Express Chemical Company is a publicly traded company that has been operating at a profit for years.

Its officers (all of whom are stockholders) are concerned about the prospects of the company. Customers and employees claiming that toxic chemicals produced by the company caused their health problems have sued many similar firms. Lawsuits have yet been filed against Express, but the officers fully expect them to be filed within the next two years.

The officers hold 70% of the stock and estimate that their total stockholdings have a current market value of about $8 million (although its value would be much lower if all the facts were known). They are worried that if suits are filed and the company loses, there will not even be enough remaining assets to satisfy creditors' claims, and the officers' stock would be worthless. Private legal counsel informed the officers that the company is likely to lose any suits that are filed.

One of the officers suggested that they could at least receive something for their stock by having the company buy half of the shares held by the officers at a total price of $4 million. Another officer asked if such a treasury stock transaction would be legal. The response was that the transaction would be legal and retained earnings would be reduced to a zero balance. However, there would not be a debit balance because of the transaction.

If you were one of the officers, would you feel comfortable engaging in this proposed treasury stock transaction? Briefly explain.

What are your ethical responsibilities, if any, as they relate to the proposed treasury stock transaction?