Consultations: Master Framework Agreement

EXHIBIT C
PROVINCIAL RIGHTS AGREEMENT

PROVINCIAL RIGHTS AGREEMENT

BREWERS RETAIL INC.

and

HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO

, 2015

PROVINCIAL RIGHTS AGREEMENT

THIS AGREEMENT is made as of , 2015.

BETWEEN:

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 (the “2000 Framework Agreement”).
  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, including the beer and liquor distribution system in Ontario, and recommend ways to maximize their value to the people of Ontario.
  3. 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 its shareholders that resulted in the Council, the Corporation and its shareholders 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”.
  4. 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 establish a level playing field for all producers selling Beer in Ontario.
  5. Labatt Brewing Company Limited, Molson Canada 2005 and Sleeman Breweries Ltd. (the “Original Owners”), the Corporation and the Province entered into a master framework agreement dated as of , 2015 (the “Master Framework Agreement”) to record their agreement as to the manner in which the Key Principles shall be implemented.
  6. In order to implement certain aspects of the Key Principles, and as contemplated by the Master Framework Agreement, the Corporation and the Original Owners have entered into a shareholders agreement (the “Shareholders Agreement”) dated as of the date of this Agreement, to which Qualifying Brewers who subscribe for shares in the Corporation will become a party, to record their agreement as to the manner in which the Corporation’s business and affairs shall be conducted and to grant to each other certain rights and obligations with respect to the ownership of the securities of the Corporation and other aspects of the governance and management of the Corporation.
  7. As contemplated by the Master Framework Agreement and the Shareholders Agreement, the Parties have entered into this Agreement to provide for certain rights of the Province with respect to the governance of the business and affairs of the Corporation.

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:

“Agreement” means this Provincial Rights Agreement, including the Recitals and the 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).

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

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

“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.

“Director” means a member of the Board.

“Liquor Control Act” means the Liquor Control Act (Ontario).

“New Beer Agreements” has the meaning set out in the Master Framework Agreement.

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

“Parties” means, collectively, the Corporation and the Province, and “Party” means either 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.

“Term” means the term (including any renewal term) of the Master Framework Agreement.

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 capitalized words and terms used in this Agreement that are defined in the Shareholders Agreement shall have the meanings assigned to them for purposes of the Shareholders Agreement.

(b) Additional definitions used in this Agreement:

Definition: Where Defined:
2000 Framework Agreement Recitals
Corporation Page 1
Council Recitals
Dispute Section 3.1
Key Principles Recitals
Master Framework Agreement Recitals
Notice Section 3.6
Original Owners Recitals
Province Page 1
Selection Process Section 2.2
Shareholders Agreement Recitals

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

(c) 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.

(d) 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.

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

(f) 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.

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

(h) 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.

(i) 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.

(j) 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.

(k) 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 Recitals and Schedule

The Recitals to this Agreement and the Schedule to this Agreement, as set out below, are an integral part of this Agreement:

Schedule 2.2 - Selection Process

ARTICLE 2
INDEPENDENT DIRECTORS

2.1 Removal of Independent Directors

As contemplated by section 4.2(a)(i) of the Shareholders Agreement, the Province may, by Notice given to the Corporation at any time, specify that all (but not less than all) of the Independent Directors be removed and the effective date of such removal. Upon receipt of such a Notice, the Corporation shall promptly provide Notice of such specification and removal to each Independent Director and each other Director, as contemplated by section 4.2(b) of the Shareholders Agreement, and shall cause all of the Independent Directors to be removed from office effective as of the date specified in the Notice provided by the Province pursuant to this Section 2.1.

2.2 Replacement of Independent Directors

Vacancies occurring on the Board by reason of the removal of all of the Independent Directors pursuant to Section 2.1 and section 4.2(a)(i) of the Shareholders Agreement, or by the resignation of all (but not less than all) of the Independent Directors, shall be filled only by nominees chosen by majority vote of the members of a four-person selection committee composed of an equal number of members appointed by the Province, on the one hand, and by the Major Shareholders, on the other hand, following the process used in the selection of the original Independent Directors (the “Selection Process”) in all material respects. The Selection Process is outlined in the materials attached to this Agreement as Schedule 2.2.

2.3 Qualifications of the Independent Directors

Any nominees for the role of Independent Director chosen in accordance with this Agreement shall each meet the qualifications set out in section 4.1(c) of the Shareholders Agreement.

ARTICLE 3
GENERAL

3.1 Dispute Resolution

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 accordance with section 8.1 and Schedule 8.1 of the Master Framework Agreement as if the Dispute was a “Dispute” as defined for purposes of the Master Framework Agreement.

3.2 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) and permitted assigns.

3.3 Entire Agreement

This Agreement together with the other New Beer Agreements to which the Parties are party 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.

3.4 Termination

This Agreement shall terminate at the expiration of the Term of the Master Framework Agreement. This Agreement shall also terminate prior to the end of the Term upon:

(a) the written agreement of the Parties;

(b) 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

(c) one Person becoming the beneficial owner of all of the shares of the Corporation;

except that the provisions of Section 3.1 shall continue in the event of a termination under 3.4(c).

3.5 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 each 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.

3.6 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 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

3.7 Costs and Expenses

Except as otherwise specified in this Agreement, all costs and expenses (including the fees and disbursements of accountants, financial advisors, legal counsel and other professional advisors) incurred in connection with this Agreement, including the obligations under this Agreement and the enforcement of this Agreement are to be paid by the Party incurring those costs and expenses.

3.8 Amendments and Waivers

No amendment to this Agreement shall be valid or binding unless made in writing and signed by 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.

3.9 Assignment

None of the Parties to this Agreement may assign its rights or obligations under this Agreement without the prior written consent of the other Party.

3.10 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.

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:

SCHEDULE 2.2
SELECTION PROCESS

The principal roles of the initial Selection Committee were:

(i) to define the skills and qualifications necessary for the Independent Directors to execute the responsibilities assigned to them in the New Beer Agreements, and

(ii) to select and nominate for appointment to the Board four Independent Directors.

After a competitive process, the initial Selection Committee engaged a reputable search firm to conduct a gap analysis of the skills and experience on the Board, prepare a position description and conduct the recruitment. The Selection Committee identified governance experience as a fundamental competency necessary for all Independent Directors, in addition to a mix of functional expertise across the four Independent Directors. Gender balance and diversity were also important factors taken into account in this process. The Selection Committee jointly nominated the four Independent Directors for election to the Board.

In the event the Province exercises its right to remove the Independent Directors and consistent with the Selection Committee’s process to nominate the initial Independent Directors, the following process will be undertaken:

(a) The members of the Selection Committee will be appointed in accordance with the terms of the Agreement. Selection Committee members will be appointed for the term of the selection process.

(b) The Province will identify a staff person from the Ministry of Finance (“Ministry Representative”) to support the Selection Committee’s work. This individual will not be a member of the Selection Committee but will support the Selection Committee by:

i. Assisting in the co-ordination of meetings for the Selection Committee and / or with the search firm, and

ii. Acting as an intermediary between the Selection Committee and external stakeholders / government.

(c) The Selection Committee will jointly identify search firms to be invited to bid for the recruitment. The search firms will be invited to bid through a joint invitation letter, and the search firm will be selected through a joint interview process. All communication with prospective search firms will be by email with the Ministry Representative or all members of the Selection Committee as a whole to ensure fairness and transparency in the bid process. The search firm will contract with the Corporation but will report to the Selection Committee. The search firm costs will be paid by the Corporation.

(d) The Selection Committee will task the search firm with:

i. Evaluating, assessing and prioritising the skills and qualifications then required for the Independent Directors,

ii. Preparation/revision of a position description that defines the skills and qualifications necessary for the Independent Directors to execute the responsibilities assigned to them in the New Beer Agreements, and against which the candidates will be recruited for the Selection Committee’s approval,

iii. Advising on the then current compensation levels for directors of organisations of comparable size and complexity of the Corporation, and the compensation to be paid by the Corporation to the Independent Directors, and

iv. Recruitment of candidate directors, including project schedule, long list, short list, outreach, management of the interview process, and production of offer letters.

(e) All search firm communication with the Selection Committee will be conducted with the Selection Committee as a whole through email, teleconference or in-person meetings, or with the Ministry Representative as delegated by the Selection Committee. No meeting of the Selection Committee will take place and no decision of the Selection Committee will be binding unless a quorum is present. Quorum will be the attendance of not less than three members of the Selection Committee where the members have agreed in advance to less than full attendance. The Selection Committee will strive to make all decisions by consensus. Where consensus is not possible, a minimum of three votes will carry a motion of the Selection Committee.

(f) To the extent that the Ministry Representative acts as a conduit between the Selection Committee and candidate search firms, the selected search firm, or external stakeholders, the Ministry Representative will liaise with the Selection Committee as a whole.

(g) The Ministry Representative may provide stakeholders with contact information for the search firm, and stakeholders can provide names of individuals interested in candidacy to the search firm. Members of the Selection Committee may also provide names of prospective candidates to the search firm, in an open and transparent manner (copying the other members of the Selection Committee). Any potential conflicts of interest will be openly disclosed and discussed. The Selection Committee will only consider candidates that meet the requisite skills and competencies.

(h) The Selection Committee will choose the prospective nominees from among the candidates in satisfaction of the identified skills and competencies, and giving due consideration to appropriate gender balance and diversity. The Selection Committee members will issue to the prospective nominees formal written offer letters signed by all Selection Committee members.

(i) At all times, the Selection Committee will make decisions consistent with the New Beer Agreements, and adhere to the general principles of transparency and accountability.

(j) The confirmed nominees will be communicated publicly by the Board in coordination with the Province.