Distribution of Liquor Project - Proponent's Meeting May 10, 2012 Vancouver, BC (MEETING COMMENCED AT 9:02 A.M.) MR.

AGERUP: Little bit of agenda. It's a rough agenda depending how fast we go through the presentation and questions. There will be three presentations. After that we'll do a tour of the building, of the warehouses, and we come back here afterwards. We can only take two people from each proponent on the tour because of the it's limited number of people we can take out in the warehouse. Is a flexible agenda okay with you or are you waiting for someone coming? Anyone having problems, shout now. Okay. Good. We're also doing a transcription of this meeting. So the transcription notes will be posted in your VDR. And Kari is our transcriber. And iIt's important that when we ask questions, that you don't speak on top of each other. And sSpeaking slowly and clearly helps; okay? So I'll go through this stage of the process. It's all in the documents, but it's good to hear again. If you have any questions, feel free to ask, interrupt, put up your hand. Today is for you guys. So the more clarity we can provide today, the better it is for everyone. So feel free to forward thoughts. So right now we are technically before stage 1 in the process. You have access to the VDR. There's 140 some documents to read. We have the proponents meeting here today with the site tour. If there's interest, we also provide a site tour of the Kamloops facility. And also the Q and A process. You can send us questions. We'll respond in writing. So that goes on throughout the process. Stage 1 start with the submission of the proposal, which is on June 29th, and you can choose either to send paper copies, six copies, or use BC Bid for electronic submission. If you choose to use BC Bid, you have to register before. It usually takes 24 hours to activate the account. It's a good idea to test send a document sometime before the closing date. And also submitting Excel spreadsheets. Frank will talk a little bit the financial model. Password protect them and send the password separately to me. So in stage 1 we're looking at your proposal. And there's an opportunity, if you missed something, to fix it. So you have a week to get back to us. For example, you missed to submitting the financial model or you didn't sign it. That's okay. We can rectify that in this process. You all signed the declaration. And the first step for us internal is a government reference check. This is a policy requirement. We need to look at any contract you've had with the government for the last three years over 1 million in value. And tThat goes through internal financial officers process. And that's also if -- there's a pass/fail result from that. And iIf you for some reason would fail, there's an opportunity to rectify that as well. If you haven't had any contract with the

government in excess of a million over last three years, you automatically pass. So that's good for you. The next step is, like I mentioned, we review the proposals and make sure that everything is there. And if not, we can fix it, let you know, and you have seven days to submit the full proposal. Any questions on this? Am I talking too fast? Okay. Stage 2 starts with a reference check and then the evaluation. So the reference check is references that you submit new proposal. And it's more of a business reference check rather than the first policy one. Evaluation ends with a ranking of all the proponents, and up to the top three will be deemed short listed proponents invited to next stage. There's three. So that's the first evaluation. Then there's stage 3, the proposal refinement process. And basically it starts with a feedback session where we go through your proposal and how we read it and how we evaluate it and where we saw room for improvement, overkill and, yeah, other opportunities. After that we have a process where you can interactive, you can meet with us, you can ask questions, you can clarify. And it ends with a best and final offer, a new proposal or [indiscernible] the delta of the two. And that's the ones evaluated. And after that evaluation there will be one selected proponent that goes into the stage 4. Okay. So stage 2 and 3 you have the evaluation criteria. Just want to point out that the criteria are the same, but the way things are slightly different between the two stages. So stage 4 is the negotiation of an agreement with the selected proponent and then execution of the agreement. When you put it all together it looks something like this. This is the graph probably seen in the NRFP where you have stage 1 and 2, first evaluation, refinement, evaluation. Then we come out with one selected proponent. It goes through the due diligence and negotiations and contracts. And we have up until July 20th to do the first two stages. Then we have a long stretch over the summer for the proposal refinement up to top three. And then we expect to be done with an agreement before March 1st, 2013. And I added this line because it's basically a snippet from our internal calendar, but I want to point out between July and beginning of September there's not much activity. So if you plan vacation, that's a good time to plan your vacation. We will have a skeleton crew ready to answer any questions, but yeah, otherwise it's little bit slower. So that's pretty much what I'm going to say about the process. Just highlight it, internalise it, look it up, think about it again. If you have any questions, send them in or look at NRFP process. Fairly well laid out there. Before I hand over to Roger, I'm just going to mention that the tour to proponent will end back here. I think it will take about 45 minutes. I will come with you. When we walkthrough the building, it's better if you can save the questions -- save them when we're back here so we can do the transcribe again. If you have questions for something specific in the warehouse, we'll gather around so everyone can hear it so everyone has the same information.

MR. POUTNEY: Pelle, at the risk of drawing people's attention to something maybe nobody noticed, there was an error in the percentages on the evaluations. It's correct in the NRFP. MR. AGERUP: Okay. Look at the NRFP. I'll make sure that gets right. And no photos through the tour. We don't have information permission for that. Next one. Just so you know, you can ask questions here. You can ask questions at the tour. You can send questions in e-mails. And we also have a couple of questions that we'll cover here that were sent to us before this meeting. Should we cover these now or do you want to do them after? MR. BISSOONDATT: Afterwards. MR. AGERUP: After you? Okay. We'll do it after you. All right. So I'm going to hand over to Roger. MR. BISSOONDATT: Okay. What I'll cover off today is really just talking a bit about the NRFP, talk about the project itself, the distribution of liquor project,. and tThen give you a bit of an overview of the liquor distribution branch, the supply chain, talk about the current supply chain, how it is today, and then in terms of a brief review in terms of how we think it may work in the future or -- it may be in the future, and then talk about the liquor warehouse/agent stocking program. The reason why I've outlined it this way is because I do recognize that some of you might be very familiar with the liquor business in BC and some of you may not be. So for those who are very familiar with the liquor business, a lot of the information, you will be very familiar with it. ; hHowever, for those of you who are not, I'm hoping that at least it communicates to you in terms of the importance of some of the things we have to deal with, because the liquor industry, is it's quite unique in Canada, and some of the regulations that are surrounding liquor, how it's done in Canada, and in particular BC. So there are some fundamental assumptions going into this project itself. And gGovernment will always want to regulate access to beverage alcohol in its jurisdiction jurisdiction. because tThrough the Importation of Intoxicating Liquor Act, that responsibility is something that has been handed down to the provincial government by the federal government in terms of how liquor is brought into the province. Government will always want to guarantee the revenue stream. The revenue stream is extremely important to government. The government wants to make sure that its revenue is protected. We need to make sure that the collection of revenue is done, and we want to continue to be the wholesaler of record for the beverage of alcohol in the province. Government recognizes that the private sector will play a role in liquor distribution. Certainly in terms of retail it is in terms already done so. So government is looking at it in terms of increasing the private sector role in liquor distribution.

Decisions on markup and the price of product are completely independent of the options chosen. There are concerns about in terms of pricing, but pricing is a separate issue from this project itself. That is something that will be dealt with separately. Government will always want to have the option of modifying its involvement in liquor distribution in the province. That's something government will always want to have the ability to do. So what are the goals and expected benefits of this project? We want to contract with a cost effective private sector provider and potentially the sale of the operational assets. I'll talk about this little later on in my presentation. We want to achieve the following supply chain performance: service delivery to GLS and wholesale customers that is predictable, cost effective, efficient and meets industry norms for key performance indicators, and a logistical model that lowers the overall supply chain cost to the province. We're looking at cost effectiveness and efficiency. We're not looking for someone to replicate what we have right now. We want you to bring to the table creative options so that we can have a better solution and the labour relations solution is important. The province has signed a memorandum of agreement with the BCGEU, our union. So certainly that needs to be taken into consideration in the proposal. So what we're looking at is to develop creative proposals that I mentioned in terms of what are the options for the removal of the LDB warehouses, which is Vancouver and Kamloops, and the wholesale distribution operations from existing beverage alcohol sales and supply process. And that's where we're talking about the wholesale customer centres. We have two wholesale customer centre: one in Vancouver and one in Victoria. As Pelle mentioned, at the end of stage 1 we have up to three top ranked proponents who will move forward into stage 23 of the process. So that will be based on the evaluation committee coming up to three proponents that can go to stage 3 so we can advance to the next level. So the NRFP scope includes the following: Warehouse replenishment. That is bringing product into the province so that the warehouses are continually replenished. That is working with the suppliers and agent to make sure that the products are there when we need it. Product receiving and storage is the receiving of the product. There is custom clearance process and . Tthere's excise clearance which needs to take place. I'll talk about that later on in the presentation. Certainly the receiving of the product and storage of the product and t. The assembly of the product are included. When the product is ordered and is ready for shipping, , including the assembly of that product, that's all the service provider's responsibility. The order processing. We're looking for the service provider to take the orders from the wholesale customers. When I refer to wholesale customers, I mean all of the wholesale customers plus the government liquor stores, because for this purpose we're looking at government liquor stores as wholesale customers. So we're looking at a distribution to

both the GLS and wholesale customers. So just make sure you understand it's not just other wholesale customers. It includes Aall of the government liquor stores. As I mentioned before, we are looking for creative options to optimise the beverage alcohol supply chain. So we're looking to you to come forward with options. And tThat's why the NRFP has been written very broadly: so it gives you the option to come in with some flexible options for us. Of course the labour relations issue with the memorandum of agreement with the BCGEU is . It's important. Operational assets. These are assets that are used in the day-to-day operations of the distribution centre. If you do wish to submit a proposal to purchase the assets, you can certainly do so; however, they would not be used as part of the evaluation in stage 1 and 2 and 3. So, when we get to stage 4 and we're looking at the negotiation, then that will be taken into consideration. But for you becomeing in up to the top three short list, that would not be taken into consideration, but it's giving you the option if you'd like to purchase the operational assets that we do have, it is there so you can make an offer for it. Out of scope. Out of scope areat government liquor stores. The government will continue to operate its liquor stores and the wholesale business within the liquor store will still function as like the government liquor store will continue to do. Beer and BC wine. And we talk about it in terms of BC manufacturers; however, BC manufacturers also distribute some imported beer. Actually, a lot of the imported beer. Most of the imported beer. But imported beer is such that the way in which it's set up can be distributed by multiple streams. iIn BC is the manufacturer of beer and wine can , they distribute their product in the province. However, some of the manufacturers, as I mentioned, they do distribute imported beer. However, if the agent or supplier for that imported product would like to move to the service provider, they certainly have the ability to do so. When I refer to "out of scope," we're saying that these are the things that are not mandated. Let me clarify. There are things that are definitely out of scope for the NRFP. So we're not looking for proposal on that. Customs and excise clearance. As I mentioned, the LDB is the importer of record for beverage of alcohol in the province. There is a relationship we do have with CRA, and we have to do the custom clearance for that product. So as the importer of record and have the responsibility for the customs clearance, we are going to retain that function. And tThe sale of the Vancouver and Kamloops distribution centre real estate. That is outside of this NRFP. That's going to be a separate process that's going to take place. So that is not included as part of this NRFP. I'm not going to go through all of it [the disgramdiagram] because it is in the NRFP so that you can have a look at it, but this effectively is the flow of products in the province. We have essentially three different types of products: imported products, we have domestic products, which is non-BC products, and BC-produced products. WHe have differentiated domestic products as are products that are produced in Canada, but not in BC, just so that we can try and keep that as clear as possible as to what is BC products and what is

products that's produced outside of BC. The products actually can flow into an independent warehouse or they can flow directly into the distribution branch warehouses. For the BC manufacturer, the product that's manufactured by them and the imported products that they do carry in the case of beer, they can directly distribute it or they can send -- it can comeit directly to the LDB distribution centres. The product that goes into the independent warehouse, that can come to the LDB distribution centre or for imported beer can be directly distributed to either government liquor store or to the wholesale customers. All of the other imported product, spirits and wine, comes into the LDB distribution centre. So essentially what we're looking at is we're looking at this area here plus this area here and that. So as I indicated, the ministry/LDB will retain being the importer of record, policy and regulations. We do keep that because it's part of our mandate. Custom and excise clearance will be done by us and the collection and remittance of revenue. In order for the government to protect its revenue, government will be collecting the revenue from the wholesale customers. Once we get that, then we would allocate the funds for the payment of the suppliers or the payment of the service provider, whatever is due to the federal government. So the collection of the revenue is going to be done by the LDB. We'd also retain compliance auditing. As a service provider, you'll be handling the products in the province. Whenever any product comes into the Province of BC, we have what we call notional title, which means to say the province is entitled to the markup of that product when it's sold in the province. So we'll be looking at it from the point of view in terms of making sure revenue is protected -- from the compliance audit side, to make sure that the product in BC is properly accounted for so that if there's any revenue slippages, that could be accounted for. The operation of the GLS. I've put 195 there. Because in a lot of publication we see from the LDB we talk about 197. The 197 includes the two wholesale customer centre. So those two wholesale customer centres are part of this NRFP. That's the reason why I'm showing 195 there. And the contract management office of the distribution services. Certainly we'll be looking after the management of that contract with the service provider. So that's it in terms of the project itself. So what I'll try to do now is just go through a bit of an overview of the LDB itself so you have some familiarity with the business that we are in. As I indicated before, Ffederal legislation gives each province in Canada the authority to be the importer of record. We are the importer of record for any beverage of alcohol that's coming into the province. We import, wholesale, distribute, retail and regulate beverage alcohol through the Liquor Distribution Act. The LDB is a branch of the Ministry of Energy and Mines, and we have more than 3,500 employees, both full- and part-time employees. The previous fiscal year, '10/11, our net income was $890 million. The final figures for '11/12 are being finalized right now, and the audit will be completed in the next couple of weeks.

For the current supply chain. This gives you sort of a snapshot as to the wholesale customers and the warehouses and also where the product comes from. So we get products from Canadian manufacturers, foreign manufacturers. We don't get from Ubrews and U-vins and home based beer and wine, but this is all of the beverage alcohol -the sources of beverage alcohol in the province. What we're concerned about is the Canadian manufacturers and the foreign manufacturers. Those flow into either LDB warehouse and private bonded warehouse, and then they can either be sold to the licensees, the LRSes, which is the commonly pany known as the beer and wine stores. We have private manufacturing stores and duty free stores and we have rural agency stores. And of course we have the LDB stores. Because it's a current model, I'm showing ll show the 197, which includes the wholesale customer centres. Then of course all of the products eventually makes its way to the consumer in BC. We have the liquor policies and procedures, which is jointly between LDB and liquor control and licensing, our sister branch in Victoria. The licensing, regulation and enforcement, that is done by liquor control and licensing. And we have the revenue administration, which is what we do. Then over all of that, it's government's role. So based on the '10/11 figures, our current distribution process [diagram]. What I've done is broken this down in terms of the three main product categories, beer, wine and spirits, and the volume that's going through. I use volume because you're more interested in volumes rather than the value of it. So when you look at beer, beer has 272.5 million litres in 2011, wine is 86 million litres and spirits 24 million litres. Beer, the majority of it is directly delivered. Wine, direct deliveries to the stores, but they also have deliveries through the LDB, -- the total volume of wine is 22 percent of the 382 million litres. And spirits, all spirits flow through the LDB warehouses. None of the spirits are directly delivered. So this is sort of a snapshot in terms of the percentages. And this is based on volume for the BC wine, other domestic product, which is non-BC, and imported products. The flow based in percentages in fiscal '10/11, how it actually flows down, the sum of all of these is 100 percent, and then it flows down into either the LDB distribution centre or the import warehouse. From there it flows down either to the LDB retail, which is the government store, or to the private sector, retailers and licensees, which eventually flows down to the final customers. So this gives you a sort of a snapshot in terms of where the volume flows from it coming in from the suppliers in BC all the way down to the retail customers. So the future supply chain. Down here is the current model. The current model is the LDB acts as a regulator, a buyer, a warehouser, a revenue collector, distributor and a retailer/wholesaler, which is our government liquor stores. In the future LDB would not be involved in warehousing or distribution of beverage alcohol. We'll continue to be the importer and wholesaler of record and to ensure the protection of government revenue. The LDB will continue to be the regulator of beverage alcohol in the province and will continue to be a retailer and service wholesale customers in our stores. So essentially going from here to this, being a regulator, buyer, revenue collector and a retailer/wholesaler. There is a difference between the buyer here and the buyer

there, though. The buyer here, we purchase our products when it comes into our LDB warehouses. Over here we're looking at purchasing e the product immediately before it's sold to the wholesale customers. So there is a difference in terms of the ownership of the product. So this is the same slide we sawee before. And I mentioned really what you're looking at is this area here is what is included in NRFP. There may be portions of this in terms of the imported package there { BC manufacturers], imported beer, that could move across there depending on what the supplier or agent decides to do with imported beer. What I'd like to do now is let's go through the agent stocking program. And tThe agent stocking program itself, it's how you bring imported products into the province. There are provincial regulations and federal regulations surrounding that. As I mentioned before, the Importation of Intoxicating Liquor Act gives the province the authority to collect markup. Once it hits the boundaries of the province, the province gets notional title to the product. We also have the Customs Act and the Excise Act. And of course you have GST, which is common at the counter to any business. Certainly when you look at the Customs Act and the Excise Act, it is the way in which products are cleared not only in BC, but in Canada, and the regulations around it. It's very unique to liquor. So I thought it might be helpful to just go through it so everybody gets some appreciation for what the process is. This essentially is a snapshot as to how product flows into BC [diagram]. What I'll do is wWe have numbers in each one of them, and I'll go through each one of the different numbers. So we've shown the agent, the LDB, the supplier. And this is the warehouse itself having a sufferance bond and excise warehouse. And you have the LDB warehouse, which also has an excise warehouse and then pre-store for delivery. That's before it's shipped out to the wholesale customers. And of course you have the supplier or agent here in terms of the relationship with the LDB. In Canada in order to deal with beverage alcohol, you need to have bonded warehouses -- especially if it's imported product, you need to have a customs licence, you need to have a sufferance licence and an excise licence. There are different implications for each one of those, which I'll try and explain as I go through the slides. So the first phase of it is the LDB issuing a requisition to import the product to the supplier. So the supplier gets that. That's when the supplier can ship the product into BC. Once the product comes into BC -- this is for wine and spirits. I will deal with beer separately because beer is treated differently. Beer is not included in the Excise Act. It's included in the Customs Act. So right now for our purposes I'll be speaking about wine and spirit products. So wine and spirit products comes into Canada and -- comes into BC and it goes into a sufferance bond. And tThe regulations around it is different for each one. Wine has to be cleared within 45 days. Has to clear customs within 45 days. The sufferance bond is essentially a custom bonded warehouse, but it's a temporary custom bonded warehouse. Wine has to be cleared within 45 days to move into an excise warehouse. Spirit has to be cleared within 21 days to move into the excise warehouse. So in doing the custom clearance, the LDB does the custom clearance, and we pay

the custom duties and the GST on it. Right now we do not pay HST on it because for commercial imports, HST does not apply. Commercial imports is only GST applies. So in the future model when we do go to PST and GST, that will not change because it will only be GST. So as I mentioned, it goes from the sufferance bond into the excise warehouse where it's excise tax deferred. So you've paid the customs duties, but you still have the excise taxes which have not been paid, and that's why it's in an excise warehouse. CRA does allow you to co-mingle products, be it in the sufferance or excise or custom bonded warehouse, on the condition that you have a fully locatable warehouse. So you have to demonstrate if you do have a fully locatable warehouse where you can say which products are at what stage of the process. And that is something you would need to speak with CRA to get the agreement on. So once it go from sufferance to excise, LDB has paid the custom duties and the GST, we bill back to the agent the custom duties and GST because the agent owns that product. When the product comes through here, it's either the agent or what we call the distributor owns the product. The LDB does not own the product. We have notional title for markup purposes, but we do not own the product. So the LDB bills the agent back for the custom duties and GST. And tThe reason for that is because since the agent owns the product, any ITDC down the road, the agent is the one who can claim for it. The LDB can't claim for it. So the GST that's billed back to the agent, they can claim that as an impuort credit. Then for this one here, when the LDB requires the product for sale, the LDB will issue a purchase order to the agent. In a lot of cases the warehouser actually acts for the agent. So we issue a purchase order to the agent for the transfer of products from the agent stocking warehouse into the LDB warehouse. The LDB warehouse is also an excise warehouse. So it's an excise-to-excise transfer. So the product travels within the excise regime. SoThe excise taxes isn't due at that point in time; however, there is a responsibility as an excise order in terms of the reporting to CRA to make sure those products are properly accounted for. So once it's transferred here, at this point in time under the current system, the LDB purchases the product. So the LDB purchases the product, and that's where we pay the agent and supplier for the product. The product is now in the LDB warehouse. So once we receive orders from wholesale customers or we are shipping selling to our government liquor stores, it's assembled for pre-store delivery. At this point in time the product is ready to be moved. At this point in time we do the excise clearance for that product so we can pay the excise taxes to the federal government. So that's it from the agent's stocking program in terms of wine and spirits. In the case of beer, most of the processes are the same except for here. All of these other things are the same. Here that doesn't happen because we don't bill back the custom duties to the supplier agent. With beer, because beer is not included in the Excise Act, beer goes into a custom bonded warehouse. Once it goes into custom bonded warehouse, it stays there. It's still treated as being outside of Canada. When the LDB needs that product to be shipped to a wholesale customer, either to one of the licensees or to our government liquor store, we issue what we call a Release Purchase Order to the warehouse or the agent stocking program warehouser and they transfer the product from the custom bonded warehouse to what we call a Retail Accounting Centre

(RAC). The retail accounting centre is like a virtual store set up within the warehouse re whereby we purchase the product just prior to it leaving the custom bonded warehouse. The reason why we do it just prior to leaving the custom bonded warehouse is because we're buying it essentially out of the province / country, so we don't have to deal with the GST issues. So we buy it and it comes into the retail accounting centre, and then from there the product will flow to the LDB warehouse, the government liquor store or , the wholesale customer. And that takes place on the sale of the product. When it's transferred by the custom bonded warehouse to the retail accounting centre, that's when we pay the supplier or the agent for the product. I hope that was sort of helpful in terms of going through the agent stocking program just to give you a feel for what is involved with handling of imported products in the province. I'll turn it back over to Pelle. MR. AGERUP: Okay. So any questions? That's crystal clear to everyone? Excellent. Frank, are you ready to do yours? MR. CATALA: Hi, everybody. I have about a tenth of the slides that Roger did. I'm sure you're glad to hear that. I'm going to take you through some of the details about what's required in the financial submissions for this NRFP. So I'll take you through some of the background so you understand what you need to submit. The financial submission essentially asks proponents to take into account in their response several aspects. Roger has touched some of them. There's two key areas. There's the broad objectives that are in section 3.2 of the NRFP. And Roger already covered them in his slide 5 of his presentation. And then there's what I describe as the financial objectives, which are described in section 5.5 of the NRFP. And I've laid them out here so I can take you through them. If you have any questions around them, Ill address them. So specifically since we're looking at entering into a long term services agreement here with a Successful Proponent, we're looking for deals that demonstrate value for money. This is still a public sector business. The government is very much involved. So that's a necessity of this type of arrangement. We also need to have financial transparency into the services prices you will be proposing and the cost drivers. Being a long term deal, we know things are going to change over time, so we need to understand how we're going to work together to make adjustments going forward. Pricing certainty over the short term and visibility into future years. Again the world changes, it's a fact of life, and we need to be able to -- these are services to the industry, to wholesale buyers and Canadians. We need to make sure they know what the price of your services are. Number 4 touches on some aspects that Roger already hit. We're looking for cost savings over time, innovation, your ideas of how over the long term you can do this better and improve on an ongoing basis. Flexibility to handle scale. There

10

could be more products of this type. There could be less products. We don't know, but we need to see your expertise in this area and how your financial model addresses that. Risk management. We want to see that you understand the risks involved in moving these products, storing them, and how you're going to handle that. We are coming to the private sector to deliver these services from end to end, so we want to understand the investments you're going to make, how you're going to deploy your capital to support the services you're providing. We need to have an understanding of that. And obviously there's the services aspect of this. We want to see equal or better service over time. And again you've got to think of these over the 10-year term, which is how we're asking the proposals to come in. A 10-year deal is what we are looking in your responses. So we will be looking in the way you describe and propose your financial model how you address all these aspects. That's one of the key parts of the issue you should be considering in your submission. Next slide. Okay. So in terms of what you're going to submit, there's two main parts to the submission. The first part, I think of it as qualitative. The second part more financial and quantitative. So the first part -- you would have to refer to section 8.2.8.1 of the NRFP -- is we're going to ask you to describe the model, the financial. There's about five key questions with sub-components. We want good descriptions of how you're going to price these services, how you're going to deal with taking over the services at the beginning, handing potentially the services at the end of the 10 year. Please refer to those questions and give us wholesome responses in that area. The second area is the numbers, the pricing. This is where you're going to come forth and give us your prices for the proposed services. And we prepared an appendix K to, I guess, structure the submission. Now, in proposing your prices, we are asking that you take into account a series of normalizing assumptions that are listed in section 8.2.8.2 of the NRFP. To be clear, don't break those assumptions. You may look at them. You may say they are not realistic, but they're essentially simplifying modelling assumptions so we can have relatively comparable solutions here. That's something that I ask all submissions to really stick to. That's why we call them normalizing modelling assumptions in the document. So now I'm going to jump to describing what appendix K is about. So I'm hoping all of you had a chance to look at appendix K. And what I'm presenting here essentially is just the table of contents so I can take you through all the different components. It is a spreadsheet. It's a series of worksheets that have been prepared. I ask that you look at the first two items, the instructions and -- the introduction and the general instructions. There will be some descriptions of how this has been structured and how you need to follow certain aspects, where to put information, where not to put information. Some of the key things to note here -- and there are more instructions in there, but the key ones, and Pelle already touched it, please, when you submit this, password protect this and give that password only to Pelle.

11

The second one is really to make life easier when it comes to gathering all this information is do not change the structure. You can add rows to it, but do not delete columns, hide, protect, lock anything. It's a bit of an administrative instruction, but just don't mess around with it. You'll see areas where you're allowed to put rows and additional information. It's not really meant -- this template is not really meant to constrain you from providing information. It's really a structure for submitting the pricing and the services. And you'll see that there's colour coding in there. The blue cells are for you to enter your information. There's other colours in there where there's instructions and headings that have been provided for you. Just stay out of anything that's not blue. Now I'll go into some of the other worksheets so you understand the components that are being requested there. So the way this has been structured really -- the way to think about it is really trying to get to a services catalogue type of document. So the first worksheet really has to do about services being provided to suppliers and agents. What we're asking here is for you to fully describe all the proposed services to these industry players along with the associated price for those services. And the data that we're really looking for here obviously is a description, service name, full description, assumptions around that service, if there are size, weight, volume constraints, all those aspects that could be associated with service, this is where you need to describe that. Obviously the pricing. And you'll see we do ask for some pricing components within each category. The second worksheet is for the wholesale customers. And government liquor stores are one of these wholesale customers. Again same structure, but now it's for the wholesale customer. We're looking for the same type of information: the service name, the full description, the assumptions, the billing units. And again what's very important, understanding any constraints/assumptions that limit these services. At the same time you're not being limited to giving us -- as an example, you could have base services with add-ons that would kick in depending on different features of what might be ordered and how the service is delivered to a wholesale buyer or an agent. So this is really the place where you would list your entire services complement. The third one touches on the investment and the capital plan. Here we want to see -- we want you to tell us about how you're going to be deploying your capital, in what areas, full descriptions, the assumptions that you're making, and again the amounts you're looking to recover and the recovery method, is this something that you're looking for -- is the recovery method within the services prices, is the recovery method in some other means you're looking for to recover your investment. This is the area where you need to describe that fully for us. The last one touches on scale and volumes. We don't know the growth we're going to have across -- 10 years is a long time. So we're asking for just some early indicators of how prices would change as volumes change. So there's two scenarios that are described in that worksheet. Look at them. And we're really looking for percentage changes relative to the proposed prices against those volume changes to give us a sense of how

12

scale would impact your pricing model. Those are the key components of that appendix. Glad to field any questions on that. That's the end of the slides. MR. AGERUP: Stick to the blue fields. MR. CATALA: Stick to the blue cells. That's the take-away. MR. AGERUP: We're moving along a little bit too fast here, but that's okay. We had a few questions that came in beforehand. We could walk through them. So the first question was within the NRFP. In the NRFP there are several references to inventory replenishment, and what is the government's expectation? The answer is supplier and agents working with the service provider. They will determine inventory demand and forecasting. The supplier and agents will own the inventory. Is that crystal clear? Good. Now is the time to ask questions. If you have any questions, feel free to -- we have all the experts here. Second question. What role would the proponent play regarding this expectation? And the answer is the service provider will work with suppliers and the agents to make it work. For warehouse replenishment, what role will the proponent provide other than the processing purchase order requests from suppliers and agents? I think that's covered in the first two questions. Is that right, Roger? MR. BISSOONDATT: Yes. MR. AGERUP: Next question was is the government expecting any regulatory changes to occur over the next five years. And this team, we're not aware of any changes that are planned, but change happens. So there's nothing in the pipeline that we know about. Who will pay for delivery charges for GLS and for non-GLS? And that's little bit up to you. It depends on the responses we receive from you what you propose in your proposals. And in section 4.3.2.1, the second paragraph, what will the role of BC LDB's purchasing department be in the future? And the answer is that the LDB will still need to purchase the product immediately before sale to wholesale customers. In section 5.2.3.1, in the new model will the government continue to cover the credit card fees for sales to wholesale customers? And this is outside of the scope of the NRFP. Next question. What is VDC parts and IC operations as noted within appendix E.7? Is that wrong? Is that wrong? So, Roger, you will take that away? MR. BISSOONDATT: Ken, are you here? MR. McDONNELL: Yeah. The VDC parts is what -- covers a few areas in distribution centre. That is a lot of our wholesale non-stock picks, bottle picks, recoup area for

13

damages. So that's all covered under what we call parts. In other terms, it could be a split case portion of our business, but it also includes some full-case picks in our parts department for wholesale customers who may order some bottles, some cases. All of those orders we process in what we call our parts department. Our other department is full-case pick, which is just pure full-case picks, primarily GLS or large wholesale customers. The other question here is IC operations. That's our inventory control. So that includes -- they do have a responsibility for what we call in our terms replenishment, which is separate from purchasing's replenishment process. That is basically taking reserve inventory, making sure they're located in pick slots to make sure there's orders ready to be picked before the pick process starts. So that's a replenishment in pick zones, plus our inventory control. Any inventory adjustments, cycle counting, anything to do that affects our inventory accounts is under the IC patrol. MR. AGERUP: All right. And the third one here is please define the role and responsibility of the contract management office. That will be clarified during the negotiation process. And then we've already done this part. So we're done with the presentations. So we're a little bit ahead of schedule, that's okay, unless there's questions now that you have we can answer here. If there are no questions, we'll move on and go for the tour. Those of you who are not going on the tour, you can stay here. The washrooms, double right around the corner. And there's a cafeteria that you passed on your way in. And we also have some coffee and muffins here. So I think we're just 45 minutes-ish and then we'll come back and we'll finish off with any questions from the tour and anything you've been thinking of while we were gone, and that's it. MR. BISSOONDATT: Did anyone want to ask any questions before the tour? AUDIENCE MEMBER: We can take notes? MR. AGERUP: You can take notes, yeah. No pictures. MR. McDONNELL: Okay. Couple of issues we have to address before we go down to the warehouse. WorkSafe BC says we have to have steel toes. We've got toe caps. If you have leather shoes, we can put the steel toe caps on. It sounds like a herd of something when we travel, but bear with us. We'll let you take them off as soon as we're off the warehouse floor. Now, there may be some people on the tour that are wearing steel toes and won't need the toe caps. That's fine. And I have vests here. We all have to wear high visibility vests when we go through the building. So I've got those outside for everybody. So grab yourself a vest for those that are taking part in the tour. Toe caps, there's actually three sizes, but for the most part, they'll fit any shoes. AUDIENCE MEMBER: They work for pointed shoes?

14

MR. McDONNELL: They'll be a little loose, but they'll work. They don't work on high heels. High heels are a problem because of the attachment. So I've got the vests and toe caps out here, so we'll kind of herd you out here. (MEETING RECESSED AT 9:59 A.M.) (MEETING RECONVENED AT 11:02 A.M.) MR. AGERUP: We're talking about the storage of GLS -- government liquor store equipment. And so is that in scope or out of scope? MR. BISSOONDATT: I think it would be out of scope because they were done separately because it's going to be our group of stores. So the storage of the image and the stuff we need for the day-to-day running of the stores, that will be our scope. MR. AGERUP: And then there was a question regarding the contracts over 1 million over the last three years. And that's BC only. So it's not the whole Canada. And question, Donna. The stats that you were delivering downstairs, is that all available in the VDR? MS. MOHN: Yes, it is. MR. AGERUP: Okay. Good. Is there any other question that came up that I didn't cover downstairs? Or do you have any questions from the tour that you wanted to ask now? Any questions from the presentation, NRFP? All crystal clear. Okay. So you still have the purchasing@gov.bc.ca you can contact for any questions, concerns. Other than that, it's ending early. Any questions/comments? Yeah, question here. Go ahead. AUDIENCE MEMBER: There was some files that were not accessible yesterday. MR. AGERUP: Okay. Talk to Leigh. MS. MARTIN: In the VDR, do you know if it was an Excel document? AUDIENCE MEMBER: Yes, it was. MS. MARTIN: And were you opening it in Chrome or Firefox? AUDIENCE MEMBER: No. MS. MARTIN: Okay. If anyone is having trouble with that, we've kind of got to work around it. It's sort of a weird thing. But yeah, I can let you know how to do it. AUDIENCE MEMBER: It was just a couple. MS. MARTIN: Yeah. It was probably an Excel document.

15

MR. AGERUP: At the back. AUDIENCE MEMBER: If we ask a question, does it go to the group? MR. PELLE: If it's a good question for the whole group, we like to share it with the whole group. If you have a confidential question, list it as confidential, we'll consider it. In the stage 3, it's one on one. Excellent. MR. BISSOONDATT: Presentations are going to be posted on the -MR. AGERUP: Presentations will be posted. There's a mistake on the percentage in one of the slide. I'll fix that before we post it. The transcription will be posted in your VDRs in every proponent's VDR. AUDIENCE MEMBER: Is there a list of proponents? MR. AGERUP: We will make the list of proponents public, yeah. AUDIENCE MEMBER: "Public" meaning within -MR. AGERUP: We post it on BC Bid, the list of proponents, probably today or tomorrow. Okay? No more? Last chance. Okay. It's seven past 11:00. That concludes the proponents meeting. Thank you very much for coming. MR. BISSOONDATT: Thank you very much. (MEETING ADJOURNED AT 11:06 A.M.) (TOTAL TIME: 1 HOUR)

16