additional written comments on this question to the committee at a later time. Thank you, Mr. Chairman, for giving the Authority the opportunity to testify before this committee. Senator EAGLETON. We will put in the record at this time, since reference has been made to it, the letter of August 8, 1968, wherein Mr. Chalk wrote to Mr. James P. Gleason of the Washington Metropolitan Area Transit Authority and appended to the letter a proposed contract, which has been referred to by Mr. Chalk, Mr. Babson, and myself. (The documents follow :) Mr. JAMES P. GLEASON, D. C. TRANSIT SYSTEM, INC., Washington, D.C., August 8, 1968. Chairman, Washington Metropolitan Area Transit Authority, DEAR MR. GLEASON: As per our last conference, I am herewith enclosing two copies of proposed form of contract outlining the terms we discussed. I am sure there will be a number of matters that require further consideration and discussion. I should be pleased to meet with you again at any time in the near future. Very truly yours, Enclosures. Agreement dated O. ROY CHALK, President and Chairman of the Board. (herein sometimes called "this Agreement") between D.C. Transit System, Inc., a District of Columbia corporation (herein sometimes called "Transit"), and the Washington Metropolitan Area Transit Authority (herein sometimes called "the Authority"). WITNESSETH Whereas the Authority was created by an interstate compact between Maryland, Virginia, and the District of Columbia pursuant to Public Law 89-774 (Act of November 6, 1966, 80 Stat. 1326) and is empowered to acquire by contract real and personal property necessary or useful in rendering transit service in the Washington Metropolitan Area Transit Zone (“Zone”) as defined in such compact; and Whereas Transit operates a mass transit system in the Zone; and Whereas Transit desires to sell certain of its assets, with certain exceptions as hereinafter set forth, and the Authority desires to acquire such assets by contract; Now, therefore In consideration of the premises, and the representations, warranties, covenants and agreements hereinafter set forth, and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Transit and the Authority hereby agrees as follows: 1. TRANSFER OF ASSETS AND RELATED TRANSACTIONS 1.1 Transfer of Assets of Transit. Transit shall, subject to the terms and conditions hereof, transfer, convey, assign and deliver to the Authority on the Closing Date (hereinafter defined) the then existing mass transit service business and assets (except as provided in Section 1.2 hereof) of Transit, including without limitation all personal property, machinery, tools and equipment, automobiles, buses and trucks, furniture and fixtures, inventories, supplies, cash, bank accounts, accounts receivable, contracts, leases, easements, franchise rights, property rights and permits, if any. Such assets (except as provided in Section 1.2 hereof) shall include those owned by Transit on June 30, 1968, as reflected in Transit's unaudited Balance Sheet referred to in Section 4.4 hereof, with only such changes therein as shall have occurred in the ordinary course of the business of Transit between June 30, 1968 and the Closing Date, or otherwise as may be consented to or approved by the Authority in writing. 1.2 Assets Not To Be Transferred Pursuant to this Agreement. Notwithstanding the provisions of Section 1.1, Transit shall not sell or assign or otherwise convey to the Authority the following: (a) Its right to exist as a corporation and exercise the corporate powers to be retained by it hereunder; (b) All corporate books and records set forth in Section 1.11; (c) All the issued and outstanding stock and the assets of the following partially or wholly owned subsidiaries: Georgia Avenue Estates, Inc., a District of Columbia corporation. L Street Estates, Inc., a District of Columbia corporation. Fourth Street Estates, Inc., a District of Columbia corporation. M Street Estates, Inc., a District of Columbia corporation. Washington, Virginia and Maryland Coach Co., Inc., a Virginia corporation (herein sometimes called "W. V. & M. Coach Co., Inc.") (d) The right to income tax refunds (and interest thereon) of amounts paid by it; (e) The right under the income tax laws to offset against future income any losses or other deduction heretofore or hereafter sustained by it; (f) All real property owned or leased by Transit as set forth in Schedule A annexed hereto; (g) All permits and certificates relating to sightseeing, charter and racetrack service as set forth in Schedule B annexed hereto; (h) All limousine and other vehicles relating to sightseeing, charter and racetrack service as set forth in Schedule C annexed hereto; (i) All historical vehicles as set forth in Schedule D annexed hereto. 1.3 Consideration for Transfer. At the closing (hereinafter defined), subject to the terms and conditions hereof and in full consideration of the aforesaid transfer, conveyance, assignment and delivery, the Authority will deliver to Transit: 1.3.1 Cash or Bonds. Cash or bonds in an amount to be computed in accordance with Section 1.4 less the deposit of $500,000 referred to in Section 1.6. If bonds are delivered they are to be (a) issued by the Authority and guaranteed by the United States Government, or the States of Maryland or Virginia or the District of Columbia, or (b) issued by either the States of Maryland or Virginia or the District of Columbia. The bonds will bear interest at the rate of 5% per annum and will be payable over a ten year period at the rate of 10% each year. Said bonds shall be in the form set forth in Schedule E. 1.3.2 Undertaking Re Liabilities of Transit. An undertaking or undertakings wherein the Authority assumes and agrees to pay, perform and discharge all debts, obligations (other than those referred to in Section 1.5 hereof), contracts and liabilities of Transit as the same shall exist on the Closing Date, of any kind, character or description, whether accrued or unaccrued, known or unknown, absolute or contingent, or otherwise, and whether or not reflected or reserved against in the Balance Sheets, books of account and records of Transit, including, among others and without limitation upon the foregoing, all union employment agreements, all obligations to and under the pension plans, all taxes, federal, state and local, all track removal obligations and any and all other obligations arising from or in connection with the ordinary course of business. 1.4 The Price to be Paid. The price to be paid by the Authority to Transit will be the amount representing the fair market value of the property being transferred computed upon the basis of a going concern valuation in accordance with the standards hereinafter described as agreed upon between an appraiser to be named by Transit and an appraiser to be named by the Authority and, in the event that such two appraisers cannot agree on such amount, then the amount shall be determined by the majority decision of three appraisers, the first being the appraiser selected by Transit, the second being the appraiser selected by the Authority, and the third being the appraiser selected by the aforementioned appraisers. The price to be paid shall be determined by the appraisers on the basis of the going concern value, which, in turn, shall be determined in accordance with the rules set forth for determining going concern value in the opinion of the majority of the court in In Re Fifth Avenue Coach Lines, Inc. (In the Matter of the City of New York), 18 N.Y.2d 212, 273, N.Y.S.2d 52, 219 N.E.2d 410 (1966), wherein the going concern value was declared to be the cost of putting the entire transit system together new, plus all improvements, tangible or intangible, less depreciation including, without limitation, going concern items and intangible assets such as franchises, coach routes, operating schedules, operating records and systems of procedures and trained personnel. Each party shall appoint an appraiser within five business days after the signing of this Agreement. 1.5 Obligations Not Assumed by the Authority. The Authority shall not assume the following obligations of Transit: 1.5.1 Appraisal Rights of Shareholders of Transit. Obligations to any dissenting shareholders of Transit for the fair value of the stock of any such stockholder who shall qualify to be entitled to receive payment of such value. 1.5.2 Mortgage Payments. Mortgage notes with respect to the real estate not to be transferred pursuant to Section 1.2 as set forth in Schedule A. 1.6 Deposit. Coincident with the execution hereof, the Authority has caused to be deposited with Transit the sum of $500,000 cash, the receipt of which is hereby acknowledged, to evidence its good faith and as a deposit to bind this transaction, which amount shall be applied to the purchase price hereinabove referred to in Section 1.4 upon the consummation of this transaction. 1.6.1 Retention of Deposit. In the event this transaction is not consummated because of any default under this Agreement on the part of the Authority, said deposit shall, at the option of Transit, be retained as liquidated damages, the nature of this transaction being such as will not permit any exact determination of damages which may be suffered on account of any such breach; provided, however, that the Authority shall not be considered in default in the absence of fifteen (15) days written notice to the Authority to cure any such claimed default and the failure of the Authority to cure such default within the fifteen day period. 1.6.2 Return of Deposit. In the event this transaction is not consummated, and the Authority is not in default hereunder, said deposit shall be returned to the Authority immediately upon demand. 1.7 Instruments of Conveyance and Transfer, etc. At the closing, Transit shall deliver to the Authority: 1.7.1 Deeds, Bills of Sale, Assignments, etc. Such deeds, bills of sale, endorsements, assignments and other good and sufficient instruments of transfer, conveyance and assignment as shall be effective to vest in the Authority good and marketable title, free and clear of all liens and encumbrances, except as provided in Section 4.4 hereof, on the assets and business to be transferred, conveyed, assigned and delivered hereunder; and 1.7.2 Contracts, Records, etc. All the contracts and commitments of Transit, with assignments thereof and other data relating to the assets, business and operations transferred pursuant to this Agreement; and simultaneously with such delivery, Transit shall take all such steps as may be required to put the Authority in actual possession and operating control of such assets and business. 1.8 Further Assurances. Transit shall from time to time at the Authority's request and without further consideration, execute and deliver such other instruments of transfer, conveyance and assignment and take such other action as the Authority may require more effectively to transfer, convey and assign to and vest in the Authority and to put the Authority in possession of, any property to be transferred, conveyed, assigned and delivered hereunder. 1.9 Use of Tokens. Upon consummation of this Agreement, notwithstanding any name or names, which may appear thereon, the Authority shall be entitled, without further compensation to Transit, to use all tokens, passes and pads of transfers outstanding on the property of Transit, provided that the Authority shall comply with all obligations occasioned thereby or arising out of or relating to such use. 1.10 Filing of Documents by Transit. The Authority will cooperate with Transit in the preparation and filing of all records, schedules, statements and reports required because of the discontinuance of the transit business of Transit, and, for such purpose, without expense to Transit, will furnish Transit adequate facilities, equipment and employees reasonably required for such purposes. 1.11 Ownership of Books and Records. Transit shall retain ownership of all of its books, records, ledgers and files of every kind and nature, including but not limited to those pertaining and with respect to fiscal matters, corporate meetings of directors and stockholders, stock certificate books and transfer books, and the Authority shall furnish such filing cabinets, space and facilities as may be reasonably required for the keeping and proper storage thereof for such period of time as may be reasonably required. The Authority, as well as Transit, shall have access to all of said books, records, ledgers and files during all reasonable business hours and may make or cause to be made, for its sole use and benefit, copies thereof, or such parts thereof as the Authority may desire. At its option Transit may, or at the request of the Authority, Transit shall remove said corporate meeting records, stock certificate and stock transfer books and records to its office or offices within the District of Columbia without affecting the right of the Authority to such access or to make such copies or cause the same to be made. 1.12 Lease of Real Estate. At the Closing the operating real estate described in and set forth in Schedule E shall be leased to the Authority by Transit for an initial term of years at an annual lease rental to be agreed upon between Transit and the Authority. The annual lease rental rates shall be consistent with those prevailing in the District of Columbia for United States Government rentals. 1.13 Option to Purchase Assets of W. V. & M. Coach Co., Inc. Upon the consummation of this Agreement, the Authority will have the option to purchase all of the assets of W. V. & M. Coach Co., Inc. from W. V. & M. Coach Co., Inc. 1.13.1 Consideration to be Paid by the Authority. The Authority will (a) pay to W. V. & M. Coach Co., Inc. the amount of $3,000,000 and (b) assume all of the liabilities of W. V. & M. Coach Co., Inc. 1.13.2 Exercise of Option. The option may be exercised only between the Closing Date of this Agreement and the day of 19, and shall expire completely on this later date. The option may be exercised by the Authority by its delivery of written notice to Transit of its intent to exercise said option. 1.13.3 Form of Agreement. Within thirty (30) days after receipt of the notice of the Authority's intention to exercise the option contained in this paragraph, W. V. & M. Coach Co., Inc. and the Authority will enter into an agreement in the form set forth in Schedule Fattached hereto. 1.13.4 Closing Date of Transaction. Within ninety (90) days after signing the agreement to purchase the assets of W. V. & M. Coach Co., Inc., the agreement will be consummated in accordance with its terms unless otherwise stipulated in writing by the parties thereto. 2. CLOSING The closing of the transaction provided for in Section 1 hereof (the "Closing"), shall take place at the offices of Harvey M. Spear, Esq., at the Second Floor, 1420 New York Avenue, NW., Washington, D.C. on or such other date and time as shall be mutually agreed upon by the Authority and Transit. The date of the Closing is referred to herein as the "Closing Date." In addition to the deliveries (referred to in Sections 1.1 and 1.3 hereof) to be made at the closing, there shall also be delivered the opinions and certificates referred to in Sections 8 and 9 hereof. 3. CORPORATE ACTS OF TRANSIT In connection with the transaction contemplated by this Agreement, Transit shall duly call a special meeting of the holders of its capital stock entitled to vote thereon, giving not less than days' notice thereof to be held on or prior to 1968, and hold such meeting for the purpose of voting upon the transfer contemplated herein. 4. REPRESENTATIONS AND WARRANTIES OF TRANSIT 4.1 Organization and Good Standing. Transit is a corporation duly organized, validly existing and in good standing under the laws of the District of Columbia, and duly authorized to transact business in the District of Columbia. 4.2 Authority Relative to this Agreement. The execution and delivery of and performance under this Agreement by Transit and the transfer, conveyance, assignment and delivery contemplated thereby, have been duly authorized by the Board of Directors of Transit, and Transit has delivered to the Authority true and complete copies of the resolutions of its Board of Directors by which such authority was granted, such copies having been certified by the Secretary of Transit. The entering into of this Agreement and the consummation of the transaction contemplated thereby does not violate the provisions of the Certificate of Incorporation or By-Laws of Transit, the provisions of any indenture, agreement or other instrument to which Transit is a party. 4.3 Subsidiaries. Transit has no subsidiaries except for Georgia Avenue Estates, Inc., a District of Columbia corporation, L Street Estates, Inc., a District of Columbia corporation, Fourth Street Estates, Inc., a District of Columbia corporation, M Street Estates, Inc., a District of Columbia corporation and Wash ington, Virginia and Maryland Coach Company, Inc., a Virginia corporation. The shares and assets of the subsidiaries of Transit shall not be transferred pursuant to this Agreement except for the assets of Washington, Virginia and Maryland Coach Company, Inc., a Virginia corporation, which may be tranferred if the option in Section 1.13 is exercised by the Authority. 4.4 Financial Statements. Transit has delivered to the Authority a copy of its unaudited Balance Sheet as at June 30, 1968 which presents fairly the financial position of Transit in conformity with generally accepted accounting principles. 4.5 Absence of Certain Changes or Events. Since June 30, 1968 there has not been: 4.5.1 Labor Relations, Financial Conditions and Assets. Other than changes in the ordinary course of business, any significant labor trouble or any materially adverse change in the financial condition of Transit, its assets, liabilities, properties or business, including any damage or destruction of property by fire or other casualty, whether or not covered by insurance, or any property taken by condemnation or eminent domain. For the purposes of this Section, changes in results of operations due to higher or lower levels of business activities shall not constitute a materially adverse change in financial condition or business; 4.5.2 Capital, Stock, Options, Dividends, etc. Any change in the authorized or issued capital stock of Transit, the granting of any stock options; any purchase or other acquisition of any shares of the capital stock of Transit; any declaration, setting aside or payment of any dividend or making of any other distribution or payment in respect of the capital stock of Transit; 4.5.3 Pledge of Assets; Incurring of Indebtedness. Any mortgage or pledge remaining unsatisfied or unredeemed at the date hereof of any of the properties or assets of Transit or any indebtedness of it maturing more than one year from the date the indebtedness was incurred; 4.5.4 Employee Benefit Plans and Certain Salaries. Any bonus, severance pay, stock option, profit sharing, pension or retirement plan or other similar arrangement instituted by Transit; any increase in the compensation payable or to become payable by Transit to any of its officers, employees or agents whose total compensation for services rendered to Transit is currently at an annual rate of more than $12,000; or any bonus, severance pay, pension, retirement or similar payment or arrangement made or agreed to by Transit. 4.6 Accounts and Notes Receivable. The accounts receivable and notes receivable of Transit shown on the Balance Sheet referred to in Section 4.4 hereof, or thereafter acquired by it prior to the date hereof, have been collected or Transit has no reason to believe that such accounts or notes are not collectible. 4.7 Inventories. The inventories of Transit shown on the Balance Sheet referred to in Section 4.4 hereof reflect the normal inventory valuation policy of Transit of stating inventory at cost, not in excess of market; and the inventories shown on the books of Transit relating to property acquired by it after June 30, 1968 reflect the normal inventory valuation policy of Transit of stating inventory at cost, not in excess of market. 4.8 Equipment. All of the leased equipment of Transit and all machinery and buses are in operating condition, free from any known defects except such minor defects as do not substantially interfere with the continued use thereof in the conduct of normal operations. 4.9 Minute Books. The minute books of Transit contain complete and accurate records of all matters and other corporate actions of the stockholders and directors of Transit. 4.10 Title to Properties; Absence of Liens and Encumbrances, etc. Transit has good and marketable title to all of its properties and assets, real and personal, free and clear of all liens and encumbrances, except (a) as disclosed in the unaudited Balance Sheet referred to in Section 4.4 hereof, (b) the lien of current taxes not yet due and payable and (c) such imperfections of title and encumbrances, if any, as are not substantial in character, amount or extent, and do not materially detract from the value or interfere with the present or future use, of the properties subject thereof or affected thereby, or otherwise materially impair business operations. Transit has not received notice of violation of any applicable zoning regulation, ordinance or other law, order, regulation or requirement relating to its operations or its leased properties and, so far as is known to Transit, there is no such violation and all its leased properties and other buildings conform with all applicable ordinances, codes and regulations. 4.11 Contracts and Personnel Data. Transit has delivered to the Authority or is delivering coincidently with the execution hereof accurate lists and sum |