Bonds that deviate from the conventional level of participation

C. Modifications of the rule that the bondholder has no further interest in assets or profits beyond the promise to pay a principal sum at maturity and a definite rate of interest meanwhile , and no voice in the management :

1) Participating bonds ( note great variation in basis of participation ) :

Typical Examples :

2) Convertible Bonds : These constitute the largest single group of exceptions to the rule that the bondholder has a definitely limited interest in assets and earnings . The number of variations in the terms of convertible issues is practically unlimited.The variations play mainly upon the conversion ratio, the duration of the privilege , the security into which the issue is convertible , special limitations upon the right to convert , and combinations of these factors. The following classified list is only a partial one. It should be noted that the terms of the privilege are usually subject to alternate through operation of anti dilution clauses.

(1) Duration of the privilege subject to termination through the reserved right of the corporation to call the issue :

Typical Examples :

(2) Same as foregoing , but right to call issue is suspended for a stated period following issuance.

Typical Examples :

(3) Non callable convertible issues :

Typical Examples :

(4) Convertible issues not subject to redemption until after the privilege has expired .

Typical Examples :

(5) Duration of the privilege limited only by maturity or prior redemption :

Typical Examples :

(6) Privilege expires on definite date prior to maturity :

Typical Examples :

(7) Privilege is not operative from the date of issuance , but begins only after the lapse of a specified period of time :

Typical Examples :

(8) Issues convertible into stock or other bonds at the option of the obligor :

Typical Examples :

(9) Issues convertible by either the holder or the obligor under special limitations upon the right to convert :

Typical Examples :

(10) Issues convertible only when certain conditions with reference to earnings have been met :

Typical Examples :

(11) Only a part of the issue may be converted :

Typical Examples :

(12) Amount in any one year limited to stated maximum :

Typical Examples :

(13) Duration of the privilege terminated when given number of shares have been exchanged for bonds :

Typical Examples :

(14) Issues convertible into common stock ( most customary arrangement) :

Typical Examples :

(15) Issues convertible into preferred stock :

Typical Examples :

(16) Issues convertible into class A Stock which is junior to one or more preferred shares :

Typical Examples :

(17) Bonds convertible into other bonds ( usually short-term notes into longer term issues , to give the holder the option of repayment or of continuing his investments)

Typical Examples :

(18) Bonds convertible into units of two or more issues :

Typical Examples :

(19) Bonds convertible into either of two classes of preferred stocks or into either of two classes of common stocks :

Typical Examples :

(20) Other special and more complicated arrangements of the foregoing types :


Typical Examples :

(21) Bonds convertible into securities of a company other than the obligor :

Typical Examples :

(22) Bonds convertible into an issue which is itself convertible :


Typical Examples :

(23) Bonds convertible into an issue which is both participating and convertible :

Typical Examples :

(24) Issues converted into bonds of preferred stocks which carry stock-purchase warrants :

Typical Examples :

(25) Bonds convertible into participating issues :

Typical Examples :

(26) Bonds convertible into stock upon surrender of the bonds and payment of a further sum in cash :

Typical Examples :

(27) Bonds convertible into stock upon surrender of the bond , with the option of obtaining larger amount of stock upon payment of further sum in cash :


Typical Examples :

(28) Bonds convertible into stocks at a flat price throughout the life of the privilege :

Typical Examples :

(29) Bonds convertible into stock at prices which vary in accordance with a specified time schedule :

Typical Examples :

(30) Bonds convertible into stock at prices which vary in accordance with the extent of which the holders have exercised the privilege :

Typical Examples :

3. Bonds with stock-purchase warrants : These also give the holder an interest in assets and earnings beyond the participation therein afforded to the holder of a standard bond . The variations in the terms of warrants-bearing issues are about as numerous as those pertaining convertible bonds.The following is a partial list.The terms of the privilege are usually subject to alteration through operation of anti dilution clauses.

(1) Privilege terminated with maturity of the bond :

Typical Examples :

(2) Privilege expires prior to the maturity of the bond :

Typical Examples :

(3) Duration of subscription privilege subject to termination through exercise of right to redeem the issue :

Typical Examples :

(4) Warrant entitles holder to purchase stocks at a flat price throughout the life of the privilege :

Typical Examples :

(5) Warrant entitles holder to buy stock at prices which vary in accordance with a specified time schedule :


Typical Earnings :

(6) Warrant entitles holder to buy stock at prices determined by the order in which the warrants are exercised :

Typical Examples :

(7) Warrant entitled holder to purchase stock at the higher of two prices , one being dependent upon the cost of foreign exchange in terms of dollars :

Typical Examples :

(8) Bonds carrying warrants for a bonus in common stock :

Typical Examples :

(9) Bonds carrying two different warrants entitling holder to purchase common stock on separate scales of prices at the same time :

Typical Examples :

(10) Bonds carrying various warrants entitling holder to exchange the bond for stock on one scale of prices and to subscribe for additional stock on another scale of prices :

Typical Examples :

(11) Bonds carrying warrants for purchase of constant number of shares at a flat price :

Typical Examples :

(12) Bonds carrying warrants for purchase of a varying number of shares at a flat price :

Typical Example :

(13) Bonds carrying warrants for purchase of a varying number of shares at various prices :

Typical Examples :

(14) Bonds carrying warrants entitling the holder to purchase a participating Class A stock :

Typical Examples :

(15) Bonds carrying warrants entitling the holder to purchase a convertible preferred issue :

Typical Examples :

(16) Bonds carrying warrants entitling the holder to purchase a block or unit of stock consisting of two or more issues :

(17) Bonds with warrants which are detachable only at the time the warrant is exercised or upon redemption of the bond :

Typical Examples :

(18) Warrant detachable upon exercise but becoming void when issue is called :

Typical Examples :

(19) Detachability of warrant subject to formal approval by the corporation.

Typical Examples :

(20) Bonds carrying warrants which became detachable upon issuance of bonds :

Typical Examples :

(21) Bonds carrying warrants which became detachable only after the lapse of a specified period following issuance of the bonds :

Typical Examples :

(22) Warrants exercisable only upon payment of the subscription price in cash .

Typical Examples :

(23) Warrants permitting payment of the subscription price either in cash or in face value of the bonds to which they were attached :

Typical Examples :

4.Bonds with mixed privileges :

(1) Convertible bonds with stock purchase warrants :

Typical Examples :

(2) Convertible bonds which were also participating :

Typical Examples :

(3) Participating bonds with warrants attached :

Typical Examples :

5. Bonds with a voice in management :

(1) Classic example of bond with full voting power was the $ 10,000,000 issue of 5% bonds of United States Shipbuilding Company issued in 1902 to Mr.Charles M.Schwab in partial payment for his stock in Bethlehem Steel Co. The voting rights attaching to these bonds enabled Mr.Schwab to control the United States Shipbuilding Co.

Typical Examples :

(2) Bonds with restricted voting powers :

Typical Examples :

That was the end to the section on Bonds ! Preferred stocks next ! :)