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standing thereunder bonds exceeding in amount three times the capital stock of the consolidated company, and that additional bonds beyond $500,000,000 may be sold only to the extent of 80 per cent. of the cost of needed improvements. The New York Central estimates that the consolidated company will require within the next 10 years $350,000,000 of new money for addition and improvement purposes, a sum which would increase the present bonded debt of the consolidated company to more than $800,000,000. Unless increased in the meantime, there would be then outstanding against the consolidated company $275,581,100 of capital stock. The consolidation would have the effect of removing the present restriction with respect to the increase of the Lake Shore's capital stock. It is therefore problematical what the stock and bond capitalization of the consolidated company under the proposed plan would eventually be.

We have explained that this general plan of future financing of the two companies is dependent upon the consolidation taking place, and that the consolidation is contingent upon the New York Central obtaining the written consent thereto from the holders of threefourths of the Lake Shore collateral bonds. In December, 1911, the New York Central in order to procure that consent offered to secure these bonds by mortgage on the property of the New York Central, and, following the consolidation, on the property also of the Lake Shore, in conformity with the covenant mentioned, and to provide for the payment of certain taxes on these bonds under the New York law. In response to this proposal consents representing only $20,000,000 of the required $67,933,800 were received. In May, 1913, the New York Central offered, in addition to the mortgage security of the first offer, to extend to these bondholders the opportunity, following consolidation, of exchanging their 32 per cent. collateral bonds for 4 per cent. consolidation mortgage bonds. As the collateral bonds have 84 years yet to run, the exchange would have the effect of adding annually to the fixed charges of the consolidated company for that period $452,892 if the entire issue should be exchanged, and $339,669 if the offer should be withdrawn after securing consents only of the necessary three-fourths. The New York Central proposes this increase in interest rate to be effective under its present plan only as to the $90,578,400 of the $167,102,400 mentioned in the Senate resolution which represents its Lake Shore collateral bonds. While the New York Central concedes that it reserves the right under the consolidation mortgage to make the same offer of exchange to holders of its Michigan Central collateral bonds and of its debenture bonds of 1904 and of 1912, also secured under that mortgage, it declares that it has no present intention of including the Michigan Central in the

consolidation, and therefore no present intention of offering the opportunity of exchange to the holders of those bonds. Its debenture bonds of 1904 and of 1912 now bear interest at 4 per cent.

We have stated that the New York Central states its main object in consolidating to be not so much to effect economy in operation of the two companies as to afford a broader basis for their future financing. Nevertheless, it represents to us that by the consolidation substantial savings can be made. It estimates that perhaps $325,000 a year can be saved by unification and simplification of accounting, by the elimination of interline records, reports, printing, etc., incident to the consolidation. It also represents that perhaps $200,000 annually can be saved under the federal income tax law; for example, the present triplicate taxation under that law of the 50 per cent. of Pittsburgh & Lake Erie Railroad Company's dividends that pass first to the Lake Shore and finally, to the extent they enter into 90 per cent. of the Lake Shore's dividends, to the New York Central, will be stopped, and only the one tax thereon as part of the earnings of the consolidated company be required. Finally, it expresses the opinion that by reason of greater public confidence in a bond of the consolidated company over separate bonds of the two companies the saving to it in iterest charges in connection with the sale of new bonds under the refunding and improvement mortgage will more than offset the annual increase of $452,892 in interest charges which it proposes to pay as a maximum to the Lake Shore collateral bondholders for their consent to the consolidation.

It seems probable that by the consolidation a substantial saving can be effected, possibly a sum equal to that last above stated.

We think that from the standpoint of economy in operation and facility in the future financing of the two companies the consolidation is warranted. Neither the consolidation itself nor the exchange of bonds on the basis of increased interest rate indicated, incident thereto, would, so far as we are advised, offend any federal statute. The question whether the exchange of the Lake Shore collateral bonds on that basis is warranted will be answered by our reply to the Senate resolution's further question, whether the exchange as proposed is necessary even though the consolidation of the two companies be found unobjectionable. We have stated that, in response to the New York Central's first offer to the holders of its Lake Shore collateral bonds of a mortgage security for their bonds in consideration for their consent to the consolidation, consents representing only about $20,500,000 of the required $67,933,800 were received. On the date the taking of testimony before us was concluded most of the required consents had been secured under the New York Central's second offer of an increased

interest rate in addition to that security. We have been since advised by the New York Central, by letter, that the necessary con-sents have been received. We think that as a practical matter the exchange of the 31⁄2 per cent. Lake Shore collateral bonds for 4 per cent. consolidation mortgage bonds is, under the circumstances disclosed, a necessary step in the carrying out of the proposed consolidation plan as outlined to us by the New York Central.

What we here say is aside from any question as to the necessity or advisability of federal control of the issuance by railroads of their securities or, in lieu of that control, of a requirement for full measure of publicity with respect thereto. Whether one or the other of these measures or some other provision looking to the same purpose should be enacted into law is a question we deem it unnecessary to discuss in this report. We have under existing law no jurisdiction or control over such matters. We have expressed our views on the sub

ject in previous reports.

The execution of the mortgages referred to herein, and the issuance of bonds thereunder, are subject to the approval of the Public Service Commission of the State of New York (Second District) and of the Board of Public Utility Commissioners of the State of New Jersey. They have approved the execution of both mortgages. This approval does not extend, however, to the issuance of bonds thereunder or to the consolidation itself. Separate applications must be made for those purposes, and the application to consolidate cannot be made unless and until the necessary consent of stockholders has been secured. Since the taking of testimony before us has been concluded an application made by the New York Central to the New York and New Jersey authorities for leave to issue $70,000,000 of bonds under the refunding and improvement mortgage to refund certain short-term notes that mature in 1914 has been granted.

Certain New York Central stockholders have objected to the proposed consolidation, not only on the ground that the increase in interest rate on the Lake Shore collateral bonds is unwarranted and, as they state, in violation of statutes of the State of New York in certain respects, but also because, as they allege, the consolidation will violate the Sherman Anti-trust act unless prior thereto the New York Central disposes of its stock in the Michigan Central and in certain lake lines between Buffalo and Chicago, and Buffalo and Detroit, and unless also the Lake Shore first disposes of its stock in the New York, Chicago & St. Louis Railroad. These stockholders state that the Michigan Central, the New York, Chicago & St. Louis Railroad and these lake lines are competing routes with the Lake Shore. We think this question is one more properly to be passed

upon by the Department of Justice, and as to it we therefore express no opinion. However, it would seem that if this ownership of stock in parallel lines by the New York Central and Lake Shore violates the Anti-trust law, the offence is as complete now as it would be after the consolidation. The New York Central's relation to lake lines will be considered in connection with cases before us under the Panama Canal act.

By the Commission. [SEAL]

GEORGE B. MCGINTY,
Secretary.

LEASE1

West End Street Railway Co.

Boston Elevated Railway Co.

THIS INDENTURE, made in duplicate, this day of A. D. 1897, by and between the WEST END STREET RAILWAY COMPANY, a corporation existing under and by virtue of the laws of the Commonwealth of Massachusetts, party of the first part, and hereinafter denominated the "Lessor," and the BOSTON ELEVATED RAILWAY COMPANY, a corporation existing under and by virtue of the laws of the said Commonwealth, party of the second part, and hereinafter denominated the "Lessee,"

WITNESSETH, That the said parties, each for itself, its successor and assigns, and each in consideration of the grants, covenants and engagements herein made by the other, have granted, covenanted and agreed, and do hereby grant, covenant and agree, each to and with the other, and its successor and assigns, as follows, to wit:

I.

The Lessor doth grant, assign, transfer, demise and lease unto the Lessee, its successors and assigns, subject to all legal obligation and encumbrances thereon, its railway and property of every description; including therein its railway, branches, tracks, sidetracks, road-beds, lands, stations and station grounds, viaducts, shops, car-houses, powerhouses, buildings, fixtures, cars, horses, rolling stock, machinery, tools, furniture, patents, licenses, telegraphic and electrical apparatus, poles, wires, conduits, equipment, material and supplies and cash on hand at the inception of this lease, and all accounts and notes receivable, whether secured by mortgage or otherwise, and all rights, franchises, easements, privileges and appurtenances thereto belonging, together with the right to demand and receive all tolls, rent, revenue, income and profits of the demised premises; including therein, subject to all the duties, obligations and undertakings thereby imposed, all the rights, privileges and powers granted and conveyed to the Lessor by a certain contract between it and the City of Boston, acting by the Boston Transit Commission, dated December 7th, A. D. 1896; and also including therein, subject to all legal obligations and encumbrances thereon, all the right, title and interest of the Lessor in and to any and all street railways operated by it, directly or indirectly,

1 Described by E. S. Meade as "one of the most carefully drawn leases ever executed." Corporation Finance, p. 380.

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