Document:

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                                                                    EXHIBIT 10.5

                               SECURITY AGREEMENT

      This Security Agreement is dated as of January 19, 2005 between
_________________________, an ______________ corporation ("Debtor"), and
National City Bank of the Midwest ("Lender").

      1. Description of Collateral. Debtor hereby grants to Lender a security
interest in the following described assets and any and all additions, accessions
and substitutions thereto or therefor (collectively referred to as the
"Collateral").

            a. All equipment, machinery, furniture, furnishings, and any and all
      other tangible personal property, and all additions, accessions and
      substitutions thereto or therefor now owned or hereafter acquired by the
      Borrower (collectively referred to as "Equipment");

            b. All accounts receivable, contract rights, chattel paper,
      documents, instruments, general intangibles, as such term is defined in
      the Illinois Uniform Commercial Code (810 ILCS 5/1-101 et. seq.) as in
      effect from time to time, all accounts, as such term is defined in the
      Illinois Uniform Commercial Code as in effect from time to time, and other
      forms of obligation and other rights to the payment of money, now owned or
      which may hereafter arise in favor of the Borrower (hereinafter called
      "Accounts");

            c. All of the Borrower's inventory, including all goods,
      merchandise, materials, raw materials, work in process, finished goods and
      other tangible personal property now owned or hereafter acquired and held
      for sale or lease or furnished or to be furnished under contracts of
      services or used or consumed in the Borrower's business, and any documents
      of title representing any thereof (hereinafter called "Inventory");

            d. All fixtures, fittings, appliances, apparatus, equipment,
      machinery, furniture and furnishings, and all other personal property now
      owned or hereafter acquired by Borrower (hereinafter called "Fixtures");

            e. All deposit accounts of Debtor with Lender; and

            f. All proceeds, including insurance proceeds, and products of (a),
      (b), (c), (d) and (e) above.

      2. Obligations. The security interest granted hereby is to secure the
payment and performance of all of the liabilities and obligations of Debtor to
Lender hereunder and also any and all other obligations of Pioneer Railcorp
("Pioneer") to Lender described in the Loan Agreement between Pioneer and Lender
of even date herewith (all hereinafter called "Obligations").

      3. Warranties. Debtor represents and warrants as follows:

            a. Debtor is duly organized and existing under the laws of the State
      of its incorporation and is duly qualified and in good standing in every
      other state in which it is doing business. The exact name of Debtor is
      correctly stated in the first paragraph of this Agreement.

            b. The execution, delivery and performance hereof are within
      Debtor's corporate powers, have been duly authorized, are not in
      contravention of law or the terms of Debtor's

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      organizational documents, or of any indenture, agreement or undertaking to
      which Debtor is a party or by which it is bound.

            c. Debtor's (i) sole place of business (or its chief executive
      office, if it has more than one place of business); and (ii) the office
      where it keeps its records concerning the Collateral is at the address
      stated in Section 17 of this Agreement.

            d. The Debtor is the sole and absolute owner of the Collateral free
      and clear of liens and encumbrances of every kind and nature except only
      the lien and encumbrance hereby granted and created, other liens and
      encumbrances to Lender and other liens and encumbrances disclosed in
      writing to Lender by Debtor.

            e. The Debtor has signed no financing statements covering the above
      described property, except the financing statements signed with respect to
      this Security Agreement, other financing statements in favor of Lender and
      the other financing statements disclosed in writing to Lender by Debtor.

            f. The officers of the Debtor executing this Security Agreement have
      been duly elected and qualified and have been duly authorized and
      empowered so to execute and deliver this Security Agreement on behalf of
      the Debtor.

      4. Records. Debtor will at all reasonable times and from time to time
allow Lender by or through any of its officers, agents, employees, attorneys or
accountants, to examine and inspect and make extracts or copies from Debtor's
books and other records to arrange for verification of the Collateral, directly
with account debtors or by other methods. Debtor will furnish to Lender upon
request statements of any account, together with all notes or other papers
evidencing the same and any guaranties, securities or other documents and
information relating thereto; and generally at all times and from time to time
furnish to Lender such statements and information as it may reasonably request.

      5. Covenants. The Debtor hereby covenants and agrees with Lender that so
long as the Debtor shall owe any amounts under any of the Obligations to Lender,
the Debtor will:

            a. Maintain the Collateral in good working order, condition and
      repair;

            b. Keep the Collateral in its possession and control, and within the
      continental United States;

            c. Provide to Lender from time to time, upon the request of the
      Lender, a listing of the Collateral specifying the physical location and
      the then condition of each item thereof;

            d. From time to time at the request of Lender, do, make, execute and
      deliver all such additional and further acts, things, deeds, assurances
      and instruments as Lender may require, to more completely vest in and
      assure to Lender its rights hereunder and in or to the Collateral and the
      proceeds thereof;

            e. Immediately notify Lender in writing of the opening of any new
      office or place of business or the closing of any of its existing offices
      or places of business and of any change in the location of its chief
      executive office or the places where its records concerning the Collateral
      are kept; and

            f. Maintain the existence of Debtor as described in Section 3a
      above, and not change any of the matters stated in said Section without
      the written consent of Lender.

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      6. Financing Statements. At the request of Lender, Debtor shall execute
one or more financing statements pursuant to the Illinois Commercial Code in a
form satisfactory to Lender and will pay the cost of filing the same in all
public offices wherever filing is deemed by Lender to be necessary or desirable.
Without the written consent of Lender, Debtor will not allow any financing
statement covering any Collateral, proceeds thereof or any of Debtor's inventory
to be on file in any public office. The Debtor will pay all costs of filing any
financing, continuation or termination statements with respect to the security
interest created by this Security Agreement.

      7. Accounts.

            a. Lender authorizes Debtor to collect any and all amounts owing on
      all Accounts subject to this agreement, and Debtor shall use its best
      efforts to effect the prompt collection of such Accounts. The Lender may,
      at its election, notify any debtor on any Account of the assignment
      thereof and effect collection of any Account directly from the debtor
      obligated thereon. Lender shall have full power to collect, compromise,
      endorse, sell or otherwise deal with the accounts or proceeds thereof in
      its own name or that of Debtor.

            b. Debtor hereby irrevocably appoints Lender, or any person
      designated by Lender, its attorney in fact to receive, open and dispose of
      all mail addressed to Debtor, to endorse the name of Debtor on any notes,
      acceptances, checks, drafts, money orders or other remittances, to endorse
      the name of Debtor on any invoice, freight or express bill or bill of
      lading, storage receipt, warehouse receipt or other instrument or document
      in respect to any account subject to this agreement, to sign the name of
      Debtor to drafts against account debtors, assignments or verifications of
      Accounts subject to this agreement and notices to account debtors, and to
      do all other acts and things necessary to carry out the intent of this
      Security Agreement. The authority granted Lender shall remain in full
      force and effect until all Accounts subject to this Security Agreement
      have been paid in full.

            c. Upon request of Lender at any time, Debtor will notify such
      account debtors and will indicate on all billings to such account debtors
      that the Accounts are payable to Lender. Any proceeds of Accounts
      thereafter received by Debtor shall be turned over to Lender daily in the
      exact form in which they are received.

            d. The Debtor will not, without the written consent of Lender, grant
      any extension of the time of payment of the Accounts, compromise, compound
      and settle the same for less than the full amount thereof, release, wholly
      or partly, any person liable for the payment thereof or allow any credit
      or discount whatsoever thereon, other than trade discounts specifically
      noted at the time of assignment.

            e. The Debtor will deliver to Lender all original and other
      documents evidencing, and relating to, the sale and delivery of
      merchandise or the performance of labor or services which created the
      Accounts, including, but not limited to, all original orders, invoices and
      shipping receipts.

            f. Lender shall have the right, at the Debtor's expense, to make
      test verifications of all Accounts in any manner and through any medium
      Lender considers advisable, and the Debtor agrees to furnish all such
      assistance and information as Lender may require in connection therewith.

            g. The Debtor will furnish to Lender, at the Debtor's expense, the
      following reports: reconciliation of all Accounts; an aging of all
      Accounts; trial balances; a test

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      verification of all Accounts; and such other reports and information
      relating to the Accounts as Lender may request. All reports shall be in
      form satisfactory to Lender and shall be furnished to Lender at such times
      as Lender may request.

            h. The Debtor will stamp, in form and manner satisfactory to Lender,
      the Debtor's accounts ledger and other books and records pertaining to the
      Accounts with an appropriate reference to the fact that the Accounts and
      the proceeds thereof have been assigned to Lender.

      8. Inventory. Lender shall have the right at all times to immediate
possession of all Inventory and its products and proceeds, and to inspect the
Inventory and the Debtor's records pertaining thereto. None of the Inventory
shall be removed or disposed without Lender's written consent, except to bona
fide purchasers thereof in the ordinary course of the Debtor's business. Upon
Lender's request, the Debtor will:

            a. From time to time, at the Debtor's expense, pledge and deliver
      the Inventory to Lender or to a third party as Lender's bailee; to hold
      the same in trust for Lender's account; or store the same in a warehouse
      or warehouses in Lender's name; or deliver to Lender documents of title
      representing the same; or evidence Lender's security interest in the
      Inventory and the proceeds and products thereof in such other manner as
      may be acceptable to Lender.

            b. Remove or dispose of Inventory (whether or not to bona fide
      purchasers in the ordinary course of the Debtor's business) only on orders
      approved by Lender in writing.

            c. Report all sales of Inventory to Lender in a form satisfactory to
      Lender at such times as Lender may request.

      9. Insurance. The Debtor shall insure at its expense, and keep insured by
solvent insurers, all Collateral in such amounts as similar goods are usually
insured by companies similarly situated, against loss or damage of the kinds
usually insured against by companies similarly situated, and upon Lender's
request, the policies evidencing such insurance shall be duly endorsed in
Lender's favor and certificates evidencing such insurance shall be provided to
Lender. If the Debtor defaults in this regard, Lender shall have the right to
insure and charge the cost to the Debtor. Lender assumes no risk or
responsibility in connection with the payment or non-payment of losses, the only
responsibility of Lender being to credit the Debtor with any insurable payments
received on account of losses.

      10. Taxes. All taxes that may be assessed upon or paid by Lender with
respect to any of the Collateral shall be charged to and paid by the Debtor who
agrees to indemnify Lender against loss by reason of any such taxes. The Debtor
will make due and timely payment or deposit of all federal, state and local
taxes, assessments or contributions required of the Debtor by law, and will
execute and deliver to Lender, on demand, appropriate certificates attesting to
the payment or deposit thereof.

      11. Proceeds. The proceeds from the sale or other disposition of the
Collateral that are delivered by Debtor to Lender, or the net sums collected
directly by Lender, after first deducting all costs of collection, shall be
credited against the amount owed by Debtor.

      12. Default.

            a. If Debtor fails to pay when due to Lender any amount payable on
      any Obligations, or fails to observe or perform any of the covenants and
      warranties in this Security Agreement or in any loan agreement with
      Lender, Debtor shall be in default.

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            b. In addition, at the election of Lender and without necessity of
      demand or notice, all or any part of the indebtedness of Debtor secured
      hereby shall become immediately due and payable, irrespective of any
      agreed maturity date, on the occurrence of any of the following events of
      default:

                  (i) Any warranty, representation, financial statement, or
            other information made, given, or furnished to Lender by or on
            behalf of Debtor shall prove to have been untrue in any material
            respect when made, given, or furnished; or

                  (ii) The issuance or filing of any attachment, levy,
            garnishment, or other judicial process of or on Debtor or any of the
            Collateral; or

                  (iii) The sale or other disposition by Debtor of any
            substantial portion of its assets or property, except in the
            ordinary course of business; or, dissolution, termination of
            existence, insolvency, business failure, or assignment for the
            benefit of creditors of or by Debtor; or commencement of any
            proceedings under any state or federal Bankruptcy or insolvency laws
            by or against Debtor; or the appointment of a receiver or trustee
            for all or any party of the property of Debtor.

      13. Remedies. On any such default and at any time thereafter:

            a. Lender may declare all Obligations secured under this Security
      Agreement immediately due and payable and may proceed to enforce payment
      and exercise any and all of the rights and remedies provided by the
      Illinois Commercial Code, as well as any and all other rights and remedies
      possessed by Lender.

            b. Lender shall have the right to take immediate possession of the
      Collateral, and for that purpose may pursue the same wherever the
      Collateral may be found, and may enter upon any of the premises of the
      Debtor with or without force or process of law, wherever the Collateral
      may be or may be supposed to be, and search for the same, and, if found,
      take possession of and remove the Collateral, or any part thereof. The
      Debtor shall, upon Lender's request, assemble the Collateral and make the
      Collateral available to Lender at any place designated by Lender which is
      reasonably convenient to the Debtor.

            c. Lender may sell at public or private sale, for such price as
      Lender may deem fair, any and all of the Collateral and any other security
      or property held by Lender. Lender may be the purchaser of the Collateral
      or other property or security so sold and may hold the Collateral
      thereafter in its own right absolutely against any claims of Debtor or
      right of redemption.

            d. In the case of public sale, notice shall be deemed to be adequate
      and reasonable if such notice appears three (3) times in a newspaper
      published in the City or County wherein the sale is to be held, the first
      such publication being at least ten (10) days before such sale. In the
      case of a private sale, notice shall be deemed to be adequate and
      reasonable if such notice is mailed to the Debtor at its last known
      address at least ten (10) days before such sale.

            e. The net proceeds of any sale or sales shall be applied against
      the amount owed Lender by Debtor and any other indebtedness of Debtor to
      Lender. Debtor shall forthwith pay to Lender any deficiency on demand of
      Lender and shall be entitled to any surplus resulting from such sale or
      sales. Demand of performance, advertisement, and presence of the
      Collateral at sale are hereby waived by Debtor. All demands and
      presentments of every kind or nature are expressly waived by Debtor.

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            f. Lender may require Debtor to assemble the Collateral at a place
      mutually convenient to Lender and Debtor at the expense of Debtor.

      14. Expenses. Debtor shall pay to Lender on demand any and all expenses,
including legal expenses and reasonable attorneys' fees, reasonably incurred or
expended by Lender in the recovery and sale or attempted recovery and sale of
Collateral and in protecting and enforcing the Obligations and other rights of
Lender hereunder.

      15. Termination. This Security Agreement shall be terminable only by the
filing of a termination statement in accordance with applicable provisions of
the Illinois Commercial Code. Until terminated, the security interest created
hereunder shall continue in full force and effect and shall secure and be
applicable to all advances now or hereafter made by Lender to Debtor, whether or
not Debtor is indebted to Lender immediately prior to the time of any such
advance. Any termination of this Security Agreement by either party shall not
affect the obligation of Debtor or Lender with respect to accounts assigned by
Debtor to Lender prior to such termination.

      16. Applicable Law.

            a. The validity of this Security Agreement and any provision hereof
      shall be determined under and shall be construed according to the Illinois
      Commercial Code and other applicable laws of the State of Illinois, and
      all duties of the parties created under this Security Agreement are
      performable in the State of Illinois.

            b. Unless otherwise defined, all terms used in this Security
      Agreement that are defined in the Illinois Commercial Code shall have the
      same meaning in this Security Agreement as therein defined.

      17. Notices. All notices provided for herein shall be in writing and shall
be deemed to have been given when delivered personally or when deposited in the
United States mail, postage prepaid, addressed as follows, or to such other
address as may hereafter be designated in writing by the respective parties
hereto:

                  If to Lender:

                  National City Bank of the Midwest
                  301 SW Adams St, Locator C-P02-22
                  PO Box 749
                  Peoria, IL 61652-0749
                  Attn: Michael A. Zeller

                  with copy to:

                  Michael R. Seghetti
                  Elias, Meginnes, Riffle & Seghetti
                  416 Main Street, Suite 1400
                  Peoria, IL  61602

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                  If to Debtor:

                  Pioneer Railcorp
                  1318 S. Johanson Rd
                  Peoria, IL 61707-1130
                  Attn: J. Michael Carr

      18. No Waiver. The failure of Lender to exercise any right or remedy,
including acceptance by Lender of partial or delinquent payments, shall not
constitute a waiver of any obligation from Debtor or right of Lender or
constitute a waiver of any other similar default occurring subsequently.

      19. Intent. This Security Agreement expresses the entire understanding of
the parties and may not be altered or amended except with the written consent of
each of the parties and except as provided in any other written document signed
and delivered by Debtor to Lender.

      20. Successors and Assigns. This Security Agreement shall be binding upon
and inure to the benefit of the Debtor and Lender and their respective
successors and assigns.

____________________________________           NATIONAL CITY BANK OF THE MIDWEST

BY: __________________________________   BY: ___________________________________
 ITS: ________________________________     ITS: ________________________________

                                       7<PAGE>

                                                                    EXHIBIT 10.6

                                    GUARANTY

      THIS GUARANTY is dated as of January 19, 2005 by _________________
("Guarantor"), in favor of National City Bank of the Midwest ("Lender").

                                R E C I T A L S:

      WHEREAS, on or as of the date hereof, Lender has made two loans (the
"Loans") to Pioneer Railcorp ("Borrower"), one a term loan in the amount of
$16,000,000 and the other a revolving credit facility in the amount of
$2,000,000, both evidenced by promissory notes of even date herewith (the
"Notes"), all pursuant to a Loan Agreement between Borrower and Lender of even
date herewith (the "Loan Agreement"); and

      WHEREAS, Borrower is the owner of 100% of the capital stock of Guarantor;
and

      WHEREAS, the execution of the Loan Agreement and the disbursement of the
Loans will improve the financial position of Borrower which will benefit
Guarantor by improving the economics of scale realized from being a member of
Borrower's affiliated group; and

      WHEREAS, as a material inducement to Lender to make the Loans, Guarantor
has agreed to make this Guaranty;

      NOW, THEREFORE, in consideration of the foregoing premises, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Guarantor hereby agrees as follows:

      1. Guaranty. Guarantor hereby absolutely and unconditionally guarantees
the punctual payment when due, whether at stated maturity, by acceleration or
otherwise, of the aggregate outstanding unpaid principal amount of the Notes
together with all accrued and unpaid interest on the Notes and all other amounts
due to Lender under the Notes, under the Loan Agreement or under any other
documents and instruments executed and delivered to Lender in order to evidence
or secure the Loans (the "Collateral Documents"), and any and all extensions,
renewals or modifications of any of the foregoing (such principal, interest and
other amounts are hereinafter referred to collectively as the "Obligations"). In
addition, Guarantor shall pay any and all fees, costs and expenses (including
attorneys' fees) incurred by Lender, at any time prior or subsequent to default,
whether litigation is involved or not, and if involved, whether at the trial or
appellate levels or in pre- or post-judgment or bankruptcy proceedings, in
enforcing or realizing upon the obligations of Guarantor hereunder. The
Obligations, Notes, Loan Agreement, Collateral Documents and any instrument,
document or agreement, express or implied, which has been or may hereafter be
made or entered into by the Borrower or the Guarantor in reference to the
Obligations shall all be hereinafter collectively referred to as the "Terms."

      2. Guaranty Absolute. Guarantor guarantees that the Obligations will be
paid and performed strictly in accordance with the terms and provisions of the
Terms, regardless of any law, regulation, order or judgment now or hereafter in
effect in any jurisdiction affecting any of the Terms or the rights of Lender
with respect thereto. The liability of Guarantor under this Guaranty shall
continue and be absolute and unconditional irrespective of:

            (a) Any lack of validity or enforceability of any of the Terms;

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            (b) Any change in the time, manner or place of payment of, or in any
      other term, including the applicable rate of interest, of, all or any of
      the Terms, or any other renewal, extension, amendment, modification or
      waiver of or any consent to departure from any of the Terms;

            (c) Any act or omission of Lender of any nature whatsoever,
      excluding any willful or wanton misconduct or gross negligence on the part
      of Lender;

            (d) With respect to the Guarantor, the Borrower or any other person
      or entity liable in respect of the Borrower, any failure to obtain
      required authorization by all necessary corporate or other action relating
      to the incurring by the Borrower of the Obligations or to the execution,
      delivery, or performance of any of the Terms, or to any violation of any
      provision of any organizational documents, or any other document,
      instrument or agreement occasioned by the incurring of the Terms, by the
      execution, delivery or performance of any of the Terms, or by any failure
      of same to have been duly authorized by all necessary corporate or other
      action;

            (e) Any release (other than a release of Guarantor from this
      Guaranty), amendment, waiver, modification, extension or renewal of or
      consent to departure from or forbearance of any other action or inaction
      under or in respect of this Guaranty or any other of the Terms;

            (f) Any exchange, release, forbearance or surrender of or any other
      action or inaction with respect to any collateral at any time and from
      time to time now or hereafter securing any or all of the Obligations or
      Terms or the liability of the Borrower, the Guarantor or any other person
      or entity in respect of all or any of the Terms or any failure to perfect
      or continue as perfected any security interest or other lien with respect
      to any such collateral, or any loss or destruction of any such collateral,
      or any matter impairing the value of such collateral as security for all
      or any of the Terms or the liability of the Guarantor or any other person
      or entity in respect of all or any of the Obligations or Terms; or

            (g) Any other circumstance or matter of any nature whatsoever that
      might otherwise constitute a defense (other than payment) available to, or
      a discharge of, the Borrower, the Guarantor or any other person or entity
      liable to Lender in respect of any of the Terms which arises out of the
      bankruptcy or insolvency of the Borrower. This Guaranty shall continue to
      be effective or shall be reinstated, as the case may be, regardless of
      whether any payment of any of the Obligations is rescinded or must
      otherwise be returned by Lender upon the insolvency, bankruptcy or
      reorganization of any person or entity or for any reason whatsoever, all
      as though such payment had not been made. The Obligations of Guarantor
      hereunder shall be absolute and primary, shall be complete and binding as
      to Guarantor upon its execution of this Guaranty, shall be subject to no
      conditions precedent, and shall be independent of and cumulative to any
      other of the Terms, and Lender may exercise any of its rights and remedies
      under this Guaranty, any other of the Terms or otherwise singly or
      concurrently.

      3. Waiver; No Duties. Guarantor waives: (a) all statutes of limitations as
a defense to any action brought against Guarantor by Lender; (b) any defense
based upon any legal disability of the Borrower or any discharge or limitation
of the liability of the Borrower to Lender, whether consensual or arising by
operation of law or any bankruptcy, insolvency or debtor-relief proceeding, or
from any other cause; (c) promptness, diligence, presentment, demand, protest
and notice of any kind; (d) any defense based upon or arising out of any defense
which the Borrower may have to the payment or performance of any part of the
Obligations which arises out of the bankruptcy or insolvency of the Borrower;
and (e) all rights of subrogation and all rights to participate in any security
held by Lender for the Obligations, until

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the Obligations have been paid in full. Lender shall not be obligated to exhaust
any right or take any action against the Borrower or any other person or entity
or any collateral for the Terms prior to the enforcement of its rights
hereunder. Lender shall not be required to obtain the consent of the Guarantor
with respect to any matter.

      4. Warranties. Guarantor makes the following representations and
warranties to Lender:

            (a) Ownership. Borrower is the record and beneficial owner of 100%
      of the capital stock of Guarantor, and there are no other shareholders of
      Guarantor or persons or entities which have any rights to become
      shareholders of Guarantor.

            (b) Authorization and Validity. Guarantor has all necessary power
      and authority to make, execute, deliver and consummate this Guaranty, and
      to perform his obligations, undertakings and agreements to be observed and
      performed hereunder.

            (c) No Conflict. The execution and delivery of this Guaranty by
      Guarantor does not, and the consummation by Guarantor of the transactions
      contemplated hereby will not, violate or result, with the giving of notice
      or the lapse of time or both, in a violation of any provisions of, or
      result in the acceleration of or entitle any party to accelerate (whether
      after the giving of notice, or lapse of time or both) any obligation under
      any mortgage, lien, lease, agreement, license, instrument, law, ordinance,
      regulation, order, arbitration award, judgment or decree to which
      Guarantor is a party, and the same does not and will not constitute an
      event permitting termination of any lease, agreement, license or
      instrument to which Guarantor is a party which will materially affect the
      performance of Guarantor's obligations hereunder.

            (d) Litigation. There are no actions, suits or proceedings pending,
      or to the knowledge of Guarantor threatened against or adversely affecting
      Guarantor at law or in equity or before or by a governmental agency or
      instrumentality, domestic or foreign, which involve any of the
      transactions herein contemplated, or the possibility of any judgment or
      liability which may result in any material and adverse change in the
      financial condition of Guarantor. Guarantor is not in default with respect
      to any judgment, order, writ, injunction, decree, rule or regulation of
      any court or governmental agency.

            (e) Enforceability. This Guaranty is a legal, valid and binding
      obligation of Guarantor, enforceable in accordance with its terms, except
      as enforceability may be limited by applicable bankruptcy, insolvency or
      similar laws affecting the rights of creditors generally.

            (f) Financial Statements. The financial statements and other
      financial information furnished by Guarantor to Lender are correct and
      complete and accurately present the financial condition of Guarantor at
      and for the periods covered therein; said financial statements have been
      prepared in conformity with generally accepted accounting principles
      applied on a consistent basis except as indicated on said financial
      statements; and since the respective periods covered by such financial
      statements, there has been no material adverse change in the financial
      condition of Guarantor.

      5. Delivery of Financial Statements. Guarantor covenants and agrees that
from the date hereof and so long as any of the Obligations remains outstanding
and unpaid and unperformed, Guarantor will furnish to Lender as soon as
available, but in any event no later than April 1 of each year, a copy of the
current financial statements of Guarantor as of the end of the last calendar
year, certified to be true and correct by Guarantor, and in form and substance
acceptable to Lender.

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      6. Notices. All notices or other communications required or permitted
hereunder shall be (a) in writing and shall be deemed to be given (i) when
delivered in person; (ii) when received after deposit in a regularly maintained
receptacle of the United States mail as registered or certified mail, postage
prepaid; (iii) when received if sent by private courier service; or (iv) on the
day on which the party to whom such notice is addressed refuses delivery by mail
or by private courier service; and (b) addressed as follows:

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          If to Lender:

          National City Bank of the Midwest
          301 SW Adams St, Locator C-P02-22
          PO Box 749
          Peoria, IL 61652-0749
          Attn: Michael A. Zeller

          with copy to:

          Michael R. Seghetti
          Elias, Meginnes, Riffle & Seghetti
          416 Main Street, Suite 1400
          Peoria, IL  61602

          If to Debtor:

          Pioneer Railcorp
          1318 S. Johanson Rd
          Peoria, IL 61707-1130
          Attn: J. Michael Carr

or to any such other address as any party hereto shall designate in a written
notice to the other parties hereto.

      7. No Waiver; Cumulative Remedies. Lender may, at any time and from time
to time, waive or not insist on strict compliance with any one or more of the
provisions contained in this Guaranty or any document relating to this Guaranty,
but any such waiver or non-insistence shall not be considered a waiver or
non-insistence of such provision in any other instance or any other
circumstance, OR AS CREATING A REQUIREMENT THAT LENDER MUST, AS A RESULT OF A
PREVIOUS WAIVER OR NON-INSISTENCE, THEREAFTER GIVE NOTICE TO THE BORROWER,
GUARANTOR, OR ANY OTHER PERSON OR ENTITY THAT IT DOES NOT INTEND TO GIVE A
FURTHER WAIVER OR NOT INSIST UPON STRICT PERFORMANCE BEFORE LENDER CAN EXERCISE
ANY RIGHTS OR REMEDIES UNDER ANY DOCUMENT OR BEFORE ANY EVENTS OF DEFAULT OR
DEFAULTS CAN OCCUR, WHETHER OCCASIONED BY THE PROVISION PREVIOUSLY WAIVED OR NOT
INSISTED UPON OR OTHERWISE, OR AS ESTABLISHING A COURSE OF DEALING FOR
INTERPRETING THE EXPRESSIONS AND OTHER CONDUCT BETWEEN LENDER AND THE BORROWER,
GUARANTOR OR ANY OTHER PERSON OR ENTITY. The remedies provided herein and in the
other documents executed contemporaneously herewith and referred to herein shall
be cumulative, may be exercised from time to time, singularly or concurrently or
in any combination, without Lender being obligated to exercise any such right in
any other circumstance, and are not exclusive of any remedies provided by law.

      8. Continuing Guaranty; Transfer. This Guaranty is a continuing guaranty
and shall:

            (a) Remain in full force and effect until the Obligations have been
      fully discharged at which time this Guaranty shall terminate;

                                        5

<PAGE>

            (b) Be binding upon Guarantor, and its successors and assigns,
      provided, however, Guarantor may not assign any of its rights and
      obligations hereunder without the prior written consent of Lender; and

            (c) Inure to the benefit of and be enforceable by Lender and its
      successors, transferees, participants, and assigns. Without limiting the
      generality of this clause, Lender may assign or otherwise transfer any of
      the Obligations (in compliance with the terms of the Notes) and/or any of
      the Terms to any other person or entity, and such other person or entity
      shall thereupon become vested with all the rights in respect thereof
      granted to Lender herein or otherwise.

      9. Governing Law. This Guaranty shall be governed by, and construed in
accordance with, the laws of the State of Illinois without regard to principles
of conflict of laws. Guarantor hereby waives any plea of jurisdiction or venue
as not being a resident of Peoria County, Illinois and hereby specifically
authorizes any action brought by Lender upon this Guaranty to be instituted and
prosecuted in either the Circuit Court of Peoria County, Illinois or in the
United States District Court for the Central District of Illinois, at the
election of Lender. Guarantor hereby irrevocably authorizes service of process
to be made upon it at the address given and in the manner provided in Paragraph
6 above, in any action which may be instituted against it arising out of or
relating to this Guaranty.

      10. Headings. Paragraph headings in this Guaranty are included herein for
convenience of reference only and shall not constitute a part of this Guaranty
for any other purpose.

      IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed and
delivered on the date and year first above written.

                                     __________________________________________

                                     BY:_______________________________________

                                     ITS: _____________________________________

                                       6

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