Fractional rights are bought and sold, and are con solidated to make up full rights. The full right and fractional right certificates look very much like certif icates of stock, but are usually printed in different colors to be readily distinguishable. They contain complete statements of how and when the right to sub scribe is to be exercised. Usually, a first payment of ten per cent or more of the amount of stock subscribed for is to be made within a certain time, and subse quently instalments are to be paid at fixed periods. If the first payment is not made within the time lim ited, the right expires. If subsequent payments are not promptly made, penalties or forfeiture is pre scribed. Payments are usually acknowledged on the certificate, and a form of assignment is printed on the reverse side in order that the certificate may readily be transferred at any time before final payment is made, when the certificate will be exchanged for a certificate of' stock.
27. Right of bondholders to subscribe to Bondholders ordinarily have no inherent right to sub scribe to stock. But when a company's stock is not selling far above par, so that the right to subscribe at par is not a sufficient inducement to the stockholder to take all the new stock, the bondholders make a very good class of' prospects to whom the stock may be of fered. It would seem, then, that if the stock is selling below par in the market, the company could make an offer to the bondholders to purchase some of it at par, since the stockholders could prove no damages.' When corporations give their bondholders the priv ilege to buy stock, the privilege is usually tendered as an inducement when the bonds are offered for sale. The 10 year, 6 per cent, gold notes of the American Power and Light Company, dated August 1, 1911, were accompanied, when issued, by detachable option warrants, on surrender of which, and on payment of cash, holders may purchase at par, stock to an amount equal to the par value of the notes. Warrants, by their terms, are transferable until Aug. 1, 1921—the (late of maturity of the notes. The noteholder, it will be seen, may either sell his warrant and keep his notes, or he may sell the notes and hold the warrants.
28. Right of stockholders to subscribe to bonds and right,to subscribe to stock, we have seen, is necessary to maintain proportionate control, and the common law right of the stockholder to participate in the purchase of new issues of stock is based on that principle. Bonds and notes do not affect the control of solvent corporations. We find, therefore, that stockholders have no inherent right to subscribe to these creditor instruments. To be sure, stockholders
are good prospects to whom to offer bonds, and it is not unusual for a company to make a private offer to the stockholders before the general public offering is Made.
29. Conversion as a method of fre quently bonds are issued convertible into stock. This is an inducement to prospective bondholders, since if the company prospers and dividends are increased, the bondholder may convert his bond into stock which will have a higher market value.
The important incident of convertible bonds is in the opportunity which they give for influencing the con trol of a company. The historic war over Erie be tween Vanderbilt and Drew aptly illustrates our point. Drew and his retainers had been enjoined by a New York court on the petition of Vanderbilt from issu ing additional stock. It was the purpose of Vander bilt to get a corner in Erie and eventually to oust the ring—Fisk, Gould and Drew—from the management. The strategy of the latter consisted in issuing convert ible bonds which were promptly transferred to an out side person who demanded their conversion. Upon perfunctory refusal, an injunction was sought and ob tained directing the conversion of the bonds. Thus was everything made "legal." When Vanderbilt's brokers began the bidding on the day set for the corner they were first amazed and then horrified at the prompt offers and deliveries of the stock.
Wall Street had never been subjected to a, greater shock and the market reeled to and fro like a drunken man between these giants, as they hurled about shares by the tens of thou sands, and money by the million. When night put an end to the conflict, Erie stood at 78, the shock of battle was over, and the astonished brokers drew breath as they waited for the events of the morrow. The attempted "corner" was a failure, and Drew was victorious—no doubt existed on that point.' 30. Control thru redemption.—The right to redeem stock at the option of the directors is frequently in cluded in the contract with preferred stockholders. When the latter have the right to vote, the redemp tion feature may be used by the management to re duce an outside majority to a minority. The clash between the Hill and Harriman interests in 1901 over Northern Pacific is a classical example. Their ef forts to get control, it will be remembered, carried the market to the $1,000 mark. Many Wall Street op erators sold short at the time, not knowing that these giants, the one backed by J. P. 11.1organ and Com pany, the other by Kulin, Loeb and Company, were buying the stock for actual delivery to get the voting power.