted, as necessary. For a discussion on
     the computation of  the actual  loss, see "THE  TRANSACTION --  Anticipated
     Accounting Treatment."
(4)  The  fiscal 1994 loss from discontinued operations includes a provision for
     asset  impairments  of  $90,200  pre-tax  which  includes  $80,500  pre-tax
     ($47,500  after tax or $.22  per share) related to  a change in calculating
     estimated losses  for  assets  which  are  considered  to  be  economically
     impaired.  This change in accounting estimates results from the spin-off of
     the real estate segment assets to Price Enterprises and Price  Enterprises'
     decision to pursue business plans and operating strategies as a stand-alone
     entity   which  are   significantly  different   than  the   strategies  of
     PriceCostco. Price  Enterprises' management  believes  that as  a  separate
     operating  business  it  will  not  have  the  same  access  to  capital as
     PriceCostco or generate internal funds  from operations to the same  extent
     as PriceCostco.
     PriceCostco's  accounting policies with respect to estimating the amount of
     impairments on individual  real estate properties  and related assets  were
     such that impairment losses would be recorded if the carrying amount of the
     asset  could not be recovered from estimated future cash flows on an undis-
     counted basis. Price Enterprises' management  believes that in view of  its
     strategies  with respect to the number  and nature of properties that would
     be selected  for potential  disposition, it  would be  more appropriate  to
     estimate  impairment  losses  based  on  fair  values  of  the  real estate
     properties as determined  by appraisals and/or  a risk-adjusted  discounted
     cash  flow  approach.  In determining  impairment  losses,  individual real
     estate  assets  were  reduced  to  estimated  fair  value,  if  lower  than
     historical  cost. For  those assets which  have an estimated  fair value in
     excess of cost, the asset continues to be recorded at cost. The  impairment
     losses  recorded as a result of this change in accounting estimates reduced
     the  book  basis  of  certain  of  the  real  estate  and  related  assets.
     Under the previous policy, PriceCostco and Price Enterprises had determined
     that a provision for asset impairments of approximately $9,700 was required
     relating  to four  properties which were  under final contract  or in final
     negotiations for sale.
(5)  Gross profit is comprised of net sales less merchandise costs.
(6)  Operating expenses include  selling, general  and administrative  expenses,
     preopening expenses and provision for estimated warehouse closing costs.
(7)  Other income (expense) includes interest expense, interest income and other
     income.
</TABLE>

                                       18
<PAGE>
   
<TABLE>
<S>  <C>
(8)  Includes  a merger  and restructuring charge  of $120  million pre-tax ($80
     million or $.36 per share, after tax) related to the Merger. If such merger
     and restructuring charge were  excluded, income from continuing  operations
     fiscal  1994 would have been approximately $190.9 million or $.87 per share
     (fully diluted).
(9)  Unaudited pro forma net  income per common and  common equivalent share  is
     calculated  assuming various levels of  participation in the Exchange Offer
     and assuming that all  remaining shares of  Price Enterprises Common  Stock
     held by PriceCostco after the Exchange Offer are distributed to PriceCostco
     stockholders.  Unaudited  pro  forma  net  income  per  common  and  common
     equivalent share of PriceCostco is calculated to reflect the effect of  any
     adjustment   in  the  conversion  price   of  the  outstanding  PriceCostco
     convertible subordinated debentures  as a result  of the Transaction.  Such
     adjustment is calculated assuming shares of PriceCostco Common Stock have a
     market  price of  $15.25 and shares  of Price Enterprises  Common Stock are
     deemed to have an  equal value at  the time of  the Distribution. See  "THE
     TRANSACTION -- Effect of the Transaction on Convertible Securities."
(10) If only 21.6 million shares of Price Enterprises Common Stock are issued in
     the  Exchange  Offer  and  Price Enterprises  purchases  the  remaining 5.4
     million shares of  Price Enterprises  Common Stock from  PriceCostco for  a
     note in the principal amount of approximately $82.4 million (assuming a per
     share  price for Price  Enterprises Common Stock of  $15.25 and an interest
     rate on the outstanding note of approximately 6%), then unaudited pro forma
     net income per  common and  common equivalent  share for  fiscal year  1994
     would  be $.56  (or $.92 per  share excluding the  merger and restructuring
     charge), respectively,  and,  as  of  August 28,  1994,  total  assets  and
     stockholders' equity would be $82.4 million higher. See "THE TRANSACTION --
     The Distribution" for a discussion of the terms of the note.
(11) Long-term  debt includes convertible subordinated  debt and other long-term
     debt.
</TABLE>
    

                                       19
<PAGE>
                           COMPARATIVE PER SHARE DATA

   
    The following table sets forth (1) the historical net income per common  and
common equivalent share (fully diluted) of PriceCostco for the fiscal year ended
August  28,  1994;  (2)  the  historical book  value  per  outstanding  share of
PriceCostco Common Stock as of August 28, 1994; and (3) the unaudited pro  forma
net  income  per common  and  common equivalent  share  (fully diluted)  and the
unaudited pro forma book value per  share of Price Enterprises Common Stock  and
PriceCostco  Common Stock for the respective  periods and dates. The information
presented in the table  should be read in  conjunction with "PRICE  ENTERPRISES,
INC.  UNAUDITED PRO FORMA FINANCIAL  INFORMATION" and "PRICECOSTCO UNAUDITED PRO
FORMA CONDENSED  FINANCIAL INFORMATION"  and the  separate historical  financial
statements  of Price Enterprises and PriceCostco and the notes thereto appearing
elsewhere herein or incorporated by reference.
    

   
<TABLE>
<CAPTION>
                                                                         PRICECOSTCO (1)
                                               -------------------------------------------------------------------
                                                                                 PRO FORMA (2)
                                  PRICE                      -----------------------------------------------------
                                  ENTERPRISES                   27
                                   PRO                        MILLION    21.6 MILLION   13.5 MILLION
                                  FORMA                       SHARES        SHARES         SHARES       NO SHARES
                                   (2)         HISTORICAL    EXCHANGED    EXCHANGED      EXCHANGED      TENDERED
                                  ------       -------       ---------   ------------   ------------   -----------
<S>                               <C>          <C>           <C>         <C>            <C>            <C>
52 weeks ended August 28,
 1994:
  Net income (loss) per common
   and common equivalent share
   (fully diluted)............    $(1.42)(3)   $   .51(4)      $      .56    $        .55    $        .53    $       .49
  Number of shares used in
   calculation (millions).....     27.0         219.3            192.3        197.7          205.8          219.3
August 28, 1994 (unaudited):
  Book value per share........    $21.27       $  7.74         $   6.67     $   6.49       $   6.23       $   5.84
  Number of shares outstanding
   (millions).................     27.0         217.8            190.8        196.2          204.3          217.8
</TABLE>
    

- ------------------------
   
(1) Net income (loss)  per common  and common equivalent  share for  PriceCostco
    represents  income from continuing operations  which excludes the results of
    the  non-club  real  estate  segment  which  were  treated  as  discontinued
    operations in fiscal 1994.
    

   
(2) Unaudited  pro forma net loss  per common share and  book value per share of
    Price Enterprises assumes that all  outstanding shares of Price  Enterprises
    Common  Stock are  exchanged for  PriceCostco Common  Stock in  the Exchange
    Offer or  distributed to  PriceCostco  stockholders following  the  Exchange
    Offer. Unaudited pro forma net income per common and common equivalent share
    of  PriceCostco is  calculated assuming that  there is an  adjustment in the
    conversion price  of the  outstanding PriceCostco  convertible  subordinated
    debentures  as a  result of the  Transaction. Such  adjustment is calculated
    assuming shares of PriceCostco  Common Stock have a  market price of  $15.25
    and shares of Price Enterprises Common Stock have an equal value at the time
    of  the Distribution. See  "THE TRANSACTION -- Effect  of the Transaction on
    Convertible Securities." If  only 21.6 million  shares of Price  Enterprises
    Common  Stock  are  issued  in  the  Exchange  Offer  and  Price Enterprises
    purchases the remaining 5.4 million shares of Price Enterprises Common Stock
    from PriceCostco for a note in  the principal amount of approximately  $82.4
    million    (assuming   a    per   share   price    for   Price   Enterprises

                                              (FOOTNOTES CONTINUED ON NEXT PAGE)
    

                                       20
<PAGE>
   
    Common Stock  of $15.25  and an  interest rate  on the  outstanding note  of
    approximately 6%), then unaudited pro forma net income (loss) per common and
    common  equivalent share and book value  per share for Price Enterprises and
    PriceCostco would be as follows:
    

   
<TABLE>
<CAPTION>
                                PRICE ENTERPRISES   PRICECOSTCO
                                -----------------   -----------
<S>                             <C>                 <C>
52 weeks ended August 28,
 1994:
  Net income (loss) per common
   and common equivalent share
   (fully diluted)............       $   (1.91)       $        .56
  Number of shares used in
   calculation (millions).....           21.6             197.7
August 28, 1994:
  Book value per share........       $   22.77        $     6.90
  Number of shares outstanding
   (millions).................           21.6             196.2
<FN>
(3)  Includes a  provision  for  asset  impairments  of  $90,200  pre-tax  which
     includes $80,500 pre-tax ($47,500 after tax or $1.76 net loss per pro forma
     common  share)  related to  a change  in  calculating estimated  losses for
     assets which are  considered to  be economically impaired.  If the  $80,500
     pre-tax provision for asset impairments were excluded, pro forma net income
     for  fiscal 1994  would have been  approximately $9,173 or  $.34 per common
     share. See "Price Enterprises, Inc. Notes to Financial Statements."
(4)  Includes a merger  and restructuring  charge of $120  million pre-tax  ($80
     million or $.36 per share, after-tax) related to the Merger. If such merger
     and  restructuring charge were excluded,  income from continuing operations
     for fiscal 1994 would  have been approximately $190.9  million or $.87  per
     share (fully diluted).
</TABLE>
    

                                       21
<PAGE>
                    COMPARATIVE MARKET PRICES AND DIVIDENDS

PRICECOSTCO

    In  the Merger,  which occurred  on October 21,  1993, each  share of common
stock, par value $.10 per share,  of Price ("Price Common Stock") was  exchanged
for  2.13 shares of PriceCostco Common Stock and each share of common stock, par
value $.0033 per share, of Costco ("Costco Common Stock") was exchanged for  one
share of PriceCostco Common Stock.

    Until  October 21, 1993, Price  Common Stock was quoted  on The Nasdaq Stock
Market's National Market  under the symbol  "PCLB" and Costco  Common Stock  was
quoted  on The  Nasdaq Stock Market's  National Market under  the symbol "COST."
Trading in PriceCostco Common Stock  commenced on October 22, 1993.  PriceCostco
Common  Stock is quoted on  The Nasdaq Stock Market's  National Market under the
symbol "PCCW."

    The following table sets forth the high and low sales prices of  PriceCostco
Common Stock for the period October 22, 1993 through October 31, 1994, and Price
Common  Stock and Costco Common Stock  for the periods indicated. The quotations
are as reported in published financial sources.

   
<TABLE>
<CAPTION>
                                                                   PRICE                 COSTCO             PRICECOSTCO
                                                                COMMON STOCK          COMMON STOCK          COMMON STOCK
                                                             ------------------    ------------------    ------------------
                                                              HIGH        LOW       HIGH        LOW       HIGH        LOW
                                                             -------    -------    -------    -------    -------    -------
<S>                                                          <C>        <C>        <C>        <C>        <C>        <C>
Calendar Quarters -- 1991
  First Quarter.............................................  22 1/8     17 3/4     24 7/8     15 1/8      --         --
  Second Quarter............................................  27 1/2     21 1/2     30 1/2     22 7/8      --         --
  Third Quarter.............................................  30 5/8     23 1/2     33 3/8     26 3/8      --         --
  Fourth Quarter............................................  29 1/8     20 1/2     39 1/2     24 5/8      --         --
Calendar Quarters -- 1992
  First Quarter.............................................  25 7/8     21         42 5/8     35 1/8      --         --
  Second Quarter............................................  21 7/8     13 3/4     38 1/4     25 1/2      --         --
  Third Quarter.............................................  16 1/2     14         30         20 1/2      --         --
  Fourth Quarter............................................  21 1/8     14 1/2     30 1/2     20 1/4      --         --
Calendar Quarters -- 1993
  First Quarter.............................................  18 3/4     14 3/4     25 1/4     18 1/2      --         --
  Second Quarter............................................  18 1/2     13 1/4     19 3/4     15 3/4      --         --
  Third Quarter.............................................  18         14 3/4     18 1/2     15          --         --
  Fourth Quarter (through October 21, 1993).................  19 7/8     17 1/2     19 5/8     16 3/4      --         --
  Fourth Quarter (October 22, 1993
   through December 31, 1993)...............................   --         --         --         --        21 3/8     17 1/8
Calendar Quarters -- 1994
  First Quarter.............................................   --         --         --         --        21 5/8     16 7/8
  Second Quarter............................................   --         --         --         --        18 1/4     13
  Third Quarter.............................................   --         --         --         --        16 1/2     13 3/4
  Fourth Quarter (through November 15, 1994)................   --         --         --         --        16 3/4     14 7/8
</TABLE>
    

    All Costco common  share data  has been  adjusted to  reflect a  two-for-one
stock  split effected  April 30, 1991  and a three-for-two  stock split effected
March 6, 1992. All Price common share data has been adjusted to reflect the 2.13
exchange ratio in the Merger.

   
    On July 15, 1994, the last trading  day prior to the public announcement  by
PriceCostco  of the Transaction, the last reported sales price for each share of
PriceCostco Common Stock was $14.6875. On  November 15, 1994, the last  reported
sales price per share of PriceCostco Common Stock was $15.375.
    

    PriceCostco  does  not pay  regular dividends  and  does not  anticipate the
declaration of a cash dividend prior to the Closing Date. However, Price paid to
shareholders   a    one-time    special    cash   dividend    of    $1.50    per

                                       22
<PAGE>
share  of Price Common  Stock on July  28, 1989. Under  its two revolving credit
agreements, PriceCostco is generally  permitted to pay  dividends in any  fiscal
year up to an amount equal to 50% of its consolidated net income for that fiscal
year.

PRICE ENTERPRISES

    Price  Enterprises is a  newly formed entity. There  is currently no trading
market for Price Enterprises Common Stock and no dividends have ever been  paid.
Following  the Closing  Date, it  is anticipated  that Price  Enterprises Common
Stock will be publicly traded and  quoted on The Nasdaq Stock Market's  National
Market under the symbol "PREN."

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

    Price Enterprises consists of  certain assets transferred from  PriceCostco,
as  described  in  "THE  TRANSACTION --  Transactions  Undertaken  Prior  to the
Exchange Offer." NOTHING HEREIN SHOULD BE CONSTRUED TO SUGGEST THAT THE  TRADING
PRICE  OF  PRICECOSTCO COMMON  STOCK  AT ANY  POINT  IN TIME  MAY  BE USED  AS A
SUBSTITUTE FOR THE TRADING PRICE OF PRICE ENTERPRISES COMMON STOCK. No assurance
can be given that Price Enterprises Common Stock will trade at a price per share
reflecting the earnings  per share or  other multiple, or  other attributes,  of
PriceCostco.  See "SPECIAL CONSIDERATIONS/RISK FACTORS -- Special Considerations
with Respect to Price Enterprises."

                                       23
<PAGE>
   DEFINED TERMS USED IN THIS OFFERING CIRCULAR/PROSPECTUS, AND REFERENCES TO
   THE PAGES HEREIN ON WHICH SUCH  TERMS ARE DEFINED, ARE LISTED  ON
            AN  INDEX WHICH IS ATTACHED TO   THIS OFFERING
                        CIRCULAR/PROSPECTUS AS ANNEX I.

                      SPECIAL CONSIDERATIONS/RISK FACTORS

    In deciding whether or not to  tender shares of PriceCostco Common Stock  in
exchange  for shares of  Price Enterprises Common  Stock, holders of PriceCostco
Common Stock should  carefully consider  the following factors,  in addition  to
those discussed elsewhere in this Offering Circular/Prospectus.

SPECIAL CONSIDERATIONS APPLICABLE TO ALL PRICECOSTCO STOCKHOLDERS

   
    THE EXCHANGE RATIO
    
   
    For  ease of administration,  it was determined that  the exchange ratio for
the Exchange Offer would be one share of Price Enterprises Common Stock for each
share of  PriceCostco  Common  Stock.  In structuring  the  Transaction  --  and
determining  that 27 million  shares of Price Enterprises  Common Stock would be
offered in the Exchange Offer -- one  goal was to provide a reasonable  prospect
of  achieving 100% subscription for the shares of Price Enterprises Common Stock
offered in the Exchange  Offer. In that regard,  in making its determination  to
approve the Transaction, one of the factors considered by the Board of Directors
of  PriceCostco was a  range of illustrative  high and low  per share values for
Price Enterprises and the implied per share premium in the Exchange Offer  based
on  such illustrative values as  compared to the per  share price of PriceCostco
Common Stock at July  14, 1994 of  $14.75 (assuming 27  million shares of  Price
Enterprises Common Stock outstanding and a one-for-one exchange ratio). See "THE
TRANSACTION  -- Background  of the  Transaction" and  "-- Analysis  of Financial
Advisors of  PriceCostco."  While  believing  that  some  premium  to  tendering
stockholders  is included in the exchange ratio,  the Board did not quantify any
such premium, recognizing that it could not  do so since the range of prices  at
which Price Enterprises Common Stock may trade cannot be predicted. See "Special
Considerations  with Respect to  Price Enterprises --  Market Uncertainties with
Respect to Price Enterprises Common Stock."
    

   
____PriceCostco has recorded an estimated  loss on disposal of its  discontinued
operations  (the  non-club  real  estate  segment);  the  actual  loss  will  be
determined following  consummation  of  the  Exchange  Offer.  For  purposes  of
recording  such estimated loss,  PriceCostco assumed, among  other things, a per
share price of Price Enterprises Common Stock of $15.25 (the closing sales price
of PriceCostco  Common Stock  on October  24, 1994).  Such actual  loss will  be
determined  based, in part, on  the unaudited pro forma  book value per share of
Price Enterprises Common Stock  of $21.27. See  "THE TRANSACTION --  Anticipated
Accounting Treatment." The $6.02 difference between such amounts is attributable
to  a combination  of factors. These  factors include an  expectation that Price
Enterprises may trade at a discount from its  book value as well as a belief  by
the PriceCostco Board that some premium to tendering stockholders is included in
the exchange ratio, as described above. Neither the assumed per share price, nor
the  unaudited pro forma book value per share, of Price Enterprises Common Stock
set forth above should be viewed as a substitute for the trading price of  Price
Enterprises  Common Stock or as an indicator of any premium that may be realized
by tendering stockholders; the  prices at which  Price Enterprises Common  Stock
may trade cannot be predicted. See "Special Considerations with Respect to Price
Enterprises  -- Market  Uncertainties with  Respect to  Price Enterprises Common
Stock."
    

   
____NO ASSURANCES CAN BE GIVEN THAT PRICE ENTERPRISES COMMON STOCK WILL TRADE AT
PRICES IN EXCESS  OF THE  PER SHARE  PRICE OF  PRICECOSTCO COMMON  STOCK AT  THE
EXPIRATION  DATE OF  THE EXCHANGE OFFER  OR THAT PRICE  ENTERPRISES COMMON STOCK
WILL NOT TRADE AT PRICES BELOW SUCH PER SHARE PRICE.
    

    TENDERING AND NONTENDERING STOCKHOLDERS AFFECTED DIFFERENTLY BY THE
TRANSACTION

    Holders of  shares of  PriceCostco  Common Stock  will  be affected  by  the
Transaction   regardless  of  whether  such   holders  tender  their  shares  of
PriceCostco Common Stock  for exchange pursuant  to the Exchange  Offer. If  the
Exchange Offer is not oversubscribed and subject to proration, holders of shares
of PriceCostco Common Stock who tender all of their shares for exchange pursuant
to  the Exchange Offer will no longer have an ownership interest in PriceCostco.
See "THE EXCHANGE OFFER -- Terms of the

                                       24
<PAGE>
   
Exchange Offer." Holders of shares of PriceCostco Common Stock who do not tender
any of their shares for exchange  pursuant to the Exchange Offer (assuming  that
some  holders of PriceCostco Common Stock do tender their shares pursuant to the
Exchange Offer) will have  an increased ownership  interest in PriceCostco.  The
magnitude  of such increase will depend upon the number of shares of PriceCostco
Common Stock tendered pursuant to the  Exchange Offer and accepted for  exchange
by  PriceCostco. If  the Exchange  Offer is  fully subscribed  (I.E., 27 million
shares of PriceCostco  Common Stock are  tendered and accepted  for exchange  by
PriceCostco),   the  ownership  interest  in  PriceCostco  represented  by  each
outstanding  share  of  PriceCostco  Common   Stock  would  be  increased   from
1/217,824,520 to 1/190,824,520 based upon the shares of PriceCostco Common Stock
outstanding  on October 31, 1994.  In addition, as a  result of the Transaction,
PriceCostco will no longer  own any Price Enterprises  Common Stock and will  no
longer  own any significant non-warehouse club real estate, although PriceCostco
will retain 49% of the outstanding  equity securities or interests, as the  case
may be, of each of the Subsidiary Corporations.
    

    TAX TREATMENT OF THE TRANSACTION

    Although  PriceCostco  and  Price  Enterprises will  receive  an  opinion of
Skadden, Arps,  Slate, Meagher  &  Flom ("Skadden  Arps")  to the  effect  that,
although  the matter  is not  entirely free  from doubt,  the Transaction should
qualify  as  a  tax-free  distribution  for  Federal  income  tax  purposes   to
PriceCostco,   Price  Enterprises   and  the  stockholders   who  receive  Price
Enterprises Common  Stock, such  opinion will  not be  binding on  the  Internal
Revenue Service ("IRS"). To qualify for tax-free treatment, the Transaction must
satisfy a number of legal requirements, some of which are inherently factual and
subject  to differing  interpretations. If the  IRS were  to assert successfully
that the Transaction  did not  qualify for  tax-free treatment,  the receipt  of
Price Enterprises Common Stock in the Transaction would be a taxable transaction
for  Federal income tax  purposes and for  other tax purposes  as well. See "THE
TRANSACTION -- Certain Federal Income Tax Consequences."

SPECIAL CONSIDERATIONS WITH RESPECT TO PRICE ENTERPRISES

    MARKET UNCERTAINTIES WITH RESPECT TO PRICE ENTERPRISES COMMON STOCK

   
    There is no  existing market  for Price Enterprises  Common Stock.  Although
Price Enterprises has applied for quotation of Price Enterprises Common Stock on
The  Nasdaq Stock Market's  National Market, no  assurance can be  given that an
active trading market for Price Enterprises Common Stock will develop. Prices at
which Price  Enterprises Common  Stock may  trade cannot  be predicted.  Nothing
herein  should be  construed to  suggest that  the trading  price of PriceCostco
Common Stock at any point  in time may be used  as a substitute for the  trading
price of Price Enterprises Common Stock. The prices at which the shares of Price
Enterprises  Common Stock will  trade will be determined  by the marketplace and
may be  influenced by  many  factors, including,  among  others, the  depth  and
liquidity  of the market for Price Enterprises Common Stock, investor perception
of Price Enterprises and the industries in which Price Enterprises operates,  as
well as general economic and market conditions.
    

    If  a significant number of holders  of PriceCostco Common Stock who receive
shares of Price Enterprises Common Stock  in the Transaction sell or attempt  to
sell  such shares  contemporaneously on  the open  market, the  market price for
Price Enterprises Common Stock in the short term could be adversely affected.

    POSSIBLE CONTROL OF PRICE ENTERPRISES BY CERTAIN STOCKHOLDERS

   
    Each of Robert E.  Price, who is  the Chairman of  the Board, President  and
Chief Executive Officer of Price Enterprises, and Sol Price, a founder of Price,
significant  stockholder of PriceCostco  and the father of  Robert E. Price, has
informed  PriceCostco  that,  while  not  agreeing  to  tender  all  shares   of
PriceCostco  Common Stock  beneficially owned by  him in the  Exchange Offer, he
currently intends to tender substantially all such shares, so long as, prior  to
the  consummation of the  Exchange Offer, there  does not occur  any event which
materially impairs the assets or business of Price Enterprises.
    

   
    If Robert  E.  Price  and Sol  Price  each  tenders all  of  the  shares  of
PriceCostco  Common  Stock he  beneficially owns  for  exchange pursuant  to the
Exchange  Offer,  and   the  Exchange   Offer  is  fully   subscribed  but   not
oversubscribed  and subject to proration (I.E., 27 million shares of PriceCostco
Common Stock  are tendered  and accepted  for exchange  by PriceCostco)  or  the
Exchange Offer is undersubscribed and the
    

                                       25
<PAGE>
   
remaining   shares  of  Price  Enterprises   Common  Stock  are  distributed  to
PriceCostco stockholders, then, in each  case, Messrs. Price would  beneficially
own  an aggregate  of 11,164,589  shares of  Price Enterprises  Common Stock, or
approximately 41.3% of the shares of Price Enterprises Common Stock  outstanding
immediately  after consummation of the Exchange Offer. If 21.6 million shares of
PriceCostco Common Stock are tendered and accepted for exchange by  PriceCostco,
each  of Robert E. Price and Sol Price  tenders all of the shares of PriceCostco
Common Stock he beneficially  owns for exchange pursuant  to the Exchange  Offer
and  Price  Enterprises  purchases the  remaining  5.4 million  shares  of Price
Enterprises Common Stock owned by PriceCostco, as described in "THE  TRANSACTION
- --  The Distribution," then  Messrs. Price would  beneficially own approximately
51.7% of the shares  of Price Enterprises  Common Stock outstanding  immediately
after   consummation  of  the   Exchange  Offer.  See   "SECURITY  OWNERSHIP  --
PriceCostco." In such  cases, these stockholders  would effectively control  the
outcome  of  all  matters  submitted  to  Price  Enterprises'  stockholders  for
approval, including the election of directors. In addition, such ownership could
discourage acquisition of Price Enterprises Common Stock by potential investors,
and could have an anti-takeover effect, possibly depressing the trading price of
Price Enterprises Common  Stock. Moreover,  in light  of the  limited number  of
shares  of Price Enterprises Common Stock that may be held by stockholders other
than Robert Price and Sol Price under such scenarios, there can be no  assurance
that  an active public market for Price Enterprises Common Stock will develop or
continue after the Closing Date.
    

    LACK OF INDEPENDENT OPERATING HISTORY; RELIANCE ON PRICECOSTCO

    Price  Enterprises  is  a  newly  formed  corporation  with  no  independent
operating history. Although the real estate operations of Price Enterprises have
been historically operated as a separate division of Price, prior to the Merger,
and  of  PriceCostco,  subsequent  to  the Merger,  the  real  estate  and other
operations transferred  to Price  Enterprises have  neither been  operated as  a
stand-alone  business nor  conducted without  the benefit  of the  financial and
other resources of Price  or PriceCostco. There can  be no assurance that  Price
Enterprises  will not encounter financial, managerial or other difficulties as a
result of its lack of independent operating history or inability to continue  to
rely on the financial and other resources of PriceCostco.

   
    Following  the  consummation  of  the  Transaction,  Price  Enterprises will
continue to rely to  a substantial extent on  its relations with PriceCostco  in
pursuing  its investments in the  Quest interactive electronic shopping business
and its Mexico and international warehouse club ventures through the  Subsidiary
Corporations.  Pursuant  to  operating agreements  (the  "Operating Agreements")
entered into on the Transfer Closing Date among Price Enterprises,  PriceCostco,
Price  and each of the Subsidiary Corporations (which are described in "BUSINESS
AND PROPERTIES OF  PRICE ENTERPRISES"),  the Subsidiary  Corporations will  rely
upon  PriceCostco  for certain  buying and  technological support,  training and
other services  and,  with  respect  to  Quest,  space  in  certain  PriceCostco
warehouse  clubs for Quest kiosks and the staffing of such kiosks. The Operating
Agreements have a five-year term and cannot be extended without the agreement of
both  PriceCostco  and  Price  Enterprises.  Although  PriceCostco,  as  a   49%
stockholder  of  each of  the Subsidiary  Corporations  (or the  owner of  a 49%
interest, in the case  of Mexico Clubs),  will have an  incentive to foster  the
financial  prospects of the Subsidiary Corporations  and to cooperate with Price
Enterprises with  respect  to  the  Subsidiary Corporations,  there  can  be  no
assurance that disputes will not arise between PriceCostco and Price Enterprises
with  respect to their  ongoing business dealings,  which could adversely impact
the service and support received by Price Enterprises, or that PriceCostco  will
continue  to  provide the  services and  support provided  for in  the Operating
Agreements following the expiration  of the five-year term.  To the extent  that
PriceCostco  determines that a business being pursued by Price Enterprises, such
as the Quest business (which has not  yet generated earnings), is not worthy  of
further  investment and  support, PriceCostco may  cease to  provide service and
support for  the business  after the  expiration of  the term  of the  Operating
Agreements,  which could materially  and adversely affect  the viability of such
business.
    

    RISKS ATTENDANT TO MEXICO BUSINESS

   
    Price Enterprises owns a 51% interest in Mexico Clubs, which indirectly owns
a 50% interest in Price  Club de Mexico, S.A. de  C.V. ("Price Club Mexico"),  a
joint  venture with  Controladora Comercial  Mexicana, S.A.  de C.V. ("Comercial
Mexicana"), which owns and operates ten Price Club warehouse clubs in Mexico  as
of  October 31, 1994. Mexico  Clubs may also provide  certain buying services to
Price Club Mexico.
    

                                       26
<PAGE>
   
    As described under "THE TRANSACTION -- Background of the Transaction," Price
Enterprises, PriceCostco  and Comercial  Mexicana  have engaged  in  discussions
regarding a possible transaction pursuant to which Comercial Mexicana or a third
party  would purchase the 50% interest in  Price Club Mexico owned indirectly by
Mexico  Clubs.  Based  on  the  discussions  to  date,  Price  Enterprises   and
PriceCostco  believe  that if  any such  purchase occurs,  it would  most likely
involve payment for the 50%  interest in Price Club  Mexico in a combination  of
cash,  promissory notes or stock or other securities. However, as of the date of
this Offering Circular/Prospectus, no  agreement, preliminary or otherwise,  has
been  reached with Comercial Mexicana regarding such proposed purchase. ALTHOUGH
PRICE  ENTERPRISES  AND  PRICECOSTCO   CURRENTLY  ANTICIPATE  THAT   DISCUSSIONS
REGARDING  SUCH PROPOSED PURCHASE WILL CONTINUE, NO ASSURANCES CAN BE GIVEN THAT
ANY AGREEMENT WILL BE REACHED REGARDING SUCH A PURCHASE BY COMERCIAL MEXICANA OR
SUCH THIRD PARTY  OR, IF SUCH  AN AGREEMENT IS  REACHED, THE TERMS  OF ANY  SUCH
PURCHASE.
    

   
    Pursuant  to an Agreement to form a  Corporate Joint Venture, dated June 21,
1991, between Price, Price Venture Mexico, a California corporation  ("Primex"),
and  Comercial  Mexicana  (the  "Joint  Venture  Agreement"),  if  the  Board of
Directors of Price Club Mexico becomes deadlocked over, or because of a lack  of
a  quorum  or  related  majority is  unable  to  act upon,  any  matter,  and if
Commercial Mexicana and Primex are unable  to reach an agreement within 30  days
thereof,  then the Joint  Venture Agreement will  be terminated, and  one of the
parties' interest in  Price Club  Mexico will  be sold  to the  other party,  as
described under "BUSINESS AND PROPERTIES OF PRICE ENTERPRISES -- Mexico Clubs --
The  Joint Venture Agreement." In  addition, for a period  of 90 days commencing
June 21, 1995, either  Primex or Comercial Mexicana  may give written notice  to
the  other that  it elects  to terminate  the Joint  Venture Agreement,  for any
reason and without cause, effective as  of the ninetieth day following June  21,
1995.  Upon  any  such termination,  Price  Club  Mexico will  be  dissolved and
liquidated. See "BUSINESS AND  PROPERTIES OF PRICE  ENTERPRISES -- Mexico  Clubs
- --The Joint Venture Agreement."
    

   
    Various  challenges and  risks are  attendant to  doing business  in Mexico,
including  relatively  high   real  estate   prices,  a   shortage  of   skilled
middle-management  employees  compared to  the  United States,  foreign currency
exchange rate fluctuations, the potential for inflation, an uncertain  political
situation  and a proliferation of competition  in the warehouse club and general
retail businesses. In addition, Price Club Mexico has substantial investments in
real estate in Mexico. Any  downturn in the Mexico  real estate market or  other
adverse  developments would  adversely affect the  value of  such investments. A
substantial portion of the products sold  by Price Club Mexico is imported  from
the  United States and abroad. Any disruption in the transfer of goods to Mexico
from foreign countries could have an adverse effect on Price Club Mexico.  There
can  be no assurance that  some or all of these  risks will not adversely impact
the business and operations of Mexico Clubs in the future. Total sales by  Price
Club  Mexico were $93 million and $255  million in calendar years 1992 and 1993,
respectively, and total  sales for  calendar year  1994 are  expected to  exceed
total sales in such prior years. Price Club Mexico was profitable in each of the
calendar  years 1992 and 1993, and is expected to be profitable in calendar year
1994. While total sales by Price Club Mexico for 1995 are expected to  increase,
as  compared to  total sales for  calendar year  1994, and Price  Club Mexico is
budgeted to be profitable in calendar year 1995, comparable sales trends for the
last three months (based on sales at warehouse locations open for more than  one
year)  have declined.  Price Enterprises believes  that such decline  is due to,
among  other  things,  cannibalization  in  Mexico  City,  increased  levels  of
competition and a slowdown in the Mexican economy. The foregoing is not intended
as  a  projection  by Price  Enterprises  or  PriceCostco of  actual  results of
operations of  Price Club  Mexico for  calendar year  1994 or  1995. The  actual
results  of operations of Price Club Mexico for such period may be significantly
more favorable or  less favorable  than as  set forth  above and  should not  be
relied upon or regarded as a representation as to actual results of operations.
    

    RISKS ATTENDANT TO INTERNATIONAL BUSINESSES

    Price Enterprises owns 51% of the outstanding capital stock of Price Global,
which,  among other things,  owns all of  the outstanding capital  stock of Club
Merchandising, Inc., an export and import company ("CMI"), and has the right  to
develop  Club Businesses (as hereinafter  defined) in the Specified Geographical
Areas (as hereinafter  defined). Various  risks are  attendant to  international
business  operations, including foreign currency exchange rate fluctuations, the
potential   for    inflation,    uncertain   political    situations    and    a

                                       27
<PAGE>
proliferation  of global competition. In  addition, any disruption or impediment
to the  transfer of  goods into  foreign countries  from the  United States  and
elsewhere  could have a material adverse effect on Price Global. There can be no
assurance that some  or all  of these  risks will  not have  a material  adverse
effect on the business and operations of Price Global in the future.

    RISKS ATTENDANT TO QUEST

   
    Price  Enterprises owns 51% of the outstanding capital stock of Price Quest.
The Quest interactive  electronic shopping  business is  a developing  business,
which  was commenced by Price in 1992 and has incurred operating losses from its
commencement  to  present.   Quest  utilizes  a   computer  shopping   terminal,
historically  located  in  certain  PriceCostco  warehouse  clubs,  which allows
customers to browse  and purchase  products through an  electronic catalogue  of
goods  and services. The growth and viability  of Quest will depend, in part, on
the acceptance of such shopping technology by consumers. In addition, the  Quest
kiosk electronic interface and supporting software system are subject to ongoing
research  and development. There can be no assurance that Price Enterprises will
have the technological  and financial  resources to  complete such  development.
Although Quest kiosks are presently installed at 38 PriceCostco warehouse clubs,
Quest  technology has not yet been implemented on a broad basis. There can be no
assurance that  Price  Enterprises  will successfully  complete  the  wide-scale
implementation  of Quest.  In addition, Federal  copyright laws  could limit the
availability of certain products on Quest kiosks in the future.
    

    PRICE ENTERPRISES LIQUIDITY AND CAPITAL RESOURCES

    Price Enterprises will  require substantial capital  to pursue its  business
strategy,  as described in "PRICE  ENTERPRISES, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL  CONDITION AND  RESULTS OF OPERATIONS"  and "BUSINESS  AND
PROPERTIES  OF  PRICE  ENTERPRISES." Although  management  of  Price Enterprises
believes it has sufficient  available sources of funds  to finance its  expected
capital  expenditures,  there  can  be no  assurance  that  economic conditions,
unforseen capital  expenses  or  delays  in  the  divestiture  of  certain  real
properties  will not adversely  impact Price Enterprises'  ability to pursue its
business strategy.

    There can  be no  assurance  that Price  Enterprises and/or  the  Subsidiary
Corporations  will  not  encounter  capital  requirements  in  excess  of  those
currently anticipated. Likewise, there can be no assurance that the planned real
estate sales will be  completed by the  expected dates, if at  all, or that  the
proceeds  of  the sales  will  be fully  realized,  or that  unforseen financial
difficulties  of  Price  Enterprises'  commercial  property  tenants  will   not
adversely   impact  cash  flow  from   real  property  rentals.  Although  Price
Enterprises believes it will  be able to fund  any capital requirements  through
its  revolving credit facility with PriceCostco (see "CERTAIN RELATED AGREEMENTS
- -- Advance Agreement"), that facility expires six months following  consummation
of  the  Exchange  Offer, and  Price  Enterprises  does not  currently  have any
arrangements in place to provide a  source of working capital funding after  the
facility  expires.  If  Price  Enterprises were  to  experience  a  shortfall in
available cash as a result of these or any other matters, it could be forced  to
delay  completion of construction  with respect to  certain existing real estate
projects and/or curtail its investments in the Subsidiary Corporations.

    COMPETITION WITH RESPECT TO THE SUBSIDIARY CORPORATIONS

    Price Enterprises believes that competitive  pressures in the Mexico  retail
market  and other international  markets will continue  to increase. Price Quest
competes directly  or  indirectly  with  most  merchandising  businesses,  other
discount  retailers (including PriceCostco warehouse clubs), catalogue and other
direct  marketing  sales,  televised  home  shopping,  travel  agency  services,
traditional  residential real estate brokers, other affinity buying services and
similar interactive kiosks that are or may be operated by other retailers. Price
Enterprises believes that, as further  advances in computer technology are  made
and as more interactive computer-based services become available to consumers in
the  home and  retail environments,  competitive pressures  on Price  Quest will
intensify.

    The Subsidiary Corporations  may also face  competition from PriceCostco  in
the  future. Pursuant  to the  Operating Agreements,  PriceCostco has  agreed to
refrain from competing with the Subsidiary Corporations

                                       28
<PAGE>
in certain respects for a period of five years. There can be no assurance  that,
after the termination of the Operating Agreements, PriceCostco will not elect to
pursue   businesses  competitive  with  Price   Enterprises  or  the  Subsidiary
Corporations.

    NOTES RECEIVABLE

   
    Price Enterprises holds the City  Notes (as hereinafter defined).  Repayment
of  each City Note by the relevant  municipality is generally made based on that
municipality's allocation of sales tax  revenues generated by retail  businesses
located on a particular property associated with such City Note. Under the terms
of  most of the  City Notes, the unpaid  balance of the note  is forgiven at its
maturity date. In part as a result  of the recent recession, sales tax  revenues
generated by the retail businesses located on the properties associated with the
City  Notes  have  declined  in  recent years.  Consequently,  there  can  be no
assurance that the full  book value of  the City Notes will  be repaid by  their
maturity.
    

   
    Price  Enterprises also  owns the Atlas  Note, which is  collateralized by a
hotel and convention center property. The Atlas Note matured on May 8, 1994. The
borrower has  not repaid  the principal  amount and  otherwise has  been and  is
currently  in violation of certain of  its debt covenants. Price Enterprises has
agreed to forbear its foreclosure rights pending consummation of a restructuring
of the debt obligations, which is expected to occur by mid-December 1994.  There
can  be no  assurance that  the loan restructuring  will be  consummated. In the
event a restructuring cannot be consummated, Price Enterprises has retained  its
foreclosure  rights under the Atlas Note.  See "BUSINESS AND PROPERTIES OF PRICE
ENTERPRISES -- Real Estate Business -- City Notes and Atlas Note."
    

    POTENTIAL CONFLICTS OF INTEREST

   
    Historically, The  Price  REIT, Inc.  (the  "REIT") has  performed  property
management  services for  certain properties  held by  Price Enterprises.  It is
anticipated that  Price Enterprises  will continue  such arrangements  with  the
REIT.  There are no understandings or  agreements to purchase or sell properties
between Price Enterprises  and the  REIT. However, there  have been  preliminary
discussions  between representatives of the REIT and Price Enterprises regarding
possible transactions between  the companies  in the  future. Price  Enterprises
intends  to continue to explore and study these possible transactions, including
the  possibility  of   entering  into  joint   ventures  or  other   synergistic
transactions  with the REIT. Sol Price is the  Chairman of the Board of the REIT
and has beneficial  ownership through  various family and  charitable trusts  of
approximately  9%  of  the Class  B  Common  Stock of  the  REIT.  Certain other
officers, directors and principal stockholders of the REIT may become directors,
officers or principal  stockholders of  Price Enterprises. In  such case,  these
persons  would face  conflicts of interest  in determining how  to allocate real
estate investment opportunities between  Price Enterprises and  the REIT and  in
connection  with any transactions between Price  Enterprises and the REIT. Price
Enterprises and the  REIT have  not determined how  such conflicts,  if any,  in
allocating  real estate investment opportunities  between them will be resolved.
Any transactions between Price Enterprises and  the REIT will be subject to  the
approval  of  an  independent  committee  of the  Board  of  Directors  of Price
Enterprises,  comprised  of  directors  who  are  not  officers,  directors   or
stockholders  of the REIT. See "BUSINESS  AND PROPERTIES OF PRICE ENTERPRISES --
Real Estate Business -- Relationship with The Price REIT."
    

    DEPENDENCE ON KEY PERSONNEL

    Price Enterprises is dependent  on the efforts  of its executive  management
team. While Price Enterprises believes that it could find replacements for these
key  personnel, the loss of their services could have a temporary adverse effect
on the operations  of Price Enterprises.  Some, but not  all, of these  officers
have  entered into employment agreements with Price Enterprises. See "MANAGEMENT
OF PRICE ENTERPRISES -- Compensation  of Executive Officers." Price  Enterprises
has  not  purchased "key  man"  insurance with  respect  to any  members  of its
executive management team and does  not anticipate purchasing such insurance  in
the future.

                                       29
<PAGE>
SPECIAL CONSIDERATIONS WITH RESPECT TO PRICE ENTERPRISES' REAL ESTATE
INVESTMENTS

    ECONOMIC PERFORMANCE AND VALUE OF RETAIL CENTERS DEPENDENT ON MANY FACTORS

    Real  property  investments  are subject  to  varying degrees  of  risk. The
economic performance and value of real estate can be affected by changes in  the
national,  regional  and local  economic climate,  local  conditions such  as an
oversupply of space or a  reduction in demand for real  estate in the area,  the
attractiveness  of the properties  to tenants, competition  from other available
space, the ability of  the owner to provide  adequate maintenance and  insurance
and  increased  operating  costs.  Owners  of  retail  centers,  such  as  Price
Enterprises, must monitor  the conditions  of their  properties and  continually
evaluate  the need  to remodel  or upgrade  their properties.  In addition, real
estate values can  be affected  by such  factors as  government regulations  and
changes  in real estate, zoning or  tax laws, interest rate levels, availability
of financing and potential liability under environmental and other laws.

    DEPENDENCE ON RENTAL INCOME FROM REAL PROPERTY; RELIANCE UPON KEY TENANTS

    As a substantial portion of Price Enterprises' income is derived from rental
income from real property, Price Enterprises' income would be adversely affected
if a significant number of Price Enterprises' lessees were unable to meet  their
obligations  to Price Enterprises or if Price  Enterprises was unable to lease a
significant amount  of space  in its  retail centers  on economically  favorable
lease  terms.  In the  event of  default  by a  lessee, Price  Enterprises could
experience delays in enforcing its rights as lessor and could incur  substantial
costs  in  protecting its  investment. Price  Enterprises' four  largest tenants
account for approximately 42.3% of its total base rent revenues, and, therefore,
Price Enterprises is  substantially dependent  upon the  financial stability  of
such tenants. The bankruptcy or insolvency of a major tenant may have a material
adverse  effect on the retail  centers affected and the  income produced by such
properties. A bankruptcy or insolvency of one or more of its four major  tenants
could   have  a  material  adverse  impact  on  Price  Enterprises'  results  of
operations. To  Price  Enterprises' knowledge,  none  of its  major  tenants  is
currently in bankruptcy or insolvent.

    ILLIQUIDITY OF REAL ESTATE INVESTMENTS

    Price  Enterprises' equity  real estate investments  are relatively illiquid
and therefore  tend  to limit  the  ability of  Price  Enterprises to  vary  its
portfolio  promptly in response  to changes in economic  or other conditions. In
addition,  certain  significant   expenditures  associated   with  each   equity
investment  (such as mortgage payments, real estate taxes and maintenance costs)
are generally not reduced  when circumstances cause a  reduction in income  from
the  investment. Should  such events occur,  Price Enterprises'  income and cash
flow would be adversely affected.

    ECONOMIC CONDITIONS

    Although inflation  and other  economic conditions  could cause  base  rents
under  Price Enterprises'  long-term leases  to be  less than  prevailing market
rates, most of  Price Enterprises' leases  are triple net  leases which  require
tenants  to  pay  their  share  of  operating  expenses,  including  common area
maintenance, real  estate  taxes,  insurance  and  promotion,  thereby  reducing
exposure to increases in costs and operating expenses resulting from inflation.

    Many  regions of the United States,  including Southern California and parts
of the  Northeastern  United  States,  where  a  significant  portion  of  Price
Enterprises' properties are located, have experienced an economic recession, and
if such recession were to continue, it could adversely affect the performance of
Price Enterprises' tenants and the value of its properties.

    COMPETITION IN THE REAL ESTATE INDUSTRY

   
    Price  Enterprises  competes  for  tenants in  its  retail  shopping centers
primarily on  the  basis of  customer  traffic  generated by  its  national  and
regional  retail anchor  tenants, such  as Price  Club, The  Home Depot  and The
Sports Authority. Price  Enterprises also attracts  smaller tenants by  offering
desirable  locations and competitive  lease terms. The  closing or relocation of
any anchor tenant could have a material  adverse effect on the operation of  the
shopping  center. In addition,  the closing or relocation  by PriceCostco of its
    

                                       30
<PAGE>
warehouse club  operations at  certain of  Price Enterprises'  properties  could
trigger  provisions in leases of certain tenants at those properties which would
allow such  tenants  to  terminate  their leases  prior  to  the  current  lease
expiration date.

    Price  Enterprises competes with a wide  variety of corporate and individual
real estate developers and real  estate investment trusts which have  investment
objectives  similar to  those of  Price Enterprises  and which  may have greater
resources and longer operating histories than Price Enterprises.

    UNINSURED LOSS

    Each of Price Enterprises' properties is covered by comprehensive liability,
fire,  flood,  extended  coverage  and   rental  loss  insurance,  with   policy
specifications  and insured  limits customarily carried  for similar properties.
Price Enterprises  believes  that  its  properties  are  adequately  insured  in
accordance  with industry standards. A  substantial number of Price Enterprises'
properties are  located in  California, which  is generally  subject to  regular
seismic  activity that could damage or destroy these properties. Such properties
are not currently  insured in  respect of  earthquake losses,  as the  insurance
against  such losses,  in the opinion  of Price Enterprises'  management, is not
currently available on commercially reasonable  terms. Should an uninsured  loss
occur, Price Enterprises could lose invested capital in, and anticipated profits
from, the property.

    LIABILITIES FOR ENVIRONMENTAL MATTERS

    Price  Enterprises' ownership of real estate could subject Price Enterprises
to certain environmental  liabilities. There  are certain sites  among the  real
properties  owned  by Price  Enterprises  with known  environmental liabilities,
including certain other sites located in  areas of current or former  industrial
activity  where  environmental  contamination  may have  occurred.  Even  if not
currently  known,  Price  Enterprises  subsequently  could  discover   potential
environmental liabilities arising from its sites or from neighboring facilities.
In addition, undeveloped sites may be affected by regulations enacted to protect
sensitive  environmental resources, including  threatened and endangered species
and wetlands, so as to  restrict Price Enterprises' development and/or  diminish
the  value of those sites. See "BUSINESS  AND PROPERTIES OF PRICE ENTERPRISES --
Real Estate Business -- Environmental Matters." Price Enterprises has agreed  to
indemnify PriceCostco for all of PriceCostco's environmental liabilities arising
out  of  PriceCostco's prior  ownership and/or  operation  of the  real property
transferred to Price Enterprises. However,  PriceCostco has agreed to  indemnify
and  hold Price Enterprises harmless in respect of one-half of all environmental
liabilities relating to the  property located in Phoenix,  Arizona and known  as
the Phoenix (Fry's) site. See "THE AGREEMENT OF TRANSFER AND PLAN OF EXCHANGE --
Indemnification."

                                THE TRANSACTION

GENERAL

   
    PriceCostco  intends to implement a  spin-off reorganization pursuant to the
terms and conditions of an Amended  and Restated Agreement of Transfer and  Plan
of  Exchange,  dated  as  of  November  14,  1994  (the  "Transfer  and Exchange
Agreement"), by and between PriceCostco and Price Enterprises. For a description
of the Transfer and Exchange Agreement, see "THE AGREEMENT OF TRANSFER AND  PLAN
OF EXCHANGE."
    

   
    The  transactions contemplated  by the  Transfer and  Exchange Agreement are
referred to herein as the "Transaction." The date and time of the closing of the
transactions contemplated by  the Transfer  and Exchange  Agreement, other  than
those  actions that were taken and transactions  that were consummated as of the
Transfer Closing Date (as  hereinafter defined), are referred  to herein as  the
"Closing  Date." It is anticipated that the  Closing Date will occur on the date
immediately following the expiration of the  Exchange Offer, or if such date  is
not a business day, on the next business day thereafter.
    

THE EXCHANGE OFFER

    Pursuant  to  the Transfer  and Exchange  Agreement and  upon the  terms and
subject to the conditions set forth in this Offering Circular/Prospectus and the
accompanying Letter  of Transmittal,  PriceCostco is  offering to  exchange  one
share  of Price  Enterprises Common Stock  for each share  of PriceCostco Common

                                       31
<PAGE>
   
Stock, up to a maximum of 27  million shares of Price Enterprises Common  Stock.
If  more than 27 million shares of PriceCostco Common Stock are validly tendered
and not withdrawn in the Exchange Offer prior to the Expiration Date, then, upon
the terms and  subject to the  conditions set forth  in this Offering  Circular/
Prospectus  and the  Letter of Transmittal,  PriceCostco will  accept 27 million
shares for exchange on a pro rata basis, and shares of Price Enterprises  Common
Stock  will be exchanged  therefor. For a  description of certain  actions to be
taken in the event that fewer than 27 million shares of PriceCostco Common Stock
are tendered in the Exchange Offer,  see "The Distribution" below. The  Exchange
Offer is not conditioned upon any minimum number of shares of PriceCostco Common
Stock  being tendered for  exchange. The Exchange Offer  is, however, subject to
certain other conditions described  under "THE EXCHANGE  OFFER -- Conditions  to
the Exchange Offer."
    

TRANSACTIONS UNDERTAKEN PRIOR TO THE EXCHANGE OFFER

    THE TRANSFER OF ASSETS TO PRICE ENTERPRISES

    Pursuant to the Transfer and Exchange Agreement, as of August 28, 1994 ("the
Transfer  Closing Date"), PriceCostco  caused to be  transferred, or, in certain
cases, will cause to be transferred  (the "Transfer"), to Price Enterprises  the
following assets (the "Transferred Assets"):

           (i)  certain commercial real estate  specified in the Transfer
       and Exchange  Agreement which  was not  integral to  PriceCostco's
       merchandising operations;

           (ii) the net proceeds from the sale of certain commercial real
       estate  (such real estate, together with the real estate described
       in  the  foregoing  clause   (i),  the  "Commercial   Properties")
       occurring  on or after June  1, 1994 and prior  to the transfer of
       the Commercial Properties to Price Enterprises;

           (iii) the  commercial  real  estate  comprising  PriceCostco's
       warehouse  club facilities at Pentagon City in Arlington,Virginia;
       Wayne, New Jersey; Westbury, New York; and Morena Boulevard in San
       Diego, California (including fixtures permanently attached to such
       structures, but excluding inventory, furniture, trade fixtures and
       equipment) (the "Warehouse Properties");

           (iv) the commercial real estate known as 4455 and 4649  Morena
       Boulevard,  San Diego,  California (the "San  Diego Property" and,
       together  with  the  Commercial   Properties  and  the   Warehouse
       Properties,   the  "Real  Properties"),   and  certain  furniture,
       fixtures and equipment located at the San Diego Property;

           (v) a note  in the  principal amount  of $41  million made  by
       Atlas  Hotels,  Inc.  secured  by a  hotel  and  convention center
       property located in San Diego, California (the "Atlas Note");

   
           (vi) notes  receivable  with an  aggregate  book value  as  of
       August   28,  1994  of  approximately   $32  million,  which  were
       originally made and delivered by various governmental agencies  in
       connection  with  the  financing  of  the  development  of certain
       warehouse club and adjacent sites (the "City Notes");
    

   
           (vii) 51%  of the  outstanding capital  stock of  each of  the
       Subsidiary  Corporations  (as  described  under  "The  Transfer of
       Assets to the Subsidiary Corporations" below); and
    

           (viii) all claims, rights,  entitlements and causes of  action
       of  PriceCostco  and its  subsidiaries  in respect  of  the assets
       described in clauses (i) through (vii) above (other than any  such
       claims,  rights, entitlements and causes of actions arising out of
       the Retained Liabilities (as hereinafter defined)).

   
    As of the date of this Offering Circular/Prospectus, commercial real  estate
representing  approximately 34% of the book value of the Real Properties remains
to be  transferred  from PriceCostco  to  Price Enterprises.  The  Transfer  and
Exchange Agreement specifies the actions to be taken if PriceCostco is unable to
    

                                       32
<PAGE>
transfer any of the Real Properties to Price Enterprises on or prior to February
25,  1995. See "THE  AGREEMENT OF TRANSFER  AND PLAN OF  EXCHANGE -- Transfer of
Assets; Assumption of Liabilities."

    In consideration for the Transfer, Price Enterprises (i) issued to Price,  a
subsidiary  of PriceCostco, 27 million shares of Price Enterprises Common Stock,
which constitute  all of  the  outstanding shares  of Price  Enterprises  Common
Stock;  (ii) assumed (x) all liabilities  and obligations of PriceCostco and its
subsidiaries relating to or arising out of the Transferred Assets and that arise
out of  events  occurring  at  or  after the  Transfer  Closing  Date,  (y)  all
liabilities  and obligations relating  to or arising in  respect of Materials of
Environmental Concern  (as  hereinafter  defined) and  violations  or  purported
violations  of Environmental  Laws (as  hereinafter defined)  that relate  to or
arise out of the Real  Properties and that arise  out of events occurring  prior
to,  at  or  after the  Transfer  Closing Date  and  (z) all  costs  to complete
construction of the Commercial  Properties incurred after June  1, 1994, as  set
forth in the Transfer and Exchange Agreement (the "Assumed Construction Costs");
and  (iii) made all  other deliveries required  to be made  by Price Enterprises
pursuant to the Transfer and Exchange Agreement. See "THE AGREEMENT OF  TRANSFER
AND  PLAN  OF  EXCHANGE --  Transfer  of  Assets; Assumption  of  Liabilities --
Consideration for Transfer."

   
    In connection with the Transaction, on the Transfer Closing Date PriceCostco
and Price Enterprises entered  into a revolving  credit agreement (the  "Advance
Agreement")  pursuant  to  which  PriceCostco has  agreed  to  advance  to Price
Enterprises up to a maximum  of $85 million (reduced by  an amount equal to  the
net  proceeds from  the sale  of any  of the  Commercial Properties  between the
Transfer Closing Date and the Closing Date) from time to time during the  period
from the Transfer Closing Date until six months following the earlier of (i) the
Closing  Date  and (ii)  the date  on  which Price  Enterprises Common  Stock is
distributed to holders of PriceCostco Common Stock. As of October 31, 1994,  the
outstanding  principal balance under the Advance Agreement was $7,796,000. For a
description of the Advance Agreement, see "CERTAIN RELATED AGREEMENTS -- Advance
Agreement."
    

    THE TRANSFER OF ASSETS TO THE SUBSIDIARY CORPORATIONS

   
    PriceCostco and Price Enterprises have caused to be formed Mexico Clubs,  of
which  Price  and Price  Enterprises own  49%  and 51%  interests, respectively.
PriceCostco has caused to  be formed Price Global  and Price Quest.  PriceCostco
has caused to be conveyed, assigned, transferred and delivered to:
    

   
           (i)  Mexico Clubs (A)  all shares of  capital stock of Primex,
       owned, directly  or  indirectly,  by PriceCostco,  (B)  all  other
       noncurrent assets of PriceCostco and its subsidiaries specifically
       related to the conduct of business in Mexico and (C) certain other
       assets (such assets, collectively, the "Mexico Assets"); PROVIDED,
       HOWEVER,  that the term  "Mexico Assets" does  not include (x) the
       Joint Venture Agreement, (y) any right, title or interest in or to
       the names "Price Club," "Price Club Costco" or "Price Costco"  and
       (z) any computer software;
    

           (ii)  Price Global (A) the right to develop Club Businesses in
       the Specified  Geographical Areas  (other  than Mexico),  (B)  all
       shares  of capital stock of CMI  owned, directly or indirectly, by
       PriceCostco (the "CMI Stock"), (C)  all right, title and  interest
       in  and to, or, in certain cases,  a long-term license to use, the
       names "Price Club," "Price Club Costco" and "Price Costco" in each
       of the Specified  Geographical Areas (other  than Mexico) and  (D)
       all  other noncurrent  assets of PriceCostco  and its subsidiaries
       (other than those  included in  CMI) specifically  related to  the
       conduct  of  business in  the  Specified Geographical  Areas (such
       assets, collectively, the "International Assets"); and

           (iii)  Price  Quest  (A)  all  of  the  noncurrent  assets  of
       PriceCostco or any of its subsidiaries specifically related to the
       business  and operations then conducted by PriceCostco through its
       Quest interactive  electronic  shopping  business,  together  with
       Price Club Travel, Price Club Realty and the Price Club automobile
       advertising/referral    business    (collectively,    the   "Quest
       Business"),  (B)  all  right,  title  and  interest,  if  any,  of

                                       33
<PAGE>
   
       PriceCostco or any of its subsidiaries to, or, in certain cases, a
       long-term license to use, the names "Price Club Quest" and "Quest"
       and  (C)  certain  other assets  (such  assets,  collectively, the
       "Quest Assets").
    

   
Each of Price Global and Price Quest have issued 100 shares of its common  stock
to  Price, which constitutes all  of the outstanding capital  stock of each such
Subsidiary Corporation. As of the  Transfer Closing Date, PriceCostco caused  to
be  transferred to  Price Enterprises  as a  part of  the Transferred  Assets 51
shares of common stock of each of Price Global and Price Quest, representing 51%
of the outstanding capital stock of each such Subsidiary Corporation.
    

    As used  in  the  Transfer  and Exchange  Agreement  and  in  this  Offering
Circular/Prospectus  "Club Business" means  any merchandising activity utilizing
70,000 square feet or  more in a single  location, operated with membership  and
selling  food  and non-food  items through  a  central checkout;  and "Specified
Geographical Areas" means Australia, New Zealand, the Northern Marianas  Islands
(including  Guam and  Saipan), the  Republic of  Panama, those  Central American
countries situated north of the Republic  of Panama and south of Mexico,  Mexico
and  those islands situated in  the Western Hemisphere north  of the Equator and
lying within a certain geographical area in the Gulf of Mexico and the  Atlantic
Ocean,  as specified in  the Transfer and  Exchange Agreement (including Bermuda
but excluding Puerto Rico and any portion  of the United States (other than  the
U.S. Virgin Islands) or Canada lying within such geographical area).

THE DISTRIBUTION

    The  terms of the Transfer and Exchange Agreement provide that if the number
of shares of PriceCostco Common Stock validly tendered in the Exchange Offer  by
holders  of PriceCostco  Common Stock  is less than  21.6 million,  the Board of
Directors of PriceCostco will accept  such validly tendered shares for  exchange
and  will distribute the remaining shares  of Price Enterprises Common Stock pro
rata to PriceCostco stockholders. The distribution will be payable to holders of
record of  shares of  PriceCostco Common  Stock as  of a  date no  more than  20
business days after the Closing Date (the "Distribution Record Date"), and, with
respect  to each share of PriceCostco Common Stock, will consist of a portion of
a share of Price Enterprises Common Stock equal to a fraction, the numerator  of
which  is  the number  of  shares of  Price  Enterprises Common  Stock  owned by
PriceCostco following termination or consummation of the Exchange Offer and  the
denominator  of  which  is the  number  of  shares of  PriceCostco  Common Stock
outstanding on the Distribution Record Date (the "Distribution Fraction").

   
    If the  Exchange Offer  is  consummated and  the  number of  shares  validly
tendered  by holders of  PriceCostco Common Stock is  greater than 21.6 million,
but less than 27 million, PriceCostco  will accept such validly tendered  shares
for exchange and will, at its option, take one of the following actions: (i) the
Board  of Directors of  PriceCostco will cause  to occur a  distribution on each
share of PriceCostco  Common Stock  payable to holders  of record  of shares  of
PriceCostco  Common Stock as of the  Distribution Record Date, such distribution
to consist of a portion  of a share of Price  Enterprises Common Stock equal  to
the  Distribution Fraction; or (ii) on  the thirtieth business day following the
Closing Date, PriceCostco shall  sell to Price Enterprises  all shares of  Price
Enterprises  Common  Stock owned  by PriceCostco  following consummation  of the
Exchange Offer, and Price Enterprises shall be required to purchase such  shares
by delivering in exchange therefor a promissory note (the "Promissory Note"). In
such  event,  PriceCostco  currently  intends  to  sell  such  shares  to  Price
Enterprises in exchange for a promissory note. Any such sale will be at a  price
per  share equal to the average of  the closing sales price of Price Enterprises
Common Stock  for  the 20  trading  days commencing  on  the sixth  trading  day
following  the Expiration Date  (or, if Price Enterprises  Common Stock does not
trade on any such day, the average of the high bid and low asked price per share
on such  day), which  right of  PriceCostco to  so sell  shall be  exercised  by
delivering written notice to Price Enterprises within 20 business days after the
Closing  Date specifying  (A) the number  of shares of  Price Enterprises Common
Stock owned by PriceCostco and (B) that PriceCostco desires to sell such  shares
to Price Enterprises. Principal on the Promissory Note will be payable two years
following  the earlier of (i) the Closing Date  and (ii) the date on which Price
Enterprises Common Stock is distributed to holders of PriceCostco Common  Stock.
Accrued  interest will be payable monthly on  unpaid principal at an annual rate
    

                                       34
<PAGE>
equal to  either  (x) the  90-day  LIBOR rate  plus  15 basis  points,  adjusted
quarterly,  or (y) the two-year U.S. Treasury Bill rate plus 50 basis points, as
selected by Price Enterprises at the time of borrowing. The obligations of Price
Enterprises under  the Promissory  Note  will be  secured  by a  first  priority
security  interest in the shares of Price Enterprises Common Stock sold to Price
Enterprises by PriceCostco pursuant to  a security and pledge agreement  entered
into  by PriceCostco and Price Enterprises concurrently with the delivery of the
Promissory Note (the "Security and Pledge Agreement").

    No certificates or scrip for  fractional shares of Price Enterprises  Common
Stock shall be issued in any distribution of such shares as set forth above, and
no  dividend  or other  distribution, stock  split or  interest with  respect to
shares of  Price  Enterprises  Common  Stock  shall  relate  to  any  fractional
security,  and such fractional interests shall  not entitle the owner thereof to
vote or to any other rights of a stockholder. In lieu of such fractional shares,
each holder of shares of PriceCostco Common Stock who would otherwise have  been
entitled  to  a fraction  of a  share  of Price  Enterprises Common  Stock shall
receive a cash payment (without interest) in lieu of such fractional share equal
to such fraction  multiplied by  the average closing  price per  share of  Price
Enterprises  Common Stock  on The Nasdaq  Stock Market's National  Market (or on
such other quotation service or exchange as Price Enterprises Common Stock shall
be quoted or listed), during the ten trading days immediately following the date
of distribution of shares of Price Enterprises Common Stock by PriceCostco.

    Any distribution by PriceCostco of shares of Price Enterprises Common  Stock
to  holders  of PriceCostco  Common Stock,  as described  above, is  referred to
herein as the "Distribution."

OTHER ACTIONS TO BE TAKEN IN CONNECTION WITH THE TRANSACTION

   
    At or prior  to the Closing  Date, (i) the  Certificate of Incorporation  of
Price  Enterprises will be amended to read in its entirety as set forth in Annex
III (see "PRICE ENTERPRISES' CERTIFICATE OF INCORPORATION AND BYLAWS"); (ii) the
Bylaws of Price Enterprises  will be amended  to read in  their entirety as  set
forth  in Annex  IV (see  "PRICE ENTERPRISES'  CERTIFICATE OF  INCORPORATION AND
BYLAWS"); and (iii) the authorized number  of directors comprising the Board  of
Directors  of Price Enterprises will be expanded,  and the Board of Directors of
Price  Enterprises,  by  a   majority  vote,  will   fill  such  newly   created
directorships.  See "MANAGEMENT  OF PRICE ENTERPRISES  -- Board  of Directors of
Price Enterprises." At the Closing Date, without any further action on the  part
of  PriceCostco  or Price  Enterprises, (A)  the Bylaws  of PriceCostco  will be
amended to  read in  their  entirety as  set forth  in  Annex V  (see  "SELECTED
INFORMATION WITH RESPECT TO PRICECOSTCO -- Amendment of PriceCostco Bylaws") and
(B)  the resignations  of all  Price Designees  from the  Board of  Directors of
PriceCostco, other than Richard M. Libenson and Duane Nelles (which resignations
were submitted to the Board of Directors of PriceCostco on July 28, 1994),  will
become  effective. In addition,  on the Closing  Date certain other transactions
contemplated by the  Transfer and Exchange  Agreement will be  effected, all  as
more fully described in this Offering Circular/Prospectus.
    

CERTAIN OTHER INFORMATION

   
    As used herein, the term "Price Designees" means those persons designated by
Price in the Agreement and Plan of Reorganization, dated as of June 15, 1993, by
and  among Costco,  Price and  PriceCostco, as initial  members of  the Board of
Directors of PriceCostco as of the effective time of the Merger, or their direct
or indirect replacements. The current Price Designees on the Board of  Directors
of PriceCostco are J. Paul Kinloch, Richard M. Libenson, Mitchell G. Lynn, Duane
Nelles  (who was elected to the PriceCostco  Board of Directors on July 28, 1994
following the resignation of Joseph K. Kornwasser), Paul A. Peterson and  Robert
E. Price.
    

   
    As  used herein, the term "Costco  Designees" means those persons designated
by Costco in  the Plan  of Reorganization  as initial  members of  the Board  of
Directors of PriceCostco as of the effective time of the Merger, or their direct
or  indirect replacements. The current Costco  Designees are Jeffrey H. Brotman,
Daniel Bernard, Richard D. DiCerchio, Hamilton E. James, John W. Meisenbach  and
James D. Sinegal.
    

                                       35
<PAGE>
   
    As  of October 31, 1994, 217,824,520 shares of PriceCostco Common Stock were
outstanding. This Offering Circular/Prospectus and the Letter of Transmittal are
being sent to persons who were holders of record of PriceCostco Common Stock  at
the close of business on November 15, 1994.
    

   
    As  of October 31, 1994, directors and executive officers of PriceCostco and
their  affiliates,  as  a  group,   beneficially  owned  11,548,557  shares   of
PriceCostco  Common Stock, representing approximately 5.3% of PriceCostco Common
Stock outstanding  as of  such date.  PRICECOSTCO HAS  BEEN INFORMED  THAT  SUCH
DIRECTORS  AND EXECUTIVE OFFICERS, AS A GROUP, INTEND TO TENDER 3,069,618 SHARES
OF PRICECOSTCO  COMMON STOCK  IN THE  EXCHANGE OFFER  (INCLUDING 2,790,929  SUCH
SHARES   BENEFICIALLY  OWNED  BY  ROBERT   E.  PRICE),  WHICH  SHARES  REPRESENT
APPROXIMATELY 1.4% OF  PRICECOSTCO COMMON  STOCK OUTSTANDING AS  OF OCTOBER  31,
1994. EACH OF ROBERT E. PRICE AND SOL PRICE HAS INFORMED PRICECOSTCO THAT, WHILE
NOT AGREEING TO TENDER ALL SHARES OF PRICECOSTCO COMMON STOCK BENEFICIALLY OWNED
BY  HIM IN THE EXCHANGE OFFER, HE  CURRENTLY INTENDS TO TENDER SUBSTANTIALLY ALL
SUCH SHARES, SO LONG AS, PRIOR TO THE CONSUMMATION OF THE EXCHANGE OFFER,  THERE
DOES  NOT OCCUR  ANY EVENT  WHICH MATERIALLY IMPAIRS  THE ASSETS  OR BUSINESS OF
PRICE ENTERPRISES. PRICECOSTCO HAS BEEN  INFORMED BY FOURCAR B.V., A  SUBSIDIARY
OF  CARREFOUR S.A. AND THE BENEFICIAL  OWNER OF 21,191,301 SHARES OF PRICECOSTCO
COMMON STOCK AS OF OCTOBER 31, 1994, THAT FOURCAR B.V. DOES NOT INTEND TO TENDER
ANY OF SUCH SHARES IN THE EXCHANGE OFFER.
    

    The information contained in this Offering Circular/Prospectus with  respect
to  PriceCostco has been supplied by  PriceCostco, and the information contained
herein with respect to Price Enterprises has been supplied by Price Enterprises.

    The principal executive offices  of PriceCostco are  located at 10809  120th
Avenue  NE, Kirkland, Washington 98033. The telephone number at those offices is
(206) 803-8100.

    The principal executive  offices of  Price Enterprises are  located at  4649
Morena  Boulevard, San  Diego, California 92117.  The telephone  number at those
offices is (619) 581-4600.

BACKGROUND OF THE TRANSACTION

    In the Merger, which occurred in October 1993, Price and Costco each  merged
with  separate, wholly owned subsidiaries of PriceCostco pursuant to which Price
and Costco each became a wholly owned subsidiary of PriceCostco. The Merger  was
structured  such  that management  of PriceCostco  would  be shared  between the
former executives of Price and the former executives of Costco. It was agreed in
the Merger that PriceCostco  would maintain two home  offices: the former  Price
headquarters  in San  Diego, California  and the  former Costco  headquarters in
Kirkland, Washington, and that PriceCostco's Board of Directors would consist of
twelve directors,  which  would  include  six Price  Designees  and  six  Costco
Designees.  In  addition,  the  terms  of  the  Merger  required  PriceCostco to
establish an Executive Committee of the Board consisting of two Price  Designees
and  two Costco  Designees and  a Nominating  Committee consisting  of one Price
Designee and one Costco Designee. Following the Merger, oversight and management
of PriceCostco's combined warehouse club  operations were assigned primarily  to
the  former senior management of Costco,  while Price's former senior management
was given primary oversight and management of PriceCostco's non-club real estate
development,  non-warehouse  activities  such  as  Quest  electronic   shopping,
business  delivery, the Mexican  joint venture and  various ancillary businesses
and Pacific Rim expansion.

    Notwithstanding this division of senior management responsibilities, in  the
months  following the Merger, certain  basic philosophical differences developed
between the former Price executives  and the former Costco executives  regarding
management  strategies  central  to  the  direction  of  PriceCostco's  business
operations. The former Costco executives believed that PriceCostco should devote
its business resources primarily  to its core  warehouse club business,  whereas
the  former  Price  executives  believed that  substantial  resources  should be
devoted  to  PriceCostco's  non-club  real  estate  development,   non-warehouse
activities  such as  Quest electronic  shopping, business  delivery, the Mexican
joint venture and various ancillary  businesses and Pacific Rim, Latin  American
and  South  American  expansion.  At  meetings  of  the  Board  of  Directors of
PriceCostco held on May  31 and June 1,  1994, such management differences  were
discussed  in  detail, but  not  satisfactorily resolved.  Following  such Board
meetings, members of the Board and senior management of PriceCostco, as well  as
Sol   Price,   a   founder   of  Price   and   a   significant   stockholder  of

                                       36
<PAGE>
PriceCostco, became  concerned  that  the  philosophical  differences  that  had
developed  between the former  executives of Price and  the former executives of
Costco since  the  Merger  and  the  inability of  the  Board  to  resolve  such
differences  would  hinder  PriceCostco's  ability  to  compete  effectively and
operate efficiently, and impede management's ability to continue to function  in
a  manner  capable  of  maximizing the  value  of  PriceCostco  and, ultimately,
stockholder value. As a result, during the period from June 1 to June 22,  1994,
certain of the Price Designees on the Board of Directors, including Paul Kinloch
and Robert Price, engaged in conversations and meetings with Sol Price regarding
possible  solutions to the philosophical differences that had arisen. During the
same period, certain Costco Designees on  the Board of Directors, including  Jim
Sinegal,  Jeffrey Brotman and Hamilton  James, engaged in separate conversations
and meetings  during which  they also  attempted to  develop solutions  to  such
philosophical differences.

    On June 16, 1994, Jim Sinegal, Robert Price and Sol Price met to discuss the
philosophical  differences  that had  arisen. Although  Mr. Sinegal  and Messrs.
Price were unable to identify any resolution of such philosophical  differences,
they  agreed that  Jim Sinegal  and Sol Price  should meet  again, together with
Hamilton James  and  Paul Kinloch,  to  attempt to  resolve  such  philosophical
differences.

    On  June 22, 1994, Jim  Sinegal, Hamilton James, Sol  Price and Paul Kinloch
met to discuss potential solutions  to the issues facing PriceCostco,  including
the notion of dividing certain of PriceCostco's businesses into separately owned
companies.  During  the  meeting on  June  22, a  preliminary  understanding was
reached that,  if  a  spin-off  transaction  were  pursued,  the  businesses  of
PriceCostco  would be divided such  that the newly formed  subsidiary to be spun
off  to  stockholders  would  generally   be  allocated  all  of   PriceCostco's
non-warehouse   club  real   estate  assets,   PriceCostco's  Quest  interactive
electronic shopping business  and PriceCostco's  interest in  its Mexican  joint
venture and, possibly, the right to develop a warehouse club business in certain
territories  outside the  United States  and PriceCostco's  interest in  CMI. In
addition, PriceCostco would make a capital contribution of $100 million in  cash
to  the new company. The group also discussed, as an alternative to the spin-off
transaction, changes in PriceCostco's  management structure that might  possibly
achieve  a resolution to  the philosophical differences  that had arisen without
requiring PriceCostco's businesses to be divided. Other solutions, including the
sale of non-club real estate and/or additional borrowing to provide a source  of
funds to buy back shares of PriceCostco Common Stock, were also discussed.

    On  June  30,  1994, Robert  Price  and Jim  Sinegal  met in  an  attempt to
determine the  feasibility of  alternatives to  the proposed  spin-off, such  as
effecting  a reorganization  of the  management structure  that had  been put in
place at  the  time of  the  Merger. Following  their  meeting, Sol  Price,  Jim
Sinegal,  Hamilton James and  Paul Kinloch met to  discuss possible solutions to
the issues facing PriceCostco. Mr. Sinegal informed the group that he and Robert
Price had been unable  to conceive of any  management reorganization short of  a
division  of PriceCostco's businesses that they  believed would be acceptable to
both the Price Designees and  the Costco Designees and  that would be likely  to
resolve  such  philosophical differences.  During the  meeting  on June  30, the
preliminary understanding reached at the June 22 meeting regarding the  proposed
transaction  was revised in  that (i) the Warehouse  Properties, the City Notes,
the Atlas Note and  the San Diego  Property would also be  included in the  real
estate  assets to be  transferred to the  newly formed subsidiary,  (ii) the new
company's ownership  interest  in  PriceCostco's  Quest  interactive  electronic
shopping  business and PriceCostco's interest in its Mexican joint venture (and,
possibly, the right to develop a warehouse club business in certain  territories
outside the United States and PriceCostco's interest in CMI) would be limited to
a  51 percent interest with the remaining  49 percent interest to be retained by
PriceCostco and (iii) PriceCostco would not make a capital contribution of  $100
million in cash to the newly formed subsidiary. In addition, at such meeting Sol
Price  suggested the possibility  of pursuing the  spin-off transaction that had
been under consideration  by means of  an exchange offer  in which  PriceCostco,
rather  than distributing shares of the  newly formed subsidiary, would offer to
repurchase shares of PriceCostco  Common Stock in  exchange for the  outstanding
common stock of the newly formed subsidiary. Sol Price indicated, preliminarily,
that he would consider agreeing to tender all shares of PriceCostco Common Stock
beneficially  owned by him in such exchange  offer, subject to the resolution of
various issues relating  to the  proposed transaction. A  consensus was  reached
among  those present at the  meeting to consider and  analyze in more detail the
possibility of  a  division  of  PriceCostco  along  the  lines  that  had  been
discussed.

                                       37
<PAGE>
    On July 6, 1994, Jim Sinegal, Hamilton James, Sol Price and Paul Kinloch met
to  discuss in more detail the terms of a possible spin-off transaction. Messrs.
Sinegal, James, Price and Kinloch discussed  in detail the specific assets  that
would  be included in the spun-off subsidiary (referred to hereinafter as "Price
Enterprises"), the prospective make-up of the Board of Directors and  management
of  PriceCostco and  Price Enterprises  following the  proposed transaction, the
terms of  the proposed  exchange offer  and the  terms and  conditions of  Price
Enterprises'  majority  interest  in,  and  control  over,  PriceCostco's  Quest
interactive electronic  shopping  business  and PriceCostco's  interest  in  its
Mexican  joint venture. In  addition, Messrs. Sinegal,  James, Price and Kinloch
discussed which territories might be included if PriceCostco were to transfer to
Price Enterprises the  right to  develop a  warehouse club  business in  certain
territories  outside the  United States and  Mexico. At the  conclusion of these
discussions, a consensus  was reached that,  subject to the  Board's review  and
approval, PriceCostco would pursue the proposed spin-off transaction, subject to
the  Board's satisfaction that the proposed transaction would meet the following
basic axioms:

        (1)    No  stockholder  or  group  of  stockholders  would   receive
    preferential treatment in the proposed transaction;

        (2)       The   proposed   transaction    would   not   impact   the
    pooling-of-interests accounting treatment utilized for the Merger;

        (3)   While the  proposed transaction  would not  be conditioned  on
    tax-free treatment, it would be preferable that it qualify as a tax-free
    spin-off with respect to PriceCostco and PriceCostco's stockholders;

        (4)   The  proposed transaction should  not have  a material adverse
    impact on PriceCostco's projected earnings per share; and

        (5)   Price  Enterprises  would  commence  operations  as  a  viable
    operating company.

    In  addition to the meetings described above,  during the period from June 1
through July 15,  discussions with  respect to the  proposed transaction  ensued
among  Messrs.  Sinegal, James  and  Kinloch, Sol  Price  and members  of senior
management of PriceCostco.

    During the  period  from June  22,  1994  to July  15,  1994,  PriceCostco's
financial  advisors, Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ")
and Lehman  Brothers Inc.  ("Lehman"), in  consultation with  certain  executive
officers  of PriceCostco, considered  the number of  shares of Price Enterprises
Common Stock that should be issued to PriceCostco upon the transfer of assets to
Price Enterprises.  It  was  determined  for ease  of  administration  that  the
exchange  ratio  would  be  one  Price  Enterprises  share  for  each  share  of
PriceCostco Common Stock, and that  the number of outstanding Price  Enterprises
shares  should  be  determined  after  analyzing  the  relative  value  of Price
Enterprises in  comparison  to  PriceCostco.  PriceCostco's  financial  advisors
indicated that the proposed transaction should be structured so that PriceCostco
would  have a reasonable  prospect of achieving 100%  subscription for the Price
Enterprises shares in the proposed  exchange offer. Following discussions  among
certain  members of senior management of PriceCostco, Sol Price, DLJ and Lehman,
it was determined that Price Enterprises would issue 27 million shares of common
stock to PriceCostco in exchange for the transferred assets.

    On July 13, 1994, Jim Sinegal, Robert Price, Sol Price, Hamilton James, Paul
Kinloch and Richard Galanti  (the Executive Vice  President and Chief  Financial
Officer  of PriceCostco) met  to discuss the terms  of the proposed transaction,
including the number of shares of  Price Enterprises Common Stock that would  be
issued to PriceCostco upon the transfer of assets to Price Enterprises.

    A  special meeting of the Board of Directors  was held on July 15, 1994 (the
"July  15  Meeting")  to  consider  the  proposed  transaction  and  to  discuss
alternatives  to the proposed transaction. The meeting was attended in person by
all of  PriceCostco's  directors.  Also in  attendance  were  certain  executive
officers  of PriceCostco, a representative of Daniel Bernard, representatives of
Gibson, Dunn & Crutcher ("Gibson, Dunn")  and Skadden Arps, counsel and  special
counsel  to PriceCostco, respectively, representatives of  DLJ and Lehman, and a
representative of Arthur  Andersen LLP ("Arthur  Andersen"), independent  public
accountants  for  PriceCostco. At  the  July 15  Meeting,  members of  the Board
discussed in detail the  terms of the proposed  transaction and received  advice
from PriceCostco's legal, financial and accounting advisors.

                                       38
<PAGE>
DLJ  and Lehman advised the Board regarding certain financial matters related to
the proposed  transaction, but,  due to  the voluntary  pro rata  nature of  the
proposed  transaction,  neither  DLJ nor  Lehman  was requested  to  render, and
neither has rendered, any opinion as to the fairness of the proposed transaction
from a financial point of view.

    At the  July 15  Meeting, the  Board was  advised that,  under the  proposed
transaction  as then structured, Sol Price  and Robert Price, while not agreeing
to tender all of the PriceCostco  Common Stock beneficially owned by them,  were
inclined  to tender  all shares  of PriceCostco Common  Stock owned  by them and
members of their family  (including shares controlled  through trusts and  other
entities), but that they desired to wait until they had an opportunity to review
the   documents  relating  to  the   proposed  transaction  and  analyze  market
conditions, as  other stockholders  would  have the  opportunity to  do,  before
committing to tender shares of PriceCostco Common Stock in the proposed exchange
offer.  The Board was advised that Messrs.  Sinegal and Brotman would not tender
their shares of PriceCostco Common Stock in the proposed exchange offer.

    At the July 15 Meeting, the Board discussed several possible alternatives to
the proposed transaction, including selling the real estate to be transferred to
Price Enterprises in  the market  and utilizing the  cash proceeds  to buy  back
PriceCostco Common Stock, borrowing money and utilizing the proceeds to buy back
shares  of PriceCostco Common Stock and paying  off debt with the future sale of
real estate. Various  modifications to these  alternatives were also  discussed.
Those  alternatives, while not addressing directly the philosophical differences
that had  arisen between  the  former Price  executives  and the  former  Costco
executives,  were  considered  a  possible  means  of  refocusing  PriceCostco's
business development  energies  on its  core  warehouse club  business,  thereby
minimizing the potential for dispute regarding the proper allocation of business
resources.  The Board, after considering advice  from its financial advisors and
other relevant factors, determined that it was not an advantageous time to  sell
to   third  parties  a  significant  amount  of  real  estate  assets  and  that
PriceCostco's stockholders would be in a more advantageous financial position to
attempt to capture future real  estate values through the proposed  transaction.
Furthermore,  the Board concluded  that a sale  of a significant  portion of its
real estate portfolio would take substantial time, thereby delaying for too long
a possible resolution of the issues facing PriceCostco.

    At the  July  15  Meeting, Arthur  Andersen  advised  the Board  as  to  the
accounting  treatment  applicable  to  the  proposed  transaction,  Gibson, Dunn
advised the Board  as to  the Board's  legal and  fiduciary responsibilities  in
considering whether to approve the proposed transaction and Skadden Arps advised
the  Board as to the proposed terms, and probable tax treatment, of the proposed
transaction. See "Anticipated Accounting Treatment" and "Certain Federal  Income
Tax Consequences."

    At  the  July  15 Meeting,  representatives  of  DLJ and  Lehman  and senior
management of PriceCostco advised the  Board as to the  pro forma impact of  the
proposed  transaction  on  PriceCostco's  income  statement  and  balance sheet.
Representatives of DLJ and Lehman also discussed various methods of  determining
a  value for Price Enterprises  and reviewed with the  Board their analysis with
respect to  the number  of Price  Enterprises  shares that  would be  issued  to
PriceCostco  and,  hence,  the  number  of  PriceCostco  shares  that  could  be
repurchased by  PriceCostco  in the  proposed  exchange offer.  DLJ  and  Lehman
presented  to the  Board illustrative  high and low  per share  values for Price
Enterprises and  discussed  the implied  premium  based upon  such  illustrative
values  as compared to the  per share price of  PriceCostco Common Stock at July
14, 1994,  assuming  27  million  outstanding Price  Enterprises  shares  and  a
one-for-one exchange ratio. Representatives of DLJ and Lehman discussed with the
Board  that the  creation of a  separate public  market for the  equity of Price
Enterprises would allow the financial  markets to evaluate more effectively  the
respective   values  of   PriceCostco's  warehouse   club  business   and  Price
Enterprises' real  estate  and  other holdings,  thereby  potentially  enhancing
overall  stockholder value. Representatives of DLJ and Lehman discussed with the
Board the pro forma impact of the  proposed exchange offer on the cash flow  per
share  and earnings per share of  PriceCostco, assuming various levels of shares
tendered  in  the  proposed  exchange   offer,  and  the  potential  impact   on
PriceCostco's stock price. Representatives of DLJ and Lehman also discussed with
the  Board the anticipated  impact of the  proposed transaction on PriceCostco's
credit standing and indicated that they did not believe the proposed transaction
would have  a  significant  impact on  PriceCostco's  credit  ratings,  although
PriceCostco    would   probably   be   put   on   "credit   watch,"   and   that

                                       39
<PAGE>
PriceCostco would not likely suffer any material increase in its borrowing costs
or significant loss of  liquidity as a result  of the proposed transaction.  The
representatives of DLJ and Lehman noted that the analysis they performed was not
necessarily  indicative  of  actual values  or  future results,  which  might be
significantly more or less favorable than  suggested by such analyses, and  that
the  analysis did not constitute an  opinion regarding valuation or a prediction
or estimate  as  to the  prices  at which  Price  Enterprises Common  Stock  and
PriceCostco  Common Stock will actually trade. Because of the voluntary pro rata
nature of the Transaction, the Board did not ask for, and neither DLJ nor Lehman
delivered, an opinion as  to the fairness to  the holders of PriceCostco  Common
Stock,  from a  financial point  of view, of  the Transaction.  See "Analysis of
Financial Advisors to PriceCostco."

    Prior to voting on the proposed  transaction, each of Messrs. Price,  James,
Kinloch  and Kornwasser indicated that, although he was in favor of the proposed
transaction, each believed he had potential conflicts of interest in  connection
with  the  proposed  transaction  and,  therefore,  abstained  from  voting. See
"Interests  of  Certain  Persons  in  the  Transaction."  After  completing  its
deliberations,  the Board by unanimous vote  (with each of Messrs. Price, James,
Kinloch  and  Kornwasser   abstaining)  preliminarily   approved  the   proposed
transaction,  subject to  the Board's consideration  of further  analysis of the
proposed transaction by  its legal,  financial and accounting  advisors and  the
Board's review and approval of definitive documentation at a subsequent meeting.

    During  the period between July 15,  1994 and July 28, 1994, representatives
of  PriceCostco  and  PriceCostco's  legal  and  financial  advisors  met   with
representatives  of  Sol Price  and  Robert Price  and  Latham &  Watkins, legal
counsel to Price Enterprises, to negotiate the terms of definitive documentation
covering the transfer of assets to  Price Enterprises and the proposed  exchange
offer,  as  well  as  definitive  documentation  governing  PriceCostco's  joint
ownership and management with Price Enterprises of Price Quest, Mexico Clubs and
Price Global.

    On July 28, 1994, a  second special meeting of  the Board of Directors  (the
"July  28 Meeting")  was held  to review and  discuss the  proposed Agreement of
Transfer and  Plan of  Exchange  and ancillary  agreements, to  receive  further
advice  and analysis from PriceCostco's legal, financial and accounting advisors
regarding the proposed transaction and to vote upon the proposed transaction  as
reflected  in the form of Agreement of  Transfer and Plan of Exchange, which had
been previously distributed to each of  the directors. The meeting was  attended
in  person by  all of  PriceCostco's directors  other than  John Meisenbach, who
attended the meeting by conference telephone, and Daniel Bernard, who was unable
to attend. Also in attendance were certain executive officers of PriceCostco,  a
representative of Mr. Bernard, representatives of Gibson, Dunn and Skadden Arps,
representatives  of DLJ and Lehman and  Duane Nelles, a designee for appointment
to the Board.

    At the July  28 Meeting,  the Board  discussed in  detail the  terms of  the
proposed  transaction and the  provisions of the  proposed Agreement of Transfer
and Plan of Exchange and ancillary agreements. DLJ and Lehman provided the Board
with an  updated  financial  analysis regarding  the  proposed  transaction  and
reviewed in detail the impact of the proposed transaction on PriceCostco's three
outstanding  classes of convertible debentures.  Skadden Arps discussed with the
Board the potential tax  treatment of the proposed  transaction and reviewed  in
detail  the terms of the proposed Agreement of Transfer and Plan of Exchange and
ancillary documents.

    Following presentations to the Board by the Board's advisors, members of the
Board discussed  in detail  the  advantages and  disadvantages of  the  proposed
transaction  (which are discussed  above and are reflected  below in the factors
considered by the Board  in reaching its determination  to approve the  proposed
transaction)  and a consensus  was reached that the  proposed transaction was in
the best interests of PriceCostco and its stockholders. The members of the Board
of Directors in attendance at the July 28 Meeting unanimously approved the terms
of the proposed  transaction (with  each of  Messrs. Price,  James, Kinloch  and
Kornwasser  abstaining  due to  potential conflicts  of interest,  although each
indicated his approval of the terms of the proposed transaction). In making  its
determination,  the Board considered the following factors: (i) the terms of the
Agreement of Transfer and  Plan of Exchange and  ancillary agreements, (ii)  the
potential  adverse effect that the  philosophical differences between the former
Price executives and

                                       40
<PAGE>
   
the former  Costco  executives could  have  on PriceCostco's  business  and  the
absence  of other viable alternative  solutions to resolving those philosophical
differences, (iii) the anticipated accounting treatment of the Transaction, (iv)
the impact of the Transaction on  PriceCostco's income statement, cash flow  and
earnings  per share assuming  various levels of shares  tendered in the Exchange
Offer,  (v)  the   potential  impact   of  the   Transaction  on   PriceCostco's
creditworthiness,  (vi) the possible  tax-free treatment of  the Transaction for
Federal income tax purposes and the Board's belief that, even if the Transaction
should be  determined  to  be  a taxable  transaction  for  Federal  income  tax
purposes,  the Transaction would  still be in the  best interests of PriceCostco
and its  stockholders, (vii)  the  impact of  the  Transaction on  employees  of
PriceCostco  and  on existing  options, warrants  and convertible  debentures of
PriceCostco, (viii) the fact that all  stockholders would be treated equally  in
the  Transaction, (ix) a range of illustrative high and low per share values for
Price Enterprises and the implied per share premium in the Exchange Offer  based
on  such illustrative values as  compared to the per  share price of PriceCostco
Common Stock at July 14, 1994 (assuming 27 million outstanding Price Enterprises
shares and a one-for-one exchange ratio) and (x) the price at which  PriceCostco
Common  Stock  was trading  in the  public markets  at the  time of  the Board's
deliberations. Such factors constitute all of the material factors considered by
the Board. In view of the variety of factors considered by the Board, the  Board
did  not find it practicable to quantify or otherwise assign relative weights to
the specific factors considered.
    

    As contemplated  by the  Transfer and  Exchange Agreement,  at the  July  28
Meeting the Board approved the formation of two separate Executive Committees of
the  Board to oversee PriceCostco's business  during the interim period from the
time of transfer of assets to Price Enterprises (which occurred as of August 28,
1994) until the earliest to occur of (i) the consummation of the Exchange Offer,
(ii) the date on  which Price Enterprises Common  Stock is first distributed  to
holders  of PriceCostco  Common Stock  or (iii)  January 31,  1995 (the "Interim
Period"). One Executive Committee, consisting  of Jim Sinegal, Robert Price  and
Paul  Peterson (the "Price  Enterprises Executive Committee"),  was charged with
overseeing the management and  operations of Price  Enterprises, while a  second
Executive Committee, consisting of the Costco Designees and Richard Libenson and
Duane   Nelles  (the  "PriceCostco  Executive   Committee"),  was  charged  with
overseeing the  management  and  operations  of  PriceCostco  other  than  Price
Enterprises.  The  Board also  reorganized its  existing Compensation  and Audit
Committees and formed two additional  committees, the Finance Committee and  the
Real  Estate Committee, stipulating that, during  the Interim Period, each would
consist of two Price Designees and  two Costco Designees. See "THE AGREEMENT  OF
TRANSFER  AND  PLAN  OF  EXCHANGE  --  Certain  Additional  Matters  --  Certain
Committees."

    At the July  28 Meeting,  Joseph K. Kornwasser  resigned from  the Board  of
Directors of PriceCostco, and Duane Nelles was elected to the Board of Directors
of PriceCostco to fill the vacancy created by such resignation.

    At  the conclusion of the July 28 Meeting, each of J. Paul Kinloch, Mitchell
G. Lynn, Robert E. Price and Paul A. Peterson (each of whom is a Price Designee)
tendered his letter of resignation as a director of PriceCostco, effective as of
the earlier to occur of (i) the Closing  Date and (ii) the date on which  shares
of  Price Enterprises  Common Stock  are distributed  to holders  of PriceCostco
Common Stock.  Each such  resignation letter  provides that  if neither  of  the
events  described in clause  (i) and (ii)  of the previous  sentence occur on or
prior to January  31, 1995, such  resignation will, without  further action,  be
withdrawn and have no force and effect.

   
    In  late  September 1994,  representatives  of Comercial  Mexicana commenced
discussions with Robert Price and Jim Sinegal regarding the proposed transfer of
Primex to Mexico Clubs as part of the Transaction. Primex owns a 50% interest in
Price Club  Mexico,  the joint  venture  corporation which  develops,  owns  and
operates  Price Club warehouse clubs in Mexico.  The other 50% interest in Price
Club Mexico is  owned by  Comercial Mexicana.  See "BUSINESS  AND PROPERTIES  OF
PRICE  ENTERPRISES -- Mexico  Clubs." The representatives  of Comercial Mexicana
indicated that Comercial  Mexicana was interested  in a continuing  relationship
with  PriceCostco,  rather  than  embarking on  a  new  relationship  with Price
Enterprises.
    

                                       41
<PAGE>
   
    Discussions continued  among representatives  of Comercial  Mexicana,  Price
Enterprises  and PriceCostco  through mid-November  1994. Such  discussions have
centered on a  possible transaction pursuant  to which Comercial  Mexicana or  a
third  party would purchase the 50% interest  in Price Club Mexico then owned by
PriceCostco (and currently owned by Mexico Clubs) and PriceCostco and Price Club
Mexico would enter into certain agreements with respect to the use of the "Price
Club" name and certain computer software  by Price Club Mexico and with  respect
to  the sourcing  of certain  merchandise to  Price Club  Mexico by PriceCostco.
Based on the discussions to date, Price Enterprises and PriceCostco believe that
if any  such  purchase occurs,  it  would likely  involve  payment for  the  50%
interest  in Price  Club Mexico  by a combination  of cash,  promissory notes or
stock or other securities.  However, as of the  date of this Offering  Circular/
Prospectus,  no  agreement,  preliminary  or otherwise,  has  been  reached with
Comercial Mexicana regarding such proposed purchase. ALTHOUGH PRICE  ENTERPRISES
AND  PRICECOSTCO CURRENTLY  ANTICIPATE THAT DISCUSSIONS  REGARDING SUCH PROPOSED
PURCHASE WILL CONTINUE, NO  ASSURANCES CAN BE GIVEN  THAT ANY AGREEMENT WILL  BE
REACHED  REGARDING SUCH A PURCHASE BY COMERCIAL MEXICANA OR SUCH THIRD PARTY OR,
IF SUCH AN AGREEMENT IS REACHED, THE TERMS OF ANY SUCH PURCHASE.
    

   
    By unanimous written  consent dated as  of November 14,  1994, the Board  of
Directors  of  each  of  PriceCostco  and  Price  Enterprises  approved  certain
revisions to the Agreement of Transfer and Plan of Exchange dated July 28,  1994
between  PriceCostco and Price Enterprises.  Such revisions related generally to
the transfer by PriceCostco of the Mexico Assets to Mexico Clubs (which had  not
occurred  at  the Transfer  Closing pending  further discussions  with Comercial
Mexicana), implementing a structure  with respect to Mexico  Clubs that is  more
tax  efficient (regardless of  whether the proposed  transaction is consummated)
and certain  other  amendments  of  a technical  nature.  (Such  amendments  are
reflected  in the  Transfer and  Exchange Agreement,  which is  attached to this
Offering Circular/Prospectus as Annex II.)
    

REASONS FOR THE TRANSACTION

    In light of the basic philosophical differences among members of PriceCostco
management and the inability of the Board of Directors of PriceCostco to resolve
such differences,  as described  above, the  Board determined  that  PriceCostco
could  not compete effectively or operate  efficiently nor could it maximize the
value of  PriceCostco  and,  ultimately,  stockholder  value  as  long  as  such
differences  prevailed, and  that the  best way  to maximize  available business
opportunities would  be to  operate  the current  businesses of  PriceCostco  as
separate  entities along the lines proposed.  While the Board considered certain
alternatives,  described  above,   the  Board  concluded   that  none  of   such
alternatives  appeared to be  as attractive as the  Transaction in resolving the
basic philosophical differences, described above, or in maximizing the value  of
the business and, ultimately enhancing stockholder value. In addition, the Board
of  Directors of PriceCostco  believed that the financial  markets may not fully
value the non-warehouse club real estate  assets that were transferred to  Price
Enterprises.  Accordingly, the Board  of Directors of  PriceCostco believes that
the creation of  a separate public  market for the  equity of Price  Enterprises
will  allow the  financial markets to  evaluate more  effectively the respective
values of PriceCostco's core warehouse club business and Price Enterprises' real
estate holdings,  thereby  enhancing overall  stockholder  value. The  Board  of
Directors   of  PriceCostco  also  believes  that  allowing  Price  Enterprises'
management to pursue its business plan for the Price Enterprises assets free  of
any  constraints imposed  by PriceCostco management,  and allowing PriceCostco's
management to pursue its business plan for the warehouse club assets free of any
constraints imposed by Price Enterprises' management, should enhance the ability
of each to maximize the  value of the respective  operations for the benefit  of
its respective stockholders.

    PriceCostco  is pursuing the Transaction as an exchange offer rather than as
a pro rata  distribution of  Price Enterprises shares  in part  to enable  those
stockholders  who  wish  to  concentrate their  investments  in  one  segment of
PriceCostco (principally, non-warehouse club  real estate in  the case of  Price
Enterprises)  versus  the other  (principally, warehouse  clubs  in the  case of
PriceCostco), or to allocate their investments  between the two segments in  any
proportion  that the  stockholder elects,  to do  so by  either participating or
refraining from participating in the Exchange Offer. In addition, the Board  was
aware  that if the  Exchange Offer is  fully subscribed (or  if approximately 14
million or more shares of PriceCostco Common Stock are tendered in the  Exchange
Offer  and  exchanged  for  shares  of  Price  Enterprises  Common  Stock),  the
Transaction could potentially enhance PriceCostco's earnings per share following
the Transaction. The Board was also  aware that, if no PriceCostco  stockholders
tender shares of PriceCostco Common Stock in

                                       42
<PAGE>
the  Exchange Offer,  PriceCostco would  experience a  dilution in  earnings per
share as PriceCostco transfers income generating assets to Price Enterprises but
experiences no reduction in the number of its outstanding shares; however, under
such scenario,  each  PriceCostco  stockholder would  receive  shares  of  Price
Enterprises  Common  Stock  in  the  Distribution.  See  "Analysis  of Financial
Advisors to  PriceCostco" and  "SPECIAL CONSIDERATIONS/RISK  FACTORS --  Special
Considerations Applicable to All PriceCostco Stockholders."

    NEITHER  PRICECOSTCO NOR  THE BOARD  OF DIRECTORS  OF PRICECOSTCO  MAKES ANY
RECOMMENDATION TO ANY STOCKHOLDER  WHETHER TO TENDER  OR REFRAIN FROM  TENDERING
SHARES  OF  PRICECOSTCO  COMMON  STOCK  PURSUANT  TO  THE  EXCHANGE  OFFER. EACH
STOCKHOLDER  MUST  MAKE  HIS  OR  HER  DECISION  WHETHER  TO  TENDER  SHARES  OF
PRICECOSTCO  COMMON STOCK PURSUANT  TO THE EXCHANGE  OFFER AND, IF  SO, HOW MANY
SHARES TO TENDER.

CERTAIN EFFECTS OF THE TRANSACTION

    Holders of  shares of  PriceCostco  Common Stock  will  be affected  by  the
Transaction  regardless of whether such holders tender their shares for exchange
pursuant to the Exchange  Offer. Holders of shares  of PriceCostco Common  Stock
who  tender  all their  shares  will no  longer  have an  ownership  interest in
PriceCostco, unless more than 27 million shares of PriceCostco Common Stock  are
validly  tendered  for exchange,  resulting in  the  acceptance for  exchange of
tendered shares  by  PriceCostco  being  prorated.  If  the  Exchange  Offer  is
partially  or fully subscribed, the number  of outstanding shares of PriceCostco
Common Stock will be reduced, which will increase the proportionate ownership of
PriceCostco stockholders who do  not tender their  shares of PriceCostco  Common
Stock  in  the Exchange  Offer. If  no  shares of  PriceCostco Common  Stock are
tendered in  the Exchange  Offer, stockholders  who hold  shares of  PriceCostco
Common  Stock immediately prior to and immediately after the Exchange Offer will
own the  same proportionate  interest in  PriceCostco, but  will, following  the
Distribution, also have an ownership interest in Price Enterprises. In addition,
if  less than 27 million shares of PriceCostco Common Stock are validly tendered
in the  Exchange Offer  and accepted  for exchange  by PriceCostco,  holders  of
PriceCostco  Common Stock as of  a record date (to  be determined) following the
expiration of  the Exchange  Offer,  will receive  shares of  Price  Enterprises
Common  Stock in  the Distribution;  PROVIDED, HOWEVER,  that, if  less than 5.4
million Price Enterprises shares are held by PriceCostco after the expiration of
the Exchange Offer, PriceCostco, in lieu of distributing the shares, may  compel
Price  Enterprises to purchase such shares  from PriceCostco in exchange for the
Promissory Note. In any event, as a result of the Transaction, PriceCostco  will
no  longer own  any interest  in Price  Enterprises and  will cease  to have any
significant real estate operations unrelated to its warehouse club business.

    Any PriceCostco  Common  Stock  acquired  by  PriceCostco  pursuant  to  the
Exchange Offer will become treasury shares and will be available for issuance by
PriceCostco without further stockholder action (except as required by applicable
law  or the rules of  The Nasdaq Stock Market's  National Market or any national
securities exchanges  on  which PriceCostco  Common  Stock may  be  listed)  for
general  or  other  corporate  purposes, including  stock  splits  or dividends,
acquisitions, the  raising  of  additional  capital  for  use  in  PriceCostco's
business and the implementation of employee benefit plans.

ANALYSIS OF FINANCIAL ADVISORS TO PRICECOSTCO

    PriceCostco  has engaged  DLJ and Lehman  (the "Financial  Advisors") to act
jointly  as  its  financial  advisors   in  connection  with  the   Transaction.
Representatives  of DLJ and Lehman assisted  senior management of PriceCostco in
structuring the  Transaction  and  in  analyzing the  potential  impact  of  the
Transaction  on  stockholder values  of both  Price Enterprises  and PriceCostco
following consummation of the Transaction. In particular, the Financial Advisors
gave advice  to management  regarding the  proposed number  of shares  of  Price
Enterprises  Common Stock to be issued in the exchange and with respect to other
significant  terms  and  conditions  of  the  Exchange  Offer.  For   additional
information  concerning  the involvement  of  Hamilton James  and  Paul Kinloch,
managing directors  of DLJ  and  Lehman, respectively,  see "Background  of  the
Transaction."

    On  July 15, 1994 and on July 28,  1994 in connection with the evaluation of
the Transaction by the Board of Directors of PriceCostco, the Financial Advisors
made presentations to the Board with respect to the Transaction.

                                       43
<PAGE>
    No restrictions  or limitations  were imposed  by the  PriceCostco Board  of
Directors upon the Financial Advisors with respect to the investigations made or
procedures  followed in performing  their analysis, except  that PriceCostco did
not authorize the Financial Advisors to  solicit, and they did not solicit,  any
third  party  indications of  interest  in a  purchase  of the  assets  of Price
Enterprises. Because of the  voluntary pro rata nature  of the Transaction,  the
Board  of  Directors of  PriceCostco also  did  not ask  for, and  the Financial
Advisors did  not deliver,  an opinion  as to  the fairness  to the  holders  of
PriceCostco  Common Stock, from  a financial point of  view, of the Transaction.
The Financial Advisors also did not  make any recommendation to any  stockholder
whether  to tender shares  of PriceCostco Common Stock  pursuant to the Exchange
Offer.

    In performing their analysis, the  Financial Advisors reviewed the  Transfer
and  Exchange Agreement,  the Operating  Agreements and  Stockholders Agreements
with respect to  Mexico Clubs, Price  Global and Price  Quest and certain  other
documents  related  to the  Transaction.  The Financial  Advisors  also reviewed
financial and other information that was publicly available or furnished to them
by PriceCostco,  including  information  provided during  discussions  with  the
management  of PriceCostco and certain  pro forma projected financial statements
and other information of PriceCostco and  Price Enterprises for fiscal 1994  and
fiscal  1995  prepared  by  the  management  of  PriceCostco.  In  addition, the
Financial Advisors analyzed for illustrative  purposes the implied valuation  of
the   different  operating  segments  of  Price  Enterprises,  compared  certain
financial data of Price Enterprises with selected companies whose securities are
traded in public markets, compared  the relative contribution of the  operations
of Price Enterprises to the revenue, earnings before depreciation, amortization,
interest expense and income taxes ("EBITDA"), net income, total assets and other
measures  of  PriceCostco  with the  percentage  of PriceCostco's  shares  to be
exchanged in the  Transaction, examined  the impact  of the  Transaction on  the
projected  earnings  per share  of  PriceCostco Common  Stock  given a  range of
possible Price Enterprises shares subscribed for in the Exchange Offer, reviewed
the impact of the Transaction on  PriceCostco's balance sheet and on its  credit
standing,  summarized  the  impact  of  the  Transaction  on  the  ownership  of
PriceCostco given a range of possible Price Enterprises shares subscribed for in
the Exchange Offer and analyzed the impact of the Transaction on the  conversion
price   provisions   of  PriceCostco's   outstanding   convertible  subordinated
debentures.  The  Financial  Advisors  also  discussed  the  past  and   current
operations,  financial  condition  and  prospects of  PriceCostco  and  of Price
Enterprises  with  the  management  of  PriceCostco  and  conducted  such  other
financial  studies, analyses and investigations as the Financial Advisors deemed
appropriate for purposes of their analysis.

    In performing  their  analysis,  the  Financial  Advisors  relied  upon  and
assumed,  without independent verification, the accuracy and completeness of all
of the financial  and other  information that was  available to  it from  public
sources,  that was provided to it by PriceCostco or its representatives, or that
was otherwise reviewed  by them. The  Financial Advisors also  assumed that  the
financial  projections  supplied to  them were  reasonably  prepared on  a basis
reflecting  the  best  currently  available  estimates  and  judgments  of   the
management  of PriceCostco as to the  future operating and financial performance
of PriceCostco and Price  Enterprises. The Financial Advisors  did not make  any
independent  evaluation of the assets,  liabilities or operations of PriceCostco
or Price Enterprises.

    The analysis presented by  the Financial Advisors  was necessarily based  on
economic,  market, financial and other conditions as they existed on, and on the
information made available to it as of, the date of their analysis.

    The following is a summary of the principal financial analyses performed  by
the  Financial  Advisors  in their  presentations  to the  PriceCostco  Board of
Directors. All  material  factors  that the  Financial  Advisors  considered  in
performing  such financial analyses  and all material  financial and comparative
analyses that the Financial Advisors performed are described herein.

   
    1.   SEGMENT ANALYSIS.   The  Financial Advisors  analyzed for  illustrative
purposes  the implied  valuation of  the different  operating segments  of Price
Enterprises, based on certain assumptions as  follows. That portion of the  Real
Properties  which  had significant  potential lease  income, based  on estimates
prepared by  PriceCostco,  was  valued  on the  basis  of  capitalization  rates
(ranging  from 7.5 percent  to 10.0 percent)  for comparable commercial property
real  estate  investment  trusts  as  adjusted  to  reflect  estimated   capital
expenditures necessary to effect completion. That portion of the Real Properties
which  was undeveloped or which did not  produce income was valued at a discount
to the estimates of market value prepared by
    

                                       44
<PAGE>
   
PriceCostco. The Mexico Assets and the International Assets were valued together
on the basis of  a range of  multiples of projected 1995  net income related  to
such assets, as prepared by the management of PriceCostco. The Quest Assets were
valued  on the basis of the possible prospects for Quest and on the basis of the
cumulative capital invested in Quest through May 8, 1994. The City Notes and the
Atlas Note were valued at a discount to the book value of these assets at May 8,
1994. The Financial Advisors also noted  that although these implied values,  if
aggregated  without consideration of taxes that  would be payable if such assets
were individually sold, resulted in a range  of values on a per share basis  for
Price  Enterprises that  represented notional premiums  of 11.9  percent to 59.6
percent over the $14.75  closing price of PriceCostco  Common Stock on July  14,
1994,  the segment analysis was prepared  for illustrative purposes only and did
not constitute an opinion regarding valuation or a prediction or estimate as  to
the  range of prices within which  Price Enterprises Common Stock would actually
trade.
    

    2.   ANALYSIS  OF CERTAIN  OTHER  PUBLICLY  TRADED COMPANIES.    To  provide
contextual  data  and  comparative market  information,  the  Financial Advisors
compared selected historical and projected  pro forma share price, earnings  and
operating  and financial ratios of PriceCostco  of Price Enterprises to those of
certain other  companies whose  securities are  publicly traded.  Such data  and
ratios  included its market capitalization plus total debt less cash equivalents
("Adjusted Price"),  as a  multiple of  revenues, EBITDA,  operating profit  and
total  assets  for  the  latest  reported  twelve  months.  In  conducting their
analysis, the Financial Advisors relied upon certain assumptions described above
and on the financial projections provided by the management of PriceCostco.  The
ratio  of Adjusted Price to  total assets for the  companies reviewed was in the
range of 0.57 to  1.18 times. This  compares to a multiple  of 0.63 times  total
assets  for Price  Enterprises assuming  the value  of Price  Enterprises Common
Stock is equal to the $14.75 closing  price of PriceCostco Common Stock at  July
14,  1994, based on historical total assets  of Price Enterprises at May 8, 1994
before the recognition of any write-down in connection with the Transaction. The
ratios  of  market  capitalization  to   latest  twelve-month  net  income   and
stockholders'  equity for the comparable companies were  in the range of 10.3 to
36.5 times and 0.4  to 9.4 times, respectively.  This compares to multiples  for
Price  Enterprises  of  32.3 times  1994  pro  forma net  income  and  0.6 times
historical book value at May 8,  1994, before the recognition of any  write-down
in  connection with  the Transaction,  assuming the  value of  Price Enterprises
Common Stock is equal to the $14.75 closing price of PriceCostco Common Stock at
July 14, 1994.

    In aggregate, the  Financial Advisors compared  Price Enterprises to  twelve
selected   publicly-traded  real  estate  development  companies.  Although  the
Financial Advisors used these  companies for comparison  purposes, none of  such
companies is directly comparable to Price Enterprises.

    3.   CONTRIBUTION  ANALYSIS.  The  Financial Advisors  analyzed the relative
contribution of  Price  Enterprises to  PriceCostco  with respect  to  revenues,
EBITDA,  net income, total assets and  stockholders' equity. In conducting their
analysis, the Financial Advisors relied upon certain assumptions described above
and on the financial projections provided by the management of PriceCostco. Such
analysis was considered in both absolute dollar terms and on a percentage  basis
and  was made,  where applicable, for  each of fiscal  year 1994 and  1995. As a
result of the  Transaction, assuming that  the Exchange Offer  were to be  fully
subscribed,  12.4% of  the shares of  PriceCostco Common Stock  outstanding on a
primary basis  would  be exchanged  for  Price Enterprises  Common  Stock.  This
compares with Price Enterprises' contribution to PriceCostco's projected results
for  fiscal 1995 of 1.5% of revenues, 1.8%  of EBITDA, 6.3% of net income, 15.0%
of total  assets and  33.4%  of stockholders'  equity. The  projected  financial
results  for fiscal 1995  prepared by the management  of PriceCostco reflect the
restatement in the fourth quarter of fiscal 1994 of PriceCostco's non-club  real
estate  segment  as a  discontinued operation.  For  purposes of  such analysis,
management provided  the  Financial  Advisors  a  preliminary  estimate  of  the
earnings  per share  of PriceCostco  of $1.16  for fiscal  1995 (based  on 217.7
million shares  of PriceCostco  Common Stock  outstanding); however,  management
cautioned, and the Board and the Financial Advisors were aware, that the assumed
level  of earnings was preliminary  (as final budgets had  not been completed by
management or  approved by  the  Board of  Directors)  and, therefore,  did  not
represent  the opinion  of management  of PriceCostco  as to  the actual results
which may be achieved  by PriceCostco, but was  utilized principally to  compare
the  difference between  earnings per  share at a  given level  before and after
giving effect to the proposed transaction. Accordingly, management has cautioned
that such  earnings  level  should  not  be  regarded  as  any  indication  that
PriceCostco  or Price Enterprises considers it  an accurate prediction of future
events, and PriceCostco  and Price Enterprises  disclaim any responsibility  for
updating or revising such analysis.

                                       45
<PAGE>
    4.   PRO  FORMA ANALYSIS.   The  Financial Advisors  analyzed the  pro forma
effects of the Transaction on the revenue, EBITDA, operating income, net income,
balance sheet and other measures  of PriceCostco. In conducting their  analysis,
the  Financial Advisors relied  upon certain assumptions  described above and on
the financial projections provided by management of PriceCostco. In  particular,
the  Financial Advisors analyzed the pro forma  effect of the Transaction on the
projected earnings per share of PriceCostco. The analysis indicated that the pro
forma earnings per  share of PriceCostco,  ASSUMING NO PRICECOSTCO  STOCKHOLDERS
SUBSCRIBED  TO THE EXCHANGE OFFER, would be lower in fiscal 1994 and fiscal 1995
than  comparable  projections  for  PriceCostco  in  the  same  period  if   the
Transaction were not undertaken. While earnings per share would be lower in such
case, PriceCostco stockholders would receive approximately 0.124 shares of Price
Enterprises  Common Stock  as a  dividend for  each share  of PriceCostco Common
Stock. The  analysis  indicated  that  the  pro  forma  earnings  per  share  of
PriceCostco, ASSUMING THAT THE EXCHANGE OFFER WERE TO BE FULLY SUBSCRIBED, would
be  higher in fiscal year 1994 and  fiscal year 1995 than comparable projections
for PriceCostco in the same period if the Transaction were not undertaken.

    5.  CREDIT  AND LEVERAGE RATIOS.   The Financial  Advisors analyzed the  pro
forma  effect  of  the transaction  on  certain  credit and  leverage  ratios of
PriceCostco. In  conducting its  analysis, the  Financial Advisors  relied  upon
certain assumptions described above and on the financial projections provided by
the  management of PriceCostco. The analysis indicated  that, as a result of the
transaction, the projected ratios of operating  profit to total interest and  of
EBITDA  to total interest would decrease for fiscal 1994 from 8.8 times and 11.9
times respectively to  8.0 times  and 10.6 times  respectively, on  a pro  forma
basis  after giving effect to  the Transaction while the  ratio of total debt to
total capitalization at May 8,  1994 would increase from  31.7% to 41.1% on  the
same basis.

   
    6.   PRO FORMA OWNERSHIP ANALYSIS.   The Financial Advisors analyzed the pro
forma effect of the transaction on  the ownership of PriceCostco. In  conducting
its  analysis, the Financial Advisors  relied upon certain assumptions described
above and  on  information  as  to  ownership  provided  by  the  management  of
PriceCostco. The analysis indicated that, assuming the Exchange Offer were to be
fully  subscribed and not  oversubscribed and subject to  proration and that the
Price family were  to tender all  of the  PriceCostco shares held  by them,  the
Price  family  would own  approximately 42.7%  of  the Price  Enterprises shares
outstanding immediately after consummation of the Exchange Offer.
    

    The summary set forth above does not purport to be a complete description of
the  analyses  performed  by  the  Financial  Advisors.  The  analysis  of   the
Transaction  involved  various determinations  as  to the  most  appropriate and
relevant methods of financial analysis and  the application of these methods  to
the  particular circumstances  and, therefore, such  an analysis  is not readily
susceptible to summary description. In performing their analyses, the  Financial
Advisors  did not  attribute any particular  weight to any  factor considered by
them, but rather made qualitative judgments as to the significance and relevance
of each  factor. Accordingly,  notwithstanding the  separate factors  summarized
above,  the Financial Advisors believe that their analyses must be considered as
a whole and that selecting portions of their analysis and the factors considered
by  them,  without  considering  all  analyses  and  factors,  could  create  an
incomplete  view of  the evaluation process.  In performing  their analyses, the
Financial  Advisors  made   numerous  assumptions  with   respect  to   industry
performance,  business and economic conditions and  other matters, many of which
are beyond  PriceCostco's  control.  The analyses  performed  by  the  Financial
Advisors  are not  necessarily indicative  of actual  values or  future results,
which may  be  significantly more  or  less  favorable than  suggested  by  such
analyses.  These analyses do not constitute  an opinion regarding valuation or a
prediction or estimate as to the prices at which Price Enterprises Common  Stock
and  PriceCostco Common Stock will actually  trade. Such prices will depend upon
the future business  operations and  prospects of  each company  and changes  in
market  conditions and other factors that generally influence securities prices,
the market for  securities of businesses  of this type  and economic,  monetary,
regulatory and other relevant factors.

    The Board of Directors of PriceCostco selected DLJ and Lehman to act jointly
as  its  financial advisor  because  they are  nationally  recognized investment
banking firms  and  the principals  of  both  DLJ and  Lehman  have  substantial
experience in transactions similar to the Transaction. In addition DLJ served as
financial advisor to Costco in the Merger and Lehman served as financial advisor
to  Price in the Merger, and each of DLJ and Lehman is familiar with PriceCostco
and its business. As part  of its investment banking  business, each of DLJ  and
Lehman is continually engaged in the analysis of businesses and their securities
in connection with public offerings and merger and acquisition transactions.

                                       46
<PAGE>
    Pursuant  to  the  terms  of  an  engagement  letter  dated  June  25, 1994,
PriceCostco has  paid each  of the  Financial Advisors  $500,000 for  acting  as
financial  advisors in connection with the Transaction. In addition, PriceCostco
has agreed to pay each of  the Financial Advisors an additional $1,500,000  upon
consummation of the Transaction. PriceCostco has agreed to indemnify each of the
Financial  Advisors and certain  related persons against  certain liabilities in
connection  with  its  engagement,  including  liabilities  under  the   Federal
securities  laws. The terms  of the fee  arrangement with each  of the Financial
Advisors were negotiated at arm's  length between PriceCostco and the  Financial
Advisors,  reviewed  and recommended  by  the Audit  Committee  of the  Board of
Directors of PriceCostco and approved by the Board of Directors of PriceCostco.

    DLJ has from  time to  time rendered  various investment  banking and  other
financial  advisory  services  to  Costco and  PriceCostco  including  acting as
financial advisor to  Costco in  the Merger. Since  September 1,  1992, DLJ  has
earned  compensation with respect to such services of $10,878,000 (including the
$500,000 referenced above). Hamilton E. James, a Managing Director of DLJ, is  a
director  of  PriceCostco.  Since  September 1,  1992,  Mr.  James  has received
directors' fees in  the amount of  $38,350. During such  periods, Mr. James  has
been  granted options to acquire 11,250 shares of PriceCostco Common Stock at an
exercise price of $18.00 per share and 8,000 such shares at an exercise price of
$18.125 per share.

    Lehman acted as financial  advisor to Price in  connection with the  Merger.
Since September 1, 1992, Lehman has earned compensation of $7,500,000 from Price
and  PriceCostco (including  the $500,000  referenced above).  Additionally, the
REIT, a real estate  investment trust which is  independent of PriceCostco,  but
may  be  deemed an  affiliate  of PriceCostco,  completed  a public  offering of
securities in August 1993 in which Lehman  acted as co-manager and for which  it
received  approximately $3,200,000 in  fees and commissions.  J. Paul Kinloch, a
Managing Director  of  Lehman,  is  a  member  of  the  Board  of  Directors  of
PriceCostco.  Since September 1, 1992, Mr.  Kinloch has received directors' fees
in the amount  of $74,340.  During such periods,  Mr. Kinloch  has been  granted
options to acquire 8,000 shares of PriceCostco Common Stock at an exercise price
of $18.125 per share.

    In  the ordinary course of business, both  DLJ and Lehman actively trade the
securities of PriceCostco for  their own account and  for the accounts of  their
customers  and, accordingly, may  at any time  hold a long  or short position in
such securities.

INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION

    In considering  whether to  tender shares  pursuant to  the Exchange  Offer,
stockholders  should be  aware that  certain members  of PriceCostco's  Board of
Directors and management and  certain persons who will  become members of  Price
Enterprises's Board of Directors and management on the Closing Date have certain
interests  in  the  Transaction  that  are  in  addition  to  the  interests  of
stockholders of PriceCostco generally. The Board of Directors of PriceCostco was
aware of these interests and considered them, among other factors, in  approving
the Transaction. These interests are as follows:

   
    BOARD  OF DIRECTORS.   At the earlier to  occur of the  Closing Date and the
date on which shares of Price Enterprises Common Stock are first distributed  to
holders of PriceCostco Common Stock, the resignation of each of Robert E. Price,
Mitchell  G. Lynn, J. Paul Kinloch and Paul A. Peterson as a member of the Board
of Directors of PriceCostco will become effective.
    

   
    The Board  of Directors  of  Price Enterprises  consists of  three  members,
Robert  E.  Price,  Paul A.  Peterson  and James  D.  Sinegal, each  of  whom is
currently a member of  the Board of Directors  of PriceCostco, although each  of
Messrs.  Price  and  Peterson has  tendered  his  resignation as  a  director of
PriceCostco, effective as of the  earlier to occur of  (i) the Closing Date  and
(ii)  the date on which shares of Price Enterprises Common Stock are distributed
to holders of PriceCostco Common Stock. Prior to the Closing Date, the  existing
Board  of Directors  of Price  Enterprises will  cause the  authorized number of
directors comprising such  Board to be  expanded and, by  a majority vote,  will
fill  such newly created directorships. See  "MANAGEMENT OF PRICE ENTERPRISES --
Board of Directors of Price Enterprises."
    

   
    CONVERTIBLE SECURITIES.  Mitchell Lynn,  a director of PriceCostco, and  Sol
Price,  the beneficial  owner of 8,745,964  shares of  PriceCostco Common Stock,
representing approximately 4.0%  of PriceCostco Common  Stock outstanding as  of
October  31, 1994, hold  outstanding 6 3/4%  Convertible Subordinated Debentures
due 2001 of Price (the "6 3/4% Debentures"). If fewer than 27 million shares  of
PriceCostco Common Stock are
    

                                       47
<PAGE>
tendered  pursuant to the Exchange Offer  and shares of Price Enterprises Common
Stock are distributed to holders of PriceCostco Common Stock in the Distribution
as described above in "The Distribution," then there may be an adjustment to the
conversion price of  the 6 3/4%  Debentures. See "Effect  of the Transaction  on
Convertible Securities."

    FINANCIAL  ADVISORS.   PriceCostco  has  paid fees  and  incurred contingent
obligations to DLJ and Lehman Brothers  in connection with the Transaction.  See
"Analysis  of Financial Advisors to PriceCostco."  Each of Hamilton E. James and
J. Paul Kinloch is a  director of PriceCostco and  managing director of DLJ  and
Lehman, respectively.

    INTEREST  IN PRICECOSTCO COMMON STOCK.  During the 40 business days prior to
the date of  this Offering  Circular/Prospectus, neither  PriceCostco nor  Price
Enterprises  nor, to the  best knowledge of  PriceCostco, any executive officer,
director  or  subsidiary  of  PriceCostco   has  effected  any  transaction   in
PriceCostco Common Stock.

    OTHER.   Following the consummation  of the Transaction, PriceCostco intends
to grant replacement  options to  Mitchell Lynn  in respect  of all  PriceCostco
Options  (as hereinafter  defined) held  by Mr.  Lynn as  of December  31, 1995,
regardless of whether such  PriceCostco Options are  then exercisable, and  such
PriceCostco  Options will be cancelled. It is contemplated that such replacement
options will be granted on the same terms and conditions (including the exercise
price thereof) as the PriceCostco Options which they replace.

    Joseph K. Kornwasser, who resigned as a director of PriceCostco on July  28,
1994, is a general partner and has a two-thirds ownership interest in Kornwasser
and  Friedman Shopping Center Properties ("K&F"). Until August 28, 1994, K&F was
a partner with PriceCostco in two partnerships, P and K Group II Properties  and
P  and K Group III  Properties. On August 28,  1994, PriceCostco purchased K&F's
interests in such partnerships for an aggregate amount of $1,658,925 as part  of
the Transaction.

    PriceCostco entered into an agreement, dated September 1, 1993, with K&F for
the development of four properties (the "Development Agreement"). In fiscal year
1994,  PriceCostco  paid  $1,024,000  in  fees  to  K&F  under  the  Development
Agreement. On  August 28,  1994, PriceCostco  purchased K&F's  rights under  the
Development Agreement for $841,456 as part of the Transaction.

                                       48
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
    PriceCostco  and Price Enterprises will receive an opinion, based on certain
representations  of  PriceCostco,  Price  Enterprises  and  certain  significant
stockholders of PriceCostco, from Skadden Arps, to the effect that, although the
matter  is not entirely free from doubt, the Exchange Offer and the Distribution
should qualify as  tax-free distributions  for Federal income  tax purposes  and
that, accordingly:

        (i) no gain or loss will be recognized by a holder of PriceCostco Common
    Stock  solely as result of the receipt of shares of Price Enterprises Common
    Stock in the Exchange Offer and/or  the Distribution (which are referred  to
    herein  as the Transaction), except  to the extent that  cash is received in
    lieu of fractional  shares of Price  Enterprises Common Stock.  A holder  of
    PriceCostco Common Stock who receives cash in lieu of fractional shares will
    recognize  gain or loss to the extent of the difference between the holder's
    basis allocable to the fractional share and the amount of cash received  for
    such  fractional share (assuming  the fractional shares  are held as capital
    assets);

        (ii) a holder's tax basis in any Price Enterprises Common Stock received
    pursuant to the  Exchange Offer will  equal such holder's  tax basis in  the
    PriceCostco   Common  Stock  exchanged  therefor.  If  PriceCostco  were  to
    distribute any  Price  Enterprises  Common  Stock pro  rata  to  holders  of
    PriceCostco  Common  Stock, then  a holder's  tax  basis in  the PriceCostco
    Common Stock held at the time  of the Distribution will be allocated,  based
    on relative fair market values at the time of the Distribution, between such
    PriceCostco  Common Stock and the Price Enterprises Common Stock received in
    the Distribution;

       (iii) a  holder's  holding  period for  Price  Enterprises  Common  Stock
    received  in the  Transaction will include  the holding  period during which
    PriceCostco  Common  Stock  exchanged  therefor  was  held  (assuming   such
    PriceCostco Common Stock was held as a capital asset);

        (iv)  no  gain  or  loss  will be  recognized  by  PriceCostco  or Price
    Enterprises in the Transaction; and

        (v) no gain or loss will be recognized by a holder of PriceCostco Common
    Stock who does not participate in the Exchange Offer, regardless of  whether
    such  holder receives  any shares of  Price Enterprises Common  Stock in the
    Distribution.

    PriceCostco does not intend to seek a ruling from the IRS as to the  Federal
income  tax treatment of the  Transaction, and it is  possible that it would not
receive such a ruling were it to apply for one. Consummation of the  Transaction
is not conditioned on the receipt of a ruling or an opinion.

    The  opinion of Skadden Arps will  not be binding on the  IRS or a court and
there can be no assurance  that the IRS will not  challenge the validity of  the
Transaction  as a tax-free distribution for  Federal income tax purposes or that
such challenge would not ultimately prevail. The Internal Revenue Code of  1986,
as amended (the "Code"), imposes a number of requirements for a transaction such
as  the  Transaction  to  qualify  for tax-free  treatment,  and  some  of these
requirements are inherently factual and subject to differing interpretations. In
particular, among other things, PriceCostco  must establish to the  satisfaction
of  the IRS that (i)  the Transaction serves a  valid corporate business purpose
and (ii) Price Enterprises will be engaged in an active, five-year-old trade  or
business (as defined under the Code) immediately after the Transaction. Based on
certain  representations of  PriceCostco, Price Enterprises  and others, Skadden
Arps has concluded that  these and the other  applicable requirements should  be
satisfied  and that  the Transaction  should, therefore,  qualify as  a tax-free
distribution for  Federal  income  tax  purposes, although  the  matter  is  not
entirely free from doubt.

    If  the Transaction fails to qualify  as a tax-free distribution for Federal
income tax purposes, a holder of PriceCostco Common Stock who receives shares of
Price Enterprises Common Stock  in the Distribution will  be considered to  have
received  a taxable dividend includible in income in an amount equal to the fair
market value on the  Distribution Record Date of  such Price Enterprises  Common
Stock  received, plus the amount of cash, if any, received in lieu of fractional
shares. In addition, a holder participating in the Exchange Offer will generally
recognize capital gain or loss in an amount equal to the difference between  the
fair  market  value  of the  Price  Enterprises  Common Stock  received  and the
holder's tax basis in the PriceCostco Common Stock exchanged therefor,  provided
that  such holder  has reduced his  percentage interest in  PriceCostco. If such
holder has not reduced his percentage interest in PriceCostco, such holder  will
be  considered to have  received a taxable  dividend that will  be includible in
income in an amount equal to the

                                       49
<PAGE>
fair market  value on  the Distribution  Record Date  of the  Price  Enterprises
Common  Stock received in  such exchange. At the  present time, PriceCostco does
not believe that it would have a significant Federal income tax liability if the
Transaction were not to qualify for tax-free treatment.

    THE FOREGOING IS A  SUMMARY OF THE ANTICIPATED  MATERIAL FEDERAL INCOME  TAX
CONSEQUENCES  OF  THE TRANSACTION  UNDER  CURRENT LAW.  IT  DOES NOT  PURPORT TO
ADDRESS ALL FEDERAL INCOME TAX CONSEQUENCES, OR TAX CONSEQUENCES THAT MAY  ARISE
UNDER  THE  TAX LAWS  OF OTHER  JURISDICTIONS  OR THAT  MAY APPLY  TO PARTICULAR
CATEGORIES OF  STOCKHOLDERS. EACH  STOCKHOLDER  SHOULD CONSULT  HIS OR  HER  TAX
ADVISOR   AS  TO  THE  PARTICULAR  CONSEQUENCES   OF  THE  TRANSACTION  TO  SUCH
STOCKHOLDER, INCLUDING THE APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN  TAX
LAWS,  AND THE EFFECT  OF POSSIBLE CHANGES IN  TAX LAWS THAT  MAY AFFECT THE TAX
CONSEQUENCES DESCRIBED ABOVE.

    For a description of  an agreement pursuant to  which PriceCostco and  Price
Enterprises have provided for certain tax sharing and other tax-related matters,
see "CERTAIN RELATED AGREEMENTS -- Tax Allocation Agreements."

ANTICIPATED ACCOUNTING TREATMENT

   
    PriceCostco  has treated the non-club real  estate segment as a discontinued
operation for  all periods  presented. In  the fourth  quarter of  fiscal  1994,
PriceCostco   recorded  an  estimated  loss  on  disposal  of  its  discontinued
operations (the non-club real estate segment)  as a result of entering into  the
Transfer  and Exchange Agreement. While the Exchange Offer is not expected to be
completed until  December 20,  1994, PriceCostco  determined that  the  Exchange
Offer  will,  in all  likelihood,  result in  a  significant loss  for financial
reporting purposes and  that there  was a  reasonable basis  for estimating  the
loss.  The  actual  loss for  financial  reporting purposes  will  be determined
following consummation of the Exchange Offer.  Such loss will be the  difference
between  the unaudited pro forma  book value per share  of Price Enterprises and
the product of (a) the fair market value per share of Price Enterprises and  (b)
the  number  of shares  exchanged. The  loss also  includes the  direct expenses
related to  the Transaction.  For  purposes of  recording such  estimated  loss,
PriceCostco  assumed that (i) the Exchange Offer would be fully subscribed, (ii)
a per share price of Price Enterprises Common Stock of $15.25 (the closing sales
price of PriceCostco Common Stock on October 24, 1994) and (iii) direct expenses
and other costs  related to the  Transaction of approximately  $15 million.  The
unaudited  pro forma  book value  per common  share of  Price Enterprises Common
Stock is $21.27.
    

   
    The $6.02 per common share difference between the $21.27 unaudited pro forma
book value per share of Price Enterprises Common Stock and the assumed per share
price of  Price  Enterprises  Common  Stock  of  $15.25  is  attributable  to  a
combination  of  factors.  These  factors  include  an  expectation  that  Price
Enterprises Common Stock may trade at  a discount from its book value  (although
the  prices  at  which  Price  Enterprises Common  Stock  will  trade  cannot be
predicted).
    

   
    As  described  under   "SPECIAL  CONSIDERATIONS/RISK   FACTORS  --   Special
Considerations  Applicable  to  All  PriceCostco  Stockholders  --  The Exchange
Ratio," in  making its  determination to  approve the  Transaction, one  of  the
factors  considered by  the Board  of Directors  of PriceCostco  was a  range of
illustrative high and low per share values for Price Enterprises and the implied
per share premium  in the Exchange  Offer based on  such illustrative values  as
compared  to the per share price of PriceCostco Common Stock at July 14, 1994 of
$14.75 (assuming 27 million shares of Price Enterprises Common Stock outstanding
and a  one-for-one  exchange  ratio).  While  believing  that  some  premium  to
tendering  stockholders is  included in  the exchange  ratio, the  Board did not
quantify any such premium, recognizing that it  could not do so since the  range
of prices at which Price Enterprises Common Stock may trade cannot be predicted.
If  any such premium could be objectively measured, it would be accounted for as
a cost of the treasury shares to  be acquired by PriceCostco. Since any  premium
cannot  be objectively measured, PriceCostco believes  that it is appropriate in
the circumstances to include any  premium as part of  the estimated loss on  the
disposal of the non-club real estate segment, recognizing that the amount of the
loss is subject to revision after the Exchange Offer closes.
    

                                       50
<PAGE>
   
    The  estimated loss was determined assuming that the Exchange Offer would be
fully subscribed.  Any  subsequent adjustment  to  the estimated  loss  will  be
affected  by  the extent  to  which the  Exchange  Offer is  subscribed.  If the
Exchange Offer is  at least 80%  subscribed and PriceCostco  elects to sell  the
unsubscribed shares to Price Enterprises for a note, the loss as a result of the
Transaction will be the same as if the Exchange Offer were fully subscribed. Any
unsubscribed  shares distributed to stockholders pro  rata will be excluded from
the loss determination and  accounted for as a  dividend. The dividend would  be
measured  by  the  $21.27  unaudited  pro  forma  book  value  per  common share
multiplied by the number of shares of Price Enterprises Common Stock distributed
and will be charged  directly to retained earnings.  Furthermore, to the  extent
that  the fair market value  of Price Enterprises Common  Stock differs from the
assumed share  price  of  $15.25  used  above, the  product  of  the  per  share
difference  times the number  of shares exchanged will  be reclassified from the
loss on disposal reflected in the income  statement and included in the cost  of
PriceCostco's  treasury shares  acquired. In  measuring the  actual loss  on the
Exchange Transaction, PriceCostco expects  to measure the  fair market value  of
Price  Enterprises'  stock based  on the  average closing  sales price  of Price
Enterprises Common Stock  during the  20 trading  days commencing  on the  sixth
trading  day following the closing of the  Exchange Offer (the "20 Day Period").
However, other  factors may  also need  to  be considered  in making  the  final
determination.
    

   
    The  historical  financial  statements  of  Price  Enterprises  present  its
financial position, results of operations and cash flows as if Price Enterprises
were a  separate  subsidiary  of  PriceCostco for  all  periods  presented.  The
Transferred  Assets to Price Enterprises are  reflected at their historical book
value, including the  effect of  certain impairment writedowns  recorded in  the
fourth quarter ended August 28, 1994.
    

   
    The   Merger  qualified  as  a  "pooling-of-interests"  for  accounting  and
financial reporting purposes. PriceCostco does not believe that the  Transaction
will  impact  the  pooling-of-interests accounting  treatment  utilized  for the
Merger.
    

REGULATORY APPROVALS

    No filings under the  HSR Act are required  in connection with the  Exchange
Offer  generally. To  the extent certain  stockholders of  PriceCostco decide to
participate in the Exchange  Offer and to  acquire a number  of shares of  Price
Enterprises  Common  Stock that  exceeds  one of  the  thresholds stated  in the
regulations under the HSR Act, and if exceptions under those regulations do  not
apply, such stockholders and PriceCostco would be required to make filings under
the HSR Act, and the waiting period requirements under the HSR Act would have to
be  satisfied, before  the exchanges by  those particular  stockholders could be
carried out.

   
    Robert E. Price and PriceCostco, and the Price Family Trust and PriceCostco,
have to date made filings under the  HSR Act that would, upon expiration of  the
required  waiting period under the  HSR Act, enable Robert  Price to acquire $15
million or more  but less than  15 percent  of the shares  of Price  Enterprises
Common  Stock and the Price Family Trust to  acquire 25 percent or more but less
than 50 percent of the shares  of Price Enterprises Common Stock. These  amounts
and  percentages reflect  the thresholds at  which these filings  have been made
under the HSR  Act regulations. They  do not  indicate the actual  shares to  be
acquired by Mr. Price or the Price Family Trust, which will depend on the number
of  shares of Price  Costco Common Stock  validly tendered and  not withdrawn by
them and by other stockholders in  the Exchange Offer. Early termination of  the
required  waiting period under the HSR Act occurred for each of these filings on
November 9, 1994.
    

    Except as stated  above, PriceCostco  and Price Enterprises  do not  believe
that  any material  Federal or state  regulatory approvals will  be necessary in
connection with the Transaction.

QUOTATION OF PRICE ENTERPRISES COMMON STOCK ON THE NASDAQ STOCK MARKET'S
NATIONAL MARKET

    It is anticipated  that, after  the Closing Date,  Price Enterprises  Common
Stock  will be  quoted on  The Nasdaq Stock  Market's National  Market under the
symbol  "PREN."  Although  Price  Enterprises  has  commenced  the  process  for
quotation  of  Price  Enterprises  Common Stock  on  The  Nasdaq  Stock Market's
National Market, there can be no  assurance that Price Enterprises Common  Stock
will be so quoted.

                                       51
<PAGE>
EFFECT OF THE TRANSACTION ON CONVERTIBLE SECURITIES

    PriceCostco  currently has outstanding  (i) $285,079,000 aggregate principal
amount of 6 3/4% Debentures issued under an indenture, dated as of February  19,
1987  (the "6 3/4% Indenture"), (ii)  $179,338,000 aggregate principal amount of
5 1/2%  Convertible Subordinated  Debentures  due 2012  of  Price (the  "5  1/2%
Debentures")  issued  under an  indenture, dated  as of  February 19,  1987 (the
"5 1/2% Indenture"), and (iii) $300,000,000 aggregate principal amount of 5 3/4%
Convertible Subordinated Debentures due 2002 of Costco (the "5 3/4%  Debentures"
and,  together  with  the 6  3/4%  Debentures  and the  5  1/2%  Debentures, the
"Debentures") issued under an indenture, dated as  of May 15, 1992 (the "5  3/4%
Indenture" and, together with the 6 3/4% Indenture and the 5 1/2% Indenture, the
"Indentures").  A holder of any  6 3/4% Debentures is  currently entitled at any
time prior  to  the  close of  business  on  March 1,  2001,  subject  to  prior
redemption  or  purchase by  PriceCostco, to  convert the  6 3/4%  Debentures or
portions thereof into shares of PriceCostco Common Stock at the conversion price
of $22.535  per  share,  subject  to  adjustment as  described  in  the  6  3/4%
Indenture.  A holder of any 5 1/2%  Debentures is currently entitled at any time
prior to  the  close  of  business  on  February  28,  2012,  subject  to  prior
redemption,  to convert the 5 1/2% Debentures or portions thereof into shares of
PriceCostco Common Stock at the conversion  price of $23.768 per share,  subject
to  adjustment as described  in the 5 1/2%  Indenture. The holder  of any 5 3/4%
Debentures is currently entitled at any time  prior to the close of business  on
May  15, 2002, subject to prior redemption,  to convert the 5 3/4% Debentures or
portions thereof into share of PriceCostco Common Stock at the conversion  price
of $41.25 per share, subject to adjustment as described in the 5 3/4% Indenture.

    All  three of  the Indentures  include typical  antidilution provisions that
provide that, if PriceCostco  distributes any assets  to holders of  PriceCostco
Common Stock (which would include shares of Price Enterprises Common Stock), the
conversion price of the respective Debentures will be adjusted downward pursuant
to  formulas contained in  the Indentures. Such  anti-dilution provisions become
relevant  if  (i)  PriceCostco  holds  less  than  5,400,000  shares  of   Price
Enterprises  Common Stock following  the consummation of  the Exchange Offer and
elects to distribute the remaining shares  of Price Enterprises Common Stock  to
PriceCostco  stockholders pro rata or (ii) PriceCostco holds more than 5,400,000
shares of  Price Enterprises  Common  Stock following  the consummation  of  the
Exchange  Offer and is  thus required to  distribute all of  the remaining Price
Enterprises shares  pro  rata  to  PriceCostco  stockholders.  Pursuant  to  the
conversion  adjustment formula  in each  Indenture, as  the number  of shares of
Price Enterprises Common Stock  distributed increases, the Debenture  conversion
price  under each  Indenture is reduced,  and holders  of outstanding Debentures
will be entitled to convert their Debentures  into a larger number of shares  of
PriceCostco  Common Stock.  It is  estimated that,  if no  shares of PriceCostco
Common Stock are tendered in the Exchange  Offer and all of the shares of  Price
Enterprises Common Stock are distributed to PriceCostco stockholders pursuant to
the Distribution, the conversion prices under the Indentures will be adjusted to
approximately  $19.74, $20.82 and $36.13 under the 6 3/4% Debentures, the 5 1/2%
Debentures  and  the  5  3/4%  Debentures,  respectively  (assuming  shares   of
PriceCostco  Common Stock  have a  market price  of $15.25  and shares  of Price
Enterprises Common Stock are deemed  to have an equal value  at the time of  the
Distribution).  Based on unaudited pro forma net  income for each of fiscal 1993
and for the 36 weeks ended May 8, 1994. An adjustment, if any, to the conversion
price of the 5 3/4% Debentures would not be dilutive to PriceCostco's  unaudited
pro  forma net income per common and  common equivalent share on a fully diluted
basis.

    In addition, the 5 3/4% Indenture includes a special antidilution  provision
which requires an additional adjustment to the 5 3/4% Debenture conversion price
in  connection  with  certain  PriceCostco  stock  repurchase  transactions (the
"5 3/4% Adjustment"). The 5 3/4% Adjustment will apply to the Exchange Offer  if
PriceCostco repurchases shares of PriceCostco Common Stock in the Exchange Offer
for  consideration having an  aggregate fair market value  greater than 12.5% of
the total  market capitalization  of PriceCostco,  based on  the average  market
price  per share of PriceCostco Common Stock during any five consecutive trading
days ending  not less  than two  nor more  than ten  trading days  prior to  the
consummation of the Exchange Offer (the "PriceCostco Pre-Closing Market Price").
Since  the total number of shares of Price Enterprises Common Stock to be issued
in the  Exchange Offer  is less  than 12.5%  of the  total number  of shares  of
PriceCostco  Common  Stock  outstanding  as of  August  31,  1994 (approximately
12.4%), the 5 3/4%

                                       52
<PAGE>
   
Adjustment will not apply if the value of a Price Enterprises share is less than
or equal to the PriceCostco  Pre-Closing Market Price. If  the value of a  Price
Enterprises  share is more  than the PriceCostco  Pre-Closing Market Price, then
the 5 3/4% Adjustment may apply, assuming sufficient shares are tendered in  the
Exchange  Offer such that the total value  of the Price Enterprises Common Stock
exchanged exceeds 12.5% of  the market capitalization  of PriceCostco (based  on
the  PriceCostco Pre-Closing Market Price). If the 5 3/4% Adjustment applies, it
will result in a downward adjustment in the conversion price, and the holders of
the 5 3/4% Debentures will be entitled to convert their debentures into a larger
number of shares of PriceCostco Common Stock. As noted above, any adjustment  to
the  conversion  price  of  the  5 3/4%  Debentures  would  not  be  dilutive to
PriceCostco's unaudited pro forma  net income per  common and common  equivalent
share on a fully diluted basis for fiscal 1994.
    

                               THE EXCHANGE OFFER

TERMS OF THE EXCHANGE OFFER

    PriceCostco  hereby offers, on  the terms and subject  to the conditions set
forth herein and in the  Letter of Transmittal, to  exchange one share of  Price
Enterprises  Common Stock  for each share  of PriceCostco  Common Stock properly
tendered and accepted for exchange (up to a maximum of 27 million such shares).

   
    PriceCostco will accept for  exchange (and thereby  purchase) all shares  of
PriceCostco  Common Stock that have been  validly tendered and not withdrawn (up
to a maximum of 27  million such shares), and shall  pay for each such share  by
issuing  in  exchange  therefor  one share  of  Price  Enterprises  Common Stock
promptly following the Expiration Date.
    

   
    If more  than 27  million shares  of PriceCostco  Common Stock  are  validly
tendered  and not withdrawn in the Exchange  Offer prior to the Expiration Date,
then, upon the terms and  subject to the conditions  set forth in this  Offering
Circular/Prospectus  and the Letter  of Transmittal, PriceCostco  will accept 27
million shares for exchange on a pro rata basis, and shares of Price Enterprises
Common Stock will be issued in exchange therefor. Tendering holders will not  be
required to pay brokerage commissions or fees or, subject to the instructions in
the  Letter  of Transmittal,  transfer  taxes with  respect  to the  exchange of
PriceCostco Common Stock pursuant  to the Exchange  Offer. PriceCostco will  pay
all  transfer  taxes of  tendering stockholders,  other than  certain applicable
taxes, in connection with the Exchange Offer. See "Payment of Expenses."
    

    No fractional shares of  Price Enterprises Common Stock  shall be issued  in
the  Exchange Offer in exchange for  any fractional shares of PriceCostco Common
Stock.

EXPIRATION DATE; EXTENSIONS; TERMINATION

   
    The Exchange Offer  will expire at  12:00 midnight, New  York City time,  on
December 20, 1994, subject to extension by PriceCostco by notice to the Exchange
Agent  as  herein  provided  (the  "Expiration  Date").  In  the  event  of such
extension, the term "Expiration Date" shall mean the time and date on which  the
Exchange Offer as so extended shall expire. PriceCostco will notify the Exchange
Agent  of  any  extension by  oral  or written  notice  and will  make  a public
announcement thereof, each prior to 9:00 a.m.,  New York City time, on the  next
business  day after the  previously scheduled Expiration  Date. Without limiting
the manner in which PriceCostco may choose to make a public announcement of  any
extension,  amendment or  termination of  the Exchange  Offer, PriceCostco shall
have no  obligation to  publicly advertise,  or otherwise  communicate any  such
public announcement, other than by making a timely release to the Dow Jones News
Service.
    

   
    PriceCostco  reserves the right to extend the Exchange Offer or to terminate
the Exchange Offer and not accept for exchange any shares of PriceCostco  Common
Stock  not previously accepted for exchange by  giving oral or written notice of
such delay, extension or  termination to the Exchange  Agent. Any such delay  in
acceptance  for exchange, extension or termination  will be followed as promptly
as  practicable  by  public  announcement   thereof.  The  rights  reserved   by
PriceCostco  in this paragraph are in addition to PriceCostco's rights set forth
under "Conditions to the Exchange Offer" below.
    

PROCEDURES FOR TENDERING

    The participation by a  holder of PriceCostco Common  Stock in the  Exchange
Offer  pursuant to  one of  the procedures  set forth  below will  constitute an
agreement between such holder and PriceCostco  in accordance with the terms  and
subject to the conditions set forth herein and in the Letter of Transmittal.

                                       53
<PAGE>
   
    To  be  tendered properly,  certificates  for shares  of  PriceCostco Common
Stock, together  with  the  properly  completed  and  duly  executed  Letter  of
Transmittal  (or facsimile  thereof), and  any other  documents required  by the
Letter of Transmittal,  or an Agent's  Message (as hereinafter  defined) in  the
case  of a book-entry transfer of shares, must be received by the Exchange Agent
at one of the addresses  set forth below in  "Withdrawal Rights" prior to  12:00
midnight,  New  York City  time,  on the  Expiration  Date, except  as otherwise
provided under  "Guaranteed  Delivery  Procedure." LETTERS  OF  TRANSMITTAL  AND
CERTIFICATES  FOR  SHARES OF  PRICECOSTCO  COMMON STOCK  SHOULD  NOT BE  SENT TO
PRICECOSTCO OR TO THE INFORMATION AGENT.
    

   
    Signatures on a Letter of Transmittal  must be guaranteed unless the  shares
of  PriceCostco Common  Stock tendered  pursuant thereto  are tendered  (i) by a
registered holder who has not completed  the box entitled "Special Issuance  and
Delivery  Instructions" on the Letter of Transmittal  or (ii) for the account of
an Eligible Institution. In the event that signatures on a Letter of Transmittal
are  required  to  be  guaranteed,  such  guarantee  must  be  by  an   Eligible
Institution.  An "Eligible Institution" means a  firm or other entity identified
in Rule 17Ad-15  under the  Exchange Act including  (as such  terms are  defined
therein):  (i)  a  bank; (ii)  a  broker, dealer,  municipal  securities dealer,
municipal  securities  broker,  government   securities  dealer  or   government
securities  broker; (iii) a  credit union; (iv)  a national securities exchange,
registered securities association or clearing agency; or (v) savings institution
that is a participant in a Securities Transfer Association recognized program. A
verification by a notary public alone is not acceptable.
    

    THE METHOD  OF DELIVERY  OF SHARES  OF PRICECOSTCO  COMMON STOCK  AND  OTHER
DOCUMENTS  TO THE  EXCHANGE AGENT  IS AT  THE ELECTION  AND RISK  OF THE HOLDER.
Mailing should be made sufficiently in advance of the Expiration Date to  permit
delivery  to the Exchange Agent prior to  12:00 midnight, New York City time, on
the Expiration Date.

    The Exchange Agent will make a request to establish accounts with respect to
the shares of PriceCostco Common Stock at The Depository Trust Company  ("DTC"),
the Midwest Securities Transfer Company ("MSTC") and the Philadelphia Depository
Trust  Company  ("PHILADEP" and,  together with  DTC  and MSTC,  the "Book-Entry
Transfer   Facilities")   promptly   after    the   date   of   this    Offering
Circular/Prospectus  for the  purpose of the  Exchange Offer,  and any financial
institution that is a participant in any of the Book-Entry Transfer  Facilities'
systems  may make book-entry transfer of  the shares of PriceCostco Common Stock
by causing DTC, MSTC or PHILADEP  to transfer such shares of PriceCostco  Common
Stock  into  the Exchange  Agent's account  in  accordance with  such Book-Entry
Transfer Facility's procedure for such transfer. Although delivery of shares  of
PriceCostco  Common Stock  may be  effected through  book-entry transfer  to the
Exchange Agent's account at DTC, MSTC or PHILADEP, the Letter of Transmittal (or
facsimile thereof),  with  all  required  signature  guarantees  and  any  other
required  documents, or an Agent's Message must,  in any case, be transmitted to
and received or  confirmed by the  Exchange Agent  at one of  its addresses  set
forth  on the  back cover  of this  Offering Circular/Prospectus  prior to 12:00
midnight, New  York City  time,  on the  Expiration  Date, except  as  otherwise
provided  under  "Guaranteed  Delivery  Procedure."  "Agent's  Message"  means a
message transmitted through electronic means  by a Book-Entry Transfer  Facility
to  and  received by  the  Exchange Agent  and forming  a  part of  a book-entry
confirmation, which states that such  Book-Entry Transfer Facility has  received
an  express  acknowledgement from  the participant  in such  Book-Entry Transfer
Facility tendering the shares that such  participant has received and agrees  to
be  bound by the  Letter of Transmittal.  DELIVERY OF DOCUMENTS  TO A BOOK-ENTRY
TRANSFER FACILITY IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE EXCHANGE AGENT AS REQUIRED HEREBY.

    If the Letter of Transmittal is signed  by a person other than a  registered
holder  of any  certificate(s) listed, such  certificate(s) must  be endorsed or
accompanied by appropriate stock  powers, in either case  signed exactly as  the
name or names of the registered holder or holders appear on the certificate(s).

    If  the  Letter  of Transmittal  or  Notice  of Guaranteed  Delivery  or any
certificates or stock powers are signed by trustees, executors,  administrators,
guardians,  attorneys-in-fact, officers  of corporations  or others  acting in a
fiduciary or  representative  capacity, such  persons  should so  indicate  when
signing,  and,  unless waived  by PriceCostco,  proper evidence  satisfactory to
PriceCostco of their authority so to act must be submitted.

                                       54
<PAGE>
    All questions  as to  the  validity, form,  eligibility (including  time  of
receipt),  and acceptance of tendered shares of PriceCostco Common Stock will be
resolved  by  PriceCostco,  whose  determination  will  be  final  and  binding.
PriceCostco  reserves the absolute right  to reject any or  all tenders that are
not in proper form or the acceptance  of which would, in the opinion of  counsel
for  PriceCostco, be unlawful. PriceCostco also  reserves the right to waive any
irregularities or conditions of  tender as to  particular shares of  PriceCostco
Common  Stock. PriceCostco's interpretation  of the terms  and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) will be
final and binding. Unless waived, any irregularities in connection with  tenders
must  be  cured  within  such  time  as  PriceCostco  shall  determine.  Neither
PriceCostco nor the Exchange Agent shall be under any duty to give  notification
of defects in such tenders or shall incur any liability for failure to give such
notification.  Tenders of shares of PriceCostco  Common Stock will not be deemed
to have  been made  until such  irregularities have  been cured  or waived.  Any
shares  of PriceCostco Common Stock received by  the Exchange Agent that are not
properly tendered and  as to  which the irregularities  have not  been cured  or
waived  will be returned by  the Exchange Agent to  the tendering holder, unless
otherwise  provided  in  the  Letter  of  Transmittal,  promptly  following  the
Expiration Date.

    If  any certificate representing shares of PriceCostco Common Stock has been
destroyed, lost or  stolen, the  stockholder must  (i) furnish  to the  Exchange
Agent  evidence, satisfactory to it  in its discretion, of  the ownership of and
the destruction, loss or theft of such certificate, (ii) furnish to the Exchange
Agent indemnity, satisfactory to it in its discretion and (iii) comply with such
other reasonable regulations as the Exchange Agent may prescribe.

GUARANTEED DELIVERY PROCEDURE
    If a holder desires to tender his or her shares of PriceCostco Common  Stock
and  the certificate(s) representing such shares of PriceCostco Common Stock are
not immediately available, or time will not permit such holder's  certificate(s)
or  any  other  required documents  to  reach  the Exchange  Agent  before 12:00
midnight, New York City time, on the  Expiration Date, a tender may be  effected
if:

        (a) The tender is made through an Eligible Institution;

        (b)  Prior to 12:00 midnight, New  York City time, on the Expiration
    Date, the  Exchange  Agent receives  from  such Eligible  Institution  a
    properly  completed and duly executed  Notice of Guaranteed Delivery (by
    telegram, facsimile transmission, mail  or hand delivery) setting  forth
    the  name  and  address  of  the holder  and  the  number  of  shares of
    PriceCostco Common Stock tendered, stating that the tender is being made
    thereby and guaranteeing that, within five New York Stock Exchange, Inc.
    (the "NYSE") trading days after the Expiration Date, the  certificate(s)
    representing  the shares of PriceCostco Common Stock, accompanied by all
    other documents required by the Letter of Transmittal, will be deposited
    by the Eligible Institution with the Exchange Agent; and

        (c) The certificate(s) for all tendered shares of PriceCostco Common
    Stock, or a  confirmation of  a book-entry  transfer of  such shares  of
    PriceCostco Common Stock into the Exchange Agent's applicable account at
    a  Book-Entry  Transfer Facility  as  described above,  together  with a
    properly completed and duly executed Letter of Transmittal (or  manually
    signed  facsimile thereof) and any  required signature guarantees, or an
    Agent's Message in connection with a book-entry transfer, as well as all
    other documents required by the  Letter of Transmittal, are received  by
    the  Exchange Agent within  five NYSE trading  days after the Expiration
    Date.

CONDITIONS TO THE EXCHANGE OFFER
   
    Notwithstanding any other provision of  the Exchange Offer, and in  addition
to the condition that the Registration Statement filed by Price Enterprises with
the  Commission shall have become effective in accordance with the provisions of
the Securities Act, and no stop  order suspending such effectiveness shall  have
been  issued and remain in  effect, PriceCostco shall not  be required to accept
for exchange, and may
    

                                       55
<PAGE>
   
postpone the  acceptance for  exchange  of shares  of PriceCostco  Common  Stock
tendered  to it, and may terminate or amend  the Exchange Offer, if prior to the
acceptance for  exchange of  shares  of PriceCostco  Common  Stock, any  of  the
following events shall occur:
    

        (a)  there shall  have been any  statute, rule,  injunction or other
    order promulgated, enacted, entered or enforced by any state or  federal
    government  or governmental authority  or by any court  and be in effect
    that would  make  the consummation  of  the Exchange  Offer  illegal  or
    otherwise prohibit or restrict consummation of the Exchange Offer;

        (b) there shall have occurred:

           (1)  any general  suspension of  trading in,  or limitation on
       prices for, securities on any  national securities exchange or  in
       the over-the-counter market;

           (2) the declaration of any banking moratorium or suspension of
       payments in respect of banks in the United States;

           (3)   any  limitation  by   any  governmental,  regulatory  or
       administrative agency or authority on  the extension of credit  by
       banks or other lending institutions; or

           (4)  in the case of any of the situations described in clauses
       (1) through  (3) inclusive,  existing  as of  the date  hereof,  a
       material  acceleration  or  worsening thereof  (in  the reasonable
       determination of PriceCostco);

        (c) a tender  or exchange  offer for  any or  all of  the shares  of
    PriceCostco Common Stock (other than the Exchange Offer), or any merger,
    business  combination  or other  similar  transaction with  or involving
    PriceCostco, shall have been proposed, announced or made by any  person;
    or

        (d)  Price Enterprises shall  have breached or  failed to perform in
    any material  respect  any of  its  covenants or  agreements  under  the
    Transfer  and Exchange Agreement, which,  in the judgment of PriceCostco
    in any such case, and regardless of the circumstances giving rise to any
    such condition, makes it inadvisable to proceed with such acceptance for
    payment.

    The foregoing conditions are for the sole benefit of PriceCostco and may  be
asserted  by PriceCostco  regardless of  the circumstances  giving rise  to such
conditions or may be waived by PriceCostco in  whole or in part at any time  and
from  time  to time  in its  sole discretion.  Any determination  by PriceCostco
concerning the  events  described above  will  be  final and  binding  upon  all
parties.

WITHDRAWAL RIGHTS
    Except  as otherwise  provided herein, any  tender of  shares of PriceCostco
Common Stock  made pursuant  to the  Exchange Offer  is irrevocable.  Shares  of
PriceCostco  Common  Stock  tendered  pursuant  to  the  Exchange  Offer  may be
withdrawn at  any time  prior to  the Expiration  Date and,  unless  theretofore
accepted for exchange by PriceCostco pursuant to the Exchange Offer, may also be
withdrawn  at  any  time after  the  expiration  of 40  business  days  from the
commencement of the Exchange  Offer. If PriceCostco extends  the period of  time
during  which the Exchange Offer is open, is delayed in its acceptance of shares
of PriceCostco  Common Stock  for exchange  or  is unable  to accept  shares  of
PriceCostco  Common Stock  for exchange pursuant  to the Exchange  Offer for any
reason, then,  without  prejudice to  PriceCostco's  rights under  the  Exchange
Offer,  the Exchange Agent may,  on behalf of PriceCostco,  retain all shares of
PriceCostco Common Stock tendered, and  such shares of PriceCostco Common  Stock
may  not  be withdrawn  except  as otherwise  provided  herein, subject  to Rule
13e-4(f)(5) under the  Exchange Act, which  provides that the  person making  an
issuer  tender  offer  shall  either pay  the  consideration  offered  or return
tendered securities, promptly after the termination or withdrawal of the offer.

    To be effective, a written, telegraphic or facsimile transmission notice  of
withdrawal must be timely received by the Exchange Agent at one of its addresses
set  forth below and must specify the name of the person who tendered the shares
of PriceCostco  Common  Stock  to be  withdrawn  and  the number  of  shares  of
PriceCostco  Common Stock to be withdrawn precisely  as it appears on the Letter
of Transmittal.

                                       56
<PAGE>
           FIRST INTERSTATE BANK OF WASHINGTON, N.A., EXCHANGE AGENT

   
<TABLE>
<S>                            <C>                            <C>
          BY MAIL:                  OVERNIGHT DELIVERY:              BY HAND (ONLY):
  First Interstate Bank of       First Interstate Bank of       First Interstate Bank of
      Washington, N.A.               Washington, N.A.               Washington, N.A.
          c/o MSTS                       c/o MSTS              Stock Transfer, 14th Floor
        P. O. Box 845          Attn: Reorg Dept., 1st Floor          999 Third Ave.
       Midtown Station               85 Challenger Rd.              Seattle, WA 91804
     New York, NY 10018          Ridgefield Park, NJ 07660                 or
                                                                Special Services Section
                                                                 26610 West Agoura Road
                                                                   Calabasas, CA 91302
                                                                           or
                                                                120 Broadway, 33rd Floor
                                                                   New York, NY 10271
</TABLE>
    

    If the  shares  of  PriceCostco  Common Stock  to  be  withdrawn  have  been
delivered to the Exchange Agent, a signed notice of withdrawal must be submitted
prior  to the release of  such shares of PriceCostco  Common Stock. In addition,
such notice must  specify, in  the case of  shares of  PriceCostco Common  Stock
tendered  by delivery  of certificates,  the name  of the  registered holder (if
different from that of the tendering  stockholder) and the serial numbers  shown
on the particular certificates evidencing the shares of PriceCostco Common Stock
to  be withdrawn or, in the case  of shares of PriceCostco Common Stock tendered
by book-entry  transfer, the  name  and number  of the  account  at one  of  the
Book-Entry  Transfer  Facilities to  be credited  with  the withdrawn  shares of
PriceCostco Common  Stock.  Withdrawals may  not  be rescinded,  and  shares  of
PriceCostco  Common  Stock  withdrawn  will  thereafter  be  deemed  not validly
tendered for  purposes  of the  Exchange  Offer. However,  withdrawn  shares  of
PriceCostco  Common  Stock  may be  retendered  by  again following  one  of the
procedures described in  "Procedures for  Tendering" at  any time  prior to  the
Expiration Date.

    All questions as to the form and validity (including time of receipt) of any
notice  of withdrawal will be determined by PriceCostco, in its sole discretion,
which determination  shall  be  final  and binding.  None  of  PriceCostco,  the
Exchange Agent, the Information Agent or any other person will be under any duty
to  give notification of any defect or  irregularity in any notice of withdrawal
or incur any liability for failure to give any such notification.

ACCEPTANCE OF PRICECOSTCO COMMON STOCK FOR EXCHANGE; DELIVERY OF PRICE
ENTERPRISES COMMON STOCK
   
    Subject to  the terms  and  conditions set  forth herein,  PriceCostco  will
accept  for exchange  any and  all shares  of PriceCostco  Common Stock properly
tendered and not withdrawn  in the Exchange Offer  prior to 12:00 midnight,  New
York  City time, on the  Expiration Date, up to a  maximum of 27 million shares.
PriceCostco will deliver shares of Price Enterprises Common Stock issued in  the
Exchange Offer promptly following the Expiration Date.
    

    For  purposes  of the  Exchange Offer,  PriceCostco will  be deemed  to have
accepted for exchange (and thereby to have purchased) validly tendered shares of
PriceCostco Common Stock when, as and  if PriceCostco has given oral or  written
notice  thereof to the Exchange Agent. The  Exchange Agent will act as agent for
the tendering holders for the purpose  of receiving shares of Price  Enterprises
Common Stock from PriceCostco.

    If  any tendered  shares of  PriceCostco Common  Stock are  not accepted for
exchange because  such shares  were  not tendered  properly, the  occurrence  of
certain  other events set  forth herein or otherwise,  certificates for any such
unexchanged shares  of  PriceCostco  Common  Stock  will  be  returned,  without
expense,  to  the  tendering  holder  thereof (or,  in  the  case  of  shares of
PriceCostco  Common  Stock  tendered  by  book-entry  transfer,  to  an  account
maintained  at the respective Book-Entry  Transfer Facility), promptly after the
expiration or termination of the Exchange Offer.

    PriceCostco expressly  reserves the  right to  seek to  acquire  PriceCostco
Common  Stock  in  the  future  by means  of  open  market  purchases, privately
negotiated   acquisitions,   subsequent   exchange    or   tender   offers    or

                                       57
<PAGE>
otherwise,  at prices and terms to be determined by PriceCostco, which prices or
terms, depending on a variety of circumstances  that may exist at the time,  may
be  higher or lower or more or less favorable, as the case may be, than those in
the Exchange Offer.

EXCHANGE AGENT AND INFORMATION AGENT

    First Interstate Bank  of Washington,  N.A. has been  appointed as  exchange
agent  (the "Exchange Agent")  for the Exchange Offer,  and Georgeson & Company,
Inc. has been appointed as information  agent (the "Information Agent") for  the
Exchange Offer. All correspondence in connection with the Exchange Offer and the
Letter  of  Transmittal  should  be  addressed  to  the  Exchange  Agent  or the
Information Agent at the  addresses or telephone numbers  set forth on the  back
cover page of this Offering Circular/Prospectus.

    Requests   for   information   or  additional   copies   of   this  Offering
Circular/Prospectus or  the  Letter  of  Transmittal  and  all  other  documents
required  by the Letter of Transmittal should  be directed to the Exchange Agent
or the Information Agent. Neither the  Exchange Agent nor the Information  Agent
will solicit tenders in connection with the Exchange Offer.

FINANCIAL ADVISORS

    PriceCostco  has retained DLJ and Lehman Brothers to advise PriceCostco with
respect to the Transaction. Neither DLJ nor Lehman Brothers has been retained to
render an opinion as to the fairness of the Exchange Offer.

    For a description of  the services rendered by,  and fee arrangements  with,
DLJ and Lehman Brothers in connection with the Transaction, see "THE TRANSACTION
- -- Analysis of Financial Advisors to PriceCostco."

PAYMENT OF EXPENSES

    Neither PriceCostco nor Price Enterprises has retained any dealer-manager or
similar soliciting agent in connection with the Exchange Offer and will not make
any  payments  to  brokers,  dealers or  others  soliciting  acceptances  of the
Exchange Offer.  PriceCostco will  pay the  Exchange Agent  and the  Information
Agent  reasonable and customary fees for  their services and will reimburse them
for their reasonable out-of-pocket expenses in connection therewith. PriceCostco
will also pay brokerage  houses and other  custodians, nominees and  fiduciaries
the  reasonable out-of-pocket expenses incurred by  them in forwarding copies of
this Offering Circular/Prospectus and related documents to the beneficial owners
of PriceCostco Common  Stock and  in handling  or forwarding  tenders for  their
customers.

    The  cash expenses  to be  incurred in  connection with  the Exchange Offer,
including the fees and expenses of the Exchange Agent and the Information Agent,
and printing, accounting  and legal  fees, will  be paid  by PriceCostco  except
that,  if the  Transaction is  consummated, all costs  and expenses  of Latham &
Watkins, counsel  to Price  Enterprises,  and Kenneth  Leventhal &  Company,  an
advisor to Price Enterprises, will be paid by Price Enterprises.

    PriceCostco  will pay all transfer taxes, if any, applicable to the transfer
and sale of PriceCostco Common Stock to it or its order pursuant to the Exchange
Offer. If, however, shares of Price Enterprises Common Stock are to be delivered
to, or are to be registered or issued in the name of, any person other than  the
registered  holder  of  the  PriceCostco Common  Stock  tendered  hereby,  or if
tendered certificates are registered  in the name of  any person other than  the
person  signing the Letter of  Transmittal, or if a  transfer tax is imposed for
any reason  other than  the transfer  and sale  of PriceCostco  Common Stock  to
PriceCostco  or its order pursuant to the Exchange Offer, the amount of any such
transfer taxes (whether imposed on the  registered holder or any other  persons)
will  be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted herewith, the amount of  such
transfer taxes will be billed directly to such tendering holder.

                                       58
<PAGE>
                 THE AGREEMENT OF TRANSFER AND PLAN OF EXCHANGE

    The  following is a summary  of the material provisions  of the Transfer and
Exchange Agreement,  a  copy  of  which  is attached  as  Annex  II  hereto  and
incorporated  herein by reference. Such summary  is qualified in its entirety by
reference to the full text of the Transfer and Exchange Agreement.

TRANSFER OF ASSETS; ASSUMPTION OF LIABILITIES

    TRANSACTIONS OCCURRING PRIOR TO THE CLOSING DATE

   
    Pursuant to the Transfer and Exchange Agreement, the Subsidiary Corporations
were formed and PriceCostco caused the Mexico Assets to be transferred to Mexico
Clubs, the International Assets to be transferred to Price Global and the  Quest
Assets  to be transferred to  Price Quest. Each of  Price Global and Price Quest
issued 100 shares of  its common stock  to Price, which  constituted all of  the
outstanding  capital stock of such  Subsidiary Corporation. See "THE TRANSACTION
- -- Transactions Undertaken Prior to the Exchange Offer."
    

    CONVEYANCE OF TRANSFERRED ASSETS

   
    Upon the terms and subject to  the satisfaction of the conditions  contained
in  the  Transfer  and Exchange  Agreement,  as  of the  Transfer  Closing Date,
PriceCostco transferred or  caused to  be transferred to  Price Enterprises  the
Transferred Assets. See "THE TRANSACTION -- Transactions Undertaken Prior to the
Exchange  Offer." With respect to Transferred Assets that PriceCostco was unable
to convey, assign, transfer or deliver (or to cause such action to occur) as  of
the  Transfer  Closing Date,  PriceCostco has  taken  all reasonable  actions to
preserve for, or transfer to, Price Enterprises the benefits of such Transferred
Asset, pending the conveyance, assignment, transfer or delivery thereof to Price
Enterprises. In the event that PriceCostco is unable to convey, assign, transfer
or deliver (or cause such action to  occur) any of the Real Properties to  Price
Enterprises  on or prior to February 28, 1995, Price Enterprises and PriceCostco
will agree to  either (i) an  arrangement, if legally  permissible, pursuant  to
which PriceCostco will lease such Real Property to Price Enterprises pursuant to
a  long-term lease for an annual rent of  $1.00 per year or (ii) a conveyance by
PriceCostco to Price Enterprises of other real property owned by PriceCostco  or
its  subsidiaries  satisfactory to  Price  Enterprises in  substitution thereof.
However, if  both  of such  alternatives  deprive either  PriceCostco  or  Price
Enterprises   of  the  benefits  of   transferring  ownership  of  the  property
contemplated by the Transfer and Exchange  Agreement by February 28, 1995,  then
the  Transfer  and Exchange  Agreement requires  PriceCostco  to remit  to Price
Enterprises in cash the value of such property, as specified in the Transfer and
Exchange Agreement.
    

    CONSIDERATION FOR TRANSFER

    For  a  description  of  the  consideration  for  the  Transfer,  see   "THE
TRANSACTION -- Transactions Undertaken Prior to the Exchange Offer."

THE EXCHANGE OFFER AND THE DISTRIBUTION

    The  Transfer  and  Exchange  Agreement  requires  PriceCostco  to  make the
Exchange Offer (subject
to the terms and  conditions set forth  in "THE EXCHANGE OFFER  -- Terms of  the
Exchange Offer"
and  "--  Conditions to  the  Exchange Offer")  and  the Distribution  (see "THE
TRANSACTION -- The Distribution").

THE CLOSING

   
    The Transfer  and  Exchange  Agreement  provides that  the  closing  of  the
transactions  contemplated thereby, other than those actions that were taken and
transactions that were consummated  as of the Transfer  Closing Date, will  take
place  on the date immediately following the Expiration Date, or if such date is
not a  business  day,  and PriceCostco  so  elects,  on the  next  business  day
thereafter.
    

    On  the Closing Date, the  following actions will be  taken (if such actions
have not been taken prior to the Closing Date): (a) PriceCostco will deliver  to
the Exchange Agent a number of shares of Price Enterprises Common Stock (up to a
maximum  of 27 million such shares) equal to the number of shares of PriceCostco
Stock validly tendered and not withdrawn in the Exchange Offer and accepted  for
payment   by  PriceCostco;  (b)  the   Certificate  of  Incorporation  of  Price
Enterprises  will  be  amended  to  read  in  its  entirety  as  set  forth   in

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Annex  III  and shall  be filed  with the  Secretary  of State  of the  State of
Delaware; (c) the Bylaws of Price Enterprises  will be amended to read in  their
entirety as set forth in Annex IV; (d) the Bylaws of PriceCostco will be amended
to read in their entirety as set forth in Annex V; (e) the Board of Directors of
Price Enterprises shall be expanded and the newly created directorships shall be
filled,  as described in "MANAGEMENT OF  PRICE ENTERPRISES -- Board of Directors
of Price Enterprises"; and  (f) the resignations of  all of the Price  Designees
from  the Board of Directors of PriceCostco,  other than Richard M. Libenson and
Duane Nelles (which  resignations were submitted  to the Board  of Directors  of
PriceCostco on July 28, 1994), shall become effective. Unless removed for cause,
each  of Messrs. Libenson  and Nelles shall  serve on the  Board of Directors of
PriceCostco until the earlier  of (i) the date  two years following the  Closing
Date and (ii) such time as Sol Price and Robert E. Price and their affiliates in
the  aggregate  cease  to  beneficially  own  at  least  two  million  shares of
PriceCostco Common Stock (including any  such shares owned by charitable  trusts
established by either of them).
    

REPRESENTATIONS AND WARRANTIES

    The   Transfer  and  Exchange  Agreement   contains  no  representations  or
warranties with  respect  to the  Transferred  Assets, the  Mexico  Assets,  the
International  Assets or the Quest Assets other than certain representations and
warranties of PriceCostco relating to (a) title to property and (b) brokers  and
finders.

CERTAIN ADDITIONAL MATTERS

    Pursuant  to  the Transfer  and  Exchange Agreement,  PriceCostco  and Price
Enterprises made certain additional agreements  related to the Transfer and  the
Exchange  Offer, including, among others, those related to the matters set forth
below.

    CERTAIN COMMITTEES

    Pursuant to the Transfer and Exchange  Agreement, the Board of Directors  of
PriceCostco  has reconstituted  the PriceCostco Executive  Committee and created
the Price  Enterprises Executive  Committee, each  to serve  during the  Interim
Period.  Pursuant to  the Transfer  and Exchange  Agreement, the  Board has also
reconstituted its audit and compensation  committees and formed new finance  and
real estate committees, each to exist during the Interim Period.

    The  charter  of the  Price Enterprises  Executive Committee  provides that,
during the Interim Period, the Price Enterprises Executive Committee has and may
exercise all the powers and authority  of the Board of Directors of  PriceCostco
in  the management of the business and  affairs of Price Enterprises and, during
such period, shall  cause Price Enterprises  to conduct its  operations only  in
accordance  with  the  ordinary and  usual  course of  business  consistent with
PriceCostco's past  operations of  the Transferred  Assets and  the business  of
Price   Enterprises,  it  being  expressly   acknowledged  that  any  operations
undertaken that are  in accordance with  the fiscal 1995  operating and  capital
budget of Price Enterprises (the "Price Enterprises Budget"), which was prepared
by  management, reviewed by  the Finance Committee  (as hereinafter defined) and
approved by  the Board  on  or prior  to the  Transfer  Closing Date,  shall  be
considered  operations conducted in  the ordinary and  usual course of business;
PROVIDED, HOWEVER, that any action proposed to be taken by the Price Enterprises
Executive Committee with respect to real property assets shall be subject to the
approval of the  Real Estate Committee;  and PROVIDED, FURTHER,  that the  Price
Enterprises  Executive  Committee has  no power  or authority  to (i)  amend the
Certificate of Incorporation of  Price Enterprises, (ii)  adopt an agreement  of
merger  or consolidation with respect to  Price Enterprises under Section 251 or
252 of the  Delaware General  Corporation Law  (the "DGCL"),  (iii) approve  (or
recommend  to PriceCostco's stockholders) the sale,  lease or exchange of all or
substantially all of Price  Enterprises' property and  assets, (iv) approve  (or
recommend to PriceCostco's stockholders) a dissolution of Price Enterprises or a
revocation  of a  dissolution, (v) amend  the Bylaws of  Price Enterprises, (vi)
declare a dividend on shares of Price Enterprises capital stock, (vii) authorize
the issuance  of stock  of  Price Enterprises,  (viii)  adopt a  certificate  of
ownership  and merger with respect to  Price Enterprises pursuant to Section 253
of the DGCL or  (ix) approve any  of the matters listed  in clauses (i)  through
(viii)  with respect to PriceCostco that  the PriceCostco Executive Committee is
also prohibited from  approving. In  addition, the  Price Enterprises  Executive
Committee  has no  power or  authority to  make any  expenditure or  to take any
action in connection therewith that is not in

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the ordinary  and usual  course of  business of  Price Enterprises  unless  such
expenditure or action is unanimously approved by the Board of Directors of Price
Enterprises.  The Price  Enterprises Executive  Committee consists  of Robert E.
Price, Paul A. Peterson and James D. Sinegal.

    The charter of the current PriceCostco Executive Committee has been  amended
to  provide that, during the Interim Period, the PriceCostco Executive Committee
has and may exercise all the powers  and authority of the Board of Directors  of
PriceCostco  in  the  management of  the  business and  affairs  of PriceCostco,
excluding the  business  and affairs  of  Price Enterprises,  and,  during  such
period,  shall cause  PriceCostco to conduct  its operations  only in accordance
with the ordinary and usual course of business consistent with past practice, it
being expressly acknowledged that any  operations undertaken in accordance  with
the  fiscal 1995  operating and capital  budget of  PriceCostco, excluding Price
Enterprises (the  "PriceCostco  Budget"),  which  was  prepared  by  management,
reviewed  by the Finance Committee and approved by  the Board on or prior to the
Transfer Closing Date, shall be considered operations conducted in the  ordinary
and  usual course of business; PROVIDED, HOWEVER, that any action proposed to be
taken by  the  PriceCostco Executive  Committee  with respect  to  matters  that
require  approval of the Real Estate Committee  shall be subject to the approval
of the  Real  Estate Committee;  and  PROVIDED, FURTHER,  that  the  PriceCostco
Executive  Committee has no power  or authority to (i)  amend the Certificate of
Incorporation of PriceCostco, (ii) adopt an agreement of merger or consolidation
under Section 251 or 252  of the DGCL, (iii)  recommend to the stockholders  the
sale,  lease or exchange  of all or substantially  all of PriceCostco's property
and assets, (iv) recommend to the stockholders a dissolution of PriceCostco or a
revocation of a dissolution, (v) amend the Bylaws of PriceCostco, (vi) declare a
dividend, (vii) authorize the issuance of stock or (viii) adopt a certificate of
ownership and  merger pursuant  to Section  253 of  the DGCL.  In addition,  the
PriceCostco  Executive Committee  shall have no  power or authority  to make any
expenditure or to take  any action in  connection therewith that  is not in  the
ordinary  and usual course of business of PriceCostco unless such expenditure or
action is approved  by the Board  of Directors of  PriceCostco. The  PriceCostco
Executive Committee consists of Richard M. Libenson, Duane Nelles and all of the
Costco Designees.

    The  charter of  the current  audit committee of  the Board  of Directors of
PriceCostco (such committee, as reconstituted,  the "Audit Committee") has  been
amended  to provide that,  during the Interim Period,  the Audit Committee shall
meet as  and when  necessary to  review the  results of  the year-end  audit  of
PriceCostco performed by the independent public accountants, review and evaluate
internal  accounting controls and recommend  the selection of independent public
accountants and review and approve  (or ratify) related party transactions,  and
it  is authorized to conduct such reviews and examinations as it deems necessary
with  respect  to  the  practices  and  policy,  and  the  relationship  between
PriceCostco   and  its  independent  auditors,  including  the  availability  of
PriceCostco's records, information and  personnel. The Audit Committee  consists
of  two  Costco Designees  (Daniel Bernard  and John  Meisenbach) and  two Price
Designees (Richard Libenson and Paul Peterson).

    The charter of the current compensation committee of the Board of  Directors
of  PriceCostco (such committee, as reconstituted, the "Compensation Committee")
has been amended to  provide that, during the  Interim Period, the  Compensation
Committee shall meet as and when necessary to review salaries, bonuses and stock
options  of senior officers  of PriceCostco, and  shall administer PriceCostco's
compensation and stock option programs.  The Compensation Committee consists  of
two  Costco  Designees  (Hamilton  James  and  John  Meisenbach)  and  two Price
Designees (Paul Kinloch and Duane Nelles).

    The  charter  of  the  finance  committee  of  the  Board  of  Directors  of
PriceCostco  (the "Finance Committee") provides that, during the Interim Period,
the Finance  Committee  will  review  and  make  recommendations  regarding  the
PriceCostco  Budget and the Price Enterprises Budget and will, from time to time
during the  Interim  Period, meet  as  and when  necessary  to review  and  make
recommendations  with  respect to  (i) the  creation, incurrence,  assumption or
guaranty by PriceCostco of any indebtedness, obligation or liability made during
the Interim Period, (ii)  investments by PriceCostco  during the Interim  Period
and  (iii) all new  financings made during  the Interim Period,  except, in each
case, for any such transactions entered into by PriceCostco in the ordinary  and
usual  course  of  business  of  PriceCostco  or  under  PriceCostco's  existing

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working capital  loans or  commercial  paper program  and consistent  with  past
practice.  The  Finance  Committee  consists of  two  Costco  Designees (Jeffrey
Brotman and Richard DiCerchio) and two Price Designees (Mitchell Lynn and  Duane
Nelles).

    The  charter  of the  real estate  committee  of the  Board of  Directors of
PriceCostco (the  "Real Estate  Committee") provides  that, during  the  Interim
Period,  the  Real  Estate  Committee  will  review  and  approve  (i)  any sale
(including sale-leaseback), lease, conveyance, transfer or other disposition  of
real  property of PriceCostco, and (ii) any purchase, lease or other acquisition
of real property, in either case the value of which is in excess of one  million
dollars;  PROVIDED, HOWEVER, that  no such review and  approval is required with
respect to contractual obligations of PriceCostco that arose on or prior to July
28, 1994. The Real Estate Committee  consists of two Costco Designees  (Hamilton
James  and  James  Sinegal)  and  two Price  Designees  (Robert  Price  and Paul
Peterson).

    AGREEMENT NOT TO COMPETE

    Pursuant to the Transfer and Exchange Agreement, for a period of five  years
following  the Closing Date, Price Enterprises shall not, nor shall it permit or
suffer any  of its  subsidiaries to:  (i) directly  or indirectly  engage in  or
conduct  any Club  Business in  any geographical  area other  than the Specified
Geographical Areas, own  any interest in  another company that  conducts a  Club
Business  in any area other than the Specified Geographical Areas (PROVIDED that
none of Price Enterprises,  Price Global or any  of their subsidiaries shall  be
prohibited  from  purchasing and  owning  securities of  any  such company  as a
passive investment so long as such securities in the aggregate represent no more
than 10% of  the equity  securities of  such company)  or knowingly  sell to  or
provide  services to  a Club  Business in  any such  area, and  in the Specified
Geographical Areas  shall conduct  a  Club Business  only through  the  relevant
Subsidiary  Corporation; (ii) sell, assign,  lease, transfer or otherwise convey
(A) any Commercial Property, or any portion thereof, to any person for use as  a
Club  Business  (other  than  PriceCostco), if  any  Club  Business  operated by
PriceCostco as of July 28,  1994 is located on, adjacent  to or within the  same
development  as such  latter Club Business  or (B)  certain specified Commercial
Properties to any person for  use as a Club Business  so long as PriceCostco  or
one  of its subsidiaries shall  operate a Club Business  in the same trade area;
(iii) conduct a Quest Business from within a location that is owned or  operated
by  any of certain specified companies or in any Club Business other than a Club
Business operated by PriceCostco, Price Enterprises, the Subsidiary Corporations
or any of  the licensees  of the Subsidiary  Corporations; or  (iv) without  the
prior written consent of PriceCostco (which shall not unreasonably be withheld),
engage  in any  business with  any of  certain specified  companies, except that
Price Enterprises and its subsidiaries may (A) except as provided in clause (ii)
above, sell, assign, lease, transfer or  otherwise convey any real property  to,
or  purchase, lease or otherwise take possession  of any real property from, any
of certain specified companies and (B) purchase merchandise from any of  certain
specified  companies  in the  ordinary course  of  business and  consistent with
PriceCostco's past practice.

   
    The Transfer and Exchange Agreement also provides that, for a period of five
years following the Closing Date, PriceCostco shall not, nor shall it permit  or
suffer  any of its  subsidiaries to: (i)  directly or indirectly  conduct a Club
Business in  any of  the Specified  Geographical Areas  other than  through  the
Subsidiary  Corporations, own  any interest in  another company  that conducts a
Club Business in any of the Specified Geographical Areas (PROVIDED that  neither
PriceCostco  nor any of its subsidiaries shall be prohibited from purchasing and
owning securities of any such  company as a passive  investment so long as  such
securities  in the aggregate represent no more than 10% of the equity securities
of such company) or transfer to any person (other than Price Enterprises or  the
relevant  Subsidiary Corporation) the right to conduct a Club Business in any of
the Specified Geographical  Areas, including, without  limitation, any right  to
use  the name "Costco" in such  Specified Geographical Areas; PROVIDED, HOWEVER,
that, with  respect to  Mexico, the  foregoing restrictions  set forth  in  this
clause  (i) will terminate and have no further force and effect upon any sale of
all of the shares of  capital stock of Primex, or  all of the shares of  capital
stock  of Price Club Mexico,  owned, directly or indirectly,  by Mexico Clubs to
Comercial Mexicana or any of its affiliates (as such term is defined under  Rule
12b-2  promulgated pursuant to the Exchange Act); (ii) conduct a Quest Business;
PROVIDED, HOWEVER, that  nothing in  the Transfer and  Exchange Agreement  shall
prohibit  PriceCostco or its  subsidiaries from conducting  business (other than
any business conducted through the Quest Assets) in the
    

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manner heretofore conducted or, with Price Enterprises' consent (which shall not
be  unreasonably  withheld),   from  conducting   interactive  promotional   and
advertising  activities other  than through  an electronic  interactive shopping
format; or (iii) without the prior consent of Price Enterprises (which shall not
unreasonably be withheld), engage in any business with any of certain  specified
companies,  except that PriceCostco  and its subsidiaries  may (A) sell, assign,
lease, transfer or otherwise convey any  Club Business or any real property  to,
or purchase, lease or otherwise take possession of any Club Business or any real
property  from, any of certain specified  companies and (B) purchase merchandise
from any of the certain specified  companies in the ordinary course of  business
and consistent with past practice.

    The  Transfer and Exchange Agreement further provides that prior to entering
into any agreement or  arrangement with any person  (other than PriceCostco)  to
own,  operate or  develop a  Club Business  in any  Specified Geographical Area,
whether pursuant to a joint venture,  license, equity investment by such  person
in Price Global or otherwise, Price Enterprises or Price Global shall obtain the
agreement  of such person that  such person will not  directly or indirectly use
any proprietary information or know-how acquired from Price Global with  respect
to  the  ownership and  operation  of a  Club  Business in  such  person's other
business activities (other than the  Club Business owned, operated or  developed
with  Price Global in the Specified Geographical Area), and such agreement shall
expressly state that  PriceCostco shall  be a  third party  beneficiary of  such
agreement.  In  addition, any  such agreement  with Coles  Myer Ltd.  shall also
provide that Coles Myer  Ltd. will not  enter into a  Club Business outside  the
Specified Geographical Areas.

    CONTINUANCE OF EXISTING INDEMNIFICATION RIGHTS

    Pursuant  to the Transfer and  Exchange Agreement, PriceCostco will continue
the indemnification rights of its present and former officers and directors  for
the  period from the Closing  Date until six years  thereafter and for two years
after the Closing Date will cause to  be maintained the current policies of  the
officers'  and directors' liability insurance maintained by PriceCostco covering
the persons who are presently covered  by such policies with respect to  actions
and omissions occurring prior to the Closing Date to the extent available and on
terms specified in the Transfer and Exchange Agreement.

    ADDITIONAL AGREEMENTS

    Pursuant  to the terms  of the Transfer  and Exchange Agreement, PriceCostco
and Price Enterprises have entered into certain other agreements, including  the
Operating  Agreements (as described in  "CERTAIN RELATED AGREEMENTS -- Operating
Agreements"), the Stockholders Agreements (as defined and described in  "CERTAIN
RELATED  AGREEMENTS  --  Stockholders  Agreements"),  the  PriceCostco Warehouse
Leases  (as  defined  and  described  in  "BUSINESS  AND  PROPERTIES  OF   PRICE
ENTERPRISES  -- Real Estate Business --  Leases"), the Tax Allocation Agreements
(as defined  and described  in  "CERTAIN RELATED  AGREEMENTS --  Tax  Allocation
Agreements")  and  the  Advance  Agreement  (as  described  in  CERTAIN  RELATED
AGREEMENTS -- Advance Agreement") (collectively, the "Additional Agreements").

    APPORTIONMENT

    Pursuant to the  terms of  the Transfer and  Exchange Agreement,  as of  the
Transfer  Closing Date,  PriceCostco and  Price Enterprises  apportioned (i) the
real property taxes on all real property included in the Transferred Assets  and
transferred  to Price  Enterprises thereunder  and (ii)  other similar recurring
municipal and state charges and assessments relating to the Transferred  Assets.
All such prorations were allocated so that items relating to time periods ending
prior  to  the Transfer  Closing Date  were allocated  to PriceCostco  and items
relating to time periods  beginning on or after  the Transfer Closing Date  were
allocated  to Price Enterprises. The amount  of all such prorations were settled
and paid on the Transfer Closing  Date, except that final payments with  respect
to  prorations that were  not able to  be calculated as  of the Transfer Closing
Date will be calculated and paid as soon as practicable thereafter.  PriceCostco
and  Price Enterprises agreed in the  Transfer and Exchange Agreement to furnish
each other with such documents and other records as were reasonably requested to
confirm all proration calculations.

    STANDSTILL AGREEMENTS

    Pursuant to  the terms  of  the Transfer  and  Exchange Agreement,  each  of
PriceCostco  and Price Enterprises agreed and  covenanted that, until five years
after the Closing Date, without the other's written

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consent, it will not  and will cause  each of its  subsidiaries not to  acquire,
offer  or propose to  acquire, or agree  to acquire, directly  or indirectly, by
purchase or  otherwise, any  of  the common  stock of  the  other or  direct  or
indirect rights or options to acquire (through purchase, exchange, conversion or
otherwise),  any such common stock, except  that PriceCostco may exercise all of
its remedies pursuant to the Security and Pledge Agreement, if such agreement is
entered into. See "THE TRANSACTION -- The Distribution."

    CERTAIN MATTERS WITH RESPECT TO THE CITY NOTES

    For a description of the terms  of the Transfer and Exchange Agreement  with
respect  to the City Notes, see "BUSINESS AND PROPERTIES OF PRICE ENTERPRISES --
Real Estate Business -- City Notes and Atlas Note."

    CERTAIN INSURANCE PROCEEDS

    Pursuant to the  terms of  the Transfer and  Exchange Agreement,  if, at  or
after  the Transfer Closing Date, PriceCostco  receives proceeds pursuant to any
insurance policy maintained by PriceCostco or any of its subsidiaries in respect
of liabilities or obligations relating to or arising in respect of Materials  of
Environmental  Concern and  violations or purported  violations of Environmental
Laws that relate  to or  arise out  of any  Real Property  transferred to  Price
Enterprises  under the  Transfer and  Exchange Agreement  and that  arise out of
events occurring prior to the Transfer Closing Date, then PriceCostco agrees  to
remit, or cause to be remitted, such proceeds to Price Enterprises.

    CERTAIN REAL ESTATE MATTERS

   
    The  Transfer  and  Exchange  Agreement provides  that,  to  the  extent not
undertaken or completed  prior to  the execution  of the  Transfer and  Exchange
Agreement,  PriceCostco take certain actions required  to effect the transfer of
the Real Properties thereunder and that PriceCostco and Price Enterprises  enter
into  appropriate agreements covering  access, parking and  similar matters with
respect to the Real  Properties, consistent with the  current operations of  the
Real Properties.
    

    The Transfer and Exchange Agreement further provides that PriceCostco is (a)
entitled  to  receive  all  condemnation proceeds  payable  due  to condemnation
proceedings occurring prior  to the Transfer  Closing Date with  respect to  the
Commercial Property located in Santee, California and (b) required to satisfy in
full all liabilities and obligations pursuant to outstanding indebtedness, which
is  secured by  the Commercial  Property located  in Northridge,  California and
PriceCostco's  Club  Business   real  estate  located   adjacent  thereto   (the
"Northridge  Mortgage") at the earliest time it  may do so without incurring any
prepayment penalty and, upon  such satisfaction, use  all reasonable efforts  to
secure the release of all liens relating to such mortgage.

    CERTAIN OTHER AGREEMENTS

    Pursuant  to  the Transfer  and  Exchange Agreement,  PriceCostco  and Price
Enterprises agreed  to  use  all  reasonable  efforts  to  consummate  and  make
effective  the Transaction.  In accordance  with the  terms of  the Transfer and
Exchange  Agreement,  PriceCostco   afforded  to  Price   Enterprises  and   its
representatives  access during normal business hours throughout the period prior
to the  Transfer  Closing  Date  to  all of  the  Real  Properties  and  all  of
PriceCostco's  contracts, commitments, books and records relating thereto. Price
Enterprises agreed, unless otherwise required by law, to hold, and to cause each
of its officers, employees, accountants, counsel and advisors to hold, any  such
information which is nonpublic in confidence until such time as such information
otherwise   becomes  publicly  available  through   no  wrongful  act  of  Price
Enterprises or any such person and in  the event of termination of the  Transfer
and  Exchange Agreement for any reason,  Price Enterprises will promptly return,
or cause to be returned, all nonpublic documents obtained from PriceCostco.

   
    CERTAIN MATTERS WITH RESPECT TO MEXICO CLUBS
    
   
    If a sale by Mexico Clubs of all  of the shares of capital stock of  Primex,
or  all of the shares  of capital stock of Price  Club Mexico, owned directly or
indirectly by Mexico Clubs to Comercial Mexicana is not consummated on or before
October  1,  1995,  then,  at  the  election  of  either  PriceCostco  or  Price
Enterprises   (delivered  to  the  other  in  writing),  PriceCostco  and  Price
Enterprises have agreed to, and  agreed to cause Mexico  Clubs to, (i) take  all
necessary  actions so  that Mexico  Clubs will cease  to be  a limited liability
    

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company and shall instead become a  corporation organized under the laws of  the
State  of Delaware and  (ii) execute and deliver  a Stockholders' Agreement, the
material terms of which are described  in "THE BUSINESS AND PROPERTIES OF  PRICE
ENTERPRISES -- Mexico Clubs."
    

EMPLOYEE MATTERS

    EMPLOYEES

    Pursuant  to the terms of the Transfer and Exchange Agreement, as of January
1, 1995, Price  Enterprises is  required to  offer to  employ certain  specified
employees  of  PriceCostco who  remain as  employees of  PriceCostco immediately
prior to  January  1,  1995.  Each  such employee  who  accepts  such  offer  of
employment  shall, as of January 1, 1995,  be transferred to the employment, and
become an employee, of Price Enterprises (each such employee and each person who
becomes an employee of  Price Enterprises during  the two-year period  following
the  Closing Date, a "Price Enterprises  Employee"). During the period beginning
on the Transfer Closing  Date and ending on  December 31, 1994 (the  "Transition
Period"),  PriceCostco will continue to employ each such employee (collectively,
and together with  any additional  persons who become  employees of  PriceCostco
during  the Transition Period  at the request  of Price Enterprises, hereinafter
referred to in connection  with the Transition  Period as "Retained  Employees")
and  will provide employee benefits at its  cost to the Retained Employees under
substantially the same terms and conditions as those under which such  employees
are employed as of the Transfer Closing Date. PriceCostco has, however, retained
the  right, at Price Enterprises' request,  to terminate a Retained Employee for
any reason. During the Transition Period, Price Enterprises is required to lease
from PriceCostco the services of the Retained Employees and shall be liable, and
reimburse PriceCostco,  for the  cost of  such services  based on  PriceCostco's
actual  cost  in respect  thereof, including  without limitation  salary, wages,
vacation accrual,  fringe  benefits  and  employee  benefit  costs  and  related
expenses  payable to or on  behalf of the Retained  Employees in accordance with
the terms of  the Transfer and  Exchange Agreement. PriceCostco  will be  solely
liable and retain sole responsibility for the payment of bonuses to the Retained
Employees in respect of the 1994 fiscal year.

    PRICECOSTCO PLANS

    With  respect  to each  "employee  pension benefit  plan,"  as such  term is
defined in section 3(2) of the Employee Retirement Income Security Act of  1974,
as  from  time  to  time  amended ("ERISA"),  maintained  or  contributed  to by
PriceCostco ("PriceCostco Plans"), Price  Enterprises is required to,  effective
as  of January  1, 1995, take,  or cause to  be taken, all  action necessary and
appropriate to establish and maintain substantially equivalent employee  benefit
plans  (the  "Price Enterprises  Plans") for  the  benefit of  Price Enterprises
Employees who participated in the respective, comparable PriceCostco Plan. Price
Enterprises agreed that each Price Enterprises Employee eligible to  participate
in  a PriceCostco Plan  shall immediately become eligible  to participate in the
comparable Price  Enterprises  Plan, and,  for  all purposes  under  such  Price
Enterprises  Plan, each Price Enterprises Employee  shall be entitled to service
and any accrued benefit or account balance, as the case may be, credited to such
Price Enterprises  Employee  as  of January  1,  1995  under the  terms  of  the
comparable  PriceCostco  Plan as  if  such service  had  been rendered  to Price
Enterprises and as  if such accrued  benefit or account  balance had  originally
been  credited to such  Price Enterprises Employee  under such Price Enterprises
Plan.

    In the case of  each PriceCostco Plan that  is a defined contribution  plan,
PriceCostco  will direct the  trustee of each  such plan to  transfer, on, or as
soon as is practicable after, January 1,  1995, to the trustee or other  funding
agent  of  the applicable  Price Enterprises  Plan,  in cash,  securities, other
property or  a combination  thereof, as  determined by  PriceCostco, subject  to
approval  by  Price  Enterprises  (which  approval  shall  not  be  unreasonably
withheld), the respective account balances of the Price Enterprises Employees as
of the date of transfer, plus that portion of any unallocated contributions that
is attributable to the Price Enterprises Employees.

    WELFARE AND CERTAIN OTHER PLANS

    PriceCostco and its subsidiaries shall  be solely responsible for, or  cause
their  insurance carriers to be responsible  for, the satisfaction of all claims
for  medical,  life  insurance,  health,  accident,  workers'  compensation   or
disability  benefits brought by  or in respect  to any of  the Price Enterprises
Employees under each

                                       65
<PAGE>
"employee welfare benefit  plan," as  such term is  defined in  section 3(1)  of
ERISA (the "PriceCostco Welfare Plans"), which claims relate to events occurring
prior  to the Transfer Closing  Date, regardless of when  notices of such claims
are properly filed, without interruption as a result of the employment by  Price
Enterprises  or  any  of its  subsidiaries  of  any such  employees.  During the
Transition Period, and thereafter  until the second  anniversary of the  Closing
Date,  PriceCostco is required to continue to provide coverage under PriceCostco
Welfare Plans to Retained  Employees, directors of  Price Enterprises and  Price
Enterprises Employees, respectively, on the same terms and conditions as were in
effect  prior to the Transfer Closing Date  except for changes in such terms and
conditions that apply to similarly situated employees of PriceCostco or  provide
such  coverage  under an  alternative  arrangement. Price  Enterprises  shall be
liable, and is  required to  reimburse PriceCostco,  for the  provision of  such
coverage based on PriceCostco's actual cost, on an average per capita basis (not
including  any  incremental  costs attributable  to  the use  of  an alternative
arrangement), with respect to  claims relating to events  occurring on or  after
the  Transfer  Closing Date.  Price Enterprises  and  its subsidiaries  shall be
liable, and  reimburse  PriceCostco  and  its  subsidiaries,  for  or  indemnify
PriceCostco and its subsidiaries against any and all liabilities and obligations
whatsoever  in  connection  with  claims for  medical,  life  insurance, health,
accident or disability benefits  brought by or in  respect of Price  Enterprises
Employees  under PriceCostco Welfare Plans or  otherwise, which claims relate to
events occurring on or after the second anniversary of the Closing Date.

    Price Enterprises shall assume all obligations and liabilities with  respect
to  any  other  employment-related  right,  claim,  cause  of  action,  expense,
obligation, liability or cost ("Costs") with  respect to a Retained Employee  or
Price  Enterprises Employee  (including but  not limited  to such  Costs arising
under the Age Discrimination  in Employment Act, Title  VII of the Civil  Rights
Act  of 1964, the WARN Act and other Federal, state or local laws respecting the
terms and conditions of  employment not otherwise provided  for in the  Transfer
and  Exchange Agreement), which Costs are attributable to events occurring on or
after the Transfer Closing  Date; and PriceCostco  shall retain all  obligations
and  liabilities  with respect  to such  Costs that  are attributable  to events
occurring prior to the Transfer Closing Date.

    On, or  as soon  as practicable  after, January  1, 1995,  PriceCostco  will
transfer to Price Enterprises an amount in cash equal to the dollar value of any
accrued  but unused vacation days attributable to Price Enterprises Employees as
determined as of the Transfer Closing Date.

    EMPLOYEE STOCK OPTIONS

    Subject  to  certain  provisos  set  forth  in  the  Transfer  and  Exchange
Agreement,  each outstanding option  ("PriceCostco Option") for  the purchase of
shares of PriceCostco Common Stock granted under any stock option plan of Price,
Costco or PriceCostco, which PriceCostco Option is held, as of January 1,  1995,
by  a Price  Enterprises Employee  and is  then exercisable  or would  have been
exercisable using the  formula set forth  in Section 8(b)  of such stock  option
plan  had the  employment of the  Price Enterprises Employee  been terminated on
such date, shall continue to be exercisable on the same terms and conditions set
forth in the agreement evidencing the grant of PriceCostco Option.

    SEVERANCE PAY

    PriceCostco and Price Enterprises have  agreed in the Transfer and  Exchange
Agreement   that  the  employment  of   Price  Enterprises  Employees  by  Price
Enterprises or any of its subsidiaries on or after January 1, 1995 shall not  be
deemed  a  severance of  employment from  PriceCostco  and its  subsidiaries for
purposes of the payment  of severance, salary  continuation or similar  benefits
pursuant  to  any  policy, plan,  program  or  agreement of  PriceCostco  or its
subsidiaries to the extent that any such policy, plan, program or agreement  now
exists, if any. Price Enterprises and its subsidiaries will assume and be solely
responsible  for all liabilities  and obligations whatsoever  in connection with
claims made by or on behalf of the Retained Employees and the Price  Enterprises
Employees   in  respect  of  severance  pay,  salary  continuation  and  similar
obligations relating  to the  termination  or alleged  termination of  any  such
person's  employment on or after the Transfer Closing Date, and PriceCostco will
remain responsible  for  such liabilities  and  obligations in  connection  with
PriceCostco employees who do not become Retained Employees.

                                       66
<PAGE>
    ADMINISTRATIVE SERVICES

    Pursuant  to  the  Transfer  and Exchange  Agreement,  Price  Enterprises is
required to pay  PriceCostco the sum  of $500,000 in  two equal installments  of
$250,000 each (which shall be due on June 30, 1995 and June 30, 1996) for making
available  to Price Enterprises  administrative services in  connection with the
Price Enterprises Plans and  PriceCostco Welfare Plans whether  or not any  such
services  are used  by Price Enterprises.  At the request  of Price Enterprises,
PriceCostco is  required to  provide to  Price Enterprises  such  administrative
services in connection with the Price Enterprises Plans as Price Enterprises and
PriceCostco  shall mutually agree upon, during the two-year period following the
Closing Date. During such  period, if PriceCostco  shall incur any  incremental,
third-party  out-of-pocket expenses  in connection  with procuring  or providing
employee benefits to  any employee  of Price Enterprises,  Price Enterprises  is
required to reimburse PriceCostco for any such expenses.

INDEMNIFICATION

    Pursuant  to the terms  of the Transfer  and Exchange Agreement, PriceCostco
agreed to  indemnify  Price  Enterprises  against  and  hold  Price  Enterprises
harmless   from  any  loss,  liability,  claim,  damage  or  expense  (including
reasonable legal fees and  expenses) suffered or  incurred by Price  Enterprises
arising from, relating to or otherwise in respect of (i) any material breach of,
or inaccuracy in, any representation or warranty of PriceCostco contained in the
Transfer  and Exchange  Agreement; (ii) any  material breach of  any covenant of
PriceCostco contained in the Transfer and Exchange Agreement; (iii) one-half  of
all liabilities relating to Materials of Environmental Concern and violations or
purported  violations of  Environmental Laws arising  out of or  relating to the
Commercial Property located in Phoenix, Arizona  and known as the Phoenix  Fry's
property;  (iv) the Retained Liabilities; (v)  the Northridge Mortgage; and (vi)
all liabilities  to  which  Price  Enterprises  may  become  subject  under  the
Securities  Act or any other statute or common law (including any amount paid in
settlement of any  litigation, commenced  or threatened, if  such settlement  is
effected   with  the  written  consent  of  PriceCostco)  insofar  as  any  such
liabilities and obligations arise out of or are based upon any untrue  statement
or  alleged untrue  statement of a  material fact contained  in the Registration
Statement or the Schedule  13E-4, or the omission  or alleged omission to  state
therein  a material fact required to be  stated therein or necessary to make the
statements therein not misleading;  PROVIDED, HOWEVER, that the  indemnification
agreement   contained  in  this  paragraph  shall   not  apply  to  any  losses,
liabilities, claims, damages,  or expenses arising  out of, or  based upon,  any
such  untrue  statement or  alleged untrue  statement, or  any such  omission or
alleged omission,  which  was made  in  reliance  upon and  in  conformity  with
information  furnished to PriceCostco by Price Enterprises for use in connection
with the Registration Statement or the Schedule 13E-4.

    The Transfer  and Exchange  Agreement provides  that (a)  PriceCostco  shall
indemnify  Price Enterprises and Mexico Clubs against and hold Price Enterprises
and Mexico Clubs  harmless from any  loss, liability, claim,  damage or  expense
(including  reasonable legal fees  and expenses) suffered  or incurred by Mexico
Clubs arising  from,  relating  to  or otherwise  in  respect  of  any  Retained
Liabilities  relating to  or arising out  of the Mexico  Assets; (b) PriceCostco
shall indemnify  Price  Enterprises and  Price  Global against  and  hold  Price
Enterprises and Price Global harmless from any loss, liability, claim, damage or
expense  (including reasonable legal fees and  expenses) suffered or incurred by
Price Global arising from, relating to  or otherwise in respect of any  Retained
Liabilities  relating to  or arising  out of  the International  Assets; and (c)
PriceCostco shall indemnify Price Enterprises  and Price Quest against and  hold
Price  Enterprises and  Price Quest  harmless from  any loss,  liability, claim,
damage or expense  (including reasonable  legal fees and  expenses) suffered  or
incurred by Price Quest arising from, relating to or otherwise in respect of any
Retained Liabilities relating to or arising out of the Quest Assets.

    In  addition,  the  Transfer  and  Exchange  Agreement  provides  that Price
Enterprises will  indemnify PriceCostco  against and  hold PriceCostco  harmless
from  any loss, liability, claim, damage  or expense (including reasonable legal
fees and expenses) suffered or incurred by PriceCostco arising from, relating to
or otherwise in  respect of (i)  any material  breach of any  covenant of  Price
Enterprises  contained in the Transfer and  Exchange Agreement; (ii) the Assumed
Liabilities (as hereinafter defined); and (iii) all liabilities and  obligations
to  which PriceCostco may become  subject under the Securities  Act or any other
statute  or  common  law  (including  any  amount  paid  in  settlement  of  any
litigation, commenced or

                                       67
<PAGE>
threatened,  if such  settlement is effected  with the written  consent of Price
Enterprises) insofar as any such liabilities and obligations arise out of or are
based upon any untrue statement or  alleged untrue statement of a material  fact
contained  in the Registration Statement or  the Schedule 13E-4, or the omission
or alleged  omission to  state therein  a material  fact required  to be  stated
therein  or necessary to  make the statements  therein not misleading; PROVIDED,
HOWEVER, that the  indemnification agreement contained  in this paragraph  shall
not  apply to any losses, liabilities,  claims, damages, or expenses arising out
of, or based upon, any such untrue statement or alleged untrue statement, or any
such omission  or alleged  omission, which  was  made in  reliance upon  and  in
conformity  with information furnished  to Price Enterprises  by PriceCostco for
use in connection with the Registration Statement or the Schedule 13E-4.

    In addition, (a) Price Enterprises agreed to cause Mexico Clubs to indemnify
PriceCostco against  and hold  PriceCostco harmless  from any  loss,  liability,
claim, damage or expense (including reasonable legal fees and expenses) suffered
or  incurred by PriceCostco arising from, relating to or otherwise in respect of
the Mexico Assets which arise out of  events occurring at or after the  Transfer
Closing  Date; (b) Price  Enterprises agreed to cause  Price Global to indemnify
PriceCostco against  and hold  PriceCostco harmless  from any  loss,  liability,
claim, damage or expense (including reasonable legal fees and expenses) suffered
or  incurred by PriceCostco arising from, relating to or otherwise in respect of
the International Assets  which arise out  of events occurring  at or after  the
Transfer  Closing Date; and (c) Price Enterprises agreed to cause Price Quest to
indemnify PriceCostco  against  and hold  PriceCostco  harmless from  any  loss,
liability,  claim,  damage  or  expense  (including  reasonable  legal  fees and
expenses) suffered  or incurred  by  PriceCostco arising  from, relating  to  or
otherwise  in respect of the Quest Assets which arise out of events occurring at
or after the Transfer Closing Date.

    Pursuant to  the  Transfer and  Exchange  Agreement, Price  Enterprises  has
guaranteed  to PriceCostco  the full and  prompt performance  by each Subsidiary
Corporation of each and  every obligation required of  each of them pursuant  to
such indemnification provisions.

    As   used  in  the  Transfer  and   Exchange  Agreement  and  this  Offering
Circular/Prospectus  "Assumed  Liabilities"   means  (A)   all  liabilities   or
obligations  relating  to  or  arising  in  respect  of  emissions,  discharges,
releases, or threatened releases of toxic or hazardous substances, materials  or
wastes,  or  petroleum  and  petroleum  products  ("Materials  of  Environmental
Concern") and violations or  purported violations of  all Federal, state,  local
and  foreign laws and  regulations relating to pollution  or protection of human
health or the environment, including,  without limitation, laws and  regulations
relating  to Materials  of Environmental Concern,  or otherwise  relating to the
generation,  storage,   disposal,  transport   or  handling   of  Materials   of
Environmental  Concern ("Environmental Laws") that relate to or arise out of the
Real Properties and that arise out of events occurring prior to, at or after the
Transfer Closing  Date and  (B) the  Assumed Construction  Costs; and  "Retained
Liabilities"  means  all  liabilities  and obligations  of  PriceCostco  and its
subsidiaries relating to  or arising out  of (i) the  Mexico Assets (other  than
shares  of  capital stock  of Price  Venture  Mexico), the  International Assets
(other than  the CMI  Stock)  and the  Quest Assets  that  arose out  of  events
occurring  prior to  the Transfer Closing  Date and (ii)  the Transferred Assets
that arose  out of  events occurring  prior to  the Transfer  Closing Date,  but
excluding the Assumed Liabilities.

ARBITRATION

   
    The  Transfer and Exchange  Agreement provides that in  the event that, from
time of time,  any controversy  or claim  shall arise out  of or  relate to  the
Transfer   and  Exchange  Agreement,  any  of  the  Additional  Agreements,  the
transactions contemplated thereby or any documents or agreements contemplated by
or delivered thereunder, or any substantive issue or dispute shall be raised  by
either  PriceCostco or Price Enterprises with the amount in controversy believed
in good faith  by both  parties to  be $15  million or  less, such  controversy,
claim,  substantive  issue or  dispute shall  be settled  by arbitration  in San
Francisco, California  in  accordance therewith  and  with the  then  prevailing
Commercial  Arbitration Rules of the American Arbitration Association, Expedited
Procedures. Each of PriceCostco and  Price Enterprises used reasonable  efforts,
acting  in  good faith,  to mutually  select  one person  prior to  the Transfer
Closing Date  who  shall  serve as  the  arbitrator  with respect  to  any  such
arbitration proceeding.
    

                                       68
<PAGE>
    The  Transfer and Exchange  Agreement also provides that  in the event that,
from time to time, any controversy or claim shall arise out of or relate to  the
Transfer   and  Exchange  Agreement,  any  of  the  Additional  Agreements,  the
transactions contemplated thereby or any documents or agreements contemplated by
or delivered thereunder, or any substantive issue or dispute shall be raised  by
either PriceCostco or Price Enterprises, with the amount in controversy believed
in  good faith by either party to be  in excess of $15 million such controversy,
claim, substantive  issue or  dispute shall  be settled  by arbitration  in  San
Francisco,  California  in accordance  therewith  and with  the  then prevailing
Commercial Arbitration Rules of the American Arbitration Association.

    The decision  of  the  arbitrator  or arbitrators  under  the  Transfer  and
Exchange  Agreement shall  be final  and binding  on the  parties from  which no
appeal may be taken.

                           CERTAIN RELATED AGREEMENTS

OPERATING AGREEMENTS

   
    PriceCostco and Price, on  the one hand, and  Price Enterprises and each  of
the   Subsidiary  Corporations,  on  the  other,  have  entered  into  Operating
Agreements to clarify the ongoing business relationship between PriceCostco  and
the  respective Subsidiary Corporations. For a description of the material terms
of the Operating Agreements, see  "BUSINESS AND PROPERTIES OF PRICE  ENTERPRISES
- -- Mexico Clubs," "-- Price Quest" and "-- Price Global."
    

STOCKHOLDERS AGREEMENTS

   
    PriceCostco  and Price, on the  one hand, and Price  Enterprises and each of
Price Quest  and Price  Global, on  the other,  have entered  into  Stockholders
Agreements  to clarify certain  rights and obligations  of PriceCostco and Price
Enterprises  as   stockholders  of   the  respective   Subsidiary   Corporations
(collectively, the "Stockholders Agreements"). For a description of the material
terms  of the  Stockholders Agreements,  see "BUSINESS  AND PROPERTIES  OF PRICE
ENTERPRISES -- Price Quest" and "-- Price Global."
    

   
LIMITED LIABILITY COMPANY AGREEMENT
    
   
    Price and Price Enterprises  have entered into  a Limited Liability  Company
Agreement  with  respect  to  Mexico  Clubs  that  sets  forth  the  rights  and
obligations of each of Price and Price Enterprises with respect to its  interest
in  Mexico Clubs (the "LLC Agreement"). For  a description of the material terms
of the  LLC Agreement,  see "BUSINESS  AND PROPERTIES  OF PRICE  ENTERPRISES  --
Mexico Clubs."
    
TAX ALLOCATION AGREEMENTS

   
    PriceCostco  has entered into tax allocation agreements (the "Tax Allocation
Agreements") with Price Enterprises  and each of Price  Global, Price Quest  and
Primex  to determine  their responsibilities  for taxes  attributable to periods
before and  after  August  28, 1994.  Under  the  terms of  the  Tax  Allocation
Agreements,  PriceCostco is generally  responsible for the  payment of all taxes
attributable to the operations of PriceCostco, including the assets  transferred
to  Price Enterprises and the Subsidiary  Corporations in the Transaction, until
August 28, 1994  and will indemnify  Price Enterprises and  Price Global,  Price
Quest  or Primex, as the case may be, with respect to such taxes. PriceCostco is
generally responsible for filing  all tax returns  of PriceCostco (including  of
Price  Enterprises, Price Global, Price Quest  and Primex) for periods beginning
prior to  the Closing  Date  and is  principally  responsible for  handling  tax
controversies  with respect  to such  tax returns and  the tax  treatment of the
Transaction. PriceCostco is also  responsible for the payment  of (i) any  taxes
that  may be imposed  on PriceCostco as  a result of  the Transaction failing to
qualify as  tax-free  under section  355  of the  Code  and (ii)  real  property
transfer  taxes attributable to the transfer  of assets to Price Enterprises and
the Subsidiary Corporations in the Transaction.
    

   
    The Tax  Allocation  Agreements  provide that  Price  Enterprises  or  Price
Global,  Price  Quest or  Primex, as  the case  may be,  is responsible  for the
payment of all taxes  attributable to the operations  and assets transferred  to
Price  Enterprises and  the Subsidiary Corporations  in the  Transaction for all
periods beginning on  or after August  28, 1994 and  will indemnify  PriceCostco
with  respect to such taxes. Price Enterprises  and Price Global, Price Quest or
Primex, as the case may be, are generally responsible for filing all tax returns
of Price Enterprises, Price  Global, Price Quest  and Primex, respectively,  for
periods  beginning on or after the  Closing Date and are principally responsible
for handling tax controversies with respect to such tax returns.
    

                                       69
<PAGE>
    Under the terms of the Tax  Allocation Agreements, each party has agreed  to
treat  the Transaction  for all  tax purposes  as a  tax-free distribution under
section 355 of the Code and the contribution of assets to Price Enterprises  and
the  Subsidiary Corporations contemplated by the Transfer and Exchange Agreement
as transactions described in sections 351 and 368 of the Code.

ADVANCE AGREEMENT

   
    PriceCostco and Price  Enterprises have entered  into the Advance  Agreement
pursuant to which PriceCostco will advance Price Enterprises funds for a certain
period  of  time  to  enable  Price  Enterprises  to  conduct  its  business and
operations. The loan is in the  form of an unsecured revolving credit  facility,
up  to a maximum principal amount of $85  million (reduced by an amount equal to
the net proceeds from the sale of any Commercial Properties between the Transfer
Closing Date and the Closing Date).  At the request of Price Enterprises,  funds
will  be advanced to Price  Enterprises by PriceCostco from  time to time during
the period from the Transfer Closing Date until six months following the earlier
of (i) the  Closing Date and  (ii) the  date on which  Price Enterprises  Common
Stock  is distributed to holders of  PriceCostco Common Stock. Price Enterprises
may in  turn  advance funds  borrowed  under  such facility  to  the  Subsidiary
Corporations,  provided that the amount of  such advances outstanding at any one
time is limited to $5 million in each Subsidiary Corporation. Under the  Advance
Agreement,  all  costs to  complete the  construction of  any of  the Commercial
Properties incurred by PriceCostco on  or after June 1,  1994, are deemed to  be
advances  and interest thereon began to accrue on August 29, 1994. All advances,
including interest thereon, are  to be repaid six  months following the  Closing
Date.  The interest rate  under the Advance Agreement  is described under "PRICE
ENTERPRISES, INC. MANAGEMENT'S  DISCUSSION AND ANALYSIS  OF FINANCIAL  CONDITION
AND  RESULTS  OF OPERATIONS  -- Liquidity  and  Capital Resources."  The Advance
Agreement contains  other  terms  customary in  loan  agreements  between  third
parties.
    

                                       70
<PAGE>
                            PRICE ENTERPRISES, INC.
                   UNAUDITED PRO FORMA FINANCIAL INFORMATION

   
    The  following unaudited pro forma balance  sheet of Price Enterprises as of
August 28, 1994 and unaudited  pro forma statements of  income for the 52  weeks
ended  August  28,  1994  have  been prepared  to  reflect  the  results  of the
Transaction. The unaudited pro forma balance  sheet has been prepared as if  the
Transaction  occurred on August  28, 1994. The unaudited  pro forma statement of
income has been  prepared as if  the Transaction  occurred on the  first day  of
fiscal  1994. The unaudited  pro forma financial  information is not necessarily
indicative of the results that actually  would have occurred if the  Transaction
had been consummated as of August 28, 1994 or at the beginning of fiscal 1994.
    

   
                            PRICE ENTERPRISES, INC.
                  UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
                             AS OF AUGUST 28, 1994
                                 (IN THOUSANDS)
    

                                     ASSETS

   
<TABLE>
<CAPTION>
                                                                                  PRO FORMA
                                                              HISTORICAL         ADJUSTMENTS         PRO FORMA
                                                              ----------         -----------         ---------
<S>                                                           <C>                <C>                 <C>
REAL ESTATE ASSETS, NET.....................................   $ 447,387          $   2,100(1)       $449,487
CURRENT ASSETS..............................................      30,412            (27,734)(2)         2,678
INVESTMENT IN PRICE CLUB MEXICO
 JOINT VENTURE..............................................      67,226             --                67,226
NOTES RECEIVABLE............................................      73,023             --                73,023
DEFERRED INCOME TAXES.......................................      23,282             --                23,282
OTHER ASSETS................................................       9,223             --                 9,223
                                                              ----------         -----------         ---------
                                                               $ 650,553          $ (25,634)         $624,919
                                                              ----------         -----------         ---------
                                                              ----------         -----------         ---------

                        LIABILITIES AND INVESTMENT BY PRICECOSTCO/STOCKHOLDERS' EQUITY
LIABILITIES.................................................   $  31,124          $ (16,585)(2)      $ 15,739
                                                                                      1,200(3)
LONG-TERM DEBT..............................................      --                 --                    --(4)
MINORITY INTEREST OF PRICECOSTCO............................      40,641             (5,730)(2)        34,911
INVESTMENT BY PRICECOSTCO/STOCKHOLDERS' EQUITY..............     578,788              2,100(1)        574,269(4)
                                                                                     (5,419)(2)
                                                                                     (1,200)(3)
                                                              ----------         -----------         ---------
                                                               $ 650,553          $ (25,634)         $624,919
                                                              ----------         -----------         ---------
                                                              ----------         -----------         ---------
</TABLE>
    

                    See accompanying notes and assumptions.

                                       71
<PAGE>
   
                            PRICE ENTERPRISES, INC.
                    UNAUDITED PRO FORMA STATEMENT OF INCOME
                     FIFTY-TWO WEEKS ENDED AUGUST 28, 1994
    

                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

   
<TABLE>
<CAPTION>
                                                         PRO FORMA
                                           HISTORICAL   ADJUSTMENTS   PRO FORMA
                                           ----------   -----------   ---------
<S>                                        <C>          <C>           <C>
REVENUES
  Real estate rentals....................   $  29,265     $ 7,016(5)   $ 36,281
  Gains on sale of real estate...........       5,474      --             5,474
  Merchandise sales......................      53,015      --            53,015
                                           ----------   -----------   ---------
    Total revenues.......................      87,754       7,016        94,770
OPERATING EXPENSES
  Real estate expenses...................      17,623       1,548(5)     17,796
                                                           (1,375)(6)
  Merchandise costs and expenses.........      57,997      --            57,997
  General and administrative.............       1,600       1,500(7)      3,100
  Provision for asset impairments........      90,227      --            90,227
                                           ----------   -----------   ---------
    Total operating expenses.............     167,447       1,673       169,120
                                           ----------   -----------   ---------
    Operating loss.......................     (79,693)      5,343       (74,350)
INTEREST AND OTHER.......................       9,947      --             9,947
                                           ----------   -----------   ---------
    Loss before provision for income
     taxes...............................     (69,746)      5,343       (64,403)
BENEFIT FOR INCOME TAXES.................     (28,267)      2,191(8)    (26,076)
                                           ----------   -----------   ---------
    Net loss.............................   $ (41,479)    $ 3,152      $(38,327)
                                           ----------   -----------   ---------
                                           ----------   -----------   ---------
    Net loss per common share (2)........      --                        $(1.42)(9)
      Number of shares used in
       calculation.......................                                27,000
</TABLE>
    

                    See accompanying notes and assumptions.

                                       72
<PAGE>
   
                            PRICE ENTERPRISES, INC.
       NOTES AND ASSUMPTIONS TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
    

   
(1)  To reflect the transfer of one remaining real estate asset valued at $2,100
    million which was purchased and transferred by PriceCostco in fiscal 1995.
    
   
(2) To eliminate working capital retained by PriceCostco in accordance with  the
    Transfer  and Exchange  Agreement. Working  capital retained  by PriceCostco
    primarily relates to the Subsidiary Corporations. These adjustments  reduced
    minority interests and investment by PriceCosto.
    
   
(3)  To  record the  accrual for  estimated organization  costs which  have been
    treated as a reduction of stockholders' equity.
    
   
(4)  Unaudited  pro  forma  net  loss  per  common  share,  long-term  debt  and
    stockholders'  equity assumes all  shares of Price  Enterprises Common Stock
    are issued in the Exchange Offer or distributed to PriceCostco  stockholders
    following  the  Exchange  Offer.  If  only  21.6  million  shares  of  Price
    Enterprises Common  Stock  are  issued  in the  Exchange  Offer,  and  Price
    Enterprises  purchases the remaining 5.4 million shares of Price Enterprises
    Common Stock  from  PriceCostco  for  a note  in  the  principal  amount  of
    approximately   $82.4  million  (assuming  a   per  share  price  for  Price
    Enterprises Common Stock of $15.25, and an interest rate on the  outstanding
    note  of approximately 6.0%),  then unaudited pro forma  net loss per common
    share for fiscal 1994 would be  $1.91, and long-term debt and  stockholders'
    equity as of August 28, 1994 would be approximately $82.4 million and $491.9
    million,  respectively. See  "THE TRANSACTION  -- The  Distribution" for the
    terms of the note.
    
   
(5) To  record  rental income  and  related  depreciation expense  on  the  four
    Warehouse  Properties included in the Transferred Assets and which are being
    leased  back  to  PriceCostco.  Rental  payments  are  specified  in   lease
    agreements  between PriceCostco and  Price Enterprises. Depreciation expense
    is based on the  useful life of buildings  with PriceCostco responsible  for
    all property taxes and maintenance of the Warehouse Properties.
    

   
    Unaudited  pro forma real  estate rentals and  depreciation expense for each
    Warehouse Property is based upon straight-line rents prorated for the number
    of weeks each Warehouse Property was open for business during fiscal 1994 as
    follows (in thousands):
    

   
<TABLE>
<CAPTION>
                                                                       52 WEEKS ENDED
                                               ANNUAL (A)             AUGUST 28, 1994
                                        ------------------------  ------------------------
WAREHOUSE                                RENTAL    DEPRECIATION    RENTAL    DEPRECIATION
- --------------------------------------  ---------  -------------  ---------  -------------
<S>                                     <C>        <C>            <C>        <C>
Morena................................  $     892    $     578    $     892    $     578
Pentagon City (b).....................      2,793          506        1,235          224
Wayne.................................      2,171          420        2,171          420
Westbury..............................      2,718          326        2,718          326
                                        ---------       ------    ---------       ------
                                        $   8,574    $   1,830    $   7,016    $   1,548
                                        ---------       ------    ---------       ------
                                        ---------       ------    ---------       ------
     <FN>
     (a)  Annual rentals  are  calculated  on a  straight-line  basis  over  the
          initial  term  of  the  lease  agreement  for  each  of  the Warehouse
          Properties.
     (b)  Pentagon City was  opened in  March 1994.  If Pentagon  City had  been
          operating for the entire 52 weeks ended August 28, 1994 then unaudited
          pro forma net loss per common share would have been $1.39.
(6)  To  record the reduction of historical  depreciation expense as a result of
     the provision  for asset  impairments  recorded in  the fourth  quarter  of
     fiscal 1994.
(7)  To reflect estimated additional general and administrative costs associated
     with Price Enterprises becoming a separate public company.
(8)  To  adjust the benefit for income taxes  at an effective income tax rate of
     41%.
(9)  Includes a  provision  for  asset  impairments  of  $90,200  pre-tax  which
     includes $80,500 pre-tax ($47,500 after tax or $1.76 net loss per pro forma
     common  share)  related to  a change  in  calculating estimated  losses for
     assets which are  considered to  be economically impaired.  If the  $80,500
     pre-tax provision for asset impairments were excluded, pro forma net income
     for  fiscal 1994  would have been  approximately $9,173 or  $.34 per common
     share.
</TABLE>
    

                                       73
<PAGE>
   
                                  PRICECOSTCO
              UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
    

   
    The following unaudited pro forma condensed balance sheet of PriceCostco  as
of  August 28, 1994 and  unaudited pro forma condensed  statements of income for
the  52  weeks  ended  August  28,  1994  have  been  prepared  to  reflect  the
Transaction.  The unaudited pro forma balance sheet  has been prepared as if the
Transaction occurred  on August  28,  1994. The  unaudited pro  forma  condensed
statement  of income  has been  prepared as if  the Transaction  occurred on the
first  day  of  fiscal  1994.  The  unaudited  pro  forma  condensed   financial
information  is not  necessarily indicative of  the results  that actually would
have occurred if the Transaction had been  consummated as of August 28, 1994  or
at the beginning of fiscal 1994.
    

   
                                  PRICECOSTCO
                  UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
                             AS OF AUGUST 28, 1994
                                 (IN THOUSANDS)
    

                                     ASSETS

   
<TABLE>
<CAPTION>
                                                      PRO FORMA
                                        HISTORICAL   ADJUSTMENTS      PRO FORMA
                                        ----------  -------------   -------------
<S>                                     <C>         <C>             <C>
CURRENT ASSETS........................  $1,534,298  $  (2,678)(1a)  $1,531,620
PROPERTY AND EQUIPMENT, net...........   2,146,396     (4,014)(1a)   2,142,382
DISCONTINUED OPERATIONS -- NET
 ASSETS...............................     377,085   (377,085)(1b)      --
INVESTMENT IN PRICE CLUB MEXICO JOINT
 VENTURE..............................      67,226    (34,285)(1c)      32,941
OTHER ASSETS..........................     110,654      2,585(1a)      113,239
                                        ----------  -------------   -------------
                                        $4,235,659  $(415,477)      $3,820,182(5)
                                        ----------  -------------   -------------
                                        ----------  -------------   -------------

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES...................  $1,647,307  $  (3,727)(1a)  $1,643,580
LONG-TERM DEBT........................     795,492     --              795,492
DEFERRED INCOME TAXES AND OTHER
 LIABILITIES..........................      73,121     --               73,121
                                        ----------  -------------   -------------
    Total liabilities.................   2,515,920     (3,727)       2,512,193
                                        ----------  -------------   -------------
MINORITY INTERESTS....................      34,779     --               34,779
                                        ----------  -------------   -------------
STOCKHOLDERS' EQUITY..................   1,684,960   (411,750)(1d)(8)  1,273,210(5)
                                        ----------  -------------   -------------
                                        $4,235,659  $(415,477)      $3,820,182
                                        ----------  -------------   -------------
                                        ----------  -------------   -------------
</TABLE>
    

                    See accompanying notes and assumptions.

                                       74
<PAGE>
   
                                  PRICECOSTCO
                    UNAUDITED PRO FORMA STATEMENT OF INCOME
                 FOR THE FIFTY-TWO WEEKS ENDED AUGUST 28, 1994
    

                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

   
<TABLE>
<CAPTION>
                                                                                               PRO FORMA
                                                                                  HISTORICAL   ADJUSTMENTS        PRO FORMA
                                                                                  -----------  ---------         -----------
<S>                                                                               <C>          <C>               <C>
REVENUES
  Net sales.....................................................................  $16,160,911  $(53,015)(1e)     $16,107,896
  Membership fees and other.....................................................      319,732     --                 319,732
                                                                                  -----------  ---------         -----------
    Total revenues..............................................................   16,480,643   (53,015)          16,427,628
MERCHANDISE COSTS...............................................................   14,662,891   (49,449)(1e)      14,613,442
OPERATING EXPENSES..............................................................    1,457,613   (10,148)(1e)       1,452,933
                                                                                                  5,468(6)
                                                                                  -----------  ---------         -----------
    Operating income............................................................      360,139     1,114              361,253
OTHER INCOME (EXPENSE)
  Interest expense..............................................................      (50,472)    --                 (50,472)
  Interest and other income.....................................................       13,888    (5,487)(1f)           8,401
  Provision for merger and restructuring expenses...............................     (120,000)                      (120,000)
                                                                                  -----------  ---------         -----------
  Income before provision for income taxes......................................      203,555    (4,373)             199,182
PROVISION FOR INCOME TAXES......................................................       92,657    (1,793)(7)           90,864
                                                                                  -----------  ---------         -----------
    Income from continuing operations...........................................  $   110,898  $ (2,580)         $   108,318
DISCONTINUED OPERATIONS
  Loss, net of tax (2)..........................................................      (40,766)   40,766(1g)(9)       --
  Loss on disposal (3)..........................................................     (182,500)  182,500(1g)          --
                                                                                  -----------  ---------         -----------
NET INCOME (LOSS)...............................................................  $  (112,368) $220,686          $   108,318
                                                                                  -----------  ---------         -----------
                                                                                  -----------  ---------         -----------
Net income (loss) per common and common equivalent share (fully diluted):
  Continuing operations.........................................................  $       .51
  Discontinued operations
    Loss, net of tax (2)........................................................         (.19)
    Loss on disposal (3)........................................................         (.83)
                                                                                  -----------
  Net loss......................................................................  $      (.51)
                                                                                  -----------
                                                                                  -----------
Pro forma income from continuing operations per common and common equivalent
 share (fully diluted) based on level of participation in Exchange Offer (4):
    100% (27.0 million shares)..........................................................................         $       .56
    80% (21.6 million shares)...........................................................................                 .55(5)
    50% (13.5 million shares)...........................................................................                 .53
    0% (No Shares Tendered).............................................................................                 .49
</TABLE>
    

                    See accompanying notes and assumptions.

                                       75
<PAGE>
                                  PRICECOSTCO
  NOTES AND ASSUMPTIONS TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION

   
(1)  To record the following transfers  by PriceCostco of the Transferred Assets
    to Price Enterprises:
    
   
    (a) All the assets of Price Global and the noncurrent assets of Price  Quest
       less a remaining 49% investment recorded as other assets.
    
   
    (b)  Net assets related  to discontinued real estate  operations as shown on
       the consolidated balance sheets of PriceCostco at August 28, 1994 consist
       of the following:
    

   
<TABLE>
<CAPTION>
                                                                                        1994
<S>                                                                                  <C>
Non-Club Real Estate properties, net of accumulated depreciation...................  $   351,958
Warehouse Properties, net of accumulated depreciation..............................       91,415
City and Atlas Notes...............................................................       73,023
Other assets.......................................................................        8,672
Deferred tax assets................................................................       23,282
Liabilities........................................................................       (4,015)
                                                                                     -----------
                                                                                         544,335
Less: Reserve for estimated loss on disposal.......................................     (167,250)
                                                                                     -----------
Discontinued operations -- net assets..............................................  $   377,085
                                                                                     -----------
                                                                                     -----------
</TABLE>
    

   
    (c) Transfer of 51%  interest in the investment  in Price Club Mexico  joint
       venture.
    
   
    (d)  Reduction  of stockholders'  equity equal  to the  net assets  of Price
       Enterprises at August 28, 1994.
    

   
To eliminate income statement results of  the Transferred Assets for the  period
       presented as follows:
    
   
    (e)  Eliminate  merchandise  sales,  cost of  sales  and  operating expenses
       related to Price Quest  and Price Global  and general and  administrative
       expenses related to Price Enterprises.
    
   
    (f) Eliminate interest income on City Notes, equity in net earnings of Price
       Club Mexico other income of Price Enterprises offset by minority interest
       retained.
    
   
    (g)  Eliminate discontinued  non-club real  estate operations  including the
       estimated loss on disposal.
    

   
(2) The fiscal 1994 loss from  discontinued operations includes a provision  for
    asset impairments of $90,200 pre-tax which includes $80,500 pre-tax ($47,500
    after  tax or $.22 per  share) related to a  change in calculating estimated
    losses for assets  which are  considered to be  economically impaired.  This
    change  in accounting estimates results from the spin-off of the real estate
    segment assets  to  Price Enterprises  and  Price Enterprises'  decision  to
    pursue business plans and operating strategies as a stand-alone entity which
    are  significantly  different  than  the  strategies  of  PriceCostco. Price
    Enterprises' management believes  that as a  separate operating business  it
    will not have the same access to capital as PriceCostco or generate internal
    funds from operations to the same extent as PriceCostco.
    PriceCostco's  accounting policies with respect  to estimating the amount of
    impairments on individual  real estate  properties and  related assets  were
    such  that impairment losses would be recorded if the carrying amount of the
    asset could  not  be  recovered  from estimated  future  cash  flows  on  an
    undiscounted  basis. Price Enterprises' management  believes that in view of
    its strategies with  respect to  the number  and nature  of properties  that
    would be selected for potential disposition, it would be more appropriate to
    estimate  impairment  losses  based  on  fair  values  of  the  real  estate
    properties as  determined by  appraisals and/or  a risk-adjusted  discounted
    cash flow approach. In determining impairment losses, individual real estate
    assets  were reduced to estimated fair value, if lower than historical cost.
    For those assets which have an estimated  fair value in excess of cost,  the
    asset  continues to be recorded at cost. The impairment losses recorded as a
    result of this  change in  accounting estimates  reduced the  book basis  of
    certain of the real estate and related assets.
    Under  the previous policy, PriceCostco and Price enterprises had determined
    that a provision for asset impairments of approximately $9,700 was  required
    relating  to four  properties which  were under  final contract  or in final
    negotiations for sale.
    
   
(3) In  the fourth  quarter of  fiscal 1994,  as a  result of  the  Transaction,
    PriceCostco  reported  its non-club  real estate  segment as  a discontinued
    operation resulting  in  income  statement  data  being  restated  in  every
    

                                       76
<PAGE>
   
    period  presented. An estimated loss on disposal of the non-club real estate
    segment of approximately $182.5 million  was recorded in the fourth  quarter
    of  fiscal  1994.  The  estimated  loss on  disposal  is  calculated  as the
    difference between PriceCostco's net book value of the Transferred Assets of
    $578.8 million  (after  a  net  reduction  for  a  change  in  estimate  for
    calculating asset impairments of approximately $47.5 million on an after tax
    basis)  and  the  estimated  market  value of  27  million  shares  of Price
    Enterprises Common Stock of  $411.8 million (assuming a  per share price  of
    $15.25, the last reported sales price of PriceCostco Common Stock on October
    24,  1994) and direct expenses and other costs related to the Transaction of
    approximately $15.5 million.  The actual loss  will be determined  following
    consummation  of the Transaction,  at which time the  estimated loss will be
    adjusted, as necessary. For  a discussion on the  computation of the  actual
    loss, see "THE TRANSACTION -- Anticipated Accounting Treatment."
    
   
(4)  Unaudited pro forma  net income per  common and common  equivalent share is
    calculated assuming various  levels of participation  in the Exchange  Offer
    and  assuming that  all remaining shares  of Price  Enterprises Common Stock
    held by PriceCostco after the Exchange Offer are distributed to  PriceCostco
    stockholders.   Unaudited  pro  forma  net  income  per  common  and  common
    equivalent share of PriceCostco is calculated  to reflect the effect of  any
    adjustment   in  the   conversion  price  of   the  outstanding  PriceCostco
    convertible subordinated debentures  as a  result of  the Transaction.  Such
    adjustment  is calculated assuming shares of PriceCostco Common Stock have a
    market price of  $15.25 and  shares of  Price Enterprises  Common Stock  are
    deemed  to have  an equal value  at the  time of the  Distribution. See "THE
    TRANSACTION -- Effect of the Transaction on Convertible Securities."
    

   
(5) If only 21.6 million shares of  Price Enterprise Common Stock are issued  in
    the Exchange Offer and Price Enterprises purchases the remaining 5.4 million
    shares  of Price Enterprises Common Stock from PriceCostco for a note in the
    principal amount of approximately $82.4 million (assuming a per share  price
    for  Price Enterprises Common  Stock of $15.25  and an interest  rate on the
    outstanding note of approximately 6%),  then unaudited pro forma net  income
    per  common and common equivalent share for  fiscal year 1994 would be $.56,
    and, as of  August, 1994,  total assets  and stockholders'  equity would  be
    approximately   $82.4   million  higher.   See   "The  Transaction   --  The
    Distribution" for a discussion of the terms of the note.
    
   
(6) To  record the  annual straight-line  lease expense  of the  four  Warehouse
    Properties  and  the  elimination  of depreciation  expense  related  to the
    Warehouse Properties. See Note  3 to Price  Enterprises Unaudited Pro  Forma
    Financial Information for more details of this adjustment.
    

   
(7)  To record the income tax impact of pro forma adjustments at an assumed rate
    of 41%.
    
   
(8) Reconciliation of Price Enterprises  (Historical) net assets to  PriceCostco
    Pro Forma Adjustments:
    

   
<TABLE>
          <S>                                                           <C>
          Investment by PriceCostco/Stockholders' equity
              Price Enterprises -- Historical.........................     $    578,788
              Loss on disposal of discontinued operations.............         (182,500)
              Transaction and other costs.............................           15,462
                                                                        ---------------
              Pro Forma Adjustment -- PriceCostco.....................     $    411,750
                                                                        ---------------
                                                                        ---------------
</TABLE>
    

   
(9) Reconciliation of Price Enterprises -- historical net loss to PriceCostco --
    loss from discontinued operations:
    

   
<TABLE>
          <S>                                                           <C>
          Price Enterprises -- historical net loss....................      $(41,479)
          PriceCostco's Pro Forma Adjustments:
            Income from continuing operations, net of tax.............       (2,580)
            Rent expense on Warehouse Properties......................        5,468
            Tax effect of rent expense on Warehouse Properties at
             41%......................................................       (2,242)
            Other, net................................................           67
                                                                        ---------------
          PriceCostco -- loss from discontinued operations............      $(40,766)
                                                                        ---------------
                                                                        ---------------
</TABLE>
    

                                       77
<PAGE>
                            PRICE ENTERPRISES, INC.
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                       (IN THOUSANDS, EXCEPT PERCENTAGES)

   
    The   following  discussion  should  be  read  in  conjunction  with  "PRICE
ENTERPRISES, INC. SELECTED  HISTORICAL FINANCIAL DATA"  and "Price  Enterprises,
Inc.  Financial Statements,"  each of  which appear  elsewhere in  this Offering
Circular/Prospectus.
    

   
    Price Enterprises  operates  in  two  business  segments,  real  estate  and
merchandising.  The  discussion  and analysis  below  describes  the significant
changes in  real estate  rental operations  as well  as gains  on sale  of  real
estate.  Merchandising operations consists  of the operations  of Quest and CMI,
both of which  commenced operations in  fiscal 1992. Interest  and other  income
presents  the  income generated  by Price  Enterprises'  investment in  the City
Notes, the Atlas  Note, real  estate joint ventures  and the  Price Club  Mexico
joint  venture. The following discussion compares  the results of operations for
fiscal 1994 to fiscal 1993  and fiscal 1993 to  fiscal 1992. In those  instances
throughout  the following discussion  where changes are  attributed to more than
one factor, such factors have been presented in descending order of importance.
    

   
RESULTS OF OPERATIONS -- FISCAL 1994 COMPARED TO FISCAL 1993 COMPARED TO FISCAL
                         1992
    

   
<TABLE>
<CAPTION>
                                            REVENUE     PERCENT     OPERATING                PERCENT
REAL ESTATE RENTAL OPERATIONS               AMOUNT      CHANGE       INCOME      CHANGE      CHANGE
                                           ---------  -----------  -----------  ---------  -----------
<S>                                        <C>        <C>          <C>          <C>        <C>
  Fiscal 1994............................  $  29,265       32.2%    $  11,642   $   2,808       31.8%
  Fiscal 1993............................     22,144      (21.7)%       8,834      (5,574)     (38.7)%
  Fiscal 1992............................     28,263      --           14,408      --         --
</TABLE>
    

   
    Operating income is defined as rental  revenue less the related real  estate
expenses,  but does  not include  the impairment  writedown discussed  below. In
1994, the increase in revenue and operating  income was due to the increases  in
rental  revenue  from properties  located in  Signal Hill,  California; Seekonk,
Massachusetts; Bensalem,  Pennsylvania;  Carmel Mountain,  California;  Fountain
Valley,  California; Northridge, California; Wayne, New Jersey and Westbury, New
York, somewhat  offset  by declines  in  revenues due  to  the sale  of  certain
properties  to the REIT. In  1993, the declines of  revenue and operating income
were due to the impact of the sale of certain properties to the REIT, offset  by
increases  of  rental  income  from properties  located  in  Wayne,  New Jersey;
Fairfax, Virginia; Glen Burnie, Maryland; and Fountain Valley, California.
    

   
<TABLE>
<CAPTION>
                                             GAINS                PERCENT
GAINS ON SALE OF REAL ESTATE                ON SALE    CHANGE      CHANGE
                                           ---------  ---------  ----------
<S>                                        <C>        <C>        <C>         <C>        <C>
  Fiscal 1994............................  $   5,474  $ (16,066)     (74.6)%
  Fiscal 1993............................     21,540      6,462       42.9%
  Fiscal 1992............................     15,078     --          --
</TABLE>
    

   
    In 1994, gains on the sale of  real estate related primarily to the sale  of
three  properties, two shopping centers located  in Glendale and Tempe, Arizona,
which were sold to the REIT, and a sale of land located in San Antonio, Texas to
an unrelated  third  party,  but  does  not  include  the  impairment  writedown
discussed  below. These gains were somewhat offset by a loss on the sale of land
located in Austin, Texas to an unrelated third party. In 1993, gains on sale  of
real  estate  related principally  to  sales of  properties  to the  REIT. These
properties included rental properties located in Santa Ana, California; Fairfax,
Virginia; White Marsh, Maryland; and Copaigue, New York, in addition to a  49.6%
interest  in a joint venture which owns  five shopping centers. These gains were
offset by  a  loss  incurred on  the  disposition  of a  former  warehouse  club
location.  In  1992, gains  on property  sales related  principally to  sales of
property to the  REIT. These  properties included a  50.4% interest  in a  joint
venture  which  owns  five shopping  centers  and rental  properties  located in
Cerritos, California and Corona, California.
    

                                       78
<PAGE>

   
<TABLE>
<CAPTION>
                                             SALES      PERCENT       GROSS       % OF       PERCENT
MERCHANDISING OPERATIONS                    AMOUNT       CHANGE      MARGIN      SALES        CHANGE
                                           ---------  ------------  ---------  ----------  ------------
<S>                                        <C>        <C>           <C>        <C>         <C>
  Fiscal 1994............................  $  53,015          85%   $   3,566        6.7%         148%
  Fiscal 1993............................     28,671         249%       1,438        5.0%         286%
  Fiscal 1992............................      8,212       --             373        4.5%       --
</TABLE>
    

   
    Gross margin is defined  as merchandise sales  less the related  merchandise
costs.  In 1994, the increase in sales and gross margin are primarily attributed
to the  expansion  of  Quest  which  earns a  higher  gross  margin  than  Price
Enterprises'  other merchandising operations and  which represented 37% of total
sales. In 1993, most of the increases in sales and gross margin relate to a full
year of activity for CMI. In addition, Quest sales at PriceCostco warehouse club
locations began to contribute to sales  in fiscal 1993; however, these  amounts,
which  earn a higher gross margin, represented  less than 20% of total sales for
the year and had very little impact on the overall reported gross margin.
    

   
<TABLE>
<CAPTION>
                                                                  PERCENT
MERCHANDISING OPERATING EXPENSES            AMOUNT     CHANGE      CHANGE
                                           ---------  ---------  ----------
<S>                                        <C>        <C>        <C>         <C>        <C>
  Fiscal 1994............................  $   8,548  $   4,899      134.3%
  Fiscal 1993............................      3,649      2,386      188.9%
  Fiscal 1992............................      1,263     --          --
</TABLE>
    

   
    In 1994, the increase in merchandising operating expenses was primarily  due
to  the expansion of the Quest Business. In 1993, the increase was primarily due
to the expansion of the Quest Business and to a smaller extent the inclusion  of
a full year of CMI expenses.
    

   
<TABLE>
<CAPTION>
                                                                  PERCENT
GENERAL AND ADMINISTRATIVE EXPENSES         AMOUNT     CHANGE      CHANGE
                                           ---------  ---------  ----------
<S>                                        <C>        <C>        <C>         <C>        <C>
  Fiscal 1994............................  $   1,600  $     100        6.7%
  Fiscal 1993............................      1,500        200       15.4%
  Fiscal 1992............................      1,300     --          --
</TABLE>
    

   
    PriceCostco  historically provided services to Price Enterprises and charged
these expenses to Price Enterprises by specific identification or by allocations
based on total assets or sales revenues.  In 1994 and 1993, the small  increases
in expenses reflect the continued growth of Price Enterprises.
    

   
<TABLE>
<CAPTION>
                                                                  PERCENT
INTEREST AND OTHER INCOME                   AMOUNT     CHANGE      CHANGE
                                           ---------  ---------  ----------
<S>                                        <C>        <C>        <C>         <C>        <C>
  Fiscal 1994............................  $   9,947  $   1,444       17.0%
  Fiscal 1993............................      8,503      2,928       52.5%
  Fiscal 1992............................      5,575     --          --
</TABLE>
    

   
    In  1994, the increase in interest and other income was due to the favorable
impact of PriceCostco's minority interest in  the increased losses of the  Quest
Business,  an increase in the equity in  earnings of Price Club Mexico partially
offset by a decrease in the earnings of real estate joint ventures. In 1993, the
increase in interest and other income was due to increases in earnings from real
estate joint ventures, increases in the equity in earnings of Price Club  Mexico
and  the favorable  impact of PriceCostco's  minority interest  in the increased
losses of the Quest Business.
    

   
    PROVISION FOR ASSET IMPAIRMENTS
    
   
    The provision  for  asset  impairments of  $90,200  pre-tax  which  includes
$80,500 pre-tax ($47,500 after tax) related to a change in calculating estimated
losses  for assets which are considered to be economically impaired. This change
in accounting estimates  results from the  spin-off of the  real estate  segment
assets  to Price Enterprises and Price  Enterprises' decision to pursue business
plans and operating strategies as  a stand-alone entity which are  significantly
different  than  the strategies  of  PriceCostco. Price  Enterprises' management
believes that as a separate operating business it will not have the same  access
to capital as PriceCostco or generate internal funds from operations to the same
extent as PriceCostco.
    

   
    PriceCostco's  accounting policies with respect  to estimating the amount of
impairments on individual real  estate properties and  related assets were  such
that impairment losses would be recorded if the carrying
    

                                       79
<PAGE>
   
amount  of the asset could not be  recovered from estimated future cash flows on
an undiscounted basis. Price  Enterprises' management believes  that in view  of
its strategies with respect to the number and nature of properties that would be
selected  for potential  disposition, it would  be more  appropriate to estimate
impairment losses  based  on  fair  values of  the  real  estate  properties  as
determined  by appraisals and/or a  risk-adjusted discounted cash flow approach.
In determining impairment losses, individual real estate assets were reduced  to
estimated fair value, if lower than historical cost. For those assets which have
an estimated fair value in excess of cost, the asset continues to be recorded at
cost.  The impairment losses recorded  as a result of  this change in accounting
estimates reduced  the book  basis of  certain of  the real  estate and  related
assets.
    

   
<TABLE>
<CAPTION>
                                                                           PERCENT    EFFECTIVE
PROVISION (BENEFIT) FOR INCOME TAXES                 AMOUNT     CHANGE     CHANGE      RATE
                                                    ---------  ---------  ---------   -------
<S>                                                 <C>        <C>        <C>         <C>       <C>
  Fiscal 1994.....................................  $ (28,267)  42,882       N/A       40.5 %
  Fiscal 1993.....................................     14,615      1,105        8.2%   41.6 %
  Fiscal 1992.....................................     13,510     --         --        41.1 %
</TABLE>
    

   
    In  1994, the income tax benefit is the net of current tax expense of $8,192
and deferred tax benefits of $36,459. The deferred benefit relates primarily  to
the provision for asset impairments which is not deductible currently for income
tax purposes. The increase in the effective tax rate in fiscal 1993 is primarily
due  to an increase in the Federal statutory  rate from 34% to 35% in the fourth
quarter of fiscal  1993. The changes  in the  effective tax rate  in all  fiscal
years  presented  is  due  primarily  to the  net  operating  losses  of certain
Subsidiary Corporations, which are  currently not recognized  as a reduction  of
income tax expense.
    

LIQUIDITY AND CAPITAL RESOURCES

    Price Enterprises expects to finance its business activities through several
sources.  The cash flow generated by its real estate activities, as well as cash
flow that  may  ultimately  be  generated by  the  Subsidiary  Corporations,  is
expected  to be reinvested in either  additional real estate development efforts
or through  capital contributions  or loans  to the  Subsidiary Corporations  or
other  business activities.  In the  immediate future,  pursuant to  the Advance
Agreement, PriceCostco will  provide an  $85 million  revolving facility  credit
(subject  to reduction  for proceeds  of certain  real property  sales) to Price
Enterprises as interim financing to satisfy any cash requirements during the six
months following the  Closing Date.  Under such revolving  credit facility,  the
interest  rate is  the weighted average  commercial paper rate  on borrowings by
PriceCostco  during  each  four-week  period  (including,  without   limitation,
amortization  of  lender commitment  fees and  other  costs associated  with the
backup line of credit  and all miscellaneous costs  and fees), or if  commercial
paper is unavailable under PriceCostco's commercial paper program, the bank rate
on  borrowings by  PriceCostco pursuant to  its working  capital credit facility
(including, without limitation, amortization of lender commitment fees and other
costs associated  with such  credit  facility and  all miscellaneous  costs  and
fees).  See "CERTAIN RELATED AGREEMENTS -- Advance Agreement." In the future, to
the extent  that  investment  opportunities  exceed  available  cash  flow  from
operations,  Price  Enterprises  will  seek  additional  funds,  as appropriate,
through bank credit facilities, securitized debt and/or public equity offerings.

    Consistent  with  historical  trends,  operating  income  from  real  estate
activities  increases as properties are developed and declines as properties are
sold. Price  Enterprises' liquidity  is  primarily affected  by the  timing  and
magnitude  of rental property  acquisition, development and  disposition, and of
capital contributions to Mexico Clubs.

   
    During fiscal year 1995,  Price Enterprises currently anticipates  investing
approximately  $40-50  million in  commercial real  estate development  on owned
property (a portion of which represents commitments under executed  construction
contracts),  approximately $35  to 40  million for  investment in  Mexico Clubs,
approximately  $5  million  in  capital   contributions  to  Price  Global   and
approximately $8-10 million for investment in Price Quest. Price Enterprises has
four  leases on  former warehouse club  properties with  remaining terms ranging
from three to thirty  years. Acquisition of  additional real estate  properties,
while  not predictable at this time, may  also occur. Cash flow from operations,
in addition to proceeds of approximately $26 million from the expected sales  of
real  estate, is  expected to result  in the  need to incur  debt at  the end of
    

                                       80
<PAGE>
   
fiscal year 1995 in the principal amount of approximately $35 to $50 million. In
addition, Price Ventures will be  considering other business opportunities  from
time to time which could result in other significant investments.
    

INFLATION

    Because a substantial number of Price Enterprises' leases contain provisions
for  rent  increases based  on  changes in  various  consumer price  indices and
additional rent if sales exceed certain base amounts, inflation is not  expected
to  have a significant  material impact on  future net income  or cash flow from
developed and operating  properties. In addition,  substantially all leases  are
"triple  net" whereby specified operating expenses and property taxes are passed
through to the tenant.

    For undeveloped  and under-developed  properties, inflation  could  increase
Price  Enterprises'  cost of  carrying and  developing the  properties, however,
inflation would likely increase the future sales value of the properties.

                                       81
<PAGE>
                           SELECTED INFORMATION WITH
                             RESPECT TO PRICECOSTCO

    The following sets  forth certain information  with respect to  PriceCostco,
and  is not intended as a complete  description of the business or operations of
PriceCostco after the Closing Date.

BUSINESS OF PRICECOSTCO FOLLOWING THE TRANSACTION

    As a result of the Transaction, PriceCostco's business consists primarily of
its warehouse  club operations  in  the United  States,  Canada and  the  United
Kingdom,  and  PriceCostco  has  ceased  to  have  any  significant  real estate
activities which  are  not directly  related  to its  warehouse  club  business.
However, from time to time PriceCostco may determine to close one or more of its
warehouses, and as a result may own non-club real estate.

    In  addition, as a result of the Transaction, PriceCostco will no longer own
the Mexico  Assets, the  International  Assets and  the  Quest Assets  in  their
entireties,  but will own a 49% interest in each of the Subsidiary Corporations.
For a description of certain rights of  PriceCostco as a stockholder of each  of
the  Subsidiary Corporations, see "BUSINESS  AND PROPERTIES OF PRICE ENTERPRISES
- -- Mexico Clubs," "-- Price Quest" and "-- Price Global."

HEADQUARTERS

    After the  Closing  Date, PriceCostco  will  maintain its  home  office  and
headquarters in the Puget Sound area of Washington.

MANAGEMENT OF PRICECOSTCO

    BOARD OF DIRECTORS

    After  the Closing Date, the PriceCostco  Board of Directors will consist of
Jeffrey H. Brotman,  Daniel Bernard,  Richard D. DiCerchio,  Hamilton E.  James,
John  W. Meisenbach and James  D. Sinegal. In addition,  Richard M. Libenson and
Duane A. Nelles will serve  on the Board of  Directors of PriceCostco until  the
earlier  to occur of (i) the date two  years following the Closing Date and (ii)
such time as Sol Price and Robert E. Price and their affiliates in the aggregate
cease to beneficially  own at  least two  million shares  of PriceCostco  Common
Stock  (including  any such  shares owned  by  charitable trusts  established by
either of them).  The Board of  Directors of PriceCostco  is divided into  three
classes.  Class I  directors' (Messrs. Brotman  and Sinegal)  terms as directors
expire in  1997.  Class II  directors'  (Messrs.  James and  Bernard)  terms  as
directors  expire  in 1995.  Class  III directors'  (Messrs.  DiCerchio, Nelles,
Libenson and Meisenbach) terms as directors expire in 1996.

   
    Jeffrey H.  Brotman is  a native  of the  Pacific Northwest  and is  a  1967
graduate  of the University of  Washington Law School. Mr.  Brotman has been the
Vice Chairman of the Board of PriceCostco  since the Merger. He is a founder  of
Costco and a number of other speciality retail chains. Mr. Brotman is a director
of Seafirst Bank; Carrefour, U.S.; Starbucks Corp.; The Sweet Factory and Garden
Botanika.
    

    Daniel  Bernard has been  a director of PriceCostco  since 1994. Mr. Bernard
has been the Chief  Executive Officer of Carrefour  S.A. since the beginning  of
1993.  From 1989  to 1992, Mr.  Bernard was a  member of the  executive board of
Metro International, a German retailer.

   
    Richard D. DiCerchio  has been  Executive Vice  President --  Merchandising,
Distribution,  Construction and Marketing  and a director  of Price Costco since
the Merger and, until mid-August 1994, also served as Executive Vice  President,
Chief  Operating Officer  -- Northern Division.  He was  elected Chief Operating
Officer -- Western  Region of Costco  in August 1992  and was elected  Executive
Vice  President and Director  of Costco in  April 1986. From  June 1985 to April
1986, he was Senior Vice President, Merchandising of Costco. He joined Costco as
Vice President, Operations in May 1983.
    

   
    Hamilton E. James has  been a director of  PriceCostco since the Merger  and
was  a  director of  Costco since  August 1988.  Mr. James  has been  a Managing
Director at DLJ since 1986 and for the past six years has been in charge of  its
merchant  banking activities. Mr.  James also currently serves  as a director of
County Seat Stores, Inc. and Flagstar Companies.
    

                                       82
<PAGE>
    Richard M. Libenson has been a director of PriceCostco since the Merger.  He
was  a  director of  Price since  its formation  in 1976,  and was  an executive
officer of Price from that time until October 1989, when he retired from  active
involvement  as an  officer of  Price. He served  as Chief  Operating Officer of
Price from August  1986 through  October 1988, and  Vice Chairman  of the  Price
Board  from October 1988 through September  1989. Mr. Libenson is Robert Price's
second cousin.

    John W. Meisenbach has been a  director of PriceCostco since the Merger  and
was  a director of Costco since its inception. He is President of MCM Financial,
Inc., a financial services company, which he founded in 1962. He also has served
on the boards of Pioneer Federal Savings from February 1983 to February 1993 and
Expeditors International since 1991.  Mr. Meisenbach is a  trustee of the  Elite
Fund, an investment company registered under the Investment Company Act of 1940.

    Duane  A. Nelles has been a director  of PriceCostco since July 28, 1994. He
has been in the  personal investment business  since 1987. He  also serves as  a
director of QUALCOMM Inc., a telecommunications company.

   
    James  D. Sinegal has been President, Chief Executive Officer and a director
of PriceCostco since the Merger. He was President, Chief Operating Officer and a
director of Costco since its inception  and was elected Chief Executive  Officer
of  Costco in August 1988. Mr. Sinegal is  a co-founder of Costco and a director
of Price Enterprises.
    

    EXECUTIVE OFFICERS

    After the Closing  Date, the Executive  Officers of PriceCostco  will be  as
follows:

   
<TABLE>
<CAPTION>
          NAME                                                    OFFICE
- -------------------------  ------------------------------------------------------------------------------------
<S>                        <C>
Jeffrey H. Brotman         Chairman of the Board
James D. Sinegal           President and Chief Executive Officer
Richard A. Galanti         Executive Vice President and Chief Financial Officer
Richard D. DiCerchio       Executive Vice President -- Merchandising, Distribution, Construction and Marketing
Franz E. Lazarus           Executive Vice President, Chief Operating Officer -- Northern Division
Dennis R. Zook             Executive Vice President, Chief Operating Officer -- Southern Division
Edward B. Maron, Jr.       Executive Vice President, Chief Operating Officer -- Canadian Division
Joseph P. Portera          Executive Vice President, Chief Operating Officer -- Eastern Division
David Loge                 Executive Vice President -- PriceCostco Industries
</TABLE>
    

AMENDMENT OF PRICECOSTCO BYLAWS

    Pursuant  to the Transfer  and Exchange Agreement,  upon consummation of the
Transaction, the  Bylaws  of  PriceCostco (the  "PriceCostco  Bylaws")  will  be
amended  to read  in their  entirety as set  forth in  Annex V  (as amended, the
"Amended PriceCostco Bylaws").  Such amendments were  approved by the  requisite
vote of the Board of Directors of PriceCostco. The amendments to the PriceCostco
Bylaws  are  summarized below.  This  summary is  qualified  in its  entirety by
reference to the  Amended PriceCostco  Bylaws, the  complete text  of which  are
attached as Annex V hereto.

    HOME  OFFICES  AND  HEADQUARTERS.    The  PriceCostco  Bylaws  provide  that
PriceCostco will maintain home offices and headquarters in the Puget Sound  area
of  Washington and  San Diego,  California. There  is no  such provision  in the
Amended  PriceCostco  Bylaws.   Following  consummation   of  the   Transaction,
PriceCostco intends to maintain a home office and headquarters only in the Puget
Sound area of Washington.

    SPECIAL  MEETINGS OF  STOCKHOLDERS.  The  PriceCostco Bylaws  provide that a
Special Meeting  of Stockholders  will  be called  by  certain officers  at  the
request  in writing, during the two year  period following the effective time of
the Merger (the  "Effective Time"), by  a majority of  the authorized number  of
directors  (I.E., the  number of directors  authorized as  constituting the full
Board  regardless  of  the  number  of  directors  actually  holding  office  as
directors)  and thereafter by a majority of the entire Board of Directors (I.E.,
the number of directors actually holding office as directors, regardless of  the
number  of directors that may be authorized to constitute the full Board), or at
the  request   in   writing  of   stockholders   owning  a   majority   of   the

                                       83
<PAGE>
capital  stock of PriceCostco  issued and outstanding and  entitled to vote. The
Amended PriceCostco Bylaws provide that  a Special Meeting of Stockholders  will
be  called by certain  officers at the request  in writing by  a majority of the
entire Board of Directors, or at the request in writing of stockholders owning a
majority of the capital stock of PriceCostco issued and outstanding and entitled
to vote.

    NUMBER OF  DIRECTORS.   The PriceCostco  Bylaws provide  that the  Board  of
Directors  of  PriceCostco  will consist  of  twelve members,  until  changed by
amendment of the PriceCostco Bylaws. The Amended PriceCostco Bylaws provide that
the Board will consist of one or  more members, the exact number of which  shall
be fixed from time to time by the Board of Directors.

    VACANCIES  ON THE BOARD  OF DIRECTORS.  The  PriceCostco Bylaws provide that
vacancies, and newly created  directorships resulting from  any increase in  the
authorized number of directors, may be filled by the Nominating Committee in the
manner  described  below  under  "Nominating  Committee"  or,  if  no Nominating
Committee then exists,  by a majority  of the directors  then in office,  though
less  than a quorum,  or by a  sole remaining director.  The Amended PriceCostco
Bylaws provide that  vacancies, and newly  created directorships resulting  from
any  increase in the authorized number of directors, may be filled by a majority
of the  directors then  in  office, though  less  than a  quorum  or by  a  sole
remaining director.

    QUORUM.   The  PriceCostco Bylaws  provide that (i)  at all  meetings of the
Board of Directors, (A) during the two year period following the Effective Time,
a majority of the  authorized number of directors  will constitute a quorum  for
the  transaction of business and (B) thereafter,  a majority of the entire Board
of Directors will constitute a quorum for the transaction of business, and  (ii)
during  the two year period following the  Effective Time, the act of a majority
of the authorized number of directors shall be the act of the Board of Directors
and, thereafter, the act of a majority  of the directors present at any  meeting
at which there is a quorum shall be the act of the Board of Directors.

    The Amended PriceCostco Bylaws provide that (i) at all meetings of the Board
of  Directors a  majority of  the entire  Board of  Directors will  constitute a
quorum for the transaction of  business, and (ii) the act  of a majority of  the
directors  present at any meeting at which there is a quorum shall be the act of
the Board of Directors.

    COMMITTEES.  The PriceCostco Bylaws provide that the Board of Directors may,
by resolution passed by a majority of the authorized number of directors  during
the  two year period following the Effective  Time, and thereafter by a majority
of the entire Board of Directors, designate one or more committees of the Board.
The Amended  PriceCostco Bylaws  provide that  the Board  of Directors  may,  by
resolution  passed by a majority of the entire Board of Directors, designate one
or more committees of the Board.

    The PriceCostco Bylaws also provide that, to the extent possible, during the
two year period following the Effective Time, any transaction or matter in which
one or more  directors is interested  shall be  referred to, and  decided by,  a
committee  of the Board comprised of equal numbers of Price Designees and Costco
Designees (as such terms are hereinafter defined) (which committee may be a  two
person  committee), none of whom is interested in the matter or transaction. The
Amended PriceCostco Bylaws do not contain such a provision.

    NOMINATING COMMITTEE.    The PriceCostco  Bylaws  provide for  a  Nominating
Committee  of the Board of Directors to consist  of Robert E. Price and James D.
Sinegal, who will be  the only members of  the Nominating Committee (unless  and
until  replaced as provided in the PriceCostco Bylaws). The Nominating Committee
is to  continue in  existence, with  the power  and authority  specified in  the
PriceCostco  Bylaws, until  two years  after the  Effective Time  and thereafter
until such bylaw is  amended by the  Board of Directors at  a duly held  meeting
thereof.  The PriceCostco Bylaws  further provide that in  the event that either
Robert E. Price  or James D.  Sinegal, or  a direct or  indirect replacement  of
either,  shall cease to  serve as a  member of the  Nominating Committee for any
reason, he or she shall be replaced as a member of the Nominating Committee  (so
long  as it shall still  exist as provided above) by  a person who is designated
with the concurrence of the Price Designees,  if Robert E. Price or a direct  or
indirect  replacement of Robert E. Price shall so cease to serve, or by a person
who is designated  with the  concurrence of the  Costco Designees,  if James  D.
Sinegal  or a direct or indirect replacement  of James D. Sinegal shall so cease
to serve. Pursuant

                                       84
<PAGE>
to the  PriceCostco  Bylaws,  so long  as  it  shall remain  in  existence,  the
Nominating  Committee  has the  exclusive power,  acting  by unanimous  vote, to
nominate persons  to serve  as directors  of PriceCostco,  subject only  to  any
rights  of stockholders under law to nominate  persons to serve as directors. So
long as it shall remain in existence,  if the Nominating Committee is unable  to
nominate  a candidate for PriceCostco's Board of Directors by unanimous vote, no
nomination shall be made to the Board  of Directors by the directors unless,  in
the  case  of replacing  a Price  Designee,  a majority  of the  remaining Price
Designees give their concurrence or, in the case of replacing a Costco Designee,
a majority of the remaining Costco Designees give their concurrence.

    The Amended PriceCostco  Bylaws do  not provide for  a nominating  committee
(although  the  Board of  Directors may  establish  a nominating  committee; see
"Committees" above).

    EXECUTIVE COMMITTEE.    The  PriceCostco Bylaws  provide  for  an  Executive
Committee  of the  Board of Directors  to consist  of Robert E.  Price, James D.
Sinegal, Jeffrey H. Brotman and Mitchell G.  Lynn, who will be the only  members
of  such committee  (unless and  until replaced  as provided  in the PriceCostco
Bylaws). The PriceCostco Bylaws further provide that the Executive Committee  is
to  continue  in  existence,  with  the power  and  authority  specified  in the
PriceCostco Bylaws,  until two  years after  the Effective  Time and  thereafter
until  such bylaw is  amended by the Board  of Directors at  a duly held meeting
thereof. In the event that Robert E. Price, James D. Sinegal, Jeffrey H. Brotman
or Mitchell G. Lynn, or a direct  or indirect replacement of any of them,  shall
cease  to serve as a member of the Executive Committee for any reason, he or she
shall be replaced as a  member of the Executive Committee  (so long as it  shall
still  exist  as  provided  above)  by  a  person  who  is  designated  with the
concurrence of the Price Designees, if Robert E. Price or Mitchell G. Lynn or  a
direct  or indirect replacement of Robert E.  Price or Mitchell G. Lynn shall so
cease to serve, or  by a person  who is designated with  the concurrence of  the
Costco  Designees, if  James D.  Sinegal or  Jeffrey H.  Brotman or  a direct or
indirect replacement of James D. Sinegal or Jeffrey H. Brotman shall so cease to
serve. Pursuant  to  the PriceCostco  Bylaws,  the Executive  Committee,  during
intervals  between meetings of the Board of  Directors, has and may exercise all
the powers and  authority of the  Board of  Directors in the  management of  the
business and affairs of PriceCostco except as provided in the DGCL.

    The  Amended PriceCostco Bylaws  do not provided  for an executive committee
(although the  Board of  Directors  may establish  an executive  committee;  see
"Committees" above).

    ELECTION  OF  OFFICERS.   The PriceCostco  Bylaws  provide that  any officer
elected by the Board of Directors may be removed at any time by the  affirmative
vote  of a majority  of the authorized  number of directors  during the two year
period following the Effective Time, and thereafter by a majority of the  entire
Board  of  Directors.  The  PriceCostco Bylaws  also  provide  that  any vacancy
occurring in any office of  PriceCostco will be filled  (i) during the two  year
period  following the Effective Time, by a  majority of the authorized number of
directors and (ii) thereafter, by a  majority of the entire Board of  Directors.
In  addition, the PriceCostco  Bylaws provide that  each of the  Chairman of the
Board and President may  only be appointed  or removed (i)  during the two  year
period  following the Effective Time, by a  majority of the authorized number of
directors and (ii) thereafter, by a majority of the entire Board of Directors.

    The Amended PriceCostco Bylaws provide that any officer elected by the Board
of Directors may be removed at any time by the affirmative vote of a majority of
the entire Board of Directors. The Amended PriceCostco Bylaws also provide  that
any  vacancy occurring in any office of PriceCostco will be filled by a majority
of the entire Board  of Directors. In addition,  the Amended PriceCostco  Bylaws
provide  that  each of  the  Chairman of  the Board  and  President may  only be
appointed or removed by a majority of the entire Board of Directors.

    AMENDMENTS.  Amendments to the PriceCostco Bylaws must be approved by either
the holders of  a majority  of the outstanding  capital stock  entitled to  vote
thereon or during the two year period following the Effective Time by a majority
of  the authorized  number of  directors and  thereafter, by  a majority  of the
entire Board of Directors.

    Amendments to the Amended PriceCostco Bylaws must be approved by either  the
holders  of a majority of the outstanding capital stock entitled to vote thereon
or by a majority of the entire Board of Directors.

                                       85
<PAGE>
                  BUSINESS AND PROPERTIES OF PRICE ENTERPRISES

    The   following  sets  forth  certain  information  with  respect  to  Price
Enterprises. The following is not intended  to be a complete description of  the
business or operations of Price Enterprises.

GENERAL

   
    Price  Enterprises, a wholly owned subsidiary  of PriceCostco, was formed in
July 1994  to acquire  the Transferred  Assets from  PriceCostco. The  principal
business of Price Enterprises is to acquire, develop, operate, manage, lease and
sell  real  properties.  Price  Enterprises'  real  estate  assets  include  the
Commercial Properties, the  four Warehouse Properties,  the San Diego  Property,
the  City  Notes  and  the  Atlas Note.  See  "THE  TRANSACTION  -- Transactions
Undertaken Prior to the Exchange Offer." As of August 28, 1994, on an historical
basis, real estate  assets constituted approximately  85% of the  book value  of
Price Enterprises' total assets.
    

   
    Price  Enterprises also  holds 51% of  the outstanding  equity securities or
interests, as the case  may be, of each  of the Subsidiary Corporations.  Mexico
Clubs  will  continue the  development of  warehouse  club businesses  in Mexico
through its 50% interest  in Price Club Mexico,  a joint venture that  develops,
owns  and operates ten Price Clubs in Mexico as of October 31, 1994. Price Quest
owns the Quest interactive electronic  shopping business and related  businesses
presently  conducted in certain  PriceCostco warehouse clubs.  Price Global owns
CMI, an export and import business, and has certain rights to develop  warehouse
club  businesses in certain  specified international markets.  The remaining 49%
ownership interest in the Subsidiary Corporations is held by Price. In addition,
Price Ventures, Inc.,  a wholly  owned subsidiary of  Price Enterprises  ("Price
Ventures"), has been formed to pursue and develop other business opportunities.
    

   
    The  organizational structure of Price  Enterprises and its subsidiaries, as
well as PriceCostco's ownership interest in the Subsidiary Corporations, are set
forth below:
    

                                 [LOGO]

BUSINESS STRATEGY

   
    The strategy of Price Enterprises with respect to its real properties is  to
own  and manage  retail shopping centers  anchored by  national retail warehouse
tenants such as Price Club, The  Home Depot, HomeBase, The Sports Authority  and
Marshall's.  These tenants typically enter into  long-term (ten to twenty years)
triple net leases with contractual rent increases and/or percentage rents. Price
Enterprises' business objective is to continue to increase net operating  income
and  the  value of  its  properties through  the  acquisition or  development of
additional properties,  contractual  rent  increases  and/or  percentage  rents,
reletting of
    

                                       86
<PAGE>
   
existing  space  at  higher  rents  and  expansion  or  remodeling  of  existing
properties. While Price Enterprises generally intends to hold its properties  to
benefit  from  rental  revenues  and the  opportunity  for  investment,  it will
continue to  dispose  of property  that  is  not consistent  with  its  business
strategy  or if it deems such  disposition to be advantageous. Price Enterprises
plans to develop, redevelop or sell its unimproved properties and its non-income
producing properties, so as to maximize its return on its real estate assets. As
of June  1, 1994,  the estimated  cost to  complete Price  Enterprises'  pending
development   projects  was   approximately  $43   million.  Price  Enterprises'
geographic focus has  been metropolitan  areas in the  southwestern and  eastern
United States, as these were Price's areas of concentration.
    

   
    Although  most of Price Enterprises' net assets, net earnings and cash flows
are generated by its real estate activities, Price Enterprises' other businesses
have separate and distinct strategies. Mexico Clubs' business strategy is (i) to
pursue Club Business opportunities in Mexico through the joint venture that owns
and operates Price Clubs  in Mexico and (ii)  to provide entrepreneurial  advice
and  possibly  buying  support to  such  joint venture.  Price  Quest's business
strategy is (A) to provide to PriceCostco's cardholders a wide range of products
and services  through  an  interactive electronic  interface,  (B)  to  leverage
emerging, multi-media technologies to provide goods, services and information to
consumers  in a cost-efficient manner  and (C) to develop  a customer base which
extends beyond PriceCostco's membership group. Price Global's business  strategy
is  (x) to  develop trading relationships  through CMI  throughout the Specified
Geographical Areas and with certain specified customers in Hong Kong, Japan  and
the  Phillipines to maximize  the export of  goods from the  United States while
seeking opportunities to import merchandise from  such areas and (y) to  develop
Club  Businesses in the  Specified Geographical Areas.  Price Ventures' business
strategy is to pursue and develop  other business opportunities which may  arise
from time to time.
    

REAL ESTATE BUSINESS

    GENERAL

    The  Real Properties acquired  by Price Enterprises  from PriceCostco in the
Transfer include the  following: 16  fully developed and  leased properties;  35
properties  in  various  stages  of  construction  and  development  ("Partially
Developed Properties"); 26  unimproved properties; and  the San Diego  Property,
consisting  of two  office properties.  Most of  the fully  developed and leased
properties and  Partially  Developed  Properties  are  retail  shopping  centers
anchored  by national  and regional  retail tenants  under long-term  triple net
leases.

    Under the Transfer  and Exchange  Agreement, on the  Transfer Closing  Date,
Price Enterprises assumed (i) all liabilities and obligations of PriceCostco and
its  subsidiaries relating to or arising out  of the Transferred Assets and that
arise out of events occurring  at or after the  Transfer Closing Date, (ii)  the
Environmental  Liabilities and (iii) the Assumed Construction Costs. PriceCostco
has, however, indemnified Price Enterprises  against and held Price  Enterprises
harmless  from any loss  incurred by Price Enterprises  arising from one-half of
the Environmental  Liabilities arising  out  of or  relating to  the  Commercial
Property  located in Phoenix,  Arizona and known as  the Phoenix Fry's Property.
For a further description of the indemnification provisions, see "THE  AGREEMENT
OF  TRANSFER AND PLAN  OF EXCHANGE -- Indemnification."  The income and expenses
associated with the Commercial Properties, including proceeds from the sales  of
properties  which are  currently in escrow,  were transferred  by PriceCostco to
Price Enterprises as  of the Transfer  Closing Date, and  the parties intend  to
complete the transfers of the remaining properties as soon as practicable.

   
    Price Enterprises conducts its real estate business directly and holds title
to  or, in certain cases, the leases to,  74 of the Real Properties. Five of the
Real  Properties,  however,   are  held  by   Price  Enterprises'   wholly-owned
subsidiary,  Price  Real  Estate,  Inc. ("Price  Real  Estate").  Although Price
Enterprises and  Price  Real Estate  are  separately existing  and  individually
capitalized  corporations, for convenience of reference throughout this Offering
Circular/Prospectus, all of  the Real Properties  and other real  estate-related
assets are described as if owned or leased directly by Price Enterprises.
    

   
    In  connection  with  the preliminary  approval  of the  Transaction  by the
PriceCostco  Board  of  Directors  on  July  15,  1994,  senior  management   of
PriceCostco  estimated that the value of the  Real Properties as of September 1,
1994  would  be  approximately  $389  million,  excluding  the  four   Warehouse
Properties and the
    

                                       87
<PAGE>
   
San  Diego Property. Subsequently, PriceCostco retained Cushman & Wakefield (the
"Appraiser")  to  appraise  45  of  the  79  Real  Properties  (the   "Appraised
Properties"),  which  excluded the  Warehouse  Properties but  which nonetheless
constitute approximately 75% of the aggregate book value of the Real  Properties
as of September 1, 1994. The appraisals indicate that the aggregate market value
of  the  Appraised Properties  was within  1% of  the estimate  of PriceCostco's
senior management of such value (utilizing substantially similar assumptions  in
the case of each Appraised Property). The appraisals were primarily based on the
income valuation approach, which estimates the going concern value of a property
by the discounted cash flow method. For this purpose, projected operating income
was  determined based  on actual  and projected  occupancy and  rents. Operating
data, financial data and legal descriptions  provided to the Appraiser by or  on
behalf  of Price Enterprises were assumed accurate  and correct, and no audit or
verification was undertaken by  the Appraiser. Because an  appraisal is only  an
estimate  of value, it cannot be relied  upon as a precise measure of realizable
value. Moreover  to  the  extent that  an  appraisal  of any  of  the  Appraised
Properties  is based on projected operating  data, such appraisal is necessarily
based on assumptions, some of which  may not materialize. The appraisals  assume
that  the Appraised Properties  would be sold  on an orderly  basis under stable
market conditions. No adjustment has been made to reflect a bulk sale of all  of
the Appraised Properties.
    

    The  four Warehouse  Properties owned by  Price Enterprises  are occupied by
PriceCostco warehouse club facilities. These four warehouse club sites have been
leased back to PriceCostco, each on a triple net lease. For a description of the
terms of these leases, see "Leases" set forth below. As a result of these  long-
term  triple  net  leases, Price  Enterprises  did  not seek  appraisals  of the
Warehouse Properties.

    Price Enterprises  also holds  the City  Notes  and the  Atlas Note.  For  a
description  of the terms  of these notes,  see "City Notes  and Atlas Note" set
forth below.

   
    Price Enterprises is currently  under contract or  in final negotiations  to
sell  four properties that are expected to generate approximately $26 million in
aggregate gross proceeds. Price Enterprises recorded an asset impairment loss in
the fourth quarter of fiscal 1994 of approximately $9.7 million, $6.5 million of
which relates to  the four properties  currently in escrow.  The sales of  these
four  properties are expected  to close at  various times in  February and March
1995. There can be no assurance, however,  that such sales will be completed  by
the expected dates, if at all, or that such proceeds will be fully realized.
    

   
    Set  forth below are tables which  contain certain summary data with respect
to all Real Properties which are owned or leased by Price Enterprises.
    

                                       88
<PAGE>
   
                           FULLY DEVELOPED PROPERTIES
    

   
<TABLE>
<CAPTION>
                                          GROSS LEASABLE
                                               AREA        PERCENTAGE
LOCATION                        ACREAGE     (SQ. FT.)      LEASED            PRINCIPAL TENANTS
- ------------------------------  -------   --------------   ------ ----------------------------------------
<S>                             <C>       <C>              <C>    <C>
Phoenix, AZ                       37.06       486,973      100.0% Fry's Distribution
San Diego, CA                     29.90       420,411(1)   100.0% Price Club, ARA, Rose Canyon Mini
                                                                  Storage
Westbury, NY                      30.71       400,387(2)   100.0% Price Club, Kmart, Marshall's, Sports
                                                                  Authority, Borders Books
Inglewood, CA                      6.30       119,880      100.0% Home Base
Fountain Valley, CA               12.80       119,186       95.0% Sports Authority, PetsMart
Worcester, MA                     11.46       115,038      100.0% Bradlee's
Milwaukee, WI                      8.76       115,000(3)   100.0% Roundy's
New Britain, CT                   17.79       112,380      100.0% Nestle
Smithtown, NY                      5.88        55,580      100.0% Levitz
Redwood City, CA                   6.31        50,000(4)   100.0% Orchard Supply Hardware
Hampton, VA                        3.50        45,605      100.0% Sports Authority, Commerce Bank
Carmel Mountain Ranch, CA          6.02        35,000(5)   100.0% Claim Jumper, Islands Restaurant
Northridge, CA                     4.44        30,000      100.0% Barnes & Noble, Fresh Choice
Riverside, CA                      4.59        18,750      100.0% Mayflower
S.E. San Diego, CA                 2.78        15,141(6)    86.8% Burger King, Navy Federal Credit Union
Sunnyvale, CA                      1.60         7,800      100.0% Souplantation
                                -------   --------------   ------
    Total                        189.90     2,147,131       99.5%
                                -------   --------------   ------
                                -------   --------------   ------
<FN>
- ------------------------
(1)  Gross  leaseable  area  includes  81,785   square  feet  of  office   space
     attributable to the San Diego Property.
(2)  Gross  leasable  area  includes 51,427  square  feet on  parcels  leased to
     tenants under long-term  ground leases. Such  tenants own their  respective
     buildings and improvements located on such leased parcels.
(3)  Price Enterprises leases the land and buildings at this site.
(4)  Price  Enterprises leases  this property  to the  tenant under  a long-term
     ground lease. Such  tenant owns  the building and  improvements located  on
     this property.
(5)  Gross  leasable  area  includes 16,000  square  feet on  parcels  leased to
     tenants under long-term  ground leases. Such  tenants own their  respective
     buildings and improvements located on such leased parcels.
(6)  Gross  leaseable area includes  3,475 square feet  on a parcel  leased to a
     tenant under a long-term  ground lease. Such tenant  owns the building  and
     improvements located on such leased parcel.
</TABLE>
    

                                       89
<PAGE>
   
    The table set forth below describes certain of Price Enterprises' properties
which  (i) are under development, (ii) have additional development potential, or
(iii) are not  yet fully leased.  Approximately 2 million  square feet of  gross
leasable area, or 46.5% of the total shown below, is not currently leased. Price
Enterprises  is in various stages of negotiation for 280,000 square feet of such
space at nine Real  Properties and is currently  under contract to sell  169,000
square  feet of such  space. In addition, Price  Enterprises intends to actively
pursue leases  for unoccupied  space  in other  of  its properties.  There  can,
however, be no assurance that such transactions will ultimately be consummated.
    

             PARTIALLY DEVELOPED AND/OR PARTIALLY LEASED PROPERTIES

   
<TABLE>
<CAPTION>
                                              GROSS
                                          LEASABLE AREA   PERCENTAGE
LOCATION                        ACREAGE     (SQ. FT.)     LEASED               PRINCIPAL TENANTS
- ------------------------------  -------   -------------   ------     --------------------------------------
<S>                             <C>       <C>             <C>        <C>
Wayne, NJ                         19.64       406,324      58.2%     Price Club, Sports Authority, Today's
                                                                     Man, Nobody Beats The Wiz
Richmond, CA                      24.06       399,134      45.3%     U.S. Post Office, Bio-Rad, PriceCostco
                                                                     Business Delivery
Pentagon City, VA                 18.15       315,419(1)  100.0%     Price Club, Marshalls, Best Buy,
                                                                     Linens-'N-Things, Borders Books
Bensalem, PA                      29.38       300,025(2)   65.8%     Home Depot, AMC Theaters, Acme Markets
Seekonk, MA                       44.70       226,968(3)   89.5%     Bradlee's, Sports Authority, Circuit
                                                                     City
Maple Shade, NJ                   19.00       175,813(4)  100.0%     Caldor, Sports Authority
Houston, TX                       25.22       192,024(5)   12.0%     Pep Boys
Glen Burnie, MD                   18.54       157,886(6)  100.0%     Sports Authority, Computer City,
                                                                     PetsMart
Signal Hill, CA                   14.92       156,595(7)   94.7%     Home Depot, PetsMart
Hayward, CA                        4.70       155,374       0.0%     (8)
Dallas, TX                        14.61       153,890       0.0%     (8)
Bakersfield, CA                   15.78       151,801      32.5%     PetsMart, Jack LaLanne
Sacramento/Florin, CA             13.59       135,923      14.8%     (9)
Colton, CA                        25.75       125,840     100.0%     Grossmans
Azusa, CA                         17.80       117,000      43.0%     Taco Bell, Carls Jr., PriceCostco
                                                                     Business Delivery
Riverside, CA(10)                 10.29       115,878       0.0%     (8)
Cheektowaga, NY                   16.11       115,420     100.0%     Builders Square
Marlow Heights, MD                13.28       113,703      22.0%     PriceCostco Business Delivery
Palm Harbor, FL                   13.00       113,700       0.0%     (8)
San Jose, CA(10)                   7.90       105,570       0.0%     (8)
W. Palm Beach, FL(10)              6.59       105,405       0.0%     (8)
Tacoma, WA(10)                     7.23       105,175     100.0%     Tacoma Discount World
Santee, CA                         9.00       103,780      35.0%     24-Hour Nautilus
Edison, NJ                        10.45        80,200       0.0%     (8)
San Juan Capistrano, CA            6.23        71,387(11)  55.0%     PetsMart, Burger King
Sacramento, CA                     5.50        50,000(12) 100.0%     PetsMart, Office Depot
N.W. Tucson, AZ                   15.10        38,091     100.0%     PetsMart
Silver City, NM                    7.18        30,000       0.0%     (8)
Mesa, AZ                           6.20        24,154     100.0%     PetsMart
S.W. Denver, CO                    3.66        23,952     100.0%     PetsMart
Bakersfield, CA(13)                 .52        13,053       0.0%     (8)
Casa Grande, AZ                     .55         9,470       0.0%     (8)
Aurora, CO                         1.82         7,300     100.0%     Red Robin
Hazlet, NJ(14)                     1.15         6,800     100.0%     Bertucci's
North Highlands, CA                3.59         3,516     100.0%     Carls Jr.
                                -------   -------------   ------
    Total                        451.19     4,406,570      53.5%
                                -------   -------------   ------
                                -------   -------------   ------
<FN>
- ------------------------
(1)  Includes  165,419 square  feet of  gross leasable  area which  is presently
     under construction.
(2)  Includes 80,270 square feet of  gross leasable area for which  construction
     has not yet commenced.
(3)  Includes  18,000 square feet of gross  leasable area for which construction
     has not yet commenced.
</TABLE>
    

                                       90
<PAGE>
<TABLE>
<S>  <C>
(4)  Although Price Enterprises  owns the building  and improvements located  at
(5)  this  site,  it controls  the underlying  real  estate through  a long-term
     ground lease.
     Gross leasable  area  includes 23,000  square  feet on  parcels  leased  to
     tenants  under long-term ground  leases. Such tenants  own their respective
     buildings and improvements located on such leased parcels.
(6)  Includes 38,650 square feet of gross leasable area which is presently under
     construction.
(7)  Includes 8,000 square feet of gross leasable area which is presently  under
     construction.
(8)  Fully developed but currently vacant.
(9)  This  is a  fully developed  property. Although the  site is  occupied by a
     number of smaller tenants, the former Price Club warehouse at this property
     is currently vacant.
(10) Price Enterprises leases the land and buildings at this site.
(11) Includes  16,865  square  feet  of  net  gross  leasable  area  for   which
     construction has not yet commenced.
(12) Includes 50,000 square feet of gross leasable area which is presently under
     construction.
(13) This  property has been sold  to a third party,  and the proceeds from such
     sale have been transferred to Price Enterprises.
(14) Price Enterprises  leases this  property to  the tenant  under a  long-term
     ground  lease. Such  tenant owns the  building and  improvements located on
     this property.
</TABLE>

                             UNIMPROVED PROPERTIES

<TABLE>
<CAPTION>
LOCATION                                                                      ACREAGE
- ---------------------------------------------------------------------------  ---------
<S>                                                                          <C>
Schaumburg, IL                                                                   22.50
E. Mesa, AZ                                                                      20.98
Fairfield, CA                                                                    20.51
Fairfax, VA                                                                      16.40
White Marsh, MD                                                                  15.35
Chesterfield, VA                                                                 13.74
Fresno, CA                                                                       13.57
Meadowlands, NJ                                                                  12.88
Chula Vista, CA                                                                  12.31
Fremont, CA                                                                      11.30
Other Properties (16 total)                                                      56.52
                                                                             ---------
    Total                                                                       216.06
</TABLE>

    SUMMARIES OF CERTAIN SIGNIFICANT PROPERTIES

    Price Enterprises owns three fully developed properties which are  estimated
to  account  for more  than  10% of  its  annual net  operating  income. Certain
detailed information concerning  each of these  three significant properties  is
set forth below.

   
    WESTBURY  PROPERTY.   The property located  in Westbury, New  York, 25 miles
east of New York City, contains 400,387 square feet of gross leasable area on  a
30.73  acre site (the "Westbury Property"). The  center was developed by K&F and
has been managed by the REIT since 1993. The center consists of 8 buildings, and
includes a total of 2,200 parking spaces. As of August 29, 1994, the center  was
leased  and occupied. The  total annual base  rent for the  Westbury Property is
$7.1 million, and its annual base rent per square foot is $17.70. One tenant  is
subject  to annual rent  increases, while most tenants  are typically subject to
rent increases at least every five years.
    

                                       91
<PAGE>
    The table  below sets  forth  certain information  related to  the  shopping
center's principal tenants. Other tenants include Borders Books (a bookstore and
a  subsidiary  of  Kmart  Corporation),  The  Olive  Garden  (restaurant),  Ruby
Tuesday's (restaurant) and California Pizza Kitchen (restaurant).

   
<TABLE>
<CAPTION>
                                                                   GROSS                     RENEWAL OPTIONS
TENANT NAME/                                                   LEASABLE AREA     LEASE          NO./TERM
TYPE OF BUSINESS                                                 (SQ. FT.)     EXP. (1)          (YEARS)
- -------------------------------------------------------------  -------------  -----------  -------------------
<S>                                                            <C>            <C>          <C>
Price Club...................................................      150,080          2009              7/5
(membership warehouse club)

Kmart........................................................      110,054          2013              4/5
(general merchandiser)

Marshall's...................................................       45,826          2009              3/5
(discount apparel)

The Sports Authority.........................................       43,000          2013              4/5
(sporting goods)
<FN>
- ------------------------
(1)  The date  indicates the  year the  lease is  scheduled to  expire,  without
     taking into account the exercise of any renewal options.
</TABLE>
    

    PENTAGON  CITY PROPERTY.   The property located  in Arlington, Virginia, 1.5
miles from Washington, D.C., contains 315,419 square feet of gross leasable area
on a  16.88  acre site  (the  "Pentagon City  Property").  The center  is  being
developed  by Price Enterprises and K&F  Development Company and will be managed
by the REIT  upon completion  in December  1994. The  center will  consist of  a
single  building, and the site  includes a total of  1,217 parking spaces. As of
August 29, 1994, the center was 99.5% leased but 48% occupied. The total  annual
base rent, upon completion, for the Pentagon City Property will be $6.3 million,
and  its annual  base rent per  square foot will  be $17.80. One  tenant will be
subject to annual rent increases, while  most tenants will be typically  subject
to rent increases at least every five years.

    The  table  below sets  forth certain  information  related to  the shopping
center's principal tenants.  Other tenants include  Chevy's (restaurant),  Fresh
Choice (restaurant) and California Pizza Kitchen (restaurant).

<TABLE>
<CAPTION>
                                                                   GROSS                     RENEWAL OPTIONS
TENANT NAME/                                                   LEASABLE AREA     LEASE          NO./TERM
TYPE OF BUSINESS                                                 (SQ. FT.)     EXP. (1)          (YEARS)
- -------------------------------------------------------------  -------------  -----------  -------------------
<S>                                                            <C>            <C>          <C>
Price Club...................................................      150,000          2009              7/5
(membership warehouse club)

Marshall's...................................................       41,437          2009              3/5
(discount apparel)

Best Buy.....................................................       35,373          2009              3/5
(consumer electronics)

Linens-'N-Things.............................................       33,912          2009              3/5
(home decor)

Borders Books................................................       32,085          2009              4/5
(book stores)
<FN>
- ------------------------
(1)  The  date  indicates the  year the  lease is  scheduled to  expire, without
     taking into account the exercise of any renewal options.
</TABLE>

    WAYNE PROPERTY

    The property located in Wayne, New Jersey,  25 miles west of New York  City,
contains 406,324 square feet of gross leasable area of which 170,000 square feet
is  located in two non-retail floors above  The Sports Authority and Todays' Man
space (the  "Wayne Property").  The center  was developed  by K&F  and has  been
managed  by  the REIT  since  1993. The  center  consists of  two  buildings and
includes a total  of 1,273 parking  spaces. As  of August 29,  1994, the  retail
portion  of the center was 100% leased (excluding the second/third floors, which
are primarily office  space) and the  total center was  58.2% leased. The  total
annual base rent for the Wayne Property is $3.7 million and its annual base rent
per square foot is $15.80. One tenant is subject to annual rent increases, while
most tenants are typically subject to rent increases every 5 years.

                                       92
<PAGE>
    The  table  below sets  forth certain  information  related to  the shopping
center's principal tenants.

<TABLE>
<CAPTION>
                                                                   GROSS                    RENEWAL OPTIONS
TENANT NAME/                                                   LEASABLE AREA     LEASE         NO./TERM
TYPE OF BUSINESS                                                 (SQ. FT.)     EXP. (1)         (YEARS)
- -------------------------------------------------------------  -------------  -----------  -----------------
<S>                                                            <C>            <C>          <C>
Price Club...................................................      130,112          2009          7/5
(membership warehouse)

The Sports Authority.........................................       44,767          2012          4/5
(sporting goods)

Todays' Man..................................................       33,400          2002          2/5
(mens apparel)

Nobody Beats The Wiz.........................................       28,045          2018         None
(consumer electronics)
</TABLE>

    FOUR LARGEST TENANTS

    Price Enterprises' four largest tenants  account for approximately 21.3%  of
its  total gross leasable  area and approximately  42.3% of its  total base rent
revenues. Certain information  with respect to  Price Enterprises' four  largest
tenants is set forth in the following table:

   
<TABLE>
<CAPTION>
                                                                   PERCENT OF                     PERCENT OF
                                     NUMBER        AREA UNDER    GROSS LEASABLE                     TOTAL
                                       OF          LEASE (SQ.      AREA UNDER        ANNUAL          BASE
TENANT                               LEASES           FT.)            LEASE        BASE RENT    RENT REVENUES
- --------------------------------  -------------  --------------  ---------------  ------------  --------------
<S>                               <C>            <C>             <C>              <C>           <C>
Price Club                                  4         569,068            9.2%     $  7,954,400         21.0%
The Sports Authority                        7         297,844            4.9%        3,354,480          8.9%
Home Depot                                  2         212,423            3.5%        2,550,662          6.8%
PetsMart                                    9         224,969            3.7%        2,124,537          5.6%
</TABLE>
    

   
    Price  Club, which  is owned by  PriceCostco, is  Price Enterprises' largest
tenant in terms of gross leaseable  area, with four locations totalling  569,068
square feet or 9.2% of Price Enterprises' total gross leaseable area. Price Club
accounts for 21.0% of Price Enterprises' base rental revenues.
    

   
    The Sports Authority is Price Enterprises' second largest tenant in terms of
gross leaseable area, with seven locations totalling 297,844 square feet or 4.9%
of  Price Enterprises' total gross leaseable area. The Sports Authority accounts
for 8.9% of  Price Enterprises' base  rental revenues. The  Sports Authority,  a
retailer of sporting goods and clothing.
    

   
    Price  Enterprises' other principal tenants include Home Depot and PetsMart.
Home Depot leases two properties, representing 3.5% of Price Enterprises'  total
gross  leaseable area and 6.8%  of its total base  rental revenues. Home Depot's
principal business is selling home improvement materials and building  supplies.
PetsMart  leases nine properties  representing 3.7% of  Price Enterprises' total
gross leaseable area and 5.6% of its  total base rental revenues. PetsMart is  a
specialty retailer of pet food, pet supplies, accessories and pet services.
    

    COMPETITION

    Price  Enterprises  competes  for  tenants in  its  retail  shopping centers
primarily on  the  basis of  customer  traffic  generated by  its  national  and
regional  retail anchor tenants, such  as Price Club, Home  Depot and The Sports
Authority. Price Enterprises also attracts smaller tenants by offering desirable
locations, competitive  lease terms  and high  occupancy rates.  The closing  or
relocation  of any  anchor tenant  could have a  material adverse  effect on the
operation of a shopping center. In addition, the closing or relocation by  Price
Club  at certain  of Price Enterprises'  properties could  trigger provisions in
leases of certain tenants at those properties which would allow such tenants  to
terminate their leases.

    Price  Enterprises competes with a wide  variety of corporate and individual
real estate  developers  and other  real  estate investment  trusts  which  have
investment  objectives similar to those of  Price Enterprises and which may have
greater financial revenues,  larger staffs and  longer operating histories  than
Price Enterprises.

                                       93
<PAGE>
    ENVIRONMENTAL MATTERS

    Price  Enterprises'  ownership of  the Real  Properties could  subject Price
Enterprises to certain environmental liabilities. As discussed below, there  are
certain  sites among the  Real Properties with  known environmental liabilities,
including certain other sites located in  areas of current or former  industrial
activity,  where  environmental contamination  may  have occurred.  Even  if not
currently  known,  Price  Enterprises  subsequently  could  discover   potential
environmental liabilities arising from its sites or from neighboring facilities.
In addition, undeveloped sites may be affected by regulations enacted to protect
sensitive  environmental resources, including  threatened and endangered species
and wetlands, so as to  restrict Price Enterprises' development and/or  diminish
the value of those sites.

    Price  Enterprises  has agreed  to  indemnify PriceCostco  against  and hold
PriceCostco harmless from all environmental liabilities that relate to or  arise
out  of the Real Properties and that arise  out of events occurring prior to, at
or after the Transfer Closing Date. As discussed more fully under "THE AGREEMENT
OF TRANSFER AND PLAN OF EXCHANGE -- Indemnification," PriceCostco has agreed  to
indemnify  and hold  Price Enterprises  harmless in  respect of  one-half of all
liabilities relating to  Materials of  Environmental Concern  and violations  or
purported  violations of Environmental Laws  relating to the Commercial Property
located in Phoenix, Arizona and known as the Phoenix (Fry's) site.

    LEGAL OVERVIEW.  Under various Federal, state and local environmental  laws,
ordinances  and regulations,  a current  or previous  owner or  operator of real
estate may  be required  to  investigate and  remediate releases  or  threatened
releases  of hazardous or toxic substances or petroleum products located at such
property, and may be held  liable to a governmental  entity or to third  parties
for property damage and for investigation and remediation costs incurred by such
parties  in connection  with the  contamination. Many  such laws,  including the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and  Reauthorization Act of 1986 ("CERCLA"),  impose
liability  without regard to whether the owner knew of or caused the presence of
the contaminants, and liability under such laws has been interpreted to be joint
and several unless the  harm is divisible  and there is  a reasonable basis  for
allocation  of responsibility. The cost of investigation, remediation or removal
of such substances may be substantial,  and the presence of such substances,  or
the  failure  to  remediate properly  the  contamination on  such  property, may
adversely affect the owner's ability to sell or rent such property or to  borrow
money  using such property  as collateral. In connection  with its ownership and
operation of the Real  Properties, Price Enterprises  may be potentially  liable
for such costs.

    In  addition, persons who arrange for the disposal or treatment of hazardous
or toxic substances at a disposal or  treatment facility also may be liable  for
the  costs  of removal  or remediation  of  a release  or threatened  release of
hazardous or toxic substances at such disposal or treatment facility, whether or
not such facility is owned or  operated by such person. Some environmental  laws
create  a lien on a contaminated site in favor of the government for damages and
costs incurred in connection with the contamination. The owner of a contaminated
site also may be subject to common law claims by third parties based on  damages
and  costs resulting from environmental  contamination emanating from such site.
In connection with  its ownership and  operation of the  Real Properties,  Price
Enterprises may be potentially liable for such costs.

   
    Certain  Federal,  state and  local  laws, regulations  and  ordinances also
govern  the  removal,  encapsulation   or  disturbance  of   asbestos-containing
materials  ("ACMs") when such materials are in poor condition or in the event of
construction, remodeling, renovation or demolition of a building. Such laws  may
impose  liability for release of ACMs and  may provide for third parties to seek
recovery from  owners  or  operators  of such  properties  for  personal  injury
associated with ACMs. In connection with its ownership and operation of the Real
Properties,  Price Enterprises may be potentially liable for such costs. Certain
of the Real Properties  contain ACMs, but Price  Enterprises does not expect  to
incur  significant  costs  associated  with  ACMs  unless  such  properties  are
demolished or substantially renovated.
    

    Certain Federal, state and local laws, regulations and ordinances also  have
been  enacted to protect sensitive environmental resources, including threatened
and endangered species and wetlands. Such laws may restrict the development  and
diminish the value of property which is inhabited by an endangered or threatened
species,  is  designated as  critical habitat  for  an endangered  or threatened
species or is characterized as  wetlands. Therefore, Price Enterprises'  ability
to  develop certain unimproved  sites may be  restricted, and the  value of such
sites diminished, if  those sites are  inhabited by a  threatened or  endangered
species,  are  designated as  critical habitat  for  a threatened  or endangered
species, or are characterized as wetlands.

   
    PriceCostco engaged environmental consultants to conduct Phase I assessments
at each  of  the  sites  that  constitute  the  Real  Properties.  The  Phase  I
assessments were carried out in accordance with accepted
    

                                       94
<PAGE>
   
industry practices and consisted of non-invasive investigations of environmental
conditions at each of the sites that constitute the Real Properties, including a
preliminary  investigation  of the  sites and  identification of  publicly known
conditions concerning properties  in the  vicinity of the  sites, physical  site
inspections,  review  of aerial  photographs  and relevant  governmental records
where readily available,  interviews with  knowledgeable parties,  investigation
for  the presence  of above  ground and  underground storage  tanks presently or
formerly at  the  sites, a  visual  inspection  of suspect  friable  ACMs  where
appropriate  and the  preparation and issuance  of written reports.  The Phase I
assessments were completed in November 1994.
    

    Price Enterprises is unaware of  any environmental liability and  compliance
with  applicable  environmental  laws or  regulations  arising out  of  the Real
Properties that Price Enterprises believes would have a material adverse  effect
on its business, assets and/or results of operations. Nevertheless, there can be
no  assurance that Price  Enterprises' knowledge is complete  with regard to, or
that the  Phase  I  assessments  have  identified,  all  material  environmental
liabilities.

   
    Price  Enterprises also believes that, with  respect to the Real Properties,
it is in compliance in all material  respects with all Federal, state and  local
laws,  ordinances  and regulations  regarding hazardous  or toxic  substances or
petroleum products. Price Enterprises has not been notified by any  governmental
authority,  and  is not  otherwise  aware, of  any  material liability  or claim
relating to hazardous or  toxic substances or  petroleum products in  connection
with  any  of the  Real Properties.  Set  forth below  are summaries  of certain
environmental matters relating to certain of the Real Properties.
    

    AZUSA.  The Azusa  site is a  17.8 acre site  located in Azusa,  California.
Price  purchased the Azusa site in  1983 from Huffy Corporation ("Huffy"). Huffy
operated a bicycle  manufacturing facility  on the  Azusa site  from 1959  until
1982. After purchasing the Azusa site, Price converted the bicycle manufacturing
facility  into a  Price Club  warehouse and tire  center. The  warehouse at this
property is presently vacant.

    The Azusa site currently  is located within the  Baldwin Park Operable  Unit
("BPOU")  of  the  San Gabriel  Valley  Area  2 federal  CERCLA  site.  The BPOU
addresses a large area of groundwater  contamination in the San Gabriel  Valley.
Volatile   organic   compounds   ("VOCs"),   including   trichloroethylene   and
perchloroethylene, are present in the groundwater throughout a several mile long
area, extending  beneath  the cities  of  Azusa, Irwindale,  and  Baldwin  Park,
California.  Price received a general notice  of potential liability letter from
the United States Environmental Protection Agency (the "EPA") for the BPOU dated
August 4, 1993, and is one of approximately 110 potentially responsible  parties
("PRPs"),  representing 20-25 contaminated parcels, to have received such notice
for the  BPOU. While  it  was operated  by Huffy,  the  Huffy site  contained  a
degreasing facility that allegedly released VOCs into the soil.

    In  March  1994,  the  EPA  published a  Record  of  Decision  ("ROD") which
documents the selection of remedial alternatives for the BPOU. The EPA estimates
that its preferred remedy, as  outlined in the ROD,  will cost between $100  and
$130  million.  The San  Gabriel Basin  Water  Quality Authority  ("SGBWQA") has
proposed an alternative remedy for the BPOU, which will cost an estimated $25 to
$30 million. A group of PRPs, including Price and Huffy, the SGBWQA and the  EPA
currently are negotiating the final remedy for the BPOU. Price Enterprises lacks
sufficient  information regarding the activity of other PRPs to form an estimate
of the equitable share of total costs that could be allocated to its Azusa site.

    To date, Price and Huffy have spent approximately $225,000 in  investigation
and monitoring costs and have agreed informally to share those costs equally. To
the  extent  there  is  any  liability associated  with  the  Azusa  site, Price
Enterprises believes  such  liability  should  be  attributed  to  Huffy.  Price
Enterprises  (as  successor to  Price)  and Huffy  have  not negotiated  a final
allocation of costs as between themselves. There can be no assurance that  Huffy
will  contribute to any further costs. Based upon a number of factors, including
the current status of negotiations regarding the alternative remedy, the cost of
the final remedy, and Price Enterprises' allocated equitable share of that  cost
as  between it, Huffy and/or other PRPs, Price Enterprises' liability associated
with the Azusa site would  not have a material  adverse effect on the  financial
condition and results of operations of Price Enterprises.

    PHOENIX  (FRY'S).  The Phoenix (Fry's) site  is a 37.06 acre site located in
Phoenix, Arizona.  Fry's Food  Distribution Center  leases and  operates a  food
distribution  facility  on the  premises. The  Phoenix  (Fry's) site  is located
within the  West  Van  Buren  Study  Area  (the  "WVBSA").  VOCs  and  petroleum
hydrocarbons are present in groundwater in the WVBSA. To date, Price Enterprises
(as  successor to Price) has not  been identified as a PRP  for the WVBSA and is
unaware  of  any  releases  or  threatened  releases  of  hazardous  substances,
including  VOCs  and petroleum  hydrocarbons, resulting  from operations  at the
Phoenix (Fry's) site. Nevertheless, Price Enterprises' ownership of the  Phoenix
(Fry's) site creates the potential of liability

                                       95
<PAGE>
for remediation costs associated with groundwater beneath the site. As discussed
more   fully  under  "THE  AGREEMENT  OF   TRANSFER  AND  PLAN  OF  EXCHANGE  --
Indemnification," PriceCostco has agreed to indemnify and hold Price Enterprises
harmless in respect  of one-half  of all  liabilities relating  to Materials  of
Environmental  Concern and  violations or purported  violations of Environmental
Laws relating to the Commercial Property  located in Phoenix, Arizona and  known
as the Phoenix (Fry's) site. To date, Price has not been required to conduct any
investigation   or  remediation  at  this   location.  Price  Enterprises  lacks
sufficient information about the activity of the WVBSA PRPs to form an  estimate
of  the equitable share of total liability that could be allocated to this site,
if any.

    Although designated by Arizona  law as a  "study area," the  WVBSA is not  a
federal  CERCLA site and is not listed  on the National Priorities List ("NPL").
Immediately to the east of the WVBSA, however, is the East Washington Study Area
(the "EWSA"), which is listed on the  NPL. VOCs are also present in  groundwater
in  the EWSA. If the contamination plumes from the WVBSA and the EWSA merge, the
possibility exists that  the two  study areas will  be merged  into one  federal
CERCLA site.

    MEADOWLANDS.  The Meadowlands site is an unimproved, 12.88 acre site located
in  Meadowlands, New Jersey. A  prior owner used this  site as a debris disposal
area. Elevated levels of heavy metals (including a small area contaminated  with
polychlorinated biphenyls) and petroleum hydrocarbons are present in soil at the
Meadowlands  site.  Price Enterprises,  however, has  not  been notified  by any
governmental  authority,  and   is  not   otherwise  aware,   of  any   material
noncompliance,  liability or claim relating to  hazardous or toxic substances or
petroleum products in connection with the Meadowlands site. Nevertheless,  Price
Enterprises'  ownership  of  the  Meadowlands  site  creates  the  potential  of
liability for remediation  costs associated with  groundwater beneath the  site.
Additionally, a significant portion of the Meadowlands site may be characterized
as  wetlands. Therefore, Price  Enterprises' ability to  develop the Meadowlands
site in the future  may be restricted,  and consequently the  value of the  site
could be materially and adversely affected.

    PENTAGON  CITY.  The Pentagon  City site is a  16.88 acre site in Arlington,
Virginia. Elevated levels of heavy metals are present in groundwater beneath the
Pentagon City site.  Also, petroleum  hydrocarbons are  present in  soil at  the
site.  By  letters dated  January 31,  1994,  and March  22, 1994,  the Virginia
Department of Environmental Quality is requiring  no further action at the  site
with  regard  to  the  heavy  metals  and  petroleum  hydrocarbon contamination,
respectively. Price  Enterprises  has  not been  notified  by  any  governmental
authority,  and is  not otherwise  aware, of  any other  material noncompliance,
liability or  claim  relating to  hazardous  or toxic  substances  or  petroleum
products  in  connection  with  the  Pentagon  City  site.  Nevertheless,  Price
Enterprises' ownership  of  the Pentagon  City  site creates  the  potential  of
liability  for remediation costs associated  with groundwater beneath, and soils
at, the site.

    COLTON.  The Colton  site is a  25.75 acre site  in Colton, California.  The
Colton  site is inhabited by a species of  sand fly which the United States Fish
and Wildlife Service ("USF&WS") is considering designating as either  endangered
or  threatened.  Also,  the Colton  site  is  located within  a  geographic area
currently being considered by the USF&WS for designation as critical habitat for
the sand  fly.  If  the sand  fly  ultimately  is designated  as  threatened  or
endangered and/or the Colton site is designated as critical habitat for the sand
fly, Price Real Estate's ability to develop the Colton site in the future may be
restricted, and the value of the site may be materially adversely affected.

   
    SIGNAL  HILL.   The Signal Hill  site is a  14.92 acre site  in Signal Hill,
California. This site, and the adjoining properties, historically have been used
for oil and gas extraction activities, and the site currently has several active
and abandoned oil and gas production  and injection wells. Prior to  development
in  the early 1990s,  the prior owner  excavated and treated  over 100,000 cubic
yards of  petroleum hydrocarbon  contaminated soil.  However, in  1992,  certain
areas   of  the  site  were  known  to  be  still  contaminated  with  petroleum
hydrocarbons and  certain  solvents  in  varying  concentrations.  PriceCostco's
environmental  consultant  has  been unable  to  document final  closure  by the
regulatory agencies  regarding remedial  activities  at the  site. The  City  of
Signal   Hill  Redevelopment  Agency   has  indemnified  the   prior  owner  for
environmental expenses incurred  with respect  to such site  through 1996.  This
indemnity has been transferred to Price Enterprises.
    

    OTHER PROPERTIES.  Two Real Properties (New Britain and Silver City) contain
or  have contained  petroleum hydrocarbons  and/or VOCs  in the  soil and ground
water. PriceCostco has and Price Enterprises will continue to remediate the soil
and ground  water  under supervision  of  local authorities.  Price  Enterprises
estimates  that the  total cost  of this remediation  is not  expected to exceed
$650,000 in aggregate over the next three years.

                                       96
<PAGE>
    LEASES

    GENERAL.   The majority  of leases  with Price  Enterprises' anchor  tenants
provide  for lease  terms of between  ten and  twenty years and  the leases with
Price Enterprises' smaller space  tenants typically provide  for lease terms  of
between  five and ten years. Price  Enterprises typically seeks to structure the
leases on its  properties as triple  net leases  that impose on  the tenant  all
obligations  for real property  taxes and assessments,  repairs, maintenance and
insurance, and the duty to  restore the leased premises  in case of casualty  or
condemnation.  Through the use of triple  net leases, Price Enterprises seeks to
reduce operational  costs  and  risks  and  the  demands  upon  managerial  time
typically  associated  with investment  in real  estate.  These leases  may also
provide opportunities for income growth from contractual rent increases  without
corresponding   increases  in  operational   costs.  Price  Enterprises'  leases
generally provide for  contractual rent  increases over  the life  of the  lease
based  on  a fixed  amount or  consumer price  indices, and/or  percentage rent,
calculated as  a  percentage  of  a tenant's  gross  sales  above  predetermined
thresholds.  Although  Price Enterprises'  properties  are primarily  subject to
triple net leases, for certain of its properties Price Enterprises has agreed to
retain the  responsibility  for  some  of the  obligations  that  would  be  the
responsibility  of the tenant under  a triple net lease  (such as replacement of
the roof and structural repair).

    LEASEBACK OF THE WAREHOUSE PROPERTIES.   The Warehouse Properties have  been
leased  back to PriceCostco, as  of the Transfer Closing  Date, each on a triple
net lease.  Each lease  has  an original,  fixed term  of  15 years  with  seven
successive five-year renewal options. Under the terms of each lease, PriceCostco
will  pay an initial base rent to Price Enterprises at a rate of nine percent of
the agreed  value of  the Warehouse  Property site  (totalling nine  percent  of
approximately  $88 million in the aggregate),  increasing each year of the lease
term, including option periods, at a rate of 0.1% of such agreed value per year,
not compounded. Through June 30, 1997, the office space reasonably required  and
currently  being  used by  PriceCostco  at Price  Enterprises'  Morena Boulevard
office property is  included within the  rent charged for  the Morena  Boulevard
Warehouse  Property.  The  use  of  such  office  space  is  not  assignable  or
subleasable by PriceCostco.  The four Warehouse  Property leases  (collectively,
the  "PriceCostco Warehouse  Leases") require  PriceCostco to  pay all operating
costs of  the warehouse  club  sites, including  property taxes,  insurance  and
maintenance,  and  require that  Price  Enterprises be  indemnified  against all
claims  and  liabilities   arising  under  the   PriceCostco  Warehouse   Leases
(including, without limitation, claims arising from operations and environmental
matters),  unless due to Price Enterprises'  own default, negligence or tortious
acts. Additionally,  renovations or  alterations to  any of  the warehouse  club
sites  are  at  the expense  of  PriceCostco  and will  remain  the  property of
PriceCostco until the expiration of the subject lease, when they will become the
property of Price Enterprises.

    Under the terms of each of the PriceCostco Warehouse Leases, PriceCostco has
a right of first  refusal to purchase the  relevant Warehouse Property if  Price
Enterprises  decides  to  sell  such  Warehouse  Property.  In  the  event Price
Enterprises intends to sell a Warehouse Property, or all or substantially all of
a parcel or shopping center including  a Warehouse Property, during the term  of
the  lease covering  such Warehouse Property,  Price Enterprises  is required to
notify PriceCostco of  its intention  prior to  the sale.  Such notification  is
required  to include the  terms of the proposed  sale and a copy  of a bona fide
written offer by the proposed purchaser. So  long as PriceCostco is not then  in
default  under the subject lease, PriceCostco will have an option for 30 days to
elect to purchase the Warehouse Property or the larger property (whichever Price
Enterprises has proposed to sell),  at the same price and  on the same terms  as
the  written  offer.  If  PriceCostco  fails  to  exercise  such  option,  or if
PriceCostco exercises the option  but fails to close  in a timely manner,  Price
Enterprises  will be  free for  90 days  to sell  the Warehouse  Property or the
larger property  (whichever Price  Enterprises  has proposed  to sell),  in  the
manner  provided in Price  Enterprises' notice to  PriceCostco. This PriceCostco
right of  first refusal  with  respect to  prospective  sales of  any  Warehouse
Properties  could have  the effect of  discouraging other  potential buyers from
making offers to acquire the properties  in the event Price Enterprises  decides
to sell any of the properties.

    The  PriceCostco Warehouse  Leases do  not impose  a duty  on PriceCostco to
continue to operate  a business at  the Warehouse Property  sites. In the  event
PriceCostco  ceases to operate  a business at  a Warehouse Property,  and in the
event PriceCostco fails to sublease the premises or assign the subject lease  to
a new tenant for a permitted use within six months after PriceCostco's cessation
of operations, Price Enterprises may elect to terminate the lease and enter into
a new lease with another tenant.

    CITY NOTES AND ATLAS NOTE

   
    CITY  NOTES.  Price Enterprises holds the City Notes from various California
municipalities and agencies, which range in  individual book value as of  August
28, 1994 from approximately $400,000 to $5,700,000, with
    

                                       97
<PAGE>
   
interest  rates  as  set forth  below.  These  loans represent  amounts  lent by
PriceCostco to facilitate Price Club warehouse real estate acquisitions and  for
reimbursement  of  specific improvements.  Repayment of  each  City Note  by the
relevant municipality is  generally based on  that municipality's allocation  of
sales  tax  revenues  generated by  retail  businesses located  on  a particular
property associated with such City Note. City Note repayments are calculated  in
accordance  with specific revenue sharing agreements between PriceCostco and the
respective municipality or agency (which agreements have been assigned to  Price
Enterprises).  Under the terms of most of  the City Notes, the unpaid balance of
the note is forgiven  at its maturity date.  In part as a  result of the  recent
recession,  sales tax revenues  generated by the retail  business located on the
properties associated  with  the  City  Notes have  declined  in  recent  years.
Consequently,  there can be  no assurance that  the full book  value of the City
Notes  will  be  repaid  by   their  maturity.  See  "PRICE  ENTERPRISES,   INC.
MANAGEMENT'S  DISCUSSION  AND ANALYSIS  OF  FINANCIAL CONDITION  AND  RESULTS OF
OPERATIONS --  Results of  Operations --  Fiscal 1994  Compared to  Fiscal  1993
Compared to Fiscal 1992 -- Provision for Asset Impairments."
    

    Under  the  terms of  the Transfer  and  Exchange Agreement,  if PriceCostco
ceases to operate a warehouse club business at any site with respect to which  a
governmental agency has executed a City Note, or if PriceCostco takes any action
that  would entitle such agency to withhold  payments under its City Note, Price
Enterprises is entitled to cause PriceCostco  to purchase such City Note for  an
amount of cash equal to 72% of the sum of (i) the June 5, 1994 book balance less
any  subsequent principal repayments,  and (ii) all  accrued and unpaid interest
from June 5, 1994.

   
    Set forth below  is certain information  with respect to  the book  balance,
interest rate and maturity date of the City Notes.
    

   
<TABLE>
<CAPTION>
                                                              CITY        8/28/94
MUNICIPALITY/AGENCY OBLIGOR                                 NOTE DATE  BOOK BALANCE   INTEREST RATE   MATURITY DATE
- ----------------------------------------------------------  ---------  -------------  -------------  ---------------
<S>                                                         <C>        <C>            <C>            <C>
                                                                            (IN
                                                                        THOUSANDS)
Alhambra, CA..............................................    6/10/87    $     966          7.00%(1)      2012
Azusa, CA.................................................    10/4/88        1,860          9.50          2014
Colton, CA................................................    12/2/86        1,277          7.00                 (2)
Corona, CA................................................     4/1/88        5,740          8.75          2028
Fountain Valley, CA.......................................    1/10/89        4,740          7.75(3)       2010
Inglewood, CA.............................................     4/2/90          400          8.00          1999
Moreno Valley, CA.........................................    2/17/93        1,200          8.00          2015
Rancho Cucamonga, CA......................................     2/4/92        1,540          9.00          2015
Rancho Del Rey, CA........................................     6/4/93        1,700          8.00          2003
San Juan Capistrano, CA...................................     6/4/87          540          8.25          2010
Santa Clarita, CA.........................................    2/26/91        2,350         10.00          2022
Signal Hill, CA...........................................   10/29/91        4,340         10.00          2012
Signal Hill, CA...........................................   10/29/91          720         10.00          1997
South San Francisco, CA...................................    4/29/88        1,690          8.50          2006
Yorba Linda, CA...........................................     5/3/91        2,960          9.00          1996
                                                                       -------------
        Total.............................................               $  32,023
                                                                       -------------
                                                                       -------------
<FN>
- ------------------------
(1)  This  is  a non-interest  bearing note.  However, for  accounting purposes,
     interest was imputed using a 7% interest rate.
(2)  Obligations continue until the City Note is paid in full in accordance with
     its terms.
(3)  Interest is based  on the prime  interest rate quoted  by Bank of  America,
     N.A., adjusted as of August 15 of each year but not to exceed 12%.
</TABLE>
    

   
    ATLAS  NOTE.    Price  Enterprises  also  owns  the  Atlas  Note,  which  is
collateralized by a hotel and convention  center. The Atlas Note bears  interest
at  0.25% below Wells Fargo  Bank, N.A.'s base rate and  matured on May 8, 1994.
Although all interest payments and fees have been paid timely, the borrower  has
not  repaid the principal payment amount and otherwise has been and is currently
in violation of certain of its  debt covenants. Price Enterprises has agreed  to
forbear  its foreclosure rights  pending the consummation  of a restructuring of
the debt  obligations, which  is expected  to occur  by mid-December  1994.  The
restructuring  would  require repayment  within  five years  of  all outstanding
indebtedness, with interest  accruing on  the outstanding principal  at 10%  per
annum.  Interest  would be  payable monthly  at a  rate equal  to the  six month
    

                                       98
<PAGE>
   
LIBOR rate plus 2.5% per annum (not  to exceed 8% per annum through December  1,
1996),  and the interest not yet payable  would be added to the principal amount
of the loan. Subject  to the fulfillment  of certain anticipated  contingencies,
Price  Enterprises has agreed to  fund an additional amount,  up to a maximum of
$4.1 million, to be used to retire  the approximate $2.9 million balance of  the
loan held by the lender with a first priority security interest in the hotel and
convention center, to fund certain capital repairs and improvements to the hotel
and  convention center  and to pay  a portion  of the borrower's  legal fees and
certain expenses incurred in connection with the restructuring. The restructured
loan would be secured  by the existing hotel  and convention center property  in
San  Diego, California and  certain assets associated with  property in Cabo San
Lucas, Mexico. There  can be no  assurance that the  loan restructuring will  be
consummated on these terms, if at all. In the event a restructuring of the Atlas
Note  cannot  be consummated,  Price  Enterprises has  retained  its foreclosure
rights under the Atlas Note.
    

    PENDING TRANSACTIONS

   
    SALES.    Price  Enterprises  is  currently  under  contract  or  in   final
negotiations to sell four properties that are expected to generate approximately
$26  million in  aggregate gross proceeds.  Price Enterprises  recorded an asset
impairment loss  in the  fourth quarter  of fiscal  1994 of  approximately  $9.7
million,  $6.5  million of  which relates  to the  four properties  currently in
escrow. The sales of these properties are expected to close at various times  in
February  and March 1995.  There can be  no assurance, however,  that such sales
will be completed by the expected dates,  if at all, or that such proceeds  will
be fully realized.
    

    LEASING.   Price Enterprises is in  various stages of lease negotiations for
leasable space  at 9  Real  Properties that  would generate  approximately  $1.8
million  in annual rent. These potential leases  are part of the ordinary course
of business  of Price  Enterprises, and  there  can be  no assurance  that  such
potential leases will ultimately be consummated.

    DEVELOPMENT ACTIVITIES

   
    Price  Enterprises is currently engaged in various development activities in
several states. Under the Transfer and Exchange Agreement, Price Enterprises has
agreed to assume the  costs to complete these  projects incurred from and  after
June  1,  1994. The  total  cost to  complete  all of  the  existing development
projects is estimated to be approximately $43 million as of June 1, 1994 and $40
million as  of August  28, 1994.  Price Enterprises  expects that  its  expenses
incurred  in the completion of the development  projects will be financed out of
proceeds from property sales  or through advances  under the Advance  Agreement.
See  "CERTAIN RELATED  AGREEMENTS --  Advance Agreement."  The table  below sets
forth  certain  information   with  respect  to   Price  Enterprises'   existing
development projects:
    

   
<TABLE>
<CAPTION>
                                                                               ESTIMATED COST
                                                                               TO COMPLETE AS
                                                                                 OF 6/1/94
PROPERTY                                                                       (IN THOUSANDS)
- ----------------------------------------------------------------------------  ----------------
<S>                                                                           <C>
Pentagon City Property......................................................     $   16,600
Bensalem, PA................................................................          8,000
Sacramento, CA..............................................................          3,000
Seekonk, MA.................................................................          2,800
Glen Burnie, MD.............................................................          2,800
Other Projects..............................................................          9,800
                                                                                    -------
    Total...................................................................     $   43,000
                                                                                    -------
                                                                                    -------
</TABLE>
    

    There  can be no assurance that such development projects will ultimately be
undertaken, and if  completed, that the  total cost to  complete such  potential
development projects will not exceed the foregoing estimate. It is also possible
that  Price  Enterprises  may  undertake  additional  development  projects  not
contemplated at this time.

    RELATIONSHIP WITH THE PRICE REIT

    Historically, the  REIT  has  performed  property  management  services  for
certain  of the properties  which are now  held by Price  Enterprises. In fiscal
year 1994, PriceCostco  paid $550,000 in  fees to the  REIT for such  management
services.  It  is  anticipated  that Price  Enterprises  will  continue  such an
arrangement with  the  REIT, and  may  expand  such services  to  include  other
properties in the future.

    It  is  anticipated that  Price Enterprises  will  enter into  a development
agreement with K&F Development Company for  the development of four of the  Real
Properties. Under such proposed agreement, K&F

                                       99
<PAGE>
Development  Company  would  receive development  fees  of 6%  of  the aggregate
construction costs expended with respect to  such properties. The REIT owns  all
of  the outstanding preferred stock  and is entitled to  receive 90% of the cash
flow of K&F Development Company.

    K&F Development  Company and  Price entered  into a  development  agreement,
dated December 16, 1993, in connection with the development of the Pentagon City
Property (except for development of the Price Club located on such property). In
connection  with the  Transaction, Price  has assigned  such agreement  to Price
Enterprises. Pursuant to this agreement  (i) K&F Development Company receives  a
development  fee equal to  3% of the aggregate  construction costs expended with
respect to  such property;  (ii) all  operating cash  flows generated  from  the
Pentagon  City Property (other than the Price Club located on such property) are
allocated to  Price  Enterprises  until  the  property  generates  a  return  on
"invested capital" of 9% ("invested capital" means all costs associated with the
development  of the property,  plus 4% of such  costs, compounded annually); and
(iii) all  operating cash  flows in  excess  of the  amount allocated  to  Price
Enterprises  (as described  in the previous  clause) are allocated  75% to Price
Enterprises and 25% to  K&F Development Company. In  addition, upon any sale  of
the  Pentagon City Property by Price Enterprises in which the return on invested
capital exceeds 9%, K&F  Development Company is entitled  to receive 25% of  the
net  sale  proceeds in  excess of  Price Enterprises'  invested capital  and its
return on such invested capital of 9%.

    In addition,  Price  Enterprises has  entered  into an  agreement  with  K&F
Development  Company pursuant to which K&F will provide strategic and consulting
services for the next  two years to Price  Enterprises. K&F Development  Company
will  receive  $500,000 annually  as payment  for  such services.  Moreover, K&F
Development Company may be a developer  or joint venturer in other  developments
undertaken by Price Enterprises in the future.

   
    The  REIT was  originally organized  by Price in  1991, and  during the past
three years, a number of properties have  been acquired by the REIT from  Price.
There are no understandings or agreements to purchase or sell properties between
Price   Enterprises  and  the  REIT.   There  have,  however,  been  preliminary
discussions between representatives of the REIT and Price Enterprises  regarding
possible  transactions between  the companies  in the  future. Price Enterprises
intends to continue to explore and study these possible transactions,  including
the   possibility  of  entering   into  joint  ventures   or  other  synergistic
transactions with the REIT. Sol Price is  the Chairman of the Board of the  REIT
and  has beneficial  ownership through various  family and  charitable trusts of
approximately 9%  of  the  Class B  Common  Stock  of the  REIT.  Certain  other
officers, directors and principal stockholders of the REIT may become directors,
officers   or  principal   stockholders  of  Price   Enterprises;  however,  any
transactions between  Price Enterprises  and the  REIT will  be subject  to  the
approval  of  an  independent  committee  of the  Board  of  Directors  of Price
Enterprises,  comprised  of  directors  who  are  not  officers,  directors   or
stockholders of the REIT.
    

MEXICO CLUBS

   
    GENERAL.   Mexico Clubs was formed to own (A) all shares of capital stock of
Primex owned, directly or indirectly,  by PriceCostco, (B) all other  noncurrent
assets  of PriceCostco and its subsidiaries  specifically related to the conduct
of business in Mexico (excluding the  Joint Venture Agreement, any right,  title
or   interest  in  or  to  the  names  "Price  Club,"  "Price  Club  Costco"  or
"PriceCostco" and  any computer  software)  and (C)  certain other  assets.  The
interests  in Mexico Clubs are owned 51%  by Price Enterprises and 49% by Price.
Primex owns a 50% interest in  Price Club Mexico, the joint venture  corporation
which develops, owns and operates ten Price Club warehouse clubs in Mexico as of
October  31,  1994. The  other 50%  interest in  Price Club  Mexico is  owned by
Comercial Mexicana, one of the leading  retailers in Mexico. In addition to  the
business  conducted through Price Club Mexico, Mexico Clubs will offer to export
(including purchasing, storage, bulk splitting and transshipment) consumer goods
and other products to Mexico for sale by Price Club Mexico.
    

   
    PRICE CLUB MEXICO.  In  June 1991, Price and  Primex entered into the  Joint
Venture  Agreement to form a joint venture to develop and operate warehouse club
facilities in Mexico under the name  Price Club. This joint venture, Price  Club
Mexico,  is currently owned 50% by Primex and 50% by Comercial Mexicana. Through
fiscal year  1994,  Price  Club  Mexico has  received  $66  million  in  capital
contributions  from PriceCostco  (through Primex).  Under the  terms of  the LLC
Agreement, Price  Enterprises  and PriceCostco  are  obligated to  make  capital
contributions  to Mexico  Clubs of up  to an  aggregate of $63  million (plus an
additional amount for purchase of  certain merchandise inventory) allocated  51%
and 49%, respectively, in
    

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fiscal  year 1995  to support expansion  of operations in  Mexico. A substantial
portion of  the  capital  raised,  or  expected to  be  raised,  will  fund  the
acquisition and construction of real estate for Price Club locations in Mexico.

   
    In  calendar year 1995, Price  Club Mexico expects to  open between five and
nine additional warehouse club facilities  in Mexico. Warehouse club  facilities
operated  by Price Club Mexico are generally similar to warehouse clubs operated
by PriceCostco  in the  United States.  Price Club  Mexico is  headquartered  in
Mexico  City and is managed in Mexico by an executive staff comprised of Mexican
nationals. Total sales by Price Club Mexico were $93 million and $255 million in
calendar years 1992 and  1993, respectively, and total  sales for calendar  year
1994  are expected to exceed total sales  in such prior years. Price Club Mexico
was profitable in each of the calendar  years 1992 and 1993, and is expected  to
be  profitable in calendar year 1994. While total sales by Price Club Mexico for
1995 are expected  to increase,  as compared to  total sales  for calendar  year
1994,  and Price Club Mexico is budgeted to be profitable in calendar year 1995,
comparable sales trends for the last  three months (based on sales at  warehouse
locations open for more than one year) have declined. Price Enterprises believes
that such decline is due to, among other things, cannibalization in Mexico City,
increased  levels  of competition  and a  slowdown in  the Mexican  economy. The
foregoing is not intended as a projection by Price Enterprises or PriceCostco of
actual results of  operations of  Price Club Mexico  for calendar  year 1994  or
1995.  The actual results of operations of Price Club Mexico for such period may
be significantly more favorable  or less favorable than  as set forth above  and
should  not be relied upon or regarded  as a representation as to actual results
of operations.
    

   
    DISCUSSIONS CONCERNING POTENTIAL SALE  OF JOINT VENTURE  INTEREST.  In  late
September 1994, representatives of Comercial Mexicana commenced discussions with
Robert Price and Jim Sinegal regarding the proposed transfer of Primex to Mexico
Clubs  as part  of the  Transaction. The  representatives of  Comercial Mexicana
indicated that Comercial  Mexicana was interested  in a continuing  relationship
with  PriceCostco,  rather  than  embarking on  a  new  relationship  with Price
Enterprises.
    

   
    Discussions continued  among representatives  of Comercial  Mexicana,  Price
Enterprises and PriceCostco through mid-November 1994. Such discussions centered
on  a possible transaction pursuant to which Comercial Mexicana or a third party
would purchase the 50% interest in  Price Club Mexico then owned by  PriceCostco
(and  currently owned  by Mexico  Clubs) and  PriceCostco and  Price Club Mexico
would enter into certain agreements with respect to the use of the "Price  Club"
name  and certain computer software by Price Club Mexico and with respect to the
sourcing of certain merchandise  to Price Club Mexico  by PriceCostco. Based  on
the  discussions to date, Price Enterprises  and PriceCostco believe that if any
such purchase occurs, it  would likely involve payment  for the 50% interest  in
Price  Club Mexico by a combination of  cash, promissory notes or stock or other
securities. However, as of  the date of this  Offering Circular/ Prospectus,  no
agreement,  preliminary or otherwise,  has been reached  with Comercial Mexicana
regarding such  proposed purchase.  ALTHOUGH PRICE  ENTERPRISES AND  PRICECOSTCO
CURRENTLY  ANTICIPATE  THAT DISCUSSIONS  REGARDING  SUCH PROPOSED  PURCHASE WILL
CONTINUE, NO  ASSURANCES  CAN  BE  GIVEN THAT  ANY  AGREEMENT  WILL  BE  REACHED
REGARDING  SUCH A PURCHASE BY COMERCIAL MEXICANA OR SUCH THIRD PARTY OR, IF SUCH
AN AGREEMENT IS REACHED, THE TERMS OF ANY SUCH PURCHASE.
    

   
    MEXICO CLUBS' BUYING ACTIVITIES.  From the United States, Mexico Clubs  will
offer  to provide  merchandising support  to Price  Club Mexico  through its San
Diego-based buying group, which purchases products and arranges for the storage,
bulksplitting and transshipment of goods. Price may also provide buying services
to Price  Club Mexico  pursuant to  the Joint  Venture Agreement.  In  addition,
Mexico Clubs operates Los Angeles, California and Laredo, Texas distribution and
storage centers for goods destined for Mexico.
    

    THE  JOINT VENTURE  AGREEMENT.   The Joint  Venture Agreement  provides that
Price Club Mexico will be managed by  a six-member board of directors, three  of
whom  are designated by Comercial  Mexicana and three of  whom are designated by
Primex. Price and Comercial  Mexicana have agreed  to jointly and  cooperatively
train  new  employees of  Price Club  Mexico (i)  in the  conduct of  Price Club
warehouse club  format  operations and  (ii)  in  the discharge  of  Price  Club
Mexico's  administrative,  financial, marketing  and  related needs.  Price Club
Mexico will reimburse Price and  Comercial Mexicana for the expenses  associated
with such training.

    Pursuant  to the Joint Venture Agreement,  without the prior written consent
of Comercial Mexicana, neither Price nor  any of its affiliates may (i)  manage,
operate,  license  or  franchise any  business,  other than  Price  Club Mexico,
conducting Price Club  warehouse club format  operations in Mexico  or which  is
otherwise

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directly  or indirectly competitive  with Price Club  Mexico, Comercial Mexicana
and/or its affiliates in  Mexico or (ii) possess  any ownership interest in  any
legal  entity, other than Price Club Mexico, which is dedicated to the operation
and/or management of any such business in Mexico.

    Similarly, without the  prior written  consent of  Price, neither  Comercial
Mexicana nor any of its affiliates may (i) manage, operate, license or franchise
any business, other than Price Club Mexico, conducting Price Club warehouse club
format  operations  in the  U.S.  or elsewhere  or  which is  otherwise directly
competitive with Price and/or its affiliates  in the U.S. or elsewhere, or  with
Price  Club Mexico  in Mexico where  such competition directly  relates to Price
Club warehouse club format operations or (ii) possess any ownership interest  in
any  legal  entity, other  than Price  Club  Mexico, which  is dedicated  to the
operation and/or management  of any  such business. Comercial  Mexicana and  its
affiliates  are not  prohibited, however,  from managing,  operating, licensing,
franchising or owning any other business in Mexico which may be competitive with
Price, so  long  as  Comercial  Mexicana provides  Price  with  notice  of  such
intention  and allows  Price a  right of  first refusal  to participate  in such
business.

    The Joint Venture Agreement provides that if the board of directors of Price
Club Mexico becomes  deadlocked over,  or because  of a lack  of a  quorum or  a
required  majority  is unable  to act  upon,  any matter,  such matter  shall be
referred to Comercial Mexicana  and Primex for a  period of mutual  consultation
not  to exceed 30 days (unless an extension is mutually agreed to), after which,
in the  absence of  agreement, either  Primex or  Comercial Mexicana  may for  a
period  of 15 days thereafter offer to  purchase all shares of Price Club Mexico
held by the  other. If  no such  agreement to  purchase is  reached within  such
period  (or any  extension thereof), then  the Joint Venture  Agreement shall be
terminated. Such  termination  shall  be  accomplished by  each  of  Primex  and
Comercial  Mexicana submitting sealed, U.S.  Dollar denominated written bids for
the purchase of  all securities of  Price Club  Mexico held by  the other.  Each
sealed  bid shall be placed in an  identical envelope, and one envelope shall be
selected at random by the then chairman  of the board of Price Club Mexico.  The
party  whose bid is  not drawn will have  the option either  (i) to purchase the
securities of Price Club Mexico held by the party whose bid is drawn at the  bid
price  or (ii) to sell its securities of Price Club Mexico to the other party at
the bid  price. The  purchaser may  elect to  pay cash  in U.S.  Dollars at  the
closing  or to receive the following purchase  terms from the seller: 20 percent
cash in U.S.  Dollars at closing  with the  balance in four  annual U.S.  Dollar
installments  of principal  plus interest  at a rate  equal to  175 basis points
above the then equivalent four-year U.S.  treasury note rate. The closing  shall
occur  120 days after the date of delivery of the first sealed bid, as described
above.

   
    In addition, for a  period of 90  days commencing on  June 21, 1995,  either
Primex or Comercial Mexicana may give written notice to the other that it elects
to  terminate the  Joint Venture  Agreement, for  any reason  and without cause,
effective as  of  the ninetieth  day  following June  21,  1995. Upon  any  such
termination, Price Club Mexico shall be dissolved and liquidated.
    

    In addition, the Joint Venture Agreement provides that each of Price, Primex
and  Comercial  Mexicana  will  not  disclose  certain  confidential information
concerning the parties' businesses and  operations unless prior written  consent
to such disclosure has been obtained from each other party.

   
    While Price and Primex continue to be parties to the Joint Venture Agreement
and  subject to  its terms, Mexico  Clubs will not  become a party  to the Joint
Venture Agreement and will not be subject to its terms (except by virtue of  its
ownership of Primex).
    

   
THE LIMITED LIABILITY COMPANY AGREEMENT.
    
   
    Pursuant  to the LLC  Agreement, Price and Price  Enterprises have agreed to
certain terms  governing their  rights  and obligations  with respect  to  their
interests in Mexico Clubs.
    

   
    The  LLC Agreement also  provides that, from time  to time throughout fiscal
year 1995, Mexico Clubs  may require Price and  Price Enterprises to  contribute
cash  to Mexico Clubs (as reasonably necessary  for the conduct of Mexico Clubs'
business and not  in excess  of Mexico Clubs  capital requirements  for 90  days
following  the date of  the LLC Agreement  consistent with the  budget of Mexico
Clubs for the fiscal year 1995, as approved by the managers of Mexico Clubs) pro
rata with such capital contribution allocated  51% to Price Enterprises and  49%
to  Price. However, Price Enterprises and Price are only obligated to contribute
in cash to  the capital of  Mexico Clubs throughout  fiscal year 1995  up to  an
aggregate  of  the sum  of $63  million plus  an amount  equal to  the inventory
purchased by Mexico Clubs as of August 28, 1994 (which is currently estimated to
be  $4  million).  The  LLC   Agreement  also  provides  for  optional   capital
contributions by each of its members (a "Member") after fiscal year 1995, and if
Members  elect not to make such capital contributions, their percentage interest
in Mexico Clubs will be reduced proportionally.
    

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<PAGE>
   
    Pursuant to the LLC Agreement, the  management of Mexico Clubs' business  is
vested  in a group of managers elected by the Members. The managers may delegate
any or all of the day-to-day management and conduct of Mexico Clubs' business to
the officers of Mexico Clubs.
    

   
    The  LLC  Agreement  prohibits  any  sale,  transfer,  assignment,   pledge,
hypothecation,  exchange or other disposition by a  Member of all or any portion
of its interest in Mexico  Clubs, except with the  prior written consent of  the
other Members.
    

   
    The  LLC Agreement provides that the term  of Mexico Clubs began on the date
the Certificate of Formation was filed with the Delaware Secretary of State  and
will continue until that same date in the year 1999, unless terminated sooner in
accordance  with the provisions of the  LLC Agreement, by unanimous agreement of
the Members or pursuant to the Delaware Limited Liability Company Act.
    

    THE OPERATING  AGREEMENT  WITH  PRICECOSTCO.    Pursuant  to  the  Operating
Agreement  dated  as  of  August  28, 1994  by  and  among  Mexico  Clubs, Price
Enterprises, Price  and  PriceCostco  (the "Mexico  Operating  Agreement"),  the
parties   have  agreed  to   certain  terms  governing   their  future  business
relationship, and PriceCostco has agreed to provide certain support services  to
Mexico Clubs.

   
    The  Mexico Operating  Agreement provides that,  for a period  of five years
from the Transfer Closing Date (the "Five-Year Period"), neither PriceCostco nor
its Downstream Affiliates (as hereinafter  defined) will directly or  indirectly
(i)  conduct a Club Business in Mexico,  (ii) own an interest in another company
that  conducts  a  Club  Business  in  any  such  area  (provided  that  neither
PriceCostco  nor its affiliates  shall be prohibited  from purchasing and owning
securities of  any  such  company  as  a passive  investment  so  long  as  such
securities  in the aggregate  represent no more  than ten percent  of the equity
securities of such company),  (iii) knowingly sell to  or provide services to  a
Club  Business in  Mexico (except  for the  Club Business  conducted directly or
indirectly by Mexico Clubs  or its Downstream Affiliates),  (iv) use or  license
the  use of  the tradename  and trademark  "Costco" in  Mexico or  (v) otherwise
compete with the activities of Mexico  Clubs. The restrictions set forth in  the
preceeding  sentence  will, however,  terminate and  have  no further  force and
effect upon any sale of all of the shares of capital stock of Primex, or all  of
the shares of capital stock of Price Club Mexico, owned, directly or indirectly,
by Mexico Clubs to Comercial Mexicana or any of its affiliates.
    

   
    The Mexico Operating Agreement also provides that, for the Five-Year Period,
none of Price Enterprises, its Downstream Affiliates, Mexico Clubs or any of its
Downstream  Affiliates  (except, with  respect  to Price  Enterprises  and Price
Global, as set  forth in the  Price Global Operating  Agreement (as  hereinafter
defined  and described below)) will, directly  or indirectly, (i) conduct a Club
Business in any  geographical area other  than Mexico, (ii)  own an interest  in
another  company that conducts a  Club Business in any  such area (provided that
neither Price Enterprises, Mexico  Clubs or any  of their Downstream  Affiliates
shall be prohibited from purchasing and owning securities of any such company as
a  passive investment so long  as such securities in  the aggregate represent no
more than  ten  percent of  the  equity securities  of  such company)  or  (iii)
knowingly  sell to or provide services to a  Club Business in any such area. The
Mexico Operating  Agreement also  provides that,  for the  Five-Year Period,  in
Mexico,  Price  Enterprises, its  Downstream  Affiliates, Mexico  Clubs  and its
Downstream Affiliates and Price Club Mexico  shall conduct a Club Business  only
through  Mexico  Clubs or  Price Club  Mexico.  PriceCostco may  acquire another
company that conducts a Club Business in Mexico, provided that in such  acquired
company's  last complete  fiscal year  prior to  such acquisition,  the acquired
company derived no more than 20% of its annual revenues from such Club  Business
in  Mexico. Pursuant  to the Mexico  Operating Agreement,  PriceCostco agreed to
hold separate such Club Business so acquired and to divest of such Club Business
as soon  as practicable  following  the consummation  of such  acquisition.  The
Mexico  Operating Agreement further  provides that prior  to divesting such Club
Business to any bona fide, arm's length purchaser, PriceCostco must first  offer
the opportunity to purchase such Club Business to Mexico Clubs. In addition, the
Mexico  Operating Agreement provides that, except  as expressly permitted by the
Transfer and Exchange Agreement or  certain other agreements, for the  Five-Year
Period,  the  parties to  the Mexico  Operating  Agreement and  their Downstream
Affiliates will  not engage  in any  business  with any  Club Business  or  with
certain specified companies.
    

   
    During  the Five-Year Period or until such  earlier date (if any) when Price
Enterprises sells all of its interest in Mexico Clubs to any party unrelated  to
it,  PriceCostco has agreed to provide to Mexico Clubs, at Mexico Clubs' request
solely for Mexico Clubs' use in Mexico, with certain support services, including
the following: support from PriceCostco's  buying office to assist Mexico  Clubs
in sourcing and acquiring merchandise and services for itself and its affiliates
and  joint ventures in  Mexico and reasonable  support from PriceCostco's buying
offices for placement of orders for merchandise; access to PriceCostco's vendors
    

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<PAGE>
   
for placing orders for merchandise;  certain data with respect to  PriceCostco's
inventory  and costs; assistance in establishing management information systems;
and filling of certain orders for private label merchandise sold by PriceCostco.
PriceCostco has also agreed to provide a  portion of the warehouse space at  its
City  of Industry, California warehouse  at cost and to  provide to Mexico Clubs
splitting and transshipment of bulk orders for delivery to Mexico. In  addition,
PriceCostco  has agreed to  provide Mexico Clubs with  access to two PriceCostco
warehouse club locations in Southern California for training purposes.
    

    During the Five-Year Period, PriceCostco and its Downstream Affiliates  have
agreed to use their good faith efforts to maximize their importation of products
produced  in Mexico.  To the  extent PriceCostco  and its  Downstream Affiliates
receive credits for  such imports from  Mexico, they are  obligated to  transfer
such credits to Mexico Clubs or its designee.

    For  a period  of two  years after the  termination of  the Mexico Operating
Agreement, Mexico Clubs, Price  Enterprises, Price and  PriceCostco and each  of
their  respective Downstream Affiliates  will maintain in  strict confidence all
information obtained pursuant  to the Mexico  Operating Agreement or  otherwise,
relating  to the  business, operations, properties,  assets, products, condition
(financial or otherwise), liabilities, employee relations, customers, suppliers,
prospects, technology, or trade secrets of the other party; except to the extent
such information (i) is in the public  domain through no act or omission of  the
disclosing  party,  (ii)  is  required  to  be  disclosed  by  law  or  (iii) is
independently learned  by  the disclosing  party.  With respect  to  information
regarding any such party's membership and membership database, the obligation to
hold  in confidence  such information  (as set  forth in  the previous sentence)
shall continue until  five years from  the termination of  the Mexico  Operating
Agreement.

    The  Mexico  Operating Agreement  further  provides for  reciprocal shopping
privileges among  the  members of  PriceCostco  and  Mexico Clubs  and  for  the
purchase by Mexico Clubs of certain inventory formerly held by PriceCostco.

    As  used  in the  Mexico Operating  Agreement, each  of the  other Operating
Agreements and each  of the Stockholders  Agreements (i) an  "affiliate" of  any
person  means any entity which is  owned, directly or indirectly, thirty percent
or more  by the  person, which  holds an  interest, directly  or indirectly,  of
thirty  percent or  more in  the person, or  which has  a common  owner with the
person which owner has, directly or  indirectly, thirty percent or more of  both
the  person and the affiliate;  and (ii) a "Downstream  Affiliate" of any person
means any entity which is controlled directly or indirectly by the person.

   
    The Mexico Clubs Operating Agreement (other than the provisions relating  to
confidentiality)  will terminate and  have no further force  and effect upon any
sale of all of the shares  of Primex, or all of  the shares of capital stock  of
Price  Club Mexico, owned, directly or  indirectly, by Mexico Clubs to Comercial
Mexicana or any of its affiliates.
    

   
    STOCKHOLDERS AGREEMENT.  If a sale by  Mexico Clubs of all of the shares  of
capital  stock of Primex,  or all of the  shares of capital  stock of Price Club
Mexico owned directly or  indirectly by Mexico Clubs  to Comercial Mexicana  has
not   been  consummated  on  or  before  October  1,  1995,  Price  Enterprises,
PriceCostco, Price and  Mexico Clubs  will enter into  a stockholders  agreement
(the "Mexico Stockholders Agreement") with the following material terms.
    

   
    The Mexico Stockholders Agreement will provide that, from time to time after
fiscal  year 1995, the Board of Directors of Mexico Clubs may request additional
funds from  the stockholders,  either  in the  form  of advances  or  additional
capital  contributions. Both Price and Price Enterprises, as the stockholders of
Mexico Clubs,  will be  entitled  to participate  in  an advance  or  additional
capital  contribution,  pro rata  in proportion  to their  respective percentage
ownership interest in Mexico Clubs. Advances will  be made in the form of  loans
bearing  interest at  three hundred basis  points over the  5-Year Treasury Bill
rate at the time of the advance, and will include such other terms as  specified
by  the Board of Directors  of Mexico Clubs. With  respect to additional capital
contributions, if a stockholder declines to  make all or part of its  respective
additional  capital contribution,  the Board of  Directors of  Mexico Clubs will
issue to the fully participating stockholders,  pro rata in proportion to  their
additional  capital contribution,  additional shares  of common  stock of Mexico
Clubs, such  that  each  non-participating  stockholders'  percentage  ownership
interest in Mexico Clubs will be decreased proportionally.
    

   
    The  Mexico Stockholders  Agreement will  set forth  certain restrictions if
either Price Enterprises or Price offers to transfer, sell, assign or  otherwise
dispose  of any  shares of  common stock of  Mexico Clubs,  and further provides
stockholders with certain preemptive rights. In addition, at any one time  after
ten  years  from the  Closing  Date, PriceCostco  may  demand that  Mexico Clubs
register under the Securities Act any of
    

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PriceCostco's shares of common stock of Mexico Clubs with a value in excess  $10
million.  In lieu of registering such shares of stock, Mexico Clubs may elect to
purchase such  shares at  their fair  market value.  Moreover, in  the event  of
future  public  offerings by  Mexico  Clubs of  its  common stock  or securities
convertible or exchangeable into such common stock, Price and Price  Enterprises
will  have  the right  to participate  in such  offering on  the same  terms and
conditions as  Mexico Clubs,  subject to  certain conditions.  No party  to  the
Mexico  Stockholders Agreement may transfer any of its shares of common stock of
Mexico Clubs or any other ownership interest in Mexico Clubs to a Club  Business
or  to certain specified  companies, nor may  any party transfer  such shares or
other ownership interest to any person without such person having become a party
to the Mexico Stockholders Agreement.
    

   
    The Mexico Stockholders  Agreement will  contain confidentiality  provisions
that  are  substantially  similar to  those  contained in  the  Mexico Operating
Agreement. The parties will  also be required to  comply with the provisions  of
the Joint Venture Agreement.
    

   
    The  Mexico Stockholders Agreement will further  provide that for as long as
Price owns at  least 20%  of Mexico Clubs'  outstanding common  stock, Price  is
entitled  to appoint  one director  to the  three member  Board of  Directors of
Mexico Clubs. In addition, the three  directors of Mexico Clubs will also  serve
as the directors of Mexico Clubs' wholly owned subsidiary, Primex.
    

    COMPETITION.    Price  Club  Mexico's  primary  competitor  with  respect to
warehouse club facilities is Sam's Club (an affiliate of Wal-Mart Stores, Inc.).
Other major  retail  competitors  in Mexico  include  Cifra,  Gigante,  Wal-Mart
Stores,  Inc., Kmart  Corporation and  Carrefour S.A.  In addition,  other major
United States retailers have announced plans to enter the Mexico market.  Mexico
Clubs  believes  that competitive  pressures in  the  Mexico retail  market will
continue to intensify over time.

PRICE QUEST

   
    GENERAL.  Price Quest was formed to acquire (A) all of the noncurrent assets
of PriceCostco or  any of  its subsidiaries  specifically related  to the  Quest
Business,  (B) all right, title  and interest, if any,  of PriceCostco or any of
its subsidiaries to, or, in certain cases, a long-term license to use, the names
"Price Club Quest"  and "Quest"  and (C) certain  other assets.  Price Quest  is
owned 51% by Price Enterprises and 49% by Price.
    

    QUEST  BUSINESS.   The Quest  Business was commenced  by Price  in 1992. The
Quest Business utilizes an interactive  electronic shopping kiosk to sell  goods
and  services in certain  warehouse clubs to PriceCostco  members. A Quest kiosk
has a computer  shopping terminal  upon which  members can  browse and  purchase
products  through  an electronic  catalogue  of goods  and  services. Typically,
sample items for  popular products are  on display in  the area surrounding  the
Quest  Business kiosk. Members select products and complete the ordering process
on the computer  terminal at  the Quest Business  kiosk. Members  pay for  their
merchandise  either  in  the  Quest  merchandise  department  or  at  the normal
check-out registers at that particular PriceCostco warehouse club facility.  The
merchandise  is then promptly  shipped to the member's  home or other designated
address.

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    Price  Quest now has kiosk centers installed and operating at 38 PriceCostco
warehouse clubs in  nine states. In  addition to the  kiosks at the  PriceCostco
warehouse clubs, Price Quest intends to develop Quest Business centers in venues
other than PriceCostco warehouse clubs.
    

   
    Price  Quest presently  offers over  9,000 different  products on  the Quest
Business electronic shopping catalogue. Over time, Price Quest is continuing  to
add  many products, as well as various  services and information for sale to its
customers.
    

    Price Quest  also has  acquired  Price Club  Travel, which  offers  discount
airline  tickets and travel packages to  PriceCostco members. In addition, Price
Quest's assets also include Price Club Realty, a real estate brokerage  business
for  PriceCostco  members, and  the  Price Club  automobile referral/advertising
program, which  publishes  advertisements  for automobile  dealers  who  provide
discount  purchasing programs to PriceCostco members  in the vicinity of certain
PriceCostco warehouse clubs.

   
    The Quest Business has achieved net  sales of $.3 million, $3.0 million  and
$19.9  million for  fiscal years  1992, 1993,  1994, respectively.  Although net
sales have been steadily increasing,  the Quest Business has incurred  operating
losses from its commencement to present.
    

    OPERATING  AGREEMENT WITH PRICECOSTCO.   Pursuant to the Operating Agreement
dated as of August 28, 1994 by  and among Price Quest, Price Enterprises,  Price
and  PriceCostco (the "Quest  Operating Agreement"), the  parties have agreed to
certain terms governing their future  business relationship and PriceCostco  has
agreed to provide certain support services to Price Quest.

    The  Quest Operating Agreement  provides that, during  the Five-Year Period,
neither  PriceCostco  nor  its  Downstream  Affiliates  will  (i)  directly   or
indirectly  conduct a Quest  Business, (ii) own any  interest in another company
that conducts a  Quest Business other  than Price Quest  (provided that  neither
PriceCostco  nor its affiliates  shall be prohibited  from purchasing and owning
securities of  any  such  company  as  a passive  investment  so  long  as  such
securities  in the aggregate  represent no more  than ten percent  of the equity
securities of such company), or (iii) knowingly sell to or provide services to a
Quest Business  (except  for  the  Quest Business  conducted  by  Price  Quest).
PriceCostco  may acquire another company  that conducts a business substantially
similar to,  and  that competes  with,  the  Quest Business  (a  "Similar  Quest
Business"),  provided that in such acquired  company's last complete fiscal year
prior to such acquisition, the acquired company derived no more than 20% of  its
annual revenues from the Similar Quest Business. Pursuant to the Quest Operating
Agreement,  PriceCostco agreed  to hold separate  the Similar  Quest Business so
acquired and to  divest of such  Similar Quest Business  as soon as  practicable
following  the consummation of  such acquisition. The  Quest Operating Agreement
further provides that prior to divesting such Similar Quest Business to any bona
fide, arm's length purchaser,  PriceCostco must first  offer the opportunity  to
purchase  such  Similar  Quest  Business to  Price  Quest.  Moreover,  except as
otherwise expressly permitted in the Transfer and Exchange Agreement or  certain
other  agreements,  for the  Five-Year Period,  Price Quest,  Price Enterprises,
PriceCostco and  each of  their Downstream  Affiliates will  not engage  in  any
business with certain specified companies.

    The  Quest Operating Agreement also provides that, for the Five-Year Period,
none of Price Enterprises, its Downstream Affiliates, Price Quest, or any of its
Downstream Affiliates  will operate  or conduct  a Quest  Business in  any  Club
Business  (other than  a Club  Business operated by  PriceCostco, or  one of the
Subsidiary Corporations or  its licensees)  or in a  location that  is owned  or
operated by certain specified companies.

   
    For  the Five-Year Period, PriceCostco has  agreed to provide to Price Quest
at Price Quest's request solely for Price Quest's use in a Quest Business access
to PriceCostco's membership databases, and space  for a Quest Business kiosk  in
the  38  PriceCostco  warehouse  clubs where  the  Quest  Business  is currently
operating (provided  that the  Quest Business  at such  locations meets  certain
ongoing  minimum  sales  volumes).  In addition,  during  the  Five-Year Period,
PriceCostco has  agreed  to  allow Price  Quest  to  expand into  at  least  ten
additional   PriceCostco   warehouse  club   locations  annually   (selected  by
PriceCostco with  Price Quest's  consent). The  Quest Operating  Agreement  also
provides that Price Quest shall be entitled to existing space in all PriceCostco
warehouse  clubs  which presently  contain airline  ticketing equipment  used in
    

                                      106
<PAGE>
connection with Price Club Travel, or which is occupied by Price Club Realty and
the Price  Club automobile  advertising/referral program.  Price Quest  is  also
entitled  to the continued use of a portion  of Price's warehouse in the City of
Industry, California at PriceCostco's cost.

    For the Five-Year Period, PriceCostco has agreed to provide Price Quest with
certain support services,  including the following:  support from  PriceCostco's
buying  offices to assist Price Quest  in sourcing and acquiring merchandise and
services for itself and its affiliates and joint ventures and reasonable support
from PriceCostco's  buying  offices for  placement  of orders  for  merchandise;
access  to PriceCostco's vendors for  placing orders for merchandise; assistance
in establishing  management information  systems; certain  historical data  with
respect  to PriceCostco's  inventory and  costs; filling  of orders  for private
label merchandise  sold  by  PriceCostco;  access  to  PriceCostco's  management
information   system's  communications  network  for   operation  of  kiosks  in
PriceCostco warehouse club locations; and,  under certain circumstances, use  of
home delivery software on PriceCostco's management information system.

    PriceCostco  has also agreed  to provide Price  Quest with certain personnel
and staffing  services  during  the  Five-Year Period  in  connection  with  the
operation  of the Quest Business. These  services include assistance in handling
customer courtesies and  cashiering services; assignment  of personnel to  staff
the  Quest Business kiosks in accordance with Price Quest staffing requirements;
and  other  warehouse  club  support  services  including  receiving,  inventory
storage,   returns,  security  and  administrative  assistance.  PriceCostco  is
obligated to  reimburse  Price  Quest  for  inventory  shrinkage  in  excess  of
historical shrinkage rates at the PriceCostco warehouse clubs.

    For  the Five-Year  Period, Price Quest  has agreed that  the Quest Business
kiosks, products, and services will  be at least equal  in quality and value  to
the  standards of PriceCostco, and that  personnel working in the Quest Business
kiosk area adhere to PriceCostco personnel policies. Further, for the  Five-Year
Period,  Price  Quest has  agreed to  provide PriceCostco  with access  to Price
Quest's customer database; reasonable  support from Price  Quest and its  buying
offices  for  placement of  orders  for merchandise  and  services on  behalf of
PriceCostco; and  filling  of orders  from  PriceCostco for  any  private  label
merchandise sold by Price Quest.

    During the Five-Year Period, Price Quest will pay PriceCostco two percent of
net  sales at PriceCostco  warehouse club locations of  all Quest Business goods
and services (excluding Price Club Travel, Price Club Realty and the Price  Club
automobile  advertising/referral program), and one percent of net sales of Quest
Business goods  and  services  which  are transacted  at  the  central  register
checkout  at PriceCostco warehouse clubs. During each  of the first two years of
the Five-Year Period, payments by Price Quest will be a minimum of $1.5  million
annually  in satisfaction of these  percentage payment obligations. In addition,
during the Five-Year Period, Price Quest is obligated to pay to PriceCostco  55%
of  all  revenues  from  the  PriceCostco  Club  Business  locations' automobile
advertising/referral programs, except  that during  the first two  years of  the
Five-Year  Period, PriceCostco shall receive the greater of such 55%, or 100% of
all such revenues up to $3 million. During the Five-Year Period, PriceCostco  is
also  entitled  to 10%  of the  commissions  collected by  Price Club  Travel on
airline ticket sales and one percent  of net sales of vacation packages.  During
the  Five-Year  Period, Price  Quest  will pay  PriceCostco  two percent  of net
revenues  earned  by  Price  Club  Realty  at  the  PriceCostco  warehouse  club
locations.

    For  a period  of two  years after  the termination  of the  Quest Operating
Agreement, Price Quest,  Price Enterprises,  Price and PriceCostco  and each  of
their  respective Downstream Affiliates  will maintain in  strict confidence all
information obtained pursuant  to the  Quest Operating  Agreement or  otherwise,
relating  to the  business, operations, properties,  assets, products, condition
(financial or otherwise), liabilities, employee relations, customers, suppliers,
prospects, technology, or trade secrets of the other party; except to the extent
such information (i) is in the public  domain through no act or omission of  the
disclosing  party,  (ii)  is  required  to be  disclosed  by  law,  or  (iii) is
independently learned by the disclosing  party. With respect to the  information
regarding any such party's membership and membership database, the obligation to
hold  in confidence  such information  (as set  forth in  the previous sentence)
shall continue until  five years  from the  termination of  the Quest  Operating
Agreement.

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<PAGE>
    Price  Quest also must make  advertising purchases in PriceCostco's customer
publications and membership  renewal mailings  of at  least $3  million (at  the
publications' most favorable rates) in each of the first two fiscal years of the
Five-Year  Period.  Price  Quest  also  will  purchase  certain  inventory  from
PriceCostco  with  such  purchases  being   financed  by  a  pro  rata   capital
contribution of Price Enterprises and PriceCostco.

   
    STOCKHOLDERS  AGREEMENT.  Pursuant to the Stockholders Agreement dated as of
August 28, 1994  by and among  Price Enterprises, PriceCostco,  Price and  Price
Quest   (the  "Price  Quest  Stockholders  Agreement"),  Price  Enterprises  and
PriceCostco  have  agreed  to  certain   specific  rights  and  obligations   as
stockholders  of Price  Quest. The  Price Quest  Stockholders Agreement provides
that, from time to time during fiscal year 1995, the Board of Directors of Price
Quest may  require  Price  Enterprises  and  Price  to  make  mandatory  capital
contributions  to the corporation,  pro rata allocated  51% to Price Enterprises
and 49% to Price, up to an aggregate of the sum of $15 million plus the purchase
price of certain inventory (approximately  $4 million) purchased by Price  Quest
from  PriceCostco at  the Transfer  Closing Date.  In the  event any stockholder
defaults in its  obligation to make  such a capital  contribution, the Board  of
Directors  of Price Quest may treat the default  in one or more of the following
ways: (i) enforce the obligation  by arbitration, including interest  compounded
annually,  at the lesser of  (a) three hundred basis  points over the prime rate
published by  major  national  banks  or  (b)  the  highest  rate  permitted  by
applicable  law (the "Default Rate"); (ii) treat  the defaulted amount as a loan
to the defaulting stockholder by Price  Quest, which shall bear interest at  the
Default Rate; or (iii) retain dividends or other distributions otherwise payable
to  the defaulting stockholder, such funds to be applied to the repayment of the
loan.
    

    The Price Quest Stockholders Agreement provides that the Board of  Directors
of  Price Quest may request additional capital infusions from stockholders after
fiscal year  1995,  either  in  the  form  of  advances  or  additional  capital
contributions.  Both Price and  Price Enterprises, as  the stockholders of Price
Quest,  are  entitled  to  participate  in  an  advance  or  additional  capital
contribution,  pro rata in  proportion to their  respective percentage ownership
interest in Price  Quest. Advances will  be made  in the form  of loans  bearing
interest at three hundred basis points over the 5-Year Treasury Bill rate at the
time of the advance, and will include such other terms as specified by the Board
of  Directors of Price Quest. With  respect to additional capital contributions,
if a  stockholder declines  to make  all or  part of  its respective  additional
capital  contribution, the Board of  Directors of Price Quest  will issue to the
fully participating stockholders,  pro rata  in proportion  to their  additional
capital  contribution, additional  shares of common  stock of  Price Quest, such
that each non-participating stockholders' percentage ownership interest in Price
Quest will be decreased proportionally.

   
    The Price Quest  Stockholders Agreement sets  forth certain restrictions  if
either  Price Enterprises or Price offers to transfer, sell, assign or otherwise
dispose of  any shares  of common  stock of  Price Quest,  and further  provides
stockholders  with certain preemptive rights. In addition, at any one time after
ten years  from  the Closing  Date,  PriceCostco  may demand  that  Price  Quest
register under the Securities Act any of Price's shares of common stock of Price
Quest  with a value in excess $10 million. In lieu of registering such shares of
stock, Price Quest may elect to purchase such shares at their fair market value.
Moreover, in the event of future public  offerings by Price Quest of its  common
stock  or securities convertible  or exchangeable into  such common stock, Price
and Price Enterprises will each have  the right to participate in such  offering
on  the same terms and conditions as Price Quest, subject to certain conditions.
No party  to the  Price Quest  Stockholders Agreement  may transfer  any of  its
shares  of common stock of Price Quest  or any other ownership interest in Price
Quest to a Club Business  or to certain specified  companies, nor may any  party
transfer  such shares  or other  ownership interest  to any  person without such
person having become a party to the Price Quest Stockholders Agreement.
    

    The Price Quest Stockholders  Agreement contains confidentiality  provisions
that  are substantially similar to those  contained in the Price Quest Operating
Agreement.

    The Price Quest Stockholders Agreement further provides that for as long  as
Price  owns at  least 20%  of Price Quest's  outstanding common  stock, Price is
entitled to appoint one director to the three member Board of Directors of Price
Quest. Price's initial appointee is James D. Sinegal.

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<PAGE>
    COMPETITION.    Price  Quest  competes  directly  or  indirectly  with  most
merchandising   businesses,  other  discount  retailers  (including  PriceCostco
warehouse clubs), catalogue  and other  direct marketing  sales, televised  home
shopping,  travel agency services, traditional  residential real estate brokers,
other affinity buying services and similar interactive kiosks that are or may be
operated by  other  retailers.  Price  Enterprises  believes  that,  as  further
advances  in computer technology are made and as more interactive computer-based
services become  available to  consumers in  the home  and retail  environments,
competitive pressures on Price Quest will intensify.

PRICE GLOBAL

   
    GENERAL.   Price Global was formed to  acquire (A) the right to develop Club
Businesses in the Specified Geographical Areas (other than Mexico), (B) the  CMI
Stock,  (C) all  right, title  and interest in  and to,  or in  certain cases, a
long-term license to use, the names "Price Club," "Price Club Costco" and "Price
Costco" in each of the Specified Geographical Areas (other than Mexico) and  (D)
all  other noncurrent  assets of  PriceCostco and  its subsidiaries  (other than
those included in CMI)  specifically related to the  conduct of business in  the
Specified Geographical Areas. Price Global is owned 51% by Price Enterprises and
49% by Price.
    

   
    PRICE  GLOBAL  BUSINESS.    Price  Global's  business  is  to  develop  Club
Businesses in the Specified Geographical Areas (other than Mexico). Price Global
also owns all  of the outstanding  capital stock  of CMI, an  export and  import
business  which  does  business in  the  Specified Geographical  Areas  and with
certain specified customers in Hong Kong,  Japan and the Phillipines. CMI's  net
sales  totalled $8.0  million, $25.7  million and  $33.6 million  for the fiscal
years 1992, 1993 and 1994, respectively. In fiscal year 1994, substantially  all
of  CMI's  net sales  related  to exports  of  United States  products.  Of such
amounts, sales  to CMI's  two  principal customers,  GrandMart Limited,  a  Hong
Kong-based  retailer and wholesaler, and Comercial Mexicana, represented 55% and
35% of CMI's net sales, respectively.
    

    OPERATING AGREEMENT WITH PRICECOSTCO.   Pursuant to the Operating  Agreement
dated  as of August 28, 1994 by and among Price Global, Price Enterprises, Price
and PriceCostco  (the  "Price Global  Operating  Agreement"), the  parties  have
agreed  to certain provisions governing  their future business relationship, and
PriceCostco has  agreed to  provide certain  ongoing support  services to  Price
Global.

   
    The  Price  Global Operating  Agreement provides  that during  the Five-Year
Period neither PriceCostco nor  its Downstream Affiliates  will (i) directly  or
indirectly  conduct a  Club Business in  the Specified  Geographical Areas other
than through Price  Global and  Mexico Clubs; (ii)  own an  interest in  another
company  that  conducts  a Club  Business  in the  Specified  Geographical Areas
(provided that neither PriceCostco nor  its affiliates shall be prohibited  from
purchasing  and owning securities of any such company as a passive investment so
long as such securities in the aggregate  represent no more than ten percent  of
the  equity  securities of  such company);  (iii) knowingly  sell to  or provide
services to  a  Club Business  in  the  Specified Geographical  Areas;  or  (iv)
transfer  to any person (other than Price Enterprises or the relevant Subsidiary
Corporation) the right to conduct a Club Business in the Specified  Geographical
Areas,  including, without limitation, any right to use the name "Costco" in the
Specified Geographical  Areas.  PriceCostco  may acquire  another  company  that
conducts  a Club Business in the Specified Geographic Areas (other than Mexico),
provided that in such acquired company's last complete fiscal year prior to such
acquisition, the  acquired  company derived  no  more  than 20%  of  its  annual
revenues  from such Club  Business in the Specified  Geographic Area (other than
Mexico). Pursuant to the Price Global Operating Agreement, PriceCostco agreed to
hold separate such Club Business so acquired and to divest of such Club Business
as soon as practicable following the consummation of such acquisition. The Price
Global Operating Agreement further  provides that prior  to divesting such  Club
Business  to any bona fide, arm's length purchaser, PriceCostco must first offer
the opportunity to purchase such Club Business to Price Global. Moreover, except
as otherwise expressly permitted in the  Transfer and Exchange Agreement or  the
Additional Agreements, for the Five-Year Period Price Global, Price Enterprises,
PriceCostco  and  each of  their Downstream  Affiliates will  not engage  in any
business with certain specified companies.
    

    The Price Global Operating Agreement  also provides that, for the  Five-Year
Period,  none of Price  Enterprises, its Downstream  Affiliates, Price Global or
any of its Downstream Affiliates will (i) directly or

                                      109
<PAGE>
   
indirectly conduct  a Club  Business in  any geographical  area other  than  the
Specified  Geographical Areas;  (ii) own  any interest  in another  company that
conducts a Club Business in the Specified Geographical Areas (provided that none
of Price Enterprises, Price Global or  any of their Downstream Affiliates  shall
be  prohibited from purchasing  and owning securities  of any such  company as a
passive investment so long as such securities in the aggregate represent no more
than ten percent of the equity  securities of such company); or (iii)  knowingly
sell  to  or  provide  services to  a  Club  Business in  any  of  the Specified
Geographical Areas.  For the  Five Year  Period, in  the Specified  Geographical
Areas,  Price  Enterprises,  its  Downstream Affiliates,  Price  Global  and its
Downstream Affiliates may only conduct a Club Business through Price Global.
    

    During the Five-Year Period or until  such earlier date (if any) when  Price
Enterprises  sells  all of  its shares  of stock  in Price  Global to  any party
unrelated to  it,  PriceCostco has  agreed  to  provide Price  Global  at  Price
Global's  request  solely for  Price  Global's and  CMI's  use in  the Specified
Geographical Areas  and for  CMI's  use with  certain specified  companies  with
certain  support services,  including the following:  support from PriceCostco's
buying office to assist Price Global  in sourcing and acquiring merchandise  and
services for itself and its affiliates and joint ventures and reasonable support
from  PriceCostco's  buying offices  for  placement of  orders  for merchandise;
access to PriceCostco's vendors for  placing orders for merchandise;  assistance
in  establishing management  information systems;  certain historical  data with
respect to PriceCostco's inventory and costs; and filling of certain orders  for
private  label merchandise sold  by PriceCostco. PriceCostco  also has agreed to
continue to  provide  a  portion of  the  warehouse  space at  Price's  City  of
Industry,   California  warehouse  at   cost,  and  to   provide  splitting  and
transshipment of bulk orders for  delivery abroad. In addition, PriceCostco  has
agreed  to provide employees of Price Global, and its affiliates, joint ventures
and licensees, with  training in accounting  and management information  systems
and  with  access  to  two  PriceCostco  warehouse  club  locations  in Southern
California for training in operational and warehouse management practices.

    For  the  Five-Year  Period,  PriceCostco  has  granted  Price  Global   the
non-exclusive,  royalty-free and non-transferrable right to use certain software
owned by PriceCostco for Price Global's use in the Specified Geographical Areas.
PriceCostco has agreed to provide Price Global with ordinary fixes, upgrades and
improvements to such software.  PriceCostco has also  agreed to make  reasonable
efforts to provide technical support for such software at the reasonable request
of Price Global. Price Global is entitled to use information concerning any such
software  prior  to the  end  of the  Five-Year  Period in  connection  with the
development, testing and use  of new software, provided  that such new  software
does  not infringe on any of PriceCostco's patents or copyrights in the software
provided to Price Global under the Price Global Operating Agreement.

   
    For the Five-Year Period,  Price Global and  its Downstream Affiliates  have
agreed  to  provide to  PriceCostco  certain services  including  the following:
access to Price Global's vendors for placing orders for merchandise and  certain
historical data with respect to Price Global's inventory and costs.
    

   
    For  a  period  of two  years  after  the termination  of  the  Price Global
Operating Agreement, Price Global, Price Enterprises, Price and PriceCostco  and
each   of  their  respective  Downstream  Affiliates  will  maintain  in  strict
confidence all  information  obtained pursuant  to  the Price  Global  Operating
Agreement  or  otherwise,  relating  to  the  business,  operations, properties,
assets, products,  condition  (financial or  otherwise),  liabilities,  employee
relations,  customers, suppliers, prospects, technology, or trade secrets of the
other party; except to the extent such  information (i) is in the public  domain
through  no act  or omission  of the  disclosing party,  (ii) is  required to be
disclosed by law,  or (iii) is  independently learned by  the disclosing  party.
With respect to information regarding any such party's membership and membership
database, the obligation to hold in confidence such information (as set forth in
the  previous sentence) shall continue until  five years from the termination of
the Price Global Operating Agreement.
    

   
    The Price  Global Operating  Agreement provides  that, except  as  expressly
prohibited  in the Price  Global Operating Agreement,  the Transfer and Exchange
Agreement or the other Additional Agreements, each of
    

                                      110
<PAGE>
   
Price Enterprises, PriceCostco and their respective affiliates shall be entitled
to pursue and develop other business opportunities from time to time, and  shall
not be required to present or offer any business opportunities, international or
otherwise,  to  Price  Global  or  CMI prior  to  pursuing  and  developing such
opportunities.
    

    The  Price  Global  Operating  Agreement  further  provides  for  reciprocal
shopping  privileges  among  the  members  of  PriceCostco  and  warehouse clubs
affiliated with Price Global.

    STOCKHOLDERS AGREEMENT.  Pursuant to the Stockholders Agreement dated as  of
August  28, 1994  by and among  Price Enterprises, PriceCostco,  Price and Price
Global (the "Price Global Stockholders Agreement"), Price Enterprises and  Price
have  agreed to certain specific rights and obligations as stockholders of Price
Global. The Price Global Stockholders Agreement required that Price  Enterprises
and  Price make mandatory  capital contributions to  the corporation of $510,000
and $490,000,  respectively, on  the  Transfer Closing  Date. The  Price  Global
Stockholders  Agreement provides  that the Price  Global Board  of Directors may
request additional capital  infusions from  stockholders either in  the form  of
advances  or additional capital  contributions. Each stockholder  is entitled to
participate in  an  advance or  additional  capital contribution,  pro  rata  in
proportion  to its percentage ownership interest  in Price Global. Advances will
be made in the form of loans bearing interest at three hundred basis points over
the 5-Year Treasury Bill rate at the  time of the advance and will include  such
other terms as specified by the Board of Directors of Price Global. With respect
to  additional capital contributions,  if a stockholder declines  to make all or
part of its respective additional  capital contribution, the Board of  Directors
of  Price Global will issue to the fully participating stockholders, pro rata in
proportion to their additional capital contribution, additional shares of common
stock of Price Global, such that each non-participating stockholders' percentage
ownership interest in Price Global will be decreased proportionally.

   
    The Price Global Stockholders Agreement  sets forth certain restrictions  if
either  Price Enterprises or Price offers to transfer, sell, assign or otherwise
dispose of any  shares of  common stock of  Price Global,  and further  provides
stockholders  with certain preemptive rights. In addition, at any one time after
ten years  from the  Closing  Date, PriceCostco  may  demand that  Price  Global
register under the Securities Act any of Price's shares of common stock of Price
Global with a value in excess $10 million. In lieu of registering such shares of
stock,  Price Global  may elect  to purchase  such shares  at their  fair market
value. Moreover, in the event of future public offerings by Price Global of  its
common  stock or securities convertible or  exchangeable into such common stock,
Price and Price Enterprises will have the right to participate in such  offering
on the same terms and conditions as Price Global, subject to certain conditions.
No  party to  the Price  Global Stockholders Agreement  may transfer  any of its
shares of common stock of Price Global or any other ownership interest in  Price
Global  to a Club Business or to  certain specified companies, nor may any party
transfer such shares  or other  ownership interest  to any  person without  that
person having become a party to the Price Global Stockholders Agreement.
    

    The  Price Global Stockholders Agreement contains confidentiality provisions
that are substantially similar to those contained in the Price Global  Operating
Agreement.  Moreover, prior to  entering into any  agreement or arrangement with
any other person (other than PriceCostco  or Price Enterprises) to own,  operate
or  develop a Club Business in any  of the Specified Geographical Areas, whether
pursuant to a joint venture, license, equity investment by such person in  Price
Global  or otherwise, such person, directly  or indirectly, will neither use any
proprietary information or knowhow  acquired from Price  Global with respect  to
ownership  and operation of a Club Business  to establish, own or operate a Club
Business in any geographical area  other than the Specified Geographical  Areas,
nor  assist or advise in  any manner any other  person with respect to ownership
and operation  of  a Club  Business  in any  geographical  area other  than  the
Specified Geographical Areas.

    The Price Global Stockholders Agreement further provides that for as long as
Price  owns at least  20% of Price  Global's outstanding common  stock, Price is
entitled to  appoint  one director  to  Price  Global's three  member  Board  of
Directors. Price's initial appointee is James D. Sinegal.

    SAIPAN  LETTER OF INTENT.  Price Global  has executed a nonbinding letter of
intent with  J.C. Tenorio  Enterprises, Inc.  ("Joeten") in  contemplation of  a
proposed agreement to license certain intellectual property and software, and to
provide  merchandising, training  and technical  support services  to Joeten for

                                      111
<PAGE>
use in Guam and  the Commonwealth of the  Northern Mariana Islands. In  exchange
for  a 15-year license  and various other  support services, Joeten contemplates
paying to Price  Global a  one-time fee and  certain royalties  based on  annual
sales,  plus certain  other costs  and expenses which  may be  incurred by Price
Global in the course of performing its obligations under the proposed  agreement
with Joeten. Under the proposed agreement, Joeten would be obligated to open its
first warehouse retail facility by December 31, 1995.

    COMPETITION.   Price Global competes with exporters, wholesalers and trading
companies in various international markets. In the Specified Geographical Areas,
Price Global's  joint ventures  and licensees  compete with  traditional  retail
stores and wholesalers.

PRICE VENTURES

    Price  Ventures is a wholly owned  subsidiary of Price Enterprises. Although
Price Ventures presently has no active operations, Price Ventures may engage in,
operate or invest in various businesses.

EMPLOYEES

   
    Price Enterprises  and its  subsidiaries lease  approximately 340  employees
from  PriceCostco. See "AGREEMENT  OF TRANSFER AND PLAN  OF EXCHANGE -- Employee
Matters." On January  1, 1995, such  leased employees will  become employees  of
Price  Enterprises. It is  anticipated that of  Price Enterprises' approximately
340 prospective employees,  35 will  be employed  by Price  Enterprises, 155  by
Price Quest, 35 by Price Global and 115 by Mexico Clubs.
    

SEASONALITY

    Price  Enterprises  real  estate  operations are  not  generally  subject to
seasonal fluctuations. Price Quest, Price Global and Mexico Clubs are subject to
traditional retail sales trends associated with the year-end holiday season.

CORPORATE HEADQUARTERS

    Price Enterprises and  its subsidiaries  have executive offices  in the  San
Diego  Property. Price Enterprises believes that its current facilities meet the
expected requirements of Price Enterprises and its subsidiaries over the next 12
months.

LEGAL PROCEEDINGS

    Price Enterprises is not presently involved in any material litigation  nor,
to   its  knowledge,  is  any   material  litigation  threatened  against  Price
Enterprises, its subsidiaries  or their properties,  other than the  proceedings
relating  to environmental matters  described above in  "Real Estate Business --
Environmental Matters."

                        MANAGEMENT OF PRICE ENTERPRISES

BOARD OF DIRECTORS OF PRICE ENTERPRISES

    The Board of Directors of Price Enterprises currently has three members.  It
is  the Board's  intention to  increase the number  of directors  to seven. Each
director serves a one-year term. Set  forth below are the names, positions  with
Price  Enterprises  and ages  of  the persons  who  will be  directors  of Price
Enterprises upon consummation of the Exchange Offer:

   
<TABLE>
<CAPTION>
        NAME           POSITION WITH PRICE ENTERPRISES   AGE
- ---------------------  --------------------------------  ---
<S>                    <C>                               <C>
Robert E. Price        Chairman of the Board, President  52
                        and Chief Executive Officer
Paul A. Peterson       Vice Chairman of the Board        66
James D. Sinegal       Director                          58
Katherine L. Hensley*  Director                          57
Nancy Y. Bekavac*      Director                          47
Murray L. Galinson*    Director                          57
</TABLE>
    

   
                                                         (FOOTNOTE ON NEXT PAGE)
    

                                      112
<PAGE>
   
        * At or prior to  the Closing Date, the  authorized number of  directors
          comprising the Board of Directors of Price Enterprise will be expanded
          and  the Board of Directors of  Price Enterprises, by a majority vote,
          will fill  such  newly created  directorships  with Ms.  Hensley,  Ms.
          Bekavac,   Mr.  Galinson  and,   possibly,  one  additional  director.
                    .
    

   
    Robert E.  Price  has  been  Chairman of  the  Board,  President  and  Chief
Executive  Officer of Price Enterprises since July  28, 1994. Mr. Price has been
Chairman of  the  Board of  PriceCostco  since  October 1993,  although  he  has
tendered  his letter of  resignation as a director  of PriceCostco, effective as
described in "THE TRANSACTION  -- Background of the  Transaction." From 1976  to
October  1993, he was Chief Executive Officer and a director of Price. Mr. Price
served as Chairman of the Board of Price from January 1989 to October 1993,  and
its  President from 1976 until  December 1990. In addition  to his role in Price
Enterprises, Mr. Price will  serve as President and  Chief Executive Officer  of
Price  Real  Estate, Price  Global  and Mexico  Clubs,  and the  Chief Executive
Officer of Price Ventures.
    

    Paul A. Peterson  is a  lawyer and is  a senior  member of the  law firm  of
Peterson  & Price  in San  Diego. He  has been  a director  of PriceCostco since
October 1993, although he has tendered  his letter of resignation as a  director
of  PriceCostco, effective as described in "THE TRANSACTION -- Background of the
Transaction." From 1976  to October  1993, he was  Secretary and,  except for  a
period  of eleven months  in 1982, a  director of Price.  Mr. Peterson served as
Vice Chairman of the Board of Price from November 1991 to October 1993.

    James D. Sinegal has been President, Chief Executive Officer and a  director
of PriceCostco since October 1993. He was President, Chief Operating Officer and
a  director and  founder of  Costco since  its inception  and was  elected Chief
Executive Officer of Costco in August 1988.

   
    Katherine L. Hensley is presently Of Counsel to 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.
    

   
    Nancy  Y. Bekavac  has been the  President of Scripps  College in Claremont,
California since July  1990. From September  1988 to May  1990, Ms. Bekavac  was
Counselor  to the President of Dartmouth  College in Hanover, New Hampshire. Ms.
Bekavac is also a  director of Pioneer Hi-Bred  International, Inc. and  Electro
Rent Corporation.
    

   
    Murray L. Galinson has been the President and Chief Executive Officer of San
Diego National Bank and SDNB Financial Corp. since September 1984 and has been a
director of both entities since their inception in 1981.
    

COMMITTEES OF PRICE ENTERPRISES

   
    AUDIT  COMMITTEE.  The  Audit Committee, which will  consist of Ms. Bekavac,
Ms.  Hensley  and  Mr.  Peterson,  will  review  the  annual  audits  of   Price
Enterprises'  independent public accountants; will  review and evaluate internal
accounting  controls;  will  recommend  the  selection  of  independent   public
accountants;  will review and pass upon  (or ratify) related party transactions;
and will  conduct such  reviews  and examinations  as  it deems  necessary  with
respect  to the practices  and policies of, and  the relationship between, Price
Enterprises and its independent public accountants.
    

   
    COMPENSATION COMMITTEE.  The Compensation  Committee, which will consist  of
Ms.  Bekavac, Mr.  Galinson and Mr.  Hensley, will review  salaries, bonuses and
stock options of senior officers of Price Enterprises, and will administer Price
Enterprises' compensation and stock option plans.
    

   
    EXECUTIVE COMMITTEE.  After the Interim Period, the Executive Committee will
consist  of  Messrs.  Price  and  Peterson.  The  Executive  Committee  will  be
established  with all powers and rights necessary to exercise the full authority
of the Board of Directors in the management of the business and affairs of Price
Enterprises except as provided in the DGCL or the Bylaws of Price Enterprises.
    

                                      113
<PAGE>
   
    FINANCE COMMITTEE.   The Finance  Committee, which will  consist of  Messrs.
Price  and Galinson and another  director yet to be  named, will review and make
recommendations with  respect to  (i) annual  budgets, (ii)  investments,  (iii)
financing arrangements and (iv) the creation, incurrence, assumption or guaranty
by  Price Enterprises of  any indebtedness, obligation  or liability, except, in
each case, for  any such  transactions entered into  in the  ordinary course  of
business of Price Enterprises.
    

   
    NOMINATING  COMMITTEE.   The  Nominating  Committee, which  will  consist of
Messrs. Peterson and Price, will recommend  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.
    

   
    REAL ESTATE COMMITTEE.   The Real  Estate Committee, which  will consist  of
Messrs.  Peterson  and  Price,  will review  and  approve  (i)  sales (including
sale-leasebacks), leases, conveyances, transfers  or other dispositions of  real
property,  and (ii)  purchases, leases or  other acquisitions  of real property,
except, in each  case, for any  such transactions entered  into in the  ordinary
course of business of Price Enterprises.
    

COMPENSATION OF THE BOARD OF DIRECTORS

   
    Each  outside director of Price Enterprises  (other than Mr. Sinegal and Mr.
Peterson) will receive $20,000  per year for serving  on the Board of  Directors
and  an additional $5,000 per  year for serving as  chairman of any committee of
the Board. Mr. Peterson will receive $75,000  per year for his services as  Vice
Chairman of the Board and as a chairman or member of any committee of the Board.
In  addition, outside  directors (other than  Mr. Sinegal and  Mr. Peterson) who
serve on  committees of  the  Board (in  a capacity  other  than chairman  of  a
committee)  will receive  $500 for each  meeting attended. The  chairman or vice
chairman of any Committee may receive additional compensation to be fixed by the
Board. Each non-employee director (other than  Mr. Sinegal) will be eligible  to
receive  stock  grants  and  stock options  pursuant  to  The  Price Enterprises
Directors' 1995  Stock  Option Plan.  Employee  directors will  be  eligible  to
receive  stock grants and  stock options pursuant to  the Price Enterprises 1995
Combined Stock Grant and Stock Option Plan.
    

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

EXECUTIVE OFFICERS

   
    Set  forth below are the names, positions and ages of the executive officers
of Price Enterprises and other key officers of its subsidiaries:
    

   
<TABLE>
<CAPTION>
         NAME               POSITION WITH PRICE ENTERPRISES         AGE
- -----------------------  --------------------------------------     ---
<S>                      <C>                                        <C>
Robert E. Price          Chairman of the Board, President and       52
                          Chief Executive Officer
Daniel T. Carter         Executive Vice President, Chief            38
                          Financial Officer and Secretary
Robert M. Gans           Executive Vice President,                  45
                          General Counsel
Mark T. Livingston       Chief Executive Officer of Price Quest     45
Joseph J. Tebo           President of Price Ventures                58
Steven A. Velazquez      President of Price Quest                   39
Theodore Wallace         Executive Vice President                   46
</TABLE>
    

   
    Robert E.  Price  has  been  Chairman of  the  Board,  President  and  Chief
Executive  Officer of Price Enterprises since July  28, 1994. Mr. Price has been
Chairman of  the  Board of  PriceCostco  since  October 1993,  although  he  has
tendered his resignation as a director of PriceCostco, effective as described in
"THE  TRANSACTION -- Background of the  Transaction." From 1976 to October 1993,
he was Chief  Executive Officer and  a director  of Price. Mr.  Price served  as
Chairman of the Board of Price from
    

                                      114
<PAGE>
   
January  1989 to October 1993, and its  President from 1976 until December 1990.
In addition to his role in Price Enterprises, Mr. Price will serve as  President
and Chief Executive Officer of Price Real Estate, Price Global and Mexico Clubs,
and the Chief Executive Officer of Price Ventures.
    

   
    Daniel  T. Carter has been Executive Vice President, Chief Financial Officer
and Secretary of  Price Enterprises  since July 28,  1994. Mr.  Carter has  been
Senior  Vice President  of PriceCostco  since October  1993 overseeing financial
duties for certain international and San Diego-based businesses. He joined Price
as the Financial Planning  and Audit Manager  in June 1986  and became its  Vice
President  of Finance in October  1987. Prior to joining  Price, Mr. Carter held
financial management roles  with several  diverse companies, as  well as  having
worked  for three years with the accounting  firm of Ernst & Whinney. Mr. Carter
is also the Chief Financial Officer and Secretary of Price Global, Mexico Clubs,
Price Quest, Price Ventures and Price Real Estate.
    

   
    Robert M. Gans has been Executive Vice President, General Counsel for  Price
Enterprises  since  October 17,  1994. Mr.  Gans has  actively practiced  law in
private practice since 1975,  and from 1988 until  October 1994, was the  senior
member  of  the law  firm of  Gans, Blackmar  & Stevens,  A.P.C., of  San Diego,
California.
    

   
    Mark T. Livingston has been the Chief Executive Officer of Price Quest since
November 9, 1994. From January to October 1994, Mr. Livingston was President and
Chief Operating  Officer of  Roadrunner Sports,  Inc., a  San Diego,  California
direct  marketer of running and fitness  products with approximately $70 million
in annual sales.  From May 1992  to January 1994,  Mr. Livingston was  Executive
Vice  President and Chief  Operating Officer of  Roadrunner Sports. From October
1991 to  May  1992,  Mr.  Livingston worked  as  an  independent  consultant  to
Roadrunner  Sports. From January 1990 to  October 1991, Mr. Livingston was Chief
Operating Officer of Motels of America in San Diego, California, a lodging chain
with approximately 100  properties. Mr.  Livingston is also  a certified  public
accountant.
    

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

   
    Steven A. Velazquez has been President  of Price Quest since November  1994.
Mr.  Velazquez has  been Executive Vice  President of  PriceCostco since October
1993 overseeing the  development of  the Quest Business.  He joined  Price as  a
buyer in July 1981, became Vice President in February 1989, and became Executive
Vice  President  of merchandising  in April  1990. Prior  to joining  Price, Mr.
Velazquez was a  buyer for  Safeway Stores,  San Diego  Division. Mr.  Velazquez
resigned  from his executive offices at Price Costco and Price in early November
1994.
    

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

                                      115
<PAGE>
   
CERTAIN OTHER OFFICERS
    
   
    Set  forth below are the names, positions and ages of certain other officers
of Price Enterprises and its subsidiaries:
    

   
<TABLE>
<CAPTION>
         NAME                POSITION          AGE
- -----------------------  ----------------      ---
<S>                      <C>               <C>
William J. Hamilton      Vice President            37
Thomas L. Hammer         Vice President            40
Thomas D. Martin         Vice President            37
Lois L. Miller           Vice President            44
Joseph R. Satz           Vice President            53
Robert M. Siordia        Vice President            34
John O. Skousen          Vice President            37
</TABLE>
    

   
    William J. Hamilton  has been  Vice President of  PriceCostco since  October
1993. Mr. Hamilton became Vice President of Price in July 1992, and has overseen
various  businesses for  the companies.  He joined  Price in  February 1989, and
prior to joining Price, Mr. Hamilton  was a District Sales Manager for  Guardian
Photo.
    

   
    Thomas  L. Hammer has been Vice President of PriceCostco since October 1993,
overseeing the merchandising area of Price Club Mexico. He joined Price in  July
1983  as a buyer, became Vice President of merchandising in October 1992 and has
served in various management roles in the buying office.
    

   
    Thomas D. Martin has been Vice President of Price Costco since October 1993,
overseeing CMI  as well  as merchandise  development for  the Korea  Price  Club
warehouse.  He joined Price in May  1977, became Vice President of merchandising
in March 1989  and has served  in various  management roles in  both buying  and
warehouse operations with Price.
    

   
    Lois  J. Miller has  been Vice President of  PriceCostco since October 1993,
overseeing land use entitlements and environmental issues for both the club  and
non-club  real estate. She  joined Price as Planning  Director in September 1984
and became Vice President in August 1991. Prior to joining Price, Ms. Miller was
Chief of Land Use Planning for San Diego County.
    

   
    Joseph R. Satz  has been  Vice President  and Counsel  of PriceCostco  since
October 1993, overseeing real estate matters. He joined Price in 1984 and became
Vice  President in January  1988. Prior to  joining Price, Mr.  Satz was General
Counsel for the Weingart Foundation and was also in the private practice of law.
    

   
    Robert M. Siordia  has been  Assistant Vice President  of PriceCostco  since
October  1993 overseeing  the non-club real  estate. He joined  Price in October
1980, and has held a variety  of positions primarily within the commercial  real
estate division.
    

   
    John  O. Skousen has been Vice  President of PriceCostco since October 1993,
overseeing the development of Price Club Mexico since its inception in  February
1991.  In December 1992,  he was promoted  to Vice President.  Prior to February
1991, he  held various  financial management  positions at  Price and  developed
several  businesses at Price Club Industries.  Before joining Price in 1987, Mr.
Skousen worked for Fujitsu Ltd. and Price Waterhouse.
    

INDEMNIFICATION AGREEMENTS

   
    Price Enterprises  will  enter  into  indemnification  agreements  with  its
directors  and certain  executive officers  (each, an  "Indemnified Person"). An
Indemnified Person  is specifically  indemnified and  held harmless  under  such
agreements  for  costs  and  expenses,  including  without  limitation, damages,
judgments, amounts  paid  in  settlement,  reasonable  costs  of  investigation,
reasonable  attorneys fees,  costs of investigative,  judicial or administrative
proceedings or appeals, costs or attachment of similar bonds, fines,  penalties,
and  excise taxes assessed  with respect to employee  benefit plans actually and
reasonably incurred in connection with a threatened, pending or completed claim,
action, suit or proceeding by reason of the fact that (i) he or she is or was  a
director, officer, employee and/or agent of Price Enterprises; or (ii) is or was
serving  as  a  director, officer,  employee,  trustee and/or  agent  of another
corporation or  entity at  the  request of  Price  Enterprises. To  qualify  for
indemnification,   the   claim  must   not  be:   (i)   based  solely   upon  an
    

                                      116
<PAGE>
   
Indemnified Person's gaining in fact any  personal profit or advantage to  which
he or she was not legally entitled; (ii) an accounting for profits made from the
purchase  or sale of securities  pursuant to Section 16(b)  of the Exchange Act;
and (iii) based  solely upon  knowingly fraudulent,  deliberately dishonest,  or
willful misconduct on the part of the Indemnified Person. Price Enterprises will
indemnify  the Indemnified Person to the  extent that (i) the Indemnified Person
gives Price Enterprises prompt written notice  of any claim; (ii) expenses  have
not  been  advanced pursuant  to Article  Eighth  of Price  Enterprises Restated
Certificate of  Incorporation;  (iii) the  Indemnified  Person has  not  already
received   payment  pursuant   to  collectible  insurance   policies;  and  (iv)
indemnification is not unlawful.
    

   
    Under such indemnification agreements, Price Enterprises will advance  costs
and  expenses  incurred  by  the  Indemnified Person  in  advance  of  the final
disposition of an action, suit  or proceeding if he  or she undertakes to  repay
amounts  advanced  if  it  is  ultimately determined  by  a  court  of competent
jurisdiction that  he  or  she  is  not entitled  to  be  indemnified  by  Price
Enterprises.  Price  Enterprises  will  advance costs  and  expenses  related to
defending or investigating an action, suit or proceeding unless a  determination
is  made that  (i) the Indemnified  Person did  not act in  good faith  and in a
manner he  or she  reasonably believed  to  be in  or not  opposed to  the  best
interests  of  Price  Enterprises;  (ii)  the  Indemnified  Person intentionally
breached his or her duty to Price Enterprises or its stockholders; or (iii) with
respect to  any  criminal  action  or proceeding,  the  Indemnified  Person  had
reasonable  cause to believe his or her conduct was unlawful. Such determination
will be made by a majority vote of a quorum of the Board consisting of directors
not a  party  to  the suit,  action  or  proceeding, by  a  written  opinion  of
independent  legal counsel,  by the  stockholders or  by a  final, nonappealable
adjudication in a court of competent jurisdiction. If Price Enterprises advances
costs and expenses of any action, suit or proceeding, Price Enterprises reserves
the right to assume the defense of such action, suit or proceeding upon  written
notice  to the Indemnified Person  of its intention to  do so. After delivery of
such notice, Price  Enterprises shall not  be liable for  any costs or  expenses
incurred  by the Indemnified Person in retaining separate counsel unless (i) the
employment of separate counsel was  previously authorized by Price  Enterprises;
(ii) the Indemnified Person reasonably concludes that joint representation would
entail  a conflict of interest;  or (iii) Price Enterprises  shall not, in fact,
have employed counsel to assume the defense of such action, suit or  proceeding.
The  indemnification provisions  and provisions  for advancing  expenses in such
agreements are expressly not exclusive of any other rights of indemnification or
advancement of  expenses pursuant  to the  DGCL and  Price Enterprises  Restated
Certificate of Incorporation and Bylaws.
    

COMPENSATION OF EXECUTIVE OFFICERS

    SUMMARY COMPENSATION

   
    The  following table sets forth, for the fiscal years ended August 28, 1994,
August 29, 1993 and August 30, 1992, the cash compensation paid by  PriceCostco,
as  well as certain other  compensation paid or accrued  for those years, to (i)
Mr. Price, who  will serve  as President and  Chief Executive  Officer of  Price
Enterprises  following consummation of the Exchange Offer and (ii) each of Price
Enterprises' four other most highly-compensated executive officers or  employees
other  than Mr. Price who received salary and bonus in excess of $100,000 during
fiscal year 1994 (collectively, the "named executive officers").
    

                                      117
<PAGE>
                           SUMMARY COMPENSATION TABLE

   
<TABLE>
<CAPTION>
                                                                                    LONG-TERM
                                                                                  COMPENSATION
                                                                                     AWARDS
                                                                                  -------------
                                               FISCAL YEAR COMPENSATION            SECURITIES
        NAME AND                       -----------------------------------------   UNDERLYING
   PRINCIPAL POSITION                                            OTHER ANNUAL       OPTIONS/           ALL OTHER
 WITH PRICE ENTERPRISES   FISCAL YEAR   SALARY($)   BONUS ($)   COMPENSATION($)      SARS(#)      COMPENSATION($)(2)
- ------------------------  -----------  -----------  ---------  -----------------  -------------  ---------------------
<S>                       <C>          <C>          <C>        <C>                <C>            <C>
Robert E. Price                 1994      295,385         -0-            -0-           34,100             16,759
 President & CEO                1993      270,000         -0-            -0-              -0-             16,563
                                1992      270,000       4,050            -0-              -0-             15,946
Theodore Wallace                1994      259,584      36,000         70,528(1)        20,000             16,759
 Executive Vice                 1993      259,584         -0-            -0-           21,300             16,563
 President                      1992      259,584       3,894            -0-              -0-             15,946
Steven A. Velazquez             1994      225,000      36,000            -0-           20,000             16,000
 Executive Vice                 1993      211,615         -0-            -0-           13,312             15,334
 President                      1992      196,000       2,940            -0-            5,782             14,301
Daniel T. Carter                1994      147,692      27,000            -0-           15,000             10,588
 Executive Vice                 1993      133,846         -0-            -0-            7,987              9,790
 President,                     1992      125,000       1,875            -0-              -0-              9,211
 CFO & Secretary
Thomas D. Martin (3)            1994      155,002      22,500            -0-              -0-             11,100
 Vice President                 1993      145,190         -0-            -0-            7,987             10,599
                                1992      140,000       2,100            -0-            3,980             10,287
<FN>
- ------------------------------
(1)  Represents $52,190  paid to  reimburse Mr.  Wallace for  a decline  in  the
     market  value of his home which was  sold in connection with his relocation
     at the request of PriceCostco (net  of a mortgage prepayment penalty  which
     was  paid by  Mr. Wallace)  and $18,338 paid  to reimburse  Mr. Wallace for
     income taxes related to such payment.

(2)  Amounts shown for fiscal  year 1994 constitute  contributions to The  Price
     Company   Retirement   Plan   and   PriceCostco's   annual   matching  401k
     contributions of $250 for each named executive officer.
(3)  Although Mr.  Martin  was  one  of  Price  Enterprises'  five  most  highly
     compensated  employees  in fiscal  year  1994, Mr.  Martin  will not  be an
     executive officer of Price Enterprises in fiscal year 1995.
</TABLE>
    

    OPTION GRANTS

    The following  table  provides information  concerning  the grant  of  stock
options  by PriceCostco  to the  named executive  officers of  Price Enterprises
during fiscal  year  1994.  PriceCostco  does not  have  any  outstanding  stock
appreciation rights.

                                      118
<PAGE>
                     OPTION GRANTS IN THE LAST FISCAL YEAR

   
<TABLE>
<CAPTION>
                                                                                               POTENTIAL REALIZABLE
                                                                                                 VALUE AT ASSUMED
                                                                                                 ANNUAL RATES OF
                                       NUMBER OF      % OF TOTAL                                   STOCK PRICE
                                       SECURITIES       OPTIONS                                  APPRECIATION FOR
                                       UNDERLYING     GRANTED TO      EXERCISE                     OPTION TERM
                                        OPTIONS      EMPLOYEES IN      OR BASE     EXPIRATION  --------------------
NAME                                 GRANTED (#)(1)   FISCAL YEAR   PRICE ($/SH)      DATE       5%($)     10%($)
- -----------------------------------  --------------  -------------  -------------  ----------  ---------  ---------
<S>                                  <C>             <C>            <C>            <C>         <C>        <C>
Robert E. Price....................      34,100           1.03%          19.000     11/17/99     220,348    499,894
Theodore Wallace...................      20,000           0.60%          15.125     05/02/04     190,241    482,107
Steven A. Velazquez................      20,000           0.60%          15.125     05/02/04     190,241    482,107
Daniel T. Carter...................      15,000           0.45%          15.125     05/02/04     142,680    361,580
Thomas D. Martin...................       -0-             -0-           N/A           N/A         N/A        N/A
<FN>
- ------------------------
(1)  By  their terms, these  options become exercisable  at 20% per  year over a
     period of five years. However, certain  of these options will be  cancelled
     as  of  December  31, 1994.  These  cancellations include:  for  Mr. Price,
     26,439; for Mr.  Wallace, 17,326; for  Mr. Velazquez, 17,326;  and for  Mr.
     Carter, 12,995. See "Continuation of PriceCostco Stock Options."
</TABLE>
    

    OPTION EXERCISES AND OPTION VALUES AT FISCAL YEAR-END

    The  following table provides information as of August 28, 1994 with respect
to the named executive  officers, concerning the  exercise of PriceCostco  stock
options  during fiscal year 1994 and  unexercised PriceCostco options held as of
the end of fiscal year 1994.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

   
<TABLE>
<CAPTION>
                                                                              NUMBER OF
                                                                             SECURITIES       VALUE OF UNEXERCISED
                                                                             UNDERLYING           IN-THE-MONEY
                                                                         UNEXERCISED OPTIONS   OPTIONS AT FY-END
                                                                            AT FY-END (#)             ($)
                                                                         -------------------  --------------------
                                     SHARES ACQUIRED    VALUE REALIZED      EXERCISABLE/          EXERCISABLE/
NAME                                 ON EXERCISE (#)         ($)            UNEXERCISABLE        UNEXERCISABLE
- ----------------------------------  -----------------  ----------------  -------------------  --------------------
<S>                                 <C>                <C>               <C>                  <C>
Robert E. Price...................         -0-               -0-              -0-/34,100(1)         -0-/-0-
Theodore Wallace..................          3,727         $   20,997       98,124/93,913(2)        75,564/37,783
Steven A. Velazquez...............         -0-               -0-           38,010/63,107(3)         -0-/-0-
Daniel T. Carter..................         -0-               -0-           45,262/41,625(4)         -0-/-0-
Thomas D. Martin..................         -0-               -0-           20,077/27,313(5)         -0-/-0-
<FN>
- ------------------------
(1)  26,439 of these unexercisable options will be cancelled as of December  31,
     1994. The remaining 7,661 options will become exercisable at that time. See
     "Continuation of PriceCostco Stock Options."

(2)  64,349  of these unexercisable options will be cancelled as of December 31,
     1994. Mr. Wallace will then hold a total of 127,688 exercisable options  at
     that time. See "Continuation of PriceCostco Stock Options."

(3)  10,650  of these exercisable options expire on November 24, 1994. 49,054 of
     these unexercisable options will be cancelled as of December 31, 1994.  Mr.
     Velazquez  will then  hold a  total of  41,413 exercisable  options at that
     time. See "Continuation of PriceCostco Stock Options."

(4)  30,479 of these unexercisable options will be cancelled as of December  31,
     1994.  Mr. Carter will then  hold a total of  56,408 exercisable options at
     that time. See "Continuation of PriceCostco Stock Options."

(5)  3,537 of these exercisable options expire  on November 24, 1994. 19,710  of
     these  unexercisable options will be cancelled as of December 31, 1994. Mr.
     Martin will then hold a total  of 24,145 exercisable options at that  time.
     See "Continuation of PriceCostco Stock Options."
</TABLE>
    

                                      119
<PAGE>
    EXECUTIVE COMPENSATION DURING FISCAL YEAR 1995

    During  fiscal year 1995, Mr. Price will  receive, as Chairman of the Board,
President and Chief  Executive Officer of  Price Enterprises, a  base salary  of
$225,000. In addition, Mr. Price will be eligible to receive a bonus under Price
Enterprises'  bonus plan (the "Bonus Plan"), pursuant to which certain employees
may earn  annual  performance  bonuses.  Mr. Price  also  will  be  eligible  to
participate  in The  Price Enterprises  Retirement Plan  (described below), into
which Price Enterprises will make annual  contributions at the direction of  the
Board  of  Directors  based  upon Price  Enterprises'  pre-tax  profits  above a
threshold level.

    Mr. Wallace will receive a base salary of $200,000 during fiscal year  1995,
plus  a  retention bonus  in the  amount  of $100,000  for agreeing  to transfer
employment from PriceCostco to Price Enterprises. In addition, it is anticipated
that Mr.  Wallace will  receive  options to  purchase  100,000 shares  of  Price
Enterprises  Common Stock under the Stock Plan (as defined and described below),
subject to the independent committee of  directors granting such options at  its
sole  discretion. Mr. Wallace also  will be eligible to  receive an annual bonus
under the Bonus  Plan, and to  participate in The  Price Enterprises  Retirement
Plan.

    Mr.  Carter will receive a base salary  of $175,000, the right to receive an
annual bonus under  the Bonus Plan  and the  right to participate  in The  Price
Enterprises  Retirement Plan.  It is  anticipated that  Mr. Carter  will receive
options to purchase 75,000  shares of Price Enterprises  Common Stock under  the
Stock  Plan, subject  to the  independent committee  of directors  granting such
options at its sole discretion.

    The stock options to be granted to Messrs. Wallace and Carter would have  an
exercise  price equal to the fair market value of Price Enterprises Common Stock
at the date of grant and would become  exerciseable at 20% per year over a  five
year period.

   
    Mr.   Velazquez  has  entered  into   an  employment  agreement  with  Price
Enterprises for a term of one year commencing November 1, 1994. Pursuant to this
agreement, Mr. Velazquez will serve as President and Chief Operating Officer  of
Price  Quest  at  a base  annual  salary of  $175,000  during the  term  of this
agreement. Mr.  Velazquez 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  Price Enterprises'  interests, without  the prior  written
consent  of Price Enterprises. The agreement provides that Mr. Velazquez will be
eligible to participate in the Bonus Plan and receive all other benefits offered
to officers under  Price Enterprises'  standard company  benefits practices  and
plans. The agreement also anticipates that Mr. Velazquez will receive options to
purchase  75,000 shares of Price Enterprises  Common Stock under the Stock Plan,
subject to the independent committee of  directors granting such options at  its
sole  discretion. Such options would  become exercisable at 20%  per year over a
five year period. Mr. Velazquez  may terminate the agreement  at any time on  30
days'  prior written notice.  Price Enterprises may  terminate the agreement for
cause upon immediate  notice thereof,  or upon the  death or  disability of  Mr.
Velazquez.  In the event that Price Enterprises terminates the agreement for any
reason other than cause, or if there is a substantial and material change in Mr.
Velazquez' job responsibilities resulting from  an action by Price  Enterprises,
Mr.  Velazquez  shall  be entitled  to  a  severance payment  of  $337,500, less
applicable deductions  and withholdings,  and to  inclusion in  the Stock  Plan,
Retirement  Plan and medical plans of Price Enterprises for the remainder of the
term of  the  agreement. The  foregoing  severance benefits  are  the  exclusive
benefits  that would be payable  to Mr. Velazquez by  reason of his termination,
and Price Enterprises 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. In addition, Mr. Velazquez will receive a retention bonus
in the amount of $75,000 for agreeing to transfer employment from PriceCostco to
Price Enterprises.
    

    Mr.  Robert  Gans  has  entered  into  an  employment  agreement  with Price
Enterprises for a term of three  years commencing October 17, 1994. Pursuant  to
this  agreement, Mr. Gans will serve as Executive Vice President-General Counsel
of Price Enterprises at a base annual salary of $150,000 during the term of this
agreement.  Mr.  Gans  may  not  engage  in  any  activities,  with  or  without
compensation,  that would interfere  with the performance of  his duties or that
would be  adverse to  Price Enterprises'  interests, without  the prior  written
consent  of  Price Enterprises.  The agreement  provides that  Mr. Gans  will be
eligible to participate in the Bonus Plan and receive all other benefits offered
to officers under Price Enterprises' standard company

                                      120
<PAGE>
benefits practices and plans. The agreement also anticipates that Mr. Gans  will
receive  options to  purchase 75,000  shares of  Price Enterprises  Common Stock
under the Stock Plan, subject to the independent committee of directors granting
such options at its  sole discretion. Such options  would become exercisable  at
20%  per year over a  five year period. Mr. Gans  may terminate the agreement at
any time on 90 days' prior  written notice. Price Enterprises may terminate  the
agreement  for  cause  upon  immediate  notice thereof,  or  upon  the  death or
disability of  Mr. Gans.  In the  event that  Price Enterprises  terminates  the
agreement  for any reason other  than cause, Mr. Gans  shall be entitled for the
remainder of the term of  the agreement to the  continuation of his base  salary
payable  in conformity  with Price  Enterprises' normal  payroll period,  and to
inclusion in  the  Stock  Plan,  Retirement Plan  and  medical  plans  of  Price
Enterprises for the remainder of such term. The foregoing severance benefits are
the  exclusive  benefits that  would be  payable to  Mr. Gans  by reason  of his
termination, and Price Enterprises is not  obligated to segregate any assets  or
procure  any investment in order to  fund such severance benefits. The agreement
also contains indemnification  and confidentiality provisions,  and other  terms
and conditions customary to executive employment agreements.

   
    Mr.  Mark Livingston  has entered  into an  employment agreement  with Price
Enterprises for a term of one year commencing November 9, 1994. Pursuant to this
agreement, Mr. Livingston will serve as  Chief Executive Officer of Price  Quest
at  a base  annual salary  of $200,000  during the  term of  this agreement. Mr.
Livingston 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
Price Enterprises'  interests,  without  the  prior  written  consent  of  Price
Enterprises.  However,  the  agreement  provides  that  Mr.  Livingston  will be
entitled to remain as a member of an advisory board of Roadrunner Sports,  Inc.,
a direct marketer of running and fitness products in which Mr. Livingston owns a
3%  ownership interest,  subject to  certain conditions.  The agreement provides
that Mr. Livingston  will submit to  the Board of  Price Enterprises a  business
plan  for Price  Quest within  45 days of  commencing employment  that will also
contain a bonus plan for Mr. Livingston and other management personnel of  Price
Quest based on improvements in profitability and increases in stockholder value.
Mr.  Livingston  will  be eligible  to  receive  all other  benefits  offered to
officers under Price Enterprises' standard company benefits practices and plans.
The agreement  also anticipates  that  Mr. Livingston  will receive  options  to
purchase  100,000 shares of Price Enterprises Common Stock under the Stock Plan,
subject to the independent committee of  directors granting such options at  its
sole  discretion. Such options would  become exercisable at 20%  per year over a
five year period. Mr. Livingston may terminate  the agreement at any time on  30
days'  prior written notice.  Price Enterprises may  terminate the agreement for
cause upon immediate  notice thereof,  or upon the  death or  disability of  Mr.
Livingston. In the event that Price Enterprises terminates the agreement for any
reason other than cause, Mr. Livingston shall be entitled to the continuation of
his  base salary for  a period of  six months, payable  in conformity with Price
Enterprises' normal payroll  period. The  foregoing severance  benefits are  the
exclusive  benefits that  would be  payable to Mr.  Livingston by  reason of his
termination, and Price Enterprises is not  obligated to segregate any assets  or
procure  any  investment in  order to  fund such  severance benefits.  Under the
agreement, Price Enterprises also  has agreed to make  an unsecured loan to  Mr.
Livingston  in the amount of $50,000. Such loan  will bear interest at a rate of
9.5% per annum, compounded annually, and will become due and payable on November
10, 1996. Mr. Livingston has assigned to Price Enterprises any bonus payable  to
Mr.  Livingston  following his  first year  of  employment, up  to a  maximum of
$25,000, which  will  be  applied  in payment  of  the  interest  and  principal
outstanding   under  the  loan.  The  agreement  also  contains  confidentiality
provisions and  other terms  and conditions  customary to  executive  employment
agreements.
    

   
    Mr.  Joseph  Tebo  has  entered  into  an  employment  agreement  with Price
Enterprises for a  term of one  year commencing November  14, 1994. Pursuant  to
this  agreement, Mr. Tebo  will serve as  President of Price  Ventures at a base
annual salary of $200,000 during  the term of this  agreement. Mr. Tebo 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  Price
Enterprises'  interests, without the prior written consent of Price Enterprises.
The agreement provides  that Mr.  Tebo will be  eligible to  participate in  the
Bonus  Plan  and receive  all  other benefits  offered  to officers  under Price
Enterprises' standard company benefits practices  and plans. The agreement  also
anticipates  that Mr.  Tebo will receive  options to purchase  100,000 shares of
Price Enterprises Common Stock under the Stock Plan, subject to the  independent
committee  of  directors  granting such  options  at its  sole  discretion. Such
options would  become exercisable  at 20%  per  year over  a five  year  period.
    

                                      121
<PAGE>
   
Mr.  Tebo may  terminate the  agreement at  any time  on 30  days' prior written
notice. Price Enterprises may terminate  the agreement for cause upon  immediate
notice  thereof, or upon the death or disability  of Mr. Tebo. In the event that
Price Enterprises terminates the agreement for any reason other than cause,  Mr.
Tebo  shall be entitled  for the remainder of  the term of  the agreement to the
continuation of his base  salary payable in  conformity with Price  Enterprises'
normal  payroll  period.  The  foregoing severance  benefits  are  the exclusive
benefits that would be  payable to Mr.  Tebo by reason  of his termination,  and
Price  Enterprises  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 agreement.
    

   
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
   
    Each of Robert E. Price, Paul A. Peterson and James D. Sinegal is a director
of each  of  Price  Enterprises  and PriceCostco  (although  Messrs.  Price  and
Peterson  have  each  tendered  his resignation  as  a  director  of PriceCostco
effective as of the earlier of (i) the  Closing Date and (ii) the date on  which
shares  of  Price  Enterprises  Common  Stock  are  distributed  to  PriceCostco
stockholders). Price Enterprises leases the four Warehouse Properties to  Price,
and  Price is expected to pay rents to  Price Enterprises in fiscal year 1995 of
approximately $8.6  million. The  Subsidiary Corporations  will also  engage  in
certain  transactions with  PriceCostco. See  "BUSINESS AND  PROPERTIES OF PRICE
ENTERPRISES  --  Mexico  Clubs,"  "--  Price  Quest,"  and  "--  Price  Global."
PriceCostco  and Price Enterprises also have entered into an unsecured revolving
credit facility. See "CERTAIN RELATED AGREEMENTS -- Advance Agreement."
    

   
    Sol Price  is  the  father of  Robert  Price,  the Chairman  of  the  Board,
President  and Chief  Executive Officer of  Price Enterprises. Sol  Price is the
Chairman of the Board of the  REIT and has beneficial ownership through  various
family  and charitable trusts of approximately 9% of the Class B Common Stock of
the REIT. The REIT is expected to provide certain services to Price  Enterprises
in  fiscal year 1995. See "BUSINESS AND  PROPERTIES OF PRICE ENTERPRISES -- Real
Estate Business -- Relationship with The Price REIT."
    

INFORMATION CONCERNING THE PRICE ENTERPRISES 1995 COMBINED STOCK GRANT
AND STOCK OPTION PLAN

GENERAL

   
    The Board of Directors  of Price Enterprises  adopted The Price  Enterprises
1995  Combined  Stock Grant  and  Stock Option  Plan  (the "Stock  Plan")  as of
November 14,  1994.  The Stock  Plan  became effective  as  of such  date,  upon
approval  of the Stock Plan by written consent of Price, as the sole stockholder
of Price Enterprises, and will terminate on the tenth anniversary of such  date.
The  purpose of the Stock Plan is to attract and retain employees of ability and
experience and  to  furnish such  personnel  significant incentives  to  improve
operations  and increase profits of Price  Enterprises. All officers and certain
key employees of Price Enterprises and  any parent or subsidiary corporation  of
Price Enterprises are eligible to receive options or stock under the Stock Plan.
    

    In  general,  the Stock  Plan authorizes  Price  Enterprises to  grant stock
options, either  non-qualified  stock options  or  incentive stock  options  (as
defined in section 422 of the Code), to purchase up to 1,500,000 shares of Price
Enterprises  Common Stock (the "Option Program") and to make stock grants in the
amount of up  to 250,000 shares  of Price Enterprises  Common Stock (the  "Grant
Program")  (subject to adjustment  to protect against  dilution). The Stock Plan
provides that for every six shares of Price Enterprises Common Stock on which  a
discretionary  option is  granted under  the Option  Program, one  share will be
removed from those available for future grants under the Grant Program, and  for
every  share of Price Enterprises Common  Stock granted under the Grant Program,
six shares will be removed from  those available for future stock options  under
the discretionary Option Program.

   
    The  authority to grant  discretionary options and  make discretionary stock
grants and to administer the Stock Plan is vested in the Compensation  Committee
of  the  Board  of  Directors  of  Price  Enterprises  (the  "Price  Enterprises
Compensation  Committee").  Notwithstanding  the  foregoing,  with  respect   to
decisions  to grant Price Enterprises Common Stock or to award options under the
Stock Plan  to officers  and employee  directors of  Price Enterprises  who  are
subject    to   the   reporting   requirements   under   Section   16   of   the
    

                                      122
<PAGE>
   
Exchange Act, an independent committee consisting of two or more directors  none
of  whom has during the one year  prior to service on such independent committee
been granted or  awarded Price  Enterprises Common  Stock or  options under  the
Stock  Plan or any  other discretionary stock  option or stock  grant plan shall
make such decisions (the "Independent Committee") (the Independent Committee and
the Price Enterprises Compensation Committee shall hereinafter be referred to as
the "Authorized  Committee"). Pursuant  to the  Board's authorizing  resolutions
with  respect to the Stock  Plan, all options and  stock granted under the Stock
Plan are subject to the consummation of the Exchange Offer.
    

   
    The following summary of the material terms and provisions of the Stock Plan
is qualified  in its  entirety by  the  full text  of the  Stock Plan  which  is
attached hereto as Annex VI.
    

OPTION PROGRAM

    The  purchase price of each share  of Price Enterprises Common Stock covered
by an  option may  not be  less than  100% of  the fair  market value  of  Price
Enterprises Common Stock, as determined by the Authorized Committee, on the date
of  grant of  the option  or 110%  of the fair  market value  in the  case of an
incentive stock option  granted to a  person who owns,  directly or  indirectly,
more  than 10%  of the total  combined voting power  of all classes  of stock of
Price Enterprises. The aggregate  fair market value (determined  as of the  time
the  option is  granted) of  the shares of  Price Enterprises  Common Stock with
respect to which incentive stock options  are exercisable for the first time  by
an optionee during any calendar year may not exceed $100,000.

    Price Enterprises Common Stock purchased upon the exercise of options may be
paid  for by the optionee either (i) in cash, (ii) by delivering shares of Price
Enterprises Common Stock owned by the optionee  with a fair market value on  the
last  business day prior to the date of delivery equal to the aggregate purchase
price of the  shares with  respect to  which the  option or  portion is  thereby
exercised,  or (iii)  in any combination  of the consideration  described in the
foregoing clauses (i) and  (ii), provided that the  delivery of shares of  Price
Enterprises  Common Stock already  owned by the optionee  is not a disqualifying
disposition under section  425(h) of the  Code. The Stock  Plan does not  permit
stock  pyramiding  for  stock options  intended  to qualify  as  incentive stock
options. Stock pyramiding  is the practice  of first delivering  one share  upon
exercise of an option and then successively exchanging newly acquired shares for
more and more option shares.

   
    The Stock Plan provides that options granted are not to be exercisable until
one  year from the date of grant nor after 10 years and one day from the date of
grant (or  10 years  from the  date  of grant  in the  case of  incentive  stock
options).  Within  these limits,  discretionary options  granted to  officers or
employees may be exercisable at any time the Authorized Committee may  determine
at  the time of grant.  However, no incentive stock  options granted to a person
who owns, on the date of grant, more than 10% of the total combined voting power
of all  classes of  stock of  Price  Enterprises may  be exercisable  after  the
expiration of five years from the date of grant.
    

    The  Stock Plan provides that  the total number of  shares covered by it and
the price  and number  of shares  subject  to any  outstanding options  will  be
adjusted  to reflect certain events which affect Price Enterprises Common Stock,
including  certain   reorganizations,  recapitalizations   and  mergers,   stock
dividends and stock splits.

    The Stock Plan provides that options are non-transferable other than by will
or  by  the laws  of descent  and  distribution and  are exercisable  during the
optionee's lifetime  only by  the optionee.  If  an optionee  dies, his  or  her
options  may be exercised for a period of  12 months from the date of death (but
not beyond the option period) by the executor or administrator of the optionee's
estate, or, if there is no such executor or administrator, then by the person or
persons to whom the optionee's  rights under the option  have passed by will  or
the laws of descent and distribution.

    If a holder of a discretionary option ceases to be an officer or employee of
Price  Enterprises for any reason other than  death or termination for cause, or
ceases to hold a  position in which employees  are eligible to receive  options,
that former participant may exercise options in accordance with their terms only
for  a period of  90 days after leaving  Price Enterprises or  his or her former
position (but not beyond the option

                                      123
<PAGE>
period); provided,  however, that  if such  cessation is  due to  an  optionee's
disability  (within the  meaning of section  22(e)(3) of the  Code), that former
participant may  exercise options  in accordance  with their  terms only  for  a
period of 12 months after such cessation (but not beyond the option period). The
former  participant may only exercise the number  of shares that could have been
purchased on the date of termination of employment or change in position, plus a
fraction  of  the  shares  that  would  have  become  exercisable  on  the  next
anniversary of the original option grant.

    If  the termination of an  optionee's position as an  officer or employee of
Price Enterprises is for cause (as determined in the sole judgment of the  Board
of  Directors),  any option  or  options shall  thereupon  be cancelled  and the
optionee would have  no right  to exercise  any part  of the  option after  such
termination.

    The  Authorized Committee has the authority to establish additional terms of
the discretionary options, which need not  be identical for each option, and  to
amend  or terminate  the Stock Plan  at any time,  without stockholder approval;
however, the Board of Directors and the Authorized Committee have no  authority,
without  stockholder approval, to  increase the number of  shares subject to the
Stock Plan, to reduce the price at  which Price Enterprises Common Stock may  be
purchased  to below the fair market value on the option grant date, or to expand
the availability of the Stock Plan to persons other than eligible employees,  as
specified in the Stock Plan.

GRANT PROGRAM

    Under the Grant Program, an aggregate of 250,000 shares of Price Enterprises
Common  Stock will be available for grants  to employees. The grants may be made
by the Board of Directors or the Authorized Committee, which may also  establish
such  vesting schedules, repurchase  rights and obligations  and other terms and
conditions as it  may deem appropriate  from time  to time. Such  shares may  be
issued  for any lawful  consideration deemed appropriate,  including services or
labor previously rendered,  but not  including future services.  It is  expected
that   shares  under  the  Stock  Plan  will  be  issued  without  any  monetary
consideration required from the recipient. The number of shares granted will  be
considerably less than the number of options that would have been granted to the
same employee under similar circumstances.

    Price  Enterprises does not intend  to issue both grants  and options to the
maximum degrees  that  would  be  permitted under  the  two  programs  combined.
Accordingly,  the Stock  Plan submitted  provides that  for every  six shares of
Price Enterprises Common Stock on which a discretionary option is granted  under
the  Option Program, one  share will be  removed from those  available under the
Grant Program,  and for  every share  of common  stock granted  under the  Grant
Program, six shares will be removed from those available for stock options under
the discretionary Option Program.

ANTICIPATED GRANTS OF OPTIONS AND STOCK

   
    STOCK  OPTIONS.   It is  anticipated that  Theodore Wallace,  Executive Vice
President of Price Enterprises; Mark  T. Livingston, Chief Executive Officer  of
Price  Quest; and Joseph J. Tebo, President of Price Ventures, will each receive
options to purchase 100,000 shares of  Price Enterprises Common Stock under  the
Stock  Plan, subject to  the Independent Committee granting  such options at its
sole discretion. It is also anticipated  that Steven A. Velazquez, President  of
Price Quest; Daniel T. Carter, Executive Vice President, Chief Financial Officer
and Secretary of Price Enterprises; and Robert M. Gans, Executive Vice President
and  General Counsel of Price Enterprises, will each receive options to purchase
75,000 shares of Price Enterprises Common Stock under the Stock Plan, subject to
the Independent Committee granting such options at its sole discretion.
    

   
    The stock  options  to be  granted  to Messrs.  Wallace,  Livingston,  Tebo,
Velazquez, Carter and Gans would have an exercise price equal to the fair market
value  of Price Enterprises Common  Stock at the date  of grant and would become
exercisable at 20% per year over a five-year period, as described in "MANAGEMENT
OF  PRICE  ENTERPRISES  --  Compensation  of  Executive  Officers  --  Executive
Compensation During Fiscal Year 1995."
    

    It  is  anticipated  that additional  options  to purchase  shares  of Price
Enterprises Common Stock under the Stock Plan will be granted from time to  time
to  persons eligible to  receive such options  in accordance with  the terms and
conditions set forth in the Stock Plan.

                                      124
<PAGE>
    STOCK GRANTS.   It is anticipated  that shares of  Price Enterprises  Common
Stock under the Stock Plan will be granted from time to time to persons eligible
to  receive such shares in accordance with the terms and conditions set forth in
the Stock Plan.

FEDERAL INCOME TAX CONSEQUENCES

   
    The following  is  a brief  summary  of  the principal  Federal  income  tax
consequences  of transactions  based on  current Federal  income tax  laws. This
summary of  material Federal  income  tax consequences  is  not intended  to  be
exhaustive  and  does not  describe state,  local  or foreign  tax consequences.
Participants are strongly urged to consult their own tax advisors regarding  the
Federal, state, local or other tax consequences of awards and other transactions
under the Stock Plan.
    

    INCENTIVE  STOCK OPTIONS.  No taxable income is realized by an optionee upon
the grant  or  exercise  of  an  incentive stock  option.  If  shares  of  Price
Enterprises  Common Stock are issued to an  optionee pursuant to the exercise of
an incentive stock option granted under  the Stock Plan and if no  disqualifying
disposition  of such shares is made by  such optionee within two years after the
date of  grant or  within one  year after  the receipt  of such  shares by  such
optionee,  then (a) upon the sale of  such shares, any amount realized in excess
of the option price will be taxed  to such optionee as a long-term capital  gain
and  any loss sustained will  be a long-term capital  loss, and (b) no deduction
will be allowed  to Price  Enterprises. Under  present Federal  income tax  law,
capital  gains are subject to tax at  a lower statutory rate, 28%, than ordinary
income, for which the  highest marginal statutory  rate is 39.6%.  Additionally,
the  exercise of  an incentive  stock option will  give rise  to an  item of tax
preference that  may  result  in  alternative  minimum  tax  liability  for  the
optionee.

    If shares of Price Enterprises Common Stock acquired upon the exercise of an
incentive stock option are disposed of prior to the expiration of either holding
period  described above, generally (a) the optionee will realize ordinary income
in the year of disposition in an amount equal to the excess (if any) of the fair
market value of the shares at exercise (or, if less, the amount realized on  the
disposition  of  the  shares)  over  the option  price  thereof,  and  (b) Price
Enterprises will be  entitled to deduct  such amount. Any  further gain or  loss
realized  by the  optionee will  be subject  to tax  as short-term  or long-term
capital gain or loss, as the case may  be, and will not result in any  deduction
by  Price Enterprises. If an optionee pays the exercise price in full or in part
with previously acquired shares of Price Enterprises Common Stock, the  exchange
should not affect the tax treatment of the exercise. Upon such exchange, no gain
or  loss  generally  will be  recognized  upon  the delivery  of  the previously
acquired shares to Price Enterprises, and the shares of Price Enterprises Common
Stock received  by the  optionee, equal  in number  to the  previously  acquired
shares  of Price Enterprises Common Stock exchanged therefor, will have the same
basis and holding period for long-term  capital gain purposes as the  previously
acquired  shares. An optionee, however, would not be able to utilize the holding
period for  the  previously  acquired  shares for  purposes  of  satisfying  the
incentive  stock option statutory  holding period requirements.  Shares of Price
Enterprises Common Stock  received by the  optionee in excess  of the number  of
previously  acquired shares of Price Enterprises  Common Stock will have a basis
of zero and  a holding  period which commences  the date  the Price  Enterprises
Common  Stock is  issued to  the optionee upon  exercise of  the incentive stock
option. If such an exercise is effected using shares of Price Enterprises Common
Stock previously acquired through the exercise of an incentive stock option, the
exchange of the  previously acquired  shares may be  considered a  disqualifying
disposition of such Price Enterprises Common Stock for purposes of the incentive
stock option rules.

    If  an  incentive stock  option is  exercised at  a time  when it  no longer
qualifies as  an  incentive  stock option,  the  option  will be  treated  as  a
non-qualified  option. Subject to certain exceptions for disability or death, an
incentive stock option generally will not be eligible for the Federal income tax
treatment described above if  it is exercised more  than three months  following
the termination of employment.

    NON-QUALIFIED  STOCK OPTIONS.  No  income is realized by  an optionee at the
time a non-qualified stock option is granted. Upon exercise, ordinary income  is
generally  realized by the optionee in an amount equal to the difference between
the option price (the amount paid for  the shares) and the fair market value  of
the  shares on the date  of exercise, and Price  Enterprises will be entitled to
deduct a like amount. Generally, Price Enterprises will be required to  withhold
taxes  on  the income  realized  by the  holder at  the  time of  exercise. Upon
disposition, appreciation or  depreciation after  the date of  exercise will  be
treated  as either short-term or long-term capital gain or loss, as the case may
be.

                                      125
<PAGE>
    Generally, upon exercise, a corporate insider will include in income, in the
taxable year in which he or she would no longer be subject to short-swing profit
liability under Section 16(b) of the Exchange Act were he or she to sell his  or
her shares at a profit ("16(b) Liability"), an amount equal to the excess of (i)
the  fair market value of  the shares on the  date he or she  would no longer be
subject to 16(b) Liability over (ii) the option purchase price, and the  holding
period  for treating  any gain or  loss as  long-term capital gain  or loss will
begin at such  time. Accordingly,  taxation generally  will not  occur until  at
least six months after the date of grant of the option. An optionee who would be
subject  to 16(b) Liability  at the time  of exercise may  elect, within 30 days
after exercise, to  be taxed at  the time of  exercise. If such  an election  is
made, an "insider" will have ordinary income equal to the excess, if any, of the
aggregate  fair market value of the shares  of Price Enterprises Common Stock on
the date  of exercise  of  the non-qualified  stock  option over  the  aggregate
exercise price.

    If  a  non-qualified  stock  option  is  exercised  using  shares  of  Price
Enterprises Common Stock, an optionee will realize no income upon such  exercise
with  respect to  the same  number of shares  of Price  Enterprises Common Stock
received  as  are  used  to   exercise  the  non-qualified  stock  option   (the
"Replacement  Shares"),  but  otherwise will  be  taxed according  to  the rules
described above. Thus, the optionee will realize ordinary income with respect to
any additional shares of  Price Enterprises Common  Stock received (the  "Excess
Shares")  in an amount equal to the fair  market value of the Excess Shares. For
purposes of  any subsequent  sales,  the optionee's  basis for  the  Replacement
Shares  will equal his or  her basis for the  shares of Price Enterprises Common
Stock used to exercise the non-qualified stock  option and his or her basis  for
the  Excess Shares  will equal  the amount  included in  his or  her income with
respect to the receipt of the Excess Shares.

    Upon a  subsequent sale  of any  shares of  Price Enterprises  Common  Stock
acquired pursuant to the exercise of a non-qualified stock option, a participant
will  have capital  gain (or  loss) equal to  the difference  between the amount
realized upon such sale and the  participant's adjusted tax basis in the  shares
of  Price Enterprises Common Stock. The participant's  basis is equal to the sum
of the  exercise price  under  the option  and the  amount  of income,  if  any,
recognized  upon the  exercise of  such option. Such  gain will  be long-term or
short-term and will depend on whether the participant holds the shares of  Price
Enterprises  Common Stock for more than six months from the date the options are
exercised.

    STOCK GRANTS.  Unless an election is  made under section 83(b) of the  Code,
an  employee to whom stock is granted will not have taxable income upon issuance
and Price  Enterprises  will not  then  be entitled  to  a deduction  until  any
forfeiture  or transfer restrictions which may  have been imposed on such shares
of stock expire,  at which time  the employee will  realize ordinary income  and
Price Enterprises will be entitled to a deduction in an amount equal to the fair
market  value  of the  shares  at the  date  such restrictions  lapse,  less any
purchase price  therefor.  If an  election  is  made under  section  83(b),  the
employee  will realize  ordinary income  at the  date of  issuance equal  to the
difference between the fair market value of  the shares at the date of  issuance
(determined without regard to the forfeiture and transfer restrictions) less any
purchase  price therefor, and Price Enterprises  will be entitled to a deduction
in the same amount. Generally, whether or not an election is made under  section
83(b),  Price  Enterprises will  be  required to  withhold  taxes on  the income
realized by the holder. Gain  or loss realized by  the holder on the  subsequent
sale  or disposition of the  shares will normally be  taxable as capital gain or
loss and no further deduction will be allowed to Price Enterprises.

CONTINUATION OF PRICECOSTCO STOCK OPTIONS

    Each outstanding option  for the  purchase of shares  of PriceCostco  Common
Stock  granted under any stock option plan  of Price, Costco or PriceCostco (the
"PriceCostco Option Plan"),  which option is  held as  of January 1,  1995 by  a
Price  Enterprises  employee  and is  then  exercisable will  remain  vested and
exercisable under the PriceCostco  Option Plan on generally  the same terms  and
conditions  set  forth in  the agreement  evidencing the  grant of  such option;
PROVIDED, HOWEVER, that the  term of such  option will expire  no later than  30
days following termination of such employee's employment with Price Enterprises.
Under  the terms of the Transfer and Exchange Agreement, PriceCostco is required
to take all  action necessary and  appropriate to amend  the PriceCostco  Option
Plan  to  provide for  such  continued exercisability;  PROVIDED,  HOWEVER, that
PriceCostco would not be  required to so  amend such plan  with respect to  such
employees who are subject to

                                      126
<PAGE>
Section  16 of the Exchange Act ("Insiders"). With respect to such Insiders, the
options currently held by such Insiders  would either be cancelled or  permitted
to  expire according to their terms (I.E.,  30 days following the termination of
such Insider's  employment  with PriceCostco)  and,  upon such  cancellation  or
expiration,  PriceCostco would grant new options, outside such plan, in the same
number and with the same exercise price as the cancelled or expired options  and
otherwise  generally  on the  same  terms and  conditions  as set  forth  in the
agreements evidencing the grant of the options currently held by the Insiders.

INFORMATION CONCERNING THE PRICE ENTERPRISES
DIRECTORS' 1995 STOCK OPTION PLAN

   
    GENERAL NATURE AND  PURPOSE.  The  Board of Directors  of Price  Enterprises
adopted The Price Enterprises Directors' 1995 Stock Option Plan (the "Directors'
Plan")  as of November 14, 1994. The Directors' Plan became effective as of such
date, upon approval of the Directors' Plan  by written consent of Price, as  the
sole  stockholder  of  Price  Enterprises,  and  will  terminate  on  the  tenth
anniversary of such date. The Directors' Plan was adopted to further the growth,
development and financial success of  Price Enterprises by providing  additional
incentives  to its  non-employee directors, and  to enable  Price Enterprises to
obtain and retain the services of the type of directors considered essential  to
the long-range success of Price Enterprises.
    

   
    The following summary of the material terms and provisions of the Directors'
Plan  is qualified in its entirety by the full text of the Directors' Plan which
is attached hereto as Annex VII.
    

    OPTIONS AUTHORIZED; PARTICIPATING DIRECTORS.  The Directors' Plan authorizes
Price Enterprises to  grant stock options  to purchase up  to 150,000 shares  of
Price  Enterprises Common Stock, subject to certain adjustments, to directors of
Price Enterprises (other than James  D. Sinegal) who are  not, at the time  they
receive  options, employees  of Price  Enterprises or  any of  its subsidiaries.
Pursuant to the Board's authorizing  resolutions with respect to the  Directors'
Plan,  all  options  granted  under  the  Directors'  Plan  are  subject  to the
consummation of the Exchange Offer.

    ADMINISTRATION.  The  Directors' Plan  is administered by  a committee  (the
"Committee")  consisting of  two or  more directors,  appointed by  the Board of
Directors of  Price Enterprises.  In addition  to administering  the  Directors'
Plan,  the Committee is also authorized to  interpret the Directors' Plan and to
prescribe, amend and  revoke rules  and regulations relating  to the  Directors'
Plan.

    GRANT   OF  OPTIONS.    The  Directors'  Plan  provides  that  participating
directors, other than the Vice
Chairman of  the Board,  will be  granted  options for  10,000 shares  of  Price
Enterprises   Common   Stock   (except   in   the   case   of   reorganizations,
recapitalizations, stock splits  or other combinations  of shares, as  described
below),  on the date on which he or she  first is elected as a director of Price
Enterprises, and that the Vice Chairman of the Board will be granted options for
50,000 shares  of  Price  Enterprises  Common  Stock  (except  in  the  case  of
reorganizations,  recapitalizations,  stock  splits  or  other  combinations  of
shares, as described below), on the date on which he or she first is elected  as
a  director of Price Enterprises. In consideration of receiving the options, the
participating director is deemed to have agreed to remain as a director of Price
Enterprises for a  period of  at least  one year after  the date  of grant.  The
Directors'  Plan provides, however,  that nothing therein  shall confer upon any
participating director any right to continue as a director of Price  Enterprises
or  shall interfere with or restrict in  any way the rights of Price Enterprises
or Price Enterprises' stockholders to  remove any participating director at  any
time  for any reason whatsoever, with or  without cause, to the extent permitted
by Price Enterprises' bylaws and applicable law.

   
    TERMS AND EXERCISE OF OPTIONS.  The term of any option cannot be longer than
10 years  from the  date of  grant. Options  granted under  the Directors'  Plan
become  exerciseable at 20% per year over the five year period commencing at the
date of grant. Payment for shares purchased upon any exercise of an option  must
be  made in full  at the time of  such exercise (i) in  cash, (ii) by delivering
shares of Price Enterprises Common Stock already owned by the optionee, or (iii)
a combination of in  cash and by delivering  shares of Price Enterprises  Common
Stock already owned by the optionee.
    

                                      127
<PAGE>
    Options which are exercisable upon termination of a participating director's
status  as a  director of Price  Enterprises generally expire  90 days following
such termination, unless  a director ceases  to be  a director due  to death  or
disability, in which case options terminate within one year of such event.

    The  exercise price  of each  option is equal  to the  aggregate fair market
value of the shares of  Price Enterprises Common Stock  optioned on the date  of
grant of such option. For this purpose, such fair market value means the mean of
the  bid and asked prices  (or the closing price  per share if Price Enterprises
Common Stock is listed  on The Nasdaq Stock  Market's National Market) of  Price
Enterprises  Common Stock in effect immediately prior  to the date of grant, or,
in the event Price Enterprises Common Stock  is listed on a stock exchange,  the
fair  market value per share  is the closing price on  such exchange on the date
immediately prior to  the grant  of the  option, or  if no  such quotations  are
reported  such  fair  market  value  means the  value  established  by  what the
Committee in its judgment then deems to be the most nearly comparable  valuation
method.

    NONASSIGNABILITY.  Options may be transferred only by will or by the laws of
descent  and distribution and during a holder's lifetime are exercisable only by
the option holder.

    ADJUSTMENTS UPON CHANGE  IN CAPITALIZATION.   If the  outstanding shares  of
Price  Enterprises Common Stock subject to options are changed into or exchanged
for a  different  number  or  kind  of shares  of  Price  Enterprises  or  other
securities of Price Enterprises by reason of a stock split, reverse stock split,
stock  dividend,  combination or  reclassification of  shares or  otherwise, the
Committee will make an appropriate adjustment  in the number and kind of  shares
as  to which all outstanding options  or portions thereof then unexercised, will
be  exercisable,  to  the  end  that  after  such  event  the  option   holder's
proportionate  interests will  be maintained  as before  the occurrence  of such
event. Upon  the dissolution  or liquidation  of Price  Enterprises, or  upon  a
reorganization,  merger or  consolidation of  Price Enterprises  as a  result of
which the outstanding shares  of Price Enterprises Common  Stock are changed  or
exchanged for cash or property or securities not of Price Enterprises' issue, or
upon  a sale of substantially  all the property of  Price Enterprises to another
corporation or  person, the  Directors'  Plan will  terminate, and  all  options
granted  thereunder  will terminate,  unless  otherwise provided  in  writing in
connection with such transaction.

    AMENDMENTS.  The  Board of Directors  of Price Enterprises  may at any  time
amend  or otherwise modify,  suspend or terminate  the Directors' Plan, provided
that no such action shall deprive an option holder, without his or her  consent,
of  any option previously granted  pursuant to the Directors'  Plan or of any of
the option holder's rights under such option.

   
    GRANTS OF OPTIONS.   Subject to the terms  and conditions of the  Directors'
Plan and the consummation of the Exchange Offer, Paul A. Peterson, Vice Chairman
of  the Board of  Price Enterprises, has  been granted 50,000  options under the
Directors' Plan. It is anticipated that  Katherine L. Hensley, Nancy Y.  Bekavac
and  Murray L. Galinson, each  of whom will be appointed  as a director of Price
Enterprises immediately following the consummation  of the Exchange Offer,  will
be  granted  10,000  options under  the  Directors'  Plan at  the  time  of such
appointment.
    

    FEDERAL TAX ASPECTS.  The Federal income tax aspects of the Directors'  Plan
are  identical to  those described  above for the  Stock Plan  under the heading
"Federal Income Tax Consequences -- Non-Qualified Stock Options."

RETIREMENT PLAN

   
    From  the  Transfer  Closing  Date  until  January  1,  1995,  employees  of
PriceCostco  who are  leased to Price  Enterprises and its  subsidiaries and who
currently receive benefits under The Price Company Retirement Plan or under  The
Price Company 401(k) Plan will continue to enjoy benefits under such plans. Upon
consummation  of the Exchange Offer, the Board of Directors of Price Enterprises
intends to adopt the Price Enterprises Retirement Plan (the "Retirement  Plan"),
which  will  include terms  and conditions  substantially  similar to  The Price
Company Retirement Plan and The Price Company 401(k) Plan.
    

    It is anticipated  that the Retirement  Plan will be  a profit-sharing  plan
designed  to  be a  "qualified" plan  under applicable  provisions of  the Code,
covering all non-union employees who have completed one year of service, as that
term is  defined  in the  Retirement  Plan.  Under the  Retirement  Plan,  Price
Enterprises may, in

                                      128
<PAGE>
   
its  discretion,  make  annual contributions  which  shall not  exceed  for each
participant the lesser of:  (a) 25% of the  participant's compensation for  such
year,  or (b) the  greater of (i)  25% of the  defined benefit dollar limitation
then in effect under section 415(b)(1) of the Code or (ii) $30,000. In addition,
participants may make voluntary contributions. In addition, the Retirement  Plan
will permit employees to defer (in accordance with section 401(k) of the Code) a
portion of their salary and contribute those deferrals to the Retirement Plan.
    

   
    All  participants in the Retirement Plan are fully vested in their voluntary
contributions. Vesting in the remainder of a participant's account is based upon
his or  her  years  of  service  with Price  Enterprises  and  in  their  salary
deferrals.  A participant initially  will be 10% vested  after the completion of
two years of service with Price Enterprises, an additional 10% vested after  the
completion  of three 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 will be 100% vested after the completion of seven 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 Retirement  Plan provides  that the  Board of  Directors of Price
Enterprises may at any time declare the Retirement Plan partially or  completely
terminated,  in which event the account of each participant with respect to whom
the Retirement Plan is terminated will become fully vested.

    The Board  of  Directors also  has  the right  at  any time  to  discontinue
contributions  to the Retirement Plan. If Price Enterprises fails to make one or
more substantial contributions to  the Retirement Plan for  any period of  three
consecutive  years in each year of  which Price Enterprises realized substantial
current  earnings,  such  failure  will  automatically  be  deemed  a   complete
discontinuance  of contributions. In the event of such a complete discontinuance
of contributions, the account of each participant will become fully vested.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

    During fiscal year 1994, the PriceCostco Compensation Committee consisted of
Hamilton E.  James,  J. Paul  Kinloch  and John  W.  Meisenbach. None  of  these
individuals  is  expected  to  be  an officer,  director  or  employee  of Price
Enterprises or any of its subsidiaries.

                               SECURITY OWNERSHIP

PRICECOSTCO

    The following  table  sets  forth,  as  of  October  31,  1994,  information
regarding the number of shares of PriceCostco Common Stock beneficially owned by
each   director  of  PriceCostco,  all   directors  and  executive  officers  of
PriceCostco as  a group  and  certain beneficial  owners of  PriceCostco  Common
Stock, and the ownership (expressed as a percentage) of PriceCostco Common Stock
and   Price  Enterprises  Common  Stock  by  each  such  person  or  group  upon
consummation of the Transaction. The expected percentage ownership is  expressed
in the alternative, assuming that the Exchange Offer is (i) oversubscribed, with
all  outstanding  shares of  PriceCostco Common  Stock  validly tendered  and 27
million such shares accepted for exchange by PriceCostco; (ii) oversubscribed by
27  million  shares  and  therefore  subject  to  proration  (I.E.,  54  million
shares of PriceCostco Common Stock are validly tendered but only 27 million such
shares are accepted for exchange by PriceCostco); (iii) fully subscribed but not
oversubscribed  (I.E., 27 million  shares are validly  tendered and accepted for
exchange by  PriceCostco); (iv)  undersubscribed, with  21.6 million  shares  of
PriceCostco   Common  Stock  validly  tendered  and  accepted  for  exchange  by
PriceCostco; (v) undersubscribed, with 13.5 million shares of PriceCostco Common
Stock validly  tendered  and accepted  for  exchange by  PriceCostco;  and  (vi)
undersubscribed,  with  no  shares  of PriceCostco  Common  Stock  tendered. The
percentages with respect  to each  person or  group contained  in the  following
table (except for Messrs. Brotman and Sinegal, who have agreed not to tender any
shares  of PriceCostco Common  Stock in the Exchange  Offer, and Messrs. Bernard
and Kinloch, who do not beneficially own any shares of PriceCostco Common Stock)
are based  upon three  alternative assumptions  as to  the person's  or  group's
participation in the Exchange Offer: (x) none of such person's or group's shares
of  PriceCostco Common Stock are tendered in the Exchange offer, (y) 50% of such
person's or group's holdings of PriceCostco Common Stock are so tendered and (z)
all of such  person's or  group's holdings of  PriceCostco Common  Stock are  so
tendered.

                                      129
<PAGE>
   
<TABLE>
<CAPTION>
                                                  PERCENTAGE OWNERSHIP IF     PERCENTAGE OWNERSHIP IF     PERCENTAGE OWNERSHIP IF
                        CURRENT HOLDINGS OF
                            PRICECOSTCO           ALL OUTSTANDING SHARES         54 MILLION SHARES           27 MILLION SHARES
                            COMMON STOCK          TENDERED AND 27 MILLION     TENDERED AND 27 MILLION     TENDERED AND 27 MILLION
                      ------------------------     SHARES EXCHANGED (1)        SHARES EXCHANGED (2)        SHARES EXCHANGED (3)
                          SHARES                 -------------------------   -------------------------   -------------------------
                       BENEFICIALLY                               PRICE                       PRICE                       PRICE
DIRECTORS:                OWNED        PERCENT   PRICECOSTCO   ENTERPRISES   PRICECOSTCO   ENTERPRISES   PRICECOSTCO   ENTERPRISES
- --------------------  --------------   -------   -----------   -----------   -----------   -----------   -----------   -----------
<S>                   <C>              <C>       <C>           <C>           <C>           <C>           <C>           <C>
Jeffrey H.
 Brotman............   3,606,312(6)      1.7
  No shares
   tendered.........                                --            --              1.9         --              1.9         --
Daniel Bernard......      --            --          --            --            --            --            --            --
Richard D.
 DiCerchio..........     485,502(7)      *
  No shares
   tendered.........                                --            --            *             --            *             --
  50% of current
   holdings
   tendered.........                                --            --            *             *             *             *
  All current
   holdings
   tendered.........                                *             *             *             *             *             *
Hamilton E. James...     123,465(8)      *
  No shares
   tendered.........                                --            --            *             --            *             --
  50% of current
   holdings
   tendered.........                                --            --            *             *             *             *
  All current
   holdings
   tendered.........                                *             *             *             *             *             *
J. Paul Kinloch.....      --    (9)     --          --            --            --            --            --            --
Richard M.
 Libenson...........      59,640(10)     *
  No shares
   tendered.........                                --            --            *             --            *             --
  50% of current
   holdings
   tendered.........                                --            --            *             *             *             *
  All current
   holdings
   tendered.........                                *             *             *             *             --            *
Mitchell G. Lynn....     111,942(11)     *
  No shares
   tendered.........                                --            --            *             --            *             --
  50% of current
   holdings
   tendered.........                                --            --            *             *             *             *
  All current
   holdings
   tendered.........                                *             *             *             *             *             *
John W.
 Meisenbach.........     279,246(12)     *
  No shares
   tendered.........                                --            --            *             --            *             --
  50% of current
   holdings
   tendered.........                                --            --            *             *             *             *
  All current
   holdings
   tendered.........                                *             *             *             *             *             *
Duane Nelles........       2,330         *
  No shares
   tendered.........                                --            --            *             --            *             --
  50% of current
   holdings
   tendered.........                                --            --            *             *             *             *
  All current
   holdings
   tendered.........                                *             *             *             *             --            *
Paul A. Peterson....     278,689(13)     *
  No shares
   tendered.........                                --            --            *             --            *             --
  50% of current
   holdings
   tendered.........                                --            --            *             *             *             *
  All current
   holdings
   tendered.........                                *             *             *             *             --              1.0
Robert E. Price.....   2,798,571(14)     1.3
  No shares
   tendered.........                                --            --              1.5         --              1.5         --
  50% of current
   holdings
   tendered.........                                --            --              1.1           2.6         *               5.2
  All current
   holdings
   tendered.........                                  1.3           1.3         *               5.2         *              10.3
James D. Sinegal....   3,088,922(15)     1.4
  No shares
   tendered.........                                --            --              1.6         --              1.6         --
ALL DIRECTORS AND
 EXECUTIVE OFFICERS
 AS A GROUP
 (20 PERSONS).......  11,548,439(16)     5.3
  No shares
   tendered.........                                --            --              6.0         --              6.0         --
  50% of current
   holdings
   tendered.........                                --            --              4.7           9.4           3.3          18.9
  All current
   holdings
   tendered.........                                  5.3           4.7           2.9          18.9         *              37.8

<CAPTION>
CERTAIN BENEFICIAL
 OWNERS:
- --------------------
<S>                   <C>              <C>       <C>           <C>           <C>           <C>           <C>           <C>
Fourcar B.V. (17)...  21,191,301         9.7
  No shares
   tendered.........                                --            --             11.1         --             11.1         --
  50% of current
   holdings
   tendered.........                                --            --              8.3          19.6           5.6          39.2
  All current
   holdings
   tendered.........                                  9.7           9.7           4.8          39.2         --             78.5
Sol Price (19)......   8,745,964         4.0
  No shares
   tendered.........                                --            --              4.6         --              4.6         --
  50% of current
   holdings
   tendered.........                                --            --              3.5           7.8           2.4          15.5
  All current
   holdings
   tendered.........                                  4.0           3.8           2.1          15.5         *              31.0

<CAPTION>

                       PERCENTAGE OWNERSHIP IF     PERCENTAGE OWNERSHIP IF
                                                                               PERCENTAGE OWNERSHIP IF
                         21.6 MILLION SHARES         13.5 MILLION SHARES
                      TENDERED AND 21.6 MILLION   TENDERED AND 13.5 MILLION   NO SHARES TENDERED AND NO
                        SHARES EXCHANGED (4)        SHARES EXCHANGED (5)        SHARES EXCHANGED (5)
                      -------------------------   -------------------------   -------------------------
                                       PRICE                       PRICE                       PRICE
DIRECTORS:            PRICECOSTCO   ENTERPRISES   PRICECOSTCO   ENTERPRISES   PRICECOSTCO   ENTERPRISES
- --------------------  -----------   -----------   -----------   -----------   -----------   -----------
<S>                   <C>           <C>           <C>           <C>           <C>           <C>
Jeffrey H.
 Brotman............
  No shares
   tendered.........       1.8         --              1.8         *               1.7           1.6
Daniel Bernard......     --            --            --            --
Richard D.
 DiCerchio..........
  No shares
   tendered.........     *             --            *             *             *             *
  50% of current
   holdings
   tendered.........     *             *             *             *             --            --
  All current
   holdings
   tendered.........     *               1.2         *             *             --            --
Hamilton E. James...
  No shares
   tendered.........     *             --            *             *             *             *
  50% of current
   holdings
   tendered.........     *             *             *             *             --            --
  All current
   holdings
   tendered.........     *             *             *             *             --            --
J. Paul Kinloch.....     --            --            --            --            --            --
Richard M.
 Libenson...........
  No shares
   tendered.........     *             --            *             *             *             *
  50% of current
   holdings
   tendered.........     *             *             *             *             --               --
  All current
   holdings
   tendered.........     --            *             --            *             --            --
Mitchell G. Lynn....
  No shares
   tendered.........     *             --            *             *             *             *
  50% of current
   holdings
   tendered.........     *             *             *             *             --            --
  All current
   holdings
   tendered.........     *             *             *             *             --            --
John W.
 Meisenbach.........
  No shares
   tendered.........     *             --            *             *             *             *
  50% of current
   holdings
   tendered.........     *             *             *             *             --            --
  All current
   holdings
   tendered.........     *             *             *             *             --            --
Duane Nelles........
  No shares
   tendered.........     *             --            *             *             *             *
  50% of current
   holdings
   tendered.........     *             *             *             *             --            --
  All current
   holdings
   tendered.........     --            *             --            *             --            --
Paul A. Peterson....
  No shares
   tendered.........     *             --            *             *             *             *
  50% of current
   holdings
   tendered.........     *             *             *             *             --            --
  All current
   holdings
   tendered.........     --              1.3         --              1.0         --            --
Robert E. Price.....
  No shares
   tendered.........       1.4         --              1.4         *               1.3           1.3
  50% of current
   holdings
   tendered.........     *               6.5         *               5.5         --            --
  All current
   holdings
   tendered.........     *              12.9         *              10.3         --            --
James D. Sinegal....
  No shares
   tendered.........       1.6         --              1.5         *               1.4           1.4
ALL DIRECTORS AND
 EXECUTIVE OFFICERS
 AS A GROUP
 (20 PERSONS).......
  No shares
   tendered.........       5.8         --              5.6           2.5           5.3           4.7
  50% of current
   holdings
   tendered.........       3.3          23.6           3.1          20.1         --            --
  All current
   holdings
   tendered.........     *              47.2         *              37.8         --            --
CERTAIN BENEFICIAL
 OWNERS:
- --------------------
<S>                   <C>           <C>           <C>           <C>           <C>           <C>
Fourcar B.V. (17)...
  No shares
   tendered.........      10.8         --             10.4           5.3           9.7           9.7
  50% of current
   holdings
   tendered.........       5.4          49.1           5.2          41.8         --            --
  All current
   holdings
   tendered.........     --             98.1         --   (18)     --   (18)     --            --
Sol Price (19)......
  No shares
   tendered.........       4.5         --              4.3           2.1           4.0           4.0
  50% of current
   holdings
   tendered.........       2.3          20.2           2.2          16.5         --            --
  All current
   holdings
   tendered.........     *              38.8         *              31.0         --            --
<FN>
- ----------------------------------------
* Less than 1%.
</TABLE>
    

                                      130
<PAGE>

   
<TABLE>
<S>  <C>
<FN>

 (1) Assumes   that  all   outstanding  shares   of  PriceCostco   Common  Stock
     (217,824,520 shares as of  October 31, 1994) are  tendered in the  Exchange
     Offer,  but  only  27 million  such  shares  are accepted  for  exchange by
     PriceCostco.
 (2) Assumes that the Exchange Offer is oversubscribed by 27 million shares  and
     therefore  subject  to proration  (i.e., 54  million shares  of PriceCostco
     Common Stock  are validly  tendered but  only 27  million such  shares  are
     accepted for exchange by PriceCostco).
 (3) Assumes  that the Exchange Offer is fully subscribed but not oversubscribed
     and subject to  proration (i.e.,  27 million shares  of PriceCostco  Common
     Stock are validly tendered and accepted for exchange by PriceCostco).
 (4) Assumes  that 21.6 million  shares of PriceCostco  Common Stock are validly
     tendered and accepted for exchange  by PriceCostco, and PriceCostco  elects
     to  sell to  Price Enterprises  the remaining  5.4 million  shares of Price
     Enterprises Common Stock owned by PriceCostco. See "THE TRANSACTION --  The
     Distribution."
 (5) Assumes  that 13.5 million  shares of PriceCostco  Common Stock are validly
     tendered and accepted for  exchange by PriceCostco  and the remaining  13.5
     million  shares of Price  Enterprises Common Stock  held by PriceCostco are
     distributed to holders of record of PriceCostco Common Stock, as  described
     in "THE TRANSACTION -- The Distribution."
 (6) Includes  3,404,323  shares held  by  a trust  of  which Mr.  Brotman  is a
     principal  beneficiary.  Also  includes   143,715  shares  issuable   under
     currently  exercisable stock  options and options  exercisable within sixty
     days of October 31, 1994. Mr. Brotman  has agreed not to tender any  shares
     of  PriceCostco  Common Stock  beneficially owned  by  him in  the Exchange
     Offer.
 (7) Includes 229,480 shares issuable under currently exercisable stock  options
     and options exercisable within sixty days of October 31, 1994.
 (8) Includes  71,250 shares issuable under  currently exercisable stock options
     and options exercisable  within sixty days  of October 31,  1994. Does  not
     include 8,000 stock options granted subject to stockholder approval.
 (9) Does  not  include  8,000  stock  options  granted  subject  to stockholder
     approval.
(10) Does not  include  8,000  stock  options  granted  subject  to  stockholder
     approval.
(11) Includes  1,109 shares  issuable upon conversion  of 6  3/4% Debentures and
     100,044 shares  issuable  under  currently exercisable  stock  options  and
     options exercisable within sixty days of October 31, 1994.
(12) Includes  85,496 shares  held by  a trust  of which  Mr. Meisenbach  is the
     principal beneficiary, of which  he may be deemed  to be beneficial  owner,
     and  193,750 shares issuable under  currently exercisable stock options and
     options exercisable within sixty days of October 31, 1994. Does not include
     8,000 director stock options granted subject to stockholder approval.
(13) Does  not  include  8,000  director   stock  options  granted  subject   to
     stockholder approval.
(14) Mr.  Price's wife is  one of the  three trustees of  four trusts holding an
     aggregate of  115,360 shares,  of  which 86,520  shares  are held  for  the
     benefit  of  the  children  of  Mr. and  Mrs.  Price.  Mr.  Price disclaims
     beneficial ownership in any of those shares, which are not included in  the
     table  above. Includes  7,642 shares  issuable under  currently exercisable
     stock options  and options  exercisable within  sixty days  of October  31,
     1994.
(15) Includes  122,714 shares issuable under currently exercisable stock options
     and options exercisable within sixty days of October 31, 1994. Mr.  Sinegal
     has   agreed  not  to  tender  any   shares  of  PriceCostco  Common  Stock
     beneficially owned by him in the Exchange Offer.
(16) Includes 1,109 shares  issuable upon  conversion of 6  3/4% Debentures  and
     1,355,174  shares issuable  under currently  exercisable stock  options and
     options exercisable within sixty days of October 31, 1994. Does not include
     40,000 stock options granted to  each non-employee director of  PriceCostco
     subject to stockholder approval.
(17) The  address  of  Fourcar  B.V.  is Blaak  28-34,  3011  TA  Rotterdam, The
     Netherlands.
(18) Not applicable since Fourcar B.V. beneficially owns more than 13.5  million
     shares of PriceCostco Common Stock.
(19) Sol Price has sole beneficial ownership of the shares indicated as owned by
     him,  most of which are held in charitable  trusts of which he is a trustee
     with full power to vote and dispose of such shares. Includes 372,304 shares
     issuable upon conversion of 6 3/4% Debentures and excludes 500 shares owned
     by the Sol & Helen Price Foundation, of which Mr. Price is a board  member,
     but  over which he  disclaims beneficial ownership.  Mr. Price's address is
     7979 Ivanhoe Avenue, La Jolla, California 92037.
</TABLE>
    

                                      131
<PAGE>
PRICE ENTERPRISES

    The following  table  sets  forth,  as  of  October  31,  1994,  information
regarding  the number of  shares of Price  Enterprises Common Stock beneficially
owned by each  director of  Price Enterprises  and all  directors and  executive
officers  as a group, and the expected  ownership (expressed as a percentage) of
Price Enterprises Common Stock of each such person or group upon consummation of
the  Transaction.  The  expected  percentage  ownership  is  expressed  in   the
alternative,  assuming that the Exchange Offer  is (i) over subscribed, with all
outstanding shares of PriceCostco Common  Stock validly tendered and 27  million
such  shares accepted  for exchange  by PriceCostco;  (ii) oversubscribed  by 27
million shares and therefore  subject to proration (I.E.,  54 million shares  of
PriceCostco  Common Stock are  validly tendered but only  27 million such shares
are accepted  for  exchange by  PriceCostco);  (iii) fully  subscribed  but  not
oversubscribed  (I.E., 27 million shares are  tendered and accepted for exchange
by PriceCostco); (iv) undersubscribed, with  21.6 million shares of  PriceCostco
Common  Stock validly  tendered and  accepted for  exchange by  PriceCostco; (v)
undersubscribed, with 13.5  million shares of  PriceCostco Common Stock  validly
tendered  and accepted  for exchange  by PriceCostco;  and (vi) undersubscribed,
with no  shares  of PriceCostco  Common  Stock tendered.  The  percentages  with
respect  to each director  of Price Enterprises and  all directors and executive
officers of  Price Enterprises  as  a group  contained  in the  following  table
(except  for Mr. Sinegal, who has agreed not to tender any shares of PriceCostco
Common Stock in the Exchange Offer) are based upon three alternative assumptions
as to the person's or group's participation  in the Exchange Offer; (x) none  of
such  person's or group's shares of PriceCostco Common Stock are tendered in the
Exchange Offer, (y) 50% of such person or group's holdings of PriceCostco Common
Stock are  so  tendered and  (z)  all of  such  person or  group's  holdings  of
PriceCostco Common Stock are so tendered.

                                      132
<PAGE>
   
<TABLE>
<CAPTION>
                                                    PERCENTAGE OWNERSHIP IF     PERCENTAGE OWNERSHIP IF     PERCENTAGE OWNERSHIP IF
                         CURRENT HOLDINGS OF
                             PRICECOSTCO            ALL OUTSTANDING SHARES         54 MILLION SHARES           27 MILLION SHARES
                             COMMON STOCK           TENDERED AND 27 MILLION     TENDERED AND 27 MILLION     TENDERED AND 27 MILLION
                      --------------------------     SHARES EXCHANGED (1)        SHARES EXCHANGED (2)        SHARES EXCHANGED (3)
                         SHARES                    -------------------------   -------------------------   -------------------------
                      BENEFICIALLY                                  PRICE                       PRICE                       PRICE
                         OWNED         PERCENT     PRICECOSTCO   ENTERPRISES   PRICECOSTCO   ENTERPRISES   PRICECOSTCO   ENTERPRISES
                      ------------   -----------   -----------   -----------   -----------   -----------   -----------   -----------
<S>                   <C>            <C>           <C>           <C>           <C>           <C>           <C>           <C>
Paul A. Peterson....    278,689(6)        *
  No shares
   tendered.........                                  --            --            *             --            *             --
  50% of current
   holdings
   tendered.........                                  --            --            *             *             *             *
  All current
   holdings
   tendered.........                                  *             *             *             *             --              1.0
Robert E. Price.....  2,798,571(7)        1.3
  No shares
   tendered.........                                  --            --              1.5         --              1.5         --
  50% of current
   holdings
   tendered.........                                  --            --              1.1           2.6         *               5.2
  All current
   holdings
   tendered.........                                    1.3           1.3         *               5.2         *              10.3
James D. Sinegal....  3,088,922(8)        1.4
  No shares
   tendered.........                                  --            --              1.6         --              1.6         --
Katherine L.
 Hensley............       --           --            --            --            --            --            --            --
Nancy Y. Bekavac....       --           --            --            --            --            --            --            --
Murray L.
 Galinson...........       --           --            --            --            --            --            --            --
All directors and
 executive officers
 as a group
 (11 persons).......  6,433,340(9)        2.8
  No shares
   tendered.........                                  --            --              3.4         --              3.4         --
  50% of current
   holdings
   tendered.........                                  --            --            --              5.6           1.8          11.3
  All current
   holdings
   tendered.........                                    2.6           2.8           1.6          11.3         *              22.5

<CAPTION>
                                                   PERCENTAGE OWNERSHIP IF

                       PERCENTAGE OWNERSHIP IF       13.5 MILLION SHARES
                                                        TENDERED AND           PERCENTAGE OWNERSHIP IF
                         21.6 MILLION SHARES         13.5 MILLION SHARES
                      TENDERED AND 21.6 MILLION                               NO SHARES TENDERED AND NO
                        SHARES EXCHANGED (4)            EXCHANGED (5)           SHARES EXCHANGED (5)
                      -------------------------   -------------------------   -------------------------
                                       PRICE                       PRICE                       PRICE
                      PRICECOSTCO   ENTERPRISES   PRICECOSTCO   ENTERPRISES   PRICECOSTCO   ENTERPRISES
                      -----------   -----------   -----------   -----------   -----------   -----------
<S>                   <C>           <C>           <C>           <C>           <C>           <C>
Paul A. Peterson....
  No shares
   tendered.........     *             --            *             *             *             *
  50% of current
   holdings
   tendered.........     *             *             *             *             --            --
  All current
   holdings
   tendered.........     --              1.3         --              1.0         --            --
Robert E. Price.....
  No shares
   tendered.........       1.4         --              1.4         *               1.3           1.3
  50% of current
   holdings
   tendered.........     *               6.5         *               5.5         --            --
  All current
   holdings
   tendered.........     *              12.9         *              10.3         --            --
James D. Sinegal....
  No shares
   tendered.........       1.6         --              1.5         *               1.4           1.4
Katherine L.
 Hensley............     --            --            --            --            --            --
Nancy Y. Bekavac....     --            --            --            --            --            --
Murray L.
 Galinson...........     --            --            --            --            --            --
All directors and
 executive officers
 as a group
 (11 persons).......
  No shares
   tendered.........       3.3         --              3.1           1.5           2.9           2.8
  50% of current
   holdings
   tendered.........       1.7          14.1         *              12.0         --            --
  All current
   holdings
   tendered.........     *              28.1         *              22.5         --            --
<FN>
- ------------------------------
*  Less than 1%.
(1)  Assumes   that  all   outstanding  shares   of  PriceCostco   Common  Stock
     (217,824,520 shares as of  October 31, 1994) are  tendered in the  Exchange
     Offer,  but  only  27 million  such  shares  are accepted  for  exchange by
     PriceCostco.
(2)  Assumes that the Exchange Offer is oversubscribed by 27 million shares  and
     therefore  subject  to proration  (i.e., 54  million shares  of PriceCostco
     Common Stock  are validly  tendered but  only 27  million such  shares  are
     accepted for exchange by PriceCostco).
(3)  Assumes  that  the Exchange  Offer is  fully  subscribed (i.e.,  27 million
     shares of PriceCostco Common  Stock are validly  tendered and accepted  for
     exchange by PriceCostco), but not oversubscribed and subject to proration.
(4)  Assumes  that 21.6 million  shares of PriceCostco  Common Stock are validly
     tendered and accepted for exchange  by PriceCostco, and PriceCostco  elects
     to  sell to  Price Enterprises  the remaining  5.4 million  shares of Price
     Enterprises Common Stock owned by PriceCostco. See "THE TRANSACTION --  The
     Distribution."
(5)  Assumes  that 13.5 million  shares of PriceCostco  Common Stock are validly
     tendered and accepted for  exchange by PriceCostco  and the remaining  13.5
     million  shares of Price  Enterprises Common Stock  held by PriceCostco are
     distributed to holders of record of PriceCostco Common Stock, as  described
     in "THE TRANSACTION -- The Distribution."
(6)  Does   not  include  8,000  director   stock  options  granted  subject  to
     stockholder approval.
(7)  Mr. Price's wife is  one of the  three trustees of  four trusts holding  an
     aggregate  of  115,360 shares,  of  which 86,520  shares  are held  for the
     benefit of  the  children  of  Mr. and  Mrs.  Price.  Mr.  Price  disclaims
     beneficial  ownership in any of those shares, which are not included in the
     table above.  Includes 7,642  shares issuable  under currently  exercisable
     stock  options and  options exercisable  within sixty  days of  October 31,
     1994.
(8)  Includes 122,714 shares issuable under currently exercisable stock  options
     and  options exercisable within sixty days of October 31, 1994. Mr. Sinegal
     has  agreed  not  to  tender   any  shares  of  PriceCostco  Common   Stock
     beneficially owned by him in the Exchange Offer.
(9)  Includes  355,884 shares issuable under currently exercisable stock options
     and options  exercisable within  60  days of  October  31, 1994.  Does  not
     include 8,000 stock options granted subject to stockholder approval.
</TABLE>
    

                                      133
<PAGE>
                PRICE ENTERPRISES' CERTIFICATE OF INCORPORATION
                                   AND BYLAWS

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

AUTHORIZED STOCK

    The  Price  Enterprises  Certificate  provides  that  Price  Enterprises  is
authorized to issue 70,000,000 shares of stock, consisting of 60,000,000  shares
of Price Enterprises Common Stock, and 10,000,000 shares of preferred stock, par
value  $.0001 per share  ("Price Enterprises Preferred  Stock"). Shares of Price
Enterprises Preferred Stock  may be issued  from time  to time, in  one or  more
series,  each  of  which series  shall  have such  voting  powers, designations,
preferences and  rights, and  the  qualifications, limitations  or  restrictions
relating  thereto, as  shall be  authorized by the  Board of  Directors of Price
Enterprises. See "DESCRIPTION OF PRICE ENTERPRISES' SECURITIES."

DIRECTORS

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

LIABILITY FOR MONETARY DAMAGES

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

ANTI-TAKEOVER EFFECT OF AUTHORIZED BUT UNDESIGNATED PREFERRED STOCK

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

    Although the Board has no  present intention of doing  so, it could issue  a
series  of Price Enterprises Preferred Stock that could, depending on its terms,
either impede or facilitate  the completion of a  merger, tender offer or  other
takeover  attempt.  For  instance,  such  new  shares  might  impede  a business
combination by including class  voting rights which would  enable the holder  to
block such transaction or facilitate a

                                      134
<PAGE>
business  combination by including voting rights  which would provide a required
percentage vote of stockholders. The Board will make any determination to  issue
such  shares based on its judgment as to the best interests of Price Enterprises
and its then existing stockholders. The  Board, in so acting, could issue  Price
Enterprises  Preferred Stock having terms  which would discourage an acquisition
attempt or other transaction that some  or a majority of the stockholders  might
believe  to be in their best interests  or in which stockholders might receive a
premium for their stock over the then market price of such stock.

INDEMNIFICATION AND ADVANCEMENT OF EXPENSES

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

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

    The  Indemnification Provisions and provisions for advancing expenses in the
Price Enterprises Certificate are expressly not exclusive of any other rights of
indemnification or advancement  of expenses  pursuant to  the Price  Enterprises
Bylaws.  The Indemnification Provisions and provisions for advancing expenses in
the Price Enterprises Bylaws and the Price Enterprises Certificate are expressly
not exclusive of any other rights of indemnification or advancement of  expenses
pursuant  to any agreement, vote of  the stockholders or disinterested directors
or pursuant to judicial direction.  Price Enterprises is authorized to  purchase
insurance on behalf of an Indemnified Party for liabilities incurred, whether or
not Price Enterprises would have the power or obligation to indemnify him or her
pursuant  to the Price Enterprises Certificate,  the Price Enterprises Bylaws or
the DGCL.

                                      135
<PAGE>
    In addition, Price  Enterprises will enter  into indemnification  agreements
with  its directors and certain of its executive officers pursuant to which such
persons are indemnified for costs and expenses actually and reasonably  incurred
by  such persons  in connection  with a  threatened, pending  or completed claim
arising out of service as a director, officer, employee, trustee and/or agent of
Price Enterprises or  another entity at  the request of  Price Enterprises.  See
"MANAGEMENT OF PRICE ENTERPRISES -- Indemnification Agreements."

AMENDMENT OF THE PRICE ENTERPRISES CERTIFICATE OF INCORPORATION AND BYLAWS

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

TRANSACTIONS WITH INTERESTED OFFICERS OR DIRECTORS

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

                  DESCRIPTION OF PRICE ENTERPRISES' SECURITIES

COMMON STOCK

    The Price  Enterprises Certificate  authorizes  60,000,000 shares  of  Price
Enterprises  Common  Stock.  Currently 27,000,000  shares  of  Price Enterprises
Common Stock are issued and outstanding, all of which are owned by PriceCostco.

    All shares of Price Enterprises Common Stock are identical and each entitles
the holder thereof  to one  vote on  matters to  be voted  upon by  stockholders
generally,  including the election of the Board of Directors. Except as provided
in any resolution by the Board with  respect to any series of Price  Enterprises
Preferred  Stock  or  as  otherwise  required  by  law,  the  holders  of  Price
Enterprises Common  Stock  will  possess  all  of  the  voting  power  of  Price
Enterprises.  The Price Enterprises Certificate  does not provide for cumulative
voting for the election of directors. Subject to any preferences provided for by
resolution of  the  Board of  Directors  for  any series  of  Price  Enterprises
Preferred  Stock, the holders of Price Enterprises Common Stock will be entitled
to such dividends as may be legally declared from time to time by the Board and,
upon liquidation, to receive pro rata  all assets, if any, of Price  Enterprises
available for distribution after the payment of necessary expenses and all prior
claims.

    Upon  consummation of the Exchange Offer,  no holder of any authorized stock
of Price  Enterprises  will  have  any preemptive  right  to  subscribe  to  any
securities of Price Enterprises.

PREFERRED STOCK

    The  Price  Enterprises Certificate  authorizes  10,000,000 shares  of Price
Enterprises Preferred Stock, none of which are issued and outstanding. The Price
Enterprises Preferred Stock is  issuable in one  or more series,  any or all  of
which  may  have such  voting  powers, designations,  preferences  and relative,
participating, optional  or  other  special  rights,  and  such  qualifications,
limitations or restrictions relating thereto, including

                                      136
<PAGE>
voting  rights, dividends, rights  on liquidation, dissolution  or winding up of
Price Enterprises, conversion or exchange  rights and redemption provisions,  if
any,  as are  set forth  in the  resolutions adopted  by the  Board of Directors
providing for the issue of such stock and as permitted by the DGCL. The issuance
in the  future  of Price  Enterprises  Preferred  Stock or  the  designation  of
authorized  but unissued shares of Price Enterprises Preferred Stock with voting
and other rights which may be established by the Price Enterprises Board in  its
discretion,  without stockholder approval,  may be used  by Price Enterprises to
create voting impediments or otherwise delay  or prevent a change in control  of
Price  Enterprises. By issuance of Price  Enterprises Preferred Stock, the Board
of Directors could  modify the  rights of  holders of  Price Enterprises  Common
Stock.

                            COMPARISON OF RIGHTS OF
               STOCKHOLDERS OF PRICECOSTCO AND PRICE ENTERPRISES

    Upon  consummation of  the Exchange  Offer, stockholders  of PriceCostco who
exchange their shares of PriceCostco  Common Stock for Price Enterprises  Common
Stock  will  become stockholders  of Price  Enterprises. The  rights of  a Price
Enterprises stockholder will be  defined and governed  by the Price  Enterprises
Certificate  and the  Price Enterprises  Bylaws rather  than the  Certificate of
Incorporation  of  PriceCostco  and  the  Amended  PriceCostco  Bylaws.  Certain
provisions of the Price Enterprises Certificate and the Price Enterprises Bylaws
alter  the  rights  of  stockholders from  those  that  PriceCostco stockholders
presently have and also alter certain powers of management. These provisions are
summarized below. This summary is qualified in its entirety by reference to  the
Price  Enterprises  Certificate,  the  Price  Enterprises  Bylaws,  the Restated
Certificate of Incorporation of PriceCostco (the "PriceCostco Certificate"), the
Amended PriceCostco Bylaws and applicable law.

CAPITAL STOCK

    PRICECOSTCO.  The PriceCostco Certificate authorizes 1,000,000,000 shares of
capital stock, 900,000,000 of which are  shares of PriceCostco Common Stock  and
100,000,000  of which are shares of authorized but undesignated preferred stock,
par value $.01 per share of PriceCostco (the "PriceCostco Preferred Stock").

    PRICE ENTERPRISES.  The Price Enterprises Certificate authorizes  70,000,000
shares  of capital  stock, 60,000,000 of  which are shares  of Price Enterprises
Common Stock and 10,000,000 of which  are shares of authorized but  undesignated
Price  Enterprises Preferred Stock. Each of  the PriceCostco Certificate and the
Price Enterprises Certificate  authorizes its respective  board of directors  to
establish the rights, preferences and limitations of PriceCostco Preferred Stock
and  Price Enterprises Preferred Stock. As noted above, if and when issued, such
preferred stock could, without stockholder approval, have the effect of delaying
or preventing a change in control or  modifying the rights of holders of  common
stock of PriceCostco or Price Enterprises, as the case may be.

BOARD OF DIRECTORS

    PRICECOSTCO.    The Amended  PriceCostco Bylaws  provide  that its  Board of
Directors shall consist of one or more members, the exact number of which  shall
be  fixed from time to time by the  Board of Directors. The PriceCostco Board is
divided into three classes, and, following the expiration of his or her  initial
term, each director is elected for a three-year term.

    PRICE  ENTERPRISES.  The Price Enterprises  Bylaws provide that its Board of
Directors shall consist  of three  or more members,  the exact  number of  which
shall  be  fixed  from  time  to  time by  the  Board  of  Directors.  The Price
Enterprises Board of Directors is not divided into classes and all directors are
elected at each annual meeting. Because Price Enterprises Board of Directors  is
not  divided  into  three  classes,  it  would  be  easier  for  stockholders to
effectuate an immediate  change in  control of  the Board  of Price  Enterprises
compared to PriceCostco.

AMENDMENT OF CERTIFICATE OF INCORPORATION

    The DGCL provides that approval of a majority of the shares entitled to vote
thereon  is  required  to  amend  the  PriceCostco  Certificate  and  the  Price
Enterprises Certificate. However, the  PriceCostco Certificate further  requires
the  affirmative vote  of 66  2/3% of the  combined voting  power of  all of the
securities of

                                      137
<PAGE>
PriceCostco entitled to  vote generally  for the election  of directors,  voting
together  as a single class, to alter,  amend, rescind, or repeal the provisions
providing for a classified board of  directors, and the other provisions of  the
PriceCostco  Certificate  relating to  the number  of  directors, the  length of
directors' terms and the filling of vacancies. The Price Enterprises Certificate
does not contain any such additional voting requirements and therefore, it would
be easier for stockholders to effectuate  an immediate change in control of  the
Board of Price Enterprises compared to PriceCostco.

                                 LEGAL MATTERS

    The  validity of Price Enterprises Common Stock to be issued in the Exchange
Offer will  be  passed upon  by  Latham &  Watkins,  San Diego,  California.  In
addition, the description of Federal income tax consequences contained herein is
based upon the opinion of Skadden Arps.

                                    EXPERTS

   
    The  consolidated financial statements and  schedules of PriceCostco for the
three fiscal years ended August 28, 1994, incorporated herein by reference, have
been  audited  by  Arthur  Andersen  LLP,  independent  public  accountants,  as
indicated  in their  reports with respect  thereto. In those  reports, that firm
states that with respect to Price for fiscal years 1993 and 1992, its opinion is
based on the reports  of other independent auditors,  namely Ernst & Young  LLP.
The  consolidated financial statements referred  to above have been incorporated
herein by reference  in reliance upon  the reports  of said firms  and upon  the
authority of those firms as experts in accounting and auditing.
    

   
    The  financial statements of  Price Enterprises at August  29, 1993, and for
each of the two fiscal years ended  August 29, 1993, appearing in this  Offering
Circular/Prospectus,  have  been  audited  by  Ernst  &  Young  LLP, independent
auditors, as  set forth  in  their report  appearing  elsewhere herein  and  are
included  in reliance upon such report given  upon the authority of such firm as
experts in accounting and auditing.
    

   
    The financial statements and schedule of Price Enterprises as of August  28,
1994,  and for the fiscal year ended August 28, 1994, appearing in this Offering
Circular/Prospectus, have  been  audited  by Arthur  Andersen  LLP,  independent
public  accountants, as indicated in their reports with respect thereto, and are
included in reliance upon  the authority of said  firm as experts in  accounting
and auditing.
    

   
                              INDEPENDENT AUDITORS
    

   
    Price  Enterprises anticipates that  Ernst & Young LLP  will be appointed as
its independent auditors immediately following the Closing Date.
    

   
    Price Enterprises'  stockholders  will  receive  annual  reports  containing
audited  consolidated  financial  statements  with  a  report  thereon  by Price
Enterprises' independent  certified  public accountants  and  quarterly  reports
containing  unaudited financial information for each of the first three quarters
of each fiscal year.
    

                                      138
<PAGE>
                            PRICE ENTERPRISES, INC.

                         INDEX TO FINANCIAL STATEMENTS

   
<TABLE>
<S>                                                 <C>
Annual Financial Statements
  Report of Ernst & Young LLP, Independent
   Auditors.......................................    F-2
  Report of Arthur Andersen LLP, Independent
   Public Accountants.............................    F-3
  Balance Sheets as of August 29, 1993 and August
   28, 1994.......................................    F-4
  Statements of Income for the 52 weeks ended
   August 30, 1992, August 29, 1993 and August 28,
   1994...........................................    F-5
  Statements of Changes in Investment by
   PriceCostco for the 52 weeks ended August 30,
   1992, August 29, 1993 and August 28, 1994......    F-6
  Statements of Cash Flows for the 52 weeks ended
   August 30, 1992, August 29, 1993 and August 28,
   1994...........................................    F-7
  Notes to Financial Statements...................    F-8
</TABLE>
    

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

Board of Directors
Price Enterprises, Inc.

   
    We have audited the accompanying balance sheet of Price Enterprises, Inc. at
August  29, 1993, and the related statements of income, changes in investment by
PriceCostco and cash flows for each of the 52-week periods ended August 30, 1992
and August 29, 1993.  These financial statements are  the responsibility of  the
Price  Enterprises' management. Our  responsibility is to  express an opinion on
these financial statements based on our audits.
    

    We conducted  our  audits in  accordance  with generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence  supporting
the  amounts and disclosures in the financial statements. An audit also includes
assessing the  accounting  principles used  and  significant estimates  made  by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

    In our opinion, the financial  statements referred to above present  fairly,
in  all material respects, the financial  position of Price Enterprises, Inc. as
of August 29, 1993,  and the results  of its operations and  its cash flows  for
each  of  the 52-week  periods  ended August  30, 1992  and  August 29,  1993 in
conformity with generally accepted accounting principles.

   
                                          ERNST & YOUNG LLP
    

San Diego, California,
September 12, 1994

                                      F-2
<PAGE>
   
         REPORT OF ARTHUR ANDERSEN LLP, INDEPENDENT PUBLIC ACCOUNTANTS
    

   
To Price Enterprises, Inc.:
    

   
    We have audited the accompanying balance sheet of Price Enterprises, Inc. as
of August 28, 1994, and the related statements of income, changes in  investment
by  PriceCostco and  cash flows  for the 52-week  period ended  August 28, 1994.
These financial statements are the  responsibility of Price Enterprises,  Inc.'s
management.  Our  responsibility is  to express  an  opinion on  these financial
statements based on our audit.
    

   
    We conducted  our  audit  in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence  supporting
the  amounts and disclosures in the financial statements. An audit also includes
assessing the  accounting  principles used  and  significant estimates  made  by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
    

   
    In our opinion, the financial  statements referred to above present  fairly,
in  all material respects, the financial  position of Price Enterprises, Inc. as
of August 28, 1994, and the results of its operations and its cash flows for the
52-week period  ended August  28,  1994 in  conformity with  generally  accepted
accounting principles.
    

   
                                          ARTHUR ANDERSEN LLP
    

   
Seattle, Washington
November 14, 1994
    

                                      F-3
<PAGE>
                            PRICE ENTERPRISES, INC.
                                 BALANCE SHEETS
                                 (IN THOUSANDS)

                                     ASSETS

   
<TABLE>
<CAPTION>
                                                    AUGUST 29,   AUGUST 28,
                                                       1993         1994
                                                    ----------   ----------
<S>                                                 <C>          <C>
REAL ESTATE ASSETS
  Land and improvements...........................   $ 236,232    $ 258,545
  Buildings and improvements......................     135,039      206,374
  Construction in progress........................      43,965       11,421
  Furniture, fixtures and equipment...............       2,114        4,375
                                                    ----------   ----------
    Real estate assets, at cost...................     417,350      480,715
  Accumulated depreciation........................     (29,875)     (33,328)
                                                    ----------   ----------
    Real estate assets, net.......................     387,475      447,387
CURRENT AND OTHER ASSETS
  Cash............................................       1,655        1,644
  Receivables, net................................      17,173       20,873
  Merchandise inventories.........................       2,915        7,895
  Deferred rents, net.............................       3,405        3,965
  Deferred leasing costs, net.....................       1,876        4,707
  Investment in real estate joint ventures........      11,200       --
  Investment in Price Club Mexico joint venture...      24,072       67,226
  Notes receivable................................      49,638       73,023
  Prepaids and other assets.......................         458          551
  Deferred income taxes...........................      --           23,282
                                                    ----------   ----------
                                                     $ 499,867    $ 650,553
                                                    ----------   ----------
                                                    ----------   ----------
</TABLE>
    

   
                   LIABILITIES AND INVESTMENT BY PRICECOSTCO
    

   
<TABLE>
<S>                                                 <C>          <C>
LIABILITIES
  Accounts payable and accrued expenses...........   $  15,189    $  19,222
  Payable to PriceCostco, net.....................      --            6,797
  Accrued real estate taxes.......................         355          265
  Unearned rent and security deposits.............         472          825
  Reserve for future lease losses.................      --            4,015
  Deferred income taxes...........................      12,681       --
                                                    ----------   ----------
                                                        28,697       31,124
                                                    ----------   ----------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF PRICECOSTCO..................      16,813       40,641
INVESTMENT BY PRICECOSTCO.........................     454,357      578,788
                                                    ----------   ----------
                                                     $ 499,867    $ 650,553
                                                    ----------   ----------
                                                    ----------   ----------
</TABLE>
    

                            See accompanying notes.

                                      F-4
<PAGE>
   
                            PRICE ENTERPRISES, INC.
                              STATEMENTS OF INCOME
                                 (IN THOUSANDS)
    

   
<TABLE>
<CAPTION>
                                                                  52 WEEKS ENDED
                                                    ------------------------------------------
                                                     AUGUST 30,     AUGUST 29,     AUGUST 28,
                                                        1992           1993           1994
                                                    ------------   ------------   ------------
<S>                                                 <C>            <C>            <C>
REVENUES
  Real estate rentals.............................     $28,263        $22,144        $  29,265
  Gains on sale of real estate, net...............     15,078         21,540             5,474
  Merchandise sales...............................      8,212         28,671            53,015
                                                    ------------   ------------   ------------
    Total revenues................................     51,553         72,355            87,754
OPERATING EXPENSES
  Real estate:
    Operating, maintenance and administrative.....      4,553          4,596             5,713
    Property taxes................................      3,357          3,052             4,808
    Depreciation and amortization.................      5,945          5,662             7,102
                                                    ------------   ------------   ------------
                                                       13,855         13,310            17,623
                                                    ------------   ------------   ------------
  Merchandising:
    Cost of sales.................................      7,839         27,233            49,449
    Operating expenses............................      1,263          3,649             8,548
                                                    ------------   ------------   ------------
                                                        9,102         30,882            57,997
  General and administrative......................      1,300          1,500             1,600
  Provision for asset impairments.................     --             --                90,227
                                                    ------------   ------------   ------------
    Total operating expenses......................     24,257         45,692           167,447
                                                    ------------   ------------   ------------
    Operating income (loss).......................     27,296         26,663           (79,693)
INTEREST AND OTHER
  Interest income, net............................      2,856          2,874             4,797
  Other income....................................        205            205               222
  Equity in earnings of real estate joint
   ventures.......................................      2,409          3,649               829
  Equity in earnings (loss) of Price Club Mexico
   joint venture..................................       (650)         1,357             3,359
  PriceCostco's minority interest.................        755            418               740
                                                    ------------   ------------   ------------
                                                        5,575          8,503             9,947
                                                    ------------   ------------   ------------
    Income (loss) before provision (benefit) for
     income taxes.................................     32,871         35,166           (69,746)
PROVISION (BENEFIT) FOR INCOME TAXES..............     13,510         14,615           (28,267)
                                                    ------------   ------------   ------------
    Net income (loss).............................     $19,361        $20,551        $ (41,479)
                                                    ------------   ------------   ------------
                                                    ------------   ------------   ------------
</TABLE>
    

                            See accompanying notes.

                                      F-5
<PAGE>
                            PRICE ENTERPRISES, INC.
               STATEMENTS OF CHANGES IN INVESTMENT BY PRICECOSTCO
                                 (IN THOUSANDS)

   
<TABLE>
<S>                                                 <C>
BALANCE, September 1, 1991........................     $ 412,585
  Net income......................................        19,361
  Net return to PriceCostco.......................        (2,274)
                                                    ------------
BALANCE, August 30, 1992..........................       429,672
  Net income......................................        20,551
  Net investment by PriceCostco...................         4,134
                                                    ------------
BALANCE, August 29, 1993..........................       454,357
  Net loss........................................       (41,479)
  Net investment by PriceCostco...................       165,910
                                                    ------------
BALANCE, August 28, 1994..........................     $ 578,788
                                                    ------------
                                                    ------------
</TABLE>
    

                            See accompanying notes.

                                      F-6
<PAGE>
                            PRICE ENTERPRISES, INC.
                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

   
<TABLE>
<CAPTION>
                                                                  52 WEEKS ENDED
                                                    ------------------------------------------
                                                     AUGUST 30,     AUGUST 29,     AUGUST 28,
                                                        1992           1993           1994
                                                    ------------   ------------   ------------
<S>                                                 <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss)...............................     $  19,361      $20,551        $ (41,479)
  Adjustments to reconcile net income (loss) to
   net cash provided by operating activities --
    Depreciation and amortization.................         6,070        5,919            7,693
    Gains on sale of real estate assets...........       (15,078)     (21,540)          (5,474)
    Provision for asset impairments...............       --            --               90,227
    Equity in earnings of joint ventures..........        (1,759)      (5,006)          (4,188)
    Deferred income taxes.........................         1,932           10          (36,459)
    Change in receivables and other assets........        (9,826)      (9,208)          (8,773)
    Change in accounts payable and other
     liabilities..................................         1,272        9,553           10,740
    Deferred rents and leasing costs..............           617         (481)          (3,738)
    Unearned rent and security deposits...........          (162)         (60)             353
    Other, net....................................        (1,327)        (958)             213
                                                    ------------   ------------   ------------
      Total adjustments...........................       (18,261)     (21,771)          50,594
                                                    ------------   ------------   ------------
      Net cash flows from operating activities....         1,100       (1,220)           9,115
                                                    ------------   ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Additions to real estate assets.................       (92,307)     (63,054)         (44,628)
  Proceeds from sale of real estate assets........        91,999       99,311           39,878
  Proceeds from (investment in) real estate joint
   ventures.......................................       (34,032)      39,786           12,029
  Investment in Price Club Mexico joint venture...        (2,557)     (20,291)         (39,795)
  Additions to notes receivable...................       (17,662)      (1,908)         (41,000)
  Payments of notes receivable....................         7,908        1,725            1,902
                                                    ------------   ------------   ------------
      Net cash flows from investing activities....       (46,651)      55,569          (71,614)
                                                    ------------   ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Minority interest of PriceCostco................         4,830       11,699           23,828
  Net investment by (return to) PriceCostco.......        42,003      (66,423)          38,660
                                                    ------------   ------------   ------------
      Net cash flows from financing activities....        46,833      (54,724)          62,488
                                                    ------------   ------------   ------------
      Net increase (decrease) in cash.............         1,282         (375)             (11)
CASH, AT BEGINNING OF YEAR........................           748        2,030            1,655
                                                    ------------   ------------   ------------
CASH, AT END OF YEAR..............................     $   2,030      $ 1,655        $   1,644
                                                    ------------   ------------   ------------
                                                    ------------   ------------   ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Cash paid during the period for:
    Income taxes..................................     $  11,578      $14,605        $   8,192
  Assets (liabilities) transferred from (to)
   PriceCostco:
    Real estate assets............................       (36,172)      70,853          127,055
    Notes receivable..............................        (8,101)        (296)         --
    Deferred tax liabilities......................       --            --                 (496)
                                                    ------------   ------------   ------------
    Investment by PriceCostco.....................       (44,273)      70,557          126,559
                                                    ------------   ------------   ------------
                                                    ------------   ------------   ------------
</TABLE>
    

                            See accompanying notes.

                                      F-7
<PAGE>
                            PRICE ENTERPRISES, INC.

                         NOTES TO FINANCIAL STATEMENTS

   
                                AUGUST 28, 1994
                                 (IN THOUSANDS)
    

1.  ORGANIZATION AND BASIS OF PRESENTATION
   
    On July 28, 1994, Price/Costco, Inc. (PriceCostco) entered into an Agreement
of  Transfer and  Plan of  Exchange (as amended  and restated,  the Transfer and
Exchange  Agreement)  with  Price  Enterprises,  Inc.  (Price  Enterprises),  an
indirect,  wholly owned subsidiary of PriceCostco  formed in July 1994, pursuant
to  which  PriceCostco  transferred  certain  businesses  and  assets  to  Price
Enterprises.
    

    PriceCostco  is a holding company which operates primarily through its major
subsidiaries, The Price Company and  subsidiaries (Price), and Costco  Wholesale
Corporation  and subsidiaries  (Costco). On October  21, 1993,  Price and Costco
each became wholly owned subsidiaries of PriceCostco in a transaction  accounted
for  under  the pooling-of-interests  method  of accounting.  Price Enterprises'
operations, prior to the pooling  transaction, were primarily conducted as  part
of  Price. For purposes of this  presentation, references to PriceCostco assumes
Price and Costco have been combined for all periods presented.

   
    The following businesses  and assets  have been  or will  be transferred  to
Price Enterprises and are included in the accompanying financial statements:
    

   
    - Substantially  all of the real estate assets which historically formed the
      non-club real estate segment of PriceCostco.
    

   
    - Four existing Price Club warehouses  (the Warehouse Properties) which  are
      adjacent  to existing properties  included above and  which will be leased
      back to PriceCostco  commencing on  the first  day of  fiscal 1995  (i.e.,
      August  29, 1994), at initial annual  rentals of approximately $8,600. The
      Warehouse Properties are reflected in the balance sheets and statements of
      cash flows  at  their  historical  costs, but  are  not  included  in  the
      statements  of income because  the lease agreements were  not in place for
      any of the periods presented.
    

    - A 51% ownership interest  in Price Quest, Inc.  (Price Quest), which  will
      continue  to operate the Quest business of PriceCostco. The Quest business
      includes electronic shopping through kiosks located in certain PriceCostco
      club warehouses. PriceCostco will retain the remaining 49% interest.

    - A 51% ownership  interest in  Price Global Trading,  Inc. (Price  Global),
      which  has the rights  to develop a club  business in certain geographical
      areas specified in the  Transfer and Exchange Agreement  and owns 100%  of
      the  outstanding shares of Club Merchandising,  Inc. (CMI). CMI operates a
      merchandise import/export  business, and  was acquired  by PriceCostco  in
      March 1992. PriceCostco will retain the remaining 49% interest.

    - Notes  receivables  from  various municipalities  and  agencies  (the City
      Notes).

   
    - A note  in the  principal amount  of $41,000  made by  Atlas Hotels,  Inc.
      secured  by a hotel  and convention center property  located in San Diego,
      California (the Atlas Note) -- See Note 6.
    

   
    In addition,  Price  and  Price  Enterprises  own  49%  and  51%  interests,
respectively,  in Mexico Clubs, L.L.C (Mexico  Clubs), which has a 50% ownership
interest in Price  Club de Mexico  and affiliates (Price  Club Mexico), a  joint
venture  whose other 50%  interest is owned  by Controladora Comercial Mexicana,
S.A. de  C.V. Price  Club Mexico  develops,  owns and  operates Price  Clubs  in
Mexico.  The investment in Price  Club Mexico is accounted  for under the equity
method. At  August 28,  1994, eight  Price Clubs  were in  operation in  Mexico.
PriceCostco will retain the remaining 49% interest.
    

    These  financial statements  include the  assets, liabilities,  revenues and
expenses associated with the businesses and assets described above, except  that
expenses associated with the Warehouse Properties have

                                      F-8
<PAGE>
                            PRICE ENTERPRISES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

   
                                AUGUST 28, 1994
                                 (IN THOUSANDS)
    

1.  ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
   
been  excluded  since  these  expenses are  included  as  part  of PriceCostco's
warehouse club business.  The operating expenses  associated with the  Warehouse
Properties   (including   operating   and   maintenance,   property   taxes  and
depreciation) for fiscal 1992, 1993 and 1994 were as follows:
    

   
<TABLE>
<CAPTION>
                                                                                 1992       1993       1994
                                                                               ---------  ---------  ---------
<S>                                                                            <C>        <C>        <C>
Operating and maintenance....................................................  $     530  $     746  $     790
Property taxes...............................................................        437      1,138      2,041
Depreciation and amortization................................................        683      1,126      1,548
</TABLE>
    

    The minority interest of PriceCostco relates to the 49% interest in  certain
businesses, as noted above.

   
    For  purposes  of governing  certain  of the  ongoing  relationships between
PriceCostco and  Price  Enterprises,  PriceCostco  and  Price  Enterprises  have
entered  into certain Operating Agreements, Stockholders' Agreements, an Advance
Agreement  and  certain  agreements  with  respect  to  employees  and  employee
benefits.  The terms of each agreement are  more fully described in the Offering
Circular/Prospectus. Under the  Advance Agreement, PriceCostco  will provide  an
unsecured  revolving credit  facility, up to  a maximum principal  amount of $85
million (reduced  by  the net  proceeds  from  the sale  of  certain  commercial
properties,  until six  months following completion  of the  Exchange Offer. The
interest rate is  the weighted average  commercial paper rate  on borrowings  by
PriceCostco   during  each  four-week  period  (including,  without  limitation,
amortization of  lender commitment  fees  and other  costs associated  with  the
backup  line of credit and  all miscellaneous costs and  fees), or if commercial
paper is unavailable under PriceCostco's commercial paper program, the bank rate
on borrowings by  PriceCostco pursuant  to its working  capital credit  facility
(including, without limitation, amortization of lender commitment fees and other
costs  associated  with such  credit facility  and  all miscellaneous  costs and
fees).
    

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    FISCAL YEAR

   
    Price Enterprises' fiscal  year is on  a 52/53  week basis and  ends on  the
Sunday nearest August 31. Fiscal years 1992, 1993 and 1994 were each 52 weeks.
    

    REAL ESTATE ASSETS

   
    Real  estate assets are recorded  at historical cost as  may be adjusted for
recognition of impairment losses.  Prior to the fourth  quarter of fiscal  1994,
impairment  loss provisions were determined  using undiscounted estimated future
cash flows to calculate the assets net realizable value. As more fully explained
in "Note 3 -- Provision for asset impairments," beginning in the fourth  quarter
of  fiscal 1994, Price Enterprises concluded that net realizable value should be
determined using discounted estimated cash flows.
    

   
    Real estate assets are depreciated using the straight-line method over their
estimated useful lives, which are as follows:
    

   
<TABLE>
<S>                                                              <C>
Land improvements..............................................          15-25 years
Buildings and improvements.....................................          10-25 years
                                                                     Term of related
Tenant improvements............................................                lease
Furniture, fixtures and equipment..............................              5 years
</TABLE>
    

   
    Interest costs incurred by PriceCostco during construction are  capitalized.
Interest capitalized for fiscal 1992, 1993 and 1994 was $987, $4,060 and $1,486,
respectively.
    

                                      F-9
<PAGE>
                            PRICE ENTERPRISES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

   
                                AUGUST 28, 1994
                                 (IN THOUSANDS)
    

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    MERCHANDISE INVENTORIES

   
    Merchandise  inventories, which includes merchandise  for resale and display
samples, are valued at the lower of cost (first-in, first-out) or market.
    

    REAL ESTATE RENTALS AND DEFERRED RENTS

    All leases are classified as operating leases. Rentals are recognized  using
the  straight-line method over the terms of the leases. Deferred rents represent
the excess of  real estate rentals  recognized on the  straight-line basis  over
cash received under the applicable lease provisions.

    DEFERRED LEASING COSTS

    Costs  incurred in connection with leasing  are deferred and amortized using
the straight-line method over the term of the related lease. Unamortized leasing
costs are charged to expense upon early termination of the lease.

    INCOME TAXES

   
    Income taxes  have  been  provided  for  in  accordance  with  Statement  of
Financial  Accounting Standard  (SFAS) No.  109, "Accounting  for Income Taxes."
SFAS No.  109  requires accounting  for  income taxes  based  on the  asset  and
liability method and, accordingly, deferred income taxes are provided to reflect
temporary differences between financial and tax reporting.
    

    The  operations of Price Enterprises have  been included in the consolidated
tax  returns  of  PriceCostco.  Income  taxes  in  the  accompanying   financial
statements  have been computed assuming that Price Enterprises was a stand-alone
entity. Cash paid for  income taxes as shown  in the accompanying statements  of
cash  flows  represents the  current portion  of  Price Enterprises'  income tax
provision which has  been reflected  in the Investment  by PriceCostco  account.
Actual payments were made by PriceCostco.

   
    Income  taxes have been provided for all items included in the statements of
income, regardless  of the  period when  such  items will  be reported  for  tax
purposes.   The  principal  temporary  differences  between  financial  and  tax
reporting arise  from the  provision for  asset impairments,  deferred gains  on
sales of real estate, depreciation, deferred rents and notes receivable.
    

   
3.  PROVISION FOR ASSET IMPAIRMENTS
    
   
    The  provision  for  asset  impairments of  $90,200  pre-tax  which includes
$80,500 pre-tax ($47,500 after tax) related to a change in calculating estimated
losses for assets which are considered to be economically impaired. This  change
in  accounting estimates  results from the  spin-off of the  real estate segment
assets to Price Enterprises and  Price Enterprises' decision to pursue  business
plans  and operating strategies as a  stand-alone entity which are significantly
different than  the strategies  of  PriceCostco. Price  Enterprises'  management
believes  that as a separate operating business it will not have the same access
to capital as PriceCostco or generate internal funds from operations to the same
extent as PriceCostco.
    

   
    PriceCostco's accounting policies with respect  to estimating the amount  of
impairments  on individual real  estate properties and  related assets were such
that impairment losses  would be recorded  if the carrying  amount of the  asset
could  not  be recovered  from estimated  future cash  flows on  an undiscounted
basis. Price Enterprises'  management believes  that in view  of its  strategies
with  respect to the number and nature  of properties that would be selected for
potential disposition,  it  would be  more  appropriate to  estimate  impairment
losses  based on  fair values  of the  real estate  properties as  determined by
appraisals and/or a risk-adjusted discounted cash flow approach. In  determining
impairment losses, individual real estate assets were
    

                                      F-10
<PAGE>
                            PRICE ENTERPRISES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

   
                                AUGUST 28, 1994
                                 (IN THOUSANDS)
    

   
3.  PROVISION FOR ASSET IMPAIRMENTS (CONTINUED)
    
   
reduced to estimated fair value, if lower than historical cost. For those assets
which  have an estimated fair value in excess of cost, the asset continues to be
recorded at cost. The impairment losses recorded  as a result of this change  in
accounting  estimates reduced the book  basis of certain of  the real estate and
related assets.
    

   
    Under the previous policy, PriceCostco and Price Enterprises had  determined
that  a provision  for asset impairments  of approximately  $9,700 (pre-tax) was
required  related  to  properties  which   were  under  contract  or  in   final
negotiations for sale.
    

   
4.  RELATED PARTY TRANSACTIONS
    
   
    PriceCostco  historically  provided services  to Price  Enterprises. Amounts
allocated to  Price  Enterprises for  general  and administrative  expenses  for
fiscal  1992, 1993 and 1994 were  $1,300, $1,500 and $1,600, respectively. Costs
incurred by PriceCostco  on behalf  of Price  Enterprises are  charged to  Price
Enterprises  by specific  identification or allocated  based on  total assets or
sales  revenues.  In   the  opinion  of   Price  Enterprises'  management,   the
aforementioned  costs  allocated  to  Price  Enterprises  fairly  represents its
general and administrative expenses.
    

   
    Joseph Kornwasser, a Director of  PriceCostco during fiscal 1994 until  July
28,  1994 and  an officer  and Director  of The  Price REIT  (See Note  9), is a
general partner  and  has a  two-thirds  ownership interest  in  Kornwasser  and
Friedman  Shopping Center Properties (K & F). As of August 28, 1994, K & F was a
partner with PriceCostco in two partnerhips. The assets, liabilities, equity and
results of  operations  of  these  partnerships  have  been  included  in  these
financial  statements.  As  of  August  28,  1994,  PriceCostco's  total capital
contributions  to   the   partnerships  were   $82,900.   Aggregate   cumulative
distributions  from these  partnerships were $22,300  at August 28,  1994. As of
August 28, 1994, PriceCostco had also entered into a Development Agreement  with
K  & F for the development of four additional properties. As of August 28, 1994,
PriceCostco's total capital expenditures for  these properties were $58,000  and
aggregate  cumulative  distributions  from these  properties  were  $4,500. Both
partnership agreements and  the Development Agreement  provided for a  preferred
return to PriceCostco on a varying scale from 9% to 10% on its invested capital.
After   the  preferred   returns,  plus  PriceCostco's   invested  capital,  are
distributed  to  PriceCostco,  operating  cash  flows  are  distributed  75%  to
PriceCostco  and 25%  to K  & F.  Effective August  28, 1994,  Price Enterprises
purchased the  K  &  F  partnership  interest  and  terminated  the  Development
Agreement for $2,500.
    

   
5.  LEASING ACTIVITY
    
   
    As  of  August  28,  1994,  future minimum  real  estate  rentals  due under
noncancelable operating  leases  (including  the Warehouse  Properties)  are  as
follows:
    

   
<TABLE>
<CAPTION>
FISCAL YEAR                                                                           AMOUNT
- ----------------------------------------------------------------------------------  ----------
<S>                                                                                 <C>
1995..............................................................................  $   38,108
1996..............................................................................      38,681
1997..............................................................................      37,926
1998..............................................................................      37,539
1999..............................................................................      37,823
Thereafter........................................................................     435,264
</TABLE>
    

    Certain  tenant leases contain renewal options  for up to 30 years. However,
the above  table assumes  that  all leases  expire without  renewal.  Therefore,
neither  renewal  rentals nor  rentals  from replacement  tenants  are included.
Minimum future rentals  also exclude  contingent rentals which  may be  received
under  certain leases based on tenants'  sales revenues or increases in Consumer
Price Indices.

                                      F-11
<PAGE>
                            PRICE ENTERPRISES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

   
                                AUGUST 28, 1994
                                 (IN THOUSANDS)
    

   
5.  LEASING ACTIVITY (CONTINUED)
    
   
    In addition to minimum rental payments, tenants pay reimbursements for their
pro rata  share  of  specified  operating  expenses.  These  reimbursements  are
included  as  real  estate rentals  and  the  related expenses  are  recorded as
operating and  maintenance  expenses  or  property  taxes  in  the  accompanying
statements  of income.  Certain of  the leases also  provide for  the payment of
additional rent based  on a  percentage of the  tenant's revenues  in excess  of
specified  amounts. Tenant reimbursements and  percentage rents for fiscal 1992,
1993 and 1994 were as follows:
    

   
<TABLE>
<CAPTION>
                                                                     1992       1993       1994
                                                                   ---------  ---------  ---------
<S>                                                                <C>        <C>        <C>
Tenant reimbursements............................................  $   3,181  $   3,092  $   5,379
Percentage rents.................................................        168         20         49
</TABLE>
    

   
6.  NOTES RECEIVABLE
    
   
    Notes receivable consist  of the City  Notes with interest  rates that  vary
from  7%  to 10%.  These loans  represent amounts  loaned to  municipalities and
agencies to facilitate real property acquisitions and improvements. Repayment of
the majority of these notes is generally based on that municipality's allocation
of sales tax  revenues generated by  retail businesses located  on a  particular
property  associated with such City Note.  In connection with Price Enterprises'
decision to change from an undiscounted cash flow approach to a discounted  cash
flow  approach for determining net realizable value of its assets, the estimated
future cash flows of each of the  City Notes was discounted based on the  stated
interest  rate resulting in  a provision for  asset impairments of approximately
$15,500 recorded as part  of the provision for  asset impairments. Balances  for
the City Notes are considered by management to be fairly stated as of August 28,
1994.
    
   
    In  fiscal  1991  Price  Enterprises  guaranteed  the  Atlas  Note  totaling
approximately $41,000, which is collateralized by an operating hotel property in
San Diego, California.  Price Enterprises recognized  guarantee fees related  to
the  Atlas Note of  approximately $200 for  each of fiscal  1992, 1993 and 1994,
which is included in other income in the accompanying statements of  operations.
On  October 15, 1993, Price Enterprises purchased  and assumed all of the rights
and obligations  of the  Atlas  Note which  it  had previously  guaranteed.  The
borrower has been and is currently in violation of certain of its debt covenants
and  therefore the  note is  due and  payable. Price  Enterprises has  agreed to
forbear its foreclosure rights  pending consummation of  a restructuring of  the
Atlas  Note debt obligations, which is  expected to occur mid-December 1994. The
restructuring would  require  repayment within  five  years of  all  outstanding
indebtedness,  with interest  accruing on the  outstanding principal  at 10% per
annum. Interest would be payable monthly at a rate equal to the six month  LIBOR
rate  plus 2.5% per annum (not to exceed 8% per annum through December 1, 1996),
and the interest not yet payable would  be added to the principal amount of  the
loan.  In the  event a  restructuring of the  Atlas Note  cannot be consummated,
Price Enterprises has retained its foreclosure rights under the Atlas Note.  Due
to  the lack  of an established  market to obtain  a market value  for the Atlas
Note, management has evaluated this  asset by considering projected future  cash
flows  from the borrower  and previous appraisals  of the underlying collateral.
Based on this review, the Atlas Note  balance is considered by management to  be
fairly stated as of August 28, 1994.
    

   
7.  INVESTMENT IN JOINT VENTURES
    
    Investments  in and  advances to real  estate joint ventures  relate to real
estate partnerships that  are less than  majority owned and  recorded under  the
equity  method. In  fiscal 1992,  Price Enterprises  entered into  a real estate
joint venture with the REIT. (See note 8).

   
    PriceCostco and  Price Enterprises,  through Mexico  Clubs, have  agreed  to
provide merchandising support to Price Club Mexico including purchasing products
on  behalf of  Price Club  Mexico and arranging  for the  storage, splitting and
transshipment of bulk  orders. Merchandising support  activities for Price  Club
Mexico   result  in  Price   Enterprises  maintaining  merchandise  inventories,
receivables and accounts payable.
    

                                      F-12
<PAGE>
                            PRICE ENTERPRISES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

   
                                AUGUST 28, 1994
                                 (IN THOUSANDS)
    

   
8.  RETIREMENT AND STOCK OPTION PLANS
    
    PriceCostco  has  a  defined  contribution  retirement  plan  which   covers
substantially  all employees of Price  Enterprises. Price Enterprises recognizes
as its net retirement plan cost the  actual contributions made on behalf of  its
employees and an allocation of retirement plan administrative expenses.

    During fiscal 1992, a 401(k) plan was established for all employees eligible
for  the retirement  plan. Price  Enterprises matches  50% of  eligible employee
contributions.

    Certain employees of Price  Enterprises participated in various  PriceCostco
stock  option plans. Pursuant to the  Transfer and Exchange Agreement, employees
of Price Enterprises will  generally be allowed to  continue to hold vested  but
unexercised   PriceCostco  stock  options  under   the  terms  of  the  existing
PriceCostco stock option plans.

   
9.  GAINS ON SALE OF REAL ESTATE
    
   
    During  fiscal  1994,  Price  Enterprises  entered  into  four   significant
transactions:
    

   
    a.   On  October 1, 1993,  Price Enterprises  sold a shopping  center to the
       Price REIT for $21,700 recognizing a pre-tax gain of $4,211.
    

   
    b.  On April 15, 1994, Price  Enterprises sold a 50% interest in a  shopping
       center  to the  Price REIT  for $11,400.  Price Enterprises  recognized a
       pre-tax gain of $935 on the sale.
    

   
    c.  On April  29, 1994, Price  Enterprises sold land  to an unrelated  third
       party for $5,600 recognizing a pre-tax loss of $879.
    

   
    d.   On  June 16, 1994,  Price Enterprises  sold land to  an unrelated third
       party for $10,200 recognizing a pre-tax gain of $1,358.
    

    During fiscal 1993, Price Enterprises entered into two transactions with the
REIT.

    a.   On  December 18,  1992,  Price Enterprises  sold  a former  Price  Club
       warehouse property for $14,350 recognizing a pre-tax gain on sale of real
       estate of $6,710.

    b.   On August 12,  1993, Price Enterprises sold  three shopping centers and
       its 49.6%  interest  in a  real  estate  joint venture  which  owns  five
       shopping  centers. Price  Enterprises received  proceeds of approximately
       $89,825 and recognized a pre-tax gain on sale of real estate of $14,830.

    During fiscal 1992, Price Enterprises entered into two transactions with the
REIT.

    a.  On  December 1, 1991  Price Enterprises  sold a 50.4%  interest in  five
       shopping  centers for $44,150. The REIT and Price Enterprises then formed
       a real estate joint  venture. Price Enterprises  agreed, for a  specified
       period,  to subordinate its  portion of the operational  cash flow of the
       joint venture  to allow  the  REIT shareholders  to receive  a  specified
       return on their investment (9% the first year, increasing to 9.5% in year
       five).  Price Enterprises recorded a pre-tax  gain on sale of real estate
       of $4,061 after establishment of a $2,000 subordination reserve.

   
    b.   On April  29, 1992,  Price Enterprises  sold two  shopping centers  for
       $58,500, recognizing a pre-tax gain on sale of real estate of $11,017.
    

   
10. BUSINESS SEGMENT INFORMATION
    
   
    Price  Enterprises  operates principally  in two  segments, real  estate and
merchandising. The real  estate segment consists  primarily of shopping  centers
and other commercial properties, and undeveloped land
    

                                      F-13
<PAGE>
                            PRICE ENTERPRISES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

   
                                AUGUST 28, 1994
                                 (IN THOUSANDS)
    

   
10. BUSINESS SEGMENT INFORMATION (CONTINUED)
    
owned  directly or through various joint ventures,  the City Notes and the Atlas
Note. Merchandising  activities  include Mexico  Clubs,  Price Quest  and  Price
Global. Many of the real estate assets are still in the development stage and do
not generate any operating revenues.

   
    Price  Enterprises' segment information for fiscal 1992, 1993 and 1994 is as
follows:
    

   
<TABLE>
<CAPTION>
                                                              1992        1993        1994
                                                           ----------  ----------  ----------
<S>                                                        <C>         <C>         <C>
Revenues
  Real estate............................................  $   43,341  $   43,684  $   34,739
  Merchandising..........................................       8,212      28,671      53,015
                                                           ----------  ----------  ----------
    Total................................................  $   51,553  $   72,355  $   87,754
                                                           ----------  ----------  ----------
                                                           ----------  ----------  ----------
Income (loss) before provision for income taxes
  Real estate............................................  $   34,956  $   37,102  $  (67,263)
  Merchandising..........................................        (785)       (436)       (883)
  General and administrative.............................      (1,300)     (1,500)     (1,600)
                                                           ----------  ----------  ----------
    Total................................................  $   32,871  $   35,166  $  (69,746)
                                                           ----------  ----------  ----------
                                                           ----------  ----------  ----------
</TABLE>
    

   
<TABLE>
<CAPTION>
                                                                       AUGUST 29   AUGUST 28,
                                                                          1993        1994
                                                                       ----------  ----------
<S>                                                        <C>         <C>         <C>
Identifiable assets
  Real estate............................................              $  454,261  $  550,086
  Merchandising..........................................                  45,606     100,467
                                                                       ----------  ----------
    Total................................................              $  499,867  $  650,553
                                                                       ----------  ----------
                                                                       ----------  ----------
</TABLE>
    

   
11. INCOME TAXES
    
   
    Provisions (benefits)  for  income taxes  for  fiscal 1992,  1993  and  1994
include the following:
    

   
<TABLE>
<CAPTION>
                                                                1992       1993        1994
                                                              ---------  ---------  ----------
<S>                                                           <C>        <C>        <C>
Current:
  Federal...................................................  $   8,895  $  11,274  $    7,066
  State.....................................................      2,683      3,331       1,126
                                                              ---------  ---------  ----------
                                                                 11,578     14,605       8,192
Deferred:
  Federal...................................................      1,558         70     (31,168)
  State.....................................................        374        (60)     (5,291)
                                                              ---------  ---------  ----------
                                                                  1,932         10     (36,459)
                                                              ---------  ---------  ----------
                                                              $  13,510  $  14,615  $  (28,267)
                                                              ---------  ---------  ----------
                                                              ---------  ---------  ----------
</TABLE>
    

   
    During  1994,  PriceCostco  transferred  a deferred  tax  liability  of $496
relating to real estate assets transferred to Price Enterprises.
    

                                      F-14
<PAGE>
                            PRICE ENTERPRISES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

   
                                AUGUST 28, 1994
                                 (IN THOUSANDS)
    

   
11. INCOME TAXES (CONTINUED)
    
   
    A reconciliation between the federal  statutory rate and Price  Enterprises'
effective tax rate for fiscal 1992, 1993 and 1994 follows:
    

   
<TABLE>
<CAPTION>
                                                                1992       1993        1994
                                                              ---------  ---------  ----------
<S>                                                           <C>        <C>        <C>
Expected provision (benefit) at the statutory rate..........  $  11,176  $  12,203  $  (24,411)
State income taxes, net of federal tax benefit..............      2,005      2,145      (4,220)
All other, net..............................................        329        267         364
                                                              ---------  ---------  ----------
                                                              $  13,510  $  14,615  $  (28,267)
                                                              ---------  ---------  ----------
                                                              ---------  ---------  ----------
</TABLE>
    

   
    The  significant components of deferred income  taxes at August 29, 1993 and
August 28, 1994 are attributable to the following temporary differences:
    

   
<TABLE>
<CAPTION>
                                                                        AUGUST 29,   AUGUST 28,
                                                                           1993         1994
                                                                        -----------  -----------
<S>                                                                     <C>          <C>
Deferred tax liabilities:
  Properties..........................................................   $  14,333    $  --
  Deferred rents......................................................       1,655        1,628
  All other, net......................................................         630          843
                                                                        -----------  -----------
    Total deferred tax liabilities....................................      16,618        2,471
Deferred tax assets:
  Properties..........................................................      --           13,310
  Notes receivable....................................................       3,937       10,773
  All other, net......................................................      --            1,670
                                                                        -----------  -----------
    Total deferred tax assets.........................................       3,937       25,753
                                                                        -----------  -----------
Net deferred tax assets (liabilities).................................   $ (12,681)   $  23,282
                                                                        -----------  -----------
                                                                        -----------  -----------
</TABLE>
    

   
12. COMMITMENTS AND CONTINGENCIES
    

    LEASES

   
    Price Enterprises has four leases  on former warehouse club properties  with
remaining  terms ranging from three to seven years. Aggregate rental expense for
fiscal 1994 was $253. Future minimum payments during the next five fiscal  years
and  thereafter under  these non-cancelable leases  at August 28,  1994, were as
follows:
    

   
<TABLE>
<S>                                                                  <C>
1995...............................................................  $   2,423
1996...............................................................      2,423
1997...............................................................      1,853
1998...............................................................      1,662
1999...............................................................      1,551
Thereafter.........................................................     15,180
                                                                     ---------
Total minimum payments.............................................  $  25,092
                                                                     ---------
                                                                     ---------
</TABLE>
    

   
    The reserve  for future  lease  losses of  $4,015 represents  primarily  the
Company's  future minimum lease payments in  excess of expected future sub-lease
receipts.
    

                                      F-15
<PAGE>
                            PRICE ENTERPRISES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

   
                                AUGUST 28, 1994
                                 (IN THOUSANDS)
    

   
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
    
    LEGAL PROCEEDINGS

   
    Price Enterprises is party  to routine litigation  incident to its  business
and  to which its property is subject.  Management of Price Enterprises does not
believe that  the  ultimate  resolution  of  any  of  these  matters,  including
environmental  matters, will  have a  material adverse  impact on  the financial
position or results of operations of Price Enterprises.
    

                                      F-16
<PAGE>
                             INDEX TO DEFINED TERMS

                                                                         ANNEX I
   
<TABLE>
<CAPTION>
TERM                                                  PAGE
- --------------------------------------------------  --------
<S>                                                 <C>
ACMs..............................................      94
Additional Agreements.............................      63
Adjusted Price....................................      45
Advance Agreement.................................      33
Agent's Message...................................      54
Amended PriceCostco Bylaws........................      83
Appraised Properties..............................      88
Appraiser.........................................      88
Arthur Andersen...................................      38
Assumed Construction Costs........................      33
Assumed Liabilities...............................      68
Atlas Note........................................      32
Audit Committee...................................      61
Authorized Committee..............................     123
Bonus Plan........................................     120
Book-Entry Transfer Facilities....................      54
BPOU..............................................      95
CERCLA............................................      94
City Notes........................................      32
Closing Date......................................      31
Club Business.....................................      34
CMI...............................................      27
CMI Stock.........................................      33
Code..............................................      49
Comercial Mexicana................................      26
Commercial Properties.............................      32
Commission........................................       2
Committee.........................................     127
Compensation Committee............................      61
Costco............................................       6
Costco Common Stock...............................      22
Costco Designees..................................      35
Costs.............................................      66
Debentures........................................      52
Default Rate......................................     108
Development Agreement.............................      48
DGCL..............................................      60
Directors' Plan...................................     127
Distribution......................................      35
Distribution Fraction.............................      34
Distribution Record Date..........................      34
DLJ...............................................      38
Downstream Affiliate..............................     104
DTC...............................................      54
EBITDA............................................      44
Effective Time....................................      83
Eligible Institution..............................      54
Environmental Laws................................      68

<CAPTION>
TERM                                                  PAGE
- --------------------------------------------------  --------
<S>                                                 <C>
EPA...............................................      95
ERISA.............................................      65
EWSA..............................................      96
Excess Shares.....................................     126
Exchange Act......................................       2
Exchange Agent....................................      58
Exchange Offer....................................       1
Expiration Date...................................      53
5 1/2% Debentures.................................      52
5 1/2% Indenture..................................      52
5 3/4% Adjustment.................................      52
5 3/4% Debentures.................................      52
5 3/4% Indenture..................................      52
Finance Committee.................................      61
Financial Advisors................................      43
Five-Year Period..................................     103
Gibson, Dunn......................................      38
Grant Program.....................................     122
HSR Act...........................................       9
Huffy.............................................      95
Indemnification Provisions........................     135
Indemnified Party.................................     135
Indemnified Person................................     116
Indentures........................................      52
Independent Committee.............................     123
Information Agent.................................      58
Insiders..........................................     127
Interim Period....................................      41
International Assets..............................      33
IRS...............................................      25
Joeten............................................     111
Joint Venture Agreement...........................      27
July 15 Meeting...................................      38
July 28 Meeting...................................      40
K&F...............................................      48
Lehman............................................      38
LLC Agreement.....................................      69
Materials of Environmental Concern................      68
Member............................................     102
Merger............................................       6
Mexico Assets.....................................      33
Mexico Clubs......................................       5
Mexico Operating Agreement........................     103
Mexico Stockholders Agreement.....................     104
MSTC..............................................      54
Northridge Mortgage...............................      64
NPL...............................................      96
NYSE..............................................      55
</TABLE>
    

                                      I-1
<PAGE>
   
<TABLE>
<CAPTION>
TERM                                                  PAGE
- --------------------------------------------------  --------
<S>                                                 <C>
Operating Agreements..............................      26
Option Program....................................     122
Partially Developed Properties....................      87
Pentagon City Property............................      92
PHILADEP..........................................      54
Price.............................................       6
Price Club Mexico.................................      26
Price Common Stock................................      22
Price Designees...................................      35
Price Enterprises.................................       1
Price Enterprises Budget..........................      60
Price Enterprises Bylaws..........................     134
Price Enterprises Certificate.....................     134
Price Enterprises Common Stock....................       1
Price Enterprises Compensation Committee..........     122
Price Enterprises Employee........................      65
Price Enterprises Executive Committee.............      41
Price Enterprises Plans...........................      65
Price Enterprises Preferred Stock.................     134
Price Family Trust................................      10
Price Global......................................       5
Price Global Operating Agreement..................     109
Price Global Stockholders Agreement...............     111
Price Quest.......................................       5
Price Quest Stockholders Agreement................     108
Price Real Estate.................................      87
Price Ventures....................................      86
PriceCostco.......................................       1
PriceCostco Budget................................      61
PriceCostco Bylaws................................      83
PriceCostco Certificate...........................     137
PriceCostco Common Stock..........................       1
PriceCostco Executive Committee...................      41
PriceCostco Option................................      66
PriceCostco Option Plan...........................     126
PriceCostco Plans.................................      65
PriceCostco Pre-Closing Market Price..............      52
PriceCostco Preferred Stock.......................     137
PriceCostco Warehouse Leases......................      97
PriceCostco Welfare Plans.........................      66
Primex............................................      27
<CAPTION>
TERM                                                  PAGE
- --------------------------------------------------  --------
<S>                                                 <C>
Promissory Note...................................      34
PRPs..............................................      95
Quest Assets......................................      34
Quest Business....................................      33
Quest Operating Agreement.........................     106
Real Estate Committee.............................      62
Real Properties...................................      32
Registration Statement............................       2
REIT..............................................      29
Replacement Shares................................     126
Retained Employees................................      65
Retained Liabilities..............................      68
Retirement Plan...................................     128
ROD...............................................      95
San Diego Property................................      32
Schedule 13E-4....................................       2
Securities Act....................................       2
Security and Pledge Agreement.....................      35
SGBWQA............................................      95
Similar Quest Business............................     106
6 3/4% Debentures.................................      47
6 3/4% Indenture..................................      52
16(b) Liability...................................     126
Skadden Arps......................................      25
Specified Geographical Areas......................      34
Stockholders Agreements...........................      69
Stock Plan........................................     122
Subsidiary Corporations...........................       5
Tax Allocation Agreements.........................      69
Transaction.......................................      31
Transfer and Exchange Agreement...................      31
Transfer Closing Date.............................      32
Transfer..........................................      32
Transferred Assets................................      32
Transition Period.................................      65
20 Day Period.....................................      51
USF&WS............................................      96
VOCs..............................................      95
Warehouse Properties..............................      32
Wayne Property....................................      92
Westbury Property.................................      91
WVBSA.............................................      95
</TABLE>
    

                                      I-2
<PAGE>
                                                                        ANNEX II

   
                              AMENDED AND RESTATED
                             AGREEMENT OF TRANSFER
                                      AND
                                PLAN OF EXCHANGE
                                 BY AND BETWEEN
                               PRICE/COSTCO, INC.
                                      AND
                            PRICE ENTERPRISES, INC.
                         DATED AS OF NOVEMBER 14, 1994
    

                                      II-1
<PAGE>
                               TABLE OF CONTENTS

   
<TABLE>
<CAPTION>
                                                                                                             PAGE
                                                                                                           ---------
<S>                <C>                                                                                     <C>
ARTICLE I          CERTAIN DEFINITIONS...................................................................       II-4

ARTICLE II         TRANSFER OF ASSETS; ASSUMPTION OF LIABILITIES.........................................       II-9
Section 2.1        Transactions Occurring Prior to the Transfer Closing Date.............................       II-9
Section 2.2        Conveyance of Transferred Assets......................................................      II-10
Section 2.3        Consideration for Transfer............................................................      II-10
Section 2.4        Time and Place of the Transfer Closing................................................      II-10
Section 2.5        Deliveries at the Transfer Closing....................................................      II-10
Section 2.6        Conveyance of Mexico Assets...........................................................      II-11
ARTICLE III        THE EXCHANGE OFFER; THE DISTRIBUTION..................................................      II-11
Section 3.1        Commencement of the Exchange Offer....................................................      II-11
Section 3.2        Term of Exchange Offer................................................................      II-11
Section 3.3        The Distribution......................................................................      II-11
ARTICLE IV         THE CLOSING...........................................................................      II-12
Section 4.1        Closing...............................................................................      II-12
Section 4.2        Actions to be taken at the Closing....................................................      II-13
ARTICLE V          REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................................      II-13
Section 5.1        Title to Property.....................................................................      II-13
Section 5.2        Brokers and Finders...................................................................      II-13
Section 5.3        No Other Representations or Warranties................................................      II-13
ARTICLE VI         ADDITIONAL MATTERS RELATED TO THE TRANSFER AND THE EXCHANGE OFFER.....................      II-14
Section 6.1        Certain Committees....................................................................      II-14
Section 6.2        Certificate of Incorporation and Bylaws of Newco......................................      II-14
Section 6.3        Amendment of Bylaws of the Company....................................................      II-14
Section 6.4        Board of Directors of Newco...........................................................      II-14
Section 6.5        Board of Directors of the Company.....................................................      II-15
Section 6.6        Agreement Not to Compete..............................................................      II-15
Section 6.7        Continuance of Existing Indemnification Rights........................................      II-16
Section 6.8        [Intentionally omitted]
Section 6.9        [Intentionally omitted]
Section 6.10       Certain Advances by the Company to Newco..............................................      II-16
Section 6.11       Expenses..............................................................................      II-16
Section 6.12       Further Assurances....................................................................      II-16
Section 6.13       Access................................................................................      II-16
Section 6.14       Apportionment.........................................................................      II-17
Section 6.15       Consents..............................................................................      II-17
Section 6.16       Filings...............................................................................      II-17
Section 6.17       Standstill Agreements.................................................................      II-17
Section 6.18       Certain Matters with Respect to City Notes............................................      II-17
Section 6.19       Certain Insurance Proceeds............................................................      II-17
Section 6.20       Certain Real Estate Matters...........................................................      II-18
ARTICLE VII        EMPLOYEE MATTERS......................................................................      II-18
Section 7.1        Employees.............................................................................      II-18
Section 7.2        Company Plans.........................................................................      II-19
Section 7.3        Welfare Plans; Certain Other Plans....................................................      II-19
</TABLE>
    

                                      II-2
<PAGE>
   
<TABLE>
<CAPTION>
                                                                                                             PAGE
                                                                                                           ---------
<S>                <C>                                                                                     <C>
Section 7.4        Employee Stock Options................................................................      II-20
Section 7.5        Severance Pay.........................................................................      II-21
Section 7.6        Seniority.............................................................................      II-21
Section 7.7        Administrative Services...............................................................      II-21
Section 7.8        Membership Privileges.................................................................      II-21

ARTICLE VIII       [Intentionally omitted]
ARTICLE IX         INDEMNIFICATION.......................................................................      II-21
Section 9.1        Indemnification.......................................................................      II-21
Section 9.2        Procedures Relating to Indemnification................................................      II-23
ARTICLE X          MISCELLANEOUS.........................................................................      II-24
Section 10.1       Amendment and Modification............................................................      II-24
Section 10.2       Waiver of Compliance..................................................................      II-24
Section 10.3       Arbitration...........................................................................      II-24
Section 10.4       Notices...............................................................................      II-25
Section 10.5       Assignment............................................................................      II-25
Section 10.6       Interpretation........................................................................      II-26
Section 10.7       Governing Law.........................................................................      II-26
Section 10.8       Counterparts..........................................................................      II-26
Section 10.9       Third Parties.........................................................................      II-26
Section 10.10      Complete Agreement....................................................................      II-26
Section 10.11      Severability..........................................................................      II-26
</TABLE>
    

                                      II-3
<PAGE>
   
    AMENDED AND RESTATED AGREEMENT OF TRANSFER AND PLAN OF EXCHANGE, dated as of
November  14,  1994, between  Price/Costco,  Inc., a  Delaware  corporation (the
"Company"), and Price Enterprises, Inc., a Delaware corporation ("Newco").
    

   
    WHEREAS, on July 28, 1994, the Board of Directors of the Company  considered
and  approved a restructuring of the  Company (the "Transaction") whereby, among
other things, subject to  the terms and conditions  hereof (i) the Company  will
transfer  or cause to be transferred to  Newco certain assets in exchange for 27
million shares of  common stock, par  value $.0001 per  share, of Newco  ("Newco
Common  Stock") and  the assumption by  Newco of certain  liabilities related to
such transferred assets; (ii) the Company  will distribute such shares of  Newco
Common  Stock to the stockholders  of the Company by  means of an exchange offer
and/or a pro  rata distribution; (iii)  the Company may  sell certain shares  of
Newco  Common Stock to Newco; and (iv) the Company will make certain advances to
Newco to enable Newco  to conduct its business  and operations as a  stand-alone
company (subject to repayment of such advances, as set forth herein);
    

    WHEREAS,  Newco desires  to acquire the  assets comprising  the business and
operations of  the Company  and  certain of  its  subsidiaries relating  to  the
development  of certain real estate (and certain real estate activities incident
thereto) as well as  certain other assets relating  to certain other  businesses
and operations, as set forth herein;

    WHEREAS,  Newco is willing to issue such shares of Newco Common Stock and to
assume such liabilities in exchange for such transferred assets and to take such
other actions as set forth herein;

    WHEREAS, the Company and Newco are  willing to indemnify each other  against
certain liabilities, as set forth herein;

    WHEREAS, as part of the Transaction, the Company intends to offer to each of
its stockholders the right to exchange one share of common stock of the Company,
par value $.01 per share ("Company Common Stock"), for one share of Newco Common
Stock;

    WHEREAS,  if  less than  21.6  million shares  of  Company Common  Stock are
exchanged for shares  of Newco  Common Stock,  the Company  shall distribute  to
holders  of Company Common Stock all the  remaining shares of Newco Common Stock
held by the Company on a pro rata basis;

    WHEREAS, if at least 21.6 million  shares of Company Common Stock, but  less
than  27 million  shares are  so exchanged,  the Company  shall, at  its option,
either (i) distribute  the remaining shares  of Newco Common  Stock held by  the
Company,  as set forth above or (ii) sell such shares to Newco in exchange for a
promissory note; and

   
    WHEREAS, the Company and Newco have previously entered into an Agreement  of
Transfer  and Plan of Exchange dated July 28, 1994, providing for the foregoing,
and the parties now wish to provide for certain amendments and modifications  to
such Agreement of Transfer and Plan of Exchange.
    

   
    NOW,   THEREFORE,  in  consideration  of  the  foregoing  premises  and  the
respective representations,  warranties,  covenants, agreements  and  conditions
hereinafter  set forth,  and intending to  be legally bound  hereby, the parties
hereto agree that the aforementioned Agreement of Transfer and Plan of  Exchange
shall be amended and restated in its entirety as follows:
    

                                   ARTICLE I
                              CERTAIN DEFINITIONS

    For  the  purposes of  this Agreement,  the following  terms shall  have the
following meanings:

    Section 1.1  "Additional Agreements"  shall mean the Advance Agreement,  the
Leases,  the  Office Lease,  the Operating  Agreements, the  Reciprocal Easement
Agreements, the Stockholders' Agreements and the Tax Allocation Agreements.

    Section 1.2  "Advance Agreement" shall have the meaning set forth in Section
6.11 hereof.

                                      II-4
<PAGE>
   
    Section 1.3  "Agreement" shall mean  this Amended and Restated Agreement  of
Transfer and Plan of Exchange.
    

    Section  1.4  "Assets" shall  mean properties (including personal property),
assets, Contracts, rights and entitlements.

    Section 1.5  "Assumed Construction Costs"  shall mean all costs to  complete
construction of the Commercial Properties, as set forth on Schedule 1.14 hereto.

    Section  1.6   "Assumed Liabilities" shall  mean (i) all  Liabilities of the
Company and  its subsidiaries  relating to  or arising  out of  the  Transferred
Assets  and which arise out of events occurring at or after the Transfer Closing
Date; (ii) the  Environmental Liabilities;  and (iii)  the Assumed  Construction
Costs.

    Section  1.7   "Atlas  Note"  shall mean  the  note receivable  described on
Schedule 1.7 hereto.

    Section 1.8   "City  Notes" shall  mean the  notes receivable  described  on
Schedule 1.8 hereto.

    Section  1.9   "Closing" shall  have the  meaning set  forth in  Section 4.1
hereof.

    Section 1.10  "Closing Date" shall have the meaning set forth in Section 4.1
hereof.

    Section  1.11    "Club  Business"  shall  mean  any  merchandising  activity
utilizing  70,000  square  feet or  more  in  a single  location,  operated with
membership and selling food and non-food items through a central checkout.

    Section 1.12  "CMI Stock" shall have  the meaning set forth in Section  1.32
hereof.

    Section  1.13   "Code"  shall mean  the  Internal Revenue  Code of  1986, as
amended.

   
    Section  1.13A__"Comercial  Mexicana"  shall  mean  Controladora   Comercial
Mexicana, S.A., de C.V., a corporation organized under the laws of Mexico.
    

    Section  1.14  "Commercial Properties" shall mean the commercial real estate
listed on Schedule 1.14 hereto.

    Section 1.15  "Company" shall have the meaning set forth in the introductory
clause hereto.

    Section 1.16  "Company Common Stock" shall have the meaning set forth in the
introductory clauses hereto.

    Section 1.17  "Company Executive Committee" shall have the meaning set forth
in Section 6.1 hereof.

    Section 1.18  "Company Option" shall  have the meaning set forth in  Section
7.4 hereof.

    Section  1.19  "Company  Option Plans" shall  have the meaning  set forth in
Section 7.4 hereof.

    Section 1.20   "Company  Plans" shall  mean each  "employee pension  benefit
plan,"  as  such  term  is  defined in  section  3(2)  of  ERISA,  maintained or
contributed to by the Company.

    Section 1.21  "Company  Welfare Plans" shall have  the meaning set forth  in
Section 7.3 hereof.

    Section  1.22   "Contract" shall  mean any  contract, agreement, commitment,
indenture,  lease,  note,   bond,  mortgage,  license,   plan,  arrangement   or
understanding.

    Section  1.23  "Costco  Designees" shall have  the meaning set  forth in the
Bylaws of the Company.

    Section 1.24  "Distribution" shall have the meaning set forth in Section 3.3
hereof.

    Section 1.25  "Distribution Record Date" shall have the meaning set forth in
Section 3.3 hereof.

    Section  1.26    "Environmental  Liabilities"  shall  mean  all  Liabilities
relating  to or  arising in  respect of  Materials of  Environmental Concern and
violations or purported  violations of  Environmental Laws, which  relate to  or
arise  out of the Real Properties and  which arise out of events occurring prior
to, at or after the Transfer Closing Date.

                                      II-5
<PAGE>
    Section 1.27  "Environmental Laws" shall mean all Federal, state, local  and
foreign laws and regulations relating to pollution or protection of human health
or the environment, including, without limitation, laws and regulations relating
to emissions, discharges, releases, or threatened releases of toxic or hazardous
substances, materials or wastes, or petroleum and petroleum products ("Materials
of  Environmental Concern"), or  otherwise relating to  the generation, storage,
disposal, transport or handling of Materials of Environmental Concern.

    Section 1.28  "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as from time to time amended.

    Section 1.29  "Exchange Offer" shall  have the meaning set forth in  Section
3.1 hereof.

    Section  1.30   "Finance  Committee"  shall have  the  meaning set  forth in
Section 6.2 hereof.

    Section 1.31   "Instrument  of  Assignment and  Assumption" shall  have  the
meaning set forth in Section 2.5 hereof.

   
    Section  1.32  "International Assets" shall mean  (i) the right to develop a
Club Business in the Specified Geographical Areas (other than Mexico); (ii)  all
shares  of  capital  stock  of  Club  Merchandising,  Inc.  owned,  directly  or
indirectly, by  the  Company (the  "CMI  Stock");  (iii) all  right,  title  and
interest  in  and to  the names  "Price  Club," "Price  Club Costco"  and "Price
Costco" in each  of the  Specified Geographical  Areas (other  than Mexico,  the
Northern  Mariana  Islands  (including  Guam and  Saipan)  and  the  U.S. Virgin
Islands); (iv) an  exclusive license to  use the names  "Price Club" and  "Price
Costco" in the Northern Mariana Islands (including Guam and Saipan) and the U.S.
Virgin  Islands pursuant to the terms of a license agreement entered into by the
Company, Price, Subsidiary Corporation #2 and Newco at the Transfer Closing: and
(v) all other noncurrent Assets of the Company and its subsidiaries (other  than
those  included in CMI) specifically  related to the conduct  of business in the
Specified Geographical Areas.
    

    Section 1.33   "Leases"  shall  mean agreements  substantially in  the  form
attached  hereto as Exhibit A pursuant to which the Company will lease back each
of the Warehouse Properties following the transfer of such properties to Newco.

    Section 1.34  "Liabilities" shall mean liabilities and obligations,  secured
or unsecured, whether absolute, accrued, contingent or otherwise, and whether or
not  due,  including  without limitation  all  such liabilities  relating  to or
arising in  respect of  Materials  of Environmental  Concern and  violations  or
purported violations of Environmental Laws.

    Section  1.35  "Materials  of Environmental Concern"  shall have the meaning
set forth in Section 1.27.

   
    Section 1.36  "Mexico Assets" shall mean (i) all shares of capital stock  of
Primex  owned, directly or indirectly, by the Company; (ii) the assets listed on
Schedule 1.36  hereto  (the "Scheduled  Mexico  Assets"); and  (iii)  all  other
noncurrent  Assets of the  Company and its  subsidiaries specifically related to
the conduct of business  in the United Mexican  States; PROVIDED, HOWEVER,  that
the  term "Mexico  Assets" shall  not include  (A) the  Agreement between Price,
Primex and Comercial Mexicana to Form  a Corporate Joint Venture dated June  21,
1991,  as amended, (B)  any right, title or  interest in or  to the names "Price
Club," "Price Club Costco" or "Price Costco" and (C) any computer software.
    

   
    Section 1:36A  "Mexico Interest" shall have the meaning set forth in Section
2.6(b).
    

    Section 1.37  "net proceeds" shall mean the proceeds remaining from any sale
after the payment of  all direct costs and  expenses associated with such  sale,
including,  without limitation, all Federal, state and local income and transfer
taxes payable in connection therewith.

    Section 1.38  "Newco" shall have  the meaning set forth in the  introductory
clauses hereto.

    Section  1.39    "Newco  Assets"  shall  mean  all  furniture,  fixtures and
equipment used by employees  of the Company who  will become Retained  Employees
and  (excluding  the Company's  AS-400  data center)  located  at the  San Diego
Property.

                                      II-6
<PAGE>
    Section 1.40  "Newco Common Stock" shall  have the meaning set forth in  the
introductory clauses hereto.

    Section  1.41  "Newco Employees" shall have the meaning set forth in Section
7.1 hereof.

    Section 1.42  "Newco Executive Committee"  shall have the meaning set  forth
in Section 6.1 hereof.

    Section 1.43  "Newco Option" shall have the meaning set forth in Section 7.4
hereof.

    Section  1.44   "Newco  Option Plan"  shall  have the  meaning set  forth in
Section 7.4 hereof.

    Section 1.45  "Newco Plans" shall have the meaning set forth in Section  7.2
hereof.

   
    Section  1.46  "Northridge Mortgage"  shall mean outstanding indebtedness in
an original principal amount of $5,000,000 with an outstanding principal  amount
as  of  July 28,  1994  of approximately  $3,500,000,  which is  secured  by the
Commercial Property located in Northridge, California (denoted as item number  6
on  Schedule 1.14  hereto) and the  Company's Club Business  real estate located
adjacent thereto.
    

    Section 1.47  "Note" shall have the meaning set forth in Section 3.3 hereof.

    Section 1.48   "Notes Receivable"  shall mean the  Atlas Note  and the  City
Notes.

    Section  1.49  "Office Lease" shall mean  an agreement pursuant to which the
Company will lease certain  office space located at  4649 Morena Boulevard,  San
Diego,  California (not to exceed the square footage currently being used by the
business and operations of the Company excluding the business and operations  of
Newco)  substantially in the form  attached hereto as Exhibit  A except that (i)
the term thereof shall  end on or  about July 1997, (ii)  the rent with  respect
thereto  shall be  included within  the rent  charged pursuant  to the Warehouse
Property located  at Morena  Boulevard,  San Diego,  California and  (iii)  such
agreement shall not be assignable or subleaseable by the Company.

    Section  1.50  "Operating Agreements" shall mean agreements substantially in
the forms attached hereto as Exhibits B, C and D.

    Section 1.51  "person" shall mean any individual, corporation,  partnership,
joint   venture,   association,  joint-stock   company,   trust,  unincorporated
organization or government or other agency or political subdivision thereof,  or
any other entity.

   
    Section   1.51A__"Price"  shall   mean  The  Price   Company,  a  California
corporation and a wholly owned subsidiary of the Company.
    

   
    Section 1.51B__"Price Club Mexico" shall mean Price Club de Mexico, S.A.  de
C.V., a corporation organized under the laws of Mexico.
    

    Section  1.52   "Price Designees"  shall have the  meaning set  forth in the
Bylaws of the Company.

   
    Section 1.52A__"Primex"  shall  mean  Price  Venture  Mexico,  a  California
corporation and a wholly owned subsidiary of Price.
    

   
    Section  1.53  "Quest Assets" shall mean (i) all of the noncurrent Assets of
the Company  or  any of  its  subsidiaries  specifically related  to  the  Quest
Business  as currently conducted;  (ii) an exclusive license  to use the service
mark "Price Club Quest"  in the United States  and throughout the world  (except
for the Specified Geographical Areas other than Mexico) pursuant to the terms of
a  license agreement entered into by  the Company, Price, Subsidiary Corporation
#3 and Newco at the  Transfer Closing; (iii) all  right, title and interest  (to
the  extent  such exists)  in and  to the  common  law interests  in and  to the
trademark and service mark "Quest"; and (iv) the Assets listed on Schedule  1.53
hereto.
    

    Section 1.54  "Quest Business" shall mean all of the business and operations
currently  conducted by the Company or any of its subsidiaries through its Quest
interactive electronic shopping business, together with Price Club Travel, Price
Club Realty and the Price  Club automobile advertising/referral business and  as
such  business may be  expanded from time  to time; PROVIDED,  HOWEVER, that any
expansions into  new concepts  in the  Company's warehouse  operations shall  be
subject  to the  prior approval  of the Chief  Executive Officer  of the Company
(which approval shall not be unreasonably withheld).

                                      II-7
<PAGE>
    Section 1.55  "Real  Estate Committee" shall have  the meaning set forth  in
Section 6.1 hereof.

    Section  1.56  "Real  Properties" shall mean  the Commercial Properties, the
Warehouse Properties and the San Diego Property.

    Section 1.57  "Reciprocal  Easement Agreements" shall  have the meaning  set
forth in Section 6.20 hereof.

    Section  1.58  "Registration Statement" shall  have the meaning set forth in
Section 3.1 hereof.

    Section 1.59   "Retained  Employees" shall  have the  meaning set  forth  in
Section 7.1 hereof.

    Section  1.60   "Retained  Liabilities" shall  mean  all Liabilities  of the
Company and its subsidiaries relating to or arising out of (i) the Mexico Assets
(other than shares of capital stock of Price Venture Mexico), the  International
Assets  (other than  the CMI  Stock) and  the Quest  Assets, which  arise out of
events occurring prior  to the Transfer  Closing Date and  (ii) the  Transferred
Assets  which arise out of events occurring  prior to the Transfer Closing Date,
but excluding the Environmental Liabilities and the Assumed Construction Costs.

    Section 1.61   "San  Diego Office  Space" shall  mean certain  office  space
located in the San Diego Property, as described in the Lease.

    Section  1.62   "San Diego Property"  shall mean the  commercial real estate
known as 4455 and 4649 Morena Boulevard, San Diego, California.

    Section 1.63  "Scheduled Mexico Assets" shall have the meaning set forth  in
Section 1.29 hereof.

    Section  1.64  "Securities  Act" shall mean  the Securities Act  of 1933, as
amended.

    Section 1.65  "SEC" shall mean the Securities and Exchange Commission.

    Section 1.65A  "Specified Companies" shall mean Wal-Mart Stores Inc., Target
Stores, Kmart Corporation, The Home Depot, Inc. and Office Depot, Inc. and  each
of  their affiliates (as such term is defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended).

    Section 1.66    "Specified Geographical  Areas"  shall mean  Australia,  New
Zealand,  the Northern Mariana Islands (including Guam and Saipan), the Republic
of Panama, those Central  American countries situated north  of the Republic  of
Panama  and south of  Mexico, Mexico and  those islands situated  in the Western
Hemisphere north of  the Equator and  lying within  the area marked  on the  map
attached  hereto as Exhibit  E (including Bermuda but  excluding Puerto Rico and
any portion of the United States (other than the U.S. Virgin Islands) or  Canada
lying within such marked area).

    Section 1.67  "Stockholders' Agreements" shall mean agreements substantially
in the form attached hereto as Exhibits F, G and H.

    Section 1.68  "subsidiary" of any person shall mean any corporation or other
entity  of which outstanding securities having  ordinary voting power to elect a
majority of the  board of directors  of such  corporation or a  majority of  the
voting  equity interest of such other entity  is owned directly or indirectly by
such person.

    Section 1.69  "Subsidiary Corporations" shall mean, collectively, Subsidiary
Corporation #1, Subsidiary Corporation #2 and Subsidiary Corporation #3.

   
    Section 1.70  "Subsidiary Corporation #1" shall mean Mexico Clubs, L.L.C., a
Delaware limited  liability company,  to which  the Company  shall cause  to  be
contributed the Mexico Assets.
    

   
    Section  1.71  "Subsidiary Corporation #2"  shall mean Price Global Trading,
Inc., a Delaware corporation, to which the Company caused to be contributed  the
International Assets.
    

   
    Section  1.72  "Subsidiary  Corporation #3" shall mean  Price Quest, Inc., a
Delaware corporation, to which  the Company caused to  be contributed the  Quest
Assets.
    

                                      II-8
<PAGE>
   
    Section 1.73  "Subsidiary Interests" shall mean, collectively, 51 percent of
the  outstanding  capital  stock  of  each  of  Subsidiary  Corporation  #2  and
Subsidiary Corporation #3.
    

    Section  1.74    "Tax  Allocation  Agreements"  shall  mean  tax  allocation
agreements  to be entered into between the Company, on the one hand, and each of
Newco and each Subsidiary Corporation, on the other, pursuant to which Newco  or
such  Subsidiary  Corporation, as  the case  may  be, will  be required  to make
payments to the  Company in  respect of its  Federal, state,  local and  foreign
income  tax liabilities on and after the Transfer Closing Date, as if Newco, and
its subsidiaries  or such  Subsidiary  Corporation, as  the  case may  be,  were
separate corporations for Federal income tax purposes on and after such date.

   
    Section 1.75  [Intentionally omitted.]
    

    Section  1.76   "Third  Party Claim"  shall  have the  meaning set  forth in
Section 9.2 hereof.

    Section 1.77    "Transaction"  shall  have the  meaning  set  forth  in  the
introductory clauses hereto.

    Section  1.78  "Transfer"  shall have the  meaning set forth  in Section 2.2
hereof.

   
    Section 1.79  "Transferred Assets" shall mean (i) the Commercial Properties,
other than any Commercial Property  that is sold to a  third party prior to  the
Transfer  Closing Date (A) pursuant to an  agreement in existence as of July 28,
1994 or (B) following approval of such  sale by the Real Estate Committee;  (ii)
the net proceeds from the sale of any Commercial Property occurring prior to the
actual  transfer of such Commercial Property by  the Company to Newco; (iii) the
Warehouse Properties; (iv)  the San  Diego Property; (v)  the Notes  Receivable;
(vi)  the  Newco  Assets;  (vii) the  Subsidiary  Interests;  (viii)  the Mexico
Interest; and (ix) all claims, rights, entitlements and causes of action of  the
Company  and its Subsidiaries  in respect of the  Transferred Assets (other than
any such claims,  rights, entitlements  and cause of  action arising  out of  or
relating to the Retained Liabilities).
    

    Section 1.80  "Transfer Closing" shall have the meaning set forth in Section
2.4 hereof.

    Section  1.81  "Transfer Closing  Date" shall have the  meaning set forth in
Section 2.4 hereof.

    Section 1.82   "Transition  Period"  shall have  the  meaning set  forth  in
Section 7.1 hereof.

    Section  1.83  "Warehouse Properties" shall  mean the commercial real estate
comprising  the  Company's  warehouse  club  operations  at  Pentagon  City   in
Arlington,Virginia;  Wayne, New Jersey; Westbury, New York; and Morena Boulevard
in San  Diego,  California  (including fixtures  permanently  attached  to  such
structures, but excluding inventory, furniture, trade fixtures and equipment).

                                   ARTICLE II
                 TRANSFER OF ASSETS; ASSUMPTION OF LIABILITIES

   
    Section   2.1    TRANSACTIONS  OCCURRING   PRIOR  TO  THE  TRANSFER  CLOSING
DATE.  (a) Prior to  the Transfer Closing Date the  Company caused to be  formed
Subsidiary Corporation #2 and Subsidiary Corporation #3.
    

   
    (b)  Prior  to  the  Transfer  Closing  Date,  the  Company  caused  (i) the
International Assets  to be  conveyed, assigned,  transferred and  delivered  to
Subsidiary  Corporation #2; and (ii) the  Quest Assets to be conveyed, assigned,
transferred and delivered  to Subsidiary Corporation  #3. Each such  conveyance,
assignment,   transfer  and  delivery  was  effected  by  such  bills  of  sale,
endorsements, assignments or  other instruments of  transfer and conveyance,  as
appropriate.
    

   
    (c)  In full consideration  for the conveyances,  assignments, transfers and
deliveries described in subsection (b) above, each of Subsidiary Corporation  #2
and  Subsidiary Corporation #3 issued  100 shares of its  common stock to Price,
which constituted  all  of the  outstanding  capital stock  of  such  Subsidiary
Corporation.
    

   
    Section 2.2  CONVEYANCE OF TRANSFERRED ASSETS.  At the Transfer Closing, the
Company  caused to be conveyed, assigned, transferred and delivered to Newco (or
to a subsidiary of Newco, as agreed  to by the parties) the Transferred  Assets,
other  than certain Real Properties (together with  the transfer to Newco of all
    

                                      II-9
<PAGE>
   
Real Properties  not  heretofore  transferred and  the  conveyance,  assignment,
transfer  and  delivery contemplated  by Section  2.6(e), the  "Transfer"). With
respect to certain  Transferred Assets that  the Company was  unable to  convey,
assign, transfer or deliver (or cause to occur) as of the Transfer Closing Date,
the  Company will take all  reasonable actions to preserve  for, or transfer to,
Newco  the  benefits  of  such   Transferred  Asset,  pending  the   conveyance,
assignment, transfer or delivery thereof to Newco. In the event that the Company
is unable to convey, assign, transfer or deliver (or cause such action to occur)
any  of the Real Properties to Newco on or prior to February 28, 1995, Newco and
the Company shall agree  to either (i) an  arrangement, if legally  permissible,
pursuant  to which the Company shall lease  such Real Property to Newco pursuant
to a long-term lease for an annual rent  of $1.00 per year or (ii) a  conveyance
by  the Company  to Newco  of other real  property owned  by the  Company or its
subsidiaries satisfactory to  Newco in substitution  thereof; PROVIDED, that  if
both  of  such  alternatives  shall  deprive either  party  of  the  benefits of
transferring ownership  of  the  property  contemplated  by  this  Agreement  by
February  28, 1995, then the  Company shall remit to Newco  in cash the value of
such property, as listed on Schedule 1.14 hereto under the column entitled "Est.
Value @ Sept 1, 1994."
    

   
    Section 2.3   CONSIDERATION FOR  TRANSFER.   In full  consideration for  the
Transfer,  on the Transfer  Closing Date, Newco  (i) issued to  Price 27 million
shares of Newco Common  Stock; (ii) assumed the  Assumed Liabilities; and  (iii)
made  all  other  deliveries required  to  be  made by  Newco  pursuant  to this
Agreement.
    

   
    Section 2.4  TIME  AND PLACE OF  THE TRANSFER CLOSING.   The closing of  the
Transfer  (the "Transfer Closing")  took place at the  offices of Skadden, Arps,
Slate, Meagher & Flom,  300 South Grand Avenue,  Los Angeles, California and  at
the  offices of  the Company,  4649 Morena  Boulevard, San  Diego, California at
10:00 a.m., local  time, on October  28, 1994. The  date and time  at which  the
Transfer  Closing actually occurred is hereinafter  referred to as the "Transfer
Closing Date;" PROVIDED, HOWEVER, that in any case, and regardless of the actual
date and time  at which  the Transfer  Closing actually  occurred, the  Transfer
Closing Date shall be deemed to have occurred at the close of business on August
28, 1994.
    

    Section 2.5  DELIVERIES AT THE TRANSFER CLOSING.  At the Transfer Closing:

   
        (a) Newco delivered to the Company:
    

           (i)  a duly executed  counterpart of a bill  of sale in substantially
       the form attached hereto as Exhibit K (the "Bill of Sale");

           (ii) a duly executed counterpart  of an instrument of assignment  and
       assumption  in substantially the  form attached hereto  as Exhibit L (the
       "Instrument of Assignment and Assumption");

          (iii) duly executed counterparts of the Additional Agreements;

           (iv) all other  documents, instruments  and writings  required to  be
       delivered  by Newco at or prior to  the Transfer Closing Date pursuant to
       this Agreement.

   
        (b) The Company delivered or caused to be delivered to Newco:
    

           (i) the books and records included in the Transferred Assets;

           (ii) deeds in recordable form conveying to Newco all of the Company's
       right, title and interest in and to the owned real properties included in
       the Transferred Assets;

          (iii) immediately  available  funds in  an  amount equal  to  the  net
       proceeds  from the sale of any Commercial Property occurring prior to the
       Transfer Closing Date;

   
           (iv) stock certificates representing the Subsidiary Interests;
    

           (v) a duly executed counterpart  of the Instrument of Assignment  and
       Assumption;

           (vi) duly executed counterparts of the Additional Agreements;

   
          (vii)   such  bills  of  sale,  endorsements,  assignments  and  other
       instruments of transfer and  conveyance as were  necessary to effect  the
       conveyance,  assignment, transfer and delivery  of the Transferred Assets
       (other than the owned real property included in the Transferred Assets);
    

                                     II-10
<PAGE>
         (viii) all other  documents, instruments  and writings  required to  be
       delivered  by  the  Company at  or  prior  to the  Transfer  Closing Date
       pursuant to this Agreement; and

           (ix) ALTA owner's  title insurance policies  for all Real  Properties
       transferred and conveyed at the Transfer Closing showing title consistent
       with this Agreement.

   
    Section  2.6__CONVEYANCE OF MEXICO ASSETS.__(a) Prior to the date hereof the
Company and Newco have caused to be formed Subsidiary Corporation #1.
    

   
        (b)_As soon as  practicable following the  execution of this  Agreement,
    (i)  the  Company  shall  cause  51  percent  of  the  Mexico  Assets  to be
    contributed to  Newco, (ii)  the Company  shall cause  the remaining  Mexico
    Assets  to be  conveyed, assigned,  transferred and  delivered to Subsidiary
    Corporation #1 and (iii) Newco shall convey, assign, transfer and deliver to
    Subsidiary Corporation #1 the  portion of the Mexico  Assets referred to  in
    clause  (i) of this Subsection (b). Such conveyances, assignments, transfers
    and deliveries  shall be  effected  by such  bills of  sales,  endorsements,
    assignments  or other instruments of transfer and conveyance as appropriate.
    As a result of such conveyances, assignments, transfers and deliveries,  the
    Company  and Newco will own 49%  and 51% membership interests, respectively,
    in Subsidiary Corporation #1 (such 51% interest, the "Mexico Interest").
    

   
        (c)_Concurrently  with  such  conveyances,  assignments,  transfers  and
    deliveries,  the  Company  and  Newco shall,  and  the  Company  shall cause
    Subsidiary #1 to,  execute and  deliver the Additional  Agreements to  which
    such entities are parties.
    

   
                                  ARTICLE III
                      THE EXCHANGE OFFER; THE DISTRIBUTION
    

    Section  3.1  COMMENCEMENT  OF THE EXCHANGE  OFFER.  As  soon as practicable
after the date hereof, Newco shall file with, and use its best efforts to  cause
to be declared effective by, the SEC, a registration statement on Form S-4 (such
registration  statement,  as the  same may  be  amended from  time to  time, the
"Registration  Statement")  pursuant  to  which  it  will  register  under   the
Securities  Act, 27  million shares of  Newco Common  Stock to be  issued in the
Exchange Offer. As soon as practicable after the Registration Statement has been
declared effective under the Securities Act, the Company shall file with the SEC
an Issuer Tender Offer Statement on Schedule 13E-4 and commence an issuer tender
offer (the  "Exchange  Offer") pursuant  to  which  the Company  will  offer  to
exchange, subject to the terms and conditions set forth in this Agreement and in
Exhibit  M hereto,  one share of  Newco Common  Stock for each  share of Company
Common Stock up to a maximum of 27 million shares of Newco Common Stock.

   
    Section 3.2   TERM  OF EXCHANGE  OFFER.   The Exchange  Offer shall  have  a
scheduled  expiration date 20 business days  following the date of commencement.
Subject to the  terms and conditions  of the Exchange  Offer, the Company  shall
accept  for payment all shares  of Company Common Stock  which have been validly
tendered and not withdrawn pursuant to the Exchange Offer (up to a maximum of 27
million such shares), and shall pay for  each such share by issuing in  exchange
therefor  one  share  of Newco  Common  Stock,  at the  earliest  time following
expiration of the Exchange Offer that all conditions to the Exchange Offer shall
have been satisfied. If more than 27 million shares of Company Common Stock  are
validly tendered and not withdrawn in the Exchange Offer prior to the expiration
thereof, 27 million shares of Company Common Stock so tendered shall be accepted
for  payment, and shares of Newco Common Stock issued in exchange therefor, on a
pro rata basis. The  Company shall not  extend the term  of the Exchange  Offer,
except that the Company Executive Committee or the Newco Executive Committee may
extend  the term of the Exchange Offer  to comply with applicable law; PROVIDED,
HOWEVER, that  in no  event shall  the  time of  expiration be  extended  beyond
January 31, 1995.
    

    Section 3.3  THE DISTRIBUTION.  (a) If the Exchange Offer is terminated with
no  shares exchanged or is consummated and the number of shares validly tendered
by holders of Company Common Stock, and  exchanged by the Company for shares  of
Newco  Common Stock, is  less than 21.6  million, the Board  of Directors of the
Company will  declare a  distribution  on each  share  of Company  Common  Stock
payable  to holders of record of shares of  Company Common Stock as of a date no
more than 20 business days after the

                                     II-11
<PAGE>
Closing Date (the "Distribution Record Date"), such distribution to consist of a
portion of a share of Newco Common  Stock equal to a fraction, the numerator  of
which  is  the number  of  shares of  Newco Common  Stock  owned by  the Company
following termination or consummation of the Exchange Offer and the  denominator
of  which is  the number of  shares of  Company Common Stock  outstanding on the
Distribution Record Date (the "Distribution Fraction").

    (b) If the Exchange  Offer is consummated and  the number of shares  validly
tendered  by holders of Company  Common Stock, and exchanged  by the Company for
shares of Newco Common  Stock, is greater  than 21.6 million,  but less than  27
million, the Company, at its option, shall take one of the following actions:

        (i)  the  Board  of Directors  of  the  Company will  cause  to  occur a
    distribution on each  share of Company  Common Stock payable  to holders  of
    record of shares of Company Common Stock as of the Distribution Record Date,
    such dividend to consist of a portion of a share of Newco Common Stock equal
    to the Distribution Fraction; or

        (ii)  on  the thirtieth  business day  following  the Closing  Date, the
    Company shall sell to Newco  all shares of Newco  Common Stock owned by  the
    Company  following consummation  of the  Exchange Offer,  including, without
    limitation, such  shares  representing aggregated  fractional  shares  which
    would  have  been distributed  to holders  of Company  Common Stock  but for
    subsection (c) below (and Newco shall be required to purchase such shares by
    delivering in exchange  therefor its  Promissory Note  substantially in  the
    form  attached  hereto as  Exhibit N),  at a  price per  share equal  to the
    average of the closing sales price of Newco Common Stock for the 20  trading
    days  commencing on  the sixth trading  day following the  expiration of the
    Exchange Offer (or if Newco Common Stock does not trade on any such day, the
    average of the high bid  and low asked price per  share on such day),  which
    right  of the Company  to so sell  shall be exercised  by delivering written
    notice to Newco within  20 business days after  the Closing Date  specifying
    (A)  the number of shares of Newco Common Stock owned by the Company and (B)
    that the Company desires to sell such shares to Newco.

    (c) Notwithstanding any other provision  of this Agreement, no  certificates
or  scrip for  fractional shares of  Newco Common  Stock shall be  issued in any
distribution of  such  shares as  set  forth above,  and  no dividend  or  other
distribution,  stock split  or interest with  respect to shares  of Newco Common
Stock shall relate  to any  fractional security, and  such fractional  interests
shall  not  entitle the  owner  thereof to  vote  or to  any  other rights  of a
stockholder. In lieu of such fractional shares, each holder of shares of Company
Common Stock who would otherwise have been entitled to a fraction of a share  of
Newco  Common  Stock  shall  be  entitled to  receive  a  cash  payment (without
interest) in lieu of such fractional share equal to such fraction multiplied  by
the  average  closing price  per share  of  Newco Common  Stock on  the National
Association of  Securities  Dealers  Inc.  Automated  Quotation/National  Market
System (or on such other quotation service or exchange as the Newco Common Stock
shall  be quoted or  listed), during the ten  trading days immediately following
the date of distribution  of shares of  Newco Common Stock  by the Company.  If,
following  any distribution of shares  of Newco Common Stock  by the Company, as
set forth in this Section 3.3, the Company shall own any shares of Newco  Common
Stock   representing  aggregated   fractional  shares  which   would  have  been
distributed to holders of Company Common Stock but for this subsection (c),  the
Company  shall sell such shares to Newco, in the manner and valued in accordance
with subsection (b)(ii) above.

                                   ARTICLE IV
                                  THE CLOSING

   
    Section 4.1   CLOSING.   The  closing (the  "Closing") of  the  transactions
contemplated  by this  Agreement, other  than those  actions that  are taken and
transactions that were consummated pursuant to Article II hereof at the Transfer
Closing and that will be consummated pursuant to section 2.6 hereof, shall  take
place on the date immediately following the expiration of the Exchange Offer, or
if  such date  is not a  business day,  and the Company  so elects,  on the next
business day thereafter (the  "Closing Date"). The Closing  shall take place  at
the offices of Skadden, Arps, Slate, Meagher & Flom, 300 South Grand Avenue, Los
Angeles,  California at 10:00 a.m., local time,  or at such other time and place
as the parties may mutually agree.
    

                                     II-12
<PAGE>
    Section 4.2   ACTIONS  TO BE  TAKEN  AT THE  CLOSING.   At the  Closing  the
following  actions shall be taken (if such  actions have not been taken prior to
the Closing):

        (a) the Company will deliver to  a bank or trust company (designated  by
    the  Company to serve as  the agent of the  Company for exchanging shares of
    Newco Common  Stock for  shares  of Company  Common  Stock in  the  Exchange
    Offer),  a number  of shares of  Newco Common Stock  (up to a  maximum of 27
    million such shares) equal to the  number of shares of Company Common  Stock
    validly  tendered and not  withdrawn in the Exchange  Offer and accepted for
    payment by the Company;

        (b) the amended  Certificate of  Incorporation of Newco  shall be  filed
    with the Secretary of State of the State of Delaware;

        (c) the amendments to the Bylaws of Newco, which shall have been amended
    in accordance with Section 6.2 hereof, shall become effective;

        (d) the amendment of the Bylaws of the Company to read in their entirety
    as set forth in Exhibit O hereto shall become effective;

        (e)  the Board  of Directors  of Newco shall  be expanded  and the newly
    created directorships shall be filled, as described in Section 6.4 hereof;

        (f) the  resignations  of certain  Price  Designees from  the  Board  of
    Directors  of the Company, as described  in Section 6.5 hereof, shall become
    effective; and

        (g) each of the Company and Newco shall deliver or cause to be delivered
    all other documents, instruments  and writings required  to be delivered  by
    the  Company or Newco, as the  case may be, at or  prior to the Closing Date
    pursuant to this Agreement.

                                   ARTICLE V
                 REPRESENTATIONS AND WARRANTIES OF THE COMPANY

    The Company hereby represents and warrants to Newco as follows:

    Section 5.1  TITLE TO PROPERTY.  All of the real and personal property owned
by the  Company or  any of  its  subsidiaries and  included in  the  Transferred
Assets,  the  Scheduled Mexico  Assets, the  International  Assets or  the Quest
Assets is owned by the Company or such subsidiary free and clear of any minority
interest (in the case of all owned Commercial Properties) and free and clear  of
all liens except for (i) liens imposed by operation of law for current taxes not
yet  due  and  payable in  the  ordinary  course of  business,  (ii) mechanics',
repairmen's, materialmen's and other like liens in respect of liabilities  which
are  not yet due or which are being contested in good faith, (iii) liens arising
out of or  relating to  Environmental Liabilities,  (iv) liens  which have  been
previously  disclosed by the Company or any of its subsidiaries to Newco or with
respect to which Newco has knowledge, and (v) those liens that do not materially
and adversely affect the marketability or intended use of such property.

    Section 5.2  BROKERS AND FINDERS.   Other than Donaldson, Lufkin &  Jenrette
Securities  Corporation and Lehman Brothers,  none of the Company  or any of its
subsidiaries nor any of  their respective directors,  officers or employees  has
employed  any broker or  finder (including, without  limitation, any real estate
broker) or incurred any liability  for any financial advisory fees,  commissions
or  similar payments  in connection with  the transactions  contemplated by this
Agreement.

    Section 5.3  NO OTHER REPRESENTATIONS OR WARRANTIES.  Except as set forth in
Sections 5.1 and 5.2,  the Company is  not, in this Agreement  nor in any  other
agreement or document contemplated by this Agreement, making any representations
or  warranties with  respect to the  Transferred Assets, the  Mexico Assets, the
International Assets or the Quest Assets.

                                     II-13
<PAGE>
                                   ARTICLE VI
                       ADDITIONAL MATTERS RELATED TO THE
                        TRANSFER AND THE EXCHANGE OFFER

    Section  6.1  CERTAIN COMMITTEES.  (a) The Board of Directors of the Company
has heretofore taken all necessary actions so that, at the Transfer Closing Date

        (i) there  shall  be formed  an  executive  committee of  the  Board  of
    Directors  of Newco (the "Newco Executive  Committee"), the charter of which
    shall read as set forth in Exhibit P hereto, consisting of James D.  Sinegal
    and  two persons designated by the Price Designees then serving on the Board
    of Directors of the Company;

        (ii) the charter of the current  Executive Committee of such Board  will
    be  amended to  read as  set forth  in Exhibit  P hereto  and such Executive
    Committee will  be reconstituted,  the  members thereof  to consist  of  (A)
    Richard  M. Libenson; (B) Duane Nelles; and  (C) all of the Costco Designees
    then serving on the  Board of Directors of  the Company (such committee,  as
    reconstituted, the "Company Executive Committee");

       (iii)  the charter  of the current  Audit and  Compensation Committees of
    such Board will be amended to read as  set forth in Exhibit Q and each  such
    committee will consist of two Costco Designees and two Price Designees; and

        (iv)  there shall  be formed a  real estate committee  (the "Real Estate
    Committee") and a finance committee (the "Finance Committee"), the  charters
    of  which  shall read  as set  forth in  Exhibit Q,  each such  committee to
    consist of two Costco Designees and two Price Designees.

    (b) Each of the Newco Executive Committee, the Company Executive  Committee,
the  Audit Committee, the Compensation Committee,  the Real Estate Committee and
the Finance Committee shall exist from  the time of execution of this  Agreement
until  the earliest to occur of (i) the consummation of the Exchange Offer, (ii)
January 31,  1995  or (iii)  the  date on  which  Newco Common  Stock  is  first
distributed to the stockholders of the Company.

    Section  6.2  CERTIFICATE OF INCORPORATION AND BYLAWS OF NEWCO.  At or prior
to the Closing Date the Certificate  of Incorporation and Bylaws of Newco  shall
be amended in a manner specified by Newco prior to the Transfer Closing Date.

    Section  6.3  AMENDMENT OF BYLAWS OF THE COMPANY.  The Board of Directors of
the Company has heretofore taken all necessary actions so that the Bylaws of the
Company shall be amended  to read in  their entirety as set  forth in Exhibit  O
hereto, which amendment shall become effective as of the earlier to occur of (A)
the  Closing  Date  or  (B) the  date  that  shares of  Newco  Common  Stock are
distributed to holders of Company Common Stock.

   
    Section 6.4  BOARD OF DIRECTORS OF NEWCO.  At the Closing Date, the existing
Board of Directors of Newco shall cause such Board to be expanded and the  Board
of  Directors  of Newco,  by  a majority  vote,  shall fill  such  newly created
directorships.
    

    Section 6.5  BOARD OF  DIRECTORS OF THE COMPANY.   (a) At the Closing  Date,
the  resignation of each Price Designee other than Richard M. Libenson and Duane
Nelles shall become  effective. Each such  resignation shall be  set forth in  a
letter from each such Price Designee (in the form attached hereto as Exhibit R),
which shall be executed concurrently with the execution of this Agreement.

    (b)  Unless removed  for cause,  each of  Messrs. Libenson  and Nelles shall
serve on the Board of Directors of the Company until the earlier of (i) the date
two years following the Closing Date and (ii) such time as Sol Price and  Robert
Price  and their affiliates in the aggregate  cease to beneficially own at least
two million shares of Company Common  Stock (including any such shares owned  by
charitable trusts established by either of them).

                                     II-14
<PAGE>
    Section  6.6   AGREEMENT NOT  TO COMPETE.   (a) For  a period  of five years
following the Closing Date, Newco shall not,  nor shall it permit or suffer  any
of its subsidiaries to: (i) directly or indirectly engage in or conduct any Club
Business  in any geographical area other  than the Specified Geographical Areas,
own any interest in another  company that conducts a  Club Business in any  area
other  than  the  Specified Geographical  Areas  (PROVIDED that  none  of Newco,
Subsidiary Corporation #2 or any of their subsidiaries shall be prohibited  from
purchasing  and owning securities of any such company as a passive investment so
long as such  securities in  the aggregate  represent no  more than  10% of  the
equity securities of such company) or knowingly sell to or provide services to a
Club  Business in any such  area, and in the  Specified Geographical Areas shall
conduct a Club Business only  through the relevant Subsidiary Corporation;  (ii)
sell,  assign, lease, transfer or otherwise  convey (A) any Commercial Property,
or any portion thereof, to any person for use as a Club Business (other than the
Company), if any Club Business operated by the Company as of the date hereof  is
located  on, adjacent  to or  within the  same development  as such  latter Club
Business or (B) any of the  Commercial Properties listed on Schedule 6.6  hereto
to  any person for use as  a Club Business so long as  the Company or one of its
subsidiaries shall operate a Club Business in the same trade area; (iii) conduct
a Quest Business from within a location that is owned or operated by any of  the
Specified  Companies or in any Club Business other than a Club Business operated
by the Company, Newco,  the Subsidiary Corporations or  any of the licensees  of
the  Subsidiary Corporations; or  (iv) without the prior  written consent of the
Company (which shall not unreasonably be withheld), engage in any business  with
any  of the Specified Companies, except that  Newco and its subsidiaries may (A)
except as  provided in  clause  (ii) above,  sell,  assign, lease,  transfer  or
otherwise  convey any  real property  to, or  purchase, lease  or otherwise take
possession of any  real property from,  any of the  Specified Companies and  (B)
purchase  merchandise from any of the Specified Companies in the ordinary course
of business and consistent with the Company's past practice.

   
    (b) For a period of five years following the Closing Date, the Company shall
not, nor shall it permit or suffer  any of its subsidiaries to: (i) directly  or
indirectly  conduct a Club  Business in any of  the Specified Geographical Areas
other than  through the  Subsidiary Corporations,  own any  interest in  another
company that conducts a Club Business in any of the Specified Geographical Areas
(PROVIDED  that  neither  the  Company  nor any  of  its  subsidiaries  shall be
prohibited from  purchasing and  owning  securities of  any  such company  as  a
passive investment so long as such securities in the aggregate represent no more
than  10% of the  equity securities of  such company) or  transfer to any person
(other than Newco or the relevant Subsidiary Corporation) the right to conduct a
Club Business in  any of  the Specified Geographical  Areas, including,  without
limitation,  any right to  use the name "Costco"  in such Specified Geographical
Areas,  PROVIDED,  HOWEVER,  that,  with   respect  to  Mexico,  the   foregoing
restrictions  set forth in this  clause (i) shall terminate  and have no further
force or effect upon any sale of all  of the shares of capital stock of  Primex,
or  all of the shares of capital stock  of Price Club Mexico, owned, directly or
indirectly, by Subsidiary  Corporation #1 to  Comercial Mexicana or  any of  its
affiliates (as such term is defined under Rule 12b-2 promulgated pursuant to the
Securities  Exchange Act  of 1934, as  amended); (ii) conduct  a Quest Business;
PROVIDED, HOWEVER,  that  nothing  herein  shall prohibit  the  Company  or  its
subsidiaries from conducting business (other than any business conducted through
the  Quest Assets) in  the manner heretofore conducted  or, with Newco's consent
(which  shall  not  be  unreasonably  withheld),  from  conducting   interactive
promotional   and  advertising  activities  other  than  through  an  electronic
interactive shopping format; or (iii) without the prior consent of Newco  (which
shall  not unreasonably  be withheld),  engage in any  business with  any of the
Specified Companies, except that the Company and its subsidiaries may (A)  sell,
assign,  lease,  transfer or  otherwise  convey any  Club  Business or  any real
property to,  or  purchase, lease  or  otherwise  take possession  of  any  Club
Business  or any  real property  from, any  of the  Specified Companies  and (B)
purchase merchandise from any of the Specified Companies in the ordinary  course
of business and consistent with past practice.
    

    (c)  Prior to  entering into  any agreement  or arrangement  with any person
(other than the  Company) to  own, operate  or develop  a Club  Business in  any
Specified  Geographical  Area, whether  pursuant  to a  joint  venture, license,
equity investment  by such  person in  Subsidiary Corporation  #2 or  otherwise,
Newco  or Subsidiary  Corporation #2 shall  obtain the agreement  of such person
that such person will not directly or indirectly use any proprietary information
or know-how  acquired  from  Subsidiary  Corporation  #2  with  respect  to  the
ownership  and  operation of  a Club  Business in  such person's  other business
activities (other

                                     II-15
<PAGE>
than the Club Business owned, operated or developed with Subsidiary  Corporation
#2 in the Specified Geographical Area), and such agreement shall expressly state
that  the  Company shall  be a  third  party beneficiary  of such  agreement. In
addition, any such agreement with Coles  Myer Ltd shall also provide that  Coles
Myer  Ltd will not enter into a Club Business outside the Specified Geographical
Areas.

   
    Section 6.7  CONTINUANCE OF EXISTING  INDEMNIFICATION RIGHTS.  (a) From  and
after  the Closing Date, and  for a period of  six years thereafter, the Company
shall continue the indemnification  rights of present  and former directors  and
officers   of  the  Company   provided  for  in   the  Restated  Certificate  of
Incorporation and Bylaws of the  Company as in effect  on the date hereof,  with
respect to indemnification for acts and omissions occurring prior to the Closing
Date,  including, without  limitation, with  respect to  the litigation entitled
FECHT ET AL. V. THE PRICE COMPANY ET AL, for so long as such matters which  have
arisen prior to the end of such six-year period remain outstanding.
    

    (b)  For two  years after  the Closing  Date the  Company shall  cause to be
maintained the  current  policies  of the  officers'  and  directors'  liability
insurance  maintained  by the  Company covering  the  persons who  are presently
covered by the Company's officers'  and directors' liability insurance  policies
with respect to actions and omissions occurring prior to the Closing Date to the
extent  available;  PROVIDED,  that  policies  of  at  least  the  same coverage
containing terms and conditions which are  no less advantageous to the  insureds
may  be substituted therefor; and PROVIDED, FURTHER,  that in no event shall the
Company, utilizing  its best  efforts,  be required  to  expend to  maintain  or
procure  insurance coverage  pursuant to this  Section 6.7(a) in  any amount per
annum in excess  of 125%  of the current  annual premiums  for the  twelve-month
period  ended December  31, 1993  (the "Maximum  Premium") with  respect to such
insurance, or, if  the cost of  such coverage exceeds  the Maximum Premium,  the
maximum amount of coverage that can be purchased for the Maximum Premium.

   
    Section 6.8  [Intentionally omitted]
    

   
    Section 6.9  [Intentionally omitted]
    

   
    Section  6.10  CERTAIN ADVANCES BY THE  COMPANY TO NEWCO.  During the period
commencing on the Transfer Closing Date and ending six months after the  Closing
Date,  the Company shall advance to Newco funds in accordance with the terms and
conditions set forth on Exhibit S hereto to enable Newco to conduct its business
and operations during such  period, which advances shall  be repaid by Newco  in
accordance  with  the  terms  and  conditions of  such  Exhibit.  The  terms and
conditions set  forth  on  such  Exhibit are  reflected  in  a  definitive  loan
agreement  entered into by  the Company and  Newco at the  Transfer Closing Date
(the "Advance Agreement").
    

    Section 6.11  EXPENSES.  All costs and expenses incurred in connection  with
this  Agreement and the  transactions contemplated hereby  or arising in respect
hereof (including any taxes arising from the transfer of the Transferred  Assets
to  Newco) shall  be paid  by the  Company, except  that, if  the Transaction is
consummated, all costs and expenses of  Latham & Watkins, counsel to Newco,  and
Kenneth Leventhal & Company, an advisor to Newco, shall be paid by Newco.

    Section  6.12  FURTHER ASSURANCES.   Subject to the  terms and conditions of
this Agreement, each of the parties  hereto shall use all reasonable efforts  to
take,  or cause to  be taken, all  actions and to  do, or cause  to be done, all
things necessary, proper or advisable  under applicable laws and regulations  to
consummate  and make effective the  transactions contemplated by this Agreement.
In case at any time  after the Closing Date any  further action is necessary  or
desirable  to carry out the purposes of  this Agreement, the proper officers and
directors of each party  to this Agreement shall  take all necessary actions  to
the  extent  not  inconsistent  with  their  other  duties  and  obligations  or
applicable law.

   
    Section 6.13  ACCESS.  Upon  reasonable notice, the Company shall afford  to
Newco  and  its officers,  employees, accountants,  counsel, advisors  and other
representatives  access  during  normal  business  hours  to  all  of  the  real
properties  included  in  the  Transferred  Assets  and  all  of  the  Company's
contracts, commitments,  books  and records  relating  thereto and  all  of  the
Company's   contracts,   commitments,  books   and   records  relating   to  the
International Assets, the Mexico Assets  and the Quest Assets. Unless  otherwise
required  by law, Newco  will, and will  cause each of  its officers, employees,
accountants, counsel and advisors
    

                                     II-16
<PAGE>
to, hold any such information which  is nonpublic in confidence until such  time
as such information otherwise becomes publicly available through no wrongful act
of  Newco or any such  person and in the event  of termination of this Agreement
for any  reason,  Newco will  promptly  return, or  cause  to be  returned,  all
nonpublic documents obtained from the Company.

    Section  6.14   APPORTIONMENT.    The Company  and  Newco shall,  as  of the
Transfer Closing  Date,  apportion (i)  the  real  property taxes  on  all  real
property  included in the Transferred Assets  and transferred to Newco hereunder
and (ii) other  similar recurring  municipal and state  charges and  assessments
relating  to the Transferred  Assets. All such prorations  shall be allocated so
that items relating to  time periods ending prior  to the Transfer Closing  Date
shall  be allocated to the Company and  items relating to time periods beginning
on or after the Transfer Closing Date shall be allocated to Newco. The amount of
all such prorations  shall be  settled and paid  on the  Transfer Closing  Date;
PROVIDED,  HOWEVER, that final payments with  respect to prorations that are not
able to be calculated  as of the  Transfer Closing Date  will be calculated  and
paid as soon as practicable thereafter. The parties hereto agree to furnish each
other  with such documents and other records as shall be reasonably requested to
confirm all proration calculations.

    Section 6.15   CONSENTS.    Each of  the Company  and  Newco shall  use  its
reasonable  efforts  to  obtain consents  of  all persons  and  governmental and
regulatory authorities  necessary  for  the  consummation  of  the  transactions
contemplated by this Agreement.

    Section  6.16   FILINGS.   The Company shall  make or  cause to  be made all
filings and submissions under laws and regulations applicable to the Company, if
any, as may be required by the Company for the consummation of the  transactions
contemplated  by this Agreement. Newco  shall make or cause  to be made all such
other filings and submissions  under laws and  regulations applicable to  Seller
for the consummation of transactions contemplated by this Agreement. The Company
and  Newco shall  coordinate and cooperate  with one another  in exchanging such
information and reasonable assistance as may  be requested by either of them  in
connection with this Section 6.16.

    Section  6.17  STANDSTILL AGREEMENTS.   (a) The Company agrees and covenants
that, until five  years after the  Closing Date, without  Newco's prior  written
consent,  the Company will  not and will  cause each of  its subsidiaries not to
acquire, offer  or  propose  to  acquire,  or  agree  to  acquire,  directly  or
indirectly,  by  purchase or  otherwise,  any Newco  Common  Stock or  direct or
indirect rights or options to acquire (through purchase, exchange, conversion or
otherwise), any Newco Common Stock; PROVIDED, HOWEVER, that the foregoing  shall
not  limit any  rights of  Newco pursuant to  the Security  and Pledge Agreement
which may be entered into by the Company and Newco pursuant to the Note.

    (b) Newco agrees  and covenants  that, until  five years  after the  Closing
Date, without the Company's prior written consent, Newco will not and will cause
each  of its subsidiaries not to acquire,  offer or propose to acquire, or agree
to acquire, directly or indirectly, by purchase or otherwise, any Company Common
Stock, or direct  or indirect rights  or options to  acquire (through  purchase,
exchange, conversion or otherwise), any Company Common Stock.

    Section  6.18  CERTAIN MATTERS  WITH RESPECT TO CITY  NOTES.  If the Company
should cease to operate a  Club Business at any site  with respect to which  any
governmental  agency  has  executed  and  delivered one  of  the  City  Notes in
connection with the  development of such  site, or the  Company should take  any
other  action that would entitle such governmental agency to withhold payment of
all or any portion of the unpaid  principal of or interest payable on such  City
Note,  Newco shall have the right to sell to the Company such City Note (and the
Company shall be required to purchase such  City Note from Newco) for an  amount
of  cash equal to  72% of the sum  of (a) the outstanding  book balance shown on
Schedule 1.8 owed  on each such  City Note, reduced  by any principal  repayment
since  the date of such  book balance, plus (b)  all accrued and unpaid interest
from the date of  such book balance.  Newco shall be  entitled to any  principal
payments to the Company with respect to the City Notes made between June 5, 1994
and the Transfer Closing Date.

    Section  6.19   CERTAIN INSURANCE  PROCEEDS.  If,  at or  after the Transfer
Closing Date, the  Company receives  proceeds pursuant to  any insurance  policy
maintained  by the Company or any of  its subsidiaries in respect of Liabilities
relating to or  arising in  respect of  Materials of  Environmental Concern  and
violations

                                     II-17
<PAGE>
or  purported violations of Environmental Laws, which  relate to or arise out of
any Real Property transferred to Newco  hereunder and which arise out of  events
occurring  prior to the Transfer Closing Date, then the Company agrees to remit,
or cause to  be remitted, such  proceeds to Newco.  The Company shall  cooperate
with  Newco and shall take all actions to vest in Newco the right to receive any
such proceeds.

   
    Section 6.20  CERTAIN REAL ESTATE MATTERS.  (a) To the extent not heretofore
undertaken or  completed, as  soon as  practicable after  the date  hereof,  the
Company  shall (i) engage local counsel,  as appropriate, in jurisdictions where
the Real Properties are situated, to prepare local addenda to this Agreement  to
be  executed by the Company and  Newco where reasonably necessary or appropriate
for the transfer of any Real Properties in such jurisdictions; (ii) cause to  be
commenced  and completed the subdivision (in  accordance with applicable law) of
any of the Real  Properties as may  be required to effect  the transfers of  any
such  Real Property; (iii) cause  to be commenced and  completed such surveys as
may be required to effect the transfer of any Real Property hereunder; and  (iv)
seek  to obtain environmental reports in Real Properties to the extent requested
by the Company or Newco.
    

   
    (b) At or prior to the transfer to  Newco of any of the Real Properties  not
heretofore  transferred,  the parties  shall  enter into  appropriate agreements
covering  access,  parking  and  similar  matters  with  respect  to  such  Real
Properties,  as appropriate, consistent with the  current operation of such Real
Properties (the "Reciprocal Easement Agreements").
    

    (c) The  Company shall  be  entitled to  receive all  condemnation  proceeds
payable  due to condemnation proceedings occurring prior to the Transfer Closing
Date with  respect to  the  Commercial Property  located in  Santee,  California
(denoted as item Number 34 on Schedule 1.14 hereto).

   
    (d)  The  Company shall  satisfy  in full  all  Liabilities pursuant  to the
Northridge Mortgage at the earliest time that it may do so without incurring any
prepayment penalty and, upon such satisfaction, will use all reasonable  efforts
to secure the release of all liens relating to such mortgage.
    

   
    Section 6.21  CERTAIN MATTERS WITH RESPECT TO SUBSIDIARY CORPORATION #1.  If
a  sale by Subsidiary  Corporation #1 of all  of the shares  of capital stock of
Primex, or  all of  the shares  of capital  stock of  Price Club  Mexico,  owned
directly  or indirectly by Subsidiary Corporation #1 to Comercial Mexicana shall
not have been consummated on or before October 1, 1995, then, at the election of
either PriceCostco or  Price Enterprises  (delivered to the  other in  writing),
PriceCostco  and Price Enterprises shall, and shall cause Subsidiary Corporation
#1 to, (i) take  all necessary actions so  that Subsidiary Corporation #1  shall
cease  to be a limited liability company  and shall instead become a corporation
organized  under  the  laws  of  the  State  of  Delaware,  the  certificate  of
incorporation  and bylaws of which shall  be substantially in the forms attached
hereto as  Exhibits  I  and J  and  (ii)  execute and  deliver  a  Stockholders'
Agreement substantially in the form attached hereto as Exhibit F.
    

                                  ARTICLE VII
                                EMPLOYEE MATTERS

   
    Section  7.1  EMPLOYEES.  As of January 1, 1995, Newco shall offer to employ
each employee of the Company who is listed on a Schedule previously delivered to
the Company, and  who remains an  employee of the  Company immediately prior  to
January  1, 1995. Each such employee who accepts such offer of employment shall,
as of January 1, 1995, be transferred to the employment, and become an employee,
of Newco (each such employee  and each person who  becomes an employee of  Newco
during  the two-year  period following  the Closing  Date, a  "Newco Employee").
During the period beginning on the Transfer Closing Date and ending on  December
31,  1994 (the "Transition  Period"), the Company shall  continue to employ each
employee listed on the foregoing  Schedule (collectively, and together with  any
additional  persons who  become employees of  the Company  during the Transition
Period at the request of Newco,  hereinafter referred to in connection with  the
Transition  Period as "Retained Employees")  and shall provide employee benefits
to the Retained Employees under substantially  the same terms and conditions  as
those  under which such employees are employed  as of the Transfer Closing Date;
PROVIDED, HOWEVER, that the Company shall retain the right, at Newco's  request,
to  terminate  a  Retained  Employee  for  any  reason.  During  the  Transition
    

                                     II-18
<PAGE>
Period, Newco  shall  lease  from  the Company  the  services  of  the  Retained
Employees  and shall be liable, and reimburse  the Company, for the cost of such
services based  on  the Company's  actual  cost in  respect  thereof,  including
without limitation salary, wages, vacation accrual, fringe benefits and employee
benefit  costs and  related expenses  payable to  or on  behalf of  the Retained
Employees in accordance with the terms  of this Article VII; PROVIDED,  HOWEVER,
that  the Company shall be solely liable  and retain sole responsibility for the
payment of bonuses to the Retained Employees in respect of the 1994 fiscal year.

    Section 7.2  COMPANY PLANS.

    (a) With respect to  the Company Plans, including,  but not limited to,  the
plans  listed on Schedule 7.2(a), Newco shall,  effective as of January 1, 1995,
take, or cause to  be taken, all action  necessary and appropriate to  establish
and maintain substantially equivalent employee benefit plans (the "Newco Plans")
for  the  benefit  of  Newco  Employees  who  participated  in  the  respective,
comparable Company  Plan. Newco  agrees  that each  Newco Employee  eligible  to
participate  in a Company Plan shall  immediately become eligible to participate
in the comparable Newco Plan, and, for all purposes under such Newco Plan,  each
Newco  Employee shall be entitled to service  and any accrued benefit or account
balance, as the case may  be, credited to such Newco  Employee as of January  1,
1995  under the terms of the comparable Company Plan as if such service had been
rendered to  Newco  and  as if  such  accrued  benefit or  account  balance  had
originally  been  credited to  such Newco  Employee under  such Newco  Plan. The
Company agrees  to provide  Newco, as  soon as  practicable after  the  Transfer
Closing  Date  (with  the  cooperation  of Newco  to  the  extent  that relevant
information is in the possession of Newco  or its subsidiaries), with a list  of
the  Retained  Employees  who  were,  to  the  best  knowledge  of  the Company,
participants in  the Company  Plans immediately  prior to  the Transfer  Closing
Date,  together with a listing of  each such employee's service for eligibility,
vesting and benefit accrual  purposes under such  plan and a  list of each  such
Retained  Employee's accrued benefit or  account balance thereunder. The Company
shall, as soon  as practicable after  the Transfer Closing  Date, provide  Newco
with  such additional information (not already in the possession of Newco or its
subsidiaries) as may be reasonably requested by Newco and necessary in order for
Newco and  its subsidiaries  to effectively  maintain and  administer the  Newco
Plans.

    (b)  In the case of  each Company Plan that  is a defined contribution plan,
the Company agrees to direct the trustee  of each such plan to transfer, on,  or
as  soon  as is  practicable after,  January 1,  1995, to  the trustee  or other
funding agent of the applicable Newco Plan, in cash, securities, other  property
or  a combination thereof, as determined by  the Company, subject to approval by
Newco (which  approval  shall  not be  unreasonably  withheld),  the  respective
account  balances of the Newco  Employees as of the  date of transfer, plus that
portion of  any unallocated  contributions  that is  attributable to  the  Newco
Employees.

    (c)  The Company and Newco shall, in connection with the transfers described
in Section 7.2(b), cooperate  in making any filings  required under the Code  or
ERISA,  and the regulations  thereunder and any  applicable securities laws, and
take all such action as may be necessary and appropriate to cause such transfers
to take place as soon as practicable after the Transfer Closing Date.

    (d) Except as specifically set forth in this Section 7.2 and in Section 7.7,
from and after January 1, 1995, the Company and its subsidiaries shall cease  to
have  any liability  or obligation  whatsoever with  respect to  Newco Employees
under the Company  Plans, and  Newco and its  subsidiaries shall  assume and  be
solely responsible for all liabilities and obligations whatsoever of the Company
and its subsidiaries with respect to Newco Employees under the Company Plans and
shall be solely responsible for all liabilities and obligations whatsoever under
the  Newco Plans. Without limiting the  generality of the foregoing, the Company
and its subsidiaries shall contribute or cause to be contributed to each Company
Plan not later than such time as may be required by law or such earlier time  as
may  be required under the applicable plan, the contribution with respect to the
1994 plan year required to be made  under the terms of such plan and  applicable
law, and Newco shall reimburse the Company for that portion of such contribution
attributable to the Retained Employees during the Transition Period.

    Section 7.3  WELFARE PLANS; CERTAIN OTHER PLANS.

    (a)  The Company  and its subsidiaries  shall be solely  responsible for, or
cause their insurance carriers  to be responsible for,  the satisfaction of  all
claims    for    medical,   life    insurance,   health,    accident,   workers'

                                     II-19
<PAGE>
compensation or disability benefits brought by or in respect to any of the Newco
Employees under each "employee welfare benefit plan," as such term is defined in
Section 3(1) of ERISA, including, but  not limited to, the plans, programs,  and
arrangements  listed  in Schedule  7.3(a) (the  "Company Welfare  Plans"), which
claims relate to events occurring prior to the Transfer Closing Date, regardless
of when notices  of such claims  are properly filed,  without interruption as  a
result  of  the employment  by  Newco or  any of  its  subsidiaries of  any such
employees.

    (b)  During  the  Transition  Period,   and  thereafter  until  the   second
anniversary  of the Closing Date, the Company shall continue to provide coverage
under the Company Welfare  Plans to Retained Employees,  directors of Newco  and
Newco  Employees,  respectively, on  the same  terms and  conditions as  were in
effect prior to the Transfer Closing Date  except for changes in such terms  and
conditions  that apply to similarly situated employees of the Company or provide
such coverage  under an  alternative  arrangement. The  Company shall  take  all
action  necessary and appropriate to amend  the Company Welfare Plans or provide
for such  an alternative  arrangement to  provide for  such continued  coverage.
Newco  shall be  liable, and  reimburse the Company,  for the  provision of such
coverage based on the Company's actual cost, on an average per capita basis (not
including any  incremental  costs attributable  to  the use  of  an  alternative
arrangement),  with respect to  claims relating to events  occurring on or after
the Transfer Closing Date.

    (c) Newco and its  subsidiaries shall be liable,  and reimburse the  Company
and  its subsidiaries, for or indemnify the Company and its subsidiaries against
any and all liabilities and obligations whatsoever in connection with claims for
medical, life insurance, health, accident  or disability benefits brought by  or
in  respect of  Newco Employees  under the  Company Welfare  Plans or otherwise,
which claims relate to  events occurring on or  after the second anniversary  of
the Closing Date.

    (d)  Newco shall assume all obligations  and liabilities with respect to any
other employment-related  right, claim,  cause of  action, expense,  obligation,
liability  or  cost  ("Costs") with  respect  to  a Retained  Employee  or Newco
Employee (including  but  not  limited  to such  Costs  arising  under  the  Age
Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the
WARN  Act  and other  federal,  state or  local  laws respecting  the  terms and
conditions of employment not otherwise provided for in this Article VII),  which
Costs  are attributable  to events  occurring on  or after  the Transfer Closing
Date; and the Company shall retain all obligations and liabilities with  respect
to  such Costs that are  attributable to events occurring  prior to the Transfer
Closing Date.

    (e) On, or as soon as practicable after, January 1, 1995, the Company  shall
transfer to Newco an amount in cash equal to the dollar value of any accrued but
unused  vacation days  attributable to Newco  Employees as determined  as of the
Transfer Closing Date.

   
    Section 7.4   EMPLOYEE  STOCK OPTIONS.   Each  outstanding option  ("Company
Option")  for the purchase of shares of Common Stock granted under the Company's
stock option plans (the "Company Option  Plans"), which Company Option is  held,
as of January 1, 1995, by a Newco Employee and is then exercisable or would have
been  exercisable using the formula set forth in any of the Company Option Plans
had the employment  of the Newco  Employee been terminated  on such date,  shall
continue  to be exercisable  on the same  terms and conditions  set forth in the
agreement evidencing the grant  of the Company  Option; PROVIDED, HOWEVER,  that
the  term of the Company Option  shall expire no later than  the date that is 30
days following the date on which the  holder ceases to be a Newco Employee;  and
PROVIDED  FURTHER,  HOWEVER,  that,  to  the  extent  a  Company  Option  is not
exercisable as  set forth  above, it  shall expire  as of  such date,  it  being
understood  that the  Exchange Offer shall  not constitute an  event causing the
acceleration of the exercisability of any such Company Option. The Company shall
take all action necessary  and appropriate to amend  the Company Option Plan  to
provide  for  the continued  exercise of  Company Options  as described  in this
Section 7.4; PROVIDED,  HOWEVER, that to  the extent that  such amendment  would
adversely  affect the status of any Company  Option Plan under Rule 16b-3 of the
Securities Exchange Act of 1934, as amended, alternate adjustments shall be made
(which may include the grant of a substituted option to purchase Company  Common
Stock outside the Company Option Plans).
    

                                     II-20
<PAGE>
    Section 7.5  SEVERANCE PAY.

    (a)  The Company and Newco  agree that the employment  of Newco Employees by
Newco or any  of its  subsidiaries on  or after January  1, 1995,  shall not  be
deemed  a  severance of  employment from  the Company  and its  subsidiaries for
purposes of the payment  of severance, salary  continuation or similar  benefits
pursuant  to  any policy,  plan,  program or  agreement  of the  Company  or its
subsidiaries to the extent that any such policy, plan, program or agreement  now
exists.

    (b)  Newco and its  subsidiaries shall assume and  be solely responsible for
all liabilities and obligations whatsoever in connection with claims made by  or
on  behalf  of the  Retained Employees  and  the Newco  Employees in  respect of
severance pay,  salary  continuation and  similar  obligations relating  to  the
termination  or alleged termination of any  such person's employment on or after
the Transfer Closing  Date, and the  Company shall remain  responsible for  such
liabilities  and obligations  in connection  with Company  employees who  do not
become Retained Employees.

    Section 7.6  SENIORITY.   If the Company rehires  any Newco Employee at  any
time during the one-year period following the Transfer Closing Date, such person
shall  be reinstated without any loss of seniority; PROVIDED, HOWEVER, that this
Section 7.6 shall not be  construed to obligate the  Company to offer to  rehire
any Newco Employee.

    Section  7.7  ADMINISTRATIVE SERVICES.  Newco  shall pay the Company the sum
of $500,000 in two equal  installments of $250,000 each  (which shall be due  on
June  30, 1995 and June  30, 1996) for making  available to Newco administrative
services in  connection with  the  Newco Plans  and  the Company  Welfare  Plans
whether or not any such services are used by Newco. At the request of Newco, the
Company  shall provide to Newco such  administrative services in connection with
the Newco Plans as Newco and the  Company shall mutually agree upon, during  the
two-year  period following the Closing Date.  During such period, if the Company
shall incur any  incremental, third-party out-of-pocket  expenses in  connection
with  procuring or providing  employee benefits to any  employee of Newco, Newco
shall reimburse the Company for any such expenses.

    Section 7.8  MEMBERSHIP  PRIVILEGES.  Newco Employees  shall be entitled  to
free PriceCostco warehouse club memberships so long as they remain in the employ
of Newco or one of its subsidiaries.

   
                                  ARTICLE VIII
                            [Intentionally omitted]
    

                                   ARTICLE IX
                                INDEMNIFICATION

    Section 9.1  INDEMNIFICATION.

    (a)  The Company shall indemnify Newco  against and hold Newco harmless from
any loss, liability, claim, damage  or expense (including reasonable legal  fees
and  expenses)  suffered  or incurred  by  Newco  arising from,  relating  to or
otherwise in  respect of  (i) any  material  breach of,  or inaccuracy  in,  any
representation  or warranty of the Company contained in this Agreement; (ii) any
material breach of  any covenant  of the  Company contained  in this  Agreement;
(iii) one-half of all Liabilities relating to Materials of Environmental Concern
and  violations or purported violations of  Environmental Laws arising out of or
relating to the Commercial Property located in Phoenix, Arizona and known as the
Phoenix Fry's property (denoted as item number 4 on Schedule 1.14 hereto);  (iv)
the  Retained Liabilities; (v) the Northridge Mortgage; and (vi) all Liabilities
to which Newco may become subject under the Securities Act or any other  statute
or  common  law (including  any  amount paid  in  settlement of  any litigation,
commenced or threatened, if such settlement is effected with the written consent
of the Company) insofar as any such  Liabilities arise out of or are based  upon
any untrue statement or alleged untrue statement of a material fact contained in
the  Registration Statement or the Tender  Offer Statement on Schedule 13E-4, or
the omission or alleged omission to state therein a material fact required to be
stated herein or necessary to make the

                                     II-21
<PAGE>
statements therein not misleading;  PROVIDED, HOWEVER, that the  indemnification
agreement  contained in this clause shall  not apply to any losses, liabilities,
claims, damages, or  expenses arising  out of, or  based upon,  any such  untrue
statement or alleged untrue statement, or any such omission or alleged omission,
which  was made in reliance upon and in conformity with information furnished to
the Company by Newco  for use in connection  with the Registration Statement  or
the Tender Offer Statement on Schedule 13E-4.

    (b)  The Company shall indemnify Newco and Subsidiary Corporation #1 against
and hold Newco and Subsidiary Corporation #1 harmless from any loss,  liability,
claim, damage or expense (including reasonable legal fees and expenses) suffered
or  incurred by Subsidiary Corporation #1 arising from, relating to or otherwise
in respect of any Retained Liabilities relating to or arising out of the  Mexico
Assets.

    (c)  The Company shall indemnify Newco and Subsidiary Corporation #2 against
and hold Newco and Subsidiary Corporation #2 harmless from any loss,  liability,
claim, damage or expense (including reasonable legal fees and expenses) suffered
or  incurred by Subsidiary Corporation #2 arising from, relating to or otherwise
in respect  of  any Retained  Liabilities  relating to  or  arising out  of  the
International Assets.

    (d)  The Company shall indemnify Newco and Subsidiary Corporation #3 against
and hold Newco and Subsidiary Corporation #3 harmless from any loss,  liability,
claim, damage or expense (including reasonable legal fees and expenses) suffered
or  incurred by Subsidiary Corporation #3 arising from, relating to or otherwise
in respect of any Retained Liabilities relating  to or arising out of the  Quest
Assets.

    (e)  Newco shall indemnify the Company against and hold the Company harmless
from any loss, liability, claim,  damage or expense (including reasonable  legal
fees and expenses) suffered or incurred by the Company arising from, relating to
or  otherwise in  respect of (i)  any material  breach of any  covenant of Newco
contained in  this  Agreement;  (ii)  the Assumed  Liabilities;  and  (iii)  all
Liabilities  to which the Company may become subject under the Securities Act or
any other statute or common law (including any amount paid in settlement of  any
litigation,  commenced or  threatened, if such  settlement is  effected with the
written consent of Newco) insofar  as any such Liabilities  arise out of or  are
based  upon any untrue statement or alleged  untrue statement of a material fact
contained in  the  Registration  Statement  or the  Tender  Offer  Statement  on
Schedule  13E-4, or the omission or alleged omission to state therein a material
fact required to be  stated herein or necessary  to make the statements  therein
not  misleading; PROVIDED, HOWEVER, that the indemnification agreement contained
in this clause shall not apply  to any losses, liabilities, claims, damages,  or
expenses  arising out of,  or based upon,  any such untrue  statement or alleged
untrue statement, or any  such omission or alleged  omission, which was made  in
reliance  upon  and in  conformity with  information furnished  to Newco  by the
Company for use  in connection  with the  Registration Statement  or the  Tender
Offer Statement on Schedule 13E-4.

    (f)  Newco shall  cause Subsidiary Corporation  #1 to  indemnify the Company
against and hold the Company harmless from any loss, liability, claim, damage or
expense (including reasonable legal fees  and expenses) suffered or incurred  by
the  Company arising  from, relating  to or otherwise  in respect  of the Mexico
Assets which arise  out of  events occurring at  or after  the Transfer  Closing
Date.

    (g)  Newco shall  cause Subsidiary Corporation  #2 to  indemnify the Company
against and hold the Company harmless from any loss, liability, claim, damage or
expense (including reasonable legal fees  and expenses) suffered or incurred  by
the   Company  arising  from,  relating  to  or  otherwise  in  respect  of  the
International Assets  which  arise out  of  events  occurring at  or  after  the
Transfer Closing Date.

   
    (h)  Newco shall  cause Subsidiary Corporation  #3 to  indemnify the Company
against and hold the Company harmless from any loss, liability, claim, damage or
expense (including reasonable legal fees  and expenses) suffered or incurred  by
the  Company arising  from, relating  to or  otherwise in  respect of  the Quest
Assets which arise  out of  events occurring at  or after  the Transfer  Closing
Date.
    

    (i)  Newco guarantees to the Company the full and prompt performance by each
Subsidiary Corporation of  each and every  obligation required of  each of  them
pursuant to this Section 9.1. Newco hereby waives presentment demand and similar
defenses to the enforcement of this guarantee.

                                     II-22
<PAGE>
    Section 9.2  PROCEDURES RELATING TO INDEMNIFICATION.

    (a)  Each person to be indemnified  pursuant to Section 9.1 (an "indemnified
party") shall give prompt notice to  the indemnifying party of the assertion  of
any  claim,  or the  commencement  of any  suit,  action or  proceeding, brought
against or sought  to be collected  from such indemnified  party (each a  "Third
Party  Claim"), in respect of which indemnity  may be sought by such indemnified
party under Section 9.1;  PROVIDED that the omission  so to promptly notify  the
indemnifying party with respect to a Third Party Claim brought against or sought
to  be collected from  such indemnified party will  not relieve the indemnifying
party from  any liability  which it  may have  to such  indemnified party  under
Section  9.1 except to the extent that such indemnifying party demonstrates that
such failure has materially prejudiced  such indemnifying party with respect  to
the  defense of  such Third  Party Claim.  If any  indemnified party  shall seek
indemnity under Section 9.1 with respect to a Third Party Claim brought  against
or  sought to be  collected from such indemnified  party, the indemnifying party
shall be entitled to participate therein and,  to the extent that it wishes,  to
assume  and direct the defense and  settlement thereof with counsel satisfactory
to such indemnified  party; PROVIDED that  if such indemnifying  party shall  so
assume  the defense and settlement  of any Third Party  Claim brought against or
sought to be collected from such indemnified party, such Third Party Claim shall
be conclusively deemed a  matter in respect of  which such indemnified party  is
entitled  to be  indemnified by such  indemnifying party under  Section 9.1; and
PROVIDED FURTHER that if any Third Party  Claim brought against or sought to  be
collected  from any indemnified party includes a request for injunctive or other
equitable relief  that, if  granted, is  reasonably likely  to have  a  material
adverse effect on the business, assets, financial or other condition, results of
operations  or prospects on such indemnified party, such indemnified party shall
be entitled to control and direct the defense and settlement thereof and in such
event the legal  and other  expenses subsequently incurred  by such  indemnified
party  in connection with the defense thereof  shall be paid by the indemnifying
party. After notice from the indemnifying  party to an indemnified party of  its
election  to assume and direct the defense and settlement of a Third Party Claim
brought against or sought to be collected from such indemnified party which such
indemnifying party is entitled to assume and direct under the terms hereof,  the
indemnifying  party shall not be liable  to such indemnified party under Section
9.1 for any legal  or other expenses subsequently  incurred by such  indemnified
party  in connection  with the  defense thereof  other than  reasonable costs of
investigation; PROVIDED  that such  indemnified party  shall have  the right  to
employ  counsel to represent such party if such party is advised by counsel that
a conflict exists between the interests of such party and the indemnifying party
such that, as a  result, such party should  be represented by separate  counsel,
and  in such event the fees and expenses  of such separate counsel shall be paid
by the  indemnifying party.  Notwithstanding the  foregoing provisions  of  this
Section  9.2(a), the indemnifying party shall  not (A) without the prior written
consent of  an  indemnified party,  effect  any  settlement of  any  pending  or
threatened  proceeding in  respect of which  such indemnified party  is, or with
reasonable foreseeability, could have been a party and indemnity could have been
sought hereunder  by such  indemnified party  for a  Third Party  Claim  brought
against  or  sought to  be collected  from such  indemnified party,  unless such
settlement includes an unconditional release of such indemnified party from  all
liability  arising out of such proceeding (PROVIDED  that, whether or not such a
release is required to be obtained,  the indemnifying party shall remain  liable
to  such indemnified party  in accordance with  Section 9.1 in  the event that a
Third Party Claim is subsequently brought against or sought to be collected from
such indemnified party) or (B) be liable  for any settlement of any Third  Party
Claim  brought  against or  sought  to be  collected  from an  indemnified party
effected without such indemnifying party's  written consent (which shall not  be
unreasonably  withheld), but if  settled with such  indemnifying party's written
consent, or if there  is a final  judgment for the plaintiff  in any such  Third
Party  Claim, such  indemnifying party  agrees (to  the extent  stated above) to
indemnify the indemnified  party from  and against any  loss, liability,  claim,
damage  or expense by reason of such settlement or judgment. The indemnification
required by Section 9.1 shall be made by periodic payments of the amount thereof
during the  course  of the  investigation  or defense,  as  and when  bills  are
received or loss, liability, claim, damage or expense is incurred.

                                     II-23
<PAGE>
    (b)  In the  event any  indemnified party  should have  a claim  against any
indemnifying party under Section 9.1 that  does not involve a Third Party  Claim
being  asserted against or  sought to be collected  from such indemnified party,
the indemnified  party  shall  deliver  notice of  such  claim  with  reasonable
promptness to the indemnifying party. The failure by any indemnified party to so
notify  the indemnifying party shall not relieve the indemnifying party from any
liability that it may have to such indemnified party under Section 9.1 except to
the extent that the indemnifying party demonstrates that it has been  materially
prejudiced  by  such failure.  If  the indemnifying  party  does not  notify the
indemnified party within 15 calendar days  following its receipt of such  notice
that  the indemnifying  party disputes  its liability  to the  indemnified party
under Section 9.1, such claim specified by the indemnified party in such  notice
will  be conclusively deemed a liability of the indemnifying party under Section
9.1 and the indemnifying  party shall pay  the amount of  such liability to  the
indemnified party on demand or, in the case of any notice in which the amount of
the  claim (or any  portion thereof) is  estimated, on such  later date when the
amount of such claim  (or such portion thereof)  becomes finally determined.  If
the  indemnifying party has  timely disputed its liability  with respect to such
claim, as provided above, the indemnifying party and the indemnified party agree
to proceed in good faith to negotiate  a resolution of such dispute and, if  not
resolved  through negotiations, such dispute will  be resolved by arbitration in
accordance herewith.

                                   ARTICLE X
                                 MISCELLANEOUS

    Section 10.1  AMENDMENT  AND MODIFICATION.  This  Agreement may be  amended,
modified or supplemented only by written agreement of the Company and Newco.

    Section  10.2  WAIVER OF  COMPLIANCE.  Except as  otherwise provided in this
Agreement, any  failure of  any  party hereto  to  comply with  any  obligation,
covenant,  agreement or condition herein may be  waived by the party entitled to
the benefits thereof only by a  written instrument signed by the party  granting
such  waiver, but such waiver  or failure to insist  upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a  waiver
of, or estoppel with respect to, any subsequent or other failure.

    Section 10.3  ARBITRATION.

   
    (a)  In the event  that, from time  of time, any  controversy or claim shall
arise out of or relate to this Agreement, any of the Additional Agreements,  the
transactions  contemplated  hereby or  thereby  or any  documents  or agreements
contemplated by or delivered hereunder  or thereunder, or any substantive  issue
or  dispute shall be  raised by either the  Company or Newco  with the amount in
controversy believed in good faith  by both parties to  be $15 million or  less,
such  controversy,  claim,  substantive issue  or  dispute shall  be  settled by
arbitration in San  Francisco, California  in accordance herewith  and with  the
then  prevailing  Commercial  Arbitration  Rules  of  the  American  Arbitration
Association, Expedited  Procedures. Each  of  the Company  and Newco  shall  use
reasonable efforts, acting in good faith, to mutually select one person prior to
the  Transfer Closing Date who shall serve as the arbitrator with respect to any
such arbitration proceeding.
    

   
    (b) In the event  that, from time  to time, any  controversy or claim  shall
arise  out of or relate to this Agreement, any of the Additional Agreements, the
transactions contemplated  hereby  or thereby  or  any documents  or  agreements
contemplated  by or delivered hereunder or  thereunder, or any substantive issue
or dispute shall be raised  by either the Company or  Newco, with the amount  in
controversy  believed  in good  faith by  either party  to be  in excess  of $15
million, such controversy, claim, substantive issue or dispute shall be  settled
by  arbitration in San Francisco, California in accordance herewith and with the
then  prevailing  Commercial  Arbitration  Rules  of  the  American  Arbitration
Association.  The  parties will  have 14  days from  service of  the arbitration
demand to mutually agree on and select  an arbitrator. If no such agreement  and
selection  occurs, the arbitrator shall  be a member of  the AAA's Large Complex
Case Panel, and shall be selected under the AAA Commercial Arbitration Rule. All
documents and information relevant to the claim or dispute in the possession  of
any  party shall be made available to the  other party not later than sixty (60)
days after the demand for arbitration  is served, and the arbitrator may  permit
such  depositions or  other discovery deemed  necessary for a  fair hearing. The
hearing may not exceed two days. The award shall be
    

                                     II-24
<PAGE>
rendered within 120 days of the demand and may not include punitive damages. The
decision of  the  arbitrator or  arbitrators  shall  be in  writing  and,  where
appropriate,  shall be presented in separate findings of fact and conclusions of
law.

    (c) The decision of the arbitrator  or arbitrators hereunder shall be  final
and  binding on the  parties from which  no appeal may  be taken. The prevailing
party in any  arbitration hereunder  (or if there  is no  prevailing party,  the
party,  if  any, designated  by  the arbitrator)  shall  be entitled  to recover
reasonable attorneys' fees  and expenses from  the other party,  which fees  and
expenses shall be in addition to any other relief that may be awarded.

    Section  10.4   NOTICES.   Any notices  or other  communications required or
permitted hereunder shall be in writing and shall be deemed duly given upon  (a)
transmitter's  confirmation  of  a  receipt  of  a  facsimile  transmission, (b)
confirmed delivery by a standard overnight carrier or (c) the expiration of five
business days after the day when mailed by certified or registered mail, postage
prepaid, addressed at the following addresses  (or at such other address as  the
Company or Newco shall specify by like notice):

    If to the Company, to:

       Price/Costco, Inc.
       10809 120th Avenue NE
       Kirkland, Washington 98033

       Attention: Donald E. Burdick, Esq.

    Copy to:

       Skadden, Arps, Slate, Meagher & Flom
       300 South Grand Avenue
       Suite 3400
       Los Angeles, California 90071

       Attention: Joseph J. Giunta, Esq.

    and

       Gibson, Dunn & Crutcher
       333 South Grand Avenue
       Los Angeles, California 90071

       Attention: Jonathan K. Layne, Esq.

    If to Newco, to:

       Price Enterprises, Inc.
       4649 Morena Boulevard
       San Diego, California 92117

       Attention: Robert E. Price

    Copy to:

       Latham & Watkins
       701 "B" Street
       Suite 2100
       San Diego, California 92101

       Attention: Scott N. Wolfe, Esq.

    Section  10.5  ASSIGNMENT.  This Agreement  and all of the provisions hereof
shall be binding  upon and inure  to the benefit  of the Company  and Newco  and
their respective successors and permitted assigns, but

                                     II-25
<PAGE>
neither  this  Agreement  nor  any  of  the  rights,  interests,  or obligations
hereunder shall be  assigned by either  the Company or  Newco without the  prior
written  consent  of  the  other  party, except  as  otherwise  provided  in the
Operating Agreements.

    Section 10.6  INTERPRETATION.   The descriptive  headings contained in  this
Agreement  are solely for convenience of reference, and do not constitute a part
of this Agreement and shall not in any way affect the meaning or  interpretation
of this Agreement.

    Section  10.7  GOVERNING LAW.  This  Agreement shall be governed by the laws
of the State of New York (regardless of the laws that might be applicable  under
principles  of conflicts of law) as to all matters, including but not limited to
matters of validity, construction, effect, performance and remedies.

    Section 10.8  COUNTERPARTS.  This Agreement  may be executed in two or  more
counterparts  all of which  shall be considered  one and the  same agreement and
each of which shall be deemed an original.

   
    Section 10.9    THIRD PARTIES.    Nothing  herein expressed  or  implied  is
intended  or shall be construed to confer upon or give any person other than the
parties hereto and their successors and assigns, any rights or remedies under or
by reason  of  this  Agreement.  Notwithstanding  the  foregoing,  each  of  the
Subsidiary  Corporations is intended to be, and hereby expressly is constituted,
a third party beneficiary of the agreements of the Company contained in  Article
IX hereof that relate to such Subsidiary Corporation.
    

    Section  10.10  COMPLETE  AGREEMENT.  This  Agreement constitutes the entire
agreement of the Company and Newco with respect to the subject matter hereof and
supersedes all prior arrangements or understandings with respect thereto.  There
are no restrictions, agreements, promises, warranties, covenants or undertakings
other than those expressly set forth herein.

    Section  10.11  SEVERABILITY.   If any provision of  this Agreement shall be
held invalid, illegal or  unenforceable in any respect  by a court of  competent
jurisdiction,  such invalidity, illegality or  unenforceability shall not affect
any other provision hereof.

    IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement  to
be  executed by its duly authorized officers as  of the day and year first above
written.

                                          PRICE/COSTCO, INC.

   
                                          By:
    
                                             -----------------------------------
                                              Name: James D. Sinegal
                                             Title:  President and Chief
                                              Executive Officer

                                          PRICE ENTERPRISES, INC.

   
                                          By:
    
                                             -----------------------------------
                                              Name: Robert E. Price
                                              Title:  Director

                                     II-26
<PAGE>
                                                                       ANNEX III

                                    FORM OF
                     RESTATED CERTIFICATE OF INCORPORATION
                                       OF
                            PRICE ENTERPRISES, INC.

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

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

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

        FOURTH:  The total number of shares of stock which the Corporation shall
    have the authority to issue is 70,000,000, which shall consist of 60,000,000
    shares of  Common Stock,  each having  a par  value of  $.0001 (the  "Common
    Stock") and 10,000,000 shares of Preferred Stock, each having a par value of
    $.0001 (the "Preferred Stock").

        The Board of Directors is hereby authorized from time to time to provide
    by  resolution for the issuance of shares  of preferred stock in one of more
    series not exceeding  in the  aggregate the  number of  shares of  Preferred
    Stock  authorized by this Certificate of Incorporation, as amended from time
    to time;  and to  determine with  respect  to each  such series  the  voting
    powers,  if any (which voting  powers, if granted, may  be full or limited),
    designations, preference  and  relative, participating,  optional  or  other
    special rights, and the qualifications, limitations or restrictions relating
    thereto,  including without  limiting the  generality of  the foregoing, the
    voting rights relating to shares of Preferred Stock of any series (which may
    be one of more votes per share or a fraction of a vote per share, which  may
    vary  over  time and  which may  be  applicable generally  or only  upon the
    happening and  continuance of  stated  events or  conditions), the  rate  of
    dividend  to which holders of Preferred Stock  of any series may be entitled
    (which may  be  cumulative  or  noncumulative), the  rights  of  holders  of
    Preferred  Stock of any  series in the event  of liquidation, dissolution or
    winding up of the affairs of the Corporation, the rights, if any, of holders
    of Preferred  Stock of  any series  to convert  or exchange  such shares  of
    Preferred  Stock of such series  for shares of any  other class or series of
    capital stock  or  for any  other  securities,  property or  assets  of  the
    Corporation  or any subsidiary (including the  determination of the price or
    prices or the rate or rates applicable to such rights to convert or exchange
    and the adjustment  thereof, the  time or times  during which  the right  to
    convert or exchange shall be applicable and the time or times during which a
    particular  price or rate shall be applicable), whether or not the shares of
    that series shall  be redeemable, and,  if so, the  terms and conditions  of
    such  redemption, including the date or dates upon or after which they shall
    be redeemable, and the amount per share payable in case of redemption, which
    amount may  vary  under different  conditions  and at  different  redemption
    dates, and whether any shares of that series shall be redeemed pursuant to a
    retirement or sinking fund or otherwise and the terms and conditions of such
    obligation.

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

                                     III-1
<PAGE>
        FIFTH:   The following provisions are inserted for the management of the
    business and the conduct of the affairs of the Corporation, and for  further
    definition,  limitation and regulation of the  powers of the Corporation and
    of its directors and stockholders:

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

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

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

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

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

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

        EIGHTH:   (a)  Subject to  Article  EIGHTH (c),  the  Corporation  shall
    indemnify  any person who  was or is a  party or is threatened  to be made a
    party to any threatened,  pending or completed  action, suit or  proceeding,
    whether  civil,  criminal, administrative  or  investigative (other  than an
    action by or in the right of the Corporation) by reason of the fact that  he
    is  or was a director or officer of the Corporation, or is or was serving at
    the request of the Corporation as a director, officer, employee or agent  of
    another  corporation,  partnership, joint  venture, trust,  employee benefit
    plan or  other enterprise,  against  expenses (including  attorneys'  fees),
    judgments,  fines  and amounts  paid in  settlement actually  and reasonably
    incurred by him  in connection with  such action, suit  or proceeding if  he
    acted  in good faith and in a manner  he reasonably believed to be in or not
    opposed to the best interests of  the Corporation, and, with respect to  any
    criminal  action  or  proceeding, had  no  reasonable cause  to  believe his
    conduct was unlawful. The termination of  any action, suit or proceeding  by
    judgment,  order, settlement, conviction, or upon  a plea of nolo contendere
    or its  equivalent, shall  not, of  itself, create  a presumption  that  the
    person  did  not act  in  good faith  and in  a  manner which  he reasonably
    believed to be in or not opposed  to the best interests of the  Corporation,
    and, with respect to any criminal action or proceeding, had reasonable cause
    to believe that his conduct was unlawful.

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

                                     III-2
<PAGE>
    application that, despite the adjudication of  liability but in view of  all
    the circumstances of the case, such person is fairly and reasonably entitled
    to  indemnity for such  expenses which the  Court of Chancery  or such other
    court shall deem proper.

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

        (d) Notwithstanding  any contrary  determination  in the  specific  case
    under   Article  EIGHTH  (c),   and  notwithstanding  the   absence  of  any
    determination thereunder, any present or  former director or officer of  the
    Corporation may apply to any court of competent jurisdiction in the State of
    Delaware  for  indemnification  to the  extent  otherwise  permissible under
    Article EIGHTH (a) and Article EIGHTH (b). The basis of such indemnification
    by a court shall  be a determination by  such court that indemnification  of
    such person is proper in the circumstances because he has met the applicable
    standards  of conduct set forth in Article EIGHTH (a) or Article EIGHTH (b),
    as the case may  be. Neither a contrary  determination in the specific  case
    under  Article EIGHTH  (c) nor the  absence of  any determination thereunder
    shall be a  defense to such  application or create  a presumption that  such
    person  seeking  indemnification  has  not met  any  applicable  standard of
    conduct. Notice  of any  application for  indemnification pursuant  to  this
    Article  EIGHTH  (d) shall  be given  to the  Corporation promptly  upon the
    filing of such application. If successful, in whole or in part, such  person
    seeking  indemnification shall  also be entitled  to be paid  the expense of
    prosecuting such application.

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

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

        (g) The Corporation may purchase and maintain insurance on behalf of any
    person who is or was a director or officer of the Corporation, or is or  was
    serving  at the request of the  Corporation as a director, officer, employee
    or agent of another corporation, partnership, joint venture, trust, employee
    benefit plan or other enterprise against any liability asserted against  him
    and incurred by him in any

                                     III-3
<PAGE>
    such  capacity, or  arising out of  his status  as such, whether  or not the
    Corporation would have the power or the obligation to indemnify him  against
    such liability under the provisions of this Article EIGHTH or Section 145 of
    the GCL.

        (h) For purposes of this Article EIGHTH, references to "the Corporation"
    shall  include, in  addition to  the resulting  corporation, any constituent
    corporation (including  any  constituent of  a  constituent) absorbed  in  a
    consolidation  or  merger which,  if its  separate existence  had continued,
    would have had power and authority  to indemnify its directors or  officers,
    so  that any person who is or was  a director or officer of such constituent
    corporation, or  is  or was  serving  at  the request  of  such  constituent
    corporation   as  a  director,   officer,  employee  or   agent  of  another
    corporation, partnership,  joint venture,  trust, employee  benefit plan  or
    other  enterprise, shall stand in the  same position under the provisions of
    this Article EIGHTH with respect  to the resulting or surviving  corporation
    as  he  would  have with  respect  to  such constituent  corporation  if its
    separate existence  had  continued. For  purposes  of this  Article  EIGHTH,
    references  to "fines" shall  include any excise taxes  assessed on a person
    with respect to an employee benefit plan; and references to "serving at  the
    request  of  the  Corporation"  shall include  any  service  as  a director,
    officer, employee or agent  of the Corporation which  imposes duties on,  or
    involves  services by, such person with respect to an employee benefit plan,
    its participants or beneficiaries; and a person who acted in good faith  and
    in a manner he reasonably believed to be in the interest of the participants
    and  beneficiaries of an employee benefit plan shall be deemed to have acted
    in a  manner "not  opposed to  the  best interests  of the  Corporation"  as
    referred  to in this Article EIGHTH. For purposes of any determination under
    Article EIGHTH (c), a person shall be deemed to have acted in good faith  in
    a  manner  he  reasonably believed  to  be in  or  not opposed  to  the best
    interests of the  Corporation, or, with  respect to any  criminal action  or
    proceeding,  to  have had  no reasonable  cause to  believe his  conduct was
    unlawful, if his action is based on  the records or books of account of  the
    Corporation  or another enterprise, or on information supplied to him by the
    officers of the  Corporation or another  enterprise in the  course of  their
    duties,  or on the  advice of legal  counsel for the  Corporation or another
    enterprise or  on  information or  records  given  or reports  made  to  the
    Corporation  or  another  enterprise  by  an  independent  certified  public
    accountant or by an appraiser or other expert selected with reasonable  care
    by  the Corporation or another enterprise.  The term "another enterprise" is
    used in this  Article EIGHTH  (h) shall mean  any other  corporation or  any
    partnership, joint venture, trust, employee benefit plan or other enterprise
    of  which such person is or was serving at the request of the Corporation as
    a director,  officer, employee  or  agent. The  provisions of  this  Article
    EIGHTH  (h) shall not be deemed  to be exclusive or to  limit in any way the
    circumstances in which  a person may  be deemed to  have met the  applicable
    standard  of conduct set forth in Article EIGHTH (a) or (b), as the case may
    be.

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

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

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

        NINTH:  No director shall be personally liable to the Corporation or any
    of  its stockholders for monetary damages for  breach of fiduciary duty as a
    director, except for liability (i) for any breach of the director's duty  of
    loyalty  to the Corporation or its  stockholders, (ii) for acts or omissions
    not in good

                                     III-4
<PAGE>
    faith or which involve intentional misconduct or a knowing violation of law,
    (iii) pursuant to Section 174 of the  GCL, or (iv) for any transaction  from
    which  the  director derived  an improper  personal  benefit. Any  repeal or
    modification of this Article  NINTH by the  stockholders of the  Corporation
    shall  not adversely  affect any  right or protection  of a  director of the
    Corporation existing at the time of such repeal or modification with respect
    to acts or omissions occurring prior to such repeal or modification.

                                     III-5
<PAGE>
                                                                        ANNEX IV

                                    FORM OF
                              AMENDED AND RESTATED
                                     BYLAWS
                                       OF
                            PRICE ENTERPRISES, INC.
                     (HEREINAFTER CALLED THE "CORPORATION")

                                   ARTICLE I
                                    OFFICES

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

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

                                   ARTICLE II
                            MEETINGS OF STOCKHOLDERS

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

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

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

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

                                      IV-1
<PAGE>
present or represented.  At such adjourned  meeting at which  a quorum shall  be
present  or represented,  any business may  be transacted which  might have been
transacted at the meeting as originally noticed. If the adjournment is for  more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned  meeting, a  notice of  the adjourned meeting  shall be  given to each
stockholder entitled to vote at the meeting.

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

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

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

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

                                  ARTICLE III
                                   DIRECTORS

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

    SECTION 2.  VACANCIES.  Vacancies, and newly created directorships resulting
from any increase  in the authorized  number of  directors, may be  filled by  a
majority  of the directors  then in office, though  less than a  quorum, or by a
sole remaining director.  The directors so  chosen shall hold  office until  the
next annual

                                      IV-2
<PAGE>
election of directors and until their successors are duly elected and qualified,
or  until their  earlier resignation  or removal. If  there are  no directors in
office, then an  election of directors  may be  held in the  manner provided  by
statute.

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

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

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

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

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

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

    SECTION 9.  COMPENSATION.  The directors may be paid their expenses, if any,
of  attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board

                                      IV-3
<PAGE>
of Directors or a stated salary as director. No such payment shall preclude  any
director  from  serving  the Corporation  in  any other  capacity  and receiving
compensation therefor. Members of special or standing committees may be  allowed
like compensation for attending committee meetings.

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

                                   ARTICLE IV
                                    OFFICERS

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

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

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

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

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

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

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

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

                                      IV-5
<PAGE>
Directors, taking proper vouchers  for such disbursements,  and shall render  to
the  President and the Board of Directors,  at its regular meetings, or when the
Board of Directors  so requires,  an account of  all his  transactions as  Chief
Financial Officer and of the financial condition of the Corporation.

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

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

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

                                   ARTICLE V
                                     STOCK

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

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

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

                                      IV-6
<PAGE>
manner  as the Board of Directors shall require and/or to give the Corporation a
bond in such sum  as it may direct  as indemnity against any  claim that may  be
made  against the  Corporation with respect  to the certificate  alleged to have
been lost, stolen or destroyed.

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

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

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

                                   ARTICLE VI
                                    NOTICES

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

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

                                  ARTICLE VII
                               GENERAL PROVISIONS

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

                                      IV-7
<PAGE>
    SECTION 2.  DISBURSEMENTS.  All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person  or
persons as the Board of Directors may from time to time designate.

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

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

                                  ARTICLE VIII
                                INDEMNIFICATION

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

                                   ARTICLE IX
                                   AMENDMENTS

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

                                      IV-8
<PAGE>
                                                                         ANNEX V

                                    FORM OF
                              AMENDED AND RESTATED
                                     BYLAWS
                                       OF
                               PRICE/COSTCO, INC.
                     (HEREINAFTER CALLED THE "CORPORATION")

                                   ARTICLE I
                                    OFFICES

    Section  1.   REGISTERED OFFICE.   The registered office  of the Corporation
shall be established  and maintained in  the City of  Wilmington, County of  New
Castle, State of Delaware.
    Section  2.  OTHER OFFICES.   The Corporation may  also have offices at such
other places both  within and  without the  State of  Delaware as  the Board  of
Directors may from time to time determine.

                                   ARTICLE II
                            MEETINGS OF STOCKHOLDERS

    Section  1.   PLACE  OF  MEETINGS.   Meetings  of the  stockholders  for the
election of directors or for  any other purpose shall be  held at such time  and
place,  either within or  without the State  of Delaware as  shall be designated
from time to  time by the  Board of Directors  and stated in  the notice of  the
meeting or in a duly executed waiver of notice thereof.
    Section  2.  ANNUAL MEETINGS.  The  Annual Meetings of Stockholders shall be
held on such date and at such time  as shall be designated from time to time  by
the Board of Directors and stated in the notice of the meeting, at which meeting
the stockholders shall elect Directors in the manner provided in the Certificate
of  Incorporation and  in the  Bylaws, and transact  such other  business as may
properly be brought  before the meeting.  Written notice of  the Annual  Meeting
stating  the  place,  date  and hour  of  the  meeting shall  be  given  to each
stockholder entitled to vote  at such meeting  not less than  ten nor more  than
sixty days before the date of the meeting.
    Section  3.  SPECIAL MEETINGS.  Unless otherwise prescribed by law or by the
Certificate of Incorporation, Special Meetings of Stockholders, for any  purpose
or  purposes may be called  by either (i) the  Chairman, (ii) the Vice Chairman,
(iii) the President,  (iv) any  Vice President, (v)  the Secretary  or (vi)  any
Assistant Secretary, if there be one, and shall be called by any such officer at
the request in writing by a majority of the entire Board of Directors, or at the
request in writing of stockholders owning a majority of the capital stock of the
Corporation  issued and  outstanding and  entitled to  vote. Such  request shall
state the  purpose or  purposes of  the proposed  meeting. Written  notice of  a
Special  Meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting.
    Section 4.    QUORUM.   Except  as  otherwise  provided by  law  or  by  the
Certificate  of Incorporation,  the holders of  a majority of  the capital stock
issued and  outstanding and  entitled  to vote  thereat,  present in  person  or
represented  by  proxy,  shall  constitute  a  quorum  at  all  meetings  of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any  meeting of the stockholders, the  stockholders
entitled  to vote thereat, present in person or represented by proxy; shall have
power to  adjourn the  meeting from  time  to time,  without notice  other  than
announcement at the meeting,

                                      V-1
<PAGE>
until  a quorum shall be,  present or represented. At  such adjourned meeting at
which a quorum shall be present  or represented, any business may be  transacted
which  might have been transacted  at the meeting as  originally noticed. If the
adjournment is for  more than thirty  days, or  if after the  adjournment a  new
record  date  is fixed  for the  adjourned  meeting, a  notice of  the adjourned
meeting shall be given to each stockholder entitled to vote at the meeting.
    Section 5.  VOTING.   Unless otherwise required  by law, the Certificate  of
Incorporation  or  these  Bylaws, any  question  brought before  any  meeting of
stockholders shall be decided by  the vote of the holders  of a majority of  the
stock  represented and entitled to vote thereat. Each stockholder represented at
a meeting of stockholders shall be entitled  to cast one vote for each share  of
the  capital stock entitled to vote thereat held by such stockholder. Such votes
may be cast in person or by proxy but no proxy shall be voted on or after  three
years  from its date, unless such proxy  provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding  at
a meeting of stockholders, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
    Section  6.  CONSENT OF  STOCKHOLDERS IN LIEU OF  MEETING.  Unless otherwise
provided in the Certificate of  Incorporation, any action required or  permitted
to be taken at any Annual or Special Meeting of Stockholders of the Corporation,
may  be taken without a  meeting, without prior notice and  without a vote, if a
consent in writing, setting forth  the action so taken,  shall be signed by  the
holders  of outstanding stock having  not less than the  minimum number of votes
that would be necessary to authorize or  take such action at a meeting at  which
all shares entitled to vote thereon were present and voted. Prompt notice of the
taking  of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
    Section 7.   LIST OF  STOCKHOLDERS ENTITLED  TO VOTE.   The  officer of  the
Corporation  who has charge of the stock ledger of the Corporation shall prepare
and make, at  least ten days  before every meeting  of stockholders, a  complete
list  of  the  stockholders  entitled  to  vote  at  the  meeting,  arranged  in
alphabetical order, and showing the address  of each stockholder and the  number
of shares registered in the name of each stockholder. Such list shall be open to
the  examination of  any stockholder,  for any  purpose germane  to the meeting,
during ordinary business hours, for a period  of at least ten days prior to  the
meeting,  either at  a place within  the city where  the meeting is  to be held,
which place shall  be specified  in the  notice of the  meeting, or,  if not  so
specified,  at the place where the meeting is to be held. The list shall also be
produced and kept at  the time and  place of the meeting  during the whole  time
thereof,  and may  be inspected  by any  stockholder of  the Corporation  who is
present.
    Section 8.  STOCK LEDGER.  The stock ledger of the Corporation shall be  the
only  evidence as  to who  are the  stockholders entitled  to examine  the stock
ledger, the list required by  Section 7 of this Article  II or the books of  the
Corporation, or to vote in person or by proxy at any meeting of stockholders.

                                  ARTICLE III
                                   DIRECTORS

    Section  1.  NUMBER AND ELECTION OF DIRECTORS.  The Board of Directors shall
consist of one or more  members, the exact number of  which shall be fixed  from
time  to time by the Board of Directors. Except as provided in Section 2 of this
Article, directors shall be elected by a  plurality of the votes cast at  Annual
Meetings  of Stockholders, and each director  so elected shall hold office until
the Annual Meeting in  which his term  expires and until  his successor is  duly
elected and qualified, or until his earlier resignation or removal. Any director
may  resign at any time  upon written notice to  the Corporation. Directors need
not be stockholders.
    Section 2.  VACANCIES.  Vacancies, and newly created directorships resulting
from any increase  in the authorized  number of  directors, may be  filled by  a
majority  of the directors  then in office, though  less than a  quorum, or by a
sole remaining director. Directors  so chosen shall be  identified by the  Class
(Class  I,  II or  III,  as set  forth in  Article  EIGHTH of  the corporation's
Certificate of Incorporation)  to which  they are  named and  shall hold  office
until  the next election of  the Class for which  such directors shall have been
chosen and until their successors are duly elected and qualified, or until their
earlier resignation or removal.

                                      V-2
<PAGE>
    Section 3.  DUTIES  AND POWERS.   The business of  the Corporation shall  be
managed  by or under the direction of  the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by  statute  or by  the  Certificate of  Incorporation  or by  these  Bylaws
directed or required to be exercised or done by the stockholders.
    Section  4.  MEETINGS.   The Board of Directors  of the Corporation may hold
meetings, both  regular and  special,  either within  or  without the  State  of
Delaware.  Regular meetings of the Board of Directors may be held without notice
at such time and  at such place as  may from time to  time be determined by  the
Board  of Directors. Special meetings of the Board of Directors may be called by
the Chairman, the Vice Chairman, the President, or any director. Notice  thereof
stating  the place, date and hour of the meeting shall be given to each director
either by mail, telephone, facsimile or telegram not less than forty-eight  (48)
hours before the date of the meeting.
    Section  5.  QUORUM.   Except as  may be otherwise  specifically provided by
law, the Certificate of  Incorporation or these Bylaws,  at all meetings of  the
Board  of Directors a majority of the entire Board of Directors shall constitute
a quorum for the transaction of business. The act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the  Board
of  Directors. If a quorum shall  not be present at any  meeting of the Board of
Directors, the directors present  thereat may adjourn the  meeting from time  to
time without notice other than announcement at the meeting, until a quorum shall
be present.
    Section  6.  ACTIONS OF BOARD.  Unless otherwise provided by the Certificate
of Incorporation or these Bylaws, any  action required or permitted to be  taken
at  any meeting  of the Board  of Directors or  of any committee  thereof may be
taken without  a meeting,  if  all the  members of  the  Board of  Directors  or
committee,  as the case may  be, consent thereto in  writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors  or
committee.
    Section  7.   MEETINGS BY MEANS  OF CONFERENCE TELEPHONE.   Unless otherwise
provided by the  Certificate of Incorporation  or these Bylaws,  members of  the
Board  of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate  in a meeting  of the Board  of Directors or  such
committee by means of a conference telephone or similar communications equipment
by  means of which all persons participating in the meeting can hear each other,
and participation  in a  meeting pursuant  to this  Section 7  shall  constitute
presence in person at such meeting.
    Section 8.  COMMITTEES.  The Board of Directors may, by resolution passed by
a  majority of the entire Board of  Directors, designate one or more committees,
each committee to consist of  one or more of  the Directors of the  Corporation.
The  Board of Directors may designate one or more directors as alternate members
of any  committee, who  may replace  any absent  or disqualified  member at  any
meeting  of any such committee. Any committee,  to the extent allowed by law and
provided in these Bylaws  or the resolution  establishing such committee,  shall
have  and may exercise all the powers and authority of the Board of Directors in
the management of the  business and affairs of  the Corporation. Each  committee
shall keep regular minutes and report to the Board of Directors when required.
    Section 9.  COMPENSATION.  The directors may be paid their expenses, if any,
of  attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated  salary
as  director.  No such  payment  shall preclude  any  director from  serving the
Corporation in any other capacity  and receiving compensation therefor.  Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
    Section  10.  INTERESTED DIRECTORS.   No contract or transaction between the
Corporation and  one  or more  of  its directors  or  officers, or  between  the
Corporation  and  any  other  corporation,  partnership,  association,  or other
organization in which one or more of its directors or officers are directors  or
officers,  or have a  financial interest, shall  be void or  voidable solely for
that reason,  or  solely  because the  director  or  officer is  present  at  or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted  for  such  purpose  if  (i)  the material  facts  as  to  his  or their
relationship or interest and as to the contract or transaction are disclosed  or
are known to the Board of Directors or the committee, and the Board of Directors
or  committee  in  good faith  authorizes  the  contract or  transaction  by the
affirmative votes of a majority of the disinterested directors, even though  the
disinterested  directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction  are
disclosed or are known to the

                                      V-3
<PAGE>
stockholders  entitled  to  vote  thereon and  the  contract  or  transaction is
specifically approved in good  faith by vote of  the stockholders; or (iii)  the
contract  or transaction  is fair  as to the  Corporation as  of the  time it is
authorized, approved or ratified by the Board of Directors, a committee  thereof
or   the  stockholders.  Common  or  interested  directors  may  be  counted  in
determining the presence of a quorum at  a meeting of the Board of Directors  or
of a committee which authorizes the contract or transaction.

                                   ARTICLE IV
                                    OFFICERS

    Section  1.  GENERAL.   The executive  officers of the  Corporation shall be
chosen by the Board of  Directors and shall include a  Chairman of the Board  of
Directors,  a President  and Chief  Executive Officer,  a Secretary  and a Chief
Financial Officer. The Board  of Directors, in its  discretion, may also  choose
one  or more Executive Vice Presidents (each  of whom shall also be an executive
officer) a  Treasurer  (who  shall  also  be  an  executive  officer)  and  Vice
Presidents,  Assistant Secretaries, Assistant Treasurers and other officers. Any
number of offices may be held by the same person, unless otherwise prohibited by
law, the  Certificate of  Incorporation or  these Bylaws.  The officers  of  the
Corporation  need not be stockholders of the Corporation nor, except in the case
of the Chairman of the Board of Directors and the Vice Chairman of the Board  of
Directors, need such officers be directors of the Corporation.
    Section  2.   ELECTION.  The  Board of  Directors at its  first meeting held
after each  Annual Meeting  of  Stockholders shall  elect  the officers  of  the
Corporation  who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall  be determined from time to time by  the
Board  of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected  by the Board  of Directors may  be removed at  any
time by the affirmative vote of a majority of the entire Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by a majority
of  the entire Board of Directors. The salaries of all executive officers of the
Corporation shall be fixed by the Board of Directors.
    Section 3.  CHAIRMAN OF THE BOARD  OF DIRECTORS.  The Chairman of the  Board
of  Directors shall preside at all meetings of the stockholders and of the Board
of Directors. Except where  by law the signature  of the President is  required,
the  Chairman of  the Board  of Directors  shall possess  the same  power as the
President to  sign all  contracts,  certificates and  other instruments  of  the
Corporation  which  may be  authorized  by the  Board  of Directors.  During the
absence or disability of the President,  the Chairman of the Board of  Directors
shall exercise all the powers and discharge all the duties of the President. The
Chairman  of the Board of Directors shall also perform such other duties and may
exercise such other powers as from time to time may be assigned to him by  these
Bylaws  or by the Board of Directors. The Chairman of the Board of Directors may
only be appointed or removed by a majority of the entire Board of Directors.
    Section 4.  VICE CHAIRMAN OF THE  BOARD OF DIRECTORS.  The Vice Chairman  of
the  Board of Directors shall,  in the absence or  disability of the Chairman of
the Board of Directors, preside at meetings of the stockholders and the Board of
Directors. The Vice Chairman of the  Board of Directors shall also perform  such
other  duties and  may exercise such  other powers as  from time to  time may be
assigned to him by these Bylaws or by the Board of Directors.
    Section 5.  PRESIDENT.  The President  shall, subject to the control of  the
Board  of Directors, have general supervision of the business of the Corporation
and shall see  that all orders  and resolutions  of the Board  of Directors  are
carried  into effect. He shall execute all bonds, mortgages, contracts and other
instruments of  the  Corporation  requiring  a  seal,  under  the  seal  of  the
Corporation,  except where required  or permitted by law  to be otherwise signed
and executed and except that the other officers of the Corporation may sign  and
execute  documents when so authorized by these Bylaws, the Board of Directors or
the President. In  the absence or  disability of  the Chairman of  the Board  of
Directors  or the Vice Chairman of the Board  of Directors, or if there be none,
the President shall preside at all meetings of the stockholders and the Board of
Directors.  The  President  shall  be   the  Chief  Executive  Officer  of   the
Corporation. The President shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these Bylaws or
by  the Board of Directors. The President may  only be appointed or removed by a
majority of the entire Board of Directors.

                                      V-4
<PAGE>
    Section 6.  EXECUTIVE VICE PRESIDENTS  AND VICE PRESIDENTS.  At the  request
of  the President or in his absence or  in the event of his inability or refusal
to act (and  if there  be no  Chairman of the  Board of  Directors), the  Senior
Executive Vice President, and then the Executive Vice President or the Executive
Vice  Presidents if there is more than one (in the order designated by the Board
of Directors) shall  perform the duties  of the President,  and when so  acting,
shall  have all the  powers of and be  subject to all  the restrictions upon the
President. Each Vice  President (including Senior  Executive and Executive  Vice
Presidents)  shall perform such other  duties and have such  other powers as the
Board of Directors from time to time  may prescribe. If there be no Chairman  of
the  Board of  Directors and  no Vice  President, the  Board of  Directors shall
designate the officer of the Corporation who, in the absence of the President or
in the event of the inability or refusal of the President to act, shall  perform
the  duties of the President,  and when so acting, shall  have all the powers of
and be subject to all the restrictions upon the President.
    Section 7.  SECRETARY.  The Secretary shall attend all meetings of the Board
of Directors and  all meetings of  stockholders and record  all the  proceedings
thereat in a book or books to be kept for that purpose; the Secretary shall also
perform  like duties  for the standing  committees when  required. The Secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, and shall perform such other  duties
as  may  be prescribed  by  the Board  of  Directors or  President,  under whose
supervision he or she shall be. If the Secretary shall be unable or shall refuse
to cause to  be given notice  of all  meetings of the  stockholders and  special
meetings of the Board of Directors, and if there be no Assistant Secretary, then
either  the Board of  Directors or the  President may choose  another officer to
cause such notice to be given. The  Secretary shall have custody of the seal  of
the  Corporation and the Secretary or any  Assistant Secretary, if there be one,
shall have authority to affix the same  to any instrument requiring it and  when
so  affixed, it  may be  attested by the  signature of  the Secretary  or by the
signature of  any such  Assistant Secretary.  The Board  of Directors  may  give
general  authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his signature. The Secretary shall see that all books,
reports, statements, certificates  and other documents  and records required  by
law to be kept or filed are properly kept or filed, as the case may be.
    Section 8.  CHIEF FINANCIAL OFFICER.  The Chief Financial Officer shall also
serve  as the Treasurer unless a Treasurer  shall be separately appointed by the
Board of  Directors  and shall  have  the custody  of  the corporate  funds  and
securities   and  shall  keep  full  and   accurate  accounts  of  receipts  and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name  and to the credit of the Corporation  in
such  depositories as  may be  designated by the  Board of  Directors. The Chief
Financial Officer shall disburse the funds of the Corporation as may be  ordered
by  the Board of  Directors, taking proper vouchers  for such disbursements, and
shall render  to  the President  and  the Board  of  Directors, at  its  regular
meetings,  or when  the Board of  Directors so  requires, an account  of all his
transactions as Chief Financial  Officer and of the  financial condition of  the
Corporation.
    Section  9.  ASSISTANT SECRETARIES.  Except  as may be otherwise provided in
these Bylaws, Assistant Secretaries, if there be any, shall perform such  duties
and  have such powers as from time to time  may be assigned to them by the Board
of Directors,  the  President, any  Vice  President, if  there  be one,  or  the
Secretary, and in the absence of the Secretary or in the event of his disability
or  refusal  to act,  shall perform  the duties  of the  Secretary, and  when so
acting, shall have all the powers of and be subject to all the restrictions upon
the Secretary.
    Section 10.  ASSISTANT TREASURERS.   Assistant Treasurers, if there be  any,
shall  perform such  duties and  have such powers  as from  time to  time may be
assigned to them by the Board  of Directors, the President, any Vice  President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event  of his  disability or  refusal to  act, shall  perform the  duties of the
Treasurer, and when so acting,  shall have all the powers  of and be subject  to
all the restrictions upon the Treasurer.
    Section  11.  OTHER OFFICERS.  Such other officers as the Board of Directors
may choose shall perform such duties and  have such powers as from time to  time
may  be assigned to them  by the Board of Directors.  The Board of Directors may
delegate to any other officer of the Corporation the power to choose such  other
officers and to prescribe their respective duties and powers.

                                      V-5
<PAGE>
                                   ARTICLE V
                                     STOCK

    Section  1.  FORM OF CERTIFICATES.  Every holder of stock in the Corporation
shall be entitled to have a certificate  signed, in the name of the  Corporation
(i) by the Chairman or Vice Chairman of the Board of Directors, or the President
or  a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the  Corporation. If the corporation shall be  authorized
to  issue more than one class of stock or more than one series of any class, the
designations, preferences and relative, participating, optional or other special
rights of  each  class  of  stock or  series  thereof  and  the  qualifications,
limitations,  or restrictions  of such  preferences and/or  rights shall  be set
forth in full or  summarized on the  face or back of  the certificate which  the
corporation  shall issue  to represent such  class or series  of stock, provided
that, except as otherwise provided in section 202 of the General Corporation Law
of Delaware, in lieu of  the foregoing requirements, there  may be set forth  on
the  face  or back  of  the certificate  which  the corporation  shall  issue to
represent such class or series of  stock, a statement that the corporation  will
furnish  without  charge  to  each  stockholder  who  so  requests  the  powers,
designations, preferences and relative, participating, optional or other special
rights of  each  class  of  stock or  series  thereof  and  the  qualifications,
limitations or restrictions of such preferences and/ or rights.
    Section  2.   SIGNATURES.   Where a  certificate is  countersigned by  (i) a
transfer agent other than the Corporation  or its employee, or (ii) a  registrar
other  than  the  Corporation  or  its  employee,  any  other  signature  on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile  signature has been placed upon a  certificate
shall  have ceased to be  such officer, transfer agent  or registrar before such
certificate is issued, it may be issued by the Corporation with the same  effect
as if he were such officer, transfer agent or registrar at the date of issue.
    Section  3.   LOST CERTIFICATES.   The Board  of Directors may  direct a new
certificate to be issued in place  of any certificate theretofore issued by  the
Corporation  alleged to have been lost, stolen  or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to  be
lost,  stolen  or destroyed  (unless otherwise  authorized  by the  Board). When
authorizing such issue of a new certificate, the Board of Directors may, in  its
discretion  and as  a condition precedent  to the issuance  thereof, require the
owner  of   such  lost,   stolen  or   destroyed  certificate,   or  his   legal
representative,  to advertise the same in such  manner as the Board of Directors
shall require and/or to give the Corporation a bond in such sum as it may direct
as indemnity against  any claim that  may be made  against the Corporation  with
respect to the certificate alleged to have been lost, stolen or destroyed.
    Section  4.  TRANSFERS.   Stock of the Corporation  shall be transferable in
the manner prescribed by law  and in these Bylaws.  Transfers of stock shall  be
made on the books of the Corporation only by the person named in the certificate
or by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall be
issued.
    Section  5.  RECORD DATE.   In order that  the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders  or
any  adjournment thereof, or entitled to  express consent to corporate action in
writing without a  meeting, or entitled  to receive payment  of any dividend  or
other  distribution  or allotment  of any  rights, or  entitled to  exercise any
rights in respect of  any change, conversion  or exchange of  stock, or for  the
purpose  of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall  not be more than sixty  days nor less than ten  days
before  the date of  such meeting, nor more  than sixty days  prior to any other
action. A determination of  stockholders of record entitled  to notice of or  to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
    Section  6.    BENEFICIAL OWNERS.    The  Corporation shall  be  entitled to
recognize the exclusive right of a person  registered on its books as the  owner
of  shares to receive dividends,  and to vote as such  owner, and to hold liable
for calls and  assessments a  person registered  on its  books as  the owner  of
shares,  and shall not be bound to recognize  any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other  notice thereof, except as otherwise provided  by
law.

                                      V-6
<PAGE>
                                   ARTICLE VI
                                    NOTICES

    Section  1.   NOTICES.   Whenever  written  notice is  required by  law, the
Certificate of  Incorporation or  these Bylaws,  to be  given to  any  director,
member  of  a  committee or  stockholder,  such  notice may  be  given  by mail,
addressed to such director, member of a committee or stockholder, at his address
as it appears on the records  of the Corporation, with postage thereon  prepaid,
and  such notice shall be deemed to be given  at the time when the same shall be
deposited in the United States mail. Written notice may also be given personally
or by telegram, telex, facsimile or cable, in which event notice shall be deemed
given upon receipt.
    Section 2.  WAIVERS OF NOTICE.  Whenever any notice is required by law,  the
Certificate  of  Incorporation or  these Bylaws,  to be  given to  any director,
member of a committee  or stockholder, a waiver  thereof in writing, signed,  by
the  person or persons entitled to said notice, whether before or after the time
stated therein,  shall  be  deemed  equivalent  thereto.  Neither  the  business
transacted  or  to be  transacted at,  nor the  purpose of  any meeting  need be
specified in any written waiver of notice thereof.

                                  ARTICLE VII
                               GENERAL PROVISIONS

    Section 1.  DIVIDENDS.  Dividends upon the capital stock of the Corporation,
subject to the provisions  of the Certificate of  Incorporation, if any, may  be
declared by the Board of Directors at any regular or special meeting, and may be
paid  in cash, in property, or in shares of the capital stock. Before payment of
any dividend,  there may  be  set aside  out of  any  funds of  the  Corporation
available  for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion deems proper  as a reserve or reserves to  meet
contingencies,  or for equalizing dividends, or for repairing or maintaining any
property of  the  Corporation, or  for  any proper  purpose,  and the  Board  of
Directors may modify or abolish any such reserve.
    Section 2.  DISBURSEMENTS.  All checks or demands for money and notes of the
Corporation  shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
    Section 3.  FISCAL YEAR.  The fiscal year of the Corporation shall be  fixed
by resolution of the Board of Directors.
    Section 4.  CORPORATE SEAL.  The corporate seal shall have inscribed thereon
the  name  of  the Corporation,  the  year  of its  organization  and  the words
"Corporate Seal, Delaware". The seal  may be used by  causing it or a  facsimile
thereof to be impressed or affixed or reproduced or otherwise.

                                  ARTICLE VIII
                                INDEMNIFICATION

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

                                   ARTICLE IX
                                   AMENDMENTS

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

                                      V-7
<PAGE>
                                                                        ANNEX VI

                      THE PRICE ENTERPRISES 1995 COMBINED
                       STOCK GRANT AND STOCK OPTION PLAN

1.  ESTABLISHMENT AND PURPOSE OF PLAN.

    Price  Enterprises, Inc.  (hereinafter referred  to as  the "Company") shall
grant  to  selected  officers  and  key   employees  of  the  Company  and   its
subsidiaries:

        (a)  shares of  the Company's Common  Stock, par value  $.0001 per share
    ("Common Stock"), and

        (b)  non-qualified  stock  options  or  incentive  stock  options  or  a
    combination of each to purchase shares of Common Stock,

for  the purpose of attracting and retaining employees of ability and experience
and to  furnish  such personnel  maximum  incentive to  improve  operations  and
increase  profits of the Company.  Such options will be  granted pursuant to the
plan herein  set forth  which shall  be  known as  "The Price  Enterprises  1995
Combined  Stock Grant  And Stock  Option Plan"  (hereinafter referred  to as the
"Stock Plan"). As  used in  the Stock Plan,  the term  "incentive stock  option"
means  an option described in Section 422  of the Internal Revenue Code of 1986,
as amended  (hereinafter referred  to as  the "Code").  The term  "non-qualified
stock  option" means a  stock option other  than an incentive  stock option. The
term "Company" as used in  Paragraphs 4 and 8  hereof shall include the  Company
and any subsidiary of the Company.

2.  MAXIMUM NUMBER OF SHARES SUBJECT TO STOCK PLAN.

    (a) A maximum of 250,000 shares of Common Stock, which may consist, in whole
or  in part,  of authorized  and unissued shares  of treasury  stock (subject to
adjustment in accordance with Paragraph 6) may be granted under the Stock  Plan.
A  maximum of 1,500,000 shares of Common Stock which may consist, in whole or in
part,  of  authorized  and  unissued  shares  or  treasury  shares  (subject  to
adjustment  in accordance with Paragraph  6) may be issued  upon exercise of the
options awarded under the Stock Plan.

    (b) Subject to adjustment as provided  in Paragraph 6, the number of  shares
of  Common Stock which may  be granted under the Stock  Plan shall be reduced by
one share for each option awarded under the Stock Plan to purchase six shares of
Common Stock; and  the number of  shares available for  options under the  Stock
Plan  shall be reduced  by six shares for  each share that  is granted under the
Stock Plan.

    (c) Subject to the foregoing limitations upon the number of shares of Common
Stock which may be issued upon exercise  of options, each share of Common  Stock
covered  by  the  unexercised  portion  of any  option  which  is  terminated or
cancelled without being exercised may be subject to a subsequent option  awarded
under  the Stock Plan and  each six shares (subject  to adjustment in accordance
with Paragraph 6)  covered by the  unexercised portion of  any option which  has
terminated or cancelled without being exercised shall restore one share (subject
to  adjustment in  accordance with  Paragraph 6) to  the total  number of shares
which may be subject to grants made under the Stock Plan.

3.  ADMINISTRATION OF THE STOCK PLAN.

    (a) The authority to grant shares of Common Stock and to award options under
the Stock Plan shall  be vested in  the Compensation Committee  of the Board  of
Directors  of the  Company (which  committee is  hereinafter referred  to as the
"Compensation Committee") as such committee may  be appointed from time to  time
by  the  Board of  Directors (the  "Board").  Notwithstanding the  foregoing, an
independent committee consisting of two or  more directors neither of whom  has,
during the one year prior to service on such independent committee, been granted
or  awarded  Common  Stock  or  options  under  the  Stock  Plan  or  any  other
discretionary stock option or stock grant plan of the Company (the  "Independent
Committee")  shall make any and all decisions  to grant Common Stock or to award
options under the Stock Plan to  officers and employee directors of the  Company
who are subject to the reporting requirements under Section 16 of the Securities
and  Exchange Act of 1934, as amended.  The members of the Independent Committee
shall at all times be "disinterested  persons" within the meaning of Rule  16b-3
and  "outside directors" within  the meaning of  Section 162(m)(4)(C)(ii) of the
Code. The Compensation Committee or the Board may also

                                      VI-1
<PAGE>
interpret the Stock  Plan; prescribe,  amend and rescind  rules and  regulations
relating  to the Stock Plan; amend the Stock  Plan from time to time (subject to
the limitations set forth  in Paragraph 11); and  make all other  determinations
necessary   or  advisable  for  the  administration   of  the  Stock  Plan.  The
Compensation Committee or the Independent Committee,  as the case may be,  shall
hereinafter  be referred to as the "Authorized Committee." All decisions made by
the Authorized Committee pursuant to the  provisions of the Stock Plan shall  be
final  and binding on  all persons, including the  Company, any subsidiaries and
the participants.

    (b) Subject to the provisions of  the Stock Plan, the Authorized  Committee,
from  time to time on  the recommendation of the  chief executive officer of the
Company, shall determine the employees to whom, and the time or times at  which,
shares  of Common Stock shall  be granted; the consideration  to be received for
such shares  of  Common  Stock;  the vesting  schedule,  repurchase  rights  and
obligations  applicable  to such  shares of  Common Stock;  and other  terms and
conditions applicable to such shares of Common Stock. Grants of shares of Common
Stock need not be identical. Any terms of a grant of Common Stock hereunder  may
be  set forth  in a written  stock grant  agreement between the  grantee and the
Company. Shares  of Common  Stock may  be issued  for any  lawful  consideration
deemed  appropriate  by the  Authorized Committee,  including services  or labor
previously rendered, but  not including  future services.  Without limiting  the
foregoing,  it is specifically  acknowledged that shares  may be granted without
the grantee being required to pay any monetary consideration therefor.

    (c) Subject to the provisions of  the Stock Plan, the Authorized  Committee,
from  time to time on  the recommendation of the  chief executive officer of the
Company, shall determine the employees to whom, and the time or times at  which,
options shall be granted; whether such options shall be incentive stock options;
the number of shares of Common Stock to be subject to each option; the period of
each  option; and other terms and provisions of each option. Options need not be
identical. The terms of each  option granted hereunder shall  be set forth in  a
written  stock option agreement between the optionee and the Company which shall
clearly identify each option as an incentive stock option or as a  non-qualified
stock option, as the case may be. An option which is not expressly identified as
an  incentive stock  option shall be  conclusively deemed to  be a non-qualified
stock option.  The terms  of  incentive stock  options and  non-qualified  stock
options granted hereunder must be set forth in separate stock option agreements.

4.  ELIGIBILITY.

    (a)  Shares of Common Stock and/or options may be granted to any employee of
the Company.

    (b) Any employee  who has  been granted shares  of Common  Stock or  options
under  this  or  any other  stock  option plan  of  the Company  may  be granted
additional shares of Common Stock or an additional option or options under  this
or  any  other such  plan; subject,  however,  to any  restrictions that  may be
contained in any other such plan.

    (c) In no event shall any employee  be granted an incentive stock option  or
incentive stock options under the Stock Plan or any other plan of the Company if
such  option or  options would,  during the  calendar year  in which  they first
become exercisable, when combined with other incentive stock options which first
become exercisable  in such  calendar year,  entitle such  employee to  purchase
shares  of Common Stock,  solely upon exercise of  such incentive stock options,
having an aggregate fair market value (determined as of the time such option  or
options  are granted) in  excess of $100,000.  This Paragraph 4(c)  of the Stock
Plan shall have no application to any option granted under the Stock Plan  which
by its terms is intended not to be an incentive stock option.

5.  EXERCISE PRICE OF OPTIONS.

    The price to be paid for shares of Common Stock covered by each option shall
be  not less than  100% (110% in  the case of  an incentive stock  option if the
optionee at the  time the option  is granted  owns or, under  the provisions  of
Section 424(d) of the Code, is considered to own shares of stock possessing more
than  10% of  the total  combined voting power  of all  classes of  stock of the
Company) of the fair market value of such

                                      VI-2
<PAGE>
shares of Common Stock as determined by the Authorized Committee on the date the
option is  granted  (the "Date  Of  Option  Grant"), subject  to  adjustment  as
provided  in Paragraph 6. The price of any shares of Common Stock purchased upon
exercise of an option shall be paid in full at the time of each such exercise

        (a) in cash,

        (b) by delivering shares of Common Stock already owned by the  optionee,
    or

        (c)  by a  combination of  cash and delivery  of shares  of Common Stock
    already owned by the optionee,

PROVIDED THAT  any delivery  of shares  of  Common Stock  already owned  by  the
optionee shall not be allowed if it would constitute a disqualifying disposition
under  Section 424(h)  of the  Code. For purposes  of exercising  an option, the
value of any  shares of  Common Stock  delivered in  payment shall  be the  fair
market  value of such shares  of Common Stock on the  last business day prior to
delivery.

6.  ADJUSTMENTS.

    The number of shares  of Common Stock subject  to grants to employees  under
the  Stock Plan  and the  number of  shares of  Common Stock  subject to options
granted under the Stock Plan shall be adjusted as follows:

    (a) in the event that the outstanding shares of Common Stock are changed  by
any  stock dividend, stock split or combination  of shares, the number of shares
of Common Stock subject to the Stock Plan and to options granted under the Stock
Plan shall be proportionately adjusted;

    (b) except as  provided in subparagraph  6(d), in the  event of any  merger,
consolidation  or reorganization  of the Company  with any  other corporation or
corporations, there may be  substituted on an equitable  basis as determined  by
the  Authorized Committee, for  each share of  Common Stock then  subject to the
Stock Plan,  whether or  not at  the time  subject to  outstanding options,  the
number  and  kind of  shares  of stock  or  other securities  or  other property
(including cash) to which the holders of  shares of Common Stock of the  Company
will be entitled pursuant to such transaction;

    (c)  in the event of any other  relevant change in the capitalization of the
Company, the Authorized Committee shall  provide for an equitable adjustment  in
the  number of shares of Common Stock then subject to the Stock Plan, whether or
not then subject to  outstanding options. In the  event of any such  adjustment,
the purchase price per share shall be proportionately adjusted; and

    (d)  notwithstanding the foregoing provisions of  this Paragraph 6, upon the
dissolution of the Company, or upon any merger or consolidation of the Company:

        (i) the surviving corporation (whether  the Company or otherwise)  shall
    agree  to  exchange options  to  purchase its  shares  of stock  for options
    granted under the Stock  Plan, on terms fairly  reflecting the terms of  the
    merger or consolidation; or

        (ii) all vesting schedules, repurchase rights and obligations, and other
    terms  and conditions applicable to shares of Common Stock granted under the
    Stock Plan shall be eliminated, and all options granted under the Stock Plan
    shall terminate and thereupon become null and void; PROVIDED, HOWEVER,  that
    the  optionee shall have  the right, immediately  prior to such dissolution,
    merger or consolidation, to exercise any  such option without regard to  any
    otherwise  applicable  restriction  as  to  time  of  exercise,  other  than
    expiration of the Option Period (as defined below); or

        (iii) the Authorized Committee shall make such other arrangements, which
    may include termination of outstanding options against payment therefor,  as
    the Board or Authorized Committee may at the time deem fair and equitable in
    its discretion.

7.  OPTION PERIOD AND LIMITATION ON EXERCISE.

    (a)  Options shall  be exercisable  at such times  and for  such period (the
"Option Period") as  may be fixed  by the  Authorized Committee at  the Date  Of
Option  Grant;  PROVIDED,  HOWEVER,  that in  the  case  of  non-qualified stock
options, no option shall be exercisable until  one year from the Date Of  Option
Grant, nor

                                      VI-3
<PAGE>
after  the expiration of 10 years and one  day from the Date Of Option Grant. In
the case of incentive  stock options, no option  shall be exercisable until  one
year  from the Date Of  Option Grant, nor after the  expiration of 10 years from
the Date  Of  Option  Grant.  Notwithstanding the  foregoing  provision  to  the
contrary,  in the case  of an optionee who,  at the time  the option is granted,
owns or, under the provisions  of Section 424(d) of  the Code, is considered  to
own  stock possessing more  than 10% of  the total combined  voting power of all
classes of stock of the Company, no incentive stock option shall be  exercisable
until  one year from the  Date Of Option Grant nor  after the expiration of five
years from the Date Of Option Grant.

8.  EFFECT OF TERMINATION OF EMPLOYMENT OR OF CHANGE IN EMPLOYMENT POSITION.

    (a) The effect, if  any, of termination of  employment, change of  position,
death  or the like on a stock grant shall  be as set forth in the relevant stock
grant agreement.

    (b) If an optionee ceases to be  an officer or employee of the Company,  for
any  reason other than death or termination for cause, or remains an employee of
the Company but  ceases to  be employed  in a  position in  which employees  are
eligible  to  receive  options,  as  determined  in  the  sole  judgment  of the
Authorized  Committee,  such  optionee  may  exercise  his  or  her  options  in
accordance  with their terms only  for a period of  90 days after such cessation
(but not beyond the Option Period); PROVIDED, HOWEVER, if such cessation is  due
to  an  optionee's disability  (within the  meaning of  Section 22(e)(3)  of the
Code), such optionee may  exercise his or her  options in accordance with  their
terms  only for a period  of 12 months after such  cessation (but not beyond the
Option Period). Any exercise of options after such cessation may be only to  the
extent of the full number of shares of Common Stock the optionee was entitled to
purchase  under the option on the date of  such cessation, plus a portion of the
additional number of shares,  if any, he  or she would  have become entitled  to
purchase  on the next anniversary date of the Date Of Option Grant of the option
following such  cessation, such  portion to  be determined  by multiplying  such
additional  number of  shares of  Common Stock by  a fraction,  the numerator of
which shall be  the number  of days  from the anniversary  date of  the Date  Of
Option  Grant preceding  such cessation  to the date  of such  cessation and the
denominator of which shall be 365. Such portion shall be rounded, if  necessary,
to  the nearest whole share  of Common Stock. If an  employee changes his or her
position in the Company to  a position entitled to  a lesser number of  options,
the  Authorized  Committee may  in its  discretion make  appropriate adjustments
(including cancellation) to options previously granted to such employee.

    (c) If an optionee  dies while an  officer or employee  of the Company,  any
options  held  by the  deceased  optionee will  continue  in effect  and  may be
exercised in accordance with their terms for a period of 12 months from the date
of the optionee's death (but  not beyond the Option  Period) by the executor  or
administrator  of  such optionee's  estate, or  by  a designated  beneficiary or
beneficiaries pursuant to a Beneficiary Designation  Form in a form approved  by
the Company, which Beneficiary Designation Form has been properly filed with the
Company prior to the optionee's death, or in the event there is no such executor
or  administrator (or the  person holding such position  has been discharged) or
any such  designated beneficiary,  then by  the person  or persons  to whom  the
optionee's  rights under the option shall pass by will or by the laws of descent
and distribution. Any exercise of  options after such death  may be only to  the
extent of the full number of shares of Common Stock the optionee was entitled to
purchase under the option on the date of death, plus a portion of the additional
number of shares, if any, the optionee would have become entitled to purchase on
the  next anniversary date of  the Date Of Option  Grant of the option following
such death, such portion to be determined by multiplying such additional  number
of  shares of Common  Stock by a fraction,  the numerator of  which shall be the
number of days from the anniversary date  of the Date Of Option Grant  preceding
such  death to the date of death and the denominator of which shall be 365. Such
portion shall be  rounded, if necessary,  to the nearest  whole share of  Common
Stock.

    (d)  If the termination of an optionee's  position as an officer or employee
of the  Company  is  for cause  (as  determined  in the  sole  judgment  of  the
Authorized Committee), his or her option or options shall thereupon be cancelled
and  such optionee shall  have no right to  exercise any part  of such option or
options after such termination.

                                      VI-4
<PAGE>
    (e) Grants of shares of  Common Stock and options  shall not be affected  by
authorized leaves of absence or, except as provided in Paragraphs 8(a) and 8(d),
by  any change in employment so long as the grantee of shares of Common Stock or
optionee continues to be an employee of the Company.

    (f) Nothing in the Stock Plan or in  any grant of shares of Common Stock  or
in any option that is awarded shall be deemed to interfere with or affect in any
way  the right of the Company to terminate the employment of a grantee of shares
of Common Stock  or of an  optionee at any  time, nor confer  upon a grantee  of
shares of Common Stock or an optionee any right to continue in the employ of the
Company.

9.  NONTRANSFERABILITY OF OPTIONS.

    Options  granted hereunder shall not be  transferable except to the executor
or administrator  of  the optionee's  estate  and  to the  optionee's  heirs  or
devisees  and shall  be exercisable during  the optionee's lifetime  only by the
optionee. Options may, however, be  surrendered to the Company for  cancellation
for such consideration and upon such terms as may be mutually agreed upon by the
Company and the holder of such options.

10.  EFFECTIVE DATE AND EXPIRATION OF THE STOCK PLAN.

    The  Stock  Plan shall  become  effective upon  its  adoption by  the Board,
subject to approval by a majority of  the outstanding voting shares of stock  of
the Company within 12 months before or thereafter. Unless sooner terminated, the
Stock  Plan shall expire 10 years from the earlier of the date the Stock Plan is
approved by stockholders of the Company or the date the Stock Plan is adopted by
the Board.

11.  AMENDMENT AND TERMINATION OF STOCK PLAN PRIOR TO EXPIRATION DATE.

    At any time  prior to  the expiration of  the Stock  Plan, the  Compensation
Committee  or the Board may terminate, suspend,  modify or amend the Stock Plan,
PROVIDED THAT no such modification or  amendment shall, without the approval  of
the  holders of a majority  of the Company's voting  shares that are present, or
represented, and  entitled to  vote at  a meeting  duly held  for such  purpose,
increase  the total  number of shares  of Common  Stock which may  be granted or
issued upon exercise of options granted under the Stock Plan (except as provided
in Paragraph 6), change the class of employees to whom shares of Common Stock or
options may be granted under the Stock Plan or reduce the minimum exercise price
of options  as provided  in Paragraph  5.  In no  event shall  any  termination,
suspension, modification or amendment of the Stock Plan alter or impair, without
the  consent of the respective grantees of  shares of Common Stock or optionees,
any rights or obligations  under stock grant  agreements or options  theretofore
granted  under the Stock  Plan, subject only to  cancellation or modification as
provided in Paragraph 6 and in Paragraph 12.

12.  COMPLIANCE WITH APPLICABLE LAW.

    The Stock  Plan, the  grant of  shares of  Common Stock  or options  granted
hereunder,  and the  issuance of  shares of Common  Stock upon  exercise of such
options are or may be subject to compliance with various applicable laws and the
rules, regulations  and  policies of  various  regulatory bodies  and  agencies,
including  the Securities and Exchange  Commission and the California Department
of Corporations, as now in effect or as may hereafter be adopted or amended. The
grant of shares of Common Stock or options under the Stock Plan and the issuance
of shares  of Common  Stock upon  the  exercise of  options are  each  expressly
conditioned upon compliance with all such laws, rules, regulations and policies.
In  the event that the Company, after  making reasonable efforts to do so, shall
be unable to obtain any necessary  authorization or permit required in order  to
implement  the Stock Plan or  to issue shares of  Common Stock granted under the
Stock Plan or upon exercise of options granted hereunder, or is otherwise unable
to comply with any such applicable law, rule, regulation or policy, the  Company
may  decline to allow the  issuance of shares of  Common Stock granted under the
Stock Plan or the exercise of any option granted under the Stock Plan until  all
such  permits  or  authorizations  are  issued  or  until  it  can  effect  such
compliance, or  may make  such grants,  options and  exercises subject  to  such
considerations and limitations as the Compensation Committee may deem reasonable
under  the circumstances in  its discretion. If it  is ultimately determined, in
the sole  judgment  of  the  Compensation Committee,  that  the  Company  cannot
reasonably  obtain any such  permit or authorization  or effect such compliance,
the   grants   to    employees   of    unissued   shares    of   Common    Stock

                                      VI-5
<PAGE>
granted  under the Stock Plan affected thereby shall be cancelled upon notice to
such grantees  and unexercised  options granted  under the  Stock Plan  affected
thereby shall thereupon be cancelled upon notice to the holders of such options,
all  without any liability whatsoever of the Company to any grantee of shares of
Common Stock or optionee.

13.  GENERAL PROVISIONS.

    (a) An  optionee shall  generally have  the rights  to dividends  and  other
rights  of a stockholder with respect to shares subject to the option only after
the optionee has given  written notice of  exercise, has paid  in full for  such
shares,  and, if requested, has given  the representation described in paragraph
(c) of this Paragraph.

    (b) The Authorized Committee may require the voluntary surrender of all or a
portion of  any  stock  option granted  under  the  Stock Plan  as  a  condition
precedent  to a grant  of a new stock  option. Subject to  the provisions of the
Stock Plan, such new stock option shall be exercisable at the price, during such
period and on such other terms and conditions as are specified by the Authorized
Committee at the time the new stock option is granted; PROVIDED, HOWEVER, should
the Authorized Committee so  require, the number of  shares subject to such  new
stock  option shall  not be  greater than  the number  of shares  subject to the
surrendered stock  option. Upon  their  surrender, the  stock options  shall  be
cancelled  and the  shares previously  subject to  such cancelled  stock options
shall again  be available  for the  grants  of stock  options and  other  awards
hereunder.

    (c)  The  Authorized Committee  may  require each  person  purchasing shares
pursuant to a  stock option or  acquiring shares  pursuant to a  stock grant  to
represent to and agree with the Company in writing that such person is acquiring
the  shares without  a view to  distribution thereof. The  certificates for such
shares may include any legend  which the Authorized Committee deems  appropriate
to reflect any restrictions on transfer.

    (d)  All certificates for  shares of Common Stock  delivered under the Stock
Plan shall be subject  to such stock-transfer orders  and other restrictions  as
the  Authorized Committee may  deem advisable under  the rules, regulations, and
other requirements of the Securities and Exchange Commission, any stock exchange
upon which the Common Stock is then listed, and any applicable Federal or  state
securities law, and the Authorized Committee may cause a legend or legends to be
placed   on  any  such  certificates  to  make  appropriate  reference  to  such
restrictions.

    (e) Nothing  contained  in the  Stock  Plan  shall prevent  the  Board  from
adopting  other or additional compensation  arrangements, subject to stockholder
approval if  such approval  is required;  and such  arrangements may  be  either
generally applicable or applicable only in specific cases.

    (f)  Each participant shall, no later than the date as of which the value of
a grant  or  an award  first  becomes includable  in  the gross  income  of  the
participant  for  Federal  income tax  purposes,  pay  to the  Company,  or make
arrangements satisfactory to the Authorized Committee regarding payment of,  any
Federal,  state, or local taxes of any kind  required by law to be withheld with
respect to the grant or  award. The obligations of  the Company under the  Stock
Plan shall be conditional on such payment or arrangements, and the Company (and,
where  applicable, its subsidiaries) shall, to the extent permitted by law, have
the right to deduct any such taxes from any payment of any kind otherwise due to
the participant.

                                      VI-6
<PAGE>
                                                                       ANNEX VII

                             THE PRICE ENTERPRISES
                       DIRECTORS' 1995 STOCK OPTION PLAN

1.  PURPOSE OF THE PLAN.

    Under  this  Directors'  1995  Stock  Option  Plan  (the  "Plan")  of  Price
Enterprises, Inc. (the "Company"), options shall be granted to directors  (other
than  James D. Sinegal) who are not  employees of the Company to purchase shares
of the Company's capital stock.  The Plan is designed  to enable the Company  to
attract and retain outside directors of the highest caliber and experience.

2.  STOCK SUBJECT TO PLAN.

   
    The  maximum number of  shares of stock for  which options granted hereunder
may be exercised  shall be  150,000 shares of  the Company's  Common Stock,  par
value  $.0001 per share ("Common Stock"), subject to the adjustments provided in
Paragraph 7. Shares of stock subject to the unexercised portions of any  options
granted  under the Plan which expire or  terminate or are cancelled may again be
subject to options under the Plan.
    

3.  PARTICIPATING DIRECTORS.

    The directors of  the Company who  shall participate in  the Plan are  those
directors  (other than James D.  Sinegal) who are not,  at the time they receive
options hereunder,  employees  of  the  Company  or  any  of  its  subsidiaries,
specifically  including the Chairman of  the Board and the  Vice Chairman of the
Board if they are not employees of the Company or any of its subsidiaries.

4.  ADMINISTRATION.

        (a) The  Plan shall  be administered  by a  committee (the  "Committee")
    which  shall  consist of  two or  more directors,  appointed by  and holding
    office at  the  pleasure of  the  Board of  Directors  of the  Company  (the
    "Board").   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 on the Committee shall be
    filled by the Board.

        (b) 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 options 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.
    The Board shall have no right to exercise any of the rights or duties of the
    Committee under the Plan.

        (c) The Committee shall act by a majority of its members in office.  The
    Committee  may act either by  vote at a meeting or  by a memorandum or other
    written instrument signed by a majority of the Committee.

        (d) Members of the Committee  shall receive such compensation for  their
    services  as members  as may  be determined by  the Board.  All expenses and
    liabilities incurred  by members  of the  Committee in  connection with  the
    administration  of the Plan shall be borne by the Company. The Committee may
    employ attorneys,  consultants, accountants,  appraisers, brokers  or  other
    persons.  The Committee, the Company and its 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 in good  faith shall be final  and binding upon all  option
    holders,  the Company  and all  other interested  persons. No  member of the
    Committee shall  be  personally  liable for  any  action,  determination  or
    interpretation  made in good faith with respect  to the Plan or the options,
    and all members  of the Committee  shall be fully  protected by the  Company
    with respect to any such action, determination or interpretation.

                                     VII-1
<PAGE>
5.  GRANT OF OPTIONS.

   
    Each  participating director,  other than  the Vice  Chairman of  the Board,
shall be granted an  option for 10,000  shares of Common  Stock (subject to  the
adjustments  provided in Paragraph  7) on the date  on which he  or she first is
elected as a director of the Company (the "date of grant"). The Vice Chairman of
the Board shall be granted an option for 50,000 shares of Common Stock  (subject
to   the  adjustments   provided  in  Paragraph   7)  on  the   date  of  grant.
Notwithstanding any other provision  of the Plan, no  option hereunder shall  be
granted  unless  sufficient  shares  (subject  to  said  adjustments)  are  then
available therefor under Paragraphs 2 and 7. In consideration of the granting of
the option, the  option holder shall  be deemed to  have agreed to  remain as  a
director  of the Company  for a period  of at least  one year after  the date of
grant. Nothing in  the Plan shall,  however, confer upon  any option holder  any
right  to  continue as  a director  of the  Company or  shall interfere  with or
restrict in any  way the rights  of the Company  or the Company's  stockholders,
which are hereby expressly reserved, to remove any option holder at any time for
any  reason whatsoever, with  or without cause,  to the extent  permitted by the
Company's bylaws and applicable law.
    

6.  OPTION PROVISIONS.

    Each option  granted under  the  Plan shall  be  evidenced by  an  agreement
between  the Company and the participating director and shall contain such terms
and provisions  as the  Committee  may authorize,  including  in any  event  the
following:

        (a)  The exercise price of  each option shall be  equal to the aggregate
    fair market value  of the shares  of Common  Stock optioned on  the date  of
    grant  of such option.  For this purpose,  such fair market  value means the
    mean of the  bid and asked  prices (or the  closing price per  share if  the
    Common  Stock is listed on The Nasdaq Stock Market's National Market System)
    of the Common Stock  in effect immediately  prior to the  date of grant,  as
    reported  in the Wall Street  Journal (or, if not  so reported, as otherwise
    reported by the NASDAQ system), or, in the event the Common Stock is  listed
    on  a stock exchange, the  fair market value per  share shall be the closing
    price on such exchange  on the date  immediately prior to  the grant of  the
    option, as reported in the Wall Street Journal, or if no such quotations are
    reported  such fair  market value  means the  value established  by what the
    Committee in  its judgment  then  deems to  be  the most  nearly  comparable
    valuation method.

        (b) Payment for stock purchased upon any exercise of the option shall be
    made  in full at the  time of such exercise (i)  in cash, (ii) by delivering
    shares of Common Stock already owned by the optionee, or (iii) a combination
    of in cash and  by delivering shares  of Common Stock  already owned by  the
    optionee.  For purposes of exercising the option, the value of any shares of
    Common Stock delivered  in payment shall  be the fair  market value of  such
    shares of Common Stock on the last business day prior to delivery.

        (c)  The option shall become exercisable in installments as follows: 20%
    of the total number of shares  optioned shall be exercisable one year  after
    the  date of  grant; 40%  of the  total number  of shares  optioned shall be
    exercisable two years after the  date of grant; 60%  of the total number  of
    shares  optioned shall be  exercisable three years after  the date of grant;
    80% of the total number of  shares optioned shall be exercisable four  years
    after  the date of  grant; and 100%  of the total  number of shares optioned
    shall be exercisable five years after the date of grant; in each case to the
    nearest whole share.

        (d) When  the option  holder ceases  to be  a director  of the  Company,
    whether  because of  death, resignation, removal,  expiration of  his or her
    term of office or any other reason, the option shall terminate 90 days after
    the date such option holder ceases to  be a director of the Company and  may
    thereafter  no longer be exercised; except that (i) upon the option holder's
    death his or her legal representative(s) or the person(s) entitled to do  so
    under  the  option  holder's last  will  and testament  or  under applicable
    intestate laws shall have the right  to exercise the option within one  year
    after  the date of death (but not  after the expiration date of the option),
    but only for the number of shares as to which the option holder was entitled
    to exercise the option  on the date of  his or her death  and (ii) upon  the
    option  holder's ceasing to be a director  by reason of disability he or she
    (or his or her guardian) shall have the right to exercise the option  within
    one  year after the date the option holder  ceased to be a director (but not
    after the expiration date of the option), but only for the number of  shares
    as  to which the  option holder was  entitled to exercise  the option on the
    date of his or her ceasing to be a director.

                                     VII-2
<PAGE>
        (e) Notwithstanding any other provision  herein, such option may not  be
    exercised prior to approval of the Plan by the Company's stockholders having
    a  majority of the voting  power of the outstanding  stock; nor prior to the
    admission of  the shares  of stock  issuable on  exercise of  the option  to
    listing  on notice of issuance on any  stock exchange on which shares of the
    same class are then listed; nor unless and until, in the opinion of  counsel
    for the Company, such securities may be issued and delivered without causing
    the  Company to be in violation of or incur any liability under any Federal,
    state or other securities  law, any requirement  of any securities  exchange
    listing  agreement  to  which the  Company  may  be a  party,  or  any other
    requirement of law or  of any regulatory body  having jurisdiction over  the
    Company.

        (f) The option shall not be transferable by the option holder other than
    by  will or  the laws  of descent  and distribution,  may not  be pledged or
    hypothecated, and shall be exercisable  during the option holder's  lifetime
    only by the option holder or by his or her guardian or legal representative.

        (g)  The term of  each option shall be  10 years from  the date of grant
    thereof or such shorter term as may be provided by the Committee.

7.  ADJUSTMENTS.

    Subject to  any required  action by  the stockholders  of the  Company,  the
number  of shares of  Common Stock covered  by each outstanding  option, and the
number of shares of Common Stock  which have been authorized for issuance  under
the  Plan but as  to which no options  have yet been granted  or which have been
returned to the Plan upon  cancellation or expiration of  an option, as well  as
the  price per share  of Common Stock  covered by each  such outstanding option,
shall be proportionately adjusted for any increase or decrease in the number  of
issued shares of Common Stock resulting from a stock split, reverse stock split,
stock  dividend, combination  or reclassification  of the  Common Stock,  or any
other increase  or decrease  in the  number  of issued  shares of  Common  Stock
effected  without receipt  of consideration  by the  Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment  shall
be  made by the Committee,  whose determination in that  respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by  the
Company  of shares of stock of any  class, or securities convertible into shares
of stock of any class, shall affect,  and no adjustment by reason thereof  shall
be  made with respect to, the number or  price of shares of Common Stock subject
to an option.

8.  CORPORATE REORGANIZATIONS.

    Upon  the   dissolution  or   liquidation  of   the  Company,   or  upon   a
reorganization,  merger or consolidation of the Company as a result of which the
Company's outstanding shares of Common Stock  are changed or exchanged for  cash
or  property  or  securities not  of  the Company's  issue,  or upon  a  sale of
substantially all the property of the Company to another corporation or  person,
the  Plan  shall  terminate, and  all  options thereto  granted  hereunder shall
terminate, unless provisions shall  be made in writing  in connection with  such
transaction for the continuance of the Plan and/or for the assumption of options
theretofore  granted, or the  substitution for such  options of options covering
the stock of a  successor corporation, or a  parent or subsidiary thereof,  with
appropriate adjustments as to the number and kind of shares and prices, in which
event  the Plan and options theretofore granted shall continue in the manner and
under the terms so provided. If the Plan and unexercised options shall terminate
pursuant to  the  foregoing  sentence,  all persons  entitled  to  exercise  any
unexercised  portions of options then outstanding  shall have the right, at such
time prior to the  consummation of the transaction  causing such termination  as
the  Company  shall designate,  to exercise  the  unexercised portions  of their
options, including the portions thereof which  would, but for this Paragraph  8,
not yet be exercisable.

9.  DURATION, TERMINATION AND AMENDMENT OF PLAN.

    The  Plan shall become effective upon its  adoption by the Board, subject to
approval by a majority of the outstanding voting shares of stock of the  Company
within  12 months thereafter. Unless sooner terminated, the Plan shall expire 10
years from the date the Plan is approved by stockholders of the Company, so that
no option  may  be  granted  hereunder  after  that  date  although  any  option
outstanding  on that  date may  thereafter be  exercised in  accordance with its
terms.   The   Board   may   alter,    amend,   suspend   or   terminate    this

                                     VII-3
<PAGE>
Plan,  provided that no such action shall  deprive an option holder, without his
or her consent, of any option previously granted pursuant to the Plan or of  any
of  the option holder's rights under such  option. Except as herein provided, no
such action of the Board, unless taken with the approval of the stockholders  of
the  Company,  may  make any  amendment  to the  Plan  as to  which  approval by
stockholders is  necessary for  continued  applicability of  Rule 16b-3  of  the
Exchange  Act. Notwithstanding  anything to  the contrary  contained herein, the
Board shall not amend or modify any provision of the Plan concerning the amount,
price or timing of any option (including, without limitation, the provisions  of
Paragraphs 2, 5 and 6(a) of the Plan) more than once every six months other than
to  comply with changes in the Code, the Employee Retirement Income Security Act
of 1974, as amended, or the respective rules and regulations thereunder.

                                     VII-4

<PAGE>
   
                             LETTER OF TRANSMITTAL
                          TO ACCOMPANY CERTIFICATES OF
                                COMMON STOCK OF
                               PRICE/COSTCO, INC.
    

   
 TENDERED PURSUANT TO THE OFFERING CIRCULAR/PROSPECTUS DATED NOVEMBER 21, 1994
    

   
      THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME,
                ON TUESDAY, DECEMBER 20, 1994, UNLESS EXTENDED.

         To: FIRST INTERSTATE BANK OF WASHINGTON, N.A., EXCHANGE AGENT
    

   
<TABLE>
<S>                                 <C>                                 <C>
             BY MAIL:                     BY OVERNIGHT DELIVERY:                 BY HAND (ONLY):
     First Interstate Bank of            First Interstate Bank of            First Interstate Bank of
         Washington, N.A.                    Washington, N.A.                    Washington, N.A.
             c/o MSTS                            c/o MSTS                   Stock Transfer, 14th Floor
           P.O. Box 845               Attn: Reorg. Dept., 1st Floor               999 Third Ave.
         Midtown Station                    85 Challenger Rd.                   Seattle, WA 98104
        New York, NY 10018              Ridgefield Park, NJ 07660                       or
                                                                             Special Services Section
                                                                              26610 West Agoura Road
                                                                               Calabasas, CA 91302
                                                                                        or
                                                                             120 Broadway, 33rd Floor
                                                                                New York, NY 10271
</TABLE>
    

   
                             FOR INFORMATION CALL:
                                 1-800-223-2064
    
<PAGE>
              PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

Ladies and Gentlemen:

   
    Reference  is made to  the Offering Circular/Prospectus,  dated November 21,
1994 (the "Offering Circular/Prospectus"), of Price/Costco, Inc. ("PriceCostco")
and this Letter of Transmittal (the  "Letter of Transmittal"), receipt of  which
is  hereby  acknowledged,  which together  constitute  PriceCostco's  offer (the
"Exchange Offer") to exchange  one share of common  stock, par value $.0001  per
share  ("Price Enterprises Common  Stock"), of Price  Enterprises, Inc. for each
share of common stock, par value $.01 per share ("PriceCostco Common Stock"), of
PriceCostco properly tendered pursuant to the Exchange Offer, up to a maximum of
27 million shares of Price Enterprises Common Stock.
    
   
    The Exchange Offer  will expire at  12:00 midnight, New  York City time,  on
December 20, 1994, subject to extension by PriceCostco by notice to the Exchange
Agent  as  herein  provided  (the  "Expiration  Date").  In  the  event  of such
extension, the term "Expiration Date" shall mean the time and date on which  the
Exchange Offer as so extended shall expire.
    

   
    Upon  the terms  and subject  to the conditions  of the  Exchange Offer, the
undersigned hereby tenders to PriceCostco the shares of PriceCostco Common Stock
represented by the  certificate(s) described below  (the "PriceCostco  Shares").
Subject  to, and effective upon, the  acceptance for exchange of the PriceCostco
Shares tendered herewith,  the undersigned hereby  sells, assigns and  transfers
to,  or upon the order of, PriceCostco, all  right, title and interest in and to
the PriceCostco  Shares.  The  undersigned hereby  irrevocably  constitutes  and
appoints  the  Exchange Agent  as the  true and  lawful attorney-in-fact  of the
undersigned (with full knowledge that said Exchange Agent also acts as the agent
of PriceCostco)  with respect  to  the PriceCostco  Shares  with full  power  of
substitution  (such power  of attorney being  deemed to be  an irrevocable power
coupled with an  interest) to: (a)  deliver the PriceCostco  Shares or  transfer
ownership  of  the PriceCostco  Shares on  the account  books maintained  by The
Depository Trust Company ("DTC"), the Midwest Securities Trust Company  ("MSTC")
or  the  Philadelphia  Securities  Depository  Trust  Company  ("PHILADEP")  and
deliver,  in  any  such  case,  all  accompanying  evidences  of  transfer   and
authenticity  to or upon the  order of PriceCostco upon  receipt by the Exchange
Agent, as  the undersigned's  agent, of  certificate(s) representing  shares  of
Price Enterprises Common Stock ("Price Enterprises Certificate(s)") to which the
undersigned  is entitled upon the acceptance for exchange by PriceCostco of such
PriceCostco  Shares  under  the  Exchange  Offer;  (b)  present   certificate(s)
representing  such PriceCostco Shares  for transfer on  the books of PriceCostco
and (c) receive  all benefits and  otherwise exercise all  rights of  beneficial
ownership  of the PriceCostco  Shares, all in  accordance with the  terms of the
Exchange Offer.
    
   
    The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the PriceCostco  Shares
tendered  hereby and that  Pr