Deck 28: Government Regulation of Corporate Business

Question 1

A state has police power simply by virtue of its existence as a legitimate governmental authority.

Answer 1

True
Explanation: Police power is the state's authority to restrict private rights to promote and maintain public health, safety, welfare, and morals. A state has police power simply by virtue of its existence as a legitimate governmental authority.

Question 2

A lockup agreement requires that a friendly suitor is given an option to buy a valuable piece of property owned by the target corporation should a hostile bidder gain control of the corporation.

Answer 2

True
Explanation: A lockup agreement might be used by target management if the target owns an irreplaceable piece of property, the sale of which would seriously devalue the overall worth of the target. Management could enter a contract with a white knight, giving the knight an option to buy that valuable piece of property should the hostile bidder gain control of the target corporation.

Question 3

Greenmail is an offer by a target corporation to the bidder to acquire a portion of the shares, which are already held by the bidder, at a price greater than when it was originally sold.

Answer 3

True
Explanation: A corporation that activates the greenmail defense has offered to buy the portion of the target's stock that the bidder already owns. Naturally, such an approach will work only if the target's offer is significantly higher than the amount that the bidder paid for the stock in the first place.

Question 4

Big Corp. advertises that "nine out of ten physicians prefer our products" when in fact the marketing research, done by Independent Research Co., was flawed. Big Corp. may be charged with false advertising, even if it believes the statement was true.

Question 5

A receiver is an individual appointed by the shareholders to hold property subject to diverse claims.

Question 6

Under the Foreign Trade Antitrust Improvements Act (FTAIA), even if an American company is operating totally in a foreign market, that company is subject to American antitrust law.

Question 7

Textualism insists that judges consider the legislative goals of a statute.

Question 8

The dissolution of an LLC need not be followed up by a winding up of the LLC.

Question 9

If Auto Supply refuses to sell hoses to Small Retail Co. unless Small also buys brake shoes from Auto, the action will be prohibited by the Clayton Act.

Question 10

The Hart-Scott-Rodino Antitrust Act is designed to police any expansion attempts that might hurt competition in the marketplace.

Question 11

In the Wickard v. Filburn case (1945), the Supreme Court declared that the private use of wheat on a single family farm could be curtailed by the federal government.

Question 12

A failure to pay franchise taxes would lead to the state revoking a corporation's charter.

Question 13

A buyer of Titan Co. that does not want to be burdened by Titan's pension plan should structure the purchase as an asset acquisition.

Question 14

If ABC Co. is to merge with XYZ Co., typically only a majority (51%) vote of the shareholders will be required.

Question 15

ABC Co. makes a tender offer to acquire 3% of the stock of XYZ Co. This is considered a stock acquisition, and ABC must file with the SEC.

Question 16

If ABC Co. and XYZ Co. agree to charge consumers a fixed, but fair, price for their products, the courts will judge the legality of the practice by the rule-of-reason approach.

Question 17

All state statutes specify that the death of a member triggers the dissolution of an LLC.

Question 18

The Gibbons v. Ogden (1824) case held that commercial activity that occurred within a state was subject to federal regulation if that completely in-state activity affected interstate commerce.

Question 19

A derivative is a financial tool that can be used to manage risks in the stock market.

Question 20

Under SEC regulations, Jane, a director of ABC Co., can profit from the purchase and sale of ABC securities in a period of six weeks.

Question 21

____________ occurs when a targeted corporation makes a deal with the suitor to protect management of the target.

A) Greenmail
B) A lockup agreement
C) A public relations campaign
D) A targeted shareholder agreement

Question 22

In a(n) ____________, the buyer purchases enough shares in a corporation to gain voting control of that corporation.

A) asset acquisition
B) stock acquisition
C) consolidation
D) joint venture

Question 23

Small State has a limited customer base north and south of the interstate highway. Company A and Company Z agree that A will sell north of the interstate highway and Z will sell south of the interstate. This is a ___________ violation of the Sherman Antitrust Act.

A) per se
B) rule-of-reason
C) joint federal and state
D) minor

Question 24

Generally, a ____________ is established as a pre-offer strategy that remains dormant until the right set of circumstances activates its operation.

A) greenmail arrangement
B) poison pill defense
C) public relations campaign
D) targeted shareholder agreement

Question 25

Ajax Co. has six directors. Three of the directors favor corporate expansion and three directors want to keep Ajax at its current size and distribute the surplus profit. How will a court likely resolve this deadlock?

A) Appoint a seventh director to break the tie.
B) Appoint an arbitrator.
C) Order an involuntary dissolution of Ajax.
D) Order the directors to make an agreement or be in contempt of court.

Question 26

The ____________ Act specifically addresses promotional allowances.

A) Clayton
B) Robinson-Patman
C) Federal Trade Commission
D) Sherman

Question 27

In a ____________, a target corporation uses news releases, advertisements, and press conferences to convince shareholders to retain present management.

A) greenmail arrangement
B) lockup agreement
C) public relations campaign
D) targeted shareholder agreement

Question 28

If Titanic Co. makes a tender offer to acquire more than ____________ of the shares of a target, Titanic Co. must file a statement with the SEC.

A) 5%
B) 10%
C) 15%
D) 20%

Question 29

Some states require that a merger involving an LLC have a ____________, rather than the two-thirds majority required of corporations.

A) 51% majority vote
B) one-third majority vote
C) four-fifths majority vote
D) unanimous approval

Question 30

Homeruns Co. manufactures baseball bats. It withdrew deals from a few retailers who refused to put a particular price tag, as decided by Homeruns Co, on the bats. This act of Homeruns Co.:

A) violates the per se rule.
B) is legal under the quasi-RPM arrangement.
C) violates the rule-of-reason standard.
D) is legal under the RPM agreement.

Question 31

A ____________ means the exclusive control of a market by a business enterprise.

A) monopoly
B) common enterprise
C) trust
D) confederation

Question 32

The ___________ Act prohibits contracts, combinations, and conspiracies in restraint of trade.

A) Robinson-Patman
B) Federal Trade Commission
C) Sherman Antitrust
D) Clayton

Question 33

An attempt at a(n) ____________ occurs when one corporation makes a tender offer to the shareholders of another corporation.

A) merger
B) consolidation
C) stock acquisition
D) asset acquisition

Question 34

Mill enterprises needs to raise a large amount of money. To raise the money, it sells its fractional interest in orange groves, located in Florida, to Sunshine Co. in New York. Sunshine Co. would be ensured a return in investment from the land purchased. Mill enterprises has sold:

A) real estate.
B) debt instruments.
C) goods.
D) securities.

Question 35

The Crown Corp. offers to buy the voting stock of the L&N Corp. with the intention of acquiring L&N and changing its management. To avoid being taken over by Crown, L&N asks the Spendle Corp. to outbid Crown. In this situation:

A) L&N is a hostile bidder, Crown is the target, and Spendle is a white knight.
B) L&N is a friendly suitor, Crown is a hostile bidder, and Spendle is the target.
C) L&N is the target, Crown is a hostile bidder, and Spendle is a white knight.
D) L&N is the target, Crown is a friendly suitor, and Spendle is a hostile bidder.

Question 36

EA Games Industries is a manufacturer of home video game machines and home video games. Johnson Department Store wants to market the home video games, but EA refuses to sell the games unless Johnson also agrees to purchase the home video machines. A court will most likely find such a restriction to be a(n):

A) interlocking directorate.
B) lawful tying agreement.
C) unlawful tying agreement.
D) per se violation.

Question 37

The first major expansion of the Commerce Clause of the U.S. Constitution was done through which of these?

A) The Dodd Frank Act
B) Wickard v. Filburn
C) Gibbons v. Ogden
D) The Securities Exchange Act

Question 38

The ____________ case held that a farmer's production of wheat for use only on his own farm was held to impact interstate commerce.

A) Gibbons v. Ogden
B) Wickard v. Filburn
C) Hughes v. Wendel
D) Mangus v. Miller

Question 39

If Tom is a potential investor in Delta Co. he should receive a ____________ prior to investing.

A) contract summary
B) prospectus
C) closing settlement statement
D) registration statement

Question 40

A ____________ might be used by target management if the target owns an irreplaceable piece of property, the sale of which would seriously devalue the overall worth of the target.

A) greenmail option
B) lockup agreement
C) public relations campaign
D) targeted shareholder agreement

Question 41

Big Co. would like to purchase a patent owned by Small Co. that Big believes could be used to make a profitable product. Small has other assets and owes a variety of debts. Discuss the advantages to Big if it only purchases the patent, rather than Small Co. in its entirety.

Question 42

John is a director of both Small Co., with an aggregate worth of $75,000, and Medium Co., with an aggregate worth of $7,500,000. Small and Medium are competitors in the auto repair business. Discuss the legal implications of John's service.

Question 43

NewCo. plans to sell stock to investors with a website offer form. Discuss the federal securities regulations, if any, with which NewCo. must comply.

Question 44

Tremendous LLC proposes to merge with Small LLC. Janice, a member of Tremendous, is opposed to this merger. The operating agreement allows mergers to be approved by a simple majority vote. Discuss the legal rights Janice may assert in this situation.

Question 45

Matrix Corp. falsely advertises on national television a device that allows a car engine to run on water. When the FTC attempts to stop this advertising, Matrix asserts that anyone should know that the advertising is false and is intended as a joke, and that it offers all persons who inquire about its advertisement a gasoline treatment supplement which does, in fact, cause engines to run cleaner, improving gasoline mileage. Discuss the likely FTC success in its attempt to stop this advertising.

Question 46

To support his efforts in the writing of a new novel, Madden sold various patrons an interest in the forthcoming novel. The patrons agreed to supply him with money in exchange for a return on their investments out of any profits Madden made in the sale of the novel. Could this scheme be considered a sale of securities? Why or why not?

Question 47

Yanasko wanted to purchase Raymond-Mason Inc. When he approached the board of directors about the merger, they told him that they were not interested. Yanasko then suggested an asset acquisition. Again, the board refused. What measure could Yanasko take to sidestep the board of directors and obtain control of Raymond-Mason? Explain.

Question 48

Herrera already owns 20% of the stock of the Higgins Corp. and plans to use his own cash to purchase another 30% of Higgins. Herrera's intent is to acquire enough Higgins stock to mount a takeover. According to law, Herrera is required to file a statement with the SEC. What information must Herrera include in the statement?

Question 49

Small Co. is afraid that it will become the subject of a takeover bid and lose its independent existence. Can Small Co. take the help of a friendly suitor to offset any takeover bid? If so, how?

Question 50

The Pillsbo Corporation failed to file annual reports for three years. The Secretary of State in the state where Pillsbo incorporated told Pillsbo's chief executive officer that she was going to ask the state attorney general to bring a quo warranto action against Pillsbo for failing to file the annual reports. Can she legally do so for this reason? Why or why not?