Strassburger v. Earley

OPINION

In August, 1994, at a time when it was desperately short of cash, Ridgewood Properties, Inc., a Delaware corporation (“Ridgewood” or “the Company”) repurchased 83% of its outstanding common stock from its two largest stockholders— Triton Group, Ltd. (“Triton”) and Hesperus Limited Partners (“Hesperus”). To finance those repurchases, Ridgewood had to sell its principal operating assets. At issue in this post-trial Opinion is whether those repurchases constituted a breach of the fiduciary duty of loyalty owed by Ridgewood’s board of directors to the Company and its minority stockholders.

The plaintiff, who is a Ridgewood stockholder suing derivatively, 1 claims that the repurchases constituted a breach of fiduciary duty because they had no purpose other than to benefit one person — N. Russell Walden (“Walden”) — Ridgewood’s President, a director, and the Company’s third large stockholder — by increasing Walden’s stock ownership interest from 6.9% to a 55% position of absolute majority control. The plaintiff also claims that those transactions were highly unfair to Ridgewood’s remaining stockholders and also a waste of corporate assets.

The case was tried on April 19-21, 1999. This is the Court’s post-trial Opinion on the merits. For the reasons discussed below, the Court finds that the repurchase transactions constituted breaches of fiduciary duty owed by the directors to Ridge-wood’s minority shareholders, and that therefore, the plaintiffs have established their entitlement to relief.

I. THE FACTS 2

A. The Parties

Ridgewood is a small publicly-held real estate company that was formed in 1985 by a stock spin off of certain real estate interests of Pier 1, Inc. (“Pier 1”). At the time of the spin off, Intermark, Inc., Triton’s corporate predecessor, held 48% of Pier l’s stock. After the spin off, Inter-mark (Triton) 3 ended up as Ridgewood’s controlling stockholder. Share repurchases that Ridgewood conducted between 1985 and 1992 enlarged Triton’s stock ownership to a 74.4% controlling interest.

Following the 1985 spin off, Walden became Ridgewood’s President and a member of its board of directors, and has served in both capacities ever since. As of August 1994, the time of the challenged repurchase transactions, Ridgewood’s other directors were Luther A. Henderson, Michael M. Earley and John C. Stiska, who, together with Walden and Triton, are the defendants in this action. Earley and Stiska were senior executives of Triton and served as Triton’s designees to the Ridgewood Board. Henderson, who was not affiliated with Triton, was a co-founder and former Chairman and CEO of Pier 1, *561 and had been a board member of Ridge-wood’s predecessor since 1981.

As of August 1994 Ridgewood’s three largest stockholders were Triton, (which owned 74.4% of Ridgewood’s outstanding shares), Hesperus (which owned 9%), and Walden (who owned 6.9%). The remaining 9.7% of Ridgewood’s shares were owned by members of the public. It is undisputed that Triton and Hesperus were not affiliated or otherwise connected in any relevant way.

Ridgewood’s business was developing and selling real estate, and its assets consisted of raw land and “operating properties.” Ridgewood would develop vacant land and then sell it, realizing net profits only upon the eventual sale of the developed land. After the 1985 spin off, an important element- of Ridgewood’s business was to purchase partially developed mobile home parks, complete them development (ie., sell enough units to fill the parks), and then sell the developed mobile home parks to an operator.

By the beginning of 1994, many of Ridgewood’s valuable real estate assets had been sold. At that point the company had only two hotels, five mobile parks, and several parcels of vacant land that had been for sale for several years. Because of a scarcity of operating properties and adverse developments in the mobile home market, Ridgewood could not sustain itself on operating revenues alone, and had to sell its inventory of vacant land to meet expenses. 4 In December, 1993 Ridgewood had borrowed $500,000 from Triton to pay expenses. By February, 1994 Ridge-wood’s equity per share had declined to $9.46 — down from $10.51 in August, 1993. At that time Walden was reporting to his fellow board members that:

Cash is a serious concern. Poor performance at the hotels, combined with no home sales, has left us nearly destitute. If we don’t get the apartment sale closed in early March, we may be in deep dog droppings. 5

B. Triton’s Financial Difficulties and Its Eventual Decision to Liquidate

During the early 1990s, Ridgewood’s controlling stockholder, Triton, was also experiencing significant financial difficulty. In late 1992, Triton filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. In the reorganization that followed, Triton merged with a subsidiary, and the bondholders of both entities became the equity owners of the merged company. In 1993, two months after Triton emerged from bankruptcy, Triton sent to its stockholders a letter advising them that management no longer believed that the company had “reason to exist indefinitely as a publicly traded vehicle,” and that Triton would attempt to return “as much real value to our stockholders over a short period of túne.” 6 Triton management (which included Stiska and Earley) further advised that Triton’s plan involved delivering value to its shareholders in the form of cash and liquid securities, and that it would take about two years to complete.

Triton began negotiating arrangements with the managements of its more valuable holdings over how Triton would exit those investments. At a Triton board of directors meeting held in October 1993, Stis-ka advised the board that Triton would be giving increased attention to its Ridge-wood investment, from which Triton hoped to realize $13 million to $16 million in value over the next two years. 7 Shortly thereaf *562 ter, Stiska and Earley asked Walden to prepare a plan that would “get Triton out of Ridgewood within two years — by liquidation, sale or whatever.” 8

None of these developments came as a surprise to Walden, who had been closely following Triton’s financial problems for some time. Walden had every reason to be concerned about Triton’s continued majority stock investment in Ridgewood: Walden’s Ridgewood stock represented 65% of his net worth. Furthermore, he depended on Ridgewood for his livelihood. Walden’s compensation package included a $200,000 annual salary, company-financed insurance policy and a private club membership, a post-employment contract that would pay his salary for a specified period, and a supplemental retirement plan that would pay him $100,000 annually for life, plus cash bonuses. As time went on, Walden became concerned that Triton’s financial problems would cause Triton either to liquidate Ridgewood’s assets or sell its controlling interest in Ridgewood to a “bone picker” short term investor that would liquidate Ridgewood at “fire sale” prices.

That concern prompted Walden to develop his own plan that would enable Triton to exit its investment in Ridgewood yet also (in defendants’ words) protect “the long term interests of Ridgewood and its minority stockholders.” 9 As it turned out, however, the plan that Walden ultimately negotiated, and that was eventually approved and carried out, did little to protect or benefit any Ridgewood stockholders other than Triton, Hesperus, and Walden.

C. The Ridgewood Board’s Consideration Of Alternatives and its Response to Triton

The eventual solution to the Triton problem was that Ridgewood repurchased the 74.4% and 9% blocks of its stock held, respectively, by Triton- and Hesperus. The defendants claim that before adopting that solution they considered and rejected several alternatives. Whether or not those alternatives were in fact considered, and the reasons why they were rejected, are disputed issues. To resolve those issues, I pause at this point to discuss the “non-repurchase” alternatives.

The defendants claim that Walden first proposed that Triton distribute its block of Ridgewood shares to its shareholders. That, according to Mr. Walden, would increase the liquidity of Ridgewood’s stock, which for years had not been actively traded, 10 and would also eliminate Triton’s control over Ridgewood’s destiny. According to defendants, this share distribution proposal was rejected as unworkable because in any spin-off of Triton’s Ridgewood shares, the much larger Triton shareholder base would result in each Triton stockholder receiving only a small number of Ridgewood shares.

This portrayal of the facts lacks persuasive support. No document of record evidences that this proposal was in fact made (or when it was made) by Ridgewood, or that the proposal was in fact considered and rejected by Triton. Moreover, this “stock distribution” scenario was never mentioned during discovery and surfaced for the first time in the defendants’ trial testimony. Also suspect is the defendants’ stated reason for rejecting the share distribution proposal. If in fact the only obstacle to a share distribution was the small number of Ridgewood shares relative to the Triton shareholder base, an obvious solution would have been to split the Ridgewood stock into whatever number of *563 shares would suffice to overcome that problem. Indeed, three months after the challenged repurchases closed, Ridgewood did precisely that — in late October 1994, it effectuated a 3 for 1 stock split. No explanation is offered for why that possible solution was never considered or proposed in late 1993. For these reasons the defendants have not persuaded me that a share distribution was an alternative that Ridge-wood’s board in fact considered or proposed. 11

Similarly unpersuasive is the defendants’ claim that they also considered liquidating Ridgewood, but that Walden rejected this alternative because he believed a complete liquidation within a relatively short time frame would force Ridgewood to accept “... ’fire sale’ prices” for many of its assets. The only evidence cited in support of this rejected liquidation scenario is a memorandum from Walden to Earley and Stiska, unilaterally communicating Walden’s point of view. There is no evidence that the full Ridgewood board ever met, formally or informally, and collectively considered this alternative, and the testimony of Earley and Henderson affirmatively shows that the board did not. 12

A third alternative the defendants claim to have considered was a pro rata self-tender by Ridgewood for its own shares. That alternative does appear to have been discussed, but whether it was formally considered by all the directors meeting collectively as a board is not clear. 13 Be that as it may, the evidence shows that Triton favored this form of transaction because it would provide Triton with immediate cash yet still allow Triton to continue its large equity participation in Ridgewood. A self-tender would, moreover, afford liquidity to all shareholders on an equal (pro rata) basis. That alternative was rejected, nonetheless, because in Walden’s view, “such an approach ... [would not] accomplish one of the goals that management had in mind, which was eliminating the overhang of the 74 percent shareholder.” 14

The fourth and final alternative the Ridgewood board considered was a cash dividend to all Ridgewood shareholders. That approach, like the self-tender, would deliver cash to all shareholders on a pro rata basis. Triton also favored this alternative because it would provide Triton with cash yet allow Triton to maintain its controlling equity position in Ridgewood. This alternative was also rejected because Walden was unwilling to approve any transaction that did not eliminate Triton as a Ridgewood shareholder. 15 By this process of elimination Walden and the other directors ultimately came to focus upon their final alternative — a repurchase by Ridgewood of Triton’s control block of Ridgewood shares.

D. Events Leading Up To The Stock Repurchases

1. The Sale of the Mobile Home Parks

From a financial perspective 1994 was the least propitious time for Ridgewood to repurchase Triton’s 74.4% control block. *564 Ridgewood desperately needed cash, but it lacked sufficient money to finance its own operations let alone repurchase Triton’s controlling interest. To raise cash of that magnitude, Ridgewood would have to sell significant assets, which ultimately is what it did. By January 1994, when Walden formally proposed a plan to “take out” Triton for $10.2 million (approximately $7 per share), it had already been decided that the purchase price would be raised by selling Ridgewood’s five mobile home parks. Indeed, by then Walden had received an offer from Clayton Homes of Tennessee to buy the mobile home parks for $12.6 million.

Walden communicated his $7 per share proposal to Triton, which responded negatively because (as Stiska and Earley told Walden) Triton wanted $12 million for its Ridgewood stock. Walden told Stiska and Earley that he would not sell Ridgewood’s mobile home parks for $12.6 million, and then exhaust all but $.6 million of those proceeds to buy out Triton. By then, however, Walden knew that to effect a repurchase of Triton’s stock interest, the mobile home parks would have to command a price higher than $12.6 million. Accordingly, the proposed $12.6 million Clayton Homes deal soon fell by the wayside, and from January 1994 forward, Walden engaged in simultaneous efforts to sell the mobile home parks at a higher price, and also to negotiate the repurchase of Triton’s control block of shares. By April, 1994, Walden had successfully negotiated a sale of the mobile home parks to Sun Communities for $14.5 million — $13 million in cash and a $1.45 million promissory note payable in two years. That sale closed on June 16,1994.

At trial Walden denied that the mobile home parks were sold to raise the funds needed to finance the share repurchase. 16 In my view that denial lacks credibility and is contrary to the weight of the evidence. In his deposition Mr. Earley testified that Walden was willing to undertake the sale of the mobile home parks “but at the same time only if he knew he could take out [Triton] at $8 per share.” 17 And in a memorandum to his own attorneys, Walden stated that in order to finance the stock repurchase ... “[w]e set about to raise a substantial pool of cash. That goal was accomplished by the sale of our mobile home parks ...” 18

2. The Issuance of Stock Options to Walden

During 1993, Walden had been granted options for 50,000 Ridgewood shares. In January 1994 — at the onset of his negotiations with Triton — Walden was granted, at his request, options for an additional 125,-000 shares. Other members of Ridgewood management received options as well. By the spring of 1994, the option grants had increased Ridgewood’s total outstanding shares (on a fully diluted basis) to 2,194,-320, with Walden holding either stock or options totaling 309,280 shares. The significance of the options — as plaintiff points out and defendants do not dispute — is that if the Triton repurchase had occurred in December, 1993 (before the January, 1994 options were issued), Walden’s ownership interest would have increased to only 33%. If Hesperus’ shares were also repurchased at that time, Walden’s ownership interest would have increased to 49.6% — still short of an absolute majority. But with the January stock options in place and the Hesperus shares being repurchased as well, those combined transactions would (and did) increase Walden’s ownership interest to 55% — a position of absolute control.

3. The Hesperus Repurchase Opportunity

While Walden was negotiating to sell the mobile homes to Sun Communities, Peter *565 Foreman of Harrison Associates (which was the managing partner of Hesperus) learned of Ridgewood’s plans to buy out Triton. Foreman wanted Ridgewood to repurchase Hesperus’s 9% stock interest as well. Foreman had previously expressed his interest in a buyout to Walden in 1993, but at that time Walden was not interested. Now, however, when Foreman expressed interest again in the spring of 1994, Walden was very receptive. He began negotiating with Foreman (while also negotiating with Triton) for Ridgewood to buy back Hesperus’s stock interest.

The prospect of repurchasing Triton’s shares influenced Walden’s negotiating strategy for the sale of the mobile parks to Sun Communities. Initially, Sun Communities wanted Ridgewood to accept (in addition to cash) a promissory note of $2.5 million. Walden was able to negotiate that amount down to $1.45 million. That was no coincidence. Based on his earlier discussions with Foreman, Walden believed that Hesperus might accept a Sun Communities promissory note for $1.45 million as part of the consideration to repurchase Hesperus’s Ridgewood stock at $8 per share. Walden’s intuition was correct: on May 11, 1994 Walden proposed those terms to Hesperus, and after some bargaining and modifications of repurchase terms, Hesperus agreed to the proposal on or about May 15,1994. 19

At the trial Walden testified that the concurrent repurchase of the Hesperus and the Triton Ridgewood stock was coincidental. The defendants insist that as long as Hesperus was willing to accept the Sun Communities note for its shares, Ridgewood would have repurchased the Hesperus 9% block regardless of what happened with Triton. The reason was Walden’s belief that the Hesperus block could be bought at a favorable price well below its book value, using non-cash consideration.

It is true that the Hesperus block was available for repurchase at a favorable price, but the claim that the Hesperus repurchase was independent of and unrelated to the Triton transaction defies credulity. The only evidence supporting the defendants’ effort to “decouple” these two repurchases is Walden’s uncorroborated testimony, but the weight of the credible (non self-serving) evidence points to the opposite conclusion. The opportunity for the Company to repurchase Hesperus’s Ridgewood stock had been presented the year before. At that time, Walden could have pursued an equally valuable below-book-value purchase price but chose not to do so. Only when forced to deal with the “Triton issue” did the Hesperus opportunity suddenly become attractive. Mr. Foreman, who was the only other person in a position to know of Walden’s motive and who had no stake in the outcome of this case, expressed the following view about Walden’s motive:

A. Well, I think there is no question he wanted to buy Triton out. My only, the only reason he would want to buy them out is to protect his position.

Q. Okay. So there came a time when you began to discuss the purchase, buying you out?

A. Well, you see, if he buys Triton out, I own around 10 percent, all of a sudden I’m his boss.

Q. Okay.

A. Because I don’t remember how much Triton owned, but my percentage goes up proportionately if *566 theirs comes down, and so his, I think, view was to get us both out. 20

I find that the Triton and Hesperus repurchases, which closed within two weeks of each other and were financed from the same source, were not coincidental. They were inextricably connected parts of a single transaction.

4. Negotiation of The Final Terms Of The Mobile Home Parks And Of The Repurchase Transactions

On May 12, 1994, Walden wrote Stiska and Early, proposing that Ridgewood repurchase the blocks of its stock held by Triton and Hesperus. In those transactions, (1) Hesperus would receive the Sun Communities promissory note and (2) Triton would receive approximately $8 per share cash for slightly over 1 million of its Ridgewood shares, plus preferred stock for its remaining 450,000 shares.

Over the next three months Walden negotiated with representatives of Triton to arrive at a mutually agreeable transaction terms. Ultimately, those parties negotiated a stock repurchase agreement whereby Triton sold its 1,455,280 shares to Ridge-wood for (a) $8,042,240 cash plus (b) 450,-000 shares of Ridgewood Series A Convertible Preferred Stock. The Preferred Stock was non-voting, would have an $8 redemption price, and would be convertible into common stock after two years. The Preferred Stock would also pay dividends at the annual rate of 5% (a total of $180,-000 per year) for the first two years, and at 10% (a total of $360,000 per year) for each year thereafter.

During this same time period Walden and Hesperus also negotiated their agreement for Hesperus to sell its 179,880 Ridgewood shares to Ridgewood in exchange for the $1.45 million Sun Communities promissory note. Although the Sun Communities note did not pay interest for the first year, Ridgewood agreed to pay interest for that year at the prime rate. Ridgewood also agreed to give Hesperus a “put right” whereby Hesperus could require Ridgewood to repurchase the note if Sun Communities defaulted on the obligation.

These two repurchases closed on August 15 and August 29, 1994, respectively. They affected the relevant “players” in different ways, as follows:

Ridgewood: As a result of buying out its two largest stockholders, Ridgewood had repurchased (and retired) almost 84% of its stock. To accomplish that, Ridge-wood had to sell its primary business, leaving the Company with (as operating properties) only two hotels plus several parcels of vacant land that for many years had been for sale. Ridgewood also had approximately $5 million in cash left over from the mobile home park sale, but those monies had to be used to pay down preexisting debt (including $500,000 borrowed from Triton), as well as newly-created obligations. Ridgewood had now become obligated (a) to Hesperus on its financial guarantee of the $1.45 million Sun Communities note (including the first year of interest), and (b) to Triton for $180,000 of annual dividends on the Preferred Stock during the first two years and $360,000 annually thereafter.

Ridgewood’s Shareholders Other Than Walden: The repurchases enabled Triton and Hesperus (Ridgewood’s two largest shareholders who together held almost 84% of its stock) to exit their investments for $8 per share. Also, Triton has received its Preferred Stock dividends, which total over $1 million since 1994.

The Ridgewood stockholders whose shares were not repurchased remained holders of an illiquid minority interest. Although the below-book-value repurchase price did cause the book value of the remaining stock to increase by over $2 per share, the minority shareholders received, no other benefit (including any liquidity benefit) from those transactions.

*567 Walden: The repurchases benefited Walden in a way significantly different from all other post-repurchase Ridgewood shareholders. As a result of the repurchases — accomplished with no personal financial investment by Walden — his 6.9% stock interest (including stock options) became enlarged to 55%. That position of absolute control carried with it the unique right to a premium if the controlling interest were later sold. Further, no one would be able to dislodge Ridgewood’s new controlling shareholder from his position as Ridgewood’s President or from his contractual entitlement to receive salaries, bonuses, and other compensation worth hundreds of thousands of dollars per year. 21

5. Formation Of The One Man Special Committee

Recognizing that three of Ridgewood’s four directors had conflicts of interest in relation to the proposed Tritqn repurchase, 22 the Ridgewood board formed a special committee authorized “to act with the full power and authority of the Board and to determine the advisability and feasibility of the Proposed Purchase [of Triton’s Ridgewood shares].” 23 As the only unconflicted member of the Ridgewood board, Henderson was appointed as an independent committee of one on July 28, 1994. Both sides agree that Henderson was independent, unconflicted, and an astute businessman, having founded several companies (including Pier 1) and having served as a director of Ridgewood since its creation.

Henderson did not negotiate the Triton transaction, but as a Ridgewood director he had been kept informed of the status of the Triton negotiations. Between July 28 and August 13, 1994, Henderson reviewed the proposed transaction, including the terms of the Preferred Stock. He concluded that the Triton repurchase was in the best interests of Ridgewood and its minority stockholders, and on August 14, 1994, executed a written consent approving the repurchase. At trial Henderson testified that he approved the transaction because it would eliminate the controlling stockholder who “clearly wanted out” and whose presence would interfere with the company’s “long term progress.” 24

The infirmity in Henderson’s independent committee role is that he was not asked to, and therefore did not, consider all information highly relevant to his assignment. Although the Hesperus repurchase would occur more or less contemporaneously with the Triton repurchase, and although both transactions (plus the sale of the mobile home parks) had been negotiated during the same period as part of a single package, Henderson was not asked to (and did not) consider the effect of the Hesperus transaction upon Ridgewood’s minority shareholders. That omission was significant, because the incremental effect of the Hesperus repurchase would '■<' to shift corporate control from Triton * -l-den. That shift posed potential problems of fairness to the minority stockholders that Henderson would have had to confront, had he considered the issue and been advised by independent legal counsel or even an experienced investment banking firm. But Mr. Henderson did not retain legal counsel, and he specifically decided not to engage an investment bank, because in his view it was not worth incurring significant financial expense to be told “something we already knew.” 25

*568 It further appears that Mr. Henderson was not provided accurate information about the trading price of Ridgewood’s stock. Mr. Henderson testified that Walden told him that the sporadic trading in Ridgewood stock had been in the range of $8 per share. In fact, the last recorded trading price was $3 per share. 26 That error was significant because Henderson testified that if Ridgewood had paid Triton more than the market price for its own stock, it would have been “unfair to the company to overpay certain shareholders at the expense of others.” 27

II. THE CONTENTIONS AND ISSUES

A. The Contentions

The following summary of the parties’ respective contentions is abbreviated. A more detailed recital is set forth in the analysis of the plaintiffs claims in Part III, infra of this Opinion.

The plaintiff seeks the invalidation of the Triton and Hesperus stock repurchases on the ground that they constituted three distinct breaches of the Ridgewood directors’ fiduciary duty of loyalty. The first claim is that because the two repurchases were components of a unitary transaction approved by self-interested directors, those directors must carry the burden of demonstrating that the transaction was entirely fair to Ridgewood and its minority public stockholders. The plaintiff contends that the directors have not carried that burden, as the evidence shows that the repurchases were the product of unfair dealing and an unfair purchase price. The second fiduciary claim is that the share repurchases constituted an improper expenditure of corporate funds for the purpose of placing and perpetuating Walden in a position of corporate control. The third claim is that the repurchases were a waste of corporate assets.

To remedy these breaches of duty, the plaintiff seeks rescission and rescissory damages. Specifically, the plaintiff asks the Court to rescind the Triton repurchase transaction by (a) directing Triton to return to Ridgewood the $8,042,420 cash plus the Preferred Stock (and all dividends paid thereon) that Triton received for its 74.4% interest; and (b) in .exchange, directing Ridgewood to convey back to Triton the repurchased Ridgewood shares.

The plaintiff concedes that the Hesperus transaction cannot be rescinded because Hesperus is not a party to this action and is not charged with wrongdoing. Therefore, the plaintiff seeks rescissory damages against the parties who he claims did commit actionable wrongdoing, namely, Ridge-wood’s directors. Specifically, plaintiff requests a,money judgment in Ridgewood’s favor against the directors for the $1,450,-000 Hesperus repurchase price, plus interest. 28

The defendants assiduously dispute these claims, and resist the relief that plaintiff seeks.

First, the defendants argue that the plaintiffs entire fairness claim lacks merit for the following reasons:

• Although defendants concede that the Triton repurchase is subject to entire fairness review, they contend that the plaintiff has the burden of proving the Triton transaction was unfair because that transaction was the result of vigorous arms-length bargaining and was approved by a disinterested and independent committee. On the other hand, defendants argue that the Hesperus re *569 purchase must be reviewed under the business judgment standard, because the two transactions were unrelated except for having occurred (coincidentally) within the same time period.

• The defendants next argue that the plaintiff failed to prove that the Triton repurchase involved unfair dealing, because the negotiation process replicated true, arms-length bargaining and the repurchase was fair in terms of initiation, timing and structure. Nor, defendants argue, has the plaintiff proved that the Triton repurchase price was unfair. As a result of the Triton (and Hesperus) repurchase, book value per share increased. Moreover, the defendants’ expert, Chris Battel of Legacy Securities, testified that under conventional valuation methods $8 per share was a fan price for the Ridge-wood stock, particularly because a control premium had to be paid. Battel’s valuation is the only record evidence of Ridgewood’s value, since the plaintiff offered no evidence that supports a different fair value.

• Lastly, the defendants urge that the plaintiffs challenge to the Hesperus transaction must be reviewed under the business judgment standard, and therefore must fail, because in approving that transaction the directors acted in good faith and were not motivated to entrench Walden in control. Rather, they were taking advantage of a unique opportunity for the company to repurchase a block of its shares at a highly favorable price. 29

Second, the defendants contend that the plaintiffs “entrenchment-motivated repurchase” claim lacks merit, because Walden pursued the two repurchases not to acquire corporate control, but because he believed the transactions would serve the best interests of Ridgewood and its minority stockholders. Defendants concede that the repurchases significantly increased Walden’s proportionate ownership of the company, but argue that that was the transactions’ effect, not their intent. Walden’s ownership increase, they say, does not prove a motive to gain control and the record evidence independently negates any such motive. Moreover, the remaining stockholders’ ownership interest increased in the same proportion.

Third, the defendants deny that the repurchases amounted to corporate waste. Not only did Walden engage in vigorous arms length bargaining with Triton and Hesperus over the repurchase terms, but also the resulting $8 per share repurchase price ($2.65 on a fully diluted basis) was highly favorable to Ridgewood. The only independent evidence of Ridgewood’s intrinsic or fair value in August 1994 was the valuation performed by Legacy’s Mr. Bat-tel, who based his analysis upon the number of outstanding shares at the end of August, 1994, adjusted for the 3:1 stock split that occurred in October, 1994. 30 Battel testified that Ridgewood’s value was $6.06 to $8.93 per share, using a comparable companies method, was $4.29 per share using a comparable transaction approach, and was $3 to $3.48 per share using a discounted cash flow analysis. These valuations all compared favorably with the $2.65 per share (fully diluted basis) purchase price that Ridgewood actually paid, and plaintiff introduced no valuation evidence to show the contrary.

Fourth, the defendants argue that none of the relief that plaintiff seeks is legally or equitably warranted.

*570 B. The Issues

These contentions frame- five issues, which are:

1) Does the entire fairness standard of review govern both repurchase transactions or only the Triton repurchase?

2) Assuming that both transactions are reviewable under the entire fairness standard, are they invalid because the defendants failed to prove that they were entirely fair to Ridgewood and its minority stockholders?

3) Are the repurchases invalid on the separate ground that their primary or sole purpose was to entrench Mr. Walden in a position of control?

4) Are the repurchases invalid on the separate ground that they constituted corporate waste?

5) If the transactions are invalid, should rescission and/or rescissory damages be awarded, and if not, what remedy is appropriate?

I turn to these issues.

III. ANALYSIS

A. The Standard of Review

The parties’ first dispute concerns the appropriate standard of review. The defendants admit that in connection with the Triton repurchase, three of Ridge-wood’s four directors had a conflict of interest, and that therefore the Triton transaction must be scrutinized under the entire fairness standard. Under that exacting standard, where the controlling shareholder and the directors stand on both sides of the transaction, they bear the burden to demonstrate that the transaction was entirely fair to the corporation and the minority stockholders, both as to process and price. 31

The defendants argue, however, that the entire fairness standard does not govern the Hesperus repurchase. Because that transaction was separate and unrelated, defendants claim that it must be reviewed under the business judgment standard. Moreover, defendants say, even though the Triton repurchase is subject to entire fairness review, the burden of proof does not rest upon them, but shifts to the plaintiff, to show the transactions were unfair. The reason, defendants argue, is that the Triton transaction was the product of aims length negotiation, and Triton did not set the terms of the transaction or cause its effectuation.

In my view, the defendants are wrong on both counts. As discussed on pages 565-66, supra, the overwhelming weight of credible evidence shows that the two repurchases and the sale of the mobile home were components of a single, unified package. 32 Because the Triton repurchase is concededly subject to entire fairness review, it follows that the Hesperus transaction.—which was inextricably linked to it—is also.

Nor is there merit to the defendants’ argument that the burden of persuasion must shift to the plaintiff. I agree, as a doctrinal matter, that where the terms of a conflict transaction (specifically, a parent-subsidiary merger) result from a process structured to replicate arm’s-length negotiations, the burden of proof will shift from the defendants to the plaintiff shareholder, who must prove that the transaction is unfair. But that burden-shifting result obtains only where minority stockholders effectively ratify the transaction or where a committee of disinterested, independent directors effectively represents the interests of the minority stockholders in the negotiations. 33 That did not occur here.

*571 Although arms length negotiations between Triton and Ridgewood did take place, they were not conducted by an independent committee acting on behalf of the Ridgewood minority. The negotiations were conducted by Walden, an interested party, and Triton, another interested party on the “other side of the table.” Walden was serving his own personal interest in negotiating a transaction he intended as part of a larger plan to confer control upon himself. His “vigorous negotiation” focused only on one term — the purchase price that Ridgewood would pay. While that negotiation process did protect one of the minority stockholder’s interests, it did not protect them all, because Walden’s interests were antagonistic to the minority’s other significant interests. As negotiated, the repurchases would afford only two stockholders — Triton and Hesperus — an opportunity to liquidate their investment, and they would give a third stockholder (Walden) voting control — all at corporate expense. The only benefit the minority would receive from these transactions was an arithmetic boost in the book value of their stock, but in all other respects they would be worse off. The minority would end up holding illiquid investments in a company now having no significant productive assets and now controlled by a stockholder-executive with strong incentives to continue paying himself annual compensation at a six figure level, but with weak incentives to part with control in any transaction (such as, for example, a sale of the company) that would enable the minority to realize on their investment. In these circumstances, the minority’s predominate interest would be for these transactions not to take place at all — at least in the form of a company-financed repurchase of control.

To be relieved of their exacting burden of proof, the defendants would have to establish that the minority’s true interests were adequately represented by advocates committed to their cause. There were no such advocates and there was no adequate representation.

Even the defendants cannot bring themselves to argue that Mr. Henderson, acting as a one man independent committee, effectively performed that advocacy function. Henderson conducted no negotiations, and although he did conclude that the Triton repurchase was in the best interests of Ridgewood and its minority stockholders, Henderson based that conclusion on an investigation that he was required to conduct practically blindfolded. Henderson’s assignment and investigation was restricted solely to the Triton repurchase. It did not include any assessment of the combined Triton-Hesperus transaction. The narrow scope of Henderson’s assignment was highly significant, because the effectu-ation of the Triton repurchase alone would not give Walden absolute control, but the combined Triton and Hesperus repurchases would. Consequently, and with all due respect for Henderson’s acumen as a businessman and his good intentions, his independent committee role could not and did not provide meaningful protection for the Ridgewood minority.

For these reasons the Triton and Hesperus repurchase transactions must be evaluated under the entire fairness standard with the burden of proof resting upon the defendants. 34

*572 B. The Substantive Validity of The Repurchase Transactions

As earlier discussed, the plaintiff claims that the defendants breached their fiduciary duty of loyalty to Ridgewood and its minority shareholders in three separate respects: (a) effectuating a self-dealing transaction that was unfair to the minority, (b) improperly expending corporate fimds to repurchase stock to perpetuate control in a single member of the board, and (c) wasting corporate assets. I conclude that the plaintiffs have prevailed on their first two claims. That is, the overwhelming weight of the evidence shows that the repurchase of the Ridgewood shares held by Triton and Hesperus constituted an expenditure of corporate funds for the primary purpose of conferring and perpetuating control upon Walden, and the defendants have not persuaded me to the contrary. Moreover, for that and other reasons, the defendants have not carried their burden of proving that the repurchase transactions were entirely fair. Having so con-eluded, I do not reach address the plaintiffs corporate waste claim. 35

1. The Claim That The Repurchases Were Entrenchment-Motivated

The legal principles that govern this claim are well-established and undisputed. By statute, a Delaware corporation has the power to repurchase its own shares. 36 The corporation may, moreover, lawfully repurchase shares of particular stockholders selectively, without being required to offer to repurchase the shares of all stockholders generally. 37 The exercise of this power is constrained only by the board’s fiduciary duties.

The limiting fiduciary principle upon which plaintiff relies is that it is improper to cause the corporation to repurchase its stock for the sole or primary purpose of maintaining the board or management in control. In such a case the purchase is deemed unlawful even if the *573 purchase price is fair. 38 As the Supreme Court held in Bennett v. Propp:

".... Sadacca’s purchases [of the corporation’s stock] were made to preserve the control of the corporation in himself and his fellow directors... .The use of corporate funds for such a purpose is improper. The general principle has been recognized in Delaware....” 39

Similarly, in Cheffv. Matties, the Supreme Court held that “ ... .if the board has acted solely or primarily because of the desire to maintain themselves in office, the use of corporate funds for such purpose is improper.” 40 Although this case involves an alleged effort to shift control to a single director rather than the entire board, that principle still applies and the defendants do not contend otherwise.

In this case all elements of this claim but one are conceded. It is undisputed that the Ridgewood stock held by Triton and Hesperus was repurchased with corporate funds. It also is undisputed that the effect of the repurchase was to put Walden into a position of absolute control. The only issue is whether the sole or primary purpose of those repurchases was to entrench Walden into that control position. That issue is factual, and requires the Court to resolve a conflict between the defendants’ testimony and the objective evidence.

The defendants’ testimony incants a consistent choral refrain: they caused the Company to repurchase Triton’s Ridge-wood stock because (a) some solution was needed to protect against the potential threat implicit in Triton’s plan to liquidate its investment in Ridgewood, and (b) after considering all available alternatives, the board determined that a repurchase was the best solution. In addition to the reasons previously discussed, a repurchase would be at an advantageous, below-book-value price that would benefit all stockholders equally. The defendants further contend that the Hesperus repurchase represented a second opportunity — unrelated to Triton but serendipitously timed — to buy another significant block at the same equally favorable price.

The defendants concede that the repurchases elevated Walden’s stock ownership level from 6.9% to absolute control, but insist that that was only the transactions’ incidental effect, not their purpose. Indeed, defendants assert that Walden did not actually even obtain board control, because the newly issued Preferred Stock entitled Triton to designate two of Ridgewood’s four directors. Moreover, defendants claim, if Walden’s motive was to serve his personal interests at Ridgewood’s expense, he would have advocated a cash dividend, that would have netted him $1.2 million personally while enabling him to continue on as Ridgewood’s CEO. 41

If credible, that testimony would constitute a valid defense to the e