EMPLOYEE BENEFITS & OTHER EMPLOYMENT MATTERS
ALLOCATION AGREEMENT
THIS EMPLOYEE BENEFITS & OTHER EMPLOYMENT MATTERS ALLOCATION AGREEMENT
("Agreement") is made and entered into as of August __, 1997, by and between
PRICE ENTERPRISES, INC., a Delaware corporation ("PEI"), and PRICESMART, INC., a
Delaware corporation ("PriceSmart," and collectively with PEI, the "Parties"),
effective as of the Distribution Date (as hereinafter defined).
R E C I T A L S
WHEREAS, subject to certain conditions, PEI intends to spin-off its
merchandising businesses and certain other assets by distributing to PEI
stockholders a special dividend of one share of PriceSmart Common Stock for
every four shares of PEI Common Stock held as of the close of business on the
Record Date (the "Distribution"); and
WHEREAS, in connection with such spin-off, PEI and PriceSmart have entered
into a Distribution Agreement of even date herewith (the "Distribution
Agreement"); and
WHEREAS, pursuant to the aforesaid Distribution Agreement, PEI and
PriceSmart have agreed to enter into an agreement allocating responsibilities
with respect to employee compensation, benefits, labor and certain other
employment matters pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, PEI and PriceSmart agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions. As used in this Agreement, the following terms
shall have the meanings indicated below:
Aggregate Spread: the number of shares covered by a PEI Stock Option
remaining unexercised on the Distribution Date (after giving effect to the
Distribution) multiplied by the positive difference between (i) the sum of
(x) the Post-Distribution Stock Price for a share of PEI Common Stock and
(y) one-fourth of the Post-Distribution Stock Price for a share of PriceSmart
Common Stock and (ii) the exercise price of such PEI Stock Option.
COBRA: Code Section 4980B and ERISA Sections 601 through 608, establishing
employer requirements for continuation of health care benefits for the benefit
of certain current and former employees or dependents thereof.
Code: the Internal Revenue Code of 1986, as amended, or any successor
legislation.
Collective Bargaining Agreement: any collective bargaining agreement or
other labor agreement to which PEI or any of its subsidiaries or affiliates was
a party on or before the Distribution Date.
Combined Profit Sharing Plan: The PEI Profit Sharing and 401(k) Plan after
PriceSmart has become a sponsor thereunder pursuant to Section 2.02(a).
Commission: the Securities and Exchange Commission.
Cut-Off Date: the date requested by either Party as the Cut-Off Date in a
written notice to the other Party; provided that the date requested shall not be
sooner than 30 days after the date such notice is received.
Distribution: the spin-off of PriceSmart pursuant to the Distribution
Agreement.
Distribution Agreement: the agreement described in the second recital of
this Agreement.
Distribution Date: the date on which the Distribution occurs.
Employee: any individual who is in one of the following categories: a PEI
Employee, a PEI Terminee, a PriceSmart Employee, a Transferred Employee or a
Retained Employee.
Employer: PEI or PriceSmart, as the context indicates.
Employer Common Stock: PEI Common Stock in the case of Retained Employees
and PEI Terminees and PriceSmart Common Stock in the case of PriceSmart
Employees.
Employer Stock Option Plan: a plan which provides for awards of additional
compensation to eligible Employees in the form of nonqualified or incentive
options to purchase Employer Common Stock, including without limitation, the PEI
Director Option Plan, the PEI Stock Option Plan and the PriceSmart Stock Option
Plan.
ERISA: the Employee Retirement Income Security Act of 1974, as amended, or
any successor legislation.
HMO: any health maintenance organization organized under 42 U.S.C. Sec.
300e-9, or a state health maintenance organization statute that provides medical
services for Retained Individuals or PriceSmart Individuals under any Plan.
IRS: the Internal Revenue Service.
Medical/Dental Plan: a Welfare Plan providing health benefits to Employees
and their dependents.
Nasdaq National Market: The Nasdaq Stock Market's National Market System.
PEI: Price Enterprises, Inc., a Delaware corporation, or any of its direct
or indirect subsidiaries.
2
PEI Common Stock: the common stock, par value $.0001 per share, of Price
Enterprises, Inc., a Delaware corporation.
PEI Director Option: an option to purchase PEI Common Stock pursuant to
the PEI Director Option Plan.
PEI Director Option Plan: The Price Enterprises Directors' 1995 Stock
Option Plan to be continued by PEI following the Distribution pursuant to
Section 2.03(b).
PEI Employee: any individual who is an employee or director of PEI.
PEI Individual: any individual who is (i) a PEI Employee, (ii) a PEI
Terminee, or (iii) a dependent or beneficiary of any individual specified in
clause (i) or (ii).
PEI Medical/Dental Plans: any Medical/Dental Plans maintained for or
providing benefits to PEI Individuals.
PEI Profit Sharing Plan: Prior to the Distribution Date, the PEI Profit
Sharing and 401(k) Plan, and from and after the Cut-Off Date, the Profit
Sharing Plan maintained for PEI Individuals.
PEI Qualified Beneficiary: a Qualified Beneficiary who, immediately
following the Distribution, is not a PriceSmart Qualified Beneficiary and who,
immediately prior to the Distribution, was a Qualified Beneficiary under any PEI
Medical/Dental Plan.
PEI Stock Option: an option to purchase PEI Common Stock pursuant to the
PEI Stock Option Plan.
PEI Stock Option Plan: The Price Enterprises 1995 Combined Stock Grant and
Stock Option Plan to be continued by PEI following the Distribution pursuant to
Section 2.03(a).
PEI Terminee: any individual who was formerly employed by PEI who
terminated such employment prior to the Distribution Date.
Plan: any plan, policy, arrangement, contract or agreement providing
compensation benefits for any group of Employees or former Employees or
individual Employee or former Employee, or the dependents or beneficiaries of
any such Employee or former Employee, whether formal or informal or written or
unwritten, and including, without limitation, any means, whether or not legally
required, pursuant to which any benefit is provided by an Employer to any
Employee or former Employee or the beneficiaries of any such Employee or former
Employee, adopted or entered into by a Party prior to, or upon the Distribution.
The term "Plan" as used in this Agreement does not include any contract,
agreement or understanding entered into by PEI or PriceSmart relating to
settlement of actual or potential Employee related litigation claims.
Post-Distribution Stock Price: the average of the per share closing sales
prices of PriceSmart Common Stock or PEI Common Stock, as the context indicates,
on the Nasdaq National Market during the twenty-trading day period commencing on
the sixth trading day following the Distribution Date.
3
PriceSmart: PriceSmart, Inc., a Delaware corporation, or any of its direct
or indirect subsidiaries.
PriceSmart Common Stock: the common stock, par value $.0001 per share, of
PriceSmart, Inc., a Delaware corporation.
PriceSmart Employee: any individual who is (a) a Transferred Employee, or
(b) not a Transferred Employee but becomes an employee of PriceSmart on or after
the Distribution Date.
PriceSmart Individual: any individual who (i) is a Transferred Employee,
or (ii) a PriceSmart Employee, or (iii) is a dependent or beneficiary of any
individual described in clause (i) or (ii).
PriceSmart Medical/Dental Plans: the Medical/Dental Plans to be
established by PriceSmart in accordance with Section 2.06(a).
PriceSmart Profit Sharing Plan: From and after the Cut-Off Date, the
Profit Sharing Plan maintained for PriceSmart Individuals.
PriceSmart Qualified Beneficiary: any Transferred Individual (or dependent
thereof) who, on or before the Distribution Date, was a Qualified Beneficiary
under any PEI Medical/Dental Plan.
PriceSmart Stock Option: an option to purchase PriceSmart Common Stock
pursuant to the PriceSmart Stock Option Plan.
PriceSmart Stock Option Plan: the 1997 Stock Option Plan of PriceSmart,
Inc., as established by PriceSmart pursuant to Section 2.03(c).
Profit Sharing Plan: (i) during the period from the Distribution Date to
the Cut-Off Date, the Combined Profit Sharing Plan and (ii) after the Cut-Off
Date, the PEI Profit Sharing Plan or the PriceSmart Profit Sharing Plan.
Qualified Beneficiary: an individual (or dependent thereof) who either (1)
experiences a "qualifying event" (as that term is defined in Code Section
4980B(f)(3) and ERISA Section 603) while a participant in any Medical/Dental
Plan, or (2) becomes a "qualified beneficiary" (as that term is defined in Code
Section 4980B(g)(1) and ERISA 607(3)) under any Medical/Dental Plan.
Record Date: August 15, 1997.
Retained Business: any business or operation of PEI or its subsidiaries
which is, pursuant to the Distribution Agreement, to be conducted by PEI
following the Distribution.
Retained Employee: any individual who immediately prior to the
Distribution was a PEI Employee and who is an employee or director of PEI
immediately following the Distribution.
Retained Individual: any individual who (i) is a Retained Employee, or
(ii) is, as of the Distribution Date, a PEI Terminee whose last employment with
PEI or subsidiary of PEI was with a Retained Business, or (iii) is a dependent
or beneficiary of any individual described in clause (i) or (ii).
4
Service Credit: the period taken into account under any Plan for purposes
of determining length of service or plan participation to satisfy eligibility,
vesting, benefit accrual and similar requirements under such Plan.
Stock Option: a nonqualified or incentive option to purchase Employer
Common Stock under an Employer Stock Option Plan.
Transferred Business: any business or operation of PEI or its subsidiaries
which is, pursuant to the Distribution Agreement, to be conducted by PriceSmart
immediately following the Distribution.
Transferred Employee: any individual whose employment with PEI is
terminated immediately prior to the Distribution pursuant to the Distribution
Agreement and who becomes, immediately after the Distribution, an employee of
PriceSmart. It also includes any director of PEI who resigns from the PEI Board
of Directors before the Distribution and concurrently or within 90 days
thereof is elected to the PriceSmart Board of Directors.
Transferred Individual: any individual who (i) is a Transferred Employee
or (ii) is, as of the Distribution Date, a PEI Terminee whose last employment
with PEI or a subsidiary of PEI was with a Transferred Business, or (iii) is a
dependent or beneficiary of any individual described in clause (i) or (ii).
Welfare Plan: any Plan which provides medical, health, disability,
accident, life insurance, death, dental or any other welfare benefit, including,
without limitation, any post-employment benefit, but excluding vacation benefits
covered under Section 2.07.
Section 1.02 Other Terms. Any capitalized terms used herein but not
defined herein shall have the meaning set forth in the Distribution Agreement.
Section 1.03 Certain Constructions. References to the singular in this
Agreement shall refer to the plural and vice-versa and references to the
masculine shall refer to the feminine and vice-versa.
Section 1.04 Sections. References to a "Section" are, unless otherwise
specified, to one of the Sections of this Agreement.
Section 1.05 Survival. Obligations described in this Agreement shall
remain in full force and effect and shall survive the Distribution Date.
ARTICLE II
EMPLOYEE BENEFITS
Section 2.01 Employment.
(a) Allocation of Responsibilities on Distribution Date. On the
Distribution Date, except to the extent retained or assumed by PEI under this
Agreement or any other agreement relating to the Distribution, PriceSmart shall
retain or assume, as the case may be, responsibility as employer for the
Transferred Employees. On the Distribution Date, except to the extent retained
or assumed by
5
PriceSmart under this Agreement or any other agreement relating to the
Distribution, PEI shall retain or assume, as the case may be, responsibility as
employer for the Retained Employees. The assumption or retention of
responsibility as employer by PEI or PriceSmart described in this Section 2.01
shall not, of itself, constitute a severance or a termination of employment
under any Plan which provides for severance benefits and is maintained by PEI
nor shall it constitute a change of control of PEI for purposes of any Plan.
(b) Assumption of Liabilities on Distribution Date: Except as
specifically provided in this Agreement, or as otherwise agreed by the Parties:
(i) Except as provided in Section 2.01(b)(ii), immediately
following the Distribution, PriceSmart shall assume or retain, as the case may
be, all benefit obligations and all related rights in connection with any Plan
with respect to the all Employees and PEI Terminees and PEI shall have no
further liability with respect thereto.
(ii) PEI shall assume or retain, as the case may be, all benefit
obligations and all related rights which accrue after the Distribution Date in
connection with any Plan and with respect to the Retained Employees, and
PriceSmart shall have no further liability with respect thereto; provided,
however, that with respect to such Retained Employees who become employed by
PriceSmart after the Distribution, any benefit obligations and all related
rights in connection with any Plan with respect to such employment with
PriceSmart shall be assumed by PriceSmart.
(c) Service Credits.
(i) Distribution Date Service Credits. In connection with the
Distribution and for purposes of determining Service Credits under any Plans,
PEI shall credit each Retained Employee and PriceSmart shall credit each
PriceSmart Employee with such Employee's Service Credits and original hire date
as reflected in the PEI records as of the Distribution Date. Such Service
Credits and hire date shall continue to be maintained as described herein for as
long as the Employee does not terminate employment or as otherwise may be
required by applicable law or any applicable Plan.
(ii) Post-Distribution Date Terminations. Subject to the
provisions of applicable law and to Sections 2.01(d) and 2.07(c) herein
(governing post-Distribution transfers through December 31, 1998),
(x) PriceSmart may, in the case of Transferred Employees, in its sole
discretion, make such decisions as it deems appropriate with respect to
determining Service Credits accrued after the Distribution Date, and (y) PEI
may, in the case of Retained Employees, in its sole discretion, make such
decisions as it deems appropriate with respect to determining Service Credits
accrued after the Distribution Date.
(d) Post-Distribution Date Transfers. Notwithstanding any provision
of this Agreement to the contrary, except to the extent prohibited by applicable
law or any applicable agreement, where an Employee leaves the service of one
Party to immediately begin employment with the other Party at any time on or
before December 31, 1998, such Employee's accrued benefits, account balances, or
other rights or interests, to the extent transferable, under any Plan maintained
by the former Employer may be transferred to the applicable Plan of the new
Employer. The Parties hereby agree to amend any Plan to the extent necessary to
comply with the preceding sentence of this Section 2.01(d). This Section
6
2.01(d) shall not apply to any benefits, balances, rights or interests of such
Employees in any Employer Stock Option Plan.
Section 2.02 Profit Sharing and 401(k) Plans.
(a) Establishment of Combined Profit Sharing Plan. On or prior to
the Distribution Date, PEI and PriceSmart shall take, or cause to be taken, all
action necessary and appropriate to permit PriceSmart to become a sponsor of and
to permit the PriceSmart Employees to participate in the PEI Profit Sharing
Plan, and from and after the Distribution Date and until the Cut-Off Date this
Plan shall be the Combined Profit Sharing Plan.
(b) Establishment of Separate Profit Sharing Plan. Effective as of
the Cut-Off Date, either PriceSmart or PEI (as decided by PriceSmart and PEI at
such time) shall take, or cause to be taken, all action necessary and
appropriate to establish and administer a Profit Sharing Plan separate from the
Combined Profit Sharing Plan. This new Profit Sharing Plan shall contain
substantially the same terms and conditions as the Combined Profit Sharing Plan.
This new Profit Sharing shall be a split up of that portion of the Combined
Profit Sharing Plan which is attributable to PriceSmart Individuals or the PEI
Individuals, as the case may be. PriceSmart or PEI, as the case may be, shall
provide benefits under such new Profit Sharing Plan after the Cut-Off Date for
all such its Employees (and its Employees admitted to participation in such Plan
after the Cut-Off Date) subject to the terms and provisions of such Plan. This
new Profit Sharing Plan shall be intended to qualify for tax-favored treatment
under Sections 401(a) and 401(k) of the Code and to comply with the requirements
of ERISA.
(c) Matching and Profit Sharing Contributions. Matching and
Discretionary Profit Sharing Contributions (i) under the PEI Profit Sharing
Plan and the Combined Profit Sharing Plan with respect to PEI Individuals
will be at the sole determination of the PEI Chief Executive Officer or as
otherwise provided in such Plans and (ii) under the PriceSmart Profit Sharing
Plan and the Combined Profit Sharing Plan with respect to PriceSmart
Individuals will be at the sole determination of the PriceSmart Chief
Executive Officer or as otherwise provided in such Plans.
(d) Transfer and Acceptance of Account Balances. As soon as
practicable after the Cut-Off Date, PEI and PriceSmart shall cause the trustees
of the Combined Profit Sharing Plan to transfer to the trustees or other funding
agent of the PriceSmart Profit Sharing Plan or the PEI Profit Sharing Plan, as
the case may be, the amounts (in cash, securities, other property or a
combination thereof) representing the account balances of all PriceSmart
Individuals or PEI individuals, as the case may be, said amounts to be
established as account balances or accrued benefits of such individuals under
the PriceSmart Profit Sharing Plan or the PEI Profit Sharing Plan, as the case
may be. Each such transfer shall comply with Section 414(1) of the Code and the
requirements of ERISA and the regulations promulgated thereunder. PriceSmart or
PEI, as the case may be, shall cause the trustees or other funding agent of the
PriceSmart Profit Sharing Plan or the PEI Profit Sharing Plan, as the case may
be, to accept the plan-to-plan transfer from the Combined Profit Sharing Plan
trustees, and to credit the accounts of such Transferred Employees (or Retained
Employees) under the PriceSmart Profit Sharing Plan (or the PEI Profit Sharing
Plan) with amounts transferred on their behalf.
(e) PEI to Provide Information. PEI shall provide PriceSmart, as
soon as practicable after the Distribution Date (with the cooperation of
PriceSmart to the extent that relevant information is in the possession of
PriceSmart, and in accordance with Section 5.02), with a list of Transferred
7
Employees who, to the best knowledge of PEI, were participants in or otherwise
entitled to benefits under the PEI Profit Sharing Plan on the Distribution Date,
together with a listing of each participant's Service Credits under such Plan
and a listing of each such Transferred Employee's account balance thereunder,
and each Transferred Employee's investment election and beneficiary designation.
PEI shall, as soon as practicable after the Distribution Date and in accordance
with Section 5.02, provide PriceSmart with such additional information in the
possession of PEI (and not already in the possession of PriceSmart) as may be
reasonably requested by PriceSmart and necessary for PriceSmart to administer
effectively its portion of the Combined Profit Sharing Plan and the PriceSmart
Profit Sharing Plan.
(f) Regulatory Filings. PriceSmart and PEI shall, in connection with
the plan-to-plan transfer described in Section 2.02(d), cooperate in making any
and all appropriate filings required by the Commission or the IRS, or required
under the Code or ERISA or any applicable securities laws and the regulations
thereunder, and take all such action as may be necessary and appropriate to
cause such plan-to-plan transfer to take place as soon as practicable after the
Cut-Off Date or otherwise when required by law. Further, PriceSmart or PEI, as
the case may be, shall seek a favorable IRS determination letter that the
PriceSmart Profit Sharing Plan or the PEI Profit Sharing Plan, as the case may
be, as organized, satisfies all qualification requirements under Section 401(a)
of the Code. Notwithstanding the foregoing, such plan-to-plan transfers shall
take place pending issuance of such favorable determination letter. PriceSmart
and PEI shall each make any necessary amendments on a retroactive basis to the
Combined Profit Sharing Plan, the PriceSmart Profit Sharing Plan or the PEI
Profit Sharing Plan, respectively, as required by the IRS to issue the favorable
determination letter described above.
(g) Account Balances of Retained Employees. Except as provided in
Section 2.02(b) and Section 2.02(c), on the Distribution Date, PriceSmart
shall assume or retain, as the case may be, sole responsibility for all
liabilities and obligations existing as of the Distribution Date under the
PEI Profit Sharing Plan (including, but not limited to, liabilities and
obligations to PEI Terminees), and PEI shall have no liability or obligation
with respect thereto. PEI shall assume or retain, as the case may be, sole
responsibility for all liabilities and obligations arising after the
Distribution Date under the Combined Profit Sharing Plan and/or under the PEI
Profit Sharing Plan with respect to Retained Employees, and PriceSmart shall
have no liability or obligation with respect thereto.
Section 2.03 Stock Plans.
(a) PEI Stock Option Plan. PEI shall continue the PEI Stock Option
Plan. All options granted under the PEI Stock Option Plan will continue to be
denominated in PEI Common Stock. PEI shall continue to reserve those shares
already reserved under the PEI Stock Option Plan. Additionally, PEI, after the
Distribution Date, will cause to be reserved any additional shares identified
for reservation thereunder to the extent authorized by the stockholders of PEI.
(b) PEI Director Option Plan. PEI shall continue the PEI Director
Option Plan. All options granted under the PEI Director Option Plan will
continue to be denominated in PEI Common Stock. PEI shall continue to reserve
those shares already reserved under the PEI Director Option Plan. Additionally,
PEI, after the Distribution, will cause to be reserved any additional shares
identified for reservation thereunder to the extent authorized by the
stockholders.
(c) PriceSmart Stock Option Plan. On or prior to the Distribution
Date, PriceSmart shall take, or cause to be taken, all action necessary and
appropriate to approve the adoption of the PriceSmart Stock Option Plan. As
soon as practicable after the Distribution Date, PriceSmart shall take, or
cause to be taken, all action necessary and appropriate to approve grants of
PriceSmart Stock Options for PriceSmart Individuals, in accordance with
Section 2.03(d)(iii). All awards under the PriceSmart Stock Option Plan will
be denominated in PriceSmart Common Stock. PriceSmart will reserve 700,000
shares of PriceSmart
8
Common Stock for issuance under the PriceSmart Stock Option Plan, to the extent
authorized by PEI, its sole stockholder, prior to the Distribution Date. Any
such shares not used to adjust outstanding PEI Stock Options pursuant to Section
2.03(d) will be available for future awards to PriceSmart Employees.
(d) Effect of the Distribution on Awards Made Prior to the
Distribution Date.
(i) Exercise and Cancellation of Vested PEI Options Held By
Transferred Employees: All Transferred Employees holding vested PEI Stock
Options or PEI Director Options shall be required to exercise such Stock Options
prior to the date 90 days after the Distribution Date. All PEI Stock Options
and PEI Director Options held by Transferred Employees shall be cancelled in
accordance with their terms (except in case of death or disability) on the date
90 days after the Distribution Date.
(ii) Treatment of PEI Options Held By Retained Employees: PEI
Stock Options and PEI Director Options, whether vested or unvested, held by
Retained Employees shall remain in effect following the Distribution and shall
be equitably adjusted in accordance with Section 2.03(d)(iv) to reflect the
Distribution. Retained Employees shall not be required to exercise such PEI
Stock Options or PEI Director Options within 90 days after the Distribution
Date.
(iii) Substitution of Stock Options: As soon as practicable
after the Distribution Date, each Transferred Employee that is a grantee of
PEI Stock Options that have not yet vested in accordance with their terms
shall receive for each such PEI Stock Options, in substitution therefor,
PriceSmart Stock Options. Each such PriceSmart Stock Option shall contain
substantially equivalent terms as the PEI Stock Option to be cancelled and
replaced, except (i) to the extent modified by PriceSmart, in its sole
discretion and (ii) the exercise price of and number of shares covered by the
PriceSmart Stock Option will be set to preserve the Aggregate Spread in value
attributed to the existing unvested PEI Stock Options held by such
Transferred Employee.
(iv) Adjustment of Option Price for PEI Stock Options: For
purposes of determining the adjusted option price of PEI Stock Options and PEI
Director Options, the formula set forth in Exhibit A to this Agreement shall be
used to maintain each optionee's Aggregate Spread on each outstanding grant of
PEI Stock Options and PEI Director Options.
(v) Limitation on Adjustments: To the extent that any adjustment
or limitations of this Section 2.03(d) is inconsistent with the PEI Stock Option
Plan, the PEI Director Plan and the PriceSmart Stock Option Plan or the intended
tax or accounting treatment of the Distribution or any option, it shall not
apply, and PEI and PriceSmart shall mutually agree on an alternative adjustment.
Section 2.04 Combined Medical/Dental Plans. On or prior to the
Distribution Date, PEI and PriceSmart shall take, or cause to be taken, all
action necessary and appropriate to permit PriceSmart Employees to participate
in the PEI Medical/Dental Plans.
Section 2.05 PEI Medical/Dental Plans.
(a) Liability for Claims.
(i) Except as otherwise provided herein, as of the Distribution
Date, PEI shall assume or retain and shall be responsible for, or cause its
insurance carriers or HMOs to be responsible
9
for, all liabilities and obligations related to claims asserted or incurred or
premiums owed after the Distribution Date in respect of any Retained Employee
(or any dependent or beneficiary thereof) under any PEI Medical/Dental Plan and
claims asserted or incurred or premiums due after the Distribution Date in
respect of any Retained Employee (or any dependent or beneficiary thereof) under
any PEI Medical/Dental Plan, and PriceSmart shall have no liability or
obligation with respect thereto.
(ii) Except as otherwise provided herein, as of the Distribution
Date, PriceSmart shall assume or retain and shall be responsible for, or cause
its insurance carriers or HMOs to be responsible for, all liabilities and
obligations related to claims asserted or incurred or premiums owed as of the
Distribution Date with respect to all Employees and after the Distribution Date
in respect of any Transferred Employee (or any dependent or beneficiary thereof)
or PEI Terminee (or any dependent or beneficiary thereof) under any PEI
Medical/Dental Plan and claims asserted or incurred or premiums due after the
Distribution Date in respect of any Transferred Employee (or any dependent or
beneficiary thereof) or PEI Terminee (or any dependent or beneficiary thereof)
under any PEI Medical/Dental Plan, and PEI shall have no liability or obligation
with respect thereto.
(b) Continuation Coverage Administration. As of the Distribution
Date, PriceSmart shall assume or retain and shall be solely responsible for, or
cause its insurance carriers or HMOs to be responsible for, providing and
administering the continuation coverage required by COBRA as it relates to any
Qualified Beneficiary, except as provided in Section 2.05(d), and PEI shall have
no liability or obligation with respect thereto.
(c) Continuation Coverage Claims. As of the Distribution Date,
PriceSmart shall assume or retain and shall be responsible for, or cause its
insurance carriers or HMOs to be responsible for, all liabilities and
obligations in connection with claims asserted or incurred or premiums owed
through the Distribution Date under any PEI Medical/Dental Plan in respect of
any Qualified Beneficiary and claims asserted or incurred or premiums owed after
the Distribution Date under any PEI Medical/Dental Plan in respect of any
Qualified Beneficiary, and PEI shall have no liability or obligation with
respect thereto.
(c) Liability for Claims. As of the Distribution Date, PEI shall
assume and shall be responsible for, or cause its insurance carriers or HMOs to
be responsible for, all liabilities and obligations in connection with claims
asserted or incurred or premiums due after the Distribution Date in respect of
any Retained Employee (or any dependent or beneficiary thereof) under any PEI
Medical/Dental Plan and PriceSmart shall have no liability or obligation with
respect thereto.
Section 2.06 PriceSmart Medical/Dental Plans.
(a) Establishment of PriceSmart Medical/Dental Plans. On or prior to
December 31, 1997, PriceSmart shall take, or cause to be taken, all action
necessary and appropriate to establish and administer (or continue to
administer) the PriceSmart Medical/Dental Plans and to provide benefits
thereunder for all Transferred Individuals (and any dependents or beneficiaries
thereof), and PriceSmart Qualified Beneficiaries (with respect to continuation
coverage under COBRA only) who, immediately prior to December 31, 1997 were
participants in or otherwise entitled to benefits under the PEI Medical/Dental
Plans. Each such individual shall, to the extent applicable, for all purposes
under the new PriceSmart Medical/Dental Plans (i) have coverage which is
substantially comparable to that provided immediately prior to December 31,
1997, (ii) have no preexisting condition limitation imposed other than
10
that which is or was already imposed under the applicable existing Plan, and
(iii) be credited with or otherwise have taken into account, to the extent
applicable, Service Credits, any expenses incurred towards deductibles,
out-of-pocket limits, maximum benefit payments, and any benefit usage towards
plan limits credited to such individual as of the Distribution Date under the
terms of the applicable existing Plan as if such service had been rendered to
PriceSmart and as if such expenses and usage had originally been credited to
such individual under the PriceSmart Medical/Dental Plans.
(b) PEI to Provide Information. As soon as practicable after the
Distribution Date, PEI shall provide PriceSmart (with the cooperation of
PriceSmart to the extent that relevant information is in the possession of
PriceSmart, and in accordance with Section 5.02), with a list of individuals
(and dependents thereof) employed by PriceSmart who were, to the best knowledge
of PEI, participants in or otherwise entitled to benefits under the PEI
Medical/Dental Plans immediately prior to the Distribution Date, together with a
listing of each such individual's Service Credit under such Plans and a listing
of each such individual's expenses incurred towards deductibles, out-of-pocket
limits, maximum benefit payments, and any benefit usage towards plan limits
thereunder. PEI shall, as soon as practicable after the Distribution Date, in
accordance with Section 5.02 provide PriceSmart with such additional information
in the possession of PEI (and not already in the possession of PriceSmart) as
may be reasonably requested by PriceSmart and necessary for PriceSmart to
establish and administer effectively any PriceSmart Medical/Dental Plan.
Section 2.07 Vacation and Sick Pay Liabilities.
(a) Division of Liabilities. Effective on the Distribution Date,
PriceSmart shall assume all accrued liabilities (whether vested or unvested, and
whether funded or unfunded) for vacation and sick leave in respect of all
Employees as of the Distribution Date. PriceSmart shall be solely responsible
for the payment to PriceSmart Employees of vacation or sick leave accrued after
the Distribution Date, and PEI shall be solely responsible for the payment to
Retained Employees of vacation or sick leave accrued after the Distribution
Date.
(b) Post-Distribution Transfers. Through December 31, 1998, an
Employee who leaves the service of one Party to immediately begin employment
with the other Party (i.e., leaving PEI employment to work for PriceSmart, or
leaving PriceSmart employment to work for PEI) shall be provided by the
successor employer with the same balance of vested and unvested vacation and
sick leave hours as had been accrued by the former Employer through such
termination date. The former Employer shall promptly notify the successor
Employer in writing of the occurrence of any termination subject to the
provisions of this Section 2.07(b), and subject to the provisions of Section
3.04(b), the former Employer shall make a payment to the successor Employer
within thirty (30) days of the aforesaid termination date in an amount equal
to the value of the terminating Employee's vested balance of vacation leave
and sick leave accrued by the former Employer through such termination date,
based on the Employee's final rate of pay with the former Employer. No
payment shall be made by the former Employer to the successor Employer for
any unvested sick leave or vacation leave balance relating to any
post-Distribution transfer.
Section 2.08 Preservation of Right To Amend or Terminate Plans. Except as
otherwise expressly provided in this Article II, no provisions of this
Agreement, including, without limitation, the agreement of PEI or PriceSmart to
make a contribution or payment to or under any Plan herein referred to for any
period, shall be construed as a limitation on the right of PEI or PriceSmart to
amend such Plan or terminate its participation therein which PEI or PriceSmart
would otherwise have under the terms of such
11
Plan or otherwise, and no provision of this Agreement shall be construed to
create a right in any employee or former employee, or dependent or beneficiary
of such employee or former employee under a Plan which such person would not
otherwise have under the terms of the Plan itself; provided, however, that
neither Party shall amend any Plan to the extent that such amendment would have
the effect of increasing the liabilities of the other Party under any Plan of
the other Party, without such other Party's consent.
Section 2.09 Reimbursement. PEI and PriceSmart acknowledge that PEI, on
the one hand, and PriceSmart, on the other hand, may incur costs and expenses,
including, but not limited to, contributions to Plans and the payment of
insurance premiums arising from or related to any of the Plans which are, as set
forth in this Agreement, the responsibility of the other Party hereto.
Accordingly, PEI and PriceSmart shall reimburse each other, as soon as
practicable, but in any event within thirty (30) days of receipt from the other
Party of appropriate verification, for all such costs and expenses.
Section 2.10 Payroll Reporting and Withholding.
(a) Form W-2 Reporting. PriceSmart and PEI may adopt the
"alternative procedure" for preparing and filing IRS Forms W-2 (Wage and Tax
Statements), as described in Section 5 of Revenue Procedure 84-77, 1984-2 IRS
Cumulative Bulletin 753 ("Rev. Proc. 84-77"). Under this procedure PriceSmart
as the successor employer shall provide all required Forms W-2 to all
Transferred Employees reflecting all wages paid and taxes withheld by both PEI
as the predecessor and PriceSmart as the successor employer for the entire year
during which the Distribution takes place. PEI shall provide all required Forms
W-2 to all Retained Employees reflecting all wages and taxes paid and withheld
by PEI before and after the Distribution Date.
In connection with the aforesaid agreement under Rev. Proc. 84-77,
each business unit or business operation of PEI shall be assigned to either PEI
or PriceSmart, depending upon whether it is a Retained Business or a Transferred
Business, and each Retained Employee or Transferred Employee associated with
such business unit or business operation shall be assigned for payroll reporting
purposes to PEI or PriceSmart, as the case may be. PEI and PriceSmart shall be
responsible for filing IRS Forms 941 for their respective Employees.
(b) Forms W-4 and W-5. PriceSmart and PEI may adopt the alternative
procedure of Rev. Proc. 84-77 for purposes of filing IRS Forms W-4 (Employee's
Withholding Allowance Certificate) and W-5 (Earned Income Credit Advance Payment
Certificate). Under this procedure PEI shall provide to PriceSmart as the
successor employer all IRS Forms W-4 and W-5 on file with respect to each
Transferred Employee, and PriceSmart will honor these forms until such time, if
any, that such Transferred Employee submits a revised form.
(c) Garnishments, Tax Levies, Child Support Orders, and Wage
Assignments. With respect to Employees with garnishments, tax levies, child
support orders, and wage assignments in effect with PEI on the Distribution
Date, PriceSmart as the successor employer with respect to each Transferred
Employee shall honor such payroll deduction authorizations and will continue to
make payroll deductions and payments to the authorized payee, as specified by
the court or governmental order which was filed with PEI.
12
(d) Authorizations for Payroll Deductions. Unless otherwise
prohibited by this or another agreement entered into in connection with the
Distribution, or by a Plan document, with respect to Transferred Employees with
authorizations for payroll deductions in effect with PEI on the Distribution
Date, PriceSmart as the successor employer will honor such payroll deduction
authorizations relating to each Transferred Employee, and shall not require that
such Transferred Employee submit a new authorization to the extent that the type
of deduction by PriceSmart does not differ from that made by PEI. Such
deduction types include, without limitation, contributions to any Plan;
scheduled loan repayments to the relevant Profit Sharing Plan or to an employee
credit union; and direct deposit of payroll, bonus advances, union dues,
employee relocation loans, and other types of authorized company receivables
usually collectible through payroll deductions.
ARTICLE III
LABOR AND EMPLOYMENT MATTERS
Notwithstanding any other provision of this Agreement or any other
Agreement between PriceSmart and PEI to the contrary, PriceSmart and PEI
understand and agree that:
Section 3.01 Separate Employers. On and after the Distribution Date and
the separation of Employees into their respective companies, PriceSmart and PEI
will be separate and independent employers.
Section 3.02 Employment Policies and Practices. Subject to the provisions
of ERISA and Sections 2.01(b) and 2.07(c) governing post-Distribution transfers,
and except as limited by applicable law or agreement, PriceSmart and PEI may
adopt, continue, modify or terminate such employment policies, compensation
practices, retirement plans, welfare benefit plans, and other employee benefit
plans of any kind or description, as each may determine, in its sole discretion,
are necessary or appropriate.
Section 3.03 Collective Bargaining Agreements. With regard to Employees
covered by a Collective Bargaining Agreement on the Distribution Date who become
PriceSmart Employees or Retained Employees, PriceSmart and PEI promise and
covenant to each other not to take any action which disrupts or otherwise
negatively impacts the labor relations of the other. PriceSmart and PEI will
diligently work to substitute the appropriate employer for PEI in Collective
Bargaining Agreements.
Section 3.04 Special Matters.
(a) Administrative Services in Connection with the Combined Profit
Sharing Plan. It is agreed that PriceSmart will provide administrative services
to the Combined Profit Sharing Plan from the Distribution Date through the
Cut-Off Date at a reasonable fee to be agreed upon by PEI and PriceSmart, which
fee shall comply with ERISA and other applicable law. Such services will be
substantially similar to the services provided by PEI employees to the Combined
Profit Sharing Plan.
(b) Payments to PEI. To the extent that PEI makes any payment for,
or takes responsibility for future payment of, any liability or obligation which
exists as of the Distribution Date and is assumed by PriceSmart pursuant to this
Agreement (any such payment, a "Liability Payment"), not later than thirty (30)
days after receipt of an invoice from PEI of such Liability Payment, PriceSmart
shall make a payment to PEI equal to the amount of such Liability Payment.
13
Section 3.05 Notice of Claims. Without limitation to the scope and
application to each Party in the performance of its duties under Sections 3.03
and 3.04 herein, each Party will notify in writing and consult with the other
Party prior to making any settlement of an employee claim, for the purpose of
avoiding any prejudice to such other Party arising from the settlement.
Section 3.06 Assumption of Unemployment Tax Rates. Changes in state
unemployment tax experience from that of PEI as of the Distribution Date shall
be handled as follows. In the event an option exists to allocate state
unemployment tax experience of PEI, the PEI experience shall be transferred to
PriceSmart if this results in the lowest aggregate unemployment tax costs for
both PEI and PriceSmart combined, and the PEI experience shall be retained by
PEI if this results in the lowest aggregate unemployment tax costs for PEI and
PriceSmart combined.
Section 3.07 Employees on Leave of Absence. After the Distribution Date,
PriceSmart shall assume responsibility, if any, as employer for all Employees
returning from an approved leave of absence who prior to the Distribution Date
were employed in a Transferred Business. After the Distribution Date, PEI shall
assume responsibility, if any, as employer for all Employees returning from an
approved leave of absence who prior to the Distribution Date were not employed
in a Transferred Business.
Section 3.08 No Third Party Beneficiary Rights.
(a) Neither this Agreement nor any other intercompany agreement
between PriceSmart and PEI is intended to nor does it create any third party
contractual or other common law rights. No person shall be deemed a third-party
beneficiary of the agreements between PriceSmart and PEI.
(b) Nothing contained in this Agreement shall confer upon any
Employee any right with respect to continuance of employment by either Party,
nor shall anything herein interfere with the right of either party to terminate
the employment of any Employee at any time, with or without cause, or restrict a
Party in the exercise of its independent business judgment in modifying any of
the terms and conditions of the employment of an Employee, except as provided by
applicable law.
(c) No provision of this Agreement shall create any third party
beneficiary rights in any Employee, any beneficiary or dependent thereof, or any
collective bargaining representative thereof, with respect to the compensation,
terms and conditions of employment and benefits that may be provided to any
Employee by either Party or under any benefit plan which a Party may maintain.
Section 3.09 Attorney/Client Privilege. The provisions herein requiring
either Party to this Agreement to cooperate shall not be deemed to be a waiver
of the attorney/client privilege for either Party nor shall it require either
Party to waive its attorney/client privilege.
ARTICLE IV
DEFAULT
Section 4.01 Default. If either Party materially defaults hereunder, the
non-defaulting Party shall be entitled to all remedies provided by law or equity
(including reasonable attorneys' fees and costs of suit incurred).
14
Section 4.02 Force Majeure. PriceSmart and PEI shall incur no liability to
each other due to a default under the terms and conditions of this Agreement
resulting from fire, flood, war, strike, lock-out, work stoppage or slow-down,
labor disturbances, power failure, major equipment breakdowns, construction
delays, accident, riots, acts of God, acts of United States' enemies, laws,
orders or at the insistence or result of any governmental authority or any other
delay beyond each other's reasonable control.
ARTICLE V
MISCELLANEOUS
Section 5.01 Relationship of Parties. Nothing in this Agreement shall be
deemed or construed by the Parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
Parties, it being understood and agreed that no provision contained herein, and
no act of the Parties, shall be deemed to create any relationship between the
Parties other than the relationship set forth herein.
Section 5.02 Access to Information; Cooperation. PEI and PriceSmart and
their authorized agents shall be given reasonable access to and may take copies
of all information relating to the subjects of this Agreement (to the extent
permitted by federal and state confidentiality laws) in the custody of the other
Party, including any agent, contractor, subcontractor, agent or any other person
or entity under the contract of such Party. The Parties shall provide one
another with such information within the scope of this Agreement as is
reasonably necessary to administer each Party's Plans. The Parties shall
cooperate with each other to minimize the disruption caused by any such access
and providing of information.
Section 5.03 Assignment. Neither Party shall, without the prior written
consent of the other, have the right to assign any rights or delegate any
obligations under this Agreement.
Section 5.04 Headings. The headings used in this Agreement are inserted
only for the purpose of convenience and reference, and in no way define or limit
the scope or intent of any provision or part hereof.
Section 5.05 Severability of Provisions. Neither PEI nor PriceSmart intend
to violate statutory or common law by executing this Agreement. If any section,
sentence, paragraph, clause or combination of provisions in this Agreement is in
violation of any law, such sections, sentences, paragraphs, clauses or
combinations shall be inoperative and the remainder of this Agreement shall
remain in full force and effect and shall be binding upon the Parties.
Section 5.06 Parties Bound. This Agreement shall inure to the benefit of
and be binding upon the Parties hereto and their respective successors and
permitted assigns. Nothing herein, expressed or implied, shall be construed to
give any other person any legal or equitable rights hereunder.
Section 5.07 Notices. All notices, consents, approvals and other
communications given or made pursuant hereto shall be in writing and shall be
deemed to have been duly given when delivered personally or by overnight courier
or three days after being mailed by registered or certified mail (postage
prepaid, return receipt requested) to the named representatives of the Parties
at the following addresses
15
for at such other address for a Party as shall be specified by like notice,
except that notices of changes of address shall be effective upon receipt):
(a) if to PEI:
Price Enterprises, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
fax:
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇
(b) if to PriceSmart:
PriceSmart, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
fax:
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇
PriceSmart and PEI agree that, upon the request of either Party, the requested
Party will give copies of all of its notices, consents, approvals and other
communications hereunder to any lender to the requesting Party or other person
specified by such requesting Party.
Section 5.08 Further Action. PriceSmart and PEI each shall cooperate in
good faith and take such steps and execute such papers as may be reasonably
requested by the other Party to implement the terms and provisions of this
Agreement.
Section 5.09 Waiver. PriceSmart and PEI each agree that the waiver of any
default under any term or condition of this Agreement shall not constitute a
waiver of any subsequent default or nullify the effectiveness of that term or
condition.
Section 5.10 Governing Law. All controversies and disputes arising out of
or under this Agreement shall be determined pursuant to the laws of the State of
California, regardless of the laws that might be applied under applicable
principles of conflicts of laws.
Section 5.11 Entire Agreement. This Agreement and the Distribution
Agreement constitute the entire understanding between the Parties hereto, and
supersede all prior written or oral communications, relating to the subject
matter covered by said agreements. To the extent that the terms of this
Agreement and similar terms of the Distribution Agreement are in conflict, the
interpretation given to the conflicting terms of the Distribution Agreement
shall govern the interpretation and performance of this Agreement. No
amendment, modification, extension or failure to enforce any condition of this
Agreement by either Party shall be deemed a waiver of any of its rights herein.
This Agreement shall not be amended except by a writing executed by the Parties.
Section 5.12 Dispute Resolution. Any dispute arising under this Agreement
shall be resolved by binding arbitration in the manner contemplated by Section
9.13 of the Distribution Agreement, including the attorneys fees provisions
referred to therein.
16
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
PRICE ENTERPRISES, INC., a Delaware corporation
By:
-----------------------------------
Name:
----------------------------
Title:
----------------------------
PRICESMART, INC., a Delaware corporation
By:
-----------------------------------
Name:
----------------------------
Title:
----------------------------
17