<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended September 30, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Act of 1934
For the transition period from __________ to __________
Commission file number 0-15768
NORTH CAROLINA RAILROAD COMPANY
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-6003280
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
234 Fayetteville Street Mall, Suite 600
P. O. Box 2248, Raleigh, North Carolina 27602
(Address of principal executive offices) (Zip Code)
(919) 829-7355
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common Stock, $.50 par Value--4,283,470 shares as of
September 30, 1995.
The total number of pages contained in this document is 28 pages.
<PAGE>
INDEX
NORTH CAROLINA RAILROAD COMPANY
PART I. FINANCIAL INFORMATION
Item l. Financial Statements (Unaudited)
Balance Sheets - September 30, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . . . 3
Statements of Income - Three months ended September 30, 1995 and
September 30, 1994 and nine months ended
September 30, 1995 and September 30, 1994 . . . . . 4
Statements of Shareholders' Equity -
Nine months ended September 30, 1995
and September 30, 1994 . . . . . . . . . . . . . . . 5
Statements of Cash Flows -
Nine months ended September 30, 1995 and
September 30, 1994 . . . . . . . . . . . . . . . . . 6
Notes to financial statements -
September 30, 1995 . . . . . . . . . . . . . . . . . 7
Item 2. The Registrant's Discussion and Analysis of
Financial Condition and Results of Operations. . . . 10
PART II. OTHER INFORMATION
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . 19
Item 5. Other Information . . . . . . . . . . . . . . . . . 22
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 23
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . 24
<PAGE>
BALANCE SHEETS (Unaudited)
NORTH CAROLINA RAILROAD COMPANY
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
----------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $2,021,125 $ 1,615,284
Short-term investments 473,000 -0-
Rent receivable 255,919 246,030
Interest receivable and other assets 53,658 65,400
----------- ------------
TOTAL CURRENT ASSETS 2,803,702 1,926,714
PROPERTIES
Roadway and land--Note B 7,848,842 7,848,842
Buildings and equipment 239,881 236,369
Less accumulated depreciation (297,768) (292,395)
------------ ------------
7,790,955 7,792,816
------------ ------------
OTHER ASSETS
Lease negotiation costs 795,716 365,267
------------ ------------
$11,390,373 $10,084,797
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses and accounts payable $ 612,125 $ 421,026
Income taxes payable 204,477 -0-
Dividends payable -0- 128,504
Unearned rental income 20,332 -0-
----------- -----------
TOTAL CURRENT LIABILITIES 836,934 549,530
DEFERRED INCOME TAXES 1,222,251 1,214,451
SHAREHOLDERS' EQUITY
Common stock, par value $0.50 per share--
10,000,000 shares authorized, 4,283,470
shares issued and outstanding 2,141,735 2,141,735
Additional paid-in capital 3,588,455 3,588,455
Retained earnings 3,600,998 2,590,626
----------- ------------
9,331,188 8,320,816
----------- ------------
COMMITMENTS AND CONTINGENCIES--Note C
$11,390,373 $10,084,797
=========== ============
</TABLE>
See notes to financial statements.
3
<PAGE>
STATEMENTS OF INCOME (Unaudited)
NORTH CAROLINA RAILROAD COMPANY
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
----------------------- -----------------------
<S> <C> <C> <C> <C>
Revenues:
Lease of roadway and land $ 221,483 $ 160,794 $ 573,746 $ 482,291
Interest income 29,143 22,240 81,077 61,299
Dividend income 7,500 12,500 7,500 12,500
Rental income 3,870 720 7,020 2,880
Gain on sale of real estate -0- -0- 473,956 -0-
Other lease income 691,246 -0- 691,246 -0-
Other 13,520 24,001 77,769 65,875
---------- ---------- ---------- ----------
966,762 220,255 1,912,314 624,845
Expenses:
Salaries and administrative 81,155 66,380 198,656 196,647
Professional fees 104,488 78,888 274,107 212,177
Insurance and taxes 12,676 11,763 39,274 36,532
Depreciation 1,791 2,061 5,373 5,916
Consulting fees 12,149 11,700 36,510 16,230
Other 28,005 27,023 90,222 72,295
---------- ---------- ---------- ----------
240,264 197,815 644,142 539,797
---------- ---------- ---------- ----------
INCOME BEFORE INCOME 726,498 22,440 1,268,172 85,048
TAXES
Income taxes:
Current 48,000 5,830 250,000 11,660
Deferred 2,600 2,600 7,800 7,800
--------- --------- ---------- ----------
50,600 8,430 257,800 19,460
--------- --------- ---------- ----------
NET INCOME $ 675,898 $ 14,010 $1,010,372 $ 65,588
========= ========== ========== ==========
Earnings per share: $ 0.16 $ 0.00 $ 0.24 $ 0.02
====== ====== ====== ======
</TABLE>
See notes to financial statements.
4
<PAGE>
STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
NORTH CAROLINA RAILROAD COMPANY
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Earnings Shareholders'
Stock Capital Restricted Unrestricted Equity
----------- ------------ ----------- ------------ -- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 $2,141,735 $3,588,455 $ 509,778 $2,102,207 $8,342,175
Net income 12,907 52,681 65,588
----------- ------------ ----------- ------------ ------------
BALANCE AT SEPTEMBER 30, 1994 $2,141,735 $3,588,455 $ 522,685 $2,154,888 $8,407,763
=========== ============ =========== =========== ===========
BALANCE AT JANUARY 1, 1995 $2,141,735 $3,588,455 $ -0- $2,590,626 $8,320,816
Net income -0- 1,010,372 1,010,372
----------- ------------ ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1995 $2,141,735 $3,588,455 $ -0- $3,600,998 $9,331,188
=========== ============ =========== =========== ===========
</TABLE>
See notes to financial statements.
5
<PAGE>
STATEMENTS OF CASH FLOWS (Unaudited)
NORTH CAROLINA RAILROAD COMPANY
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1995 1994
---------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $1,010,372 $ 65,588
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes 7,800 7,800
Depreciation 5,373 5,916
Lease negotiation costs (430,449) -0-
Change in operating assets and liabilities:
Rent receivable (9,889) 125,431
Interest receivable and other assets 11,742 (31,085)
Income taxes recoverable -0- 9,517
Accrued expenses and accounts payable 191,099 76,204
Income taxes payable 204,477 -0-
Unearned rental income 20,332 20,342
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,010,857 279,713
INVESTING ACTIVITIES
Increase in restricted assets -0- (12,907)
Purchase of equipment (3,512) (1,487)
Purchase of short-term investments (1,453,000) (200,000)
Maturities of short-term investments 980,000 -0-
----------- ---------
NET CASH USED IN INVESTING ACTIVITIES (476,512) (214,394)
FINANCING ACTIVITIES
Dividends paid (128,504) -0-
----------- ---------
NET CASH USED IN FINANCING ACTIVITIES (128,504) -0-
INCREASE IN CASH AND CASH EQUIVALENTS 405,841 65,319
Cash and cash equivalents at beginning of period 1,615,284 912,655
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,021,125 $ 977,974
=========== ===========
</TABLE>
See notes to financial statements.
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NORTH CAROLINA RAILROAD COMPANY
September 30, 1995
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, the financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position and results of operations of North
Carolina Railroad Company (the "Company" or "NCRR") as of and for each of the
periods presented. These financial statements should be read in conjunction with
the financial statements and notes included in the Company's audited financial
statements for 1994.
Certain amounts in prior period financial statements have been reclassified
to conform to current period presentation.
PROPERTIES: Buildings and equipment are reported at cost. Depreciation
is computed on the straight-line method over the estimated useful lives of the
assets. Buildings are depreciated over thirty years and equipment is
depreciated over three to five years.
Properties in the roadway and land account are carried at an amount which
approximates the 1916 valuation by the Interstate Commerce Commission. Virtually
all the property in the roadway and land account is leased either to the Norfolk
Southern Railway Company ("Norfolk Southern Railway") or the Atlantic and East
Carolina Railway Company ("AECR") (See Note B). Norfolk Southern Railway is a
subsidiary of Norfolk Southern Corporation. AECR is a subsidiary of Norfolk
Southern Railway. These properties are not depreciated because they represent
fully depreciated roadway or non-depreciable land.
REVENUE RECOGNITION: Revenue is reflected in the statements of income when
earned in accordance with the Company's lease arrangements on the accrual
method. Excess lease revenue related to the 1939 lease with AECR is estimated
and recognized based upon the previous quarter's billed traffic.
INCOME TAXES: Income tax expense is disproportionate to income before
income taxes because the lessee of certain of the properties, pursuant to the
terms of the 1895 Lease, pays all income taxes attributable to the lease
arrangement. The Company considers the lessee's share of the amortization of
roadway costs to be a permanent difference and no deferred taxes are provided
thereon.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include investments
in high quality commercial paper, U. S. Treasury Bills, and certificates of
deposit with original maturities of three months or less.
SHORT-TERM INVESTMENTS: Short term investments include investments in high
quality commercial paper and U.S. Treasury bills with maturities within one year
of the balance sheet date. These investments are held-to-maturity and are
carried at cost, which approximates market.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
NORTH CAROLINA RAILROAD COMPANY
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (continued)
LEASE/TRANSACTION COSTS: Certain lease negotiation costs have been
capitalized and will be amortized over the life of any lease extension
agreements, if consummated.
RESTRICTED RETAINED EARNINGS: Under terms of its lease agreement with AECR,
the Company had maintained a restricted cash account. All restrictions expired
on December 31, 1994, and the assets became the property of the Company.
Accordingly, these assets are no longer classified as restricted.
NOTE B--LEASES ON ROADWAY AND LAND
The Company leases its roadway and land under two leases to Norfolk
Southern Railway and one lease to AECR.
The first lease to Norfolk Southern Railway dated August 16, 1895 (the
"1895 Lease")is a lease of roadway, land and other property. The 1895 Lease
provided for an annual rental of $286,000, and an expiration date of January 1,
1995. Under the terms of the 1895 Lease, all income, property and franchise
taxes are paid by the lessee.
The Company leased additional roadway and land to AECR (the "1939 Lease")
under the terms of a lease dated August 30, 1939 between Atlantic and North
Carolina Railroad Company and AECR. The 1939 Lease was amended on August 29,
1954, and provided for an expiration date of December 31, 1994. The lessee is
responsible for all state and federal taxes imposed upon the lessee on account
of the operation of the railroad. The lessor is responsible for certain ad
valorem property taxes, income taxes assessed against it, and payroll taxes on
account of its employees. Under the terms of this lease, AECR pays an annual
fixed lease rental of $60,500 plus annual excess lease rentals based upon
operating revenues in excess of $475,000.
Rentals under the 1895 Lease and 1939 Lease have continued since their
dates of expiration during negotiations over the terms of a definitive agreement
to extend the 1895 and 1939 Leases. The Company and its lessees, Norfolk
Southern Railway and AECR, have approved definitive terms of an agreement to
extend the 1895 Lease and 1939 Lease (the "Lease Extension Agreement"), subject
to shareholder and other approvals. The Lease Extension Agreement, if approved,
provides for rental payments retroactive to the expiration dates of the 1895 and
1939 Leases, and will take into account the differences between the rentals paid
since January 1, 1995 under the 1895 and 1939 Leases, and the increased rental
under the Lease Extension Agreement.
The second lease to Norfolk Southern Railway ("1968 Lease") expires on
December 31, 2067, and provides for an annual rental of $81,319 through December
31, 2017 for certain properties in Charlotte, North Carolina. Beginning on
January 1, 2018, 6% of the appraised value of the property will be the annual
rental for the remaining term of the 1968 Lease. Under the terms of the 1968
Lease, all taxes connected with the property, except income taxes, are paid by
the lessee. The 1968 Lease would not be affected by the Lease Extension
Agreement.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
NORTH CAROLINA RAILROAD COMPANY
NOTE C--COMMITMENTS AND CONTINGENCIES
During the fourth quarter of 1989, the Company was notified by the North
Carolina Department of Environment, Health, and Natural Resources ("DEHNR") of a
possible abandoned pesticide disposal site on property owned by the Company in
Johnston County, North Carolina. It is believed that the site was used by a
predecessor owner to burn and/or bury surplus pesticides from the predecessor's
business, which was not located at the site. In January, 1994, DEHNR initiated a
lawsuit against the Company and other parties seeking reimbursement of $84,354
in response costs incurred by DEHNR and remediation of the site. On February 1,
1995, the Court granted partial summary judgment holding all of the defendants,
including the Company, jointly and severally liable for the site. The Court has
not yet ruled on apportionment of liability or cost sharing among the
defendants. According to a preliminary study conducted by the Company, the
estimated costs of remediation range between $500,000 to in excess of
$2,000,000. The Company will vigorously defend the action brought by DEHNR and
will aggressively pursue any other parties who may be liable for any
remediation, removal, or clean-up. The ultimate costs of any remediation,
removal, or clean-up are not known. However, if such costs are not paid by other
parties, the financial position of the Company would be materially adversely
affected.
Four shareholder derivative actions were filed in the United States
District Court for the Eastern District of North Carolina during December 1994
and January and February 1995 by shareholders of the Company. The complaints
name the directors of the Company as defendants and the Company as "nominal
defendant." Two of the actions seek to enjoin a purported lease between the
Company and Norfolk Southern Railway and seek to recover for the Company
unspecified damages and other relief from the directors. Two other actions seek
similar relief and also name the State of North Carolina, the Governor of North
Carolina, and Norfolk Southern Railway as defendants. The Company's officers and
directors are indemnified in the bylaws of the Company for certain claims and
liabilities alleged in the actions, including the defense costs and expenses.
The Company notified its directors and officers insurance carrier of claims as a
result of the actions, which claims have been acknowledged by the insurance
carrier. The directors and officers insurance policy has an aggregate limit of
$5,000,000 and a $75,000 retention per occurrence.
On December 10, 1991, the Registrant initiated a lawsuit in the Mecklenburg
County, North Carolina, Superior Court regarding its railroad corridor through
downtown Charlotte. The Registrant alleged that both the City of Charlotte and
Norfolk Southern Railway have breached contract obligations and obligations
based on real property rights to the Registrant. The litigation has been
disclosed by the Registrant in prior quarterly and annual reports to the
Securities and Exchange Commission. On December 7, 1993, the North Carolina
Court of Appeals ruled against the defendants' appeal and against the
Registrant's cross-appeal. Norfolk Southern Railway then petitioned the Supreme
Court of North Carolina to review the decision of the North Carolina Court of
Appeals, which petition was denied. Norfolk Southern Railway then petitioned the
United States Supreme Court for review. On June 12, 1995, the United States
Supreme Court denied the petition, and the lawsuit will continue in Superior
Court, Mecklenburg County, North Carolina. The Company is engaging in
negotiations to settle the litigation, but there can be no assurance of any
settlement or the terms of any such settlement.
9
<PAGE>
^
Item 2. The Registrant's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
A majority of the Registrant's assets are subject to two railroad operating
leases dating to 1895 and 1939. Information about the leases has been disclosed
by the Registrant in prior quarterly and annual reports to the Securities and
Exchange Commission. There was little change in capital resources or asset
position from the end of the fiscal year 1994 to September 30, 1995. The
Registrant's lessees pay for maintenance and all operating railroad equipment.
Therefore, the Registrant does not anticipate any need for substantial capital
expenditures unless the 1895 and 1939 Leases are not extended. (See Note B to
the financial statements.)
On August 10, 1995, the Board of Directors of the Registrant approved a
Lease Extension Agreement in the form attached as an exhibit to the Registrant's
Form 8-K filed with the Securities and Exchange Commission on August 18, 1995
(the "Lease Extension"). On August 24, 1995, the Board of Directors of Norfolk
Southern Railway Company and Atlantic and East Carolina Railway Company (a
wholly owned subsidiary of Norfolk Southern Railway Company) ("Norfolk
Southern"), approved the Lease Extension. The Lease Extension will not be
effective until certain conditions occur, but upon the occurrence of such
conditions effectiveness shall be retroactive to January 1, 1995. The Registrant
and Norfolk Southern have entered into a written agreement whereby Norfolk
Southern will pay to the Registrant the amount of the personal property
settlement ($5,000,000) within five business days of December 1, 1995,
notwithstanding the approval status of the Lease Extension Agreement, in order
to promote the Registrant's ability to qualify for Real Estate Investment Trust
status at the earliest possible date. The Lease Extension has been executed by
the Registrant the the lessees, and is being held in escrow by a third party
pursuant to an escrow agreement until all of the conditions to effectiveness
have been met.
If the leases are not extended or if the Registrant is unable to negotiate
other leases upon acceptable terms, operating its own line without a lessee
would subject the Registrant to a number of risks that would materially affect
the Registrant's liquidity and capital resources. The Registrant anticipates
that it would have to incur substantial operating expenses over time, but that
it would initially not likely incur substantial capital expenditures with
respect to fixed plant. Under the terms of the 1895 Lease, the lessee is
required to return the leased properties, or equivalent replacements of leased
properties, including equipment, in as good a condition and repair as the
10
<PAGE>
property was at the inception of the lease, less ordinary depreciation. However,
the Registrant may be required to incur substantial capital expenditures and
other expenses for the operation of the railroad line if the equipment is not
returned in operating condition upon termination of the leases or if the
quantities or type of the returned equipment is insufficient to operate the
railroad line. Risks of independent operation that would affect operating income
and expenses would include the potential for diversion of overhead traffic by
Norfolk Southern, loss of traffic to competitors, and unpredictable maintenance
and labor expenses.
The Registrant does not foresee any need for funds during 1995 which cannot be
met primarily from its income from leases or in part from available cash in the
regular course of business, except that (1) in the event the Lease Extension is
not approved and the Registrant and Norfolk Southern litigate issues before the
Interstate Commerce Commission ("ICC"), claims under the 1895 and 1939 Leases,
or other matters, the Registrant may be required to finance part of the
litigation expenses, and (2) if the Registrant qualifies as a Real Estate
Investment Trust ("REIT") for income tax purposes, the Registrant may be
required to finance a portion of accumulated earnings and profits required to be
distributed to the Registrant's shareholders in the first year of REIT status.
The Registrant's liquidity (cash and short-term investments) improved from
$1,615,284 at December 31, 1994 to $2,494,125 at September 30, 1995. Short-term
investments in high quality commercial paper and U. S. Treasury Bills of
$473,000 are classified as held-to-maturity, and will mature within the first
six months of 1996. The Registrant's cash and cash equivalents increased by
$405,841 from December 31, 1994 to $2,021,125 at September 30, 1995.
For the nine month period ended September 30, 1995, $1,010,857 of net cash
was provided by operating activities and was primarily related to net income of
$1,010,372, an increase in accrued expenses and accounts payable of $191,099,
income taxes payable of $204,477, and unearned rental income of $20,332, which
were partially offset by capitalized lease negotiation costs of $430,449.
Investing activities resulted in a net use of cash of $476,512 as
$1,453,000 of short-term investments were purchased and $980,000 matured during
the period.
Financing activities resulted in a net use of cash of $128,504 as dividends
were paid during the period.
11
<PAGE>
Results of Operations
Results of operations for the period covered hereby reflect rental payments
to the Registrant pursuant to the terms of the 1895 Lease and 1939 Lease under a
temporary arrangement between the Registrant and the lessees which continues the
rental and other terms of the Leases. The terms of the Lease Extension, if
approved, will take into account the difference between the rental under the
Leases and the increased rental.
Total revenues increased from $220,255 for the third quarter of 1994 as
compared to $966,762 for the third quarter of 1995, and increased from $624,845
for the nine month period ended September 30, 1994 to $1,912,314 for the same
period ended September 30, 1995.
Revenues from leases of roadway and land increased from $160,794 for the
three month period ended September 30, 1994 to $221,483 for the same period
ended September 30, 1995 and increased from $482,291 for the nine month period
ended September 30, 1994 to $573,746 for the same period ended September 30,
1995. The increases in revenues from leases of roadway and land were
attributable to (i) additional rental in the amount of $52,914 under the 1939
Lease for the period 1991-1994 as a result of initiation of an audit by the
Registrant of rentals paid by AECR in the third quarter and (ii) estimated
increases in excess rental revenues from the 1939 Lease. The 1939 Lease rental
estimate is based upon AECR previous quarter's billed traffic, plus or minus
adjustments to actual revenues as the amounts are determined during the year.
AECR revenue estimates are furnished by Norfolk Southern Corporation. See Note B
to the financial statements.
Interest income increased from $22,240 for the three month period ended
September 30, 1994 to $29,143 for the same period ended September 30, 1995, and
increased from $61,299 for the nine month period ended September 30, 1994 to
$81,077 for the same period ended September 30, 1995. The increases in interest
income are attributable to increases in levels of invested cash and short-term
investments.
There were no gains on sale of real estate for the three month period ended
September 30, 1994, the same period ended September 30, 1995, or the nine month
period ended September 30, 1994. During the nine month period ended September
30, 1995, the Registrant sold approximately 16 acres of land in Johnston County,
North Carolina, recognizing a gain of $473,956.
Other lease income represents the settlement of a claim for a lump sum tax
benefit payment which was due upon the expiration of the 1895 Lease from Norfolk
Southern Railway pursuant to a 1982 tax benefit agreement between the Registrant
and Norfolk Southern
12
<PAGE>
Railway. Under the terms of the settlement agreement, the Registrant received a
lump sum payment in the amount of $691,246. Norfolk Southern Railway has agreed
to reimburse the Registrant for any income taxes owed by the Registrant on the
lump sum payment, and accordingly the Registrant has not provided for income
taxes related to the receipt of the settlement.
Other income decreased from $24,001 for the three month period ended
September 30, 1994 to $13,520 for the same period ended September 30, 1995, and
increased from $65,875 for the nine month period ended September 30, 1994 to
$77,769 for the same period ended September 30, 1995. The overall increase was
primarily attributable to a sale of stock of the State University Railroad
Company in the amount of $30,000, which was partially offset by decreased
property settlement fees.
Salary and administrative expenses increased from $66,380 for the third
quarter of 1994 as compared to $81,155 for the third quarter of 1995, and
remained constant at $196,647 for the nine month period ended September 30, 1994
as compared to $198,656 for the same period ended September 30, 1995. The
increase was primarily attributable to increased salaries and employee benefit
costs, which were offset in part by a decrease in directors' fees and expenses.
Professional fees increased from $78,888 for the third quarter of 1994 to
$104,488 for the third quarter of 1995, and increased from $212,177 for the nine
month period ended September 30, 1994 to $274,107 for the same period ended
September 30, 1995. The increases in professional fees are attributable to
increases in fees and expenses associated with the Registrant's renegotiation of
its leases with Norfolk Southern, attorneys' fees in litigation matters, and
evaluation of REIT qualification. The Registrant expects to continue to incur
substantially greater professional and investment banking fees and expenses in
future periods until resolution of matters related to current and future leases
or other transactions. The majority of such fees are currently being capitalized
for income tax purposes.
Insurance and taxes remained constant at $11,763 for the third quarter of
1994 as compared to $12,676 for the third quarter of 1995, and were $36,532 for
the nine month period ended September 30, 1994 as compared to $39,274 for the
same period ended September 30, 1995. The Registrant expects to incur higher
property tax expense in future periods for properties excluded from the Lease
Extension for separate management by the Registrant.
Consulting fees increased from $11,700 for the third quarter
of 1994 to $12,149 for the third quarter of 1995, and increased
from $16,230 for the nine month period ended September 30, 1994
to $36,510 for the same period ended September 30, 1995. The
13
<PAGE>
increases are attributable to increases in outside consultants' fees associated
with the termination of the 1895 and 1939 Leases and negotiations with Norfolk
Southern Railway. The Registrant expects to continue to incur substantial
consultants' fees and other expenses in future periods at least until the
resolution of all matters related to current and future leases or other
transactions.
Other expenses increased slightly from $27,023 for the third quarter of
1994 to $28,005 for the third quarter of 1995, and increased from $72,295 for
the nine month period ended September 30, 1994 to $90,222 for the same period
ended September 30, 1995. The increases in other expenses are primarily
attributable to increased supplies expense.
Current income taxes increased from $5,830 for the third quarter of 1994 to
$48,000 the third quarter of 1995, and increased from $11,660 for the nine month
period ended September 30, 1994 as compared to $250,000 for the same period
ended September 30, 1995. The increases are attributable to gains on the sale of
real estate and an increase in lease revenue during the second and third
quarters, of which the Registrant is responsible for related income taxes.
Deferred income taxes remained constant at $2,600 for the third quarter of 1994
as compared to the third quarter of 1995 and remained constant at $7,800 for the
nine month period ended September 30, 1994 as compared to the same period ended
September 30, 1995. Under the 1895 Lease, all taxes attributable to the 1895
Lease, including income taxes, are paid by Norfolk Southern Railway as lessee.
The Registrant and its lessees are responsible for compliance with state,
federal, local or other provisions relating to discharge of materials or the
protection of the environment. The risk of incurring environmental liability is
inherent in conducting railroad operations. Some of the commodities which are
transported over the Registrant's railroad lines are classified as hazardous
materials. The 1895 and 1939 Leases did not make provision for the lessees to
disclose environmental problems affecting the Registrant's properties.
Environmental problems may exist on properties owned by the Registrant which are
known to the lessees but have not been disclosed to the Registrant or which are
unknown to the lessee or the Registrant. State and federal environmental
provisions may impose joint and several liability upon the Registrant and its
lessees and sublessees for environmental damage or clean up (or associated
costs) of any real properties owned by the Registrant and adjoining properties
if the source of any problem is the property of the Registrant. The Registrant
believes that damage or clean up (or the associated costs) would be the
responsibility of the lessees and any sublessees or other parties who may have
created
14
<PAGE>
any actionable environmental condition. However, if such parties are not able to
meet their responsibilities, under certain statutes, regulations, and rules, the
Registrant could ultimately be held responsible for any remediation, removal, or
cleanup of the property it owns.
The status of one such site is disclosed in Item 3 "Legal Proceedings."
According to a preliminary study conducted by the Registrant, the estimated
costs of remediation range between $500,000 to in excess of $2,000,000. At this
time, the Registrant does not know the total amount of its financial exposure,
the timing of the resolution of the matter, or the extent to which the
Registrant's potential exposure may be reduced by contribution or
indemnification from other parties. The Registrant does not have insurance to
minimize its potential exposure. Legal expenses and the costs of remediation,
removal, or cleanup represent a possible substantial future drain on the
financial resources of the Registrant which cannot be quantified at this time.
Any future remediation, removal, or cleanup at the site should have no effect
upon railroad operations.
The Lease Extension contains extensive provisions governing the rights and
obligations of the parties for various environmental liabilities and expenses.
The Lease Extension will not be effective until certain conditions occur. (See
Item 2 above.) The Lease Extension does not affect the responsibility of the
Registrant with respect to the Peele Site.
Inflation affects the Registrant primarily through increased salary,
administrative, property tax, and insurance expenses. The Registrant's primary
sources of revenue, rental from the 1895 Lease and 1939 Lease, increase only to
the extent changes in the general inflation rate increase the excess rental
payments under the 1939 Lease, which are based on a percentage of the lessee's
operating revenues. Revenues from the 1895 Lease do not increase or decrease
with changes in the inflation rate. The Registrant expects to offset any
negative effects of inflation not offset by increased excess rental payments by
controlling current expenses. The Lease Extension contains an inflation
adjustment provision (See Item 2 above.)
PART II. OTHER INFORMATION
Item 3. Legal Proceedings
Except as described below, there are no legal proceedings pending to which
the Registrant is a party that are material to the operation of the Registrant.
Peele Site
15
<PAGE>
During the fourth quarter of 1989, the Registrant was notified by the North
Carolina Department of Environment, Health, and Natural Resources ("DEHNR") that
DEHNR had been notified of a possible abandoned pesticide disposal site on
property owned by the Registrant in Johnston County, North Carolina. Information
about the site has been disclosed by the Registrant in prior quarterly and
annual reports to the Securities and Exchange Commission. Since 1991, the site
had been included in the DEHNR Inactive Hazardous Waste Sites Priority List. The
sites on the Priority List are ranked in decreasing order of danger to the
public health and environment based on a ranking system administered by DEHNR.
In February 1995, the site ranked 98 out of a total of 158 sites on the Priority
List.
In January, 1994, DEHNR initiated a lawsuit against the Registrant and
other parties seeking reimbursement of $84,354 in response costs incurred by
DEHNR and remediation of the site. On February 1, 1995, the Court granted
partial summary judgement holding all of the defendants, including the
Registrant, jointly and severally liable. The Court has not yet ruled on
apportionment of liability or cost sharing among the defendants. According to a
preliminary study conducted by the Registrant, the estimated costs of
remediation range between $500,000 to in excess of $2,000,000. The Registrant
will vigorously defend the action by DEHNR, and will aggressively pursue any
other parties who may be liable for any remediation, removal, or clean-up. The
ultimate costs of any remediation, removal, or clean-up are not known. However,
if such costs are not paid by other parties, the financial position of the
Registrant would be materially adversely affected.
Charlotte Convention Center Litigation
On December 10, 1991, the Registrant initiated a lawsuit in the Mecklenburg
County, North Carolina, Superior Court regarding its railroad corridor through
downtown Charlotte. The Registrant alleged that both the City of Charlotte and
Norfolk Southern Railway have breached contract obligations and obligations
based on real property rights to the Registrant. The litigation has been
disclosed by the Registrant in prior quarterly and annual reports to the
Securities and Exchange Commission.
On December 7, 1993, the North Carolina Court of Appeals ruled against the
defendants' appeal and against the Registrant's cross-appeal. Norfolk Southern
Railway then petitioned the Supreme Court of North Carolina to review the
decision of the North Carolina Court of Appeals, which petition was denied.
Norfolk Southern Railway then petitioned the United States Supreme Court for
review. On June 12, 1995, the United States Supreme Court denied the petition,
and the lawsuit will continue in Superior Court, Mecklenburg County, North
Carolina.
16
<PAGE>
The Registrant is engaging in negotiations to settle the litigation, but there
can be no assurance of any settlement or the terms of any such settlement.
Shareholder Litigation
Four shareholder derivative actions were filed in the United States
District Court for the Eastern District of North Carolina during December 1994
and January and February 1995 by shareholders of the Registrant. Information
about the actions has been disclosed in prior quarterly and annual reports to
the Securities and Exchange Commission. On March 30, 1995, the court
consolidated the actions into one proceeding. The Registrant, along with the
co-defendants filed motions to dismiss or stay the actions. On October 18, 1995,
the court denied the motions to dismiss, granted the motions to stay the
proceeding until such time as the shareholders have voted on the Lease
Extension, and granted a motion by the plaintiffs for leave to supplement their
pleadings. The Registrant will oppose the actions brought by the plaintiffs to
the extent the actions seek to enjoin any lease arrangement or seek recovery
against the Registrant or seek any remedy against the best interests of
Registrant or its shareholders.
The Bylaws of the NCRR provide that its Directors shall have the right to
be indemnified by the NCRR, to the fullest extent permitted by law, against
liabilities and expenses arising out of their status as Directors. To the extent
the Directors' conduct meets the standard of conduct for indemnification set
forth by the North Carolina Business Corporation Act ("NCBCA"), as described
below, they will be so indemnified by the NCRR in connection with the
shareholder derivative actions described herein.
Under the NCBCA, a corporation is permitted to indemnify a director who
conducted himself in good faith and reasonably believed: (i) in the case of
conduct in his official capacity with the corporation, that his conduct was in
the best interest of the corporation and (ii) in all other cases, that his
conduct was at least not opposed to the corporation's best interest. In the case
of any criminal proceeding, the director must not have had any reasonable cause
to believe his conduct was unlawful. In any proceeding by or in the right of a
corporation (such as the shareholder derivative actions described herein), a
corporation may not voluntarily indemnify a director if the director is adjudged
liable to the corporation. In addition, a corporation may not indemnify a
director if the director is adjudged liable on the basis that personal benefit
was improperly received by him. Where a proceeding is by or in the right of a
corporation, indemnification of a director is limited to reasonable expenses
17
<PAGE>
if the proceeding is concluded without a final adjudication on the issue of
liability. The NCBCA permits an advance for expenses incurred by a director in
defending a proceeding. The expenses may be paid by a corporation in advance of
the final disposition of the legal action, upon receipt of an undertaking by or
on behalf of the director to repay such amounts unless it is ultimately
determined that he is entitled to be indemnified by the corporation against such
expenses. The Directors of the NCRR who have executed such undertaking are
receiving advances for expenses incurred in defending the actions brought
against them in connection with the Lease Extension Agreement. Additionally, the
NCBCA provides that a corporation may purchase and maintain insurance on behalf
of a director of the corporation against any liability asserted against or
incurred by him in that capacity or arising from his status as a director. The
NCRR has an insurance policy that covers the NCRR against the indemnification
liability of the NCRR to its directors. The policy has a aggregate limit of $5
million and a $75,000 retention per occurrence. The NCRR's liability exposure to
its Directors will, therefore, not be material, unless (i) the Directors satisfy
the requirements for being indemnified as described above and (ii) the
indemnified liabilities and expenses exceed the NCRR's insurance coverage. The
NCRR is unable to determine this early in the legal proceedings whether of the
foregoing conditions will occur.
Item 5. Other Information
On June 30, 1995, statutory authorization of the Railroad Advisory
Commission terminated. The Railroad Advisory Commission was authorized by the
General Assembly of North Carolina in 1991. Information about the Railroad
Advisory Commission has been disclosed in prior quarterly and annual reports to
the Securities and Exchange Commission.
Over the past several years, certain shareholders have met with
representatives of the State of North Carolina ("State") to discuss a sale or
reorganization of the Registrant and the Registrant has been advised by the
State that a buy-out or reorganization is being evaluated along with other
options, but the Registrant is not aware of the seriousness of such discussions
or whether the State will decide to pursue such a transaction. Although certain
State officials have discussed in public a buy-out of the other shareholders as
being in the interest of the State, other officials have also indicated that it
may be in the State's interest to sell all or part of its stock. As the
Registrant does not control the State, the Registrant has indicated to
shareholders who have proposed such a sale or reorganization that they discuss
the matter with the State. The Registrant is not aware of any decision by the
State to buy-out the other shareholders and is not aware of what legislative or
other government approvals would be required for such a transaction.
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits to this report are listed in the accompanying Index
to Exhibits.
(b) Reports on Form 8-K
On August 18, 1995, the Registrant filed a Form 8-K dated August
10, 1995 reporting Item 5, Other Events, with regard to reaching a
definitive agreement with Norfolk Southern regarding extension of
two leases.
On September 18, 1995, the Registrant filed a Form 8-K dated
August 24, 1995 reporting Item 5, Other Events, with regard to
shareholder approval requirements of the Lease Extension.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NORTH CAROLINA RAILROAD COMPANY
DATE: November 14, 1995 /s/ John F. McNair, III
John F. McNair, III
President
DATE: November 14, 1995 /s/ Lynn T. McConnell
Lynn T. McConnell, Treasurer and
Principal Financial Officer
20
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
10.1 Lease Extension Agreement to be effective as
of January 1, 1995 between North Carolina
Railroad Company, Norfolk Southern Railway
Company and Atlantic and East Carolina
Railway Company, filed as Exhibit (c)(1) to
the Registrant's Form 8-K filed with the
Securities and Exchange Commission on August
18, 1995, which is incorporated by reference
herein.
10.2 Lease dated August 16, 1895 between the
Registrant and Southern Railway Company,
filed as Exhibit 3 (a) to the Registrant's
Form 10 filed with the Securities and
Exchange Commission on April 27, 1987, which
is incorporated by reference herein.
10.3 Lease dated August 30, 1939 between the
Atlantic and North Carolina Railroad Company
and Atlantic and East Carolina Railway
Company, filed as Exhibit 28 (h) to the
Registrant's Form S-4 filed with the
Securities and Exchange Commission on July
20, 1989, which is incorporated by reference
herein.
10.4 Letter Agreement between the Registrant and
Norfolk Southern dated August 10, 1995,
incorporated by reference herein.
10.5 Escrow Agreement between the Registrant and
Norfolk Southern dated September 29, 1995,
incorporated by reference herein.
<PAGE>
Exhibit 10.4
August 10, 1995
Norfolk Southern Railway Company
Atlantic and East Carolina Railway Company
Three Commercial Place
Norfolk, Virginia 23510-2191
Gentlemen:
This refers to the form of Lease Extension Agreement, dated as of
January 1, 1995, intended to be executed and delivered by North Carolina
Railroad Company (hereinafter "NCRR"), as Lessor, and Norfolk Southern Railway
Company (hereinafter "NSR") and Atlantic and East Carolina Railway Company
(hereinafter "A&EC"), as Lessees.
The aforesaid proposed Lease Extension Agreement (hereinafter "Proposed
Agreement") provides in article THIRD thereof for a payment from NSR and A&EC to
NCRR of $5,000,000 plus interest thereon from January 1, 1995, at the 90-day
U.S. Treasury bill rate in effect as of that date (which $5,000,000 and interest
thereon are referred to collectively herein as the "Release Amount"), in
consideration for a release by NCRR of each and every obligation NSR and A&EC
may have under the leases to be extended under the Proposed Agreement with
respect to or in any manner connected with the use, depreciation, maintenance,
repair, renewal, replacement or return to NCRR of certain items of personal
property (a copy of the aforesaid article THIRD being attached hereto and made a
part hereof as "Exhibit A").
As provided in the aforesaid article THIRD, the Release Amount is not
to be paid until: (i) all requisite corporate and governmental approvals for the
Proposed Agreement have become effective or have been satisfied; (ii) the
Proposed Agreement has been fully executed and delivered; and (iii) any court
orders enjoining the implementation of the Proposed Agreement have expired or
are no longer in effect, all of such conditions being referred to collectively
hereinafter as "Conditions of Payment." Wishing to arrange for its receipt of
the Release Amount prior to the end of 1995, NCRR proposes that NSR and A&EC
agree that the following terms and provisions will be applicable in the event
all of the Conditions of Payment have not been satisfied by December 1, 1995:
22
<PAGE>
(a) Within five business days of December 1, 1995, NSR and A&EC
will pay Release Amount to NCRR.
(b) Upon satisfaction of the Conditions of Payment: (i) the
obligation of NSR and A&EC to make the payment to NCRR
of FIVE MILLION DOLLARS ($5,000,000), plus interest,
under the terms of article THIRD of the Proposed
Agreement will be fully satisfied and discharged
without any further action or payment by NSR or A&EC;
and (ii) the release of every obligation NSR or A&EC
may have under the leases to be extended under the
Proposed Agreement with respect to or in any manner
connected with the use, depreciation, maintenance,
repair, renewal, replacement or return to NCRR of
locomotives, railroad cars, and those other items of
personal property which are not customarily located (as
defined in Exhibit A hereto) on the properties defined
in the Proposed Agreement as the Leased Properties will
be and will become fully effective andbinding upon
NCRR, its successors and assigns. As evidence of that
release, NCRR will promptly execute and deliver to NSR
and A&EC a confirming release document in the terms of
the release language set forth in article THIRD of the
Proposed Agreement.
(c) In the event all of the Conditions of Payment are not
satisfied, the Release Amount paid to NCRR hereunder will be
credited against any sums or rentals ultimately determined to
be due NCRR from NSR and A&EC for the period from and after
January 1, 1995.
(d) NCRR will pay and bear the entire cost of any and all income
taxes imposed or resulting from the payment to NCRR of the
Release Amount, and NSR and A&EC will have no obligation
whatever to NCRR with respect to any such income taxes.
Please signify your agreement to the foregoing by executing and
returning either the original or the attached copy of this letter; whereupon,
the aforesaid terms and provisions of this letter agreement will be
contractually binding upon and shall inure to the benefit of NCRR, NSR and A&EC.
23
<PAGE>
NORTH CAROLINA RAILROAD COMPANY
By /s/ J. Melville Broughton, Jr.
Vice President
Attest: /s/ P. C. Barwick, Jr.
Secretary
AGREED TO AND ACCEPTED:
NORFOLK SOUTHERN RAILWAY COMPANY
By /s/ John R. Turbyfill
Vice President
Attest: /s/ Dezora M. Martin
Assistant Secretary
Date: 8-29-95
ATLANTIC AND EAST CAROLINA
RAILWAY COMPANY
By /s/ John R. Turbyfill
Vice President
Attest: /s/ Dezora M. Martin
Assistant Secretary
Date: 8-29-95
Exhibit A:
THIRD: $5,000,000.00 PAYMENT. NSR, on its behalf and on behalf of A&EC
and for the consideration set forth hereinafter in this Article THIRD, hereby
promises to pay Lessor the sum of FIVE MILLION DOLLARS ($5,000,000), plus
interest at the ninety (90) day U.S. Treasury bill rate as of January 1, 1995.
Said interest shall accrue from January 1, 1995 until the said FIVE MILLION
DOLLARS ($5,000,000.00) is paid. Said FIVE MILLION DOLLARS ($5,000,000.00) and
the aforesaid interest thereon shall be due within five (5) business days from
the date: (i) all requisite corporate and governmental approvals for this
Extension have become effective or have been satisfied; (ii) this Extension has
been fully executed and delivered; and (iii) any court orders enjoining the
implementation of this Extension have expired or are no longer in effect. In
consideration of said payment Lessor hereby agrees that each and every
obligation NSR or A&EC may have under the 1895 Lease or the 1939 Lease with
respect to or in any manner connected with the use, depreciation, maintenance,
repair, renewal, replacement or return to Lessor of locomotives, railroad cars,
and those other items of personal property which are not customarily located or
used on the Leased Properties during any part of at least ten months of any
consecutive twelve month period during the ten years preceding termination of
this Extension and any renewal is hereby deleted from the 1895 Lease and from
the 1939 Lease and will be of no further force or effect.
24
<PAGE>
Exhibit 10.5
ESCROW AGREEMENT
THIS ESCROW AGREEMENT, made and entered into as of the 29th day of
September, 1995, by and among NORTH CAROLINA RAILROAD COMPANY (hereinafter
"Lessor"), a North Carolina corporation, NORFOLK SOUTHERN RAILWAY COMPANY
(hereinafter "NSR"), a Virginia corporation, ATLANTIC AND EAST CAROLINA RAILWAY
COMPANY (hereinafter "A&EC"), a North Carolina corporation (NSR and A&EC being
referred to collectively herein as "Lessees"), and LAWYERS TITLE OF NORTH
CAROLINA, INC. (hereinafter "Escrow Agent"), a Virginia corporation;
W I T N E S S E T H :
WHEREAS, Lessor and Lessee have negotiated a Lease Extension Agreement
(hereinafter "Extension") dated as of January 1, 1995, between and among
themselves, a copy of page 1 of said Extension being attached hereto as Exhibit
A; and
WHEREAS, the Extension has received all necessary corporate approvals
by the Lessees and four execution copies thereof have been properly executed by
duly authorized officers of the Lessees; and
WHEREAS, the Extension has been approved by the Board of
Directors of Lessor; and
WHEREAS, the Extension has been executed by Lessor subject to the
approvals thereof by the shareholders of the Lessor, pursuant to North Carolina
General Statutes ss. 55-12-02, and the Governor and the Council of State of
North Carolina pursuant to North Carolina General Statutes ss. 124-5 and
required ICC approval or exemption from Governmental approval (which approvals
to be secured are referred to collectively hereinafter as "Remaining Approval");
and
WHEREAS, the Lessees and the Lessor acknowledge the necessity for their
commitment to the terms of the Extension during the period of consideration of
the Extension for the Remaining Approval;
NOW, THEREFORE, for and in consideration of the mutual covenants
hereinafter set forth, the Lessor and Lessees do hereby agree as follows:
1. Lessees and Lessor irrevocably place the aforesaid four execution
copies of the Extension in escrow with the Escrow Agent, upon the terms and
conditions of this Agreement.
25
<PAGE>
2. During the term and continuance of the escrow provided for herein,
the Escrow Agent shall retain the four execution copies of the Extension
delivered to it hereunder and shall deliver the same out of escrow ONLY as
follows:
A. If at any time prior to March 31, 1997, Escrow Agent has received
Satisfactory Evidence that the Remaining Approval for the Extension has been
secured, it shall thereupon and without any further authorization, deliver two
counterpart originals of the Extension to the Lessor and two counterpart
originals of the Extension to the Lessees.
B. If at any time prior to March 31, 1997, Escrow Agent has received
Satisfactory Evidence that either (i) the Remaining Approval for the Extension
has been rejected, or (ii) the Remaining Approval cannot be obtained, Escrow
Agent shall continue to hold the said four execution copies of the Extension in
escrow until it receives notice from the President or any Vice President of
Lessor or the President or any Vice President of NSR to destroy such execution
copies, at which time, and without further authorization, Escrow Agent shall
destroy the said four execution copies of the Extension being held in escrow and
advise the parties to this Agreement in writing of such notification and
destruction.
C. If by March 31, 1997, Escrow Agent has not received Satisfactory
Evidence pursuant to paragraph A or paragraph B of this article 2 or has not
received notice to destroy the said four execution copies of the Extension as
provided in paragraph B of this article 2, the Escrow Agent shall continue to
hold in escrow the said four execution copies of the Extension under the
following terms:
i. Subject to the terms of (ii) below, until such time as
Escrow Agent receives notice from the President or any Vice
President of Lessor or the President or any Vice President of
NSR to destroy the said four execution copies of the
Extension, it shall continue to hold the same in escrow;
ii. If at any time Escrow Agent receives Satisfactory Evidence
that the Remaining Approval has been secured for the
Extension, then, as of that point in time, the right of any of
the parties hereto to call for the destruction of the said
four execution copies of the Extension shall terminate
immediately and automatically, and the Escrow Agent shall
deliver two counterpart originals of the Extension to the
Lessor and two counterpart originals of the Extension to the
Lessees;
3. As used throughout this Agreement, Satisfactory
Evidence shall consist of a certified statement from the
President or any Vice President of Lessor, on behalf of Lessor,
26
<PAGE>
or the President or any Vice President of NSR, on behalf of the Lessees, to the
effect that: (i) the Remaining Approval has been secured; or (ii) the Remaining
Approval has been rejected or cannot be obtained. Each such certified statement
must be attested by the Secretary or an Assistant Secretary of the party
submitting the certification, with its corporate seal affixed thereto. In
applying the terms and provisions of this Agreement, any determination that the
Remaining Approval cannot be obtained shall be by resolution adopted by the
Board of Directors of Lessor.
4. Should any party hereto give the Escrow Agent incorrect notice that
the Remaining Approval has been secured or that the Remaining Approval has been
rejected or cannot be obtained, the party giving such incorrect notice shall be
responsible to the other parties hereto for all damages, actual and
consequential, including but not limited to reasonable attorneys' fees,
occasioned by the giving of such incorrect notice.
5. The Lessor and Lessees agree that it is to the best interest of both
parties that the Escrow Agent be given consistent direction by both Lessor and
Lessees. To that end, Lessor and Lessees will attempt to give a joint notice of
direction to Escrow Agent, but they agree that the Escrow Agent may take action
based upon the notice of one party if permitted under the terms and provisions
set forth above.
6. Lessor and Lessees agree that Escrow Agent shall not be liable for
any losses, costs or damages which it may incur as a result of serving as Escrow
Agent hereunder, except for any losses, costs or damages arising out of its
willful default or gross negligence. Accordingly, Escrow Agent shall not incur
any liability with respect to (a) any action taken or admitted to be taken in
good faith upon advice of its counsel given with respect to any questions
relating to its duties and responsibilities, or (b) to any action taken or
admitted to be taken in reliance upon any document, including any written notice
of instruction provided for in this Agreement, not only as to its due execution
and validity and effectiveness of its provisions, but also to the truth and
accuracy of any information contained therein, which Escrow Agent shall in good
faith believe to be genuine, to have been signed or presented by a proper person
or persons and to conform with the provisions of this Agreement.
7. Each of the parties hereto hereby agrees to indemnify and hold
harmless Escrow Agent against any and all losses, claims, damages, liabilities
and expenses, including, without limitation, reasonable attorneys' fees and
disbursements, which may be asserted by it against the Escrow Agent in
connection with its serving as Escrow Agent hereunder, unless such losses,
claims, damages, liabilities and expenses are the result of Escrow Agent's
willful default or gross negligence in performing its obligations hereunder.
27
<PAGE>
8. In an event of a dispute between any of the parties hereto,
sufficient in the discretion of Escrow Agent to justify its doing so, Escrow
Agent shall be entitled to tender unto the registry or custody of any court of
competent jurisdiction all copies of the Extension in its hands held under the
terms of this Agreement, together with such legal pleadings as it deems
appropriate and thereupon be discharged.
IN WITNESS WHEREOF, the undersigned have caused this instrument to be
duly executed and sealed as of the day and year first above written.
LESSOR: NORTH CAROLINA RAILROAD COMPANY
[CORPORATE SEAL]
By: /s/ John F. McNair III
ATTEST: President
/s/ P. C. Barwick, Jr.
Secretary
LESSEES: NORFOLK SOUTHERN RAILWAY COMPANY
[CORPORATE SEAL]
By: /s/ John R. Turbyfill
ATTEST: Vice President
/s/ Sandra T. Pierce
Corporate Secretary
ATLANTIC AND EAST CAROLINA RAILWAY COMPANY
[CORPORATE SEAL]
By: /s/ John R. Turbyfill
ATTEST: Vice President
/s/ Sandra T. Pierce
Corporate Secretary
ESCROW
AGENT: LAWYERS TITLE OF NORTH CAROLINA, INC.
[CORPORATE SEAL]
By: /s/ Francis K. Coman
ATTEST: Sr. Vice President
/s/ Colon H. William
Assistant Secretary
28
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,021,125
<SECURITIES> 473,000
<RECEIVABLES> 309,577
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,803,702
<PP&E> 8,088,723
<DEPRECIATION> (297,768)
<TOTAL-ASSETS> 11,390,373
<CURRENT-LIABILITIES> 836,934
<BONDS> 0
<COMMON> 2,141,735
0
0
<OTHER-SE> 7,189,453
<TOTAL-LIABILITY-AND-EQUITY> 11,390,373
<SALES> 0
<TOTAL-REVENUES> 1,912,314
<CGS> 0
<TOTAL-COSTS> 644,142
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,268,172
<INCOME-TAX> 257,800
<INCOME-CONTINUING> 1,010,372
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,010,372
<EPS-PRIMARY> .24
<EPS-DILUTED> 0
</TABLE>
