Petition for a Writ of Certiorari — Provident Securities Company, a California Corporation v. Foremost-McKesson, Inc., a Maryland Corporation

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|_ MICHAEL RODAK, JX., CLER

Ocroser Term, 1974

No 74-758 .

PROVIDENT Securities Company, a California |

corporation,

Cross-Petitioner,

vs.

Foremost-McKesson, Inc., a Maryland cor-

er

Cross-Respondent.

CONDITIONAL CROSS-PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Joun B. Bates

Nose K. Grecory

Watter R. AuLan

225 Bush Street, 19th Floor

San Francisco, California 94104

Telephone: (415) 983-1000

Attorneys for Cross-Petitioner

PERNAU - WALSH PRINTING CO.- S62 MISSION STREET - SAN FRANCISCO, CA 94108

ATA NE ee WE a kan toil Mal ae |

ERA aT a TIE SPR eB ESTA PET ADRES ERS iy OP RT EEL TIE

Table of Contents

Page

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eet acct, BO OER ID LS Set Le, RRO LB 2

ND MIN 55 85 5.5 54 oh 0 has oc ed acca dike bk cas 3

Statutes and Regulations Involved ...................-.. 4

DNS AE MD RAND nc le vcckasicae adeens keen, 4

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I. An exchange of assets for stock is an “unorthodox”

transaction which should be examined for a potential

for actual speculative abuse ................000005 10

II. The transaction involved no potential for actual specu-

ee NO 5, s Cnenccekeavnuny ecu gikanraed click ce 12

Ili. The sale of the debentures oceurred when Provident

was not an owner of 10° or more of a class of

eee swe Mee 14

IV. Provident held the Foremost debentures solely for the

benefit of its shareholders and therefore the trans-

action was not subject to § 16(b) .................. 16

Conclusion ..... SRK SH. <AURES MaRS ee RAKE Van a6 aii aarea we 17

Is rence eu elie bh cub ee gke tere ots tile i

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Table of Authorities Cited

Blau v. Lamb, 363 F.2d 507 1.0... ccc v cece e cece cece eeeee 13

Champion Home Builders Co. v. Jeffress, 490 F.2d 611 ....14, 15

Kern County Land Co. v. Occidental Corp., 411 U.S. 582..

ELE LORS Eee ee eee ee Tee Eee 3, 10, 11, 12, 13, 15

Langnes v. Green, 282 U.S. 5381 2... cece eee ee eee eee ee eee 2

Reliance Electrie Co. v. Emerson Electric Co., 404 U.S. 418 14

Stelos Co. v. Hosiery Corp., 295 U.S. 287 .........0. eee 2

Federal Statutes

48 Stat. 881, 15 U.S.C. §§ 78a, et seq. ......-- eee eee eee 4

48 Stat. 896, 15 U.S.C. § T8p(b) ....... cece cece eee eeeees 3

Securities Exchange Act of 1934:

Section 3a(13), 15 U.S.C. § T8e(a) (13) ........--.6-- 4

Section 3a(14), 15 U.S.C. § T8e(a) (14) .........--6-- 4

Section 16(a), 15 U.S.C. § T8p(a) ........ 6. ee eee ee 4,5

Section 16(b), 15 U.S.C. § T8p(b) .......-..2-- eee 3, 4, 5,14

United States Code:

-y: Me by) 4) reer errrrrr Ere Tere r Seer eee 2

State Statutes

California Corporations Code §§ 4600, 4605, 5000 ......... 16

Regulations

17 C.F.R. § 240.16a-4 2.0... cece eee cette cece ee eens 4,16

Other Authorities

Loss, Securities Regulation (Supp.2d Ed. 1969) Vol. 5, p.

Ce te en tes ene St ort Carr aoe Tr oko So Sa eee De en ter ee a

'

.

OF THE }

Runited States

Ocroser Term, 1974

No.

Provivent Securities Company, a (: lifornia |

corporation,

Cross-Petitioner,

vs.

\

Foremost-McKexsson, Inc., a Maryland cor-

poration,

Cross-Respondent. ;

CONDITIONAL CROSS-PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Cross-petitioner Provident Securities Company (here-

inafter ‘*Provident’’) has been advised that Foremost-

McKesson, Inc. (hereinafter ‘‘Foremost’’) intends to file

a petition for a writ of certiorari to review the judgment

and the opinion of the United States Court of Appeals

for the Ninth Circuit entered in this proceeding on Sep-

tember 19, 1974. Although the Ninth Circuit affirmed the

judgment of the district court in favor of Provident, it

aacormee ER REE NTL AAT ORIEN ST ATR MCS x ee ee TT |

2

disagreed with the district court’s opinion and it rejected

or did not consider some other points raised by Provident

on the appeal. As we shall discuss in our opposition to

Foremost’s petition, we believe that the opinion of the

Court of Appeals is correct with respect to its reasons

for affirming the judgment and that therefore the petition

should be denied. However, if this Court should deter-

mine to grant Foremost’s petition for a writ of certiorari,

Provident will wish to present all its arguments to this

Court. This conditional cross-petition for a writ of cer-

tivrari is filed to avoid any question as to its right to do

so.!

OPINIONS BELOW

The opinion of the district court (Appendix A hereto)

is reported at 331 F.Supp: 787. The opinion of the

Court of Appeals (Appendix B hereto) is unofficially re-

ported at CCH Federal Securities Law Reporter, 94,811

(p. 96,703).

JURISDICTION

The judgment of the Court of Appeals was entered on

September 19, 1974. No petition for rehearing was filed.

This Court has jurisdiction under 28 U.S.C. § 1254(1).

1Because the Court of Appeals affirmed the judgment in favor of

Provident, we believe that if Foremost’s petition were to be

granted it would be appropriate for Provident to raise grounds

in support of the judgment, including those rejected or not con-

sidered in the opinion below (Stelos Co. v. Hosiery Corp. (1935)

295 U.S. 237, 239; Langnes v. Green (1931) 282 U.S. 531, 535).

This cross-petition is filed as a precautionary measure in order to

avoid any doubt as to Provident’s right to raise those grounds.

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QUESTIONS PRESENTED

All questions presented in this cross-petition involve

interpretation and application of § 16(b) of the Securities

Exchange Act of 1934 (48 Stat. 896, 15 U.S.C. § 78p(b)).

Those questions are:

1. Does the potential for actual speculative abuse test

enunciated in this Court’s opinion in Kern County Land

Co. v. Occidental Corp. (1973) 411 U.S. 582 apply to an

exchange of assets for securities, in which exchange no

cash was paid for the securities and the recipient of the

securities wished only to receive cash for its assets?

2. Does there exist a potential for actual speculative

abuse when a corporation, which is liquidating by selling

its holdings and thereafter distributing its assets to its

shareholders, has no access to inside information with

respect to the purchaser of its assets and receives its

purchaser’s securities—shortly thereafter sold as a part

of the liquidation—solely as an accommodation to the

purchaser?

3. When, under an underwriting agreement, a seller

of securities retains possession and the incidents of own-

ership and cannot benefit from a rising market and is not

insulated from a falling one, is the date of the sale the

date of the underwriting agreement or the actual date of

transfer of the securities and relinquishment of the in-

cidents of ownership?

4. Under a plan of complete corporate liquidation pur-

suant to state law, may the corporate legal owner of

securities be divested of beneficial ownership and_ its

shareholders vested with such beneficial ownership so that

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4

§16(b) will apply to transactions by those beneficial own-

ers and not by the legal owner?

5. Under a plan of complete corporate liquidation pur-

suant to state law, may a corporate legal owner of securi-

ties become a liquidating agent or other similar person

authorized to administer the assets of its shareholders so

as to render any sale of the assets exempt from § 16(b)

under Securities and Exchange Commission Rule 16a-4

(17 C.F.R. § 240.16a-4) ?

STATUTES AND REGULATIONS INVOLVED

The sections of the Securities Exchange Act of 1934

(48 Stat. 881, 15 U.S.C. §§ 78a, et seq.) involved in this

ease are §§3a(13), 3a(14), 16(a) and 16(b). Also in-

volved is Securities and Exchange Commission Rule 16a-4

(17 C.F.R. § 240.16a-4) and sections of the California

Corporations Code. Those sections are reproduced in

Appendix C heretc

STATEMENT OF THE CASE

A. The proceedings below.

Provident filed this action seeking a declaration of non-

liability. Foremost counterclaimed seeking a declaration

of liability and recovery of asserted profits. Both parties

moved for summary judgment and the district court gave

judgment for Provident, holding that the transaction did

not involve a potential for speculative abuse of inside

information (Appendix A, pp. vilii-xi).

5

On appeal by Foremost, the Court of Appeals affirmed

but on other grounds. It held (Appendix B, pp. xiv-xix) that

the potential for speculative abuse test was not applicable

because the transaction was “essentially a cash-for-stock

transaction’? and that, in any event, there did exist a

potential for speculative abuse. It also rejected (Appen-

dix B, pp. xix-xxii) Provident’s argument that the date of

sale fell after such time that Provident had become a holder

of less than 10% of any equity security of Foremost. It

affirmed the judgment (Appendix B, pp. xxli-xl) because

Provident had not owned any Foremost securities when it

entered into the transaction here in question and therefore

was not a ‘“‘beneficial owner’’ of ‘*more than 10 per

centum of any class’’ of Foremost securities ‘‘at the time

of the purchase’’ (15 U.S.C. § 78p(a), (b)).

B. The facts.

The basie facts of this case are undisputed :

Provident, now dissolved, was a personal holding com-

pany incorporated under the laws of California for the

purpose of managing various assets for the benefit of its

shareholders (R.,2 p. 391). In late 1968, Provident tenta-

tively decided to liquidate and to distribute its assets, or

the proceeds from a sale thereof, pro rata to its share-

holders (R., p. 391). After investigation of various pro-

posals, Provident decided to pursue negotiations on a

proposal under which Foremost would purchase most of

Provident’s assets (R., p. 392). Extensive negotiations

followed between Provident and Foremost regarding the

form of the transaction and the nature of the considera-

The clerk's record in the court below is cited herein as

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6

tion to be paid. During these negotiations, Foremost had

full access to Provident’s books and records and Foremost

made a complete appraisal of all of Provident’s assets

(R., pp. 251-252).

To facilitate liquidation and dissolution, Provident was

interested in selling to Foremost for cash (R., p. 392).

Foremost, however, insisted that the major portion of the

purchase price should be in securities of Foremost to be

issued expressly for that purpose (R., p. 392). Although

Provident argued that Foremost should sell securities

itself if it wanted to use them to finance the purchase

of Provident’s assets, Foremost remained adamant on

this point (R., p. 392). Compromise eventually was

reached under which Foremost agreed to take such

steps as were necessary to accommodate the sale, as

promptly as possible following the closing of the purchase,

of one half of the securities to be transferred to Provident

(R., pp. 392-393).

The purchase agreement provided that Foremost would

purchase approximately two thirds of Provident’s assets

in exchange for cash and Foremost convertible subordi-

nated debentures which were to be issued expressly for the

purpose of acquiring Provident’s assets (R., pp. 393, 411-

451). It also provided that, following the closing of the

agreement, Provident could distribute to its shareholders,

as part of its plan of liquidation and dissolution, the

Foremost debentures delivered pursuant to the purchase

agreement (R., p. 393). The debentures, however, would

not be marketable without the prior written consent of

Foremost unless registered under the Securities Act (R.,

p. 418).

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With respect to the debentures which were to be sold

by Provident’s shareholders after the distribution, Fore-

most agreed to use its best efforts to file a registration

statement as soon as practicable after the date of the

agreement (R., pp. 393-394, 418-419). Foremost also

agreed to enter into an underwriting agreement whereby

those debentures would be sold to the public (R., pp. 394,

418-419),

On September 26, 1969, the Provident Board of Direc-

tors recommended dissolution and additionally recom-

mended ratification of the purchase agreement executed

the previous day (R., pp. 395, 499-500). At a share-

holders’ meeting later the same day, Provident’s share-

holders elected to dissolve and a plan of complete

liquidation was adopted (R., pp. 395, 001-510). The agree-

ment was then approved by the shareholders (ibid.).

The Form S-1 registration statement, filed by Foremost

with the Securities and Exchange Commission on Septem-

ber 29, 1969, anticipated that the offering would be made

by the Provident shareholders who were to receive the

debentures in a liquidating distribution by Provident (R.,

pp. 394, 530, 536). Early in October, 1969, however,

difficulties were encountered with respect to the proposed

publie offering by Provident’s shareholders (R., p. 397).

In particular, it was impossible to get consents to sell

from the minor shareholders without the appointment of

guardians; in addition, one shareholder was somewhere in

the Brazilian jungles and could not be contacted (R., pp.

397-398). To resolve this problem, Foremost agreed to a

change in the Purchase Agreement so that Provident,

a4 MEET NORE AGNES TRIE RISE NIT IGEN ESRD ANAT RS TE

|

8

instead of its shareholders, might sell the debentures (R.,

pp. 269, 398-399, 688-702).

At a meeting on October 13, 1969, the Provident Board

of Directors declared the first liquidating dividends,

directing distribution of all of Provident’s assets ‘‘pro

rata to shareholders of record * * * as expeditiously as

possible’? (R., pp. 396-397, 680).

At the closing of the agreement on October 15, 1969,

Foremost delivered a check and debentures to Provident

(R., p. 399). Prior to receipt of the debentures, Provident

had no legal or beneficial ownership in any security of

Foremost (R., p. 391). On October 20, Provident instructed

the First National City Bank, as trustee, to distribute pro

rata to Provident’s shareholders the debentures which

were not to be sold (R., pp. 399-409). The actual mailing

of those debentures took place on October 24, 1969 (R.,

p. 400).

On October 21, 1969, an underwriting agreement cover-

ing the remaining debentures was executed by Foremost,

Provident and the underwriters (R., pp. 400, 707-719).

That agreement defined ‘*the time of purchase’? as ‘*9:45

A.M., on October 28, 1969’? and provided that Provident

would deliver the debentures and receive payment at that

time (R., pp. 707-708).

Later on the same day that the underwriting agreement

was signed (October 21), an amended S-1 registration

form filed by Foremost covering those debentures became

effective (R., pp. 628-678; Foremost Opening Brief, p. 23).

That form had been amended to provide that the sale

would be made through Provident and that ‘*the proceeds

of the sale of the Debentures offered hereby and the re-

ey

-_

9

maining Debentures issued or to be issued to Provident

will be distributed by Provident to its shareholders in a

liquidating distribution’’ (R., p. 643).

At the closing on October 28, the underwriters delivered

$25,366,666.66 to Provident through New York clearing

house funds, and Provident delivered the debentures in

the principal amount of $25,000,000 to the underwriters

(R., p. 400). After waiting the necessary 24 hours for the

check drawn on the New York clearing house funds to

clear, Provident distributed the cash to its shareholders

(R., p. 400).

Liquidation proceedings continued throughout late 1969

and 1970 (R., pp. 400-401). On August 31, 1970, Provident

was declared dissolved by court order and its remaining

assets were transferred to a liquidating trust (R., pp. 401,

726-739).

REASONS FOR GRANTING WRIT

As discussed above (supra, pp. 1-2), the Court of Ap-

peals affirmed the judgment in favor of Provident but. in

doing so, it rejected some of Provident’s arguments and

did not consider others. Provident has filed this cross-

petition for a writ of certiorari solely as a precautionary

measure because it has been advised that Foremost intends

to file a petition for a writ of certiorari.

Inasmuch as the Court of Appeals correctly affirmed

the judgment (as we shall show in our opposition to Fore-

most’s petition for a writ of certiorari) and inasmuch as

the questions discussed herein involve matters either mis-

ee J

PE OPAL ING LUI

10

understood or ignored in the court’s opinion, the questions

presented might not be sufficiently important to justify an

independent petition for a writ of certiorari. However, if

this Court should grant Foremost’s petition, we submit

that it should review the entire case.

I. AN EXCHANGE OF ASSETS FOR STOCK IS AN “UNOR-

THODOX” TRANSACTION WHICH SHOULD BE EXAMINED

FOR A POTENTIAL FOR ACTUAL SPECULATIVE ABUSE.

This Court, in holding that ‘‘certain ‘unorthodox’

transactions’? might not be subject to §16(b), has noted

that ‘‘traditional cash-for-stock transactions that result in

a purchase and sale or a sale and purchase within the

six-month, statutory period are clearly within the purview

of § 16 (b)’? (Kern County Land Co. v. Occidental Corp.

(1973) 411 U.S. 582, 593). The Ninth Circuit erroneously

stated that it was not necessary to examine the transac-

tion herein for a potential for speculative abuse because

it viewed that transaction as ‘‘essentially a cash-for-stock

transaction’? (Appendix B, p. xvi; emphasis added).

Despite the Ninth Circuit’s characterization, the trans-

action herein was not an exchange of cash for stock; it

involved an exchange of assets for cash and securities.

In effect, Provident was merged into Foremost and _ it

received cash and Foremost debentures as consideration

in that merger. Professor Loss has noted that an ‘‘un-

orthodox’’ transaction may be involved in ‘*the acquisition

of securities of one company in exchange for the assets of

another” (Loss, Securities Regulation (Supp.2d Ed. 1969)

Vol. 5, p. 3029). Similarly, in Avern, this Court noted that

ELGG ITM I Ee TT NRE PN LR ME SPENT, FNS

11

“‘unorthodox”’ transactions would include ‘‘exchanges

pursuant to mergers or other corporate reorganizations”’

(411 U.S. 593, ftn. 24).

Provident had not entered the market with cash seeking

io purchase securities. Instead, Provident’s sole motivation

was to dispose of its assets in exchange for cash which

was to be distributed to its shareholders in the liquidation.

It is undisputed, as the district court pointed out, that

Provident did not want any Foremost stock and that it

accepted the debentures only because of Foremost’s insist-

ence (Appendix A, pp. ii-iii, xi). There thus exists a quite

meaningful distinction between this transaction and a

traditional cash-for-stock transaction. That distinetion per-

tains to the manner of acquisition. If a cash purchase is

involved, then there may be a reasonable presumption that

the purchaser wanted to acquire the stock which he pur-

chased and that he may have intended to engage in specu-

lation with that stock. If there is no cash involved, then

there may not have been any wish to acquire the stock

and, accordingly, no intent to speculate.

Therefore, the transaction should be examined to deter-

mine whether it involved a potential for actual speculative

abuse. We submit that the court below erred in its char-

acterization of the transaction and in its conclusion that

the potential for speculative abuse should not be examined.

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12

Il. THE TRANSACTION INVOLVED NO POTENTIAL FOR

ACTUAL SPECULATIVE ABUSE.

As discussed above, the Ninth Cireuit determined that

the transaction should not be exaimined for a potential

for speculative abuse and that §16(b) was automatically

applicable to it. Nonetheless, the court did examine the

transaction and, in doing so, it considered two factors:

(1) Could [Provident] reasonably be expected to

have had access to inside information? And (2) did

[Provident] initiate the transaction voluntarily ?”’

(Appendix B, p. xvii).

The Court of Appeals erred in its discussion of the mat-

ters pertinent to both these inquiries.

First, the Ninth Circuit correctly noted that the pre-

sumption of access to inside information could be rebutted

(Appendix B, p. xviii). However, it erroneously held that

Provident had not rebutted that presumption because it

had ‘‘not demonstrated that the Foremost management

was hostile’? (Appendix B, p. xviii). In Kern, this Court

examined the facts to ascertain whether ** Occidental either

had or was likely to have access to inside information, by

reason of its ownership of more than 10% of the out-

standing shares of Old Kern, so as to afford it an oppor-

tunity to reap speculative, short-swing profits’? (411

U.S. 596). From the fact that Old Kern’s management was

hostile, this Court inferred that the likelihood of posses-

sion of inside information was remote (411 U.S. 598).

Plainly, if the presumption of access to inside informa-

tion ean be rebutted by such an inference, it can also be

rebutted by other facts. Here, it is undisputed that the

negotiations between the parties related solely to the

ELLE GE SORA RRS Ge HS Sa PTE

13

evaluation of Provident’s assets which were to be trans-

ferred to Foremost. During that time, it was Foremost

that had complete access to Provident’s books and records

(R., pp. 251-252) but there was no reason for Provident

to have, and it did not have, any access to Foremost’s

books and records. There has therefore never been any

contention that Provident’s brief status as an ‘‘insider”’

gave it any access to inside information (Appendix

A, p. ix).

Second, the Ninth Cireuit’s emphasis on the *‘voluntary’’

nature of the transaction was misplaced. In Kern, in-

voluntariness was again a fact involved in the stock

conversion transaction. However, the voluntary nature of

the transaction is not necessarily a controlling factor.

This is made clear by the portion of this-Court’s opinion

which discussed the subsequent stock option transaction—

a wholly voluntary transaction—and concluded that there

was no potential for speculative abuse in that transaction

(411 U.S. 601-604). This view is consistent with that of

the Second Cireuit which has previously pointed out that

the voluntary nature of a transaction is not determinative

(Blau v. Lamb (2 Cir. 1966) 363 F.2d 507, 520).

As in Kern, Provident had no prior association with

Foremost and owned no Foremost securities before its

acquisition of the debentures. Therefore, Provident could

not be found liable because of any hypothetical specula-

tive calculations prior to the acquisition because any such

calculations ‘‘could not have been based on inside informa-

tion obtained from substantial stockholdings that did not

yet exist’’ (411 U.S. 597). Also, as in Kern, there was

no access to information after the acquisition. The court

rin

esa p hat

14

below therefore erred in its conclusion that there existed

a potential for speculative abuse.

Ill. THE SALE OF THE DEBENTURES OCCURRED WHEN

PROVIDENT WAS NOT AN OWNER OF 10% OR MORE OF

A CLASS OF FOREMOST’S SECURITIES.

The underwriting agreement was signed on October 21,

1969 (R., pp. 400, 707-719) and it provided that October

28 was to be ‘‘the time of purchase’? when Provident

would deliver the debentures and receive payment (R., pp.

707-708). On October 24, 1969, Provident distributed to

its shareholders other Foremost debentures held by it so

that, as Foremost conceded in the proceedings below, the

remaining debentures to be sold constituted ‘‘less than

10% of the class of outstanding common stock’’ (Fore-

most Opening Brief, p. 23). At the closing on October 28,

the remaining debentures were transferred to the under-

writers and Provident received its payment (R., p. 400).

Because possession and the incidents of ownership were

not transferred until October 2s, that date should be

considered the date of sale (Cham pion Home Builders Co.

v. Jeffress (6 Cir, 1974) 490 F.2d 4611, 616). On October

28, Provident was not an owner of 10% or more of a

class of Foremost’s securities and § 16(b) liability there-

fore could not attach (15 U.S.C. § 78p(b); Reliance Elec-

tric Co. v. Emerson Electric Co. (1972) 404 U.S. 418, 423-

425).

The Court of Appeals, however, erroneously held that

October 21 was the date of sale because on that date, in its

view, Provident was ‘‘irrevocably bound’? to sell (Appen-

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15

dix B, p. xxi). Because of its mistaken belief that Provident

had insulated itself against all market risks (Appendix

B, p. xxi), the court ignored the rule that a firm commit- ;

ment, standing alone, does not necessarily give rise to a

purchase or sale under § 16(b) (Champion Home Builders

Co. v. Jeffress (6 Cir. 1974) 490 F.2d 611, 616).

The court below made reference only to paragraph 7 ‘

of the underwriting agreement which permitted termina-

tion under certain adverse conditions until such time as

the registration statement became effective. The statement

became effective on October 21 and the court concluded

that therefore the agreement was not subject to termina-

tion after that date. In reaching that conclusion, the court

overlooked the fact that, under paragraph 5(h), the agree-

nent was subject to the express condition

‘That, between the time of execution of this agree-

ment [October 21] and the time of purchase [October

28], there shall oceur no material and unfavorable

change, financial or otherwise (other than as referred

to in the Registration Statement and the Prospectus),

in the condition of the Company [Foremost] and its

consolidated subsidiaries as a whole * * *” (R., p.

713).

APLOMB Rm a Re

Therefore, Provident could not have obtained speculative

advantage through the October 21 agreement. Provident

could not share in a rising market and, because the agree-

ment was terminable under adverse conditions, it was not

insulated from a falling one. Possession and ownership

rights were not transferred until October 28 and _ that,

accordingly, was the date of sale (ef. Nern County Land

Co. v. Occidental Corp, (1973) 411 U.S. 582, 602).

Se See

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16

IV. PROVIDENT HELD THE FOREMOST DEBENTURES

SOLELY FOR THE BENEFIT OF ITS SHAREHOLDERS

AND THEREFORE THE TRANSACTION WAS NOT SUB-

JECT TO § 16(b).

This case also involves certain questions pertaining to

‘‘beneficial ownership’? which were not considered in the

opinions below. The record temonstrates that at all per-

tinent times Provident was acting solely for the benefit of

its shareholders. A plan of complete liquidation had been

approved prior to the acquisition of the Foremost deben-

tures. Under California law, this required Provident to

cease all business other than ‘‘beneficial winding up’’ and

also required distribution of all assets to the shareholders

(Cal.Corp.Code §§ 4600, 4605, 5000).

We submit that, under these circumstances, § 16(b) was

not applicable to the sale of the Foremost debentures

because Provident’s shareholders, not Provident, were in

fact and in law the beneficial owners of those debentures.

We also submit that Provident had become a liquidating

agent or other similar person authorized by Cali-

fornia law to administer the assets of its shareholders,

rendering the transaction exempt under Securities and

Exchange Commission Rule 16a-4 (17 C.F.R. § 240.16a-4).

We have not presented here all the factual detail per-

taining to these points. If, however, this Court should

take up this case, we expect to argue these points in full.

“\ canine

Nie REST HCI DY to eae

17

CONCLUSION

For the foregoing reasons, we respectfully submit that

in the event that the Court should grant: -Foremost’s

petition for a writ of certiorari in this case, this cross-

petition should likewise be granted.

JoHN B. Bates

Nosie K. Grecory

Watrter R. ALLAN

Attorneys for Cross-Petitioner

(Appendices Follow)

MRE

EOE RE IER TEN” IN EE

Pehle VIMO w emuaer

ENN DRE ARUP. MON OYE