Exhibit 10.7

 

STOCK PURCHASE AGREEMENT

 

BY AND BETWEEN

 

PRICESMART, INC.

 

and

 

THE SOL AND HELEN PRICE TRUST

 

Dated as of October 6, 2005

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TABLE OF CONTENTS

 

              PAGE

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1.

 

AGREEMENT TO PURCHASE AND SELL STOCK

   2

2.

 

CLOSING

   2     2.1   

Time and Place

   2     2.2   

Investor Deliveries

   2     2.3   

Company Deliveries

   2

3.

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

   2     3.1   

Organization, Good Standing and Qualification

   2     3.2   

Authorization

   3     3.3   

Valid Issuance of the Shares

   3     3.4   

Capitalization

   3     3.5   

Noncontravention

   4     3.6   

Absence of Certain Changes

   5     3.7   

No General Solicitation

   5     3.8   

Reports Filed Under the Securities Exchange Act of 1934; Financial Statements

   5

4.

 

REPRESENTATIONS AND WARRANTIES OF THE INVESTOR

   5     4.1   

Organization and Qualification

   5     4.2   

Authorization

   6     4.3   

Purchase for Own Account

   6     4.4   

Accredited Investor Status

   6     4.5   

Restricted Securities

   6     4.6   

Due Diligence and No Solicitation

   7     4.7   

Further Limitations on Disposition

   7     4.8   

Legends

   7

5.

 

PRE-CLOSING COVENANTS OF THE PARTIES

   7     5.1   

General

   7     5.2   

Notice of Developments

   8

6.

 

CONDITIONS TO THE INVESTOR’S OBLIGATIONS AT CLOSING

   8     6.1   

Representations and Warranties True

   8     6.2   

Compliance with Covenants

   8     6.3   

No Litigation

   8     6.4   

Securities Exemptions

   9     6.5   

Proceedings

   9     6.6   

No Material Adverse Effect

   9     6.7   

Other Agreements

   9

7.

 

CONDITIONS TO THE COMPANY’S OBLIGATIONS AT CLOSING

   9     7.1   

Representations and Warranties True

   9     7.2   

No Litigation

   9     7.3   

Securities Exemptions

   9     7.4   

Other Agreements

   10

 

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8.

 

REGISTRATION STATEMENT FOR RESALE OF THE SHARES

   10     8.1   

Registration

   10     8.2   

Company Obligations

   10     8.3   

Restrictions on Registrations

   11     8.4   

Investor Obligations and Rights.

   12     8.5   

Indemnification.

   13     8.6   

Expenses

   15

9.

 

TERMINATION

   16     9.1   

Termination

   16     9.2   

Effect of Termination

   16

10.

 

MISCELLANEOUS

   16     10.1   

Survival of Warranties

   16     10.2   

Specific Performance

   16     10.3   

Successors and Assigns

   17     10.4   

Governing Law

   17     10.5   

Counterparts

   17     10.6   

Headings

   17     10.7   

Notices

   18     10.8   

No Finder’s Fees

   18     10.9   

Amendments and Waivers

   18     10.10   

Attorneys’ Fees

   19     10.11   

Severability

   19     10.12   

Entire Agreement

   19     10.13   

No Third Party Beneficiaries

   19     10.14   

Public Announcements

   19     10.15   

Further Assurances

   19     10.16   

Fees and Expenses

   19     10.17   

Waiver of Jury Trial

   20

 

SCHEDULE

 

Schedule 3.4(b)

 

ii

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STOCK PURCHASE AGREEMENT

 

This STOCK PURCHASE AGREEMENT (including the Schedule hereto, this “Agreement”)
is made and entered into as of October 6, 2005 by and between PriceSmart, Inc.,
a Delaware corporation (the “Company”), and the Sol and Helen Price Trust (the
“Investor”). The Company and the Investor are referred to herein individually as
a “Party” and together as the “Parties.”

 

WITNESSETH:

 

WHEREAS, on or about May 10, 2004, Milton Pfeiffer commenced an action by filing
a complaint (the “Complaint”) in the United States District Court for the
District of Delaware (the “Court”) against Sol Price and the Company, as nominal
defendant, captioned Milton Pfeiffer v. Sol Price and PriceSmart, Inc., C.A.
No. 04-296, alleging that Mr. Price violated Section 16(b) of the Securities and
Exchange Act of 1934, as amended (the “1934 Act”), in connection with an alleged
purchase and subsequent sale of shares of the Company’s common stock, par value
$0.001 per share (the “Common Stock”);

 

WHEREAS, on August 22, 2005, Messrs. Pfeiffer and Price and the Company
(collectively, the “Litigants”) entered into a Memorandum of Understanding (the
“MOU”), which specified certain terms of a settlement in full of all matters and
controversies among the Litigants arising from all claims, known or unknown,
arising under or relating to Section 16(b) of the 1934 Act or the facts and
circumstances alleged in the Complaint;

 

WHEREAS, pursuant to the terms of the MOU, it is anticipated that the Litigants
will file with the Court a Stipulation and Agreement of Settlement and Release
(the “Settlement”), which will include the following terms: (i) within ten
business days following final Court approval of the Settlement, the Investor
shall purchase an aggregate of $1,500,000 of Common Stock directly from the
Company at a price of $8.90 per share, which represents a per share price that
is $0.50 above the closing price of the Company’s common stock on August 18,
2005, the business day immediately prior to the date the parties reached an
agreement in principle to settle the facts forming the basis of the Complaint;
(ii) the parties will mutually release all claims, effective upon Court approval
of the Settlement; and (iii) the Company will pay attorneys’ fees to plaintiff’s
counsel in an amount to be agreed upon by the Company and plaintiff (subject to
Court approval) or, absent an agreement, as determined by the Court;

 

WHEREAS, in accordance with the terms of the Settlement, the Investor, of which
Mr. Price is the trustee, desires to purchase an aggregate of 168,539 shares of
Common Stock (the “Shares”) at a price of $8.90 per share, for an aggregate
purchase price of One Million Four Hundred Ninety Nine Thousand Nine Hundred and
Ninety Seven United Sates Dollars and Ten Cents ($1,499,997.10) on the terms and
conditions set forth in this Agreement; and

 

WHEREAS, the Investor and the Company desire to complete the contemplated
purchase of Common Stock prior to Court approval of the Settlement to provide
needed capital

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to the Company; provided that such purchase shall be subject to the Investor’s
right to rescind the transaction under certain circumstances if Court approval
of the Settlement is not obtained, as described below;

 

NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein and for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Parties agree as follows:

 

1. AGREEMENT TO PURCHASE AND SELL STOCK. Subject to the terms and conditions of
this Agreement, the Company agrees to sell to the Investor at the Closing (as
defined below), and the Investor agrees to purchase from the Company at the
Closing, the Shares at a price of $8.90 per share.

 

2. CLOSING.

 

2.1 Time and Place. The purchase and sale of the Shares (the “Closing”) will
take place at the offices of PriceSmart, Inc. at 9740 Scranton Road, San Diego,
CA 92121-1745 at 10:00 a.m. Pacific Time, on October 7, 2005, or at such other
time and place mutually agreed upon by the Parties, or if any of the conditions
set forth in Section 6 (other than conditions with respect to actions the
respective Parties will take at the Closing itself) have not been satisfied, a
later date selected by the Investor, which date shall be within five
(5) Business Days (as defined below) following the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate the transactions to
occur at the Closing (other than conditions with respect to actions the
respective Parties will take at the Closing itself) (such date, the “Closing
Date”). “Business Day” means any day, other than a Saturday, Sunday or a day on
which banking institutions in the State of California are authorized or
obligated by law, regulation or executive order to close.

 

2.2 Investor Deliveries. At the Closing, the Investor will deliver or cause to
be delivered to the Company the sum One Million Four Hundred Ninety Nine
Thousand Nine Hundred and Ninety Seven United Sates Dollars and Ten Cents
($1,499,997.10)

 

2.3 Company Deliveries. At the Closing, the Company will issue irrevocable
transfer agent instructions instructing the Company’s transfer agent to issue in
the name of the Investor a certificate representing the Shares.

 

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents
and warrants to, and agrees with, the Investor that the statements in the
following paragraphs of this Section 3 are true and correct:

 

3.1 Organization, Good Standing and Qualification. Each of the Company and its
Subsidiaries (as defined below) is a corporation, partnership or limited
liability company duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization and has all requisite power and
authority to own or lease and operate its properties and to conduct its business
as it is currently being conducted and is proposed to be conducted. Each of the
Company and its Subsidiaries is duly licensed, authorized or qualified as a
foreign corporation, partnership or limited liability company for the
transaction of business and is in good standing under the laws of each other
jurisdiction in which its ownership, lease or operation

 

2

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of property or conduct of business requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
assets, liabilities, condition (financial or otherwise), results of operations,
prospects or business of the Company and its Subsidiaries taken as a whole
(“Material Adverse Effect”). The Company is not in default under or in violation
of any provision of its amended and restated certificate of incorporation, as
amended (the “Certificate of Incorporation”), or its amended and restated
bylaws, as amended (the “Bylaws”). “Subsidiary” means as to any Person (as
defined below), any other Person of which more than 50% of the shares of the
voting stock or other voting interests are owned or controlled, or the ability
to select or elect more than 50% of the directors or similar managers is held,
directly or indirectly, by such first Person or one or more of its Subsidiaries
or by such first Person and one or more of its Subsidiaries. “Person” means any
individual, corporation, company, association, partnership, limited liability
company, joint venture, trust, unincorporated organization or Governmental
Authority (as defined below).

 

3.2 Authorization. The Company has all requisite power and authority to execute
and deliver this Agreement and the Settlement and to perform its obligations
hereunder and thereunder. All corporate action on the part of the Company
necessary for the authorization, execution and delivery of this Agreement and
the Settlement and the performance of the obligations of the Company at the
Closing, the performance of the obligations of the Company under Section 8
hereof and the issuance and delivery of the Shares has been taken, and this
Agreement has been duly executed and delivered by the Company and constitutes a
valid and legally binding obligation of the Company, enforceable in accordance
with its terms, except as may be limited by (i) applicable bankruptcy,
insolvency, reorganization or other laws of general application relating to or
affecting the enforcement of creditors’ rights generally; (ii) the effect of
rules of law governing the availability of equitable remedies; and (iii) the
unenforceability under certain circumstances under law or court decisions of
provisions providing for the indemnification of or contribution to a party with
respect to a liability where such indemnification or contribution is contrary to
public policy or prohibited by law.

 

3.3 Valid Issuance of the Shares. The Shares will, as of the Closing Date, have
been duly and validly authorized, reserved for issuance and, when issued, sold
and delivered by the Company in accordance with the terms of this Agreement for
the consideration provided for herein, will have been duly and validly issued,
will be fully paid and nonassessable and will be free of any mortgage, pledge,
lien, security interest, claim, voting agreement, conditional sale agreement,
title retention agreement, restriction, option or encumbrance of any kind,
character or description whatsoever (“Lien”) (other than those that may be
created by the Investor) and free of any restrictions on transfer other than
restrictions on transfer under applicable federal and state securities laws and,
assuming the truth and correctness of the Investor’s representations and
warranties in Section 4 below, will be issued in compliance with all applicable
federal and state securities laws.

 

3.4 Capitalization.

 

(a) The entire authorized capital stock of the Company consists of 45,000,000
shares of Common Stock, of which 25,891,872 shares (not including 434,425 shares
held by the Company as treasury shares) were issued and outstanding as of
August 15, 2005, and 2,000,000 shares of preferred stock, par value $0.0001 per
share, of which no shares were

 

3

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outstanding as of the date of this Agreement. Except as set forth in the SEC
Documents (as defined below), there are no outstanding or authorized warrants,
options, purchase rights, subscription rights, conversion rights, exchange
rights or other contracts, commitments or obligations that could require the
Company or any of its Subsidiaries to issue, grant, deliver or sell or otherwise
cause to be issued, granted, delivered or sold or become outstanding any capital
stock of the Company or any of its Subsidiaries, except for those granted in the
ordinary course of business since the dates of the SEC Documents. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation or similar rights with respect to the Company or any of its
Subsidiaries. To the Company’s knowledge, there are no voting trusts, proxies or
other agreements or understandings with respect to the voting of the capital
stock of the Company.

 

(b) Except as set forth on Schedule 3.4(b) hereto, the registration of the
Shares pursuant to Section 8 hereof will not give rise to any registration
rights on behalf of any Person under any agreement or instrument applicable to
the Company. Except as set forth on Schedule 3.4(b) hereto, other than pursuant
to Section 8 hereof, no Person has any right to require the Company to register
securities of the Company under the Securities Act of 1933, as amended (the
“1933 Act”).

 

3.5 Noncontravention.

 

(a) Neither the execution and delivery of this Agreement, nor the consummation
of the transactions contemplated hereby, will (i) violate any constitution,
statute, regulation, rule, ordinance, code, injunction, judgment, order, decree,
ruling, charge, writ, determination or other restriction (“Law”) of any
government or political subdivision or department thereof, any governmental
regulatory body, commission, board, agency or instrumentality, or any court or
arbitrator or alternative dispute resolution body, in each case whether federal,
state, local or foreign (“Governmental Authority”) to which the Company or any
of its Subsidiaries is subject or any provision of the Certificate of
Incorporation or the Bylaws or the certificate of incorporation or bylaws or
similar constituent documents of the Company’s Subsidiaries or (ii) conflict
with, result in a breach or violation of, constitute a default (with or without
notice or the passage of time) under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify or cancel, or give rise to
a right to put or to compel a tender offer for outstanding securities of the
Company or any of its Subsidiaries or require any notice, consent, waiver or
approval under any agreement, contract, lease, license, loan, debt instrument,
note, bond, indenture, mortgage, deed of trust, joint venture agreement,
approval of a Governmental Authority or other arrangement to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound or to which any of the Company’s or its Subsidiaries’
assets is subject (or result in the imposition of any mortgage, pledge, Lien,
encumbrance, charge or other security interest upon any of such assets or
properties), except in either case, where such violation, conflict or default
would not have a Material Adverse Effect.

 

(b) Except for (i) the filing of a Form D with the Securities and Exchange
Commission (the “SEC”) and (ii) filings which may be required under state
securities laws, for which filings the Company shall be responsible, neither the
Company nor any of its Subsidiaries is required to give any notice to, make any
filing or registration with, or obtain any authorization, consent or approval of
any Governmental Authority in connection with the

 

4

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execution, delivery and performance by the Company of this Agreement and the
transactions contemplated hereby.

 

(c) No consent or approval of the Company’s stockholders is required by Law, the
Certificate of Incorporation, the Bylaws, the rules and regulations of the
Nasdaq Stock Market, or otherwise, for the execution, delivery and performance
by the Company of this Agreement and the consummation of the transactions
contemplated hereby.

 

3.6 Absence of Certain Changes. Except as disclosed in the reports required to
be filed by the Company under the 1934 Act, in the preceding twelve (12) months
(the “SEC Documents”) or otherwise disclosed in public announcements or press
releases, since August 31, 2004, the Company and its Subsidiaries have conducted
their consolidated business in the ordinary and usual course and there has been
no change to the business, properties, assets, operations, prospects, results of
operations or condition (financial or otherwise) of the Company or its
Subsidiaries (taken as a whole), except for such changes which could not be
reasonably expected to have a Material Adverse Effect.

 

3.7 No General Solicitation. Neither the Company, nor any of its Affiliates (as
defined below), nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D (“Regulation D”) promulgated under the 1933 Act) in connection with
the offer or sale of the Shares. “Affiliate” has the meaning set forth in
Rule 12b-2 promulgated under the 1934 as in effect on the date hereof. The term
“Affiliated” has a correlative meaning.

 

3.8 Reports Filed Under the Securities Exchange Act of 1934; Financial
Statements. The Company has timely filed all reports required to be filed by the
Company under the 1934 Act. The SEC Documents contain all statements required to
be stated therein in accordance with the 1934 Act and do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading. As of
their respective dates (except as they have been correctly amended), the
financial statements of the Company included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Securities and Exchange Commission (the
“SEC”) with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (a) as may be otherwise indicated in such
financial statements or the notes thereto or (b) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present the financial position of the Company
as of the dates thereof and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).

 

4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor represents and
warrants to the Company that the statements in the following paragraphs of this
Section 4 are true and correct:

 

4.1 Organization and Qualification. The Investor is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization. The Investor

 

5

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has all requisite power and authority to enter into and perform this Agreement
and to carry out the transactions contemplated by this Agreement.

 

4.2 Authorization. All action on the part of the Investor and Mr. Price
necessary for the authorization, execution and delivery of this Agreement and
the Settlement, respectively, and the performance of all obligations of the
Investor and Mr. Price hereunder and thereunder, as the case may be, have been
taken, and this Agreement and the Settlement have been duly executed and
delivered by the Investor and Mr. Price, respectively, and constitute valid and
legally binding obligations of the Investor and Mr. Price, respectively,
enforceable in accordance with their terms, except as may be limited by
(a) applicable bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the enforcement of creditors’ rights
generally; (b) the effect of rules of law governing the availability of
equitable remedies; and (c) the unenforceability under certain circumstances
under law or court decisions of provisions providing for the indemnification of
or contribution to a party with respect to a liability where such
indemnification or contribution is contrary to public policy or prohibited by
law.

 

4.3 Purchase for Own Account. Except as permitted pursuant to Section 10.3
hereof, the Shares to be acquired by the Investor hereunder will be acquired for
investment for the Investor’s own account, not as a nominee or agent, and not
with a view to the public resale or distribution thereof within the meaning of
the 1933 Act, and the Investor has no present intention of selling or otherwise
distributing the same. The Investor does not have any contract, undertaking,
agreement or arrangement with any Person to sell, transfer or grant
participations to such Person or to any third Person, with respect to the
Shares. The Investor also represents that it has not been formed for the
specific purpose of acquiring the Shares.

 

4.4 Accredited Investor Status. The Investor is an “accredited investor” within
the meaning of Regulation D. By reason of its business and financial experience,
sophistication and knowledge, the Investor is capable of evaluating the risks
and merits of the investment made pursuant to this Agreement. The Investor
confirms that it is able (a) to bear the economic risk of this investment, as
well as other risk factors as more fully set forth herein and in the SEC
Documents, (b) to hold the Shares for an indefinite period of time and (c) to
bear a complete loss of the Investor’s investment; and the Investor represents
that it has sufficient liquid assets so that the illiquidity associated with
this investment will not cause any undue financial difficulties or affect the
Investor’s ability to provide for its current needs and possible financial
contingencies.

 

4.5 Restricted Securities. The Investor understands that the Shares are
characterized as “restricted securities” under the 1933 Act inasmuch as they are
being acquired from the Company in a transaction not involving a public offering
and that under the 1933 Act and applicable regulations thereunder such
securities may be resold without registration under the 1933 Act only in certain
limited circumstances. In this connection, the Investor represents that it is
familiar with Rule 144 promulgated under the 1933 Act (“Rule 144”), as presently
in effect, and understands the resale limitations imposed thereby and by the
1933 Act. The Investor understands that the Company is under no obligation to
register any of the securities sold hereunder except as provided in Section 8
hereof.

 

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4.6 Due Diligence and No Solicitation. The Investor has had a reasonable
opportunity to ask questions of and receive answers from the Company and its
officers, and all such questions have been answered to the full satisfaction of
the Investor. At no time was the Investor presented with or solicited by any
leaflet, public promotional meeting, circular, newspaper or magazine article,
radio or television advertisement or any other form of general advertising.

 

4.7 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Shares unless and until:

 

(a) there is then in effect a registration statement under the 1933 Act covering
such proposed disposition and such disposition is made in accordance with such
registration statement; or

 

(b) (i) the Investor shall have notified the Company of the proposed disposition
and shall have furnished the Company with a statement of the circumstances
surrounding the proposed disposition, and (ii) the Investor shall have furnished
the Company at the Investor’s expense an opinion of counsel, reasonably
satisfactory to the Company that such disposition will not require registration
of such securities under the 1933 Act; provided that the Company shall not
require an opinion of counsel for routine sales of shares pursuant to Rule 144.

 

4.8 Legends. It is understood that the certificates evidencing the Shares will
bear the legends set forth below:

 

(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER ANY STATE SECURITIES
LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE
AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM.

 

(b) The legend referred to in Section 4.8(a) above shall be removed from a
certificate representing such Shares if the securities represented thereby are
sold pursuant to an effective registration statement under the 1933 Act, or
there is delivered to the Company such satisfactory evidence, which may include
an opinion of independent counsel, as reasonably may be requested by the
Company, to confirm that neither such legend nor the restrictions on transfer
set forth therein are required to ensure that transfers of such securities will
not violate the registration requirements of the 1933 Act.

 

5. PRE-CLOSING COVENANTS OF THE PARTIES. The Parties agree as follows with
respect to the period between the execution of this Agreement and the Closing:

 

5.1 General. Each of the Parties will use its reasonable best efforts to take
all action and to do all things necessary, proper or advisable in order to
consummate and make

 

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effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Sections 6
and 7 below).

 

5.2 Notice of Developments. The Company and the Investor will give prompt
written notice to the other of any material adverse development causing a breach
of any of its own representations and warranties in Section 3 or 4 above. No
disclosure by the Company or the Investor pursuant to this Section 5.2, however,
shall be deemed to cure any misrepresentation, breach of warranty or breach of
covenant.

 

6. CONDITIONS TO THE INVESTOR’S OBLIGATIONS AT CLOSING. The obligations of the
Investor under Section 2 of this Agreement with respect to the Closing are
subject to the fulfillment or waiver, on the Closing Date, of each of the
following conditions:

 

6.1 Representations and Warranties True. The representations and warranties of
the Company contained in Section 3 qualified as to materiality shall be true and
correct in all respects, and those not so qualified shall be true and correct in
all material respects on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of the
Closing Date (except where such representation and warranty speaks by its terms
as of a different date, in which case it shall be true and correct as of such
date). The Company shall have delivered to the Investor at the Closing a
certificate in form and substance reasonably satisfactory to the Investor dated
the Closing Date and signed by the Chief Executive Officer or an Executive Vice
President and the Chief Financial Officer or Senior Vice President of Accounting
of the Company to the effect that the condition set forth in this Section 6.1
has been satisfied.

 

6.2 Compliance with Covenants. The Company shall have performed all of its
obligations hereunder in all material respects and complied with all agreements,
undertakings, covenants and conditions required hereunder to be performed by it
at or prior to the Closing. The Company shall have delivered to the Investor at
the Closing a certificate in form and substance reasonably satisfactory to the
Investor dated the Closing Date and signed by the Chief Executive Officer or an
Executive Vice President and the Chief Financial Officer or Senior Vice
President of Accounting of the Company to the effect that the condition set
forth in this Section 6.2 has been satisfied.

 

6.3 No Litigation.

 

(a) No Law shall have been promulgated, enacted or entered that restrains,
enjoins, prevents, materially delays, prohibits or otherwise makes illegal the
performance of this Agreement or the transactions contemplated hereby.

 

(b) No action, suit or proceeding shall be pending or threatened before any
Governmental Authority wherein an unfavorable injunction, judgment, order,
decree, ruling or charge would (i) prevent, materially delay, prohibit or
otherwise make illegal the consummation of any of the transactions contemplated
by this Agreement, (ii) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such injunction,
judgment, order, decree, ruling or charge shall be in effect) or (iii) affect
adversely the right of the Investor to own the Shares.

 

8

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6.4 Securities Exemptions. The offer and sale of the Shares to the Investor
pursuant to this Agreement shall be exempt from the registration requirements of
the 1933 Act, the qualification requirements of the California Corporate
Securities Law of 1968 (the “California Securities Law”) and the registration
and/or qualification requirements of all other applicable state securities laws.

 

6.5 Proceedings. All corporate and other proceedings to be taken by the Company
in connection with this Agreement and with respect to the transactions
contemplated hereby to be completed at or prior to the Closing and documents
incident thereto shall have been completed in form and substance reasonably
satisfactory to the Investor, and the Investor shall have received all such
counterpart originals or certified or other copies of this Agreement and such
other documents as it may reasonably request.

 

6.6 No Material Adverse Effect. No event shall have occurred and no condition
shall have arisen or been created since the date of this Agreement which has
had, or would be reasonably likely to have, a Material Adverse Effect.

 

6.7 Other Agreements. The Litigants shall have entered into the Settlement and
the Settlement shall have been approved by the Court.

 

7. CONDITIONS TO THE COMPANY’S OBLIGATIONS AT CLOSING. The obligations of the
Company to the Investor under this Agreement with respect to the Closing are
subject to the fulfillment or waiver on the Closing Date of each of the
following conditions:

 

7.1 Representations and Warranties True. The representations and warranties of
the Investor contained in Section 4 qualified as to materiality shall have been
true and correct in all respects, and those not so qualified shall have been
true and correct in all material respects on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of the Closing Date (except where such representation and warranty speaks by
its terms as of a different date, in which case it shall be true and correct as
of such date).

 

7.2 No Litigation.

 

(a) No Law shall have been promulgated, enacted or entered that restrains,
enjoins, prevents, materially delays, prohibits or otherwise makes illegal the
performance of this Agreement or the transactions contemplated hereby.

 

(b) No action, suit or proceeding shall be pending or threatened before any
Governmental Authority wherein an unfavorable injunction, judgment, order,
decree, ruling or charge would (i) prevent, delay, prohibit or otherwise make
illegal the consummation of any of the transactions contemplated by this
Agreement, or (ii) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation (and no such injunction, judgment, order,
decree, ruling or charge shall be in effect).

 

7.3 Securities Exemptions. The offer and sale of the Shares to the Investor
pursuant to this Agreement shall be exempt from the registration requirements of
the 1933 Act,

 

9

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the qualification requirements of the California Securities Law and the
registration and/or qualification requirements of all other applicable state
securities laws.

 

7.4 Other Agreements. The Litigants shall have entered into the Settlement and
the Settlement shall have been approved by the Court.

 

8. REGISTRATION STATEMENT FOR RESALE OF THE SHARES.

 

8.1 Registration. Within thirty (30) days after demand by the Investor, the
Company will prepare and file with the SEC a registration statement under the
1933 Act registering all of the Shares sold to the Investor pursuant to this
Agreement for resale to the public by the Investor pursuant to such registration
statement (the “Registration Statement”) and maintain the effectiveness of such
registration statement for the period specified in Section 8.2(a) for use by the
Investor and its respective Affiliates at any time during such period with
respect to the offering and sale or other disposition of the Shares.

 

8.2 Company Obligations. In the case of each registration effected by the
Company pursuant to this Section 8, the Company will keep the Investor advised
in writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will:

 

(a) use its best efforts to cause such registration to remain effective at all
times until the earlier of (i) two years from the Closing Date and (ii) such
time as the Shares may be freely sold to the public without registration and
without regard to volume or manner of sale;

 

(b) prepare and file with the SEC such amendments and post-effective amendments
to such registration statement and supplements to the prospectus as may be
(i) reasonably requested by the holders of a majority of the Shares,
(ii) reasonably requested by any participating holder (to the extent such
request relates to information relating to such holder), or (iii) necessary to
keep such registration effective for the period of time required by this
Section 8;

 

(c) prepare and deliver to the Investor as many copies of each preliminary and
final prospectus and other documents incident thereto as the Investor from time
to time may reasonably request;

 

(d) immediately notify the Investor, at any time when a prospectus relating to a
registration of Shares is required to be delivered under the 1933 Act, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and, at the request of
the Investor, prepare a supplement or amendment to such registration statement
so that, as thereafter delivered to the purchasers of such Shares, such
prospectus will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated or necessary to make the statements
therein not misleading;

 

10

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(e) use its best efforts to register or qualify and maintain the qualification
of the Shares covered by such registration under such state securities or “blue
sky” laws for offers and sales to the public as the Investor shall reasonably
request; provided, however, that the Company shall not be obligated to qualify
as a foreign corporation to do business under the laws of or become subject to
taxation in, any jurisdiction in which it shall not be then qualified, or to
file any general consent to service of process;

 

(f) otherwise use its best efforts to comply with the securities laws of the
United States and other applicable jurisdictions and all applicable rules and
regulations of the SEC and comparable Governmental Authorities in other
applicable jurisdictions;

 

(g) notify the Investor (i) when the Registration Statement or any amendment
thereto has been filed or becomes effective, when the prospectus or any
amendment or supplement thereto has been filed and to furnish the Investor with
copies thereof, (ii) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of the preliminary prospectus or the Final Prospectus (as
defined below) or the initiation or threatening of any proceedings for such
purposes, and (iii) the receipt by the Company of any notification with respect
to the suspending of the qualification of the Shares for offering or sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; and

 

(h) with a view to making available the benefits of certain rules and
regulations of the SEC which may permit the sale of restricted securities to the
public without registration, the Company agrees to: (i) make and keep public
information available as those terms are understood and defined in Rule 144;
(ii) use its best efforts to file with the SEC in a timely manner all reports
and other documents required of the Company under the 1933 Act and the 1934 Act
at any time after it has become subject to such reporting requirements; and
(iii) so long as the Investor or transferee of the Investor owns any Shares,
furnish to the Investor or transferee of the Investor upon request, a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144 and of the 1933 Act and the 1934 Act, a copy of the most recent annual
or quarterly report of the Company, and such other reports and documents so
filed as the Investor or transferee of the Investor may reasonably request in
availing itself of any rule or regulation of the SEC allowing the Investor or
transferee of the Investor to sell any such securities without registration.

 

8.3 Restrictions on Registrations. If at any time or from time to time after the
effective date of the Registration Statement, the Company promptly notifies the
Investor in writing of the existence of a Potential Material Event (as defined
below), the Investor shall not offer or sell any Shares or engage in any other
transaction involving or relating to the Shares, from the time of the giving of
notice with respect to a Potential Material Event until the Investor receives
written notice from the Company that such Potential Material Event either has
been disclosed to the public or no longer constitutes a Potential Material
Event. If a Potential Material Event shall occur prior to the date the
Registration Statement is filed, then notwithstanding Section 8.1 above, the
Company’s obligation to file the Registration Statement shall be delayed until
such Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event. “Potential Material Event” means
any of the following: (a) the possession by the Company of material information
not ripe for disclosure in a

 

11

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registration statement, as determined in good faith by the Chief Executive
Officer or the Board of Directors that disclosure of such information in a
Registration Statement would be materially detrimental to the business and
affairs of the Company; or (b) any material engagement or activity by the
Company which would, in the good faith determination of the Chief Executive
Officer or the Board of Directors, be materially adversely affected by
disclosure in a registration statement at such time, which determination shall
be accompanied by a good faith determination by the Chief Executive Officer or
the Board of Directors that the applicable Registration Statement would be
materially misleading absent the inclusion of such information. In no event
shall the suspension of the Registration Statement (or the permissible delay in
filing a Registration Statement) (i) exceed ninety (90) days on any one occasion
as a result of a Potential Material Event or (ii) be permitted more than once
during any 12-month period.

 

8.4 Investor Obligations and Rights.

 

(a) The Investor shall cooperate as reasonably requested by the Company with the
Company in connection with the preparation of the Registration Statement, and
for so long as the Company is obligated to file and keep effective the
Registration Statement, shall provide to the Company, in writing, for use in the
Registration Statement, all such information regarding the Investor and its plan
of distribution of the Shares as may be reasonably necessary to enable the
Company to prepare the Registration Statement and prospectus covering the
Shares, to maintain the currency and effectiveness thereof and otherwise to
comply with all applicable requirements of law in connection therewith. The
Investor shall have the right to prepare any portions of the Registration
Statement requiring information regarding the Investor and its plan of
distribution of the Shares.

 

(b) During such time as the Investor may be engaged in a distribution of the
Shares, the Investor shall comply with Regulation M promulgated under the 1934
Act and pursuant thereto it shall, among other things, (i) not engage in any
stabilization activity in connection with the securities of the Company in
contravention of such regulation; (ii) distribute the Shares under the
Registration Statement solely in the manner described in the Registration
Statement; and (iii) cease distribution of such Shares pursuant to such
Registration Statement upon receipt of written notice from the Company that the
prospectus covering the Shares contains any untrue statement of a material fact
or omits a material fact required to be stated therein or necessary to make the
statements therein not misleading.

 

(c) The Investor hereby covenants with the Company not to make any sale of the
Shares without effectively causing the prospectus delivery requirements under
the 1933 Act to be satisfied unless the sale is made pursuant to an exemption
from registration.

 

(d) The Investor acknowledges and agrees that the Shares sold pursuant to the
Registration Statement are not transferable on the books of the Company unless
the stock certificate submitted to the transfer agent evidencing the Shares is
accompanied by a certificate reasonably satisfactory to the Company to the
effect that (i) the Shares have been sold in accordance with this Agreement and
the Registration Statement and (ii) the requirement of delivering a current
prospectus has been satisfied.

 

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(e) Following termination of the effectiveness of the Registration Statement,
the Investor shall discontinue sales of Shares pursuant thereto upon receipt of
notice from the Company of its intention to remove from registration the Shares
covered thereby which remain unsold, and the Investor shall promptly notify the
Company of the number of Shares registered that remain unsold immediately upon
receipt of the notice from the Company.

 

(f) The Investor will observe and comply with the 1933 Act, the 1934 Act and the
general rules and regulations thereunder, as now in effect and as from time to
time amended and including those hereafter enacted or promulgated, in connection
with any offer, sale, pledge, transfer or other disposition of the Shares or any
part thereof.

 

8.5 Indemnification.

 

(a) The Company will indemnify and hold harmless to the fullest extent permitted
by law the Investor, each of its Affiliates and each of their respective
officers, directors, shareholders, employees, advisors, agents and partners, and
each person controlling the Investor, with respect to each registration which
has been effected pursuant to this Section 8 against all Losses (as defined
below) jointly and severally arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any amendment or supplement
thereto or any documents incorporated by reference therein and any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the 1933 Act or the 1934 Act or any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse the Investor, each of its Affiliates and each of their
respective officers, directors, shareholders, employees, advisors, agents and
partners, and each person controlling the Investor for any legal and any other
expenses reasonably incurred in connection with investigating and defending any
such Losses; provided, however, that the Company will not be liable in any such
case to the extent that any such Losses arise out of or are based on any untrue
statement or omission based upon written information furnished to the Company by
the Investor and stated expressly to be specifically for use therein. “Losses”
shall mean, collectively, any and all losses, penalties, judgments, suits,
costs, claims, liabilities, damages and expenses (including, without limitation,
reasonable attorneys’ fees and disbursements).

 

(b) The Investor will, if Shares held by it are included in the securities as to
which such registration, qualification or compliance is being effected,
indemnify and hold harmless to the fullest extent permitted by law the Company,
each of its Affiliates and their respective directors, employees, advisors,
agents and officers and each person who controls the Company, against all Losses
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus,
offering circular or other document made by the Investor in writing, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements by the Investor therein not
misleading, and will reimburse the Company and its directors, officers,
partners, persons, or control persons for any legal or any other expenses

 

13

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reasonably incurred in connection with investigating or defending any such
Losses, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by the Investor and stated expressly to be specifically for use
therein; provided, however, that the obligations of the Investor hereunder shall
be limited to an amount equal to the net proceeds to such Investor of securities
sold as contemplated herein.

 

(c) Each party entitled to indemnification under this Section 8.5 (the
“Indemnified Party”) shall give notice to the party required to provide
indemnification (the “Indemnifying Party”) promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in such
defense at such party’s expense (unless (i) the Indemnifying Party has agreed in
writing to pay such fees or expenses, (ii) the Indemnifying Party shall have
failed to assume the defense of such claim within a reasonable time after
receipt of notice of such claim from the Person entitled to indemnification
hereunder and employ counsel reasonably satisfactory to such Person, (iii) the
Indemnified Party has reasonably concluded (based on the written advice of
counsel) that there may be legal defenses available to it or other Indemnified
Parties that are different from or in addition to those available to the
Indemnifying Party, or (iv) the Indemnified Party shall have reasonably
concluded that there may be a conflict of interest between the Indemnifying
Party and the Indemnified Party in such action, in which case the fees and
expenses of counsel shall be at the expense of the Indemnifying Party), and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 8 unless the Indemnifying Party is materially prejudiced
thereby. If such defense is not assumed by the Indemnifying Party, the
Indemnifying Party will not be subject to any liability for any settlement made
without its consent, but such consent may not be unreasonably withheld. If the
Indemnifying Party assumes the defense, the Indemnifying Party shall not have
the right to settle such action without the written consent of the Indemnified
Party. No Indemnifying Party, in the defense of any such claim or litigation
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.

 

If the indemnification provided for in this Section 8.5 is held by a court of
competent jurisdiction to be unavailable to an Indemnified Party with respect to
any Losses referred to herein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions which resulted in such loss, liability, claim,
damage or expense, as

 

14

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well as any other relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by reference
to, among other things, whether the untrue (or alleged untrue) statement of a
material fact or the omission (or alleged omission) to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. Notwithstanding
anything in this Section 8.5 to the contrary, no Indemnifying Party (other than
the Company) shall be required pursuant to this Section 8.5 to contribute any
amount in excess of the amount by which the net proceeds received by such
Indemnifying Party from the sale of Shares in the offering to which the Losses
of the Indemnified Party relates exceeds the amount of any damages which such
Indemnifying Party has otherwise been required to pay by reason of such untrue
statement or omission.

 

The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 8.5 were determined by pro rata allocation or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.

 

(d) The foregoing indemnity agreement of the Company and the Investor is subject
to the condition that, insofar as they relate to any Losses made in a
preliminary prospectus but eliminated or remedied in the amended prospectus on
file with the SEC at the time the registration statement in question becomes
effective or the amended prospectus filed with the SEC pursuant to Rule 424(b)
promulgated under the 1933 Act (the “Final Prospectus”), such indemnity or
contribution agreement shall not inure to the benefit of the Investor if a copy
of the Final Prospectus was timely furnished to the Investor in sufficient
quantities for delivery and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the 1933 Act.

 

(e) Notwithstanding any other provision of this Agreement, the obligations of
the parties under this Section 8.5 shall survive indefinitely.

 

8.6 Expenses. The Company shall pay all expenses incident to the registration of
the Shares under this Section 8 including without limitation, all registration
and filing fees, all fees and expenses of complying with securities or blue sky
laws, all word processing, duplicating and printing expenses, and the fees and
disbursements of counsel for the Company and its independent public accountants.
With respect to sales of the Shares, the Investor shall pay all underwriting
discounts and commissions and fees of underwriters, selling brokers, dealer
managers or similar securities industry professionals relating to the
distribution of the Shares to be sold by the Investor, the fees and
disbursements of counsel retained by the Investor and transfer taxes, if any.

 

15

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9. TERMINATION.

 

9.1 Termination. This Agreement may be terminated at any time prior to the
Closing:

 

(a) by mutual written agreement of the Parties;

 

(b) by any Party (provided that the terminating Party is not then in material
breach of any representation, warranty, covenant or other agreement contained in
this Agreement) if the Closing shall not have been consummated on or before
October 31, 2005;

 

(c) by any Party if a court of competent jurisdiction or a Governmental
Authority shall have issued a non-appealable final judgment, injunction, order,
ruling or decree or taken any other action having the effect of permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement; provided that the Party seeking to terminate this Agreement
pursuant to this clause (c) shall have used its reasonable best efforts to have
such judgment, injunction, order, ruling or decree lifted, vacated or denied; or

 

(d) by either the Investor or the Company (provided that the terminating Party
is not then in material breach of any representation, warranty, covenant or
other agreement contained in this Agreement) in the event of a material breach
by the non-terminating Party of any representation or warranty contained in this
Agreement which cannot be or has not been cured within thirty (30) days after
the giving of written notice to the breaching Party of such breach.

 

9.2 Effect of Termination. In the event of the termination of this Agreement
pursuant to Section 9.1, this Agreement shall forthwith become void and there
shall be no liability on the part of any Party hereto (or any stockholder,
director, officer, partner, employee, agent, consultant or representative of
such Party) except as set forth in this Section 9.2, provided that nothing
contained in this Agreement shall relieve any party from liability for any
breach of this Agreement and provided further that Section 10 shall survive
termination of this Agreement.

 

10. MISCELLANEOUS.

 

10.1 Survival of Warranties. The representations and warranties of the Company
and the Investor contained in or made pursuant to this Agreement shall survive
the execution and delivery of this Agreement and the Closing for a period of
twenty-four (24) months from the Closing Date and shall in no way be affected by
any knowledge or investigation of the subject matter thereof made by or on
behalf of the Investor or the Company, as the case may be.

 

10.2 Specific Performance. The parties hereto specifically acknowledge that
monetary damages are not an adequate remedy for violations of this Agreement,
and that any party hereto may, in its sole discretion, apply to a court of
competent jurisdiction for specific performance or injunctive or such other
relief as such court may deem just and proper in order to enforce this Agreement
or prevent any violation hereof and, to the extent permitted by applicable

 

16

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Law and to the extent the party seeking such relief would be entitled on the
merits to obtain such relief, each party waives any objection to the imposition
of such relief.

 

10.3 Successors and Assigns.

 

(a) This Agreement shall bind and inure to the benefit of the Parties and their
respective successors, permitted assigns, heirs and personal representatives;
provided that the Company may not assign its rights or obligations under this
Agreement to any Person without the prior written consent of the Investor.

 

(b) Notwithstanding Section 10.3(a) or any other provision to the contrary in
this Agreement, the Investor may assign any and all of its rights and
obligations under Section 8 hereof in connection with the transfer to such
assignee of at least 20,000 Shares.

 

10.4 Governing Law.

 

(a) This Agreement shall be governed by and construed under the internal laws of
the State of California as applied to agreements among California residents
entered into and to be performed entirely within that State, without reference
to principles of conflict of laws or choice of law thereof.

 

(b) The Parties hereto hereby agree that the appropriate and exclusive forum for
any disputes arising out of this Agreement solely between the Parties shall be
the United States District Court for the Southern District of California, and,
if such court will not hear any such suit, the courts of the state of Delaware,
and the parties hereto hereby irrevocably consent to the exclusive jurisdiction
of such courts, and agree to comply with all requirements necessary to give such
courts jurisdiction. The Parties hereto further agree that the Parties will not
bring suit with respect to any disputes arising out of this Agreement except as
expressly set forth below for the execution or enforcement of judgment, in any
jurisdiction other than the above specified courts. Each of the Parties hereto
irrevocably consents to the service of process in any action or proceeding
hereunder by the mailing of copies thereof by registered or certified airmail,
postage prepaid, to the address specified in Section 10.7 hereof. The foregoing
shall not limit the rights of any party hereto to serve process in any other
manner permitted by the law or to obtain execution of judgment in any other
jurisdiction. The Parties further agree, to the extent permitted by law, that
final and unappealable judgment against any of them in any action or proceeding
contemplated above shall be conclusive and may be enforced in any other
jurisdiction within or outside the United States by suit on the judgment, a
certified or exemplified copy of which shall be conclusive evidence of the fact
and the amount of indebtedness.

 

10.5 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.

 

10.6 Headings. The headings and captions used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement. All references in this Agreement to sections, paragraphs, exhibits
and schedules shall, unless otherwise provided, refer to sections and paragraphs
hereof and exhibits and schedules attached hereto, all of which exhibits and
schedules are incorporated herein by this reference.

 

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10.7 Notices. All notices, requests, demands, claims and other communications
hereunder will be in writing. Any notice, request, demand, claim or other
communication hereunder shall be deemed duly given if (and then four
(4) Business Days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid and addressed to the intended recipient as
set forth below:

 

To the Company:

  PriceSmart, Inc.     9740 Scranton Road     San Diego, CA 92121-1745    
Attention: Robert M. Gans, Esq.     Telephone: (858) 404-8821     Facsimile:
(858) 404-8828

with a copy to:

  Latham & Watkins LLP     12636 High Bluff Drive, Suite 400     San Diego, CA
92130     Attention: Robert E. Burwell, Esq.     Telephone: (858) 523-5400    
Facsimile: (858) 523-5450

To the Investor:

  Sol and Helen Price Trust     7979 Ivanhoe Avenue, #520     La Jolla,
California 92037     Attn: Sol Price     Telephone: (858) 551-2311    
Facsimile: (858) 551-2314

 

Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service
or ordinary mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the intended recipient. Any Party may change the address
to which notices, requests, demands, claims and other communications hereunder
are to be delivered by giving the other Parties notice in the manner herein set
forth.

 

10.8 No Finder’s Fees. Each Party represents that it neither is nor will be
obligated for any finder’s or broker’s fee or commission in connection with this
transaction. The Company agrees to indemnify and hold harmless the Investor from
any liability for any commission or compensation in the nature of a finder’s or
broker’s fee (and any asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.

 

10.9 Amendments and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of the Parties.

 

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10.10 Attorneys’ Fees. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorneys’ fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.

 

10.11 Severability. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision(s) shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision(s) were so excluded and shall be enforceable in accordance with its
terms.

 

10.12 Entire Agreement. This Agreement, together with all exhibits and schedules
hereto, constitutes the entire agreement and understanding of the parties with
respect to the subject matter hereof and supersedes any and all prior
negotiations, correspondence, agreements, understandings duties or obligations
between the Parties with respect to the subject matter hereof.

 

10.13 No Third Party Beneficiaries. This Agreement is for the sole benefit of
the Parties hereto and their respective successors and permitted assigns and
nothing herein, express or implied, is intended or shall confer upon any other
Person any legal or equitable right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement, except that the provisions of Section 8.5
shall inure to the benefit of and be enforceable by each Indemnified Party.

 

10.14 Public Announcements. The Parties shall consult with each other before
issuing any press release with respect to this Agreement or the transactions
contemplated hereby and no Party shall issue any such press release or make any
such public statement without the prior consent of the other Parties, which
consent shall not be unreasonably withheld; provided, however, that a Party may,
without the prior consent of the other Parties, issue such press release or make
such public statement as may upon the advice of counsel be required by law if it
has used commercially reasonable efforts to consult with the other Parties prior
thereto. The Parties hereby consent to the filing of this Agreement by the
Company and a Schedule 13D and Form 4 by the Investor and Mr. Price, as
applicable, with the SEC.

 

10.15 Further Assurances. From and after the date of this Agreement, upon the
request of the Investor or the Company, the Company and the Investor shall
execute and deliver such instruments, documents or other writings as may be
reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.

 

10.16 Fees and Expenses. Except as otherwise provided in this Agreement, each of
the Parties shall each bear its own expenses incurred in connection with the
negotiation and execution of this Agreement and each other agreement, document
and instrument contemplated by this Agreement and the consummation of the
transactions contemplated hereby and thereby.

 

19

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10.17 Rescission Right. If for any reason the Court does not approve the
Settlement as contemplated by the MOU or objects to the terms of the
transactions contemplated by this Agreement, either (i) Investor and the Company
will accept such reasonable modifications to the terms of this Agreement as may
be necessary to obtain the Court’s approval, provided that such modifications do
not materially adversely affect the rights and obligations of Investor or the
Company hereunder, as the case may be or (2) if any such modifications would be
unreasonable or would have a material adverse effect on either the Investor or
the Company, and either the Company or the Investor refuses to accept such
modifications, Investor shall have the right to rescind the purchase of the
Shares, with the Shares being returned to the Company and the sum of $1,500,000,
with interest at the annual rate of 5%, being returned to the Investor; provided
that if any such rescission would be prohibited by Section 160 of the Delaware
General Corporation Law or other applicable law, such rescission shall be
deferred until it may be completed in accordance with applicable law.

 

10.18 Waiver of Jury Trial. THE COMPANY AND THE INVESTOR HEREBY WAIVE ANY RIGHT
THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT.

 

[Remainder of Page Intentionally Left Blank]

 

20

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.

 

THE COMPANY:

PRICESMART, INC.

By:  

/s/ Robert M. Gans

Name:

 

Robert M. Gans

Title:

 

Executive Vice President and General Counsel

THE INVESTOR:

SOL AND HELEN PRICE TRUST

By:  

/s/ Sol Price

Name:

 

Sol Price

Title:

 

Trustee

 

SIGNATURE PAGE TO THE

STOCK TRANSFER AGREEMENT

 

Page 1 of 1

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SCHEDULE 3.4(b)

 

Registration Rights:

 

  1. Under a Registration Rights Agreement dated June 3, 2000, PSC, S.A. (“PSC”)
possesses registration rights with respect to an aggregate of 679,500 shares of
the Company’s Common Stock. Pursuant to the Registration Rights Agreement, the
Company filed registration statements on Form S-3 on July 27, 2000 and August 8,
2001, which were subsequently declared effective. These registration statements
are no longer effective. A third registration statement covering these shares
was filed on March 2, 2005, but has not been declared effective as of the date
hereof. Upon effectiveness, PSC has the right to require that the registration
statement be kept effective until PSC or a permitted assignee has completed the
distribution of its shares.

 

  2. Under a Common Stock Purchase Agreement dated October 22, 2003, The Sol and
Helen Price Trust and The Robert & Allison Price Trust 1/10/75 (collectively,
the “Trusts”) possesses registration rights with respect to an aggregate of
500,000 shares of the Company’s Common Stock. On March 17, 2005, the Company and
the Trusts amended the Common Stock Purchase Agreement to allow the holders of a
majority of the shares sold thereunder to request such registration at any time.
Once filed and declared effective, the Trusts have the right to require that the
registration statement be kept effective until the earlier of (1) such time as
the distribution described in the registration statement relating to the shares
has been completed and (ii) two (2) years from the purchase of the shares of
Common Stock.

 

  3. Pursuant to (i) that certain Common Stock Purchase Agreement, dated as of
October 4, 2004, among the Company and The Price Group, LLC, The Sol and Helen
Price Trust, The Robert and Allison Price Trust 1/10/75, The Robert and Allison
Price Charitable Remainder Trust (the “Original Investors”) and The Price Family
Charitable Fund and (ii) that certain Joinder Agreement, dated as of October 28,
2004, entered into by The San Diego Foundation ((i) and (ii) collectively, the
“Agreement”), the Original Investors and The San Diego Foundation (collectively,
the “Investors”) possesses registration rights with respect to an aggregate of
7,961,926 shares of the Company’s Common Stock. On March 17, 2005, the Company
and the Investors amended the Common Stock Purchase Agreement to allow the
holders of a majority of the shares of Common Stock sold thereunder to request
such registration at anytime. Once filed and declared effective, the Investors
have the right to require that the registration statement be kept effective
until the earlier of (i) such time as the distribution described in the
registration statement relating to the shares has been completed and (ii) two
(2) years from the purchase of the shares of Common Stock.

 

  4.

Under a Warrant Purchase Agreement, dated as of January 26, 2005, the
International Finance Corporation (the “IFC”) possesses registration rights with
respect to an aggregate of 400,000 shares of the Company’s Common Stock issuable
upon exercise of a Common Stock Purchase Warrant issued to the IFC on
January 26, 2005 (the “Warrant Shares”). Once filed and declared effective, the
IFC has the right to require that the registration statement be kept effective
until the earlier of (i) January 26, 2007 and (ii) such time as

 

SCHEDULE 3.4(b)

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the IFC may freely sell to the public the Warrant Shares held by it without
registration and without regard to volume or manner of sale restrictions. The
IFC also possesses piggy-back registration rights with respect to the Warrant
Shares terminating upon the earlier of the end of the registration period
described above and such time as the Investor has completed its resale of the
Warrant Shares. A registration statement covering the Warrant Shares was filed
on March 2, 2005, but has not been declared effective as of the date hereof.

 

  5. Under a Stock Purchase Agreement, dated April 19, 2005, The Price Group,
LLC, The Sol and Helen Price Trust and The Robert and Allison Price Trust (the
“Prices”) possesses registration rights with respect to an aggregate of 825,000
shares of the Company’s Common Stock. Once filed and declared effective, the
Prices have the right to require that the registration statement be kept
effective until the earlier of (i) April 19, 2007 and (ii) such time as the
shares of Common Stock sold thereunder may be freely sold to the public without
registration and without regard to volume or manner of sale restrictions.

 

  6. Under a Stock Transfer Agreement, dated July 14, 2005, PSC possesses
registration rights with respect to an aggregate of 138,820 shares of the
Company’s Common Stock. Once filed and declared effective, PSC has the right to
require that the registration statement be kept effective until the earlier of
(i) July 14, 2007 and (ii) such time as the shares of Common Stock sold
thereunder may be freely sold to the public without registration and without
regard to volume or manner of sale restrictions.

 

SCHEDULE 3.4(b)