The agreement names the reorganization managers upon whom the committee has decided, usually includ ing one or more large banking houses which have been instrumental in financing the company and are ex pecting to underwrite some of the new securities. It is the duty of these managers to obtain, if possible, the assent of all the security holders to the agreement. The greater the number who participate, the smaller will be the amount of cash required to pay off dissent ers, and the greater will be the success of the reor ganization.
10. Reorganization agreement.—The reorganiza tion agreement now supersedes the deposit agree ment under which the protective committees acted. As in the case of the protective committee agreement, the owners are now asked to deposit their rights under the reorganization agreement. The same trustees are retained to hold the securities, so that no actual trans fer of their possession is required.
The advertisement of the reorganization agreement often provides that owners who have deposited under the protective committees will be considered to have assented to the reorganization agreement unless they take up within a certain length of time, usually twenty to thirty days, the securities which they have deposited previously. If the securities are not taken up, it only becomes necessary for the owner to surrender his old certificate and take a new one showing his participa tion in the reorganization plan.
At this point, the managers make every possible effort to interest all the security holders. In the meanwhile, they have incorporated a new company to buy in the property and have stated, in the reorganiza tion agreement, the extent to which financial support will be accorded to this new company by the banking interests. Others who have not deposited their rights under the protective committees are now asked to de posit under the reorganization plan. This is a critical stage of the reorganization, for if the plan is not at tractive, and sufficient securities are not deposited, the entire arrangement may fail for lack of adequate sup port.
The reorganization agreement gives the managers broad powers in carrying out the new plan, and usually provides also that the new stock, when issued, shall be pooled under a trustee for the purpose of as suring an uninterrupted management during the early years of the reorganized company.
11. Securing new cash.—Under the reorganization, new cash is needed for the following purposes: 1. To pay of receiver's certificates 2. To pay off creditors who are not participating in the reorganization.
3. To provide adequate new working capital and funds for needed replacements and improvements.
The new capital is secured by assessing stockhold ers and junior creditors who participate in the reor ganization, or by selling new prior lien securities to underwriters. The bankers, having formed a syndi cate, have agreed to underwrite certain preferred se curities if the committee is successful in securing the participation of at least a certain percentage of the former owners and creditors. To the exact extent that new cash is not provided by assessments, it be comes unnecessary to depend upon the underwriters for it. But since no one can tell in advance how many security holders will agree to the plan, or how much will be received from assessments, it is necessary that the underwriting agreement be elastic and for a suffi cient amount. If the provision of adequate cash is not absolutely assured, it is not likely that security holders will favor the plan and participate in the re organization, as they would not care to become inter ested in a new company which would begin its opera tions hampered for working capital.
Usually the reorganization cannot be accomplished unless at least a certain percentage of the certificates are deposited under the agreement. The fact that reliable bankers are supplying new cash is one of the greatest inducements for the security holders to j.oin in the reorganization. That is why the underwriting agreement is made first and announced in the reor ganization plan.
The underwriting agreement is between the reor ganization managers and the syndicate of bankers. It is not different from other underwriting agree ments, previously discussed, except perhaps that it is contingent upon the ability of the managers to secure the cooperation of a certain percentage of the cred itors and to purchase the property within a fair price at the foreclosure sale.