SCENARIO7

Daniel and Donna Streetman began American Consolidated Products, Inc. (American Consolidated) in 1985 as a two-person duly incorporated company. Over the next few years, their business and family grew. By 1993, the Streetman's were raising five children (Alice, Bernard, Carl, Drew, Eddy) and American Consolidated had nearly fifty full-time employees. By the end of 2003, the company had continued to flourish, enjoying sales of more that $25 million, specializing in industrial lubricants and bearing products.

Donna served as CEO, Daniel as CFO, with Alice and Bernard serving as vice-presidents By the end of 2006, American Consolidated had undergone additional rounds of financing. At that time, the Streetman family retained control over 52% of American Consolidator's voting stock In 2008, Carl and Eddy, who were enjoying their own personal successes, agreed to serve as directors. Drew, never much caring for the family business, struck out on his own. In 2009, he started a small manufacturing firm, Drew's Bearings Corp., that produces specialty bearings for pinball machines. He is managing to make his payroll and a modest profit. At the end of 2009, a compensation committee for American Consolidated was formed. Eddy was appointed to chair the three- person committee. In short order, the committee approved a compensation package for all "principal" level executives that increased their compensation by more than 300%, totaling near 20% of the company's gross income. In 2010, while attending a lubricant tradeshow in Milwaukee, Donna and Daniel made the rounds to check out the competition and solicit new business. Their son Drew was also supposed to attend on behalf of his own firm but never arrived because of a business emergency. While at the conference, Daniel met with Steve Sheldon, CEO of Pinball Express LLC, a firm specializing in custom-made pinball machines for top entertainment venues and A-list clientele. After an hour of conversation, Daniel knows that, while American Consolidated currently does not manufacture a product that "exactly" meets what Pinball Express is looking for, it could produce such a product with relative minor modification of its existing facilities. Without coming to any agreement, Daniel takes Steve's card and the bearing specifications, and sends them to his son Drew. Daniel never mentions the meeting to any one at American Consolidated, nor submits a bid. When Drew receives the information from Daniel,w contacts Steve and negotiates a deal for 100,000 bearings. This order dramatically improves business for Drew's Bearings, and helps to ensure the company's financial security for the next few Several American Consolidated shareholders, who are angry about the amount of compensation paid to the company's executives, subsequently learn of the dialogue between Daniel and Steve, and the sub- sequent deal with Drew. Incensed, they bring a shareholder derivative he quickly years. action against the directors who are members of the Streetman family for breach of fiduciary duty related to executive compensation and for usurpation of corporate opportunity related to the Pinball Express deal. American Consolidated appoints a special litigation committee (SL.C) headed by Luis Salazar and Sylvia Schwartz. Salazar owns a bank which has supplied $20 million of loans to American Consolidated, all of which have been repaid. Schwartz is a business professor college who has a consulting relationship with the from this arrangement being $45,000 annually. Upon retaining legal counsel and conducting an investigation, the SLC members determine that the derivative action should be dismissed. You are a shareholder of American Consolidated who brought this action or, alternatively, you represent such a shareholder.

What facts are important for you to uncover during discovery?

What arguments do you make in an effort to defeat the defendants' efforts to have the action dismissed?

How likely are you to succeed?