CASH COLLATERAL AGREEMENT

     CASH COLLATERAL AGREEMENT, dated as of January 31, 1996, among
Delaware Otsego Corporation ("DOC"), CSX Transportation, Inc. ("CSX"),
and Charles Brenner ("Brenner", and collectively, with DOC and CSX,
the "Pledgors") and CREDITANSTALT CORPORATE FINANCE, INC. ("CCF"), as
agent for the lenders (the "Lenders") parties to that certain Credit
Agreement, dated as of January 31, 1996 (as amended, modified and
supplemented from time to time, the "Credit Agreement") among The
Toledo, Peoria and Western Railroad Corporation ("Newco"), Toledo,
Peoria & Western Railway Corporation ("TPW Railway" and together with
Newco, the "Borrowers") named therein and CCF, as agent for the
Lenders (in such capacity, the "Agent"). 

     WHEREAS, pursuant to the Credit Agreement, the Borrowers have
executed as part of the Loan Documents a Revolving Credit Note in the
principal sum of $1,000,000.00 and a Term Note in the principal sum
of $7,000,000.00, in favor of the Lenders; and

     WHEREAS, in order to secure the Borrowers' due and punctual
payment of principal of and interest on the Term Loans and the Term
Notes and all other present and future, fixed or contingent, monetary
obligations of the Borrowers to the Lenders and the Agent under the
Loan Documents relative to the Term Loans and the Term Notes
(including those payable under Section 9.05 of the Credit Agreement)
(collectively, the "Obligations"), and in order to induce the Lenders
to make the Loans under the Credit Agreement, the Pledgors have
determined to pledge and hypothecate one million dollars
($1,000,000.00) as set forth herein; and

     NOW, THEREFORE, the parties hereto agree as follows:

     Section 1.  Definitions.  All capitalized terms herein not
otherwise defined herein shall have the respective meanings assigned
to such terms in the Credit Agreement.

     Section 2.  Cash Collateral.

               (a)  The Agent will cause Creditanstalt-Bankverein, as
          its agent, to establish and maintain on its books at an
          office in New York City a cash collateral account entitled
          "TPW Cash Collateral Account" (the "Cash Collateral
          Account") which shall be subject to debit and withdrawal
          solely by the Agent as provided herein.

               (b)  Pledgors are, on the date hereof, depositing One
          Million Dollars ($1,000,000.00) with the Agent for credit
          to the Cash Collateral Account.

               (c)  The funds in the Cash Collateral Account shall be
          deposited, in the first instance, in an interest-bearing
          account at the full branch of Creditanstalt-Bankverein. 

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          After the Closing Date, the Pledgors may, once per year,
          direct the Agent to invest the funds in (i) short-term
          United States government obligations with a maturity not to
          exceed six months or (ii) a deposit account at the full
          branch of Creditanstalt-Bankverein provided, that DOC shall
          give written notice on or before the date which is two
          Business Days prior to the maturity of any investment as to
          the investment for the next two six-month periods. 
          Whenever any investment hereunder shall become due, or
          otherwise would become due, on a day that is not a Business
          Day, such investment shall be deemed to mature on the next
          Business Day.  Failure by DOC to specify a different
          investment at the end of the second six-month period shall
          constitute authority for the Agent to continue the
          investment so maturing.  All income earned on the balance
          in the Cash Collateral Account shall be paid to DOC semi-
          annually for distribution to the Pledgors so long as no
          Default under Article VII(b) and (c) of the Credit
          Agreement has occurred. 

               (d)  As collateral security for the prompt payment and
          performance of the Obligations, the Pledgors hereby pledge
          and grant a security interest in the Cash Collateral
          Account, all balances therein, all earnings thereon, and
          all proceeds thereof, to the Agent for the benefit of the
          Lenders.

               (e)  The Agent shall apply amounts in the Cash
          Collateral Account in accordance with Section 3 of this
          Agreement.

     Section 3.  Default.  If any Event of Default under Article
VII(b) or (c) of the Credit Agreement shall have occurred and be
continuing, the Agent shall have all the rights and remedies of a
secured party under the New York Uniform Commercial Code, or other
applicable law, and all rights and remedies provided herein and in the
Credit Agreement and the other Loan Documents, all of which rights and
remedies shall, to the full extent permitted by law, be cumulative. 
Without limiting the generality of the foregoing, upon the occurrence
of an Event of Default under Article VII(b) or (c) of the Credit
Agreement and the acceleration of or demand for payment of the
Obligations, the Agent may apply any cash then held by the Agent
hereunder to:

               (a)  First, the payment of the costs and expenses,
          liabilities and advances made or incurred by the Agent in
          connection with its duties hereunder;        

               (b)  Second, the payment of the Obligations, pro rata
          among the Lenders, in accordance with the provisions of the
          Loan Documents; and

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               (c)  Third, to the Pledgors, or their successors or
          assigns, or as a court of competent jurisdiction may
          direct, of any surplus then remaining from such proceeds.

     Section 4.  No Waiver.  No failure on the part of the Agent to
exercise, and no delay in exercising, any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise by the Agent of any right, power or remedy hereunder
preclude any other or further exercise thereof or the exercise of any
other right, power or remedy.  The remedies herein provided are
cumulative and are exclusive of any remedies provided by law.

     Section 5.  Duration.  The Cash Collateral Account and this
Agreement shall remain in full force and effect until the earlier to
occur of:  (i) the indefeasible payment in full of the Term Loans and
all other monetary obligations in respect thereof and (ii) the first
fiscal year on or after December 31, 1998 in which the Borrower's
EBITDA as reported on their audited consolidated statements of income
is $4,000,000 or greater.  Upon the occurrence of either of the
foregoing events, any balance remaining in the Cash Collateral Account
shall be paid to the Pledgors and this Agreement shall thereupon
terminate.

     Section 6.  Counterparts.  This Agreement may be executed in two
or more counterparts, each of which shall constitute an original but
all of which taken together shall constitute but one instrument.

     Section 7.  Governing Law.  This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.

     Section 8.  Successors and Assigns.  This Agreement shall be
binding upon and inure to the benefit of the Pledgors and the Agent
and their respective successors and assigns; provided, that the
Pledgors may not assign their rights or obligations hereunder without
the prior written consent of the Agent, except that Brenner may assign
his rights hereunder to DOC.

     Section 9.  Appointment.  The Pledgors hereby appoint the Agent
the attorney-in-fact of the Pledgors, with full power of substitution,
for the purposes of carrying out the provisions and intentions of this
Agreement and taking any action and executing any instrument which the
Agent may deem necessary or desirable to accomplish the purposes
hereof, which appointment as attorney-in-fact is irrevocable and
coupled with an interest; and the Pledgors also agree that, from time
to time upon the written request of the Agent, it will take such
action and execute any such instruments as the Agent may request in
order fully to carry out the provisions and intentions of this
Agreement.

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.


Date: January 31, 1996


                          DELAWARE OTSEGO CORPORATION
                          WALTER G. RICH
                          -------------------------------------
                          Walter G. Rich
                          President and Chief Executive Officer




                          CSX TRANSPORTATION, INC.
                          A. B. AFTOORA
                          -------------------------------------
                          A. B. Aftoora
                          Vice President




                          CHARLES BRENNER
                          -------------------------------------
                          Charles Brenner



                              
                          CREDITANSTALT CORPORATE FINANCE, INC., as Agent
                          DIETER BOEHME
                          -------------------------------------
                          Dieter Boehme
                          Senior Vice President

                          CHRISTINA T. SCHOEN
                          -------------------------------------
                          Christina T. Schoen
                          Vice President



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