Full opinion text
MEMORANDUM WARRINER, District Judge. On 12 January 1978, the plaintiff American General Insurance Company (American General), a company incorporated under the laws of and having its principal place of business in the State of Texas, sold to Equitable General- Corporation (Equitable), an insurance holding company incorporated under the laws of and having its principal place of business in the Commonwealth of Virginia, 315,000 shares of stock in Equitable for $32.50 per share. On 26 June 1978, a merger agreement was entered into by Equitable, Gulf Life Insurance Company (Gulf Life), a company incorporated under the laws of and having its corporate headquarters in the State of Florida, and Gulf United Corporation (Gulf United), a company incorporated under the laws of the State of Florida. According to the terms of the merger agreement, the owners of Equitable stock could elect to receive for their stock either $51.00 cash per share or one share of Gulf United $3.78 cumulative convertible preferred stock, Series B. The merger between Equitable, Gulf Life and Gulf United was consummated on or about 11 January 1979 by the merger of Equitable into Gulf Life and the assumption by Gulf Life of the obligations and liabilities of Equitable. Following the merger Equitable ceased to exist as a separate corporate entity. American General, on 12 June 1978, filed its initial complaint in this action, asserting several claims for relief against Equitable and the individual directors of Equitable based upon the circumstances surrounding the January 1978 sale of Equitable shares. American General alleged specifically that Equitable and its directors, in misrepresenting and failing to disclose to American General prior to the sale of the shares the existence of recent substantive merger negotiations between Equitable and interested acquirer companies as well as the existence and content of certain recent actuarial appraisals of Equitable, was liable to American General upon several legal theories. Such acts and omissions were alleged to have breached the terms of a warranty contained in the Agreement and Mutual Release entered into by Equitable and American General attendant to the sale of the securities, to have violated a Virginia common law fiduciary duty to shareholders, to have violated § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 of the Securities and Exchange Commission promulgated thereunder, 17 C.F.R. § 240.10b-5 (1979), and to have violated the Texas Securities Act, Tex. Code Ann. § 581-33(B) (1978). American General sought rescission of the contract and restitution of the Equitable shares, or, alternatively, damages. Defendant Equitable filed a counterclaim on 7 September 1978 asserting that American General was liable to Equitable upon several legal theories. Equitable alleged that American General, by representing to Equitable that it was in possession of a firm offer from a third party regarding the 315,-000 shares of Equitable which offer had been accepted by the board of directors of American General subject to American General’s first offering the same to Equitable, which offer, it was alleged, had neither then been received nor so preliminarily approved, violated § 10(b) of the Securities Exchange Act of 1934, supra, Rule 10b-5 promulgated thereunder, supra, the Texas Securities Act, supra, and the Virginia Securities Act, Va.Code § 13.1-522(a) (Repl. Vol.1978). Equitable sought damages and an injunction against the collection of the note comprising part of the consideration for the stock transaction. The case came on to trial to the Court on 10 September 1979. Presentation of the evidence was completed on 21 September 1979, following which the Court delivered preliminary findings of fact from the Bench. Argument was heard on 5 October 1979 relating solely to the issues of the law and damages. Following this hearing, the parties exhaustively briefed the Court on the law applicable to the facts as preliminarily found. This case is ripe for final adjudication. I The plaintiff, American General, is a diversified financial services organization engaged almost exclusively in the insurance field. American General is a sophisticated financial investor with a reputation in the insurance industry for the acquisition of smaller, independent insurance companies. Among the persons comprising the management of some insurance companies, American General is viewed with trepidation on the basis of its past willingness to pursue attractive business opportunities by takeover bid, irrespective of the wishes of the target company management. Equitable was an insurance holding company whose principal asset was Equitable Life Insurance Company (Equitable Life), a regional industrial life insurance company incorporated under the laws of and having its principal place of business in the Commonwealth of Virginia. Equitable had less than 1,000 shareholders; approximately one half of the shares outstanding were controlled in four or five large blocks, although the evidence indicates that the overall fractionalization of shareholding was such that effective control of the corporation by one shareholder was not present. The management of Equitable in 1977 had been ensconced in the Company for over twenty years. Mr. Charles E. Phillips, president and chief executive officer of Equitable, was largely responsible for the steady growth and success of Equitable during his tenure. Mr. Phillips was clearly in control of Equitable during 1977 and 1978, the period of time during which the operative facts of the case occurred. By mid-1977, a combination of several factors had set the stage for the facts at bar. Equitable had become very attractive for acquisition either by another insurance company or by an industrial conglomerate. Not only had Equitable become an attractive company for acquisition, but the general financial atmosphere extant at this time generated substantial interest in the acquisition of companies like Equitable. During this period a block of Equitable stock approximating ten percent of the outstanding shares of Equitable was held by Commercial Credit Company (Commercial Credit), a subsidiary of Control Data Corporation (Control Data), a company incorporated under the laws of the State of Delaware. Mr. Norris, the president and chairman of the board of Control Data, was of the opinion that the acquisition of one company by another should occur only under congenial circumstances and not by unnegotiated takeover bids. He believed a prospective purchaser should deal with the officers and directors rather than with the stockholder-owners. When it became apparent that Commercial Credit would be unable to reach agreement with Equitable’s management to acquire shareholdings in Equitable up to 20 percent of Equitable’s outstanding shares, which percentage holding would have entitled Commercial Credit to place that portion of Equitable’s earnings on the account books of Commercial Credit as earnings of Commercial Credit by the use of equity accounting, Commercial Credit determined to sell its Equitable holdings. American General was contacted by Commercial Credit and was made an offer relating to the greater part of these shares. Negotiations were successful and the purchase of 315,000 shares by American General was consummated in July of 1977. American General purchased these shares of Equitable stock, 9.9 percent of the shares outstanding, with the goal of eventually purchasing sufficient shares for equity accounting whether or not the management of Equitable had objection to this course of action. The immediate goal of American General in the planned acquisition was equity accounting; the long-range goal was complete acquisition. The purchase of the substantial block of stock by American General was of grave concern to the management of Equitable. Management was familiar with American General’s reputation as an acquisitor and was frightened that Equitable would be sought by a company which might by-pass management and deal directly with the owners. This fear pervaded the management of Equitable despite the existence of years of at least superficially congenial relations between Mr. Woodson, then chief executive officer and chairman of the board of directors of American General, and Mr. Phillips, president and chief executive of Equitable. Moreover, it continued despite the fact that immediately after American General acquired the stock from Commercial Credit, Mr. Woodson contacted Mr. Phillips and told Mr. Phillips that he would be pleased to work out future affiliations between the two companies in an agreeable manner. Equitable took several steps in response to the purchase by American General. Counsel was retained to contest the efforts of American General before the State Corporation Commission of Virginia (hereinafter State Corporation Commission) for the requisite approval to permit American General to acquire shareholdings in Equitable in excess of 10 percent. Equitable also consulted with Mr. Webb Hayes, a securities investment lawyer, and several other individuals or firms in the investment field that Equitable thought could help in avoiding a takeover by American General. On 28 September 1977, Equitable authorized the employment of Mr. Ellis Flinn of the Wyatt Company to complete an actuarial appraisal of Equitable. A draft of this report was delivered to Equitable in November, 1977. At this juncture, Mr. Thomas P. Bowles, of Tillinghast, Nelson & Warren, a consulting actuary, was employed, initially to review and interpret the draft report. Mr. Bowles’s responsibilities were later expanded so that he became a general advisor to Equitable in the merger arena and his firm further undertook to perform an additional actuarial evaluation upon Equitable. In late December of 1977, representatives of Equitable stated to a prospective merger candidate, Southwestern Life Insurance Company (Southwestern Life), that the appraisal performed by Bowles’s firm indicated an “intrinsic” value for Equitable of $45.00 per share; “intrinsic” in this context meaning a value for Equitable shares based upon a complete sale of the company, not a value based upon a general, 100-share lot market price. Mr. Bowles’s opinion from the beginning, was that merger was in both the short- and long-term interest of Equitable. In his capacity as advisor and agent, Mr. Bowles promoted contacts with possible merger partners for Equitable. Mr. Bowles’s responsibility was to locate a “white knight,” to stimulate merger talks with the white knight, to bring such merger negotiations right up to the point of consummation, and then to delay an actual merger pending the outcome of American General’s application before the State Corporation Commission. Mr. Bowles’s conduct, however, clearly indicates that the afflatus of his advice and counsel was that the merger of Equitable with a suitable company was advisable in any event. Thus, the pervasive claims by Equitable that during this period it wished to remain wholly independent are of questionable validity. Under Bowles’s tutelage Equitable contacted, or was contacted by, eight to ten potential merger partners during the period from July through December of 1977. By the latter part of 1977, Equitable had narrowed the field of merger hopefuls down to two corporations: Liberty National Life Insurance Company (Liberty National) and Southwestern Life Insurance Company (Southwestern Life). During the last week of 1977, Mr. Wood-son, of American General, received several inquiries from one Beverly Landstreet, an investment banker with Allen C. Ewing & Company of Jacksonville, Florida, concerning the willingness of American General to sell its 315,000 shares of Equitable stock. Mr. Landstreet represented to Mr. Woodson that he, Landstreet, made these inquiries on behalf of a client interested in acquiring 10 percent ownership of Equitable. Mr. Land-street ultimately proposed a price of $32.50 per share; Mr. Woodson agreed to take such an offer, when formally submitted, to American General’s finance committee. Mr. Landstreet did not identify the client he purported to represent. The Court is convinced that Mr. Land-street in fact represented Equitable in making his offer. This offer had been generated by Mr. Bowles acting as an agent for Equitable, with the knowledge and consent of Mr. Phillips and Mr. Eslinger and probably of Mr. Boddiger. Mr. Bowles and Mr. Landstreet had been working in close conjunction with one another. Each was thoroughly aware of what the other was doing. Mr. Landstreet was a part of a scheme to determine and to set a price on the stock held by American General so that the stock could be purchased by Equitable. Therefore, the setting of the price of American General’s shares at $32.50 a share was a contrivance of Equitable’s own making, and as such, cannot serve as a basis for a determination by the Court as to what a third party would have paid for these shares at the relevant time. American General had become discouraged by the delay that the State Corporation Commission imposed upon its pursuit of additional Equitable shares. The Land-street offer would result in a satisfactory gain over their original cost. Thus, after considering Mr. Landstreet’s proposition, American General determined that the purported offer was at a figure at which American General would sell the 315,000 shares. American General was willing to sell at that figure given the knowledge, incorrect as it turned out, that they had at that time of the affairs of Equitable. Having determined the Landstreet price was acceptable, Mr. Woodson called Mr. Phillips and offered the 315,000 shares to Equitable at the price of $32.50 a share, the price that Mr. Woodson knew that he could obtain from what he supposed was another buyer. At the time that Mr. Woodson contacted Mr. Phillips, 6 January 1978, Mr. Woodson did not know that Equitable’s merger efforts had reached a mature stage. Mr. Woodson was sensible of the fact that the difficulty which American General was experiencing in acquiring the additional stock in Equitable was due in part to Mr. Phillips’s ire at Mr. Woodson, and he hoped that by showing this courtesy to Mr. Phillips, Mr. Phillips’s attitude toward American General would change so that at some later date American General might be in a favorable position to deal with Equitable’s management. On the day on which Mr. Woodson called Mr. Phillips to offer the shares to Equitable, Equitable had on the table an offer from Liberty National which had been received on 4 January 1978. The offer from Liberty National was an offer in a posture for acceptance by Equitable’s board of directors as an agreement in principle, although it is clear that many provisions of a merger would have remained to be completed after any such an agreement in principle. The offer of 4 January 1978 was at a figure which was within the range that the Equitable merger team considered reasonable. The Liberty National offer, as enhanced on 6 January 1978, nearly approached the figure which Equitable itself had set. Also on 6 January 1978, and at a time which began before and was completed after the telephone call from Mr. Woodson to Mr. Phillips, Equitable received an offer from Southwestern Life. This offer from Southwestern Life was also within the range which Equitable management considered a reasonable range for merger. Though Equitable’s management thought these offers reasonable the Court finds that Equitable had been ill-advised as to the value of its stock and that the offers from Liberty National and from Southwestern Life were substantially below value. The Court further finds, however, that the management of Equitable was sincerely interested in merger at these price ranges. On 5 January 1978, Equitable’s merger team, consisting of Mr. Phillips, Mr. Eslinger, Mr. Boddiger and Mr. Bowles, held a strategy session in which Mr. Bowles presented to these individual defendants his perceived options for Equitable relating to American General in light of Equitable’s merger negotiations. At this meeting it was disclosed to the members of the merger team that the Equitable shares held by American General could be acquired at a price of $32.50 per share; this information having been related to Mr. Bowles by Mr. Landstreet. As noted above, the evidence before the Court shows that Mr. Land-street’s inquiries of American General and the representations contained therein were in fact generated by Mr. Bowles acting on behalf of Equitable with the knowledge and consent of the merger team. When Mr. Woodson called Mr. Phillips on 6 January, 1978, he offered Equitable an opportunity to buy back the shares at the precise time at which Equitable had before it offers of merger at prices which were within the range considered by Equitable to be acceptable. Mr. Phillips failed to disclose this information to Mr. Woodson. Had Mr. Woodson known that merger negotiations between Equitable and Liberty National and Southwestern Life were at the mature stage, he would not have made the call to offer the shares. In making the offer to Mr. Phillips, Mr. Woodson did not have knowledge of the material fact of the state of the negotiations between Equitable and Liberty National and between Equitable and Southwestern Life. Mr. Woodson was unaware of the inroads that Mr. Bowles’s philosophy of merger had made upon the previously staunch, independent position of Mr. Philllips. Mr. Woodson did not know that he was selling a 10 percent block in a company that easily could be seduced by an appropriate merger approach. On 7 January 1978, Equitable held a special meeting of the board of directors to formally accept American General’s offer to sell its shares. Although all of the individual defendants in this action were present at that meeting, defendant Chatelain’s decedent, Leon Chatelain, Jr., and the defendants Sanders and Willard did not otherwise participate in the negotiations with American General either prior to or following this board meeting. At this meeting, disclosures were made to the board regarding the status of Equitable’s merger negotiations, the,receipt of the offers from Liberty National and Southwestern Life, and the existence and substance of the actuarial evaluations which had been performed upon Equitable and which were then in Equitable’s possession. The board unanimously resolved to accept the offer of American General upon certain minor specified conditions. Mr. Eslinger, as vice president of Equitable, was authorized by the board to execute whatever additional documents might be necessary in connection with the stock transfer. Immediately following the 7 January board meeting Mr. Phillips telephoned Mr. Woodson and read to Mr. Woodson a letter which formally accepted the offer of American General. The letter, which Mr. Phillips mailed to Mr. Woodson on 7 January 1978, a Saturday, contained a proposed press release which made no mention whatever of Equitable’s recent merger negotiations. It is beyond cavil that American General and Mr. Woodson are sophisticated acquisitors. The mere mention of pending merger negotiations to American General would have been a significant factor in the pricing of their stock. Thus a failure to mention merger was significant. Mr. Eslinger traveled to American General’s home office in Houston, Texas, on 11 January 1978, for the closing of the transaction. That morning a revised press release drafted by Equitable without notice to American General and issued on 9 January 1978 was published in the Southwestern Edition of the Wall Street Journal. This press release mentioned that “very preliminary and exploratory” merger talks had taken place in “recent weeks.” When the Journal story was noted by top management of American General on the morning of 11 January 1978, a hasty reconsideration of the advisability of proceeding with the transaction ensued. When Mr. Eslinger arrived that morning to close the transaction he was closely questioned about the language contained in the press release. Mr. Delaney, for American General, sought specific and detailed information about the state of Equitable’s merger posture. Mr. Eslinger refused to enlarge on the phrase “very preliminary and exploratory.” Mr. Delaney, after nearly two days of discussions, came to accept this as a true description. As a matter of fact, it was not. On the 11th and 12th of January 1978, management of Equitable, through its press release and through Mr. Eslinger, stated in effect: “We are not merger prone. We are not going to actively seek a merger with anyone. We have had some merger discussions in the past but they are all over and done with, and they were very preliminary and exploratory.” Barely two months later Equitable was to be locked tight with still another suitor, Great Southern Life Insurance Company (Great Southern), in merger negotiations which by the middle of April 1978 resulted in a formal merger agreement. Unaware of the intentional deception in the press release and in Mr. Eslinger’s representations, American General demanded from Mr. Eslinger certain assurances, specifically an escalation agreement and a specific exception from the Mutual Release for potential Section 10b-5 claims. American General was aware of the fact that Equitable’s representations that the merger negotiations were “very preliminary and exploratory” might be false and that Equitable’s merger posture might be of a substantially different color. Mr. Delaney, however, persuaded Mr. Woodson and Mr. Hook, president of American General, that American General should proceed with the transaction on the assurance that the merger negotiations were in fact very preliminary and exploratory. The transaction was closed on that false assumption on 12 January 1978. As of 12 January 1978, Equitable was seeking merger. As of this date, Equitable’s merger negotiations were not “very preliminary and exploratory”; instead, such negotiations were serious and substantive. Equitable had actually reached a point with at least two companies where an agreement in principle was possible; not only was such an agreement in principle possible, it was the next logical step. Thus, with the knowledge in mind that they might be wrong about their assumptions, American General sought to obtain protection from Equitable from the risks that they were running. Mr. Eslinger refused the escalation proposal and the Section 10b-5 exception. Instead, he offered a warranty. Mr. Eslinger’s ability to conceal led American General to desist in its efforts to obtain other, more effective, protection and accept the warranty. American General relied upon the false press release and the misrepresentations of Mr. Eslinger. Insofar as the misrepresentation amounted to a non-disclosure, the non-disclosure was relied upon by American General believing that the facts which were not disclosed did not exist. The Court finds specifically that American General exercised due diligence in responding to the questions raised by the press release issued by Equitable on 9 January 1978. The Court finds further that the nature of the negotiations which had been held by Equitable were contrary to the statement of facts made in the warranty and contrary to the statement of facts contained in the press release, as well as being contrary to Mr. Eslinger’s representations and concealments. With regard to the warranty, Equitable had represented to American General that it had: not reached any agreement or understanding with management of any other company with regard to the acquisition of all or any part of the outstanding common stock of Equitable by such other company and is not now attempting to negotiate or reach any such agreement or understanding. As noted above, Equitable on 12 January 1978 was in receipt of two negotiated offers of merger at prices which were within a range that the management of Equitable had determined to reflect the per share fair value of Equitable stock. Mr. Eslinger, as a member of Equitable’s merger team, knew that the affirmative representations contained in the warranty were false when he executed the warranty as an authorized agent and officer of Equitable. The warranty was false and thus was breached from the point in time of its execution. Turning next to the actuarial appraisals, the first actuarial appraisal that was performed on Equitable was done by the Wyatt Company. This report was not a complete, classic actuarial appraisal, but the report sufficiently met actuarial guidelines that an expert in the field, Mr. E. D. Flinn, stated was an adequate basis for a determination of the value of all the stock in an insurance company. Actuarial appraisals are of substantial value to a prospective purchaser or a prospective seller in making a determination as to the price at which 100 percent or a controlling block of the stock of an insurance company should be sold. As the amount of stock to be bought or sold decreases from a control percentage to a non-control percentage, an actuarial evaluation is of lesser significance to a prospective buyer or seller. The Wyatt Company appraisal was enhanced and expanded by a study and report by Tillinghast, Nelson & Warren. The enlarged study was of additional value in making a determination as to what control of Equitable would be worth to a prospective purchaser. Both the Wyatt Company appraisal and the Tillinghast evaluation, had they been released in the financial atmosphere that existed in the fall and winter of 1977-78, would have materially affected the price of Equitable’s shares then on the market. These documents would have been even more material to the price that a sophisticated investor in the insurance stock, such as American General, would buy or sell a 10 percent block of stockholdings. An acquisitive company, such as American General, to a large extent values transactions in non-control percentage shareholdings in the context of eventual complete control, that being one of their primary business enterprises. Thus, particularly to American General, the Wyatt appraisal and the Tillinghast evaluation would have been of substantial significance in its determination as to the price which it, as a sophisticated acquisitor investor, would be willing to sell its Equitable shares. Leaving aside the contents of the appraisals, the mere fact that Equitable had obtained appraisal reports was significant. Mr. Phillips had a history of being fiercely independent, unwilling even to consider merger offers. The existence of appraisals would suggest to American General that there had been a change in the posture of Equitable, and that Equitable had shifted its position from being a company opposed to merger to a company susceptible of merger. Since the acquisition of 100 percent of Equitable was the ultimate desire of American General, the fact that Equitable was available, or was even considering being available for merger, was a material factor which would have changed American General’s valuation of its Equitable shareholdings. Substantial testimony at trial was directed toward the issue of what would have happened “if”; if Equitable had disclosed the existence of its serious and substantive merger negotiations; if Equitable had disclosed the existence of the actuarial appraisals; if American General had not sold its Equitable shareholdings, what would have happened? The Court finds that had American General known the state of the negotiations between Equitable and the various merger candidates, or had American General known of the existence of the actuarial appraisals, or had American General possessed the information contained in the actuarial appraisals, then American General would not have sold its Equitable stockholdings in January 1978 at the price of $32.50 per share. The Court finds that American General, under all the testimony presented and evidence brought forward, would have been sensible of the fact that a bidding war for the purchase of Equitable General was a reasonable probability; given the attractiveness of Equitable, the willingness of Equitable to be acquired, the naiveté of Equitable in its pricing of its own stock, and given the fact that two companies in early January of 1978 were actively seeking to purchase Equitable at prices substantially below its value. Exactly what action American General would have taken in that bidding war is, of course, not capable of assured description. The Court finds, that on the basis of all the evidence presented, American General would have had an opportunity as a result of the financial atmosphere at the time, the interest displayed in Equitable by Liberty National, Southwestern Life, and other companies, and the increased interest which would have resulted upon an appropriate disclosure in the financial press, to have received a substantial benefit from the increase between the price at which it sold its shares to Equitable and the price at which a merger was consummated between Equitable and Gulf Life. Despite the naiveté of the management of Equitable regarding the value of Equitable, management knew that the existence of and the information contained within the actuarial appraisals and knowledge of the state of the merger negotiations, would be material facts to American General in setting a price. These facts would be material to any reasonable, prudent investor who was contemplating buying or selling an approximately 10 percent block of Equitable shares. Equitable deliberately concealed the existence and the substance of the actuarial appraisals and of the merger negotiations from American General in order to obtain from American General the Equitable shares at a favorable price. At the board meeting called to consider American General’s offer Mr. Phillips iterated his intention to continue merger negotiations. Though the purchase of American General’s holdings relieved the immediate pressure to find a white knight, and may have briefly re-inspired Mr. Phillips to remain independent, subsequent events proved that his statement of willingness to continue merger negotiations was sincere. Within the month of January, 1978, Equitable General through Mr. Phillips contacted Liberty National and Southwestern Life to reaffirm Equitable’s willingness to negotiate a merger. The Court finds that in fact the state of merger readiness was not substantially changed by Equitable’s acquisition of American General’s shareholdings. There was instead a continuation of then ongoing merger negotiations which within six months led to the Gulf United agreement in principle, and which in the interim had led to an agreement in principle with Great Southern. Following shortly after the purchase by Equitable of the American General shares there came a shareholder derivative suit against Equitable filed on behalf of the Steuart Investment Company. The thrust of Mr. Steuart’s suit and of his communications to Mr. Phillips and the boards of directors of Equitable Life and Equitable General, was that Mr. Phillips simply should not continue his efforts to avoid merger; that instead, merger was desirable and in the best interests of the shareholders of Equitable. Though the Steuart action was brought in good faith, the truth of the matter is that Mr. Phillips, as noted, had already been brought around to the idea that merger was the best course of action for Equitable to pursue. Thus, the confrontation through which Mr. Steuart sought to force a change in Mr. Phillips’s position was unnecessary. Merger strategy had already captured Mr. Phillips and the merger team through the ministrations of Mr. Bowles. Mr. Steuart did not seriously believe that $32.50 per share was an excessive price for Equitable to pay for the shares held by American General. It was, in fact, a price which was below that which should have been paid at that time. The bidding war which a sophisticated acquisitor might have expected were he apprised of the facts ensued. For several months several insurance holding companies waged a wooing war over the acquisition of Equitable. Gulf United emerged victorious and Equitable and Gulf United entered into a tentative merger agreement which was announced on 26 June 1978. This agreement was consummated on or about 11 January 1979 by the merger of Equitable into Gulf Life and the assumption by Gulf Life of the obligations and liabilities of Equitable. Public knowledge of the commencement of the instant action by American General occurred shortly after 12 June 1978 and before Gulf United had increased a prior bid to the final merger price of $51.00 per share. Although difficult of precise calculation, the Court finds that Gulf United’s final offer included a component valuing the contingent liability of this suit, which value was not merely nominal. Further, the Court finds that Gulf United may have paid as much as $3.00 per share too much for Equitable, given that Gulf United’s main competition in the bidding contest was an all-cash bid, clearly disadvantageous to the almost one-half of Equitable’s shareholders who had low tax bases. On the other hand Equitable was finally purchased by Gulf United without dilution of the latter’s earnings, a factor arguing against a premise that the price was too high. As Gulf United’s offer was stock-plus-cash, however, the Court must conclude after a review of all the evidence and opinions, that Equitable could have been purchased by an exchange offering a $48.00 cash price component per share with the stock alternative offered by Gulf United. Finally, the Court finds that, had American General not sold its shares of Equitable the bidding war would have ensued nevertheless. American General would have been a bidder. Equitable would have had ten million dollars additional in cash — the purchase price of the American General shares — and Gulf Life could have acquired Equitable with a bid of $46.00 cash per share with a stock alternative of one share of Gulf United $3.48 cumulative convertible preferred stock. Tr. at 2030-61. II Plaintiff prosecuted the instant action against the defendants upon several legal and equitable theories. A Plaintiff first asserts liability based upon a Virginia common law fiduciary duty owed by a corporation to its shareholders. Adelman v. Conotti Corp., 215 Va. 782, 213 S.E.2d 774 (1975); Wometco Enterprises, Inc. v. Norfolk Coca-Cola Bottling Works, Inc., 528 F.2d 1128, 1129 (4th Cir. 1976). The defendants respond that Adelman and Wometco are inapposite, asserting that the alleged fiduciary duty runs not to individual shareholders of a corporation but rather to a corporation’s shareholders as a group or an entity. See, e. g., Kors v. Carey, 39 Del.Ch. 47, 58, 158 A.2d 136, 143 (1960). The Court concurs that Adelman and Wometco are inapplicable to the facts of the case at bar. Adelman holds that the same fiduciary duty which prohibits a director from acquiring profit or personal advantage from a transaction in which he is concurrently “under a duty to guard the interests of the corporation” also “applies to the conduct of the officers and directors of a corporation in their dealings with the corporation’s stockholders.” 215 Va. at 790, 213 S.E.2d at 779. Without exhaustively distinguishing the facts of Adelman, it is worthy of note that in affirming that portion of the trial court opinion dealing with fiduciary duty, the Supreme Court of Virginia did not limit that duty simply to the plaintiff shareholders before that court, but rather noted the holding of the trial court that “the . . . members of the Libbie Board had breached their fiduciary duty to the other stockholders, which included the plaintiffs.” Id. at 789, 213 S.E.2d at 778 (emphasis supplied). Wometco merely recites the Adelman rule. 528 F.2d at 1129. Thus, the Virginia common law duty owed to the shareholders of Equitable by its directors was not a fiduciary duty inuring to each shareholder in his individual dealings with Equitable, but was rather a duty attaching only to dealings between the officers and directors of Equitable and the shareholders as a class. Kors v. Carey, supra, 39 Del.Ch. at 58, 158 A.2d at 140-43. The individual defendants are thus not liable to the plaintiff upon a theory of common law fiduciary duty. B Plaintiff also asserts that the defendants breached the express provisions of the Agreement and Mutual Release entered into by the parties attendant to the sale of these securities. As has been noted by the Court above, the merger team unquestionably knew that the affirmative representations set forth in the warranty were patently false. Equitable affirmatively represented to American General that Equitable had: not reached any agreement or understanding with management of any other company with regard to the acquisition of all or any part of the outstanding common stock of Equitable by such other company and is not now attempting to negotiate or reach any such agreement or understanding. The warranty was breached when it was given on 12 January 1978 in light of the extant merger readiness of Equitable and the state of merger negotiations between Equitable and its suitors on that date. C Plaintiff further asserts liability based upon § 10(b) of the Securities Exchange Act of 1934,15 U.S.C. § 78j(b), supra, and upon Rule 10b-5 promulgated thereunder by the Securities Exchange Commission, 17 C.F.R. § 240.10b-5, supra. The requisite elements of an action under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5 (1979), based upon nondisclosure are, (1) duty to disclose, (2) materiality, (3) scienter, (4) causation, and (5) reliance. Chiarella v. United States, 445 U.S. 222, 100 S.Ct. 1108, 63 L.Ed.2d 348 (1980); TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449-50, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193, 96 S.Ct. 1375, 1380, 47 L.Ed.2d 668 (1976); Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54, 92 S.Ct. 1456, 1472, 31 L.Ed.2d 741 (1972); St. Louis Union Trust Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 562 F.2d 1040, 1048 (8th Cir. 1977), cert. denied, 435 U.S. 925, 98 S.Ct. 1490, 55 L.Ed.2d 519 (1978). In considering duty to disclose it is instructive to analyze the duty of a corporate insider in trading for his own account with an uninformed person. This duty to disclose material information in connection with the purchase or sale of the insider corporation’s securities, is well-stated in the case of Speed v. Transamerica Corp., 99 F.Supp. 808, 828-29 (D.Del.1951): It is unlawful for an insider ... to purchase the stock of minority stockholders without disclosing material facts affecting the value of the stock, known . . by virtue of his inside position but not known to the selling minority stockholders, which information would have affected the judgment of the sellers. The duty of disclosure stems from the necessity of preventing a corporate insider from utilizing his position to take unfair advantage of the uninformed minority stockholders. It is an attempt to provide some degree of equalization of bargaining position in order that the minority may exercise an informed judgment in any such transaction. Accord SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir. 1968), cert. denied, 394 U.S. 976, 89 S.Ct. 1454, 22 L.Ed.2d 756 (1969); Rogen v. Ilikon Corp., 361 F.2d 260 (1st Cir. 1966); Kohler v. Kohler Co., 319 F.2d 634 (7th Cir. 1963); Kardon v. National Gypsum Co., 73 F.Supp. 798 (E.D.Pa. 1947). A corporate insider trading in stock of the corporation for his own account by the use of non-public information is thus under a duty to disclose all material facts to the prospective purchaser or seller. Chiarella v. United States, supra. The Federal courts have found violations of § 10(b) where corporate insiders used undisclosed information for their own benefit. E. g., SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (CA2 1968), cert. denied, 404 U.S. 1005 [, 92 S.Ct. 561, 30 L.Ed.2d 558] (1972). The cases also have emphasized, in accordance with the common-law rule, that “[t]he party charged with failing to disclose market information must be under a duty to disclose it.” Frigitemp Corp. v. Financial Dynamics Fund, Inc., 524 F.2d 275, 282 (CA2 1975). Accordingly, a purchaser of stock who has no duty to a prospective seller because he is neither an insider nor a fiduciary has been held to have no obligation to reveal material facts. See General Time Corp. v. Talley Industries, Inc., 403 F.2d 159, 164 (CA2 1968), cert. denied, 393 U.S. 1026 [, 89 S.Ct. 631, 21 L.Ed.2d 570] (1969). [Liability [for nondisclosures] is premised upon a duty to disclose arising from a relationship of trust and confidence between parties to a transaction. Application of a duty to disclose prior to trading guarantees that corporate insiders, who have an obligation to place the shareholder’s welfare before their own, will not benefit personally through fraudulent use of material nonpublic information. 445 U.S. at 230, 100 S.Ct. at 1115 (emphasis supplied) (footnotes omitted). In the present case, although the individual defendants were not under a State common law fiduciary duty inuring to the individual shareholders of Equitable, see Kors v. Carey, supra, it is apparent that the officers and directors with whom the plaintiff dealt were corporate insiders possessed of inside information which they had received by virtue of their official corporate positions. Chiarella v. United States, supra; see 5B Jacobs, The Impact of Rule 10b-5 § 66.02[a] (1979). These defendants, however, were not trading for their own account or with the expectation of individual, personal benefit by virtue of the purchase transaction. See SEC v. Texas Gulf Sulphur Co., supra at 848. The retirement by Equitable of the American General shares ultimately did benefit each individual shareholder of Equitable, including these defendants, when the merger activity of late spring 1978 established the value of Equitable’s shares to be substantially higher than management of Equitable had previously imagined. This fact cannot, however, support a conclusion that these defendants were trading on their own behalf or for their own benefit when, while representing Equitable in Equitable’s stock purchase, they engaged in the course of nondisclosures discussed above. These defendants were under no duty, as insiders trading in their own behalf, to disclose material facts to the plaintiff in connection with the stock purchased by the corporation. Chiarella v. United States, supra; SEC v. Texas Gulf Sulphur Co., supra at 848. Federal common law does not establish a, fiduciary duty between a corporate insider and an individual shareholder mandating disclosure to a shareholder by an insider when the insider deals with the shareholder not for his own benefit. Cf. Strong v. Repide, 213 U.S. 419, 431-34, 29 S.Ct. 521, 525-26, 53 L.Ed. 853 (1909); see, Chiarella v. United States, supra at 228 n. 10, 100 S.Ct. at 1114 n. 10; Pepper v. Litton, 308 U.S. 295, 307 n. 15, 60 S.Ct. 238, 245 n.15, 84 L.Ed. 281. The holding in Strong v. Repide, a pre-act case, was not based solely upon the relationship between a director, qua director, of a corporation and an individual shareholder. Although dicta in Chiarella indicates that a fiduciary duty between a director and an individual shareholder was established in Strong, 445 U.S. at 228 n. 10, 100 S.Ct. at 1114 n. 10, the proper interpretation is to consider Strong as a pre-Act insider case premised either upon a fiduciary relationship between an agent and his principal or upon the familiar and above discussed rule against the use of inside information by corporate insiders for their individual benefit. These defendants, as officers and directors, were not under a federal common law fiduciary duty to disclose inside information unknown to the plaintiff-shareholder in the context of the instant stock repurchase. This is not the end of the inquiry, however. When corporate officers and directors make representations in the course of transacting and closing a stock purchase from a shareholder which, “in the light of the circumstances under which they . [are] made,” omitted material facts necessary to “make the statements made . not misleading,” they are under a duty to disclose additional information necessary to render their statements not misleading, irrespective of whether they were initially under a duty to make the representations at issue. First Virginia Bankshares v. Benson, 559 F.2d 1307, 1314 (5th Cir. 1977), cert. denied, 435 U.S. 952, 98 S.Ct. 1580, 55 L.Ed.2d 802 (1978); 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. Further, again irrespective of whether a duty to disclose was initially present, affirmative misrepresentations made by corporate officers and directors in the course of transacting and closing a stock repurchase from a shareholder are prohibited by § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and are actionable thereunder. Affiliated Ute Citizens v. United States, supra 406 U.S. at 152, 92 S.Ct. at 1471; First Virginia Bankshares v. Benson, supra at 1314. Mr. Phillips, in his letter responding to the offer expressed by Mr. Woodson on behalf of American General to sell their Equitable shares, included a press release which was patently false and misleading in omitting reference to merger negotiations. Having ventured to disclose, Mr. Phillips was under a duty to disclose truthfully. Though the 9 January 1978 press release did mention pending merger negotiations, thus supplying the omission, the characterization of the state of the negotiations in the press release of 9 January 1978 as “very preliminary and exploratory” was deliberately false and was intended to be misleading. In addition to the false and misleading press releases Mr. Eslinger has been found to have misrepresented to American General the state of Equitable’s merger negotiations in response to American General’s expressed concern over the disclosures quoted in the Journal article of 11 January 1978. Mr. Eslinger, while individually under no duty to disclose, both intentionally misrepresented facts relating to Equitable’s merger negotiations, and made additional representations not themselves false but which, in light of American General’s serious concern for ascertaining Equitable’s merger status, were clearly misleading and were so intended. Mr. Eslinger was thus under a duty to disclose to the management of American General sufficient additional facts so that the representations made were not misleading in the context in which they were presented. Mr. Eslinger’s false representations of facts were clearly prohibited by § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, assuming the other requisites are met. The Court will therefore proceed to examine the remaining requirements for liability under the Act. The standard of materiality is set forth by TSC Industries, Inc. v. Northway, Inc., supra, as follows: An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. . . . What the standard . . . contemplate[s] is a showing of a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder. 27 . . [T]here 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. 426 U.S. at 449, 96 S.Ct. at 2132 (footnotes omitted). The Court has found conclusively that Equitable’s failure to truthfully apprise American General of the state of Equitable’s merger negotiations and of the existence or content of the actuarial appraisals by the intentional and willful deception of the merger team, was a material omission in the face of the false press release and Mr. Eslinger’s affirmative misrepresentations regarding Equitable’s merger negotiations. Plaintiff has proven unquestionably that there was “a substantial likelihood that the disclosure of . [these facts] would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.” Id. The Supreme Court, in Ernst & Ernst v. Hochfelder, supra, held that some form of scienter was required as an element of an action under § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. 425 U.S. at 193, 96 S.Ct. at 1380. Applying these standards to the facts of the case before the Court it is apparent that the requirement of scienter has unquestionably been proven. The merger team, acting on behalf of Equitable, intentionally concealed material facts from American General. Mr. Phillips affirmatively misrepresented the state of Equitable’s merger negotiations in the draft press release read to Mr. Woodson over the telephone along with Equitable’s acceptance of American General’s offer to sell. Mr. Eslinger deliberately and knowingly misrepresented the facts with regard to the merger négotiations as he knew them to be when questioned about the Journal article in Houston. It is clear to the Court that, with the intent to purposefully deceive their shareholder, these defendants contrived to acquire the plaintiff’s block of stock by artifice. Scienter is proven beyond doubt as to defendants Phillips and Eslinger. It is proven by inference as to defendant Boddiger. Turning next to the requirements of causation and reliance, as noted in Affiliated Ute, [u]nder the circumstances of this case,' involving primarily a failure to disclose, positive proof of reliance is not a prerequisite to recovery. All that is necessary is that the facts withheld be material in the sense that a reasonable investor might have considered them important in the making of this decision. This obligation to disclose and this withholding of a material fact establish the requisite element of causation in fact. 406 U.S. at 153-54, 92 S.Ct. at 1472 (citations omitted). Since “positive proof of reliance is unnecessary when materiality is established,” TSC Industries, Inc. v. Northway, Inc., supra, 426 U.S. at 447 n.9, 96 S.Ct. at 2132 n.9, and as causation in fact is established when duty to disclose, materiality, and intentional or reckless failure to disclose are proven, the Court will not exhaustively examine the elements of reliance or causation. The findings of fact above are sufficient to satisfy these requirements. See Johns Hopkins University v. Hutton, 326 F.Supp. 250, 258 n.11 (D.Md.1971), aff’d as to liability, 488 F.2d 912 (4th Cir. 1973), cert. denied, 416 U.S. 916, 94 S.Ct. 1622, 40 L.Ed.2d 118 (1974). In any event, this Court is satisfied that the plaintiff did, in fact, rely upon the misrepresentations of Mr. Eslinger in Houston, as well as upon the nondisclosures of the merger team regarding the existence and content of the actuarial appraisals and Equitable’s recent receipt of two negotiated merger offers within a price range acceptable to Equitable, which reliance was the cause of the injuries here complained of. Stated differently, in describing the merger negotiations as “very preliminary and exploratory” when they were in fact serious and substantive, the merger team knowingly and for the purpose of deception misrepresented material facts upon which American General reasonably relied. Insofar as plaintiff’s due diligence may yet be an element of a claim for relief under § 10(b) of the Securities Exchange Act of 1934, supra, and Rule 10b-5, supra, when the claim asserted relates to the intentional misrepresentation and concealment of material facts, the courts which have addressed the question following Hochfelder have differed in their application of this doctrine. Compare Dupuy v. Dupuy, 551 F.2d 1005, 1014-20 (5th Cir.), cert. denied, 434 U.S. 911, 98 S.Ct. 312, 54 L.Ed.2d 197 (1977) (plaintiff may recover unless reckless in not investigating “in disregard of a risk known to him or so obvious that he must be taken to [be] aware of it, and so great as to make it highly probable that harm would follow”), with Holdsworth v. Strong, 545 F.2d 687, 693 (10th Cir. 1976) cert. denied, 430 U.S. 955, 97 S.Ct. 1600, 51 L.Ed.2d 805 (1977) (plaintiff’s lack of due diligence no bar to action after Hochfelder unless plaintiff’s actions constituted “gross conduct . . . comparable to that of defendant”), and Sunstrand v. Sun Chemical Corp., supra, and with Straub v. Vaisman and Co., 540 F.2d 591, 598 (3rd Cir. 1976) (due diligence as affirmative defense; plaintiff required only to act reasonably under all facts and circumstances); also see Dupuy v. Dupuy, 434 U.S. 911, 98 S.Ct. 312, 54 L.Ed.2d 197 (1977) (White, J. dissenting from denial of writ of certiorari). Irrespective of which of these standards is determined to be the law, it is apparent that the plaintiff has proven due diligence. In response to the knowledge which it obtained from the 11 January 1978 article in the Wall Street Journal, management of American General questioned Mr. Eslinger intensively upon his arrival in Houston for the closing of the transaction. Mr. Eslinger steadfastly denied what he knew to be true: That Equitable had recently been engaged in and would likely continue serious merger negotiations; that Equitable was then in receipt of two merger offers within a price range which Equitable had deemed appropriate; and that the representations made to American General in the warranty executed by Mr. Eslinger on behalf of Equitable were false at the time they were made. American General, after attempting to protect itself with several defensive devices, decided that Mr. Eslinger was probably telling the truth and on that assumption proceeded to close the transaction. American General’s conduct and entry into the closing of the stock transaction was imminently reasonable; it was in fact the antithesis of recklessness. Faced with Mr. Eslinger’s representations American General closed the transaction only after intensive questioning and investigation failed to substantiate their concerns. What they did not know was that which they could not reasonably be expected to apprehend: the facile willingness of the merger team to utilize intentional deception to acquire the American General-held Equitable shares. Defendants Phillips, Eslinger, and Boddiger are thus liable to the plaintiff under § 10(b) of the Securities Exchange Act of 1934, supra, and Rule 10b-5 promulgated thereunder, supra. Defendant Equitable, by breaching the express terms of the warranty contained within the Agreement and Mutual Release entered into attendant to the stock transaction, is liable to the plaintiff upon a theory of breach of contract. This defendant, however, is also liable vicariously for violation of § 10(b) of the Securities Exchange Act of 1934, supra, and Rule 10b-5 promulgated thereunder, supra. Equitable, as a corporate entity, can act only through its officers and duly authorized agents. The merger team was comprised of officers, directors, and agents of Equitable acting on behalf of Equitable when they engaged in the course of conduct described herein. Caselaw establishes that a corporation may be held liable co-extensively with the officer or employee actually responsible for the fraudulent conduct engaged in while in the course of the employment and while transacting corporate business. Affiliated Ute Citizens v. United States, supra, 406 U.S. at 154, 92 S.Ct. at 1472; Rochez Bros., Inc. v. Rhoades, 527 F.2d 880, 884 (3d Cir. 1975), cert. denied, 425 U.S. 993, 96 S.Ct. 2205, 48 L.Ed.2d 817 (1976). See also Carras v. Burns, 516 F.2d 251, 260-61 (4th Cir. 1975); Johns Hopkins University v. Hutton, 422 F.2d 1124, 1129-30 (4th Cir. 1979); 5 Jacobs, The Impact of Rule 10b-5 § 40.06 at 2-129, 130 (1979). D The Texas Securities Act, Tex.Code Ann. §§ 581-4, et seq. (Supp.1978), imposes civil liability upon: [a] person who . . . buys a security . by means of an untrue statement of a material fact .or an omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading . . . . [however, [such], a person is not liable if he sustains the burden of proof that either (a) the seller knew of the untruth or omission, or (b) he (the offeror or buyer) did not know, and in the exercise of reasonable care could not have known, of the untruth or omission. Tex.Code Ann. § 581-33(B), supra. The enactment of subsection (B) in 1977 was a significant and substantial addition to the Texas Securities Act, which subsection as of this date has yet to be construed in a reported decision. See generally, Bromberg, Civil Liability Under Texas Securities Act § 33 (1977) and Related Claims [Installment 1 — Introduction; Registration and Related Violations], 32A S.W.L.J. 867 (1978); Bate-man, Securities Litigation: The 1977 Modernization of Section 33 of the Texas Securities Act, 15A Hous.L.Rev. 839 (1978). Section 581-33(B) establishes civil liability for a buyer of securities for his failure to disclose a material fact necessary, in the factual setting of the transaction, so that statements made will not be misleading. Tex.Code Ann. § 581-33(B), supra. The buyer, however, may avoid liability if he sustains the burden of proof that “the seller knew of the untruth or omission, or . [that the buyer] did not know, and in the exercise of reasonable care could not have known, of the untruth or omission.” Id. The construction and application of this portion of the statute are thus a matter of first impression. Preliminarily, it is worthy of note that the statute addresses the liability only of purchasers or those who offer to purchase; thus, under the facts of this case only the liability of defendant Equitable will be assessed under the provisions of § 581-33(B). Insofar as Equitable is a corporate entity and capable of acting only through its officers and duly authorized agents Equitable is responsible vicariously for the fraudulent conduct of those officers and agents acting on behalf of the corporation in the course of their employment. Cf. Affiliated Ute Citizens v. United States, supra, 406 U.S. at 154, 92 S.Ct. at 1472; Rochez Bros., Inc. v. Rhoades, supra at 884. The statute requires that the false statement or omission concern a material fact. Materiality is a word of art not used in a vacuum. See e. g., TSC Industries, Inc. v. Northway, Inc., supra, 426 U.S. at 449-50, 96 S.Ct. at 2132. Having at hand a technical definition within the field of federal securities regulation, the Texas legislature, it will be presumed, intended to employ the word in that same precise sense. See United States v. Cuomo, 525 F.2d 1285, 1291 (5th Cir. 1976); In re Nissen’s Estate, 345 F.2d 230, 235 (4th Cir. 1965). Therefore, the standard of materiality announced by the Supreme Court in TSC Industries is controlling for the purposes of assessing the claim stated pursuant to § 581-33(B). The TSC Industries standard of materiality being applicable, the Court will incorporate its previous finding of materiality as to the misrepresentations and omissions of Equitable, hold the standard of materiality satisfied on the facts of this case, and consider whether the remaining requirements of § 581-33(B) have been established. From an examination of the statute, it appears that the requirement of scienter, as it has been defined by Hochfelder, is not required by § 581-33(B). Cf. Ernst & Ernst v. Hochfelder, supra, 425 U.S. at 209 nn.27-28, 96 S.Ct. at 1388 nn. 27-28. Section 581-33(