Question 1

A ________ occurs when minority shareholders are forced to convert their shares into cash,for example,when a subsidiary merges with its parent.

Accepted Answer

A)  hostile takeover 
B)  sale of assets 
C)  freeze out 
D)  tender offer

Question 2

Fact Pattern 20-1
Tonya is the president of Big Corporation. Big Corporation 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 Big Corporation 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 20-1. Which of the following is a widely used test for determining whether an opportunity belongs to a corporation?

Accepted Answer

A)  The line-of-business test 
B)  The time-spent test 
C)  The corporate-interest test 
D)  The officer-corporate equilibrium test

Question 3

The Dodd-Frank Wall Street Reform and Consumer Protection Act outlaws corporate executives from holding stock in companies for which they work.

Accepted Answer

A) True 
 B)False

Question 4

In the context of takeovers,board members cannot reject an offer without taking sufficient time to analyze its merit.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following was the result on appeal in the case in the text Air Products & Chemicals,Inc.v.Airgas,Inc.,involving whether the defendant's board of directors breached its fiduciary duties to stockholders by refusing to redeem a poison pill in place and allow a hostile takeover to proceed?

Accepted Answer

A)  That the board satisfied its fiduciary duties because as a matter of law directors may use poison pills to block hostile takeovers that would result in a change of management. 
B)  That the board satisfied its fiduciary duties because the members acted reasonably in response to the belief, based on reasonable grounds, that the hostile takeover offer was inadequate and posed a legitimate threat if accepted. 
C)  That the board failed to act reasonably because the members acted in their own self interest, not in the best interests of the shareholders, and that the board failed to properly seek expert opinion regarding the hostile take over offer in relation to the value of the company. 
D)  That the board failed to act reasonably because as a matter of law it could not leave the poison pill in place in the face of a hostile takeover bid.

Question 6

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 7

Which of the following are among the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act in relation to shareholder control of pay for top executives?

Accepted Answer

A)  The act provides that shareholders of all privately held as well as publicly traded companies are entitled to vote and set executive compensation on a yearly basis. 
B)  The act provides that shareholders of public companies have an advisory vote on company payment practices for top executives and that public companies must hold a shareholder advisory vote on golden parachutes for executives. 
C)  The act provides that shareholders of all privately held as well as publicly traded companies are entitled to vote and set executive compensation on a yearly basis and also that the shareholders must specifically approve any golden parachute provisions for executives. 
D)  Based on the belief that ill informed shareholder input negatively affected nationwide corporate performance the act provides that shareholders need not be involved in setting executive compensation.

Question 8

The duty of ________ requires officers to exercise reasonable supervision over the business affairs of the corporation.

Accepted Answer

A)  care 
B)  loyalty 
C)  obedience 
D)  ethics

Question 9

__________ 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

Question 10

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.

Question 11

Which of the following was the result on appeal in In re Abbott Laboratories Derivative Shareholders Litigation,the case in the text alleging corporate directors' breach of the duty of good faith through their failure to follow up on repeated notices of regulatory noncompliance?

Accepted Answer

A)  That the directors were not liable and did not breach any duty of good faith because they were unaware of the issues, and accepted corporate governance procedures did not require the disclosure of the noncompliance notices to them. 
B)  That the directors could not be held liable because the corporation's certificate of incorporation exempted directors from liability for breach of the duty of care. 
C)  That the business judgment rule applied and that the plaintiffs' allegations could not withstand the protection of that rule. 
D)  That the plaintiffs sufficiently pleaded allegations that, if true, constituted a breach of the duty of good faith leading to the directors' actions falling outside the protection of the business judgment rule.

Question 12

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)  That 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 13

Maurice is a fairly new director at ABC Corp. Peg,another director,tells him that she believes that the company is in Revlon mode and that the directors should act accordingly. What is Peg referencing?

Accepted Answer

The answer of Maurice is a fairly new director at...

Question 14

A[n] _______ gives the person to whom it is granted the right to buy a certain number of shares at a fixed price for a fixed number of years during a period known as the ______ period which is not usually for more than _______.

Accepted Answer

A)  call right, exercise, twelve months 
B)  option, redemption, twelve months 
C)  option, redemption, ten years 
D)  option, exercise, ten years

Question 15

In evaluating a buyout proposal,the directors should consider material nonprice provisions of the proposed agreement.

Accepted Answer

A) True 
 B)False

Question 16

A contractual provision insisted upon by a bidder limiting the ability of board members to negotiate with other bidders is referred to as a[n] _______ clause.

Accepted Answer

A)  obedience 
B)  loyalty 
C)  negotiation 
D)  no-talk

Question 17

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

Question 18

What was the conclusion of the court in Unocal Corp.v.Mesa Petroleum Co.regarding the application of the business judgment rule to actions of directors in response to a takeover attempt?

Accepted Answer

The answer of What was the conclusion of the court...

Question 19

Which of the following is considered an inside director of a corporation?

Accepted Answer

A)  A director who is also an officer of the corporation. 
B)  A director who is also an officer of any corporation. 
C)  A director who is both an officer of any corporation and who stands to personally profit by an action being considered by the board. 
D)  A director who is qualified as an expert in regard to any product of the company.

Question 20

A ________ is an agreement in a proposed takeover that allows the board of directors to negotiate with other bidders or to terminate a merger agreement.

Accepted Answer

A)  termination clause 
B)  fiduciary out 
C)  revolving door 
D)  no talk provision

Exam 20: Directors, Officers, and Controlling Shareholders

A ________ occurs when minority shareholders are forced to convert their shares into cash,for example,when a subsidiary merges with its parent.

The Dodd-Frank Wall Street Reform and Consumer Protection Act outlaws corporate executives from holding stock in companies for which they work.

In the context of takeovers,board members cannot reject an offer without taking sufficient time to analyze its merit.

Which of the following was the result on appeal in the case in the text Air Products & Chemicals,Inc.v.Airgas,Inc.,involving whether the defendant's board of directors breached its fiduciary duties to stockholders by refusing to redeem a poison pill in place and allow a hostile takeover to proceed?

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.

Which of the following are among the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act in relation to shareholder control of pay for top executives?

The duty of ________ requires officers to exercise reasonable supervision over the business affairs of 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.

Which of the following is true regarding statements of officers?

Which of the following was the result on appeal in In re Abbott Laboratories Derivative Shareholders Litigation,the case in the text alleging corporate directors' breach of the duty of good faith through their failure to follow up on repeated notices of regulatory noncompliance?

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?

Maurice is a fairly new director at ABC Corp. Peg,another director,tells him that she believes that the company is in Revlon mode and that the directors should act accordingly. What is Peg referencing?

A[n] _ gives the person to whom it is granted the right to buy a certain number of shares at a fixed price for a fixed number of years during a period known as the period which is not usually for more than ___.

In evaluating a buyout proposal,the directors should consider material nonprice provisions of the proposed agreement.

A contractual provision insisted upon by a bidder limiting the ability of board members to negotiate with other bidders is referred to as a[n] _______ clause.

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

What was the conclusion of the court in Unocal Corp.v.Mesa Petroleum Co.regarding the application of the business judgment rule to actions of directors in response to a takeover attempt?

Which of the following is considered an inside director of a corporation?

A ________ is an agreement in a proposed takeover that allows the board of directors to negotiate with other bidders or to terminate a merger agreement.