-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JipFQDxOwkO4hQ33XSke6RTsrJa1fufbfB8OHL3voDzHmVvXJTIG2UvxEWwZz00T tIuqyulLw8boduylcH7HxA== 0001188112-03-000435.txt : 20030718 0001188112-03-000435.hdr.sgml : 20030718 20030718112349 ACCESSION NUMBER: 0001188112-03-000435 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20030718 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PRICESMART INC CENTRAL INDEX KEY: 0001041803 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 330628530 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-51523 FILM NUMBER: 03792505 BUSINESS ADDRESS: STREET 1: 4649 MORENA BLVD CITY: SAN DIEGO STATE: CA ZIP: 92117 BUSINESS PHONE: 6195814530 MAIL ADDRESS: STREET 1: 4649 MORENA BLVD CITY: SAN DIEGO STATE: CA ZIP: 92117 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PRICE ROBERT E CENTRAL INDEX KEY: 0000934818 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 7979 IVANHOE AVE STREET 2: STE 520 CITY: LA JOLLA STATE: CA ZIP: 92037 BUSINESS PHONE: 6195512311 MAIL ADDRESS: STREET 1: 7979 IVANHOE AVE STREET 2: STE 520 CITY: LA JOLLA STATE: CA ZIP: 92037 SC 13D 1 tsc13d-30089b.txt SC 13D SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D (RULE 13D-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13D-1(A) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13D-2(A) (AMENDMENT NO. 3)1 PRICESMART, INC. - -------------------------------------------------------------------------------- (Name of Issuer) COMMON STOCK, PAR VALUE $.0001 PER SHARE - -------------------------------------------------------------------------------- (Title of Class of Securities) 741511109 - -------------------------------------------------------------------------------- (CUSIP Number) JAMES F. CAHILL PRICE ENTITIES 7979 IVANHOE AVENUE, SUITE 520 LA JOLLA, CALIFORNIA (858) 551-2303 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) July 9, 2003 - -------------------------------------------------------------------------------- (Date of Event Which Requires Filing of This Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box: [ ]. (Continued on the following pages) Page 1 of 8 Pages 1 The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D - ------------------------------- ------------------------- CUSIP No. 741511109 PAGE 2 OF 8 - ------------------------------- ------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS (ENTITIES ONLY) ROBERT E. PRICE - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / / (b) /X/ - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* OO, WC - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) / / - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION U.S. CITIZEN - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 212 SHARES NUMBER OF ------------------------------------------------------- SHARES 8 SHARED VOTING POWER BENEFICIALLY OWNED BY EACH 3,106,998 SHARES REPORTING ------------------------------------------------------- PERSON WITH 9 SOLE DISPOSITIVE POWER 212 SHARES ------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 3,106,998 SHARES - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 3,107,210 SHARES - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* /X/ - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 45.2%(1) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* IN - -------------------------------------------------------------------------------- (1) Based on 6,871,913 shares of PriceSmart Common Stock outstanding as of June 30, 2003, as reported in PriceSmart's quarterly report on Form 10-Q for the quarter ended May 31, 2003, and includes 1,650 shares of Series A Preferred Stock currently convertible into 43,998 shares of PriceSmart Common Stock. *SEE INSTRUCTIONS BEFORE FILLING OUT! PAGE 3 OF 8 This Amendment No. 3 to Schedule 13D relating to PriceSmart, Inc., a Delaware corporation ("PriceSmart"), is being filed on behalf of the undersigned to amend the Schedule 13D filed with the Securities and Exchange Commission on September 8, 1997, as amended by amendment No. 1 thereto filed with the Securities and Exchange Commission on January 22, 2002, and Amendment No. 2 thereto filed with the Securities and Exchange Commission on April 25, 2003. ITEM 1. SECURITY AND ISSUER. This statement relates to the shares of PriceSmart's common stock, par value $0.0001 per share ("PriceSmart Common Stock"). The principal executive offices of PriceSmart are located at 4649 Morena Boulevard, San Diego, California 92117. ITEM 2. IDENTITY AND BACKGROUND. (a), (f) This statement on Schedule 13D is filed by Robert E. Price, a U.S. Citizen. (b) The principal business address of Mr. Price is 7979 Ivanhoe Avenue, Suite 520, La Jolla, California 92037. (c) The current occupation of Mr. Price is acting Chief Executive Officer of PriceSmart. (d)-(e) During the last five years, Mr. Price has not been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which he was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation of such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. Pursuant to a Distribution Agreement, dated as of August 26, 1997, between Price Enterprises, Inc., a Delaware corporation ("PEI"), and PriceSmart, all of the issued and outstanding shares of PriceSmart Common Stock were distributed (the "Distribution") on August 29, 1997 to the holders of PEI's common stock, par value $.0001 per share ("PEI Common Stock"). Pursuant to the Distribution, each PEI stockholder received one share of PriceSmart Common Stock for every four shares of PEI Common Stock held by such person on August 15, 1997. No consideration was paid in connection with the acquisition pursuant to the Distribution of the shares of PriceSmart Common Stock subject to this statement. On August 29, 1997, Mr. Price, as co-trustee of the Robert & Allison Price Trust 1/10/75 (the "Robert & Allison Price Trust"), acquired 320,434 shares of PriceSmart Common Stock through the Distribution. On August 29, 1997, Mr. Price, as co-trustee of Robert & Allison Price Charitable Remainder Trust, acquired 312,500 shares of PriceSmart Common Stock through the Distribution. On August 29, 1997, Mr. Price, as co-trustee of a trust for the benefit of his three minor children, acquired 22,566 shares of PriceSmart Common Stock through the Distribution. On August 29, 1997, Mr. Price, as Custodian for his Minor Children (UGMA-CA), acquired 1,278 shares of PriceSmart Common Stock through the Distribution. On August 29, 1997, The Price Family Charitable Fund (formerly the Sol & Helen Price Foundation) (the "Price Family Charitable Fund"), of which Mr. Price is a director, acquired 625,125 shares of PriceSmart Common Stock through the Distribution. On August 29, 1997, 74 shares of PriceSmart Common Stock were distributed into a profit sharing and 401(k) plan account maintained by Mr. Price's former employer in connection with the Distribution. 1) In September 1997, Mr. Price, as co-trustee of the Robert & Allison Price Trust, made gifts of an aggregate of 37,500 shares of PriceSmart Common Stock to his three children. 2) On December 22, 1997, the Price Family Charitable Fund, of which Mr. Price is a director, received 30,520 shares of PriceSmart Common Stock as a contribution. 3) On October 12, 1998, Mr. Price, as co-trustee of the Robert & Allison Price Trust, received 1,148 shares of PriceSmart Common Stock as a gift. PAGE 4 OF 8 4) On February 17, 1999, Mr. Price, as Custodian for his Minor Children (UGMA-CA), distributed an aggregate of 1,064 shares of PriceSmart Common Stock to two of his children. 5) On April 16, 1999, Mr. Price, as co-trustee of the Robert & Allison Price Trust, made a gift of 15 shares of PriceSmart Common Stock to one individual 6) On March 8, 2000, Mr. Price, as co-trustee of the Robert & Allison Price Trust, made a gift of 500 shares of PriceSmart Common Stock to one individual. 7) On June 30, 2000, Mr. Price, as co-trustee of the Robert & Allison Price Charitable Remainder Trust, transferred 14,900 shares of PriceSmart Common Stock as a unitrust distribution the Robert & Allison Price Trust, of which Mr. Price is a co-trustee. 8) On August 8, 2000, the Price Family Charitable Fund, of which Mr. Price is a director, received a contribution of 8,737 shares of PriceSmart Common Stock. 9) On August 11, 2000, the Price Group, of which Mr. Price is a co-manager, received a capital contribution of 165,577 shares of PriceSmart Common Stock from one of its members. 10) On December 18, 2000, Mr. Price, as co-trustee of the Robert & Allison Price Trust, transferred 7,000 shares of PriceSmart Common Stock to the Robert & Allison Price Charitable Remainder Trust, of which Mr. Price is a co-trustee. 11) In November 2001, Mr. Price, as co-trustee of the Robert & Allison Price Trust, transferred an aggregate of 291,467 shares of PriceSmart Common Stock to the Robert & Allison Price Charitable Remainder Trust, of which Mr. Price is a co-trustee. 12) On January 23, 2002, the Price Family Charitable Fund, of which Mr. Price is a director, acquired for cash 550 shares of PriceSmart's 8% Series A Cumulative Convertible Redeemable Preferred Stock, par value $.0001 per share (the "Series A Preferred Stock"), from PriceSmart in a private transaction for $1,000 per share. The Series A Preferred Stock is convertible at the option of the holder at any time, or automatically on January 17, 2012, into shares of PriceSmart Common Stock at a conversion price of $37.50 per share, subject to customary anti-dilution adjustments; accrues a cumulative preferential dividend at an annual rate of 8%, payable quarterly in cash; and may be redeemed by PriceSmart at any time on or after January 17, 2007. PriceSmart is required to register with the Securities and Exchange Commission the shares of PriceSmart Common Stock issuable upon conversion of the Series A Preferred Stock. 13) On November 21, 2002, the Price Family Charitable Fund, of which Mr. Price is a director, received a contribution of 250,000 shares of Price Smart common stock from the Price Family Charitable Trust. 14) On April 25, 2003, San Diego Revitalization Corporation, of which Mr. Price is a director, acquired for cash and a promissory note 619,046 shares of PriceSmart Common Stock from the Price Family Charitable Trust in a private transaction for $16.12 per share. 15) On April 25, 2003, San Diego Revitalization Corporation, of which Mr. Price is a director, acquired for cash 550 shares of Series A Preferred Stock, from the Price Family Charitable Trust in a private transaction for $1,000 per share. 16) On May 15, 2003, Mr. Price as co-trustee of the Robert and Allision Price Trust, acquired for cash 9,948 shares of PriceSmart Common Stock on the open market for $15.80 per share. 17) On July 9, 2003, the Price Family Charitable Fund, of which Mr. Price is a director, acquired for cash 5,000 shares of PriceSmart's 8% Series B Cumulative Convertible Redeemable Preferred Stock, par value $.0001 per share (the "Series B Preferred Stock"), from PriceSmart in a private transaction for $1,000 per share. The Series B Preferred Stock is convertible at the option of the holder at any time, or automatically on July 9, 2013, into shares of PriceSmart Common Stock at a conversion price of $20.00 per share, subject to customary anti-dilution adjustments; accrues a cumulative preferential dividend at an annual rate of 8% payable quarterly in cash; and may be redeemed by PriceSmart at any time on or after July 9, 2008. PriceSmart is required to register with the Securities and Exchange Commission the shares of PriceSmart Common Stock issuable upon conversion of the Series B Preferred Stock. 18) On July 9, 2003, the Price Group, of which Mr. Price is a co-manager, acquired for cash 5,000 shares of Series B Preferred Stock, from PriceSmart in a private transaction for $1,000 per share. 19) On July 9, 2003, Mr. Price as co-trustee of the Robert and Allision Price Trust, acquired for cash 2,000 shares of Series B Preferred Stock, from PriceSmart in a private transaction for $1,000 per share. 20) On July 9, 2003, Mr. Price as co-trustee of the Robert and Allision Price Charitable Remainder Trust, acquired for cash 3,000 shares of Series B Preferred Stock, from PriceSmart in a private transaction for $1,000 per share. Other than as described in Item 6 below, all cash used to acquire securities pursuant to the transactions described above in this Item 3 were funded from cash held by the person or entity acquiring such securities, including internally generated funds of and/or contributions made to such person or entity. ITEM 4. PURPOSE OF TRANSACTION. The information set forth above in Item 3 is incorporated herein by reference. All shares of PriceSmart Common Stock, Series A Preferred Stock, and Series B Preferred Stock beneficially owned by Mr. Price are held for investment purposes only. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. (a) Mr. Price may be deemed to beneficially own 3,107,210 shares of PriceSmart Common Stock, consisting of 2,327,878 shares of PriceSmart Common Stock, 1,100 shares of Series A Preferred Stock currently convertible into 29,332 shares of PriceSmart Common Stock and 15,000 shares of Series B Preferred Stock currently convertible into 750,000 shares of PriceSmart Common Stock. The shares of PriceSmart Common Stock Mr. Price may be deemed to beneficially own represent approximately 45.2% of the issued and outstanding shares of PriceSmart Common Stock, based on 6,871,913 shares of PriceSmart Common Stock outstanding as of June 30, 2003, as reported in PriceSmart's Quarterly Report on Form 10-Q for the quarter ended May 31, 2003. The shares may be deemed to be beneficially owned by Mr. Price as follows: PAGE 5 OF 8 (1) 746,067 shares of PriceSmart Common Stock, including 3,000 shares of Series B Preferred Stock currently convertible into 150,000 shares of PriceSmart Common Stock, by Mr. Price as co-trustee of Robert & Allison Price Charitable Remainder Trust; (2) 22,566 shares of PriceSmart Common Stock by Mr. Price as co-trustee of Trusts for Benefit of his Minor Children; (3) 212 shares of PriceSmart Common Stock by Mr. Price as Custodian for his Minor Children (UGMA-CA); (4) 80 shares of PriceSmart Common Stock held for Mr. Price's account in a profit sharing and 401(k) plan maintained by his former employer; (5) 1,179,048 shares of PriceSmart Common Stock, including 550 shares of Series A Preferred Stock currently convertible into 14,666 shares of PriceSmart Common Stock, and 5,000 shares of Series B Preferred Stock currently convertible into 250,000 shares of PriceSmart Common Stock, by Mr. Price as a director of the Price Family Charitable Fund; (6) 415,577 shares of PriceSmart Common Stock and 5,000 shares of Series B Preferred Stock currently convertible into 250,000 shares of PriceSmart Common Stock, by Mr. Price as co-manager of the Price Group LLC. (7) 633,712 shares of PriceSmart Common Stock, including 550 shares of Series A Preferred Stock currently convertible into 14,666 shares of PriceSmart Common Stock, by Mr. Price as a director of San Diego Revitalization Corporation. (8) 109,948 shares of PriceSmart Common Stock, including 2,000 shares of Series B Preferred Stock currently convertible into 100,000 shares of PriceSmart Common Stock, by Mr. Price as co-trustee of the Robert and Allison Price Trust. Mr. Price disclaims beneficial ownership of the 2,228,337 shares of PriceSmart Common Stock beneficially owned by the Price Family Charitable Fund, the Price Group, and San Diego Revitalization Corporation. These shares do not include 2,631,597 shares of PriceSmart Common Stock that may be deemed to be beneficially owned by Sol Price, the father of Mr. Price, which represent approximately 38.3% of the issued and outstanding shares of PriceSmart Common Stock. However, of the 2,631,597 shares that may be deemed to be beneficially owned by Mr. S. Price, Mr. Price and Mr. S. Price may each be deemed to beneficially own the 2,228,337 shares of PriceSmart Common Stock held by the Price Family Charitable Fund, the Price Group, and San Diego Revitalization Corporation, which represent approximately 25.1% of the issued and outstanding shares of PriceSmart Common Stock. (b) The power to vote and the power to dispose of such shares is as follows: Sole power to vote or direct the vote: 212 shares Shared power to vote or direct the vote: 3,106,998 shares Sole power to dispose or direct the disposition: 212 shares Shared power to dispose or direct the disposition: 3,106,998 shares Allison Price, who is the wife of Mr. Price, is the co-trustee with Mr. Price for each of the Robert & Allison Price Trust, the Robert & Allison Price Charitable Remainder Trust and trusts established for the benefit of their three minor children, which beneficially own an aggregate of 878,581 shares of PriceSmart Common Stock, including 5,000 shares of Series B Preferred Stock currently convertible into 250,000 shares of PriceSmart Common Stock. Under the terms of these trusts, the co-trustees must act jointly to vote or dispose of shares of stock owned by such trusts. Mr. Price shares the power to vote and dispose of the shares of PriceSmart Common Stock held by the Price Family Charitable Fund, the Price Group, and San Diego Revitalization Corporation. The directors and executive officers of the Price Family Charitable Fund and San Diego Revitalization Corporation (collectively, the "PFCF and SDR Directors and Officers"), each of whom is a citizen of the United States, are as follows: Sol Price Director and Chairman of the Board Robert E. Price Director and President James F. Cahill Director and Vice President Jack McGrory Director Allison Price Director Helen Price Director Murray Galinson Director William Gorham Director PAGE 6 OF 8 Joseph R. Satz Secretary Kathy Hillan Treasurer The members of the Price Group, their voting interests and the Managers of the Price Group, who are also directors and executive officers, as the case may be, of the Price Family Charitable Fund and San Diego Revitalization Corporation, are as follows:
MEMBER VOTING INTEREST MANAGER ------ --------------- ------- Sol and Helen Price Trust 48% Sol Price Robert and Allison Price Trust 12% Robert Price James F. Cahill 12% Jim Cahill Jack and Cheryl McGrory Trust 12% Jack McGrory Murray and Elaine Galinson Trust 9% Murray Galinson Kathy Hillan 5% Kathy Hillan Joseph R. Satz and Linda Satz Trust 2% Joseph R. Satz
Under law and the relevant agreements, the Managers generally have the authority to manage the business and affairs of the Price Group. The principal executive office of the Price Family Charitable Fund, the Price Group, and San Diego Revitalization Corporation and the principal business address of each of the PFCF and SDR Directors and Officers is 7979 Ivanhoe Avenue, Suite 520, La Jolla, California 92037. The principal business of the Price Family Charitable Fund is to function as a private foundation. The principal business of the Price Group is real estate and investment. The principal business at San Diego Revitalization Corporation is to function as a public charity. The principal occupation of Mr. S. Price is self-employed investor and manager of the Price Group. The principal occupation of each of Mr. Cahill, Mr. McGrory, Mr. Galinson, Mr. Satz and Ms. Hillan is manager of Price Group. Mr. Gorham is self-employed. Ms. A. Price and Ms. H. Price are not presently employed. To Mr. Price's knowledge, during the last five years, neither the Price Family Charitable Fund, the Price Group and San Diego Revitalization Corporation nor any of the PFCF and SDR Directors and Officers has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which any such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation of such laws. (c) The information set forth above in Item 3 is incorporated herein by reference. The information set forth in Item 3 of Amendment No. 6 to Schedule 13D, filed on or around July 18, 2003, by Mr. S. Price with the Securities and Exchange Commission, is incorporated herein by reference. (d) Not applicable. (e) Not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. Grupo Gigante, S.A. de C.V., a corporation organized under the laws of the United Mexican States ("Gigante"), entered into a Right of First Refusal Agreement dated as of January 15, 2002 (the "Right of First Refusal Agreement") with Robert E. Price, Sol Price, the Price Family Charitable Fund, the Price Group, the Robert and Allison Price Trust, the Robert & Allison Price Charitable Remainder Trust, the Price Family Charitable Trust and the Sol and Helen Price Trust (each a "Price Entity," and collectively, the "Price Entities"), pursuant to which, in the event the Price Entities desire to sell, give or otherwise transfer shares of PriceSmart Common Stock (the "Stock") owned by the Price Entities to any party other than to (i) another Price Entity, (ii) Gigante or (iii) in the case of a Price Entity that is a trust, the beneficiary of the trust upon an event causing a distribution of trust assets under the trust's governing documents, the Price Entities are obligated to offer to sell the Stock to Gigante on the same terms, except that the Price Entities are permitted to sell, give or otherwise transfer an aggregate of 50,000 PAGE 7 OF 8 shares of the Stock without regard to the transfer restrictions in the Right of First Refusal Agreement. For purposes of the Right of First Refusal Agreement, any merger, recapitalization, sale, transfer or other business combination or disposition involving 50% or more of PriceSmart's assets will constitute a transfer requiring the Price Entities to first offer the Stock to Gigante. This right of first refusal, unless sooner terminated in accordance with the terms of the Right of First Refusal Agreement, will remain in effect until January 22, 2003. Under the Right of First Refusal Agreement, the Price Entities also have agreed to vote the Stock in favor of the election of Gigante's designee to the PriceSmart board of directors until January 22, 2004 or until PriceSmart is no longer required to nominate such designee pursuant to the Series A Preferred Stock and Warrant Purchase Agreement entered into on January 15, 2002 between PriceSmart and Gigante, whichever occurs first. As described in numbered paragraph 14 of Item 3 above, San Diego Revitalization Corporation ("SDRC") executed a promissory note (the "Promissory Note") in favor of the Price Family Charitable Trust ("PFCT") as partial payment of the purchase price for 619,046 shares of PriceSmart Common Stock. Pursuant to a Pledge and Security Agreement, dated April 24, 2003 (the "Pledge and Security Agreement"), SDRC has pledged those 619,046 shares of PriceSmart Common Stock, plus the 550 shares of Series A Preferred Stock it acquired as described in numbered paragraph 15 of Item 3 above, in favor of PFCT to secure its obligations under the Promissory Note. Under the terms of the Pledge and Security Agreement, PFCT may exercise control of the pledged shares if SDRC falls to make payments due to PFCT under the Promissory Note. The Pledge and Security Agreement is incorporated herein by reference as Exhibit 5 to this Schedule 13D. ITEM 7. EXHIBITS. Exhibit 1* Right of First Refusal Agreement by and among Grupo Gigante, S.A. de C.V. and Robert E. Price, Sol Price, The Price Family Charitable Fund, The Price Group LLC, the Robert and Allison Price Trust, the Robert & Allison Price Charitable Remainder Trust, the Price Family Charitable Trust and the Sol and Helen Price Trust dated as of January 15, 2002. Exhibit 2* Series A Preferred Stock Purchase Agreement dated as of January 18, 2002 between PriceSmart and the Investors Listed on Exhibit A Thereto. Exhibit 3** Amended and Restated Certificate of Incorporation of PriceSmart, Inc. Exhibit 4* Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special Rights of 8% Series A Cumulative Convertible Redeemable Preferred Stock and Qualifications, Limitations and Restrictions Thereof dated January 15, 2002. Exhibit 5*** Pledge and Security Agreement, dated April 24, 2003, by San Diego Revitalization Corporation in favor of the Price Family Charitable Trust. Exhibit 6 Series B Preferred Stock Purchase Agreement dated July 9, 2003 between PriceSmart and the Investors listed on Exhibit A thereto. Exhibit 7 Certificate of Designations, Preferences, and Relative, Participating, Optional and Other Special Rights of 8% Series B Cumulative Convertible Redeemable Preferred Stock and Qualifications, Limitations and Restrictions thereof dated July 9, 2003. ----------- * Incorporated by reference to PriceSmart's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 24, 2002. ** Incorporated by reference to PriceSmart's Annual Report on Form 10-K for the year ended August 31, 1997 filed with the Securities and Exchange Commission on November 26, 1997. *** Incorporated by reference from Exhibit 2 to the Schedule 13D filed by San Diego Revitalization Corporation with the Securities and Exchange Commission on or around May 5, 2003. PAGE 8 OF 8 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: July 18, 2003 /s/ Robert E. Price ------------------------------ Robert E. Price EXHIBIT INDEX Exhibit 1* Right of First Refusal Agreement by and among Grupo Gigante, S.A. de C.V. and Robert E. Price, Sol Price, The Price Family Charitable Fund, The Price Group LLC, the Robert and Allison Price Trust, the Robert & Allison Price Charitable Remainder Trust, the Price Family Charitable Trust and the Sol and Helen Price Trust dated as of January 15, 2002. Exhibit 2* Series A Preferred Stock Purchase Agreement dated as of January 18, 2002 between PriceSmart and the Investors Listed on Exhibit A Thereto. Exhibit 3** Amended and Restated Certificate of Incorporation of PriceSmart, Inc. Exhibit 4* Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special Rights of 8% Series A Cumulative Convertible Redeemable Preferred Stock and Qualifications, Limitations and Restrictions Thereof dated January 15, 2002. Exhibit 5*** Pledge and Security Agreement, dated April 24, 2003, by San Diego Revitalization Corporation in favor of the Price Family Charitable Trust. Exhibit 6 Series B Preferred Stock Purchase Agreement dated July 9, 2003 between PriceSmart and the Investors listed on Exhibit A thereto. Exhibit 7 Certificate of Designations, Preferences, and Relative, Participating, Optional and Other Special Rights of 8% Series B Cumulative Convertible Redeemable Preferred Stock and Qualifications, Limitations and Restrictions thereof dated July 9, 2003. - ----------- * Incorporated by reference to PriceSmart's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 24, 2002. ** Incorporated by reference to PriceSmart's Annual Report on Form 10-K for the year ended August 31, 1997 filed with the Securities and Exchange Commission on November 26, 1997. *** Incorporated by reference from Exhibit 2 to the Schedule 13D filed by San Diego Revitalization Corporation with the Securities and Exchange Commission on or around May 5, 2003. EX-6 3 purchase-agreement.txt EX-6 DRAFT - CONFIDENTIAL SERIES B PREFERRED STOCK PURCHASE AGREEMENT BY AND AMONG PRICESMART, INC. and THE INVESTORS LISTED ON EXHIBIT A ATTACHED HERETO Dated as of July ___, 2003 DRAFT - CONFIDENTIAL TABLE OF CONTENTS 1. AUTHORIZATION AND SALE OF THE SHARES 1 1.1 Authorization of the Shares. 1 1.2 Sale of the Shares. 1 2. CLOSING 1 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 2 3.1 Organization, Good Standing and Qualification 2 3.2 Authorization 2 3.3 Valid Issuance of the Securities 3 3.4 Capitalization 3 3.5 Noncontravention 4 3.6 Reports Filed Under the Securities Exchange Act of 5 1934; Financial Statements 3.7 Absence of Certain Changes 5 3.8 No General Solicitation. 5 3.9 Disclosure. 5 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS 6 4.1 Organization and Qualification 6 4.2 Authorization 6 4.3 Purchase for Own Account 6 4.4 Accredited Investor Status 6 4.5 Restricted Securities 7 4.6 Due Diligence and No Solicitation 7 4.7 Further Limitations on Disposition 7 4.8 Legends 7 5. PRE-CLOSING COVENANTS OF THE PARTIES 8 5.1 General 8 5.2 Notice of Developments 8 6. POST-CLOSING COVENANTS OF THE PARTIES. 8 6.1 Status of Dividends. 8 6.2 Listing; Reservation. 8 7. CONDITIONS TO THE INVESTORS' OBLIGATIONS AT CLOSING 9 7.1 Representations and Warranties True 9 7.2 Compliance with Covenants 9 7.3 No Litigation 9 7.4 Securities Exemptions 9 7.5 Certificate of Designations. 9 7.6 Shares. 10 7.7 Proceedings. 10 7.8 No Material Adverse Effect. 10 8. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING 10 ii DRAFT - CONFIDENTIAL 8.1 Representations and Warranties True 10 8.2 Payment of Consideration 10 8.3 No Litigation 10 8.4 Securities Exemptions 11 9. REGISTRATION STATEMENT FOR RESALE OF THE SHARES 11 9.1 Registration. 11 9.2 Company Obligations. 11 9.3 Restrictions on Registrations. 12 9.4 Investor Obligations and Rights. 13 9.5 Indemnification. 14 9.6 Expenses. 16 10. TERMINATION 17 10.1 Termination 17 10.2 Effect of Termination. 17 11. MISCELLANEOUS. 17 11.1 Survival of Warranties 17 11.2 Specific Performance. 17 11.3 Successors and Assigns 18 11.4 Governing Law 18 11.5 Counterparts 18 11.6 Headings 18 11.7 Notices 19 11.8 No Finder's Fees 19 11.9 Amendments and Waivers 20 11.10 Attorneys' Fees 20 11.11 Severability 20 11.12 Entire Agreement 20 11.13 No Third Party Beneficiaries. 20 11.14 Public Announcements. 20 11.15 Further Assurances 20 11.16 Fees and Expenses. 20 11.17 Waiver of Jury Trial. 21 SCHEDULES Schedule 3.4(b) EXHIBITS Exhibit A Schedule of Investors Exhibit B Certificate of Designations iii DRAFT - CONFIDENTIAL SERIES B PREFERRED STOCK PURCHASE AGREEMENT This SERIES B PREFERRED STOCK PURCHASE AGREEMENT (including the Exhibits and Schedules hereto, this "Agreement") is made and entered into as of July ___, 2003 by and among PriceSmart, Inc., a Delaware corporation (the "Company"), and the investors listed on Exhibit A attached hereto (each an "Investor" and, collectively, the "Investors"). The Investors and the Company are referred to herein individually as a "Party" and together as the "Parties." W I T N E S S E T H: WHEREAS, the Company desires to sell to the Investors, and the Investors desire to purchase from the Company, an aggregate of 30,000 shares of the Company's Series B Preferred Stock, par value $.0001 per share (the "Series B Preferred"), on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises contained herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties agree as follows: 1. AUTHORIZATION AND SALE OF THE SHARES. 1.1 Authorization of the Shares. The Company has authorized a new series of preferred stock, designated 8% Series B Cumulative Convertible Redeemable Preferred Stock, such series having the rights, preferences and privileges provided for in the Company's Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special Rights of 8% Series B Cumulative Convertible Redeemable Preferred Stock and Qualifications, Limitations and Restrictions Thereof, a form of which is attached hereto as Exhibit B (the "Series B Certificate"). In addition, the Company has authorized the issuance and sale to the Investors of an aggregate of 30,000 shares of the Series B Preferred (the "Shares"). 1.2 Sale of the Shares. Subject to the terms and conditions of this Agreement, the Company agrees to sell to each of the Investors at the Closing, and each of the Investors severally agrees to purchase from the Company at the Closing, that number of Shares set forth opposite each such Investor's name on Exhibit A attached hereto at a purchase price of $1,000 per share (the "Purchase Price"). The shares of the Company's common stock, par value $.0001 per share (the "Common Stock"), issued or issuable upon conversion of the Shares are referred to as the "Conversion Shares." The Shares and the Conversion Shares are collectively referred to as the "Securities." 2. CLOSING. The purchase and sale of the Shares (the "Closing") will take place at the offices of Latham & Watkins LLP, 12636 High Bluff Drive, Suite 300, San Diego, CA 92130 at 10:00 a.m. Pacific Time, on July ___, 2003, or if any of the conditions set forth in Section 7 (other than conditions with respect to actions the respective Parties will take at the Closing itself) has not been satisfied, a later date selected by the Investors, which date shall be within five (5) Business Days (as defined below) following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions to occur at the 1 DRAFT - CONFIDENTIAL Closing (other than conditions with respect to actions the respective Parties will take at the Closing itself) (such date, the "Closing Date"). "Business Day" means any day, other than a Saturday, Sunday or a day on which banking institutions in the State of California are authorized or obligated by law, regulation or executive order to close. At the Closing, the Company will deliver to each of the Investors (i) a certificate registered in the Investor's name and in the denominations designated by such Investor prior to the Closing Date representing the Shares and (ii) the other documents and certificates to be delivered pursuant to Section 7 hereof, all against payment of the Purchase Price by wire transfer of immediately available funds as directed pursuant to instructions delivered by the Company to the Investors prior to the Closing Date. The number of Shares to be purchased at the Closing by each Investor and the portion of aggregate Purchase Price to be paid by each Investor are set forth next to each Investor's name on Exhibit A hereto. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to, and agrees with, the Investors that the statements in the following paragraphs of this Section 3 are true and correct: 3.1 Organization, Good Standing and Qualification. Each of the Company and its Subsidiaries (as defined below) is a corporation, partnership or limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite power and authority to own or lease and operate its properties and to conduct its business as it is currently being conducted and is proposed to be conducted. Each of the Company and its Subsidiaries is duly licensed, authorized or qualified as a foreign corporation, partnership or limited liability company for the transaction of business and is in good standing under the laws of each other jurisdiction in which its ownership, lease or operation of property or conduct of business requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the assets, liabilities, condition (financial or otherwise), results of operations, prospects or business of the Company and its Subsidiaries taken as a whole ("Material Adverse Effect"). The Company is not in default under or in violation of any provision of its amended and restated certificate of incorporation (the "Certificate of Incorporation") or its bylaws (the "Bylaws"). "Subsidiary" means as to any Person (as defined below), any other Person of which more than 50% of the shares of the voting stock or other voting interests are owned or controlled, or the ability to select or elect more than 50% of the directors or similar managers is held, directly or indirectly, by such first Person or one or more of its Subsidiaries or by such first Person and one or more of its Subsidiaries. "Person" means any individual, corporation, company, association, partnership, limited liability company, joint venture, trust, unincorporated organization or Governmental Authority (as defined below). 3.2 Authorization. The Company has all requisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder. All corporate action on the part of the Company necessary for the authorization, execution and delivery of this Agreement, the performance of the obligations of the Company at the Closing, the performance of the obligations of the Company under Section 9 hereof and the issuance and delivery of the Securities has been taken, and this Agreement has been duly executed and delivered by the Company and constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of 2 DRAFT - CONFIDENTIAL creditors' rights generally; (ii) the effect of rules of law governing the availability of equitable remedies; and (iii) the unenforceability under certain circumstances under law or court decisions of provisions providing for the indemnification of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy or prohibited by law. 3.3 Valid Issuance of the Securities. (a) The Shares have been duly and validly authorized, reserved for issuance and, when issued, sold and delivered by the Company in accordance with the terms of this Agreement for the consideration provided for herein, will have been duly and validly issued, will be fully paid and nonassessable and will be free of any mortgage, pledge, lien, security interest, claim, voting agreement, conditional sale agreement, title retention agreement, restriction, option or encumbrance of any kind, character or description whatsoever ("Lien") (other than those that may be created by the Investors) and free of any restrictions on transfer other than restrictions on transfer under applicable federal and state securities laws and, assuming the truth and correctness of the Investors' representations and warranties in Section 4 below, will be issued in compliance with all applicable federal and state securities laws. (b) The Conversion Shares have been duly and validly authorized by the Company and reserved for issuance and, when issued in accordance with the terms of the Series B Certificate, will have been duly and validly issued, will be fully paid and nonassessable and will be free of any Liens (other than those that may be created by the Investors) and free of any restrictions on transfer other than restrictions on transfer under applicable federal and state securities laws and will be issued in compliance with all applicable federal and state securities laws. 3.4 Capitalization. (a) The entire authorized capital stock of the Company consists of 15,000,000 shares of Common Stock, of which [6,871,913] shares (not including [413,650] shares held by the Company as treasury shares) were issued and outstanding as of [May 29], 2003, and 2,000,000 shares of preferred stock, par value $.0001 per share, of which 20,000 shares of the Company's 8% Series A Cumulative Convertible Redeemable Preferred Stock, and not including the Shares issued pursuant to this Agreement, are issued and outstanding as of the date of this Agreement. Except as set forth in the SEC Documents (as defined below) and except as contemplated hereby, there are no outstanding or authorized warrants, options, purchase rights, subscription rights, conversion rights, exchange rights or other contracts, commitments or obligations that could require the Company or any of its Subsidiaries to issue, grant, deliver or sell or otherwise cause to be issued, granted, delivered or sold or become outstanding any capital stock of the Company or any of its Subsidiaries, except for those granted in the ordinary course of business since the dates of the SEC Documents. There are no outstanding or authorized stock appreciation, phantom stock, profit participation or similar rights with respect to the Company or any of its Subsidiaries. To the Company's knowledge, there are no voting trusts, proxies or other agreements or understandings with respect to the voting of the capital stock of the Company. 3 DRAFT - CONFIDENTIAL (b) Except as set forth on Schedule 3.4(b) hereto, the registration of the Conversion Shares pursuant to Section 9 hereof will not give rise to any registration rights on behalf of any Person under any agreement or instrument applicable to the Company. Except as set forth on Schedule 3.4(b) hereto, other than pursuant to Section 9 hereof, no Person has any right to require the Company to register securities of the Company under the Securities Act of 1933, as amended (the "1933 Act"). 3.5 Noncontravention. (a) Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, ordinance, code, injunction, judgment, order, decree, ruling, charge, writ, determination or other restriction ("Law") of any government or political subdivision or department thereof, any governmental regulatory body, commission, board, agency or instrumentality, or any court or arbitrator or alternative dispute resolution body, in each case whether federal, state, local or foreign ("Governmental Authority") to which the Company or any of its Subsidiaries is subject or any provision of the Certificate of Incorporation or the Bylaws or the certificate of incorporation or bylaws or similar constituent documents of the Company's Subsidiaries or (ii) conflict with, result in a breach or violation of, constitute a default (with or without notice or the passage of time) under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or give rise to a right to put or to compel a tender offer for outstanding securities of the Company or any of its Subsidiaries or require any notice, consent, waiver or approval under any agreement, contract, lease, license, loan, debt instrument, note, bond, indenture, mortgage, deed of trust, joint venture agreement, approval of a Governmental Authority or other arrangement to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound or to which any of the Company's or its Subsidiaries' assets is subject (or result in the imposition of any mortgage, pledge, Lien, encumbrance, charge or other security interest upon any of such assets or properties), except in either case, where such violation, conflict or default would not have a Material Adverse Effect. (b) Except for filings which may be required under state securities laws, for which filings the Company shall be responsible, neither the Company nor any of its Subsidiaries is required to give any notice to, make any filing or registration with, or obtain any authorization, consent or approval of any Governmental Authority in connection with the execution, delivery and performance by the Company of this Agreement and the transactions contemplated hereby (including the issuance of Common Stock upon conversion of the Series B Preferred). (c) No consent or approval of the Company's stockholders is required by Law, the Certificate of Incorporation, the Bylaws, the rules and regulations of the Nasdaq Stock Market, or otherwise, for the execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby (including the issuance of Common Stock upon conversion of the Series B Preferred). (d) The execution, delivery and performance of this Agreement by the Company and the consummation of transactions contemplated hereby will not constitute a 4 DRAFT - CONFIDENTIAL "Change of Control" as such term is defined in any contract, agreement, indenture, mortgage, note, lease or other instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any such Subsidiary is bound or to which the properties of the Company or any such Subsidiary is subject. 3.6 Reports Filed Under the Securities Exchange Act of 1934; Financial Statements. (a) The Company has timely filed with the Securities and Exchange Commission (the "SEC") all reports required to be filed by the Company under the Securities Exchange Act of 1934, as amended (the "1934 Act"). All such reports filed by the Company with the SEC in the preceding twelve (12) months (the "SEC Documents") (i) comply in all material respects, with the applicable requirements of the 1934 Act and the 1933 Act, and (ii) contain all statements required to be stated therein in accordance with the 1934 Act and do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (b) As of their respective dates (except as they have been correctly amended), the financial statements of the Company included in the SEC Documents (i) complied in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, (ii) have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved (except (A) as may be otherwise indicated in such financial statements or the notes thereto or (B) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and (iii) fairly present the financial position of the Company and its Subsidiaries as of the dates thereof and the results of its operations and cash flows of the Company and its Subsidiaries (on a consolidated basis) for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). 3.7 Absence of Certain Changes. Except as disclosed in the SEC Documents or otherwise disclosed in public announcements or press releases, since August 31, 2002, the Company and its Subsidiaries have conducted their consolidated business in the ordinary and usual course and there has been no change to the business, properties, assets, operations, prospects, results of operations or condition (financial or otherwise) of the Company or its Subsidiaries (taken as a whole), except for such changes which could not be reasonably expected to have a Material Adverse Effect. 3.8 No General Solicitation. Neither the Company, nor any of its Affiliates (as defined below), nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D ("Regulation D") promulgated under the 1933 Act) in connection with the offer or sale of the Shares. "Affiliate" has the meaning set forth in Rule 12b-2 promulgated under the 1934 Act as in effect on the date hereof. The term "Affiliated" has a correlative meaning. 3.9 Disclosure. No information that has been provided to the Investors by the Company or any of its representatives in connection with the transactions contemplated by this Agreement, and no exhibit, document, statement, certificate or schedule furnished or to be 5 DRAFT - CONFIDENTIAL furnished to the Investors pursuant to this Agreement, contains or will contain, as the case may be, any untrue statement of a material fact, or omits or will omit, as the case may be, to state a material fact necessary to make the statements or facts contained therein not misleading. 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each of the Investors severally and not jointly represents and warrants to the Company that the statements in the following paragraphs of this Section 4 are true and correct with respect to such Investor: 4.1 Organization and Qualification. The Investor is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. The Investor has all requisite power and authority to enter into and perform this Agreement and to carry out the transactions contemplated by this Agreement. 4.2 Authorization. All action on the part of the Investor necessary for the authorization, execution and delivery of this Agreement and the performance of all obligations of the Investor hereunder has been taken, and this Agreement has been duly executed and delivered by the Investor and constitutes a valid and legally binding obligation of the Investor, enforceable in accordance with its terms, except as may be limited by (a) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors' rights generally; (b) the effect of rules of law governing the availability of equitable remedies; and (c) the unenforceability under certain circumstances under law or court decisions of provisions providing for the indemnification of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy or prohibited by law. 4.3 Purchase for Own Account. Except as permitted pursuant to Section 11.3 hereof, the Securities to be acquired by the Investor hereunder will be acquired for investment for the Investor's own account, not as a nominee or agent, and not with a view to the public resale or distribution thereof within the meaning of the 1933 Act, and the Investor has no present intention of selling or otherwise distributing the same. The Investor does not have any contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participations to such Person or to any third Person, with respect to the Securities. The Investor also represents that it has not been formed for the specific purpose of acquiring the Securities. 4.4 Accredited Investor Status. The Investor is an "accredited investor" within the meaning of Regulation D. By reason of its business and financial experience, sophistication and knowledge, the Investor is capable of evaluating the risks and merits of the investment made pursuant to this Agreement. The Investor confirms that it is able (a) to bear the economic risk of this investment, as well as other risk factors as more fully set forth herein and in the SEC Documents, (b) to hold the Securities for an indefinite period of time and (c) to bear a complete loss of the Investor's investment; and the Investor represents that it has sufficient liquid assets so that the illiquidity associated with this investment will not cause any undue financial difficulties or affect the Investor's ability to provide for its current needs and possible financial contingencies. 6 DRAFT - CONFIDENTIAL 4.5 Restricted Securities. The Investor understands that the Securities are characterized as "restricted securities" under the 1933 Act inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under the 1933 Act and applicable regulations thereunder such securities may be resold without registration under the 1933 Act only in certain limited circumstances. In this connection, the Investor represents that it is familiar with Rule 144 promulgated under the 1933 Act ("Rule 144"), as presently in effect, and understands the resale limitations imposed thereby and by the 1933 Act. The Investor understands that the Company is under no obligation to register any of the securities sold hereunder except as provided in Section 9 hereof. 4.6 Due Diligence and No Solicitation. The Investor has had a reasonable opportunity to ask questions of and receive answers from the Company and its officers, and all such questions have been answered to the full satisfaction of the Investor. At no time was the Investor presented with or solicited by any leaflet, public promotional meeting, circular, newspaper or magazine article, radio or television advertisement or any other form of general advertising. 4.7 Further Limitations on Disposition. Without in any way limiting the representations set forth above, the Investor further agrees not to make any disposition of all or any portion of the Securities unless and until: (a) there is then in effect a registration statement under the 1933 Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (b) (i) the Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (ii) the Investor shall have furnished the Company at the Investor's expense an opinion of counsel, reasonably satisfactory to the Company that such disposition will not require registration of such securities under the 1933 Act; provided that the Company shall not require an opinion of counsel for routine sales of shares pursuant to Rule 144. 4.8 Legends. It is understood that the certificates evidencing the Securities will bear the legends set forth below: (a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. (b) The legend referred to in Section 4.8(a) above shall be removed from a certificate representing such Securities or shares of Common Stock issued upon conversion thereof if the securities represented thereby are sold pursuant to an effective registration statement under the 1933 Act, or there is delivered to the Company such satisfactory 7 DRAFT - CONFIDENTIAL evidence, which may include an opinion of independent counsel, as reasonably may be requested by the Company, to confirm that neither such legend nor the restrictions on transfer set forth therein are required to ensure that transfers of such securities will not violate the registration requirements of the 1933 Act. 5. PRE-CLOSING COVENANTS OF THE PARTIES. The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing: 5.1 General. Each of the Parties will use its reasonable best efforts to take all action and to do all things necessary, proper or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Sections 7 and 8 below). 5.2 Notice of Developments. Each Party will give prompt written notice to the other of any material adverse development causing a breach of any of its own representations and warranties in Section 3 or 4 above. No disclosure by any Party pursuant to this Section 5.2, however, shall be deemed to cure any misrepresentation, breach of warranty or breach of covenant. 6. POST-CLOSING COVENANTS OF THE PARTIES. 6.1 Status of Dividends. The Company agrees to treat the Series B Preferred as equity for all tax purposes unless the Company determines that there is no reasonable basis for such position. The Company shall take no action (other than as required by Law) that would jeopardize the availability of the dividends received deduction under Section 243(a)(1) of the Internal Revenue Code of 1986, as amended, for the distributions on Series B Preferred that are paid out of current or accumulated earnings and profits, if any. 6.2 Listing; Reservation. (a) So long as the Investors or their respective Affiliates Beneficially Own any Securities, the Company shall use its best efforts to ensure that the shares of Common Stock continue to be quoted on the NASDAQ Stock Market; provided, however, this Section 6.2(a) shall not restrict the Company from engaging in any reclassification, capital reorganization or other change in the outstanding shares of Common Stock or any consolidation or merger of the Company with or into another corporation or any other transaction in which the stockholders of the Company are required to exchange their shares of Common Stock for stock or other securities of the Company or any other Person. "Beneficially Own" with respect to any securities means having "beneficial ownership" of such securities (as determined pursuant to Rule 13d-3 promulgated under the 1934 Act as in effect on the date hereof, except that a Person shall be deemed to Beneficially Own all such securities that such Person has the right to acquire by conversion, exercise of option or otherwise whether such right is exercisable immediately or after the passage of time). The terms "Beneficial Ownership" and "Beneficial Owner" have correlative meanings. (b) From and after the Closing Date, the Company shall at all times reserve and keep available, out of its authorized and unissued Common Stock, solely for the purpose of issuing Common Stock upon the conversion of the Shares, such number of shares of 8 DRAFT - CONFIDENTIAL Common Stock free of preemptive rights as shall be sufficient to issue Common Stock upon the conversion of the Shares. 7. CONDITIONS TO THE INVESTORS' OBLIGATIONS AT CLOSING. The obligations of the Investors under Section 2 of this Agreement with respect to the Closing are subject to the fulfillment or waiver, on the Closing Date, of each of the following conditions: 7.1 Representations and Warranties True. The representations and warranties of the Company contained in Section 3 qualified as to materiality shall be true and correct in all respects, and those not so qualified shall be true and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except where such representation and warranty speaks by its terms as of a different date, in which case it shall be true and correct as of such date). The Company shall have delivered to the Investors at the Closing a certificate in form and substance reasonably satisfactory to the Investors dated the Closing Date and signed by the chief executive officer and the chief financial officer of the Company to the effect that the condition set forth in this Section 7.1 has been satisfied. 7.2 Compliance with Covenants. The Company shall have performed all of its obligations hereunder in all material respects and complied with all agreements, undertakings, covenants and conditions required hereunder to be performed by it at or prior to the Closing. The Company shall have delivered to the Investors at the Closing a certificate in form and substance reasonably satisfactory to the Investors dated the Closing Date and signed by the chief executive officer and the chief financial officer of the Company to the effect that the condition set forth in this Section 7.2 has been satisfied. 7.3 No Litigation. (a) No Law shall have been promulgated, enacted or entered that restrains, enjoins, prevents, materially delays, prohibits or otherwise makes illegal the performance of this Agreement or the transactions contemplated hereby. (b) No action, suit or proceeding shall be pending or threatened before any Governmental Authority wherein an unfavorable injunction, judgment, order, decree, ruling or charge would (i) prevent, materially delay, prohibit or otherwise make illegal the consummation of any of the transactions contemplated by this Agreement, (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such injunction, judgment, order, decree, ruling or charge shall be in effect) or (iii) affect adversely the right of the Investors to own the Shares. 7.4 Securities Exemptions. The offer and sale of the Shares to the Investors pursuant to this Agreement shall be exempt from the registration requirements of the 1933 Act, the qualification requirements of the California Corporate Securities Law of 1968 (the "California Securities Law") and the registration and/or qualification requirements of all other applicable state securities laws. 7.5 Certificate of Designations. The Series B Certificate shall have been filed with the Secretary of State of the State of Delaware and a copy of the Series B Certificate, 9 DRAFT - CONFIDENTIAL certified by the Secretary of State of the State of Delaware, shall have been delivered to the Investors. 7.6 Shares. The Company shall have executed and delivered to the Investors the certificates representing the Shares to be purchased by the Investors pursuant to Section 1.2 hereof. 7.7 Proceedings. All corporate and other proceedings to be taken by the Company in connection with this Agreement and with respect to the transactions contemplated hereby to be completed at or prior to the Closing and documents incident thereto shall have been completed in form and substance reasonably satisfactory to the Investors, and the Investors shall have received all such counterpart originals or certified or other copies of this Agreements and such other documents as it may reasonably request. 7.8 No Material Adverse Effect. No event shall have occurred and no condition shall have arisen or been created since the date of this Agreement which has had, or would be reasonably likely to have, a Material Adverse Effect. 8. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of the Company to the Investors under this Agreement with respect to the Closing are subject to the fulfillment or waiver on the Closing Date of each of the following conditions: 8.1 Representations and Warranties True. The representations and warranties of the Investors contained in Section 4 qualified as to materiality shall have been true and correct in all respects, and those not so qualified shall have been true and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except where such representation and warranty speaks by its terms as of a different date, in which case it shall be true and correct as of such date). 8.2 Payment of Consideration. The Investors shall have paid the Purchase Price in accordance with the provisions of Section 1.2. 8.3 No Litigation. (a) No Law shall have been promulgated, enacted or entered that restrains, enjoins, prevents, materially delays, prohibits or otherwise makes illegal the performance of this Agreement or the transactions contemplated hereby. (b) No action, suit or proceeding shall be pending or threatened before any Governmental Authority wherein an unfavorable injunction, judgment, order, decree, ruling or charge would (i) prevent, delay, prohibit or otherwise make illegal the consummation of any of the transactions contemplated by this Agreement, or (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such injunction, judgment, order, decree, ruling or charge shall be in effect). 10 DRAFT - CONFIDENTIAL 8.4 Securities Exemptions. The offer and sale of the Shares to the Investors pursuant to this Agreement shall be exempt from the registration requirements of the 1933 Act, the qualification requirements of the California Securities Law and the registration and/or qualification requirements of all other applicable state securities laws. 9. REGISTRATION STATEMENT FOR RESALE OF THE SHARES. 9.1 Registration. As promptly as practicable after the Closing but in any event within thirty (30) days following the Closing Date, the Company shall prepare and file with the SEC a registration statement on Form S-3 (the "Registration Statement"), and maintain effective for the period specified in Section 9.2(a) for use by the Investors and their respective Affiliates at any time during such period with respect to the offering and sale or other disposition of the Conversion Shares. 9.2 Company Obligations. In the case of each registration effected by the Company pursuant to this Section 9, the Company will keep the Investors, as applicable, advised in writing as to the initiation of each registration and as to the completion thereof. At its expense, the Company will: (a) use its best efforts to cause such registration to remain effective at all times until the earlier of (i) such time as the distribution described in the registration statement relating to the Conversion Shares has been completed and (ii) two (2) years from the Closing Date; (b) prepare and file with the SEC such amendments and post-effective amendments to such registration statement and supplements to the prospectus as may be (i) reasonably requested by the holders of a majority of the Conversion Shares, (ii) reasonably requested by any participating holder (to the extent such request relates to information relating to such holder), or (iii) necessary to keep such registration effective for the period of time required by this Section 9; (c) prepare and deliver to the Investors as many copies of each preliminary and final prospectus and other documents incident thereto as each of the Investors from time to time may reasonably request; (d) immediately notify the Investors, at any time when a prospectus relating to a registration of Conversion Shares is required to be delivered under the 1933 Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and, at the request of the Investors, prepare a supplement or amendment to such registration statement so that, as thereafter delivered to the purchasers of such Conversion Shares, such prospectus will not contain any untrue statement of a material fact or omit to state a material fact required to be stated or necessary to make the statements therein not misleading; (e) list the Conversion Shares on the automated quotation system and/or securities exchanges upon which the Common Stock is listed; 11 DRAFT - CONFIDENTIAL (f) use its best efforts to register or qualify and maintain the qualification of the Conversion Shares covered by such registration under such state securities or "blue sky" laws for offers and sales to the public as the Investors shall reasonably request; provided, however, that the Company shall not be obligated to qualify as a foreign corporation to do business under the laws of or become subject to taxation in, any jurisdiction in which it shall not be then qualified, or to file any general consent to service of process; (g) otherwise use its best efforts to comply with the securities laws of the United States and other applicable jurisdictions and all applicable rules and regulations of the SEC and comparable Governmental Authorities in other applicable jurisdictions; (h) notify the Investors (i) when the Registration Statement or any amendment thereto has been filed or become effective, when the prospectus or any amendment or supplement thereto has been filed and to furnish the Investors with copies thereof, (ii) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or any order preventing or suspending the use of the preliminary prospectus or the Final Prospectus (as defined below) or the initiation or threatening of any proceedings for such purposes, and (iii) the receipt by the Company of any notification with respect to the suspending of the qualification of the Conversion Shares for offering or sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (i) with a view to making available the benefits of certain rules and regulations of the SEC which may permit the sale of restricted securities to the public without registration, the Company agrees to: (i) make and keep public information available as those terms are understood and defined in Rule 144; (ii) use its best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act at any time after it has become subject to such reporting requirements; and (iii) so long as an Investor or transferee of an Investor owns any Securities, furnish to such Investor or transferee of such Investor upon request, a written statement by the Company as to its compliance with the reporting requirements of Rule 144 and of the 1933 Act and the 1934 Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as such Investor or transferee of such Investor may reasonably request in availing itself of any rule or regulation of the SEC allowing such Investor or transferee of such Investor to sell any such securities without registration. 9.3 Restrictions on Registrations. If at any time or from time to time after the effective date of the Registration Statement, the Company promptly notifies the Investors in writing of the existence of a Potential Material Event (as defined below), the Investors shall not offer or sell any Conversion Shares or engage in any other transaction involving or relating to the Conversion Shares, from the time of the giving of notice with respect to a Potential Material Event until the Investors receive written notice from the Company that such Potential Material Event either has been disclosed to the public or no longer constitutes a Potential Material Event. If a Potential Material Event shall occur prior to the date the Registration Statement is filed, then notwithstanding Section 9.1 above, the Company's obligation to file the Registration Statement shall be delayed until such Potential Material Event either has been disclosed to the public or no longer constitutes a Potential Material Event. "Potential Material Event" means any of the following: (a) the possession by the Company of material information not ripe for disclosure in a 12 DRAFT - CONFIDENTIAL registration statement, as determined in good faith by the Chief Executive Officer or the Board of Directors that disclosure of such information in a Registration Statement would be materially detrimental to the business and affairs of the Company; or (b) any material engagement or activity by the Company which would, in the good faith determination of the Chief Executive Officer or the Board of Directors, be materially adversely affected by disclosure in a registration statement at such time, which determination shall be accompanied by a good faith determination by the Chief Executive Officer or the Board of Directors that the applicable Registration Statement would be materially misleading absent the inclusion of such information. In no event shall the suspension of the Registration Statement (or the permissible delay in filing a Registration Statement) (i) exceed ninety (90) days on any one occasion as a result of a Potential Material Event or (ii) be permitted more than once during any 12-month period. 9.4 Investor Obligations and Rights. (a) Each of the Investors shall cooperate as reasonably requested by the Company with the Company in connection with the preparation of the Registration Statement, and for so long as the Company is obligated to file and keep effective the Registration Statement, shall provide to the Company, in writing, for use in the Registration Statement, all such information regarding such Investor and its plan of distribution of the Conversion Shares as may be reasonably necessary to enable the Company to prepare the Registration Statement and prospectus covering the Conversion Shares, to maintain the currency and effectiveness thereof and otherwise to comply with all applicable requirements of law in connection therewith. Each of the Investors shall have the right to prepare any portions of the Registration Statement requiring information regarding such Investor and its plan of distribution of the Conversion Shares. (b) During such time as an Investor may be engaged in a distribution of the Conversion Shares, such Investor shall comply with Regulation M promulgated under the 1934 Act and pursuant thereto it shall, among other things; (i) not engage in any stabilization activity in connection with the securities of the Company in contravention of such regulation; (ii) distribute the Conversion Shares under the Registration Statement solely in the manner described in the Registration Statement; and (iii) cease distribution of such Conversion Shares pursuant to such Registration Statement upon receipt of written notice from the Company that the prospectus covering the Conversion Shares contains any untrue statement of a material fact or omits a material fact required to be stated therein or necessary to make the statements therein not misleading. (c) Each of the Investors hereby covenants with the Company not to make any sale of the Conversion Shares without effectively causing the prospectus delivery requirements under the 1933 Act to be satisfied unless the sale is made pursuant to an exemption from registration. (d) Each of the Investors acknowledges and agrees that the Conversion Shares sold pursuant to the Registration Statement are not transferable on the books of the Company unless the stock certificate submitted to the transfer agent evidencing the Conversion Shares is accompanied by a certificate reasonably satisfactory to the Company to the effect that 13 DRAFT - CONFIDENTIAL (i) the Conversion Shares have been sold in accordance with this Agreement and the Registration Statement and (ii) the requirement of delivering a current prospectus has been satisfied. (e) Following termination of the effectiveness of the Registration Statement, each of the Investors shall discontinue sales of Conversion Shares pursuant thereto upon receipt of notice from the Company of its intention to remove from registration the Conversion Shares covered thereby which remain unsold, and each of the Investors shall promptly notify the Company of the number of Conversion Shares registered that remain unsold immediately upon receipt of the notice from the Company. (f) Each of the Investors will observe and comply with the 1933 Act, the 1934 Act and the general rules and regulations thereunder, as now in effect and as from time to time amended and including those hereafter enacted or promulgated, in connection with any offer, sale, pledge, transfer or other disposition of the Conversion Shares or any part thereof. 9.5 Indemnification. (a) The Company will indemnify and hold harmless to the fullest extent permitted by law each of the Investors, as applicable, each of its Affiliates and each of their respective officers, directors, shareholders, employees, advisors, agents and partners, and each person controlling each of the Investors, with respect to each registration which has been effected pursuant to this Section 9 against all Losses (as defined below) jointly and severally arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any amendment or supplement thereto or any documents incorporated by reference therein and any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the 1933 Act or the 1934 Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each of the Investors, each of its Affiliates and each of their respective officers, directors, shareholders, employees, advisors, agents and partners, and each person controlling each of the Investors for any legal and any other expenses reasonably incurred in connection with investigating and defending any such Losses; provided, however, that the Company will not be liable in any such case to the extent that any such Losses arise out of or is based on any untrue statement or omission based upon written information furnished to the Company by the Investors and stated expressly to be specifically for use therein. "Losses" shall mean, collectively, any and all losses, penalties, judgments, suits, costs, claims, liabilities, damages and expenses (including, without limitation, reasonable attorneys' fees and disbursements). (b) Each of the Investors will, if Conversion Shares held by it are included in the securities as to which such registration, qualification or compliance is being effected, indemnify and hold harmless to the fullest extent permitted by law the Company, each of its Affiliates and their respective directors, employees, advisors, agents and officers and each person who controls the Company, against all Losses arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration 14 DRAFT - CONFIDENTIAL statement, prospectus, offering circular or other document made by such Investor in writing, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements by such Investor therein not misleading, and will reimburse the Company and its directors, officers, partners, persons, or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such Losses, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Investor and stated expressly to be specifically for use therein; provided, however, that the obligations of each of the Investors hereunder shall be limited to an amount equal to the net proceeds to such Investor of securities sold as contemplated herein. (c) Each party entitled to indemnification under this Section 9.5 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld) and the Indemnified Party may participate in such defense at such party's expense (unless (i) the Indemnifying Party has agreed in writing to pay such fees or expenses, (ii) the Indemnifying Party shall have failed to assume the defense of such claim within a reasonable time after receipt of notice of such claim from the Person entitled to indemnification hereunder and employ counsel reasonably satisfactory to such Person, (iii) the Indemnified Party has reasonably concluded (based on the written advice of counsel) that there may be legal defenses available to it or other Indemnified Parties that are different from or in addition to those available to the Indemnifying Party, or (iv) the Indemnified Party shall have reasonably concluded that there may be a conflict of interest between the Indemnifying Party and the Indemnified Party in such action, in which case the fees and expenses of counsel shall be at the expense of the Indemnifying Party), and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 9 unless the Indemnifying Party is materially prejudiced thereby. If such defense is not assumed by the Indemnifying Party, the Indemnifying Party will not be subject to any liability for any settlement made without its consent, but such consent may not be unreasonably withheld. If the Indemnifying Party assumes the defense, the Indemnifying Party shall not have the right to settle such action without the written consent of the Indemnified Party. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. If the indemnification provided for in this Section 9.5 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any Losses 15 DRAFT - CONFIDENTIAL referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue (or alleged untrue) statement of a material fact or the omission (or alleged omission) to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Notwithstanding anything in this Section 9.5 to the contrary, no Indemnifying Party (other than the Company) shall be required pursuant to this Section 9.5 to contribute any amount in excess of the amount by which the net proceeds received by such Indemnifying Party from the sale of Conversion Shares in the offering to which the Losses of the Indemnified Party relates exceeds the amount of any damages which such Indemnifying Party has otherwise been required to pay by reason of such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 9.5 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (d) The foregoing indemnity agreement of the Company and Investors is subject to the condition that, insofar as they relate to any Losses made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the registration statement in question becomes effective or the amended prospectus filed with the SEC pursuant to Rule 424(b) promulgated under the 1933 Act (the "Final Prospectus"), such indemnity or contribution agreement shall not inure to the benefit of an Investor if a copy of the Final Prospectus was timely furnished to such Investor in sufficient quantities for delivery and was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the 1933 Act. (e) Notwithstanding any other provision of this Agreement, the obligations of the parties under this Section 9.5 shall survive indefinitely. 9.6 Expenses. The Company shall pay all expenses incident to the registration of the Conversion Shares under this Section 9 including without limitation, all registration, listing, quotation and filing fees, all fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, and the fees and disbursements of counsel for the Company and its independent public accountants. With respect to sales of the Conversion Shares, the Investors shall pay all underwriting discounts and commissions and fees of underwriters, selling brokers, dealer managers or similar securities industry professionals relating to the distribution of the Conversion Shares to be sold by the Investors, the fees and disbursements of counsel retained by the Investors and transfer taxes, if any. 16 DRAFT - CONFIDENTIAL 10. TERMINATION. 10.1 Termination. This Agreement may be terminated at any time prior to the Closing: (a) by mutual written agreement of the Company and the Investors; (b) by either the Investors or the Company (provided that the terminating Party is not then in material breach of any representation, warranty, covenant or other agreement contained in this Agreement) if the Closing shall not have been consummated on or before [July 31], 2003; (c) by either the Investors or the Company if a court of competent jurisdiction or a Governmental Authority shall have issued a non-appealable final judgment, injunction, order, ruling or decree or taken any other action having the effect of permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement provided that the Party seeking to terminate this Agreement pursuant to this clause (c) shall have used its reasonable best efforts to have such judgment, injunction, order, ruling or decree lifted, vacated or denied; or (d) by either the Investors or the Company (provided that the terminating Party is not then in material breach of any representation, warranty, covenant or other agreement contained in this Agreement) in the event of a material breach by the other Party of any representation or warranty contained in this Agreement which cannot be or has not been cured within thirty (30) days after the giving of written notice to the breaching Party of such breach. 10.2 Effect of Termination. In the event of the termination of this Agreement pursuant to Section 10.1, this Agreement shall forthwith become void and there shall be no liability on the part of any Party hereto (or any stockholder, director, officer, partner, employee, agent, consultant or representative of such Party) except as set forth in this Section 10.2, provided that nothing contained in this Agreement shall relieve any party from liability for any breach of this Agreement and provided further that Section 11 shall survive termination of this Agreement. 11. MISCELLANEOUS. 11.1 Survival of Warranties. The representations and warranties of the Company and the Investors contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing for a period of twenty-four (24) months from the Closing Date and shall in no way be affected by any knowledge or investigation of the subject matter thereof made by or on behalf of the Investors or the Company, as the case may be. 11.2 Specific Performance. The parties hereto specifically acknowledge that monetary damages are not an adequate remedy for violations of this Agreement, and that any party hereto may, in its sole discretion, apply to a court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to 17 DRAFT - CONFIDENTIAL enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable Law and to the extent the party seeking such relief would be entitled on the merits to obtain such relief, each party waives any objection to the imposition of such relief. 11.3 Successors and Assigns. (a) This Agreement shall bind and inure to the benefit of the Company and the Investors and their respective successors, permitted assigns, heirs and personal representatives; provided that the Company may not assign its rights or obligations under this Agreement to any Person without the prior written consent of the Investors. (b) Nothwithstanding Section 11.3(a) or any other provision to the contrary in this Agreement, the Investors may assign any and all of their rights and obligations under Section 9 hereof in connection with the transfer to such assignee of at least 1,000 Shares (or the Conversion Shares issued upon conversion thereof). 11.4 Governing Law. (a) This Agreement shall be governed by and construed under the internal laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within that State, without reference to principles of conflict of laws or choice of law thereof. (b) The Parties hereto hereby agree that the appropriate and exclusive forum for any disputes arising out of this Agreement solely between the Company and any of the Investors shall be the United States District Court for the Southern District of California, and, if such court will not hear any such suit, the courts of the state of Delaware, and the parties hereto hereby irrevocably consent to the exclusive jurisdiction of such courts, and agree to comply with all requirements necessary to give such courts jurisdiction. The Parties hereto further agree that the Parties will not bring suit with respect to any disputes arising out of this Agreement except as expressly set forth below for the execution or enforcement of judgment, in any jurisdiction other than the above specified courts. Each of the Parties hereto irrevocably consents to the service of process in any action or proceeding hereunder by the mailing of copies thereof by registered or certified airmail, postage prepaid, to the address specified in Section 11.7 hereof. The foregoing shall not limit the rights of any party hereto to serve process in any other manner permitted by the law or to obtain execution of judgment in any other jurisdiction. The Parties further agree, to the extent permitted by law, that final and unappealable judgment against any of them in any action or proceeding contemplated above shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and the amount of indebtedness. 11.5 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 11.6 Headings. The headings and captions used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. All references in this Agreement to sections, paragraphs, exhibits and schedules shall, unless 18 DRAFT - CONFIDENTIAL otherwise provided, refer to sections and paragraphs hereof and exhibits and schedules attached hereto, all of which exhibits and schedules are incorporated herein by this reference. 11.7 Notices. All notices, requests, demands, claims and other communications hereunder will be in writing. Any notice, request, demand, claim or other communication hereunder shall be deemed duly given if (and then four (4) Business Days after) it is sent by registered or certified mail, return receipt requested, postage prepaid and addressed to the intended recipient as set forth below: To the Company: PriceSmart, Inc. 4649 Morena Boulevard San Diego, CA 92117-3650 Attention: Robert M. Gans, Esq. Telephone: (858) 581-7726 Facsimile: (858) 581-4707 with a copy to: Latham & Watkins LLP 12636 High Bluff Drive, Suite 300 San Diego, CA 92130 Attention: Robert E. Burwell, Esq. Telephone: (858) 523-5400 Facsimile: (858) 523-5450 To the Investors: To the names and addresses set forth on the signature pages hereto Any Party may send any notice, request, demand, claim or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service or ordinary mail), but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth. 11.8 No Finder's Fees. Each party represents that it neither is nor will be obligated for any finder's or broker's fee or commission in connection with this transaction. The Company agrees to indemnify and hold harmless each of the Investors from any liability for any commission or compensation in the nature of a finder's or broker's fee (and any asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 19 DRAFT - CONFIDENTIAL 11.9 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Investors. 11.10 Attorneys' Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 11.11 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision(s) shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms. 11.12 Entire Agreement. This Agreement, together with all exhibits and schedules hereto, constitutes the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes any and all prior negotiations, correspondence, agreements, understandings duties or obligations between the Parties with respect to the subject matter hereof. 11.13 No Third Party Beneficiaries. This Agreement is for the sole benefit of the Parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, except that the provisions of Section 9.5 shall inure to the benefit of and be enforceable by each Indemnified Party. 11.14 Public Announcements. The Investors and the Company shall consult with each other before issuing any press release with respect to this Agreement or the transactions contemplated hereby and neither shall issue any such press release or make any such public statement without the prior consent of the other, which consent shall not be unreasonably withheld; provided, however, that a Party may, without the prior consent of the other Party, issue such press release or make such public statement as may upon the advice of counsel be required by law if it has used commercially reasonable efforts to consult with the other Party prior thereto. The Parties hereby consent to the filing of this Agreement by the Company and a Schedule 13D and Form 4 by each of the Investors, as applicable, with the SEC. 11.15 Further Assurances. From and after the date of this Agreement, upon the request of any of the Investors or the Company, the Company and the Investors shall execute and deliver such instruments, documents or other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement. 11.16 Fees and Expenses. Except as otherwise provided in this Agreement, each of the Parties shall each bear its own expenses incurred in connection with the negotiation and 20 DRAFT - CONFIDENTIAL execution of this Agreement and each other agreement, document and instrument contemplated by this Agreement and the consummation of the transactions contemplated hereby and thereby. 11.17 Waiver of Jury Trial. THE COMPANY AND THE INVESTORS HEREBY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. [Remainder of Page Intentionally Left Blank] 21 DRAFT - CONFIDENTIAL IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. THE COMPANY: PRICESMART, INC. By: ______________________________ Name: ______________________________ Title:______________________________ THE INVESTOR: [___________________________________] By: ______________________________ Name: ______________________________ Title:______________________________ Address:____________________________ ____________________________ ____________________________ Facsimile: _________________________ Phone: _________________________ 22 DRAFT - CONFIDENTIAL SCHEDULE 3.4(b) Piggyback: Under a Common Stock Purchase Agreement dated April 12, 2002 (the "IFC Purchase Agreement"), if the Company proposes to register any shares of its Common Stock in connection with an underwritten public offering, International Finance Corporation ("IFC") possesses piggyback registration rights to require the Company to include up to an aggregate of 300,000 shares of the Company's Common Stock in such registration on the same terms and conditions as the securities otherwise being sold through the underwriters. These piggyback registration rights are in effect until the earlier of (1) such time as IFC has completed the resale of its shares, (2) such time as IFC is able to freely sell its shares without registration and without regard to volume or manner of sale and (3) two years from IFC's purchase of the shares. Other registration rights: 1. Under a Registration Rights Agreement dated June 3, 2000, PSC, S.A. ("PSC") possesses registration rights with respect to an aggregate of 679,500 shares of the Company's Common Stock. Pursuant to the Registration Rights Agreement, the Company filed registration statements on Form S-3 on July 27, 2000 and August 8, 2001, which were subsequently declared effective. PSC has the right to require that the registration statement be kept effective until PSC or a permitted assignee has completed the distribution of its shares as described in the registration statements. 2. Under Series A Preferred Stock Purchase Agreements dated January 15, 2002 and January 18, 2002, Grupo Gigante, S.A. de C.V., The Price Family Charitable Fund, The Price Family Charitable Trust, The Sol and Helen Price Trust, Oppenheimer--Close Investment Partnership, L.P., P. Oppenheimer Investment Partnership, L.P., Performance Capital II, Little Wing LP, Trade Winds Fund Ltd., Terrier Partners LP, Wynnefield Partners Small Cap Value, LP, Wynnefield Partners Small Cap Value, LP I, and Wynnefield Small Cap Value Offshore Fund, Ltd. (collectively, the "Series A Investors") possess registration rights with respect to an aggregate of 533,329 shares of the Company's Common Stock. Pursuant to the Series A Preferred Stock Purchase Agreements, the Company filed a registration statement on Form S-3 on February 26, 2002, which was subsequently declared effective. The Series A Investors have the right to require that the registration statement be kept effective until the earlier of (1) such time as the Series A Investors have completed the distribution of their shares as described in the registration statement and (2) two years from their purchase of the shares of Series A Preferred Stock. 3. Under the IFC Purchase Agreement, IFC possesses registration rights with respect to an aggregate of 300,000 shares of the Company's Common Stock. Pursuant to the IFC Purchase Agreement, the Company filed a registration statement on Form S-3 on April 18, 2002, which was subsequently declared effective. IFC has the right to require that the registration statement be kept effective until the earlier of (1) such time as IFC is able to freely sell its shares without registration and without regard to volume or manner of sale and (2) two years from its purchase of the shares. DRAFT - CONFIDENTIAL 4. Under Common Stock Purchase Agreements dated June 24, 2002, Green Hill Investments, Inc., Chancellor Holdings Limited and Nithyananda Ent. Ltd. (collectively, the "GCN Investors") possess registration rights with respect to an aggregate of 47,808 shares of the Company's Common Stock. Pursuant to the Common Stock Purchase Agreements, the Company filed a registration statement on Form S-3 on July 19, 2002, which was subsequently declared effective. The GCN Investors have the right to require that the registration statement be kept effective until the earlier of (1) such time as the GCN Investors are able to freely sell their shares without registration and without regard to volume or manner of sale and (2) two years from their purchase of the shares. 5. Under a Common Stock Purchase Agreement dated August 9, 2002, PSC possesses registration rights with respect to an aggregate of 79,313 shares of the Company's Common Stock. Pursuant to the Common Stock Purchase Agreement, the Company filed a registration statement on Form S-3 on October 25, 2002, which was subsequently declared effective. PSC has the right to require that the registration statement be kept effective until the earlier of (1) such time as PSC is able to freely sell its shares without registration and without regard to volume or manner of sale and (2) two years from its purchase of the shares. DRAFT - CONFIDENTIAL EXHIBIT A Schedule of Investors DRAFT - CONFIDENTIAL EXHIBIT B Certificate of Designations EX-7 4 certificate.txt EX-7 DRAFT - CONFIDENTIAL PRICESMART, INC. CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF 8% SERIES B CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF ------------------------------------------------ Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------------------------------ PRICESMART, INC., a Delaware corporation (the "Company"), certifies that in accordance with and pursuant to the authority contained in ARTICLE FOURTH of its Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation"), and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Company (the "Board of Directors") duly approved and adopted the following resolution, which resolution remains in full force and effect on the date hereof: RESOLVED, that pursuant to the authority vested in the Board of Directors by the Certificate of Incorporation, the Board of Directors does hereby create and provide for the issue of a series of the Company's previously authorized preferred stock, par value $0.0001 per share, and hereby states the designation and number of one series of Series B Preferred Stock, which shall be designated as 8% Series B Cumulative Convertible Redeemable Preferred Stock (the "Series B Preferred Stock") consisting of 30,000 shares, and each share of Series B Preferred Stock shall have the following voting powers, preferences and relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof as follows: I. Designation and Form A. The Series B Preferred Stock shall be designated as "8% Series B Cumulative Convertible Redeemable Preferred Stock" and the number of shares constituting such series shall be 30,000. B. The certificates evidencing shares of Series B Preferred Stock may have such letters, numbers or other marks of identification and such notations, legends and endorsements as the officers executing the same may approve (execution thereof to be conclusive evidence of such approval) and as are not inconsistent with the provisions of this Certificate of Designations, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any securities exchange or automated quotation system on which the Series B Preferred Stock may be listed, or to conform to usage. 1 DRAFT - CONFIDENTIAL C. The Series B Preferred Stock shall be issuable in registered form in whole shares. Every certificate evidencing Series B Preferred Stock shall be dated the date of its execution. D. The certificates evidencing shares of Series B Preferred Stock shall be signed in the name and on behalf of the Company by the signature of its Chairperson or Vice-Chairperson of the Board of Directors, President or any Vice President (whether or not designated by a number or numbers or word or words added before or after the title "Vice President") and by the signature of its Secretary or any of its Assistant Secretaries or Treasurer or any of its Assistant Treasurers (which signatures may be printed, engraved or otherwise reproduced thereon, by facsimile or otherwise). E. The Company shall maintain a register (the "Share Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the transfer of shares of Series B Preferred Stock. The Share Register shall be in written form or in any form capable of being converted into written form within a reasonably prompt period of time. Upon surrender for registration of transfer of any shares of Series B Preferred Stock to the Company, and satisfaction of the requirements for such transfer set forth in this Article I, the Company shall execute one or more new certificates evidencing shares of Series B Preferred Stock and bearing such restrictive legends as may be required by this Certificate of Designations. F. All certificates evidencing Series B Preferred Stock presented or surrendered for transfer or for exchange, redemption or conversion shall (if so required by the Company) be duly endorsed, or be accompanied by a written instrument or instruments of transfer in form reasonably satisfactory to the Company. No service charge shall be made for any registration of transfer or exchange of shares of Series B Preferred Stock, but the Company may require payment of a sum sufficient to cover any tax, assessment or other governmental charge that may be imposed in connection with any transfer or exchange of such shares. The Company shall not be required to exchange or register a transfer of any shares of Series B Preferred Stock (1) called for redemption pursuant to Article V; (2) surrendered for conversion pursuant to Article VI; or (3) during the period of time from a Record Date (as defined in Article III, Section A) until the next succeeding Dividend Payment Date (as defined in Article III, Section A). G. The term "Common Stock" shall mean any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which is not subject to redemption by the Company. Subject to the provisions of Article VI, Section F, however, shares issuable upon conversion of Series B Preferred Stock shall include only shares of the class designated as common stock of the Company at the date of this Certificate of Designations or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which are not subject to redemption by the Company; provided that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting 2 DRAFT - CONFIDENTIAL from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. H. In case any certificate evidencing shares of Series B Preferred Stock shall become mutilated or be destroyed, lost or stolen, the Company in its discretion may execute a new certificate evidencing shares of Series B Preferred Stock, bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated certificate, or in lieu of and in substitution for the certificate so destroyed, lost or stolen. In every case the applicant for a substituted certificate shall furnish to the Company such security or indemnity as reasonably may be required by the Company to save each of them harmless for any loss, liability, cost or expense caused by or connected with such substitution, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company evidence to the Company's satisfaction of the destruction, loss or theft of such certificate and of the ownership thereof. I. Following receipt by the Company of reasonably satisfactory security or indemnity and evidence, as described in the preceding paragraph, the Company shall issue such substituted certificate and make available for delivery such certificate. Upon the issuance of any substituted certificate, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. In case any certificate which has been called for redemption or has been tendered for redemption (and not withdrawn) or is about to be converted into Common Stock shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute certificate, pay or authorize the payment of or convert or authorize the conversion of the same (without surrender thereof except in the case of a mutilated certificate), as the case may be, if the applicant for such payment or conversion shall furnish to the Company such security or indemnity as may be reasonably required by the Company to save each of them harmless for any loss, liability, cost or expense caused by or connected with such substitution, and, in case of destruction, loss or theft, evidence satisfactory to the Company of the destruction, loss or theft of such certificate and of the ownership thereof. J. All certificates evidencing shares of Series B Preferred Stock surrendered for the purpose of payment, redemption, conversion, exchange or registration of transfer, shall, if surrendered to the Company or any paying agent or any stock registrar or any conversion agent, be surrendered to the Company and promptly canceled by it, and no Series B Preferred Stock shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Certificate of Designations. II. Ranking The Series B Preferred Stock shall rank, with respect to dividend rights and distributions and distributions upon the liquidation, winding-up and dissolution of the Company, (A) junior to the Company's 8% Series A Cumulative Convertible Redeemable Preferred Stock, par value $0.0001 per share (the "Series A Preferred Stock"), and to any security issued by the Company that is prior in right to the Series B Preferred Stock with respect to dividends, distributions or liquidation preference (such securities and the Series A Preferred Stock collectively referred to as "Senior Securities"), (B) on a parity with any additional shares of Series B Preferred Stock issued by the Company in the future and any other class or series of 3 DRAFT - CONFIDENTIAL capital stock issued by the Company in the future, the terms of which expressly provide that such class or series will rank on a parity with the Series B Preferred Stock as to dividend rights and distributions and distributions upon the liquidation, winding-up and dissolution of the Company (such capital stock collectively referred to as "Parity Securities") and (C) senior to all classes of Common Stock and, except as specified above, all other classes and series of capital stock of the Company hereafter issued by the Company (such capital stock collectively referred to with the Common Stock as "Junior Securities"). The Company shall not issue any shares of Parity Securities (including additional shares of Series B Preferred Stock) or any Senior Securities (including additional shares of Series A Preferred Stock) without the written consent of holders of at least a majority of the outstanding shares of Series B Preferred Stock. III. Dividends A. The holders of shares of the Series B Preferred Stock (other than shares as to which conversion is deemed effective pursuant to Article VI and as to which all accrued dividends have been paid) shall be entitled to receive, when, as and if dividends are declared by the Board of Directors out of funds of the Company legally available therefor, cumulative preferential dividends from July ___, 2003 accumulating at the rate of eight percent (8%) of the Liquidation Preference per share per annum, payable quarterly in arrears on each January 1, April 1, July 1 or October 1 of each year or, if any such date is not a Business Day, on the next succeeding Business Day (each, a "Dividend Payment Date"), to the holders of record of such shares of Series B Preferred Stock as of December 15, March 15, June 15 or September 15 (each, a "Record Date") preceding such Dividend Payment Date, respectively. Dividends on the Series B Preferred Stock shall be paid in cash. The first dividend payment on the Series B Preferred Stock shall be payable on October 1, 2003 (except with respect to shares of Series B Preferred Stock converted prior to such date, if any). Dividends payable on the Series B Preferred Stock will be computed on the basis of a 360-day year consisting of twelve 30-day months and will be deemed to accumulate from the date of issuance on a daily basis on the Liquidation Preference of the Series B Preferred Stock. The term "Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which the banking institutions in San Diego, California are authorized or obligated by law or executive order to close or be closed. B. Dividends on the Series B Preferred Stock shall accrue whether or not the Company has earnings or profits, whether or not there are funds legally available for the payment of such dividends and whether or not dividends are declared. Dividends will accumulate to the extent they are not paid on the Dividend Payment Date for the period to which they relate. C. No dividend whatsoever shall be declared or paid upon, or any sum set apart for the payment of dividends upon, any outstanding share of the Series B Preferred Stock with respect to any dividend period unless (a) all dividends for such dividend period and all preceding dividend periods have been declared and paid, or declared and a sufficient sum set apart for the payment of such dividends, upon all outstanding shares of Series A Preferred Stock or such other Senior Securities having a preference over the Series B Preferred Stock with respect to the payment of dividends and (b) all dividends for all preceding dividend periods have been declared and paid, or declared and a sufficient sum set apart for the payment of such dividend, upon all outstanding shares of Series B Preferred Stock. Unless full cumulative dividends on all outstanding shares of Series B Preferred Stock for all past dividend periods shall 4 DRAFT - CONFIDENTIAL have been declared and paid, or declared and a sufficient sum for the payment thereof set apart, then: (1) no dividend (other than a dividend payable solely in shares of any Junior Securities) shall be declared or paid upon, or any sum set apart for the payment of dividends upon, any shares of Junior Securities; (2) no other distribution shall be declared or made upon, or any sum set apart for the payment of any distribution upon, any shares of Junior Securities, other than a distribution consisting solely of Junior Securities; and (3) no monies shall be paid into or set apart or made available for a sinking or other like fund for the purchase, redemption or other acquisition or retirement for value of any shares of Junior Securities or any warrants, rights or options exercisable for or convertible into any Junior Securities (other than the repurchase, redemption or other retirement of debentures or other debt securities that are convertible or exchangeable into any Junior Securities) and no distribution shall be made in respect of the Junior Securities or Parity Securities, either directly or indirectly, and whether in cash, obligations or shares of the Company or other property (other than distributions or dividends in Junior Securities), and the Company shall not permit any person directly or indirectly controlled by the Company to purchase or redeem any Junior Securities or any warrants, rights, calls or options exercisable for or convertible into any Junior Securities (other than the repurchase, redemption or other retirement of debentures or other debt securities that are convertible or exchangeable into any Junior Securities) unless prior to or concurrently with such declaration, payment, setting apart for payment, repurchase, redemption or other retirement or distribution, as the case may be, by the Company or any of its subsidiaries. Holders of the Series B Preferred Stock will not be entitled to any dividends, whether payable in cash, property or stock, in excess of the full cumulative dividends as herein described. When dividends are not paid in full as aforesaid upon the shares of Series B Preferred Stock, all dividends shall be declared and paid pro rata so that the amount of dividends so declared and paid on Series B Preferred Stock and any series of Parity Securities shall in all cases bear to each other the same ratio that accumulated dividends (including interest accrued on or additional dividends accumulated in respect of such accumulated dividends) on the shares of Series B Preferred Stock and such Parity Securities bear to each other. Notwithstanding the foregoing, this paragraph shall not prohibit (i) the acquisition, repurchase, exchange, conversion, redemption or other retirement for value of shares of Series B Preferred Stock or any Parity Security by the Company in accordance with the terms of such securities or (ii) the acquisition, repurchase, exchange, conversion, redemption or other retirement for value by the Company of any Junior Securities in accordance with obligations in existence at the time of original issuance of the Series B Preferred Stock. IV. Liquidation Rights Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company or reduction or decrease in its capital stock resulting in a distribution of assets to the holders of any class or series of the Company's capital stock (other than shares of Senior Securities), after the payment or setting apart for payment of any preferential distributions to the holders of Senior Securities pursuant to the terms thereof, each holder of shares of the Series B Preferred Stock will be entitled to payment out of the assets of the Company available for distribution of an amount equal to the greater of (A) $1,000 per share of Series B Preferred Stock held by such holder, together with accumulated and unpaid dividends (including an amount in cash equal to a prorated dividend for any partial dividend period), if any, to the date fixed for liquidation, dissolution, winding-up, reduction or decrease in capital stock, or redemption (the "Liquidation Preference"), and (B) the amount that would be payable to such holder if the holder 5 DRAFT - CONFIDENTIAL had converted all outstanding shares of Series B Preferred Stock into shares of Common Stock immediately prior to such liquidation, dissolution or winding-up. After payment in full of the Liquidation Preference and all accumulated dividends, if any, to which holders of the Series B Preferred Stock are entitled, such holders will not be entitled to any further participation in any distribution of assets of the Company. If, upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the assets of the Company are not sufficient to pay in full, first, the aggregate amount payable to the holders of Senior Securities pursuant to the terms thereof and, second, the aggregate amount payable to the holders of Series B Preferred Stock and amounts payable with respect to the Series B Preferred Stock and all other Parity Securities are not paid in full, the holders of the Series B Preferred Stock and the Parity Securities will share equally and ratably in any distribution of assets of the Company in proportion to the full Liquidation Preference and accumulated and unpaid dividends, if any, to which each is entitled. However, neither the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company nor the consolidation or merger of the Company with or into one or more persons will be deemed to be a voluntary or involuntary liquidation, dissolution or winding-up of the Company or reduction or decrease in capital stock for purposes of this Article IV, unless such sale, conveyance, exchange or transfer shall be in connection with a liquidation, dissolution or winding-up of the business of the Company or reduction or decrease in capital stock. Notice of any voluntary or involuntary liquidation, dissolution or winding up of the Company, stating the payment date or dates when, and the place or places where, the amounts distributable to each holder of shares of Series B Preferred Stock in such circumstances shall be payable, shall be given by first-class mail, postage prepaid, mailed not less than 45 days prior to any payment date stated therein, to holders of record as they appear on the stock record books of the Company as of the date such notices are first mailed. V. Redemption by the Company A. Each then-outstanding share of Series B Preferred Stock will be subject to redemption at any time on or after July ___, 2008, at the option of the Company at a price per share equal to one hundred percent (100%) of the Liquidation Preference thereof (the "Applicable Redemption Price"); provided that, at the time of such redemption, full cumulative dividends on all outstanding shares of Series A Preferred Stock for all past dividend periods shall have been declared and paid, or declared and a sufficient sum for the payment thereof set apart. B. In case of redemption of less than all of the shares of Series B Preferred Stock at the time outstanding, the shares to be redeemed shall be redeemed on a pro rata basis. C. Notice of any redemption shall be sent by or on behalf of the Company not less than thirty (30) nor more than sixty (60) days prior to the date specified for redemption in such notice (the "Redemption Date"), by first class mail, postage prepaid, or by overnight courier of recognized standing to each holder of record of the Series B Preferred Stock at its last address appearing on the Share Register; provided, however, that no failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of Series B Preferred Stock except as to the holder to whom the Company has failed to give notice or except as to the holder to whom notice was defective. Such notice shall state: (1) the Redemption Date; (2) the Applicable Redemption Price; (3) the 6 DRAFT - CONFIDENTIAL aggregate number of shares of Series B Preferred Stock to be redeemed and, if less than all shares held by such holder are to be redeemed, the number of such shares of such holder to be redeemed; (4) the place or places where certificates for such shares are to be surrendered for payment of the Applicable Redemption Price; (5) that dividends on the shares to be redeemed will cease to accumulate from and after the Redemption Date; (6) the Conversion Price; (7) that shares of Series B Preferred Stock called for redemption may be converted at any time before the close of business on the Redemption Date; and (8) that holders of the Series B Preferred Stock must satisfy the requirements of Article VI, Section C if such holders desire to convert such shares. Upon the mailing of any such notice of redemption, the Company shall become obligated to redeem at the time of redemption specified thereon all shares called for redemption. D. If notice has been mailed in accordance with Article V, Section C above, and provided that on or before the Redemption Date specified in such notice all funds necessary for such redemption shall have been set aside by the Company, separate and apart from its other funds in trust for the pro rata benefit of the holders of the shares so called for redemption, so as to be, and to continue to be available therefor, and, if the Company has appointed a transfer or other redemption agent with respect to the Series B Preferred Stock, the Company shall have given irrevocable instructions and authority to the transfer or other redemption agent to pay the respective holders of such shares the Applicable Redemption Price upon surrender of their respective share certificates, then, from and after the Redemption Date, dividends on the shares of the Series B Preferred Stock so called for redemption shall cease to accumulate, and said shares shall no longer be deemed to be outstanding and shall not have the status of shares of Series B Preferred Stock, and all rights of the holders thereof as stockholders of the Company (except the right to receive from the Company the Applicable Redemption Price) shall cease, except if the Company shall default in payment of the Applicable Redemption Price on the Redemption Date, in which case all such rights shall continue unless and until such shares are redeemed and such price is paid in accordance with the terms hereof. Upon surrender, in accordance with said notice, of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Company shall so require and the notice shall so state), such shares shall be redeemed by the Company at the Applicable Redemption Price. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate or certificates shall be issued evidencing the unredeemed shares without cost to the holder thereof. E. No Series B Preferred Stock may be redeemed except with funds legally available for that purpose. F. All shares of Series B Preferred Stock redeemed pursuant to this Article V shall be restored to the status of authorized and unissued shares of preferred stock, without designation as to series and may thereafter be reissued as shares of any series of preferred stock other than shares of Series B Preferred Stock. VI. Conversion A. Subject to and upon compliance with the provisions of this Certificate of Designations, the holder of any Series B Preferred Stock shall have the right, at its option, at any time after the date of this Certificate of Designations to convert any shares of Series B Preferred Stock into that number of fully paid and non-assessable shares of Common Stock (as such shares 7 DRAFT - CONFIDENTIAL shall then be constituted) obtained by dividing the aggregate Liquidation Preference on the shares of Series B Preferred Stock to be converted (including, in the event such shares are converted on a date other than a Dividend Payment Date, accrued and unpaid dividends on such Series B Preferred Stock through the date such Series B Preferred Stock is deemed to be converted in accordance with this Article VI, unless the Company shall elect to pay such accrued and unpaid dividend in cash as set forth in Article III, Section A above) by the Conversion Price in effect at such time, by surrender of the certificates evidencing such shares of Series B Preferred Stock so to be converted in the manner provided. The conversion price applicable to the Series B Preferred Stock shall be $20.00 (herein called the "Conversion Price"), subject to adjustment as provided in this Article VI. B. Each share of Series B Preferred Stock issued and outstanding on July __, 2013 (the "Automatic Conversion Date"), shall automatically be converted into that number of fully paid and non-assessable shares of Common Stock (as such shares shall then be constituted) obtained by dividing the aggregate Liquidation Preference on the shares of Series B Preferred Stock to be converted (including accrued and unpaid dividends on such Series B Preferred Stock through the Automatic Conversion Date, unless the Company shall elect to pay such accrued and unpaid dividend in cash as set forth in Article III, Section A above) by the Conversion Price in effect at such time. C. A holder of Series B Preferred Stock is not entitled to any rights of a holder of Common Stock until such holder has converted shares of Series B Preferred Stock into Common Stock, and only to the extent such shares of Series B Preferred Stock are deemed to have been converted into Common Stock under this Article VI. In order to exercise the conversion right with respect to any shares of Series B Preferred Stock (or, in the case of an automatic conversion, receive the Common Stock into which the shares of Series B Preferred Stock have been converted), the holder of shares of Series B Preferred Stock to be converted (or that have been converted, in the case of an automatic conversion) shall surrender the certificates evidencing such shares, duly endorsed and accompanied by a written notice of conversion in the form provided on the certificate evidencing Series B Preferred Stock (or such other notice which is reasonably acceptable to the Company), at the principal office of the Company or at the office of any agent or agents of the Company, as may be designated by the Board of Directors and identified to the holders in writing. Such notice shall also state the name or names (with address or addresses) in which the certificate or certificates for shares of Common Stock issuable upon such conversion shall be issued, and shall be accompanied by transfer taxes, if required pursuant to Article VI, Section G. Each share of Series B Preferred Stock surrendered for conversion shall, unless the shares issuable upon conversion are to be issued in the same name as the registration of such Series B Preferred Stock, be duly endorsed by, or be accompanied by instruments of transfer in form reasonably satisfactory to the Company duly executed by, the holder or its duly authorized attorney. As promptly as practicable after satisfaction of the requirements for conversion set forth above, and in any event within five Business Days after the Conversion Date (as defined below), subject to compliance with any restrictions on transfer if shares issuable upon conversion are to be issued in a name other than that of the holder (as if such transfer were a transfer of the Series B Preferred Stock), the Company shall issue and shall deliver cause to be delivered, as directed by the holder of shares of Series B Preferred Stock being converted, to such holder, a certificate or certificates for the number of full shares of Common Stock to be issued by the Company upon the conversion of shares of Series B Preferred 8 DRAFT - CONFIDENTIAL Stock in accordance with the provisions of this Article VI and a check or cash in respect of any fractional interest in respect of a share of Common Stock arising upon such conversion, as provided in Article VI, Section D, and, if the Company elects to pay accrued and unpaid dividends on such shares in cash as set forth in Article III, Section A, a check or cash in respect of such amounts. In case any shares of Series B Preferred Stock shall be surrendered for partial conversion, the Company shall execute and deliver to the holder of the Series B Preferred Stock so surrendered, without charge to him, a new certificate evidencing the unconverted shares of Series B Preferred Stock evidenced by the surrendered certificate. Each conversion, other than an automatic conversion, shall be deemed to have been effected as to any such Series B Preferred Stock on the date on which the requirements set forth above in this Article VI, Section C have been satisfied as to such Series B Preferred Stock (the "Conversion Date"). In the case of an automatic conversion, the Automatic Conversion Date shall be the Conversion Date. The person or persons in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder of record of the shares represented thereby at the close of business on the Conversion Date. In the event that the Series B Preferred Stock is to be redeemed pursuant to Article V hereof, from and after the Redemption Date, the right of a holder to convert shares of Series B Preferred Stock pursuant to this Article VI shall cease and terminate, except if the Company shall default in payment of the Applicable Redemption Price on the Redemption Date in which case all such rights shall continue unless and until such shares are redeemed and such price is paid in full in accordance with the terms hereof. Notwithstanding anything in the foregoing to the contrary, if the Conversion Date shall occur with respect to any shares of Series B Preferred Stock on or prior to any Redemption Date, such shares of Series B Preferred Stock shall be converted by the Company into Common Stock in the manner provided in this Article VI. D. No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of Series B Preferred Stock. If any fractional share of Common Stock would be issuable upon the conversion of any share or shares of Series B Preferred Stock, the Company shall make an adjustment and payment therefor in cash in an amount equal to such fractional interest multiplied by the current market price per share of Common Stock to the holder of such shares. The current market price of a share of Common Stock shall be equal to the average of the Closing Prices (as defined below) for the five trading days ending on the trading day prior to declaration of the dividend. If more than one share of Series B Preferred Stock shall be surrendered for conversion by the same holder on the same Conversion Date, the number of full shares of Common Stock issuable on conversion thereof shall be computed on the basis of the total number of shares of Series B Preferred Stock so surrendered. E. The Conversion Price shall be adjusted from time to time by the Company as follows: (1) In case the Company shall hereafter pay a dividend or make a distribution to all holders of the outstanding Common Stock in shares of Common Stock, the 9 DRAFT - CONFIDENTIAL Conversion Price in effect at the opening of business on the date following the record date for the determination of stockholders entitled to receive such dividend or other distribution (the "Common Stock Dividend Record Date") shall be reduced by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the Common Stock Dividend Record Date and the denominator shall be the sum of (x) such number of shares of Common Stock outstanding and (y) the total number of shares of Common Stock constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following Common Stock Dividend Record Date. The Company will not pay any dividend or make any distribution on shares of Common Stock then held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. If any dividend or distribution of the type described in this Article VI, Section E(1) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared. (2) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (3) In case the Company shall issue rights or warrants to holders of shares of Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the Closing Price per share on the record date for the determination of stockholders entitled to receive such rights or warrants, the Conversion Price in effect at the opening of business on the day following such record date shall be adjusted to a price obtained by multiplying such Conversion Price by a fraction the numerator of which shall be the sum of (x) the number of shares of Common Stock outstanding at the close of business on such record date and (y) the number of shares of Common Stock that the aggregate offering price of the total number of shares so to be offered would purchase at such Closing Price and the denominator of which shall be the sum of (x) the number of shares of Common Stock outstanding at the close of business on such record date and (y) the number of additional shares of Common Stock so to be offered for subscription or purchase, such adjustment to become effective immediately after the opening of business on the day following such record date; provided, however, that no adjustment shall be made if the Company issues or distributes to each holder of Series B Preferred Stock the rights or warrants that each such holder would have been entitled to receive had the Series B Preferred Stock held by such holder been converted prior to such record date. For purposes of this subsection (3), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company shall not issue any rights or warrants in respect of shares of Common Stock held in the treasury of the Company. 10 DRAFT - CONFIDENTIAL (4) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock shares of any class of capital stock of the Company (other than any dividends or distributions to which Article VI, Section E(1) applies) or evidences of its indebtedness, cash or assets (including securities but excluding (i) regular periodic cash dividends, (ii) any stock dividend referred to in Article VI, Section E(1) and (iii) any rights or warrants referred to in Article VI, Section E(3)) (any of the foregoing hereinafter in this Article VI, Section E(4) called the "Securities"), then, in each such case (unless the Company elects to reserve such Securities for distribution to the holders upon the conversion of the shares of Series B Preferred Stock so that any such holder converting shares will receive upon such conversion, in addition to the shares of Common Stock to which such holder is entitled, the amount and kind of such Securities which such holder would have received if such holder had converted its shares of Series B Preferred Stock into Common Stock immediately prior to the record date (as defined in Article VI, Section E(4) for such distribution of the Securities)), the Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Conversion Price in effect on the record date with respect to such distribution by a fraction, the numerator of which shall be (x) the Current Market Price (as defined below) per share of the Common Stock on such record date less (y) the fair market value (as determined by the Board of Directors in its good faith judgment, whose determination shall be binding absent manifest error, and described in a resolution of the Board of Directors) on the record date of the portion of the Securities so distributed applicable to one share of Common Stock and the denominator shall be the Current Market Price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day following such record date; provided, however, that in the event the then fair market value (as so determined) of the portion of the Securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on such record date, in lieu of the foregoing adjustment, adequate provision shall be made so that each holder shall have the right to receive upon conversion the amount of Securities such holder would have received had such holder converted each share of Series B Preferred Stock on the record date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this Article VI, Section E(3) by reference to the actual or when issued trading market for any securities, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price of the Common Stock. The Company shall provide any holder of Series B Preferred Stock, upon receipt of a written request therefor, with any indenture or other instrument defining the rights of the holders of any indebtedness, assets, subscription rights or shares of any class of capital stock of the Company referred to in this Article VI, Section E(4). In the event that the Company implements a stockholders' rights plan ("Rights Plan"), such Rights Plan must provide that, subject to customary exceptions, upon conversion of the shares of Series B Preferred Stock holders of the Series B Preferred Stock will receive, in addition to the Common Stock issuable upon conversion, such rights whether or not such rights have separated from the Common Stock at the time of such conversion. Notwithstanding the foregoing, if the Company implements a Rights Plan prior to the conversion of the Series B Preferred Stock and terminates such Rights Plan prior to the conversion of the Series B Preferred 11 DRAFT - CONFIDENTIAL Stock, the Holders will not be entitled to receive any rights under the Rights Plan at the time of such conversion. Rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Trigger Event"): (1) are deemed to be attached to and transferred with any such shares of Common Stock; (2) are not exercisable; and (3) are also automatically issued with any future issuances of Common Stock, shall be deemed not to have been distributed for purposes of this Article VI, Section E (and no adjustment to the Conversion Price under this Article VI, Section E will be required) until the occurrence of the earliest Trigger Event, whereupon such rights and warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the Conversion Price shall be made under this Article VI, Section E(4). If any such right or warrant, including any such existing rights or warrants distributed prior to the date of this Certificate of Designations, are subject to events upon the occurrence of which such rights or warrants become exercisable to purchase different securities, rights, warrants, options, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall be deemed to be the date of distribution and record date with respect to new rights or warrants with such rights (and a termination or expiration of the existing rights or warrants without exercise by any of the holders thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the Conversion Price under this Article VI, Section E was made, (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder or holders of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants which shall have expired or been terminated without exercise by any holders thereof, the Conversion Price shall be readjusted as if such rights and warrants had not been issued. For purposes of this Article VI, Section E(4) and Article VI, Sections E(1), (2) and (3), any dividend or distribution to which this Article VI, Section E(4) is applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets, rights, warrants, options or shares of capital stock other than such shares of Common Stock or rights or warrants (and any Conversion Price reduction required by this Article VI, Section E(4) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (and any further Conversion Price reduction required by Article VI, Sections E(1), (2) and (3) with respect to such dividend or distribution shall then be made), except (a) the record date of such dividend or distribution shall be substituted as "Common Stock Dividend Record Date" within the meaning of Article VI, Section E(1) and 12 DRAFT - CONFIDENTIAL (b) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the Common Stock Dividend Record Date" within the meaning of Article VI, Section E(1). (5) In case, after the date of the original issuance of the Series B Preferred Stock, a tender or exchange offer made by the Company or any subsidiary of the Company for all or any portion of the Common Stock shall be consummated and such tender offer shall involve an aggregate consideration having a fair market value (as determined by the Board of Directors in its good faith judgment) at the last time (the "Offer Time") tenders may be made pursuant to such tender or exchange offer (as it may be amended) that, together with the aggregate of the cash plus the fair market value (as determined by the Board of Directors in its good faith judgment), as of the Offer Time, of the other consideration payable in respect of any tender or exchange offer by the Company or any such subsidiary for all or any portion of the Common Stock consummated preceding the Offer Time and in respect of which no Conversion Price adjustment pursuant to this Article VI, Section E(5) has been made, exceeds 5% of the product of the Current Market Price of the Common Stock at the Offer Time multiplied by the number of shares of Common Stock outstanding (including any tendered shares) at the Offer Time, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the Offer Time by a fraction of which (x) the numerator shall be (i) the product of the Current Market Price of the Common Stock at the Offer Time multiplied by the number of shares of Common Stock outstanding (including any tendered shares) at the Offer Time minus (ii) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered and not withdrawn as of the Offer Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the denominator shall be the product of (i) such Current Market Price at the Offer Time multiplied by (ii) such number of outstanding shares at the Offer Time minus the number of Purchased Shares, such reduction to become effective immediately prior to the opening of business on the day following the Offer Time. For purposes of this Article VI, Section E(5), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. (6) For purposes of this Article VI, Sections D and E, the following terms shall have the meanings indicated: (a) "Closing Price" with respect to any securities on any day shall mean the closing sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, on that day in each case on the Nasdaq National Market ("Nasdaq"), or, if such security is not listed or admitted to trading on Nasdaq, on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available, the average of the closing bid and asked prices 13 DRAFT - CONFIDENTIAL as furnished by a professional market maker in any National Association of Securities Dealers firm selected from time to time by the Board of Directors in good faith for that purpose, making a market in such securities. If the securities are not publicly held or so listed, quoted or publicly traded, the "Closing Price" means the fair market value of such security as determined in good faith by the Board of Directors or, to the extent permitted by applicable law, a duly authorized committee thereof, whose determination shall be conclusive. (b) "Current Market Price" shall mean the average of the daily Closing Prices per share of Common Stock for the thirty (30) consecutive Trading Days immediately prior to the date in question (or, if such day is not a Trading Day, the next preceding Trading Day); provided, however, that (1) if the "ex" date (as hereinafter defined) for any event that requires an adjustment to the Conversion Price pursuant to Article VI, Section E(1), (2), (3) or (4) occurs during such thirty (30) consecutive Trading Days, the Closing Price for each Trading Day prior to the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such other event, or (2) if the "ex" date for any event that requires an adjustment to the Conversion Price pursuant to Article VI, Sections E(1), (2), (3), (4) or (5) occurs on or after the "ex" date for the issuance or distribution requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event. For purposes of this paragraph, the term "ex" date, (1) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the relevant exchange or in the relevant market from which the Closing Price was obtained without the right to receive such issuance or distribution and (2) when used with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective. (c) "fair market value" shall mean the amount which a willing buyer would pay a willing seller in an arm's length transaction. (d) "record date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). (e) "Trading Day" shall mean (x) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock Exchange or another national security exchange is open for business or (y) if the applicable security is quoted on Nasdaq, a day on which trades may be made thereon or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of California are authorized or obligated by law or executive order to close. 14 DRAFT - CONFIDENTIAL (7) To the extent permitted by applicable law, the Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least twenty (20) days, the reduction is irrevocable during the period and the Board of Directors shall have made a determination that such reduction would be in the best interests of the Company, which determination shall be conclusive. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to each holder of record of the Series B Preferred Stock at its last address appearing on the Share Register a notice of the reduction at least fifteen (15) days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period during which it will be in effect. (8) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in such price; provided, however, that any adjustments which by reason of this Article VI, Section E(8) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article VI shall be made by the Company and shall be made to the nearest cent or to the nearest one-hundredth (1/100) of a share, as the case may be. No adjustment need be made for rights to purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest. To the extent shares of Series B Preferred Stock become convertible into cash, assets, property or securities (other than capital stock of the Company), no adjustment need be made thereafter as to the cash, assets, property or such securities. Interest will not accrue on the cash. (9) Whenever the Conversion Price is adjusted as herein provided, the Company shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which each adjustment becomes effective and shall promptly but in any event within ten (10) days after the effectiveness thereof mail such notice of such adjustment of the Conversion Price to each holder of record of the Series B Preferred Stock at its last address appearing on the Share Register. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. (10) In any case in which this Article VI, Section E provides that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (a) issuing to the holder of any Series B Preferred Stock converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (b) paying to such holder any amount in cash in lieu of any fraction pursuant to Article VI, Section D. (11) For purposes of this Article VI, Section E, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. F. If, at any time when Series B Preferred Stock is issued and outstanding and prior to the conversion of all Series B Preferred Stock, there shall be any merger, 15 DRAFT - CONFIDENTIAL consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Company shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Company or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Company other than in connection with a plan of complete liquidation of the Company, then the holders of Series B Preferred Stock shall thereafter have the right to receive upon conversion of the Series B Preferred Stock, upon the bases and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the holders of Series B Preferred Stock would have been entitled to receive in such transaction had the Series B Preferred Stock been converted in full immediately prior to such transaction, and in any such case appropriate provisions shall be made with respect to the rights and interests of the holders of Series B Preferred Stock to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Company shall not effect any transaction described in this Article VI, Section F unless (1) it first gives, to the extent practical, thirty (30) days' prior written notice (but in any event at least fifteen (15) business days prior written notice) of such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the holders of Series B Preferred Stock shall be entitled to convert the Series B Preferred Stock) and (2) the resulting successor or acquiring entity (if not the Company) assumes by written instrument the obligations of this Article VI, Section F. G. The issuance of stock certificates upon conversion of shares of Series B Preferred Stock shall be made without charge to the converting holder for any tax in respect of the issue thereof. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of stock in any name other than that of the holder of any share of Series B Preferred Stock converted, and the Company shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. H. The Company shall reserve, free from preemptive rights, out of its authorized but unissued shares or shares held in treasury, sufficient shares of Common Stock to provide for the conversion of all shares of Series B Preferred Stock from time to time outstanding. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Series B Preferred Stock, the Company will take all corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue shares of such Common Stock at such adjusted Conversion Price. The Company covenants that all shares of Common Stock which may be issued upon conversion of Series B Preferred Stock will upon issuance be fully paid and non-assessable by the Company and free from all taxes, liens and charges with respect to the issuance thereof, other than those created by or imposed upon the holders through no action of the Company. 16 DRAFT - CONFIDENTIAL I. In case: (1) the Company shall authorize or take an action that would, upon consummation, require a conversion price adjustment pursuant to Section E of this Article; or (2) the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock, or to all holders of any series of preferred stock or other equity security with respect to which dividends are payable, cash (excluding any dividend or distribution in connection with the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary); or (3) the Company shall authorize the granting to the holders of all or substantially all of its Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or (4) of any reclassification or reorganization of the Common Stock (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange whereby Common Stock is converted into other securities, cash or other property; or (5) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company; the Company shall cause to be mailed to each holder of record of the Series B Preferred Stock at its last address appearing on the Share Register, as promptly as possible but in any event at least fifteen (15) days prior to the applicable date hereinafter specified, a notice stating the nature of such action, dividend, distribution, grating of rights, options or warrants, reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding-up and (a) the date on which a record is to be taken for the purpose of such action, dividend, distribution or granting of rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights, options or warrants are to be determined or (b) the date on which such action, reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding-up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such action, reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding-up. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such action, dividend, distribution, reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding-up. If any action would require adjustment of the Conversion Price pursuant to more than one of the provisions described in this Article VI, only one adjustment shall be made and such adjustment shall be the amount of adjustment which has the greatest absolute value. 17 DRAFT - CONFIDENTIAL VII. Consolidation; Merger; Sale of Assets Except as provided in Article VI, Section F, nothing contained in this Certificate of Designations shall prevent any consolidation or merger of the Company with or into any other corporation or corporations (whether or not affiliated with the Company), or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or shall prevent any sale, conveyance or lease (or successive sales, conveyances or leases) of all or substantially all of the property of the Company, to any other corporation (whether or not affiliated with the Company), authorized to acquire and operate the same and which shall be organized under the laws of the United States of America, any state thereof or the District of Columbia. VIII. Voting Rights Except as otherwise provided in this Certificate of Designations or as required by law, the holders of record of shares of the Series B Preferred Stock shall have no voting rights. IX. Amendment A. Without the consent or affirmative vote of the holders of a majority of the outstanding shares of Series B Preferred Stock, voting separately as a class, the Company shall not: (i) increase or decrease the authorized amount of Series B Preferred Stock; (ii) increase or decrease the par values of the Series B Preferred Stock; (iii) alter or change the powers, preferences or rights of the Series B Preferred Stock so as to affect them adversely; (iv) amend, alter, waive or repeal any provision of the Amended and Restated Certificate of Incorporation, the Bylaws of the Company or the Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special Rights of 8% Series A Cumulative Convertible Redeemable Preferred Stock and Qualifications, Limitations and Restrictions Thereof so as to affect the holders of Series B Preferred Stock adversely; or (v) authorize or take any other action if such action alters or changes any of the rights of the Series B Preferred Stock in any respect or otherwise would be inconsistent with the provisions of this Certificate of Designations and the holders of any class or series of the capital stock of the Company is entitled to vote thereon. An increase or decrease in the authorized amount of Common Stock shall not require the consent of holders of the Series B Preferred Stock and shall not be deemed to affect adversely the rights, preferences, privileges, special rights or voting rights of holders of shares of Series B Preferred Stock. B. The Company in its sole discretion may without the vote or consent of any holders of the Series B Preferred Stock amend or supplement this Certificate of Designations: (1) to provide for uncertificated Series B Preferred Stock in addition to or in place of certificated Series B Preferred Stock; (2) to make any change that would provide any additional rights or benefits to the holders of the Series B Preferred Stock or that does not adversely affect the legal rights under this Certificate of Designations of any such holder; or 18 DRAFT - CONFIDENTIAL (3) to make any amendment required by Article VI , Section F or Article VII. X. Exclusion of Other Rights Except as may otherwise be required by law, the shares of Series B Preferred Stock shall not have any voting powers, preferences and relative, participating, optional or other special rights, other than those specifically set forth in this Certificate of Designations (as amended from time to time) and in the Certificate of Incorporation. The shares of Series B Preferred Stock shall have no preemptive or subscription rights. 19 DRAFT - CONFIDENTIAL IN WITNESS WHEREOF, the Company has caused this certificate to be duly executed by Robert E. Price, President and Chief Executive Officer of the Company, and by Robert M. Gans, Secretary of the Company, this ____ day of July, 2003. PRICESMART, INC. By: - -------------------------------------------- Name: Robert E. Price Title: President and Chief Executive Officer ATTEST: By: ----------------------- Name: Robert M. Gans Title: Secretary 20 -----END PRIVACY-ENHANCED MESSAGE-----