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 2791 
 
 C3 
 D595 
 
 DOYL' 
 
 CALIFORNIA 
 
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F. G. BANBURY, Esq., M. P„ 
 
 Chairman of Committee of Stockholders, and 
 
 WALTER MORSHEAD, Esq., 
 
 Acting Chairman of Stockholders' Protection Committee, 
 
 Both of the Central Pacific Railroad Company. 
 
 Dear Sirs: You and your constituents are interested in the Cen- 
 tral Pacific R. R. Company as shareholders: the people of California 
 are interested in it as having to furnish the means to pay the interest 
 on its debts and dividends to its stockholders, if they receive such. 
 The more you have to pay for interest, the more we have to pay for 
 transportation; hence our interest in keeping down your debt and 
 consequent fixed charges is identical with your own. The object of 
 this communication is to point out how in the reorganization of your 
 company, now imminent, you may save the interest on several mill- 
 ions, and avoid liability for more, and the apology for it is the identity 
 of interest above indicated. 
 
 That railroad conditions, utility, value, etc., are largely determined 
 by topography is common knowledge. California is a mountain 
 State, with one immense central valley (that of the Sacramento and 
 San Joaquin rivers), and several smaller ones of varying extent and 
 importance, but all of great fertility and productiveness. There is 
 published a relief map of the State, which should be procurable in 
 England, and from which the importance of this peculiarity will be 
 manifest at a glance. Accurate topographical maps of the great valley 
 of California, showing boundaries, areas, etc., with elevations by con- 
 tour lines, can also be had for small cost. The State Railroad Commis- 
 sioners have also published an outline map of the State from which, 
 and their annual reports, some little useful information may be 
 gleaned. 
 
 Of all the State north of Tehachapi, San Francisco is the natural 
 commercial center; the waters all seek the sea here, those of the great 
 valley first mentioned, which between the Sierra Nevada on the N. E. 
 and the Coast Range on the S. W. extends diagonally through five 
 degrees of latitude, break through the latter range at the Straits of 
 Carquinez, without leaving room for a railroad track on either side, 
 unless it be shelved out of the mountain; and even this can only be 
 done advantageously on the south side of the strait. The most 
 important of the smaller valleys are those of the Santa Clara, Sonoma, 
 Napa, Petaluma and Suisun, which also deliver their waters at the 
 same point. 
 
 What is now the Central Pacific Railroad was built in a somewhat 
 haphazard way, i. e., in separate portions and by different companies 
 that were subsequently consolidated. Its location was made in 
 advance of thorough surveys, and in part, at least, determined by 
 considerations of subsidy to be obtained by its construction. Sacra- 
 
mento having water communication with San Francisco and so with 
 the rest of the State, was selected as its western terminus, and there 
 its construction commenced. A right to build from that point to San 
 Francisco via. Stockton and San Jose, was claimed by the Central 
 Pacific Company, and by it assigned to two other companies, by one 
 of which called the Western Pacific Company, an extension of the 
 Central Pacific road was built via. Stockton and Livermore as far as 
 San Jose. This " Western Pacific Railroad " was afterwards consoli- 
 dated with the C. P. road, but its debts remain separate, and must be 
 treated separately. 
 
 The great valley of California is closed at its south easterly end by 
 a junction of the Sierra Nevada and Coast Range, called the Tehachapi 
 Mountains, the pass over which is steep, and, at its lowest point, 4,000 
 feet high; South of this the country changes climate and character, 
 becoming semi-tropical; its center of population is Los Angeles, and 
 its hai:bor San Diego. The two places are however some eighty miles 
 apart, and the narrow intervening country has usually a scanty rain- 
 fall and needs irrigation to develop it properly for cultivation. 
 Congress has ordered a harbor constructed at San Pedro, for Los 
 Angeles, which will be completed in a few years, and dispose of the 
 southern railroad problem. It does not concern us here. 
 
 It will thus be seen that the railroad system of our Pacific Coast 
 is divided in two, by the Tehachapi Range. All south of that centers 
 at Los Angeles; all north of it, as far as the Oregon line, at San 
 Francisco. This latter portion comprises all the roads, great and 
 small, in which the Central Pacific Company has any interest. Leav- 
 ing out of view some petty branches of no importance, these are as 
 follows: 
 
 1. The Central Pacific main road from Sacramento to Ogden, 
 732-1/2 miles long. 
 
 2. The Western Pacific from Brighton, near Sacramento, to San 
 Jose, 120 miles long. 
 
 3. The California and Oregon road, from Roseville Junction to the 
 Oregon State line, 296-1/2 miles long. 
 
 4. The San Joaquin Valley division of the Central Pacific road, 
 running from Lathrop to Goshen, 150 miles long. 
 
 5. Some minor branch roads, really unimportant, taken together 
 say 50 miles long. 
 
 The two first above mentioned were aided by the U. S. Govern- 
 ment and are separately indebted to it, in the several amounts of their 
 respective subsidies, with thirty years interest thereon. Each of them 
 besides owes bonds for an amount equal to the principal of its debt to 
 the government secured by what is called a "first mortgage" on their 
 respective roads, each of the others named (3, 4 and 5), is also 
 separately mortgaged for the payment of a separate issue of bonds. 
 They must therefore be considered separately. 
 
 The proposal to include all the debts of the company in one 
 blanket mortgage for a hundred million dollars, is a natural one 
 from Mr. Huntington, for he is the surviving member of the com- 
 bination that contracted these various debts, the non-payment of 
 any part of which must naturally reflect more or less on him, and 
 tend to curtail his power to obtain future loans; but that does not 
 concern us. 
 I take the roads and their several debts in the following order. 
 
I. Central Pacific Road from Sacramento to Ogden, 732-1/2 
 miles. The debt due on this is as follows: 
 
 First Mortgage bonds (Ser. A, B, C, D, E, F, G, H, & I) .*$25,885,120 
 Against these stands a sinking fund of . . . 6,683,886 
 
 Leaving to provide for (Rep. 1897, p. 94) $19,198,114 
 
 Government bonds, 6 per cent $25,882,000 
 
 Thirty years' interest $46,587,600 
 
 Less sinking fund in U. S. 
 Treasury 15,888,744 30,698,856 56,580,856 
 
 Total. $75,779,000 
 
 This amount is liable to be varied slightly by differences in the 
 figures of the company's officers and those of the government. It is 
 however substantially correct. 
 
 IL Western Pacific Railroad from Brighton to San Jose, 120 
 miles. V. 
 
 ^'First mortgage bonds" $1,970,000 
 
 Against which and other bonds amounting to $765,000 
 stands af sinking fund, of which the proportion corre- 
 sponding to these would be 307,136 
 
 Leaving to be provided for $1,662,864 
 
 Government bonds, (6 per cent.) $1,970,000 
 
 Interest 30 years 3,546,000 
 
 5,516,000 
 
 Total bonded debt $7,178,864 
 
 The road is obviously not worth one-half — probably not more than 
 a third — of the amount for which it is encumbered. It is not used for 
 passenger traffic except the trivial local transit along its line. Its- 
 utility consists in connecting the valley of the Santa Clara with that 
 of the San Joaquin and Sacramento and giving to the former a con- 
 nection by rail with the Central and Southern Pacific roads, for the 
 transportation of its products overland. Its passenger earnings must 
 always remain insignificant and those from freight be confined to the 
 through freight indicated above. 
 
 III. The California and Oregon Railroad between Roseville Junc- 
 tion and the State line, 296-1/2 miles. 
 
 First mortgage bonds (6 per cent.) $10,340,000 
 
 No particulars are given in the reports as to any sinking fund, but 
 the above is stated in the report of December 1st, 1888, as the amount 
 of bonds outstanding. It is plain that this road is not worth nearly 
 the amount of its debt; its earnings cannot be ascertained but as its 
 
 "But see report of Company to State Kailroad Commission, 1886, p. 253, where 
 the Government issue is given at this amount, and on p. 251, the first mortgage bonds 
 are stated at |25,883.000. 
 
 tThis is December 31st, 1897, the latest I have found published; it is probably all 
 mixed in with and included in the 0. P. sinking fund above. 
 
connecting road north (the Oregon & California), confessedly went 
 behind $1,564,835 in the eighteen months ending June 30, 1897, it is 
 not easy to believe that this is anything but a losing concern. 
 
 IV. The San Joaquin Valley Road from Lathrop to Goshen, 152 
 miles. 
 
 First mortgage bonds (6 per cent.) $6,080,000 
 
 Against which is held a sinking fund of 1,488,842 
 
 Leaving it responsible for $4,591,158 
 
 This road was originally a valuable one, but the managers, acting 
 in the Southern Pacific interest, paralleled it on either side, and the 
 Valley Road having been built to compete for the same traffic its 
 value has been about destroyed. It could not be probably sold to-day 
 for one-third of its mortgage debt. 
 
 In the above calculations I have assumed that the various sinking 
 funds could be made to produce the sums they represent respectively; 
 I do not believe they could in fact be sold for half these sums respect- 
 ively. My hope of getting paid that of the Central Pacific main line 
 is based on the interest of the U. S. Government (with which Mr. 
 Huntington wants to stand well )in compelling its production. 
 
 The facts and figures given above point out the lines on which the 
 C. P. Railroad Company should be reorganized in the interest of its 
 stockholders. Its mortgage debts aggregate after deducting sinking 
 funds, over a hundred million dollars. To pay interest on this sum 
 and a dividend of two per cent on its stock of $67,275,500 would re- 
 quire the road to earn $5,350,000 per annum over all expenses, inclu- 
 ding sinking fund. Can it do this? Managed by its owners, and 
 solely in their interest, I suppose it could, though that is perhaps 
 doubtful. Mr. Huntington's annual reports of the Southern Pacific 
 Company, which ought to contain the information needed to solve this 
 question, throw no light on it. Managed by Mr. Huntington and the 
 Southern Pacific Company, it is certain that it will not, for he and 
 it are loaded down with the Southern Pacific Railroad debts, as well 
 as those of the connecting lines to New Orleans and New York, etc., 
 amounting in the aggregate to no less than $146,917,051 (Rep. of '97, 
 p. 40), and calling for an annual interest of $8,106,730; besides which 
 the object being to sell the Southern Pacific Railroad Company's 
 stock and repeat the fraud of the sales of the Central (with varia- 
 tions), that road must be made by some means or other to pay divi- 
 dends. Entrusted then to Southern Pacific management whether 
 under the form of a lease or otherwise, the stockholders of the Central 
 Pacific must look forward to seeing the interests of their road sacri- 
 ficed at eveiy point to those of the Southern Pacific. This result is so 
 plainly on the surface as to need no argument; the whole overland 
 system will be operated in the interest of the Southern Pacific road. 
 It will get all the through freight, and as much of the local as can 
 possibly be diverted from the Central. The roadbed and equipment 
 of the latter will be allowed to dilapidate and wear out, so that when 
 finally surrendered to its owners, it will, in fact, consist of little more 
 than the ^'two streaks of rust and right of way," once prognosed for 
 it by its late Superintendent. Rent or dividends (which ever they 
 may be called), will be largely taken out of what should constitute a 
 maintenance and repair fund. 
 
These and many other reasons concur in producing the conviction 
 that the first condition of any reorganization of the Central Pacific 
 Road in the interest of the stockholders should be the elimination of 
 Mr. Huntington and the Southern Pacific Company. 
 
 What course should be recommended to the stockholders of the 
 Central Pacific Company, in view of all the circumstances, and bear- 
 ing in mind that the bulk of them reside abroad, and must of necessity 
 entrust the practical management of the road to a local board of 
 directors ? 
 
 ANSWER. 
 
 I think the first thing needed is to get rid of the present board of 
 directors. All of them except Messrs. Eells, Grant and Bretherton, 
 are, or have been, Huntington's nominees, and can never be relied on 
 to act against him in any contest, or to keep any secret from him. 
 Their election was evidently a mistake, and as the obnoxious members 
 gave pledges when elected to be governed, in their management, by 
 the wishes of the Banbury Committee, they would probably resign if 
 requested by that body. While they remain in office, it is impossible 
 to consider or discuss any step towards reorganization, contest or com- 
 promise, without its being made known to Huntington, and frustrated 
 or evaded by him if he desires to. Perhaps the gentlemen may 
 decline to resign on request, in which case another study will be 
 necessary, as to getting rid of them; but for the present purpose, I 
 assume that they can and will be got rid of, and with them should go 
 the president, secretary and all other confidential officers who must 
 be aware of the deliberations and decisions of the board of directors. 
 
 Having thus secured privacy in your consultations, and made 
 manifest to the subordinate employees of the company, that Mr. Hun- 
 tington is no longer their master, and that they may even safely dis- 
 close what they know of his acts, an able, acute and well instructed 
 agent should be sent to Washington, to attend to the negotiation with 
 the government commission as to the determination of the amount of 
 the debts due the United States, the set-offs, and deductions to which 
 the company may be entitled and the amount of the sinking fund, etc. 
 In arranging this the debt of the Central Pacific road, proper, should he 
 kept entirely distinct from that of the Western Pacific, and each ascer- 
 tained with its proper sinking fund and set-offs, separately. Properly 
 done this will result in applying the bulk of the credits to the debt of 
 the C. P. Co. because they were earned by that road, in overland 
 transportation. As the negotiation will probably proceed on the 
 assumption that the government lien is subordinate to that of the 
 " first mortgage," the U. S. will have a direct interest in the appli- 
 cation of the " first mortgage sinking fund " to the reduction of that 
 lien, and Mr. Huntington will be much more likely to find a way to 
 replace the " seclirities " that constitute that fund, if called on by the 
 government, than he would at the demand, to the same effect by the 
 company, or its stockholders. 
 
 Meantime an examination as complete as practicable should be 
 instituted as to the earning power and actual value of the C. P. branch 
 roads, viz: the Western Pacific (II), that between Roseville Junction 
 and the State line (III), that between Lathrop and Goshen (IV). I have 
 myself no doubt that none of them is earning or capable of earning 
 half the interest on the load it is carrying. The records of the oflfice 
 of the company must show this accurately. Assuming, however, that 
 
6 
 
 they will all be found in the same category of greater or less worth- 
 lessness, my suggestion would be to abandon them to the bondholders, 
 and wipe out your liability for the twenty-four millions or so of debt 
 they represent. Sold at foreclosure sales you will be able to buy them 
 practically at your own price. Having become, or in anticipation of 
 becoming, owners of the Central Pacific main line from Sacramento to 
 Ogden, traffic arrangements should be made for transportation of 
 freight and passengers between Stockton and San Francisco with the 
 San Francisco and San Joaquin Valley road, of the practicability of 
 which, on fair and favorable terms, you can probably be assured in 
 advance, for that road was built expressly to give relief to the interior 
 of the State and the City of San Francisco from the oppressive 
 charges and discriminations of the Southern Pacific Cempany, under 
 Mr. Huntington's regime. Your road will afford to it a direct over- 
 land connection with the great Northwest, which is the great consumer 
 of California's special products — wool, wine, lumber, meat, fruits, oils, 
 sugar, metals, hides, leather, hops, beans, fish, coffee, tea and other 
 Chinese and Japanese goods — and it will give you a direct connection 
 with San Francisco and the whole Pacific Coast. The gap of forty- 
 two miles between Brighton Junction and Stockton runs through a 
 rich, level, agricultural country which will yield sufficient local freight 
 to support a road, so that either company can afford to build it, and 
 its cost will be but trifling. 
 
 The Valley Road has terminals in San Francisco, and a tide-water 
 connection at Point Richmond, for the shipment of grain, etc., abroad, 
 and ferry to San Francisco, equal if not superior to those of the 
 Southern Pacific at Port Costa, so that the alliance between it and 
 the Central Pacific, reorganized, is a healthy aad natural one benefi- 
 cial to both parties, and to the country they serve. This is the best 
 basis for an alliance, and will enable the Central Pacific owners to 
 dispense with all anxiety as to their local managers, for the interests 
 of the two roads will be identical; it will be impossible to benefit one 
 without serving the other, and the combined roads will have the good 
 will of the people of the State, which they will have the credit of res- 
 cuing from the grasp of the Southern Pacific monopoly. 
 
 To carry out this project will require the formation of a new com- 
 pany, the stock of which should be issued to the Central Pacific stock- 
 holders, against an assignment of their Central Pacific shares; and 
 the purchase under the government foreclosure of the Central Pacific 
 road with its rolling and floating stock, and all else included in the 
 first and government mortgages. This new concern, which for brevity 
 I will call the Pacific Central, or P. C Co., would thus begin business 
 owning the road from Sacramento to Ogden, with its equipment com- 
 plete, against which it would assume the payment of seventy-six 
 million dollars, at most. 
 
 - The old Central Pacific Company should assign to it all its rights 
 of property and in action, either directly or through the medium of 
 bankruptcy proceedings, and be relegated to obscurity, while the new 
 P. C. Co. would take its place, disburthened of its debts, and its 
 fatal entanglements with the Southern Pacific. 
 
 An additional reason for a new company to take the place of the 
 Central Pacific is that the latter is probably subject to obligations and 
 engagements of unknown magnitude and character, which it would be 
 unsafe to assume on reorganization. I can point out ten millions of 
 
I 
 
 these obligations formerly mentioned in the company's annual reports, 
 though omitted from those of the last six years. How many and what 
 other guaranties and what traffic agreements, have been created while 
 Mr. Huntington had a free hand with the company's property, it is 
 impossible to tell and unsafe to guess. To undertake to patch up the 
 old concern, and carry it on as the Central Pacific Railroad Company 
 would be to assume, blindfold, this whole unknown burthen besides 
 the $24,000,000 of additional debt now oppressing you and which I 
 propose to wipe out with the ten million dollars guaranty last referred 
 to. You can undoubtedly buy the three branch roads above designated 
 as II, III, and IV practically at your own price, if you desire them, 
 because no other road wants or could use them to any advantage. 
 
 Objection may be made to the course here proposed on sentimen- 
 tal grounds. Mr. Huntington will say it savours of repudiation. I 
 think, however, that the objection properly considered, need have no 
 weight with you. The company was looted by its trusted agents, 
 Huntington & Co., who in its name purchased from themselves, at 
 enormously inflated prices, property on which they in effect took a 
 mortgage for the purchase price. Subsequently they induced a 
 number of confiding persons to purchase the stock, which represented 
 the equity of redemption of this property. Now he will, of course 
 put on an air of lofty virtue, because the victims of the later fraud 
 elect rather to lose what they have already paid, than to pay more for 
 the purpose of redeeming such a worthless piece of property. Who is 
 discredited, or disgraced in such a case? Those who borrowed the 
 money and issued the obligation to pay it, or those on whom they 
 afterwards palmed off the mortgaged premises as a valuable property 
 when it was in fact worthless? If Mr. Huntington or his associates 
 feel aggrieved that you decline to pay any debts which they contracted, 
 there is nothing to hinder them from paying them themselves and 
 being subrogated to the rights of the creditors. 
 
 In effect the discredit which the proved worthlessness of these 
 bonds of the branch roads with its attendant exposure of Mr. Hun- 
 tington's financial methods will be one of collateral advantages to be 
 derived from the course I propose. For if Wall Street once witnessed 
 the practical demonstration that bonds of the Western Pacific, the C. 
 P. Oregon division, and the San Joaquin Valley division of the Cen- 
 tral Pacific road, all foisted on the street by Huntington's devices, are 
 of little or no value, and that the market for them was sustained by 
 bleeding the main stem of the Central Pacific road to pay their interest, 
 it will presently be moved to enquire as to the intrinsic value of the 
 Southern Pacific securities now seeking a market; and whenever that 
 enquiry is seriously undertaken there cannot fail to be a general col- 
 lapse of the whole bubble of Mr. Huntington's corporate credit. 
 
 In fact I think there is little doubt that a powerful motive for Mr. 
 Huntington's persistent intervention in the affairs of the C. P. Co. and 
 in the arrangement of its debt to the Government is his fear lest the 
 stockholders managing their own business should perceive the advan- 
 tage of throwing overboard these useless branch roads and saving the 
 money their purchase would entail. He would desire of all things to 
 have the company reorganized on the basis of taking all the old prop- 
 erty and assuming all the old debts, engagements and contracts. If 
 that were done, it could never hope for emancipation from his grasp. 
 He could at any time, by making default in the interest of the bonds 
 
guaranteed by the C. P. Co., start a sudden call on it for ten million 
 dollars under its guaranty of those obligations. To provide for the 
 interest on the Western Pacific bonds and those of the Oregon and 
 San Joaquin Valley branches he could keep it in an enduring bond- 
 age to himself and perpetuate his control over it. 
 
 There are many other reasons why a new incorporation to take 
 the place of the present company will be a necessary step in reorgan- 
 ization. As for example the existence of the fifty year bonds of 1886 
 and 1889, amounting to $12,339,000. I am unable to learn what the 
 company ever received for these bonds, but I believe they are secured 
 by a mortgage on the lands granted to the Western Pacific Company 
 by the State ^^for terminal purposes^ The bonds have never made 
 their appearance on the stock exchange, have no quotable price and 
 are, I have no doubt, still in first hands; i. e., the hands of one of the 
 numerous corporate bodies, under the names of which Mr. Huntington 
 does business. The lands in question have never been used for 
 terminal or, I believe, for any purposes by the company, and having 
 been granted specifically for a particular use, and belonging to the 
 class of property passed on by the United States Supreme Court in the 
 Chicago case, the mortgage will probably be declared invalid and the 
 land dedicated to the purposes expressed in the act. But the mortgage 
 m.ay be held void, while the^debt is declared valid, and the burthen of 
 showing it otherwise rests on the company. Here then are over 
 twelve millions more of good reasons why you should adopt a different 
 corporate organization from the Central Pacific and why Mr. Hun- 
 tington on the other hand should dissuade you from doing so, and 
 advocate a blanket mortgage and keeping up the old organization. 
 
 To avoid prolixity, I have confined myself in this communication 
 to matters involving sums of magnitude and importance; but there 
 are many other reasons why it is unsafe for you to make title to the 
 Central Pacific Company's property except through a foreclosure, 
 which will clear the title. These will naturally occur to your counsel 
 when he is called on to consider and advise on your coarse in that 
 respect. 
 
 I am, gentlemen, respectfully, your obedient servant, 
 
 JOHN T. DOYLE. 
 
 San Francisco. Sept. 21, 1898. 
 
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