Consultations: Master Framework Agreement

MASTER FRAMEWORK AGREEMENT

September 22, 2015

BREWERS RETAIL INC.

AND

LABATT BREWING COMPANY LIMITED

AND

MOLSON CANADA 2005

AND

SLEEMAN BREWERIES LTD.

AND

HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO

TABLE OF CONTENTS

ARTICLE 1 DEFINITIONS AND PRINCIPLES OF INTERPRETATION
1.1 Definitions
1.2 Additional Definitions
1.3 Certain Rules of Interpretation
1.4 Accounting Principles
1.5 Agreement Binding
1.6 Recitals, Exhibit and Schedules

ARTICLE 2 IMPLEMENTATION OF THE KEY PRINCIPLES
2.1 Effective Date
2.2 Action to be Taken on or Prior to the Effective Date

ARTICLE 3 ISSUANCE OF SHARES TO QUALIFYING BREWERS
3.1 Securities Regulatory Relief
3.2 Subscription by Eligible Qualifying Brewers for First Equity Shares

ARTICLE 4 INFORMATION AND REGULATORY MATTERS
4.1 Information for the Public
4.2 Regulatory Matters
4.3 Information for the Province

ARTICLE 5 GOVERNANCE AND OPERATIONS OF THE CORPORATION
5.1 Independent Directors
5.2 Beer Ombudsman

ARTICLE 6 BENEFIT FOR ONTARIO CONSUMERS
6.1 Customer Experience
6.2 Other Channels
6.3 Sale of Beer in Ontario
6.4 LCBO
6.5 New Private Retail Outlets
6.6 LCBO Cost of Service Charges
6.7 Other LCBO Matters
6.8 Second On-Site Stores

ARTICLE 7 OTHER MATTERS
7.1 Licensees
7.2 Pooled Delivery
7.3 Consumer Prices

ARTICLE 8 GENERAL
8.1 Dispute Resolution
8.2 Enurement
8.3 Entire Agreement
8.4 Term
8.5 Termination
8.6 Remedies for Breach
8.7 Effect of Termination
8.8 Independent Legal Advice
8.9 Notices
8.10 Amendments and Waivers
8.11 Assignment
8.12 Execution and Delivery

Exhibit A – Articles of Amendment
Exhibit B – ODRP Agreement
Exhibit C – Provincial Rights Agreement
Exhibit D – Shareholders Agreement
Exhibit E – Termination Agreement

Schedule 1.1 – Existing Combination Store Locations
Schedule 6.4 – Pilot Program
Schedule 6.5 – New Private Retail Outlets
Schedule 8.1– Arbitration Procedures

MASTER FRAMEWORK AGREEMENT

THIS AGREEMENT is made as of September 22, 2015.

BETWEEN:

LABATT BREWING COMPANY LIMITED, a corporation
governed by the laws of Canada (“Labatt”),

- and -

MOLSON CANADA 2005, a partnership governed by the laws of
Ontario (“Molson”),

- and -

SLEEMAN BREWERIES LTD., a corporation governed by the
laws of Canada (“Sleeman”),

- and -

BREWERS RETAIL INC. o/a THE BEER STORE, a
corporation governed by the laws of Ontario (the “Corporation”)

- and -

HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO (the
Province”),

RECITALS:

  1. On June 1, 2000, the Corporation and the Liquor Control Board of Ontario (the “LCBO”), pursuant to the direction, authorization and agreement of the Province, entered into an agreement entitled “Serving Ontario Beer Consumers: A Framework for Improved Co-operation and Planning”, by which the LCBO regulates and controls various aspects of the sale of Beer in Ontario.
  2. In 2014, the Premier’s Advisory Council on Government Assets (the “Council”) was charged by the Premier of Ontario to review certain assets of the Province and recommend ways to maximize their value to the people of Ontario.
  3. Prior to the subscription by other Qualifying Brewers for shares in the Corporation as contemplated by this Agreement, Labatt, Molson and Sleeman (the “Original Owners”) owned all of the issued and outstanding shares in the capital of the Corporation.
  4. The Council made certain recommendations on April 16, 2015 to the Province to make changes to the regulation and control of Beer in Ontario, including to the retail and distribution system for Beer, following a negotiation with the Corporation and the Original Owners, at the direction and authorization of the Province, that resulted in the Council, the Corporation and the Original Owners entering into a non-binding statement of principles entitled “Modernizing the Distribution of Beer in Ontario: Framework of Key Principles” (the “Key Principles”), which was accepted by the Province. The Key Principles were set out in an attachment to the Council’s report entitled “Striking the Right Balance: Modernizing Beer Retailing and Distribution in Ontario”.
  5. The Key Principles are intended to enhance customer convenience, choice and shopping experience, while continuing to ensure that consumers in Ontario can purchase Beer at prices below the Canadian average, and to enhance the Beer retailing system for all Brewers selling Beer in Ontario.
  6. The Parties have entered into this Agreement to record their agreement as to the manner in which the Key Principles shall be implemented with the direction, authorization and agreement of the Province.

THEREFORE, the Parties agree as follows:

ARTICLE 1
DEFINITIONS AND PRINCIPLES OF INTERPRETATION

1.1 Definitions

Whenever used in this Agreement, the following terms shall have the meanings set out below:

2000 Framework Agreement” means the agreement dated June 1, 2000 entitled “Serving Ontario Beer Consumers: A Framework for Improved Co-operation and Planning” that was entered into between the LCBO and the Corporation at the direction, authorization and agreement of the Province of Ontario.

Act” means the Business Corporations Act (Ontario).

Affiliate” means, with respect to a party, any person, firm, corporation, partnership (including general partnerships, limited partnerships and limited liability partnerships), limited liability company, joint venture, business trust, association or other entity that directly or indirectly Controls, is Controlled by or is under common Control with such party.

Agreement” means this Master Framework Agreement, including the Recitals and all Exhibits and Schedules, and all amendments or restatements as permitted, and references to “Article” or “Section” mean the specified Article or Section of this Agreement.

AGRPPA” means the Alcohol and Gaming Regulation and Public Protection Act, 1996 (Ontario).

Articles of Amendment” means the articles of amendment of the Corporation to give effect to the Capital Reorganization, substantially in the form of Exhibit A.

Beer” has the meaning set out in the Liquor Licence Act (Ontario).

Beer Ombudsman” means the independent beer ombudsman appointed from time to time by the majority of Independent Directors then in office pursuant to section 6.6 of the Shareholders Agreement.

Board” means the board of directors of the Corporation constituted in accordance with the Shareholders Agreement.

Brewer” means a Person that manufactures Beer.

Business Day” means any day, other than a Saturday or Sunday, on which the principal commercial banks in Toronto, Ontario are open for commercial banking business during normal banking hours.

Capital Reorganization” means the reorganization of the share capital of the Corporation, whereby all of the shares in the capital of the Corporation, with the exception of the First Equity Shares, are to be converted into Second Equity Shares pursuant to an amendment of the articles of the Corporation.

Combination Store” means the retail stores operated by the LCBO that offer for sale Beer in all common package formats at the locations set out in Schedule 1.1 and at any additional locations established by the LCBO in accordance with the provisions set forth in Section 6.7.

Consumer Retail Price” refers to the prices at which Beer is sold to the retail consumers in Ontario.

Control” means:

(a) in relation to a corporation, the beneficial ownership at the relevant time of shares of such corporation carrying more than 50% of the voting rights ordinarily exercisable at meetings of shareholders of the corporation where such voting rights are sufficient to elect a majority of the directors of the corporation; and

(b) in relation to a Person that is a partnership, limited partnership, limited liability company or joint venture, the beneficial ownership at the relevant time of more than 50% of the ownership or voting interests of the partnership, limited partnership, limited liability company or joint venture in circumstances where it can reasonably be expected that the Person can direct the affairs of the partnership, limited liability company or joint venture;

and the words “Controlled by”, “Controlling” and similar words have corresponding meanings; the Person who Controls a Person shall be deemed to Control a corporation, partnership, limited liability company, joint venture or trust which is Controlled by such Person, and so on.

Director” means a member of the Board.

Eligible Qualifying Brewer” means a Qualifying Brewer that is (i) located or resident in the Province of Ontario and eligible to acquire First Equity Shares pursuant to the OSC Order, (ii) located or resident in a province or territory of Canada other than the Province of Ontario and eligible to acquire First Equity Shares pursuant to an exemption from prospectus requirements generally available under the applicable securities laws of that province or territory or (iii) neither located nor resident in Canada and that is eligible to acquire First Equity Shares pursuant to an exemption from the prospectus, registration or qualification requirements applicable under the securities laws of the jurisdiction outside of Canada in which the Qualifying Brewer is located or resident.

First Equity Shares” means the First Equity Shares in the capital of the Corporation, issuable in series.

Grocery Stores” will have the meaning set forth in applicable regulations.

Independent Director” has the meaning set out in the Shareholders Agreement.

Licensee” means a Person holding a liquor sales licence issued under the Liquor Licence Act (Ontario).

New Beer Agreements” means this Agreement, the Shareholders Agreement, the ODRP Agreement, the Provincial Rights Agreement and the Termination Agreement.

ODRP Agreement” means the Amended and Restated ODRP Agreement, substantially in the form of Exhibit B.

Original Owners” has the meaning set out in the Recitals.

OSC Order” means the decision of the Ontario Securities Commission rendered on ●, 2015 in response to an application filed by the Corporation pursuant to section 74(1) of the Securities Act (Ontario) confirming that the prospectus requirement contained in section 53(1) of the Securities Act (Ontario) will not apply to the issuance, from time to time, of First Equity Shares to Qualifying Brewers located or resident in the Province of Ontario.

Pack-up Pricing” means the sale of Beer at a price that is less than the price determined by the applicable Brewer and approved by the Regulator that results from a discount or rebate offered to consumers for the purchase of (a) multiple Six-Packs or more than six Single Containers or (b) in the case of the sale of Beer in Combination Stores, in Test Stores participating in the Pilot Program or in additional LCBO stores if paragraph (e)(i) of Schedule 6.4 applies, multiple Twelve-Packs or more than twelve Single Containers, or any combination of the foregoing.

Parties” means, collectively, the Original Owners, the Corporation and the Province, and “Party” means any one of them.

Person” means any individual, sole proprietorship, partnership, firm, entity, unincorporated association, unincorporated syndicate, unincorporated organization, trust, body corporate, limited liability company, unlimited liability company, government, government regulatory authority, governmental department, agency, commission, board, tribunal, dispute settlement panel or body, bureau, court and, where the context requires, any of the foregoing when they are acting as trustee, executor, administrator or other legal representative.

Production Year” means, in relation to a Sales Year, the 12-month period that ends on December 31 immediately before the beginning of the Sales Year.

Provincial Rights Agreement” means the agreement between the Corporation and the Province substantially in the form of Exhibit C.

Qualifying Brewer” means a Brewer that operates one or more facilities manufacturing Beer in Ontario, sells Beer Through the Corporation and satisfies the following criteria:

(a) it has a valid Ontario manufacturing licence issued by the Regulator;

(b) it has a valid Canadian manufacturing licence issued by the Canada Revenue Agency;

(c) it conducts the full brewing process up to the point of packaging, including mashing, lautering, boiling, hop separation and fermentation, in its Ontario Beer manufacturing facilities; and

(d) it either (A) does not produce Beer in any other jurisdiction or (B) its Ontario Beer manufacturing facilities have a minimum annual capacity of 10,000 hectolitres of Beer in the aggregate and a minimum annual production of 2,500 hectolitres of Beer in the aggregate.

Regulator” means the LCBO, the Alcohol and Gaming Commission of Ontario and any other Ontario governmental authority or agent of the Province having jurisdiction over the sale, storage, distribution or consumption of beverage alcohol, or their successors.

Sales Year” means a period of approximately 12 months:

(a) that begins on March 1 in a year or, if March 1 is a Saturday or Sunday, that begins on the following Monday; and

(b) that ends on the last day of February of the following year or, if the last day of February is a Friday or Saturday, that ends on the following Sunday.

Second Equity Shares” means the Second Equity Shares in the capital of the Corporation.

Shareholders Agreement” means the shareholders agreement relating to the Corporation, substantially in the form of Exhibit D.

Single Container” means a bottle or can of Beer that includes a mechanism to indicate if the bottle has been tampered with (i.e., the single bottle is “tamper evident”).

Six-Pack” means a SKU containing six or fewer Single Containers.

SKU” means a stock-keeping unit (that is, a unit or package format in which Beer is sold, such as a Single Container, a Six-Pack, a Twelve-Pack, etc.) of an individual brand of a specific Brewer.

Small Brewer” means, in respect of a Sales Year, a Brewer that meets each of the following qualifications in respect of the prior Production Year:

(a) it has worldwide production of Beer in the previous Production Year that was not more than 400,000 hectolitres or, if this is the first Production Year in which it manufactures Beer, worldwide production of Beer for the Production Year that is not expected to be more than 400,000 hectolitres;

(b) it is not a party to any agreement or other arrangement pursuant to which any Brewer that is not a Small Brewer manufactures Beer for it;

(c) is not a party to any agreement or other arrangement pursuant to which it manufactures Beer for any Brewer that is not a Small Brewer; and

(d) any Affiliate it has that manufactures Beer meets the qualifications set out in (a), (b)
and (c) above.

For purposes of this definition:

(e) the following will be included in determining the amount of a Small Brewer’s worldwide production of Beer for a particular Production Year:

(i) all Beer manufactured during the Production Year by the Small Brewer, including Beer that is manufactured under contract for another Brewer, whether or not that other Brewer is a Small Brewer;

(ii) all Beer manufactured during the Production Year by an Affiliate of the Small Brewer, including Beer manufactured by the Affiliate under contract for another Brewer, whether or not that other Brewer is a Small Brewer; and

(iii) all Beer manufactured during the Production Year by another Small Brewer under contract for the Small Brewer or for an Affiliate of the Small Brewer; and

(f) an agreement or arrangement referred to in clause (b) of this definition does not include an agreement or arrangement that provides only for the final bottling or other packaging by a Brewer that is not a Small Brewer, including any incidental processes such as final filtration and final carbonation or the addition of any substance to the Beer that, if added, must be added at the time of final filtration.

The Board may on or before the date of this Agreement designate Qualifying Brewers, other than the Original Owners, to be Small Brewers for purposes of this Agreement. Once a Brewer qualifies as, or is so designated as, a Small Brewer it shall remain a Small Brewer for so long as it remains a Qualifying Brewer and does not become an Affiliate of a Brewer that is not a Small Brewer. As of the date of this Agreement, the Board has designated each of Brick Brewing Co. Limited and Moosehead Breweries Limited to be a Small Brewer.

Standalone Outlet” will have the meaning set forth in applicable regulations.

Term” means the Initial Term and any Renewal Term.

Termination Agreement” means the agreement, substantially in the form of Exhibit E, between the Corporation and the LCBO pursuant to which the 2000 Framework Agreement is terminated as at the Effective Date.

Through the Corporation” means, when used in relation to sales of Beer, sales by a particular Brewer and its Affiliates (including domestic and imported Beer manufactured by, produced for or distributed by that Brewer and its Affiliates) through the Corporation to licensees and retail consumers, and in respect of sales through the Corporation to the LCBO (including northern agency stores and retail partners), one-half of the volume of such sales, but for clarity excluding sales of Beer to or through New Outlets.

Twelve-Pack” means SKUs containing twelve Single Containers.

1.2 Additional Definitions

(a) Unless there is something inconsistent in the subject matter or context, or unless otherwise provided in this Agreement, all other words and terms used in this Agreement that are defined in the Act shall have the meanings set out in the Act.

(b) Additional definitions used in this Agreement:

Definition: Where Defined:
Annual Volume Cap Schedule 6.5
Appeal Arbitration Tribunal Schedule 8.1
Arbitration Tribunal Schedule 8.1
Consultant Schedule 6.4
Corporation Page 1
Cost of Service Rebate Schedule 6.5
Council Recital B
Critical Breach 8.6(c)(iii)
Dispute 8.1(a)
Dispute Parties 8.1(b)
Effective Date 2.1
Final Annual Volume Cap Schedule 6.5
Final Award 8.6(b)
Initial Annual Volume Cap Schedule 6.5
Initial Term 8.4
Key Principles Recital D
Labatt Page 1
LCBO Recital A
LCBO Notice 6.7(a)
Molson Page 1
NAFTA 8.7(e)
New LCBO Outlet Notice 6.7(a)
New Outlets 6.5(b)
Notice 8.9
Pilot Program Schedule 6.4
Pooling-Eligible Brewer 7.2
Province Page 1
Renewal Term 8.4
Sleeman Page 1
TBS Average Service Fee Schedule 6.5
Test Stores Schedule 6.4
Twelve-Pack Study Schedule 6.4

1.3 Certain Rules of Interpretation

In this Agreement:

(a) Time - Time is of the essence in the performance of the Parties’ respective obligations.

(b) Currency - Unless otherwise specified, all references to money amounts are to the lawful currency of Canada.

(c) Headings - Headings of Articles and Sections are inserted for convenience of reference only and shall not affect the construction or interpretation of this Agreement.

(d) Consent - Whenever a provision of this Agreement requires an approval or consent and such approval or consent is not delivered within the applicable time period, then, unless otherwise specified, the Party whose consent or approval is required shall be conclusively deemed to have withheld its consent or approval.

(e) Time Periods - Unless otherwise specified, time periods within or following which any payment is to be made or act is to be done shall be calculated by excluding the day on which the period commences and including the day which the period ends and by extending the period to the next Business Day following if the last day of the period is not a Business Day.

(f) Business Day - Whenever any payment to be made or action to be taken under this Agreement is required to be made or taken on a day other than a Business Day, such payment shall be made or action taken on the next Business Day following.

(g) Governing Law - This Agreement is a contract made under and shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable in the Province of Ontario.

(h) Including - Where the word “including” or “includes” is used in this Agreement, it means “including (or includes) without limitation”.

(i) No Strict Construction - The language used in this Agreement is the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party.

(j) Number and Gender - Unless the context otherwise requires, words importing the singular include the plural and vice versa and words importing gender include all genders.

(k) Severability - If, in any jurisdiction, any provision of this Agreement or its application to any Party or circumstance is restricted, prohibited or unenforceable, such provision shall, as to such jurisdiction, be ineffective only to the extent of such restriction, prohibition or unenforceability without invalidating the remaining provisions of this Agreement and without affecting the validity or enforceability of such provision in any other jurisdiction or without affecting its application to other Parties or circumstances.

(l) Statutory References - A reference to a statute includes all regulations made pursuant to such statute and, unless otherwise specified, the provisions of any statute or regulation that amends, supplements or supersedes, or is the successor of, any such statute or any such regulation.

1.4 Accounting Principles

Wherever in this Agreement reference is made to generally accepted accounting principles, such reference shall be deemed to be to International Financial Reporting Standards as issued by the International Accounting Standards Board, applicable as at the date on which the relevant calculation or action is made or taken or required to be made or taken in accordance with such standards.

1.5 Agreement Binding

(a) Each of the Corporation and each of the Original Owners represents and warrants that this Agreement constitutes a valid and legally binding obligation of it that is enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency and other laws of general application limiting the enforceability of creditors’ rights and to the fact that equitable remedies are available only in the discretion of the court.

(b) Subjection to Section (c), the Province represents and warrants that it has all necessary capacity, power and authority to enter into and to carry out the provisions of this Agreement and this Agreement has been duly authorized, executed and delivered by the Province and constitutes a legal, valid and binding obligation enforceable against the Province in accordance with the terms of this Agreement, subject to the qualifications on remedies against the Crown set out in the Proceedings Against the Crown Act (Ontario) and the courts’ general discretion with respect to equitable remedies.

(c) The Minister of Finance of Ontario or another Minister of the Crown will propose to the Cabinet and/or the Legislative Assembly of the Province any laws or other approvals deemed necessary or desirable to implement, monitor and enforce the provisions of this Agreement. Any statutory amendments so proposed shall be subject to approval by the Legislative Assembly of the Province. Nothing in this Agreement shall derogate from current or future legislative or regulatory authority under the Liquor Control Act (Ontario), Liquor Licence Act (Ontario), AGRPPA or any other statute or regulation of the Province, subject to the right of the Corporation and of the Original Owners to the remedies set out in Section 8.6 if legislative or regulatory changes result in a failure of the Province to meet its obligations under this Agreement.

(d) The obligations of the Corporation and of the Original Owners pursuant to this Agreement are premised upon, and shall be conditional upon, the Cabinet and/or the Legislative Assembly of the Province adopting or granting any laws or other approvals required for the implementation of the matters contemplated by this Agreement in all material respects.

1.6 Recitals, Exhibit and Schedules

The Recitals to this Agreement, and the Exhibit and Schedules to this Agreement, as listed below, are an integral part of this Agreement:

Exhibit A - Articles of Amendment
Exhibit B - ODRP Agreement
Exhibit C - Provincial Rights Agreement
Exhibit D - Shareholders Agreement
Exhibit E - Termination Agreement

Schedule 1.1 - Existing Combination Store Locations
Schedule 6.4 - Pilot Program
Schedule 6.5 - New Private Retail Outlets
Schedule 8.1 - Arbitration Procedures

ARTICLE 2
IMPLEMENTATION OF THE KEY PRINCIPLES

2.1 Effective Date

The “Effective Date” of the New Beer Agreements shall be the date designated by Notice from the Province to the other Parties, provided that such Notice is delivered by the Province to the other Parties at least five Business Days prior to such date and provided further that the Effective Date shall not be prior to October 15, 2015.

2.2 Action to be Taken on or Prior to the Effective Date

(a) Effective as of the Effective Date, the Parties shall enter into or cause to be entered into each of the following New Beer Agreements:

(i) the Shareholders Agreement;

(ii) the Termination Agreement;

(iii) the ODRP Agreement; and

(iv) the Provincial Rights Agreement.

(b) Effective on or prior to the Effective Date, the Original Owners and the Corporation shall cause the Articles of Amendment to be duly authorized and filed and to become effective.

ARTICLE 3
ISSUANCE OF SHARES TO QUALIFYING BREWERS

3.1 Securities Regulatory Relief

(a) The Corporation shall use reasonable commercial efforts to obtain, prior to the Effective Date, an appropriate exemption order from the Ontario Securities Commission that will permit the distribution of First Equity Shares to all Eligible Qualifying Brewers (as well as all communications with such Eligible Qualifying Brewers in furtherance of such distribution) on a basis that will not require compliance with the prospectus and registration requirements of Ontario securities laws.

(b) The Corporation shall keep the Province informed as to the progress of its efforts pursuant to Section 3.1(a) and shall provide the Province and its advisors with opportunities to comment and provide input throughout such process. The Province will cooperate with the Corporation in its dealing with the Ontario Securities Commission in obtaining such exemption order.

3.2 Subscription by Eligible Qualifying Brewers for First Equity Shares

(a) The Corporation shall provide Eligible Qualifying Brewers during the period prior to the Effective Date with the opportunity to subscribe for 100 First Equity Shares each, effective as of the Effective Date, and shall provide such Eligible Qualifying Brewers with all reasonable information in a timely way to enable each Eligible Qualifying Brewer to evaluate the opportunity to so subscribe for First Equity Shares and to complete such subscription prior to the Effective Date.

(b) The Corporation shall keep the Province informed as to the progress of the subscriptions contemplated by Section 3.2(a) and shall provide the Province and its advisors with opportunities to comment (including on the materials to be provided to Qualifying Brewers as contemplated by Section 3.2(a)) and provide input throughout such process.

(c) After the Effective Date, the Corporation shall provide Qualifying Brewers from time to time with the opportunity to subscribe for 100 First Equity Shares each.

ARTICLE 4
INFORMATION AND REGULATORY MATTERS

4.1 Information for the Public

The Corporation shall make the following information available to the public on its website in a timely manner:

(a) the audited annual financial statements of the Corporation for and as at the end of each financial year, prepared in accordance with generally accepted accounting principles, consistently applied, and accompanied by an audit report of the auditor of the Corporation;

(b) the Corporation's annual operations report, prepared on a basis that provides no less information than has been consistent with recent past practice, which shall include details of the amount and use of capital expenditures incurred in the year to which such report relates;

(c) any policies adopted by the Board that give effect to any of the provisions of the Key Principles; and

(d) the composition and mandates of the Board and the committees of the Board, as they exist from time to time.

4.2 Regulatory Matters

(a) The Corporation shall continue to follow compliance protocols to ensure the manner in which it operates is in compliance with applicable laws.

(b) The Regulator is and will be empowered to require additional disclosure from the Corporation, and to monitor, investigate, audit and enforce applicable legislation and regulations and the Regulator’s policies in place from time to time, including compliance with social responsibility requirements, in order to ensure compliance with the New Beer Agreements.

4.3 Information for the Province

At the request of the Province at any time and from time to time, the Corporation shall provide to the Province (which in no event may include the LCBO) any information that has been made available to Directors. Unless such information is subject to privilege, the Corporation shall provide such information to the Province within 15 Business Day of such request. The Corporation shall retain the right to prevent the disclosure of any information that is subject to the Freedom of Information and Protection of Privacy Act (Ontario) pursuant to the protections afforded by that Act.

ARTICLE 5
GOVERNANCE AND OPERATIONS OF THE CORPORATION

5.1 Independent Directors

No amendments shall be made to the Shareholders Agreement that would:

(a) change the qualifications that Independent Directors are required to meet;

(b) change the manner in which Independent Directors are nominated, elected, removed or replaced;

(c) alter or affect the roles, responsibilities, rights or obligations of the Independent Directors; or

(d) otherwise modify the provisions of the Shareholders Agreement to the extent that they relate to the Independent Directors;

without the approval in writing of the Province.

5.2 Beer Ombudsman

There shall be an independent Beer Ombudsman, who shall be appointed from time to time by the majority of the Independent Directors then in office. The Beer Ombudsman shall hear complaints from Brewers and customers regarding operational matters. The reasonable compensation and expenses of the Beer Ombudsman shall be paid by the Corporation.

ARTICLE 6
BENEFIT FOR ONTARIO CONSUMERS

6.1 Customer Experience

(a) The Corporation shall improve the customer experience across its retail network, including by converting stores to more modern retailing formats such as self-serve, open concept formats, and shall ensure that all newly built stores shall have self-serve, open concept formats.

(b) The Corporation shall spend at least $100,000,000 from 2015 through 2018 on capital expenditures (not less than $80,000,000 of which shall be in respect of retail stores), which may be funded through the sale of existing assets of the Corporation.

6.2 Other Channels

The Corporation shall not impose any restrictions on the retail, distribution or marketing channels that Brewers may use and shall not penalize Brewers who use such channels outside the Corporation. For clarity, this would not apply to policies that the Corporation may adopt from time to time with respect to the use of its keg pool and similar owned assets.

6.3 Sale of Beer in Ontario

The Province shall ensure that, during the Term, Beer is not authorized for sale or distribution within the Province of Ontario except by or through the Corporation, the other stores referred to in clauses (i) through (v) of paragraph (b) of Schedule 6.5 and New Outlets, as contemplated by the New Beer Agreements.

6.4 LCBO

(a) The Province shall direct the LCBO not to, at any time during the Term: (A) sell Beer in its stores, other than in Combination Stores, in formats larger than Six-Packs (with the exception of the one 8-unit SKU currently carried by LCBO stores that are not Combination Stores) or (B) provide Pack-up Pricing in LCBO stores that are not Combination Stores, subject to the Pilot Program outlined in Schedule 6.4. However, the LCBO shall not be prohibited from providing customers with the means to carry more than six Single Containers together.

(b) Notwithstanding Section 6.4(a), if paragraph (e)(i) of Schedule 6.4 applies, then the Province shall direct the LCBO not at any time during the Term to carry Twelve-Packs in more than 60 retail stores (excluding Combination Stores) and, with respect to such 60 retail stores, to prioritize stores that are at least two kilometers from the Corporation’s stores.

6.5 New Private Retail Outlets

(a) Subject to Section 6.5(b), the Province may authorize new private retail outlets (in addition to the second onsite stores referred to in Section 6.8) to sell beverage alcohol to retail consumers. For greater clarity, these new private retail outlets will not be authorized to sell beverage alcohol to a Licensee.

(b) These new retail channels shall be limited to 450 new retail outlets operating in Grocery Stores or as Standalone Outlets (“New Outlets”). No more than 150 New Outlets shall be in operation before May 1, 2017. The New Outlets shall be subject to the provisions set out in Schedule 6.5.

6.6 LCBO Cost of Service Charges

The Province shall direct the LCBO that, during the Term, (i) LCBO in-store and out-of-store cost of service charges on Beer shall be at current 2015 rates, indexed to inflation in subsequent years, (ii) the LCBO mark-up shall be equal to the taxes for domestic Beer under AGRPPA and (iii) all LCBO cost of service charges shall be the same for all Brewers for the same service.

6.7 Other LCBO Matters

With effect from and after the Effective Date, the Province shall direct the LCBO to follow the procedures set out below during the Term:

(a) If the LCBO wishes to open a new LCBO owned and operated retail outlet selling Beer in a community where the Corporation does not operate its own retail outlet (including a community in which the LCBO has an agency store that the LCBO is considering replacing with its own retail outlet), then the LCBO will provide the Corporation with prior notice in writing (an “LCBO Notice”) of such intention. The Corporation will have 90 days from the date of any LCBO Notice to advise the LCBO by notice in writing (a “New LCBO Outlet Notice”) that it intends to open a retail outlet of the Corporation in the same community. If the Corporation does not provide a New LCBO Outlet Notice in response to an LCBO Notice, or it provides such a New LCBO Outlet Notice but fails to begin construction of the Corporation’s retail outlet within 1 year of the date on which such New LCBO Outlet Notice was provided to the LCBO or such construction is not completed diligently and the new retail outlet of the Corporation opened within a reasonable period, the LCBO may construct or acquire and operate the retail outlet that was the subject of such LCBO Notice and such new LCBO retail outlet may sell the full range of Beer pack formats at the full range of price points (i.e., it will be and remain a Combination Store) whether or not the Corporation subsequently opens a retail outlet in the same community. If the Corporation provides a New LCBO Outlet Notice in response to an LCBO Notice, begins construction of the Corporation’s retail outlet within 1 year of the date on which such New LCBO Outlet Notice was provided to the LCBO and such construction is completed diligently and the new retail outlet of the Corporation opened within a reasonable period, any LCBO store established in that community shall be subject to Section 6.4(a).

(b) Any existing LCBO Combination Stores (i.e., the 167 Combination Stores in operation as of April 1, 2015) may continue to sell the full range of Beer pack formats at the full range of price points (i.e., remain a Combination Store) whether or not the Corporation subsequently opens a retail outlet in the same community.

(c) The LCBO will not sell to Licensees any Beer product listed for sale through the Corporation, including products that are sold through both the Corporation and the LCBO.

(d) The Province acknowledges and agrees that the following will continue to apply with respect to agency relationships (provided that this will not limit any new agency relationships entered into in connection with the New Outlets contemplated in Section 6.5):

(i) The Corporation will retain the right to enter into commercial contracts with agents in southern Ontario regarding the sale of domestic Beer listed for sale through the Corporation, including the setting of commissions on Beer sales and handling fees for the return of empty containers (including in relation to the ODRP Agreement).

(ii) The financial arrangements applicable to agents in northern Ontario will remain unchanged (i.e., the LCBO will continue to apply its cost of service charge to such agents and fund the discount paid to such agents) and the Corporation will continue to act as the delivery agent for such agents, with the cost of freight shared with the LCBO.

(iii) The geographic boundary between northern Ontario and southern Ontario specified in the 2000 Framework Agreement will continue to apply.

6.8 Second On-Site Stores

The Regulator will eliminate the production threshold for Brewers to open a second on-site retail store, provided, however, that the second on-site retail store shall be required to operate in accordance with the Regulator’s policies in place from time to time (e.g., at least 50% of sales at an on-site retail store must be produced on site). The Province will not permit Brewers to crosssell other Brewers’ products in on-site stores.

ARTICLE 7
OTHER MATTERS

7.1 Licensees

The Corporation shall implement effective November 1, 2015, or as soon after that as is feasible from a systems and operations perspective (but no later than January 31, 2016) policies and practices that are authorized by the Regulator to permit small Licensees that purchase no more than 2,046 litres of Beer per year through the Corporation to purchase up to that quantity of Beer at the Corporation’s retail stores or other outlets of the Corporation at Consumer Retail Prices. The Parties acknowledge that, pursuant to the Liquor Control Act (Ontario), the Corporation is currently and has been authorized to charge other Licensees a price that is different from the Consumer Retail Price.

7.2 Pooled Delivery

Any Brewer with a licensed production facility in Ontario and with annual worldwide production by it and its Affiliates of less than 150,000 hectolitres of Beer (“Pooling-Eligible Brewer”) shall be permitted to arrange for pooled delivery with other such Pooling-Eligible Brewers of their products from their Ontario production facilities to Licensees and the LCBO, and shall be permitted to use third party carriers and warehousing. Each Brewer that is a Pooling-Eligible Brewer as of the Effective Date shall remain a Pooling-Eligible Brewer during the Term for so long as it does not become an Affiliate of a Brewer that is not a Pooling-Eligible Brewer. The Corporation shall not interfere with Brewers who wish to avail themselves of such pooled delivery (whether or not including third party carriers and warehousing) and shall not take any action or do anything that would reasonably be considered to unfairly limit or increase the cost of such activities.

7.3 Consumer Prices

It is the expectation of the Province that Consumer Retail Prices charged for the most popular Beer products will not increase before May 1, 2017, as a result of the changes being introduced by the Key Principles and the New Beer Agreements, though they may be subject to ordinary course price changes tied to increases in the minimum retail prices established under Ontario law. These expectations have been communicated to the principal Brewers in the industry separately, and each has separately confirmed to the Province that it is its intention to comply with these expectations, other than in circumstances where the industry context has changed significantly. The Council has recommended to the Province that, as part of the Province’s authorization of the Key Principles and the New Beer Agreements, it affirm the authority of the Province to enforce its expectations in this respect, should that become necessary.

ARTICLE 8
GENERAL

8.1 Dispute Resolution

(a) Any controversy or dispute arising out of or relating to this Agreement, including its validity, existence, breach, termination, construction or application, or the rights, duties or obligations of any Party or any other legal relationship associated with or arising from this Agreement (a “Dispute”) shall be resolved in the manner set forth in this Section 8.1.

(b) A Party claiming that a Dispute has arisen shall provide Notice of such Dispute to the other party or parties to the Dispute (collectively, the “Dispute Parties”). The Notice shall include a concise description of the Dispute and the position of the party providing the Notice. The Dispute Parties shall discuss and negotiate the potential resolution of the Dispute in good faith with the intent of reaching an equitable solution for each such Dispute Party, acting reasonably, within 30 days of such Notice.

(c) All rights and obligations of the Parties under this Agreement shall continue during any Dispute resolution proceedings pursuant to this Section 8.1.

(d) Any Dispute not resolved in its entirety pursuant to the process set forth in Section 8.1(b) within the 30-day period specified in that Section shall be referred to and determined by arbitration before a single arbitrator in accordance with the Arbitration Act, 1991 (Ontario) (or the International Commercial Arbitration Act (Ontario), as applicable) and the procedures set out in Schedule 8.1 to this Agreement.

(e) A Dispute Party may apply to the Ontario Superior Court of Justice for interim measures of protection at any time prior to the appointment of an Arbitration Tribunal pursuant to Section 8.1(d) and Schedule 8.1 to this Agreement.

8.2 Enurement

This Agreement shall enure to the benefit of and be binding upon the Parties and their respective successors (including any successor by reason of amalgamation of any Party).

8.3 Entire Agreement

This Agreement together with the other New Beer Agreements constitutes the entire agreement between the Parties pertaining to the subject matter of this Agreement and sets out all the covenants, promises, warranties, representations, conditions, understandings and agreements between the Parties pertaining to that subject matter and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, pertaining to that subject matter. There are no covenants, promises, warranties, representations, conditions, understandings or other agreements, oral or written, express, implied or collateral between the Parties in connection with the subject matter of this Agreement except as specifically set forth in this Agreement and the other New Beer Agreements.

8.4 Term

The New Beer Agreements shall be in effect for an initial period of 10 years (the “Initial Term”), subject to renewal for successive five year renewal terms (each, a “Renewal Term”) unless terminated in accordance with Section 8.5(a) or unless terminated earlier in accordance with Section 8.5(b).

8.5 Termination

(a) Either of the Corporation or the Province may terminate each of the New Beer Agreements at the end of the Initial Term or any Renewal Term by giving a Notice to that effect to the other at least two years prior to the end of such Initial Term or Renewal Term.

(b) This Agreement shall also terminate prior to the end of the Term upon:

(i) the written agreement of the Corporation and the Province;

(ii) the dissolution or bankruptcy of the Corporation or the making by the Corporation of an assignment under the provisions of the Bankruptcy and Insolvency Act (Canada); or

(iii) Notice of termination for material breach pursuant to Section 8.6(c)(i) or 8.6(d);

except that the provisions of Sections 8.1, 8.6 and 8.7 shall continue in the event of a termination.

8.6 Remedies for Breach

(a) Any allegation of material breach of this Agreement (or with respect to Section 8.6(d), the Shareholders Agreement) shall be resolved pursuant to Sections 8.1 and 8.6, including the requirement in Section 8.1(b) of a Notice of Dispute. In determining whether such a material breach has occurred, an Arbitration Tribunal appointed pursuant to Section 8.1(d) and Schedule 8.1 shall treat all obligations in this Agreement, including post-termination obligations in Section 8.7, as binding and enforceable against the Province despite its status as the Crown, even where the alleged breach results from a change in legislation or public policy.

(b) If an Arbitration Tribunal appointed pursuant to Section 8.1(d) and Schedule 8.1 has issued a final award (having been affirmed on appeal, or the appeal period having expired, a “Final Award”) declaring that a material breach of this Agreement (or with respect to Section 8.6(d), the Shareholders Agreement) has occurred, the Party found to have been in breach shall have 90 days within which to cure the breach, if it is capable of being cured (or, if the Party found to have been in breach is the Province, and to cure such breach would require that legislation be adopted, such longer period of time as is reasonably required to account for any relevant period during which the Legislature of Ontario is not in session). In awarding such a declaration, the Arbitration Tribunal shall determine whether the material breach is also a Critical Breach as defined in Section 8.6(c)(iii).

(c) If a material breach of this Agreement is incapable of being cured, or the breaching party has failed to cure it within the period specified in Section 8.6(b), the Party or Parties that obtained the declaration of material breach shall elect one of the following three remedies:

(i) termination of this Agreement and of the other New Beer Agreements (except for the Termination Agreement), on Notice, subject to a transitional period of 90 days or such longer period as may be agreed by the Parties;

(ii) payment by the breaching Party or Parties of a monetary award in an amount to be assessed on a several (not joint or joint and several) basis by the same Arbitration Tribunal that granted the declaration in Section 8.6(b). Such an award shall be calculated on the basis of the normal principles of damages for breach of contract, even if the Arbitration Tribunal finds that damages would not be available in law due to the status of the Province as the Crown. The Arbitration Tribunal shall also award costs of the arbitration and interest as set out in Schedule 8.1;

(iii) if a breach by the Province or the LCBO was found by the Arbitration Tribunal to also be a Critical Breach, and such Critical Breach occurred on or before June 30, 2018, the Corporation may terminate its obligations to continue to make further capital expenditures under Section 6.1(b). A “Critical Breach” is a material breach of any of the provisions of this Agreement relating to the following:

(A) sale of Beer to Licensees by the LCBO contrary to Section 6.7(c) with knowledge by the LCBO of such breach, or authorization of New Outlets to sell beverage alcohol to a Licensee contrary to Section 6.5(a);

(B) authorization of New Outlets in excess of the maximums set out in Section 6.5;

(C) a breach by the Province of paragraph (h) of Schedule 6.5;

(D) sale of Beer by the LCBO (other than in Combination Stores), or authorizing New Outlets to sell Beer, in formats larger than Six- Packs or with Pack-up Pricing contrary to Section 6.4 or paragraph (f) of Schedule 6.5; or

(E) a breach by the Province of paragraphs (k) or (q) of Schedule 6.5.

For clarity, the list of material breaches that would constitute a Critical Breach is not intended to be an exhaustive list of what could constitute a material breach of this Agreement; or

(iv) if a breach by the Province or the LCBO was found by the Arbitration Tribunal to also be a Critical Breach, and such Critical Breach occurred after June 30, 2018, the Corporation may terminate the ODRP Agreement effective as of a specified date that is at least two years after the date on which the Corporation provides Notice to the Province of such termination (for clarity, such Notice may not be provided prior to the Final Award declaring that such Critical Breach has occurred and the expiry of the period to cure such Critical Breach as contemplated by Section 8.6(b)).

For clarity, if the breach is not a Critical Breach, the election is between one of (i) or (ii) above; and if it is a Critical Breach, the election is between one of (i), (ii), (iii) or (iv) (depending upon when the Critical Breach was found to have occurred).

(d) If a material breach by the Corporation of the Shareholders Agreement or by one or more of the Original Owners of the representation set out in section 3.4 of the Shareholders Agreement or to vote their shares to elect or remove Directors as required by section 4.1(b) or 4.4 of the Shareholders Agreement, is incapable of being cured, or the breaching party has failed to cure it within the period specified in Section 8.6(b), and no party to the Shareholders Agreement has already obtained a Final Award from an Arbitration Tribunal under that Agreement in respect of the same breach or such Final Award has not yet been satisfied by the Corporation or the Original Owners, as the case may be, the Province may elect to terminate this Agreement and the other New Beer Agreements (except for the Termination Agreement) on Notice, subject to a transitional period of 180 days or such longer period as may be agreed by the Parties.

8.7 Effect of Termination

Following termination:

(a) in accordance with applicable law, the Original Owners shall be allowed to distribute or arrange to have distributed their products in Ontario on a basis similar to that of other Brewers;

(b) the Corporation shall, subject to applicable law:

(i) be authorized to continue to distribute and sell Beer at the locations at which it then operates for a period of at least seven years from the date of such termination, subject to compliance with any requirements established by the Regulator from time to time that are applicable as well to other distributors and retailers of Beer (for clarity, following such termination there shall be no restrictions on the nature or number of other outlets or distribution channels that may be authorized by the Province to distribute or sell Beer in Ontario); and

(ii) provide transitional distribution services over a reasonable period of time sufficient to enable Brewers to obtain alternative distribution services, at rates determined on a cost recovery basis;

(c) the Termination Agreement will remain in effect;

(d) the Corporation and the Original Owners waive any right to bring any claim or to seek or obtain any compensation or other remedy of any kind, including for breach of contract, for restitution, under tort or trust law or in respect of expropriation under domestic law, against the Province or the LCBO: (i) in connection with such termination; (ii) based upon rights that the Corporation and the Original Owners have or had under the New Beer Agreements or the 2000 Framework Agreement; or (iii) based upon preferential sales or distribution rights that the Corporation and the Original Owners have or had under or in connection with other agreements or accommodations with the LCBO or the Province (including any such agreements or accommodations that predate the 2000 Framework Agreement); and

(e) the Corporation and the Original Owners waive any right to bring any claim or to seek or obtain any compensation or other remedy of any kind under international law or under any international trade agreements to which Canada is a Party, including the North American Free Trade Agreement (“NAFTA”), against the Province, the LCBO or Canada: (i) in connection with such termination; (ii) based upon rights that the Corporation and the Original Owners have or had under the New Beer Agreements or the 2000 Framework Agreement; or (iii) based upon preferential sales or distribution rights that the Corporation and the Original Owners have or had under or in connection with other agreements or accommodations with the LCBO or the Province (including any such agreements or accommodations that predate the 2000 Framework Agreement). With respect to the rights waived in this Section 8.7(e), the Corporation and the Original Owners will not provide their consent to arbitrate pursuant to Article 1121 of NAFTA, nor provide their consent to arbitrate under any similar provision in other applicable trade agreements.

For clarity, neither clause (d) nor (e) of this Section 8.7 is intended to limit:

(f) any rights or claims of the Corporation or the Original Owners in respect of any new actions or measures taken by the Province or the LCBO after the termination of this Agreement provided that the subject-matter of the claim advanced or remedy sought is not based upon rights that the Corporation and the Original Owners have or had under the New Beer Agreements or the 2000 Framework Agreement or preferential sales or distribution rights that the Corporation and the Original Owners have or had under or in connection with other agreements or accommodations with the LCBO or the Province (including any such agreements or accommodations that predate the 2000 Framework Agreement). For further clarity, the Corporation and the Original Owners do not waive in relation to any such new actions or measures:

(i) any rights or claims for direct expropriation of real property;

(ii) any rights or claims if the Corporation were precluded from or subject to discrimination with respect to the sale or distribution of beer in Ontario;

(iii) any rights or claims of the Original Owners with respect to nondiscriminatory treatment for all brewers in connection with the sale and distribution of beer in Ontario consistent with domestic and international trade law norms; or

(g) any rights or claims of the Parties to contribution or indemnity or a claim over against each other (including by the Corporation or an Original Owner against agents of the Province, such as the LCBO), if a third party has brought a claim against one or more of the Parties.

8.8 Independent Legal Advice

The Parties acknowledge that they have entered into this Agreement willingly with full knowledge of the obligations imposed by the terms of this Agreement. The Parties acknowledge that they have been afforded the opportunity to obtain independent legal advice and confirm by the execution of this Agreement that they have either done so or waived their right to do so, and agree that this Agreement constitutes a binding legal obligation and that they are estopped from raising any claim on the basis that they have not obtained such advice.

8.9 Notices

Any notice, consent or approval required or permitted to be given in connection with this Agreement (a “Notice”) shall be in writing and shall be sufficiently given if delivered (whether in person, by courier service or other personal method of delivery), or if transmitted by facsimile or e-mail:

(a) in the case of a Notice to the Corporation at:

Brewers Retail Inc.
5900 Explorer Drive
Mississauga, Ontario, L4W 5L2

Attention: President
Fax: (905) 361-4240

(b) in the case of a Notice to Labatt at:

Labatt Brewing Company Limited
207 Queen’s Quay West
Suite 299, P.O. Box 133
Toronto, Ontario
M5J 1A7

Attention: General Counsel
Fax: (416) 681-4087

(c) in the case of a Notice to Molson at:

Molson Canada 2005
33 Carlingview Drive
Etobicoke, Ontario
M9W 5E4

Attention: Vice President, General Counsel
Fax: (416) 679-0630

(d) in the case of a Notice to Sleeman at:

Sleeman Breweries Ltd.
551 Clair Road
Guelph, Ontario
N1L 1E9

Attention: President and Chief Executive Officer

Fax: (519) 822-3164

(e) in the case of a Notice to the Province at:

Ministry of Finance
Frost Building South
7 Queen’s Park Crescent, 7th floor
Toronto, Ontario
M7A 1Y7

Attention: Deputy Minister of Finance
Fax: 416-325-1595

Copy to: Director, Ministry of Finance Legal Services Branch
Address: College Park 777 Bay Street, 11th floor, Toronto, Ontario M5G 2C8
Fax: 416-325-1460

Any Notice delivered or transmitted to a Party as provided above shall be deemed to have been given and received on the day it is delivered or transmitted, provided that it is delivered or transmitted on a Business Day prior to 5:00 p.m. local time in the place of delivery or receipt. However, if the Notice is delivered or transmitted after 5:00 p.m. local time or if such day is not a Business Day then the Notice shall be deemed to have been given and received on the next Business Day.

Any Party may, from time to time, change its address by giving Notice to the other Parties in accordance with the provisions of this Section.

8.10 Amendments and Waivers

No amendment to this Agreement shall be valid or binding unless approved in accordance with this Agreement, set forth in writing and duly executed by each of the Parties. No waiver of any breach of any provision of this Agreement shall be effective or binding unless made in writing and signed by the Party purporting to give such waiver and, unless otherwise provided in the written waiver, shall be limited to the specific breach waived.

8.11 Assignment

Except as may be expressly provided in this Agreement, none of the Parties to this Agreement may assign its rights or obligations under this Agreement without the prior written consent of all of the other Parties.

8.12 Execution and Delivery

This Agreement may be executed by the Parties in counterparts and may be executed and delivered by facsimile and all such counterparts and facsimiles shall together constitute one and the same agreement.

[Signature pages follow]

IN WITNESS OF WHICH the Parties have duly executed this Agreement.

LABATT BREWING COMPANY LIMITED

By:
Name:
Title:

By:
Name:
Title:

MOLSON CANADA 2005

By:
Name:
Title:

By:
Name:
Title:

SLEEMAN BREWERIES LTD.

By:
Name:
Title:

By:
Name:
Title:

BREWERS RETAIL INC.

By:
Name:
Title:

By:
Name:
Title:

HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO as represented by the Minister of Finance

By:
Name:
Title: