[Form B, October 22, 1918.—For companies with subsidiaries.]
AGREEMENT BETWEEN
THE DIRECTOR GENERAL OF RAILROADS
AND
4
COMPANY
AND OTHER CORPORATIONS
, 1918
8595Η18 1 WASHINQTOÎI : GOVEB.NMBNT PEIXTINO OFFICa : 191»
r
C o N T E N T s .
Page.
Preamble and recitals 1
Section 1. Privity, alterations, definitions, etc 3
Section 2. Property taken over 4
Section 3. Acceptance 6
Section 4. Operation and accounting during Federal control 7
Section 5. Upkeep 11
Section 6. Taxes 13
Section 7. Compensation 14
Section 8. Claims for loss on additions, etc 16
Section 9. Final accounting 18
Execution 19
(III)
1
PREAMBLE AND RECITALS.
This agreement, made this day of , 1918,
between William 0. McAdoo, Director General of Railroads, hereinafter called the Director
General, acting on behalf of the United States and the President, xmder the powers conferred
by the proclamations of the President hereinafter referred to, party of the first part, and the
- , parties of the second part:
Witnesseth that—
(а) Whereas by a proclamation dated December 26, 1917, the President, acting imder
the powers conferred on him by the Constitution and laws of the United States, by the joint
resolutions of the Senate and House of Representatives bearing date April 6 and December 7,
1917, respectively, and particularly under the powers conferred by section 1 of the act of Con¬
gress approved August 29, 1916, entitled "An act making appropriations for the support of the
Army for the fiscal year ending Jime 30, 1917, and for other purposes," took possession and
assumed control at 12 o'clock noon on December 28, 1917, of certain railroads and systems of
transportation, including the railroads and transportation systems of the Companies and the
appurtenances thereof, and directed that the possession, control, operation, and utilization of
the transportation systems thus taken should be exercised by and through Wilham G. McAdoo.
appointed Director General of Railroads ; and
(б) Whereas the Congress of the United States, by an act approved March 21, 1918,
hereinafter called the Federal control act, has authorized the President to enter into agreements
with the companies owning the railroads and systems thus taken over for the maintenance
and upkeep of the same during the period of Federal control, for the determination of the
rights and obligations of the parties to the agreement arismg from or out of Federal control
including the compensation to be received or guaranteed, and for other purposes, as in said
act more fully set out, and authorized the President to exercise any of the powers by said act
or theretofore granted him with relation to Federal control through such agencies as he mi^ht
determine; and
85953—18 2
2
(c) Whereas by a proclamation dated March 29, 1918, the President, acting under the
Federal control act and ail other powers him thereto enabling, authorized the Director General
either personally or through such divisions, agencies, or persons as he may appoint, and in
his own name or in the name of such divisions, agencies, or persons, or in the name of the
President, to agree with the carriers, or any of them, or with any other person in interest, upon
the amount of compensation to bo paid pursuant to law, and to sign, seal, and deliver in his
own name or in the name of the President or in the name of the United States such agreements
as may be necessary and expedient with the several carriers or other persons in interest
respecting compensation, or any other matter concerning which it may be necessary or expedient
to deal, and to make any and aU contracts, agreements, or obligations necessary or expedient
and to issue any and all orders which may in any way be found necessary and expedient in
connection with the Federal control of systems of transportation, railroads, and inland water¬
ways as fully in all respects as the President is authorized to do, and generally to do and perform
all and singular the acts and things and to exercise aU and singular the powers and duties which
in and by the said act, or any other act in relation to the subject thereof, the President is
authorized to do and perform; and
(d) Whereas the Interstate Commerce Commission has certified to the President the
amount of the average annual railway operating incomes of the said Companies, computed in
the manner provided in section 1 of the Federal control act, and the aggregate of which amoimts
is
dollars, and cents ($ ), subject to such changes
and corrections as the Commission may hereafter determine and certify to be requisite in
order that the accounts and reports of the Companies used by the Commission as the basis of
computing said average annual railway operating incomes may be brought into conformity
with the accounting rules or regulations of the Commission in force at the time of such
accounting, or in order to correct computations based on such accounts or reports.
Now, Therefore, the parties hereto, of the first and second parts, respectively, each in
consideration of the agreements of the other herein contained, do hereby covenant and agree to
and with each other as follows: ¡
3
SECTION 1.—PRIVITY, ALTERATIONS, DEFINITIONS, ETC.
Seo. 1. (o) This agreement shall be binding upon the United States, the Director General
and bis successors, and upon the Companies, and their respective successors and assigns.
Wherever in this agreement the word "Company" is used, it shall be understood as meaning
the
Company; the words "Afiiliated Companies" shall be understood as meaning the
other corporations, parties to this agreement; and the word "Companies" shall
be understood as meaning the - corporations, parties to this agreement.
The rights and obligations of the Companies in this agreement contained are several, not
joint. The Company owns all the stock, except directors' qualifying shares, of all the ASiliated
Companies.
This agreement shall not be construed as creating any right, claim, privilege, or benefit
against any party hereto in favor of any state or any subdivision thereof, or of any individual
or corporation other than the parties hereto.
(t) The provisions of this agreement may be altered, amended, or added to by and only
by mutual consent signified by instruments in writing signed by the Director General and by
some officer of the Company thereto duly authorized by the Board of Directors of the Company.
(c) Wherever in this agreement the word "Commission" is used it shall be understood as
meaning the Interstate Commerce Commission, acting by divisions or otherwise as authorized
by law; but any party shall have the right to have the decision of any division reviewed by
the Commission sitting as a whole.
(d) Wherever in this agreement the words "Federal control" are used to indicate a period
of time, they shall be understood as meaning the period from 12 o'clock midnight of December
31, 1917, to and including the day and hour on wliich said control shall cease.
(e) Wherever in this agreement the words "test period" are used, they shall be imderstood
as meaning the period between July 1, 1914, and June 30, 1917, both inclusive.
(f) Wherever in this agreement the words "standard return" are used, they shall be under¬
stood as meaning average annual railway operating income, computed in the manner provided
in section 1 of the Federal control act, and ascertained and certified by the Commission.
(g) Wherever in this agreement the words "Director General" are used, they shall he under¬
stood as designating William G. McAdoo, or such other person as the President may from time
to time appoint to exercise the powers conferred on him by law wfith relation to Federal control,
or such agents or agencies as the Director General may from time to time appoint for the pur¬
pose; and wherever by this agreement any notice is to be given by the Director General, the
same may be given in his name by any subordinate thereto didy authorized.
(h) Wherever the property of any of the Companies is referred to in this agreement it shall
be understood as including all the property described in paragraph (o) of section 2 hereof,
whether owned by or leased to the Companies, and, where the context permits, all additions or
betterments thereto or extensions thereof made during Federal control; and as to all such leased
property the Companies shall have the benefit of and be subject to all the obligations and pro¬
visions of this agreement and shall be subject to all duties imposed by law in respect of such
leased property.
(i) The descriptive words at the heads of the several sections of this agreement and the
table of contents are inserted for convenience merely, and are not to be used in the construc¬
tion of the agreement.
4
SECTION 2.—PROPERTY TAKEN OVER.
Sec. 2. The railroads and systems of transportation of the Company and of its said Affiliated
Companies of which the President has taken over possession, use, control, and operation shall
be considered as including;
(o) The following roads and properties:
5
together with all branches and tracks, trackage, bridge, and terminal rights, and lines of railroad
owned by or leased to and operated by any of the Companies as a part of their systems of
transportation, and aU other property of the Companies, with the appurtenances thereof,
whether included in the foregoing list or not, the revenues of which were used, or which, if the
property had been then owned by or leased to the Companies and had then been revenue
bearing, would have been used, in computing the standard return of any of the Companies.
Each of the Companies reserves to itself the benefit of all leases (and of all rents and revenues
accruing therefrom) of parts of its right of way, station grounds, and other property, the revenues
from which under the accounting rules of the Commission in force during the test period were
properly creditable to "miscellaneous rent income" or "miscellaneous income." Each of the
Companies grants to the Director General all its rights to terminate leases of any part of its
right of way, yards, or station grounds, and to occupy and use the premises of any such lessee
when, in his judgment, the same is required for operating puq)oses. Each of the Companies
shall have for its own benefit the right to lease for industrial sites or other purposes such portion
of its right of way, yards, or station grounds, or structures thereon as are not required by the
Director General for operating purposes, and to receive and enjoy the rentals therefrom, subject
to the right of the Director General to cancel any such lease and to occupy the premises or
structures whenever, in his judgment, the same are necessary for operating purposes. All
expenses connected with any such property heretofore or hereafter leased or otherwise occupied,
as in this paragraph provided, including taxes thereon which during the test period were not
charged to railway tax accruals, shall be paid by the Companies while receiving the revenues
therefrom.
(b) All materials and supplies on hand at midnight December 31, 1917.
(c) All balances in the account or accounts representing the total of "Net balance
leceivable from agents and conductors" as of midnight December 31, 1917;
85953—18 3
6
SECTION 3.—ACCEPTANCE.
Seo. 3. (a) The Companies accept all the terms and conditions of the Federal control act
and any regulation or order made by or through the President under authority of said act or
of that portion of the act approved August 20, 1916, referred to in paragraph (a) of the pre¬
amble to this agreement which authorizes the President in time of war to take possession,
assume control, and utilize systems of transportation; and they further and expressly accept
the covenants and obligations of the Director General in this agreement set out and the rights
arising thereunder in full adjustment, settlement, satisfaction, and discharge of any and all
claims and rights, at law or in equity, which they or any of them now have or hereafter can
have, otherwise than under this agreement, against the United States, the President, the
Director General, or any agent or agency thereof, for compensation under the Constitution
and laws of the United States for the taking possession of their property, and for the use, con¬
trol, and operation thereof during Federal control, and for any and all loss and damage to their
business or traffic by reason of the diversion thereof or otherwise which has been or may be
caused by said taking or by said possession, use, control, and operation.
No claim is made by the Companies for compensation for the period between noon of
December 28 and midnight of December 31, 1917; and the revenues of said period shall belong
to the Companies, and the expenses thereof shall be paid by them, allocated in both cases as
provided in paragraph Q>) of section 4 hereof.
(b) The Companies, on their own initiative or upon the request of the Director General,
shall take all appropriate and necessary corporate action to carry out the obligations assumed
by them in this agreement or lawfully imposed upon them by or pursuant to the proclamation
of December 26, 1917, or by the Federal control act.
(c) The Federal control act being in section 16 thereof expressly declared to be emergency
legislation enacted to meet conditions growing out of war, nothing in this agreement shall be
construed as expressing or prejudicing the future policy of the Federal Government concerning
the ownership, control, or regulation of the Companies, or the method or basis of the capitali¬
zation thereof, and the recitals or provisions of this agreement shall not be used, as evidence
or otherwise, by or against any party hereto in any pending or future proceeding which involves
the acquisition or valuation of the property of any of the Companies or any part thereof; but
nothing in this paragraph shall be taken or construed as affecting the settlement and discharge
contained in paragraph (a) of this section, nor as hmiting or qualifying any of the provisions
of said paragraph for the purposes thereof, nor as limiting the use of this agreement as evidence
in any proceeding under this agreement or under the Federal control act.
7
SECTION 4.—OPERATION AND ACCOUNTING DURING FEDERAL
CONTROL.
Sec. 4. (a) All amounts received by the Director General under paragraph (c) of section 2
hereof and all other amounts whether received from the Companies in cash or collected
or realized upon by him from current operating assets belonging to the Companies or arising
from railway operations prior to midnight of December 31, 1917, shall be credited by him to
the Companies; and the Director General shall, to the extent of the cash so received or realized,
pay and charge to the Companies all expenses arising out of railway operations prior to January
1, 1918, including reparation claims, and, unless objected to by the Company, may pay and
charge to the Companies any of such expenses, including reparation claims, in excess of the cash
so received or realized. Balances of the above accounts shall be struck quarterly on the last
days of March, June, September, and December of each year, and the cash balance found on
such adjustments to be due either party shall be then payable and, if not paid, shall bear
interest at the rate of 6 per cent per annum, unless the parties shall agree upon a different
rate ; except that the rate of interest on any portion of a balance found due to the Companies
which is derived from cash in bank to the credit of the Companies on interest, shall be adjusted
in each case independently of this contract as the parties may agree.
Q>) Railway operating expenses, reparation and other claims, hire of equipment and joint
facility rents shall be allocated with reference to the time when incurred as between the period
prior and subsequent to midnight of December 31, 1917, and as between the period of Federal
control and the period subsequent thereto. Railway operating revenues shall be allocated as
between the period prior and subsequent to midnight of December 31, 1917, in accordance
with the established accrual practices of the Companies; except that where prior to midnight of
December 31, 1917, the Companies' part of a service on through business had been completed
or carload lots on their own lines had reached destination, the revenue of the Companies for such
service shall be allocated to them ; but as to classes of traffic where in the opinion of the Director
General such aUocation will involve imdue delay or imdue absorption of accoimting labor, such
revenues shall be allocated in accordance with the established accrual practices of the Com¬
panies. Like methods of accruing and allocating such revenues shall be made at the end of
Federal control.
(c) All expenditures made by the Director General during Federal control for additions
and betterments, exclusive of equipment, or for extensions begun prior to January 1, 1918,
shall be charged to the Companies, and if the completion of any such addition, betterment,
or extension is approved or ordered by the Director General, the Company shall be entitled
under the provisions of paragraph (d) of section 7 hereof to interest on the cost thereof from
the completion of the work ; but no interest (except to the extent tliat the same may be allowed
and included in the compensation provided for in paragraph (a) of section 7 hereof) shall
be due the Company upon any such expenditures for work done prior to January 1, 1918.
Payments for all equipment ordered or under construction by any of the Companies prior to
January 1, 1918, but delivered on or after that date, shall also be considered as expenditures
made by order or approval of the Director General under paragraph (d) of section 7 hereof.
Interest during construction payable under this paragraph, and also interest during construction
on the cost of any additions, betterments, and road extensions made by the Companies or at
their expense to the Companies' property during Federal control, shall be included in the cost
of the work.
(d) Cash receipts or disbursements and other items arising out of transactions which do
not enter into or form a part of those used in determining the Companies' standard return shall
not be received or paid by the Director General unless such transactions are negotiated or
conducted by his order for account of the Companies and with the consent of the Company.
When moneys are so received or paid by the Director General in connection with such corporate
transactions they shall be credited or charged to the Companies. There shall be an accounting of
8
the amounts duo by or to any of the parties uiider this paragraph at the end of each quarter
year of hederal control, and the amoujit so found duo sliall bo thon i)ayablo and if not paid
shall boar interest as provided in paragraph (a) of tliis soctioji.
(e) All sums paid by tho Diro(;tor General to maintain ])ension funds or pension obligations
or practices, and all contributiojis to Young Men's Christian AssociatioJis of employees, em[)loyocs'
savings funds, relief funds or associations, readbig rooms, or health, accidcjit, or death boneiits
for employees, shall bo treated as a part of railway operating oxfjonses durhig Federal conti'ol.
if) All salaries and expenditures incurred by the Companies during Federal control for
purposes which relate to the existence and maintenance of tho corporations, or to the properties
of tho Companies not taken over by tlie President, or to negotiations, contracts, valuations,
or any business controversy with tho Goveniment or any branch thereof, and which are not
specially authorized by the Director General, shall be borne by tho Companies; except that tho
expenses of valuation now being made by the Commission to the extent that they are, in the
opinion of the Dmector General, necessary to comply with the valuation orders and other
requirements of the Commission and to the cooperation of the Companies in the making of such
valuation, shall be paid by the Director General as a part of railway operating expenses. If
the Company is dissatisfied with the ruling of tho Director General it may appeal to the Com¬
mission, whose decision shall be final.
ig) The Director General shall furnish for additions, betterments and road extensions to the
Companies' property approved or ordered by him any of the materials and supphos taken over
under paragraph (b) of section 2 hereof, or purchased by him and held for use in connection
with the Companies' property, in so far as, in his judgment, he can do so with due regard to his
own requirements. Materials and supplies so furnished shall be charged to the Companies at
cost.
Qi) The Director General shall at his option be substituted for the period of Federal con¬
trol in the place of the Companies in respect of the benefits and obligations of contracts relating
to operation hi force January 1, 1918 (including contracts made by subsidiaries for the use and
benefit of the Companies and the right to abrogate or change and make new contracts with
express companies for the period of Federal control), except as to contracts between the Com¬
panies and subsidiary companies which shall be considered and treated as arrangements or
practices; and the Director General shall in like manner at his option be substituted for such
period in respect of the benefits and obhgations of arrangements and practices in force during
the test period in regard to fuel, materials, and supplies for the operation of the property
described hi paragraph (a) of section 2 hereof and of any additions, betterments, and road exten¬
sions thereto, obtahied from any mine, oil field, or other source of supply owned or controlled by
the Companies, it bchig understood that under such arrangements or practices, if availed of by the
Director General, he shall, to the extent necessary to offset any increase in the standard return
growing out of the furnishing by the Companies or their subsidiaries, during the test period,
of fuel, materials, and supplies under an arrangement or practice at less than the then cost
or the then market value thereof for railroad purposes, be charged for such fuel, materials,
and supplies a price expressed in dollars or cents per unit below or above the then cost or the
then market value thereof for railroad purposes (as the practico of the Companies may have
been) in the same amount that tho prices charged the Companies during the test period were
below or above the then cost or the then market value thereof for railroad purposes; and at the
request of the Director General or the Companies the prices for fuel or materials supplied between
December 31, 1917, and the execution of this contract shall be adjusted on the foregoing basis:
Provided, however, That a source of supply which the Companies had acquired to safeguard
their own operations shall not be depleted or reduced for use on other transportation systems,
except in cases of emergency to be determined by the Director General, in which event the
quantity so used on other transportation systems shall be accounted for to the Companies at
the fair value thereof: Ând provided further. That materials and supplies secured under contracts
which the Companies had made for their own operations shall, so far as practicable, be used
on the Companies' property, and that, if used on any other transportation system, materials
and supplies of like character shall be furnished by the Director General for use in making such
9
additions, bottermonts, and road extensions as shall be chargeable to the Companies, and shall
be charged at cost under such contracts.
(i) The Director General shall pay, or save the Companies harmless from, all expenses inci¬
dent to or growing out of the possession, operation, and use of the property taken over during
Federal control, except the expenses which under this agreement are to be borne by the Com¬
panies. He shall also pay or save the Companies harmless from all rents called in the monthly
reports to the Commission equipment rents or joint-facility rents, and all judgments or decrees
that may bo recovered or issued against, and all fines and penalties that may be imposed upon,
the Companies by reason of any cause of action arising out of Federal control, or of anything
done or omitted in the possession, operation, use, or control of the Companies' property during
Federal control, except judgments or decrees founded on obligations of the Companies to the
Director General or the United States.
(j) Except as otherwise provided in this agreement the Director General shall save the
Companies harmless from any and all liability, loss, or expense resulting from or incident to
any claim made against the Companies growing out of anything done or omitted during Fed-
deral control in connection with, or incident to, operation or existing contracts relating to
operation; and shall do and perform, so far as is requisite under Federal control for the pro¬
tection of the Companies, all and singular the things, of which he may have notice, necessary
and appropriate to prevent, because of Federal control or of anything done or omitted thereunder,
the forfeiture or loss by the Companies of any of their property rights, ordinance rights, or fran¬
chises, or of their trackage, lease, terminal, or other contracts involving a facility of operation ;
but nothing herein contained shall be construed to require the Director General to make any
capital expenditure necessary to preserve a franchise or ordinance right not heretofore availed
of by the Companies. The Director General shall also save the Companies harmless from any
and all claims for breach of covenant heretofore entered into by the Companies or by any pred¬
ecessor in title or interest in any mortgage or other instrument in respect to insurance against
losses by fire.
Nothing in this or in the preceding paragraph shall be construed to be an assumption by
the Director General of, or to make him liable on, any obligation of the Companies to pay a debt
secured by a mortgage or any rent imder a lease, except rents which during the test period were
called in the monthly reports to the Commission equipment rents and joint-facility rents and
rents which under the accounting rules of the Commission in force during the test period were
classified as operating expenses.
The Companies shall, during Federal control, pay the rents of any property, held by them
under lease or contract, described in paragraph (a) of section 2 hereof, except the rents which
during the test period were, under the rules of the Commission, classified as equipment rents
or joint facility rents, and rents which were classified as operating expenses; which excepted
rents shall be paid by the Director General. If the lease of, or right to use, any property de¬
scribed in paragraph (a) of said section 2 expires during Federal control, the companies shall,
if possible, and if requested by the Director General, renew the same; the rental, however, of
property in the excepted classes above mentioned shall be paid by the Director General. 'ITe
Companies shall pay the same amount of rent as was payable at the beginning of Federal
control for other property, the lease of or right to use which is renewed at the request of the
Director General, but any increases in the rental of such other property shall be paid by the
Director General.
10
Çc) In carrying out the provisions of paragraphs (a), (h), (c), and (d) of this section and the
provisions of section 6 hereof the Director General shall not settle any claim by or against the
Companies against the objection in writing of the president or of any other duly authorized
officer of the Company. The conduct of all litigation before any court or commission arising
out of such disputed claims, or out of operation prior to Federal control, shall be in cliarge of the
Director General's legal force and the expense thereof siiall bo paid by the Director General;
but the Companies may, at their own expense, employ spcîcial counsel in connection with any
such litigation.
(Z) Nothing in this agreement shall be construed as inconsistent with the provision in
section 10 of the Federal control act that no process, mesne, or final, siiall bo levied against
any property under Federal control, nor as a waiver by the United States of any claim that
might otherwise be made by it tliat the rights of any State or subdivision thereof or of any
individual or corporation have been abrogated or suspended by the taking over of the Companies'
property or by Federal control.
(m) The Companies shall have the right at all reasonable times to inspect the books and
accounts kept by the Director General relating to their property, or to the operation thereof,
and the Director General shall during Federal control furnish the Companies with copies of
the operating reports relating to their property, and as soon as practicable after the end of
each fiscal year shall furnish to the Companies a complete list of their equipment as of the end
of such fiscal year.
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SECTION 5.—UPKEEP.
Seo. 5. (a) During the period of Federal control the Director General shall, annually, as
nearly as practicable, expend and charge to railway operating expenses, either in payments for
labor and material or by payments into funds, such sums for the maintenance, repair, renewal,
retirement, and depreciation of the property described in paragraph (a) of section 2 hereof as
may be requisite in order tliat such property may be returned to the Companies at the end of
Federal control in substantially as good repair and in substantially as complete equipment as it
was on January 1, 1918: Provided, however, That the annual expenditure and charges for such
purposes during the period of Federal control on such property and the fair distribution thereof
over the same, or the payment into funds of an amount equal in the aggregate (subject to the
adjustments provided in paragraph (c) and to the provisions of paragraph (e) of this section)
to the average annual expenditure and charges for such purposes included under the accounting
rules of the Commission in railway operating expenses during the test period, less the cost of fire
insurance included therein, shall be taken as a full compliance with the foregoing covenant.
(b) The Director General may expend such sums, if any, in addition to those expended and
charged under paragraph (a) of this section (subject to the adjustments provided in paragraph
(c) of this section) as may be requisite for the safe operation of the property described in para¬
graph (a) of section 2 hereof, assuming a use similar to the use during the test period and not
substantially enhancing the cost of maintenance over the normal standard of maintenance of
railroads of like character and business during said period; and the amount, if any, of such
excess expenditures during Federal control shall be made good by the Companies as provided
in paragraph (&) of section 7 hereof.
(c) In comparing the amounts expended and charged under the provisions of paragraphs
(a) and (&) of this section with the amounts expended and charged during the test period, due
allowance shall be made for any difference that may exist between the cost of labor and materials
and between the amount of property taken over and the average for the test period, and, as to
paragraph (a), for any difference in use between that of the test period and during Federal
control which in the opinion of the Commission is substantial enough to be considered, so that
the result shall be, as nearly as practicable, the same relative amount, character, and durabiUty
of physical reparation.
(d) At the request of the Director General or the Company there shall be an accounting of
the amounts due by or to any of the parties under paragraphs (a) and {b) of this section at the
end of each year of Federal control and at the end of Federal control.
(e) If during Federal control any of the property described in paragraph (a) of section 2
hereof or any replacement thereof or addition thereto or betterment or extension thereof is
destroyed or damaged otherwise than by fire or public enemies, and is not restored or replaced
by the Director General, he shall reimburse the Companies the value of the property destroyed
or the amount of the damage at the time of the loss, and the cost of restoration or replacement,
or said value or damage, as the case may be, shall be charged to annual railway operating
expenses; it being understood that extraordinary losses caused by floods, explosions, train
wrecks or accident are included in the matters covered by this paragraph, while ordinary
losses due to such causes are included in the matters covered by paragraph (o) of this section:
Provided, however, That if the Commission on application of the Director General or the
Company and after giving duo consideration to the practice of the Companies during the test
period in respect to such matters and to any other pertinent facts and circumstances, deter¬
mines that it is just and reasonable that the said cost or value shall be apportioned or extended
over a period of more than one year, this shall be done, and so much of said cost or value as
may be apportioned by the Commission over the period subsequent to Federal eontrol, shall
be charged to the Companies in the final accounting at the end of Federal control and shall be
paid by them.
12
If, during Föderal control, any of the property described in paragraph (a) of section 2
hereof or any replacement tiiereof or addition thereto or betterment or extension thereof is
destroyed or damaged by fire, and is not restored or replaced by the Director (leneral, he shall
reimburse the Companies the value of the property destroyed or the amount of the damage at
the time of the fire; and the cost of restoration or re])lacement or said value or damage, as
the case may be, shall be charged to annual railway operating expenses, but the same shall
not be considered a charge to such expenses for the purposes specified in paragraph (a) of this
section.
In case of any such loss or damage by fire, the Director (leneral shall, if given written
notice of the requirements of any mortgages, equipment lease, or trust on the property so
destroyed or damaged, make such restoration or replacement, or pay such value or damage,
in such way as to meet the requirements of such mortgage, equipment lease, or trust in the
same manner as would have been proper in applying the proceeds of insurance on such property
if it had been insured by the Companies against loss or damage by fire in accordance with the
terms of such instruments of lien; and a compliance with the written request of the Company
in respect thereof shall be a full acquittance of any obligation of the Director General in the
premises.
The foregoing parts of this paragraph are subject to the proviso that in case of loss or
damage any additions and betterments made in connection with or as a part of the restoration
or replacement of property damaged or destroyed and chargeable under the accounting rules
of the Commission in force December 31, 1917, to investment in road and equipment, shall be
charged to and paid by the Companies.
The Director General shall not be liable to the Companies for any loss or damage due to the
acts of public enemies.
if) if any additions, betterments, or road extensions are made to the property taken
over or any equipment is added at the expense of the Companies and with the approval or by
order of the Director General during Federal control, he shall expend and charge to railway
operating expenses such suras either in payments for labor and materials or by payments into
funds, as may be requisite for the proper maintenance, repair, renewal, retirement, and depre¬
ciation of such property until the end of Federal control.
ig) The Companies shall have the right to inspect their property at all reasonable times
during Federal control, and the Director General shall provide reasonable facihties for such
inspection.
(A) If any question sh.all arise, either during or at the end of Federal control, as to whether
the covenants or provisions in this section contained are being or have been observed, the matter
in dispute shall, on the application of the Director General or the Company, be referred to the
Commission, which, after hearing, shall make such fiiulings and order as justice and right may
require, which shall be final as to the questions submitted and shall be binding on and observed
by the parties hereto, except that the Director General or the Company may take any question
of law to the courts, if he or it so desires.
13
SECTION 6.—TAXES.
Sec. 6. (a) All taxes assessed under Federal or any other governmental authority for the
period prior to January 1, 1918, including a proportionate part of any such tax assessed after
December 31, 1917, for a period which includes any part of 1917 or preceding years and unpaid
on that date, all taxes commonly called war taxes which have been or may be assessed against
the Companies under the act of Congress entitled 'An act to provide revenue to defray war
expenses, and for other purposes," approved October 3,1917, or under any act in addition thereto
or in amendment thereof, and all taxes which have been or may be assessed on property under
construction, and all assessments which have been or may be made for public improvements,
chargeable under the accounting rules of the Commission in force December 31, 1917, to invest¬
ment in road and equipment, shall be paid by the Companies; but upon the amount thus charge¬
able to investment interest shall be paid to the Company during Federal control at tiie rate
provided in paragraph (d) of section 7 hereof. Taxes assessed during construction on additions,
betterments, and road extensions made by the Companies with the approval or by order of the
Director General during Federal control shall be considered a part of the cost of such additions,
betterments, and extensions, and shall, under the provisions of paragraph (d) of section 7 hereof,
bear interest as a part of such cost from the date of the completion of such additions, better¬
ments, or extensions. Assessments for public improvements which do not become a part of the
property taken over shall bear interest from the date of the payment of such assessment.
(Ô) If any tax or assessment which under this agreement is to be paid by the Companies is
not paid by them when due, the same may be paid by the Director General and deducted from
the next installment of compensation due under section 7 hereof. If any taxes properly charge¬
able to the Director General have been or shall be paid by the Companies, they shall be duly
reimbursed therefor.
(c) The Director General shall cither pay out of revenues derived from railway operation
during the period of Federal control or shall save the Companies harmless from all taxes law¬
fully assessed under Federal or any other governmental authority for any part of said period
on the property under such control, or on the right to operate as a carrier, or on the revenues
derived from operation, and all other taxes which under the accounting rules of the Commission
in force December 31, 1917, are properly chargeable to "railway tax accruals," except the
taxes and assessments for which provision is made in paragraph (a) of this section. The
Director General shall pay or save the Companies harmless from the expense of aU suits
respecting the classes of taxes payable by him under this agreement.
(d) If any such tax is for a period which began before January 1, 1918, or continues
beyond the period of Federal control, such portion of such tax as may be apportionable to the
period of Federal control shall be paid by the Director General, and the remainder shall be
paid by the Companies.
(e) Whenever a period for which a tax is assessed can not be definitely determined, so much
of such tax as is payable in any calendar year shall bo treated as assessed for such year.
14
SECTION 7.—COMPENSATION.
Sec. 7. (o) The annual compensation guaranteed to the Companies under section 1 of the
Federal control act shall be the sum of
dollars and cents ($ ) during each year and pro rata for each frac¬
tional part of a year of Federal control, subject, however, to any increase or decrease in the
standard retxirn hereafter made by the Commission as provided in paragraph (d) of the preamble
of this agreement.
Compensation paid by the Director General under this agreement, including that provided
for in paragraph (d) of this section, or arising from any other source, shall be paid to
the Company; and the Company, after retaining such part thereof as it may be entitled to retain,
shall distribute the remainder to the parties entitled thereto.
(6) The said compensation shall be paid to the Company quarterly in equal installments
on the last days of March, June, September, and December of each year for the quarter ending
therewith, except that the first three installments shall be due as of March 31,1918, June 30, 1918,
and September 30,1918, respectively, butshall be paid upon the execution of this agreement; but
from each installment there may be deducted any amount then due by the Companies under para-
graplis (a) and (d) of section 4 hereof, under paragraph {b) of section 5 hereof, and under paragraph
(6) of section 6 hereof, and all amounts required to reimburse the United States for the cost of addi¬
tions and betterments made to the property of the Companies not justly chargeable to the United
States, unless such matters are financed or o therwise taken care of by the Companies to the satisfac¬
tion of the Director General, and the Director General may apportion any such amounts to two or
more subsequent iiLstaUmcnts : Frovidfid, however, That said power to deduct amounts due or accru¬
ing imder paragraph (6) of section 5 hereof and the cost of additions and betterments not justly
chargeable to the United States shall not be so exercised as to prevent the Companies from paying
out the sums reasonably required to support their corporate organizations, to keep up sinking
funds for the Companies' debts required by contracts in force December 31,1917, to pay their
taxes, to pay rents and other amounts (not chargeable to capital account) properly payable
by the Companies for leased or operated roads and properties, to pay interest which has hereto¬
fore been regularly paid by the Companies, and interest on loans issued during Federal control and
approved by the Director General, nor shall such deduction be made in respect of additions £ind
betterments which are for war purposes and not for the normal development of the Companies,
nor in respect of road extensions, nor in respect of amounts due under paragraphs (a) and (d)
of section 4 hereof, in cases where the current assets, including materials and supplies, of the
Companies taken over by the Director General under the provisions of this agreement clearly
exceed the current liabUities of the Companies paid or assumed by the Director General under
said section. In the event of a différence as to the fact whether additions and betterments are
for war purposes and not for the normal development of the Companies, or as to whether an
addition is a road extension, the question may, on application of the Director General or the
Company, be referred to and determined by the Commission.
15
The power provided in this paragraph to deduct the amount due by the Companies for the
coat of additions and bettcmients not justly chargeable to the United States is further declared
to be an emergency power, to be used by the Director General only when he finds that no other
reasonable means is provided by the Companies to reimburse the United States, and, as con¬
templated by the President's proclamation and by the Federal control act, it will be the policy
of the Director General to so use such power of deduction as not to interrupt unnecessarily the
regular payment of dividends as made by the Companies during the test period.
Overdue installments of compensation, or balances thereof, provided for in this section
shall bear interest from maturity at the rate of five per cent per annum, except that if the
Director General shall, prior to the execution of tiiis contract, have loaned the Companies any
money, the installments of compensation overdue at the date of the execution hereof shall
bear interest from maturity at the same rate as that charged to the Companies on such loans.
(c) During Federal control the Companies shall not, without the prior approval of the
Director General, issue any bonds, notes, equipment trust certificates, stock, or other securities,
or enter into any contracts (except contracts in respect of corporate affairs and property not taken
under Federal control), or agree to pay interest on their debts at a higher rate, or for rent of leased
roads and properties a larger amount, than the rates and amounts payable as of, or required by
contracts in force on, December 31, 1917. The Companies may, however, procure the authentica¬
tion and delivery to them under any mortgage or trust deed or agreement in force December 31,
1917, of bonds or notes issuable thereunder in respect of additions, betterments, extensions,
and equipment, or for refunding purposes.
(d) Upon the cost of additions and betterments, less retirements in connection therevdth,
and upon the cost of road extensions, made to the property of the Companies during Federal
control, the Director General shall, from the completion of the work, pay the Company a reason¬
able rate of interest, to be fixed by him on each occasion. In fixing such rate or rates he may
take into accoimt not merely the value of money but all pertinent facts and circrunstances,
whether the money used was derived from loans or otherwise, provided that to the extent that
the money is advanced by the Director General or is obtained by the Companies from loans
or from the proceeds of securities the rate or rates shall be the same as that charged by the
Director General for loans to the Companies or to other companies of similar credit.
(e) From the compensation so received or from other income, if adequate for the pur¬
pose, the Companies shall make all payments of interest, rents (other than the equipment
rents, joint facility rents, and rents classified as operating expenses mentioned in paragraph
(j) of section 4 hereof), and other sums necessary to prevent a default under any mortgage
or lease of any of the property described in paragraph (a) of section 2 hereof ; and if at any
time during Federal control the Companies, by virtue of any change in the right of possession
(subject to the rights of the United States) to any of said property or otherwise, shall no longer
be entitled as between themselves and any other person or corporation, not a party to this
agreement, to receive the entire compensation herein provided, such compensation shall be
apportioned and paid as between those entitled thereto, as justice and right may require.
16
SECTION 8.—CLAIMS FOR LOSSES ON ADDITIONS, ETC.
Seo. 8. (a) Prompt notice in writinj;, except as provided in parajtraph (d) of this section,
shall be given the Companies of tlie making or ordering of any additions, betterments, or road
extensions, including terminals, motive power, cars, or otfior equipment to or for tiio property of
the Companies costing more than one thousand dollars, with an estimate of tiie cost thereof.
Such notice shall be given before the beginning of the work or the acquisition of the property
whenever in the judgment of the Director General it is practicable to do so. Within a reason¬
able time after the completion of the work or the acquisition of the property, a written state¬
ment of the final cost thereof shall be given the Companies. There shall be furnished the Com¬
panies, as soon as practicable after the end of each month, a written statement of all expendi¬
tures estimated to cost one tliousand dollars or less chargeable to investment in road and
equipment made during the month, with a brief description of the work done or of the property
acquired; and such statement shall constitute aU the notice of additions and betterments cost¬
ing one thousand dollars or less required by (b) and (c) of this section. The notices provided
in this paragraph may be given to the president of the Company unless the Company designates
some other officer to receive the same, in which event the notice shall be given to such other
officer.
(6) Any claim of the Companies for loss accruing to them by reason of expenditures for additions
and betterments made to their property during Federal control in connection with or as a part
of the work of maintaining, repairing, and renewing tlie Companies' property and chargeable
under the accounting rules of the Commission in force December 31, 1917, to investment in
road and equipment, except such expenditures as are incurred in connection with the replace¬
ment of buildings and structures in new locations, may be determined by agreement between
the Director General and the Companies, or, failing such agreement as to the fact or amount
of such loss, the questions at issue may, upon the application of tlie Director General or the
Companies at any time after the filing of the statement of claim hereinafter referred to, be ascer¬
tained in the manner provided in section 3 of the Federal control act: Provided, however, That
no loss shall be claimed by the Companies and no money shall be due them in respect of such
additions and betterments upon the ground that the actual cost thereof at the time of construc¬
tion was greater than under other market and commercial conditions; and for the purpose of
determining such controversy the amount paid for any addition or betterment shall be deemed
the fair and reasonalile cost thereof and sliall be taken as the basis for such determination;
fior unless the Companies, within sixty days of notice to them that the work ^vül be done, shall
give the Director General notice of objection thereto and shall file with the Director General a
statement of claim within ninety days after notice of the completion of the work.
(c) Any claim of the Companies for loss accruing to them by reason of any additions and
betterments which are not made in connection with or as a part of the work of maintaining,
repairing, and renewing the Companies' property, or accruing to them in connection with main¬
tenance in the replacement of buildings and structures in new locations, or by reason of road
extensions, terminals, motive power, cars, or other equipment made to or provided for the prop¬
erty of the Companies during î'ederal control, may be determined by agreement between the
Director General and the Companies, or failing such agreement as to the fact or amount of such
loss, may, by proceedings instituted not later than six months after the end of Federal control,
be ascertained in the manner provided in section 3 of the Federal control act: Provided, however,
That no loss shall be claimed by the Companies and no money shall be due to them in respect
of such additions, lictterments, road extensions, terminals, motive power, cars, or other equip¬
ment mentioned in this paragraph upon the ground that the actual cost thereof at the time of
construction or acquisition was greater than under other market and commercial conditions;
and for the purpose of determining such controversy the amount paid for any additions, better-
17
menta, road extensions, terminals, motive power, cars, or other equipment shall be deemed
the fair and reasonable cost thereof and shall be taken as the basis for such determination;
nor unless within sixty days after notice to the Company of such construction or acquisition
written notice is given to the Director General by the Company that a loss will be claimed in
respect thereof. With and as a part of such notice the Company shall state the objections to
such construction or acquisition as far as reasonably practicable at the time. Nothing in this
agreement shall be construed as barring the United States from contending that no loss withm the
moaning of the Federal control act accrued to the Companies by reason of any additions, better¬
ments, or road extensions made during Federal control by order or approval of the Director
General, if it is made to appear that the Companies themselves but for Federal control should
in the exercise of sound judgment have made such addition, betterment, or road extension.
(d) Where additions, betterments, or road extensions or terminals, motive power, cars,
or other equipment have been made to or provided for the property of the Companies during
Federal control but prior to the execution of this agreement, the Director General shall not
be required to give the notice thereof provided for in paragraph (o) of this section and notice
by the Company of any claim of loss in respect thereto may be given the Director General
within ninety days after the execution hereof; and such claims shall thereafter be proceeded
with in the manner provided in paragraph (b) or paragraph (c) of this section, as the case may be.
(e) The Director General shall reimburse the Companies for the amount of loss ascertained
under this section with a proper adjustment of interest thereon.
(/) The Director General shall not acquire any motive power, cars, or other equipment
at the expense, or on the credit, of the Companies in excess of what in his judgment is necessary,
in addition to their then existing equipment, to provide for the traffic requirements of their own
systems of transportation; but this provision shaU not prevent the Director General, after the
acquisition of such equipment, from using the same, or any part thereof, on the line of any
other transportation system operated by him.
X8
SECTION 9.—FINAL ACCOUNTING.
Sec. 9. (a) At the end of Federal control all the property described in paragraph (a)
of section 2 hereof shall be returned to the Companies, together with all ref)aira, renewals,
additions, betterments, replacements, and road extensions thereto which have been made
during Federal control, except as any part thereof may have been destroyed oj' retired end not
replaced, in which case the provisions of section 5 hereof shall govern and except that the
Director General shall not be obliged to restore or replace property destroyed or damaged by
the acts of public enemies.
(b) At the end of Federal control the Director General shall return to the Companies
all uncollected accounts received by him from them and also materials and supplies equal
in quantity, quality, and relative usefuhiess to that of the materials and supj)lie3 which he
received, and to the extent that the Director General does not return such materials and sup¬
plies he shall account for the same at prices prevailing at the end of Federal control. To the
extent that the Companies receive materials and supplies in excess of those delivered by them
to the Director General they shall account for the same at the prices prevailing at the end of
Federal control and the balance shall be adjusted in cash.
(c) The total amount of the account "Net balance receivable from agents and conductors"
at the end of Federal control may be turned over by the Director General to the Company.
He may also turn over all assets which have accrued out of operation; and the Company shall,
to the extent of the cash received or realized from such assets, pay and charge to the Director
General all expenses arising out of railway operations during Federal control, including reparation
and other claims, and may, unless objection is made by the Director General, pay and charge
to him any such expenses, including reparation and other claims, in excess of the cash so received
or realized. On the first day of the third month following the termination of Federal control
an accounting between the parties shall be had, and so on the first of each third month thereafter.
Any balance found due either party shall be payable as of the date on which the account is
stated and shall bear interest until paid.
(d) At the end of P'ederal control there shall be paid to the Companies any balance then
remaining unpaid of the cash received from them at the beginning of or during Federal control,
together with any unpaid interest which may have accrued upon the same. There shall also
be paid to the Companies any funds created under the provisions of this agreement except to
the extent that such funds may have been properly used under this agreement.
(«) Wherever under any provision of this section there is to be an adjustment of interest,
it shall be at the rate of five per cent per annum, unless the parties shall in any case agree on a
different rate.
(/) After Federal control no claim by or against the Director General shall be settled by
the Companies against the written objection of the Director General or the Attorney General of
the United States. The conduct of all litigation before any court or commission arising out of
such disputed claims or out of operations during Federal control shall be in charge of the Com¬
panies' legal force and the expense thereof shall be paid by the Companies; but the Director
General or the Attorney General may, at the expense of the United States, employ special
counsel in connection with any such litigation.
19
EXECUTION.
O