value of its land and plant, shall receive preferred stock to the amount of twenty-five times its net earnings for said six months; and the balance of the value of said tangible property it shall receive in common stock.

Each vendor has upon its schedule set forth a statement of its net earnings for said period, which is subject to modification by said committee under the above rules applicable thereto.

2. Intangible property paid for in common stock.

The entire value of the intangible property, ascertained as per this agreement, shall be paid by the purchaser in its common stock at par. Simultaneous with the sale and transfer of its properties each vendor shall receive from the purchaser in stock, or if permanent certificates are not ready, then script for the same, one-half of the purchase price to which it claims to be entitled by its schedule, less an amount of preferred stock equal to 125 per cent. of its mortgage indebtedness, if any, and the remainder of said stock shall be withheld by the purchaser until the exact amount of the purchase price shall have been finally determined as herein provided, whereupon the vendor shall become entitled to the remainder of the purchase price, but the purchaser may out of such remaining stock retain an amount thereof sufficient to secure it against any defective title and against any indebtedness which is not otherwise sufficiently provided for.

APPRAISAL, ETC.

Each vendor expressly covenants and agrees that the property set forth by it in its schedule has been fairly and honestly valued in accordance with the following rules and methods, which shall be the rules and methods to govern the Appraisal and Executive Committees. in their verification or modification of the same.

METHOD OF APPRAISAL

(1) Tangible Property.

(a) Land:

Land shall be separately appraised at its actual value without reference to plants thereon, and consideration shall be given to special adaptability or want of adaptability to the business.

Plants shall be appraised apart from the bare land at their value to-day to a going concern for the purpose for which used, based upon present cost of construction at the same places respectively. vendor shall set forth in its schedule any unimproved land or other property belonging to it which is neither a part of the plant of such vendor nor essential in the operation of the same, nor shall the same be purchased by the second party.

(b) Materials, Supplies and Manufactured Product.

These shall be appraised at what it would cost to replace the same at the place and date of the transfer of the same to the purchaser.

(2) Intangible Property.

(c) Intangible property shall be appraised by multiplying by ten the average yearly earnings during the past five and one-half years, which shall be ascertained as follows:

In order to arrive at the earnings of the property sold by each vendor and to determine on a uniform basis fair for all, the earning power of the property so sold, each vendor shall add to its net profits such of the following items as have been theretofore deducted by said vendor in ascertaining its net profits during said period.

3. Arbitrary items of depreciation or wear and tear not paid out or actually incurred as a debt, and all items of new construction.

4. Also salaries and compensation paid to officers, directors, partners, trustees, superintendents of departments or works, general managers, auditors, cashiers and chief accountants, but all wages, salaries and compensation paid to laborers, servants, foremen, clerks and employees in subordinate positions shall remain charged against earnings.

5. The accountants must ascertain the amounts expended by each of said vendors for repairs, renewals and maintenance of plant which have been deducted from earnings during said period of five and onehalf years, and the said amounts so ascertained are set forth on the schedules of said vendors.

In order to place said vendors on a uniform basis as to the amounts expended, or which ought to have been expended, for repairs, renewals and maintenance of plant and charged against or deducted from the earnings during said five and one-half years or other period, each vendor shall add to said earnings any amount actually expended by it for repairs, renewals and maintenance of plant which it has heretofore charged against and deducted from said earnings, and there shall then be charged against and deducted from, said earnings of each vendor ascertained as aforesaid, annually a sum equal to 3 per cent. of the schedule value of the plant of said vendor completed prior to the last date of the five and one-half years or other period applicable to said vendor.

In the case of those vendors, if any, which shall not have kept a separate repair account the amounts expended by them for repairs, as required by this subdivision shall be ascertained as nearly as possible

by the accountants and the committee of appraisal from the books of such vendors and from the condition of their plants and otherwise, and in default of information to the contrary it shall be assumed that they have expended in repairs a sum equal to 3 per cent. of the value of their respective plants.

Having by the foregoing methods, ascertained the earnings, there shall thereupon be deducted from the average annual earnings of each vendor for said period, a sum equal to 5 per cent. (5%) of the value of the land and plant sold and completed prior to the last date of the five and one-half years or other period applicable to such vendor, and the balance of said average annual earnings so ascertained shall be deemed for the purposes of this agreement the net profits of the respective vendors to be severally multiplied by ten as aforesaid.

Provided, however, that in case it shall be found that the aforesaid multiplier of ten will produce a grand aggregate of common stock greater in amount than the grand aggregate of preferred stock, the Executive Committee shall choose such lower multiplier as will limit the grand aggregate of preferred stock.

Provided, further, that in the event that the grand aggregate of the average annual net earnings of the vendors, ascertained as aforesaid, shall be found to exceed 12 per cent. of the total value of the tangible property, then said Executive Committee in its discretion may choose. such multiplier as will fix the volume of common stock as closely as may be at an amount upon which such past net earnings would show 6 per cent. applicable to dividends upon such common stock after providing for the dividend on the preferred stock.

And thereupon such newly chosen multiplier (whatever the same may be) shall be the multiplier to be used in the case of each vendor.

THE NEW YORK CENTRAL AND HUDSON RIVER
RAILROAD COMPANY.

GRAND CENTRAL TERMINAL

NEW YORK, December 15, 1911.

To the Holders of The New York Central and Hudson River Railroad Company's Three and One-half Per Cent. Gold Bonds, Michigan Central Collateral:

Under the indenture, dated April 13, 1898, executed by The New York Central and Hudson River Railroad Company and the Guaranty Trust Company of New York, as Trustee, pursuant to which the above-mentioned bonds were issued, the Michigan Central Railroad Company may be consolidated with the New York Central, or any other company may be consolidated with the Michigan Central, upon such terms as may be approved by the holders of three-quarters of said bonds; but in case of any such consolidation, these bonds and certain other bonds of the New York Central of a similar issue not exceeding in amount $100,000,000 (the latter being the three and onehalf per cent. gold bonds of this Company for which stock of the Lake Shore & Michigan Southern Railway Company is pledged as collateral) shall be secured by a mortgage upon the railroad of the New York Central, as provided in the Section 5 of Article Two of the indenture, next in rank and second only to its existing general mortgage. dated June 1, 1897, securing an authorized issue of $100,000,000 of bonds; and, in connection with any such consolidation of the Michigan Central and the New York Central, no lien or charge shall be created or incurred except in subordination and subjection to the prior claim, lien and charge of the Michigan Central collateral bonds. There are similar provisions as to the Lake Shore in the indenture under which The New York Central and Hudson River Railroad Company's Three and One-Half Per Cent. Gold Bonds, Lake Shore collateral, were issued.

The New York Central owns more than 90 per cent. of the stock of the Lake Shore, and it is thought that it may be desirable to consolidate the two companies, and to include in such consolidation certain others of the New York Central Lines.

It is not intended at the present time to consolidate the Michigan Central with the New York Central or with the Lake Shore, but (the necessary consents being obtained) the Michigan Central collateral bonds will be secured by a mortgage on the railroad of the New York Central when any two of those companies are consolidated.

In that connection and in order to facilitate such Michigan Central consolidation as may hereafter be decided on, the holders of the Michigan Central collateral bonds are asked to give their consent to the consolidation of the Michigan Central with the New York Central, or its successors, or with any other railroad company or companies now or hereafter of the New York Central System, which consolidation may be made presently or at any future time.

Such consent being given, before making use of it, the New York Central will secure these bonds and also the Lake Shore collateral bonds above referred to by executing a mortgage upon the railroad now owned by it, second only to its existing general mortgage, and in that connection will pay the mortgage tax, which will entitle your bonds to the exemption provided for in the existing mortgage tax laws of the State of New York.

The indenture by which your bonds are secured provides that the amount and numbers of coupon bonds held by any person executing any request of other instrument as a bondholder and the date of holding the same may be proved by the certificate of any trust company bank, bankers or other depositary, if such certificate shall be deemed by the Trustee to be satisfactory, showing therein that at the date therein mentioned such person had on deposit with such depositary the bonds described in such certificate. The holding of registered bonds of course is shown by the registry. The holders of coupon bonds are, therefore, requested to furnish the certificate of a depositary, as provided in the indenture, a form of which certificate is herewith enclosed. The deposit of bonds required for the purpose of procuring such certificate need be only a temporary one.

Herewith you will find a form of consent, which we should be pleased to have you execute and return at your convenience, first having acknowledged its execution before a notary public.

By order of the Board of Directors.

THE NEW YORK CENTRAL AND HUDSON RIVER RAILROAD COMPANY,

DWIGHT W. PARDEE,

Secretary.

W. C. BROWN,

President.

Extra copies of the form of consent will be sent to you on application.