From a DM&E news release, verbatim.

June 9, 1997

DM&E Announces $1.2 Billion Plan to Expand Into Powder River Basin And Rebuild Existing Track

Project Provides Significant Benefits to Communities

FOR IMMEDIATE RELEASE:

BROOKINGS, SD, and CHEYENNE, WY, June 9, 1997 -- Dakota, Minnesota & Eastern Railroad Corporation (DM&E) today announced plans to build approximately 250 miles of new railroad as an extension from the DM&E's existing line into the Powder River Basin in Wyoming, and rebuild approximately 650 miles of its existing track to modern standards. The rebuilding and expansion of the line into the Powder River Basin, one of the richest deposits of low-sulfur coal in the world, promises to transform the DM&E into a Class-I railroad, making it an important link in the U.S. energy transportation industry. This is believed to be the largest privately financed public infrastructure project in the history of South Dakota. This $1.2 billion project is scheduled to be completed within five years.

The project's compelling positive impact on the three states most immediately affected is reflected in the enthusiasm with which the project has been received by political leaders. South Dakota Governor Bill Janklow said: "This expansion is one of the more exciting things to happen in transportation in our state in the last two decades. The economic potential is incredible. We will be working with the railroad to develop it in a way that maximizes the benefits to our state and minimizes any safety or congestion issues." Wyoming Governor Jim Geringer said: "I'm pleased to support the extension of the Dakota, Minnesota & Eastern as a great opportunity for the Powder River Basin of Wyoming. This project has great economic development potential for our entire state and one of our most important industries. The railroad's interest in this venture shows that Wyoming, indeed, is open for business and economic development." Minnesota Governor Arne Carlson expressed his support for the project, adding that, "this project holds great potential for Minnesota -- new jobs, new energy sources and improved rail services. DM&E has long been a strong corporate partner with Minnesota. I look forward to working with the railroad to maximize the benefits of this project to our state." The Company further noted that the project has also attracted strong support from the Minnesota, South Dakota and Wyoming Congressional delegations, as well as state and local leaders.

"This is a historic day for the DM&E Railroad and our customers," said Kevin V. Schieffer, DM&E President and Chief Executive Officer. "With this project, we begin a new era for our railroad and the states and communities we serve. Minnesota, South Dakota and Wyoming will all benefit substantially as a result of this project. By expanding into the Powder River Basin and rebuilding the existing track to 21st Century standards, we will become a new railroad from end to end. The resulting infrastructure will enable us to perform at a level unlike any railroad in North America. We will be able to better serve our current and future shippers by offering customer-focused, reliable, safe service with better scheduling, while at the same time strengthening our finances, and growing our business. Rebuilding the line will enable us to significantly reduce transit time across our current system. In 1996, average mainline transit time was approximately 150 hours. This project will reduce that time to approximately 17 hours, providing our customers greatly improved service and enhanced access to the major markets in the Midwest. Existing shippers' competitive positions will be improved, and the economic development potential in communities across our line will be transformed by our rebuilt line.

"There is rapidly growing demand for the Powder River Basin's inexpensive, environmentally friendly, low-sulfur coal," Mr. Schieffer continued. "Implementation of Phase II of the Clean Air Act Amendments affects all coal-fired power plants, mandating additional reductions in sulfur emissions. Low-sulfur coal can help significantly reduce the amount of sulfur in the environment, helping to protect those regions affected by acid rain. In addition, as the electric power industry becomes increasingly competitive as a result of deregulation, electric companies will likely respond to market pressures to lower power production costs by turning to the relatively inexpensive Powder River Basin coal.

"We have studied the environmental impact of this project and found that favorable conditions exist for the construction of the new line," Mr. Schieffer noted. "The extension into Wyoming can be accomplished by a number of routing options, adding a considerable degree of flexibility to the project." Mr. Schieffer added that a final route selection will be made following public meetings in Wyoming and South Dakota with affected landowners, community and state officials and other interested parties. "We have also evaluated the market potential resulting from expansion into the Powder River Basin, and studied the feasibility, cost and timing of upgrading our existing lines," Mr. Schieffer said. "This project provides a unique and powerful market opportunity; it should be built.

"The economic benefits for our customers, and the community economic development impacts at the local level across our existing line are profound," Mr. Schieffer observed. The Company noted that a team of outside economists studied the economic impact of the proposed project, and found that the states of Minnesota, South Dakota and Wyoming will benefit substantially. It is projected that, through this project, the DM&E will create over 6,500 construction-related jobs with earnings of $215 million per year for two years, and generate $52 million in state taxes during construction in Wyoming, South Dakota and Minnesota.

Specifically, it is estimated that Wyoming will benefit from the creation of over 1,200 construction-related jobs per year for two years and 370 jobs for ongoing operations. It is also estimated that state and local tax payments to the state of Wyoming will be in excess of $12 million during construction and approximately $3.2 million annually for ongoing operations. Approximately 3,100 construction jobs will be created in South Dakota per year for two years, and over 1,200 jobs will be created for ongoing operations. In addition, South Dakota would realize increased tax revenues of $14.5 million during the construction phase of this project and tax receipts of over $12.1 million annually once operations reach projected levels. The project is expected to yield 2,200 construction jobs per year for two years in Minnesota, and 450 jobs for ongoing operations. Minnesota will also realize over $25 million in state tax revenues during construction, and over $20 million in state and property tax revenues once operations reach projected levels.

Mr. Schieffer emphasized that the railroad is extremely sensitive to community safety and traffic impacts relating to the project. He said the railroad will hold public meetings on a community-by-community basis across its entire existing mainline to both explain and answer questions relating to the project, and to assure that local concerns are reflected in the project design to the maximum extent possible. "We want to design this project to maximize the already profound positive economic impacts to our local communities, and minimize traffic and safety concerns," Mr. Schieffer said. Mr. Schieffer noted that in order to improve existing safety standards and minimize disruptions, the project includes significant investments in signals, gates, and other safety and traffic related improvements. Mr. Schieffer further noted that company executives have held a number of meetings with shippers and state and local officials to talk about service, economic development and public safety issues, among other things.

Mr. Schieffer also noted that the Company is studying the possibility of opening up the rail line to the public on special occasions, for things like dinner trains or trips to recreational areas. "We believe this has real potential for community tourism development, as well as providing new opportunities for local communities and their residents to benefit from this project," said Mr. Schieffer. "We have discussed this with a number of state and local leaders, and believe this is a meaningful way of giving something back to the dozens of communities who have been so supportive of us over the years." Referring to the former Chicago & North Western Transportation Co.'s attempt to abandon the line in 1983 and the efforts of local communities to fight the abandonment, Mr. Schieffer added, "this railroad was literally created by our customers and the communities we serve. We want them to share in this amazing success story."

"This project is just too compelling to not get done. With only a five percent market share in the Powder River Basin -- which could be accomplished from capturing a fraction of the expected growth -- we could repay project debt and cover all of our operating costs," said Mr. J. Michael Buchanan, Managing Director of Lombard Investments, Inc., of San Francisco, California. Lombard Investments formed the DM&E in 1986, and represents the interests of the majority institutional shareholders. Mr. Buchanan further noted that no shareholders have taken dividends since the founding of the DM&E, choosing instead to reinvest over $100 million in track, cars and locomotives. The DM&E has been approached by a number of parties who have expressed an interest in participating in this project. The company has retained Morgan Stanley & Co. Incorporated to assist in identifying strategic partners to join in the DM&E's expansion into the Powder River Basin and rebuilding of the existing track.

The new construction project will be subject to the approval of a federal agency, the Surface Transportation Board.

The DM&E began operations in September, 1986 with track acquired from the Chicago & North Western Transportation Co. from lines that the railroad tried unsuccessfully to abandon in 1983. In 1996, the DM&E acquired more than 200 miles of track from Union Pacific Railroad, extending from Colony, Wyoming through Rapid City to Crawford, Nebraska. Grain accounts for more than 40 percent of the railroad's 60,000 annual carloadings, which have increased more than 40 percent since 1987 -- DM&E's first full year of operation. Other major commodities include bentonite clay, canned goods, cement, fertilizer, iron and steel, kaolin clay, lumber, paper and paper products, scrap iron, soybean oil and meal, crushed stone, wheat flour, and wood chips. The DM&E serves five upper Midwestern states, and interchanges with a number of carriers in South Dakota, Minnesota and Iowa, providing for efficient delivery to end markets.

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