DISTRIBUTION AGREEMENT
between
PRICE ENTERPRISES, INC.
and
PRICESMART, INC.
dated as of
August 26, 1997
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
i
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
ii
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.
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.
2
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.
3
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
4
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
5
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
6
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.
7
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
8
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
9
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
10
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
11
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
12
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
13
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
14
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.
15
(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
16
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.
17
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
18
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
19
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
20
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
21
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
22
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.
23
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.
24
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,
25
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
26
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
27
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.
28
(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
29
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
30
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
31
(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.
32
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.
0000 Xxxxxx Xxxxxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx
33
To PEI:
Price Enterprises, Inc.
0000 Xxxxxx Xxxxxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxx XxXxxxx
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.
34
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
35
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.
36
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/ XXXXXX X. XXXXX
------------------------------
Name: Xxxxxx X. Xxxxx
------------------------------
Title: Chairman, President and CEO
------------------------------
PRICESMART, INC.
By:/s/ XXXXXX X. XXXXX
-------------------------------
Name: Xxxxxx X. Xxxxx
-------------------------------
Title: Chairman, President and CEO
-------------------------------
37
