CORPORATIONS
FINAL EXAMINATION
PROFESSOR BADER
FALL 2002

1. This is a closed book exam. No materials are allowed.

2. You have three (3) hours to complete this exam.

3. This examination consists of four (4) questions, each worth 25% of your grade for this exam.

4. Although it appears long, you ought to have adequate time in which to complete it and do a good job. Please remember that I want and value short, not long, answers. Please just answer the call of the question; do not give me anything that I have not asked for. If there is any fact that you believe is either missing or ambiguous, and without which you cannot answer the question, please assume whatever you believe is necessary, tell me what your assumption is, and answer the question.

5. Write your exam number on your exam envelope, all used blue books, and at the top of this exam question packet. Do not use your name, student ID number, or Social Security Number on any exam materials.

6. At the conclusion of the exam, return all test materials, including blue books, scratch paper, and this exam question packet to the envelope and submit it to the proctor.

GOOD LUCK!


QUESTION 1 (25%)



Gyration, Inc. ("Gyration"), a California statutory close corporation, is in the business of creating generic Rave music to be used in South of Market Clubs. Dan is its CEO, and a member of Gyration's three-member board of directors. Gyration has 22 shareholders and, except for a 20% block owned by Dan, its shares are evenly distributed among the shareholders. Gyration has not done well. Dan, after completing his '02 year-end analysis of the financial performance of Gyration, comes to the realization that Gyration, although balance sheet solvent, will not be able to pay its major creditors and will be effectively bankrupt by the end of the upcoming year. Before Dan can make his annual report to the shareholders of Gyration, Peter, a DJ, tells Dan that he is interested in purchasing all of the shares of Gyration for $50 a share and asks Dan for his assistance in doing so. Peter makes his offer because he wants to acquire the rights to a new techno rave piece of music owned by Gyration that his cousin, who is a Hollywood writer, has told him is going to be used as the theme for a new TV series. Peter believes that for that reason the shares of Gyration are comfortably worth $100 per share. He does not tell Dan why he is interested in purchasing Gyration shares. Dan immediately, through an agent, and anonymously over the phone, purchases all of the shares owned by the 22 shareholders for $10 a share. Having done so, he closes the deal with Peter.



QUESTION II (25%)

Widgets. Inc.

Balance Sheet
 

Assets

Liabilities
Cash   $10,000.00 Note due 6/1/03   $40,000.00
Real Property   $50,000.00  
Note due 1/1/04   $100,000.00

Shareholder's Equity
  Legal Capital: 25,000 shares at
    $10 par value   $250,000.00
  Deficit   ($130,000.00)
  Total Liabilities
Total Assets   $160,000.00   and Equity -   $160,000.00


With respect to the above Balance Sheet:



QUESTION III (25%)

Tell me what each of the following is about. I want short answers - certainly not more than a paragraph - with just enough (and no more) detail so that I can tell whether or not you understand what each relates to and its core concept:



QUESTION IV (25%)

Michael, CEO of Magnatech, at a college reunion, overhears Peter, CEO of Preston, Inc., telling someone that Presub (a subsidiary of Preston) is for sale. Presub is the manufacturer of strain gauges, a necessary component of a graviton, the principle item manufactured by Magnatech. Michael, the next day, contacts Preston and makes an offer to purchase Presub; he does so because his cousin has formed a business that also makes gravitons, and Michael thinks that he can make a killing selling strain gauges to him (cousin). He later closes the deal. Presub turns out to be quite profitable; Salem, a shareholder then finds out about the purchase of Presub by Michael and consults you for advice.



END OF EXAM