NOTE TO MR R L DESMOND
DW594/H': G01JMH
24'th September 1992
SUMITOMO BANK
I refer to your note of 21st September.
My view is that Clause 3 of the existing guarantee is sufficient itself to cover
the variations in the underlying agreement which Sumitomo are now
proposing. Sub-paragraph (a) of Clause 3 is clear enough and it would not
be open to SAT Industries to argue that the guarantee it had given in 1991
ceased to be effective on the coming into force of the changes agreed
betweeh B&W and Sumitomo. I do question whether the reason for
Sumitomo requiring a revised guarantee is the insertion, by them, of the
obligation on BAT to specifically guarantee indemnities, costs and expenses
pursuant to the agreement (the second amendment suggested by them).
Clearly this was not included In the original guarantee and what seems clear
to me is that the bank is now trying to obtain something extra. That extra has
absolutely nothing to do with the extension of the maturity date of the
receivables purchase agreement or the revised commitment amounts and
revised pricing, and I think that the bank goes too far when it indicates that
the guarantee needs extending to cover, in addition, the indemnities, costs
and expenses,
I am not entirely happy with the first revision to the guarantee which does not
MOV seem to be necessary in view of clause 3(a). It may well be that the bank Is
suggesting this as a means of dispensing with the need for further revisions
to the guarantee in future years If there are other re-negotiations; of the
underlying receivables purchase agreement, but clause 3 already deals with
that point.
At the end of the day, It seems to me that what we are faced with is a
commercial and logistical issue. If part of the overall deal with Sumitomo is
that BAT should specifically guarantee indemnities, costs and expenses
pursuant to the agreement, then I can see why Sumitomo are now insisting
on an amendment of the guarantee to cover these items. When the
guarantee was first given by BAT Industries in 1991, we did have some
discussion with Sumitomo about these items and I believe that we avoided
their inclusion on that occasion. albeit ostensibly on the grounds that the
mandate from the Main Board to give the guarantee did not specifically cover
them. If we now go back to the Main Board and ask to amend the guarantee, 1_4
B.A.T INDUSTRIES P.L.C. - MINNESOTA DEPOSITORY COPY - PRODUCED PURSUANT To $ VILD. OF
CONSENT JUDGMENT DATED 5/8/98 IN STATE OF MINNESOTA, ET AL. V. PHILIP MORRIS, ET AL. CASE No. Cl-94-8565
the only legitimate reason for doing so is that Sumitomo are specifically
asking us to guarantee the payment of certain fees and expenses by SM
As I have said, we Will not be seeking a fresh guarantee because this is
necessary to reflect the extensions to the receivables purchase agreement
and the variations in pricing.
Perhaps you could let me know how you want to play this one.
DAVID WILSON
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B.A.T INDUSTRIES P.I-C. - MINNESOTA DEPOSITORY COPY - PRODUCED PURSUANT To I VILD. OF
CONSENT JuDGmEmT DATED 518198 IN STATE OF UNNESOTA, ET AL V. PHILIP MORRIS, ET AL., CASE No. Cl-94-8565