<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER: 1-1927
THE GOODYEAR TIRE & RUBBER COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Ohio 34-0253240
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1144 EAST MARKET STREET, AKRON, OHIO 44316-0001
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (330) 796-2121
SECURITIES REGISTERED PURSUANT TO SECTION 12(b)of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
-------------------- -----------------------------
Common Stock, Without Par Value New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
------------------------------------
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No
------------------------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein or in the definitive proxy
statement incorporated by reference in Part III of this Form 10-K. [ ].
------------------------------------
The aggregate market value of Registrant's outstanding Common Stock held by
nonaffiliates of the Registrant on February 18, 1997, determined using the per
share closing price thereof on the New York Stock Exchange Composite
Transactions tape of $54.25 on that date, was approximately $8,508,782,443.00
------------------------------------
SHARES OF COMMON STOCK, WITHOUT PAR VALUE, OUTSTANDING AT FEBRUARY 18, 1997:
156,873,953
------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
PORTIONS OF REGISTRANT'S DEFINITIVE PROXY STATEMENT, DATED FEBRUARY 26,
1997, FOR ITS 1997 ANNUAL MEETING OF SHAREHOLDERS ARE INCORPORATED BY REFERENCE
INTO PART III.
<PAGE> 2
THE GOODYEAR TIRE & RUBBER COMPANY
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
- --------- ----------
PART I
<S> <C> <C>
1 Business ............................................................ 1
2 Properties .......................................................... 12
3 Legal Proceedings ................................................... 13
4 Submission of Matters to a Vote of Security Holders ................. 16
4(A) Executive Officers of Registrant .................................... 16
PART II
5 Market for Registrant's Common Equity and Related
Stockholder Matters ............................................. 21
6 Selected Financial Data ............................................ 22
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................. 23
8 Financial Statements and Supplementary Data ........................ 30
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ............................ 52
PART III
10 Directors and Executive Officers of the Registrant ................. 52
11 Executive Compensation ............................................. 52
12 Security Ownership of Certain Beneficial Owners and
Management ...................................................... 52
13 Certain Relationships and Related Transactions. .................... 52
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K ........................................................ 53
Signatures ...................................................... 55
Index to Financial Statement Schedules .......................... FS-1
Index of Exhibits ............................................... X-1
</TABLE>
<PAGE> 3
THE GOODYEAR TIRE & RUBBER COMPANY
PART I
ITEM 1. BUSINESS.
BUSINESS OF GOODYEAR
The Goodyear Tire & Rubber Company is an Ohio corporation organized in
1898. Its principal offices are located at 1144 East Market Street, Akron, Ohio
44316-0001. Its telephone number is (330) 796-2121. The term "Registrant"
wherever used herein refers solely to The Goodyear Tire & Rubber Company. The
terms "Goodyear" and the "Company" wherever used herein refer to The Goodyear
Tire & Rubber Company together with all of its domestic and foreign subsidiary
companies, unless the context indicates to the contrary.
Goodyear is one of the world's leading manufacturers of tires and rubber
products, engaging in operations in most regions of the world. In 1996,
Goodyear's net sales were $13.1 billion and net income was $101.7 million. Net
income in 1996 included net after-tax charges of $573.0 million for the
writedown of the All American Pipeline System and related assets and other
rationalizations. Goodyear's worldwide employment averaged 91,310 during 1996.
Goodyear's principal business is the development, manufacture,
distribution and sale of tires for most applications. Goodyear also manufactures
and markets several lines of rubber and other products for the transportation
industry and various other industrial and consumer markets and numerous
rubber-related chemicals for various applications, provides automotive repair
and other services at retail and commercial outlets and sells various other
products.
Registrant's Celeron subsidiaries engage in various crude oil
transportation, gathering, purchasing and selling activities. The All American
Pipeline System is a heated crude oil pipeline extending approximately 1,225
miles from two points along the California coast to McCamey, Texas, which
transports offshore and onshore California crude oil to various system outlet
stations in California and in Texas.
RECENT DEVELOPMENTS IN GOODYEAR'S BUSINESS
During 1996, Goodyear introduced the Eagle F1 GS, a high performance
passenger tire with enhanced handling and wet traction capabilities, to the
North American replacement market. The Unisteel 300 Series of commercial truck
tires was expanded and new fleet maintenance services were introduced in North
America. In Europe, the Company introduced several new tires, including the
Eagle F1 GS-D2 and Eagle F1 GS-Fiorano high performance passenger tires, the
Ultra Grip 5 winter tire and the Vector 3 all-season tire. In Latin America, the
Eagle NCT 3 was introduced in Brasil and Venezuela and will be available
throughout the region in 1997. The G386 Unisteel drive and traction medium
radial truck tire and new tires in the Wrangler light truck tire line were
introduced in Brasil.
In February 1996, Goodyear introduced the Infinitred, a premium radial
passenger tire featuring enhanced wet traction and extended tread life, to the
North American replacement passenger tire market. The Infinitred is offered
with a lifetime treadlife limited warranty, which will be in effect as long as
the purchaser owns the car on which the tires are first mounted and the tires
are maintained as specified by the limited warranty.
In March 1996, the Company purchased original issue shares of the capital
stock of T CDebica, a manufacturer of passenger tires located in Poland, for
approximately $60 million. As a result of this purchase and the Company's prior
acquisition of 32.7% of the capital stock of T C Debica from the State Treasury
of Poland at a cost of $55 million, Goodyear owns approximately 50.8% of the
capital stock of T C Debica.
In April 1996, the Company acquired a tire plant near Manila, Philippines,
formerly owned by Sime Darby for approximately $63 million. The plant
manufactures passenger, light truck, medium truck and other tires.
1
<PAGE> 4
Effective January 1, 1997, the Company re-entered the South African market
by acquiring a 60% equity interest in the tire and industrial rubber products
businesses of Contred for approximately $121 million including loans assumed.
The businesses acquired include the tire and engineered products manufacturing
facilities sold by Goodyear to Consol Limited in 1989 which have been updated, a
chain of retail tire outlets and the largest retreader in South Africa.
In February 1997, Goodyear entered into a four year commitment to produce
tires for Dunlop Tire Corporation and the OHTSU Tire & Rubber Co., Ltd,
affiliates of Sumitomo Rubber Industries Ltd., in North America and Sumitomo
Rubber agreed to produce tires for Nippon Goodyear in Japan during the same
four-year period.
On March 1, 1996, Goodyear acquired the assets of Belt Concepts of
America, Inc, a manufacturer of lightweight conveyor belting for various
commercial applications located in Spring Hope, North Carolina.
Goodyear continued its program to enhance production capacity and
efficiency through plant modernization and expansion projects. Expansion of the
Company's Gadsden, Alabama, Topeka, Kansas, Bogor, Indonesia, Valleyfield,
Quebec, and Bangkok, Thailand tire plants were completed during 1996. The
Company also substantially completed construction of a new tire mold plant in
Statesville, North Carolina. Significant plant modernization and expansion
projects are presently underway at the Company's Napanee, Ontario, Valleyfield,
Quebec, Americana, Brasil, Freeport, Illinois, Fayetteville, North Carolina, and
Debica, Poland tire plants.
FINANCIAL INFORMATION ABOUT GOODYEAR'S INDUSTRY SEGMENTS
Financial information relating to Goodyear's "Industry Segments" for each
of the three years in the period ended December 31, 1996 appears in Note 17
captioned "Business Segments", and in the tabulation captioned "Industry
Segments" at Note 17, of the Notes to Financial Statements set forth in Item 8
of this Annual Report, at pages 46 and 47, respectively, and is incorporated
herein by specific reference.
DESCRIPTION OF GOODYEAR'S BUSINESS -- INDUSTRY SEGMENTS
TIRES
Goodyear's principal Industry Segment is the development, manufacture,
distribution and sale of tires and related products and services (the "Tires
Segment"). The principal class of products in the Tires Segment is tires for
most applications. No other class of products or services in the Tires Segment
accounted for as much as 10% of Goodyear's sales in any of the last three years.
The table below sets forth the percentage of Goodyear's net sales and operating
income attributable to the Tires Segment, and the percentage of Goodyear's sales
attributable to tires, for each of the three years ended December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Tires Segment sales ............................ 85.5% 85.5% 85.5%
Tire sales ............................... 77.1% 76.7% 76.7%
Tires Segment operating income ................. 243.8%(1) 81.9% 84.7%
<FN>
Note: (1) If determined before giving effect to the $755.6 million writedown of the assets of
the Oil Transportation Segment, Tires Segment operating income represented 79.6% of
Goodyear's total operating income in 1996.
</TABLE>
The products and services comprising the Tires Segment include:
TIRES. Goodyear manufactures and markets in most regions of the world a
broad line of rubber tires for automobiles, trucks, buses, tractors, farm
implements, earthmoving equipment,
2
<PAGE> 5
aircraft, industrial equipment and various other applications, in each case
for sale to original equipment manufacturers and in the replacement market.
Goodyear offers two basic constructions of tires, radial and bias-ply.
Various belting and reinforcing materials are used, including nylon and
polyester tire cord and steel.
A variety of Goodyear-brand radial passenger tire lines are sold in the
United States, including the all season Aquatred enhanced wet traction tire
line, the Eagle performance touring tire lines, and the Eagle Gatorback and
Eagle Aquatred high performance tire lines. The major lines of Goodyear-brand
radial light truck tires offered in the United States are the Wrangler and
Workhorse. Goodyear manufactures and sells several lines of radial passenger and
light truck tires in Europe, led by the Eagle and the Eagle Aquatred passenger
tire lines and the Wrangler light truck tire line. In Asia and Latin America,
both radial and bias-ply Goodyear-brand passenger and light truck tires are
manufactured and sold, led by the Eagle Aquatred in Asia and the GPS2 in Latin
America.
Goodyear manufactures and markets a full line of all-steel cord and belt
construction radial medium truck tires, the Unisteel series, for applications
ranging from line-haul highway use to off-road service. Goodyear also offers a
full line of bias-ply medium truck tires. Goodyear produces several lines of
tires for other applications, including radial and bias-ply tires for farm
machinery, heavy equipment and aircraft, and inner tubes for truck tires and
various other applications. Goodyear manufactures and sells new and retreaded
aircraft tires in the United States, Europe, Latin America and Asia.
The Kelly-Springfield Tire group ("Kelly-Springfield"), manufactures and
markets numerous lines of radial and bias-ply passenger and truck tires in the
United States replacement market and sells various lines of Kelly-brand tires in
the replacement markets in Canada and certain other countries. Brad Ragan, Inc.,
a 74.5% owned subsidiary of Registrant, is a tire retailing and commercial tire
sales, retreading and service chain with operations in various regions of the
United States.
RELATED PRODUCTS AND SERVICES. Goodyear also retreads truck, aircraft and
heavy equipment tires, primarily as a service to its commercial customers, and
manufactures and sells tread rubber and other tire retreading materials for
various applications. Additional products and services in the Tires Segment
include: automotive repair services provided by Goodyear through its retail
outlets; the sale to dealers and consumers of automotive repair and maintenance
items, automotive equipment and accessories and other items; the operation of
three rubber plantations and the processing and sale of natural rubber; and
miscellaneous other products and services.
MARKETS, DISTRIBUTION AND COMPETITION
The Company offers a broad line of tires for most applications and for all
classes of customers. In the United States and many other countries, the Company
sells Goodyear-brand tires to vehicle manufacturers for use as original
equipment on vehicles they produce. In the United States and most other
countries, the Company sells Goodyear-brand, Kelly-brand, other house brand and
private brand tires through various channels of distribution for sale to vehicle
owners for replacement purposes. Worldwide, the Company's sales of passenger,
truck and farm tires to the replacement market substantially exceed its sales of
passenger, truck and farm tires to original equipment manufacturers.
All passenger tires (except bias-ply temporary spare tires) and
approximately 85% of all light and medium truck tires sold by the Company in the
United States during 1996 were radial. Approximately 91% of all passenger tires
and approximately 46% of all light and medium truck tires sold by the Company
outside the United States during 1996 were radial. Demand for high performance
passenger tires has increased significantly during recent years. Approximately
31% of passenger tires sold in the United States during 1996 were high
performance tires, up from 30% in 1995, 28% in 1994 and 10% in 1988.
3
<PAGE> 6
Goodyear's tires are sold under highly competitive conditions. On a
worldwide basis, Goodyear has two major competitors: Bridgestone (based in
Japan) and Michelin (based in France). Goodyear also competes worldwide with
several other major foreign based tire manufacturing concerns, including
Continental, Pirelli, Sumitomo, Toyo, Yokohama and several Korean tire
companies. Goodyear's principal competitors with operations in the United States
are Bridgestone, The Firestone Tire & Rubber Company (acquired by Bridgestone in
1988), Michelin, Uniroyal-Goodrich Tire Company (acquired by Michelin in 1990),
Continental, General Tire Inc. (acquired by Continental in 1987) and Cooper Tire
& Rubber Company.
Goodyear competes with other tire manufacturers on the basis of price,
warranty, service, consumer convenience and product design, performance and
reputation. The Company believes Goodyear-brand tires enjoy a high recognition
factor throughout the world and have a reputation for high quality and value.
Kelly-brand and various other house-brand tire lines offered by the Company
compete primarily on the basis of price and performance.
Goodyear is a major supplier, on a direct sale basis, of tires to most
manufacturers of automobiles, trucks, farm and construction equipment and other
vehicles, both in the United States and numerous other countries. Goodyear sells
tires to the major automobile and truck manufacturers located in the United
States: Ford, General Motors, Chrysler, Toyota, Nissan, Honda, Diamond-Star,
NUMMI, AAI, Navistar, Mack Truck, Freightliner, Peterbilt and Kenworth. Goodyear
supplies tires to several European manufacturers, including Fiat, Daimler-Benz,
Volkswagen, Volvo, Ferrari, BMW, Peugeot, Alfa Romeo and Renault, to six
Japanese manufacturers, Nissan, Mazda, Toyota, Honda, Mitsubishi and Isuzu, and
to subsidiaries of General Motors, Ford and Chrysler throughout the world.
Goodyear also supplies major manufacturers of construction and agricultural
equipment, including Caterpillar, J. I. Case, John Deere, Massey-Ferguson and
New Holland N.V.
Goodyear-brand tires for the United States replacement market are sold
through various channels of distribution. The principal method of distribution
is a large network of independent dealers and franchisees. Goodyear-brand tires
are also sold to several regional and national retail marketing firms, including
Sears Roebuck & Co., Wal-Mart, Penske Auto Centers and Montgomery Ward. In
addition, approximately 877 retail outlets (including auto service centers,
commercial tire & service centers and leased space in department stores) are
operated by the Registrant under the Goodyear name or under various other trade
styles and approximately 152 retail and commercial tire sales outlets are
operated by subsidiaries of the Registrant. Several lines of Kelly-brand and
various other house brand passenger and truck tires are marketed through
independent dealers. Private brand and associate brands of tires are also sold
to independent dealers, to national and regional wholesale marketing
organizations, including TBC Corporation, to retail chain marketers, including
Wal-Mart, Discount Tire, Sears Roebuck & Co. and Big-O, to service stations and
to various other retail marketers.
Goodyear sells tires outside the United States to original equipment
manufacturers and in the replacement market through independent wholesale
distributors, its own wholesale distribution organizations, and, in some
countries, its own retail stores. In certain countries Goodyear contracts for
the manufacture by others of Goodyear-brand tires.
No customer or group of affiliated customers accounted for as much as 5.3%
of Goodyear's consolidated net sales during 1996, 1995 or 1994. Worldwide,
Goodyear's annual net sales to its ten largest customers, including their
respective affiliates, represented less than 20.7% of consolidated net sales for
each of 1996, 1995 or 1994. No customer or group of affiliated customers
accounted for as much as 4.1% of Tires Segment sales during 1996, 1995 or 1994.
The ten largest customers of the Tires Segment represented less than 21.0% of
Tire Segment sales for 1996.
Based on a composite of industry sources and information published by the
Rubber Manufacturers Association (the "RMA"), it is estimated that approximately
232 million passenger tires were sold in the United States during 1996 compared
to approximately 224 million in
4
<PAGE> 7
1995. Based on current economic forecasts, Goodyear expects the total
market for passenger tires in the United States in 1997 to increase
approximately 2.1% compared to 1996, with 1997 passenger tire demand up
approximately 3.2% in the original equipment and 1.7% in the replacement market.
Based on a composite of industry sources and information published by the
RMA, it is estimated that approximately 50 million light and medium highway
truck tires were sold in the United States during 1996. Goodyear estimates that
demand for light and medium highway truck tires in the United States during 1997
will be substantially the same as during 1996.
The following table indicates the percentage change in Goodyear's annual
unit sales of passenger, truck and farm tires worldwide:
<TABLE>
<CAPTION>
GOODYEAR WORLDWIDE UNIT SALES OF PASSENGER, TRUCK AND FARM TIRES--
PERCENTAGE INCREASE (DECREASE) IN ANNUAL UNIT SALES
1996 vs 1995 1995 vs 1994
-------------- --------------
<S> <C> <C>
United States ......................... (.7)% (3.3)%
Foreign ............................... 12.6% 3.3%
Worldwide ....................... 5.4% (.4)%
</TABLE>
Based on information available from various industry and other sources and
information published by the RMA, the Company sells more tires in the United
States than any other tire manufacturer and, on the basis of annual net sales,
is the third largest tire manufacturer in the world. Based on various industry
and other sources, it is estimated that the Company's share of the worldwide
auto, truck and farm tire markets was approximately 18% in 1996, 1995 and 1994.
Related products and services, including automotive parts, automotive
maintenance and repair services and associated merchandise, are sold in the
United States through approximately 1,029 retail outlets operated by the
Company. Automotive repair and maintenance items, automotive equipment and
accessories and other items, which are purchased for resale by the Company, are
distributed to many of the Company's tire dealers and franchisees. Related
products are sold principally in the United States and Canada under highly
competitive conditions.
GOVERNMENT REGULATIONS
The National Highway Traffic Safety Administration ("NHTSA"), under
authority granted to it by the National Traffic and Motor Vehicle Safety Act of
1966, as amended, has established various standards and regulations relating to
motor vehicle safety, some of which apply to tires sold in the United States for
highway use. The NHTSA has the authority to order the recall of automotive
products, including tires, having defects deemed to present a significant safety
risk.
NHTSA has issued "Tire Registration" regulations which require the
registration of tires for the purpose of identification in the event of a
product recall and "Uniform Tire Quality Grading" regulations which require the
grading of passenger tires for treadwear, traction and temperature resistance
pursuant to prescribed testing procedures and the molding of such grades into
the sidewall of each tire. Passenger and highway truck tires are required to be
identified by ten-digit manufacturing identification codes molded on the
sidewall of each tire. The effect of compliance with these regulations on
Goodyear's sales and profits cannot be determined. However, these regulations
have increased the cost of producing and marketing passenger tires in the United
States.
OTHER INFORMATION
Goodyear does not consider its Tires Segment business to be seasonal to
any significant degree. Goodyear maintains a significant inventory of new tires
in order to rationalize produc-
5
<PAGE> 8
tion schedules and assure prompt delivery to its customers. Goodyear manages
its inventory in order to minimize working capital requirements and avoid
unnecessary increases in unit production costs while balancing production
schedules with fluctuations in demand. New tire inventory levels in North
America and in certain countries in Europe and Latin America during most of
1996 were higher than planned, due primarily to lower than anticipated demand.
Goodyear offers its customers various financing and extended payment
programs from time to time. Goodyear does not believe these programs, when
considered in the aggregate, require an unusual amount of working capital
relative to the volume of sales involved and the prevailing practices in the
tire industry.
Goodyear's radial passenger and truck tire plants in North America and
Europe were operated at approximately 91% of capacity during 1996, 95% of
capacity during 1995 and 92% of capacity during 1994. Goodyear's worldwide tire
capacity utilization was approximately 89% during 1996, 93% during 1995 and 90%
during 1994. In order to maintain its competitive position, respond to changing
market conditions and optimize production efficiencies, Goodyear has a
continuing program for rationalizing production, eliminating inefficient
capacity and modernizing and increasing the capacity of its radial passenger and
truck tire facilities. Goodyear has expansion projects planned or underway at
several of its existing tire plants and certain other tire manufacturers are
building, or have announced plans to install, additional capacity for passenger
tires and light and medium truck tires over the next few years. Goodyear has
also acquired, or is in the process of installing, acquiring or obtaining access
to, new tire manufacturing capacity in various markets, including China, India,
the Philippines, Poland and South Africa. Continued high levels of capacity
utilization by the tire industry during 1997 will be dependent on continued high
production levels by the original equipment manufacturers in the United States
and growth in the original equipment markets in Europe, Asia and Latin America,
coupled with continued high levels of demand in the replacement markets
throughout the world.
GENERAL PRODUCTS
Another Industry Segment is the development, manufacture, distribution and
sale of numerous rubber, chemical and plastic products (the "General Products
Segment"). No class of products or services in the General Products Segment
accounted for as much as 10% of Goodyear's net sales in any of the last three
years. The table below sets forth the per centage of Goodyear's net sales and
operating income attributable to the General Products Segment for each of the
three years ended December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
General Products Segment sales .............................. 13.6% 13.5% 13.8%
General Products Segment operating income ................... 44.5%(1) 13.6% 14.3%
<FN>
Note: (1) If determined before giving effect to the $755.6 million writedown of the assets of the Oil
Transportation Segment, General Products Segment operating income represented 14.5% of Goodyear's
total operating income in 1996.
</TABLE>
The products and services comprising the General Products Segment include:
VEHICLE COMPONENTS. Goodyear manufactures automotive belts and hoses, air
springs, engine mounts, instrument panels, rubber tracks and various body and
chassis parts for motor vehicles made of rubber and reinforced plastics.
INDUSTRIAL RUBBER PRODUCTS. Goodyear produces various industrial rubber
products, including: conveyor and power transmission belts; air, steam, oil,
water, gasoline, materials handling and hydraulic hose for industrial
applications; and various rubber engineered products, including tank tracks and
molded products.
6
<PAGE> 9
CHEMICAL PRODUCTS. Goodyear produces a broad line of synthetic rubber,
latices, resins and organic chemicals used in rubber and plastic processing.
SHOE PRODUCTS. Goodyear, utilizing products obtained under offtake
agreements, markets heels, soles and strips for new shoes and shoe repair made
of rubber and other synthetic materials.
MARKETS AND DISTRIBUTION -- OTHER INFORMATION
Most products of the General Products Segment are sold directly to
manufacturers or through independent wholesale distributors. During 1996, the
five largest customers of the General Products Segment accounted for
approximately 24.5% of General Products Segment sales and no customer accounted
for more than 16% of General Products Segment sales. Goodyear does not maintain
a significant inventory when considered in relation to the volume of business
transacted.
The General Products Segment consists of a large number of product lines in
respect of which several manufacturers produce some, but not all, of the
products manufactured by Goodyear. There are numerous suppliers of automotive
belts and hose products and other rubber and plastic components for motor
vehicles, more than 50 major producers of industrial rubber products, and
numerous firms participating in the engineered products market. Goodyear is a
major producer of synthetic rubber, rubber chemicals and latex. Several major
firms are significant suppliers of one or more chemical products similar to
those manufactured by Goodyear. These markets are highly competitive, with
quality, service and price being the most significant factors to most customers.
Goodyear believes the products offered by the General Products Segment are
generally considered to be high quality and competitive in service and price.
OIL TRANSPORTATION
Goodyear's crude oil transportation and related activities (the "Oil
Transportation Segment") are conducted by the Celeron group of companies
("Celeron"). The table below sets forth the percentage of Goodyear's net sales
and operating income (or loss), attributable to the Oil Transportation Segment
for each of the three years ended December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Oil Transportation Segment sales ............................ .9% 1.0% .7%
Oil Transportation Segment operating income (loss) .......... (188.3%)(1) 4.5% 1.0%
<FN>
Note: (1) If determined before giving effect to the $755.6 million writedown of Oil Transportation
Segment assets, Oil Transportation Segment operating income represented 5.9% of Goodyear's
total operating income in 1996.
</TABLE>
All American Pipeline Company, a wholly-owned subsidiary of Registrant
("All American"), owns and operates a heated crude oil pipeline system which
extends from the California Coast to central Texas (the "All American System").
Celeron Gathering Company, a wholly-owned subsidiary of Registrant ("Celeron
Gathering"), owns and operates a crude oil gathering pipeline in the San Joaquin
Valley, California (the "Celeron Gathering System"). Celeron Trading &
Transportation Company, a wholly-owned subsidiary of Registrant, engages in
various crude oil exchanging, purchasing and selling activities.
ALL AMERICAN SYSTEM
The All American System is a heated crude oil pipeline system, consisting
of a 1,225 mile mainline segment extending from Gaviota, California, to McCamey,
Texas, an 11 mile segment extending along the California Coast from Las Flores
to Gaviota, and related terminal and oil storage facilities. The All American
System is capable of transporting up to 300,000 barrels per day of heavy crude
oils, 450,000 barrels per day of lighter crude oils or lower daily volumes of
7
<PAGE> 10
combinations of heavy crude oils (which may require heating) from fields on the
outer continental shelf along the California coast in the Santa Barbara Channel
- -- Santa Maria Basin area ("OCS Crude Oil") and lighter crude oils (which do not
require heating) from various onshore California fields ("California Crude Oil")
or other sources to System outlet stations in California for delivery through
other pipelines to refineries in the Los Angeles Basin and in the greater San
Francisco area and to System outlet stations in Wink and McCamey, Texas, for
delivery via other pipelines to refineries in the Mid-continent region and along
the Texas Gulf Coast. The All American System in the past has also transported
Alaska North Slope crude oil ("ANS Crude Oil") received from other pipelines
from insert points in central California to terminals located near McCamey,
Texas.
Several producers of OCS Crude Oil have entered into transportation
agreements with the All American System for the transport of available
quantities of OCS Crude Oil at specified tariff rates. An average of
approximately 140,090 barrels per day of OCS Crude Oil were transported by the
All American System during 1996. Approximately 63.1% of the OCS Crude Oil
tendered was transported by the All American System to outlet stations in
central California for delivery via other pipelines to refineries in the Los
Angeles Basin or the San Francisco Bay area, with the balance transported to
System outlet stations in Wink and McCamey, Texas, for delivery via other
pipelines to refineries in the Mid-continent region and along the Texas Gulf
Coast. It is anticipated that during 1997 the average number of barrels per day
of OCS Crude Oil tendered for shipment will be significantly lower than during
1996 and that a higher percentage of the OCS Crude Oil tendered will be for
delivery to refineries in California.
The average volume of crude oil transported by the All American System was
approximately 207,000 barrels per day in 1996, 217,000 barrels per day in 1995
and 185,000 barrels per day in 1994. The average tariff per barrel of crude oil
transported by the All American System during 1996 was $1.65, compared to $1.76
during 1995 and $1.38 during 1994. The All American System transported crude oil
tendered for shipment an average distance of 627 miles in 1996, 791 miles in
1995, and 652 miles in 1994. It is anticipated that during 1997 the All American
System will, on an average daily volume basis, transport significantly lower
quantities of OCS Crude Oil and higher quantities of California Crude Oil than
in 1996. During 1997, it is expected that the volume of crude oil transported by
the All American System within California will be higher than in 1996, while the
volume of crude oil transported to locations outside California will be
significantly lower than in 1996.
As a result of industry developments indicating that the quantities of OCS
Crude Oil, California Crude Oil and ANS Crude Oil expected to be tendered in the
future to the All American System for transportation will be lower than
previously estimated and that the volumes of crude oil expected to be
transported by the All American System to markets outside California in the
future are estimated to be significantly lower than previously anticipated,
management determined in December 1996 that the cash flows expected to be
generated by the All American System would be less than its carrying value of
$1.176 billion. In accordance with Statement of Financial Accounting Standards
No. 121, the carrying value of the assets of the All American System was reduced
to $420 million and a charge of $755.6 million ($499.3 million after tax) was
recorded in the fourth quarter of 1996.
CELERON GATHERING SYSTEM
Celeron Gathering owns and operates the Celeron Gathering System, a
43-mile crude oil gathering pipeline system, which has a design capacity of up
to 100,000 barrels per day. Celeron Gathering uses the Celeron Gathering System
in connection with its gathering, exchanging, purchasing and selling of crude
oil produced in the South Belridge and Midway Sunset areas of the San Joaquin
Valley. The major portion of crude oil acquired is ultimately sold to or
exchanged with refiners located in, or shippers transporting crude oil to, the
Mid-continent and Texas Gulf Coast areas. Celeron Gathering also trades crude
oil in California, most of which is used by refiners located in the Los Angeles
Basin or in Northern California.
8
<PAGE> 11
GOVERNMENT REGULATION
The All American System is a common carrier pipeline system and, as such,
under current law is subject to the general jurisdiction of the Federal Energy
Regulatory Commission (the "FERC"). Pursuant to the Interstate Commerce Act, the
All American System is subject to FERC regulation as to tariffs, annual
reporting requirements and other operating matters. In accordance with current
laws and the regulations of the FERC, the All American System has filed with the
FERC tariffs for transportation services being offered to shippers desiring to
transport crude oil through the All American System or portions thereof. The All
American System will file an Annual Report on FERC Form No. 6 with the FERC in
March of 1997 in respect of its activities during 1996. The All American System
is also subject to the jurisdiction of the California Public Utilities
Commission (the "Cal PUC") in respect of certain of its California intrastate
transportation services. The Celeron Gathering System is a proprietary
intrastate gathering pipeline system and, as such, is not subject to the general
jurisdiction of the FERC or to the jurisdiction of the Cal PUC.
GENERAL BUSINESS INFORMATION
SOURCES AND AVAILABILITY OF RAW MATERIALS
The principal raw materials used in Goodyear's products are synthetic and
natural rubber. Goodyear purchases substantially all of its requirements for
natural rubber in the world market. Synthetic rubber accounted for approximately
54% of all rubber consumed by Goodyear worldwide during 1996, 1995 and 1994. The
Company's plants located in Beaumont and Houston, Texas, supply the major
portion of its synthetic rubber requirements in the United States. The major
portion of the synthetic rubber used by Goodyear outside the United States is
supplied by third parties. The principal raw materials used in the production of
synthetic rubber are butadiene and styrene purchased from independent suppliers
and isoprene purchased from independent suppliers or produced by Goodyear from
purchased materials.
Nylon and polyester yarn, substantial quantities of which are processed in
Goodyear's textile mills, and wire for radial tires, a portion of which is
produced by Goodyear, are used in significant quantities by Goodyear. Other
important raw materials used by Goodyear are carbon black, pigments, chemicals
and bead wire. Substantially all of these raw materials are purchased from
independent suppliers, except for certain chemicals which Goodyear manufactures.
Goodyear purchases most of the materials and supplies it uses in significant
quantities from several suppliers, except in those instances where only one or a
few qualified sources are available. As in 1996, Goodyear anticipates the
continued availability (subject to possible spot shortages) of all such
materials during 1997.
Goodyear uses substantial quantities of chemicals and fuels in the
production of tires and other rubber products, synthetic rubber and latex and
other products. Supplies of chemicals and fuels have been and are expected to
continue to be adequate for the Company's manufacturing plants.
Natural rubber and other raw material prices decreased somewhat during
1996. In general, the Company does not anticipate significant changes in raw
material prices during 1997, although most commodity materials are likely to
continue to be subject to some price volatility.
PATENTS AND TRADEMARKS
Goodyear owns approximately 1,608 patents issued by the United States
Patent Office and approximately 6,946 patents issued or granted in other
countries around the world, and also has licenses under numerous patents of
others, covering various improvements in the design and manufacture of its
products and in processes and equipment for the manufacture of its products.
Goodyear also has approximately 434 applications for United States Patents
pending and approximately 3,832 patent applications on file in other countries
around the world. While Goodyear
9
<PAGE> 12
considers that such patents, patent applications and licenses as a group
are of material importance, it does not consider any one patent, patent
application or license, or any related group of them, to be of such importance
that the loss or expiration thereof would materially affect its business
considered as a whole or the business of any of its Industry Segments.
Goodyear owns and uses approximately 1,040 different trademarks, including
several using the word "Goodyear". These trademarks are protected by
approximately 7,030 registrations worldwide. Goodyear also has approximately
1,170 trademark applications pending in the United States and other
jurisdictions. While Goodyear believes such trademarks as a group are of
importance, the only trademarks Goodyear considers material to its business are
those using the word "Goodyear". Goodyear believes all of its significant
trademarks are valid and will have unlimited duration as long as they are
adequately protected and appropriately used.
BACKLOG
Goodyear does not consider its backlog of orders to be material to, or a
significant factor in, evaluating and understanding any of its Industry Segments
or its business considered as a whole.
GOVERNMENT BUSINESS
The total amount of Goodyear's business during 1996 under contracts or
subcontracts which were subject to termination at the election of the United
States Government amounted to approximately 1.1% of Goodyear's consolidated net
sales for 1996 and .6% for 1995 and 1994.
RESEARCH AND DEVELOPMENT
Goodyear expends significant amounts each year on research for the
development of new, and the improvement of existing, products and manufacturing
processes and equipment. Goodyear maintains substantial research and development
centers for tires and related prod ucts in Akron, Ohio, and Colmar-Berg,
Luxembourg; tire technical centers in Cumberland, Maryland, and Tsukuba, Japan;
and tire proving grounds in Akron, Ohio, San Angelo, Texas, Mireval, France, and
Colmar-Berg, Luxembourg. Goodyear operates substantial research and development
facilities for other products in Akron, Ohio, and Orsay, France.
During the years ended December 31, 1996, 1995, 1994, 1993 and 1992,
Goodyear expended, directly or indirectly, $374.5 million, $369.3 million,
$341.3 million, $320.0 million and $325.9 million, respectively, on research,
development and certain engineering activities relating to the design,
development, improvement and modification of new and existing products and
services and to the formulation and design of new manufacturing processes and
equipment and improvements on existing processes and equipment. Goodyear
estimates that it will expend approximately $375 million for research and
development activities during 1997.
EMPLOYEES
At December 31, 1996, Goodyear employed approximately 88,903 people
throughout the world. Of the approximately 41,218 persons employed in the United
States at December 31, 1996, approximately 11,601 were covered by a master
collective bargaining agreement, dated July 20, 1994, with the United Steel
Workers of America, A.F.L.-C.I.O.-C.L.C ("USWA"), which agreement will expire on
April 19, 1997, and approximately 8,930 were covered by other contracts with the
USWA and various other unions.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
Goodyear is subject to extensive regulation under environmental and
occupational health and safety laws and regulations concerning, among other
things, air emissions, discharges to waters and the generation, handling,
storage, transportation and disposal of waste materials and
10
<PAGE> 13
hazardous substances. Goodyear has a continuing program to ensure its
compliance with Federal, State and local environmental and occupational safety
and health laws and regulations. During 1996, 1995, 1994, 1993 and 1992,
Goodyear made capital expenditures aggregating approximately $12.5 million,
$17.4 million, $11.7 million, $13.4 million, and $13.7 million, respectively,
for environmental improvement and occupational safety and health compliance
projects in respect of its facilities worldwide. Goodyear presently estimates
that it will make capital expenditures for pollution control facilities and
occupational safety and health projects of approximately $15.0 million during
1997 and approximately $19.1 million during 1998. In addition, Goodyear expended
approximately $74.2 million during 1996, and Goodyear estimates that it will
expend approximately $76.3 million during 1997 and approximately $73.8 million
during 1998, to maintain and operate its pollution control facilities and
conduct its other environmental and occupational safety and health activities,
including the control and disposal of hazardous substances, which amounts are
expected to be sufficient to comply with applicable existing environmental and
occupational safety and health laws and regulations and are not expected to have
a material adverse effect on Goodyear's competitive position in the industries
in which it participates. At December 31, 1996, Goodyear had reserved $92.6
million for anticipated costs associated with the remediation of numerous waste
disposal sites and certain other properties and related environmental
activities. In the future Goodyear may incur increased costs and additional
charges associated with environmental compliance and cleanup projects
necessitated by the identification of new waste sites, the impact of new and
increasingly stringent environmental laws, such as the Clean Air Act, and
regulatory standards and the availability of new technologies.
INFORMATION ABOUT GEOGRAPHICS SEGMENTS
AND INTERNATIONAL OPERATIONS
Financial information relating to Goodyear's "Geographic Segments" for
each of the three years in the period ended December 31, 1996 appears in Note
17, captioned "Business Segments", and in the tabulation captioned "Geographic
Segments" at Note 17 of the Notes to Financial Statements set forth in Item 8 of
this Annual Report, at pages 46 and 48, respectively, and is incorporated herein
by specific reference.
The Company, through its foreign subsidiaries, engages in manufacturing or
sales operations in most countries in the world, including manufacturing
operations in 27 foreign countries. Foreign sales represented approximately 47%,
45% and 42% of total sales and foreign operating income represented
approximately 181% (59% if determined before giving effect to the $755.6 million
writedown of the Oil Transportation Segment assets), 56%, and 50% of total
operating income in 1996, 1995 and 1994, respectively. Goodyear's foreign
manufacturing operations consist primarily of the production of tires.
Industrial rubber and certain other products are also manufactured in certain of
the Company's foreign plants.
Goodyear also participates in joint ventures in various countries.
Goodyear and Pacific Dunlop Limited each have a 50% equity interest in South
Pacific Tyres, an Australian partnership, and South Pacific Tyres N.Z. Limited,
a New Zealand company, which entities operate five tire manufacturing plants, 21
retread plants and a chain of approximately 520 retail outlets in Australia, New
Zealand and Papua - New Guinea. Other joint venture interests of the Company
include: (1) a 50% interest in Nippon Giant Tire Co., Ltd., which manufactures
earthmover tires in Japan; and (2) a 50% (40.4% net equity) interest in South
Asia Tires Limited, which owns a tire manufacturing facility under construction
near Bombay, India, which is scheduled to be completed in 1997.
In addition to the ordinary risks of the marketplace, the Company's
foreign operations and the results thereof in some countries are affected by
price controls, import controls, labor regulations, tariffs, extreme inflation
or fluctuations in currency values. Furthermore, in certain countries where
Goodyear operates (primarily countries located in Central and South America),
transfers of funds from foreign operations are generally or periodically subject
to the availability of foreign exchange in the host country and other related
restrictive governmental regulations.
11
<PAGE> 14
ITEM 2. PROPERTIES.
Goodyear manufactures its products in 81 manufacturing facilities located
around the world. There are 34 plants in the United States and 47 plants in 27
other countries.
TIRES SEGMENT MANUFACTURING FACILITIES. The Company owns (or leases with
the right to purchase at a nominal price) and operates the following
manufacturing facilities used by the Tires Segment.
UNITED STATES: Manufacturing facilities having an aggregate of 17.6
million square feet of floor space, as follows: (1) Tire plants at Akron, Ohio;
Danville, Virginia; Fayetteville, North Carolina; Freeport, Illinois; Gadsden
Alabama; Lawton, Oklahoma; Topeka, Kansas; Tyler, Texas; and Union City,
Tennessee; (2) Steel tire wire plant at Asheboro, North Carolina; (3) Textile
mills at Cartersville, Georgia; and Decatur, Alabama; (4) Tread rubber plants at
Greenville, Texas; Radford, Virginia; and Spartanburg, South Carolina; and (5)
tire molds plants at Statesville, North Carolina; and Stow, Ohio.
CANADA: Tire plants having an aggregate of 1.9 million square feet of
floor space located at Medicine Hat, Alberta; Napanee, Ontario; and Valleyfield,
Quebec.
EUROPE: Manufacturing facilities having an aggregate of 12.1 million
square feet of floor space: (1) Tire plants at Amiens, France; Fulda and
Phillippsburg, Germany; Cisterna di Latina, Italy; Colmar-Berg, Luxembourg;
Casablanca, Morocco; Adapazari and Ismit, Turkey; Wolverhampton, England;
Debica, Poland; and Uitenhage, South Africa; and (2) three plants at
Colmar-Berg, Luxembourg, for the the manufacture of tire fabric, steel tire cord
and molds and machines.
LATIN AMERICA: Tire plants having an aggregate of approximately 8.1
million square feet of floor space located at: Buenos Aires, Argentina;
Americana and Sao Paulo, Brazil (also tubes, tire fabric and fabric dipping);
Santiago, Chile (also tubes and batteries); Cali, Columbia; Guatemala City,
Guatemala; Morant Bay, Jamacia; Mexico City, Mexico; Lima, Peru; and Valencia,
Venezuela.
ASIA: Tire plants having an aggregate of approximately 3.1 million square
feet of floor space located at: Dalian, China; New Delhi, India; Bogor,
Indonesia; Kuala Lumpur, Malaysia; Manila and Marikina, Philippines; Taipei,
Taiwan; and Bangkok, Thailand.
GENERAL PRODUCTS SEGMENT MANUFACTURING FACILITIES. The Company owns (or
leases with the right to purchase at a nominal price) and operates the following
manufacturing facilities having an aggregate of approximately 6.5 million square
feet of floor space:
UNITED STATES: Synthetic rubber and rubber chemicals plants at Akron Ohio;
Bayport, Beaumont, and Houston, Texas; and Niagara Falls, New York; Hose
products plants at Hannibal, Missouri; Lincoln, Nebraska (also power
transmission belts); Mt Pleasant, Iowa; Norfolk, Nebraska; and Sun Prairie,
Wisconsin; Conveyor belt plants at Marysville, Ohio; and Spring Hope, North
Carolina; Air springs plant at Green, Ohio; Molded rubber products plant at St.
Marys, Ohio; Latex plant at Calhoun, Georgia; and Automotive parts plants at
Jackson and Logan, Ohio.
CANADA: Hose products plants at Collingwood, Ontario; and St. Alphonse de
Granby, Quebec; Conveyor belt plant at Bowmanville, Ontario; Power transmission
belt plant at Owen Sound, Ontario; and a molded and extruded rubber products
plant at Quebec City, Quebec.
EUROPE: Chemical plant at LaHarve, France; and Conveyor and power
transmission belts plant at Uitenhage, South Africa.
LATIN AMERICA: Industrial rubber products plants at Sao Paulo, Brazil;
Santiago, Chile; and Valencia, Venezuela; Films plant at Americana, Brazil; Air
springs plant at Maua, Brazil; and Hose products and air springs plant at San
Luis Potosi, Mexico.
ASIA: Conveyor belt plant at Bayswater, Australia; and Hose products plant
at Qingdao, China.
12
<PAGE> 15
The manufacturing facilities of Goodyear are, when considered in the
aggregate, modern and adequately maintained. Goodyear's capital expenditures for
new plant and equipment and for expansion, modernization and replacement of
existing plants and equipment and related assets aggregated $617.5 million in
1996, $615.6 million in 1995 and $523.0 million in 1994. Of said amounts, $301.4
million in 1996, $347.9 million in 1995 and $281.6 million in 1994 were expended
on facilities located in the United States. The Company estimates that its
capital expenditures during 1997 will total approximately $675.0 million.
During 1996, Goodyear's worldwide tire production facilities were operated
at approximately 89% of rated capacity and its other manufacturing facilities
were operated at approximately 87% of rated capacity. Giving effect to plant
expansions and modernizations recently completed or presently underway or
planned, the Company's manufacturing facilities are generally expected to have
production capacity sufficient to satisfy presently anticipated demand for the
Company's tires and other products.
In addition to its manufacturing facilities, the Company owns and operates
rubber plantations in Indonesia and Guatemala. Goodyear also owns substantial
interests in plants located in Australia (tires and retreading), India (tires),
Japan (earthmover tires) and New Zealand (tires and retreading). The Company
also owns and operates research and development facilities and technical centers
in Akron, Ohio, Colmar-Berg, Luxembourg, and Orsay, France and tire proving
grounds in Akron, Ohio (82 acres), Mireval, France (450 acres), and San Angelo,
Texas (7,243 acres). The Company also operates tire technical centers in
Cumberland, Maryland, and Tsukuba, Japan, and a tire proving ground in
Colmar-Berg, Luxembourg.
The Company operates approximately 1,029 retail outlets for the sale of
its tires to consumers in the United States and approximately 284 retail outlets
in other countries. Worldwide, the Company also operates approximately 92
retread plants and approximately 209 warehouse and distribution facilities.
Substantially all of these facilities are leased. The Company does not consider
any one of these leased properties to be material to its operations. For
additional information regarding leased properties, see Note 6, "Properties and
Plants," and Note 8, "Leased Assets," of the Notes to Financial Statements set
forth in Item 8 of this Annual Report at pages 37 and 41, respectively.
Reference is made to the information set forth in Item 1 under the caption
"Oil Transportation" beginning at page 7, which includes a brief description of,
and other information regarding, the All American System and the Celeron
Gathering System.
ITEM 3. LEGAL PROCEEDINGS.
At March 15, 1997, Goodyear was a party to the following material legal
proceedings, as defined in the Instructions to Item 103 of Regulation S-K:
(A) Since January 19, 1990, a series of 65 civil actions have been filed
against Registrant in the United States District Court for the District of
Maryland relating to the development of lung disease, cancer and other diseases
by former employees of The Kelly-Springfield Tire Company ("Kelly"), formerly a
wholly-owned subsidiary of Registrant, alleged to be the result of exposure to
allegedly toxic substances, including asbestos and certain chemicals, while
working at the Cumberland, Maryland tire plant of Kelly, which was closed in
1987. The plaintiffs allege, among other things, that Registrant, as the
manufacturer or seller of certain materials, negligently failed to warn Kelly
employees of the health risks associated with their employment at the Cumberland
plant and failed to implement procedures to preserve their health and safety.
The plaintiffs in these civil actions are seeking an aggregate of $650 million
in compensatory damages and $6.46 billion in punitive damages. On March 5, 1997,
the court granted Registrant's motion for summary judgment and issued an Order
and Judgment dismissing all of these civil actions with prejudice.
13
<PAGE> 16
(B) On June 7, 1990, a civil action, Teresa Boggs, et al. v. Divested
Atomic Corporation, et al., was filed in United States District Court for the
Southern District of Ohio by Teresa Boggs and certain other named Plaintiffs on
behalf of themselves and a class comprised of certain other persons who reside
near the Portsmouth Uranium Enrichment Complex, a facility owned by the United
States Government as a part of the United States Department of Energy ("DOE")
and located in Pike County, Ohio (the "Portsmouth Plant"), against Divested
Atomic Corporation ("DAC"), the successor by merger of Goodyear Atomic
Corporation ("GAC"), Registrant and Martin Marietta Energy Systems, Inc.
("MMES"). GAC had operated the Portsmouth Plant pursuant to a series of
contracts with the DOE for several years until November 16, 1986, when MMES
assumed operation of the Portsmouth Plant. The Plaintiffs allege that the past
and present operators of the Portsmouth Plant, GAC (then a wholly-owned
subsidiary of Registrant) and MMES, contaminated certain areas near the
Portsmouth Plant with radioactive or other hazardous materials, or both, causing
property damage and emotional distress. Plaintiffs seek $300 million in
compensatory damages, $300 million in punitive damages and unspecified amounts
for medical monitoring and cleanup costs.
(C) In September of 1990, a civil action, Eastman Kodak Company, et al. v.
Goodyear, et al. (No. CIV-2-90-221), was filed by Eastman in the United States
District Court for the Eastern District of Tennessee, Northeastern Division,
whereunder Eastman alleges infringement of a patent, which expired in December
of 1994, in respect of certain processes used in the manufacture of polyester
resin on ten production lines at the Pt. Pleasant, West Virginia polyester resin
plant owned and operated by Registrant until sold to Shell Oil Company on
December 18, 1992. Eastman is seeking monetary damages trebled for alleged
willfulness, interest and costs. Goodyear has counterclaimed against Eastman
alleging antitrust law violations, which counterclaims were dismissed by the
trial court. The trial court also ruled that the patent did not cover the
processes used in eight of the plant's production lines and, therefore,
dismissed all infringement claims except with respect to two of the plant's
production lines. On April 28, 1995, a jury rendered a verdict finding liability
and assessing damages, having decided that Goodyear and Shell had infringed the
patent in the operation of said two production lines but that such infringement
was not willful. A judgment of $12,000,000, plus interest thereon (approximately
$7,000,000 through March 1, 1997) and court costs, was entered against Goodyear.
Goodyear and Eastman have appealed to the Court of Appeals, Federal Circuit.
(D) In December of 1993, certain civil actions filed against Registrant
and numerous other defendants in Judicial District Court, Galveston, Texas,
by 72 individual plaintiffs were consolidated into a single action (Whalen,
et al. v. AES, Inc., et al., Cause No. 93-CV0211). Certain plaintiffs have
withdrawn or been dismissed from these cases and 30 of the plaintiffs entered
into a settlement with Registrant and other defendants (at a cost to Registrant
of approximately $5,600). The remaining 24 plaintiffs allege that they suffered
personal injuries and property damage as the result of Registrant and other
named defendants (the owners and operators of the site and several other
corporations also alleged to be generators of wastes) allegedly depositing
hazardous wastes at the McGinnis Waste Disposal Site located at Hall's Bayou
Ranch, Texas. The plaintiffs allege, among other things, that the defendants
were grossly negligent and committed fraud and are seeking an aggregate of $2
billion in actual damages, $13 billion in punitive damages and such further
relief as may be appropriate.
(E) On January 13, 1995, a civil action, Gregory Tire, et al. v. Goodyear,
et al. (Cause No. 95-00409), was filed in the 192nd Judicial District Court,
Dallas County, Texas, against Registrant (and two employees of Registrant) by 22
tire dealers located in Texas who are customers of Registrant, either as
independent dealers or franchisees. The complaint alleges, among other things,
that in the course of Registrant's commercial relationships and dealings with
the plaintiffs, Registrant violated the Texas Business Opportunities Act and the
Texas Deceptive Trade Practices Act, breached its fiduciary duty to the
plaintiffs, breached its covenants of good faith and fair dealings with the
plaintiffs, violated the Texas Free Enterprise Act, violated the Texas Antitrust
Act, breached certain contracts with the plaintiffs and committed common law
14
<PAGE> 17
fraud. The plaintiffs are seeking unspecified compensatory damages, exemplary
damages equal to the greater of $230 million or 10% of Registrant's net worth
and injunctive and other relief.
(F) On March 15, 1995, a civil action, Orion Tire Corporation, et al. vs.
Goodyear, et al. (Cause No. SA CV 95-221), was filed in the United States
District Court for the Central District of California, against Registrant,
Goodyear International Corporation, a wholly-owned subsidiary of Registrant
("GIC"), Samir G. Gibara, now Chairman of the Board, Chief Executive Officer and
President of Registrant, John M. Ross, formerly a Vice President and the General
Counsel of Registrant, and Clark Sprang, now a Vice President of Registrant, and
two other employees of Goodyear by Orion Tire Corporation ("Orion"), a
California corporation, China Tire Holdings Limited, a Bermuda corporation
("China Tire"), and China Strategic Holdings Limited, a Hong Kong corporation
("China Strategic"). The plaintiffs alleged, among other things, that, in
connection with Registrant's acquisition of a 75% interest in a tire
manufacturing facility (the "Dalian Facility") in Dalian, People's Republic of
China in 1994, Registrant and GIC engaged in tortious interference with certain
contractual relationships involving the Dalian Facility the plaintiffs had
allegedly theretofore established with the entities which owned the Dalian tire
manufacturing facility (which entities are controlled by the Dalian municipal
government), committed tortious interference with certain prospective economic
advantages of the plaintiffs, violated the California Cartwright Act by engaging
in an unlawful combination and conspiracy in restraint of trade and committed
trade libel and defamation by making oral defamatory and written libelous
statements concerning the plaintiffs to various parties. In addition, all
defendants were alleged to have engaged in a civil conspiracy to induce the
entities which owned the Dalian Facility to breach their contracts with the
plaintiffs and to have engaged in civil racketeering. On motion made by
Registrant, the court dismissed all individual defendants from the proceeding
for lack of jurisdiction, dismissed with prejudice all claims made by China
Strategic and certain claims made by Orion and China Tire, and dismissed certain
other claims of Orion and China Tire with leave to refile. On April 19, 1996, an
amended complaint was filed against Registrant and GIC by Orion and China Tire.
The remaining claims of Orion and China Tire are: (i) that Registrant and GIC
allegedly engaged in conduct which constituted tortious interference with the
prospective economic advantage of Orion by allegedly wrongfully obstructing and
interfering with Orion's alleged prospective business ventures involving the
Dalian Facility and by tortuous interference with Orion's prospective
contractual relationships with the Dalian Facility regarding the supply of tires
and a purported option to purchase an equity interest in the Dalian Facility,
and (ii) that Registrant and GIC allegedly committed trade libel and defamation
in respect of Orion and China Tire by knowingly publishing untrue statements
regarding Orion and China Tire to various officials of the Dalian Facility and
various governmental bodies in the People's Republic of China. The plaintiffs
are seeking an aggregate of at least $1.085 billion in actual damages and $3.255
billion in exemplary damages from Registrant and GIC, and such further relief as
the court may deem appropriate.
(G) In April of 1995, Goodyear received a subpoena issued in connection
with an industry-wide investigation being conducted by the Cleveland, Ohio,
office of the Antitrust Division of the United States Department of Justice into
possible violations of Section 1 of the Sherman Act by tire manufacturers. The
subpoena calls for the production of documents to a Federal grand jury sitting
in Cleveland. Goodyear has substantially completed its response to the subpoena
and is cooperating fully with the Department of Justice in the investigation.
(H) In addition to the legal proceedings described above, various other
legal actions, claims and governmental investigations and proceedings covering a
wide range of matters were pending against Registrant and its subsidiaries at
March 15, 1997, including claims and proceedings relating to several waste
disposal sites that have been identified by the USEPA and similar agencies of
various States for remedial investigation and cleanup, which sites were
allegedly used by Goodyear in the past for the disposal of industrial waste
materials. Registrant, based on available information, does not consider any
such action, claim, investigation or proceeding to be material, within the
meaning of that term as used in Item 103 of Regulation S-K and the instructions
thereto.
15
<PAGE> 18
Registrant, based on available information, has determined with respect to
each legal proceeding pending against Registrant and its subsidiaries at March
15, 1997, either that it is not reasonably possible that Goodyear has incurred
liability in respect thereof (or, if reasonably possible, that the nature and
amount thereof has been disclosed in Note 18 to the Financial Statements set
forth at Item 8 to, at page 49 of, this Annual Report) or that any liability
ultimately incurred will not exceed the amount, if any, recorded in respect of
such proceeding at December 31, 1996 by an amount which would be material
relative to the consolidated financial position, results of operations or
liquidity of Goodyear, although in the event of an unanticipated adverse final
determination of certain proceedings, Goodyear's consolidated net income in the
period in which such determination occurs could be materially affected.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the security holders of the
Registrant during the calendar quarter ended December 31, 1996.
ITEM 4(A). EXECUTIVE OFFICERS OF REGISTRANT.
Set forth below, in accordance with Instruction 3 to Item 401(b) of
Regulation S-K, are: (1) the names and ages of all executive officers (including
executive officers who are also directors) of the Registrant as of March 15,
1997, (2) all positions with the Registrant presently held by each such person
and (3) the positions held by, and principal areas of responsibility of, each
such person during the last five years.
NAME POSITION(S) HELD AGE
------- ------------------ -----
SAMIR G. GIBARA CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER 57
AND PRESIDENT AND DIRECTOR
Mr. Gibara served in various managerial capacities after joining Goodyear
in 1966. He was Chairman of the Board of a European subsidiary of Registrant
from December 1, 1990 until September 30, 1992, when he was appointed a Vice
President of the Registrant . Mr. Gibara was elected a Vice President of
Registrant on October 6, 1992, serving in that capacity as the executive officer
responsible for strategic planning and business development and as the acting
Vice President of Finance and the principal financial officer of Registrant. On
May 3, 1994, Mr. Gibara was elected an Executive Vice President of Registrant
and, in such capacity, was the executive officer responsible for the North
American Tire Operations of Registrant. Effective April 15, 1995, Mr. Gibara was
elected President and Chief Operating Officer of Registrant. Mr. Gibara was
elected President and Chief Executive Officer of Registrant effective January 1,
1996, and Chairman of the Board, Chief Executive Officer and President effective
July 1, 1996. Mr. Gibara is the principal executive officer of Registrant. Mr.
Gibara has been a director of Registrant since April 15, 1995.
WILLIAM J. SHARP PRESIDENT, GLOBAL SUPPORT OPERATIONS 55
Mr. Sharp served in various tire production posts until elected a Vice
President of Registrant on January 6, 1987, serving in such capacity as the
executive officer of Registrant responsible for Goodyear's worldwide tire
manufacturing operations. Effective April 1, 1991, Mr. Sharp was elected an
Executive Vice President of Registrant for worldwide product sup ply, and, in
such capacity, was the executive officer of the Registrant responsible for
Goodyear's tire manufacturing and distribution operations and research,
development and engineering activities until October 1, 1992, when he became the
executive officer of Registrant responsible for the operations of Registrant's
subsidiaries in Europe. Effective January 1, 1996, Mr. Sharp was elected
Registrant's President, Global Support Operations, and, as such, he is the
executive officer of Registrant having corporate responsibility for Goodyear's
research and development, manufacturing, purchasing, materials management,
quality assurance, and environmental and health and safety improvement
activities worldwide. Mr. Sharp has been an employee of Goodyear since 1964.
16
<PAGE> 19
NAME POSITION(S) HELD AGE
------- ------------------ -----
ROBERT W. TIEKEN EXECUTIVE VICE PRESIDENT 57
AND CHIEF FINANCIAL OFFICER
Mr. Tieken joined Goodyear on May 3, 1994, when he was elected an Executive
Vice President and the Chief Financial Officer of Registrant. Prior to joining
Goodyear, Mr. Tieken had been employed by the General Electric Company for 32
years, serving in various financial management posts, including Vice President,
Finance and Information Technology of General Electric Aerospace from 1988 to
April of 1993. From April of 1993 through April of 1994, Mr. Tieken was the Vice
President of Finance of Martin Marietta Corporation, which acquired General
Electric Aerospace in April of 1993. Mr. Tieken is the principal financial
officer of Registrant.
EUGENE R. CULLER, JR EXECUTIVE VICE PRESIDENT 58
Mr. Culler served in various capacities until November of 1986, when he was
elected a Vice President of Registrant, in which capacity he served as the
executive officer of Registrant responsible for worldwide tire marketing until
January 1, 1987, when he became the executive officer of Registrant responsible
for Goodyear's worldwide original equipment tire sales. On August 2, 1988, Mr.
Culler was elected an Executive Vice President of Registrant, in which capacity
he served as the executive officer of Registrant responsible for Goodyear's
North American Tire Operations until September 30, 1990. Mr. Culler was the
President of Goodyear Canada, Inc., a wholly-owned subsidiary of Registrant,
from October 1, 1990 to April 15, 1995. Mr. Culler was elected an Executive Vice
President of Registrant effective April 15, 1995, and, in such capacity, is the
executive officer responsible for Goodyear's North American Tire Operations. Mr.
Culler has been an employee of Goodyear since 1961.
NISSIM CALDERON VICE PRESIDENT 63
Dr. Calderon served in various research management posts until April 7,
1986, when he was elected a Vice President of Registrant. He is the executive
officer of Registrant responsible for Goodyear's research programs. Dr. Calderon
has been an employee of Goodyear since 1962.
JAMES BOYAZIS VICE PRESIDENT AND SECRETARY 60
Mr. Boyazis joined Goodyear in 1963, serving in various posts until June 2,
1987, when he was elected a Vice President and the Secretary of Registrant. He
is also the Associate General Counsel of Registrant.
JESSE T. WILLIAMS, SR. VICE PRESIDENT 57
Mr. Williams served in various human resources posts until August 2, 1988,
when he was elected a Vice President of Registrant. Mr. Williams was responsible
for corporate compliance with equal employment opportunity laws and regulations
until July 1, 1991, when he became the executive officer of Registrant
responsible for Goodyear's human resources, diversity, safety and workers'
compensation activities and for compliance with the various equal employment
opportunity, workplace safety and other employment laws and regulations. Mr.
Williams was the executive officer of Registrant responsible for Goodyear's
compensation and employment practices from March 1, 1993 through October 31,
1995. Effective November 1, 1995, Mr. Williams became the executive officer of
Registrant responsible for Goodyear's human resources policy, employment
practices and systems. Mr. Williams has been an employee of Goodyear since 1962.
JOHN P. PERDUYN VICE PRESIDENT 57
Mr. Perduyn served in various public relations posts until appointed
Director of Public Information in 1980, serving in that post until June 1, 1989.
Mr. Perduyn was elected a Vice President of Registrant effective June 1, 1989,
and is the executive officer of Registrant responsible for Goodyear's public
affairs activities. Mr. Perduyn has been an employee of Goodyear since 1970.
17
<PAGE> 20
NAME POSITION(S) HELD AGE
------- ------------------ -----
RICHARD P. ADANTE VICE PRESIDENT 50
Mr. Adante served in various engineering and management posts until
appointed Production Director of Deutsche Goodyear GmbH, a wholly-owned
subsidiary of Registrant, in August of 1988, serving in that capacity until
April of 1990, when he was appointed Vice President of merchandise distribution
and control. Mr. Adante was elected a Vice President effective April 1, 1991 and
is the executive officer of Registrant responsible for materials management. Mr.
Adante has been an employee of Goodyear since 1966.
H. CLAY ORME VICE PRESIDENT 57
Mr. Orme served in various manufacturing management posts until he was
appointed Director of Tire Manufacturing in 1987. Mr. Orme was elected a Vice
President of Registrant effective September 1, 1992, and, in such capacity, is
the executive officer of the Registrant responsible for Goodyear's worldwide
manufacturing, corporate engineering and product distribution operations. Mr.
Orme has been an employee of Goodyear since 1962.
GARY A. MILLER VICE PRESIDENT 50
Mr. Miller served in various management and research and development posts
until appointed Director of Tire Value and Competitive Analysis in April of
1989, serving in that post until October 1, 1990, when he was appointed General
Manager of Specialty Tires. Mr. Miller was elected a Vice President of
Registrant effective November 1, 1992. He is the executive officer of Registrant
responsible for Goodyear's purchasing operations. Mr. Miller has been an
employee of Goodyear since 1967.
MIKE L. BURNS VICE PRESIDENT 55
Mr. Burns served in various human resources posts until appointed Director
of Organization Development and Training in 1986. He was elected a Vice
President of Registrant effective March 1, 1993. He is the executive officer of
Registrant responsible for Goodyear's human resources and total quality systems.
Mr. Burns has been an employee of Goodyear since 1965.
GEORGE E. STRICKLER VICE PRESIDENT 49
Mr. Strickler served in various accounting, treasury and financial posts
until he was elected an Assistant Comptroller of the Registrant on April 9,
1984, in which capacity he served as the principal financial officer for the
General Products Division until August of 1988, when he became the principal
financial officer of the Tire Division. Mr. Strickler was a Vice President and
the Comptroller of Registrant from September 1, 1993 to May 31, 1996. Since June
1, 1996, Mr. Strickler has served as a Vice President of Registrant and is the
executive officer of Registrant responsible for the financial functions of
Goodyear's North American Tires Operations. Mr. Strickler has been an employee
of Goodyear since 1969.
JAMES C. WHITELEY VICE PRESIDENT 49
Mr. Whiteley served in various quality control and quality assurance
managerial posts until appointed Director of Tire Quality Assurance on June 1,
1990. He was elected a Vice President of Registrant on November 2, 1993, serving
as the executive officer of Registrant responsible for product quality and
safety. Effective July 1, 1995, Mr. Whiteley became the executive officer of
Registrant responsible for product quality and safety and environmental and
occupational health and safety improvement and compliance programs. Mr. Whiteley
has been an employee of Goodyear since 1969.
18
<PAGE> 21
NAME POSITION(S) HELD AGE
------- ------------------ -----
RICHARD W. HAUMAN VICE PRESIDENT AND TREASURER 50
Mr. Hauman served in various financial management posts around the world
until he was elected an Assistant Treasurer of Registrant on August 15, 1988. He
was elected a Vice President and the Treasurer of Registrant on October 4, 1994.
Mr. Hauman is the executive officer of Registrant responsible for Goodyear's
worldwide treasury operations, risk management activities and pension asset
management. Mr. Hauman has been an employee of Goodyear since 1968.
RICHARD J. STEICHEN VICE PRESIDENT 52
Dr. Steichen joined Goodyear in 1973 as a research chemist and served in
various research and development posts until May 16, 1989, when he was appointed
Director of Polyester Research and Development. On August 1, 1991, he was
appointed Director of Technology Management. On November 1, 1992, Dr. Steichen
was appointed the General Manager of Technology and Quality Assurance of South
Pacific Tyres, a joint venture company 50% owned by Goodyear, serving in that
capacity until November 30, 1994. Dr. Steichen was elected a Vice President of
Registrant effective December 1, 1994. Dr. Steichen is the executive officer of
Registrant responsible for Goodyear's worldwide tire technology activities.
C. THOMAS HARVIE VICE PRESIDENT AND GENERAL COUNSEL 53
Mr. Harvie joined Goodyear on July 1, 1995 as a Vice President and the
General Counsel of Registrant. Prior to joining Goodyear, Mr. Harvie was a Vice
President and the Associate General Counsel of TRW Inc. from 1989 through June
1995. Mr. Harvie had been employed by TRW Inc. for 20 years in various
capacities in the TRW Inc. law department.
LEE N. FIEDLER VICE PRESIDENT 55
Mr. Fiedler served in various chemical sales and marketing positions and
managerial posts until October 1, 1989, when he was appointed Vice President and
General Manager of the Company's Chemical Division. Mr. Fiedler served as
President and Chief Executive Officer of The Kelly-Springfield Tire Company,
formerly a wholly-owned subsidiary of Registrant from October 1, 1991 to
December 31, 1995. Since January 1, 1996, he has served as the President of the
Kelly-Springfield Division. He was elected a Vice President of Registrant on
November 5, 1996 and is the executive officer of Registrant responsible for
Kelly-brand and private-brand tire operations. Mr. Fiedler has been an employee
of Goodyear since 1963.
SYLVAIN G. VALENSI VICE PRESIDENT 54
Mr. Valensi served in various finance, sales and marketing positions until
1985, when he was appointed Director of Sales and Marketing for the European
region. In November 1993, he was named President and Chief Executive Officer of
Goodyear France S.A., a wholly-owned subsidiary of Registrant. On February 1,
1996, Mr. Valensi was appointed Vice President of Goodyear's European region. On
November 5, 1996, Mr. Valensi was elected a Vice President of Registrant and in
that capacity serves as the executive officer of Registrant responsible for the
Goodyear's operations in Europe, Africa and the Middle East. Mr. Valensi has
been an employee of Goodyear since 1965.
JOSEPH M. GINGO VICE PRESIDENT 52
Mr. Gingo served in various research and development and managerial posts
until November 1, 1987, when he was appointed Vice President and General Manager
of Goodyear's Aviation Products. He was elected a Vice President of Registrant
effective November 1, 1992, serving in that capacity as the executive officer of
Registrant responsible for Goodyear's worldwide tire technology activities until
January 1, 1995, when he was appointed Vice President of Goodyear's Asia region.
On November 5, 1996, Mr. Gingo was elected a Vice President of Registrant and in
that capacity is the executive officer of Registrant responsible for Goodyear's
operations in Asia. Mr. Gingo has been an employee of Goodyear since 1966.
19
<PAGE> 22
NAME POSITION(S) HELD AGE
------- ------------------ -----
JOHN C. POLHEMUS VICE PRESIDENT 52
Mr. Polhemus served in various managerial positions in Goodyear's
international operations until June 1, 1991, when he was appointed Managing
Director and President of Goodyear do Brasil Produtos de Borracha Ltda, a
wholly-owned subsidiary of Registrant. On April 10, 1995, Mr. Polhemus was
appointed Vice President for the Latin America region. On November 5, 1996, Mr.
Polhemus was elected a Vice President of Registrant and in that capacity he is
the executive officer of Registrant responsible for Goodyear's Latin American
operations. Mr. Polhemus has been an employee of Goodyear since 1969.
TERRY L. PERSINGER VICE PRESIDENT 52
Mr. Persinger joined Goodyear in 1966, serving in various research and
development and managerial positions until May 16, 1989, when he was appointed
Vice President and General Manager of the Polyester Division. He served in that
capacity until December 1992, when the Polyester Division was sold to Shell Oil
Company. Mr. Persinger left Goodyear and joined Shell at that time. He rejoined
Goodyear effective January 1, 1995, when he was appointed Vice President and
General Manager of Engineered Products. On November 5, 1996, Mr. Persinger was
elected a Vice President of Registrant and serves in that capacity as the
executive officer of Registrant responsible for Goodyear's Engineered Products
operations.
DENNIS E. DICK VICE PRESIDENT 57
Mr. Dick served in various research and development and production posts
until elected a Vice President of Registrant on April 9, 1984, serving as the
executive officer of Registrant responsible for Goodyear's technology management
activities worldwide until October 1991, when he was appointed Vice President
and General Manager of Goodyear's Chemical Division. On November 5, 1996, Mr.
Dick was elected a Vice President of Registrant and in that capacity the
executive officer of Registrant responsible for Goodyear's Chemical Division.
Mr. Dick has been an employee of Goodyear since 1964.
JOHN W. RICHARDSON VICE PRESIDENT 51
Mr. Richardson served in various financial management posts until he was
appointed General Manager and Finance Director of Goodyear Great Britain Limited
on November 1, 1990. Mr. Richardson was appointed General Auditor of Goodyear on
February 1, 1993, serving in that post until appointed Vice President and
Comptroller on June 1, 1996. He was elected Vice President Corporate Finance of
Registrant on November 5, 1996 and in that capacity is the principal accounting
officer of Registrant. Mr. Richardson has been an employee of Goodyear since
1967.
CLARK E. SPRANG VICE PRESIDENT 54
Mr. Sprang served in various financial posts until appointed Finance
Director for Europe on July 1, 1990, serving in that post until September 1,
1993, when he was appointed Vice President Business Development. Mr. Sprang was
elected a Vice President of Registrant on November 5, 1996 and in that capacity
is the executive officer of Registrant responsible for Goodyear's business
development activities. Mr. Sprang has been an employee of Goodyear since 1966.
20
<PAGE> 23
No family relationship exists between any of the above named executive
officers or between said executive officers and any other director or nominee
for director of Registrant.
Each executive officer is elected by the Board of Directors at its annual
meeting to a term of one year or until his or her successor is duly elected,
except in those instances where the person is elected at other than an annual
meeting of the Board of Directors in which event such person's tenure will
expire at the next annual meeting of the Board of Directors unless such person
is reelected. The next annual meeting of the Board of Directors is scheduled to
be held on April 14, 1997.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The principal market for Registrant's Common Stock is the New York Stock
Exchange (Stock Exchange Symbol GT). Registrant's Common Stock is also listed on
the Chicago Stock Exchange and The Pacific Stock Exchange. Overseas listings
include the Amsterdam, Paris and Swiss Stock Exchanges.
Information relating to the high and low sale prices of Registrant's
Common Stock and the dividends paid on such shares during 1996 and 1995 appears
under the caption "Quarterly Data and Market Price Information" in Item 8 of
this Annual Report, at page 51, and is incorporated herein by specific
reference. The first quarter 1997 cash dividend, paid on March 17, 1997 to
shareholders of record at February 18, 1997, was $.28 per share.
At February 18, 1997, there were 30,262 record holders of the 156,873,953
shares of the Common Stock of Registrant then outstanding. Approximately
8,304,069 shares of the Common Stock of Registrant were beneficially owned by
approximately 35,815 participants in four Employee Savings Plans sponsored by
the Registrant and certain of its subsidiaries. The Northern Trust Company is
the Trustee for said Employee Savings Plans.
21
<PAGE> 24
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE) ......... 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Sales ............................... $13,112.8 $13,165.9 $12,288.2 $11,643.4 $11,784.9
Income before Extraordinary
Items and Cumulative Effect of
Accounting Changes .................... 101.7 611.0 567.0 488.7 367.3
Extraordinary Items --
Early Extinguishment of Debt .......... -- -- -- (14.6) (15.3)
Cumulative Effect of
Change in Accounting for
Postemployment Benefits ............... -- -- -- (86.3) --
Transition Effect of Change in
Accounting for Non-pension
Postretirement Benefits ............... -- -- -- -- (1,065.7)
Cumulative Effect of Change in
Accounting for Income Taxes ........... -- -- -- -- 55.1
--------- --------- --------- --------- ---------
Net Income (loss) ....................... $ 101.7 $ 611.0 $ 567.0 $ 387.8 $ (658.6)
========= ========= ========= ========= =========
Per Share of Common Stock:
Income before Extraordinary
Items and Cumulative Effect of
Accounting Changes ................... $ .66 $ 4.02 $ 3.75 $ 3.33 $ 2.57
Extraordinary Items--
Early Extinguishment of Debt ......... -- -- -- (.10) (.11)
Cumulative Effect of
Change in Accounting for
Postemployment Benefits .............. -- -- -- (.59) --
Transition Effect of Change in
Accounting for Non-pension
Postretirement Benefits .............. -- -- -- -- (7.46)
Cumulative Effect of Change in
Accounting for Income Taxes .......... -- -- -- -- .39
--------- --------- --------- --------- --------
Net Income (loss) $ .66 $ 4.02 $ 3.75 $ 2.64 $ (4.61)
========= ========= ========= ========= =========
Dividends Per Share ................... $ 1.03 $ .95 $ .75 $ .575 $ .275
Total Assets .......................... $ 9,671.8 $ 9,789.6 $ 9,123.3 $ 8,436.1 $ 8,563.7
Long Term Debt and Capital
Leases .............................. $ 1,132.2 $ 1,320.0 $ 1,108.7 $ 1,065.9 $ 1,471.1
Shareholders' Equity .................. $ 3,279.1 $ 3,281.7 $ 2,803.2 $ 2,300.8 $ 1,930.3
<FN>
NOTES: (1) See "Principles of Consolidation" at Note 1 ("Accounting Policies") to the Financial Statements
at page 35.
(2) Per share amounts reflect the two-for-one split of the Company's Common Stock, distributed on
May 4, 1993 in the form of a dividend of one share of Common Stock on each share of Common
Stock outstanding at the close of business on April 30, 1993.
(3) Net Income in 1996 included net after-tax charges of $573.0 million, or $3.69 per share, for
the writedown of the All American Pipeline System and related assets and other rationalizations.
</TABLE>
22
<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
CONSOLIDATED
Sales in 1996 were $13.11 billion, decreasing slightly from $13.17 billion
in 1995 but increasing 6.7% from $12.29 billion in 1994.
Net income in 1996 was $101.7 million or $.66 per share, compared to
$611.0 million or $4.02 per share in 1995 and $567.0 million or $3.75 per share
in 1994. Net income in 1996 included net after-tax charges of $573.0 million or
$3.69 per share related to the writedown of the All American Pipeline System and
related assets and other rationalization actions, as discussed below.
Worldwide tire unit sales were 5.4% higher than 1995 and 5.0% higher than
1994, and sales of other automotive and industrial rubber products were higher
in both 1996 and 1995. Tire unit sales in 1996 rose on higher volume in Europe
and Asia, although original equipment volume decreased in North America and
Latin America. In 1995, tire unit sales reflected higher original equipment
volume, primarily in Europe, but were adversely affected by lower replacement
auto market volume in the U.S.
Revenues in 1996 decreased despite higher tire unit sales, due primarily
to continued competitive pricing pressures worldwide and the strengthening of
the U.S. dollar in 1996 versus various foreign currencies. Competitive pricing
pressures are expected to continue worldwide during 1997. Revenues in 1995
increased due to higher average selling prices and the favorable impact of the
strengthening of European currencies in 1995 versus the U.S. dollar.
Cost of goods sold in 1996 was 76.5% of sales, compared to 76.7% in 1995
and 75.5% in 1994. Raw material costs in 1996 decreased from the level reached
after 1995's significant increase in natural rubber prices, and worldwide raw
material costs are not expected to increase significantly in 1997. Labor costs
increased in both 1996 and 1995, due in part to the 1994 U.S. wage agreements
which provided for wage and benefit improvements. Future labor costs are
uncertain due to the expiration of these agreements in 1997. Manufacturing costs
in 1996 and 1995 benefited from efficiencies achieved as a result of ongoing
cost containment measures, but were adversely affected in 1996 by lower levels
of capacity utilization resulting from reductions in production schedules in
North America and Europe to align inventory with market requirements.
The Company's research and development expenditures, all of which were
included in cost of sales, were $374.5 million, $369.3 million and $341.3
million in 1996, 1995 and 1994, respectively. Research and development
expenditures in 1997 are expected to approximate 1996 levels.
Selling, administrative and general expense (SAG) in 1996 was 14.4% of
sales, compared to 14.7% in 1995 and 15.9% in 1994. The improvement as a percent
to sales in each year reflected lower employment levels which reduced
compensation and benefit costs in the U.S., and the benefits of ongoing cost
containment measures.
In December 1996, industry developments occurred indicating that the
quantities of off-shore California, onshore California and Alaska North Slope
crude oil expected to be tendered in the future to the All American Pipeline
System and related assets (the System) for transportation would be below prior
estimates and that volumes of crude oil expected to be tendered to the System
for transportation to markets outside of California in the future would be
significantly lower than previously anticipated. As a result, management
determined that the future cash flows expected to be generated by the System
would be less than its carrying value. In accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the
23
<PAGE> 26
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," the Company reduced the carrying value of the System to $420 million,
determined using the present value of expected future cash flows from the
System, and recorded a charge of $755.6 million ($499.3 million after tax or
$3.21 per share).
Other rationalization actions undertaken in 1996 to reduce costs and focus
on the core tire and general products businesses included the closure of the
Greece tire manufacturing facility, the discontinuance of PVC production at
Niagara Falls, New York, and other worldwide consolidations and workforce
reductions. Charges related to these actions totaled $148.5 million ($95.3
million after tax or $.62 per share).
Additionally in 1996, the Company recorded net gains totaling $32.1
million ($21.6 million after tax or $.14 per share) related to the sale of
business property in Asia, a portion of an investment in an Asian plantation and
the loss on the anticipated sale of a U.S. manufacturing facility.
Other income and expense in 1996 and 1995 reflected lower interest income
compared to 1994, which resulted in substantial part from lower levels of time
deposits and lower inflation and interest rates in Brazil.
Foreign currency exchange expense in 1996 was $7.4 million, compared to
$17.4 million in 1995 and $77.6 million in 1994. The improvement in 1996
reflected the strengthening of the U.S. dollar versus various European
currencies, and in 1995 resulted primarily from the effects of Brazil's
inflation control plan.
The Company's effective tax rate was 12.5%, 32.7% and 33.6% in 1996, 1995
and 1994, respectively. The substantial reduction in 1996 was caused primarily
by the writedown of the All American Pipeline System and related assets.
Additionally, each year reflected the effect of foreign rate benefits. For
further information, refer to the note to the financial statements No. 15,
Income Taxes.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." This statement provides
new accounting and reporting standards for the sale, securitization, and
servicing of receivables and other financial assets and extinguishments of
liabilities, and is effective for transactions occurring after December 31,
1996. The Company's current sale of receivables program conforms to the
requirements of this statement. Accordingly, the adoption of this statement is
not expected to affect the Company's results of operations, financial position
or liquidity.
The Company early adopted in 1996 the American Institute of Certified
Public Accountants' Statement of Position No. 96-1, "Accounting for
Environmental Remediation Liabilities." This statement provides guidance on
accounting issues present in the recognition, measurement, display and
disclosure of these liabilities, and is effective for fiscal years beginning
after December 15, 1996. The adoption of this statement did not affect the
Company's results of operations, financial position or liquidity.
SEGMENT INFORMATION
Segment operating income was $366.4 million, $1,221.1 million and $1,193.3
million and segment operating margin was 2.8%, 9.3% and 9.7% of sales in 1996,
1995 and 1994, respectively. Segment operating income in 1996 included the
previously mentioned charges of $755.6 million related to the asset writedown
and $158.7 million related to workforce reductions, consolidation of operations
and the closure and sale of manufacturing facilities.
24
<PAGE> 27
INDUSTRY SEGMENTS
TIRES
Sales in 1996 were $11.20 billion, decreasing slightly from $11.26 billion
in 1995 but increasing 6.6% from $10.51 billion in 1994.
Revenues decreased in 1996 despite higher tire unit sales, due primarily
to reduced unit sales to original equipment vehicle manufacturers in North
America and Latin America, competitive pricing pressures worldwide and
unfavorable translation due to the strengthening of the U.S. dollar versus
various foreign currencies. Additionally, revenues were adversely affected by
lower sales in natural rubber operations due to lower market prices, and lower
service and other sales at Company-owned retail outlets. Revenues in 1995
increased due to higher average selling prices and the favorable impact of the
strengthening of currencies in Europe versus the dollar.
<TABLE>
<CAPTION>
The following table presents changes in tire unit sales:
INCREASE (DECREASE) IN COMPANY TIRE UNIT SALES FOR THE YEAR
1996 vs. 1995 1995 vs. 1994
-------------------------------------------------------------------------
<S> <C> <C>
U.S. (.7)% (3.3)%
International 12.6 3.3
Worldwide 5.4 (.4)
--------------------------------------------------------------------------
</TABLE>
Unit sales in the U.S. decreased in 1996 due to lower original equipment
unit volume, although replacement unit sales increased. International unit sales
reflected year-to-year improvement in 1996 and 1995 in both the original
equipment and replacement markets. Both original equipment and replacement unit
sales in the U.S. in 1995 were lower compared to 1994.
Operating income in 1996 of $893.3 million decreased 10.7% from $1,000.2
million in 1995 and 11.6% from $1,010.6 million in 1994. Operating income in
1996 included $131.9 million of rationalization charges.
Operating income in 1996 was favorably impacted by higher tire unit sales,
lower raw material costs and lower SAG, but was adversely affected by lower
revenues and increased costs resulting from lower levels of capacity utilization
to reduce inventory. In 1995, operating income decreased despite pricing
improvements, due primarily to higher raw material and labor costs, competitive
market conditions and lower interest income in Brazil.
GENERAL PRODUCTS
Sales in 1996 of $1.78 billion were unchanged from 1995 but increased 4.7%
from $1.70 billion in 1994.
Sales in engineered products increased in 1996 on higher unit volume of
automotive and industrial rubber products and the acquisition of a lightweight
conveyor belting manufacturer, and were higher in 1995 due primarily to pricing
improvements and increased demand from original equipment manufacturers. Sales
in chemical products decreased in 1996 due to lower selling prices and reduced
volume, but were higher in 1995 due to pricing improvements.
Operating income in 1996 of $162.9 million decreased 1.6% from $165.6
million in 1995 and 4.7% from $170.9 million in 1994. Operating income in 1996
included $26.8 million of rationalization charges.
Operating income in engineered products increased in 1996 despite $15.2
million of rationalization charges, due primarily to higher unit volume and
ongoing cost containment measures. Engineered products operating income
decreased in 1995 compared to 1994 due to higher raw material and labor costs
and lower interest income in Brazil. Operating income in chemical products
decreased in 1996 due primarily to $11.6 million of rationalization charges, but
was favor-
25
<PAGE> 28
ably affected by lower raw material prices. Chemical operating income
increased in 1995 compared to 1994 due to pricing improvements.
OIL TRANSPORTATION
Sales in 1996 were $127.2 million, compared to $126.8 million in 1995 and
$79.1 million in 1994. Sales for this segment consist of tariffs charged by the
All American Pipeline System (the System) and revenues, net of acquisition
costs, resulting from various crude oil gathering, purchasing and selling
activities.
An operating loss of $689.8 million was recorded in 1996, compared to
operating income of $55.3 million in 1995 and $11.8 million in 1994. The
operating loss in 1996 was due to a charge of $755.6 million resulting from the
previously discussed writedown of the carrying value of the System and related
assets.
Sales increased and operating income was favorably affected in 1996 by
improved results in crude oil purchasing, selling and exchanging activities,
which resulted in part from higher market prices. Results in 1995 improved due
primarily to higher throughput and tariff revenues, which resulted from an
increased percentage of crude oil being transferred to Central Texas for
delivery to refineries in the Mid-Continent region and along the Texas Gulf
Coast. Operating income in 1995 included a charge of $5.0 million for the
writedown of surplus construction pipe, material and equipment.
It is anticipated that volumes of crude oil expected to be tendered to the
System for transportation to markets outside of California in the future will be
significantly lower than previously anticipated.
Acquisition costs associated with gathering, purchasing and selling
activities amounted to $808 million, $496 million and $598 million in 1996, 1995
and 1994, respectively. Crude oil purchasing and selling activities increased in
1996, due primarily to higher prices and other market conditions.
GEOGRAPHIC SEGMENTS
U.S. OPERATIONS
U.S. sales in 1996 were $7.01 billion, decreasing 3.3% from $7.25 billion
in 1995 and 1.7% from $7.13 billion in 1994.
Sales decreased in 1996 due primarily to reduced unit sales to original
equipment vehicle manufacturers and competitive tire pricing pressures in the
replacement market. Sales of engineered products increased in 1996, although
sales of chemical products in the period were lower. Sales in 1995 increased due
primarily to higher average selling prices in tires, increased throughput and
higher average tariffs in the All American Pipeline System and improved pricing
and volume in engineered and chemical products.
[Graph]
U.S. OPERATIONS PERCENT OF CONSOLIDATED SALES
1994 58.0%
1995 55.1%
1996 53.5%
An operating loss of $296.7 million was recorded in 1996, compared to
operating income of $543.9 million in 1995 and $591.5 million in 1994. Operating
income in 1996 included charges of $845.3 million related to the writedown of
the All American Pipeline System and other rationalization charges.
Operating income in 1996 was adversely affected by lower original
equipment tire unit sales and pricing pressures in the replacement tire market,
but was favorably impacted by improved volume in engineered products, lower raw
material costs, lower SAG and improved trading results in oil transportation
activities. Operating income in 1995 decreased due primarily to increased raw
material and labor costs and competitive conditions in the tire market.
26
<PAGE> 29
INTERNATIONAL OPERATIONS
International sales in 1996 were $6.1 billion, increasing 3.2% from $5.9
billion in 1995 and 18.3% from $5.2 billion in 1994. International operating
income in 1996 was $663.1 million, decreasing 2.1% from $677.2 million in 1995
but increasing 10.2% from $601.8 million in 1994. Operating income in 1996
included $69.0 million of rationalization charges.
In Europe, sales in 1996 of $3.1 billion increased 7.2% from $2.9 billion
in 1995 and 34.2% from $2.3 billion in 1994. Operating income in 1996 was $302.0
million, decreasing 4.8% from $317.2 million in 1995 but increasing 42.5% from
$212.0 million in 1994. Operating income in 1996 included $29.4 million of
rationalization charges.
Sales in Europe increased in 1996 due primarily to higher tire unit sales
and the acquisition of a majority ownership interest in a tire manufacturing
facility in Poland, but were adversely affected by competitive pricing pressures
and the strengthening of the U.S. dollar versus European currencies. Sales
increased in 1995 due to pricing improvements, the effects of currency
translations and higher tire unit sales.
[Graph]
INTERNATIONAL OPERATIONS PERCENT
OF CONSOLIDATED SALES
1994 42.0%
1995 44.9%
1996 46.5%
Operating income in Europe decreased in 1996 due to the previously
mentioned ratio nalization charges, but was favorably affected by increased
revenues, lower raw material costs, and productivity improvements. Operating
income increased in 1995 due to increased revenues, high levels of capacity
utilization and improved productivity, although raw material costs were higher.
In Latin America, sales in 1996 were $1.53 billion, compared to $1.54
billion in 1995 and $1.51 billion in 1994. Operating income in 1996 was $246.0
million, increasing 2.9% from $238.8 million in 1995 but decreasing 11.6% from
$278.2 million in 1994. Operating income in 1996 was reduced by $24.0 million of
rationalization charges, and also included costs totaling $6.5 million related
to improvements in manufacturing efficiencies.
Sales in Latin America decreased slightly in 1996, reflecting competitive
pricing pressures and unchanged tire unit sales. Sales increased in 1995 due
primarily to pricing improvements.
Operating income in Latin America increased in 1996 due primarily to lower
raw material costs and improved productivity. Operating income in 1995 decreased
due to increased raw material and labor costs and lower interest income.
In Asia, sales in 1996 of $845.4 million increased 1.5% from $833.2
million in 1995 and 18.8% from $711.6 million in 1994. Operating income in Asia
in 1996 was $99.3 million, increasing 10.2% from $90.1 million in 1995 and 22.1%
from $81.3 million in 1994.
Sales in Asia increased in 1996 due primarily to higher tire unit sales,
but were adversely affected by competitive pricing pressures, lower price levels
realized by the natural rubber operations and the strengthening of the U.S.
dollar versus Asian currencies. Sales increased in 1995 due primarily to high
market price levels for natural rubber and higher tire unit sales and pricing.
Operating income in Asia increased in 1996 due to lower raw material costs
and improved productivity. Operating income increased in 1995 due to increased
revenues and improved productivity, although raw material costs were higher.
In Canada, sales in 1996 of $670.2 million decreased 2.4% from $686.5
million in 1995 but increased 2.5% from $653.8 million in 1994. Operating income
for 1996 of $15.8 million decreased 49.2% from $31.1 million in 1995 and 47.8%
from $30.3 million in 1994. Operating income in 1996 was reduced by $13.8
million of rationalization charges.
27
<PAGE> 30
Sales in Canada decreased in 1996 due primarily to lower tire unit sales
volume. Operating income decreased in 1996 due primarily to the previously
mentioned rationalization charges. Sales and operating income increased in 1995
due primarily to improved pricing and mix and higher unit sales of engineered
products, although raw material costs were higher.
For further information relating to industry and geographic segments, refer
to the note to the financial statements No. 17, Business Segments.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities increased to $897.5 million in 1996
from $652.8 million in 1995, due primarily to reduced cash outflows for
inventory made possible by production rationalizations to align inventory with
market requirements, and lower levels of pension funding. Working capital
requirements for accounts receivable increased, reflecting a worldwide shift in
sales mix towards replacement tires.
Cash used in investing activities was $690.9 million during 1996. Capital
expenditures were $617.5 million, of which amount $356.7 million was used on
projects to increase capacity and improve productivity and the balance was used
for tire molds and various other projects. Capital expenditures are expected to
total $675 million in 1997. At December 31, 1996, the Company had binding
commitments for land, buildings and equipment of $119.9 million.
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C>
Capital Expenditures $617.5 $615.6 $523.0
Depreciation 460.8 434.9 410.3
----------------------------------------------------------
</TABLE>
Other investing activities in 1996 included the purchase of tire
manufacturing assets in the Philippines, the acquisition of a lightweight
conveyor belting manufacturer in the United States and an investment in a retail
tire chain in Sweden. Additionally, in January 1997 the Company acquired a 60%
ownership interest in a South African tire manufacturing and distribution
operation for $92.4 million.
[Graph]
CAPITAL EXPENDITURES
(in millions)
1994 $523.0
1995 $615.6
1996 $617.5
Cash used in financing activities was $206.8 million during 1996. Debt
levels decreased, reflecting in part the increased cash provided by operating
activities.
<TABLE>
<CAPTION>
(Dollars in millions) 1996 1995 1994
-----------------------------------------------------------
<S> <C> <C> <C>
Consolidated Debt $1,376.7 $1,546.7 $1,335.6
-----------------------------------------------------------
Debt/Debt+Equity 29.6% 32.0% 32.3%
-----------------------------------------------------------
</TABLE>
The Company actively manages its fixed and floating rate debt mix, within
defined limitations, using refinancings and unleveraged interest rate swaps. The
Company will enter into fixed and floating interest rate swaps to alter its
exposure to the impact of changing interest rates on consolidated results of
operations and future cash outflows for interest. Fixed rate swaps are used to
reduce the Company's risk of increased interest costs during periods of rising
interest rates. Floating rate swaps are used to convert the fixed rates of long
term borrowings into short term variable rates. Interest rate swap contracts are
thus used by the Company to separate interest rate risk management from the debt
funding decision. At December 31, 1996, the interest rate on 62% of the
Company's debt was fixed by either the nature of the obligation or through the
interest rate contracts, compared to 56% at December 31, 1995.
Contracts in place and related weighted average interest rates follow:
28
<PAGE> 31
<TABLE>
<CAPTION>
FIXED RATE FLOATING RATE
(Dollars in millions) CONTRACTS CONTRACTS
------------------------------------------------------------
<S> <C> <C>
December 31, 1996:
Notional principal amount $275.0 $110.0
Pay fixed rate 8.00% --
Receive variable LIBOR 5.63 --
Pay variable LIBOR -- 5.57%
Receive fixed rate -- 6.24
Average years to maturity 1.87 6.67
Fair value: unfavorable $ (3.0) $ (.9)
Average rate paid during the year 8.85% 5.52%
Average rate received during the year 5.66 6.41
-------------------------------------------------------------
</TABLE>
Current market pricing models were used to estimate the fair values of
interest rate swap contracts. The fair value of the fixed rate contracts
improved from $11.3 million unfavorable at December 31, 1995, due primarily to
the absence of contracts which matured in 1996. The Company estimates that a 100
basis point decrease in interest rates at December 31, 1996 would have adversely
affected the fair value of the fixed rate contracts by $3.6 million and improved
the fair value of the floating rate contracts by $5.4 million at that date.
Throughout 1996, the Company sold certain domestic accounts receivable
under continuous sale programs whereby, as these receivables were collected, new
receivables were sold. Under these agreements, undivided interests in designated
receivable pools are sold to purchasers with recourse limited to the receivables
purchased. At December 31, 1996 and 1995, the outstanding balance of receivables
sold under these agreements amounted to $550 million.
Substantial short term and long term credit sources are available to the
Company globally under normal commercial practices. At December 31, 1996, there
were worldwide credit sources totaling $3.48 billion, of which $2.10 billion or
60% were unused. In addition, during 1996 the Company initiated a new commercial
paper program, whereunder the Company may have outstanding up to $550 million at
any time.
The Company amended two existing credit facility agreements in 1996, and
now is a party to two credit facility agreements with 28 domestic and
international banks, consisting of a $900 million five year revolving credit
facility and a $300 million 364-day revolving credit facility. The $900 million
five year revolving credit facility agreement provides that the Company may
borrow at any time until July 15, 2001, when the commitment terminates and any
outstanding loans mature. The Company pays a commitment fee ranging from 7.5 to
15 basis points on the entire amount of the commitment and a usage fee of 15 to
30 basis points on amounts borrowed. The $300 million 364-day credit facility
agreement provides that the Company may borrow until July 14, 1997, on which
date the facility commitment terminates, except as it may be extended on a bank
by bank basis. If a bank does not extend its commitment if requested to do so,
the Company may obtain from such bank a two year term loan up to the amount of
such bank's commitment. The Company pays currently a commitment fee of 8 basis
points on the entire amount of the commitment and would pay a usage fee of 22
basis points on amounts borrowed. There were no borrowings outstanding under
these agreements at December 31, 1996.
For further discussion of financing activities, refer to the note to the
financial statements No. 7, Financing Arrangements and Financial Instruments.
The Company's domestic pension funding practice since 1993 has been to
fund, from operations, amounts in excess of the requirements of federal laws and
regulations. During the four years ended December 31, 1996, the Company funded a
total of $646.3 million, resulting in the major domestic pension plans being
fully funded at that date.
For further discussion of pensions, refer to the note to the financial
statements No. 11, Pensions.
Funds generated by operations, together with funds available under
existing credit arrangements, are expected to exceed the Company's currently
anticipated cash requirements.
29
<PAGE> 32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX
CONSOLIDATED FINANCIAL STATEMENTS--FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants ................................. 30
Consolidated Statement of Income -- years ended
December 31, 1996, 1995 and 1994 ................................ 31
Consolidated Balance Sheet-- December 31, 1996 and 1995 ........... 32
Consolidated Statement of Shareholders' Equity -- years ended
December 31, 1996, 1995 and 1994 ................................ 33
Consolidated Statement of Cash Flows -- years ended
December 31, 1996, 1995 and 1994 ................................ 34
Notes to Financial Statements ..................................... 35
Supplementary Data (unaudited) .................................... 51
Financial Statement Schedules ..................................... FS-1
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of The Goodyear Tire & Rubber Company
In our opinion, the consolidated financial statements listed in the index
on this page present fairly, in all material respects, the financial position of
The Goodyear Tire & Rubber Company and Subsidiaries at December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
/s/ Price Waterhouse LLP
Cleveland, Ohio
February 3, 1997
30
<PAGE> 33
CONSOLIDATED STATEMENT OF INCOME
- --------------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
<TABLE>
<CAPTION>
(Dollars in millions, except per share)
Year Ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $13,112.8 $13,165.9 $12,288.2
Cost of Goods Sold 10,026.7 10,093.6 9,271.4
Selling, Administrative and General Expense 1,890.1 1,936.9 1,958.2
Asset Writedown and Other Rationalizations (Note 2) 872.0 -- --
Interest Expense (Note 13) 128.6 135.0 129.4
Other (Income) and Expense (Note 3) 22.6 21.0 (37.9)
Foreign Currency Exchange 7.4 17.4 77.6
Minority Interest in Net Income of Subsidiaries 43.1 36.2 23.8
- ----------------------------------------------------------------------------------------------------------
Income before Income Taxes 122.3 925.8 865.7
United States and Foreign Taxes on Income (Note 15) 20.6 314.8 298.7
- ----------------------------------------------------------------------------------------------------------
Net Income $ 101.7 $ 611.0 $ 567.0
==========================================================================================================
- ----------------------------------------------------------------------------------------------------------
Net Income Per Share $ .66 $ 4.02 $ 3.75
==========================================================================================================
Average Shares Outstanding 155,051,802 152,118,861 151,203,885
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of this financial statement.
31
<PAGE> 34
CONSOLIDATED BALANCE SHEET
- --------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
<TABLE>
<CAPTION>
(Dollars in millions)
December 31, 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 238.5 $ 268.3
Accounts and notes receivable (Note 4) 1,706.0 1,615.0
Inventories (Note 5) 1,774.2 1,765.2
Prepaid expenses and other current assets 306.3 193.1
- ---------------------------------------------------------------------------------
Total Current Assets 4,025.0 3,841.6
Investments in Affiliates, at equity 140.3 183.8
Long Term Accounts and Notes Receivable 216.2 252.0
Deferred Charges 1,059.4 793.3
Other Assets 163.0 157.7
Properties and Plants (Note 6) 4,067.9 4,561.2
- ---------------------------------------------------------------------------------
Total Assets $ 9,671.8 $ 9,789.6
================================================================================
LIABILITIES
Current Liabilities:
Accounts payable-- trade $ 1,096.7 $ 1,170.7
Compensation and benefits 742.5 711.9
Other current liabilities 300.4 263.9
United States and foreign taxes 382.1 363.1
Notes payable to banks (Note 7A) 218.1 211.1
Long term debt due within one year 26.4 15.6
- ---------------------------------------------------------------------------------
Total Current Liabilities 2,766.2 2,736.3
Long Term Debt (Note 7B) 1,132.2 1,320.0
Compensation and Benefits 1,988.1 1,976.5
Other Long Term Liabilities 264.9 312.2
Minority Equity in Subsidiaries 241.3 162.9
- ---------------------------------------------------------------------------------
Total Liabilities 6,392.7 6,507.9
SHAREHOLDERS' EQUITY
Preferred Stock, no par value:
Authorized, 50,000,000 shares, unissued -- --
Common Stock, no par value:
Authorized, 300,000,000 shares
Outstanding shares, 156,049,974 (153,524,311 in 1995) 156.1 153.5
Capital Surplus 1,059.4 975.2
Retained Earnings 2,603.0 2,661.0
Foreign Currency Translation and Other Adjustments (539.4) (508.0)
--------------------------------------------------------------------------------
Total Shareholders' Equity 3,279.1 3,281.7
- ---------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 9,671.8 $ 9,789.6
================================================================================
</TABLE>
The accompanying notes are an integral part of this financial statement.
32
<PAGE> 35
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- ----------------------------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
<TABLE>
<CAPTION>
Foreign Minimum
Common Stock Currency Pension Total
---------------------- Capital Retained Translation Liability Shareholders'
(Dollars in millions, except per share) Shares Amount Surplus Earnings Adjustment Adjustment Equity
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993
(after deducting 45,163,138 treasury shares) 150,515,374 $ 150.5 $ 878.0 $ 1,740.9 $ (422.4) $ (46.2) $ 2,300.8
Net income for 1994 567.0 567.0
Cash dividends 1994 -- $.75 per share (113.4) (113.4)
Common stock issued (including
891,911 treasury shares):
Dividend Reinvestment and
Stock Purchase Plan 96,691 .1 3.5 3.6
Stock compensation plans 795,220 .8 37.0 37.8
Foreign currency translation adjustment .7 .7
Minimum pension liability adjustment 6.7 6.7
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994
(after deducting 44,271,227 treasury shares) 151,407,285 151.4 918.5 2,194.5 (421.7) (39.5) 2,803.2
Net income for 1995 611.0 611.0
Cash dividends 1995 -- $.95 per share (144.5) (144.5)
Common stock issued (including
2,116,870 treasury shares):
Dividend Reinvestment and
Stock Purchase Plan 105,028 .1 4.2 4.3
Stock compensation plans 2,011,998 2.0 52.5 54.5
Foreign currency translation adjustment (60.0) (60.0)
Minimum pension liability adjustment 13.2 13.2
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995
(after deducting 42,154,357 treasury shares) 153,524,311 153.5 975.2 2,661.0 (481.7) (26.3) 3,281.7
Net income for 1996 101.7 101.7
Cash dividends 1996 -- $1.03 per share (159.7) (159.7)
Common stock issued (including
2,525,663 treasury shares):
Dividend Reinvestment and
Stock Purchase Plan 91,310 .1 4.3 4.4
Stock compensation plans 2,434,353 2.5 79.9 82.4
Foreign currency translation adjustment (26.7) (26.7)
Minimum pension liability adjustment (4.7) (4.7)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996
(after deducting 39,628,694 treasury shares) 156,049,974 $ 156.1 $1,059.4 $ 2,603.0 $ (508.4) $ (31.0) $ 3,279.1
================================================================================================================================
</TABLE>
The accompanying notes are an integral part of this financial statement.
33
<PAGE> 36
CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
<TABLE>
<CAPTION>
(Dollars in millions)
Year Ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 101.7 $ 611.0 $ 567.0
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 460.8 434.9 410.3
Deferred tax provision (238.5) 58.0 99.8
Asset writedown 755.6 -- --
Rationalizations and other provisions 110.0 -- --
Asset sales (32.1) -- --
Accounts and notes receivable (106.2) (84.4) (192.4)
Inventories (5.5) (344.3) (63.9)
Accounts payable-- trade (66.3) 159.5 139.7
Domestic pension funding (72.8) (252.5) (238.8)
Other assets and liabilities (9.2) 70.6 42.9
- ---------------------------------------------------------------------------------------------
Total adjustments 795.8 41.8 197.6
- ---------------------------------------------------------------------------------------------
Cash provided by operating activities 897.5 652.8 764.6
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (617.5) (615.6) (523.0)
Short term securities acquired (97.2) (30.6) (287.1)
Short term securities redeemed 86.2 41.4 310.6
Asset dispositions 45.9 8.9 19.0
Other transactions (108.3) (88.1) (15.7)
- ---------------------------------------------------------------------------------------------
Cash used in investing activities (690.9) (684.0) (496.2)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short term debt incurred 195.5 542.3 385.6
Short term debt paid (606.6) (414.3) (395.7)
Long term debt incurred 312.4 141.5 52.9
Long term debt and capital leases paid (35.2) (101.0) (166.4)
Common stock issued 86.8 58.8 41.4
Dividends paid (159.7) (144.5) (113.4)
- ---------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities (206.8) 82.8 (195.6)
Effect of Exchange Rate Changes on Cash and Cash Equivalents (29.6) (34.2) (10.4)
- ---------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (29.8) 17.4 62.4
Cash and Cash Equivalents at Beginning of the Period 268.3 250.9 188.5
- ---------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 238.5 $ 268.3 $ 250.9
=============================================================================================
</TABLE>
Information about Noncash Investing Activities--In 1995 the Company acquired,
for cash, 32.7% of the outstanding shares of a Polish tire manufacturer from the
Polish government and agreed to purchase original issue shares. The investment
was accounted for using the equity method. In 1996, the Company purchased
original issue shares of this tire manufacturer, bringing its ownership to
50.8%. This investment is now accounted for as a consolidated subsidiary.
Information in the Consolidated Statement of Cash Flows is presented net of the
effects of the consolidation.
The accompanying notes are an integral part of this financial statement.
34
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
NOTE 1. ACCOUNTING POLICIES
A summary of the significant accounting policies used in the preparation of the
accompanying financial statements follows:
Principles of Consolidation
The consolidated financial statements include the accounts of all majority-owned
subsidiaries. All significant intercompany transactions have been eliminated.
The Company's investments in 20% to 50% owned companies in which it has
the ability to exercise significant influence over operating and financial
policies are accounted for using the equity method. Accordingly, the Company's
share of the earnings of these companies is included in consolidated net income.
Investments in other companies are carried at cost.
Revenue Recognition
Substantially all revenues are recognized when finished products are shipped to
unaffiliated customers or services have been rendered, with appropriate
provision for uncollectible accounts. In conformance with oil industry practice,
revenues resulting from sales of crude oil purchased from third parties are
recognized net of the related acquisition costs.
Consolidated Statement of Cash Flows
Cash and cash equivalents include cash on hand and in the bank as well as all
short term securities held for the primary purpose of general liquidity. Such
securities normally mature within three months from the date of acquisition.
Cash flows associated with items intended as hedges of identifiable transactions
or events are classified in the same category as the cash flows from the items
being hedged.
Inventory Pricing
Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method for a significant portion of domestic
inventories and the first-in, first-out (FIFO) method or average cost method for
other inventories. Refer to Note 5.
Properties and Plants
Properties and plants are stated at cost, with the exception of the All American
Pipeline System and related assets, which are stated at fair value as of
December 31, 1996. Depreciation is computed using the straight line method.
Accelerated depreciation is used for income tax purposes, where permitted. Refer
to Note 6.
Derivative Financial Instruments
Derivative financial instrument contracts are utilized by the Company to manage
interest rate and foreign exchange risks. The Company has established a control
environment which includes policies and procedures for risk assessment and the
approval, reporting and monitoring of derivative financial instrument
activities. Company policy prohibits holding or issuing derivative financial
instruments for trading purposes.
To qualify for hedge accounting, the terms of the contracts must result in
cash flows and financial statement effects which substantially offset those of
the position being hedged. Amounts receivable or payable under derivative
financial instrument contracts, when recognized, are reported on the
Consolidated Balance Sheet as both current and long term receivables or
liabilities.
Interest Rate Contracts--The differentials to be received or paid are
recognized in income over the life of the contracts as adjustments to Interest
Expense.
Foreign Exchange Contracts--Gains and losses on contracts designated as
hedges of existing assets and liabilities are recognized in income as exchange
rates change as Foreign Currency Exchange. Gains and losses on contracts
designated as hedges of net investments in foreign subsidiaries are recognized
in Shareholders' Equity as exchange rates change as Foreign Currency Translation
Adjustment. Gains and losses on contracts designated as hedges of identifiable
foreign currency firm commitments are not recognized until included in the
measurement of the related foreign currency transaction.
Gains and losses on terminations of hedge contracts are recognized as
Other (Income) and Expense when terminated in conjunction with the termination
of the hedged position, or to the extent that such position remains outstanding,
deferred as Prepaid Expenses or Deferred Charges and amortized to Interest
Expense or Foreign Currency Exchange over the remaining life of that position.
Derivative financial instruments that the Company temporarily continues to hold
after the early termination of a hedged position, or that otherwise no longer
qualify for hedge accounting, are marked-to-market, with gains and losses
recognized in income as Other (Income) and Expense. Refer to Note 7.
Stock-Based Compensation
Compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock. Compensation cost for stock
appreciation rights and performance equity units is recorded annually based on
the quoted market price of the Company's stock at the end of the period. Refer
to Note 9.
35
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
Advertising Costs
Costs incurred for producing and communicating advertising are generally
expensed when incurred. Costs incurred under the Company's domestic cooperative
advertising program with dealers and franchisees are recorded subsequent to the
first time the advertising takes place, as related revenues are recognized.
Refer to Note 14.
Income Taxes
Income taxes are recognized during the year in which transactions enter into the
determination of financial statement income, with deferred taxes being provided
for temporary differences between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws. Refer to
Note 15.
Environmental Cleanup Matters
The Company expenses environmental expenditures related to existing conditions
resulting from past or current operations and from which no current or future
benefit is discernible. Expenditures which extend the life of the related
property or mitigate or prevent future environmental contamination are
capitalized. The Company determines its liability on a site by site basis and
records a liability at the time when it is probable and can be reasonably
estimated. The Company's estimated liability is reduced to reflect the
anticipated participation of other potentially responsible parties in those
instances where it is probable that such parties are legally responsible and
financially capable of paying their respective shares of the relevant costs. The
estimated liability of the Company is not discounted or reduced for possible
recoveries from insurance carriers. Refer to Note 18.
Foreign Currency Translation
Financial statements of international subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and a weighted average exchange rate for each period for revenues,
expenses, gains and losses. Where the local currency is the functional currency,
translation adjustments are recorded as a separate component of Shareholders'
Equity. Where the U.S. dollar is the functional currency, translation
adjustments are recorded in income.
Use of Estimates
The preparation of financial statements in conformity accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and related notes to financial
statements. Changes in such estimates may affect amounts reported in future
periods.
Per Share of Common Stock
Per share amounts have been computed based on the average number of common
shares outstanding.
Reclassification
Certain items previously reported in specific financial statement captions have
been reclassified to conform with the 1996 presentation.
NOTE 2. ASSET WRITEDOWN AND OTHER
RATIONALIZATIONS
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C>
Asset writedown $ 755.6 $-- $--
Rationalizations and other provisions 148.5 -- --
Asset sales (32.1) -- --
- -----------------------------------------------------------------
$ 872.0 $-- $--
=================================================================
</TABLE>
Asset writedown--In December 1996, industry developments occurred indicating
that the quantities of off-shore California, onshore California and Alaska North
Slope crude oil expected to be tendered in the future to the All American
Pipeline System and related assets (the System) for transportation would be
below prior estimates and that volumes of crude oil expected to be tendered to
the System for transportation to markets outside of California in the future
would be significantly lower than previously anticipated. As a result,
management determined that the future cash flows expected to be generated by the
System would be less than its carrying value. In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company
reduced the carrying value of the System to $420 million, determined using the
present value of expected future cash flows from the System, and recorded a
charge of $755.6 million ($499.3 million after tax or $3.21 per share).
Rationalizations and other provisions--As part of a rationalization plan
the Company recorded charges totaling $148.5 million ($95.3 million after tax or
$.62 per share) related to worldwide workforce reductions, consolidation of
operations and the closing of manufacturing facilities. At December 31, 1996 the
remaining balance of these provisions totaled $110.0 million and was recorded in
Current Liabilities.
Asset sales--During 1996 the Company recorded net gains totaling $32.1
million ($21.6 million after tax or $.14 per share) related to the sale of
business property in Asia, a portion of an investment in an Asian plantation and
the loss on the anticipated sale of a U.S. manufacturing facility.
36
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
NOTE 3. OTHER (INCOME) AND EXPENSE
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $(28.5) $(27.3) $(76.3)
Financing fees and
financial instruments 39.7 48.3 38.4
Miscellaneous 11.4 -- --
- --------------------------------------------------------------------------------
$ 22.6 $ 21.0 $(37.9)
================================================================================
</TABLE>
Interest income consists of amounts earned on deposits, primarily from funds
invested in time deposits in Latin America and Europe, pending remittance or
reinvestment in the region. Interest income decreased in 1995 due primarily to
lower levels of deposits in Latin America and the effects of the Real plan in
Brazil, an economic plan designed to reduce inflation.
Financing fees and financial instruments consists primarily of fees paid
under the Company's domestic accounts receivable continuous sale programs.
Refer to Note 4.
NOTE 4. ACCOUNTS AND NOTES RECEIVABLE
<TABLE>
<CAPTION>
(In millions) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Accounts and notes receivable $1,764.1 $1,671.2
Allowance for doubtful accounts (58.1) (56.2)
- --------------------------------------------------------------------------------
$1,706.0 $1,615.0
================================================================================
</TABLE>
Throughout the year, the Company sold certain domestic accounts receivable under
a continuous sale program. Under the program, undivided interests in designated
receivable pools were sold to the purchaser with recourse limited to the
receivables purchased. At December 31, 1996 and 1995, the level of net proceeds
from sales under the program was $550 million. The balance of the uncollected
portion of receivables sold under that and other agreements was $569.9 million
and $566.4 million at December 31, 1996 and 1995, respectively. Fees paid by the
Company under these agreements are based on certain variable market rate indices
and are recorded as Other (Income) and Expense.
NOTE 5. INVENTORIES
<TABLE>
<CAPTION>
(In millions) 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies $ 288.4 $ 309.8
Work in process 77.2 75.4
Finished product 1,408.6 1,380.0
- --------------------------------------------------------------
$1,774.2 $1,765.2
===============================================================
</TABLE>
The cost of inventories using the last-in, first-out (LIFO) method
(approximately 37.6% of consolidated inventories in 1996 and 41.1% in 1995) was
less than the approximate current cost of inventories by $406.9 million at
December 31, 1996 and $425.9 million at December 31, 1995.
NOTE 6.PROPERTIES AND PLANTS
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------
Capital Capital
(In millions) Owned Leases Total Owned Leases Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Properties and plants, at cost:
Land and improvements $ 308.2 $ 3.7 $ 311.9 $ 302.1 $ 3.7 $ 305.8
Buildings and improvements 1,331.5 37.3 1,368.8 1,277.9 39.2 1,317.1
Machinery and equipment 6,251.4 58.8 6,310.2 5,785.7 58.2 5,843.9
Pipeline 503.1 -- 503.1 1,429.4 -- 1,429.4
Construction in progress 509.7 -- 509.7 453.7 -- 453.7
- ---------------------------------------------------------------------------------------------------------
8,903.9 99.8 9,003.7 9,248.8 101.1 9,349.9
Accumulated depreciation (4,856.0) (79.8) (4,935.8) (4,711.1) (77.6) (4,788.7)
- ---------------------------------------------------------------------------------------------------------
$4,047.9 $ 20.0 $ 4,067.9 $ 4,537.7 $ 23.5 $4,561.2
==========================================================================================================
</TABLE>
The All American Pipeline System and related assets were written down to fair
value at December 31, 1996. Refer to Note 2.
The weighted average useful lives of property used in arriving at the annual
amount of depreciation provided are as follows: buildings and improvements, 18
years; machinery and equipment, 11 years; pipeline, 37 years.
37
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
NOTE 7. FINANCING ARRANGEMENTS
AND FINANCIAL INSTRUMENTS
A. Short Term Debt and Financing Arrangements
At December 31, 1996, the Company had short term uncommitted credit arrangements
totaling $1.33 billion, of which $.90 billion were unused. These arrangements
are available to the Company or certain of its international subsidiaries
through various international banks at quoted market interest rates. There are
no commitment fees or compensating balances associated with these arrangements.
In addition, a new commercial paper program was initiated in 1996, whereunder
the Company may have up to $550 million at any one time outstanding. No
commercial paper was outstanding at December 31, 1996.
A short term credit facility agreement is available whereunder the Company
may from time to time borrow and have outstanding until December 31, 1997 up to
U.S. $50 million at any one time with an international bank. Under the terms of
the agreement, the Company may repay U.S. dollar borrowings in either U.S.
dollars or a predetermined equivalent amount of certain available European and
Asian currencies. Borrowings are discounted at rates equivalent to 12.5 basis
points over a three month reserve adjusted LIBOR. A commitment fee of 8 basis
points is paid on the $50 million commitment (whether or not borrowed). There
were no borrowings outstanding under this agreement at December 31, 1996. The
average amount outstanding under a similar agreement during 1996 was $25
million.
The Company had outstanding short term debt amounting to $428.1 million at
December 31, 1996. Domestic short term debt represented $210.0 million of this
total with a weighted average interest rate of 6.46% at December 31, 1996, and
was reclassified o long term, as discussed below. The remaining $218.1 million
was short term debt of international subsidiaries with a weighted average
interest rate of 6.68% at December 31, 1996.
B. Long Term Debt and Financing Arrangements
At December 31, 1996, the Company had long term credit arrangements totaling
$2.15 billion, of which $1.20 billion were unused.
The following table presents long term debt and capital leases at December
31:
<TABLE>
<CAPTION>
(In millions) 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Promissory notes:
12.15% due 1997 - 2000 $ 10.0 $ 20.0
10.26% due 1999 118.4 118.4
Swiss franc bonds:
5.375% due 2000 124.0 145.5
5.375% due 2006 116.8 137.2
6 5/8% Notes due 2006 249.0 --
Bank term loans due 1997 - 2001 218.0 168.0
Other domestic debt 210.0 653.3
International subsidiary debt 98.5 77.5
- --------------------------------------------------------------------
1,144.7 1,319.9
Capital lease obligations 13.9 15.7
- --------------------------------------------------------------------
1,158.6 1,335.6
Less portion due within one year 26.4 15.6
- --------------------------------------------------------------------
Long term debt and capital leases $1,132.2 $1,320.0
====================================================================
</TABLE>
At December 31, 1996, the fair value of the Company's long term debt amounted to
$1,174.9 million, compared to the carrying amount of $1,144.7 million ($1,349.8
million and $1,319.9 million, respectively, at December 31, 1995). The
difference was attributable primarily to the promissory notes and the Swiss
franc bonds in both 1996 and 1995. The fair value was estimated using quoted
market prices or discounted future cash flows.
The interest rate on the 10.26% promissory notes due 1999 has been modified
by floating interest rate swap contracts with notional amounts totaling $50
million.
In order to reduce exposure to the effects of changing exchange rates on
consolidated results of operations and future foreign currency denominated cash
flows, the Swiss franc bonds were completely hedged by foreign currency exchange
agreements at December 31, 1996 and 1995. The Company is entitled to purchase
Swiss francs at fixed contract rates as described in the table below. The effect
of market fluctuations on the carrying amount of these agreements offsets the
effect of market fluctuations on the carrying amount of the bonds. The carrying
amount of these foreign currency exchange agreements was included in Long Term
Accounts and Notes Receivable on the Consolidated Balance Sheet. Additional
information related to the Swiss franc bonds follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------------------------
Foreign U.S. Foreign U.S.
(In millions) Currency Dollars Currency Dollars
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Carrying amount of bonds 325.7 $240.8 325.7 $282.7
Contract amount of currency
exchange agreements 325.7 $147.8 325.7 $147.8
Carrying amount of currency
exchange agreements -- $ 93.0 -- $134.9
- --------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
In addition to the principal amounts shown in the table on the previous page,
the currency exchange agreements also cover annual coupon payments. At December
31, 1996, the fair value of the currency exchange agreements, based on quoted
market prices, was estimated at $87.9 million, in favor of the Company,
including the cover for both principal and coupon payments ($118.1 million at
December 31, 1995).
The 6 5/8% Notes due 2006 have a face amount of $250 million and are
reported net of unamortized discount of $1.0 million. The interest rate on these
notes has been modified by floating interest rate swap contracts with notional
amounts totaling $60 million.
The bank term loans due 1997 through 2001 consist of various agreements which
provide for interest at floating rates based upon LIBOR plus a fixed spread. The
weighted average rate in effect under the terms of these agreements at December
31, 1996 was 5.83%.
The Company is a party to two revolving credit facility agreements, each
with 28 domestic and international banks, consisting of a $900 million five year
revolving credit facility and a $300 million 364-day revolving credit facility.
The $900 million five year credit facility agreement provides that the Company
may borrow at any time until July 15, 2001, when the commitment terminates and
any outstanding loans mature. The Company pays a commitment fee ranging from 7.5
to 15 basis points on the entire amount of the commitment (whether or not
borrowed) and a usage fee on amounts borrowed (other than on a competitive bid
or prime rate basis) ranging from 15 to 30 basis points. These fees may
fluctuate within these ranges quarterly based upon the Company's performance as
measured by defined ranges of leverage. During 1996 commitment and usage fees
averaged 12.77 and 22.67 basis points and at December 31, 1996 were 10 and 20
basis points, respectively. The $300 million 364-day credit facility agreement
provides that the Company may borrow until July 14, 1997, on which date the
facility commitment terminates, except as it may be extended on a bank by bank
basis. If a bank does not extend its commitment if requested to do so, the
Company may obtain from such bank a two year term loan up to the amount of such
bank's commitment. The Company pays a commitment fee of 8 basis points on the
entire amount of the commitment (whether or not borrowed) and a usage fee of 22
basis points on amounts borrowed (other than on a competitive bid or prime rate
basis). Under both the five year and the 364-day credit facility agreements, the
Company may obtain loans bearing interest at reserve adjusted LIBOR or a defined
certificate of deposit rate, plus in each case the applicable usage fee. In
addition, the Company may obtain loans based on the prime rate or at a rate
determined on a competitive bid basis. The facility agreements each contain
certain covenants which, among other things, require the Company to maintain at
the end of each fiscal quarter a minimum consolidated net worth and a defined
minimum interest coverage ratio and establishes a limit on the aggregate amount
of consolidated debt the Company and its subsidiaries may incur. There were no
borrowings outstanding under these agreements at December 31, 1996.
Other domestic debt consisted of the previously mentioned $210.0 million of
domestic short term bank borrowings. These debt obligations, which by their
terms are due within one year, are classified as long term at December 31, 1996,
along with current maturities of long term debt totaling $43.3 million. Such
obligations are supported by the availability under the previously discussed
revolving credit agreements, and it is the Company's intent to maintain them as
long term.
International subsidiary debt consisted primarily of an interest free
Canadian dollar loan maturing in 1998, and floating and fixed rate U.S. dollar
bank term loans maturing in 1997-2000 with a weighted average interest rate of
7.50% at December 31, 1996.
The Company actively manages its fixed and floating rate debt mix, within
defined limitations, using refinancings and unleveraged interest rate swaps. The
Company will enter into fixed and floating interest rate swaps to alter its
exposure to the impact of changing interest rates on consolidated results of
operations and future cash outflows for interest. Fixed rate swaps are used to
reduce the Company's risk of increased interest costs during periods of rising
interest rates. Floating rate swaps are used to convert the fixed rates of long
term borrowings into short term variable rates. Interest rate swap contracts are
thus used by the Company to separate interest rate risk management from the debt
funding decision. At December 31, 1996, the interest rate on 62% of the
Company's debt was fixed by either the nature of the obligation or through the
interest rate contracts, compared to 56% at December 31, 1995.
39
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
Contract information and weighted average interest rates follow:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
(Dollars in millions) 1995 NEW MATURED SOLD 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed rate swap contracts:
Notional principal amount $395.0 $100.0 $220.0 -- $275.0
Pay fixed rate 8.95% 6.17% 8.88% -- 8.00%
Receive variable LIBOR 5.81 5.53 5.80 -- 5.63
Average years to maturity .83 1.87
Fair value:(unfavorable) $(11.3) $ (3.0)
Carrying amount:(liability) (1.9) (1.2)
Floating rate swap contracts:
Notional principal amount $ 50.0 $130.0 -- $70.0 $110.0
Pay variable LIBOR 5.81% 5.37% -- 5.78% 5.57%
Receive fixed rate 6.69 6.35 -- 6.76 6.24
Average years to maturity 2.23 6.67
Fair value:(un)favorable $ 1.5 $ (.9)
Carrying amount:asset 0.1 1.0
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Current market pricing models were used to estimate the fair values of interest
rate swap contracts. The fair value of the fixed rate contracts improved from
December 31, 1995 due primarily to the absence of contracts which matured in
1996. The Company estimates that a 100 basis point decrease in market interest
rates would have adversely affected the fair value of the fixed rate contracts
by $3.6 million and improved the fair value of the floating rate contracts by
$5.4 million at December 31, 1996.
Weighted average information during the years 1996, 1995 and 1994 follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed rate contracts:
Pay fixed rate 8.85% 8.95% 9.09%
Receive variable LIBOR 5.66 6.23 4.44
Notional principal $244 $416 $660
Floating rate contracts:
Pay variable LIBOR 5.52% 6.06% 4.34%
Receive fixed rate 6.41 6.69 6.69
Notional principal $144 $ 50 $ 50
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The annual aggregate maturities of long term debt and capital leases for the
five years subsequent to 1996 are presented below. Maturities of debt supported
by the availability of the revolving credit agreements have been reported on the
basis that the commitments to lend under these agreements will be terminated
effective at the end of their current terms.
<TABLE>
<CAPTION>
(In millions) 1997 1998 1999 2000 2001
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Debt incurred under or supported by revolving credit agreements $ -- $ -- $ -- $ -- $253.5
Other 26.4 93.0 142.3 218.6 52.1
- -----------------------------------------------------------------------------------------------------------------
$26.4 $93.0 $142.3 $218.6 $305.6
=================================================================================================================
</TABLE>
Refer to Note 8, Leased Assets for additional information on capital lease
obligations.
40
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
C. Foreign Currency Forward Exchange Contracts
In order to reduce the impact of changes in foreign exchange rates on
consolidated results of operations and future foreign currency denominated cash
flows, the Company was a party to various forward exchange contracts at December
31, 1996 and 1995. These contracts reduce exposure to currency movements
affecting existing foreign currency denominated assets, liabilities and firm
commitments resulting primarily from trade receivables and payables, equipment
acquisitions and intercompany loans. The contract maturities match the
maturities of the currency positions. The future value of these contracts and
the related currency positions are subject to offsetting market risk resulting
from foreign currency exchange rate volatility. The carrying amounts of these
contracts totaled $14.7 million recorded in Accounts and Notes Receivable at
December 31, 1996, compared to $24.6 million in Other Current Liabilities at
December 31, 1995.
A summary of forward exchange contracts in place at December 31 follows:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------
Fair Contract Fair Contract
(In millions) Value Amount Value Amount
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Buy currency:
U.S. dollar $44.4 $44.5 $112.2 $112.0
Belgian franc -- -- 87.0 74.5
Polish zloty -- -- 60.3 60.3
All other 35.9 36.5 39.1 39.2
- ---------------------------------------------------------------
$80.3 $81.0 $298.6 $286.0
===============================================================
Contract maturity 1/97 - 7/97 1/96 - 1/97
===============================================================
Sell currency:
Belgian franc $231.5 $243.4 $346.6 $311.8
German mark 136.5 140.4 150.5 145.1
U.S. dollar 33.4 33.4 66.1 65.5
All other 92.8 92.4 104.1 103.7
- ---------------------------------------------------------------
$494.2 $509.6 $667.3 $626.1
===============================================================
Contract maturity 1/97 - 7/97 1/96 - 1/97
===============================================================
</TABLE>
Current market pricing models were used to estimate the fair values of foreign
currency forward contracts. The Company estimates that a 1% change in U.S.
dollar value of the above currencies would result in a $3.8 million change in
the fair value of the related forward exchange contracts at December 31, 1996.
The counterparties to the Company's interest rate swap, currency exchange
and forward exchange contracts are substantial and creditworthy multinational
commercial banks or other financial institutions which are recognized market
makers. Neither the risks of counterparty nonperformance nor the economic
consequences of counterparty nonperformance associated with these contracts are
considered by the Company to be material.
NOTE 8. LEASED ASSETS
Rental expense charged to income follows:
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
- --------------------------------------------------------------
<S> <C> <C> <C>
Gross rental expense $258.4 $281.1 $300.8
Sublease rental income (49.6) (50.0) (51.9)
- --------------------------------------------------------------
Net rental expense $208.8 $231.1 $248.9
==============================================================
</TABLE>
The Company enters into capital and operating leases primarily for its vehicles,
data processing equipment and its wholesale and retail distribution facilities
under varying terms and conditions, including the Company's sublease of some of
its domestic retail distribution network to independent dealers. Many of the
leases provide that the Company will pay taxes assessed against leased property
and the cost of insurance and maintenance.
While substantially all subleases and some operating leases are cancelable
for periods beyond 1997, management expects that in the normal course of its
business nearly all of its independent dealer distribution network will be
actively operated. As leases and subleases for existing locations expire, the
Company would normally expect to renew the leases or substitute another more
favorable retail location.
Estimated minimum future lease payments, net of anticipated sublease
revenue, follow:
<TABLE>
<CAPTION>
CAPITAL OPERATING SUBLEASE
(In millions) LEASES LEASES REVENUE
- ------------------------------------------------------------------------
<S> <C> <C> <C>
1997 $ 2.4 $162.3 $ 44.3
1998 2.3 120.7 38.2
1999 2.3 92.2 31.1
2000 2.1 70.3 22.6
2001 2.0 56.4 14.0
2002 and thereafter 12.5 214.8 25.1
- ------------------------------------------------------------------------
Total $23.6 $716.7 $175.3
- ------------------------------------------------------------------------
Present value of net minimum lease payments $13.0 $544.3
========================================================================
</TABLE>
41
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
NOTE 9. STOCK COMPENSATION PLANS
The Company's 1982 and 1987 Employees' Stock Option Plans and the 1989 Goodyear
Performance and Equity Incentive Plan provide for the granting of stock options
and stock appreciation rights (SARs). For options granted in tandem with SARs,
the exercise of a SAR cancels the stock option; conversely, the exercise of the
stock option cancels the SAR. The 1982 and 1987 Plans expired on December 31,
1986 and April 10, 1989, respectively, except for options and SARs then
outstanding.
The 1989 Plan empowers the Company to grant from time to time to officers
and other key employees of the Company and subsidiaries incentive and
non-qualified stock options, SARs, restricted stock and restricted unit grants,
performance equity and performance unit grants and other stock-based awards
authorized by the Compensation Committee of the Board of Directors, which
administers the 1989 Plan. The 1989 Plan will expire by its terms on December
31, 1998, except with respect to awards then outstanding.
Stock options and related SARs granted during 1996 generally have a maximum
term of ten years and vest over four years. Performance equity units (PEUs)
granted during 1996 are based on cumulative earnings per share over a three year
performance period. To the extent earned, 50% of the PEUs will be paid in cash
(subject to deferral under certain circumstances) and 50% will be automatically
deferred for at least 5 years in the form of units equivalent to shares of the
Company's Common Stock and in each case will be payable in cash, shares of the
Company's Common Stock or a combination thereof at the election of the
participant. Assuming that there will be full utilization of the shares of the
Company's Common Stock available for awards during the term of the 1989 Plan,
and that no other increases or decreases in the number of shares of the
Company's Common Stock outstanding would occur during the term of the 1989 Plan,
approximately 21,500,000 shares of the Company's Common Stock would be available
for the grant of awards through December 31, 1998.
Stock-based compensation activity for the years 1996, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
Shares SARs Shares SARs Shares SARs
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 7,327,626 793,371 7,749,660 782,446 6,838,965 705,834
Options granted 3,388,041 538,780 1,731,725 229,200 1,694,150 211,600
Options without SARs exercised (2,212,106) -- (1,857,190) -- (781,263) --
Options with SARs exercised (189,359) (189,359) (86,325) (86,325) (18,850) (18,850)
SARs exercised (82,700) (82,700) (62,950) (62,950) (96,138) (96,138)
Options without SARs expired (25,113) -- (49,100) -- (21,125) --
Options with SARs expired (7,293) (7,293) (4,700) (4,700) (3,000) (3,000)
SARs expired -- -- (900) (64,300) -- (17,000)
Restricted stock granted -- -- 10,000 -- 1,800 --
Restricted stock issued -- -- (10,000) -- (1,800) --
Performance equity units granted 148,650 -- 8,963 -- 161,250 --
Performance equity shares issued (43,753) -- (64,591) -- -- --
Performance equity units cancelled (26,304) -- (36,966) -- (24,329) --
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31 8,277,689 1,052,799 7,327,626 793,371 7,749,660 782,446
===========================================================================================================================
Exercisable at December 31 3,733,699 361,963 5,033,729 482,296 5,079,369 456,021
===========================================================================================================================
Available for grant at December 31 1,055,957 2,908,914 2,990,448
===========================================================================================================================
</TABLE>
Weighted average option exercise price information for the years 1996, 1995 and
1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at January 1 $33.96 $31.34 $27.43
Granted during the year 47.05 34.75 44.25
Exercised during the year 31.27 29.71 26.23
Outstanding at December 31 40.22 33.96 31.34
Exercisable at December 31 35.25 32.30 26.93
===========================================================================================================================
</TABLE>
Significant option groups outstanding at December 31, 1996 and related weighted
average price and life information follows:
<TABLE>
<CAPTION>
GRANT OPTIONS OPTIONS EXERCISE REMAINING
DATE OUTSTANDING EXERCISABLE PRICE LIFE (YEARS)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/3/96 1,737,951 -- $50.000 10
1/9/96 1,623,290 97,540 44.000 9
1/4/95 1,369,361 363,639 34.750 8
1/4/94 1,357,970 1,357,970 44.250 7
1/5/93 855,385 855,385 34.375 6
All other 1,021,172 997,695 23.710 4
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
Options in the 'All other' category were outstanding at prices ranging from
$11.25 to $45.25. All options and SARs were granted at an exercise price equal
to the fair market value of the Company's common stock at the date of grant.
Weighted average fair values at date of grant for grants in 1996, 1995 and
1994, determined as set forth below, follow:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------
<S> <C> <C> <C>
Options $18.58 $17.17 $19.45
Performance equity units 47.02 34.75 44.25
- ----------------------------------------------------------------
</TABLE>
The above fair value of options at date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------
<S> <C> <C> <C>
Expected life (years) 5 5 5
Interest rate 5.69% 7.80% 5.27%
Volatility 33.6 43.0 40.9
Dividend yield 1.65 2.34 2.70
- ----------------------------------------------------------------
</TABLE>
The fair value of performance equity units at date of grant was equal to the
market value of the Company's common stock at that date.
Stock-based compensation costs reduced (increased) income as follows:
<TABLE>
<CAPTION>
(In millions, except per share) 1996 1995 1994
- ----------------------------------------------------------------
<S> <C> <C> <C>
Pretax income $6.8 $8.7 $(3.4)
Net income 4.1 5.2 (2.1)
Net income per share .03 .03 (.01)
- ----------------------------------------------------------------
</TABLE>
Stock-based compensation costs would have been increased by $12.5 million ($10.7
million after tax or $.07 per share) in 1996 and $6.0 million ($5.2 million
after tax or $.03 per share) in 1995 had the fair values of options and the
stock-based portion of performance equity units granted in those years been
recognized as compensation expense on a straight line basis over the vesting
period of the grant. The pro forma effect on net income for 1996 and 1995 is not
representative of the pro forma effect on net income in future years because it
does not take into consideration pro forma compensation expense related to
grants made prior to 1995.
NOTE 10. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company and its subsidiaries provide substantially all domestic associates
and associates at certain international subsidiaries with health care and life
insurance benefits upon retirement. The life insurance and certain health care
benefits are provided by insurance companies through premiums based on expected
benefits to be paid during the year. Substantial portions of the health care
benefits for domestic retirees are not insured and are paid by the Company.
Net periodic benefit cost follows:
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 22.9 $ 21.2 $ 23.6
Interest cost 155.2 152.7 144.0
Net amortization 5.0 (1.7) (1.5)
- -------------------------------------------------------------------------------------
Net periodic benefit cost $183.1 $172.2 $166.1
- -------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the funded status and amounts recognized on the
Company's Consolidated Balance Sheet at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(In millions) 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated
benefit obligation:
Retirees $(1,303.4) $(1,255.4)
Vested active plan participants (516.4) (473.2)
Other active plan participants (259.1) (270.1)
- --------------------------------------------------------------------
Accumulated benefit obligation in excess
of plan assets (2,078.9) (1,998.7)
Unrecognized net loss 286.2 215.8
Unrecognized prior service cost 6.1 7.7
====================================================================
Accrued benefit cost recognized
on the Consolidated Balance Sheet $(1,786.6) $(1,775.2)
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------
Assumptions: U.S. International U.S. International
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Discount rate 7.75% 5.0% - 8.5% 7.75% 5.0% - 9.0%
Rate of increase
in compensation levels 4.5 2.5 - 5.75 4.5 2.5 - 5.75
- ------------------------------------------------------------------------------
</TABLE>
An 8.25% annual rate of increase in the cost of health care benefits for
retirees under 65 years of age and a 6.0% annual rate of increase for retirees
65 years and older is assumed in 1997. This rate gradually decreases to 5% in
2010 and remains at that level thereafter. To illustrate the significance of a
1% increase in the assumed health care cost trend, the accumulated benefit
obligation would increase by $24.2 million at December 31, 1996, and the
aggregate service and interest cost by $2.4 million for the year then ended.
43
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
NOTE 11. PENSIONS
The Company and its subsidiaries provide substantially all associates with
pension benefits. The principal domestic hourly plan provides benefits based on
length of service. The principal domestic plans covering salaried associates
provide benefits based on career average earnings formulas. Associates making
voluntary contributions to these plans receive higher benefits. Other plans
provide benefits similar to the principal domestic plans as well as termination
indemnity plans at certain international subsidiaries.
The Company's domestic funding practice since 1993 has been to fund amounts
in excess of the requirements of Federal laws and regulations. During the four
years ended December 31, 1996, the Company funded $646.3 million to its domestic
pension plans, which were fully funded at that date.
Net periodic pension cost follows:
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 92.7 $ 83.2 $ 91.8
Interest cost on projected benefit obligations 237.2 221.1 202.6
Actual return on plan assets (402.9) (427.8) (.9)
Net amortization and deferrals 208.0 279.3 (125.3)
- ---------------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 135.0 $ 155.8 $ 168.2
===========================================================================================================================
</TABLE>
The following table sets forth the funded status and amounts recognized on
the Company's Consolidated Balance Sheet at December 31, 1996 and 1995. At the
end of 1996 and 1995, assets exceeded accumulated benefits in certain plans and
accumulated benefits exceeded assets in others. Plan assets are invested
primarily in common stocks and fixed income securities.
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
(In millions) Benefits Exceed Assets Benefits Exceed Assets
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(2,463.6) $(225.7) $(2,283.5) $(232.3)
- -----------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation $(2,709.4) $(270.6) $(2,500.0) $(268.6)
- -----------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation $(2,838.8) $(340.0) $(2,626.4) $(332.1)
Plan assets 3,021.4 60.8 2,643.1 59.2
- -----------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation less than (in excess of) plan assets 182.6 (279.2) 16.7 (272.9)
Unrecognized net (gain) loss (1.6) 79.2 108.2 61.3
Unrecognized prior service cost 344.6 (.6) 378.0 (1.7)
Unrecognized net (asset) obligation at transition (7.3) 21.7 (8.2) 27.0
Adjustment required to recognize minimum liability -- (55.0) -- (50.0)
- -----------------------------------------------------------------------------------------------------------------------------
Pension asset (liability) recognized on the Consolidated Balance Sheet $ 518.3 $(233.9) $ 494.7 $(236.3)
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
Assumptions: U.S. International U.S. International U.S. International
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.75% 3.0% - 12.0% 7.75% 3.0% - 12.0% 8.5% 2.0% - 12.0%
Rate of increase in compensation levels 4.5 0 - 10.5 4.5 0 - 10.5 4.5 0 - 10.5
Expected long term rate of return on plan assets 9.0 5.0 - 12.0 9.0 5.0 - 12.0 9.0 5.5 - 12.0
==================================================================================================================================
</TABLE>
For plans that are not fully funded, the Company is required to offset the
adjustment required to recognize minimum liability on the Consolidated Balance
Sheet with an intangible asset, up to the amount of unrecognized prior service
cost plus unrecognized obligations at transition that remain at December 31 of
each year. Liability amounts in excess of these two items are offset by a
separate reduction in Shareholders' Equity, net of tax. Accordingly,
Shareholders' Equity was reduced by $31.0 million at December 31, 1996, compared
to $26.3 million at December 31, 1995.
Certain international subsidiaries maintain unfunded plans consistent with
local practices and requirements and at December 31, 1996, these plans accounted
for $76.6 million of the Company's accumulated benefit obligation, $88.2 million
of its projected benefit obligation and $23.4 million of its minimum pension
liability adjustment ($102.4 million, $120.4 million and $16.5 million,
respectively, at December 31, 1995).
44
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
NOTE 12. EMPLOYEES' SAVINGS PLANS
Substantially all domestic associates are eligible to participate in one of the
Company's six savings plans. Under these plans associates elect to contribute a
percentage of their pay. In 1996, most plans provided for the Company's matching
of these contributions (up to a maximum of 6% of the associate's annual pay or,
if less, $9,500) at the rate of 50%. Company contributions were $38.0 million,
$38.2 million and $31.7 million for 1996, 1995 and 1994, respectively.
NOTE 13. INTEREST EXPENSE
Interest expense includes interest and amortization of debt discount and expense
less amounts capitalized as follows:
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense before capitalization $134.0 $140.1 $135.1
Less capitalized interest 5.4 5.1 5.7
- -------------------------------------------------------------------------
$128.6 $135.0 $129.4
=========================================================================
</TABLE>
The Company made cash payments for interest in 1996, 1995 and 1994 of $141.0
million, $136.4 million and $147.6 million, respectively.
NOTE 14. ADVERTISING COSTS
Advertising costs for 1996, 1995 and 1994 were $249.8 million, $246.7 million
and $248.2 million, respectively.
NOTE 15. INCOME TAXES
The components of Income before Income Taxes, adjusted for Minority Interest in
Net Income of Subsidiaries, follow:
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $(569.0) $271.4 $294.4
Foreign 691.3 654.4 571.3
- ------------------------------------------------------------------------------------
122.3 925.8 865.7
Minority Interest in Net Income of Subsidiaries 43.1 36.2 23.8
- ------------------------------------------------------------------------------------
$165.4 $962.0 $889.5
====================================================================================
</TABLE>
A reconciliation of Federal income taxes at the U.S. statutory rate to income
taxes provided follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1996 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Federal income tax at the
statutory rate of 35% $ 57.9 $336.7 $311.3
Adjustment for foreign income taxed
at different rates (23.7) (21.3) (20.9)
Other (13.6) (.6) 8.3
- ---------------------------------------------------------------------------
United States and Foreign Taxes on Income $ 20.6 $314.8 $298.7
===========================================================================
Effective tax rate 12.5% 32.7% 33.6%
===========================================================================
</TABLE>
The components of the provision for income taxes by taxing jurisdiction follow:
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 23.5 $ 42.1 $ 51.2
Foreign income and withholding taxes 230.4 219.3 169.9
State 5.2 (4.6) (22.2)
- ---------------------------------------------------------------------------
259.1 256.8 198.9
Deferred:
Federal (254.1) 19.8 74.6
Foreign 20.3 32.9 7.9
State (4.7) 5.3 17.3
- ---------------------------------------------------------------------------
(238.5) 58.0 99.8
- ---------------------------------------------------------------------------
United States and Foreign Taxes on Income $ 20.6 $314.8 $298.7
===========================================================================
</TABLE>
Temporary differences and carryforwards which give rise to deferred tax assets
and liabilities at December 31, 1996 and 1995 follow:
<TABLE>
<CAPTION>
(In millions) 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Postretirement benefits other than pensions $ 700.4 $ 687.2
Accrued environmental liabilities 38.2 38.2
General and product liability 56.5 70.4
Alternative minimum tax credit carryforwards 55.0 94.9
Operating loss carryforwards 19.8 18.6
Workers' compensation 54.8 64.3
Vacation and sick pay 73.0 74.3
Other 126.6 115.3
- ---------------------------------------------------------------------------
1,124.3 1,163.2
Valuation allowance (21.4) (29.7)
- ---------------------------------------------------------------------------
Total deferred tax assets 1,102.9 1,133.5
Total deferred tax liabilities - depreciation (445.6) (711.3)
- pensions (184.8) (190.8)
- ---------------------------------------------------------------------------
Total deferred taxes $ 472.5 $ 231.4
===========================================================================
</TABLE>
The decrease in the deferred tax liability for depreciation was due primarily to
the writedown of the All American Pipeline System and related assets. Refer to
Note 2.
The Company made net cash payments for income taxes in 1996, 1995 and 1994
of $238.5 million, $243.8 million and $234.6 million, respectively.
No provision for Federal income tax or foreign withholding tax on retained
earnings of international subsidiaries of $1,785.0 million is required because
this amount has been or will be reinvested in properties and plants and working
capital. It is not practicable to calculate the deferred taxes associated with
the remittance of these investments.
NOTE 16. RESEARCH AND DEVELOPMENT
Research and development costs for 1996, 1995 and 1994 were $374.5 million,
$369.3 million and $341.3 million, respectively.
45
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
NOTE 17. BUSINESS SEGMENTS
The Tires segment is the principal industry segment, which involves the
development, manufacture, distribution and sale of tires and related products in
original equipment and replacement markets throughout most regions of the world.
Related products and services include tubes, retreads, automotive repair
services and merchandise purchased for resale.
The General products segment involves the manufacture and sale of various
engineered rubber and chemical products throughout most regions of the world,
principally in the U.S., Latin America and Europe. These products include belts,
hose, molded products, foam cushioning accessories, tank tracks, organic
chemicals used in rubber and plastic processing, synthetic rubber and rubber
latices and other products.
The Oil transportation segment consists primarily of the All American
Pipeline System, a common carrier crude oil pipeline extending from California
to Texas. This segment, which also includes a crude oil gathering pipeline in
California, crude oil storage facilities, linefill and related assets, also
engages in various crude oil gathering, purchasing and selling activities.
Segment sales consist of tariffs charged by the All American Pipeline System and
revenues, net of acquisition costs, resulting from various crude oil gathering,
purchasing and selling activities. Acquisition costs associated with these
activities amounted to $808 million, $496 million and $598 million for 1996,
1995 and 1994, respectively.
Operating income for each industry and geographic segment consists of total
revenues less applicable costs and expenses. Transfers between industry segments
were not material. Inter-geographic sales were at cost plus a negotiated mark
up.
Portions of the items describe in Note 2, Asset Writedown and Other
Rationalizations were charged to the operating income of both the industry and
geographic segments in 1996 as follows:
INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
GENERAL OIL
(In millions) TIRES PRODUCTS TRANSPORTATION TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset writedown $ -- $ -- $755.6 $755.6
Rationalizations and other provisions 131.9 16.6 -- 148.5
Asset sales -- 10.2 -- 10.2
- ---------------------------------------------------------------------------------------------------------------------------
$131.9 $26.8 $755.6 $914.3
===========================================================================================================================
</TABLE>
GEOGRAPHIC SEGMENTS
<TABLE>
<CAPTION>
UNITED LATIN
(In millions) STATES EUROPE AMERICA ASIA CANADA TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Asset writedown $755.6 $ -- $ -- $ -- $ -- $755.6
Rationalizations and other provisions 79.5 29.4 24.0 1.8 13.8 148.5
Asset sales 10.2 -- -- -- -- 10.2
- ---------------------------------------------------------------------------------------------------------------------------
$845.3 $29.4 $24.0 $1.8 $13.8 $914.3
===========================================================================================================================
</TABLE>
The following items have been excluded from the determination of operating
income: interest expense, foreign currency exchange, equity in net income of
affiliates, minority interest in net income of subsidiaries, corporate revenues
and expenses and income taxes. Corporate revenues and expenses were those items
not identifiable with the operations of a segment. Corporate revenues were
primarily from the sale of miscellaneous assets. Corporate expenses were
primarily central administrative expenses.
Identifiable assets of industry and geographic segments represent those
assets that were associated with the operations of each segment. Corporate
assets consist of cash and cash equivalents, prepaid expenses and other current
assets, long term accounts and notes receivable, deferred charges and other
assets. At December 31, 1996, $99.8 million or 39.3% ($110.2 million or 40.4% at
December 31, 1995) of the Company's cash, cash equivalents and short term
securities were concentrated in Latin America, primarily Brazil, and
additionally in 1995, in Venezuela.
Dividends received by the Company and domestic subsidiaries from its
international operations for 1996, 1995 and 1994 were $158.7 million, $139.0
million and $151.8 million, respectively.
46
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to Unaffiliated Customers
Tires $10,113.5 $10,104.5 $ 9,427.6
Related products and services 1,090.8 1,157.8 1,080.6
- ---------------------------------------------------------------------------------------------------------------------------
Total Tires 11,204.3 11,262.3 10,508.2
General products 1,781.3 1,776.8 1,700.9
Oil transportation 127.2 126.8 79.1
- ---------------------------------------------------------------------------------------------------------------------------
Net Sales $13,112.8 $13,165.9 $12,288.2
===========================================================================================================================
Income (loss)
Tires $ 893.3 $ 1,000.2 $ 1,010.6
General products 162.9 165.6 170.9
Oil transportation (689.8) 55.3 11.8
- ---------------------------------------------------------------------------------------------------------------------------
Total operating income 366.4 1,221.1 1,193.3
Interest expense (128.6) (135.0) (129.4)
Foreign currency exchange (7.4) (17.4) (77.6)
Equity in net income of affiliates 19.1 19.0 25.7
Minority interest in net income of subsidiaries (43.1) (36.2) (23.8)
Corporate revenues and expenses (84.1) (125.7) (122.5)
- ---------------------------------------------------------------------------------------------------------------------------
Income before Income Taxes $ 122.3 $ 925.8 $ 865.7
===========================================================================================================================
Assets
Tires $ 6,270.6 $ 6,050.8 $ 5,386.2
General products 815.1 791.7 740.9
Oil transportation 605.6 1,356.3 1,398.6
- ---------------------------------------------------------------------------------------------------------------------------
Total identifiable assets 7,691.3 8,198.8 7,525.7
Corporate assets 1,840.2 1,407.0 1,464.2
Investments in affiliates, at equity 140.3 183.8 133.4
- ---------------------------------------------------------------------------------------------------------------------------
Assets at December 31 $ 9,671.8 $ 9,789.6 $ 9,123.3
===========================================================================================================================
Capital Expenditures
Tires $ 500.6 $ 494.5 $ 425.4
General products 112.9 116.4 90.2
Oil transportation 4.0 4.7 7.4
- ---------------------------------------------------------------------------------------------------------------------------
For the year $ 617.5 $ 615.6 $ 523.0
===========================================================================================================================
Depreciation
Tires $ 351.6 $ 329.6 $ 309.4
General products 63.1 59.1 55.1
Oil transportation 46.1 46.2 45.8
- ---------------------------------------------------------------------------------------------------------------------------
For the year $ 460.8 $ 434.9 $ 410.3
===========================================================================================================================
</TABLE>
47
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
GEOGRAPHIC SEGMENTS
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to Unaffiliated Customers
United States $ 7,009.9 $ 7,249.6 $ 7,130.5
Europe 3,059.8 2,853.7 2,279.8
Latin America 1,527.5 1,542.9 1,512.5
Asia 845.4 833.2 711.6
Canada 670.2 686.5 653.8
- ---------------------------------------------------------------------------------------------------------------------------
Net Sales $13,112.8 $13,165.9 $12,288.2
===========================================================================================================================
Inter-Geographic Sales
United States $ 359.3 $ 408.4 $ 373.9
Europe 59.2 90.1 92.5
Latin America 170.2 172.5 159.2
Asia 674.1 815.9 490.7
Canada 316.8 297.3 269.1
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 1,579.6 $ 1,784.2 $ 1,385.4
===========================================================================================================================
Revenue
United States $ 7,369.2 $ 7,658.0 $ 7,504.4
Europe 3,119.0 2,943.8 2,372.3
Latin America 1,697.7 1,715.4 1,671.7
Asia 1,519.5 1,649.1 1,202.3
Canada 987.0 983.8 922.9
Adjustments and eliminations (1,579.6) (1,784.2) (1,385.4)
- ---------------------------------------------------------------------------------------------------------------------------
Total $13,112.8 $13,165.9 $12,288.2
===========================================================================================================================
Operating Income
United States $ (296.7) $ 543.9 $ 591.5
Europe 302.0 317.2 212.0
Latin America 246.0 238.8 278.2
Asia 99.3 90.1 81.3
Canada 15.8 31.1 30.3
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 366.4 $ 1,221.1 $ 1,193.3
===========================================================================================================================
Assets
United States $ 3,915.6 $ 4,703.6 $ 4,478.4
Europe 1,800.0 1,719.9 1,452.5
Latin America 765.1 683.0 637.6
Asia 688.6 576.9 490.3
Canada 522.0 515.4 466.9
- ---------------------------------------------------------------------------------------------------------------------------
Total identifiable assets 7,691.3 8,198.8 7,525.7
Corporate assets 1,840.2 1,407.0 1,464.2
Investments in affiliates, at equity 140.3 183.8 133.4
- ---------------------------------------------------------------------------------------------------------------------------
Assets at December 31 $ 9,671.8 $ 9,789.6 $ 9,123.3
===========================================================================================================================
</TABLE>
48
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
NOTE 18. COMMITMENTS
AND CONTINGENT LIABILITIES
At December 31, 1996, the Company had binding commitments for investments in
land, buildings and equipment of $119.9 million and off-balance-sheet financial
guarantees written of $77.4 million.
At December 31, 1996, the Company had recorded liabilities aggregating
$92.6 million for anticipated costs, including legal and consulting fees, site
studies, the design and implementation of remediation plans, post-remediation
monitoring and related activities, related to various environmental matters,
primarily the remediation of numerous waste disposal sites and certain
properties sold by the Company. The Company had recorded $91.4 million for such
costs at December 31, 1995. The amount of the Company's ultimate liability in
respect of these matters may be affected by several uncertainties, primarily the
ultimate cost of required remediation and the extent to which other responsible
parties contribute, and is expected to be paid over several years. Refer to Note
1, Accounting Policies, Environmental Cleanup Matters for additional
information.
At December 31, 1996, the Company had recorded liabilities aggregating
$165.3 million for potential product liability and other tort claims, including
related legal fees expected to be incurred, presently asserted against the
Company. The Company had recorded $191.4 million for such matters at December
31, 1995. The amount recorded was determined on the basis of an assessment of
potential liability using an analysis of pending claims, historical experience
and current trends. The Company has concluded that in respect of any of the
above described liabilities, it is not reasonably possible that it would incur a
loss exceeding the amount already recognized with respect thereto which would
materially affect the Company's financial condition, results of operations or
liquidity.
The Company is a party to several related lawsuits involving employment
matters. There exists a reasonable possibility that the Company will not prevail
in these cases. Although sufficient uncertainties exist in these cases to
prevent the Company from determining the amount of its liability, if any, the
ultimate exposure is not expected to exceed $85 million at December 31, 1996.
Various other legal actions, claims and governmental investigations and
proceedings covering a wide range of matters are pending against the Company and
its subsidiaries. Management, after reviewing available information relating to
such matters and consulting with the Company's General Counsel, has determined
with respect to each such matter either that it is not reasonably possible that
the Company has incurred liability in respect thereof or that any liability
ultimately incurred will not exceed the amount, if any, recorded at December 31,
1996 in respect thereof which would be material relative to the consolidated
financial position, results of operations or liquidity of the Company. However,
in the event of an unanticipated adverse final determination in respect of
certain matters, the Company's consolidated net income for the period in which
such determination occurs could be materially affected.
49
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------
The Goodyear Tire & Rubber Company and Subsidiaries
NOTE 19. PREFERRED STOCK PURCHASE RIGHTS PLAN
In 1986, the Company authorized 3,000,000 shares of Series A $10.00 Preferred
Stock ("Series A Preferred") issuable only upon the exercise of rights (the
"1986 Rights") issued under the Preferred Stock Purchase Rights Plan adopted in
July 1986. The 1986 Rights expired without being exercisable on July 28, 1996,
and no shares of Series A Preferred were issued.
In June 1996, the Company authorized 7,000,000 shares of Series B Preferred
Stock ("Series B Preferred") issuable only upon the exercise of rights (the
"1996 Rights") issued under the Preferred Stock Purchase Rights Plan adopted on,
and set forth in the Rights Agreement dated, June 4, 1996. Each share of Series
B Preferred issued would be non-redeemable, non-voting and entitled to (i)
cumulative quarterly dividends equal to the greater of $25.00 or, subject to
adjustment, 100 times the per year amount of dividends declared on the Common
Stock during the preceding quarter and (ii) a liquidation preference.
Under the 1996 Rights Plan, each shareholder of record on July 29, 1996
received a dividend of one 1996 Right per share of the Common Stock. Each 1996
Right, when exercisable, will entitle the registered holder thereof to purchase
from the Company one one-hundredth of a share of Series B Preferred Stock of the
Company at a price of $250 (the "Purchase Price"), subject to adjustment. The
Rights will expire on July 29, 2006, unless earlier redeemed at $.001 per Right.
The 1996 Rights will be exercisable only in the event that an acquiring person
or group purchases, or makes -- or announces its intention to make -- a tender
offer for, 15% or more of the Common Stock. In the event that any acquiring
person or group acquires 15% or more of the Common Stock, each 1996 Right will
entitle the holder to purchase that number of shares of Common Stock (or in
certain circumstances, other securities, cash or property) which at the time of
such transaction would have a market value of two times the Purchase Price.
If the Company is acquired or a sale or transfer of 50% or more of the
Company's assets or earnings power is made after the Rights become exercisable,
each Right (except those held by an acquiring person or group) will entitle the
holder to purchase common stock of the acquiring entity having a market value
then equal to two times the Purchase Price. In addition, when exercisable the
Rights under certain circumstances may be exchanged by the Company at the ratio
of one share of Common Stock (or the equivalent thereof in other securities,
property or cash) per Right, subject to adjustment.
50
<PAGE> 53
SUPPLEMENTARY DATA (UNAUDITED)
- ------------------
The Goodyear Tire & Rubber Company and Subsidiaries
QUARTERLY DATA AND MARKET PRICE INFORMATION
(In millions, except per share)
<TABLE>
<CAPTION>
Quarter
-------------------------------------------------------------
1996 First Second Third Fourth Year
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $3,245.5 $3,329.5 $3,267.7 $3,270.1 $13,112.8
Gross Profit 764.3 795.2 758.9 767.7 3,086.1
Net Income $ 151.8 $ 187.9 $ 170.2 $ (408.2) $ 101.7
===========================================================================================================================
Net Income Per Share $ .98 $ 1.22 $ 1.09 $ (2.63) $ .66
===========================================================================================================================
Average Shares Outstanding 154.3 155.1 155.3 155.7 155.1
Price Range of Common Stock:*
High $ 53 $ 53 $ 49 1/8 $ 52 1/4 $ 53
Low 42 3/4 46 7/8 41 1/2 43 1/8 41 1/2
Dividends Per Share .25 .25 .25 .28 1.03
===========================================================================================================================
</TABLE>
The 1996 fourth quarter included a net after-tax charge of $572.2 million or
$3.68 per share from the writedown of the All American Pipeline System and
related assets and other rationalizations.
<TABLE>
<CAPTION>
Quarter
-------------------------------------------------------------
1995 First Second Third Fourth Year
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 3,243.3 $ 3,350.8 $ 3,305.1 $ 3,266.7 $ 13,165.9
Gross Profit 755.9 800.2 746.7 769.5 3,072.3
Net Income $ 133.3 $ 173.8 $ 157.5 $ 146.4 $ 611.0
===========================================================================================================================
Net Income Per Share $ .88 $ 1.15 $ 1.03 $ .96 $ 4.02
===========================================================================================================================
Average Shares Outstanding 151.5 151.7 152.3 152.9 152.1
Price Range of Common Stock:*
High $ 38 3/4 $ 43 3/8 $ 45 1/8 $ 47 1/2 $ 47 1/2
Low 33 36 5/8 38 1/8 37 33
Dividends Per Share .20 .25 .25 .25 .95
===========================================================================================================================
<FN>
*New York Stock Exchange - Composite Transactions
</TABLE>
51
<PAGE> 54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE. None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by Item 401 of Regulation S-K in respect of directors
of Registrant is, pursuant to General Instruction G(3) to Form 10-K,
incorporated herein by specific reference to the text set forth under the
caption "Election of Directors" at pages 3 through 6, inclusive, of Registrant's
Proxy Statement, dated February 26, 1997, for its Annual Meeting of Shareholders
to be held on April 14, 1997 (the "Proxy Statement"). For information regarding
the executive officers of Registrant, reference is made to Part I, Item 4(A), at
pages 16 through 21, inclusive, of this Annual Report.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on a review of copies of reports on Forms 3, 4 and 5 received
by Registrant, or on written representations from certain directors and officers
that no updating Section 16(a) forms were required to be filed by them,
Registrant believes that no director or officer of Registrant filed a late
report or failed to file a required report under Section 16(a) of the Exchange
Act during or in respect of the year ended December 31, 1996 except that Mr. D.
E. Dick, a Vice President of Registrant, filed an amendment, dated January 8,
1997, to his Form 3 dated November 6, 1996 to correct an administrative error in
the initial reporting of his holdings of the Common Stock of Registrant. To the
knowledge of Registrant, no person owned 10% or more of any class of
Registrant's equity securities registered under the Exchange Act.
ITEM 11. EXECUTIVE COMPENSATION.
Information required by Item 402 of Regulation S-K in respect of
management of Registrant is, pursuant to General Instruction G(3) to Form 10-K,
incorporated herein by specific reference to the text set forth in the Proxy
Statement under the caption "Executive Officer Compensation", at pages 14
through 23, inclusive, of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required by Item 403 of Regulation S-K relating to the
ownership of Registrant's Common Stock by certain beneficial owners and
management is, pursuant to General Instruction G(3) to Form 10-K, incorporated
herein by specific reference to the text set forth in the Proxy Statement under
the caption "Beneficial Ownership of Common Stock" at pages 12 and 13 of the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by Item 404 of Regulation S-K relating to certain
transactions by and relationships of management is, pursuant to General
Instruction G(3) to Form 10-K, incorporated herein by specific reference to the
text set forth in the Proxy Statement under the caption "Executive Officer
Compensation" at pages 14 through 23, inclusive, of the Proxy Statement.
52
<PAGE> 55
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
A. LIST OF DOCUMENTS FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS: See Index on page 30 of this Annual Report.
2. FINANCIAL STATEMENT SCHEDULES: See Index To Financial Statement
Schedules attached to this Annual Report at page FS-1. The Financial Statement
Schedule at page FS-1 is by specific reference hereby incorporated into and made
a part of this Annual Report.
3. EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION S-K: See the
Index of Exhibits at pages X-1 through X-7, inclusive, which is by specific
reference hereby incorporated into and made a part of this Annual Report. The
following exhibits, each listed in the Index of Exhibits, are or relate to
compensation plans and arrangements of Registrant:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION FILED AS EXHIBIT
------- ----------- ----------------
<S> <C> <C>
10(a) 1997 Performance Incentive Plan of 10.1 to this Annual Report
The Goodyear Tire & Rubber Company on Form 10-K
10(b) Form of Performance Equity Grant 10.2 to this Annual Report
Agreement for 1994 under 1989 Plan on Form 10-K
(as amended December 3, 1996)
10(c) 1995 Performance Recognition Plan E to Form 10-K for year
ended December 31, 1994
10(d) Performance Recognition Plan 10.1 to Form 10-K for year
adopted as of January 1, 1996 ended December 31, 1995
10(e) Form of Stock Option Grant Agreement E to Form 8-K dated
under 1989 Plan February 17, 1993
10(f) Forms of Stock Option Grant Agreements 10.3 to this Annual Report
under 1989 Plan in respect of options and on Form 10-K
SARs granted December 3, 1996
10(g) Form of Stock Option Grant Agreement G to Form 10-K for year
under 1989 Plan in respect of options ended December 31, 1993
granted January 4, 1994
10(h) 1987 Employees' Stock Option Plan B to Form 10-Q for quarter
ended March 31, 1987
10(i) 1989 Goodyear Performance and Equity A to Form 10-Q for quarter
Incentive Plan ("1989 Plan") ended March 31, 1989
10(j) Goodyear Supplementary Pension Plan A to Form 10-Q for quarter
(as amended) ended March 31, 1990
10(k) Form of Performance Equity Grant 10.4 to this Annual Report
Agreement for 1995 under 1989 Plan on Form 10-K
(as amended December 3, 1996)
10(l) Retirement Plan for Outside Directors F to Form 8-K dated
(as amended) March 20, 1987
10(m) Goodyear Employee Severance Plan A-II to Form 10-K for year
ended December 31, 1988
</TABLE>
53
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION FILED AS EXHIBIT
------- ----------- -----------------
<S> <C> <C>
10(n) Form of Performance Equity Grant 10.5 to this Annual Report
Agreement for 1996 under 1989 Plan on Form 10-K
(as amended December 3, 1996)
10(o) Form of Performance Equity Grant 10.6 to this Annual Report
Agreement for 1997 under 1989 Plan on Form 10-K
10(p) Forms of Stock Option Grant Agreements G to Form 10-K for year
under 1989 Plan in respect of options and ended December 31, 1994
SARs granted January 4, 1995
10(r) Employment Agreement and related Stock C to Form 10-Q for quarter
Purchase Agreement, each dated August 6, ended June 30, 1991
1991, between Registrant and S. C. Gault
10(s) Amendment, dated December 3, 1991, to A to Form 8-K
Stock Purchase Agreement, dated August 6, dated December 18, 1991
1991, between Registrant and S. C. Gault
10(t) Amendment, dated April 5, 1993, to C to Form 8-K
Employment Agreement and to Stock dated April 22, 1993
Purchase Agreement, each dated
August 6, 1991, between Registrant
and S. C. Gault
10(u) Deferred Compensation Plan for Executives B to Form 10-Q for quarter
ended September 30, 1994
10(v) 1994 Restricted Stock Award Plan for B to Form 10-Q for quarter
Non-employee Directors ended June 30, 1994
10(w) Amendment, dated May 3, 1994, to A to Form 10-Q for quarter
Employment Agreement and to Stock ended June 30, 1994
Purchase Agreement, each dated August 6,
1991, between Registrant and S. C. Gault
10(x) Forms of Stock Option Grant Agreements 10.3 to Form 10-K for year
under 1989 Plan in respect of options and ended December 31, 1995
SARs granted January 9, 1996
10(y) Amendment Agreement, dated as of 10.4 to Form 10-K for year
December 5, 1995, relating to Stock ended December 31, 1995
Purchase Agreement dated August 6,
1991, between Registrant and S. C. Gault
10(z) Outside Directors' Equity 10.5 to Form 10-K for year
Participation Plan ended December 31, 1995
</TABLE>
B. REPORTS ON FORM 8-K:
No Current Report on Form 8-K was filed by Registrant with the Securities
and Exchange Commission during the quarter ended December 31, 1996.
54
<PAGE> 57
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS ANNUAL REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
<TABLE>
<S> <C> <C>
THE GOODYEAR TIRE & RUBBER COMPANY
(Registrant)
Date: March 24, 1997 By /s/ SAMIR G. GIBARA
-------------------------------------------------------
Samir G. Gibara, Chairman of the Board, Chief Executive
Officer and President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS ANNUAL REPORT HAS BEEN SIGNED BELOW
BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Date: March 24, 1997 /s/ SAMIR G. GIBARA
-------------------------------------------------------
Samir G. Gibara, Chairman of the Board, Chief
Executive Officer and President and Director
(Principal Executive Officer)
Date: March 24, 1997 /s/ ROBERT W. TIEKEN
-------------------------------------------------------
Robert W. Tieken, Executive Vice President
(Principal Financial Officer)
Date: March 24, 1997 /s/ JOHN W. RICHARDSON
-------------------------------------------------------
John W. Richardson, Vice President
(Principal Accounting Officer)
( JOHN G. BREEN, Director )
( WILLIAM E. BUTLER, Director )
( THOMAS H. CRUIKSHANK, Director )
( WILLIAM J. HUDSON, JR., Director ) By /s/ ROBERT W. TIEKEN
Date: March 24, 1997 < GERTRUDE G. MICHELSON, Director > ----------------------------
( STEVEN A. MINTER, Director ) Robert W. Tieken, Signing as
( AGNAR PYTTE, Director ) Attorney-in-Fact for the directors
( GEORGE H. SCHOFIELD, Director ) whose names appear opposite.
( WILLIAM C. TURNER, Director )
Martin D. Walker, Director
</TABLE>
A Power of Attorney, dated December 3, 1996, authorizing Robert W. Tieken
to sign this Annual Report on Form 10-K for the fiscal year ended December 31,
1996 on behalf of certain of the directors of the Registrant is filed as Exhibit
24 to this Annual Report.
55
<PAGE> 58
FINANCIAL STATEMENT SCHEDULES
ITEMS 8 AND 14(a)(2) OF FORM 10-K
FOR CORPORATIONS
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------
INDEX TO FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES:
<TABLE>
<CAPTION>
SCHEDULE NO. PAGE NUMBER
-------------- --------------
<S> <C> <C>
Valuation and Qualifying Accounts ............................. II FS-1
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
Financial statements and schedules relating to 50 percent or less owned
companies, the investments in which are accounted for by the equity method, have
been omitted as permitted because, considered in the aggregate as a single
subsidiary, these companies would not constitute a significant subsidiary.
================================================================================
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31,
================================================================================
<TABLE>
<CAPTION>
(IN MILLIONS) 1996
- ---------------------------------------------------------------------------------------------------------------------------
ADDITIONS TRANSLATION
BALANCE AT CHARGED DEDUCTIONS ADJUSTMENT BALANCE
BEGINNING (CREDITED) FROM DURING AT END OF
DESCRIPTION OF PERIOD TO INCOME RESERVES PERIOD PERIOD
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deducted from accounts and notes receivable:
For doubtful accounts........................ $ 56.2 $ 19.3 $ (18.9)(a) $ 1.5 $ 58.1
Valuation allowance -- deferred
tax assets................................... 29.7 (8.3) -- -- 21.4
1995
- ---------------------------------------------------------------------------------------------------------------------------
Deducted from accounts and notes receivable:
For doubtful accounts........................ $ 54.0 $ 19.5 $ (17.5)(a) $ .2 $ 56.2
Valuation allowance -- deferred
tax assets................................... 68.9 (34.7) (4.5) -- 29.7
1994
- ---------------------------------------------------------------------------------------------------------------------------
Deducted from accounts and notes receivable:
For doubtful accounts........................ $ 50.6 $ 26.5 $ (23.3)(a) $ .2 $ 54.0
Valuation allowance -- deferred
tax assets................................... 96.4 (27.1) (.4) -- 68.9
- ----------
<FN>
Note:(a) Accounts and notes receivable charged off.
</TABLE>
FS-1
<PAGE> 59
THE GOODYEAR TIRE & RUBBER COMPANY
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 1996
INDEX OF EXHIBITS(1)
<TABLE>
<CAPTION>
EXHIBIT
TABLE
ITEM EXHIBIT
NO. (2) DESCRIPTION OF EXHIBIT NUMBER PAGE
------- ---------------------- ------ ----
<S> <C> <C> <C>
3 ARTICLES OF INCORPORATION AND BY-LAWS
(a) Certificate of Amended Articles of Incorporation of The Goodyear
Tire & Rubber Company, dated December 20, 1954, and Certificate
of Amendment to Amended Articles of Incorporation of The
Goodyear Tire & Rubber Company, dated April 6, 1993, and
Certificate of Amendment to Amended Articles of Incorporation of
Registrant dated June 4, 1996, three documents comprising
Registrant's Articles of Incorporation as amended through
March 24, 1997 (incorporated by reference, filed with the
Securities and Exchange Commission as Exhibit 3.1 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, File No. 1-1927).
(b) Code of Regulations of The Goodyear Tire & Rubber Company,
adopted November 22, 1955, and amended April 5, 1965, April 7,
1980, April 6, 1981 and April 13, 1987 (incorporated by
reference, filed with the Securities and Exchange Commission as
Exhibit 4.1(B) to Registrant's Registration Statement on Form
S-3, File No. 333-1955).
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
(a) Conformed copy of Rights Agreement, dated as of June 4, 1996,
between Registrant and First Chicago Trust Company of New York,
Rights Agent (incorporated by reference, filed with the
Securities and Exchange Commission as Exhibit 1 to Registrant's
Registration Statement on Form 8-A dated June 11, 1996 and as
Exhibit 4(a) to Registrant's Current Report on Form 8-K dated
June 4, 1996, File No. 1-1927).
(b) Specimen nondenominational Certificate for shares of the Common
Stock, Without Par Value, of the Registrant; one certificate,
First Chicago Trust Company of New York as transfer agent and
registrar (incorporated by reference, filed with the Securities
and Exchange Commission as Exhibit 4.3 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996,
File No. 1-1927).
---------------
<FN>
(1) See Part IV, Item 14, Part A.3.
(2) Pursuant to Item 601 of Regulation S-K.
</TABLE>
X-1
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT
TABLE
ITEM EXHIBIT
NO. (2) DESCRIPTION OF EXHIBIT NUMBER PAGE
------- ---------------------- ------ ----
<S> <C> <C> <C>
4 (c) Conformed Copy of Revolving Credit Facility Agreement, dated as
of July 15, 1994, among Registrant, the Lenders named therein
and Chemical Bank, as Agent (incorporated by reference, filed
with the Securities and Exchange Commission as Exhibit A to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, File No. 1-1927).
(d) Conformed Copy of Replacement and Restatement Agreement, dated
as of July 15, 1996, among Registrant, the Lenders named therein
and The Chase Manhattan Bank (formerly Chemical Bank), as Agent,
relating to the Revolving Credit Facility Agreement dated as of
July 15, 1994 among Registrant, the Lenders named therein and
Chemical Bank (incorporated by reference, filed with the
Securities and Exchange Commission as Exhibit 4.5 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, File No. 1-1927).
(e) Form of Indenture, dated as of March 15, 1996, between
Registrant and Chemical Bank (now The Chase Manhattan Bank), as
Trustee (incorporated by reference, filed with the Securities
and Exchange Commission as Exhibit 4.2 to Registrant's
Registration Statement on Form S-3, File 333-1955).
(f) Form of 6-5/8% Note Due 2006, dated December 9, 1996, issued by 4.1 X-4.1-1
Registrant in aggregate principal of $250,000,000,00.
Information concerning Goodyear's long-term debt is set forth at
Note 7, captioned "Financing Arrangements and Financial
Instruments", at the sub-caption "B. Long Term Debt and
Financing Arrangements", in the Financial Statements set forth
at Item 8 of this Annual Report, beginning at page 38, and is
incorporated herein by specific reference. No other instrument
defining the rights of holders of long-term debt relates to
securities having an aggregate principal amount in excess of 10%
of the consolidated assets of Registrant and its subsidiaries.
In accordance with paragraph (iii) to Part 4 of Item 601 of
Regulation S-K, the agreements and instruments defining the
rights of holders of long term debt of Registrant in respect of
which the total amount of securities authorized thereunder does
not exceed 10% of the consolidated assets of Registrant and its
subsidiaries are not filed herewith. The Registrant
hereby agrees to furnish a copy of any such agreement or
instrument to the Securities and Exchange Commission upon
request.
- ------------------------
<FN>
(2) Pursuant to Item 601 of Regulation S-K.
</TABLE>
X-2
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
TABLE
ITEM EXHIBIT
NO. (2) DESCRIPTION OF EXHIBIT NUMBER PAGE
------- ---------------------- ------ ----
<S> <C> <C> <C>
10 MATERIAL CONTRACTS
(a) 1997 Performance Incentive Plan of The Goodyear Tire & Rubber 10.1 X-10.1-1
Company, as adopted by the Board of Directors on February 4,
1997, subject to shareholders approval.
(b) Form of Performance Equity Grant Agreement in respect of grants 10.2 X-10.2-1
made on January 4, 1994 under the 1989 Goodyear Performance and
Equity Incentive Plan (as amended December 3, 1996).
(c) Performance Recognition Plan of Registrant adopted effective
January 1, 1995 for calendar year 1995 (incorporated by
reference, filed with the Securities and Exchange Commission as
Exhibit E to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994, File No. 1-1927).
(d) Performance Recognition Plan of Registrant adopted effective
January 1, 1996 (incorporated by reference, filed with the
Securities and Exchange Commission as Exhibit 10.1 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995, File No. 1-1927).
(e) Form of Stock Option Grant Agreement under the 1989 Goodyear
Performance and Equity Incentive Plan in respect of options
granted in 1992 and 1993 (incorporated by reference, filed with
the Securities and Exchange Commission as Exhibit E to
Registrant's Current Report on Form 8-K dated February 17, 1993,
File No. 1-1927).
(f) Forms of Stock Option Grant Agreements in respect of options and 10.3 X-10.3-1
SARs granted December 3, 1996 under the 1989 Goodyear
Performance and Equity Incentive Plan; Part I, form of Agreement
for Incentive Stock Options, Part II, form of Agreement for
Non-Qualified Stock Options, and Part III, form of Agreement
for Non-Qualified Stock Options and Tandem Stock Appreciation
Rights.
(g) Form of Stock Option Grant Agreement under the 1989 Goodyear
Performance and Equity Incentive Plan in respect of options
granted January 4, 1994 (incorporated by reference, filed with
the Securities and Exchange Commission as Exhibit G to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 1-1927).
(h) 1987 Employees' Stock Option Plan of Registrant, as adopted by
the Board of Directors of Registrant on February 10, 1987, and
approved by Registrant's shareholders on April 13, 1987
(incorporated by reference, filed with the Securities and
Exchange Commission as Exhibit B to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1987, File
No. 1-1927).
---------------
<FN>
(2) Pursuant to Item 601 of Regulation S-K.
</TABLE>
X-3
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
TABLE
ITEM EXHIBIT
NO. (2) DESCRIPTION OF EXHIBIT NUMBER PAGE
------- ---------------------- ------ ----
<S> <C> <C> <C>
10 (i) 1989 Goodyear Performance and Equity Incentive Plan of
Registrant, as adopted by the Board of Directors of Registrant
on December 6, 1988, and approved by the shareholders of
Registrant on April 10, 1989 (incorporated by reference, filed
with the Securities and Exchange Commission as Exhibit A to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1989, File No. 1-1927).
(j) Goodyear Supplementary Pension Plan, as amended May 1, 1990
(incorporated by reference, filed with the Securities and
Exchange Commission as Exhibit A to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1990, File
No. 1-1927).
(k) Performance Equity Grant Agreement in respect of grants made on 10.4 X-10.4-1
December 6, 1994 in respect of 1995 under the 1989 Goodyear
Performance and Equity Incentive Plan (as amended December 3,
1996).
(l) The Goodyear Tire & Rubber Company Retirement Plan for Outside
Directors, adopted December 6, 1983, as amended November 13,
1986 (incorporated by reference, filed with the Securities and
Exchange Commission as Exhibit F to Registrant's Current Report
on Form 8-K, dated March 20, 1987, File No. 1-1927).
(m) Goodyear Employee Severance Plan, as adopted by the Board of
Directors of Registrant on February 14, 1989 (incorporated by
reference, filed with the Securities and Exchange Commission
as Exhibit A-II to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988, File No. 1-1927).
(n) Form of Performance Equity Grant Agreement in respect of grants
made January 9, 1996 under the 1989 Goodyear Performance and 10.5 X-10.5-1
Equity Incentive Plan (as amended December 3, 1996).
(o) Form of Performance Equity Grant Agreement in respect of grants
made on December 3, 1996 in respect of 1997 under the 1989
Goodyear Performance and Equity Incentive Plan. 10.6 X-10.6-1
---------------
<FN>
(2) Pursuant to Item 601 of Regulation S-K.
</TABLE>
X-4
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT
TABLE
ITEM EXHIBIT
NO. (2) DESCRIPTION OF EXHIBIT NUMBER PAGE
------- ---------------------- ------ ----
<S> <C> <C> <C>
10 (p) Forms of Stock Option Grant Agreements in respect ofoptions and
SARs granted January 4, 1995 under the 1989 Goodyear Performance
and Equity Incentive Plan; Part I, form of Agreement for
Incentive Stock Options, Part II, form of Agreement for
Non-Qualified Stock Options, and Part III, form of Agreement for
Non-Qualified Stock Options and tandem Stock Appreciation Rights
(incorporated by reference, filed with the Securities and
Exchange Commission as Exhibit G to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994, File No.
1-1927).
(q) Conformed copy of Consolidated Receivables Sale Agreement 10.7 X-10.7
[$550,000,000 Facility], dated as of November 15, 1996, among
Registrant, Asset Securitization Cooperative Corporation and
Canadian Imperial Bank of Commerce.
(r) Conformed Copy of Employment Agreement, dated August 6, 1991,
and related Stock Purchase Agreement, dated August 6, 1991, each
between Registrant and Stanley C. Gault, the Chairman of the
Board and Chief Executive Officer of Registrant (incorporated by
reference, filed with the Securities and Exchange Commission as
Exhibit C to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991, File No. 1-1927).
(s) Conformed copy of Amendment Agreement, dated December 3, 1991,
between Registrant and Stanley C. Gault, Chairman of the Board
and Chief Executive Officer of Registrant, amending that certain
Stock Purchase Agreement dated August 6, 1991 between Registrant
and Stanley C. Gault (incorporated by reference, filed with the
Securities and Exchange Commission as Exhibit A to Registrant's
Current Report on Form 8-K, dated December 18, 1991, File No.
1-1927).
(t) Amendment, dated April 5, 1993, to Employment Agreement and to
Stock Purchase Agreement, each dated August 6, 1991, between
Registrant and S C Gault (incorporated by reference, filed with
the Securities and Exchange Commission as Exhibit C to
Registrant's Current Report on Form 8-K dated April 22, 1993,
File No. 1-1927).
(u) The Goodyear Tire & Rubber Company Deferred Compensation Plan
for Executives, as adopted effective October 4, 1994
(incorporated by reference, filed with the Securities and
Exchange Commission as Exhibit B to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994,
File No. 1-1927).
---------------
<FN>
(2) Pursuant to Item 601 of Regulation S-K.
</TABLE>
X-5
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
TABLE
ITEM EXHIBIT
NO. (2) DESCRIPTION OF EXHIBIT NUMBER PAGE
------- ---------------------- ------ ----
<S> <C> <C> <C>
10 (v) 1994 Restricted Stock Award Plan for nonemployee Directors of
Registrant, as adopted effective June 1, 1994 (incorporated by
reference, filed with the Securities and Exchange Commission as
Exhibit B to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994, File No. 1-1927).
(w) Amendment, dated May 3, 1994, to Employment Agreement and to
Stock Purchase Agreement, each dated August 6, 1991, between
Registrant and S. C. Gault (incorporated by reference, filed
with the Securities and Exchange Commission as Exhibit A to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994, File No. 1-1927).
(x) Forms of Stock Option Grant Agreement granted January 9, 1996
under the 1989 Goodyear Performance and Equity Incentive Plan;
Part I, Form of Agreement for Incentive Stock Options, Part II,
Form of Agreement for Non-qualified Stock Options, and Part III,
Form of Agreement for Non-qualified Stock Options and tandem
Stock Appreciation Rights (incorporated by reference, filed with
the Securities and Exchange Commission as Exhibit 10.3 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995, File No. 1-1927).
(y) Amendment Agreement, dated as of December 5, 1995, relating to
Stock Purchase Agreement dated August 6, 1991, between
Registrant and S C Gault (incorporated by reference, filed with
the Securities and Exchange Commission as Exhibit 10.4 to
Registrant's Annual Report Form 10-K for the year ended December
31, 1995, File No. 1-1927).
(z) Outside Directors' Equity Participation Plan, adopted by by the
Board of Directors on February 2, 1996 (incorporated by
reference, filed with the Securities and Exchange Commission as
Exhibit 10.5 to Registrant's Annual Report Form 10-K for the
year ended December 31, 1995, File No. 1-1927).
11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS.
(a) Statement setting forth the Computation of Earnings 11 X-11-1
Per Share.
12 STATEMENT RE COMPUTATION OF RATIOS.
(a) Statement setting forth the Computation of Ratio of 12 X-12-1
Earnings to Fixed Charges.
---------------
<FN>
(2) Pursuant to Item 601 of Regulation S-K.
</TABLE>
X-6
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT
TABLE
ITEM EXHIBIT
NO. (2) DESCRIPTION OF EXHIBIT NUMBER PAGE
------- ---------------------- ------ ----
<S> <C> <C> <C>
21 SUBSIDIARIES
(a) List of subsidiaries of Registrant at March 15, 1997. 21 X-21-1
23 CONSENTS OF EXPERTS AND COUNSEL
(a) Consent of Price Waterhouse LLP, independent accoun- 23 X-23-1
tants, to incorporation by reference of their report set
forth on page 30 of this Annual Report in certain Registration
Statements on Forms S-3 and S-8.
24 POWER OF ATTORNEY
(a) Power of Attorney, dated December 3, 1996, authorizing 24 X-24-1
Robert W. Tieken, C. Thomas Harvie, John W. Richardson,
Richard W. Hauman, James Boyazis, or any one or more of them,
to sign this Annual Report on behalf of certain directors
of Registrant.
27 FINANCIAL DATA SCHEDULE 27 X-27-1
99 ADDITIONAL EXHIBITS
(a) Registrant's definitive Proxy Statement dated February 26, 1997
(portions incorporated by reference, filed with the Securities
and Exchange Commission, File No. 1-1927).
---------------
<FN>
(2) Pursuant to Item 601 of Regulation S-K.
</TABLE>
X-7
<PAGE> 1
EXHIBIT 4.1
FORM OF 6 5/8% NOTE DUE 2006
THIS NOTE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF.
THIS SECURITY MAY NOT BE TRANSFERRED, WHETHER IN WHOLE OR IN PART, TO, OR
REGISTERED OR EXCHANGED FOR SECURITIES REGISTERED IN THE NAME OF, ANY PERSON
OTHER THAN THE DEPOSITARY OR A NOMINEE THEREOF AND NO SUCH TRANSFER MAY BE
REGISTERED, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
EVERY SECURITY AUTHENTICATED AND DELIVERED UPON REGISTRATION OF TRANSFER OF, OR
IN EXCHANGE FOR OR IN LIEU OF, THIS SECURITY SHALL BE A GLOBAL SECURITY SUBJECT
TO THE FOREGOING, EXCEPT IN SUCH LIMITED CIRCUMSTANCES.
THE GOODYEAR TIRE & RUBBER COMPANY
6 5/8% NOTE DUE 2006
CUSIP 382550 AC 5
No. $250,000,000.00
THE GOODYEAR TIRE & RUBBER COMPANY, a corporation duly
organized and existing under the laws of the State of Ohio (herein called the
"Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to CEDE &
Co., or registered assigns, the principal sum of TWO HUNDRED FIFTY MILLION
DOLLARS ($250,000,000.00) on December 1, 2006, and to pay interest thereon from
December 9, 1996, or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, semiannually on June 1 and December
1 in each year, commencing June 1, 1997, at the rate of 6 5/8% per annum, until
the principal hereof is paid or made available for payment. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will, as provided in the Indenture, be paid to the Person in whose name this
Note (or one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest, which shall be the May 15
or November 15 (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for will forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose name this Note
(or one or more Predecessor Securities) is registered at the close of business
on a Special Record Date for the payment of such Defaulted Interest to be fixed
by the Trustee, notice whereof shall be given to Holders of Notes of this series
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes of this series may be listed, and upon
such notice as may be required by such exchange, all as more fully provided in
said Indenture.
Payment of the principal of (and premium, if any) and interest
on this Note will be made at the office or agency of the Company maintained for
that purpose in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts;
provided, however, that at the option of the Company payment of interest may be
made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register.
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
X-4.1-1
<PAGE> 2
(Front side of note continued)
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture or be valid
or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed under its corporate seal.
Dated: December 9, 1996 THE GOODYEAR TIRE & RUBBER COMPANY
By
-----------------------------------
[Seal] Robert W Tieken, Executive Vice President
Attest:
- ----------------------------------------
James Boyazis, Secretary
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK, as Trustee
by
-----------------------
Authorized Officer
X-4.1-2
<PAGE> 3
(Reverse side of note)
This Note is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of March 15, 1996 (herein called the
"Indenture"), between the Company and The Chase Manhattan Bank (formerly
Chemical Bank), as Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered. This Note is one of
the series designated on the face hereof [as the Company's 6 5/8% Notes due
2006, limited in aggregate principal amount to $250,000,000.00 (herein referred
to as the "Notes").
The Notes are subject to redemption, as a whole at any time or in
part from time to time, at the sole election of the Company, upon not less than
30 or more than 60 days' notice by mail to the Trustee at a Redemption Price
equal to the greater of (1) 100% of the principal amount, and (2) the sum of the
present values of the remaining scheduled payments of principal and interest
thereon discounted to the Redemption Date, on a semiannual basis, at the
Treasury Rate (as defined herein) plus ten basis points (.10%), plus accrued
interest thereon to the Redemption Date. As used herein, the term: (a) "Treasury
Rate" means, with respect to any Redemption Date, the rate per annum equal to
the semiannual equivalent yield to maturity of the Comparable Treasury Issue,
assuming a price for the Comparable Treasury Issue (expressed as a percentage of
its principal amount) equal to the Comparable Treasury Price for such Redemption
Date; (b) "Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Notes to be redeemed that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of such Notes; (c) "Independent Investment Banker" means one of
the Reference Treasury Dealers appointed by the Trustee after consultation with
the Company; (d) "Comparable Treasury Price" means, with respect to any
Redemption Date, (A) the average of the Reference Treasury Dealer Quotations for
such Redemption Date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than four such
Reference Treasury Dealer Quotations, the average of all such Quotations; (e)
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any Redemption Date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such Redemption Date; and (f) "Reference Treasury
Dealer" means each of Chase Securities Inc., Morgan Stanley & Co. Incorporated
and their respective successors and, at the option of the Company, additional
Primary Treasury Dealers; provided, however, that if any of the foregoing shall
cease to be a primary U.S. Government securities dealer in New York City (a
"Primary Treasury Dealer"), the Company shall substitute therefor another
Primary Treasury Dealer. If money sufficient to pay the redemption price of and
accrued interest on all Notes (or the portions thereof) to be redeemed on the
Redemption Date is deposited with the Trustee on or before the Redemption Date
and certain other conditions are satisfied, on and after such date interest will
cease to accrue on such Notes (or such portions thereof) called for redemption.
In the event of redemption of this Note in part only, a new Note or Notes
of like tenor for the unredeemed portion hereof will be issued in the name of
the Holder hereof upon the cancellation hereof.
The Indenture contains provisions for defeasance at any time of (a) the
entire indebtedness evidenced by this Security and (b) certain restrictive
covenants, in each case upon compliance by the Company with certain conditions
set forth therein, which provisions apply to this Note.
If an Event of Default with respect to the Notes of this series shall
occur and be con tinuing, the principal of the Notes of this Series may be
declared due and payable in the manner and with the effect provided in the
Indenture. "Event of Default" means any one of the events specified at clauses
(a), (b), (d), (e) and (f) of Section 5.01 of the Indenture.
X-4.1-3
<PAGE> 4
(Reverse side of note continued)
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the Securities at
the time Outstanding of all series to be affected (voting as a single class).
The Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities of each series at the time
Outstanding, on behalf of the Holders of all Securities of such series, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Note shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Note at the times, place and rate, and in the coin or currency, herein
prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note is registerable in the Security Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company in any place where the principal of and any premium and
interest on this Security are payable, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Notes of like tenor, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
The Notes of this series will be represented by one or more global
securities (collectively, the "Global Security") registered in the name of The
Depository Trust Company, New York, New York (the "Depositary") or a nominee of
the Depositary. So long as the Depositary, or its nominee, is the registered
holder and owner of this Global Note, the Depositary or such nominee, as the
case may be, will be considered the sole owner and holder of the Notes for all
purposes under the Indenture. The Global Security may be transferred, in whole
and not in part, only to the Depositary or another nominee of the Depositary.
The Depositary will credit, on its book-entry registration and transfer system,
the respective principal amounts of the Notes represented by such Global
Security to the accounts of institutions that have accounts with the Depositary
or its nominee ("participants"). Ownership of beneficial interests in a Global
Security will be limited to participants or persons that may hold interests
through participants. Ownership of interests in such Global Security will be
shown on, and the transfer of those ownership interests will be effected
through, records maintained by the Depositary (with respect to participants'
interests) and such participants (with respect to the owners of beneficial
interests in such Global Security).
The Global Security are exchangeable for Notes in definitive form of like
tenor as such Global Security in denominations of $1,000 and in any greater
amount that is an integral multiple thereof if (i) the Depositary notifies the
Company that it is unwilling or unable to continue as Depositary for this Global
Security or if at any time the Depositary ceases to be a clearing agency
registered under the Securities Exchange Act of 1934, as amended, (ii) the
Company in its discretion at any time determines not to have all of the Notes of
this series represented by a Global Security and notifies the Trustee thereof,
or (iii) an Event of Default has occurred and is continuing with respect to the
Notes. Any Note that is exchangeable pursuant to the preceding sentence is
exchangeable only for Notes of this series.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
X-4.1-4
<PAGE> 1
EXHIBIT 10.1
1997 PERFORMANCE INCENTIVE PLAN
of
THE GOODYEAR TIRE & RUBBER COMPANY
1. PURPOSE.
The purposes of the 1997 Performance Incentive Plan of The Goodyear Tire &
Rubber Company (the "Plan") are to advance the interests of the Company and its
shareholders by strengthening the ability of the Company to attract, retain and
reward highly qualified officers and other employees, to motivate officers and
other selected employees to achieve business objectives established to promote
the long-term growth, profitability and success of the Company, and to encourage
ownership of the Common Stock of the Company by participating officers and other
selected employees. The Plan authorizes performance-based stock and cash
incentive compensation in the form of stock options, stock appreciation rights,
restricted stock, performance grants and awards, and other stock-based grants
and awards.
2. DEFINITIONS.
For the purposes of the Plan, the following terms shall have the following
meanings:
(a) "ADJUSTED NET INCOME" means, with respect to any calendar or other
fiscal year of the Company, the amount reported as "Net Income" in the audited
Consolidated Income Statement of the Company and Subsidiaries for such year (as
set forth in the Company's Annual Report to Shareholders for such year),
adjusted to exclude any of the following items: (i) extraordinary items (as
described in Accounting Principles Board Opinion No. 30); (ii) gains or losses
on the disposition of discontinued operations; (iii) the cumulative effects of
changes in accounting principles; (iv) the writedown of any asset; and (v)
charges for restructuring and rationalization programs.
(b) "ANNUAL NET INCOME PER SHARE" means, with respect to any calendar or
other fiscal year of the Company in respect of which a determination thereof is
being or to be made, the Adjusted Net Income for such year divided by the
average number of shares of Common Stock outstanding during such year.
(c) "AWARD" means any payment or settlement in respect of a grant made
pursuant to the Plan, whether in the form of shares of Common Stock or in cash,
or in any combination thereof.
(d) "BOARD OF DIRECTORS" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, or any successor statute thereto, together with the
published rulings, regulations and interpretations duly promulgated thereunder.
(f) "COMMITTEE" means the committee of the Board of Directors established
and constituted as provided in Section 5 of the Plan.
(g) "COMMON STOCK" means the common stock, without par value, of the
Company, or any security issued by the Company in substitution or exchange
therefor or in lieu thereof.
(h) "COMMON STOCK EQUIVALENT" means a Unit (or fraction thereof, if
authorized by the Committee) substantially equivalent to a hypothetical share of
Common Stock, credited to a Participant and having a value at any time equal to
the Fair Market Value of a share of Common Stock (or such fraction thereof) at
such time.
(i) "COMPANY" means The Goodyear Tire & Rubber Company, an Ohio
corporation, or any successor corporation.
(j) "COVERED EMPLOYEE" means any person who is a "covered employee" within
the meaning of Section 162(m) of the Code.
X-10.1-1
<PAGE> 2
(k) "CUMULATIVE NET INCOME" means, in respect of any Performance Period,
the aggregate cumulative amount of the Adjusted Net Income for the calendar or
other fiscal years of the Company during such Performance Period.
(l) "CUMULATIVE NET INCOME PER SHARE" means, in respect of any Performance
Period, the aggregate cumulative amount of the Annual Net Income Per Share for
the calendar or other fiscal years of the Company during such Performance
Period.
(m) "DIVIDEND EQUIVALENT" means, in respect of a Common Stock Equivalent
and with respect to each dividend payment date for the Common Stock, an amount
equal to the cash dividend on one share of Common Stock payable on such dividend
payment date.
(n) "EMPLOYEE" means any individual, including any officer of the Company,
who is on the active payroll of the Company or a Subsidiary at the relevant
time.
(o) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
and in effect from time to time, including all rules and regulations promulgated
thereunder.
(p) "FAIR MARKET VALUE" means, in respect of any date on or as of which a
determination thereof is being or to be made, the average of the high and low
per share sale prices of the Common Stock reported on the New York Stock
Exchange Composite Transactions tape on such date, or, if the Common Stock was
not traded on such date, on the next preceding day on which sales of shares of
the Common Stock were reported on the New York Stock Exchange Composite
Transactions tape.
(q) "INCENTIVE STOCK OPTION" means any option to purchase shares of Common
Stock granted pursuant to the provisions of Section 6 of the Plan that is
intended to be and is specifically designated as an "incentive stock option"
within the meaning of Section 422A of the Code.
(r) "NON-QUALIFIED STOCK OPTION" means any option to purchase shares of
Common Stock granted pursuant to the provisions of Section 6 of the Plan that is
not an Incentive Stock Option.
(s) "PARTICIPANT" means any Employee of the Company or a Subsidiary who
receives a grant or Award under the Plan.
(t) "PERFORMANCE GRANT" means a grant made pursuant to Section 9 of the
Plan, the Award of which is contingent on the achievement of specific
Performance Goals during a Performance Period, determined using a specific
Performance Measure, all as specified in the grant agreement relating thereto.
(u) "PERFORMANCE GOALS" mean, with respect to any applicable grant made
pursuant to the Plan, the one or more targets, goals or levels of attainment
required to be achieved in terms of the specified Performance Measure during the
specified Performance Period, all as set forth in the related grant agreement.
(v) "PERFORMANCE MEASURE" means, with respect to any applicable grant made
pursuant to the Plan, one or more of the criteria identified at Section 9(c) of
the Plan selected by the Committee for the purpose of establishing, and
measuring attainment of, Performance Goals for a Performance Period in respect
of such grant, as provided in the related grant agreement.
(w) "PERFORMANCE PERIOD" means, with respect to any applicable grant made
pursuant to the Plan, the one or more periods of time, which may be of varying
and overlapping durations, as the Committee may select during which the
attainment of one or more Performance Goals will be measured to determine
whether, and the extent to which, a Participant is entitled to receive payment
of an Award pursuant to such grant.
(x) "PLAN" means this 1997 Performance Incentive Plan of the Company, as
set forth herein and as hereafter amended from time to time in accordance with
the terms hereof.
(y) "RESTRICTED STOCK" means shares of Common Stock issued pursuant to a
Restricted Stock Grant under Section 8 of the Plan so long as such shares remain
subject to the restrictions and conditions specified in the grant agreement
pursuant to which such Restricted Stock Grant is made.
X-10.1-2
<PAGE> 3
(z) "RESTRICTED STOCK GRANT" means a grant made pursuant to the provisions
of Section 8 of the Plan.
(aa) "STOCK APPRECIATION RIGHT" means a grant in the form of a right to
benefit from the appreciation of the Common Stock made pursuant to Section 7 of
the Plan.
(bb) "STOCK OPTION" means and includes any Non-Qualified Stock Option and
any Incentive Stock Option granted pursuant to Section 6 of the Plan.
(cc) "SUBSIDIARY" means any corporation or entity in which the Company
directly or indirectly owns or controls 50% or more of the equity securities
issued by such corporation or entity having the power to vote for the election
of directors.
(dd) "UNIT" means a bookkeeping entry used by the Company to record and
account for the grant, settlement or, if applicable, deferral of an Award until
such time as such Award is paid, canceled, forfeited or terminated, as the case
may be, which, except as otherwise specified by the Committee, shall be equal to
one Common Stock Equivalent.
3. EFFECTIVE DATE; TERM.
(a) EFFECTIVE DATE. The Plan shall be effective on April 14, 1997, upon
approval by the shareholders of the Company at the 1997 annual meeting of
shareholders or any adjournments thereof.
(b) TERM. The Plan shall remain in effect until December 31, 2001, unless
sooner terminated by the Board of Directors. Termination of the Plan shall not
affect grants and Awards then outstanding.
4. SHARES OF COMMON STOCK SUBJECT TO PLAN.
(a) MAXIMUM NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER THE PLAN. The
maximum aggregate number of shares of Common Stock which may be issued pursuant
to the Plan, subject to adjustment as provided in Section 4(b) of the Plan,
shall be fifteen million, plus (i) any shares of Common Stock issued under the
Plan that are forfeited back to the Company or are canceled, and (ii) any shares
of Common Stock that are tendered, whether by physical delivery or by
attestation, to the Company by a Participant as full or partial payment of the
exercise price of any Stock Option granted pursuant to the Plan, in connection
with the payment or settlement of any other grant or Award made pursuant to the
Plan, or in payment of any applicable withholding for federal, state, city,
local or foreign income, payroll or other taxes incurred in connection with the
exercise of any Stock Option or Stock Appreciation Right granted under the Plan
or the receipt or settlement of any other grant or Award under the Plan. The
shares of Common Stock which may be issued under the Plan may be authorized and
unissued shares or issued shares which have been reacquired by the Company. No
fractional share of the Common Stock shall be issued under the Plan. Awards of
fractional shares of the Common Stock, if any, shall be settled in cash.
(b) ADJUSTMENTS UPON CHANGES IN CAPITAL STRUCTURE. In the event of any
change in the capital structure, capitalization or Common Stock of the Company
such as a stock dividend, stock split, recapitalization, merger, consolidation,
split-up, combination or exchange of shares or other form of reorganization, or
any other change affecting the Common Stock, such proportionate adjustments, if
any, as the Board of Directors in its discretion may deem appropriate to reflect
such change shall be made with respect to: (i) the maximum number of shares of
Common Stock which may be (1) issued pursuant to the Plan, (2) the subject of
any type of grant or Award under the Plan, and (3) granted, Awarded or issued to
any Participant pursuant to any provision of the Plan; (ii) the number of shares
of Common Stock subject to any outstanding Stock Option, Stock Appreciation
Right or other grant or Award made to any Participant under the Plan; (iii) the
per share exercise price in respect of any outstanding Stock Options and Stock
Appreciation Rights; (iv) the number of shares of Common Stock and the number of
Units or the value of such Units, as the case may be, which are the subject of
other grants and Awards then outstanding under the Plan; and (v) any other term
or condition of any grant affected by any such change.
X-10.1-3
<PAGE> 4
5. ADMINISTRATION.
(a) THE COMMITTEE. The Plan shall be administered by the Committee to be
appointed from time to time by the Board of Directors and comprised of not less
than three of the then members of the Board of Directors who qualify as
"non-employee directors" within the meaning of Rule 16(b)-3 promulgated under
the Exchange Act and as "outside directors" within the meaning of Section 162(m)
of the Code. Members of the Committee shall serve at the pleasure of the Board
of Directors. The Board of Directors may from time to time remove members from,
or add members to, the Committee. A majority of the members of the Committee
shall constitute a quorum for the transaction of business and the acts of a
majority of the members present at any meeting at which a quorum is present
shall be the acts of the Committee. Any one or more members of the Committee may
participate in a meeting by conference telephone or similar means where all
persons participating in the meeting can hear and speak to each other, which
participation shall constitute presence in person at such meeting. Action
approved in writing by a majority of the members of the Committee then serving
shall be fully as effective as if the action had been taken by unanimous vote at
a meeting duly called and held. The Company shall make grants and effect Awards
under the Plan in accordance with the terms and conditions specified by the
Committee, which terms and conditions shall be set forth in grant agreements
and/or other instruments in such forms as the Committee shall approve.
(b) COMMITTEE POWERS. The Committee shall have full power and authority to
operate and administer the Plan in accordance with its terms. The powers of the
Committee include, but are not limited to, the power to: (i) select Participants
from among the Employees of the Company and Subsidiaries; (ii) establish the
types of, and the terms and conditions of, all grants and Awards made under the
Plan, subject to any applicable limitations set forth in, and consistent with
the express terms of, the Plan; (iii) make grants and pay or otherwise effect
Awards subject to, and consistent with, the express provisions of the Plan; (iv)
establish Performance Goals, Performance Measures and Performance Periods,
subject to, and consistent with, the express provisions of the Plan; (v) reduce
the amount of any grant or Award; (vi) prescribe the form or forms of grant
agreements and other instruments evidencing grants and Awards under the Plan;
(vii) pay and to defer payment of Awards on such terms and conditions, not
inconsistent with the express terms of the Plan, as the Committee shall
determine; (viii) direct the Company to make conversions, accruals and payments
pursuant to the Plan; (ix) construe and interpret the Plan and make any
determination of fact incident to the operation of the Plan; (x) promulgate,
amend and rescind rules and regulations relating to the implementation,
operation and administration of the Plan; (xi) adopt such modifications,
procedures and subplans as may be necessary or appropriate to comply with the
laws of other countries with respect to Participants or prospective Participants
employed in such other countries; (xii) delegate to other persons the
responsibility for performing administrative or ministerial acts in furtherance
of the Plan; (xiii) engage the services of persons and firms, including banks,
consultants and insurance companies, in furtherance of the Plan's activities;
and (xiv) make all other determinations and take all other actions as the
Committee may deem necessary or advisable for the administration and operation
of the Plan.
(c) COMMITTEE'S DECISIONS FINAL. Any determination, decision or action of
the Committee in connection with the construction, interpretation,
administration or application of the Plan, and of any grant agreement, shall be
final, conclusive and binding upon all Participants, and all persons claiming
through Participants, affected thereby.
(d) ADMINISTRATIVE ACCOUNTS. For the purpose of accounting for Awards
deferred as to payment, the Company shall establish bookkeeping accounts
expressed in Units bearing the name of each Participant receiving such Awards.
Each account shall be unfunded, unless otherwise determined by the Committee in
accordance with Section 15(d) of the Plan.
(e) CERTIFICATIONS. In respect of each grant under the Plan to a Covered
Person which the Committee intends to be "performance based compensation" under
Section 162(m) of the Code, the provisions of the Plan and the related grant
agreement shall be construed to confirm such intent, and to conform to the
requirements of Section 162(m) of the Code, and the Committee
X-10.1-4
<PAGE> 5
shall certify in writing (which writing may include approved minutes of a
meeting of the Committee) that the applicable Performance Goal(s), determined
using the Performance Measure specified in the related grant agreement, was
attained during the
relevant Performance Period at a level that equaled or exceeded the level
required for the payment of such Award in the amount proposed to be paid and
that such Award does not exceed any applicable Plan limitation.
6. STOCK OPTIONS.
(a) IN GENERAL. Options to purchase shares of Common Stock may be granted
under the Plan and may be Incentive Stock Options or Non-Qualified Stock
Options. All Stock Options shall be subject to the terms and conditions of this
Section 6 and shall contain such additional terms and conditions, not
inconsistent with the express provisions of the Plan, as the Committee shall
determine. Stock Options may be granted in addition to, or in tandem with or
independent of Stock Appreciation Rights or other grants and Awards under the
Plan. The Committee may grant Stock Options that provide for the automatic grant
of a replacement Stock Option if payment of the exercise price and/or any
related withholding taxes is made by tendering (whether by physical delivery or
by attestation) shares of Common Stock or by having shares of Common Stock
withheld by the Company. The replacement Stock Option would cover the number of
shares of Common Stock tendered or withheld, would have a per share exercise
price equal to at least 100% of the Fair Market Value of a share of Common Stock
on the date of the exercise of the original Stock Option, and would have such
other terms and conditions as may be specified by the Committee and set forth in
the related grant agreement.
(b) ELIGIBILITY AND LIMITATIONS. Any officer of the Company and any other
Employee of the Company or a Subsidiary may be granted Stock Options. The
Committee shall determine, in its discretion, the Employees to whom Stock
Options will be granted, the timing of such grants, and the number of shares of
Common Stock subject to each Stock Option granted; provided, that (i) the
maximum aggregate number of shares of Common Stock which may be issued and
delivered upon the exercise of Non-Qualified Stock Options granted under the
Plan shall be fourteen million, (ii) the maximum aggregate number of shares of
Common Stock which may be issued and delivered upon the exercise of Incentive
Stock Options shall be five million, (iii) the maximum number of shares of
Common Stock in respect of which Stock Options may be granted to any Employee
during any calendar year shall be 500,000, and (iv) in respect of Incentive
Stock Options, the aggregate Fair Market Value (determined as of the date the
Incentive Stock Option is granted) of the shares of Common Stock with respect
to which an Incentive Stock Option becomes exercisable for the first time by a
Participant during any calendar year shall not exceed $100,000, or such other
limit as may be required by the Code, except that, if authorized by the
Committee and provided for in the related grant agreement, any portion of any
Incentive Stock Option that cannot be exercised as such because of this
limitation may be converted into and exercised as a Non-Qualified Stock Option.
In no event shall any Stock Option or Stock Appreciation Right be granted to a
Participant in exchange for the Participant's agreement to the cancellation of
one or more Stock Options or Stock Appreciation Rights then held by such
Participant if the exercise price of the new grant is lower than the exercise
price of the grant to be cancelled and in no event shall any Stock Option or
Stock Appreciation Right be amended to reduce the option price, except as
contemplated by Section 4(b) of the Plan.
(c) OPTION EXERCISE PRICE. The per share exercise price of each Stock
Option granted under the Plan shall be determined by the Committee prior to or
at the time of grant, but in no event shall the per share exercise price of
any Stock Option be less than 100% of the Fair Market Value of the Common Stock
on the date of the grant of such Stock Option.
(d) OPTION TERM. The term of each Stock Option shall be fixed by the
Committee; except that in no event shall the term of any Incentive Stock Option
exceed ten years after the date such Incentive Stock Option is granted.
(e) EXERCISABILITY. A Stock Option shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Committee at the date of grant; provided, however, that no Stock Option shall be
exercisable during the first six months after the
X-10.1-5
<PAGE> 6
date such Stock Option is granted. No Stock Option may be exercised unless the
holder thereof is at the time of such exercise an Employee and has been
continuously an Employee since the date such Stock Option was granted, except
that the Committee may permit the exercise of any Stock Option for any period
following the Participant's termination of employment not in excess of the
original term of the Stock Option on such terms and conditions as it shall deem
appropriate and specify in the related grant agreement.
(f) METHOD OF EXERCISE. A Stock Option may be exercised, in whole or in
part, by giving written notice of exercise to the Company specifying the number
of shares of Common Stock to be purchased. Such notice shall be accompanied by
payment in full of the purchase price, plus any required withholding taxes, in
cash or, if permitted by the terms of the related grant agreement or otherwise
approved in advance by the Committee, in shares of Common Stock already owned by
the Participant valued at the Fair Market Value of the Common Stock on the date
of exercise. The Committee may also permit Participants, either on a selective
or aggregate basis, to simultaneously exercise Stock Options and sell the shares
of Common Stock thereby acquired pursuant to a brokerage or similar arrangement
approved in advance by the Committee and to use the proceeds from such sale to
pay the exercise price and withholding taxes.
7. STOCK APPRECIATION RIGHTS.
(a) IN GENERAL. Stock Appreciation Rights in respect of shares of Common
Stock may be granted under the Plan alone, in tandem with, in addition to or
independent of a Stock Option or other grant or Award under the Plan. A Stock
Appreciation Right entitles a Participant to receive an amount equal to the
excess of the Fair Market Value of a share of Common Stock on the date of
exercise over the Fair Market Value of a share of Common Stock on the date of
grant of the Stock Appreciation Right, or such other higher price as may be set
by the Committee, multiplied by the number of shares of Common Stock with
respect to which the Stock Appreciation Right shall have been exercised.
(b) ELIGIBILITY AND LIMITATIONS. Any officer of the Company and any other
Employee of the Company or a Subsidiary selected by the Committee may be granted
Stock Appreciation Rights. The Committee shall determine, in its discretion, the
Employees to whom Stock Appreciation Rights will be granted, the timing of such
grants and the number of shares of Common Stock in respect of which each Stock
Appreciation Right is granted; provided that (i) the maximum aggregate number of
shares of Common Stock in respect of which Stock Appreciation Rights may be
granted shall be six million, (ii) the maximum aggregate number of shares of
Common Stock which may be issued and delivered in payment or settlement of Stock
Appreciation Rights shall be three million, and (iii) the maximum number of
shares of Common Stock in respect of which Stock Appreciation Rights may be
granted to any Employee during any calendar year shall be 250,000.
(c) EXERCISABILITY; EXERCISE; FORM OF PAYMENT. A Stock Appreciation Right
may be exercised by a Participant at such time or times and in such manner as
shall be authorized by the Committee and set forth in the related grant
agreement, except that in no event shall a Stock Appreciation Right be
exercisable within the first six months after the date of grant. The Committee
may provide that a Stock Appreciation Right shall be automatically exercised on
one or more specified dates. No Stock Appreciation Right may be exercised unless
the holder thereof is at the time of exercise an Employee and has been
continuously an Employee since the date the Stock Appreciation Right was
granted, except that the Committee may permit the exercise of any Stock
Appreciation Right for any period following the Participant's termination of
employment not in excess of the original term of the Stock Appreciation Right on
such terms and conditions as it shall deem appropriate and specify in the
related grant agreement. A Stock Appreciation Right may be exercised, in whole
or in part, by giving the Company a written notice specifying the number of
shares of Common Stock in respect of which the Stock Appreciation Right is to be
exercised. Stock Appreciation Rights may be paid upon exercise in cash, in
shares of Common Stock, or in any combination of cash and shares of Common Stock
as determined by the Committee.
X-10.1-6
<PAGE> 7
8. RESTRICTED STOCK GRANTS AND AWARDS.
(a) IN GENERAL. A Restricted Stock Grant is the issue of shares of Common
Stock in the name of an Employee, which issuance is subject to such terms and
conditions as the Committee shall deem appropriate, including, without
limitation, restrictions on the sale, assignment, transfer or other disposition
of such shares and the requirement that the Employee forfeit such shares back to
the Company (i) upon termination of employment for specified reasons within a
specified period of time, or (ii) if any specified Performance Goals are not
achieved during a specified Performance Period, or (iii) if such other
conditions as the Committee may specify are not satisfied.
(b) ELIGIBILITY AND LIMITATIONS. Any officer of the Company and any other
key Employee of the Company or a Subsidiary selected by the Committee may
receive a Restricted Stock Grant. The Committee, in its sole discretion, shall
determine whether a Restricted Stock Grant shall be made, the Employee to
receive the Restricted Stock Grant, and the conditions and restrictions imposed
on the Restricted Stock Grant. The maximum number of shares of Common Stock
which may be issued as Restricted Stock under the Plan shall be two million. The
maximum number of shares of Common Stock which may be issued to any Employee as
Restricted Stock during any calendar year shall not exceed 200,000. The maximum
amount any Employee may receive as a Restricted Stock Grant in any calendar year
shall not exceed $10 million, determined using the Fair Market Value of such
Restricted Stock Grant as at the date of the grant thereof.
(c) RESTRICTION PERIOD. Restricted Stock Grants shall provide that in order
for a Participant to receive shares of Common Stock free of restrictions, the
Participant must remain in the employment of the Company or its Subsidiaries,
subject to such exceptions as the Committee shall deem appropriate and specify
in the related grant agreement, for a period of not less than three years
commencing on the date of the grant and ending on such later date or dates as
the Committee may designate at the time of the grant (the "Restriction Period").
The Committee, in its sole discretion, may provide for the lapse of restrictions
in installments during the Restriction Period. The Committee may also establish
one or more Performance Goals that are required to be achieved during one or
more Performance Periods within the Restriction Period as a condition to the
lapse of the restrictions.
(d) RESTRICTIONS. The following restrictions and conditions shall apply to
each Restricted Stock Grant during the Restriction Period: (i) the Participant
shall not be entitled to delivery of the shares of the Common Stock; (ii) the
Participant may not sell, assign, transfer, pledge, hypothecate, encumber or
otherwise dispose of or realize on the shares of Common Stock subject to the
Restricted Stock Grant; and (iii) the shares of the Common Stock issued as
Restricted Stock shall be forfeited to the Company if the Participant for any
reason ceases to be an Employee prior to the end of the Restriction Period,
except due to circumstances specified in the related grant agreement or
otherwise approved by the Committee. The Committee may in, its sole discretion,
include such other restrictions and conditions as it may deem appropriate.
(e) PAYMENT. Upon expiration of the Restriction Period and if all
conditions have been satisfied and any applicable Performance Goals attained,
the shares of the Restricted Stock will be made available to the Participant,
subject to satisfaction of applicable withholding tax requirements, free of all
restrictions; provided, that the Committee may, in its discretion, require (i)
the further deferral of any Restricted Stock Grant beyond the initially
specified Restriction Period, (ii) that the Restricted Stock be retained by the
Company, and (iii) that the Participant receive a cash payment in lieu of
unrestricted shares of Common Stock.
(f) RIGHTS AS A SHAREHOLDER. A Participant shall have, with respect to
shares of Restricted Stock, all of the rights of a shareholder of the Company,
including the right to vote the shares and receive any cash dividends paid
thereon. Stock dividends distributed with respect to shares of Restricted Stock
shall be treated as additional shares under the Restricted Stock Grant and shall
be subject to the restrictions and other terms and conditions set forth therein.
X-10.1-7
<PAGE> 8
9. PERFORMANCE GRANTS AND AWARDS.
(a) ELIGIBILITY AND TERMS. The Committee may grant to officers of the
Company and other key Employees of the Company and its Subsidiaries the
prospective contingent right, expressed in Units, to receive payments of shares
of Common Stock, cash or any combination thereof, with each Unit equivalent in
value to one share of Common Stock, or equivalent to such other value or
monetary amount as may be designated or established by the Committee
("Performance Grants"), based upon Company performance over a specified
Performance Period. The Committee shall, in its sole discretion, determine the
officers of the Company and other key Employees eligible to receive Performance
Grants. At the time each Performance Grant is made, the Committee shall
establish the Performance Period, the Performance Measure and the targets to be
attained relative to such Performance Measure (the "Performance Goals") in
respect of such Performance Grant. The number of shares of Common Stock and/or
the amount of cash earned and payable in settlement of a Performance Grant shall
be determined at the end of the Performance Period (a "Performance Award").
(b) LIMITATIONS ON GRANTS AND AWARDS. The maximum number of shares of
Common Stock which may be issued pursuant to Performance Grants shall be three
million. The maximum number of shares which may be the subject of Performance
Grants made to any Participant in respect of any Performance Period or during
any calendar year shall be 100,000. The maximum amount any Participant may
receive during any calendar year as Performance Awards pursuant to Performance
Grants shall not exceed $15 million, determined using the Fair Market Value of
such Performance Awards as at the last day of the applicable Performance Period
or Periods or as at date or dates of the payment thereof, whichever is higher.
(c) PERFORMANCE GOALS, PERFORMANCE MEASURES AND PERFORMANCE PERIODS. Each
Performance Grant shall provide that, in order for a Participant to receive an
Award of all or a portion of the Units subject to such Performance Grant, the
Company must achieve certain Performance Goals over a designated Performance
Period having a minimum duration of one year, with attainment of the Performance
Goals determined using a specific Performance Measure. The Performance Goals and
Performance Period shall be established by the Committee in its sole discretion.
The Committee shall establish a Performance Measure for each Performance Period
for determining the portion of the Performance Grant which will be earned or
forfeited based on the extent to which the Performance Goals are achieved or
exceeded. In setting Performance Goals, the Committee may use a Performance
Measure based on any one, or on any combination, of the following Company
performance factors as the Committee deems appropriate: (i) Cumulative Net
Income Per Share; (ii) Cumulative Net Income; (iii) return on sales; (iv) total
shareholder return; (v) return on assets; (vi) economic value added; (vii) cash
flow; (viii) return on equity; and (ix) cumulative operating income (which shall
equal consolidated sales minus cost of goods sold and selling, administrative
and general expense). Performance Goals may include minimum, maximum and target
levels of performance, with the size of Performance Award based on the level
attained. Once established by the Committee and specified in the grant
agreement, and if and to the extent provided in or required by the grant
agreement, the Performance Goals and the Performance Measure in respect of any
Performance Grant (or any Restricted Stock Grant or Stock-Based Grant that
requires the attainment of Performance Goals as a condition to the Award) shall
not be changed. The Committee may, in its discretion, eliminate or reduce (but
not increase) the amount of any Performance Award (or Restricted Stock or
Stock-Based Award) that otherwise would be payable to a Participant upon
attainment of the Performance Goal(s).
(d) FORM OF GRANTS. Performance Grants may be made on such terms and
conditions not inconsistent with the Plan, and in such form or forms, as the
Committee may from time to time approve. Performance Grants may be made alone,
in addition to in tandem with, or independent of other grants and Awards under
the Plan. Subject to the terms of the Plan, the Committee shall, in its
discretion, determine the number of Units subject to each Performance Grant made
to a Participant and the Committee may impose different terms and conditions on
any particular Performance Grant made to any Participant. The Performance Goals,
the Performance Period or Periods, and the Performance Measure applicable to a
Performance Grant shall be set forth in the relevant grant agreement.
X-10.1-8
<PAGE> 9
(e) PAYMENT OF AWARDS. Each Participant shall be entitled to receive
payment in an amount equal to the aggregate Fair Market Value (if the Unit is
equivalent to a share of Common Stock), or such other value as the Committee
shall specify, of the Units earned in respect of such Performance Award. Payment
in settlement of a Performance Award may be made in shares of Common Stock, in
cash, or in any combination of Common Stock and cash, and at such time or times,
as the Committee, in its discretion, shall determine.
10. OTHER STOCK-BASED GRANTS AND AWARDS.
(a) IN GENERAL. The Committee may make other grants and Awards pursuant to
which Common Stock is, or in the future may be, acquired by Participants, and
other grants and Awards to Participants denominated in Common Stock Equivalents
or other Units ("Stock-Based Grants"). Such Stock-Based Grants may be granted
alone or in addition to, in tandem with, or independent of any other grant made
or Award effected under the Plan.
(b) ELIGIBILITY AND TERMS. The Committee may make Stock-Based Grants to
officers of the Company and other key Employees of the Company and its
Subsidiaries. Subject to the provisions of the Plan, the Committee shall have
authority to determine the Employees to whom, and the time or times at which,
Stock-Based Grants will be made, the number of shares of Common Stock, if any,
to be subject to or covered by each Stock-Based Grant, and any and all other
terms and conditions of each Stock-Based Grant.
(c) LIMITATIONS. The aggregate number of shares of Common Stock issued to
Participants pursuant to Stock-Based Grants made and Awards effected pursuant to
this Section 10 shall not exceed three million. No Participant shall receive
more than 100,000 shares of Common Stock in settlement of Stock-Based Awards
during any calendar year. The maximum amount any Participant may receive in
Stock-Based Awards during any calendar year shall not exceed $5 million,
determined using the Fair Market Value of any shares of Common Stock delivered
in payment of the Stock-Based Awards on the date or dates of the payment
thereof.
(d) FORM OF GRANTS; PAYMENT OF AWARDS. Stock-Based Grants may be made in
such form or forms and on such terms and conditions, including the attainment of
specific Performance Goals, as the Committee, in its discretion, shall approve.
Payment of Stock-Based Awards may be made in cash, in shares of Common Stock, or
in any combination of cash and shares of Common Stock, and at such time or
times, as the Committee shall determine.
11. DEFERRALS.
The Committee may, whether at the time of grant or at anytime thereafter
prior to payment or settlement, require a Participant to defer, or permit
(subject to such conditions as the Committee may from time to time establish) a
Participant to elect to defer, receipt of all or any portion of any payment of
cash or shares of Common Stock that would otherwise be due to such Participant
in payment or settlement of any Award under the Plan. If any such deferral is
required by the Committee (or is elected by the Participant with the permission
of the Committee), the Committee shall establish rules and procedures for such
payment deferrals. The Committee may provide for the payment or crediting of
interest, at such rate or rates as it shall in its discretion deem appropriate,
on such deferred amounts credited in cash and the payment or crediting of
dividend equivalents in respect of deferred amounts credited in Common Stock
Equivalents. Deferred amounts may be paid in a lump sum or in installments in
the manner and to the extent permitted, and in accordance with rules and
procedures established, by the Committee.
12. NON-TRANSFERABILITY OF GRANTS AND AWARDS.
No grant or Award under the Plan, and no right or interest therein, shall
be (i) assignable, alienable or transferable by a Participant, except by will or
the laws of descent and distribution, or (ii) subject to any obligation, or the
lien or claims of any creditor, of any Participant, or (iii) subject to any
lien, encumbrance or claim of any party made in respect of or through any
Participant, however arising. During the lifetime of a Participant, Stock
Options and Stock
X-10.1-10
<PAGE> 10
Appreciation Rights are exercisable only by, and shares of Common Stock issued
upon the exercise of Stock Options and Stock Appreciation Rights or in
settlement of other Awards will be issued only to, and other payments in
settlement of any Award will be payable only to, the Participant or his or her
legal representative. The Committee may, in its sole discretion, authorize
written designations of beneficiaries and authorize Participants to designate
beneficiaries with the authority to exercise Stock Options and Stock
Appreciation Rights granted to a Participant in the event of his or her death.
Notwithstanding the foregoing, the Committee may, in its sole discretion and on
and subject to such terms and conditions as it shall deem appropriate, which
terms and conditions shall be set forth in the related grant agreement: (i)
authorize a Participant to transfer all or a portion of any Non-Qualified Stock
Option or Stock Appreciation Right, as the case may be, granted to such
Participant; provided, that in no event shall any transfer be made to any person
or persons other than such Participant's spouse, children or grandchildren, or a
trust for the exclusive benefit of one or more such persons, which transfer must
be made as a gift and without any consideration; and (ii) provide for the
transferability of a particular grant or Award pursuant to a qualified domestic
relations order. All other transfers and any retransfer by any permitted
transferee are prohibited and any such purported transfer shall be null and
void. Each Stock Option or Stock Appreciation Right which becomes the subject of
permitted transfer (and the Participant to whom it was granted by the Company)
shall continue to be subject to the same terms and conditions as were in effect
immediately prior to such permitted transfer. The Participant shall remain
responsible to the Company for the payment of all withholding taxes incurred as
a result of any exercise of such Stock Option or Stock Appreciation Right. In no
event shall any permitted transfer of a Stock Option or Stock Appreciation Right
create any right in any party in respect of any Stock Option, Stock Appreciation
Right or other grant or Award, other than the rights of the qualified trans
feree in respect of such Stock Option or Stock Appreciation Right specified in
the related grant agreement.
13. CHANGE IN CONTROL.
(a) EFFECT ON GRANTS. In the event of a Change in Control (as defined
below) of the Company, except as the Board of Directors comprised of a majority
of Continuing Directors may expressly provide otherwise, and notwithstanding any
other provision of the Plan to the contrary: (i) all Stock Options and Stock
Appreciation Rights then outstanding shall become fully exercisable as of the
date of the Change in Control, whether or not then exercisable; (ii) all
restrictions and conditions in respect of all Restricted Stock Grants then
outstanding shall be deemed satisfied as of the date of the Change in Control;
and (iii) all Performance Grants and other Stock-Based Grants shall be deemed to
have been fully earned, at the maximum amount of the award opportunity specified
in the grant agreement, as of the date of the Change in Control.
(b) CHANGE IN CONTROL DEFINED. A "Change in Control" of the Company shall
occur when: (i) any Acquiring Person (other than the Company, any Subsidiary,
any employee benefit plan of the Company or of any Subsidiary, or any person or
entity organized, appointed or established by the Company or a Subsidiary for or
pursuant to the terms of any such plans), alone, or together with its Affiliates
and Associates, shall become the beneficial owner of fifteen percent (15%) or
more of the shares of Common Stock then outstanding (except pursuant to an offer
for all outstanding shares of Common Stock at a price and upon such terms and
conditions as a majority of the Continuing Directors determines to be in the
best interest of the Company and its shareholders); or (ii) the shareholders of
the Company approve a definitive agreement for a merger or consolidation
involving the Company which would result in the Common Stock outstanding
immediately prior to such merger or consolidation continuing to represent
(whether by remaining outstanding or by being converted into voting securities
of the surviving entity) less than fifty percent of the combined voting power of
the Company and such other entity outstanding immediately after such merger or
consolidation; or (iii) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or other
disposition of all or substantially all of the assets of the Company; or (iv)
the Continuing Directors no longer constitute a majority of the Board of
Directors. "Acquiring Person" means
X-10.1-10
<PAGE> 11
any person (any individual, firm, corporation or other entity) who or which,
together with all its Affiliates and Associates, shall be the beneficial owner
of a substantial block of Common Stock. "Affiliate" and "Associate" shall have
the respective meanings ascribed to such terms in Rule 12b-2 under the Exchange
Act. "Continuing Director" means any individual who is a member of the Board of
Directors, while such individual is a member of the Board of Directors, who is
not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or
a representative or nominee of an Acquiring Person or of any such Affiliate or
Associate, and was a member of the Board of Directors prior to the occurrence of
a Change in Control, and any successor of a Continuing Director, while such
successor is a member of the Board of Directors, who is not an Acquiring Person,
or an Affiliate or Associate of an Acquiring Person, or representative or
nominee of an Acquiring Person or of any such Affiliate or Associate, and is
recommended or elected to succeed the Continuing Director by a majority of the
Continuing Directors.
14. AMENDMENT AND TERMINATION.
The Board of Directors may at any time terminate the Plan, except with
respect to grants then outstanding. The Board of Directors may amend the Plan at
any time and from time to time in such respects as the Board of Directors may
deem necessary or appropriate without approval of the shareholders, unless such
approval is necessary in order to comply with applicable laws, including the
Exchange Act and the Code. In no event may the Board of Directors amend the Plan
without the approval of the shareholders to (i) increase the maximum number of
shares of Common Stock which may be issued pursuant to the Plan, (ii) increase
any limitation set forth in the Plan on the number of shares of Common Stock
which may be issued, or the aggregate value of Awards which may be made, in
respect of any type of grant to all Participants during the term of the Plan or
to any Participant during any specified period, (iii) reduce the minimum
exercise price for Stock Options and Stock Appreciation Rights, or (iv) change
the Performance Measure criteria identified at Section 9(c) of the Plan.
15. MISCELLANEOUS.
(a) WITHHOLDING TAXES. All Awards under the Plan will be made subject to
any applicable withholding for taxes of any kind. The Company shall have the
right to deduct from any amount payable under the Plan, including delivery of
shares of Common Stock to be made under the Plan, all federal, state, city,
local or foreign taxes of any kind required by law to be withheld with respect
to such payment and to take such other actions as may be necessary in the
opinion of the Company to satisfy all obligations for the payment of such taxes.
If shares of Common Stock are used to satisfy withholding taxes, such shares
shall be valued based on the Fair Market Value thereof on the date when the
withholding for taxes is required to be made. The Company shall have the right
to require a Participant to pay cash to satisfy withholding taxes as a condition
to the payment of any amount (whether in cash or shares of Common Stock) under
the Plan.
(b) NO RIGHT TO EMPLOYMENT. Neither the adoption of the Plan nor the making
of any grant or Award shall confer upon any Employee any right to continued
employment with the Company or any Subsidiary, nor shall it interfere in any way
with the right of the Company or any Subsidiary to terminate the employment of
any Employee at any time, with or without cause.
(c) UNFUNDED PLAN. The Plan shall be unfunded and the Company shall not be
required to segregate any assets that may at any time be represented by Awards
under the Plan. Any liability of the Company to any person with respect to any
Award under the Plan shall be based solely upon any contractual obligations that
may be effected pursuant to the Plan. No such obligation of the Company shall be
deemed to be secured by any pledge of, or other encumbrance on, any property of
the Company.
(d) PAYMENTS TO TRUST. The Committee is authorized to cause to be
established a trust agreement or several trust agreements whereunder the
Committee may make payments of amounts due or to become due to Participants in
the Plan.
(e) ENGAGING IN COMPETITION WITH COMPANY. In the event a Participant
terminates his or her employment with the Company or a Subsidiary for any reason
whatsoever, and within
X-10.1-11
<PAGE> 12
eighteen (18) months after the date thereof accepts employment with any
competitor of, or otherwise engages in competition with, the Company, the
Committee, in its sole discre tion, may require such Participant to return, or
(if not received) to forfeit, to the Company the economic value of any Award
which is realized or obtained (measured at the date of exercise, vesting or
payment) by such Participant (i) at any time after the date which is six months
prior to the date of such Participant's termination of employment with the
Company or (ii) during such other period as the Committee may determine.
(f) OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS. Payments and other
benefits received by a Participant under an Award made pursuant to the Plan
shall not be deemed a part of a Participant's regular, recurring compensation
for purposes of any termination indemnity or severance pay law of any country
and shall not be included in, nor have any effect on, the determination of
benefits under any pension or other employee benefit plan or similar arrangement
provided by the Company or any Subsidiary, unless (i) expressly so provided by
such other plan or arrangement or (ii) the Committee expressly determines that
an Award or a portion thereof should be included as recurring compensation.
Nothing contained in the Plan shall prohibit the Company or any Subsidiary from
establishing other special awards, incentive compensation plans, compensation
programs and other similar arrangements providing for the payment of
performance, incentive or other compensation to Employees. Payments and benefits
provided to any Employee under any other plan, including, without limitation,
any stock option, stock award, restricted stock, deferred compensation, savings,
retirement or other benefit plan or arrangement, shall be governed solely by the
terms of such other plan.
(g) SECURITIES LAW RESTRICTIONS. In no event shall the Company be obligated
to issue or deliver any shares of Common Stock if such issuance or delivery
shall constitute a violation of any provisions of any law or regulation of any
governmental authority or securities exchange. No shares of Common Stock shall
be issued under the Plan unless counsel for the Company shall be satisfied that
such issuance will be in compliance with all applicable Federal and state
securities laws and regulations and all requirements of any securities exchange
on which the Common Stock is listed.
(h) GRANT AGREEMENTS. Each Participant receiving a grant under the Plan
shall enter into a grant agreement with the Company in a form specified by the
Committee agreeing to the terms and conditions of the grant and such related
matters as the Committee shall, in its sole discretion, determine.
(1) SEVERABILITY. In the event any provision of the Plan shall be held to
be invalid or unenforceable for any reason, such invalidity or unenforceability
shall not affect the remaining provisions of the Plan.
(j) TRANSITION - 1989 PLAN. The Plan replaces and supersedes the 1989
Goodyear Performance and Equity Incentive Plan (the "1989 Plan") and the 1989
Plan shall automatically terminate when the Plan becomes effective, except that
such termination shall not affect any grants or awards then outstanding under
the 1989 Plan.
(k) GOVERNING LAW. The Plan shall be governed by and construed in
accordance with the laws of the State of Ohio.
X-10.1-12
<PAGE> 1
EXHIBIT 10.2
GRANT AGREEMENT
(As Amended December 3, 1996)
THE GOODYEAR TIRE & RUBBER COMPANY
PERFORMANCE EQUITY GRANT
7~
1~
8~
9~
11~
Reference is made to that certain Grant Agreement - Performance Equity
Grant dated January 4, 1994, whereunder you were granted Performance Equity
Grant Units (the "Units"). The Grant Agreement is hereby amended to provide as
follows:
The Directors of The Goodyear Tire & Rubber Company (the "Company") desire
to encourage and facilitate ownership of the Common Stock of the Company (the
"Common Stock") by key employees and to provide for additional compensation
based on the appreciation of the Common Stock, thereby providing incentive to
promote the continued growth and success of the Company's business. Accordingly,
the 1989 Goodyear Performance and Equity Incentive Plan was adopted effective
April 10, 1989 (the "Plan"). A copy of the Plan is attached.
At the January 4, 1994 meeting of the Compensation Committee of the Board
of Directors, you were awarded a Performance Equity Grant (each Unit equivalent
in value to one share of Common Stock) as follows:
Date of Grant 1-4-94
Number of Equity Units Granted
Performance Period 1-1-94 through 12-31-96
The number of Performance Equity Grant Units specified above (the "Units")
which you will earn at the end of the three-year Performance Period specified
above (the "Performance Period") will be determined by and contingent upon the
extent to which Performance Goals are achieved. The number of Units actually
earned may be adjusted between 0 and 150% of the number of Units stated above,
depending on the level of achievement of Performance Goals. In accordance with
actions taken by the Compensation Committee on November 5, 1996 and December 3,
1996, payment of the Units earned will be made as provided below. The
Performance Goals and earn out criteria for the Performance Period for your
Performance Equity Grant are described at Annex A.
The Performance Equity Grant for the number of Units specified above is
granted to you under, and governed by the terms and conditions of, the Plan and
this Grant Agreement.
Your execution and return of the enclosed copy of this Grant Agreement
acknowledging receipt of the Units granted herewith constitutes your agreement
to, and acceptance of, all terms and conditions of the Plan and this Grant
Agreement. You also agree that you have read and understand the provisions of
the Plan, this Grant Agreement and Annex A.
All rights conferred upon you under the provisions of this Grant Agreement
are personal to you and, except under the provisions of paragraph 14 of the
Plan, no assignee, transferee or
X-10.2-1
<PAGE> 2
other successor in interest shall acquire any rights or interests whatsoever
under this Grant Agreement, which is made exclusively for the benefit of you and
the Company.
As further consideration for the Units granted to you hereunder, you must
remain in the continuous employ of the Company or one or more of its
subsidiaries until December 31, 1996, the end of the Performance Period. Any
Units earned will be prorated in the event of your death, Retirement (as defined
in the Plan) or Disability (as defined in the Plan) or layoff prior to
completion of the Performance Period. Any proration is based on the last day you
worked. Nothing contained herein shall restrict the right of the Company or any
of its subsidiaries to terminate your employment at any time, with or without
cause.
You will forfeit the right to receive any distribution or payment under
this Grant if you enter into a relationship either as an employee, consultant,
agent or in any manner whatsoever with an entity that sells products in
competition with products sold by the Company and its subsidiaries within six
months after the earlier of (1) the date you receive your distribution of Units
earned or (2) the date you cease to be an employee of the Company or one of its
subsidiaries.
The number of Units earned will be paid as follows:
(1) Each Unit earned will be valued at a dollar amount equal to the
Fair Market Value of the Common Stock (as defined below) on December 31,
1996 (the "Unit Value").
(2) The Company will pay to you an amount equal to 50% of the Unit
Value multiplied by the total number of Units earned, less such
withholding and payroll taxes as the Company shall determine to be
necessary or appropriate, in cash in February of 1997.
(3) The balance of the Unit Value of each Unit earned, which shall be
equal to 50% of the Unit Value, shall be multiplied by the Unit Value of
the total number of Units earned (herein the "Deferred Amount") and
credited in February of 1997 to an account maintained in the records of the
Company. The Deferred Amount will be converted into Deferral Units (as
defined below). The number of Deferral Units will be determined by dividing
the Deferred Amount by the Fair Market Value of the Common Stock (as
defined below) on December 31, 1996.
(4) Notwithstanding the foregoing,the Compensation Committee of the
Board of Directors may, at its sole election, require that the payment of
the entire, or any portion of the, Unit Value of all Units earned shall be
deferred until the Optional Deferral Date, or such later date as it shall
deem appropriate, in order for the Company to comply with Section 162(m) of
the Internal Revenue Code. Any amount so deferred will be credited to an
account maintained in the records of the Company and will be converted into
Deferral Units, the number of which shall be determined by dividing the
amount so deferred by the Fair Market Value of the Common Stock on the date
of such deferral.
As used herein, the term: (1) "Deferral Unit" means an equivalent to a
hypothetical share of the Common Stock; (2) "Fair Market Value of the Common
Stock" means, in respect of any date on or as of which a determination thereof
is being or to be made, the average of the high and low per share sale prices of
the Common Stock on the New York Stock Exchange Composite Transactions Tape on
such date or, if the Common Stock was not traded on such date, the next
preceding day on which the Common Stock was traded on the New York Stock
Exchange; (3) "Dividend Equivalent" means, with respect to each dividend payment
date for the Common Stock, an amount equal to the cash dividend per share of
Common Stock which is payable on such dividend payment date; (4) "Mandatory
Deferral Date" means the earlier of (x) the tenth business day of the January
next following the fifth anniversary of the last day of the Performance Period,
or (y) the Optional Deferral Date; and (5) "Optional Deferral Date" means the
later of (i) the first business day of the seventh month following the month
during which you cease to be
X-10.2-2
<PAGE> 3
employed by the Company, or one of its subsidiary companies, for any reason
(whether Retirement, Disability, death, layoff, voluntary termination or
otherwise) or (ii) the tenth business day of the calendar year following the
calendar year during which you ceased to be an employee of the Company, or one
of its subsidiary companies, for any reason whatsoever. All computations
relating to Deferral Units, fractions of shares of Common Stock and Divided
Equivalents will be rounded, if necessary, to the fourth decimal place.
Each Deferral Unit credited to your account shall be credited with one
Dividend Equivalent for each Deferral Unit credited to your account on each date
on which cash dividends are paid on shares of the Common Stock (and each
fraction of a Deferral Unit shall be credited with a like fraction of a Dividend
Equivalent). Dividend Equivalents (and fractions thereof, if any) credited to
your account shall be automatically translated into Deferral Units by dividing
the dollar amount of such Dividend Equivalents by the Fair Market Value of the
Common Stock on the date the relevant Dividend Equivalents are accrued to your
account. The number of Deferral Units (and any fractions thereof) resulting
shall be credited to your account (in lieu of the dollar amount of such Dividend
Equivalent) and shall continually be denominated in Deferral Units until
converted for payment as provided herein.
The Deferral Units credited to your account shall be automatically
deferred until the Mandatory Deferral Date. If the Mandatory Deferral Date
occurs before you cease to be an employee of the Company, or one of its
subsidiary companies, you may elect, by delivering a written notice of your
election to the Company not later than December 31 of the calendar year which is
two calendar years prior to the year during which the Mandatory Deferral Date
occurs, to defer receipt of all or a specified whole percentage of the Deferral
Units credited to your account until the Optional Deferral Date.
On the Mandatory Deferral Date (to the extent you have not elected to
further defer payment until the Optional Deferral Date in the manner provided in
the prior paragraph, or unless payment has been deferred until the Optional
Deferral Date by the Compensation Committee), the whole Deferral Units in your
account will be converted at your election (which election shall be made in
writing on or before the June 30th next preceding the Mandatory Deferral Date),
into (1) a like number of shares of the Common Stock, (2) a dollar amount
determined by multiplying the number of Deferral Units credited to your account
by the Fair Market Value of the Common Stock on the Mandatory Deferral Date, or
(3) a combination of shares of the Common Stock and cash in accordance with your
election (which shall be expressed as a percentage of the Deferral Units to be
paid in shares of the Common Stock). In accordance with your election, within
five business days following the Mandatory Deferral Date you will be paid (a)
such number of shares of the Common Stock, (b) such amount of cash, or (c) the
elected combination of shares of Common Stock and cash, the amounts of which
shall be determined in accordance with the preceding sentence. If you did not
make a timely election as to the form of payment, you will receive payment in
shares of the Common Stock. Any fraction of a Deferral Unit will be paid to you
on the relevant date in cash, the amount of which shall be calculated in the
manner specified above.
If you have duly elected to receive payment of all or a specified
percentage of your Deferral Units on the Optional Deferral Date (or if the
Compensation Committee has deferred payment of the Unit Value of the Units
earned, or any portion thereof, or to defer payment of any Deferral Units, until
the Optional Deferral Date), you may elect, at the time and in the manner
specified below, to receive your Deferral Units in (1) a lump sum on the fifth
business day following the Optional Deferral Date, or (2) in a series of not
less than five (5) or more than ten (10) annual installments commencing on the
fifth business day following the Optional Deferral Date, or (3) a specified
percentage of your Deferral Units on the fifth business day following the
Optional Deferral Date and the balance of your Deferral Units in installments as
specified in clause (2) of this sentence.
On the Optional Deferral Date (to the extent you have not elected to
receive payment in installments), the whole Deferral Units in your account
(which have not been designated for payment in installments) will be converted
at your election (which election shall be made in writing on or before the last
day of the seventh month prior to the month during which the Optional
X-10.2-3
<PAGE> 4
Deferral Date occurs and shall apply to both lump sum and installment payments)
into (1) a like number of shares of the Common Stock, or (2) a dollar amount
determined by multiplying the number of whole Deferral Units credited to your
account by the Fair Market Value of the Common Stock on the Optional Deferral
Date, or (3) a combination of shares of the Common Stock and cash in accordance
with your election (which shall be expressed as a percentage of the Deferral
Units to be paid in shares of the Common Stock). In accordance with your
election, within five business days following the Optional Deferral Date you
will be paid (a) such number of shares of the Common Stock, (b) such amount of
cash, or (c) the elected combination of shares of Common Stock and cash, the
amounts of which shall be determined in accordance with the preceding sentence.
If you did not make an election as to the form of payment on or before the
required date, you will receive payment in shares of the Common Stock. Any
fraction of a Deferral Unit will be paid to you on the relevant date in cash,
the amount of which shall be calculated in the manner specified above.
If you desire to receive payment of your Deferral Units (or a percentage
thereof) in annual installments commencing with the Optional Deferral Date, you
may elect, by delivering a written notice of your election, which shall specify
the number of annual installments (not less than 5 or more than 10), to the
Company not later than December 31 of the calendar year which is two calendar
years prior to the year during which the Optional Deferral Date occurs, to
receive all, or a specified whole percentage of, the Deferral Units in your
account (which would otherwise be scheduled for distribution on the Optional
Deferral Date) in not less than five (5) or more than ten (10) annual
installments, payable commencing on the fifth business day following the
Optional Deferral Date and thereafter on the fifth business day following each
anniversary thereof until paid in full. Each installment shall be in an amount
equal to the total number of Deferral Units credited to your account on the
Optional Deferral Date, or on the anniversary thereof which is the fifth
business day prior to the date such installment is due and payable, as the case
may be, divided by the number of annual installments remaining (including the
annual installment then being calculated for payment) to be paid. In respect of
each installment, the number of Deferral Units payable shall, in accordance with
your election made in the preceding paragraph, be converted into (1) a like
number of shares of the Common Stock, (2) a dollar amount determined by
multiplying the number of whole Deferral Units credited to your account by the
Fair Market Value of the Common Stock on the relevant anniversary of the
Optional Deferral Date (or the Optional Deferral Date in the case of the first
installment), or (3) the elected combination of shares of the Common Stock and
cash, the amounts of which shall be determined in the manner specified above.
Any fraction of Deferral Unit will be paid to you on the relevant date in cash,
the amount of which shall be calculated in the manner specified above.
You will be required to satisfy all Federal, state and local tax and
payroll withholding obligations, and any other withholding obligations, arising
in respect of any distribution of shares of Common Stock or cash to you. To the
extent there is sufficient cash available, such withholding obligations will be
deducted from your distribution. To the extent the amount of cash to be
distributed is not sufficient to satisfy all withholding obligations, you will
be required to pay such withholding obligations as a condition to your receipt
of any distribution of shares of the Common Stock.
In the event of your death at any time prior to the Mandatory Deferral
Date, your account balance will be paid in cash in a lump sum on the later of
(a) the fifth business day following the Mandatory Deferral Date or (b) the
fifth business day of the calendar year following the calendar year during which
your date of death occurs. In the event of your death at any time following the
Mandatory Deferral Date and prior to the distribution of your account, the
entire balance of your account shall be paid in cash on the anniversary of the
Mandatory Deferral Date next following your date of death.
In the event of any stock dividend, stock split, recapitalization, merger,
split-up, spin-off or other change affecting the Common Stock of the Company,
the Deferral Units in your account shall be adjusted in the same manner and
proportion as the change to the Common Stock.
X-10.2-4
<PAGE> 5
Any notice to you under this Grant Agreement shall be sufficient if in
writing and if delivered to you or mailed by registered mail directed to you at
the address on record in the Executive Compensation Department. Any notice to
the Company under this Grant Agreement shall be sufficient in writing and if
delivered to the Executive Compensation Department of the Company in Akron,
Ohio, or mailed by registered mail directed to the Company for the attention of
the Executive Compensation Department at 1144 East Market Street, Akron, Ohio
44316-0001. Either you or the Company may, by written notice, change the
address.
Dated: December 3, 1996 THE GOODYEAR TIRE & RUBBER COMPANY
-----------------------------------
Chairman of the Board
Grant Agreement as amended,
received and accepted:
____________________________________________ Date:December ____ , 1996
7~
X-10.2-5
<PAGE> 6
ANNEX A
PERFORMANCE GOALS
- -----------------
Performance Goals are based on the aggregate earnings per share of Goodyear
Common Stock for the period January 1, 1994 through December 31, 1996.
MINIMUM PERFORMANCE GOAL FOR PAYMENT
- ------------------------------------
In order for there to be a distribution under this Grant, the aggregate earnings
per share shall be at least $10.27 for the three-year period beginning January
1, 1994.
PERFORMANCE UNIT DISTRIBUTION SCHEDULE
- --------------------------------------
Unit distributions are payable 50 percent in shares of the Company's Common
Stock and 50 percent in cash.
<TABLE>
<CAPTION>
Aggregate Earnings % of
Per Share Unit Distribution
1/1/94 - 12/31/96 Based on Grant
----------------- --------------
<S> <C>
$12.27 150 %
12.02 140
11.77 130
11.52 120
11.27 110
11.02 100
10.77 90
10.52 85
10.27 80
<10.27 0
</TABLE>
X-10.2-6
<PAGE> 1
EXHIBIT 10.3
(PART I)
THE GOODYEAR TIRE & RUBBER COMPANY
INCENTIVE STOCK OPTION
GRANT AGREEMENT
TOM TIRE
000-00-0000
Key Employee
1 Eagle Drive
Akron, OH 12345
The Directors of The Goodyear Tire & Rubber Company (the "Company") desire to
encourage and facilitate ownership of the Common Stock of the Company (the
"Common Stock") by key employees and to provide for additional compensation
based on appreciation of the Common Stock, thereby providing incentive to
promote continued growth and success of the Company's business. Accordingly, the
1989 Goodyear Performance and Equity Incentive Plan (the "Plan") was adopted
effective April 10, 1989. A copy of the Plan is attached.
You have been granted Incentive Stock Options for the purchase of Common Stock
as follows:
<TABLE>
<CAPTION>
<S> <C>
Stock Option Plan 1989 Plan
Incentive Stock Option Grant 960000
Date of Grant 12/03/96
Option Price $00.00
Total Number of Shares Granted 0000
</TABLE>
Your option shares become exercisable as follows:
<TABLE>
<S> <C> <C> <C>
____ on December 3, 1997 25% ____ on December 3, 1999 75%
____ on December 3, 1998 50% ____ on December 3, 2000 100%
</TABLE>
- -----------------------------------------------------
The Goodyear Tire & Rubber Company
December 3, 1996
Receipt of this Grant Agreement and a copy of the Plan is acknowledged:
- ----------------------------------- -----------------------
Optionee Date
X-10.3-1
<PAGE> 2
ISO Grant Agreement (Cont'd) December 3, 1996
Part I - INCENTIVE STOCK OPTIONS
1. These Incentive Stock Options for the number of shares of Common Stock
indicated on the preceding page (the "Incentive Stock Options") are granted to
you under and are governed by the terms and conditions of the Plan and this
Grant Agreement. Your execution and return of the enclosed copy of page one of
this Grant Agreement acknowledging receipt of the Incentive Stock Options
granted herewith constitutes your agreement to and acceptance of all terms and
conditions of the Plan and this Grant Agreement. You also agree that you have
read and understand this Grant Agreement.
2. You may exercise the Incentive Stock Options granted pursuant to this
Grant Agreement through (1) a cash payment in the amount of the full option
exercise price of the shares being purchased (a "cash exercise"), (2) a payment
in full shares of Common Stock having a Fair Market Value (as defined in the
Plan) on the date of exercise equal to the full option exercise price of the
shares of Common Stock being purchased (a "share swap exercise"), or (3) a
combination of the cash exercise and share swap exercise methods. If the share
swap exercise is elected, it may be used only once in any twelve-month period.
Any exercise of these Incentive Stock Options shall be by written notice to the
Company stating the number of shares of Common Stock to be purchased and the
exercise method, accompanied with the payment, or proper proof of ownership if
the share swap exercise method is used. You shall be required to meet the tax
withholding obligations arising from any exercise of Incentive Stock Options.
3. As further consideration for the Incentive Stock Options granted to you
hereunder, you must remain in the continuous employ of the Company or one or
more of its subsidiaries from the Date of Grant to the date or dates the
Incentive Stock Options become exercisable as set forth on page one of this
Grant Agreement before you will be entitled to exercise the Incentive Stock
Options granted. The Incentive Stock Options you have been granted shall not in
any event be exercisable after your termination of employment except for
Retirement, death, or Disability.
4. In the event of your Retirement, the Incentive Stock Options, to the
extent they are exercisable, or they become exercisable pursuant to Section 10
hereof, shall remain exercisable for the first three months following the date
of your Retirement as Incentive Stock Options and the remainder of the exercise
period as Non-Qualified Stock Options. In the event of your death, the Incentive
Stock Options may be exercised up to one year after death as described in
paragraph 10 below. In the event of your Disability, the Incentive Stock Options
then outstanding which are or become exercisable as aforesaid shall be
exercisable by you during the then remaining portion of the aforesaid exercise
period.
PART II - NON-QUALIFIED STOCK INVESTMENT OPTIONS
5. A Non-Qualified Stock Investment Option will be automatically granted to
you, immediately upon any satisfaction by you of the conditions specified below,
on the following terms and conditions:
Date of Grant: The date of your exercise, at any time prior to
January 1, 2004, of an Incentive Stock option
granted herein by tendering shares of Common Stock
in payment of all or a portion of the exercise
price of such Incentive Stock Option.
Number of Common Shares
Subject to Option: The number of shares of Common Stock you tendered
in the exercise of such Incentive Stock Option.
X-10.3-2
<PAGE> 3
ISO Grant Agreement (Cont'd) December 3, 1996
PART II - NON-QUALIFIED STOCK INVESTMENT OPTIONS (Cont'd)
Option Price
Per Share: The Fair Market Value (as defined in the Plan) of
the Common Stock on the date you exercised such
Incentive Stock Option by tendering shares of
Common Stock.
Exercise Period: 100% exercisable at any time during the period
beginning on the first anniversary of its date of
grant and ending on December 3, 2006.
6. The Non-Qualified Stock Investment Options are granted under and are
governed by the terms and conditions of the Plan and this Grant Agreement. The
number of shares of Common Stock subject to each grant is determined by the
number of shares of Common Stock you tender to the Company in your exercise of
an Incentive Stock Option granted pursuant to this Agreement. The Option price
per share of the Non-Qualified Stock Investment Option shall be the Fair Market
Value (as defined in the Plan) of Common Stock on the date you exercise an
Incentive Stock Option as aforesaid. In order to accept this Option grant, you
must tender shares of Common Stock in the exercise of an Incentive Stock Option
prior to January 1, 2004.
7. You may exercise the Non-Qualified Stock Investment Options granted
pursuant to this Grant Agreement through (1) a cash payment in the amount of the
full option exercise price of the shares being purchased (a "cash exercise"),
(2) a payment in full shares of Common Stock having a Fair Market Value (as
defined in the Plan) on the date of exercise equal to the full option exercise
price of the shares of Common Stock being purchased (a "share swap exercise"),
or (3) a combination of the cash exercise and share swap exercise methods. Any
exercise of these Non-Qualified Stock Investment Options shall be by written
notice to the Company stating the number of shares of Common Stock to be
purchased and the exercise method, accompanied with the payment, or proper proof
of ownership if the share swap exercise method is used. You shall be required to
meet the tax withholding obligations arising from any exercise of Non-Qualified
Stock Investment Options.
8. As further consideration for each Non-Qualified Stock Investment Option
granted to you hereunder, you must remain in the continuous employ of the
Company or one or more of its subsidiaries for twelve months following the Date
of Grant in respect thereof (as defined at paragraph 5 above) before you will be
entitled to exercise such Non-Qualified Stock Investment Option. Any
Non-Qualified Stock Investment Option granted shall not in any event be
exercisable after your termination of employment except for Retirement, death,
or Disability (as defined in the Plan).
Part III - GENERAL PROVISIONS
9. In the event of your Retirement, death or Disability (as defined in the
Plan) during the exercise period on any date which is more than six (6) months
after the Date of Grant specified on the first page of the Grant Agreement, the
Incentive Stock Options shall become immediately exercisable by you. In the
event of your Retirement, death or Disability (as defined in the Plan) during
the exercise period on any date which is more than six (6) months after the Date
of Grant specified at paragraph 5 of this Grant Agreement, the Non-Qualified
Stock Investment Options shall become immediately exercisable. In the event of
your Retirement or Disability, the Non-Qualified Stock Investment Options then
outstanding which are or become exercisable as aforesaid shall be exercisable by
you during the then remaining portion of the exercise period.
X-10.3-3
<PAGE> 4
ISO Grant Agreement (Cont'd) December 3, 1996
PART III - GENERAL PROVISIONS (Cont'd)
10. The Incentive Stock Options and any Non-Qualified Stock Investment
Options granted hereunder (the "Options") terminate automatically and shall not
be exercisable by you from and after the date on which you cease to be an
employee of the Company or one of its subsidiaries for any reason other than
your death, Retirement or Disability. In the event of your death during the
exercise period, the Options may be exercised up to one year after date of death
by the person or persons to whom your rights in the Options passed by your will
or according to the laws of descent and distribution. Nothing contained herein
shall restrict the right of the Company or any of its subsidiaries to terminate
your employment at any time, with or without cause.
11. The Options shall not in any event be exercisable after the expiration
of ten years from the Date of Grant, specified on the first page of this Grant
Agreement and, to the extent not exercised, shall terminate at the end of such
ten-year period.
12. Certificates for the shares of Common Stock purchased will be
deliverable to you or your agent, duly accredited to the satisfaction of the
Company, at the principal office of the Company in Akron, Ohio, or at such other
place acceptable to the Company as may be designated by you.
13. In the event you Retire or otherwise terminate your employment with
the Company or a subsidiary and within 18 months after such termination date
you accept employment with a competitor of the Company or a subsidiary, you
may forfeit the benefits of the Options granted hereunder. If such a
competitive situation occurs, the Committee, in its sole discretion, may
require you to return to the Company the economic value of the Options granted
hereunder which you have realized or obtained by your exercise at any time on
or after the date which is six months prior to the date of your termination of
employment with the Company. Additionally, if you have retired from the
Company, all Options granted to you hereunder which you have not exercised
prior to your competitive engagement shall be automatically cancelled.
14. Each Option granted is not transferable by you otherwise than by will
or the laws of descent and distribution, and is exercisable during your lifetime
only by you.
15. All rights conferred upon you under the provisions of this Grant
Agreement are personal and, except under the provisions of paragraph 14 of the
Plan, no assignee, transferee or other successor in interest shall acquire any
rights or interests whatsoever under this Grant Agreement, which is made
exclusively for the benefit of you and the Company.
16. Any notice to you under this Grant Agreement shall be sufficient if in
writing and if delivered to you or mailed to you at the address on record in the
Executive Compensation Department. Any notice to the Company under this
agreement shall be sufficient if in writing and if delivered to the Executive
Compensation Department of the Company in Akron, Ohio, or mailed by registered
mail directed to the Company for the attention of the Executive Compensation
Department at 1144 East Market Street, Akron, Ohio 44316-0001. Either you or the
Company may, by written notice, change the address. This agreement shall be
construed and shall take effect in accordance with the laws of the State of
Ohio.
17. Each Option may be exercised only at the times and to the extent, and
is subject to all of the terms and conditions, set forth in this Grant
Agreement, and in the Plan, including any rule or regulation adopted by the
Committee.
X-10.3-4
<PAGE> 5
EXHIBIT 10.3
(PART II)
THE GOODYEAR TIRE & RUBBER COMPANY
NON-QUALIFIED STOCK OPTION
GRANT AGREEMENT
TOM TIRE
000-00-0000
Key Employee
1 Eagle Drive
Akron, OH 12345
The Directors of The Goodyear Tire & Rubber Company (the "Company") desire to
encourage and facilitate ownership of the Common Stock of the Company (the
"Common Stock") by key employees and to provide for additional compensation
based on appreciation of the Common Stock, thereby providing incentive to
promote continued growth and success of the Company's business. Accordingly, the
1989 Goodyear Performance and Equity Incentive Plan (the "Plan") was adopted
effective April 10, 1989. A copy of the Plan is attached.
You have been granted Non-Qualified Stock Options for the purchase of Common
Stock as follows:
Stock Option Plan 1989 Plan
Non-Qualified Stock Option Grant 96000
Date of Grant 12/03/96
Option Price $00.00
Total Number of Shares Granted 0000
Your option shares become exercisable as follows:
<TABLE>
<S> <C> <C> <C>
____ on December 3, 1997 25% ____ on December 3, 1999 75%
____ on December 3, 1998 50% ____ on December 3, 2000 100%
</TABLE>
- -----------------------------------------------------
The Goodyear Tire & Rubber Company
December 3, 1996
Receipt of this Grant Agreement and a copy of the Plan is acknowledged:
- ---------------------------------- -----------------------
Optionee Date
X-10.3-5
<PAGE> 6
NQ Grant Agreement (Cont'd) December 3, 1996
PART I - NON-QUALIFIED STOCK OPTIONS
1. These Non-Qualified Stock Options for the number of shares of Common
Stock indicated on the preceding page (the "Non-Qualified Stock Options") are
granted to you under and are governed by the terms and conditions of the Plan
and this Grant Agreement. Your execution and return of the enclosed copy of page
one of this Grant Agreement acknowledging receipt of the Non-Qualified Stock
Options granted herewith constitutes your agreement to and acceptance of all
terms and conditions of the Plan and this Grant Agreement. You also agree that
you have read and understand this Grant Agreement.
2. You may exercise the Non-Qualified Stock Options granted pursuant to
this Grant Agreement through (1) a cash payment in the amount of the full option
exercise price of the shares being purchased (a "cash exercise"), (2) a payment
in full shares of Common Stock having a Fair Market Value (as defined in the
Plan) on the date of exercise equal to the full option exercise price of the
shares being purchased (a "share swap exercise"), or (3) a combination of the
cash exercise and share swap exercise methods. If the share swap exercise is
elected, it may be used only once in any twelve month period. Any exercise of
these Non-Qualified Stock Options shall be by written notice to the Company
stating the number of shares of Common Stock to be purchased and the exercise
method, accompanied with the payment, or proper proof of ownership if the share
swap exercise method is used. You shall be required to meet the tax withholding
obligations arising from any exercise of Non-Qualified Stock Options.
3. As further consideration for the Non-Qualified Stock Options granted to
you hereunder, you must remain in the continuous employ of the Company or one or
more of its subsidiaries from the Date of Grant to the date or dates the
Non-Qualified Stock Options become exercisable as set forth on page one of this
Grant Agreement before you will be entitled to exercise the Non-Qualified Stock
Options granted. The Non-Qualified Stock Options you have been granted shall not
in any event be exercisable after your termination of employment except for
Retirement, death, or Disability.
PART II - NON-QUALIFIED STOCK INVESTMENT OPTIONS
4. A Non-Qualified Stock Investment Option will be automatically granted
to you, immediately upon any satisfaction by you of the conditions specified
below, on the following terms and conditions:
Date of Grant: The date of your exercise, at any time prior to
January 1, 2004, of a Non-Qualified Stock Option
granted herein by tendering shares of Common Stock
in payment of all or a portion of the exercise
price of such Non-Qualified Stock
Number of Common Shares
Subject to Option: The number of shares of Common Stock you tendered
in the exercise of such Non-Qualified Stock
Option.
Option Price
Per Share: The Fair Market Value (as defined in the Plan) of
the Common Stock on the date you exercised such
Non-Qualified Stock Option by tendering shares of
Common Stock.
X-10.3-6
<PAGE> 7
NQ Grant Agreement (Cont'd) December 3, 1996
PART II-NON-QUALIFIED STOCK INVESTMENT OPTIONS (CONT'D)
Exercise Period: 100% exercisable at any time during the period
beginning on the first anniversary of its date of
grant and ending on December 3, 2006.
5. The Non-Qualified Stock Investment Options are granted under and are
governed by the terms and conditions of the Plan and this Grant Agreement. The
number of shares of Common Stock subject to each grant is determined by the
number of shares of Common Stock you tender to the Company in your exercise of a
Non-Qualified Stock Option granted pursuant to this Agreement. The Option price
per share of the Non-Qualified Stock Investment Option shall be the Fair Market
Value (as defined in the Plan) of the Common Stock on the date you exercise a
Non-Qualified Stock Option as aforesaid. In order to accept this Non-Qualified
Stock Investment Option Grant, you must tender shares of Common Stock in the
exercise of a Non-Qualified Stock Option prior to January 1, 2004.
6. You may exercise the Non-Qualified Stock Investment Options granted
pursuant to this Grant Agreement through (1) a cash payment in the amount of the
full option exercise price of the shares being purchased (a "cash exercise"),
(2) a payment in full shares of Common Stock having a Fair Market Value (as
defined in the Plan) on the date of exercise equal to the full option exercise
price of the shares of Common Stock being purchased (a "share swap exercise"),
or (3) a combination of the cash exercise and share swap exercise methods. Any
exercise of these Non-Qualified Stock Investment Options shall be by written
notice to the Company stating the number of shares of Common Stock to be
purchased and the exercise method, accompanied with the payment, or proper proof
of ownership if the share swap exercise method is used. You shall be required to
meet the tax withholding obligations arising from any exercise of Non-Qualified
Stock Investment Options.
7. As further consideration for each Non-Qualified Stock Investment Option
granted to you hereunder, you must remain in the continuous employ of the
Company or one or more of its subsidiaries for twelve months following the Date
of Grant in respect thereof (as defined at paragraph 5 above) before you will be
entitled to exercise such Non-Qualified Stock Investment Option. The
Non-Qualified Stock Investment Options you have been granted shall not in any
event be exercisable after your termination of employment except for Retirement,
death, or Disability (as defined in the Plan).
III - GENERAL PROVISIONS
8. In the event of your Retirement, death or Disability (as defined in the
Plan) during the exercise period on any date which is more than six (6) months
after the Date of Grant specified on the first page of this Grant Agreement, the
Non-Qualified Stock Options shall become immediately exercisable by you. In the
event of your Retirement, death or Disability (as defined in the Plan) during
the exercise period on any date which is more than six (6) months after the Date
of Grant specified at paragraph 4 of this Grant Agreement, the Non-Qualified
Stock Investment Options shall become immediately exercisable. In the event of
your Retirement or Disability, the Non-Qualified Stock Investment Options then
outstanding which are or become exercisable as aforesaid shall be exercisable by
you during the then remaining portion of the exercise period.
9. The Non-Qualified Stock Options and any Non-Qualified Stock Investment
Options granted hereunder (the "Options") terminate automatically and shall not
be exercisable by you from and after the date on which you cease to be an
employee of the Company or one of its subsidiaries for any reason other than
your death, Retirement or Disability. In the event of your
X-10.3-7
<PAGE> 8
NQ Grant Agreement (Cont'd) December 3, 1996
PART III - GENERAL PROVISIONS (CONT'D)
death during the exercise period, the Options may be exercised up to one year
after date of death by the person or persons to whom your rights in the Options
passed by your will or according to the laws of descent and distribution.
Nothing contained herein shall restrict the right of the Company or any of its
subsidiaries to terminate your employment at any time, with or without cause.
10. The Options shall not in any event be exercisable after the expiration
of ten years from the Date of Grant specified on the first page of this Grant
Agreement and, to the extent not exercised, shall terminate at the end of such
ten-year period.
11. Certificates for the shares of Common Stock purchased will be
deliverable to you or your agent, duly accredited to the satisfaction of the
Company, at the principal office of the Company in Akron, Ohio, or at such other
place acceptable to the Company as may be designated by you.
12. In the event you Retire or otherwise terminate your employment with
the Company or a subsidiary and within 18 months after such termination date
you accept employment with a competitor of the Company or a subsidiary, you
may forfeit the benefits of the Options granted hereunder. If such a
competitive situation occurs, the Committee, in its sole discretion, may
require you to return to the Company the economic value of the Options granted
hereunder which you have realized or obtained by your exercise at any time on
or after the date which is six months prior to the date of your termination of
employment with the Company. Additionally, if you have retired from the
Company, all Options granted to you hereunder which you have not exercised
prior to your competitive engagement shall be automatically cancelled.
13. Each Option granted is not transferable by you otherwise than by will
or the laws of descent and distribution, and is exercisable during your lifetime
only by you.
14. All rights conferred upon you under the provision of this Grant
Agreement are personal and, except under the provisions of paragraph 14 of the
Plan, no assignee, transferee or other successor in interest shall acquire any
rights or interests whatsoever under this Grant Agreement, which is made
exclusively for the benefit of you and the Company.
15. Any notice to you under this Grant Agreement shall be sufficient if in
writing and if delivered to you or mailed to you at the address on record in the
Executive Compensation Department. Any notice to the Company under this
agreement shall be sufficient if in writing and if delivered to the Executive
Compensation Department of the Company in Akron, Ohio, or mailed by registered
mail directed to the Company for the attention of the Executive Compensation
Department at 1144 East Market Street, Akron, Ohio 44316-0001. Either you or the
Company may, by written notice, change the address. This agreement shall be
construed and shall take effect in accordance with the laws of the State of
Ohio.
16. Each Option may be exercised only at the times and to the extent, and
is subject to all of the terms and conditions, set forth in this Grant
Agreement, and in the Plan, including any rule or regulation adopted by the
Committee.
X-10.3-8
<PAGE> 9
EXHIBIT 10.3
(PART III)
THE GOODYEAR TIRE & RUBBER COMPANY
NON-QUALIFIED STOCK OPTION/TANDEM STOCK APPRECIATION RIGHTS
GRANT AGREEMENT
TOM TIRE
000-00-0000
Key Employee
1 Eagle Drive
Akron, OH 12345
The Directors of The Goodyear Tire & Rubber Company (the "Company") desire to
encourage and facilitate ownership of the Common Stock of the Company (the
"Common Stock") by key employees and to provide for additional compensation
based on appreciation of the Common Stock, thereby providing incentive to
promote continued growth and success of the Company's business. Accordingly, the
1989 Goodyear Performance and Equity Incentive Plan (the "Plan") was adopted
effective April 10, 1989. A copy of the Plan is attached.
You have been granted Non-Qualified Stock Options for the purchase of Goodyear
Common Stock and tandem Stock Appreciation Rights as follows:
Stock Option Plan 1989 Plan
Non-Qualified Stock Option/SAR 960000
Date of Grant 12/03/96
Option Price $00.00
Number of Shares Granted -0-
The Company shall determine whether or not you may exercise the Stock Option or
the SARs at the time you notify the Company of your intent to exercise all or
part of this grant.
Your option shares become exercisable as follows:
<TABLE>
<S> <C> <C>
____ on December 3, 1997 25% ____ on December 3, 1999 75%
____ on December 3, 1998 50% ____ on December 3, 2000 100%
</TABLE>
- -----------------------------------------------------
The Goodyear Tire & Rubber Company
December 3, 1996
Receipt of this Grant Agreement and a copy of the Plan is acknowledged:
- ----------------------------------- -----------------------
Optionee Date
X-10.3-9
<PAGE> 10
NQ/SAR Grant Agreement (Cont'd) December 3, 1996
1. These Non-Qualified Stock Options for the number of shares of Common
Stock indicated on the preceding page (the "Options") and the Stock Appreciation
Rights granted in tandem with the Options (the "SARs") are granted to you under
and are governed by the terms and conditions of the Plan and this Grant
Agreement. Your execution and return of the enclosed copy of this Grant
Agreement acknowledging receipt of the Options and SARs granted herewith
constitutes your agreement to and acceptance of all terms and conditions of the
Plan and this Grant Agreement, including a recognition of the Company's right to
specify whether or not you may exercise either the Options or the SARs at the
time you notify the Company of your intent to exercise. You also agree that you
have read and understand this Grant Agreement.
2. If the Company approves the exercise of an Option, each exercise of the
Options granted pursuant to this Grant Agreement shall be by written notice to
the Company stating the number of shares of the Common Stock being purchased,
together with a cash payment in the amount of the full option exercise price of
such shares or payment in full shares of the Common Stock having a Fair Market
Value (as defined in the Plan)on the date of exercise equal to the full purchase
price of the shares of Common Stock being purchased. Withholding tax obligations
shall be satisfied upon any Option exercise.
3. If the Company approves the exercise of the SARs, written notice must
be given to the Company stating the number of shares in the Options in respect
of which the SARs are being exercised. In due course, you will receive payment
in cash in an amount equal to the difference between the Fair Market Value
(as defined in the Plan) of one share of the Common Stock on the date of
exercise of the SARs and the Option Exercise Price per Share specified in
respect of the Options times the number of shares in respect of which the SARs
shall have been exercised. Such payment shall be subject to reduction for
withholding taxes.
4. Certificates for shares of the Common Stock purchased will be
deliverable to you or your agent, duly accredited to the satisfaction of the
Company, at the principal office of the Company in Akron, Ohio, or at such other
place acceptable to the Company as may be designated by you.
5. Your purchase of shares of Common Stock pursuant to the Options shall
automatically reduce by a like number the shares subject to the SARs and,
conversely, your exercise of any SARs shall automatically reduce by a like
number the shares of the Common Stock available for purchase by you under the
Options.
6. The Options and SARs you have been granted shall not in any event be
exercisable after the expiration of ten years from the Date of Grant specified
on the first page of this Grant Agreement and, to the extent not exercised,
shall terminate at the end of such ten-year period.
7. Each Option and SAR are not transferable by you otherwise than by will
or the laws of descent and distribution, and are exercisable during your
lifetime only by you.
8. All rights conferred upon you under the provisions of this Grant
Agreement are personal and, except under the provisions of paragraph 14 of the
Plan, no assignee, transferee or other successor in interest shall acquire any
rights or interests whatsoever under this Grant Agreement, which is made
exclusively for the benefit of you and the Company.
9. As further consideration for the Options and SARs granted to you
hereunder, you must remain in the continuous employ of the Company or one or
more of its subsidiaries from the Date of Grant to (and including) the date or
dates they become exercisable as set forth on page one of this Grant Agreement
before you will be entitled to exercise the Options or SAR's.
X-10.3-10
<PAGE> 11
NQ/SAR Grant Agreement (Cont'd) December 3, 1996
10. In the event of your death, Retirement (as defined in the Plan) or
Disability (as defined in the Plan) during the ten-year exercise period on any
date which is more than six (6) months after the Date of Grant specified on the
first page of this Grant Agreement, the Options and SARs shall become
immediately exercisable and, except as provided below in the event of your
death, shall be exercisable by you for the remainder of the term of the
Option/SAR grant. In the event of your death during the exercise period, the
Options and SARs may be exercised up to one year after date of death by the
person or persons to whom your rights in the options passed by your will or
according to the laws of descent and distribution. The Options and SARs
terminate automatically and shall not be exercisable by you from and after the
date on which you cease to be an employee of the Company or one of its
subsidiaries for any reason other than your death, Retirement or Disability.
Nothing contained herein shall restrict the right of the Company or any of its
subsidiaries to terminate your employment at any time, with or without cause.
11. In the event you Retire or otherwise terminate your employment with
the Company or a subsidiary and within 18 months after such termination date you
accept employment with a competitor of the Company or a subsidiary, you may
forfeit the benefits of the Options or SARs granted hereunder. If such a
competitive situation occurs, the Committee, in its sole discretion, may require
you to return to the Company the economic value of the Options or SARs which you
have realized or obtained by your exercise of the Options or SARs granted
hereunder at any time on or after the date which is six months prior to the date
of your termination of employment with the Company. Additionally, if you have
retired from the Company, all Options or SARs which are granted to you hereunder
and which you have not exercised prior to your competitive engagement shall be
automatically cancelled.
12. In agreeing to accept this grant, you clearly acknowledge that The
Goodyear Tire & Rubber Company assumes no responsibility for any regulatory or
tax consequences that arise from either the grant or exercise of the Options or
the SARs, whether under U.S. or foreign law, rules, regulations or treaties.
13. Prior to the exercise of an Option or SAR, written notice must be
given to the Company of your intent to exercise. The Company will then advise
you whether or not you may exercise a Stock Option or an SAR and upon
receiving such advice you may then exercise the Stock Option or the SAR.
14. Any notice to you under this Grant Agreement shall be sufficient if in
writing and if delivered to you or mailed to you at the address on record in the
Executive Compensation Department. Any notice to the Company under this
agreement shall be sufficient if in writing and if delivered to the Executive
Compensation Department of the Company in Akron, Ohio, or mailed by registered
mail directed to the Company for the attention of the Executive Compensation
Department at 1144 East Market Street, Akron, Ohio 44316-0001. Either you or the
Company may, by written notice, change the address.
15. This Grant Agreement shall be construed and shall take effect in
accordance with the laws of the State of Ohio.
16. Each Option and/or SAR may be exercised only at the times and to the
extent, and is subject to all of the terms and conditions, set forth in this
Grant Agreement, and in the Plan, including any rule or regulation adopted by
the Committee.
X-10.3-11
<PAGE> 1
EXHIBIT 10.4
GRANT AGREEMENT
(As Amended December 3, 1996)
THE GOODYEAR TIRE & RUBBER COMPANY
PERFORMANCE EQUITY GRANT
7~
1~
8~
9~
11~
Reference is made to that certain Grant Agreement - Performance Equity
Grant dated December 6, 1994, whereunder you were granted Performance Equity
Grant Units (the "Units"). The Grant Agreement is hereby amended to provide as
follows:
The Directors of The Goodyear Tire & Rubber Company (the "Company") desire
to encourage and facilitate ownership of the Common Stock of the Company (the
"Common Stock") by key employees and to provide for additional compensation
based on the appreciation of the Common Stock, thereby providing incentive to
promote the continued growth and success of the Company's business. Accordingly,
the 1989 Goodyear Performance and Equity Incentive Plan was adopted effective
April 10, 1989 (the "Plan"). A copy of the Plan is attached.
At the December 6, 1994 meeting of the Compensation Committee of the Board
of Directors, you were awarded a Performance Equity Grant (each Unit equivalent
in value to one share of Common Stock) as follows:
Date of Grant 12-6-94
Number of Equity Units Granted
Performance Period 1-1-95 through 12-31-97
The number of Performance Equity Grant Units specified above (the "Units")
which you will earn at the end of the three-year Performance Period specified
above (the "Performance Period") will be determined by and contingent upon the
extent to which Performance Goals are achieved. The number of Units actually
earned may be adjusted between 0 and 150% of the number of Units stated above,
depending on the level of achievement of Performance Goals. In accordance with
actions taken by the Compensation Committee on November 5, 1996 and December 3,
1996, payment of the Units earned will be made as provided below. The
Performance Goals and earn out criteria for the Performance Period for your
Performance Equity Grant are described at Annex A.
The Performance Equity Grant for the number of Units specified above is
granted to you under, and governed by the terms and conditions of, the Plan and
this Grant Agreement. Your execution and return of the enclosed copy of this
Grant Agreement acknowledging receipt of the Units granted herewith constitutes
your agreement to, and acceptance of, all terms and conditions of the Plan and
this Grant Agreement. You also agree that you have read and understand the
provisions of the Plan, this Grant Agreement and Annex A.
All rights conferred upon you under the provisions of this Grant Agreement
are personal to you and, except under the provisions of paragraph 14 of the
Plan, no assignee, transferee or other successor in interest shall acquire any
rights or interests whatsoever under this Grant Agreement, which is made
exclusively for the benefit of you and the Company.
X-10.4-1
<PAGE> 2
As further consideration for the Units granted to you hereunder, you must
remain in the continuous employ of the Company or one or more of its
subsidiaries until December 31, 1997, the end of the Performance Period. Any
Units earned will be prorated in the event of your death, Retirement (as defined
in the Plan) or Disability (as defined in the Plan) or layoff prior to
completion of the Performance Period. Any proration is based on the last day you
worked. Nothing contained herein shall restrict the right of the Company or any
of its subsidiaries to terminate your employment at any time, with or without
cause.
You will forfeit the right to receive any distribution or payment under
this Grant if you enter into a relationship either as an employee, consultant,
agent or in any manner whatsoever with an entity that sells products in
competition with products sold by the Company and its subsidiaries within six
months after the earlier of (1) the date you receive your distribution of Units
earned or (2) the date you ceased to be an employee of the Company or one of its
subsidiaries.
The number of Units earned will be paid as follows:
(a) Each Unit earned will be valued at a dollar amount equal to the Fair
Market Value of the Common Stock (as defined below) on December 31, 1997,
(the "Unit Value").
(b) The Company will pay to you an amount equal to 50% of the Unit Value
multiplied by the total number of Units earned, less such withholding and
payroll taxes as the Company shall determine to be necessary or
appropriate, in cash in February of 1998; provided, however, that
notwithstanding the foregoing, you may elect, by delivering a written
notice of your election to the Company not later than December 31, 1996,
to defer receipt of all or a specified whole percentage of the aforesaid
50% of Units earned until the Optional Deferral Date (as defined below),
in which event the amount you elect to defer (which shall be equal to the
product of UE x .5UV x PDE, where UE equals the number of Units earned, UV
equals the Unit Value and PDE equals the percentage, expressed as a
decimal, of the Units earned you elect to defer) will be credited in
February of 1998 to an account maintained in the records of the Company
(the "Optional Deferred Amount") and will be converted into Deferral
Units. The number of Deferral Units will be determined by dividing the
Optional Deferred Amount by the Fair Market Value of the Common Stock (as
defined below) on December 31, 1997. The amount of such deferral will be
reduced, if necessary, to pay such tax, payroll and other withholding
obligations as the Company shall determine to be necessary or appropriate.
(c) The balance of the Unit Value of each Unit earned, which shall be
equal to 50% of the Unit Value, shall be multiplied by the total number
of Units earned (the "Mandatory Deferred Amount") and credited in
February of 1998 to an account maintained in the records of the Company.
The Mandatory Deferred Amount will be converted into Deferral Units (as
defined below). The number of Deferral Units will be determined by
dividing the Mandatory Deferred Amount by the Fair Market Value of the
Common Stock (as defined below) on December 31, 1997. The amount of such
deferral will be reduced, if necessary, to pay such tax, payroll and
other withholding obligations as the Company shall determine to be
necessary or appropriate.
(d) Notwithstanding the foregoing, the Compensation Committee of the Board
of Directors may, at its sole election, at any time and from time to time
require that the payment of the entire, or any portion of the, Unit Value
of any number of the Units earned shall be deferred until the Optional
Deferral Date, or such later date as it shall deem appropriate, in order
for the Company to conform to the requirements of Section 162(m) of the
Internal Revenue Code (the "Required Deferral Amount"). Any Required
Deferral Amount so deferred will be credited to an account maintained in
the records of the Company and will be converted into Deferral Units, the
number of which shall be determined by dividing each amount so deferred by
the Fair Market Value of the Common Stock on the date of such deferral.
X-10.4-2
<PAGE> 3
As used herein, the term: (1) "Deferral Unit" means an equivalent to a
hypothetical share of the Common Stock; (2) "Fair Market Value of the Common
Stock" means, in respect of any date on or as of which a determination thereof
is being or to be made, the average of the high and low per share sale prices of
the Common Stock on the New York Stock Exchange Composite Transactions Tape on
such date or, if the Common Stock was not traded on such date, the next
preceding day on which the Common Stock was traded on the New York Stock
Exchange; (3) "Dividend Equivalent" means, with respect to each dividend payment
date for the Common Stock, an amount equal to the cash dividend per share of
Common Stock which is payable on such dividend payment date; (4) "Mandatory
Deferral Date" means the earlier of (x) the tenth business day of the January
next following the fifth anniversary of the last day of the Performance Period,
or (y) the Optional Deferral Date; (5) "Mandatory Deferral Unit" means each
Deferral Unit resulting from the Mandatory Deferral Amount, including Dividend
Equivalents credited in respect thereof; (6) "Optional Deferral Date" means the
later of (i) the first business day of the seventh month following the month
during which you cease to be employed by the Company, or one of its subsidiary
companies, for any reason (whether Retirement, Disability, death, layoff,
voluntary termination or otherwise) or (ii) the tenth business day of the
calendar year following the calendar year during which you ceased to be an
employee of the Company, or one of its subsidiary companies, for any reason
whatsoever; (7) "Optional Deferral Unit" means each Deferral Unit resulting from
any Optional Deferred Amount or converted from a Mandatory Deferral Unit,
including Dividend Equivalents credited in respect thereof; and (8) "Required
Deferral Unit" means each Deferral Unit resulting from any Required Deferred
Amount, including Dividend Equivalents credited in respect thereof. All
computations relating to Deferral Units, fractions of shares of Common Stock and
Dividend Equivalents will be rounded, if necessary, to the fourth decimal place.
Each Deferral Unit will be credited with one Dividend Equivalent on each
date on which cash dividends are paid on shares of the Common Stock (and each
fraction of a Deferral Unit shall be credited with a like fraction of a Dividend
Equivalent). Dividend Equivalents (and fractions thereof, if any) will be
automatically translated into Deferral Units by dividing the dollar amount of
such Dividend Equivalents by the Fair Market Value of the Common Stock on the
date the relevant Dividend Equivalents are accrued to your account. The number
of Deferral Units (and any fractions thereof) resulting will be credited to your
account (in lieu of the dollar amount of such Dividend Equivalent) and shall
continually be denominated in Deferral Units until converted for payment as
provided in this Grant Agreement.
The Mandatory Deferral Units credited to your account shall be
automatically deferred until the Mandatory Deferral Date. If the Mandatory
Deferral Date occurs before you cease to be an employee of the Company, or one
of its subsidiary companies, you may elect, by delivering a written notice of
your election to the Company not later than December 31, 2001, to defer receipt
of all or a specified whole percentage of the Mandatory Deferral Units credited
to your account until the Optional Deferral Date, whereupon such Mandatory
Deferral Units will become Optional Deferral Units.
On the Mandatory Deferral Date, to the extent you have not elected to
further defer payment of all or a portion of the Mandatory Deferral Units until
the Optional Deferral Date in the manner provided above (and unless payment of
all or a portion of your Mandatory Deferral Units have been further deferred
until the Optional Deferral Date pursuant to the conversion thereof into
Required Deferral Units), the whole Mandatory Deferral Units in your account
will be converted, at your election (which election shall be made in writing on
or before the June 30, 2002), into (1) a like number of shares of the Common
Stock, (2) a dollar amount determined by multiplying the number of Deferral
Units credited to your account by the Fair Market Value of the Common Stock on
the Mandatory Deferral Date, or (3) a combination of shares of the Common Stock
and cash in accordance with your election (which shall be expressed as a
percentage of the Deferral Units to be paid in shares of the Common Stock). In
accordance with your election, within five business days following the Mandatory
Deferral Date you will be paid (a) such
X-10.4-3
<PAGE> 4
number of shares of the Common Stock, (b) such amount of cash, or (c) the
elected combination of shares of Common Stock and cash, the amounts of which
shall be determined in accordance with the preceding sentence. If you did not
make a timely election as to the form of payment, you will receive payment in
shares of the Common Stock. Any fraction of a Deferral Unit will be paid to you
on the relevant date in cash, the amount of which shall be calculated in the
manner specified above.If you have duly elected to receive payment of all or a
specified percentage of your Deferral Units on the Optional Deferral Date (or if
payment of any of the Deferral Units has been deferred until the Optional
Deferral Date pursuant to the conversion thereof into Required Deferral Units),
you may elect, at the time and in the manner specified below, to receive such
Deferral Units in (1) a lump sum on the fifth business day following the
Optional Deferral Date, or (2) in a series of not less than five (5) or more
than ten (10) annual installments commencing on the fifth business day following
the Optional Deferral Date, or (3) a specified percentage of your Deferral Units
on the fifth business day following the Optional Deferral Date and the balance
of your Deferral Units in installments as specified in clause (2) of this
sentence.
On the Optional Deferral Date (to the extent you have not elected to
receive payment in installments), the whole Deferral Units then in your account
(which have not been designated for payment in installments) will be converted
at your election (which election shall be made in writing on or before the last
day of the seventh month prior to the month during which the Optional Deferral
Date occurs), into (1) a like number of shares of the Common Stock, or (2) a
dollar amount determined by multiplying the number of whole Deferral Units
credited to your account by the Fair Market Value of the Common Stock on the
Optional Deferral Date, or (3) a combination of shares of the Common Stock and
cash in accordance with your election (which shall be expressed as a percentage
of the Deferral Units to be paid in shares of the Common Stock). In accordance
with your election, within five business days following the Optional Deferral
Date you will be paid (a) such number of shares of the Common Stock, (b) such
amount of cash, or (c) the elected combination of shares of Common Stock and
cash, the amounts of which shall be determined in accordance with the preceding
sentence. If you did not make an election as to the form of payment on or before
the required date, you will receive payment in shares of the Common Stock. Any
fraction of a Deferral Unit will be paid to you on the relevant date in cash,
the amount of which shall be calculated in the manner specified above.
If you desire to receive payment of your Deferral Units or a portion
thereof in annual installments, you may elect (by delivering to the Company a
written notice of your election, which shall specify the number of annual
installments, not later than December 31 of the calendar year which is two
calendar years prior to the year during which the Optional Deferral Date occurs)
to receive all, or a specified whole percentage of, the Deferral Units in your
account (which would otherwise be scheduled for distribution on the Optional
Deferral Date) in not less than five (5) or more than ten (10) annual
installments, payable commencing on the fifth business day following the
Optional Deferral Date and thereafter on the fifth business day following each
anniversary thereof until paid in full. You may also elect (in writing on or
before the last day of the seventh month prior to the month during which the
Optional Deferral Date occurs) to receive payment in shares of the Common Stock,
cash or any combination of Common Stock and cash (expressed as a percentage of
the Deferral Units to be paid in shares of the Common Stock. Each installment
shall be in an amount equal to the total number of Deferral Units credited to
your account on the Optional Deferral Date, or on the anniversary thereof which
is the fifth business day prior to the date such installment is due and payable,
as the case may be, divided by the number of annual installments remaining
(including the annual installment then being calculated for payment) to be paid.
In respect of each installment, the number of Deferral Units payable shall, in
accordance with your election, be converted into (1) a like number of shares of
the Common Stock, (2) a dollar amount determined by multiplying the number of
whole Deferral Units credited to your account by the Fair Market Value of the
Common Stock on the relevant anniversary of the Optional Deferral Date (or the
Optional Deferral Date in the case of the first installment), or (3) the elected
combination of shares of the Common Stock and cash, the amounts of which shall
be determined in the manner specified above. Any fraction of Deferral Unit will
be paid to you on the relevant date in cash, the amount of which shall be
calculated in the manner specified above.
X-10.4-4
<PAGE> 5
You will be required to satisfy all Federal, state and local tax and
payroll withholding obligations, and any other withholding obligations, arising
in respect of any distribution of shares of the Common Stock or cash to you. To
the extent there is sufficient cash available, such withholding obligations will
be deducted from your distribution. To the extent the amount of cash to be
distributed is not sufficient to satisfy all withholding obligations, you will
be required to pay such withholding obligations as a condition to your receipt
of any distribution of shares of the Common Stock.
In the event of your death at any time prior to the Mandatory Deferral
Date, your account balance will be paid in cash in a lump sum on the later of
(a) the fifth business day following the Mandatory Deferral Date or (b) the
fifth business day of the calendar year following the calendar year during which
your date of death occurs. In the event of your death at any time following the
Mandatory Deferral Date and prior to the distribution of your account, the
entire balance of your account shall be paid in cash on the anniversary of the
Mandatory Deferral Date next following your date of death.
In the event of any stock dividend, stock split, recapitalization, merger,
split-up, spin-off or other change affecting the Common Stock of the Company,
the Deferral Units in your account shall be adjusted in the same manner and
proportion as the change to the Common Stock.
Any notice to you under this Grant Agreement shall be sufficient if in
writing and if delivered to you or mailed by registered mail directed to you at
the address on record in the Executive Compensation Department. Any notice to
the Company under this Grant Agreement shall be sufficient in writing and if
delivered to the Executive Compensation Department of the Company in Akron,
Ohio, or mailed by registered mail directed to the Company for the attention of
the Executive Compensation Department at 1144 East Market Street, Akron, Ohio
44316-0001. Either you or the Company may, by written notice, change the
address.
Dated: December 3, 1996 THE GOODYEAR TIRE & RUBBER COMPANY
Chairman, CEO & President
Grant Agreement, as amended,
received and accepted:
Date:December , 1996
- --------------------------------------------- -----
7~
X-10.4-5
<PAGE> 6
ANNEX A
PERFORMANCE GOALS
Performance Goals are based on the aggregate earnings per share of Goodyear
Common Stock for the period January 1, 1995 through December 31, 1997.
MINIMUM PERFORMANCE GOAL FOR PAYMENT
In order for there to be a distribution under this Grant, the aggregate earnings
per share shall be at least $12.15 for the three-year period beginning January
1, 1995.
PERFORMANCE UNIT DISTRIBUTION SCHEDULE
Unit distributions are payable 50 percent in shares of the Company's Common
Stock and 50 percent in cash.
<TABLE>
<CAPTION>
Aggregate Earnings % of
Per Share Unit Distribution
1/1/95 - 12/31/97 Based on Grant
----------------- --------------
<S> <C>
$14.15 150 %
13.90 140
13.65 130
13.40 120
13.15 110
12.90 100
12.65 90
12.40 85
12.15 80
<12.15 0
</TABLE>
X-10.4-6
<PAGE> 1
EXHIBIT 10.5
GRANT AGREEMENT
(As Amended December 3, 1996)
THE GOODYEAR TIRE & RUBBER COMPANY
PERFORMANCE EQUITY GRANT
7~
1~
8~
9~
11~
Reference is made to that certain Grant Agreement - Performance Equity
Grant dated January 9, 1996, whereunder you were granted Performance Equity
Grant Units (the "Units"). The Grant Agreement is hereby amended to provide as
follows:
The Directors of The Goodyear Tire & Rubber Company (the "Company") desire
to encourage and facilitate ownership of the Common Stock of the Company (the
"Common Stock") by key employees and to provide for additional compensation
based on the appreciation of the Common Stock, thereby providing incentive to
promote the continued growth and success of the Company's business. Accordingly,
the 1989 Goodyear Performance and Equity Incentive Plan was adopted effective
April 10, 1989 (the "Plan"). A copy of the Plan is attached.
At the January 9, 1996 meeting of the Compensation Committee of the Board
of Directors, you were awarded a Performance Equity Grant (each Unit equivalent
in value to one share of Common Stock) as follows:
Date of Grant 1-9-96
Number of Equity Units Granted
Performance Period 1-1-96 through 12-31-98
The number of Performance Equity Grant Units specified above (the "Units")
which you will earn at the end of the three-year Performance Period specified
above (the "Performance Period") will be determined by and contingent upon the
extent to which Performance Goals are achieved. The number of Units actually
earned may be adjusted between 0 and 150% of the number of Units stated above,
depending on the level of achievement of Performance Goals. In accordance with
actions taken by the Compensation Committee on November 5, 1996 and December 3,
1996, payment of the Units earned will be made as provided below. The
Performance Goals and earn out criteria for the Performance Period for your
Performance Equity Grant are described at Annex A.
The Performance Equity Grant for the number of Units specified above is
granted to you under, and governed by the terms and conditions of, the Plan and
this Grant Agreement. Your execution and return of the enclosed copy of this
Grant Agreement acknowledging receipt of the Units granted herewith constitutes
your agreement to, and acceptance of, all terms and conditions of the Plan and
this Grant Agreement. You also agree that you have read and understand the
provisions of the Plan, this Grant Agreement and Annex A.
X-10.5-1
<PAGE> 2
All rights conferred upon you under the provisions of this Grant Agreement
are personal to you and, except under the provisions of paragraph 14 of the
Plan, no assignee, transferee or other successor in interest shall acquire any
rights or interests whatsoever under this Grant Agreement, which is made
exclusively for the benefit of you and the Company.
As further consideration for the Units granted to you hereunder, you must
remain in the continuous employ of the Company or one or more of its
subsidiaries until December 31, 1998, the end of the Performance Period. Any
Units earned will be prorated in the event of your death, Retirement (as defined
in the Plan) or Disability (as defined in the Plan) or layoff prior to
completion of the Performance Period. Any proration is based on the last day you
worked. Nothing contained herein shall restrict the right of the Company or any
of its subsidiaries to terminate your employment at any time, with or without
cause.
You will forfeit the right to receive any distribution or payment under
this Grant if you enter into a relationship either as an employee, consultant,
agent or in any manner whatsoever with an entity that sells products in
competition with products sold by the Company and its subsidiaries within six
months after the earlier of (1) the date you receive your distribution of Units
earned or (2) the date you ceased to be an employee of the Company or one of its
subsidiaries.
The number of Units earned will be paid as follows:
(a) Each Unit earned will be valued at a dollar amount equal to the Fair
Market Value of the Common Stock (as defined below) on December 31, 1998,
(the "Unit Value").
(b) The Company will pay to you an amount equal to 50% of the Unit Value
multiplied by the total number of Units earned, less such withholding and
payroll taxes as the Company shall determine to be necessary or
appropriate, in cash in February of 1999; provided, however, that
notwithstanding the foregoing, you may elect, by delivering a written
notice of your election to the Company not later than December 31, 1997,
to defer receipt of all or a specified whole percentage of the aforesaid
50% of Units earned until the Optional Deferral Date (as defined below),
in which event the amount you elect to defer (which shall be equal to the
product of UE x .5UV x PDE, where UE equals the number of Units earned, UV
equals the Unit Value and PDE equals the percentage, expressed as a
decimal, of the Units earned you elect to defer) will be credited in
February of 1999 to an account maintained in the records of the Company
(the "Optional Deferred Amount") and will be converted into Deferral
Units. The number of Deferral Units will be determined by dividing the
Optional Deferred Amount by the Fair Market Value of the Common Stock (as
defined below) on December 31, 1998. The amount of such deferral will be
reduced, if necessary, to pay such tax, payroll and other withholding
obligations as the Company shall determine to be necessary or appropriate.
(c) The balance of the Unit Value of each Unit earned, which shall be
equal to 50% of the Unit Value, shall be multiplied by the total number
of Units earned (the "Mandatory Deferred Amount") and credited in
February of 1999 to an account maintained in the records of the Company.
The Mandatory Deferred Amount will be converted into Deferral Units (as
defined below). The number of Deferral Units will be determined by
dividing the Mandatory Deferred Amount by the Fair Market Value of the
Common Stock (as defined below) on December 31, 1998. The amount of such
deferral will be reduced, if necessary, to pay such tax, payroll and
other withholding obligations as the Company shall determine to be
necessary or appropriate.
(d) Notwithstanding the foregoing, the Compensation Committee of the Board
of Directors may, at its sole election, at any time and from time to time
require that the payment of the entire, or any portion of the, Unit Value
of any number of the Units earned shall be deferred until the Optional
Deferral Date, or such later date as it shall deem appropriate, in order
for the Company to conform to the requirements of Section 162(m) of the
Internal Revenue Code (the "Required Deferral Amount"). Any Required
Deferral Amount so deferred will be credited to an account maintained in
the records of the Company and will be con-
X-10.5-2
<PAGE> 3
verted into Deferral Units, the number of which shall be determined by
dividing each amount so deferred by the Fair Market Value of the Common
Stock on the date of such deferral.
As used herein, the term: (1) "Deferral Unit" means an equivalent to a
hypothetical share of the Common Stock; (2) "Fair Market Value of the Common
Stock" means, in respect of any date on or as of which a determination thereof
is being or to be made, the average of the high and low per share sale prices of
the Common Stock on the New York Stock Exchange Composite Transactions Tape on
such date or, if the Common Stock was not traded on such date, the next
preceding day on which the Common Stock was traded on the New York Stock
Exchange; (3) "Dividend Equivalent" means, with respect to each dividend payment
date for the Common Stock, an amount equal to the cash dividend per share of
Common Stock which is payable on such dividend payment date; (4) "Mandatory
Deferral Date" means the earlier of (x) the tenth business day of the January
next following the fifth anniversary of the last day of the Performance Period,
or (y) the Optional Deferral Date; (5) "Mandatory Deferral Unit" means each
Deferral Unit resulting from the Mandatory Deferral Amount, including Dividend
Equivalents credited in respect thereof; (6) "Optional Deferral Date" means the
later of (i) the first business day of the seventh month following the month
during which you cease to be employed by the Company, or one of its subsidiary
companies, for any reason (whether Retirement, Disability, death, layoff,
voluntary termination or otherwise) or (ii) the tenth business day of the
calendar year following the calendar year during which you ceased to be an
employee of the Company, or one of its subsidiary companies, for any reason
whatsoever; (7) "Optional Deferral Unit" means each Deferral Unit resulting from
any Optional Deferred Amount or converted from a Mandatory Deferral Unit,
including Dividend Equivalents credited in respect thereof; and (8) "Required
Deferral Unit" means each Deferral Unit resulting from any Required Deferred
Amount, including Dividend Equivalents credited in respect thereof. All
computations relating to Deferral Units, fractions of shares of Common Stock and
Dividend Equivalents will be rounded, if necessary, to the fourth decimal place.
Each Deferral Unit will be credited with one Dividend Equivalent on each
date on which cash dividends are paid on shares of the Common Stock (and each
fraction of a Deferral Unit shall be credited with a like fraction of a Dividend
Equivalent). Dividend Equivalents (and fractions thereof, if any) will be
automatically translated into Deferral Units by dividing the dollar amount of
such Dividend Equivalents by the Fair Market Value of the Common Stock on the
date the relevant Dividend Equivalents are accrued to your account. The number
of Deferral Units (and any fractions thereof) resulting will be credited to your
account (in lieu of the dollar amount of such Dividend Equivalent) and shall
continually be denominated in Deferral Units until converted for payment as
provided in this Grant Agreement.
The Mandatory Deferral Units credited to your account shall be
automatically deferred until the Mandatory Deferral Date. If the Mandatory
Deferral Date occurs before you cease to be an employee of the Company, or one
of its subsidiary companies, you may elect, by delivering a written notice of
your election to the Company not later than December 31, 2002, to defer receipt
of all or a specified whole percentage of the Mandatory Deferral Units credited
to your account until the Optional Deferral Date, whereupon such Mandatory
Deferral Units will become Optional Deferral Units.
On the Mandatory Deferral Date, to the extent you have not elected to
further defer payment of all or a portion of the Mandatory Deferral Units until
the Optional Deferral Date in the manner provided above (and unless payment of
all or a portion of your Mandatory Deferral Units have been further deferred
until the Optional Deferral Date pursuant to the conversion thereof into
Required Deferral Units), the whole Mandatory Deferral Units in your account
will be converted, at your election (which election shall be made in writing on
or before the June 30, 2003), into (1) a like number of shares of the Common
Stock, (2) a dollar amount determined by multiplying the number of Deferral
Units credited to your account by the Fair Market Value of the Common Stock on
the Mandatory Deferral Date, or (3) a combination of shares of the Common Stock
and cash in accordance with your election (which shall be expressed as a
percentage of
X-10.5-3
<PAGE> 4
the Deferral Units to be paid in shares of the Common Stock). In accordance with
your election, within five business days following the Mandatory Deferral Date
you will be paid (a) such number of shares of the Common Stock, (b) such amount
of cash, or (c) the elected combination of shares of Common Stock and cash, the
amounts of which shall be determined in accordance with the preceding sentence.
If you did not make a timely election as to the form of payment, you will
receive payment in shares of the Common Stock. Any fraction of a Deferral Unit
will be paid to you on the relevant date in cash, the amount of which shall be
calculated in the manner specified above.
If you have duly elected to receive payment of all or a specified
percentage of your Deferral Units on the Optional Deferral Date (or if payment
of any of the Deferral Units has been deferred until the Optional Deferral Date
pursuant to the conversion thereof into Required Deferral Units), you may elect,
at the time and in the manner specified below, to receive such Deferral Units in
(1) a lump sum on the fifth business day following the Optional Deferral Date,
or (2) in a series of not less than five (5) or more than ten (10) annual
installments commencing on the fifth business day following the Optional
Deferral Date, or (3) a specified percentage of your Deferral Units on the fifth
business day following the Optional Deferral Date and the balance of your
Deferral Units in installments as specified in clause (2) of this sentence.
On the Optional Deferral Date (to the extent you have not elected to
receive payment in installments), the whole Deferral Units then in your account
(which have not been designated for payment in installments) will be converted
at your election (which election shall be made in writing on or before the last
day of the seventh month prior to the month during which the Optional Deferral
Date occurs), into (1) a like number of shares of the Common Stock, or (2) a
dollar amount determined by multiplying the number of whole Deferral Units
credited to your account by the Fair Market Value of the Common Stock on the
Optional Deferral Date, or (3) a combination of shares of the Common Stock and
cash in accordance with your election (which shall be expressed as a percentage
of the Deferral Units to be paid in shares of the Common Stock). In accordance
with your election, within five business days following the Optional Deferral
Date you will be paid (a) such number of shares of the Common Stock, (b) such
amount of cash, or (c) the elected combination of shares of Common Stock and
cash, the amounts of which shall be determined in accordance with the preceding
sentence. If you did not make an election as to the form of payment on or before
the required date, you will receive payment in shares of the Common Stock. Any
fraction of a Deferral Unit will be paid to you on the relevant date in cash,
the amount of which shall be calculated in the manner specified above.
If you desire to receive payment of your Deferral Units or a portion
thereof in annual installments, you may elect (by delivering to the Company a
written notice of your election, which shall specify the number of annual
installments, not later than December 31 of the calendar year which is two
calendar years prior to the year during which the Optional Deferral Date occurs)
to receive all, or a specified whole percentage of, the Deferral Units in your
account (which would otherwise be scheduled for distribution on the Optional
Deferral Date) in not less than five (5) or more than ten (10) annual
installments, payable commencing on the fifth business day following the
Optional Deferral Date and thereafter on the fifth business day following each
anniversary thereof until paid in full. You may also elect (in writing on or
before the last day of the seventh month prior to the month during which the
Optional Deferral Date occurs) to receive payment in shares of the Common Stock,
cash or any combination of Common Stock and cash (expressed as a percentage of
the Deferral Units to be paid in shares of the Common Stock. Each installment
shall be in an amount equal to the total number of Deferral Units credited to
your account on the Optional Deferral Date, or on the anniversary thereof which
is the fifth business day prior to the date such installment is due and payable,
as the case may be, divided by the number of annual installments remaining
(including the annual installment then being calculated for payment) to be paid.
In respect of each installment, the number of Deferral Units payable shall, in
accordance with your election, be converted into (1) a like number of shares of
the Common Stock, (2) a dollar amount determined by multiplying the number of
whole Deferral Units credited to your account by the Fair Market Value of the
Common Stock on the relevant anniversary of the Optional Deferral Date (or the
Optional Deferral Date in the case of the first installment), or (3) the elected
combination of shares of the
X-10.5-4
<PAGE> 5
Common Stock and cash, the amounts of which shall be determined in the manner
specified above. Any fraction of Deferral Unit will be paid to you on the
relevant date in cash, the amount of which shall be calculated in the manner
specified above. You will be required to satisfy all Federal, state and local
tax and payroll withholding obligations, and any other withholding obligations,
arising in respect of any distribution of shares of the Common Stock or cash to
you. To the extent there is sufficient cash available, such withholding
obligations will be deducted from your distribution. To the extent the amount of
cash to be distributed is not sufficient to satisfy all withholding obligations,
you will be required to pay such withholding obligations as a condition to your
receipt of any distribution of shares of the Common Stock.
In the event of your death at any time prior to the Mandatory Deferral
Date, your account balance will be paid in cash in a lump sum on the later of
(a) the fifth business day following the Mandatory Deferral Date or (b) the
fifth business day of the calendar year following the calendar year during which
your date of death occurs. In the event of your death at any time following the
Mandatory Deferral Date and prior to the distribution of your account, the
entire balance of your account shall be paid in cash on the anniversary of the
Mandatory Deferral Date next following your date of death.
In the event of any stock dividend, stock split, recapitalization, merger,
split-up, spin-off or other change affecting the Common Stock of the Company,
the Deferral Units in your account shall be adjusted in the same manner and
proportion as the change to the Common Stock.
Any notice to you under this Grant Agreement shall be sufficient if in
writing and if delivered to you or mailed by registered mail directed to you at
the address on record in the Executive Compensation Department. Any notice to
the Company under this Grant Agreement shall be sufficient in writing and if
delivered to the Executive Compensation Department of the Company in Akron,
Ohio, or mailed by registered mail directed to the Company for the attention of
the Executive Compensation Department at 1144 East Market Street, Akron, Ohio
44316-0001. Either you or the Company may, by written notice, change the
address.
Dated: December 3, 1996 THE GOODYEAR TIRE & RUBBER COMPANY
Chairman, CEO & President
Grant Agreement, as amended,
received and accepted:
Date: December , 1996
- ----------------------------------- -----
7~
X-10.5-5
<PAGE> 6
ANNEX A
PERFORMANCE GOALS
Performance Goals are based on the aggregate earnings per share of Goodyear
Common Stock for the period January 1, 1996 through December 31, 1998.
MINIMUM PERFORMANCE GOAL FOR PAYMENT
In order for there to be a distribution under this Grant, the aggregate earnings
per share shall be at least $12.25 for the three-year period beginning January
1, 1996.
PERFORMANCE UNIT DISTRIBUTION SCHEDULE
Unit distributions are payable 50 percent in shares of the Company's Common
Stock and 50 percent in cash.
<TABLE>
<CAPTION>
Aggregate Earnings Cash Supplement
Per Share Based on % of Unit Value
1/1/96 - 12/31/98 Based on Grant
----------------- --------------
<S> <C>
$14.25 150 %
14.00 140
13.75 130
13.50 120
13.25 110
13.00 100
12.75 90
12.50 85
12.25 80
<12.25 0
</TABLE>
Revised to reflect stock split on April 30,1993.
X-10.5-6
<PAGE> 1
EXHIBIT 10.6
THE GOODYEAR TIRE & RUBBER COMPANY
GRANT AGREEMENT
PERFORMANCE EQUITY GRANT
[NAME AND ADDRESS OF GRANTEE]
Dear __________________:
The Directors of The Goodyear Tire & Rubber Company (the "Company")
desire to encourage and facilitate ownership of the Common Stock of the Company
(the "Common Stock") by key employees and to provide for additional compensation
based on the appreciation of the Common Stock, thereby providing incentive to
promote the continued growth and success of the Company's business. Accordingly,
the 1989 Goodyear Performance and Equity Incentive Plan was adopted effective
April 10, 1989 (the "Plan"). A copy of the Plan is attached.
At the December 3, 1996 meeting of the Compensation Committee of the Board
of Directors, you were awarded a Performance Equity Grant (each Unit equivalent
in value to one share of Common Stock) as follows:
Date of Grant 12-3-96
Number of Equity Units Granted
Performance Period 1-1-97 through 12-31-99
The number of Performance Equity Grant Units specified above (the
"Units") which you will earn at the end of the three-year Performance Period
specified above (the "Performance Period") will be determined by and contingent
upon the extent to which Performance Goals are achieved. The number of Units
actually earned may be adjusted between 0 and 150% of the number of Units stated
above, depending on the level of achievement of Performance Goals. Payment of
the Units earned will be made as provided under the General Terms and
Conditions. The Performance Goals and earn out criteria for the Performance
Period for your Performance Equity Grant are described at Annex A.
- -----------------------------------------------------
The Goodyear Tire & Rubber Company
December 3, 1996
Grant Agreement received and agreed to:
- -----------------------------------------------------
Grantee
Date:
------------------------------------------------
X-10.6-1
<PAGE> 2
GRANT AGREEMENT
(Continued)
GENERAL TERMS AND CONDITIONS
1. The Performance Equity Grant for the number of Units specified above is
granted to you under, and governed by the terms and conditions of, the Plan and
this Grant Agreement. Your execution and return of the enclosed copy of this
Grant Agreement constitutes your agreement to, and acceptance of, all terms and
conditions of the Plan and this Grant Agreement. You also agree that you have
read and understand the provisions of the Plan, this Grant Agreement and Annex
A.
2. All rights conferred upon you under the provisions of this Grant
Agreement are personal to you and, except under the provisions of paragraph 14
of the Plan, no assignee, transferee or other successor in interest shall
acquire any rights or interests whatsoever under this Grant Agreement, which is
made exclusively for the benefit of you and the Company.
3. As further consideration for the Units granted to you hereunder, you
must remain in the continuous employ of the Company or one or more of its
subsidiaries until December 31, 1999, the end of the Performance Period. Any
Units earned will be prorated in the event of your death, Retirement (as defined
in the Plan) or Disability (as defined in the Plan) or layoff prior to
completion of the Performance Period. Any proration is based on the last day you
worked. Nothing contained herein shall restrict the right of the Company or any
of its subsidiaries to terminate your employment at any time, with or without
cause.
4. You will forfeit the right to receive any distribution or payment under
this Grant if you enter into a relationship either as an employee, consultant,
agent or in any manner whatsoever with an entity that sells products in
competition with products sold by the Company and its subsidiaries within six
months after the earlier of (1) the date you receive your distribution of Units
earned or (2) the date you cease to be an employee of the Company or one of its
subsidiaries.
5. The number of Units earned will be paid as follows:
(a) Each Unit earned will be valued at a dollar amount equal to the Fair
Market Value of the Common Stock (as defined below) on December 31, 1999,
(the "Unit Value").
(b) The Company will pay to you an amount equal to 50% of the Unit Value
multiplied by the total number of Units earned, less such withholding and
payroll taxes as the Company shall determine to be necessary or
appropriate, in cash in February of 2000; provided, however, that
notwithstanding the foregoing, you may elect, by delivering a written
notice of your election to the Company not later than December 31, 1998,
to defer receipt of all or a specified whole percentage of the aforesaid
50% of Units earned until the Optional Deferral Date (as defined below),
in which event the amount you elect to defer (which shall be equal to the
product of UE x .5UV x PDE, where UE equals the number of Units earned, UV
equals the Unit Value and PDE equals the percentage, expressed as a
decimal, of the Units earned you elect to defer) will be credited in
February of 2000 to an account maintained in the records of the Company
(the "Optional Deferred Amount") and will be converted into Deferral
Units. The num ber of Deferral Units will be determined by dividing the
Optional Deferred Amount by the Fair Market Value of the Common Stock (as
defined below) on December 31, 1999. The amount of such deferral will be
reduced, if necessary, to pay such tax, payroll and other withholding
obligations as the Company shall determine to be necessary or appropriate.
(c) The balance of the Unit Value of each Unit earned, which shall be
equal to 50% of the Unit Value, shall be multiplied by the total
number of Units earned (the "Mandatory Deferred Amount") and credited in
February of 2000 to an account maintained in the records of the Company.
The Mandatory Deferred Amount will be converted into Deferral
X-10.6-2
<PAGE> 3
Units (as defined below). The number of Deferral Units will be determined
by dividing the Mandatory Deferred Amount by the Fair Market Value of the
Common Stock (as defined below) on December 31, 1999. The amount of such
deferral will be reduced, if necessary, to pay such tax, payroll and other
withholding obligations as the Company shall determine to be necessary or
appropriate.
(d) Notwithstanding the foregoing, the Compensation Committee of the Board
of Directors may, at its sole election, at any time and from time to time
require that the payment of the entire, or any portion of the, Unit Value
of any number of the Units earned shall be deferred until the Optional
Deferral Date, or such later date as it shall deem appropriate, in order
for the Company to conform to the requirements of Section 162(m) of the
Internal Revenue Code (the "Required Deferral Amount"). Any Required
Deferral Amount so deferred will be credited to an account maintained in
the records of the Company and will be converted into Deferral Units, the
number of which shall be determined by dividing each amount so deferred by
the Fair Market Value of the Common Stock on the date of such deferral.
6. As used herein, the term: (1) "Deferral Unit" means an equivalent to a
hypothetical share of the Common Stock; (2) "Fair Market Value of the Common
Stock" means, in respect of any date on or as of which a determination thereof
is being or to be made, the average of the high and low per share sale prices of
the Common Stock on the New York Stock Exchange Composite Transactions Tape on
such date or, if the Common Stock was not traded on such date, the next
preceding day on which the Common Stock was traded on the New York Stock
Exchange; (3) "Dividend Equivalent" means, with respect to each dividend payment
date for the Common Stock, an amount equal to the cash dividend per share of
Common Stock which is payable on such dividend payment date; (4) "Mandatory
Deferral Date" means the earlier of (x) the tenth business day of the January
next following the fifth anniversary of the last day of the Performance Period,
or (y) the Optional Deferral Date; (5) "Mandatory Deferral Unit" means each
Deferral Unit resulting from the Mandatory Deferral Amount, including Dividend
Equivalents credited in respect thereof; (6) "Optional Deferral Date" means the
later of (i) the first business day of the seventh month following the month
during which you cease to be employed by the Company, or one of its subsidiary
companies, for any reason (whether Retirement, Disability, death, layoff,
voluntary termination or otherwise) or (ii) the tenth business day of the
calendar year following the calendar year during which you ceased to be an
employee of the Company, or one of its subsidiary companies, for any reason
whatsoever; (7) "Optional Deferral Unit" means each Deferral Unit resulting from
any Optional Deferred Amount or converted from a Mandatory Deferral Unit
pursuant to Section 8 of this Grant Agreement, including Dividend Equivalents
credited in respect thereof; and (8) "Required Deferral Unit" means each
Deferral Unit resulting from any Required Deferred Amount, including Dividend
Equivalents credited in respect thereof. All computations relating to Deferral
Units, fractions of shares of Common Stock and Dividend Equivalents will be
rounded, if necessary, to the fourth decimal place.
7. Each Deferral Unit will be credited with one Dividend Equivalent on
each date on which cash dividends are paid on shares of the Common Stock (and
each fraction of a Deferral Unit shall be credited with a like fraction of a
Dividend Equivalent). Dividend Equivalents (and fractions thereof, if any) will
be automatically translated into Deferral Units by dividing the dollar
amount of such Dividend Equivalents by the Fair Market Value of the Common
Stock on the date the relevant Dividend Equivalents are accrued to your
account. The number of Deferral Units (and any fractions thereof) resulting
will be credited to your account (in lieu of the dollar amount of such Dividend
Equivalent) and shall continually be denominated in Deferral Units until
converted for payment as provided in this Grant Agreement.
8. The Mandatory Deferral Units credited to your account shall be
automatically deferred until the Mandatory Deferral Date. If the Mandatory
Deferral Date occurs before you cease to be an employee of the Company, or one
of its subsidiary companies, you may elect, by delivering a written notice of
your election to the Company not later than December 31, 2003, to defer receipt
of all or a specified whole percentage of the Mandatory Deferral Units credited
to your account until the Optional Deferral Date, whereupon such Mandatory
Deferral Units will become Optional Deferral Units.
X-10.6-3
<PAGE> 4
9. On the Mandatory Deferral Date, to the extent you have not elected to
further defer payment of all or a portion of the Mandatory Deferral Units until
the Optional Deferral Date in the manner provided above (and unless payment of
all or a portion of your Mandatory Deferral Units have been further deferred
until the Optional Deferral Date pursuant to the conversion thereof into
Required Deferral Units), the whole Mandatory Deferral Units in your account
will be converted, at your election (which election shall be made in writing on
or before the June 30, 2004), into (1) a like number of shares of the Common
Stock, (2) a dollar amount determined by multiplying the number of Deferral
Units credited to your account by the Fair Market Value of the Common Stock on
the Mandatory Deferral Date, or (3) a combination of shares of the Common Stock
and cash in accordance with your election (which shall be expressed as a
percentage of the Deferral Units to be paid in shares of the Common Stock). In
accordance with your election, within five business days following the Mandatory
Deferral Date you will be paid (a) such number of shares of the Common Stock,
(b) such amount of cash, or (c) the elected combination of shares of Common
Stock and cash, the amounts of which shall be determined in accordance with the
preceding sentence. If you did not make a timely election as to the form of
payment, you will receive payment in shares of the Common Stock. Any fraction of
a Deferral Unit will be paid to you on the relevant date in cash, the amount of
which shall be calculated in the manner specified above.
10. If you have duly elected to receive payment of all or a specified
percentage of your Deferral Units on the Optional Deferral Date (or if payment
of any of the Deferral Units has been deferred until the Optional Deferral Date
pursuant to the conversion thereof into Required Deferral Units), you may elect,
at the time and in the manner specified below, to receive such Deferral Units in
(1) a lump sum on the fifth business day following the Optional Deferral Date,
or (2) in a series of not less than five (5) or more than ten (10) annual
installments commencing on the fifth business day following the Optional
Deferral Date, or (3) a specified percentage of your Deferral Units on the fifth
business day following the Optional Deferral Date and the balance of your
Deferral Units in installments as specified in clause (2) of this sentence.
11. On the Optional Deferral Date (to the extent you have not elected to
receive payment in installments), the whole Deferral Units then in your account
(which have not been designated for payment in installments) will be converted
at your election (which election shall be made in writing on or before the last
day of the seventh month prior to the month during which the Optional Deferral
Date occurs), into (1) a like number of shares of the Common Stock, or (2) a
dollar amount determined by multiplying the number of whole Deferral Units
credited to your account by the Fair Market Value of the Common Stock on the
Optional Deferral Date, or (3) a combination of shares of the Common Stock and
cash in accordance with your election (which shall be expressed as a percentage
of the Deferral Units to be paid in shares of the Common Stock). In accordance
with your election, within five business days following the Optional Deferral
Date you will be paid (a) such number of shares of the Common Stock, (b) such
amount of cash, or (c) the elected combination of shares of Common Stock and
cash, the amounts of which shall be determined in accordance with the preceding
sentence. If you did not make an election as to the form of payment on or before
the required date, you will receive payment in shares of the Common Stock. Any
fraction of a Deferral Unit will be paid to you on the relevant date in cash,
the amount of which shall be calculated in the manner specified above.
12. If you desire to receive payment of your Deferral Units or a portion
thereof in annual installments, you may elect (by delivering to the Company a
written notice of your election, which shall specify the number of annual
installments, not later than December 31 of the calendar year which is two
calendar years prior to the year during which the Optional Deferral Date occurs)
to receive all, or a specified whole percentage of, the Deferral Units in your
account (which would otherwise be scheduled for distribution on the Optional
Deferral Date) in not less than five (5) or more than ten (10) annual
installments, payable commencing on the fifth business day following the
Optional Deferral Date and thereafter on the fifth business day following each
anniversary thereof until paid in full. You may also elect (in writing on or
before the last day of the seventh month prior to the month during which the
Optional Deferral Date occurs) to receive payment in shares of the Common Stock,
cash or any combination of Common Stock and cash (expressed as a percentage of
the Deferral Units to be paid in shares of the
X-10.6-4
<PAGE> 5
Common Stock. Each installment shall be in an amount equal to the total number
of Deferral Units credited to your account on the Optional Deferral Date, or on
the anniversary thereof which is the fifth business day prior to the date such
installment is due and payable, as the case may be, divided by the number of
annual installments remaining (including the annual installment then being
calculated for payment) to be paid. In respect of each installment, the number
of Deferral Units payable shall, in accordance with your election, be converted
into (1) a like number of shares of the Common Stock, (2) a dollar amount
determined by multiplying the number of whole Deferral Units credited to your
account by the Fair Market Value of the Common Stock on the relevant anniversary
of the Optional Deferral Date (or the Optional Deferral Date in the case of the
first installment), or (3) the elected combination of shares of the Common Stock
and cash, the amounts of which shall be determined in the manner specified
above. Any fraction of Deferral Unit will be paid to you on the relevant date in
cash, the amount of which shall be calculated in the manner specified above.
13. You will be required to satisfy all Federal, state and local tax and
payroll withholding obligations, and any other withholding obligations, arising
in respect of any distribution of shares of the Common Stock or cash to you. To
the extent there is sufficient cash available, such withholding obligations will
be deducted from your distribution. To the extent the amount of cash to be
distributed is not sufficient to satisfy all withholding obligations, you will
be required to pay such withholding obligations as a condition to your receipt
of any distribution of shares of the Common Stock.
14. In the event of your death at any time prior to the Mandatory Deferral
Date, your account balance will be paid in cash in a lump sum on the later of
(a) the fifth business day following the Mandatory Deferral Date or (b) the
fifth business day of the calendar year following the calendar year during which
your date of death occurs. In the event of your death at any time following the
Mandatory Deferral Date and prior to the distribution of your account, the
entire balance of your account shall be paid in cash on the anniversary of the
Mandatory Deferral Date next following your date of death.
15. In the event of any stock dividend, stock split, recapitalization,
merger, split-up, spin-off or other change affecting the Common Stock of the
Company, the Deferral Units in your account shall be adjusted in the same manner
and proportion as the change to the Common Stock.
16. Any notice to you under this Grant Agreement shall be sufficient if in
writing and if delivered to you or mailed by registered mail directed to you at
the address on record in the Executive Compensation Department. Any notice to
the Company under this Grant Agreement shall be sufficient in writing and if
delivered to the Executive Compensation Department of the Company in Akron,
Ohio, or mailed by registered mail directed to the Company for the attention of
the Executive Compensation Department at 1144 East Market Street, Akron, Ohio
44316-0001. Either you or the Company may, by written notice, change the
address.
X-10.6-5
<PAGE> 6
ANNEX A
PERFORMANCE GOALS
Performance Goals are based on the aggregate earnings per share of Goodyear
Common Stock for the period January 1, 1997 through December 31, 1999.
MINIMUM PERFORMANCE GOAL FOR PAYMENT
In order for there to be a distribution under this Grant, the aggregate earnings
per share shall be at least $13.25 for the three-year period beginning January
1, 1997.
PERFORMANCE UNIT DISTRIBUTION SCHEDULE
Unit distributions are payable 50 percent in shares of the Company's Common
Stock and 50 percent in cash, except as may be otherwise provided in, or as may
be otherwise elected in accordance with, the Grant Agreement.
<TABLE>
<CAPTION>
<C> <C>
Aggregate Earnings % of
Per Share Unit Distribution
1/1/97 - 12/31/99 Based on Grant
----------------- ------------
$ 15.25 150 %
15.00 140
14.75 130
14.50 120
14.25 110
14.00 100
13.75 90
13.50 85
13.25 80
<13.25 0
</TABLE>
X-10.6-6
<PAGE> 1
EXHIBIT 10.7
CONSOLIDATED
RECEIVABLES SALE AGREEMENT
[$550,000,000 Facility]
Dated as of November 15, 1996
among
THE GOODYEAR TIRE & RUBBER COMPANY,
as the Seller
and
ASSET SECURITIZATION COOPERATIVE CORPORATION,
as the Primary Purchaser
and
CANADIAN IMPERIAL BANK OF COMMERCE,
as the Standby Purchaser
and
CANADIAN IMPERIAL BANK OF COMMERCE,
as the
Servicing Agent
X-10.7-1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I .................................................................................................... 1
DEFINITIONS, ETC. ............................................................................................ 1
SECTION 1.1. Certain Defined Terms .................................................... 1
SECTION 1.2. Other Defined Terms ...................................................... 2
SECTION 1.3. Use of Defined Terms ..................................................... 2
SECTION 1.4. Cross-References ......................................................... 2
SECTION 1.5. Computation of Time Periods .............................................. 2
ARTICLE II ................................................................................................... 2
AMOUNTS AND TERMS OF PURCHASES ............................................................................... 2
SECTION 2.1. Requests for New Purchases ............................................... 2
SECTION 2.2. Making New Purchases ..................................................... 3
SECTION 2.2.1. Ongoing Purchase Discount Rate
Mechanics for Standby Purchaser ...........................................3
SECTION 2.2.2. Illegality ............................................................... 4
SECTION 2.2.3. Unavailability ........................................................... 4
SECTION 2.3. Reinvestment Purchases from Collections .................................. 5
SECTION 2.4. Mandatory and Optional Reductions of
the Purchased Amount ..................................................... 5
SECTION 2.4.1. Mandatory Reductions ..................................................... 5
SECTION 2.4.2. Optional Reductions ...................................................... 6
SECTION 2.4.3. Application of Reductions to Standby
Purchaser's Purchased Amount ............................................. 6
SECTION 2.5. Receivables Ownership Interest ........................................... 6
SECTION 2.5.1. Computing the Receivables Ownership Interest ............................. 7
SECTION 2.5.2. Sale of Receivables Ownership Interests .................................. 8
SECTION 2.6. Settlement Procedures .................................................... 8
........................................................................ 10
SECTION 2.7. General Settlement Procedures, Reporting, etc. .......................... 10
SECTION 2.7.1. Refunds, Rebates, Adjustments, etc ...................................... 10
SECTION 2.7.2. Reporting, etc .......................................................... 10
SECTION 2.8. Payments and Computations, etc .......................................... 11
SECTION 2.9. Standby Purchaser Fee ................................................... 11
SECTION 2.10. Records of the Servicing Agent .......................................... 11
SECTION 2.11. Yield Protection ........................................................ 12
ARTICLE III ................................................................................................. 14
ADMINISTRATION AND COLLECTION ............................................................................... 14
SECTION 3.1. Designation of the Collection Agent ..................................... 14
SECTION 3.2. Duties of the Collection Agent .......................................... 14
</TABLE>
X-10.7-2
<PAGE> 3
<TABLE>
<S> <C>
SECTION 3.3. Rights of the Servicing Agent. .......................................... 15
SECTION 3.4. Responsibilities of the Seller .......................................... 17
SECTION 3.5. Action Evidencing Receivables
Ownership Interests ..................................................... 17
ARTICLE IV .................................................................................................. 18
CONDITIONS PRECEDENT ........................................................................................ 18
SECTION 4.1. Conditions Precedent to Effective Date .................................. 18
SECTION 4.1.1. Resolutions, etc ........................................................ 18
SECTION 4.1.2. Financing Statements .................................................... 19
SECTION 4.1.3. Lock-Box Notices, etc ................................................... 19
SECTION 4.1.4. Legal Opinion of Counsel to the Seller .................................. 19
SECTION 4.1.5. Membership in the Primary Purchaser ..................................... 19
SECTION 4.2. Conditions Precedent to All Purchases ................................... 19
SECTION 4.2.1. Purchase Notice ......................................................... 19
SECTION 4.2.2. Compliance with Warranties, No Default, etc ............................. 20
SECTION 4.2.3. Satisfactory Form, etc .................................................. 20
ARTICLE V ................................................................................................... 20
REPRESENTATIONS AND WARRANTIES .............................................................................. 20
SECTION 5.1. Representations and Warranties of the Seller ............................ 20
SECTION 5.1.1. Organization, etc ....................................................... 20
SECTION 5.1.2. Corporate Power, Authority, etc ......................................... 20
SECTION 5.1.3. Due Authorization, etc .................................................. 21
SECTION 5.1.4. Validity, Enforceability, etc ........................................... 21
SECTION 5.1.5. Financial Information ................................................... 21
SECTION 5.1.6. Title, Perfection, etc .................................................. 21
SECTION 5.1.7. Reports, etc ............................................................ 22
SECTION 5.1.8. Offices, etc ............................................................ 22
SECTION 5.1.9. Lock-Box Banks, Lock-Box Accounts, etc .................................. 22
SECTION 5.1.10. Investment Company Act Representation ................................... 22
ARTICLE VI .................................................................................................. 22
COVENANTS ............................................................................................. 22
SECTION 6.1. Affirmative Covenants of the Seller ..................................... 22
SECTION 6.1.1. Compliance with Laws, etc ............................................... 22
SECTION 6.1.2. Preservation of Corporate Existence ..................................... 23
SECTION 6.1.3. Audits .................................................................. 23
SECTION 6.1.4. Keeping of Records and Books of Account ................................. 23
SECTION 6.1.5. Performance and Compliance with Receivables
and Contracts ........................................................... 23
SECTION 6.1.6. Location of Records ..................................................... 23
SECTION 6.1.7. Credit and Collection Policy ............................................ 24
</TABLE>
X-10.7-3
<PAGE> 4
<TABLE>
<S> <C>
SECTION 6.1.8. Financial Reporting of Sale ............................................. 24
SECTION 6.1.9. Reporting Requirements .................................................. 24
SECTION 6.1.10. Instructions to Obligors ................................................ 25
SECTION 6.2. Negative Covenants of the Seller ........................................ 25
SECTION 6.2.1. Sales, Liens, etc ....................................................... 25
SECTION 6.2.2. Change in Business; Credit and
Collection Policy, Invoices, etc ........................................ 25
SECTION 6.2.3. Change in Payment Instructions to Obligors .............................. 26
SECTION 6.2.4. Limit on Purchases ...................................................... 26
SECTION 6.2.5. No Commingling .......................................................... 26
ARTICLE VII ................................................................................................. 26
EVENTS OF TERMINATION ....................................................................................... 26
SECTION 7.1. Action Upon an Event of Termination ..................................... 26
ARTICLE VIII ................................................................................................ 27
SERVICING AGENT ............................................................................................. 27
SECTION 8.1. Authorization and Action ................................................ 27
SECTION 8.2. Reliance, etc ........................................................... 27
SECTION 8.3. CIBC and Affiliates ..................................................... 27
ARTICLE IX .................................................................................................. 28
INDEMNIFICATION ............................................................................................. 28
SECTION 9.1. Indemnities by the Seller ............................................... 28
SECTION 9.2. Seller to Advise the Servicing Agent .................................... 30
SECTION 9.3. Cooperation in Litigation and Proceedings ............................... 30
ARTICLE X ................................................................................................... 30
PATRONAGE DISTRIBUTIONS ..................................................................................... 30
SECTION 10.1. Patronage Distributions Generally ....................................... 30
SECTION 10.2. Income Tax Consent ...................................................... 31
ARTICLE XI .................................................................................................. 31
MISCELLANEOUS PROVISIONS .............................................................................. 31
SECTION 11.1. Amendments, etc ......................................................... 31
SECTION 11.2. Notices, etc ............................................................ 31
SECTION 11.3. No Waiver; Remedies ..................................................... 31
SECTION 11.4. Binding Effect; Assignability, etc ...................................... 32
SECTION 11.4.1. Certain Conditions and Agreements
Regarding Assignments ................................................... 32
SECTION 11.4.2. Right of First Refusal. ................................................. 33
SECTION 11.5. Governing Law; Consent to Jurisdiction .................................. 33
SECTION 11.6. Costs, Expenses and Taxes ............................................... 34
</TABLE>
X-10.7-4
<PAGE> 5
<TABLE>
<S> <C> <C>
SECTION 11.7. Grant of Security ....................................................... 34
SECTION 11.8. No Proceedings .......................................................... 35
SECTION 11.9. Execution in Counterparts, Effectiveness, etc ........................... 35
SECTION 11.10. Integration Clause ...................................................... 35
ANNEX I DEFINED TERMS ........................................................... 39
SCHEDULE I List of Certain Concentration Limits ................................. S-I-1
SCHEDULE II Description of Receivables ......................................... S-II-1
EXHIBIT A Form of Purchase Notice .................................................A-1
EXHIBIT B Form of Portfolio Reports ...............................................B-1
EXHIBIT C Form of Lock-Box Agreement ..............................................C-1
Attachment A
Form of Letter to Lock-Box Bank ........................................ C-4
EXHIBIT D List of Lock-Box Banks ................................................. D-1
EXHIBIT E List of Offices ........................................................ E-1
EXHIBIT F Form of Opinion of Seller's Counsel .................................... F-1
EXHIBIT G Form of Contract ....................................................... G-1
</TABLE>
X-10.7-5
<PAGE> 6
CONSOLIDATED
RECEIVABLES SALE AGREEMENT
THIS CONSOLIDATED RECEIVABLES SALE AGREEMENT, dated as of November 15,
1996, among THE GOODYEAR TIRE & RUBBER COMPANY, an Ohio corporation (the
"Seller"), ASSET SECURITIZATION COOPERATIVE CORPORATION, a California
cooperative corporation (the "Primary Purchaser"), CANADIAN IMPERIAL BANK OF
COMMERCE, acting through certain offices in the United States of America
("CIBC"), as the standby purchaser (in such capacity, the "Standby Purchaser";
the Primary Purchaser and the Standby Purchaser being collectively called the
"Purchasers" and individually sometimes called a "Purchaser") and CIBC, as the
servicing agent (in such capacity, the "Servicing Agent") hereunder.
W I T N E S S E T H:
WHEREAS, the Seller, the Primary Purchaser, the Standby Purchaser and the
Servicing Agent are party to the following: (i) a Receivables Sale Agreement
[$170,000,000] dated as of December 12, 1989, as heretofore amended or otherwise
modified from time to time (the "Pool A Original Agreement") and (ii) a
Receivables Sale Agreement [$380,000,000] dated as of June 15, 1990, as
heretofore amended or otherwise modified from time to time (the "Pool B Original
Agreement");
WHEREAS, the parties hereto desire to consolidate the Pool A Original
Agreement and the Pool B Original Agreement into one agreement, and to amend and
restate the terms and conditions thereof, on and pursuant to the terms and
conditions herein set forth;
WHEREAS, the parties hereto intend the receivables sales transactions
contemplated hereunder for all purposes and in all respects to be true sales of
undivided ownership interests in certain receivables from the Seller to the
Purchasers (and not loans secured by receivables), providing the Purchasers with
ownership of such undivided ownership interests in such receivables;
NOW, THEREFORE, the Pool A Original Agreement and the Pool B Original
Agreement are hereby consolidated, amended and restated in their entirety as
follows:
ARTICLE I
DEFINITIONS, ETC.
SECTION 1.1. CERTAIN DEFINED TERMS. Capitalized terms used in this
Agreement (whether in their singular or plural forms),
-1-
X-10.7-6
<PAGE> 7
including its preamble and recitals, have the meanings provided in Annex 1
hereto.
SECTION 1.2. Other Defined Terms. All accounting terms not specifically
defined in Annex 1 hereto shall be construed in accordance with GAAP. All terms
used in Article 9 of the UCC of the State of New York (as from time to time
amended), and not otherwise specifically defined in Annex 1 hereto, are used
herein as defined in Article 9.
SECTION 1.4. Cross-References. Unless otherwise specified, references
in this Agreement or any Related Document to Articles and Sections are
references to those Articles or Sections contained in this Agreement or such
Related Document.
SECTION 1.5. Computation of Time Periods. Unless otherwise stated in
this Agreement, in the computation of a period of time from a specified time to
a later specified time, the word "from" means "from and including" and the words
"to" and "until" each means "to but excluding."
ARTICLE II
AMOUNTS AND TERMS OF PURCHASES
SECTION 2.1. Requests for New Purchases. Upon the terms and subject to
the conditions of this Agreement, the Seller may from time to time prior to the
Termination Date for Pool A or Pool B, request that the Primary Purchaser
purchase from the Seller ownership interests in Eligible Receivables of Pool A
or Pool B, respectively, and the Contracts, Related Security, Collections and
all other proceeds, books and records with respect to the Eligible Receivables
of such Pool (each being a "New Purchase") and the Primary Purchaser may make
such New Purchase; provided that on any date, New Purchases may be made from
both Pool A and Pool B, but each such Purchase shall be considered a separate
New Purchase for purposes hereof; and provided further that no New Purchase may
be made by either Purchaser from Pool A or Pool B, as the case may be, if, after
giving effect thereto, either (a) with respect to Pool A, the then Combined Pool
A Purchased Amount would exceed $170,000,000, (b) with respect to Pool B, the
then Combined Pool B Purchased Amount would exceed $380,000,000, or (c) the then
Receivables Ownership Interests of both Purchasers together in either Pool A or
Pool B, as the case may be, would exceed 100%; and provided further that each
New Purchase made pursuant to Section 2.2 shall have a Purchase Price of at
least $1,000,000, and shall
-2-
X-10.7-7
<PAGE> 8
be in integral multiples of $1,000,000. If the Primary Purchaser shall decline
to make any proposed New Purchase, then the Standby Purchaser will, prior to the
Termination Date for the applicable Pool, upon the terms and subject to the
conditions of this Agreement, make such New Purchase.
SECTION 2.2. Making New Purchases. A New Purchase may be requested by
the Seller upon at least five Business Days' notice by delivery to the Servicing
Agent of a Purchase Notice (provided that notice of a New Purchase in the nature
of a Conversion Purchase (as defined in Section 2.4.2) to be made by the Standby
Purchaser may be given orally on three Business Days' notice without delivery of
a Purchase Notice and thereafter a Conversion Purchase shall automatically be
effected on each Business Day following the date of the initial Conversion
Purchase (provided that the minimum Purchase Price requirements of Section 2.1
are satisfied) without further notice until either the Seller shall notify the
Servicing Agent otherwise or no further Conversion Purchases can be made). After
receipt of a Purchase Notice, the Servicing Agent will promptly notify the
Seller if the Primary Purchaser has determined to make such New Purchase. If the
Primary Purchaser declines to make such New Purchase, then such Purchase Notice
shall automatically be deemed to be a request of the Standby Purchaser to make
such New Purchase. On the date of each New Purchase (subject to the conditions
set forth in Article IV), the applicable Purchaser will deposit (in same day
funds) the Purchase Price with respect to such New Purchase to the Seller's
Account.
SECTION 2.2.1. Ongoing Purchase Discount Rate Mechanics for Standby
Purchaser. If the Primary Purchaser shall decline to make any requested New
Purchase and the Standby Purchaser shall be required to make such New Purchase
and the initial Purchase Discount Rate with respect to such New Purchase is
determined by reference to the Alternate Rate (because of the applicability of
the provisions of Section 2.2.2 or Section 2.2.3), then at any time thereafter
(if the provisions of Section 2.2.2 and Section 2.2.3 restricting making and
maintaining Purchases at a Purchase Discount Rate determined by reference to the
LIBO Rate (Reserve Adjusted) become inapplicable) on at least three Business
Days' irrevocable notice, the Seller may elect that the Purchase Discount Rate
with respect to such New Purchase (and all related Reinvestment Purchases with
respect thereto) be determined by reference to the LIBO Rate (Reserve Adjusted).
At the end of each Fixed Period with respect to any New Purchase maintained at a
Purchase Discount Rate determined by reference to the LIBO Rate (Reserve
Adjusted), a new Fixed Period with respect to such New Purchase (and all related
Reinvestment Purchases with respect thereto) shall commence at the expiration of
such Fixed Period. After the Termination Date, the Standby Purchaser may require
that the Purchase Discount Rate with respect to any Purchases made and
maintained by it be determined by reference to the Alternate Rate.
-3-
X-10.7-8
<PAGE> 9
SECTION 2.2.2. Illegality. If, as the result of any Regulatory Change,
CIBC shall determine (which determination shall be conclusive and binding on the
Seller) that it is unlawful for CIBC to make, continue or maintain loans or
financings at the LIBO Rate (Reserve Adjusted), then the obligation of the
Standby Purchaser to determine the Purchase Discount Rate with respect to any
Purchases made and maintained by it by reference to the LIBO Rate (Reserve
Adjusted) shall, upon such determination (and telephone notice thereof confirmed
in writing to the Seller), forthwith terminate, and thereafter at the end of the
current Fixed Periods or, if required by such Regulatory Change, on such earlier
date, the Purchase Discount Rate with respect to any Purchases made and
maintained by it shall be determined by reference to the Alternate Rate. If
circumstances subsequently change so that the Servicing Agent shall determine
that CIBC is no longer so affected, the obligation of the Standby Purchaser to
determine the Purchase Discount Rate with respect to any Purchases made and
maintained by it by reference to the LIBO Rate (Reserve Adjusted) shall, upon
such determination (and telephone notice thereof confirmed in writing to the
Seller), forthwith be reinstated.
SECTION 2.2.3. Unavailability. If, prior to the beginning of any Fixed
Period, the Servicing Agent shall have determined (for any reason whatsoever)
that
(a) Dollar deposits in the relevant amount and for such Fixed Period are
not available to CIBC in its LIBOR Office's interbank eurodollar market, or
(b) by reason of circumstances affecting CIBC's LIBOR Office's interbank
eurodollar market, adequate means do not exist for ascertaining the LIBO
Rate (Reserve Adjusted),
then, the Servicing Agent shall promptly give telephone notice of such
determination, confirmed in writing to the Seller (which determination shall be
conclusive and binding on the Seller), and
(c) the obligation of the Standby Purchaser to determine the Purchase
Discount Rate with respect to any Purchases made and maintained by it by
reference to the LIBO Rate (Reserve Adjusted) shall, upon such
notification, forthwith terminate, and
(d) the Purchase Discount Rate with respect to the affected Purchases
shall on the expiration of the then current Fixed Periods thereafter be
determined by reference to the Alternate Rate.
If circumstances subsequently change so that the Servicing Agent shall
determine that CIBC is no longer so affected, the obligation of the Standby
Purchaser to determine the Purchase Discount Rate with respect to any Purchases
made and maintained by
-4-
X-10.7-9
<PAGE> 10
it by reference to the LIBO Rate (Reserve Adjusted) shall, upon such
determination (and telephone notice thereof confirmed in writing to the Seller),
forthwith be reinstated.
SECTION 2.3. Reinvestment Purchases from Collections. On each day
(other than a Liquidation Day for the applicable Pool), each Purchaser's share
of Excess Collections from Pool A or Pool B, as the case may be, attributable to
such Purchaser's Receivables Ownership Interest in such Pool received on such
day (except as provided in Section 2.4) will automatically be used by such
Purchaser to purchase from the Seller ownership interests in Eligible
Receivables of such Pool, and the Contracts, Related Security, Collections and
all other proceeds, books and records with respect to such Eligible Receivables
(each being a "Reinvestment Purchase"; the New Purchases (including the
Conversion Purchases) and the Reinvestment Purchases being collectively called
the "Purchases"; and individually sometimes called a "Purchase"); provided that
no Reinvestment Purchase will be made by either Purchaser if, after giving
effect thereto, the then Receivables Ownership Interests of both Purchasers
together in either Pool A or Pool B, as the case may be, would exceed 100%;
provided further, that upon three Business Days' written notice, either the
Seller or the Primary Purchaser may, at any time, elect not to allow or to make
thereafter Reinvestment Purchases in Pool A or Pool B from Collections from such
Pool pursuant to this Section 2.3. If the Primary Purchaser shall make such
election then the Primary Purchaser's Purchased Amount with respect to the
applicable Pool shall be reduced to zero pursuant to the provisions of clause
(b) of Section 2.4.2.
SECTION 2.4. Mandatory and Optional Reductions of the Purchased Amount.
The following reductions in each Purchaser's Purchased Amount with respect to
Pool A or Pool B, as the case may be, shall be required or allowed:
SECTION 2.4.1. Mandatory Reductions. If the Seller shall determine at any
time that the Receivables Ownership Interests of both Purchasers together in
either Pool A or Pool B, as the case may be, at such time shall exceed 100%,
then immediately upon such determination the Seller shall commence to reduce the
Purchased Amount of both Purchasers in the applicable Pool by implementing the
procedures set forth in Section 2.4.2(b) (without regard to the provisos
therein) such that an amount equal to or greater than the amount necessary to
cause the Receivables Ownership Interests of both Purchasers together in either
applicable Pool to be less than or equal to 100% shall be paid to the
Purchasers. If the Seller shall timely and fully perform its obligations under
this Section 2.4.1 then no Event of Termination under clause (i) of the
definition thereof shall be deemed to have occurred and be continuing.
-5-
X-10.7-10
<PAGE> 11
SECTION 2.4.2. Optional Reductions. If, at any time other than a
Liquidation Day, the Seller shall wish to cause the reduction of the Purchasers'
Purchased Amounts with respect to Pool A or Pool B, as the case may be (but not
a total liquidation of the Receivables Ownership Interests of the Purchasers in
such Pool) the Seller may do so as follows: (a) the Seller shall give the
Servicing Agent at least five Business Days' prior notice thereof (including the
amount of such proposed reduction and the proposed date on which such reduction
will commence), and (b) on the proposed date of such commencement and on each
day thereafter (provided that, if any such day is a Liquidation Day, the
provisions of Section 2.6 shall be applicable), the Collection Agent shall
refrain from making Reinvestment Purchases in such Pool and shall on each
Settlement Date occurring thereafter with respect to Collections received within
the preceding Settlement Period (or, in the case of any reduction pursuant to
Section 2.4.1, on a daily basis as such Collections are received) distribute to
each of the Purchasers the portion of the Excess Collections received from Pool
A or Pool B, as the case may be, attributable to such Purchaser's Receivables
Ownership Interest in such Pool (unless at the time the Standby Purchaser's
Purchased Amount is being concurrently increased by New Purchases in amounts
equal to the amounts by which the Primary Purchaser's Purchased Amount is being
reduced (such New Purchases being collectively sometimes called "Conversion
Purchases" and individually sometimes called a "Conversion Purchase"), in which
case the portion of the Excess Collections received from the applicable Pool
attributable to the Standby Purchaser's Receivables Ownership Interest in such
Pool shall be utilized to make a Reinvestment Purchase pursuant to Section 2.3
and shall not be remitted to the Standby Purchaser in reduction of its Purchased
Amount with respect to such Pool). The Collection Agent shall continue to make
distributions to the Purchasers pursuant to the immediately preceding sentence
until the amount distributed to the Purchasers shall equal the desired amount of
reduction; provided that, (x) the amount of any such reduction shall not be less
than $1,000,000 and shall be in integral multiples of $1,000,000 and (y) the
Seller shall use reasonable efforts to choose a reduction amount, and the date
of commencement thereof, so that such reduction shall commence and conclude in
the same Settlement Period.
SECTION 2.4.3. Application of Reductions to Standby Purchaser's
Purchased Amount. Reductions to the Standby Purchaser's Purchased Amount from
time to time pursuant to Section 2.4.1 or Section 2.4.2 shall be applied to each
New Purchase (and the Reinvestment Purchases relating thereto) with respect to
which the Purchase Discount Rate is determined by reference to the LIBOR Rate
(Reserve Adjusted) in order of shortest to longest remaining Fixed Periods.
SECTION 2.5. Receivables Ownership Interest. On any date, the
"Receivables Ownership Interest" of each Purchaser in each Pool shall
-6-
X-10.7-11
<PAGE> 12
be such Purchaser's undivided percentage ownership interest in each of the
Eligible Receivables in such Pool as at such date and all related Contracts,
Related Security, Collections, other proceeds and books and records with respect
to such Eligible Receivables (subject to the last sentence of this paragraph).
The percentage referred to in the preceding sentence shall be that percentage
determined pursuant to clause (b) of Section 2.5.1. Irrespective of when the
Receivables Ownership Interest of each Purchaser in each Pool is computed by the
Collection Agent pursuant to clause (a) of Section 2.5.1, such Receivables
Ownership Interest shall change at any time that any of the factors set forth in
clause (b) of Section 2.5.1 utilized to determine the applicable percentage
shall change; provided, however, that (i) solely for purposes of determining the
actual ownership interest in the Eligible Receivables, Collections and other
property rights transferred hereunder (but not for purposes of making the
various other determinations hereunder, for which no such adjustment shall be
made in the percentage as calculated in clause (b)), in no event shall the
Receivables Ownership Interests of both Purchasers together in either Pool
exceed 100% (any excess to affect the percentage ownership interest of each
Purchaser proportionately in accordance with its Purchased Amount unless such
excess arises as a result of any New Purchase, in which case such excess shall
reduce the percentage of the Purchaser of such New Purchase) and (ii) the
Receivables Ownership Interest of each Purchaser in each Pool, as of the close
of business of the Seller on the Business Day immediately preceding the
Termination Date for such Pool, will remain constant at all times on and after
the Termination Date. The Receivables Ownership Interest of each Purchaser in
each Pool shall not include (i) any undivided percentage ownership interest in
any Receivables arising on or after the Termination Date for such Pool, or any
Contracts, Related Security, Collections or other proceeds with respect to such
Receivables or (ii) at any time, any portion of any Receivable (including any
Eligible Receivable) not within the Receivables Ownership Interest as
contemplated pursuant to Section 2.5.1.
SECTION 2.5.1. Computing the Receivables Ownership Interest.
(a) The Receivables Ownership Interest of each Purchaser in each Pool
initially will be computed by the Collection Agent at the time of the
initial New Purchase with respect thereto. As soon as practicable but in
any event no later than twenty-five days (or if such day is not a Business
Day, the next succeeding Business Day) after the last Business Day of each
Settlement Period thereafter (or more frequently, if requested by the
Servicing Agent) until the occurrence of the Termination Date with respect
to Pool A or Pool B, as the case may be, the Receivables Ownership
Interest of each Purchaser in such Pool will be recomputed by the
Collection Agent, as of the close of business of the Seller on the last
day of such Settlement Period, after giving effect to all Collections with
-7-
X-10.7-12
<PAGE> 13
respect to Eligible Receivables of such Pool attributable to, and Reinvestment
Purchases in such Pool during, such Settlement Period. On any day of
computation, if the Receivables Ownership Interests of both Purchasers together
in either Pool as so computed shall be greater than 100%, the Collection Agent
shall promptly so notify the Servicing Agent.
(b) At any time, the Receivables Ownership Interest of each Purchaser
with respect to each of Pool A and Pool B will be such Purchaser's
percentage ownership interest in the property described above, which
percentage will be equal to the following (expressed as a fraction):
PA + LR
-------
ERPB
where:
PA = the then Purchased Amount of such Purchaser with respect to such
Pool.
LR = the then Loss Reserve of such Purchaser with respect to such
Pool.
ERPB = the then Eligible Receivables Portfolio Balance with respect
to such Pool.
SECTION 2.5.2. Sale of Receivables Ownership Interests. In consideration
of payment by each Purchaser of the Purchase Price related thereto (and the
Deferred Purchase Price as and when due hereunder), the Seller hereby sells,
assigns and conveys to each Purchaser, and each Purchaser hereby purchases and
acquires from the Seller, all of the Seller's right, title and interest in and
to an undivided percentage interest in each Eligible Receivable in each Pool and
all related Contracts, Related Security, Collections, other proceeds and books
and records with respect to each such Eligible Receivable, in each case whether
now owned and existing or hereafter acquired or arising to the extent
constituting the Receivables Ownership Interest of such Purchaser in such Pool.
The parties hereto hereby acknowledge that they intend the foregoing sales to be
true sales for all purposes (and not grants of collateral interests) providing
the applicable Purchaser with ownership of the Receivables Ownership Interest of
such Purchaser in each Pool. Each party hereto hereby agrees to independently
take all necessary action to record properly the foregoing sales transactions
and to reflect each Purchaser's ownership of the Receivables Ownership Interests
on their respective books and records.
SECTION 2.6. Settlement Procedures. On each Settlement Date, the
Collection Agent will distribute from Collections (other than Collections
distributed or retained pursuant to Section 3.2(b)) received during the
preceding Settlement Period the following amounts from the following sources
and in the following order of priority:
-8-
X-10.7-13
<PAGE> 14
(i) first, to each Purchaser from Collections that are part of such
Purchaser's Receivables Ownership Interest in Pool A, all of such
Purchaser's Purchase Discount for Pool A (with respect to the Purchase
Discount Period then ending or any prior Purchase Discount Period) that is
accrued but undistributed through such Settlement Date;
(ii) second, to each Purchaser from Collections that are part of such
Purchaser's Receivables Ownership Interest in Pool B, all of such
Purchaser's Purchase Discount for Pool B (with respect to the Purchase
Discount Period then ending or any prior Purchase Discount Period) that is
accrued but undistributed through such Settlement Date;
(iii) third, to the Collection Agent proportionately from Collections that
are part of each Purchaser's Receivables Ownership Interest in each Pool,
the Collection Agent Fee (other than the Seller Portion of the Collection
Agent Fee) for the preceding Settlement Period (and any unpaid Collection
Agent Fee (other than the Seller Portion thereof) for any previous
Settlement Periods to the extent that there were insufficient Collections
to pay such fee on any prior Settlement Date);
(iv) fourth, to the Servicing Agent proportionately from Collections
that are part of each Purchaser's Receivables Ownership Interest in each
Pool, the Servicing Agent Fee for the preceding Purchase Discount Period
(and any unpaid Servicing Agent Fee for any previous Purchase Discount
Periods to the extent that there were insufficient Collections to pay
such fee on any prior Settlement Date);
(v) fifth, on any day that is not a Liquidation Day with respect to
either Pool, all remaining Collections from such Pool shall be distributed
in accordance with Section 2.3 or Section 2.4, as applicable;
(vi) sixth, on any day that is a Liquidation Day with respect to Pool A,
to each Purchaser from Collections that are part of such Purchaser's
Receivables Ownership Interest in Pool A, the lesser of (A) all remaining
Collections received during the preceding Settlement Period that are part
of such Purchaser's Receivables Ownership Interest in Pool A and (B) such
Purchaser's Purchased Amount for Pool A;
(vii) seventh, on any day that is a Liquidation Day with respect to Pool
B, to each Purchaser from Collections that are part of such Purchaser's
Receivables Ownership Interest in Pool B, the lesser of (A) all remaining
Collections received during the preceding Settlement Period
-9-
X-10.7-14
<PAGE> 15
that are part of such Purchaser's Receivables Ownership Interest in Pool B
and (B) such Purchaser's Purchased Amount for Pool B;
(viii) eighth, to the Seller, all remaining Collections that are not
otherwise distributed pursuant to clauses (i) through (vii) above in
payment by each Purchaser of the Deferred Purchase Price owed to the
Seller by such Purchaser with respect to its purchase of the Receivables
Ownership Interests in Pool A and Pool B, as the case may be; provided,
however, that the Collection Agent shall set off against any amount owing
to the Seller in respect of the Deferred Purchase Price any amounts that
are owed by the Seller to any other Person hereunder that are due but
unpaid on or prior to such time (which amounts shall be distributed by the
Collection Agent to the Persons entitled thereto).
SECTION 2.7. General Settlement Srocedures, Seporting, etc. With
respect to all Collections from Receivables, the Seller, the Purchasers and the
Servicing Agent agree to the following terms and procedures set forth in this
Section.
SECTION 2.7.1. Refunds, Rebates, Adjustments, etc. It is recognized that
the Obligor on any Eligible Receivable may be entitled under the terms of such
Eligible Receivable, or as a matter of law, to prepay the amounts due and to
become due thereunder and thereby receive a rebate, refund or adjustment on
account of a finance charge or other amount which may be included in such
amount. Accordingly, on or prior to the Termination Date for each Pool (unless
the rebate, refund or adjustment is included as an Indemnified Liability under
Section 9.1(g)) and prior to the designation of a Third Party Collection Agent,
the Collection Agent may from time to time grant, or permit to be granted, to
the Obligor on any Eligible Receivable of such Pool any rebate, refund or
adjustment (i) arising by reason of prepayment or (ii) to enhance collectibility
of Eligible Receivables of a particular Obligor or particular Obligors;
provided, however, that the Collection Agent may not grant or permit to be
granted any such rebate, refund or adjustment or cancel any claim of or against
any Obligor of Eligible Receivables if the effect thereof would be to cause the
then Receivables Ownership Interests of both Purchasers together in the affected
Pool to equal or exceed 100%.
SECTION 2.7.2. Reporting, etc. As soon as practicable but in any event no
later than the 25th day of each calendar month, the Collection Agent will
deliver to the Servicing Agent
(a) a Portfolio Report for each Pool, relating to the Receivables
Ownership Interests in each Pool (separately) as of the close of business
of the Collection Agent on the last day of the immediately preceding
calendar month; and
-10-
X-10.7-15
<PAGE> 16
(b) if requested by the Servicing Agent, a listing by Obligor of all
Receivables from either Pool as of the last day of the immediately
preceding calendar month, together with an aging report for such
Receivables as of the last day of the immediately preceding calendar
month.
In addition, the Seller will provide such other reports, information, documents,
books and records as the Servicing Agent may reasonably request.
SECTION 2.8. Payments and Computations, etc. All amounts to be paid or
deposited by the Seller or the Collection Agent hereunder will be paid or
deposited no later than 2:00 p.m. (New York City time) on the day when due in
lawful money of the United States of America in same day funds to the
Purchaser's Account of each Purchaser, as applicable. The Seller (or, if
applicable, the Collection Agent pursuant to Section 3.2(c)) will, to the extent
permitted by law, pay to the Purchasers interest on all amounts not paid or
deposited when due hereunder at 1% per annum above the Alternate Rate, payable
on demand. Such interest will be delivered to, and retained by the Purchasers.
All computations of interest, Purchase Discount, and fees hereunder will be made
on the basis of a year of 360 days for the actual number of days (including the
first but excluding the last day) elapsed. The Purchasers will, on the Business
Day immediately preceding each Settlement Date, notify the Seller and the
Servicing Agent of the Purchase Discount Rate with respect to each of the
Purchasers for the Purchase Discount Period then ending.
SECTION 2.9. Standby Purchaser Fee. The Seller shall pay to the Standby
Purchaser for the period commencing on the Effective Date and continuing to the
applicable Termination Date a commitment fee (i) with respect to Pool A, payable
at the rate of .15 of 1% per annum on the daily average of the difference of (x)
$170,000,000 minus (y) the Purchased Amount of both Purchasers with respect to
Pool A from time to time and (ii) with respect to Pool B, payable at the rate of
.15 of 1% per annum on the daily average of the difference of (x) $380,000,000
minus (y) the Purchased Amount of both Purchasers with respect to Pool B from
time to time. The Commitment Fee shall be due and payable on the Business Day
immediately following the last day of each Settlement Period for such Settlement
Period, and on the Termination Date for each Pool.
SECTION 2.10. Records of the Servicing Agent. The Servicing Agent shall
keep records of all Purchases, which records shall evidence the date of and the
Purchase Price for all New Purchases. Such records shall be conclusive and
binding on the Seller absent manifest error, but the failure to record any such
amount shall not limit or otherwise affect the Receivables Ownership Interests
of the Purchasers, the obligations of the
-11-
X-10.7-16
<PAGE> 17
Seller hereunder or the obligations of any Obligor to make payments on the
Receivables when due.
SECTION 2.11. Yield Protection.
(a) Without duplication of or amendment to Section 2.11(b), if (i)
Regulation D of the Board of Governors of the Federal Reserve System, or
(ii) after the date hereof, the adoption of any applicable law, rule or
regulation, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or compliance by either Purchaser or any Affiliate of either
thereof (each of which being an "Affected Party") with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency,
(A) shall subject an Affected Party to any tax, duty or other
charge with respect to the Receivables Ownership Interests or any
obligation or right to make Purchases, or shall change the basis
of taxation of payments to an Affected Party of its Purchaser's
Investment or Purchase Discount or any other amounts due under
this Agreement in respect of its Purchaser's Investment or its
obligations or rights, if any, to make Purchases (except for
changes in the rate of tax on the overall net income of such
Affected Party imposed by the jurisdiction in which such Affected
Party's principal executive office is located and except for any
imposition by such jurisdiction of any new tax imposed on or
measured by such Affected Party's net income or receipts); or
B) shall impose, modify or deem applicable any reserve
(including, without limitation, any reserve imposed by the Board
of Governors of the Federal Reserve System, but excluding any
reserve, if any, included in the determination of Purchase
Discount), special deposit or similar requirement against assets
of, deposits with or for the account of, or credit extended by,
any Affected Party; or
(C) shall impose any other condition affecting the Receivables
Ownership Interests or its obligations or rights, if any, to make
Purchases;
and the result of any of the foregoing is (i) to increase the cost to (or
in the case of Regulation D referred to above, to impose a cost on) (A) an
Affected Party funding or making or maintaining any Purchases (including
costs of the type described above owed by the Primary Purchaser under its
-12-
X-10.7-17
<PAGE> 18
revolving credit agreements or other debt facilities), or (B) ASCC or the
Servicing Agent for continuing its, or the Seller's, relationship with the
Standby Purchaser, or CIBC or the Servicing Agent for continuing its, or
the Seller's, relationship with the Primary Purchaser, or (ii) to reduce
the amount of any sum received or receivable by an Affected Party under
this Agreement with respect thereto, then within thirty days after demand
by such Affected Party (which demand shall be accompanied by a statement
setting forth the basis of such demand), the Seller shall pay directly to
such Affected Party such additional amount or amounts as will compensate
such Affected Party for such additional or increased cost or such
reduction.
(b) If an Affected Party shall reasonably determine that, after November
30, 1992, the adoption of any applicable law, rule, regulation, directive
or guideline regarding capital adequacy, or any change in or phase-in of
any applicable law, rule, regulation, directive or guideline or in the
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by an Affected Party with any
request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency,
has or would have the effect of reducing the rate of return on the capital
of an Affected Party as a consequence of its obligations hereunder or
arising in connection herewith to a level below that which any such
Affected Party could have achieved but for such adoption, change or
compliance (taking into consideration the policies of such Affected Party
with respect to capital adequacy) by an amount deemed by such Affected
Party to be material, then from time to time, within thirty days after
demand by such Affected Party, the Seller shall pay to such Affected Party
such additional amount or amounts as will compensate such Affected Party
for such reduction (including any amounts of the type described above owed
by the Primary Purchaser under its revolving credit agreements or other
debt facilities).
(c) Each Affected Party so affected will promptly notify the Seller and
the Servicing Agent of any event of which it has knowledge occurring after
the date hereof, which will entitle such Affected Party to compensation
pursuant to this Section 2.11.
(d) In determining any amount provided for in this Section 2.11, any
Affected Party may use any reasonable averaging and attribution methods.
Any Affected Party making a claim under this Section 2.11, shall
-13-
X-10.7-18
<PAGE> 19
submit to the Seller a certificate as to such additional or increased cost
or reduction, which certificate shall be conclusive absent demonstrable
error.
ARTICLE III
ADMINISTRATION AND COLLECTION
SECTION 3.1. Designation of the Collection Agent. The administration and
collection of the Receivables from each Pool will be conducted by that Person
(sometimes called the "Collection Agent") so designated from time to time in
accordance with this Section 3.1. The Collection Agent shall be entitled to
receive, as compensation for its services, the Collection Agent Fee payable in
accordance with Section 2.6 and Section 3.2(b). Until the Servicing Agent gives
notice to the Seller of its designation of a new Collection Agent, the Seller is
hereby designated as, and hereby agrees to perform the duties and obligations
of, the Collection Agent pursuant to the terms hereof (any Person other than the
Seller who or which acts as Collection Agent being sometimes called the "Third
Party Collection Agent"). The Servicing Agent may designate any Person
(including itself) to succeed the Collection Agent or any successor Collection
Agent on the condition in each case that any such Person so designated agrees to
perform the duties and obligations of the Collection Agent pursuant to the terms
hereof. The Collection Agent may, with the prior consent of the Servicing Agent,
subcontract with any other Person for the administration and collection of the
Receivables; provided, however, that the Collection Agent will remain liable for
the performance of the duties and obligations of the Collection Agent pursuant
to the terms hereof.
SECTION 3.2. Duties of the Collection Agent. The Collection Agent will
(unless the Servicing Agent directs otherwise) take or cause to be taken only
such actions as will be necessary or customary to collect the Receivables, all
in accordance with applicable laws, rules and regulations, with reasonable care
and diligence, and solely in accordance with the Credit and Collection Policy.
In that connection, the Collection Agent will be authorized to enforce the
rights and interests of the Purchasers in and under the Receivables, the Related
Security and the related Contracts. The Collection Agent will not incur any
expense that would result in a material increase in expenses normally incurred
without first obtaining the consent of the Purchasers. In addition to, and not
in limitation of, the foregoing, the Seller and the Collection Agent each agree
as follows:
(a) The Seller will deliver to the Collection Agent, and the Collection
Agent will legend appropriately for the Seller and the Servicing Agent,
acting on behalf of the Purchasers, all computer programs, tapes or disks
which
-14-
X-10.7-19
<PAGE> 20
evidence or relate to Receivables; provided, however, that the Seller
shall not be required so to deliver (but instead shall be required to
share with the Collection Agent) its only copy of such computer programs,
tapes or disks or such Contracts, documents, instruments or other records
if there is no reasonable means of making one or more substantially
identical copies. To the extent any such computer programs are leased by
or licensed to the Seller, the Seller will, as soon as practicable upon
demand of the Servicing Agent, arrange for the lease or license or
sublease or sublicense of such programs to the Servicing Agent. Upon the
Servicing Agent's request, the Seller will also deliver to the Collection
Agent, and the Collection Agent will legend appropriately for the Seller
and the Servicing Agent, acting on behalf of the Purchasers, all Contracts
and other documents, instruments and other records which evidence or
relate to Eligible Receivables.
(b) The Collection Agent will, as soon as practicable following receipt
thereof, turn over to the Seller that portion of Collections from the
Receivables representing the Seller's undivided percentage ownership
interest therein, less, (i) the Seller Portion of the Collection Agent Fee
not previously paid hereunder with respect to any Settlement Period ending
on or prior to the time of such distribution and (ii) in the case of a
Third Party Collection Agent, all reasonable costs and expenses of the
Third Party Collection Agent in administering and collecting the
Receivables to the extent not covered by the Collection Agent Fee received
by it (which amounts shall be retained by such Third Party Collection
Agent for its own account).
(c) The Collection Agent will, to the extent permitted by applicable law
and with respect to any amount not paid or distributed by the Collection
Agent when required to be paid or distributed hereunder, pay interest to
the Purchasers at a rate per annum equal to 1% above the Alternate Rate,
payable on demand; provided, however, that such interest rate will not at
any time exceed the maximum rate permitted by applicable law. Such
interest will be for the account of, and will be distributed to, the
Purchasers and the Servicing Agent, ratably in accordance with their
respective interests in such overdue amount.
(d) The Collection Agent's authorization under this Agreement will
terminate with respect to each Pool, after the Termination Date for such
Pool, upon payment in full of all amounts payable to the Servicing Agent,
the Purchasers, the Collection Agent and the Seller under this Agreement
(other than amounts attributable to a Pool for which the Termination Date
has not occurred).
-15-
X-10.7-20
<PAGE> 21
SECTION 3.3. Rights of the Servicing Agent. The Servicing Agent is hereby
authorized at any time, to date, and to deliver to the Lock-Box Banks, the
Lock-Box Notices delivered to it hereunder. The Seller hereby transfers,
effective automatically upon the delivery by the Servicing Agent of the Lock-Box
Notices to the Lock-Box Banks, to the Servicing Agent (for the pro rata benefit
of the Purchasers) the exclusive ownership and control of the Lock-Box Accounts
to which the Obligors of Receivables make payments with respect thereto, and the
Seller hereby agrees to take any further action necessary, or that the Servicing
Agent may reasonably request, to effect such transfer. In the event any
authorized signatory of the Seller whose signature appears on any Lock-Box
Notice ceases to have such authority before the delivery of such Lock-Box
Notice, such signature will nevertheless be valid and sufficient for all
purposes as if such authority had remained in full force and effect at the time
of such delivery. The Seller hereby further agrees that, at any time following
any designation of a Third Party Collection Agent:
(a) The Servicing Agent may notify the Obligors of Eligible Receivables
of the existence of the Receivables Ownership Interests by the Purchasers,
and may direct that payment of all amounts due or to become due under any
or all Eligible Receivables be made directly to the Servicing Agent or its
designee.
(b) The Seller will, at the Servicing Agent's request and at the Seller's
sole expense, give notice of such existence of the Receivables Ownership
Interests to each Obligor of Eligible Receivables and direct that payments
be made directly to the Servicing Agent or its designee.
(c) The Seller will, at the Servicing Agent's request and at the Seller's
expense,
(i) assemble all of the documents, instruments and other records
(including, without limitation, computer programs, tapes and
disks) which evidence or relate to Eligible Receivables, or which
are otherwise necessary or desirable to collect Eligible
Receivables, and the related Contracts and Related Security, make
the same available to the Servicing Agent at the Seller's chief
executive office, and, if requested by the Servicing Agent,
legend appropriately the same for the Seller and the Servicing
Agent, and
(ii) segregate all cash, checks and other instruments received by
it from time to time constituting Collections of Eligible
Receivables in a manner acceptable to the Servicing Agent and,
promptly upon receipt, remit all such cash, checks and other
instruments, duly endorsed or with duly executed
-16-
X-10.7-21
<PAGE> 22
instruments of transfer, to the Servicing Agent or its designee.
(d) The Seller hereby irrevocably appoints the Servicing Agent the
Seller's attorney-in-fact, with full authority in the place and stead of
the Seller and in the name of the Seller or otherwise to take any and all
steps, in the Seller's name and on its behalf, necessary or desirable in
the determination of the Servicing Agent, to collect the Eligible
Receivables, including endorsing the Seller's name on checks and other
instruments representing Collections of Eligible Receivables and enforcing
obligations of Obligors in respect of Eligible Receivables and the related
Contracts and Related Security. The Seller hereby acknowledges, consents
and agrees that the power of attorney granted pursuant to this paragraph
is irrevocable and coupled with an interest. The authority granted to the
Servicing Agent under this clause (d) shall terminate with respect to the
Eligible Receivables of either Pool respectively on the Receivables
Ownership Interest Collection Date for such Pool.
SECTION 3.4. Responsibilities of the Seller. Anything herein to the
contrary notwithstanding:
(a) the Seller will remain responsible and liable to perform all of
its duties and obligations under the Contracts related to the Eligible
Receivables, to the extent set forth therein;
(b) the exercise by the Servicing Agent of any of its rights hereunder
will not release the Seller from any of its duties or obligations with
respect to any Eligible Receivables or under the Contracts related
thereto;
(c) neither the Servicing Agent nor either Purchaser will have any
duty or obligation with respect to any Receivables or Contracts related
thereto, nor will any of them be obligated to perform any of the duties or
obligations of the Seller thereunder; and
(d) the Seller will promptly notify the Servicing Agent of any claim
or threatened claim probable, in the opinion of the management of the
Seller, to result in any liability referred to in Article IX.
SECTION 3.5. Further Action Evidencing Receivables Ownership Interests.
The Seller agrees that from time to time, at its own expense, it will promptly
execute and deliver all further instruments and documents, and take all further
action that may be necessary, or that the Servicing Agent may reasonably
request, in order to perfect, protect or more fully evidence the Receivables
Ownership Interests purchased hereunder, or to enable the
-17-
X-10.7-22
<PAGE> 23
Purchasers or the Servicing Agent to exercise or enforce any of their respective
rights hereunder. In addition, the Seller will, upon the request of the
Servicing Agent, execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices as may be necessary or
appropriate. The Servicing Agent may sign and file continuation statements and
amendments to financing statements and assignments thereof without the signature
of the Seller where permitted by law. In furtherance, and not in limitation, of
the foregoing, if the Seller fails to perform any of its agreements or
obligations hereunder, then the Servicing Agent may (but will not be required
to) itself perform, or cause performance of, such agreement or obligation, and
the expenses of the Servicing Agent incurred in connection therewith will be
payable by the Seller as provided in Section 9.1.
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1. Conditions Precedent to Effective Date. The Effective Date
under this Agreement is subject to the prior or concurrent satisfaction of each
of the conditions precedent set forth in this Section 4.1; provided, however,
that this Agreement shall be dated the Effective Date or such other date
acceptable to the Servicing Agent and each Related Document to be delivered
pursuant to this Section 4.1 will (unless otherwise indicated) be dated the
Effective Date or such other date, and be in form and substance satisfactory to
the Servicing Agent.
SECTION 4.1.1. Resolutions, etc. The Servicing Agent will have received
from the Seller a certificate of its Secretary:
(a) as to resolutions of the Board of Directors of the Seller
authorizing this Agreement and the other Related Documents to be delivered
by it hereunder and the transactions contemplated hereby;
(b) as to the names and true signatures of the officers authorized on
the Seller's behalf to sign this Agreement and the other Related Documents
to be delivered by it hereunder; and
(c) as to whether or not there have been any, and attaching a true,
complete and correct copy of, amendments or modifications to the articles
of incorporation (appropriately certified by the Secretary of State of the
Seller's jurisdiction of incorporation) and by-laws since the date of
delivery thereof pursuant to the Pool B Original Agreement.
-18-
X-10.7-23
<PAGE> 24
The Servicing Agent and the Purchasers may conclusively rely upon such
certificate until such time as the Servicing Agent receives from the Seller a
replacement certificate meeting the requirements of this Section.
SECTION 4.1.2. Financing Statements. The Servicing Agent will have
received executed copies of proper Financing Statements (Form UCC-1) naming the
Seller as the assignor and the Purchasers as the assignees, or such other
similar instruments or documents as may be necessary or, in the reasonable
opinion of the Servicing Agent, advisable under the UCC of all appropriate
jurisdictions or any comparable law to perfect the ownership by the Purchasers
of the Receivables Ownership Interests.
SECTION 4.1.3. Lock-Box Notices, etc. The Servicing Agent will have
received (in connection with the closing conditions set forth in the Pool A
Original Agreement, the Pool B Original Agreement or otherwise) undated executed
(on behalf of the Seller) copies of Lock-Box Notices to the Lock-Box Banks and
fully executed copies of the Lock-Box Agreements.
SECTION 4.1.4. Legal Opinion of Counsel to the Seller. The Servicing
Agent will have received a favorable opinion of the general counsel, the
associate general counsel or an assistant general counsel for the Seller, in
substantially the form of Exhibit F.
SECTION 4.1.5. Membership in the Primary Purchaser. The Seller shall be
a Member in good standing of the Primary Purchaser.
SECTION 4.1.6. Search Reports. The Servicing Agent will have ordered
(whether or not received) certified copies of Requests for Information (Form
UCC-11) or similar search reports attaching all UCC financing statements filed
with respect to the Seller with the Secretary of State of the State of Ohio.
SECTION 4.2. Conditions Precedent to All Purchases. Each Purchase
(including the initial New Purchase, but excluding any Conversion Purchase) is
subject to the prior or concurrent satisfaction of the conditions precedent set
forth in this Section 4.2.
SECTION 4.2.1. Purchase Notice. In the case of each New Purchase only
(other than any Conversion Purchase), the Servicing Agent will have received:
(a) a Purchase Notice required pursuant to Section 2.2; and
(b) a Portfolio Report with respect to the applicable Pool, dated
within fifteen Business Days prior to the date of such Purchase, in form
and substance satisfactory
-19-
X-10.7-24
<PAGE> 25
to the Servicing Agent and containing such additional information as may
be reasonably requested by the Servicing Agent, and which additional
information can be reasonably provided by the Seller.
SECTION 4.2.2. Compliance with Warranties, No Default, etc. On the date
of each Purchase (both immediately prior to and subsequent to such Purchase)
other than a Conversion Purchase, the following statements will be true (and the
Seller, by accepting the payment of the Purchase Price relating to such
Purchase, will be deemed to have certified that)
(a) the representations and warranties of the Seller contained in
Section 5.1 will be correct on and as of the date of such Purchase as
though made on and as of such date; and
(b) no event has occurred and is continuing, or would result from such
Purchase, which constitutes an Event of Termination or (the following
phrase being applicable only insofar as the proposed Purchase to be made
is a New Purchase (other than a Conversion Purchase) and not a
Reinvestment Purchase) would constitute an Event of Termination but for
the requirement that notice be given or time elapse or both.
SECTION 4.2.3. Satisfactory Form, etc. All documents executed or
submitted pursuant to this Agreement will be satisfactory in form and
substance to the Servicing Agent, and the Servicing Agent will have received
such other approvals, opinions or documents as it may reasonably request.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.1. Representations and Warranties of the Seller. In order to
induce the Purchasers to make Purchases, the Seller represents and warrants unto
the Purchasers as set forth in this Article.
SECTION 5.1.1. Organization, etc. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio and is duly qualified to do business as a foreign corporation, and is in
good standing, in every other state of the United States of America where the
nature of its business requires it to be so qualified.
SECTION 5.1.2. Corporate Power, Authority, etc. The execution, delivery
and performance by the Seller of this Agreement and the other Related Documents
and the transactions contemplated
-20-
X-10.7-25
<PAGE> 26
hereby and thereby, are within the Seller's corporate powers, have been
duly authorized by all necessary corporate action and
(a) do not contravene
(i) the Seller's Amended Articles of Incorporation or Code
of Regulations;
(ii) any law, rule or regulation applicable to the Seller;
(iii) any contractual restriction contained in any indenture,
loan or credit agreement, lease, mortgage, security agreement,
bond, note, or other agreement or instrument binding on the
Seller or affecting any of its property; or
(iv) any order, writ, judgment, award, injunction or decree
binding on the Seller or affecting any of its property; and
(b) do not result in or require the creation of any lien, security
interest or other charge or encumbrance upon or with respect to any of its
properties.
No transaction contemplated hereby requires compliance with any bulk sales act
or similar law. This Agreement has been duly executed and delivered on behalf of
the Seller.
SECTION 5.1.3. Due Authorization, etc. No authorization or approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
the Seller of this Agreement or the other Related Documents, except for the
filing of the UCC Financing Statements referred to in Section 4.1.2, which
filings have been duly made and are in full force and effect.
SECTION 5.1.4. Validity, Enforceability, etc. This Agreement is the
legal, valid and binding obligation of the Seller enforceable against the Seller
in accordance with its terms.
SECTION 5.1.5. Financial Information. The Consolidated Financial
Statements of Goodyear and its subsidiaries present fairly the financial
position of the Seller and its consolidated subsidiaries at December 31, 1995
and 1994 and the consolidated results of their operations and their consolidated
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
SECTION 5.1.6. Title, Perfection, etc. Upon each Purchase, the applicable
Purchaser will acquire legal and equitable title to a valid and perfected
first priority undivided percentage ownership
-21-
X-10.7-26
<PAGE> 27
interest (to the extent of its applicable Receivables Ownership Interest) in
each Eligible Receivable in the applicable Pool and in the Related Security,
related Contracts and Collections with respect thereto, free and clear of any
Adverse Claim except as provided hereunder. No effective financing statement or
other instrument or document similar in effect giving notice of, or purporting
to give notice of, any current or possible prospective Adverse Claim in respect
of any such Eligible Receivable or the Related Security, related Contracts or
Collections with respect thereto will at any time be on file in any recording
office, except as may be filed in favor of the Purchasers in accordance with
this Agreement.
SECTION 5.1.7. Reports, etc. No Portfolio Report, information, exhibit,
financial statement, document, book, record or report furnished by the Seller
hereunder or in connection with this Agreement is inaccurate in any material
respect.
SECTION 5.1.8. Offices, etc. The chief place of business and chief
executive office of the Seller are located at 1144 East Market Street, Akron,
Ohio 44316-0001, and the offices where the Seller keeps all of its books,
records and documents concerning the Eligible Receivables and the related
Contracts are located at the addresses specified in Exhibit E (or, as notified
to the Servicing Agent in accordance with Section 6.1.6, at such other locations
in jurisdictions where all action required by Section 3.5 has been taken and
completed).
SECTION 5.1.9. Lock-Box Banks, Lock-Box Accounts, etc. The names and
addresses of all the Lock-Box Banks, together with the account numbers of the
Lock-Box Accounts of the Seller at such Lock-Box Banks, are specified in Exhibit
D (or at such other Lock-Box Banks or with such other Lock-Box Accounts as have
been notified to the Servicing Agent in accordance with Section 6.2.3).
SECTION 5.1.10. Investment Company Act Representation. The Seller is not
and is not controlled by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
ARTICLE VI
COVENANTS
SECTION 6.1. Affirmative Covenants of the Seller. Until the earlier of
(x) the date which is one year after the later occurring Termination Date
for either Pool, or (y) the later occurring Receivables Ownership Interest
Collection Date for either Pool, the Seller will, unless the Servicing Agent has
otherwise consented in writing, perform the obligations set forth in this
Section 6.1.
-22-
X-10.7-27
<PAGE> 28
SECTION 6.1.1. Compliance with Laws, etc. Except to the extent that such
noncompliance does not impair the collectibility or quality of any Receivable,
the Seller will comply in all material respects with all laws, rules,
regulations and orders applicable to it, its business and properties and all
Receivables and related Contracts and Related Security.
SECTION 6.1.2. Preservation of Corporate Existence. The Seller will
preserve and maintain its corporate existence, rights, franchises and privileges
in the jurisdiction of its incorporation, and qualify and remain qualified in
good standing as a foreign corporation in each jurisdiction where the failure to
preserve and maintain such existence, rights, franchises, privileges and
qualification would materially adversely affect the interests of the Purchasers
hereunder or the ability of the Seller or the Collection Agent to perform its
obligations under this Agreement.
SECTION 6.1.3. Audits. The Seller will, at any time and from time to
time during regular business hours permit the Servicing Agent or its agents or
representatives
(a) to examine all books, records and documents (including computer
tapes and disks) in the possession (or under the control) of the Seller
relating to Receivables, including the related Contracts; and
(b) to visit the offices and properties of the Seller for the purpose
of examining the materials described in clause (a) above and discussing matters
relating to Receivables and the Seller's performance hereunder with any of the
officers or employees of the Seller having knowledge of such matters.
SECTION 6.1.4. Keeping of Records and Books of Account. The Seller will
maintain and implement, or cause to be maintained and implemented,
administrative and operating procedures (including an ability to re-create
records evidencing Eligible Receivables in the event of the destruction of the
originals thereof), and keep and maintain, or cause to be kept and maintained
all books, records, documents and other information reasonably necessary or
advisable for the collection of all Eligible Receivables (including records
adequate to permit the daily identification of each Eligible Receivable and all
Collections of and reductions or adjustments to each Eligible Receivable).
SECTION 6.1.5. Performance and Compliance with Receivables and
Contracts. The Seller will, at its own expense, timely and fully perform and
comply with all material terms, covenants and other agreements required to
be performed and observed by it under the Contracts related to the Eligible
Receivables.
-23-
X-10.7-28
<PAGE> 29
SECTION 6.1.6. Location of Records. The Seller will keep its chief place
of business and chief executive office, and the offices where it keeps its
books, records and documents concerning (as applicable) the Receivables and all
Contracts related thereto (including all original documents relating thereto),
at the addresses of the Seller specified in Exhibit E or, upon 30 days' prior
written notice to the Servicing Agent, at such other locations in a jurisdiction
where all action required by Section 3.5 will have been taken and completed.
SECTION 6.1.7. Credit and Collection Policy. The Seller will comply in
all material respects with its Credit and Collection Policy in regard to each
Eligible Receivable and the related Contracts.
SECTION 6.1.8. Financial Reporting of Sale. The Seller will report and
account for the conveyance of the Receivables Ownership Interests hereunder as
sales for accounting and all other purposes.
SECTION 6.1.9. Reporting Requirements. The Seller will furnish to the
Servicing Agent:
(a) as soon as available and in any event within 60 days after the end
of each of its first three quarters in each fiscal year, a copy of the
Seller's quarterly report on Form 10-Q for each such quarter;
(b) as soon as available and in any event within 120 days after the end
of each fiscal year of the Seller, a copy of the Seller's annual report on
Form 10-K for such year containing financial statements for such year
certified in a manner acceptable to the Servicing Agent by independent
public accountants of recognized national standing;
(c) as soon as publicly available, copies of any other reports pursuant
to Section 13(a), 13(c) or 15(d) of the Securities Exchange Act of 1934,
as amended, filed by the Seller with the Securities Exchange Commission;
(d) as soon as possible after (i) the Seller knows of, or should have
known of, the occurrence of an Event of Termination or (ii) an officer of
the Seller with responsibility for this transaction obtains actual
knowledge of an event which, with the giving of notice or lapse of time or
both, would constitute an Event of Termination, a statement of the chief
financial officer or chief accounting officer of the Seller setting forth
details as to such Event of Termination or event;
(e) promptly upon the occurrence of any Event of Termination, a list
of each of the Eligible Receivables
-24-
X-10.7-29
<PAGE> 30
included in the Receivables Ownership Interests purchased by the
Purchasers;
(f) from time to time as required by Section 2.7.2, the Portfolio
Reports and other information required to be furnished pursuant to such
Section; and
(g) promptly, from time to time, such other information or reports with
respect to the Receivables or the condition or operations, financial or
otherwise, of the Seller, including reports sent to the Seller's security
holders, as Servicing Agent may from time to time reasonably request and
which additional information or reports can be reasonably provided by the
Seller.
SECTION 6.1.10. Instructions to Obligors. The Seller has instructed and
will continue to instruct (unless otherwise directed by the Servicing Agent) all
Obligors to remit payments on Eligible Receivables directly to a Lock-Box
Account (by electronic funds transfer or wire transfer therein) or directly to a
lock-box for deposit in a Lock-Box Account. Any payments received by the Seller
in contravention of such instructions will be immediately deposited by the
Seller into a Lock-Box Account.
SECTION 6.2. Negative Covenants of the Seller. Until the earlier of
(x) the date which is one year after the later occurring Termination Date for
either Pool, or (y) the later occurring Receivables Ownership Interest
Collection Date for either Pool, the Seller will, unless the Servicing Agent
has otherwise consented in writing, comply with the obligations set forth in
this Section 6.2.
SECTION 6.2.1. Sales, Liens, etc. The Seller will not, except as
otherwise provided herein, sell, assign (by operation of law or otherwise)
or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or
with respect to, any Lock-Box Account to which any Collections of any Eligible
Receivables are sent, or assign any right to receive income in respect thereof.
SECTION 6.2.2. Change in Business; Credit and Collection Policy,
Invoices, etc. The Seller will not:
(a) make any change in the character of its business which would impair
the collectibility or quality of any Eligible Receivable;
(b) make any change in the Credit and Collection Policy which would
materially impair the collectibility or quality of any Eligible
Receivable;
(c) make any material change in any form of invoice relating to the
Eligible Receivables, including, without limitation, any Contract, which
would materially
-25-
X-10.7-30
<PAGE> 31
impair the collectibility or quality of any Eligible Receivable; or
(d) make any change in its designation of divisions or classes of
business that are included on Scheduled II hereto (as such schedule may be
amended from time to time pursuant to the terms hereof) unless (i) in the case
of a change in name or number that does not affect which receivables are
"Receivables" hereunder, the Seller notifies the Servicing Agent of such change
prior to the effectiveness thereof in accordance with the definition of
"Receivable" hereunder and (ii) in all other cases, such change would not
materially impair the nature or quantity of receivables arising therefrom.
SECTION 6.2.3. Change in Payment Instructions to Obligors. The Seller
will not add or terminate any bank as a Lock-Box Bank to or from those
listed in Exhibit D or make any change in its instructions to Obligors regarding
payments to be made to any Lock-Box Bank, unless the Servicing Agent will have
received notice of such addition, termination or change and undated executed
copies of Lock-Box Notices to each new Lock-Box Bank, and unless the terminated
Lock-Box Agreement is replaced before the effective date of such termination by
a binding Lock-Box Agreement with another Lock-Box Bank acceptable to the
Servicing Agent.
SECTION 6.2.4. Limit on Purchases. Neither the Combined Pool A Purchased
Amount nor the Combined Pool B Purchased Amount shall from time to time exceed
15% of the Seller's consolidated assets, determined as at the end of each
calendar month.
SECTION 6.2.5. No Commingling. The Seller will not commingle Collections
(prior to any distribution to the Seller by the Collection Agent pursuant
hereto) with any other funds of the Seller (except for collections of other
receivables). Without limiting the generality of the foregoing, the Seller will
not deposit or otherwise credit, or cause or permit to be so deposited or
credited, to any Lock-Box Account cash or cash proceeds other than Collections
and collections from other receivables.
ARTICLE VII
EVENTS OF TERMINATION
SECTION 7.1. Action Upon an Event of Termination. If any Event of
Termination (other than an Event of Termination of the type described in clause
(g) of the definition of "Event of Termination") occurs, the Servicing Agent
will, at the request or with the consent of the Purchasers, by notice to the
Seller designate a Purchase Termination Date with respect to either or both
Pools (provided that if an Event of Termination relates solely
-26-
X-10.7-31
<PAGE> 32
to one Pool and not the other, only a Purchase Termination Date with respect to
the affected Pool may be designated) and/or a Person to succeed the Seller as
the Collection Agent (if the Seller is then serving as the Collection Agent)
pursuant to Section 3.1. Automatically (and without any requirement for the
passage of time or the giving of notice) upon the occurrence of any event
described in clause (g) of the definition of "Event of Termination", the
Purchase Termination Date will occur with respect to both Pools and the
Servicing Agent will become the Collection Agent. Upon any such designation or
termination (whether automatic or otherwise), no Purchases from the affected
Pool or Pools thereafter will be made, and the Servicing Agent and the
Purchasers will have, in addition to the rights and remedies which they may have
under this Agreement or any Related Document, all other rights and remedies
provided under the UCC of any applicable jurisdiction or jurisdictions and other
applicable laws, which rights will be cumulative.
ARTICLE VIII
SERVICING AGENT
SECTION 8.1. Authorization and Action. The Servicing Agent may take such
action and carry out such functions under this Agreement as are delegated to it
by the terms hereof or otherwise contemplated hereby, together with such powers
as are reasonably incidental thereto. On and prior to the occurrence of the
Receivables Ownership Interest Collection Date for both Pools, the Servicing
Agent shall be entitled to receive, as compensation for its services, the
Servicing Agent Fee payable in accordance with Section 2.6.
SECTION 8.2. Reliance, etc. Neither the Servicing Agent nor any of its
directors, officers, agents or employees will be liable for any action taken or
omitted to be taken by it or them under or in connection with this Agreement
(including any action taken or omitted to be taken by it or them if designated
as Collection Agent pursuant to Section 3.1 or Section 7.1), except for its or
their own gross negligence or wilful misconduct. Without limitation of the
generality of the foregoing, and notwithstanding any term or provision hereof to
the contrary, the Seller hereby acknowledges and agrees that the Servicing Agent
acts as agent hereunder for the Purchasers and has no duties or obligations to,
will incur no liabilities or obligations to, and does not act as an agent in any
capacity for, the Seller, except to the extent provided in Article III if and
when the Servicing Agent should become the Collection Agent hereunder.
SECTION 8.3. CIBC and Affiliates. CIBC and its Affiliates may generally
engage in any kind of business with the Seller or any Obligor, any of their
respective subsidiaries and any Person who
-27-
X-10.7-32
<PAGE> 33
may do business with or own securities of the Seller or any Obligor or any of
their respective subsidiaries, all as if CIBC were not the Servicing Agent, and
without the duty to account therefor to the Purchasers or any other Person.
ARTICLE IX
INDEMNIFICATION
SECTION 9.1. Indemnities by the Seller. Without prejudice to any other
rights which the Servicing Agent or the Purchasers may have hereunder or under
applicable law, the Seller hereby indemnifies and saves the Servicing Agent and
the Purchasers and their respective officers, directors, employees, agents and
Affiliates harmless from and against any and all damages, losses, claims,
liabilities and related costs and expenses (including reasonable attorneys' fees
and disbursements) (collectively, the "Indemnified Liabilities") awarded against
or incurred by any of them arising out of or as a result of:
(a) the purported sale by the Seller (and acceptance of the Purchase
Price therefor) of an undivided percentage ownership interest in Eligible
Receivables of either Pool at any time that the then Receivables Ownership
Interests of both Purchasers together in such Pool equals or exceeds 100%;
(b) the reliance by the Servicing Agent or the Purchasers on any
representation or warranty made or deemed made by the Seller (or any of
its officers) under or in connection with this Agreement, any Portfolio
Report or any other information or report delivered by the Seller pursuant
hereto, which was incorrect in any material respect when made or deemed
made;
(c) the failure by the Seller to comply with any applicable law, rule or
regulation with respect to any Eligible Receivable or to comply with any
related Contract, or the nonconformity of any Eligible Receivable or any
related Contract with any such applicable law, rule or regulation;
(d) the failure to vest in the Purchasers, or to transfer to the
Purchasers, legal and equitable title to, and ownership of, undivided
percentage ownership interests in, to the extent of the Receivables
Ownership Interests purchased by the Purchasers hereunder, the Eligible
Receivables in, or purporting to be in, each Pool, free and clear of any
Adverse Claim;
-28-
X-10.7-33
<PAGE> 34
(e) the failure timely to file financing statements or other similar
instruments or documents under the UCC of any applicable jurisdiction or
other applicable laws with respect to any Receivables in or purporting to
be in Pool A or Pool B, whether at the time of purchase of the Receivables
Ownership Interests or at any subsequent time;
(f) the return or transfer by either Purchaser of any amount of
Collections received pursuant to Article II to the Seller or any other
Person claiming by, through or under the Seller for any reason whatsoever;
(g) any dispute, claim, offset or defense of any Obligor (other than
discharges in bankruptcy of the Obligor) to the payment of any Eligible
Receivable (including a defense based on such Eligible Receivable or the
related Contract not being a legal, valid and binding obligation of such
Obligor enforceable against it in accordance with its terms), or any other
claim resulting from the sale, use, operation or ownership of, or defects
in or breaches of warranties with respect to the merchandise or services
relating to such Eligible Receivable or the furnishing or failure to
furnish such merchandise or services, other than any such defense, offset,
claim or dispute arising through (or out of the actions of), or asserted
against, the Purchasers, or either of them, or their respective
Affiliates, agents, representatives, successors or assigns;
(h) any failure of the Seller, as Collection Agent or otherwise, to
perform its duties or obligations in accordance with the provisions of
Article III;
(i) without duplication of the other provisions of this Agreement, any
loss or expense (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by CIBC in
order to maintain any portion of the Purchased Amount of the Standby
Purchaser in either Pool at a Purchase Discount Rate determined by
reference to the LIBO Rate (Reserve Adjusted)) as a result of any
repayment or prepayment of such portion (or conversion of the Purchase
Discount Rate with respect to such portion) on a date other than the
scheduled last day of the applicable Fixed Periods with respect thereto;
or
(j) any tax being imposed on any of them on account of any payment made
under this Section 9.1.
If and to the extent that the foregoing undertaking may be unenforceable
for any reason, the Seller hereby agrees to make the maximum contribution to the
payment of each of the Indemnified Liabilities which is permissible under
applicable law. Notwithstanding the foregoing, in the event that there is any
-29-
X-10.7-34
<PAGE> 35
Indemnified Liability that arises solely in respect to one or more Eligible
Receivables and is in an amount equal to the value(or applicable portion
thereof) of such Eligible Receivable or Eligible Receivables, including, without
limitation, pursuant to clause (g) above, the Seller shall pay the amount of
such Indemnified Liability directly to the Collection Agent, and the Collection
Agent shall distribute such amount pursuant to Article II hereof in the same
manner and under the same terms and conditions as if such payment had been
received from the Obligor with respect to the Eligible Receivable.
SECTION 9.2. Seller to Advise the Servicing Agent. The Seller will use
its best efforts to identify situations involving possible liability or
obligations under this Article IX and to determine the amount of any such
possible liability or obligations, and, upon obtaining knowledge of such
situations, it will promptly advise the Servicing Agent thereof.
SECTION 9.3. Cooperation in Litigation and Proceedings. The Seller agrees
to assist, at the request of the Servicing Agent or either Purchaser, and at the
Seller's expense, in any action, suit or proceeding brought by or against, or
any investigation involving, the Servicing Agent relating to any of the
transactions contemplated by this Agreement or to any of the Eligible
Receivables or the related Contracts. The Purchasers agree to assist, at the
request and expense of the Seller, in any action, suit or proceeding brought by
or against, or any investigation involving, the Seller relating to any of the
transactions contemplated by this Agreement or to any of the Eligible
Receivables or the related Contracts.
ARTICLE X
PATRONAGE DISTRIBUTIONS
SECTION 10.1. Patronage Distributions Generally. Prior to the fifteenth
day of the ninth month following the close of the Primary Purchaser's taxable
year, the Primary Purchaser shall be required to pay a Patronage Dividend as
defined in Section 1388(a) of the Code to the Seller equal to that portion of
the net earnings of the Primary Purchaser that bears the same ratio to total net
earnings as the total discounts or other similar items paid by the Seller
pursuant to this Agreement to the Primary Purchaser and attributable to such
taxable year bears to the total discounts or other similar items paid by all
sellers pursuant to all their securitization agreements with the Primary
Purchaser attributable to such taxable year. Net earnings of the Primary
Purchaser for the purpose of this Section 10.1 shall mean the excess of income
over expense as determined for federal income tax purposes. At least twenty
percent of any Patronage Dividend shall be paid in cash. The balance of any
Patronage Dividend may be paid through
-30-
X-10.7-35
<PAGE> 36
the issuance of a qualified written notice of allocation as provided in Section
1388(c) of the Code. Subject to the foregoing, the time and manner of patronage
distributions shall be determined on an annual basis by the board of directors
of the Primary Purchaser.
SECTION 10.2. Income Tax Consent. The Seller hereby consents to include
in its income at the stated dollar amount as provided in Section 1385(a) of
the Code, any payment of a Patronage Dividend to the extent it is made in the
form of a qualified written notice of allocation as defined in Section 1388(c)
of the Code and any qualified per-unit retain certificates as defined in Section
1388(h) of the Code which are made in the form of written notices. The Seller
agrees to include in its income the stated amount of such written notices of
allocation or of per-unit retain certificates in the taxable year that such
written notice is received by the Seller.
ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.1. Amendments, etc. No amendment to or waiver of any provision
of this Agreement nor consent to any departure by the Seller therefrom will in
any event be effective (in whole or in part) unless the same is in writing,
signed and consented to by the Seller and the Purchasers and, to the extent it
affects the rights, duties or obligations of the Servicing Agent, the Servicing
Agent.
SECTION 11.2. Notices, etc. All notices and other communications provided
for hereunder must, unless otherwise stated herein, be in writing (including
telex or telecopier communication) and mailed, telexed, telecopied or delivered,
as to each party hereto, at its address, telex or telecopier number set forth
below its name on the signature pages hereof, or at such other address, telex or
telecopier number as will be designated by such party in a written notice to
each of the other parties hereto. All such notices and communications will be
effective, in the case of written notice, when presented at the address of the
addressee thereof or, in the case of notice by telex or telecopier, when
transmitted, in each case addressed as aforesaid, except that notices and
communications pursuant to Article II will not be effective until received.
SECTION 11.3. No Waiver; Remedies. No failure on the part of the
Servicing Agent or either Purchaser to exercise, and no delay in
exercising, any right hereunder will operate as a waiver thereof; nor will any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
-31-
X-10.7-36
<PAGE> 37
SECTION 11.4. Binding Effect; Assignability, etc. This Agreement will be
binding upon and inure to the benefit of the Seller, the Servicing Agent, the
Purchasers and each of their respective successors and permitted assigns, except
that the Seller may not assign its rights hereunder or any interest herein
without the prior written consent of the Purchasers (except as set forth in the
next succeeding sentence). The Seller may assign or create an Adverse Claim upon
its retained interest in the Receivables, Contracts, Related Security and
Collections without the prior written consent of the Purchasers as long as (i)
the Seller promptly notifies the Servicing Agent of its intention to so assign
or create such Adverse Claim, the name and address of the assignee or holder of
such Adverse Claim and the terms and conditions of such assignment or creation,
and (ii) such assignee or holder provides the Servicing Agent on or prior to
such assignment or creation with written acknowledgement that (A) in no event
shall the interest of such assignee or holder extend to the Receivables
Ownership Interest of either Purchaser in either Pool as it may change from time
to time and (B) the interest of such assignee or holder is subject and
subordinate to the interest of the Purchasers pursuant to Section 11.7. Each
Purchaser may assign, transfer or convey its Receivables Ownership Interest in
either Pool (in whole or in part) to any Person as long as (i) such Person is
not in the same line of business as the Seller (unless the Seller consents
thereto) and (ii) such Purchaser complies with the provisions of Section 11.4.1
and Section 11.4.2. This Agreement will create and constitute the continuing
agreement of the parties hereto in accordance with its terms, and will remain in
full force and effect until such time, after the Termination Date with respect
to each Pool, as the Purchasers and/or any holder of the Receivables Ownership
Interests or any portion thereof shall have no rights to or interests in
Receivables or Collections; provided, however, that
(a) the rights and remedies of the Purchasers with respect to any
incorrect representation or warranty made by the Seller pursuant to
Article V;
(b) the indemnification provisions hereof; and
(c) the rights of the Purchasers, the Servicing Agent and the
Collection Agent to be paid the fees, costs and expenses provided for
hereunder (including under Section 11.6)
will be continuing and will survive any termination of this Agreement or
any other Related Document.
SECTION 11.4.1. Certain Conditions and Agreements Regarding Assignments.
Each of the Purchasers will give the Seller at least 30 days prior written
notice of its intention to assign, transfer or convey the Receivables Ownership
Interest of such Purchaser in either Pool, which notice will (a) if the
assignment
-32-
X-10.7-37
<PAGE> 38
is an assignment for security, briefly describe the obligations in respect of
which such security interest is to be created, (b) identify the assignee or
transferee, (c) briefly set forth the conditions upon which any assignee of a
security interest may enforce such security interest and the remedies available
to the secured party or secured parties upon such enforcement in respect of the
applicable Receivables Ownership Interest, and (d) if the assignment is a sale,
the name and address of the transferee, the purchase price for such transfer and
the terms and conditions of such transfer. Each Purchaser hereby represents,
warrants and covenants to the Seller that: (a) any security interest heretofore
or hereafter granted by such Purchaser in respect of any Receivables Ownership
Interest in either Pool will terminate, and the secured party or secured parties
thereunder will have no right or interest in the applicable Receivables
Ownership Interest, in the event that such Purchaser no longer has a right to
distribution of Collections in respect thereof pursuant to Section 2.6, or in
the event that any transaction, including any transaction between the Seller and
such Purchaser, has the effect of terminating or canceling, or otherwise ending
the continued operation of, this Agreement and the Purchasers and the Servicing
Agent have received all sums due to them under the terms of this Agreement; (b)
no assignee or transferee shall have any right or interest in or to the
applicable Receivables Ownership Interest greater than the rights of the
applicable Purchaser therein created pursuant to the provisions and terms of
this Agreement; and (c) no assignee or transferee shall have any right or
interest in or to any related Contract or Related Security, or to act as
Servicing Agent under this Agreement, greater than the rights granted to the
Purchasers and the Servicing Agent under the Agreement.
SECTION 11.4.2. Right of First Refusal. At any time that the Seller
receives notification pursuant to Section 11.4.1 that either Purchaser (herein
referred to as the "Transferring Purchaser") intends to sell all or any portion
of its Receivables Ownership Interest in either Pool to a bona fide third party
(herein referred to as the "Prospective Purchaser"), the Seller will have the
right to reacquire such Receivables Ownership Interest (or the portion thereof
which the Prospective Purchaser has offered to purchase, if applicable) for the
purchase price, on the purchase date, and upon the terms and conditions offered
by such Prospective Purchaser as set forth in such notification. In order to
exercise such right, the Seller must notify the Transferring Purchaser of its
intent to do so on or prior to the fifth Business Day following receipt by the
Seller of the notification delivered to it pursuant to Section 11.4.1.
SECTION 11.5. Governing Law; Consent to Jurisdiction. THIS AGREEMENT
WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE STATE OF NEW YORK (AND CONFLICTS LAWS SOLELY BY REFERENCE TO SECTION 5-1401
OF THE NEW YORK GENERAL OBLIGATIONS LAWS), EXCEPT TO THE EXTENT THAT THE
VALIDITY
-33-
X-10.7-38
<PAGE> 39
OR PERFECTION OF THE INTERESTS OF THE PURCHASER IN THE RECEIVABLES, OR REMEDIES
HEREUNDER IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NEW YORK. FOR PURPOSES OF ANY ACTION OR PROCEEDING INVOLVING
THIS AGREEMENT OR ANY RELATED DOCUMENT, THE SELLER HEREBY EXPRESSLY SUBMITS TO
THE NON-EXCLUSIVE JURISDICTION OF ALL FEDERAL AND STATE COURTS LOCATED IN THE
STATE OF NEW YORK AND CONSENTS THAT IT MAY BE SERVED WITH ANY PROCESS OR PAPER
BY REGISTERED MAIL OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW
YORK.
SECTION 11.6. Costs, Expenses and Taxes. In addition to the rights of
indemnification granted under Article IX, the Seller agrees to pay on demand all
costs and expenses (including travel and other expenses) of the Servicing Agent
in connection with the preparation, execution, delivery and administration
(including periodic auditing) of this Agreement and the other Related Documents
and all amendments with respect to any thereof, including the reasonable fees
and out-of-pocket expenses of counsel for the Servicing Agent with respect
thereto and with respect to advising the Servicing Agent as to its rights and
remedies and the rights and remedies of the Purchasers under this Agreement and
all Related Documents, and all reasonable costs and expenses (including
reasonable counsel fees and expenses) of the Servicing Agent and the Purchasers
in connection with the enforcement of this Agreement and the other Related
Documents.
In addition, the Seller will promptly after demand:
(a) pay any and all stamp and other taxes and fees payable or determined
to be payable in connection with the execution, delivery, filing and
recording of this Agreement or any other Related Document; provided,
however, that the Servicing Agent will notify the Seller if it becomes
aware of the imposition, or prospective imposition, of any such taxes
(none of which it is presently aware); and
(b) reimburse the Purchasers for any loss of Purchase Discount resulting
from a miscalculation by either Purchaser or the Servicing Agent in
determining the Purchase Discount; provided, however, that such Purchaser
will request such reimbursement in writing and will explain, in reasonable
detail, such miscalculation; and, provided, further, however, the amount
of such reimbursement shall not exceed the amount which should have
initially been paid to such Purchaser but for such miscalculation.
The Seller hereby further indemnifies and saves harmless each of the
Servicing Agent and the Purchasers from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay the
aforementioned taxes and fees.
-34-
X-10.7-39
<PAGE> 40
SECTION 11.7. Grant of Security. Solely for purposes of securing its
obligations to pay fees, indemnified amounts, costs, expenses (including
reasonable attorneys' fees and expenses) and other claims and obligations
hereunder (collectively, the "Secured Obligations"), the Seller hereby grants to
the Purchasers pro rata and pari passu, a security interest in all of the
following, whether now or hereafter existing or arising:
(a) all of the Seller's right, title and interest from time to time in
and to all of its undivided interest in all Receivables, and the
Contracts, Related Security, Collections and books and records with
respect to the Receivables; and
(b) all proceeds of any and all of the foregoing property described in
clause (a).
Any term or provision of this Agreement to the contrary notwithstanding, the
security interest granted pursuant to this section shall not (i) secure or
otherwise support any obligations of the Seller, any of its Affiliates or any
Obligor under any Receivable, or (ii) secure payment of Secured Obligations of
either Purchaser aggregating in excess of an amount equal to its Purchaser's
Investment as of the close of business of the Business Day immediately preceding
the Termination Date.
SECTION 11.8. No Proceedings. The Seller, the Collection Agent and the
Servicing Agent each hereby agree that it will not institute against the Primary
Purchaser any proceeding of the type referred to in clause (g) of the definition
of "Event of Termination" so long as any commercial paper issued by the Primary
Purchaser will be outstanding or there has not elapsed one year plus one day
since the last day on which any such commercial paper will have been
outstanding.
SECTION 11.9. Execution in Counterparts, Effectiveness, etc. This
Agreement may be executed in any number of counterparts and by different parties
hereto on separate counterparts, each of which when so executed will be deemed
to be an original and all of which when taken together will constitute one and
the same agreement. This Agreement will become effective on the date (the
"Effective Date") when counterparts hereof executed on behalf of all parties
hereto have been received by the Servicing Agent and notice thereof has been
given by the Servicing Agent to each such party and the conditions precedent set
forth in Section 4.1 have been satisfied or waived by the Purchasers and notice
thereof has been given by the Servicing Agent to the parties hereto. The various
headings of this Agreement are inserted for convenience only and shall not
affect the meaning or interpretation of this Agreement or any provisions hereof.
-35-
X-10.7-40
<PAGE> 41
SECTION 11.10. Integration Clause. This Agreement and each Related
Document integrate all the terms and conditions mentioned herein or incidental
hereto, and supersede all oral negotiations and prior writings in respect of the
subject matter hereof (including, without limitation, the Pool A Original
Agreement and the Pool B Original Agreement which are consolidated, amended and
restated hereby).
-36-
X-10.7-41
<PAGE> 42
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
THE GOODYEAR TIRE & RUBBER COMPANY, as initial
Collection Agent and Seller
By:
--------------------------------------------
R W Hauman, Vice President & Treasurer
Address for Notices:
1144 East Market Street
Akron, Ohio 44316-0001
Attention: Office of the
Treasurer
ASSET SECURITIZATION COOPERATIVE
CORPORATION, as the Primary
Purchaser
By:
---------------------------------------------
Title:
Address for Notices:
425 Lexington Avenue
7th Floor
York, New York 10017
Attention: President
with a copy to the Servicing Agent at its designated
address for the receipt of notices
CANADIAN IMPERIAL BANK OF COMMERCE, as the Standby
Purchaser
By:
---------------------------------------------
Title:
Address for Notices:
425 Lexington Avenue
7th Floor
New York, New York 10017
Attention: Asset
Securitization
Group
-37-
X-10.7-42
<PAGE> 43
<<<
with a copy to the Servicing Agent at its designated
address for the receipt of notices
LIBOR Office for Canadian Imperial
Bank of Commerce:
425 Lexington Avenue
New York, New York 10017
CANADIAN IMPERIAL BANK OF COMMERCE, as the Servicing
Agent
By:
---------------------------------------------
Title:
Address for Notices:
425 Lexington Avenue
7th Floor
New York, NY 10017
Attention: Asset
Securitization
Group
-38-
X-10.7-43
<PAGE> 44
ANNEX I TO CONSOLIDATED
RECEIVABLES SALE AGREEMENT
DEFINED TERMS
When used in the Consolidated Receivables Sale Agreement [$550,000,000
Facility], dated as of November 15, 1996, among The Goodyear Tire & Rubber
Company, Asset Securitization Cooperative Corporation, as the Primary Purchaser,
Canadian Imperial Bank of Commerce, as the Standby Purchaser and Canadian
Imperial Bank of Commerce, as the Servicing Agent, terms used in such agreement
(including its preamble and recitals) shall, except where the context otherwise
requires, have the meanings set forth in this ANNEX I (such meanings to be
equally applicable to both the singular and plural forms of the terms defined).
I. INTERNALLY DEFINED TERMS
The following terms are defined in the Sections of the Agreement set forth
opposite such terms. All other terms are defined in Part II of this Annex I.
DEFINED TERMS SECTION OF AGREEMENT
Affected Party Section 2.11
CIBC Preamble
Collection Agent Section 3.1
Conversion Purchase Section 2.4.2
Conversion Purchases Section 2.4.2
Effective Date Section 11.9
Indemnified Liabilities Section 9.1
New Purchase Section 2.1
Pool A Original Agreement First Recital
Pool B Original Agreement First Recital
Primary Purchaser Preamble
Prospective Purchaser Section 11.4.2
Purchase Section 2.3
Purchaser Preamble
Purchasers Preamble
Receivables Ownership Interest Section 2.5
Reinvestment Purchase Section 2.3
Seller Preamble
Servicing Agent Preamble
Standby Purchaser Preamble
Third Party Collection Agent Section 3.1
Transferring Purchaser Section 11.4.2
II. OTHER DEFINED TERMS
"Adverse Claim" means a lien, security interest, charge, encumbrance or
other right or claim of any Person, other than Permitted Liens or any lien,
security interest, charge, encumbrance or other right or claim arising as a
result of action or inaction on the part of either Purchaser.
"Affiliate" means, when used with respect to any Person, any other Person
controlling, controlled by or under common control with such Person.
"Affiliated Obligor" means any Obligor which is an Affiliate of another
Obligor.
"Agreement" means, on any date, that certain Consolidated Receivables Sale
Agreement [$550,000,000 Facility], dated as of November 15, 1996 (including this
Annex I), among the
-39-
X-10.7-44
<PAGE> 45
Seller, the Primary Purchaser, the Standby Purchaser and the
Servicing Agent, as originally in effect on the Effective Date and as thereafter
from time to time amended, supplemented, amended and restated, or as otherwise
modified and in effect.
"Aggregate Net Charge-Offs" means, with respect to Pool A or Pool B, as
the case may be, for any calendar quarter the aggregate Dollar amount charged
against bad debt reserves during such calendar quarter less all funds recovered
during such calendar quarter with respect to previous charge-offs to the bad
debt reserves.
"Alternate Rate" means for any day the sum of (x) the Federal Funds Rate
for such day plus (y) 1/2 of 1%.
"Business Day" means any day which is neither a Saturday or Sunday nor a
legal holiday on which commercial banks are authorized or required to be closed
in New York, New York and any day on which dealings in Dollars are carried on in
the interbank eurodollar market of CIBC's LIBOR Office.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collection Agent Fee" means, with respect to each Settlement Period, a
fee equal to .25 of 1% per annum on the average of the Outstanding Balance of
all Eligible Receivables as of the open of business on the first day and as of
the close of business on the last day of such Settlement Period, computed based
upon the number of days in such Settlement Period over 360.
"Collections" means, with respect to any Receivable, all cash collections
and other cash proceeds of such Receivable, including all cash proceeds of the
Related Security with respect thereto; provided, however, that solely for the
purposes of distributions by the Collection Agent pursuant to Article II
(including, without limitation, in respect of Reinvestment Purchases) and any
corresponding reduction in the Purchased Amount of any Purchaser in any Pool
pursuant to the definition thereof, the term "Collections" shall be deemed to
include amounts received by the Collection Agent pursuant to the last sentence
of Section 9.1.
"Collection Ratio" means, separately with respect to each Pool (excluding,
however, (i) Receivables in either such Pool of the type described in clause (d)
of the definition of Eligible Receivable and (ii) Receivables of any Obligor
other than a Designated Obligor), as calculated as of the last day of any
calendar month, the ratio computed by dividing:
(a) total Collections of Receivables in such Pool for the twelve calendar
month period ending on such day
by
(b) the average of the month-end Eligible Receivables Portfolio Balances
for such Pool in the twelve calendar month period ending on such day.
"Combined Pool A Purchased Amount" means the sum of the Purchased Amounts
for both Purchasers with respect to Pool A.
"Combined Pool B Purchased Amount" means the sum of the Purchased Amounts
for both Purchasers with respect to Pool B.
"Commitment Fee" means that fee described in Section 2.9 of the Agreement.
"Concentration Limit" means, with respect to either Pool A or Pool B for
any Designated Obligor at any time, 33.33% of the aggregate Loss Reserve for
both Purchasers with respect to
-40-
X-10.7-45
<PAGE> 46
the applicable Pool at such time (or, solely with respect to Pool B,
$14,667,000 if less) (a "Normal Concentration Limit") (or such other percentage
or dollar amount as is agreed to by the Servicing Agent on behalf of the
Purchasers or, as to those Designated Obligors set forth on Schedule I to the
Agreement with respect to either Pool A or Pool B (as the same may be amended
from time to time upon mutual agreement of the Seller and the Servicing Agent),
such other percentage or dollar amount as is set forth on such Schedule), or
such higher percentage of the aggregate Loss Reserve with respect to Pool A or
Pool B, as the case may be, at such time as may be designated for any Designated
Obligor by the Seller and agreed to in writing by the Servicing Agent; provided,
however, that any such percentage or dollar amount for any Obligor (including a
Normal Concentration Limit) may, automatically upon notice from the Servicing
Agent to the Seller, be reduced from time to time with respect to computations
of the Receivables Ownership Interest of either Purchaser in either Pool
occurring on or after such date and, provided, further, however, that, in the
case of a Designated Obligor with one or more Affiliated Obligors which is or
are Designated Obligors, such Designated Obligor and such Affiliated Obligors
shall be considered to be one Designated Obligor.
"Consolidated Financial Statements of Goodyear" means the consolidated
balance sheet of Goodyear and its subsidiaries as at December 31, 1995 and 1994
and the Consolidated Statements of Income, Shareholders' Equity and Cash Flows
for each of the three years in the period ended December 31, 1995, and the Notes
to Financial Statements in respect thereof, together with the Report of Price
Waterhouse, independent accountants, in respect thereof, all as set forth at
pages 24 through 43, inclusive, and page 46 of the 1995 Annual Report to
Shareholders of Goodyear, a copy of which has heretofore been delivered to the
Servicing Agent.
"Contract" means any invoice in one of the forms set forth on Exhibit G to
the Agreement, as any such form may be revised or replaced from time to time
pursuant to Section 6.2.2 of the Agreement.
"Credit and Collection Policy" means those credit and collection policies
followed by the Seller with respect to the collection and administration of
Receivables, the Contracts and Related Security with respect thereto.
"Debt" means and includes, as at the date as of which any determination
thereof is being or to be made and in respect of any Person, without duplication
and excluding in the case of the Seller and its Subsidiaries intercorporate debt
and other intercorporate obligations solely among the Seller and its
Subsidiaries, all (i) indebtedness of such Person for borrowed money, (ii)
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) obligations of such Person to pay the deferred
purchase price of property or services under conditional sales or other similar
agreements which provide for the deferral of the payment of the purchase price
for a period in excess of one year following the date of such Person's receipt
and acceptance of the complete delivery of such property and/or services, (iv)
obligations of such Person as lessee under leases which obligations are, in
accordance with GAAP, recorded as capital lease obligations, and (v) obligations
of such Person under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) of such Person to purchase or otherwise
acquire, indebtedness or obligations of others of the kinds referred to in
clauses (i) through (iv) above. Whenever any determination of the amount of Debt
(or of Funded Debt) is required or permitted to be, or is otherwise being or to
be made for any purpose under the Agreement, the amount of any such Debt
denominated in any currency other than Dollars shall be calculated at the Dollar
Equivalent of such Debt as at the date as of which such determination of the
amount of Debt is being or to be made, except that, if all or any portion of the
principal amount of any such Debt which is payable in a currency other than
Dollars is hedged into Dollars, the principal amount of such hedged Debt, or the
hedged portion thereof, shall be deemed to be equal to the amount of Dollars
specified in, or determined pursuant to, the applicable hedging contract.
-41-
X-10.7-46
<PAGE> 47
"Default Ratio" means, separately with respect to each Pool (excluding,
however, (i) Receivables in either such Pool of the type described in clause (d)
of the definition of Eligible Receivable and (ii) Receivables of any Obligor
other than a Designated Obligor), as calculated as of the last day of any
calendar month (or, if reasonably requested by the Servicing Agent, as of the
last day of any calendar week), the ratio (expressed as a percentage) computed
by dividing:
(a) the then aggregate Outstanding Balance of all Defaulted Receivables
in such Pool
by
(b) the then aggregate Outstanding Balance of all Receivables in such
Pool.
Any Defaulted Receivable shall, for purposes of calculation of Default
Ratio, cease to be a Defaulted Receivable at the beginning of the calendar month
immediately following the calendar month during which it becomes a Defaulted
Receivable.
"Defaulted Receivable" means any Receivable
(a) as to which any payment, or part thereof, remains unpaid for 91 days
or more from the original due date for such payment;
(b) the Obligor of which has taken any action, or suffered any event to
occur, of the type described in clause
(g) of the definition of "Event of Termination"; or
(c) which, consistent with the Credit and Collection Policy, would be
written off the Seller's books as uncollectible.
"Deferred Purchase Price" means, collectively, those amounts owed to the
Seller pursuant to clause (viii) of Section 2.6.
"Delinquency Ratio" means, separately with respect to each Pool
(excluding, however, (i) Receivables in either such Pool of the type described
in clause (d) of the definition of Eligible Receivable and (ii) Receivables of
any Obligor other than a Designated Obligor), as calculated as of the last day
of any calendar month (or, if reasonably requested by the Servicing Agent, as of
the last day of any calendar week), the ratio (expressed as a percentage)
computed by dividing:
(a) the then aggregate Outstanding Balance of all Delinquent Receivables
in such Pool
by
(b) the then aggregate Outstanding Balance of all Receivables in such
Pool.
"Delinquent Receivable" means a Receivable that is not a Defaulted
Receivable and as to which any payment, or part thereof, remains unpaid for 31
to 60 days from the original due date for such payment.
"Designated Obligor" means, at any time and separately with respect to
each Pool, an Obligor of any Receivable, other than (i) any such Obligor which
the Servicing Agent may (from time to time in its sole discretion reasonably
exercised and for purposes of this definition) exclude by at least five Business
Days written notice to the Seller and the Collection Agent, and (ii) any such
Obligor listed below which the Seller may exclude at any time (until like notice
to the Servicing Agent to the contrary) as a Designated Obligor by at least five
Business Days written notice to the Servicing Agent; provided, however, that (1)
the Receivables Ownership Interests with respect to the applicable Pool for both
Purchasers together shall not, at the time of the giving of such written notice,
be equal to or greater than 100% and (2) the effect of excluding such Obligor as
a Designated Obligor shall not be to cause the then Receivables Ownership
Interests
-42-
X-10.7-47
<PAGE> 48
with respect to the applicable Pool for both Purchasers, together, to
equal or exceed 100%. The list of the Obligors which may be excluded as
Designated Obligors pursuant to the preceding clause (ii) is as follows:
POOL A
Ford Motor Company
General Motors
Chrysler Motors
Navistar
Bradco
Caterpillar
POOL B
Hoffman Tire Company Inc.
TBC Corporation
Service Station Supply
Max Finklestein
Reinalt-Thomas Corporation
(and its subsidiaries --
Discount Co. Inc. and
Huron Valley Tire Co. Inc.)
Purcell Tire & Auto.
Sears
Wal-Mart
Itco Holding
Laramie Tire
Dapper Tire
"Dollar" means United States currency.
"Dollar Equivalent" means, in respect of any amount of any currency, and
as at the date and time as of which any determination thereof is being or to be
made, that number of Dollars into which such amount of currency may be converted
on such date, which shall be equal to the product of (x) the principal amount of
such currency (expressed in standard units of such currency) multiplied by (y)
the prevailing spot rate for exchanging such currency into Dollars as quoted on
page "Spot" of the Reuter System as at such date and time as of which the
determination of Dollar Equivalent is being or to be made, or, if no rate is
quoted in respect of such currency on the Reuter System display designated page
"Spot" as at such date and time, the prevailing spot rate for exchanging such
currency into Dollars in the New York city foreign currency exchange market (or,
if a more substantial and liquid market for the exchange of such currency, the
London currency exchange market or the currency exchange market in the principal
financial center of such currency) as at such date and time.
"Eligible Receivable" means a Receivable which at the time at or as of
which any determination thereof is being or is to be made fulfills all of the
following criteria:
(a) the Obligor of which is located (as defined in Section 9-103(3)(d)
of the UCC of the State of New York, as from time to time amended) in the
United States of America and otherwise is a Designated Obligor;
(b) the Obligor of which is not the Obligor of Defaulted Receivables
from the applicable Pool aggregating more than 10% of all Receivables of
such Obligor from the applicable Pool;
(c) no payment of any part thereof has remained unpaid for 61 or more
days from the original due date for such payment;
-43-
X-10.7-48
<PAGE> 49
(d) according to the Contract related thereto, is, or the installment(s)
thereof in which a Purchase is then proposed to be made are, required to
be paid in full within 180 days of the later of original billing date
therefor or the date of such Purchase; (e) is an "account" or "general
intangible" within the meaning of Section 9-106 of the UCC of the State of
New York;
(f) is denominated and payable only in Dollars in the United States of
America;
(g) arises under a Contract which has been duly authorized and which,
together with such Receivable, is in full force and effect and constitutes
the legal, valid and binding obligation of the Designated Obligor of such
Receivable enforceable against such Designated Obligor in accordance with
its terms and which is not subject to any dispute, offset, counterclaim or
defense whatsoever (except as may be limited or affected by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws relating
to or affecting creditors' rights generally);
(h) together with the Contract related thereto, does not contravene in
any material respect any laws, rules or regulations applicable thereto
(including laws, rules and regulations relating to usury, truth in
lending, fair credit billing, fair credit reporting, equal credit
opportunity, fair indebtedness collection practices and privacy) and with
respect to which the Seller is not in violation of any such law, rule or
regulation in any material respect if such violation would impair the
collectibility of such Receivable;
(i) the following criteria applied
(i) such Receivable has been acquired in the ordinary
course of the Seller's business;
(ii) such Receivable satisfies all applicable material
requirements of the applicable Credit and Collection Policy; and
(iii) such Receivable complies with such other reasonable
criteria and requirements (other than those relating to the
collectibility of such Receivable) as the Servicing Agent may
have specified to the Seller prior to the time the Obligor
thereof became a Designated Obligor or prior to the thirtieth day
preceding the related Purchase by either Purchaser of an
undivided percentage ownership interest therein; and
(j) is free of any Adverse Claim;
provided, however, that notwithstanding the foregoing criteria, any Receivable
from either Pool that is an "Eligible Receivable" on the Business Day
immediately preceding the Termination Date for such Pool shall remain an
"Eligible Receivable" at all times on and after the Termination Date for such
Pool.
"Eligible Receivables Portfolio" means, separately with respect to each
Pool, at any time, all then outstanding Eligible Receivables in such Pool.
"Eligible Receivables Portfolio Balance" means, at any time at or as of
which a determination thereof is being or to be made, separately with respect to
each Pool, the aggregate Outstanding Balance of all Eligible Receivables in such
Pool at such time reduced by the aggregate amount by which the Outstanding
Balance of all such Eligible Receivables of each Obligor and its Affiliated
Obligors exceeds in the Concentration Limit for such Obligor.
"Event of Termination" means any of the following events or circumstances:
-44-
X-10.7-49
<PAGE> 50
(a) The Collection Agent (if the Seller or its designee is then
serving as the Collection Agent under the Agreement)
(i) fails to perform or observe any material term, covenant or
agreement on its part to be performed or observed under the
Agreement, and such failure remains unremedied for five Business
Days or more after the earlier of (x) the day on which the
Chairman of the Board, the President, any Executive Vice
President, any Vice President, the Treasurer, the Comptroller,
any Assistant Treasurer or any Assistant Comptroller of the
Seller first obtains actual knowledge of such failure, or (y)
written notice of such failure shall have been given by the
Servicing Agent; or
(ii) fails to make any payment or deposit to be made by it under
the Agreement when due, and such failure remains unremedied for
five Business Days after written notice thereof from the
Servicing Agent.
(b) The Seller fails
(i) to perform or observe any term, covenant or agreement
contained in Section 3.3, or in Section 6.2.3 of the Agreement
with respect to terminations or changes in Lock-Box Banks and
replacements of Lock-Box Agreements and Lock-Box Notices, and
such failure remains unremedied for three Business Days after
written notice thereof from the Servicing Agent;
(ii) to make any payment required under Section 9.1 or Section
11.6 of the Agreement, and such failure remains unremedied for
ten Business Days after written notice thereof from the Servicing
Agent; or
(iii) to turn over to the Third Party Collection Agent any
amounts referred to in Article II of the Agreement, and such
failure remains unremedied for three Business Days after written
notice thereof from the Servicing Agent.
(c) The Seller fails to perform or observe any other term, covenant
or agreement contained in the Agreement to be performed or observed on the
part of the Seller, and any such failure remains unremedied for ten
Business Days after written notice thereof from the Servicing Agent.
(d) Any representation or warranty made or deemed made by the Seller
(or any of its officers) in the Agreement or in any instrument delivered
pursuant to the Agreement, any Portfolio Report or any other Related
Document delivered by, or on behalf of, the Seller pursuant to or in
connection with the Agreement, proves to have been incorrect in any
material respect when made or deemed to have been made.
(e) The Seller fails to pay any principal of Funded Debt of the
Seller which is then outstanding in a principal amount in excess of
$25,000,000 at the scheduled maturity thereof, such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Funded Debt, and such Funded Debt is not paid
within ten Business Days after the earlier of
(i) the day on which the Chairman of the Board, the President,
any Executive Vice President, any Vice President, the Treasurer,
the Comptroller, any Assistant Treasurer or any Assistant
Comptroller of the Seller first obtains actual knowledge of such
failure, or
(ii) written notice of such failure shall have been given to the
Seller by the holder or holders of such Funded Debt.
-45-
X-10.7-50
<PAGE> 51
(f) Funded Debt of the Seller which is then outstanding in a
principal amount in excess of $25,000,000 shall become due and payable
prior to the scheduled maturity thereof as a result of the lawful
acceleration thereof due to the occurrence of an event of default
thereunder and such Funded Debt is not paid, or such acceleration is not
rescinded or annulled, within ten Business Days following such lawful
acceleration thereof.
(g) The Seller
(i) generally does not pay its debts as such debts become due,
or admits in writing its inability or unwillingness to pay its
debts generally, or makes a general assignment for the benefit of
creditors;
(ii) any proceeding shall be instituted by or against the Seller
seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any
law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or
the appointment of a receiver, trustee, or other similar official
for it or for any substantial part of its property, and if
instituted against the Seller, is consented to by it or remains
undismissed or unstayed for a period of 60 consecutive days; or
(iii) takes any corporate action to authorize any of the actions
described above.
(h) The Delinquency Ratio shall at any time of calculation (x) with
respect to Pool A, exceed 5.5% or (y) with respect to Pool B, exceed 1.8%,
or the Default Ratio shall at any time of calculation (x) with respect to
Pool A, exceed 3% or (y) with respect to Pool B, exceed 1%.
(i) The Receivables Ownership Interests of both Purchasers together
with respect to either Pool shall be greater than 100%.
(j) The Seller's senior unsecured debt rating (i) by Standard & Poor's
Ratings Group (a division of McGraw-Hill, Inc.) (or any successor thereto)
shall be reduced to a level lower than BBB- (or shall cease to be rated by
such rating agency), or (ii) by Moody's Investors Service, Inc. shall be
reduced to a level lower than Baa3 (or shall cease to be rated by such
rating agency).
(k) The Collection Ratio shall at any time of calculation fall below
(x) with respect to Pool A, 6.5 to 1.0 or (y) with respect to Pool B,
3.65 to 1.0.
(l) The Loss to Liquidation Ratio with respect to either Pool shall at
any time of calculation be in excess of .4 of 1%.
"Excess Collections" means, with respect to each Purchaser's Receivables
Ownership Interest in Pool A or Pool B, as the case may be, all collections
attributable to such Purchaser's Receivables Ownership Interest in such Pool
that are not required to be distributed on any Settlement Date pursuant to
clause (i) through clause (iv) of Section 2.6; provided, however, if at any time
the term "Excess Collections" is used but the amount thereof is not capable of
determination at such time, "Excess Collections" shall be deemed to mean the
approximate amount thereof estimated by the Collection Agent in good faith
(unless the Servicing Agent objects to such estimate, in which case it shall be
the approximate amount estimated by the Servicing Agent in good faith);
provided, further, however, as soon as the actual amount of Excess Collections
is capable of being determined, any party that received a distribution of more
Collections than otherwise would have been distributed (in connection with a
Reinvestment Purchase or otherwise) based on the foregoing good faith estimate
shall return such Collections
-46-
X-10.7-51
<PAGE> 52
to the Collection Agent for distribution pursuant to Section 2.6 and any
party that received a distribution of less Collections than otherwise would have
been distributed (in connection with a Reinvestment Purchase or otherwise) based
on the foregoing good faith estimate shall receive a distribution of the amount
of such insufficiency from the Collection Agent from Collections (prior to any
other distributions hereunder).
"Federal Funds Rate" means, for any day, a fluctuating interest rate per
annum equal to the rate of interest offered in the interbank market to CIBC as
the overnight Federal funds rate as at or about 10:00 a.m., New York City time,
on such day (or, if such day is not a Business Day, for the next preceding
Business Day).
"Fixed Period" means, relative to any New Purchase (and all Reinvestment
Purchases with respect thereto) by the Standby Purchaser, the period which shall
begin on (and include) the date on which such New Purchase is made (if the
Purchase Discount Rate with respect to such New Purchase is to be determined by
reference to the LIBO Rate (Reserve Adjusted)) or, as the case may be, on the
expiration of the then current Fixed Period with respect thereto, and shall end
on (but exclude) the day which numerically corresponds to such date one month
thereafter; provided, however, that,
(a) if such Fixed Period would otherwise end on a day which is not a
Business Day, such Fixed Period shall end on the next following Business
Day (unless such next following Business Day is the first Business Day of
a calendar month, in which case such Fixed Period shall end on the
Business Day next preceding such numerically corresponding day); and
(b) no Fixed Period shall end later than the date (as the same may be
extended from time to time) set forth in clause (b) of the definition of
Termination Date.
"F.R.S. Board" means the Federal Reserve Board or any successor thereto.
"Funded Debt" means and includes (i) any Debt of the Seller which by its
terms matures more than one year from the date as of which any determination
thereof is being or to be made for any purpose under the Agreement, and (ii) any
Debt of the Seller by its terms maturing within one year from such date which
may be renewed at the sole election or option of the Seller so as to mature more
than one year from such date.
"GAAP" means generally accepted accounting principles from time to time in
effect.
"including" means including without limiting the generality of any
description preceding such term.
"Investors Fee" means an amount calculated with reference to each Purchase
Discount Period equal to .01 of 1% per annum on the daily average of the
aggregate Purchased Amount with respect to both Pools for both Purchasers during
such Purchase Discount Period.
"LIBO Rate" means, relative to any applicable Fixed Period, the rate of
interest (expressed as an annual rate) equal to the arithmetic average
(expressed as a percentage rounded upward, if necessary, to the nearest 1/1000th
of 1%) of the offered rates for deposits in Dollars for a period substantially
equal to such Fixed Period of the banks whose rates appear on the display
designated as page "LIBO" on the Reuter System, or on such other display on the
Reuter System as shall then display the London interbank offered rates for
deposits in Dollars quoted by selected banks (page "LIBO" or such other display
being herein referred to as the "Reuter Screen"), for delivery on the first day
of such Fixed Period, such rate to be established from quotes on the Reuter
Screen at (or as near to as practicable) 11:00 a.m., London time, two Business
Days prior to the first day of such Fixed Period (which shall be a Business
Day); provided, that, if no rates
-47-
X-10.7-52
<PAGE> 53
can be obtained from the Reuter Screen, the "LIBO Rate" means, relative to
any applicable Fixed Period, the rate of interest determined by the Servicing
Agent to be the average (rounded upwards, if necessary, to the nearest 1/16 of
1%) of the rates per annum at which Dollar deposits in immediately available
funds are offered to the LIBOR Office two Business Days prior to the beginning
of such Fixed Period by prime banks in the interbank eurodollar market as at or
about 10:00 a.m., New York City time, for delivery on the first day of such
Fixed Period, for the number of days comprised therein and in an amount
approximately equal to the Purchase Price for the applicable New Purchase to
which such Fixed Period relates.
"LIBO Rate (Reserve Adjusted)" means, for any Fixed Period, a rate per
annum, (rounded upwards, if necessary, to the nearest 1/16 of 1%) determined
pursuant to the following formula:
LIBO Rate = LIBO Rate
-----------------------------
(Reserve Adjusted) 1 - LIBOR Reserve Percentage;
provided, however, that CIBC shall be entitled to adjust the LIBO Rate by the
applicable LIBOR Reserve Percentage only to the extent that the LIBOR Office, in
making any LIBO Rate loan, is subject to reserve requirements in respect of
"Eurocurrency Liabilities" pursuant to Regulation D of the F.R.S. Board.
The Servicing Agent shall determine the LIBO Rate (Reserve Adjusted) for each
Fixed Period and promptly notify the Seller thereof (which determination shall,
in the absence of manifest error, be conclusive on the Seller) and, if requested
by the Seller, deliver a statement to the Seller showing the computation used by
the Servicing Agent in determining any such LIBO Rate (Reserve Adjusted).
"LIBOR Office" means the office of CIBC designated as such below its
signature to the Agreement or such other office of CIBC as designated from time
to time by notice to the Seller from the Servicing Agent, whether or not outside
the United States of America.
"LIBOR Reserve Percentage" means, relative to each Fixed Period, the
reserve percentage (expressed as a decimal), applicable at the time the LIBO
Rate for such Fixed Period is determined, under regulations issued from time to
time by the F.R.S. Board, for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal reserve requirement)
for CIBC in respect of assets or liabilities consisting of and including
"Eurocurrency Liabilities" as currently defined in Regulation D of the F.R.S.
Board, having a term approximately equal or comparable to such Fixed Period.
"Liquidation Day" means, with respect to each Pool, any of
(a) any day during any Settlement Period on which the conditions set
forth in Section 4.2 are not satisfied (or expressly waived by the
Servicing Agent);
(b) each day which occurs on or after the Termination Date for such
Pool; and
(c) the first day (and each day thereafter) occurring after three
Business Days have elapsed following an election by the Seller with
respect to such Pool pursuant to the final proviso of Section 2.3.
"Lock-Box Accounts" means the demand deposit or other bank accounts
(whether or not such accounts are associated with one or more lock-boxes or post
office boxes) used for receiving Collections of Eligible Receivables.
"Lock-Box Agreement" means an agreement, in substantially form of Exhibit
C, among the Seller, the Servicing Agent and a Lock-Box Bank.
"Lock-Box Bank" means any of the financial institutions holding one or
more accounts (whether or not such accounts are associated with one or more
lock-boxes or post office boxes) for receiving Collections of Eligible
Receivables.
-48-
X-10.7-53
<PAGE> 54
"Lock-Box Notice" means a notice, in substantially the form of Attachment
A to Exhibit C, from the Servicing Agent to any Lock-Box Bank, delivered by the
Seller to the Servicing Agent pursuant to Section 4.1.3.
"Loss Reserve" means, separately for each Pool and each Purchaser, on any
day, an amount equal to the product of the then Purchased Amount of such
Purchaser for such Pool multiplied by (x) with respect to Pool A, 10% and (y)
with respect to Pool B, 14.25%.
"Loss-to-Liquidation Ratio" means, separately for each Pool (excluding,
however, (i) Receivables in either such Pool of the type described in clause (d)
of the definition of Eligible Receivable and (ii) Receivables of any Obligor
other than a Designated Obligor), for any calendar quarter, a fraction
(converted to a percentage)
(a) having a numerator equal to the Aggregate Net Charge-Offs of all
Receivables in such Pool during such calendar quarter, and
(b) having a denominator equal to the aggregate cash Collections of all
Receivables in such Pool during such calendar quarter.
"Member" means a Person that holds membership in the Primary Purchaser
other than as an associate member.
"Normal Concentration Limit" is defined within the definition of
"Concentration Limit".
"Obligor" means:
(a) a corporation, partnership or other entity located (as defined in
Section 9-103(3)(d) of the UCC of the State of New York) in the United
States of America or any State thereof;
(b) the United States of America or any agency or instrumentality
thereof; or
(c) any State of the United States of America or any political
subdivision of any such State, which is obligated to make payments for the
purchase of merchandise or services pursuant to a Contract. For purposes
hereof, a "political subdivision" includes any agency, instrumentality or
commission of any State or local governmental unit which is a municipal
corporation or which has been delegated the right to exercise part of the
sovereign power of such unit.
"Outstanding Balance" means with respect to any Receivable at any time,
the then out standing principal balance thereof.
"Permitted Liens" means liens (i) for taxes, assessments or other
governmental charges or levies not at the time delinquent or thereafter payable
without penalty or being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on the Seller's books, (ii) of carriers, warehouseman, mechanics,
materialmen and landlords incurred in the ordinary course of business for sums
not overdue or being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on the Seller's books, (iii) in the nature of a potential claim
or right (that has not yet been asserted) of a trustee appointed for an Obligor
in connection with any action of the type described in clause (g) of the
definition of Event of Termination, (iv) on instruments presented for collection
or processing, (v) in the nature of legal or equitable encumbrances deemed to
exist by reason of negative pledge covenants or undertakings of a similar nature
or arising in connection with legal proceedings so long as
-49-
X-10.7-54
<PAGE> 55
such proceedings are being contested in good faith and, in the case of
judgment lien, execution thereof is stayed, and (vi) incurred pursuant to
Section 11.4.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated organization or a
government or any department or agency thereof.
"Pool" means Pool A or Pool B and "Pools" means Pool A and Pool B.
"Pool A" means all Receivables, Contracts, Related Security, Collections,
and other proceeds and books and records with respect to the foregoing arising
under the business designations set forth with respect to Pool A on Schedule II
(as such schedule may be amended from time to time pursuant to the terms
hereof).
"Pool B" means all Receivables, Contracts, Related Security, Collections,
and other proceeds and books and records with respect to the foregoing arising
under the business designations set forth with respect to Pool B on Schedule II
(as such schedule may be amended from time to time pursuant to the terms
hereof).
"Portfolio Report" means a separate report with respect to each of Pool A
or Pool B, in substantially the form of (i) prior to the delivery of a revised
Exhibit B hereto, the forms of Portfolio Report attached hereto as Exhibit B and
(ii) thereafter, the revised Exhibit B (which revised exhibit shall be provided
on or prior to the thirtieth day following the Effective Date, and shall be
initialed by each of the parties hereto), delivered by the Collection Agent to
the Servicing Agent pursuant to Section 2.7.2.
"Purchase Discount" means, with respect to any Purchase Discount Period,
for each Purchaser and with respect to each Pool,
IA x IR x ED
------------
360
where:
IA = the daily average (calculated at the close of business of each
day) of such Purchaser's Purchased Amount for such Pool during
such Purchase Discount Period,
IR = the Purchase Discount Rate with respect to such Purchaser for
such Purchase Discount Period, and
ED = the actual number of days elapsed during such Purchase
Discount Period,
plus, in the case of the Primary Purchaser, (i) the Investors Fee with respect
to such Purchase Discount Period and (ii) an amount equal to all commissions of
placement agents and commercial paper dealers in respect of short-term
promissory notes or commercial paper notes of the Primary Purchaser issued to
fund the related Purchases or the maintenance of its Receivables Ownership
Interest in the applicable Pool;
provided, however, that no provision of the Agreement or any other Related
Document will require the payment, or permit the collection of, the Purchase
Discount in excess of the maximum permitted by applicable law; and provided,
further, however, that the Purchase Discount will not be considered paid by any
distribution if at any time such distribution is rescinded or must otherwise be
returned for any reason.
"Purchase Discount Period" means each period of time (i) initially
commencing on the last date on which Purchase Discount was received by the
Purchasers under the Pool A Original
-50-
X-10.7-55
<PAGE> 56
Agreement (with respect to Pool A) and under the Pool B Original Agreement
(with respect to Pool B) to (but excluding) the next succeeding Settlement
Date and (ii) thereafter, commencing on each Settlement Date to (but excluding)
the next succeeding Settlement Date.
"Purchase Discount Rate" means:
(a) with respect to any Purchase made and maintained by the Primary
Purchaser, for any Purchase Discount Period, a per annum rate of interest
equivalent to the rate (or if more than one rate during such Purchase
Discount Period, the weighted average of the rates) at which all of the
outstanding short-term promissory notes (other than short-term promissory
notes the proceeds of which are used by the Primary Purchaser to (x)
purchase receivables, or extend financing secured thereby, at a fixed
interest rate or (y) fund the purchase of receivables or the extension of
financing secured thereby prior to the date on which such purchase or
extension of financing actually occurs), of the Primary Purchaser have
been sold by any placement agent or dealer selected by the Servicing Agent
(on behalf of the Primary Purchaser), all as may have been agreed upon
between each such agent or dealer and the Servicing Agent (on behalf of
the Primary Purchaser) and reported to the Seller and the Collection
Agent; provided, however, that:
(i) if the rate (or rates) as agreed upon between any such
agent or dealer and the Servicing Agent is a discount rate (or
rates), the "Purchase Discount Rate" will be the rate (or if more
than one rate, the weighted average of the rates) resulting from
converting such discount rate (or rates) into an interest-bearing
equivalent rate per annum;
(ii) if the Primary Purchaser would not be able to acquire or
maintain its Receivables Ownership Interests as a result of its
inability to issue short term promissory notes or obtain quotes
as to indicative rates from any agent or dealer, the Primary
Purchaser shall promptly so notify the Seller, and the "Purchase
Discount Rate" on and after the date of such notice (subject to
the other terms of this definition of "Purchase Discount Rate")
will be a rate per annum from time to time notified by the
Servicing Agent to the Seller equal to either (x) the Federal
Funds Rate (as defined in the revolving credit agreements from
time to time in effect to which the Primary Purchaser is a party
(other than the Segregated Revolving Credit Agreement referred to
in the following clause (iii))) from time to time in effect plus
a margin of 1/2 of 1%, or (y) the LIBO Rate (Reserve Adjusted)
(as defined in such revolving credit agreements) for each
Interest Period (as defined in such revolving credit agreements)
plus a margin of 1/2 of 1%, such rate per annum to be consistent
with the applicable rate from time to time in effect under such
revolving credit agreements with respect to any outstanding
borrowings by the Primary Purchaser thereunder; and
(iii) in the event that 50% or more of the aggregate Loss Reserve
for both Purchasers with respect to Pool A or Pool B, as the case
may be, shall be depleted or charged off, and the Termination
Date with respect to such Pool shall have occurred, the "Purchase
Discount Rate" for any day in each Purchase Discount Period on or
after the Termination Date for such Pool will be a rate per annum
from time to time notified by the Servicing Agent to the Seller
equal to either (x) the Federal Funds Rate (as defined in the
Segregated Revolving Credit Agreement, dated as of December 9,
1988, as from time to time in effect, between the Primary
Purchaser and Canadian Imperial Bank of Commerce, New York
Agency) from time to time in effect plus a margin of 2%, or (y)
the LIBO Rate (Reserve Adjusted) (as defined in such Segregated
Revolving Credit Agreement) for each Interest Period (as defined
in such Segregated Revolving Credit Agreement) plus a margin of
2%, such rate per annum to be consistent with the applicable rate
from time to time in effect under such Segregated Revolving
Credit
-51-
X-10.7-56
<PAGE> 57
Agreement with respect to any outstanding borrowings by
the Primary Purchaser thereunder; provided, that for purposes of
this clause (iii), the applicable aggregate Loss Reserve shall be
deemed (1) initially to be an amount equal to the applicable
aggregate Loss Reserve on the applicable Termination Date, and
(2) depleted or charged off by the amount of Eligible Receivables
in the applicable Pool that became Defaulted Receivables on and
after such Termination Date; and
(b) with respect to any Purchase made and maintained by the Standby
Purchaser, a rate equal to either (x) the LIBO Rate (Reserve Adjusted) for
each Fixed Period plus 1/2 of 1%, or (y) if applicable pursuant to the
terms of Section 2.2.2 or Section 2.2.3, the Alternate Rate from time to
time in effect.
If during any Purchase Discount Period for either Purchaser more than one
of the rates which constitute the "Purchase Discount Rate" with respect to such
Purchaser shall be applicable, then the "Purchase Discount Rate" with respect to
such Purchaser for such Purchase Discount Period shall be the weighted average
of such applicable rates.
"Purchase Notice" means a notice in substantially the form of Exhibit A,
delivered by the Seller to the Servicing Agent pursuant to Section 2.2.
"Purchase Price" means, with respect to (a) any New Purchase from either
Pool, that amount indicated as the Purchase Price for such New Purchase in the
Purchase Notice given by the Seller to the Servicing Agent pursuant to Section
2.2 (or as otherwise notified to the Servicing Agent pursuant to Section 2.2),
and (b) any Reinvestment Purchase from either Pool, that amount reinvested with
respect to such Reinvestment Purchase.
"Purchase Termination Date" means, with respect to either Pool, the
earlier of (i) the first Liquidation Day occurring with respect to such Pool and
(ii) that day on which an Event of Termination has occurred and is continuing,
and
(a) the Servicing Agent designates as the Purchase Termination Date for
such Pool in a notice to the Seller in accordance with Section 7.1; or
(b) in accordance with Section 7.1, becomes the Purchase Termination
Date automatically.
"Purchased Amount" for each Purchaser means at any time with respect to
Pool A or Pool B, as the case may be, (i) the sum of the Purchase Price paid by
such Purchaser to the Seller with respect to all New Purchases from such Pool,
less (ii) the aggregate amount of Collections actually distributed to and
received by such Purchaser in respect of its Receivables Ownership Interest in
such Pool pursuant to clause (vi) or clause (vii), as the case may be, of
Section 2.6; provided, however, that the amount of Collections set forth in
clause (ii) above shall not include any portion of Collections which at any time
must be disgorged by the applicable Purchaser or otherwise returned for any
reason whatsoever.
"Purchaser's Account" means:
(a) with respect to the Primary Purchaser, the account of the Primary
Purchaser maintained at Bankers Trust Company, in New York, New York, ABA
#021001033 for the account of Asset Securitization Cooperative
Corporation, A/C #00213014, in favor of Asset Securitization Cooperative
Corporation, Ref: Goodyear, or such other account of the Primary Purchaser
maintained at a depository institution in the United States of America and
designated in writing as its account for the purposes of the Agreement;
and
(b) with respect to the Standby Purchaser, the account of the Standby
Purchaser maintained at Morgan Guaranty Trust Company of New York, in New
York, New York, ABA
-52-
X-10.7-57
<PAGE> 58
#021000238 for the account of Canadian Imperial Bank of Commerce, New
York Agency, A/C #63000480, in favor of Asset Securitization Group, Ref:
Goodyear, or such other account of the Standby Purchaser maintained at a
depository institution in the United States of America and designated in
writing as its account for the purposes of the Agreement.
"Purchaser's Investment" means with respect to each Purchaser the sum of
(i) the Purchased Amount for such Purchaser with respect to Pool A and Pool B at
such time, plus (ii) the Loss Reserve for such Purchaser with respect to Pool A
and Pool B at such time.
"Receivable" means indebtedness of an Obligor (whether constituting an
account, chattel paper, instrument or general intangible) arising from the sale
of merchandise or services by the Seller through the classes of business within
the divisions listed on Schedule II (as such schedule is amended from time to
time pursuant to the terms hereof) to such Obligor pursuant to a Contract;
provided that (i) the Seller may change the name or number of a class of
business for the purposes of its internal designation of such class of business
if it gives written notice to the Servicing Agent on or prior to such change,
and Schedule II shall automatically (and without further action by any party
hereto) be deemed to be amended to reflect such change and (ii) the Seller may,
at any time prior to the Termination Date and from time to time, request by
written notice to the Purchasers that a class of business be removed from
Schedule II and (A) if no Event of Termination is then continuing or would
result from such action and (B) upon the approval of such change by both
Purchasers (in their sole discretion), Schedule II shall be deemed to be amended
to remove such class of business therefrom.
"Receivables Ownership Interest Collection Date" means, with respect to
either Pool, the date, after the Termination Date with respect to such Pool, on
which the entire Purchased Amount, Purchase Discount, Servicing Agent Fee,
Collection Agent Fee and Investors Fee with respect to the Receivables Ownership
Interest of each Purchaser in such Pool purchased pursuant to the Agreement and
all other fees and amounts due to the Purchasers under the Agreement have been
finally collected by the Purchasers, the Servicing Agent and the Collection
Agent, as the case may be; provided, that any such fees and amounts that are not
attributable to a particular Pool shall be allocated proportionately between the
Pools for purposes of this definition.
"Regulatory Change" means any change occurring after the Effective Date in
any (or the adoption after the date hereof of any new):
(a) United States Federal or state law or foreign law applicable to
either Purchaser or any Affiliate of either thereof; or
(b) regulation, interpretation, directive, or request (whether or not
having the force of law) applying to either Purchaser or any Affiliate of
either thereof of any court or governmental authority charged with the
interpretation or administration of any law referred to in clause (a) or
of any fiscal, monetary, or other authority having jurisdiction over
either Purchaser or any Affiliate of either thereof.
"Related Document" means any other agreement, document, exhibit, notice or
instrument delivered from time to time in connection with the Agreement.
"Related Security" means, with respect to any Receivable:
(a) all of the Seller's interest in the services or merchandise
(including returned merchandise), if any, the sale of which gave rise to
such Receivable;
(b) all other security interests or liens (and financing statements
filed to evidence perfection of the same) and property subject thereto
from time to time purporting to secure
-53-
X-10.7-58
<PAGE> 59
payment of such Receivable, whether pursuant to any Contract related to
such Receivable or otherwise; and
(c) all indemnities, warranties, guarantees, insurance and other
agreements or arrangements of whatever character from time to time
supporting or securing payment of such Receivable, whether pursuant to any
Contract related to such Receivable or otherwise.
"Reuter Screen" is defined within the definition of "LIBO Rate".
"Reuter System" means the Reuter Money Service Monitor System.
"Seller Portion" means, with respect to the Collection Agent Fee for any
Settlement Period, a percentage thereof equal to the weighted (based on the
Outstanding Balance of Eligible Receivables in each of Pool A and Pool B)
average of 100% minus the aggregate percentage of the Receivables Ownership
Interests of both Purchasers with respect to each of Pool A and Pool B
respectively as of the close of business on the last day of such Settlement
Period.
"Seller's Account" means the account of the Seller maintained at Citibank
N.A. in New York, New York (account number 00032387) or such other account of
the Seller maintained at a depository institution in the United States of
America and designated in writing as its account for the purpose of the
Agreement.
"Servicing Agent Fee" means, with respect to each Purchase Discount
Period, a fee equal to .20 of 1% per annum on the daily average of the Primary
Purchaser's aggregate Purchased Amount with respect to Pool A and Pool B from
time to time outstanding.
"Settlement Date" means, with respect to any Settlement Period, the
twenty-fifth (25th) day following the last day of the Settlement Period;
provided, however, if at any time the Settlement Period is being determined
pursuant to clause (b) of the definition thereof, the Settlement Date with
respect to such Settlement Period shall be that date selected from time to time
by the Servicing Agent for such purpose.
"Settlement Period" means:
(a) prior to the Termination Date for the applicable Pool, each period
of time commencing on the first day of a calendar month and ending on the
last day of such calendar month; provided, however, that the first
Settlement Period shall commence on the Effective Date; and
(b) on and at all times after the Termination Date for the applicable
Pool, such period (including a daily period) as shall be selected from
time to time by the Servicing Agent or, in absence of any such selection,
each period described in the preceding clause (a).
"Subsidiary" means any corporation, partnership, joint venture, trust
or estate of which (or in which) more than 50% of
(a) the outstanding capital stock having ordinary voting power to elect
a majority of the board of directors of such corporation (irrespective of
whether or not at the time capital stock or any other class or classes of
such corporation shall or might have voting power upon the occurrence of
any contingency),
(b) the interest in the capital or profits of such partnership or joint
venture, or
(c) the beneficial interest of such trust or estate,
is at the time directly or indirectly owned by the Seller, by the Seller and one
or more other Subsidiaries, or by one or more other Subsidiaries.
-54-
X-10.7-59
<PAGE> 60
"Termination Date" means, with respect to Pool A or Pool B, the earliest
of:
(a) the Purchase Termination Date with respect to such Pool;
(b) November 10, 1997 (the "Original Date"); provided that upon the
Seller's written request (which shall be received by the Servicing Agent
at least 10 days prior to the next occurring Extension Date (as defined
below)) and at the election of the Servicing Agent, the Original Date
shall be extended on the last day of each January, April, July, and
October commencing January 31, 1997 (each an "Extension Date"), to the
date that is 360 days after such Extension Date. If the Servicing Agent
elects to allow such extension, it shall give notice of such election to
the Seller. If the Servicing Agent has elected to allow no further
extensions, the Servicing Agent shall notify the Seller of such election
at least ten Business Days in advance of such next occurring Extension
Date, in which case the Original Date (as the same theretofore may have
been extended from time to time) shall be deemed to be a date that is 360
days from the last Extension Date in respect of which a notice had been
given by the Servicing Agent to the Seller, and in such case, the Original
Date shall be subject to no further extensions. Notwithstanding the
foregoing, if the Servicing Agent fails to give any notice to the Seller
prior to any Extension Date, the Original Date (as the same theretofore
may have been extended from time to time) shall be 360 days from the last
Extension Date in respect of which a notice had been given by the
Servicing Agent to the Seller, and in such case, the Original Date shall
be subject to no further extensions; and
(c) the fifth Business Day succeeding notice by the Servicing Agent for
purposes of designating the Termination Date for either Pool A or Pool B,
as applicable, provided, however, that such notice may be given only at a
time when the Receivables Ownership Interest for such Pool is zero.
"UCC" means, relative to any jurisdiction, the Uniform Commercial Code as
from time to time in effect in such jurisdiction.
(SCHEDULES AND EXHIBITS INTENTIONALLY OMITTED)
-55-
X-10.7-60
<PAGE> 1
EXHIBIT 11
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Set forth below are computations, on a primary basis and on a fully
diluted basis in accordance with subparagraph (b)(11) of Item 601 of Regulation
S-K of the Securities and Exchange Commission, of earnings per share of the
Common Stock, without par value, of Registrant for each of the three years ended
December 31, 1996, 1995 and 1994, respectively:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
PRIMARY:
Net Income ............................. $101.7 $611.0 $567.0
Adjusted average number of common shares
outstanding........................... 156,778,058 153,949,022 153,133,492
Primary earnings per share ............. $.65 $3.97 $3.70
FULLY DILUTED:
Net Income ............................. $101.7 $611.0 $567.0
Adjusted average number of common shares
outstanding ........................... 156,989,560 154,215,273 153,133,492
Fully diluted earnings per share ....... $.65 $3.96 $3.70
</TABLE>
The foregoing computations do not reflect any significant potentially
dilative effect Registrant's Preferred Stock Purchase Rights Plan could have in
the event such Rights become exercisable and any shares of either Series B
Preferred Stock or Common Stock of Registrant are issued upon the exercise of
such Rights. Reference is made to the Note 19, captioned "Preferred Stock
Purchase Rights Plan", in the Notes to Financial Statements set forth in Item 8
of the Registrant's Annual Report on Form 10-K for the year ended December 31,
1996, at page 50.
X-11-1
<PAGE> 1
EXHIBIT 12
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
($ in millions)
EARNINGS 1996 1995 1994 1993 1992
-------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Income before income taxes, extraordinary
items and cumulative effect of accounting changes $122.3 $ 925.8 $ 865.7 $ 784.9 $629.9
Add:
Amortization of previously capitalized interest $ 11.6 $ 11.7 $ 10.2 $ 10.1 $ 9.6
Minority interest in net income of
consolidated subsidiaries with fixed charges 45.9 30.1 16.9 19.0 14.2
Proportionate share of fixed charges of investees
accounted for by the equity method 6.2 6.3 5.0 4.7 6.9
Proportionate share of net loss of investees
accounted for by the equity method 2.7 0.5 0.2 0.3 2.2
------ -------- -------- -------- ------
Total additions $ 66.4 $ 48.6 $ 32.3 $ 34.1 $ 32.9
Deduct:
Capitalized interest $ 5.4 $ 5.1 $5.7 $5.0 $ 4.0
Minority interest in net loss of consolidated subsidiaries 4.4 3.3 0.3 0.3 1.8
Undistributed proportionate share of net income
of investees accounted for by the equity method -- 0.2 7.2 4.0 0.9
------ -------- -------- -------- ------
Total deductions $ 9.8 $ 8.6 $ 13.2 $ 9.3 $ 6.7
TOTAL EARNINGS $178.9 $ 965.8 $ 884.8 $ 809.7 $656.1
====== ======== ======== ======== ======
FIXED CHARGES
Interest expense $128.6 $ 135.0 $ 129.4 $ 162.4 $232.9
Capitalized interest 5.4 5.1 5.7 5.0 4.0
Amortization of debt discount, premium or expense .3 0.4 0.7 0.4 1.0
Interest portion of rental expense 69.5 77.0 83.0 83.7 87.6
Proportionate share of fixed charges of investees
accounted for by the equity method 6.2 6.4 5.0 4.7 6.9
------ -------- -------- -------- ------
TOTAL FIXED CHARGES $210.0 $ 223.9 $ 223.8 $ 256.2 $332.4
====== ======== ======== ======== ======
TOTAL EARNINGS BEFORE FIXED CHARGES $388.9 $1,189.7 $1,108.6 $1,065.9 $988.5
====== ======== ======== ======== ======
RATIO OF EARNINGS TO FIXED CHARGES 1.85 5.31 4.95 4.16 2.97
</TABLE>
SUPPLEMENTAL INFORMATION - Income before income taxes, extraordinary items
and cumulative effect of accounting changes in 1996 was reduced by a charge of
$755.6 million related to the writedown of the All American Pipeline System and
related assets. Excluding this charge, the ratio of earnings to fixed charges
for 1996 would have been 5.45.
X-12-1
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT (1)(2)(3)
The subsidiary companies of The Goodyear Tire & Rubber Company at March
15, 1997, and the places of incorporation or organization thereof, are:
<TABLE>
<CAPTION>
Place of
Incorporation
Name of Subsidiary or Organization
--------------------- ------------------
<S> <C>
All American Pipeline Company Texas
Belt Concepts of America, Inc. Delaware
Brad Ragan, Inc North Carolina
Celeron Corporation Delaware
Celeron Gathering Corporation Delaware
Celeron Trading & Transportation Company Delaware
Cosmoflex, Inc. Delaware
Divested Atomic Corporation Delaware
Divested Companies Holding Company Delaware
Divested Litchfield Park Properties, Inc. Arizona
The Kelly-Springfield Tire Corporation Delaware
Goodyear International Corporation Delaware
The Goodyear Rubber Plantations Company Ohio
Goodyear Western Hemisphere Corporation Delaware
Murphy's Inc., Sales and Service California
Wingfoot Corporation Delaware
Wingfoot Ventures Seven Inc. Delaware
Wingfoot Ventures Eight Inc. Delaware
Wingfoot Ventures Nine Inc. Delaware
Wingfoot Ventures Ten Inc. Delaware
Wingfoot Ventures Eleven Inc. Delaware
Compania Anonima Goodyear de Venezuela Venezuela
Compania Goodyear del Peru, S.A. Peru
Compania Hulera Goodyear--Oxo, S.A. de C.V. Mexico
Contred (Proprietary) Limited South Africa
Corporacion Industriales Mercurio, S.A. de C.V. Mexico
Deutsche Goodyear Holdings GmbH Germany
Deutsche Goodyear GmbH Germany
Goodyear Australia Limited Australia
Goodyear Canada Inc. Canada
Goodyear Chemicals, Europe S.A. France
Goodyear Dalian Ltd. People's Republic of China
Goodyear de Chile S.A.I.C. Chile
Goodyear de Colombia S.A. Colombia
Goodyear do Brasil Produtos de Borracha Ltda Brazil
Goodyear Broker's Limited Bermuda
Goodyear Espanola S.A. Spain
Goodyear Export, S.A. Bermuda
Goodyear Export Sales Corporation Barbados
Goodyear France (Pneumatiques) S.A. France
Goodyear Finance Holding S.A. Luxembourg
Goodyear Great Britain Limited England
Goodyear Hellas S.A.I.C. Greece
Goodyear Holding Co. Venezuela
</TABLE>
X-21-1
<PAGE> 2
<TABLE>
<CAPTION>
Place of
Incorporation
Name of Subsidiary or Organization
--------------------- ------------------
<S> <C>
Goodyear India Limited India
Goodyear Italiana S.p.A. Italy
Goodyear Jamaica Limited Jamaica
Goodyear Lastikleri Turk Anonim Sirketi Turkey
Goodyear Malaysia Berhad Malaysia
Goodyear Maroc S.A. Morocco
Goodyear (Nederland) B.V. Netherlands
Goodyear New Zealand, Ltd. New Zealand
The Goodyear Orient Company Pte Limited Singapore
Goodyear Portuguesa, Limited Portugal
Goodyear Philippines Inc. Philippines
Goodyear Qingdao Engineered Elastomers Company Ltd. People's Republic of China
Goodyear S.A. France
Goodyear S.A. Luxembourg
Goodyear Singapore Pte Limited Singapore
Goodyear South Africa (Proprietary) Limited South Africa
Goodyear (Suisse), S.A. Switzerland
Goodyear Taiwan Limited Republic of China
Goodyear (Thailand) Limited Thailand
Goodyear Zimbabwe (Private) Limited Zimbabwe
Gran Industria de Neumaticos Centroamericana, S.A. Guatemala
Granford Manufacturing, Inc. Canada
Gummiwerke Fulda GmbH Germany
Neumaticos Goodyear S.A. Argentina
Nippon Goodyear Kabushiki Kaisha Japan
Philippine Rubber Project Company, Inc. Philippines
P.T. Goodyear Indonesia Indonesia
P.T. Goodyear Sumatra Plantations Indonesia
S.A. Goodyear N.V. Belgium
Svenska Goodyear Aktiebolag Sweden
TC Debica S.A. Poland
Tredcor (Proprietary) Limited South Africa
Wingfoot Insurance Company Limited Bermuda
---------------
</TABLE>
(1) Each of the 77 subsidiaries named in the foregoing list conducts its
business under its corporate name and, in a few instances, under a shortened
form of its corporate name or in combination with a trade name.
(2) Each of the 77 subsidiaries named in the foregoing list is directly or
indirectly wholly-owned by Registrant, except that in respect of each of the
following subsidiaries Registrant owns the indicated percentage of such
subsidiary's equity capital: Brad Ragan, Inc. 74.5%; Compania Goodyear del Peru
S.A., 78%; Goodyear Dalian Ltd., 75%; Goodyear India Limited, 59.9%; Goodyear
Jamaica Limited, 60%; Goodyear Lastikleri Turk Anonim Sirketi, 50.8%; Goodyear
Malaysia Berhad, 51%; Goodyear Maroc S.A., 55%; Goodyear Qingdao Engineered
Elastomers Company Ltd., 60%; Goodyear Taiwan Limited, 75.5%; Goodyear
(Thailand) Limited, 53.5%; Gran Industria de Neumaticos Centroamericana, S.A.,
75.8%; P.T. Goodyear Indonesia, 85%; Goodyear Philippines Inc., 69%; TC Debica
S.A., 50.8%; Contred (Proprietary) Limited,, 60%; Tredcor (Proprietary) Limited,
60%; and Goodyear South Africa (Proprietary) Limited, 60%.
(3) In accordance with paragraph (ii) of Part 22 of Item 601(b) of Regulation
S-K, the names of approximately 74 subsidiaries have been omitted from the
foregoing list. The unnamed subsidiaries, considered in the aggregate as a
single subsidiary, would not constitute a significant subsidiary, as defined in
the applicable regulations.
X-21-2
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Nos. 333-1955 and
33-8111) and in the Registration Statements on Forms S-8 (Nos. 33-65187,
33-65185, 33-65183, 33-65181, 33-31530, 33-17963, 2-79437 and 2-47905) of The
Goodyear Tire & Rubber Company of our report dated February 3, 1997 appearing on
page 30 of this Form 10-K.
PRICE WATERHOUSE LLP
/s/ Price Waterhouse LLP
Cleveland, Ohio
March 24, 1997
X-23-1
<PAGE> 1
EXHIBIT 24
THE GOODYEAR TIRE & RUBBER COMPANY
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors of THE GOODYEAR
TIRE & RUBBER COMPANY, a corporation organized and existing under the laws of
the State of Ohio (the "Company"), hereby constitute and appoint ROBERT W.
TIEKEN, C. THOMAS HARVIE, JOHN W. RICHARDSON, RICHARD W. HAUMAN and JAMES
BOYAZIS, and each of them, their true and lawful attorneys-in-fact and agents,
each one of them with full power and authority to sign the names of the
undersigned directors to the Company's Annual Report to the Securities and
Exchange Commission on Form 10-K for its fiscal year ended December 31, 1996,
and to any and all amendments, supplements and exhibits thereto and any other
instruments filed in connection therewith; provided, however, that said
attorneys-in-fact shall not sign the name of any director unless and until the
Annual Report shall have been duly executed by the officers of the Company then
serving as the chief executive officer of the Company, the principal financial
officer of the Company and the principal accounting officer of the Company; and
each of the undersigned hereby ratifies and confirms all that the said
attorneys-in-fact and agents, or any one of them, shall do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these presents this
3rd day of December, 1996.
/s/ John G. Breen /s/ Gertrude G. Michelson
- ----------------------------- --------------------------------
John G. Breen, Director Gertrude G. Michelson, Director
/s/ William E. Butler /s/ Steven A. Minter
- ----------------------------- --------------------------------
William E. Butler, Director Steven A. Minter, Director
/s/ Thomas H. Cruikshank /s/ Agnar Pytte
- ----------------------------- --------------------------------
Thomas H. Cruikshank, Director Agnar Pytte, Director
/s/ William J. Hudson, Jr. /s/ George H. Schofield
- ----------------------------- -------------------------------
William J. Hudson, Jr., Director George H. Schofield, Director
/s/ William C. Turner
----------------------------
William C. Turner, Director
X-24-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FOR THE GOODYEAR TIRE AND
RUBBER COMPANY AND SUBSIDIARIES EXTRACTED FROM THE CONSOLIDATED STATEMENT OF
INCOME AND THE CONSOLIDATED BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 239
<SECURITIES> 0
<RECEIVABLES> 1,764
<ALLOWANCES> 58
<INVENTORY> 1,774
<CURRENT-ASSETS> 4,025
<PP&E> 9,004
<DEPRECIATION> 4,936
<TOTAL-ASSETS> 9,672
<CURRENT-LIABILITIES> 2,766
<BONDS> 1,132
<COMMON> 156
0
0
<OTHER-SE> 3,123
<TOTAL-LIABILITY-AND-EQUITY> 9,672
<SALES> 13,113
<TOTAL-REVENUES> 13,113
<CGS> 10,027
<TOTAL-COSTS> 10,027
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 129
<INCOME-PRETAX> 123
<INCOME-TAX> 21
<INCOME-CONTINUING> 102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0
<FN>
This schedule shall not be deemed filed for purposes of Section 11 of the
Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934.
</FN>
</TABLE>
