Exhibit 10.4

 

Purchase Order Financing Agreement

 

This Purchase Order Financing Agreement (“Agreement”) is made this 23rd day of
February, 2004 by and between The Price Group, LLC, a California limited
liability company (“TPG”) and PriceSmart Inc., a Delaware corporation (“PSMT”).

 

Recitals

 

  A. PSMT wishes to obtain from TPG purchase order financing for certain
merchandise, and TPG is willing to provide such purchase order financing to
PSMT.

 

  B. PSMT and TPG now wish to memorialize the terms and conditions upon which
such purchase order financing shall be provided to PSMT by TPG.

 

NOW THEREFORE, in consideration of the mutual covenants herein the parties agree
as follows:

 

ARTICLE I

 

DEFINITIONS

 

1.01 Definitions – The following defined terms are used in this Agreement:

 

  A. “Collateral” is defined in Section 3.01.

 

  B. “Event of Default” is defined in Section 3.04.

 

  C. “Term” shall mean the period beginning on the date of this Agreement and
ending one (1) year thereafter.

 

  D. “Obligations” is defined in Section 3.02.

 

  E. “Note” is defined in Section 2.04

 

  F. “Trade Vendors” is defined in Section 2.01.

 

  G. “Payment Request” is defined in Section 2.02(A).

 

ARTICLE II

 

LOAN TERMS

 

2.01 Maximum Purchase Order Financing Amount

 

TPG shall pay funds to PSMT’s trade vendors (“Trade Vendors”) on behalf of PSMT
during the Term, provided that the maximum aggregate amount of the funds so paid
and outstanding at any time may not exceed Ten Million Dollars ($10,000,000.00),
subject to Section 2.03.

 

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2.02 Payment to Trade Vendors

 

TPG shall pay funds to the Trade Vendors, from time to time, pursuant to the
following procedure:

 

A) PSMT will deliver to TPG purchase orders and/or invoices from the Trade
Vendors with written instructions to TPG to pay such purchase orders/invoices
(the “Payment Request”), along with wire instructions for such payment. TPG
shall pay funds to the Trade Vendors, in accordance with said written
instructions, by wire transfer within one (1) business day after TPG receives
the Payment Request and wire instructions.

 

B) Each payment by TPG as provided in paragraph (A) above shall be deemed a
payable due by PSMT to TPG effective as of the date funds are so wired from
TPG’s account.

 

2.03 TPG’s Option to Refuse Payment Advance

 

Notwithstanding anything in this Agreement to the contrary, TPG may, at its
option (the “Option”), at any time, refuse to pay any purchase order/invoice by
giving PSMT written notice of the exercise of such option (the “Option Notice”).
However, if TPG receives a Payment Request, prior to TPG giving the Option
Notice, and TPG does not wish to finance the subject purchase order/invoice
pursuant to such Payment Request, TPG must exercise the Option within one (1)
business day after TPG’s receipt of such Payment Request, in order not to have
to comply with such Payment Request.

 

2.04 Repayment of Purchase Order Financing Amounts

 

PSMT shall pay to TPG the amounts so paid by TPG to the Trade Vendors no later
than sixty (60) days after the date of a particular advance, together with
interest on such advance, and pursuant to other terms and conditions as set
forth in an executed promissory note (the “Note”) given by PSMT to TPG,
concurrently with the execution and delivery of this Agreement. A copy of the
form of the Note is attached hereto as Exhibit A.

 

2.05 No Liability by TPG

 

TPG shall have no liability to PSMT, or any other party, in the event funds are
not timely paid to Trade Vendors, provided TPG has timely given appropriate wire
instructions to its bank or other institution.

 

2.06 No Third Party Beneficiary

 

No Trade Vender nor any other third party shall be deemed a third party
beneficiary of this Agreement.

 

ARTICLE III

 

PLEDGE AND SECURITY AGREEMENT

 

3.01 Grant of Security Interest

 

In consideration of the financial accommodations to be given by TPG under this
Agreement, PSMT grants to TPG a security interest in the following described
personal property of PSMT now or hereafter existing or acquired (individually
and collectively the “Collateral”):

 

“Inventory held in the continental United States including, without limitation,
goods, merchandise, and other personal property held or to be held for sale or
lease, display or demonstration, or out on

 

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lease or consignment, or to be furnished under a contract of service or so
furnished, and returns from sale, lease consignment or service.”

 

3.02 Secured Obligations of PSMT

 

The security interest granted by PSMT to TPG secures payment and performance of
all PSMT’s present and future debts, obligations and liabilities to TPG
(including but not limited to PSMT’s obligations under the Note) arising under
this Agreement whether absolute or contingent, direct or indirect liquidated or
unliquidated (collectively the “Obligations”).

 

3.03 Covenants of PSMT

 

A) Contemporaneously with the execution of this Agreement, PSMT shall properly
complete and deliver to TPG UCC-1 Financing Statements to enable TPG to perfect
TPG’s security interest in the Collateral. PSMT agrees also to execute, file,
and record such other statements, notices, and agreements, take such action and
obtain such certificates and documents, in accordance with all applicable laws,
statutes, and regulations as may be necessary or advisable to perfect, evidence,
and continue TPG’s security interest in the Collateral.

 

B) PSMT shall not, without the prior written consent of TPG, (a) sell, offer to
sell, or otherwise transfer the Collateral except in the ordinary course of
business, or (b) pledge, mortgage, encumber, or otherwise permit the Collateral
to be subject to any lien, security interest, or charge, other than the security
interest created by this Agreement.

 

C) PSMT shall comply with all laws, statutes, and regulations pertaining to the
Collateral.

 

D) PSMT shall pay when due all taxes, assessments, and liens with regard to the
Collateral. PSMT may withhold any such payment or may elect to contest any lien
if PSMT is conducting appropriate proceedings in good faith to contest the
obligation to pay and so long as TPG’s interest is not jeopardized.

 

E) PSMT irrevocably appoints TPG as PSMT’s attorney in fact to do any act that
PSMT is obligated to do pursuant to this Agreement to preserve or protect the
Collateral and to preserve, protect, or establish TPG’s lien on the Collateral.
PSMT further irrevocably appoints TPG to exercise such rights and powers as PSMT
might exercise with respect to the Collateral following an Event of Default, as
defined below. These powers shall include without limitation the right to:

 

(i) Collect by legal proceedings or otherwise, and endorse, receive, and receipt
all payments, proceeds, and other sums and property now or after the date of
this Agreement payable on account of the Collateral,

 

(ii) Transfer the Collateral to TPG’s own or TPG’s nominee’s name, and

 

(iii) Make any compromise or settlement and take any action TPG deems advisable
with respect to the Collateral. PSMT agrees to reimburse TPG on demand for any
costs and expenses, including without limitation attorney fees, which TPG may
incur while acting as PSMT’s attorney in fact under this Agreement, all of which
costs and expenses are included in the Obligations secured by this Agreement.
TPG shall have no obligation to act pursuant to this paragraph and shall not be
required to make any presentment, demand, or protest, or give any notice or take
any action to preserve any rights against any other person in connection with
the Collateral.

 

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3.04 Events of Default

 

Any of the following events or conditions shall constitute an Event of Default
by PSMT under this Agreement:

 

A) Failure to make payments in accordance with the terms of the Note, if the
failure continues for five (5) business days after written notice has been given
by TPG to PSMT;

 

B) Default in the performance of any other Obligation or breach of any
agreement, representation, or warranty contained in this Agreement if such
default is not cured within twenty (20) days after written notice; provided,
however, with respect to a non-monetary breach, if PSMT cannot reasonably cure
the breach within such twenty (20) day period, PSMT shall not be in default of
this Agreement if PSMT commences to cure the breach within the twenty (20) day
period and diligently and in good faith continues to cure the breach;

 

C) Any levy or proceeding against the Collateral or PSMT’s interest in the
Collateral, except if PSMT is conducting appropriate proceedings in good faith
to contest the levy or proceeding; or

 

D) The filing of a petition by or against PSMT under the provision of the
Bankruptcy Code.

 

3.05 TPG’s Remedies

 

A) On the occurrence of an Event of Default, TPG:

 

(i) Shall have and may exercise all rights and remedies accorded to TPG by the
California Uniform Commercial Code;

 

(ii) May declare all unperformed Obligations, in whole or in part, of Debtor
immediately due and payable without demand or notice; and

 

(iii) May require PSMT to take any and all action necessary to make the
Collateral available to TPG.

 

B) All of TPG’s rights and remedies, whether evidenced by this Agreement or by
any other writing, shall be cumulative and may be exercised singularly or
concurrently. Election by TPG to pursue any remedy shall not exclude pursuit of
any other remedy.

 

C) PSMT expressly waives any constitutional or other right to a judicial hearing
prior to the time TPG takes possession or disposes of the Collateral on an Event
of Default as provided above.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES

 

4.01 PSMTs Representations and Warranties

 

PSMT represents and warrants to TPG as follows:

 

A) PSMT’s Board of Directors has duly authorized the PSMT to enter into this
Agreement which is a valid and binding obligation of PSMT.

 

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B) The execution, delivery and performance of this Agreement by PSMT does not
conflict with and is not in violation of any applicable law or other agreement
of which PSMT is a party and PSMT does not require the consent of any other
party to enter into this Agreement.

 

C) PSMT is the owner of all right title and interest in the Collateral free and
clean of all liens, encumbrances and security interests except the security
interest created by this Agreement.

 

D) No defenses, offsets, claims or counterclaims exist against PSMT that may be
asserted against TPG in any proceeding to enforce TPG’s rights in the
Collateral.

 

E) The liens granted to PSMT under this Agreement will constitute a first
priority lien on the Collateral on the filing of a UCC-1 Financing Statement and
PSMT’s grant of such lien to TPG does not constitute a fraudulent conveyance
under any applicable law.

 

ARTICLE V

 

MISCELLANEOUS

 

5.01 Notices

 

All waivers, elections, options, notices, demands, and consents which either
party may be required or may desire to give under this Agreement (“Notice”)
shall be in writing and shall be effective when telecopied to the fax numbers
indicated below, when personally delivered, or when delivered by overnight
express delivery or when delivered by United States Postal Service office or
branch or official depository maintained by the United States Postal Service, by
certified or registered mail, postage prepaid, return receipt requested,
addressed as follows:

 

To TPG at:   

The Price Group, LLC

Attn: Joseph R. Satz

Suite 520

7979 Ivanhoe Ave.

La Jolla, California 92037

fax: (858)551-2314

To PSMT:   

Until March 26, 2004:

PriceSmart, Inc

Attn: Robert Gans

4949 Morena Blvd

San Diego, California 92037

fax: (858)581-4707

    

After March 26, 2004:

PriceSmart, Inc.

Attn: Robert Gans

9740 Scranton Road

San Diego, CA. 92121-1745

 

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5.02 Attorneys’ Fees

 

If either party hereto files any action or brings any proceeding against the
other arising out of this Agreement, or is made a party to any action or
proceeding, then, the prevailing party shall be entitled to recover as an
element of its costs of suit, and not as damages, reasonable attorneys’ fees to
be fixed by the court. The “prevailing party” shall be the party who is entitled
to recover its costs of suit, whether or not suit proceeds to final judgment. A
party not entitled to recover costs shall not be entitled to recover attorneys’
fees.

 

5.03 Integration

 

This Agreement and the exhibits attached hereto shall constitute the entire
Agreement between TPG and PSMT and supersedes any and all prior written or oral
agreements, representations, and warranties between and among the parties and
their agents, all of which are merged into or revoked by this Agreement, with
respect to its subject matter.

 

5.04 Modification

 

No modification, waiver, amendment, discharge, or change of this Agreement shall
be valid unless the same is in writing and signed by the party against which the
enforcement of such modification, waiver, amendment, discharge, or change is or
may be sought.

 

5.05 Severability

 

In the event any term, covenant, condition, provision, or agreement contained
herein is held to be invalid, void, or otherwise unenforceable, by any court of
competent jurisdiction, such holding shall in no way affect the validity or
enforceability of any other term, covenant, condition, provision, or agreement
contained herein.

 

5.06 Governing Law

 

This Agreement and the obligation of the parties hereunder shall be interpreted,
construed, and enforced in accordance with the laws of the State of California.

 

5.07 Venue

 

Any actions arising under this Agreement shall be heard and resolved in San
Diego County, California.

 

5.08 Terminology

 

All personal pronouns used in this Agreement, whether used in the masculine,
feminine, or neuter gender, shall include all other genders; the singular shall
include the plural and vice versa. “Business day” means other than Saturday,
Sunday, or holiday. In the event that the time for performance of an act under
this Agreement falls on a Saturday, Sunday, or holiday, the date for performance
of such act shall be extended to the next business day.

 

5.09 Counterparts

 

This Agreement may be executed in multiple counterparts, each of which shall be
deemed to be an original agreement, and all of which shall constitute one
agreement by each of the parties hereto.

 

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5.10 Binding Effect

 

Except as otherwise herein provided, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.

 

5.11 Captions

 

Article and section titles or captions contained herein are inserted as a matter
of convenience and for reference, and in no way define, limit, extend, or
describe the scope of this Agreement or any provisions hereof. All reference to
section numbers herein shall mean the sections of this Agreement.

 

5.12 Exhibits

 

The following exhibits are attached hereto:

 

  Exhibit A - Form of Promissory Note.

 

Executed as of the date first written above.

 

THE PRICE GROUP, LLC       PRICESMART, INC by   /s/ JIM CAHILL       by   /s/
JOHN HEFFNER    

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    Manager             by   /s/ SOL PRICE       its   CFO    

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                Manager       Print Name   John Heffner             by   /s/
ROBERT M. GANS                

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            its   Exec. Vice President             Print Name   Robert M. Gans

 

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EXHIBIT A

 

PROMISSORY NOTE

 

$10,000,000                   , 2004

San Diego, California

 

FOR VALUE RECEIVED, the undersigned PRICESMART, INC., a Delaware corporation
(“PSMT”), promises to pay to THE PRICE GROUP, LLC, a California limited
liability company (“TPG”) or order, at 7979 Ivanhoe Avenue, Suite 520, La Jolla,
California 92037, or such other address as may be directed in writing, the
principal sum of Ten Million Dollars ($10,000,000.00) or so much thereof as may
be advanced and outstanding, together with interest thereon at a rate of twelve
percent (12%) per annum, computed from the date of each advance on the basis of
a three hundred sixty-five day (365) year, actual days elapsed.

 

1. Payment of Principal and Interest. Each advance of principal by TPG shall be
repaid in full together with interest thereon, within sixty (60) days after the
date of the advance. All unpaid principal and accrued interest, not yet paid
shall be due and payable one (1) year from the date hereof.

 

2. Credit of Payments. Each payment under this Note shall be credited in the
following order: (a) costs, fees, charges and advances paid or incurred by TPG
and for which the PSMT is obligated under the terms herein; (b) interest payable
under this Note; and (c) principal under this Note. All installments of
principal and interest of this Note shall be payable in lawful money of the
United States of America.

 

3. Interest and Default. From and after the Maturity Date the entire unpaid
principal balance and accrued unpaid interest shall automatically bear an annual
interest rate equal to the lesser of: (a) fifteen percent (15%) per annum or (b)
the maximum interest rate allowed by law in lieu of the rate provided above
herein.

 

4. Attorney Fees. PSMT agrees to pay the following costs, expenses, and attorney
fees paid or incurred by TPG, or adjudged by a court: (a) reasonable costs of
collection and costs, expenses, and attorney fees paid or incurred in connection
with the collection or enforcement of this Note, whether or not suit is filed;
(b) reasonable costs, expenses, and attorney fees paid or incurred in connection
with representing TPG in any bankruptcy, reorganization, receivership, or other
proceedings affecting creditors’ rights and involving a claim under this Note;
and (c) costs of suit and such sum as the court may adjudge as attorney fees in
any action to enforce payment of this Note or any part of it.

 

5. Waiver. PSMT, endorsers, and all other persons liable or to become liable on
this Note waive presentment, protest, and demand; notice of protest, demand, and
dishonor; and all other notices or matters of a like nature.

 

6. Usury. All agreements between PSMT and TPG are expressly limited, so that in
no event or contingency, whether because of the advancement of the proceeds of
this Note, acceleration of maturity of the unpaid principal balance, or
otherwise, shall the amount paid or agreed to be paid to TPG for the use,
forbearance, or retention of the money to be advanced under this Note exceed the
highest lawful rate permissible under applicable usury laws. If, under any
circumstances, fulfillment of any provision of this Note or any other agreement
pertaining to this Note, after timely performance of such provision is due,
shall involve exceeding the limit of validity prescribed by law that a court of
competent jurisdiction deems applicable, then, ipso facto, the obligations to be
fulfilled shall be reduced to the limit of such validity. If, under any
circumstances, TPG shall ever receive as interest an amount that exceeds the
highest lawful rate, the amount that would be excessive interest shall be
applied to reduce the unpaid principal balance under this Note and not to pay
interest, or, if such excessive interest exceeds the unpaid principal balance
under this Note, such excess shall be refunded to PSMT. This provision shall
control every other provision of all agreements between PSMT and TPG.

 

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7. Forbearance Not a Waiver. If TPG delays in exercising or fails to exercise
any of its rights under this Note, that delay or failure shall not constitute a
waiver of any TPG rights or of any breach, default, or failure of condition
under this Note. No waiver by TPG of any of its rights or of any such breach,
default, or failure of condition shall be effective, unless the waiver is
expressly stated in a writing signed by TPG.

 

8. Assignment. This Note inures to and binds the heirs, legal representatives,
successors, and assigns of PSMT and TPG.

 

9. Severability. If any provision of this Note, or the application of it to any
party or circumstance, is held void, invalid, or unenforceable by a court of
competent jurisdiction, the remainder of this Note, and the application of such
provision to other parties or circumstances, shall not be affected thereby, the
provisions of this Note being severable in any such instance.

 

10. Time is of the Essence. Time is of the essence with respect to all
obligations of PSMT under this Note.

 

11. Waiver of Jury Trial. TPG AND PSMT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A
TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED ON, ARISING FROM, OR RELATED
TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED BY THIS NOTE, IN ANY ACTION,
PROCEEDING, OR OTHER LITIGATION OF ANY TYPE BROUGHT BY EITHER PARTY AGAINST THE
OTHER, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. PSMT
AND TPG AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT
TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE
THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM, OR OTHER PROCEEDING THAT SEEKS, IN WHOLE
OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS NOTE. THIS
WAIVER SHALL APPLY TO ANY FUTURE AMENDMENTS, RENEWALS, SUPPLEMENTS, OR
MODIFICATIONS TO THIS NOTE.

 

12. Loan Agreement. This Note is given pursuant to that certain Purchase Order
Financing Agreement between the PSMT and TPG dated the same date as this Note,
the provisions of which are incorporated herein by reference.

 

13. Governing Law. This Note shall be construed and enforceable according to the
laws of the State of California.

 

14. Venue. Any actions arising under this Note shall be heard and resolved in
San Diego County, California.

 

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Executed as of the date first written above.

 

PRICESMART, INC By:        

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Its:

       

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Print Name        

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By:        

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Its:

       

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Print Name        

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