1996 STOCK OPTION PLAN FOR PIONEER RAILCORP

              This Stock Option Plan is made as of June 26, 1996 by
                               Pioneer Railcorp.

                                    Recitals

A.   The  Company  desires to  attract,  retain and  motivate  employees  of the
     Company whose efforts  contribute to the success of the Company.  This Plan
     is  intended to reward such  employees  by  providing  the  opportunity  to
     acquire or  increase  the  proprietary  interest of such  employees  in the
     Company.

B.   This Plan has been approved by the  shareholders  of the Company and by the
     Board.

C.   The options  granted under this Plan to employees  (other than the CEO) are
     intended to be "incentive stock options" within the meaning of Code Section
     422 (the Plan also includes non-employee  directors,  whose options may not
     qualify as "incentive stock  options").  Options granted to the CEO are not
     intended to be "incentive stock options."

                                   Agreements

Now therefore it is agreed as follows:

                             Article I - Definitions

As used herein,  the  following  terms have the meanings  hereinafter  set forth
unless the context clearly indicates to the contrary:

(a)  "Board" shall mean the Board of Directors of the Company.

(b)  "Company" shall mean Pioneer Railcorp.

(c)  "Fair  Market  Value"  shall mean the lower of the closing bid price on the
     NASDAQ,  or the closing price on the Chicago  Stock  Exchange on the day an
     Option is granted  hereunder  or, in the absence of any  reported  sales on
     such day, the first preceding day on which there were such sales.  The Fair
     Market  Value of the Stock on June 26, 1996 is $2.75 per share which is the
     closing bid price on NASDAQ.

(d)  "Option"  shall mean an option to purchase  Stock  granted  pursuant to the
     provisions of Article V hereof.

(e)  "Optionee"  shall  mean an  employee  to whom an  Option  has been  granted
     hereunder (or, where applicable,  to a non-employee  "outside"  director to
     whom an Option has been granted hereunder).

(f)  "Plan"  shall mean the 1996 Stock  Option  Plan for Pioneer  Railcorp,  the
     terms of which are set forth herein.

(g)  "Stock" shall mean the Class A Common Stock of the Company, or in the event
     that  the  outstanding  shares  of  Stock  are  hereafter  changed  into or
     exchanged  for shares of a different  stock or securities of the Company or
     some other corporation, such other stock or securities.

(h)  "Stock Option  Agreement" shall mean the agreement  between the Company and
     the Optionee under which the Optionee may purchase Stock hereunder.

(i)  "Ten Percent  Shareholder"  shall mean an individual  who owns stock of the
     Company  possessing more than 10 percent of the total combined voting power
     of all classes of stock of the Company  within the meaning of Code  Section
     422 (b)(6).

(j)  "CEO" shall mean the Chief  Executive  Officer  designated  by the Board of
     Directors, currently Guy L. Brenkman.
<PAGE>



                            Article II- Participants

Any  employee (or outside  director)  of the Company or of a  subsidiary  of the
Company  shall be  eligible  to  participate  in the  Plan.  The Board may grant
Options to any eligible  person in accordance  with such  determinations  as the
Board  from  time to time in its sole  discretion  shall  make.  Options  may be
granted to eligible persons in the following groups:

     Group                          Maximum Option Shares

     CEO                                   80,000

     Executive Group                       80,000

     Non-Executive Director Group          25,000

     Employee Group                       222,000

                           Article III- Administration

3.1  Duties  and  powers of the Board.  The Plan  shall be  administered  by the
     Board.  Subject to the express provisions of the Plan, the Board shall have
     sole  discretion  and authority to determine  from among  eligible  persons
     those to whom and the time or times at which Options may be granted and the
     number of shares of Stock to be  subject  to each  Option.  Subject  to the
     express  provisions  of the  Plan,  the  Board  shall  also  have  complete
     authority to interpret the Plan, to prescribe, amend, and rescind rules and
     regulations relating to it, to determine the details and provisions of each
     Stock Option  Agreement and to make all other  determinations  necessary or
     advisable in the administration of the Plan.

3.2  Company assistance. The Company shall supply full and timely information to
     the Board on all matters relating to eligible employees,  their employment,
     death, retirement,  disability or other termination of employment, and such
     other pertinent  facts as the Board may require.  The Company shall furnish
     the Board with such  clerical and other  assistance  as is necessary in the
     performance of its duties.

                  Article IV - Shares of Stock Subject to Plan

4.1  Limitations.  The  number of shares of Stock  which may be issued  and sold
     hereunder  shall not  exceed  407,000  shares.  Such  shares  may be either
     authorized and unissued shares or shares issued and thereafter  acquired by
     the Company.

4.2  Options  and awards  granted  under Plan.  Shares of stock with  respect to
     which an Option  granted  hereunder  shall have been  exercised,  shall not
     again be available for Option hereunder.

4.3  Reorganization. In the event that the outstanding shares of Stock hereafter
     are changed into or exchanged  for a different  number or kind of shares or
     other  securities  of the  Company or of another  corporation  by reason of
     merger,    consolidation,    other    reorganization,     recapitalization,
     reclassification, combination of shares, stock split-up, or stock dividend:

     (a)  The aggregate  number and kind of shares  subject to Options which may
          be granted hereunder shall be adjusted appropriately; and

     (b)  Rights under  outstanding  Options granted  hereunder,  both as to the
          number of  subject  shares  and the Option  price,  shall be  adjusted
          appropriately.

     The foregoing  adjustments  and the manner of  application of the foregoing
     provisions shall be determined solely by the Board, and any such adjustment
     may provide for the elimination of fractional share interests.


<PAGE>


                               Article V - Options

5.1  Option  grant  and  agreement.  Each  Option  granted  hereunder  shall  be
     evidenced  by minutes of a meeting or the written  consent of the Board and
     by a  written  Stock  Option  Agreement  dated as of the date of grant  and
     executed by the Company and the Optionee,  which  Agreement shall set forth
     such terms and conditions as may be determined by the Board consistent with
     the Plan.

5.2  Option  price.  The per share  Option  price of the Stock  subject  to each
     Option shall be determined by the Board,  but the per share price shall not
     be less than the Fair  Market  Value of the Stock on the date the Option is
     granted.  The foregoing  notwithstanding,  if the Optionee is a Ten Percent
     Shareholder,  the Option price per share shall not be less that 110% of the
     Fair Market Value of the Stock on the date the Option is granted,  however,
     the  Options  granted to the CEO are not  intended to be  "incentive  stock
     options" and his Option price will be equal to the Fair Market Value of the
     Stock on the date of grant.

5.3  Option exercise.  (a)The Options will be fully vested and exercisable as of
     July  1,  2001.  The  vesting  and  exercise  date of the  Options  will be
     accelerated  to the 10th  consecutive  business day that the Company  stock
     trades at a price of at least $4.50  greater  than the price of the Company
     stock on the close of  business  on June 26,  1996.  Vested  Options may be
     exercised  in whole or in part  within  10  years  from the date of  grant,
     provided,  however,  that the  aggregate  Fair  Market  Value of Stock  (as
     determined  as of the date of grant) which first becomes  exercisable  with
     respect to any employee Optionee,  other than the CEO, in any calendar year
     may not exceed $100,000, regardless of the date the Option is granted.

     If the Optionee is a Ten Percent Shareholder, any Option must be exercised,
     if at all,  within five years from date of grant  (excluding the CEO, whose
     Options are not intended to be " incentive stock options).

     (b)  Options may be exercised in whole at any time, or in part from time to
          time with respect to whole shares  only,  within the period  permitted
          for the exercise thereof,  and shall be exercised by written notice of
          intent to exercise  the Option with  respect to a specified  number of
          shares  delivered to the Company at its principal  office in the State
          of Illinois,  and payment in cash to the Company at said office of the
          amount  of the  Option  price for the  number of shares of Stock  with
          respect to which the Option is the being exercised.

5.4  Nontransferability of Option. No Option shall be transferred by an Optionee
     other than by will or by the laws of descent and  distribution.  During the
     lifetime  of an  Optionee,  the  Option  shall be  exercisable  only by the
     Optionee.

5.5  Effect of death of other termination of employment. (a) Upon termination of
     an  Optionee's  employment  with the Company or  subsidiary  for any reason
     other than death, the Optionee may, for a period of six months  thereafter,
     exercise any Options which were  exercisable by the Optionee on the date of
     termination.  Any  Options  not so  exercised  shall  terminate.  (b) If an
     Optionee  dies  while in the  employ  of the  Company  or  subsidiary,  the
     Optionee's  estate shall receive a pro-rata  number of Options,  based upon
     the time the employee  worked under the plan. The amount  pro-rated will be
     20% per each year of service,  rounding up to each year (i.e.  1 year and 1
     month  service  will be equal to 2 years  vesting or 40%).  The executor or
     administrator  of the  estate of the  decedent  or the person or persons to
     whom an Option granted hereunder shall have been validly transferred by the
     executor or the  administrator  pursuant to will or the laws of descent and
     distribution shall have the right to exercise the Optionee's Options to the
     extent that it was  exercisable  by the Optionee at the date of termination
     of employment by death.

     (c)  No  transfer  of an Option by the  Optionee  by will or by the laws of
          descent and distribution shall be effective to bind the Company unless
          the Company shall have been  furnished with written notice thereof and
          an  authenticated  copy of the will and/or such other  evidence as the
          Board may deem necessary to establish the validity of the transfer and
          the  acceptance  by the  transferee  or  transferees  of the terms and
          conditions of such Option.

5.6  Rights as shareholder. Any Optionee or a transferee of an Option shall have
     no rights as a  shareholder  with  respect  to any  shares  subject to such
     Option  prior to the  purchase of such shares by exercise of such Option as
     provided herein.
<PAGE>



                         Article VI - Stock Certificates

The Company shall not be required to issue or deliver any  certificate of shares
of Stock  purchased  upon the  exercise of any Option  granted  hereunder or any
portion thereof, prior to fulfillment of all the following conditions:

(a)  The admission of such shares to listing on all stock exchanges on which the
     Stock is then listed;

(b)  The completion of any registration or other  qualifications  of such shares
     under any federal or state law or under the rulings or  regulations  of the
     Securities  and Exchange  Commission or any other  governmental  regulatory
     body,  which the  Board  shall in its sole  discretion  deem  necessary  of
     advisable;

(c)  The obtaining of any approval or other  clearance from any federal or state
     governmental agency which the Board shall in its sole discretion  determine
     to be necessary or advisable; and

(d)  The lapse of such  reasonable  period of time following the exercise of the
     Option  as the  Board  from  time to time  may  establish  for  reasons  of
     administrative convenience.

                             Article VII - Directors

This Plan shall also apply to outside directors of the Company,  even though the
grant of an  Option  to an  outside  director  will not be an  "incentive  stock
option"  under Code  Section  422.  For  Options  granted  to outside  directors
hereunder,  the  provisions  of this Plan shall apply to directors  and shall be
interpreted in a manner as though the directors were employees.

        Article VIII - Termination, Amendment, and Modifications of Plan

The  Board may at any time  terminate  and may at any time and from time to time
and in respect amend or modify, the Plan; provided, however, that no such action
of the Board without approval of the majority of the shareholders of the Company
may:

(a)  Increase the total number of shares of Stock subject to the Plan;

(b)  Change the manner of determining the Option price;

(c)  Withdraw  the  administration  of the Plan  from the  Board;  and

provided further,  that no termination,  amendment,  or modification of the Plan
shall in any manner  adversely affect any Option  theretofore  granted under the
Plan without the consent of the Optionee or permitted transferee of the Option.

                           Article IX - Miscellaneous

9.1  Employment.  Nothing in the Plan or in any Option  granted  hereunder or in
     any Stock Option Agreement  relating thereto shall confer upon any employee
     the right to continue in the employ of the Company.

9.2  Other  compensation  plans.  The  adoption of the Plan shall not affect any
     other stock option or incentive or other  compensation  plans in effect for
     the Company,  nor shall the Plan preclude the Company from establishing any
     other  forms  of  incentive  or other  compensation  for  employees  of the
     Company.

9.3  Plan binding on  successors.  The Plan shall be binding upon the successors
     and assigns of the Company.

9.4  Partial invalidity. If any term or provision of this Plan shall be declared
     invalid or  unenforceable,  all other  terms and  provisions  hereof  shall
     remain in full force and effect to the fullest extent permitted by law.

9.5  Singular, plural; gender. Whenever used herein, nouns in the singular shall
     include the plural,  and the  masculine  pronoun shall include the feminine
     gender.

9.6  Headings,  etc., no part of plan.  Headings of Articles and Section  hereof
     are inserted for convenience and reference;  they constitute no part of the
     Plan.

                           PIONEER RAILCORP



                           By: Pioneer Railcorp Board of Directors

                           Dated: June 26, 1996