Kiley, Fairchild and Stevens, Circuit Judges.
Plaintiff-appellant, a shareholder of Susquehanna Corporation, contends that the second and third steps of a three-step transaction produced a "shortswing" profit for defendant Korholz, a Susquehanna director, which is recoverable on behalf of Susquehanna pursuant to § 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b). Defendants contend that the second step was not a "sale" within the meaning of the Act and, in any event, there was no "profit realized by" Korholz from either the entire transaction or just the last two steps.
After a full trial, the district court made extensive findings of fact sustaining these defenses. In our opinion the findings that Korholz realized no profit are well supported by the record and, therefore, we do not reach the issues raised by the first defense. Nevertheless, a description of the entire transaction is essential to an understanding of the case.
The three steps took place on May 25, July 2, and December 13, 1965.
A. On May 25, 1965, Korholz acquired 430,000 shares of Susquehanna common stock at a price of $15 per share. Before making this acquisition Korholz had reached at least an informal understanding with four other interested parties.
1. The sellers (referred to as the "Lannan Group") advised Korholz early in May that their Susquehanna stock was available for purchase at a price of $15 per share, payable in cash, provided that the transaction could be closed promptly. Since they were to be paid in cash, the Lannan Group was apparently willing to sell either to Korholz individually or to American Gypsum Company (Gypsum). Korholz was a director of Gypsum and with his family owned 56% of its stock.
2. The First National Bank of Boston ("the Bank") agreed to lend $6,500,000 to Gypsum to finance the purchase provided that it could be assured of a first lien upon Gypsum's assets as well as a pledge of the Susquehanna shares to be purchased. The condition could not be satisfied by Gypsum without the consent of two insurance companies from which it had borrowed substantial funds in March. After the insurance companies indicated their willingness to consent on certain conditions, and after Korholz and Gypsum indicated that the conditions could be met, the Bank agreed to make an interim loan to Korholz individually, which would be replaced within 30 days by a loan to Gypsum. Before any funds were disbursed in consideration of the note signed by Korholz personally, the Bank had received the substitute note and other doctuments executed by Gypsum, as well as telegraphic confirmation of the insurance companies' informal consent.
3. The two insurance companies agreed to consent to the bank loan secured by a first lien on Gypsum's assets on three conditions:
(a) that Gypsum would agree to repay the bank loan upon a merger of Gypsum into Susquehanna;
(b) that the proceeds of any sale of Gypsum's Albuquerque plant be used to reduce the bank loan; and
(c) that Korholz and two other Gypsum directors be elected to Susquehanna's board.
In telegrams sent to Gypsum on May 12 and May 14, the insurance companies evidenced their consents subject to these specific conditions.
4. The Gypsum board of directors decided at a meeting on May 12, 1965, to acquire the Susquehanna shares for the price specified by the Lannan Group; to make the bank loan; and to accept the conditions requested by the insurance companies. Since the Bank was unwilling to advance funds to Gypsum until after its loan agreements with the insurance companies had been formally amended to evidence their consents, and since the Lannan offer would expire before the amendments could be drafted, approved and executed, the Gypsum board adopted a resolution providing that if Korholz ...