In Re the Walt Disney Co. Derivative Litigation

OPINION

This case arises from a corporate board’s decision to approve a large severance package for its president. Certain shareholders of the corporation seek relief from the Court of Chancery because that board actually honored the corporation’s employment contract when the president left the company. The sheer magnitude of the severance package undoubtedly sparked this litigation, as well as the intense media coverage of the ensuing controversy over the board’s decision. Nevertheless, the issues presented by this litigation, while larger in scale, are not unfamiliar to this Court.

Just as the 85,000-ton cruise ships Disney Magic and Disney Wonder are forced by science to obey the same laws of buoyancy as Disneyland’s significantly smaller Jungle Cruise ships, so is a corporate board’s extraordinary decision to award a $140 million severance package governed by the same corporate law principles as its everyday decision to authorize a loan. Legal rules that govern corporate boards, as well as the managers of day-to-day operations, are resilient, irrespective of context. When the laws of buoyancy are followed, the Disney Magic can stay afloat as well as the Jungle Cruise vessels. When the Delaware General Corporation Law is followed, a large severance package is just as valid as an authorization to borrow. Nature does not sink a ship merely because of its size, and neither do courts overrule a board’s decision to approve and later hon- or a severance package, merely because of its size.

I. INTRODUCTION

At its heart, this case is about the decision of the Walt Disney Company (“Disney” or the “Company”) Board of Directors to approve an employment contract with a large severance provision for Michael Ovitz, referred to by some as the “Most Powerful Man in Hollywood.” Disney convinced Ovitz to leave his position as head of Creative Artists Agency (“CAA”) and become president of Disney. This case arose after the Disney Board’s decision, subsequent to Ovitz’s failure to become an effective president, to honor their employment agreement with its attendant severance provisions. This is a noteworthy case because the severance payment is large — larger than even the expert hired by the Disney Board to explain the contract imagined it to be, larger than almost anyone anywhere will receive in the lifetime of any of the parties, and perhaps larger than any ever paid.

The facts, in summary, are as follows: Ovitz gave up his lucrative position at CAA to come to Disney and was rewarded handsomely for it, both in salary (on the upside) and in potential severance (on the downside). After fourteen months, all parties agreed that Ovitz was not working out as president, so he left the company. The parties disagree as to how he left, but the fact is that after he left the Board awarded him the significant amount of severance detailed in his employment agreement. Ovitz gave up options that he could have received had he stayed longer, and Disney avoided protracted litigation with Ovitz over his rights under that agreement.

The case appears to be exceptional because of the sheer dollar amount involved. But does that mean the amount is so large that this Court should use its equitable powers to stop its payment? Does that mean it is so large that the conventional corporate governance laws of Delaware do not apply? No. This Court will analyze the claims of the Plaintiffs using the same tools it uses in any corporate law case, namely, the requirement of demand or its *351 exeusal, the Aronson v. Lewis test, the basic rules of disclosure and, most significantly, the business judgment rule. Unless Plaintiffs can plead with specificity facts that rebut the presumption of the business judgment rule, that the Board was corrupted and could not make a decision fairly and independently, in the best interests of the Corporation, then the Board’s decision will stand.

II. PROCEDURAL HISTORY

Plaintiffs William and Geraldine Brehm filed this derivative action on behalf of the Walt Disney Company, a Delaware corporation. The Brehms alleged that twelve current or former members of Disney’s Board of Directors (the “Board”) breached their fiduciary duties by approving the employment agreement by which Michael S. Ovitz joined the Company as Disney’s president. The Brehms also alleged that the Director Defendants breached their fiduciary duties by granting Ovitz a non-fault termination, thus entitling Ovitz to receive generous severance benefits under the terms of the agreement.

On January 28, 1997, the Director Defendants answered the initial complaint and moved for judgment on the pleadings on the ground that the Brehms had failed to comply with Court of Chancery Rules 12(b)(6) (failure to state a claim upon which relief can be granted) and 23.1 (failure to make demand on the Board). Two weeks later the Brehms moved to stay or voluntarily dismiss the litigation in this Court so that they could proceed with similar, if not identical, lawsuits in California. I denied the Brehms’ motion because I found that Defendants would suffer prejudice if the Brehms were allowed to “dash in and out of a forum based on tactical considerations and an assessment that their case looks weak in light of governing law in a particular jurisdiction.” 1 As a result, the Brehms agreed to stay their California lawsuits.

Meanwhile, the Brehms filed an amended complaint (the “amended complaint”), substantially enlarging the Delaware lawsuit. The Brehms added sixteen parties to the action as named Plaintiffs (collectively referred to as “Plaintiffs”). 2 Second, in addition to the individual former or current Disney directors named as Defendants in the original complaint, Plaintiffs brought suit against the entire current Disney Board. 3 Third, Plaintiffs added class claims for breach of the fiduciary duty of disclosure. Finally, Plaintiffs added a claim directed solely against Ovitz for breach of contract.

Plaintiffs seek injunctive and rescissory or other equitable relief on behalf of Disney and its shareholders or, alternatively, damages. Specifically, Plaintiffs want to enjoin the fulfillment and enforcement of the employment agreement and to invalidate options granted to Ovitz as part of his *352 severance package under the terms of the agreement. Director Defendants and Ov-itz have responded with separate motions to dismiss.

III. BACKGROUND FACTS

In September 1995, Michael D. Eisner, chairman of the board and chief executive officer of Disney, recruited and hired his friend, Michael S. Ovitz, to serve as Disney’s president. 4 On October 1, 1995, Ovitz and Eisner signed a five-year employment contract (the “Employment Agreement” or the “Agreement”) which the Disney Board approved unanimously. Thereafter, Ovitz was nominated and elected to serve as a director on Disney’s Board.

Pursuant to the Employment Agreement, Ovitz was to receive an annual salary of $1 million, a discretionary bonus, and options to purchase five million shares of Disney common stock. These options would vest in increments of one million shares on September 30 of each year, commencing in 1998.

Of particular significance to this case, under the Employment Agreement, if Disney terminated Ovitz’s employment without good cause 5 or if Ovitz resigned from Disney with the consent of the Company (referred to in the Employment Agreement as a “Non-Fault Termination”), three million of Ovitz’s options would vest immediately upon his separation from the Company, and Ovitz would be entitled to wait until the later of September 30, 2002, or twenty-four months after the date of separation to exercise these options. 6 The Employment Agreement also provided for Ovitz to receive a lump payment of $10,-000,000 if he were terminated without cause prior to September 30, 2002. In addition, if Ovitz were terminated without cause, he would receive an additional payment equal to the present value of the remaining salary payments due under the Agreement through September 30, 2000, as well as the product of $7.5 million times the number of fiscal years remaining under the Agreement (ie., Ovitz’s approximate foregone bonuses).

Ovitz’s employment with Disney did not work out well, and it was widely known that Ovitz was seeking alternative employment elsewhere. Plaintiffs allege that in September 1996, Ovitz sent Eisner a letter stating his desire to leave Disney. That letter notwithstanding, on December 11, 1996, only fourteen months after Ovitz joined Disney, Eisner consented to Ovitz’s request for a Non-Fault Termination. The following day, Disney announced that Ovitz’s employment with the Company would be terminated. Thereafter, the Disney Board approved Ovitz’s Non-Fault Termination.

In early 1997, shareholders received a proxy statement notifying them of Disney’s annual meeting. Among other things, the proxy statement solicited proxies concerning a new employment and compensation arrangement for Eisner (the “Eisner Compensation Agreement”), a new bonus plan for Disney executive officers (the “Bonus Plan,” together with the Eisner Compensation Agreement, the “Bonus Plans”), and the re-election of five directors to Disney’s staggered Board. At *353 the annual meeting, the shareholders approved the Eisner Compensation Agreement and the Bonus Plan and re-elected five directors to the Board.

IV. THE CLAIMS

A. Plaintiffs’ Complaint

Plaintiffs’ amended complaint asserts four different claims in connection with the Employment Agreement and the Disney proxy statement used for the 1997 shareholders meeting. In their first count, Plaintiffs allege that the Director Defendants breached their fiduciary duties of loyalty, good faith, and due care, first by entering into the Employment Agreement with Ovitz and then by terminating Ovitz without cause, ie., a Non-Fault Termination. Plaintiffs’ second count alleges waste stemming from the Employment Agreement. Plaintiffs’ third count is solely against Ovitz for allegedly breaching the Employment Agreement. Finally, Plaintiffs’ fourth count asserts class claims against the current directors for breach of the fiduciary duty of disclosure. Specifically, the fourth count alleges that, in connection with the issuance of the 1997 proxy statement, the current Board made misleading representations concerning Disney’s Bonus Plan, the Eisner Compensation Agreement, and the circumstances surrounding Ovitz’s separation from Disney.

B. Defendants’ Motion to Dismiss

The Director Defendants and Ovitz have each moved to dismiss Plaintiffs’ amended complaint, arguing, first, that the amended complaint fails to comply with Court of Chancery Rule 2B.1, which requires Plaintiffs either to make a demand on the Board or to allege particularized facts that excuse such demand and, therefore, all counts must fail. Second, Defendants argue that all of Plaintiffs’ allegations fail to state a claim against them, as Disney’s certificate of incorporation bars liability for claims based on a breach of the duty of care, pursuant to § 102(b)(7) of the Delaware General Corporation Law. As to Plaintiffs’ third count brought solely against Ovitz, Ovitz asserts that the amended complaint fails to allege facts sufficient to justify Plaintiffs’ failure to make a demand on the Board regarding his alleged contract breaches. Finally, with regard to Plaintiffs’ disclosure claims in their fourth count, Defendants request dismissal because the claims i) were not pursued in a timely fashion and, thus, are barred by laches, and ii) fail to state a claim upon which relief can be granted.

C.Motion to Dismiss Standard

The standard of review on a motion to dismiss is well-settled under Delaware law. Where under any set of facts consistent with the facts alleged in the complaint the plaintiff would not be entitled to judgment, the complaint may be dismissed as legally defective. 7 Further, where a plaintiff’s allegations are merely conclusory (ie., without specific allegations of fact to support them) they are similarly insufficient to withstand a motion to dismiss. 8

V. BREACH OF FIDUCIARY DUTY AND WASTE CLAIMS

A. Demand Required/Demand Excused

As a threshold matter, in assessing whether Plaintiffs’ derivative claims brought on behalf of Disney survive Defendants’ motion to dismiss, I must decide whether Plaintiffs are excused from making demand on the Disney Board before filing this lawsuit. 9 Under Aronson v. *354 Lewis, demand is considered futile and, therefore, excused only if the particularized facts alleged in the complaint create a reasonable doubt that: 1) the directors are disinterested and independent; or 2) the challenged transaction was otherwise the product of a valid exercise of business judgment. 10 In deciding whether this test has been met, the Court will only consider well-pleaded allegations of fact and the reasonable inferences that can be drawn from them. 11 Therefore, if I am satisfied that a plaintiff has alleged facts with particularity that, if taken as true, support a reasonable doubt as to either aspect — self-interest or lack of careful business judgment — of the Aronson analysis, the futility of demand is established and my inquiry ends. 12

Furthermore, under Aronson’s first prong — director independence — for demand to be futile, the Plaintiffs must show a reasonable doubt as to the disinterest of at least half of the directors. 13 The mere presence of a majority of interested board members is sufficient to excuse demand.

In order to create a reasonable doubt that a director is disinterested, a derivative plaintiff must plead particular facts to demonstrate that a director “will receive a personal financial benefit from a transaction that is not equally shared by the stockholders” or, conversely, that “a corporate decision will have a materially detrimental impact on a director, but not on the corporation and the stockholders.” 14 In these situations, a director cannot be expected to act “without being influenced by the ... personal consequences” flowing from the decision. 15 At the other end of the spectrum, a board member is considered to be disinterested when he or she neither stands to benefit financially nor suffer materially from the decision whether to pursue the claim sought in the derivative plaintiffs demand. 16

B. First Prong Of Aronson — Indepen dence and Absence of Self-Interest

In both the first and second counts of their amended complaint, Plaintiffs attack the former Board’s decision to enter into the Employment Agreement. 17 Plaintiffs concede that they failed to make a demand on the Board regarding this issue, but argue that such demand would have been futile and, therefore, is excused. With respect to the first prong of the Aronson test, Plaintiffs offer several reasons for their assertion that the Board is not independent. 18 Chief among them is *355 Plaintiffs’ assertion that Eisner dominates and controls the Board. Plaintiffs argue that at least twelve of the fifteen members of the Disney Board who would have considered such a demand (ie., excluding Ov-itz) had such strong ties to Eisner that they would not have been able to make an impartial decision with respect to any demand Plaintiffs may have made. In order to prove domination and control by Eisner, Plaintiffs must demonstrate first that Eisner was personally interested in obtaining the Board’s approval of the Employment Agreement and, second, that a majority of the Board could not exercise business judgment independent of Eisner in deciding whether to approve the Employment Agreement. 19

1. Eisner’s Alleged Interest in Ovitz’s Compensation

Plaintiffs offer two grounds for finding that Eisner was interested in the Employment Agreement. First, Plaintiffs suggest that Eisner’s long-time personal relationship with Ovitz caused him to be interested in obtaining the Board’s approval of the Employment Agreement. This argument, however, finds no support under Delaware law. The fact that Eisner has long-standing personal and business ties to Ovitz cannot overcome the presumption of independence that all directors, including Eisner, are afforded. 20

Second, Plaintiffs allege that Eisner was interested because he wanted to maximize his own income from Disney. Plaintiffs explain that Eisner accomplished this objective by “(a) maximizing the payments made by Disney to Ovitz; and (b) minimizing, to the extent possible, the controversy surrounding Ovitz’s severance pay.” 21 According to Plaintiffs’ theory, by providing his second-in-command a lucrative compensation package, Eisner set a high baseline from which he could negotiate upward for increased compensation for himself. Consequently, the argument goes, any public dispute with Ovitz would have conflicted with Eisner’s desire to limit the criticism surrounding his own compensation package which was announced and submitted for shareholder approval shortly after Ovitz left the Company.

Plaintiffs’ allegation that Eisner was interested in maximizing his compensation at the expense of Disney and its shareholders cannot reasonably be inferred from the facts alleged in Plaintiffs’ amended complaint. At all times material to this litigation, Eisner owned several million options to purchase Disney stock. Therefore, it would not be in Eisner’s economic interest to cause the Company to issue millions of additional options unnecessarily and at considerable cost. Such a gesture would not, as Plaintiffs suggest, “maximize” Eis *356 ner’s own compensation package. Rather, it would dilute the value of Eisner’s own very substantial holdings. Even if the impact on Eisner’s option value were relatively small, such a large compensation package would, and did, draw largely negative attention to Eisner’s own performance and compensation. Accordingly, no reasonable doubt can exist as to Eisner’s disinterest in the approval of the Employment Agreement, as a matter of law. Similarly, the Plaintiffs have not demonstrated a reasonable doubt that Eisner was disinterested in granting Ovitz a Non-Fault Termination, thus allowing Ovitz to receive substantial severance benefits under the terms of the Employment Agreement. Nothing alleged by Plaintiffs generates a reasonable inference that Eisner would benefit personally from allowing Ovitz to leave Disney without good cause.

2. Eisner’s Alleged Domination of the Board

I turn now to the Disney directors whom Plaintiffs allege were under Eisner’s control, to consider whether they could have exercised their business judgment independently of Eisner.

Plaintiffs aver that the following directors’ individual ties to Eisner, coupled with their Board emoluments, create at least a reasonable doubt under Aronson’s first prong that the Disney Board would have honestly considered a demand in connection with the approval of the Employment Agreement and Ovitz’s Non-Fault Termination. Plaintiffs must overcome the Delaware rule that “[speculation on motives for undertaking corporate action are [sic] wholly insufficient to establish a case of demand dismissal.” 22 While the issues at times present close calls, ultimately I am not persuaded that the allegations with regard to nine of the following twelve Board members survive under Ar-onson. Even if Plaintiffs had shown a reasonable doubt as to Eisner’s disinterest in the Employment Agreement and Ovitz’s Non-Fault Termination, that showing alone would not suffice. Based on Aron-son, the fact that a majority of the Board (the above nine, plus three members not alleged to be interested or under the domination of Eisner) was able to exercise its business judgment independent of Eisner does not lead to an excusal of demand on the Board.

a. Disney, Litvack, and Nunis

Plaintiffs allege that directors Roy E. Disney, Sanford M. Litvack, and Richard A Nunis were unable to exercise independent business judgment with respect to a demand because they were Disney executive employees who reported to and were accountable to Eisner at the time Plaintiffs commenced this litigation. I note at the outset the general Delaware rule that “the fact that they hold positions with the company [controlled by Eisner] ... is no more disqualifying than is the fact that he designated them as directors.” 23

I begin my analysis with Mr. Disney, who earns a substantial salary and receives numerous, valuable options on Disney stock. As a top executive, his compensation is set by the Board, not solely by Eisner. Furthermore, Mr. Disney, along with his family, 24 owns approximately 8.4 million shares of Disney stock. At today’s prices these shares are worth $2.1 billion. The only reasonable inference that I can draw about Mr. Disney is that he is an economically rational individual whose priority is to protect the value of his Disney shares, not someone who would intentionally risk his own and his family’s interests in order to placate Eisner. Nothing in Plaintiffs’ pleadings suggest that Mr. Dis *357 ney would place Eisner’s interests over Mr. Disney’s own and over those of the Company in derogation of his fiduciary duties as a Disney director.

With respect to Nunis and Lit-vack, contrary to Plaintiffs’ allegations, these directors do not necessarily lose their ability to exercise independent business judgment merely by virtue of their being officers of Disney and Disney’s subsidiaries. 25 Moreover, there is no merit in Plaintiffs’ highly speculative 26 argument that Litvack and Nunis were interested in the Employment Agreement because they had a personal financial interest in establishing a heightened compensation level throughout the Company. 27 Plaintiffs, however, have pleaded with some particularity that there is at least a reasonable doubt as to Litvack and Nunis’s ability to vote independently of Eisner. Their salaries are presumably also set by the Board, but they do not hold the same level of shares as Roy E. Disney and his family, and so there is a reasonable possibility they are more beholden to Eisner. Since, as a matter of law, Plaintiffs are unable to show a reasonable doubt as to Eisner’s absence of self-interest, his potential domination over these two directors is inconsequential.

b. Gold

Plaintiffs allege that director Stanley P. Gold similarly lacks independence from Eisner because, as Mr. Disney’s personal attorney, and the president and chief executive officer of a company wholly-owned by Mr. Disney’s family, he is beholden to Mr. Disney (who is allegedly controlled by Eisner).

While Gold may hold such positions under Roy E. Disney, because Mr. Disney’s ability to exercise his independent business judgment is not impaired by his connection with Eisner, the business judgment of Gold is similarly free from Eisner’s alleged dominating influence.

c. Stern

Plaintiffs allege that director Robert A.M. Stern’s financial dealings with Disney were sufficiently large to cast a reasonable doubt upon his ability to consider a demand disinterestedly. Plaintiffs point out that Stern, an architect, had been commissioned to design several buildings for the Company and one for Eisner, for which his firm had collected millions of dollars in fees from Disney and Eisner. Plaintiffs allege that because of these fees, Eisner controls Stern and there is a reasonable doubt as to whether Stern could consider a demand independent of Eisner’s influence.

I agree with Plaintiffs: The fact that Stern’s architectural firm has received, and perhaps continues to receive, payments from Disney over a period of years raises a reasonable doubt as to Stern’s independent judgment with respect to the Employment Agreement. 28 A number of *358 factors affect my judgment. On the one hand, Plaintiffs admit that the fees that Stern’s architectural firm have received are in decline, and that Eisner has gone on record stating that “Stern is unlikely to get new Disney contracts while on the Board.” 29 Nevertheless, fees have continued to flow from Disney to Stern’s firm, and the fees received in the past, from both Disney and Eisner, have been quite substantial. Thus, as a matter of law, Plaintiffs have shown a reasonable doubt that Stern is independent of Eisner.

d. Walker

Plaintiffs assert that director E. Cardón Walker could not exercise business judgment independent of Eisner because, after Eisner became chairman of Disney, Walker consulted for Disney and has, in recent years, received substantial sums for his investments in certain Disney films. 30

Plaintiffs do not raise a reasonable doubt that Walker lacks independence from Eisner or is somehow interested in the Employment Agreement. Walker is a retired Disney executive. Plaintiffs do not allege that he has had any financial dealings with Eisner. As for the substantial sums Plaintiffs allege Walker has received and continues to receive from Disney, these stem from contractual rights with the Company that are at least nineteen years old and that predate Eisner’s reign with Disney. Plaintiffs have failed to demonstrate that Walker is somehow beholden to Eisner or otherwise incapable of exercising independent judgment.

e. Wilson

Plaintiffs allege that director Gary L. Wilson lacked independence from Eisner as well. Wilson served under Eisner as Disney’s executive vice president and chief financial officer from July 1985 through December 1989, receiving substantial compensation from Disney over which, Plaintiffs’ allege, Eisner had considerable influence. Plaintiffs also assert that Wilson is beholden to Eisner because Eisner, by virtue of his authority as chairman, rewarded Wilson handsomely when the latter retired from Disney. Finally, Plaintiffs allege that Wilson’s independence is further compromised because in 1995 Disney paid $121, 122 to a design firm owned by Wilson’s wife.

Plaintiffs’ claims do not raise a reasonable doubt that Wilson is interested in the Employment Agreement. Whatever rights Wilson had when he left Disney have already been paid to him. Nothing indicates that Wilson expects to receive additional financial benefits from Disney for acceding to Eisner’s wishes in connection to the Employment Agreement. Nor have Plaintiffs alleged particularized facts that would lead one to infer that Wilson is beholden to Eisner. The $121,122 payment to Wilson’s wife’s design firm for services performed is immaterial to Wilson, a man who received a bonus and stock options that, by Plaintiffs’ own estimations, have resulted in over $70 million in income realized so far. 31

*359 f. O’Donovan

Plaintiffs also allege that Father Leo J. O’Donovan, involved only in the decision to honor the Employment Agreement, is incapable of rendering independent business judgment. O’Donovan is the president of Georgetown University, the alma mater of one of Eisner’s sons and the recipient of over $1 million of donations from Eisner since 1989. Accordingly, Plaintiffs allege that O’Donovan would not act contrary to Eisner’s wishes.

The closest parallel to O’Donovan’s situation faced by this Court occurred in Lewis v. Fuqua. 32 Any reliance by Plaintiffs on that case, however, would be misplaced. In Lewis, the allegedly disinterested director, Sanford, was the President of Duke University. Duke was the recipient of a $10 million pledge from the dominant board member, Fuqua. Nevertheless, several differences exist that serve to distinguish that matter from the present one. First and foremost, Sanford had “numerous political and financial dealings” with Fuqua, 33 while Plaintiffs here have not alleged any such relationship between Eisner and O’Donovan. Secondly, Fuqua and Sanford served as directors together both on the Board whose actions were being challenged and on the Duke University Board of Trustees. Such an interlocking directorship, a situation that would likely lead to a reasonable doubt of O’Donovan’s independence, 34 does not exist here, as Eisner has no formal relationship with Georgetown University. 35 These two differences are sufficient to demonstrate that Lewis does not apply here.

The question, then, is whether Eisner exerted such an influence on O’Donovan that O’Donovan could not exercise independent judgment as a director. Plaintiffs do not allege any personal benefit received by O’Donovan — in fact, they admit that O’Donovan is forbidden, as a Jesuit priest, from collecting any director’s fee. Plaintiffs cite the case of Kahn v. Tremont Corp. 36 “Eisner’s philanthropic largess to Georgetown is no less disqualifying than the financial arrangements enjoyed by the special committee members in Kahn.” 37 In that case, however, two of the three special committee members received a direct, personal financial benefit from their affiliation with the interested party, and the third sought membership on the boards of other entities controlled by the interested party. 38 The distinction between Kahn and this matter then is clear, and I do not believe that Plaintiffs have presented a reasonable doubt as to the independence of O’Donovan.

g. Bowers

Director Reveta F. Bowers is the principal of the elementary school that Eisner’s children once attended. Plaintiffs suggest that because Bowers’ salary as a teacher 39 is low compared to her director’s fees and stock options, “only the most rigidly formalistic or myopic analysis” 40 would view Bowers as not beholden to Eisner.

*360 Plaintiffs fail to recognize that the Delaware Supreme Court has held that “such allegations [of payment of director’s fees], without more, do not establish any financial interest.” 41 To follow Plaintiffs’ urging to discard “formalistic notions of interest and independence in favor of a realistic approach” 42 expressly would be to overrule the Delaware Supreme Court.

Furthermore, to do so would be to discourage the membership on corporate boards of people of less-than extraordinary means. Such “regular folks” would face allegations of being dominated by other board members, merely because of the relatively substantial compensation provided by the board membership compared to their outside salaries. I am especially unwilling to facilitate such a result. Without more, Plaintiffs have failed to allege facts that lead to a reasonable doubt as to the independence of Bowers.

h. Mitchell

Plaintiffs question the independence of Senator George J. Mitchell. Mitchell acts as special counsel to a law firm that has been engaged by Disney on various matters and that was paid $122,764 for its services in 1996. Disney has also retained Mitchell on an individual basis to provide consulting services to the Company. Plaintiffs allege that during 1996, Disney paid Mitchell $50,000 for performing these services. Accordingly, Plaintiffs allege that Mitchell is incapable of making business decisions independently of Eisner.

First, Plaintiffs have not indicated that Mitchell, as “special counsel” (and not “partner”) shared in the legal fees paid to his firm. Second, Plaintiffs have not alleged that the $50,000 in consulting fees was even material to Mitchell, a nationally known legal and political figure. Plaintiffs have not alleged any particularized facts that raise a reasonable doubt that Mitchell voted in favor of the Employment Agreement in order to obtain a specific financial benefit. Without such allegations, Plaintiffs’ conclusory assertion that Mitchell was under Eisner’s influence or otherwise interested in any aspect of the Employment Agreement is insufficient as a matter of law to raise a reasonable doubt as to Mitchell’s independence.

i. Russell

Director Irwin E, Russell is an entertainment lawyer who serves as Eisner’s personal counsel and has a long history of personal and business ties to Eisner. As a result, Plaintiffs allege Russell is unable to exercise independent business judgment.

In addition to being Eisner’s personal counsel: Russell’s law office is listed as the mailing address for Eisner’s primary residence; Russell is the registered agent for several entities in which Eisner is involved; Russell has represented Eisner in connection with Eisner’s negotiation of the Eisner Compensation Agreement in 1996 and early 1997 (during which negotiation he recused himself from his Board role); and, Plaintiffs assert, Russell practices in a small firm for which the fees derived from Eisner likely represent a large portion of the total amount of fees received by the firm. Accordingly, it appears Plaintiffs have raised a reasonable doubt as to Russell’s independence of Eisner’s influence for the purpose of considering a demand.

3. Poitier’s Alleged Interest in Ovitz’s Compensation

As for director Sidney Poitier, Plaintiffs do not allege that he is dominated by Eisner. Plaintiffs do allege, however, that Poitier is a longtime client of Creative Artists Agency—the talent agency that Ovitz founded—and through his relationship with CAA, he has earned millions of dollars. As a result, Plaintiffs suggest Poitier is “impermissibly conflict *361 ed” in his ability to render independent business judgment with respect to Ovitz’s compensation. 43

Although Poitier had enjoyed a successful relationship with Ovitz and CAA, (a) Ovitz is no longer the head of CAA, and (b) it does not follow that Poitier is incapable of considering Ovitz’s compensation package without bias. Such an assertion is based on conjecture, and Plaintiffs have not raised a reasonable doubt as to Poitier’s independence. My judgment might be otherwise if Poitier continued to receive material benefits from CAA and Ovitz was concurrently involved with that firm.

4. Conclusions

In sum, Plaintiffs have not raised a reasonable doubt as to the absence of self-interest of any of the directors in approving or honoring the Employment Agreement. If, however, Plaintiffs had shown a reasonable doubt on Eisner’s part, then I would agree that they had demonstrated a reasonable doubt as to the independence only of directors Litvack, Nunis, Stern, and Russell, because of Eisner’s domination over them. Plaintiffs have not raised a reasonable doubt as to the independence from Eisner of directors Disney, Gold, Walker, Wilson, O’Donovan (involved only in the decision to honor the Employment Agreement), Bowers, Mitchell, and Poitier. Plaintiffs have not questioned the independence of directors Lozano, Murphy (involved only in the decision to honor the Employment Agreement), Watson, and Bollenbaeh (involved only in the decision to approve the Employment Agreement).

Thus, even assuming that Eisner was interested in the Employment Agreement — and, again, Plaintiffs have not shown a reasonable doubt as to Eisner’s independence — Plaintiffs still come up short; ten of the fifteen directors who approved the Agreement and eleven of the sixteen who voted to honor the Agreement were independent in deciding the issues of Ovitz’s compensation and free of domination from Eisner. Accordingly, demand is not excused under the first prong of Aron-son with respect to the first two counts of Plaintiffs’ amended complaint.

C. Second Prong of Aronson Test— Business Judgment

I now turn to the second prong of Aron-son. The inquiry here is whether a reasonable doubt is created that the Director Defendants’ “challenged transaction was otherwise the product of a valid exercise of business judgment.” 44 In other words, demand will be excused if Plaintiffs’ allegations raise a reasonable doubt that the Board was well-informed, careful and rational in approving the Employment Agreement or granting Ovitz’s Non-Fault Termination.

1. The Former Board’s Approval of the Employment Agreement

a. Breach of Fiduciary Duties

With regard to the alleged breach of the duty of care, Plaintiffs claim that the directors were not properly informed before they adopted the Employment Agreement because they did not know the value of the compensation package offered to Ovitz. To that end, Plaintiffs offer several statements made by Graef Crystal, the financial expert who advised the Board on the Employment Agreement, including his admission that “[n]obody quantified [the total cost of the severance package] and I wish we had.” 45

The fact that Crystal did not quantify the potential severance benefits to Ovitz for terminating early without cause (under the terms of the Employment Agreement) does not create a reasonable *362 inference that the Board failed to consider the potential cost to Disney in the event that they decided to terminate Ovitz without cause. But, even if the Board did fail to calculate the potential cost to Disney, I nevertheless think that this allegation fails to create a reasonable doubt that the former Board exercised due care. Disney’s expert did not consider an inquiry into the potential cost of Ovitz’s severance benefits to be critical or relevant to the Board’s consideration of the Employment Agreement. Merely because Crystal noiv regrets not having calculated the package is not reason enough to overturn the judgment of the Board then. It is the essence of the business judgment rule that a court will not apply 20/20 hindsight to second guess a board’s decision, except “in rare cases [where] a transaction may be so egregious on its face that board approval cannot meet the test of business judgment.” 46 Because the Board’s rebanee on Crystal and his decision not to fully calculate the amount of severance lack “egregiousness,” this is not that rare case. I think it a correct statement of law that the duty of care is still fulfilled even if a Board does not know the exact amount of a severance payout but nonetheless is fully informed about the manner in which such a payout would be calculated. A board is not required to be informed of every fact, but rather is required to be reasonably informed. Here the Plaintiffs have faded to plead facts giving rise to a reasonable doubt that the Board, as a matter of law, was reasonably informed on this issue.

b. Waste

Plaintiffs also allege that the Board’s approval of the Employment Agreement constitutes waste. Under well-settled Delaware law, directors are only liable for waste when they “authorize an exchange that is so one sided that no business person of ordinary, sound judgment could conclude that the corporation has received adequate consideration.” 47 It has likewise been noted that, in the absence of fraud, this Court’s deference to directors’ business judgment is particularly broad in matters of executive compensation. 48 Therefore, if a “particular individual warrants] large amounts of money, whether in the form of current salary or severance provisions, the board has made a business judgment.” 49

Here, the former Board determined that in order to attract Ovitz to Disney, Disney would have to offer him a highly attractive compensation package. This they did. In exchange for providing Ovitz the compensation package under the terms of the Employment Agreement, Ov-itz agreed to leave his position as chairman of CAA to become president of Disney. Ovitz served in this capacity for approximately fourteen months.

As for Plaintiffs’ allegation that the terms of the Employment Agreement were structured to provide Ovitz a disincentive to remain at Disney, again I disagree. The Employment Agreement contained a vesting schedule pursuant to which one million of Ovitz’s stock options would vest each year. Surely these stock options offered an incentive for Ovitz to remain at Disney in good standing for the term of the Employment Agreement. Plaintiffs contend that any such incentive was illusory because the Employment Agreement allowed Ovitz to receive three million options upon his departure from Disney under the terms of his Non-Fault Termination. But the decision to grant Ovitz the three million options upon his separation from Disney lay solely with the Disney Board, not with Ovitz. Ovitz could not choose to leave without the Board’s ap *363 proval and still receive the options. Because Ovitz did not have control over whether he would receive these options, they could not serve as a disincentive for Ovitz to remain at Disney.

Furthermore, by leaving Disney before the completion of his five-year contract, Ovitz left two million options on the table. Clearly, the forfeiture of two million options to purchase Disney stock provided a substantial disincentive for Ovitz to leave Disney before the end of his five-year term. In short, I simply do not agree with the Plaintiffs’ characterization of the exchange between Ovitz and Disney as so one-sided that no businessperson of ordinary, sound judgment could conclude that Disney received adequate consideration. In this light, the terms of the Employment Agreement do not constitute waste, and the Board’s decision to approve the Agreement did not violate their fiduciary duties. Because Plaintiffs have failed to allege particularized facts to create a reasonable doubt that the former Board’s decision to approve the Employment Agreement was the product of an exercise of the Board’s business judgment, demand is not excused. Plaintiffs’ claims in connection with the Board’s decision to approve the Employment Agreement must be dismissed.

2. The Current Board’s Decision To Grant Ovitz the Non-Fault Termination

Sometime during Ovitz’s tenure at Disney, the current Board determined that it would not be in Disney’s best interest for Ovitz to remain as Disney’s president. Thus, the Board elected to grant Ovitz a Non-Fault Termination (under the terms of the Agreement). Plaintiffs argue that this decision was not only wasteful, but also a breach of the Board’s fiduciary duties because the Director Defendants had good cause to terminate Ovitz or at least dispute any payments under the severance provisions of the Agreement.

Plaintiffs offer as grounds for this argument that Ovitz, while under contract with Disney: (1) actively searched for alternate employment; (2) sought to establish a new business that would compete with Disney; (3) performed services for or on behalf of CAA, particularly in connection with attempting to convince high profile clients to remain with CAA; (4) effectively resigned from his position as president before the Board granted his Non-Fault Termination; and (5) performed his duties in a grossly deficient manner.

In support of their contention that Ovitz effectively resigned from Disney prior to the Board’s decision to grant him a Non-Fault Termination, Plaintiffs make the following two allegations. First, they allege that on September 5, 1996, Ovitz wrote a letter to Eisner in which Ovitz stated that he was very dissatisfied with the role he had been assigned at Disney and wanted to leave the Company. 50 Second, Plaintiffs allege that, as early as September 12, 1996, it was reported that Ovitz was actively seeking other employment.