Full opinion text
MEMORANDUM The amended complaint in this action was filed on August 13, 1978. Several motions, including one for class certification, remain pending at this time. A separate issue is whether the Reorganization Trustee may reimburse the other plaintiffs for their costs in this litigation, and this issue is currently before the United States Court of Appeals for the Fourth Circuit. Defendants have moved to dismiss the amended complaint on various grounds, and this memorandum addresses those and related motions. The parties have submitted extensive memoranda in support of and in opposition to said motions and they are thus ripe for disposition. This suit is, in part, an action at law and in equity brought by the Reorganization Trustee of The Washington Group, Inc. (“the Company”). The Trustee seeks relief from certain former officers and directors of the Company, as well as other individuals and entities who allegedly joined in a course of unlawful activities. The Trustee alleges, in short, that defendants engaged in a course of conduct which violated their fiduciary duties and which constituted a waste and diversion of corporation income, assets and opportunities. This suit encompasses as well allegations advanced by the Company’s shareholders. Their claims are, in essence, that defendants engaged in a manipulative scheme designed to affect the market for the Company’s stock and that defendants made material misrepresentations and omissions with regard to the Company, its stock and the terms of a prior judgment. Plaintiff Richard A. Gilbert (“the Trustee”) is the Company’s duly appointed Trustee in Reorganization. The Trustee is a citizen and resident of the State of North Carolina, which is the domicile of the Company as well. The Company is presently engaged in reorganization proceedings in this court. The remaining plaintiffs are, or were, at all times relevant to this action, shareholders of the Company. For the sake of convenience, these plaintiffs are collectively identified as “the shareholder plaintiffs”. The shareholder plaintiffs are comprised of two constituent groups: The “tender offer plaintiffs” and the “purchaser plaintiffs”. The “tender offer plaintiffs” are those who were shareholders on the record dates pertinent to the suit in Sha finer. The “purchaser plaintiffs” are those stockholders who acquired shares in the Company by purchase during the period from November 4, 1972 through June 20, 1977. The eleven defendants may be briefly identified as follows: Smith W. Bagley (“Bagley”) was one of the Company’s controlling shareholders, member of the Board of Directors, and President of the Company from April 25, 1972 until December, 1972. James R. Gilley (“Gilley”) was also a controlling shareholder of the Company. Gilley was a member of the Company’s Board of Directors and one of its officers beginning in April, 1972. Gilley’s active participation in the Company’s management ended in January, 1978. David R. Johnston (“Johnston”) was the principal stockholder of the Johnston Mills Company. Johnston Mills was acquired by the Company on April 18, 1973. Johnston allegedly received a substantial employment contract as part of the purchase price for his shares. Michael W. Riggsbee (“Riggsbee”) was an officer or employee of the Company or one of its affiliates at all times relevant to this action. The Northwestern Bank (“Northwestern”) is a North Carolina banking corporation. Northwestern served as trustee of the Company’s employee pension plan beginning in September, 1974. Northwestern was also the trustee-of the Company’s profit sharing plans from September, 1975 until their termination in 1976. Bagley, at one time an employee of Northwestern, was a director of Northwestern Financial Corporation, Northwestern’s parent company, during the period relevant to this action. During all times material to the lawsuit, Gilley was a member of Northwestern’s Board of Directors. Dewey W. Chappie (“Chappie”) was an Executive Vice President of Northwestern and the officer in charge of the bank’s operations in Winston-Salem, North Carolina. Bagley had supervisory authority over Chappie during the former’s employment with Northwestern. American Bank and Trust Company of Pennsylvania (“American”) is a Pennsylvania banking corporation. American was trustee of the Company’s employee profit-sharing plans from September 30,1974 until September 30, 1975. American also served as custodian of the Company’s employee stock-purchase plan from August 29, 1974 until the plan’s termination on October 30, 1976. Wheat First Securities, Inc. (“Wheat”) is an investment banking firm and a member of The New York Stock Exchange. Interstate Securities Corporation (“Interstate”) is also an investment banking firm and a member of The New York Stock Exchange. William F. Thomas (“Thomas”) was a Vice President and Account Executive of Interstate at all times relevant to this action. A. M. Pullen and Company (“Pullen”) is a partnership engaged in the public accounting profession. Pullen, at various times relevant to this controversy, audited the financial records and certified the financial statements of the Company. The claims of the shareholder plaintiffs are set forth in Counts-I through VIII of the amended complaint. Those allegations arise from two occurrences: a 1973 merger, and the settlement of a suit filed in this court. A summary of the plaintiffs’ allegations is necessary to fully appreciate the scope of the wrongs charged to these defendants. Bagley and Gilley were Chairman of the Board of Directors and President, respectively, of Convenient Systems, Inc. (“CSI”) prior to April 14, 1972. Together they owned a majority of CSI’s outstanding shares. On April 14,1972 CSI borrowed 2.5 million dollars from United Virginia Bank (“UVB”) of Richmond, Virginia. Bagley and Gilley were guarantors on this note for the full amount of the indebtedness. The purpose of the UVB loan was to provide CSI with the capital necessary to purchase approximately 31% of the Company’s shares. CSI purchased those shares in 1972 and thereby gained working control of the Company. On January 18, 1973 CSI was merged with a wholly-owned subsidiary of the Company, Washington Mills Retail, Inc. As a result of this merger, Bagley became the owner of 32.5% of the Company’s stock. Gilley’s CSI stock was transformed into ownership of 33.1% of the Company’s shares. Following the merger, the UVB loan was assumed by the survivor of the CSI — Washington Mills merger, Convenient Systems, Inc. The Washington Mills — CSI merger precipitated the Shaffner litigation. The Shaffner plaintiffs contended that the merger violated federal, state and common law. An “Agreement of Settlement” was executed by the parties to that litigation on July 12, 1973. This Court thereafter entered a dismissal in the case, specifically incorporating the terms of the agreement into the judgment. The first paragraph of the settlement agreement is particularly relevant to this action. That paragraph required the Company to offer to purchase the shares held by qualified shareholders of the Company. The shareholder plaintiffs contend that defendants engaged in a course of conduct designed to maintain the market price of the Company’s stock at artificially high prices. Bagley and Gilley are alleged to have either persuaded or coerced relatives, business associates and employees into purchasing shares of the Company when demand therefor was low. Northwestern, through Chappie’s direction, purportedly assisted in those purchases by extending loans under circumstances not in the regular course of business. Northwestern and American are also alleged to have exercised their control over the Company’s deferred compensation plans as a vehicle to further create artificial demand. Interstate and Thomas allegedly aided Bagley and Gilley’s efforts by discouraging sales and inducing purchases of the Company’s shares. This investment advice was allegedly offered with knowledge of the purported scheme to maintain the market price for the Company’s shares. The amended complaint charges Pullen with violation of its duty as an independent auditor and deviation from generally accepted accounting principles. These violations are said to have occurred in the preparation of the Company’s annual reports, income statements and a federally-required disclosure form. The allegations against Wheat arise from its involvement in the 1973 merger. It is argued that Wheat overvalued the stock of CSI and undervalued the stock of Washington Mills. The allegedly inaccurate exchange ratio would have substantially improved the terms of the merger as to Bagley and Gilley. Upon this summary of the shareholder plaintiffs’ allegations, the Court turns to the arguments aimed at each of their claims. COUNT I Count I alleges that defendants, by their conduct heretofore described, violated § 10(b) of The Securities Exchange Act of 1934 and Rule 10(b)-5 of The Securities Exchange Commission. The “tender offer plaintiffs” contend that defendants’ market manipulation scheme discouraged them from accepting the Shaffner offer. The “purchaser plaintiffs” were allegedly induced into purchasing shares by reason of defendants’ efforts to stabilize the market price. The defendants have moved to dismiss the claim of the “tender offer plaintiffs” in accordance with the decision in Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975). For the reasons which follow, the Court is of the view that defendants’ position in this regard is well taken. The purchaser-seller requirement for standing to maintain a § 10(b) action was first enunciated in Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d Cir.), cert. denied 343 U.S. 956, 72 S.Ct. 1051, 96 L.Ed. 1356 (1952). The Birnbaum rule received the approval of the Supreme Court in Blue Chip, supra, 421 U.S. at 731, 95 S.Ct. at 1923. Blue Chip, supra arose in a factual setting not unlike that of the instant suit. There, an antitrust action instituted against petitioner’s predecessor by the United States culminated in the entry of a consent decree. The decree called for the reorganization of the predecessor requiring, inter alia, that a majority of petitioner’s shares be offered to those retail businesses formerly subscribing to the predecessor’s service. Approximately one-half of the shares offered were in fact purchased. The Blue Chip litigation was instituted two years after the offering. The complaint alleged that petitioner’s overly pessimistic forecast of its future prospects violated § 10(b) and Rule 10(b)-5 and prevented their acceptance of the offering. The sole issue presented to the Court was whether petitioners had standing to pursue a remedy where they allege that the offeror had violated the provisions of Rule 10b-5 of the Securities and Exchange Commission, under circumstances where they had neither purchased nor sold any of the offered shares. See Blue Chip, supra at 725, 95 S.Ct. at 1920. The Blue Chip decision rested upon an analysis of the legislative history of the Act, prior attempts to expand its coverage and the implications as to various policy considerations. Each of those factors compels the conclusion in the instant action. Section 10(b), on its face, applies only to fralud, etc. in connection with a purchase or sale of a security. The Act provides, at 15 U.S.C. § 78c(a)(14) that “the terms ‘sale’ and ‘sell’ each include any contract to sell or otherwise dispose of.” “Buy” and “purchase” are given a corresponding definition at 15 U.S.C. § 78c(a)(13). In its consideration of the Act, the Senate rejected a definition for each of those terms which would have been significantly broader. The clear inference is that Congress did not seek to include an offer to purchase or sell within the prohibition of § 10(b). It is also significant that Congress, in 1959 and 1957, declined to expand § 10(b)’s coverage upon the solicitation of the Securities and Exchange Commission. The SEC’s recommendation would have added the following emphasized portion to § 10(b): (b) To use or employ, in connection with the purchase or sale of, or any attempt to purchase or sell, any security . Congress did not adopt this proposed amendment primarily because of its apprehension with regard to extending § 10(b) liability to that extent. See Blue Chip, supra at 732, 95 S.Ct. at 1923. The policy considerations supporting the purchaser-seller requirement are well known and need be stated only briefly. The Blue Chip formula appropriately inhibits nuisance or “strike” suits that can be vexatious and which may assume a settlement value far in excess of their merit. Additionally, the purchaser-seller requirement conditions the prosecution of such an action upon a demonstrable event rather than a plaintiff’s recollection of his subjective reasons for not purchasing or selling. The “tender offer plaintiffs” do not, nor indeed could they, contest the reasoning or applicability of Blue Chip, supra. Rather, they contend that they were purchasers •within the contemplation of the Act by virtue of the Shaffner settlement. Plaintiff’s argument that a contract for sale satisfies the Blue Chip rule finds support in the Act’s definition and the concurrence of Mr. Justice Powell, even though the majority in Blue Chip did not reach the issue. The Court’s difficulty in adopting plaintiff’s argument as to this aspect lies in the interpretation of the Shaffner settlement agreement. Upon a review of the settlement agreement, the Court is forced to conclude that the “tender offer plaintiffs’ ” rights therein entitled them only to an offer from the Company. As is evident from the preceding discussion of Blue Chip, such is not sufficient to confer § 10(b) standing upon these plaintiffs. The Court’s conclusion also rests additionally upon its understanding of why a contract for sale might confer standing upon a plaintiff. A contract for sale, like an actual sale, would delimit the buyer and seller, the number of shares involved, and the price. Just as important, the contract would evidence a firm commitment of the parties to make the exchange. In the instant case the buyer, seller and sales price are established by the Shaffner agreement. But while the corporation was required to offer to purchase all of the “tender offer plaintiffs’ ” shares, there was no commitment on the part of the “tender offer plaintiffs.” The quantity of shares to be traded was thus not fixed and this action would be dependent upon a multitude of subjective factors on the part of the “tender offer plaintiffs.” See e. g. Blue Chip at 758, n. 2, 95 S.Ct. at 1926, n. 2, Powell, J., concurring. The fact that the range of speculation is limited in this ease is no ground for circumventing the purchase-sale requirement. The amended complaint defines the purported class of “purchaser plaintiffs” as those “who purchased shares of the Company during the period from November 4, 1972 through June 20, 1977.” The “purchaser plaintiffs” have thus, at least by their allegation, satisfied the rule of Blue Chip. The defendants, however, raise several arguments with regard to the claims of the purchaser plaintiffs under Count I. Bagley contends that the “purchaser plaintiffs’ ” claims should be dismissed by virtue of the amended complaint’s failure to differentiate between the purported classes of plaintiffs and the dismissal of the “tender offer plaintiffs’ ” claims. Bagley cites no authority holding that the ultimate penalty of dismissal is warranted. The Court declines to take such drastic action; especially in light of its duty to construe pleadings in a manner to provide substantial justice. Further, the amended complaint does state that each of the purchaser plaintiffs was entitled to make his or her decision as to whether to purchase such shares free from illegal manipulation and misrepresentation and material omissions. Amended Complaint, ¶ 9. That paragraph was incorporated by Count I and Bagley was thus apprised of the nature of the “purchaser plaintiffs” claims. Several defendants further seek dismissal of Count 1 for failure to satisfy the pleading requirements of Fed.R.Civ.P. 9(b). That rule provides that In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally. Defendants have cited a host of cases which held plaintiffs in similar actions to a high degree of particularity. See e. g. Denny v. Barber, 576 F.2d 465 (2d Cir. 1978) and Segal v. Gordon, 467 F.2d 602 (2d Cir. 1972). The Court is satisfied, however, that the amended complaint has fulfilled the objectives of Rule 9(b) and met the requirements of the Federal Rules of Civil Procedure. Rule 9(b)’s particularity requirement promotes two important objectives. First, it affords the defendant fair notice of the nature of plaintiffs’ claim and the grounds upon which it is based. Denny, supra at 469. Second, Rule 9(b) helps to insure that a complaint is based upon a reasonable belief that a wrong has been committed. Se-gal, supra at 607-08. This is particularly important where allegations are leveled against professionals whose livelihood depends, in large measure, upon their reputation. See Rich v. Touche Ross & Co., 68 F.R.D. 243, 245 (S.D.N.Y.1975). Rule 9(b) does not contradict the theory of notice pleading embraced by the Federal Rules in general, and Rule 8, in particular. The relationship between Rules 8 and 9 is complementary: It is inappropriate to focus exclusively on the fact that Rule 9(b) requires particularity in pleading fraud. This is too narrow an approach and fails to take account of the general simplicity and flexibility contemplated by the rules. 5 C. Wright & A. Miller, Federal Practice and Procedure, § 1298 (1969). So long as the complaint affords defendant notice of the claims against him and evidences a reasonable belief on plaintiffs’ part that his complaint has merit, Rule 9(b) is satisfied and the philosophy of Rule 8 is unencumbered. This is an accord with Judge Bryan’s opinion in Poller v. First Virginia Mortgage and Real Estate Investment Trust, [1978 Transfer Binder] CCH Fed.Sec.L.Rptr. ¶ 96,564 (E.D.Va.1978) from which plaintiffs have quoted extensively. In examining the complaint to determine whether it affords defendants the notice to which they are entitled, the Court is guided by Clark v. Cameron-Brown Co., 72 F.R.D. 48 (M.D.N.C.1976). There a defendant challenged, under Rule 9(b), the allegations that it “artificially inflated statements” in “various interrelated financial reports” and made “material misstatements of fact.” The allegations were held sufficient under Rule 9(b) because the wrongful activities in which defendant was alleged to have participated were identified, the nature of the alleged misrepresentations was stated and because pertinent documents were identified at least by category. The Court agrees that this is all that Rule 9(b) requires. Defendants are not entitled, at least at this stage, to know every piece of evidence which will be offered against them. See e. g. DuPont v. Wyly, 61 F.R.D. 615, 630-32 (D.Del.1973). The liberal provisions in the Federal Rules for discovery and other pretrial procedures are particularly well-suited for narrowing the issues in dispute and their availability counsels against dismissal. An examination of the allegations of the amended complaint as against some of the defendants raising a Rule 9(b) challenge is appropriate in support of the Court’s conclusion that fair notice has been given. The amended complaint alleges that Bagley and Gilley, with the aid and agreement of other defendants, employed a scheme to maintain the market price for the Company’s shares at an artificially high level. The scheme is said to have begun in January, 1973 and continued until some time in June, 1977. The amended complaint sets forth Bagley’s and Gilley’s alleged motives for engaging in the conduct complained of. The amended complaint refers to the numerous elements of the alleged scheme. Thus, it points to stock-purchase loans arranged by Bagley and Gilley and alleges that they induced or coerced stock purchases by employees, business associates and relatives. Bagley and Gilley purportedly entered into repurchase agreements with Riggsbee and Johnston. These defendants also allegedly acted in concert with Interstate and Thomas to inter alia induce purchases and deter sales. Bagley and Gilley further are alleged to have used the Company’s employee deferred compensation plans to create artificial demand for the Company’s stock. Finally, these defendants allegedly acted in concert with Pullen in preparing false or misleading financial documents. Paragraph seventy-four of the amended complaint avers that Johnston participated in the alleged scheme as an “escape valve”. Johnston purportedly purchased shares in the Company from those whom Bagley and Gilley had, allegedly, previously induced or coerced into making purchases. Johnston’s involvement allegedly enabled his transferors to meet the commitments of their stock purchase loans. Bagley and Gilley allegedly guaranteed to repurchase those shares from Johnston at a price equal to his cost plus $2.00. The approximate dates of Johnston’s purchases are found in the amended complaint at paragraph seventy-one. To be sure, the amended complaint could have been more specific; if plaintiffs possessed the necessary information. The preceding discussion with regard to specific defendants is illustrative of the amended complaint’s allegations as to the other defendants. The Court thus deems it unnecessary to address this point in further detail. Six defendants have moved to dismiss Count I contending that its allegations are insufficient apart from the purchaser-seller requirement of Blue Chip, supra, and Rule 9(b). In light of the nature of the inquiry at this stage, those motions must be denied. The plaintiff is entitled to the benefit of every favorable inference when the complaint is attacked under Fed.R.Civ.P. 12(b)(6) as failing to state a claim under which relief can be granted. In Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) this well-recognized rule was stated thusly: In appraising the sufficiency of the complaint we follow, of course, the accepted rule that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. 355 U.S. at 45 — 46, 78 S.Ct. at 102. The Court’s inquiry, then, is limited to considering whether the elements of unlawful conduct are stated sufficiently to give the defendant fair notice. Plaintiff in an action under Rule 10(b)-5 must plead and prove four elements: (1) conduct by the defendant which is prohibited by the Rule; (2) plaintiff’s purchase or sale of a security “in connection with” that conduct; (3) damages, see Sargent v. Genesco, Inc., 492 F.2d 750 (5th Cir. 1974); and (4) scienter. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). Bagley and Gilley are alleged to have engaged in a manipulative scheme which included stock-loan transactions, employee deferred benefit plan purchases, artificial market-making and false and misleading financial reporting. Each of these activities are alleged to have been effected with the intent to artificiálly maintain or drive-up the price of the Company’s shares. The purchaser plaintiffs allegedly acquired their shares, at least in part, upon the success of the scheme. Resultant damages are pleaded. The Court is thus satisfied that a Rule 10(b)-5 claim has been stated. The gist of plaintiffs’ allegations as to the remaining defendants appears to be that they assisted Bagley and Gilley in the alleged scheme to maintain the market price of the Company’s shares. The sufficiency of Count I as to these defendants must thus be considered in terms of secondary liability under Rule 10(b)-5. To allege a conspiracy to violate the securities laws a plaintiff must plead two elements. There must first be an allegation of an agreement to accomplish a wrongful purpose. S.E.C. v. Coffey, 493 F.2d 1304, 1316 (6th Cir. 1974), cert, denied 420 U.S. 908, 95 S.Ct. 826, 42 L.Ed.2d 837 (1975). Such an agreement can, of course, be either express or inferred from defendant’s conduct. See e. g. Brennan v. Midwestern United Life Insurance Co., 417 F.2d 147,149 (7th Cir. 1969), cert. denied 397 U.S. 989, 90 S.Ct. 1122, 25 L.Ed.2d 397 (1970). Second, plaintiff must allege acts by the defendant in furtherance of the conspiracy. Herpich v. Wilder, 430 F.2d 818, 819 (5th Cir. 1970), cert. denied 401 U.S. 947, 91 S.Ct. 935, 28 L.Ed.2d 230 (1971); Ross v. Licht, 263 F.Supp. 395, 411 (S.D.N.Y.1967). Aiding and abetting liability under the securities laws is dependent upon allegations and proof of three elements. First, some other party must necessarily have committed a securities violation. Second, plaintiff must allege that the defendant had a general awareness that his role was part of an overall improper activity. Finally, plaintiff should allege that defendant knowingly and substantially assisted in the securities violation. Woodward v. Metro Bank of Dallas, 522 F.2d 84, 96 (5th Cir. 1975); S.E.C. v. Coffey, supra, cf. Rolf v. Blyth, Eastman, Dillon & Co., 570 F.2d 38, 47-48 (2d Cir.), cert. denied 439 U.S. 1039, 99 S.Ct. 642, 58 L.Ed.2d 698 (1978). Defendant Johnston allegedly agreed with Bagley and Gilley that he would purchase company stock from the latters’ employees, relatives and associates in order to satisfy the stock-loan commitments. The dates of Johnston’s purchases are alleged.- The terms of the alleged agreement and its circumstances, if proven, establish Johnston’s general awareness of his role in Bagley and Gilley’s alleged securities violations. The amended complaint alleges that Johnston’s purchases were necessary to further the market manipulative scheme. Johnston’s state of mind is averred generally as per Rule 9(b). The amended complaint thus states a claim of conspiratorial and aiding and abetting liability against Johnston. Defendant Riggsbee is also alleged to have acted in concert with Bagley and Gilley by making strategic purchases of Company stock. The amended complaint, in ¶¶ 76,103 and 104 alleges that said purchases were made pursuant to an agreement with Bagley and Gilley, and with Riggsbee’s knowledge of the scheme to artificially maintain or raise the market price for the Company’s shares. Riggsbee’s alleged assistance must be viewed as substantial as it was, in part, a direct and proximate cause of plaintiff’s damages. Northwestern allegedly agreed with Bagley and Gilley to arrange for stock-purchase loans to permit sales to effect the wrong. The loans and purchases were allegedly in furtherance of Bagley and Gilley’s scheme. Northwestern is alleged to have known the purpose of the loans and its role, and paragraph 81 of the amended complaint avers that this substantially assisted the manipulative scheme. Northwestern is further alleged to have acted in concert with Bagley and Gilley in purchasing or holding Company stock in the employee deferred benefit plans as part of the scheme. Paragraph 82 of the amended complaint alleges that Northwestern’s activities were “in order to artificially inflate the market,” thus alleging this defendant’s general awareness of the impropriety and its substantial assistance. Paragraph 94 of the amended complaint alleges that American agreed with Bagley and Gilley to use the employee benefit plans to create artificial demand for the Company’s stock. American allegedly purchased shares of the Company for that purpose. It is thus axiomatic that American is alleged to have had a general awareness of Bagley and Gilley’s improper activity. A cause of action is thus stated. Pullen is alleged to have participated in the conspiracy by certifying false and misleading financial records. It is alleged that such documents furthered Bagley and Gilley’s scheme and that Pullen knew the statements to be false. The amended complaint is thus sufficient to withstand a § 12(b)(6) motion. The foregoing summary of the allegations as to particular defendants is sufficient to state the Court’s view as to the sufficiency of the pleading as to all defendants. Accordingly, the motion to dismiss will be denied as to the “purchaser plaintiffs’ ” claims under Count I, and granted as to those of the “tender offer plaintiffs.” COUNT II Count II of the amended complaint alleges a violation of § 14(e) of The Williams Act, 15 U.S.C. § 78n(e), and Rule 10b-13, 17 C.F.R. § 240.10b-13, which was adopted by the Commission pursuant to § 14(e). At the core of the amended complaint is the shareholder plaintiffs’ assertion that the Shaffner settlement agreement entitled them to receive a tender offer from the Company. Defendants have advanced several arguments in favor of dismissal of Count II. It is first argued that neither Shaffner nor the offer initiated by the settlement constituted a tender offer within the contemplation of § 14(e). Defendants also assert that the “purchaser plaintiffs” lack standing to bring this claim as they were not recipients of the Shaffner offer. Finally, the shareholder plaintiffs’ standing under Rule 10b-13 is challenged upon their failure to tender the shares in question. The Court, for the reasons which follow, is of the opinion that Shaffner neither was, nor contemplated, a tender offer. Count II should thus be dismissed and the Court, accordingly, need not address defendants’ alternative arguments. Count II, by requiring the Court to search for a meaning of the term tender offer, presents an issue which has caused the federal courts much difficulty. The term is not defined in either the Williams Act or the regulations promulgated thereunder. Tender offers are generally thought to have several characteristics upon which a working definition may be based. A tender offer may thus be understood as a publicly made invitation addressed to all shareholders of a corporation to tender their shares for a consideration of cash or other securities. The consideration usually represents a premium above the current market price. The offer typically remains open for a limited time; often for only two weeks. The offeror’s performance is usually conditioned upon the tender of a minimum number of shares. During the tender period, tendered shares are held in an escrow or depository. Note, The Developing Meaning of “Tender Offer” Under the Securities Exchange Act of 1934, 86 Harv.L.Rev. 1250,1251-52 (1973) (hereafter “Tender Offer”). By contrast, the Shaffner settlement directed that the Company offer to purchase the shares of a limited group of shareholders. The cash consideration for the exchange, $19.00 per share, did not represent a premium price in light of the contemporary market price of the Company’s shares. See amended complaint, ¶ 104. Further, the actual and most valuable consideration was stated in the preamble to the settlement agreement: In order to settle the actions and claims of the individuals, classes and the corporation on a uniform basis, to put to rest all controversy and to avoid the inconvenience, expense and distraction of further litigation . The Shaffner offer was to remain open for acceptance for a thirty day period after notice had been given to the class members. The Company’s performance was not conditioned upon the tender of a minimum number of shares, but was instead subject only to the approval of the Court and the shareholders. Tendered shares were thus immediately sold as opposed to being held in escrow. Finally, the requisite notice was more than mere publication as is typical in tender offers. In short, Shaffner was a settlement agreement and nothing more; it was not a tender offer subject to the Williams Act as that term is commonly understood. There is an additional, and perhaps more compelling, reason why the Shaffner settlement should not be deemed to be a tender offer. That conclusion rests not upon the formal elements and characteristics of the offer but upon the legislative history of the Williams Act, the general doctrine under which it should be construed and policy considerations regarding the appropriate scope of the Williams Act. “Tender Offer”, supra, suggests four possible definitions for that term. “Tender offer” could be limited to those transactions described above and which may be labeled conventional tender offers. Yellow Freight System, Inc., [1972-1973 Transfer Binder], CCH Fed.Sec.L.Rptr. ¶ 79,912 (SEC Staff Letter, Nov. 14, 1972) and Cattlemen’s Investment Co. v. Fears, 343 F.Supp. 1248 (W.D.Okl.1972), vacated per stipulation (W.D.Okl.1972) demonstrate, however, that the term tender offer has been given a broader meaning. The term could also be used to embrace any offer to purchase or exchange securities. Apart from unduly extending the reach of the securities laws, it is apparent that Congress did not intend such a meaning. If it had, the Williams Act would refer to “offers”, not “tender offers”. This recommended definition would require disclosure under 15 U.S.C. § 78n(d) upon every purchase and thus obviate the disclosure provisions of § 13(d) of the Act. Or, the term could be limited to offers involving takeover bids. This would be consistent with the principal concern of Congress. Such a definition would, however, require an examination of the offer- or’s subjective intent to determine whether an offer was made in the context of a takeover attempt. The 5% standard used under § 14(d) would not provide a workable objective standard because Congress clearly distinguished between holdings of 5% and tender and nontender offers. Finally, “Tender Offer”, supra, suggests the term could be understood as covering those species of acquisitions falling within the conventional meaning or which have the same impact upon the shareholder offerees as the conventional. A tender offer would thus be any method of acquisition with the capability of exerting pressure upon shareholders to make uninformed, ill-considered decisions. This would leave the disclosure requirements of § 13(d) and § 14(d) with distinct spheres of importance. The last suggestion is consistent with the legislative history of the Williams Act. As previously intimated, the breadth of the tender offer requirements is considerably broader than that suggested in the legislative history. The perception of the Congressional purpose in adopting the Williams Act remains unchanged, however. As stated by the Williams Act’s chief sponsor: This legislation will close a significant gap in investor protection under the Federal securities laws by requiring the disclosure of pertinent information to stockholders when persons seek to obtain control of a corporation by a cash tender offer. 113 Cong.Rec. 854 (1967) (emphasis added). Insuring that offeree shareholders receive the necessary information upon which to make informed decisions was thus the principal reason behind the adoption of the Williams Act. Piper v. Chris-Craft Industries, 430 U.S. 1, 97 S.Ct. 926, 51 L.Ed.2d 124 (1977) counseled that the existence of an implied remedy under the Williams Act should be determined upon a consideration of that Act’s purpose. In Piper the court held that an aggrieved tender offeror had no remedy under the Williams Act because the law was intended to afford protection only to shareholders. The Court is of the opinion that a corollary to the doctrine or approach relied upon in Piper, supra is applicable here. Not only the existence of a remedy, but the scope of its coverage, as well, should be determined in accordance with the Williams Act’s purpose. Upon this reasoning, a tender offer would be limited to those acquisitions wherein shareholder offerees require information in order to make well-considered investment decisions. The fourth definitional suggestion found in “Tender Offer”, supra, thus finds support in the analytical approach of Piper, supra. This line of reasoning was also relied upon, inferentially, in Brucker v. Thyssen-Bornemisza Europe, N. V., 424 F.Supp. 679 (S.D.N.Y.1976), aff’d sub nom. Shamrock Corp. v. Indian Head, Inc., 559 F.2d 1202 (2d Cir. 1977). In Brucker three class actions had been instituted on account of a tender offer. The parties entered into a stipulated settlement agreement. The reported opinion addressed the various objections to the settlement, including allegations of the Williams Act violations. The Williams Act claims were dismissed with little discussion. The Court stated, in pertinent part: They [the objectors] claim that the notice constitutes a “tender offer”, and as such the defendants have failed to comply with the filing requirements of the Act. While the settlement agreement does contemplate what might technically be described as a tender offer, we think that these sections were not meant to apply to judicially approved settlement agreements, particularly in light of the legislative history. Brucker, supra at 691. (Emphasis added). The Court premised the aforementioned conclusion on the Williams Act’s purpose of affording protection and information for shareholders and the notice which was provided by the settlement. Id. at 692. The Court is satisfied that the Brucker decision, resting as it does upon the Williams Act’s purpose and legislative history and securities policy, is determinative of the instant issue. Shaffner provided the requisite information to affected shareholders and the continuing supervision of the court afforded an extra measure of shareholder protection. The Court is of the opinion that the Williams Act did not intend that acquisitions of this variety fall within the label “tender offer”. Count II will thus be dismissed. COUNT III Count III alleges that defendants violated § 15(c)(1) of the 1934 Act, 15 U.S.C. § 78 0(c)(1), and Rule 15cl-2, 17 C.F.R. § 240.15cl-2, promulgated thereunder. The allegations of this count are based upon the alleged “market-making” activities of defendants Thomas and Interstate. The remaining defendants, assumedly, are charged with conspiring to violate the aforementioned prohibitions or in aiding and abetting a violation. Defendants have generally advanced two arguments in support of their motion to dismiss this count. The first contention addresses the scope of § 15(c)(1). The second argument is more specifically aimed at the standing of the “tender offer plaintiffs” to assert a claim under § 15(c)(1). The Court is of the opinion that these arguments are well taken and that Count III, in large part, must be dismissed. Section 15(c)(1) by its terms, prohibits the use “of any manipulative, deceptive, or other fraudulent device or contrivance” by a broker or dealer. This should be contrasted with other sections of the Act, e. g., § 10(b) and § 14(e), which extend liability to “any person.” The shareholder plaintiffs would have this Court extend liability, under aiding and abetting or conspiracy theories, to those not otherwise within the scope of the section. An identical claim was rejected by the court in In re Equity Funding Corporation of America Securities Litigation, 416 F.Supp. 161 (C.D.Cal.1976). The Equity Funding plaintiffs attempted to advance claims under §§ 11 and 12 of the 1933 Act, under an aider and abettor theory, against those who would not have otherwise been liable under those sections. In resolving the issue, the court stated: This court is- of the opinion that where a statute specifically limits those who may be held liable for the conduct described by the statute, the courts cannot extend liability, under a theory of aiding and abetting, to those who do not fall within the categories of potential defendants described by the statute. To impose such liability would circumvent the express intent of Congress in enacting these statutes that proscribe narrowly defined conduct and allow relief from precisely defined parties. Equity Funding, supra at 181. The Court is of the view that this reasoning is equally applicable to those sections of limited breadth under the 1934 Act and to a conspiracy theory as well as aiding and abetting. Further, the shareholder plaintiffs have cited to the Court no cases reaching a contrary conclusion. Plaintiffs did urge upon the Court United States v. Projansky, 465 F.2d 123 (2d Cir.), cert. denied 409 U.S. 1006, 93 S.Ct. 432, 34 L.Ed.2d 299 (1972) and United States v. Stein, 456 F.2d 844 (2d Cir.), cert. denied 408 U.S. 922, 92 S.Ct. 2489, 33 L.Ed.2d 333, reh. denied 409 U.S. 898, 93 S.Ct. 101, 34 L.Ed.2d 157 (1972). Those cases were decided under § 9(a) of the 1934 Act, 15 U.S.C. § 78i(a), which is § 15’s counterpart for exchange-traded securities. The shareholder plaintiffs would rely upon Projansky and Stein as authority for holding non-brokers and non-dealers amenable under § 15(c)(1). The Court must reject such an analogy, however, because, unlike § 15, § 9(a) prohibits conduct by “any person”. Under the Equity Funding rationale, which the Court adopts, Count III must be dismissed as to all defendants except Thomas and Interstate. Addressing the purchaser-seller requirement of § 15(c)(1) with regard to Thomas and Interstate, the Court concludes as follows: Section 15(c)(1) proscribes certain conduct “to effect any transaction in, or to induce the purchase or sale of, any security.” The similarity of this wording with that of § 10b is readily apparent and thus it is not surprising that the Birnbaum rule has been applied to bar claims asserted under § 15(c)(1). In Iroquois Industries, Inc. v. Syracuse China Corporation, 417 F.2d 963 (2d Cir. 1969), cert. denied 399 U.S. 909, 90 S.Ct. 2199, 26 L.Ed.2d 561 (1970), the plaintiff therein extended a tender offer to the defendant’s shareholders. Upon failure of the tender offer the plaintiff sued, alleging that fraud by defendant’s officers, directors, and stockbrokers inhibited the shareholders’ tender. Count I of the complaint, which was premised upon § 10b and Rule 10b-5, was dismissed pursuant to Birnbaum because plaintiff was not a purchaser or seller of a security. Count III in that case was directed against the stockbroker defendant and alleged violations of § 15(b)(4) and § 15(c)(1). In dismissing Count III, the Court stated: Dismissal of the first count requires for the same reasons that the third count be dismissed. Iroquois, supra at 970. (Emphasis added). The Birnbaum rule was again applied in an action under § 15(c)(1) in Smachlo v. Merrill, Lynch, Pierce, Fenner & Smith, [1970-71 Transfer Binder] CCH Fed.Sec.L.Rep. ¶ 93,148 (S.D.N.Y.1971) (§ 15(c)(1) action against the “prospective managing underwriter” dismissed because defendant did not induce the purchase or sale of any security by the plaintiffs). The “tender offer plaintiffs” in the instant case are described, in part, as those who elected not to sell their shares in the Company. Their failure to make the requisite sale is fatal to their maintaining an action under § 15(c)(1). Their claims against Thomas and Interstate under Count III will thus be dismissed, while the claims of the “purchaser plaintiffs” against Thomas and Interstate survive the motion under consideration. COUNT IV This count is premised upon defendants’ primary or secondary violations of N.C.Gen. Stat. § 55-35. That section provides, in part, that “officers and directors shall be deemed to stand in a fiduciary relation to the corporation and its shareholders . . .” The standard by which the fiduciary’s conduct is measured is also set forth in § 55-35: Officers and directors . . shall discharge the duties of their respective positions in good faith, and with that diligence and care which ordinarily prudent men would exercise under similar circumstances in like positions. The shareholder plaintiffs contend that Bagley, Gilley and Riggsbee are primarily liable to them by virtue of § 55-35. The other defendants are alleged to have aided and abetted Bagley, Gilley and Riggsbee in their allegedly wrongful conduct. Defendants, collectively, have urged upon the Court two arguments in support of dismissal of Count IV. First, defendants assert that the shareholder plaintiffs’ cause of action, if any there be, is in favor of the corporation rather than individual shareholders. From this premise it is argued that the shareholder plaintiffs failed to make or allege a demand upon the corporation which is a prerequisite to a derivative action under North Carolina law and Fed.R. Civ.P. 23.1. The defendants other than Bagley, Gilley and Riggsbee argue secondly that they may not be held accountable under § 55-35 because the statute, by its terms, imposes a duty only upon officers and directors. With respect to defendants Bagley, Gilley and Riggsbee, the only pertinent issue is whether the amended ' complaint alleges an individual or derivative cause of action. For the reasons which follow, the Court is of the view that the shareholder plaintiffs have alleged an individual, rather than derivative, cause of action. Demand upon the corporation was thus not a prerequisite to prosecution of their claims. Distinguishing between derivative rights and individual rights is often a difficult task. A suit against the corporation’s officers and directors for breach of their fiduciary duty on account of mismanagement is, clearly derivative. Defendants have cited numerous cases consistent with that proposition. See e. g. Goodwin v. Whitener, 262 N.C. 582, 138 S.E.2d 232 (1964); Parrish v. Brantley, 256 N.C. 541, 124 S.E.2d 533 (1962). The amended complaint, unlike the aforecited cases, alleges an injury to the shareholder plaintiffs, rather than to the corporation. Several officers and directors are alleged to have breached the fiduciary duty owed to shareholders by maintaining the market price of the Company’s shares at artificial levels and in issuing false or misleading financial statements. The shareholder plaintiffs would, in the Court’s view, be entitled to receive any recovery under these allegations and the action is thus individual. Underwood v. Stafford, 270 N.C. 700, 155 S.E.2d 211 (1967). In Underwood, supra, the plaintiff sought recovery upon a prior judgment by attacking what was alleged to have been a fraudulent conveyance by the corporation. In distinguishing that claim from an individual right, the court stated: If the cause of action were founded on injuries peculiar or personal to plaintiff himself, so that any recovery would not pass to the corporation, and indirectly to other creditors, the. cause of action could have been properly asserted by plaintiff; however, where the alleged breach or injuries are based on duties owed to the corporation and not to any particular creditor or stockholder, the creditor or stockholder cannot maintain the action without a demand on the corporation, or its receiver if insolvent, to bring the suit and a refusal to do so, and a joinder of the corporation as a party. Id., 155 S.E.2d at 213. The alleged market manipulation may, of course, have been a breach of the duty owed to both the corporation and the stockholders. The same conduct may, however, create both derivative and individual claims. See, e. g., J. I. Case Co. v. Borak, 377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964). The shareholder plaintiffs’ injury, i. e., inducement to either hold or purchase shares in the Company as a result of the alleged scheme, is peculiar to them. There are also allegations that the Company’s officers and directors caused or permitted certain false or misleading financial reports to be published. This, too, presents an individual claim. Houston v. Thornton, 122 N.C. 365, 29 S.E. 827 (1898). Plaintiff, in Houston, there alleged that she was induced to purchase shares in a national bank in reliance upon false financial statements which defendant directors negligently permitted to be published. The court rejected the defendants’ argument that the right of action belonged to the bank and thus devolved upon its receiver. The negligence alleged was not a wrong to the corporation but was, instead, “a wrong to the plaintiff in permitting a false and fraudulent statement of the condition of the bank to be published . . . .” Id., 29 S.E. at 828. Houston, supra antedated § 55-35 but this statute has been held to have merely codified North Carolina common law principles. Fulton v. Talbert, 255 N.C. 183, 120 S.E.2d 410 (1961). Although the issue is not free from doubt, the Court is of the opinion that Houston, supra was predicated upon the fiduciary duty owed by directors to stockholders. The court spoke of the directors’ “Duty to Know” and the fact that plaintiff justifiably relied upon their good character and position. Id., 29 S.E. at 828 and 829. Defendants Bagley, Gilley and Riggsbee are thus amenable to suit under N.C.Gen.Stat. § 55-35 upon the present posture of this case. The remaining defendants have repeated their arguments leveled at Count III, supra, i. e., there may not be aiding and abetting liability where the statute is written so as to exclude primary liability. The Court is unaware of any North Carolina decision which construes the liability of non-officers and non-directors under § 55-35. The Court is satisfied, however, that the North Carolina Supreme Court would recognize an action against these defendants. In support of their cause of action the shareholder plaintiffs have cited Restatement of Torts, § 876(1939). That section provides, in pertinent part: For harm resulting to a third person from the tortious conduct of another, a person is liable if he: ****** (b) knows that the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other so to conduct himself. The North Carolina Supreme Court has approved of Restatement § 876 and its theory thus is incorporated into the state’s common law. Boykin v. Bennett, 253 N.C. 725, 118 S.E.2d 12 (1961). Defendants’ reliance upon Equity Funding Corp., supra is misplaced. The shareholder plaintiffs need not demonstrate that all defendants are amenable to suit under § 55-35. Rather, non-officers and non-directors may, by North Carolina common law principles, be held to answer for substantially assisting or encouraging another’s breach of fiduciary duty. The existence of such a common law remedy distinguishes the analysis of Count III and Count IV of the amended complaint. COUNT V This count rests upon allegations of common law fraud. The “tender offer plaintiffs” contend that defendants fraudulently induced them not to tender their shares pursuant to the Shaffner settlement. The “purchaser plaintiffs” allege that defendants fraudulently induced them to purchase shares in the Company. Both sub-groups comprising the “shareholder plaintiffs”, in effect, allege that they were deceived as to the actual value of the Company’s stock. Defendants have attacked the sufficiency of Count V on several grounds. It is contended that an action for common law fraud is inappropriate for a class action. Part and parcel of that argument is whether individual reliance by the plaintiffs is an element of a common law fraud action. The amended complaint alleges reliance by the plaintiffs. The Court thus considers defendants’ argument to be more appropriately addressed with regard to class certification. That question is beyond the scope of the issues which the Court addresses herein. Defendants also contend that the amended complaint has not met the particularity requirement of Rule 9(b). This issue has previously been addressed. The Federal Rules provide for liberal discovery and other pretrial procedures which afford a more appropriate remedy than dismissal. Defendant Interstate additionally argues that price and volume fluctuations resulting from market manipulation does not constitute a representation upon which to base an action for fraud. McGlynn v. Seymour, 14 Daly 420 (N.Y.C.P.1888) is cited in support of this proposition. That proposition ignores the well-recognized notion that fraud may be predicated upon suppression or concealment as well as misrepresentation. Further, the complaint alleges the publication of false financial documents. Finally, the question of whether plaintiffs may establish a misrepresentation is one which at this point is premature. COUNTS VI AND VII Count VI alleges a violation of this Court’s 1973 judgment in Shaffner. Count VII is based upon an alleged violation of the Shaffner “Agreement of Settlement”. Because the judgment incorporated the “Agreement” by reference, Counts VI and VII may be considered together. The allegations may be considered as being premised on either of two theories of liability. The amended complaint (particularly Count VII) and plaintiffs’ brief in opposition may be read as pursuing a remedy for interference with contractual rights. In that regard the shareholder plaintiffs have cited Restatement of Torts, § 766 (1939), and Childress v. Abeles, 240 N.C. 667, 84 S.E.2d 176 (1954). Childress, supra stated the elements of an action for interference with contract, thusly: The plaintiff must allege and prove these essential elements of the wrong: First, that a valid contract existed between the plaintiff and a third person, conferring upon the plaintiff some contractual right against the third person. Second, that the outsider, had knowledge of the plaintiff’s contract with the third person. Third, that the outsider intentionally induced the third person not to perform his contract with the plaintiff. Fourth, that in so doing the outsider acted without justification. Fifth, that the outsider’s act caused the plaintiff actual damages. Id., 84 S.E.2d at 181-82 (citations omitted) (emphasis in original). These elements were reaffirmed in Smith v. Ford Motor Company, 289 N.C. 71, 221 S.E.2d 282 (1976). The shareholder plaintiffs argue that the requirement of an existing contract is satisfied by the Shaffner judgment/settlement agreement. The “purchaser plaintiffs” were not parties to Shaffner or the “contract” which it produced, and thus Counts VI and VII must be dismissed as to them. A review of the judgment/settlement reveals that the Company, and not any of the other Shaffner defendants, was required to make the offer to purchase the shares of the “tender offer plaintiffs”. This is in marked contrast to the gist of the “tender offer plaintiffs’ ” allegations. The amended complaint is premised upon the “tender offer plaintiffs’ ” right to receive that offer free from any scheme of market manipulation. The instant defendants are alleged to have induced the “tender offer plaintiffs” not to accept the Company’s offer. That is not to say, however, that defendants “intentionally induced the third person not to perform his contract.” Indeed, the amended complaint does not allege that the Company failed to perform its obligation under the judgment/settlement agreement. The amended complaint thus fails to state a cause of action under Childress, supra. The allegations against the instant defendants in Counts VI and VII are, in essence, that a market manipulative scheme induced the “tender offer plaintiffs” not to exercise their Shaffner -created rights. So viewed, the allegations are identical to the common law fraud claim of Court V. Counts VI and VII will, therefore, be dismissed. COUNT VIII The amended complaint here alleges that the “tender offer plaintiffs” were fraudulently induced to accept the Shaffner agreement and that the Court was fraudulently induced to approve the settlement. Several defendants have challenged the sufficiency of Count VIII as measured by the particularity requirements of Rule 9(b). It is again argued that an action grounded in fraud is inappropriate for class action resolution. Several defendants seek dismissal on the ground that they were not parties to Shaffner. An interesting argument is also advanced in support of dismissal that the “tender offer plaintiffs” could not have been damaged even by a stock manipulation plan prior to the Shaffner settlement. Defendant Johnston avers that the amended complaint does not allege that his involvement preceded the settlement. Paragraph 126 is the only reference in the amended complaint, of which the Court is aware, that mentions fraudulent inducement in connection with the settlement. Other paragraphs of the amended complaint, however, allege the component parts of the alleged manipulative scheme, the actors, in several instances the approximate time frame and defendants’ objectives for the scheme. At the risk of repeating matters stated, supra, the Court is of the view that Rule 9(b) must be construed in light of Rule 8. For the aforementioned reasons the Court is satisfied that the “tender offer plaintiffs” have pleaded the circumstances of the alleged fraud with sufficient particularity. Whether Count VIII presents a claim appropriate for class action determination is a question more appropriately addressed at a later time. As with Count V, this aspect will be addressed when the motion for certification is considered. The defendants’ remaining arguments as to this count must also fail, given the present posture of this litigation. The “tender offer plaintiffs” are entitled to every reasonable inference. It may ultimately be shown that defendants fraudulently induced the settlement and approval even though they were not parties to Shaffner. Similarly, it may be shown that the “tender offer plaintiffs” were damaged by the alleged market manipulation plan prior to the Shaffner settlement. Finally, it may be shown that defendant Johnston’s alleged involvement was prior to the conclusion of Shaffner. COUNT IX Count IX is the first of four counts asserted by the Reorganization Trustee. This count is premised upon the alleged breach of fiduciary duty by defendants Bagley, Gilley and Johnston. The fiduciary duty is said to arise from N.C.Gen.Stat. § 55-35 and common law. As will appear from the following summarization of Count IX, no claim is asserted against any other than the aforementioned defendants. Accordingly, defendants Riggsbee, Northwestern, Chappie, American, Wheat, Interstate, Thomas and Pullen are entitled to dismissal on Count IX. The amended complaint in this count alleges that in 1973 defendants Bagley and Gilley, on behalf of the Company, negotiated for the purchase of Johnston Mills Company. Defendant Johnston was the principal shareholder, president and chief executive officer of Johnston Mills Company. It is further alleged that in addition to the price paid for Johnston Mills Company shares, defendant Johnston received other valuable consideration. First, it is contended that defendant Johnston received a lucrative eighteen year employment contract with the Company providing for direct payments of 5.75 million dollars and fringe benefits of $600,000 over that period. Second, defendant Johnston and his wife received $500,000 in exchange for a five year option to purchase 762 acres of undeveloped land. The sales price is alleged to have been twelve million dollars, even though the actual value of the property was considerably less. The option was never exercised. Defendant Johnston is also alleged to have been given a lease and option to purchase a home at Blowing Rock, North Carolina for $16,000 at a time when its fair market value was $75,000 to $125,000. It is lastly alleged that defendants Bagley, Gilley and Johnston consummated a sale of The Johnston Building to Johnston Building, Inc. and that the Company thereafter rented office space in and paid for renovations to the building. Defendant Gilley is alleged to have owned 50% of the shares in Johnston Building, Inc. Defendant Gilley