Business Law, 8e (Cheeseman)
Chapter 38 Corporate Acquisitions and Multinational Corporations
1) Shareholder approval is required to make fundamental changes in a corporation.
2) A friendly merger of two corporations is not considered an acquisition.
3) A proxy card authorizes another person to vote the shareholder’s shares.
4) Section 14(a) of the Securities Exchange Act prohibits the solicitation of proxies.
5) A proxy statement only requires the name of the proxy holder and the proxy.
6) Section 14(a) of the Securities Exchange Act of 1934 requires the disclosure of the identities
of the parties involved in a tender offer.
7) Section 14(a) of the Securities Exchange Act prohibits omissions of material facts in proxy
materials.
8) Courts are permitted to order a new election in case of fraudulent proxy solicitation.
9) Incumbent directors are the former directors of a corporation.
10) Insurgent shareholders are shareholders who propose a slate of directors to replace the
incumbent directors.
11) A proxy contest is one in which incumbent directors are impeached.
12) In a proxy contest, only the incumbent directors are permitted to solicit proxies from
shareholders.
13) Shareholders are permitted to submit issues for a vote of other shareholders.
14) A shareholder can only submit a resolution to be considered by other shareholders if he or
she has 1 percent or more of the total shares of the company.
15) Shareholder resolutions cannot be made when a corporation is soliciting proxies from its
shareholders.
16) A shareholder resolution must be dropped if it is not favored by the management.
17) A merger occurs when one corporation enters into a permanent business partnership with
another corporation.
18) A merged corporation ceases to exist after the merger.
19) In a share exchange, one corporation ends up owning all the shares of the other.
20) A subsidiary corporation ceases to exist after a share exchange.
21) The corporation that is owned by the parent corporation in a share exchange is known as the
surviving corporation.
22) An ordinary merger or share exchange requires the recommendation of the board of directors
of each corporation.
23) The approval of the surviving corporation’s shareholders is not required if the merger or
share exchange increases the number of voting shares of the surviving corporation by 20 percent
or less.
24) A short-form merger does not require the approval of the board of directors of the subsidiary
corporation.
25) Appraisal rights require shareholders who object to the sale of the property of a company to
forfeit their shares.
26) A tender offer targets the board of directors of the target corporation.
27) Hostile tender offers are tender offers made without the permission of the target company’s
management.
28) The Williams Act is an amendment to the Securities Exchange Act that specifically regulates
tender offers.
29) The pro rata rule states that any increase in price paid for shares tendered must be offered to
all shareholders, even those who have previously tendered their shares.
30) Section 14(e) protects shareholders from fraud committed in connection with a tender offer.
31) The incumbent management cannot issue additional shares in the market to defeat a hostile
tender offer.
32) Greenmail refers to a target corporation’s purchase of its stock from an actual or perceived
tender offeror at a premium.
33) Antitakeover statutes are model acts and do not become law until a state legislature adopts
them.
34) The Delaware antitakeover statute provides that an acquirer of a Delaware corporation
cannot complete a merger with the acquired corporation for three years after purchasing 15
percent or more of the Delaware corporation’s shares.
35) A corporation that uses subsidiary corporations to operate in more than one country cannot
be termed as a multinational corporation.
36) A(n) ________ refers to a written document signed by a shareholder that authorizes another
person to vote the shareholder’s shares.
A) deputation
B) proxy
C) easement
D) title
37) Which of the following is true of proxies?
A) Proxies are not permitted to be submitted electronically.
B) Proxies are signed by a corporation and sent to shareholders.
C) Directors or officers of the corporation cannot hold proxies.
D) Corporations are permitted to solicit proxies from shareholders.
38) Section 14(a) of the Securities Exchange Act gives the SEC the authority to regulate
________.
A) the formation of the board of directors of a corporation
B) mergers between two or more corporations
C) the issue of shares by a corporation
D) the solicitation of proxies by a corporation
39) The federal proxy rules promote ________ during proxy solicitation.
A) full disclosure of the proxy
B) forfeiture of shares
C) meeting of all shareholders
D) direct representation of shareholders
40) In the context of proxy solicitation information, which of the following is prohibited by
Section 14(a) of the Securities Exchange Act?
A) solicitation of proxies by a corporation
B) transfer of proxies from one shareholder to another
C) omission of material facts in the proxy material
D) proxy contests between shareholders and directors
41) Section 14(a) of the Securities Exchange Act of 1934 is a(n) ________.
A) investment provision
B) antifraud provision
C) share exchange provision
D) antitakeover statute
42) ________ shareholders are shareholders who propose a slate of directors to replace the
incumbent directors.
A) Exultant
B) Incumbent
C) Insurgent
D) Indignant
43) Which of the following defines a proxy contest?
A) an instance of proxies being awarded to the shareholder with the highest bid
B) an event in which insurgent shareholders and incumbent directors solicit proxies from other
shareholders
C) an event in which proxies are chosen by voting between different factions of shareholders
D) an event in which a corporation seeks affirmative majority from its shareholders in the event
of a hostile tender
44) Mr. Davidson, who owns 17 percent of his company’s shares, is displeased with the six
incumbent directors of the corporation. He proposes a slate of directors consisting of five other
persons and himself to become members of the board of directors of the corporation and replace
the incumbent directors. In the proxy contest, Mr. Davidson manages to acquire proxies from
shareholders who control only 35 percent of the company’s shares. Which of the following is true
in this context?
A) The shareholders who voted for Mr. Davidson’s slate of directors will constitute 35 percent of
the new board of directors.
B) The incumbent directors will continue to form the board of directors.
C) Since a clear majority was not established by the proxy contest, another proxy contest must be
held.
D) The slate of directors proposed by Mr. Davidson will form the new board of directors.
45) Which of the following best defines a shareholder resolution?
A) a document submitted by insurgent shareholders formally announcing forfeiture of shares
B) an issue submitted by the board of directors requiring the reorganization of shares held by
shareholders
C) an issue submitted by a shareholder for a vote of other shareholders
D) a document that authorizes another person to vote the shareholder’s shares
46) A shareholder is permitted to submit a resolution to be considered by other shareholders only
if he or she ________.
A) owns at least 1 percent of all shares of the company
B) owns at least $1,000 worth of shares of the company’s stock
C) has served as a former member of the company’s board of directors
D) has owned shares of the company—of any amount—for longer than five years
47) A shareholder has a right to have the shareholder resolution included in the corporation’s
proxy materials if it ________.
A) does not relate to the corporation’s business
B) does not concern the payment of dividends
C) concerns the day-to-day operations of the corporation
D) does not concern a policy issue
48) A(n) ________ is a situation in which one corporation is absorbed into another corporation
and ceases to exist.
A) alliance
B) merger
C) share exchange
D) coalition
49) Which of the following best defines a surviving corporation?
A) a corporation that continues its operations after filing for bankruptcy
B) a corporation that has been in existence for at least 50 years
C) a proprietorship or partnership that evolved into a corporation
D) a corporation that continues to exist after a merger
50) Karlovsky and Sons Inc., a retail corporation reports financial losses for three years in a row.
Two larger corporations, Gatsby Retail Inc. and Chelsea Sales Corp compete to acquire
Karlovsky and Sons. Initially, Chelsea Corp. places a higher bid than Gatsby Retail Inc. but
eventually backs out of the merger. In the end, a Boston-based MNC named J.Y. Corp. acquires
Karlovsky and Sons and permits the latter to expand as a wholesaler. Which of the following is
the surviving corporation in this scenario?
A) Gatsby Retail Inc.
B) Chelsea Corp.
C) J.Y. Corp.
D) Karlovsky and Sons
51) Which of the following best defines a merged corporation?
A) the corporation that is absorbed in the merger and ceases to exist after the merger
B) the corporation that is absorbed in the merger and continues to exist after the merger
C) the corporation that is not absorbed in the merger but gains stake in the surviving corporation
D) the corporation that is not absorbed in the merger but is owned by a parent company
52) A ________ is a situation in which one corporation acquires all the shares of another
corporation, and both corporations retain their separate legal existence.
A) reverse takeover
B) merger
C) share exchange
D) spin-off
53) The corporation that owns the shares of the subsidiary corporation in a share exchange is
known as the ________.
A) surviving corporation
B) parent corporation
C) sole proprietor
D) primary partner
54) Which of the following best defines a subsidiary corporation?
A) the corporation that is absorbed into the merger
B) the corporation that continues to exist after a merger
C) the corporation that has brought all the shares of another corporation
D) the corporation that is owned by the parent corporation in a share exchange
55) Which of the following is true of a share exchange?
A) The subsidiary corporation ceases to exist after the share exchange.
B) The legal existence of both corporations is retained after the exchange.
C) The shares of both parent and subsidiary corporation are divided equally between themselves.
D) The subsidiary company can have a maximum of three shareholders in the exchange.
56) A merger increases the number of voting shares of the surviving corporation by 23 percent.
Which of the following is required in this context?
A) a unanimous vote of the incumbent directors
B) a majority vote among the board of directors
C) a majority vote of shareholders
D) an affirmative vote by at least 30 percent of shareholders
57) A ________ is a merger between a parent corporation and a subsidiary corporation that does
not require the approval of the board of directors of the subsidiary corporation.
A) share exchange
B) short-form merger
C) short-term merger
D) reverse takeover
58) Which of the following is required for a short-form merger?
A) approval of shareholders of the parent corporation alone
B) approval of shareholders of the subsidiary corporation alone
C) approval of the board of directors of the parent corporation alone
D) approval of the board of directors of the subsidiary corporation alone
59) ________ are the rights of shareholders who object to a proposed merger to have their shares
valued by the court and receive cash payment of this value from the corporation.
A) Appraisal rights
B) Liquidation rights
C) Anti-acquisition rights
D) Anti-merger rights
60) The ________ is a federal law that mandates the president of the United States to suspend,
prohibit, or dismantle the acquisition of U.S. businesses by foreign investors if there is credible
evidence that the foreign investor might take action that threatens to impair the “national
security.”
A) Williams Act
B) Securities Exchange Act of 1934
C) Investment Company Act of 1940
D) Exon-Florio Foreign Investment Provision
61) ________ are made without the permission of the target company’s management.
A) Merger offers
B) Hostile tender offers
C) Share exchange offers
D) Share acquisition offers
62) Instaworks Inc. wants to acquire IOK Corp. Instaworks makes a tender offer to the
shareholders of IOK to acquire their shares of IOK without the permission of the latter
corporation’s board of directors. This is a ________ tender offer.
A) cogent
B) single-point
C) persuasive
D) hostile
63) The ________ is an amendment to the Securities Exchange Act of 1934 that specifically
regulates tender offers.
A) GLB Act
B) Financial Services Modernization Act
C) Williams Act
D) Exon-Florio Foreign Investment Provision
64) The ________ states that any increase in price paid for shares tendered must be offered to all
shareholders, even those who have previously tendered their shares.
A) pro rate rule
B) fair price rule
C) Williams Act
D) antifraud provision of the SEC
65) Section 14(e) of the Williams Act is a(n) ________ regarding tender offers.
A) antifraud provision
B) shareholders’ rights provision
C) merger provision
D) acquisition provision
66) Which of the following is a valid tender offer rule?
A) The offer cannot be closed after 20 business days after the commencement of the tender offer.
B) The offer cannot be extended if the tender offeror increases the number of shares it will take
or the price it will pay for the shares.
C) Any increase in price paid for shares tendered must be offered to all shareholders, including
those who have previously tendered their shares.
D) A shareholder who tenders his or her shares loses the right to withdraw them prior to the
closing of the tender offer.
67) A ________ is a defensive strategy built into the target corporation’s articles of
incorporation, corporate bylaws, or contracts and leases that can be adopted to defeat a tender
offer.
A) greenmail agreement
B) Pac-man render offer
C) white knight merger
D) poison pill
68) Which of the following is true of defensive measures against a tender offer?
A) A company is not permitted to use media campaigns to convince shareholders against the
tender offer.
B) A company can file a lawsuit alleging violation of antitrust laws against the tender offer, to
gain time.
C) A reverse tender offer cannot be made as long as a tender offer is active.
D) A company can adopt only flip-over, and not flip-in rights plan against the tender offer.
69) ________ refers to the purchase by a target corporation of its stock from an actual or
perceived tender offeror at a premium.
A) White Knight merger
B) Appraisal
C) Share exchange
D) Greenmail
70) The ________ protects the decisions of a board of directors that acts on an informed basis, in
good faith, and in the honest belief that the action taken was in the best interests of the
corporation and its shareholders.
A) Williams Act
B) antifraud provision of the SEC
C) pro rata rule
D) business judgment rule
71) State antitakeover statutes apply to ________.
A) corporations that are incorporated in the state
B) foreign corporations that operate in the state
C) U.S. corporations incorporated in other states operating in the state
D) corporations which export to the state
72) Which of the following is provided by the Delaware Antitakeover Statute?
A) An acquirer of a Delaware corporation cannot complete a merger with the acquired
corporation unless it receives affirmative vote from at least 35 percent shareholders of the
acquired corporation.
B) An acquirer of a Delaware corporation located outside Delaware cannot complete a merger
with the acquired corporation until it has operated in Delaware for three years.
C) An acquirer of a Delaware corporation must be incorporated in the state of Delaware or have
its principal office in the state of Delaware.
D) An acquirer of a Delaware corporation cannot complete a merger with the acquired
corporation for three years after purchasing 15 percent or more of the Delaware corporation’s
shares.
73) Which of the following is true of a branch office of a multinational corporation?
A) Branch offices cannot be setup in foreign countries.
B) Branch offices are considered as separate legal entities.
C) There is no liability shield between the corporation and the branch office.
D) The corporation is not liable for the torts committed by personnel of the branch office.
74) Which of the following is true of a subsidiary of a multinational corporation present in a
foreign country?
A) The subsidiary corporation is organized under the laws of the foreign country.
B) There is no liability shield between the parent company and the subsidiary.
C) The parent company is wholly responsible for torts committed by the subsidiary.
D) The subsidiary corporation is not considered as a separate legal entity.
75) What is a similarity between a branch office and a subsidiary of a multinational corporation?
A) Both are considered as separate legal entities.
B) Both have limited liability shields with the parent company.
C) Both can be setup in a foreign land to run the parent company’s business.
D) Both are wholly liable for their torts.
76) What is a proxy? State the federal rules that govern a proxy statement.
77) Explain the factors that lead to a proxy contest. What is its outcome?
78) Distinguish between a merger and a share exchange.
79) List out the strategies a company can use in defending against hostile tender offers.
80) What does the Delaware Antitakeover Statute provide? How can an acquirer evade the
restrictions imposed by this statute?