NORFOLK SOUTHERN RAILWAY CO/VA, DEF 14A, 1997-04-15

NORFOLK SOUTHERN RAILWAY CO/VA
DEF 14A, 1997-04-15
RAILROADS, LINE-HAUL OPERATING

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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement

[X] Definitive Additional Materials

[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12

Norfolk Southern Railway Company
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(Name of Registrant as Specified in Its Charter)

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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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Notes:

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NOTICE AND PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS

NORFOLK SOUTHERN RAILWAY COMPANY
THREE COMMERCIAL PLACE, NORFOLK, VIRGINIA 23510-2191

NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD ON
TUESDAY, MAY 27, 1997

- -------------------------------------------------------------------------------

The Annual Meeting of Stockholders of Norfolk Southern Railway Company will
be held on the 19th Floor of Norfolk Southern Tower, Three Commercial Place,
Norfolk, Virginia, on Tuesday, May 27, 1997, at 11 o'clock A.M., Eastern
Daylight Time, for the following purposes:

1. Election of two directors to the class whose term will expire in
2000 and one director to the class whose term will expire in 1999.

2.Transaction of such other business as may come properly before the
meeting.

Stockholders of record at the close of business on March 27, 1997, will be
entitled to vote at such meeting.

By order of the Board of Directors,
SANDRA T. PIERCE,
Corporate Secretary.

Dated: April 15, 1997

IF YOU DO NOT EXPECT TO ATTEND THE MEETING, YOU ARE URGED TO MARK, DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING ENVELOPE.
<PAGE>

NORFOLK SOUTHERN RAILWAY COMPANY
THREE COMMERCIAL PLACE
NORFOLK, VIRGINIA 23510-2191
April 15, 1997
PROXY STATEMENT

This statement and the accompanying proxy will be mailed to stockholders of
Norfolk Southern Railway Company ("Company") on or about April 15, 1997. The
Company's Annual Report for 1996 was mailed under separate cover beginning
about March 14, 1997. The proxy is solicited by the Board of Directors of the
Company for use at the Annual Meeting of Stockholders to be held May 27, 1997.
The cost of soliciting proxies will be paid by the Company, including the
reimbursement, upon request, of brokerage firms, banks and other institutions,
nominees and trustees for their reasonable expenses in forwarding proxy
material to beneficial owners. In addition to solicitation by mail, officers
and regular employees of the Company may solicit proxies by telephone,
facsimile, telegram or personal interview at no additional compensation.

Policies are in place to safeguard the confidentiality of proxies and
ballots. The Bank of New York, New York, N.Y., which has been retained at an
estimated cost of $2,800 to assist in soliciting proxies directly or through
others and to tabulate all proxies and ballots cast at the Annual Meeting, is
contractually bound to maintain the confidentiality of the voting process.
Each Inspector of Election will have taken the oath required by Virginia law
to execute duties faithfully and impartially. Members of the Board of
Directors and employees of the Company do not have access to the proxies or
ballots and therefore do not know how individual stockholders vote on any
matter. However, when a stockholder writes a question or comment on the proxy
card or ballot, or when there is need to determine the validity of a proxy or
ballot, Management and/or its representatives may be involved in providing the
answer to the question or in determining such validity.

If the enclosed proxy is properly signed and returned to The Bank of New
York, the shares represented thereby will be voted in accordance with its
terms. Any stockholder who has executed and returned a proxy and for any
reason wishes to revoke it may do so at any time before the proxy is voted by
giving prior notice of revocation in any manner to the Company, or by
executing and delivering a subsequent proxy or by attending the meeting and
voting in person.

The record date for stockholders entitled to vote at the Annual Meeting is
March 27, 1997. As of February 28, 1997, the Company had issued and
outstanding 1,197,027 shares of $2.60 Cumulative Preferred Stock, Series A
("Preferred Stock"), and 16,668,997 shares of Common Stock. Of these shares,
1,096,907 shares of Preferred Stock, excluding 100,120 shares of Preferred
Stock held by Company subsidiaries and/or in a fiduciary capacity, and all
shares of Common Stock are entitled to one vote per share. All the Common
Stock of the Company is owned directly by Norfolk Southern Corporation ("NS").

ELECTION OF DIRECTORS

The terms of James C. Bishop, Jr. and L. I. Prillaman, members of the Class
of 1997, expire at the Annual Meeting, and the Board of Directors has
nominated them as candidates for election to the Class of 2000. The term of
Jon L. Manetta expires by operation of law at the Annual Meeting, and the
Board of Directors has nominated him as a candidate for election to the Class
of 1999.

D. Henry Watts, elected by the stockholders as a member of the Class of
1999, resigned as a director, effective February 1, 1997, as a consequence of
his retirement, effective the same date,

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as an officer of NS. The Board of Directors elected Mr. Manetta, Vice
President-Transportation & Mechanical of NS, to fill the vacancy created by
the resignation of Mr. Watts. Under Virginia law, the term of a director so
elected expires at the next stockholders' meeting at which directors are
elected.

Unless otherwise instructed on the enclosed proxy, such proxy will be voted
in favor of the election of Mr. Manetta to serve for a two-year term expiring
in 1999 and of Messrs. Bishop and Prillaman to serve for three-year terms
expiring in 2000. The nomination of Mr. Manetta to be the second director in
the class whose term expires in 1999 will result in an equal number of
directors in each class. If any nominee becomes unable to serve, an event
which is not anticipated, the proxy will be voted for a substitute nominee to
be designated by the Board of Directors, or the number of directors will be
reduced.

Under Virginia law and under the Company's Restated Articles of
Incorporation and Bylaws, directors are elected by a plurality of the votes
cast by the shares entitled to vote in the election at a meeting at which a
quorum is present. Votes that are withheld or shares that are not voted, such
as those held by a broker or other nominee who does not vote in person or
return a proxy, are not "cast" for this purpose.

The following information relates to the nominees and the directors whose
terms of office will continue after the stockholders' meeting. There are no
family relationships among any of the nominees or directors -- or among any of
the nominees or directors and any officer -- nor is there any arrangement or
understanding between any nominee or director and any other person, pursuant
to which the nominee or director was selected.

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<PAGE>

<TABLE>
<CAPTION>
SHARES OF
NORFOLK SOUTHERN
CORPORATION
COMMON STOCK
NAME, AGE, BUSINESS EXPERIENCE CURRENT BENEFICIALLY OWNED
DURING PAST 5 YEARS, DIRECTORSHIPS TERM EXPIRES/ AS OF FEBRUARY 28,
IN OTHER PUBLIC CORPORATIONS A DIRECTOR SINCE 1997/1/,/2/,/3/
---------------------------------- ---------------- ------------------
<S> <C> <C>
NOMINEES (FOR TERM EXPIRING IN 2000)
L. I. PRILLAMAN, 53, Norfolk, Va.; Executive Vice 1997/1996 75,502
President-Marketing of Norfolk Southern Corporation and
Vice President and Chief Traffic Officer of Norfolk
Southern Railway Company since October 1, 1995, having
served prior thereto as Vice President-Properties of
both Norfolk Southern Corporation and Norfolk Southern
Railway Company. Director of several Norfolk Southern
Railway Company subsidiaries, including Norfolk and
Western Railway Company.
OTHER DIRECTORS
DAVID R. GOODE, 56, Norfolk, Va.; Chairman, President and 1998/1992 265,566
Chief Executive Officer of Norfolk Southern Corporation
and President and Chief Executive Officer of Norfolk
Southern Railway Company since September 1, 1992, having
served prior thereto as President of Norfolk Southern
Corporation and Vice President of Norfolk Southern
Railway Company. Director of Norfolk Southern
Corporation and of several Norfolk Southern Railway
Company subsidiaries, including Norfolk and Western
Railway Company. Director of Caterpillar, Inc., Georgia-
Pacific Corporation, Texas Instruments Incorporated and
TRINOVA Corporation.
STEPHEN C. TOBIAS, 52, Norfolk, Va.; Executive Vice 1998/1994 70,952
President-Operations of Norfolk Southern Corporation and
Vice President-Operations of Norfolk Southern Railway
Company since July 1, 1994, having previously become
Senior Vice President-Operations of Norfolk Southern
Corporation and Vice President of Norfolk Southern
Railway Company on October 1, 1993, and having served
prior thereto as Vice President-Strategic Planning of
both Norfolk Southern Corporation and Norfolk Southern
Railway Company. Director of several Norfolk Southern
Railway Company subsidiaries, including Norfolk and
Western Railway Company.
</TABLE>

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Notes begin on page 4.

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<PAGE>

/1/For each named individual, the shares owned are less than 1% of the total
shares outstanding. No director or nominee owns shares of the Company's
Preferred Stock.

/2/Unless otherwise indicated by footnote, all shares are held by the named
individuals with sole voting and investment powers.

/3/Includes shares credited to individual accounts under the NS Thrift and
Investment Plan and shares held by NS under share retention agreements
pursuant to the NS Long-Term Incentive Plan (for Mr. Bishop, this amounts,
respectively, to 1,524 and 7,036 shares; for Mr. Prillaman, 6,018 and 7,910
shares; for Mr. Goode, 3,155 and 31,106 shares; for Mr. Tobias, 3,767 and
7,050 shares; and for Mr. Wolf, 3,081 and 6,474 shares). The individual
possesses voting power over shares held under share retention agreements but
has no investment power until the shares are distributed. Includes shares
subject to stock options granted pursuant to the NS Long-Term Incentive Plan
and with respect to which the optionee has the right to acquire beneficial
ownership within 60 days (for Mr. Manetta, this amounts to 14,500 shares; for
Mr. Bishop, 37,014 shares; for Mr. Prillaman, 46,522 shares; for Mr. Goode,
212,521 shares; for Mr. Tobias, 51,547 shares; and for Mr. Wolf, 57,527
shares). Also includes Deferred Stock Units credited to officers pursuant to
the NS Long-Term Incentive Plan (for Mr. Manetta, this amounts to 129 shares;
for Mr. Bishop, 129 shares; for Mr. Prillaman, 313 shares; for Mr. Goode,
1,048 shares; for Mr. Tobias, 313 shares; and for Mr. Wolf, 313 shares).

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16 of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and any persons beneficially owning more
than 10 percent of a class of the Company's stock, to file certain reports of
beneficial ownership and changes in beneficial ownership (Forms 3, 4 and 5)
with the Securities and Exchange Commission and the New York Stock Exchange.
For 1995, based solely on its review of copies of Forms 3, 4 and 5 available
to it, or written representations that no Forms 5 were required, the Company
believes that all required Forms were filed on time.

BENEFICIAL OWNERSHIP OF NS AND COMPANY STOCK

As of February 28, 1997, 100,120 shares, or approximately 8.4%, of the
Company's Preferred Stock were held by Company subsidiaries and/or in a
fiduciary capacity. NS held 176,703 shares,

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<PAGE>

or approximately 15%, of the Company's Preferred Stock. To the knowledge of
the Company, no other person beneficially owns more than 5% of the Company's
Preferred Stock. NS held 100% 16,668,997 shares of the Company's Common Stock
on February 28, 1997.

As of February 28, 1997, all officers and directors of the Company as a
group beneficially owned 1,288,761 shares of NS Common Stock and 70 shares (in
which beneficial ownership is disclaimed) of the Company's Preferred Stock, or
less than 1% of the total shares of each class of stock outstanding. Also
included in the NS Common Stock figure are: 65,946 shares credited to
individual accounts under the NS Thrift and Investment Plan; 130,375 shares
held by NS under share retention agreements pursuant to the NS Long-Term
Incentive Plan over which the individual possesses voting power but has no
investment power until the shares are distributed; 991,526 shares subject to
stock options granted pursuant to the NS Long-Term Incentive Plan with respect
to which optionees have the right to acquire beneficial ownership within 60
days; and 5,079 Deferred Stock Units credited to officers pursuant to the NS
Long-Term Incentive Plan. Also included are 10,225 shares in which officers
disclaim beneficial ownership. The shares held individually by directors whose
terms of office will continue after the Annual Meeting and nominees are
reported under the caption "Election of Directors."

BOARD OF DIRECTORS AND COMMITTEES

The Board of Directors of the Company consists of six members and is divided
into three classes elected for a term of three years, with each class
containing one third of the total number of directors. The Board of Directors
has no audit, nominating or compensation committees. In 1996, the Board of
Directors acted by unanimous written consent on sixteen separate occasions.

Each year the Board of Directors appoints an Executive Committee, which is
empowered to exercise all the authority of the Board of Directors to the
extent permitted by law when the Board is not in session. All such actions
taken by the Committee are to be reported to the Board at its meeting next
succeeding the action and are subject to revision or alteration by the Board.
Executive Committee members are David R. Goode, James C. Bishop, Jr. and Henry
C. Wolf. The Committee took no action in 1996.

COMPENSATION OF DIRECTORS

Each incumbent director is also an officer of the Company and an officer of
NS and is not paid a director's fee.

NS COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The following identifies any reportable business relationships between NS
and Messrs. Leisenring, Coleman, Hahn or McNair, who were the members of the
Compensation and Nominating Committee of the NS Board of Directors during all
or part of 1996.

In 1996, NS paid approximately $353,000 to McNair Law Firm, P.A., of which
Mr. McNair is Chairman, for legal and consulting services. Mr. McNair retired,
effective the date of the 1996 Annual Meeting of NS Stockholders, pursuant to
NS' retirement policy for directors.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Kathryn B. McQuade is Vice President-Internal Audit of the Company. Ms.
McQuade's spouse is one of approximately 6,250 partners worldwide in KPMG Peat
Marwick LLP ("KPMG"), a firm of

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<PAGE>

independent public accountants that has acted as auditors for NS. Ms.
McQuade's spouse does not participate in, or have access to, KPMG's work for
NS, the Company or the subsidiaries of either. NS paid KPMG approximately $1.9
million for all services rendered during 1996.

EXECUTIVE COMPENSATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table sets forth the cash compensation paid, as well as
certain other compensation accrued or paid, to the Chief Executive Officer and
to each of the other four most highly compensated executive officers of NS in
1996 for service in all capacities to NS and its subsidiaries (including the
Company) for the fiscal years ending December 31, 1996, 1995 and 1994.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- ---------------------
AWARDS PAYOUTS
---------- ----------
OTHER
ANNUAL SECURITIES
NAME AND COMPEN- UNDERLYING LTIP ALL OTHER
PRINCIPAL SALARY/1/ BONUS/1/ SATION/2/ OPTIONS/3/ PAYOUTS/4/ COMPENSATION/5/
POSITION YEAR ($) ($) ($) (#) ($) ($)
--------- ---- --------- -------- --------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
David R. Goode 1996 800,000 800,000 269,864/6/ 40,000 /7/ 73,149
Chairman, President and 1995 685,000 616,500 1,349,379 50,000 1,511,034 63,796
Chief Executive Officer 1994 585,000 497,250 537,303 40,000 505,965 4,500
D. Henry Watts 1996 425,000 340,000 312,104 16,000 /7/ 37,090
Vice Chairman 1995 381,250 290,938 612,354 12,500 472,134 33,758
1994 370,000 277,500 459,530 12,500 316,195 4,500
R. Alan Brogan
Executive Vice 1996 285,000 213,750 118,556 12,000 /7/ 40,224
President-Trans. 1995 250,000 187,500 435,548 12,500 472,134 38,416
Logistics 1994 240,000 176,060 173,511 12,500 126,491 4,500
Stephen C. Tobias 1996 365,000 273,750 65,666 12,000 /7/ 31,391
Executive Vice 1995 305,000 228,750 183,723 12,500 188,836 26,304
President--Operations 1994 267,500 200,625 139,362 5,000 126,491 4,500
Henry C. Wolf 1996 365,000 273,750 62,511 12,000 /7/ 34,753
Executive Vice 1995 305,000 228,750 188,856 12,500 188,836 29,693
President-Finance 1994 267,500 200,625 142,245 12,500 126,491 4,500
</TABLE>
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/1/Includes portion of any salary or bonus award elected to be received on a
deferred basis.
/2/Includes cash payment of dividend equivalents in 1994 in an amount equal
to, and commensurate with, dividends paid on NS Common Stock on performance
share units awarded through 1992 pursuant to the NS Long-Term Incentive Plan
(dividend equivalents are not paid on performance share units awarded after
1992). Includes amounts reimbursed for the payment of taxes on personal
benefits. Does not include for 1996 a tax absorption payment, which was not
determinable in time to be reported, under the NS Long-Term Incentive Plan for
the 1996 award of performance shares. Also includes the amount by which the
interest accrued on salary and

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<PAGE>

bonuses deferred under the NS Officers' Deferred Compensation Plan exceeds
120% of the applicable Federal long-term rate provided under Section 1274(d)
of the Internal Revenue Code; for 1996, these amounts were: for Mr. Goode,
$53,873; Mr. Watts, $297,583; Mr. Brogan, $110,168; Mr. Tobias, $36,141; and
Mr. Wolf, $40,433.
/3/Options were granted without tandem SARs.
/4/Represents market value, as of the date of award, of NS Common Stock
earned pursuant to the performance share feature of the NS Long-Term Incentive
Plan for periods ended December 31, 1995 and 1994 (for 1994, performance
shares were awarded for achievements in the three-year period 1992-1994 and
for 1995, performance shares were awarded for achievements in the three-year
period 1993-1995). For 1996, the award of performance shares for achievements
in the three-year period 1994-1996 had not been approved in time to be
reported.
/5/Includes for 1996 (i) contributions of $4,500 to NS' 401(k) plan on
behalf of each named executive officer; and (ii) total premium payments (out-
of-pocket cash cost) on "split dollar" life insurance policies for Mr. Goode,
$68,649; Mr. Watts, $32,590; Mr. Brogan, $35,724; Mr. Tobias, $26,891; and Mr.
Wolf, $30,253.
/6/Includes personal use, as directed by resolution of the Board of
Directors, of NS' aircraft valued at approximately $136,482 -- calculated on
the basis of the aggregate incremental cost of such use to NS.
/7/For 1996, the award of performance shares for achievements in the three-
year period 1994-1996 had not been approved in time to be reported.

LONG-TERM INCENTIVE PLAN

The NS Long-Term Incentive Plan, as last approved by stockholders in 1995,
provides for the award of incentive stock options, non-qualified stock
options, stock appreciation rights, restricted stock and performance share
units to officers and other key employees of NS and certain of its
subsidiaries (including the Company). The Compensation and Nominating
Committee of the NS Board of Directors ("Committee") is charged with
administration of the Plan and has the sole discretion, subject to certain
limitations, to interpret the Plan; to select Plan participants; to determine
the type, size, terms and conditions of awards under the Plan; to authorize
the grant of such awards; and to adopt, amend and rescind rules relating to
the Plan.

STOCK OPTIONS

The following table sets forth certain information concerning the grant in
1996 of stock options under the NS Long-Term Incentive Plan to each named
executive officer:

OPTION/SAR* GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
GRANT DATE
INDIVIDUAL GRANTS VALUE
- -------------------------------------------------------------- ----------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANT DATE
OPTIONS GRANTED TO EXERCISE OR PRESENT
GRANTED/1/ EMPLOYEES IN BASE PRICE/2/ EXPIRATION VALUE/3/
NAME (#) FISCAL YEAR ($ PER SHARE) DATE ($)
---- ---------- ------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
D. R. Goode 40,000 5.83% 78.0625 01/28/2006 850,400
D. H. Watts 16,000 2.33% 78.0625 01/28/2006 340,160
R. A. Brogan 12,000 1.75% 78.0625 01/28/2006 255,120
S. C. Tobias 12,000 1.75% 78.0625 01/28/2006 255,120
H. C. Wolf 12,000 1.75% 78.0625 01/28/2006 255,120
</TABLE>

* No SARs were granted in 1996.

- --------

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<PAGE>

/1/These options were granted as of January 29, 1996, and first are
exercisable one year later. They earn dividend equivalents -- in an amount
equal to, and commensurate with, dividends as paid on NS Common Stock -- which
are converted into Deferred Stock Units, the aggregate fair market value of
which is payable in cash to the officer on the earliest of the (a) the five-
year anniversary of the date of grant; (b) the exercise of the option
(exercises of less than the full option grant result in a prorated cash
payment); and (c) the officer's death, disability or retirement.
/2/The exercise price (fair market value on the date of grant) may be paid
in cash or in shares of NS Common Stock (previously owned by the optionee for
at least one year next preceding the date of exercise) valued at fair market
value on the date of exercise.
/3/In accordance with regulations of the Securities and Exchange Commission,
the present value of the option grant at the date of grant was determined
using the Black-Scholes statistical model. The actual amount, if any, an
executive officer may realize depends on the stock price on the date the
option is exercised; consequently, there is no assurance the amount realized
by an executive officer will be at or near the monetary value determined by
using this statistical model.

The model assumes:

(a) a stock volatility factor of 0.1667: volatility was determined by an
independent compensation consultant using monthly data averaged over the 60-
month period January 1, 1991, through December 31, 1995;

(b) a dividend yield of 2.93%: yield was determined monthly and averaged
over the 60-month period January 1, 1991, through December 31, 1995;

(c) a 1995 risk-free rate of return of 6.65%: this represents the monthly
average 10-year Treasury strip rate during 1995, the year prior to the
issuance of these options; and

(d) that the option will be exercised during its ten-year term.

The foregoing measures and assumptions produce a Black-Scholes factor of
0.272 and a resulting present value of $21.26 for each share of NS Common
Stock subject to the 1996 option grant; that factor and resulting present
value have not been adjusted to reflect that options cannot be exercised
during the first year of their 10-year term, the payment of dividend
equivalents on unexercised options or the conversion of dividend equivalents
into Deferred Stock Units.

The following table sets forth certain information concerning the exercise
of options and/or SARs by each named executive officer during 1996 and the
unexercised options and SARs held by each as of December 31, 1996:

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
SHARES FY-END AT FY-END/1/
ACQUIRED ON VALUE (#) ($)
EXERCISE REALIZED ------------------------------ -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
D. R. Goode 0 0 172,521 40,000 4,699,448 422,500
D. H. Watts 0 0 85,442 16,000 3,036,678 169,000
R. A. Brogan 0 0 56,199 12,000 1,693,542 126,750
S. C. Tobias 0 0 39,547 12,000 1,293,124 126,750
H. C. Wolf 0 0 45,527 12,000 1,333,947 126,750
</TABLE>
- --------
/1/Equal to the mean ($88.625) of the high and low trading prices on the New
York Stock Exchange-Composite Transactions of NS Common Stock on December 31,
1996, less the exercise prices of the options, multiplied by the number of
options.

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<PAGE>

PERFORMANCE SHARE UNITS ("PSUS")

The following table sets forth certain information concerning the grant in
1996 of PSUs under the NS Long-Term Incentive Plan to each named executive
officer. These PSU grants entitle a recipient to "earn out" or receive
performance shares (shares of NS Common Stock) at the end of a three-year
performance cycle (1996-1998) based on NS' performance during this three-year
period. Under the 1996 award, corporate performance will be measured using
three predetermined and equally weighted standards; that is, each of the
following performance areas will serve as the basis for "earning out" up to
one third of the total number of PSUs granted: (1) three-year average return
on average invested capital ("ROAIC"), (2) three-year average NS operating
ratio and (3) three-year total return to NS stockholders. A more detailed
discussion of these performance criteria can be found in the Compensation and
Nominating Committee Report, beginning on page 11.

LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
(PERFORMANCE SHARE UNITS)

<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
SHARES, OR OTHER NON-STOCK PRICE-BASED PLANS
UNITS OR PERIOD UNTIL -----------------------------------
OTHER RIGHTS/1/ MATURATION THRESHOLD TARGET/2/ MAXIMUM
NAME (#) OR PAYOUT (#) (#) (#)
---- --------------- ------------ --------- --------- -------
<S> <C> <C> <C> <C> <C>
D. R. Goode 25,000 01/01/96- 0 22,075 25,000
12/31/98
D. H. Watts 12,000 01/01/96- 0 10,596 12,000
12/31/98
R. A. Brogan 8,000 01/01/96- 0 7,064 8,000
12/31/98
S. C. Tobias 8,000 01/01/96- 0 7,064 8,000
12/31/98
H. C. Wolf 8,000 01/01/96- 0 7,064 8,000
12/31/98
</TABLE>

- --------
/1/Performance shares awarded in 1996, when earned out, will be issued one
half in cash and one half in NS Common Stock, with the stock portion being
held by NS for up to 60 months pursuant to a share retention agreement unless
such requirement is waived by the Committee in its sole discretion. Because
any NS Common Stock earned under the 1996 award will be subject to share
retention agreement, the withholding taxes due will be withheld from the cash
portion of this award.
/2/The NS Long-Term Incentive Plan does not provide a performance target for
the "earn out" of PSUs; consequently, this column represents 88.3% of the
maximum "earn out," which, in accordance with applicable rules of the
Securities and Exchange Commission, is based on the percentage of the previous
fiscal year's actual "earn out" under the Plan.

PENSION PLANS

The following table sets forth the estimated annual retirement benefits
payable on a qualified joint-and-survivor-annuity basis in specified
remuneration and years of creditable service classifications under NS'
qualified defined benefit pension plans, as well as nonqualified supplemental
pension plans that provide benefits otherwise denied participants because of
certain Internal Revenue Code limitations on qualified plan benefits. It is
assumed, for purposes of the

9
<PAGE>

table, that an individual retired in 1996 at age 65 (normal retirement age)
with the maximum allowable Railroad Retirement Act annuity. The benefits shown
are in addition to amounts payable under the Railroad Retirement Act.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
YEARS OF CREDITABLE SERVICE
-----------------------------------------------------------------------------
REMUNERATION 25 30 35 40
- ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 200,000 $ 56,471 $ 69,879 $ 87,287 $ 96,694
300,000 93,971 114,879 135,787 156,694
400,000 131,471 159,879 188,287 216,694
500,000 168,971 204,879 240,787 276,694
600,000 206,471 249,879 293,287 336,694
700,000 243,971 294,879 345,787 396,694
800,000 281,471 339,879 398,287 456,694
900,000 318,971 384,879 450,787 516,694
1,000,000 356,471 429,879 503,287 576,694
1,100,000 393,971 474,879 555,787 636,694
1,200,000 431,471 519,879 608,287 696,694
1,300,000 468,971 564,879 660,787 756,694
1,400,000 506,471 609,879 713,287 816,694
1,500,000 543,971 654,879 765,787 876,694
</TABLE>

Under the pension plans, covered compensation includes salary and bonus;
each officer can expect to receive an annual retirement benefit equal to
average annual compensation for the five most highly compensated consecutive
years out of the last ten years of creditable service multiplied by the number
that is equal to 1.5% times total years of creditable service, but not in
excess of 60% of such average compensation, less an offset for the annual
Railroad Retirement Act annuity.

The respective last five-year average compensation and approximate years of
creditable service, as of January 1, 1997, for each executive officer named in
the Summary Compensation Table were: Mr. Goode, $994,149 and 31 years; Mr.
Watts, $627,875 and 40 years; Mr. Brogan, $380,292 and 33 years; Mr. Tobias,
$489,335 and 27 years; Mr. Wolf, $413,030 and 24 years.

CHANGE-IN-CONTROL ARRANGEMENTS

In May 1996, the Committee recommended, and the NS Board of Directors
approved, NS' entering into new change-in-control compensation agreements
("Agreements") with each of the individuals named in the Summary Compensation
Table and with certain other key employees. The new Agreements, the terms of
which were reviewed by outside counsel, were filed as an exhibit to NS' Report
on Form 10-Q for the period ended June 30, 1996, and provide certain economic
protections in the event of an involuntary or other specified Termination
(each term with an initial capital letter is defined in the new Agreements) of
a covered individual during a period of twenty-four months next following a
Change in Control of NS. As consideration for these new Agreements and to help
encourage management continuity, covered individuals agreed not to engage in
Competing Employment for a period of (a) three years from the date they
execute a new Agreement and (b) one year from their Termination Date, if they
accept benefits payable or provided under the new Agreements.

10
<PAGE>

These Agreements are terminable by either NS or a covered employee on
twenty-four months' notice; however, the term of the prohibition on engaging
in Competing Employment is not affected by the new Agreement's being
terminated.

Generally, these Agreements provide for (a) severance compensation payments
(not continued employment) equal, in the case of individuals named in the
Summary Compensation Table, to three times the sum of their Base Pay and
Incentive Pay (most other covered employees are entitled to receive a lower
multiple of Base Pay and Incentive Pay); (b) redemption of outstanding
Performance Share Units and of outstanding, exercisable options (subject to
restrictions, if any, in the case of persons, such as each officer named in
the Summary Compensation Table, imposed under Section 16 of the Securities
Exchange Act of 1934) and payment of dividend equivalents foregone as a result
of the redemption of such options; (c) payment of an amount equal to the
present value of the projected value of amounts deferred under the Officers'
Deferred Compensation Plan; (d) eligibility for certain Benefits (principally
medical, insurance and death benefits) for up to three years following
Termination; and (e) certain additional service credit under NS' retirement
plans (in the case of any NS Board-elected officer, such service credit may
not exceed the creditable service that officer would have had upon reaching
mandatory retirement age). The Agreements also provide for payment of any
Federal excise tax that may be imposed on payments made pursuant to these
Agreements.

THE NORFOLK SOUTHERN CORPORATION COMPENSATION AND
NOMINATING COMMITTEE REPORT CONCERNING THE 1996
COMPENSATION OF CERTAIN EXECUTIVE OFFICERS

This Report describes Norfolk Southern Corporation's (the "Corporation")
officer compensation strategy, the components of its compensation program and
the manner in which 1996 compensation determinations were made for the
Corporation's Chairman, President and Chief Executive Officer, David R. Goode,
and the other officers (collectively, including Mr. Goode, referred to as the
"Executive Officers") whose 1996 compensation is disclosed in the Summary
Compensation Table of this Proxy Statement.

The Compensation and Nominating Committee of the Board of Directors
("Committee") is composed entirely of non-employee directors and met six times
during 1996. Among other things, the Committee is responsible for: (1)
recommending to the Board the salaries of corporate officers and (2)
administering the Corporation's Executive Management Incentive Plan, as
approved by the stockholders at their May 1995 Annual Meeting, its Management
Incentive Plan (applicable to non-officers) and its Long-Term Incentive Plan,
as amended and approved by stockholders at their May 1995 Annual Meeting,
which authorizes, as more particularly described below, awards of stock
options and performance share units.

BASE SALARY: While the Committee believes that a substantial portion of
each Executive Officer's total compensation should be "performance-based,"
the Committee also seeks to assure that the base salaries of Executive
Officers are competitive with those earned by individuals in comparable
positions.

Specifically, the Committee compares Mr. Goode's base salary with those
paid to the chief executive officers of all other holding companies of
Class I railroads (the same companies comprising the S&P Railroad Index
included in the Stock Performance Graph) and of other American corporations
of comparable revenue size. The base salaries of the other Executive
Officers -- as well as all Board-elected officers of the Corporation -- are
evaluated, principally by Mr. Goode, relative to survey data of base
salaries for comparable positions at a large

11
<PAGE>

number of American corporations of comparable revenue size, including but
not limited to those identified in the Stock Performance Graph. These data
are compiled by the Corporation's Personnel Department and by an outside
consultant. The Committee's general intention is to set the base salaries
of Executive Officers between the 50th and 75th percentiles of their peers
in the respective groups with which they are compared.

Mr. Goode discusses with the Committee the specific contributions and
performance of each of the Executive Officers. Based on such subjective
evaluations, comparative salary data and each Executive Officer's length of
service in current position, Mr. Goode makes base salary recommendations
which are submitted for Committee and Board approval.

Mr. Goode makes no recommendation concerning, nor does he play any role in
determining, his base salary (or other compensation), which is set by the
Board. As noted, the Committee customarily seeks to set the NS Chairman and
CEO's base salary between the 50th and 75th percentiles of the base
salaries paid to CEOs of other American corporations of comparable revenue
size and competitively (within the mid-range of compensation practice) with
those of the chairmen of the other holding companies of Class I railroads.
Mr. Goode's base salary in 1996 approximated the 50th percentile; the
average base salaries of other Executive Officers in 1996 approximated the
35th percentile.

For 1996, Mr. Goode's annual base salary was increased by $115,000, or
16.8%. This 1996 increase, not tied to or reflecting application of any
specific formula, reflects both the Corporation's overall performance in
1995, including its total operating revenues and record net income, and the
Board's confidence in Mr. Goode's leadership. The Committee recommended and
the Board approved average increases of 16.6% for the other Executive
Officers as a group; these increases were based on Mr. Goode's
recommendations and the Corporation's 1995 performance.

EXECUTIVE MANAGEMENT INCENTIVE PLAN ("EMIP"): The Corporation's EMIP is
designed and administered to ensure that a significant portion of each
Executive Officer's total annual cash compensation is based on the
Corporation's annual financial performance. Awards to Executive Officers
and to participants in the Corporation's Management Incentive Plan (MIP)
are paid from an annual incentive fund equal to a percentage (from 0.75% to
1.5%) of the Corporation's adjusted pretax net income, provided the
Corporation's annual return on average invested capital ("ROAIC") equals or
exceeds 10%.

Base salaries of the Corporation's Executive Officers have tended to be
lower than at comparable organizations, and their incentive pay
opportunities have tended to be higher. It is the Committee's philosophy
that, when the Corporation achieves EMIP goals, the total of the Executive
Officers' base salaries and EMIP awards should be competitive with the
total annual cash compensation paid by comparable organizations. In years
in which those goals are not realized, the Executive Officers will receive
less (or no) incentive pay.

Specifically, incentive pay opportunities for Mr. Goode are determined
annually by the Committee by comparing Mr. Goode's total annual cash
compensation with that paid to the chief executive officers of all other
holding companies of Class I railroads (the same companies comprising the
S&P Railroad Index included in the Stock Performance Graph) and of other
American corporations of comparable revenue size. Incentive pay
opportunities for the other Executive Officers are determined annually by
the Committee based on its review of the annual cash compensation of
comparable positions at companies of comparable revenue size, including but
not limited to those identified in the Stock Performance Graph.

12
<PAGE>

Using those criteria in November of 1995, the Committee set Mr. Goode's
maximum 1996 incentive opportunity at 100% of 1996 base salary, the Vice
Chairmen's at 80% of 1996 base salary, and the other Executive Officers' at
75% of 1996 base salary. Actual payments, if any, are based on the total
amount in the annual incentive fund. For 1996, all the Executive Officers
earned EMIP awards, and 302 other key employees earned MIP awards. In light
of the Corporation's 1996 performance, the related EMIP payments earned by
Mr. Goode and the other Executive Officers were equal to 100% of their
respective maximum incentive opportunities. Compared with 1995 bonuses
earned by other comparable executive officers, the 1996 EMIP award paid to
Mr. Goode approximated the 65th percentile, and the average awards paid to
the other Executive Officers approximated the 75th percentile.

LONG-TERM INCENTIVE PLAN ("LTIP"): The Committee believes that a
substantial component of the Executive Officers' total compensation should
be based on and reflect the Corporation's efficient use of assets, its
profitability and the total returns (stock price appreciation and
dividends) to its stockholders. This is achieved by making annual grants of
stock options and performance share units and through share retention
agreements entered into with the Executive Officers. These LTIP
arrangements are intended to ensure that the longer-term financial
interests of the Executive Officers are directly aligned with those of the
Corporation's stockholders and to provide the Executive Officers with the
opportunity to acquire a meaningful beneficial stock ownership position in
the Corporation.

In determining current LTIP awards, the size of prior grants is analyzed
within a current total compensation framework predicated on a review of
both the long-term awards and the total compensation (base salary, bonus
and long-term awards) of comparable positions in U.S. companies with
comparable revenues. The mix of options and performance share units may
vary from year to year to reflect an analysis of the relative value of each
type of award and other considerations. Since the inception of the Plan and
continuing through the awards made in 1994, this analysis resulted in a
general practice of granting options to performance share units in a ratio
of 2 to 1. For grants made beginning in 1995, that ratio changed,
reflecting the award of relatively more performance share units than in
past years -- reflecting, in part, the effects of the Committee's decision
not to make tax absorption payments on the actual earnouts of awards made
in 1995 and subsequent years. For Mr. Goode, the ratio of awarded options
to awarded performance share units in 1996 was roughly 1.6 to 1; for the
other Executive Officers, that ratio was 1.42 to 1.

The number of stock options and performance share units granted in any year
is determined so as to place the total compensation of Mr. Goode and the
other Executive Officers, when corporate performance warrants, above the
75th percentile of total compensation for their respective peer groups.

At its January 1996 meeting, the Committee granted stock options to each of
the Executive Officers and to 294 other key employees at an exercise price
equal to the market value of the shares on the date of grant. These options
are exercisable during a ten-year period following the date of grant, after
a one-year period has elapsed.

At the same meeting, the Committee granted performance share units which
provide the Executive Officers and other recipients the opportunity to earn
awards (that will be paid one half in cash and one half in shares of the
Corporation's Common Stock) during the first quarter

13
<PAGE>

of 1999. The number of performance share units actually earned by
recipients is based on criteria approved by stockholders at their May 1995
Annual Meeting -- specifically, the Corporation's three-year (i.e., 1996-
1998) average Return on Average Invested Capital, three-year average
Operating Ratio and three-year total Return to Stockholders, evaluated
relative to performance measures established by the Committee and set out
in the schedules below. One third of the performance share units granted in
1996 are available to be earned based on each of the three performance
criteria.

<TABLE>
<CAPTION>
- -------------------------------------------- ------------------------------------------
TOTAL STOCKHOLDER RETURN RETURN ON AVERAGE INVESTED CAPITAL
("TSR") VS. S&P 500 ("ROAIC")
- -------------------------------------------- ------------------------------------------
PERCENTAGE OF PERCENTAGE OF
THREE-YEAR PERFORMANCE THREE-YEAR PERFORMANCE
AVERAGE TSR SHARE UNITS AVERAGE SHARE UNITS
VS. S&P 500 EARNED ROAIC EARNED
- -------------------------------------------- ------------------------------------------
<S> <C> <C> <C>
90th percentile 100% 20% 100%
80/th/ 90% 19% 90%
70/th/ 85% 18% 80%
60/th/ 80% 17% 70%
50/th/ 75% 16% 60%
40/th/ 50% 15% 50%
30/th/ 30% 14% 40%
25th and below 0% 13% 20%
Below 13% 0%
- -------------------------------------------- ------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
------------------------------------------------
OPERATING RATIO ("OPR")
------------------------------------------------
PERCENTAGE OF
THREE-YEAR NS PERFORMANCE SHARE
AVERAGE OPR UNITS EARNED
------------------------------------------------
<S> <C>
70% 100%
75% 75%
80% 50%
85% 25%
Above 85% 0%
------------------------------------------------
</TABLE>

All stock options and performance share units granted in 1996 to Executive
Officers were subject to the following terms. For the first five (5) years
following the date stock options are granted, the Corporation credits
dividend equivalents on unexercised options to a separate memorandum
account maintained for each Executive Officer, and -- based on the fair
market value of the Corporation's Common Stock on the dividend payment
date -- the amount of that dividend equivalent is converted into Deferred
Stock Units (one such unit is equal in value to one share of Common Stock).
The value of such Deferred Stock Units is paid in cash to each Executive
Officer based on the then-fair market value of the Corporation's Common
Stock on the earliest to occur of (a) the five-year anniversary of the date
of grant; (b) the exercise of the option (exercises of less than the full
option grant result in a prorated cash payment); and (c) the officer's
death, disability or retirement. The Executive Officers have entered into
share retention agreements with the Corporation whereby they have agreed to
have the Corporation hold shares of the Corporation's Common Stock actually
earned pursuant to the performance share feature of the LTIP for a period
of five years following the date such shares are earned.

For 1996, Mr. Goode was granted options on 40,000 shares of Common Stock
and the opportunity to earn up to 25,000 performance shares, and the other
Executive Officers as a group were awarded options on a total of 52,000
shares of Common Stock and the opportunity to earn up to 36,000 performance
shares.

14
<PAGE>

In summary, the Committee believes that the compensation of Executive
Officers is competitive with that of similar positions at comparable American
corporations. More important, the Committee believes each Executive Officer's
compensation has been appropriately structured and administered so that a
substantial component of total compensation is dependent upon, and directly
related to, the Corporation's efficient use of assets, its profitability and
the total returns to its stockholders.

Regulations of the Securities and Exchange Commission require the Committee
to report to stockholders on the Committee's policy concerning the Revenue
Reconciliation Act of 1993 which amended Section 162 of the Internal Revenue
Code to eliminate the deductibility of certain compensation over $1 million
paid to executive officers. Based on the requirements of this new legislation
and on interpretive regulations and transition rules, the Committee
recommended to the Board, the Board approved and recommended to the
stockholders, and at their 1995 Annual Meeting the stockholders approved,
modifications to the LTIP and establishment of the Executive Management
Incentive Plan (which was effective as of January 1, 1996, for certain Board-
elected officers), all as more particularly described in the Corporation's
1995 Proxy Statement. The Committee will continue to seek to offer its
Executive Officers and other personnel competitive compensation and to
structure such compensation arrangements to entitle the Corporation to take
appropriate related tax deductions.

E. B. Leisenring, Jr., Chairman
L. E. Coleman, Member
T. M. Hahn, Jr., Member
R. E. McNair, Member (Retired,
effective the date of the 1996
Annual Meeting of NS Stockholders)

PERFORMANCE GRAPH

The performance graph comparing the yearly percentage change in the
cumulative total stockholder return on the Company's Common Stock with the
cumulative total return of the S&P Composite 500 Stock Index and a published
industry index has been omitted because the Company's Common Stock is owned
entirely by NS and is not publicly traded.

APPOINTMENT OF INDEPENDENT ACCOUNTANTS

The Board of Directors has appointed the firm of KPMG Peat Marwick LLP,
independent public accountants, to audit the books, records and accounts of
the Company for the year 1997. This firm has acted as auditors for the Company
since June 1, 1982.

Representatives of KPMG Peat Marwick LLP are expected to be present at the
Annual Meeting, with the opportunity to make a statement if they so desire,
and available to respond to appropriate questions.

15
<PAGE>

STOCKHOLDER PROPOSALS

Stockholders are entitled to submit proposals on matters appropriate for
stockholder action consistent with regulations of the Securities and Exchange
Commission. In order for a stockholder proposal for the 1998 Annual Meeting of
Stockholders to be eligible for inclusion in the Company's proxy statement and
form of proxy, it must be received by the Corporate Secretary, Norfolk
Southern Railway Company, Three Commercial Place, Norfolk, Virginia 23510-
9219, no later than December 15, 1997.

OTHER MATTERS

The Board of Directors does not know of any matters to be presented at the
Annual Meeting other than as set forth above. However, if any other matters
come before the meeting, the proxies received pursuant to this solicitation
will be voted thereon in accordance with the judgment of the person or persons
acting under the proxies.

By order of the Board of Directors,
SANDRA T. PIERCE,
Corporate Secretary.

16
<PAGE>

[ ]

Please mark boxes [ ] or [x] in blue or black ink.

(1) Election of Directors

FOR all nominees listed below, except as
marked to the contrary (see instruction). [x]

WITHHOLD AUTHORITY to vote
for all nominees listed below. [x]

Term expiring 2000: James C. Bishop, Jr. and L.I. Prillaman
Term expiring 1999: Jon L. Manetta

INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE, STRIKE A LINE
THROUGH THAT NOMINEE'S NAME.

Address Change and/or
Comments Mark Here [x]

Sign exactly as name appears hereon. Attorneys-in-fact,
directors, trustees, guardians, corporate officials,
etc. should give full title.

Dated: , 1997

---------------------------------------

x ---------------------------------------------
x (SIGNATURE)
x
xxxxx ---------------------------------------------
(SIGNATURE)

- ------------------------------------------------------
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY
- ------------------------------------------------------
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

NORFOLK SOUTHERN RAILWAY COMPANY
THREE COMMERCIAL PLACE, NORFOLK, VIRGINIA 23510-2191

This Proxy is Solicited on Behalf of the Board of Directors

The undersigned hereby appoints David R. Goode, Sandra T. Pierce or Henry C.
Wolf, and each or any of them, proxy for the undersigned, with power of
substitution, to vote with the same force and effect as the undersigned, with
power of substitution, to vote with the same force and effect as the undersigned
at the annual meeting of stockholders of Norfolk Southern Railway Company to be
held at Three Commercial Place, Norfolk, Virginia, on Tuesday, May 27, 1997, and
any adjournments, postponements or reschedulings thereof, upon the matters more
fully set forth in the Proxy Statement and to transact such other business as
may come properly before the meeting.

THE PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED ON THE
OTHER SIDE BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF DIRECTORS.

(Continued, and to be MARKED, DATED AND SIGNED on the other side)

NORFOLK SOUTHERN RAILWAY COMPANY
P.O. Box 11139
New York, N.Y. 10203-0139

- --------------------------------------------------------------------------------