<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
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)
(330) 796-2121
(Registrant's Telephone Number, Including Area Code)
------------------------------------
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
Number of Shares of Common Stock,
Without Par Value, Outstanding at June 30, 1999: 156,267,632
================================================================================
<PAGE> 2
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
Unaudited
<TABLE>
<CAPTION>
(In millions, except per share) Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 3,048.7 $ 3,137.5 $ 6,039.9 $ 6,231.5
Cost of Goods Sold 2,435.2 2,392.7 4,766.6 4,723.9
Selling, Administrative and General Expense 475.2 451.9 920.0 910.9
Rationalizations (9.6) (29.7) 157.8 (90.8)
Interest Expense 39.6 34.0 77.3 64.3
Other Expense 5.7 25.8 11.0 32.9
Foreign Currency Exchange 1.1 (9.2) (33.5) (14.5)
Minority Interest in Net Income of Subsidiaries 6.5 7.1 11.0 15.9
----------- ----------- ----------- -----------
Income from Continuing Operations before Income Taxes 95.0 264.9 129.7 588.9
United States and Foreign Taxes on Income 29.3 65.9 38.5 178.4
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS 65.7 199.0 91.2 410.5
Discontinued Operations -- -- -- (34.7)
----------- ----------- ----------- -----------
NET INCOME $ 65.7 $ 199.0 91.2 375.8
----------- -----------
Retained Earnings at Beginning of Period 3,477.8 2,983.4
CASH DIVIDENDS (93.4) (94.2)
----------- -----------
Retained Earnings at End of Period $ 3,475.6 $ 3,265.0
----------- -----------
PER SHARE OF COMMON STOCK - BASIC:
Income from Continuing Operations $ 0.42 $ 1.26 $ 0.58 $ 2.61
Discontinued Operations -- -- -- (0.22)
----------- ----------- ----------- -----------
Net Income $ 0.42 $ 1.26 $ 0.58 $ 2.39
----------- ----------- ----------- -----------
Average Shares Outstanding 156.1 157.2 156.1 157.0
PER SHARE OF COMMON STOCK - DILUTED:
Income from Continuing Operations $ 0.41 $ 1.25 $ 0.57 $ 2.58
Discontinued Operations -- -- -- (0.22)
----------- ----------- ----------- -----------
Net Income $ 0.41 $ 1.25 $ 0.57 $ 2.36
----------- ----------- ----------- -----------
Average Shares Outstanding 159.6 159.3 158.7 159.2
CASH DIVIDENDS PER SHARE $ 0.30 $ 0.30 $ 0.60 $ 0.60
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
-1-
<PAGE> 3
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Unaudited
(In millions)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- ----------
<S> <C> <C>
ASSETS: -- --
CURRENT ASSETS:
Cash and cash equivalents $ 295.2 $ 239.0
Accounts and notes receivable,
less allowance - $60.7 ($54.9 in 1998) 1,889.2 1,770.7
Inventories:
Raw materials 310.0 369.9
Work in process 71.3 87.5
Finished product 1,638.1 1,707.1
---------- ----------
2,019.4 2,164.5
Prepaid expenses and other current assets 339.0 354.9
---------- ----------
TOTAL CURRENT ASSETS 4,542.8 4,529.1
Long Term Accounts and Notes Receivable 135.0 173.5
Sumitomo 1.2% Convertible Note Receivable Due 8/00 169.6 --
Investments in Affiliates, at equity 107.5 111.4
Other Assets 69.0 99.5
Deferred Charges 1,266.7 1,317.3
Properties and Plants,
less accumulated depreciation - $5,447.0 ($5,394.6 in 1998) 4,331.9 4,358.5
---------- ----------
TOTAL ASSETS $ 10,622.5 $ 10,589.3
========== ==========
LIABILITIES:
CURRENT LIABILITIES:
Accounts payable - trade $ 1,101.3 $ 1,131.7
Compensation and benefits 732.8 751.0
Other current liabilities 315.8 351.9
United States and foreign taxes 228.3 252.6
Notes payable to banks 845.8 763.3
Long term debt due within one year 33.3 26.0
---------- ----------
TOTAL CURRENT LIABILITIES 3,257.3 3,276.5
Compensation and Benefits 1,891.0 1,945.9
Long Term Debt 1,344.3 1,186.5
Sumitomo 1.2% Convertible Note Payable Due 8/00 108.2 --
Other Long Term Liabilities 154.1 175.6
Minority Equity in Subsidiaries 249.6 259.0
---------- ----------
TOTAL LIABILITIES 7,004.5 6,843.5
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 - 156.3 (155.9 in 1998)
after deducting 39.4 treasury shares (39.7 in 1998) 156.3 155.9
Capital Surplus 1,024.3 1,015.9
Retained Earnings 3,475.6 3,477.8
Accumulated Other Comprehensive Income (1,038.2) (903.8)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 3,618.0 3,745.8
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,622.5 $ 10,589.3
========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
-2-
<PAGE> 4
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Unaudited
<TABLE>
<CAPTION>
(In millions) Accumulated Other
Comprehensive Income
----------------------------------
Common Capital Retained Foreign Minimum Unrealized Total
Stock Surplus Earnings Currency Pension Investment Shareholders'
Translation Liability Gains Equity
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 $ 155.9 $ 1,015.9 $ 3,477.8 $ (877.6) $ (26.2) $ -- $ 3,745.8
Comprehensive income for 1999:
Net income 91.2
Foreign currency translation (177.4)
Minimum pension liability 4.8
Unrealized investment gain 38.2
(net of tax of $23.4)
TOTAL COMPREHENSIVE INCOME (43.2)
Cash dividends (93.4) (93.4)
Common stock issued 0.4 8.4 8.8
------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 $ 156.3 $ 1,024.3 $ 3,475.6 $ (1,055.0) $ (21.4) $ 38.2 $ 3,618.0
====================================================================================
</TABLE>
The accompanying notes are an integral part of this financial statement.
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited
<TABLE>
<CAPTION>
(In millions) Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME $ 65.7 $ 199.0 $ 91.2 $ 375.8
Other comprehensive income:
Foreign currency translation adjustment (16.3) (90.0) (177.4) (105.0)
Minimum pension liability adjustment 0.2 0.3 4.8 (1.4)
Unrealized investment gain 61.6 -- 61.6 --
Tax on unrealized investment gain (23.4) -- (23.4) --
----------------- ------------------
COMPREHENSIVE INCOME $ 87.8 $ 109.3 $ (43.2) $ 269.4
================= ==================
</TABLE>
The accompanying notes are an integral part of this financial statement.
-3-
<PAGE> 5
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
<TABLE>
<CAPTION>
(In millions) Six Months Ended
June 30,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 91.2 $ 375.8
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation 253.4 230.4
Discontinued operations -- 49.5
Rationalizations 110.0 (19.6)
Asset sales -- (37.9)
Changes in operating assets and liabilities, net of asset acquisitions and
dispositions:
Accounts and notes receivable (212.3) (203.3)
Inventories 87.4 (380.7)
Accounts payable-trade (12.3) (116.1)
Other assets and liabilities (110.7) (225.4)
-------- --------
Total adjustments 115.5 (703.1)
-------- --------
TOTAL CASH FLOWS FROM OPERATING ACTIVITIES 206.7 (327.3)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (353.4) (290.7)
Asset sales -- 73.5
Asset acquisitions -- (61.9)
Other transactions (27.4) (26.3)
-------- --------
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES (380.8) (305.4)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short term debt incurred 403.8 502.2
Short term debt paid (63.4) (56.9)
Long term debt incurred 19.6 320.6
Long term debt paid (31.8) (115.5)
Common stock issued 8.7 29.1
Common stock acquired -- (22.5)
Dividends paid (93.4) (94.2)
-------- --------
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 243.5 562.8
Effect of Exchange Rate Changes on Cash and Cash Equivalents (13.2) (5.9)
-------- --------
Net Change in Cash and Cash Equivalents 56.2 (75.8)
Cash and Cash Equivalents at Beginning of the Period 239.0 258.6
-------- --------
Cash and Cash Equivalents at End of the Period $ 295.2 $ 182.8
-------- --------
</TABLE>
The accompanying notes are an integral part of this financial statement.
-4-
<PAGE> 6
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
All per share amounts in these Notes to Financial Statements are diluted
unless otherwise indicated.
RATIONALIZATIONS
- ----------------
Rationalizations in 1999 included first quarter charges totaling $167.4
million ($116.0 million after tax or $.74 per share), as discussed below. The
second quarter of 1999 included pretax income of $9.6 million ($6.0 million
after tax or $.04 per share) from the reversal of certain rationalization
reserves that were no longer needed for the 1996 and 1997 programs.
Rationalizations in 1998 included a first quarter gain of $61.1 million
($37.9 million after tax or $.24 per share) on the sale of the Calhoun, Georgia
latex processing facility. The second quarter of 1998 included pretax income of
$29.7 million ($19.6 million after tax or $.12 per share) from the reversal of
certain rationalization reserves that were no longer needed for the 1997
program.
During 1999, the Company continued to implement its rationalization
programs. The following reflects the activity and progress of those programs in
the second quarter of 1999.
1999 PROGRAM - As a result of continued competitive conditions in the markets
served by the Company and unfavorable economic conditions in Latin America and
Asia, a number of rationalization actions were approved in the first quarter of
1999 to reduce costs and increase productivity and efficiency. These actions
consisted primarily of the downsizing and consolidation of tire manufacturing
facilities at Gadsden, Alabama and Freeport, Illinois and 12 other production
facilities in Europe, South Africa and Latin America. A charge of $167.4 million
($116.0 million after tax or $.74 per share) was recorded, of which $28.4
million related to non-cash writeoffs and $139.0 million related to future cash
outflows, primarily for associate severance costs. The remaining balance of
these provisions totaled $68.0 million at June 30, 1999.
The Company recorded a charge of $130.6 million for the release of
approximately 4,000 associates around the world. Most of the associates to be
released under the plan are or were production and support associates at
manufacturing locations, primarily in the United States and Latin America.
During the second quarter, approximately 2,000 associates, primarily production
associates in North American operations, were released at a total cost of $69.6
million. During the first quarter, approximately 300 associates were released at
a cost of $4.5 million. The Company plans to release approximately 1,700 more
associates and had reserved $56.5 million for that cost at June 30, 1999.
Rationalization costs, other than associate-related costs, were recorded,
and were incurred through June 30, 1999, as follows:
(In millions)
Recorded Incurred
-------- --------
Plant downsizing and consolidation $ 26.7 $ 20.2
Asset sales and other exit costs 10.1 5.1
------ ------
$ 36.8 $ 25.3
====== ======
Costs associated with downsizing and consolidation activities were
primarily for the writeoff of scrapped equipment and obligations under
noncancellable contracts, primarily utility contracts, both at the Gadsden,
Alabama manufacturing facility. Asset sales and other exit costs included a loss
on the sale of a rubber plantation in Asia expected to be completed in 1999 and
additional costs associated with the Company's exit from the Formula 1 racing
series. During the second quarter, $1.9 million was charged to the reserve
relating to plant downsizing and consolidation. The remaining balance of these
provisions totaled $11.5 million at June 30, 1999.
The Company expects that the major portion of these actions will be
completed during 1999 with the balance to be completed in 2000.
-5-
<PAGE> 7
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
RATIONALIZATIONS (CONTINUED)
- ----------------------------
1997 PROGRAM - During the second quarter of 1999, approximately 200 associates,
primarily hourly associates in North American operations, were released at a
cost of $8.3 million. In addition, excess reserves related to plant downsizing
and closure activities totaling $6.0 million were reversed in the quarter. The
Company plans to release approximately 1,000 more associates under the 1997
program and had reserved $38.6 million for that cost at June 30, 1999.
Optimization, downsizing, consolidation and withdrawal costs of the 1997
program, other than associate-related costs, were recorded, and were incurred
through June 30, 1999, as follows:
<TABLE>
<CAPTION>
(In millions)
Recorded Incurred
-------- --------
<S> <C> <C>
Withdrawal of support for the Formula 1 racing series $ 63.4 $ 43.2
Plant downsizing and closure activities 23.0 13.3
Kelly-Springfield consolidation 12.9 1.6
Consolidation of North American distribution facilities 12.3 10.4
Commercial tire outlet consolidation 4.7 4.4
Production realignments 2.8 2.8
------- ------
$ 119.1 $ 75.7
</TABLE>
During the second quarter of 1999, $2.7 million was charged to the reserve.
In addition, excess reserves related to plant downsizing and closure activities
totaling $.5 million were reversed in the quarter. At June 30, 1999, the
remaining balance of the provision for these costs totaled $13.2 million. During
1998, the Company reversed $22.0 million due to the favorable settlement of
Formula 1 obligations and $7.7 million due to a change in the plant downsizing
and closure activities.
The Company expects that the major portion of the 1997 program will be
completed during 1999 with the balance to be completed in 2000.
1996 PROGRAM - During the second quarter of 1999, approximately 10 associates
were released at a cost of $.3 million. The Company does not plan to release any
more associates under the 1996 program and reversed the remaining reserve of
$4.1 million in the second quarter.
Rationalization costs, other than for associate-related costs, were
recorded, and were incurred through June 30, 1999, as follows:
<TABLE>
<CAPTION>
(In millions)
Recorded Incurred
-------- --------
<S> <C> <C>
Discontinuance of PVC production $ 10.6 $ 10.6
Canadian retail store closures 9.0 6.0
International production rationalization 8.5 8.0
North American Tire production rationalization 7.1 7.7
------ ------
$ 35.2 $ 32.3
</TABLE>
During the second quarter of 1999, $.3 million was charged to the reserve.
In addition, reserves totaling $1.0 million were adjusted in the quarter. The
remaining balance of these provisions at June 30, 1999 totaled $3.9 million.
The Company plans to complete the 1996 program in 1999.
OTHER EXPENSE
- -------------
Other Expense in 1998 included a charge of $17.4 million ($11.4 million
after tax or $.07 per share) for the settlement of several related lawsuits
involving employment matters in Latin American Tires and Engineered Products in
Latin America.
-6-
<PAGE> 8
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
BUSINESS SEGMENTS
- -----------------
Portions of the items reported as Rationalizations and Other Expense on the
Consolidated Statement of Income were not charged (credited) to segment EBIT but
were attributable to the segments as follows:
<TABLE>
<CAPTION>
(In millions) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
North American Tire $(9.2) $(7.7) $ 86.3 $ (7.7)
Europe Tire ( .1) - 8.7 -
Latin American Tire - 15.6 42.5 15.6
Asia Tire - - 1.5 -
---- ----- ------- -------
TOTAL TIRES (9.3) 7.9 139.0 7.9
Engineered Products ( .3) 1.8 8.8 1.8
Chemical Products - - 3.1 (61.1)
----- ----- ------- -------
TOTAL SEGMENTS $(9.6) $ 9.7 $ 150.9 $ (51.4)
===== ===== ======= =======
</TABLE>
NON-CONSOLIDATED OPERATIONS - SOUTH PACIFIC TYRE
- ------------------------------------------------
In addition to its consolidated operations in the Asia region, the Company
owns a 50% interest in South Pacific Tyres Ltd (SPT), a partnership with Pacific
Dunlop Ltd of Australia. SPT is the largest tire manufacturer, marketer and
exporter in Australia and New Zealand. The Company is required to use the equity
method to account for its interest in the results of operations and financial
position of SPT.
The following table presents sales and EBIT of the Company's Asia Tire
segment and 100% of the operations of SPT:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES:
Asia Tire $ 148.8 $ 117.6 $ 289.8 $ 234.4
SPT 176.5 162.1 331.1 323.6
------- ------- ------- -------
$ 325.3 $ 279.7 $ 620.9 $ 558.0
======= ======= ======= =======
EBIT:
Asia Tire $ 7.8 $ 4.8 $ 11.4 $ 7.8
SPT 10.4 13.8 19.2 23.0
------- ------- ------- -------
$ 18.2 $ 18.6 $ 30.6 $ 30.8
======= ======= ======= =======
</TABLE>
-7-
<PAGE> 9
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DISCONTINUED OPERATIONS
- -----------------------
On March 21, 1998 the Company reached an agreement to sell, and on July 30,
1998, the Company completed the sale of, substantially all of the assets and
liabilities of its oil transportation business to Plains All American Inc., a
subsidiary of Plains Resources Inc. Proceeds from the sale were $422.3 million,
which included distributions to the Company of $25.1 million prior to closing.
The principal assets of the oil transportation business included the All
American Pipeline System, a heated crude oil pipeline system consisting
primarily of a 1,225 mile mainline segment extending from Las Flores and
Gaviota, California, to McCamey, Texas, a crude oil gathering system located in
California's San Joaquin Valley and related terminal and storage facilities.
The transaction was accounted for as a sale of discontinued operations.
Operating results and the loss on sale of discontinued operations follow:
<TABLE>
<CAPTION>
(In millions, except per share) SIX MONTHS ENDED
JUNE 30, 1998
-------------
<S> <C>
NET SALES $ 22.4
======
Income before Income Taxes $ 12.9
United States Taxes on Income 4.7
------
Income from Discontinued Operations 8.2
Loss on Sale of Discontinued Operations, including
estimated income from operations during the
disposal period (3/21/98-7/30/98)of $10.0
(net of tax of $24.1) (42.9)
------
DISCONTINUED OPERATIONS $(34.7)
INCOME (LOSS) PER SHARE - BASIC:
Income from Discontinued Operations $ .05
Loss on Sale of Discontinued Operations (.27)
------
DISCONTINUED OPERATIONS $ (.22)
======
INCOME (LOSS) PER SHARE - DILUTED:
Income from Discontinued Operations $ .05
Loss on Sale of Discontinued Operations (.27)
------
DISCONTINUED OPERATIONS $ (.22)
======
</TABLE>
PER SHARE OF COMMON STOCK
- -------------------------
Basic earnings per share have been computed based on the average number of
common shares outstanding. The following table presents the number of
incremental weighted average shares used in computing diluted per share amounts:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Stock options 1,215,704 1,889,385 968,482 1,911,108
Performance units - 252,273 196,459 252,224
1.2% Convertible Note 2,281,115 - 1,520,743 -
--------- --------- --------- ---------
3,496,819 2,141,658 2,685,684 2,163,332
========= ========= ========= =========
</TABLE>
-8-
<PAGE> 10
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INVESTMENTS AND NONCASH INVESTING AND FINANCING ACTIVITIES
- ----------------------------------------------------------
In connection with the Company's planned strategic alliance with Sumitomo
Rubber Industries, Ltd., on February 25, 1999 the Company issued to Sumitomo at
par its 1.2% Convertible Note Due August 16, 2000, in the principal amount of
Yen13,073,070,934 (equivalent to $108.2 million at June 30, 1999). The
Company's Note is convertible, if not earlier redeemed, during the period
beginning July 16, 2000 through August 15, 2000 into 2,281,115 shares of the
Common Stock, without par value, of the Company at a conversion price of Yen
5,731 per share, subject to certain adjustments. In addition, on February 25,
1999, the Company purchased at par from Sumitomo a 1.2% Convertible Note Due
August 16, 2000, in the principal amount of Yen13,073,070,934 (also equivalent
to $108.2 million at June 30, 1999). The Sumitomo Note is convertible, if not
earlier redeemed, during the period beginning July 16, 2000 through August 15,
2000 into 24,254,306 shares of the Common Stock, Yen50 par value per share, of
Sumitomo at a conversion price of Yen539 per share, subject to certain
adjustments. Information in the Consolidated Statement of Cash Flows is
presented net of the effects of these transactions.
The Company signed definitive agreements with Sumitomo during the second
quarter of 1999. As a result of this and the planned conversion of the Notes
into equity, the Company has reclassified its investment in the Sumitomo 1.2%
Convertible Note ("the Note") from held-to-maturity to available-for-sale, as
provided in Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". The fair value of the Note
as an equity instrument was $169.6 million at June 30, 1999. Changes in the fair
value of the Note are reported in the Consolidated Balance Sheet as Accumulated
Other Comprehensive Income. At June 30, 1999 the gross unrealized holding gain
on the Note totaled $61.6 million ($38.2 million after tax). The Company's 1.2%
Convertible Note has been designated as a hedge of the exchange exposure of the
Sumitomo Note, and the effect of exchange rate changes on the Company's Note are
reported on the Consolidated Balance Sheet as Accumulated Other Comprehensive
Income. The fair value of the Company's Note as a debt instrument was $102.9
million at June 30, 1999.
ADJUSTMENTS
- -----------
All adjustments, consisting of normal recurring adjustments, necessary for
a fair statement of the results of these unaudited interim periods have been
included.
RECLASSIFICATION
- ----------------
Certain items previously reported in specific financial statement captions
have been reclassified to conform to the 1999 presentation.
-9-
<PAGE> 11
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
Unaudited
<TABLE>
<CAPTION>
(In millions) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SALES:
North American Tire $ 1,579.8 $ 1,550.9 $ 3,086.9 $ 3,074.2
Europe Tire 660.1 703.3 1,344.8 1,374.8
Latin American Tire 219.2 327.0 459.8 662.5
Asia Tire 148.8 117.6 289.8 234.4
--------- --------- --------- ---------
TOTAL TIRES 2,607.9 2,698.8 5,181.3 5,345.9
Engineered Products 328.7 329.9 637.4 658.6
Chemical Products 223.2 244.0 451.6 504.7
--------- --------- --------- ---------
TOTAL SEGMENT SALES 3,159.8 3,272.7 6,270.3 6,509.2
Inter-SBU Sales (112.9) (131.9) (233.3) (275.3)
Other 1.8 (3.3) 2.9 (2.4)
--------- --------- --------- ---------
NET SALES $ 3,048.7 $ 3,137.5 $ 6,039.9 $ 6,231.5
========= ========= ========= =========
INCOME:
North American Tire $ 24.3 $ 89.2 $ 116.0 $ 199.4
Europe Tire 46.7 79.1 101.8 154.9
Latin American Tire 16.0 53.7 46.1 113.9
Asia Tire 7.8 4.8 11.4 7.8
--------- --------- --------- ---------
TOTAL TIRES 94.8 226.8 275.3 476.0
Engineered Products 30.8 34.5 51.3 67.6
Chemical Products 30.2 40.6 58.9 74.9
--------- --------- --------- ---------
TOTAL SEGMENT INCOME (EBIT) 155.8 301.9 385.5 618.5
Rationalizations 9.6 29.7 (157.8) 90.8
Interest expense (39.6) (34.0) (77.3) (64.3)
Foreign currency exchange (1.1) 9.2 33.5 14.5
Minority interest in net income (6.5) (7.1) (11.0) (15.9)
of subsidiaries
Inter-SBU income (12.2) (15.5) (26.2) (32.8)
Other (11.0) (19.3) (17.0) (21.9)
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS $ 95.0 $ 264.9 $ 129.7 $ 588.9
BEFORE INCOME TAXES ========= ========= ========= =========
</TABLE>
-10-
<PAGE> 12
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
CONSOLIDATED
- ------------
(All per share amounts are diluted)
Sales in the second quarter of 1999 were $3.05 billion, decreasing 2.8%
from $3.14 billion in the 1998 quarter. Net income of $65.7 million or $.41 per
share decreased 67.0% from $199.0 million or $1.25 per share in the 1998 period.
In the six months, sales of $6.04 billion decreased 3.1% from $6.23 billion
in 1998. Net income was $91.2 million or $.57 per share, compared to $375.8
million or $2.36 per share in 1998.
Worldwide tire unit sales in the second quarter were 2.0% higher than in
1998. North American (U.S. and Canada) volume increased 7.9% in the quarter
while international unit sales decreased 5.3%. Replacement unit sales increased
2.7% from the 1998 quarter, and were higher in North America, Europe and Asia.
Original equipment unit sales were slightly higher, increasing in North America
and Asia. Unit sales in the first six months of 1999 increased 1.5% from the
1998 period, with North American units 2.7% higher and international units down
slightly.
Revenues decreased in the quarter and six months due primarily to the
adverse effect of currency translations on international results. The Company
estimates that versus 1998, currency movements adversely affected revenues in
1999 by approximately $100 million in the second quarter and $205 million in the
six months. In addition, revenues decreased due to continued worldwide
competitive pricing pressures, adverse economic conditions in Latin America and
lower unit sales of other automotive and industrial rubber products.
EBIT (net sales less cost of goods sold and selling, administrative and
general expense) was also reduced by the adverse effect of currency movements
versus 1998. The Company estimates the impact of currency fluctuations to be
approximately $15 million in the second quarter and $38 million in the six
months.
The Company is unable to predict the impact of currency fluctuations and
economic conditions on its sales and EBIT in future periods. If the dollar
continues to strengthen, reported sales and EBIT in future periods are likely to
be unfavorably impacted. Similarly, the continuing economic downturn in Latin
America is expected to adversely affect the Company's sales and operating income
in future periods.
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<PAGE> 13
The following table presents cost of goods sold (CGS) and selling, general
and administrative expense (SAG) as a percent of sales:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
CGS 79.9% 76.3% 78.9% 75.8%
SAG 15.6 14.4 15.2 14.6
</TABLE>
Cost of goods sold increased as a percent to sales in 1999 due primarily to
lower revenues and increased costs resulting from lower production levels
associated with programs to realign capacity and reduce inventories. SAG
increased as a percent to sales due in part to lower revenues.
Rationalizations in 1999 included first quarter charges totaling $167.4
million ($116.0 million after tax or $.74 per share), as discussed below. The
second quarter of 1999 included pretax income of $9.6 million ($6.0 million
after tax or $.04 per share) from the reversal of rationalization reserves that
were no longer needed. The 1996 reserve was overaccrued by $3.1 million
primarily related to costs associated with layoffs. The 1997 reserve was
overaccrued by $6.5 million primarily related to plant downsizing and closure
activities.
Rationalizations in 1998 included a first quarter gain of $61.1 million
($37.9 million after tax or $.24 per share) on the sale of the Calhoun, Georgia
latex processing facility. The second quarter of 1998 included pretax income of
$29.7 million ($19.6 million after tax or $.12 per share) from the reversal of
certain rationalization reserves that were no longer needed for the 1997
program.
Interest expense rose in 1999 due primarily to higher debt levels incurred
to fund acquisitions and support increased working capital levels.
Other expense in 1998 included a charge of $17.4 million ($11.4 million
after tax or $.07 per share) for the settlement of several related lawsuits
involving employment matters in Latin American Tire and Engineered Products in
Latin America.
Foreign currency exchange gains were lower in the quarter, due primarily to
the impact of currency movements on U.S. dollar denominated monetary items in
Asia.
U.S. and foreign taxes on income in the 1999 quarter reflected a higher
effective tax rate than in the second quarter of 1998.
During 1999, the Company continued to implement its rationalization
programs. The following reflects the activity and
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<PAGE> 14
progress of those programs in the second quarter of 1999.
1999 RATIONALIZATION PROGRAM - As a result of continued competitive conditions
in the markets served by the Company and continuing unfavorable economic
conditions in Latin America and Asia, a number of rationalization actions were
approved in the first quarter of 1999 to reduce costs and increase productivity.
These actions consisted primarily of the downsizing and consolidation of tire
manufacturing facilities at Gadsden, Alabama and Freeport, Illinois and 12 other
production facilities in Europe, South Africa and Latin America. A charge of
$167.4 million ($116.0 million after tax or $.74 per share) was recorded, of
which $28.4 million related to non-cash writeoffs and $139.0 million related to
future cash outflows, primarily for associate severance costs. The remaining
balance of these provisions at June 30, 1999 was $68.0 million.
The Company recorded a charge of $130.6 million for the planned release of
approximately 4,000 associates around the world. The majority of the associates
to be released under the plan are or were production and support associates at
manufacturing locations, primarily in the United States and Latin America.
During the second quarter of 1999, approximately 2,000 associates, primarily
production associates in North American operations, were released at a total
cost of $69.6 million. During the first quarter, approximately 300 associates
were released at a cost of $4.5 million. The Company plans to release
approximately 1,700 more associates and had reserved $56.5 million for that cost
at June 30, 1999.
Rationalization costs, other than associate-related costs, of $36.8 million
were recorded, of which $1.9 million were incurred during the second quarter of
1999. The costs were primarily associated with the writeoff of scrapped
equipment and obligations under noncancellable contracts, primarily utility
contracts, both at the Gadsden, Alabama manufacturing facility, the loss on the
sale of a rubber plantation in Asia expected to be completed in 1999 and
additional costs associated with the Company's exit from the Formula 1 racing
series. The remaining balance of these provisions totaled $11.5 million at June
30, 1999.
The Company expects that the major portion of these actions will be
completed during 1999 with the balance to be completed in 2000. Annual pretax
savings of approximately $150 million are expected when the planned actions have
been fully implemented.
1997 RATIONALIZATION PROGRAM - During the second quarter of 1999,
approximately 200 associates were released at a cost of $8.3 million. In
addition, excess reserves totaling $6.0 million related to plant downsizing and
consolidation were reversed in the quarter. The Company plans to release
approximately 1,000 more associates under the 1997 program and had reserved
$38.6
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<PAGE> 15
million for that cost at June 30, 1999.
Rationalization costs, other than for associate-related costs, totaling
$2.7 million were incurred during the second quarter of 1999. In addition,
excess reserves totaling $.5 million related to plant downsizing and closure
activities were reversed in the quarter. The remaining balance of these
provisions totaled $13.2 million at June 30, 1999.
The Company expects that the major portion of the 1997 program will be
completed during 1999 with the balance to be completed in 2000. Annual pretax
savings of approximately $200 million are expected when the planned actions have
been fully implemented.
1996 RATIONALIZATION PROGRAM - During the second quarter of 1999,
approximately 10 associates were released at a cost of $.3 million. The Company
does not plan to release any more associates under the 1996 program and reversed
the remaining reserve of $4.1 million in the second quarter.
Rationalization costs, other than for associate-related costs, totaling $.3
million were incurred during the second quarter of 1999. In addition, reserves
totaling $1.0 million were adjusted in the quarter. The remaining balance of
these provisions totaled $3.9 million at June 30, 1999.
The Company plans to complete the 1996 program in 1999. Annual pretax
savings of approximately $110 million are expected when the planned actions have
been fully implemented.
For further information, refer to the note to the financial statements,
Rationalizations.
DISCONTINUED OPERATIONS - On March 21, 1998 the Company reached an
agreement to sell, and on July 30, 1998 the Company completed the sale of,
substantially all of the assets and liabilities of its oil transportation
business. The loss on the sale, net of income from operations during 1998,
totaled $34.7 million after tax or $.22 per share. For further information,
refer to the note to the financial statements, Discontinued Operations.
YEAR 2000
- ---------
The Company has inventoried and assessed all date sensitive technical
infrastructure and information and transaction processing computer systems ("I/T
Systems") and determined that a substantial portion of its software and some
hardware must be modified or replaced in order to make its I/T Systems Year 2000
compliant. The Company has also inventoried and assessed its manufacturing and
other operating systems that may be date sensitive ("Process Systems"),
including those that use embedded
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<PAGE> 16
technology such as micro-controllers and micro-processors, and determined the
actions required to make its Process Systems Year 2000 compliant.
The Company monitors its Year 2000 compliance efforts with respect to I/T
Systems and Process Systems in three phases: (1) the identification and
inventory of date sensitive transactions, processes and systems (the "Inventory
Phase"), (2) the determination of repairs and replacements required, if any,
through testing, analysis and design (the "Analysis Phase"), and (3) the repair
or acquisition, installation and testing of Year 2000 compliant systems (the
"Remediation Phase"). The following table indicates the Company's progress in
its Year 2000 compliance program.
Estimated Percentage of Year 2000 Compliance Activity Completed:
<TABLE>
<CAPTION>
Inventory Phase Analysis Phase Remediation Phase
--------------- -------------- -----------------
Percentage Completed Percentage Completed Percentage Completed
at at at
6/30/99 3/31/99 6/30/99 3/31/99 6/30/99 3/31/99
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
I/T Systems 100% 100% 100% 100% 92% 85%
Process Systems 100% 100% 100% 100% 92% 81%
</TABLE>
All I/T Systems and Process Systems are scheduled to have been repaired or
acquired and installed, tested and determined to be Year 2000 compliant by
November of 1999.
The cost of modifying the Company's existing I/T Systems in order to
achieve Year 2000 compliance is estimated to be $75 million to $90 million.
Approximately $70 million has been expended to modify existing I/T Systems
through June 30, 1999, including approximately $6 million expended during the
second quarter of 1999. The remaining $5 million to $15 million will be spent
during the balance of 1999. All of the costs of repairing such existing I/T
Systems will be expensed in the period incurred. The cost of new hardware has
been and will be capitalized.
In addition, for several years the Company has been designing, acquiring,
and installing various business transactions processing I/T Systems, which in
each case provide significant new functionality and in some instances, replace
non-compliant I/T Systems with Year 2000 compliant I/T Systems. Due to the
integrated nature of these I/T Systems enhancement projects, it is not
practicable to segregate the costs associated with the elements of these new I/T
Systems that may have been accelerated to facilitate Year 2000 compliance. The
Company estimates that prior to January 1, 2000 it will have spent approximately
$210 million to $240 million for consulting, software and hardware costs
incurred in connection with the I/T Systems enhancement projects in process
since 1996. Approximately $191 million has been expended on these projects
through June 30, 1999, including approximately $25 million during the second
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<PAGE> 17
quarter of 1999. The Company anticipates that costs incurred in respect of these
projects will be approximately $19 million to $49 million during the balance of
1999. Through June 30, 1999, approximately $33 million of these costs have been
expensed and $159 million of these costs have been capitalized. Substantially
all of the remaining consulting, software and hardware costs for these I/T
Systems enhancement projects will be capitalized.
The Company is modifying or replacing and testing its Process Systems at an
anticipated cost of between $30 million and $38 million, substantially all of
which is for the acquisition of replacement systems. The cost of Process Systems
has been and will be capitalized. Through June 30, 1999, the cost of Process
Systems installed by the Company has totaled $27 million, of which $4 million
was incurred during the second quarter of 1999.
The Company's Year 2000 compliance costs (including the cost of all I/T
Systems enhancement projects) are expected to total approximately $315 million
to $370 million. Through June 30, 1999, Year 2000 compliance costs have totaled
$288 million, of which $35 million was incurred during the second quarter of
1999. All Year 2000 costs have been and will be funded from operations.
For 1999, costs for repairing existing I/T Systems for Year 2000 compliance
is expected to be approximately 11% of the Company's budget for information
technology. The total cost of repairing existing I/T Systems and of the I/T
Systems enhancement projects is expected to represent 30% of the Company's
information technology budget during 1999.
The Company surveyed its significant suppliers to determine the extent to
which the Company may be vulnerable to their failure to correct their own Year
2000 issues. Based on responses to its survey and other communications the
Company has assessed the Year 2000 readiness of approximately 30% of its
significant suppliers. Failure of the Company's significant trading partners to
address Year 2000 issues could have a material adverse effect on the Company's
operations, although it is not possible at this time to quantify the amount of
revenues and profits that might be lost or costs that could be incurred by the
Company.
The Company is preparing contingency plans for its critical operational
areas, which plans include identification of critical processes, risk assessment
and response techniques in the event of a system failure. Planned responses to
system failures include emergency response teams designed to produce prompt
corrective action, identification of alternate sources of supply, manual
processing of transactions, manual control of production processes and the stock
piling of raw materials and finished goods in those instances where a high risk
of a supply failure is suspected. The Company's contingency plans were 33%
complete at June 30, 1999. Due to a higher than anticipated level of complexity
involved in formulating worldwide contingency plans,
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<PAGE> 18
the Company now expects its contingency plans to be completed by September 30,
1999. In certain cases, especially global infrastructure failures, there may be
no practical alternative course of action available to the Company that will
permit resumption of an interrupted business activity.
The foregoing discussion regarding Year 2000 project timing, effectiveness,
implementation and costs are based on management's current evaluation using
available information. Factors that might cause material changes include, but
are not limited to, the readiness of third parties and the Company's ability to
respond to unforeseen Year 2000 complications.
NEW ACCOUNTING STANDARDS
- ------------------------
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). SFAS 133 requires all derivatives to be recognized as
either assets or liabilities on the balance sheet and be measured at fair value.
Changes in such fair value are required to be recognized in earnings to the
extent that the derivatives are not effective as hedges. SFAS 133 is effective
for fiscal years beginning after June 15, 2000, and is effective for interim
periods in the initial year of adoption. At the present time the Company has not
yet determined the financial statement impact of the adoption of SFAS 133.
SEGMENT INFORMATION
- -------------------
Segment EBIT was $155.8 million in the second quarter of 1999, decreasing
48.4% from $301.9 million in the 1998 quarter. Segment operating margin in the
second quarter of 1999 was 4.9%, compared to 9.2% in the 1998 period.
In the six months, segment EBIT was $385.5 million, decreasing 37.7% from
$618.5 million in the 1998 period. Segment operating margin in the six months
was 6.1%, compared to 9.5% in the 1998 period.
Segment EBIT does not include the previously discussed rationalizations and
certain other items. For further information, refer to the note to the financial
statements, Business Segments.
NORTH AMERICAN TIRE
- -------------------
In North America, sales in the second quarter of 1999 were $1.58 billion,
increasing 1.9% from $1.55 billion in the 1998 quarter. In the six months, sales
of $3.09 billion increased slightly from $3.07 billion in 1998.
Unit sales in the 1999 second quarter increased 7.9% from the 1998 period.
Replacement unit sales increased 6.5% and original
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<PAGE> 19
equipment volume increased 10.5%. Unit sales in the six months increased 2.7%.
Revenues increased in the quarter and six months due primarily to higher
tire unit sales. Revenues in both periods were adversely impacted by competitive
pricing pressures, a less favorable mix and the impact of currency translation
on Canadian results.
EBIT in North America was $24.3 million in the second quarter of 1999,
decreasing 72.8% from $89.2 million in the 1998 quarter. Operating margin was
1.5%, compared to 5.8% in the 1998 quarter.
In the six months, EBIT in North America was $116.0 million, decreasing
41.8% from $199.4 million in 1998. Operating margin was 3.8%, compared to 6.5%
in 1998.
EBIT was lower in the quarter and six months due primarily to a change in
mix to lower priced tires, increased costs resulting from lower production
levels associated with programs to realign capacity and reduce inventories,
nonrecurring costs related to operational changes at the Company's Danville
tire plant and competitive pricing conditions.
EBIT in 1999 did not include first quarter rationalization charges totaling
$95.5 million and second quarter rationalization income totaling $9.2 million.
EBIT in 1998 did not include second quarter rationalization income totaling $7.7
million.
The Company anticipates continued fluctuations in the value of the U.S.
dollar relative to the Canadian dollar. Revenues and EBIT in the North American
Tire segment may be affected in future periods by continued competitive pricing
pressures and by the effects of currency translation on Canadian results.
EUROPE TIRE
- -----------
In Europe, sales in the second quarter of 1999 were $660.1 million,
decreasing 6.1% from $703.3 million in the 1998 period. In the six months, sales
of $1.34 billion decreased 2.2% from $1.37 billion in 1998.
Unit sales in the 1999 quarter decreased 1.8% from the 1998 period.
Replacement unit sales increased 2.5%, but original equipment volume decreased
11.5%. Unit sales in the six months increased 5.1%.
Revenues decreased in the quarter and six months due primarily to the
effects of currency translation, competitive pricing and lower tire unit sales
in the quarter. Revenues were favorably impacted in the six months by the
acquisition of a majority interest in tire manufacturing operations in Slovenia.
EBIT in Europe was $46.7 million in the second quarter of 1999, decreasing
41.0% from $79.1 million in the 1998 quarter.
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<PAGE> 20
Operating margin was 7.1%, compared to 11.2% in the 1998 quarter.
In the six months, EBIT in Europe was $101.8 million, decreasing 34.3% from
$154.9 million in 1998. Operating margin was 7.6%, compared to 11.3% in 1998.
EBIT was lower in the quarter and six months due primarily to lower unit
sales in the quarter and increased costs resulting from lower production levels
associated with programs to realign capacity and reduce inventories and weak
economic conditions in Eastern Europe and Africa.
EBIT in 1999 did not include rationalization charges totaling $8.7 million.
The Company anticipates continued fluctuations in the value of the U.S.
dollar relative to the Euro and other European currencies. Revenues and EBIT in
the Europe Tire segment may be affected in future periods by continued
competitive pricing pressures and by the effects of currency translations.
LATIN AMERICAN TIRE
- -------------------
In Latin America, sales in the second quarter of 1999 were $219.2 million,
decreasing 33.0% from $327.0 million in the 1998 period. In the six months,
sales of $459.8 million decreased 30.6% from $662.5 million in 1998.
EBIT in Latin America was $16.0 million in the second quarter of 1999,
decreasing 70.2% from $53.7 million in the 1998 quarter. Operating margin was
7.3%, compared to 16.4% in 1998.
In the six months, EBIT in Latin America was $46.1 million, decreasing
59.5% from $113.9 million in 1998. Operating margin was 10.0%, compared to 17.2%
in 1998.
Unit sales in the 1999 quarter decreased 24.0% from the 1998 period.
Replacement unit sales decreased 15.1% and original equipment volume decreased
45.1%. Unit sales in the six months decreased 19.1%.
Revenues and EBIT in the quarter and six months decreased due primarily to
lower tire unit sales resulting from unfavorable economic conditions in the
region, competitive pricing pressures and the effects of currency translations.
EBIT in 1999 did not include first quarter rationalization charges totaling
$42.5 million. EBIT in 1998 did not include a second quarter charge for a
lawsuit settlement totaling $15.6 million.
The Company anticipates continued fluctuations in the value of the U.S.
dollar relative to Latin American currencies. Revenues and EBIT in the Latin
American Tire segment in future
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<PAGE> 21
periods are likely to be affected by continued competitive pricing pressures,
the effects of currency translations and by the expected continuing
unfavorable economic conditions in the region.
ASIA TIRE
- ---------
In Asia, sales in the second quarter of 1999 were $148.8 million,
increasing 26.5% from $117.6 million in the 1998 period. In the six months,
sales of $289.8 million increased 23.6% from $234.4 million in 1998.
Unit sales in the 1999 quarter increased 15.9% from the 1998 period.
Replacement unit sales increased 4.5% and original equipment volume increased
113.8%. Unit sales in the six months increased 15.7%.
Revenues in the quarter and six months increased due primarily to higher
tire unit sales, but continued to be affected by competitive pricing pressures.
EBIT in Asia was $7.8 million in the second quarter of 1999, increasing
62.5% from $4.8 million in the 1998 quarter. Operating margin was 5.2%, compared
to 4.1% in 1998.
In the six months, EBIT in Asia was $11.4 million, increasing 46.2% from
$7.8 million in 1998. Operating margin was 3.9%, compared to 3.3% in 1998.
EBIT increased in the quarter and six months due primarily to higher tire
unit sales.
EBIT in 1999 did not include first quarter rationalization charges totaling
$1.5 million.
The Company anticipates continued fluctuations in the value of the U.S.
dollar relative to Asian currencies. Revenues and EBIT in the Asia Tire segment
in future periods are likely to be affected by economic conditions in the
region, continued competitive pricing pressures and by the effects of currency
translations.
Sales and EBIT of the Asia Tire segment reflect the results of the
Company's majority-owned tire business in the region. In addition, the Company
owns a 50% interest in South Pacific Tyres Ltd. (SPT), the largest tire
manufacturer, marketer and exporter in Australia and New Zealand. Results of
operations of SPT are not reported in segment results, and are reflected in the
Company's Consolidated Statement of Income using the equity method.
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<PAGE> 22
The following table presents the sales and EBIT of the Company's Asia Tire
segment together with 100% of the sales and operating income of SPT:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(In millions) JUNE 30, JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES:
Asia Tire $148.8 $117.6 $289.8 $234.4
SPT 176.5 162.1 331.1 323.6
------ ------ ------ ------
$325.3 $279.7 $620.9 $558.0
====== ====== ====== ======
EBIT:
Asia Tire $ 7.8 $ 4.8 $ 11.4 $ 7.8
SPT 10.4 13.8 19.2 23.0
------ ------ ------ ------
$ 18.2 $ 18.6 $ 30.6 $ 30.8
====== ====== ====== ======
</TABLE>
ENGINEERED PRODUCTS
- -------------------
Sales in Engineered Products in the second quarter of 1999 were $328.7
million, decreasing slightly from $329.9 million in the 1998 period. In the six
months, sales of $637.4 million decreased 3.2% from $658.6 million in 1998.
EBIT in Engineered Products was $30.8 million in the second quarter of
1999, decreasing 10.7% from $34.5 million in the 1998 quarter. Operating margin
was 9.4%, compared to 10.5% in 1998.
In the six months, EBIT in Engineered Products was $51.3 million,
decreasing 24.1% from $67.6 million in 1998. Operating margin was 8.0%, compared
to 10.3% in 1998.
Revenues and EBIT decreased in the quarter and six months due primarily to
lower unit sales resulting from reduced demand, adverse economic conditions and
unfavorable currency translations in Latin America and increased costs resulting
from lower production levels associated with programs to realign capacity and
reduce inventory.
Revenues and EBIT in the Engineered Products segment in future periods are
likely to be adversely affected by the expected continuing unfavorable economic
conditions in Brazil.
EBIT in 1999 did not include rationalization charges totaling $8.8 million.
EBIT in 1998 did not include a second quarter charge for a lawsuit settlement
totaling $1.8 million.
CHEMICAL PRODUCTS
- -----------------
Sales in Chemical Products in the second quarter of 1999 were $223.2
million, decreasing 8.5% from $244.0 million in the 1998 period. In the six
months, sales of $451.6 million decreased 10.5%
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<PAGE> 23
from $504.7 million in 1998.
EBIT in Chemical Products was $30.2 million in the second quarter of 1999,
decreasing 25.6% from $40.6 million in the 1998 quarter. Operating margin was
13.5%, compared to 16.6% in 1998.
In the six months, EBIT in Chemical Products was $58.9 million, decreasing
21.4% from $74.9 million in 1998. Operating margin was 13.0%, compared to 14.8%
in 1998.
Revenues and EBIT decreased in the quarter and six months due to reduced
unit volume, competitive pricing pressures and the absence of sales produced by
the Calhoun, Georgia latex processing facility that was sold in March 1998.
EBIT in 1999 did not include a first quarter rationalization charge of $3.1
million. EBIT in 1998 did not include the first quarter gain of $61.1 million on
the sale of the Calhoun, Georgia latex processing facility.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net cash provided by operating activities was $206.7 million during the
first six months of 1999, as reported on the Consolidated Statement of Cash
Flows. Inventories decreased, although working capital requirements increased
for accounts receivable.
Net cash used in investing activities was $380.8 million during the first
six months of 1999. Capital expenditures were $353.4 million, primarily for
plant modernizations and expansions and new tire molds.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(In millions) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Capital Expenditures $204.6 $172.4 $353.4 $290.7
Depreciation 119.9 116.1 253.4 230.4
</TABLE>
Investing activities in 1998 included the sale of the Calhoun, Georgia
latex processing facility and the acquisition of the remaining minority shares
of the tire and engineered products manufacturing and distribution subsidiary in
South Africa.
Net cash provided by financing activities was $243.5 million during the
first six months of 1999, which was used primarily to support the previously
mentioned investing activities.
<TABLE>
<CAPTION>
(Dollars in millions) 6/30/99 12/31/98 6/30/98
------- -------- -------
<S> <C> <C> <C>
Consolidated Debt $2,223.4 $1,975.8 $1,975.1
Debt to Debt and Equity 38.1% 34.5% 35.6%
</TABLE>
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<PAGE> 24
In connection with the Company's planned strategic alliance
with Sumitomo Rubber Industries, Ltd., on February 25, 1999 the Company issued
to Sumitomo at par a 1.2% Convertible Note Due August 16, 2000 in the principal
amount of Yen13,073,070,934 (equivalent to $108.2 million at June 30, 1999). The
Company's Note is convertible, if not earlier redeemed, during the period
beginning July 16, 2000 through August 15, 2000 into 2,281,115 shares of the
Common Stock, without par value, of the Company at a conversion price of
Yen5,731 per share, subject to certain adjustments. Consolidated Debt and Debt
to Debt and Equity as stated above do not reflect the issuance of the Company's
1.2% Convertible Note.
In addition, on February 25, 1999 the Company purchased at par from
Sumitomo a 1.2% Convertible Note Due August 16, 2000 in the principal amount of
Yen13,073,070,934 (also equivalent to $108.2 million at June 30, 1999. The
Sumitomo Note is convertible, if not earlier redeemed, during the period
beginning July 16, 2000 through August 15, 2000 into 24,254,306 shares of the
Common Stock, Yen50 par value per share, of Sumitomo at a conversion price of
Yen539 per share, subject to certain adjustments. Upon conversion of the
Sumitomo Note into Sumitomo Common Stock, the Company would own 10% of
Sumitomo's outstanding shares. The Company accounts for the Sumitomo note as an
available-for-sale equity instrument. The fair value of the note at June 30,
1999 was $169.6 million. For further information, refer to the note to the
financial statements, Investments and Noncash Investing and Financing
Activities.
On June 14, 1999, the Company entered into a definitive general agreement
and several other agreements relating to the formation and operation of a
strategic global alliance with Sumitomo. Under the terms of these alliance
agreements, the Company will pay approximately $936 million to Sumitomo at the
closing, which is expected to occur on September 1, 1999 or as soon thereafter
as practicable. In the general alliance agreement, each party agreed that it
will not redeem its convertible note if the joint ventures contemplated by the
global alliance have been formed by, and are operating on, July 1, 2000.
Substantial short term and long term credit sources are available to the
Company globally under normal commercial practices. At June 30, 1999, the
Company had short term uncommitted credit arrangements totaling $1.8 billion, of
which $.5 billion were unused. The Company also had available long term credit
arrangements at June 30, 1999 totaling $2.1 billion, of which $1.0 billion were
unused.
Funds generated by operations, together with funds available under existing
credit arrangements, are expected to exceed the Company's currently anticipated
funding requirements for operations. The Company expects to fund the
approximately $936 million of cash payments to Sumitomo due at the closing by
issuing additional debt.
-23-
<PAGE> 25
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
INTEREST RATE RISK
- ------------------
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 June 30, 1999, the interest rate on 48% of the Company's
debt was fixed by either the nature of the obligation or through the interest
rate contracts, compared to 55% at December 31, 1998 and 51% at June 30, 1998.
The following table presents interest rate contract information at June 30:
(Dollars in millions)
<TABLE>
<CAPTION>
Interest Rate Contracts 1999 1998
- ----------------------- ---- ----
<S> <C> <C>
Notional principal amount $100.0 $100.0
Pay fixed rate 6.17% 6.17%
Receive variable LIBOR 5.07% 5.74%
Average years to maturity 1.6 2.6
Fair value - liability $ .4 $ .7
Carrying amount - liability .2 .1
Pro forma fair value - liability 1.2 2.1
</TABLE>
The pro forma fair value assumes a 10% decrease in variable market interest
rates at June 30, 1999 and 1998, respectively, and reflects the estimated fair
value of contracts outstanding at that date under that assumption.
Weighted average interest rate contract information follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Dollars in millions) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Notional principal $100.0 $100.0 $100.0 $100.0
Pay fixed rate 6.17% 6.17% 6.17% 6.62%
Receive variable LIBOR 5.05 5.76 5.09 5.77
</TABLE>
-24-
<PAGE> 26
The following table presents fixed rate debt information at June 30:
(In millions)
<TABLE>
<CAPTION>
Fixed Rate Debt 1999 1998
- --------------- ---- ----
<S> <C> <C>
Fair value - liability $930.7 $837.9
Carrying amount - liability 931.1 809.3
Pro forma fair value - liability 980.5 894.0
</TABLE>
The pro forma fair value assumes a 100 basis point decrease in market
interest rates at June 30, 1999 and 1998, respectively, and reflects the
estimated fair value of fixed rate debt outstanding at that date under that
assumption.
The sensitivity to changes in interest rates of the Company's interest rate
contracts and fixed rate debt was determined with a valuation model based upon
net modified duration analysis. The model assumes a parallel shift in the yield
curve, and the precision of the model decreases as the assumed change in
interest rates increases.
FOREIGN CURRENCY EXCHANGE RISK
- ------------------------------
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 foreign currency forward exchange
contracts at June 30, 1999 and 1998. 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, intercompany loans and the Company's Swiss franc debt.
The contract maturities match the maturities of the currency positions. Changes
in the fair value of forward exchange contracts are substantially offset by
changes in the fair value of the hedged positions.
The following table presents foreign exchange contract information at June
30:
<TABLE>
<CAPTION>
(In millions) 1999 1998
----- -----
<S> <C> <C>
Fair value - favorable $58.9 $66.8
Carrying amount - asset 63.4 71.6
Pro forma change in fair value 11.5 14.6
</TABLE>
The pro forma change in fair value assumes a 10% change in foreign exchange
rates at June 30, 1999 and 1998, respectively, and reflects the estimated change
in the fair value of contracts outstanding at that date under that assumption.
The sensitivity to changes in exchange rates of the Company's foreign currency
positions was determined using current market pricing models.
-25-
<PAGE> 27
FORWARD-LOOKING INFORMATION - SAFE HARBOR STATEMENT
---------------------------------------------------
Certain information set forth herein (other than historical data and
information) may constitute forward-looking statements regarding events and
trends that may affect the Company's future operating results and financial
position. The words "estimate," "expect," "intend" and "project," as well as
other words or expressions of similar meaning, are intended to identify
forward-looking statements. Readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the date of this quarterly
report. Such statements are based on current expectations, are inherently
uncertain, are subject to risks and should be viewed with caution. Actual
results and experience may differ materially from the forward-looking statements
as a result of many factors, including: changes in economic conditions in the
various markets served by the Company's operations; increased competitive
activity; fluctuations in the prices paid for raw materials and energy; changes
in the monetary policies of various countries where the Company has significant
operations; and other unanticipated events and conditions. It is not possible to
foresee or identify all such factors. The Company makes no commitment to update
any forward-looking statement, or to disclose any facts, events or circumstances
after the date hereof that may affect the accuracy of any forward-looking
statement.
-26-
<PAGE> 28
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------- ----------------------------------------------------
The Annual Meeting of Shareholders of The Goodyear Tire & Rubber Company
(the "Company") was held on April 12, 1999 (the "Annual Meeting"). Proxies for
the Annual Meeting were solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Act"). There was no
solicitation in opposition to the four nominees of the Board of Directors listed
in the Proxy Statement of the Company, dated February 26, 1999, for the Annual
Meeting (the "Proxy Statement"), filed with the Securities and Exchange
Commission, and said four nominees were elected.
The following matters were acted upon by the shareholders of the Company
at the Annual Meeting, at which 136,284,023 shares of the Common Stock, without
par value, of the Company (the "Common Stock", the only class of voting
securities of the Company outstanding), or approximately 87.369 percent of the
155,987,453 shares of Common Stock outstanding and entitled to vote at the
Annual Meeting, were present in person or by proxies:
1. ELECTION OF DIRECTORS. Four persons were nominated by the Board of
Directors of the Company for election as directors of the Company. Samir G.
Gibara, William J. Hudson, Jr., William C. Turner and Martin D. Walker were
nominated as Class 1 directors, each to hold office for a three year term
expiring at the 2002 Annual Meeting of Shareholders and until his successor
shall have been duly elected and qualified. Each nominee was an incumbent
director. No other person was nominated. Each nominee was elected. The votes
cast for, or withheld or abstained with respect to, each nominee were as
follows:
Shares of Common Shares of Common Stock
Name of Director Stock Voted For Withheld or Abstained
---------------- --------------- ---------------------
Samir G. Gibara 134,069,553 2,214,470
William J. Hudson, Jr. 134,146,986 2,137,037
William C. Turner 134,148,476 2,135,547
Martin D. Walker 134,169,331 2,114,692
The seven directors whose terms of office continue after the Annual Meeting are:
(A) Thomas H. Cruikshank, Katherine G. Farley, Steven A. Minter and Agnar Pytte,
whose terms expire in 2000; and (B) John G. Breen, William E. Butler and George
H. Schofield, whose terms expire in 2001.
-27-
<PAGE> 29
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS. A resolution
proposed by the Board of Directors of the Company that the shareholders ratify
the action of the Board of Directors in selecting and appointing
PricewaterhouseCoopers LLP as independent accountants for the Company for the
year ending December 31, 1999 was submitted to, and voted upon by, the
shareholders of the Company. There were 134,165,096 shares of Common Stock voted
in favor of and 490,314 shares of Common Stock voted against, said resolution.
The holders of 628,613 shares of Common Stock abstained. There were no "broker
non-votes". The resolution, having received the affirmative vote of the holders
of a majority of the shares of Common Stock outstanding and entitled to vote at
the Annual Meeting, was adopted and, therefore, the appointment of
PricewaterhouseCoopers LLP as the independent accountants for the Company for
1999 was ratified by the shareholders.
[The information set forth above in this Item 4 was also set forth at Item 4 of
Part II of the Company's Quarterly Report on Form 10-Q for its fiscal quarter
ended March 31, 1999.]
ITEM 5. OTHER INFORMATION.
- ------- ------------------
GLOBAL ALLIANCE. As previously reported at Item 1 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1998 (the "10-K")
under the caption "1999 Developments" and the subheading "Global Alliance", at
pages 2 and 3 of the 10-K, the Company entered into a Memorandum of
Understanding with Sumitomo Rubber Industries, Ltd. ("Sumitomo") regarding the
formation of a strategic global alliance for the manufacture, distribution and
sale of tires.
On June 14, 1999, the Company entered into a definitive general
agreement and various other agreements with Sumitomo relating to the formation
and operation of the strategic global alliance (the "Alliance Agreements"). The
Alliance Agreements provide, among other things, that the Company and Sumitomo
will establish and operate tire manufacturing and sales joint ventures in Europe
and North America, tire sales joint ventures in Japan and global technology and
purchasing joint ventures. The joint ventures are expected to be formed and
operating by September 1, 1999 or as soon thereafter as practicable.
Under the terms of the Alliance Agreements, the Company will own 75%,
and Sumitomo will own 25%, of a holding company in Europe that will own
substantially all of Sumitomo's tire businesses in Europe, which include eight
tire manufacturing plants located in England, France and Germany and sales and
distribution operations in 18 European countries, and the Company's tire
businesses in Europe, excluding the Company's European aircraft tire business
and the Company's tire businesses in Poland (other than a sales company),
Slovenia and Turkey (as well as in Morocco and South Africa) and excluding the
Company's textile, steel tire cord and tire mold manufacturing plants and
technical center and related facilities located in Luxembourg. The Company will
own 75% of a holding company that will own Sumitomo's tire manufacturing
operations in North America and certain of its related tire sales and
distribution operations. The Company will also acquire 100% of the balance of
Sumitomo's tire distribution and sales operations in the United States and
Canada. The Company will also acquire a 25% equity interest in each of two tire
-28-
<PAGE> 30
companies in Japan, one for the distribution and sale of Goodyear-brand
passenger and truck tires in the replacement market in Japan and the other for
the distribution and sale of Goodyear-brand and Dunlop-brand tires to original
equipment manufacturers in Japan. The Company will also own 51% (and Sumitomo
will own 49%) of a company that will coordinate and disseminate commercialized
tire technology among the Company, Sumitomo, the joint ventures and their
respective affiliates and the Company will own 80% (and Sumitomo will own 20%)
of a global purchasing company. Under the terms of the Alliance Agreements, at
closing (which is expected to occur on September 1, 1999 or as soon as
practicable thereafter) the Company will make cash payments to Sumitomo
aggregating approximately $936 million, subject to certain adjustments. The
payments are expected to be financed by the issuance of additional debt.
Assuming the global alliance with Sumitomo is completed during 1999 and
assuming the businesses to be included by Sumitomo in the European and North
American joint ventures generate sales in 2000 as a part of the joint ventures
equal to the sales those business generated in 1998, it is estimated that the
global alliance with Sumitomo will contribute approximately $2.5 billion to
Goodyear's consolidated net sales in 2000. Goodyear also expects that completing
the global alliance with Sumitomo will result in Goodyear being the largest
company in the tire industry in terms of annual unit tire sales and annual
revenues from tire sales.
On February 25, 1999, the Company purchased at par from Sumitomo a 1.2%
Convertible Note Due August 16, 2000 in the principal amount of
Yen13,073,070,934, which is convertible, if not earlier redeemed, beginning July
16, 2000 into shares of the common stock, Yen50 par value per share, of Sumitomo
at a conversion price of Yen539 per share, subject to certain adjustments. Upon
conversion of the Sumitomo note into Sumitomo common stock, the Company would
own 10% of Sumitomo's outstanding shares. On February 25, 1999, the Company
issued at par its 1.2% Convertible Note Due August 16, 2000 in the principal
amount of Yen13,073,070,934 which is convertible, if not earlier redeemed,
beginning July 16, 2000 into 2,281,115 shares of the Common Stock, without par
value, of the Company at a conversion price of Yen5,731 per share, subject to
certain adjustments. In the general Alliance Agreement, each party agreed that
it will not redeem its convertible note if the joint ventures contemplated by
the Alliance Agreements have been formed by, and are operating on, July 1, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------- ---------------------------------
(a) EXHIBITS. See the Index of Exhibits at page E-1, which is by
specific reference incorporated into and made a part of this Quarterly Report on
Form l0-Q.
(b) REPORTS ON FORM 8-K. No Current Report on Form 8-K was filed by The
Goodyear Tire & Rubber Company during the quarter ended June 30, 1999.
-29-
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE GOODYEAR TIRE & RUBBER COMPANY
(Registrant)
Date: August 10, 1999 By /s/ John W Richardson
----------------------------------------
John W Richardson, Vice President
(Signing on behalf of Registrant as a duly
authorized officer of Registrant and signing as
the Principal Accounting Officer of Registrant.)
-30-
<PAGE> 32
THE GOODYEAR TIRE & RUBBER COMPANY
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 1999
INDEX OF EXHIBITS (1)
EXHIBIT EXHIBIT
------- -------
Table Item No. * Description of Exhibit Number Page
- ---------------- ---------------------- ------ ----
3 ARTICLES OF INCORPORATION AND BY-LAWS
-------------------------------------
(a) Certificate of Amended Articles
of Incorporation of The Goodyear Tire
& Rubber Company (the "Registrant"),
dated December 20, 1954, and
Certificate of Amendment to Amended
Articles of Incorporation of
Registrant, 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
(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, as amended
April 5, 1965, April 7, 1980, April
6, 1981 and April 13, 1987
(incorporated by reference, filed as
Exhibit 4.1(B) to Registrant's
Registration Statement on Form S-3,
File No. 333-1995).
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).
- -----------
*Pursuant to Item 601 of Regulation S-K.
E-1
<PAGE> 33
EXHIBIT EXHIBIT
------- -------
Table Item No. * Description of Exhibit Number Page
- ---------------- ---------------------- ------ ----
4 (b) Specimen nondenominational
Certificate for shares of the Common
Stock, Without Par Value, of
Registrant; 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).
(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 (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) Conformed copy of First Amendment
to Replacement and Restatement
Agreement, dated as of March 31,
1997, among Registrant, the Lenders
named therein and The Chase Manhattan
Bank (formerly Chemical Bank), as
Agent (incorporated by reference,
filed as Exhibit 4.5 to Registrant's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, File No.
1-1927).
(f) Form of Indenture, dated as of
March 15, 1996, between Registrant
and Chemical Bank (now The Chase
Manhattan Bank), as Trustee, as
supplemented on December 3, 1996,
March 11, 1998 and March 17, 1998
(incorporated by reference, filed as
Exhibit 4.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter
ended March 31, 1998, File No.
1-1927).
- -----------
*Pursuant to Item 601 of Regulation S-K.
E-2
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
------- -------
Table Item No. * Description of Exhibit Number Page
- ---------------- ---------------------- ------ ----
<S> <C> <C> <C>
4 (g) Conformed copy of Second
Replacement and Restatement Agreement
dated as of July 13, 1998, among
Registrant, the Lenders named therein
and The Chase Manhattan Bank, as
Agent (incorporated by reference,
filed with the Securities and
Exchange Commission as Exhibit 4 to
Registrant's Quarterly Report on Form
10-Q for the quarter ended September
30, 1998, File No. 1- 1927).
(h) Form of Indenture, dated as of
March 1, 1999, between Registrant and
The Chase Manhattan Bank, as Trustee
(incorporated by reference, filed as
Exhibit 4.2, with Amendment No. 1, to
Registrant's Registration Statement
on Form S-3, File No. 333-67145).
No other instrument defining the
rights of holders of long-term debt
which relates to securities having an
aggregate principal amount in excess
of 10% of the consolidated assets of
Registrant and its subsidiaries was
entered into during the quarter ended
June 30, 1999. In accordance with
paragraph (iii) to Part 4 of Item 601
of Regulation S-K, agreements and
instruments defining the rights of
holders of certain items of long term
debt entered into during the quarter
ended June 30, 1999 which relate to
securities having an aggregate
principal amount less than 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
agreements or instruments to the
Securities and Exchange Commission
upon request.
10 MATERIAL CONTRACTS
-------------------------------------
(a) Umbrella Agreement, dated as of June 10.1 X-10.1-1
14, 1999, between Registrant and
Sumitomo Rubber Industries, Ltd.
12 STATEMENT RE COMPUTATION OF RATIOS
-------------------------------------
Statement setting forth the 12 X-12-1
computation of Ratio of Earnings to
Fixed Charges.
</TABLE>
- -----------
*Pursuant to Item 601 of Regulation S-K.
E-3
<PAGE> 35
EXHIBIT EXHIBIT
------- -------
Table Item No. * Description of Exhibit Number Page
- ---------------- ---------------------- ------ ----
27 FINANCIAL DATA SCHEDULE
-------------------------------------
(a) Financial Data Schedule for 27 X-27-1
quarter ended June 30, 1999.
- -----------
*Pursuant to Item 601 of Regulation S-K.
E-4
<PAGE> 1
EXHIBIT 10.1
CONFORMED COPY
UMBRELLA AGREEMENT
DATED AS OF JUNE 14, 1999
BY AND BETWEEN
THE GOODYEAR TIRE & RUBBER COMPANY
AND
SUMITOMO RUBBER INDUSTRIES, LTD.
X-10.1-1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
ARTICLE I
DEFINITIONS
-----------
<S> <C> <C>
Article 1.01 Definitions ........................................... 2
Article 1.02 Definitions Can be Substantive ........................ 15
Article 1.03 Definitions Not in Article I .......................... 15
Article 1.04 Non-Working Day Performance ........................... 15
Article 1.05 Calculation of Day Periods ............................ 15
ARTICLE II
STRUCTURE OF THE ALLIANCE
-------------------------
Article 2.01 Unitary Nature of Alliance ............................ 15
Article 2.02 Europe JVC ............................................ 16
Article 2.03 North America JVC ..................................... 16
Article 2.04 North America Purchase Agreements ..................... 16
Article 2.05 Japan OE JVC .......................................... 16
Article 2.06 Japan Replacement JVC ................................. 16
Article 2.07 Global Technology Sharing ............................. 16
Article 2.08 Global Purchasing JVC ................................. 17
Article 2.09 Cross Investment ...................................... 17
ARTICLE III
FINANCIAL MATTERS
-----------------
Article 3.01 Closing Balance Sheets ................................ 17
</TABLE>
X-10.1-2
<PAGE> 3
Article 3.02 Working Capital Adjustment ............................ 18
Article 3.03 Zero Debt and Zero Cash Arrangements .................. 28
Article 3.04 Indemnities for Tax Arising Out of Goodyear
and SRI Reorganizations ............................... 31
Article 3.05 Capital Contributions and Cash Payments ............... 33
ARTICLE IV
COVENANTS OF GOODYEAR AND SRI
-----------------------------
Article 4.01 Access to Data and Properties ......................... 33
Article 4.02 Consents; Nonassignability of Approvals ............... 34
Article 4.03 Ordinary Course of Business ........................... 35
Article 4.04 Schedules, Representations and Warranties
Repeated .............................................. 35
Article 4.05 Announcements and Confidentiality ..................... 36
Article 4.06 Preservation of and Access to Books and Records ....... 38
Article 4.07 Cooperation ........................................... 39
Article 4.08 Exclusivity ........................................... 39
Article 4.09 Related Party Agreements .............................. 40
ARTICLE V
CLOSING
-------
Article 5.01 Closing ............................................... 40
Article 5.02 Transfers Under the JV Agreements ..................... 41
Article 5.03 Other Agreements and Documents ........................ 41
Article 5.04 Delivery of Common Stock .............................. 42
.
Article 5.05 Notarial Deeds ........................................ 42
Article 5.06 Further Assurances .................................... 42
ii
X-10.1-3
<PAGE> 4
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF GOODYEAR
------------------------------------------
Article 6.01 Corporate Organization, etc. .......................... 43
Article 6.02 Authorization, etc. ................................... 43
Article 6.03 No Violation .......................................... 43
Article 6.04 Compliance with Law, etc. ............................. 44
Article 6.05 Capital Stock ......................................... 44
Article 6.06 Undisclosed Liabilities, etc. ......................... 44
Article 6.07 Broker's and Finder's Fees ............................ 45
Article 6.08 Financing ............................................. 45
Article 6.09 Projections and Forecasts ............................. 45
Article 6.10 Not Aware of Breaches ................................. 45
Article 6.11 Exclusivity of Representations ........................ 46
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF SRI
-------------------------------------
Article 7.01 Corporate Organization, etc. .......................... 46
Article 7.02 Authorization, etc. ................................... 46
Article 7.03 No Violation .......................................... 47
Article 7.04 Compliance with Law, etc .............................. 47
Article 7.05 Capital Stock ......................................... 48
Article 7.06 Undisclosed Liabilities, etc. ......................... 48
Article 7.07 Broker's and Finder's Fees ............................ 48
Article 7.08 Projections and Forecasts ............................. 48
Article 7.09 Not Aware of Breaches ................................. 49
iii
X-10.1-4
<PAGE> 5
Article 7.10 Exclusivity of Representations ........................ 49
ARTICLE VIII
CONDITIONS TO GOODYEAR'S OBLIGATIONS
------------------------------------
Article 8.01 Representations and Warranties True ................... 49
Article 8.02 Performance ........................................... 50
Article 8.03 Certificates .......................................... 50
Article 8.04 Governmental Approvals ................................ 50
Article 8.05 No Injunction ......................................... 52
Article 8.06 No Government Proceeding or Litigation ................ 52
Article 8.07 Adequate Assurances ................................... 53
Article 8.08 Labor Matters ......................................... 53
Article 8.09 Initial Sales Plan .................................... 53
Article 8.10 No Material Adverse Change ............................ 53
ARTICLE IX
CONDITIONS TO SRI'S OBLIGATIONS
-------------------------------
Article 9.01 Representations and Warranties True ................... 54
Article 9.02 Performance ........................................... 54
Article 9.03 Certificates .......................................... 55
Article 9.04 Governmental Approvals ................................ 55
Article 9.05 No Injunction ......................................... 56
Article 9.06 No Government Proceeding or Litigation ................ 57
Article 9.07 Adequate Assurances ................................... 57
Article 9.08 Labor Matters ......................................... 57
Article 9.09 Initial Sales Plan .................................... 57
iv
X-10.1-5
<PAGE> 6
Article 9.10 No Material Adverse Change ............................ 58
ARTICLE X
CROSS INVESTMENTS
-----------------
Article 10.01 No Redemption of Notes ................................ 58
Article 10.02 Maintenance of Cross Investments ...................... 58
Article 10.03 Goodyear Right to Nominate SRI Director ............... 61
ARTICLE XI
GLOBAL OE CUSTOMER RELATIONS
----------------------------
Article 11.01 Global Management of Relationships with
Japan Original Equipment Manufacturers ................ 62
Article 11.02 Global Management of Relationships with
Non-Japan Original Equipment
Manufacturers ......................................... 63
Article 11.03 Expenses of Global OEM Relationship ................... 64
Article 11.04 Future Developments ................................... 64
ARTICLE XII
SALES OF SUMITOMO BRAND TIRES
-----------------------------
Article 12 Sales of Sumitomo Brand Tires ......................... 64
ARTICLE XIII
MONITORING THE ALLIANCE AND CONTINUING COOPERATION
--------------------------------------------------
Article 13.01 Top Level Meetings and Continuing Cooperation ......... 65
Article 13.02 Cooperation on Trademark Matters ...................... 65
v
X-10.1-6
<PAGE> 7
ARTICLE XIV
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
------------------------------------------
Article 14 Survival of Representations and Warranties ............ 66
ARTICLE XV
INDEMNIFICATION
---------------
Article 15.01 Agreements to Indemnify ............................... 67
Article 15.02 Claims and Damages .................................... 68
Article 15.03 Method of Asserting Claims, etc. ...................... 73
Article 15.04 Consequential and Punitive Damages .................... 75
Article 15.05 Third-Party Beneficiaries ............................. 76
Article 15.06 Other Matters ......................................... 76
ARTICLE XVI
SETTLEMENT OF DISPUTES
----------------------
Article 16.01 Informal Dispute Resolution ........................... 76
Article 16.02 Arbitration ........................................... 77
ARTICLE XVII
EXIT EVENTS AND TERMINATION OF THE ALLIANCE
-------------------------------------------
Article 17.01 Exit Events ........................................... 78
Article 17.02 Suspension of Exit Rights ............................. 81
Article 17.03 Exercise of Global Exit Rights ........................ 81
Article 17.04 Exercise of Regional Exit Right ....................... 85
Article 17.05 Effect of Exercise of Global Exit Right ............... 88
Article 17.06 Liquidated Damages in Certain Events .................. 95
vi
X-10.1-7
<PAGE> 8
ARTICLE XVIII
MISCELLANEOUS PROVISIONS
------------------------
Article 18.01 Amendments ............................................ 95
Article 18.02 Waivers ............................................... 96
Article 18.03 Assignability ......................................... 96
Article 18.04 Severability .......................................... 96
Article 18.05 Notices ............................................... 96
Article 18.06 Set-Off ............................................... 97
Article 18.07 Governing Law ......................................... 98
Article 18.08 Termination Prior to Closing .......................... 98
Article 18.09 Entire Agreement ...................................... 100
Article 18.10 Third Parties ......................................... 100
Article 18.11 Costs and Taxes ....................................... 100
Article 18.12 Remedies .............................................. 101
Article 18.13 Titles to Articles and Subparts ....................... 101
Article 18.14 Counterparts .......................................... 102
Article 18.15 Singular and Plural; Gender ........................... 102
vii
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<PAGE> 9
SCHEDULES AND EXHIBITS TO
UMBRELLA AGREEMENT
SCHEDULES
Article
Number Subject Reference
- ------ ------- ---------
6.04 Compliance with law, etc. by Goodyear 6.04
6.06 Undisclosed Liabilities, etc. by Goodyear 6.06
7.04 Compliance with law, etc. by SRI 7.04
7.06 Undisclosed liabilities, etc. by SRI 7.06
8.04(d) Governmental approvals (Goodyear) 8.04(d)
8.09 Initial Sales Plan 8.09,9.09
9.04(d) Governmental approvals (SRI) 9.04(d)
15.02(c)(i) Matters for which SRI shall indemnify 15.02(c)(i)
Goodyear and any JVC
15.02(c)(ii) Matters for which Goodyear 15.02(c)(ii)
shall indemnify SRI and any
JVC
viii
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<PAGE> 10
EXHIBITS
Article
Number Subject Reference
- ------ ------- ---------
5.03(a)(1)-(9) Forms of Trademark License Agreements 5.03(a)
5.03(d)(i)-(v) Forms of Technology License Agreements 5.03(d)
8.03 Certificate of Officers of SRI 8.03
9.03 Certificate of Officers of Goodyear 9.03
ix
X-10.1-10
<PAGE> 11
This Umbrella Agreement dated as of June 14, 1999 (the "Agreement") by
and between Sumitomo Rubber Industries, Ltd., a company organized under the laws
of Japan, having its principal office at 6-9, 3-Chome, Wakinohama-cho, Chuo-ku,
Kobe 651-0072, Japan ("SRI") and The Goodyear Tire & Rubber Company, a company
organized under the laws of the State of Ohio, United States of America, having
its principal office at 1144 East Market Street, Akron, Ohio 44316-0001, United
States of America ("Goodyear").
WITNESSETH:
WHEREAS, Goodyear and SRI are respectively engaged in many countries of
the world in the manufacture, distribution and sale of tires and, in France, air
springs, for various transportation markets, together, in the case of Goodyear,
with Extended Products and Extended Services (the "Business") and in certain
other rubber and polymer-related businesses;
WHEREAS, Goodyear and SRI desire to form a strategic alliance in the
Business (the "Alliance"), all as more fully set out herein and in the other
agreements regarding the Alliance, some of which are Exhibits to the Agreement;
WHEREAS, the Alliance will include the creation of joint venture
companies in Europe, Japan and North America, arrangements and a company for
technology exchange, arrangements and a company for joint purchasing and the
investment by each Party in the common stock of the other;
WHEREAS, the Parties expect that these joint venture companies will be
able to realize synergies and efficiencies from the integration and merger of
their operations and that combining global purchasing, global technology sharing
and regional operations will enable the Parties, the joint venture companies and
their Affiliates to produce and more widely distribute a broad variety of lower
cost, higher quality products than otherwise possible; and
WHEREAS, the Parties therefore expect that the joint venture companies
will be able to compete more effectively and efficiently and improve
performance, and that lower costs, with the resultant enhancement of the brands
owned by Goodyear and the brands owned by SRI, will create benefits for
shareholders, associates/employees, customers and suppliers;
X-10.1-11
<PAGE> 12
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
ARTICLE I
DEFINITIONS
-----------
1.01 DEFINITIONS. In the Agreement the following terms shall, unless the context
otherwise requires, have the following respective meanings:
"Affiliate" shall mean, with respect to any specified Person,
any Person that, directly or indirectly, controls, is controlled by or is under
direct or indirect common control with, such specified Person; provided that the
term "Affiliate" as used herein and in the other Alliance Agreements, shall not
include any direct or indirect shareholder of Goodyear or SRI or other Persons
controlled by those shareholders, unless such shareholders or other Persons are
expressly included. For this purpose, the term control (including its use in the
terms "controlled by" and "under direct or indirect common control with") shall
mean the ownership, directly or indirectly, of more than fifty percent (50%) of
the voting securities of such Person. The term "Affiliate" when used in
conjunction with Goodyear and its Affiliates shall also include South Pacific
Tyres, in which Goodyear has a fifty percent (50%) interest, provided, however,
that the arrangements contemplated in the Alliance Agreements shall not result
in an amendment of the financial and other terms of any existing license
agreements between SRI (or its Affiliates) and Pacific Dunlop Limited (or its
Subsidiaries) relating to South Pacific Tyres or its subsidiaries with respect
to any product types or tread designs already in production in South Pacific
Tyres or its subsidiaries. The Parties agree that Nakata Engineering Co., Ltd.
is not included within the definition of "Affiliates" in the Alliance
Agreements, notwithstanding SRI's control thereof.
"Agreement" shall have the meaning specified in the
introductory paragraph hereof.
"Alliance" shall have the meaning specified in the second
whereas clause hereof.
-2-
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<PAGE> 13
"Alliance Agreements" means the Agreement, the Asset Purchase
Agreements, the JV Agreements, the Shareholders Agreements, the Purchasing JV
Agreement, the Technology JV Agreement, the Note Purchase Agreements and all
other agreements to be entered into pursuant hereto, some of which are Exhibits
hereto.
"Alliance JVCs" means the JVCs, the Global Technology JVC and
the Global Purchasing JVC, and their respective Affiliates controlled by such
JVC.
"Asset Purchase Agreements" means any of the North America JV
Agreement and the Replacement Sales Asset Agreement.
"Authority" means any international, national, federal, state,
local (or other political subdivisions) or foreign court, administrative agency
or governmental or regulatory authority or body.
"Bankruptcy" means, with respect to any Person, (i) the entry
of a decree or order for relief of such Person by a court of competent
jurisdiction in any involuntary case involving such Person under any bankruptcy,
insolvency or other similar law now or hereafter in effect; (ii) the appointment
of a receiver, liquidator, custodian, trustee, sequestrator or other similar
agent for such Person or for any substantial part of such Person's assets or
property; (iii) the ordering of the winding up or liquidation of such Person's
affairs; (iv) the filing with respect to such Person of a petition in any such
involuntary bankruptcy case, which petition remains undismissed for a period of
ninety (90) days; (v) the commencement by such Person of a voluntary case under
any bankruptcy, insolvency or other similar law now or hereafter in effect; or
(vi) the making by such Person of any general assignment for the benefit of
creditors.
"Burdensome Condition" means in connection with the grant of a
requisite Governmental Approval or otherwise, any action taken, or credibly
threatened, by an Authority to impose any condition or restriction upon a Party,
any of its Affiliates or any JV Company which would reasonably be expected to
either (i) have a Material Adverse Effect after the Closing Date on the Person
subject to the Burdensome Condition, (ii) materially and adversely affect the
ability of such Person to perform its obligations hereunder or under the other
Alliance
-3-
X-10.1-13
<PAGE> 14
Agreements to which it is a Party, or (iii) prevent such Person from realizing
the principal benefits of the Transactions contemplated by this Agreement and
the other Alliance Agreements.
"Business" shall have the meaning specified in the initial
whereas clause hereof.
"Closing" means the closing of the Transactions pursuant to
the terms of the Alliance Agreements, subject to the satisfaction or waiver of
all the conditions set forth therein.
"Closing Date" shall have the meaning specified in Article
5.01.
"Commercialized Technology" shall have the meaning specified
in the Technology JV Agreement.
"Constituent Documents" means articles of incorporation or
organization, memoranda of association or articles of association, by-laws,
operating agreements (in the case of an LLC) and/or other documents regarding
the establishment and governing of a corporation, limited liability company or
other entity.
"Conversion Period" shall have the meaning referred to in
Article 10.01 hereof.
"Damages" means all Liabilities, damages, penalties,
deficiencies, expenses, professionals' fees, losses, judgments or settlements
suffered by any Person, in each case after the application of any of the
following: (i) any amounts recovered under insurance contracts or similar
arrangements, but net of any corresponding premium adjustment; (ii) any amounts
recovered from third parties by the damaged Person; and (iii) any tax benefits
received as a direct result of such Liabilities, damages, penalties,
deficiencies, expenses, fees, losses, judgments or settlements.
-4-
X-10.1-14
<PAGE> 15
"Dispute" shall have the meaning specified in Article 16.01
hereof.
"DTC" means Dunlop Tire Corporation, a company organized under
the laws of the State of Delaware, United States of America, having its
principal office in Buffalo, New York.
"Dunlop Africa Limited Territories" shall have the meaning
specified in the Technology JV Agreement.
"DWS" shall have the meaning specified in Article 1.1 of the
Technology JV Agreement.
"Eastern Europe" shall have the meaning specified in the
Shareholders Agreement for the Europe JVC.
"EITF" means the Emerging Issues Task Force which is an
accounting standards setting organization operating under the auspices of the
Financial Accounting Standards Board and recognized by the Securities and
Exchange Commission as authorized to promulgate US GAAP.
"Encumbrance" means any lien, mortgage, charge, security
interest, pledge, voting agreement, option or encumbrance of any similar kind.
"Europe JV Agreement" means the Joint Venture Agreement for
Europe among SRI, Sumitomo Rubber Europe B.V., Goodyear and certain of its
Affiliates.
"Europe JVC" shall have the meaning specified in Article 2.02
hereof.
-5-
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<PAGE> 16
"European Territory" shall have the meaning specified in
Article 9.5 of the Shareholders Agreement for the Europe JVC.
"Exit" means a Global Exit or a Regional Exit.
"Expert" shall have the meaning specified in Article XVII.
"Extended Products" shall have the meaning specified in the
Trademark License Agreements.
"Extended Services" shall have the meaning specified in the
Trademark License Agreements.
"French Africa" shall have the meaning specified in the
Shareholders Agreement for the Europe JVC.
"Global Exit" shall have the meaning specified in Article
XVII.
"Global Exit Right" shall have the meaning specified in
Article XVII.
"Goodyear Business Assets" has the same meaning as such
definition under each of the JV Agreements.
"Goodyear Businesses" has the same meaning as such definition
under the JV Agreements.
"Goodyear European Trademarks" shall have the meaning
specified in the Trademark License Agreements between Goodyear and the
Affiliates of the Europe JVC.
-6-
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<PAGE> 17
"Goodyear Japan Trademarks" shall have the meaning specified
in the Trademark License Agreement between Goodyear and SRI for Japan.
"Goodyear North American Trademarks" shall have the meaning
specified in the Trademark License Agreement between Goodyear and the North
America JVC.
"Goodyear Note" means the 1.2% convertible Note due August 16,
2000 issued pursuant to the Goodyear Note Purchase Agreement.
"Goodyear Note Purchase Agreement" means the Note Purchase
Agreement, dated February 25, 1999, between Goodyear and SRI.
"Goodyear Primary Trademarks" shall have the meaning specified
in the relevant Trademark License Agreements.
"Goodyear Trademarks" means the Goodyear European Trademarks,
Goodyear North American Trademarks and the Goodyear Japan Trademarks as defined
in the Alliance Agreements.
"Governmental Approvals" shall mean the approvals referred to
in Articles 8.04 and 9.04 hereof.
"Greater European Territory" shall have the meaning specified
in the Shareholders Agreement for the Europe JVC.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
-7-
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<PAGE> 18
"IMS" shall have the meaning specified in Article 1.1 of the
Technology JV Agreement.
"Indemnified Party" means a Party making (or who may make) a
claim under Article XV hereof.
"Indemnifying Party" means a Party against whom a claim is (or
may be) made under Article XV hereof.
"Japan OE JV Agreement" means the Joint Venture Agreement for
the Japan OE JVC among SRI, Goodyear, Dunlop Japan Limited and Nippon Goodyear
KK.
"Japan OE JVC" shall have the meaning specified in Article
2.05 hereof.
"Japan-origin" in relation to an OEM means an original
equipment manufacturer which either (i) has the head office of its ultimate
parent company in Japan or (ii) originally had the head office of its ultimate
parent company in Japan, but control of which manufacturer has since passed to
another company. (For the avoidance of doubt, the term "Japan-origin Automotive
OEM" is intended to include, without limitation, such companies as Toyota,
Honda, Nissan, Mazda, Mitsubishi, Suzuki, Isuzu, Daihatsu, Fuji, Hino and Nissan
Diesel.)
"Japan Replacement JV Agreement" means the Joint Venture
Agreement for the Japan Replacement JVC among SRI, Goodyear and Nippon Goodyear
KK.
"Japan Replacement JVC" shall have the meaning specified in
Article 2.06 hereof.
-8-
X-10.1-18
<PAGE> 19
"Joint Venture Companies" or "JVCs" or "JV Companies" means
the Europe JVC, the Japan OE JVC, the Japan Replacement JVC and the North
America JVC, and the respective Affiliates controlled by such JVC.
"JV Agreement" means any of the agreements to be entered into
as of the date hereof between and among Goodyear and SRI and any of their
respective Affiliates providing for the organization and establishment of the
Europe JVC, the Japan OE JVC, the Japan Replacement JVC, or the North America
JVC, as the case may be.
"Liability" means any debt, obligation, commitment,
responsibility or liability, whether accrued or fixed, known or unknown,
contingent, absolute or otherwise, determined or undetermined and whenever
arising.
"Licensed Product" shall have the meaning or respective
meanings specified in the Trademark License Agreements.
"Material Adverse Effect" means a material adverse effect on
the assets, operations or financial condition of the Person or Persons
specified.
"Middle East Countries" shall have the meaning specified in
the Shareholders Agreement for the Europe JVC.
"Miscellaneous Countries" shall have the meaning specified in
the Shareholders Agreement for the Europe JVC.
"MOU" means the Memorandum of Understanding regarding an
Alliance between SRI and Goodyear dated February 3, 1999.
"1934 Act" means the United States Securities Exchange Act of
1934, as amended.
-9-
X-10.1-19
<PAGE> 20
"Non-Commercialized Technology" shall have the meaning
specified in the Technology JV Agreement.
"Non-Japan-origin OEM" means an original equipment
manufacturer that is not a Japan-origin OEM.
"Non-Voting Equity Capital" shall mean, in the case of the
Europe JVC, that portion of the Equity Capital (as such term is defined in the
Shareholders Agreement for the Europe JVC) as represented by class specific
share premium; in the case of the North America JVC, Non-Voting Membership
Interests, as such term is defined in the Operating Agreement for the North
America JVC; and in the case of the Japan OE JVC and the Japan Replacement JVC,
Non-Voting Shares, as such term is defined in the Shareholders Agreement for the
applicable JVC.
"North America JV Agreement means the Joint Venture Agreement
for North America among SRI, Goodyear, DTC and the North America JVC.
"North America JVC" shall have the meaning specified in
Article 2.03 hereof.
"North America Operating Agreement" means the Operating
Agreement for Goodyear Dunlop Tires North America, Ltd. among a newly
incorporated SRI Affiliate, Goodyear and the North America JVC.
"North American Territory" means the United States of America,
Canada and the United States of Mexico, and each of their territories and
possessions.
"Note Purchase Agreement" means the Goodyear Note Purchase
Agreement or the SRI Note Purchase Agreement, as the case may be.
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<PAGE> 21
"Part 6 Countries" shall have the meaning specified in the
Europe JV Agreement;
"Parties" means Goodyear and SRI and "Party" means either of
them.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint stock company, trust,
entity, incorporated organization or government.
"Process Technology" shall have the meaning specified in the
Technology JV Agreement.
"Projected Annual Dunlop Net Sales" shall have the meaning
specified in Article 17.05(b) hereof.
"Purchasing JV Agreement" means the Global Purchasing Joint
Venture and Shareholders Agreement among Goodyear, SRI and Goodyear-SRI Global
Purchasing Company.
"Regional Exit Right" shall have the meaning specified in
Article XVII.
"Replacement Sales Asset Purchase Agreement" means the
Replacement Sales Asset Purchase Agreement among SRI, DTC, Gold Seal Investments
Inc. and Goodyear.
"Russia/CIS" shall have the meaning specified in the
Shareholders Agreement for the Europe JVC.
"Shareholders Agreement" means any of the Shareholders
Agreement for the Europe JVC, Operating Agreement for the North America JVC,
Shareholders Agreement for the Japan Replacement JVC, Shareholders Agreement
-11-
X-10.1-21
<PAGE> 22
for the Japan OE JVC, Technology Joint Venture and Shareholders Agreement and
the Global Purchasing Joint Venture and Shareholders Agreement.
"SRI Business Assets" has the same meaning as such definition
under each of the JV Agreements.
"SRI Businesses" has the same meaning as such definition under
the JV Agreements.
"SRI European Trademarks" shall have the meaning specified in
the Trademark License Agreements between SRI and the Affiliates of the Europe
JVC.
"SRI Japan Trademarks" shall have the meaning specified in the
Trademark License Agreement between SRI and the Japan OE JVC.
"SRI North American Trademarks" shall have the meaning
specified in the Trademark License Agreement between SRI and the North America
JVC.
"SRI Note" means the 1.2% Convertible Note due August 16,
2000, issued pursuant to the SRI Note Purchase Agreement.
"SRI Note Purchase Agreement" means the Note Purchase
Agreement, dated February 25, 1999, between SRI and Goodyear.
"SRI Trademarks" means the SRI European Trademarks, SRI North
American Trademarks and the SRI Japan Trademarks as defined in the Alliance
Agreements.
"Strategic Investment" means the direct or indirect
acquisition by a JVC or any of its Affiliates controlled by it of, or its or
their investment in, all, or a material portion of, another tire manufacturer or
tire distributor having operations
-12-
X-10.1-22
<PAGE> 23
located in the same territory as such JVC or its relevant Affiliate for fair
(market) value, provided that, if so requested by Goodyear or SRI, the JVC or
such Affiliate shall first have obtained at its cost a fairness opinion issued
by an investment bank of recognized international standing as to the fairness to
the JVC or such Affiliate of the price of the proposed acquisition or
investment, which opinion (if any) shall be addressed to Goodyear and SRI and
shall contain no material qualification to the fairness valuation, any standard
qualification as to the scope of, and effort in preparing to render, such
opinion not being deemed material for this purpose.
"Sub-Equatorial Africa" shall have the meaning specified in
the Shareholders Agreement for the Europe JVC.
"Subsidiary" means, with respect to any specified Person, any
Person that is, directly or indirectly, controlled by that specified Person. For
this purpose, "control" as used in the phrase "controlled by" shall mean the
ownership, directly or indirectly, of more than fifty percent (50%) of the
voting securities of such Person.
"Tax" and "Taxes" shall mean (i) all taxes, assessments,
levies, imposts, duties, fees, withholdings, or other similar mandatory charges
or collections, including, without limitation, income taxes, receipts taxes,
value added taxes, franchise taxes, net worth taxes, transfer taxes, stamp
taxes, transaction taxes, stock transfer taxes, excise taxes, custom duties,
trade taxes, capital taxes, capital contribution taxes, ad valorem taxes, sales,
use, real and personal property taxes, intangible assets taxes, waste tire
taxes, withholding taxes, minimum taxes and payroll and employee charges or
contributions, fees or other taxes which a Person is required to collect and pay
over to any Authority, and (ii) any interest, penalties, fines or additions to
tax imposed on a Tax described in clause (i) hereof, imposed by any Authority.
"Technology JV Agreement" means the Global Technology Joint
Venture and Operating Agreement among Goodyear, SRI and Goodyear - SRI Global
Technology LLC.
-13-
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<PAGE> 24
"Third Party Claim" shall have the meaning specified in
Article 15.03(a) hereof.
"Tire Technology" shall have the meaning specified in the
Technology JV Agreement.
"Top Level Meeting" has the meaning specified in Article XIII.
"Total Assets" shall have the meaning specified in EITF
Abstract Issue No. 96-16 (as the same may be amended from time to time).
"Trademarks" means all trademarks, service marks, trade dress
and trade names and related rights, signs (as referred to in European Council
Directive 89/104/EEC), logos and designs, whether registered or unregistered.
"Trademark License Agreements" means the agreements attached
as Exhibits 5.03(a)(1) through 5.03(a)(9), together with the counterpart
agreements modelled on those agreements, as specified in the respective
Exhibits.
"Transactions" means the transactions contemplated to be
consummated pursuant to the Alliance Agreements.
"Voting Equity Capital" shall mean, in the case of the Europe
JVC the portion of the Equity Capital (as such term is defined in the
Shareholders Agreement for the Europe JVC) as represented by shares; in the case
of the North America JVC, Voting Membership Interests, as such term is defined
in the North America Operating Agreement; and in the case of the Japan OE JVC
and the Japan Replacement JVC, Voting Shares, as such term is defined in the
Shareholders Agreement for the applicable JVC.
"Western Europe" shall have the meaning specified in the
Shareholders Agreement for the Europe JVC.
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<PAGE> 25
1.02 DEFINITIONS CAN BE SUBSTANTIVE. If any provision in a definition is a
substantive provision conferring rights or imposing obligations on any Party,
notwithstanding that it is only in the definition Article, effect shall be given
to it as if it were a substantive provision of the Agreement.
1.03 DEFINITIONS NOT IN ARTICLE I. Where any term is defined within the context
of any particular article, section or clause in this Agreement, the term so
defined, unless it is clear from the context that the term so defined has
limited application to the relevant article, section or clause, shall bear the
meaning ascribed to it for all purposes in terms of this Agreement,
notwithstanding that that term has not been defined in this Article.
1.04 NON-WORKING DAY PERFORMANCE. Where any payment falls due or any other
obligation is to be performed on a day which is not a working day in the
jurisdiction where such payment is to be made or such obligation is to be
performed, then such payment shall be made or such obligation performed on the
next succeeding working day.
1.05 CALCULATION OF DAY PERIODS. Except as otherwise specifically provided in
this Agreement, where in this Agreement any number of days is prescribed in
relation to the doing of a particular thing or in respect of a period of time,
those days will be calculated exclusive of the first day and inclusive of the
last day.
ARTICLE II
STRUCTURE OF THE ALLIANCE
-------------------------
2.01 UNITARY NATURE OF ALLIANCE. Subject to the terms and conditions contained
herein and in the other Alliance Agreements, on the Closing Date, Goodyear and
SRI will implement and cause their respective Affiliates to implement the
Alliance as set forth below in this Article II. Notwithstanding any other
provision hereof or of the other Alliance Agreements, neither Goodyear nor SRI
shall have any obligation to implement any particular part or parts of the
Alliance at the Closing unless all the parts set forth in this Article II are
implemented simultaneously;
-15-
X-10.1-25
<PAGE> 26
provided that Goodyear and SRI may expressly agree in writing to the contrary,
if the writing explicitly refers to this Article 2.01.
2.02 EUROPE JVC. Pursuant and subject to the terms and conditions of the Europe
JV Agreement, Goodyear and SRI and their respective Affiliates will organize a
joint venture company in Europe (the "Europe JVC").
2.03 NORTH AMERICA JVC. Pursuant and subject to the terms and conditions of the
North America JV Agreement and the North America Operating Agreement, Goodyear
and SRI and their respective Affiliates will organize a joint venture company in
North America (the "North America JVC").
2.04 NORTH AMERICA PURCHASE AGREEMENTS. Pursuant and subject to the terms and
conditions of the North America JV Agreement and the Replacement Sales Asset
Purchase Agreement, the North America JVC and Goodyear and/or its applicable
Affiliates will purchase certain of SRI's and/or its applicable Affiliates'
North American distribution and sales operations as described in and in
accordance with said respective agreements.
2.05 JAPAN OE JVC. Pursuant and subject to the terms and conditions of the Japan
OE JV Agreement, Goodyear and SRI and their respective Affiliates will organize
a joint venture company in Japan (the "Japan OE JVC").
2.06 JAPAN REPLACEMENT JVC. Pursuant and subject to the terms and conditions of
the Japan Replacement JV Agreement, Goodyear and SRI and their respective
Affiliates will organize a joint venture company in Japan (the "Japan
Replacement JVC").
2.07 GLOBAL TECHNOLOGY SHARING. Goodyear and SRI will (i) in accordance with the
Technology JV Agreement, organize a joint venture company to be formed as an LLC
in the State of Ohio (the "Global Technology JVC"), which will be responsible
for coordinating and facilitating the dissemination of Commercialized Technology
to Goodyear, SRI and their respective Affiliates, (ii) pursuant and subject to
the terms and conditions of the Technology JV Agreement, establish arrangements
for the exchange of Commercialized Technology between and among
-16-
X-10.1-26
<PAGE> 27
Goodyear, SRI and their respective Affiliates, and (iii) establish arrangements
for the management, and possible joint development by the Parties, the JVCs and
their respective Affiliates, of Non-Commercialized Technology. The Technology JV
Agreement will govern the management and operation of the Global Technology JVC.
2.08 GLOBAL PURCHASING JVC. Goodyear and SRI will (i) in accordance with the
Purchasing JV Agreement, organize a global purchasing joint venture company (the
"Global Purchasing JVC"), which will act as the global purchasing organization
for certain raw materials, equipment and other supplies and services for
Goodyear, SRI and their respective Affiliates and (ii) pursuant and subject to
the terms and conditions of the Purchasing JV Agreement, establish arrangements
for natural rubber purchasing and other joint purchasing activities by the
Parties and their respective Affiliates. The Purchasing JV Agreement will govern
the management and operation of the Global Purchasing JVC.
2.09 CROSS INVESTMENTS. Pursuant and subject to the terms and conditions of the
Goodyear Note Purchase Agreement and the SRI Note Purchase Agreement and of
Article X hereof, Goodyear and SRI shall each acquire shares of common stock of
the other.
ARTICLE III
FINANCIAL MATTERS
-----------------
3.01 CLOSING BALANCE SHEETS.
(a) Within 60 days following Closing, SRI will use its best efforts to
deliver to Goodyear consolidated balance sheets (together the "SRI Closing
Balance Sheets") of each of Dunlop GmbH, Dunlop France S.A., Dunlop Tyres Ltd,
DTC and the unconsolidated balance sheet of SRE as at the day immediately
preceding the Closing Date ("Relevant Date") in respect of the SRI Businesses as
were included in the SRI Major European Companies Year End Financial Statements
and the DTC Year End Financial Statements, on a basis consistent with such
financial statements and the SRI Closing Balance Sheets shall:
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<PAGE> 28
(i) give a true and accurate account in all material respects of,
and fairly present, in conformity with US GAAP applied on a
consistent basis, the assets and liabilities of Dunlop GmbH,
Dunlop France S.A.; Dunlop Tyres Ltd., DTC and SRE,
respectively, as of the Closing Date;
(ii) be expressed in local currency;
(iii) be audited by SPwC; and
(iv) have an unqualified audit opinion expressed on them,
provided that the unconsolidated balance sheet of SRE shall not be
prepared in accordance with US GAAP.
(b) Within 60 days following Closing, Goodyear will use its best
efforts to deliver to SRI a consolidated balance sheet (the "Goodyear Closing
Balance Sheet") of the Goodyear JV Companies as at the Relevant Date in respect
of the Goodyear Businesses as were included in the Goodyear Europe Year End
Financial Statements prepared on a basis consistent with such financial
statements and the Goodyear Closing Balance Sheet shall:
(i) give a true and accurate account in all material respects of,
and fairly present, in conformity with US GAAP applied on a
consistent basis, the assets and liabilities of the Goodyear
JV Companies as of the Closing Date;
(ii) be expressed in U.S. dollars;
(iii) be audited by GPwC; and
(iv) have an unqualified audit opinion expressed on it.
3.02 WORKING CAPITAL ADJUSTMENT.
(a) For the purposes of this Article 3.02 and Article 3.03, the
following expressions have the meanings as set forth:
(i) "SRI EU JV Group" means the SRI JV Companies as
defined in the Europe JV Agreement.
(ii) "GY EU JV" means the Goodyear JV Companies as defined
in the Europe JV Agreement.
(iii) "DTC Group" means DTC and the Affiliates controlled by
it immediately before Closing (and Utica Converters
Incorporated ("Utica") if not otherwise included).
-18-
X-10.1-28
<PAGE> 29
(iv) The Parties agree that the terms DTC Target, SRI EU
Target and GY EU Target have the meanings provided in
the table below, depending upon the date of Closing as
shown in the table below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The month immediately Aug Sept Oct Nov Dec
preceding the month of Closing
1999 1999 1999 1999 1999
- --------------------------------------------------------------------------------------
% % % % %
- --------------------------------------------------------------------------------------
"SRI EU Target" 22.5 22.6 22.3 22.1 20.6
- --------------------------------------------------------------------------------------
"GY EU Target" 32.5 32.4 34.8 34.9 28.6
- --------------------------------------------------------------------------------------
"DTC Target" 37.0 35.9 36.1 35.9 36.2
- --------------------------------------------------------------------------------------
</TABLE>
(v) "Target" means either the SRI EU Target, the GY EU
Target or the DTC Target as applicable.
The Targets (expressed as percentages) have been calculated as follows:
Estimated Net Working Capital of the Group at the Relevant Date
---------------------------------------------------------------
Budget Annualized Sales at the Relevant Date
(vi) "Budget Annualized Sales" in relation to any Group
means:
Sales for the Group for the period of the calendar year prior
to the Relevant Date
___________________________________________________ X12
Number of elapsed months for the calendar year to and including the
Relevant Date
The term "Budget Sales" for a Group has the meaning as
provided in the table below depending upon the date of
Closing:
-19-
X-10.1-29
<PAGE> 30
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The month Aug Sept Oct Nov Dec
immediately preceding
1999 1999 1999 1999 1999
the month of Closing
$ (MM)
- --------------------------------------------------------------------------------------------------------
SRI EU JV Group 1,304.1 1,491.6 1,608.8 1,862.1 2,000.5
- --------------------------------------------------------------------------------------------------------
GY EU JV Group 1,476.8 1,699.1 1,919.2 2,131.2 2,297.8
- --------------------------------------------------------------------------------------------------------
DTC Group 526.6 605.4 680.8 748.0 813.2
- --------------------------------------------------------------------------------------------------------
</TABLE>
(vii) "Estimated Net Working Capital" in relation to any Group has
the meaning provided in the table below, depending upon the
date of Closing as shown in the table below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The month Aug Sept Oct Nov Dec
immediately preceding the
1999 1999 1999 1999 1999
the month of Closing
$ (MM)
- --------------------------------------------------------------------------------------------------------
SRI EU JV Group 439.4 450.0 450.7 448.8 412.8
- --------------------------------------------------------------------------------------------------------
GY EU JV Group 718.9 735.0 800.5 810.8 657.7
- --------------------------------------------------------------------------------------------------------
DTC Group 292.6 290.0 294.7 293.1 294.5
- --------------------------------------------------------------------------------------------------------
</TABLE>
-20-
X-10.1-30
<PAGE> 31
(viii) The term "budget exchange rate" means with regards to
(A) the relevant Goodyear JV Company:
US DOLLAR PER FOREIGN
CURRENCY
France 0.169781
UK 1.610578
Germany 0.569148
Italy 0.000557
Luxembourg 0.02759
Belgium 0.02759
Netherlands 0.507156
Sweden 0.127643
Finland 0.188135
Norway 0.135968
Denmark 0.148806
Austria 0.080857
Czech Republic 0.029655
Hungary 0.004497
Switzerland 0.685954
Poland 0.255655
Spain 0.006685
Portugal 0.00555
Greece 0.003191
(B) the relevant SRI JV Company:
-21-
X-10.1-31
<PAGE> 32
US DOLLAR PER FOREIGN
FOREIGN CURRENCY PER
CURRENCY EURO
France 0.169781 -
UK 1.610578 -
Germany 0.569148 -
Belgium - 40.6
Italy - 1,950.00
Spain - 167.6
Austria - 13.86
Netherlands - 2.22
Switzerland - 1.63
Greece - 345.00
Ireland - 0.793
Denmark - 7.50
Sweden - 9.05
Finland - 5.99
Norway - 8.85
Portugal - 202.00
Japan - 152.00
Malaysia - 4.40
Singapore - 1.95
USA - 1.13
Australia - 1.90
(ix) "GPwC" and "SPwC" have the meanings defined in Annex 8,
paragraphs 1.1 and 1.2, respectively, of the MOU.
-22-
X-10.1-32
<PAGE> 33
(x) (A) "Sales" as it relates to the Goodyear EU JV means the
consolidated net sales of the Goodyear JV Companies for the
requisite period and expressed in US dollars. The 1999 budget
exchange rates have been used to calculate Sales for use in
calculating the GY EU Target and the same exchange rates will
be used to calculate Sales for use in calculating the Actual
Annualized Sales for such Group for the requisite period.
(B) "Sales" as it relates to the SRI EU JV Group means the
simple addition of each of the consolidated net sales of the
SRI Major European Companies for the requisite period and
expressed in US dollars. The 1999 budget exchange rates have
been used to calculate Sales for use in calculating the SRI EU
Target and the same exchange rates will be used to calculate
Sales for use in calculating the Actual Annualized Sales for
such Group for the requisite period.
(C) "Sales" as it relates to the DTC Group means the simple
addition of each of the net sales of DTC and the Affiliates it
controls on the Relevant Date and if not otherwise included,
Utica, for the requisite period expressed in US dollars.
(xi) "Group" shall mean the SRI EU JV Group, the GY EU JV or the
DTC Group as applicable.
(xii) "non-Affiliate" in relation to any Group means a Person who is
not Affiliated with any company within such Group on the
Relevant Date.
(xiii) "Net Working Capital" in relation to any Group means the sum
of the book values of:
(A) the Accounts Receivable of the Group from non-Affiliates;
(B) the Notes Receivable of the Group from non-Affiliates; and
(C) the Inventory of the Group,
less
(D) the book value of the Accounts Payable of the Group to
non-Affiliates.
In the case of the GY EU JV, Net Working Capital means the
consolidated Net Working Capital of the Goodyear JV Companies
on the requisite dates expressed in US dollars. The 1999
budget exchange rates have been used to calculate the
Estimated Net Working Capital for use in calculating the
Target and the same exchange rates will be used to calculate
the Net Working Capital on the Relevant Date . In the case of
the SRI EU JV Group, Net Working Capital means the simple
addition of each of the consolidated Net
-23-
X-10.1-33
<PAGE> 34
Working Capital of the SRI Major European Companies on the
requisite dates expressed in US dollars. The 1999 budget
exchange rates have been used to calculate the Estimated Net
Working Capital for use in calculating the Target and the same
exchange rates will be used to calculate the Net Working
Capital on the Relevant Date. In the case of the DTC Group,
Net Working Capital means the simple addition of Net Working
Capital of each of DTC and the Affiliates it controls and, if
not otherwise included, Utica, on the requisite dates
expressed in US dollars.
The expressions "Accounts Receivable", "Notes Receivable",
"Accounts Payable", and "Inventory", shall be interpreted in
the case of the GY EU JV in the same manner as such
expressions were interpreted in the preparation of the
financial statements for such Group referred to in Article
3.01 (b) except for the amounts due from or to Affiliates will
be excluded. The expressions "Accounts Receivable", "Notes
Receivable", "Accounts Payable", and "Inventory", shall be
interpreted in the case of the SRI EU JV Group in the same
manner as such expressions were interpreted in the preparation
of the consolidated financial statements of each of the SRI
Major European Companies before such financial statements were
adjusted to comply with US GAAP in order to produce the
financial statements referred to in Article 3.01 (a) except
that the amounts due from or to Affiliates of such Group will
be excluded. The expressions "Accounts Receivable", "Notes
Receivable", "Accounts Payable", and "Inventory", shall be
interpreted in the case of the DTC Group in the same manner as
such expressions were interpreted in the preparation of the
financial statements for such Group referred to in Article
3.01 (a) except for amounts due from or to Affiliates of such
Group will be excluded.
(xiv) "Target Working Capital" for a Group means:
Actual Annualized Sales for the Group x Target for that Group
(xv) "Actual Annualized Sales" for a Group means:
Actual Sales for the Group for the period of
the calendar year ending on the Relevant Date
_____________________________________ X 12
Number of elapsed months for the calendar year to the Closing Date
(xvi) "Capital Contribution" means a capital contribution to be made
in accordance with Article 3.05(a).
-24-
X-10.1-34
<PAGE> 35
(xvii) "Europe JVC Balancing Payment" has the meaning ascribed to it
in the Europe JV Agreement.
(xviii) "North American JVC Balancing Payment" and "Goodyear-DTC
Balancing Payment" have the meanings ascribed to them in the
North America JV Agreement and the Replacement Sales Asset
Purchase Agreement, respectively.
(b) The Net Working Capital of a Group at the Relevant Date shall be
calculated on a basis consistent with the computation of the Estimated
Net Working Capital of such Group for the requisite date. This means
that each component within the calculation of both the Net Working
Capital and the Estimated Net Working Capital of such Group on those
dates, as well as the components of each subordinate calculation, will
be accounted for on a consistent basis. The Actual Annualized Sales of
a Group for the requisite period shall be calculated on a basis
consistent with the computation of the Budget Annualized Sales for the
same period. This means that each component within the calculation of
both the Actual Annualized Sales and the Budget Annualized Sales for
those periods, as well as the components of each subordinate
calculation, will be accounted for on a consistent basis.
(c)(i) The Parties agree that SPwC will, on or before the expiry
of the 90 day period referred to in Article 3.02(e), review
and certify for each of the SRI EU JV Group and the DTC Group
that the respective computations of the Net Working Capital at
the Relevant Date and the Actual Annualised Sales for the
requisite period and adjustment computations are correct and
done in accordance with this Article 3.02.
(ii) The Parties agree that GPwC will, on or before the expiry of
the 90 day period referred to in Article 3.02(e), review and
certify for the GY EU JV that the computations of the Net
Working Capital at the Relevant Date and the Actual Annualized
Sales for the requisite period and adjustment computations are
correct and done in accordance with this Article 3.02.
(d) Within 120 days after the Closing Date the following
adjustments (if any) will be made with respect to each of the
Groups:
(i) If the Net Working Capital on the Relevant Date of:
(A) the SRI EU JV Group is less than 95% of the Target
Working Capital for such Group then SRI shall make a
Capital Contribution to SRE equal to the difference
between the Net Working Capital of such Group on the
Relevant Date and 95%
-25-
X-10.1-35
<PAGE> 36
of the Target Working Capital for such Group on the
Relevant Date,
(B) the DTC Group is less than 95% of the Target Working
Capital for such Group, then DTC will make net cash
payments to the North America JVC in accordance with
Article 3.05(b) equal to the difference between the
Net Working Capital of such Group on the Relevant
Date and 95% of the Target Working Capital for such
Group on the Relevant Date,
(C) the GY EU JV is less than 95% of the Target Working
Capital for such Group then Goodyear and/or its
Affiliates (other than any JVC Company) pursuant to
Article 2.6 of the Europe JV Agreement, shall make a
Capital Contribution to SRE equal to the difference
between the Net Working Capital of such Group on the
Relevant Date and 95% of the Target Working Capital
for such Group on the Relevant Date,
(ii) If the Net Working Capital on the Relevant Date of:
(A) the SRI EU JV Group is more than the Target Working
Capital for such Group on the Relevant Date then
Goodyear and/or its Affiliates in accordance with
Article 2.6 of the Europe JV Agreement will make a
cash payment to SRI as an adjustment to the Europe
JVC Balancing Payment, in accordance with Article
3.05(b) equal to 75% of E;
Where: E = 85% x {(AS x NWC*) less (AS x T)}
-----
AS
Where: AS = Actual Annualized Sales for the Group
NWC = Net Working Capital for the Group on the
Relevant Date
T = the Target for the Group at the Closing Date
*if NWC is greater than (110% x T), then NWC will be
----- -----
AS AS
replaced by 110% of T;
(B) the DTC Group is more than the Target Working
Capital for such Group on the Relevant Date, then
the North America JVC will make net cash payments to
DTC totalling E as calculated
-26-
X-10.1-36
<PAGE> 37
in (A) above, in accordance with Article 3.05(b). To
the extent that the North America JVC is required to
make a cash payment to DTC pursuant to this Article
3.02(d)(ii)(B), DTC and Goodyear will make Capital
Contributions to the North American JVC in
accordance with Article 3.05(a) equal to 25% (in the
case of DTC) and 75% (in the case of Goodyear) of
the total cash payment.
(C) the GY EU JV is more than the Target Working Capital
for such Group on the Relevant Date then SRI shall
make a cash payment to Goodyear and/or its
Affiliates, in accordance with Article 2.6 of the
Europe JV Agreement as an adjustment to the Europe
JVC Balancing Payment, in accordance with Article
3.05(b) equal to 25% of E calculated in the same
manner as in (A) above.
(iii) Where:
(A) both SRI and Goodyear (and/or any of its Affiliates
which is a party to the Europe JV Agreement) are
required to make Capital Contributions to SRE
pursuant to Article 3.02(d)(i), the amounts of such
Capital Contributions shall be set off against each
other (on the basis that there shall be set off US$ 3
(three) of any Capital Contribution which Goodyear
(and/or any of its Affiliates which is a party to the
Europe JV Agreement) would otherwise be obliged to
make hereunder against each US$ 1 (one) of any
Capital Contribution which SRI would otherwise be
obliged to make hereunder) so that each of SRI and
Goodyear (and/or any of its Affiliates which is a
party to the Europe JV Agreement), in accordance with
Article 2.6 of the Europe JV Agreement, shall only be
required to make a Capital Contribution (if any) on a
net basis.
(B) both SRI and Goodyear (and/or any of its Affiliates
which is a party to the Europe JV Agreement), are
required to make cash payments to each other pursuant
to Article 3.02(d)(ii)(A) and (C) as adjustments to
the Europe JVC Balancing Payment, the amounts of such
payments shall be set off against each other (on a
dollar for dollar basis) so that each of SRI and
Goodyear (and/or any of its Affiliates which is a
party to the Europe JV Agreement), in accordance with
Article 2.6 of the Europe JV Agreement, shall only be
obliged to make a cash payment (if any) on a net
basis.
-27-
X-10.1-37
<PAGE> 38
(e) The SPwC and GPwC certifications and reports required in
Article 3.02(c) along with all the related computations will be exchanged
between the Parties within 90 days after the Closing Date.
3.03 ZERO DEBT AND ZERO CASH ARRANGEMENTS.
(a) SRI and Goodyear agree that subject to Article 3.03(b) below
(i) the SRI JV Companies and the Goodyear JV Companies;
(ii) the business and operations to be acquired from DTC
by the North America JVC; and
(iii) DTC Canada, Allied and the DTC distribution and sales
operations to be acquired by Goodyear pursuant to the
Replacement Sales Asset Purchase Agreement
shall, at Closing, not include any Cash or any Debt except as
permitted in Article 3.03(b).
For the purposes of this Article 3.03 the following
expressions have the following meanings (the first three of
which expressions shall be interpreted in the same manner as
applied in the preparation of the 1998 Financial Statements
for the relevant Group referred to in Article 3.01 (a) or (b)
as appropriate as modified below):
"Cash" means cash and cash equivalents as reported under US
GAAP. "Cash" excludes those amounts of cash contributed by a
Party prior to Closing in order to prefund an obligation of
such Party under this Agreement which would otherwise be owed
by such Party to the respective JVC after Closing including
without limitation the cash contributions referred to in
Articles 3.03(b)(iv), 3.04(b) and (d).
"Cash equivalents" means short term securities held for the
primary purpose of general liquidity which normally mature
within three months from the date of acquisition; however, it
does not include trade bills of exchange on hand.
"Debt" means interest bearing liabilities owed to third
parties, including SRI and Goodyear (and their respective
Affiliates (other than any JVC Company)); other non-interest
bearing liabilities (in the nature of indebtedness) owed to
Affiliates (other than any JVC Company); capital lease
liabilities and other liabilities which are otherwise in the
nature of financing; preference shares, debenture stock and
other capital instruments bearing interest; interest bearing
off-balance sheet liabilities and net liability of
off-balance sheet
-28-
X-10.1-38
<PAGE> 39
derivative contracts, but excluding trade liabilities to
Affiliates and third parties, operational lease liabilities,
pension liabilities and other employee related liabilities.
Each item included in this definition of the term "Debt"
is determined in accordance with US GAAP.
(b) SRI and Goodyear agree that:
(i) SRI shall be permitted to leave the SRI Allowed Debt,
as defined in Article 4.4 of the Europe JV Agreement,
within the SRI JV Companies at Closing;
(ii) Goodyear shall be permitted to leave the Goodyear
Allowed Debt, as defined in Article 4.3 of the Europe
JV Agreement at Closing;
(iii) DTC shall be permitted to leave and the North America
JVC will assume the DTC Allowed Debt, as defined in
Article 6.3 of the North America JV Agreement;
(iv) if either Party considers it impracticable to unwind
before Closing any receivable sales program in any of
the SRI JV Companies or in the DTC Group (in the case
of SRI) or in any of the Goodyear JV Companies (in the
case of Goodyear), subject to receiving prior to
Closing the written consent of the other Party as to
the identity and amount thereof, such Party shall be
permitted to leave such receivable sales program in
any such company provided it also leaves in any of
such companies a cash amount equal to the receivables
sold as of the Closing pursuant to such program; and
(v) they shall each use their respective reasonable
endeavours to ensure that, except as is permitted by
Article 3.03(b) (i) to (iv) above, the principles set
out in Article 3.03(a) above shall be applied.
(c) At Closing, to the extent the SRI JV Companies:
(i) have aggregate Cash in excess of zero, the Europe JVC
Balancing Payment will be increased by an amount (up
to a maximum of US $7.5 million) equal to 75 percent
of such excess; and/or
(ii) have aggregate Debt in excess of zero, the Europe JVC
Balancing Payment will be reduced by 75 percent of
such excess; or
-29-
X-10.1-39
<PAGE> 40
Such adjustment will be made in accordance with Article 2.6 of
the Europe JV Agreement.
(d) At Closing, to the extent the business and operations referred
to in Article 3.03(a)(ii) above:
(i) has aggregate Cash in excess of zero, the North American JVC
Balancing Payment will be increased by an amount (up to a
maximum of US $5 million) equal to 100 percent of such excess;
and/or
(ii) has aggregate Debt in excess of US$15 million, the North
American JVC Balancing Payment will be reduced by 100 percent
of such excess;
(iii) has aggregate Debt less than US$15 million the North American
JVC Balancing Payment will be increased by 100 percent of such
shortfall.
To the extent that the North American JVC Balancing Payment is
increased and the North America JVC is required to make a cash payment
to DTC pursuant to this Article, Goodyear and DTC will make Capital
Contributions to the North America JVC in accordance with Article
3.05(a) equal to 25 percent (in the case of DTC) and 75 percent (in the
case of Goodyear) of the total cash payment.
(e) At Closing, to the extent any of the companies or businesses
referred to in Article 3.03(a)(iii) above:
(i) has aggregate Cash in excess of zero, the Goodyear-DTC
Balancing Payment will be increased by an amount (up to a
maximum of US $5 million) equal to 100 percent of such excess;
and/or
(ii) has aggregate Debt in excess of zero, the Goodyear-DTC
Balancing Payment will be reduced by 100 percent of such
excess.
(f) At Closing, to the extent the Goodyear JV Companies (as
defined in the Europe JV Agreement):
(i) have aggregate Cash in excess of zero, the Europe JVC
Balancing Payment will be reduced by an amount (up to a
maximum of US $2.5 million) equal to 25 percent of such
excess;
(ii) have aggregate Debt in excess of zero, the Europe JVC
Balancing Payment will be increased by 25 percent of such
excess.
Such adjustment will be made in accordance with Article 2.6 of the
Europe JV Agreement.
-30-
X-10.1-40
<PAGE> 41
(g) Where an increase and a reduction is required to be made pursuant
to both (i) and (ii) of any of Articles 3.03(c) to (f) above, such increase and
reduction shall be set off against each other first before any such increase
and/or reduction is made. In addition, where the Europe JVC Balancing Payment is
required to be increased pursuant to Article 3.03(c) but reduced pursuant to
Article 3.03(f) or vice versa such increase and/or and reduction shall be set
off against each other first before any such increase or reduction is made.
(h) For purposes of Articles 3.03(c) to (g), Cash and Debt will be
translated into US Dollars at the appropriate exchange rates on the Relevant
Date.
(i) Any payment required to be made in accordance with Articles 3.03(c)
to (f) above shall be made in accordance with Article 3.05(b) within 30 business
days following the date when SRI and Goodyear shall have exchanged the balance
sheets referred to in Article 3.01 (a) and (b) respectively.
3.04 INDEMNITIES FOR TAX ARISING OUT OF GOODYEAR AND SRI REORGANIZATIONS.
(a) Subject to Article 3.04(b), SRI shall indemnify, defend and hold
harmless SRE from and against any Tax liability incurred by SRE or any of the
SRI JV Companies arising out of the SRI Reorganization, (or any other action
designed to achieve the same objective). The amount of such liability for which
SRI is required to make indemnification hereunder shall be reduced by the amount
of any benefit, allowance, or other relief of Tax, received by SRE or any of the
SRI JV Companies, arising out of such SRI Reorganization (or any other action as
aforesaid). Where SRI has made any indemnification hereunder and SRE or the
relevant SRI JV Company receives any such benefit, allowance, or other relief of
Tax then Goodyear shall make a Capital Contribution to SRE of three (3) times
the amount of such benefit, allowance, or other relief of Tax that arose out of
the related SRI Reorganization (or any other action as aforesaid) received by
SRE or any of the SRI JV Companies.
(b) SRI and/or its Affiliates shall be entitled on or prior to Closing
to make cash contributions to SRE or any of the SRI JV Companies by means of a
subscription for new shares in any of such companies of an aggregate amount
equal to SRI's estimate of the total net liability for Tax which may be incurred
by such companies arising out of the SRI Reorganization (or any other action as
aforesaid), and SRI shall give Goodyear written notification of any such cash
contributions (including the amounts contributed, the numbers of new shares
issued and the companies to which such contributions have been made). SRI and/or
its Affiliates will be required on or before Closing to transfer any shares of
SRI JV Companies received as a consequence of contributions made pursuant to
this Article 3.04(b) to SRE. SRI's liability to make indemnification pursuant to
-31-
X-10.1-41
<PAGE> 42
Article 3.04 (a) shall be reduced by the aggregate amount of all such cash
contributions made and in calculating such reduction there shall be taken into
account the time value of money enjoyed by SRE or the relevant SRI JV Company
(after taking into account SRI's shareholding in SRE) as a result of such
contributions being made by SRI before the due date for payment of the relevant
Tax by the relevant company using an annual interest rate of three percent per
annum. In the event that following final determination of the actual liability
for Tax incurred by SRE and any of the SRI JV Companies, and the aggregate
liability of SRI to make indemnification pursuant to Article 3.04 (a) is less
than the aggregate amount of cash contributions made by SRI or its Affiliates in
accordance with this Article 3.04 (b), then Goodyear shall make a Capital
Contribution to SRE of three (3) times such shortfall within (30) days of it
becoming apparent that such shortfall exists.
(c) Subject to Article 3.04(d), Goodyear shall indemnify, defend and
hold harmless SRE from and against any net Tax liability incurred by SRE or any
of the Goodyear JV Companies arising out of the Goodyear Reorganization (or any
other action designed to achieve the same objective). The amount of such
liability for which Goodyear is required to make indemnification hereunder shall
be reduced by the amount of any benefit, allowance, or other relief of Tax,
received by SRE or any of the Goodyear JV Companies, arising out of such
Goodyear Reorganization (or any other action as aforesaid). Where Goodyear has
made any indemnification hereunder and SRE or the relevant Goodyear JV Company
receives any such benefit, allowance, or other relief of Tax, then SRI shall
make a Capital Contribution to SRE of one-third of the amount of the benefit,
allowance, or other relief of Tax that arose out of the related Goodyear
Reorganization (or any other action as aforesaid) received by SRE or any of the
Goodyear JV Companies.
(d) Goodyear and/or its Affiliates shall be entitled on or prior to
Closing to make cash contributions to any of the Goodyear JV Companies of an
aggregate amount equal to Goodyear's estimate of the total net liability for Tax
which may be incurred by such companies arising out of the Goodyear
Reorganization (or any other action as aforesaid), and Goodyear shall give SRI
written notification of any such cash contributions (including the amounts
contributed, the numbers of new shares issued and the companies to which such
contributions have been made). Goodyear will be required on or before Closing to
transfer any shares of Goodyear JV Companies received as a consequence of
contributions made pursuant to Article 3.04(d) to SRE or to one or more of the
Goodyear JV Companies. Goodyear's liability to make indemnification pursuant to
Article 3.04 (c) shall be reduced by the aggregate amount of all such cash
contributions made and in calculating such reduction there shall be taken into
account the time value of money enjoyed by the relevant Goodyear JV Companies
(after taking into account Goodyear's shareholding in SRE) as a result of such
contributions being made by Goodyear before the due date for payment of the
relevant Tax by the relevant
-32-
X-10.1-42
<PAGE> 43
company using an annual interest rate of three percent per annum. In the event
that following final determination of the actual liability for Tax incurred by
any of the Goodyear JV Companies, the aggregate liability of Goodyear to make
indemnification pursuant to Article 3.04 (c) is less than the aggregate amount
of cash contributions made by Goodyear or its Affiliates in accordance with this
Article 3.04 (d), then SRI shall make a Capital Contribution to SRE of one third
of such shortfall within (30) days of it becoming apparent that such shortfall
exists.
(e) Any indemnification payment required under Article 3.04(a) or (c)
shall be made by Capital Contribution on or prior to the due date for payment of
the relevant Tax of the relevant JVC Company.
(f) Where both SRI and Goodyear are required to make Capital
Contributions pursuant to Article 3.04 (a) through (d) respectively, they shall
be entitled (by agreement between SRI and/or Goodyear and/or any of its
Affiliates which is a party to the Europe JV Agreement) to set off any such
payments so that SRI and Goodyear shall only be obliged to make payments on a
net basis.
3.05 CAPITAL CONTRIBUTIONS AND CASH PAYMENTS.
(a) Where a Person is required to make a Capital Contribution under
this Article 3, it shall subscribe for shares in SRE in accordance with Article
5.8 of the Shareholders Agreement for the Europe JVC.
(b) Any payment in cash required to be made by one Person to
another Person in accordance with this Article 3 shall be made by wire transfer
in immediately available funds to such account as each Party shall have notified
the other Party at least five business days prior to the payment date unless
otherwise agreed between such Persons.
(c) Where any Person is required under any of the Alliance
Agreements to make a Capital Contribution to SRE in satisfaction of any
liability under any representation or warranty or indemnification arising under
the Alliance Agreements such Person's Capital Contribution shall be grossed up
by the amount of any Capital Contribution Tax (or similar tax arising on an
issue of new shares) which is due to be paid by SRE in connection with such
Capital Contribution.
ARTICLE IV
COVENANTS OF GOODYEAR AND SRI
-----------------------------
4.01 ACCESS TO DATA AND PROPERTIES. (a) Between the date hereof and the Closing
Date, each Party, its Affiliates and their representatives (including without
limitation, attorneys, investment bankers, accountants, auditors, engineers,
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consultants and agents) shall have the full opportunity during normal business
hours and upon not less than 48 hours' notice to Goodyear or SRI, or such Person
as they may respectively designate, as the case may be, of the proposed time and
intended purpose of its investigation (which notice need not be written and may
be waived by the Person entitled to receive the notice), to investigate and
examine the assets, liabilities, properties, inventories, books, records,
agreements, and financial statements of the other Party and its Affiliates
relating to the establishment and operation of the Alliance as the
first-mentioned Party may reasonably request and as permitted by applicable law
(provided that such Party shall use its best efforts to minimize disruption of
the other Party's business and shall ensure that its investigation and
examination are conducted in an orderly fashion). Such representatives may
(where reasonable) take copies, notes or drawings regarding the foregoing (save
for technical documents and other technical information that the disclosing
Party, acting reasonably, considers too commercially sensitive to allow such
copies, notes or drawings to be taken), it being agreed that all such material
is subject to the confidentiality provisions of Article 4.05 of this Agreement.
(b) Notwithstanding the foregoing, none of the Parties, their
Affiliates or their representatives shall be under any obligation to disclose,
make available for viewing or have examined (i) information or properties they
do not have a legal right to disclose to or make available for viewing or have
examined by others, (ii) information or properties concerning Non-Commercialized
Technology that such Party in its sole discretion decides not to disclose or
make available or (iii) any information or properties the disclosure or viewing
of which would violate any applicable laws or regulatory requirements or any
legal privilege; provided that the exception for legal privilege shall not
affect the obligation of a Party or any of its Affiliates to provide disclosures
pursuant to the terms of any representation or warranty contained in the
Alliance Agreements.
4.02 CONSENTS; NONASSIGNABILITY OF APPROVALS. (a) Goodyear and SRI shall each
use its reasonable efforts to ensure that the approvals, authorizations, orders,
rulings and consents of and filings and registrations with Authorities and other
approvals and consents of other Persons necessary for the Transactions to be
lawfully consummated are obtained or made at the earliest possible times. In
using its reasonable efforts as contemplated hereby, neither Goodyear nor SRI
shall be obligated to make monetary payments (except for governmental filing and
similar fees prescribed by law) in connection with obtaining such consents,
approvals or waivers to any of the Persons whose consent, approval or waiver is
being sought.
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(b) To the extent that any agreement or any license, permit or approval
contemplated to be assigned or transferred by the Alliance Agreements is not
capable of being assigned or transferred without the consent or waiver of the
issuer thereof or the other party thereto or any third party, or if such
assignment or transfer would constitute a breach thereof or a violation of any
legal requirement, the Alliance Agreements shall not constitute an assignment or
transfer thereof or an attempted assignment or transfer thereof, unless and
until such consent or waiver of such issuer or other party or parties has been
duly obtained or such assignment or transfer has otherwise become lawful.
(c) To the extent that any of the consents or waivers referred to in
Article 4.02 (b) hereof are not obtained by Goodyear or SRI or their respective
Affiliates, as the case may be, Goodyear or SRI, as the case may be, shall use
its best efforts to (i) provide or cause to be provided to the other Party or to
one of the JVCs, as the case may be, the benefits of any permit, approval,
contract or license referred to in Article 4.02(b) hereof, and (ii) cooperate in
any arrangement, reasonable and lawful, designed to provide such benefits to the
other Party or to one of the JVCs as the case may be; provided that (i) the
Party providing the benefits shall not be obligated to incur any unreasonable
cost or other liability in connection therewith, and (ii) the Party or the JVC
receiving such benefits shall assume the accompanying obligations.
4.03 ORDINARY COURSE OF BUSINESS. From the date hereof to the Closing Date,
except as contemplated by the Alliance Agreements or otherwise agreed in
writing, Goodyear shall, and shall cause its Affiliates to, carry on the
Goodyear Businesses, and SRI shall, and shall cause its Affiliates to, carry on
the SRI Businesses, in the ordinary course and substantially in the same manner
as heretofore conducted consistent with past practice.
4.04 SCHEDULES, REPRESENTATIONS AND WARRANTIES REPEATED. (a) From time to time
prior to the Closing Date, Goodyear and SRI shall each inform the other of any
matter arising hereafter which, if existing or occurring on or prior to the date
hereof, would have been required to be set forth or described in a schedule to
one or more of the Alliance Agreements but which was not so set forth or
described solely because it did not exist or had not occurred on or prior to the
date hereof (or if it did so exist or had so occurred, the relevant Party did
not at the date hereof have actual knowledge thereof) and of any matter which
was so set forth or
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described but in respect of which there has occurred after the date hereof a
material change in circumstances relating to such matter. No such supplement to
or amendment of such schedules shall be deemed to effect a waiver or exception
to, or to cure any breach of, any representation or warranty made in the
Alliance Agreements unless specifically agreed in writing by the Party to whom
such representation or warranty is made. The representations and warranties of
Goodyear and SRI and their respective Affiliates contained in the Alliance
Agreements and in the certificates and other documents delivered and to be
delivered by them pursuant to Articles 5.03, 8.03, and/or 9.03, as the case may
be, shall be deemed to be given again by each of them as of the Closing Date,
except to the extent that any such representation or warranty is made as of a
specified date, in which case it shall be given only as of such specified date.
Then, at Closing, a Party may waive a breach of a representation or warranty
and, assuming all other Closing conditions of both Parties are satisfied (or,
where permitted, waived), proceed to Close and subsequently seek Damages under
Article XV for any claims and/or Damages suffered as a result of such breach.
4.05 ANNOUNCEMENTS AND CONFIDENTIALITY. (a) ANNOUNCEMENTS. The Parties agree
that until the earlier of (a) the expiration or termination of this Agreement
pursuant to Article 18.08 hereof, or (b) the expiration of a period of thirty
(30) calendar days following the Closing Date (the "Initial Period"), the timing
and contents of any written public announcement, communication or circular
relating to the Transactions shall be agreed between SRI and Goodyear. Any oral
announcement or communication relating to the Transactions and any
announcements, communications or circulars by the Parties on the effects of the
Transactions on their own operations shall in good faith be generally in line
and not inconsistent with the questions and answers jointly prepared and/or
approved by each of SRI's or Goodyear's representatives. In the event that law
or applicable rules, regulations, orders or judgments of any governmental body,
stock exchange or court may require a Party to make or issue any of the
foregoing announcements, communications or circulars prior to reaching agreement
with the other Party whose agreement was to be obtained on such announcement,
communication or circular, the Party required to make or issue any such
announcement, communication or circular shall be free to make or issue such
announcement, communication or circular without such other Party's approval,
provided that such Party has taken all reasonable steps to provide such other
Party with an opportunity to comment on any such announcement, communication or
circular prior to making or issuing the same. After the Initial Period, the
Parties shall be free to make public announcements as they reasonably see fit,
so long as such announcements do not disclose any information which they agreed
in writing (whether in the Alliance Agreements or otherwise) to keep
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confidential. The foregoing agreement regarding announcements supercedes any
prior agreement between SRI and Goodyear in the MOU.
(b) CONFIDENTIALITY. Each Party hereto, except as otherwise permitted
in writing by the Protected Party (as defined below), undertakes to the other
Party on behalf of itself and its Affiliates to at all times keep confidential,
not use and not exploit commercially, and not divulge, furnish or make
accessible to any third party, and shall cause its directors, officers,
employees and representatives to keep confidential, not use and not exploit
commercially, and not divulge, furnish or make accessible to any third party,
for a period beginning on the date hereof until the expiration of five (5) years
following a Global Exit or other termination of the Alliance, any secret or
confidential information, knowledge or data concerning or relating to the
technology (in the case of Commercialized Technology, subject to the
confidentiality and licensing provisions of the Technology License Agreements
that are Alliance Agreements), financial, marketing or sales affairs of any
Alliance JVC or of the other Party hereto (the "Protected Party"), to which such
Party has been or shall become privy by reason of the negotiation, preparation,
execution or delivery of this Agreement, the MOU which preceded this Agreement,
or the Alliance Agreements or the Transactions, or any financial arrangement
between the Parties to this Agreement. The provisions of this Article shall not
apply (i) to any disclosure by the Parties of such information, knowledge or
data to their Affiliates for any purposes reasonably incidental to the purposes
of the Alliance, (ii) to the respective advisors of the Parties and their
Affiliates for use in connection with rendering advice with respect to the
Transactions or the Alliance, or (iii) as to both Parties' obligations
hereunder, to any information, knowledge or data which (a) is or becomes
generally available to the public other than as a result of a disclosure by the
receiving Party or any of its Affiliates or their respective employees, agents
or representatives, (b) was rightfully available to the receiving Party on a
nonconfidential basis prior to its disclosure to the receiving Party or (c)
becomes rightfully available to the receiving Party on a nonconfidential basis
from a source that did not originate with the receiving Party, provided that
such source is not either (A) bound by a confidentiality agreement with the
disclosing Party or any of its Affiliates or (B) otherwise prohibited from
transmitting the information by a contractual, legal or fiduciary obligation,
(iv) to the exercise of the rights of either Party under the Alliance
Agreements, (v) to litigation or other proceedings to enforce the rights of any
Party to the Alliance Agreements, the agreements referred to herein, to the
extent that a court or other authority does not order that such information,
knowledge or data be kept confidential and (vi) as otherwise provided by law,
including without limitation the applicable rules, regulations, orders or
judgments of any governmental bodies, stock exchanges or courts, to the extent
that the law does not allow that such information, knowledge or data be kept
confidential. Each of the Parties shall use all reasonable efforts to ensure
that its
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employees, agents, representatives and Affiliates observe such confidentiality.
From the date of this Agreement, this Article 4.05 supercedes the
confidentiality agreement dated February 10, 1997 between SRI and Goodyear.
(c) VIOLATIONS. Notwithstanding the provisions of Article XVI hereof
the Party making the undertaking in either sub-Article (a) or (b) of this
Article 4.05 acknowledges and agrees that any breach by it of any agreement,
condition or provision contained in those sub-Articles will result in
irreparable harm and damage to the other Party and that such harm or damage may
be extremely difficult to quantify and money damages may, in any event, not
provide an adequate remedy. Accordingly, the Party making the undertaking hereby
consents and agrees to cause its Affiliates to consent to the jurisdiction of
the Supreme Court of the State of New York and the Federal Court of the Southern
District of New York for the entry of an interim order, an injunction, temporary
or permanent, or specific performance with respect to any violation of such
undertaking.
4.06 PRESERVATION OF AND ACCESS TO BOOKS AND RECORDS. (a) For the period set
forth in the next succeeding sentence of this Article 4.06, Goodyear and SRI
shall not, and shall cause their respective Affiliates not to, dispose of or
destroy any books or records (including, but not limited to, correspondence,
memoranda, books of account, legal books, environmental reports, tax reports and
returns, records relating to pension, severance and litigation matters,
manufacturing, production and technical service records and the like) owned by
and in the possession of Goodyear, SRI or any of their respective Affiliates
(but excluding any documents produced solely for the purposes of negotiations
leading to the Transactions) that can reasonably be deemed to relate to
transactions or events occurring prior to the Closing Date or to transactions or
events occurring subsequent to the Closing Date which are related to or arise
out of transactions or events occurring prior to the Closing Date with respect
to any of (i) Goodyear's or SRI's assets and business in Japan that will be
transferred to either the Japan OE JVC or the Japan Replacement JVC, as the case
may be, (ii) Goodyear's assets and business in Europe that will be transferred
to the Europe JVC, (iii) SRI's assets and business in Western Europe that will
be transferred to the Europe JVC, or (iv) SRI's assets and business in North
America (including, but not limited to, DTC) that will be transferred to the
North America JVC or to Goodyear, as the case may be. For so long as such books
and records are required by law in any applicable jurisdiction to be maintained,
or if longer, for so long as such books and records will be required by a Party
or any Affiliate of a Party to assert any claim or to assert any defense against
any claim, each of Goodyear and SRI shall ensure that any such books and records
are not disposed of or destroyed without giving the
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applicable JVC or JVCs ninety (90) days' written notice of the intention to
dispose of such books and records, during which period the JVC shall on request
have the right to take possession of any such books and records.
(b) So long as the books and records which are subject to this Article
4.06 are in the possession of Goodyear or SRI or their respective Affiliates, as
the case may be, Goodyear or SRI shall, subject to the provisions of Article
4.01(a), (which shall, for the purposes of this clause only, survive the
Closing), permit, during normal business hours and on reasonable notice (at no
charge, cost or expense to the Party possessing the books and records) the
applicable JVC or the other Party and its auditors, through their authorized
representatives, to have reasonable access to and examine and take copies of all
such books and records.
(c) Each of Goodyear and SRI shall direct its respective employees and
those of its Affiliates to render any assistance which the applicable JVC may
reasonably request in examining or utilizing records referred to in this Article
4.06 including, without limitation, assistance related to the use of such
records in the defense of any litigation.
4.07 COOPERATION. The Parties shall cooperate to fulfill all conditions
specified herein and to do all things reasonably necessary to consummate the
Transactions, including without limitation, to execute any and all documents
necessary to effect the transfer or assignment of Permits to the JVCs. The
Parties shall make all such joint filings as are required or agreed upon by the
Parties and shall make such individual filings as are required, but only upon
consultation with the other Party hereto and after giving reasonable
consideration to such Party's comments, if any.
4.08 EXCLUSIVITY. Until the earlier of the Closing or expiration or termination
of this Agreement pursuant to Article 18.08, neither SRI nor Goodyear shall,
except as permitted by Article 4.03, in any way:
(a) solicit, directly or indirectly, or cause any other Person to
solicit, any offer to acquire, merge or enter into a strategic alliance or joint
venture or similar business arrangement in relation to, the Goodyear Businesses
or the SRI Businesses or the Goodyear Business Assets or the SRI Business
Assets;
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(b) conduct any discussions or negotiations, or enter into agreements,
relating to any matters referred to in paragraph (a) above; or
(c) provide any Person or entity, other than the other Party or its
representatives, any information or data of any nature whatsoever relating to
the Alliance for the purpose of enabling such Person or entity to develop a
proposal for any of the matters referred to in paragraph (a) above.
4.09 RELATED PARTY AGREEMENTS. Except as contemplated by the Alliance
Agreements, from the date hereof to the Closing Date, neither Goodyear nor SRI
nor any of their respective Affiliates shall enter into or effect any material
change in (or the termination of) any material agreement or arrangement between
a JVC and either of the Parties or any of their respective Affiliates other than
any change or termination which is in accordance with the terms of such
agreement or arrangement or any of the Alliance Agreements or any new agreement
or arrangement or any change in or termination of an existing agreement or
arrangement which is, in either case, on an arm's length, commercial basis.
ARTICLE V
CLOSING
-------
5.01 CLOSING. The Closing of the Transactions shall take place at such place as
the Parties hereto may agree in writing, on the Closing Date as defined below;
provided that all Closing conditions set forth in Articles VIII and IX hereof
either (i) have been satisfied and remain satisfied or (ii) have been waived and
remain waived, in the case of conditions to be performed by SRI, pursuant to
Article VIII and, in the case of conditions to be performed by Goodyear,
pursuant to Article IX, on and as of such date. The Parties will use their best
efforts to complete as expeditiously as practicable the matters required to be
completed prior to Closing and will consult on August 11, 1999 to determine the
likelihood of a Closing on September 1, 1999.
"Closing Date" means:
(a) the first day of the month immediately following the month in
which conditions 8.04(b)/9.04(b) are satisfied; or
(b) if those conditions are satisfied on a date which is later
than the 11th day of a month, the first day of the next but
one following month; or
(c) such other date as the Parties may agree,
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provided that: (i) the Closing Date shall not in any event be earlier
than September 1, 1999, and (ii) Closing is subject in all events to
the satisfaction or waiver of all Closing conditions, as provided
above.
5.02 TRANSFERS UNDER THE JV AGREEMENTS. At the Closing, Goodyear and SRI will,
and will cause their respective Affiliates to, comply with and perform their
respective obligations set forth in the Alliance Agreements.
5.03 OTHER AGREEMENTS AND DOCUMENTS. At the Closing, the following agreements
and documents shall be executed and delivered by the appropriate Parties:
(a) Trademark License Agreements in the forms attached hereto as
Exhibits 5.03(a)(1) through 5.03(a)(9), together with the counterpart agreements
modeled on those agreements as specified in the respective Exhibits and
covenants in favor of DNA (Housemarks) Limited relating thereto in the forms
attached as Exhibits 5.03(a)(10) through 5.03(a)(14);
(b) trademark assignment agreements, in recordable form, transferring
all of the SRI European Trademarks owned by SRI in the European Territory for
Licensed Products and Extended Products and Services (if any) to Dunlop Tyres
Limited;
(c) agreements transferring and assigning all licenses from BTRI,
Dunlop Holdings Limited and Dunlop Limited relating to SRI European Trademarks
for Licensed Products and Extended Products and Services (if any) to Dunlop
Tyres Limited;
(d) Technology License Agreements, in the forms attached hereto as
Exhibits 5.03(d)(i) through 5.03(d)(v);
(e) offtake agreements, if any, covering the matters, of the scope, and
in the forms to be agreed at least 15 days prior to Closing;
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(f) management service contracts, if any, covering the matters, of the
scope, and in the forms to be agreed at least 15 days prior to Closing;
(g) shared facility and service agreements, covering the matters, of
the scope and in the forms to be agreed at least 15 days prior to Closing; and
(h) valid transfers or assignments of any government permits or
approvals reasonably necessary for the continued operation (in all material
respects) following the closing of any factory included in the Goodyear Business
Assets or the SRI Business Assets.
5.04 DELIVERY OF COMMON STOCK. Any transfer or issuance contemplated by the
Alliance Agreements of shares of common stock shall be completed in accordance
with local laws and such agreements by, as the case may be, (i) the delivery of
share certificates (or equivalent document thereto for any limited liability
companies), dated the Closing Date, evidencing ownership of such shares in the
name of the Person entitled to receive such shares pursuant to the Alliance
Agreements and/or (ii) the registration of the transfer or issuance in the share
register of the company, the shares of which are being transferred or issued.
5.05 NOTARIAL DEEDS. Any notarial deeds or other documents, requiring
notarization to be executed at the Closing in respect of any of the Transactions
shall be executed on or before the Closing Date before notaries appointed by the
Parties or their Affiliates in the relevant jurisdiction.
5.06 FURTHER ASSURANCES. After the Closing Date, each Party hereto shall, from
time to time, at the reasonable request of the other Party or a JVC and without
further cost or expense to the Party making the request, execute and deliver
(and, if appropriate, file) or cause to be executed and delivered (and, if
appropriate, filed) such other instruments of conveyance and transfer as the
other Party or the JVC may reasonably request for the purpose of implementing
the Transactions and continue to use best efforts (but without the incurrence of
unreasonable cost or liability) to obtain any consents, approvals,
authorizations and waivers necessary in order to more effectively consummate the
Transactions.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF GOODYEAR
------------------------------------------
Goodyear hereby represents and warrants to SRI (including any successor
corporation thereof) as of the date hereof, except as otherwise stated herein,
as follows:
6.01 CORPORATE ORGANIZATION, ETC. Goodyear is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, and has all requisite corporate power and authority to own,
operate and lease its properties and assets and to conduct the Goodyear
Businesses as now conducted, and is qualified to do business in each
jurisdiction where the nature of its properties, assets or businesses requires
such qualification other than where the failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect on Goodyear.
6.02 AUTHORIZATION, ETC. Goodyear has the requisite power and authority to
execute, deliver and carry out the terms and provisions of the Alliance
Agreements to which it is a Party to be executed, delivered and carried out by
it and to consummate the Transactions, and has taken all necessary corporate
action to authorize the execution, delivery and performance of such Alliance
Agreements and, save as contemplated by the Alliance Agreements, no other act or
proceeding, corporate or otherwise, on the part of Goodyear is necessary to
authorize the execution of the Alliance Agreements or the consummation of any of
the Transactions. The Alliance Agreements to which Goodyear is a Party are and
will be, when executed and delivered by it (assuming due authorization,
execution and delivery by the other Parties thereto), legal, valid and binding
agreements of Goodyear enforceable against it in accordance with their terms,
except to the extent that (i) such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect affecting creditors' rights generally and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
certain equitable defenses and to the discretion of the court before which any
proceedings therefor may be brought.
6.03 NO VIOLATION. The execution and delivery of the Alliance Agreements to
which Goodyear is a Party and the consummation of the Transactions will not
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conflict with, result in the breach of any terms or conditions of, constitute a
default under or violate, accelerate or permit the acceleration of any other
similar right of any other Party or result in the creation or imposition of any
Encumbrance on any of the assets or properties of Goodyear under the Constituent
Documents of Goodyear, any law, rule or regulation or any agreement, lease,
mortgage, note, bond, indenture, license or other document or undertaking, to
which Goodyear is a Party or by which Goodyear or any of its properties may be
bound, nor will such execution, delivery and consummation violate any order,
writ, injunction or decree of any Authority to which Goodyear or any of its
properties is subject, the effect of any of which, either individually or in the
aggregate, (i) would impair the ability of Goodyear to perform its material
obligations under the Alliance Agreements or have a Material Adverse Effect on
Goodyear or (ii) would materially diminish the benefits intended to be afforded
to any of the Parties to the Alliance Agreements.
6.04 COMPLIANCE WITH LAW, ETC. Except as disclosed on Schedule 6.04, Goodyear
has obtained, and maintains in full force and effect, all permits, licenses,
consents, approvals, registrations, memberships, authorizations and
qualifications under all laws and regulations of any Authority, required for the
conduct by it of its businesses and the ownership or possession by it of its
properties and assets other than where the failure to obtain or maintain such
permits, licenses, consents, approvals, registrations, memberships,
authorizations or qualifications would not, individually or in the aggregate,
have a Material Adverse Effect on Goodyear or impair Goodyear's ability to
perform its material obligations under the Alliance Agreements. Except as
disclosed on Schedule 6.04, Goodyear is in compliance with all laws,
regulations, ordinances, orders and decrees (including, without limitation, all
building, zoning, antitrust, competition, environmental and occupational, health
and safety laws) of any Authority applicable to the conduct by Goodyear of its
business and to the ownership and possession of its properties and assets other
than where that failure to so comply would not, individually or in the
aggregate, have a Material Adverse Effect on Goodyear.
6.05 CAPITAL STOCK. The number of shares of Goodyear Common Stock to be acquired
by SRI upon conversion of the Goodyear Convertible Note would, if issued and
delivered by Goodyear pursuant to the Alliance Agreements either on the date
hereof or on the Closing Date, constitute at least one point three five percent
(1.35%) of all issued and outstanding shares of Goodyear Common Stock.
6.06 UNDISCLOSED LIABILITIES, ETC. On the date hereof, except as disclosed in
the published Annual Report of Goodyear dated as of December 31, 1998, or as set
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forth on Schedule 6.06, Goodyear has no liabilities or obligations of any
nature, whether accrued, absolute, contingent or otherwise, and whether due or
to become due, other than liabilities (i) that have been incurred in the
ordinary course of business, or (ii) that have not had a Material Adverse Effect
on Goodyear or (in the case of contingent liabilities or obligations) that would
not, if the contingency were removed, have a Material Adverse Effect on
Goodyear.
6.07 BROKER'S AND FINDER'S FEES. All negotiations relating to the Alliance
Agreements and the Transactions have been carried on without the participation
of any person acting on behalf of Goodyear or any Affiliate of Goodyear, in such
manner as to give rise to any broker's fee (including without limitation
investment banker's fees) or finder's fees or commissions that will be for the
account of, or impose a liability on, SRI, any Affiliate of SRI or any JV
Company.
6.08 FINANCING. On the Closing Date, Goodyear will have sufficient cash
available to it to enable it to consummate all of the Transactions on a timely
basis.
6.09 PROJECTIONS AND FORECASTS. In connection with SRI's investigation of the
Goodyear Business Assets and the Goodyear Businesses, SRI has received from
Goodyear and its Affiliates certain projections and other forecasts for the
Goodyear Business Assets and the Goodyear Businesses and certain plan and budget
information. SRI acknowledges that there are uncertainties inherent in
attempting to make such projections, forecasts, plans and budgets and that,
accordingly, SRI will not (i) assert any claim against Goodyear or its
Affiliates or any of their agents, consultants, counsel, accountants, investment
bankers or representatives, which claim arises from such projections, forecasts,
plans or budget information, or (ii) hold Goodyear or its Affiliates or any such
persons liable, with respect to such a claim. Accordingly, Goodyear makes no
representation or warranty with respect to any estimates, projections,
forecasts, plans or budgets, referred to in this Article 6.09.
6.10 NOT AWARE OF BREACHES. Goodyear warrants to SRI that, on the date hereof,
Goodyear is not aware of any misrepresentation or breach of warranty by SRI or
any Affiliate of SRI under any of the Alliance Agreements.
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6.11 EXCLUSIVITY OF REPRESENTATIONS. THE REPRESENTATIONS AND WARRANTIES MADE BY
GOODYEAR IN THE ALLIANCE AGREEMENTS OR ANY DOCUMENTS DELIVERED AT CLOSING ARE IN
LIEU OF AND ARE EXCLUSIVE OF ALL OTHER REPRESENTATIONS AND WARRANTIES INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED WARRANTIES. GOODYEAR HEREBY DISCLAIMS, AND SRI
WAIVES ANY CLAIM BASED ON, ANY SUCH OTHER OR IMPLIED REPRESENTATIONS OR
WARRANTIES, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE BY GOODYEAR TO SRI OR ITS
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES OF ANY DOCUMENTATION
OR OTHER INFORMATION (INCLUDING ANY FINANCIAL PROJECTIONS OR OTHER SUPPLEMENTAL
DATA).
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF SRI
-------------------------------------
SRI hereby represents and warrants to Goodyear (including any successor
corporation thereof) as of the date hereof, except as otherwise stated herein,
as follows:
7.01 CORPORATE ORGANIZATION, ETC. SRI is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, and has, all requisite corporate power and authority to own,
operate and lease its properties and assets and to conduct the SRI Businesses as
now conducted and is qualified to do business in each jurisdiction where the
nature of its properties, assets or businesses requires such qualification other
than where the failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect on SRI.
7.02 AUTHORIZATION, ETC. SRI has the requisite power and authority to execute,
deliver and carry out the terms and provisions of the Alliance Agreements to
which it is a Party to be executed, delivered and carried out by it and to
consummate the Transactions, and has taken all necessary corporate action to
authorize the execution, delivery and performance of such Alliance Agreements
and, save as contemplated by the Alliance Agreements, no other act or
proceeding, corporate or otherwise, on the part of SRI is necessary to authorize
the execution of the Alliance Agreements or the consummation of any of the
Transactions. The Alliance Agreements to which SRI is a Party are and will be,
when executed and delivered
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by it (assuming due authorization, execution and delivery by the other Parties
thereto), legal, valid and binding agreements of SRI enforceable against it in
accordance with their terms, except to the extent that (i) such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect affecting creditors' rights generally
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to certain equitable defenses and to the
discretion of the court before which any proceedings therefor may be brought.
7.03 NO VIOLATION. The execution and delivery of the Alliance Agreements to
which SRI is a Party and the consummation of the Transactions will not conflict
with, result in the breach of any terms or conditions of, constitute a default
under or violate, accelerate or permit the acceleration of any other similar
right of any other party or result in the creation or imposition of any
Encumbrance on any of the assets or properties of SRI under the Constituent
Documents of SRI, any law, rule or regulation or any agreement, lease, mortgage,
note, bond, indenture, license or other document or undertaking, to which SRI is
a Party or by which SRI or any of its properties may be bound, nor will such
execution, delivery and consummation violate any order, writ, injunction or
decree of any Authority to which SRI or any of its properties is subject, the
effect of any of which, either individually or in the aggregate, (i) would
impair the ability of SRI to perform its material obligations under the Alliance
Agreements or have a Material Adverse Effect on SRI or (ii) would materially
diminish the benefits intended to be afforded to any of the Parties to the
Alliance Agreements.
7.04 COMPLIANCE WITH LAW, ETC. Except as disclosed on Schedule 7.04, SRI has
obtained, and maintains in full force and effect, all permits, licenses,
consents, approvals, registrations, memberships, authorizations and
qualifications under all laws and regulations of any Authority, required for the
conduct by it of its businesses and the ownership or possession by it of its
properties and assets other than where the failure to obtain or maintain such
permits, licenses, consents, approvals, registrations, memberships,
authorizations or qualifications would not, individually or in the aggregate,
have a Material Adverse Effect on SRI, or impair SRI's ability to perform its
material obligations under the Alliance Agreements. Except as disclosed on
Schedule 7.04, SRI is in compliance with all laws, regulations, ordinances,
orders and decrees (including, without limitation, all building, zoning,
antitrust, competition, environmental and occupational, health and safety laws)
of any Authority applicable to the conduct by SRI of its business and to the
ownership and possession of its properties and assets other than where
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that failure to so comply would not, individually or in the aggregate, have a
Material Adverse Effect on SRI.
7.05 CAPITAL STOCK. The number of shares of SRI Common Stock to be acquired by
Goodyear upon conversion of the SRI Convertible Note would, if issued and
delivered by SRI pursuant to the Alliance Agreements either on the date hereof
or on the Closing Date, constitute ten percent (10%) of all issued and
outstanding shares of SRI Common Stock.
7.06 UNDISCLOSED LIABILITIES, ETC. On the date hereof, except as disclosed in
the published Annual Report of SRI dated as of December 31, 1998, or as set
forth on Schedule 7.06, SRI has no liabilities or obligations of any nature,
whether accrued, absolute, contingent or otherwise, and whether due or to become
due, other than liabilities (i) that have been incurred in the ordinary course
of business, or (ii) that have not had a Material Adverse Effect on SRI or (in
the case of contingent liabilities or obligations) that would not, if the
contingency were removed, have a Material Adverse Effect on SRI.
7.07 BROKER'S AND FINDER'S FEES. All negotiations relating to the Alliance
Agreements and the Transactions have been carried on without the participation
of any Person acting on behalf of SRI or any Affiliate of SRI, in such manner as
to give rise to any broker's fee (including without limitation investment
banker's fees) or finder's fees or commissions that will be for the account of,
or impose a liability on, Goodyear, any Affiliate of Goodyear or any JV Company.
7.08 PROJECTIONS AND FORECASTS. In connection with Goodyear's investigation of
the SRI Business Assets and the SRI Businesses, Goodyear has received from SRI
and its Affiliates certain projections and other forecasts for the SRI Business
Assets and the SRI Businesses and certain plan and budget information. Goodyear
acknowledges that there are uncertainties inherent in attempting to make such
projections, forecasts, plans and budgets and that, accordingly, Goodyear will
not (i) assert any claim against SRI or its Affiliates or any of their agents,
consultants, counsel, accountants, investment bankers or representatives, which
claim arises from such projections, forecasts, plans or budget information, or
(ii) hold SRI or its Affiliates or any such persons liable, with respect to such
a claim. Accordingly, SRI makes no representation or warranty with respect to
any estimates, projections, forecasts, plans or budgets referred to in this
Article 7.08. Nothing in this Article 7.08 is intended to affect the rights of
Goodyear under
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Article 17.01(i) or the obligation of the Japan OE JVC under Article 9.6 of the
Japan OE Shareholders Agreement.
7.09 NOT AWARE OF BREACHES. SRI warrants to Goodyear that, on the date hereof,
SRI is not aware of any misrepresentation or breach of warranty by Goodyear or
any Affiliate of Goodyear under any of the Alliance Agreements.
7.10 EXCLUSIVITY OF REPRESENTATIONS. THE REPRESENTATIONS AND WARRANTIES MADE BY
SRI IN THE ALLIANCE AGREEMENTS OR ANY DOCUMENTS DELIVERED AT CLOSING ARE IN LIEU
OF AND ARE EXCLUSIVE OF ALL OTHER REPRESENTATIONS AND WARRANTIES INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED WARRANTIES. SRI HEREBY DISCLAIMS, AND GOODYEAR
WAIVES ANY CLAIM BASED ON, ANY SUCH OTHER OR IMPLIED REPRESENTATIONS OR
WARRANTIES, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE BY SRI TO GOODYEAR OR ITS
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES OF ANY DOCUMENTATION
OR OTHER INFORMATION (INCLUDING ANY FINANCIAL PROJECTIONS OR OTHER SUPPLEMENTAL
DATA).
ARTICLE VIII
CONDITIONS TO GOODYEAR'S OBLIGATIONS
------------------------------------
The obligations of Goodyear to consummate the Transactions shall be
subject to the satisfaction of each of the following conditions, unless waived
in writing by Goodyear.
8.01 REPRESENTATIONS AND WARRANTIES TRUE. The representations and warranties of
SRI and each of its Affiliates contained in the Alliance Agreements and in the
certificates and other documents delivered and to be delivered by SRI and each
of its Affiliates pursuant to Articles 5.03 and 8.03 hereof shall be true and
accurate as of the date when made and (except as regards matters of the kind
referred to in the first two sentences of Article 5.16(g) of the Europe JV
Agreement) at and as of the Closing Date as though such representations and
warranties were made at and as of such date, except to the extent that any such
representation or warranty is made as of a specified date, in which case such
representation or warranty shall be true and accurate as of such specified date;
and except in each case (i) as
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expressly agreed in writing by the Parties pursuant to the second sentence of
Article 4.04, or (ii) for changes expressly contemplated by the terms of the
Alliance Agreements, or (iii) to the extent any breaches taken as a whole of
representations or warranties do not have a Material Adverse Effect on any of
Dunlop GmbH, Dunlop Tyres Ltd., Dunlop France S.A., DTC or the business of SRI
and/or its Affiliates to be included in the Japan OE JVC; provided that, in
order to prevent unintended compounding of materiality standards herein, in
determining whether any such breaches of representation or warranties have such
a Material Adverse Effect any expression contained within such representation or
warranty concerning the materiality of the effect of the breach thereof shall be
ignored for this purpose only.
8.02 PERFORMANCE. SRI and each of its Affiliates shall have performed and
complied in all material respects with all other agreements, covenants,
obligations and conditions required by the Alliance Agreements to be performed
or complied with by it on or prior to the Closing Date.
8.03 CERTIFICATES. SRI and each of its Affiliates shall have furnished to
Goodyear such certificates of its officers and others, in the form attached as
Exhibit 8.03 to evidence compliance with the conditions set forth in Articles
8.01, 8.02 and 8.10 hereof.
8.04 GOVERNMENTAL APPROVALS. (a) All notifications required pursuant to the HSR
Act to carry out the Transactions shall have been made, and the applicable
waiting period and any extensions thereof shall have expired or been terminated
without the imposition of any Burdensome Condition on Goodyear, any of its
Affiliates or any Alliance JVC.
(b)(i) The European Commission shall have made a decision, in
terms satisfactory to both Parties, that in connection with
the proposed Alliance, or any matter arising therefrom, it
will not initiate proceedings under Article 6(1)(c) of Council
Regulation (EEC) 4064/89 (the "Regulation") or make a referral
to a competent authority under Article 9(1) of the Regulation.
(ii) In the event that a request under Article 9(2) of the
Regulation has been made by a European Union or EFTA state,
the European
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Commission shall have indicated, in terms satisfactory to both
Parties, that it does not intend to refer the proposed
Alliance, or any aspect of the proposed Alliance, to a
competent authority of such state in accordance with Article
9(3) of the Regulation.
(iii) In the event of a referral of the proposed Alliance, or any
aspect of the proposed Alliance, to a competent authority of a
European Union or EFTA state in accordance with Article 9(3)
of the Regulation, such competent authority shall have adopted
a decision or provided such other indication of its position
as shall be satisfactory to both Parties.
(iv) In the event that European Commission initiates proceedings
under Article 6(1)(c) of the Regulation, the European
Commission shall have issued a decision under Article 8(2) of
the Regulation and, if applicable, both Parties shall have
accepted such conditions and obligations as are attached to
the European Commission's decision.
(v) Either (x) no indication shall have been made that a European
Union or EFTA state may take appropriate measures to protect
legitimate interests pursuant to Article 21(3) of the
Regulation in relation to the proposed Alliance or any aspect
of the proposed Alliance or (y) in the event of a European
Union or EFTA state taking measures to protect legitimate
interests pursuant to Article 21(3) of the Regulation, such
measures shall be satisfactory to both Parties.
(vi) In the event that the European Commission finds that the
proposed Alliance, in whole or in part, does not constitute a
concentration within the meaning of Article 3 of the
Regulation, the Parties shall have made an application for
negative clearance and/or filed a notification to obtain an
exemption from Article 81 of the EC Treaty, or shall have
agreed to another course of action satisfactory to both
Parties.
(c) A prior informal consultation shall have been carried out with the
Japan Fair Trade Commission and oral confirmation obtained from it (i) that, in
principle, the Transactions are not prohibited under the Law relating to
Prohibition of Private
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Monopoly and Methods of Preserving Fair Trade (Anti-Monopoly Law) with
Concomitant Orders and Regulations of Japan and (ii) that no formal notification
to or approval by the Japan Fair Trade Commission is necessary with regard to
the Transactions.
(d) All other Governmental Approvals required to be obtained to
consummate the Transactions, including, but not limited to, those set forth on
Schedule 8.04(d) hereto, shall have been obtained, and all applicable
pre-consummation waiting periods shall have expired, except for Governmental
Approvals and waiting periods the failure to obtain or satisfy which would not,
individually or in the aggregate, in the reasonable opinion of Goodyear, be
likely to impose a Burdensome Condition on Goodyear and/or its businesses, taken
as a whole in each country, in each of France, Germany, Italy, Luxembourg and
the United Kingdom.
8.05 NO INJUNCTION. On the Closing Date, there shall be no effective injunction,
writ, preliminary restraining order or any order of any nature issued by a court
of competent jurisdiction directing that any material part of the Transactions
not be consummated as provided in the applicable Alliance Agreement or imposing,
in the reasonable opinion of Goodyear, any Burdensome Condition on Goodyear, its
Affiliates or any Alliance JVC; provided that, as of such date, Goodyear shall
have used its, and shall have caused its Affiliates to have used their, best
efforts (but without the incurrence of any unreasonable cost or liability) to
contest (by appropriate means) such injunction, writ or order.
8.06 NO GOVERNMENT PROCEEDING OR LITIGATION. No suit, action, investigation,
inquiry or other proceeding by any Authority or other legal or administrative
proceeding shall be pending or threatened as of the Closing Date which (a) seeks
to prevent or restrict the consummation of any material part of the
Transactions, or (b) questions the validity or legality of any of the
Transactions and which, in either case, in the reasonable opinion of Goodyear,
has such reasonable likelihood of ultimate success as to make proceeding with
the Closing contrary to the best interests of Goodyear; provided that, as of
such date, Goodyear shall have used its, and shall have caused its Affiliates to
have used their, best efforts (but without the incurrence of any unreasonable
cost or liability) to contest (by appropriate means) such suit, action,
investigation, inquiry or other proceeding.
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8.07 ADEQUATE ASSURANCES. (a) Goodyear shall have received adequate assurance
that Goodyear, its Affiliates and the JVCs, together, will have, both before
and, in the case of the Europe JVC, the North America JVC and Goodyear, after a
Global Exit, all the necessary rights to use the applicable SRI Trademarks,
including but not limited to the "Dunlop" trademarks, in order to carry on the
businesses comprehended within the definition of "SRI Businesses" as set forth,
respectively, in each of the Europe JV Agreement, the North America JV
Agreement, the Japan OE JV Agreement and the Japan Replacement JV Agreement,
substantially as such businesses were carried on by SRI and its applicable
Affiliates prior to the Closing (including the continuing right of OEM customers
to export vehicles equipped with tires bearing such SRI Trademarks to
jurisdictions where SRI does not hold the right to use the applicable trademark
pursuant to agreements with DMIB Berhad, Pacific Dunlop Limited and, to the
extent practicable, Dunlop India Limited.
(b) Goodyear shall have received adequate assurance that SRI's and its
Affiliates' exclusive technology license agreements with Persons in the
countries of Malaysia, Taiwan, the Dunlop Africa Limited Territories and India
have been changed to permit Goodyear and its Affiliates, to use intermingled
technology in the production of Goodyear's and its Affiliates' tires in the
countries of Malaysia, Taiwan, South Africa and India or that such agreements
have been terminated or that negotiations to so change or terminate them have
begun so that under no circumstances will the exclusive rights (if any) provided
under those agreements be extended or renewed beyond the shortest term currently
provided for.
8.08 LABOR MATTERS. The Parties and their Affiliates shall have completed all
necessary consultations with unions, works' councils and other employee
representatives.
8.09 INITIAL SALES PLAN. The Parties shall have agreed on the Initial Sales Plan
for each of the Europe JVC, the North America JVC, the Japan OE JVC and the
Japan Replacement JVC, the format for which is set forth on Schedule 8.09.
8.10 NO MATERIAL ADVERSE CHANGE. No material adverse change shall have occurred
in the financial condition, assets or operations of any of Dunlop GmbH, Dunlop
Tyres Ltd., Dunlop France S.A., DTC or the businesses of SRI and/or its
Affiliates to be included in the Japan OE JVC, except for events of the kind
referred to in the first two sentences of Article 5.16(g) of the Europe JV
Agreement
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and except for such changes as shall have resulted solely from the entering into
of the Alliance Agreements or the consummation of any of the Transactions.
ARTICLE IX
CONDITIONS TO SRI'S OBLIGATIONS
-------------------------------
The obligations of SRI to consummate the Transactions shall be subject
to the satisfaction of each of the following conditions, unless waived in
writing by SRI.
9.01 REPRESENTATIONS AND WARRANTIES TRUE. The representations and warranties of
Goodyear and each of its Affiliates contained in the Alliance Agreements and in
the certificates and other documents delivered and to be delivered by Goodyear
and each of its Affiliates pursuant to Articles 5.03 and 9.03 hereof shall be
true and accurate as of the date when made and (except as regards the matters
referred to in the first two sentences of Article 6.16(g) of the Europe JV
Agreement) at and as of the Closing Date as though such representations and
warranties were made at and as of such date, except to the extent that any such
representation or warranty is made as of a specified date, in which case such
representation or warranty shall be true and accurate as of such specified date;
and except in each case (i) as expressly agreed in writing by the Parties
pursuant to the second sentence of Article 4.04, or (ii) for changes expressly
contemplated by the terms of the Alliance Agreements, or (iii) to the extent any
breaches taken as a whole of representations or warranties do not have a
Material Adverse Effect on Goodyear's businesses, taken as a whole in each
country, in each of France, Germany, Italy, Luxembourg and the United Kingdom;
provided that, in order to prevent unintended compounding of materiality
standards herein, in determining whether any such breaches of representation or
warranties have such a Material Adverse Effect any expression contained within
such representation or warranty concerning the materiality of the effect of the
breach thereof shall be ignored for this purpose only.
9.02 PERFORMANCE. Goodyear and each of its Affiliates shall have performed and
complied in all material respects with all other agreements, covenants,
obligations and conditions required by the Alliance Agreements to be performed
or complied with by it on or prior to the Closing Date.
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9.03 CERTIFICATES. Goodyear and each of its Affiliates shall have furnished to
SRI certificates of its officers and others, in the form attached as Exhibit
9.03 to evidence compliance with the conditions set forth in Articles 9.01, 9.02
and 9.10 hereof.
9.04 GOVERNMENTAL APPROVALS. (a) All notifications required pursuant to the HSR
Act to carry out the Transactions shall have been made, and the applicable
waiting period and any extensions thereof shall have expired or been terminated
without the imposition of any Burdensome Condition on SRI, any of its Affiliates
or any Alliance JVC.
(b)(i) The European Commission shall have made a decision, in
terms satisfactory to both Parties, that in connection with
the proposed Alliance, or any matter arising therefrom, it
will not initiate proceedings under Article 6(1)(c) of Council
Regulation (EEC) 4064/89 (the "Regulation") or make a referral
to a competent authority under Article 9(1) of the Regulation.
(ii) In the event that a request under Article 9(2) of the
Regulation has been made by a European Union or EFTA state,
the European Commission shall have indicated, in terms
satisfactory to both Parties, that it does not intend to refer
the proposed Alliance, or any aspect of the proposed Alliance,
to a competent authority of such state in accordance with
Article 9(3) of the Regulation.
(iii) In the event of a referral of the proposed Alliance, or any
aspect of the proposed Alliance, to a competent authority of a
European Union or EFTA state in accordance with Article 9(3)
of the Regulation, such competent authority shall have adopted
a decision or provided such other indication of its position
as shall be satisfactory to both Parties.
(iv) In the event that European Commission initiates proceedings
under Article 6(1)(c) of the Regulation, the European
Commission shall have issued a decision under Article 8(2) of
the Regulation and, if applicable, both Parties shall have
accepted such conditions and obligations as are attached to
the European Commission's decision.
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(v) Either (x) no indication shall have been made that a European
Union or EFTA state may take appropriate measures to protect
legitimate interests pursuant to Article 21(3) of the
Regulation in relation to the proposed Alliance or any aspect
of the proposed Alliance or (y) in the event of a European
Union or EFTA state taking measures to protect legitimate
interests pursuant to Article 21(3) of the Regulation, such
measures shall be satisfactory to both Parties.
(vi) In the event that the European Commission finds that the
proposed Alliance, in whole or in part, does not constitute a
concentration within the meaning of Article 3 of the
Regulation, the Parties shall have made an application for
negative clearance and/or filed a notification to obtain an
exemption from Article 81 of the EC Treaty, or shall have
agreed to another course of action satisfactory to both
Parties.
(c) A prior informal consultation shall have been carried out with the
Japan Fair Trade Commission and oral confirmation obtained from it (i) that, in
principle, the Transactions are not prohibited under the Law relating to
Prohibition of Private Monopoly and Methods of Preserving Fair Trade
(Anti-Monopoly Law) with Concomitant Orders and Regulations of Japan and (ii)
that no formal notification to or approval by the Japan Fair Trade Commission is
necessary with regard to the Transactions.
(d) All other Governmental Approvals required to be obtained to
consummate the Transactions, including, but not limited to, those set forth on
Schedule 9.04(d) hereto, shall have been obtained, and all applicable
pre-consummation waiting periods shall have expired, except for Governmental
Approvals and waiting periods the failure to obtain or satisfy which would not,
individually or in the aggregate, in the reasonable opinion of SRI, be likely to
impose a Burdensome Condition on SRI and/or Dunlop GmbH, Dunlop Tyres Ltd.,
Dunlop France S.A. and DTC.
9.05 NO INJUNCTION. On the Closing Date, there shall be no effective injunction,
writ, preliminary restraining order or any order of any nature issued by a court
of competent jurisdiction directing that any material part of the Transactions
not be
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consummated as provided in the applicable Alliance Agreement or imposing, in the
reasonable opinion of SRI, any Burdensome Condition on SRI, its Affiliates or
any Alliance JVC; provided that, as of such date, SRI shall have used its, and
shall have caused its Affiliates to have used their, best efforts (but without
the incurrence of any unreasonable cost or liability) to contest (by appropriate
means) such injunction, writ or order.
9.06 NO GOVERNMENT PROCEEDING OR LITIGATION. No suit, action, investigation,
inquiry or other proceeding by any Authority or other legal or administrative
proceeding shall be pending or threatened as of the Closing Date which (a) seeks
to prevent or restrict the consummation of any material part of the
Transactions, or (b) questions the validity or legality of any of the
Transactions and which, in either case, in the reasonable opinion of SRI, has
such reasonable likelihood of ultimate success as to make proceeding with the
Closing contrary to the best interests of SRI; provided that as of such date,
SRI shall have used its, and shall have caused its Affiliates to have used
their, best efforts, but without the incurrence of any unreasonable cost or
liability to contest (by appropriate means) such suit, action, investigation,
inquiry or other proceeding.
9.07 ADEQUATE ASSURANCES. SRI shall have received adequate assurance that the
Japan JVCs will have, prior to any Global Exit or Regional Exit, all the
necessary rights to use the applicable Goodyear Trademarks, including without
limitation, the "Goodyear" trademarks, in order to carry on the businesses
comprehended within the definition of "Goodyear Businesses" as set forth,
respectively, in each of the Japan OE JV Agreement and the Japan Replacement JV
Agreement, substantially as such businesses were carried on by Goodyear and its
applicable Affiliates prior to the Closing.
9.08 LABOR MATTERS. The Parties and their Affiliates shall have completed all
necessary consultations with unions, works' councils and other employee
representatives.
9.09 INITIAL SALES PLAN. The Parties shall have agreed on the Initial Sales Plan
for each of the Europe JVC, the North America JVC, the Japan OE JVC and the
Japan Replacement JVC, the format for which is set forth in Schedule 8.09.
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9.10 NO MATERIAL ADVERSE CHANGE. No material adverse change shall have occurred
in the financial condition, assets or operation of Goodyear Great Britain
Limited, Deutsche Goodyear GmbH, Gummiwerke Fulda GmbH, Goodyear Luxembourg
Tires, Goodyear France S.A., Goodyear Italiana SpA, or the Goodyear business in
Japan to be included in the Japan OE JVC and the Japan Replacement JVC, such
Goodyear businesses taken as a whole, except for events of the kind referred to
in the first two sentences of Article 6.16(g) of the Europe JV Agreement and
except for such changes as shall have resulted solely from the entering into of
the Alliance Agreement or the consummation of any of the Transactions.
ARTICLE X
CROSS INVESTMENTS
-----------------
10.01 NO REDEMPTION OF NOTES. Notwithstanding any other provisions set forth in
the Note Purchase Agreements or the Notes issued pursuant thereto or in the
other Alliance Agreements, if the Closing takes place as provided for herein and
if no Global Exit has occurred on or before July 1, 2000, then
(a) Goodyear (i) shall not redeem the Goodyear Note pursuant to
Section 4(a) of the Goodyear Note Purchase Agreement; (ii) shall, during the
Conversion Period specified in the SRI Note, take all necessary steps to convert
the SRI Note into shares of SRI Common Stock, as provided in the SRI Note; and
(iii) shall cooperate with SRI in SRI's conversion of the Goodyear Note into
shares of Goodyear Common Stock, as provided in the Goodyear Note.
(b) SRI (i) shall not redeem the SRI Note pursuant to Section 4(a) of
the SRI Note Purchase Agreement; (ii) shall, during the Conversion Period
specified in the Goodyear Note, take all necessary steps to convert the Goodyear
Note into shares of Goodyear Common Stock, as provided in the Goodyear Note; and
(iii) shall cooperate with Goodyear in Goodyear's conversion of the SRI Note
into shares of SRI Common Stock, as provided in the SRI Note.
10.02 MAINTENANCE OF CROSS INVESTMENTS. (a) Subject to the provisions of
paragraphs (b) and (c) of this Article 10.02, following the conversion of the
Goodyear Note and the SRI Note and so long as no Global Exit shall have
occurred,
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Goodyear shall not purchase, sell or dispose of or otherwise transfer (whether
for cash or other consideration) its interest (including any beneficial interest
as defined under the 1934 Act), in any shares of SRI Common Stock or other
voting securities of SRI without the prior written consent of SRI and SRI shall
not so purchase, sell or dispose of or otherwise transfer (whether for cash or
other consideration) its interest in any shares of Goodyear Common Stock or
other voting securities of Goodyear without the prior written consent of
Goodyear; provided that both Goodyear and SRI may from time to time purchase
such shares of the other's Common Stock as is necessary to maintain the
investor's percentage interest in such other Party's total issued and
outstanding shares of Common Stock as existed immediately following the
conversion of the Goodyear Note and the SRI Note, respectively. In the event
either Party makes a purchase as permitted by the preceding proviso clause, it
shall promptly give written notice thereof to the other Party.
(b) In the event Goodyear issues additional shares of its Common
Stock and if, as a result of such issuance, SRI's percentage interest in
Goodyear Common Stock is reduced, SRI shall be entitled to purchase, on the open
market or in negotiated private transactions, such additional shares as shall
allow it to obtain the same percentage interest as it had immediately following
the conversion of the Goodyear Note. Goodyear shall furnish to SRI within 45
days of the close of each calendar quarter, notice of the total number of issued
and outstanding shares of Goodyear Common Stock. In addition, Goodyear shall,
promptly (and in any event within five working days) upon a request from SRI,
furnish SRI with the total number of issued and outstanding shares of Goodyear
Common Stock on the date of such request.
(c) In the event SRI issues additional shares of its Common Stock and
if, as a result of such issuance, Goodyear's percentage interest in SRI Common
Stock is reduced, Goodyear shall be entitled to purchase, on the open market or
in negotiated private transactions, such additional shares as shall allow it to
obtain the same percentage interest as it had immediately following the
conversion of the SRI Note. SRI shall furnish to Goodyear (i) within 45 days of
the close of each calendar quarter, notice of the total number of issued and
outstanding shares of SRI Common Stock and (ii) promptly following
recommendation by the SRI Board of Directors of a date on which a dividend on
SRI Common Stock will be paid, but not later than fourteen (14) days preceding
such dividend payment date, notice of such dividend payment date and of the
total number of shares of SRI Common Stock (x) issued and outstanding on the
date of such recommendation and (y), unless prohibited by law, projected to be
issued and outstanding on the
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forthcoming dividend payment date. In the event that Goodyear notifies SRI that
Goodyear is unable to purchase on the open market or in negotiated private
transactions, such additional shares as shall allow it to maintain the same
percentage interest as it had immediately following the conversion of the SRI
Note, then SRI shall, to the extent permitted by applicable law, at SRI's
election, either
(i) issue to Goodyear at the then current market price such additional
shares as shall allow Goodyear to maintain the same percentage
interest as it had immediately following the conversion of the SRI
Note, or
(ii) use its best efforts (but without the incurrence of unreasonable cost
or liability) to arrange for Goodyear to purchase at the then current
market price from a third party such additional shares as shall allow
Goodyear to maintain the same percentage interest as it had
immediately following the conversion of the SRI Note, or
(iii) use its best efforts (but without the incurrence of unreasonable cost
or liability) to take such other measures, as shall allow Goodyear to
maintain the same percentage interest as it had immediately following
the conversion of the SRI Note.
In addition, SRI shall promptly (and in any event within five working days) upon
a request from Goodyear, furnish Goodyear with the total number of issued and
outstanding shares of SRI Common Stock on the date of such request.
(d) So long as neither Party has given notice to the other Party
pursuant to Article 17.03(a) of its intention to exercise a Global Exit Right
and for a period of eighteen (18) months after the giving of such notice,
Goodyear and SRI each shall not participate in any attempt to effect a hostile
takeover involving the other Party; provided that nothing in this Article
10.02(d) shall be deemed to require either Party to violate any provision of
applicable law or any fiduciary obligation arising under applicable law.
(e) In relation to Goodyear's holding of SRI Common Stock, Goodyear
shall (at its sole cost) appoint a standing proxy in Japan or file a notice of
mailing address in Japan in accordance with the Articles of Incorporation and
Share Handling Regulations of SRI. Accordingly, all and any notices to be given
by SRI to Goodyear as a registered shareholder pursuant to the Japanese
Commercial Code and/or SRI's Articles of Incorporation and Share Handling
Regulations will be given to such standing proxy and sent to such mailing
address in Japan.
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10.03 GOODYEAR RIGHT TO NOMINATE SRI DIRECTOR. (a) So long as Goodyear owns at
least ten percent (10%) of the total issued and outstanding shares of SRI Common
Stock, with effect from the annual meeting of SRI shareholders in 2001, SRI
shall use its best efforts (but without the incurrence of unreasonable cost or
liability) to ensure that such person as Goodyear may from time to time nominate
will be elected to its Board of Directors (or any successor governing board)
provided that if the person nominated is not an executive of Goodyear, Goodyear
must obtain SRI's consent to the nomination, which consent shall not be
unreasonably withheld or delayed. If SRI shall not consent to a particular
nominee, Goodyear shall have the right to select an alternative nominee, subject
to the same right of SRI to give or withhold its consent. Upon SRI's request,
Goodyear shall promptly provide it with details of the name, title, relevant
professional experience and such other information as may reasonably be needed
to prepare the agenda for each annual meeting of SRI's shareholders.
(b) The Goodyear-nominated director shall serve as a non-executive
(i.e. part-time or "hijokin") director of SRI and shall be entitled to attend
all meetings of SRI Directors, to receive all notices provided to SRI
non-executive Directors, and generally to enjoy the rights (other than
compensation-related benefits) which would be enjoyed by any other non-executive
SRI director. Without limiting the foregoing, the Parties anticipate that the
Goodyear-nominated director will attend the twice-yearly meetings of the SRI
Board of Directors at which financial results are considered.
(c) In order to facilitate scheduling by the Goodyear-nominated
director, SRI shall send to the Goodyear-nominated director, in December of each
year, the anticipated dates of each regular monthly meeting of the SRI Board of
Directors for the forthcoming year, and informal preliminary notice of each
meeting at least 30 days prior to each such meeting. In order that the
Goodyear-nominated director shall have a simultaneous English translation of the
proceedings of each meeting attended, he or she shall, at Goodyear's expense, be
(i) entitled to bring one assistant (who shall be an employee of Goodyear or an
Affiliate of Goodyear) to any meeting of the SRI Board of Directors attended by
him or her, and (ii) SRI shall, at Goodyear's expense, provide such technical
assistance as may be necessary.
(d) Following the first anniversary of the Closing, and assuming no
Global Exit has occurred, so long as Goodyear owns at least ten percent (10%) of
the total
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issued and outstanding shares of SRI Common Stock, and until a
Goodyear-nominated director shall have been elected to the SRI Board of
Directors, SRI shall permit Goodyear to send a Goodyear executive (or another
person reasonably satisfactory to SRI) to attend meetings of the SRI Board of
Directors. The provisions of the final sentence of paragraph (b) and the
provisions of paragraph (c) of this Article 10.03 shall apply during this
period.
(e) If at any time following the first anniversary of the Closing,
SRI becomes aware that Goodyear owns less than ten percent (10%) of the total
issued and outstanding shares of SRI Common Stock (otherwise than by reason of a
Global Exit or a disposal otherwise permitted by the terms of the Alliance
Agreements), then SRI shall promptly so notify Goodyear and Goodyear shall,
nevertheless, continue to have the rights afforded it by this Article 10.03 for
a period of 180 days after such notification from SRI, during which period
Goodyear shall be entitled to purchase shares of SRI Common Stock as provided in
Article 10.02(c) hereof.
ARTICLE XI
GLOBAL OE CUSTOMER RELATIONS
----------------------------
11.01 GLOBAL MANAGEMENT OF RELATIONSHIPS WITH JAPAN ORIGINAL EQUIPMENT
MANUFACTURERS. SRI, through the Japan OE JVC, will be responsible for the
management of relationships relating to the business under Goodyear's Trademarks
and SRI's Trademarks of the JVCs (a) with Japan-origin Automotive OEMs and (b)
with motorcycle OEMs and ATV OEMs regardless of origin. In addition to the
specific responsibilities delegated to SRI appointees in the Europe JVC and the
North America JVC, this management responsibility will include global
coordination of the relationship with Japan-origin original equipment
manufacturers, as follows:
(i) to collect information on the activities of
Japan-origin OEMs and their strategies and provide
them to each JVC;
(ii) to indicate to each JVC the direction and
strategy of SRI consistent with the information
provided;
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(iii) to indicate the direction and strategy of SRI
on how to target the Japan-origin OEMs regarding car
model, including tire specifications and tire brand
as appropriate;
(iv) the information and communication in (i), (ii)
and (iii) above will be provided in advance for a
rolling three (3) year period;
(v) subject to the terms and conditions of the
Technology JV Agreement and technology license
agreements constituting Alliance Agreements, SRI will
support the activity undertaken by each JVC for
obtaining technical homologation to realize
specifications which work will primarily be done by
each JVC; this will include a decision on which green
tires should be used; and
(vi) subject to the terms and conditions of the
Technology JV Agreement and technology license
agreements constituting Alliance Agreements, SRI will
support the sales and marketing efforts of the JVCs
with the relevant OEMs either by sending SRI people
from time to time or stationing them in the JVC.
Notwithstanding any other provision of this Article XI, the
responsibility for global management of the relationship with Japanese-origin
Automotive OEMs and with motorcycle and ATV OEMs regardless of origin shall be
exercised within the parameters of (a) a strategic plan for the global
development of the Japan-origin OEMs' business and (b) the respective Business
Plan for each JVC.
11.02 GLOBAL MANAGEMENT OF RELATIONSHIPS WITH NON-JAPAN ORIGINAL EQUIPMENT
MANUFACTURERS. Goodyear will be responsible for the management of relationships
relating to the business under Goodyear's Trademarks and SRI's Trademarks of
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the JVCs with Non-Japan-origin Automotive OEMs. In addition to the
responsibilities of the Goodyear appointees in the Europe JVC, the North America
JVC and the Japan OE JVC, this management responsibility will include global
coordination of the relationship with non-Japan-origin original equipment
manufacturers similar to those activities described in Article 11.01 above.
11.03 EXPENSES OF GLOBAL OEM RELATIONSHIP. All reasonable expenses of SRI or the
Japan OE JVC in providing any assistance, information or staff at the request of
the Europe JVC or the North America JVC to administer the activities listed in
Article 11.01 above shall be borne by the Europe JVC or the North America JVC,
as the case may be. All reasonable expenses of Goodyear or of any Affiliate of
Goodyear in providing any assistance, information or staff at the request of any
JVC in order to administer activities pursuant to Article 11.02 above, in
connection with global relationships with Non-Japan-origin Automotive OEMs shall
also be borne by the JVC which requests the services. Those staff of SRI and
Goodyear required initially by the JVCs shall be determined prior to Closing.
11.04 FUTURE DEVELOPMENTS. In the event a Japanese company assumes control over
a Non-Japan-origin OEM or a non-Japanese company assumes control over a
Japan-origin OEM, SRI and Goodyear will discuss whether any resulting cultural,
administrative or operating changes in the OEM over which control has been
assumed would make it necessary or advisable for the Parties to shift the global
relationship management of the OEM from Goodyear to SRI or from SRI to Goodyear,
as the case may be. Such a shift (a) would be subject to such transition period
and transition procedures as SRI and Goodyear may agree, and (b) will have no
effect on the obligations of the Japan OE JVC pursuant to Article 17.01(i)
hereof.
ARTICLE XII
SALES OF SUMITOMO BRAND TIRES
-----------------------------
Notwithstanding anything to the contrary in the Alliance Agreements,
SRI agrees that if the aggregate number of "Sumitomo" brand tires manufactured
by or for SRI (and its Affiliates) and for supply to the European Territory and
the North American Territory in any calendar year exceeds ten percent (10%)) of
the manufacturing capacity for such calendar year of the plants owned by SRI and
its Affiliates on the date hereof in Japan and Indonesia, SRI will pay Goodyear
a
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commission equal to five percent (5%) of the net sales price charged by SRI
and/or its Affiliates on such excess tire sales.
ARTICLE XIII
MONITORING THE ALLIANCE AND CONTINUING COOPERATION
--------------------------------------------------
13.01 TOP LEVEL MEETINGS AND GENERAL COOPERATION. Goodyear and SRI shall meet
regularly to review the functioning of the Alliance and to discuss additional
business opportunities including possible geographic or functional extensions of
the Alliance. Notwithstanding any other meetings and discussions the Parties may
have, Goodyear and SRI shall hold at least two Top Level Meetings per year. As
used in this Agreement, a Top Level Meeting shall mean a meeting between, on the
one hand, one or two persons who hold the title of chairman, chief executive
officer, chief operating officer, and/or president of Goodyear and, on the other
hand, one or two persons who hold the title of chairman or president of SRI.
These meetings shall be at such times and places as the Parties may agree.
13.02 COOPERATION ON TRADEMARK MATTERS. (a) In order to maintain global
consistency in the form and presentation of the "Dunlop" and D device
trademarks, Goodyear and SRI shall consult and cooperate with each other (and,
if and to the extent that either of them considers it necessary or desirable,
with other owners of the "Dunlop" and D device trademarks), and shall procure
that their respective Affiliates so consult and cooperate, concerning any
proposed change in the form and/or presentation of any of the "Dunlop" or D
device trademarks in relation to any of the Licensed Products and in particular
concerning any proposed change to or waiver of the requirements of the Dunlop
Corporate Trade Mark Manual of which either of them or any of their respective
Affiliates becomes aware.
(b) Without prejudice to the generality of the foregoing, none of
Goodyear, the JVCs or their respective Affiliates shall use any trademark
consisting of or including the word "Dunlop" or the D device in conjunction with
any of the Goodyear Primary Trademarks.
(c) In the event that, after the signing of this Agreement, a new
trademark including the word "Dunlop" or the D device is created which is
proposed to be used for Licensed Products, Goodyear and SRI shall consult with
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and provide information to each other (and shall procure that their respective
Affiliates proposing to use the said trademark so consult and provide
information) about the proposed trademark, including in such information a
general description of the product or purposes for which it is proposed to be
used and the country or countries where is it is proposed to be used.
ARTICLE XIV
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
------------------------------------------
The respective representations and warranties of Goodyear and SRI
contained in the Alliance Agreements or in the certificates or other documents
delivered pursuant to Articles 5.03, 8.03 or 9.03 hereof shall survive the
Closing as follows:
(i) in respect of claims under the representations and warranties referred
to in Article 15.02(b)(iii)(x) and (y), until:
(a) Title to Property - the second anniversary of the Closing Date;
(b) Intellectual Property - the fifth anniversary of the Closing
Date;
(c) Environmental, Health & Safety - the third anniversary of the
Closing Date;
(d) Undisclosed Liabilities, etc - the second anniversary of the
Closing Date;
(ii) in respect of claims under the representations and warranties relating
to Tax referred to in Article 15.02(b)(iv) - the date which is 120 days
following the expiry of the relevant statutory limitation period; and
(iii) in the case of all other representations and warranties - until the
second anniversary of the Closing Date.
PROVIDED, HOWEVER, that each such representation and warranty and the Liability
of any Party with respect thereto, shall not terminate with respect to any
claim, whether or not fixed as to Liability or liquidated as to amount, with
respect to which such Party has been given written notice by the other Party
prior to the expiration of the survival period specified above if arbitration in
respect thereof has been commenced pursuant to the terms of Article XVI hereof
within six (6) months after the expiration of said period.
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ARTICLE XV
INDEMNIFICATION
---------------
15.01 AGREEMENTS TO INDEMNIFY. (a) GOODYEAR INDEMNIFICATION OF SRI. Subject to
the conditions and provisions set forth herein, Goodyear shall indemnify, defend
and hold harmless, and cause its Affiliates to indemnify, defend and hold
harmless, SRI and its Affiliates (other than a JVC, which shall be indemnified
pursuant to Article 15.01(b)) from and against any and all claims and/or Damages
which may be asserted against or suffered by SRI or any such Affiliates as a
result or on account of any breach of any representation, warranty or covenant
on the part of Goodyear or any of its Affiliates made in the Alliance Agreements
or any other document or instrument which is an exhibit or schedule thereto or
is delivered by Goodyear pursuant thereto; provided that neither SRI nor any
such Affiliate of SRI shall be entitled to indemnification hereunder for claims
or Damages suffered solely as a shareholder of a JVC, it being understood that
indemnification under this Article 15.01(a) is intended to compensate and
reimburse SRI and its non-JVC Affiliates only for direct claims or Damages
suffered by SRI or any such Affiliate, as the case may be.
(b) GOODYEAR INDEMNIFICATION OF THE JVCS. Subject to the conditions
and provisions set forth herein, Goodyear shall indemnify, defend and hold
harmless, or cause its Affiliates that are not JVCs to indemnify, defend and
hold harmless, the JVCs from and against any and all claims and/or Damages which
may be asserted against or suffered by the JVCs as a result or on account of any
breach of any representation, warranty or covenant on the part of Goodyear or
any of its Affiliates that are not JVCs made in the Alliance Agreements or any
other instrument or document delivered by Goodyear pursuant thereto. At the
election of the applicable JVCs, Goodyear agrees to make such indemnification
under this Article 15.01 (b) by a capital contribution to the JVC suffering an
indemnifiable loss (or in such other manner as the Parties agree).
(c) SRI INDEMNIFICATION OF GOODYEAR. Subject to the conditions and
provisions set forth herein, SRI shall indemnify, defend and hold harmless, and
cause its Affiliates to indemnify, defend and hold harmless, Goodyear and its
Affiliates (other than a JVC, which shall be indemnified pursuant to Article
15.01(d)) from and against any and all claims and/or Damages which may be
asserted against or suffered by Goodyear or any such Affiliates as a result or
on
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<PAGE> 78
account of any breach of any representation, warranty or covenant on the part of
SRI or any of its Affiliates made in the Alliance Agreements or any other
document or instrument which is an exhibit or schedule thereto or is delivered
by SRI pursuant thereto; provided that neither Goodyear nor any such Affiliate
of Goodyear shall be entitled to indemnification hereunder for claims or Damages
suffered solely as a shareholder of a JVC, it being understood that
indemnification under this Article 15.01(c) is intended to compensate and
reimburse Goodyear and its non-JVC Affiliates only for direct claims or Damages
suffered by Goodyear or any such Affiliate, as the case may be.
(d) SRI INDEMNIFICATION OF THE JVCS. Subject to the conditions and
provisions set forth herein, SRI shall indemnify, defend and hold harmless, or
cause its Affiliates that are not JVCs to indemnify, defend and hold harmless,
the JVCs from and against any and all claims and/or Damages which may be
asserted against or suffered by the JVCs as a result or on account of any breach
of any representation, warranty or covenant on the part of SRI or any of its
Affiliates that are not JVCs made in the Alliance Agreements or any other
instrument or document delivered by SRI pursuant thereto. At the election of the
applicable JVCs, SRI agrees to make such indemnification under this Article
15.01(d) by a capital contribution to the JVC suffering an indemnifiable loss
(or in such other manner as the Parties agree).
(e) NO INDEMNIFICATION BY JVCS. Notwithstanding any other provision
of the Alliance Agreements, none of the Alliance JVCs shall be required to
indemnify Goodyear or SRI or any of their respective Affiliates (or to
contribute to such indemnification) for any claims or Damages arising from a
breach of any representation, warranty or covenant made on the part of SRI or
Goodyear in the Alliance Agreements or any other document or instrument which is
an exhibit or schedule thereto or is delivered pursuant thereto by Goodyear or
SRI or any of their respective Affiliates.
15.02 CLAIMS AND DAMAGES. (a) Notwithstanding any provision of the Alliance
Agreements to the contrary, an Indemnifying Party shall not be required to
indemnify, defend or hold an Indemnified Party harmless against or reimburse the
Indemnified Party for any claims and/or Damages pursuant to Article XV hereof
unless the Indemnified Party has notified the Indemnifying Party in writing in
accordance with Article 15.03 of a pending or threatened claim with respect to
such matters within the applicable survival period set forth in Article XIV
hereof (subject to the proviso clause of such Article XIV).
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(b) Subject to the provisions of Article 15.02(c) and (d) hereof, an
Indemnifying Party shall not be required to indemnify, defend or hold an
Indemnified Party harmless against or reimburse the Indemnified Party for any
claims or Damages pursuant to this Article XV:
(i) with respect to any claim, unless the amount of such
claim is in excess of US $100,000 in which case the
whole amount shall be covered by indemnification; and
(ii) until the aggregate amount of the Indemnified Party's
claims and/or Damages (other than individual claims
equal to or less than US $100,000 per claim and other
than claims and/or Damages indemnified pursuant to
Article 15.02(c)) exceeds US $15 million, where
Goodyear (together with its Affiliates as a group) is
the Indemnified Party, or US $5 million, where SRI
(together with its Affiliates as a group) is the
Indemnified Party), after which the Indemnifying
Party shall be obligated for all the Indemnified
Party's claims and/or Damages in excess of such
amount.
(iii) Subject to the provisions of Article 15.02(c) and (d)
hereof, the cumulative indemnification obligation of
the Indemnifying Party shall not exceed US $300
million, where SRI (or one of its Affiliates) is the
Indemnifying Party or US $100 million, where Goodyear
(or one of its Affiliates) is the Indemnifying Party;
except that in the case of any breaches of the
following representations and warranties the
cumulative indemnification obligation of the
Indemnifying Party shall not exceed US $500 million,
where SRI (or one of its Affiliates) is the
Indemnifying Party or US $170 million, where Goodyear
(or one of its Affiliates) is the Indemnifying Party:
(x) Where Goodyear (or one of its Affiliates) is the
Indemnifying Party:
Title to Property: Article 6.11(a), (b) and (c)
of the Europe JV Agreement and Section 1.10(a)
of Schedule 7 of the Japan Replacement JV
Agreement, and clause 10(a) of Schedule 5 to the
Japan OE JV Agreement;
Intellectual Property - Trademarks: Article
6.12(d), (e) and (f) of the Europe JV Agreement,
clause 1.11 of
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Schedule 7 to the Japan Replacement JV
Agreement and clause 11 of Schedule 5 to the
Japan OE JV Agreement;
Environment, Health and Safety: Article 6.17 of
the Europe JV Agreement;
Undisclosed Liabilities, etc: Article 6.23 of
the Europe JV Agreement and clause 3 of Schedule
5 to the Japan OE JV Agreement.
(y) Where SRI (or one of its Affiliates) is the
Indemnifying Party:
Title to Property: Article 5.11(a), (b) and (c)
of the Europe JV Agreement and Article 7.11 (a),
(b) and (c) of the North America JV Agreement,
and Article 7.11(a), (b) and (c) of the
Replacement Sales Asset Purchase Agreement, and
clause 1.8 of Schedule 6 of the Japan OE JV
Agreement;
Intellectual Property - Trademarks: Article
5.12(d), (e) and (f) of the Europe JV Agreement
and Article 7.13(d), (e) and (f) of the North
America JV Agreement, Article 7.13(d), (e) and
(f) of the Replacement Sales Asset Purchase
Agreement, and clause 1.9 of Schedule 6 of the
Japan OE JV Agreement (to the extent it relates
to Trademarks);
Environment, Health and Safety: Article 5.17 of
the Europe JV Agreement and Article 7.17 of the
North America JV Agreement and Article 7.17 of
the Replacement Sales Asset Purchase Agreement;
Undisclosed Liabilities, etc: Article 5.23 of
the Europe JV Agreement and Article 7.23 of the
North America JV Agreement and Article 7.23 of
the Replacement Sales Asset Purchase Agreement,
and clause 6 of Schedule 6 of the Japan
Replacement JV Agreement.
(iv) The provisions of Article 15.02(b)(i) and (ii) shall
not apply to any claim under Articles 5.10(a) and
6.10(a) of the Europe JV Agreement, Articles 9.2(a)
and (b) of the North America JV Agreement, Clause 8.1
of Schedule 6 and Clause 1.9 of Schedule 7 of the
Japan Replacement JV Agreement and
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Articles 9.2(a) and (b) of the Replacement Sales
Asset Agreement.
(v) For the purposes hereof, a "claim" shall include all
losses or costs arising from a single set of facts,
circumstances or events.
(c) Notwithstanding the provisions of Article 15.02(b) and
15.02(d) hereof, but subject to the remaining provisions of Article XV:
(i) SRI shall indemnify, defend and hold Goodyear and any
JVC harmless against and reimburse Goodyear and any
JVC for any claims and/or Damages arising from any of
the matters specified on Schedule 15.02(c)(i) hereto;
and
(ii) Goodyear shall indemnify, defend and hold SRI and any
JVC harmless against and reimburse SRI and any JVC
for any claims and/or Damages arising from any of the
matters specified on Schedule 15.02(c)(ii) hereto.
The Parties agree that with respect to any matter for which a Party is
entitled to a right of indemnification pursuant to this Article 15.02(c), the
Indemnified Party shall and shall cause each of its Affiliates controlled by it
to use their best efforts (without the incurrence of unreasonable cost or
liability) to:
(A) prevent the occurrence of any act or omission which may have the
effect of giving rise to (or increasing), and to mitigate and minimize
to the fullest extent possible, a potential liability of an
Indemnifying Party;
(B) keep the Indemnifying Party fully informed of all material matters
relating to the matter and promptly deliver to the Indemnifying Party
copies of all correspondence and documents relating thereto;
(C) obtain the Indemnifying Party's prior written approval (not to be
unreasonably withheld or delayed) to the agreement of any matter or the
taking of any significant decision (including the taking of such steps
as the Indemnifying Party shall reasonably require) which is likely to
materially affect any future liability of the Indemnifying Party;
(D) take all reasonable steps to minimize the expenditure required to
remedy the effect of the matter; and
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(E) claim on any applicable then existing insurance policy providing
cover in respect of any liability arising in respect of the matter in
advance of making any claim against the Indemnifying Party;
provided that (i) the failure of the Indemnified Party to comply with
the provisions of this sentence shall not excuse the Indemnifying Party
from its obligations under Article 15.02(c) and; (ii) if such failure
of the Indemnified Party shall be a material failure and shall cause
the cost of the matter indemnified against to increase, the
Indemnifying Party shall not be responsible for the amount of the
increased cost.
(d) An Indemnifying Party shall not be required to indemnify, defend or
hold an Indemnified Party harmless against or reimburse the Indemnified Party
for any claims and/or Damages pursuant to this Article XV:
(i) to the extent that the matter giving rise to the
claim and/or Damages would not have arisen but for
the passing of, or a change after the Closing Date
in a law, rule or regulation of any Authority or an
increase in the Tax rates or an imposition of Tax,
in each case not actually or prospectively in force
at the Closing Date; or
(ii) if and to the extent the claims and/or Damages arise
from a matter specified on Schedule 15.02(c)(i) or
Schedule 15.02(c)(ii), as the case may be, and such
claims and/or Damages have been paid or reimbursed
under Article 15.02(c).
(iii) to the extent that it can be demonstrated that the
matter giving rise to the claim and/or Damages has
been taken account of or otherwise reflected:
(A) where the Indemnifying Party is Goodyear, in the
Goodyear Closing Balance Sheet (as defined in
Article 3.01(b) hereof) or in the projected
earnings on an EBITDA basis in respect of the
Goodyear JV Companies for the period ending
December 31, 1998 contained in the financial
information delivered by or on behalf of
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Goodyear to SRI in November 1998 and on which
the Balancing Payments (as referred to in the
Europe JV Agreement and the North America JV
Agreement) were agreed; or
(B) where the Indemnifying Party is SRI, in the SRI
Closing Balance Sheets (as defined in Article
3.01(a) hereof) or in the projected earnings on
an EBITDA basis in respect of the SRI Major
European Companies or DTC for the period ending
December 31, 1998 contained in the financial
information delivered by or on behalf of SRI to
Goodyear in November 1998 and on which the
Balancing Payments (as referred to in the Europe
JV Agreement and the North America JV Agreement)
were agreed;
(iv) to the extent that the matter giving rise to the
claim and/or Damages has been compensated or
otherwise resolved in the adjustments made in
accordance with Article III hereof; or
(v) to the extent that the matter giving rise to the
claim and/or Damages arises as a result of the
application of Article 3.1(c) or 3.2(c) of the
Europe JV Agreement, Articles 3.3 or 7.2 of the
Japan OE JV Agreement or Article 3.7 of the Japan
Replacement JV Agreement, and the Indemnifying Party
(or an Affiliate controlled by it) has complied with
its obligations thereunder.
15.03 METHOD OF ASSERTING CLAIMS, ETC. All claims by an Indemnified Party under
this Article XV shall be asserted and resolved as follows:
(a) In the event that (i) any claim or demand for which an
Indemnifying Party would be liable to an Indemnified Party hereunder is asserted
against or sought to be collected from such Indemnified Party by a third party
(such claim or demand being a "THIRD PARTY CLAIM") or (ii) any Indemnified Party
hereunder should have a claim or demand against any Indemnifying Party hereunder
which
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is not a Third Party Claim (such claim or demand being a "DIRECT CLAIM"), the
Indemnified Party shall with reasonable promptness notify the Indemnifying Party
of such claim or demand in writing, specifying the nature of and the specific
basis for such claim or demand and the amount or the estimated amount thereof to
the extent then feasible to determine (which estimate shall not be conclusive of
the final amount of such claim or demand) (a "CLAIM NOTICE"); PROVIDED, HOWEVER,
that any failure to give such notice will not result in a waiver of any rights
of the Indemnified Party except to the extent the rights of the Indemnifying
Party are actually prejudiced.
(b) In the event of a Third Party Claim, the Indemnifying Party may,
and upon request of the Indemnified Party shall, retain counsel reasonably
satisfactory to the Indemnified Party to represent the Indemnified Party and any
other Person the Indemnifying Party may designate in connection with such claim
or demand and the Indemnifying Party shall pay the fees and disbursements of
such counsel with regard thereto. In the event an Indemnifying Party shall
retain such counsel, an Indemnified Party shall have the right to retain its own
counsel, but the fees and disbursements of such counsel shall be at the expense
of such Indemnified Party unless (i) the Indemnifying Party and such Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii)
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential conflicting
interests between such Indemnified Party and any other Person represented by
such counsel in such proceeding in which case, the reasonable fees and
disbursements of such counsel shall be at the expense of the Indemnifying Party.
It is understood that the Indemnifying Party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
fees and disbursements of more than one separate firm qualified in such
jurisdiction to act as counsel for the Indemnified Party. No Indemnifying Party
shall be liable to an Indemnified Party for any settlement of any action or
claim without the prior written consent of the Indemnifying Party, which consent
shall not be unreasonably withheld or delayed. The Indemnifying Party shall have
the right to direct the defense or settlement of any Third Party Claim, but
shall not, without the Indemnified Party's prior written consent, which consent
shall not be unreasonably withheld or delayed, settle or compromise any claim or
consent to entry of any judgment which does not include as an unconditional term
thereof the release by the claimant or the plaintiff of the Indemnified Party
and its Affiliates from all Liability in respect of such claim. In the event the
Indemnifying Party exercises the right to undertake any such defense against any
such Third Party Claim as provided above, the Indemnified Party shall cooperate,
and shall use all reasonable efforts to cause its Affiliates to cooperate, with
the Indemnifying Party in such defense and make available to the Indemnifying
Party, at the Indemnifying Party's expense, all witnesses, pertinent
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records, materials and information in the Indemnified Party's possession or
under the Indemnified Party's control, and shall use all reasonable efforts to
cause its Affiliates to make available to the Indemnifying Party, at the
Indemnifying Party's expense, all witnesses, pertinent records, materials and
information in the possession or under the control of any of them relating
thereto, in each case as is reasonably required by the Indemnifying Party.
(c) In the event of a Direct Claim, if the Indemnifying Party
notifies the Indemnified Party in writing within ninety days of receipt of a
Claim Notice that it does not dispute such claim, the amount of such claim shall
be conclusively deemed a Liability of the Indemnifying Party hereunder and shall
be promptly paid by the Indemnifying Party to the Indemnified Party.
(d) In the event that there is an audit, court proceeding or other
similar investigation or dispute with respect to any Tax matter relating to any
shares, assets or business transferred to any JVC for the period prior to or up
to and including the Closing Date, the Party hereto that transferred such
shares, assets or business (Goodyear, SRI or their Affiliates as the case may
be) shall have the right to represent the interests in, (at its expense) to
employ counsel of its choice and to control the conduct of, such audit, court
proceeding or similar investigation or dispute, including settlement or other
disposition thereof; PROVIDED, that the Party hereto which transferred such
shares, assets or business to the JVC shall pay any tax deficiency or other
Liability adjudged and shall otherwise make the applicable JVC whole; and
PROVIDED, FURTHER, that, if such audit, court proceeding or similar
investigation or dispute may materially and adversely affect the tax position of
the transferee JVC, then the transferee shall have the right to consult with
such transferor and any settlement or other disposition thereof may only be with
the prior written consent of such transferee JVC, which consent will not be
unreasonably withheld.
15.04 CONSEQUENTIAL AND PUNITIVE DAMAGES. NOTWITHSTANDING ANYTHING IN THIS
AGREEMENT TO THE CONTRARY, NO PARTY OR ANY AFFILIATE OF SUCH PARTY SHALL BE
LIABLE DIRECTLY TO THE OTHER PARTY OR ANY AFFILIATE OF SUCH OTHER PARTY FOR
CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF MATTERS UNDER THE ALLIANCE
AGREEMENTS, EXCEPT THAT THE FOREGOING SHALL NOT APPLY TO AN INDEMNIFYING PARTY'S
INDEMNIFICATION OBLIGATIONS HEREUNDER TO PAY CONSEQUENTIAL AND PUNITIVE DAMAGES
SUFFERED BY AN INDEMNIFIED
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PARTY AS A RESULT OF, PURSUANT TO, OR ASSERTED AS A PART OF A THIRD-PARTY CLAIM
BUT ONLY TO THE EXTENT OF SUCH THIRD-PARTY CLAIM.
15.05 THIRD-PARTY BENEFICIARIES. Any Indemnified Party not a Party to this
Agreement shall be a third-party beneficiary of this Agreement for purposes of
this Article XV, provided, however, that all claims for indemnification made
pursuant to the Alliance Agreements shall be made in the name of or on behalf of
the Indemnified Party by a Party to this Agreement or such Party's successor or
permitted assign.
15.06 OTHER MATTERS.
(a) In the case of a claim for Damages suffered in relation to a loss
incurred by a JV Company which gives such JV Company the right to claim
indemnification pursuant to Article 15.01, the Parties hereto agree (i) that
such JV Company shall be deemed to be the "Indemnified Party" for purposes of
Article XV, and (ii) neither Party hereto shall have a right to claim
indemnification for any corresponding loss it suffers solely as a result of its
equity ownership of such JV Company.
(b) An Indemnified Party shall be required to mitigate any Damage
which it may incur in consequence of a matter giving rise to a claim brought
under the Alliance Agreements.
(c) An Indemnified Party (and its Affiliates) are not entitled to
recover more than once in respect of any one matter giving rise to a claim
and/or Damages.
ARTICLE XVI
SETTLEMENT OF DISPUTES
----------------------
16.01 INFORMAL DISPUTE RESOLUTION. The Parties acknowledge that, due to the
complex and long-term nature of the Transactions, the Alliance Agreements may
not expressly provide for every contingency in respect of their business
relationship. Accordingly, if there shall be any dispute, controversy or claim
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("Dispute") between Goodyear and/or its Affiliates on the one hand and SRI
and/or its Affiliates on the other hand, arising out of, relating to, or
connected with the Alliance or any of the Alliance Agreements, the breach,
termination or invalidity thereof, or the provisions contained therein, and if
the executives of the applicable JV Company have been unable to resolve the
Dispute, the Parties shall use their respective commercially reasonable efforts
to resolve the matter on an amicable basis and in a manner fair and equitable to
the Parties hereto. If one Party notifies the other Party in writing that a
Dispute has arisen and requests a Top Level Meeting, then within a period of 60
days from such notice, the Chief Executive Officer or President of Goodyear and
the Chairman or President of SRI shall meet and attempt to resolve the matter.
No recourse to further proceedings under this Agreement shall take place unless
and until the Parties have taken all reasonable steps to ensure that such Top
Level Meeting occurs; provided that if no Top Level Meeting has taken place
within ninety (90) days of a request therefor by a Party, either Party may have
recourse to further proceedings.
16.02 ARBITRATION. (a) Any Dispute arising out of, relating to or in connection
with the Alliance Agreements, including, without limitation, any Dispute
regarding the validity or termination thereof, or the performance or breach
thereof, or regarding the entitlement of a Party to exercise a Global Exit Right
or Regional Exit Right under the terms of Article XVII hereof (but not a Dispute
solely involving valuation in the case of a Global Exit Right or a Regional Exit
Right, which shall be resolved as set forth in such Article XVII or, as regards
valuations in connection with new equity fundings of the JVCs under the relevant
Shareholders Agreement) shall be finally settled by arbitration administered by
the International Chamber of Commerce ("ICC"). The arbitration shall be
conducted in accordance with the Rules of Arbitration of the ICC in effect at
the time of the arbitration ("ICC Rules"), except as they may be modified herein
or by agreement of Goodyear and SRI. The arbitration shall be conducted by three
arbitrators appointed in accordance with the ICC Rules.
(b) The place of arbitration shall be Paris, France and the
proceedings shall be conducted in the English language.
(c) The Award rendered by the arbitrators (the "Award") shall be
final and binding on the Parties and their respective Affiliates. Judgment on
the Award may be entered in the Supreme Court of the State of New York or the
U.S. Federal Court for the Southern District of New York and for the purposes
hereof the Parties agree to consent and cause their respective Affiliates to
consent to the jurisdiction
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of such Courts. The Award may be enforced in any court having jurisdiction
thereof.
(d) In addition to any discovery permitted under the ICC Rules but
subject to the determination of the tribunal, each Party shall produce relevant,
non-privileged documents or copies thereof requested by the other Party within
the time limits set by the tribunal. Depositions of Party witnesses may be
ordered by the tribunal upon a showing of need.
(e) All hearings shall be transcribed and the costs of such
transcription shall be treated as costs of the arbitration.
(f) By agreeing to arbitration, the Parties do not intend to deprive
any court with jurisdiction of its ability to issue a preliminary injunction,
attachment or other form of provisional remedy in aid of the arbitration and a
request for such provisional remedies by a Party to a court shall not be deemed
a waiver of this agreement to arbitrate. In addition to the authority conferred
upon the tribunal by the ICC Rules specified above, the tribunal shall also have
the authority to grant provisional remedies, including injunctive relief, and
shall have the authority to award specific performance.
(g) Except as may be required by applicable law or court order, the
Parties agree to maintain confidentiality as to all aspects of the arbitration,
including its existence and results, except that nothing herein shall prevent
any Party from disclosing information regarding the arbitration for purposes of
enforcing the Award or in any court proceeding involving the Parties. The
Parties further agree to obtain the arbitrators' agreement to preserve the
confidentiality of the arbitration.
ARTICLE XVII
EXIT EVENTS AND TERMINATION OF THE ALLIANCE
-------------------------------------------
17.01 EXIT EVENTS. Subject to the provisions of Article 17.02, the occurrence of
any of the following events or circumstances will trigger an exit right enabling
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either Goodyear or SRI, as the case may be, to exercise the rights granted to it
by Articles 17.03 and 17.04, as indicated:
(a) In the event of a change in control constituting a "takeover" of
one Party, the other Party shall have a Global Exit Right. For the purposes
hereof, the term "takeover" shall mean (i) the acquisition of substantially all
the first Party's assets by another Person, or (ii) the acquisition by another
Person of shares of the first Party's stock or other rights sufficient to confer
on such other Person the effective right to elect a majority of the first
Party's directors, or (iii) the merger of the first Party with or into another
Person where the former shareholders of the first Party own less than fifty
percent (50%) of the surviving entity.
(b) In the event of the Bankruptcy of one Party, the other Party
shall have a Global Exit Right.
(c) If one Party (the "first Party") or any of its Affiliates either
(i) fails or refuses to issue shares of SRI Common Stock or Goodyear Common
Stock (as the case may be) on conversion of the SRI Note or the Goodyear Note,
in accordance with the terms of the applicable Note and the applicable Note
Purchase Agreement, or (ii) commits a breach after Closing of any of its other
obligations under the Alliance Agreements, which breach has a Material Adverse
Effect on the rights of the other Party or its Affiliates under the Alliance
Agreements, taken as a whole, and if the first Party has failed to remedy such
breach in all material respects within 90 days of the other Party having
notified the first Party in writing of the existence of the breach, the other
Party shall have a Global Exit Right. For the purposes of this Article 17.01(c),
a breach of any of the representations and warranties (as opposed to the
covenants or other obligations) contained in the Alliance Agreements shall not
constitute a "breach" under clause (ii) above unless the matter shall have been
resolved pursuant to arbitration under Article XVI and the losing Party shall
have failed to comply with the terms of the Award.
(d) If a JVC adopts, or revises in a material respect, a Business
Plan for the JVC of the type described in Article 9 of each of the Shareholders
Agreements, and if the minority shareholder disagrees with the adoption or
revision, the minority shareholder shall have a Global Exit Right, if the
minority shareholder is SRI, or a Regional Exit Right, if the minority
shareholder is Goodyear.
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(e) If a JVC acquires or invests in, or divests or discontinues a
business or assets which (i) either alone or taken together with any related
prior transactions effected within the preceding twelve (12) months, have a fair
market value equal to or less than twenty percent (20%), but more than ten
percent (10%) of the fair market value of the Total Assets of the JVC
immediately prior to the acquisition, investment, divestiture or discontinuance,
or (ii) is a Strategic Investment, the minority shareholder shall have a Global
Exit Right, if the minority shareholder is SRI, or a Regional Exit Right, if the
minority shareholder is Goodyear.
(f) If the minority shareholder of the Europe JVC or the North
America JVC or the Japan OE JVC or the Japan Replacement JVC decides not to
subscribe its pro rata share of any permitted new issue of Non-Voting Equity
Capital authorized pursuant to the provisions of the Shareholders Agreement
relating to that JVC, the minority shareholder shall have a Global Exit Right,
if the minority shareholder is SRI, or a Regional Exit Right, if the minority
shareholder is Goodyear.
(g) If a JVC or the majority shareholder of a JVC takes an action
which, in the reasonable opinion of the minority shareholder, has, or is likely
to have, a continuing Material Adverse Effect on the tire business relating to
the minority shareholder's primary brand whether the Material Adverse Effect
occurs or will occur in the JVC and its Subsidiaries or elsewhere, the minority
shareholder shall have a Global Exit Right, if the minority shareholder is SRI,
or a Regional Exit Right, if the minority shareholder is Goodyear. For the
purpose of this paragraph 17.01(g), the term "primary brand" means "Dunlop" in
the case of SRI, and "Goodyear" in the case of Goodyear.
(h) If at any time the minority shareholder's ownership of the shares
of a JVC is less than ten percent (10%) of the combined Voting Equity Capital
and Non-Voting Equity Capital of that JVC, then, if the affected JVC is the
Europe JVC or the North America JVC, both the majority shareholder and the
minority shareholder shall have a Global Exit Right or, if the affected JVC is
the Japan OE JVC or the Japan Replacement JVC, both the majority shareholder and
the minority shareholder shall have a Regional Exit Right.
(i) If
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(1) in calendar year 2005, the number of OEM tires sold by the
Japan OE JVC under the Goodyear Japan Trademarks represents
less than a 6.0 percent share of the market for sales of tires
to Japan-origin automotive OEMs in Japan for applications on
passenger cars and light trucks, as such market is measured by
the Japan Automobile Tire Manufacturers Association ("JATMA"),
or such other organization as agreed by the Parties hereto; or
(2) in any two consecutive years beginning January 1, 2006 and
ending December 31, 2009 (both dates being inclusive), the
number of OEM tires sold by the Japan OE JVC under the
Goodyear Japan Trademarks represents less than a 6.0 percent
per annum share of the market defined in clause (1) above; or
(3) in any period of five consecutive calendar years
commencing January 1, 2010, the number of OEM tires sold by
the Japan OE JVC under the Goodyear Japan Trademarks
represents less than an annual average share of 6.0 percent of
the market defined in clause (1) above;
then Goodyear shall have a Global Exit Right; provided that Goodyear shall have
complied with the provisions of Article 9.6 of the Shareholders Agreement for
the Japan OE JVC; and provided, further, that a Global Exit Right triggered by
this Article 17.01(i) shall, for purposes of Article 17.03, be deemed to arise
on the date JATMA publishes its annual market figures showing the shortfall.
17.02 SUSPENSION OF EXIT RIGHTS. Notwithstanding any other provision of this
Agreement, neither SRI nor Goodyear will exercise any Global Exit Right or
Regional Exit Right pursuant to paragraphs (d) through and including (i) of
Article 17.01 prior to the fifth anniversary of the Closing; provided that
following such fifth anniversary SRI and Goodyear may exercise any Global Exit
Right or Regional Exit Right that may have accrued during the preceding five
years but which such Party was restricted from exercising as a result of this
Article 17.02.
17.03 EXERCISE OF GLOBAL EXIT RIGHTS. (a) In the event either SRI or Goodyear
shall obtain a Global Exit Right and such Global Exit Right shall be exercisable
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pursuant to Article 17.02, the Party obtaining the Global Exit Right may, at its
option but in any event not later than three (3) months from the date such
Global Exit Right has become exercisable, give written notice to the other Party
of its intention to exercise such Global Exit Right; provided that notice of a
Party's intention to exercise a Global Exit Right pursuant to Article 17.01(h)
may be given at any time following the fifth anniversary of the Closing, so long
as the condition giving rise to the Global Exit Right continues to exist. Such
notice shall (except in the case of a Global Exit Right arising under Article
17.01(a), (b) or (h)) include an invitation for a Top Level Meeting to be held
within 60 days following the date of such notice. Not more than 30 days after
receiving the notice, the other Party shall respond and shall either agree to
the date and place proposed for the Top Level Meeting, or shall propose an
alternative date (being not later than 90 days from the date of the original
notice) and place. At such Top Level Meeting the attendees shall discuss the
circumstances giving rise to the Global Exit Right with a view to avoiding the
exercise of such right by the Party entitled to it.
(b) In the event the Parties are unable to agree a means by which
exercise of the Global Exit Right may be avoided, or if the Top Level Meeting is
not held within 90 days of the date of the original notice, the Party obtaining
the Global Exit Right shall, if it so desires, notify the other Party in writing
that it intends to proceed with the exercise of its Global Exit Right. The
Parties shall then proceed to determine:
(i) the fair value of the minority shareholder's shares (based on the
minority shareholder's percentage of the aggregate Voting Equity
Capital and Non-Voting Equity Capital) in the Europe JVC (the "Europe
Value");
(ii) the fair value of the minority shareholder's shares (based on
the minority shareholder's percentage of the aggregate Voting Equity
Capital and Non-Voting Equity Capital) in the North America JVC (the
"North America Value");
(iii) the relevant percentage of the book value of the net assets of
the Japan Replacement JVC (such relevant percentage being the "Japan
Replacement Value");
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(iv) the book value of the net assets of the Japan OE JVC allocable
to the Goodyear (and related) brands (the "Japan OE Goodyear Asset
Value"); and
(v) the relevant percentage of the book value of the net assets of
the Japan OE JVC (such relevant percentage being the "Japan OE Share
Value").
For the purposes hereof:
(w) "relevant percentage" means (x) in clause (iii), the percentage
which corresponds to the percentage of the aggregate Voting Equity
Capital and Non-Voting Capital of the Japan Replacement JVC owned by
the majority shareholder, and (y) in clause (v), the percentage which
corresponds to the percentage of the aggregate Voting Equity Capital
and Non-Voting Equity Capital of the Japan OE JVC owned by the
minority shareholder.
(x) the Japan Replacement Value plus the Japan OE Goodyear Asset
Value less the Japan OE Share Value shall equal the "Net Japan
Value";
(y) the Europe Value plus the North America Value plus the Net Japan
Value shall equal the "Total Value"; and
(z) each value referred to in clauses (i) through (v) shall be an
"Exit Value."
In addition, for purposes of the computation of each of the book values under
clauses (iii), (iv) and (v) above, net assets shall not include goodwill.
(c) The notice provided for in Article 17.03(b) shall include that
Party's estimate of each Exit Value. The other Party shall, within sixty (60)
days of the receipt of such notice, either advise the first Party that it
accepts each Exit Value indicated in such notice or propose an alternative
estimate of each Exit Value. During the thirty (30) day period following receipt
by the first Party of the response
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notice, the two Parties will consult and attempt to agree upon each Exit Value.
In order to enable the Parties to determine the Exit Values, each Party shall
provide the other Party and its professional advisers with access to such
assets, documents (including working papers), accounting and other records and
other information relating to the Joint Venture Companies within its possession
or control as the other Party may reasonably require.
(d) If the Parties are unable to agree upon each Exit Value within
such thirty (30) day period, the Party desiring to exercise its Global Exit
Right shall nominate in writing to the other Party its candidate to be the
Expert to determine each Exit Value or, if the Parties so agree, to determine
only those Exit Values which remain in dispute between the Parties. Within
thirty (30) days of receipt of such notice, the other Party shall either accept
the first Party's nominee or nominate in writing to the first Party its own
candidate as Expert. Failure by the other Party to so accept or designate an
alternative candidate within such thirty (30) day period shall cause the first
Party's nominee to be the designated Expert. Nominees for Expert shall be
partners, managing directors or their equivalent in investment banks of
international standing; provided that the designated Expert's firm shall not
have received material compensation from either SRI or Goodyear or their
respective Affiliates during the preceding five (5) years. In the event that
each Party has nominated an Expert, as soon as practicable, but not later than
thirty (30) days from their appointment, the two nominees shall consult and
select a third person, who shall also meet the eligibility criteria set forth in
the preceding sentence and who shall be the designated Expert to perform the
valuation services set forth in this Article 17.03(d). In the event the two
nominees cannot agree on a third person to be the designated Expert, they shall
submit the question to the then President of the London Investment Banking
Association (or any successor organization), who shall select the designated
Expert and whose selection shall be binding on both Parties; provided he or she
meets the eligibility criteria set forth above. The Parties shall promptly cause
to be furnished to the designated Expert such information concerning the JVCs as
the Expert may reasonably request.
(e) Within 30 days of the designation of the Expert, each Party shall
submit to the Expert its own estimate of each Exit Value to be determined by the
Expert. In relation to each such Exit Value, the Expert shall:
(i) if the two proposed estimates differ by more than ten
percent (10%) of the lower number, select as the Exit Value
whichever of the
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two estimates he considers to be the most reasonable in all
the circumstances; or
(ii) if the two proposed estimates differ by ten percent (10%)
of the lower number or less, select as the Exit Value
whichever of the two proposed estimates or such other number
between the two proposed estimates as he considers to be the
most reasonable in all the circumstances.
The Expert shall have no discretion except to select one of the two (2) proposed
estimates or, under the circumstances as set forth in clause (ii) above, to
select an estimate between the two (2) proposed estimates. Within sixty (60)
days of the Expert's determination of the relevant Exit Values, which shall be
final and binding on the Parties, Goodyear shall deliver, or cause to be
delivered, a check to SRI or as it shall designate for the Total Value (based
upon the Exit Values as agreed by the Parties or determined by the Expert, as
the case may be), together with certificates representing all Goodyear's rights,
title and interest in the shares of the Japan OE JVC, against receipt from SRI
of certificates representing all SRI's rights, title and interest in the shares
of the Europe JVC, the North America JVC and the Japan Replacement JVC and bills
of sale and other documents of title transfer as appropriate with respect to the
assets and business of the Japan OE JVC allocable to the Goodyear (and related)
brands.
17.04 EXERCISE OF REGIONAL EXIT RIGHT. (a) In the event Goodyear or SRI shall
obtain a Regional Exit Right and such Regional Exit Right shall be exercisable
pursuant to Article 17.02, the Party obtaining the Regional Exit Right may, at
its option, but in any event not later than three (3) months from the date such
Regional Exit Right has arisen, give written notice to the other Party of its
intention to exercise such Regional Exit Right. Such notice shall include an
invitation for a Top Level Meeting to be held within sixty (60) days following
the date of notice. Not more than thirty (30) days after receiving the notice,
the other Party shall respond and shall either agree to the date and place
proposed for the Top Level Meeting, or shall propose an alternative date (not
later than ninety (90) days from the date of the original notice) and place. At
such Top Level Meeting the attendees shall discuss the circumstances giving rise
to the Regional Exit Right with a view to avoiding the exercise of such right by
the Party entitled to it.
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(b) In the event the Parties are unable to agree a means by which
exercise of the Regional Exit Right may be avoided, or if the Top Level Meeting
is not held within ninety (90) days of the original notice, the Party obtaining
the Regional Exit Right shall, if it so desires, notify the other Party that it
intends to proceed with the exercise of its Regional Exit Right. Such notice
shall include that Party's estimate of each Exit Value referred to in clauses
(iii), (iv) and (v) of Article 17.03(b) (each a "Japan Exit Value"). The other
Party shall, within sixty (60) days of the receipt of such notice, either advise
the first Party that it accepts the estimate of each Japan Exit Value indicated
in such notice or propose alternative estimates of each Japan Exit Value. During
the thirty (30) day period following receipt by the first Party of the response
notice, the two Parties will consult and attempt to agree upon each Japan Exit
Value. In order to enable the Parties to determine the Japan Exit Values, each
Party shall provide the other Party and its professional advisers with access to
such assets, documents (including working papers), accounting and other records
and other information relating to the Japan OE JVC and the Japan Replacement JVC
within its possession or control as the other Party may reasonably require.
(c) If the Parties are unable to agree upon each Japan Exit Value
within such thirty (30) day period, the Party desiring to exercise its Regional
Exit Right shall nominate in writing to the other Party its candidate to be the
Expert to determine each Japan Exit Value (or, if the Parties so agree, to
determine only those Japan Exit Values which remain in dispute between the
Parties). Within thirty (30) days of receipt of such notice, the other Party
shall either accept the first Party's nominee or nominate in writing to the
first Party its own candidate as Expert. Failure by the other Party so to accept
or designate an alternative candidate within such thirty (30) day period shall
cause the first Party's nominee to be the designated Expert. Nominees for Expert
shall meet the eligibility criteria set forth in paragraph (d) of Article 17.03.
As soon as practicable, but not later than thirty (30) days from their
appointment, the two nominees shall consult and select another person, who shall
also meet such eligibility criteria and who shall be the designated Expert to
perform the valuation services set forth in this paragraph 17.04(c). In the
event the two nominees cannot agree on a third person to be the designated
Expert, they shall submit the question to the then President of the London
Investment Banking Association (or any successor organization), who shall select
the designated Expert and whose selection shall be binding on both Parties,
provided he or she meets the eligibility criteria set forth in Article 17.03(d).
The Parties shall promptly cause to be furnished to the Expert such information
concerning the Japan OE JVC and the Japan Replacement JVC as the Expert may
reasonably request.
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(d) Within 30 days of the designation of the Expert, each Party shall
submit to the Expert its estimate of each Japan Exit Value to be determined by
the Expert. In relation to each such Japan Exit Value, the Expert shall:
(i) if the two proposed estimates differ by more than ten
percent (10%) of the lower number, select as the Japan Exit
Value whichever of the two estimates he considers to be the
most reasonable in all the circumstances; or
(ii) if the two proposed estimates differ by ten percent (10%)
of the lower number or less, select as the Japan Exit Value
whichever of the two proposed estimates or such other number
between the two proposed estimates as he considers to be the
most reasonable in all the circumstances.
The Expert shall have no discretion except to select one of the two (2) proposed
estimates or, under the circumstances as set forth in clause (ii) above, to
select an estimate between the two (2) proposed estimates. Within 60 days of the
Expert's determination of the relevant Japan Exit Values, which shall be final
and binding on the Parties, Goodyear shall deliver, or cause to be delivered, a
check to SRI or as it shall designate for the Net Japan Value (based upon the
Japan Exit Values as agreed by the Parties or determined by the Expert, as the
case may be), together with certificates representing all Goodyear's rights,
title and interest in the shares of the Japan OE JVC, against receipt from SRI
of certificates representing all SRI's rights, title and interest in the shares
of the Japan Replacement JVC and bills of sale and other documents of title
transfer as appropriate with respect to the assets and business of the Japan OE
JVC allocable to the Goodyear (and related) brands. In the event that the Net
Japan Value is determined to be a negative number, SRI shall deliver a check to
Goodyear or as it shall designate in the appropriate amount.
(e) The Parties agree to ensure, and to cause their respective
Affiliates to ensure, that:
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(i) the exercise by either of them of a Global Exit Right or a
Regional Exit Right shall be undertaken so as to minimize any
inconvenience to the Japan OE JVC and each of its customers;
and
(ii) following the exercise by either of them of a Global Exit
Right or a Regional Exit Right, all existing contractual
obligations imposed on the Japan OE JVC in any agreements
between it and each of its customers are carried out to the
fullest extent possible.
17.05 EFFECT OF EXERCISE OF GLOBAL EXIT RIGHT. Upon the exercise by either Party
of a Global Exit Right and the payment by Goodyear as set forth in Article
17.03(e) above:
(a) Goodyear shall succeed to all the rights, title and interest in
and to shares of the North America JVC, the Europe JVC, the Japan Replacement
JVC and the allocable share of the Japan OE JVC business and assets previously
owned by SRI and/or its Affiliates and assignees. Subject to the following
provisions of this Article 17.05(a), and to the provisions of Article 17.05(b),
all rights, privileges, licenses and franchises of the Europe JVC, the North
America JVC, Goodyear and their Affiliates and the Japan Replacement JVC, shall
continue vested in said Persons, all with the same effects and on the same terms
as in existence immediately prior to the exercise of the Global Exit Rights,
without the payment of any further charge of any kind. With respect to SRI
Trademarks and related matters:
(A) In the Greater European Territory:
(i) If and to the extent that SRI has or is entitled
to any remaining right, title or interest in and to the SRI
European Trademarks in relation to Licensed Products in the
Western Europe countries and Eastern Europe countries, SRI
shall transfer such right, title and interest to the Europe
JVC or one of its Subsidiaries (as SRI may decide).
(ii) If and to the extent that SRI has any remaining
license or right to use SRI European Trademarks which are
owned by BTRI
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or Dunlop Holdings Ltd or Dunlop Ltd in relation to Licensed
Products in the Western Europe countries and the Eastern
Europe countries, SRI shall transfer and assign said license
and right to the Europe JVC or one of its Subsidiaries (as SRI
may decide).
(iii) For the avoidance of doubt, all right, title and
interest in and to the SRI European Trademarks owned by any of
the Affiliates of the Europe JVC including, but not limited
to, the companies currently known at the date hereof as Dunlop
France S.A., Dunlop GmbH, Dunlop Tyres Limited and SP Brand
Holding EEIG shall remain with those companies.
(iv) All right to use the SRI European Trademarks in
the French Africa countries, the Sub-Equatorial Africa
countries, the Middle East countries, the Miscellaneous
Countries, Russia/CIS countries and the Part 6 Countries in
relation to Licensed Products which are owned by BTRI or
Dunlop Holdings Ltd or Dunlop Ltd and licensed to SRI (or its
assignee, if it assigns the relevant rights) shall continue to
be sublicensed to the Subsidiaries of the Europe JVC under the
relevant Trademark License Agreements granted on Closing on
the terms and subject to the conditions therein contained for
the remaining term of the 999 year license/s from BTRI, Dunlop
Holdings Ltd or Dunlop Ltd less one (1) day.
(v) SRI (or its assignee, if it assigns the relevant
rights) shall continue to license the subsidiaries of the
Europe JVC under (and on the terms and conditions of) the
relevant Trademark License Agreements granted on Closing to
use the SRI European Trademarks owned by SRI in relation to
Licensed Products (or in the name of SRI or to which SRI is
entitled) in the French Africa countries, the Sub-Equatorial
Africa countries, the Middle East countries, the Miscellaneous
Countries, the Russia/CIS countries and the Part 6 Countries
for a term of 999 years from the date of Goodyear's purchase
of SRI's shareholdings in the Europe JVC.
(vi) SP Brand Holding EEIG (or its assignee, if it
assigns the relevant rights) shall grant to SRI a
non-exclusive royalty-free 999 year license (including a right
to sub-license) to manufacture
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Licensed Products bearing the SRI European Trademarks owned by
or licensed to SP Brand Holding EEIG (or its assignee) in
Eastern Europe effective as of the fifth anniversary of
Goodyear's purchase of SRI's shareholdings in the Europe JVC.
(vii) SP Brand Holding EEIG (or its assignee, if it
assigns the relevant rights) shall continue to license SRI
under (and on the terms and conditions of) the license-back
agreement (referred to in Article 5.03(a) hereto) granted on
Closing as follows:
(a) a non-exclusive royalty-free 999 year
license (including a right to sub-license) to
sell Licensed Products bearing the SRI European
Trademarks in Israel (to the extent that it
holds the relevant trademark rights); and
(b) an exclusive royalty-free 999 year license
(including a right to sub-license) to
manufacture Licensed Products bearing the SRI
European Trademarks in Israel (to the extent
that it holds the relevant trademark rights);
(viii) Dunlop Tyres Ltd (or its assignee, if it
assigns the relevant rights) shall continue to license SRI
under (and on the terms and conditions of) the trademark
license-back agreement (referred to in Article 5.03(a) hereto)
granted on Closing as follows:
(a) a non-exclusive royalty-free 999 year
license (including a right to sub-license) to
sell Licensed Products bearing the SRI European
Trademarks in Turkey (to the extent that it
holds the relevant trademark rights); and
(b) an exclusive royalty-free 999 year license
(including a right to sub-license) to
manufacture Licensed Products bearing the SRI
European Trademarks in Turkey (to the extent
that it holds the relevant trademark rights).
(ix) Dunlop France S.A. (or its assignee, if it
assigns the relevant rights) shall continue to license SRI
under (and on the terms
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and conditions of) the license-back agreement (referred to in
Article 5.03(a) hereto) granted on Closing as follows:
(a) a non-exclusive royalty-free 999 year
license (including a right to sub-license) to
sell Licensed Products bearing the SRI European
Trademarks owned by it in Morocco and French
Africa (to the extent that it holds the
relevant trademark rights); and
(b) an exclusive royalty-free 999 year license
(including a right to sub-license) to
manufacture Licensed Products bearing the SRI
European Trademarks in Morocco and French
Africa (to the extent that it holds the
relevant trademark rights).
(x) Dunlop GmbH shall continue to license SRI under
(and on the terms and conditions of) the license-back
Agreement (referred to in Article 5.03(a) hereto) granted on
Closing.
(B) In the North American Territory:
(i) all right, title and interest in all SRI North
American Trademarks owned by SRI (or in the name of SRI or to
which SRI is entitled or SRI's assignee, if it assigns the
relevant rights) shall be transferred to the North America
JVC;
(ii) all right, title and interest in all SRI North
American Trademarks owned by Newco (or in the name of Newco or
to which Newco is entitled, or Newco's assignee, if it assigns
the relevant rights) shall be transferred to the North America
JVC;
(iii) all shares in DNA (Housemarks) Limited owned by
Newco or any other Affiliate of SRI (or any of its assignees,
if any of them assigns the relevant rights) shall be
transferred to the North America JVC;
(iv) the license from DNA (Housemarks) Limited to
Newco to use the DUNLOP and D Device trademarks shall be
transferred to the North America JVC;
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(v) the trademark licenses from SRI and Newco to the
North America JVC, and SRI and Newco to Goodyear shall
terminate; and
(vi) the North America JVC shall grant to SRI the
right to allow OEM customers to export vehicles fitted with
any Licensed Products manufactured by SRI to the North
American Territory.
(C) In Japan, in the event of the exercise of a Global Exit or
a Regional Exit all trademark rights relating to Japan
Trademarks (as defined in the Japan OE Shareholders and Japan
Replacement Shareholders Agreements) shall revert to the owner
thereof and the license agreements relating to the Japan
Trademarks will cease with SRI retaining all rights in the SRI
Japan Trademarks (as defined in said Agreements) and Goodyear
retaining all rights in the Goodyear Japan Trademarks (also as
defined in said Agreements).
(D) All of the continuing rights and licenses above, whether
exclusive or non-exclusive, are subject to the rights and
licenses which SRI and its Affiliates have granted under (and
on the terms and conditions of, excluding non-transferability)
the relevant Trademark License Agreements to the Europe JVC,
the North America JVC, Goodyear and their successors to enter
into off-take agreements and purchase agreements for the
supply of all types of tires, retreads for tires and tubes for
tires (but not aircraft or solid polyurethane industrial
tires) under SRI Trademarks.
(E) All provisions in the Alliance Agreements requiring
co-operation and/or consultation between SRI and any
Affiliates of SRI and Newco, the JVCs and the Subsidiaries of
the Europe JVC shall terminate.
(F) With respect to technology, the technology license
agreements entered into at Closing shall terminate (but
without prejudice to the terms thereof providing for the
continuation of certain rights and obligations after
termination).
(b) Goodyear shall pay to SRI or its Affiliates (as SRI shall
designate), as soon as practicable after the end of each of the five (5)
calendar years following the exercise of a Global Exit Right, a royalty equal to
one-half percent (.5%) of the Projected Annual Dunlop Net Sales for the
preceding year. For the purposes
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hereof, the Projected Annual Dunlop Net Sales shall be the amount, as agreed by
the Parties within sixty (60) days of the exercise of a Global Exit Right (or,
in the absence of such agreement, as determined by the Expert), of the projected
net sales value of tires sold by the North America JVC, the Europe JVC and
Goodyear under the SRI European Trademarks and the SRI North American Trademarks
in each of the five (5) calendar years following the exercise of the Global Exit
Right; provided that Goodyear may, at Goodyear's election made at or before the
time of payment of the Total Value pursuant to Article 17.03(e), pay to SRI or
its Affiliates (as SRI shall designate) at that time a lump sum representing the
net present value of the five annual payments discounted at an interest rate
equal to the current yield of five (5) year U.S. Treasury Bills plus one percent
(1.0%) at the time of the election. The royalty on Projected Annual Dunlop Net
Sales under the SRI European Trademarks shall be payable as a composite fee
under the technology license agreements between SRI and its Affiliates
controlled by the Europe JVC constituting Alliance Agreements. The royalty on
Projected Annual Dunlop Net Sales under the SRI North American Trademarks shall
be payable as a composite fee under the trademark license agreements for the
North American Territory between SRI and the North America JVC and between SRI
and Goodyear constituting Alliance Agreements.
(c) Each Party shall make a managed and orderly disposition of its
investment in the shares of common stock of the other Party in consultation with
the other Party and in compliance with applicable laws.
In the case of SRI's investment in shares of Goodyear Common Stock, SRI shall
first offer to sell to Goodyear its shares in Goodyear at the then current fair
market value. If Goodyear does not elect to repurchase such shares within 30
days from the date of receipt of such offer, SRI will be free to sell the shares
on the open market in such a way as would not result in material disruptions in
the market for such shares. SRI shall comply with any and all applicable
securities laws in connection with such disposition. In the event that, as a
result of an amendment to the Securities Act of 1933, SRI's ability (by reason
of such amendment), to dispose of its shares of Goodyear Common Stock within a
period of one (1) year or less, in an orderly disposition, would be materially
and adversely affected, then, with respect to the excess number of shares that
SRI would be unable, for such reason, to sell over the amount of shares SRI
would have been able to sell prior to such amendment, Goodyear shall within 30
days of SRI's request and at Goodyear's election either: (i) (to the extent
permitted by applicable law) repurchase such excess number of shares from SRI at
the then prevailing fair market value on terms reasonably satisfactory to SRI or
(ii) use its best efforts
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(without the incurrence of unreasonable cost or liability) to arrange for a
negotiated purchase by a third party of such excess number of shares at the then
prevailing fair market value on terms reasonably satisfactory to SRI, or (iii)
use its best efforts (without the incurrence of unreasonable cost or liability)
to cause the registration of such excess number of shares, at SRI's cost, for
sale under the Securities Act of 1933 on terms reasonably satisfactory to SRI
provided, however, that in the event Goodyear fails to cause such registration
to occur, Goodyear shall (unless prohibited by law) use its best efforts
(without the incurrence of unreasonable cost or liability) to cause the
repurchase referred to in (i) or the purchase referred to in (ii) to occur.
In the case of Goodyear's investment in shares of SRI Common Stock, Goodyear
shall first offer to sell its shares in SRI, at the then current fair market
value, to a party or parties designated by SRI and/or (to the extent permitted
by law) to SRI. If SRI does not designate such a party or parties or SRI (or
such other parties) do not elect to repurchase such shares within 30 days from
the date of receipt of such offer, Goodyear will be free to sell the shares on
the open market in such a way as would not result in material disruptions in the
market for such shares. Goodyear shall comply with any and all applicable
securities laws in connection with such disposition. In the event that, in the
reasonable opinion of Goodyear, trading volumes on the Tokyo Stock Exchange (or
other stock market in which shares of SRI Common Stock are traded) would not
permit Goodyear to sell all its shares of SRI Common Stock within a period of
one (1) year or less, in an orderly disposition, then SRI shall within 30 days
of Goodyear's request and at SRI's election either: (i) (to the extent permitted
by applicable law) repurchase from Goodyear its shares of SRI Common Stock at
the then prevailing fair market value on terms reasonably satisfactory to
Goodyear, or (ii) use its best efforts (without the incurrence of unreasonable
cost or liability) to arrange for a negotiated purchase by a third party of such
shares at the then prevailing fair market value on terms reasonably satisfactory
to Goodyear, or (iii) use its best efforts (without the incurrence of
unreasonable cost or liability) to make a public offering of such shares,
including registration of such shares and reasonable cooperation by SRI for such
public offering, on terms reasonably satisfactory to Goodyear PROVIDED, HOWEVER,
that in the event SRI fails to cause such public offering to occur, SRI shall
(unless prohibited by law) use its best efforts (without the incurrence of
unreasonable cost or liability) to cause the repurchase referred to in (i) or
the purchase referred to in (ii) to occur.
(d) During the five (5) years following the date of Goodyear's purchase
of SRI's shareholdings in the Europe JVC and the North America JVC pursuant to a
Global Exit Right, SRI and its Affiliates will not compete, directly or
indirectly, with the Europe JVC, the North America JVC, or Goodyear or any of
their respective
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Affiliates (i) in the European Territory in the business described in Article
9.4 of the Shareholders Agreement for the Europe JVC; and (ii) in the North
American Territory in the business described in Article 9.4 of the North
American Operating Agreement. Notwithstanding the foregoing, sales of tires
under the "Sumitomo" or "SRIXON" trademarks or under trademarks owned or held by
The Ohtsu Tire and Rubber Company and Sumitomo Corporation will be deemed not to
be restricted by this paragraph (d); provided that sales of Sumitomo brand tires
will continue, during the five-year period referred to in this Article 17.05(d),
to be governed by Article XII of this Agreement; and further provided that sales
of tires under the "SRIXON" trademarks will continue to be governed by Articles
9.9(ii) of the Shareholders Agreement for the Europe JVC and the North American
Operating Agreement.
(e) The Global Technology JVC shall be dissolved and wound up in
accordance with the laws of the State of Ohio. The provisions of the Purchasing
JV Agreement shall govern the termination of the Global Purchasing JVC and any
other joint purchasing arrangements.
17.06 LIQUIDATED DAMAGES IN CERTAIN EVENTS. The Parties agree that the
provisions of this Article XVII have been bargained for and that, in the event
such provisions may be deemed in the future to be inconsistent with any
applicable law, the Parties desire that they shall each, nevertheless, obtain
the economic benefit of their bargain as set forth herein. Accordingly, in the
event that a Party (the "First Party") should seek to enforce any rights that it
may have under applicable law to transfer any JVC shares to the other Party in
accordance with procedures and/or for a value different from that which is
provided for in this Article XVII, the other Party may seek to enforce its
rights under this Article XVII by restraining order, injunction or other
equitable remedy. In any event, the First Party shall be liable to the other
Party for liquidated damages, which shall be equal to the difference, if any,
between the value of the JVC shares as determined under such other procedures
and their value as determined under this Article XVII.
ARTICLE XVIII
MISCELLANEOUS PROVISIONS
------------------------
18.01 AMENDMENTS. This Agreement may be amended, modified or superseded, and any
of the terms, covenants or conditions hereof may be waived, only by a written
instrument expressly referencing this Agreement as being amended, modified,
superseded or waived executed by Goodyear and SRI, or, in the case of a waiver,
by the Party waiving compliance.
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18.02 WAIVERS. The failure at any time of either Party to require performance by
the other Party of any responsibility or obligation provided for in this
Agreement shall in no way affect the full right to require such performance at
any time thereafter, nor shall the waiver by either Party of a breach of any
provision of this Agreement by the other Party constitute a waiver of any
succeeding breach of the same or any other provision nor constitute a waiver of
the responsibility or obligation itself. No investigation conducted by or on
behalf of any Party hereto, whether prior or subsequent to the date hereof,
shall affect the representations and warranties contained in any of the Alliance
Agreements, or in the schedules or certificates delivered pursuant thereto, or
the rights of any Party hereto with respect to such representations and
warranties or otherwise under the Alliance Agreements.
18.03 ASSIGNABILITY. Neither the Alliance Agreements nor any right or obligation
thereunder may be assigned or delegated in whole or in part by either Party
without the prior written consent of the other Party, and any such attempted
assignment or delegation without such consent shall be null, void ab initio and
without effect. Any permitted assignment of the Alliance Agreements shall be
binding upon and inure to the benefit of the Parties thereto and their
respective successors and permitted assigns; and the assignor shall, unless the
Parties agree otherwise, remain liable for the obligations of its permitted
assigns.
18.04 SEVERABILITY. If any one or more of the provisions contained in the
Alliance Agreements or any document executed in connection therewith shall be
invalid, illegal or unenforceable in any respect under any applicable law, the
validity, legality and enforceability of the remaining provisions contained
therein shall not in any way be affected or impaired; PROVIDED, HOWEVER, that in
such case the Parties agree to use their best efforts (but without the
incurrence of unreasonable cost or liability) to achieve the purpose of the
invalid provision by a new legally valid stipulation.
18.05 NOTICES. All notices, requests, demands and other communications required
or permitted under the Alliance Agreements shall be in writing and shall be
deemed to have been duly given if delivered by hand, or sent by courier (and, in
either case duly receipted) or facsimile transmission (provided that, in the
case of facsimile transmission, a confirmation copy thereof shall be delivered
by hand or sent by courier (and, in either case duly receipted) within two (2)
days of
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transmission) as follows (until notice of a change thereof is given as provided
in this Article 18.05):
(a) If to Goodyear, to:
The Goodyear Tire & Rubber Company
1144 East Market Street
Akron, Ohio 44316-0001, U.S.A.
Attention: Corporate Secretary
Telecopier: (330) 796-7861
(b) If to SRI, to:
Sumitomo Rubber Industries, Ltd
6-9, 3-Chome
Wakinohama-cho, Chuo-ku
Kobe 651-0072, Japan
Attention: General Manager, Legal Department
Telecopier: (81) 78-265-3111
All notices given in accordance with this Article 18.05 are
(subject to the foregoing provisions) effective, if delivered by hand or mailed
by courier, at the time of delivery, and, if communicated by facsimile, at the
time of transmission so long as the facsimile machine reports a successful
transmission.
18.06 SET-OFF. Any amount payable by one Party to another Party under any of the
Alliance Agreements that is not disputed by the other Party or has been
determined to be payable by one Party to another by arbitration or judicial
process in accordance with the provisions of the Alliance Agreements, may be set
off
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against any amount owed to such Party by such other Party under the Alliance
Agreements or otherwise that is itself not disputed by the other Party or is the
result of such arbitration or judicial process.
18.07 GOVERNING LAW. (a) THE ALLIANCE AGREEMENTS (EXCEPT AS STATED IN THE
TECHNOLOGY JV AGREEMENT, THE PURCHASING JV AGREEMENT AND THE NORTH AMERICA
OPERATING AGREEMENT) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA, WITHOUT GIVING EFFECT
TO ITS PRINCIPLES OR RULES OF CONFLICT OF LAWS TO THE EXTENT SUCH PRINCIPLES OR
RULES WOULD REQUIRE OR PERMIT THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION. EXCEPT AS PROVIDED IN ARTICLE XVI, THE PARTIES AGREE THAT ANY AND
ALL DISPUTES IN RESPECT OF THE ALLIANCE AGREEMENTS SHALL BE SUBMITTED TO THE
SUPREME COURT OF THE STATE OF NEW YORK OR TO THE U.S. FEDERAL COURT IN THE
SOUTHERN DISTRICT OF NEW YORK AND FOR THE PURPOSES OF RESOLVING DISPUTES ARISING
UNDER OR WITH RESPECT TO THE ALLIANCE AGREEMENTS, BUT FOR NO OTHER PURPOSES, THE
PARTIES AGREE TO CONSENT, AND CAUSE THEIR RESPECTIVE AFFILIATES TO CONSENT, TO
THE JURISDICTION OF SUCH COURTS. BOTH PARTIES IRREVOCABLY WAIVE ANY RIGHT TO
TRIAL BY JURY BEFORE ANY SUCH COURT.
(b) The Parties hereto acknowledge that the Alliance Agreements and all
other agreements contemplated to be delivered in connection therewith,
incorporate certain negotiated terms and therefore, no presumption shall arise
favoring any Party hereto by virtue of authorship of any provisions of the
Alliance Agreements, exhibits, schedules or any documents specifically
referenced herein.
(c) This Agreement has been written in English and the English version
shall be the definitive text even if for convenience or otherwise it is
translated into another language.
18.08 TERMINATION PRIOR TO CLOSING. (a) Anything herein to the contrary
notwithstanding, the Alliance Agreements may be terminated at any time on or
before the Closing Date as follows:
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(i) by mutual written consent of Goodyear and SRI; or
(ii) by Goodyear if the Closing Date has not occurred on
or prior to June 30, 2000, due to a failure of any of
the conditions provided for in Article VIII of this
Agreement, unless the failure of the Closing Date to
occur on or before such date has been caused by, or
is the result of, the failure of Goodyear to fulfill
any of its obligations under the Agreement; or
(iii) by SRI if the Closing Date has not occurred on or
prior to June 30, 2000, due to a failure of any of
the conditions provided for in Article IX of this
Agreement, unless the failure of the Closing Date to
occur on or before such date has been caused by, or
is the result of, the failure of SRI to fulfill any
of it obligations under the Agreement; or
(iv) by either Goodyear or SRI, as the case may be, in the
event that the other Party hereto shall, contrary to
the terms of the Alliance Agreements, willfully fail
or willfully refuse to consummate any material part
of the Transactions, after affording the defaulting
Party a thirty (30) day period after written notice
is given to cure such willful failure or willful
refusal.
(b) In the event the Alliance Agreements are terminated pursuant to
Article 18.08(a)(iv) hereof, the nondefaulting Party shall have the right to
seek payment of damages incurred by such nondefaulting Party prior to such
termination.
(c) Except as set forth in Article 18.08(b) hereof and except in the
case of termination for expropriation of assets in each of the Trademark Licence
Agreements, any termination of the Alliance Agreements in accordance with the
terms thereof by either Party shall have the effect of causing the Alliance
Agreements to thereupon become void and of no further force or effect
whatsoever, and thereupon neither Party will have any rights, duties,
liabilities or obligations of
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any kind or nature whatsoever against the other Party based upon either the
Alliance Agreements or the Transactions, except (i) claims, if any, that have
accrued to a party to any of the Alliance Agreements prior to the date of such
termination and (ii) the obligations of each Party, and their respective
Affiliates, under the confidentiality provisions of the Alliance Agreements, to
the extent such confidentiality provisions, by their terms, explicitly survive
any such termination.
18.09 ENTIRE AGREEMENT. The Alliance Agreements, including the exhibits and
schedules thereto, and the other documents and certificates delivered pursuant
to the terms thereof, constitute one single agreement and set forth the entire
agreement and understanding of the Parties hereto and thereto in respect of the
subject matter thereof, and supersede all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any Party thereto;
provided, that the Offtake Agreements dated February 10, 1997, Test Track
Agreements dated August 25, 1997, Joint Development Agreement (EM-ULT Tyres for
BMW) signed August 25, 1997, the Technology Licensing Agreement (Radial Aircraft
Tyres) signed April 27, 1998 and the Joint Development Contract-Japan Original
Equipment dated May 18, 1999 shall remain in effect until the date on which each
such agreement terminates in accordance with its terms, unless such agreement is
terminated sooner by the Parties thereto.
18.10 THIRD PARTIES. Except as specifically set forth in Article 15.05 or in the
Alliance Agreements, nothing expressed or implied therein is intended or shall
be construed to confer upon or give any Person or entity other than the Parties
thereto, their Affiliates and subsidiaries from time to time and their permitted
successors and assigns any rights or remedies under or by reason of the Alliance
Agreements.
18.11 COSTS AND TAXES. (a) Subject to paragraph (b) below, each Party hereto
shall bear and pay its own costs, charges and expenses incurred in the
preparation, negotiation, investigation and implementation of the Alliance
Agreements, including the cost of its attorneys, accountants, consultants or
other advisors it retained, except for notary, administrative or governmental
filing fees directly arising out of the organization of any of the JVCs which
shall be borne and paid by the applicable JVCs and will not lodge such costs,
charges, expenses and liabilities with any JVC nor will either Party have a
right to reimbursement from the other Party or its Affiliates or their
representatives.
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(b) Any transfer, registration or similar tax imposed as a result of
the consummation of the transactions contemplated in any of the JV Agreements
shall be borne and paid by the Party expressly designated to pay such tax in the
applicable JV Agreement. Income and similar taxes arising out of the
consummation of the Transactions pursuant to the Alliance Agreements shall be
borne and paid by the Party upon which such tax is levied.
18.12 REMEDIES. Other than as provided in Article 18.08, the remedies available
to the Parties and their respective Affiliates for breach of any representation,
warranty, covenant or other agreement contained in the Alliance Agreements shall
be limited to money damages for breach of contract (pursuant to the provisions
of Article XV or otherwise) or fraud, and equitable relief in the form of
rescission (as provided in the last sentence of this Article 18.12), specific
performance, a temporary or permanent injunction or restraining order, or the
entry of an interim order. The parties expressly disclaim the intent or right to
seek other remedies, including damages for tort arising from any breach of any
representation, warranty, covenant or other agreement contained in the Alliance
Agreements. Rescission of the Transactions shall only be available (i) in the
case of a breach of a representation or warranty regarding SRI Trademarks that
results in a Material Adverse Effect on the Alliance (as described in the third
paragraph whereof clause hereof) taken as a whole, by reason of its being
substantially deprived of the right or ability to use the SRI Trademarks or the
Goodyear Trademarks in the SRI Businesses in Europe or North America or the
Goodyear Businesses in Europe or Japan in the manner in which such trademarks
were used on or prior to the date hereof; and (ii) for a period of three months
following the Closing.
Subject to Articles 4.05(c) and 18.08, the remedies for recovery of Damages for
breach of any representation or warranty contained in any of the Alliance
Agreements given on the date hereof or as of Closing shall be exclusively those
provided in Article XV.
18.13 TITLES TO ARTICLES AND SUBPARTS. The various titles of Articles or
subparts of this Agreement are used solely for the purpose of convenience and
shall not be used for interpreting or construing any word, clause, article or
subparts of this Agreement.
-101-
X-10.1-111
<PAGE> 112
18.14 COUNTERPARTS. This Agreement may be executed simultaneously in multiple
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
18.15 SINGULAR AND PLURAL; GENDER. Whenever the context requires, words used in
the singular shall be construed to mean or include the plural and vice versa,
and pronouns of any gender shall be deemed to include and designate the
masculine, feminine or neuter gender.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
THE GOODYEAR TIRE & RUBBER COMPANY
/s/Samir G Gibara
----------------------------------------------
By: SAMIR G GIBARA
Title: Chairman of the Board, Chief Executive
Officer and President
SUMITOMO RUBBER INDUSTRIES, LTD.
/s/Naoto Saito
----------------------------------------------
By: NAOTO SAITO
Title: Chairman
-102-
X-10.1-112
<PAGE> 1
EXHIBIT 12
THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
(Dollars in millions)
6 MONTHS
ENDED TWELVE MONTHS ENDED
JUNE 30, DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
EARNINGS
- --------
<S> <C> <C> <C> <C> <C> <C>
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES $ 129.7 $ 1,002.7 $ 743.3 $ 811.5 $ 869.8 $ 855.9
Add:
Amortization of previously capitalized interest 5.8 10.7 11.0 11.6 11.7 10.2
Minority interest in net income of
consolidated subsidiaries with fixed charges 10.3 33.6 45.1 45.9 30.1 16.9
Proportionate share of fixed charges of investees
accounted for by the equity method 2.6 4.8 6.5 5.1 5.3 2.5
Proportionate share of net loss of investees
accounted for by the equity method -- 0.2 0.1 2.7 0.5 0.2
------- --------- ------- --------- --------- ---------
Total additions 18.7 49.3 62.7 65.3 47.6 29.8
Deduct:
Capitalized interest 4.9 6.6 6.2 5.4 5.1 5.7
Minority interest in net loss of consolidated subsidiaries 1.3 2.9 3.6 4.4 3.3 0.3
Undistributed proportionate share of net income
of investees accounted for by the equity method -- -- -- -- 0.2 7.2
------- --------- ------- --------- --------- ---------
Total deductions 6.2 9.5 9.8 9.8 8.6 13.2
TOTAL EARNINGS $ 142.2 $ 1,042.5 $ 796.2 $ 867.0 $ 908.8 $ 872.5
======= ========= ======= ========= ========= =========
FIXED CHARGES
- -------------
Interest expense $ 77.3 $ 147.8 $ 119.5 $ 128.6 $ 135.0 $ 129.4
Capitalized interest 4.9 6.6 6.2 5.4 5.1 5.7
Amortization of debt discount, premium or expense 2.8 7.1 0.1 0.3 0.4 0.7
Interest portion of rental expense 28.8 57.7 63.0 68.2 75.8 81.9
Proportionate share of fixed charges of investees
accounted for by the equity method 2.6 4.8 6.5 5.1 5.3 2.5
------- --------- ------- --------- --------- ---------
TOTAL FIXED CHARGES $ 116.4 $ 224.0 $ 195.3 $ 207.6 $ 221.6 $ 220.2
======= ========= ======= ========= ========= =========
TOTAL EARNINGS BEFORE FIXED CHARGES $ 258.6 $ 1,266.5 $ 991.5 $ 1,074.6 $ 1,130.4 $ 1,092.7
======= ========= ======= ========= ========= =========
RATIO OF EARNINGS TO FIXED CHARGES 2.22 5.65 5.08 5.18 5.10 4.96
</TABLE>
x-12-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information for The Goodyear Tire &
Rubber Company and Subsidiaries extracted from the Consolidated Statement of
Income and Retained Earnings and the Consolidated Balance Sheet and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 295
<SECURITIES> 0
<RECEIVABLES> 1,950
<ALLOWANCES> 61
<INVENTORY> 2,019
<CURRENT-ASSETS> 4,543
<PP&E> 9,779
<DEPRECIATION> 5,447
<TOTAL-ASSETS> 10,623
<CURRENT-LIABILITIES> 3,257
<BONDS> 1,452
0
0
<COMMON> 156
<OTHER-SE> 3,462
<TOTAL-LIABILITY-AND-EQUITY> 10,623
<SALES> 6,040
<TOTAL-REVENUES> 6,040
<CGS> 4,767
<TOTAL-COSTS> 4,767
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77
<INCOME-PRETAX> 130
<INCOME-TAX> 39
<INCOME-CONTINUING> 91
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 91
<EPS-BASIC> 0.58
<EPS-DILUTED> 0.57
</TABLE>
