1. 2007 David K. Linnan COVERAGE OF LAWS & KINDS OF SECURITIES AS PREPARATION Prof David K. Linnan LAWS #600 September 10, 2007

2. 2007 David K. Linnan PERSPECTIVES I UNDERSTANDING INSTITUTIONS VS LEGAL COVERAGE Why are you in your third week of corporations, but are already looking tomorrow at a different statutory scheme (securities law)? What is a security? Traditional vs functional vs legal answer Idea of corp code as governing share rights vs debt as contract creature ARE THEY EQUALLY SECURITIES?

3. 2007 David K. Linnan PERSPECTIVES II UNDERSTANDING INSTITUTIONS VS LEGAL COVERAGE (CONT’D) Apart from purpose issue, idea of perspective Corporations law exists why? Regulation of stateholder & entity relations Securities law exists why? (Investment) market regulation Federal vs state differences WHAT ARE THE (ECONOMIC) INSTITUTIONS BEHIND THE LAWS?

4. 2007 David K. Linnan PERSPECTIVES III MARKET STRUCTURE & “LADDER” Business starting phase, own resources & maybe family if alone (mortgage house, credit cards classic) Business start or earliest build-out phase, skills “partner” & money “partner(s)” Business early build-out phase, banks & SBA Business late-early build-out phase, “angel” investors

5. 2007 David K. Linnan PERSPECTIVES IV MARKET STRUCTURE & “LADDER” (CONT’D) Business mid build-out phase, private offering investors (rich dentists, insurance companies) Business mid to late build-out phase, venture capital (targeting going public) Business early mature phase, going public (selling into public capital markets) Business mature phase, seasoned issuer (domestic) Business mature phase, seasoned issuer (international) LET’S GO BACK AND FIT SIMPLEST EQUITY (COMMON & PREFERRED STOCK)& DEBT SECURITIES INTO LADDER WITH WHAT LAW APPLICABLE?

6. 2007 David K. Linnan MONEY IN & OUT CORPORATION AS FINANCING VEHICLE: CREDITORS VS OWNERS Assuming choice of corporate form Promoter’s liability and failure to form entity Collateral veil piercing type doctrines (disregard corporate form) Putting owners’ money into venture Purchasing shares for lawful consideration Selling ever more shares to colleagues, friends & strangers Preemptive rights vs ? Collateral doctrines like equitable subordination (limiting structuring by treating debt sometimes as non-debt; priority rather than active distribution) Getting owner’s money out of venture (conflict with creditors) Dividend or other distribution (eg, repurchasing shares) Traditional share capital system (Delaware) vs newer share capital system based on accounting as with RMBCA Section 6.40 Share sales to 3-Ps vs company

7. 2007 David K. Linnan TRAD SECURITIES TYPES What kind of equity securities (types in Klein & Coffee)? What kind of debt securities (what areas of law as creditor protection)? What are business vs legal characteristics (Klein & Coffee vs statutes) WHAT ABOUT MIDTERM COVERAGE