176 CORPORATION FINANCE
and limited by its agreement, Such agreements are legal and binding, unless
they are contrary to some statute or against the public policy of the state."
Procedure Prescribed.—-Rights of the holders of second mortgage 4 per
cent 50-year bonds of the Minneapolis, St. Paul and Sault Ste. Marie Ry. Co.,
in case of default, are distinctly limited. No action may be taken except
by the trustee, unless the trustee, upon request of the bondholders, accom-
panied by adequate indemnity against expenses, elects to refuse to commence
action. The desire of the bondholders is determined in the following man-
ner: First, they must have been registered for the purpose before they are
entitled to vote on the question. Then, if the holders of one-fifth of the out-
standing bonds request, in writing, a meeting of the bondholders, to be held
in New York City, the trustee shall publish a notice of such meeting in the
newspapers of New York, Minneapolis, and St. Paul once a week for 4
successive weeks.
At such meeting, bondholders registered for the purpose are entitled to
one vote for each bond owned. Unless the bondholders meet and determine
otherwise, the holders of a majority of all outstanding bonds is necessary for
a quorum. In addition, {/ the bondholders acquire the right to vote by
registering for that purpose, if the holders of one-fifth of the outstanding
bonds request the trustee to call a meeting, if a quorum is present at such a
meeting, and if the sentiment of the meeting favors positive action by the
trustee to protect the interests of the bondholders, the trustee may require
that any act or resolution of the bondholders be authenticated by the signa-
tures of all persons assenting thereto.
If all the events described in the preceding paragraph should occur, the
trustee may then refuse to act and resign. In such case, the board of
directors of the company has 30 days to select a new trustee. If they fail
to do so within the 30-day period, the holders of a majority of the outstanding
bonds may select a trustee at a meeting held for the purpose. If the vacancy
is not filled within 90 days after it occurs, any judge of a U.S. circuit court
in Minnesota may make such an appointment, provided that he receives a
written request to do so from the holders of not less than one-fifth of
outstanding bonds.
Presumably, after the bondholders have done everything within their
power to meet these requirements, even though there is no trustee to put
their desires into effect, there is still some legal manner of protecting their
interests. The bond indenture is not clear on this point. It would be
interesting to read the definition of the trustee's own conception of its
relationship to the bondholders under this indenture.
Securities and Exchange Commission Investigation.—The presence of
immunity and exculpatory clauses in mortgage indentures removes much of
the presumed protection that bondholders expect to receive from trustees.
Courts have not been too anxious to hold trustees to more than their definite