Suggested Additional Assignments s1

Chapter 35 Corporate Management 369

Practice Test

True/False Questions

Circle true or false:

1. T F Self-dealing means that a manager makes a decision benefiting another company with which she has a relationship.

3. T F A hostile takeover is a type of tender offer.

5. T F Shareholders of Wallace Computer profited by the board’s decision to reject the tender offer.

Multiple-Choice Questions

7. A self-dealing transaction is invalid if:

(a) It was fair to the corporation.

(b) The disinterested shareholders approved it.

(d) The disinterested members of the board of directors approved it.

(e) A majority of the shareholders approved it.

9. The business judgment rule does not achieve the following goal:

(a) Insures the highest return to shareholders.

(b) Protects directors from liability.

(d) Keeps the courts from second-guessing managers’ decisions.

(e) Encourages directors to be willing to serve.

Short-Answer Questions

11. The failure of the board of directors to obtain an updated appraisal of the subsidiary before agreeing to accept Burmah's offer violated the business judgment rule. The court granted an injunction against the sale until the value of the company could be determined. In Gimbel v. Signal, 316 A.2d 599 (Del. Ch. 1974).

13. Whether or not Berlinair could afford the opportunity, Lundgren had the obligation to offer it to the company, Klinicki v. Lundgren, 298 Or. 662, 695 P.2d 906 (1995).

15. The court held that Hayes had violated his fiduciary duty to Coast. If the shareholders and directors did not know of Hayes's interest in Keypoint, they could not intelligently determine the advisability of retaining Hayes as president and manager, or the advisability of entering into the contract with Keypoint. Since he had not told them, Hayes had to turn over any profits he had earned on the transaction, as well as his stock in Keypoint. State ex rel. Hayes Oyster Co. v. Keypoint Oyster Co., 64 Wash. 2d 375, 391 P.2d 979 (1964).