EXHIBIT 10.17
August 18, 1998
▇▇. ▇▇▇▇ ▇▇▇▇▇
President and CEO
Affinity Development Group Incorporated
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▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Re: PURCHASE AGREEMENT
Dear ▇▇▇▇:
This Purchase Agreement (this "AGREEMENT") sets forth the
respective rights and obligations of Affinity Development Group Incorporated
("ADG") and PriceSmart, Inc. ("PRICESMART") with respect to ADG's acquisition
of certain assets comprising PriceSmart's automobile advertising/referral
business (the "BUSINESS"), as follows:
1. ASSET PURCHASE. Subject to the terms and conditions of this
Agreement, PriceSmart hereby sells, conveys, transfers and agrees to deliver
to ADG, and ADG hereby acquires and agrees to accept delivery of, those
assets related to the Business set forth on EXHIBIT A attached hereto (the
"ASSETS"), free and clear of all liens and encumbrances. The Assets shall be
delivered to ADG on the earlier of (i) November 1, 1999 or (ii) five (5)
business days after the date when PriceSmart ceases to operate the Business
in Price Club or Costco Wholesale membership warehouse clubs, as described in
the Agreement Concerning Transfer of Certain Assets between and among
Price/Costco, Inc., Price Enterprises, Inc. and various other parties entered
into in November 1996 (the "COSTCO AGREEMENT"). The date when the Assets are
actually delivered to ADG is referred to herein as the "DELIVERY DATE."
2. CASH PAYMENTS. ADG will make the following cash payments in
immediately available funds to PriceSmart: (i) $1,275,400.00 (One Million
Two Hundred Seventy-Five Thousand Four Hundred U.S. Dollars), payable
concurrently with the execution of this Agreement, (ii) $150,000 (One Hundred
Fifty Thousand U.S. Dollars), payable concurrently with the execution of this
Agreement by the transfer hereby of all of ADG's right, title and interest in
the $150,000 cash deposit previously paid to PriceSmart pursuant to the
letter agreement dated July 22, 1998 by and between ADG and PriceSmart, and
(iii) an amount equal to the "net working capital" (defined as total accounts
receivable MINUS total accounts payable) of the Business at September 1,
1998, payable on September 30, 1998. PriceSmart shall refund to ADG an
amount equal to the Net Working Capital of the Business as of the Delivery
Date, provided that the refund shall not exceed the Net Working Capital
amount established on September 1, 1998. PriceSmart shall pay such refund to
ADG within twenty (20) business days of the Delivery Date. In the event that
at any time prior to October 31, 1999, PriceSmart ceases to operate the
Business in Price Club or Costco Wholesale membership warehouse clubs,
PriceSmart shall refund to ADG an amount equal to the product of $76,814
(Seventy-Six Thousand Eight Hundred Fourteen U.S. Dollars) times the number
of full calendar months remaining until October 31, 1999. PriceSmart shall
pay such refund to ADG within ten (10) business days after the occurrence of
such event.
3. PROFITS INTEREST. Within forty-five (45) days following the
last day of each calendar month during the period from September 1, 1998
until the Delivery Date (including for any partial calendar month ending on
the Delivery Date if the delivery date is any date other than November 1,
1999.) PriceSmart will pay to ADG in immediately available funds an amount
equal to the actual Net Profits (as defined below) earned by the Business (as
operated by PriceSmart) during such month
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August 18, 1998
Page 2
accompanied by a statement setting forth in reasonable detail the computation
of the Net Profits for such month, including a break-out of the amounts
remitted to Price/Costco, Inc. For purposes of this Agreement, "NET PROFITS"
means gross sales MINUS operating expenses (including, without limitation,
all amounts payable to Price/Costco, Inc. during such period under the Costco
Agreement, all charges, if any, for uncollectable accounts, and allocations
to the Business of overhead expenses by PriceSmart in an amount not to exceed
the provisions for such overhead set forth in the Annual Budget). Operating
expenses shall not include any expenses incurred in defending or settling
third party claims, including pending or threatened litigation,
employee-related claims or claims of governmental authorities, including any
taxes assessed for any period prior to the date of this Agreement
(collectively, "CLAIMS"), in each instance if and to the extent such Claim
arises from or relates to conduct, events or circumstances occurring prior to
the date of this Agreement. PriceSmart may offset against the Net Profits
payments any amounts then-owed to PriceSmart by ADG.
4. OPERATING CONSIDERATIONS. PriceSmart shall operate the Business
from the date hereof until the Delivery Date only in the ordinary course of
business consistent with past custom and practice and in accordance in all
material respects with the annual budget (the "ANNUAL BUDGET") for the Business
attached hereto as EXHIBIT B, subject to any good-faith reductions in the
expenses set forth in the Annual Budget in response to any material diminution
in the revenues projected in the Annual Budget or PriceSmart's good-faith
determination to terminate the Price/Costco programs. Without limiting the
foregoing, PriceSmart shall (i) use commercially reasonable efforts to collect
on all accounts receivable consistent with past custom and practice, (ii) not
incur operating expenses that exceed in any material respect any of the line
items in the Annual Budget and not incur operating expenses that exceed the
Annual Budget, (iii) cause the budgeted full-time equivalents ("FTEs") to devote
substantially all of their time to the Business (unless the FTEs are budgeted
only on a part-time basis), and (iv) regularly consult with and consider the
advice of ADG concerning the marketing, dealer network, product offerings and
overall strategy for the Business. Notwithstanding the foregoing, the parties
acknowledge and agree that (i) PriceSmart is obligated to operate the Business
in accordance with the Costco Agreement and (ii) PriceSmart may incur such
expenses and take such actions as may be deemed necessary, in its sole
discretion, to comply with its obligations under the Costco Agreement, and such
expenses shall be taken into account in computing the Net Profits under Section
3 above. ADG shall not take any action which impairs or conflicts with, or
could reasonably be expected to impair or conflict with, PriceSmart's
performance of its obligations under the Costco Agreement. Not more than once
each calendar quarter, ADG and its representatives shall have the right, at
their sole expense, upon reasonable notice and during normal business hours, to
inspect and audit the books and records of PriceSmart relating to the Business.
PriceSmart agrees that it will not amend or modify the Costco Agreement in any
way which materially adversely affects the Business or the results of the
operations thereof, without the prior written consent of ADG, which will not be
unreasonably withheld or delayed. Subject to the refund obligations of
PriceSmart in Section 2, nothing in this Agreement shall be construed so as to
limit or prevent PriceSmart from terminating the Price/Costco programs of the
Business or the Costco Agreement in its sole discretion.
5. EMPLOYEE MATTERS. (a) ADG shall offer employment, as of the
Delivery Date, to each of the employees of the Business listed on EXHIBIT C
attached hereto (each an "EMPLOYEE" and collectively, the "EMPLOYEES") at the
same salary or hourly rates being paid by PriceSmart. ADG agrees
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August 18, 1998
Page 3
to establish for the Employees a severance pay plan identical to the current
PriceSmart severance pay plan and to grant to each Employee at the
commencement of his or her employment with ADG credit for his or her years of
tenure as an employee of PriceSmart and its predecessors, as if he or she had
been so employed by ADG; PROVIDED, that ADG may modify the subsequent accrual
of severance from and after the date of employment by ADG consistent with
ADG's severance plans. The years of tenure and severance liability for each
Employee as of June 30, 1998 is set forth next to each Employee's name on
EXHIBIT C. ADG hereby assumes the current and future severance liability for
each Employee, and ADG agrees to indemnify, defend and hold harmless
PriceSmart for any claims, liabilities, damages, costs and expenses
(including reasonable attorneys' fees and costs) incurred or suffered by
PriceSmart in connection with any actual or threatened claims by any Employee
for unpaid severance pay. Subject to applicable law, PriceSmart shall
provide reasonable notice to ADG prior to terminating any Employee prior to
the Delivery Date.
(b) The parties agree that immediately following the execution of
this Agreement, ▇▇. ▇▇▇▇ ▇▇▇▇▇ shall be provided office space at ADG's
facilities at no charge to PriceSmart. Promptly following the execution of
this Agreement, ADG, with assistance from ▇▇. ▇▇▇▇▇, will furnish and
properly equip, at ADG's sole expense, office space for the sales Employees
of the Business, who will be housed at ADG's facilities at no charge to
PriceSmart upon completion of such offices. The remaining Employees of the
Business will move over to ADG's facilities at no charge to PriceSmart at a
date prior to the Delivery Date to be mutually agreed upon by ADG and
PriceSmart. Notwithstanding the foregoing, until the Delivery Date, the
Employees shall be under the supervision and control of PriceSmart, and
subject to the employment rules, policies and guidelines of PriceSmart,
regardless of where housed. ADG shall provide a working environment for the
Employees that complies with all applicable state and federal laws and
regulations, including without limitation, all Americans with Disabilities
Act (ADA) requirements, and shall provide an environment that is free from
sexual harassment and discrimination against any and all protected classes of
individuals.
6. EXPANSION OF THE BUSINESS AND SUPPORT OF ADG PROGRAMS. (a)
The parties acknowledge and agree that the operation of the Business in
accordance with the Costco Agreement shall be the first priority of the
Employees prior to the Delivery Date. Subject to the preceding sentence,
PriceSmart agrees to make the Employees available, upon the reasonable
request of ADG, to work with ADG and its employees to develop and implement
new programs and products relating to the Business and to assist in training
ADG's employees in the operation of the Business. Any costs, expenses or
liabilities (including the costs of any materials, supplies, overtime pay or
additional personnel) which are incurred as a result of the expansion and
support activities contemplated by this Section 6 (other than activities
related to the Price/Costco programs of the Business) and which are not
otherwise included in the Annual Budget or treated as operating expenses of
the Business under Section 3, shall be the sole responsibility of ADG, and
ADG agrees to promptly reimburse PriceSmart for any such costs, expenses or
liabilities.
(b) PriceSmart hereby grants to ADG an irrevocable, exclusive
(except as against PriceSmart for the sole purpose of operating the
Business), worldwide, royalty-free, right and license, to use the Assets,
including without limitation, the auto dealer database of the Business, in
connection with the development, promotion, advertising and establishment by
ADG of auto buying clubs or affinity
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August 18, 1998
Page 4
clubs to be operated under any trademark or service ▇▇▇▇ other than the
trademarks, service marks and brand names of Price/Costco, Inc. and its
affiliates or PriceSmart, Inc. and its affiliates. Upon execution of this
Agreement, PriceSmart shall deliver to ADG an electronic version of all of
the databases of the Business (it being understood that such databases do not
include information regarding individual automobile buyers under the programs
of the Business) and shall provide to ADG access to any underlying
documentation requested by ADG to exercise its rights under this license.
ADG acknowledges and agrees that the license granted under this Section 6(b)
does not include a right to sublicense or otherwise sell or transfer the
information in the databases of the Business prior to the Delivery Date.
7. ACKNOWLEDGMENTS. (a) ADG hereby acknowledges and agrees that
(i) the Assets do not include all of the equipment, materials or personnel
necessary to conduct the Business as a stand-alone entity, (ii) neither
PriceSmart nor its successors have any rights, express or implied, to operate
the Business in Price Club or Costco Wholesale membership warehouse clubs, to
link to PriceCostco's Internet web site or to use any trademarks or service
marks of Price/Costco, Inc. or its affiliates, at any time after October 31,
1999, (iii) PriceSmart makes no representation or warranty, express or
implied, regarding its rights to operate the Business in Price Club or Costco
Wholesale membership warehouse clubs or to link to PriceCostco's Internet web
site prior to the Delivery Date, (iv) PriceSmart makes no representation or
warranty, express or implied, that the actual operating results of the
Business prior to the Delivery Date will meet or exceed the projected results
set forth in the Annual Budget or that any level of Net Profits will actually
be earned by the Business, and (v) ADG shall have no rights to own or use any
trademarks, service marks, trade names, domain names, brand names or trade
dress of PriceSmart or its affiliates or Price/Costco, Inc. or its
affiliates, including without limitation, PriceSmart, PriceCostco, Price Club
and Costco Wholesale.
(b) PriceSmart hereby represents and warrants that: (i)
PriceSmart has remitted all payments owed to Price/Costco, Inc. in connection
with the Business prior to the date of this Agreement, (ii) as of the date
hereof, Price/Costco, Inc. has not notified PriceSmart of any breach of the
Costco Agreement, and (iii) as of the date hereof, Price/Costco, Inc. does
not have any right, title or interest, including any lien or encumbrance, on
any of the Assets.
8. NO OTHER ASSETS OR LIABILITIES. Except for the Assets
specifically listed on EXHIBIT A, ADG is not acquiring any other assets,
tangible or intangible, of PriceSmart or its affiliates. Except as provided
in Sections 5 and 6 above, ADG is not assuming any liabilities or obligations
of PriceSmart or its affiliates, whether liquidated or unliquidated, known or
unknown, including without limitation, any contracts with dealers or other
vendors relating to the Price/Costco program. Notwithstanding the foregoing,
ADG shall be responsible for all costs, expenses, liabilities and obligations
arising from or relating to the operations of the Business from and after the
Delivery Date. Each of the parties shall pay all of their respective costs
and expenses incurred in negotiating and preparing this Agreement and closing
the transactions contemplated hereby. Each party shall pay any sale,
transfer, income, use and other tax as payable by it, whether or not due at
the Delivery Date, as a result of the transfer of the Assets.
9. PUBLIC STATEMENTS AND PRESS RELEASES. Neither ADG nor any of
its affiliates shall make, issue or release any public announcement, press
release, statement or acknowledgment of the
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August 18, 1998
Page 5
existence of or the terms and conditions of this Agreement, without the prior
written consent of PriceSmart.
10. INDEPENDENT CONTRACTORS. In the performance of all of their
obligations pursuant to this Agreement, it is mutually understood and agreed
that each party, at all times, shall act and perform as an independent
contractor, and not as an agent, partner, joint venturer or otherwise. No
party shall have any authority to act for, enter into an agreement on behalf
of, or obligate in any other manner, any of the parties hereto, individually
or collectively.
11. MISCELLANEOUS. The provisions of this Agreement contain the
entire agreement between the parties and supersede all prior agreements,
written or oral, between the parties, including without limitation, the
deposit letter agreement between ADG and PriceSmart dated July 22, 1998. No
provision of this Agreement may be released, discharged, supplemented,
amended or waived in any manner except by an instrument in writing signed by
the parties. THE CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT WILL BE
GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS
OF LAW PRINCIPLES. No assignment of this Agreement or of any rights or
obligations of a party hereunder shall be valid without the prior written
consent of the other party. This Agreement shall be binding upon the parties
and their respective successors and permitted assigns. None of the
provisions of this Agreement shall be for the benefit of or enforceable by
any third party. The language in this Agreement shall in all cases be
construed as a whole and in accordance with its fair meaning. This Agreement
shall not be construed for or against either party as a result of the initial
preparation or drafting by a party of any provision hereof.
Please indicate your acceptance of the terms and provisions of this
Agreement by signing this Agreement in the space designated below.
Sincerely,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President and CEO
PriceSmart, Inc.
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August 18, 1998
Page 6
ACCEPTED AND AGREED: Dated August 18, 1998
AFFINITY DEVELOPMENT GROUP INCORPORATED
By: /s/ ▇▇▇▇ ▇▇▇▇▇
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President & CEO
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Title: President and Chief Executive Officer
