Exhibit 10.4
FEBRUARY 28, 2001
PRICESMART, INC.
AND
NOVONT HOLDINGS CO., LTD.
AND
NOVONT, INC., dba TIMETONE INTERNATIONAL GROUP
AND
CHENG CHENG IMPORT EXPORT CO., LTD.
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PRC TECHNOLOGY LICENSE AGREEMENT
(AMENDED)
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CONTENTS
1. Definitions And Interpretation..........................................6
2. License.................................................................7
3. Computer Software Systems...............................................8
4. Technical Support Service..............................................10
5. Consideration for License and Rights...................................12
6. Additional Duties of Licensee..........................................14
7. Merchandising..........................................................17
8. Protection of Intellectual Property Rights.............................19
9. Indemnities............................................................20
10. Confidential Information And Non-competition...........................22
11. Term; Termination......................................................23
12. Termination............................................................23
13. Arbitration............................................................25
14. General Provisions.....................................................26
15. Restriction on Transfers...............................................27
16. [Intentionally deleted]................................................28
17. Change Of Control Of Licensor..........................................28
Exhibit A Agency Agreement between Novont Holdings Co., Ltd. andCheng Cheng
Import-Export Co., Ltd.......................................................31
Exhibit B Territory.......................................................32
Exhibit C J.D. Edwards Agreement..........................................33
Exhibit D Form Of Gross Sales Report......................................34
Exhibit E Territory Outlet Openings.......................................35
Exhibit F Current Policies, Procedures and Quality Standards..............36
Exhibit G Employee's Confidential Information Agreement...................41
Exhibit H Key Employee's Confidentiality and Non-Competition Agreement
("Agreement")................................................................42
THIS AGREEMENT, dated as of February 28, 2001, is made:
BETWEEN
(1) PRICESMART, INC. a corporation organized and existing under the laws of
the State of Delaware, United States of America (USA), with a principal
office and place of business at 4649 Morena Blvd., San Diego, CA 92117,
USA (LICENSOR);
(2) NOVONT HOLDINGS CO., LTD., a limited liability company, organized and
existing under the laws of the People's Republic of China (PRC), with its
registered address at Xuhai Building, Room 601, No. 86 Haidian Road,
Haidian District, Beijing, PRC (LICENSEE);
(3) NOVONT, INC., dba TIMETONE INTERNATIONAL GROUP, a corporation organized
and existing under the laws of the State of California, USA, with its
registered address at 444 South Flower St., Los Angeles, CA., 90071 (US
LICENSEE);
(4) Cheng Cheng Import-Export Co., Ltd. a company organized and existing
under the laws of the PRC possessing valid foreign trade rights, with its
registered address at No. 18 Xueqing Road, Haidian District, Beijing,
PRC, as agent on behalf of Licensee for the importation of the relevant
technology and goods under this Agreement (IMPORT AGENT); the Agency
Agreement between Licensee and the Import Agent is attached hereto as
Exhibit A.
WHEREAS
(A) Licensor owns the rights to certain trade secrets, know-how and other
intellectual property which have proven sufficient for the design,
establishment, management and operation of a business engaged in the sale of
general merchandise, food and related products and services (the MERCHANDISE
BUSINESS SYSTEM); and
(B) Licensee desires that Licensor provide to Licensee the right to establish
the Merchandise Business System in the Territory and the right to receive
certain merchandising and technical support from Licensor, including training of
Licensee's personnel in the methods of establishing and operating the
Merchandise Business System;
(C) Licensor is willing to provide such rights to Licensee, subject to the
terms and conditions set forth below;
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(D) US Licensee is willing to and agrees to facilitate the implementation of
this Agreement as may be necessary or appropriate;
(E) The Import Agent has agreed to act as import agent for Licensee with regard
to Licensee's import requirements;
(F) This Agreement is intended to and shall supercede the PRC Technology
License Agreement entered into on January 4, 1999 between Licensor, Licensee's
predecessor in interest BEIJING PRICESMART MEMBERSHIP SHOPPING ENTERPRISES
GROUP, US Licensee and Import Agent.
IT IS AGREED AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement:
AFFILIATE shall mean in relation to any individual, organization (unincorporated
or incorporated), association, trust, entity or partnership (collectively a
PERSON) any other Person which it controls or which controls it or with which it
is under common control. For this purpose, CONTROL means the direct or indirect
ownership or control of fifty percent (50%) or more of the interest or equity of
the relevant Person.
APPROVAL AUTHORITY shall mean the Ministry of Foreign Trade and Economic
Cooperation or its subsidiary agency, as applicable.
BUSINESS PLAN shall mean an operating plan prepared by Licensee for the
establishment and operation of the Merchandise Business System in the Territory,
including among other things, expenses and revenues.
GOVERNMENTAL APPROVAL shall mean any consent, permission, approval,
authorization, order or expiration of waiting period following filing or
notification, of any agency or instrumentality of the government(s) of the PRC
that is required in order for the parties to this Agreement to carry out all
provisions of this Agreement.
PERSON shall mean any individual, organization (unincorporated or incorporated),
association, trust, entity or partnership.
PRICESMART INTELLECTUAL PROPERTY shall mean all intangible proprietary rights
owned by or controlled by Licensor relating to the ownership and operation of
the Merchandise Business System in the PRC, including, without limitation,
Licensor Trademarks, intellectual property, copyrights, trade dress, patents
and/or trademarks or service marks,
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private labels and brand names, trade secrets, know-how and technical expertise.
TERRITORY shall mean the People's Republic of China, excluding Hong Kong, Macao
and Taiwan.
TERRITORY OUTLET shall means a store established and operated in the Territory
by Licensee using the Merchandise Business System.
TRANSACTION shall mean, whether in one or a series of transactions, the sale,
transfer or other disposition, directly or indirectly, of all or a significant
portion (defined as at least a 50% interest, taking into account any right or
option to acquire an interest in Licensor subsequent to a Transaction) of the
business, assets or securities of Licensor whether by way of a merger or
consolidation, reorganization, recapitalization or restructuring, tender or
exchange offer, negotiated purchase, leveraged buyout, minority investment or
partnership, collaborative venture or otherwise, or any other extraordinary
corporate transaction involving Licensor.
YEAR shall mean a twelve-month period and each anniversary thereof.
1.2 In this Agreement:
(a) references to clauses are to clauses of this Agreement;
(b) words importing a gender include every gender; and
(c) headings are inserted for convenience only and shall not affect the
construction of this Agreement.
2. LICENSE
2.1 License. Subject to the terms and conditions of this Agreement, to
Licensee's compliance with and observance of all such terms and conditions, and
to the terms of existing agreements to which Licensor and its Affiliates may be
parties, Licensor hereby grants to Licensee an exclusive license to use in the
Territory and for the Merchandise Business Systems only, such of the PriceSmart
Intellectual Property as is reasonably required to develop and operate the
Territory Outlets for so long as this Agreement shall remain in effect but not
thereafter, solely in connection with the establishment and operation of
Territory Outlets.
2.2 Rights Reserved. All rights not granted by Licensor hereunder are
reserved to Licensor. Any use by Licensee of the PriceSmart Intellectual
Property beyond the rights herein granted shall be a material breach of this
Agreement by Licensee.
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2.3 Scope of License. This license shall remain in effect for the term of
this Agreement only. The scope of this license shall be subject to contractual
and legal licensing restrictions to which Licensor is subject, which
restrictions may limit the ability of Licensor to make certain PriceSmart
Intellectual Property available to Licensee under this Agreement.
2.4 No Right of Sub-license. Licensee shall have no right to sub-license any
of the rights granted to Licensee herein without first obtaining the express
written approval of Licensor. However, Licensee may sub-license its rights under
clause 2.1 to a Person in which Licensee directly holds 50% or more of the
voting equity, provided: (i) Licensor approves in advance the other equity
owners of such sub-licensee, who shall be issued equity in sub-licensee solely
in exchange for a contribution of real property (or the rights to use the same)
for use by sub-licensee as a Territory Outlet; (ii) Licensor approves the
sub-license agreement and the terms of any other agreements between Licensee and
sub-licensee in advance; and (iii) sub-licensee agrees to be bound by all
obligations of Licensee hereunder. Licensee shall be liable for all obligations
of sub-licensee under any sub-licence agreement or any other agreement between
Licensee and sub-licensee. Licensor may, but shall not be obliged to, prepare
all sub-licensing agreements between Licensee and sub-licensee.
3. COMPUTER SOFTWARE SYSTEMS
3.1 Transfer. Licensor shall transfer to Licensee, for use solely in
connection with the operation of Territory Outlets, (i) the Source Code for the
interface to the point of sale system; and (ii) the Source Code for the PC-based
membership application system; and (iii) all historic data directly related to
Licensee's master file records and Licensee's transaction records residing in
Licensor's AS-400 System (collectively, the "Transferred Data").
3.2 One Time Transfer Fee. Concurrent with the execution of this Agreement,
Licensor shall pay to Licensee a one time transfer fee of US$52,630 as
consideration for the Transferred Data.
3.3 Access to Computer Systems. If so requested by Licensee, Licensor shall
allow Licensee to have continued access (in the same manner as such access has
existed immediately prior to the execution of this Agreement) to the computer
software systems based at Licensor's headquarters up to May 1, 2002. If Licensee
requests Licensor for such access for a full year, Licensee shall pay to
Licensor a fee of US$58,480 commencing 1 May 2001 for the first Territory Outlet
and US$17,544 for each additional Territory Outlet. The fee shall be paid in
advance on a
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monthly basis, prorated for any portion of the year for which Licensee requests
and receives such access. Licensee shall also reimburse Licensor for any amounts
which it is required to pay to the licensor of the computer software systems in
order to allow Licensee to access such computer software systems.
3.4 Programming Errors. If Licensee requests access to the computer software
systems pursuant to clause 3.1 above, and in the event the computer software
systems fail during such period to properly support the subject systems
functions during such period, Licensor shall, at its expense, promptly fix any
Licensor programming error in the software comprising the computer software
systems, which causes the computer software systems not to function as intended.
3.5 Data Link. If Licensee requests access to Licensor's computer software
systems, then Licensee shall be solely responsible for providing and maintaining
the data communications link to provide remote access, as approved by Licensor,
between the computer system in San Diego, California which operates the computer
software systems and the Licensee computer equipment in the Territory. Licensee
shall bear the costs associated with obtaining, installing and maintaining such
data communications link.
3.6 Confidentiality and Other Terms. Licensee shall maintain in
confidentiality and shall not transfer, sub-license or otherwise disclose the
Transferred Data to any third party. Licensee shall not use the Transferred Data
to compete, directly or indirectly, individually or in conjunction with other
persons or entities, with Licensor outside of the Territory. Licensee agrees
that it shall be bound by the terms and conditions of the Software License
Agreement attached hereto as Exhibit C with respect to the computer software
systems; provided, that Licensee shall not be deemed to receive any rights or
benefits under such agreement by agreeing to be bound by its terms. All of
Licensee's rights to access the computer software systems shall arise pursuant
to this Agreement. The transfer of the Source Codes referenced in Section 3.1(i)
and (ii) is on a non-exclusive basis.
3.7 Limitation of Damages. The Parties acknowledge that Licensor provides
access to the computer software systems on an "as is" basis, pursuant to and
subject to Licensor's Software License Agreement with J.D. Edwards & Company,
attached hereto as Exhibit C. As such, Licensor's liability towards Licensee for
the computer software systems shall be subject to the same terms and conditions
as the liability of J.D. Edwards & Company to Licensor under such Software
License Agreement. Licensee agrees to execute an "Affiliate Amendment",
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whereby Licensee affirms to J.D. Edwards that Licensee has agreed to be bound to
the applicable terms of said Software License Agreement.
4. TECHNICAL SUPPORT SERVICE
4.1 Design Services.
(a) Licensor shall be available to assist Licensee by evaluating building
design, building layout and construction specifications for each
Territory Outlet. Licensor shall also provide design specifications (and
updated revisions thereof) for the trade dress, brand identification,
fixtures and equipment used by Licensor in the operation of its own
business, to the extent applicable to the Territory Outlets. Licensee
shall reimburse Licensor for all architectural, engineering and related
fees paid to third parties in connection with the design services
provided under this subsection.
(b) The services provided by Licensor to Licensee pursuant to Section 4.1(a)
shall not include any construction management services, including without
limitation, the sourcing of contractors or construction materials
necessary for the construction of the Territory Outlets. In the event
that Licensor provides such services to Licensee, Licensee shall
reimburse Licensor for all direct and indirect cost associated with
providing such services, including without limitation, the cost of
salaries and employee benefits, travel, lodging and living expenses for
the Licensor staff members which provide such services.
4.2 Licensor Executive Support. Licensor's senior staff will available to
advise Licensee's officers in the preparation, development and updating of the
Business Plan. Licensor's senior staff shall make at least two visits per Year
(commencing as of the date of this Agreement) to the PRC to evaluate the
progress of the Territory Outlets and to advise Licensee management concerning
operational issues. Additionally, a Senior Country Manager shall be appointed by
Licensor, to serve as the liaison between Licensor and Licensee.
4.3 Management Training. At the request of Licensee, Licensor shall train key
management staff of Licensee (including Store Managers, Buying Managers and
Central Staff), on Licensor's premises (in stores designated by Licensor or in
the central offices of Licensor). The total of such trainees shall not exceed
three in any three month period. Such training shall consist of "on the job"
experience under standard supervision (for clarity, no "one-on-one training, nor
classroom training, nor specialized training documents or materials). Licensee
shall be fully
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and solely responsible for all travel, lodging and any related personal expenses
of such trainees, as well as any out of pocket expenses which may be incurred by
Licensor arising from such training.
4.4 Advisory Services. During the term of this Agreement, Licensee from time
to time may request Licensor to provide advisory services over and above the
services provided elsewhere in this Agreement which entail brief additional
visits by Licensor personnel to the Territory. If Licensor agrees to provide
such services, Licensee shall reimburse Licensor for all travel, lodging, and
living expenses incurred by Licensor in connection with such visits and, except
for reimbursements of such expenses, there shall be no additional fees for such
services.
4.5 New Technology.
(a) If and when Licensor develops or obtains new Licensor Intellectual
Property (including Intellectual Property related to marketing,
merchandising, construction and design matters, but not including any
computer software systems or matters related thereto) relevant to the
Territory Outlets, Licensor shall inform Licensee and shall make such new
Licensor Intellectual Property available to Licensee. Licensee may, but
is not obligated to, accept such new Licensor Intellectual Property for
use in the Territory Outlets during the term of this Agreement. If
Licensee accepts such new Licensor Intellectual Property, Licensor shall
provide Licensee with the right to use such new Licensor Intellectual
Property in the Territory Outlets without payment of any additional
consideration; however, if Licensor incurs any third-party license fee or
royalty in connection with Licensee's use, Licensee shall reimburse
Licensor in full that amount. Notwithstanding the foregoing, if Licensor
is unable, due to contractual or other restrictions, to make any of the
foregoing available to Licensee, Licensor shall have no obligation to do
so. Further, notwithstanding the foregoing, if Licensor desires that
Licensee utilizes the new Licensor Intellectual Property, Licensee shall
do so, but Licensee then need not pay any additional third party license
fee or royalty.
(b) If and when Licensee develops or obtains new knowledge, know-how or
technology relevant to the Merchandise Business System or the Territory
Outlets, Licensee shall make such new knowledge, know-how or technology
available to the Licensor. Licensor may, but is not obligated to, accept
such new knowledge, know-how or technology. If Licensor accepts such new
knowledge, know-how or technology, Licensee shall provide Licensor a
world-wide (excluding the Territory) royalty-free license to use and
sublicense
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during the term of this Agreement such new knowledge, know-how or
technology; provided that if Licensee incurs any unrelated third-party
license fee or royalty in connection with Licensor's use, Licensor shall
reimburse Licensee in full that amount. Notwithstanding the foregoing, if
Licensee is unable, due to contractual or other restrictions, to make any
of the foregoing available to Licensor, Licensee shall have no obligation
to do so.
4.6 Invoicing and Payment. Licensor shall invoice Licensee monthly for any
reimbursement of expenses owed under this Section 4. Licensee shall remit
payment to Licensor within fourteen (14) days of receipt of each such invoice.
5. CONSIDERATION FOR LICENSE AND RIGHTS
5.1 Annual Royalty. In consideration of rights granted to Licensee by
Licensor and all training, trade secrets, technical data, know-how and other
PriceSmart Intellectual Property to be provided by Licensor, during the term of
this Agreement, Licensee shall pay to Licensor an annual flat fee , commencing
April 1, 2001 and thereafter extending throughout the term of this Agreement, in
the amount of US$116,960 for each Territory Outlet (the ANNUAL ROYALTY). The
Annual Royalty shall be paid on a quarterly basis in arrears (on June 30,
September 30, December 31 and March 31 of each Year) and shall be prorated for
newly-opened Territory Outlets. (Sums due through March 30, 2001 under the PRC
Technology License Agreement which is referenced in clause F of the Recitals of
this Agreement shall be due and paid pursuant to that agreement.)
5.2 Gross Sales Report. Within fifteen (15) days of the end of each calendar
month, Licensee will transmit the monthly sales information shown on Exhibit D
to Licensor in San Diego, California.
5.3 Payment in U.S. Dollars. Licensee shall pay each quarterly instalment of
the Annual Royalty and all other payments to be made by Licensee to Licensor
under this Agreement in U.S. Dollars.
5.4 Method of Payment. All payments made by Licensee to Licensor under this
Agreement, shall be made by wire transfer, as Licensor shall direct. Any amounts
not paid when due shall bear interest until paid at a rate that is four percent
(4%) per annum above the prime lending rate of Bank of America, N.A. Such
interest shall be compounded daily until paid in full.
5.5 [Intentionally deleted]
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5.6 No Withholdings. Licensee shall make all payments free and clear and
without subtraction of any taxes, deductions, withholdings, conversion fees,
wire transfer fees or offset of any kind, other than required withholding in the
PRC for business tax and for passive income tax withholding pursuant to Article
19 of the Foreign Enterprises Tax Law. Licensee may not offset, deduct or
withhold amounts owed it by Licensor. In the event of a change in PRC law that
results in Licensor receiving reduced payments under this Agreement, the Parties
agree to take such measures as are necessary to ensure that Licensor receives
the amounts contemplated by the Parties.
5.7 Annual Sales Report. Not later than sixty (60) days after the end of each
calendar year, Licensee shall send to Licensor by facsimile or data
transmission, a report in English, verified by an independent auditor, showing
the calculation of annual gross sales for the immediately preceding calendar
year for Licensee as a whole and for each Territory Outlet in United States
Dollars (the "Annual Sales Report"). The Annual Sales Report shall be
accompanied by an audited balance sheet and profit and loss statement for
Licensee prepared in accordance with United States generally accepted accounting
principles. The cost of the Annual Sales Report shall be paid by Licensee.
5.8 Shortfall Fee. Licensee acknowledges that it intends to open and operate
Territory Outlets during the term hereof at a rate no less than the schedule
shown on Exhibit E. To the extent the Licensee fails for any reason to open and
operate the minimum number of Territory Outlets as shown on the aforesaid
Exhibit E in any "Shortfall Year" (as defined in this Section 5.8), Licensee
shall pay Licensor a "Shortfall Fee" US$116,960 for each Territory Outlet not
opened or operated. (A "Shortfall Year" shall mean each twelve (12) month period
from April 1, 2001, and from each anniversary of such date.) The number of
Territory Outlets shall be measured as of the end of each Shortfall Year for
which such number of Territory Outlets is required and such Shortfall Fee, if
any, shall be due and payable within thirty (30) days after the end of each
Shortfall Year for which such number of Territory Outlets is not achieved. No
Shortfall Fee shall be payable if the total number of Territory Outlets open at
the end of the Shortfall Year in question is at or above the minimum set forth
on Exhibit E.
5.9 Additional Remedies. In addition to all other remedies, but subject to
Section 5.9(a), Licensor may, at its option, terminate this Agreement, or
terminate the exclusivity granted by this Agreement, so that, upon notice, it
will revert to a non-exclusive license if Licensee fails for any reason to have
at least twenty-five Territory Outlets operating as of April 1, 2006. In the
event Licensor opts to continue this Agreement on a non-exclusive basis,
Licensee may continue to use the rights
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licensed under this Agreement on a non-exclusive basis and all other provisions
hereof and all remedies of this Agreement remain in full force and effect,
except that Section 5.8 shall no longer apply and Licensee thereafter only shall
open new Territory Outlets with Licensor's prior written consent.
(a) The foregoing notwithstanding, Licensor's remedies under Section 5.9
shall not apply for so long as the failure to have a sufficient number of
Territory Outlets operating is delayed or prevented by an act of God, a
governmental prohibition (aside from Licensee's failure to obtain
available permits or licenses), a strike, a flood, a riot or a war
(declared or undeclared ) ("Force Majeure Event"), provided that:
(i) In order to excuse such delay or failure hereunder the Licensee
shall promptly notify Licensor of the Force Majeure Event,
specifying the nature and particulars thereof and its expected
duration; and
(ii) Within ten (10) days after the cessation of such Force Majeure
Event, Licensee shall give notice to Licensor specifying the date
of cessation thereof; and
(iii) Upon cessation of the Force Majeure Event the remedies of Section
5.9 shall remain effective with all time periods contained therein
deemed extended by the length of time between the notice of force
Majeure Event and the cessation of the Force Majeure Event.
6. ADDITIONAL DUTIES OF LICENSEE
6.1 Compliance with Business Plan
Licensee shall provide a Business Plan to Licensor during October of each Year
for the ensuing two (2) calendar Years, and Licensee will use its best efforts
to comply with the Business Plan.
6.2 Territory Outlets' Name. All Territory Outlets shall be operated under
the name "PriceSmart". The name, and its Chinese counterpart, shall remain the
exclusive property of Licensor, and shall be considered part of PriceSmart's
Intellectual Property. Licensor shall not unilaterally require Licensee to
operate the Territory Outlets under a different name. If it becomes necessary
for Licensor to require Licensee to change the name of the Territory Outlets,
Licensor shall consult with Licensee and obtain its consent to the change (which
shall not be unreasonably withheld), otherwise Licensor shall be deemed to have
breached this
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Agreement and shall compensate Licensee for its costs, expenses and losses
resulting therefrom.
6.3 Observance of Licensor Policies and Corrective Action
(a) In establishing and operating Territory Outlets, Licensee shall comply
with all reasonable policies, procedures and quality standards
established by Licensor for operation of a Territory Outlet. Current
policies, procedures and quality standards are contained in Exhibit F.
Such policies, procedures and quality standards may be supplemented and
amended from time to time by Licensor in its reasonable discretion. A
material failure to conform thereto shall be a material breach of this
Agreement.
(b) Licensee agrees that, consistent with Licensor's policies, it shall
maintain the condition and appearance of Territory Outlets as clean,
attractive, modern, sanitary, convenient and efficiently operated stores
selling high-quality products. If at any time, in Licensor's reasonable
judgement, the general state of repair, appearance or cleanliness of a
Territory Outlet or any aspect thereof, does not meet Licensor's
standards, Licensor shall notify Licensee of such breach. Notice under
this subsection shall be deemed a notice of breach under Section
12.1(d)Licensor may exercise all of its remedies hereunder for breach,
including among other things, termination under Section 12.1. In
addition, Licensor shall have the right, but not the obligation, to enter
the premises of the Territory Outlet, after reasonable notice to Licensee
and at reasonable hours, to effect the repairs and other changes to bring
the Territory Outlet into conformity, and Licensee shall reimburse
Licensor for all reasonable costs connected thereto.
6.4 Compliance With Laws, Taxes. In establishing and operating Territory
Outlets, Licensee shall observe and abide by all applicable laws, ordinances,
rules, regulations, and licensing requirements of any governmental or
quasi-governmental entity. Licensee shall prepare and file, at its own expense,
all filings required by applicable tax and other laws in the PRC, and shall pay
all taxes required to be paid in connection with the establishment and operation
of Territory Outlets, their property and the income derived therefrom. Licensee
will fully cooperate and use good faith, diligent efforts to assist Licensor
with regard to securing all Governmental Approvals (including that of the
Approval Authority), as well as the registration of this Agreement, if such
registration is required by law. Licensee agrees to comply with Licensor's
policies on ethical business conduct. Licensee shall not give anything of value
to any government official to obtain or retain business. Licensee shall ensure
that any individual working for Licensee but who is an employee of
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Licensor or any of Licensor's affiliates shall not be required to do any of the
following actions: offer to give or give anything of value to any government
official to influence any act or decision of such official or government, or to
obtain or retain business.
6.5 Insurance. Licensee will obtain and maintain, at its expense, a policy or
policies of property, general liability and products liability insurance, with
endorsements naming as additional insured Licensor, and any other Licensor
Affiliate designated by Licensor. The policy or policies shall be in such
amounts, with such companies and containing such other provisions which shall be
reasonably satisfactory to Licensor. All such policies shall provide that the
coverage thereunder shall not be terminated without at least thirty (30) days'
prior written notice to Licensor and the other additional insured. Licensee
shall provide copies of certificates of insurance to Licensor evidencing
compliance with this Section.
6.6 Records. Licensee will maintain, in the English language, complete
financial and other records of all transactions involving the Territory Outlets
and this Agreement for at least seven (7) Years after each such record has been
created. All records shall be filed in such a way that Licensor shall be able to
access and use such records.
6.7 Inspections. Licensee shall allow (i) Licensor employees, at any
reasonable time and from time to time and (ii) Licensor's designated
representatives, including without limitation, auditors, financial advisors and
legal advisors, at any reasonable time upon twenty-four (24) hours prior notice
and from time to time, to enter any Territory Outlet or other business premises
of Licensee and/or its Affiliates and examine or inspect such premises and
Licensee's and/or its Affiliates' books and records, for the purpose of
determining whether Licensee is complying in all respects with this Agreement.
Licensee shall, and shall cause its Affiliates, employees and representatives
to, cooperate fully with such inspections to ensure that Licensor and its
designated representatives have access to all information they consider
necessary to verify compliance by Licensee with this Agreement. Each party shall
bear its own costs in connection with such inspections.
6.8 Injunctive Relief. Licensee acknowledges that damages would be an
inadequate remedy for any breach of the provisions of Sections 6.3, 6.4 and 6.7.
Therefore, the obligations of Licensee hereunder shall be specifically
enforceable and Licensor shall be entitled to an injunction, restraining order
or other equitable relief, restraining any party from committing any violations
of the provisions of Sections 6.3, 6.4 and 6.7 above, and the prevailing party
at any of such proceedings for injunctive relief shall be entitled to all costs,
expenses, and fees (including, without
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limitation, attorneys' fees) incurred in connection with such action. Such
remedies shall be cumulative and not exclusive, and shall be in addition to any
other remedy any party may have.
6.9 Visas and Work Permits. Licensee shall fully cooperate with Licensor to
assure availability of visas and, if applicable, work permits from the relevant
governmental entities in the PRC to enable personnel of Licensor to perform
Licensor's rights and obligations hereunder.
6.10 Membership Cards: Reciprocal Memberships. Licensee shall issue membership
cards to its members, and shall design its membership cards in the format,
graphics, and size reasonably specified by Licensor. Licensor and Licensee agree
to permit reciprocal shopping privileges between members of the Territory
Outlets and members of any other outlets licensed or operated by Licensor.
7. MERCHANDISING.
7.1 Licensor Product Sourcing Program. Licensor shall allow Licensee to
participate in a product sourcing program whereby Licensee purchases from
Licensor goods (LICENSOR GOODS) from the United States and certain other
locations outside the PRC. When Licensee purchases Licensor Goods from Licensor,
Licensor will utilize its systems to provide to Licensee integrated cost, and
efficient distribution methods with regard to such Licensor Goods, including
assistance in negotiating shipping rates and tracking landed costs for such
Licensor Goods. Licensor shall designate, in its discretion, Licensor
merchandising employees who shall assist Licensee in such program. As to any
particular order for Licensor Goods, neither party shall be obligated to
purchase from or sell to the other party, except to the extent a purchase order
is submitted by Licensee and accepted by Licensor in its discretion under
Section 7.2.
7.2 Purchase Orders. Orders for Licensor Goods shall be placed by Licensee
utilizing a form of purchase order to be provided for this purpose by Licensor.
Each purchase order, if accepted by Licensor, shall be deemed a separate sale
between Licensor and Licensee. No purchase order for Licensor Goods shall have
any effect, legal or otherwise, until and unless it is accepted in writing by
Licensor.
7.3 Payment. Prices and payments for Licensor Goods shall be in United States
Dollars. Payments shall be made through electronic funds transfers or pursuant
to the provisions of an irrevocable commercial letter of credit, as determined
by Licensor in its discretion. Any such letter of credit shall be issued only by
a bank approved in writing by Licensor in its discretion, and shall contain only
such terms and
17
conditions approved in writing by Licensor in its discretion. Licensee shall
obtain any reasonable amendments to such letter of credit requested from time to
time by Licensor. Licensee shall bear all expenses for any letter of credit or
wire transfers, except amendments requested by Licensor after it has approved
the terms and conditions of such letter of credit.
7.4 Prices. Prices for all Licensor Goods shall be determined by Licensor.
Licensor shall set each price to cover Licensor costs for the Licensor Goods and
profit plus taxes, duties, shipping costs, any insurance incurred by Licensor,
and any extra costs directly related to such purchase, including customary
overhead. Shipping costs will include freight, handling, packing, loading,
unloading, drayage, port, harbor, brokerage, freight forwarding and all other
costs, charges, fees, and payments of any kind relating to the shipment of the
Licensor Goods. Prices shall be on a "free carrier" ("FCA") or "free on board"
("FOB") Licensor's distribution center basis, as defined in Incoterms 2000, but
shall also include costs prepaid by Licensor (e.g., prepaid airfreight,
refrigerated freight and the like).
7.5 Risk of Loss. Title to and all risk of loss of Licensor Goods shall pass
to Licensee when such Licensor Goods are delivered to and accepted by the common
carrier at the port of discharge or at the carrier's warehouse designated by
Licensee. All costs thereafter, including shipping costs (as described in 7.4
above), insurance, duties, taxes, brokerage, etc., shall be borne by Licensee.
7.6 Shipment. At Licensee's request, Licensor will arrange shipment by common
carrier of the Licensor Goods for Licensee at Licensee's risk and expense. Any
carrier selected by Licensor is not an agent of Licensor, and Licensor does not
assume any risk of loss associated with the actions of such carrier.
7.7 Storage. Licensor may for any reason and in its discretion store, at its
premises or elsewhere, Licensor Goods ordered by Licensee and incur reasonable
storage charges which shall be at Licensee's expense.
7.8 Importation. Licensee shall be solely responsible for compliance with any
and all legal, regulatory and governmental requirements in the PRC, and shall
obtain all governmental approvals, relating in any way to importation of the
Licensor Goods.
7.9 Resale. All Licensor Goods purchased by Licensee from Licensor shall be
used solely for resale in the Territory Outlets or otherwise in connection with
the Merchandise Business System. Licensee shall not export any Licensor Goods
from the PRC.
18
8. PROTECTION OF INTELLECTUAL PROPERTY RIGHTS
8.1 Filings. Licensor shall have the exclusive right to file and maintain, or
to cause to be filed and maintained, in each instance at its sole discretion,
any and all trademark and other registrations required to protect PriceSmart
Intellectual Property in the PRC. Licensee shall cooperate with Licensor in such
filings.
8.2 Applications. All applications, registrations, renewals and extensions
relating to PriceSmart Intellectual Property shall be in Licensor's name, or the
name of such other party as Licensor deems appropriate, and shall be made at
Licensor's sole cost and expense.
8.3 Assistance. At Licensor's request, Licensee shall execute all such
documents, and supply Licensor with any documents, samples or other materials,
as are reasonably necessary or expedient to aid Licensor in preparing,
obtaining, filing, recording or maintaining any such application, registration,
renewal or extension, and the costs of Licensee's assistance under this Section
8.3 shall be borne by Licensee.
8.4 Ownership. Licensee acknowledges that, as between it and Licensor, the
computer software systems, the Source Codes referenced in Section 3.1 of this
Agreement and all other PriceSmart Intellectual Property are owned by Licensor,
and Licensee will not challenge any right, title and interest of Licensor to any
of them. Licensee shall not in any manner represent that it has ownership of any
PriceSmart Intellectual Property. Any use by Licensee of PriceSmart Intellectual
Property shall inure to the benefit of Licensor. Licensee shall not register or
attempt to register any item of PriceSmart Intellectual Property or any similar
trade name or trademark under the laws of any jurisdiction. Licensee shall not
at any time do or cause to be done any act or thing in any way impairing or
tending to impair any part of Licensor's right, title and interest in any item
of PriceSmart Intellectual Property, whether or not the same are registered in
the PRC or in any other jurisdiction.
8.5 Notwithstanding any other provision of this Agreement, Licensee will not
directly or indirectly use any PriceSmart Intellectual Property acquired from
Licensor in connection with the ownership and operation of the Territory Outlets
to establish, own or operate a business of any kind in any geographical area
other than the Merchandise Business System in the Territory or to assist or
advise in any manner any other Person with respect to the ownership or operation
of a business of any kind in any geographical area.
8.6 Third Party Infringement
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(a) In the event that Licensee discovers that any other person or entity is
infringing or is making or has made any use of any portion of the
computer software systems or any PriceSmart Intellectual Property,
Licensee shall promptly notify Licensor of such use and shall cooperate
fully with Licensor's efforts to enforce its rights against such user.
(b) Licensor, at its discretion, or if requested by Licensee and after giving
reasonable consideration to such request, shall promptly decide whether
or not to institute any legal action against any alleged infringer of
PriceSmart's' Intellectual Property or the computer software systems in
the People's Republic of China (an INFRINGER).
(c) Licensee shall, if requested by Licensor, and at Licensor's expense, be a
co-plaintiff, assign its right to Licensor, or take such reasonable and
necessary steps to allow Licensor to bring such legal actions and enforce
the legal rights of both parties.
(d) Whether or not Licensee is requested by Licensor to join any such action,
Licensee shall cooperate fully with Licensor in any legal action taken by
Licensor.
(e) Licensee shall not take action on behalf of PriceSmart Intellectual
Property against an infringer without Licensor's prior written consent.
8.7 Third Party Infringement Claims. Each party hereto shall promptly notify
the other party in writing of any legal proceeding instituted, or written claim
or demand asserted, by any third party, of which such party becomes aware, with
respect to the infringement of any patent, copyright, trademark or other
intellectual or commercial property right, or misappropriation of any trade
secret or act of unfair competition, which is alleged to result from the use of
any of the computer software systems or the PriceSmart Intellectual Property in
the PRC (a THIRD PARTY CLAIM).
9. INDEMNITIES
9.1 Indemnity and Hold Harmless. Licensee hereby indemnifies Licensor, its
Affiliates, officers, directors, shareholders, employees and representatives
(each, a LICENSOR INDEMNIFIED PARTY) against, and releases and holds each
Licensor Indemnified Party harmless from, any and all claims, costs, losses,
damages, liabilities and expenses incurred by such party, including, without
limitation, settlement costs and reasonable attorneys' fees and disbursements
(LICENSOR LIABILITY), provided Licensee does not, and shall not be obligated to,
indemnify any
20
Licensor Indemnified Party against, release or hold any Licensor Indemnified
Party harmless from, any Licensor Liability if such liability arises as a result
of the willful misconduct, reckless action, gross negligence or breach of this
Agreement by or attributable to Licensor or any such Licensor Indemnified Party.
Licensor shall notify Licensee in writing of any claim or threatened claim of
Licensor Liability within seven (7) days of receiving notice of such claim.
Licensor agrees to cooperate in good faith and to use its best efforts to assist
Licensee in the defense or prosecution of any action, proceeding or claim that
relates to any Licensor Liability.
9.2 Infringement Indemnity. Licensor hereby indemnifies Licensee, its
Affiliates, officers, directors, shareholders, employees and representatives
(each, a LICENSEE INDEMNIFIED PARTY) against, and releases and holds each
Licensee Indemnified Party harmless from, any and all claims, costs, losses,
damages, liabilities and expenses incurred by such party, including, without
limitation, settlement costs and reasonable attorneys' fees and disbursements
(LICENSEE LIABILITY), arising out of or relating to the infringement of any
patent, trademark right or any other Intellectual Property right, copyright of
any third party caused by Licensee's use of the PriceSmart Intellectual
Property, except any claim of infringement resulting from (i) any modification
or alteration of the PriceSmart Intellectual Property made by Licensee or (ii)
the use of the PriceSmart Intellectual Property in a manner not contemplated by
this Agreement. Licensee shall notify Licensor in writing of any claim or
threatened claim of infringement within seven (7) days of receiving notice of
such claim. Licensor shall solely control and defend or settle, at its
discretion, any claim or suit for which Licensee may seek indemnification
hereunder. Licensor may effect a settlement of any such claim by (1) acquiring
for Licensee's benefit a license or other rights for the prior use of any such
infringing property, and, at Licensor's sole discretion, either (2) acquiring
for Licensee's benefit a license or other rights for the continued use of the
infringing property, or (3) rendering any such property non-infringing with no
substantial loss of functional capability, or (4) replacing any such infringing
property with non-infringing property of substantially the same functional
capability. Licensee agrees to cooperate in good faith and to use its best
efforts to assist Licensor in the defense or prosecution of any action,
proceeding or claim that Licensee's use of the PriceSmart Intellectual Property
infringes any patent, trademark right or any other intellectual property right,
copyright of any third party.
9.3 Survival. The indemnity obligations in this Section 9 shall survive
expiration or termination of this Agreement for any reason.
21
10. CONFIDENTIAL INFORMATION AND NON-COMPETITION.
10.1 Confidentiality. In addition to and not in lieu of its other obligations
under this Agreement, during the term of the Agreement and for five (5) Years
thereafter, Licensee and its Affiliates shall maintain in strict confidence all
information it has obtained or shall obtain from Licensor or its Affiliates,
pursuant to this Agreement or otherwise, relating to the business, operations,
properties, assets, products, condition (financial or otherwise), liabilities,
employee relations, customers, suppliers, prospects, technology, or trade
secrets of Licensor and its Affiliates (LICENSOR CONFIDENTIAL INFORMATION);
except to the extent such information (i) is in the public domain through no act
or omission of Licensee, (ii) is required to be disclosed by law, or (iii) is
independently learned by Licensee outside of this relationship. Licensee agrees
to cause its employees, agents or representatives who may have access to such
Licensor Confidential Information to enter into an appropriate written
confidentiality and proprietary rights agreement, in the form attached hereto as
Exhibit G or in another form acceptable to Licensor and Licensee, prior to
disclosing any Licensor Confidential Information to such employees, agents or
representatives. Licensor shall be a third party beneficiary of such agreements.
Licensee shall use its best efforts to protect the Licensor Confidential
Information, and shall not use the Licensor Confidential Information for its own
benefit or the benefit of any other person or entity, except as may be
specifically permitted in the Agreement.
10.2 Key Employees. At the request of Licensor, Licensee shall identify all
directors, and officers and all other management personnel of Licensee ("Key
Employees").
10.3 Non-Competition. In order to preserve for the benefit of Licensor the
value of Licensor Confidential Information, Licensee agrees that neither it, its
Affiliates nor its Key Employees shall engage in, be employed by, consult for or
invest in a business anywhere in the PRC which is similar to or with the
Merchandise Business System, including, among other things, warehouse stores and
hypermarkets, during the term of this Agreement. Notwithstanding the foregoing,
Licensee may develop and operate complimentary businesses that would: both (i)
add value to the Territory Outlets and their members; and (ii) not compete with
the business of the Territory Outlets. It shall be the obligation of Licensee,
no later than ninety (90) days following the date of this Agreement, to procure
from all Affiliates and Key Employees their written agreement to abide by this
covenant in the form attached hereto as Exhibit H or in another form acceptable
to Licensor and Licensee, and Licensor shall be a third party beneficiary of
each such written agreement. If Licensor terminates this Agreement early because
22
Licensee has failed to comply with its material obligations under this Section
10.3, the parties to this Agreement agree that all rights and obligations under
this Agreement shall cease (except such items as survive termination of this
Agreement as set forth in Section 12.3(e)) and Licensee shall have no further
rights to use the Merchandise Business System and shall immediately cease to do
so. Notwithstanding the foregoing, after such termination by the Licensor,
Licensee may continue to operate its then-existing stores in a manner similar to
the Merchandise Business System, provided that Licensee shall continue to pay
the Annual Royalty pursuant to Sections 5.1-5.6 hereof; and provided further
that Licensee shall not operate its then-existing stores under a name which is
confusingly similar to the then-authorized PriceSmart trademark.
10.4 Injunctive Relief. In the event of a breach or threatened breach of this
Section 10, the parties agree that money damages, alone, would be an inadequate
remedy, and that Licensor may apply for and obtain injunctive and other
equitable relief without necessity of bond or other security, to prevent or
remedy such breach.
11. TERM; TERMINATION
Unless terminated earlier pursuant to the terms of this Agreement, this
Agreement shall have an initial term consisting of ten (10) Years commencing on
the effective date as referred to in Section 14.6 of this Agreement (the INITIAL
TERM). The term shall automatically extend, subject to the requirements of the
then-applicable PRC laws and regulations, for a period of ten (10) Years, unless
either party notifies the other in writing at least ninety (90) days prior to
the termination of the Initial Term that it desires to terminate this Agreement.
12. TERMINATION
12.1 Termination of Agreement; Termination by Licensee or Licensor. This
Agreement (i) may be terminated pursuant to Sections 5.9, 10.3, or 17 of this
Agreement; or (ii) may be terminated upon written notice, immediately, by
Licensee or Licensor if any of the following occur:
(a) A receiver is appointed for the other party or its property;
(b) The other party becomes insolvent or unable to pay its debts as they
mature in the ordinary course of business or makes an assignment for the
benefit of creditors;
(c) Any proceedings are commenced against the other party under any
bankruptcy, insolvency or debtor relief law and such
23
proceedings are not vacated or set aside within sixty (60) days from the
date of commencement thereof;
(d) The other party materially breaches or fails to perform any obligation or
covenant in this Agreement and fails to cure such breach or failure
within thirty (30) days following notice thereof by the party; provided,
that if such breach or failure cannot be cured within such thirty (30)
day period, then the other party shall not be deemed to be in breach
hereunder if it has commenced a cure within such thirty (30) day period
and the other party diligently completes such cure as soon as possible,
and within a sixty (60) day period;
(e) The other party materially breaches or fails to perform any obligation or
covenant in this Agreement for the third time during any twelve (12)
month period; or
(f) Any other agreement between Licensor and Licensee relating directly to
this Agreement, including but not limited to the PRC Trademark License
Agreement, is terminated due to a breach by the either party of such
agreement.
12.2 Termination by Licensor. This Agreement may be terminated upon written
notice, effective immediately, by Licensor if either of the following occur:
(a) There shall occur, in a single transaction or series of transactions, any
sale or other disposition of all or substantially all of the assets, or
more than fifty percent (50%) of the capital stock, of Licensee, or any
other act that transfers direct or indirect control of Licensee; or
(b) Licensor exercises its option to terminate under Section 5.9, 10.3 and
17.
12.3 Effect of Termination. Subject to the other provisions of this
Section 12, and of Sections 5.9, 10.3 and 17 of this Agreement, upon termination
or expiration of this Agreement for any reason:
(a) The license referred to in Section 2.1, the rights of access referred to
in Section 3.3 and the services referred to in Sections 4 and 7 shall
terminate forthwith and automatically. The foregoing notwithstanding, (i)
if Licensor terminates this Agreement without cause by ninety (90) day
notice under Section 11, Licensee shall be deemed to retain a perpetual,
royalty-free license to use the then-authorized servicemark on its
then-existing Territory Outlets, subject to the applicable terms of this
Agreement
24
(including Licensee's compliance with the policies, procedures and
quality standards as set forth in Exhibit F), and (ii) if this Agreement
is terminated by Licensor pursuant to Sections 12.1 or 12.2, Licensee
shall retain a non-exclusive license to use the then-authorized
servicemark on its then-existing Territory Outlets for ninety (90) days
after the date of termination, subject to the applicable terms of this
Agreement (including Licensee's compliance with the policies, procedures
and quality standards as set forth in Exhibit F);
(b) Each party shall return to the other all proprietary and confidential
information obtained from such other party in connection with this
Agreement;
(c) Each party shall forthwith pay to the other all amounts due hereunder;
(d) Licensee shall otherwise cease forthwith to use any Licensor Trademarks
and other PriceSmart Intellectual Property and shall return all
materials, written or otherwise, delivered by Licensor to Licensee in
connection with this Agreement; and
(e) All obligations of the parties hereunder shall terminate prospectively
forthwith (other than those set forth in Sections 6.6, 6.7, 6.8, 7.9, 8,
9, 10 and 13, which shall survive indefinitely or as specified therein).
12.4 Legal Remedies. The termination or expiration of this Agreement shall not
affect the legal rights or remedies of either party arising from any material
breach of this Agreement prior to such termination.
13. ARBITRATION
13.1 All disputes, claims and controversies concerning the validity,
interpretation, performance, termination and/or breach of this Agreement
("Dispute(s)") shall be referred for final resolution to arbitration in
Stockholm, Sweden under the Arbitration Institute of the Stockholm Chamber of
Commerce in accordance its Arbitration Rules then in force (the "Rules"). The
parties hereby agree that arbitration hereunder shall be the parties' exclusive
remedy and that the arbitration decision and award, if any, shall be final,
binding upon, and enforceable against, the parties, and may be confirmed by the
judgement of a court of competent jurisdiction. All proceedings shall be
conducted in the English language. In the event of any conflict between the
Rules and this paragraph, the provisions of this paragraph shall govern.
25
13.2 The parties agree that the arbitrator(s) may issue any interim or
conservatory measure they deem appropriate pending completion of the
arbitration, including preliminary injunctive relief as provided in Sections 6.8
and 10.4 above, and the parties agree to be bound by any such interim order. In
the event that either party does not comply with any such interim order, the
other party may apply to any court of competent jurisdiction to enforce such
award and the non-complying party shall be liable for all costs (including
attorney's fees) thereby incurred.
13.3 The prevailing party in any dispute settlement proceeding shall be
awarded its reasonable attorneys' fees against the non-prevailing party or
parties.
14. GENERAL PROVISIONS
14.1 Relationship of Licensee and Licensor.
Neither Licensee nor Licensor shall be deemed to be an agent or representative
of the other; both acknowledge that the relationship between them shall be and
at all times remain one of an independent contractor. The relationship between
Licensee and Licensor shall not be construed to place them in the position of
partners or joint ventures. Except as otherwise provided herein, neither party
shall have the right or authority to assume, create or enlarge any obligations
or commitment on behalf of the other party and shall not represent itself as
having the authority to bind the other party in any manner.
14.2 Assignment. Except as expressly provided herein, neither party shall
assign, delegate or otherwise transfer any of its rights or obligations under
this Agreement without the prior written consent of the other party; provided,
that Licensor may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement to an Affiliate, and/or in conjunction with a
Transaction, without Licensee's prior written consent.
14.3 Amendments. Amendments to or modifications of this Agreement may be made
only by mutual agreement of the parties in writing and shall be subject to
whatever approvals of the appropriate authorities as are required by applicable
law.
14.4 No Waiver. The failure of either party to insist upon the strict
observance and performance of the terms, provisions or conditions of this
Agreement shall not be deemed a waiver of other obligations hereunder, nor shall
it be considered a future or continuing waiver of the same terms, provisions or
conditions.
26
14.5 Notice. All notices and other communications under the Agreement shall be
in writing, shall be delivered by facsimile transmission, air courier service,
in person or by registered or certified mail with return receipt requested, and
shall be deemed to have been duly given on the date of any receipt or record
maintained by the service or person making delivery. Delivery shall be to the
address set forth below or such other address or facsimile number as may
hereafter be furnished in writing by either party to the other. The current
address for each party is set forth below the signatures, hereinbelow.
14.6 Effectiveness of Agreement. This Agreement shall be effective as of the
date it is executed by all of the parties to this Agreement. In the event any
provision, or portion thereof, of this Agreement is otherwise held by a court
having proper jurisdiction to be for any reason unenforceable or invalid, the
remaining provisions, or portions thereof, of this Agreement shall continue to
exist and shall remain in full force and effect.
14.7 Entire Agreement. This Agreement shall constitute the entire agreement
between the Parties relating to the supply of technology by Licensor to Licensee
(not including matters related to the licensing of Licensor Trademarks) and all
previous agreements relating to the direct or indirect supply of technology by
Licensor to Licensee and all rights and obligations under any such previous
agreements are null and void (subject only to the last sentence of Section 5.1
of this Agreement).
14.8 Applicable Law. This Agreement shall be interpreted in accordance with,
and all questions concerning the validity, interpretation, performance or breach
of this Agreement shall be governed by the laws of Hong Kong.
14.9 Language. This Agreement is executed in English and Chinese versions; in
the event of discrepancy the English version shall prevail.
15. RESTRICTION ON TRANSFERS
15.1 Licensee shall not directly or indirectly transfer, sell, assign, pledge
or otherwise encumber ("Transfer") any of its shares to (i) any person or entity
which has been the subject of bankruptcy proceedings or insolvency during the
prior five (5) Years, (ii) any person or entity with a criminal record, or (iii)
any of Wal-Mart Stores Inc., Target Stores, Kmart Corporation, Costco Companies,
Inc., The Home Depot, Inc. and Office Depot, Inc. and each of their respective
Affiliates. This provision shall cease to apply in the event that Licensee
becomes a publicly traded company
15.2 [Intentionally deleted]
27
15.3 Any transfer or issuance in violation of this Agreement shall be deemed
to be a material breach hereof.
16. [INTENTIONALLY DELETED]
17. CHANGE OF CONTROL OF LICENSOR
In the event Licensor enters into a Transaction with another entity, then: (i)
at the sole discretion of Licensor or such other entity this Agreement, and all
rights and obligations of the parties under this Agreement, shall terminate
immediately upon notice of such termination by Licensor or such other entity to
Licensee, excepting only as follows:
(a) If this Agreement is so terminated then, at Licensee's sole discretion,
and provided that Licensee pays in advance to such other entity an annual
fee of US$116,960, Licensee may notify Licensor and such other entity of
Licensee's election to retain throughout the remaining term of this
Agreement (calculated as if no such termination had occurred) the
exclusive right to utilize the "PriceSmart" name on its existing and
future Territory Outlets in the Territory. Such notice and payment by
Licensee is to be delivered within fifteen calendar days of Licensee's
receipt of the aforementioned notice of termination. In such event: (i)
the applicable provisions of this Agreement relating to such right to use
this "PriceSmart" name shall remain in effect; but (ii) Licensee shall
not retain any other right or rights under this Agreement; and (iii) such
right to utilize the "PriceSmart" name shall be terminable by Licensor or
by said other entity in the event Licensee fails to comply with the
policies, procedures and quality standards set forth in Exhibit F.
(b) At the expiration of such remaining term, and provided that Licensee is,
and remains, in compliance with the aforementioned applicable provisions
of this Agreement, Licensee shall be entitled to retain a perpetual,
royalty-free license to use the "PriceSmart" name on its then existing
and future Territory Outlets in the Territory; provided, however, that
such right to utilize the "PriceSmart" name shall be terminable by
Licensor or by said other entity in the event Licensee fails to comply
with the policies, procedures and quality standards set forth in Exhibit
F.
(c) In the event the circumstances referenced in clause (a) of this Section
17 occur, then Licensee and such other entity shall promptly prepare an
Amendment to this Agreement, memorializing the new relationship between
Licensee and such
28
other entity, as described in clauses (a) and (b) of this Section 17 of
this Agreement.
IN WITNESS WHEREOF, the parties, having full power and authority to enter into
this Agreement, have executed this Agreement on February 28, 2001:
LICENSEE NOVONT HOLDINGS CO., LTD.
By
----------------------------------
(Print Name and Title)
Xuhai Building, Room 601
No. 86 Haidian Road,
Haidian District,
Beijing, PRC
Fax Number:
----------------------
29
LICENSOR: PRICESMART, INC.
- ------------------------ By
--------------------------------------
(Print Name and Title)
4649 Morena Blvd.
San Diego, CA. 92117
Fax Number: (619)581-4707
US LICENSEE NOVONT, INC., DBA TIMETONE
INTERNATIONAL GROUP
BY:
--------------------------------------
(Print Name and Title)
444 South Flower Street
Los Angeles, California 90071
Fax Number:
----------------------
IMPORT AGENT: CHENG CHENG IMPORT-EXPORT CO., LTD.
BY:
--------------------------------------
(Print Name and Title)
No. 18 Xueqing Road,
Haidian District
Beijing, PRC
Fax Number:
----------------------
30
EXHIBIT A
AGENCY AGREEMENT BETWEEN NOVONT HOLDINGS CO., LTD. AND
CHENG CHENG IMPORT-EXPORT CO., LTD.
31
EXHIBIT B
TERRITORY
[Intentionally deleted]
32
EXHIBIT C
J.D. EDWARDS AGREEMENT
33
EXHIBIT D
FORM OF GROSS SALES REPORT
GROSS SALES REPORT
(RMB)
-------------------------------------------------------------
SALES: LOCATION 1 LOCATION 2 LOCATION 3 LOCATION 4 TOTAL
=============================================================
Product Sales
Membership Sales
Other Sales
Less: Value Added Tax
-------------------------------------------------------------
Gross Sales:
-------------------------------------------------------------
34
EXHIBIT E
TERRITORY OUTLET OPENINGS
SCHEDULE FOR OPENING TERRITORY OUTLETS:
- ----------------------------------------------------------------------
YEAR NUMBER OF NEW TOTAL NUMBER DATE MUST BE
STORES OF STORES OPENED BY:
- ----------------------------------------------------------------------
2001 5 10 1 April 2002
- ----------------------------------------------------------------------
2002 3 13 1 April 2003
- ----------------------------------------------------------------------
2003 4 17 1 April 2004
- ----------------------------------------------------------------------
35
EXHIBIT F
CURRENT POLICIES, PROCEDURES AND QUALITY STANDARDS
36
PRICESMART, INC. POLICIES, PROCEDURES
AND QUALITY STANDARDS
INTRODUCTION
Licensees are responsible for upholding PriceSmart standards of operation and
complying with all applicable laws. This must be done in the context of properly
managing people, merchandise, financials and facility. The following applies to
the management of all departments of Licensee.
EVALUATION STANDARDS
PEOPLE
1. Employee Relations
a. Treating Employees Fairly and Justly - this must be one of the most basic
philosophies of the Licensee. Treating employees fairly means: paying
fair wages to permit employees to live a decent life; providing proper
benefits health care, pension, vacation, sick leave and bonus
opportunity; timely and thoughtful employee evaluations to improve
employee performance and morale, fair disciplinary actions, avoidance of
favoritism, low turnover rate, and opportunity to be promoted.
b. Playing by the Rules - it is expected that the Licensee will adhere to
the letter and spirit of any agreed to Union Agreement or Company
Employee Handbook.
c. Employee Morale - Happy, dedicated employees are the key to successful
results. Employees are happy when they are treated fairly, trained
properly, well informed and welcomed as part of the team. The Licensee
has the ultimate responsibility for employee morale. All managers must be
the champions of his or .her employees and show strong leadership
characteristics. Deserving employees must receive positive feedback for a
job well done.
d. Management Development - The Licensee is expected to have qualified
people in all staff positions and to develop staff personnel and managers
for the company. The keys to management development are: good hiring,
teaching, evaluating and giving periodic status reports regarding people
available for promotion and transfer to meet the needs of all parts of
the business and future growth.
2. Member Relations
We are in business to serve our members. The standards we set for serving our
members and how well we achieve those standards are directly related to the
success of our business.
a. Check-Stand Service - the basic rule at the check-stands is one member at
the register and no more than three waiting in line. Members must be
checked out quickly, accurately and courteously. The manager and the
staff must always be alert and attentive to giving the right service at
the front-end.
b. Membership Service - the first impression of a new member must be a good
one. The manager must assure prompt and courteous service. Nonqualified
prospective members must be assisted to join, or turned over to a manager
to sponsor, if needed.
c. Sales Service - Managers must have sufficient well-trained sales people
in the selling and service departments.
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d. Entrance and Exit Service - the first and last impressions must be good
ones. These employees must understand their jobs, greet the members, and
thank them as they leave.
e. Complaints - the manager must teach staff and employees to handle
complaints courteously and attentively, and to seek assistance from
senior staff when needed.
f. Following the Rules - The Licensee and staff must observe company rules
and all international, state and local laws.
3. Membership
a. Sign Ups - Membership is the foundation of our business. Members are
customers who fuel our sales. Membership criteria should be set to
attract the type of customers we want. Then the goal must be to sign up
as many members as possible.
b. Membership Income - Membership fees should be viewed as a segment of
gross margin. The fee policy needs to be set to achieve the lowest
possible gross margin on merchandise by using the fee to compensate for
the lower margin.
c. Renewal Follow Up - Non-renewed membership is lost sales and income.
Renewal must be maximized; a replacement for a non-renewed member is more
expensive than renewing a current member.
d. Additional Card -Extra cards equate to additional members shopping and
number of cardholders. Cards per membership must be maximized.
e. Goal Setting and Strategy Development - Marketing programs influence the
number of cardholders, shopping frequency and sales. Membership goals
should be set to maximize the member base and a marketing strategy
developed to accomplish these goals.
4. Safety
Provide a safe working and shopping environment. Monitor working conditions and
habits of employees to minimize accidents and expense.
a. Emergency Procedures - The Licensee needs to be sure that all staff and
employees are familiar with emergency plans and ready to handle
robberies, fire or other major problems.
b. Hold regular Safety Meetings and produce written minutes. Warehouse
Manager to take immediate corrective action to cure unsafe conditions.
c. Public Liability - Ensure building and warehouse parking lot is free of
any unsafe condition to minimize losses.
d. Avoid serious accidents through good teaching and vigilance.
MERCHANDISE
1. Merchandising
a. The policy of the Licensee must be to sell first quality name brand and
private label merchandise, stored and displayed in a clean, attractive
manner. The merchandise must meet all governmental requirements.
b. Wholesaling - The Licensee's business includes a wholesale business
catering to the needs of small businesses. Product selection, packaging
and pricing will reflect appropriate merchandising for these small
businesses.
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c. Pricing - The philosophy of the Licensee should be to save members as
much money as possible, consistent with providing a fair return on
corporate investment. At all times, the Licensee is responsible to reduce
the price of merchandise by buying better, distributing more efficiently
and reducing operating expenses to continue to add value to Membership.
2. Inventory Management
a. The Licensee will purchase inventory to maintain adequate in-stock
position while accelerating inventory turnover.
b. Food Service - Food service (food courts) are a basic feature of our
business. Food will be handled in a healthful manner and the area will be
maintained in a clean condition.
c. Excitement - Merchandising is partly entertainment. Good merchandising
requires creativity and change in merchandising presentation, and in
keeping with seasonal trends.
d. 6 Rights - The 6 Rights of merchandising must be applied to achieve the
highest standards possible.
- The Right Merchandise, in the Right Place, at the Right Time,
in the Right Quantity, in the Right Condition, at the Right
Price.
e. Communications - Warehouse locations, local buying group and local
Central must provide quality communication to each other to improve the
merchandise program.
f. Protection of Merchandise - this includes careful handling to minimize
markdowns and proper systems and controls to achieve an annualized
shrinkage result of .8% of sales or better.
g. Business Margins - Margins must be set and consistently reviewed so
pricing is always competitive and provides Members with value. There must
be a low price perception in the market about PriceSmart. Pricing
umbrella should be known in all categories.
h. Protection of Cash - Minimize cash short, NSF check write-offs and losses
from robberies.
FINANCIALS
1. Financial Standards
a. Financial statements must be produced on a regular basis for local
management to review and react in a timely manner.
b. Payment - all invoices to be paid on time with proper control on
discrepancies.
c. Insurance - Maintain proper insurance coverage to protect assets of
company.
d. Planning - annual capital and operating budgets should be completed in a
timely and accurate manner.
FACILITY
1. Construction and Facilities
a. Quality - Commercial grade facility. Duty worthy for 25-year life
expectancy as operating warehouse style store.
b. Appearance - Simplistic design and strong appearance representing no
frills, basic warehouse look.
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c. Interior - Ease of access to the entrance and exit. Proper orientation to
allow shoppers good visibility to merchandise, adequate travel paths,
focus and directed shopping pattern. Good lighting levels and reflective
surfaces allowing the merchandise to be presented in its best form to
maximize sales potential.
d. Slab. Structure and Roof - Critical areas of Operations built to
established and successfully executed means and methods.
e. Product Refrigeration - Installation and operation of product
refrigeration systems that present the product well, hold proper
temperatures for quality integrity, and offer superior energy
efficiencies.
f. Facility Equipment - Facility equipment that has been successfully
utilized in this application. Time and duty tested components
specifically developed for the warehouse store industry.
g. Construction - Employ trustworthy competent contractors, experienced in
building for the retailing industry. Contractors understanding the
quality, schedule, and Operational interface required for timely and cost
effective completion of the project.
h. Care of Facility and Equipment - it is the Licensee's responsibility to
provide regular maintenance and care to maintain equipment facility in
good working in order, to decrease downtime, to avoid costly repairs and
to provide high standard fixtures and equipment for employees and
members. Facility to be maintained in a clean, orderly fashion.
i. Repairs and Replacement - Repairs or replacement must be accomplished as
needed and promptly.
j. Additional Fixtures/Equipment - must be planned for and purchased.
k. Safety - All facilities shall be constructed, maintained, and operated so
as to provide a safe environment for all employees and members.
EVALUATION METHODS
Audit Reports - Twice yearly audits of warehouse locations and Central
operations will be conducted by PriceSmart San Diego Management and written
review provided to local management. The local manager's timely response to
audit reports and appropriate correction to problems will be a key part of the
performance evaluation.
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EXHIBIT G
EMPLOYEE'S CONFIDENTIAL INFORMATION AGREEMENT
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EXHIBIT H
KEY EMPLOYEE'S CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
("AGREEMENT")
In consideration of my employment or continued employment by
________________ ________________ (hereinafter "the company") and in
consideration of the salary, wages or other compensation to be paid for my
services during such employment, I hereby agree as follows:
1. As used in this Agreement the term "confidential information" means
information relating to the business, operations, properties, assets,
products, condition (financial or otherwise), liabilities, employee
relations, customers, suppliers, prospects, technology, or trade secrets
of PriceSmart, Inc. or its affiliates; except to the extent such
information (i) is in the public domain through no act or omission by me;
(ii) is required to be disclosed by law, or (iii) is independently
learned by me outside of my employment by the company.
2. During the term of my employment by the company, I will not, except as my
duties to the company may require, disclose any confidential information
to others.
3. After the term of my employment by the company, I will not disclose any
confidential information to others unless such disclosure first has been
authorized in writing by the company and by PriceSmart, Inc.
4. On termination of my employment by the company, or at any time it may so
request, I will promptly deliver to the company all copies of any
memoranda, notes, records, reports, manuals, catalogs, price lists or
other documents relating to or containing any confidential information
which I possess or may have under my control.
5. I am familiar with the Merchandise Business System licensed by PriceSmart
to Novont Holdings Co., Ltd. under the agreement between them dated
February 28, 2001. I agree that during the term of my employment by the
company and for three years thereafter, I shall not engage in, be
employed by, consult for or invest in a business which is similar to or
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competitive with the Merchandise Business System, including among other
things, discount stores, warehouse stores, and hypermarkets; except,
however, that I may engage in, be employed by, consult for or invest in
businesses that would: both (i) add value to the Territory Outlets and
their members; and (ii) not compete with the business of Territory
Outlets.
6. This Agreement shall be binding upon and inure to the benefit of the
parties hereto, their successors and assigns, and to the benefit of
PriceSmart, Inc. who may enforce it as a "third party beneficiary."
7. Damages are an inadequate remedy for a breach of this Agreement. I,
therefore, agree that should a breach or threatened breach of this
Agreement occur, the company and/or PriceSmart, Inc. may without
prejudice to any other remedies which they may have, immediately obtain
and enforce injunctive relief prohibiting me from violating this
Agreement.
8. This is the only agreement between these parties on this subject matter.
9. This Agreement can be modified or rescinded only by a writing signed by
both parties and by PriceSmart, Inc.
I have read the foregoing, agree thereto, and hereby acknowledge receipt
of a copy of this Agreement.
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Signature of Employee
WITNESS:
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By
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Title Date
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