Question 1

Which state has the nation's toughest state antitakeover statute?

Accepted Answer

A) California 
B) Delaware 
C) Pennsylvania 
D) Tennessee 
A) California 
B) Delaware 
C) Pennsylvania 
D) Tennessee

Question 2

You are a director of the PML Corporation.The company needs land to expand its production facilities.You mention to the president that you presently own 50 acres of suitable land,and suggest that she request the board to consider this purchase.What steps should you take to minimize your liability and ensure that the transaction cannot be successfully challenged by the shareholders?

Accepted Answer

In a situation involving a potential con

Question 3

Brice is on the board of Success Corporation.Eager Corporation has made a move to acquire Success.Tina,the president of Success advises the board that the offer made by Eager is a good one that should be accepted.She did not disclose,however,that Eager had offered her a generous bonus if she could convince the board members of Success to take Eager's offer.Brice tells the other board members that they should simply rely on Tina because she is probably right,and under the business judgment rule they are protected even if she is wrong.Which of the following is true regarding Brice's advice?

Accepted Answer

A) Brice is correct. 
B) Brice is correct only if the directors of Success had been soliciting offers,and Tina was charged with reviewing them. 
C) Brice is incorrect unless it can be established that Tina has prior experience in mergers and acquisitions. 
D) Brice is incorrect because no statement made by an officer is entitled to blind reliance. 
A) Brice is correct. 
B) Brice is correct only if the directors of Success had been soliciting offers,and Tina was charged with reviewing them. 
C) Brice is incorrect unless it can be established that Tina has prior experience in mergers and acquisitions. 
D) Brice is incorrect because no statement made by an officer is entitled to blind reliance.

Question 4

What is the "all holders rule" of the Securities and Exchange Commission?

Accepted Answer

A) That an offer to purchase one class of stock must be extended to cover all classes of stock. 
B) That a selective stock repurchase plan is deemed a tender offer in which all holders of securities of the same class must be allowed to participate. 
C) That all directors holding stock in a corporation must withdraw from consideration of a hostile takeover bid. 
D) That all officers holding stock in a corporation must refrain from giving advice to directors during a hostile takeover bid. 
A) That an offer to purchase one class of stock must be extended to cover all classes of stock. 
B) That a selective stock repurchase plan is deemed a tender offer in which all holders of securities of the same class must be allowed to participate. 
C) That all directors holding stock in a corporation must withdraw from consideration of a hostile takeover bid. 
D) That all officers holding stock in a corporation must refrain from giving advice to directors during a hostile takeover bid.

Question 5

What is a no-shop agreement?

Accepted Answer

A) An agreement whereby shareholders agree to not replace directors for a certain period of time. 
B) An agreement whereby directors agree to not replace officers for a certain period of time. 
C) An agreement whereby a target company agrees with a potential purchaser not to actively solicit other bidders but retains the right to negotiate with parties who submit unsolicited bids to the
Target. 
D) An agreement whereby shareholders agree to not replace directors or officers for a certain period of time. 
A) An agreement whereby shareholders agree to not replace directors for a certain period of time. 
B) An agreement whereby directors agree to not replace officers for a certain period of time. 
C) An agreement whereby a target company agrees with a potential purchaser not to actively solicit other bidders but retains the right to negotiate with parties who submit unsolicited bids to the
Target. 
D) An agreement whereby shareholders agree to not replace directors or officers for a certain period of time.

Question 6

Which of the following favors keeping a poison pill in place?

Accepted Answer

A) A tender offer that is only slightly above the market price of the stock. 
B) A tender offer for less than all of the shares. 
C) An active attempt by the board to solicit other offers. 
D) All the responses are correct. 
A) A tender offer that is only slightly above the market price of the stock. 
B) A tender offer for less than all of the shares. 
C) An active attempt by the board to solicit other offers. 
D) All the responses are correct.

Question 7

In order to take advantage of the business judgment rule,directors must have made an informed decision and have no conflict of the interest with the corporation.

Accepted Answer

A) True 
 B)False

Question 8

__________ is a purchase of a dissident shareholder's stock by the issuer at a premium over market,often in exchange for a standstill agreement,whereby the shareholder agrees not to commence a tender offer or proxy contest or to buy additional shares of the issuer for a period of time.

Accepted Answer

A) Greenmail 
B) A freeze out 
C) Choice agreement 
D) Equitable agreement 
A) Greenmail 
B) A freeze out 
C) Choice agreement 
D) Equitable agreement

Question 9

Passive reliance on the outside reports of experts in making decisions will usually be protected by the business judgment rule.

Accepted Answer

A) True 
 B)False

Question 10

The amount of money above market value paid to a controlling shareholder for his shares is known as a

Accepted Answer

A) corporate asset. 
B) control premium. 
C) freeze out premium. 
D) golden parachute. 
A) corporate asset. 
B) control premium. 
C) freeze out premium. 
D) golden parachute.

Question 11

To comply with their duty of loyalty,directors and managers must subordinate their own interests to those of the corporation.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is true regarding state rules of corporate governance?

Accepted Answer

A) Under the U.S.Constitution,a state may only apply its corporate governance rules to corporations incorporated in the state. 
B) California imposes state pro-shareholder rules on quasi-foreign corporations. 
C) There are no state rules of corporate governance because the Securities and Exchange Commission has preempted the field. 
D) By federal law,if a state wishes to impose corporate governance requirements on corporations incorporated in the state,then the same rules must be imposed on corporations operating in the
State but incorporated in another state. 
A) Under the U.S.Constitution,a state may only apply its corporate governance rules to corporations incorporated in the state. 
B) California imposes state pro-shareholder rules on quasi-foreign corporations. 
C) There are no state rules of corporate governance because the Securities and Exchange Commission has preempted the field. 
D) By federal law,if a state wishes to impose corporate governance requirements on corporations incorporated in the state,then the same rules must be imposed on corporations operating in the
State but incorporated in another state.

Question 13

The business judgment rule will not protect a director who

Accepted Answer

A) has a conflict between personal interests and the interests of the corporation and its shareholders. 
B) is an outside director. 
C) is an inside director. 
D) all of the responses are correct. 
A) has a conflict between personal interests and the interests of the corporation and its shareholders. 
B) is an outside director. 
C) is an inside director. 
D) all of the responses are correct.

Question 14

Which of the following is a key factors directors should consider in deciding whether to sell a company?

Accepted Answer

A) The amount of compensation available to directors should the sale go through. 
B) The reliability of officers' reports to the board. 
C) The reasonableness of any defensive tactics. 
D) Both the reliability of officers' reports to the board and the reasonableness of any defensive tactics. 
A) The amount of compensation available to directors should the sale go through. 
B) The reliability of officers' reports to the board. 
C) The reasonableness of any defensive tactics. 
D) Both the reliability of officers' reports to the board and the reasonableness of any defensive tactics.

Question 15

Fact pattern 21-1
Tonya is the president of Growth Corporation.Growth is looking for land on which to build a new facility.Tonya locates suitable land,but purchases it for herself with plans to sell it at a profit at a later date.Rick,the majority shareholder of Growth hears about Tonya's purchase and complains to her about it.She tells Rick that she viewed and purchased the land on her own time and that she did not breach any duties owed to the corporation.Rick tells her that she should reconsider and that he plans to discuss the matter with the rest of the board.
-Refer to fact pattern 21-1.Did Tonya violate any duties owed to the corporation?

Accepted Answer

A) Yes,by buying the land for herself without disclosure to the corporation,she violated the corporate opportunity doctrine. 
B) Yes,by buying the land for herself without disclosure to the corporation,she violated the duty of responsible decision making. 
C) Only if the land involved was worth over $50,000 did she violate any duties because any smaller amount would be considered de minimus. 
D) No. 
A) Yes,by buying the land for herself without disclosure to the corporation,she violated the corporate opportunity doctrine. 
B) Yes,by buying the land for herself without disclosure to the corporation,she violated the duty of responsible decision making. 
C) Only if the land involved was worth over $50,000 did she violate any duties because any smaller amount would be considered de minimus. 
D) No.

Question 16

Traditionally,a transaction benefiting a director's self interest is ________ unless the director could show it was fair and reasonable to the corporation.

Accepted Answer

A) void 
B) voidable 
C) illegal 
D) all of the responses are correct 
A) void 
B) voidable 
C) illegal 
D) all of the responses are correct

Question 17

What are the seven key factors that directors should consider in deciding whether to sell a company?

Accepted Answer

The seven factors are as follows: (1)the

Question 18

Which of the following is true regarding statements of officers?

Accepted Answer

A) An outside director,but not an inside director,may in good faith rely upon any statement of an officer. 
B) An inside director,but not an outside director,may in good faith rely upon any statement of an officer. 
C) Any director may in good faith rely upon any statement of an officer. 
D) Not every statement of an officer can be relied upon in good faith. 
A) An outside director,but not an inside director,may in good faith rely upon any statement of an officer. 
B) An inside director,but not an outside director,may in good faith rely upon any statement of an officer. 
C) Any director may in good faith rely upon any statement of an officer. 
D) Not every statement of an officer can be relied upon in good faith.

Question 19

What was the result in Smith v.Van Gorkom,the case in the text in which it was alleged that directors were grossly negligent in failing to inform themselves adequately before making a decision about a merger?

Accepted Answer

A) That the board failed to obtain adequate information on merger terms and would not be protected by the business judgment rule. 
B) hat the board was protected by the business judgment rule because there was no conflict of interest. 
C) That the board was not protected by the business judgment rule but was protected by the merger business rule. 
D) That the board was protected by the business judgment rule because fraud could not be established. 
A) That the board failed to obtain adequate information on merger terms and would not be protected by the business judgment rule. 
B) hat the board was protected by the business judgment rule because there was no conflict of interest. 
C) That the board was not protected by the business judgment rule but was protected by the merger business rule. 
D) That the board was protected by the business judgment rule because fraud could not be established.

Question 20

As fiduciaries,directors have a responsibility to exercise reasonable supervision over corporate operations.

Accepted Answer

A) True 
 B)False

Exam 21: Directors, Officers, and Controlling Shareholders

Which state has the nation's toughest state antitakeover statute?

What is the "all holders rule" of the Securities and Exchange Commission?

What is a no-shop agreement?

Which of the following favors keeping a poison pill in place?

In order to take advantage of the business judgment rule,directors must have made an informed decision and have no conflict of the interest with the corporation.

__________ is a purchase of a dissident shareholder's stock by the issuer at a premium over market,often in exchange for a standstill agreement,whereby the shareholder agrees not to commence a tender offer or proxy contest or to buy additional shares of the issuer for a period of time.

Passive reliance on the outside reports of experts in making decisions will usually be protected by the business judgment rule.

The amount of money above market value paid to a controlling shareholder for his shares is known as a

To comply with their duty of loyalty,directors and managers must subordinate their own interests to those of the corporation.

Which of the following is true regarding state rules of corporate governance?

The business judgment rule will not protect a director who

Which of the following is a key factors directors should consider in deciding whether to sell a company?

Traditionally,a transaction benefiting a director's self interest is ________ unless the director could show it was fair and reasonable to the corporation.

What are the seven key factors that directors should consider in deciding whether to sell a company?

Which of the following is true regarding statements of officers?

What was the result in Smith v.Van Gorkom,the case in the text in which it was alleged that directors were grossly negligent in failing to inform themselves adequately before making a decision about a merger?

As fiduciaries,directors have a responsibility to exercise reasonable supervision over corporate operations.

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