EXHIBIT
4.16
Execution
Copy
InBev
S.A.
Brouwerijplein
1
3000,
Leuven
Belgium
Companhia
de Bebidas das Américas — AmBev
Rua
Dr.
Renato Paes de Barros 1017
04530-001,
São Paulo, SP
Federative
Republic of Brazil
Attn:
Mr.
Pedro Mariani
Labatt
Brewing Company Limited
207
Queen’s Quay West, Suite #299
Toronto,
ON M5J 1A7
Canada
Attn:
Mr.
James V. West
Dear
Sirs
and Mesdames:
Re:
Labatt
Tax Reassessment
Reference
is
made to Section 8.01(a)(iii) of the Incorporação Agreement dated as of March 3,
2004 (the “Incorporação
Agreement”)
among
Companhia de Bebidas das Americas — AmBev (“AmBev”),
InBev
S.A. (formerly, Interbrew S.A.;
“InBev”),
Labatt Brewing Company Limited (“LBCL”)
and
Labatt Brewing Canada Holding Ltd. That Section requires, in part,
that InBev
shall indemnify the AmBev Indemnitees (including LBCL) against AmBev
Losses
incurred in respect of certain liabilities of LBCL for Canadian federal
and
provincial income taxes (and related interest and penalties, if any)
as a result
of certain reassessments that might be issued to LBCL on the
basis
that any portion of the interest expense incurred by LBCL on inter-company
debt
owing by LBCL to one or more related non-resident persons was not deductible
in
full in computing LBCL’s income for the year in which the expense was
incurred.
Capitalized
terms used in this Letter Agreement and not defined herein shall have
the
meanings ascribed thereto in the Incorporação Agreement.
On
December
2, 2004, the Canada Revenue Agency (“CRA”) issued a notice of reassessment to
LBCL in respect of its 1998 taxation year, disallowing a portion of
the
deduction claimed by LBCL in that year in respect of interest expense
incurred
by LBCL on certain of its inter-company participating subordinated
debt. The
parties hereto acknowledge and agree that this notice of reassessment
falls
within the scope of the above-referenced indemnification
obligation.
The
parties
further acknowledge and agree that Canadian provincial notices of reassessment
are expected to be issued in respect of the same matter for 1998, that
further
Canadian federal and provincial notices of reassessment may be issued
to LBCL in
respect of the same matter for subsequent taxation years ending prior
to
Closing, and that all such reassessments also shall fall within the
scope of the
above-referenced indemnification obligation to the extent such reassessments
make similar adjustments. All such potential reassessments, together
with the
1998 reassessment described above, are referred to herein, collectively,
as the
“LBCL
Reassessments”.
The
parties
hereto acknowledge that all of the LBCL Reassessments shall constitute
“Third
Party Claims” for purposes of the Incorporação Agreement and that, accordingly,
the provisions of Section 8.04 of the Incorporação Agreement apply thereto. As
contemplated by Subsection 8.04(b) of the Incorporação Agreement, InBev intends
to contest the LBCL Reassessments at its own expense, with counsel
selected by
it. AmBev has the right to participate in the defense of the LBCL Reassessments
and, in connection with such participation, to retain its own counsel
(not
reasonably objected to by InBev) (“AmBev
Counsel”)
at its
own expense, it being understood, however, that InBev shall have control
of the
matter.
As
is further
provided by Subsection 8.04(b), given that InBev has so elected to
contest the
LBCL Reassessments at its own expense, InBev is not liable to LBCL
for any legal
expenses LBCL might subsequently incur in the matter on its own behalf.
Notwithstanding the foregoing, LBCL specifically acknowledges its obligations
under the Incorporação Agreement with regard to Third Party Claims, including
its notice obligations under Subsection 8.04(a) thereof, and acknowledges
and
confirms to and in favour of InBev that it will perform the same with
respect to
the LBCL Reassessments.
The
parties
hereto agree that, following receipt of each LBCL Reassessment, LBCL
shall pay
to the applicable tax authority the full amount of tax, interest and
penalty (if
any) payable thereunder (collectively, “Remittances”),
and
that such amounts shall be paid promptly following receipt of the applicable
LBCL Reassessment.
LBCL
shall
maintain a separate notional account (the “Account”)
in
which it shall record any and all Remittances made by it, plus any
and all costs
and expenses (including, without limitation, legal and accounting costs
and the
cost of expert consultants or witnesses, together with any non-refundable
goods
and services tax payable in respect thereof) incurred by it (on an
after-tax
basis) at InBev’s direction for the purpose of contesting the LBCL Reassessments
(such costs and
expenses
being referred to herein collectively as the “InBev
Dispute Costs”
which,
for the avoidance of doubt, shall not include the fees or disbursements
of AmBev
Counsel) plus any consequential expenses (including any increased
interest
expense as a result of LBCL’s leverage ratio increasing) resulting from the
funding of Remittances by LBCL. There shall be calculated on the
first business
day of each month an amount (each, an “Interest
Amount”)
equal
to the balance in the Account multiplied by a percentage equal to
a margin of 50
basis points above the 30-day Canadian bankers’ acceptance rate then in effect,
and then divided by 12; provided that (x) for any quarter in which
the LBCL
leverage ratio exceeds 2.0 to 1.0, but is less than 2.5 to 1.0, the
said margin
shall be 65 basis points, (y) for any quarter in which the LBCL leverage
ratio
is greater than or equal to 2.5 to 1.0, but less than 3.0 to 1.0,
the margin
shall be 80 basis points, and (z) for any quarter in which the LBCL
leverage
ratio is greater than or equal to 3.0 to 1.0, the margin shall be
95 basis
points. The Interest Amounts shall be added to the balance in the
Account on an
annual basis at the end of each year. For this purpose, the LBCL
leverage ratio
for a quarter means the ratio of (i) LBCL’s consolidated debt as shown on its
audited financial statements for the quarter to (ii) LBCL’s net income before
interest, taxes and depreciation and amortization, as shown on its
audited
financial statements for the quarter. Upon receipt by LBCL of an
indemnification
payment from InBev, the balance in the Account shall be reduced by
the amount
thereof.
Within
sixty
(60) days
following the date the last outstanding LBCL Reassessment has been
Finally
Resolved (as defined below), InBev shall deliver payment to or at the
direction
of LBCL, in full satisfaction of its indemnification obligations as
described
herein, in an amount determined in accordance with the following
formula:
A + B + C - D + E,
where:
A
equals
the total Remittances paid by LBCL from and after Closing;
B
equals
the total InBev Dispute Costs incurred by LBCL from and after
Closing;
C
equals
the aggregate of all Interest Amounts;
D
equals
the after-tax amount of any and all refunds (or credits) of tax and
interest
received by LBCL in connection with the resolution of the LBCL Reassessments;
and
E
equals
the total amount of any consequential expenses (including any increased
interest
expense as a result of LBCL’s leverage ratio increasing) resulting from the
funding of Remittances by LBCL.
An
LBCL
Reassessment shall be considered to have been “Finally
Resolved”
where
(A) no objection is filed in respect of such LBCL Reassessment by the
due date
therefor, or (B) an objection is filed with a taxation authority in
respect of
such LBCL Reassessment by the due date therefor, and either (x) the
taxation
authority allows the objection in its entirety; (y) the taxation authority
denies the objection, in whole or in part, and no appeal is filed in
response
thereto by the due date therefor; or (z) the objection is denied, an
appeal is
subsequently filed, and (i) the Tax Court of Canada (or other applicable
court,
including an appellate court, if applicable) issues a final determination
from
which no appeal is available or from which no appeal is taken by the
due date
therefor, or (ii) the appeal is abandoned.
On
an annual
basis, no later than 120 days after the end of each calendar year,
LBCL shall
deliver to InBev and AmBev a detailed calculation showing the balance
in the
Account at the end of the year and all additions to and deductions
from the
Account during the year. If InBev makes any indemnification payment
to LBCL in
respect of items previously added to the Account, the balance in the
Account
shall be reduced by the amount of such payment immediately following
receipt of
such payment.
Each
of
InBev, AmBev and LBCL shall from time to time execute or procure such
documents
and other assurances as may be reasonable or advisable to give effect
to the
provisions of this letter agreement. In addition, each of InBev and
LBCL shall
cause its affiliates to do all such things and to execute or procure
all such
documents and other assurances as may be necessary or desirable to
give effect
to the provisions hereof.
Notwithstanding
any
other term of this letter agreement: (a) the total balance in the Account
shall
not under any circumstances exceed $40 million. If at any time LBCL
reasonably
anticipates that the total balance in the Account would otherwise exceed
$40
million, LBCL shall so notify InBev in writing, and, unless the parties
otherwise agree, InBev shall make an indemnification payment to LBCL
to the
extent necessary to reduce the balance in the Account to no more than
$40
million; and (b) LBCL shall have the right at any time, and from time
to time,
on 120
days’
written
notice to InBev, to require InBev to make an indemnification payment
to LBCL in
an amount equal to the balance in the Account at that time.
If
InBev has
made one or more indemnification payments hereunder to LBCL before
the date on
which the last outstanding LBCL Reassessment has been Finally Resolved,
the
after-tax amount of any amount subsequently refunded or credited by
a taxing
authority to LBCL as a consequence of an objection or appeal in respect
of an
LBCL Reassessment shall (x) to the extent of the balance in the Account,
be
applied to reduce the balance in the Account, and (y) to the extent
it exceeds
the balance in the Account, be paid forthwith by LBCL, to InBev as
an adjustment
to the amount of such indemnification payment or payments previously
made.
If
the
arrangements contemplated hereunder result in LBCL incurring an increased
liability for capital tax, InBev shall indemnify LBCL and hold LBCL
harmless, on
an after-tax basis, from and against the full amount of such increased
capital
tax.
No
modification of or amendment to this letter agreement shall be effective,
valid
or binding unless made in writing and signed by all parties.
This
letter
agreement shall be governed by and construed in accordance with, and
the rights
of the parties shall be governed by, the laws of the State of New York
and the
parties hereby consent to the exclusive jurisdiction of the courts
of the State
of New York to hear and determine any and all disputes, actions and
proceedings
arising out of this confirmation letter.
All
dollar
amounts referred to in this letter agreement are references to Canadian
dollars.
Please
indicate your acknowledgement, acceptance and agreement of and to the
foregoing
by signing and returning to the undersigned the duplicate copies of
this
confirmation letter enclosed herewith. Upon execution by all parties
this
confirmation letter will become a valid and binding agreement between
us. This
confirmation letter may be executed in separate counterparts, each
of which
shall be considered an original and which, taken together, shall constitute
a
single agreement.
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Very
truly yours,
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INBEV
S.A.,
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By:________________________________________________
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By:________________________________________________
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Name:
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Title:
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