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AMENDMENT OF TERMS OF CLASS B PREFERRED STOCK On October 2, 1986, the Company issued and sold to Merrill Lynch & Co., Inc. ("Merrill Lynch") 3,000,000 shares of Class B, Series 2 Participating Cumulative Preferred Stock (the "Series 2 Preferred Shares"), and on October 31, 1986, the Company issued and sold to Merrill Lynch 400,000 shares of Class B, Series 3 Participating Cumulative Preferred Stock (the "Series 3 Preferred Shares"). The Series 2 Preferred Shares and the Series 3 Preferred Shares have substantially similar rights and preferences, and are hereinafter referred to collectively as the "Class B Preferred Shares." Fixed dividends on the Class B Preferred Shares are payable at an annual rate of 13% for the first five months after issuance and at an annual rate of 15% thereafter. Additional dividends are payable on the Class B Preferred Shares in the same amount and at the same time as any dividends are paid on shares of Common Stock, and at the rate of 25% of the proceeds, net of disposition costs, received by the Company, in excess of $340,000,000 from the sale of certain specified businesses. Merrill Lynch has waived its right to receive dividends on the Class B Preferred Shares until the earlier of 30 days after the receipt of proceeds from the sale of Gelco Express Limited or the receipt of more than $100,000,000 from the sale of certain of the Company's businesses. In connection with the issuance and sale of the Class B Preferred Shares to Merrill Lynch, the Company has agreed to seek shareholder approval of an amendment to the Certificates of Designation, Preferences and Rights creating the Series 2 Preferred Shares and the Series 3 Preferred Shares, to permit the Company to pay dividends thereon in shares of its Common Stock, if for any reason the Company is prohibited by the terms or provisions of any agreement from paying cash dividends when due. The full text of the proposed amendments to the Certificates of Designation, Preferences and Rights is set forth as Annex A to this Proxy Statement. If the amendments are approved, they would require, subject to the further approval of the holders of the Company's Common Stock as described below, that if for any reason the Company cannot pay cash dividends on the Class B Preferred Shares on any date dividends are due, the Company must issue, as a stock dividend with respect to each Class B Preferred Share, a number of shares of Common Stock equal to the greater of (i) 110% of the cash dividend payable, divided by the average closing price of shares of the Company's Common Stock for the ten trading days ending five trading days prior to the dividend payment date or (ii) 105% of the cash dividend payable, divided by the average closing price for the three days ending five trading days prior to the dividend payment date. The right to pay dividends on the Class B Preferred Shares in shares of Common Stock contem- plated by the amendment could result in an increase in the aggregate voting power of the holders of the Class B Preferred Shares. Currently, Merrill Lynch owns all of such shares. Although there is no agreement, arrangement or understanding with respect to the voting of the Company's securities, Merrill Lynch has stated its support for the Company's existing management and policies. See "Security Ownership of Certain Beneficial Owners" for a description of certain litigation with respect to the Class B Preferred Shares. Management believes the proposed amendments would provide a valuable alternative to the Company, in situations where the Company, because of covenants in its loan agreements or otherwise, might be prohibited from paying accrued dividends on the Class B Preferred Shares in cash. Under the terms of the Class B Preferred Shares, if the amount of accrued and unpaid dividends on the Class B Preferred Shares equals or exceeds the aggregate amount of dividends payable for three quarters, its holders have the right to exchange each Class B Preferred Share for the greater of one share of Common Stock or that number of shares of Common Stock having a value equal to 108% of an amount equal to the sum of $20 plus accrued but unpaid dividends. By having the right to pay such dividends in shares of Common Stock, the Company could remain in compliance with its covenants without causing a default under the terms of its Class B Preferred Shares. Accordingly, Management recommends a vote FOR Item No. 2. At the annual meeting, the shareholders will be asked to consider and vote on the following resolution: "RESOLVED, by the shareholders of Gelco Corporation, that the amendments to the Certificates of Designation, Preferences and Rights creating the Company's Class B, Series 2 Participating Cumulative Preferred Stock and its Class B, Series 3 Participating Cumulative Preferred Stock, as set forth in the Stock Purchase Agreement, as amended, by and between the Company and Merrill Lynch & Co., Inc., be, and the same hereby are, approved and confirmed.'' It will require the affirmative vote of a majority of (i) all the outstanding shares of Common Stock and (ii) all the outstanding Class B Preferred Shares, voting separately by classes and voting together as a single class, to adopt the resolution. ANNEX A Section 2 of the Certificates of Designation, Preferences and Rights creating the Class B, Series 2 and Class B, Series 3 Participating Cumulative Preferred Stock, relating to the payment of dividends thereon, currently reads as follows: Section 2. Dividends and Distributions. The Corporation shall pay dividends and make distri- butions on the Class B, Series [2][3] Participating Cumulative Preferred Stock as set forth in this Section 2. (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Class B, Series [2][3] Participating Cumulative Preferred Stock with respect to dividends, the holders of shares of Class B, Series [2][3] Participating Cumulative Preferred Stock, in preference to the holders of shares of Common Stock, par value $.50 per share (the "Common Stock"), of the Corporation and any other junior stock, shall be entitled to receive, when, as ind if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on December 31, March 31, June 30 and September 30 of each year, commencing December 31, 1986 at the annual rate of (i) 13% ($2.60 per share) for the period from the first date of issuance of any Class B, Series [2][3] Participating Cumulative Preferred Stock (the "Original Issuance Date") to but not including the same day of the month in the fifth month following the month in which the Original Issuance Date occurs, and (ii) 15% ($3.00 per share) thereafter. Such dividend shall be paid to the holders of record at the close of business on the date specified by the Board of Directors of the Corporation at the time such dividend is declared; provided, however, that such date shall not be more than 60 days nor less than 10 days prior to the dividend date. Each of such quarterly dividends shall be fully cumulative and shall accrue (whether or not declared), without interest, from the first day of the quarter in which such dividend may be payable as herein provided, except that with respect to the first quarterly dividend payable on any share, such dividend shall accrue from the date of issue of such share.(B) In addition to, and not in lieu of, fixed dividends payable under paragraph (A) of this Section 2, the Corporation shall pay, on any date a payment of dividends or any other distribution of any kind is made on the Corporation's Common Stock, a dividend or distribution on each share of Class B, Series [2][3] Participating Cumulative Preferred Stock in an amount in cash equal to the cash dividend or, in the event such dividend is not a cash dividend, equal to the fair market value of the property that a holder of Class B, Series [2][3] Participating Cumulative Preferred Stock would have received if such holder had put its shares for Common Stock immediately prior to the record date for such dividend or other distribution at the applicable put rate (as defined in Section 9). The Corporation shall declare a dividend or distribution on the Class B, Series [2][3] Participating Cumulative Preferred Stock as provided in this paragraph (B) contemporaneously with the declaration of a dividend or distribution on the Common Stock. (C) In addition to, and not in lieu of, fixed dividends payable under paragraph (A) of this Section 2 and participating dividends payable under paragraph (B) of this Section 2, the Corporation shall pay, on the 30th day after the date on which the aggregate "net proceeds" (which term for all purposes of this Certificate shall mean the sum of the cash, the fair market value of property other than cash as determined by the Board of Directors of the Corporation and the principal amount of any debt of the Corporation and the principal amount of any debt of the Corporation assumed by the purchaser, less any investment banking fees and expenses, legal fees and expenses and other similar transaction expenses incurred by the Corporation or its subsidiaries) received by the Corporation from the sale or other disposition of any significant portion of the business, operations, properties, assets or capital stock of Gelco Express Limited, Transport International Pool, Inc., subsidiaries of Transport International Pool, Inc., Gelco International Limited or subsidiaries of Gelco International Limited (the "Divestitures") exceed $340,000,000, a dividend in cash on the shares of Class B, Series 2 Participating Cumulative Preferred Stock outstanding. The amount of the dividend for each outstanding share shall be equal to (i) 25% of the amount by which such net proceeds exceed $340,000,000, divided by (ii) 3,000,000. In the event that the Corporation shall receive additional net proceeds from any Divestiture after the declaration of one or more dividends under this paragraph (C), then, so long as any Class B, Series 2 Participating Cumulative Preferred Stock is outstanding, the Corporation shall pay on the 30th day after the date of receipt thereof, an additional dividend in cash on the shares of Class B, Series 2 Participating Cumulative Preferred Stock outstanding. The amount of the additional dividend for each outstanding share shall be equal to (i) 25% of the additional net proceeds received, divided by (ii) 3,000,000. (D) All dividends paid with respect to shares of Class B, Series 2 Participating Cumulative Shares outstanding shall be paid pro rata, in proportion to the number of shares held by the holders entitled thereto. (E) For purposes of paragraph (B) of this Section 2, the issuance of Rights Certificates (as defined in the Rights Agreement, dated as of May 12, 1986, between the Corporation and Norwest Bank Minneapolis, N.A., as Rights Agent, as amended from time to time (the "Rights Agreement")) to holders of Common Stock, the redemption of any Rights (as defined in the Rights Agreement), the exercise of any Rights and the issuance of shares of capital stock of the Corporation upon the exercise of any Rights, in each case pursuant to the Rights Agreement, shall not constitute a payment of dividends or any other distribution on the Corporation's Common Stock. It is proposed to make the following amendments: (a) Paragraph (A) of Section 2 of the Certificate shall be amended to add the following sentences at the end of such paragraph (A): "If for any reason the Corporation is prohibited by the terms or provisions of any agreement of the Corporation from paying cash dividends on the Class B, Series 2 Participating Cumulative Preferred Stock on the date such dividend is due as herein provided, the Corporation shall pay such dividend by issuing on such dividend payment date, as a stock dividend on each share of Class B, Series 2 Participating Cumulative Preferred Stock outstanding, the number of shares of Common Stock equal to the greater of (1) 110% of the cash dividend payable on such dividend payment date, divided by the average of the daily Closing Prices (as defined in the Certificate) for the ten Trading Days (as defined in the Certificate) ending five Trading Days before such dividend payment date, and (2) 105% of the cash dividend payable on such dividend payment date, divided by the average of the daily Closing Prices for the three Trading Days ending five Trading Days before such dividend payment date. Notwithstanding the foregoing, if the Corporation shall fail to declare and pay dividends in full (whether in cash or additional shares of Common Stock) on any dividend payment date, all future dividend payments (including payments of arrearages) may be paid only in cash." (b) Paragraph (A) of Section 4 shall be amended in its entirety to provide as follows: "(A) If at any time any dividend on any Class B, Series 2 Participating Cumulative Preferred Stock shall not have been declared and paid in cash or Common Stock on the dates specified therefor as provided in Section 2 hereof, the occurrence of such contingency shall mark the beginning of a period (herein called "default period") which shall extend until such time as all accrued and unpaid dividends have been declared and paid as provided in Section 2 above." Gelco Corporation 1/16/87