Question 1

Which of the following is NOT a prime consideration in determining whether a fiduciary has taken an opportunity that belongs to a corporation?

Accepted Answer

A)  Whether the opportunity is in the corporation's line of business 
B)  The amount of money the fiduciary stands to make 
C)  Whether the fiduciary developed the idea using corporation resources 
D)  Whether the involvement by the fiduciary will hinder the corporation's purposes 
A)  Whether the opportunity is in the corporation's line of business 
B)  The amount of money the fiduciary stands to make 
C)  Whether the fiduciary developed the idea using corporation resources 
D)  Whether the involvement by the fiduciary will hinder the corporation's purposes

Question 2

In CASE 20.2 In re Citigroup Inc.Shareholder Derivative Litigation (2009),the Delaware Chancery court considered whether shareholders could demand that the board sue the directors for failure to adequately protect the corporation from exposure to the subprime lending market.

Accepted Answer

A) True 
 B)False

Question 3

The Omnicare,Inc.v.NCS Healthcare,Inc.case,involved a question of whether directors of an insolvent publicly traded company violated their fiduciary duty when they entered into an agreement for the sale of the company to a particular interested buyer regardless of other offers.The court ruled that:

Accepted Answer

A)  the directors violated their fiduciary duty and lacked the authority to agree to an absolute lock-up guaranteeing the sale and agreeing to forgo consideration of future offers. 
B)  the directors violated their fiduciary duty because the agreement was kept secret from majority shareholders but that,otherwise,the agreement foregoing consideration of future offers would have been valid. 
C)  the directors violated their fiduciary duty because the agreement was kept secret from minority shareholders but that,otherwise,the agreement foregoing consideration of future offers would have been valid. 
D)  the directors satisfied all fiduciary duties because there was no evidence of bad faith or self-dealing. 
A)  the directors violated their fiduciary duty and lacked the authority to agree to an absolute lock-up guaranteeing the sale and agreeing to forgo consideration of future offers. 
B)  the directors violated their fiduciary duty because the agreement was kept secret from majority shareholders but that,otherwise,the agreement foregoing consideration of future offers would have been valid. 
C)  the directors violated their fiduciary duty because the agreement was kept secret from minority shareholders but that,otherwise,the agreement foregoing consideration of future offers would have been valid. 
D)  the directors satisfied all fiduciary duties because there was no evidence of bad faith or self-dealing.

Question 4

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?

Accepted Answer

A)  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. 
B)  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. 
C)  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. 
D)  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. 
A)  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. 
B)  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. 
C)  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. 
D)  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.

Question 5

In CASE 20.2 In re Citigroup Inc.Shareholder Derivative Litigation (2009),the Delaware Chancery Court __________ the shareholders' claims,holding that the allegations in the __________ to show that a demand on the __________ would have been futile.

Accepted Answer

A)  affirmed; complaint were sufficient; shareholders 
B)  dismissed; answer were insufficient; directors 
C)  dismissed; complaint were insufficient; directors 
D)  affirmed; answer were sufficient; directors 
A)  affirmed; complaint were sufficient; shareholders 
B)  dismissed; answer were insufficient; directors 
C)  dismissed; complaint were insufficient; directors 
D)  affirmed; answer were sufficient; directors

Question 6

Maury is a fairly new director at ABC Corp.Pax,another director,expresses the belief that the company is in Revlon mode and that the directors should act accordingly.What is Pax referencing?

Accepted Answer

Pax was referencing the rule first artic

Question 7

The obligation to act in good faith establishes an independent fiduciary duty that stands on the same footing as the duties of care and loyalty.

Accepted Answer

A) True 
 B)False

Question 8

The duty of care includes the duty to make informed decisions.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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 11

Even when the board makes an informed decision,the business judgment rule is not applicable if:

Accepted Answer

A)  the transaction is approved by a majority of the disinterested directors after full disclosure of all the facts. 
B)  the directors have no duty of loyalty or care to the corporation. 
C)  the directors have a financial or other personal interest in the transaction at issue. 
D)  the directors neither have an interest on either side of the transaction nor expect to derive any personal financial benefit from the transaction. 
A)  the transaction is approved by a majority of the disinterested directors after full disclosure of all the facts. 
B)  the directors have no duty of loyalty or care to the corporation. 
C)  the directors have a financial or other personal interest in the transaction at issue. 
D)  the directors neither have an interest on either side of the transaction nor expect to derive any personal financial benefit from the transaction.

Question 12

In a shareholder rights plan,any takeover not approved by the directors makes the process prohibitively expensive.This protection of shareholder interests is known as a:

Accepted Answer

A)  termination fee. 
B)  poison pill. 
C)  freeze out. 
D)  constructive trust. 
A)  termination fee. 
B)  poison pill. 
C)  freeze out. 
D)  constructive trust.

Question 13

What was the conclusion of the court in Unocal Corporation 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 case established the principle that

Question 14

The Delaware Supreme Court has held that,regardless of the circumstances,a majority shareholder may never freeze out the minority shareholders.

Accepted Answer

A) True 
 B)False

Question 15

What is a fiduciary duty,who must fulfill it,and what other duties are included within fiduciary duty?

Accepted Answer

Directors and officers are agents of the

Question 16

The __________ standard of review comes into place when a __________ implements a defensive measure that touches on issues of shareholder __________.

Accepted Answer

A)  Unocal; board of directors; voting control 
B)  Blasius; board of directors; voting control 
C)  Revlon; board of directors; approval 
D)  Blasius; CEO; voting control 
A)  Unocal; board of directors; voting control 
B)  Blasius; board of directors; voting control 
C)  Revlon; board of directors; approval 
D)  Blasius; CEO; voting control

Question 17

A shareholder derivative suit is a lawsuit by:

Accepted Answer

A)  shareholders on behalf of the corporation. 
B)  the shareholders directly. 
C)  the controlling shareholders on behalf of the majority shareholder. 
D)  the corporation. 
A)  shareholders on behalf of the corporation. 
B)  the shareholders directly. 
C)  the controlling shareholders on behalf of the majority shareholder. 
D)  the corporation.

Question 18

The business judgment rule is applicable only if the directors make an informed decision.

Accepted Answer

A) True 
 B)False

Question 19

__________ occurs when a raider acquires stock in a target company and then threatens to commence a hostile takeover unless the stock is repurchased by the target at a premium over the market price.

Accepted Answer

A)  Revlon mode 
B)  The Van Gorkom test 
C)  The Unocal proportionality test 
D)  Greenmail 
A)  Revlon mode 
B)  The Van Gorkom test 
C)  The Unocal proportionality test 
D)  Greenmail

Question 20

A shareholder derivative action is a suit brought by a shareholder on behalf of the corporation.

Accepted Answer

A) True 
 B)False

Exam 20: Directors Officers And Controlling Shareholders

Which of the following is NOT a prime consideration in determining whether a fiduciary has taken an opportunity that belongs to a corporation?

In CASE 20.2 In re Citigroup Inc.Shareholder Derivative Litigation (2009),the Delaware Chancery court considered whether shareholders could demand that the board sue the directors for failure to adequately protect the corporation from exposure to the subprime lending market.

The Omnicare,Inc.v.NCS Healthcare,Inc.case,involved a question of whether directors of an insolvent publicly traded company violated their fiduciary duty when they entered into an agreement for the sale of the company to a particular interested buyer regardless of other offers.The court ruled that:

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?

In CASE 20.2 In re Citigroup Inc.Shareholder Derivative Litigation (2009),the Delaware Chancery Court __________ the shareholders' claims,holding that the allegations in the __________ to show that a demand on the __________ would have been futile.

Maury is a fairly new director at ABC Corp.Pax,another director,expresses the belief that the company is in Revlon mode and that the directors should act accordingly.What is Pax referencing?

The obligation to act in good faith establishes an independent fiduciary duty that stands on the same footing as the duties of care and loyalty.

The duty of care includes the duty to make informed decisions.

What is a no-shop agreement?

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.

Even when the board makes an informed decision,the business judgment rule is not applicable if:

In a shareholder rights plan,any takeover not approved by the directors makes the process prohibitively expensive.This protection of shareholder interests is known as a:

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

The Delaware Supreme Court has held that,regardless of the circumstances,a majority shareholder may never freeze out the minority shareholders.

What is a fiduciary duty,who must fulfill it,and what other duties are included within fiduciary duty?

The __________ standard of review comes into place when a __________ implements a defensive measure that touches on issues of shareholder __________.

A shareholder derivative suit is a lawsuit by:

The business judgment rule is applicable only if the directors make an informed decision.

__________ occurs when a raider acquires stock in a target company and then threatens to commence a hostile takeover unless the stock is repurchased by the target at a premium over the market price.

A shareholder derivative action is a suit brought by a shareholder on behalf of the corporation.

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In CASE 20.2 In re Citigroup Inc.Shareholder Derivative Litigation (2009),the Delaware Chancery Court the shareholders' claims,holding that the allegations in the to show that a demand on the __ would have been futile.

The standard of review comes into place when a implements a defensive measure that touches on issues of shareholder __.