423 U.S. 232, 96 S. Ct. 508, 46 L. Ed. 2d 464 (1976)
In 1968 respondent Provident Securities Co., a personal holding company, decided tentatively to liquidate and dissolve and engaged an agent to find a purchaser for its assets.1
Petitioner Foremost-McKesson, Inc. emerged as a potential purchaser, but the parties disagreed over the form of consideration until they reached a compromise.2
On September 25, 1969, Provident and Foremost executed a purchase agreement providing that Foremost would buy two-thirds of Provident's assets for $4.25 million in cash and $49.75 million in Foremost convertible subordinated debentures.3 At the closing on October 15, 1969, Foremost delivered the cash and a $40 million debenture that was subsequently exchanged for debentures in the principal amounts of $25 million and $15 million, plus a $2.5 million debenture delivered to an escrow agent; on October 20 Foremost delivered a $7.25 million debenture representing the balance of the purchase price.4 These debentures were immediately convertible into more than 10% of Foremost's outstanding common stock.5
On October 21, 1969, Provident, Foremost, and a group of underwriters executed an underwriting agreement for the sale of the $25 million debenture to close on October 28.6 On October 24 Provident distributed the $15 million and $7.25 million debentures to its stockholders, reducing the amount of Foremost common stock into which the company's remaining holdings were convertible to less than 10%.7 The underwriting closed on October 28, after which Provident distributed the cash proceeds and dissolved.8
Provident's holdings in Foremost debentures as of October 20 made it a beneficial owner within the meaning of § 16.9 Having acquired and disposed of the securities within six months, Provident sued for a declaration that it was not liable under § 16(b).10 The District Court granted summary judgment for Provident, and the Court of Appeals for the Ninth Circuit affirmed.11
Whether a person purchasing securities that put his holdings above the 10% level is a beneficial owner at the time of the purchase so that he must account for profits realized on a sale of those securities within six months?12
Section 16(b) of the Securities Exchange Act of 1934 provides that a corporation may recover profits realized by a beneficial owner of more than 10% of its securities from any purchase and sale, or sale and purchase, within six months, but the exemptive provision states that the subsection shall not be construed to cover any transaction where such beneficial owner was not such both at the time of the purchase and sale, or the sale and purchase, of the security involved.13 In a purchase-sale sequence, this means that a beneficial owner must account for profits only if he was a beneficial owner before the purchase.14
No. The purchase that elevated Provident to beneficial-owner status occurred when Foremost delivered the convertible debentures on October 15 and October 20, 1969, pursuant to the September 25 purchase agreement.15 Provident became a beneficial owner of Foremost securities upon that acquisition.16 The subsequent sale of the $25 million debenture under the October 21 underwriting agreement took place within six months, but because Provident did not hold the requisite 10% status prior to the purchase, the exemptive provision applies directly to the transaction.17 The statutory language and legislative history confirm that Congress intended the provision to preserve the requirement of pre-existing beneficial ownership in purchase-sale sequences, thereby excluding liability for profits on securities whose acquisition first created insider status.18
Provident is not liable under § 16(b) because it was not a beneficial owner before the purchase that brought its holdings above the 10% threshold.19