UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the period ended March 31, 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 March 31, 1995.

The total number of pages contained in this document is 17 pages.

INDEX

NORTH CAROLINA RAILROAD COMPANY

PART I. FINANCIAL INFORMATION

Item l. Financial Statements (Unaudited)

Balance Sheets - March 31, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . . . 3

Statements of Income - Three months ended March 31,
1995 and March 31, 1994 . . . . . . . . . . . . . . 4

Statements of Shareholders' Equity -
Three months ended March 31, 1995
and March 31, 1994 . . . . . . . . . . . . . . . . . 5

Statements of Cash Flows -
Three months ended March 31, 1995 and
March 31, 1994 . . . . . . . . . . . . . . . . . . . 6

Notes to financial statements -
March 31, 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. . . . . . . . . . . . . . . . . . 13

SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . 17

BALANCE SHEETS (Unaudited)

NORTH CAROLINA RAILROAD COMPANY

March 31 December 31
1995 1994
------------ ------------

ASSETS
Cash and cash equivalents $ 905,190 $ 1,615,284
Short-term investments 673,000 -0-
Rent receivable 132,688 246,030
Interest receivable and other assets 77,759 65,400
Income taxes recoverable 16,130 -0-
------------ ------------
TOTAL CURRENT ASSETS 1,804,767 1,926,714

PROPERTIES
Roadway and land--Note B 7,848,842 7,848,842
Buildings and equipment 236,369 236,369
Less accumulated depreciation (294,186) (292,395)
------------ ------------
7,791,025 7,792,816

OTHER ASSETS
Lease negotiation costs 421,523 365,267
------------ ------------
$ 10,017,315 $ 10,084,797
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accrued expenses and accounts payable $ 424,392 $ 421,026
Dividends paid -0- 128,504
Unearned rental income 61,000 -0-
------------ ------------
TOTAL CURRENT LIABILITIES 485,392 549,530

DEFERRED INCOME TAXES 1,217,051 1,214,451

SHAREHOLDERS' EQUITY
Common stock, par value $0.05 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 2,584,682 2,590,626
------------ ------------
8,314,872 8,320,816
------------ ------------
COMMITMENTS AND CONTINGENCIES--Note C
$ 10,017,315 $ 10,084,797
============ ============

See notes to financial statements.

STATEMENTS OF INCOME (Unaudited)

NORTH CAROLINA RAILROAD COMPANY

Three Months Ended
March 31
1995 1994

Revenues:
Lease of roadway and land $ 168,569 $ 160,703
Interest income 31,504 18,575
Rental income 3,150 1,080
Other 30,234 10,787
--------- ---------
233,457 191,145

Expenses:
Salaries and administrative 61,106 61,477
Professional fees 116,229 89,074
Insurance and taxes 16,332 11,763
Depreciation 1,791 1,796
Consulting fees 14,651 2,161
Other 26,692 18,606
--------- ---------
236,801 184,877
--------- ---------
INCOME BEFORE INCOME TAXES (3,344) 6,268

Income taxes:
Current -0- -0-
Deferred 2,600 2,600
--------- ---------
2,600 2,600
--------- ---------
NET (LOSS) INCOME (5,944) 3,668
========= =========

Earnings per share: $ 0.00 $ 0.00
========= =========

See notes to financial statements.

STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

NORTH CAROLINA RAILROAD COMPANY

Additional
Common Paid-In Retained Earnings Shareholder's
Shares Capital Restricted Unrestricted Equity
----------- ---------- ----------- ----------- -----------

Balance at January 1, 1994 $ 2,141,735 $ 3,588,455 $ 509,778 $ 2,102,207 $ 8,342,175

Net income (loss) 4,041 (373) 3,668
----------- ----------- ----------- ----------- -----------
Balance at March 31, 1994 $ 2,141,735 $ 3,588,455 $ 513,819 $ 2,101,834 $ 8,345,843
=========== =========== =========== =========== ===========

Balance at January 1, 1995 $ 2,141,735 $ 3,588,455 $ -0- $ 2,590,626 $ 8,320,816

Net (loss) -0- (5,944) (5,944)
----------- ----------- ----------- ----------- -----------
Balance at March 31, 1995 $ 2,141,735 $ 3,588,455 $ -0- $ 2,584,682 $ 8,314,872
=========== =========== =========== =========== ===========

See notes to financial statements.

STATEMENTS OF CASH FLOWS

NORTH CAROLINA RAILROAD COMPANY

Three Months Ended
March 31
1995 1994

OPERATING ACTIVITIES
Net (loss) income $ (5,944) $ 3,668
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes 2,600 2,600
Depreciation 1,791 1,796
Lease negotiation costs (56,256) -0-
Change in operating assets and liabilities:
Rent receivable 113,342 233,111
Interest receivable and other assets (12,359) (5,071)
Income taxes recoverable (16,130) -0-
Accrued expenses 3,366 19,145
Unearned rental income 61,000 61,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 91,410 316,249

INVESTING ACTIVITIES
Increase in restricted assets -0- (4,041)
Purchase of equipment -0- (1,487)
Purchases of short-term investments (673,000) -0-
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (673,000) (5,528)

FINANCING ACTIVITIES
Dividends paid (128,504) -0-
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (128,504) -0-

(DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (710,094) 310,721

Cash and cash equivalents at beginning of period 1,615,284 912,655
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 905,190 $ 1,223,376
=========== ===========

See notes to financial statements.

NOTES TO FINANCIAL STATEMENTS (Unaudited)

NORTH CAROLINA RAILROAD COMPANY

March 31, 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 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 the 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.

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. 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. However, a rehabilitation
project of $200,000 was amortized over a five-year period during the 1940's.

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 lease, pays all 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
due to mature within 90 days of the balance sheet date.

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.

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.

NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

NORTH CAROLINA RAILROAD COMPANY

NOTE B--LEASES ON ROADWAY AND LAND

The Company leases it roadway and land under two leases to Norfolk
Southern Railway and one lease to AECR.

The first lease to Norfolk Southern Railway (the "1895 Lease") expired
on January 1, 1995, and provided for an annual lease rental of $286,000. Under
the terms of the 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 an original lease dated August 30, 1939 between
Atlantic and North Carolina Railroad Company and AECR. The original 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 it 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. The Company and Norfolk
Southern Railway have conducted intensive negotiations over the terms of a
definitive agreement to extend the 1895 and 1939 Leases. Thus far, the
negotiations have not successfully produced a definitive agreement satisfactory
to the Company and Norfolk Southern Railway, but negotiations are continuing.

The second lease to Norfolk Southern Railway expires on December 31,
2067, and provides for an annual lease rental of $81,319 through December 31,
2017. Beginning January 1, 2018, 6% of the appraised value of the property will
be the annual lease for the remainder of the lease. Under the terms of the
lease, all taxes connected with the property, except income taxes, are paid by
the lessee.

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.

NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

NORTH CAROLINA RAILROAD COMPANY

NOTE C--COMMITMENTS AND CONTINGENCIES (continued)

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 aggregate retention.

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. In September, 1994, Norfolk Southern Railway
petitioned the United States Supreme Court for review. The United States Supreme
Court has not yet ruled on the petition.

Item 2. The Registrant's Discussion and Analysis of Financial
Condition and Results of Operations

There was little change in the liquidity, capital resources, or
financial position of the Registrant for the three month period ended March 31,
1995 as compared with the year ended December 31, 1994 or the three month period
ended March 31, 1994.

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 liquidity,
capital resources, or asset position from the end of the fiscal year 1994 to
March 31, 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. The Registrant is negotiating for extension of the leases. (See Note B
to the financial statements and Item 5, Other Information below.) 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 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
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 seeks qualification 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.

During the first quarter of 1995, $91,410 of net cash was provided by
operating activities and was related primarily to a decrease in rent receivable
of $113,342 and an increase in unearned rental income of $61,000 which was
offset by capitalized lease negotiation costs of $56,256.

Investing activities resulted in a net use of cash of $673,000 from
purchases of short-term investments.

Financing activities resulted in a net use of cash of $128,504 from
dividends paid.

Results of Operations

Total revenues increased from $191,145 for the first quarter of 1994 as
compared to $233,457 for the first quarter of 1995.

Revenues from leases of roadway and land increased from $160,703 for
the three month period ended March 31, 1994 to $168,569 for the same period
ended March 31, 1995. The slight increase in revenues from leases of roadway and
land were attributable to 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 adjustment 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 $18,575 for the three month period ended
March 31, 1994 to $31,504 for the same period ended March 31, 1995. The increase
in interest income is attributable to increases in yields on invested cash.

Other income increased from $10,787 for the three month period ended
March 31, 1994 to $30,234 for the same period ended March 31, 1995. The
Registrant's other income is derived primarily from proceeds of condemnations of
the Registrant's properties.

Salary and administrative expenses remained relatively constant at
$61,477 for the first quarter of 1994 as compared to $61,106 for the first
quarter of 1995.

Professional fees increased from $89,074 for the first
quarter of 1994 to $116,229 for the first quarter of 1995. The

increase in professional fees is attributable to increases in fees and expenses
associated with the Registrant's renegotiation of its leases with Norfolk
Southern Railway, 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 increased from $11,763 for the first quarter of
1994 to $16,332 for the first quarter of 1995. The Registrant expects to incur
higher property tax expense in future periods if any properties are excluded
from a lease extension agreement and separately managed by the Registrant.

Consulting fees increased from $2,161 for the first quarter of 1994 to
$14,651 for the first quarter of 1995. The increase in consulting fees is
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 from $18,606 for the first quarter of 1994 to
$26,692 for the first quarter of 1995. The increase in other expenses is
primarily attributable to an increase in office furniture and supplies expenses.

Current income taxes were constant at $-0- for the first quarter of
1994 and the first quarter of 1995. Deferred income taxes also remained constant
at $2,600. 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 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.

Inflation affects the Registrant primarily through increased salary,
administrative, property tax, and insurance expenses. The Registrant's primary
sources of revenue are increased 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 Registrant
is also seeking inflation protection provisions in connection with its
negotiations for a lease extension agreement.

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

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.
In February 1991, the Registrant received notice from DEHNR that the site had
been included in the North Carolina 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 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.
In September, 1994, Norfolk Southern Railway petitioned the United States
Supreme Court for review. The United States Supreme Court has not yet ruled on
the petition.

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. The complaints
name the directors of the Registrant as defendants and the Registrant as
"nominal defendant". Two of the actions, Kahn v. North Carolina Railroad Co., et
al. ("Kahn"), Civil Action No. 5:94-CV-936-F(2) and Norberg v. North Carolina
Railroad Co., et al. ("Norberg"), Civil Action No. 5-95-CV-96-F(2) seek to
enjoin a purported lease between the Registrant and Norfolk Southern Railway and
to recover for the Registrant unspecified damages and other relief from the
directors. Two other actions, Werner, et al. v. North Carolina Railroad Co., et
al. ("Werner"), Civil Action No. 5:94- CV-943-F(1) and Taran v. North Carolina
Railroad Co., et al. ("Taran"), Civil Action No. 5:95-CV-17-F(1), seek similar
relief and also name the State of North Carolina, the Governor of North
Carolina, and Norfolk Southern Railway as defendants. On March 30, 1995, the
court consolidated the actions into one proceeding.

The Kahn and Norberg actions allege misconduct by the directors of the
Registrant, including breach of fiduciary duty, mismanagement, and waste of
corporate assets. The Werner and Taran actions assert similar claims, allege
collusion between the State of North Carolina and Norfolk Southern Railway
producing a below-market lease rental rate, and assert that the State of North
Carolina has condemned the Registrant's properties for public uses for the
benefit of the State. 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 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 have executed such undertaking and 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.

The Registrant also notified its general liability insurance carrier of
claims as a result of the shareholder actions, which claims were denied.

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 9, 1995 /s/ John F. McNair III
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John F. McNair III
President

DATE: November 9, 1995 /s/ Lynn T. McConnell
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Lynn T. McConnell, Treasurer and
Principal Financial Officer