Opinion ID: 552196
Heading Depth: 2
Heading Rank: 1

Heading: The Facility Agreement

Text: 11 On March 8, 1985, Aubin and an attorney ostensibly representing Haralson, Richard Fuqua, went to New York to discuss the trading losses with four Hutton officials: Thomas P. Lynch, Hutton Group President and Vice-Chairman of Hutton's board of directors; Scott Pierce, President of Hutton Company; Thomas Rae, Hutton's General Counsel; and Robert Witt, Hutton's Director and Vice President of Marketing. During approximately one hour of negotiations, these parties discussed funding Aubin's trading losses with proceeds from the S&Ls' imminent sale to Southmark. Both Haralson and Aubin refused to personally guarantee repayment of any money to be advanced by Hutton through this agreement. 12 The day before these negotiations, the four Hutton executives contacted Yang regarding the S&Ls' value. Yang told them that he thought the S&Ls would sell for $80-100 million, but that his estimates were subject to revision after a close review of the S&Ls' loan portfolios. Yang advised Hutton's executives to secure any loan to Aubin with Haralson's stock in both S&Ls. 13 After the March 8 morning negotiations, Lynch and Fuqua finalized an agreement wherein Hutton Group would provide credit to correct the Accounts' deficit balances. On the evening of March 8, Haralson and Winston Woo, President of RBI, Inc. and Chief Financial Officer of the S&Ls, arrived to sign the Facility Agreement with Hutton's Lynch. 14 This agreement obligated Hutton Group to immediately advance to Hutton Company such amounts as are necessary to satisfy existing deficiencies, if any, and margin requirements relating to [the Accounts]. Hutton Group also agreed to cause Hutton Company to honor the $11 million in checks stuck at Mercury. 15 Any funds that Hutton Group advanced Hutton Company under the Facility Agreement were to be repaid one year later by RBI, Inc. pursuant to a promissory note (the Note) that RBI executed with the Facility Agreement. The Note represents RBI's unconditional promise to pay Hutton up to $60 million plus interest for funds advanced under the Facility Agreement. 16 RBI is a wholly-owned subsidiary of IBR, Inc., in which Haralson has a 90% controlling interest. Haralson incorporated RBI in Nevada, capitalizing it with $25,000 only two weeks before the Facility Agreement was executed. There is no evidence that RBI ever engaged in any business except assenting to the Facility Agreement. 17 As the other party to the Facility Agreement, Haralson promised that he was the record and beneficial owner of all of Mercury's stock and 90% of Milam's. He represented that he would remain the owner of all of Mercury's stock free of encumbrances. He delivered all of Mercury's stock to Hutton on March 8 as security for RBI's obligations under the Facility Agreement and Note. Also, upon any sale of the S&Ls, Haralson promised to immediately apply all proceeds to the amount owed Hutton on the Note. Haralson also promised to operate the S&Ls in the ordinary course of business until the Note was paid in full. Finally, RBI and Haralson released Hutton from any claim based on Hutton's conflict of interest arising from its positions as both investment banker and secured creditor of the S&Ls. 18 The Facility Agreement does not make any reference to Aubin. It does forbid all transactions in Aubin's corporate Accounts except liquidations, and mandates that all securities positions in the Accounts be substantially liquidated by March 15, 1985. No party explains why both sides flouted this provision. Instead of liquidating the Accounts, Hutton put $4 million of seed money in them and permitted Aubin to continue using them as commodities gambling devices. Hutton charged this seed money to RBI's Note. The parties agree that Hutton Group advanced to Hutton Company a total of approximately $48 million under the Facility Agreement and Note.