Introduction

Read the overview below and complete the activities that follow.

Banana Computers' Business Judgment

Banana Computers is thinking of selling a division that has been operating at a loss.The board of directors wants to ensure that it fulfills its duties in this situation.

CONCEPT REVIEW:

Directors and officers are in positions of trust; they are entrusted with property belonging to the corporation and with power to act for the corporation.Therefore, they have certain duties to the corporation.

Comprehension Case

Read the text below and answer the questions.

Banana Computers, Inc., a quickly growing start-up founded roughly 10 years ago by a few friends, had a gaming software division that never turned a profit and started to rack up significant losses.For instance, in the final two quarters of 2010 it lost $10 million and $18.5 million, respectively.Banana's board is considering selling the division, which it thinks has a value of at most $400 million.E-Gaming & Arts Co. ("EGA") has proffered the highest bid as of June 2011, despite that the division had been generally known to be up for bid since December 2009.EGA's bid was $300 million.As a result, Banana's board must decide whether to sell the division to EGA for that price.

1) The Banana board voted to sell the division to EGA for $300 million.A year and a half after the sale, the assets that were part of the division Banana sold to EGA are generating a $200 million in annualized profit for EGA and were recently valued at around $1 billion.Des Gruntled, a shareholder of Banana, on behalf of the corporation, recently sued the board of directors, claiming the board sold the division for too little money.What steps did the board need to be sure to take prior to selling the division to EGA to ensure that it will prevail in the lawsuit by Des?