Corporations, chapters 1-2 Why does a business or an interest in a business?

Epstein-Frier Roberts-Shepherd Gontser Machers courts and legislatures AP Smith How does the owner make money? How does the owner know how much money the business made, is worth? Income statement Cash flow Balance sheet Finanicial statements Problems with Sarbanes-Oxley Motivation for fraud Types of fraud Intent of Sarbanes-Oxley What does a lawyer for a business do? What are the legal structures for a business? What choices do you have? How do you choose?

SOLE PROPRIETORSHIP What is a sole proprietorship? What is the law? What are problems with What are the problems operating Employees and introduction to agency principles Problems: liability for contracts Other agency relationships in business Attorney-client Hayes v. National Service Franchises and other Miller v. McDonalds Class #2 AP Smith: Corporations can make donations Agency doctrine: whats the boss responsible for, have they made a deal principal responsibility Agent: someone who acts on his behalf, subject to his control, an agent consents so to act Shareholders and officers: officers have a fiduciary duty to shareholders textbook is very shareholdercentric AP Smith: the court does not generate a free-floating social responsibility of corporations A civil society, Princeton donations, presumed societal interest Creating institutions that fulfill public needs with unspoken private organization not substantially a part of the state CLASS 2 Who gets to decide reasonable Board of directors, not Pet charities: investors give money in their interest, not for me to do good things Duty of loyalty problem: Why is Sarbanes-Oxley there Amendments to security law A response to Enron Business focus / whats the arc of the book? Agents as a seed-to-tree story: people doing work for me Partnership: multiple owners, cut down the risk Owners, understood to share in liability AND profits and losses Control, profit and loss

Is the bank who lends an investor in your business the need for capital drives the change in legal structure Freer-Epstein: as this thing grows, it gets complicated LLC: centralized management, taxed as a partnership. For some purposes owners/partners, for others, shareholders. Agency in Home Depot Black letter law: I cant make you my agent without you agreeing to it. Agency agreement, implied authority If the boss casually (but actually hires) you, does the boss have to pay for delivery you sign for Agency law is both technical and unclear, hard to keep the language straight Principle manifestation to the 3rd party Agency / does something Inherent liability: Watteau v. Fenwick Humbles bar case, hiring the previous mgmt Watteau Fenwick has no clue Humble is no longer the owner The manifestation in apparent authority If you tried to prevent something from happening and you fail, you still have to pay As your opportunity grows, so does your liability Awkward, doctrinal cases Ratification: Let the boss pay / Respondeat superior If a manager at a store sells jeans, who is the party getting sued the superior If were doing a contract, its about the principle and the third party Tort liability: agent retains ALL liability in tort (a retail worker drops a thing on you) Business/finance/structure/liability grows as the business grows CLASS 5 Corporations as a relic of a different era of law school: agency and partnerships Special legislative charters for corporations 1920s: William O. Douglas all forms of business organization should be classified together

Sole proprietorships: enterprises too small to afford a lawyer Partnerships: weedy dumb lawyers Creditors can attack everything! Not leisurely indigents Nothing particularly wrong with running a business out of your apartment Enterprises with little liability beyond auto accidents, enterprises without much need of debt Enterprises forbidden to incorporate lawyers and doctors used to be Factors in common law or statutory partnerships Liable for the full extent of their debts Family ties thought to limit the amount of silliness Lowell mills Andrew Carnegie steel magnate the statutory limited partnership, with a corporate general partner The general partner, because it is a corporate entity, shelters the assets Real estate construction, investment, corporate general partner and limited partners Hayes v. National Service Not malpractice or anything, but misbehavior and dissatisfaction The story about falling into a partnership Suing the person it believes to be a partner to acquire payment on an estate Doesnt look like client document Dont forget the basic question of what is the business relationship between these two parties The design was: debt Did not negate the possibility that anyone could construe this as negative debt Write a bad document, the other lawyer will make of it what they want Without any sense Debt and equity How do you figure out how much money you made in a year in a business? Income statement Sales, cost of goods, selling and general administrative expenses Depreciation Capital asset: one that is not to be used up within a year Depreciating: slowly losing value, like a desktop DEPRECIATION is not a cash charge CLASS 7 Questions from Thursday? Making order out of the immense chaos at the beginning of the book This course is about nothing A list of formal entities that somehow have something to do with money The book doesnt have the courage of its convictions How money is made: money in, money out. What risks are created by the form of the entity? Economic entities

Money creates risks: risk is what other people do to you. The 3 duties: loyalty, care, good faith. And the duty of candor. What do they imply? A contract or tort issue. I cant get to summary judgment on this! Inside the vessel of loyalty, care, and good faith: Outside the vessel: investors, creditors. If you need money, investors want a big piece of the upside and none of the downside. If you cant find investors but can find creditors, creditors want a large part of the upside and none of the downside. The difference b/t anchors and treat the risks as the centerpiece. Growing (financing) a business: Your own money equity Somebody elses money debt Debt is essential and the boogeyman in the closet. Almost all corporate disasters begin with optimism When you talk about banks, you are talking about the classic forms of business Other peoples money: partnership and its friends, LLP, LP / corporations, LLCs The commonlaw partnership: nobody wants this. Risks of other people and the common law duties. Death, disability, divorce, disaffection. Small corporations created by agreement. Designed to deploy the multiplicitous language of the corp How do you get money into the barrel, how do you get money out of it, where everything comes together in writing The important goal: making money. 1) Salaries, bonuses, stock options above the line 2) Profit below the line Agents cost money, the law of partnership, agency rep. Income statements. Regulatory headaches. They are also presentations of the entity self. Problems about who represents whom 3) Sale (in part or whole) fraud, misrep, Securities Act of 1933 a. The law of other people outside i. When people say I was entitled to more of that money youre a shitty dealer b. Making money in the business finance 4)

The scope of authority. Frolic and detour. THE BALANCE SHEET

CLASS 8 What is worth paying to? There is 0% chance of details of the RUPA or UPA. This guy starts a NASCAR business, takes on partners, and quickly dies. They hire someone to keep the books. The wife says, no you have to sell all the assets. This is an argument about money. Her lawyer says the death of a partner kills the partnership. RUPA is about to come in and so the document says we can buy out the share Agreement is difficult, death IS specifically mentioned, when would book value be okay Probably the widow doesnt like the number Kovacik is a classic partnership: capital and labor. A dangerous mix. Partners share the gains and share the losses. Capital is trying to stick labor with half the losses. There is absolutely no evidence about whether or not labor got paid. Capital had no record of wages paid. Why? It was fought for cheap. It never says that its a partnership but can it be anything but? Why are they partners, reduce the flow, etc. For taxation purposes, corporations are taxed twice Partnerships are not taxable entities, but Gains and losses pass through and appear as deduction at partner-level individual taxation I will live forever and never pay taxes until I die and then my estate is revalued Anything that > significant negotiation deficit, allows you to pass thru the tax benefits Far more than corporate matters Where the money is being made and whats important Someone throws in capital, someone throws in a building different entities. Same for heres some siding, you do the work Treating them the same as the law seems to do is stupid. Bohatch Is looking at other partners billing records a good idea? No. Does gender matter? The other partner reports it, the young partner now out of a job sues 1) Tort: breach of fiduciary duty 2) What Whistleblower angle? Contract action, breach of the terms of the partnership agreement, obv, nobody cares Contract claim generates One has to trust in ones partners; you cant work together without that trust This is a small lucrative office Social dynamics of small groups I didnt want to hire her in the first place > I cant trust her Responsibilities to each other, a very hard time figuring out to do with a body of law which speaks not each other but of

It misses the situation in which the partners find themselves Structure of partnership has to give u pause when trying to overlay it with fiduciary obligation This is much harder than Way too complicated for small group dynamics Page v. Page (1961) Losing money, 1 partner begins to throw debt capital in Does not treat it as if its capital and labor, but capital and not so big capital If there is a problem here, it is of the fiduciary duty of partners Bad faith to All four of these cases smell of money. Hurt feelings (divorce). Claims about wrongness in a world that is about money. Even when were not moving much money around. The importance of a lawyer for real care in dealing with partnership agreements Unless you REALLY try to cut back on the duties of partners we wont interfere Money in, money out. That is to say something that is cruel and heartless. You gotta know the money, but think about the people. Partnerships? Youre a tax lawyer. One needs cash flow, one needs to shelter income. But if they get into an argument, forget it, this shit is gonna blow up. These 3 cases are good for money and people. The authors have hidden away CLASS 9 What is a corporation and how does a business become one A corporation is an absence whose presence is signified by that absence: you cannot touch a corp, only know that it is there by the things that people do on its behalf Compare to the Church a medieval notion that personality can be given to things by the sovereign4 We never lose touch with the state here The problem with the notion that the sovereign creates it is that it doesnt answer who represents How can I know that you represent Brought up by not recognizing that the agents problem Who represents the proprietor etc. A claim to represent the absence and what the law is asked to do The bag problem: whats in the bag and whats inside I speak for the corporation says who? Why should I credit you for that which this absence needs The entire content of the protestant reformation

The usual suspects, the de facto corporation When you think the corporation has been formed that doesnt make a damn bit of difference Piercing the corporate whale Novation Ratification will only get you partial credit If you want someone to say that there is a bag that holds all this, you have to follow the form Law as enforcing bureaucratic regularity Bristol Meyers case Parent, financing the assets The world of a stock and definitions Corpus If you dont know the language you will sound stupid I own 9 shares of a stock not I own 9 stocks Primary market: where the corpus sells stock to the initial shareholders Securities act of 1933 and state law Secondary market: the aftermarket, wherein shareholders sell stock to other people What is watered stock? Services performed in the past The piece of legal language Preferred stock and common stock and varieties Whats the problem with debt Coupon Why own common stock? We cant have a corporation without the corporate stock being issued Its a true empty closet There are people to get to invest, in really stupid things, and they try to protect themselves in lots of ways Redemption preference, duration, cumulative, participating, convertible, liquidation Voting, Non-voting, Supervoting

Closely-held or public 19th century general incorporation statutes designed for large businesses

A corporation is whatever the relevant state law says it is. Every states corporation statute provides that is a separate legal entity, its holders are not liable Corporate law is State laws (Delaware: MBCA), articles/bylaws, case law, no general federal corporate statute Preparing the necessary papers De facto corporation or corporation by estoppel Issuing stock, preferred stock, common stock Par value the minimum price for which a corp can issue its shares Stated capital includes the aggregate par value of all issued shares of par value stock Capital surplus may be distributed back Internal affairs CH 5 OPERATION Who is liable to the corps creditors? Dewitt Truck Brokers v. W. Ray Flemming Fruit Co.: when corporate ownership is all one person, a fraud, an alter-ego A corporation whos stock is owned by another corp is a subsidiary. A subsidiary is a corporation, a majority or all of the outstanding stock of which is owned by another corporation. In Re Silicone Gel Breast Implants Liability Litigation Bristol: no summary judgment corporate control claims deal Piercing the corporate veil to abrogate limited liability and hold Bristol responsible Is MEC Bristols alter-ego Enterprise liability: corporations which are commonly owned and engage in one enterprise should be treated a a single entity for liability (only pierces for subsidiaries etc.) Board of directors and officers: make most important decisions when there are more than 4 or 5 shareholders CLASS 13 or something Class 14 or something Duty of Good Faith: it is a status/obligation Duty of candor: Duty of care says, you got a job, youre being paid for it, and were spending all of this time protecting you from liability. Dont fall asleep. Duty of loyalty: dont steal. Theres a difference between falling asleep at the train crossing, and waving cars onto the train tracks You gotta watch out for your imaginary friend somewhere Holding the hand of your imaginary friend What do we think about economic activity, is it like being a trustee? Is it about permitting cowboys to roam? Dont steal from your imaginary friends, and watch out for them COOKIE FOOD PRODUCTION The imaginary roles we have thought up, A well-structured LLC? Taking the advantage of a corporate form to freeze out the majority-minority You cannot answer good questions, only say that they are good questions The question with money out is, is this

Extremes of the zone of reasonableness ahh I dont like this, please give me some pieces of paper to make me feel comfortable that the price and value are closer Price is todays estimate of what time and circumstance will bring Actiion factor environments Long-term hypothetical you can only say stop shitting on me, sorry were working for the shareholders Its like the Catholic church, except they felt the need to have a head

HMG: since he wanted to participate on the buy side arguing about a space in between price and value spatially compromised? This kinda smells Cookie Food Product It is said that terms of the SBA alone forbid the paying of dividends If that is true, and it seems likely Disney This is a fucking outrage, the kids down on Wall St. are not all crazy, we had a world where in the 50s and 60s If the firm drifts into bankruptcy made it easier to accept lower salaries, at levels way below the CFO, is quite extreme. That should be felt in salary. The story of the negotiation with Ovits makes it reasonably clear the degree w/ which that is true. This is a man who took a stable job w/ an income in the range of $20M a year. Very serious in the choice of words The responsibility of the corp towards is shareholders was seen as 1 thing: stable dividence Equity was treated as a fancy version of debt The difference between a 1% and 2% and 3% annual growth is dumbfounding There is something to be said for Ovits and his salary What there is nothing to be said for is the behavior of the Disney board and Mr. Eisner Why a person thinks running a corporation The neat thing is to notice the way, given that mgmt selects the board Ovits knew he was going to be fired and got protection nothing personal! Why would you expect someone to wake up and fix it Humans are all weve got CHAPTER 6 Fiduciary duty vs. but the statute What these two cases mean Selling out the standard answer If you have to go to fiduciary duty, its gonna be expensive

The topic at the beginning: what do you do when you wish a corporation is growing? 3 are equity, 2 are debt Owners increase equity by further cash contributions or dont take shit out. If you want a pot, Invite outsiders in (venture capital) private because they rely on registration requirement of the 33 act. The classic exception is QUINVY: qualified investors. Designed to fleece dentists Sitting around always is fraud liability 10b5 or common law: 10b5 covers the failure to disclose Whether or not it applies is often very important. The means of interstate commerce. What youre planning to raise, fees somewhere in the range of 7% All of the odd maneuvering that accompanies this The fee Banking is a very scary thing The return on assets is around 1% Remarkably risk-intolerant What banks really want is collateral, assets that can be quickly sold The public debt market: if you think an IPO is complicated, you aint seen nothing until a debt auction Aspect of debt to venture capital Look at the structure of IPOs I get paid before you guys this smells like debt and it should be thought of as such What you are busy doing is creating the list of who gets money when The pure equity owners get paid last, very often they take first in liquidations Kinds of business loans: commercial loans, real estate loans, If they can get money, they expect to make it on the spread between the cost of funds and the interest paid to depositors and the interest paid on the loan You think of deposits as assets, for banks they are liabilities, to be demanded at any time Glass-Stiegel Act: investment banks or broker-dealers Real broker dealers by trade did not do investment banking The world worked fine until some point between 1962 and 1973 When banks ended up with a negative spread: The great S&L bailout of the late 80s paid for our inability to deal with this You always need more in the next quarter

Meanwhile in b-schools, the finance department, Portfolio theory: all of my economic wealth is at the mercy of this company Among a group of companies that are dissimilar, with respect to product and relationship to economic cycle etc. Changes in the real world: securitization Responded to the following problem: You could not swap one loan for another because they were distinguishable Trustees put lots of dissimilar things into the trust Put a shitload of unrelated stuff into it Think about mortgages. The average length of a mortgage is 7 years. When the mortgages got paid off, there were big lumps divided among everybody Initially they were banks Wall St law firms paid for an opinion that says under the law you may sell this And federal bank regulators did the same thing We could sell the mortgage because it was defined as a security under federal law The structure of the portfolio was said to generate a stream of income How to take this out of the trust and turn it back securitization 2011: it will take 13-15 years to unravel Buying securities for the purpose of holding them and earning income in strings that would match the security-holders The design was that they would be sold to insurance companies and pension plans People will live and die predictably All of this turns on the bane of every undergrad: the normal distribution Trying to insure that my assets are available at cash when my liabilities appear: pure mgmt of cashflow #1 rule about humans: they are lazy. Changes in portfolios for any set of investments The pressure is that banks dont want lower prices for their loans NOVEMBER 3, 2011 Credit default swap

NOVEMBER 8, 2011 The repo transaction Tomorrow I will give you $1,000 in exchange for my bond Is it well-capitalized or not? At night when the bank does its balance sheet, its assets of dubious value are down Benefits: lower the amount of capital we have to carry. The little trick is somewhat different: the design of this transaction is that I have an asset that is paying 3% Im borrowing in the overnight market funds at .15% Where can I find highly-rated very secure securities? Guess where Mortgage bonds to CEOs What is a credit default swap? A big pile of paper. Fees and paperwork. I the holder have the right to ask the counter-party to guarantee their pledge to hold them Similarly if you the holder find your credit rating declining, I the counter-party have the right to ask you for security In truth: nothing but a pure bet on whether or not this million dollar pot of securities is going to crate The end of the transaction: the holder gives the counter-party the bonds Until 2007 no collateral was required; these were naked promises. The credit default swap which was holding down the value of these assets There is a problem with this structure! Everybody has been chasing fees and yield using repos and everybody believes that the money market funds will be there forever Buying paper. Lehman Bros goes into bankruptcy. Theyve lost a big pot of money. And theyve promised, historically, that the value of a share in a money market fund will never fall below the $1 original amount. Suddenly, they refuse to do anything but treasury bills. No way to finance these assets Carried by what, everything shuts down Secretary of treasury admits he doesnt know how serious this would be Subprime mortgages were more valuable. AAAs were doing 6%! In markets like Florida and Nevada etc., individuals were buying multiple newly-built houses for the purpose of holding them and reselling them In 2006, chairman of the fed said something quite astonishing about the real estate market: the market seemed to be showing signs of irrational exuberance.

Nothing happened. This is in part what the kids in Zucotti Park are complaining about. But they somewhere understand in their gut that someone kept the merry-go-round spinning until the last possible moment. When taking over AIG the funds were thrown into large banks by demanding AIG pay 100% on defaults, one of the clauses being that AIG would go insolvent and file for bankruptcy, so we pushed enormous sums of money into the banks Exceedingly unlikely that uncle sam will get 28.79 per share without inflation and all Dodd-Frank is a disaster, might as well force the suckers to eat the cost unless were going to rewrite it right If I were to put it on the exam, you could take 3 hours to write this out, but I wont How people avoid the corporate income tax: running up high salaries Giamatti Zidell Sinclair Oil The lesson about sticking it to someone. Got a client? Get it in writing. Friends. Brothers. Moving large quantities of oil was a big deal Sinclair was one of Nelson Rockefellers original partners The two small shareholders say you oughta be keeping the money here in venezuala Nope theres nothing that says they have to do that, to keep them from paying dividends, besides youve got money anyway Selling medical devices that someone was sure to license, soon After this opinion We know nothing about intent or causation or Working for the future not the present Deals always have warranties in them Malone and Brincat Delaware Supreme Court No purchase or sale: people who didnt get out Ruling: we couldnt allow you to deceive your stockholders, this is Delaware! The precedent speaking to the rectitude of the state of Delaware: we dont tolerate the perpetration of fraud by companies

Dupuy v. Dupuy: a phone call between 2 parties in an apt building is sufficient to bring 10b5 action since a telephone is an instrumentality of commerce If you want a Gilberts outline of the course in every course when given the statute which tells you all you need to know 11/8 HOLDOUTS Imklein What does insider trading mean for market efficiency? Why isnt the companys increased business reflected in the market price? Discounted future earnings? I understand the market pricing to be off is internal to investing What inside edges do we allow? What do we bar? Whats the problem in Basic? During the course of a merger there were several denials What is the underlying issues 10b5 Its hard to show that all these people investing for various reasons, what are they entitled to rely on? Transparency/information flaws/mandatory disclosure regime Whats an IPO? You get an underwriter and give info to the SEC If the public is going to be trading shares Companies have to make info publicly available People trading amongst themselves once we have a public market for shares, the company is obliged to provide regular information to the market w/ the idea that the price relatively reflects the value of the company You cant say something to mislead the market There is sensitivity, companies have private proprietary information What line does the court draw? Basics claim to privacy right Duty to disclose may be hard, duty not to lie is easy Big takeaways: say something? It has to be truthful. Fraud: common law fraud. Deceiving someone by public misstatements. Securities law fraud is a broader concept: Materiality and should you disclose dealing with terrorists Goodwin v. Agassiz

Mining company has a geological report coming What if I say I want to buy it for huntin grounds Securities and Exchange Commission v. Texas Gulf Sulphur Co The opposite of a call is a put: the obligation to sell. Options are like stock purchases on steroids. Misinformation is material. Probability it will occur and how extraordinary the information is. They can know inside information they just cant trade on it Under the securities regime, basis is publicly available information Chiarella v. United States Not insider trading because hes not an insider! The contention of the SEC US v. Ohagan Lawyer for a company representing a company working with the Pillsbury Is this insider trading yes but why is it difficult Inside what? You owe a duty to the source, youre taking that info and misappropriation From the clients perspective: if this is so valuable, why aint WE profiting from it Court doesnt go there Comes down to lawyering: he took the information, it wasnt his to take, he profited himself from it Reading v. British soldier in Cairo profits from his relationship by working for smugglers MERGERS Choosing between insolvency and medicaid When personal liability rises many years later Weinberger v. UOP Set the mold for merger law everywhere Parent has actually controlled over board of directors Members of the parents board sit on the subs board Litigate it: the baseline law When judging a merger, in which there is any possibility of conflict of interest and thus breach of the duty of loyalty, fair dealing and fair price. The cleanest process in the world that comes up with a really low price will be suspicious If you havent prepped your witness any better than, you are in deep shit

The details of the statutes are a grotesque minefield, nobody would stop to try to figure them out One constant: courts hate them Procedure to it to death in the legislature Understanding what a merger is for the sake of it WISCONSIN SUCKS Price of merger is very low they lowballed it to get a good deal and didnt get one! High number or not high enough? Were bulking up, its only stock, right The high number was the result of unfair dealing? Bait and switched. To dress up the case as a bait and switch, high number up front, low number in the back If it were a 10b5 itd be a really good argument, there in the background Given all they tell you about the case, they did it with this (non-existent) set of facts The minority discount: majority would get control premium, so minority would have less than per-share value. Theory is wonderful, absolutely correct, Wisconsin says not what were talking about. Marketability discount is the same kind of thing except the other way. 2 problems with the argument that: what you have done in a public market is to establish the price for a small amount for thee small amount of the company that is the float Value does not equal price. Privately-held stock is worth less because its not liquid. We are back with St. Augustine. Fair: in a dictators economy, he would set the price. The clue here: there aint any cash around. The appraisal says COGGINS V. PATRIOTS Football is neat! If you have an asshole for a client youre in trouble All thats going on here is collateral for a personal loan Its paid down by the time litigation is over A good example of the freezeout in the merger circumstance Franklin v. US Steel When you buy a stock you get the balance sheet Business hates contingent liabilities Youre screwing up the b-school grads plans Most people wanting to buy assets do not have ____, so the temptation is to use stock TRIANGULAR MERGER!

Buy, target, seller. Buyer establishes buyers subtle. Buyer trades its stock. Buyer now owns subs stock 100%. Change it for target stock. The unknown unknowns are at the buyers sub not elsewhere. At least one other reason for doing this: When you own 100% the shareholders meeting will not be contentious. There is a form and substance problem here: the form is beautiful, the substance eats shit. That which is designed to insult you from the unknown unknown only protects you from the same suit being brought in our little case, USX When they have the same guy as CEO Mere continuation. Mere is a questionable word. The largest shareholder was moving from Delaware to California. Thats a lot of cash, maybe thats exactly what he wants! Run the damn thing through bankruptcy, sure, thats all were doing. TUESDAY BEFORE THANKSGIVING Hostile takeovers as the point where the course comes together The question all along has been: Meinhard Tort law: whats wrong, what did you do wrong? The context in which I acted Fiduciary duties cannot be reduced to rules, thats what clients want, you can only give them rules Understanding Delaware cases in the 80s is looking at the time of the 70s: inflation, when nobody knew how to stop it or how it happened. With stock values going up in the mid-60s, conglomerates were formed. Divisions are vulnerable, easily bought up. KKR: buy companies on borrowed cash, make a killing on the later sale. Old management wants out, new management throws in a slice of equity, they all make out like bandits. T. Boone Pickens small time oil man, followed in the footsteps of the great raider. Found a little firm that looked like it had excess cash, I wanna take it over, I ask the shareholders directly In tort cases, who is the nice person helps Meanwhile, Delaware is developing some very strong Weinberg 83: parent and submerger, parent doesnt have anything good to do with its money, it has directors that sit on both boards, the parent and sub, it says well I think well buy the sub theyre my bosses, I dont wanna run the sub, I wanna run the parent sell at 31, some crabby shareholder sues Delaware does a very simple thing: the duty of loyalty, youre on both sides. Fair process, fair price. Smith: whereas Van gorkum:

Byplay is not that interesting T. Boone Pickens gets a big one, he finds Unocal. Offers cash in front, securities of dubious value in the back. 51% cash. Leverage everything, play musical chairs. Probably afraid of being busted up. Rather than let Pickens leverage up, well do it. Van Gorkums difference: the omnipresent spectre of self-interest. Shareholders and directors back and forth forever. Threat: Must be proportional threat and must be balanced. THAT TELLS YOU NOTHING. Along comes Revlon, another bad person (Ronald Perlman). Made money with Pantry Pride. Revlon self-tenders notes, pay a high interest rate. Court says, you cant do this, you cant put any more debt on this company. Revlon may waive those requirements. Everyone thinks theyre geniuses. Pantry Pride reloads and raises price. Approaches as a white knight. I will rescue you but you gotta pay me covenance on the notes. The value of the notes cratered, everybody smells the fact that theyre gonna be in the midst of some awfulness. Greatest indignity. When the duty becomes to get the best price for the stockholders. stop worrying about the debtholders, they sue you, thats what insurance is for What if Perlman wasnt a bad person? Nobody read it that way. The fair auction ALONG COMES TIME MAGAZINE The time life banner: it was hard-hitting middle-America shit. We need to get into entertainment! With a complacement partner to protect the time culture. Link up with Warner Bros, argue about whos going to retire and all that WB wants a merger stock for stock. Will not allow itself to be bought out. Time: WHATEVER. NYSE requires merger to be approved via stockholders vote. Delaware requires a stockholder vote on Warners side Marvin Davis, a mover of a different kind, runs Paramount, and offers nearly twice the amount of value per share We can avoid the proxy war Stampeding the stockholders is a bad thing? Revlon says this little ploy of yours makes it clear that the firm is going to be sold. Marvin Davis: ate lots of lawyer fees and banker fees. He now has Paramount pictures. Why does everyone want a movie studio if none of them make money. He goes to Davis and says can I buy u lol Redstone: a peculiar shareholding function. They own 85% of the voting stock of Viacom. The difficulty -is that it wants a lot of things (no termination clause, wants option to buy 19% of Paramounts stock at a real low price. Structured such that if someone else gets ahold of it, it becomes exercisable a modest deterrant to anyone coming in after, if you wanna get sold Mr.

Davis) shifts to 80 for half and QVC common for the back half. So Unocal-ian! Hes got a Unocal offer now. QVC goes to 90, Paramount still says not enough. A statement is made, no share of control. Tries Lidell, switches to Huntsman Chemical (John Huntsmans father), back to Lidell). So why is this case here, idk, what one has here is the working out of tort law. When is a left turn into oncoming traffic negligent? Last spat of cases on the Williams Act A wart on the tail of corporate law. Finding out that you cant make farmers into springmakers. He didnt even trust banks! He put all his cash in shoeboxes in closets. It makes no difference what the form is! Liability for misrepresentation of the form of facts attaches to securities! LLCs are still securities! So do worry about fraud and misrepresentation! But for other purposes, securities acts dont apply, youre not gonna use them for public offerings. What to take away