FIU BUL6810 Chapter 20 Quiz

Question 1

1. The ________ requires that officers and directors not take personal advantage of a desirable business investment that rightfully belongs to the corporation.

   		right of first refusal
   		corporate opportunity doctrine
   		line of business test
   		expectancy test

5 points

Question 2

1. Which of the following was the result in the case in the text involving a no-hand pill under Delaware law?

   		That as a matter of law the pill was valid as a response to a takeover bid regardless of whether independent proof existed that the directors acted reasonably.
   		That the pill was valid because the directors established, based upon reliable expert testimony, that the hostile takeover bid presented a dangerous threat to the continuation of the company.
   		That the pill, which had to be redeemed within one month of a takeover bid or else be allowed to remain in place, was invalid because it impermissibly circumscribed the board's statutory power to manage the business affairs of the company and the directors' ability to fulfill their fiduciary duties.
   		That the pill, which could not be redeemed for six months following a takeover, was invalid because it impermissibly circumscribed the board's statutory power to manage the business affairs of the company and the directors' ability to fulfill their fiduciary duties.

5 points

Question 3

1. In a _______, someone wishing to replace the board with his or her own candidates attempts to acquire a sufficient number of shareholder votes to do so through limited written powers of attorney entitling the holder to vote the shares owned by the person giving the power of attorney.

   		hostile takeover
   		proxy contest
   		poison pill
   		greenmail takeover

5 points

Question 4

1. 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 _______.

   		call right, exercise, twelve months
   		option, redemption, twelve months
   		option, redemption, ten years
   		option, exercise, ten years

5 points

Question 5

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

   		care
   		loyalty
   		obedience
   		ethics

5 points

Question 6

1. A shareholder who owns sufficient shares to outvote the other shareholders, or to otherwise set corporate policy, and thus to control the corporation is known as a _______ shareholder.

   		controlling
   		absolute
   		manipulative
   		chargeable

5 points

Question 7

1. 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?

   		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.
   		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.
   		That the business judgment rule applied and that the plaintiffs' allegations could not withstand the protection of that rule.
   		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.

5 points

Question 8

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. Which of the following is a widely used test for determining whether an opportunity belongs to a corporation?

   		The line-of-business test
   		The time-spent test
   		The corporate-interest test
   		The officer-corporate equilibrium test

5 points

Question 9

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

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

5 points

Question 10

1. Some jurisdictions permit the shareholders to amend the articles of incorporation to relieve directors of any financial liability for violations of the duty of

   		care.
   		loyalty.
   		avoiding self dealing.
   		voting.

5 points

Question 11

1. Which of the following is true in regard to the business judgment rule if one or more individual directors have a personal interest in a transaction being considered by the board?

   		The decision may be entitled to the protection of the business judgment rule if the transaction is approved by a majority of the inside directors.
   		The decision may be entitled to the protection of the business judgment rule if the transaction is approved by a majority of the disinterested directors.
   		The decision is not entitled to the protection of the business judgment rule resulting in a higher level of proof regarding the reasonableness of the transaction being required from the board of directors.
   		The decision is not entitled to the protection of the business judgment rule leading to a legally established conclusion of illegality on the part of the board of directors.

5 points

Question 12

1. In the context of executive compensation, ______ stock usually means stock subject to vesting restrictions.

   		regulated
   		restricted
   		illegally issued
   		kickback

5 points

Question 13

1. Which of the following was the result in the case in the text from the Delaware Court of Chancery involving a dead-hand pill under Delaware law?

   		That the directors appropriately used the dead-hand pill which guaranteed that majority shareholders in place before a hostile bidding attempt were entitled to vote to block any later proposed vote on a merger.
   		That the directors appropriately used the dead-hand pill because directors are entitled to use any means necessary in order to block a hostile takeover.
   		That the pill violated the state general corporation law for a number of reasons including that it violated the directors' duty of loyalty.
   		That the pill, which could only be redeemed by directors in office after a hostile bidder gained control or by their designated successors, violated the state general corporation law because it prejudiced directors in place prior to the takeover.

5 points

Question 14

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

   		Under the U.S. Constitution, a state may only apply its corporate governance rules to corporations incorporated in the state.
   		California imposes state pro-shareholder rules on quasi-foreign corporations.
   		There are no state rules of corporate governance because the Securities and Exchange Commission has preempted the field.
   		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.

5 points

Question 15

1. Which of the following is true regarding breakup fees?

   		They are sometimes characterized as liquidated damages.
   		The Securities and Exchange Commission prohibits the payment of breakup fees.
   		Breakup fees are typically 20 to 25 percent of the value of the deal.
   		They are sometimes characterized as liquidated damages, and breakup fees are typically 20 to 25 percent of the value of the deal.

5 points

Question 16

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. Which of the following is a right of the corporation if it is determined that an officer wrongfully takes an opportunity belonging to the corporation?

   		An absolute trust
   		A constructive trust
   		A 10% penalty based upon the value of the lost opportunity which is imposed by federal law
   		As imposed by most states, a 10% penalty based upon the value of the lost opportunity

5 points

Question 17

1. Brice is on the board of ABC Corporation. XYZ Corporation has made a move to acquire ABC. Tina, the president of ABC advises the board that the offer made by XYZ is a good one that should be accepted. She did not disclose, however, that XYZ had offered her a generous bonus if she could convince the board members of ABC to take XYZ'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?

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

5 points

Question 18

1. Yolanda, a ballroom dance instructor, was recently asked to be a director of ABC Company which is publicly traded. She is very honored and excited. Her friend, Joe, asked her if she had any experience in accounting, business, or SEC requirements. Yolanda told him no, but that the president of ABC had assured her that the only responsibility of a director was acting as a figurehead because the officers took care of all detailed corporate business. Yolanda says that she is accepting the position because it will get her exposure in the community and perhaps increase her dance clientele. Is Yolanda correct regarding her responsibilities, and why or why not?

   		Yes, Yolanda is correct that the primary job of a director is to serve as a figurehead.
   		Yolanda is correct that the primary job of an outside bank director is to serve as a figurehead, but that is not true of inside directors.
   		Yolanda is not entirely correct, but she has no affirmative responsibility to ensure the accuracy of any reports because that is entirely the responsibility of officers of the corporation.
   		Yolanda is incorrect, and the SEC emphasizes the responsibility of directors to ensure the accuracy and completeness of public company filings with the SEC.

5 points

Question 19

1. 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.

   		obedience
   		loyalty
   		negotiation
   		no-talk

5 points

Question 20

1. 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.

   		termination clause
   		fiduciary out
   		revolving door
   		no talk provision