other stockholders?" asked Mr. Beck dubiously "We don't want them trailing along with us."
"I propose," answered Mr. Elderberry brightly, in his capacity as chief conspirator for Scherer, Hunn, et al., "that we organize a new corporation to be called 'Lallapaloosa Limited' and capitalize it at a million dollars—one million shares at a dollar a share. Then we will execute a contract between Horse's Neck and Lallapaloosa by the terms of which the old bankrupt corporation will sell to the new corporation all its assets for one hundred and twenty-five thousand dollars. We underwrite the stock of Lallapaloosa at fifty cents a share, thus supplying the new corporation with the funds with which to purchase the properties of the old. In a word we shall get Horse's Neck for a hundred and twenty-five thousand and have three hundred and seventy-five thousand left out of what we subscribe to underwrite the stock to put it on its feet."
"That's all right," debated Hunn. "But how about the other stockholders in Horse's Neck that Beck referred to? Where do they come in?"
"I've thought of that," returned Elderberry. "Of course you can't just squeeze 'em out entirely. That wouldn't be legal. They must be given the chance to subscribe at par to the stock of the new corporation on the basis of one share in the new for every ten they hold in the old; or, as Horse's Neck is a Delaware corporation, to have their old stock appraised under the laws of Delaware. In point of fact, they've all written off their holdings in Horse's Neck as a total loss years ago and you couldn't drag 'em into putting in any new money. They'll simply let it go—forfeit their stock in Horse's Neck and be wiped out because they were not willing to go in and reorganize the property with us."
"They would if they knew about Amphalula," remarked Beck.
"Well, they don't!" snapped Greenbaum, "and we're under no obligations to tell 'em. They can infer what they like from the fact that Horse's Neck has been selling for ten cents a share for the last three years."
"Is that right, Chippingham?" inquired Beck of the attorney who was in attendance. "I mean—is it legal?"
"Perfectly legal," replied Mr. Chippingham conclusively. "A corporation has a perfect right to dispose of its entire assets for a proper consideration and if any minority stockholder feels aggrieved he can take the matter to the Delaware courts and get his equity assessed. Besides, everybody is treated alike—all the stockholders in Horse's Neck can subscribe pro rata for Lallapaloosa."
"Only they won't," grinned Scherer.
"And so, as they are wiped out—the new corporation—that is us—in fact gets their equity, just as much as if they had deeded it to us."
"That is, we get for nothing about one-half the value of the property," agreed Elderberry. "Now, I've been over the list and I don't think you'll hear a peep from any of them."
"He's got 'em on the list—he's got 'em on the list;
And they'll none of 'em be missed—they'll none of 'em be missed!"
hummed Mr. Beck. "It looks good to me! I'll take a hundred thousand."
"Mr. Chippingham has the papers drawn already," continued Elderberry. "Of course you've got to give the old stockholders notice, but we can rush the thing through and before anybody wakes up the thing will be done. Then they can holler all they want."
"Well, I'll come in," announced Hunn complacently.
"So will I," echoed Scherer. "And the firm can underwrite the last hundred thousand, and that will clean it up."
"Is it all right for us to underwrite the stock ourselves at half price?" inquired Mr. Beck. "I mean—is it legal?"
"Sure!" reiterated Mr. Chippingham. "Somebody's got to underwrite it; why not us?"
"Move we adjourn," said Mr. Greenbaum. "Elderberry—the usual."
Mr. Elderberry removed from his change pocket five glittering gold pieces and slid one across the glass sheet to each director.
"Second motion. Carried! All up—seventh inning!" smiled Mr. Scherer; and the directors, pocketing their gold pieces, arose.
If, as it has been defined, ethics consists of a "system of principles and rules concerning moral obligations and regard for the rights of others," it may be interesting to speculate as to whether or not these gentlemen had any or not, and, if so, what it may have been. But in considering this somewhat nice question it should be borne in mind that Messrs. Scherer, Hunn, Greenbaum & Beck were bankers of standing, and were advised by a firm of attorneys of the highest reputation. On its face, and as it was about to be represented to the stockholders of Horse's Neck, the proposition appeared fair enough.
The circular, shortly after sent out to all the names upon the list, stated succinctly that financial and labor conditions had been such that it had been found impossible to operate the mine profitably for several years, that it had depreciated greatly in value owing to the water which had accumulated in its lower levels, that it had exhausted its surplus, that a heavy indebtedness had accumulated, that the corporation's outstanding notes had been protested and that the property would be sold under foreclosure unless money was immediately raised to pay them, the interest due and taxes; that half a million dollars was needed to put the property in operation and that there was no way to secure it, as nobody was willing to loan money to a bankrupt mining concern. That under these circumstances no practical method had been proposed except to organize a new corporation capitalized at one million instead of ten, to the stock of which each shareholder in Horse's Neck might subscribe in proportion to his holdings, at par, and to which the assets of the old corporation should be transferred practically for its debts. That this, in a word, was the only way to save the situation and possibly make a go of a bad business, and that it was a gamble in which the old stockholders had a right, up to a certain date, to participate if they saw fit. Those that did not would find their stock in Horse's Neck entirely valueless as it would have no assets left which had not been transferred to Lallapaloosa. Stockholders who were dissatisfied could protest against the enabling resolution to be offered at the annual meeting of the stockholders of Horse's Neck to be held the following week at Wilmington, Delaware, and could avail themselves of the right to have their equity assessed under the laws of Delaware, but as the liabilities practically equaled the present value of the property that equity would naturally be highly problematical.
Now, as a matter of morals or of law the only thing that made the proposed reorganization unethical or inequitable was the single trifling fact that those responsible for it were the only ones who knew of the existence and proximity of the Amphalula vein. When a mining company, a railroad, an oil well or any other enterprise is down and out it is only fair that the majority stockholders, who are obliged to protect their investment, should have the right to call upon the rest to come forward and do their share or else drop out. A minority stockholder cannot appeal to any canon of fair play whereby he should be entitled to sit back and let the majority take all the risks and then claim his share of the profits.
The imponderable element of injustice in the situation consisted in the suppression of a fact which the directors concealed but concerning which, however, they made no representation, false or otherwise. They were going to risk half a million dollars of their own money and they wanted the whole gamble for themselves. They sincerely felt that nobody else was entitled to take that risk with them. Once they had floated Horse's Neck they had come to look upon it as their own private affair. The minority had no rights which they, the majority, were bound to respect. The minority were nothing but a lot of piking gamblers, anyway, who bought or sold for a rise or fall of a few cents. They knew nothing of the property and cared less for its real value. They were merely traders and if they lost they forgot it or tried to. On the other hand Scherer, Hunn, Greenbaum & Beck were promoters,
