DATE: Wednesday, April 9, 1997              TAG: 9704090494

SECTION: BUSINESS                PAGE: D2   EDITION: FINAL 
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER 

                                            LENGTH:   53 lines

TWO RAILROADS ON TRACK TOWARD N.C. SETTLEMENT

Another of Norfolk Southern Corp.'s railroad disputes may be on track for a settlement.

The State of North Carolina, which already owns 75 percent of the Raleigh-based North Carolina Railroad Co., has proposed buying the other 25 percent.

If the deal is approved by the railroad company's shareholders and funded by the North Carolina General Assembly, Norfolk Southern will be assured of continued access to 317 miles of track linking Charlotte, Raleigh and Morehead City, N.C.

Norfolk Southern has leased the railroad, an important link in its rail network in the southeast, since 1895.

Its 100-year lease, for which Norfolk Southern paid $600,000 a year, expired in 1995. With the support of the state, officials of the two railroads negotiated an $8 million-a-year lease, but it was nullified in 1996 by a federal court in Raleigh after a challenge by shareholders.

If the state buys out those shareholders, the lease could be approved.

``If this means expediting the approval of the lease we feel good about it, but we'll just have to wait and see what happens,'' said Robert Fort, a Norfolk Southern spokesman.

The state announced late Monday that it had signed a letter of intent to purchase the remaining stake in the railroad for about $72 million, or $66 a share. Shares in the Raleigh-based railroad soared $19 3/4 to close at $59 a share in over-the-counter trading Tuesday. The railroad's board of directors has already approved the deal.

The North Carolina Railroad referred questions to state officials, who could not be reached for comment Tuesday.

The state wants to give Norfolk Southern an inexpensive lease in order to encourage economic development along the rail line. The shareholders, however, were frustrated by their railroad's low stock value and argued for a better return on its assets from the lease. Many private shareholders boycotted the meeting at which the lease was approved.

The shareholders sued, and a federal judge ruled that a quorum of shareholders was not present when the lease was approved. While the railroad is 75 percent owned by the state, any lease must be approved by at least half the private shareholders.

The North Carolina Railroad has since sued Norfolk Southern seeking back payments on the lease. It also asked the Surface Transportation Board, the federal agency that oversees railroads, to force Norfolk Southern to pay more in an effort to assuage the shareholders.

Norfolk Southern appealed to the federal board, asking that the lease be upheld. That case is pending. MEMO: Staff Writer Christopher Dinsmore can be phoned at 757/446-2271 or

e-mailed at (dins(AT)pilotonline.com)

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