Professor J.L. Bader
 Spring, 2001
CORPORATIONS

 

INSTRUCTIONS

This examination consists of 4 questions.  All Questions have equal weight. 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 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.  Your examination must be turned in with your answer.

GOOD LUCK!

 

I
(25%)


Paul is a physicist. He is the Senior Vice-President and Chief Technologist of Ceramnotech, Inc., a manufacturer of state of the art ceramic materials used as heat shields in satellites and incorporated under the laws of Magenta. Although very senior in the Ceramnotech organization, he is not on the board of directors. Ceramnotech, though originally very successful, has fallen on hard times because of the age of the technology used by it. It is far in arrears in paying its current trade debts, and in view of its aging technology has little if any ability to raise new capital. In fact, Paul believes that Ceramnotech will be out of business within 6 months.

 While at a party Paul meets Dan, also a physicist. Although Paul does not tell Dan for whom he works or what his job is, Paul discovers that he and Dan share much in common with respect their backgrounds and interests. During their conversation Dan discloses to Paul that he that he has made a break through discovery that will potentially revolutionize the manufacturing cycle for ceramic heat shields. Paul, excited, suggests to Dan that he and Dan form a partnership to exploit Dan's discovery. Dan is reluctant to agree to do so because his technology is unproven and, Dan believes, will require a huge capital investment to develop with an uncertain return. Paul convinces Dan that his (Paul's) brother, a wealthy oilman (who owes a huge moral debt to Paul), will put up the necessary funds. The next day Paul resigns from Ceramnotech. He subsequently forms a partnership with Dan, his brother makes the needed investment, the technology proves to be everything Paul hoped it would be, and the Paul/Dan partnership ("PDP") becomes highly successful.

 You are consulted by the CEO of Ceramnotech (which has ceased doing business for lack of funds) who tells you the Paul/Dan story.

 If Magenta follows the ALI rule, what are Ceramnotech's rights (if any):

(a) against Paul and

(ii) PDP

 


 II
(25%)


 Michael is a Promoter. He owns 810 acres of land, which he is going to transfer to M Corp, a Corporation in formation, in exchange for shares of M Corp. M Corp is then going to sell 25 acre parcels to developers. Before the completion of the incorporation of M Corp, Michael enters into two contracts; one is with his uncle, Ulysses, a developer who is familiar with Michael's plans and the formation of M Corp, and the other with Tom, a developer who is not familiar with Michael's plans. Both contracts contain the following identical terms:

 1. The contract is in the name of M Corp, and is signed on its behalf by Michael, President;

 2. M Corp agrees to sell (to both Ulysses and to Tom) 25 acres of land for development for $10,000 per acre; and

 3. Each contract is dated June 1, 1999, and each contract shows July 1, 1999 as the date for the delivery of the land to the two developers, both of whom paid the full purchase price for the land on the date of the execution of the contract.

 July 1 comes and goes. Although Michael has pocketed the $50,000 he has not completed the formation of M Corp. Both developers demand the delivery of the land to them, and Michael refuses, and, although he offers to return their consideration, he asserts that there is no such Corporation and hence there is no obligation to transfer the land to them.

Please state:

 a. is there any theory on which Ulysses can sue Michael and, if so, what relief should Ulysses seek?

 b. is there any theory on which Tom can sue Michael and, if so, what relief should Tom seek?

 

 

III
(25%)


Tell me what each of the following is about. I want short answers, 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:

1. 16b
2. The corporate opportunity doctrine
3. The complete fairness test
4. The Business Judgment rule
5. The two aspects of a derivative action
6. Motion for security for costs
7. Nimble dividend
8. Special litigation committee
9. Revaluation surplus
10. Horizontal integration
11. LLC
12. Short form merger
 13. Triangular merger
14. Corporation by estoppel
15. Pooling agreement
16. Power coupled with an interest
17. Cumulative voting
18. Proxy
19. The Dirks rule
20. Tippee

 

 

IV
(25%)

The Balance Sheet of Consolidated Technology looks as follows:

CONSOLIDATED TECHNOLOGY
 A Corporation organized under the laws of the State of Magenta
Balance Sheet as of 12/21/99

 

Assets

Liabilities

Cash

$120,000.00

Accounts payable w/in 30 days

$200,000.00

Land

300,000.00

Shareholder's Equity

Accounts receivable

50,000.00 

Legal Capital (100,000 common shares at $10 par value)

1,000,000.00

Note receivable (due 1/1/2010)

50,000.00 

Deficit

(680,000.00)

total assets

$520,000.00

total Liabilities and shareholder's equity

$520,000.00

 


Please answer the following questions. In each case, please be sure to give me a full enough answer so that I know how you arrived at your answer. If in any case you cannot tell from the balance sheet, please tell me what additional information you need. The state of Magenta, by the way, is a somewhat backward state which follows more or less backward rules:

 1. Is Consolidated Technology insolvent in either the balance sheet or equitable sense?

 2. If yes, which? How do you know?

 3. What, if any, is Consolidated Technology's net worth?

 4. What is the book value of Consolidated Technology's shares?

 5. Could Consolidated Technology declare a stock dividend?

 6. Could Consolidated Technology split its stock?

 7. Can Consolidated Technology declare a cash (non-nimble) dividend?

 8. Can you tell whether or not Consolidated Technology can declare a nimble dividend? If not, what additional information would you need?

 9. If Consolidated Technology were incorporated in California, would your answer to either 5, 6, or 7 change, and if so, how?