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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): AUGUST 29, 1997
PRICE ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-20449 33-0628740
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
4649 MORENA BLVD., SAN DIEGO, CA 92117
(Address of principal executive offices, including zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 581-4530
Exhibit Index on Page 15
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This Current Report on Form 8-K is filed by Price Enterprises, Inc., a
Delaware corporation ("PEI"), in connection with the matters described herein.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
DISTRIBUTION OF PRICESMART COMMON STOCK.
On August 29, 1997, PEI distributed one share of common stock (the
"PriceSmart Common Stock") of PriceSmart, Inc., a Delaware corporation
("PriceSmart"), for every four shares of common stock of PEI ("PEI Common
Stock") held by PEI's stockholders of record on August 15, 1997, pursuant to a
Distribution Agreement dated as of August 26, 1997 (the "Distribution
Agreement") between PEI and PriceSmart (the "Distribution"). The distributed
shares of PriceSmart Common Stock represented all of the outstanding shares of
PriceSmart Common Stock. A copy of the Distribution Agreement is attached
hereto as Exhibit 2.1 and is incorporated herein by reference. Fractional
shares of PriceSmart Common Stock were aggregated and the resulting 210 shares
were sold in the public market. The aggregate net cash proceeds were
distributed to those PEI stockholders entitled to fractional shares. The
PriceSmart Common Stock currently is quoted and traded on The Nasdaq Stock
Market's National Market System under the symbol "PSMT."
BACKGROUND AND REASONS FOR THE DISTRIBUTION
PEI's principal business historically has been its real estate business,
which historically has involved acquiring, developing and owning certain real
estate assets including shopping centers and power centers leased to major
retail tenants. Prior to the Distribution, PEI also operated certain
merchandising businesses through a number of subsidiaries (the "Merchandising
Businesses") and owned certain real estate properties held for sale by PEI
(the "Unsold Properties"), certain notes receivable from various
municipalities and agencies (the "City Notes") and certain secured notes
receivable from buyers of properties formerly owned (the "Other Notes," and
together with the City Notes, the "Notes"). The Merchandising Businesses
include certain international merchandising businesses, which license and, in
some cases, own membership stores in Latin America and Asia, and domestic
merchandising businesses consisting of an auto referral program (the "Auto
Referral Program") and a travel program (the "Travel Program").
On June 27, 1997, the Board of Directors of PEI (the "PEI Board")
determined that it would be in the best interests of PEI and its stockholders to
separate PEI's core real estate business and its merchandising businesses.
Accordingly, the PEI Board approved the Distribution, pursuant to which PEI will
continue to conduct its real estate business consisting of an initial asset base
of 27 retail properties and approximately $40 million of cash (the "Retained
Cash Amount") following the Distribution (the "Real Estate Business"). The PEI
Board expects the Real Estate Business to engage in a combination of acquiring,
developing, owning, managing and/or selling real estate assets. PriceSmart will
conduct the Merchandising Businesses and own the Notes, all cash balances of PEI
as of the Distribution Date other than the Retained Cash Amount, and all other
assets and liabilities of PEI (other than certain tax-related assets) not
specifically associated with the Real Estate Business (the "Other Assets"). The
Merchandising Businesses, the Notes and the Other Assets are sometimes referred
to below as the "PriceSmart Business."
The PEI Board has concluded that it would be in the best interests of PEI's
stockholders if PEI's Real Estate Business were to qualify for Federal tax
treatment as a real estate investment trust ("REIT"). In order to qualify as a
REIT, PEI was required to (i) divest certain assets not related to its real
estate business, such as the Merchandising Businesses, and (ii) distribute an
amount of taxable dividends at least equal to its current and accumulated
earnings and profits, much of which represents an allocation from
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Costco Companies, Inc. ("Costco"), formerly Price/Costco, Inc., as a result of
the spin-off by Costco of PEI in December 1994. The PEI Board expects the
Distribution to satisfy these two requirements. By qualifying as a REIT, PEI
will substantially eliminate the taxation on corporate income from the Real
Estate Business. In addition, the PEI Board also has considered strategic
alternatives for its Real Estate Business, including the possibility of a merger
or the sale of the post-Distribution PEI as a whole. Although no such
transactions have been agreed upon, the PEI Board believes that PEI will be best
positioned for such a transaction if PEI were to operate as a REIT. The PEI
Board's selection of assets to be transferred to PriceSmart was determined in
part by the PEI Board's desire to exclude assets that would prevent PEI from
qualifying as a REIT.
Moreover, the Real Estate Business and Merchandising Businesses have
markedly different profiles, in terms of operating objectives, profit margins
and number and type of employees. The two businesses are operated by separate
management teams, and separation of the businesses is expected to result in
greater focus of the management teams on the core strengths of the respective
companies. Separation of the two businesses will (i) permit investors to make
more focused investment decisions based on the specific attributes of each of
the two businesses; (ii) enable the management of each of PEI and PriceSmart to
concentrate its attention and financial resources on the core businesses of each
company; and (iii) enable each business to develop employee compensation
programs that better fit its operations, including stock-based and other
incentive programs, which will more directly reward employees of each business
based on the success of that business.
RELATIONSHIP BETWEEN PRICESMART AND PEI AFTER THE DISTRIBUTION
For the purpose of governing certain of the ongoing relationships between
PriceSmart and PEI after the Distribution and to provide mechanisms for an
orderly transition, PriceSmart and PEI have entered into the various agreements,
and will adopt policies, as described in this section.
DISTRIBUTION AGREEMENT
PriceSmart and PEI have entered into the Distribution Agreement, which
provides for, among other things, (i) the division between PriceSmart and PEI of
certain assets and liabilities; (ii) the Distribution; and (iii) certain other
agreements governing the relationship between PriceSmart and PEI following the
Distribution.
Subject to certain exceptions, the Distribution Agreement provides for,
among other things, assumptions of liabilities and cross-indemnities designed to
allocate to PriceSmart and its subsidiaries, effective as of the date of the
Distribution (the "Distribution Date"), financial responsibility for the
liabilities arising out of or in connection with the PriceSmart Business and to
allocate to PEI and its subsidiaries financial responsibility for the
liabilities arising out of or in connection with the Real Estate Business. The
agreements to be executed in connection with the Distribution Agreement set
forth certain specific allocations of liabilities between PriceSmart and PEI.
See "--Employee Benefits Allocation Agreement" and "--Tax Sharing Agreement"
below. Under the Distribution Agreement, all cash and cash equivalent balances
of PEI and its subsidiaries, as of the close of business on the Distribution
Date, were distributed to PriceSmart, except for the Retained Cash Amount.
The Distribution Agreement also provides that each of PriceSmart and PEI
will be granted access to certain records and information in the possession
of the other, and requires the retention by each of PriceSmart and PEI for a
period of ten years following the Distribution of all such information in its
possession, and thereafter requires that each party give the other prior
notice of its intention to dispose of such information. In addition, the
Distribution Agreement provides for the
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allocation of shared privileges with respect to certain information and requires
each of PriceSmart and PEI to obtain the consent of the other prior to waiving
any shared privilege.
The Distribution Agreement provides that, except as otherwise set forth
therein or in any related agreement, all costs and expenses in connection with
the Distribution will be charged to PriceSmart.
EMPLOYEE BENEFITS ALLOCATION AGREEMENT
The Employee Benefits and Other Employment Matters Allocation Agreement
dated as of August 26, 1997 between PEI and PriceSmart (the "Employee Benefits
Allocation Agreement") contains a number of provisions relating to current and
former employees of PEI. The Employee Benefits Allocation Agreement generally
contemplates that PriceSmart will assume all obligations and liabilities with
respect to employee plans and benefit plans of PEI prior to the Distribution
Date and that after the Distribution Date, PEI will be responsible for providing
employee benefits for the PEI personnel who remain with PEI.
On or prior to the Distribution Date and pursuant to the Employee Benefits
Allocation Agreement, PEI and PriceSmart will take all action necessary or
appropriate to permit PriceSmart to become a sponsor of and to permit employees
of PriceSmart to participate in The PEI Profit Sharing and 401(k) Plan (the "PEI
Plan"). All PEI personnel who are eligible for participation in the PEI Plan
and who become employees of PriceSmart will remain eligible to participate in
the PEI Plan. PEI and PriceSmart will jointly sponsor the PEI Plan until 30
days after written notice from either party to the other requesting an end to
joint sponsorship of the PEI Plan (the "Cut-Off Date"). Effective as of the
Cut-Off Date, either PEI or PriceSmart will take all action necessary to
establish and administer a new profit sharing and 401(k) plan (the "New Plan"),
which would be expected to have terms and conditions substantially similar to
the PEI Plan. The New Plan will be a split up of that portion of the PEI Plan
which is attributable to employees of PEI or PriceSmart, as the case may be.
The employees who are eligible for participation in the PEI Plan prior to the
Cut-Off Date and who remain employees of PEI or PriceSmart, as the case may be,
will be eligible for participation in the New Plan.
Pursuant to the Employee Benefits Allocation Agreement, and consistent with
the terms of The Price Enterprises 1995 Combined Stock Grant and Stock Option
Plan (the "PEI Stock Option Plan") and The Price Enterprises Directors' 1995
Stock Option Plan (the "PEI Directors Plan"), all employees, officers and
directors of PEI who will leave PEI to become employees, officers or directors
of PriceSmart are expected to exercise all vested options held by them under the
PEI Stock Option Plan or the Directors Plan prior to the Distribution or within
90 days thereafter. Vested and unvested options held by employees, officers and
directors of PEI who will remain with PEI will be equitably adjusted for the
effects of the Distribution on the aggregate spread of such options. Unvested
PEI options held by employees, officers and directors of PEI who will become
employees, officers and directors of PriceSmart will be cancelled as of the
Distribution Date. In lieu of such cancelled options, the employees, officers
and directors becoming employees, officers and directors of PriceSmart will
receive replacement options under the 1997 Stock Option Plan of PriceSmart, Inc.
(the "PriceSmart Stock Option Plan").
The Employee Benefits Allocation Agreement requires PEI and PriceSmart to
take all action necessary to permit employees of PriceSmart to participate in
the PEI medical and dental plans. On or concurrently with Distribution,
PriceSmart will assume, with respect to all current employees of PEI, all
responsibility for liabilities and obligations owed as of the Distribution
Date for medical and dental plan coverage and for vacation and sick pay.
PriceSmart will establish its own medical and dental plan on or before
December 31, 1997 and provide benefits thereunder for employees of PriceSmart
who were otherwise entitled to benefits under the PEI medical and dental
plans prior to December 31, 1997. With respect to PEI
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employees remaining with PEI, PEI will remain responsible for all liabilities
and obligations arising after the Distribution Date for medical and dental plan
coverage and for vacation and sick pay.
TAX SHARING AGREEMENT
PEI and PriceSmart have entered into a Tax Sharing Agreement dated as of
August 26, 1997 defining the parties' rights and obligations with respect to
tax returns and tax liabilities, including, in particular, Federal and state
income tax returns and liabilities, for taxable years and other taxable
periods ending on or before the Distribution Date. In general, PEI will be
responsible for (i) filing all Federal and state income tax returns of PEI,
PriceSmart and any of their subsidiaries for all taxable years ending on or
before the Distribution Date and (ii) paying the taxes relating to such
returns (including any deficiencies proposed by applicable taxing
authorities). PEI and PriceSmart will each indemnify the other against prior
period taxes attributable to its respective operations. PEI and PriceSmart
will each be responsible for filing its own returns and paying its own taxes
for post-Distribution Date periods. PEI and PriceSmart will cooperate with
each other and share information in preparing income tax returns and in
dealing with other tax matters.
TRANSITIONAL SERVICES AGREEMENT
PriceSmart and PEI have entered into a Transitional Services Agreement
dated as of August 26, 1997 pursuant to which PEI and PriceSmart will provide
certain services to one another. The fees for such transitional services (which
shall not include real estate management services) will be based on hourly rates
designed to reflect the costs (including indirect costs) of providing such
services. PEI and PriceSmart will be free to procure such services from outside
vendors or to develop in-house capabilities in order to provide such services
internally. The transitional services to be provided to PriceSmart and to PEI
pursuant to such agreement may include cash management services, certain
accounting services, litigation management or any other similar services that
PriceSmart or PEI may require. The Transitional Services Agreement will
terminate on December 31, 1997 unless extended in writing by the parties.
ASSET MANAGEMENT AND DISPOSITION AGREEMENT
PEI and PriceSmart have entered into an Asset Management and Disposition
Agreement dated as of August 26, 1997 calling for PEI to provide asset
management services with respect to the Unsold Properties. Among other things,
PEI will collect rents and pay operating expenses, maintain and repair the
Unsold Properties, prepare month-end financial statements, hire brokers and
prepare brokers' agreements, lease available space within the Unsold Properties
and dispose of the Unsold Properties. As consideration for such services,
PriceSmart will pay PEI management fees based on annual rents from the Unsold
Properties, leasing fees based on the gross leasable floor areas of each of the
Unsold Properties, disposition fees based on percentages of the sales prices for
properties that are sold and a developer's fee of 3% of all "hard" construction
costs managed by PEI on behalf of PriceSmart. Such agreement will have a
two-year term; provided that either PEI or PriceSmart may terminate the
agreement upon 60 days written notice.
POLICIES AND PROCEDURES FOR ADDRESSING CONFLICTS
The on-going relationships between PriceSmart and PEI may present certain
conflict situations for Robert E. Price who will serve as Chairman of the Board
of Directors, President and Chief Executive Officer of PriceSmart and Chairman
of PEI. Mr. Price and other executive officers and directors of PEI and
PriceSmart also own (or have options or other rights to acquire) a significant
number of shares of common stock in PriceSmart and PEI. PEI and PriceSmart will
adopt appropriate policies and procedures to be followed by the Board of
Directors of each company to limit the involvement of Mr. Price (or such
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executive officers and other directors having a significant ownership interest
in the companies) in conflict situations, including matters relating to
contractual relationships or litigation between PriceSmart and PEI. Such
procedures include requiring Mr. Price (or such executive officers or other
directors having a significant ownership interest in the companies) to abstain
from voting as a director of both Companies with respect to matters that present
a significant conflict of interest between the companies. Whether or not a
significant conflict of interest situation exists will be determined on a
case-by-case basis depending on such factors as the dollar value of the matter,
the degree of personal interest of Mr. Price (or such executive officers and
other directors having a significant ownership interest in the companies) in the
matter and the likelihood that resolution of the matter has significant
strategic, operational or financial implications for the business of PriceSmart.
ITEM 5. OTHER MATTERS
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS TO PEI OF ITS REIT ELECTION
For the reasons noted above, PEI intends to elect to be taxed as a REIT
under Section 856 through 860 of the Code. The Board of Directors of PEI
believes that commencing with PEI's taxable year beginning September 1, 1997,
PEI will be organized and operating in such a manner as to qualify for taxation
as a REIT. To maintain REIT status, an entity must meet a number of
organizational and operational requirements, including a requirement that it
currently distribute at least 95% of its REIT taxable income (determined without
regard to the so-called "dividends paid deduction" and by excluding net capital
gains) to its stockholders. PEI intends to make regular quarterly dividends to
holders of PEI Common Stock following its REIT election.
The REIT provisions of the Code and the Treasury Regulations promulgated
thereunder are highly technical and complex. The following summary of certain
federal income tax considerations to PEI is based on current law, is for
general information only, and is not tax advice. The tax treatment of a
holder of shares of PEI Common Stock will vary depending a holder's
particular situation, and this discussion does not attempt to address any
aspects of federal income taxation relating to holders of PEI Common Stock.
EACH INVESTOR IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE TAX CONSEQUENCES TO HIM OF THE ACQUISITION, OWNERSHIP
AND SALE OF THE PEI COMMON STOCK, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP AND
SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF PEI AS A REIT
General. The following sets forth the material aspects of the sections
that govern the federal income tax treatment of a REIT. This summary is
qualified in its entirety by the applicable Code provisions, rules and
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all of which are subject to change (which change
may apply retroactively).
Latham & Watkins has acted as tax counsel to PEI in connection with the
Distribution and PEI's election to be taxed as a REIT.
Qualification and taxation as a REIT depends upon PEI's ability to meet,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests imposed under the Code
discussed below. Accordingly, no assurance can be given that the actual results
of PEI's operation of any particular taxable year will satisfy such
requirements.
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If PEI qualifies for taxation as a REIT, it generally will not be subject
to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
results from investment in a regular corporation. However, PEI will be
subject to federal income tax as follows: First, PEI will be taxed at
regular corporate rates on any undistributed "real estate investment trust
taxable income," including undistributed net capital gains. Second, under
certain circumstances, PEI may be subject to the "alternative minimum tax" on
its items of tax preference. Third, if PEI has (i) net income from the sale
or other disposition of "foreclosure property" which is held primarily for
sale to customers in the ordinary course of business or (ii) other
non-qualifying income from foreclosure property, it will be subject to tax at
the highest corporate rate on such income. Fourth, if PEI has net income
from prohibited transactions (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business other than foreclosure property), such income will be
subject to a 100% tax. Fifth, if PEI should fail to satisfy the 75% gross
income test or the 95% gross income test (as discussed below), but has
nonetheless maintained its qualification as a real estate investment trust
because certain other requirements have been met, it will be subject to a
100% tax on an amount equal to (a) the gross income attributable to the
greater of the amount by which PEI fails the 75% or 95% test, multiplied by
(b) a fraction intended to reflect PEI's profitability. Sixth, if PEI should
fail to distribute during each calendar year at least the sum of (i) 85% of
its real estate investment trust ordinary income for such year, (ii) 95% of
its real estate investment trust capital gain net income for such year, and
(iii) any undistributed taxable income from prior periods, PEI would be
subject to a 4% excise tax on the excess of such required distribution over
the amounts actually distributed. Seventh, if during the 10-year period (the
"Recognition Period") beginning on the first day of the first taxable year
for which PEI qualified as a REIT PEI recognizes gain on the disposition of
any asset held by PEI as of the beginning of such Recognition Period, then,
to the extent of the excess of (a) the fair market value of such asset as of
the beginning of such Recognition Period over (b) PEI's adjusted basis in
such asset as of the beginning of such period (the "Built-in Gain"), such
gain will be subject to tax at the highest corporate rate pursuant to
Treasury Regulations that have not yet been promulgated. Eighth, if PEI
acquires any asset from a C Corporation (i.e., generally a corporation
subject to full corporate-level tax) in a transaction in which the basis of
the asset in the hands of PEI is determined by reference to the basis of the
asset in the hands of the C Corporation, and PEI recognizes gain on the
disposition of such asset during the Recognition Period beginning on the date
on which such asset was acquired by PEI, then, to the extent of the Built-in
Gain, such gain will be subject to tax at the highest corporate rate pursuant
to Treasury Regulations that have not yet been promulgated. The results
described above with respect to the recognition of Built-In Gain assume that
PEI will make an election pursuant to IRS Notice 88-19.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or directors,
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest, (3) which would be taxable as
a domestic corporation, but for Sections 856 through 859 of the Code, (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code, (5) the beneficial ownership of which is held by 100 or
more persons, (6) during the last half of each taxable year, not more than 50%
in value of the outstanding stock of which is owned, actually or constructively,
by five or fewer individuals (as defined in the Code to include certain
entities) and (7) which meets certain other tests, described below, regarding
the nature of its income and assets. The Code provides that conditions (1) to
(4) must be met during the entire taxable year and that condition (5) must be
met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year
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of less than 12 months. Conditions (5) and (6) will not apply until after the
first taxable year for which an election is made to be taxed as a real estate
investment trust.
PEI's Amended and Restated Bylaws (the "Bylaws") provide for restrictions
regarding ownership and transfer of PEI's capital stock, which restrictions
are intended to assist PEI in continuing to satisfy the share ownership
requirements described in (5) and (6) above. The ownership and transfer
restrictions are described in "--Restrictions on Ownership and Transfer."
There can be no assurance, however, that such transfer restrictions will in
all cases prevent a violation of the stock ownership provisions described in
(5) and (6) above.
Income Tests. In order to maintain qualification as a REIT, PEI annually
must satisfy two gross income requirements. First, at least 75% of PEI's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived directly or indirectly from investments relating
to real property or mortgages on real property (including "rents from real
property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of PEI's gross income (excluding
gross income from prohibited transactions) for each taxable year must be
derived from such real property investments, dividends, interest and gain
from the sale or disposition of stock or securities, and income from certain
hedging instruments (or from any combination of the foregoing).
Rents received by PEI will qualify as "rents from real property" in
satisfying the gross income requirements for a real estate investment trust
described above only if several conditions are met. First, the amount of
rent must not be based in whole or in part on the income or profits of any
person. However, an amount received or accrued generally will not be excluded
from the term "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales. Second, the Code
provides that rents received from a tenant of PEI will not qualify as "rents
from real property" in satisfying the gross income tests if the real estate
investment trust, or an actual or constructive owner of 10% or more of the
real estate investment trust, actually or constructively owns 10% or more of
such tenant (a "Related Party Tenant"). Third, if rent attributable to
personal property leased in connection with a lease of real property is
greater than 15% of the total rent received under the lease, then the portion
of rent attributable to such personal property will not qualify as "rents
from real property." Finally, for rents received to qualify as "rents from
real property," subject to a de minimus exception, the real estate investment
trust generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an independent
contractor from whom the real estate investment trust derives no revenue;
provided, however, PEI may directly perform certain services that are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the occupant" of
the property. PEI has not charged and will not charge rent for any property
that is based in whole or in part on the income or profits of any person
(except by reason of being based on a fixed percentage of receipts or sales,
as described above), [PEI HAS NOT AND WILL NOT RENT ANY PROPERTY TO A RELATED
PARTY TENANT,] and PEI has not and will not derive rental income attributable
to personal property (other than personal property leased in connection with
the lease of real property, the amount of which is less than 15% of the total
rent received under the lease), or, except for certain property management,
disposition and developer services, perform services which are not usually or
customarily rendered to the occupant of the property other than through an
independent contractor from whom PEI derives no revenue. Fees relating to
such property management, disposition and developer services will not qualify
under the 75% and 95% gross income test.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
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If PEI fails to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, it may nevertheless qualify as a real estate investment
trust for such year if it is entitled to relief under certain provisions of the
Code. These relief provisions will generally be available if PEI's failure to
meet such tests was due to reasonable cause and not due to willful neglect, PEI
attaches a schedule of the sources of its income to its federal income tax
return, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances PEI would be entitled to the benefit of these relief provisions.
As discussed above under "--Taxation of PEI as a REIT--General," even if these
relief provisions apply, a tax would be imposed with respect to the excess net
income.
Asset Tests. PEI, at the close of each quarter of its taxable year, must
also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of PEI's total assets must be represented by real
estate assets (including stock or debt instruments held for not more than one
year purchased with the proceeds of a stock offering or long-term (at least
five years) public debt offering of PEI), cash, cash items and government
securities. Second, not more than 25% of PEI's total assets may be
represented by securities other than those in the 75% asset class. Third, of
the investments included in the 25% asset class, the value of any one
issuer's securities owned by PEI may not exceed 5% of the value of PEI's
total assets and PEI may not own more than 10% of any one issuer's
outstanding voting securities.
Annual Distribution Requirements. PEI, in order to qualify as a REIT, is
required to distribute dividends (other than capital gain dividends) to its
stockholders in an amount at least equal to (A) the sum of (i) 95% of PEI's
"REIT taxable income" (computed without regard to the dividends paid
deduction and PEI's net capital gain) and (ii) 95% of the net income (after
tax), if any, from foreclosure property, minus (B) the sum of certain items
of non-cash income. In addition, if PEI disposes of any asset during its
Recognition Period, PEI will be required, pursuant to Treasury Regulations
which have not yet been promulgated, to distribute at least 95% of the
Built-in Gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before PEI timely files
its tax return for such year and if paid on or before the first regular
dividend payment after such declaration. To the extent that PEI does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its "real estate investment trust taxable income," as adjusted,
it will be subject to tax thereon at regular ordinary and capital gain
corporate tax rates. Stockholders may be required to include amounts
designated by PEI and distributed capital gains. In such case, stockholders
will be treated as having paid the capital gains tax imposed on the real
estate investment designated amounts and will be allowed a corresponding
stock basis adjustment and a credit or refund the tax deemed paid.
Furthermore, if PEI should fail to distribute during each calendar year at
least the sum of (i) 85% of its real estate investment trust ordinary income
for such year, (ii) 95% of its real estate investment trust capital gain
income for such year, and (iii) any undistributed taxable income from prior
periods, PEI would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. PEI intends to
make timely distributions sufficient to satisfy these annual distribution
requirements.
It is possible that PEI, from time to time, may not have sufficient cash
or other liquid assets to meet these distribution requirements due to timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of PEI. In the event that such
timing differences occur, in order to meet these distribution requirements,
PEI may find it necessary to arrange for short-term, or possibly long-term,
borrowings or to pay dividends in the form of taxable stock dividends.
Under certain circumstances, PEI may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in PEI's deduction for
dividends paid for the earlier year. Thus, PEI may be able to avoid being taxed
on amounts distributed as deficiency dividends; however, PEI will be required to
pay interest based upon the amount of any deduction taken for deficiency
dividends.
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FAILURE TO QUALIFY
If PEI fails to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, PEI will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Such a failure to qualify for taxation as a REIT could have an adverse
effect on the market value and marketability of the PEI Common Stock.
Distributions to stockholders in any year in which PEI fails to qualify will not
be deductible by PEI nor will they be required to be made. In such event, to
the extent of current and accumulated earnings and profits, all distributions to
stockholders will be taxable as ordinary income and, subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific
statutory provisions, PEI will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances PEI would be entitled
to such statutory relief.
OTHER TAX MATTERS
PEI may be subject to state or local taxation in various state or local
jurisdictions, including those in which it transacts business. The state or
local tax treatment of PEI may not conform to the federal income tax
consequences described above. Consequently, prospective investors should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in PEI.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF SHARES OF PEI COMMON STOCK
For PEI to qualify as a REIT under the Code, no more than 50% in value of
its outstanding shares of stock may be owned, actually or constructively, by
five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year (other than the first year
for which an election to be treated as a REIT has been made). In addition,
if PEI, or an actual or constructive owner of 10% or more of PEI, actually or
constructively owns 10% or more of a tenant of PEI, the rent received by PEI
(either directly or through any such partnership) from such tenant will not
be qualifying income for purposes of the REIT gross income tests of the Code.
PEI's stock must also be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of twelve months or during a proportionate
part of a shorter taxable year (but only after the first year for which an
election to be treated as a REIT has been made).
Because PEI expects to qualify as a REIT, the Bylaws contain restrictions
on the ownership and transfer of PEI Common Stock which are intended to assist
PEI in complying with these requirements. The Bylaws provide that, subject to
certain specified exceptions, no person or entity may own, or be deemed to own
by virtue of the applicable constructive ownership provisions of the Code, more
than 5.0% (by number or value, whichever is more restrictive) of the outstanding
shares of PEI Common Stock (the "Ownership Limit"). The constructive ownership
rules of the Code are complex, and may cause shares of PEI Common Stock owned
actually or constructively by a group of related individuals and/or entities to
be owned constructively by one individual or entity. As a result, the
acquisition of less than 5.0% of the shares of Common Stock (or the acquisition
of an interest in an entity that owns, actually or constructively, Common Stock)
by an individual or entity, could, nevertheless cause that individual or entity,
or another individual or entity, to own constructively in excess of 5.0% of the
outstanding PEI Common Stock and thus subject such shares to the Ownership
Limit. The PEI Board may, but in no event is required to, waive the Ownership
Limit with respect to a particular stockholder if it determines that such
ownership will not jeopardize PEI's status as a REIT. As a condition of such
waiver, the Board of Directors may require opinions of counsel satisfactory to
it and/or undertakings or representations from the applicant with respect to
preserving the REIT status of PEI. The Board of
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Directors has obtained such undertakings and representations from Helen Price
and the Price Family Charitable Fund and, as a result, has waived the Ownership
Limit with respect to the Price family and certain affiliated entities.
The Bylaws further prohibit (a) any person from actually or constructively
owning shares of stock of PEI that would result in PEI being "closely held"
under Section 856(h) of the Code or otherwise cause PEI to fail to qualify as a
REIT and (b) any person from transferring shares of stock of PEI if such
transfer would result in shares of stock of PEI being owned by fewer than 100
persons. Any person who acquires or attempts or intends to acquire actual or
constructive ownership of shares of stock of PEI that will or may violate any of
the foregoing restrictions on transferability and ownership is required to give
notice immediately to PEI and provide PEI with such other information as PEI may
request in order to determine the effect of such transfer on PEI's status as a
REIT. The foregoing restrictions on transferability and ownership will not
apply if the Board of Directors determines that it is no longer in the best
interest of PEI to continue to qualify as a REIT and such determination is
approved by a two thirds vote of PEI's stockholders as required by the Bylaws.
Except as otherwise described above, any change in the Ownership Limit would
require an amendment to the Bylaws. Amendments to the 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 PEI Board.
Pursuant to the Bylaws, if any purported transfer of Common Stock of PEI or
any other event would otherwise result in any person violating the Ownership
Limit, or such other limit as provided in the Bylaws, then any such purported
transfer will be void and of no force or effect with respect to the purported
transferee (the "Prohibited Transferee") as to that number of shares in excess
of the Ownership Limit, or such other limit, and the Prohibited Transferee shall
acquire no right or interest (or, in the case of any event other than a
purported transfer, the person or entity holding record title to any such excess
shares (the "Prohibited Owner") shall cease to own any right or interest) in
such excess shares. Any such excess shares described above will be transferred
automatically, by operation of law, to a trust, the beneficiary of which will be
a qualified charitable organization selected by PEI (the "Beneficiary"). Such
automatic transfer shall be deemed to be effective as of the close of business
on the business day prior to the date of such violative transfer. Within 20
days of receiving notice from PEI of the transfer of shares to the trust, the
trustee of the trust (who shall be designated by PEI and be unaffiliated with
PEI and any Prohibited Transferee or Prohibited Owner) will be required to sell
such excess shares to a person or entity who could own such shares without
violating the Ownership Limit or such other limit as provided by the Bylaws or
as otherwise permitted by the Board of Directors, and distribute to the
Prohibited Transferee or Prohibited Owner an amount equal to the lesser of the
price paid by the Prohibited Transferee or Prohibited Owner for such excess
shares or the sales proceeds received by the trust for such excess shares. Any
proceeds in excess of the amount distributable to the Prohibited Transferee or
Prohibited Owner, as applicable, will be distributed to the Beneficiary. Prior
to a sale of any such excess shares by the trust, the trustee will be entitled
to receive in trust for the Beneficiary, all dividends and other distributions
paid by PEI with respect to such excess shares, and also will be entitled to
exercise all voting rights with respect to such excess shares. Subject to
Delaware law, effective as of the date that such shares have been transferred to
the trust, the trustee shall have the authority (at the trustee's sole
discretion) (i) to rescind as void any vote cast by a Prohibited Transferee or
Prohibited Owner, as applicable, prior to the discovery by PEI that such shares
had been transferred to the trust and (ii) to recast such vote in accordance
with the desires of the trustee acting for the benefit of the Beneficiary.
However, if PEI has already taken irreversible corporate action, then the
trustee shall not have the authority to rescind and recast such vote. Any
dividend or other distribution paid to the Prohibited Transferee or Prohibited
Owner (prior to the discovery by PEI that such shares had been automatically
transferred to a trust as described above) will be required to be repaid to the
trustee upon demand for distribution to the Beneficiary. In the event that the
transfer to the trust as described above
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is not automatically effective (for any reason) to prevent violation of the
Ownership Limit, then the Bylaws provide that the transfer of the excess shares
will be void.
In addition, shares of stock of PEI held in the trust shall be deemed to
have been offered for sale to PEI, or its designee, at a price per share equal
to the lesser of (i) the price per share in the transaction that resulted in
such transfer to the trust (or, in the case of a devise or gift, the Market
Price (as defined in the Bylaws) at the time of such devise or gift) and (ii)
the Market Price on the date PEI, or its designee, accepts such offer. PEI
shall have the right to accept such offer until the trustee has sold the shares
of stock held in the trust. Upon such a sale to PEI, the interest of the
Beneficiary in the shares sold shall terminate and the trustee shall distribute
the net proceeds of the sale to the Prohibited Transferee or Prohibited Owner.
If any purported transfer of shares of Common Stock would cause PEI to be
beneficially owned by fewer than 100 persons, such transfer will be null and
void in its entirety, and the intended transferee shall acquire no rights to the
stock.
Under the Bylaws, each stockholder shall upon demand be required to
disclose to PEI in writing such information as PEI may request in order to
determine PEI's status as a REIT.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) PRO FORMA FINANCIAL INFORMATION.
It was impracticable for PEI to provide the pro forma financial
information required hereunder at the time of filing of this Report. PEI
intends to file the required pro forma financial information as an amendment to
this Report as promptly as practicable, but in any event no later than 60 days
following the date of filing of this Report.
(c) EXHIBITS.
2.1 Distribution Agreement dated as of August 26, 1997 between Price
Enterprises, Inc. and PriceSmart, Inc.
10.1 Employee Benefits and Other Employment Matters Allocation Agreement
dated as of August 26, 1997 between Price Enterprises, Inc. and
PriceSmart, Inc.
10.2 Tax Sharing Agreement dated as of August 26, 1997 between Price
Enterprises, Inc. and PriceSmart, Inc.
10.3 Asset Management Agreement dated as of August 26, 1997 between Price
Enterprises, Inc. and PriceSmart, Inc.
10.4 Transitional Services Agreement dated as of August 26, 1997 between
Price Enterprises, Inc. and PriceSmart, Inc.
99.1 Press Release, dated August 29, 1997, issued by Price Enterprises,
Inc.
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ITEM 8. CHANGE IN FISCAL YEAR
By unanimous written consent dated as of August 29, 1997, the Board of
Directors of PEI voted to change PEI's fiscal year end from the Sunday nearest
August 31 to December 31, beginning with a short fiscal year ending on December
31, 1997. A transition report for the period from September 1, 1997 through
December 31, 1997 will be filed on Form 10-K.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: September 12, 1997 Price Enterprises, Inc.
By: /s/ Jack McGrory
----------------------------
Jack McGrory
President and Chief
Executive Officer
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EXHIBIT INDEX
Exhibit No. Page
- ----------- -----
2.1 Distribution Agreement dated as of August 26, 1997 between
Price Enterprises, Inc. and PriceSmart, Inc.
3.1 Amended and Restated Bylaws of Price Enterprises, Inc.
10.1 Employee Benefits and Other Employment Matters Allocation
Agreement dated as of August 26, 1997 between Price
Enterprises, Inc. and PriceSmart, Inc.
10.2 Tax Sharing Agreement dated as of August 26, 1997 between
Price Enterprises, Inc. and PriceSmart, Inc.
10.3 Asset Management Agreement dated as of August 26, 1997
between Price Enterprises, Inc. and PriceSmart, Inc.
10.4 Transitional Services Agreement dated as of August 26, 1997
between Price Enterprises, Inc. and PriceSmart, Inc.
99.1 Press Release, dated August 29, 1997, issued by Price
Enterprises, Inc.
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DISTRIBUTION AGREEMENT
between
PRICE ENTERPRISES, INC.
and
PRICESMART, INC.
dated as of
August 26, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS....................................................... 2
Section 1.01 General.............................................. 2
Section 1.02. Terms Defined Elsewhere in Agreement................ 9
ARTICLE II. TRANSFER OF ASSETS...............................................10
Section 2.01 Transfer of Assets to PriceSmart..................... 10
Section 2.02 Transfers Not Effected Prior to the Distribution..... 10
Section 2.03 Cooperation Re: Assets.............................. 11
Section 2.04 No Representations or Warranties; Consents........... 12
Section 2.05 Conveyancing and Assumption Instruments.............. 13
Section 2.06. Cash Allocation; Cash Management.................... 13
ARTICLE III. ASSUMPTION AND SATISFACTION OF LIABILITIES......................15
Section 3.01. Assumption and Satisfaction of Liabilities.......... 15
ARTICLE IV. THE DISTRIBUTION.................................................15
Section 4.01. Cooperation Prior to the Distribution............... 15
Section 4.02. PEI Board Action; Conditions Precedent to
the Distribution.................................... 16
Section 4.03. The Distribution.................................... 17
Section 4.04. Cash in Lieu of Fractional Shares................... 17
ARTICLE V. INDEMNIFICATION...................................................18
Section 5.01. Indemnification by PEI.............................. 18
Section 5.02. Indemnification by PriceSmart....................... 18
Section 5.03. Insurance Proceeds.................................. 19
Section 5.04. Procedure for Indemnification....................... 19
Section 5.05. Remedies Cumulative................................. 23
Section 5.06. Survival of Indemnities............................. 23
ARTICLE VI. CERTAIN ADDITIONAL MATTERS.......................................24
Section 6.01. PriceSmart Board.................................... 24
Section 6.02. Employee Matters.................................... 24
Section 6.03. Certificate and Bylaws.............................. 24
ARTICLE VII. ACCESS TO INFORMATION AND SERVICES..............................25
Section 7.01. Provision of Corporate Records...................... 25
Section 7.02. Access to Information............................... 25
Section 7.03. Production of Witnesses............................. 26
Section 7.04. Reimbursement....................................... 26
Section 7.05. Retention of Records................................ 26
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PAGE
Section 7.06. Confidentiality..................................... 27
Section 7.07. Privileged Matters.................................. 27
ARTICLE VIII. INSURANCE......................................................30
Section 8.01. Policies and Rights Included Within the
PriceSmart Assets................................... 30
Section 8.02. Post-Distribution Date Claims....................... 31
Section 8.03. Administration and Reserves......................... 31
Section 8.04. Agreement for Waiver of Conflict and Shared Defense. 32
ARTICLE IX. MISCELLANEOUS....................................................33
Section 9.01. Complete Agreement; Construction.................... 33
Section 9.02. Expenses............................................ 33
Section 9.03. Governing Law....................................... 33
Section 9.04. Notices............................................. 33
Section 9.05. Amendments.......................................... 34
Section 9.06. Successors and Assigns.............................. 34
Section 9.07. Termination......................................... 34
Section 9.08. Subsidiaries........................................ 34
Section 9.09. No Third-Party Beneficiaries........................ 34
Section 9.10. Titles and Headings................................. 35
Section 9.11. Exhibits and Schedules.............................. 35
Section 9.12. Legal Enforceability................................ 35
Section 9.13. Arbitration of Disputes............................. 35
EXHIBITS
Exhibit A: Assignment Agreement
Exhibit B: Employee Benefits Allocation Agreement
Exhibit C: PEI Projected Balance Sheet
Exhibit D: PriceSmart Bylaws
Exhibit E: PriceSmart Certificate
Exhibit F: PriceSmart Projected Balance Sheet
Exhibit G: Tax Sharing Agreement
Exhibit H: Transitional Services Agreement
Exhibit I: Asset Management and Disposition Agreement
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DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (this "Agreement") is made as of this 26th
day of August, 1997 between Price Enterprises, Inc., a Delaware corporation
("PEI"), and PriceSmart, Inc., a Delaware corporation and wholly-owned
subsidiary of PEI ("PriceSmart").
RECITALS
WHEREAS, PEI, directly and through subsidiaries, (i) acquires,
develops and owns certain real estate assets, including shopping centers and
power centers leased to major retail tenants (as more specifically defined
herein, the "Retained Business"), (ii) holds certain other real estate-related
assets (as more specifically defined herein, the "Other Real Estate Assets"),
(iii) holds certain notes issued in connection with loans to municipalities,
agencies and other entities (as more specifically defined herein, the "Notes"),
and (iv) operates certain merchandising businesses and programs (the
"Merchandising Business," and together with the Other Real Estate Assets and the
Notes, the "PriceSmart Business");
WHEREAS, the Board of Directors of PEI has determined that it is in
the best interests of PEI and the stockholders of PEI to separate the Retained
Business and the PriceSmart Business and, in order to effect such separation, to
transfer to PriceSmart the stock of certain PEI subsidiaries principally engaged
in the PriceSmart Business and certain other assets relating principally to the
PriceSmart Business (the "Asset Transfers"), and thereafter to distribute all of
the outstanding shares of common stock, par value $.0001 per share, of
PriceSmart to the holders of PEI common stock (the "Distribution"); and
WHEREAS, in connection with the Distribution, PEI and PriceSmart have
determined that it is necessary and desirable to set forth the principal
corporate transactions required to effect the Asset Transfers and the
Distribution, and to set forth the agreements that will govern certain matters
following the Distribution.
<PAGE>
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 GENERAL. As used in this Agreement, the following terms
shall have the following meanings:
ACTION: Any action, claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
AFFILIATE: With respect to any specified Person, any other Person
directly or indirectly controlling or controlled by, or under direct or indirect
common control with, such specified Person. For purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" shall have meanings correlative to the foregoing.
Notwithstanding the foregoing, (i) the Affiliates of PEI shall not include
PriceSmart, the PriceSmart Subsidiaries or any other Person which would be an
Affiliate of PEI by reason of PEI's ownership of the capital stock of PriceSmart
prior to the Distribution or the fact that any officer or director of PriceSmart
or any of the PriceSmart Subsidiaries shall also serve as an officer or director
of PEI, and (ii) the Affiliates of PriceSmart shall not include PEI or any other
Person which would be an Affiliate of PriceSmart by reason of PEI's ownership of
the capital stock of PriceSmart prior to the Distribution or the fact that any
officer or director of PriceSmart or any of the PriceSmart Subsidiaries shall
also serve as an officer or director of PEI.
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AGENT: The distribution agent appointed by PEI to distribute the
PriceSmart Common Stock pursuant to the Distribution.
ASSIGNMENT AGREEMENT: The Assignment Agreement between PEI and
PriceSmart, pursuant to which PEI will convey certain intellectual property
rights to PriceSmart, which agreement shall be entered into on or prior to the
Distribution Date in substantially the form of Exhibit A attached hereto.
COMMISSION: The Securities and Exchange Commission.
CONVEYANCING AND ASSUMPTION INSTRUMENTS: Collectively, the various
agreements, instruments and other documents to be entered into to effect the
Asset Transfers and the assumption of Liabilities in the manner contemplated by
this Agreement and the Related Agreements.
DISTRIBUTION DATE: The date determined by the PEI Board as the date
on which the Distribution shall be effected, which Distribution Date is
contemplated by the PEI Board to occur on or about August 29, 1997.
DISTRIBUTION RECORD DATE: The date established by the PEI Board as
the date for taking a record of the Holders of PEI Common Stock entitled to
participate in the Distribution, which Distribution Record Date has been
established as August 15, 1997, subject to the fulfillment on or before August
29, 1997 of certain conditions to the Distribution as provided in Section 4.02.
EMPLOYEE BENEFITS ALLOCATION AGREEMENT: The Employee Benefits and
Other Employment Matters Allocation Agreement between PEI and PriceSmart, which
agreement shall be entered into on or prior to the Distribution Date in
substantially the form of Exhibit B attached hereto.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
HOLDERS: The holders of record of PEI Common Stock as of the
Distribution Record Date.
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INSURANCE PROCEEDS: Those moneys (i) received by an insured from an
insurance carrier or (ii) paid by an insurance carrier on behalf of the insured,
in either case net of any applicable premium adjustment, retrospectively-rated
premium, deductible, retention, cost or reserve paid or held by or for the
benefit of such insured.
INSURED CLAIMS: Those Liabilities that, individually or in the
aggregate, are covered within the terms and conditions of any of the Policies,
whether or not subject to deductibles, co-insurance, uncollectability or
retrospectively-rated premium adjustments, but only to the extent that such
Liabilities are within applicable Policy limits, including aggregates.
LIABILITIES: Any and all debts, liabilities and obligations, absolute
or contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, including all costs and expenses
relating thereto, and including, without limitation, those debts, liabilities
and obligations arising under any law, rule, regulation, Action, threatened
Action, order or consent decree of any governmental entity or any award of any
arbitrator of any kind, and those arising under any contract, commitment or
undertaking.
NASDAQ: The National Stock Market's National Market System.
NOTES: The notes listed on Schedule 1.01(a).
OTHER REAL ESTATE ASSETS: The real estate assets listed on Schedule
1.01(b).
PEI BOARD: The Board of Directors of PEI.
PEI BOOKS AND RECORDS: The books and records (including computerized
records) of PEI and all books and records owned by PriceSmart which relate to
the Retained Business or are necessary to operate the Retained Business,
including, without limitation, all such books and records relating to Retained
Employees, all files relating to any Action pertaining to the Retained
Liabilities, original corporate minute books, stock ledgers and certificates and
corporate seals, and all licenses, leases, agreements and filings, relating to
PEI or the Retained Business (but not including the
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PriceSmart Books and Records, provided that PEI shall have access to, and shall
have the right to obtain duplicate copies of, the PriceSmart Books and Records
in accordance with the provisions of Article VII).
PEI COMMON STOCK: The common stock, par value $.0001 per share, of
PEI.
PEI INITIAL CASH BALANCE: Forty Million Dollars ($40,000,000).
PEI PROJECTED BALANCE SHEET: The Projected Consolidated Balance Sheet
for PEI as of August 29, 1997 attached hereto as Exhibit C.
PERSON: Any individual, corporation, partnership, association, trust,
estate or other entity or organization, including any governmental entity or
authority.
POLICIES: Insurance policies and insurance contracts of any kind
relating to the PriceSmart Business or the Retained Business as conducted prior
to the Distribution Date, including without limitation primary and excess
policies, comprehensive general liability policies, automobile and workers'
compensation insurance policies, and self-insurance and captive insurance
company arrangements, together with the rights, benefits and privileges
thereunder.
PRICESMART BOARD: The Board of Directors of PriceSmart.
PRICESMART BOOKS AND RECORDS: The books and records (including
computerized records) of PriceSmart and the PriceSmart Subsidiaries and all
books and records owned by PEI which relate to the PriceSmart Business or are
necessary to operate the PriceSmart Business, including, without limitation, all
such books and records relating to PriceSmart Employees, all files relating to
any Action being assumed by PriceSmart as part of the PriceSmart Liabilities,
original corporate minute books, stock ledgers and certificates and corporate
seals, and all licenses, leases, agreements and filings, relating to PriceSmart,
the PriceSmart Subsidiaries or the PriceSmart Business (but not including the
PEI Books and Records, provided that PriceSmart shall have access to, and
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<PAGE>
have the right to obtain duplicate copies of, the PEI Books and Records in
accordance with the provisions of Article VII).
PRICESMART BYLAWS: The Bylaws of PriceSmart, substantially in the
form of Exhibit D, to be in effect at the Distribution Date.
PRICESMART CERTIFICATE: The Restated Certificate of Incorporation of
PriceSmart, substantially in the form of Exhibit E, to be in effect at the
Distribution Date.
PRICESMART COMMON STOCK: The common stock, par value $.0001 per
share, of PriceSmart.
PRICESMART EMPLOYEES: All of the PEI employees at the time of the
Distribution, other than the Retained Employees.
PRICESMART GROUP: PriceSmart and the PriceSmart Subsidiaries,
collectively.
PRICESMART LIABILITIES: (i) All of the Liabilities of the PriceSmart
Group under, or to be retained or assumed by PriceSmart or any of the PriceSmart
Subsidiaries pursuant to, this Agreement or any of the Related Agreements,
including those set forth on Schedule 1.01(f), (ii) all Liabilities arising out
of or in connection with any lawsuits relating to the Distribution (other than
those Liabilities relating to employee claims which shall be allocated pursuant
to the Employee Benefits Allocation Agreement), (iii) all Liabilities for
payment of outstanding drafts of PEI attributable to the PriceSmart Business
existing as of the Distribution Date, (iv) all Liabilities arising out of or in
connection with any of the PriceSmart Assets or the PriceSmart Business,
determined on a basis consistent with the determination of the Liabilities of
PriceSmart included on the PriceSmart Projected Balance Sheet, and (v) all other
Liabilities of PEI not constituting Retained Liabilities.
PRICESMART POLICIES: All Policies, current or past, which are owned
or maintained by or on behalf of PEI or any of its Affiliates or predecessors,
which relate to the PriceSmart Business
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but do not relate to the Retained Business, and which Policies are either
maintained by the PriceSmart Group or assignable to the PriceSmart Group.
PRICESMART PROJECTED BALANCE SHEET: The Projected Consolidated
Balance Sheet for PriceSmart as of August 29, 1997 attached hereto as Exhibit F.
PRICESMART SUBSIDIARIES: The Transferred Subsidiaries and all
Subsidiaries of PriceSmart or the Transferred Subsidiaries at the time of the
Distribution.
PRIVILEGES: All privileges that may be asserted under applicable law,
including, without limitation, privileges arising under or relating to the
attorney-client relationship (including but not limited to the attorney-client
and work product privileges), the accountant-client privilege, and privileges
relating to internal evaluative processes.
PRIVILEGED INFORMATION: All Information as to which PEI, PriceSmart
or any of their Subsidiaries are entitled to assert the protection of a
Privilege.
RELATED AGREEMENTS: All of the agreements, instruments,
understandings, assignments or other arrangements which are entered into in
connection with the transactions contemplated hereby and which are set forth in
a writing, including, without limitation (i) the Conveyancing and Assumption
Instruments, (ii) the Employee Benefits Allocation Agreement, (iii) the Tax
Sharing Agreement, (iv) the Assignment Agreement, and (v) the Transitional
Services Agreements.
RETAINED ASSETS: The assets of PEI other than the PriceSmart Assets,
including without limitation (i) assets relating to the Retained Business,
determined on a basis consistent with the determination of assets included on
the PEI Projected Balance Sheet, (ii) all of the assets expressly allocated to
PEI under this Agreement or the Related Agreements, including those set forth on
Schedule 1.01(c), and (iii) any other assets of PEI and its Affiliates relating
to the Retained Business.
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RETAINED BUSINESS: The businesses conducted by PEI pursuant to or
utilizing the Retained Assets, including without limitation the acquisition,
development and ownership of real estate assets, including shopping centers and
power centers leased to major retail tenants.
RETAINED EMPLOYEES: The employees listed on Schedule 1.01(d).
RETAINED LIABILITIES: (i) All of the Liabilities arising out of or in
connection with the Retained Assets or the Retained Business, determined on a
basis consistent with the determination of the Liabilities of PEI included on
the PEI Projected Balance Sheet, (ii) all of the Liabilities of PEI under, or to
be retained or assumed by PEI pursuant to, this Agreement or any of the Related
Agreements, including those set forth on Schedule 1.01(e), and (iii) all
Liabilities for the payment of outstanding drafts of PEI attributable to the
Retained Business existing as of the Distribution Date.
RETAINED POLICIES: All Policies, current or past, which are owned or
maintained by or on behalf of PEI (or any of its predecessors) which relate to
the Retained Business but do not relate to the PriceSmart Business.
SHARED POLICIES: All Policies, current or past, which are owned or
maintained by or on behalf of PEI or its predecessors which relate to both the
Retained Business and the PriceSmart Business, and all other Policies not
constituting PriceSmart Policies or Retained Policies.
SUBSIDIARY: With respect to any Person, (a) any corporation of which
at least a majority in interest of the outstanding voting stock (having by the
terms thereof voting power under ordinary circumstances to elect a majority of
the directors of such corporation, irrespective of whether or not at the time
stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned or controlled by such Person, by one or more
Subsidiaries of such Person, or by such Person and one or more of its
Subsidiaries, or (b) any non-corporate entity in which such Person, one or
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more Subsidiaries of such Person, or such Person and one or more Subsidiaries of
such Person, directly or indirectly, at the date of determination thereof, has
at least majority ownership interest.
TAX SHARING AGREEMENT: The Tax Sharing Agreement between PriceSmart
and PEI, which agreement shall be entered into on or prior to the Distribution
Date in substantially the form of Exhibit G attached hereto.
TRANSFERRED SUBSIDIARIES: The Subsidiaries identified on Schedule
1.01(g).
TRANSFERRED SUBSIDIARY STOCK: All of the issued and outstanding
capital stock of the Transferred Subsidiaries.
TRANSITIONAL SERVICES AGREEMENTS: The agreements to be entered into
between PEI and PriceSmart on or prior to the Distribution Date, providing for
furnishing of certain services by PriceSmart after the Distribution Date, in
substantially the forms of the following: the Transitional Services Agreement
attached hereto as Exhibit H and the Asset Management and Disposition Agreement
attached hereto as Exhibit I.
Section 1.02. TERMS DEFINED ELSEWHERE IN AGREEMENT.
Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
---- -------
Asset Transfers Recitals
Consents 4.01(c)
Distribution Recitals
Indemnifiable Loss 5.02
Indemnifying Party 5.03
Indemnitee 5.03
Information 7.02
Merchandising Business Recitals
PEI Recitals
PEI Cash 2.06(a)
PEI Indemnitees 5.02
Pending Action 5.04(h)
PriceSmart Recitals
PriceSmart Assets 2.01
PriceSmart Business Recitals
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PriceSmart Indemnitees 5.01
Third-Party Claim 5.04(a)
ARTICLE II.
TRANSFER OF ASSETS
Section 2.01 TRANSFER OF ASSETS TO PRICESMART. Prior to the
Distribution Date, PEI shall take or cause to be taken all actions necessary to
cause the transfer, assignment, delivery and conveyance to PriceSmart of all of
PEI's right, title and interest in the PriceSmart Assets. The "PriceSmart
Assets" shall consist of the following assets:
(a) the Transferred Subsidiary Stock;
(b) the Other Real Estate Assets;
(c) the Notes;
(d) the PEI Cash, other than the PEI Initial Cash Balance;
(e) the trademarks, servicemarks, goodwill and other intangible
properties and rights to be conveyed to PriceSmart pursuant to the Assignment
Agreement;
(f) the PriceSmart Books and Records;
(g) all of the other assets to be assigned to PriceSmart under this
Agreement or the Related Agreements; and
(h) all other assets relating to the PriceSmart Business, determined
on a basis consistent with the determination of the assets included on the
PriceSmart Projected Balance Sheet.
Section 2.02 TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTION. To
the extent that any transfers contemplated by this Article II shall not have
been fully effected on the Distribution Date, the parties shall cooperate to
effect such transfers as promptly as shall be practicable following the
Distribution Date. Nothing herein shall be deemed to require the transfer of
any assets or the assumption of any Liabilities which by their terms or
operation of law cannot be transferred or
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assumed; PROVIDED, HOWEVER, that PEI and PriceSmart and their respective
Subsidiaries and Affiliates shall cooperate in seeking to obtain any necessary
consents or approvals for the transfer of all assets and Liabilities
contemplated to be transferred pursuant to this Article II. In the event that
any such transfer of assets or Liabilities has not been consummated effective as
of the Distribution Date, the party retaining such asset or Liability shall
thereafter hold such asset in trust for the use and benefit of the party
entitled thereto (at the expense of the party entitled thereto) and retain such
Liability for the account of the party by whom such Liability is to be assumed
pursuant hereto, and take such other actions as may be reasonably required in
order to place the parties, insofar as reasonably possible, in the same position
as would have existed had such asset been transferred or such Liability been
assumed as contemplated hereby. As and when any such asset or Liability becomes
transferable, such transfer and assumption shall be effected forthwith. The
parties agree that, except as set forth in this Section 2.02, as of the
Distribution Date, each party hereto shall be deemed to have acquired complete
and sole beneficial ownership over all of the assets, together with all rights,
powers and privileges incidental thereto, and shall be deemed to have assumed in
accordance with the terms of this Agreement all of the Liabilities, and all
duties, obligations and responsibilities incidental thereto, which such party is
entitled to acquire or required to assume pursuant to the terms of this
Agreement.
Section 2.03 COOPERATION RE: ASSETS. In the case that at any time
after the Distribution Date, PriceSmart reasonably determines that any of the
Retained Assets are essential for the conduct of the PriceSmart Business, or PEI
reasonably determines that any of the PriceSmart Assets are essential for the
conduct of the Retained Business, and the nature of such assets makes it
impracticable for PriceSmart or PEI, as the case may be, to obtain substitute
assets or to make alternative arrangements on commercially reasonable terms to
conduct their respective businesses, and reasonable provisions for the use
thereof are not already included in the Related Agreements, then PriceSmart
(with respect to the PriceSmart Assets) and PEI (with respect to the Retained
Assets) shall
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cooperate to make such assets available to the other party on commercially
reasonable terms, as may be reasonably required for such party to maintain
normal business operations (provided that such assets shall be required to be
made available only until such time as the other party may reasonably obtain
substitute assets or make alternative arrangements on commercially reasonable
terms to permit it to maintain normal business operations).
Section 2.04 NO REPRESENTATIONS OR WARRANTIES; CONSENTS. Each of the
parties hereto understands and agrees that no party hereto is, in this Agreement
or in any other agreement or document contemplated by this Agreement or
otherwise, representing or warranting in any way (i) as to the value or freedom
from encumbrance of, or any other matter concerning, any assets of such party or
(ii) as to the legal sufficiency to convey title to any asset transferred
pursuant to this Agreement or any Related Agreement, including, without
limitation, any Conveyancing and Assumption Instruments. It is also agreed and
understood that there are no warranties, express or implied, as to the
merchantability or fitness of any of the assets either transferred to or
retained by the parties, as the case may be, and all such assets shall be "as
is, where is" and "with all faults" (provided, however, that the absence of
warranties shall have no effect upon the allocation of liabilities under this
Agreement). Similarly, each party hereto understands and agrees that no party
hereto is, in this Agreement or in any other agreement or document contemplated
by this Agreement or otherwise, representing or warranting in any way that the
obtaining of any consents or approvals, the execution and delivery of any
amendatory agreements and the making of any filings or applications contemplated
by this Agreement will satisfy the provisions of any or all applicable laws or
judgments or other instruments or agreements relating to such assets.
Notwithstanding the foregoing, the parties shall use their good faith efforts to
obtain all consents and approvals, to enter into all reasonable amendatory
agreements and to make all filings and applications which may be reasonably
required for the consummation of the transactions contemplated by this
Agreement, and
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shall take all such further reasonable actions as shall be reasonably necessary
to preserve for each of the PriceSmart Group and PEI, to the greatest extent
feasible, the economic and operational benefits of the allocation of assets and
liabilities provided for in this Agreement. In case at any time after the
Distribution Date any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party to
this Agreement shall take all such necessary or desirable action.
Section 2.05 CONVEYANCING AND ASSUMPTION INSTRUMENTS. In connection
with the Asset Transfers and the assumptions of Liabilities contemplated by this
Agreement, the parties shall execute or cause to be executed by the appropriate
entities the Conveyancing and Assumption Instruments in such forms as the
parties shall reasonably agree, including the transfer of real property with
deeds as may be appropriate, and the assignment of trademarks and other
intellectual property rights. The transfer of capital stock shall be effected
by means of delivery of stock certificates and executed stock powers and
notation on the stock record books of the corporation or other legal entities
involved and, to the extent required by applicable law, by notation on public
registries.
Section 2.06. CASH ALLOCATION; CASH MANAGEMENT.
(a) CASH ALLOCATION ON THE DISTRIBUTION DATE. As of the close of
business on the Distribution Date, PEI shall retain, out of the domestic and
international cash bank balances and short-term investments of PEI recorded on
the books of PEI (the "PEI Cash"), an amount of PEI Cash equal to the PEI
Initial Cash Balance, and PriceSmart shall be allocated all other PEI Cash. To
the extent practicable, the parties shall use their reasonable best efforts to
take all necessary action to cause the cash balances of PEI immediately prior to
consummation of the Distribution to equal the PEI Initial Cash Balance. In the
event the actual cash balances of PEI as of the Distribution are less than the
PEI Initial Cash Balance, the amount of the deficiency shall be recorded in the
accounts of PEI and PriceSmart as of the Distribution Date as a payable from
PriceSmart to PEI (which payable
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will be paid as promptly as practicable following the Distribution); and in the
event the actual cash balances of PEI as of the Distribution Date exceed the PEI
Initial Cash Balance, the amount of such excess shall be recorded in the
accounts of PEI and PriceSmart as of the Distribution Date as a payable from PEI
to PriceSmart (which payable will be paid as promptly as practicable following
the time it is determinable).
(b) CASH MANAGEMENT AFTER THE DISTRIBUTION DATE. PriceSmart shall
establish and maintain a separate cash management system and accounting records
with respect to the PriceSmart Business effective as of 12:01 a.m. on the day
following the Distribution Date; thereafter, (i) any payments by PEI on behalf
of PriceSmart or the PriceSmart Subsidiaries in connection with the PriceSmart
Business (including, without limitation, any such payments in respect of
Liabilities or other obligations of PriceSmart or the PriceSmart Subsidiaries
under the Employee Benefits Allocation Agreement) shall be recorded in the
accounts of the PriceSmart Group as a payable from the PriceSmart Group to PEI;
(ii) any payments by PriceSmart or the PriceSmart Subsidiaries on behalf of PEI
in connection with the Retained Business (including, without limitation, any
such payments in respect to Liabilities or other obligations of PEI under the
Employee Benefits Allocation Agreement) shall be recorded in the accounts of PEI
as a payable from PEI to the PriceSmart Group; (iii) any cash payments received
by PEI relating to the PriceSmart Business or the PriceSmart Assets shall be
recorded in the accounts of PEI as a payable from PEI to the PriceSmart Group;
(iv) any cash payments received by PriceSmart or the PriceSmart Subsidiaries
relating to the Retained Business or the Retained Assets shall be recorded in
the accounts of the PriceSmart Group as a payable from the PriceSmart Group to
PEI; (v) PriceSmart and PEI shall make adjustments for late deposits, checks
returned for not sufficient funds and other post-Distribution Date transactions
as shall be reasonable under the circumstances consistent with the purpose and
intent of this Agreement; and (vi) the net balance due to PEI or the PriceSmart
Group, as the case may be, in respect of the aggregate amounts
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of clauses (i), (ii), (iii), (iv) and (v) shall be paid by PriceSmart or PEI, as
appropriate, as promptly as practicable. For purposes of this Section 2.06(b),
the parties contemplate that the Retained Business and the PriceSmart Business,
including but not limited to the administration of accounts payable and accounts
receivable, will be conducted in the normal course.
ARTICLE III.
ASSUMPTION AND SATISFACTION OF LIABILITIES
Section 3.01. ASSUMPTION AND SATISFACTION OF LIABILITIES. Except as
set forth in the Employee Benefits Allocation Agreement, the Tax Sharing
Agreement or the other Related Agreements, effective as of and after the
Distribution Date, (a) PriceSmart shall, and/or shall cause the PriceSmart
Subsidiaries to, assume, pay, perform and discharge in due course all of the
PriceSmart Liabilities and (b) PEI shall pay, perform and discharge in due
course all of the Retained Liabilities.
ARTICLE IV.
THE DISTRIBUTION
Section 4.01. COOPERATION PRIOR TO THE DISTRIBUTION.
(a) PEI and PriceSmart shall cooperate in preparing, filing with the
Commission and causing to become effective any registration statements or
amendments thereof which are appropriate to reflect the establishment of, or
amendments to, any employee benefit plans and other plans contemplated by the
Employee Benefits Allocation Agreement.
(b) PEI and PriceSmart shall take all such action as may be necessary
or appropriate under the securities or blue sky laws of states or other
political subdivisions of the United States in connection with the transactions
contemplated by this Agreement and the Related Agreements.
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(c) PEI and PriceSmart shall use all reasonable efforts to obtain any
third-party consents or approvals necessary or desirable in connection with the
transactions contemplated hereby ("Consents").
(d) PEI and PriceSmart will use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary or desirable under applicable law, to consummate the transactions
contemplated under this Agreement and the Related Agreements.
Section 4.02. PEI BOARD ACTION; CONDITIONS PRECEDENT TO THE
DISTRIBUTION. The PEI Board shall, in its discretion, establish any appropriate
procedures in connection with the Distribution. In no event shall the
Distribution occur unless the following conditions shall have been satisfied:
(a) the transactions contemplated by Section 2.01 shall have been
consummated in all material respects;
(b) the PriceSmart Board, comprised as contemplated by Section 6.01,
shall have been elected, and the PriceSmart Certificate and PriceSmart Bylaws
shall have been adopted and shall be in effect;
(c) PEI and PriceSmart shall have obtained all Consents, the failure
of which to obtain would, in the determination of the PEI Board, have a material
adverse effect on PEI or PriceSmart;
(d) the Registration Statement on Form 10 under the Exchange Act
filed by PriceSmart shall have been declared effective by the Commission;
(e) the PriceSmart Common Stock shall have been approved for trading
on Nasdaq subject to official notice of issuance; and
(f) PEI and PriceSmart shall have entered into the Related
Agreements;
PROVIDED, HOWEVER, that (i) any such condition may be waived by the PEI Board in
its sole discretion, and (ii) the satisfaction of such conditions shall not
create any obligation on the part of PEI or any
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other party hereto to effect the Distribution or in any way limit PEI's power of
termination set forth in Section 9.07 or alter the consequences of any such
termination from those specified in such Section.
Section 4.03. THE DISTRIBUTION. On the Distribution Date, subject to
the conditions and rights of termination set forth in this Agreement, PEI shall
deliver to the Agent a share certificate representing all of the then
outstanding shares of PriceSmart Common Stock owned by PEI and shall instruct
the Agent to distribute, on or as soon as practicable following the Distribution
Date, such PriceSmart Common Stock to the Holders. PriceSmart agrees to provide
all share certificates that the Agent shall require in order to effect the
Distribution.
Section 4.04. CASH IN LIEU OF FRACTIONAL SHARES. No certificate or
scrip representing fractional shares of PriceSmart Common Stock shall be issued
as part of the Distribution and in lieu thereof, each holder of PEI Common Stock
who would otherwise be entitled to receive a fractional share of PriceSmart
Common Stock will receive cash for such fractional share. PEI shall instruct
the Agent to determine the number of whole shares and fractional shares of
PriceSmart Common Stock allocable to each holder of record of PEI Common Stock
as of the Distribution Record Date. PEI shall instruct the Agent to aggregate
all such fractional shares into whole shares and sell the whole shares obtained
thereby in the open market as soon as practicable following the Distribution
Date at then prevailing prices on behalf of Holders who otherwise would be
entitled to receive fractional share interests and to distribute to each such
Holder such Holder's ratable share of the proceeds of such sale as soon as
practicable after the Distribution Date. PEI shall bear the costs of
commissions incurred in connection with such sales.
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ARTICLE V.
INDEMNIFICATION
Section 5.01. INDEMNIFICATION BY PEI. Except as otherwise expressly
set forth in a Related Agreement, PEI shall indemnify, defend and hold harmless
PriceSmart and each of the PriceSmart Subsidiaries, and each of their respective
directors, officers, employees, agents and Affiliates and each of the heirs,
executors, successors and assigns of any of the foregoing (the "PriceSmart
Indemnitees") from and against the Retained Liabilities and any and all losses,
Liabilities, damages, including, without limitation, the costs and expenses of
any and all Actions, threatened Actions, demands, assessments, judgments,
settlements and compromises relating to the Retained Liabilities and attorneys'
fees and any and all expenses whatsoever reasonably incurred in investigating,
preparing or defending against any such Actions or threatened Actions
(collectively, "PriceSmart Indemnifiable Losses" and, individually, a
"PriceSmart Indemnifiable Loss") of the PriceSmart Indemnitees arising out of or
due to the failure or alleged failure of PEI or any of its Affiliates prior to
or after the Distribution Date to pay, perform or otherwise discharge in due
course any of the Retained Liabilities.
Section 5.02. INDEMNIFICATION BY PRICESMART. Except as otherwise
expressly set forth in a Related Agreement, PriceSmart shall indemnify, defend
and hold harmless PEI and each of its directors, officers, employees, agents and
Affiliates and each of the heirs, executors, successors and assigns of any of
the foregoing (the "PEI Indemnitees") from and against the PriceSmart
Liabilities and any and all losses, Liabilities, damages, including, without
limitation, the costs and expenses of any and all Actions, threatened Actions,
demands, assessments, judgments, settlements and compromises relating to the
PriceSmart Liabilities and attorneys' fees and any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any such
Actions or threatened Actions (collectively, "PEI Indemnifiable Losses" and,
individually, a "PEI Indemnifiable
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Loss") of the PEI Indemnitees arising out of or due to the failure or alleged
failure of PriceSmart or any of its Affiliates prior to or after the
Distribution Date to pay, perform or otherwise discharge in due course any of
the PriceSmart Liabilities. The "PriceSmart Indemnifiable Losses" and the "PEI
Indemnifiable Losses" are collectively referred to as the "Indemnifiable
Losses."
Section 5.03. INSURANCE PROCEEDS. The amount which any party (an
"Indemnifying Party") is or may be required to pay to any other Person (an
"Indemnitee") pursuant to Section 5.01 or Section 5.02 shall be reduced
(including, without limitation, retroactively) by any Insurance Proceeds or
other amounts actually recovered by or on behalf of such Indemnitee in reduction
of the related Indemnifiable Loss. If an Indemnitee shall have received the
payment required by this Agreement from an Indemnifying Party in respect of an
Indemnifiable Loss and shall subsequently actually receive Insurance Proceeds,
or other amounts in respect of such Indemnifiable Loss as specified above, then
such Indemnitee shall pay to such Indemnifying Party a sum equal to the amount
of such Insurance Proceeds or other amounts actually received.
Section 5.04. PROCEDURE FOR INDEMNIFICATION.
(a) Except as may be set forth in a Related Agreement, if an
Indemnitee shall receive notice or otherwise learn of the assertion by a Person
(including, without limitation, any governmental entity) who is not a party to
this Agreement or to any of the Related Agreements of any claim or of the
commencement by any such Person of any Action (a "Third-Party Claim") with
respect to which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Agreement, such Indemnitee shall give such
Indemnifying Party written notice thereof promptly after becoming aware of such
Third-Party Claim; PROVIDED that the failure of any Indemnitee to give notice as
required by this Section 5.04 shall not relieve the Indemnifying Party of its
obligations under this Article V, except to the extent that such Indemnifying
Party is prejudiced by such failure to give notice. Such notice shall describe
the Third-Party Claim in reasonable detail, and shall indicate the
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amount (estimated if necessary) of the Indemnifiable Loss that has been or
may be sustained by such Indemnitee.
(b) An Indemnifying Party may elect to defend or to seek to settle or
compromise, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel, any Third-Party Claim, provided that the Indemnifying Party
must confirm in writing that it agrees that the Indemnitee is entitled to
indemnification hereunder in respect of such Third-Party Claim. Within 30 days
of the receipt of notice from an Indemnitee in accordance with Section 5.04(a)
(or sooner, if the nature of such Third-Party Claim so requires), the
Indemnifying Party shall notify the Indemnitee of its election whether to assume
responsibility for such Third-Party Claim (provided that if the Indemnifying
Party does not so notify the Indemnitee of its election within 30 days after
receipt of such notice from the Indemnitee, the Indemnifying Party shall be
deemed to have elected not to assume responsibility for such Third-Party Claim),
and such Indemnitee shall cooperate in the defense or settlement or compromise
of such Third-Party Claim. After notice from an Indemnifying Party to an
Indemnitee of its election to assume responsibility for a Third-Party Claim,
such Indemnifying Party shall not be liable to such Indemnitee under this
Article V for any legal or other expenses (except expenses approved in advance
by the Indemnifying Party) subsequently incurred by such Indemnitee in
connection with the defense thereof; PROVIDED that if the defendants in any such
claim include both the Indemnifying Party and one or more Indemnitees and in
such Indemnitees' reasonable judgment a conflict of interest between such
Indemnitees and such Indemnifying Party exists in respect of such claim, such
Indemnitees shall have the right to employ separate counsel and in that event
the reasonable fees and expenses of such separate counsel (but not more than one
separate counsel reasonably satisfactory to the Indemnifying Party) shall be
paid by such Indemnifying Party. If an Indemnifying Party elects not to assume
responsibility for a Third-Party Claim (which election may be made only in the
event of a good faith dispute that a claim was
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inappropriately tendered under Section 5.01 or 5.02, as the case may be) such
Indemnitee may defend or (subject to the following sentence) seek to compromise
or settle such Third-Party Claim. Notwithstanding the foregoing, an Indemnitee
may not settle or compromise any claim without prior written notice to the
Indemnifying Party, which shall have the option within ten days following the
receipt of such notice (i) to disapprove the settlement and assume all past and
future responsibility for the claim, including reimbursing the Indemnitee for
prior expenditures in connection with the claim, or (ii) to disapprove the
settlement and continue to refrain from participation in the defense of the
claim, in which event the Indemnifying Party shall have no further right to
contest the amount or reasonableness of the settlement if the Indemnitee elects
to proceed therewith, or (iii) to approve the amount of the settlement,
reserving the Indemnifying Party's right to contest the Indemnitee's right to
indemnity, or (iv) to approve and agree to pay the settlement. In the event the
Indemnifying Party makes no response to such written notice from the Indemnitee,
the Indemnifying Party shall be deemed to have elected option (ii).
(c) If an Indemnifying Party chooses to defend or to seek to
compromise any Third-Party Claim, the Indemnitee shall make available to such
Indemnifying Party any personnel and any books, records or other documents
within its control or which it otherwise has the ability to make available that
are necessary or appropriate for such defense.
(d) Notwithstanding anything else in this Section 5.04 to the
contrary, an Indemnifying Party shall not settle or compromise any Third-Party
Claim unless such settlement or compromise contemplates as an unconditional term
thereof the giving by such claimant or plaintiff to the Indemnitee of a written
release from all liability in respect of such Third-Party Claim (and provided
further that such settlement may not provide for any non-monetary relief by
Indemnitee without the written consent of Indemnitee). In the event the
Indemnitee shall notify the Indemnifying Party in writing that such Indemnitee
declines to accept any such settlement or compromise, such
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Indemnitee may continue to contest such Third-Party Claim, free of any
participation by such Indemnifying Party, at such Indemnitee's sole expense. In
such event, the obligation of such Indemnifying Party to such Indemnitee with
respect to such Third-Party Claim shall be equal to (i) the costs and expenses
of such Indemnitee prior to the date such Indemnifying Party notifies such
Indemnitee of the offer to settle or compromise (to the extent such costs and
expenses are otherwise indemnifiable hereunder) PLUS (ii) the lesser of (A) the
amount of any offer of settlement or compromise which such Indemnitee declined
to accept and (B) the actual out-of-pocket amount such Indemnitee is obligated
to pay subsequent to such date as a result of such Indemnitee's continuing to
pursue such Third-Party Claim.
(e) Any claim on account of an Indemnifiable Loss which does not
result from a Third-Party Claim shall be asserted by written notice given by the
Indemnitee to the applicable Indemnifying Party. Such Indemnifying Party shall
have a period of 15 days after the receipt of such notice within which to
respond thereto. If such Indemnifying Party does not respond within such 15-day
period, such Indemnifying Party shall be deemed to have refused to accept
responsibility to make payment. If such Indemnifying Party does not respond
within such 15-day period or rejects such claim in whole or in part, such
Indemnitee shall be free to pursue such remedies as may be available to such
party under applicable law or under this Agreement.
(f) In addition to any adjustments required pursuant to Section 5.03,
if the amount of any Indemnifiable Loss shall, at any time subsequent to the
payment required by this Agreement, be reduced by recovery, settlement or
otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnitee to the
Indemnifying Party.
(g) In the event of payment by an Indemnifying Party to any
Indemnitee in connection with any Third-Party Claim, such Indemnifying Party
shall be subrogated to and shall
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stand in the place of such Indemnitee as to any events or circumstances in
respect of which such Indemnitee may have any right or claim relating to such
Third-Party Claim against any claimant or plaintiff asserting such Third-Party
Claim. Such Indemnitee shall cooperate with such Indemnifying Party in a
reasonable manner, and at the cost and expense of such Indemnifying Party, in
prosecuting any subrogated right or claim.
(h) Notwithstanding anything else in this Section 5.04 to the
contrary, with respect to any Action pending at the time of the Distribution (a
"Pending Action") with respect to which an Indemnifying Party may be obligated
to provide indemnification pursuant to this Agreement, PEI or PriceSmart shall,
at the request of the other party, cause the Retained Employee(s) or PriceSmart
Employee(s), as the case may be, who were handling the defense, compromise or
settlement of such Pending Action prior to the Distribution to continue to
handle such defense, compromise or settlement following the Distribution
(subject to the last two sentences of subsection (b) above). If such employees
are employed by the Indemnitee, the Indemnitee shall keep the Indemnifying Party
reasonably informed of the progress of, and the Indemnifying Party shall
cooperate in, such defense, compromise or settlement.
Section 5.05. REMEDIES CUMULATIVE. The remedies provided in this
Article V shall be cumulative and shall not preclude assertion by any Indemnitee
of any other rights or the seeking of any and all other remedies against any
Indemnifying Party.
Section 5.06. SURVIVAL OF INDEMNITIES. The obligations of each of
PriceSmart and PEI under this Article V shall survive the sale or other transfer
by it of any assets or businesses or the assignment by it of any Liabilities
with respect to any Indemnifiable Loss of the other related to such assets,
businesses or Liabilities.
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ARTICLE VI.
CERTAIN ADDITIONAL MATTERS
Section 6.01. PRICESMART BOARD. PriceSmart and PEI shall take all
actions which may be required to constitute, effective as of the Distribution
Date, the board of directors of PriceSmart with the persons listed on Schedule
1.01(h).
Section 6.02. EMPLOYEE MATTERS.
(a) On the Distribution Date, except to the extent retained or
assumed by PEI under this Agreement, the Employee Benefits Allocation Agreement
or any other agreement relating to the Distribution, PriceSmart shall retain or
assume, as the case may be, responsibility as employer for the PriceSmart
Employees. On the Distribution Date, except to the extent retained or assumed
by PriceSmart under this Agreement, the Employee Benefits Allocation Agreement
or any other agreement relating to the Distribution, PEI shall retain or assume,
as the case may be, responsibility as employer for the Retained Employees.
(b) PriceSmart shall cause all of the PriceSmart Employees to resign,
effective as of the Distribution Date, from all positions as officers or
employees of PEI in which they serve. PEI shall cause all of the Retained
Employees to resign, effective as of the Distribution Date, from all positions
as officers or employees of PriceSmart or any of its Subsidiaries in which they
serve.
Section 6.03. CERTIFICATE AND BYLAWS. On or prior to the
Distribution Date, PriceSmart shall adopt the PriceSmart Certificate and the
PriceSmart Bylaws, and shall file the PriceSmart Certificate with the Secretary
of State of the State of Delaware.
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ARTICLE VII.
ACCESS TO INFORMATION AND SERVICES
Section 7.01. PROVISION OF CORPORATE RECORDS.
(a) Except as may otherwise be provided in a Related Agreement, PEI
shall arrange as soon as practicable following the Distribution Date, to the
extent not previously delivered in connection with the transactions contemplated
in Article II, for the transportation (at PriceSmart's cost) to PriceSmart of
the PriceSmart Books and Records in its possession, except to the extent such
items are already in the possession of PriceSmart or a PriceSmart Subsidiary.
The PriceSmart Books and Records shall be the property of PriceSmart, but shall
be available to PEI for review and duplication until PEI shall notify PriceSmart
in writing that such records are no longer of use to PEI.
(b) Except as otherwise provided in a Related Agreement, PriceSmart
shall arrange as soon as practicable following the Distribution Date, to the
extent not previously delivered in connection with the transactions contemplated
in Article II, for the transportation (at PEI's cost) to PEI of the PEI Books
and Records in its possession, except to the extent such items are already in
the possession of PEI. The PEI Books and Records shall be the property of PEI,
but shall be available to PriceSmart for review and duplication until PriceSmart
shall notify PEI in writing that such records are no longer of use to
PriceSmart.
Section 7.02. ACCESS TO INFORMATION. Except as otherwise provided in
a Related Agreement, from and after the Distribution Date, PEI shall afford to
PriceSmart and its authorized accountants, counsel and other designated
representatives reasonable access (including using reasonable efforts to give
access to persons or firms possessing information) and duplicating rights during
normal business hours to all records, books, contracts, instruments, computer
data and other data and information relating to pre-Distribution operations
(collectively, "Information") within PEI's possession insofar as such access is
reasonably required by PriceSmart for the conduct of its business,
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subject to appropriate restrictions for classified or Privileged Information.
Similarly, except as otherwise provided in a Related Agreement, PriceSmart
shall afford to PEI and its authorized accountants, counsel and other
designated representatives reasonable access (including using reasonable
efforts to give access to persons or firms possessing information) and
duplicating rights during normal business hours to Information within
PriceSmart's possession, insofar as such access is reasonably required by PEI
for the conduct of its business, subject to appropriate restrictions for
classified or Privileged Information. Information may be requested under this
Article VII for the legitimate business purposes of either party, including,
without limitation, audit, accounting, claims (including claims for
indemnification hereunder), litigation and tax purposes, as well as for
purposes of fulfilling disclosure and reporting obligations and for
performing this Agreement and the transactions contemplated hereby.
Section 7.03. PRODUCTION OF WITNESSES. At all times from and after
the Distribution Date, each of PriceSmart and PEI shall use reasonable efforts
to make available to the other, upon written request, its and its Subsidiaries'
officers, directors, employees and agents as witnesses to the extent that such
persons may reasonably be required in connection with any Action.
Section 7.04. REIMBURSEMENT. Except to the extent otherwise
contemplated in any Related Agreement, a party providing Information or witness
services to the other party under this Article VII shall be entitled to receive
from the recipient, upon the presentation of invoices therefor, payments of such
amounts, relating to supplies, disbursements and other out-of-pocket expenses
(at cost) and direct and indirect expenses of employees who are witnesses or
otherwise furnish assistance (at cost), as may be reasonably incurred in
providing such Information or witness services.
Section 7.05. RETENTION OF RECORDS. Except as otherwise required by
law or agreed to in a Related Agreement or otherwise in writing, each of PEI and
PriceSmart may destroy or otherwise dispose of any of the Information, which is
material Information and is not contained in
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other Information retained by PEI or PriceSmart, as the case may be, at any time
after the tenth anniversary of this Agreement, provided that, prior to such
destruction or disposal, (a) it shall provide no less than 90 or more than 120
days prior written notice to the other, specifying in reasonable detail the
Information proposed to be destroyed or disposed of and (b) if a recipient of
such notice shall request in writing prior to the scheduled date for such
destruction or disposal that any of the Information proposed to be destroyed or
disposed of be delivered to such requesting party, the party proposing the
destruction or disposal shall promptly arrange for the delivery of such of the
Information as was requested at the expense of the party requesting such
Information.
Section 7.06. CONFIDENTIALITY. Each of PEI on the one hand, and
PriceSmart and its Subsidiaries on the other hand, shall hold, and shall cause
its consultants and advisors to hold, in strict confidence, all Information
concerning the other in its possession or furnished by the other or the other's
representatives pursuant to this Agreement (except to the extent that such
Information has been (i) in the public domain through no fault of such party or
(ii) later lawfully acquired from other sources by such party), and each party
shall not release or disclose such Information to any other person, except its
auditors, attorneys, financial advisors, rating agencies, bankers and other
consultants and advisors, unless compelled to disclose by judicial or
administrative process or, as reasonably advised by its counsel or by other
requirements of law, or unless such Information is reasonably required to be
disclosed in connection with (x) any litigation with any third-parties or
litigation between PEI and the PriceSmart Group, (y) any contractual agreement
to which PEI or the PriceSmart Group are currently parties, or (z) in exercise
of either party's rights hereunder.
Section 7.07. PRIVILEGED MATTERS. PEI and PriceSmart recognize that
legal and other professional services that have been and will be provided prior
to the Distribution Date have been and will be rendered for the benefit of both
PEI and the PriceSmart Group and that both PEI and the
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PriceSmart Group should be deemed to be the client for the purposes of
asserting all Privileges. To allocate the interests of each party in the
Privileged Information, the parties agree as follows:
(a) PEI shall be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information which relates
solely to the Retained Business, whether or not the Privileged Information is in
the possession of or under the control of PEI or PriceSmart. PEI shall also be
entitled, in perpetuity, to control the assertion or waiver of all Privileges in
connection with Privileged Information that relates solely to the subject matter
of any claims constituting Retained Liabilities, now pending or which may be
asserted in the future, in any lawsuits or other proceedings initiated against
or by PEI, whether or not the Privileged Information is in the possession of or
under the control of PEI or PriceSmart.
(b) PriceSmart shall be entitled, in perpetuity, to control the
assertion or waiver of all Privileges in connection with Privileged Information
which relates solely to the PriceSmart Business, whether or not the Privileged
Information is in the possession of or under the control of PEI or PriceSmart.
PriceSmart shall also be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information which relates
solely to the subject matter of any claims constituting PriceSmart Liabilities,
now pending or which may be asserted in the future, in any lawsuits or other
proceedings initiated against or by PriceSmart, whether or not the Privileged
Information is in the possession of PriceSmart or under the control of PEI or
PriceSmart.
(c) PEI and PriceSmart agree that they shall have a shared Privilege,
with equal right to assert or waive, subject to the restrictions in this Section
7.07, with respect to all Privileges not allocated pursuant to the terms of
Sections 7.07(a) and (b). All Privileges relating to any claims, proceedings,
litigation, disputes or other matters which involve both PEI and PriceSmart in
respect of which PEI and PriceSmart retain any responsibility or liability under
this Agreement shall be subject to a shared Privilege.
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(d) No party may waive any Privilege which could be asserted under
any applicable law, and in which the other party has a shared Privilege, without
the consent of the other party, except to the extent reasonably required in
connection with any litigation with third-parties or as provided in subsection
(e) below. Consent shall be in writing, or shall be deemed to be granted unless
written objection is made within 20 days after notice upon the other party
requesting such consent.
(e) In the event of any litigation or dispute between PEI and a
member of the PriceSmart Group, either party may waive a Privilege in which the
other party has a shared Privilege, without obtaining the consent of the other
party, provided that such waiver of a shared Privilege shall be effective only
as to the use of Information with respect to the litigation or dispute between
PEI and the PriceSmart Group, and shall not operate as a waiver of the shared
Privilege with respect to third-parties.
(f) If a dispute arises between the parties regarding whether a
Privilege should be waived to protect or advance the interest of either party,
each party agrees that it shall negotiate in good faith, shall endeavor to
minimize any prejudice to the rights of the other party, and shall not
unreasonably withhold consent to any request for waiver by the other party.
Each party specifically agrees that it will not withhold consent to waiver for
any purpose except to protect its own legitimate interests.
(g) Upon receipt by any party of any subpoena, discovery or other
request which arguably calls for the production or disclosure of Information
subject to a shared Privilege or as to which the other party has the sole right
hereunder to assert a Privilege, or if any party obtains knowledge that any of
its current or former directors, officers, agents or employees have received any
subpoena, discovery or other requests which arguably calls for the production or
disclosure of such Privileged Information, such party shall promptly notify the
other party of the existence of the request
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and shall provide the other party a reasonable opportunity to review the
Information and to assert any rights it may have under this Section 7.07 or
otherwise to prevent the production or disclosure of such Privileged
Information.
(h) The transfer of the PriceSmart Books and Records and the PEI
Books and Records and other Information between PEI and the PriceSmart Group is
made in reliance on the agreement of PEI and PriceSmart, as set forth in
Sections 7.06 and 7.07, to maintain the confidentiality of Privileged
Information and to assert and maintain all applicable Privileges. The access to
information being granted pursuant to Sections 7.01 and 7.02, the agreement to
provide witnesses and individuals pursuant to Section 7.03 and the transfer of
Privileged Information between PEI and the PriceSmart Group pursuant to this
Agreement shall not be deemed a waiver of any Privilege that has been or may be
asserted under this Agreement or otherwise.
ARTICLE VIII.
INSURANCE
Section 8.01. POLICIES AND RIGHTS INCLUDED WITHIN THE PRICESMART
ASSETS. Without limiting the generality of the definition of the PriceSmart
Assets set forth in Section 2.01 or the effect of Section 2.01, the PriceSmart
Assets shall include (a) any and all rights of an insured party under each of
the Shared Policies, specifically including rights of indemnity and the right to
be defended by or at the expense of the insurer, with respect to all injuries,
losses, liabilities, damages and expenses incurred or claimed to have been
incurred on or prior to the Distribution Date by any party in or in connection
with the conduct of the PriceSmart Business or, to the extent any claim is made
against PriceSmart or any of its Subsidiaries, the Retained Business, and which
injuries, losses, liabilities, damages and expenses may arise out of insured or
insurable occurrences or events under one or more of the Shared Policies;
PROVIDED, HOWEVER, that nothing in this Section 8.01 shall be deemed to
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constitute (or to reflect) the assignment of the Shared Policies, or any of
them, to PriceSmart, and (b) the PriceSmart Policies.
Section 8.02. POST-DISTRIBUTION DATE CLAIMS. If, subsequent to the
Distribution Date, any person, corporation, firm or entity shall assert a claim
against PriceSmart or any PriceSmart Subsidiary with respect to any injury,
loss, liability, damage or expense incurred or claimed to have been incurred on
or prior to the Distribution Date in or in connection with the Distribution or
the conduct of the PriceSmart Business or, to the extent any claim is made
against PriceSmart or any of its Subsidiaries, the Retained Business, and which
injury, loss, liability, damage or expense may arise out of insured or insurable
occurrences or events under one or more of the Shared Policies, PEI shall at the
time such claim is asserted be deemed to assign, without need of further
documentation, to PriceSmart any and all rights of an insured party under the
applicable Shared Policy with respect to such asserted claim, specifically
including rights of indemnity and the right to be defended by or at the expense
of the insurer; PROVIDED, HOWEVER, that nothing in this Section 8.02 shall be
deemed to constitute (or to reflect) the assignment of the Shared Policies, or
any of them, to PriceSmart.
Section 8.03. ADMINISTRATION AND RESERVES.
(a) Notwithstanding the provisions of Article III, but subject to any
contrary provisions of any Related Agreement, from and after the Distribution
Date:
(i) PriceSmart shall be entitled to any reserves
established by PEI, or the benefit of reserves held by any insurance
carrier, with respect to the PriceSmart Liabilities; and
(ii) PEI shall be entitled to any reserves established by
PEI, or the benefit of reserves held by any insurance carrier, with respect
to the Retained Liabilities.
(b) INSURANCE PREMIUMS. PriceSmart shall have the right but not the
obligation to pay the premiums, to the extent that PEI does not pay premiums
with respect to Retained Liabilities
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(retrospectively-rated or otherwise), with respect to Shared Policies and the
PriceSmart Policies, as required under the terms and conditions of the
respective Policies, whereupon PEI shall forthwith reimburse PriceSmart for that
portion of such premiums paid by PriceSmart as are attributable to the Retained
Liabilities. PEI shall provide continued coverage under its director and
officer liability insurance policy for a period of not less than three years,
with a policy limit of not less than Twenty Million Dollars ($20,000,000), for
acts which took place or were alleged to have taken place prior to the
Distribution Date covering persons who were directors and officers of PEI prior
to the Distribution Date. Fifty percent of the additional premiums, if any, for
such coverage shall be reimbursed by PriceSmart within 15 days of the
Distribution Date.
(c) ALLOCATION OF INSURANCE PROCEEDS. Insurance Proceeds received
with respect to claims, costs and expenses under the Policies shall be paid to
PriceSmart with respect to the PriceSmart Liabilities and to PEI with respect to
the Retained Liabilities. Payment of the allocable portions of indemnity costs
of Insurance Proceeds resulting from the liability policies will be made to the
appropriate party upon receipt from the insurance carrier. In the event that
the aggregate limits on any Shared Policies are exceeded, the parties agree to
provide an equitable allocation of Insurance Proceeds received after the
Distribution Date based upon their respective bona fide claims. The parties
agree to use their best efforts to cooperate with respect to insurance matters.
Section 8.04. AGREEMENT FOR WAIVER OF CONFLICT AND SHARED DEFENSE.
In the event that Insured Claims of both PriceSmart and PEI exist relating to
the same occurrence, PriceSmart and PEI agree to jointly defend and to waive any
conflict of interest necessary to the conduct of that joint defense. Nothing in
this Section 8.04 shall be construed to limit or otherwise alter in any way the
indemnity obligations of the parties to this Agreement, including those created
by this Agreement, by operation of law or otherwise.
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ARTICLE IX.
MISCELLANEOUS
Section 9.01. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement,
including the Schedules and Exhibits and the Related Agreements and other
agreements and documents referred to herein, shall constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and shall supersede all previous negotiations, commitments and writings
with respect to such subject matter. Notwithstanding any other provisions in
this Agreement to the contrary, in the event and to the extent that there shall
be a conflict between the provisions of this Agreement and the provisions of the
Related Agreements, the Related Agreements shall control.
Section 9.02. EXPENSES. Except as otherwise set forth in this
Agreement or any Related Agreement, all costs and expenses in connection with
the preparation, execution, delivery and implementation of this Agreement, the
Distribution and with the consummation of the transactions contemplated by this
Agreement shall be charged to PriceSmart.
Section 9.03. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without regard
to the principles of conflicts of laws thereof.
Section 9.04. NOTICES. All notices and other communications
hereunder shall be in writing and shall be delivered by hand or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other addresses for a party as shall be
specified by like notice) and shall be deemed given on the date on which such
notice is received:
To PriceSmart:
PriceSmart, Inc.
4649 Morena Boulevard
San Diego, California 92117
Attention: Robert Price
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To PEI:
Price Enterprises, Inc.
4649 Morena Boulevard
San Diego, California 92117
Attention: Jack McGrory
Section 9.05. AMENDMENTS. This Agreement may not be modified or
amended except by an agreement in writing signed by the parties.
Section 9.06. SUCCESSORS AND ASSIGNS. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns. The parties acknowledge
and agree that any party into which PEI or PriceSmart merges or which acquires
all or substantially all of PEI's or PriceSmart's assets in a sale transaction
would constitute a permitted assign for purposes of this Section 9.06.
Section 9.07. TERMINATION. This Agreement may be terminated and the
Distribution abandoned at any time prior to the Distribution Date by and in the
sole discretion of the PEI Board without the approval of PriceSmart or of PEI's
stockholders. In the event of such termination, no party shall have any
liability to any other party pursuant to this Agreement.
Section 9.08. SUBSIDIARIES. Each of the parties hereto shall cause
to be performed, and hereby guarantees the performance of, all actions,
agreements and obligations set forth herein to be performed by any Subsidiary of
such party which is contemplated to be a Subsidiary of such party on and after
the Distribution Date.
Section 9.09. NO THIRD-PARTY BENEFICIARIES. Except for the
provisions of Article V relating to Indemnities, this Agreement is solely for
the benefit of the parties hereto and their respective Subsidiaries and
Affiliates and should not be deemed to confer upon third-parties any remedy,
claim, Liability, reimbursement, claim of action or other right in excess of
those existing without reference to this Agreement.
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Section 9.10. TITLES AND HEADINGS. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.
Section 9.11. EXHIBITS AND SCHEDULES. The Exhibits and Schedules
shall be construed with and as an integral part of this Agreement to the same
extent as if the same had been set forth verbatim herein.
Section 9.12. LEGAL ENFORCEABILITY. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without
prejudice to any rights or remedies otherwise available to any party hereto,
each party hereto acknowledges that damages would be an inadequate remedy for
any breach of the provisions of this Agreement and agrees that the obligations
of the parties hereunder shall be specifically enforceable.
Section 9.13. ARBITRATION OF DISPUTES.
(a) Any controversy or claim arising out of this Agreement, or any
breach of this Agreement, including any controversy relating to a determination
of whether specific assets constitute PriceSmart Assets or Retained Assets or
whether specific Liabilities constitute PriceSmart Liabilities or Retained
Liabilities, shall be settled by arbitration in accordance with the Rules of the
American Arbitration Association then in effect, as modified by this Section
9.13 or by the further agreement of the parties.
(b) Such arbitration shall be conducted in San Diego, California.
(c) Any judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The arbitrators shall have
the authority to award to the
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prevailing party its attorneys' fees and costs incurred in such arbitration.
The arbitrators shall not, under any circumstances, have any authority to award
punitive, exemplary or similar damages, and may not, in any event, make any
ruling, finding or award that does not conform to the terms and conditions of
this Agreement.
(d) Nothing contained in this Section 9.13 shall limit or restrict in
any way the right or power of a party at any time to seek injunctive relief in
any court and to litigate the issues relevant to such request for injunctive
relief before such court (i) to restrain the other party from breaching this
Agreement or (ii) for specific enforcement of this Section 9.13. The parties
agree that any legal remedy available to a party with respect to a breach of
this Section 9.13 will not be adequate and that, in addition to all other legal
remedies, each party is entitled to an order specifically enforcing this Section
9.13.
(e) The parties hereby consent to the jurisdiction of the federal
courts located in San Diego, California for all purposes under this Agreement.
(f) Neither party nor the arbitrators may disclose the existence or
results of any arbitration under this Agreement or any evidence presented during
the course of the arbitration without the prior written consent of both parties,
except as required to fulfill applicable disclosure and reporting obligations,
or as otherwise required by law.
(g) Except as provided in Section 9.13(c), each party shall bear its
own costs incurred in the arbitration. If either party refuses to submit to
arbitration any dispute required to be submitted to arbitration pursuant to this
Section 9.13, and instead commences any other proceeding, including, without
limitation, litigation, then the party who seeks enforcement of the obligation
to arbitrate shall be entitled to its attorneys' fees and costs incurred in any
such proceeding.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
PRICE ENTERPRISES, INC.
By:/s/ ROBERT E. PRICE
------------------------------
Name: Robert E. Price
------------------------------
Title: Chairman, President and CEO
------------------------------
PRICESMART, INC.
By:/s/ ROBERT E. PRICE
-------------------------------
Name: Robert E. Price
-------------------------------
Title: Chairman, President and CEO
-------------------------------
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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
PURPOSE
The purposes for which the Corporation is formed are to engage in any
lawful act or activity (including, without limitation or obligation, engaging in
business as a real estate investment trust under the Internal Revenue Code of
1986, as amended, or any successor statute (the "Code")) for which corporations
may be organized under the general laws of the State of Delaware as now or
hereafter in force. For purposes of these Amended and Restated Bylaws, "REIT"
means a real estate investment trust under Sections 856 through 860 of the Code.
ARTICLE III
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 these Amended and Restated 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.
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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
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 Amended and Restated 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
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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 III or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
ARTICLE IV
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of Directors
shall consist of three or more members, the exact number of which shall be fixed
from time to time by the Board of Directors. Except as provided in Section 2 of
this Article, directors shall be elected by a plurality of the votes cast at
Annual Meetings of Stockholders, and each director so elected shall hold office
until the Annual Meeting in which his term expires and until his successor is
duly elected and qualified, or until his earlier resignation or removal. Any
director may resign at any time upon written notice to the Corporation.
Directors need not be stockholders.
SECTION 2. VACANCIES. Vacancies, and newly created directorships
resulting from any increase in the authorized number of directors, may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director. The directors so chosen shall hold office until the
next annual election of directors and until their successors are duly elected
and qualified, or until their earlier resignation or removal. If there are no
directors in office, then an election of directors may be held in the manner
provided by statute.
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 Amended and
Restated Bylaws directed or required to be exercised or done by the
stockholders.
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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 Amended and Restated 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 Amended and Restated 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 Amended and Restated
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 Amended and Restated 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
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of a dissolution, or amending the Amended and Restated Bylaws of the
Corporation; and, unless the resolution or the Certificate of Incorporation
expressly so provides, no committee shall have the power or authority to declare
a dividend or to authorize the issuance of stock. Each committee shall keep
regular minutes and report to the Board of Directors when required.
SECTION 9. COMPENSATION. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
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.
SECTION 11. REIT QUALIFICATION. The Board of Directors shall use its
reasonable best efforts to take such actions as are necessary or appropriate to
preserve the status of the Corporation as a REIT; however, if the Board of
Directors determines that it is no longer in the best interests of the
Corporation to qualify or continue to be qualified as a REIT and such
determination is approved by the affirmative vote of the holders of not less
than two-thirds of all votes entitled to be cast on the matter, the Board of
Directors may revoke or otherwise terminate the Corporation's REIT election
pursuant to Section 856(g) of the Code. The Board of Directors also may
determine that compliance with any restriction or limitation on stock ownership
and transfers set forth in Article VI is no longer required for REIT
qualification.
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ARTICLE V
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 Amended and Restated 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 Amended and Restated 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 Amended and Restated 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
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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 Amended and Restated 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 Amended and Restated
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.
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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 Amended and Restated 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 VI
RESTRICTIONS ON OWNERSHIP AND TRANSFER TO PRESERVE TAX BENEFIT
SECTION 1. DEFINITIONS. For the purposes of this Article VI, the
following terms shall have the following meanings:
"Beneficial Ownership" shall mean ownership of Common Shares by a Person
who is or would be treated as an owner of such Common Shares either actually or
constructively through the application of Section 544 of the Code, as modified
by Section 856(h)(1)(B) of the Code. The terms "Beneficial Owner,"
"Beneficially Own," "Beneficially Owns" and "Beneficially Owned" shall have the
correlative meanings.
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"Charitable Beneficiary" shall mean one or more beneficiaries of the Trust
as determined pursuant to Section 3(f) of this Article VI.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute.
"Common Shares" shall mean shares of the Corporation's Common Stock.
"Constructive Ownership" shall mean ownership of Common Shares by a Person
who is or would be treated as an owner of such Common Shares either actually or
constructively through the application of Section 318 of the Code, as modified
by Section 856(d)(5) of the Code. The terms "Constructive Owner,"
"Constructively Own," "Constructively Owns" and "Constructively Owned" shall
have the correlative meanings.
"IRS" means the United States Internal Revenue Service.
"Market Price" shall mean the last reported sales price reported on The
Nasdaq Stock Market's National Market System ("Nasdaq") of the Common Shares on
the trading day immediately preceding the relevant date, or if the Common Shares
are not then traded on Nasdaq, the last reported sales price of the Common
Shares on the trading day immediately preceding the relevant date as reported on
any exchange or quotation system over which the Common Shares may be traded, or
if the Common Shares are not then traded over any exchange or quotation system,
then the market price of the Common Shares on the relevant date as determined in
good faith by the Board of Directors of the Corporation.
"Ownership Limit" shall mean five percent (5%) (by value or by number of
shares, whichever is more restrictive) of the outstanding Common Shares of the
Corporation.
"Person" shall mean an individual, corporation, partnership, limited
liability company, estate, trust (including a trust qualified under Section
401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside
for or to be used exclusively for the purposes described in Section 642(c) of
the Code, association, private foundation within the meaning of Section 509(a)
of the Code, joint stock company or other entity; but does not include an
underwriter acting in a capacity as such in a public offering of the Common
Shares provided that the ownership of Common Shares by such underwriter would
not result in the Corporation being "closely held" within the meaning of Section
856(h) of the Code, or otherwise result in the Corporation failing to qualify as
a REIT.
"Purported Beneficial Transferee" shall mean, with respect to any purported
Transfer which results in a transfer to a Trust, as provided in Section 2(b) of
this Article VI, the purported beneficial transferee or owner for whom the
Purported Record Transferee would have acquired or owned Common Shares, if such
Transfer had been valid under Section 2(a) of this Article VI.
"Purported Record Transferee" shall mean, with respect to any purported
Transfer which results in a transfer to a Trust, as provided in Section 2(b) of
this Article VI, the record holder of the Common Shares if such Transfer had
been valid under Section 2(a) of this Article VI.
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"REIT" shall mean a real estate investment trust under Section 856 through
860 of the Code.
"Restriction Termination Date" shall mean the day which the Board of
Directors of the Corporation determines that it is no longer in the best
interests of the Corporation to attempt to, or continue to, qualify as a REIT.
"Transfer" shall mean any sale, transfer, gift, assignment, devise or other
disposition of Common Shares, including (i) the granting of any option or
entering into any agreement for the sale, transfer or other disposition of
Common Shares or (ii) the sale, transfer, assignment or other disposition of any
securities (or rights convertible into or exchangeable for Common Shares),
whether voluntary or involuntary, whether of record or beneficially or
Beneficially or Constructively (including but not limited to transfers of
interests in other entities which results in changes in Beneficial or
Constructive Ownership of Common Shares), and whether by operation of law or
otherwise.
"Trust" shall mean each of the trusts provided for in Section 3 of this
Article VI.
"Trustee" shall mean the Person unaffiliated with the Corporation, the
Purported Beneficial Transferee, and the Purported Record Transferee, that is
appointed by the Corporation to serve as trustee of the Trust.
SECTION 2. RESTRICTION ON OWNERSHIP AND TRANSFERS.
(a) From the date of these Amended and Restated Bylaws and prior to the
Restriction Termination Date:
(i) except as provided in Section 9 of this Article VI, no
Person shall Beneficially Own Common Shares in excess of the Ownership Limit;
(ii) except as provided in Section 9 of this Article VI, no
Person shall Constructively Own in excess of 9.8% (by value or by number of
shares, whichever is more restrictive) of the outstanding Common Shares of the
Corporation; and
(iii) no Person shall Beneficially or Constructively Own Common
Shares to the extent that such Beneficial or Constructive Ownership would result
in the Corporation being "closely held" within the meaning of Section 856(h) of
the Code, or otherwise failing to qualify as a REIT (including but not limited
to ownership that would result in the Corporation owning (actually or
Constructively) an interest in a tenant that is described in Section
856(d)(2)(B) of the Code if the income derived by the Corporation (either
directly or indirectly through one or more partnerships or entities) from such
tenant would cause the Corporation to fail to satisfy any of the gross income
requirements of Section 856(c) of the Code).
(b) If, at any time prior to the Restriction Termination Date, any
Transfer (whether or not such Transfer is the result of a transaction entered
into through the facilities of Nasdaq) or other event occurs that, if effective,
would result in any Person Beneficially or Constructively Owning Common
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Shares in violation of Section 2(a) of this Article VI, (1) then that number of
Common Shares that otherwise would cause such Person to violate Section 2(a) of
this Article VI (rounded up to the nearest whole share) shall be automatically
transferred to a Trust for the benefit of a Charitable Beneficiary, as described
in Section 3 of this Article VI, effective as of the close of business on the
business day prior to the date of such Transfer or other event, and such
Purported Beneficial Transferee shall thereafter have no rights in such Common
Shares or (2) if, for any reason, the transfer to the Trust described in clause
(1) of this sentence is not automatically effective as provided therein to
prevent any Person from Beneficially or Constructively Owning Common Shares in
violation of Section 2(a) of this Article VI, then the Transfer of that number
of Common Shares that otherwise would cause any Person to violate Section 2(a)
shall be void AB INITIO, and the Purported Beneficial Transferee shall have no
rights in such Common Shares.
(c) Notwithstanding any other provisions contained herein, at any time
prior to the Restriction Termination Date, any Transfer of Common Shares
(whether or not such Transfer is the result of a transaction entered into
through the facilities of Nasdaq) that, if effective, would result in the
capital stock of the Corporation being beneficially owned by less than 100
Persons (determined without reference to any rules of attribution) shall be void
AB INITIO, and the intended transferee shall acquire no rights in such Common
Shares.
SECTION 3. TRANSFERS OF COMMON SHARES IN TRUST.
(a) Upon any purported Transfer or other event described in Section 2(b)
of this Article VI, such Common Shares shall be deemed to have been transferred
to the Trustee in his capacity as trustee of a Trust for the exclusive benefit
of one or more Charitable Beneficiaries. Such transfer to the Trustee shall be
deemed to be effective as of the close of business on the business day prior to
the purported Transfer or other event that results in a transfer to the Trust
pursuant to Section 2(b) of this Article VI. The Trustee shall be appointed by
the Corporation and shall be a Person unaffiliated with the Corporation, any
Purported Beneficial Transferee, and any Purported Record Transferee. Each
Charitable Beneficiary shall be designated by the Corporation as provided in
Section 3(f) of this Article VI.
(b) Common Shares held by the Trustee shall be issued and outstanding
Common Shares of the Corporation. The Purported Beneficial Transferee or
Purported Record Transferee shall not benefit economically from ownership of any
Common Shares held in trust by the Trustee, shall have no rights to dividends
and shall not possess any rights to vote or other rights attributable to the
Common Shares held in the Trust.
(c) The Trustee shall have all voting rights and rights to dividends with
respect to Common Shares held in the Trust, which rights shall be exercised for
the exclusive benefit of the Charitable Beneficiary. Any dividend or
distribution paid prior to the discovery by the Corporation that the Common
Shares have been transferred to the Trustee shall be paid to the Trustee upon
demand, and any dividend or distribution declared but unpaid shall be paid when
due to the Trustee with respect to such Common Shares. Any dividends or
distributions so paid over to the Trustee shall be held in trust for the
Charitable Beneficiary. The Purported Record Transferee and Purported
Beneficial Transferee shall have no voting rights with respect to the Common
Shares held in the Trust and,
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subject to Delaware law, effective as of the date the Common Shares have been
transferred to the Trustee, the Trustee shall have the authority (at the
Trustee's sole discretion) (i) to rescind as void any vote cast by a Purported
Record Transferee prior to the discovery by the Corporation that the Common
Shares have been transferred to the Trustee and (ii) to recast such vote in
accordance with the desires of the Trustee acting for the benefit of the
Charitable Beneficiary; provided, however, that if the Corporation has already
taken irreversible corporate action, then the Trustees shall not have the
authority to rescind and recast such vote. Notwithstanding the provisions of
this Article VI, until the Corporation has received notification that the Common
Shares have been transferred into a Trust, the Corporation shall be entitled to
rely on its share transfer and other stockholder records for purposes of
preparing lists of stockholders entitled to vote at meetings, determining the
validity and authority of proxies and otherwise conducting votes of
stockholders.
(d) Within 20 days of receiving notice from the Corporation that Common
Shares have been transferred to the Trust, the Trustee of the Trust shall sell
the Common Shares held in the Trust to a person, designated by the Trustee,
whose ownership of the Common Shares will not violate the ownership limitations
set forth in Section 2(a) of this Article VI. Upon such sale, the interest of
the Charitable Beneficiary in the Common Shares sold shall terminate and the
Trustee shall distribute the net proceeds of the sale to the Purported Record
Transferee and to the Charitable Beneficiary as provided in this Section 3(d).
The Purported Record Transferee shall receive the lesser of (1) the price paid
by the Purported Record Transferee for the Common Shares in the transaction that
resulted in such transfer to the Trust (or, if the event which resulted in the
transfer to the Trust did not involve a purchase of such Common Shares at Market
Price, the Market Price of such Common Shares on the day of the event which
resulted in the transfer of the Common Shares to the Trust) and (2) the price
per share received by the Trustee (net of any commissions and other expenses of
sale) from the sale or other disposition of the Common Shares held in the Trust.
Any net sales proceeds in excess of the amount payable to the Purported Record
Transferee shall be immediately paid to the Charitable Beneficiary together with
any dividends or other distributions thereon. If, prior to the discovery by the
Corporation that such Common Shares have been transferred to the Trustee, such
Common Shares are sold by a Purported Record Transferee then (i) such Common
Shares shall be deemed to have been sold on behalf of the Trust and (ii) to the
extent that the Purported Record Transferee received an amount for such Common
Shares that exceeds the amount that such Purported Record Transferee was
entitled to receive pursuant to this Section 3(d), such excess shall be paid to
the Trustee upon demand.
(e) Common Shares transferred to the Trustee shall be deemed to have been
offered for sale to the Corporation, or its designee, at a price per share equal
to the lesser of (i) the price paid by the Purported Record Transferee for the
Common Shares in the transaction that resulted in such transfer to the Trust
(or, if the event which resulted in the transfer to the Trust did not involve a
purchase of such Common Shares at Market Price, the Market Price of such Common
Shares on the day of the event which resulted in the transfer of the Common
Shares to the Trust) and (ii) the Market Price on the date the Corporation, or
its designee, accepts such offer. The Corporation shall have the right to
accept such offer until the Trustee has sold the Common Shares held in the Trust
pursuant to Section 3(d) of this Article VI. Upon such a sale to the
Corporation, the interest of the Charitable Beneficiary in the Common Shares
sold shall terminate and the Trustee shall distribute the net proceeds of the
sale to the Purported Record Transferee and any dividends or other distributions
held by the Trustee with respect to such Common Shares shall thereupon be paid
to the Charitable Beneficiary.
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(f) By written notice to the Trustee, the Corporation shall designate one
or more nonprofit organizations to be the Charitable Beneficiary of the interest
in the Trust such that (i) the Common Shares held in the Trust would not violate
the restrictions set forth in Section 2(a) of this Article VI in the hands of
such Charitable Beneficiary and (ii) each Charitable Beneficiary is an
organization described in Sections 170(b)(1)(A), 170(c)(2) and 501(c)(3) of the
Code.
SECTION 4. REMEDIES FOR BREACH. If the Board of Directors, or a
committee thereof (or other designees if permitted by Delaware law) shall at any
time determine in good faith that a Transfer or other event has taken place in
violation of Section 2 of this Article VI or that a Person intends to acquire,
has attempted to acquire or may acquire beneficial ownership (determined without
reference to any rules of attribution), Beneficial Ownership or Constructive
Ownership of any Common Shares of the Corporation in violation of Section 2 of
this Article VI, the Board of Directors, or a committee thereof (or other
designees if permitted by Delaware law) shall take such action as it deems
advisable to refuse to give effect or to prevent such Transfer, including, but
not limited to, causing the Corporation to redeem Common Shares, refusing to
give effect to such Transfer on the books of the Corporation or instituting
proceedings to enjoin such Transfer; provided, however, that any Transfers (or,
in the case of events other than a Transfer, ownership or Constructive Ownership
or Beneficial Ownership) in violation of Section 2(a) of this Article VI, shall
automatically result in the transfer to a Trust as described in Section 2(b) of
this Article VI and any Transfer in violation of Section 2(c) of this Article VI
shall automatically be void AB INITIO irrespective of any action (or non-action)
by the Board of Directors.
SECTION 5. NOTICE OF RESTRICTED TRANSFER. Any Person who acquires or
attempts to acquire Common Shares in violation of Section 2 of this Article VI
or any Person who is a Purported Transferee such that an automatic transfer to a
Trust results under Section 2(b) of this Article VI, shall immediately give
written notice to the Corporation of such event and shall provide to the
Corporation such other information as the Corporation may request in order to
determine the effect, if any, of such Transfer or attempted Transfer on the
Corporation's status as a REIT.
SECTION 6. OWNERS REQUIRED TO PROVIDE INFORMATION. From the date of
these Amended and Restated Bylaws and prior to the Restriction Termination Date
each Person who is a beneficial owner or Beneficial Owner or Constructive Owner
of Common Shares and each Person (including the shareholder of record) who is
holding Common Shares for a Beneficial Owner or Constructive Owner shall provide
to the Corporation such information that the Corporation may request, in good
faith, in order to determine the Corporation's status as a REIT.
SECTION 7. REMEDIES NOT LIMITED. Nothing contained in this Article VI
(but subject to Section 12 of this Article VI and Article IV, Section 11 of
these Amended and Restated Bylaws) shall limit the authority of the Board of
Directors to take such other action as it deems necessary or advisable to
protect the Corporation and the interests of its shareholders by preservation of
the Corporation's status as a REIT.
SECTION 8. AMBIGUITY. In the case of an ambiguity in the application
of any of the provisions of Sections 2 through 9 of this Article VI, including
any definition contained in Section 1 of
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this Article VI, the Board of Directors shall have the power to determine the
application of the provisions of Sections 2 through 9 of this Article VI with
respect to any situation based on the facts known to it (subject, however, to
the provisions of Section 12 of this Article VI). In the event any of Sections
2 through 9 of this Article VI requires an action by the Board of Directors and
these Amended and Restated Bylaws fail to provide specific guidance with respect
to such action, the Board of Directors shall have the power to determine the
action to be taken so long as such action is not contrary to the provisions of
such Sections 2 through 9 of this Article VI. Absent a decision to the contrary
by the Board of Directors (which the Board may make in its sole and absolute
discretion), if a Person would have (but for the remedies set forth in Section
2(b) of this Article VI) acquired Beneficial or Constructive Ownership of Common
Shares in violation of Section 2(a) of this Article VI such remedies (as
applicable) shall apply first to the Common Shares which, but for such remedies,
would have been actually owned by such Person, and second to Common Shares
which, but for such remedies, would have been Beneficially Owned or
Constructively Owned (but not actually owned) by such Person, pro rata among the
Persons who actually own such Common Shares based upon the relative number of
the Common Shares held by each such Person.
SECTION 9. EXCEPTIONS.
(a) Subject to Section 2(a)(iii) of this Article VI, the Board of
Directors, in its sole discretion, may exempt a Person from the limitation on a
Person Beneficially Owning Common Shares in excess of the Ownership Limit if the
Board of Directors obtains such representations and undertakings from such
Person as are reasonably necessary to ascertain that no individual's Beneficial
Ownership of such Common Shares will violate the Ownership Limit or that any
such violation will not cause the Corporation to fail to qualify as a REIT under
the Code, and agrees that any violation of such representations or undertaking
(or other action which is contrary to the restrictions contained in Section 2 of
this Article VI) or attempted violation will result in such Common Shares being
transferred to a Trust in accordance with Section 2(b) of this Article VI.
(b) Subject to Section 2(a)(iii) of this Article VI, the Board of
Directors, in its sole discretion, may exempt a Person from the limitation on a
Person Constructively Owning Common Shares in excess of 9.8% (by value or by
number of Common Shares, whichever is more restrictive) of the outstanding
Common Shares of the Corporation, if such Person does not and represents that it
will not own, actually or Constructively, an interest in a tenant of the
Corporation (or a tenant of any entity owned in whole or in part by the
Corporation) that would cause the Corporation to own, actually or Constructively
more than a 9.8% interest (as set forth in Section 856(d)(2)(B) of the Code) in
such tenant and the Corporation obtains such representations and undertakings
from such Person as are reasonably necessary to ascertain this fact and agrees
that any violation or attempted violation will result in such Common Shares
being transferred to a Trust in accordance with Section 2(b) of this Article VI.
Notwithstanding the foregoing, the inability of a Person to make the
certification described in this Section 9(b) of this Article VI shall not
prevent the Board of Directors, in its sole discretion, from exempting such
Person from the limitation on a Person Constructively Owning Common Shares in
excess of 9.8% of the outstanding Common Shares if the Board of Directors
determines that the resulting application of Section 856(d)(2)(B) of the Code
would affect the characterization of less than 0.5% of the gross income (as such
term is used in Section 856(c)(2) of the Code) of the Corporation in
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any taxable year, after taking into account the effect of this sentence with
respect to all other Common Shares to which this sentence applies.
(c) Prior to granting any exception pursuant to Section 9(a) or (b) of
this Article VI, the Board of Directors may require a ruling from the Internal
Revenue Service, or an opinion of counsel, in either case in form and substance
satisfactory to the Board of Directors in its sole discretion, as it may deem
necessary or advisable in order to determine or ensure the Corporation's status
as a REIT.
(d) During the period commencing on the date of these Amended and Restated
Bylaws and prior to the Restriction Termination Date, the Board of Directors may
from time to time increase or decrease the Ownership Limit provided:
(i) After giving effect to any such increase, five
Beneficial Owners of Common Shares could not (taking into account the Ownership
Limit and any exceptions granted to such limit pursuant to this Section 9 of
this Article VI) Beneficially Own, in the aggregate, more than 49% of the Common
Shares;
(ii) The Ownership Limit may not be increased to a
percentage which is greater than 9.8%; and
(iii) Any such increase or decrease will not adversely affect
the Corporation's ability to qualify as a REIT.
SECTION 10. SEVERABILITY. If any provision of this Article VI or any
application of any such provision is determined to be invalid by any Federal or
state court having jurisdiction over the issues, the validity of the remaining
provisions shall not be affected and other applications of such provision shall
be affected only to the extent necessary to comply with the determination of
such court.
SECTION 11. NASDAQ. Nothing in this Article VI shall preclude the
settlement of any transaction entered into through the facilities of Nasdaq.
The fact that the settlement of any transaction is so permitted shall not negate
the effect of any other provision of this Article VI and any transferee in such
a transaction shall be subject to all the provisions and limitations of this
Article VI.
ARTICLE VII
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
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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 Amended and Restated 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
canceled 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.
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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 VIII
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by law, the
Certificate of Incorporation or these Amended and Restated 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 Amended and Restated 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 IX
GENERAL PROVISIONS
SECTION 1. 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 2. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 3. 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 X
INDEMNIFICATION
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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 XI
AMENDMENTS
These Amended and Restated 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.
ARTICLE XII
To the extent Article II, Section 11 of Article IV, or Article VI
(collectively, the "REIT Provisions") conflicts with any provision of these
Amended and Restated Bylaws, the REIT Provisions shall control.
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Exhibit 10.1
EMPLOYEE BENEFITS & OTHER EMPLOYMENT MATTERS
ALLOCATION AGREEMENT
THIS EMPLOYEE BENEFITS & OTHER EMPLOYMENT MATTERS ALLOCATION AGREEMENT
("Agreement") is made and entered into as of August 26, 1997, by and between
PRICE ENTERPRISES, INC., a Delaware corporation ("PEI"), and PRICESMART, INC., a
Delaware corporation ("PriceSmart," and collectively with PEI, the "Parties"),
effective as of the Distribution Date (as hereinafter defined).
R E C I T A L S
WHEREAS, subject to certain conditions, PEI intends to spin-off its
merchandising businesses and certain other assets by distributing to PEI
stockholders a special dividend of one share of PriceSmart Common Stock for
every four shares of PEI Common Stock held as of the close of business on the
Record Date (the "Distribution"); and
WHEREAS, in connection with such spin-off, PEI and PriceSmart have entered
into a Distribution Agreement of even date herewith (the "Distribution
Agreement"); and
WHEREAS, pursuant to the aforesaid Distribution Agreement, PEI and
PriceSmart have agreed to enter into an agreement allocating responsibilities
with respect to employee compensation, benefits, labor and certain other
employment matters pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, PEI and PriceSmart agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions. As used in this Agreement, the following terms
shall have the meanings indicated below:
Aggregate Spread: the number of shares covered by a PEI Stock Option
remaining unexercised on the Distribution Date (after giving effect to the
Distribution) multiplied by the positive difference between (i) the sum of
(x) the Post-Distribution Stock Price for a share of PEI Common Stock and
(y) one-fourth of the Post-Distribution Stock Price for a share of PriceSmart
Common Stock and (ii) the exercise price of such PEI Stock Option.
COBRA: Code Section 4980B and ERISA Sections 601 through 608, establishing
employer requirements for continuation of health care benefits for the benefit
of certain current and former employees or dependents thereof.
Code: the Internal Revenue Code of 1986, as amended, or any successor
legislation.
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Collective Bargaining Agreement: any collective bargaining agreement or
other labor agreement to which PEI or any of its subsidiaries or affiliates was
a party on or before the Distribution Date.
Combined Profit Sharing Plan: The PEI Profit Sharing and 401(k) Plan after
PriceSmart has become a sponsor thereunder pursuant to Section 2.02(a).
Commission: the Securities and Exchange Commission.
Cut-Off Date: the date requested by either Party as the Cut-Off Date in a
written notice to the other Party; provided that the date requested shall not be
sooner than 30 days after the date such notice is received.
Distribution: the spin-off of PriceSmart pursuant to the Distribution
Agreement.
Distribution Agreement: the agreement described in the second recital of
this Agreement.
Distribution Date: the date on which the Distribution occurs.
Employee: any individual who is in one of the following categories: a PEI
Employee, a PEI Terminee, a PriceSmart Employee, a Transferred Employee or a
Retained Employee.
Employer: PEI or PriceSmart, as the context indicates.
Employer Common Stock: PEI Common Stock in the case of Retained Employees
and PEI Terminees and PriceSmart Common Stock in the case of PriceSmart
Employees.
Employer Stock Option Plan: a plan which provides for awards of additional
compensation to eligible Employees in the form of nonqualified or incentive
options to purchase Employer Common Stock, including without limitation, the PEI
Director Option Plan, the PEI Stock Option Plan and the PriceSmart Stock Option
Plan.
ERISA: the Employee Retirement Income Security Act of 1974, as amended, or
any successor legislation.
HMO: any health maintenance organization organized under 42 U.S.C. Sec.
300e-9, or a state health maintenance organization statute that provides medical
services for Retained Individuals or PriceSmart Individuals under any Plan.
IRS: the Internal Revenue Service.
Medical/Dental Plan: a Welfare Plan providing health benefits to Employees
and their dependents.
Nasdaq National Market: The Nasdaq Stock Market's National Market System.
PEI: Price Enterprises, Inc., a Delaware corporation, or any of its direct
or indirect subsidiaries.
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PEI Common Stock: the common stock, par value $.0001 per share, of Price
Enterprises, Inc., a Delaware corporation.
PEI Director Option: an option to purchase PEI Common Stock pursuant to
the PEI Director Option Plan.
PEI Director Option Plan: The Price Enterprises Directors' 1995 Stock
Option Plan to be continued by PEI following the Distribution pursuant to
Section 2.03(b).
PEI Employee: any individual who is an employee or director of PEI.
PEI Individual: any individual who is (i) a PEI Employee, (ii) a PEI
Terminee, or (iii) a dependent or beneficiary of any individual specified in
clause (i) or (ii).
PEI Medical/Dental Plans: any Medical/Dental Plans maintained for or
providing benefits to PEI Individuals.
PEI Profit Sharing Plan: Prior to the Distribution Date, the PEI Profit
Sharing and 401(k) Plan, and from and after the Cut-Off Date, the Profit
Sharing Plan maintained for PEI Individuals.
PEI Qualified Beneficiary: a Qualified Beneficiary who, immediately
following the Distribution, is not a PriceSmart Qualified Beneficiary and who,
immediately prior to the Distribution, was a Qualified Beneficiary under any PEI
Medical/Dental Plan.
PEI Stock Option: an option to purchase PEI Common Stock pursuant to the
PEI Stock Option Plan.
PEI Stock Option Plan: The Price Enterprises 1995 Combined Stock Grant and
Stock Option Plan to be continued by PEI following the Distribution pursuant to
Section 2.03(a).
PEI Terminee: any individual who was formerly employed by PEI who
terminated such employment prior to the Distribution Date.
Plan: any plan, policy, arrangement, contract or agreement providing
compensation benefits for any group of Employees or former Employees or
individual Employee or former Employee, or the dependents or beneficiaries of
any such Employee or former Employee, whether formal or informal or written or
unwritten, and including, without limitation, any means, whether or not legally
required, pursuant to which any benefit is provided by an Employer to any
Employee or former Employee or the beneficiaries of any such Employee or former
Employee, adopted or entered into by a Party prior to, or upon the Distribution.
The term "Plan" as used in this Agreement does not include any contract,
agreement or understanding entered into by PEI or PriceSmart relating to
settlement of actual or potential Employee related litigation claims.
Post-Distribution Stock Price: the average of the per share closing sales
prices of PriceSmart Common Stock or PEI Common Stock, as the context indicates,
on the Nasdaq National Market during the twenty-trading day period commencing on
the sixth trading day following the Distribution Date.
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PriceSmart: PriceSmart, Inc., a Delaware corporation, or any of its direct
or indirect subsidiaries.
PriceSmart Common Stock: the common stock, par value $.0001 per share, of
PriceSmart, Inc., a Delaware corporation.
PriceSmart Employee: any individual who is (a) a Transferred Employee, or
(b) not a Transferred Employee but becomes an employee of PriceSmart on or after
the Distribution Date.
PriceSmart Individual: any individual who (i) is a Transferred Employee,
or (ii) a PriceSmart Employee, or (iii) is a dependent or beneficiary of any
individual described in clause (i) or (ii).
PriceSmart Medical/Dental Plans: the Medical/Dental Plans to be
established by PriceSmart in accordance with Section 2.06(a).
PriceSmart Profit Sharing Plan: From and after the Cut-Off Date, the
Profit Sharing Plan maintained for PriceSmart Individuals.
PriceSmart Qualified Beneficiary: any Transferred Individual (or dependent
thereof) who, on or before the Distribution Date, was a Qualified Beneficiary
under any PEI Medical/Dental Plan.
PriceSmart Stock Option: an option to purchase PriceSmart Common Stock
pursuant to the PriceSmart Stock Option Plan.
PriceSmart Stock Option Plan: the 1997 Stock Option Plan of PriceSmart,
Inc., as established by PriceSmart pursuant to Section 2.03(c).
Profit Sharing Plan: (i) during the period from the Distribution Date to
the Cut-Off Date, the Combined Profit Sharing Plan and (ii) after the Cut-Off
Date, the PEI Profit Sharing Plan or the PriceSmart Profit Sharing Plan.
Qualified Beneficiary: an individual (or dependent thereof) who either (1)
experiences a "qualifying event" (as that term is defined in Code Section
4980B(f)(3) and ERISA Section 603) while a participant in any Medical/Dental
Plan, or (2) becomes a "qualified beneficiary" (as that term is defined in Code
Section 4980B(g)(1) and ERISA 607(3)) under any Medical/Dental Plan.
Record Date: August 15, 1997.
Retained Business: any business or operation of PEI or its subsidiaries
which is, pursuant to the Distribution Agreement, to be conducted by PEI
following the Distribution.
Retained Employee: any individual who immediately prior to the
Distribution was a PEI Employee and who is an employee or director of PEI
immediately following the Distribution.
Retained Individual: any individual who (i) is a Retained Employee, or
(ii) is, as of the Distribution Date, a PEI Terminee whose last employment with
PEI or subsidiary of PEI was with a Retained Business, or (iii) is a dependent
or beneficiary of any individual described in clause (i) or (ii).
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Service Credit: the period taken into account under any Plan for purposes
of determining length of service or plan participation to satisfy eligibility,
vesting, benefit accrual and similar requirements under such Plan.
Stock Option: a nonqualified or incentive option to purchase Employer
Common Stock under an Employer Stock Option Plan.
Transferred Business: any business or operation of PEI or its subsidiaries
which is, pursuant to the Distribution Agreement, to be conducted by PriceSmart
immediately following the Distribution.
Transferred Employee: any individual whose employment with PEI is
terminated immediately prior to the Distribution pursuant to the Distribution
Agreement and who becomes, immediately after the Distribution, an employee of
PriceSmart. It also includes any director of PEI who resigns from the PEI Board
of Directors before the Distribution and concurrently or within 90 days
thereof is elected to the PriceSmart Board of Directors.
Transferred Individual: any individual who (i) is a Transferred Employee
or (ii) is, as of the Distribution Date, a PEI Terminee whose last employment
with PEI or a subsidiary of PEI was with a Transferred Business, or (iii) is a
dependent or beneficiary of any individual described in clause (i) or (ii).
Welfare Plan: any Plan which provides medical, health, disability,
accident, life insurance, death, dental or any other welfare benefit, including,
without limitation, any post-employment benefit, but excluding vacation benefits
covered under Section 2.07.
Section 1.02 Other Terms. Any capitalized terms used herein but not
defined herein shall have the meaning set forth in the Distribution Agreement.
Section 1.03 Certain Constructions. References to the singular in this
Agreement shall refer to the plural and vice-versa and references to the
masculine shall refer to the feminine and vice-versa.
Section 1.04 Sections. References to a "Section" are, unless otherwise
specified, to one of the Sections of this Agreement.
Section 1.05 Survival. Obligations described in this Agreement shall
remain in full force and effect and shall survive the Distribution Date.
ARTICLE II
EMPLOYEE BENEFITS
Section 2.01 Employment.
(a) Allocation of Responsibilities on Distribution Date. On the
Distribution Date, except to the extent retained or assumed by PEI under this
Agreement or any other agreement relating to the Distribution, PriceSmart shall
retain or assume, as the case may be, responsibility as employer for the
Transferred Employees. On the Distribution Date, except to the extent retained
or assumed by
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PriceSmart under this Agreement or any other agreement relating to the
Distribution, PEI shall retain or assume, as the case may be, responsibility as
employer for the Retained Employees. The assumption or retention of
responsibility as employer by PEI or PriceSmart described in this Section 2.01
shall not, of itself, constitute a severance or a termination of employment
under any Plan which provides for severance benefits and is maintained by PEI
nor shall it constitute a change of control of PEI for purposes of any Plan.
(b) Assumption of Liabilities on Distribution Date: Except as
specifically provided in this Agreement, or as otherwise agreed by the Parties:
(i) Except as provided in Section 2.01(b)(ii), immediately
following the Distribution, PriceSmart shall assume or retain, as the case may
be, all benefit obligations and all related rights in connection with any Plan
with respect to the all Employees and PEI Terminees and PEI shall have no
further liability with respect thereto.
(ii) PEI shall assume or retain, as the case may be, all benefit
obligations and all related rights which accrue after the Distribution Date in
connection with any Plan and with respect to the Retained Employees, and
PriceSmart shall have no further liability with respect thereto; provided,
however, that with respect to such Retained Employees who become employed by
PriceSmart after the Distribution, any benefit obligations and all related
rights in connection with any Plan with respect to such employment with
PriceSmart shall be assumed by PriceSmart.
(c) Service Credits.
(i) Distribution Date Service Credits. In connection with the
Distribution and for purposes of determining Service Credits under any Plans,
PEI shall credit each Retained Employee and PriceSmart shall credit each
PriceSmart Employee with such Employee's Service Credits and original hire date
as reflected in the PEI records as of the Distribution Date. Such Service
Credits and hire date shall continue to be maintained as described herein for as
long as the Employee does not terminate employment or as otherwise may be
required by applicable law or any applicable Plan.
(ii) Post-Distribution Service Credits. Subject to the
provisions of applicable law and to Sections 2.01(d) and 2.07(c) herein
(governing post-Distribution transfers through December 31, 1998), (x)
PriceSmart may, in the case of Transferred Employees, in its sole discretion,
make such decisions as it deems appropriate with respect to determining
Service Credits accrued after the Distribution Date, and (y) PEI may, in the
case of Retained Employees, in its sole discretion, make such decisions as it
deems appropriate with respect to determining Service Credits accrued after
the Distribution Date.
(d) Post-Distribution Date Transfers. Notwithstanding any provision
of this Agreement to the contrary, except to the extent prohibited by applicable
law or any applicable agreement, where an Employee leaves the service of one
Party to immediately begin employment with the other Party at any time on or
before December 31, 1998, such Employee's accrued benefits, account balances, or
other rights or interests, to the extent transferable, under any Plan maintained
by the former Employer may be transferred to the applicable Plan of the new
Employer. The Parties hereby agree to amend any Plan to the extent necessary to
comply with the preceding sentence of this Section 2.01(d). This Section
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2.01(d) shall not apply to any benefits, balances, rights or interests of such
Employees in any Employer Stock Option Plan.
Section 2.02 Profit Sharing and 401(k) Plans.
(a) Establishment of Combined Profit Sharing Plan. On or prior to
the Distribution Date, PEI and PriceSmart shall take, or cause to be taken, all
action necessary and appropriate to permit PriceSmart to become a sponsor of and
to permit the PriceSmart Employees to participate in the PEI Profit Sharing
Plan, and from and after the Distribution Date and until the Cut-Off Date this
Plan shall be the Combined Profit Sharing Plan.
(b) Establishment of Separate Profit Sharing Plan. Effective as of
the Cut-Off Date, either PriceSmart or PEI (as decided by PriceSmart and PEI at
such time) shall take, or cause to be taken, all action necessary and
appropriate to establish and administer a Profit Sharing Plan separate from the
Combined Profit Sharing Plan. This new Profit Sharing Plan shall contain
substantially the same terms and conditions as the Combined Profit Sharing Plan.
This new Profit Sharing shall be a split up of that portion of the Combined
Profit Sharing Plan which is attributable to PriceSmart Individuals or the PEI
Individuals, as the case may be. PriceSmart or PEI, as the case may be, shall
provide benefits under such new Profit Sharing Plan after the Cut-Off Date for
all such its Employees (and its Employees admitted to participation in such Plan
after the Cut-Off Date) subject to the terms and provisions of such Plan. This
new Profit Sharing Plan shall be intended to qualify for tax-favored treatment
under Sections 401(a) and 401(k) of the Code and to comply with the requirements
of ERISA.
(c) Matching and Profit Sharing Contributions. Matching and
Discretionary Profit Sharing Contributions (i) under the PEI Profit Sharing
Plan and the Combined Profit Sharing Plan with respect to PEI Individuals
will be at the sole determination of the PEI Chief Executive Officer or as
otherwise provided in such Plans and (ii) under the PriceSmart Profit Sharing
Plan and the Combined Profit Sharing Plan with respect to PriceSmart
Individuals will be at the sole determination of the PriceSmart Chief
Executive Officer or as otherwise provided in such Plans.
(d) Transfer and Acceptance of Account Balances. As soon as
practicable after the Cut-Off Date, PEI and PriceSmart shall cause the trustees
of the Combined Profit Sharing Plan to transfer to the trustees or other funding
agent of the PriceSmart Profit Sharing Plan or the PEI Profit Sharing Plan, as
the case may be, the amounts (in cash, securities, other property or a
combination thereof) representing the account balances of all PriceSmart
Individuals or PEI individuals, as the case may be, said amounts to be
established as account balances or accrued benefits of such individuals under
the PriceSmart Profit Sharing Plan or the PEI Profit Sharing Plan, as the case
may be. Each such transfer shall comply with Section 414(1) of the Code and the
requirements of ERISA and the regulations promulgated thereunder. PriceSmart or
PEI, as the case may be, shall cause the trustees or other funding agent of the
PriceSmart Profit Sharing Plan or the PEI Profit Sharing Plan, as the case may
be, to accept the plan-to-plan transfer from the Combined Profit Sharing Plan
trustees, and to credit the accounts of such Transferred Employees (or Retained
Employees) under the PriceSmart Profit Sharing Plan (or the PEI Profit Sharing
Plan) with amounts transferred on their behalf.
(e) PEI to Provide Information. PEI shall provide PriceSmart, as
soon as practicable after the Distribution Date (with the cooperation of
PriceSmart to the extent that relevant information is in the possession of
PriceSmart, and in accordance with Section 5.02), with a list of Transferred
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Employees who, to the best knowledge of PEI, were participants in or otherwise
entitled to benefits under the PEI Profit Sharing Plan on the Distribution Date,
together with a listing of each participant's Service Credits under such Plan
and a listing of each such Transferred Employee's account balance thereunder,
and each Transferred Employee's investment election and beneficiary designation.
PEI shall, as soon as practicable after the Distribution Date and in accordance
with Section 5.02, provide PriceSmart with such additional information in the
possession of PEI (and not already in the possession of PriceSmart) as may be
reasonably requested by PriceSmart and necessary for PriceSmart to administer
effectively its portion of the Combined Profit Sharing Plan and the PriceSmart
Profit Sharing Plan.
(f) Regulatory Filings. PriceSmart and PEI shall, in connection with
the plan-to-plan transfer described in Section 2.02(d), cooperate in making any
and all appropriate filings required by the Commission or the IRS, or required
under the Code or ERISA or any applicable securities laws and the regulations
thereunder, and take all such action as may be necessary and appropriate to
cause such plan-to-plan transfer to take place as soon as practicable after the
Cut-Off Date or otherwise when required by law. Further, PriceSmart or PEI, as
the case may be, shall seek a favorable IRS determination letter that the
PriceSmart Profit Sharing Plan or the PEI Profit Sharing Plan, as the case may
be, as organized, satisfies all qualification requirements under Section 401(a)
of the Code. Notwithstanding the foregoing, such plan-to-plan transfers shall
take place pending issuance of such favorable determination letter. PriceSmart
and PEI shall each make any necessary amendments on a retroactive basis to the
Combined Profit Sharing Plan, the PriceSmart Profit Sharing Plan or the PEI
Profit Sharing Plan, respectively, as required by the IRS to issue the favorable
determination letter described above.
(g) Account Balances of Retained Employees. Except as provided in
Section 2.02(b) and Section 2.02(c), on the Distribution Date, PriceSmart
shall assume or retain, as the case may be, sole responsibility for all
liabilities and obligations existing as of the Distribution Date under the
PEI Profit Sharing Plan (including, but not limited to, liabilities and
obligations to PEI Terminees), and PEI shall have no liability or obligation
with respect thereto. PEI shall assume or retain, as the case may be, sole
responsibility for all liabilities and obligations arising after the
Distribution Date under the Combined Profit Sharing Plan and/or under the PEI
Profit Sharing Plan with respect to Retained Employees, and PriceSmart shall
have no liability or obligation with respect thereto.
Section 2.03 Stock Plans.
(a) PEI Stock Option Plan. PEI shall continue the PEI Stock Option
Plan. All options granted under the PEI Stock Option Plan will continue to be
denominated in PEI Common Stock. PEI shall continue to reserve those shares
already reserved under the PEI Stock Option Plan. Additionally, PEI, after the
Distribution Date, will cause to be reserved any additional shares identified
for reservation thereunder to the extent authorized by the stockholders of PEI.
(b) PEI Director Option Plan. PEI shall continue the PEI Director
Option Plan. All options granted under the PEI Director Option Plan will
continue to be denominated in PEI Common Stock. PEI shall continue to reserve
those shares already reserved under the PEI Director Option Plan. Additionally,
PEI, after the Distribution, will cause to be reserved any additional shares
identified for reservation thereunder to the extent authorized by the
stockholders.
(c) PriceSmart Stock Option Plan. On or prior to the Distribution
Date, PriceSmart shall take, or cause to be taken, all action necessary and
appropriate to approve the adoption of the PriceSmart Stock Option Plan. As
soon as practicable after the Distribution Date, PriceSmart shall take, or
cause to be taken, all action necessary and appropriate to approve grants of
PriceSmart Stock Options for PriceSmart Individuals, in accordance with
Section 2.03(d)(iii). All awards under the PriceSmart Stock Option Plan will
be denominated in PriceSmart Common Stock. PriceSmart will reserve 700,000
shares of PriceSmart
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Common Stock for issuance under the PriceSmart Stock Option Plan, to the extent
authorized by PEI, its sole stockholder, prior to the Distribution Date. Any
such shares not used to adjust outstanding PEI Stock Options pursuant to Section
2.03(d)(iii) will be available for future awards to PriceSmart Employees.
(d) Effect of the Distribution on Awards Made Prior to the
Distribution Date.
(i) Exercise and Cancellation of Vested PEI Options Held By
Transferred Employees: All Transferred Employees holding vested PEI Stock
Options or PEI Director Options shall be required to exercise such Stock Options
prior to the date 90 days after the Distribution Date. All PEI Stock Options
and PEI Director Options held by Transferred Employees shall be cancelled in
accordance with their terms (except in case of death or disability) on the date
90 days after the Distribution Date.
(ii) Treatment of PEI Options Held By Retained Employees: PEI
Stock Options and PEI Director Options, whether vested or unvested, held by
Retained Employees shall remain in effect following the Distribution and shall
be equitably adjusted in accordance with Section 2.03(d)(iv) to reflect the
Distribution. Retained Employees shall not be required to exercise such PEI
Stock Options or PEI Director Options within 90 days after the Distribution
Date.
(iii) Substitution of Stock Options: As soon as practicable
after the Distribution Date, each Transferred Employee that is a grantee of
PEI Stock Options that have not yet vested in accordance with their terms
shall receive for each such PEI Stock Options, in substitution therefor,
PriceSmart Stock Options. Each such PriceSmart Stock Option shall contain
substantially equivalent terms as the PEI Stock Option to be cancelled and
replaced, except (i) to the extent modified by PriceSmart, in its sole
discretion and (ii) the exercise price of and number of shares covered by the
PriceSmart Stock Option will be set to preserve the Aggregate Spread in value
attributed to the existing unvested PEI Stock Options held by such
Transferred Employee.
(iv) Adjustment of Option Price for PEI Stock Options: For
purposes of determining the adjusted option price of PEI Stock Options and PEI
Director Options, the formula set forth in Exhibit A to this Agreement shall be
used to maintain each optionee's Aggregate Spread on each outstanding grant of
PEI Stock Options and PEI Director Options.
(v) Limitation on Adjustments: To the extent that any adjustment
or limitations of this Section 2.03(d) is inconsistent with the PEI Stock Option
Plan, the PEI Director Plan and the PriceSmart Stock Option Plan or the intended
tax or accounting treatment of the Distribution or any option, it shall not
apply, and PEI and PriceSmart shall mutually agree on an alternative adjustment.
Section 2.04 Combined Medical/Dental Plans. On or prior to the
Distribution Date, PEI and PriceSmart shall take, or cause to be taken, all
action necessary and appropriate to permit PriceSmart Employees to participate
in the PEI Medical/Dental Plans.
Section 2.05 PEI Medical/Dental Plans.
(a) Liability for Claims.
(i) Except as otherwise provided herein, as of the Distribution
Date, PEI shall assume or retain and shall be responsible for, or cause its
insurance carriers or HMOs to be responsible
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for, all liabilities and obligations related to claims asserted or incurred or
premiums owed after the Distribution Date in respect of any Retained Employee
(or any dependent or beneficiary thereof) under any PEI Medical/Dental Plan and
claims asserted or incurred or premiums due after the Distribution Date in
respect of any Retained Employee (or any dependent or beneficiary thereof) under
any PEI Medical/Dental Plan, and PriceSmart shall have no liability or
obligation with respect thereto.
(ii) Except as otherwise provided herein, as of the Distribution
Date, PriceSmart shall assume or retain and shall be responsible for, or cause
its insurance carriers or HMOs to be responsible for, all liabilities and
obligations related to claims asserted or incurred or premiums owed as of the
Distribution Date with respect to all Employees and after the Distribution Date
in respect of any Transferred Employee (or any dependent or beneficiary thereof)
or PEI Terminee (or any dependent or beneficiary thereof) under any PEI
Medical/Dental Plan and claims asserted or incurred or premiums due after the
Distribution Date in respect of any Transferred Employee (or any dependent or
beneficiary thereof) or PEI Terminee (or any dependent or beneficiary thereof)
under any PEI Medical/Dental Plan, and PEI shall have no liability or obligation
with respect thereto.
(b) Continuation Coverage Administration. As of the Distribution
Date, PriceSmart shall assume or retain and shall be solely responsible for, or
cause its insurance carriers or HMOs to be responsible for, providing and
administering the continuation coverage required by COBRA as it relates to any
Qualified Beneficiary, except as provided in Section 2.05(d), and PEI shall have
no liability or obligation with respect thereto.
(c) Continuation Coverage Claims. As of the Distribution Date,
PriceSmart shall assume or retain and shall be responsible for, or cause its
insurance carriers or HMOs to be responsible for, all liabilities and
obligations in connection with claims asserted or incurred or premiums owed
through the Distribution Date under any PEI Medical/Dental Plan in respect of
any Qualified Beneficiary and claims asserted or incurred or premiums owed after
the Distribution Date under any PEI Medical/Dental Plan in respect of any
Qualified Beneficiary, and PEI shall have no liability or obligation with
respect thereto.
(c) Liability for Claims. As of the Distribution Date, PEI shall
assume and shall be responsible for, or cause its insurance carriers or HMOs to
be responsible for, all liabilities and obligations in connection with claims
asserted or incurred or premiums due after the Distribution Date in respect of
any Retained Employee (or any dependent or beneficiary thereof) under any PEI
Medical/Dental Plan and PriceSmart shall have no liability or obligation with
respect thereto.
Section 2.06 PriceSmart Medical/Dental Plans.
(a) Establishment of PriceSmart Medical/Dental Plans. On or prior to
December 31, 1997, PriceSmart shall take, or cause to be taken, all action
necessary and appropriate to establish and administer (or continue to
administer) the PriceSmart Medical/Dental Plans and to provide benefits
thereunder for all Transferred Individuals (and any dependents or beneficiaries
thereof), and PriceSmart Qualified Beneficiaries (with respect to continuation
coverage under COBRA only) who, immediately prior to December 31, 1997 were
participants in or otherwise entitled to benefits under the PEI Medical/Dental
Plans. Each such individual shall, to the extent applicable, for all purposes
under the new PriceSmart Medical/Dental Plans (i) have coverage which is
substantially comparable to that provided immediately prior to December 31,
1997, (ii) have no preexisting condition limitation imposed other than
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that which is or was already imposed under the applicable existing Plan, and
(iii) be credited with or otherwise have taken into account, to the extent
applicable, Service Credits, any expenses incurred towards deductibles,
out-of-pocket limits, maximum benefit payments, and any benefit usage towards
plan limits credited to such individual as of the Distribution Date under the
terms of the applicable existing Plan as if such service had been rendered to
PriceSmart and as if such expenses and usage had originally been credited to
such individual under the PriceSmart Medical/Dental Plans.
(b) PEI to Provide Information. As soon as practicable after the
Distribution Date, PEI shall provide PriceSmart (with the cooperation of
PriceSmart to the extent that relevant information is in the possession of
PriceSmart, and in accordance with Section 5.02), with a list of individuals
(and dependents thereof) employed by PriceSmart who were, to the best knowledge
of PEI, participants in or otherwise entitled to benefits under the PEI
Medical/Dental Plans immediately prior to the Distribution Date, together with a
listing of each such individual's Service Credit under such Plans and a listing
of each such individual's expenses incurred towards deductibles, out-of-pocket
limits, maximum benefit payments, and any benefit usage towards plan limits
thereunder. PEI shall, as soon as practicable after the Distribution Date, in
accordance with Section 5.02 provide PriceSmart with such additional information
in the possession of PEI (and not already in the possession of PriceSmart) as
may be reasonably requested by PriceSmart and necessary for PriceSmart to
establish and administer effectively any PriceSmart Medical/Dental Plan.
Section 2.07 Vacation and Sick Pay Liabilities.
(a) Division of Liabilities. Effective on the Distribution Date,
PriceSmart shall assume all accrued liabilities (whether vested or unvested, and
whether funded or unfunded) for vacation and sick leave in respect of all
Employees as of the Distribution Date. PriceSmart shall be solely responsible
for the payment to PriceSmart Employees of vacation or sick leave accrued after
the Distribution Date, and PEI shall be solely responsible for the payment to
Retained Employees of vacation or sick leave accrued after the Distribution
Date.
(b) Post-Distribution Transfers. Through December 31, 1998, an
Employee who leaves the service of one Party to immediately begin employment
with the other Party (i.e., leaving PEI employment to work for PriceSmart, or
leaving PriceSmart employment to work for PEI) shall be provided by the
successor employer with the same balance of vested and unvested vacation and
sick leave hours as had been accrued by the former Employer through such
termination date. The former Employer shall promptly notify the successor
Employer in writing of the occurrence of any termination subject to the
provisions of this Section 2.07(b), and, subject to the provisions of Section
3.04(b), the former Employer shall make a payment to the successor Employer
within thirty (30) days of the aforesaid termination date in an amount equal
to the value of the terminating Employee's vested balance of vacation leave
and sick leave accrued by the former Employer through such termination date,
based on the Employee's final rate of pay with the former Employer. No
payment shall be made by the former Employer to the successor Employer for
any unvested sick leave or vacation leave balance relating to any
post-Distribution transfer.
Section 2.08 Preservation of Right To Amend or Terminate Plans. Except as
otherwise expressly provided in this Article II, no provisions of this
Agreement, including, without limitation, the agreement of PEI or PriceSmart to
make a contribution or payment to or under any Plan herein referred to for any
period, shall be construed as a limitation on the right of PEI or PriceSmart to
amend such Plan or terminate its participation therein which PEI or PriceSmart
would otherwise have under the terms of such
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Plan or otherwise, and no provision of this Agreement shall be construed to
create a right in any employee or former employee, or dependent or beneficiary
of such employee or former employee under a Plan which such person would not
otherwise have under the terms of the Plan itself; provided, however, that
neither Party shall amend any Plan to the extent that such amendment would have
the effect of increasing the liabilities of the other Party under any Plan of
the other Party, without such other Party's consent.
Section 2.09 Reimbursement. PEI and PriceSmart acknowledge that PEI, on
the one hand, and PriceSmart, on the other hand, may incur costs and expenses,
including, but not limited to, contributions to Plans and the payment of
insurance premiums arising from or related to any of the Plans which are, as set
forth in this Agreement, the responsibility of the other Party hereto.
Accordingly, PEI and PriceSmart shall reimburse each other, as soon as
practicable, but in any event within thirty (30) days of receipt from the other
Party of appropriate verification, for all such costs and expenses.
Section 2.10 Payroll Reporting and Withholding.
(a) Form W-2 Reporting. PriceSmart and PEI may adopt the
"alternative procedure" for preparing and filing IRS Forms W-2 (Wage and Tax
Statements), as described in Section 5 of Revenue Procedure 84-77, 1984-2 IRS
Cumulative Bulletin 753 ("Rev. Proc. 84-77"). Under this procedure PriceSmart
as the successor employer shall provide all required Forms W-2 to all
Transferred Employees reflecting all wages paid and taxes withheld by both PEI
as the predecessor and PriceSmart as the successor employer for the entire year
during which the Distribution takes place. PEI shall provide all required Forms
W-2 to all Retained Employees reflecting all wages and taxes paid and withheld
by PEI before and after the Distribution Date.
In connection with the aforesaid agreement under Rev. Proc. 84-77,
each business unit or business operation of PEI shall be assigned to either PEI
or PriceSmart, depending upon whether it is a Retained Business or a Transferred
Business, and each Retained Employee or Transferred Employee associated with
such business unit or business operation shall be assigned for payroll reporting
purposes to PEI or PriceSmart, as the case may be. PEI and PriceSmart shall be
responsible for filing IRS Forms 941 for their respective Employees.
(b) Forms W-4 and W-5. PriceSmart and PEI may adopt the alternative
procedure of Rev. Proc. 84-77 for purposes of filing IRS Forms W-4 (Employee's
Withholding Allowance Certificate) and W-5 (Earned Income Credit Advance Payment
Certificate). Under this procedure PEI shall provide to PriceSmart as the
successor employer all IRS Forms W-4 and W-5 on file with respect to each
Transferred Employee, and PriceSmart will honor these forms until such time, if
any, that such Transferred Employee submits a revised form.
(c) Garnishments, Tax Levies, Child Support Orders, and Wage
Assignments. With respect to Employees with garnishments, tax levies, child
support orders, and wage assignments in effect with PEI on the Distribution
Date, PriceSmart as the successor employer with respect to each Transferred
Employee shall honor such payroll deduction authorizations and will continue to
make payroll deductions and payments to the authorized payee, as specified by
the court or governmental order which was filed with PEI.
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(d) Authorizations for Payroll Deductions. Unless otherwise
prohibited by this or another agreement entered into in connection with the
Distribution, or by a Plan document, with respect to Transferred Employees with
authorizations for payroll deductions in effect with PEI on the Distribution
Date, PriceSmart as the successor employer will honor such payroll deduction
authorizations relating to each Transferred Employee, and shall not require that
such Transferred Employee submit a new authorization to the extent that the type
of deduction by PriceSmart does not differ from that made by PEI. Such
deduction types include, without limitation, contributions to any Plan;
scheduled loan repayments to the relevant Profit Sharing Plan or to an employee
credit union; and direct deposit of payroll, bonus advances, union dues,
employee relocation loans, and other types of authorized company receivables
usually collectible through payroll deductions.
ARTICLE III
LABOR AND EMPLOYMENT MATTERS
Notwithstanding any other provision of this Agreement or any other
Agreement between PriceSmart and PEI to the contrary, PriceSmart and PEI
understand and agree that:
Section 3.01 Separate Employers. On and after the Distribution Date and
the separation of Employees into their respective companies, PriceSmart and PEI
will be separate and independent employers.
Section 3.02 Employment Policies and Practices. Subject to the provisions
of ERISA and Sections 2.01(b) and 2.07(c) governing post-Distribution transfers,
and except as limited by applicable law or agreement, PriceSmart and PEI may
adopt, continue, modify or terminate such employment policies, compensation
practices, retirement plans, welfare benefit plans, and other employee benefit
plans of any kind or description, as each may determine, in its sole discretion,
are necessary or appropriate.
Section 3.03 Collective Bargaining Agreements. With regard to Employees
covered by a Collective Bargaining Agreement on the Distribution Date who become
PriceSmart Employees or Retained Employees, PriceSmart and PEI promise and
covenant to each other not to take any action which disrupts or otherwise
negatively impacts the labor relations of the other. PriceSmart and PEI will
diligently work to substitute the appropriate employer for PEI in Collective
Bargaining Agreements.
Section 3.04 Special Matters.
(a) Administrative Services in Connection with the Combined Profit
Sharing Plan. It is agreed that PriceSmart will provide administrative services
to the Combined Profit Sharing Plan from the Distribution Date through the
Cut-Off Date at a reasonable fee to be agreed upon by PEI and PriceSmart, which
fee shall comply with ERISA and other applicable law. Such services will be
substantially similar to the services provided by PEI employees to the Combined
Profit Sharing Plan.
(b) Payments to PEI. To the extent that PEI makes any payment for,
or takes responsibility for future payment of, any liability or obligation which
exists as of the Distribution Date and is assumed by PriceSmart pursuant to this
Agreement (any such payment, a "Liability Payment"), not later than thirty (30)
days after receipt of an invoice from PEI of such Liability Payment, PriceSmart
shall make a payment to PEI equal to the amount of such Liability Payment.
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Section 3.05 Notice of Claims. Without limitation to the scope and
application to each Party in the performance of its duties under Sections 3.03
and 3.04 herein, each Party will notify in writing and consult with the other
Party prior to making any settlement of an employee claim, for the purpose of
avoiding any prejudice to such other Party arising from the settlement.
Section 3.06 Assumption of Unemployment Tax Rates. Changes in state
unemployment tax experience from that of PEI as of the Distribution Date shall
be handled as follows. In the event an option exists to allocate state
unemployment tax experience of PEI, the PEI experience shall be transferred to
PriceSmart if this results in the lowest aggregate unemployment tax costs for
both PEI and PriceSmart combined, and the PEI experience shall be retained by
PEI if this results in the lowest aggregate unemployment tax costs for PEI and
PriceSmart combined.
Section 3.07 Employees on Leave of Absence. After the Distribution Date,
PriceSmart shall assume responsibility, if any, as employer for all Employees
returning from an approved leave of absence who prior to the Distribution Date
were employed in a Transferred Business. After the Distribution Date, PEI shall
assume responsibility, if any, as employer for all Employees returning from an
approved leave of absence who prior to the Distribution Date were not employed
in a Transferred Business.
Section 3.08 No Third Party Beneficiary Rights.
(a) Neither this Agreement nor any other intercompany agreement
between PriceSmart and PEI is intended to nor does it create any third party
contractual or other common law rights. No person shall be deemed a third-party
beneficiary of the agreements between PriceSmart and PEI.
(b) Nothing contained in this Agreement shall confer upon any
Employee any right with respect to continuance of employment by either Party,
nor shall anything herein interfere with the right of either party to terminate
the employment of any Employee at any time, with or without cause, or restrict a
Party in the exercise of its independent business judgment in modifying any of
the terms and conditions of the employment of an Employee, except as provided by
applicable law.
(c) No provision of this Agreement shall create any third party
beneficiary rights in any Employee, any beneficiary or dependent thereof, or any
collective bargaining representative thereof, with respect to the compensation,
terms and conditions of employment and benefits that may be provided to any
Employee by either Party or under any benefit plan which a Party may maintain.
Section 3.09 Attorney/Client Privilege. The provisions herein requiring
either Party to this Agreement to cooperate shall not be deemed to be a waiver
of the attorney/client privilege for either Party nor shall it require either
Party to waive its attorney/client privilege.
ARTICLE IV
DEFAULT
Section 4.01 Default. If either Party materially defaults hereunder, the
non-defaulting Party shall be entitled to all remedies provided by law or equity
(including reasonable attorneys' fees and costs of suit incurred).
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Section 4.02 Force Majeure. PriceSmart and PEI shall incur no liability to
each other due to a default under the terms and conditions of this Agreement
resulting from fire, flood, war, strike, lock-out, work stoppage or slow-down,
labor disturbances, power failure, major equipment breakdowns, construction
delays, accident, riots, acts of God, acts of United States' enemies, laws,
orders or at the insistence or result of any governmental authority or any other
delay beyond each other's reasonable control.
ARTICLE V
MISCELLANEOUS
Section 5.01 Relationship of Parties. Nothing in this Agreement shall be
deemed or construed by the Parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
Parties, it being understood and agreed that no provision contained herein, and
no act of the Parties, shall be deemed to create any relationship between the
Parties other than the relationship set forth herein.
Section 5.02 Access to Information; Cooperation. PEI and PriceSmart and
their authorized agents shall be given reasonable access to and may take copies
of all information relating to the subjects of this Agreement (to the extent
permitted by federal and state confidentiality laws) in the custody of the other
Party, including any agent, contractor, subcontractor, agent or any other person
or entity under the contract of such Party. The Parties shall provide one
another with such information within the scope of this Agreement as is
reasonably necessary to administer each Party's Plans. The Parties shall
cooperate with each other to minimize the disruption caused by any such access
and providing of information.
Section 5.03 Assignment. Neither Party shall, without the prior written
consent of the other, have the right to assign any rights or delegate any
obligations under this Agreement.
Section 5.04 Headings. The headings used in this Agreement are inserted
only for the purpose of convenience and reference, and in no way define or limit
the scope or intent of any provision or part hereof.
Section 5.05 Severability of Provisions. Neither PEI nor PriceSmart intend
to violate statutory or common law by executing this Agreement. If any section,
sentence, paragraph, clause or combination of provisions in this Agreement is in
violation of any law, such sections, sentences, paragraphs, clauses or
combinations shall be inoperative and the remainder of this Agreement shall
remain in full force and effect and shall be binding upon the Parties.
Section 5.06 Parties Bound. This Agreement shall inure to the benefit of
and be binding upon the Parties hereto and their respective successors and
permitted assigns. Nothing herein, expressed or implied, shall be construed to
give any other person any legal or equitable rights hereunder.
Section 5.07 Notices. All notices, consents, approvals and other
communications given or made pursuant hereto shall be in writing and shall be
deemed to have been duly given when delivered personally or by overnight courier
or three days after being mailed by registered or certified mail (postage
prepaid, return receipt requested) to the named representatives of the Parties
at the following addresses
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or at such other address for a Party as shall be specified by like notice,
except that notices of changes of address shall be effective upon receipt):
(a) if to PEI:
Price Enterprises, Inc.
4649 Morena Blvd.
San Diego, CA 92117
fax:
Attention: Jack McGrory
(b) if to PriceSmart:
PriceSmart, Inc.
4649 Morena Blvd.
San Diego, CA 92117
fax:
Attention: Robert M. Gans
PriceSmart and PEI agree that, upon the request of either Party, the requested
Party will give copies of all of its notices, consents, approvals and other
communications hereunder to any lender to the requesting Party or other person
specified by such requesting Party.
Section 5.08 Further Action. PriceSmart and PEI each shall cooperate in
good faith and take such steps and execute such papers as may be reasonably
requested by the other Party to implement the terms and provisions of this
Agreement.
Section 5.09 Waiver. PriceSmart and PEI each agree that the waiver of any
default under any term or condition of this Agreement shall not constitute a
waiver of any subsequent default or nullify the effectiveness of that term or
condition.
Section 5.10 Governing Law. All controversies and disputes arising out of
or under this Agreement shall be determined pursuant to the laws of the State of
California, regardless of the laws that might be applied under applicable
principles of conflicts of laws.
Section 5.11 Entire Agreement. This Agreement and the Distribution
Agreement constitute the entire understanding between the Parties hereto, and
supersede all prior written or oral communications, relating to the subject
matter covered by said agreements. To the extent that the terms of this
Agreement and similar terms of the Distribution Agreement are in conflict, the
interpretation given to the conflicting terms of the Distribution Agreement
shall govern the interpretation and performance of this Agreement. No
amendment, modification, extension or failure to enforce any condition of this
Agreement by either Party shall be deemed a waiver of any of its rights herein.
This Agreement shall not be amended except by a writing executed by the Parties.
Section 5.12 Dispute Resolution. Any dispute arising under this Agreement
shall be resolved by binding arbitration in the manner contemplated by Section
9.13 of the Distribution Agreement, including the attorneys fees provisions
referred to therein.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
PRICE ENTERPRISES, INC., a Delaware corporation
By: /s/ ROBERT E. PRICE
-----------------------------------
Name: Robert E. Price
----------------------------
Title: Chairman, President and CEO
----------------------------
PRICESMART, INC., a Delaware corporation
By: /s/ ROBERT E. PRICE
-----------------------------------
Name: Robert E. Price
----------------------------
Title: Chairman, President and CEO
----------------------------
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Exhibit 10.2
TAX SHARING AGREEMENT
TAX SHARING AGREEMENT, dated as of August 26, 1997, between Price
Enterprises, Inc., a Delaware corporation ("PEI"), and PriceSmart, Inc., a
Delaware corporation and wholly-owned subsidiary of PEI ("PriceSmart").
WHEREAS, PEI is the parent corporation of an affiliated group of
corporations that join in filing consolidated federal Income Tax Returns and
certain consolidated, combined or unitary state Income Tax Returns;
WHEREAS, PriceSmart is a wholly-owned subsidiary of PEI and a member
of the PEI Group;
WHEREAS, pursuant to the Distribution Agreement (as hereinafter
defined), PEI presently intends to distribute all the common stock of PriceSmart
to its stockholders (the "Distribution"); and
WHEREAS, PEI and PriceSmart desire on behalf of themselves, their
subsidiaries and their successors to set forth their respective rights and
obligations with respect to Taxes (as hereinafter defined).
NOW THEREFORE, in consideration of their mutual promises, the parties
hereby agree as follows:
1. DEFINITIONS.
When used herein the following terms shall have the following
meanings:
"CODE" -- the Internal Revenue Code of 1986, as amended, or any
successor thereto, as in effect for the taxable year in question.
"DISTRIBUTION AGREEMENT" -- the Distribution Agreement dated
August 26, 1997 between PEI and PriceSmart.
"INCOME TAX(ES)" -- with respect to any corporation or group of
corporations, any and all Taxes to the extent based upon or measured by net
income (regardless of whether denominated as an "income tax," a "franchise tax"
or otherwise), imposed by any Taxing Authority, together with any related
interest, penalties or other additions thereto.
"IRS" -- the U.S. Internal Revenue Service.
"OTHER TAXES" -- Taxes other than Income Taxes.
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"OVERDUE RATE" -- a rate of interest per annum that fluctuates with
the federal short-term rate established from time to time pursuant to Code
Section 6621(b).
"PEI ASSETS" -- the 27 retail properties and other assets (together
with any related liabilities) retained by PEI pursuant to the Distribution
Agreement.
"PEI GROUP" -- for any taxable year or period, PEI and each
corporation filing a consolidated federal Income Tax Return with PEI as the
parent corporation.
"PRICESMART GROUP" -- PriceSmart and each corporation filing a
consolidated federal Income Tax Return with PriceSmart as the parent
corporation.
"TAX(ES)" -- any net income, gross income, gross receipts, sales, use,
excise, franchise, transfer, payroll, premium, property or windfall profits tax,
alternative or add-on minimum tax, or other tax, fee or assessment, together
with any interest and any penalty, addition to tax or other additional amount
imposed by any Taxing Authority, whether any such tax is imposed directly or
through withholding.
"TAXING AUTHORITY" -- the IRS and any other domestic or foreign
governmental authority responsible for the administration of any Tax.
"TAX RETURN(S)" -- all returns, reports, estimates, information
statements, declarations and other filings relating to, or required to be filed
by any taxpayer in connection with, its liability for, or its payment or receipt
of any refund of, any Tax.
2. PREPARATION AND FILING OF TAX RETURNS; PAYMENT OF TAXES
a. PEI shall prepare and timely file, or cause to be prepared
and timely filed, with the appropriate Taxing Authorities (i) all federal and
state Income and Other Tax Returns of the PEI Group and any member or members
thereof for all taxable years and periods ending on or before August 31, 1997;
and (ii) all federal and state Income and Other Tax Returns of PEI for all
taxable years and periods beginning after August 31, 1997. PEI shall pay, or
cause to be paid, all Taxes due with respect to Tax Returns described in this
subsection (a) and shall be entitled to all Tax refunds received or receivable
with respect to taxable years and periods covered by such Tax Returns.
b. PriceSmart shall prepare and timely file, or cause to be
prepared and timely filed, with the appropriate Taxing Authorities, all federal
and state Income and Other Tax Returns of the PriceSmart Group and any member or
members thereof for taxable years and periods beginning after August 31, 1997.
PriceSmart shall pay, or cause to be paid, all Taxes due with respect to Tax
Returns described in this subsection (b) and shall be entitled to all Tax
refunds received or receivable with respect to taxable years and periods covered
by such Tax Returns.
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3. PAYMENTS.
a. METHOD. Unless the parties otherwise agree, all payments
made by a party pursuant to this Agreement shall be made by wire transfer to a
bank account designated from time to time by the other party. The paying party
shall also provide a notice of payment to the recipient.
b. INTEREST. If any payment is not timely paid, interest shall
accrue on the unpaid amount at the Overdue Rate. A payment will be deemed to be
timely paid only if actually received by the payee within five (5) days of the
receipt of notice from the other party that such payment is due.
c. CHARACTERIZATION. Any payment (other than interest thereon)
made hereunder shall be treated by all parties for all purposes as a nontaxable
intercompany settlement of liabilities existing immediately before the
Distribution or, to the extent appropriate, as a non-taxable dividend
distribution or capital contribution.
4. CONTESTS AND AUDITS; INDEMNIFICATION.
a. NOTICE. Upon the receipt by PEI or PriceSmart, as the case
may be, of notice of any pending or threatened Tax audit or assessment which may
affect the liability for Taxes that are subject to indemnification hereunder,
PEI or PriceSmart, as the case may be, shall promptly notify the other in
writing of the receipt of such notice.
b. CONTROL AND SETTLEMENT. From and after the Closing Date,
PEI shall have full control over, and the right to represent the interests of,
PEI and all other corporations involved in or affected by any Tax audit or
administrative, judicial or other proceeding relating, in whole or in part, to
Taxes that are subject to indemnification by PEI hereunder. PEI shall have the
right to employ counsel of its choice at its expense, and shall have the
ultimate control of the contest and any settlement or other resolution thereof.
Any liability for Taxes established pursuant to such proceeding shall be
allocated and paid in accordance with Section 2 of this Agreement.
c. AMENDMENT OF TAX RETURNS. PEI shall have sole control over
the preparation and filing of any and all amendments to Tax Returns described in
Section 2(a).
d. INDEMNIFICATION. PEI shall indemnify and hold harmless
PriceSmart and the PriceSmart Group against any and all Income and Other Taxes
specifically attributable to the PEI Assets for all taxable years and periods
ending on or before August 31, 1997. PriceSmart shall indemnify and hold
harmless PEI against any and all Income and Other Taxes, other than Income and
Other Taxes specifically attributable to the PEI Assets, for all taxable years
and periods ending on or before August 31, 1997.
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5. COOPERATION; DOCUMENT RETENTION; CONFIDENTIALITY.
a. COOPERATION. Upon reasonable request, PEI and PriceSmart
shall promptly provide (and shall cause their respective affiliates to provide)
the requesting party with such cooperation and assistance, documents, and other
information, without charge, as may be necessary or reasonably helpful in
connection with (i) the preparation and filing of any original or amended Tax
Return, (ii) the conduct of any audit, appeal, protest or other examination or
any judicial or administrative proceeding involving to any extent Taxes or Tax
Returns within the scope of this Agreement, or (iii) the verification by a party
of an amount payable hereunder to, or receivable hereunder from, another party.
Such cooperation and assistance shall include, without limitation: (a) the
provision on demand of books, records, Tax Returns, documentation or other
information relating to any relevant Tax Return; (b) the execution of any
document that may be necessary or reasonably helpful in connection with the
filing of any Tax Return, or in connection with any audit, appeal, protest,
proceeding, suit or action of the type generally referred to in the preceding
sentence, including, without limitation, the execution of powers of attorney and
extensions of applicable statutes of limitations; (c) the prompt and timely
filing of appropriate claims for refund; and (d) the use of reasonable best
efforts to obtain any documentation from a governmental authority or a third
party that may be necessary or helpful in connection with the foregoing. Each
party shall make its employees and facilities available on a mutually convenient
basis to facilitate such cooperation.
b. RETENTION. PEI and PriceSmart shall retain or cause to be
retained all Tax Returns, and all books, records, schedules, workpapers, and
other documents relating thereto, which Tax Returns and other materials are
within the scope of this Agreement, until the expiration of the later of (i) all
applicable statutes of limitations (including any waivers or extensions
thereof), and (ii) any retention period required by law or pursuant to any
record retention agreement. The parties hereto shall notify each other in
writing of any waivers, extensions or expirations of applicable statutes of
limitations, and shall provide at least thirty (30) days prior written notice of
any intended destruction of the documents referred to in the preceding sentence.
A party giving such a notification shall not dispose of any of the foregoing
materials without first allowing the other party a reasonable opportunity to
copy them at such other party's expense.
c. CONFIDENTIALITY. Except as required by law or with the
prior written consent of the other party, all Tax Returns, documents, schedules,
work papers and similar items and all information contained therein, which Tax
Returns and other materials are within the scope of this Agreement, shall be
kept confidential by the parties hereto and their representatives, shall not be
disclosed to any other person or entity and shall be used only for the purposes
provided herein.
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6. MISCELLANEOUS.
a. EFFECTIVENESS. This Agreement shall be effective from and
after the Closing Date and shall survive until the expiration of all applicable
statutes of limitations with respect to taxable years and periods ending on or
before or including the Closing Date.
b. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof.
This Agreement cancels and supersedes, as of the Closing Date, any and all other
agreements with respect to Taxes between PEI and PriceSmart.
c. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable, the
enforceability of the remaining provisions hereof shall not in any way be
affected or impaired thereby. In the event that any such provision is hereafter
held to be invalid, void or unenforceable, the parties hereto agree to use their
reasonable best efforts to find and employ an alternate means to achieve the
same or substantially the same result as that contemplated by such provision.
d. INDULGENCES, ETC. Neither the failure nor any delay on the
part of any party hereto to exercise any right under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right preclude any other or further exercise of the same or any other right, nor
shall any waiver of any right with respect to any occurrence be construed as a
waiver of such right with respect to any other occurrence.
e. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California
without regard to the conflict of law principles thereof, except with respect to
matters of law concerning the internal corporate affairs of any corporate entity
which is a party to or subject of this Agreement, and as to those matters the
law of the jurisdiction under which the respective entity derives its powers
shall govern.
f. NOTICES. All notices, requests, demands, statements, bills
and other communications under this Agreement shall be delivered in accordance
with Section 9.04 of the Distribution Agreement.
g. MODIFICATION OR AMENDMENT. This Agreement may be amended at
any time by written agreement executed and delivered by duly authorized officers
of PriceSmart and PEI.
h. SUCCESSORS AND ASSIGNS. Except by operation of law or in
connection with the sale of all or substantially all the assets of a party
hereto, a party's rights and obligations under this Agreement may not be
assigned without the prior written consent of the other party. All of the
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and permitted assigns.
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i. THIRD-PARTY BENEFICIARIES. This Agreement is solely for the
benefit of the parties hereto and shall not be deemed to confer upon third
parties any remedy, claim, liability, reimbursement, claim of action or other
right in excess of those existing without this Agreement.
j. OTHER. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all of such counterparts shall together constitute one and the same
instrument. The section numbers and captions herein are for convenience of
reference only, do not constitute part of this Agreement and shall not be deemed
to limit or otherwise affect any of the provisions hereof.
k. PREDECESSORS AND SUCCESSORS. To the extent necessary to
give effect to the purposes of this Agreement, any reference to any corporation
shall also include any predecessor or successor thereto, by operation of law or
otherwise.
l. TAX ELECTIONS. Nothing in this Agreement is intended to
change or otherwise affect any previous tax election made by or on behalf of the
PEI Group, and PEI shall have sole discretion to make or change any and all
elections affecting the PEI Group or any member or members thereof for all
taxable years and periods ending on or before August 31, 1997.
m. COSTS AND EXPENSES. Unless otherwise specifically provided
herein, each party agrees to pay its own costs and expenses resulting from the
fulfillment of its respective obligations hereunder.
n. DISPUTES. Any dispute between the parties hereunder shall
be resolved in accordance with Section 9.13 of the Distribution Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PRICE ENTERPRISES, INC.
By:/s/ ROBERT E. PRICE
-----------------------------------
Name: Robert E. Price
---------------------------------
Title: Chairman, President and CEO
--------------------------------
PRICESMART, INC.
By:/s/ ROBERT E. PRICE
-----------------------------------
Name: Robert E. Price
---------------------------------
Title: Chairman, President and CEO
--------------------------------
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Exhibit 10.3
ASSET MANAGEMENT
AND
DISPOSITION AGREEMENT
This Asset Management and Disposition Agreement (the "Agreement") is
made this 26th day of August, 1997, between PRICESMART, INC., a Delaware
corporation (the "Owner") and PRICE ENTERPRISES, INC., a Delaware corporation
(the "Agent").
RECITALS
A) Owner owns certain real property (the "Property or Properties") listed on
Exhibit A attached hereto.
B) Owner and Agent wish to agree with respect to management and other
services to be provided by the Agent with respect to the Properties.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
GENERAL TERMS AND CONDITIONS
1.01 TERM OF AGREEMENT.
This Agreement shall be for a term (the "Term") commencing September 1,
1997 and terminating August 31, 1999, however, either party may terminate this
Agreement upon at least sixty (60) days prior written notice to the other
party.
1.02 AGENTS - PROPERTY MANAGEMENT DUTIES AND AUTHORITY.
A) Agent shall take all reasonable actions to perform the following
duties in connection with management of the Properties:
1. Enforce the terms of tenant leases with respect to the
Properties, including, but not limited to collection of rents and other charges
payable by tenants, subject to Section 1.02 E.
2. Seek prospective tenants, negotiate the lease of vacant space
and prepare appropriate lease documentation; however, all terms and
conditions of a lease are subject to the approval of Owner and Owner shall
execute all leases.
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3. Settle disputes with tenants.
4. Pay all real estate taxes and assessments, personal property
taxes and other fees imposed upon or due with respect to the Properties.
5. Obtain casualty and liability insurance with respect to the
Properties with such coverage, deductibles and insurance companies approved by
the Owner, in accordance with Section 1.03.
6. Pay all casualty and liability insurance premiums with respect
to the Properties.
7. Pay all utility bills and other operating expenses of the
Properties not otherwise required to be paid by tenants.
8. Maintain and repair the Properties in a good and safe condition
to the extent not otherwise required to be maintained and repaired by the
tenants.
9. Supervise on-site personnel.
10. Maintain books and records of collections of rent and other sums
paid to Agent in connection with Agent's management of the Properties and of
expenditures made by Agent in carrying out its duties and responsibilities
under this Section 1.02, and deliver monthly financial statements to Owner.
11. Hire brokers in connection with the sale or lease of properties
and enter into broker agreements, subject to Section 1.05 and 1.06.
12. Negotiate Purchase and Sale Agreements with respect to
Properties which Owner chooses to sell. However, all terms and conditions of a
purchase and sale agreement are subject to the approval of the Owner and the
Owner shall execute all such agreements.
13. Take such other actions normally performed by a property
manager, for the orderly management of properties.
B) In carrying out its duties under paragraph A) above, the Agent is
authorized to:
1. Engage necessary professional services, including, but not
limited to accountants and attorneys, at the expense of the Owner.
2. Open one or more separate bank accounts (the "Agency
Account(s)"), into which all receipts will be deposited and from which all
disbursements will be made.
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3. Enter into such contracts on behalf of Owner as Agent deems
appropriate in connection with carrying out its duties and exercising its
authority under this Article I.
C) All costs and expenses incurred by the Agent in carrying out its
duties under Section 1.02 (but not including Agent's normal overhead and
operating expenses or salaries of Agent's employees, for which Owner shall have
no responsibility) shall be paid from the Agency Account. If the Agency
Account does not have sufficient funds to pay for an expenditure, the Owner
shall deposit into the Agency Account, an amount equal to such deficiency.
Under no circumstances whatsoever shall the Agent be required to advance its
own funds for any cost or expense. In the event a single expenditure is
estimated to exceed Five Thousand Dollars ($5,000), the Agent shall obtain the
Owner's prior written approval for such expenditure.
D) Any "on-site" property manager or other personnel shall be employees
of the Owner and not the Agent.
E) No litigation (including administrative proceedings, arbitration or
court proceedings) concerning the Properties or Agent's management thereof
shall be commenced on behalf of Owner or Agent without Owner's prior written
consent.
1.03 INSURANCE.
A) The Agent shall maintain casualty (including earthquake) and
comprehensive general liability insurance on the Properties in the same form
and monetary levels that were in place on August 31, 1997.
B) Agent and Owner shall be named as co-insureds on all insurance
policies, as their interests may appear and there shall be cross-liability
endorsements.
1.04 INDEMNITY.
A) The Owner agrees to indemnify and save the Agent completely harmless
from any and all costs, expenses, attorneys' fees, suits, liabilities, damages
or claim for damages, including, but not limited to those arising out of any
injury or death to any person or persons or damage to any property of any kind
whatsoever and to whomever belonging, including Owner, in any way relating to
the management of the Properties by the Agent or the performance or exercise of
any of the duties, obligations, powers or authorities herein or hereafter
granted to the Agent, except for the negligence or willful misconduct of the
Agent or its employees and except for the Agent's breach of its covenants under
this Agreement.
B) The Agent agrees to indemnify and save the Owner completely harmless
from any and all costs, expenses, attorneys' fees, suits, liabilities, damages
or claim for damages, including, but not limited to those arising out of any
injury or death to any person or persons or damage to any property of any kind
whatsoever and to whomever
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belonging, including Agent, caused by the negligence, or willful misconduct
of the Agent or its employees in the performance or exercise of any of the
duties, obligations, powers or authorities under this Agreement or hereafter
granted to the Agent or caused by the Agent's breach of its covenants under
this Agreement, except for the negligence or willful misconduct of the Owner
or its employees or due to the Owner's breach of its covenants under this
Agreement. The Agent shall not be liable for any error of judgment or for
any mistake of fact or law, or for anything which it may do or refrain from
doing, except in cases of willful misconduct or negligence.
C) The provisions of paragraph A) and B) above shall not apply to the
extent the amount of the indemnity involved is covered by insurance.
1.05 COMPENSATION OF AGENT - PROPERTY MANAGEMENT.
Owner shall pay Agent a management fee for each Property as follows:
A) Each Property with a minimum annual rent greater than Two Hundred
Thousand Dollars ($200,000) - fee equal to three percent (3%) of annual minimum
rent.
B) Each Property which is unimproved land - Two Thousand Four Hundred
Dollars ($2,400) per year.
C) Each Property not covered by A) or B) above - Six Thousand Dollars
($6,000) per year.
Such compensation shall be payable in monthly installments in arrears for
each Property on the first day of each calendar month during the Term.
1.06 COMPENSATION OF AGENT - LEASING.
In the event a lease is entered into to lease space in any of the
Properties and such lease is fully executed during the Term or within sixty
(60) days after the expiration of the Term, the Owner shall pay the Agent as
compensation with respect to such lease as follows:
A) On leases other than ground leases covered by paragraph B)
below, the fee shall be based upon the gross leasable floor area of the leased
premises as follows:
1) 50,000 s.f. or more $.50 per square foot
2) 25,000 - 49,999 s.f. $.75 per square foot
3) 10,000 - 24,999 s.f. $1.00 per square foot
4) Up to 9,999 s.f. $1.25 per square foot
B) On ground leases, the fee shall be two percent (2%) multiplied
by the average fixed annual rent during the first five (5) lease years
beginning on the Rent Commencement Date, multiplied by the number of years
during the lease term, but not
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more than ten (10) lease years, subject to the following: Fixed annual rent
shall NOT include taxes, utilities, insurance, maintenance, alterations,
repairs, and other expenses paid by a tenant in connection with the premises,
and shall not include cost of living increases or percentage rent.
C) The compensation due Agent under this Section 1.06 shall be due
and payable within ten (10) days after:
(i) Tenant has paid the first month's rent; and
(ii) the Tenant has opened for business or the Tenant has paid
the first six (6) months rent.
D) Any agreements to pay commissions to any and all brokers shall
be approved, in advance, by Owner. Broker fees are to be paid by Owner.
1.07 COMPENSATION OF AGENT - SALES.
A) In the event a purchase and sale agreement is entered into to sell
any portion or all of any Property and such agreement is fully executed during
the Term or within sixty (60) days after the expiration of the Term, then if
and when escrow closes, Owner shall pay the Agent, as compensation with respect
to such sale, an amount computed as follows:
1) Unimproved land - Two percent (2%) of the Purchase Price.
2) Milwaukee - Flat fee of Fifteen Thousand Dollars ($15,000) if
lease termination is negotiated prior to expiration of the lease term.
3) All other Properties - One and one-half percent (1.5%) of the
Purchase Price.
B) Any agreements to pay commissions to any and all brokers shall be
approved in advance by Owner. Brokers fees are to be paid by Owner.
C) Notwithstanding the aforementioned, no compensation under this
Section 1.08 will be due to agent for properties that close prior to September
30, 1997.
ARTICLE II
REAL ESTATE DEVELOPER
2.01 PROJECT DEVELOPER.
In the event the Owner and the Agent agree that the Agent is to be
the "Developer" of any of the Properties, then the provisions of this Article
II shall apply
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(subject to modification and/or additional terms to be negotiated, as may be
relevant to the particular Property or development which is involved), and
the Agent will supervise and implement all development functions in
connection with the development property from the initial planning stages
through actual completion of construction.
Notwithstanding anything herein to the contrary, if at any time the
Owner wishes to terminate the Agent (whether or not due to cause), the Agent
shall be terminated as the developer solely at the Owner's election.
2.02 COMPENSATION.
A) The Agent's total compensation for services rendered to as the
Developer ("Development Fee") shall be an amount equal to three percent (3%) of
all "Construction Costs" as defined below for each project developed by Agent
as provided herein. In the event the Agent is terminated as the Developer
before a project is completed, the Agent shall be entitled to a Development Fee
based upon the amount of "Construction Costs" incurred as of the date of
termination.
B) The Development Fee for each project shall be paid as follows:
The Agent shall estimate the total Construction Costs as defined herein for the
project and the total number of months to complete the development of the
project from start to finish (the "Development Period"). The Owner shall pay
to the Agent, each month during the Development Period, an amount equal to the
product of the estimated total Construction Costs multiplied by three percent
(3%), divided by the number of months estimated to complete the Project. Upon
completion of the Project, if the actual Construction Costs exceed the
estimated Construction Costs, then the Owner shall pay the Agent such
additional amount due for the Development Fee; or if, upon completion of the
Project, the estimated Construction Costs exceed actual Construction Costs,
then the Developer shall refund to the Owner any excess Development Fee
received by the Agent. For example, if Construction Costs are estimated to be
$100,000.00, and it is estimated that it will take one (1) year to complete the
Project, then the Agent would be paid $3,000.00 at the rate of Two Hundred
Fifty Dollars ($250.00) per month for twelve (12) months (or until completion
of the Project, whichever occurs first). If the actual Construction Costs were
$200,000.00 and the estimated payments actually paid were $3,000.00, then the
Owner would pay the Agent an additional $3,000.00 ($200,000 x 3% = $6,000 -
$3,000) upon completion of the Project. However, if the actual Construction
Costs were only $50,000.00, then the Agent would reimburse the Owner $1,500.00
upon completion of the Project.
C) The term "Construction Costs" shall mean: The actual direct
cost of all work, labor, architectural and engineering fees, services and
materials consumed in the planning and construction of project improvements;
excluding, however: work and labor performed by employees of Agent or any
related entity, overhead expenses of Agent or any related entity, development
permit fees and other similar fees paid to any governmental body, agency, or
utility company, interest, and marketing expenses.
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2.03 PLANS.
A) After the Agent and Owner have agreed that the Agent is to be
the Developer for a Property, Developer shall cause to be prepared and
submitted to the Owner, for its approval, an Overall Development Plan setting
forth in outline form the projected development of the real estate. The
Overall Development Plan shall set forth the description of all major
buildings, streets, utilities, and other improvements to be made in the
development of the land and, to the extent possible, shall set forth the
separate Projects (as hereinafter defined) of the development, and shall
contain an estimate of the total cost thereof.
B) Within a reasonable time after the Overall Development Plan has
been approved by the Owner, Agent shall cause to be prepared and submitted to
the Owner, for its approval, a Project Development Plan for the Project to be
constructed. As used herein the term "Project" shall mean and refer to an
individual building or complex of buildings which are developed as a unit,
along with the central or common facilities appurtenant in whole or in part
thereto. Central or common facilities may be a part of one or more Projects.
The Project Development Plan for each Project shall set forth the following:
(1) Amount and location of the land to be used in the Project
("Project Land");
(2) Amount and location of the land, if any, to be used in the
construction of central or common facilities or site improvements in connection
with the Project ("Common Land");
(3) Description of buildings and other improvements to be
placed on the Project Land ("Project Improvements");
(4) Description of buildings and other improvements to be
placed on the Common Land ("Common Improvements");
(5) Anticipated use of the Project Improvements and the
estimated revenues therefrom;
(6) Estimated cost of constructing the Project Improvements,
including all on and off-site costs and all charges ordinarily classified as a
part of the construction costs of the building;
(7) Estimated cost of constructing the Common Improvements and
all charges ordinarily classified as a part of the construction costs of such
improvements;
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(8) Cash flow projections for the Project; and
(9) All other information relative to the Project desired by
the Owner.
2.04 CONSTRUCTION OF PROJECT.
Within a reasonable time after the Project Development Plan for a
Project has been approved by the Owner, the Agent shall:
A) Cause to be prepared and submitted to the Owner, for its
approval, the detailed plans and specifications ("Plans and Specifications")
for such Project, and
B) After the Plans and Specifications have been approved by
the Owner, submit the Plans and Specifications to not less than three (3)
reputable independent contractors qualified to construct the Project
Improvements and Common Improvements for the Project for review and bidding,
and then
C) After approved by the Owner, accept the lowest and best bid
made by such contractors or resubmit the Plans and Specifications for re-
bidding until an acceptable bid is made, and then
D) Negotiate a construction contract with the successful
contractor and, when approved by the Owner, execute such contract on behalf of
the Owner and enforce the obligations of the contractor thereunder.
ARTICLE III
MISCELLANEOUS
3.01 ARBITRATION OF DISPUTES.
(A) Any controversy or claim arising out of this Agreement, or any
breach of this Agreement, shall be settled by arbitration in accordance with
the Rules of the American Arbitration Association then in effect, as modified
by this Section 3.01 or by the further written agreement of the parties.
(B) Such arbitration shall be conducted in San Diego, California.
(C) Any judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The arbitrators shall not,
under any circumstances, have any authority to award punitive, exemplary or
similar damages, and may not, in any event, make any ruling, finding or award
that does not conform to the terms and conditions of this Agreement.
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(D) Nothing contained in this Section 3.01 shall limit or restrict
in any way the right or power of a party at any time to seek injunctive relief
in any court and to litigate the issues relevant to such request for injunctive
relief before such court (i) to restrain the other party from breaching this
Agreement or (ii) for specific enforcement of this Section 3.01. The parties
agree that any legal remedy available to a party with respect to a breach of
this Section 3.01 will not be adequate and that, in addition to all other legal
remedies, each party is entitled to an order specifically enforcing this
Section 3.01.
(E) The parties hereby consent to the jurisdiction of the federal
courts located in San Diego, California for all purposes under this Agreement.
(F) Neither party nor the arbitrators may disclose the existence or
results of any arbitration under this Agreement or any evidence presented
during the course of the arbitration without the prior written consent of both
parties, except as required to fulfill applicable disclosure and reporting
obligations, or as otherwise required by law.
(G) Each party shall bear its own expenses incurred in the
arbitration. If either party refuses to submit to arbitration any dispute
required to be submitted to arbitration pursuant to this Section 3.01, and
instead commences any other proceeding, including, without limitation,
litigation, then the party who seeks enforcement of the obligation to arbitrate
shall be entitled to its attorneys' fees and costs incurred in any such
proceeding.
3.02 INTEGRATION.
This Agreement and the exhibits attached hereto shall constitute the
entire Agreement between Landlord and Tenant and supersede any and all prior
written or oral agreements, representations, and warranties between and among
the parties and their agents, with regard to the matters covered by this
Agreement.
3.03 MODIFICATION.
No modification, waiver, amendment, discharge, or change of this
Agreement shall be valid unless the same is in writing and signed by the party
against which the enforcement of such modification, waiver, amendment,
discharge, or change is or may be sought.
3.04 SEVERABILITY.
In the event any term, covenant, condition, provision, or agreement
contained herein is held to be invalid, void, or otherwise unenforceable, by
any court of competent jurisdiction, such holding shall in no way affect the
validity or enforceability of any other term, covenant, condition, provision,
or agreement contained herein.
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3.05 GOVERNING LAW.
This Agreement and the obligation of the parties hereunder shall be
interpreted, construed, and enforced in accordance with the laws of the State
of California.
3.06 TERMINOLOGY.
All personal pronouns used in this Agreement, whether used in the
masculine, feminine, or neuter gender, shall include all other genders; the
singular shall include the plural and vice versa. "Business Day" means other
than Saturday, Sunday, or holiday. In the event that the time for performance
of an act under this Agreement falls on a Saturday, Sunday, or holiday, the
date for performance of such act shall be extended to the next business day.
3.07 BINDING EFFECT.
Except as otherwise herein provided, this Agreement shall be binding
upon and inure to the benefit of the parties hereto, and their respective
successors and assigns.
3.08 CAPTIONS.
Article and section titles or captions contained herein are inserted
as a matter of convenience and for reference, and in no way define, limit,
extend, or describe the scope of this Agreement or any provisions hereof. All
reference to section numbers herein shall mean the sections of this Agreement.
Executed as of the date first written above.
AGENT OWNER
PRICE ENTERPRISES, INC. PRICESMART, INC.
BY: /s/ ROBERT E. PRICE BY: /s/ ROBERT E. PRICE
------------------------ -------------------------
ITS: Chairman, President and CEO ITS: Chairman, President and CEO
---------------------------- ----------------------------
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Exhibit 10.4
TRANSITIONAL SERVICES AGREEMENT
This Transitional Services Agreement (this "Agreement") is made as of this
26th day of August 1997 between Price Enterprises, Inc., a Delaware corporation
("PEI"), and PriceSmart, Inc., a Delaware corporation ("PriceSmart").
RECITALS
WHEREAS, pursuant to a Distribution Agreement dated as of August 26, 1997,
(the "Distribution Agreement") between PEI and PriceSmart, PEI will separate its
real estate business and its merchandising businesses (the "Spin-off") by way of
(i) transfers of the merchandising businesses operated through PEI's
subsidiaries (the "Merchandising Businesses"), certain real properties held for
sale (the "Unsold Properties"), notes receivable from various municipalities and
agencies (the "City Notes") and secured notes receivable from buyers of
properties formerly owned by PEI (the "Other Notes," and together with the Other
Notes, the "Notes"), all cash balances of PEI, except for approximately $40
million in cash, and all other assets and liabilities of PEI not specifically
associated with PEI's core real estate business (collectively, the "PriceSmart
Business") to PriceSmart; (ii) a distribution by PriceSmart of all of the
outstanding shares of common stock, par value $.0001 per share, of PriceSmart
(the "PriceSmart Common Stock") to PEI; and (iii) a special dividend by PEI to
the stockholders of record of PEI's common stock, consisting of the distribution
on a one-for-four basis, of all of the outstanding shares of PriceSmart Common
Stock (the "Distribution"); and
WHEREAS, a condition of the closing of the transactions contemplated
by the Distribution Agreement is that PEI and PriceSmart enter into, among other
things, a transitional services agreement pursuant to which PEI shall provide
certain services to PriceSmart and PriceSmart shall provide certain services to
PEI.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants hereinafter set forth, and intending to be legally bound hereby, the
parties agree as follows:
1. SERVICES. PEI and PriceSmart hereby agree, subject to Section 6 below,
to cause their respective employees and to use their respective assets to
provide certain services to the other, including without limitation cash
management services, certain accounting services, litigation management and any
other similar services that PEI or PriceSmart may request. Notwithstanding the
foregoing, all real estate services to be provided hereafter by PEI to
PriceSmart pursuant to a separate Asset Management and Disposition Agreement of
even date herewith shall be subject to the terms of such separate agreement and
not to this Agreement. Nothing contained herein shall be deemed to restrict
either party to this Agreement from procuring any of the services to be provided
hereunder from outside vendors or from developing an in-house capability to
provide such services internally.
2. CHARGES FOR SERVICES. The charge for each service to be provided
hereunder shall be equal to the cost (which shall include indirect costs as well
as direct out of pocket expenses) of providing such service. The cost of
providing a service shall be determined in good faith by the party to provide
such service (the "providing party"). Prior to providing a service, the
providing party shall give an estimate of the cost thereof to the other party,
so that the other party shall have the opportunity to decide whether to accept
such service before it is performed.
<PAGE>
3. INVOICE AND PAYMENT. Each party shall invoice the other once each month
for the services performed during the prior month and each party shall pay the
other for such services not later than ten (10) days from the receipt of
invoice.
4. OUTSIDE SERVICES. In the event that the providing party is required to
retain outside consultant/contractor assistance to perform any of the services
hereunder, the providing party shall first obtain the consent of the other party
to such retention and the other party shall pay directly the fees of such
consultant/contractor. The providing party shall not be held responsible for
the performance of such consultant/contractor services and the other party
assumes the risk thereof.
5. CONTRACTUAL RELATIONSHIP. The relationship between PEI and PriceSmart
under this Agreement shall be that of principal and agent in respect of the
services to be performed hereunder. In no event is the relationship of the
parties intended to be that of employer and employee and in no event is either
party to be deemed or purported to be the partner or joint venturer of the other
for any purpose whatsoever.
6. TERM. The term of this Agreement shall expire on December 31, 1997;
provided, however, that each party shall have the right, upon fourteen (14) days
advance notice to the other, to terminate all or part of the services it
performs hereunder. Upon the termination of all services, payment therefor and
payment of all consultants/contractors, this Agreement shall terminate.
7. LIMITATION OF LIABILITY. Neither party shall have any liability
whatsoever to the other party or to any third party for any loss, liability,
damage, cost or deficiency (collectively, "Losses"), or for any claim for
Losses, including, without limitation, Losses or claims for personal injury,
death or property damage, warranty, tort or products liability, resulting from,
caused by or arising out of a party's performance under this Agreement except
for claims arising out of the negligence or willful default or breach of such
party hereunder. In no event shall any party have liability to the other party
or to any third party for indirect, special or consequential damages or loss of
profits (except with respect to its willful default or breach), or for punitive
damages for any reason whatsoever.
8. NOTICES. All notices and other communications hereunder shall be in
writing and shall be delivered by hand or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at such
other addresses for a party as shall be specified by like notice) and shall be
deemed given on the date on which such notice is received:
To PriceSmart:
PriceSmart, Inc.
4649 Morena Boulevard
San Diego, California 92117
Attention: Robert M. Gans
2
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To PEI:
Price Enterprises, Inc.
4649 Morena Boulevard
San Diego, California 92117
Attention: Jack McGrory
9. ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any party hereto
without the prior written consent of the other party (other than to an
affiliate). Any purported assignment in violation of the provisions hereof
shall be void.
10. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California (regardless of the laws that might otherwise govern under
applicable California conflict of laws principles) as to all matters, including
but not limited to matters of validity, construction, effect, performance and
remedies.
11. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12. INTERPRETATION. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement.
13. SEVERANCE. In the event that any provision of this Agreement is
declared illegal, invalid or unenforceable or contrary to law, it shall not
affect any other provision in the Agreement.
14. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter hereof.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to the transactions contemplated hereby.
15. DISPUTES. Any disputes arising under this Agreement shall be resolved
by binding arbitration in the manner contemplated by Section 9.13 of the
Distribution Agreement, including the attorneys' fees provision referenced
therein.
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<PAGE>
IN WITNESS WHEREOF, each of PEI and PriceSmart has caused this Agreement to
be executed by its duly authorized officer as of the date first above written.
PRICE ENTERPRISES, INC.
By: /s/ ROBERT E. PRICE
-----------------------------
Name: Robert E. Price
-----------------------------
Title: Chairman, President and CEO
-----------------------------
PRICESMART, INC.
By: /s/ ROBERT E. PRICE
-----------------------------
Name: Robert E. Price
-----------------------------
Title: Chairman, President and CEO
-----------------------------
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[LETTERHEAD]
PRICE ENTERPRISES, INC.
ANNOUNCES DISTRIBUTION OF PRICESMART STOCK DIVIDEND
SAN DIEGO, CA. August 29/PRNewswire/ -- Price Enterprises, Inc. (Nasdaq: PREN)
today announced the distribution of a special dividend of PriceSmart, Inc.
("Pricesmart") stock. Each stockholder of record of Price Enterprises, Inc.
("PEI") on August 15, 1997 is receiving one share of PriceSmart common stock
for every four shares of PEI common stock owned by such stockholder on the
record date.
As previously announced on July 2, this special dividend completes the
separation of PEI's real estate and merchandising businesses into two
separate publicly-held companies. PEI, which retains the real estate
business, will operate as a real estate investment trust ("REIT") following
the distribution.
PriceSmart consists of certain merchandising businesses, real estate
properties currently held for sal by PEI, notes receivable, cash, and
generally all assets and liabilities of PEI not associated with the real
estate assets and liabilities of PEI not associated with the real estate
assets retained by PEI. PriceSmart's merchandising businesses include an
international retail/wholesale merchandise business operating in Asia and
Latin America and domestic businesses consisting of auto referral and travel
programs.
On September 2, 1997, PriceSmart common stock will begin trading on The
Nasdaq Stock Market's National Market System under the symbol "PSMT,"
where Price Enterprises (PREN) is currently traded. The special dividend is a
taxable distribution to PEI stockholders.
- -0-
/CONTACT: Price Enterprises, Inc.: Jack McGrory, President, (619) 581-4973 or
Joseph Satz, General Counsel, (619) 581-4506; PriceSmart, Inc.: Robert Price,
President, (619) 581-4673 or Robert Gans, General Counsel, (619) 581-7728\
