DEFICIENCY GUARANTEE


          DEFICIENCY GUARANTEE, dated as of January 31, 1996 (the
"Guarantee") made by Delaware Otsego Corporation, a New York
corporation ("DOC"), CSX Transportation, Inc., a Virginia
corporation ("CSX"), Charles Brenner ("Brenner"; and together with
DOC and CSX, the "Guarantors"), in favor of Creditanstalt Corporate
Finance, Inc. ("CCF"), as agent (the "Agent") for certain Lenders
(as hereinafter defined).  Capitalized terms not otherwise defined
herein shall have the meanings assigned to such terms in the Credit
Agreement (as hereinafter defined).

          WHEREAS, The Toledo, Peoria and Western Railroad
Corporation ("Newco") and Toledo, Peoria & Western Railway
Corporation ("TPW", and together with Newco, the "Borrowers"), the
Agent and certain lenders (including CCF, the "Lenders") have
entered into a Credit Agreement dated as of the date hereof (as
amended, modified and supplemented from time to time, the "Credit
Agreement");

          WHEREAS, the Guarantors have substantial economic and
voting interests in Newco;

          WHEREAS, it is a condition to the effectiveness of the
Credit Agreement and to all extensions of credit thereunder that
the Guarantors shall have executed and delivered to the Agent this
Guarantee;

          NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged by the Guarantors, and, in order to
induce the Lenders to extend credit under the Credit Agreement,
each of the Guarantors agrees with the Agent as follows:

          SECTION 1.     Guarantee.  (a) Each of the Guarantors
hereby unconditionally severally guarantees the punctual payment
when due, whether at stated maturity, by acceleration or otherwise,
of all obligations of every kind or character now or hereafter
existing whether matured or unmatured, contingent or liquidated, of
the Borrowers under the Credit Agreement and the other Loan
Documents, whether for principal, interest, indemnities, fees,
expenses or otherwise (all such obligations being collectively
referred to as the "Obligations"), and any and all reasonable
expenses (including reasonable counsel fees and expenses) incurred
by the Agent or the Lenders in enforcing any rights under this
Guarantee; provided, that the maximum aggregate amount payable by
each Guarantor under this Section 1 shall not exceed such
Guarantor's Percentage (as hereinafter defined) of the Maximum
Amount (as hereinafter defined); and provided further that no

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demand for payment or performance hereunder may be made prior to
the Determination Date (as hereinafter defined).

          (b)  As used herein, the following terms shall have the
following meanings:

          "Collateral" shall have the meaning given such term in
the Security Agreement.

          "Determination Date" shall mean the date as of which (i)
the Loans shall be due and payable, whether at stated maturity, by
acceleration or otherwise, (ii) the Obligations shall not have been
paid in full and (iii) Total Collateral Security in an amount equal
to 75% of the stated value set forth on Schedule I for such Total
Collateral Security shall have been sold. 

          "Guarantor's Percentage" shall mean, as to any Guarantor,
the percentage provided on Schedule II annexed hereto.

          "Maximum Amount" shall mean up to $2,000,000 of any
shortfall between Realized Liquidation Receipts and the remaining
unpaid Obligations. 

          "Mortgaged Property" shall have the meaning given such
term in the Mortgages.

          "Pledged Stock" shall have the meaning given such term in
the Pledge Agreements, dated as of the date hereof, between the
Agent and each of Newco and Marksman, and the Pledge and
Hypothecation Agreement, dated as of the date hereof, among DOC,
CSX, Brenner and the Agent, as the same may be amended, modified
and supplemented from time to time.

          "Realized Liquidation Receipts" shall mean the proceeds
of any Total Collateral Security net of collection costs which is
Sold.

          "Sold" shall mean, with respect to the Total Collateral
Security, any of such assets or stock which is sold by public or
private sale, through foreclosure (including without limitation if
the Agent bids in an amount at such foreclosure) or barter or as
otherwise provided under the Uniform Commercial Code or other
applicable law; provided, that any item of Collateral or Mortgaged
Property shall be deemed to have been Sold if such item is
abandoned by the Borrowers, if it cannot be sold and is of
negligible value (for purposes of this Guarantee, assets valued at
less than $1,000 shall be presumed to be of negligible value), or
if it is not available for sale because it has previously been
disposed of by the Borrowers and provided further that accounts
receivable which are outstanding for 90 days or more after payment

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<PAGE>
is due shall be deemed to have been Sold, and provided further that
if there are no bids at any public sale or foreclosure sale, the
items of Total Collateral Security to have been sold at such sales
shall be deemed to be Sold for purposes of calculating, under
clause (iii) of the definition of Determination Date, whether the
Determination Date has occurred, but shall not be deemed to be Sold
for purposes of calculating the shortfall of the Maximum Amount.

          "Total Collateral Security" shall mean the Collateral,
the Mortgaged Property, the Pledged Stock, and such other
collateral security as shall have been granted pursuant to the
Security Documents.

          SECTION 2.     Type of Guarantee.  The Guarantors and the
Agent hereby agree that the Guarantee herein provided is a
guarantee of collection.  

          SECTION 3.     Guarantee Absolute.  Subject to the
provisions of Section 1 hereof, the Guarantors severally guarantee
that the Obligations will be paid strictly in accordance with the
terms of the Credit Agreement, regardless of any law, regulation or
order now or hereafter in effect in any jurisdiction affecting any
of such terms or the rights of the Agent and the Lenders with
respect thereto and is not subject to any setoff, counterclaim or
defense.  The obligations of each of the Guarantors hereunder are
independent of the obligations of other persons under any other
related document, and a separate action or actions may be brought
and prosecuted hereunder whether the action is brought against any
such person or whether any such person is joined in any such action
or actions, except that the obligations of each of the Guarantors
is subject to the Agent's prior resort to the Borrowers and the
Total Collateral Security as set forth in Section 1 hereof. 
Subject to the provisions of Section 1 hereof, the liability of the
Guarantors under this Guarantee shall be absolute and
unconditional, and shall not be affected or released in any way,
irrespective of:

          (i)  any lack of validity or enforceability of the Credit
     Agreement, the Security Documents or any other agreement or
     instrument relating thereto;

         (ii)  any change in the time, manner or place of payment
     of, or in any other term of, all or any of the Obligations, or
     any other amendment or waiver of or any consent to departure
     from the Credit Agreement or the Security Documents, includ-
     
     ing, but not limited to, an increase or decrease in the
     Obligations;

        (iii)  any taking and holding of Collateral or any other
     collateral or additional guaranties for all or any of the
     Obligations, or any amendment, alteration, exchange, substitu-
     tion, transfer, enforcement, waiver, subordination, termina-

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<PAGE>
     tion, or release of any Collateral or any other collateral or
     such guaranties, or any non-perfection of any Collateral or
     any other collateral or any consent to departure from any such
     guaranty;

         (iv)  any manner of application of Collateral or any other
     collateral, or proceeds thereof, to all or any of the Obliga-
     tions, or the manner of sale of any Collateral or any other
     collateral;

          (v)  any consent by the Agent and the Lenders to the
     change, restructuring or termination of the corporate
     structure or existence of the Borrowers or any affiliate
     thereof and any corresponding restructuring of the
     Obligations, or any other restructuring or refinancing of the
     Obligations or any portion thereof;

         (vi)  any modification, compromise, settlement or release
     by the Agent and the Lenders, by operation of law or
     otherwise, collection or other liquidation of the Obligations
     or the liability of the Borrowers and any other guarantor, or
     of the Total Collateral Security, in whole or in part, and any
     refusal of payment by the Agent and the Lenders, in whole or
     in part, from any obligor or guarantor in connection with any
     of the Obligations, whether or not with notice to, or further
     assent by, or any reservation of rights against, the
     Guarantors; 

        (vii)  the waiver of the performance or observance by the
     Borrowers of any agreement, covenant, term or condition to be
     performed by it;

       (viii)  the voluntary or involuntary liquidation,
     dissolution, sale of all or substantially all of the property,
     marshalling of assets and liabilities, receivership,
     insolvency, bankruptcy, assignment for the benefit of credi-
     
     tors, reorganization, arrangement, composition or readjustment
     of, or other similar application or proceeding affecting
     either or both of the Borrowers or any of their assets; 

         (ix)  the release of the Borrowers from the performance or
     observance of any agreements, covenants, terms or conditions
     contained in the Credit Agreement or the Security Documents by
     operation of law or otherwise; or

          (x)  any other circumstance (including, but not limited
     to, any statute of limitations) which might otherwise consti-
     tute a defense available to, or a discharge of, the
     Obligations.


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<PAGE>
          Without limiting the generality of the foregoing, subject
to the provisions of Section 1 hereof, each of the Guarantors
hereby consents, and hereby agrees, that the rights of the Agent
for the benefit of the Lenders hereunder, and the liability of such
Guarantor hereunder, shall not be affected by any and all releases
of any of the Total Collateral Security from the liens and security
interests created by the Credit Agreement, the Security Documents
or any other document.  This Guarantee shall continue to be
effective or be reinstated, as the case may be, if at any time any
payment of any of the Obligations is rescinded or must otherwise be
returned by the Lenders upon the insolvency, bankruptcy or
reorganization of the Borrowers or otherwise, all as though such
payment had not been made.

          SECTION 4.     Waivers.  Each of the Guarantors waives
presentment to, demand for payment from and protest to the
Borrowers, or any other guarantor of any of the Obligations, and
also waives notice of acceptance of its guarantee and notice of
protest for non-payment.  The Guarantors hereby further waive
promptness, diligence, notice of acceptance and any other notice
with respect to any of the Obligations and this Guarantee and any
requirement that the Agent or the Lenders protect, secure, perfect
or insure any security interest or lien or any property subject
thereto or exhaust any right or take any action against the
Borrowers, or any other person or any of the Total Collateral
Security.  

          SECTION 5.     Covenants.  (a) Each of DOC and CSX,
respectively, hereby agrees that it shall furnish to the Agent: 

          (a)  within 90 days after the end of each fiscal year, a
copy of the report on Form 10-K (or its equivalent) for such fiscal
year which DOC and CSX Corporation shall have filed with the
Securities and Exchange Commission;

          (b)  within 45 days after the end of each of the first
three fiscal quarters of each fiscal year, a copy of the report on
Form 10-Q (or its equivalent) for such fiscal year which DOC and
CSX Corporation shall have filed with the Securities and Exchange
Commission; and

          (c)  promptly upon the distribution thereof, a copy of
the annual report for such year for DOC and CSX Corporation.

     (b)  Brenner hereby agrees that, so long as he is a party to
this Agreement, he will deliver to the Agent annually one of the
following: (i) a statement of net worth, (ii) his tax return for
such year or (iii) another form of information reasonably
satisfactory to the Agent as to Brenner's financial position.


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<PAGE>
          SECTION 6.     Representations.    Each of DOC and CSX
hereby represent and warrant that (a) it is a corporation duly
organized, validly existing and in good standing under the laws of
its jurisdiction of its organization, (b) has all requisite power
and authority to own its property and assets and to carry on its
business as now conducted and as proposed to be conducted, (c) is
qualified to do business in every jurisdiction where such
qualification is required, except where the failure so to qualify
would not result in a material adverse effect, and (d) has the
corporate power and authority to execute, deliver and perform its
obligations under this Guarantee.

          SECTION 7.     Subrogation.  Upon payment by each
Guarantor of any sums to the Agent for the benefit of the Lenders
hereunder, all rights of such Guarantor against the Borrowers
arising as a result thereof by way of right of subrogation or
otherwise, shall in all respects be subordinate and junior in right
of payment to the prior final and indefeasible payment in full of
all the Obligations.  If any amount shall be paid to or property
transferred to any Guarantor for the account of the Borrowers,
which payment arises as a result of such Guarantor's payment of its
obligations hereunder, such amount or property shall be held in
trust for the benefit of the Agent and shall forthwith be paid or
transferred to the Agent for the benefit of the Lenders to be
credited and applied to the Obligations, whether matured or
unmatured.

          SECTION 8.     Execution of Loan Documentation.  The
Guarantors consent to and authorize the due execution and delivery
by the necessary parties of each of the Credit Agreement, the
Security Documents and any and all other related documentation
executed in connection with the foregoing.

          SECTION 9.     Amendments, Etc.  No amendment or waiver
of any provision of this Guarantee nor consent to any departure by
the Guarantors herefrom shall in any event be effective unless the
same shall be in writing and signed by the Agent and then such
waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given, provided, however,
that no amendment, waiver or consent shall, unless in writing and
signed by the Agent and each of the Guarantors, (a) further limit
the liability of the Guarantors hereunder, (b) postpone any date
fixed for payment hereunder, or (c) amend this Section 8, and
provided, further, that no amendment, waiver or consent shall,
unless in writing and signed by the Agent, affect the rights or
duties of the Agent, under or in connection with this Guarantee.

          SECTION 10.    Notices, Etc.  All notices and other
communications provided for hereunder shall be in writing and shall
be given in the manner set forth in Section 9.01 of the Credit
Agreement and with copies specified therein, if to a Guarantor,
addressed to it at the address set forth on its signature page
hereof, and if to the Agent, to it at its address specified in the
Credit Agreement.

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<PAGE>
          SECTION 11.    No Waiver, Remedies.  No failure on the
part of the Agent to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder preclude any
other or further exercise thereof or the exercise of any other
right.  The remedies herein provided are cumulative and not
exclusive of any remedies provided by law, the Credit Agreement or
the Security Documents.

          SECTION 12.    Continuing Guarantee; Transfer of Note;
Release of Guarantee.  This Guarantee is a continuing guaranty and
shall (i) remain in full force and effect until the payment in full
of all of the Obligations and all other amounts payable under this
Guarantee, (ii) be binding upon the Guarantors, their successors
and assigns, and (iii) inure to the benefit of and be enforceable
by the Agent and its respective successors, transferees and
assigns.  Without limiting the generality of the foregoing clause
(iii), the Agent may assign or otherwise transfer any instrument of
indebtedness of the Borrowers held by it, or any interest therein,
or grant any participation in its rights or obligations under the
Credit Agreement and the Security Documents subject to the
provisions of the Credit Agreement and the Security Documents to
any other person, and such other person shall thereupon become
vested with all the rights in respect thereof granted to the Agent.

          SECTION 13.    Jurisdiction; Waiver of Jury Trial.  (a)
EACH OF THE GUARANTORS HEREBY IRREVOCABLY SUBMITS ITSELF TO THE
JURISDICTION OF BOTH THE SUPREME COURT OF THE STATE OF NEW YORK,
NEW YORK COUNTY, AND THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK, FOR THE PURPOSE OF ANY SUIT, ACTION
OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS Guarantee,
AND HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A
DEFENSE OR OTHERWISE, IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF THE ABOVE-
NAMED COURTS FOR ANY REASON WHATSOEVER, THAT SUCH SUIT, ACTION OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THIS
GUARANTEE MAY NOT BE ENFORCED IN OR BY SUCH COURTS.  NONE OF THE
GUARANTORS OR THE AGENT SHALL SEEK A JURY TRIAL IN ANY PROCEEDING
ARISING OUT OF THIS GUARANTEE.  NONE OF THE GUARANTORS OR THE AGENT
WILL SEEK TO CONSOLIDATE SUCH PROCEEDING INTO ANY ACTION IN WHICH A
JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.  EACH OF THE
GUARANTORS AGREES THAT ANY ACTION BROUGHT BY IT AGAINST THE AGENT
ARISING OUT OF OR RELATED TO THIS GUARANTEE SHALL ONLY BE BROUGHT
IN ONE OF THE AFOREMENTIONED COURTS.

          SECTION 14.    Applicable Law.  THIS GUARANTEE SHALL IN
ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO
BE PERFORMED WHOLLY WITHIN SUCH STATE.


                                  - 157 -
<PAGE>
          SECTION 15.    Expenses of the Agent.  Subject to the
limitation set forth in Section 1 hereof, the Guarantors agree to
pay all reasonable and necessary out-of-pocket expenses incurred by
the Agent in connection with the enforcement or protection of its
rights or the rights of the Agent generally in connection with the
Guarantee including, but not limited to, the reasonable fees and
disbursements of counsel for the Agent.

          SECTION 16.    Cause of Action.  Each of the under-signed
hereby agrees and acknowledges that this Guarantee is an instrument
for the payment of money, and hereby consents that the Agent, at
its sole option, in the event of a default by the Guarantor in the
payment of any of the moneys due hereunder, shall have the right to
bring a motion for summary judgment in lieu of complaint under New
York CPLR Section 3213.


                                   - 158 -
<PAGE>
          IN WITNESS WHEREOF, each of the Guarantors has caused
this Guarantee to be duly executed and delivered by its officer
thereunto duly authorized as of the date first above written.
          


Date: January 31, 1996


                              DELAWARE OTSEGO CORPORATION
                              WALTER G. RICH
                              ---------------------------
                              Walter G. Rich
                              President
                              1 Railroad Ave.
                              Cooperstown, NY  13326



                              CSX TRANSPORTATION, INC.
                              A. B. AFTOORA
                              ---------------------------
                              A. B. Aftoora
                              Vice President
                              500 Water Street
                              Jacksonville, Fl  32202


                              CHARLES BRENNER
                              ---------------------------
                              Charles Brenner
                              P.O. Box 10
                              Maplewood, NJ  07040


                                   - 159 -
<PAGE>                              
  
                                Schedule I
                                ----------

Assets                                       Stated Value

Locomotives, other                           $1,200,000
  rolling stock, vehicles
  and equipment

Real property and                            $16,600,000
  all improvements



                                   - 160 -
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                                Schedule II
                                -----------

Guarantors                                        Percentages

DOC                                                    40%
CSX                                                    20%
Charles Brenner                                        33%



                                   - 161 -