-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ITfstgC2/lOTMbWGGAofUALApmwOe31ErKalJTMD5IlqN+K9UEiOkhaqgOA+Mqtp FyxuQ6AS5O3nQoisNwHvhg== 0000950137-04-009614.txt : 20041109 0000950137-04-009614.hdr.sgml : 20041109 20041108193731 ACCESSION NUMBER: 0000950137-04-009614 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041109 DATE AS OF CHANGE: 20041108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GATX CORP CENTRAL INDEX KEY: 0000040211 STANDARD INDUSTRIAL CLASSIFICATION: TRANSPORTATION SERVICES [4700] IRS NUMBER: 361124040 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-02328 FILM NUMBER: 041127179 BUSINESS ADDRESS: STREET 1: 500 W MONROE ST CITY: CHICAGO STATE: IL ZIP: 60661 BUSINESS PHONE: 3126216200 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL AMERICAN TRANSPORTATION CORP DATE OF NAME CHANGE: 19750722 10-Q 1 c89507e10vq.txt QUARTERLY REPORT ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-2328 --------------------------- GATX Corporation (Exact name of registrant as specified in its charter) NEW YORK 36-1124040 (State of incorporation) (I.R.S. Employee Identification No.) 500 WEST MONROE STREET CHICAGO, ILLINOIS 60661-3676 (Address of principal executive offices, including zip code) (312) 621-6200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes [X[ No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 49,441,158 shares of common stock were outstanding as of October 29, 2004. ================================================================================ GATX CORPORATION FORM 10-Q QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 2004 INDEX
Item No. Page No. - -------- -------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Income........................................................ 1 Consolidated Balance Sheets.............................................................. 3 Consolidated Statements of Cash Flows.................................................... 4 Notes to the Consolidated Financial Statements........................................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 14 Risk Factors............................................................................. 14 Comparison of First Nine Months of 2004 to First Nine Months of 2003..................... 16 Cash Flow and Liquidity.................................................................. 25 Comparison of Third Quarter of 2004 to Third Quarter of 2003............................. 27 New Accounting Pronouncements............................................................ 32 Critical Accounting Policies............................................................. 32 Forward Looking Statements............................................................... 32 Item 3. Quantitative and Qualitative Disclosures about Market Risk..................................... 32 Item 4. Controls and Procedures........................................................................ 32 PART II - OTHER INFORMATION Item 1. Legal Proceedings.............................................................................. 33 Item 6. Exhibits....................................................................................... 35 SIGNATURE.............................................................................................. 35 EXHIBIT INDEX.......................................................................................... 36
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GATX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 --------------------- --------------------- 2004 2003 2004 2003 -------- -------- -------- -------- GROSS INCOME Lease income ............................................ $ 200.2 $ 193.0 $ 583.9 $ 577.2 Marine operating revenue ................................ 36.2 27.3 76.2 57.0 Interest income ......................................... 2.9 9.0 15.3 30.6 Asset remarketing income ................................ 5.1 6.5 32.2 23.9 Gain on sale of securities .............................. .2 5.8 3.4 6.3 Fees .................................................... 5.7 3.7 13.9 14.2 Other ................................................... 59.9 30.6 96.4 66.1 -------- -------- -------- -------- Revenues ................................................ 310.2 275.9 821.3 775.3 Share of affiliates' earnings ........................... 17.2 16.7 51.2 55.6 -------- -------- -------- -------- TOTAL GROSS INCOME ...................................... 327.4 292.6 872.5 830.9 OWNERSHIP COSTS Depreciation ............................................ 48.8 46.9 142.2 139.6 Interest, net ........................................... 41.5 42.2 119.9 134.6 Operating lease expense ................................. 45.0 45.1 135.8 137.3 -------- -------- -------- -------- TOTAL OWNERSHIP COSTS ................................... 135.3 134.2 397.9 411.5 OTHER COSTS AND EXPENSES Maintenance expenses .................................... 46.3 43.3 140.4 125.3 Marine operating expenses ............................... 27.7 21.8 59.2 45.9 Other operating expenses ................................ 10.6 11.8 32.7 34.2 Selling, general and administrative expenses ............ 38.0 38.7 119.4 114.9 (Reversal) provision for possible losses ................ (4.7) .3 (9.7) 10.1 Asset impairment charges ................................ .3 8.8 1.4 22.6 Fair value adjustments for derivatives .................. .8 .2 .1 2.6 -------- -------- -------- -------- TOTAL OTHER COSTS AND EXPENSES .......................... 119.0 124.9 343.5 355.6 -------- -------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ... 73.1 33.5 131.1 63.8 INCOME TAXES ............................................ 24.9 12.2 43.5 24.1 -------- -------- -------- -------- INCOME FROM CONTINUING OPERATIONS ....................... 48.2 21.3 87.6 39.7 DISCONTINUED OPERATIONS Operations, net of taxes ................................ (.2) 1.4 18.5 9.6 Loss on sale of segment, net of taxes ................... (7.3) -- (7.7) -- -------- -------- -------- -------- TOTAL DISCONTINUED OPERATIONS ........................... (7.5) 1.4 10.8 9.6 -------- -------- -------- -------- NET INCOME .............................................. $ 40.7 $ 22.7 $ 98.4 $ 49.3 ======== ======== ======== ========
1
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------------ ------------------------ 2004 2003 2004 2003 ---------- ---------- ---------- ---------- PER SHARE DATA Basic: Income from continuing operations .................................. $ .98 $ .43 $ 1.78 $ .80 (Loss) income from discontinued operations ......................... (.16) .03 .22 .20 ---------- ---------- ---------- ---------- Total .............................................................. .82 $ .46 $ 2.00 $ 1.00 ========== ========== ========== ========== Average number of common shares (in thousands) ..................... 49,361 49,106 49,308 49,082 Diluted: Income from continuing operations .................................. $ .92 $ .43 $ 1.72 $ .80 (Loss) income from discontinued operations ......................... (.14) .03 .20 .20 ---------- ---------- ---------- ---------- Total .............................................................. $ .78 $ .46 $ 1.92 $ 1.00 ========== ========== ========== ========== Average number of common shares and common share equivalents (in thousands) ....................................... 54,923 54,358 54,784 49,195 Dividends declared per common share ................................ $ .20 $ .32 $ .60 $ .96
The accompanying notes are an integral part of these consolidated financial statements. 2 GATX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN MILLIONS)
SEPTEMBER 30 DECEMBER 31 2004 2003 ------------ ----------- ASSETS CASH AND CASH EQUIVALENTS ................................................................. $ 143.2 $ 211.5 RESTRICTED CASH ........................................................................... 57.9 60.9 RECEIVABLES Rent and other receivables ................................................................ 122.9 91.6 Finance leases ............................................................................ 272.8 289.2 Loans ..................................................................................... 105.5 183.5 Less: allowance for possible losses ....................................................... (27.8) (45.6) ---------- ---------- 473.4 518.7 OPERATING LEASE ASSETS, FACILITIES AND OTHER Railcars and service facilities ........................................................... 3,554.2 3,374.6 Operating lease investments and other ..................................................... 1,953.8 1,804.2 Less: allowance for depreciation ......................................................... (1,825.0) (1,831.5) ---------- ---------- 3,683.0 3,347.3 Progress payments for aircraft and other equipment ........................................ 19.5 53.6 ---------- ---------- 3,702.5 3,400.9 INVESTMENTS IN AFFILIATED COMPANIES ....................................................... 800.7 847.6 RECOVERABLE INCOME TAXES .................................................................. -- 53.8 GOODWILL, NET ............................................................................. 87.0 87.2 OTHER INVESTMENTS ......................................................................... 72.8 101.6 OTHER ASSETS .............................................................................. 251.8 238.3 ASSETS OF DISCONTINUED OPERATIONS ......................................................... 58.9 560.1 ---------- ---------- $ 5,648.2 $ 6,080.6 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ACCOUNTS PAYABLE AND ACCRUED EXPENSES ..................................................... $ 371.0 $ 354.8 DEBT Short-term ................................................................................ 11.4 15.9 Long-term: Recourse ............................................................................. 3,113.5 3,255.9 Nonrecourse .......................................................................... 94.9 99.3 Capital lease obligations ................................................................. 96.7 122.4 ---------- ---------- 3,316.5 3,493.5 DEFERRED INCOME TAXES ..................................................................... 698.9 671.7 OTHER LIABILITIES ......................................................................... 278.9 325.4 LIABILITIES OF DISCONTINUED OPERATIONS .................................................... -- 346.3 ---------- ---------- TOTAL LIABILITIES ......................................................................... $ 4,665.3 $ 5,191.7 SHAREHOLDERS' EQUITY Preferred stock ($1.00 par value, 5,000,000 shares authorized, 21,768 and 21,824 shares of Series A and B Cumulative Preferred Stock issued and outstanding as of September 30, 2004 and December 31, 2003, respectively, aggregate liquidation preference of $1.3 million) ........................................................................... * * Common stock ($.625 par value, 120,000,000 authorized, 57,365,153 and 57,204,550 shares issued and 49,418,322 and 49,246,388 shares outstanding as of September 30, 2004 and December 31, 2003, respectively) ........................................... 35.8 35.7 Additional capital ........................................................................ 399.1 396.2 Reinvested earnings ....................................................................... 689.0 620.1 Accumulated other comprehensive loss ...................................................... (12.6) (34.4) ---------- ---------- 1,111.3 1,017.6 Treasury shares, at cost (7,946,831 and 7,958,162 shares at September 30, 2004 and December 31, 2003, respectively) ........................................................ (128.4) (128.7) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY ................................................................ 982.9 888.9 ---------- ---------- 5,648.2 6,080.6 ========== ==========
* Less than $.1 million. The accompanying notes are an integral part of these consolidated financial statements. 3 GATX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN MILLIONS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 --------------------- --------------------- 2004 2003 2004 2003 -------- -------- -------- -------- OPERATING ACTIVITIES Net income, including discontinued operations ................................. $ 40.7 $ 22.7 $ 98.4 $ 49.3 Adjustments to reconcile net income to net cash provided by operating activities: Realized gains on remarketing of leased equipment ........................ (4.9) (5.3) (30.8) (26.1) Gain on sale of securities ............................................... (.2) (5.8) (3.4) (6.3) Pre-tax loss on sale of segment .......................................... 12.1 -- 12.7 -- Depreciation ............................................................. 52.5 81.6 185.1 246.1 (Reversal) provision for possible losses ................................. (4.5) .4 (9.6) 8.8 Asset impairment charges ................................................. .3 9.5 3.7 25.6 Deferred income taxes .................................................... 15.0 36.8 29.5 53.0 Share of affiliates' earnings, net of dividends .......................... (13.6) (14.6) (34.2) (45.6) Increase in insurance recoveries receivable .............................. (45.0) -- (45.0) -- Decrease (increase) in recoverable income taxes .......................... 3.7 (27.0) 61.7 64.3 Net decrease in operating lease payable .................................. (15.0) (16.0) (26.5) (18.6) Other .................................................................... (3.3) (18.7) (41.0) (31.0) -------- -------- -------- -------- Net cash provided by operating activities ................................ 37.8 63.6 200.6 319.5 INVESTING ACTIVITIES Additions to equipment on lease, net of nonrecourse financing for leveraged leases, operating lease assets and facilities ................................ (145.7) (124.8) (597.3) (463.9) Loans extended ................................................................ (.3) (10.9) (14.2) (48.6) Investments in affiliated companies ........................................... -- (4.8) (3.1) (49.0) Progress payments ............................................................. (.4) (3.5) (2.0) (26.1) Other investments ............................................................. (1.3) (1.0) (28.8) (25.2) -------- -------- -------- -------- Portfolio investments and capital additions ................................... (147.7) (145.0) (645.4) (612.8) Portfolio proceeds ............................................................ 58.3 183.4 380.4 573.8 Net proceeds from sale of segment ............................................. 9.0 -- 223.7 -- Proceeds from other asset sales ............................................... 3.8 4.3 24.7 19.1 Net decrease (increase) in restricted cash .................................... 2.2 1.1 3.0 (76.1) Effect of exchange rate changes on restricted cash ............................ -- -- -- 17.7 -------- -------- -------- -------- Net cash (used in) provided by investing activities ...................... (74.4) 43.8 (13.6) (78.3) FINANCING ACTIVITIES Net proceeds from issuance of long-term debt .................................. 42.0 241.5 202.5 574.5 Repayment of long-term debt ................................................... (66.6) (410.0) (404.9) (846.7) Net increase (decrease) in short-term debt .................................... 2.8 8.3 (2.1) 16.8 Net decrease in capital lease obligations ..................................... (9.5) (5.2) (25.7) (20.0) Issuance of common stock and other ............................................ 2.2 1.1 3.3 1.7 Cash dividends ................................................................ (9.8) (15.7) (29.5) (47.1) -------- -------- -------- -------- Net cash used in financing activities .................................... (38.9) (180.0) (256.4) (320.8) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS .................. 1.8 (2.1) 1.1 .6 -------- -------- -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS ..................................... $ (73.7) $ (74.7) $ (68.3) $ (79.0) ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. DESCRIPTION OF BUSINESS GATX Corporation (GATX or the Company) is headquartered in Chicago, Illinois and provides its services primarily through three operating segments: GATX Rail (Rail), GATX Air (Air) and GATX Specialty Finance (Specialty). Through these operating segments, GATX combines asset knowledge and services, structuring expertise, partnering and capital to provide business solutions to customers and partners worldwide. GATX specializes in railcar and locomotive leasing, aircraft operating leasing and financing other large ticket equipment. GATX invests in companies and joint ventures that complement its existing business activities. GATX partners with financial institutions and operating companies to improve scale in certain markets, broaden diversification within an asset class, and enter new markets. On June 30, 2004, GATX sold substantially all of the assets and related nonrecourse debt of GATX Technology Services (Technology) and its Canadian affiliate to CIT Technologies Corporation and CIT Financial Limited. Financial data for the Technology segment has been segregated as discontinued operations for all periods presented. NOTE 2. BASIS OF PRESENTATION The consolidated balance sheet at December 31, 2003 has been derived from the audited financial statements at that date. All other consolidated financial statements are unaudited but include all adjustments, consisting only of normal recurring items which management considers necessary for a fair statement of the consolidated results of operations, financial position and cash flow for the respective periods. Certain amounts in the 2003 financial statements have been reclassified to conform to the current presentation, including the separate presentation and reporting of discontinued operations. NOTE 3. NEW ACCOUNTING PRONOUNCEMENTS In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was enacted. The Act expands Medicare benefits, primarily by adding a prescription drug benefit for Medicare-eligible individuals starting in 2006. The Act provides employers currently sponsoring prescription drug programs for Medicare-eligible individuals with a range of options for coordinating with the new government-sponsored programs that may potentially reduce employer costs. In June 2004, FSP 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 was issued providing guidance on the accounting for the effects of the Act for employers that sponsor post-retirement health care plans that provide prescription drug benefits. FSP 106-2 supercedes FSP 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. GATX adopted FSP 106-2 in the third quarter of 2004. See Note 6 to the financial statements for information regarding the impact to GATX's results. In March, 2004 the Financial Accounting Standards Board (FASB) issued an exposure draft entitled Share-Based Payments, an Amendment of FASB Statements Nos. 123 and 95. This exposure draft would require stock-based compensation to employees to be recognized as a cost in the financial statements and that such cost be measured according to the fair value of the stock options. In the absence of an observable market price for the stock awards, the fair value of the stock options would be based upon a valuation methodology that takes into consideration various factors, including the exercise price of the option, the expected term of the option, the current price of the underlying shares, the expected volatility of the underlying share price, the expected dividends on the underlying shares and the risk-free interest rate. The proposed requirements in the exposure draft would be effective for the first interim period beginning after June 15, 2005. The FASB intends to issue a final Statement in late 2004. GATX is currently evaluating the effect of adopting the proposed standard. In April 2004, FASB issued FASB Staff Position (FSP) 129-1, Disclosure of Information about Capital Structure Relating to Contingently Convertible Securities. This standard requires the disclosure of the rights and privileges of various convertible securities including the conversion price, rates, dates and significant terms of contracts to issue additional shares. The purpose is to enable users of financial statements to understand the contingency and the potential impact of conversion and possible dilution of earnings per share. The requirements of FSP 129-1 have been incorporated into Note 11 to the financial statements. 5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) In September 2004, the Emerging Issues Task Force (EITF) of the FASB reached consensus on issue EITF 04-8, Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effect on Diluted Earnings per Share which provided that contingently convertible securities, and other securities that have embedded contingent features should be included in the computation of diluted earnings per share as if the securities were converted and the underlying shares of common stock were issued and outstanding during the applicable accounting period. EITF 04-8 will be effective for reporting periods ending after December 15, 2004. The ultimate impact will depend upon the terms and conditions of the contingently convertible securities on the effective date. As a result, the Company has not yet determined the impact of adoption of EITF 04-8. See Note 11 to the financial statements for additional information concerning GATX's contingently convertible securities. NOTE 4. INVESTMENTS IN AFFILIATED COMPANIES Investments in affiliated companies represent investments in, and loans to and from, domestic and foreign companies and joint ventures that are in businesses similar to those of GATX, such as commercial aircraft leasing, rail equipment leasing, and other business activities. For purposes of preparing the following information, GATX made certain adjustments to information provided by the joint ventures. Pre-tax income was adjusted to exclude interest expense (or interest income) recognized by the joint ventures on loans from (or to) GATX. For all affiliated companies held at the end of the quarter as part of continuing operations, operating results, as if GATX held 100 percent interest, were (in millions):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 -------------------- -------------------- 2004 2003 2004 2003 -------- -------- -------- -------- Gross income ..... $ 189.0 $ 185.2 $ 521.7 $ 516.4 Pre-tax income ... 43.4 45.4 113.9 111.6
NOTE 5. GOODWILL As a result of the Technology sale, the goodwill balance of $87.2 million reported as of December 31, 2003 has been restated to exclude $7.6 million related to the Technology segment which was reclassified to assets of discontinued operations. In 2004, the sale of the Technology segment resulted in the write-off of $7.6 million related to the Technology goodwill, which was included in the loss on sale of segment. See Note 13 for further discussion on the Technology sale. NOTE 6. PENSION AND OTHER POST-RETIREMENT BENEFITS The components of pension and other post-retirement benefit costs for the three months ended September 30, 2004 and 2003 are as follows (in millions):
2004 PENSION 2003 PENSION 2004 RETIREE 2003 RETIREE BENEFITS BENEFITS HEALTH AND LIFE HEALTH AND LIFE ------------ ------------ --------------- --------------- Service cost ................................ $ 1.8 $ 1.6 $ .1 $ .1 Interest cost ............................... 5.9 6.0 1.1 1.3 Expected return on plan assets .............. (7.7) (7.6) -- -- Amortization of: Unrecognized prior service cost ........... -- .2 -- -- Unrecognized net loss ..................... .4 -- -- -- ------ ------ ------ ------ Ongoing net costs ........................... .4 .2 1.2 1.4 ------ ------ ------ ------ Recognized cost (gain) due to curtailment ... -- -- -- -- Recognized special termination benefits expense .................................... -- -- -- -- ------ ------ ------ ------ Net costs ................................... $ .4 $ .2 $ 1.2 $ 1.4 ====== ====== ====== ======
The components of pension and other post-retirement benefit costs for the nine months ended September 30, 2004 and 2003 are as follows (in millions): 6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
2004 PENSION 2003 PENSION 2004 RETIREE 2003 RETIREE BENEFITS BENEFITS HEALTH AND LIFE HEALTH AND LIFE ------------ ------------ --------------- --------------- Service cost ................................ $ 5.4 $ 4.7 $ .4 $ .3 Interest cost ............................... 17.5 18.0 3.5 3.7 Expected return on plan assets .............. (23.1) (22.8) -- -- Amortization of: Unrecognized prior service cost ........... .2 .5 -- -- Unrecognized net loss ..................... 1.2 .2 .5 .2 ------ ------ ------ ------ Ongoing net costs ........................... 1.2 .6 4.4 4.2 ------ ------ ------ ------ Recognized cost (gain) due to curtailment ... .7 -- (.2) -- Recognized special termination benefits expense ..................................... .7 -- -- -- ------ ------ ------ ------ Net costs ................................... $ 2.6 $ .6 $ 4.2 $ 4.2 ====== ====== ====== ======
The previous tables include amounts allocated to discontinued operations, including the curtailment cost (gain) and special termination expense which resulted from the Technology sale. In the third quarter of 2004, GATX incorporated the impact of the U.S. Medicare Prescription Drug, Improvement and Modernization Act of 2003 in its consolidated financial results. The effect of the federal Medicare subsidy reduced the accumulated postretirement benefit obligation (APBO) by $8.4 million and net periodic cost for other postretirement benefits decreased by $.3 million for the third quarter. The full year impact is expected to be approximately $.5 million. GATX uses a December 31 measurement date for all of its plans. The three month and nine month amounts reported are based on estimated annual costs. Actual annual costs as of December 31, 2004 may differ from the estimates provided. GATX expects to contribute approximately $14.0 million to its domestic and foreign pension plans in 2004. GATX also expects to contribute $9.0 million to its other post-retirement benefit plans in 2004. Through September 30, 2004, contributions of $12.8 million have been made to the domestic and foreign pension plans in addition to contributions of $6.2 million to the other post-retirement benefits plans. Additional contributions to these plans will be dependent on several factors including investment returns on plan assets and actuarial experience. NOTE 7. GUARANTEES In connection with certain investments or transactions, GATX's subsidiaries have provided various guarantees which could require performance in the event of demands by third parties. Similar to GATX's balance sheet investments, these guarantees expose GATX to credit, market, and equipment risk; accordingly, GATX evaluates its commitments and other contingent obligations using techniques similar to those used to evaluate funded transactions. Asset residual value guarantees represent GATX's commitment to third parties that an asset or group of assets will be worth a specified amount at the end of a lease term. Revenue in the form of an initial fee and sharing in any proceeds received upon disposition of assets in excess of the amount guaranteed is earned for providing such asset value guarantees. Any liability resulting from GATX's performance pursuant to the residual value guarantees may be reduced by the value realized from the underlying asset or group of assets. Historically, gains associated with the residual value guarantees have exceeded any losses incurred and have been recorded in asset remarketing income in the consolidated statements of income. Based on known facts and current market conditions, management does not believe that its exposure under asset residual value guarantees will result in any significant adverse financial impact to the Company. GATX believes these asset residual value guarantees will likely generate future income in the form of fees and residual sharing proceeds. Lease and loan payment guarantees generally involve guaranteeing repayment of the financing utilized by affiliates to acquire assets, and are in lieu of making direct equity investments in the affiliate. GATX is not aware of any event of default which would require it to satisfy these guarantees, and expects the affiliates to generate sufficient cash flow to satisfy their lease and loan obligations. 7 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) At September 30, 2004, the maximum potential amount of lease, loan or residual value guarantees under which GATX's subsidiaries could be required to perform was $532.5 million, including $47.6 million of guarantees associated with discontinued operations. The related carrying value of the guarantees recorded on the balance sheet, including deferred revenue primarily associated with residual value guarantees entered into prior to the effective date of FASB Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, was a liability of $4.1 million. The expiration dates of these guarantees range from 2004 to 2017. NOTE 8. VARIABLE INTEREST ENTITIES In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, which addresses consolidation by business enterprises of variable interest entities (VIEs) in which it is the primary beneficiary. In October 2003, the FASB deferred the effective date of FIN 46 to interim periods ending after December 15, 2003 in order to address a number of interpretation and implementation issues. In December 2003, the FASB reissued FIN 46 (Revised Interpretations) with certain modifications and clarifications. As of September 30, 2004, GATX identified 19 VIEs in which it holds a significant variable interest, primarily through equity investments in common stock accounted for under the equity method of accounting and beneficial equity interests in trusts used in leveraged lease investments. GATX is not the primary beneficiary of any of the identified VIEs as GATX does not receive the majority of the entities' expected losses or residual returns. As a result, none of these entities have been consolidated into GATX's financial statements. This determination is based on forecasted expected losses and residual returns for each of the 19 identified VIEs. GATX's maximum exposure to loss with respect to these variable interest entities was $306.9 million as of September 30, 2004, of which $273.2 million is recorded on the balance sheet as either investments in affiliated companies or finance leases. NOTE 9. COMPREHENSIVE INCOME GATX includes foreign currency translation gains (losses), unrealized gains (losses) on available-for-sale securities and unrealized gains (losses) on certain qualified derivative instruments in comprehensive income. For the three months ended September 30, 2004 and 2003, comprehensive income was $60.4 million and $25.5 million, respectively. For the nine months ended September 30, 2004 and 2003, comprehensive income was $120.2 million and $62.7 million, respectively. NOTE 10. INCENTIVE COMPENSATION PLANS GATX grants stock options to employees under stock-based compensation plans, as described more fully in its Annual Report on Form 10-K for the year ended December 31, 2003. As permitted under Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS No. 123, the Company accounts for all stock-based employee compensation plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Under these guidelines, no compensation expense is recognized, because the exercise price of GATX's employee stock options equals the market value of the underlying stock on the date of grant. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, Accounting for Stock-Based Compensation, and has been determined as if GATX had accounted for its employee stock options under the fair value method. The Black-Scholes model, one of the most widely used option valuation models, was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including expected stock price volatility. Because GATX's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value provisions of SFAS No. 123 to stock-based employee compensation (in millions, except for per share data): 8 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 --------------------- --------------------- 2004 2003 2004 2003 -------- -------- -------- -------- Net income, as reported ............................ $ 40.7 $ 22.7 $ 98.4 $ 49.3 Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects ........................................ (.5) (.7) (1.5) (1.8) -------- -------- -------- -------- Pro forma net income ............................... $ 40.2 $ 22.0 $ 96.9 $ 47.5 ======== ======== ======== ======== Net income per share: Basic, as reported ................................. $ .82 $ .46 $ 2.00 $ 1.00 Basic, pro forma ................................... .81 .45 1.97 .97 Diluted, as reported ............................... .78 .46 1.92 1.00 Diluted, pro forma ................................. .77 .45 1.89 .97
9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE 11. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted net income per common share (in millions, except per share amounts):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 --------------------- -------------------- 2004 2003 2004 2003 -------- -------- -------- -------- NUMERATOR: Income from continuing operations $ 48.2 $ 21.3 $ 87.6 $ 39.7 (Loss) income from discontinued operations (7.5) 1.4 10.8 9.6 Less: dividends paid and accrued on preferred stock * * * * -------- -------- -------- -------- NUMERATOR FOR BASIC EARNINGS PER SHARE - INCOME AVAILABLE TO COMMON SHAREHOLDERS 40.7 22.7 98.4 49.3 Effect of dilutive securities: Add: dividends paid and accrued on preferred stock * * * * After-tax interest expense on convertible securities (a) 2.2 2.2 6.7 -- -------- -------- -------- -------- NUMERATOR FOR DILUTED EARNINGS PER SHARE - INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 42.9 $ 24.9 $ 105.1 $ 49.3 DENOMINATOR: DENOMINATOR FOR BASIC EARNINGS PER SHARE - WEIGHTED AVERAGE SHARES 49.4 49.1 49.3 49.1 Effect of dilutive securities: Stock options .3 * .2 * Convertible preferred stock .1 .1 .1 .1 Convertible securities (a) 5.1 5.1 5.1 -- -------- -------- -------- -------- DENOMINATOR FOR DILUTED EARNINGS PER SHARE - ADJUSTED WEIGHTED AVERAGE AND ASSUMED CONVERSION 54.9 54.3 54.7 49.2 BASIC EARNINGS PER SHARE : Income from continuing operations $ .98 $ .43 $ 1.78 $ .80 (Loss) income from discontinued operations (.16) .03 .22 .20 -------- -------- -------- -------- TOTAL BASIC EARNINGS PER SHARE $ .82 $ .46 $ 2.00 $ 1.00 ======== ======== ======== ======== DILUTED EARNINGS PER SHARE : Income from continuing operations $ .92 $ .43 $ 1.72 $ .80 (Loss) income from discontinued operations (.14) .03 .20 .20 -------- -------- -------- -------- TOTAL DILUTED EARNINGS PER SHARE $ .78 $ .46 $ 1.92 $ 1.00 ======== ======== ======== ========
* Less than $.1 million. (a) GATX has issued two convertible securities, one in 2002 for $175.0 million and the other in 2003 for $125.0 million. Shares underlying $175.0 million of convertible securities issued in 2002 and the related interest expense adjustment were included in the calculation of diluted earnings per share for each of the periods presented except the nine months ended September 30, 2003 because of the dilutive effects. These securities are convertible into common stock at a price of $34.09 per share, which would result in 5,133,471 common shares issued upon conversion. Shares underlying $125.0 million of convertible securities issued in 2003 and the related interest expense were excluded from the calculations of diluted earnings per share for all periods presented. These securities are convertible into common stock with a current conversion price of $23.93 per share, which would result in 5,223,460 common shares issued upon conversion. The conversion price is subject to adjustment based on various factors, including changes in the dividend on GATX's common stock. The conversion into common stock is subject to a number of contingencies including the market price of GATX's common stock and the trading price of the 10 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) notes. These shares were excluded from the calculation of diluted earnings per share for all periods presented because the conditions required to satisfy the contingencies were not met. 11 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE 12. FINANCIAL DATA OF BUSINESS SEGMENTS The financial data presented below conforms to SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, and depicts the profitability, financial position and capital expenditures of each of GATX's continuing business segments. Segment profitability is presented to reflect operating results inclusive of allocated support expenses from the parent company and estimated applicable interest costs. Management, including the Chief Executive Officer, evaluates the performance of each segment based on several measures, including net income. These results are used to assess performance and determine resource allocation among the segments. GATX provides its services primarily through three operating segments: Rail, Air, and Specialty. Other is comprised of corporate results (including selling, general and administrative (SG&A) expense and interest expense not allocated to segments), and the results of American Steamship Company, a Great Lakes shipping company. Technology's results and the associated loss on sale of the segment are classified as discontinued operations and not included in the financial data below. See Note 13 for further information related to the sale of Technology. The following tables present certain segment data for the three months and nine months ended September 30, 2004 and 2003 (in millions):
INTER- RAIL AIR SPECIALTY OTHER SEGMENT TOTAL -------- -------- --------- -------- -------- -------- THREE MONTHS ENDED SEPTEMBER 30, 2004 Revenues ............................................. $ 181.0 $ 31.6 $ 15.2 $ 82.4 $ -- $ 310.2 Share of affiliates' earnings ........................ 3.1 8.3 5.8 -- -- 17.2 -------- -------- -------- -------- -------- -------- Total gross income ................................... 184.1 39.9 21.0 82.4 -- 327.4 Depreciation ......................................... 30.1 15.1 1.1 2.5 -- 48.8 Interest, net ........................................ 20.4 10.6 6.2 4.3 -- 41.5 Operating lease expense .............................. 43.4 .9 1.0 -- (.3) 45.0 Income (loss) from continuing operations before income taxes ...................................... 19.0 7.2 10.9 36.3 (.3) 73.1 Income from continuing operations .................... 13.2 5.0 6.4 23.4 .2 48.2 -------- -------- -------- -------- -------- -------- SELECTED BALANCE SHEET DATA AT SEPTEMBER 30, 2004 Investments in affiliated companies .................. 153.0 484.0 163.7 -- -- 800.7 Identifiable assets from continuing operations ....... 2,651.5 2,063.3 522.9 354.6 (3.0) 5,589.3 -------- -------- -------- -------- -------- -------- CASH FLOW Portfolio investments and capital additions .......... 78.6 66.2 2.5 .4 -- 147.7 -------- -------- -------- -------- -------- --------
INTER- RAIL AIR SPECIALTY OTHER SEGMENT TOTAL -------- -------- --------- -------- -------- -------- THREE MONTHS ENDED SEPTEMBER 30, 2003 Revenues ........................................... $ 172.4 $ 30.6 $ 32.8 $ 40.3 $ (.2) $ 275.9 Share of affiliates' earnings ...................... 4.0 7.5 5.2 -- -- 16.7 -------- -------- -------- -------- -------- -------- Total gross income ................................. 176.4 38.1 38.0 40.3 (.2) 292.6 Depreciation ....................................... 28.5 14.0 2.5 1.9 -- 46.9 Interest, net ...................................... 15.2 10.0 10.6 6.6 (.2) 42.2 Operating lease expense ............................ 43.1 .9 1.1 -- -- 45.1 Income (loss) from continuing operations before income taxes ..................................... 23.2 3.7 15.8 (9.2) -- 33.5 Income (loss) from continuing operations ........... 15.2 3.4 9.0 (6.3) -- 21.3 -------- -------- -------- -------- -------- -------- SELECTED BALANCE SHEET DATA AT DECEMBER 31, 2003 Investments in affiliated companies ................ 140.9 484.9 221.8 -- -- 847.6 Identifiable assets from continuing operations ..... 2,401.6 1,977.0 707.6 440.8 (6.5) 5,520.5 -------- -------- -------- -------- -------- -------- CASH FLOW Portfolio investments and capital additions ........ 30.6 32.9 17.4 1.0 -- 81.9 -------- -------- -------- -------- -------- --------
12 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
INTER- RAIL AIR SPECIALTY OTHER SEGMENT TOTAL -------- -------- --------- -------- -------- -------- NINE MONTHS ENDED SEPTEMBER 30, 2004 Revenues .......................................... $ 542.8 $ 83.9 $ 68.8 $ 125.8 $ -- $ 821.3 Share of affiliates' earnings ..................... 12.9 23.9 14.4 -- -- 51.2 -------- -------- -------- -------- -------- -------- Total gross income ................................ 555.7 107.8 83.2 125.8 -- 872.5 Depreciation ...................................... 91.1 43.4 3.2 4.5 -- 142.2 Interest, net ..................................... 55.3 28.9 20.3 15.4 -- 119.9 Operating lease expense ........................... 130.1 2.9 3.1 -- (.3) 135.8 Income (loss) from continuing operations before income taxes .................................... 63.5 14.3 51.2 2.4 (.3) 131.1 Income from continuing operations ................. 44.6 9.6 31.4 1.8 .2 87.6 -------- -------- -------- -------- -------- -------- SELECTED BALANCE SHEET DATA AT SEPTEMBER 30, 2004 Investments in affiliated companies ............... 153.0 484.0 163.7 -- -- 800.7 Identifiable assets from continuing operations .... 2,651.5 2,063.3 522.9 354.6 (3.0) 5,589.3 -------- -------- -------- -------- -------- -------- CASH FLOW Portfolio investments and capital additions ....... 329.6 164.6 20.6 2.0 -- 516.8 -------- -------- -------- -------- -------- --------
INTER- RAIL AIR SPECIALTY OTHER SEGMENT TOTAL -------- -------- --------- -------- -------- -------- NINE MONTHS ENDED SEPTEMBER 30, 2003 Revenues ........................................... $ 518.0 $ 81.4 $ 101.7 $ 74.9 $ (.7) $ 775.3 Share of affiliates' earnings ...................... 8.7 26.1 20.8 -- -- 55.6 -------- -------- -------- -------- -------- -------- Total gross income ................................. 526.7 107.5 122.5 74.9 (.7) 830.9 Depreciation ....................................... 86.5 41.0 7.9 4.2 -- 139.6 Interest, net ...................................... 49.1 31.0 34.3 20.9 (.7) 134.6 Operating lease expense ............................ 130.6 2.9 3.4 .4 -- 137.3 Income (loss) from continuing operations before income taxes ..................................... 63.8 1.6 44.3 (45.9) -- 63.8 Income (loss) from continuing operations ........... 41.0 1.0 26.7 (29.0) -- 39.7 -------- -------- -------- -------- -------- -------- SELECTED BALANCE SHEET DATA AT DECEMBER 31, 2003 Investments in affiliated companies ................ 140.9 484.9 221.8 -- -- 847.6 Identifiable assets from continuing operations ..... 2,401.6 1,977.0 707.6 440.8 (6.5) 5,520.5 -------- -------- -------- -------- -------- -------- CASH FLOW Portfolio investments and capital additions ........ 123.0 221.6 76.7 18.0 -- 439.3 -------- -------- -------- -------- -------- --------
NOTE 13. DISCONTINUED OPERATIONS On June 30, 2004, GATX sold substantially all of the assets and related nonrecourse debt of GATX Technology Services Corporation and its Canadian affiliate to CIT Technologies Corporation and CIT Financial Limited for estimated net proceeds of $246.0 million of which $31.3 million was yet to be received at September 30, 2004. During the quarter ended September 30, 2004, certain remaining Technology assets, including a 50% interest in a joint venture were sold for proceeds of $9.0 million, which approximated book value. The loss on sale of segment for the quarter ended September 30, 2004 was attributable to expenses related to the sale recognized in accordance with applicable accounting rules. The following table summarizes the revenues, income before taxes and the loss on disposal, net of tax, of Technology, which has been reclassified to discontinued operations for all periods presented.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------ ----------------- 2004 2003 2004 2003 ------ ------ ------ ------ Gross income .......................................................... $ 4.9 $ 49.6 $103.0 $156.6 (Loss) income before taxes ............................................ (.4) 2.8 29.9 15.3 Operating (loss) income, net of tax ................................... (.2) 1.4 18.5 9.6 Loss on sale of segment, net of taxes of $4.8 million for the three months ended and $5.0 million for nine months ended ................... (7.3) -- (7.7) --
13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GATX Corporation (GATX or the Company) is headquartered in Chicago, Illinois and provides its services primarily through three operating segments: GATX Rail (Rail), GATX Air (Air), and GATX Specialty Finance (Specialty). Through these businesses, GATX combines asset knowledge and services, structuring expertise, partnering and capital to provide business solutions to customers and partners worldwide. GATX specializes in railcar and locomotive leasing, aircraft operating leasing, and financing other large ticket equipment. On June 30, 2004, GATX sold substantially all of the assets and related nonrecourse debt of GATX Technology Services (Technology) and its Canadian affiliate to CIT Technologies Corporation and CIT Financial Limited. Financial data for the Technology segment has been segregated as discontinued operations for all periods presented. Operating results for the nine months ended September 30, 2004 are not necessarily indicative of the results that may be achieved for the entire year ending December 31, 2004. RISK FACTORS GATX's businesses are subject to a number of risks which investors should consider. - Liquidity and Capital Resources. GATX is dependent in part upon the issuance of unsecured and secured debt to fund its operations and contractual commitments. A number of factors could cause GATX to incur increased borrowing costs and to have greater difficulty accessing public and private markets for both secured and unsecured debt. These factors include the global capital market environment and outlook, financial performance and outlook, and credit ratings as determined primarily by rating agencies such as Standard & Poor's (S&P) and Moody's Investor Service (Moody's). In addition, based on GATX's current credit ratings, access to the commercial paper market and uncommitted money market lines is uncertain and cannot be relied upon. It is possible that GATX's other sources of funds, including available cash, bank facilities, cash flow from operations and portfolio proceeds may not provide adequate liquidity to fund its operations and contractual commitments. - Terrorism/International Conflict. National and international political developments, instability and uncertainties, including continuing political unrest and threats of terrorists' attacks, could result in continued global economic weakness in general and in the United States in particular, and could have an adverse impact on GATX's businesses. The effects may include, among other things, legislation directed toward improving the security of railcars against acts of terrorism which affects the construction or operation of railcars, a decrease in demand for air travel and rail services, consolidation and/or additional bankruptcies in the rail and airline industries, lower utilization of new and existing aircraft and rail equipment, lower rail and aircraft rental rates or a slower recovery of such rates, impairment of rail and air portfolio assets and fewer partners for joint ventures. Depending upon the severity, scope and duration of these effects, the impact on GATX's financial position, results of operations and cash flows could be material. - Competition. GATX is subject to intense competition in its rail and aircraft leasing businesses. In many cases, these competitors are larger entities that have greater financial resources, higher credit ratings and access to lower cost capital than GATX. These factors may enable competitors to offer leases and loans to customers at lower rates than GATX is able to provide, thus impacting GATX's asset utilization or GATX's ability to lease assets on a profitable basis. - Lease versus Purchase Decision. GATX's core businesses rely upon its customers continuing to lease rather than purchase assets. There are a number of items that factor into the customer's decision to lease or purchase assets, such as tax considerations, interest rates, balance sheet considerations, and operational flexibility. GATX has no control over these external considerations and changes in these factors could negatively impact demand for its leasing products. - Effects of Inflation. Inflation in railcar rental rates as well as inflation in residual values for air and rail equipment have historically benefited GATX's financial results. Effects of inflation are unpredictable as to timing and duration, depending on market conditions and economic factors. - Asset Obsolescence. GATX's core assets may be subject to functional, regulatory, or economic obsolescence. Although GATX believes it is adept at managing obsolescence risk, there is no guarantee that changes in various market fundamentals or the adoption of new regulatory requirements will not cause unexpected asset obsolescence in the future. 14 - Allowance for Possible Losses. GATX's allowance for possible losses may be inadequate if unexpected adverse changes in the economy exceed the expectations of management, or if discrete events adversely affect specific customers, industries or markets. If the allowance for possible losses is insufficient to cover losses related to reservable assets, including gross receivables, finance leases, and loans, then GATX's financial position or results of operations could be negatively impacted. - Impaired Assets. An asset impairment charge may result from the occurrence of unexpected adverse changes that impact GATX's estimates of expected cash flows generated from our long-term assets. GATX regularly reviews long-term assets for impairments, including when events or changes in circumstances indicate the carrying value of an asset may not be recoverable. An impairment loss is recognized when the carrying amount of an asset is not recoverable. GATX may be required to recognize asset impairment charges in the future as a result of the weak economic environment, challenging market conditions in the air, rail or technology markets or events related to particular customers or asset types. - Insurance. The ability to insure its rail and aircraft assets and their associated risks is an important aspect of GATX's ability to manage risk in these core businesses. There is no guarantee that such insurance will be available on a cost-effective basis consistently in the future. - Environmental. GATX is subject to federal and state requirements for protection of the environment, including those for discharge of hazardous materials and remediation of contaminated sites. GATX routinely assesses its environmental exposure, including obligations and commitments for remediation of contaminated sites and assessments of ranges and probabilities of recoveries from other responsible parties. Because of the regulatory complexities and risk of unidentified contaminants on its properties, the potential exists for remediation costs to be materially different from the costs GATX has estimated. - Potential for Claims and Lawsuits. The nature of assets which GATX owns and leases exposes the Company to the potential for various claims and litigation related to, among other things, personal injury and property damage, environmental claims and other matters. Some of the commodities transported by GATX's railcars, particularly those classified as hazardous materials, can pose risks that GATX and its subsidiaries work with its customers to minimize. The potential liabilities could have a significant effect on GATX's consolidated financial condition or results of operations. - Commodity/Energy Prices. Energy prices, including the price of natural gas and oil, are significant cost drivers for many of our customers, particularly in the chemical and airline industries. In addition, commodity prices such as the price of steel are a large component of railcar manufacturing. Sustained high energy or commodity prices could negatively impact these industries resulting in a corresponding adverse effect on the cost and demand for our products and services. - Regulation. GATX's air and rail operations are subject to the jurisdiction of a number of federal agencies, including the Department of Transportation. State agencies regulate some aspects of rail operations with respect to health and safety matters not otherwise preempted by federal law. New regulatory rulings may negatively impact GATX's financial results and economic value of its assets. - Risk Concentrations. GATX's revenues are generally derived from a wide range of asset types, customers and geographic locations. However, from time to time, GATX could have a large investment in a particular asset type, a large revenue stream associated with a particular customer, or a large number of customers located in a particular geographic region. Decreased demand from a discrete event impacting a particular asset type, discrete events with a specific customer, or adverse regional economic conditions, particularly for those assets, customers or regions in which GATX has a concentrated exposure, could have a negative impact on GATX's results of operations. - Foreign Currency. GATX's results are exposed to foreign exchange rate fluctuations as the financial results of certain subsidiaries are translated from the local currency into U.S. dollars upon consolidation. As exchange rates vary, revenue and other operating results, when translated, may differ materially from expectations. GATX is also subject to gains and losses on foreign currency transactions, which could vary based on fluctuations in exchange rates and the timing of the transactions and their settlement. In addition, fluctuations in foreign exchange rates can have an effect on the demand and relative price for services provided by GATX domestically and internationally, and could have a negative impact on GATX's results of operations. 15 - Asset Utilization and Lease Rates. GATX's profitability is largely dependent on its ability to maintain assets on lease (utilization) at satisfactory lease rates. A number of factors can adversely affect utilization and lease rates, including, but not limited to: an economic downturn causing reduced demand or oversupply in the markets in which the company operates, changes in customer behavior, or any other change in supply or demand caused by factors discussed in this Risk section. - Retirement Benefits. GATX's pension and other post-retirement costs are dependent on various assumptions used to calculate such amounts, including discount rates, long-term return on plan assets, salary increases, health care cost trend rates and other factors. Changes to any of these assumptions could adversely affect GATX's results of operations. - Income Taxes. GATX is subject to taxes in both the U.S. and various foreign jurisdictions. As a result, GATX's effective tax rate could be adversely affected by changes in the mix of earnings in the U.S. and foreign countries with differing statutory tax rates, legislative changes impacting statutory tax rates, including the impact on recorded deferred tax assets and liabilities, changes in tax laws or by material audit assessments. In addition, deferred tax balances reflect the benefit of net operating loss carryforwards, the realization of which will be dependent upon generating future taxable income. - Internal controls and requirements of Section 404 of the Sarbanes-Oxley Act. GATX is in the process of documenting and testing internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of internal controls over financial reporting and a report by the Company's Independent Auditors addressing these assessments. During the course of testing, GATX , or the Independent Auditor, may identify deficiencies which the Company may not be able to remediate and test in time to meet the deadline imposed by the requirements of Section 404. In addition, if GATX fails to maintain the adequacy of internal controls, the Company may not be able to ensure that GATX can conclude on an ongoing basis that it has effective internal controls over financial reporting in accordance with Section 404 of Sarbanes-Oxley. Even if GATX concludes that adequate internal control procedures are in place, no system of internal controls can provide absolute assurance that the financial statements are accurate and free of error. As a result, the risk exists that GATX's internal controls may not detect all errors or omissions in the financial statements. - Additional risks and uncertainties not presently known, or that GATX currently deems immaterial, may also adversely affect GATX's business operations. STATEMENT OF INCOME DISCUSSION The following table presents net income (loss) by segment for the three and nine months ended September 30, 2004 and 2003 (in millions):
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 -------------------------- ------------------------- 2004 2003 2004 2003 -------- --------- -------- --------- Rail ..................................... $ 13.2 $ 15.2 $ 44.6 $ 41.0 Air ...................................... 5.0 3.4 9.6 1.0 Specialty ................................ 6.4 9.0 31.4 26.7 Other .................................... 23.6 (6.3) 2.0 (29.0) -------- -------- -------- -------- Net income from continuing operations ... 48.2 21.3 87.6 39.7 Discontinued operations ................. (7.5) 1.4 10.8 9.6 -------- -------- -------- -------- Net income .............................. $ 40.7 $ 22.7 $ 98.4 $ 49.3 ======== ======== ======== ========
Following is management's discussion and analysis of GATX's comparative results of its reporting segments, Other, and discontinued operations. COMPARISON OF FIRST NINE MONTHS OF 2004 TO FIRST NINE MONTHS OF 2003 GATX RAIL Improving market conditions in the North American rail industry have favorably impacted Rail's North American operations. Market indicators, such as carloadings and ton miles, were up from the comparable prior year period. Market improvements resulted in an increase in railcar manufacturing backlog and a more balanced supply/demand relationship for most 16 car types. Lease rates are increasing as economic conditions and railcar demand have improved. Rail's North American utilization increased from year end due to a combination of placement of new railcars, the movement of railcars from idle to active, and the scrapping of railcars. Renewal and assignment activity remained strong in the current period, reflective of more favorable conditions in the North American rail market. However, maintenance costs associated with preparing previously idle cars for service have adversely impacted current period results, and this trend is anticipated to continue for the remainder of the year. Lease rates are improving and current average renewal rates for most car types now equal or exceed the average expiring rate. The impact of this improvement on earnings will manifest gradually as rate changes move slowly through the fleet due to the term nature of the business. European market conditions continued to be stable. Utilization remains high and operations have been positively impacted by success in Eastern European markets and the placement of new car deliveries. Railcar investments totaled $305.6 million during the first nine months of 2004, compared to $123.0 million in the prior year period. As a result of this new investment volume, 4,778 cars were added to the North American fleet. The prior period's portfolio investments and capital expenditures included $22.5 million for the December 2002 acquisition of the remainder of KVG Kesselwagen Vermietgesellschaft mbH, and KVG Kesselwagen Vermietgesellschaft m.b.h. (collectively KVG), a portion of which was funded in 2003. Gross Income Components of Rail's gross income for the nine months ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 ---- ---- Lease income ..................................... $ 491.2 $ 475.6 Asset remarketing income ......................... 6.8 4.4 Fees ............................................. 2.2 2.7 Other ............................................ 42.6 35.3 -------- -------- Revenues ....................................... 542.8 518.0 hare of affiliates' earnings ..................... 12.9 8.7 -------- -------- Total gross income ............................. $ 555.7 $ 526.7 ======== ========
Lease income of $491.2 million increased $15.6 million from the prior year period due to the impact of foreign exchange rates, favorable European fleet activity, and an increase in the number of active North American cars. The increase was partially offset by the effect of lower average North American lease rates. Although lease rates are increasing, average North American lease rates were in aggregate lower than the prior year period. Rail's North American fleet totaled 106,994 cars at September 30, 2004 compared to 104,493 at the end of the prior year period and 105,248 cars at December 31, 2003. In North America 103,327 railcars were active at September 30, 2004, compared to 97,018 a year ago and 98,294 at December 31, 2003. Rail's North American utilization of 97% at September 30, 2004, improved from 93% at September 30, 2003 and 93% at December 31, 2003. Asset remarketing income of $6.8 million in 2004 includes a $1.3 million residual sharing fee from a managed portfolio, $.6 million in other residual sharing fees and a $4.6 million gain on the sale of railcars. Asset remarketing income in 2003 included the gain on disposition of a leveraged lease commitment on passenger rail equipment for $4.3 million. Other income of $42.6 million was $7.3 million higher than the prior year quarter due to higher scrapping gains resulting from higher scrap metal prices and a $2.1 million gain on the restructuring of a residual value guarantee. These favorable items were offset by lower repair revenue. Share of affiliates' earnings of $12.9 million was $4.2 million higher than the prior year period primarily due to asset remarketing gains at an affiliate. Share of affiliates' earnings in 2003 included a maintenance reserve reversal. 17 Ownership Costs Components of Rail's ownership costs for the nine months ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 ---- ---- Depreciation....................................... $ 91.1 $ 86.5 Interest, net...................................... 55.3 49.1 Operating lease expense............................ 130.1 130.6 ------- ------- Total ownership costs............................. $ 276.5 $ 266.2 ======= =======
Ownership costs of $276.5 million were $10.3 million higher than the prior year period. Depreciation of $91.1 million was $4.6 million higher than prior year period due to a larger railcar fleet. Interest expense of $55.3 million was $6.2 million higher than prior year period due to higher average interest rates and related debt balances resulting from increased investment volume. 18 Other Costs and Expenses Components of Rail's other costs and expenses for the nine months ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 ---- ---- Maintenance expense................................... $ 138.0 $123.0 Other operating expenses.............................. 27.4 26.6 Selling, general and administrative................... 51.1 48.7 Reversal of provision for possible losses............. (.8) (1.7) Fair value adjustment for derivatives................. -- .1 ------- ------ Total other costs and expenses....................... $ 215.7 $196.7 ======= ======
Maintenance expense increased $15.0 million from the prior year period to $138.0 million. Maintenance costs increased sharply for a variety of reasons, including an increase in assignment costs, foreign exchange rates, higher per car costs and lower capitalized repairs. As railcars are assigned from idle to active service, they often need repairs and improvements, such as replacement of tank car linings and valves. Although fewer cars were repaired, the cost per car increased due to the nature of the repairs. During 2003, the American Association of Railroads (AAR) issued an early warning letter that required all owners of railcars in the United States, Canada and Mexico to inspect or replace certain bolsters manufactured from the mid 1990s to 2001 by a now bankrupt supplier. Rail owned approximately 3,500 railcars equipped with bolsters that were required to be inspected or replaced. Approximately 2,200 of Rail's affected railcars are on full service leases in which case Rail is responsible for the costs of inspection or replacement. As of September 30, 2004, bolsters on approximately 2,000 cars have been replaced. The cost attributable to the inspection and replacement of bolsters was $2.7 million in the first nine months of 2004, a decrease of $.3 million from the prior year period. Net Income Rail's net income of $44.6 million for the nine months ended September 30, 2004 was $3.6 million higher than the prior year period. The increase in 2004 was driven primarily by higher asset remarketing income for both Rail and its affiliates and larger gains on the scrapping of railcars, offset partially by higher maintenance costs. Current period results were also favorably impacted by a $2.1 million deferred tax benefit at KVG attributable to a reduction in the Austrian tax rates. GATX AIR The aviation industry continues to operate in challenging conditions, particularly in North America, where the combination of high fuel prices and revenue pressure from low-cost carriers has increased operating losses and highlighted the vulnerabilities of many of the major U.S. carriers. Some European airlines are also showing signs of weakness, as the industry enters the traditionally difficult winter season. Notwithstanding these factors, Air continued to benefit in the third quarter from an improved operating environment relative to recent years, with increased demand for aircraft and a continuation of this year's trend toward higher lease rates. This improvement was evidenced at Air during the nine month period ending September 30, 2004 by a decrease in non-performing assets from year-end, a decrease in the provision for possible losses from the prior year period and an upward trend in rentals for many aircraft in Air's core owned and managed portfolios. Aircraft utilization continues to be strong with 100% of the owned fleet on lease or under letter of intent. Three wholly owned aircraft were sold in third quarter of 2004. As noted above, the commercial airline industry continues to be exposed to volatility and uncertainty. In particular, ATA Holdings Corp., the parent company of ATA Airlines (ATA) filed for bankruptcy subsequent to September 30. GATX has one Boeing 757 on lease to ATA. GATX's interest in the airplane is held through a long term operating lease; as of September 30, future lease payments on the operating lease were approximately $36.1 million on a net present value basis. In addition, Delta Airlines Inc. (Delta) has publicly disclosed that difficult operating conditions have raised concerns about its future liquidity position and the company is attempting to implement a cost restructuring plan to avoid bankruptcy, the outcome of which is uncertain. Pembroke Group (Pembroke), GATX's 50% owned Dublin-based aircraft leasing and management business, has three Boeing 737 aircraft on lease to Delta. As of September 30, the net book value of GATX's pro rata share of these aircraft is 19 approximately $19.9 million or $6.0 million net of related nonrecourse debt. GATX expects both ATA and Delta may attempt to negotiate modification to the terms of current leases with GATX and Pembroke, respectively as part of their restructuring plans. Restructuring or termination of these leases could have a negative impact on GATX's future financial results through lower income and possible impairment charges if applicable. Gross Income Components of Air's gross income for the nine months ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 ---- ---- Lease income.......................................... $ 71.1 $ 67.5 Interest income....................................... .2 (.1) Asset remarketing income.............................. 3.6 .6 Fees.................................................. 7.3 5.7 Other................................................. 1.7 7.7 -------- ------- Revenues............................................. 83.9 81.4 Share of affiliates' earnings......................... 23.9 26.1 -------- ------- Total gross income................................... $ 107.8 $ 107.5 ======== =======
Air's gross income of $107.8 million was $.3 million higher than the prior year nine month period. The increase was primarily driven by higher lease income and asset remarketing income, partially offset by lower share of affiliates' earnings and other income in the 2004 period. Lease income of $71.1 million was $3.6 million higher than the prior year period. Lease income increased primarily as a result of rents from new aircraft deliveries after September 30, 2003, partially offset by the absence of rent on aircraft sold subsequent to September 30, 2003. Asset remarketing income of $3.6 million was $3.0 million higher than the 2003 period primarily due to the gain on sale of three aircraft. Fee income was $1.6 million higher than the 2003 period due to increased transaction activity in the 2004 period. Share of affiliates' earnings of $23.9 million was $2.2 million lower than the prior year. The decrease is primarily due to fees earned by the Pembroke joint venture on facilitating the sale of Fokker aircraft in the 2003 period. Other income of $1.7 million was $6.0 million lower than the 2003 period primarily attributable to the recognition of previously collected maintenance deposits in 2003. Ownership Costs Components of Air's ownership costs for the nine months ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 ------- ------- Depreciation ..................................... $ 43.4 $ 41.0 Interest, net .................................... 28.9 31.0 Operating lease expense .......................... 2.9 2.9 ------- ------- Total ownership costs ........................... $ 75.2 $ 74.9 ======= =======
Ownership costs of $75.2 million were $.3 million higher than the prior year period, primarily due to higher depreciation expense associated with new aircraft deliveries subsequent to the 2003 period, partially offset by lower interest expense in the 2004 period resulting from lower average debt balances. Depreciation expense of $43.4 million increased by $2.4 million in the 2004 period compared to the 2003 period and interest expense of $28.9 million decreased $2.1 million from the 2003 period. 20 Other Costs and Expenses Components of Air's other costs and expenses for the nine months ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 -------- ------- Maintenance expense.................................... $ 1.6 $ 1.5 Other operating expenses............................... 1.4 .5 Selling, general and administrative.................... 15.8 12.2 (Reversal) provision for possible losses............... (.5) 9.7 Asset impairment charges............................... -- 7.1 -------- ------- Total other costs and expenses........................ $ 18.3 $ 31.0 ======== =======
Total other costs and expenses of $18.3 million decreased by $12.7 million from the prior year period primarily due to the decrease in the provision for possible losses and the absence of impairment charges in the 2004 period, partially offset by an increase in SG&A expenses. Impairment charges of $1.9 million and $5.2 million were taken on an MD-83 aircraft and an Airbus A310-300 aircraft, respectively, in the 2003 period. The (reversal) provision for possible losses decreased $10.2 million from the prior year period. The prior year period included a $9.7 million provision (net of a subsequent recovery) related to an unsecured Air Canada note as a result of Air Canada's bankruptcy filing. SG&A expense increased by $3.6 million due to higher employee costs in the 2004 period compared to the 2003 period. Net Income Air's net income of $9.6 million for the nine months ended September 30, 2004 was $8.6 million higher than the prior year period. The increase from the prior year period reflected the 2003 loss provision associated with the Air Canada note and 2003 asset impairment charges on two aircraft. GATX SPECIALTY FINANCE Specialty's portfolio continued to decline during the first nine months of 2004. The venture finance assets are expected to substantially run-off by the end of 2005. As of September 30, 2004, Specialty's balance sheet assets were $522.9 million compared to $707.6 million at December 31, 2003. GATX is selectively pursuing new investments in Specialty, primarily in the marine area. However, the portfolio may continue to decline or asset run-off may exceed new investment volume as a result, future earnings will be unpredictable and could decline due to the uncertain timing of asset remarketing from the specialty finance portfolio and gains from the sale of securities associated with the venture finance warrant portfolio. GATX expects to achieve SG&A expense reductions as efficiencies are realized on the declining portfolio. Gross Income Components of Specialty's gross income for the nine months ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 ---- ---- Lease income.......................................... $ 21.6 $ 34.1 Interest income....................................... 15.1 30.7 Asset remarketing income.............................. 21.8 18.9 Gain on sale of securities............................ 3.4 6.3 Fees.................................................. 4.4 5.8 Other................................................. 2.5 5.9 -------- ------- Revenues............................................. 68.8 101.7 Share of affiliates' earnings......................... 14.4 20.8 -------- ------- Total gross income................................... $ 83.2 $ 122.5 ======== =======
Gross income of $83.2 million was $39.3 million lower than the prior year period. Lease income of $21.6 million was $12.5 million lower than the prior year period. The decrease is primarily due to a decrease in operating lease assets and finance 21 leases and as a result of the portfolio run-off. Interest income of $15.1 million was $15.6 million lower than prior year period primarily due to declining venture loan balances, partially offset by the receipt of loan prepayment penalties in the current year. Asset remarketing income includes gains from the sale of assets from Specialty's own portfolio as well as residual sharing fees from the sale of managed assets. Asset remarketing income of $21.8 million was $2.9 million higher than the prior year period. The most significant gain related to the receipt of the final distribution and dissolution of a partnership in the first quarter of 2004. Gain on sale of securities of $3.4 million was $2.9 million lower than the prior year period, which included a $3.3 million gain from one transaction. Fees of $4.4 million decreased $1.4 million from the prior year period, which included a $2.2 million guarantee fee. Other income of $2.5 million was $3.4 million lower than prior year period due to foreign currency translation adjustments associated with certain transactions. These adjustments are largely offset by the fair value adjustments for derivatives. Share of affiliates' earnings of $14.4 million were $6.4 million lower than the prior year period. The prior year period included a $3.1 million favorable non-recurring adjustment at a certain affiliate and income from affiliates that have since been dissolved, the impact of which was partially offset by higher current year income from marine affiliates. Ownership Costs Components of Specialty's ownership costs for the nine months ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 --------- ------- Depreciation.......................................... $ 3.2 $ 7.9 Interest, net......................................... 20.3 34.3 Operating lease expense............................... 3.1 3.4 --------- ------- Total ownership costs................................ $ 26.6 $ 45.6 ========= =======
Ownership costs of $26.6 million were $19.0 million lower than the prior year period due to decreases in depreciation and interest expense. Depreciation of $3.2 million was $4.7 million lower than prior year period due to declining operating lease assets. Interest expense of $20.3 million was $14.0 million lower than prior year period due to lower debt balances related to the declining asset base. Other Costs and Expenses Components of Specialty's other costs and expenses for the nine months ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 ------- -------- Maintenance expense................................... $ .8 $ .8 Other operating expenses.............................. 3.9 6.0 Selling, general and administrative................... 7.2 13.8 (Reversal) provision for possible losses.............. (7.7) .4 Asset impairment charges.............................. 1.1 9.1 Fair value adjustments for derivatives................ .1 2.5 ------- -------- Total other costs and expenses....................... $ 5.4 $ 32.6 ======= ========
Other costs and expenses of $5.4 million were $27.2 million lower than prior year period primarily due to decreases in SG&A expense, (reversal) provision for possible losses, asset impairment charges and fair value adjustments for derivatives. SG&A expense of $7.2 million was $6.6 million lower than the prior year period due to lower personnel costs resulting from a prior reduction in workforce. In the first nine months of 2004, Specialty reversed $7.7 million of its allowance for possible losses, compared to a provision for possible losses of $.4 million in the prior year period. The reversal was primarily the result of strong credit performance, recoveries, and the declining reservable asset base. The allowance for possible losses was $15.3 million as of September 30, 2004 or 5.7% of reservable assets, down from 7.2% at December 31, 2003. Asset impairment charges of $1.1 million were $8.0 million lower than prior year period. The prior year period included several charges, including the write-off of a $5.0 million equity investment. Fair value adjustments for derivatives of $.1 million was $2.4 million lower than prior year period due to market changes in the value of derivatives. This amount is largely offset by foreign currency translation adjustments, classified as other income related to the underlying transactions. 22 Net Income Specialty's net income of $31.4 million for the nine months ended September 30, 2004 was $4.7 million higher than the prior year period. Higher remarketing gains in the current year period combined with lower asset impairment charges, lower SG&A expense and a lower loss provision exceeded the negative impact of the smaller portfolio. OTHER Other is comprised of corporate results, including SG&A expense and interest expense not allocated to the segments, and the results of American Steamship Company (ASC), a Great Lakes shipping company. Gross Income Components of gross income for the nine months ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 -------- -------- Marine operating revenue.............................. $ 76.2 $ 57.0 Other................................................. 49.6 17.9 -------- -------- Total gross income................................... $ 125.8 $ 74.9 ======== ========
Gross income of $125.8 million increased $50.9 million over the prior year period primarily due to higher proceeds from insurance recoveries and higher marine operating revenue at ASC. In 2004, GATX recognized income of $48.2 million in settlement of litigation initiated against various insurers; $16.5 million was received in the 2003 period. No further recoveries are expected. The improvement in marine operating revenue was due to additional operating days resulting from increased demand, a larger fleet, and more favorable operating conditions in the first nine months of 2004 compared to the prior year period. Ownership Costs Components of ownership costs for the nine months ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 --------- --------- Depreciation.......................................... $ 4.5 $ 4.2 Interest, net......................................... 15.4 20.9 Operating lease expense............................... -- .4 --------- --------- Total ownership costs................................ $ 19.9 $ 25.5 ========= =========
Ownership costs of $19.9 million were $5.6 million lower than the prior year period primarily due to decreased interest expense resulting from lower average interest rates and debt balances. Other Costs and Expenses Components of other costs and expenses for the nine months ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 -------- -------- Marine operating expenses............................. $ 59.2 $ 45.9 Other operating expenses.............................. -- 1.1 Selling, general and administrative................... 45.3 40.2 (Reversal) provision for possible losses.............. 1.7 (.7) Asset impairment charges.............................. .3 6.4 -------- -------- Total other costs and expenses....................... $ 104.1 $ 95.3 ======== ========
Other costs and expenses of $104.1 million were $8.8 million higher than the prior year period due to increases in marineoperating expenses and SG&A expense, partially offset by a lower provision for possible losses and asset impairment charges. 23 Marine operating expenses increased $13.3 million from the prior year period to $59.2 million due to an increase in the number of operating days. SG&A expense of $45.3 million was $5.1 million higher than the prior year period primarily due to higher consulting expenses associated with the implementation of Section 404 of the Sarbanes Oxley Act, and fees associated with a bond exchange completed in the second quarter. The $.7 million reversal of provision for possible losses recorded in 2004 and the $1.7 million provision for possible losses recorded in 2003 are consistent with GATX's policy of targeting an overall allowance for possible losses. The amount not specifically allocated to the segments remains at Other. Asset impairment charges of $.3 million decreased $6.1 million from the prior year. The 2003 charge relates to ASC's off-lakes barge which ceased operations last year. Net Income (Loss) Net income at Other of $1.8 million for the first nine months of 2004 was $30.8 million favorable to the prior year period, primarily due to higher insurance proceeds recognized in 2004. 24 CONSOLIDATED INCOME TAXES GATX's effective tax rate for continuing operations was 33% for the nine months ended September 30, 2004 compared to 38% for the nine months ended September 30, 2003. The lower tax rate in 2004 reflects a $2.1 million benefit attributable to the impact of an Austrian tax rate reduction recognized in the second quarter of 2004 and lower taxes in foreign jurisdictions. The difference in the tax rate for the nine months ended September 30, 2004 compared to the federal tax statutory rate of 35% is primarily attributable to the effect of lower taxes on foreign income, including the Austrian tax adjustment, partially offset by state taxes on domestic income. GATX recovered income taxes of $51.0 million in the second quarter of 2004 as a result of a carryback of the 2003 tax loss to prior years. $104.5 million of the 2003 tax loss will be carried forward to offset taxable income in 2004 and later years. RESULTS OF DISCONTINUED OPERATIONS On June 30, 2004, GATX sold substantially all of the assets and related nonrecourse debt of Technology and its Canadian affiliate to CIT for net proceeds of $246.0 million, of which $31.3 million was yet to be received at September 30, 2004. During the quarter ended September 30, 2004 certain remaining technology assets, including a 50% interest in a joint venture were sold for proceeds of $9.0 million, which approximated book value. Financial data for the Technology segment has been segregated as discontinued operations for all periods presented. Operating results for the first nine months of 2004 were $18.5 million, net of tax, up from $9.6 million in the prior year period. Operating results were favorably impacted by the suspension of depreciation on operating lease assets associated with the Technology assets classified as held for sale during the second quarter of 2004. The total effect of suspending depreciation was approximately $14.0 million after-tax. The loss on sale of segment of $7.7 million as of September 30, 2004 reflected a write-off of $7.6 million of goodwill and sale-related expenses including severance costs and losses on terminated leases. CASH FLOW AND LIQUIDITY GATX generates a significant amount of cash from its operating activities and its investment portfolio proceeds, which is used to service debt, pay dividends, and fund portfolio investments and capital additions. A weak economic environment could decrease demand for GATX's equipment and services, which could impact the Company's ability to generate cash flow from operations and portfolio proceeds. Net cash provided by operating activities, including discontinued operations, for the first nine months of 2004 was $200.6 million, a decrease of $118.9 million from the prior year period. The decrease is attributable to a declining portfolio at Specialty and reflects the impact of six months of Technology activity compared to nine months in the prior year. Comparison of cash from operations between periods is also affected by changes in working capital, including the timing of operating lease payments, pension plan contributions, and income taxes. The 2003 period includes a federal income tax refund of $118.0 million and a federal income tax payment of $21.4 million as compared to a $51.0 million federal income tax refund in the 2004 period. The following discussion of cash flow activity is presented excluding the impact of discontinued operations. Portfolio investments and capital additions for the first nine months of 2004 totaled $516.8 million, an increase of $77.5 million from the first nine months of 2003. Rail invested $329.6 million during the first nine months of 2004, an increase of $206.6 million from the prior year period as 4,778 cars were added to the North American fleet. The prior year period included $22.5 million for the December 2002 acquisition of the remainder of KVG, a portion of which was funded in 2003. Air invested $164.6 million during the first nine months of 2004, a decrease of $57.0 million from the prior year period due to the timing of progress payments and fewer new aircraft deliveries. Specialty invested $20.6 million during the first nine months of 2004, a decrease of $56.1 million from the prior year period due to lower committed spending. Portfolio proceeds for the first nine months of 2004 were $286.1 million, a decrease of $118.0 million from the prior year period. Higher proceeds from asset remarketing were offset by lower sales of securities, loan principal payments received and cash distributions from joint venture investments. Net proceeds from the sale of a segment of $223.7 million represent year-to-date cash received on sale of assets and related nonrecourse debt of Technology. GATX's operating subsidiaries fund investment and meet debt, lease and dividend obligations through cash flow from 25 operations, portfolio proceeds (including proceeds from asset sales), uncommitted money market lines, commercial paper, committed revolving credit facilities, the issuance of unsecured debt, and a variety of secured borrowings. GATX utilizes both the domestic and international bank and capital markets. In the first nine months of 2004, GATX, primarily through its principal subsidiary, GATX Financial Corporation (GFC), issued $126.0 million and repaid $267.4 million of long-term debt. Significant financings in the period included $107.8 million of Air financing guaranteed by the European Export Credit Agencies. Repayments included an $80.0 million prepayment of a portion of a term loan which was originally due in 2006. GFC has a $445.0 million three-year senior unsecured revolving credit facility maturing in May 2007 and a $100.0 million five-year senior unsecured term loan with a delayed draw feature effective until May 2005 and maturing in May 2009. At September 30, 2004, availability of the credit facility was $418.2 million with $26.8 million of letters of credit issued and backed by the facility. All $100.0 million of the unsecured term loan was available. The revolving credit facility and term loan contain various restrictive covenants, including an asset coverage test, requirements to maintain a defined minimum net worth and a fixed charge coverage ratio. At September 30, 2004, GFC was in compliance with the covenants and all conditions of the credit facility. The indentures for GFC's public debt also contain restrictive covenants, including limitations on loans, advances or investments in related parties (including GATX) and dividends it may distribute to GATX. Certain of the indentures contain limitation on liens provisions that limit the amount of secured indebtedness that GFC may incur. At September 30, 2004, GFC was in compliance with the covenants and all conditions of the indentures. In addition to the credit facility and indentures, GFC and its subsidiaries are subject to financial covenants related to certain bank financings. Some bank financings include coverage and net worth financial covenants as well as negative pledges. One financing contains a leverage covenant. Another financing contains leverage and cash flow covenants that are specific to a subsidiary. GATX does not anticipate any covenant violation in the credit facility, bank financings, or indenture, nor does GATX anticipate that any of these covenants will restrict its operations or its ability to procure additional financing. As of September 30, 2004, GFC had a shelf registration for $1.0 billion of debt securities and pass through certificates of which $150.0 million of senior unsecured notes had been issued. The availability of these funding options may be adversely affected by certain factors including the global capital market environment and outlook as well as GFC's financial performance and outlook. Access to capital markets at competitive rates is dependent on GFC's credit rating as determined by rating agencies such as Standard & Poor's (S&P) and Moody's Investors Service (Moody's). GFC's current credit rating from S&P is BBB-, with a stable outlook, unchanged from December 31, 2003. On May 10, 2004, Moody's affirmed the credit rating on GFC's long-term unsecured debt at Baa3, but revised the rating outlook to stable from negative. GFC's existing credit ratings restricts GFC's access to the commercial paper market and GFC may have more difficulty accessing the long-term debt market on a cost efficient basis. Unconditional purchase obligations of GATX's subsidiaries consist primarily of committed aircraft deliveries and railcar orders. Unconditional purchase obligations at September 30, 2004 were $656.0 million, comprised as follows (in millions):
TOTAL REMAINDER 2004 2005 -2006 2007 -2008 ----- -------------- ---------- ---------- Rail................................... $ 506.6 $ 88.5 $293.9 124.2 Air.................................... 135.0 61.1 73.9 -- Specialty.............................. 14.4 9.1 4.8 .5 -------- -------- ------ ----- Total unconditional purchase obligations $ 656.0 $ 158.7 $372.6 124.7 ======== ======== ====== =====
26 COMPARISON OF THIRD QUARTER 2004 TO THIRD QUARTER 2003 GATX RAIL Gross Income Components of Rail's gross income for the quarter ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 --------- --------- Lease income........................................... $ 167.5 $ 159.9 Asset remarketing income............................... 0.7 (.2) Fees................................................... 0.8 .9 Other.................................................. 12.0 11.8 --------- --------- Revenues.............................................. 181.0 172.4 Share of affiliates' earnings.......................... 3.1 4.0 --------- --------- Total gross income.................................... $ 184.1 $ 176.4 ========= =========
Lease income of $167.5 million increased $7.6 million from the prior year quarter due to the impact of foreign exchange rates, favorable European fleet activity, and an increase in the number of active North American. Although lease rates are increasing, average North American lease rates were in aggregate lower than the prior year quarter. Other income of $12.0 million was $.2 million higher than prior year quarter due to higher scrapping gains resulting from higher scrap metal prices offset by lower repair revenue. Share of affiliates' earnings of $3.1 million were $.9 million lower than the prior year quarter primarily due to lower asset sales at a domestic joint venture. Share of affiliates' earnings in 2003 included a maintenance reserve reversal. Ownership Costs Components of Rail's ownership costs for the quarter ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 --------- ------- Depreciation.............................................. $ 30.1 $ 28.5 Interest, net............................................. 20.4 15.2 Operating lease expense................................... 43.4 43.1 --------- ------- Total ownership costs.................................... $ 93.9 $ 86.8 ========= =======
Ownership costs of $93.9 million were $7.1 million higher than the prior year quarter. Depreciation of $30.1 million was $1.6 million higher than prior year quarter due to a larger railcar fleet. Interest expense increased quarter over quarter due to increased investment volume, higher interest rates and higher related debt balances. 27 Other Costs and Expenses Components of Rail's other costs and expenses for the quarter ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 --------- --------- Maintenance expense................................... $ 45.8 $ 42.8 Other operating expenses.............................. 8.7 8.6 Selling, general and administrative................... 17.7 16.5 Reversal of provision for possible losses............. (1.0) (1.5) --------- --------- Total other costs and expenses....................... $ 71.2 $ 66.4 ========= =========
Maintenance expense increased $3.0 million from the prior year quarter to $45.8 million for a variety of reasons, including an increase in the number of car assignments and regulatory compliance activity as well as foreign exchange rates. Net Income Rail's net income of $13.2 million for the three months ended September 30, 2004 was $2.0 million lower than the prior year period. The decrease in 2004 was driven primarily by higher maintenance and ownership costs. GATX AIR Gross Income Components of Air's gross income for the quarter ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 -------- ------- Lease income.......................................... $ 25.8 $ 22.9 Interest income....................................... -- .1 Asset remarketing income.............................. 3.2 .2 Fees.................................................. 2.2 2.0 Other................................................. .4 5.4 -------- ------- Revenues............................................. 31.6 30.6 Share of affiliates' earnings......................... 8.3 7.5 -------- ------- Total gross income................................... $ 39.9 $ 38.1 ======== =======
Air's gross income of $39.9 million was $1.8 million higher than the prior year quarter. The increase was primarily driven by higher asset remarketing income and lease income, partially offset by lower other income in the 2004 period. Lease income increased by $2.9 million from the 2003 quarter due to rents from new deliveries subsequent to the 2003 quarter and higher interest rates on variable rate leases in the 2004 quarter. Asset remarketing income of $3.2 million increased $3.0 million from the 2003 quarter to the 2004 quarter due to the gain on sale of three aircraft in the 2004 quarter. Other income decreased $5.0 million primarily attributable to the recognition of previously collected maintenance deposits in 2003. Ownership Costs Components of Air's ownership costs for the quarter ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 --------- ------- Depreciation.......................................... $ 15.1 $ 14.0 Interest, net......................................... 10.6 10.0 Operating lease expense............................... .9 .9 --------- ------- Total ownership costs................................ $ 26.6 $ 24.9 ========= =======
Ownership costs of $26.6 million were $1.7 million higher than the prior year quarter primarily driven by higher depreciation expense due to new deliveries of aircraft subsequent to the 2003 quarter and higher interest costs due to higher 28 interest rates in the 2004 quarter. Other Costs and Expenses Components of Air's other costs and expenses for the quarter ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 --------- -------- Maintenance expense.................................. $ .3 $ .2 Other operating expenses............................. .6 .3 Selling, general and administrative.................. 5.3 3.9 Reversal of provision for possible losses............ (.1) (.1) Asset impairment charges............................. -- 5.2 --------- -------- Total other costs and expenses...................... $ 6.1 $ 9.5 ========= ========
Total other costs and expenses of $6.1 million decreased by $3.4 million from the prior year quarter. The decrease was primarily driven by the absence of impairment charges in 2004. The impairment charge of $5.2 million in the prior year quarter was related to an Airbus A310-300 aircraft. SG&A costs were $1.4 million higher from the 2003 quarter due to higher personnel costs in the 2004 period. Net Income Air's net income of $5.0 million for the quarter ended September 30, 2004 was $1.6 million higher than the prior year quarter reflecting higher operating lease income and gains on the sale of three aircraft in the 2004 quarter, partially offset by higher depreciation and interest expense in the 2004 quarter. GATX SPECIALTY FINANCE Gross Income Components of Specialty's gross income for the quarter ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 -------- ------- Lease income.......................................... $ 6.9 $ 10.2 Interest income....................................... 2.9 9.0 Asset remarketing income.............................. 1.2 6.5 Gain on sale of securities............................ .2 5.8 Fees.................................................. 2.7 .8 Other................................................. 1.3 .5 -------- ------- Revenues............................................. 15.2 32.8 Share of affiliates' earnings......................... 5.8 5.2 -------- ------- Total gross income................................... $ 21.0 $ 38.0 ======== =======
Gross income of $21.0 million was $17.0 million lower than the prior year quarter. Lease income of $6.9 million was $3.3 million lower than the prior year quarter primarily due to a decrease in operating lease assets and finance leases and as a result of the portfolio run-off. Interest income of $2.9 million was $6.1 million lower than prior year period due to declining venture loan balances and other loan repayments. Asset remarketing income of $1.2 million was $5.3 million lower than the prior year quarter and includes gains from the sale of assets from Specialty's own portfolio as well as residual sharing fees from the sale of managed assets. The prior year quarter included a $3.9 million residual sharing fee from the sale of two managed aircraft. Gain on sale of securities of $.2 million was $5.6 million lower than the prior year quarter, which included a $3.3 million gain from one transaction. Fees of $2.7 million were $1.9 million higher than the prior year quarter due to higher fees earned from managed portfolios. Other income of $1.3 million was $.8 million higher than the prior year quarter due to foreign currency translation adjustments associated with certain transactions. These adjustments are largely offset by the fair value adjustments for 29 derivatives. Share of affiliates' earnings of $5.8 million was $.6 million higher than the prior year quarter. Higher income from marine affiliates in the current year is partially offset by prior year income from affiliates that have since been dissolved. Ownership Costs Components of Specialty's ownership costs for the quarter ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 --------- --------- Depreciation.......................................... $ 1.1 $ 2.5 Interest, net......................................... 6.2 10.6 Operating lease expense............................... 1.0 1.1 --------- --------- Total ownership costs................................ $ 8.3 $ 14.2 ========= =========
Ownership costs of $8.3 million were $5.9 million lower than the prior year quarter due to decreases in depreciation and interest expense. Depreciation of $1.1 million was $1.4 million lower than prior year quarter due to declining operating lease assets. Interest expense of $6.2 million was $4.4 million lower than prior year quarter due to lower debt balances related to the declining asset base. Other Costs and Expenses Components of Specialty's other costs and expenses for the quarter ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 -------- -------- Maintenance expense.................................. $ .2 $ .3 Other operating expenses............................. 1.3 1.8 Selling, general and administrative.................. 2.1 3.7 Reversal of provision for possible losses............ (2.9) 2.0 Asset impairment charges............................. .3 -- Fair value adjustments for derivatives............... .8 .2 -------- -------- Total other costs and expenses...................... $ 1.8 $ 8.0 ======== ========
Other costs and expenses of $1.8 million were $6.2 million lower than prior year quarter due to decreases in SG&A expense and provision for losses. SG&A expense of $2.1 million was $1.6 million lower than prior year quarter due to lower personnel costs from a reduction in workforce. Specialty reversed $2.9 million of its allowance for possible losses in the current year quarter as compared to a provision of $2.0 million in the prior year quarter as a result of strong credit performance, recoveries, and the declining reservable asset base. Net Income Specialty's net income of $6.4 million for the quarter ended September 30, 2004 was $2.6 million lower than the prior year quarter. Lower asset remarketing income and a gain on sale of securities combined with the impact of the smaller portfolio in the current year quarter were partially offset by lower SG&A, a lower provision for possible losses and higher fees. 30 OTHER Gross Income Components of gross income for the quarter ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 ---------- --------- Marine operating revenue.............................. $ 36.2 $ 27.3 Other................................................. 46.2 13.0 ---------- --------- Total gross income................................... $ 82.4 $ 40.3 ========== =========
Gross income of $82.4 million increased $42.1 million over the prior year quarter primarily due to higher other income related to insurance recoveries and higher marine operating revenue. In the third quarter of 2004, GATX recognized income of $45.0 million in settlement of litigation initiated against various insurers, compared to $12.0 million received in the 2003 period. The improvement in marine operating revenue was due to additional operating days resulting from increased demand, a larger fleet, and more favorable operating conditions in the third quarter compared to the prior year period. Ownership Costs Components of ownership costs for the quarter ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 --------- ------- Depreciation.......................................... $ 2.5 $ 1.9 Interest, net......................................... 4.3 6.6 --------- ------- Total ownership costs................................ $ 6.8 $ 8.5 ========= =======
Ownership costs of $6.8 million were $2.3 million lower than the prior year quarter primarily due to decreased interest expense resulting from lower average interest rates and debt balances. Other Costs and Expenses Components of other costs and expenses for the quarter ended September 30, 2004 and 2003 are summarized below (in millions):
2004 2003 --------- --------- Marine operating expenses............................ $ 27.7 $ 21.8 Other operating expenses............................. -- 1.1 Selling, general and administrative.................. 12.9 14.6 Provision for possible losses........................ (.7) (.1) Asset impairment charges............................. -- 3.6 --------- --------- Total other costs and expenses...................... $ 39.9 $ 41.0 ========= =========
Other costs and expenses of $39.9 million were $1.1 million lower than the prior year quarter primarily due to lower SG&A expense and asset impairment charges, partially offset by higher marine operating expenses. Marine operating expenses increased $5.9 million from the prior year quarter to $27.7 million due to additional operating days of operations compared to the prior year period. SG&A expense of $12.9 million was $1.7 million lower than the prior year period due to timing of certain expenses partially offset by higher consulting expenses associated with the implementation of Section 404 of the Sarbanes Oxley Act. The $.7 million and $.1 million reversal of provision for possible losses recorded in 2004 and 2003 respectively, is consistent with GATX's policy of targeting an overall allowance for possible losses. The amount not specifically allocated to the segments remains at Other. Asset impairment charges decreased $3.6 million from the prior year. The 2003 charge primarily relates to ASC's off-lakes barge which ceased operations last year. 31 Net Income (Loss) Net income at Other of $23.4 million for the third quarter of 2004 was $29.7 million favorable to the prior year quarter, primarily due to higher insurance recoveries recognized in the current year quarter. 32 NEW ACCOUNTING PRONOUNCEMENTS See Note 3 to the consolidated financial statements for a summary of new accounting pronouncements that may impact GATX's business. CRITICAL ACCOUNTING POLICIES There have been no changes to GATX's critical accounting policies during the nine month period ending September 30, 2004; refer to GATX's Annual Report on Form 10-K for the fiscal year ended December 31, 2003 for a summary of GATX's policies. FORWARD LOOKING STATEMENTS Certain statements in Management's Discussion and Analysis may constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements are identified by words such as "anticipate," "believe," "estimate," "expect," "intend," "predict," or "project" and similar expressions. This information may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Risks and uncertainties include, but are not limited to, general economic conditions; aircraft and railcar lease rate and utilization levels; conditions in the capital markets and the potential for a downgrade in GATX's or GFC's credit rating, either of which could have an effect on the Company's borrowing costs or the ability to access the markets for commercial paper or secured and unsecured debt; dynamics affecting customers within the chemical, petroleum and food industries; regulatory rulings that may impact the economic value of assets; competitors in the rail and air markets who may have access to capital at lower costs than GATX; additional potential write-downs and/or provisions within GATX's portfolio; impaired asset charges; and general market conditions in the rail, air, technology, venture, and other large-ticket industries. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Since December 31, 2003, there have been no material changes in GATX's interest rate and foreign currency exposures or types of derivative instruments used to hedge these exposures, and no significant changes in underlying market conditions. For a discussion of the Company's exposure to market risk refer to Item 7A Quantitative and Qualitative Disclosure about Market Risk contained in the Company's annual report on Form 10-K for the year ended December 31, 2003. ITEM 4. CONTROLS AND PROCEDURES GATX management, with the participation of the Chief Executive Officer (the "CEO") and Chief Financial Officer (the "CFO"), have conducted an evaluation of the effectiveness of disclosure controls and procedures in accordance with Rule 13a-14 of the Securities Exchange Act of 1934 (the "Exchange Act"). Based on such evaluation, the Company's CEO and CFO have concluded as of the end of the period covered by this report, that GATX's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) are effective to ensure that information required to be disclosed by GATX in this Quarterly Report on Form 10-Q has been recorded, processed, summarized, and reported to them in a timely manner. There have been no significant changes in the Company's internal controls over financial reporting that occurred during the period covered by this report that have materially affected or are reasonably likely to materially affect these controls. 33 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On December 29, 2003, a wrongful death action was filed in the District Court of the State of Minnesota, County of Hennepin, Fourth Judicial District, MeLea J. Grabinger, individually, as Personal Representative of the Estate of John T. Grabinger, and as Representative/Trustee of the beneficiaries in the wrongful death action, v. Canadian Pacific Railway Company, et al. The lawsuit seeks damages for a derailment on January 18, 2002 of a Canadian Pacific train containing anhydrous ammonia cars near Minot, North Dakota. As a result of the derailment, several tank cars fractured, releasing anhydrous ammonia which formed a vapor cloud. One person died, as many as 100 people received medical treatment, of whom fifteen were admitted to the hospital, and a number of others were purportedly affected. The plaintiffs allege among other things that the incident (i) caused the wrongful death of their husband/son, and (ii) caused permanent physical injuries and emotional and physical pain. The complaint alleges that the incident was proximately caused by the defendants who are liable under a number of legal theories. On March 9, 2004, the National Transportation Safety Board (NTSB) released a synopsis of its anticipated report and issued its final report shortly thereafter. The report sets forth a number of conclusions including that the failure of the track caused the derailment and that the catastrophic fracture of tank cars increased the severity of the accident. On June 18, 2004, the plaintiff filed an amended complaint based on the NTSB findings which added GFC and others as defendants. Specifically, the allegations against GFC are that the steel shells of the tank cars were defective and that GATX knew the cars were vulnerable and nonetheless failed to warn of the extreme hazard and vulnerability. GFC intends to defend this suit vigorously. On July 12, 2004, GFC filed a motion to dismiss this action on the basis that plaintiffs' claims are preempted by federal law and that the plaintiffs have failed to state a claim with respect to certain causes of action. On January 9, 2004, the plaintiffs filed an almost identical action in United States District Court, District of North Dakota, Northwest Division. GFC was served on June 29, 2004. The plaintiffs have moved to dismiss this action without prejudice. In the motion to dismiss, the plaintiff alleges that the North Dakota action was brought because the two year statute of limitations was running and some claims would be barred in North Dakota if the Hennepin County action were dismissed based upon jurisdiction or venue challenges of the defendants. On September 10, 2004, the court granted the plaintiffs' motion. GFC had been named as a defendant in eight other actions all filed in the District Court of the State of Minnesota, County of Hennepin, Fourth Judicial District, in May 2004. The plaintiffs were all Minot residents who are alleged to have suffered personal injury and property damage as a consequence of the derailment. The complaints alleged that the plaintiffs sustained damages including personal injury, emotional and mental damages, evacuation, shelter in place, property damage, property value diminution, inconvenience and insecurity in their property and that the defendants are responsible under various theories for the alleged injuries. On September 1, 2004, plaintiffs in these eight cases dismissed GFC without prejudice. On July 1, 2004, GFC was served in, Mehl et al. v. Canadian Pacific Railroad, et al. filed in the United States District Court, District of North Dakota, Northwest Division. The complaint alleged that the named plaintiffs were part of a class that numbers in the hundreds. This complaint alleged that the plaintiffs sustained damages including personal injury, emotional and mental damages, property damage, property value diminution, and that the defendants are responsible under the theories of negligence, nuisance, trespass, strict liability and negligent and intentional infliction of emotional distress. On September 1, 2004, the plaintiffs voluntarily dismissed GFC without prejudice from this case. There are over 40 other cases arising out of this derailment pending in the Fourth District Court of the State of Minnesota, Hennepin County. Thirty-one additional cases were filed in the same court and then removed to federal court by the Canadian Pacific in July. GFC has not been named in any of theses cases. GATX and its subsidiaries have been named as defendants in a number of other legal actions and claims, various governmental proceedings and private civil suits arising in the ordinary course of business, including those related to environmental matters, workers' compensation claims by GATX employees and other personal injury claims. Some of the legal proceedings include claims for punitive as well as compensatory damages. Several of the Company's subsidiaries have also been named as defendants or co-defendants in cases alleging injury relating to asbestos. In these cases, the plaintiffs seek an unspecified amount of damages based on common law, statutory or premises liability or, in the case of ASC, the Jones Act, which makes limited remedies available to certain maritime employees. In addition, demand has been made against the Company under a limited indemnity given in connection with the sale of a subsidiary with respect to asbestos-related claims filed against the former subsidiary. The number of these claims and the corresponding demands for indemnity against the Company have increased over the past several years. It is possible that the number of these claims could continue to grow and that the cost of these claims could correspondingly increase in the future. 34 The amounts claimed in some of the above described proceedings are substantial and the ultimate liability cannot be determined at this time. However, it is the opinion of management that amounts, if any, required to be paid by GATX and its subsidiaries in the discharge of such liabilities are not likely to be material to GATX's consolidated financial position or results of operations. Adverse court rulings or changes in applicable law could affect claims made against GATX and its subsidiaries, and increase the number, and change the nature, of such claims. 35 ITEM 6. EXHIBITS Exhibits: Reference is made to the exhibit index which is included herewith and is incorporated by reference hereto. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GATX CORPORATION (Registrant) /s/ Brian A. Kenney ---------------------------------------- Brian A. Kenney President and Chief Financial Officer (Duly Authorized Officer) Date: November 9, 2004 36 EXHIBIT INDEX The following exhibits are furnished as part of this quarterly report:
EXHIBIT NUMBER EXHIBIT DESCRIPTION - ------ ------------------- 3A. By-Laws of GATX Corporation, as amended through October 19, 2004. 4A. Credit Agreement dated May 18, 2004 between GATX Financial Corporation, the lenders listed therein, and Citicorp USA, Inc., as Administrative Agent, incorporated by reference to GATX Corporation's Form 8-K, file number 001-02328, filed May 25, 2004. 10A. Amended and Restated Agreements for Continued Employment Following a Change of Control between GATX Corporation and Ms. Duddy and Messrs. Ciancio, Kenney and Zech dated as of August 6, 2004. 10B. Amended and Restated Agreements for Continued Employment Following a Change of Control between GATX Corporation and Mr. Hasek dated as of August 6, 2004. 10C. Restricted Stock Agreements for the 2004 Equity Incentive Compensation Plan between GATX Corporation and certain executive offers entered into as of January 1, 2004 which provide for vesting based upon achievement of performance goals that qualify the award as performance based compensation under 162(m) of the Internal Revenue Code. 10D. Restricted Stock Agreements for the 2004 Equity Incentive Compensation Plan between GATX Corporation and certain executive offers entered into as of January 1, 2004 which provide for vesting based upon achievement of performance goals. 10E Restricted Stock Agreements for the 2004 Equity Incentive Compensation Plan between GATX Corporation and certain executive officers which provide for time based vesting. 10F. Non Qualified Stock Option Agreement for awards made under the 2004 Equity Incentive Compensation Plan. 10G. Confidential Settlement Agreement and Release dated July 22, 2004 between GATX Capital Corporation, GATX Aircraft Corporation, GATX New Aircraft Corporation, GATX/Airlog Company, GATX Airlog Partners I, Frederick L. Hatton, USA, Inc., as Administrative Agent, incorporated by reference to GATX Corporation's Form 8-K, file number London, and certain London Market Insurance Companies, incorporated by reference to GATX Corporation's Form 8-K, file number 001-02328, filed July 30, 2004. 31A. Certification Pursuant to Exchange Act Rule 13(a)-15(e) and Rule 15(d)-15(e) (CEO Certification). 31B. Certification Pursuant to Exchange Act Rule 13(a)-15(e) and Rule 15(d)-15(e) (CFO Certification). 32. Certification Pursuant to 18 U.S.C. Section 1350 (CEO and CFO Certification). 99. Certain instruments evidencing long-term indebtedness of GATX Financial Corporation are not being filed as exhibits to this Report because the total amount of securities authorized under any such instrument does not exceed 10% of GATX Corporation's total assets. GATX Corporation will furnish copies of any such instruments upon request of the Securities and Exchange Commission.
37 EX-3.A 2 c89507exv3wa.txt BY-LAWS OF GATX CORPORATION EXHIBIT 3A 10/19/04 BY-LAWS OF GATX CORPORATION ARTICLE I MEETING OF SHAREHOLDERS SECTION 1. PLACE OF MEETING. Every meeting of the shareholders of GATX Corporation (hereinafter called the Corporation) shall be held at the principal office of the Corporation in the State of New York, or at such other place in or out of said State as shall be specified in the notice of such meeting or waiver of such notice. SECTION 2. ANNUAL MEETINGS. The annual meeting of the shareholders shall be held at the hour specified in the notice of such meeting, or waiver of such notice, on the fourth Friday of April in each year (or if that day shall be a legal holiday, then on the next succeeding business day) or on such other date as the Board may determine for the election of directors and for the transaction of such other business as may properly come before the meeting. SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders may, unless otherwise provided by law, be called by the Chairman of the Board or the President of the Corporation, or by a majority of the Board of Directors of the Corporation (hereinafter called the Board). SECTION 4. NOTICE OF MEETINGS. Notice of the time and place of holding of each meeting of the shareholders and of the purpose or purposes for which the meeting is called shall be in writing and signed by the President or a Vice-President or the Secretary or an Assistant Secretary of the Corporation. A copy of such notice shall be served, either personally or by mail, upon each shareholder entitled to vote at the meeting not less than ten (10) nor more than sixty (60) days before the meeting. If mailed, such copy shall be directed to the shareholder at his address as it appears on the stock book, unless he shall have filed with the Secretary of the Corporation a written request that notices intended for him be mailed to some other place, in which case it shall be mailed to the address designated in such request. No notice need be given of any adjourned meeting, except when expressly required by law. SECTION 5. QUORUM. Unless otherwise provided by law or in the Certificate of Incorporation of the Corporation as amended (hereinafter called the Certificate of Incorporation), the presence of the holders of record, in person or represented by proxy, of a majority of the shares of stock entitled to be voted thereat shall be necessary to constitute a quorum for the transaction of business at any meeting of shareholders. In the absence of a quorum at any such meeting or any adjournment or adjournments thereof, a majority in voting interest of those present in person or represented by proxy, or in the absence therefrom of all the shareholders, any officer entitled to preside at, or to act as secretary of, such meeting, may adjourn such meeting from time to time until a quorum is present thereat. At any adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called. SECTION 6. ORGANIZATION. At each meeting of the shareholders, the Chairman of the Board, the President or a Vice-President designated for the purpose by the Chairman (with priority in the order named), or in the absence of said officers, a chairman chosen by a majority vote of the shareholders present in person or represented by proxy and entitled to vote thereat shall act as chairman. The Secretary shall act as secretary at each meeting of the shareholders, or in his absence the chairman may appoint any person present to act as secretary of the meeting. SECTION 7. ORDER OF BUSINESS. The order of business at all meetings of the shareholders shall be determined by the chairman of the meeting. SECTION 8. VOTING. Unless otherwise provided by law or in the Certificate of Incorporation, the Common Stock only shall have voting power. Each holder of record of shares of stock of the Corporation entitled to vote at any meeting of shareholders shall, in all matters, be entitled to one vote for each share of stock owned by him. Shareholders may vote either in person or by proxy. Except as otherwise provided by law or these By-laws, or by the Certificate of Incorporation, the majority of the votes cast shall prevail on all matters submitted to vote at any meeting of the shareholders. Unless so directed by the chairman of the meeting, the vote at such meeting need not be by ballot, except that all elections of directors by shareholders shall be by ballot. At the direction of such chairman that a vote by ballot be taken on any question, such vote shall be taken. On a vote by - 2 - ballot each ballot shall be signed by the shareholder voting, or by his proxy as such if there be such proxy. Except as otherwise provided by law or by these By-laws all voting may be via voce. SECTION 9. INSPECTORS OF ELECTION. At each meeting of the shareholders the chairman of such meeting shall appoint one or more inspectors of election to act thereat. No director or candidate for the office of director shall be appointed such inspector. Each inspector of election so appointed, before entering upon the discharge of his duties, shall be sworn faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability, and the oath so taken shall be subscribed by such inspectors. Such inspectors of election, after the voting on any question, shall make a certificate of the result of the vote taken. Inspectors need not be shareholders. SECTION 10. RECORD DATE. The Board may fix a day and hour not more than sixty (60) days prior to the day and hour then fixed for the holding of any meeting of shareholders as the time as of which shareholders entitled to notice of and to vote at such meeting shall be determined, and all persons who were holders of record of voting stock at such time and no others shall be entitled to notice of and to vote at such meeting. SECTION 11. ADVANCE NOTIFICATION OF SHAREHOLDER NOMINATIONS FOR DIRECTORS AND OTHER PROPOSALS. No shareholder may propose to nominate persons for election to the Board at an annual meeting of the shareholders of the Corporation or to bring other business before an annual meeting of the shareholders of the Corporation, unless such shareholder gives timely notice thereof to the Secretary of the Corporation. To be timely, a shareholder's notice must be addressed to the Secretary of the Corporation and received at the principal executive offices of the Corporation not more than one hundred fifty (150) days and not less than one hundred twenty (120) days prior to the date of the Corporation's proxy statement released to shareholders in connection with the prior year's annual meeting; provided, however, that in the event the annual meeting is called for a date which is not within thirty (30) days before or after such anniversary date, notice by the shareholder, to be timely, must be received no later than the close of business on the fifteenth (15th) day following the day - 3 - on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever occurs first. Such shareholder's notice shall set forth: (a) as to each person whom the shareholder proposes to nominate at the annual meeting for election to the Board, (i) the name, age, business address and residential address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Corporation which are beneficially owned by such person, (iv) a description of all arrangements or understandings between such shareholder and such person, (v) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, and any other rules of the Securities and Exchange Commission, (vi) such other information as may be reasonably required by the Corporation to determine the eligibility of such person to serve as a director of the Corporation, and (vii) any such person's written consent to serve as a director if so elected; (b) as to any other business that such shareholder proposes to bring before the annual meeting, (i) a description of the business desired to be brought before the meeting in sufficient detail for such business to be summarized in the agenda for the meeting, (ii) the reasons for conducting such business at the meeting, and (iii) any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (i) the name and address of such shareholder, as it appears on the Corporation's books, and of any such beneficial owner, and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such shareholder and any such beneficial owner. Notwithstanding compliance with the foregoing requirements, no person proposed to be nominated to the Board by a shareholder pursuant to this procedure shall become a nominee for election to the Board and no other business shall be - 4 - considered at the annual meeting unless the shareholder who has provided the notice or his proxy, nominates such person or introduces such business at the meeting, as the case may be. The presiding officer of the annual meeting shall, if the facts warrant, refuse to acknowledge a nomination or the consideration of business which was not made in compliance with the foregoing requirements. ARTICLE II DIRECTORS SECTION 1. NUMBER, ELECTION, TERM, POWERS. The Corporation shall have such number of directors, not less than three (3) nor more than twenty-one (21), as shall from time to time be determined by the vote of a majority of the entire board. Except as otherwise provided herein, the directors shall be chosen at the annual meeting of shareholders in each year, by a plurality of the votes cast in the election therefor. The term of office of each director shall (unless vacated as provided herein) be from the time of his election and qualification until the annual meeting of shareholders next succeeding his election and until his successor shall have been duly elected and qualified, or until his earlier death or resignation. The directors shall act only as a board and the individual directors shall have no power as such. The Board shall have, in the management of the Corporation's affairs, all powers which are not inconsistent with the laws of the State of New York or these By-laws, or the Certificate of Incorporation. SECTION 2. QUALIFICATIONS. All directors shall be at least twenty-one (21) years of age. SECTION 3. FIRST MEETING. After each election of directors by the shareholders, on the same day and at the conclusion of the meeting of shareholders at which such election shall be held, and at the place where such election is held, the newly elected Board shall meet for the purpose of organization, the election of officers and the transaction of other business. Notice of such meeting need not be given. If a quorum shall not be present at such time and place, but at least one director is present, then such meeting shall be adjourned as provided in Section 6 of this Article II. If no director shall be present at such time and place, then such meeting may be held at any other time and place which shall be - 5 - specified in a notice given as hereinafter provided for special meetings of the Board or in a waiver of notice thereof. SECTION 4. REGULAR MEETINGS. Regular meetings of the Board shall be held at such times and places as the Board by resolution may determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day at said place. Except as provided by law or these By-laws, notice of regular meetings need not be given. SECTION 5. SPECIAL MEETINGS. Special meetings of the Board shall be held whenever called by the Chairman of the Board or the President or by the Secretary at the request of a majority of the members of the Board. Except as otherwise provided by law, notice of each such special meeting shall be mailed to each director, addressed to him at his residence or usual place of business, at least two days before the day on which such meeting is to be held, or shall be sent addressed to him at such place by telegraph, cable or wireless, or be delivered personally or by telephone, not later than the day before the day on which such meeting is to be held. Notice of any meeting of the Board need not, however, be given to any director, if waived by him as in these By-laws provided. Except as otherwise specifically provided by law or these By-laws, the notice or waiver of notice of any meeting of the Board need not contain any statement of the purposes of the meeting or any specification of the business to be transacted thereat. SECTION 6. QUORUM. Unless otherwise provided by law or in the Certificate of Incorporation or in these By-laws, the presence of not less than one-third of the number of directors as fixed in accordance with these By-laws shall be necessary to constitute a quorum for the transaction of business by the Board. In the absence of a quorum, a majority of the directors present may adjourn any meeting of the Board from time to time until a quorum shall be present thereat. Notice of any adjourned meeting need not be given. At any adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called. SECTION 7. VOTING. At all meetings of directors, a quorum being present, all matters, except those the manner of deciding upon which is otherwise provided by law or - 6 - these By-laws, or in the Certificate of Incorporation, shall be decided by the vote of a majority of the directors present. SECTION 8. ORGANIZATION. At each meeting of the Board the Chairman of the Board or, in the Chairman's absence, a director chosen by a majority of the directors present, shall act as chairman. The Secretary, or in the Secretary's absence any person appointed by the chairman, shall act as secretary of the meeting. Any meeting of the Board may be adjourned by the vote of a majority of the directors present at such meeting. SECTION 9. VACANCIES. Any vacancy in the Board whether arising from death, resignation, an increase in the number of directors or any other cause, may be filled by the vote of a majority of the remaining directors, provided that, in the case of a vacancy occurring through the resignation of a director, the resigning director shall be entitled to vote with the other directors for his successor. SECTION 10. PLACE OF MEETING. The Board may hold its meetings at such place or places within or without the State of New York as it may from time to time by resolution determine or as shall be specified or fixed in the respective notices or waivers of notice thereof. SECTION 11. INDEMNIFICATION. (a) The Corporation shall indemnify to the fullest extent permitted by law, any person made, or threatened to be made, a party to an action or proceeding, civil or criminal (including an action by or in the right of the Corporation or by or in the right of any other corporation or business entity of any type or kind, domestic or foreign, which any director or officer of the Corporation served in any capacity at the request of the Corporation), by reason of the fact that he or she, his or her testator or intestate, was a director or officer of the Corporation (or such director or officer, his or her testator or intestate served the Corporation or such other corporation or business entity in any capacity), against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein, and the Corporation may pay, in advance of final disposition of any such action or proceeding, expenses (including attorneys' fees) incurred by such person in defending such action or proceeding. - 7 - The Corporation may indemnify, and make advancements to, any person made, or threatened to be made, a party to any such action or proceeding by reason of the fact that he or she, his or her testator or intestate, is or was an agent or employee (other than a director or officer) of the Corporation (or served another corporation or business entity at the request of the Corporation in any capacity), on such terms, to such extent, and subject to such conditions, as the Board shall determine, including payment, in advance of final disposition of any such action or proceeding, expenses (including attorneys' fees) incurred by such person in defending such action or proceeding. In addition to the foregoing, the Corporation shall indemnify to the fullest extent permitted by law, any person made, or threatened to be made, a party to an action or proceeding, civil or criminal, by reason of the fact that such person, his or her testator or intestate, is or was a director or officer of any other corporation or business entity, of any type or kind, domestic or foreign, which any such person served at the request of the Corporation, against judgments, fines, amounts paid in settlement (with the prior consent of the Corporation) and reasonable expenses, including attorneys' fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein, and the Corporation may pay, in advance of final disposition of any such action or proceeding, expenses (including attorneys' fees) incurred by such person in defending such action or proceeding. (b) A person shall be presumed to be entitled to indemnification for any act or omission covered by this By-law. The burden of proof of establishing that a person is not entitled to indemnification because of the failure to fulfill some requirement of New York law, the Corporation's charter, or the By-laws shall be on the Corporation. (c) If a claim under this By-law is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim, including attorneys' fees. SECTION 12. ACTION BY WRITTEN CONSENT. Unless otherwise provided by law or in the Certificate of Incorporation of the Corporation, any action required or permitted to be - 8 - taken by the Board or any committee thereof may be taken without a meeting if all members of the Board or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the Board or committee shall be filed with the minutes of the proceedings of the Board or committee. SECTION 13. ACTION BY MEANS OF CONFERENCE TELEPHONE. Any one or more members of the Board may participate in a regular or special meeting of the Board by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. ARTICLE III COMMITTEES SECTION 1. COMMITTEES. On the terms, to the extent and subject to the conditions, prescribed by law or by resolution of the Board, the Board, by resolution adopted by a majority of the entire Board, may designate from among its members an Executive Committee and other committees, each of which shall consist of three or more directors and shall have the authority of the Board. The Board may designate one or more directors as alternate members of any committee, who may act in the place of any absent member or members of such committee. The presence of not less than one-third of the number of members of any committee or two members of such committee, whichever shall be greater, shall be necessary to constitute a quorum of such committee and, except as otherwise provided by law, the Certificate of Incorporation or these By-laws, a majority vote of the committee members present shall be the act of the committee. SECTION 2. ACTION BY MEANS OF CONFERENCE TELEPHONE. Any one or more members of any committee of the Board may participate in a meeting of such committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. - 9 - ARTICLE IV OFFICERS SECTION 1. NUMBER. The officers of the Corporation shall be a Chairman of the Board, a President, one or more Vice-Presidents, a Secretary, a Treasurer and a Controller. The officers of the Corporation may also include, at the option of the Board, one or more Vice-Chairmen of the Board, each of whom shall be a member of the Board. Two or more offices may be conferred upon one person, except the offices of President and Secretary. The Board may require any officer, agent or employee to give security for faithful performance of such person's duties. SECTION 2. ELECTION, TERM OF OFFICE, QUALIFICATION. The officers of the Corporation shall be chosen by the Board as soon as practicable after each annual election of directors, each such officer to hold office until his successor shall have been chosen and qualified, or until his earlier death or resignation, or removal in the manner hereinafter provided. SECTION 3. SUBORDINATE OFFICERS. The Board may appoint as subordinate officers, assistants to any officer including assistant secretaries and assistant treasurers, agents or employees as the Board may deem necessary or advisable, each of whom shall serve for such period, have such authority and perform such duties as the Board may from time to time determine or as may be set forth in these By-laws. The Board may delegate to any officer the power to appoint and remove subordinate officers, assistant secretaries, assistant treasurers, agents or employees. SECTION 4. MANAGEMENT DIRECTION. The Board shall designate an officer of the Corporation to be the chief executive officer of the Corporation and such chief executive officer shall have, subject to the control of the Board, general and active supervision and direction over the property, business and affairs of the Corporation and the personnel thereof. SECTION 5. THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall be the chief executive officer of the corporation and shall, subject to the oversight of the Board of Directors, be in overall charge of and responsible for the business and affairs of the corporation, and shall have duties customarily incident to the office of the Chairman of the Board and chief executive officer, and such other duties as may from time to time be assigned to him or her by the Board of Directors, subject, however, to the right of the - 10 - Board to delegate any specific power and authority, except such as may be by statute exclusively conferred on the Chairman of the Board and chief executive officer, to any other officer or officers of the corporation. He shall, if present, preside at all meetings of the shareholders and the Board. SECTION 6. THE VICE-CHAIRMAN OF THE BOARD. Each Vice-Chairman of the Board shall have such authority and perform such duties as may from time to time be assigned by these By-laws, the Board or the Chairman of the Board. SECTION 7. THE PRESIDENT. The President shall, subject to the authority of the Chairman of the Board and chief executive officer, have responsibility for the general management of the business of the corporation, including all business units and staff functions, and subject also to the right of directors to delegate any specific powers, except such as may be by statute exclusively conferred on the President, to any other officer or officers of the corporation. In the case of the absence or inability to act of the Chairman of the Board and chief executive officer, the President shall perform the duties of Chairman of the Board and chief executive officer, and when so acting shall have all the powers of and be subject to all the restrictions upon the Chairman of the Board and chief executive officer. SECTION 8. VICE-PRESIDENTS. Each Vice-President shall have such powers and perform such duties as the Board, the Chairman of the Board or the President may from time to time prescribe, and shall perform such other duties as may be prescribed by these By-laws. In case of the absence or inability to act of the President, then one of the Vice-Presidents who shall be designated for the purpose by the Board shall perform the duties of the President, and when so acting shall have all the powers of and be subject to all the restrictions upon the President. SECTION 9. THE SECRETARY. The Secretary shall act as secretary of, and keep the minutes of, all meetings of the Board and of the shareholders; he shall cause to be given such notice of all meetings of the shareholders and directors as required; he shall be custodian of the seal of the Corporation and shall affix the seal or cause it to be affixed to all certificates and documents, the execution of which on behalf of the Corporation under its seal shall have been specifically or generally authorized; he shall have charge of the - 11 - books, records and papers of the Corporation relating to its organization as a corporation; and he shall in general perform all the duties incident to the office of Secretary. He shall also have such other powers and perform such other duties, not inconsistent with these By-laws, as the Chairman of the Board, the President or the Board shall from time to time prescribe. SECTION 10. THE TREASURER. The Treasurer shall have charge and custody of, and be responsible for, all the funds and securities of the Corporation and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name of and to the credit of the Corporation in such banks or other depositaries as may be designated by the Board; he shall disburse the funds of the Corporation, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board, the President or the Board, whenever any one or more of them may require him so to do, a statement of all his transactions as Treasurer; and, in general, he shall perform all the duties incident to the office of Treasurer and such other duties as may from time to time be assigned to him by the Chairman of the Board, the President or the Board. SECTION 11. THE CONTROLLER. The Controller shall keep accurate accounts, in such form as may be approved by the Board of Directors, of all financial transactions of the Corporation; he shall supervise and direct the keeping of all of the financial records and accounting records of the Corporation, and shall have general charge, supervision and direction of the accounting departments of the Corporation; he shall discharge such other duties and have such other powers as may be required of or granted to him by the Board. SECTION 12. ASSISTANTS TO THE PRESIDENT. Each assistant to the President shall, at the request of the President, aid and assist him in the performance of his duties and the exercise of his powers, and have such other powers and perform such other duties as may from time to time be assigned to him by the Chairman of the Board, the President or the Board. SECTION 13. ASSISTANT SECRETARIES. In case of the absence or inability to act of the Secretary, the Assistant Secretary, or, if there shall be more than one, any of the Assistant Secretaries, shall perform the duties of the Secretary, and, when so acting shall have all - 12 - the powers of, and be subject to all the restrictions upon, the Secretary. Each of the Assistant Secretaries shall perform such other duties as from time to time may be assigned to him by the Chairman of the Board, the President, the Secretary or the Board. SECTION 14. ASSISTANT TREASURERS. In case of the absence or inability to act of the Treasurer, the Assistant Treasurer, or, if there be more than one, any of the Assistant Treasurers, shall perform the duties of the Treasurer, and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the Treasurer. Each of the Assistant Treasurers shall perform such other duties as from time to time may be assigned to him by the Chairman of the Board, the President, the Treasurer or the Board. SECTION 15. GENERAL PROVISIONS. All officers shall serve under the direction of and at the pleasure of the Board and be subject to removal thereby at any time with or without cause. Any vacancy occurring in any office may be filled by the Board. ARTICLE V CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. SECTION 1. EXECUTION OF CONTRACTS. Except as otherwise provided by law or in these By-laws, the Chairman of the Board, any Vice-Chairman of the Board, the President or any Vice-President shall have authority to execute and deliver any and all instruments for and in the name of the Corporation. The Board may authorize any other officer or officers, agent or agents to execute and deliver any instrument for and in the name of the Corporation and such authority may be general or confined to specific instances. Unless authorized by the Board or by these By-laws, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it pecuniarily liable for any purpose or to any amount. SECTION 2. INDEBTEDNESS. No loans shall be contracted on behalf of the Corporation and no negotiable paper shall be issued in its name unless authorized by the resolutions of the Board. When authorized by the Board so to do, any officer or agent of the Corporation thereunto authorized may effect loans and advances for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds, or other certificates or evidences of indebtedness of the Corporation and, - 13 - when authorized so to do, may pledge, hypothecate or transfer any securities or other property of the Corporation as security for any such loans or advances. Such authority may be general or confined to specific instances. SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts, and other orders for the payment of moneys out of the funds of the Corporation and all notes or other evidences of indebtedness of the Corporation shall be signed on behalf of the Corporation in such manner as shall from time to time be determined by resolution of the Board. SECTION 4. DEPOSITS. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositaries as the Board may select or as may be selected by any officer or officers, agent or agents of the Corporation to whom such power may from time to time be delegated by the Board; and, for the purpose of such deposit, the Chairman of the Board, the President, any Vice-President, the Treasurer or the Secretary, or any other officer, agent or employee of the Corporation to whom such power may be delegated by the Board, may endorse, assign and deliver checks, drafts and other orders for the payment of moneys which are payable to the order of the Corporation. ARTICLE VI SHARES AND DIVIDENDS SECTION 1. CONSIDERATION FOR ISSUE OF STOCK. No stock shall be issued except as permitted under the Business Corporation Law of the State of New York. SECTION 2. CERTIFICATES. The shares of the Corporation shall either be represented by certificates or shall be uncertificated and represented by book entry registered in the name of the holder on the books and records of the Corporation or its transfer agent. At the direction of the Corporation to its stock transfer agent and absent a specific request for a certificate by the registered holder or transferee thereof, all shares of the Corporation shall be uncertificated upon the original issuance thereof by the Corporation or upon the surrender of the certificate representing such shares to the Corporation (Direct Registration of shares). If shares are represented by certificates, each holder of record of shares of stock of the Corporation shall be provided with a certificate or certificates of stock representing the number of shares owned by such holder, in such form as shall be - 14 - approved by the Board, signed by the Chairman of the Board, or President or a Vice-President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, and sealed with the seal of the Corporation, which seal may be an engraved or printed facsimile, certifying the number of shares owned by him in the Corporation. The signatures of the officers upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or its employee. In case any such person who shall have signed, or whose facsimile signature has been placed upon, such certificate shall have ceased to hold such position before such certificate is issued, it may be issued by the Corporation with the same effect as if such person had not ceased to hold such position at the date of its issue. Upon the election of the Corporation to provide for Direct Registration of shares, such certificates shall be provided only upon request to the Corporation by the registered holder or transferee thereof. SECTION 3. TRANSFER OF SHARES. Transfers of shares of the capital stock of the Corporation shall be made only on the books of the Corporation by the holder thereof, or by his attorney thereunto authorized by a power of attorney duly executed and filed with the agent or officer in charge of such books, subject to such proof or guaranty signature as the Corporation or its transfer agent may require, if any, and on surrender of the certificate or certificates for such shares, properly endorsed, or upon receipt of proper transfer instructions from the owner of uncertificated shares, or upon the escheat of said shares under the laws of any state of the United States. A person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof as regards the Corporation, provided that whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact, if known to the officer in charge or to said transfer agent, shall be so expressed in the entry of transfer. SECTION 4. RECORD DATE. The Board may fix a day and hour not exceeding sixty (60) days preceding the date fixed for the payment of any dividend or the making of any distribution, or for the delivery of evidences of rights or evidences of interests arising out of any changes, conversion or exchange of capital stock, as a record time for the determination of the shareholders entitled to receive such dividend, distribution, rights or - 15 - interests, and in such case only shareholders of record at the time so fixed shall be entitled to receive such dividend, distribution, rights or interests. SECTION 5. LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES. A certificate for shares of the stock of the Corporation may be issued in place of any certificate lost, stolen, destroyed or mutilated, but only on delivery to the Corporation, unless the Board of Directors otherwise determines, of a bond of indemnity, in form and amount and with one or more sureties satisfactory to the Board, or such officer or officers of the Corporation or such transfer agent as the Board may from time to time designate, and of such evidence of such loss, theft, destruction or mutilation as the Board, or such officer or officers or transfer agent, may require. ARTICLE VII OFFICES AND BOOKS SECTION 1. OFFICES. The Board may from time to time and at any time establish offices of the Corporation or branches of its business at whatever place or places seem to it expedient. Offices or agencies for the transfer and registration of stock shall at all times be maintained in the City of New York. Additional such offices or agencies may be maintained elsewhere, in the discretion of the Board. SECTION 2. BOOKS. There shall be kept at the office of the Corporation in Chicago, Illinois, correct books of all the business and transactions of the Corporation, and, at the office of the Corporation in the State of New York, or at the office of a transfer agent of the Corporation in such State, the stock book of the Corporation, which shall contain the names, alphabetically arranged, of all persons who are shareholders of the Corporation, showing their respective places of residence, the number of shares held by them respectively, and the time when they respectively became the owners thereof. The stock book shall at all times during business hours be open to the inspection of all persons permitted by law to inspect the same. - 16 - ARTICLE VIII SEAL SECTION 1. The common seal of the Corporation shall consist of a round seal with the words "GATX CORPORATION" in the margin and the words "NEW YORK, 1916" in the center thereof. ARTICLE IX WAIVER OF NOTICE SECTION 1. Whenever any notice whatever is required to be given by these By-laws or the Certificate of Incorporation or by law, the person entitled thereto may, in person, or in the case of a shareholder, by his duly authorized attorney, waive such notice in writing (which shall include the use of telegraph, cable, radio or wireless), whether before or after the meeting or other matter or event in respect of which such notice is to be given, and in such event such waiver shall be equivalent to such notice and such notice need not be given to such person, and any action to be taken after such notice or after the lapse of a prescribed period of time may be taken without such notice and without the lapse of any period of time. The presence of a director at any meeting of the Board shall constitute waiver of notice thereof by him. ARTICLE X FISCAL YEAR SECTION 1. The fiscal year of the Corporation shall end on the thirty-first day of December in each year. ARTICLE XI AMENDMENTS SECTION 1. These By-laws may be altered, changed, amended or repealed and new By-laws adopted at any regular or special meeting of the Board of Directors, by a majority vote of all the Directors, provided notice of the proposed alteration, change, amendment or repeal shall have been given with notice of the meeting. - 17 - EX-10.A 3 c89507exv10wa.txt AMENDED AND RESTATED AGREEMENTS EXHIBIT 10A AMENDED AND RESTATED AGREEMENT FOR EMPLOYMENT FOLLOWING A CHANGE OF CONTROL AGREEMENT by and between GATX Corporation, a New York corporation (the "Company") and NAME (the "Executive") dated as of the 6th day of August 2004. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below). The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs, and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" shall mean the period commencing on January 1, 2004, and ending on the third anniversary of the date thereof; provided, however, that commencing on January 1, 2005, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (4) any acquisition by any corporation pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (c) of this Section 2; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation or sale or other disposition (including, without limitation, a disposition occurring by merger, consolidation, sale, or other similar transactions of one or more subsidiaries of the Company) of all or substantially all of the assets of the Company (a "Business Combination"), in each case unless, following such Business Combination (other than a Business Combination of the type referred to in the first parenthetical of this subsection (c) which results in the disposition of all or substantially all of the assets of the Company), (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 65% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of 2 directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company; or (e) Consummation of a reorganization, merger or consolidation or sale or other disposition of any subsidiary or of all or substantially all of the assets of any subsidiary of the Company or a disposition (in a single transaction or series of integrated transactions) of all or substantially all of the assets of an operating segment of the Company as identified in the financial statements included in the Company's most recent Annual Report on Form 10-K (each a "Business Segment") that is, in either case, the primary employer of the Executive or to which the Executive's responsibilities primarily relate immediately prior thereto, and which does not constitute a Business Combination as defined in Section 1(c), unless immediately thereafter the Company, either directly or indirectly, owns (i) at least 50% of the voting stock of any such subsidiary disposed of or, (ii) in the case of the disposition of all or substantially all of the assets of a subsidiary or Business Segment, at least 50% of both the voting power over and the equity in any entity holding title to such assets. 3. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of such date (the "Employment Period"). 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned by or to the Executive at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such 3 activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies during the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the highest bonus earned by the Executive for the last two full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) Long-Term Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all long-term incentive, stock option, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with long-term incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), stock option opportunities, savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, 4 without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, or payment of an automobile allowance in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), the Company may give to 5 the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment no sooner than 30 days following such notice. In such event, the Executive's employment with the Company shall terminate effective on the date specified in such notice (the "Disability Effective Date"), provided that the Executive shall not have returned to full-time performance of the Executive's duties prior thereto. For purposes of this Agreement, "Disability" shall mean any disability that (a) entitles the Executive to disability income benefits under the GATX Long Term Disability Income Plan as in effect on the day prior to the Effective Date, and (b) prevents the executive, for the duration of the Employment Period, from engaging in the same or comparable type of employment as that in which the Executive was engaged on the day prior to the Effective Date. (b) Cause. The Company may terminate the Executive's employment during the Employment Period only for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions or concurrence of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: 6 (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the 7 Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, death or Disability or the Executive shall terminate employment for Good Reason: (i) The Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination (except in the event of an election made by the Executive pursuant to D below) the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the Executive's Annual Bonus as defined in Section 4(b)(ii) of the Agreement (annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) three and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Executive's target bonus under the Company's Management Incentive Plan, or any comparable bonus plan in which the Executive participates and which has a target bonus generally similar to that in the Company's Management Incentive Plan (the "Target Bonus"), less amounts, if any, paid to the Executive in accordance with the Company's severance pay policies; and C. an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company's qualified defined benefit retirement plan (the "Retirement Plan") and any excess or supplemental retirement plan in which the Executive participates (together, the "SERP") (utilizing in each case actuarial assumptions no less favorable to the Executive than those in effect under the Company's Retirement Plan immediately prior to the Effective Date), which the Executive would receive if the Executive's employment continued for three years after the Date of Termination assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation in each of the three years is equal to the Annual Base Salary as required by Section 4(b)(i) and plus the Executive's Target Bonus as described in Section 6(i)(B) for the most 8 recent fiscal year (or other bonus amount considered pensionable under the Retirement Plan), over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination; D. should the Executive so elect by written notice provided to the Benefits Administrator no later than the business day immediately preceding the Effective Date, an amount equal to the present value of the benefits to which the Executive is entitled under the SERP as of the Date of Termination, utilizing (a) as a discount rate the rate of return on 10-year Treasury Securities in effect for the month prior to the month in which the change of control occurs, and (b) mortality assumptions based on the Applicable Mortality Table defined in Section 417(e)(3)(A)(1) of the Code (as hereinafter defined); such amount shall be paid on the first anniversary of the Effective Date if the Executive's employment has been terminated as above provided prior thereto, otherwise it shall be paid on the Executive's Date of Termination. (ii) for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families (collectively, "Welfare Benefits"), provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period. The Company shall continue to provide the Executive with Welfare Benefits at the Executive's own cost until the Executive is eligible for coverage under Medicare; (iii) the Company shall, at a maximum cost of 10% of the Executive's Annual Base Salary, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated 9 companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 10 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice (other than those providing severance benefits) provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). If however, following the conclusion of such contest, the court before whom such contest was held determines that under the circumstances it was unjust for the Company to have paid all or any part of the legal fees and expenses of the Executive pursuant to the immediately preceding sentence, the Executive shall repay any such payments to the Company in accordance with the order of the court. 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company or its affiliates to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties 11 imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 9(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young LLP or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, 12 (ii)take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv)permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be 13 repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall have been identified and held by the Company as proprietary and confidential and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The Company agrees that it will not effect the sale or other disposition of all or substantially all of its assets unless either (1) the person or entity acquiring the assets or a substantial portion of the assets shall expressly assume by an instrument in writing all duties and obligations of the Company under this Agreement or (2) the Company shall provide through the establishment of a separate reserve for the payment in full of all amounts that are or may be reasonably expected to become payable to the Executive under this Agreement. As used in this Agreement, "Company" shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. 14 (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Name Address If to the Company: GATX CORPORATION 500 West Monroe Chicago, IL 60661-3676 Attention: Senior Vice-President, Human Resources or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) This Agreement supercedes and replaces the Agreement between the Executive and the Company dated March 15, 2002. (g) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a) hereof, prior to the Effective Date, the Executive's employment and/or 15 this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. _________________________________ Executive GATX CORPORATION By ______________________________ Its Chairman of the Board _________________________________ Execution Date 16 EX-10.B 4 c89507exv10wb.txt AMENDED AND RESTATED AGREEMENTS EXHIBIT 10B AMENDED AND RESTATED AGREEMENT FOR EMPLOYMENT FOLLOWING A CHANGE OF CONTROL AGREEMENT by and between GATX Corporation, a New York corporation (the "Company") and NAME (the "Executive") dated as of the 6th day of August 2004. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below). The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs, and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" shall mean the period commencing on January 1, 2004 and ending on the third anniversary of the date thereof; provided, however, that commencing on January 1, 2005, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (4) any acquisition by any corporation pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (c) of this Section 2; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation or sale or other disposition (including, without limitation, a disposition occurring by merger, consolidation, sale, or other similar transactions of one or more subsidiaries of the Company) of all or substantially all of the assets of the Company (a "Business Combination"), in each case unless, following such Business Combination (other than a Business Combination of the type referred to in the first parenthetical of this subsection (c) which results in the disposition of all or substantially all of the assets of the Company), (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 65% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or 2 (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company; or (e) Consummation of a reorganization, merger or consolidation or sale or other disposition of any subsidiary or of all or substantially all of the assets of any subsidiary of the Company or a disposition (in a single transaction or series of integrated transactions) of all or substantially all of the assets of an operating segment of the Company as identified in the financial statements included in the Company's most recent Annual Report on Form 10-K (each a "Business Segment") that is, in either case, the primary employer of the Executive or to which the Executive's responsibilities primarily relate immediately prior thereto, and which does not constitute a Business Combination as defined in Section 1(c), unless immediately thereafter the Company, either directly or indirectly, owns (i) at least 50% of the voting stock of any such subsidiary disposed of or, (ii) in the case of the disposition of all or substantially all of the assets of a subsidiary or Business Segment, at least 50% of both the voting power over and the equity in any entity holding title to such assets. 3. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the second anniversary of such date (the "Employment Period"). 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned by or to the Executive at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. 3 (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies during the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the highest bonus earned by the Executive for the last two full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) Long-Term Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all long-term incentive, stock option, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with long-term incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), stock option opportunities, savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally 4 at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, or payment of an automobile allowance in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), the Company may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment no sooner than 30 days following such notice. In such event, the Executive's employment with the Company shall terminate effective on the date specified in such notice (the "Disability Effective Date"), provided that the Executive shall not have returned to full-time performance of the Executive's duties prior thereto. For purposes of this Agreement, "Disability" shall mean any disability that (a) entitles the Executive to disability income benefits under the GATX Long Term Disability Income Plan as in effect on the day prior to the Effective Date, and (b) prevents the executive, for the duration of the Employment Period, from engaging in the same or comparable type of 5 employment as that in which the Executive was engaged on the day prior to the Effective Date. (b) Cause. The Company may terminate the Executive's employment during the Employment Period only for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions or concurrence of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not 6 occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, Death or Disability or the Executive shall terminate employment for Good Reason: (i) The Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination (except in the event of an election made by the Executive pursuant to D below) the aggregate of the following amounts: 7 A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the Executive's Annual Bonus as defined in Section 4(b)(ii) of the Agreement (annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) two and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Executive's target bonus under the Company's Management Incentive Plan, or any comparable bonus plan in which the Executive participates and which has a target bonus generally similar to that in the Company's Management Incentive Plan (the "Target Bonus"), less amounts, if any, paid to the Executive in accordance with the Company's severance pay policies; C. an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company's qualified defined benefit retirement plan (the "Retirement Plan") and any excess or supplemental retirement plan in which the Executive participates (together, the "SERP") (utilizing in each case actuarial assumptions no less favorable to the Executive than those in effect under the Company's Retirement Plan immediately prior to the Effective Date), which the Executive would receive if the Executive's employment continued for two years after the Date of Termination assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation in each of the two years is equal to the Annual Base Salary as required by Section 4(b)(i) and plus the Executive's Target Bonus as described in Section 6(i)(B) for the most recent fiscal year (or other bonus amount considered pensionable under the Retirement Plan), over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination; and D. should the Executive so elect by written notice provided to The Benefits Administrator no later than the business day immediately preceding the Effective Date, an amount equal to the present value of the benefits to which the Executive is entitled under the SERP as of the Date of Termination, utilizing (a) as a discount rate the rate of return on 10-year Treasury Securities in effect for the month prior to the month in which the change of control occurs, and (b) mortality assumptions based on the Applicable Mortality Tables defined in Section 417(e)(3)(A)(1) of the Code (as hereinafter defined); such amount shall be paid on the first anniversary of the Effective Date if the Executive's employment has been terminated as above provided prior thereto, otherwise it shall be paid on the Executive's Date of Termination. 8 (ii)for two years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families (collectively, "Welfare Benefits"), provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until two years after the Date of Termination and to have retired on the last day of such period. The Company shall continue to provide the Executive with Welfare Benefits at the Executive's own cost until the Executive is eligible for coverage under Medicare; (iii) the Company shall, at a maximum cost of 10% of the Executive's Annual Base Salary, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. (c) Disability. If the Executive's employment is terminated by reason of the 9 Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice (other than those providing severance benefits) provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, 10 or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). If however, following the conclusion of such contest, the court before whom such contest was held determines that under the circumstances it was unjust for the Company to have paid all or any part of the legal fees and expenses of the Executive pursuant to the immediately preceding sentence, the Executive shall repay any such payments to the Company in accordance with the order of the court. 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company or its affiliates to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 9(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young LLP or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the 11 Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii)take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv)permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed 12 income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall have been identified and held by the Company as proprietary and confidential and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The Company agrees that it will not effect the sale or other disposition of all or substantially all of its assets unless either (1) the person or entity 13 acquiring the assets or a substantial portion of the assets shall expressly assume by an instrument in writing all duties and obligations of the Company under this Agreement or (2) the Company shall provide through the establishment of a separate reserve for the payment in full of all amounts that are or may be reasonably expected to become payable to the Executive under this Agreement. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Name Address If to the Company: GATX CORPORATION 500 West Monroe Chicago, IL 60661-3676 Attention: Senior Vice-President, Human Resources or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, 14 shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) This Agreement supercedes and replaces the Agreement between the Executive and the Company dated April 5, 2002. (g) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a) hereof, prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. _______________________________ Executive GATX CORPORATION By: ___________________________ Its Chairman of the Board _______________________________ Execution Date 15 EX-10.C 5 c89507exv10wc.txt RESTRICTED STOCK AGREEMENTS EXHIBIT 10C GATX CORPORATION 2004 EQUITY INCENTIVE COMPENSATION PLAN RESTRICTED STOCK AGREEMENT THIS AGREEMENT, entered into as of the Grant Date (as defined in paragraph 1), by and between the Participant and GATX Corporation (the "Company"); WHEREAS, the Company maintains the GATX Corporation 2004 Equity Incentive Compensation Plan (the "Plan"), which is incorporated into and forms a part of this Agreement, and the Participant has been selected by the committee administering the Plan (the "Committee") to receive a Restricted Stock Award (which is a Full Value Award) under the Plan; NOW, THEREFORE, IT IS AGREED, by and between the Company and the Participant, as follows: 1. Terms of Award. The following terms used in this Agreement shall have the meanings set forth in this paragraph 1: The "Participant" is NAME The "Grant Date" is DATE The number of shares of "Restricted Stock Units" granted under this Agreement is NUMBER. Other terms used in this Agreement are defined pursuant to paragraph 13 or elsewhere in this Agreement. Capitalized terms not defined herein shall have the meaning ascribed thereto in the Plan. 2. Award. The Participant is hereby granted the number of Restricted Stock Units set forth in paragraph 1, subject to the terms of the Plan and this Agreement. 3. Voting Rights and Dividends. Notwithstanding anything to the contrary, the Participant shall not be entitled to vote Restricted Stock Units, but from and after the Determination Date shall be entitled to vote shares of Restricted Stock which have not been previously forfeited. Unless a Participant's Date of Termination has occurred prior to the Determination Date, following the Determination Date an account shall be established for the Participant, to which shall be credited dividend equivalents equal to the product of (a) the number of the Participant's Restricted Stock and (b) the dividend declared on a single share of the Company's Common Stock during the period beginning on the Grant Date and ending on the Date of Determination. Unless a Participant's Date of Termination shall have previously occurred, on each dividend payment date thereafter during the period beginning on the Determination Date and ending on the second anniversary thereof, the Participant's account shall be credited with dividend equivalents equal to the product of (x) the number of the Participant's Restricted Stock and (y) the dividend declared on a single share of the Company's Common Stock with respect to the immediately preceding dividend record date. A Participant shall be entitled to a distribution of the dividend equivalents credited to his or her account to the extent he or she has become vested in his or her Restricted Stock, subject to any adjustment made by the Committee as contemplated by subparagraph (5)(b)(ii) hereof. 4. Deposit of Restricted Stock Certificates. The securities evidencing the Restricted Stock shall be imprinted with the following legend: The securities evidenced by this certificate are subject to transfer and forfeiture restrictions and other provisions of the Restricted Stock Agreement dated DATE between NAME and GATX Corporation. 5. Vesting, Transfer and Forfeiture of Restricted Stock. If, for the period (the "Performance Period") commencing on the Grant Date and ending on December 31st, immediately following the Grant Date (the "Determination Date"), the Company's Total Gross Income less Gross Ownership Costs (as reported on the Company's audited income statement for the Performance Period) is not less than $250,000,000, the Restricted Stock Units granted to a Participant shall be converted to shares of Restricted Common Stock ("Restricted Stock"), provided that such awards shall not be payable until the Committee certifies that the goals have been met. Assuming the goal specified in the immediately preceding sentence has been achieved, the number of shares of Restricted Stock granted to the Participant shall depend on the extent to which the Performance Goals set forth on Exhibit 1 have been achieved during the Performance Period, and shall be calculated as set forth on Exhibit 2. . (a) Except as provided in paragraph (b), if the Participant's Date of Termination has not previously occurred, the Restricted Stock to which a Participant has become entitled shall vest on the second anniversary of the Determination Date. If the Participant's employment is terminated for Cause or the Date of Termination occurs prior to the second anniversary of the Determination Date, the Participant shall forfeit all non-vested shares. (b) Notwithstanding the foregoing provisions of this paragraph 5, the Participant shall become vested in the Restricted Stock, and become owner thereof free of all restrictions otherwise imposed by this Agreement, as follows: (i) If the Participant's employment is involuntarily terminated by the Company not less than twelve months following the Grant Date, he or she will be entitled to a pro rata portion of the Restricted Stock based on his or her length of employment during the Restricted Period. The pro rata portion of the Restricted Stock shall equal the product of the Restricted Stock multiplied by a fraction (not greater than one), the numerator of which is the number of months the Participant is employed by the Company or its Subsidiaries during the period beginning on the Grant 2 Date and ending on the Date of Termination and the denominator of which is the number of months in the Restricted Period. (ii) If the Participant's Date of Termination occurs by reason of the Participant's death, Retirement or Disability prior to the second anniversary of the Determination Date the Participant shall be entitled to a pro rata portion of the Restricted Stock based on his or her length of employment during the Restricted Period. Provided, however, if the Participant's Date of Termination occurs as described in the immediately preceding sentence prior to the Determination Date, then delivery of the shares will be made as promptly as is practicable following the Determination Date. Provided further, that if a Participant's Date of Termination occurs by reason of the Participant's death, Retirement or Disability, as described in the first sentence of this subparagraph (ii), the Committee may, in its sole discretion, increase the number of Restricted Stock to which the Participant is entitled. (iii) The Participant shall become fully vested in the Restricted Stock upon a Change in Control that occurs at the Company level, on or before the Participant's Date of Termination and before the second anniversary of the Determination Date. If the Change of Control occurs prior to the Determination Date, the number of Restricted Stock shall be calculated as if the Company had achieved 100% performance against goal. If a Change of Control occurs at a Subsidiary with respect to a Participant prior to the Determination Date, the Participant shall be entitled to one-third (1/3) of the Restricted Stock assuming 100% performance against goal. A Participant shall be entitled to two-thirds (2/3) of the Restricted Stock if a Change of Control occurs at a Subsidiary with respect to such Participant during the first year subsequent to the Determination Date, and to 100% of the Restricted Stock if a Change of Control occurs at a Subsidiary with respect to such Participant during the second year subsequent to the Determination Date. (c) Neither Restricted Stock Units nor Restricted Stock may be sold, assigned, transferred, pledged or otherwise encumbered until the Participant is vested in such shares. 6. Withholding. The grant and vesting of shares of Stock under this Agreement are subject to withholding of all applicable taxes. Subject to such rules and limitations as may be established by the Committee from time to time, the Participant may satisfy his or her withholding obligations through the surrender of shares of Stock which the Participant already owns, or to which the Participant is otherwise entitled under the Plan; provided, however, that, except as otherwise provided by the Committee, such shares may be used to satisfy not more than the Company's minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). 3 7. Heirs and Successors. This Agreement shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company's assets and business. If any rights of the Participant or benefits distributable to the Participant under this Agreement have not been exercised or distributed, respectively, at the time of the Participant's death, such rights shall be exercisable by the Designated Beneficiary, and such benefits shall be distributed to the Designated Beneficiary, in accordance with the provisions of this Agreement and the Plan. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be exercised by or distributed to the legal representative of the estate of the Participant. If the Designated Beneficiary survives the Participant but dies before the exercise of all rights or the complete distribution of benefits under this Agreement, then any remaining rights and any remaining benefit distribution shall be exercisable by or distributed to the legal representative of the estate of the Designated Beneficiary. 8. Administration. The authority to manage and control the operation and administration of this Agreement shall be vested in the Committee, and the Committee shall have all powers with respect to this Agreement as it has with respect to the Plan. Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement shall be final and binding on all persons. 9. Plan Governs. Notwithstanding anything in this Agreement to the contrary, the terms of this Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the Director, Compensation of the Company; and this Agreement is subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. 10. Not An Employment Contract. The Award will not confer on the Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate or modify the terms of such Participant's employment or other service at any time. 11. Notices. Any written notices provided for in this Agreement or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant's address indicated by the Company's records, or if to the Company, to the attention of the Director, Compensation at the Company's principal executive office. 12. Amendment. This Agreement may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement of the parties. 4 13. Definitions. For purposes of this Agreement, the terms used in this Agreement shall be subject to the following: Cause. The term "Cause" shall mean (i) the willful and continued failure of the Participant to perform the Participant's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), or (ii) the willful engaging by the Participant in illegal conduct or gross misconduct in the course of his or her discharge of duties for the Company. For purposes of this provision, no act or failure to act, on the part of the Participant, shall be considered "willful" unless it is done, or omitted to be done, by the Participant in bad faith or without reasonable belief, that the Participant's action or omission was in the best interests of the Company. Change in Control. The term "Change in Control" shall have the meaning ascribed to it in Section 5 of the Plan. Date of Termination. The term "Date of Termination" means the first day occurring on or after the Grant Date on which the Participant is not employed by the Company (or in the case of a non-employee member of the Board of Directors of the Company, a member on the Board) or any Subsidiary, regardless of the reason for the termination of employment; provided that a termination of employment shall not be deemed to occur by reason of a transfer of the Participant between the Company and a Subsidiary or between two Subsidiaries; and further provided that the Participant's employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Subsidiary approved by the Participant's employer. If, as a result of a sale, merger or other transaction, the Participant's employer ceases to be a Subsidiary (and the Participant's employer is or becomes an entity that is separate from the Company), and the Participant is not, at any time during the 30-day period following the transaction, employed by the Company or an entity that is then a Subsidiary, then the occurrence of such transaction shall be treated as the Participant's Date of Termination caused by the Participant being discharged by the employer. Designated Beneficiary. The beneficiary or beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require. Determination Date. December 31st, immediately following the Grant Date. Disability. Except as otherwise provided by the Committee, the Participant shall be considered to have a "Disability" during the period in which the Participant is considered to be "disabled" as that term is defined in the Company's long term disability plan. Restricted Period for the Restricted Stock Units and Restricted Stock shall begin on the Grant Date and end on the date the shares, if any, become vested. 5 Retirement. "Retirement" of the Participant means retirement on a "Retirement Date," as that term is defined in the GATX Corporation Non-Contributory Pension Plan for Salaried Employees (the "Pension Plan"); provided that if the Participant is not a participant in the Pension Plan, the Retirement Date shall be the date determined by the Committee. IN WITNESS WHEREOF, the Participant has executed this Agreement, and the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date. Participant: ______________________________ GATX Corporation By: ________________________________ Its: ________________________________ 6 EX-10.D 6 c89507exv10wd.txt RESTRICTED STOCK AGREEMENTS EXHIBIT 10D GATX CORPORATION 2004 EQUITY INCENTIVE COMPENSATION PLAN RESTRICTED STOCK AGREEMENT THIS AGREEMENT, entered into as of the Grant Date (as defined in paragraph 1), by and between the Participant and GATX Corporation (the "Company"); WHEREAS, the Company maintains the GATX Corporation 2004 Equity Incentive Compensation Plan (the "Plan"), which is incorporated into and forms a part of this Agreement, and the Participant has been selected by the committee administering the Plan (the "Committee") to receive a Restricted Stock Award (which is a Full Value Award) under the Plan; NOW, THEREFORE, IT IS AGREED, by and between the Company and the Participant, as follows: 1. Terms of Award. The following terms used in this Agreement shall have the meanings set forth in this paragraph 1: The "Participant" is NAME. The "Grant Date" is DATE. The number of shares of "Restricted Stock Units" granted under this Agreement is NUMBER. Other terms used in this Agreement are defined pursuant to paragraph 13 or elsewhere in this Agreement. Capitalized terms not defined herein shall have the meaning ascribed thereto in the Plan. 2. Award. The Participant is hereby granted the number of Restricted Stock Units set forth in paragraph 1, subject to the terms of the Plan and this Agreement. 3. Voting Rights and Dividends. Notwithstanding anything to the contrary, the Participant shall not be entitled to vote Restricted Stock Units, but from and after the Determination Date shall be entitled to vote shares of Restricted Stock which have not been previously forfeited. Unless a Participant's Date of Termination has occurred prior to the Determination Date, following the Determination Date an account shall be established for the Participant, to which shall be credited dividend equivalents equal to the product of (a) the number of the Participant's Restricted Stock and (b) the dividend declared on a single share of the Company's Common Stock during the period beginning on the Grant Date and ending on the Date of Determination. Unless a Participant's Date of Termination shall have previously occurred, on each dividend payment date thereafter during the period beginning on the Determination Date and ending on the second anniversary thereof, the 1 Participant's account shall be credited with dividend equivalents equal to the product of (x) the number of the Participant's Restricted Stock and (y) the dividend declared on a single share of the Company's Common Stock with respect to the immediately preceding dividend record date. A Participant shall be entitled to a distribution of the dividend equivalents credited to his or her account to the extent he or she has become vested in his or her Restricted Stock, subject to any adjustment made by the Committee as contemplated by subparagraph (5)(b)(ii) hereof. 4. Deposit of Restricted Stock Certificates. The securities evidencing the Restricted Stock shall be imprinted with the following legend: The securities evidenced by this certificate are subject to transfer and forfeiture restrictions and other provisions of the Restricted Stock Agreement dated DATE between NAME and GATX Corporation. 5. Vesting, Transfer and Forfeiture of Restricted Stock. The number of shares of Restricted Stock granted to the Participant shall depend on the extent to which the Performance Goals set forth on Exhibit 1 have been achieved during the Performance Period, and shall be calculated as set forth on Exhibit 2. (a) Except as provided in paragraph (b), if the Participant's Date of Termination has not previously occurred, the Restricted Stock to which a Participant has become entitled shall vest on the second anniversary of the Determination Date. If the Participant's employment is terminated for Cause or the Date of Termination occurs prior to the second anniversary of the Determination Date, the Participant shall forfeit all non-vested shares. (b) Notwithstanding the foregoing provisions of this paragraph 5, the Participant shall become vested in the Restricted Stock, and become owner thereof free of all restrictions otherwise imposed by this Agreement, as follows: (i) If the Participant's employment is involuntarily terminated by the Company not less than twelve months following the Grant Date, he or she will be entitled to a pro rata portion of the Restricted Stock based on his or her length of employment during the Restricted Period. The pro rata portion of the Restricted Stock shall equal the product of the Restricted Stock multiplied by a fraction (not greater than one), the numerator of which is the number of months the Participant is employed by the Company or its Subsidiaries during the period beginning on the Grant Date and ending on the Date of Termination and the denominator of which is the number of months in the Restricted Period. (ii) If the Participant's Date of Termination occurs by reason of the Participant's death, Retirement or Disability prior to the second anniversary of the Determination Date the Participant shall be entitled to a pro rata portion of the Restricted Stock based on his or her length of employment during the Restricted Period. Provided, however, if the Participant's Date of Termination occurs as described in the immediately 2 preceding sentence prior to the Determination Date, then delivery of the shares will be made as promptly as is practicable following the Determination Date. Provided further, that if a Participant's Date of Termination occurs by reason of the Participant's death, Retirement or Disability, as described in the first sentence of this subparagraph (ii), the Committee may, in its sole discretion, increase the number of Restricted Stock to which the Participant is entitled. (iii) The Participant shall become fully vested in the Restricted Stock upon a Change in Control that occurs at the Company level, on or before the Participant's Date of Termination and before the second anniversary of the Determination Date. If the Change of Control occurs prior to the Determination Date, the number of Restricted Stock shall be calculated as if the Company had achieved 100% performance against goal. If a Change of Control occurs at a Subsidiary with respect to a Participant prior to the Determination Date, the Participant shall be entitled to one-third (1/3) of the Restricted Stock assuming 100% performance against goal. A Participant shall be entitled to two-thirds (2/3) of the Restricted Stock if a Change of Control occurs at a Subsidiary level with respect to such Participant during the first year subsequent to the Determination Date, and to 100% of the Restricted Stock if a Change of Control occurs at a Subsidiary with respect to such Participant during the second year subsequent to the Determination Date. (c) Neither Restricted Stock Units nor Restricted Stock may be sold, assigned, transferred, pledged or otherwise encumbered until the Participant is vested in such shares. 6. Withholding. The grant and vesting of shares of Stock under this Agreement are subject to withholding of all applicable taxes. Subject to such rules and limitations as may be established by the Committee from time to time, the Participant may satisfy his or her withholding obligations through the surrender of shares of Stock which the Participant already owns, or to which the Participant is otherwise entitled under the Plan; provided, however, that, except as otherwise provided by the Committee, such shares may be used to satisfy not more than the Company's minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). 7. Heirs and Successors. This Agreement shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company's assets and business. If any rights of the Participant or benefits distributable to the Participant under this Agreement have not been exercised or distributed, respectively, at the time of the Participant's death, such rights shall be exercisable by the Designated Beneficiary, and such benefits shall be distributed to the Designated Beneficiary, in accordance with the provisions of this Agreement and the Plan. If a deceased Participant 3 fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be exercised by or distributed to the legal representative of the estate of the Participant. If the Designated Beneficiary survives the Participant but dies before the exercise of all rights or the complete distribution of benefits under this Agreement, then any remaining rights and any remaining benefit distribution shall be exercisable by or distributed to the legal representative of the estate of the Designated Beneficiary. 8. Administration. The authority to manage and control the operation and administration of this Agreement shall be vested in the Committee, and the Committee shall have all powers with respect to this Agreement as it has with respect to the Plan. Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement shall be final and binding on all persons. 9. Plan Governs. Notwithstanding anything in this Agreement to the contrary, the terms of this Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the Director, Compensation of the Company; and this Agreement is subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. 10. Not An Employment Contract. The Award will not confer on the Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate or modify the terms of such Participant's employment or other service at any time. 11. Notices. Any written notices provided for in this Agreement or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant's address indicated by the Company's records, or if to the Company, to the attention of the Director, Compensation at the Company's principal executive office. 12. Amendment. This Agreement may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement of the parties. 13. Definitions. For purposes of this Agreement, the terms used in this Agreement shall be subject to the following: Cause. The term "Cause" shall mean (i) the willful and continued failure of the Participant to perform the Participant's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), or (ii) the willful engaging by the Participant in illegal conduct or gross misconduct in the course of his or her discharge of duties for the Company. For purposes of this provision, 4 no act or failure to act, on the part of the Participant, shall be considered "willful" unless it is done, or omitted to be done, by the Participant in bad faith or without reasonable belief, that the Participant's action or omission was in the best interests of the Company. Change in Control. The term "Change in Control" shall have the meaning ascribed to it in Section 5 of the Plan. Date of Termination. The term "Date of Termination" means the first day occurring on or after the Grant Date on which the Participant is not employed by the Company (or in the case of a non-employee member of the Board of Directors of the Company, a member on the Board) or any Subsidiary, regardless of the reason for the termination of employment; provided that a termination of employment shall not be deemed to occur by reason of a transfer of the Participant between the Company and a Subsidiary or between two Subsidiaries; and further provided that the Participant's employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Subsidiary approved by the Participant's employer. If, as a result of a sale, merger or other transaction, the Participant's employer ceases to be a Subsidiary (and the Participant's employer is or becomes an entity that is separate from the Company), and the Participant is not, at any time during the 30-day period following the transaction, employed by the Company or an entity that is then a Subsidiary, then the occurrence of such transaction shall be treated as the Participant's Date of Termination caused by the Participant being discharged by the employer. Designated Beneficiary. The beneficiary or beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require. Determination Date. December 31st, immediately following the Grant Date. Disability. Except as otherwise provided by the Committee, the Participant shall be considered to have a "Disability" during the period in which the Participant is considered to be "disabled" as that term is defined in the Company's long term disability plan. Restricted Period for the Restricted Stock Units and Restricted Stock shall begin on the Grant Date and end on the date the shares, if any, become vested. Retirement. "Retirement" of the Participant means retirement on a "Retirement Date," as that term is defined in the GATX Corporation Non-Contributory Pension Plan for Salaried Employees (the "Pension Plan"); provided that if the Participant is not a participant in the Pension Plan, the Retirement Date shall be the date determined by the Committee. 5 IN WITNESS WHEREOF, the Participant has executed this Agreement, and the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date. Participant: ______________________________ GATX Corporation By: ________________________________ Its: ________________________________ 6 EX-10.E 7 c89507exv10we.txt RESTRICTED STOCK AGREEMENTS EXHIBIT 10E GATX CORPORATION 2004 EQUITY INCENTIVE COMPENSATION PLAN RESTRICTED COMMON STOCK AGREEMENT THIS AGREEMENT, entered into as of the Grant Date (as defined in paragraph 1), by and between the Participant and GATX Corporation (the "Company"). WHEREAS, the Company maintains the GATX Corporation 2004 Equity Incentive Compensation Plan (the "Plan"), which is incorporated into and forms a part of this Agreement, and the Participant has been selected by the committee administering the Plan (the "Committee") to receive a Restricted Common Stock Award (which is a Full Value Award) under the Plan; NOW, THEREFORE, IT IS AGREED, by and between the Company and the Participant, as follows: 1. Terms of Award. The following terms used in this Agreement shall have the meanings set forth in this paragraph 1: The "Participant" is NAME. The "Grant Date" is DATE. Other terms used in this Agreement are defined pursuant to paragraph 12 or elsewhere in this Agreement. Capitalized terms not defined herein shall have the meaning ascribed thereto in the Plan. 2. Award. Subject to the terms of the Plan and this Agreement the Participant is hereby granted NUMBER Restricted Common Stock Rights ("Rights"). Six months following the Grant Date GATX will exchange the Rights for an equal number of shares of Restricted Common Stock. Subject to the vesting requirements set forth in paragraph 4 hereof, the shares of Restricted Common Stock will be issued in electronic form in the Participant's name and placed into a non-dividend paying book account with the Company. 3. Voting Rights and Dividends. The Participant shall not be entitled to vote the Restricted Common Stock Rights. Once the shares of Restricted Common Stock are exchanged for the Rights, the Participant shall be entitled to vote the shares which have not been previously forfeited. An account shall be established for the Participant, to which shall be credited dividend equivalents equal to the product of (a) the number of shares of the Participant's Restricted Common Stock and (b) the dividend declared on a single share of the Company's Common Stock during the vesting period described in paragraph 4 hereof. To the extent he becomes vested in the Restricted Common Stock, the Participant shall be entitled to a distribution of the dividend equivalents credited to his account, subject to any adjustment made by the Committee as contemplated by subparagraph (4)(b)(ii) hereof. All dividend equivalents paid will be considered ordinary income and will be subject to supplemental withholding rates for federal, state and applicable FICA taxes. 4. Vesting, Transfer and Forfeiture of Restricted Common Stock. (a) Except as provided in paragraph (b), (i) if the Participant's Date of Termination has not previously occurred, all of the Restricted Common Stock which has been issued in the Participant's name shall vest on DATE, and (ii) if the Participant's employment is terminated for Cause or the Participant's Date of Termination occurs prior to DATE, the Participant shall forfeit all non-vested shares. (b) Notwithstanding the foregoing provisions of this paragraph 4, the Participant shall become vested in the Restricted Common Stock, and become owner thereof free of all restrictions otherwise imposed by this Agreement, as follows: (i) If the Participant's employment is involuntarily terminated by the Company other than for cause after DATE, and prior to DATE, he will be entitled to a pro rata portion of the Restricted Common Stock based on his length of employment during the Restricted Period. The pro rata portion of the Restricted Common Stock shall equal the product of (a) the number of shares of Restricted Common Stock which have been issued to the Participant hereunder and (b) a fraction (not greater than one), the numerator of which shall be the number of months the Participant is employed by the Company or its Subsidiaries during the period beginning on the Grant Date and ending on the Date of Termination and the denominator of which shall be the number of months in the Restricted Period. (ii) If the Participant's Date of Termination occurs by reason of the Participant's death, Retirement or Disability, the Participant shall be entitled to a pro rata portion of the Restricted Common Stock based on his or her length of employment during the Restricted Period. Provided, however, that if a Participant's Date of Termination occurs by reason of the Participant's death, Retirement or Disability, as described in the first sentence of this subparagraph (ii), the Committee may, in its sole discretion, increase the number of shares of Restricted Common Stock to which the Participant is entitled. (iii) The Participant shall become fully vested in the shares of Restricted Common Stock upon a Change in Control that occurs on or before the Participant's Date of Termination. (c) Restricted Common Stock may not be sold, assigned, transferred, pledged or otherwise encumbered until the Participant becomes fully vested in such shares. 2 5. Withholding. The grant and vesting of shares of Stock under this Agreement are subject to withholding of all applicable taxes. Subject to such rules and limitations as may be established by the Committee from time to time, the Participant may satisfy his or her withholding obligations through the surrender of shares of Stock which the Participant already owns, or to which the Participant is otherwise entitled under the Plan; provided, however, that, except as otherwise provided by the Committee, such shares may be used to satisfy not more than the Company's minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). 6. Heirs and Successors. This Agreement shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company's assets and business. If any rights of the Participant or benefits distributable to the Participant under this Agreement have not been exercised or distributed, respectively, at the time of the Participant's death, such rights shall be exercisable by the Designated Beneficiary, and such benefits shall be distributed to the Designated Beneficiary, in accordance with the provisions of this Agreement and the Plan. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be exercised by or distributed to the legal representative of the estate of the Participant. If the Designated Beneficiary survives the Participant but dies before the exercise of all rights or the complete distribution of benefits under this Agreement, then any remaining rights and any remaining benefit distribution shall be exercisable by or distributed to the legal representative of the estate of the Designated Beneficiary. 7. Administration. The authority to manage and control the operation and administration of this Agreement shall be vested in the Committee, and the Committee shall have all powers with respect to this Agreement as it has with respect to the Plan. Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement shall be final and binding on all persons. 8. Plan Governs. Notwithstanding anything in this Agreement to the contrary, the terms of this Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the Director, Compensation of the Company; and this Agreement is subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. 9. Not an Employment Contract. The Award will not confer on the Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate or modify the terms of such Participant's employment or other service at any time. 3 10. Notices. Any written notices provided for in this Agreement or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant's address indicated by the Company's records, or if to the Company, to the attention of the Director, Compensation at the Company's principal executive office. 11. Amendment. This Agreement may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement of the parties. 12. Definitions. For purposes of this Agreement, the terms used in this Agreement shall be subject to the following: Cause. The term "Cause" shall mean (i) the willful and continued failure of the Participant to perform the Participant's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), or (ii) the willful engaging by the Participant in illegal conduct or gross misconduct in the course of his or her discharge of duties for the Company. For purposes of this provision, no act or failure to act, on the part of the Participant, shall be considered "willful" unless it is done, or omitted to be done, by the Participant in bad faith or without reasonable belief, that the Participant's action or omission was in the best interests of the Company. Change in Control. The term "Change in Control" shall have the meaning ascribed to it in Section 5 of the Plan. Date of Termination. The term "Date of Termination" means the first day occurring on or after the Grant Date on which the Participant is not employed by the Company (or in the case of a non-employee member of the Board of Directors of the Company, a member on the Board) or any Subsidiary, regardless of the reason for the termination of employment; provided that a termination of employment shall not be deemed to occur by reason of a transfer of the Participant between the Company and a Subsidiary or between two Subsidiaries; and further provided that the Participant's employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Subsidiary approved by the Participant's employer. If, as a result of a sale, merger or other transaction, the Participant's employer ceases to be a Subsidiary (and the Participant's employer is or becomes an entity that is separate from the Company), and the Participant is not, at any time during the 30-day period following the transaction, employed by the Company or an entity that is then a Subsidiary, then the occurrence of such transaction shall be treated as the Participant's Date of Termination caused by the Participant being discharged by the employer. Designated Beneficiary. The beneficiary or beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require. 4 Disability. Except as otherwise provided by the Committee, the Participant shall be considered to have a "Disability" during the period in which the Participant is considered to be "disabled" as that term is defined in the Company's long term disability plan. Restricted Period for the Restricted Common Stock Units and Restricted Common Stock shall begin on the Grant Date and end on December 31, 2005. Retirement. "Retirement" of the Participant means retirement on a "Retirement Date," as that term is defined in the GATX Corporation Non-Contributory Pension Plan for Salaried Employees (the "Pension Plan"); provided that if the Participant is not a participant in the Pension Plan, the Retirement Date shall be the date determined by the Committee. IN WITNESS WHEREOF, the Participant has executed this Agreement, and the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date. Participant: ______________________________ GATX Corporation By: ________________________________ Its: ________________________________ 5 EX-10.F 8 c89507exv10wf.txt NON QUALIFIED STOCK OPTION AGREEMENT EXHIBIT 10F Page 1 of 6 GATX CORPORATION 2004 EQUITY INCENTIVE COMPENSATION PLAN NON-QUALIFIED STOCK OPTION AGREEMENT PARTICIPANT NAME NUMBER OF OPTIONS NUMBER EXERCISE PRICE PER SHARE PRICE GRANT DATE GRANT DATE EXPIRATION DATE* EXPIRE DATE *Subject to earlier termination as provided in the attached terms and conditions. In partial consideration of the provision of services by the above named Employee, who currently is employed by GATX Corporation (the "Company"), or a subsidiary thereof (such subsidiary and the Company hereinafter collectively "GATX"), and as further incentive to the Employee to advance the interests of the Company, the Company hereby grants to the Employee NUMBER non-qualified stock options (the "Option") to purchase an equal number of "Covered Shares" of common stock of the Company at the per share purchase price (the "Exercise Price") set forth above, determined by the Compensation Committee (the "Committee") of the Board of Directors of the Company in accordance with paragraph 2.2 of the GATX Corporation 2004 Equity Incentive Compensation Plan (the "Plan"), as amended. The Option is not intended to constitute an "incentive stock option" as that term is used in Code section 422. Such grant is expressly subject to the terms and conditions of this Option Agreement as hereinafter set forth and further subject to the terms and conditions of the Plan, both of which are incorporated herein by reference. Other terms used in the Agreement are defined pursuant to paragraph 16 or elsewhere in this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement, consisting of this page and the two pages of Terms and Conditions attached hereto, to be executed the date, month and year first above written. GATX CORPORATION PARTICIPANT By: _________________________ ____________________________ Chairman and CEO NAME 2 1. Date of Exercise. Subject to the terms and conditions of this Agreement, each Installment of Covered Shares of the Option shall be exercisable on and after the Vesting Date for such Installment as described in the following schedule (but only if the Date of Termination has not occurred before the Vesting Date):
VESTING DATE APPLICABLE INSTALLMENT TO INSTALLMENT - -------------------- ----------------------- 50% OF COVERED SHARES GRANT DATE + 1 YR 25% OF COVERED SHARES GRANT DATE + 2 YRS 25% OF COVERED SHARES GRANT DATE + 3 YRS
2. Notwithstanding the foregoing provisions of this paragraph 2, the Option shall become fully vested and exercisable as follows: (a) The Option shall become fully exercisable upon the Date of Termination, if the Date of Termination occurs by reason of the Participant's death or Disability. (b) Only Options which were exercisable immediately prior to the Participant's Date of Termination, or became exercisable upon the Participant's Date of Termination may be exercised on or after the Date of Termination. However, if the Participant is terminated for Cause, all Options not exercised prior to the Participant's Date of Termination will be cancelled immediately. (c) If the Participant's Date of Termination does not occur prior to the occurrence of a Change in Control, the Option shall become fully exercisable on the date of the Change in Control, subject to the following: (i) Upon the occurrence of a Change in Control described in paragraph 5(e) of the Plan with respect to a Participant as described therein (relating to certain transactions involving a subsidiary or business segment), the Installment, if any, scheduled to become exercisable during the calendar year in which such Change in Control occurs shall become exercisable in full for a period beginning on the date on which the Change in Control occurs and ending on the earlier of the end of the calendar year following the consummation of such transaction and the Expiration Date. (ii) If the Option does not provide for a tandem SAR, the Participant shall have a right, during the thirty day period following the occurrence of a Change in Control, to receive from the Company cash in an amount equal to the product of: (A) the number of Covered Shares which the Participant elects to have canceled under the then exercisable Options; multiplied by (B) the excess, if any, of the highest of: (I) the highest reported sales price of the Stock during the sixty days preceding such exercise; 3 (II) the highest purchase price for the Stock shown in any Schedule 13D filed with respect to an acquisition referred to in Section 5(a) of the Plan as paid within the sixty days prior to the date of such report; or (III) the cash and value of property paid per share in any transaction referred to in Section 5(c) of the Plan; over the Exercise Price. 3. Expiration. The Option shall not be exercisable after the Company's close of business on the last business day that occurs prior to the Expiration Date. The "Expiration Date" shall be the earliest to occur of: (a) the seven-year anniversary of the Grant Date; (b) if the Date of Termination occurs by reason of death or Disability, the one-year anniversary of such Date of Termination; (c) if the Date of Termination occurs for Cause, the Date of Termination; (d) if the Date of Termination occurs by reason of Retirement, the five-year anniversary of such Retirement; (e) if the Date of Termination occurs for any reason other than those listed in subparagraph (b), (c), or (d) of this paragraph 3, the three-month anniversary of such Date of Termination. 4. Method of Option Exercise. The Option may be exercised in whole or in part by filing a written notice with the Director, Compensation of the Company at its corporate headquarters prior to the Company's close of business on the last business day that occurs prior to the Expiration Date. Such notice shall specify the number of shares of Stock which the Participant elects to purchase, and shall be accompanied by payment of the Exercise Price for such shares of Stock indicated by the Participant's election. Payment shall be by cash or by check payable to the Company. Except as otherwise provided by the Committee before the Option is exercised, all or a portion of the Exercise Price may be paid by the Participant by delivery of shares of Stock owned by the Participant and acceptable to the Committee having an aggregate Fair Market Value (valued as of the date of exercise) that is equal to the amount of cash that would otherwise be required. Except as otherwise provided by the Committee, payments made with shares of Stock shall be limited to shares held by the Participant for not less than six months prior to the payment date. The Option shall not be exercisable if and to the extent the Company determines that such exercise would violate applicable state or Federal securities laws or the rules and regulations of any securities exchange on which the Stock is traded. If the Company makes such a determination, it shall use all reasonable efforts to obtain compliance with such laws, rules and regulations. In making any determination hereunder, the Company may rely on the opinion of counsel for the Company. 4 5. Dividend Equivalents. Participants shall be entitled to receive dividend equivalents beginning on the Grant Date and ending upon exercise of the Options or the Expiration Date, whichever occurs earlier. An account will be established for each participant that will accrue dividend equivalents on the Options. The Participant's account shall be credited with dividend equivalents equal to the product of (a) the number of Covered Shares which the Participant may purchase subject to any adjustment made by the Committee as referred to in paragraph 4.2 (f) of the Plan, and (b) the dividend declared on a single share of the Company's Common Stock with respect to the immediately preceding dividend record date So long as the Options have not been cancelled, accrued dividends will be paid as soon as practical after the Vesting Date of each Installment of Covered Shares as reflected in paragraph 1. Dividend equivalents will be paid within 30 days of each quarterly dividend payable date, subject to supplemental withholding rates for federal, state and FICA taxes. Dividend equivalents will be prorated through the Date of Termination for the quarter in which the Date of Termination occurs on vested Covered Shares. 6. Withholding. All deliveries and distributions under this Agreement are subject to withholding of all applicable taxes. At the election of the Participant, and subject to such rules and limitations as may be established by the Committee from time to time, such withholding obligations may be satisfied through the surrender of shares of Stock which the Participant already owns, or to which the Participant is otherwise entitled under the Plan; provided, however, that, except as otherwise provided by the Committee, such shares may be used to satisfy not more than the Company's minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). 7. Transferability. The Option is not transferable other than as designated by the Participant by will or by the laws of descent and distribution, and during the Participant's life, may be exercised only by the Participant. 8. Heirs and Successors. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company's assets and business. If any rights exercisable by the Participant or benefits deliverable to the Participant under this Agreement have not been exercised or delivered, respectively, at the time of the Participant's death, such rights shall be exercisable by the Designated Beneficiary, and such benefits shall be delivered to the Designated Beneficiary, in accordance with the provisions of this Agreement and the Plan. The "Designated Beneficiary" shall be the beneficiary or beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be exercised by or distributed to the legal representative of the estate of the Participant. If a deceased Participant designates a beneficiary and the Designated Beneficiary survives the Participant but dies before the Designated Beneficiary's exercise of all rights under this Agreement or before the complete distribution of 5 benefits to the Designated Beneficiary under this Agreement, then any rights that would have been exercisable by the Designated Beneficiary shall be exercised by the legal representative of the estate of the Designated Beneficiary, and any benefits distributable to the Designated Beneficiary shall be distributed to the legal representative of the estate of the Designated Beneficiary. 9. Administration. The authority to manage and control the operation and administration of this Agreement shall be vested in the Committee, and the Committee shall have all powers with respect to this Agreement as it has with respect to the Plan. Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement shall be final and binding on all persons. 10. Plan Governs. Notwithstanding anything in this Agreement to the contrary, the terms of this Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the Director, Compensation of the Company; and this Agreement is subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. 11. Not An Employment Contract. The Option will not confer on the Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate or modify the terms of such Participant's employment or other service at any time. 12. Notices. Any written notices provided for in this Agreement or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three days after mailing, but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant's address indicated by the Company's records, or if to the Company, to the attention of the Director, Compensation at the Company's principal executive office. 13. Fractional Shares. In lieu of issuing a fraction of a share upon any exercise of the Option, resulting from an adjustment of the Option pursuant to paragraph 4.2(f) of the Plan or otherwise, the Company will be entitled to pay to the Participant an amount equal to the fair market value of such fractional share. 14. No Rights As Shareholder. The Participant shall not have any rights of a shareholder with respect to the shares subject to the Option, until a stock certificate has been duly issued following exercise of the Option as provided herein. 15. Amendment. This Agreement may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement of the parties. 16. Definitions. For purposes of this Agreement, the terms used in this Agreement shall be subject to the following: 6 (a) Cause. The term "Cause" shall mean (i) the willful and continued failure of the Participant to perform the Participant's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), or (ii) the willful engaging by the Participant in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Participant, shall be considered "willful" unless it is done, or omitted to be done, by the Participant in bad faith or without reasonable belief, that the Participant's action or omission was in the best interests of the Company. (b) Change in Control. The term "Change in Control" shall have the meaning ascribed to it in Section 5 of the Plan. (c) Date of Termination. The term "Date of Termination" means the first day occurring on or after the Grant Date on which the Participant is not employed by the Company (or in the case of a non-employee member of the Board of Directors of the Company, a member on the Board) or any Subsidiary, regardless of the reason for the termination of employment; provided that a termination of employment shall not be deemed to occur by reason of a transfer of the Participant between the Company and a Subsidiary or between two Subsidiaries; and further provided that the Participant's employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Subsidiary approved by the Participant's employer. (d) Disability. Except as otherwise provided by the Committee, the Participant shall be considered to have a "Disability" during the period in which the Participant is considered to be "disabled" as that term is defined in the Company's long term disability plan. (e) Retirement. "Retirement" of the Participant means retirement on a "Retirement Date," as that term is defined in the GATX Corporation Non-Contributory Pension Plan for Salaried Employees (the "Pension Plan"); provided that if the Participant is not a participant in the Pension Plan, the Retirement Date shall be the date determined by the Committee. (f) Plan Definitions. Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in this Agreement. 7 EX-31.A 9 c89507exv31wa.txt CERTIFICATION EXHIBIT 31A CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER I, Ronald H. Zech, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of GATX Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13(a)-15(e) and 15(d)-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures or caused such disclosure controls to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within these entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. November 8, 2004 /s/ Ronald H. Zech ---------------------------------------------- Ronald H. Zech Chairman and Chief Executive Officer EX-31.B 10 c89507exv31wb.txt CERTIFICATION EXHIBIT 31B CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER I, Brian A. Kenney, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of GATX Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13(a)-15(e) and 15(d)-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures or caused such disclosure controls to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within these entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. November 8, 2004 /s/ Brian A. Kenney --------------------------------------------- Brian A. Kenney President and Chief Financial Officer EX-32 11 c89507exv32.txt CERTIFICATION EXHIBIT 32 GATX CORPORATION AND SUBSIDIARIES CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of GATX Corporation (the "Company") on Form 10-Q for the period ending September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Ronald H. Zech /s/ Brian A. Kenney - -------------------------------------- ------------------------------------ Ronald H. Zech Brian A. Kenney Chairman and President and Chief Executive Officer Chief Financial Officer November 8, 2004 This certification accompanies the Report pursuant to section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by GATX Corporation for purposes of section 18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to GATX Corporation and will be retained by GATX Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----