Full opinion text
OPINION MURRAY M. SCHWARTZ, District Judge. This action arose out of a proxy contest between the plaintiffs and the incumbent management of defendant Texas International Company (“TI” or “Company”) in which three members of TI’s staggered ten-member Board of Directors were to be elected. Both sides allege that the proxy materials sent by their opponents to the TI shareholders prior to the Company’s May 31, 1979 annual shareholders’ meeting were violative of Section 14(a) of the Securities and Exchange Act of 1934 (“Act”), 15 U.S.C. § 78n(a), and the Rules promulgated thereunder by the Securities and Exchange Commission (“S.E.C.”). Plaintiffs John W. Bertoglio (“Bertoglio”), James J. Ling (“Ling”), and Matrix, Inc. (“Matrix”), a corporation privately owned by Ling, commenced this action on May 16, 1979. Their complaint sought preliminary and permanent injunctive relief against TI by virtue of TI’s alleged proxy violations. On May 17, 1979, TI filed a counterclaim against Ling, Bertoglio and the Texas International Company Stockholders Committee (“Committee”), an unincorporated association formed by Ling and Bertoglio. The counterclaim also sought preliminary and permanent injunctive relief against the counterclaim defendants as a result of their alleged proxy violations. On May 25, 1979, plaintiffs’ motion and defendant’s cross-motion for preliminary injunctive relief were heard. Both were denied in a May 29, 1979 Opinion and Order entered by this Court. Subsequent to that Order and the May 31, 1979 Annual Meeting, the complaint and counterclaim were amended on various dates, the last of these occurring at trial, when plaintiffs twice were permitted to amend their complaint pursuant to Fed.R.Civ.P. 15(b). As a result of these amendments, defendant now seeks an award of damages on its counterclaim, and both sides continue to seek permanent injunctive relief. A five-day bench trial was held on October 9-12 and 15, 1979 at which only two witnesses testified. By agreement of the parties, all other evidence was put before the Court in the form of deposition excerpts and documents. Post-trial briefing and argument were concluded on November 27, 1979. Jurisdiction and venue reside in this Court by virtue of Section 27 of the Act, 15 U.S.C. § 78aa. The following facts have been admitted by the parties. Bertoglio is a resident of the State of Florida and, as of May 14,1979, owned beneficially, directly or indirectly, 269,000 shares of Common Stock of TI. Ling is a resident of the State of Texas and owns all of the issued and outstanding common shares of plaintiff Matrix, a Texas corporation. Matrix has its principal place of business and executive offices in Dallas, Texas. As of May 14, 1979, Matrix owned beneficially, directly or indirectly, 191,600 shares of TI Common Stock. TI is a Delaware corporation. Its principal place of business and executive offices are in Oklahoma City, Oklahoma. It is principally engaged, through its two main operating divisions, in the manufacture of oil field equipment and the exploration for and production of crude oil and natural gas. TI’s Common Stock is registered pursuant to Section 12(b) of the Exchange Act and is publicly traded on the New York Stock Exchange, and other exchanges. At all relevant times, the number of shares of TI’s Common Stock which were issued and outstanding was 9,464,212 shares. The TI Board of Directors has ten members divided into three classes, with the seven directors comprising Class II and Class III serving terms that will expire in 1980 and 1981. The election of Class I directors, comprising three positions on the Board, was submitted to the shareholders at the 1979 Annual Meeting. By action of TI’s Board of Directors on February 27, 1979, the 1979 Annual Meeting of Stockholders was set for May 11, 1979, and TI designated as nominees for election at the Annual Meeting as Class I directors the following three officers of TI: Messrs. George Platt (“Platt”), Delwin C. Stults (“Stults”) and Earl E. DeFrates (“DeFrates”). At that meeting, a record date of April 9, 1979 was set for determining the stockholders entitled to vote. By action of TI’s Board of Directors on April 18, 1979, the Annual Meeting was rescheduled for May 31, 1979 at Oklahoma City, Oklahoma. Ling and Bertoglio decided to oppose TPs nominees for election of directors and to seek proxies from TPs stockholders for the election of themselves and Ronald A. Shiftan (“Shiftan”), a partner in the investment banking firm of Bear, Stearns & Co. (“Bear, Stearns”), as Class I directors of TI. The Annual Meeting was convened on May 31, 1979, at Oklahoma City, Oklahoma, for the receipt of stockholders’ proxies and ballots and was thereafter from time to time adjourned to permit the counting of proxies and ballots. On August 10, 1979, the final results of the voting at the Annual Meeting were reported by the Inspectors of the Election to TI as follows: TPs nominees for Class I directors, Platt, DeFrates and Stults, were elected by 2,739,336 votes to 2,546,811 votes for the plaintiffs’ nominees. Ling and Bertoglio and the Committee advised TI that they declined to seek a review of such election results in the Delaware Court of Chancery as permitted by the Delaware General Corporation Law. In connection with the solicitation of proxies for the election of Class I directors at the Annual Meeting, TPs communications with stockholders entitled to vote at that meeting included a proxy statement mailed to stockholders on May 7, 1979 and May 8, 1979, and a letter from management and a two-page supplemental proxy statement mailed to stockholders on May 19, 1979. The communications of Ling, Bertoglio and the Committee with stockholders entitled to vote at the meeting included a letter to shareholders dated May 11, 1979 and mailed May 14,1979, and a proxy statement dated and mailed May 17, 1979. Initial S.E.C. Schedules 14B were filed with the S.E.C. on behalf of Bertoglio, Ling and the Committee on Tuesday, May 8,1979 and on behalf of Shiftan, Matrix and Gold Crown Resources, Inc., a corporation formed by Ling and Bertoglio, on May 14, 1979. The events which were to culminate in this litigation spanned several months. On March 9, 1979, TI Vice-President Robert C. Gist (“Gist”) and James Kishpaugh, the President of Phoenix Resources, Inc., a publicly-held company of which TI owns approximately 51% of the stock, met with Ling and Bertoglio at Bertoglio’s house in Florida. During the weekend following the March 9, 1979 Florida meeting, TPs management suggested and arranged a March 13-15' meeting with Ling and Bertoglio in New York City. Ling and Bertoglio were aware that TPs management was willing to consider any bona fide, concrete offer to acquire TI. Gist and another TI executive met with Ling and Bertoglio on March 13, 1979 in New York. Following this March 13 meeting, TPs senior management discussed the proposal. TPs Chairman, George Platt, expressed doubt that two individual investors possessed the financial strength to handle a $170 million deal. However, TPs management decided not to discard the idea of a possible transaction with Ling and Bertoglio without further investigation of Ling and Bertoglio’s ability to finance their proposal. A second New York meeting was held on March 14,1979. TI asked Ling for evidence of the financial capability of the two individuals to finance a $170 million deal. At the conclusion of the March 14 meeting, TI’s management told Ling and Bertoglio that the Board “stood ready and willing at any time to give full and fair consideration to a bona fide offer to purchase Texas International Company backed by sound evidence of financial capability to perform.” Prior to May 7, 1979, TI had mailed to its shareholders a letter stating among other things, that (i) management was in possession of a report prepared by an independent financial analyst stating that TI had a liquidation value of approximately $18.50 per TI share and (ii) management, based on its own calculations, had estimated that the liquidation value of TI would be well in excess of $20 per TI share. Prior to this proxy contest, the all-time high market price in TI common stock was in 1969 when it reached 16%. The following is the range of market prices in TI common stock during the five years preceding the proxy contest: 1974 High 12% Low 8% 1975 High 10% Low 5% 1976 High 9% Low 5Va 1977 High 12% Low 7% 1978 High 11% Low 5% On March 8, 1979, the last trading day before TI publicly announced the existence of Ling and Bertoglio’s interest in TI, the stock traded from a high of 10% to a low of 9%. In addition to the facts stipulated by the parties, the Court finds the following facts, many of which will be discussed more fully in connection with the alleged violations to which they relate. In their meetings with TI management in March, 1979, Ling and Bertoglio, who had acquired large amounts of TI stock, told Gist that TI was “an immediate subject of a tender offer” by several unnamed “gorillas,” who would probably fire TI management and liquidate the Company. (Tr. 246-47). Ling and Bertoglio indicated their willingness to make a “friendly” tender offer for all the outstanding shares of TI. (Tr. 247-50). As these discussions began to focus on more precise terms, TI management asked Ling and Bertoglio for evidence of their capability to raise the approximately $170 million necessary to finance the acquisition. (Tr. 269-70). Various letters from financing institutions provided to TI by Ling and Bertoglio proved unsatisfactory to management, and on April 18, 1979 the TI Board of Directors announced that it was terminating any discussion or negotiation concerning the offer because of insufficient evidence of financing. (Tr. 313-15; TI Ex. 35). Plaintiffs subsequently decided to oppose the three incumbent directors seeking reelection at the Annual Meeting, and initiated a proxy contest to that end. There were three issues on which the shareholders voted at the Annual Meeting. Along with the election of three directors, shareholders were asked to approve the Texas International Company Stock Appreciation Rights Plan of 1979 (“SAR Plan”), and to ratify the appointment of Price Waterhouse & Co. as independent auditors of TI. (PX 6). Both sides in the proxy contest favored the appointment of Price Waterhouse & Co. (TI Ex. 5 at 15; PX 16 at 1). TI urged adoption of the SAR Plan, while plaintiffs vigorously opposed it. (TI Ex. 5 at 13-15; PX 16 at 4-6). As to the election of directors, each side naturally advocated the election of its nominees. In so doing, each adopted a “campaign platform” setting forth its views on the predominant issue of selling or liquidating the Company. Plaintiffs sought to convince the shareholders that a sale or liquidation of TI was the best way to maximize the shareholders’ investment, while TI argued that the Company should be maintained as an ongoing concern. (PX 16 at 2-4, 12-13; TI Ex. 6 at 1-3). The dispute before the Court concerns only the election of the three incumbent members of the Board of Directors. Accordingly, the materiality of all alleged misrepresentations or omissions must be evaluated by determining their importance to a shareholders’ decision on which nominees he or she would support. While plaintiffs initiated the debate over the wisdom of selling or liquidating the Company, the Court need not apply different disclosure requirements to the parties. Both sides chose to state their views on the sale or liquidation issue, and both offered their reasons in support of those views in their respective proxy solicitations. Both therefore assumed a statutory obligation to make complete and accurate disclosures of all facts that were material to the issues before the shareholders. ALLEGED PROXY VIOLATIONS BY TI I. THE ALLEGED FAILURE BY TI TO DISCLOSE ITS DECISION TO ATTEMPT TO FIND AN INVESTOR FOR A MAJOR BLOCK OF COMMON STOCK Management’s opposition to the Ling/Bertoglio plan was voiced to the shareholders in management’s Supplemental Proxy Material, which stated, “YOUR MANAGEMENT BELIEVES THAT A LIQUIDATION OR SALE OF THE COMPANY AT THIS TIME IS NOT IN THE SHAREHOLDERS’ BEST INTERESTS.” The document went on to state, “In our opinion, the Ling-Bertoglio proposal is just plain bad business judgment. Now is not the time to sell or liquidate Texas International.” (PX 17). Plaintiffs contend that these statements, and others like them, are materially misleading in several respects, and therefore violate § 14(a) of the Act and Rule 14a-9 promulgated thereunder, 17 C.F.R. § 240.-14a-9. Plaintiffs’ first allegation concerns efforts by TI management, undertaken in April, 1979, to find an equity investor for a major block of TI shares. TI executives have stated that TI’s bank indebtedness was too high, having carrying charges approaching $20,000,000 per year. (PX 73 at 54-58; PX 53 at 298). One step taken by management to reduce this debt was the sale in December, 1978 of the Company’s well servicing operations. According to TI’s Annual Report, which was mailed concurrently with the TI proxy materials, this sale resulted in a projected annual savings of $12 million in interest charges. (PX 8 at fl). Nevertheless, management concluded that TI continued to be too highly leveraged and that additional measures were warranted. (PX 53 at 290-91). On April 17, 1979, TI’s Executive Committee met “to consider the alternatives available to the Board concerning the course of action to be followed by the Company.” (PX 2). The Board of Directors was advised on April 18, 1979 that the Executive Committee had considered the following options: (1) liquidate the Company and get the best possible price for the benefit of the stockholders; (2) consider a negotiated takeover of the Company; (3) find a more suitable buyer for the Company or its assets; or (4) remain in business as an independent entity with the hopes of finding, with the assistance of E. F. Hutton, a person or persons in a different line of business who would purchase a major block of the Company’s equity securities. {Id. at 2). The Executive Committee concluded that it was in the best interests of the Company to pursue the last of these four alternatives. {Id.). However, the Board was advised by Mark L. Shapiro, a vice-president of E. F. Hutton who was* present at the April 18 Board meeting, that “the probability of finding some person to invest a substantial amount of money in the Company was less than 20%.” {Id. at 4; PX 55 at 58). Plaintiffs allege that Shapiro then told TI management it had a better chance of finding an equity purchaser by offering a control block of TI common stock. This option was not presented at the April 18 Board meeting, but was developed instead in “subsequent discussions” with TI management. (PX 55 at 66-67). While TI has not rejected this option as a viable method of alleviating its cash flow problems and remains open to being “upstream[edj” into another company (PX 73 at 57-59), it has taken no steps to sell a majority of the Company’s stock. (Tr. 385-86). In support of their claim that management failed to disclose material facts in connection with this search for an equity investor, plaintiffs contend that management was prepared to embark on a sale of control of the Company in order to raise the needed equity. This position, plaintiffs assert, contradicted management’s representation to the shareholders that “now is not the time to sell” the Company. According to plaintiffs, management should have told the shareholders that plans were underway to sell a control block of stock, and that such a sale posed the threat of a substantial dilution of the shareholders’ investment. In examining a claim of a material misrepresentation or omission under § 14(a) of the Act and Rule 14a-9, the starting point must be the definition of materiality enunciated in TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976): An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. . . . Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the “total mix” of information made available. Id. at 449, 96 S.Ct. at 2132. Plaintiffs urge, of course, that the TSC Industries standard of materiality has been met, and rely additionally upon Kass v. Arden-Mayfair, Inc., 431 F.Supp. 1037 (C.D.Cal.1977), and Glad-win v. Medfield Corp., 540 F.2d 1266 (5th Cir. 1976), for the proposition that TI had a duty to disclose its search for an equity investor. Both Kass and Gladwin involved undisclosed efforts to sell major assets of the respective corporations. In Kass, the defendant corporation was engaged in the operation of dairy facilities and a chain of supermarkets. Proxy materials mailed in connection with the election of five members of the defendant’s board of directors failed to inform the shareholders that the Company was negotiating the disposition of its Southern California dairy facilities. These facilities were “important Company assets,” accounting for $50-$60 million in annual sales. The court stated that if the defendants had pledged their opposition to liquidating the Company in their proxy materials, “serious negotiations” aimed at disposal of such major assets would be of interest to shareholders and should have been disclosed. 431 F.Supp. at 1044, 1048. In Gladwin, the defendant corporation was in the business of managing health facilities. In the course of a proxy contest for the election of directors, the defendant’s proxy materials stated that it was hopeful the profitability of two particular nursing homes would increase. The defendant did not disclose that it was attempting to sell those very same facilities. The court concluded that the contemplated sale of these assets would be important to stockholders in voting at the annual meeting, and that failure to disclose these efforts violated § 14(a) of the Act and the applicable proxy rules. 540 F.2d at 1271. Neither holding controls the instant case. As stated earlier, TI’s high annual interest expenses and its existing cash flow problems prompted the Board to seek a passive equity investor with the assistance of E. F. Hutton. Such a transaction, if consummated, would have been one of several normal business practices available to TI that was fully consistent with management’s professed intent to remain in business. (Tr. 384; 506-07). Moreover, TI was advised almost immediately by E. F. Hutton that the prospects of finding such an investor were remote. TI’s slim chance of implementing a plan that was not inconsistent with the position adopted in its proxy materials stands in marked contrast to the facts in Kass and Gladwin, were serious and ultimately successful negotiations toward transactions inconsistent with positions espoused in proxy materials were withheld from the shareholders. If TI’s version of the proposed transaction is accepted, viz., that a passive investor was sought in order to shore up a weak cash flow situation, no disclosure was required. Rule 14a-9 prohibits the nondisclosure of material information. It does not require that management, having submitted to the shareholders a proposed direction for the corporation, disclose to them each ministerial function designed to implement that plan. This is especially true here, where management knew almost immediately that a passive investor was unlikely to surface. In short, there was nothing of consequence that management could have told the shareholders about this proposed transaction. Plaintiffs have alleged that TI was willing to do more than sell a block of equity shares. They contend that management was prepared to sell a controlling interest in TI to some outside party at the same time that shareholders were being told that a sale of the Company was “bad business judgment.” TI disputes this allegation. Mr. Gist testified at trial that TI’s management has taken no steps, nor has anyone been authorized to take steps, to sell a controlling interest in TI. (Tr. 385-86). In support of their allegation, plaintiffs rely principally upon the deposition testimony of Mr. Platt, TI’s chief executive officer. In discussing E. F. Hutton’s assessment that the chances of finding an equity investor were remote, Platt said: Q: Was one of the considerations that [E. F. Hutton] gave you for it being remote that such a participant would be difficult to find unless they could have control? A: No. We were open to that; we weren’t adamant as to control. Like I say, we recognized that one of the candidates, potential candidates could be a company not in the energy business that wants to take step one, which would be a large equity investment, to acquire a position in Texas International and then, at a subsequent date, complete a merger where Texas International then became merged upstream into another company, and with an Energy Division of a wholly different business-related corporation. Whatever was best for our stockholders, we would do. >}: 5(: $ Jji # We were wide open. We didn’t know who was going to come out of the woodwork. It could be anybody from, as I say, somebody wanting to buy and sell stock and make a profit, to merging upstream. (PX 73 at 58-59). In addition, Mr. Shapiro of E. F. Hutton confirmed that an offer of a controlling interest in TI was one of the alternatives available to TI that would improve the probability of finding an investor. While this alternative was not presented at the April 18 Board meeting, it was being discussed with TI executives at the time of the proxy contest. (PX 55 at 66-67). At most, this evidence establishes that TI was considering the possibility of a negotiated sale of control of the Company. It does not establish that management had plans for a prompt sale of a control block of stock. No negotiations were underway, nor was a prospective purchaser even identified. The holding in Jewelcor, Inc. v. Pearl-man, 397 F.Supp. 221 (S.D.N.Y.1975), is particularly instructive. There, shareholders of Lafayette Radio Electronics Corporation were being solicited to approve an amendment to the certificate of incorporation that would change the structure and terms of the Board of Directors, to approve another amendment to require a % vote of shareholders to amend the first proposal, and to elect four directors. The plaintiff alleged that the undisclosed purpose of these amendments was to prevent a successful takeover attempt by it, and more to the point, that the Lafayette directors had failed to disclose their preparation of a tender offer for Lafayette stock for the purpose of going private in the event that plaintiff made a tender offer. The court concluded: There is evidence tending to show that Lafayette had considered a tender offer for its own stock, but there is also evidence indicating that it did not have present plans for such a tender offer, and that “going private” was merely one alternative under consideration to combat a threatened takeover by Jewelcor. . In the absence of clear evidence that Lafayette had more than a contingency plan to make a tender offer for its own stock, we are of the opinion that such proxy disclosure was not required. (Record citations omitted). Id. at 247-48. Thus, in a case much like the instant one, where a contemplated course of action was merely one of several alternatives receiving consideration, rather than a concrete plan undergoing active implementation, failure to disclose was not a violation of § 14(a) of the Act or Rule 14a-9. In the case at bar, plaintiffs have failed to demonstrate that TI was engaging in ongoing efforts to sell a controlling interest in the Company at the time of the proxy contest. Management’s unwillingness to foreclose the possibility of a sale of control at some undetermined point in the future is not inconsistent with its proxy statement that “Now is not the time to sell or liquidate Texas International.” Consequently, TI has not deprived its shareholders of material information in connection with the matter on which their votes were sought. II. THE ALLEGED FAILURE BY TI TO DISCLOSE ITS VULNERABILITY TO A CASH TENDER OFFER Plaintiffs next allege that the TI proxy materials were deficient because of their failure to warn the shareholders of the risks attending management’s proposal to maintain the Company as an ongoing concern. More specifically, TI is alleged to have been an obvious target for an unfriendly takeover attempt at a price that would not reflect the “intrinsic value” of the shareholders’ investment. The proxy materials did not mention this vulnerability, nor did they discuss any of TI’s efforts to prepare for a tender offer. Plaintiffs contend that failure to disclose these facts constituted a material omission in violation of § 14(a) of the Act and Rule 14a-9 promulgated thereunder. TI concedes that management has recognized for several years that the Company was vulnerable to a takeover attempt. (PX 173 at 41-42). This vulnerability was caused primarily by the low concentration of TI stock in management’s hands, the undervaluation of the market price of TI stock in comparison with its liquidation value, and the “retail” nature of the stock, with few large institutional investors. (Id.; Tr. 453-55). TI disputes the contention that such a tender offer would not adequately compensate the shareholders for their investment. As plaintiffs describe the undisclosed “risk” of staying in business, TI shareholders were likely to be faced with a tender offer for their stock at a price sufficiently above the market price to be successful, and yet significantly below the liquidation value of the stock. In that event, TI management would be unable to find a “white knight” who would make a competing tender offer at a price more reflective of liquidation value. Nevertheless, plaintiffs argue management chose to gamble on finding just such a “white knight,” and to that end retained E. F. Hutton for the purpose of finding a tender offeror more acceptable to management in the event of an unfriendly takeover attempt. It should be noted that plaintiffs’ only record support for the proposition that a “white knight” would be difficult to find is an excerpt from Mr. Gist’s deposition testimony. (PX 53 at 82). However, Gist testified at trial that his deposition testimony was being used out of context, and that he did not believe that a competing tender offeror would be difficult to find. (Tr. 519-20). If the Court were to accept plaintiffs’ proposition despite the paucity of specific record support, it could be done only by drawing such an inference from the fact of TI’s vulnerability to a tender offer, from a prediction as to the likely behavior of TI’s shareholders, and from a general understanding of market activity. That is precisely the reason that plaintiffs’ claim cannot succeed. TI’s shareholders were equally capable of drawing their own conclusions from these factors, all of which were available to them. The actual emergence of a tender offer, the price of such an offer, and the reactions of fellow shareholders and the presence or absence of alternative offerors are nothing more than speculation. Section 14(a) of the Act and Rule 14a-9 do not require, and in fact do not condone, speculation and predictions by proxy solicitors as to future market activities. Rather, disclosure of material facts is required. In Umbriac v. Kaiser, 467 F.Supp. 548 (D.Nev.1979), the plaintiffs alleged that their alternative liquidation plan would have been more profitable than the plan actually supported by management and approved by the shareholders, and that management’s proxy materials failed to disclose the potential benefits of this alternative plan. In rejecting plaintiffs’ claim, the court stated that “management is not required to set before shareholders information only suggestive of mere possibility,” nor was management “required to discuss the panoply of possible alternatives to the course of action it is proposing.” 467 F.Supp. at 553. See TSC Industries, Inc. v. Northway, Inc., supra, 426 U.S. at 462-63, 96 S.Ct. at 2138-39. In the instant case, management advocated a policy of maintaining TI as an ongoing concern. Adoption of that policy gave rise to the possibility that the chain of events suggested by plaintiffs would transpire. It was equally possible, however, that no tender offer would be forthcoming, or that the price of a tender offer would reflect the intrinsic value of the stock. Discussion in the TI proxy materials of the Company’s vulnerability to a tender offer, predictions as to the price of a tender offer, and statements concerning the availability of a “white knight” would have been “information only suggestive of mere possibility.” TI was under no duty to include such information in its proxy materials. III. THE ALLEGED FAILURE BY TI ■TO DISCLOSE ITS FIRST QUARTER LOSSES IN ITS MAY 19 SUPPLEMENTAL PROXY MATERIAL At the May 15, 1979 Board of Directors meeting, the TI Board was informed by Mr. DeFrates, the Company’s then chief financial officer, that TI had sustained a loss of $2,083,000 or $.22 per share, for the first quarter of 1979. This compared with a 1978 first quarter loss of $172,000, or $.02 per share. Plaintiffs concede that TI management was not aware of the precise amount of the 1979 first quarter loss before May 15. Mr. DeFrates ascribed this loss to several major causes, including severe winter weather, increasing interest charges, and start-up costs in “Skytop,” a segment of TI’s Energy Equipment Manufacturing Division. (PX 19 at 4). On that same day, TI reported its first quarter loss to the SEC by filing a Form 10-Q and issued a press release in which the loss figures were reported and compared with the 1978 first quarter results. (PX 20). When the TI Supplemental Proxy Material was sent to its shareholders on May 19, it made no mention of the first quarter loss, nor did it refer to the Form 10-Q or the May 15 press release. TI’s 1978 Annual Report had been mailed to the shareholders along with TI’s initial proxy solicitation on May 7-8. The Annual Report contained a “President’s Letter to Shareholders” in which Mr. Platt gave an overview of the Company’s recent activities and prospects for the future. In that letter, Platt described the Company’s Energy Equipment Manufacturing Division, briefly detailed its performance, and concluded by stating, “All told, I would expect 1979 to be a slightly profitable year for the Division, but the outlook for 1980 and future years is extremely bright. . . . ” (PX 8 at 2). Plaintiffs contend that TPs failure to include the first quarter loss in its Supplemental Proxy Material was an omission of a material fact that denied to the shareholders the “total mix” of information necessary to evaluate management. They argue that the omission was especially significant here, where shareholders were being asked to choose between slates of candidates respectively advocating and opposing the continued operation of the company, and where an incumbent candidate was predicting mild profitability for the Division of TI that was one of the major causes of the earnings loss. TPs response rests primarily on the sufficiency of its public dissemination of this information. The company asserts that its shareholders were made aware of the first quarter loss at the earliest possible time by virtue of the Form 10-Q filing and the issuance of the May 15 press release. TI acknowledges the rule established in Kohn v. American Metal Climax, Inc., 458 F.2d 255, 265 (3d Cir.), cert, denied, 409 U.S. 874, 93 S.Ct. 120, 34 L.Ed.2d 126 (1972), that a material omission in one party’s proxy materials cannot be excused by relying on a disclosure of the information by the opposing party. Nevertheless, TI points to a discussion of the first quarter loss in plaintiffs’ May 25, 1979 letter to the shareholders as evidence of the public availability of the earnings data. (TI Ex. 33). This public dissemination is said to have brought the first quarter loss within the “total mix” of information presented to the shareholders. See TSC Industries, supra. Alternatively, TI urges that even if the first quarter loss was not properly disclosed, it was only “tangentially related to the question before the shareholders,” and therefore not a material omission. See Cohen v. Ayers, 449 F.Supp. 298, 315 (N.D.Ill.1978), aff’d, 596 F.2d 733 (7th Cir. 1979). A. DISCLOSURE An inquiry into the sufficiency of disclosure in a proxy contest is not limited to those documents specifically labelled as proxy statements. For example, a corporation’s proxy statement need not duplicate financial information furnished simultaneously to shareholders in the corporation’s annual report. Ash v. LFE Corp., 525 F.2d 215, 219 (3d Cir. 1975); Cohen v. Ayers, supra, 449 F.Supp. at 317. In addition, the “total mix” of information available to the shareholders can be established by reference to other publicly disseminated information of which the shareholders are presumably aware. See Valente v. PepsiCo., Inc., 454 F.Supp. 1228, 1242 (D.Del.1978); Spielman v. General Host Corp., 402 F.Supp. 190, 195 (S.D.N.Y.1975), aff’d per curiam, 538 F.2d 39 (2d Cir. 1976). Of paramount importance in each of these cases, however, was the direct availability to each shareholder of the information in question. In Va lente, the allegedly non-disclosed information concerned the extent of an acquiring corporation’s existing control over a target corporation. Presumably, this would have been known by any shareholder of the target who had received that corporation’s prior annual reports. The court refused to grant summary judgment in favor of the defendants despite these earlier “disclosures” because many details of control were not contained in the annual reports, and because those facts which were disclosed were not always prominently displayed. 454 F.Supp. at 1242 & nn.20-21. It was left to the trier of fact to determine whether the prior disclosure effectively informed the shareholders about control at the time that issue became relevant. In Spielman, plaintiff challenged the nondisclosure by the defendant tender offeror of the difficulty it would have in securing effective operating control of the target company. The principal impediments to control were the staggered terms of the target’s Board of Directors and the cumulative voting method by which they were elected. The District Court considered these facts to be well known to the shareholders of the target company, and therefore within the “total mix” of information conveyed or available to them. 402 F.Supp. at 201. In affirming the decision, the Second Circuit Court of Appeals was persuaded less by the communications the shareholders received than by the very nature of the information itself. But this, we make clear, is not a case where the “total mix” of communications alone is relied upon to justify a misleading proxy statement. Generally, the “total mix” would be insufficient to compensate for omissions in the prospectus since an investor is all too apt to look upon those communications as self-serving and to consider the prospectus as a more objective, self-contained statement upon which he may justifiably rely to make an informed investment decision. The “mix” in this instance, however, pertains to a subject — the target company’s own staggered board and cumulative voting— of which its own stockholders were presumably aware, if they were aware of anything. 538 F.2d at 40 — 41 (emphasis in original). TI cited no case in which news accounts of material facts were found to be an adequate substitute for disclosure in the proxy solicitations, nor was the Court able to find conclusive authority for this proposition. In Smallwood v. Pearl Brewing Co., 489 F.2d 579 (5th Cir.), cert, denied, 419 U.S. 873, 95 S.Ct. 134, 42 L.Ed.2d 113 (1974), dealing with disclosures in the course of a tender offer, the court stated, “Facts may be adequately disclosed by emphasis or repetition in previous correspondence by the same parties or through outside sources.” 489 F.2d at 606. The Court then cited Johnson v. Wiggs, 443 F.2d 803, 806 (5th Cir. 1971), in which information contained in newspaper and television reports and available from brokerage houses was held to be in the “public domain,” obviating the need for specific disclosure. However, Johnson involved alleged violations of Rule 10b-5 and an unsolicited offer to sell. The issue of disclosure concerned whether the buyer had withheld “inside information” that had been publicly disseminated. Further, application of the holding in Johnson and the dicta in Smallwood to the issue of non-disclosure in a proxy contest would be inconsistent with the rule of Kohn v. American Metal Climax, Inc., supra, prohibiting reliance on an opposing party’s proxy materials to excuse non-disclosure. Unlike the “total mix” cases relied upon by TI, the press release and Form 10-Q containing the first quarter results were not mailed directly to each TI shareholder, nor was this the type of information of which those shareholders were “presumably aware.” Rather, this was recent news, unknown even to TI management before May 15, disseminated in a fashion by TI that by no means gave fair notice to each shareholder. Accordingly, it is held TI failed to disclose the fact of the first quarter loss in this proxy contest. B. MATERIALITY In light of the determination that the first quarter losses were not properly disclosed, it next must be determined whether that omission was material, i. e., whether there was a substantial likelihood that a reasonable TI shareholder would consider it important in deciding how to vote. TSC Industries, Inc. v. Northway, Inc., supra. The May, 1979 proxy contest centered around the election of three members of a ten-person Board of Directors. As in any case involving election of directors, shareholders are entitled to receive information bearing on the competence of those exercising stewardship over the corporation. See Cohen v. Ayers, supra, 449 F.Supp. at 317. In evaluating the performance of incumbent directors, profits realized or losses sustained by a corporation are universally accorded a high priority. Stated simply, the reasonable shareholder wants. to know whether his or her investment is making money and whether his equity is growing or diminishing. In the instant case, the debate between the competing slates focussed primarily on one issue — whether TI should remain in business as an ongoing concern, or whether the Company should be sold or liquidated at the earliest possible time. Each side adopted a clearly identifiable position on the issue, and each was required to disclose all facts that were likely to influence a shareholder’s choice between the two. In Kass v. Arden-Mayfair, Inc., supra, plaintiffs were opposing five incumbent nominees for seats on the Arden-Mayfair Board of Directors. The central theme of plaintiffs’ proxy solicitation was “the incumbents’ allegedly dismal record in operating the Company.” Neither side was advocating the sale or liquidation of the Company. Plaintiffs challenged the failure of the incumbent nominees to disclose losses of over $1,400,000 during January and February of 1976 in their April 12, 1976 proxy solicitation. While the court denied plaintiffs’ request for preliminary injunctive relief for reasons not relevant here, 431 F.Supp. at 1040-42, it made clear the seriousness of defendants’ failure to disclose the financial losses. Noting that Arden-Mayfair’s unreported losses had increased by over 100% when compared with the same period of the previous year, the court concluded: At trial the defendants will have to carry a heavy burden to satisfy the court that the unreported losses, if divulged to the shareholders, would not have had a significant likelihood of being important in their voting decision. 431 F.Supp. at 1043. In the instant matter, TI’s losses for the first quarter of 1979 represented an increase of more than 1100% when compared to the 1978 first quarter results. Shareholders who were being asked to follow management’s recommendation of maintaining TI as an ongoing concern had a right to be informed of these first quarter losses. Even accepting TI’s contention that the first quarter loss did not refute management’s statement that its goal was to maximize long-term earnings, or its opinion that sale or liquidation of the company at that time was not in the shareholders’ best interests, the existence of the loss would be likely to cause a reasonable shareholder to question more closely the wisdom of that opinion and the probability of existing management’s achieving their goal. Accordingly, TI’s failure to disclose the losses sustained during the first quarter of 1979 in its May 19 Supplemental Proxy Materials constituted an omission of a material fact in violation of § 14(a) of the Act and Rule 14a — 9 promulgated thereunder, 17 C.F.R. § 240.14a-9. IV. THE ALLEGED FAILURE BY TI TO DISCLOSE THE FEBRUARY 27, 1979 AMENDMENT TO THE 1974 STOCK OPTION PLAN The TI Non-Qualified Stock Option Plan (“Option Plan”), adopted in 1974, authorized the granting of options to key employees to purchase in the aggregate up to 500,000 shares of TI stock. It included as beneficiaries more than 30 directors, officers and non-officer employees of the Company. (Tr. 396). The 1974 Option Plan provided that no options granted under it could be exercised until five years after the date of the grant, at which time ten percent of the option became exercisable. The remaining options could be exercised in annual increments ranging from ten to twenty percent, with all options exercisable in the twelfth year. (PX 8 at f 19). As of December 31, 1978, there were options on 314,750 shares outstanding, with option prices ranging approximately from $6 to $10 per share. Under the terms of the 1974 Option Plan, none of these 314,750 options were exercisable as of June 30, 1979. (PX 8 at f 19; PX 26 at T-24). Those holding stock options at the time of the proxy contest included two of the incumbent nominees for the Board of Directors, Delwin C. Stults and Earl E. De-Frates, as well as Directors Walter D. Bankston, Cloyce A. Talbott, and Robert C. Gist. George Platt, the third incumbent nominee, held no stock options. (PX 6 at 11; PX 60 at 43). The 1974 Option Plan was amended by the TI Board at its February 27,1979 meeting. As a result of the amendment, the gradual exercisability of the options outlined above remained in effect in most cases. However, immediate and total vesting of all options granted was authorized upon the occurrence of any of several “total vesting events” after January 1, 1979. These events included the acquisition by ten or fewer persons of more than 20% of TI’s common stock, the sale or disposition of more than 75% of TI’s assets, the adoption of a plan of complete or partial liquidation, the repurchase or redemption by TI of more than 50% of its own voting stock within a 24-month period, or a change in the makeup of the TI Board of Directors whereby a majority of the Board as constituted on January 1,1979 ceases to represent a majority of some newly constituted Board at any point within the next five years. (PX 5 at 17-18). Without question, this amendment conferred a benefit on those who would attempt to exercise options under the Plan, for the occurrence of one of these events would increase dramatically the number of each holder’s options eligible to be exercised. The parties disagree as to whether any of the directors holding options were recipients of this benefit, and further, as to management’s motivation in adopting the amendment. Plaintiffs contend that the change in the Option Plan was designed to promote the financial well-being of the directors, and that such evidence of self-interest should have been disclosed to TI’s shareholders. TI asserts that the purpose of the amendment was to benefit other TI employees, that the amendment conferred no benefit on the directors, and that it was immaterial to the contest for election of directors. In order to understand TPs position, it is necessary to understand another aspect of TPs program for management compensation. In September, 1978, Directors Bankston, DeFrates, Gist, Platt and Stults entered into Agreements for Performance Compensation, pursuant to which they received in the aggregate 500,000 stock appreciation rights (“SAR’s”). Recipients of these SAR’s are entitled to cash payments in an amount equal to the appreciation of TI stock from $87/s per share, the price of the stock when the SAR’s were granted, to the computed price of TI stock when the SAR’s are exercised. These SAR’s vest at the rate of ten percent per year for all recipients except Mr. Platt, whose SAR’s vest at the rate of twenty percent per year. All SAR’s will vest in full, however, upon the occurrence of “total vesting events” that are quite similar to those incorporated into the February 27, 1979 amendment to the Stock Option Plan. (PX 6 at 8-9; PX 23). At the same February 27 Board of Directors meeting, the TI Board determined that a Stock Appreciation Rights Plan (“SAR Plan”), modifying to some extent the September, 1978 Agreements, should be submitted to a vote of TI shareholders at the 1979 Annual Meeting. If the SAR Plan received shareholder approval, the earlier Agreements would come under the terms of such Plan and be modified accordingly. (PX 5 at 16; PX 6 at 9). If shareholder approval was not obtained, the Agreements were to remain in effect. The principal reason for requesting shareholder approval of the SAR Plan was to insulate any payments under the Agreements from the “short swing profit liability” provisions of § 16(b) of the Act, 15 U.S.C. § 78p(b). (PX 5 at 16; PX 25). Finally, at the March 22, 1979 Board of Directors meeting, the TI Board adopted a resolution whereby holders of both Stock Options and Stock Appreciation Rights, upon exercising their stock appreciation rights, will relinquish a pro rata portion of their stock options. (PX 27 at 8). In explaining the effect of this resolution to its shareholders, TI stated: It is also anticipated that the [SAR] Committee and each of such individuals [Messrs. Bankston, DeFrates, Gist, Platt and Stults] may agree to the inclusion of a provision in the individual Agreements that would require the forfeiture of certain non-qualified options to acquire common stock that the individual presently has (some of which were granted pursuant to the Company’s 1974 Non-Qualified Stock Option Plan), and, alternatively, the forfeiture of certain [Stock Appreciation] Rights upon exercise of such options. However, there is no assurance that such provisions will be agreed to by the Committee and such individuals. (PX 6 at 15) (emphasis added). TI contends, and plaintiffs do not dispute, that the SAR’s provide more favorable tax ramifications to the recipient than do stock options granted under the Option Plan. (Tr. 393). Therefore, TI argues, since directors must exercise either their stock options or their SAR’s, rather than both, they will certainly elect the SAR’s. As a result, defendant asserts, the amendment to the Option Plan conferred no benefit on the directors, but was implemented merely to make the vesting provisions of the two Plans compatible. The Court finds, however, that the record evidence indicates otherwise. The amendment to the Option Plan was proposed and ratified at the same time that the TI Board became aware of potential short swing liability problems with respect to the SAR’s. When the March 22 resolution (calling for pro rata relinquishment of rights under one Plan when the other Plan is exercised) was adopted, Director Platt discussed the relationship between the two Plans. According to the Minutes of the March 22, 1979 Board of Directors meeting: Mr. Platt stated that if the stockholders do not approve the SAR Plan and the SAR Plan [is] not honored, then the holders of both the non-qualified stock options and stock appreciation rights should be allowed to benefit from their options, but if the SAR Plan is approved or any litigation arising out of the SAR Plan is decided in favor of the holders of the stock appreciation rights, then the option holders who have stock appreciation rights should return to the Company any profit realized from the options exercised. (PX 27 at 8) (emphasis added). As is obvious from the foregoing, the TI Board contemplated a situation in which the SAR Plan would be unavailable or unattractive to holders of stock appreciation rights, and recognized the value to such persons of the stock options. Indeed, the continued importance of the Option Plan to the holders of SAR’s was underscored by the rejection of the SAR Plan by the shareholders at the Annual Meeting. (TI Ex. 24). The Court finds that TI management, at the critical time period in question, was of the view that holders exercising stock appreciation rights remained vulnerable to a challenge under § 16(b) of the Act seeking disgorgement of their profits, along with the attendant costs of litigation. The threat of such a challenge, even if the holder is confident of victory, may cast the stock options in a more appealing light despite their negative tax implications. In any event, the Court finds that the February 27,1979 amendment conferred a benefit on those directors holding stock options under the 1974 Non-Qualified Stock Option Plan. It remains only to determine whether TI’s admitted failure to disclose the amendment in its proxy materials violated § 14(a) of the Act. The S.E.C. regulations regard information concerning management remuneration in general, and management participation in stock option plans in particular, as being important to shareholders in proxy solicitations involving the election of directors. See Schedule 14A, Item 7, 17 C.F.R. § 240.-14a-101. While those regulations do not expressly require disclosure of the vesting provisions of stock option plans, it must be noted that Schedule 14A sets only minimum disclosure standards. Compliance with this schedule does not necessarily guarantee that a proxy statement satisfies Rule 14a-9. Maldonado v. Flynn, 597 F.2d 789, 796 n.9 (2d Cir. 1979); Cohen v. Ayers, supra, 449 F.Supp. at 317; Lyman v. Standard Brands, Inc., 364 F.Supp. 794, 796 (E.D.Pa.1973). Rather, the Court must examine the materiality of the omitted information in the context of the proxy contest at issue. In Maldonado v. Flynn, supra, the defendant directors advanced the exercise date of their option some 12 days in order to permit them to benefit from an impending tender offer that had not yet become public knowledge. The court found that the failure to disclose this change of exercise date and the resulting benefits to the directors who approved it established a prima facie showing that the corporation’s proxy materials were false and misleading in violation of Rule 14a-9. 597 F.2d at 797-98. The facts in the instant case are less compelling, for the TI directors have not received the tangible rewards that accrued to the defendants in Maldonado. Nonetheless, the reasoning in Maldonado applies with equal force here. “Since self-dealing presents opportunities for abuse of a corporate position of trust, the circumstances surrounding corporate transactions in which directors have a personal interest are directly relevant to a determination of whether they are qualified to exercise stewardship of the company.” 597 F.2d at 796 (emphasis added). See also Cohen v. Ayers, supra, 449 F.Supp. at 317. The TI directors approved an amendment to the Stock Option Plan by which the value to them of their stock options would increase dramatically should a “total vesting event” occur. These “total vesting events” include transactions such as the sale or liquidation plans proposed to the shareholders by plaintiffs. The Court concludes that a reasonable TI shareholder would have considered this fact important in deciding how to vote on the election of directors, and that failure to disclose the amendment to the Option Plan constituted a violation of § 14(a) of the Act and Rule 14a-9 promulgated thereunder. V. THE ALLEGED FAILURE BY TI TO DISCLOSE THE PURPOSE BEHIND SUBMITTING THE SAR PLAN FOR SHAREHOLDER APPROVAL As stated in Part IV, supra, the TI Board determined that the Stock Appreciation Rights Plan of 1979 was to be submitted to the shareholders for approval at the 1979 Annual Meeting. If approved, this Plan would incorporate, with certain modifications, the September, 1978 Agreements that awarded 500,000 stock appreciation rights among five TI directors. In a February 23, 1979 memorandum to the Board of Directors, Gist explained why shareholder approval of the Plan was necessary: A recent decision in a federal court case indicates that profits received by insiders as a result of exercising SAR’s are payable to the company under the provisions of Section 16(b) of the Securities Act of [1934], as amended. Basically, Section 16(b) prohibits insiders from keeping short swing (6 months) profits received in transactions dealing with a company’s stock. The provisions of Section 16(b) do, however, have a “safe harbor” whereby insiders may keep the profits received upon the exercise of SAR’s. Specifically, SAR’s which are granted pursuant to a written plan containing the elements set forth below will be exempt from Section 16(b) ramifications. In order for the Company to award SAR’s which will be of a benefit to its recipients (i. e. not subject to Section 16(b)), a written plan must be adopted which meets the following conditions: 1. Stockholder Approval The plan must have been approved by the affirmative vote of a majority of the Company’s shareholders. * * * * * * (PX 25 at 1). Gist’s recommendation was followed by the Board of Directors (PX 5 at 16). In describing the SAR Plan to the shareholders, the TI proxy materials do not disclose this “safe harbor” purpose for seeking shareholder approval. The TI proxy materials did inform the shareholders about the September, 1978 Agreements, describing in sufficient detail the value of the stock appreciation rights to each recipient and the vesting provisions contained therein. (PX 6 at 8-9, 10-11,15). TI also described the SAR Plan on which the shareholders were to vote, attaching a copy of the plan as an exhibit to its proxy statement. (PX 6 at 13-15, I — 1—1-5). That description stated that if the SAR Plan were approved, the rights granted to the five directors in September, 1978 would be considered Rights granted under the SAR Plan. (PX 6 at 15). Plaintiffs did not contest and accordingly there is not in issue the fact that the shareholders also could determine from the proxy statement that if the SAR Plan were defeated, the September, 1978 Agreements with the five directors would remain in effect. Plaintiffs challenge the failure to disclose the Section 16(b) ramifications of shareholder approval on three separate grounds. They contend first that the “safe harbor” purpose would have been Important to a reasonable TI shareholder in deciding how to vote on the election of directors. Next, they allege that the rights granted in September, 1978 were designed, at least in part, to compensate management unlawfully for past services, and that under the Delaware State corporate case law, shareholder ratification would shift the burden of proving the inadequacy of the consideration received by TI under the Agreements from the employee-directors to a derivative plaintiff. Finally, they allege that the need for shareholder approval of the SAR Plan provided the motive for management’s refusal to accept the Gold Crown offer prior to the Annual Meeting. The last two of these claims for relief are easily dismissed. TI denies that the stock appreciation rights granted in September, 1978 unlawfully compensate management for past services. Whatever the reasons for awarding these stock appreciation rights, the Court finds that TI’s purpose was not to compensate management for past services. Liability under Rule 14a — 9 is predicated upon a showing that an allegedly omitted fact is true. See Shapiro v. Belmont Industries, Inc., 438 F.Supp. 284, 290 (E.D.Pa.1977). While it is therefore unnecessary to consider the shifting burden of proof argument, the Court notes that the federal proxy rules do not require disclosure of a disputed legal theory regarding the legality of transactions approved by the Board of Directors, Ash v. LFE Corp., 525 F.2d 215, 220 (3d Cir. 1975), nor do they require disclosure of one’s opponent’s characterization of the facts. See Golub v. PPD Corp., 576 F.2d 759, 765 (8th Cir. 1978). As to the argument concerning management’s motive for rejecting the Gold Crown offer, there is simply no evidence in the record supporting plaintiffs’ allegation. The first contention made by plaintiffs is a much closer question. In understanding its resolution, it is helpful to delineate an issue not presented for decision. A persuasive argument could be made that the “safe harbor” purpose for seeking shareholder approval would be an important fact to a shareholder in deciding how to vote on the SAR Plan itself. The TI proxy statement indicates that certain employee-directors stood to benefit substantially if the SAR Plan were approved. It also indicates that those same employee-directors would receive virtually identical compensation under their September, 1978 Agreements if the SAR Plan were rejected. A TI shareholder might have been uncertain as to the reason his vote was being solicited, and reasonably might have concluded that his vote on the SAR Plan would not affect whether the employee-directors would receive the benefits of their stock appreciation rights. Had that shareholder been informed of the Section 16(b) implications, and the possibility that profits obtained under the Agreements could be recovered from the recipients, the impact of a “No” vote on the SAR Plan would have appeared to be more tangible. Whether this fact would have “significantly altered the ‘total mix’ of information made available” need not be decided, however, because the SAR Plan was defeated by the shareholders at the Annual Meeting. (TI Ex. 24 at 2). The issue before the Court is whether the omitted information was material solely in the context of the election of directors. TI shareholders were entitled to know “the circumstances surrounding corporate transactions in which directors have a personal interest,” since such information is “directly relevant to a determination of whether [the directors] are qualified to exercise stewardship of the company.” Maldonado v. Flynn, supra, 597 F.2d at 796. See also Cohen v. Ayers, supra, 449 F.Supp. at 317. In this case, the shareholders were told the degree to which each director was interested in the SAR Plan and the earlier Agreements. They were told what would be the value to the directors, and the concomitant expense to the Company, when the stock appreciation rights were exercised, as well as the circumstances under which the rights would vest. Finally, they were told that the SAR Plan had been approved by the TI Board of Directors, and that the Board recommended shareholder approval of the Plan. In short, if a TI shareholder believed that participation in the development of one’s own compensation package reflected poorly on that person’s qualifications as a director, or that the package was overly generous, the disclosures actually made in the TI proxy statement sufficiently alerted the shareholder that such conduct had taken place here. The critical inquiry, the