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September 27, 1976
Charles 3. Lapp
Hillsdale, Michigan

Cover page


A new railroad called ConRail began operations April 1, 1976. This railroad is purchasing and operating major portions of several bankrupt eastern carriers including Penn Central, Erie Lackawanna, Reading, and Lehigh Valley, among others.  One of ConRail's operating policies is that a major railroad such as ConRail can no longer efficiently and profitably operate many light density branch lines.   For this reason, ConRail declined to purchase and operate more than 6, 000 miles of light density branch lines from the prior owners.

States and other parties have the option under the Regional Rail Reorganization Act of 1973 of obtaining federal funds to contract with ConRail or other roads to operate any of these 6, 000 miles of track ConRail failed to purchase and operate for itself.  The State of Michigan has contracted with several carriers including two new short line railroads, the Hillsdale County, and Michigan Northern, to operate portions of these abandoned lines within the state.  The State is encouraging applications from railroad companies to operate certain line segments of this abandoned track.

This prospectus is for a Michigan Corporation to be called the Tuscola and Saginaw Bay Railway, which has applied to operate line segments designated as 438, 438a, 444, 444a, and 445, totaling 43. 3 miles, and connecting the towns of Caro, Vassar, Millington, Reese, Munger, and

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Coiling, all in Michigan.  ConRail is now operating this trackage under a one year contract with the State of Michigan, which expires April 1, 1977.

The Tuscola and Saginaw Bay Railway will be a locally owned, controlled, and managed freight-only "short line" railroad.  The management believes that the "short line" concept is a way to keep many light density railroad lines from being abandoned, lines that major railroads cannot economically allow to remain in operation.    Hundreds of miles of line have been abandoned by railroads in Michigan in the past several decades.  At the present time over four hundred miles of track have been filed for abandonment.  This trend will continue unless a way is found to operate some of these lines at a profit.   Subsidizing a major carrier is not a long term answer to the problem because any time the subsidy is dropped, the carrier will abandon the line.

On the other hand, the concept of using "short lines" to operate these branches is one possible solution.   Three hundred and seventy-seven short line railroads (called Class 11 Railroads by the interstate Commerce Commission) are now being operated in the United States.   These railroads operate profitably, with an average return of 18. 7% on invested capital, * about  twice   the return of major (Class I) railroads.

* Latest data available is for 1972.

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The reasons for this profitability are several.  Short line railroads are usually locally owned and controlled, often by   on-line shippers. Local management closely monitors operating efficiency.    Customer ownership and civic pride help obtain and keep traffic for the local railroad corporation.   Good management means close cost control, which allows more frequent, "tailored" service to customers.     Employees of small, local concerns, who have an interest in their company, work to obtain business, and often share in the profits.  Prospective shippers see this excellent service and enthusiasm in a local company and welcome the viable, low cost competition for trucks.

Short lines are very beneficial to the areas they serve.  Local railroad management can aid in county-wide and local community industrial development.   A viable, competitive alternative to trucking encourages industry, creates local jobs, helping young people to stay in the area, enlarges the tax base, assists farmers by significantly lowering transport costs of agricultual commodities, and keeps expenditures, payroll and profits  in the local area rather than removing them.   Also, a local corporation is much more accountable to county and state citizens than a huge corporation controlled outstate.   While short line railroads are, on the average, quite profitable for investors, the returns to the communities and areas served are no doubt many times as large.   In the future as fuel costs and environmental concerns become more acute, branch lines will become critical to the economic well-being of rural areas.

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Major railroads like short lines also.  Short lines keep branches operating and feed carloads to major carriers at low cost.   These loads contribute to the viability of the major carriers and add to major railroad employment.

For the above reasons the Tuscola and Saginaw Bay Railway management believes the short line railroad concept is the best way to keep light density branch lines in operation, with all the attendant benefits to the communities and area served.  Two basic problems exist for this railroad, the poor track condition, and the decreasing number of carloads on the line.    The State of Michigan recognizes that these problems stem in part from large scale public investment in roads and highways.   Further, the State believes that locally owned and operated short line railroads provide one method to help redress this situation, and is willing to supply funds in order to assist companies such as the Tuscola and Saginaw Bay Railway in upgrading trackage and rebuilding their carload traffic base.

Mr. Edward Goodman of the Rail Freight Division, Department of Highways and Transportation, P. O. Box 30050, Lansing, Michigan 48909, is charged with the responsibility of aiding counties and communities throughout the state in preserving their branch lines.   Funds are available through 1981 to assist in operating this line, repair its worn-out trackage, and pay a fair return to investors in the company.

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An example of the increased efficiency of short line railroads as compared with major carriers is that the Tuscola and Saginaw Bay Railway will be able to start up and operate for approximately half of the $630, 000 direct subsidy being paid to ConRail to operate the line this year.

There is no assurance these assistance funds will be continued beyond 1981 when the law expires, and the Tuscola and Saginaw Bay Railway plans on being self-sufficient by 1981 or before.  However, any investment in the Tuscola and Saginaw Bay Railway should be considered speculative with no assured return.    This is a "risk' investment.


The lines making up the Tuscola and Saginaw Bay Railway have a proud history, serving a bountiful farming area.    These tracks were owned by the New York Central System until 1968 when NYC merged with the Pennsylvania Railroad to form Penn Central.     The Millington to Munger line was the North-South mainline of the NYC through Michigan, connecting the Upper Peninsula, Bay City, Saginaw and Midland with Detroit and Southern points.   The huge federal and state outlays to construct and maintain the excellent highway system in Michigan have taken their toll of this line.

Received and forwarded carloads handled by the seven main towns on this line totaled 1, 992*  in 1973.  In 1975, this line handled an estimated total

*Fina1 System Plan, United States Railway System, Lines 438, 438a,  444, 444a, and 445.

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of 2,008 cars.   April, May and June, 1976, when compared with the same months in 1975, indicate that the total will probably be somewhat higher, perhaps about 2,200 carloads.



Denmark Jct............85

Commodities handled inbound include fertilizer, lumber and plywood, coal, chemicals, foodstuffs, coke, farm implements, iron products, bricks, and poles.  Outbound cargo has consisted of beans, wheat, corn and other grains, beet pulp, molasses, fabricated and cast steel parts, and sand and gravel.

Towns on-line are prosperous with a potential for diversified freight shipping, including additional lumber and building materials, sugar, sugar beets, beer, wheat, corn, beans, fertilizer, chemicals, farm implements, and other manufactured products.  Carloadings on this line have dropped drastically in the past years, mostly as a result of poor railroad service.   Car supply inadequacies, poor track, unreliable

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switching, and unscheduled delays of loads made using rail service very difficult.

In fact, a large on-line railroad customer found rail service and car delays to be such a problem that it is now constructing a new facility in another area.   Had the Tuscola and Saginaw Bay Railway been in operation two years earlier, Tuscola County might not have lost this industry and these jobs.    When this customer moves it will cost the Tuscola and Saginaw Bay about 650 carloads a year, decreasing the annual carloads handled from an estimated 2,200 in 1976 to 1,550 carloads in 1977 or 1978.  The Tuscola and Saginaw Bay plans aggressive marketing and tailored service of a type that hopefully will preclude the loss of any industry in the future.  The Tuscola and Saginaw Bay Railway is setting a goal of 1,380 carloads in 1982, a gain of 2,180 carloads. This planned increase in carloadings will be brought about by consistently reliable and timely switching service, a concerted sales and marketing effort, a better car supply for on-line customers, an industrial development program coordinated with on-line communities, and perhaps with some supporting services and line expansion, as is discussed in the section of this prospectus on Future Expansion.

The Tuscola and Saginaw Bay Railway will have connections with two profitable, major railroads, the Chessie System and Grand Trunk Western.  Two railroads mean a better car supply, and better service

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routes than the single bankrupt Penn Central Railroad was able to provide in the past.  The T. & S. B. Ry. management will work closely with these two connections to establish fast,  reliable freight service, and an equitable car supply.  It is believed that this will also contribute to increased carloadings in future years.

The "short line" concept has proven to be an effective one throughout the country.  As the Tuscola and Saginaw Bay Railway convinces customers, area citizens, and the State of Michigan, that it can `do the job", additional branch line trackage may well become available, thereby increasing carload traffic for this company still further.


The Tuscola and Saginaw Bay Railway will operate forty-three miles of main track roughly "Y" shaped, with Vassar at the center of the "Y".  One line extends northeastward twenty-two miles to Caro and Coiling; a second line extends northwestward fifteen miles to Denmark Junction, Richville, Reese, and Munger, and a third line reaches southward six miles to Millington.  Connections will be made to the Chessie System main line at Vassar, the Grand Trunk Western line to Saginaw at Denmark Junction, and possibly to a Chessie branch line at Reese.

In order that cars can be interchanged more expeditiously with the Chessie at Vassar, a new short interchange track is being proposed at the point where the two lines cross at grade.   The railroad offices

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will be located in Vassar because of the central location, probably in the existing depots  which will be renovated as funds become available.  The most necessary asset of any company, including the Tuscola and Saginaw Bay Railway, is good, dedicated people.   ConRail employees working on this line are guaranteed employment with ConRail under the Regional Rail Reorganization Act of 1973.  Some of them may be offered employment by the Tuscola and Saginaw Bay, but experience with other lines has shown that most ConRail employees will prefer to stay with ConRail because of the lifetime (in most cases) job guarantee that these employees have as long as they remain with ConRail.

The Tuscola and Saginaw Bay Railway will recruit and employ people who are dedicated to serving the citizens of Tuscola County and the Saginaw Bay area with the best possible railroad service.  Less than ten full-time people will be employed, with the exception of temporary track workers upgrading track.    Wages and bonuses will meet or exceed prevailing rates for similar work, and a complete fringe benefits package will be provided, including the Railroad Retirement Act retirement plan.  The Tuscola and Saginaw Bay Railway will be an equal opportunity employer,  requiring hard work and excellence from all of its small group of employees.    At the same time, employees will be offered a variety of challenging jobs, including sales work.

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Frequency of switching service will be as required by customers, but trains will run a minimum of every other day on each of the three lines.  The basic goal of this company will be tailored service and customer  satisfaction.

 Motive power will consist of one general purpose locomotive,  probably  a rebuilt GP-7, an excellent basic locomotive, manufactured by the  Electro-Motive Division of General Motors,    If required, a second,  smaller locomotive or highway-rail "car puller' will be added.

Car supply will be provided in three ways.   First,  cars bringing in loads will be available for outbound loading.  Second, cars for loading will be ordered through the normal distribution channels of the two connecting .railroads, the Grand Trunk Western and the Chessie.    Both of these railroads have fine fleets of cars available for loading as compared with the bankrupt Penn Central's car supply.    The Tuscola and Saginaw Bay Railway management has had years of experience working with car distribution and supply, and will be dedicated to obtaining an equitable share of cars for our customers.  In addition, the T. & S. B. Ry. will very probably obtain cars of its own for on-line customers, the number and kind being determined by the equipment committee of the board of directors regarding the number of cars that can be kept busy full-time serving the needs of our various customers.

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When loadings of a specific type of cars peak with orders for cars several times the normal demand, equipment shortages will still exist.   But because of two viable connecting railroads and T. & S. B. Ry. cars returning "Home after each load, the car flow and availability will be vastly improved.   In addition, the State of Michigan is considering obtaining a supply of cars for the use of railroads such as the Tuscola and Saginaw Bay.

At the present time,  Tuscola and Saginaw Bay trackage is in deplorable shape.   Track is literally the foundation of any railroad, and the improvement of it will be a major goal of the T. & S. B.   Except for a recent program on a portion of this line, this track has had very little maintenance for years.  The former bankrupt owner, Penn Central, had a severe cash shortage, and by necessity was forced to spend available monies on main trunk lines and yards.   A major goal of the Tuscola and Saginaw Bay Railway will be to build up a system of good branch-line trackage.

Any successful industrial corporation must have a continuing emphasis upon safety.   North American railroads have been outstandingly successful in this regard.  Railroading is actually safer for employees on-the-job than for the average Amen can in his home.  This industrial safety is the result of carefully thought-out positive and continuing safety programs.

The Tuscola and Saginaw Bay Railway will maintain this tradition of excellence in safety by involving each employee in establishing and continuing an affirmative safety program.

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                       FUTURE EXPANSION

In addition to the planned growth in carloadings, possibilities for expansion of the Tuscola and Saginaw Bay Railway will exist from time to time in the future.   Each situation will be carefully analyzed on its own merits by the management and the board of directors.    Some areas in which expansion may occur include Trailer-On-Flat Car (TOFC) and Container-On-Flat Car (COFC) service, a bulk product unloading facility, freight car leasing (to other carriers), and the acquiring of additional branch line trackage.    For example, the Grand Trunk Western has petitioned to abandon its branch line from Imlay City northward to Caseville (see the map on the following page).    This line handled 928 carloads in 1975.  While a separate branch line carrier would not be able to operate this sixty-six mile line with the existing volume of carloads, it may be possible for the Tuscola and Saginaw Bay to take over this line after the Grand Trunk Western abandons its, operating the line with very few additional employees, and shaded overhead costs.    The matter is being pursued although no decision will be made for some time about whether to actively enter the abandonment proceeding.

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The Tuscola and Saginaw Bay Railway will be a Michigan corporation, privately owned and controlled by shippers and other stockholders.  It will be an efficient, tightly-run operation, managed by a full-time superintendent and part-time officers, all interested in and dedicated to the well-being of area shippers, communities and farmers.    The management team has assisted in starting and has operated major rail operations and short lines.  The team possesses well-rounded general business management as well as specific transportation related skills.  Management of the T. & S. B. Ry. will be of a participative form in which all employees will have a voice and in which all employees will share in bonuses and any profits accruing to the line.  See the section on "Operations' for additional information about employment.

It is expected that all officers will be stockholders in order that they participate in the risk involved in starting a new company, as well as being rewarded the same as any other investors through any dividends or capital gain.

The railroad operation is scheduled to start on April 1, 1977.  Since sixty to ninety days may pass before "divisions" of revenue are received from connecting railroads, cash expenditures will be minimized until the cash flow position of the company is well-established.

The Board of Directors of this company will be expected to participate actively in Corporate decision-making regarding policy, freight car acquisition and all major decisions affecting the company.   Committees

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of Board members and other stockholders will meet on a continuing basis to make recommendations to the Board of this railroad.

The management of the Tuscola and Saginaw Bay Railway is at the present time taking care of the many matters to be concluded before operation start-up on April 1, 1977, including, among others, incorporating, obtaining on I . C. C.   `Operating Order", applying for and negotiating a contract with the State of Michigan, negotiating "divisions" of revenue with connecting railroads, making arrangements for insurance, tariff application, and searching for a suitable locomotive.


Railroads are characterized by relatively high fixed expenses at a specific level of service whether the cars to be handled are few or many.  For example, once costs are being met by revenues, most additional revenues from an increase in carloads moved can pass through to profits since additional carloads can be handled at very little increase in expense.  Another important influence upon the profitability of a railroad is the share or "division" of revenue from a carload moved which is paid to each railroad participating in the movement of the car.   If the Tuscola and Saginaw Bay obtains an average "division" of $100 per car handled, obviously it will be more profitable than if it obtains only $80.  Thus, "divisions" negotiations with connecting railroads are extremely important to the future viability of the T. & S. B. Ry.

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State aid to the Tuscola and Saginaw Bay Railway is quite significant relative to the future profitability of the Company.    Having sufficient cash to upgrade the track, provide competitive wages in order to obtain qualified people, offer a competitive service to customers, and a continuing marketing and industrial development effort will aid in assuring an increase in carloads sufficient to allow for long-term viability of the T. & S. B. Ry.   One of the first efforts in the industrial development area will be to assist in obtaining a new customer for the fine facility being vacated by a firm moving out of the area.

A cash flow analysis has been calculated for the Tuscola and Saginaw Bay Railway;   this analysis spotlights the lag between revenue accruable at the rai1road start-up on April 1, 1977, and the time (as long as ninety days later) when these revenue will begin to flow into the railway from other railroads.     For this reason very little "fixing up" or start-up purchasing is planned for before the month of June 1977.

Certain financial advantages way be obtainable for persons wishing to purchase and lease back a locomotive or other equipment to the Tuscola and Saginaw  Railway.  While those items are readily leasable  from outside parties , the T. &  S . B. Ry. management would be pleased to discuss a lease plan with any person interested in purchasing and leasing back equipment.

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CARLOADS  (PROJECTED) 1977        2200


Locomotive (EMD GP7), Road/Rail Vehicle,  Maintenance,  Fuel, Oil


Operating Crew (Two Employees) Wages, Fringe Benefits


Car Maint. and Repair-Five Cents Per Car Mile,
One Maintenance Employee Wages, Fringe Benefits


Car Rental  $17 Per Load


Accounting Services-Car, Revenue, Corporate


Station Cost-Agent, Clerk, Building Supplies, Utilities


Loss and Damage Claims


Liability Insurance


Track Maintenance - $4,000 Per Mile For 43.3 Miles Main *T rack


Superintendence - Wages and Bonuses, Fringe Benefits


Marketing and Sales


Industrial Development




Track and Structure Engineering


Technical Consulting




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2200 Car Loads
(6.1 Loads Per Day)

4380 Car Loads
(12.0 Loads Per Day)

1.   Total Revenue at  $80 per car:
      Additional Switching and Demurrage at $5 Per Car: 


 (1)     21,900

2.   Total Revenue at $100 per car:
      Additional Switching and Demurrage at $5 per car:


(1)     21,900

3.   Total Revenue at $120 per car:
      Additional Switching and Demurrage at $5 per car:






1.   Profit (Loss, Subsidy Required) at $80 Revenue per car



2.   Profit (Loss, Subsidy Required) at $100 Revenue per car)



3.   Profit (Loss, Subsidy Required) at $120 Revenue per car



Management Fee paid by State for return to investors


(2)   $--------

(1)   To be conservative, no revenues from additional services or increased car loads from acquired lines shown.   All figures in 1976 dollars.

(2)   Assumes RRR Act of 1973 as amended expires without extension in 1981.

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Michigan requires that any railroad receiving a contract to operate this line have sufficient cash to cover start-up and on-going expenses for at least a six-month period.  In addition, since many excellent companies have failed as a result of running out of cash as un-anticipated expenses occurred or rapid growth used up capital, the Tuscola and Saginaw Bay Railway wants to insure that sufficient funds are available to cover possible contingencies.   Funds will be invested by the board of directors at a good return unless or until needed.  The capitalization plan calls for 20,000 shares of stock to be sold at $10 per share; in addition an incorporator's fee of ten percent worth of stock will be issued.  Additional stock will be authorized in order to be used later at the discretion of the board for employee bonuses or other uses.

Prospective investors should note the fact that no return on their investment is assured past 1981, when the law authorizing state aid expires, and that like any other new corporation, risk is involved.    The Tuscola and Saginaw Bay is a bit unique in that state aid is available to minimize downside risk during the initial years of the company, but bear in mind the ultimate investment risk to all stockholders.

The management believes that the greatest return of all to be generated by the Tuscola and Saginaw Bay Railway will be to the communities, the farmers and the economic arena in the area served by this locally owned and managed, short line railroad.

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