On the other hand, if a sufficient number of bondholders adopt this Fabian policy, they may so delay the process of reorgani zation as to cause loss to all bondholders, including, of course, themselves. So if the committee which solicits the deposit of his bonds is satisfactory, he may regard it, not only as a duty of loyalty, but his best finan cial policy, to deposit his bonds, and by so doing add all the strength he can to the com mittee, and by giving it strength lead to the coming in of the Fabian ones.
The following announcement of a protec tive committee will illustrate some of the statements made: — To holders of Missouri, Kansas & Texas Railway Company 100-year second mortgage 4 per cent gold bonds, due June 1, 1990, interest payable February and August 1st The interest due and payable February 1, 1916, OD the above described bonds has not been paid.
At request of the undersigned committee, formed for the protection of these bonds, the trus tee under the mortgage has intervened in the foreclosure proceeding now pending, and has filed its petition asking the court to order pay ment of interest on the bonds.
It is essential that holders should immediately deposit their bonds, with all unpaid coupons attached, with the Union Trust Company of New York, Depository. The committee will continue to receive deposits of bonds until the close of business on June 15, 1916, and, thereafter, only upon such conditions as the committee may de termine.
The depository will issue certificates of deposit therefor under a deposit agreement dated Decem ber 23, 1915, copies of which may be obtained from the depository.
The deposit agreement provides an opportunity for any depositing bondholder to withdraw, in case any plan of reorganization formulated is not approved, on payment of a proportional share of expenditures and obligations of the committee, which share is limited to the amount, or rate, of $10 for each $1000 face value of bonds de posited.
Application will be promptly made for listing the certificates of deposit on the'New York Stock Exchange.
Note the statement of the limitation of expenses. This encourages depositing by letting the depositor know the limit of his liability.
If the bonds in default are a large issue, part of which has been sold abroad, banks at the financial centers of the countries in which the bonds are largely held will be appointed depositories for the foreign bondholders. For eign bondholders may organize a protective committee of their own which may decide to cooperate with the American committee, or may oppose it in some or all of its pro posals. In the designation of depositories
the committee aims to make it as easy as possible for the bondholders to deposit and to present them with institutions sufficiently well known to them to have their confidence.
What has been said of the committee of the holders of the principal defaulting issue applies generally to the various protective committees of the other issues. Each com mittee desires to have deposited under its agreement as large a proportion as it can possibly get of the issue it seeks to represent. Just as the diversity of interest of bond issues of different securities makes it neces sary to have separate trustees for the several issues, so the diversity of interest, when the business is looking toward a reorganization, makes it desirable to have different deposi tories for at least the more important issues. Of course, the situation is not at all the same in the case of the protective committee depository as with the trustee. The trustees of different issues may actually have to take action in opposition to each other. The de pository under a bondholders' agreement is filling a purely administrative function. Dis cretionary action lies with the committee it self. Still it looks better, and is better, to have different depositories.
Immediately on the default, and simultan eously with the filing of the bill applying for the appointment of a receiver, the protective committee organized for the principal de faulting issue will give notice of its formation by extensive advertising, in which it will solicit the holders of bonds of the issue to make the committee their representative by depositing bonds under the protective agree ment prepared. The extent to which this agreement grants specific powers to the com mittee makes it run into a considerable docu ment. Regularly it is printed as a pamphlet, and the bondholder may, if he wishes, procure a copy from the depository trust company. Its provisions will be drawn so that the com mittee can count upon the bonds during the life of the agreement, or until the reorgani zation plan is announced. Arranging for a re organization is a tedious process and is likely to extend over several years. So it is de sirable to make the life of the committee run for five years before it expires by limitation of time.