The Virginian-Pilot 
                             THE VIRGINIAN-PILOT 
              Copyright (c) 1996, Landmark Communications, Inc.

DATE: Wednesday, July 31, 1996              TAG: 9607310442
SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 
SOURCE: BLOOMBERG BUSINESS NEWS 
                                            LENGTH:   43 lines

NORFOLK SOUTHERN'S RAIL LEASE IS BARRED

A federal court barred the North Carolina Railroad Co. from extending a controversial century-old lease with Norfolk Southern Corp. because the shareholder vote approving the extension lacked a quorum.

A stockholder sued state-owned North Carolina Railroad in U.S. District Court in Raleigh, claiming a December 1995 vote didn't include enough minority shareholders, or shareholders besides the state. The state owns 75 percent of the Raleigh-based railroad.

The agreement would have extended the lease for 30 years at a higher rate.

The court said a single proxy for 4,000 shares didn't qualify to be included, leaving the vote without a quorum.

Under the initial agreement signed in 1895, Norfolk Southern paid $600,000 a year to use 317 miles of track linking the state's port at Morehead City to Raleigh, Greensboro and Charlotte. A Raleigh newspaper in 1895 dubbed the agreement ``The Crime of the Century,'' protesting the bargain terms.

Under the proposed extension, the Norfolk-based railroad would have paid $8 million annually, retroactive to Jan. 1, 1995, with an option to extend the agreement 20 years beyond the lease's 30 years.

Norfolk Southern spokesman Robert Fort called the terms and conditions of the agreement fair.

``As far as what happens next, it's up to the board of the North Carolina Railroad to get their shareholders' approval of the agreement,'' Fort said.

The court's action will have no impact on Norfolk Southern's ongoing service along the line, he said.

Minority shareholders opposing the lease extension said before the vote that the $8 million annual payment, while 13 times the annual rent Norfolk Southern paid previously, would provide only a 1.5 percent return on the railroad's $512 million in assets.

North Carolina Railroad said its board will meet soon to decide what to do with the $17 million in payments it has received from Norfolk Southern since December. MEMO: Staff writer Christopher Dinsmore contributed to this report.

KEYWORDS: U.S FEDERAL COURT RULING NORFOLK SOUTHERN LEASE by CNB