Brewing Services Agreement Between CBC Latrobe Acquisition, LLC And Boston Beer Corporation

EXHIBIT 10.57


[*] DENOTES EXPURGATED INFORMATION


BREWING SERVICES AGREEMENT
BETWEEN
CBC LATROBE ACQUISITION, LLC
AND
BOSTON BEER CORPORATION


AGREEMENT entered into effective as of the 28th day of March, 2007 (the "Effective Date"), by and between CBC Latrobe Acquisition, LLC, a Pennsylvania limited liability company ("CBC"), and BOSTON BEER CORPORATION, a Massachusetts corporation ("Boston Beer"). Boston Beer and CBC are sometimes referred to herein individually as a "Party" and collectively as the "Parties."


City Brewing Company, LLC, the sole member of CBC "(City Brewing"), and Boston Beer are currently parties to an Amended and Restated Brewing Services Agreement effective as of August 1, 2006 relating to brewing services at City Brewing's brewery located in LaCrosse, Wisconsin (the "LaCrosse Brewery");


CBC has acquired a brewery located in Latrobe, Pennsylvania (the "Latrobe Brewery"); and


CBC and Boston Beer now desire to enter into an agreement pursuant to which Boston Beer's proprietary malt beverages shall be brewed and packaged at the Latrobe Brewery, which agreement shall be guarantied by City Brewing.


ACCORDINGLY, in consideration of the mutual agreements contained in this Agreement, the Parties, intending to be legally bound, hereby agree, as follows:


1. SCOPE OF AGREEMENT.


(a) During the Term of this Agreement, as defined in Section 5 below, and in accordance with the terms and conditions set forth herein, CBC shall give Boston Beer access to the Latrobe Brewery and shall make available to Boston Beer CBC's production personnel to allow Boston Beer to produce Boston Beer's proprietary Products at the Latrobe Brewery.


(b) For purposes of this Agreement, Boston Beer's "Products" shall include those products set forth in Exhibit A attached hereto. Boston Beer shall periodically provide to CBC an updated schedule of all Boston Beer products which Boston Beer deems to be Products, subject to this Agreement.


2. CONTROL OF PRODUCTION OF PRODUCTS; PUBLIC STATEMENTS.


(a) It is the intention of the Parties that CBC will alternate proprietorship of the Brewery with Boston Beer so that Boston Beer will function as the brewer when the Products are brewed and packaged at the Latrobe Brewery ("Alternating Proprietorship"). All Products shall be brewed and packaged according to Boston Beer's specifications, including the maintenance of standards and quality control programs. Boston Beer shall have ultimate


[*] indicates that information has been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for
confidentiality treatment.


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responsibility and authority over every detail of the production process for Products at the Latrobe Brewery, with such responsibility and authority as to those parameters affecting beer taste and quality to be the same as if Boston Beer were the owner of the Latrobe Brewery. Boston Beer shall monitor and review the practices and procedures of CBC in the production and packaging of Products and periodically inspect the Latrobe Brewery. The Products shall be separated and identifiable from the beer products produced by CBC for itself or other brewers at all stages, including prior to fermentation, during fermentation, during cellar storage and as finished beer after production and before removal from the Latrobe Brewery. If a decision made by Boston Beer in the exercise of its authority under this Section 2(a) results in additional costs over and above the costs of the then current operations, CBC shall be entitled to be reimbursed by Boston Beer for such costs. In addition, in the exercise of its authority under this Section 2(a), Boston Beer shall not interfere with CBC's production processes for its own proprietary brands or for other brands that it produces under contract with third parties.


(b) Consistent with the provisions of Section 2(a) above, CBC and Boston Beer will, in any and all public statements or comments, recognize that Boston Beer controls the ingredients, recipe, brewing processes and procedures and quality and taste parameters for all Products produced at the Latrobe Brewery and that Boston Beer is the brewer of all such Products. Neither party will make any public statements inconsistent with the foregoing.


(c) Each Party agrees to take all commercially reasonable steps to prevent any of its personnel from making disparaging or otherwise adverse remarks about the products of the other Party.


3. COMMITTED CAPACITY; MINIMUM PRODUCTION COMMITMENT; SHORT-FALL FEE.


(a) During the Term, subject to the provisions of this Section 3, CBC shall make available to Boston Beer for brewing and packaging the following volumes for beer (lagers and ales) and for blending and packaging flavored malt beverage ("FMB") at the Latrobe Brewery (the "Committed Capacity"):


Product Annual Minimum Monthly Minimum Annual Maximum Monthly Maximum - ------- -------------- --------------- -------------- --------------- [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]


Notwithstanding the foregoing, the maximum Committed Capacity shall be [*] times the actual production at the Latrobe Brewery of the respective Product in the prior calendar year, except that in calendar year 2008 the maximum Committed Capacity shall be [*] times the actual production in 2007, but in no case shall the maximum Committed Capacity be less than the minimum Committed Capacity above. Boston Beer will endeavor, to the extent reasonably possible, to provide CBC with fifty (50) days advance written notice of any expected increase or decrease in its expected production requirements for both beer and FMB which varies more than [*] from any previously submitted monthly forecasts for the period in question, in order to allow CBC to plan its capacity utilization at any Latrobe Brewery. The foregoing minimum and maximum Committed Capacity volumes may be modified only by written consent of both Parties. Products shall primarily be produced in packaged units in accordance with the provisions of Section 7 below.


[*] indicates that information has been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for
confidentiality treatment.


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(b) During calendar years 2007 and 2008, provided that Boston Beer has been able to successfully brew and package its proprietary beer, Samuel Adams Boston Lager(R), and an ale at the Latrobe Brewery meeting Boston Beer's quality specifications on a consistent basis ("Boston Beer Brewing Standards"), Boston Beer shall produce at the Latrobe Brewery the following volumes of beer and/or FMB combined (the "Minimum Production Commitment"):


(i) During the months of May through December in calendar year 2007,
at least an average of [*] per month in each calendar quarter and
[*] for the calendar year; and


(ii) During calendar year 2008, at least an average of [*] per month
in each calendar quarter and [*] for the calendar year.


For any month that Boston Beer is not able to produce its Products that meet the Boston Beer Brewing Standards at the Latrobe Brewery, the production volumes set forth in (i) and (ii) above shall be adjusted on a pro-rata basis. The proportional share of beer and/or FMB in the Minimum Production Commitment shall be in Boston Beer's sole discretion, subject to the provisions of Section 7 below. Effective January 1, 2009, Boston Beer shall have no further minimum production commitments during the Term of this Agreement.


(c) During calendar years 2007 and 2008, for any calendar quarter in which the Minimum Production Commitment applies, Boston Beer shall pay to City Brewery a short-fall fee (the "Short-Fall Fee") of [*] per barrel for each barrel less than the Minimum Production Commitment. Such Short-Fall Fee will be paid by Boston Beer within sixty (60) days after the end of the applicable calendar quarter in which Boston Beer produced less than the Minimum Production Commitment. By paying the Short-Fall Fee, Boston Beer shall be deemed to have met the Minimum Production Commitment.


(d) Effective January 1, 2009 and thereafter throughout the remainder of the Term, if, in any calendar year, Boston Beer produces less than the Annual Minimum for each Product set forth in paragraph (a) above, [*]. If the Maximum Committed Capacity has been adjusted in accordance with this provision and Boston Beer wishes to increase the Maximum Committed Capacity, it may do so by paying CBC an amount equal to [*] for each additional barrel of Committed Capacity for the relevant year.


(e) CBC may, at its sole option, fulfill some or all of its Committed Capacity obligations hereunder at the LaCrosse Brewery as long as the Parties have maintained an Alternating Proprietorship at the LaCrosse Brewery and provided that (i) there is no adverse impact on the production schedule and (ii) Boston Beer shall be reimbursed for any and all additional costs that are incurred by Boston Beer, including incremental freight and materials charges, as a result of such change in brewery. Any production that at the LaCrosse Brewery pursuant to this Section 3(e) shall be treated as if produced at the Latrobe Brewery under this Agreement.


[*] indicates that information has been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for
confidentiality treatment.


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(f) In the event Boston Beer owns the land and buildings comprising the Latrobe Brewery, Boston Beer shall, during the Term, pay to CBC the sum of [*] a month in consideration of CBC providing the Committed Capacity to Boston Beer.


4. FEE AND MANNER OF PAYMENT.


(a) Boston Beer shall pay CBC a brewing fee (the "Fee") for allowing Boston Beer access to the Brewery and use of CBC's employees for the production of the Products at the Latrobe Brewery as set forth in the Fee Schedule attached hereto as Exhibit B. The Fee for other packaging units not listed in Exhibit B shall be set by the Parties based on proportionate volume and packaging efficiencies relative to the units described in said Exhibit. CBC shall be entitled to increase each Fee, effective as of January 1 in each year while the Agreement remains in effect (the "inflation adjustment"), with the first such increase pursuant to this Agreement to be effective as of January 1, 2008, at a rate equal to [*] of the increase in the Producer Price Index -Total Manufacturing Industries (OMFG) as published by the United States Department of Commerce - Bureau of Labor Statistics in the preceding [*].


(b) The Fee includes compensation for CBC's employees, overhead, profit, and other costs, including cleaning, brewing and filtration processing aids (except for silica gel and filter powder), packaging glues, shrink wrap, packaging process supplies and the like, as well as the lab tests listed in Exhibit D, incurred by CBC in the production of packaged Products suitable for shipment by truck.


(c) The Fee excludes any federal and state excise taxes (but specifically excluding any taxes in the nature of a tax on income or profits), which shall be paid by Boston Beer.


(d) CBC shall invoice daily for any Brewing Materials supplied by CBC to be used that day in wort production prior to initiation of the brewing process. Boston Beer shall pay such invoice within [*]. Upon completion of packaging the Products in cases or kegs, CBC shall send Boston Beer a final invoice representing the Fee and any processing aids, including [*], and non-Boston Beer owned packaging supplied by CBC. Boston Beer shall pay the final invoice within [*].


(e) For Products shipped to Boston Beer customers and warehouses, CBC shall provide electronic reports to Boston Beer in a text file format stating shipment information as shown in Exhibit E on a daily basis for shipments from the previous day.


(f) CBC shall have the right to increase the Fee to reflect CBC's actual incremental cost for any special services which use a more expensive brewing process or longer time frames or which have more expensive packaging processes than used to produce Samuel Adams Boston Lager(R). Fees and payment terms for special services shall be mutually agreed to in writing and in accordance with the foregoing provisions of this Section 4, including the timely invoicing requirements of paragraph (e) above.


(g) Boston Beer shall be entitled to a proportional reduction in the Fee to the extent that CBC is able to achieve variable cost savings through changes in production procedures initiated by Boston Beer or arising out of any investment made by Boston Beer in CBC facilities, whether made prior or subsequent to the date of this Agreement.


[*] indicates that information has been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for
confidentiality treatment.


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(h) Volume Rebate: If in any calendar year the volume of Products produced exceeds the levels set forth below, the Fee will be reduced as follows for each package, provided beer accounts for at least [*] of the total volume produced:


[*];


5. TERM.


(a) The initial term of this Agreement shall commence as of the Effective Date and shall expire on [*] unless extended as provided below or until terminated pursuant to Section 6 hereof.


(b) Boston Beer may, at its sole option, extend the term of this Agreement up to [*] times, each time for an additional term of [*] years, upon written notice given to CBC at least [*] prior to the expiration of the then current term (the "Notice of Term Extension"), provided that, if Boston Beer will have produced less than [*] of Products at the Latrobe Brewery during the prior [*] term, Boston Beer shall pay the sum of [*] at the time it delivers the Notice of Term Extension to CBC. The initial term, as extended hereunder, shall be deemed to be the "Term" of this Agreement.


(c) The Parties acknowledge that either Party's obligations pursuant to this Agreement to make payments to the other Party and the Parties' respective obligations under Sections 4, 13, 27 and 31, and CBC's obligations under Sections 14, 15 and 25 shall survive the termination of this Agreement.


6. TERMINATION.


(a) Boston Beer may also terminate this Agreement effectively immediately upon written notice in the event that CBC is in default of any of its obligations to allow Boston Beer to brew, package and ship any Beer Products, which default continues for a period of [*] following receipt by CBC of written notice from Boston Beer regarding such default, or for such longer period during which CBC is making reasonable and good faith efforts to cure such default as determined by Boston Beer in its reasonable discretion (each such event is hereinafter referred to as a "CBC Production Default"). CBC shall not be deemed to be in default of its obligations for purposes of this Section 6(a), if it is in good faith both seeking to correct the circumstances giving rise to its failure to allow Boston Beer to brew, package and ship Products and honoring its obligations under Section 14 hereof, to the extent applicable.


(b) Boston Beer may also terminate this Agreement effective immediately if (i) all or substantially all of CBC's business or assets have been acquired by a third party or (ii) a transaction or series of transactions results in the majority of voting control of CBC being acquired by a person or persons not currently holding an equity interest in City Brewery.


(c) CBC may terminate this Agreement on [*] prior written notice to Boston Beer in the event that Boston Beer is in arrears in payment of undisputed amounts (i) for the production of Products in excess of [*] or (ii) for other charges in excess of [*], and such arrearage has remained outstanding for in excess of [*] after written demand for payment was made by CBC.


(d) In the event of bankruptcy by either Party, the non-bankruptcy Party shall have the right to terminate this Agreement.


[*] indicates that information has been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for
confidentiality treatment.


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(e) Upon termination of this Agreement, Boston Beer shall promptly pay to CBC all unpaid invoices in full and all unpaid costs incurred by CBC pursuant to this Agreement. CBC will use all reasonable efforts to minimize such costs upon termination, and Boston Beer will have the right to review documentation evidencing such costs.


7. PACKAGING AND MINIMUM PRODUCTION REQUESTS.


(a) Packaging of the Products shall consist of (i) twenty-four 12-ounce bottles, whether packaged as a 24 bottle loose case, a four 6-pack case or a two 12-pack case in a tray (each a "12-oz. Case Unit"), (ii) 5.2 U.S. gallons (a "One-Sixth Barrel"), (iii) 7.75 U.S. gallons (a "Quarter Barrel"), and (iv) 15.50 U.S. gallons (a "Half Barrel"), and any other package types or configurations that the Parties mutually agree to use for packaging such Products. All kegs used will be Sankey-style kegs. Boston Beer has the right, subject to the approval of CBC, which approval will not be unreasonably withheld, to make changes in the packaging used to produce the Products, including but not limited to, the packaging of the Products in can units. The price for packaging in cans will be adjusted by the difference in CBC's costs between packaging in bottles and cans.


(b) Boston Beer shall have the right to package Products at least [*]. Boston Beer shall submit production requests and a six month rolling forecast by the 10th of the preceding month not less than one production run (at present equivalent to one brew in the brew house, 200 Kegs on the racking line and 12,000 12-oz. Case Units in the bottling line). Boston Beer acknowledges and agrees that the minimum production request applies to each Product style, individually, rather than in combination; provided, however, that production requests for the bottling line may consist of one shift (currently averaging 12,000 Case Units) of the Beer Products in combination and any bottling line order shall not be less than 3,000 Case Units of each beer style.


8. PACKAGING MATERIALS AND BREWING MATERIALS.


(a) Crowns, bottles, labels, six-packs, cases, partitions and other packing materials for Beer products (collectively, "Packaging Materials"), or any applicable federal or state taxes are not included in the Fee and shall be borne directly by Boston Beer. All Packaging Materials supplied by Boston Beer to be used in the production of Products shall be (i) purchased directly by Boston Beer at its cost for delivery to CBC, (ii) the property solely and exclusively of Boston Beer, and (iii) segregated and identified as such at the Brewery. CBC acknowledges that Boston Beer shall be afforded unrestricted 24-hour access to the facility.


(b) Upon receipt of Packaging Materials, CBC shall inspect the goods for damage and accuracy of quantities delivered. CBC shall notify Boston Beer of any such issues immediately in writing via facsimile.


(c) Bills of lading for Packaging Materials received at CBC shall be signed and dated by a CBC employee and sent to Boston Beer via facsimile on a daily basis at the end of each day.


(d) CBC shall then provide all raw materials, ingredients and other recipe materials used in the brewing of the Products ("Brewing Materials") not provided by Boston Beer and invoice Boston Beer prior to the initiation of the brew.


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