File No. 817.51/567.

Brown Brothers & Co. and J. and W. Seligman Co. to the Secretary of State.

Sir: Yesterday we held a conference with Mr. Douglas (of the firm of Douglas, Baker, Ruffin & Obear, counsel for Nicaragua) with reference to the proposed new loan to the Republic of Nicaragua.

Our memorandum of August 9th1 has now been modified by our letter to you of August 26th1 and our telegram to you of August 28th1 and our conference with Mr. Douglas on September 3rd. We have accordingly, had a memorandum prepared which embodies in one document all of these various suggestions and now enclose herewith a copy thereof for your attention.

We have [etc.]

Brown Brothers & Co.
J. & W. Seligman & Co.

Proposition in regard to Nicaraguan financing as contained in memorandum handed to Sr. Cuadra August 9, 1913, and sent to the Secretary of State August 13, 1913; amended by letter to the Secretary of State August 26, 1913, telegram to the Secretary of State of August 28, 1913, and at the interview with Mr. Douglas on September 3, 1913.

Amount of Loan.—To be $2,000,000, to be represented by Treasury Bills; or, if option on 51% railroad is now exercised, $1,000,000.

Interest.—Interest to be at 6% per annum, payable either monthly or through discounting bills at time of issue. In latter event amount of loan may be increased by an amount equal to the interest.

Term of Loan.—Loan to be for one year, with option to Republic to liquidate same after three months at premium of 1%.

Security.—The security to be as follows:

All shares of the railroad; or, if option of 51 per cent is exercised, then remaining 49 per cent of railroad stock.
All shares of National Bank of Nicaragua, Incorporated, including those to be issued upon increase of capital out of proceeds of loan as stated below.
Customs duties, subject to requirements of 1909 bonds. Until the maturity of the new loan, however, such customs duties in excess of requirements of 1909 loan, expenses, etc., are to be paid over to the Government, subject, however, to the provision made below for additions to the Conversion Fund. Administration of customs to continue as at present, subject to any changes in form which will not affect in any way the complete control of the Collector General.

Application of Loan.—The $2,000,000 proceeds of loan, or proceeds of exercise of option and of loan, to be applied as follows:

Liquidation of pending accounts of Bankers, expenses, etc $711,000
Conversion fund 250,000
Additional bank capital $200,000, or (at option of Government) 250,000

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The balance, after paying expenses in connection with negotiations, etc., to go to the Government by deposit thereof in the National Bank; to be disbursed by means of checks on the Bank in the manner observed at present according to the decree of October 31, 1912.

Railroad Options.—(a) Option on 51 per cent of railroad stock either to continue for one year, and further, if loan is not paid at maturity, until repayment of loan; or, if Government prefers, option to be exercised at once.

(b) Preferential right to purchase remaining 49 per cent of railroad stock to continue as in Supplemental Loan Agreement.

(c) If 49 per cent of railroad stock is at any time sold for more than $1,000,000, the difference between $1,000,000 and the purchase price to be divided equally between the Government and the Bankers or in such other proportion as the Secretary of State may determine.

(d) Bankers not to be under obligation to loan $500,000 to railroad against mortgage bonds for improvements.

(e) If 51% option is not exercised at once but is continued as above stated, monthly dividends not exceeding per cent to be paid to Government on railroad capital if such amount is earned after all expenses of operation, administration, repairs, etc.; balance of earnings to remain in corporate treasury or applied to improvements.

Conversion Fund.—Provision to be made that, in the event of Conversion Fund being reduced to $100,000, 25 per cent of the customs duties will be applied monthly to this fund until it is again brought up to $200,000; this operation to be repeated as often as Conversion Fund is reduced to $100,000. Conversion Fund to be administered by the Bank and deposited in a special account in New York apart from the general funds of the Bank.

Memorandum of subjects pending and necessary to arrange: Controversy over wharf; oil tank; ship “Nicarao”; right of way of Momotombo.

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