In connection with the discussion of cash requirements we will quote the statement of the provisions for this purpose made in the reorganization plan, dated November 1, 1915, of the St. Louis & San .Francisco Rail road Company: — Provision for cash requirements For the purpose of meeting the estimated cash requirements of the plan, Messrs. Speyer & Co., J. & W. Seligman & Co., Guaranty Trust Com pany of New York, and Lee, Higginson & Co.
have undertaken to form a purchase syndicate, of which they will be syndicate managers. The purchase syndicate, among other things, will (a) purchase $25,000,000 prior lien mortgage bonds, Series B (five per cent); $43,180,000 common stock (trust cer tificates), for the sum of $25,000,000 (and accrued interest on the bonds), against which will be credited the amounts paid by stockholders as a condition of partici pating in the plan, and will offer the prior lien mortgage bonds and common stock (trust certificates) so purchased, to the ex tent and on the terms stated in the plan, to depositing holders of stock who shall have complied with the conditions of the plan; (b) purchase at the request of the reorganiza tion managers additional prior lien mort gage bonds, to an amount not exceeding in the aggregate $5,000,000.
No provision has been made for underwriting the cash required for payment to holders of non assenting refunding mortgage bonds and general lien bonds of their distributive share of the pro ceeds of the foreclosure sale, as, in the judgment of the reorganization managers, the failure to deposit undeposited bonds has been in the main due to existing conditions in Europe, where such non-deposited bonds are mainly held, but it is intended, on the completion of the reorganization, to set aside, under such restrictions as the reorgan ization managers shall deem proper, the new securities and cash to which, under the plan, hold ers of non-deposited refunding mortgage bonds and general lien bonds would be entitled if de posited under the plan, if deemed practicable until the expiration of one year after the conclu sion of peace by treaty, to be deliverable on the terms stated in the plan, at any time during such period, to holders of such bonds who may desire to avail themselves of the benefits of the plan and shall give satisfactory reason for their previous inability to deposit the same under the plan; the securities and cash deliverable in respect of any non-deposited bond to be available for providing, if necessary, the moneys required to pay the cash distributive share of such bond. Such refunding mortgage bonds deposited under the agreement of June 20, 1914, and such general lien bonds deposited under the agreement of May 28, 1913, as may be withdrawn from said respective agree ments, will not be entitled to avail themselves of such provision.
Guaranty Trust Company of New York has undertaken to form a loan syndicate, of which it will be syndicate manager, which among other things will, against the pledge by the purchase syndicate of such of the prior lien mortgage bonds and common stock (trust certificates), specified in subdivision (a) above, as shall not be purchased and paid for in full by depositing stock holders, and reserved against fully paid subscrip tion certificates, agree to advance to the purchase syndicate, up to ninety per cent of the face amount of said bonds so pledged. The loan syn
dicate will agree to make, for account of the pur chase syndicate, deliveries in accordance with the terms of the purchase warrants, to holders thereof complying with the terms of such purchase war rants.
The reorganization managers for their services shall be entitled to compensation in such usual amount as shall be determined to be fair by the persons, or a majority of them, who at the time of such determination are respectively Presidents of The New York Trust Company, Columbia Trust Company, and The Equitable Trust Com pany of New York.
The compensations and commissions to be paid to the reorganization managers and the respec tive syndicates are to be paid as part of the expenses of the reorganization. The reorganiza tion managers may become participants in either syndicate.
Finally the day set for the foreclosure sale arrives. The reorganization committee, or a subcommittee of it, attends the sale pre pared to submit its bid based on the upset price already set by the court. As already remarked, it would be an extraordinary thing for an unexpected bidder to appear. The court has fixed the upset price on the basis of what the reorganization committee can afford to pay for the property. No one else could afford to pay as much, because any one else would have to provide so much more cash. The reorganization committee can make a large part of the payment in bonds of which it holds a substantial majority, or else it would not have declared the plan operative. A minority bondholders' protective commit tee could not pay so large a proportion of the purchase price in bonds, and any one else would have to pay the entire purchase price in cash. We have already seen that providing the necessary actual cash is one of the crucial points of a reorganization undertaking, even for the majority bondholders. Since they do not need to provide as much cash as any one else they have a great advantage at this point over any other possible bidder. Now that the reorganization committee has done so much work, it does not, however, want to lose the purchase of the property through the sub mission of a bid only a trifling amount, as a dollar or two, higher than its own. Through the requirement of the cash deposit, making bidders disclose their intention of bidding, the committee will know of any competitors, estimate their strength, and conduct itself accordingly.