CREDIT AGREEMENT
This CREDIT AGREEMENT (the "AGREEMENT'), dated as of February 25, 2000
is executed among Inmobiliaria PriceSmart Honduras, Sociedad Anonima de Capital
Variable, or simply Inmobiliaria Pricesmart, S.A. de C.V., a company organized
and existing under the laws of Honduras (the "BORROWER"), PriceSmart Honduras,
Sociedad Anonima de Capital Variable, or simply PriceSmart Honduras, S. A. De C.
V., a company organized under the laws of Honduras, (the "GUARANTOR"), PSMT
Caribe Inc., a corporation organized according to the laws of the British Virgin
Islands, (the "GUARANTOR") PriceSmart, Inc., a corporation organized according
to the laws of the State of Delaware, United States of America, (the "'GUARANTOR
AND ASSIGNOR), PSC, S.A., a company organized under the laws of the Republic of
Panama (the "GUARANTOR), Ventures Services Inc., a corporation organized
according to the laws of the State of Delaware, United States of America (the
"ASSIGNOR" and Citibank, N.A. (I.B.F.), an international banking facility
organized in accordance with the laws of the State of New York, United States of
America (the "Lender").
PRELIMINARY STATEMENTS:
1.- INMOBILIARIA PRICESMART HONDURAS, SOCIEDAD ANONIMA DE CAPITAL
VARIABLE, or simply INMOBILLARIA PRICESMART, S. A. DE C. V. (the "Borrower) has
applied to the LENDER, for a medium term nonrevolving loan of an amount of THREE
MILLION FIVE HUNDRED THOUSAND UNITED STATES DOLLARS (USS3,500,000.00).
2.- In order to provide funds to finance a completed PriceSmart
warehouse containing approximately five thousand square meters (5,000 M2) in San
Pedro Sula, Honduras, the BORROWER has requested that the LENDER enter into this
Agreement.
3, PSMT Caribe, Inc. has complied with a capital injection of at least
THREE MILLION SEVEN HUNDRED THOUSAND Dollars (US$3,750,000.00) into the
Borrower.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1,01. CERTAIN DEFINED TERMS. Certain capitalized terms are
used in this Agreement with the specific meanings defined below in this Section
1.01. Except as otherwise explicitly specified to the contrary or unless the
context clearly requires otherwise, (a) the capitalized term "Section" refers to
sections of this Agreement;
(b) the capitalized term "Exhibit" refers to exhibits to this Agreement; (c)
references to a - particular Section include all subsections thereof; (d) the
word "including" shall be construed as "including without limitation"; (e)
references to a particular Person include such Person's successors and assigns
to the extent permitted by this Agreement and the other Loan Documents; and (f)
the use of the plural includes the singular and of the masculine includes the
feminine, and vice-versa. References to "the date hereof' mean the date fast set
forth above.
"Borrower" has the meaning set forth in the preliminary statements to
this Agreement.
"BUSINESS DAY" means any day other than Saturday, Sunday or a day on
which banks in New York, New York or San Pedro Sula, Honduras are
authorized or required by law or other governmental action to close.
"CAPITAL EXPENDITURES" means any payments which am made by a Person
for, or in connection with, the rental, lease, purchase, construction or
use of any real or personal property the value or cost of which, under
Honduras GAAP, should be capitalized and appear on such Persons balance
sheet in THE category of property, plant or equipment, without regard to
the manner in which such payments or the instrument pursuant to which they
are made are characterized by such Person or any other Person.
"CITIBANK" has the meaning set forth in the preamble to this
Agreement.
"COLLATERAL" means all "Collateral" (as defined in any Collateral
Documents), First Security Interest on land, building, fixtures and
equipment owned or leased by the Borrower, Assignment of all rents, leases
and license agreements and other assets and property that in accordance
with the terms of the Collateral Documents is or will be subject to any
Lien in favor of the Lenders.
"COLLATERAL DOCUMENTS" means the Pledges of furniture, fixtures and
equipment and the Mortgage on Real Property owned by or leased by the
Borrower, the Assignment of all rents, of all leases and of the Licensing
Technology Transfer, Training and Sourcing Agreement.
"LEMPIRAS" means the lawful currency of the Republic of Honduras.
"CONSOLIDATED" means the consolidation of accounts in accordance with
Honduran GAAP.
"CROSS-BORDER INSURANCE 'MEANS the insurance policy between the Leader
and OPIC.
"DISBURSEMENT" means the amount of THREE MILLION FIVE HUNDRED THOUSAND
DOLLARS (US$3,500,000.00) which the Lender will deliver to the Borrower pursuant
to this Agreement on the Closing Date.
"DOLLARS" and the sign "M " each mean the lawful currency of the
United States of America.
"EBITDA" means, during any period the sum (without duplication) of (i)
the-net income of the Borrower, plus (ii) depreciation and amortizations
plus (iii) Interest Expense, plus (iv) all other non cash expenses
including, but limited to, unrealized losses from foreign exchange and
monetary correction, and only to the extent that any such expense was
deducted, plus (v) income tax expense, to the extent that any such tax was
deducted in connection with the determination of net income, minus (vi) non
cash gains, including, but not limited to, foreign exchange gains and
monetary corrections, minus (vii) equity income from participation in
subsidiaries and affiliates plus (viii) cash dividends received from
subsidiaries and affiliates
"Honduras" means the Republic of Honduras.
"ENVIRONMENTAL ACTION" means any administrative, regulatory or
judicial action, suit, demand, demand letter, claim, notice of
non-compliance or violation, investigation, proceeding, consent order or
consent agreement relating in any way to any Environmental Law or any
Environmental Permit including, without limitation, (a) any claim by any
governmental or regulatory authority for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any
Environmental Law and (b) any claim by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive
relief resulting from Hazardous Materials or arising from alleged injury or
threat of injury to health, safety or the environment.
"ENVIRONMENTAL -LAW" means any Honduran national, departmental, local
or municipal law, rule, regulation, code, order, writ judgment, injunction,
decree or judicial or agency written interpretation, written policy or
written guidance relating to the protection of the environment health,
safety or Hazardous Materials or regulating the use, disposal or exposure
to substances by reason of their effect on the health or safety of humans
or of the environment.
"ENVIRONMENTAL PERMIT" means any permit, approval, identification
number, license or other authorization required under any Honduran
Environmental Law.
"EVENTS OF DEFAULT " has the meaning specified in Section 6.01.
"FACILITY" means, at any time, the aggregate amount of the Lenders'
Commitments at such time.
"FISCAL YEAR means a fiscal year of the Borrower ending on August 31st
in any calendar year.
"GUARANTEES" in connection with the full repayment of all principal
and interest outstanding means (i) joint and several from the Borrower,
PriceSmart Honduras, S.A.de C.V. and PSMT Caribe, Inc, (ii) from
PriceSmart, Inc., in an amount up to but not exceeding 60% of all principal
and interest outstanding from time to time and (iii) from PSC, S.A.", in an
amount up to but not exceeding 40% of all principal and interest
outstanding from time to time.
"GUARANTEE REDUCTION PROVISION" means the Lender agrees to reduce the
guarantees dollar for dollar with the repayment of the Loan pursuant to the
amortization schedule; provided that the maximum reduction shall be as
follows: (i) 50% of the loan ONE MILLION SEVEN HUNDRED FIFTY THOUSAND
Dollars (US$1,750,000.00) at such time as the loan to value is equal to or
less than 50% and, for the prior 12-month period, the net operating income
for the Project covered combined debt service (interest and principal
amortization) on the loan at a minimum 1.50: 1 ratio, and (ii) 30% of the
loan ONE MILLION FIFTY THOUSAND Dollars (US$ 1,050,000.00) at such time as
the loan to value is equal to or less than 30% and, for the prior 12-month
period, the net operating income from the project covered combined debt
service on the loan at a minimum 1.50:1 ratio.
"INTEREST EXPENSE" means, for any period of the Borrower, the
aggregate amount of interest paid or required to be paid in cash by the
Borrower in respect of all Debt.
"INTEREST PERIOD" means, the period commencing on the date of such
Disbursement and ending on the next succeeding Payment Date and,
thereafter, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the next succeeding
Payment Date; PROVIDED, HOWEVER that:
(a) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next succeeding
Business Day, provided, however that, if such extension would cause
the last day of such Interest Period to occur in the next following
calendar month, the last day of such Interest Period shall occur on
the next preceding Business Day; and
(b) whenever the first day of any Interest Period occurs on a day
of an initial calendar month for which there is no numerically
corresponding day in the calendar month that succeeds such initial
calendar month in such Interest Period, such Interest Period shall
end on the last Business Day of such succeeding calendar month.
"INTEREST Rate" will be calculated on the basis of 3-months LIBOR Rate
+ 5.125% p.a. All interest will be calculated on a 365/360 days convention.
Interest payments shall be due and payable on a monthly basis.
"Lien" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the hen or retained security title of a
conditional vendor and any easement, right of way or other encumbrance on
title to real property.
"LOAN CLOSING" MEANS date on which all parties hereto have executed
this Agreement.
"LOAN DOCUMENTS" means this Agreement, the Recognition of Debt, the
Collateral Documents, in each case as amended or otherwise modified from
time to time.
"LOAN PARTY' means each of the Borrower, PriceSmart Honduras, S.A.de
C.V., PSMT Caribe, Inc., PriceSmart, Inc., PSC, S.A., and Ventures
Services, Inc., any other pledgor assignor or guarantor under any
Collateral Document and their successors and permitted assigns.
"LOAN TERM" means five years from Loan Closing.
"MATERIAL ADVERSE CHANGE" means any substantive alteration in (a) -the
business condition (financial or otherwise), operations, performance,
properties or prospects of the Borrower, PriceSmart Honduras, S.A.de C.V.,
PSMT Caribe, Inc., PriceSmart, Inc., PSC, S.A. which significantly
diminishes any of the parties ability to perform the obligations stated
herein
"MATERIAL ADVERSE EFFECT " means any variation in the financial
condition, business, properties or prospects or results of the operations
of the Borrower and /or PriceSmart Honduras, S.A. De C.V. Which, in the
good faith opinion of the Lender, could reasonably be expected to
significantly diminish THE Borrower's ability to perform its obligations
stated herein.
"MATERIAL CONTRACT " means, with respect to any Pawn, any written
contract that is material to the business condition (financial or
otherwise), operations, performance, properties or prospects of such,
Person, including, without limitation, with respect to the Borrower, the
Leasing Agreements, the License Agreements or other similar contract.
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"MATURITY DATE" means March 3, 2005.
"MORTGAGE ON REAL PROPERTY" means the mortgage entered into on the
date hereof by the Borrower and the Lender for its benefit, substantially
in the form of Exhibit I attached hereto.
"NEW YORK LOAN DOCUMENTS" means this Agreement, the Assignment
Agreement, dated as of February 25, 2000, in each case, as amended or
otherwise modified from time to time.
"OBLIGATION" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind, including,
without limitation, any liability of such Person on any claim, whether or
not the right of any creditor to payment in respect of such claim is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
disputed, undisputed, legal, equitable, secured or unsecured, and whether
or not such claim is discharged, stayed or otherwise affected by any
proceeding referred to in Section 4.01 (g). Without limiting the generality
of the foregoing, the Obligations of the Borrower under the Loan Documents
include (a) the obligation to pay principal, interest, charges, expenses,
fees, premiums with respect to Cross-Border Insurance, attorneys' fees and
disbursements, indemnities and other amounts payable by the Borrower under
any Loan Document and (b) the obligation of the Borrower to reimburse any
amount in respect of any of the foregoing that the Lender shall pay or
advance on behalf of the Borrower as contemplated in this Agreement.
"OPIC": Overseas Private Investment Corporation is an agency of the
United States Government, with the mandate of facilitating economically
productive and environmentally sound United States private investments in
developing countries and emerging economies.
"OTHER TAXES" has the meaning specified in Section 2.08.
"PAYMENT DATE" means each 3rd day of the month beginning April 3rd,
2000 for monthly interest payments and each 2nd day of the month beginning
June 3, 2000 for quarterly principal payments.
"PERMITTED LIENS" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall
have been commenced: (a) Liens for taxes, assessments and governmental
charges or levies to the extent not required to be paid under Sections 5.02
(b) and 5.03 [(a)B] hereof; (b) Liens imposed by law, such as
materialmen's, mechanics', carriers', workmen's and repairmen's Liens and
other similar Liens arising in the ordinary course of business securing
obligations that are not overdue for a period of more than 30 days; (c)
pledges or deposits to secure obligations under workers' compensation laws
or similar legislation or to secure public or statutory
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obligations; and (d) easements, rights of way and other encumbrances
on title to real property that do not render title to the property
encumbered thereby unmarketable or materially adversely affect the
use of such property for its present purposes.
"PERSON" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government
or any political subdivision or agency thereof.
"PLEDGES OF FURNITURE, FIXTURES AND EQUIPMENT" means the pledge
agreements entered into on the date hereof in respect of furniture,
fixtures and equipment and certain other movable assets owned by Pricesmart
Honduras, S.A. de C.V. on the date hereof between the Borrower and the
Lender for its benefit, substantially in the form of Exhibit __ attached
hereto.
"PROCESS AGENT" has the meaning specified in Section 7.04.
"RECOGNITION OF DEBT" means a Loan Recognition, under Honduran law.
"RESPONSIBLE OFFICER" means any authorized officer of the Borrower.
"ROLLING PERIOD" means for any fiscal quarter, such quarter and the
immediately preceding fiscal quarter.
"HONDURAN "GAAP" has the meaning specified in Section 1.03.
"SOLVENT" means, with respect to any Person on a particular date, that
on such date (a) the fair market value of the property of such Person is
greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person, (b) the present fair
salable value of the assets of such Person is not less than the amount that
will be required to pay the probable liability of such Person on its debts
as they become absolute and matured, (c) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay such debts and liabilities as they mature and (d)
such Person is not engaged in business or a transaction, and is not about
to engage in business or a transaction, for which such Person's property
would constitute an unreasonably small capital. The amount of contingent
liabilities at any time shall be computed as the amount that, in the light
of all the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured
liability.
"TAXES" has the meaning specified in Section 2.08.
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"WORKING CAPITAL" means, as of any date, the current assets of the
Borrower, other than cash and other marketable securities, minus the
current liabilities of the Borrower, other than the current portion of long
term debt, in each case, in accordance with Honduran GAAP, as of such date.
SECTION 1.02. COMPUTATION OF TIME PERIODS. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding."
SECTION 1.03. ACCOUNTING TERMS. All accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to Citibank, N.A. hereunder shall be
prepared in accordance with Honduran generally accepted accounting principles
applied on a basis consistent with those applied in the preparation of the
latest financial statements furnished to the Lender hereunder (which, prior to
the delivery of the first financial statements under Section 5.04, shall be the
unaudited financial statements as at December 31,1999, referred to in Section
5.04 ("HONDURAN GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE LOAN
SECTION 2.01. (a) The Lender agrees to lend to the Borrower an amount up to
THREE MILLION FIVE HUNDRED THOUSAND Dollars (US$3,500,000.00). The loan amount
is not to exceed 80% of the direct and indirect hard and soft construction
costs, including furniture, fixtures and equipment, organization and start-up
costs, excluding land cost.
The Borrower acknowledges that this in an IBF facility and as such,
according to the Board of Governors of the Federal Reserve System of the United
States, that extensions of credit by international banking facilities, this loan
may be used only to finance operations outside the United States of the Borrower
or of the Borrower's affiliated outside the United States. The Borrower
indicates its understanding of this provision by initialling the blank which
follows this paragraph.
Initial: [ILLEGIBLE]
-------------------
(b) To effect the Disbursement, the Lender shall transfer the amount of the
Disbursement in United States Dollars to that account in Citibank, N.A., for
the account of PriceSmart Honduras, S.A. de C.V.
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In addition to those conditions precedent to the obligation of the Lender
to make the Disbursement set forth in Sections 3.01 and 4.01 below, on or before
the Date of the Disbursement, the Borrower shall deliver to the Lender a
promissory note substantially in the form of Exhibit II hereto (the "Note")
executed by an authorized signatory of the Borrower. The Lender shall have no
obligation hereunder to effect the Disbursement if it shall not have previously
received such Note, as executed by the Borrower, at the principal offices of
Citibank, NA
(c) Repayment of the Disbursement. The Borrower agrees that the principal
mechanism for the repayment of the Disbursement to the Lender shall be the
delivery to the Lender of the amount corresponding to the amortization schedule
determined in Section 2.03. Every payment shall be made in the same currency
that it was delivered (US dollars). If for governmental or any other reason, the
Borrower has to make payments in local currency, the amount will be calculated
based on the average dollar sales price dictated by Citibank N.A., for the day
that the payment takes place. If the Borrower were to make the payments in local
currency without any valid reason, the loan will terminate and the Lender will
have the right to ask for repayment of the full amount plus the corresponding
interest.
The Borrower will make all principal and interest payments in Citibank,
N.A., or where the Lender designates. Payments will first cover interest due and
then principal.
SECTION 2.02. FEES; PREMIUMS. (a) COMMITMENT FEE. THE Borrower shall pay to
the Lender a structuring fee set forth below:
STRUCTURING FEE. The Borrower shall pay to the Lender at loan closing 0.5%
flat (SEVENTEEN THOUSAND FIVE HUNDRED DOLLARS US$17,500.00). This fee will be
deducted from the loan amount.
SECTION 2.03. REPAYMENT OF LOAN. The Borrower shall repay to the Lender a
minimum amortization of FIVE HUNDRED SIXTY THOUSAND Dollars (US$560,000.00) per
annum. Amortization payments will be due and payable on a quarterly basis,
commencing June 3rd, 2000. The residual amount outstanding totaling
approximately EIGHT HUNDRED FORTY THOUSAND DOLLARS (US$840,000.00) shall be due
and payable at the end of the Loan Term.
SECTION 2.04. PREPAYMENTS. With the exception of scheduled principal
amortization payments, full repayment of the Loan is not permitted for a minimum
of 24 months following Loan closing, with the exception that country devaluation
is equal to or surpasses 12% p.a. Thereafter, the Borrower agrees to notify
Lender in writing, at least 90 days prior to the date of any full repayment of
the Loan. Also partial prepayments may
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only take place on the date when interest rates are adjusted, according to
3-months Libor Rate.
SECTION 2.05. INTEREST. (a) SCHEDULED INTEREST. The Borrower shall pay
interest on the unpaid principal amount owing to the Lender from the date of
disbursement until such principal amount shall be paid in full, at a rate per
annum equal at all times during each Interest Period for such Disbursement of
the sum of 3-months LIBOR Rate for such Interest Period PLUS 5.125% p.a.,
in effect from time to time, due and payable on a monthly basis. All interest
will be calculated on a 365/360 days convention.
(b) DEFAULT INTEREST. Upon the occurrence and during the continuance of a
Default, the Borrower shall pay interest on the unpaid principal amount the
amount owing to the Lender, payable in arrears on the dates referred to in
clause (a) above and on demand, at a rate per annum equal at all times to 5% per
annum above the prevailing rate per annum that would be required to be paid on
the Loan pursuant to clause (a) above.
SECTION 2.06. INCREASED COSTS, ETC. (a) If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation after the date of this Agreement or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any increase in the
cost to the Lender, related specifically to this loan, (excluding for
purposes of this Section 2.06 any such increased costs resulting from (i)
Taxes or Other Taxes (as to which Section 2.08 shall govern) and (ii) changes
in the basis of taxation of overall net income or overall gross income by the
United States or by the foreign jurisdiction or state under the laws of which
the Lender is organized or any political subdivision thereof), then the
Borrower shall from time to time, upon demand by the Lender, pay to the
Lender Agent for the account of the Lender additional amounts sufficient to
compensate such Lender for such increased cost. A certificate as to the
amount of such increased cost, submitted to the Borrower and the Lender,
shall be conclusive and binding for all purposes, absent manifest error.
(b) If the Lender determines that compliance with any law or regulation
or any guideline or request from any central bank or other governmental
authority (whether or not having the force of law) not currently in effect,
increases the amount of capital required or expected to be maintained by the
Lender or any corporation controlling the Lender based upon the existence of
the Lender's commitment to lend hereunder and other commitments of this type
and that such increase in capital represents an additional cost to the Lender
relating to this transaction, then, upon demand by the Lender, the Borrower
shall pay to the Lender, from time to time specified by the Lender,
additional amounts sufficient to compensate the Lender or such corporation,
on a proportional basis, for such increased cost in the light of such
circumstances, to the extent that the Lender reasonably determines such
increase in capital to be allocable to the existence of the Lender's
commitment to lend to the Borrower and to result in an additional cost for
the Lender. A certificate as to the amount of such increased cost,
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explaining in detail how such change in capital required entails additional cost
for the Lender, submitted to the Borrower and the Lender, shall be conclusive
and binding for all purposes, absent manifest error.
(c) Any additional amounts payable under this Section 2.06 by the
Borrower to a Lender assignee shall not exceed the additional amounts the
Borrower would have been required to pay to the Lender assignor who assigned its
rights and obligations under this Agreement to such assignee if no such
assignment had occurred.
(d) Before making any demand for additional amounts under this Section
2.06, the Lender agrees to use its reasonable efforts (consistent with its
internal policy and any applicable legal and regulatory restrictions) to
minimize any such amounts.
SECTION 2.07. PAYMENTS AND COMPUTATIONS. (a) The Borrower shall
make each payment hereunder not later than 11:00 A.M. (New York City time) on
the day when due in Dollars to the Lender at the Lender's Account in same-day
funds. In the event that the amount of funds received by the Lender are
insufficient to satisfy the payments due and payable hereunder, the Lender
shall apply such funds in the following order of priority: (i) first: ratably
to all interest due and payable hereunder, (ii) second: ratably to all
amounts due and payable under Section 2.02: ratably to all principal due and
payable with respect to the Loan and (iv) fourth: ratably to all other
amounts due and payable hereunder.
(b) The Borrower hereby authorizes the Lender, if and to the extent
payment owed to the Lender is not made when due hereunder, to charge from time
to time against any or all of the Borrower's accounts with the Lender any amount
so due. The Lender agrees to provide prompt written notice to the Borrower as to
the occurrence of any such charges against the Borrower's accounts by the Lender
in respect of amounts due hereunder, the amount of such charges and the specific
Borrower's account so charged.
(c) All computations of fees and interest based on the 3-months LIBOR
Rate shall be made by the Lender on the basis of a year of 360/365 days, in each
case for the actual number of days (including the first day but excluding the
last day) occurring in the period for which such interest is payable. Each
determination by the Lender of interest rate hereunder shall be conclusive and
binding for all purposes, absent manifest error.
SECTION 2.08. TAXES. (a) Any and all payments by the Borrower
hereunder shall be made, in accordance with Section 2.03, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
EXCLUDING, in the case of the Lender, taxes imposed on its income and franchise
taxes imposed on it in lieu of income taxes by
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the jurisdiction under the laws of which the Lender is organized or its
principal office is located or any political subdivision thereof and, in the
case of the Lender, taxes imposed on its income or revenues and franchise and
any other taxes imposed on it in lieu of income taxes by the jurisdiction of the
Lender's Applicable Lending Office or any political subdivision thereof (all
such non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities in respect of payments hereunder or the Recognition of Debt being
hereinafter referred to as "TAXES"). If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder or the
Recognition of Debt to the Lender, (i) the sum payable shall be increased as may
be necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.08) the Lender
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.
(b) In addition, the Borrower shall pay (or shall cause to be paid)
any present or future stamp, documentary taxes, value added or any other excise
or property taxes, charges or similar levies imposed by Honduras, that arise
from any payment made hereunder or the Recognition of Debt or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any of the other Loan Documents or any other taxes as may be agreed
upon by the Borrower and the Lender (hereinafter referred to as "OTHER TAXES").
(c) The Borrower shall indemnify the Lender for the full amount of
Taxes and Other Taxes, and for the full amount of taxes of any kind imposed on
amounts payable under this Section 2.08, paid by the Lender and any liability
(including penalties, additions to tax, interest and expenses) arising therefrom
or with respect thereto. This indemnification shall be made within 30 days from
the date the Lender makes written demand therefor accompanied by written
evidence of payment of such Taxes or other Taxes.
(d) If the Lender actually and irrevocably realizes, by reason of a
refund, deduction or credit of any Taxes paid or reimbursed by the Borrower
pursuant to subsection (a) or (c) above in respect of payments under this
Agreement or the Recognition of Debt, a monetary benefit that it would otherwise
not have obtained, and that would result in the total payments under this
Section 2.08 exceeding the amount needed to make the Lender whole, the Lender
shall pay to the Borrower, with reasonable promptness following the date on
which it actually and irrevocably realizes such benefit, an amount equal to the
lesser of the amount of such benefit or the amount of such excess, (in each case
net of all out-of-pocket expenses in securing such refund, deduction or credit).
SECTION 2.09. USE OF PROCEEDS. The proceeds of the Loan shall be
available to the Borrower for the following: to refinance a completed PriceSmart
warehouse containing approximately 5,000 M2 located in San Pedro Sula,
Honduras.
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ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. CONDITIONS PRECEDENT TO INITIAL BORROWING. The
obligation of the Lender to make a Disbursement on occasion of the Borrowing
hereunder is subject to the satisfaction of the following conditions
precedent:
(a) The Lender shall be satisfied with the terms and conditions
of this Agreement and the other Loan Documents and the aggregate
amount of the Loan shall be THREE MILLION FIVE HUNDRED THOUSAND
DOLLARS (US$3,500,000.00).
(b) The Lender shall have a valid and perfected first-priority
security interest in the Collateral (other than the real property of
the Borrower, listed in Schedule A, that shall be registered and
perfected in accordance with Section 5.02 n); all filings,
recordations, and searches necessary or desirable in connection with
such security interests shall have been duly made or obtained; and
all filing and recording taxes and fees shall have been paid.
(c) The Lender shall be satisfied with the corporate and legal
structure and capitalization of the Borrower and each of its
Guarantors, including, without limitation, the terms and conditions of
the corporate organizational documents and shareholders' agreement (if
any) of the Borrower and each such Guarantor and of each agreement or
instrument relating thereto.
(d) All Material Contracts shall be in full force and effect and
delivered to the Lender prior to the date hereof with certification
from the Borrower as to their completeness and effectiveness and (ii)
have not been amended, modified or rescinded since such delivery,
shall be satisfactory to the Lender.
(e) There shall have occurred no event or circumstance that could
reasonably be expected to (i) result in a Material Adverse Change,
(ii) have a material adverse effect on the ability of the Borrower to
meet its obligations under any Loan Document or Material Contract to
which it is a party.
(f) The Lender shall have received each of the following in form
and substance satisfactory to the Lender: (i) three years historical
financial statements (including Balance Sheets, profit and Loss, and
Cash Flow Statements) of PriceSmart, Inc.; (ii) Business Plan and Cash
Flow Projections for the Borrower and PriceSmart Honduras for the
duration of the Loan Term; (iii) Business Plan
15
and Cash Flow Projections for PriceSmart Inc. and PSMT Caribe Inc.
for 2000-2001, (iv) As-Built Plans and Specifications; Environmental
Impact Report, if required, soil reports, occupancy permits and
required governmental approvals; (v) Leasing, Shareholder and
Licensing Agreements including: a) Licensing, Technology Transfer,
Training and Sourcing Agreement among PriceSmart, Inc., Venture
Services, Inc. and PriceSmart Honduras, dated September 1, 1999, b)
Lease Agreement between the Borrower and PriceSmart, which will be
signed before closing of the loan and c) Shareholder Agreement
between PriceSmart, Inc. and PSC, S.A, dated September 14, 1998;
(vi) MAI Appraisal, in a form and from an appraisal firm acceptable
to the Lender. Such appraisal is to result in a minimum valuation of
FIVE MILLION DOLLARS (US$5,000,000.00) for the property on an "As-is"
basis and (vii) such other documents as reasonably required by the
Lender.
(g) There shall exist no action, suit, investigation, litigation
or proceeding pending or threatened in any court or before any
arbitrator or governmental instrumentality that (i) could reasonably
be expected to have a Material Adverse Effect or (ii) purports to
affect in a manner adverse to the Lender the legality, validity or
enforceability of any Loan Document or the consummation of the
transactions contemplated thereby.
(h) All governmental and third party consents, approvals,
authorizations and licenses necessary in connection with any Loan
Document or the transactions contemplated thereby, if any, shall have
been obtained, shall be in full force and effect and, except for the
governmental and third party consents, approvals, authorizations and
licenses listed in Schedule I that (i) were delivered to the Lender
prior to the date hereof with certification from the Borrower as to
their completeness and effectiveness and (ii) have not been amended,
modified or rescinded since such delivery, shall be satisfactory to
the Lender; all applicable waiting periods shall have expired without
any action being taken by any competent authority; and no law or
regulation shall be applicable in the judgment of the Lender that
restrains, prevents or imposes materially adverse conditions on the
Borrower, any Loan Document or the transactions contemplated thereby.
(i) The Cross-Border Insurance shall be in full force and effect
and shall be satisfactory in all respects to the Lender.
(j) The Lender shall have received on or before the date of the
initial Borrowing the following, each dated such day (unless otherwise
specified), in form and substance satisfactory to the Lender (unless
otherwise specified) and in sufficient copies for the Lender:
(i) Notarized declaration of the Corporate Secretary of the
board of directors of each Loan Party establishing that all said
parties have met all necessary corporate requirements to the
satisfaction of the Lender,
16
and the transactions contemplated thereby and of all documents
evidencing other necessary corporate requirements and
governmental and other third party approvals and consents, if
any, with respect to such Loan Document.
(ii) Copies of the organizational documents of each Loan
Party and all amendments thereto certified by the General
Manager, a Vice President or Secretary of such Loan Party as
being a true, correct and complete copy thereof.
(iii) A certificate of the Secretary or an Assistant
Secretary of each Loan Party certifying the names and true
signatures of the officers of such Loan Party authorized to sign
each Loan Document to which it is or is to be a party and the
other documents to be delivered hereunder and thereunder.
(iv) Certified copies of all Material Contracts of the
Borrower listed in Schedule B (Leasing Agreement, License
Agreement, etc.) duly executed by the parties thereto, all of
which shall be in full force and effect.
(v) Each of the Mortgage on Real Property, the Pledge of
Equipment, the Pledge of the Furniture, Pledge of the Fixtures,
Assignment of the Leasing Agreement and of the Licensing,
Technology Transfer, Training and Sourcing Agreement, in each
case duly executed by the parties thereto on the date hereof and
substantially in the form of the relevant Exhibit hereto,
together with:
(A) evidence of the completion of all recordings,
filings, registrations and notices of or with respect to
each such Collateral Document (other than the registration
of the Mortgages on Real Property with the appropriate
Honduran registries that shall be completed in accordance
with Section 5.02 n) that the Lender may deem necessary or
desirable in order to perfect and protect the Liens created
thereby; and
(B) evidence that all other action that the Lender may
deem necessary or desirable in order to perfect and protect
the first priority liens and security interests created
under each such Collateral Document.
(vi) The Cross-Border Insurance, duly executed by OPIC and
the Lender, substantially in the form of Exhibit __ hereto, which
agreement shall be in full force and effect.
17
(vii) Recognition of Debt in respect of the Borrowing, duly
executed by the Borrower, substantially in the form of Exhibit
III hereto.
(viii) A certificate of the Chief Financial Officer of the
Borrower, in form and substance satisfactory to the Lender,
certifying as to the a) DEBT SERVICE RATIO. Debt Service Ratio
for the San Pedro Sula store shall not fall below the level of
1.10 for year 2000 and 2001, 1.20 for year 2002, and 1.30 for
year 2003, and 1.5 for year 2004. Debt Service Ratio for the
consolidated San Pedro Sula and Tegucigalpa stores shall not
fall below the level of 1.50 for year 2001, 2.0 for year 2002,
2.1 for year 2003, and 2.50 for year 2004. The debt service ratio
is defined as: net income plus interest plus depreciation plus
amortization divided by principal plus interest payment. Cash
Coverage Ratio, defined below, for the consolidated San Pedro
Sula and Tegucigalpa stores shall not fall below 1.4 for year
2000. Cash Coverage Ratio is defined as: EBITDA + Cash at hand -
US$500,000.00) / (Interest Exp. + Current Maturity of Long term
debt). EBITDA will be calculated utilizing the past twelve
months. (b) INTEREST COVERAGE. Interest Coverage for the San
Pedro Sula store shall not fall below the level of 2.0 for year
2000 and for year 2001, 2.5 for year 2002, and 3.0 thereafter.
Interest coverage for the consolidated San Pedro Sula and
Tegucigalpa stores shall not fall below the level of 3.0 of year
2001, 4.0 for year 2002, and 5.0 thereafter. (c) LEVERAGE RATIO.
Leverage Ratio for the consolidated San Pedro Sula and
Tegucigalpa stores shall not be greater than 2.5 for the tenor of
the loan. Leverage is defined as: the total debt divided by net
worth. (d) TOTAL DEBT / EBITDA. Total Debt/EBITDA for the San
Pedro Sula store shall not be greater than 6.50 for year 2000.
Total Debt/EBITDA for the consolidated San Pedro Sula and
Tegucigalpa stores shall not be greater than 3.5 for year 2001,
3.0 for year 2002, 2.5 for year 2003, and 2.0 for year 2004.
EBITDA will be calculated utilizing the past twelve months.
(ix) Such other approvals, opinions or documents as the
Lender may reasonably request; PROVIDED that for the avoidance of
doubt such corporate resolutions, certificates and documents of
PriceSmart Honduras, S.A. de C.V., PriceSmart, Inc., PMST Caribe,
Inc., PSC, S.A. and Ventures Services, Inc. shall relate to the
transactions contemplated by the Loan Documents or the corporate
existence of such Loan Parties.
(k) The Borrower shall have paid (i) all accrued fees of the
Lenders and (ii) as provided in Section 2.05, all accrued expenses of
the Lender (including the reasonably accrued fees and expenses of the
local counsel to the Lender).
SECTION 3.02. CONDITIONS PRECEDENT TO THE BORROWING. The obligation
of the Lender to make the disbursement on the occasion of the Borrowing shall
be subject to the further conditions precedent that on the date of the Borrowing
(i) the Lender shall
18
have received the Recognition of Debt in respect of the Borrowing, duly executed
by the Borrower, substantially in the form of Exhibit III hereto, and (ii) the
following statements shall be true (and each of the giving of the applicable
Notice of Borrowing, and the acceptance by the Borrower of the proceeds of the
Borrowing shall constitute a representation and warranty by the Borrower that
both on the date of such notice and on the date of the Borrowing such statements
are true):
(a) the representations and warranties contained in the Loan
Document are correct on and as of such date, before and after giving
effect to the Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date;
(b) no event has occurred and is continuing, or would result from
the Borrowing or from the application of the proceeds therefrom, that
constitutes a Default; and
SECTION 3.03. DETERMINATIONS UNDER SECTION 3.01 and 3.02. For purposes
of determining compliance with the conditions specified in Sections 3.01 and
3.02, the Lender shall be deemed to have consented to, approved or accepted or
to be satisfied with each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to the Lender by its
execution of this agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The
Borrower represents and warrants as follows:
(a) The Borrower (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation (San Pedro Sula, Honduras), (ii) is duly qualified and in
good standing as a foreign corporation in each other jurisdiction in
which it owns or leases property or in which the conduct of its business
requires it to so qualify or be licensed except where the failure to so
qualify or be licensed could not reasonably be expected to have a
Material Adverse Effect and (iii) has all requisite corporate power and
authority (including, without limitation, all governmental licenses,
permits and other approvals) to own or lease and operate its properties
and to carry on its business as now conducted and as proposed to be
conducted. All of the outstanding capital stock of the Borrower has been
validly issued, is fully paid and non-assessable. The outstanding
capital stock of the Borrower is free and clear of all Liens.
19
(b) The Borrower has no Subsidiaries.
(c) The execution, delivery and performance by the Borrower of the
Loan Document to which it is or is to be a party, and the consummation of
the transactions contemplated hereby, are within the Borrower's corporate
powers, have been duly authorized by all necessary corporate action, and do
not (i) contravene the Borrower's organizational documents, (ii) violate
any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award, (iii) conflict with or result in the breach of, or
constitute a default under, any contract, loan agreement, indenture,
mortgage, deed of trust, lease or other instrument binding on or affecting
the Borrower or any of their properties or (iv) except for the Liens
created under the Loan Documents, result in or require the creation or
imposition of any Lien upon or with respect to any of the properties of the
Borrower.
(d) No authorization or approval or other action by, and no notice to
or filing with, any Honduran governmental authority or regulatory body or
any other third party is required for (i) the due execution, delivery,
recordation, filing or performance by the Borrower of any Loan Document to
which it is or is to be a party, or for the consummation of the
transactions contemplated hereby, (ii) the grant by the Borrower of the
Liens granted by it pursuant to the Collateral Documents, (iii) the
perfection or maintenance of the Liens created by the Collateral Documents
(including the first priority nature thereof) or (iv) the exercise by the
Lender of its rights under the Loan Documents or the remedies in respect of
the Collateral pursuant to the Collateral Documents, except for the
authorizations, approvals, actions, notices and filings.
(e) This Agreement has been duly executed and delivered by the
Borrower. This Agreement is, the legal, valid and binding obligation of the
Borrower, enforceable against the Borrower in accordance with its terms.
(f) The pro forma and forecasted balance sheets, income statements and
statements of cash flows of the Borrower delivered to the Lender pursuant
to Section 3.01 were prepared in good faith on the basis of the assumptions
stated therein, which assumptions were fair in the light of conditions
existing at the time of delivery of such forecasts, and represented, at the
time of delivery, the Borrower's best estimate of its future financial
performance.
(g) No information, exhibit or report furnished by the Borrower to the
Lender (including the Information Memorandum when delivered) in connection
with the negotiation of the Loan Documents or pursuant to the terms of the
Loan Documents contained any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements made therein not
misleading.
20
(h) The Lender has received and reviewed the Insurance Policies and
has found them acceptable.
(i) There is no action, suit, investigation, litigation or proceeding,
including any Environmental Action, pending or threatened before any court,
governmental agency or arbitrator that (i) could reasonably be expected to
have a Material Adverse Effect or (ii) purports to materially affect the
legality, validity or enforceability of this Agreement or the consummation
of the transactions contemplated hereby.
(j) The operations and properties of the Borrower comply in all
material respects with all applicable Environmental Laws and Environmental
Permits, all past material non-compliance with such Environmental Laws and
Environmental Permits has been resolved without ongoing obligations or
costs, and no circumstances exist that could (i) form the basis of an
Environmental Action against such Person or any of its properties that
could reasonably be expected to have a Material Adverse Effect or (ii)
cause any such property to be subject to any material restrictions on
ownership, occupancy, use or transferability under any Environmental Law.
(k) The Borrower is not a party to any indenture, loan or credit
agreement or any lease or other agreement or instrument or subject to any
charter or corporate restriction that, in each case, could reasonably be
expected to have a Material Adverse Effect.
(l) The Collateral Documents create a valid and perfected first
priority security interest in the Collateral, securing the payment of the
Obligations owing to the Secured Party under the Loan Documents and all
filings and other actions necessary or desirable to perfect and protect
such security interest set forth therein shall have been duly taken. The
Borrower is the legal and beneficial owner of the Collateral pledged by it
and that the Collateral is free and clear of any Lien, except for the liens
and security interests created or permitted under the Loan Documents.
(m) Neither the business nor the properties of the Borrower are
affected by any fire, explosion, accident, strike, lockout or other labor
dispute, drought, storm, hail, earthquake, embargo, act of God or other
casualty (whether or not covered by insurance) that could be reasonably
likely to have a Material Adverse Effect.
(n) Set forth on Schedule 3.01(m)(vi) hereto is a complete and
accurate list of all Material Contracts of the Borrower, showing as of the
date hereof the parties, subject matter and term thereof. Each Material
Contract has been duly authorized, executed and delivered by all parties
thereto, has not been
21
amended or otherwise modified, is in full force and effect and is binding
upon and enforceable against all parties thereto in accordance with its
terms, and there exists no default under any Material Contract by any
party thereto.
(o) The Borrower and the Guarantors have obtained insurance with
responsible and reputable insurance companies or associations in such
amounts and covering such risks as is usually carried by companies engaged
in similar businesses and owning similar properties in the same general
areas in which the Borrower operates and as otherwise contemplated in the
Collateral Documents.
(p) The Borrower nor any of the Guarantors and their respective
property has any immunity from jurisdiction of any court or from set-off or
any legal process (whether through service or notice, attachment prior to
judgment, attachment in aid of execution, execution or otherwise) under the
laws of Honduras.
(q) This Agreement, the Notes and the other Loan Documents are subject
to the laws of the United States of America but are enforceable under the
laws of Honduras and United States of America, and to ensure the legality,
validity, enforceability or admissibility in evidence of this Agreement and
the other Loan Documents in Honduras, it is not necessary that this
Agreement, the Notes or any other Loan Documents or any other document be
filed or recorded at this time with any court or other authority in
Honduras with the exception of the Collateral Guarantee documented in the
Public Deed or that any stamp or similar tax be paid on or in respect of
this Agreement and the Notes. Them is no tax, levy, impost, deduction,
charge or withholding imposed by Honduras or any political subdivision,
thereof either (i) on or by virtue of the execution or delivery of the
Agreement, the Notes, any other Loan Document or (ii) on any payment to be
made by the Borrower pursuant to the Agreement or the other Loan Document,
except for a withholding tax imposed on payments of interest to
non-Honduran institutions.
(r) Each of the Borrower and the Guarantors is, individually and
together, Solvent.
(s) The Borrower has (i) initiated a review and assessment of all
areas within its business and operations (including those affected by
suppliers, vendors and customers) that could be adversely affected by the
"Year 2000 Problem" (that is, the risk that computer applications used by
the Borrower (or suppliers and vendors) may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to
and any date after December 31, 1999), (ii) developed a plan and timeline
for addressing the Year 2000 Problem on a timely basis, and (iii) to date,
implemented that plan in accordance with that timetable. Based on the
foregoing, the Borrower believes that all computer applications (including
those of its suppliers and vendors) that are material to its
22
business and operations are reasonably expected on a timely basis to
be able to perform properly date-sensitive functions for all dates
before and after January 1, 2000 (that is, be "Year 2000
compliant"), except to the extent that a failure to do so could not
reasonably be expected to have a Material Adverse Effect.
ARTICLE V
COVENANTS OF THE BORROWER AND PRICESMART HONDURAS, S.A. DE
C.V.
SECTION 5.01. FINANCIAL COVENANTS ON A CONSOLIDATED BASIS. So long as
any amount of the Loan shall remain unpaid, the Borrower and PriceSmart
Honduras, Sociedad Anonima de Capital Variable, or simply PriceSmart Honduras,
S. A., de C. V. on a consolidated basis, shall:
(a) REVIEW OF COVENANTS. Permit covenants to be reviewed at the end of
each quarter (calculated and measured using a 12 month rolling basis)
commencing with the conclusion of the first full year of operation.
(b) DEBT SERVICE RATIO. Debt Service Ratio for the San Pedro Sula
store shall not fall below the level of 1.10 for year 2000 and 2001, 1.20
for year 2002, and 1.30 for year 2003, and 1.5 for year 2004. Debt Service
Ratio for the consolidated San Pedro Sula and Tegucigalpa stores shall not
fall below the level of 1.50 for year 2001, 2.0 for year 2002, 2.1 for year
2003, and 2.50 for year 2004. The debt service ratio is defined as: net
income plus interest plus depreciation plus amortization divided by
principal plus interest payment. Cash Coverage Ratio, defined below, for
the consolidated San Pedro Sula and Tegucigalpa stores shall not fall below
1.4 for year 2000. Cash Coverage Ratio is defined as: EBITDA + Cash at
hand - (US$500,000.00) / (Interest Exp. + Current Maturity of Long term
debt).
(c) INTEREST COVERAGE. Interest Coverage for the San Pedro Sula store
shall not fall below the level of 2.0 for year 2000 and for year 2001, 2.5
for year 2002, and 3.0 thereafter. Interest coverage for the consolidated
San Pedro Sula and Tegucigalpa stores shall not fall below the level of 3.0
of year 2001, 4.0 for year 2002, and 5.0 thereafter.
(d) LEVERAGE RATIO. Leverage Ratio for the consolidated San Pedro Sula
and Tegucigalpa stores shall not be greater than 2.5 for the tenor of the
loan. Leverage is defined as: the total debt divided by net worth.
(e) TOTAL DEBT / EBITDA. Total Debt/EBITDA for the San Pedro Sula
store shall not be greater than 6.50 for year 2000. Total Debt/EBITDA for
23
the consolidated San Pedro Sula and Tegucigalpa stores shall not be
greater than 3.5 for year 2001, 3.0 for year 2002, 2.5 for year
2003, and 2.0 for year 2004. EBITDA will be calculated utilizing the
past twelve months.
SECTION 5.02. AFFIRMATIVE COVENANTS. So long as any amount of the Loan
shall remain unpaid, or the Lender shall have any Commitment hereunder, the
Borrower and PriceSmart Honduras, Sociedad Anonima de Capital Variable, or
simply PriceSmart Honduras, S. A. de C. V. shall:
(a) COMPLIANCE WITH LAWS, ETC. (i) Comply with all applicable laws,
rules, regulations and orders, such compliance to include, without
limitation, all pension laws and Environmental Laws, except where the
failure to so comply could not reasonably be expected to have a Material
Adverse Effect and (ii) obtain and maintain all necessary permits,
licenses, authorizations and approvals with any governmental authority
or regulatory body or any other third party required in connection with
the performance by the Borrower under any Loan Document or any Material
Contract, requiring that all the transactions with its affiliates shall
be conducted at "arms length".
(b) PAYMENT OF TAXES, ETC. Pay and discharge before the same shall
become delinquent and maintain appropriate reserves for (A) all taxes,
assessments and governmental charges or levies imposed upon it or upon
its property and (B) all lawful claims that, if unpaid, might by law
become a Lien upon its property; PROVIDED, HOWEVER, that the Borrower
and PriceSmart Honduras, S. A. de C. V. shall not be required to pay or
discharge, any such tax, assessment, charge or claim that is being
contested in good faith and by proper proceedings and as to which
appropriate reserves are being maintained, unless and until any Lien
resulting therefrom attaches to its property and becomes enforceable
against its other creditors.
(c) PAYMENT OF MATERIAL OBLIGATIONS. The Borrower and PriceSmart
Honduras, S. A. de C. V. shall comply with all their material
obligations.
(d) MAINTENANCE OF INSURANCE. Maintain insurance with responsible
and reputable insurance companies or associations in such amounts and
covering such risks as is usually carried by companies engaged in
similar businesses and owning similar properties in the same general
areas in which the Borrower or PriceSmart Honduras, S. A. de C. V., as
the case may be, operate and as otherwise contemplated in the
Collateral Documents.
(e) MAINTENANCE OF TITLE INSURANCE. Maintain title insurance in
favor of the Lender from a title insurance company acceptable by the
Lender.
24
(f) MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve all of
its properties and all necessary governmental approvals, licenses and
permits, that are used or useful in the conduct of its business in good
working order and condition, ordinary wear and tear excepted. No changes
in ownership are permitted without the Lender's consent.
(g) YEARLY CAPITAL EXPENDITURES. The yearly Capital Expenditures
should not exceed an amount of FOUR HUNDRED THOUSAND Dollars
(US$400,000.00). The amount stated herein refers to additional CAPEX,
incremental from the financing provided by the Lender.
(h) PRESERVATION OF CORPORATE EXISTENCE, ETC. Preserve and maintain
its existence, legal structure, legal name, rights (charter and
statutory), permits, licenses, approvals, privileges and franchises, to
the extent that failure to preserve and maintain the same could produce
a Material Adverse Effect, and conduct its business in accordance with
prudent business practices. The Borrower and PriceSmart Honduras, S. A.
de C. V. will not be allowed to contract any of the following without
the Lender's prior consent: mergers, consolidations and divestitures;
and changes in conduct of the business of either's corporate structure.
(i) VISITATION RIGHTS. During normal business hours and from time
to time, with reasonable notice, permit the Lender, or any of the
insurer parties to the Political Risk Insurance or any agents or
representatives thereof, to examine the records and books of account of,
and visit the properties of, the Borrower PriceSmart Honduras, S. A. de
C. V., and to discuss the affairs, finances and accounts of the Borrower
and of PriceSmart Honduras, S. A. de C. V. with any of its officers or
directors and with its independent certified public accountants.
(j) KEEPING OF BOOKS. Keep appropriate and accurate books of record
and accounts, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Borrower and
of PriceSmart Honduras, S. A. de C. V. in accordance with Honduran GAAP.
(k) COMPLIANCE WITH TERMS OF REAL PROPERTY LEASEHOLDS. Make all
payments and otherwise perform all obligations in respect of all leases
of real property to which the Borrower or PriceSmart Honduras, S. A. De
C. V., as applicable, is a party; keep such leases in full force and
effect and not allow such leases to lapse or be terminated or any rights
to renew such leases to be forfeited or canceled, notify the Lender of
any default by any party with respect to such leases and cooperate with
the Lender in all respects to cure any such default, except where the
failure to do so, either individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(l) PROPERTY AND CASUALTY INSURANCE. The Borrower shall maintain
property and casualty insurance customary in the industry, properly
25
endorsed in favor of the Lender from an insurance company accepted by
the Lender.
(m) TITLE INSURANCE. The Borrower shall maintain Lender Title
Insurance in favor of the Lender from a title insurance company accepted
by the Lender.
(n) PERFECTION OF SECURITY INTERESTS. Maintain the recording,
priority and perfection of the Liens on the Collateral created by the
Collateral Documents and keep all Collateral free and clear of Liens
except for the Liens created under Collateral Documents.
(o) FURTHER ASSURANCES. From time to time, do and perform any and
all acts and execute any and all documents as may be necessary or as
reasonably requested by the Lender or the insurers in order to effect
the purposes of this Agreement or to protect the rights or interests of
the Lenders or the insurer parties to the Political Risk Insurance, in
each case, or under the Loan Documents or as may be otherwise
contemplated in the Political Risk Insurance.
(p) YEAR 2000 COMPLIANT. Promptly notify the Lender in the event
the Borrower discovers or determines that any computer application
(including those of its suppliers and vendors) that is material to the
Borrower's business and operations will not be Year 2000 compliant,
except to the extent that such failure could not reasonably be expected
to have a Material Adverse Effect.
(q) WORKER RIGHTS. The Borrower agrees not to take any action, and
to ensure that no action will be taken by any contractor (or any
subcontractor) of the Borrower performing engineering, procurement and
construction services contracted for after the date of the Loan
Documents, or providing operating and management services contracted for
after the date of this Agreement, for the project (each a "contractor"
collectively the "contractors") to prevent employees of the Borrower or
of any such contractor performing such services for the project from
lawfully under the laws of Honduras exercising their right of
association and their right to bargain collectively. It agrees to
observe, and to cause each contractor to observe, with respect to its
respective employees, applicable laws relating to acceptable conditions
of work with respect to minimum wages, hours of work, and occupational
health and safety. Furthermore, in connection with the project it
agrees, and agrees to cause each contractor, (i) not to use forced
labor, (ii) not to employ any person under age 16 for any hazardous
activity, (iii) that all employees will have the right to remove
themselves from hazardous situations without jeopardizing their
continued employment and (iv) that all employees will be guaranteed a 24
hour rest period per week.
(r) ENVIRONMENTAL COMPLIANCE. Comply with (i) the International
Finance Corporation's Environmental, Health and Safety Guidelines for
Office Buildings, dated July 1, 1998, and (ii) the
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provisions of all applicable environmental, health and safety laws,
codes and ordinances, and all rules and regulations promulgated
thereunder, with respect to the project.
(s) GOVERNMENTAL COMPLIANCE. Conduct its business in compliance
with all applicable laws and directives of governmental bodies having
force of law, including without limitation, corrupt practices laws and
shall implement internal management and accounting practices and
controls adequate to ensure compliance with applicable corrupt practices
laws. The Borrower shall use the proceeds of its Facility Loan solely
for the project and shall not engage in any business in connection with
the project other than its present business activities and those related
to its project, as each are described in the information provided to
OPIC and other activities similar, thereto, without the prior written
consent of OPIC.
(t) ADDITIONAL TERMS. Comply with such additional terms and
conditions as may be required in connection with each OPIC Approval.
(u) NO LIABILITY FOR OPIC. Agree that OPIC shall bear no liability
if a Facility Loan is not funded in whole or in part.
(v) GROSS-UP OF PAYMENTS. Agree to the gross-up payments by it for
taxes and increased costs on terms to be agreed upon between the Lender
and OPIC.
(w) OPIC'S OPTION TO PURCHASE. Consent to the exercise of OPIC's
option to purchase the Facility Loan, if applicable
(x) SELF-MONITORING QUESTIONNAIRE. The Borrower shall complete and
annually submit the OPIC Self-Monitoring Questionnaire, which will be
provided by the Lender, with respect to the operation of the related
project Unless waived in writing by OPIC, the Borrower shall, upon
request of OPIC, give access to OPIC representatives during normal
business hours to permit them to inspect their facilities and properties.
The Borrower acknowledges that the Lender is required to (i) notify
OPIC upon becoming aware of any violation of the covenants in this
Section letters (r), (s), (t), (u), (v), (w), (x) and (y) by the
Borrower, (ii) consult with OPIC concerning appropriate actions to be
taken with respect to such violations, and (iii) if OPIC so directs,
accelerate, or cause the applicable Branch to accelerate the related
Loan, provided it or the applicable Branch has the power to do so under
applicable law.
SECTION 5.03. NEGATIVE COVENANTS. So long as any amount of the Loan
shall remain unpaid, or the Lender shall have any Commitment hereunder, the
Borrower shall not, and, except as set forth below, at any time:
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(a) LIENS, ETC. Create, incur, assume or suffer to exist, any
Lien on or with respect to any of its properties of any character now
owned, or assign any right to receive income EXCLUDING:
(A) Liens created under the Loan Documents;
(B) Permitted Liens; and
(b) MERGERS, ETC. Contract any of the following without the
Lender's prior written consent: mergers, consolidations and
divestitures; and changes in conduct of the business or corporate
structure.
(c) SALES, ETC. OF ASSETS. Sell, lease, transfer or otherwise
dispose of any Collateral or any part of its assets other than
Collateral, or grant any option or other right to purchase, lease or
otherwise acquire any Collateral or any part of its assets other than
Collateral, other than (i) in the case of the Borrower inventory to be
sold in the ordinary course of its business, (ii) assets no longer
used or useful in its operations.
(d) INVESTMENTS IN OTHER PERSONS. Contract any of the following
without the Lender's prior written consent: investments in
subsidiaries, affiliates and/or third parties; and guarantees to third
parties. Invest in the capital stock or securities of any subsidiary
or affiliated corporations except in the ordinary course of business.
(e) CHANGE IN NATURE OF BUSINESS. Make any material change in the
nature of its business as carried on at the date hereof.
(f) ACCOUNTING CHANGES. Make or permit any change in accounting
policies or reporting practices, except as required to comply with
Salvadoran GAAP.
(g) PREPAYMENTS, ETC. OF DEBT. Prepay, redeem, purchase, defease
or otherwise satisfy prior to the scheduled maturity thereof in any
manner, or make any payment in violation of this Agreement, other
than, prepayment of (A) the Loan in accordance with the terms of
this Agreement and (B) trade account payables incurred in the
ordinary course of business.
(h) AMENDMENT, ETC. OF CERTAIN CONTRACTS. Amend, modify or change
in any manner any material term or condition of, or cancel or
terminate, or consent to or accept any cancellation or termination of,
or give any consent, waiver or approval under, or waive any default
under or breach of any material term or condition of, the Lease and
License Agreement, without the prior written consent of the Lender.
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(i) PARTNERSHIPS. Become a general partner in any general or
limited partnership.
(j) ACQUISITIONS. Contract any of the following without the
Lender's prior consent if they should exceed the amount of
US$250,000.00 per year (excluding capital expenditures);
acquisitions, sales or transfers of assets; leases or sale /
leasebacks of assets, repurchases or redemptions of outstanding
stock (including options or warrants); exchanges defeasances,
amendments or repurchases of long term indebtedness; and capital
lease and operating lease obligations.
(k) CHARTER AMENDMENTS. Make any amendment or modification of its
corporate organizational documents in a manner that could reasonably
be expected to be materially adverse to the rights, remedies or
interests of the Lender or the ability of the Borrower or any other
Loan Party to perform under any Loan Document, or impair the value of
the Collateral.
(l) NEGATIVE PLEDGE. Enter into or suffer to exist any agreement
on all assets which are the subject of this loan.
SECTION 5.04. ADDITIONAL GUARANTOR CONVENANTS. So long as any
amount of the Loan shall remain unpaid, or the Lender shall have any Commitment
hereunder, the Guarantors shall:
(a) MINIMUM NET WORTH. PriceSmart, Inc. shall maintain a minimum
net worth of US$55,000,000.00, at all times.
(b) EXISTING OWNERSHIP. PriceSmart, Inc., shall not diminish
existing ownership in PSMT Caribe, Inc.
(c) MINIMUM NET WORTH. PSC, S.A. shall maintain a minimum net
worth of US$10,000,000.00.
(d) EXISTING OWNERSHIP. PSC, S.A. shall maintain existing
ownership in PSMT Caribe, Inc.
(e) MINIMUM NET WORTH. PSMT Caribe, Inc. Shall maintain a minimum
net worth of US$25,000,000.00.
(f) VARIANCE FROM COVENANTS. In the event that the Guarantors
anticipate a variance from any of the above covenants, except wherein
PriceSmart, Inc. obtains greater percentage interest in PSMT Caribe,
Inc., the Borrower, and/or PriceSmart Honduras, S. A. de C.V., the
Guarantors must obtain the Lender's consent thereto with an advance 60
days notice, which consent may be withheld at the Lender's sole
discretion.
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SECTION 5.05.- REPORTING REQUIREMENTS. So long as the Loan or any
part of the Loan shall remain unpaid, the Borrower will furnish to the Lender:
(a) DEFAULT NOTICE. As soon as possible and in any event no later
than five Business Days, (i) after the General Manager or the Chief
Financial Officer of the Borrower obtains knowledge of the occurrence
of each Default, a statement of a senior officer of the Borrower
setting forth details of such Default, other "default" or Material
Adverse Change and the action that the Borrower has taken and proposes
to take with respect thereto; (ii) In the event that non-compliance or
potential non-compliance with covenants in Sections 5.02(q) and 5.03
(m), with respect to the employees of the Borrower or any contractor
comes to the attention of the Borrower, it shall give prompt notice
thereof to the Lender and OPIC and, if applicable, to such contractor.
It (i) shall (a) cure such non-compliance or (b) cause such contractor
to cure such non-compliance, in either case to the satisfaction of
OPIC, and (ii) shall terminate that contract with such contractor (the
"contract") unless such non-compliance is cured to the satisfaction of
OPIC within 90 days of such notice thereof from the Lender of OPIC to
it, whichever occurs first.
(b) QUARTERLY FINANCIALS. As soon as available and in any event
within 45 days after the end of each of the quarters of each Fiscal
Year, a Consolidated and consolidating balance sheet of the Borrower,
PriceSmart Honduras, S.A. de C.V, and the Guarantors as of the end of
such quarter. All financial statements shall include a certificate
from the management detailing compliance of the Financial Covenants
and certifying that no Default or Event of Default has occurred.
(c) ANNUAL AUDITED FINANCIALS. As soon as available and in any
event within 90 days after the end of each Fiscal Year, a consolidated
and consolidating audited balance sheet of the Borrower, PriceSmart,
S. A. de C.V. and the Guarantors. All financial statements shall
include a certificate from the management detailing compliance of the
Financial Covenants and certifying that no Default or Event of Default
has occurred.
(d) LITIGATION. (i) Promptly after the commencement thereof,
notice of all actions, suits, investigations, litigation and
proceedings before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (A)
which could have a Material Adverse Effect on the Borrower or any
other Loan Party, (B) or which could reasonably be expected to have a
material adverse effect on the business, condition (financial or
otherwise), operations, performance, properties or prospects of the
Borrower and (ii) as soon as possible and in any event no later than
five Business Days after the General Manager or the Chief Financial
Officer of the Borrower obtains knowledge of the commencement thereof,
notice of all actions, suits, investigations, litigation and
proceedings before any court or governmental department, commission,
board,
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bureau, agency or instrumentality, domestic or foreign, which could
reasonably be expected to have a material adverse effect on the
business, condition (financial or otherwise), operations,
performance, properties or prospect of the Borrower.
(e) OTHER INFORMATION. Within fifteen days of a written request
by the Lender, such other information respecting the business,
condition (financial or otherwise), operations, performance,
properties or prospects of the Borrower as the Lender may from time to
time reasonably request.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. EVENTS OF DEFAULT. If any of the following events
("EVENTS OF DEFAULT") shall occur and be continuing:
(a) (i) the Borrower and PriceSmart Honduras, S. A. de C.V. shall
fail to pay any principal or interest of the Loan when the same shall
become due and payable or (ii) the Borrower and PriceSmart Honduras,
S. A. de C.V. shall fail to pay any other amounts to any party due and
payable, where such failure shall continue unremedied for 30 days
after due date. Payments due to PriceSmart, Inc. are exempt from this
provision.
(b) any Guarantor shall fail to honor the obligations under the
Loan Documents.
(c) any representation or warranty made by the Borrower,
PriceSmart Honduras, S.A. de C.V. and any of the Guarantors (or any of
its officers) in the Loan Document or any certificate or other
document delivered in connection with the Loan Documents shall prove
to have been incorrect in any material respect when made or confirmed;
or
(d) the Borrower, PriceSmart Honduras, S. A. de C.V. or any of
the Guarantors shall fail to perform or observe any term, covenant or
agreement contained in Sections 5.01, 5.02, 5.03, 5.04, and 5.05;
(e) Material Breach: any representation or warranty by Borrower,
PriceSmart Honduras and Guarantors proves to be incorrect in any
material aspect, or any other covenants are not complied with;
(f) Bankruptcy, insolvency, re-scheduling, moratoria on payments
or similar proceeding by or against Borrower, PriceSmart Honduras and
Guarantors.
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(g) Changes in laws that materially affect the ability of the
Borrower to perform obligations; make Borrower's obligations under the
Loan Documentation illegal or unenforceable; failure of the
obligations under the Loan Facility to rank senior to all indebtedness
of the Borrower and PriceSmart Honduras, S.A. de C.V.;
(h) A change in ownership, management or control of Borrower
and/or PriceSmart Honduras, S.A. de C.V excepting any increase in
direct or indirect ownership by PriceSmart, Inc.;
(i) Occurrence of Material Adverse Change in the condition
(financial or otherwise) of Borrower or PriceSmart Honduras, S.A. de
C.V.;
(i) Termination, by PriceSmart, Inc., of the Licensing,
Technology Transfer, Training & Sourcing Agreement, pursuant to
Section 12 of said Licensing Agreement. In the event PriceSmart, Inc.
elects to terminate said Licensing Agreement during the term of the
Loan, it shall provide Lender with written notice of its intent
thereof, six months prior to said election;
(k) Cure Provisions: Borrower shall have a 10-day curing period
for any payment default. This provision does not require notification
and must not be exercised more than twice per year. In such case that
this provision is exercised more than twice per year, Borrower shall
be in immediate default. Borrower shall have a 30-day curing period
for any non-payment default;
(l) Failure of the Borrower (x) promptly to notify the Lender
and, if applicable, the contractor of such non-compliance; or (y) to
cure such non-compliance or cause such contractor to cure such
non-compliance, in either case to the satisfaction of OPIC, or (ii) to
terminate the contract. The Borrower and the contractors are not
responsible under this Section for the actions of the government of
Honduras.
(m) Acceleration remedy provision: The lender may declare, by
written demand for payment, any portion or all of the Loan to be due
and payable, whereupon such portion of the Loan, together with
interest accrued thereon and all other amounts due under this
Agreement, shall immediately mature and become due and payable.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. DEVALUATION HEDGE. The Lender agrees that, prior to
Loan closing, it will not require the Borrower to enter into a non-delivery
forward
32
contract in order to hedge local currency devaluation risk, based upon the
Borrower's current policies and practices regarding devaluation risk. However,
the Borrower and the Lender agree that this policy will be reviewed on a
quarterly basis, and, in the event that market conditions so dictate, the Lender
reserves the right to require that the Borrower enter into such hedge. The
Borrower acknowledges the Lender's rights in this regard and agrees to act in
good faith in order to mitigate any devaluation risk.
SECTION 7.02. LOAN PARTICIPATION. The Lender may, in its sole
discretion, participate or assign all or a portion of the Loan to one or more
lending institutions (Co-lenders or Participants). In the event the Lender
assigns all or a portion of the Loan to a Co-Lender, the Lender's responsibility
for the funding of that portion of the Loan will terminate upon the assumption
by the Co-Lender of such responsibility. Lender may, but will not be obliged to
serve as agent for the Co-Lenders with respect to the Loan.
SECTION 7.03. AMENDMENTS, ETC. No amendment or waiver of any provision
of this Agreement or any other Loan Document, nor consent to any departure by
the Borrower therefrom, shall in any event be effective unless the same shall be
in writing and signed (or, in the case of the Collateral Documents, consented
to) by the Borrower and the Lender
SECTION 7.04. NOTICES, ETC. All notices and other communications
provided for hereunder shall be in writing (including telegraphic, telecopy
or telex communication) and mailed, telegraphed, telecopied, telexed or
delivered, if to the Borrower, at its address at Salida Carretera Vieja a La
Lima, San Pedro Sula, Honduras, Attention: General Manager; if to the Lender, at
its address set forth on the signature pages hereof; or, as to the Borrower, or
the Lender, at such other address as shall be designated by such party in a
written notice to the other parties and, as to each other party, at such other
address as shall be designated by such party in a written notice to the Borrower
and the Lender. All such notices and communications shall, when mailed,
telegraphed, telecopied or telexed, be effective when deposited in the mails,
delivered to the telegraph company, transmitted by telecopier or confirmed by
telex answerback, respectively. Delivery by telecopier of an executed
counterpart of any amendment or waiver of any provision of this Agreement is
executed and delivered hereunder shall be effective as delivery of a manually
executed counterpart thereof.
SECTION 7.05. NO WAIVER; REMEDIES. No failure on the part of the
Borrower or the Lender, to exercise, and no delay in exercising, any right
hereunder or under this Agreement or Recognition of Debt shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 7.06. COSTS, EXPENSES. The Borrower agrees to pay all
incidental expenses of the Lender relating to the Loan, including but not
limited to
33
34
Loan Documents and, without limiting the generality of the foregoing, agrees
that the waivers set forth in this subsection (c) shall have the fullest scope
permitted under the Foreign Sovereign Immunities Act of 1976 of the United
States and are intended to be irrevocable for purposes of such Act.
SECTION 7.08. ENGLISH LANGUAGE. This Agreement has been negotiated
and executed in the English language. The English language version of this
Agreement and each other Loan Document shall control and be conclusive as to
the meaning of any terms and provisions hereof or thereof, except in the case
of the Recognition of Debt, the Mortgage on Real Property, the Pledges of the
Equipment and the Pledge of the Lease Agreement, where the Spanish language
version shall control and be conclusive as to the meaning of any terms and
provision thereof. Each other document to be delivered in respect of this
Agreement shall be in the English language or shall be accompanied by an
English translation certified by the Borrower as being complete and correct.
SECTION 7.09. GOVERNING LAW. THIS AGREEMENT AND THE NOTES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
SECTION 7.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, PRICESMART
HONDURAS, S.A. DE C.V., THE GUARANTORS, THE ASSIGNOR AND THE LENDER IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE ACTIONS OF THE LENDER IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
BORROWER:
INMOBILIARIA PRICESMART
HONDURAS, SOCIEDAD ANONIMA DE CAPITAL VARIABLE or simply INMOBILIARIA
PRICESMART, S.A. DE C.V.
By: /s/ JESUS ERNESTO GRIJALVA
------------------------------------
Name: Jesus Ernesto Grijalva
Title: Vice President Latin American
Legal Affairs
35
GUARANTORS:
PRICESMART HONDURAS, SOCIEDAD
ANONIMA DE CAPITAL VARIABLE, or simply PRICESMART HONDURAS, S.A. DE C.V.
By: /s/ JESUS ERNESTO GRIJALVA
------------------------------------
Name: Jesus Ernesto Grijalva
Title: Vice President Latin American
Legal Affairs
PRICESMART, INC.
By: /s/ JESUS ERNESTO GRIJALVA
------------------------------------
Name: Jesus Ernesto Grijalva
Title: Vice President Latin American
Legal Affairs
PSMT CARIBE, INC.
By: /s/ JESUS ERNESTO GRIJALVA
------------------------------------
Name: Jesus Ernesto Grijalva
Title: Vice President Latin American
Legal Affairs
PSC, S.A.
By: /s/ EDGAR ZURCHER GURDIAN
------------------------------------
Name: Edgar Zurcher Gurdian
Title: Legal Representative
VENTURES SERVICES, INC.
By: /s/ JESUS ERNESTO GRIJALVA
------------------------------------
Name: Jesus Ernesto Grijalva
Title: Vice President Latin American
Legal Affairs