ITEM 1.01. Entry Into Material Definitive Agreement

On January 10, 2008 (the "Closing Date"), Providence and Worcester Railroad Company (the "Company") sold 239,523 shares of its common stock, par value $0.50 per share (the "Shares"), to GATX Corporation ("GATX"), for a total purchase price of $5,509,029, pursuant to a Common Stock Purchase Agreement by and between the Company and GATX (the "Stock Purchase Agreement"). The Shares represent approximately five percent (5%) of the Company's issued and outstanding common stock. The Stock Purchase Agreement provides that the Company must use the proceeds from the sale of the Shares for capital improvements to enhance the Company's railroad lines. Pursuant to the Stock Purchase Agreement, GATX is entitled to designate a person to be placed upon the slate of individuals nominated to serve as members of the Board of Directors of the Company, to be elected at the Company's Annual Meeting. In connection with the Stock Purchase Agreement, the Company and GATX also entered into a Registration Rights Agreement pursuant to which GATX is granted the right to demand registration of the Shares beginning 180 days following the Closing Date, by means of an underwritten public offering, and certain piggyback rights in connection with the registration by the Company of any of its common stock.

Simultaneous with the parties' execution of the Stock Purchase Agreement, the parties entered into an Exclusive Railcar Supply Agreement (the "ERSA") pursuant to which the Company granted GATX the exclusive right to supply the Company with railcars for certain rail traffic, on market-competitive terms to be determined by the parties. The ERSA further provides that the Company and GATX will review the Company's existing rail traffic and evaluate the possible replacement of non-GATX railcars with GATX-provided railcars. Railcars leased by the Company pursuant to the ERSA will be supplied pursuant to fixed-rate, structured utilization, or other lease arrangements, the terms of which may guarantee payment to GATX of any projected shortfall in acceptable risk-adjusted return to GATX.

Pursuant to the ERSA, the Company and GATX also entered into two separate purchase agreements whereby GATX acquired from the Company 72 mill gondolas in exchange for 137 open-top hoppers. Such exchange of mill gondolas for open-top hoppers was conducted through a tax-free exchange pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended. Simultaneous with the execution of the ERSA, the parties also entered into a transaction for the lease of certain mill gondolas. The ERSA further provides that at such time as manufacture is completed, the Company will sponsor at least 200 new GATX-owned bi-level automobile-carrying railcars for use in common with railroads engaged in the transportation of motor vehicles.

The initial term of the ERSA is a period of five years, which term automatically renews for successive one-year periods thereafter, unless either party provides prior timely written notice of its intent not to renew.

Item 9.01 Financial Statements and Exhibits

(c) Exhibits

99.1 Press Release dated January 10, 2008