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Russell Breweries agrees to sell operating businesses

Published 10 October 2016

Russell Breweries has signed two separate purchase agreements pursuant to sell to separate purchasers, substantially all of the assets related to its two operating businesses.

The two purchase agreements are the result of the previously announced long and extensive strategic review process undertaken by the Board of Directors of the Company and its Special Committee that commenced in 2015.

Sale of Fort Garry

The Company and its wholly-owned subsidiary, Fort Garry Brewing Company (FGBC), have entered into an asset purchase agreement (the "Fort Garry Sale Agreement") with Fort Garry Brewing Company (the "Fort Garry Purchaser"), whereby the Company has agreed to sell to the Fort Garry Purchaser, all of the property and assets used or utilized by the Company in its business of producing beers in Manitoba under the name "Fort Garry Brewing Company" for a purchase price of $7.71m, subject to applicable working capital adjustments at closing (the "Fort Garry Sale").

The purchase price will be paid by the Fort Garry Purchaser on the closing of the Fort Garry Sale as follows:

$6.1m in cash;

the surrender of a $200,000.00 deposit paid in trust on execution of the Fort Garry Sale Agreement; and

the deposit with Computershare Trust Company of Canada (the "Escrow Agent") of:

$350,000.00, to cover working capital adjustments for a period until the working capital is finally determined; and

$1m to cover any indemnification claims that may be made by the Fort Garry Purchaser for a period of one year following closing, plus interest of 5% per annum to be paid by the Fort Garry Purchaser on the amount, if any, by which the indemnification amount released to FGBC is greater than $400,000.

The Company intends to distribute substantially all of the proceeds received, following the repayment of all its outstanding debts, to its shareholders by way of return of capital on a date to be determined by the Board of Directors after all adjustments, holdbacks and expenses have been determined.

The Purchaser is a newly established Manitoba-based Limited Partnership, backed by one of the largest diversified private equity/venture capital firms within the prairie provinces.

The Fort Garry Sale Agreement provides that the Company is subject to non-solicitation provisions, but provides that the Company's Board may, under certain circumstances, terminate the Fort Garry Sale Agreement in favour of an unsolicited superior proposal, subject to payment of a termination fee of $750,000 to the Fort Garry Purchaser and subject to a right in favour of Fort Garry Purchaser to match a superior proposal.

A copy of the Fort Garry Sale Agreement will be filed on SEDAR.

Sale of Russell Brewing

The Company and FGBC have also entered into an asset purchase agreement with 1083256 B.C. (the "Russell Brewing Purchaser"), a company owned by Yong Lin and Xiaomin Wang (the "Russell Brewing Sale Agreement"), whereby the Company has agreed to sell to the Russell Brewing Purchaser, all of the property and assets used or utilized by the Company in its business of producing beers in British Columbia under the name "Russell Brewing Company" for a purchase price of $1.8m subject to working capital adjustments at closing (the "Russell Brewing Sale").

The purchase price for the Russell Brewing Sale will be paid by the Russell Brewing Purchaser as follows:

on the closing of the Russell Brewing Sale, payment of:

$180,000.00 in cash; and

the surrender of a $180,000.00 deposit paid in trust on the execution of the Russell Brewing Sale Agreement; and

the remainder of the purchase price will be payable by the Russell Brewing Purchaser in instalments as follows:

on the date that the final working capital is finally determined, payment of $80,000, subject to any working capital adjustments; and

either:

on the date that is 6 months from the closing of the Russell Brewing Sale, the deposit with the Escrow Agent of $200,000, to cover any indemnification claims that may be made by the Russell Brewing Purchaser for a period of one year following closing, and payment to FGBC of the remainder of the purchase price, being $1.16m plus interest of 7.5% per annum, compounded annually, on such amounts; or

on the date that is 6 months from the closing of the Russell Brewing Sale, payment to FGBC of $680,000 and, on the date that is 12 months from the closing of the Russell Brewing Sale, payment to FGBC of $200,000, subject to any indemnification claims that may be made by the Russell Brewing Purchaser, and the remainder of the purchase price, being $480,000, plus interest of 7.5% per annum, compounded annually, on such amounts.

As collateral security for the payment of the remaining instalments of the purchase price, the Russell Brewing Purchaser has agreed to execute and deliver in favour of FGBC, a first ranking general security agreement covering all of the Russell Brewing assets.

The Company intends to distribute substantially all of the proceeds received on closing of the Russell Brewing Sale, following the repayment of all its outstanding debts, to its shareholders by way of return of capital, with the remaining proceeds to be distributed after all adjustments, holdbacks and expenses have been determined one year following closing.

The Russell Brewing Sale Agreement provides that the Company is subject to non-solicitation provisions, but provides that the Company's Board may, under certain circumstances, terminate the Russell Brewing Sale Agreement in favour of an unsolicited superior proposal, subject to payment of a termination fee of $160,000 to the Russell Brewing Purchaser and subject to a right in favour of the Russell Brewing Purchaser to match a superior proposal.

A copy of the Russell Brewing Sale Agreement will be filed on SEDAR.

Shareholder Approval

Given that the Fort Garry Sale would represent the sale of substantially all of the undertaking of the Company, the Company must obtain shareholder approval by way of a special resolution of its shareholders in order to proceed with the Fort Garry Sale.

In addition, since the Russell Brewing Sale may represent substantially all of the undertaking of the Company at the time of the Russell Brewing Sale (in particular if the Fort Garry Sale has been completed prior to the completion of the Russell Brewing Sale), the Company may be required to obtain shareholder approval by way of special resolution of its shareholders in order to proceed with the Russell Brewing Sale.

As a result, the Fort Garry Sale and the Russell Brewing Sale, if required, are conditional on the Company obtaining shareholder approval.

Each of the Fort Garry Purchaser and the Russell Brewing Purchaser have entered into support agreements with all of the directors and/or officers of the Company holding or controlling Common shares of Russell (the "Common Shares") and with certain other shareholders of the Company, including Denver Smith and Premier Diversified Holdings (collectively, the "Support Shareholders") whereby each Supporting Shareholder has agreed to vote in support of approving the Fort Garry Sale and the Russell Brewing Sale.

The Company understands that the Support Shareholders currently collectively own or control 34,587,526 Common Shares, being approximately 40% of the issued and outstanding Common Shares. The Company anticipates holding a meeting of its shareholders to consider the approval of the Fort Garry Sale and the Russell Brewing Sale at the end of November 2016.



Source: Company Press Release