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l^HW— —if— — w ill" liMiF'

MANITOBA

Norlli-Wesloni Bailway b'y of Caliiila.

LETTER

Of the President. MR. ANDREW ALLAN,

Holders of the ^540,000 Six per cent (1886)

' First Mortgage Bonds,

Montreal, 9th October, 1894.

^'K

d 1 ^\

1*1 of''r°,nl*"'^'^* '^'"^"""^ nationales
■ ■ ot Canada di; r.nn^rt.

tiu Canada

MANITOBA

AND

North- Western Railway Co'y of Canada.

LETTER

Of the President, MR. ANDREW ALLAN,

TO THE

Holders of the /5-40,UOU Six per cent (I880)
First Morti^Qoe Bonds,

DATED

Montreal, 9Lh October, 1894.

-t

h.l

:^-/Bfi

900363

Manitoba and Nopth-Western Railway Company

OF CANADA.

LETTER

Of the Prm>le!if, Mn. Am.hew Ai.i.a.v, fa the hohlerx of the

£040,000 Six per cent (1880) Fir^t Mort;/ai/e Duwh

dated Montreal, 9th October, J8O4.

-» «»» ■

My attention has been called to an account of the
proceedings of a Meeting of the holders of the £540,000
first mortgage bonds of the JVIanitoba and North Western
Eaihvay Company of Canada, held on the 23rd of July last,
at which Mr. Edward F. Coates presided as Chairman.

The Chairman in his lengthy address a])peared desirous
of creating the impression that in some indefinite - ,y or
another the Messrs. Allan were respoitsiblo to the xlt" ad-
holders of the First Division, and that they had committed
some impropriety in procuring tlu; appointment of a Keceiver,
and were desirous of depriving the Bondholders of their rights
under their security.

There is no foundation ^\hatever for any of these
suggestions, and what object the Chairman had in attempting
to create such an impression, it is hard to understand. As
a matter of fact, the Messrs. Allan made no rei)resentation
regarding, nor did they ever make themselves in any way
responsible for, the issue of the fi rst mortgage bonds, which
were issued in the ordinary way through financial houses in
London by the Railway Company.

If the Chaimmii, \vlu> is well u.Miuiiiutid with all Ui
facts. bu(I desired to make a fair .statement of the position,
ho would have inf.,rnH-<l tin- Hondlxjlders that the whole
proceeds of the .4:540,000 In.nd.s wer(i spent in the con-
struction of the B.-ndhuMrrs ISO miles, with jicrliaps the
excei)tion of the UMially h.r-(' cummi.ssiuii.s paid to the
iinuncial houses in J..,ndon ; that the n,ad has never been
able to pay its bond interest, that the returns re-ularly
made to the Trustees and to the Go-.rnment have always
shewn this, that the Messrs. Allan jaovided nearly all the
rolling stock for the Comijany, and up to the date the lieceiver
was ai)pointed were never paid the agreed rental therefor,
and that they, out .,f their ..wn pocket, have paid seven'
interest coupons, amounting wilhuut interest to X99,o50
and that they are for this and lor various other sums paid
on behalf of the Kailway, interested to an extent almost as
large as the whole of tlie JJoiidholders.

Under these circumstances it would seem that they
were the proper peoide to ai)ply lV.r a Receiver, as they did ;
and their action in doing so was absolutely necessary to
})reserve the Kailway from the attacks of its other creditors,
who would doubtless have commenced actions against the'
Company on default of payment of bond interest. °

By the appointment of a Keceiver, the whole assets and
revenues of the Company were put in the custody of the
Court, and no money has been or can be expended without the
Court's sanction. The application for a Receiver was made
as much for the protection of the Bondholders and other
creditors as for the Company, and it would be impossible,
even if the Directors so desired, to injure or destroy the
Bondholders position as first lien holders on the 180 miles.

At various times during the Company's history, there
have been associated with them on the Directorate wealthy
and influential men, who were not connected with them in
any other way, and it has only been owing to the persistent

^vitli all Ui
1k' position,

the whole
u till! con-
[joi'hups the
<aitl to the
nuvcr been
s r(;L,'iiliii'ly
uvo always
arly all tho
iii Iveceiver
al thcrefoi',
Iiiiid seven
o £91), 350

sums paid
t almost as

that they
s they did ;
L'cessary to
r creditors,
igainst the

assets and
ody of the
I'ithout the
was made
and other
mpossible,
estroy the
80 miles.

tory, there
e wealthy
h them in
persistent

«'ffort of the ^r.•ssl•s. Allan to make this enterprise successful
that they have become owm-rs (.f so large a proportion of the
stock, and have been called upon to pay so larcje an amount
of money as they have invested in the Company.

The Chairman further stated that the first mortgage
Bondholders absolutely refused to invest in bonds upon "any
portion of the line not in the Province of Manitoba. This
is incorrect, as the 180 miles, upon which the Bomlholders
security now exists, extends some distance beyond the limits'
of the Province, and into the Norlh-West Territories.

The Chairman stated that within his knowledge the
gentleman counselling the late Sir Hugh Allan at the time
the present Bonds were being negotiatetf a<lvised him that it
was imi)ossible to float Ulanket Bonds in Kngland covering
the road then built and to be Ijuilt.

I can only say in answer to this statement that Sir
Hugh Allan died in the year 1882, and the Bonds were
sold in England in 188fi.

The Chairman further stated that the Allans were the
principal stockholders in the Company, holding shares to the
extent of £930,000, on which no very large percentage had
been paid ; that in 188G they had received the proceeds of
the £540,000 loan ; that in June, 1893, default had been
made in payment of the .c ,orest, and that on the Company
being required to deliver up possession of the First Division
of the Eailway, the Messrs. Allan had replied,— I quote the
Chairman's words, from the printed proceedings of the
Meeting,—" No ; we have got your money ; we ridicule the
"powers of the Trust Deed, they were ultra vires of the
" power of the Company to confer, and they must be ignored
" or upset. We have made a bad speculation, and you, the
" English Bondholders, must share that speculation, although
"you had no shares and no reversionary rights in the
" Company. (Cries of shame), and that he presumed the
"Allans had "decided on a policy of defiance, ahd of

"sc'L'king t(» (h'priv*! irs (tlu' I'.oinllioldors) l»y ev«fry nicims
" in thfir powor oi what \v»' luive always under.stood and
" believeil were our un(|iie.stiunaljle rights under the Trust
" Deed."

As regards this, tlie Chairman has sought to mislead
the Hniidholders. No .sucli cxjjroHsious have ever been used
by the AfeHsrs, Allan, or any one on their behalf, in reference
to these matters, and the jn-oceedings in the Courts do not
warrant any such statements.

The only matter really in dispute between the Trustees
of the Bondholders and the Company, is as to the meaning
of the mortgage. The mortgage grants the First Division
of the Kailway to the Trustees " subject nevertheless to the
" worHng expenses of the said Eaiiway and telegraph, and
'• to all rates, taxes and assessments and other Oovernment
" charges." The Company claim that "subject to the working
"expenses of the Railway" means what it says. The
Chairman and Trustees deny this contention, claiming that
these words mean " subject to the working expenses of a
portion of the Railway," i.e. the First Division.

This in effect is the sole matter of contention between
the Bondholders and the Company, and migh^ have been
readily decided by the Courts without the useless and ex-
pensive litigation that is now going on.

There really is no conflict of interest between the
Messrs. Allan and the Bondholders. The severment of the
line would be harmful to all. Without the business given
by the Second Division and Branches, the First Division
would not earn running expenses; and without the extension,
and the business thereby created, the First Division can
never earn enough to pay interest upon the bonds.

Shortly after the appointment of Mr. Montagu Allan
as Receiver, and after he had given large security for the
proper performance of his duties, the Trustees representatives
sought to take possession of the 180 miles with the announced

v(iry ruciHis
erstood and
• the Trust

to mislead
r been used
n reference
arts do not

le Trustees
le meaning
it Division
■ele88 to the
iraph, and
overnmexit
\e working
lays. The
iming that
^ensea of a

n between
have been
ss and ex-

tween the
lent of the
ness given
t Division
extension,
vision can

;agu Allan
ity for the
isentatives
innounced

dett'niiiiialidii uf (i|i«'iiitiiii,' \\y,i\, Divisjun indciMii.l.'ntly, and
without regard ftt the rt'Oiaiuing portions of thr liin-. The
Comj)any resisted this demand, upon the ground that the
Trustees were not empov.cred to make it under tlie terms of
the Trust Deed, that under the Canadian h'aihvay Act the
Trustees had no power to operate a Hallway, and that
compliance with the d.tiiiiiud would result in operations
being suspended on the Cdinpany's line until after a nale of
the First Division, and ihe punhaser.s had secured from the
Minister of Kailways a licenne to operate, to be followed by
their securing the pas-sage of uu Incorporating Act, on the
application for which projier terms providing for the life of
the Second Division and I5raiu;hes wouli' be imposed by
Parliament. The Company further resisted the demand,
upon the ground that it couhi not consent to a disintegration
of its line, which would have been undoubtedly followed by
ruin to the whole enterprise, as the following statement will
show ; —

The earnings for the First Division for the year ending

30th June, 1894, were £33,108 10

The operating expenses 34,125 9

Deficit £1,016 19

The General Manager estimates that the First Division
earned in respect of trafHc originating on, or destined for, the
Second Division and Branches during the year ending 30th
June, 1894, about £5,000. The net deficit for the above
period, had the Second Division and Branches been closed,
would have been, say, £6,010 19 0. on the First Division.

These figures show how utterly misleading was the
statement referred to by the Chairman that the First Division
is making money and could pay a dividend if that portion of
the road were in their own hands ; and it is difficult to
understand how he could have ventured to repeat such

erroneous views, as the Company has at ull times been and
still is quite willin- to supply all th.- information in its
power to any i.arties entitled to it, which would clearly show
the incorrectness of any such contention, aa well as of the
Chairman's further statement that the Allans were taking
the Bondholders moneys to pay their losses.

The above calculation is based on the schedule of
ilivision of earnings in effect now governing the operation of
the First and Second Divisions of the Eailway.

Ihe Messrs. Allan have endeavored to impress these
views upon the Chairman and the Committee of Bondholders,
and have endeavored to get them to allow matters to remain
in statu quo, whi(di i)osition ]>erfectly protects the rights of
the Bondholders, until it can be ascertained whether'or not
the Dominion Government will extend the same assistance to
the Manitoba and Xorth- Western Railway as it has done to
other similarly situated lines.

At the instance of the Messrs. Allan, the Dominion
Government at the last Session of Parliament agreed to
advance $3,200 a mile for extension, and the Company are
not without hope that that subsidy will be augmented;
and assuredly it is to the interest of all concerned that the'
Company and the Messrs. Allan, who have so much at stake,
should have latitude given to them to bring tliis about.

The policy of the Messrs. Allan lias been to conserve
the interests of the whole Railway. They are interested in
the Company, and its kindred enterprises, to an extent almost
equal to the amount of the first mortgage bonds. They have
never received a dollar of interest upon their Railway invest-
ments. They have unremittingly given their attention
during the last two years to furthering the interests of the
Rfiilway, in which the Bondholders are interested in priority
to them. They have secured the passage of favorable
legislation by the Parliaments of Canada and Manitoba, and
the granting of a further subsidy by the Dominion Govern-

es been and
ition in its
learly show
'11 as of the
vere taking

ehedule of
peration of

)ress these
)ndliol(lers,
i to remain
le rights of
:her or not
sistance to
:is done to

Dominion
agreed to
npauy are
gmented ;
d that the
h at stake,
bout.

conserve
e rested in
snt almost
rhey have
ly invest-
attention
sts of the
1 priority
favorable
toba, and

Govern-

ment, which aflbrds hope of more sucooss in that (juartor in
the future. They have suct-eeiled in pn-serviug all the
Company's valuable tratlic contracts with the connectiu"
Ivailway at Portage la Traiiie, upon \\liich the life of the
road in great part depemls ; and have in all this <d' necessity
served the Bondholders interest before tliey served their own.
The IJailway accounts have been open to the Trustees
Solicitors ; all information asked for lias been furnished ;
none has ever been refused, as stated by the Chairmun ; the
lieceiver's accounts liave been passed monthly, after nutiti-
cation to the Trustees Solicitors, and not a dollar of the
Receiver's expenditure has ever bi'cn disallowed as improper.

The Bondholders posit ^ is absolutely secured ; they
are under the protection of the Court ; and it is manifestly
to the benelit of all that the Railway should be managed
with as little expense as jMjssible. The api)ointment of a
second lieceiver only adds to the exj)eiise without givincr
any further protection to the Bundholders.

The question in dispute, as to the application of the
gross receipts to tlie exi)enses of the whole Railway, which
is the only point in contention, can be readily settled by the
Court, and it will probably be necessary to have this done
before any re-organizalion scheme can be laid before the
Bondholders.

The scheme proposed by Mv. Coates to tlie Messrs.
Allan could not be entertained, as it involved the Messrs.
Allan giving up their first lien upon the portion of the line
built by themselves, and charging ull the assets they hold
in connection witli the Railway with an issue of bonds of
which they were to receive an insignificant proportion, and
the interest of which could not be earned before the period
for which foreclosure was optional with the J5ond-holders.

If it was the desire of the Chairman and Trustees to
destroy the property, they couki not have taken a more
certain way to effect it than by the course they have
pursued.

No matter what the decision of the Courts may be, we
say advisedly, it is against the interest of the First Division
that the Kaihvny should he severed; the only hope for any-
body interested of getting any return on the investment,
being the building up and extension of the line.

If the security holders on all divisions of the line work
in harmony, we are by no moans hopeless of the future.
The prospects of business along the line of the Kailway arc
improving. The farmers have com(; to the conclusion that
wheat is not th.- only staple of the country, and are now
engiiged largely in cattle raising and mixed farming, which
will result in increased and more certain earnings to the
Itailway.

We believe that the true policy to be observed in the
interest of the property is to oi)erate it as it is now being
operated with rigid regard to economy, awaiting the result
of the approaching grain business, which promises a surplus,
and to urge uj.on the (lovernnient the granting of an
additional subsidy to extend the line into the fertile belt
beyond the ])resent terminus of Yorkton, to be followed by
an amalgamation or reorganization of the Company's bonded
indebtedness, which will give to all security holders a fair
proportion of a new issue.

I have been delayed in replying to Mr. Coates statements,
hoping to receive from him a list of the Bondholders, in
order that I miglit address them individually, but have just
received a letter from his partner, Mr. Hanson, stating that
the Committee of Bondholders refuse to furnish the list but
offer to distribute ray circular letter provided the expense be
paid, unless there are any serious objections, and copies of this
letter have accordingly been forv.-arded to the Chairman of
the Committee for distribution.

iMONTREAL, 9tli Oct., 1894

ANDREW ALLAN,

Presidenf.

3 may be, we

irst Division

lope for any-

investment,

he line work
the future.
Kailway are
ichision that
and are now
niiiig, which
uings to the

erved in the
s now being
g the result
3S a surplus,
iting of an
i fertile belt
followed by
ny's bonded
olders a fair

statements,
^holders, in
it have just
stating that
the list but
expense be
•pies of this
hairman of

^resident.