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HomeMy WebLinkAboutORD 86-109 ORDINANCE NO. �O 9 ENTITLED AN ORDINANCE AUTHORIZING EXECUTION OF A SETTLEMENT AGREEMENT AND RELATED DOCU- MENTS WITH FIRST CITY NATIONAL BANK OF BEAUMONT; PROVIDING FOR THE LEVYING AND COLLECTING OF A SUFFICIENT TAX TO PAY THE INTEREST ON SUCH OBLIGATIONS INCURRED AND TO PROVIDE A SINKING FUND; AND PROVIDING FOR SEVERABILITY. WHEREAS, the city desires to resolve and settle its dispute with First City National Bank of Beaumont in connection with the collapse of E.S.M. Government Securi- ties, Inc. and affiliated entities; and, WHEREAS, in order to assure the legal sufficiency of this transaction, the city must levy a sufficient tax to provide for repayment of the contingent liability associated with the agreement; NOW, THEREFORE, BE IT- ORDAINED BY THE CITY OF BEAUMONT: Section 1. That the City Manager be, . and he is hereby, authorized to sign, in behalf of the City of Beaumont, the settlement agreement and the implementing documents attached hereto as Exhibit "A" and made a part hereof for all purposes (the "Agreement") . Section 2 . That the City Council shall, for each year that the agreement herein authorized is in effect, compute and 3 ._ G - ascertain the rate and amount of ad valorem tax, if any, based on the latest approved tax rolls of the City, with due allowances being made for tax delinquencies and costs of tax collection, which will be sufficient to provide the money required to pay any sums which may be or become due during any such year together with all interest thereon, because of the agreement herein authorized. Said rate and amount of ad valorem tax is hereby ordered to be levied and is hereby levied against all taxable property in the City of Beaumont for each year such agreement is in force and effect, and said ad valorem tax shall be assessed and collected each such year until all of the obligations herein incurred shall have been discharged. Section 3. That if any section, subsection, sentence, clause of phrase of this ordinance, or the application of same to a particular set of persons or circumstances, should for any reason be held to be invalid, such invalidity shall not affect the remaining portions of this ordinance, and to such end the various portions and provisions of this ordinance are declared to be severable. PASSED BY THE CITY COUNCIL of the City of Beaumont this 22 day of (/C-�o�4° , 1986. 444 =tiAor-Gree A- = Mayor - -2- SETTLEMENT AGREEMENT This is an agreement (hereinafter the "Settlement Agreement) settling a dispute between The City of Beaumont, Texas, a munici- pal corporation organized and existing under the laws of the State of Texas (the "City" ) and First City National Bank of Beaumont, a national banking association organized and existing under the laws of the United States of America, domiciled in Beaumont, Jefferson County, Texas ( "Bank" ) . RECITALS: A. City has incurred financial loss in connection with the collapse and bankruptcy of ESM Government Securities, Inc. and affiliated entities (collectively "ESM" ) and the acts or omissions of ESM, Grant Thornton ( "Grant" ) , Fidata Trust Company New York, formerly Bradford Trust Company ( "Fidata Trust" ) , Touche Ross and Company ( "Touche" ) and others, hereinafter referred to as "City' s Loss" . B. In relation to City' s Loss, City has asserted claims against and received settlement payments from the bankruptcy estate of ESM, and from Grant. The City has also asserted claims and filed law suits against Fidata Trust and Touche. The. City has also alleged that it has claims against Bank based on City' s Loss allegedly arising from Bank' s alleged failure to secure two signatures authorizing wire transfers of City funds to Fidata Trust from City' s account with Bank, all of which Bank denies. -1- C. As of the date hereof, the City has received from Grant, by settlement, the sum of $9,535 ,750 .00 and from ESM, by way of judgment in the ESM bankruptcy proceedings, the sum of $4,441,474.68 . Accordingly, as of the date hereof, City has received at least $13 ,977,224 .88 from settlements or judgments. D. Bank denies any liability to City on City' s alleged claims against Bank. Bank asserts that - City' s Loss was not the result of acts or omissions of Bank, but the result of the acts or omissions of the City, ESM, Grant, Fidata Trust, Touche, and others . However, to avoid litigation and to settle their dispute, the City and the Bank have entered into this Settlement Agreement. NOW, THEREFORE, the parties agree as follows: 1. Concurrently with the execution and delivery of this Settlement Agreement, the City has executed and delivered to the Bank a Release and Indemnity Agreement for the benefit of Bank and others. A copy of the Release and Indemnity Agreement is attached to this Settlement Agreement as Exhibit I. 2 . Bank in return for the execution and delivery of the Release and Indemnity Agreement has executed and delivered an assignment to City (the "Assignment" ) of production payments as herein defined ( "Production Payments" ) , out of the royalties payable to the Bank pursuant to the oil, gas, and mineral leases ( the "Mineral Leases" ) described in Exhibit A to the Assignment, and out of royalties payable to the Bank from any subsequent oil, -2- s f gas and mineral leases covering the mineral estates (the "Mineral Estates" ) described in the Mineral Leases. A copy of the Assignment is attached to this Settlement Agreement as Exhibit II. 3 . The Production Payments are 100% of the royalty received by the Bank under the Mineral Leases, or any subsequent mineral leases of the Mineral Estates until such- time as City shall have received the sum of One Million Dollars ($1,000 ,000) ( "Maximum Principal Payment" ) , plus simple interest (the "Interest" ) on the unpaid balance of the Maximum Principal Payment calculated in the manner set out in paragraph 4, below. The Maximum Principal Payment is subject to reduction under the provisions of paragraph ( 5) of the Release and Indemnity Agreement and paragraph (3) of the Assignment. 4. All Production Payments received by the City shall be applied to the Maximum Principal Payment. The term ( "Commencement Date" ) is defined as the first day of the second month following the date of the Assignment of the Production Payments. Interest (non-compounded) shall accrue from the Commencement Date at the rate of six percent (6%) per annum ( 365/366 day year) on the unpaid balance of the Maximum Principal Payment, as reduced from time to time by the Production Payments . The Interest shall be payable only after the Maximum Principal Payment has been paid in full . After the Maximum Principal Payment has been received by the City, the Interest shall be -3- paid, without interest, from the Production Payments. After the Maximum Principal Payment and the Interest have been received by the City, the Assignment of Production Payments to the City shall cease, and all royalties under the Mineral Leases shall not be encumbered by the Assignment. The City agrees to execute a recordable instrument evidencing the termination of the Assignment of Production Payments at such time as the City has received the Maximum Principal Payment and the Interest. 5 . The Bank hereby guarantees that the City will receive the Maximum Principal Payment and Interest within the time frames herein specified, and to the extent, if any, that the Production Payments fail to cause the timely receipt by City of money in the amount and within such time frames, the Bank will pay deficien- cies in cash. Cash, if any, so paid by Bank shall be applied first to the unpaid balance of the Maximum Principal Payment in the same manner as Production Payments are applied under paragraph 4, above. The Bank guarantees that the City will receive from Production Payments , or cash, at least One Hundred Thirty Thousand Dollars ($130,000 ) during each 1-year period from and after the Commencement Date, provided that in computing such annual amount, Production Payments in excess of $130,000 in any 1-year period shall be carried forward to the next 1-year period or periods. For this computation, the first 1-year period shall be measured from the Commencement Date and each subsequent 1-year period shall be measured from each subsequent anniversary date of -4- the Commencement Date. The Bank further guarantees that at the end of eight years from Commencement Date, City shall have received the Maximum Principal Payment and that the City will have received one-half of the Interest within one year after the date that the Maximum Principal Payment is paid in full, and that City will have received the balance of the Interest within two years after the Maximum Principal Payment is paid in full. Notwithstanding the foregoing, Bank' s guaranty is limited by Bank' s right to suspend the Assignment as provided in paragraph (5) of the Release and Indemnity Agreement and paragraph ( 3 ) of the Assignment; and Bank shall not be deemed in default under this guarantee so long as it exercises its right to suspend in accordance with such provisions. 6 . The Bank has pledged as collateral for its guaranty under paragraph 5, hereof, United States government obligations (the "Collateral" ) having a market value of at least $1,000 ,000 as of the date of this Settlement Agreement. The Bank' s pledge of Collateral for its guaranty is upon the terms and conditions set out in the Guaranty and Security Agreement executed by the Bank and the City, a copy of which is attached to this Settlement Agreement as Exhibit III. 7. City agrees that it will not assign or pledge the Assignment of the Production Payments . 8 . The Bank may terminate or repurchase the Assignment of Production Payments at any time by payment to the City of a sum -5- �0 9 equal to the sum of the then unpaid balance of the Maximum Principal Payment plus the accrued Interest. 9 . The Bank does not admit liability for the City' s Loss, but enters into this Settlement Agreement merely to purchase Bank' s peace. This Settlement Agreement (the documents described in the Exhibits attached being deemed a part hereof) is not to be used in any legal proceeding as an admission of anything by either the Bank or the City, except in a suit to enforce the terms hereof and only to the extent necessary to do so. 10 . It is expressly understood and agreed that the execution and delivery of the Assignment of Production Payments and the Guaranty and Security Agreement by the Bank to the City and the acceptance thereof by the City is in full accord and satisfaction of all claims and matters involved between the City and Bank, but such is not a complete satisfaction of the City' s Loss, and the City expressly reserves all of its claims, causes of action, losses and damages against all other parties including but not limited to, Touche, Fidata Trust, Grant and ESM. However, this Agreement is not to be urged or deemed as an admission of liabi- lity on the part of Bank or admission of any fault by City in respect to the losses suffered in connection with the ESM collapse. 11 . City warrants that it has not and will not assign its claim against the Bank to any third party. -6- 12 . This Settlement Agreement and the agreements set forth in the Exhibits hereto may be enforced by specific performance or by any other remedies at law or in equity. 13. This Settlement Agreement and the agreements set forth in the Exhibits hereto shall be governed by the laws of the State of Texas. 14. The obligations hereunder are severable, and no partial invalidity shall affect the remainder. If any term, provision, covenant or condition of the agreement is held by a court of com- petent jurisdiction to be invalid, void, or unenforceable, the remainder of the provisions shall remain in full force and effect and shall in no way be affected, impaired, or invalidated. 15 . Within ten (10) days after date hereof City will deliver to Bank, or its counsel, a certified copy of a Resolution of the City Council of Beaumont, authorizing the execution and delivery of this Settlement Agreement and related documents, including but not limited to the Release and Indemnity Agreement. Within such ten (10) day period Bank will deliver to City, or its counsel, a certified copy of a Resolution of its Board of Directors authorizing the execution and delivery of this Settlement Agreement and the related documents, including but not limited to the Assignment of Production Payment and the Guaranty and Security Agreement. The certification of such copy may be made by the cashier or any assistant cashier of Bank. -7- IN W,,I��TNESS WHEREOF, we have hereto set out hands this day of Cr Tb (,c'/i 1986 . FIRST CITY NATIONAL BANK OF BEAUMONT By 7. l ,.tol Its Chair an of the Board CITY 9F EAUMONT By Its Cit anager -8- RELEASE AND INDEMNITY AGREEMENT This Release and Indemnity Agreement is entered into on this the ,2^d day of UC-ro l7 e /� , 1986 in the City of Beaumont, County of Jefferson, State of Texas , between the City of Beaumont, Texas, a municipal corporation organized and existing under the laws of the State of Texas ( "City" ) and First City National Bank of Beaumont, a national banking association organized and existing under the laws of the United States of America, domiciled in Beaumont, Jefferson County, Texas ( "Bank" ) . RECITALS: A. City has incurred financial loss in connection with the collapse and bankruptcy of ESM Government Securities, Inc. and affiliated entities (collectively "ESM" ) and the acts or omissions of ESM, Grant Thornton ( "Grant" ) , Fidata Trust Company New York, formerly Bradford Trust Company ( "Fidata Trust" ) , Touche Ross and Company ( "Touche" ) and others, hereinafter referred to as "City' s Loss B. In relation to City' s Loss , City has asserted claims against and received settlement payments from the bankruptcy estate of ESM, and from Grant. The City has also asserted claims and filed lawsuits against Fidata Trust and Touche. The City has also alleged that it has claims against Bank based on City' s Loss allegedly arising from Bank's alleged failure to secure two signatures authorizing wire transfers of City funds to Fidata Trust from City' s account with Bank, all of which Bank denies. EXHIBIT I -1- m C. As of the date hereof, the City has received from Grant, by settlement, the sum of $9,535 ,750 .00 and from ESM, by way of judgment in the ESM bankruptcy proceedings, the sum of $4 ,441,474.68. Accordingly, as of the date hereof, City has received at least $13 ,977,224.88 from settlements or judgments. D. Bank denies any liability to City on City' s alleged claims against Bank and Bank asserts that the City' s Loss was not the result of acts or omissions of Bank but the result of the acts or omissions of the City, ESM, Grant, Fidata Trust, Touche, and others . E. In order to settle all claims, the City and the Bank have executed an agreement ( "Settlement Agreement" ) settling and compromising their differences. Pursuant to the Settlement Agreement, ( i) the Bank has executed and delivered to the City an Assignment of Production Payments (the "Assignment" ) and a guaranty and security agreement ( "Guaranty and Security Agreement" ) , and ( ii) City has executed and delivered to Bank this Release and Indemnity Agreement and the opinion of counsel for City. NOW, THEREFORE: (1) In consideration of the Bank' s execution and delivery of the Settlement Agreement, the Bank' s execution and delivery of the Assignment, and the Bank' s execution and delivery of the Guaranty and Security Agreement, the receipt, sufficiency and adequacy of which are acknowledged by the City, the City hereby -2- ACQUITS, RELEASES and FOREVER DISCHARGES Bank, its successors, predecessors, assigns, subsidiaries, parents and affiliates, their and each of their present and/or former agents, servants, employees, officers, directors , attorneys, and shareholders (hereinafter "Parties Released" ) , from the following matters : all claims, demands, debts, liens, liabilities, costs, expenses, and causes of action at law or in equity, as -well as all other causes of action, of any kind or character, owned or possessed by City, in whole or in part, or which City may now or hereafter claim to hold or possess , on account of, arising from, relating to or con- cerning, whether directly or indirectly, proximately or remotely, City' s depository relationship with the Bank, any and all wire transfers by Bank of City funds , City' s Loss, the collapse and bankruptcy of ESM or City' s claims against Grant, Fidata Trust, Touche, ESM and/or their and each of their present and/or former successors, predecessors, assigns, trustees, subsidiaries, parents , affiliates, agents, servants, employees, officers, directors, attorneys, partners and/or shareholders (hereinafter "Grant and Others" ) , including but not limited to all claims for damages , claims for punitive damages, claims for contractual rights, claims for breach of contractual duty, tort claims, claims for contribution or indemnity, claims based on negligence, gross negligence, or fault, and claims the City might or could allege as a result of any and all wire transfers by Bank of City funds to Fidata Trust. The term "claims" as used in this Release -3- J 4 0/�� and Indemnity Agreement also includes but is not limited to claims under any statute, law, ordinance, rule, or regulation, including but not limited to the Texas Deceptive Trade Practice Act. All of the aforesaid matters from which City has hereina- bove released Parties Released and described in this paragraph 1 are hereinafter referred to collectively as "Claims Released" . (2) Further, for the consideration -aforesaid the City agrees to Indemnify, Defend and Hold Harmless the Parties Released (a) from all claims arising out of City' s depository relationship with Bank asserted by any person or entity who was, is, or hereafter may be a defendant in any lawsuit brought by City, and (b) from all claims for contribution or indemnity against the Parties Released by any firm, corporation, partnership, joint venture, entity, government, governmental agency, or person, including but not limited to Grant and Others, (hereinafter "Third Parties" ) , in any way arising from, relating to, or con- cerning, whether directly or indirectly, proximately or remotely, any and all claims made by City against Third Parties relating to City's Loss, or the facts, events or circumstances underlying City's Loss, including but not limited to claims based, in whole or in part, on the negligent acts or omissions, intentional acts or omissions, breach of contract, violation of any other common law duty, or violation of a statutory duty by the Parties Released. City' s obligation to indemnify defend, and hold harmless Parties Released shall extend to include payment by City -4- of all charges, expenses, attorney's fees, and costs incurred by the Parties Released in opposing all claims against which City is obligated to indemnify the Parties Released under the terms hereof. City' s obligation to indemnify, defend and hold harmless shall not exceed the sum of the following: (a) all amounts stated in Recital C; (b) all additional amounts recovered by way of settlement in connection with City's Loss; (c) all judgments in favor of City for City' s Loss; and (d) all amounts received and receivable under the Assignment and the Guaranty and Security Agreement. The City further agrees that during each year while there is any liability upon the City by reason of the provisions of this Release and Indemnity Agreement, the City, through its City Council will compute and ascertain the rate and amount of ad valorem tax, if any, based on the latest approved tax rolls of the City, with due allowances being made for tax delinquencies and costs of tax collection, which will be sufficient to provide the money required to pay any sums which may be or become due during any such year together with all interest thereon, under this Release and Indemnity Agreement. Said rate and amount of ad valorem tax shall be ordered to be levied against all taxable property in the City for each year this Release and Indemnity Agreement is in force and effect, and said ad valorem tax shall be assessed and collected each such year until all of the obliga- tions of this Release and Indemnity Agreement have been dis- charged. The aforesaid ad valorem tax shall be assessed, levied, -5- and collected in a manner and amount to satisfy the obligations of City under this Release and Indemnity Agreement and to comply with the provisions of Article 11, Section 7 of the Constitution of the State of Texas. ( 3) Without limitation of the foregoing, but in order to carry out the City' s obligations thereunder to indemnify, defend and hold harmless the Parties Released, the City agrees to appoint and pay attorney(s) to defend the Parties Released and pay all costs , expenses and attorney' s fees of such defense. City also agrees to pay all the Parties Released attorney' s fees, expenses and costs to enforce this Release and Indemnity Agreement and any other agreements between the Parties Released and the City. In the event any judgment is entered against any of the Parties Released, the City agrees to promptly cause such judgment to be superseded or to be discharged. If the City elects to cause any judgment against the Parties Released to be appealed rather than paid or otherwise discharged, the City agrees to post either a cash bond or a supersedeas bond that does not require Bank's joinder, and to pay the bond premium, costs of appeal and every other expense, fee and cost prior to final judgment; and if final judgment is entered, City agrees to promptly pay such judgment, costs , fees and interest applicable thereto. If City hereafter obtains a judgment against a person or entity based upon City' s Loss and that person or entity asserts or has asserted a claim or obtained a judgment against -6- any of the Parties Released for which City is obligated to indem- nify hereunder, then City will either (a) settle the claim against Parties Released or discharge the judgment against Parties Released, or (b) place proceeds from the judgment in favor of the City in an amount sufficient to satisfy the claim or judgment against the Parties Released in a segregated account which shall constitute a special fund and which shall be held for the benefit of the Bank and other Parties Released for the pur- pose of satisfying the claims or judgments against the Bank and/or other Parties Released. When the liability of Bank and Parties Released is satisfied or extinquished, any funds remaining in the segregated account may be withdrawn by City. (4 ) In the event the City wholly or partly fails, refuses, or defaults in its obligations to indemnify, defend and hold harmless the Parties Released, the Parties Released shall have the right to recover from the City the sum of (a) the amount of any judgments including interest thereon against Parties Released and (b) all fees and costs of defense not previously paid by City, such sum being hereinafter referred to herein as "Indemnified Amount" ; and City hereby consents to a judgment against City in favor of such Parties Released for the Indemnified Amount, it being recognized that in consenting to such judgment City has funds under its control from amounts received in connection with City' s Loss as stated in Recital C hereof and from additional amounts it may hereafter receive by -7- 4 way of settlement or judgment, including the amounts to be received under the Assignment and the Guaranty and Security Agreement. (5) Without limitation on the generality of City' s obliga- tion under this Release and Indemnity Agreement, if City fails, refuses or for any reason does not or cannot perform its obliga- tion to indemnify, defend and hold harmless the Released Parties as provided in this Release and Indemnity Agreement, Bank may, as a cumulative but not exclusive remedy, recover on behalf of Bank and other Parties Released, the Indemnified Amount by deducting the Indemnified Amount from the Maximum Principal Payment. As a part of carrying out such reduction, Bank shall have the right to suspend the Assignment (together with Bank's guaranty that the Assignment will produce payments to the City of at least $130,000 per year) and to collect and retain for Bank or Parties Released the Production Payments until it has received from Production Payments the Indemnified Amount plus statutory interest thereon. The rights of Bank under this paragraph ( 5) shall be self- executing upon ' ten (10) days written notice to the City in the manner provided in the Assignment. ( 6) City warrants that it is the owner of the Claims Released herein and has not assigned and will not assign such claims against Parties Released to any third party. City agrees not to sue, institute, or cooperate in the institution , commen- cement, filing or prosecution of any suit, demand, claim or cause -8- AKO of action against the Parties Released in any way touching on the Claims Released herein. ( 7) The Parties Released do not admit any liability what- soever under any theory of law to any other party, liability therefore being specifically denied. This Release and Indemnity Agreement is being made purely upon a compromise basis by Bank to rid Bank of the threat of vexatious litigation in regard thereto, and this Release and Indemnity Agreement shall never be used as evidence of liability of Bank in any suit or suits, claims or causes of action whatsoever, except a suit to enforce the terms hereof, and then only to the extent necessary to do so. This Release and Indemnity Agreement is not and is not to be urged or deemed to be an admission of liability on the part of Bank or City. (8) It is expressly understood and agreed that the Bank' s execution and delivery of the Settlement Agreement, the Bank' s execution and delivery of the Assignment, and the Bank 's execu- tion and delivery of the Guaranty and Security Agreement, the receipt, sufficiency and adequacy of which City hereby acknowledges, is in full accord and satisfaction of all claims and matters involved between the City and Parties Released, but such is not a complete satisfaction of the City' s Loss, and the City expressly reserves all of its claims, causes of action, losses and damages against all other parties, including but not limited to Touche, Fidata Trust, Grant and ESM. City agrees that -9- any default or breach on the part of Bank of the Assignment or Guaranty and Security Agreement or the exercise of Bank's rights and remedies under paragraph (5) hereof shall in no way consti- tute a failure of consideration or invalidate or affect this Release and Indemnity Agreement or City' s obligations hereunder, City' s sole remedies being suit under the Assignment and/or suit on the Guaranty and Security Agreement and/or foreclosure under the Security Agreement. (9) City warrants and has furnished to Bank an opinion of counsel that the City has legal capacity and authority to exe- cute, enter into and perform its obligations under the terms of the Release and Indemnity Agreement and is legally bound by the terms and conditions hereof, and further warrants that its City Manager is duly authorized and empowered to be a signatory hereof as an officer of the City. (10) The obligations hereunder are severable, and no partial invalidity shall affect the remainder. If any term, provision, covenant or condition of the agreement is held by a court of com- petent jurisdiction to be invalid, void, or unenforceable, the remainder of the provisions shall remain in full force and effect and shall in no way be affected, impaired, or invalidated. -10- IN WITNESS WHEREOF, we have hereto set out hands this �d� day of C `ro , 1986 . FIRST CITY NATIONAL BANK OF BEAUMONT BY Its Chairman of the Board CITY OF BEAUMONT By Its City Manager -11- w ASSIGNMENT OF PRODUCTION PAYMENTS This is an Assignment of Production Payments made by First City National Bank of Beaumont, a national banking association organized and existing under the laws of the United States of America, domiciled in Beaumont, Jefferson County, Texas ( "Bank" ) and The City of Beaumont, Texas, a municipal corporation orga- nized and existing under the laws of the State of Texas (the "City" ) . RECITALS: A. Bank owns certain mineral estates (the "Mineral Estates" ) in the land covered by the oil, gas and mineral leases (the "Mineral Leases" ) described in Exhibit A. B. The Bank is the Lessor under the Mineral Leases, which provide that the Bank shall be paid a royalty, as therein specified, from all oil and gas produced and saved by the Lessees under the Mineral Leases. C. The Bank and the City have entered into an agreement ( "Settlement Agreement" ) which provides, among other things, for the assignment by the Bank to the City of payments (the "Production Payments" ) of 100% of the royalties payable to the Bank with respect to the Mineral Leases, until such time as the City shall have received the amount specified in the Settlement Agreement. Now, therefore, pursuant to the Settlement Agreement, the Bank and the City agree as follows : EXHIBIT II -1- 11 -�� X09 (1) The Bank hereby assigns to the City, Production Payments equal to 100% of the royalty payable to the Bank under the Mineral Leases, subject to the provisions hereinafter set out. (2) Subject to the provisions of paragraph (3) hereof, the Production Payments shall continue until such time as the City shall have received the amount specified in the Settlement Agreement, i.e. , One Million Dollars ($-1,000 ,000 ) (the "Maximum Principal Payment" ) plus interest (the "Interest" ) on the unpaid Maximum Principal Payment calculated in accordance with the terms of the Settlement Agreement. At such time as the Maximum Principal Payment plus Interest have been received by the City, this Assignment shall cease and terminate, and all royalties shall revert to the Bank. At that time the City will execute a recordable instrument evidencing the termination of this Assignment. (3 ) Without limiting the provisions of the Release and Indemnity Agreement, the Bank expressly reserves the rights set out in paragraph (5) of the Release and Indemnity Agreement, of even date executed by City for the benefit of Bank and other Parties Released, as therein specified, viz : If City fails, refuses or for any reason does not or cannot perform its obliga- tion to indemnify, defend and hold harmless the Released Parties as provided in the Release and Indemnity Agreement, Bank may, as a cumulative but not exclusive remedy, recover on behalf of Bank and other Parties Released, the Indemnified Amount (as defined in -2- 9 the Release and Indemnity Agreement) by deducting the Indemnified Amount from the Maximum Principal Payment. In carrying out such reduction, Bank shall have the right to suspend this Assignment (together with Bank' s guarantee that the Assignment will produce payment to the City of at least $130,000 per year) and to collect and retain for Bank or other Parties Released the Production Payments until it has received from Production Payments the Indemnified Amount plus statutory interest thereon. The Bank may invoke the rights hereunder by giving ten (10) days prior written notice to the City and to any Lessee or Assignee of a lessee under a Mineral Lease or subsequent mineral lease, which notice shall state that Bank has suspended the Assignment and which notice shall be binding upon City and such Lessee or Assignee unless a final judgment to the contrary shall have been entered. ( 4) The Bank shall have the sole right to enter into amend- ments and modifications of the Mineral Leases and to enter into subsequent mineral leases of the Mineral Estates and the joinder of the City shall not be required, but this Assignment shall cover the royalty from all subsequent mineral leases of the Mineral Estates until such time as this Assignment shall cease under the terms of paragraph (2) , above. Further, Bank shall have the right to sell all or any part of the Mineral Estates. The Bank will advise any future lessee or purchaser of the existence of this Assignment so that all the royalties received by Bank' s successor-in-interest will be encumbered by this -3- Assignment, and the City will continue to be entitled to receive the Production Payments as provided herein. No future leases or sales of the Mineral Estates will in any way affect the Bank' s guaranty or pledge of collateral in the Guaranty and Security Agreement of even date herewith. The Bank may terminate or repurchase this Assignment at any time by payment to the City of a sum equal to the then unpaid balance of the Maximum Principal Payment plus the then accrued Interest. (5) No Lessee or Assignee of a Lessee under any Mineral Lease or subsequent mineral lease shall be liable to the City for royalties paid to Bank prior to such time as a Lessee shall have been notified in writing by the City that the City demands payment of the royalty directly to the City, which written notice shall be accompanied by a certified copy of a counterpart of this Assignment filed for record in the County or Parish in which the Mineral Estate is located. No Lessee or Assignee of a Lessee shall be authorized or obligated to refrain from making royalty payments to or through the Bank until such written notice as pro- vided in this paragraph (5) has been received by the Lessee or its Assignee. Further, no Lessee or Assignee of a Lessee is authorized to refrain from making royalty payments to or through the Bank after receipt of notice from the Bank that this Assignment has been suspended under paragraph ( 3 ) hereof. Executed in multiple counter parts each of which is deemed an original, but all of which constitute but one and the same instrument. -4- 1 c e IN WITNESS WHEREOF, we have hereto set our hands this day of October, 1986 . FIRST CITY NATIONAL BANK OF BEAUMONT By Its Chairman of the Board CITY OF BEAUMONT By Its City Manager -5- STATE OF TEXAS COUNTY OF JEFFERSON This instrument was acknowledged before me on October , 1986 by Wilton G. White, Chairman of First City National Bank of Beaumont, a national banking corporation, on behalf of said Bank. Notary Public, State of Texas STATE OF TEXAS COUNTY OF JEFFERSON This instrument was acknowledged before me on October 1986 by Albert E. Haines , as City Manager of the City of Beaumont, Texas. Notary Public, State of Texas -6- � a n 4 r STATE OF TEXAS COUNTY OF JEFFERSON BE IT KNOWN, that on this day of October, 1986 , before me, the undersigned authority, and in the presence of the wit- nesses hereinafter named and undersigned, personally came and appeared Wilton G. White, Chairman of First City National Bank of Beaumont, and executed the foregoing instrument, and thereupon the said Wilton G. White, as such Chairman acknowledged that he had signed and executed the same as his act and deed, and as the act and deed of the said corporation, for the consideration, uses and purposes and on the terms and conditions therein mentioned and in his said capacity. And the said Wilton G. White, being by me first duly sworn, did depose and say that he is the Chairman of First City National Bank of Beaumont and that he had signed and executed said instru- ment in his capacity, and under authority of the Board of Directors of said corporation. Thus done and passed in the County of Jefferson, State of Texas, on the day and date first hereinabove written, and in the presence of and competent wit- nesses, who have hereunto subscribed their names as such, together with said appearer and me, said authority, after due reading. Notary Public, State of Texas WITNESSES: -7- to a SCHEDULE OF MINERAL LEASES (1) Oil and Gas Lease dated August 19, 1974 between First Security National Bank of Beaumont, Lessor, and Montasanto Company, as Lessee, recorded in Vol. 1883 , Page 61, Deed Records of Jefferson County, Texas covering the following described property: All of the East one-half of Section 175 , T&NO RR Survey, A-342 , except the North 80 acres thereof, Jefferson County, Texas. (2) Oil and Gas Lease dated November 5 , 1981 between First Security Bank of Beaumont, N.A. , as Lessor, and Credo Oil and Gas, Inc. , as Lessees, recorded in Volume 2350 , Page 158 , Deed Records, Jefferson County, Texas, covering the following described property: Lots 17, 18 , 24, 26 , 27, 29 , 31 and 32 out of the Charles and Anton Benson Subdivision of T&NO RR Company Section 163 , Abstract 374 , Jefferson County, Txas, SAVE AND EXCEPT all strata now held by production under that certain Oil and Gas Lease of July 27, 1978 appearing of record in Volume 2092, Page 456 , of the Deed Records of Jefferson County, Texas, being all strata from the surface of the ground to a depth of 10 ,412 feet. (3) Oil and Gas Lease dated April 6 , 1981 between First Security Bank of Beaumont, N.A. , as Lessor, and Wesley West, as Lessee, recorded in Volume 2304 , Page 434, Deed Records of Jefferson County, Texas, covering the following described property: All of the W. P. Hay Survey, A-753 , Jefferson County, Texas, also being the Southeast one-fourth ( SE/4 ) of what is known as T&NO RR Company Survey Section 178 . EXHIBIT A -8- D -6'6 /a� 9 u ( 4) Oil, Gas and Mineral Lease dated November 24 , 1948 be- tween Security State Bank & Trust Company of Beaumont, as Lessor, and C. B. Claypool, as Lessee, recorded in Volume 720, Page 337, Deed Records of Jefferson County, Texas, covering the following described property: FIRST All those certain lots and tracts or parcels of land, lying and being situated in Jefferson County, Texas, and more fully described as follows, to-wit: Lots Nos. 1 and 7 inclusive, in Block No. 34; Lots Nos. 1 to 14, inclusive, in Block No. 35; Lots Nos . 3 to 12 , inclusive, 51, and 53 to 61, inclusive, and the East 2/3rd of Lots Nos. 13 and 50, in Block No. 36; Lots Nos. 4 to 10 , inclusive, 49 , 50 , 52 , 53, 54, 55 , and the East 2/3rds of Lots Nos. 11 and 48, in Block No. 41; Lots Nos. 4, 7 to 10 , inclusive, 49 , 50 to 54 , inclusive, and the East 2/3rds of Lot No. 48 , in Block No. 42; Lots Nos. 4 to 9 , inclusive, and the East 2/3rds of Lots No. 11, in Block No. 47, all of which property is in and of CALDER HIGHLANDS EXTENSION, which is an extension of Calder Highlands Addition to the City of Beaumont, in Jefferson County, Texas, as shown by the map or plat of such Calder Highlands Addition and Calder Highlands Extension thereto of record in the office of the County Clerk of Jefferson County, Texas, here referred to for all purposes, all of which lots and property are portions of Tracts Numbers "F" and "G" and the North half of Tract "H" of the C. H. Hughes 80 acre subdivision of the Hezekiah Williams League in Jefferson County, Texas. SECOND All those certain lots, tracts or parcels of land, lying and being situated in Jefferson County, Texas, and more fully described as follows, to-wit: Lots Nos . 1 , 2 , 3 , 51, 56 , 57 and 58 , in Block No. 41 , of the Calder Highlands Extension Addition to the City of Beaumont, -9- Jefferson County, Texas, as per map or plat of said Addition of record in the office of the County Clerk of Jefferson County, Texas. Also Lots Nos. 1 , 2 and 52 , in Block 36; Lots Nos. 1, 2, 3 , 5 , 6 and the East 2/3rds of 11, and all of 55, 56 , 57 and 58 in Block No. 42; and Lots Nos. 1, 2, 3 and 10 in Block No. 47, of the Calder Highlands Extension Addition to the City of Beaumont, Jefferson County, Texas, as per map or plat of said Addition of record in the office of the County Clerk of Jefferson County, Texas . (5) Oil and Gas Lease dated September 17 , 1980 between First Security Bank of Beaumont, N.A. , as Lessor, and Cenard Oil and Gas Company, as Lessee, recorded in Volume 891, Page 761 , Deed Records of Liberty County, Texas, covering the following des- cribed property: 320 acres, more or less, in the John Evans Survey (otherwise known as the E/2 of the W.C.R.R. Company Survey Section 18) , A-682, Liberty County, Texas, described in that certain Deed dated November 23 , 1942, from Security State Bank and Trust Company to Eno LaCour, et al, recorded in Vol. 257, Page 82 of the Deed Records of Liberty County, Texas. ( 6) Oil and Gas Lease dated November 1, 1979 , between First Security Bank of Beaumont, N.A. , et al, as Lessor, and Franks Petroleum, Inc. , as Lessee, recorded in Book 377, Registry No. 283685, Records of Beauregard Parish, Louisiana, covering the following described property: The South Half of the Northeast Quarter (S/2 of the NE/4) and the North Half of the Southeast Quarter (N/2 of the SE/4 ) , Section 36 , Township 5 South, Range 8 West, Beauregard Parish, Louisiana, containing 160 acres, more or less. (7) Oil, Gas and Mineral Lease dated September 5, 1950 be- tween First National Bank of Beaumont, as Lessor, and The Texas Company, as Lessee, recorded in Book 81-L, Page 305 , Records of Conveyances, Beauregard Parish, Louisiana, covering the following described property: South Half of Northeast Quarter and North Half of Southeast Quarter of Section 36 , Township 5 South, Range 8 West, and South Half of Southwest Quarter of Section 11, Township 6 South, Range 8 West, Beauregard Parish, Louisiana. -10- 4 r ° GUARANTY AND SECURITY AGREEMENT This is an agreement between First City National Bank of Beaumont, a national banking association organized and existing under the laws of the United States of America, domiciled in Beaumont, Jefferson County, Texas ("Bank") and the City of Beaumont, Texas, a municipal corporation organ- ized and existing under the laws of the State of Texas ( "City") . RECITALS : A. City and Bank have entered into a Settlement Agreement of even date herewith resolving a dispute between the City and the Bank arising out of the City's financial loss from the collapse of ESM Government Securities, Inc. ("Settlement Agreement") . B. Pursuant to the Settlement Agreement, the Bank has executed an Assignment of Production Payments of even date herewith ("Assignment") . C. The Settlement Agreement, provides that the Bank will make certain guarantees and provide certain collateral with respect to the Assignment. D. Pursuant to the Settlement Agreement, the City has executed a Release and Indemnity Agreement of even date herewith ("Release and Indemnity Agreement") . EXHIBIT III NOW, THEREFORE, in consideration for the undertakings by the parties as set out in the Settlement Agreement, the Assignment and in the General Release and Indemnity Agreement, the City and the Bank hereby agree as follows : 1. The Bank hereby makes and affirms Bank's guaranty (the "Guaranty") to the City as provided in the Settlement Agreement and limited in the Release and -Indemnity Agreement, which guaranty is enforceable in the manner set out in paragraph 3 below. 2. The Bank hereby pledges to the City as collateral for Bank's guaranty under the Settlement Agreement United States obligations ("Collateral") described in Exhibit 1 attached hereto. The Collateral is to be held by the First City National Bank of Houston (the "Holding Bank") . The Bank grants to the City,- as Secured Party, a security interest in the Collateral under the Uniform Commercial Code of Texas, and contemporaneously herewith delivers to the City safe keeping receipts issued by the Holding Bank reciting that the Collateral is being held by the Holding Bank as bailee for the City for the purposes of §9.305 of the Texas Uniform Commercial Code with respect to the Collateral and acknowledging that it has received a copy of this Agreement and notice from the City of the City' s security interest in the Collateral and all proceeds of the Collateral under this Agreement. The Bank reserves the -2- right, which right is recognized by the City, to substitute Collateral and to reduce Collateral in the manner and to the extent hereinafter provided. The security interest granted to the City shall attach to all substituted Collateral and to all proceeds of Collateral. 3. If Bank defaults in the performance of the Guar- anty, and the default continues for a period of 10 days after the Bank' s receipt of written notice from the City specifying the default, the City may enforce the Guaranty through judicial proceedings or, at City' s option, City may sell the Collateral and apply the proceeds to the satisfac- tion of the then unpaid balance of Maximum Principal Payment and Interest (as defined in the Settlement Agreement) plus City's reasonable costs incurred in connection with the sale of the Collateral. If City elects to sell the Collateral and thus apply the proceeds and the proceeds from the sale of the Collateral are insufficient to satisfy all of the foregoing, the Bank shall make good such deficiency. Any excess proceeds from the sale of Collateral shall be remitted to the Bank. If Bank fails to make good any deficiency Bank will be liable for all costs of collection reasonably incurred by City in effecting collection of such deficiency including attorneys' fees and expenses and court costs. -3- Q 4. If at any time Bank wishes to substitute a differ- ent United States obligation for any item of collateral, it may do so by making a written request to the City for such substitution which request will be accompanied by a safe keeping receipt issued by the Holding Bank containing the terms required by paragraph 2 above covering the United States obligation proposed to be substituted for the obliga- tion which the Bank wishes to withdraw. If the substituted item of Collateral is acceptable to the City and has a market value equal to or greater than the market value of the item of Collateral sought to be released by Bank, City will approve such substitution at the next regular meeting of the City Council following receipt of such request by resolution of the City Council and thereupon the former item of Collateral will be released from the security interest herein created and the new item of Collateral will be subject to the security interest herein created. 5. Upon written demand by either party (which demand will not be less than 30 days after the next most recent such demand by either party) the Holding Bank will determine the market value of the Collateral as of the close of business on the date such demand is received by the Holding Bank. Within 3 business days after receipt of such demand, the Holding Bank will notify Bank and City as to the sum of the market value of the Collateral as of such date. If the -4- ��6 `�19 °p a market value of the Collateral is less than 95% of the sum of the Maximum Principal Amount plus Interest thereon, Bank will immediately pledge additional United States obligations as Collateral hereunder of sufficient market value to restore the total market value of the Collateral to 100% of the then balance of the Maximum Principal Payment plus Interest thereon; provided, however, that Bank will never have to provide additional Collateral unless the deficit in market value is more than $25,000. If the market value of the Collateral is more than 105% of the sum of the Maximum Principal Payment plus Interest, Bank will be entitled to request and receive a release of items of Collateral having sufficient market value to reduce the market value of the remaining Collateral to 100% of the sum of the Maximum Principal Payment plus Interest. 6. The rights of the City and the Bank under this Agreement shall be governed by the Uniform Commercial Code of Texas and by other applicable laws of the State of Texas. Executed in multiple counterparts this day of October, 1986. FIRST CITY NATIONAL BANK OF BEAUMONT By Its Chairman of the Board Attest: Its Cashier -5- CITY OF BEAUMONT By Its City Manager Attest: Its City Clerk -6- wx 6 A EXHIBIT 1 $1,000,000.00 U. S. Treasury Notes, 9-3/8ths , due September 30, 1989