Microsoft Word - Early Implementation Agreement - Execution Copy

Improving Choice and Convenience Through a Modernized Marketplace for the

Retailing and Distribution of Beer and Recycling in Ontario

Early Implementation Agreement

This agreement (the “Agreement”) is made as of May 23, 2024 (the “Effective Date”) between

Labatt Brewing Company Limited (“Labatt”), Molson Canada 2005 (“Molson”), Sleeman

Breweries Ltd. (“Sleeman” and, together with Labatt and Molson, the “Representative

Owners”), Brewers Retail Inc. operating under the name “The Beer Store” (“TBS”) and His

Majesty the King in right of Ontario, as represented by the Minister of Finance (the “Province”,

and together with Labatt, Molson, Sleeman and TBS, the “Parties”), and concerns the early

implementation of the modernized marketplace for Beer sales in Ontario (the “Modern Beer

Marketplace”), as outlined in the non-binding Key Principles document entered into between the

Parties on December 13, 2023 (the “Key Principles”).

RECITALS:

A. The Parties entered into a Master Framework Agreement effective January 1, 2016 (the

“MFA”) to record their agreement as to the manner in which certain key principles

concerning the distribution of Beer in Ontario would be implemented with the direction,

authorization and agreement of the Province.

B. Except as otherwise indicated in this Agreement (whether in Appendix A or otherwise),

capitalized terms used but not defined in this Agreement shall have the meanings assigned

to them in the MFA, which meanings shall apply during both the Interim Period and for

the duration of the Term, notwithstanding the New Beer Agreements Termination.

C. In connection with the MFA, certain of the Parties entered into the other New Beer

Agreements. The New Beer Agreements include the MFA, the TBS Shareholder

Agreement and the Amended Ontario Deposit Return Program Agreement dated as of

October 1, 2015, between the Province, Liquor Control Board of Ontario (the “LCBO”)

and TBS (the “Existing ODRP Agreement”).

D. Further to a notice of termination sent by the Province on December 13, 2023, each New

Beer Agreement shall terminate effective December 31, 2025 (the “New Beer Agreements

Termination”).

E. Notwithstanding the upcoming termination of the New Beer Agreements (which will, for

certainty, include termination of the MFA and the Existing ODRP Agreement), and as

further described in this Agreement, the Province, TBS and the LCBO intend to enter into

a new agreement prior to October 1, 2024, to set out the terms and conditions of the Ontario

Deposit Return Program to reflect the relevant Key Principles, and in light of the Modern

Beer Marketplace (the “New ODRP Agreement”).

F. This Agreement is being entered into pursuant to subsections 10(1), 10(4) and 10(5) of the

Liquor Sales Agreements Act (Ontario).

G. The intent of this Agreement is to recognize TBS’ role as a significant employer, a lower

price option for consumers and a responsible retailer of beverage alcohol in communities

across Ontario and to facilitate the use of TBS and its efficient recycling and distribution

systems for the benefit of Ontario on terms acceptable to the Parties. To enable this and to

facilitate a smooth transition from the current system governed by the MFA and the other

New Beer Agreements to the Modern Beer Marketplace, the Province intends to, on a basis

that is not inconsistent with this Agreement, direct, authorize and agree to a modernized

Beer retail and distribution system for Ontario that will retain, as contemplated by this

Agreement, certain elements of the existing system for TBS, the Representative Owners,

their employees, suppliers and consumers.

H. The Province recognizes TBS’ valuable contributions and intends to continue to work with

TBS and the Representative Owners on the continued success of the Modern Beer

Marketplace.

I. The Parties acknowledge that, notwithstanding the New Beer Agreements Termination,

this Agreement is being entered into to enable the early implementation of the Modern

Beer Marketplace, while preserving existing elements that benefit consumers for the

duration of the Term and to give the Parties the certainty needed to make any necessary

investments in the operations of TBS and the LCBO, and to operate efficiently in the

Modern Beer Marketplace.

NOW THEREFORE for good and valuable consideration, the receipt and adequacy of which are

acknowledged by each of the Parties, the Parties agree as follows:

1. Term and Termination

(a) Notwithstanding the Effective Date, but subject to section 1(d) and unless expressly

stated otherwise in this Agreement, the rights and obligations of the Parties set forth

in this Agreement shall take effect on August 1, 2024 (the “Commencement

Date”) and continue until December 31, 2030.

(b) The period beginning on the Commencement Date and ending on December 31,

2025 shall be referred to in this Agreement as the “Interim Period”.

be referred to in this Agreement as the “Term”.

(d) This Agreement and the New ODRP Agreement may be terminated prior to the end

of the Interim Period or the Term by the Province giving Notice to the other Parties

in accordance with section 11 at any time after:

(i) the dissolution or bankruptcy of TBS or the making by TBS of an

assignment under the provisions of the Bankruptcy and Insolvency Act

(Canada); or

(ii) the Representative Owners or any one or any combination of them cease to

collectively own shares of TBS, the votes attached to which are sufficient

to elect a majority of the board of directors of TBS, or otherwise cease to

hold shares carrying more than 50% of the voting rights ordinarily

exercisable at meetings of the shareholders of TBS.

2. Early Introduction of the Modern Beer Marketplace

(a) Notwithstanding anything to the contrary in the New Beer Agreements, the New

Outlets operating in Ontario as of the Commencement Date shall be permitted to

sell Beer, Wine and Ready-to-Drink Beverages, subject to applicable laws, from

and after the Commencement Date.

(b) Notwithstanding anything to the contrary in the New Beer Agreements, including

section 6.3 of the MFA, all Convenience Stores operating in Ontario shall be

permitted to sell Beer, Wine and Ready-to-Drink Beverages, subject to applicable

laws, from and after September 5, 2024.

section 6.3 of the MFA, all Grocery Stores operating in Ontario shall be permitted

to sell Beer, Wine and Ready-to-Drink Beverages, subject to applicable laws, from

and after October 31, 2024.

(d) Notwithstanding anything to the contrary in the New Beer Agreements, including

section 6.4 and subsections (f) and (j) of Schedule 6.5 of the MFA, from and after

the Commencement Date: (i) there shall be no restrictions on Beer pack sizes that

may be retailed by any retail channel or licensed retailers in Ontario, and (ii) no

SKU of Beer shall be exclusive through any retail channel or licensed retailers in

Ontario.

(e) Notwithstanding anything to the contrary in the New Beer Agreements, the Annual

Volume Cap (and any associated Cost of Service Rebate), as provided for in

subsections (c) through (e) of Schedule 6.5 of the MFA, shall cease to apply from

and after the Commencement Date.

3. The Wholesale Pricing Model for the Modern Beer Marketplace

(a) Notwithstanding the Review to be completed by the Province, the following

features shall be part of the wholesale pricing model for the Modern Beer

Marketplace, beginning on September 5, 2024 and continuing through to the end of

the Term:

(i) Retailers, TBS and LCBO Convenience Outlets shall not be permitted to

negotiate wholesale prices with Brewers.

(ii) The Province shall permit each Retailer to set its own price to consumers of

Beer, subject to any regulations applicable to all Retailers (such as those

relating to the minimum price at which beverage alcohol may be sold),

which price to consumers of Beer may be allowed by the Province to be

below the wholesale price for such Beer and, for the avoidance of doubt:

(A) subsection (h) of Schedule 6.5 of the MFA will cease to apply; and

(B) subject to section 3(c)(iv), the Province shall no longer mandate that

the Consumer Retail Price of Beer be uniform across all retail outlets

authorized or licensed to sell beverage alcohol in Ontario.

(iii) The Province shall conduct a broader review of mark-up, taxes and fees

(including the Term COS, as defined below) applicable to beverage alcohol

in Ontario (the “Review”). The Review shall begin no earlier than autumn

2024. As part of the Review, the Province shall also determine taxes, fees

and mark-ups to be applied to Ready-to-Drink Beverages. Subject to section

6.6 of the MFA, the fees and mark-ups to be applied to Ready-to-Drink

Beverages shall remain the same as those imposed on the Effective Date

until the fee and mark-up structure for Ready-to-Drink Beverages has been

determined as part of the Review. The Province shall consult with TBS and

the Representative Owners in connection with the Review. The Province

shall provide public notice in advance of any changes to mark-ups or fees

as a result of the Review.

(iv) In order to encourage competition by keeping prices low for consumers and

increasing choice and convenience, the Province may develop a framework

for, and permit, volume-based rebates or similar adjustments for Retailers

and TBS, after the Province has completed the Review, and such framework

shall take the Review into consideration. The economic burden of any

volume-based rebate or similar adjustment would be borne by the Province

and, for the avoidance of doubt, would not be borne by Brewers. If the

Province offers a volume-based rebate or similar adjustment, a consistent

approach and rebate or similar adjustment shall apply equally to all

categories of beverage alcohol (i.e., the categories of Beer, Wine and

Ready-to-Drink Beverages) and to all Retailers and TBS based upon a

threshold volume level by category of beverage alcohol sales on a per-store

basis and not brand- or SKU-specific sales, and the applicable rebates or

similar adjustments and corresponding volume levels shall be publicly

posted by the LCBO and, for the avoidance of doubt, shall apply

consistently to all Beer products. The Province shall ensure that any rebates

offered consistent with this section 3(a)(iv) will include thresholds and

terms that will enable TBS to participate on an equivalent basis with

Retailers.

(v) The Parties acknowledge that pursuant to the LLCA, and in accordance with

section 7.1 of the MFA, Brewers and TBS are and have been authorized to

charge Licensees a price that is different from the Consumer Retail Price of

Beer. The Province agrees, and the other Parties acknowledge, that the

Province shall authorize Brewers and TBS to charge different wholesale

prices for Beer wholesaled to Licensees compared to Beer wholesaled to

Retailers and Beer sold to consumers.

(vi) The LCBO shall continue to share data on sales with Brewers in the same

manner as it does currently. Without limiting the generality of the preceding

sentence, this shall include sharing no less data than is shared as of the

Effective Date, charging no more than the rates in effect as of the Effective

Date (subject to reasonable and non-material periodic rate adjustments) and

on access terms that are no more onerous than those in place as of April 1,

2024 as posted on the LCBO’s website, available at the following link:

https://www.doingbusinesswithlcbo.com/content/dbwl/en/basepage/home/

new-supplier-agent/demo/SaleOfData.html. For the avoidance of doubt,

TBS shall continue to have access, on a cost-free basis, to such data from

the LCBO as may be required to ensure effective system integration and

TBS’ continued role in the Modern Beer Marketplace in accordance with

this Agreement.

(vii) The Province shall mandate that:

(A) The LCBO shall permit a mechanism that enables Brewers to

establish time-limited price offers on their Beer SKUs in the form

of a specified amount to be discounted from the Brewers’ set price

that is submitted to the LCBO in compliance with applicable laws

(“Limited Time Offers”). The Province shall work with the

Representative Owners and the LCBO to facilitate the development

and implementation of this mechanism as soon as reasonably

possible. Such mechanism for Limited Time Offers shall be based

on the following principles: (I) Retailers, the LCBO and LCBO

Convenience Outlets will provide the full benefit of each Limited

Time Offer to consumers as a discount from the price to consumer;

and (II) Retailers, the LCBO and LCBO Convenience Outlets will

clearly identify Beer that is subject to any Limited Time Offer as

being subject to the Limited Time Offer.

(B) Retailers, the LCBO and LCBO Convenience Outlets that purchase

containers of beverage alcohol that are packaged together for

consumer sale, must sell the beverage alcohol in that packaging.

The

Parties acknowledge that the language of subsection 87(2) of the

Licensing Regulation is consistent with this requirement.

(viii) Subject to TBS’ continued role during the Interim Period as the exclusive

wholesaler of Beer for TBS listed products to Licensees and to Southern

LCBO Convenience Outlets, the LCBO shall operate a single order-taking

system for all beverage alcohol, including Beer. To ensure effective system

integration and a smooth transition to the new system and to reflect the

Province’s support for modernization efforts that reduce the burden for

businesses and that optimize processes that benefit Retailers and consumers,

the Province shall prioritize and facilitate discussions between TBS and the

Brewers with the LCBO to ensure the integration of technology apps from

TBS and Brewers into the LCBO’s order-taking system, subject to TBS and

Brewers, as applicable, reaching agreement with the LCBO, each acting

reasonably, on the details of such technology apps. In addition, TBS shall

have the ability to take orders from Retailers and Licensees in real-time to

support its cash-and-carry operations. The Province is committed to the

implementation of cash-and-carry to support small businesses in the

Modern Beer Marketplace and shall continue to work with the LCBO and

TBS to achieve this objective as soon as the integration of such orders with

the LCBO’s systems may reasonably be facilitated, including to develop

solutions to allow cash-and-carry transactions on an interim basis until a

fully integrated solution can be implemented.

(ix) For the purposes of sections 3(c)(v) and 3(d)(i), Brewers shall submit their

set price to the LCBO on a weekly basis in accordance with current practices

or on such more frequent schedule that the LCBO may reasonably

determine.

(b) Notwithstanding the Review to be completed by the Province, the following

features shall be part of the wholesale pricing model for the Modern Beer

Marketplace, beginning on July 22, 2024 and continuing through the end of the

Interim Period:

(i) Subject to section 3(c)(iv) of this Agreement, the LCBO shall continue to

apply its in-store cost of service fees to sales through the LCBO and LCBO

Convenience Outlets in accordance with section 6.6 and subsection (p) of

Schedule 6.5 of the MFA.

(ii) Notwithstanding anything to the contrary in the MFA, including section 6.6

and subsection (p) of Schedule 6.5 of the MFA, the LCBO shall charge its

in-store cost of service fees applied on Beer wholesale sales to Retailers and

pay such amount to the Brewer or the vendor of record (provided that the

vendor of record pays such amount onwards to the Brewer) on no less than

a quarterly basis, and no portion of such fees shall be retained by the LCBO.

The Province shall continue to work with the LCBO and TBS to streamline

this payment process with a view to facilitating payments on a basis that is

monthly, provided that, in any case, the Province will ensure that such

payments in respect of the 2024 and 2025 calendar years are paid to the

Brewers or the relevant vendors of record, as applicable, by December 31,

2024 and December 31, 2025, respectively.

features shall be part of the wholesale pricing model for the Modern Beer

Marketplace beginning on September 5, 2024 and continuing through to the end of

the Interim Period:

(i) In accordance with subsection (p) of Schedule 6.5 of the MFA:

(A) TBS shall continue to be the exclusive wholesaler of Beer to

Licensees and to Southern LCBO Convenience Outlets; and

(B) the LCBO shall continue to be the exclusive wholesaler to New

Outlets.

(ii) The LCBO shall be the exclusive wholesaler to all Retailers.

(iii) TBS retail shall not be required to purchase Beer at wholesale from the

LCBO unless the Beer has been consigned to the LCBO from suppliers

outside of Ontario.

(iv) The LCBO shall set uniform prices for all beverage alcohol SKUs in its

stores throughout Ontario, including LCBO Convenience Outlets.

(v) The Province directs and authorizes TBS and the Representative Owners,

in their sole discretion, to set prices to consumers for all Beer and Cider sold

at TBS retail outlets, which may be different from the prices charged by

other retailers.

(vi) The LCBO shall charge wholesale prices to all Retailers and LCBO

Convenience Outlets on a per SKU of Beer basis determined by the current

pricing formula for LCBO wholesaled sales, which adds taxes, mark-ups

and fees to the Brewer’s set price and then applies a discount (which

discount shall be consistent and set pursuant to section 3(c)(viii) of this

Agreement) (the “Interim Wholesale Price”).

(vii) Each Retailer may add its desired retail margin to the Interim Wholesale

Price, following which HST and container deposits shall be applied to arrive

at the price to the consumer.

(viii) The LCBO shall apply a consistent discount of not more than 10% that is

consistent across all SKUs of Beer in determining: (A) the Interim

Wholesale Price to all Retailers and LCBO Convenience Outlets, and (B)

the wholesale price to Licensees.

(ix) The LCBO shall not impose any fees on Brewers in respect of listing in the

LCBO in addition to those already in effect on the Effective Date.

(d) Notwithstanding the Review to be completed by the Province, the following

features shall be part of the wholesale pricing model for the Modern Beer

Marketplace after the Interim Period and for the duration of the Term:

(i) The LCBO shall charge wholesale prices to all Retailers on a per SKU of

Beer basis and such price shall be consistently applied to all Retailers and

shall be equal to the Brewer’s set price (which, for certainty includes

distribution costs) plus applicable taxes, mark-ups and fees (the “Term

Wholesale Price”).

(ii) Each Retailer may add its desired retail margin to the Term Wholesale Price,

following which HST and container deposits shall be applied to arrive at the

price to the consumer.

(iii) If the LCBO charges a wholesale cost of service fee, the Province shall

cause it to be set on a cost-recovery basis and charged equally to all

Retailers and LCBO Convenience Outlets (the “Term COS”). For the

purpose of this section 3(d)(iii), the Term COS shall include cost recovery

of only those annual operating costs that the LCBO incurs in its role as

wholesaler, including fixed overhead and costs directly arising from the

LCBO’s taking of orders from Retailers, working with Manufacturers and

distributors to fill those orders and managing accounts receivables with

Retailers. For the avoidance of doubt, the Term COS shall not include (A)

any costs to the extent that they relate to the LCBO’s retail operations or

(B) capital costs relating to the development of, or improvement to, the

LCBO’s information technology infrastructure, except for reasonable

annual amortization of such costs to the extent that they relate to the

development and implementation of the LCBO’s wholesale and related

order-taking systems. To ensure compliance with this section 3(d)(iii), the

Province shall publicize the Term COS at least three months in advance of

finally determining the initial amount of the Term COS, and shall provide

the Parties with a reasonable breakdown of the costs being covered and a

calculation that justifies the amount of the Term COS from time to time in

connection with any changes to the Term COS.

(iv) The LCBO may set uniform prices for all beverage alcohol SKUs in its

stores throughout Ontario, including LCBO Convenience Outlets.

(v) The LCBO shall be the exclusive wholesaler of beverage alcohol in Ontario

for Retailers and for Licensees and Southern LCBO Convenience Outlets.

(vi) TBS retail shall not be required to purchase Beer at wholesale from the

LCBO unless the Beer has been consigned to the LCBO from suppliers

outside of Ontario.

(vii) The Province directs and authorizes TBS and the Representative Owners,

in their sole discretion, to set prices to consumers for all Beer and Cider sold

at TBS retail outlets, which may be different from the prices charged by

other retailers.

(e) The Province shall continue to prohibit Licensees from requesting or receiving from

Manufacturers, and Manufacturers from offering or providing to Licensees, directly

or indirectly, any material financial or other benefit.

(f) The Province shall continue to prohibit Retailers from entering into an agreement

with any Manufacturer that restricts the Manufacturer’s ability to sell its liquor in

other stores or that guarantees (i) the provision of shelf space or a product listing

for the Manufacturer’s liquor at the Retailer, or (ii) any merchandising, marketing

or promotional opportunities.

(g) The Province shall prohibit Retailers from requesting or receiving from

Manufacturers, and Manufacturers from offering or providing to Retailers, directly

or indirectly:

(i) Manufacturer monies, non-monetary consideration and any other form of

trade inducement;

(ii) Manufacturer monies, non-monetary consideration and any other form of

trade inducement in another jurisdiction in connection with the sale of Beer

in Ontario or in connection with multi-jurisdictional sales agreements or

arrangements; or

(iii) Manufacturer monies and non-monetary consideration for any form of in-

store or out-of-store advertising, promotion or marketing, loyalty program

or rewards, discounts on non-Beer products and other cross-promotions

(including electronic and print), flyers (including electronic and print),

preferential shelf space including at the end of aisles, promotional material

including signage and displays, and other marketing, merchandising and

promotional matters, other than the provision of Manufacturer staff to

conduct in-store tastings.

(h) The Parties acknowledge that the language of sections 22, 84, 84.1, and 132(1) of

the Licensing Regulation, and that of subsection 3(4) of the Pricing Regulation, is

consistent with sections 3(e) through 3(g) of this Agreement.

(i) Notwithstanding sections 3(e) through 3(g) of this Agreement, TBS shall continue

to be able to operate marketing and in-store promotion activities at TBS retail

outlets. In operating these programs and in setting prices to consumers, TBS will

act in a manner that is transparent and that uses a methodology that does not

distinguish based on Manufacturer.

(j) The Province shall mandate that Retailers and Licensees that sell Beer must sell

Beer from Manufacturers with a variety of annual production amounts. The Parties

acknowledge that the language of sections 36 and 87(5) of the Licensing Regulation

is consistent with this requirement.

(k) Notwithstanding the LCBO’s role as wholesaler of record, the Province shall permit

Brewers to work directly with Retailers and LCBO Convenience Outlets with

respect to demand planning, forecasting and category management. The Parties

acknowledge that the language of sections 84(5) and 132(4) of the Licensing

Regulation is consistent with this requirement.

(l) The Representative Owners will work with the Province to ensure value-priced

Beer will be available to Ontario consumers at TBS retail outlets.

4. Distribution

(a) From the Commencement Date to the end of the Term (subject to the

accommodation of advance orders to facilitate the following):

(i) TBS shall remain the primary distributor of Beer to all Retailers, LCBO

Convenience Outlets and Licensees, subject to the terms outlined in the

table attached as Appendix B.

(ii) The Province shall permit TBS to distribute (which shall include

warehousing) all beverage alcohol without restriction as to the category of

beverage alcohol, and to distribute (and warehouse) non-alcoholic

beverages along with beverage alcohol. The Parties acknowledge that the

language of section 107 of the Licensing Regulation is consistent with this

requirement.

(iii) In order for TBS to operate as a low-cost, efficient distributor of Beer, TBS

shall be permitted to adopt distribution practices to advance these aims,

including:

(A) setting its own reasonable distribution charges; and

(B) setting reasonable minimum delivery volumes for orders placed by

individual Retailers, LCBO Convenience Outlets and Licensees for

deliveries performed by TBS.

(iv) TBS shall operate its distribution activities in accordance with the

conditions attached as Appendix C. The Province shall not otherwise

restrict TBS or impose conditions on TBS (for the avoidance of doubt,

including conditions on permissible hours of sale, permissible days of

operation and minimum retail price but excluding the relevant provisions in

the Regulations applicable to TBS’ licence as of the Effective Date) relating

to its operations or its governance in a manner that would not also apply

generally to other distributors of beverage alcohol or Retailers, as

applicable.

(v) Subject to a reasonable implementation period, TBS shall be required to

operate its distribution activities, as contemplated by this Agreement, in a

commercially reasonable manner consistent with best practices in the

distribution industry in Ontario.

(vi) The Province shall mandate Retailers and LCBO Convenience Outlets to

not preclude or restrict the use of the standard pallet of TBS and Brewers

that may be used to deliver Beer to Retailers and LCBO Convenience

Outlets.

5. Recycling

(a) The Province, the LCBO and TBS shall enter into the New ODRP Agreement on a

date to be determined by the Parties, but which date shall be no later than October

1, 2024. The New ODRP Agreement will supersede and replace the Existing ODRP

Agreement in all respects. The New ODRP Agreement shall provide for the

continued management of the Ontario Deposit Return Program by TBS and shall

reflect, but not be limited to, the terms of this section 5. The term of the New ODRP

Agreement shall begin on its effective date and continue until the end of the Term.

(b) During the Interim Period and for the duration of the term of the New ODRP

Agreement:

(i) TBS shall be (i) responsible for handling the reverse logistics and the

collection of all empty liquor containers, including empty Beer containers,

and (ii) leverage TBS’ retail locations (which, for certainty, are subject to

change as permitted by this Agreement), where possible, to facilitate returns

of Eligible Containers.

(ii) Subject to any reimbursed costs pursuant to section 7 and the Existing

ODRP Agreement, TBS shall manage and bear the costs of the TBS Beer

Container Recovery System, including extending the TBS Beer Container

Recovery System to all Retailers. For the avoidance of doubt, this section

5(b)(ii) shall not be construed as imposing a positive obligation on TBS to

maintain the TBS Beer Container Recovery System (other than in respect

of the industry standard bottle (“ISB”)).

(iii) The Province shall continue to exclude alcoholic beverage product and

packaging from the definition of blue box material under O. Reg 391/21:

Blue Box under the Resource Recovery and Circular Economy Act, 2016

(Ontario) and any successor legislation or regulations (the “Blue Box

Exclusion”). The Parties acknowledge that the language of section 2 of O.

Reg. 391/21 as it stands on the Effective Date is consistent with this

requirement.

(iv) The Parties acknowledge that, notwithstanding the Blue Box Exclusion,

individuals may, from time to time, dispose of Eligible Containers (as

defined below) in blue box receptacles (“Incorrect Disposal”). The

Province shall, before October 31, 2024, mandate that the Resource

Productivity and Recovery Authority may not recover its costs by requiring

TBS or the Representative Owners to pay fees, costs or other charges

imposed under section 41 of the Resource Recovery and Circular Economy

Act, 2016 (Ontario) and any successor legislation or regulations, relating to

Incorrect Disposal, provided that none of TBS and the Representative

Owners has encouraged or taken any action to intentionally facilitate any

such Incorrect Disposal (which action excludes, for greater certainty, any

TBS retail store closures or relocations).

(v) Unless otherwise exempted as outlined below and notwithstanding anything

to the contrary in the New Beer Agreements, including subsection (g) of

Schedule 6.5 of the MFA, each Retailer shall be required as a condition of

its licence under the LLCA to:

(A) accept returns of empty Program Containers and TBS Beer

Containers (together, the “Eligible Containers”) at all times during

which the Retailer offers beverage alcohol for sale (provided the

Retailer may also, in its discretion, accept returns of Eligible

Containers outside of such hours);

(B) refund deposits on Eligible Containers in full to consumers during

all times it accepts returns of Eligible Containers; and

in four categories (being aluminum containers, refillable bottles,

clear glass and coloured glass) into those categories.

Such obligations are referred to in this Agreement as “Accepting Returns”,

and “Accept Returns” has a corresponding meaning.

(vi) Convenience Stores shall be exempt from Accepting Returns, provided that

Convenience Stores may Accept Returns as permitted by this section

5(b)(vi) and if agreed to by TBS. Upon request by a Convenience Store,

TBS shall have the option, but not the obligation, to collect Eligible

Containers from the Convenience Store. If TBS determines to collect

Eligible Containers from a Convenience Store, it shall make such collection

when it delivers product to the Convenience Store. TBS may discontinue

the collection of Eligible Containers from a Convenience Store in its

discretion upon reasonable notice to the Convenience Store.

(vii) During the Interim Period only:

(A) A Grocery Store location shall be exempt from Accepting Returns

if it is located within five kilometers of a TBS retail outlet that is in

operation on September 3, 2024 (each an “Interim Exempt

Location”).

(B) Any Interim Exempt Location that begins retailing beverage alcohol

prior to January 1, 2026 will continue to be an Interim Exempt

Location until January 1, 2026.

(viii) Any Retailer that does not Accept Returns shall be required to post clearly

visible signage on its premises describing where customers can return

Eligible Containers nearby.

(ix) TBS shall collect Eligible Containers from each Retailer that is required or

permitted in accordance with this Agreement to Accept Returns at the time

that it makes a delivery of beverage alcohol to such Retailer (or at such other

time as may be determined by TBS, acting reasonably), provided, however,

that the Retailer shall have sorted the Eligible Containers as required by

section 5(b)(v). TBS shall be entitled to charge the Retailer a reasonable

pickup fee for any such collection if the Retailer requests such collection at

a time other than when TBS makes a delivery of beverage alcohol to such

Retailer or when any such delivery of beverage alcohol does not meet TBS’

reasonable applicable minimum order size.

(i) Beginning on January 1, 2025, the Fee payable to TBS per Program

Container (as such terms are defined in the Existing ODRP Agreement)

shall increase to $0.1672, and such Fee shall be increased after that time by

2% on each subsequent January 1

throughout the Term.

(ii) The requirement for TBS to pay the $1 million annual rebate currently

contemplated by section 1.14 of Part F of Schedule 1 of the Existing ODRP

Agreement will cease being effective as of the Effective Date.

(iii) Beginning October 31, 2024, TBS shall pay a $0.02 handling fee for each

Program Container to each Retailer that is required or permitted to Accept

Returns in accordance with this Agreement, provided that such Retailer

shall have sorted such Eligible Containers as required by section 5(b)(v).

(iv) To avoid unnecessary handling of Eligible Containers on the part of TBS,

the verification and compliance requirements under Part G of Schedule 1 of

the Existing ODRP Agreement shall be revised, effective as of the Effective

Date, to align with the sorting requirements for Retailers Accepting Returns.

6. TBS Retail Activities and Footprint

(a) Until January 1, 2033 (being the expiration of the seven-year period provided for

in section 8.7(b)(i) of the MFA):

(i) the Province shall permit TBS to continue to distribute and sell Beer at such

locations as may be in existence from time to time throughout the Interim

Period and the Term; and

(ii) the Province shall permit TBS to sell, at such locations as may be in

existence from time to time throughout the Interim Period and the Term,

Beer (including malt-based Ready-to-Drink Beverages) and Cider and the

Province shall not prohibit TBS from selling any other product, including

lottery tickets, in the LLCA or any regulations under that Act, provided,

however, that TBS shall not be permitted to sell (i) other categories of

alcoholic beverages, (ii) cannabis products, or (iii) tobacco products,

subject, in each case, to TBS’ compliance with any requirements established by the

Regulator from time to time that are applicable to other distributors and retailers of

similar products.

(b) Notwithstanding anything to the contrary in the New Beer Agreements, TBS shall

allocate at least 20% of the fixed shelf space in each TBS retail outlet to display

products produced by Small Brewers, except where TBS can reasonably

demonstrate that to do so would not be practicable. For purposes of this section 6,

and notwithstanding Appendix B and Appendix C, “Small Brewer” shall have the

meaning given to it in subsection (a) of Schedule 6.5 of the MFA.

least 386 retail locations in Ontario to support recycling and cash and carry, and to

preserve employment (the “Initial Maintained Stores”). Notwithstanding the

foregoing, during the period beginning on July 1, 2025 and ending on December

31, 2025, TBS shall have the option, but not the obligation, to close up to an

additional 86 retail locations (reducing the number of retail locations in Ontario to

as low as 300) upon providing notice in accordance with section 6(e) (the “Closed

Stores”, with the Initial Maintained Stores including any Closed Stores being the

“Retail Footprint”).

(d) From and after January 1, 2026, TBS shall be entitled to close any retail location as

determined by TBS in its sole and absolute discretion.

(e) TBS shall provide at least 60 days’ notice to the Regulator of the proposed closure

of any of its retail locations.

7. Early Implementation Costs

(a) The Province shall provide the financial support described in this section 7 to

reimburse TBS and the Representative Owners, if applicable pursuant to section

7(m), for costs and expenses reasonably incurred by:

(i) TBS or the Representative Owners in connection with the early

implementation of the Modern Beer Marketplace on the timeline set out in

section 2 prior to the expiration of the Interim Period (the “Early

Implementation Costs”); and

(ii) TBS in connection with TBS operating the Retail Footprint during the

Interim Period (the “TBS Retail Costs” and, together with the Early

Implementation Costs, the “Added Costs”).

Notwithstanding anything to the contrary in sections 7(a) or 7(b) or Appendix D,

the Added Costs shall not include any goods and services tax/harmonized sales tax

that is recoverable by TBS or a Representative Owner, as applicable, by way of

input tax credit or refund or any amounts actually recovered by TBS or the

Representative Owners, as applicable, from insurance.

(b) Without limiting the generality of section 7(a):

(i) the Early Implementation Costs shall include all reasonable costs and

expenses incurred by TBS or any Representative Owner in connection with

the early implementation of the Modern Beer Marketplace on the timeline

set out in section 2 prior to the expiration of the Interim Period, including

those costs and expenses set out in Appendix D, other than any costs or

expenses that are expressly stated in Appendix D as being excluded;

(ii) the TBS Retail Costs shall include all reasonable costs and expenses

incurred by TBS to operate the Retail Footprint during the Interim Period

in compliance with TBS’ obligations under section 6(c), including but not

limited to those costs and expenses set out in Appendix D, other than any

costs or expenses that are expressly stated in Appendix D as being excluded;

and

(iii) subject to Appendix D, to the extent that an Early Implementation Cost

would have been incurred by TBS or the Representative Owners, if

applicable) after the Interim Period in any case, whether in connection with

the Modern Beer Marketplace or otherwise, the Province shall only be

required to reimburse TBS or the Representative Owners, if applicable, for

the additional cost attributed to the earlier incurrence of such portion of the

Early Implementation Costs, which additional cost shall be determined on

a time-value-of-money basis calculated using a discount rate per annum

equal to the Prime Rate and, in the case of expenditures on capital assets,

on an amortized basis over the reasonable expected lifetime of a capital

asset.

for Added Costs up to an aggregate amount of $225 million (the “Aggregate

Cap”). For clarity, nothing in this Agreement shall require the Province to

reimburse TBS and the Representative Owners, if applicable, for any Added Costs

in excess of the Aggregate Cap.

(d) For the purpose of ensuring TBS has sufficient funds to cover those Early

Implementation Costs that are expected to arise following the Effective Date, the

Province shall make a one-time initial payment to TBS in the amount of $22.5

million on account of the Province’s obligations under this section 7 (the “Initial

Payment”), which Initial Payment shall:

(i) be paid to TBS no later than five Business Days after the Effective Date, or

seven Business Days after TBS has provided the Province with details

concerning the account into which funds are to be paid in accordance with

this section 7 sufficient to allow the Province to effect such payments,

whichever is later;

(ii) be a prepayment of Added Costs to be incurred by TBS;

(iii) not be subject to the Interim Notice of Objection process described in

section 7(g); and

(iv) be subject to the TBS Audit process described in section 7(h), if any.

(e) TBS shall submit statements to the Province (each an “Added Cost Statement”)

on a monthly basis by no later than the 10

day of each month beginning on June

10, 2024, setting forth in reasonable detail (including a breakdown by cost

category) the Added Costs incurred for the previous month (or, in the case of the

first Added Cost Statement, for all Added Costs incurred up to the date of such

statement). Any amount set forth in the first Added Cost Statement shall be payable

by the Province on or before June 30, 2024, subject to section 7(g). Thereafter, the

amount set forth in each subsequent Added Cost Statement shall be payable by the

Province on the last Business Day of the month in which the Added Cost Statement

was delivered (each a “Monthly Payment”), subject to section 7(g). For certainty,

TBS shall provide the Province with Added Cost Statements for each month during

the Interim Period.

(f) The Province shall reimburse TBS for Added Costs by making the Monthly

Payments to TBS in accordance with the payment instructions provided by TBS in

writing until the earlier of: (i) the date the Aggregate Cap is reached, and (ii) the

end of the Interim Period.

(g) If the Province objects to an amount included in any Added Cost Statement on the

basis that such amount does not properly constitute an Added Cost determined in

accordance with the provisions of this section 7, then the Province shall provide an

interim Notice of objection to TBS (an “Interim Notice of Objection”) setting out

the basis for such objection in reasonable detail. The Interim Notice of Objection

must be delivered at least three Business Days before such amounts are required to

be paid under this Agreement and any amount not subject to the Interim Notice of

Objection shall remain payable by the date required under this Agreement (for the

avoidance of doubt, without prejudice to the rights of the Province under section

7(h) but subject to the procedure set out in sections 7(h) through 7(k)). The Province

and TBS shall cooperate and attempt in good faith to resolve each objection

promptly by negotiating between individuals who have authority to settle the

objection. If the matter is not resolved within 10 days from the date of the Interim

Notice of Objection, then the amount which was subject to the Interim Notice of

Objection shall nonetheless be paid in full by the Province without prejudice to the

rights of the Province under section 7(h) but subject to the procedure set out in

sections 7(h) through 7(k).

(h) The Province shall be permitted to complete an audit of the Financial Records of

TBS relating to Added Costs, to consider whether any amounts claimed as Added

Costs (including, for certainty, any amounts that were the subject of an Interim

Notice of Objection) constitute Added Costs determined in accordance with the

provisions of this section 7 (the “TBS Audit”). The TBS Audit may commence up

to 60 days before the expiry of the Interim Period and shall be conducted by the

Province or a third-party auditor engaged by the Province at its sole expense during

normal business hours and without undue interruption to TBS’ business. Any such

TBS Audit shall be completed no later than 90 days following the expiration of the

Interim Period. TBS shall use commercially reasonable efforts to cooperate

promptly with all reasonable requests of the Province and any such auditor in

connection with any such TBS Audit. For certainty, in the event the TBS Audit is

commenced prior to the expiry of the Interim Period, TBS shall continue to provide

the Province with Added Cost Statements for each remaining month of the Interim

Period.

(i) If the Province objects to any amount included in any Added Cost Statements (for

clarity, where such amount has not been the subject of an Interim Notice of

Objection that has previously been resolved in accordance with section 7(g)) on the

basis that such amount does not properly constitute an Added Cost determined in

accordance with the provisions of this section 7 then the Province shall provide a

Notice of objection to TBS (a “Notice of Objection”) setting out the basis for such

objection in reasonable detail. If the Province does not provide a Notice of

Objection within 90 days following the expiration of the Interim Period (or within

120 days following the expiration of the Interim Period if the Province requires a

TBS Audit), the Province shall be deemed to have accepted all Added Cost

Statements delivered pursuant to this Agreement (for clarity, subject to any Interim

Notices of Objection that have previously been resolved in accordance with section

7(g)), including the calculation of the Added Costs set out in such Added Cost

Statements, which, shall be final and binding on the Parties for all purposes with

effect immediately following the expiry date for the giving of such Notice of

Objection.

(j) The Province and TBS shall cooperate and attempt in good faith to resolve any

objections contained in a Notice of Objection given in accordance with section 7(i)

promptly by negotiating between individuals with authority to settle such

objections.

(k) If the objections contained in any such Notice of Objection are not resolved within

30 days from the date of such Notice of Objection, then TBS and the Province shall

submit the dispute to a senior partner with an accounting firm of recognized

national standing in Canada, which is independent of the Parties (the “Independent

Firm”). If TBS and the Province are unable to agree on the Independent Firm

within an additional 10-day period, either of them may apply under the Arbitration

Act, 1991 (Ontario) to have a court appoint the Independent Firm. The Independent

Firm will resolve the dispute as an expert and not as an arbitrator and may not assign

a value to any item greater than the maximum value for such item claimed by TBS

or the Province or less than the minimum value of such item claimed by the other.

The Province and TBS shall use commercially reasonable efforts to cause the

Independent Firm to submit its determination in a written statement delivered to

TBS and the Province as promptly as practicable, but in no event later than 30 days

of the appointment of such Independent Firm, and such determination shall be

conclusive, final and binding on all Parties without possibility of amendment or

appeal. The fees and expenses of the Independent Firm shall be allocated between

TBS and the Province by the Independent Firm in inverse proportion based upon

the relative success of TBS and the Province in connection with the objections in

question, which proportionate allocations shall be calculated on an aggregate basis

based on the relative dollar values of all items in dispute and TBS and the Province

shall direct the Independent Firm to make such calculation and include such

calculation in its written decision.

(l) To the extent that, pursuant to the final resolution of any Notice of Objection, or

otherwise by agreement of TBS and the Province in writing within 90 days

following the expiration of the Interim Period (or 120 days if the Province requires

a TBS Audit), it is determined that the aggregate amount paid by the Province to

TBS pursuant to this section 7 (including, for certainty, the Initial Payment)

exceeded the aggregate amount of Added Costs as finally determined (such excess

amount, if any, being a “TBS Overpayment”), then TBS shall be required to repay

an amount equal to the TBS Overpayment to the Province, in accordance with

written wire instructions provided by the Province, within 60 days of the final

determination of the Added Costs of TBS.

(m) In consideration for the agreement of the Representative Owners to waive certain

rights under the MFA as contemplated by this Agreement, to the extent that,

following the final determination of the Added Costs of TBS in accordance with

sections 7(d) through 7(l) (including, for the avoidance of the doubt, the

determination of whether any TBS Overpayment occurred), the aggregate amount

of all Added Costs of TBS (excluding, for certainty, any TBS Overpayment

returned to the Province) is less than the Aggregate Cap (any difference being the

“Remaining Reimbursement Amount”), the Province shall reimburse an

aggregate amount not to exceed the Remaining Reimbursement Amount to the

Representative Owners for their reasonable Early Implementation Costs in

accordance with the following terms:

(i) Within 30 days following the final determination of the Added Costs of TBS

in accordance with sections 7(d) through 7(l), each Representative Owner

shall submit a one-time statement to the Province (each an “Owner’s Early

Implementation Cost Statement”, together the “Owners’ Early

Implementation Cost Statements”), setting forth in reasonable detail

(including a breakdown by cost category) the Early Implementation Costs

incurred by such Representative Owner.

(ii) If the Province does not object to any amount set out in any Owner’s Early

Implementation Cost Statement and does not intend to initiate one or more

Owners’ Audits (as defined below), then, subject to clause 7(m)(iii), the

Province shall, within 30 days of receipt of an Owner’s Early

Implementation Cost Statement from all of the Representative Owners

(other than any Representative Owner(s) that has provided the Province

with written confirmation that it will not be submitting an Owner’s Early

Implementation Cost Statement), reimburse such Representative Owners

for the amounts claimed in such Owner’s Added Cost Statements in

accordance with the payment instructions provided by such Representative

Owners in writing.

(iii) If the aggregate amount claimed by the Representative Owners in all

Owners’ Early Implementation Cost Statements exceeds the Remaining

Reimbursement Amount (a “Shortfall”), then the Remaining

Reimbursement Amount shall be divided among the Representative Owners

in proportion to the aggregate sales through TBS to Licensees and retail

consumers for the 2023 calendar year by each Representative Owner and its

affiliates (the “Proportionate Allocation”). If any Representative Owner

is paid in full as a result of the Proportionate Allocation and, following such

repayment in full, the Remaining Reimbursement Amount is not fully

exhausted, then the Proportionate Allocation process shall continue among

the remaining Representative Owners until there is no Shortfall or there is

no Remaining Reimbursement Amount or reimbursable Early

Implementation Costs.

(iv) Within 90 days of receipt of the last Owner’s Early Implementation Cost

Statement received by the Province, The Province shall be permitted, at its

sole expense, to complete an audit of the Financial Records of any or all of

the Representative Owners relating to amounts claimed in the Owners’

Early Implementation Cost Statements, to consider whether amounts

claimed constitute Early Implementation Costs determined in accordance

with the provisions of sections 7(a) and 7(b) (the “Owners’ Audits”, each

an “Owner’s Audit”). Each Owner’s Audit shall be conducted by the

Province or a third-party auditor engaged by the Province at its sole expense

during normal business hours and without undue interruption to the

applicable Representative Owner’s business. Any such Owners’ Audits

shall be completed within 90 days of receipt of the relevant Owners’ Early

Implementation Cost Statement. Each Representative Owner shall use

commercially reasonable efforts to cooperate promptly with all reasonable

requests of the Province and any such auditor in connection with any such

Owner’s Audit.

(v) If the Province does not provide an Owner’s Notice of Objection (as defined

below) to a Representative Owner within 90 days following receipt of the

Owner’s Early Implementation Cost Statement from such Representative

Owner, the Province shall be deemed to have accepted the contents of such

Owner’s Early Implementation Cost Statement, including the calculation of

the Early Implementation Costs set out in such Owner’s Early

Implementation Cost Statement, which, subject to clause 7(m)(vi) and

7(m)(vii), shall be final and binding on the Province and such

Representative Owner for all purposes and effect immediately following the

expiry date for the giving of such Owner’s Notice of Objection, and the

Province shall reimburse such Representative Owner no later than the last

day of such 90-day period for all amounts claimed in the Owner’s Early

Implementation Cost Statements (for clarity, subject to the other provisions

of this section 7) in accordance with the payment instructions provided by

the Representative Owner in writing.

(vi) If, following one or more of the Owners’ Audits, the Province objects to

any matter in one or more of the Owners’ Early Implementation Cost

Statements, the Province shall provide a Notice of Objection to the

applicable Representative Owner(s) (each an “Owner’s Notice of

Objection”) no later than 90 days following receipt of the applicable

Owner’s Early Implementation Cost Statement. Each Owner’s Notice of

Objection shall set out the basis for such objection in reasonable detail and

the Province’s calculation of the Early Implementation Costs in dispute.

The Province and the applicable Representative Owner(s) shall cooperate,

act expeditiously and attempt in good faith to resolve such objections

promptly by negotiating between individuals with authority to settle the

objections.

(vii) If a matter is not resolved within 30 days from the date of the applicable

Owner’s Notice of Objection, then the dispute shall be submitted by the

applicable Representative Owner and the Province to the Independent Firm

and the provisions of section 7(k) shall apply (with references to “TBS” in

such section being replaced with references to such “Representative

Owner” as necessary).

(n) TBS and the Representative Owners shall keep and maintain all Financial Records

related to the Added Costs for which they claim reimbursement under this section

7 until the expiry of seven years from the end of the Interim Period.

(o) Any payment that is due by any Party under this section 7 shall bear interest at the

rate of Prime Rate plus 9% per annum, calculated from (and including) the first

date that such payment is late to (but excluding) the date the payment is made.

Interest on late payments (whether pursuant to this section 7(o) or section 7(p))

shall not constitute Added Costs or count toward the Aggregate Cap.

(p) The procedures provided for by this section 7 shall be the exclusive and conclusive

methodology for determination of the matters covered by this section 7 and such

matters shall not be contested by any of the Parties other than as provided for in

this section 7. However, a Party’s failure to pay an amount owing under this section

7 by the date required under this Agreement may be a Dispute subject to resolution

pursuant to section 10(g) of this Agreement. In any such arbitration, and

notwithstanding anything to the contrary in this Agreement, the Arbitration

Tribunal shall resolve the Dispute in a summary fashion that it considers

appropriate in light of the nature of the Dispute. In addition, and notwithstanding

anything to the contrary in this Agreement, if the Arbitration Tribunal makes a

monetary award against the Province for failure to pay an amount owing under this

section 7, then:

(i) the Arbitration Tribunal may also award TBS or the Representative Owners,

as applicable, any other consequential or other damages that resulted from

the Province’s failure to pay an amount owing under this section 7 by the

date required under this Agreement (and, for certainty, such other

consequential or other damages shall not constitute Added Costs or count

toward the Aggregate Cap); and

(ii) consistent with section 7(o), the Arbitration Tribunal shall also award pre-

judgment and post-judgment interest against the Province at a rate equal to

the Prime Rate plus 9% per annum.

In addition, and notwithstanding anything to the contrary in this Agreement, the

Province’s failure to pay an amount owing under this section 7 by the date required

under this Agreement may be the subject of public releases, statements or

announcements by TBS or the Representative Owners, as applicable. For certainty,

TBS and the Representative Owners shall be entitled, but not required, to make

public releases, statements or announcements in connection with (i) the Province’s

failure to pay an amount owing under this section 7 by the date required under this

Agreement; (b) any resulting Dispute resolution proceedings pursuant to section

10(g) of this Agreement; and (c) any award granted by the Arbitration Tribunal in

connection with such a Dispute.

8. Other

(a) During the Interim Period, the Province shall prohibit Retailers from offering for

sale any alcoholic beverages under a brand if such Retailer or any of its affiliates

has a direct or indirect financial interest in the brand or in a trademark under which

the brand is marketed (commonly referred to as “private label” brands). The Parties

acknowledge that the language of section 84(1) of the Licensing Regulation is

consistent with this requirement.

(b) After the Interim Period only, the Province may permit Retailers to retail “private

label” alcoholic beverages, subject to any conditions, restrictions or other terms that

the Province may decide to impose after consulting more broadly with the

Representative Owners and other market participants.

9. A&R TBS Shareholders Agreement

(a) The Parties acknowledge and agree that in order to facilitate the efficient

implementation of this Agreement and in recognition of TBS’ changing role in the

Modern Beer Marketplace, certain changes to the Shareholders Agreement are

required during the Interim Period, as more particularly set forth in this section 9.

The Province acknowledges and agrees that TBS and the Representative Owners

shall seek or have already obtained requisite approvals necessary to amend and

restate the Shareholders Agreement to implement such changes with effect on or

around the Effective Date (the Shareholders Agreement, as so amended and

restated, the “A&R TBS Shareholders Agreement”), and the Province consents

to the A&R TBS Shareholders Agreement (in accordance with section 5.1 of the

MFA).

(b) For certainty, notwithstanding anything to the contrary in the New Beer

Agreements (including sections 3.1, 4.3 and 6.3 of the Shareholders Agreement,

and sections 4.1, 4.3, 5.1 and 8.6 of the MFA), as more particularly set forth in the

A&R TBS Shareholders Agreement, the Parties acknowledge and agree that for the

duration of the Interim Period (but for certainty, subject to section 7 of Appendix

C of this Agreement):

(i) TBS shall only be required to make publicly available its (A) annual audited

financial statements, (B) annual operations report, (C) rate sheets, and (D)

sustainability report (and for certainty, shall not be required to publish on

its website any policies adopted by its board of directors, the A&R TBS

Shareholder Agreement, the MFA or the By-Laws, or the composition of

the board of directors and any committees and their respective mandates, or

to provide to the Province any information available to the board of

directors);

(ii) there shall be no term limit applicable to the Independent Directors;

(iii) TBS shall no longer be required to operate on a cash-flow break-even basis,

and TBS shall, on an annual basis, be entitled to establish reasonable rates

to be charged in respect of the fees set out in section 4 of this Agreement

and the fee to Brewers per hectolitre of Beer sold through TBS retail to

generate revenues sufficient to cover the reasonable business requirements

of TBS, in its sole determination. For certainty, TBS shall not be required

to distribute revenues in excess of its costs unless so determined by its board

of directors from time to time in accordance with section 7 of Appendix C

of this Agreement;

(iv) the Province shall have no ability or right to terminate the MFA or the other

New Beer Agreements as a result of any breach (including a material

breach) of the Shareholders Agreement, and an alleged breach (including a

material breach) of the Shareholders Agreement shall not be subject to

resolution pursuant to sections 8.1 and 8.6 of the MFA; and

(v) no amendment has or will be made to section 8.6 of the A&R TBS

Shareholders Agreement.

10. Paramountcy; Amendment and Termination of the MFA; Dispute Resolution

(a) In the event of any conflict between the terms of this Agreement and the terms of

any of the New Beer Agreements, the terms of this Agreement will control. In the

event of any conflict between the terms of this Agreement and the terms of the New

ODRP Agreement following the entering into of by the parties to that agreement,

the terms of the New ODRP Agreement will control.

(b) The Parties agree that the implementation of the changes contemplated by this

Agreement and the Regulations will not give rise to any breach of the MFA or any

of the other New Beer Agreements by any of the Parties.

provided to TBS and the Representative Owners in this Agreement (including

section 7):

(i) TBS and the Representative 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 in

connection with the implementation of the changes contemplated by this

Agreement and the Regulations (provided such implementation is done in a

manner permitted by this Agreement), including claims:

(A) based upon rights that TBS and the Representative Owners have or

had under the New Beer Agreements or the 2000 Framework

Agreement; or

(B) based upon preferential sales or distribution rights that TBS and the

Representative Owners have or had under or in connection with

other agreements or accommodations with the LCBO or the

Province entered into or provided for prior to the Effective Date

(including any such agreements or accommodations that predate the

2000 Framework Agreement); and

(ii) TBS and the Representative 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 or

international foreign investment protection agreements to which Canada is

a party, including the Comprehensive and Progressive Agreement for

Trans-Pacific Partnership (the “CPTPP”), the Canada-European Union

Comprehensive Economic and Trade Agreement (the “CETA”) and the

Canada-United States-Mexico Agreement (“CUSMA”), against the

Province, the LCBO or Canada in connection with the implementation of

the changes contemplated by this Agreement and the Regulations (provided

such implementation is done in a manner permitted by this Agreement),

including claims:

(A) based upon rights that TBS and the Representative Owners have or

had under the New Beer Agreements or the 2000 Framework

Agreement; or

(B) based upon preferential sales or distribution rights that TBS and the

Representative Owners have or had under or in connection with

other agreements or accommodations with the LCBO or the

Province entered into or provided for prior to the Effective Date

(including any such agreements or accommodations that predate the

2000 Framework Agreement).

With respect to the rights waived in this section 10(c)(ii), TBS and the

Representative Owners will not provide their consent to arbitrate pursuant

to Article 9.21 of the CPTPP, nor provide their consent to arbitrate under

any similar provision in other applicable trade agreements such as the

CETA or CUSMA.

(d) For clarity, neither section 10(c)(i) nor 10(c)(ii) shall limit:

(i) any rights or claims of TBS or any Representative Owner to enforce the

terms of this Agreement or claim damages or other remedies resulting from

a breach of this Agreement or the implementation of the changes

contemplated by this Agreement in a manner that is not permitted by this

Agreement;

(ii) any rights or claims of TBS or the Representative Owners in respect of any

new actions or measures taken by the Province or the LCBO other than for

the implementation of the changes specifically contemplated by this

Agreement and the Regulations (provided such implementation is done in a

manner permitted by this Agreement), provided that the subject-matter of

the claim advanced or remedy sought is not based upon rights that TBS and

the Representative Owners had under the New Beer Agreements that have

not been continued under this Agreement or the 2000 Framework

Agreement or preferential sales or distribution rights that TBS and the

Representative Owners have or had under or in connection with other

agreements or accommodations with the LCBO or the Province entered into

or provided for prior to the Effective Date (including any such agreements

or accommodations that predate the 2000 Framework Agreement). For

further clarity and notwithstanding the foregoing, TBS and the

Representative Owners do not waive in relation to any new actions or

measures not specifically contemplated by this Agreement, which, for

certainty, include:

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

(B) any rights or claims if TBS were precluded from or subject to

discrimination with respect to the sale or distribution of Beer in

Ontario other than as contemplated by this Agreement or the

Regulations; or

non-discriminatory treatment for all Brewers in connection with the

sale and distribution of Beer in Ontario consistent with domestic and

international trade law norms; or

(iii) any rights or claims of the Parties to contribution or indemnity or a claim

over against each other (including by TBS or a Representative 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.

(e) In consideration for the rights provided to such Party in this Agreement (including

section 7), each of the Parties waives any right that it may have 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 or international law, in connection with any breach

or alleged breach of any of the New Beer Agreements prior to the date of this

Agreement (other than in respect of amounts payable in the ordinary course under

the terms of the New Beer Agreements that have not yet been paid) in respect of:

(i) circumstances known to the Party, or (ii) circumstances that a reasonable person

in the position of the Party ought to have known about, in each case, as of or prior

to the Effective Date.

(f) Effective December 31, 2025, the MFA and the other New Beer Agreements will

terminate in accordance with their terms and the notice of termination previously

provided by the Province. Notwithstanding anything to the contrary in the New

Beer Agreements or in this Agreement, sections 8.1, 8.6 (other than in connection

with an alleged breach of the Shareholders Agreement) and 8.7 of the MFA and

sections 5(b)(iv) (but, for certainty, only in relation to Incorrect Disposals that

occurred during the Term), 6(a), 7, and 10(g) of this Agreement shall survive the

New Beer Agreements Termination and the expiration of the Interim Period and

the Term. For clarity, nothing in section 8.7 of the MFA shall limit any rights or

claims of TBS or any Representative Owner to enforce the terms of this Agreement,

including any claim for damages or other remedies resulting from a breach of this

Agreement or the implementation of the changes contemplated by this Agreement

in a manner that is not permitted by this Agreement.

(g) Subject to section 7, 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 section 8.1 of the MFA, including Schedule 8.1

of the MFA, which shall apply mutatis mutandis; however, where the Parties

involved in a Dispute cannot agree on the appointment of an Arbitration Tribunal

in the manner set out in Schedule 8.1 of the MFA, then instead of the Independent

Directors appointing the Arbitration Tribunal by majority vote, any Party to the

Dispute may apply to the Ontario Superior Court of Justice for appointment of the

Arbitration Tribunal under the Arbitration Act, 1991 (Ontario). An arbitrator

appointed under this Agreement (the “Arbitration Tribunal”) to determine a

Dispute shall treat all obligations in this Agreement 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. In particular, and without

limiting the jurisdiction of an Arbitration Tribunal appointed under this Agreement,

any monetary award ordered by the Arbitration Tribunal 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.

11. Notices

(a) Any notice, consent or approval required or permitted to be given in connection

with this Agreement (a “Notice”) shall be made 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 e-mail:

in the case of a Notice to TBS at:

Brewers Retail Inc.

12258 Coleraine Drive

Bolton, Ontario, L7E 3A9

Attention: President

Telephone: (905) 361-1005

Email: [email protected]

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: Vice President, Legal and Corporate Affairs

Telephone: (416) 361-5050

Email: [email protected]

in the case of a Notice to Molson at:

Molson Canada 2005

33 Carlingview Drive

Etobicoke, Ontario

M9W 5E4

Attention: Chief Legal Officer

Telephone: 414.418.7475

Email: [email protected]om

in the case of a Notice to Sleeman at:

Sleeman Breweries Ltd.

551 Clair Road West

Guelph, Ontario

N1L 1E9

Attention: President and Chief Executive Officer

Telephone: (647) 594-8596

Email: Mike.Minami@sleemanbreweries.ca

in the case of a Notice to the Province at:

Ministry of Finance

Frost Building North

95 Grosvenor Street, 2nd Floor

Toronto, ON

M7A 1Z1

Attention: Director

Alcohol Policy and Strategic Initiatives Branch

Alcohol Marketplace Implementation Division

Ministry of Finance

Telephone: (416) 314-4288

Email: [email protected]

(b) 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.

Parties in accordance with the provisions of this section 11.

12. General Matters

(a) This Agreement supersedes and replaces in its entirety the Key Principles. This

Agreement, together with the New Beer Agreements (as amended by this

Agreement, but only until terminated) and the New ODRP Agreement (once

entered into) constitute the entire agreement between the Parties relating to the

subject matter of this Agreement and set out all the covenants, promises, conditions

and agreements between the Parties in connection with the subject matter of this

Agreement and supersede all prior agreements, understandings, negotiations and

discussions, whether oral or written, pre-contractual or otherwise (including the

Key Principles) between the Parties or their representatives. There are no

covenants, promises, conditions or other agreements, whether oral or written, pre-

contractual or otherwise, express, implied or collateral, between the Parties in

connection with the subject matter of this Agreement except as specifically set forth

or referred to in this Agreement.

(b) Any and all instances in this Agreement in which the Parties purport to impose an

obligation on the LCBO shall be interpreted as imposing an obligation on the

Province to cause the LCBO to abide by or act in accordance with such obligation.

of the Liquor Sales Agreements Act (Ontario).

(d) Nothing in this Agreement or the New ODRP Agreement would derogate from

current or future legislative or regulatory authority under the LLCA, the Liquor Tax

Act, 1996 (Ontario) or any other statute or regulation of Ontario, subject to the right

of TBS and the Representative Owners to the remedies determined by an

Arbitration Tribunal appointed under 10(g) of this Agreement if legislative or

regulatory changes result in a failure of the Province to meet its obligations under

this Agreement.

(e) TBS and the Representative Owners acknowledge that the Province’s Auditor

General may review the payments made by the Province under section 7 and TBS

and the Representative Owners shall provide reasonable cooperation with the

Province in respect of any such review. In no case shall any such review affect any

of the rights of TBS or any of the Representative Owners under this Agreement,

including section 7.

(f) This Agreement constitutes a legal, valid and binding obligation enforceable

against the Parties in accordance with the terms of this Agreement, subject to the

availability of equitable remedies and the qualifications on remedies against the

Crown set out in the Crown Liability and Proceedings Act, 2019 (Ontario).

(g) The Province intends to maintain its high standards for the responsible sale and

consumption of beverage alcohol. Similarly, TBS intends to maintain its strong

commitment to social responsibility in its distribution and sale of beverage alcohol.

(h) The Province intends to propose any laws or other approvals deemed necessary or

desirable to implement, authorize, monitor and enforce:

(i) the changes contemplated by this Agreement in advance of the

Commencement Date; and

(ii) the terms of the New ODRP Agreement, in advance of the effective date of

the New ODRP Agreement (which, for the avoidance of doubt, shall be no

later than December 31, 2025).

(i) The obligations of TBS and the Representative Owners pursuant to this Agreement

are premised upon, and shall be conditional upon, 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.

(j) Notwithstanding this Agreement, the Non-Disclosure Agreement entered into by

the Parties on January 17, 2022 remains in effect. No Party shall, prior to the

Commencement Date, make any press release or similar public announcement or

public communication relating to this Agreement unless specifically approved in

advance by the other Parties and the disclosing Party shall provide the other Parties

with prior notice and a reasonable opportunity to review and comment on the

disclosure.

(k) In this Agreement:

(i) Time is of the essence in the performance of the Parties’ respective

obligations.

(ii) Unless otherwise specified, all references to money amounts are to the

lawful currency of Canada.

(iii) Headings are inserted for convenience of reference only and shall not affect

the construction or interpretation of this Agreement.

(iv) 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.

(v) Where the word “including” or “includes” is used in this Agreement, it

means “including (or includes) without limitation”.

(vi) 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.

(vii) Unless the context otherwise requires, words importing the singular include

the plural and vice versa and words importing gender include all genders.

(viii) 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.

(ix) 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.

(l) The attached Appendices form an integral part of this Agreement.

(m) No amendment to this Agreement shall be valid or binding unless 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.

(n) None of the Parties to this Agreement may assign its rights or obligations under this

Agreement without the prior written consent of the other Parties, which consent

shall not be unreasonably withheld or delayed, provided, however that any

Representative Owner may assign its rights and obligations under this Agreement,

in whole or in part, to one or more of its respective affiliates upon giving Notice to

the other Parties but without requiring the prior written consent of the other Parties.

(o) This Agreement may be executed by the Parties in counterparts and the counterparts

may be executed and delivered by electronic means, with all counterparts together

constituting one agreement.

[Remainder of this page intentionally left blank.]

[Signature Page to Early Implementation Agreement]

IN WITNESS OF WHICH, the Parties have each caused this Agreement to be executed by

their duly authorized officers as of the Effective Date.

BREWERS RETAIL INC. LABATT BREWING COMPANY

LIMITED

By:

Marcelo (Mika) Michaelis, President,

Canada

By:

MOLSON CANADA 2005 SLEEMAN BREWERIES LTD.

By:

Chantalle Butler, President

John Sleeman, Chairman and Founder

By:

Mike Minami, President and Chief

Executive Officer

HIS MAJESTY THE KING IN

RIGHT OF ONTARIO

By:

Peter Bethlenfalvy

Minister of Finance

"Peter Bethlenfalvy"

"Chantalle Butler"

"John Sleeman"

"Mike Minami"

"Mika Michaelis"

"Roy Benin"

Roy Benin, President

1386-7872-0012.25

Appendix A – Defined Terms

Term Definition

Beer

Means any beverage (including malt-based Ready-to-Drink

Beverages) containing alcohol in excess of the prescribed amount

obtained by the fermentation of an infusion or decoction of barley, malt

and hops or of any similar products in drinkable water.

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.

Cider

Means Wine produced from apples or pears, or from the concentrated

juice of apples or pears, to which herbs, water, honey or sugar is added.

Convenience Store

Means a store, other than TBS:

(a) that consists of no more than 4,000 square feet of Retail Floor

Space,

(b) in which food products offered for retail sale, excluding prepared

food products that may be consumed on site, occupy at least half of the

Retail Floor Space,

products for in-person sale, other than prepared food products that may

be consumed on site: canned food, dry food, frozen food, fresh fruits,

fresh vegetables, meat or meat alternatives, dairy or dairy alternatives,

non-alcoholic beverages, baked goods, and snack foods; and

(d) that is not primarily identified to the public as a pharmacy, even if

a pharmacy as defined in the Drug and Pharmacies Regulation Act is

located within the store.

Consumer Retail

Price of Beer

Means the prices at which Beer is sold to retail consumers in Ontario.

Financial Records Means all books of account and other financial data and information

of a Person, which will, for certainty, not include receipts other than

for capital expenditures greater than $50,000.

General Regulation Means O. Reg. 745/21: General under the LLCA as it would be

amended by proposed amending regulations delivered to the

Representative Owners on

May 22

, 2024

Grocery Store

Means a store, other than TBS:

(a) that has more than 4,000 square feet of Retail Floor Space,

(b) in which food products offered for retail sale, excluding prepared

food products that may be consumed on site, occupy, (i) at least 10,000

square feet of the Retail Floor Space, or (ii) at least half of the Retail

Floor Space,

for in person sale, other than prepared food products that may be

Term Definition

consumed on site: canned food, dry food, frozen food, fresh fruits,

fresh vegetables, meat or meat alternatives, dairy or dairy alternatives,

non-alcoholic beverages, baked goods, and snack foods,

(d) that is not primarily identified to the public as a pharmacy, even if

a pharmacy as defined in the Drug and Pharmacies Regulation Act is

located within the store, and

For the avoidance of doubt, the term “Grocery Stores” shall include all

New Outlets (as such term is defined in the MFA).

LCBO

Convenience

Outlets

Means stores operated by an agent of the LCBO under its LCBO

convenience outlet program.

Licensee

Means a Person holding a liquor sales licence issued under the LLCA.

Licensing

Regulation

Means O. Reg. 746/21: Licensing under the LLCA as it would be

amended by proposed amending regulations delivered to the

Representative Owners on May 22, 2024.

LLCA Means the Liquor Licensing and Control Act, 2019 (Ontario).

Manufacturer Means a Person who produces liquor for sale.

Ontario Deposit

Return Program

Means the waste reduction and recycling program established by the

government of Ontario requiring licensees to collect and remit deposits

on regulated containers.

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.

Pricing Regulation Means O. Reg. 750/21: Minimum Pricing of Liquor and Other Pricing

Matters under the LLCA as it would be amended by proposed

amending regulations delivered to the Representative Owners on May

, 2024

Prime Rate Means the prime rate of interest per annum quoted by the Royal Bank

of Canada from time to time as its reference rate of interest for

Canadian dollar demand loans made to its commercial customers in

Canada and which such bank refers to as its “prime rate”, as such rate

may be changed from time to time.

Program

Containers

Means all beverage alcohol (including Beer) containers greater than

100 mL in size sold in the province of Ontario that are not subject to

the TBS Beer Container Recovery System.

Term Definition

Ready-To-Drink

Beverage

Means a ready-to-consume cooler, hard seltzer or other premixed

cocktail made from spirits, Wine, Beer or fermented sugar, or from any

combination of the four, with an alcohol content of not greater than 7.1

per cent by volume.

Regulations Means the General Regulation, the Licensing Regulation, and the

Pricing Regulation.

Retail Floor Space

Means any indoor space that is fully enclosed by walls in which goods

or services are offered for sale to the public.

Retailers Means Grocery Stores that hold a grocery store licence and

Convenience Stores that hold a convenience store licence, each as

issued under the LLCA.

Southern LCBO

Convenience

Outlets

Means those southern LCBO Convenience Outlets outlets that are so

identified in the LCO Directory on the LCBO’s website.

TBS Beer

Container

Recovery System

Means the deposit and collection arrangements between TBS and

Brewers regarding TBS Beer Containers and refillable Beer

containers.

TBS Beer

Containers

Means the non-refillable containers subject to the TBS Beer Container

Recovery System.

Wine

Means any beverage containing alcohol in excess of the prescribed

amount obtained by the fermentation of the natural sugar contents of,

(a) fruits, including grapes and apples, or (b) other agricultural

products containing sugar, including honey and milk.

Appendix B – Distribution

In respect of the Interim Period and for the duration of the Term, and solely for purposes of

Appendix B and Appendix C (and not, for the avoidance of doubt, section 6(b) of the Agreement),

the definition of “Small Brewer” will be revised to refer to 300,000hL / year to align with the

Taxation Act, 2007 (Ontario). Eligibility as a Small Brewer will be based upon the Brewer’s

previous year’s production.

Small Brewers (i.e., Eligible Brewers) Large Brewers

 Can distribute their own products and

affliates’ products in any quantity to

all channels

 Individual Brewers can distribute their own

products and products of their affiliates outside

of TBS (self-distribute) subject to a maximum of

300,000 hL/year for distribution of Beer to

Licensees and to Retailers

 Anything above 300,000 hL/year must be

distributed to these channels through TBS

 Non-alcoholic Beer will not count towards the

300,000 hL/year limit

 Can distribute themselves, or use any

third-party distributor or other

Manufacturer (except Large

Brewers) to distribute all products

 Can use TBS for all distribution

 Can decline distribution centres and

distribute directly to Retailers

 Can distribute themselves, or use any third-party

distributor or other Manufacturer (except Large

Brewers) to self-distribute products, subject to

the 300,000 hL/year limit on self-distribution to

Retailers and Licensees

 Can use TBS for all distribution

 Can decline distribution centres and distribute

direct to Retailers

 Can distribute Beer with other

alcohol and non-alcohol beverages

on the same truck

 No pooled distribution outside TBS; no

distribution of non-affiliated Brewers’ Beer

 Can include non-alcohol beverages (including

non-alcohol beverages of non-affiliated

Manufacturers) in self-distribution (including

distributions subject to the 300,000 hL/year

threshold)

1386-7872-0012.25

Appendix C – Conditions to TBS’ Distribution Rights

In respect of the Interim Period and for the duration of the Term, and solely for purposes of

Appendix B and Appendix C (and not, for the avoidance of doubt, section 6(b) of the Agreement),

the definition of “Small Brewer” will be revised to refer to 300,000hL / year to align with the

Taxation Act, 2007 (Ontario). Eligibility as a Small Brewer will be based upon the Brewer’s

previous year’s production.

1. TBS must publicly post a rate sheet that applies to all distribution activities and fees.

Distribution fees must be the same for all Brewers that use TBS’ distribution services

(subject to below).

2. TBS must maintain its existing policy of providing 2 free listings in 7 stores (of which one

can be a distribution centre) to Brewers with less than 10,000 hL/year in worldwide

production.

3. TBS must not impose minimum order quantities on Small Brewers’ Beer (although it can

impose minimum order quantities on the total volume of Beer to be distributed to a specific

individual Retailer).

4. TBS cannot penalize Brewers for using alternative distribution services or joint delivery.

However, TBS can require that Small Brewers opt in or opt out from distribution to the

entirety of each of the following channels (Small Brewers opt in or opt out separately for

each channel):

a. Retail (i.e., Retailers and TBS)

b. Licensees (e.g., bars and restaurants)

c. LCBO and LBCO Convenience Outlets

5. TBS must distribute any Brewer’s Beer even if not retailed in TBS.

6. TBS must distribute to Retailers, Licensees, LCBO and LBCO Convenience Outlets

throughout the entire province, including Northern Ontario.

7. TBS must ensure that any profits from its distribution activities, to the extent distributed to

Brewers, are shared fairly amongst the Brewers that use the TBS distribution system in a

manner that is similar to how it operates today.

Appendix D – Added Costs

This Appendix sets out categories of costs and expenses that may be included in Added Costs to

the extent otherwise in compliance with the requirements of section 7 of this Agreement as well

as certain categories of costs and expenses that shall not be included in Added Costs even if they

would otherwise be in compliance with the requirements of such section 7.

All determinations of costs and expenses will be made in accordance with generally accepted

accounting principles, where accounting principles are required, applied in a manner consistent

with past practices.

For TBS:

1. The TBS Retail Costs shall include, but not be limited to, the following costs incurred by

TBS in respect of the Interim Period, which will be fully reimbursable to TBS on a dollar-

for-dollar basis (for certainty, except as otherwise expressly provided in this Agreement):

 Employment Costs – All employment costs (including, but not limited to, salaries,

wages, standard employment benefits, group benefits, medical reimbursement

programs, vacation pay, employer side CPP and EI contributions, pension contributions

and training costs) incurred by TBS in relation to individuals reporting to work at TBS

retail locations.

 Real Estate Costs – All rent, utilities, property taxes, repair, maintenance, lease

renegotiation costs and other real estate related costs incurred by TBS in relation to its

retail locations.

 Other In-Store Costs – All other in-store operating costs incurred by TBS in relation to

its retail locations, including, but not limited to, cleaning and in-store information

technology.

 Corporate Overhead Allocation – Corporate overhead allocation for TBS retail,

including, but not limited to, general overhead costs and specific retail focused

employees at corporate headquarters.

 Capital Expenditures – Any capital investment required to keep TBS retail stores in

minimum operating condition (including, but not limited to, costs to fix roofs, address

mold, maintaining or fixing HVAC equipment, etc.).

2. The Early Implementation Costs shall include, but not be limited to, the following costs

incurred by TBS in respect of the Interim Period, which will be fully reimbursable to TBS

on a dollar-for-dollar basis (for certainty, except as otherwise expressly provided in this

Agreement):

 Employment Costs – All employment cost (including, but not limited to, salaries,

wages, standard employment benefits, group benefits, medical reimbursement

programs, vacation pay, employer side CPP, EI and pension contributions and training

costs) incurred by TBS relating to individuals hired in respect of expanded

warehousing, delivery and distribution activities of TBS (which excludes for certainty

employees reporting to work in TBS retail locations) and the cost of external recruiters

payable by TBS in respect of such hiring.

 Operating Costs – Operating costs relating to expanded delivery and distribution

activities of TBS, including, but not limited to, leases of personal property, consultant,

advisory and agency costs for logistical support, analysis and routing, CRM capability

for Omni Channel, increased market breakages, vehicle insurance, vehicle fuel and

vehicle repair costs.

 Overflow Storage Costs – Costs relating to overflow storage at TBS distribution

centres.

 Expediting Fees – Fees paid to expedite the investments in capital assets described in

sections 3 and 4 below.

3. The Early Implementation Costs shall also include, but not be limited to, the following,

which will be reimbursable to TBS in an amount equal to the amortized value of such costs

over the Interim Period and Term, pro rated to the Interim Period and the time-value-of-

money of such costs, calculated using a discount rate per annum equal to the Prime Rate

over the period from the date such cost is incurred to January 1, 2026:

 Implementation of Warehouse Management Systems – Implementation of new or

improved warehouse management systems.

 Distribution Related Materials – Costs to purchase additional materials, including, but

not limited to, pallets and bins, necessary to support distribution to an expanded number

of locations.

4. The Early Implementation Costs shall also include, but not be limited to, the following,

which and will be reimbursable to TBS on an amortized basis over the lesser of 6.5 years

(after deducting any reasonable residual realizable value of the underlying capital asset at

the end of such 6.5-year period) and the reasonable expected lifetime of the underlying

capital asset and the time-value-of-money of such costs calculated using a discount rate per

annum equal to the Prime Rate over the period from the date such cost is incurred to

January 1, 2026:

 Property, Plant and Equipment – All capital costs incurred by TBS for new property,

plant and equipment purchased in relation to expanded distribution and delivery

services.

 Store Conversions – All costs incurred by TBS to convert TBS retailer locations to

support TBS’ cash-and-carry business, including, but not limited to, store

improvements, racking, carts, in-store IT and point of sale reconfiguration.

 Warehouse Management Systems – Capital costs for new or improved warehouse

management systems.

 Automation Costs – Costs incurred by TBS for voice-picking automation for TBS

distribution centres, new software and hardware for TBS distributions centres, and fees

payable to bring automation equipment for distribution centres forward into the Interim

Period.

For Representative Owners:

1. The Early Implementation Costs shall include, but not be limited to, the following incurred

by a Representative Owner in respect of the Interim Period, which will be fully

reimbursable to the applicable Representative Owner on a dollar-for-dollar basis (for

certainty, except as otherwise expressly provided in this Agreement):

 Large Pack Exclusivity – As compensation for loss of existing large-pack exclusivity

under the MFA, an amount determined as (a) the difference between the Representative

Owner’s retail sales per HL at LCBO and LCBO Combination Stores multiplied by (b)

the Representative Owner’s volume that migrates from TBS to Retail (determined by

subtracting the Representative Owner’s volume in HL sold through TBS retail during

the Interim Period from the Representative Owner’s volume sold through TBS retail in

the 17 months immediately preceding the Interim Period).

 ISB – Incremental cost incurred by the Representative Owner to purchase containers

of ISB to replace ISBs lost due to decline in return rates in respect of the Interim Period,

measured against historical average costs of ISB containers to the Representative

Owner from 2021 to 2023 (as reasonably adjusted for inflation) pro rated over the

Interim Period.

 Employment Costs – All employment cost (including, but not limited to, salaries,

wages, standard employment benefits, group benefits, medical reimbursement

programs, vacation pay, employer side CPP and EI contributions, training costs, vehicle

leases and insurance, gas and computer software) incurred by the Representative

Owner in respect of the period ending on the expiration of the Interim Period relating

to hires made in respect of expanded marketing and sales activities and the cost of

external recruiters payable by the Representative Owner in respect of such hires.

Employment costs shall also include the cost of any related office expansions to

accommodate the expanded workforce.

 Sales Materials – Incremental cost of sales materials incurred by the Representative

Owner for expanded sales and marketing activities during the Interim Period.

 Distribution Costs – Increase in distribution fees paid to TBS on a per hectolitre basis,

resulting from the higher complexity and lower productivity of TBS’ distribution

operation.

2. The Early Implementation Costs shall also include, but not be limited to, the following

costs incurred by a Representative Owner in respect of the period ending on the expiration

of the Interim Period, which will be reimbursable to the Representative Owner in an

amount equal to the amortized value of such costs over the Interim Period and Term, pro

rated to the Interim Period and the time-value-of-money of such costs, calculated using a

discount rate per annum equal to the Prime Rate over the period from the date such cost is

incurred to January 1, 2026:

 Implementation of Warehouse Management Systems – Implementation of new or

improved warehouse management systems.

 Distribution Related Materials – Costs to purchase additional materials, including, but

not limited to, pallets and bins, necessary to support distribution to an expanded number

of locations.

3. The Early Implementation Costs shall also include, but not be limited to, the following,

which will be reimbursable to the Representative Owner on an amortized basis over the

lesser of 6.5 years (after deducting any reasonable residual realizable value of the

underlying capital asset at the end of such 6.5-year period) and the reasonable expected

lifetime of the underlying capital asset and the time-value-of-money of such costs

calculated using a discount rate per annum equal to the Prime Rate over the period from

the date such cost is incurred to January 1, 2026:

 Computer Hardware – Costs of computer hardware and other information technology

costs (other than computer software) incurred by the Representative Owner for

incremental sales and marketing personnel, amortized over 3 years.

Excluded Categories of Costs:

The following categories of costs and expenses shall be excluded from Added Costs:

1. Legal fees and disbursements.

2. Consulting fees and disbursements associated with the negotiation of this Agreement and

prior discussions among the Province, TBS and the Representative Owners.