406. Negotiations were begun in 1926 with the International Paper Company of New York and completed in 1927. An Act to confirm the agreement reached was passed by the Newfoundland Legislature in 1927, and the actual transfer took place in January, 1928.

  407. The reconstruction scheme represented by this sale involved drastic financial modifications. Briefly, the International Paper Company took over the properties for a cash payment of £500,000 and the assumption of the three existing stock issues, amounting to £5,000,000. All other secured and unsecured liabilities, except as hereinafter mentioned, were cancelled. The Bankers who held £2,000,000 bonds of the Newfoundland Power and Paper Utilities Corporation, Limited, received, in consideration of the sale and the cancellation of these bonds, the sum of £500,000 above mentioned and preference shares, to the amount of £2,000,000, in a new company which was formed to work the undertaking, viz., the International Power and Paper Company of Newfoundland, Limited. The United Kingdom Treasury and the Bank of England each have the right to appoint a Director on the Board of the Company, and have appointed Sir George Barnes and Mr. Frater Taylor respectively. The Newfoundland Government has the right to appoint two Directors, and has appointed Mr. H.A. Winter, a Member of the Executive Council of Newfoundland, and Mr. W. Abbott, a Member of the House of Assembly.

  408. The present position of the company in respect of (1) share capital, and (2) loan capital may be summarised as follows:--

  (1) Share Capital.-- The nominal capital of the Company is £5,000,000 preference and common stock (for certain legal reasons the sterling denomination was used), divided into 5,000,000 shares of £1 each. There have actually been issued:--
      (a) £2,080,000 five per cent. preference
    shares, cumulative after 1933. Of these,
    £2,000,000 are held by the Bank of
    England and £80,000 by Reid interests.
    These shares are non-voting except two
    years after default and have no pre-
    emptive rights in respect of additional
    shares issued.
      (b) £500,000 common shares, all of which
    are held by the International Paper
    Company of New York.

  (2) Loan Capital.--(a) £1,000,000 five per cent. First Mortgage due 1968. These were issued in connection with the repayment of the money raised in 1925 as mentioned above and are the first charge upon the properties. Under the Act of 1927 the Company has the right to borrow fresh money to a total of £4,000,000 (i.e., an additional £3,000,000) for the purpose of extensions of its plant, etc., subject to strict conditions ensuring fresh adequate security; and these bonds form part of such issue.
  (b) £2,000,000 4½ per cent. "A" Debenture Stock, guaranteed by the United Kingdom Treasury.
  (c) £2,000,000 5½ per cent. "B" Debenture Stock, guaranteed by the Newfoundland Government.
  (d) About $1,550,000 (say £320,000) due to the Bank of Montreal for current loans as working capital. The Bank has a floating charge on the wood and paper of the Company, secured by security receipts, and the amount of the advances fluctuates within a reasonably small margin.
  (e) Trade and other current liabilities which are normal with the exception of loans approximating to $1,000,000, due to the International Paper Company.

  409. Certain aspects of the "A" and "B" Debenture Stock are of importance and should be noted. When these issues were originally subscribed the "A" Stock was to have been redeemed, through a Sinking Fund, in 1948; the "B" Stock a few years later. The International Paper Company represented that they could not bear the heavy burden of such sinking fund, and arrangements were made to lighten the burden by extending the period over which repayments were to be made by the Newfoundland Company.

  410. These arrangements were as follows:--The "A" Stock will be paid off at par by 1948 in accordance with the terms of the original issue, partly by means of sinking fund monies to be provided by the Company and partly by means of sinking fund payments to be provided by the United Kingdom Treasury. These latter amounts begin in 1933 and increase from £47,700 in that year to £169,200 in 1948. The "A" Stock, redeemed by the payments made by the Treasury is to be re-issued to the Treasury in the form of extended "A" Stock, which is to be redeemed by the Company, at a premium of 5 per cent., by means of Sinking Fund payments over the period 1949-1973. It carries interest at the rate of 4½ per cent. per annum from the date of issue. In point of security the extended "A" Stock ranks immediately after the "A" Stock outstanding. It does not carry the guarantee of the United Kingdom Treasury.

  411. The period of the "B" Stock guaranteed by the Newfoundland Government has been extended to 1970. From 1928 to 1933 the Company was to pay (and has paid) about £12,000 yearly in respect of capital repayment and from 1933 to 1970 will pay just over £16,000 yearly in this respect. The "B" Stock is redeemable at a premium of 5 per cent.; this premium, however, is not guaranteed by the Newfoundland Government.

  412. The Company has the option, at any interest date, provided that it has given three calendar months' notice of its intention, to pay off in whole or in part either the "A" Stock or the "B" Stock or the extended "A" Stock.

  413. The trust deeds securing both Bonds contain full and careful provisions for the protection of the bondholders and the appointment of receivers, etc., in case of default.

  414. As stated above the Agreement made in 1927 was confirmed by an Act of the Newfoundland Legislature. Besides embodying the new financial terms explained above, the Act contains provisions regarding taxes, duties and other matters usually contained in agreements respecting new industries. The most important of these provisions are the following:--

  (a) As long as any "B" Stock is outstanding, the Company must maintain its liquid assets at an inventory value of at least half a million dollars (£100,000). It may be said that to date those assets have been far in excess of that figure.
  (b) The provisions regarding Customs duties are elaborate, but broadly they give the Company free importation for twenty years of all material needed for genuine initial construction work, but not in substitution for old material; on materials needed for renewals, the duties generally in force, but not to exceed twenty-five per cent. of cost, are to be applicable for forty years; and special terms are inserted regarding particular goods and classes of goods.
  (c) In lieu of certain royalties payable by the old company on water power generated and paper manufactured, the Company has paid a straight tax, up to 1933, of $75,000 (£15,000) annually; from 1933 until 1973 the tax is $150,000 (£30,000).