ART OF THE DEAL Course No. 300H1F Fall 2003 MATERIALS Faculty of Law University of Toronto These materials are exclusively for the classroom use of students of the University of Toronto Professor Harris m BOM IAOKIH LIBBfflY AUG ? 8 2003 FACULiy W- L(t» 8F nmro uotvtRSiTt ART OF THE DEAL Course No. 300H1F Fall 2003 MATERIALS Faculty of Law University of Toronto These materials are exclusively for the classroom use of students of the University of Toronto Professor Harris Digitized by the Internet Archive in 2018 with funding from University of Toronto https://archive.org/details/artofdealcoursenOOharr Art of the Deal Fall 2{)()3 Table of Contents Page 1 TABLE OF CONTENTS Class 1 - Introduction and Transaction Cost Engineering Ronald J. Gilson, Value Creation by Business Lawyers: Legal Skills and Asset Pricing, 94 YaleLJ. 239 (1984), excerpts.1 Class 2 - Value Creation Through Contracting Business Research Corporation (A).17 Class 3 - Introduction to Transactions No materials for this class. Class 4 - Value Creation Through Organizational Design Adolph Berle and Gardner Means, The Modern Corporation and Private Property (1932), pp. 119-123.47 Eugene F. Fama, Agency Problems and the Theory of the Firm, 88 J. OF POL. Econ. 288 (1980), excerpts. 52 Eugene F. Fama and Michael C. Jensen, Separation of Ownership and Control, 26 J. OF L. AND Econ. 301 (1983).64 William A. Sahlman, The Structure and Governance of Venture Capital Organizations, 27 J. FIN. EcON. 473 (1990), excerpts.77 Class 5 - Capital and Organizational Structure Paul Milgrom and John Roberts, Economics, Organization and Management (1992), ch. 15, pp. 505-7.109 Bengt Holmstrom and Jean Tirole, The Theory of the Firm III (Capital Structure), in Handbook of Industrial Organization, R. Schmalensee and R.D. Willing, eds. Ch. 2 (1989), pp. 79-86.111 Michael C. Jensen, Eclipse of the Public Corporation, Harvard Bus. Rev. 61 (September-October 1989).116 Rappaport, The Staying Power of the Public Corporation, Harvard Bus. Rev. 96 (January-February 1990).130 Art of the Deal Fall 2003 Table of Conicnts Page 2 Class 6 - Bounded Rationality and Incomplete Contracts Paul Milgrom and John Roberts, Economics, Organization and Management (1992) ch. 5, pp. 126-149.139 Victor P. Goldberg, Relational Exchange: Economics and Complex Contracts (1980), in Readings in the Economics of Contract Law, Victor P. Goldberg ED. (1989), ch. 1.2, pp. 16-20.151 Class 7 - Adverse Selection Paul Milgrom and John Roberts, Economics, Organization and Management (1992) ch. 5, pp. 149-59.154 George Akerlof, The Market for '‘Lemons”: Qualitative Uncertainty and the Market Mechanism, in READINGS IN THE ECONOMICS OF CONTRACT Law, Victor P. Goldberg ed. (1989), ch. 1.4.160 Lawrence M. Ausubel, Adverse Selection in the Credit Card Market (working paper, 1999), excerpts...163 Class 8 - Moral Hazard - Overview and Credit Lyonnais Paul Milgrom and John Roberts, Economics, Organization and Management (1992) ch. 6.177 Credit Lyonnais Bank Nederlands, N.V. v. Rathe Communications Corporation, 17 Del. J. CORP. L. 1099(1991).193 Former MGM Chairman and CEO Arrested in Italy in $1.5 billion Entertainment Industry Fraud (October 12, 1999, www.usdoj.gov/usao/cac/pr/202b.htm).224 Former MGM Chairman/C.E.O. Agrees to Plead Guilty to Five Felony Charges Relating to $1.5 billion Fraud Involvmg Rathe’s Takeover of MGM (October 19, 1999, www.usdoj.gOv/usao/cac/pr2001/150.html).227 Class 9 - Adverse Selection and Moral Hazard - Application to Acquisition Aereements and Closely-Held Corporations Ronald J. Gilson, Value Creation by Business Lawyers: Legal Skills and Asset Pricing, 94 Yale L.J. 239 (1984), pp. 269-280.230 James Freund, Anatomy of a Merger (1975), pp. 242-248.237 Precedent: Share Purchase Agreement (from Barry D. Lipson, The Art of the Corporate Deal (2000)).241 Frank Easterbrook and Daniel Fischel, The Economic Structure of Corporate Law (1991), pp. 228-232 and 238-243.257 Art of the Deal Fall 2003 Table of Contents I^age 3 Precedent: Shareholders’ Agreement - Shotgun Buy-Sell Clause (from O’Brien’S Encyclopedia of Forms (1987-)).260 Wittlin V. Bergman (1994), 19 O.R. (3d) 145 (Farley J.) (excerpts).269 Wittlin V. Bergman (1995), 25 O.R. (3d) 761 (C.A.) (excerpts).276 Information regarding Argosy Partners Ltd. “Shotgun Fund”.278 Class 10 - Option Theory and Arundel Partners Stephen A. Ross, Randolph W. Westerfield, Jeffrey Jaffe and Gordon S. Roberts, Corporate Finance (C^ Canadian Edition), ch. 21, excerpts.283 Arundel Partners - The Sequel Project.292 Class 11 - Neeotiation Ron S. Fortgang, David A. Lax and James K. Sebenius, Negotiating the Spirit of the Deal, HARVARD BUSINESS REVIEW 66 (February 2003).311 David A. Lax and James K. Sebenius, The Negotiator's Dilemma: Creating and Claiming Value, ch. 2 in The Manager as Negotiator: Bargaining for Cooperation and Competitive Gain (1986), pp. 29-45.321 David A. Lax and James K. Sebenius, Creating Value or Where Do Joint Gains Really Come From?, ch. 5 in The Manager as Negotiator: Bargaining FOR Cooperation and Competitive Gain (1986), pp. 88-116.330 Class 12 - Long Term Contracting Keith J. Crocker and Scott E. Masten, Pretia Ex Machina?^ Prices and Process in Long- Term Contracts, 34 J. OfL. &Econ. 69 (1991) (excerpts).344 Victor P. Goldberg, Price Adjustment in Long-Term Contracts, in READINGS IN THE Economics of Contract Law, Victor P. Goldberg ed. (1989), ch. 9.3, pp. 225- 235.353 Class 13 - Using Reputational Markets Paul Milgrom and John Roberts, Economics, Organization and Management (1992), ch. 8, pp. 259-269.359 Ronald J. Gilson, Value Creation by Business Lawyers: Legal Skills and Asset Pricing, 94 YaleL.J. 239 (1984), pp. 280-293.365 situation. ‘‘‘‘Pretia" roughly translates to “prices”. Art of the Deal Fall 2003 Table of Comenls Page 4 Ronald J. Gilson and Reinier H. Kraakman, The Mechanisms of Market Efficiency, 70 Va. L.Rev. 549 (1984), pp. 613-622. 372 lanthe Jeanne Dugan, Auditing old-timers recall when prestige was the bottom line. Wall Street Journal, July 15,2002, A1.382 John C. Coffee, Jr, Understanding Enron: “It’s About the Gatekeepers, Stupid”, 57 Business Lawyer 1403 (2002).386 Clayton P. Gillette, Reputation and Intermediaries in Electronic Commerce, 62 La. L.Rev. 1165 (2002), excerpts.396 Class 14 - Incentive Contracts David Besanko et al.. Incentives and Agency, in The Economics OF STRATEGY, 2d ED. (1999), ch. 16.419 Precedent: Earn-out Provision.453 Class 15 - Silicon Valiev Case Study - La\vverin2 in the Boom Mark C. Suchman, Dealmakers and Counselors: Law Firms as Intermediaries in the Development of Silicon Valley, in Martin Kenney ed. UNDERSTANDING Silicon Valley: The Anatomy of an Entrepreneurial Region (2000), ch.4, pp. 71-97.458 Lisa Bernstein, The Silicon Valley Lawyer as Transaction Cost Engmeer?, 74 Or. L.Rev. 239 (1995).472 Joseph Bankman, The Structure of Silicon Valley Start-ups, 41 UCLA L. Rev. 1737 (1994), excerpts.485 Poonam Puri, Taking Stock of Taking Stock, 87 CORNELL L. Rev. 99 (2001), excerpts.499 John C. Coates IV, Explaining Variation in Takeover Defenses: Blame the Lawyers, 89 Calif. L. Rev. 1301 (2001), excerpts.533 Krysten Crawford, Defenseless, AMERICAN Lawyer (October 2001) 19.574 John C. Coates, Valley of the Excuses, AMERICAN Lawyer (January 2002) 14.577