-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WQbBmCkr9UY3Iu0vBAJGlAmswW4lq7kZKuo8QH4DrdSf0kpAeaumGEa+3U2W/KsW /nEXSGfBxjnxxPaAor24eg== 0000950152-98-001785.txt : 19980309 0000950152-98-001785.hdr.sgml : 19980309 ACCESSION NUMBER: 0000950152-98-001785 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980306 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOODYEAR TIRE & RUBBER CO /OH/ CENTRAL INDEX KEY: 0000042582 STANDARD INDUSTRIAL CLASSIFICATION: TIRES AND INNER TUBES [3011] IRS NUMBER: 340253240 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-01927 FILM NUMBER: 98559315 BUSINESS ADDRESS: STREET 1: 1144 E MARKET ST CITY: AKRON STATE: OH ZIP: 44316 BUSINESS PHONE: 2167962121 MAIL ADDRESS: STREET 1: 1144 E MARKET ST CITY: AKRON STATE: OH ZIP: 44316 10-K 1 GOODYEAR TIRE & RUBBER COMPANY FORM 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER: 1-1927 THE GOODYEAR TIRE & RUBBER COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) OHIO 34-0253240 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1144 EAST MARKET STREET, AKRON, OHIO 44316-0001 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (330) 796-2121 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED -------------------- ----------------------------- Common Stock, Without Par Value New York Stock Exchange Chicago Stock Exchange Pacific Exchange Preferred Stock Purchase Rights New York Stock Exchange Chicago Stock Exchange Pacific Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None ------------------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X} No __ --------------------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein or in the definitive proxy statement incorporated by reference in Part III of this Form 10-K. [ ]. ------------------------------------ The aggregate market value of Registrant's outstanding Common Stock held by nonaffiliates of the Registrant on February 17, 1998, determined using the per share closing price thereof on the New York Stock Exchange Composite Transactions tape of $68.125 on that date, was approximately $10,683,228,089.37 ------------------------------------ SHARES OF COMMON STOCK, WITHOUT PAR VALUE, OUTSTANDING AT FEBRUARY 17, 1998: 156,818,027 ------------------------------------ DOCUMENTS INCORPORATED BY REFERENCE: PORTIONS OF REGISTRANT'S DEFINITIVE PROXY STATEMENT, DATED FEBRUARY 26, 1998, FOR ITS 1998 ANNUAL MEETING OF SHAREHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III. 2 THE GOODYEAR TIRE & RUBBER COMPANY ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 TABLE OF CONTENTS
ITEM PAGE NUMBER NUMBER - --------- ---------- PART I 1 Business .......................................................................... 1 2 Properties ........................................................................ 12 3 Legal Proceedings ................................................................. 13 4 Submission of Matters to a Vote of Security Holders ............................... 15 4(A) Executive Officers of Registrant .................................................. 15 PART II 5 Market for Registrant's Common Equity and Related Stockholder Matters ............................................................ 20 6 Selected Financial Data .......................................................... 21 7 Management's Discussion and Analysis of Financial Condition and Results of Operations ............................................ 22 7(A) Quantitative and Qualitative Disclosures About Market Risk .................................................................... 31 8 Financial Statements and Supplementary Data ...................................... 32 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................................ 54 PART III 10 Directors and Executive Officers of the Registrant ............................... 54 11 Executive Compensation ........................................................... 54 12 Security Ownership of Certain Beneficial Owners and Management ....................................................................... 54 13 Certain Relationships and Related Transactions ................................... 54 PART IV 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K ......................................................................... 55 Signatures ....................................................................... 57 Index to Financial Statement Schedules ........................................... FS-1 Index of Exhibits ................................................................ X-1
3 THE GOODYEAR TIRE & RUBBER COMPANY PART I ITEM 1. BUSINESS. BUSINESS OF GOODYEAR The Goodyear Tire & Rubber Company is an Ohio corporation organized in 1898. Its principal offices are located at 1144 East Market Street, Akron, Ohio 44316-0001. Its telephone number is (330) 796-2121. The term "Registrant" wherever used herein refers solely to The Goodyear Tire & Rubber Company. The terms "Goodyear" and the "Company" wherever used herein refer to The Goodyear Tire & Rubber Company together with all of its domestic and foreign subsidiary companies, unless the context indicates to the contrary. Goodyear is one of the world's leading manufacturers of tires and rubber products, engaging in operations in most regions of the world. In 1997, Goodyear's net sales were $13.155 billion and net income was $558.7 million. Net income in 1997 included net after-tax charges of $176.3 million for certain rationalizations. Goodyear's worldwide employment averaged 95,472 during 1997. Goodyear's principal business is the development, manufacture, distribution and sale of tires for most applications. Goodyear also manufactures and markets several lines of rubber and other products for the transportation industry and various other industrial and consumer markets and numerous rubber-related chemicals for various applications, provides automotive repair and other services at retail and commercial outlets and sells various other products. Registrant's Celeron subsidiaries engage in various crude oil transportation, gathering, purchasing and selling activities. The All American Pipeline System is a heated crude oil pipeline extending approximately 1,225 miles from two points along the California coast to McCamey, Texas, which transports offshore and onshore California crude oil to various system outlet stations in California and in Texas. 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 which 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 Annual Report on Form 10-K. 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. RECENT DEVELOPMENTS IN GOODYEAR'S BUSINESS During 1997, Goodyear announced that it will introduce for broad market application passenger tires using extended mobility technology (EMT). EMT run-flat tires will enable cars to travel up to 50 miles at up to 55 mph after losing tire pressure and are expected ultimately to eliminate the need for spare tires. The Registrant also introduced a new Unisteel G-177 truck tire line which features a high-tensile steel reinforced casing, a new skid resistant tread design and a new damage resistant tread compound. 1 4 During 1997, the Company acquired a tread rubber plant in Social Circle, Georgia, a hose manufacturing company in Venezuela and a 75% interest in an air springs and power transmission products manufacturing facility in the Republic of Slovenia. These acquisitions represent an aggregate investment of approximately $42 million. The Company sold its Jackson, Ohio, automotive parts plant and a plantation in Guatemala during 1997. Effective March 1, 1998, the Company sold its Calhoun, Georgia, latex processing facility. Effective January 1, 1997, the Company re-entered the South African market by acquiring from Consol Limited a 60% equity interest in the tire and engineered rubber products businesses of Contred for approximately $121 million including loans assumed. On March 2, 1998, the Company purchased the remaining 40 percent interest in its Contred subsidiary from Anglovaal Industries Ltd. for approximately $59 million. The businesses acquired include the tire and engineered products manufacturing facilities sold by Goodyear to Consol Limited in 1989, which have been updated, a chain of retail tire outlets and numerous truck and earthmover tire retreading facilities located throughout South Africa. In February 1997, Goodyear entered into a four year commitment to produce tires for Dunlop Tire Corporation and the OHTSU Tire & Rubber Co., Ltd., affiliates of Sumitomo Rubber Industries Ltd., in North America and Sumitomo Rubber agreed to produce tires for Nippon Goodyear in Japan during the same four-year period. Goodyear continued its program to enhance production capacity and efficiency through plant modernization and expansion projects. Expansions of the Company's Freeport, Illinois, and Valleyfield, Quebec tire plants were completed during 1997. Significant plant modernization and expansion projects are presently underway at the Company's Napanee, Ontario, Americana, Brasil, Fayetteville, North Carolina, Marikina, Philippines and Debica, Poland tire plants, at the Company's Statesville, North Carolina tire mold plant, and at the Beaumont, Texas, synthetic rubber and rubber chemicals plant. During 1998, the Company will commence construction of a new $60 million passenger tire manufacturing plant in Brazil. FINANCIAL INFORMATION ABOUT GOODYEAR'S INDUSTRY SEGMENTS Financial information relating to Goodyear's "Industry Segments" for each of the three years in the period ended December 31, 1997 appears in Note 17 captioned "Business Segments", and in the tabulation captioned "Industry Segments" at Note 17, of the Notes to Financial Statements set forth in Item 8 of this Annual Report, at pages 48 and 49, respectively, and is incorporated herein by specific reference. DESCRIPTION OF GOODYEAR'S BUSINESS -- INDUSTRY SEGMENTS TIRES Goodyear's principal Industry Segment is the development, manufacture, distribution and sale of tires and related products and services (the "Tires Segment"). The principal class of products in the Tires Segment is tires for most applications. No other class of products or services in the Tires Segment accounted for as much as 10% of Goodyear's sales during any of the last three years. The table below sets forth the percentage of Goodyear's net sales and operating income attributable to the Tires Segment, and the percentage of Goodyear's sales attributable to tires, for each of the three years ended December 31, 1997:
YEAR ENDED DECEMBER 31, ----------------------------------- 1997 1996 1995 ------ ------ ------ Tires Segment sales.................................... 85.7% 85.5% 85.5% Tire sales....................................... 78.7% 77.1% 76.7% Tires Segment operating income......................... 74.7% 243.8%(1) 81.9%
Note: (1) If determined before giving effect to the $755.6 million writedown of the assets of the Oil Transportation Segment, Tires Segment operating income represented 79.6% of Goodyear's total operating income in 1996. The products and services comprising the Tires Segment include: 2 5 TIRES. Goodyear manufactures and markets in most regions of the world a broad line of rubber tires for automobiles, trucks, buses, tractors, farm implements, earthmoving equipment, aircraft, industrial equipment and various other applications, in each case for sale to original equipment manufacturers and in the replacement market. Goodyear offers two basic constructions of tires, radial and bias-ply. Various belting and reinforcing materials are used, including nylon and polyester tire cord and steel. A variety of Goodyear-brand radial passenger tire lines are sold in the United States, including the premium all season Infinitred, the Eagle performance touring tire lines, and the Eagle Gatorback and Eagle Aquatred high performance tire lines. The major lines of Goodyear-brand radial light truck tires offered in the United States are the Wrangler and Workhorse. Goodyear manufactures and sells several lines of radial passenger and light truck tires in Europe, led by the Eagle and the Eagle Aquatred passenger tire lines and the Wrangler light truck tire line. In Asia and Latin America, both radial and bias-ply Goodyear-brand passenger and light truck tires are manufactured and sold, led by the GPS2 and Eagle Aquatred in Asia and the GPS2 in Latin America. Goodyear manufactures and markets a full line of all-steel cord and belt construction radial medium truck tires, the Unisteel series, for applications ranging from line-haul highway use to off-road service. Goodyear also offers a full line of bias-ply medium truck tires. Goodyear produces several lines of tires for other applications, including radial and bias-ply tires for farm machinery, heavy equipment and aircraft, and inner tubes for truck tires and various other applications. Goodyear manufactures new aircraft tires in the United States and Asia. Goodyear sells new, and manufactures and sells retreaded, aircraft tires in the United States, Europe, Latin America and Asia. The Kelly-Springfield Tire group ("Kelly"), manufactures and markets numerous lines of radial and bias-ply passenger and truck tires in the United States replacement market and sells various lines of Kelly-brand tires in the replacement markets in Canada and certain other countries. RELATED PRODUCTS AND SERVICES. Goodyear also retreads truck, aircraft and heavy equipment tires, primarily as a service to its commercial customers, and manufactures and sells tread rubber and other tire retreading materials for various applications. Additional products and services in the Tires Segment include: automotive repair services provided by Goodyear through its retail outlets; the sale to dealers and consumers of automotive repair and maintenance items, automotive equipment and accessories and other items; the operation of two rubber plantations and the processing and sale of natural rubber; and miscellaneous other products and services. MARKETS, DISTRIBUTION AND COMPETITION The Company offers a broad line of tires for most applications and for all classes of customers. In the United States and many other countries, the Company sells Goodyear-brand tires to vehicle manufacturers for use as original equipment on vehicles they produce. In the United States and most other countries, the Company sells Goodyear-brand, Kelly-brand, other house brand and private brand tires through various channels of distribution for sale to vehicle owners for replacement purposes. Worldwide, the Company's sales of passenger, truck and farm tires to the replacement market substantially exceed its sales of passenger, truck and farm tires to original equipment manufacturers. All passenger tires (except bias-ply temporary spare tires) and approximately 87% of all light and medium truck tires sold by the Company in the United States during 1997 were radial. Approximately 97% of all passenger tires and approximately 53% of all light and medium truck tires sold by the Company outside the United States during 1997 were radial. Approximately 26% of passenger tires sold in the United States during 1997 were high performance tires. 3 6 Goodyear's tires are sold under highly competitive conditions. On a worldwide basis, Goodyear has two major competitors: Bridgestone (based in Japan) and Michelin (based in France). Goodyear also competes worldwide with several other major foreign based tire manufacturing concerns, including Continental, Pirelli, Sumitomo, Toyo, Yokohama and several Korean tire companies. Goodyear's principal competitors with operations in the United States are Bridgestone, Firestone (acquired by Bridgestone in 1988), Michelin, Uniroyal-Goodrich (acquired by Michelin in 1990), Continental, General (acquired by Continental in 1987) and Cooper. Goodyear competes with other tire manufacturers on the basis of price, warranty, service, consumer convenience and product design, performance and reputation. The Company believes Goodyear-brand tires enjoy a high recognition factor throughout the world and have a reputation for high quality and value. Kelly-brand and various other house-brand tire lines offered by the Company compete primarily on the basis of price and performance. Goodyear is a major supplier, on a direct sale basis, of tires to most manufacturers of automobiles, trucks, farm and construction equipment and other vehicles, both in the United States and in numerous other countries. Goodyear sells tires to the major automobile and truck manufacturers located in the United States: Ford, General Motors, Chrysler, Toyota, Nissan, Honda, NUMMI, AAI, Navistar, Mack Truck, Freightliner, Peterbilt and Kenworth. Goodyear supplies tires to several European manufacturers, including Fiat, Daimler-Benz, Volkswagen, Volvo, Ferrari, BMW, Peugeot, Alfa Romeo and Renault, to six Japanese manufacturers, Nissan, Mazda, Toyota, Honda, Mitsubishi and Isuzu, and to subsidiaries of General Motors, Ford and Chrysler throughout the world. Goodyear also supplies major manufacturers of construction and agricultural equipment, including Caterpillar, J. I. Case, John Deere, Massey-Ferguson and New Holland N.V. Goodyear-brand tires for the United States replacement market are sold through various channels of distribution. The principal method of distribution is a large network of independent dealers and franchisees. Goodyear-brand tires are also sold to several national and regional retail marketing firms, including Sears Roebuck & Co., Wal-Mart, Penske Auto Centers and Montgomery Ward. In addition, approximately 727 retail outlets (including auto service centers, commercial tire and service centers and leased space in department stores) are operated by the Registrant under the Goodyear name or under various other trade styles and approximately 155 retail and commercial tire sales outlets are operated by subsidiaries of the Registrant. Several lines of Kelly-brand and various other house brand passenger and truck tires are marketed through independent dealers. Private brand and associate brands of tires are also sold to independent dealers, to national and regional wholesale marketing organizations, including TBC Corporation, to retail chain marketers, including Wal-Mart, Discount Tire, Sears Roebuck & Co. and Big-O, to service stations and to various other retail marketers. Goodyear sells tires outside the United States to original equipment manufacturers and in the replacement market through independent wholesale distributors, its own wholesale distribution organizations, and, in some countries, its own retail stores. In certain countries Goodyear contracts for the manufacture by others of Goodyear-brand tires. No customer or group of affiliated customers accounted for as much as 5.4% of Goodyear's consolidated net sales during 1997, 1996 or 1995. Worldwide, Goodyear's annual net sales to its ten largest customers, including their respective affiliates, represented less than 21.6% of consolidated net sales for each of 1997, 1996 or 1995. No customer or group of affiliated customers accounted for as much as 4.2% of Tires Segment sales during 1997, 1996 or 1995. The ten largest customers of the Tires Segment represented less than 21.7% of Tire Segment sales for each of 1997, 1996 and 1995. Based on a composite of industry sources and information published by the Rubber Manufacturers Association (the "RMA"), it is estimated that approximately 238 million passenger 4 7 tires were sold in the United States during 1997, compared to approximately 232 million in 1996. Based on current economic forecasts, Goodyear expects the total market for passenger tires in the United States in 1998 to increase approximately .7% compared to 1997, with 1998 passenger tire demand expected to decrease approximately .2% in the original equipment market and increase approximately 1.0% in the replacement market. Based on a composite of industry sources and information published by the RMA, it is estimated that approximately 53 million light and medium highway truck tires were sold in the United States during 1997, compared to 50 million units sold during 1996. Goodyear estimates that demand for light and medium highway truck tires in the United States during 1998 will increase approximately 1.8%. The following table indicates the percentage change in Goodyear's annual unit sales of passenger, truck and farm tires worldwide: GOODYEAR WORLDWIDE UNIT SALES OF PASSENGER, TRUCK AND FARM TIRES-- PERCENTAGE INCREASE (DECREASE) IN ANNUAL UNIT SALES
1997 vs 1996 1996 vs 1995 -------------- -------------- United States........................................ 1.9% (.7)% Foreign.............................................. 8.2% 12.6% Worldwide...................................... 5.0% 5.4%
Based on information available from various industry and other sources and information published by the RMA, the Company sells more tires in the United States than any other tire manufacturer and, on the basis of annual net sales, is the third largest tire manufacturer in the world. Based on various industry and other sources, it is estimated that the Company's share of the worldwide auto, truck and farm tire markets was approximately 19% in 1997, compared to approximately 18% in 1996 and 1995. Related products and services, including automotive parts, automotive maintenance and repair services and associated merchandise, are sold in the United States through approximately 882 retail outlets operated by the Company. Automotive repair and maintenance items, automotive equipment and accessories and other items, which are purchased for resale by the Company, are distributed to many of the Company's tire dealers and franchisees. Related products are sold principally in the United States and Canada under highly competitive conditions. GOVERNMENT REGULATIONS The National Highway Traffic Safety Administration ("NHTSA"), under authority granted to it by the National Traffic and Motor Vehicle Safety Act of 1966, as amended, has established various standards and regulations relating to motor vehicle safety, some of which apply to tires sold in the United States for highway use. The NHTSA has the authority to order the recall of automotive products, including tires, having defects deemed to present a significant safety risk. NHTSA has issued "Tire Registration" regulations which require the registration of tires for the purpose of identification in the event of a product recall and "Uniform Tire Quality Grading" regulations which require the grading of passenger tires for treadwear, traction and temperature resistance pursuant to prescribed testing procedures and the molding of such grades into the sidewall of each tire. Passenger and highway truck tires are required to be identified by ten-digit manufacturing identification codes molded on the sidewall of each tire. The effect of compliance with these regulations on Goodyear's sales and profits cannot be determined. However, these regulations have increased the cost of producing and marketing passenger tires in the United States. 5 8 OTHER INFORMATION Goodyear does not consider its Tires Segment business to be seasonal to any significant degree. Goodyear maintains a significant inventory of new tires in order to rationalize production schedules and assure prompt delivery to its customers. Goodyear manages its inventory in order to minimize working capital requirements and avoid unnecessary increases in unit production costs while balancing production schedules with fluctuations in demand. Goodyear offers its customers various financing and extended payment programs from time to time. Goodyear does not believe these programs, when considered in the aggregate, require an unusual amount of working capital relative to the volume of sales involved and the prevailing practices in the tire industry. Goodyear's radial passenger and truck tire plants in North America and Europe were operated at approximately 92% of capacity during 1997 (excluding the 19 day period plants were closed due to the strike by the United Steel Workers at 5 tire plants in the United States), 91% of capacity during 1996 and 95% of capacity during 1995. Goodyear's worldwide tire capacity utilization was approximately 90% during 1997 (excluding the effects of said strike), 89% during 1996 and 93% during 1995. In order to maintain its competitive position, respond to changing market conditions and optimize production efficiencies, Goodyear has a continuing program for rationalizing production, eliminating inefficient capacity and modernizing and increasing the capacity of its radial passenger and truck tire facilities. Goodyear has expansion projects planned or underway at several of its existing tire plants and certain other tire manufacturers are building, or have announced plans to install, additional capacity for passenger tires and light and medium truck tires over the next few years. Goodyear has also acquired, or is in the process of installing, acquiring or obtaining access to, new tire manufacturing capacity in various markets, including China, India, the Philippines, Poland, Slovenia and South Africa. Continued high levels of capacity utilization by the tire industry during 1998 will be dependent on continued high production levels by the original equipment manufacturers in the United States and growth in the original equipment markets in Europe, Asia and Latin America, coupled with continued high levels of demand in the replacement markets throughout the world. GENERAL PRODUCTS Another Industry Segment is the development, manufacture, distribution and sale of numerous rubber, chemical and thermoplastic products (the "General Products Segment"). No class of products or services in the General Products Segment accounted for as much as 10% of Goodyear's net sales in any of the last three years. The table below sets forth the percentage of Goodyear's net sales and operating income attributable to the General Products Segment for each of the three years ended December 31, 1997:
YEAR ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 ------ ------ ------ General Products Segment sales................................. 13.7% 13.6% 13.5% General Products Segment operating income...................... 19.9% 44.5%(1) 13.6%
Note: (1) If determined before giving effect to the $755.6 million writedown of the assets of the Oil Transportation Segment, General Products Segment operating income represented 14.5% of Goodyear's total operating income in 1996. The products and services comprising the General Products Segment include: VEHICLE COMPONENTS. Goodyear manufactures automotive belts and hoses, air springs, engine mounts, and various chassis parts for motor vehicles. 6 9 ENGINEERED RUBBER PRODUCTS. Goodyear produces various engineered rubber products, including: conveyor and power transmission belts; air, steam, oil, water, gasoline, materials handling and hydraulic hose for industrial applications; tank tracks; and various other products. CHEMICAL PRODUCTS. Goodyear produces a broad line of synthetic rubber, latices, resins and organic chemicals used in rubber and plastic processing. MARKETS AND DISTRIBUTION -- OTHER INFORMATION Most products of the General Products Segment are sold directly to manufacturers or through independent wholesale distributors. During 1997, the five largest customers of the General Products Segment accounted for approximately 25.6% of General Products Segment sales and no customer accounted for more than 13.5% of General Products Segment sales. Goodyear does not maintain a significant inventory when considered in relation to the volume of business transacted. The General Products Segment consists of a large number of product lines in respect of which several manufacturers produce some, but not all, of the products manufactured by Goodyear. There are numerous suppliers of automotive belts and hose products and other rubber components for motor vehicles. More than 50 major firms participate in the engineered rubber products market. Goodyear is a major producer of synthetic rubber, rubber chemicals and latex. Several major firms are significant suppliers of one or more chemical products similar to those manufactured by Goodyear. These markets are highly competitive, with quality, service and price being the most significant factors to most customers. Goodyear believes the products offered by the General Products Segment are generally considered to be high quality and competitive in service and price. OIL TRANSPORTATION Goodyear's crude oil transportation and related activities (the "Oil Transportation Segment") are conducted by the Celeron group of companies ("Celeron"). The table below sets forth the percentage of Goodyear's net sales and operating income (or loss), attributable to the Oil Transportation Segment for each of the three years ended December 31, 1997:
YEAR ENDED DECEMBER 31, --------------------------------- 1997 1996 1995 ------ ------ ------ Oil Transportation Segment sales.................................. .6% .9% 1.0% Oil Transportation Segment operating income (loss)................ 5.4% (188.3%)(1) 4.5%
Note: (1) If determined before giving effect to the $755.6 million writedown of Oil Transportation Segment assets, Oil Transportation Segment operating income represented 5.9% of Goodyear's total operating income in 1996. All American Pipeline Company, a wholly-owned subsidiary of Registrant ("All American"), owns and operates a heated crude oil pipeline system which extends from two points on the California Coast to McCamey, Texas (the "All American System"). Celeron Gathering Company, a wholly-owned subsidiary of Registrant ("Celeron Gathering"), owns and operates a crude oil gathering pipeline in the San Joaquin Valley, California (the "Celeron Gathering System"). Celeron Trading & Transportation Company, a wholly-owned subsidiary of Registrant, engages in various crude oil exchanging, purchasing and selling activities. ALL AMERICAN SYSTEM The All American System is a heated crude oil pipeline system, consisting of a 1,225 mile 7 10 mainline segment extending from Gaviota, California, to McCamey, Texas, an 11 mile segment extending along the California Coast from Las Flores to Gaviota, and related terminal and oil storage facilities. The All American System is capable of transporting up to 300,000 barrels per day of heavy crude oils, 450,000 barrels per day of lighter crude oils or lower daily volumes of combinations of heavy crude oils (which may require heating) from fields on the outer continental shelf along the California coast in the Santa Barbara Channel - -- Santa Maria Basin area ("OCS Crude Oil") and lighter crude oils (which do not require heating) from various onshore California fields ("California Crude Oil") or other sources to System outlet stations in California for delivery through other pipelines to refineries in the Los Angeles Basin and in the greater San Francisco area and to All American System outlet stations in Wink and McCamey, Texas, for delivery via other pipelines to refineries in the Mid-continent region and along the Texas Gulf Coast. The All American System in the past has also transported Alaska North Slope crude oil ("ANS Crude Oil") received from other pipelines from insert points in central California to terminals located near McCamey, Texas. Several producers of OCS Crude Oil have entered into transportation agreements with the All American System for the transport of available quantities of OCS Crude Oil at specified tariff rates. An average of approximately 118,000 barrels per day of OCS Crude Oil were transported by the All American System during 1997. Approximately 87% of the OCS Crude Oil tendered was transported by the All American System to outlet stations in central California for delivery via other pipelines to refineries in the Los Angeles Basin or the San Francisco Bay area, with the balance transported to System outlet stations in Wink and McCamey, Texas, for delivery via other pipelines to refineries in the Mid-continent region and along the Texas Gulf Coast. It is anticipated that during 1998 the average number of barrels per day of OCS Crude Oil tendered for shipment will be lower than during 1997 and that substantially all of the OCS Crude Oil tendered will be for delivery to refineries in California. The average volume of crude oil transported by the All American System was approximately 195,000 barrels per day in 1997, 207,000 barrels per day in 1996 and 217,000 barrels per day in 1995. The average tariff per barrel of crude oil transported by the All American System during 1997 was $1.38, compared to $1.65 during 1996 and $1.76 during 1995. The All American System transported crude oil tendered for shipment an average distance of 461 miles in 1997, 627 miles in 1996 and 791 miles in 1995. It is anticipated that during 1998 the All American System will, on an average daily volume basis, transport lower quantities of OCS Crude Oil and substantially the same quantities of California Crude Oil. During 1998, it is expected that the volume of crude oil transported by the All American System within California will be somewhat higher than in 1997, while the volume of crude oil transported to locations outside California will be significantly lower than in 1997. As a result of industry developments indicating that the quantities of OCS Crude Oil, California Crude Oil and ANS Crude Oil expected to be tendered in the future to the All American System for transportation will be lower than previously estimated and that the volumes of crude oil expected to be transported by the All American System to markets outside California in the future would be significantly lower than previously anticipated, in accordance with Statement of Financial Accounting Standards No. 121 the carrying value of the assets of the All American System was reduced to $420 million, and a charge of $755.6 million ($499.3 million after tax) was recorded, in the fourth quarter of 1996. CELERON GATHERING SYSTEM Celeron Gathering owns and operates the Celeron Gathering System, a 43-mile crude oil gathering pipeline system, which has a design capacity of up to 100,000 barrels per day. Celeron Gathering uses the Celeron Gathering System in connection with its gathering, exchanging, purchasing and selling of crude oil produced in the South Belridge and Midway Sunset areas of the San Joaquin Valley. The major portion of crude oil acquired is ultimately sold to or exchanged with refiners located in, or shippers transporting crude oil to, the Mid-continent and Gulf Coast 8 11 areas. Celeron Gathering also trades crude oil in California, most of which is used by refiners located in the Los Angeles Basin or in Northern California. GOVERNMENT REGULATION The All American System is a common carrier pipeline system and, as such, under current law is subject to the general jurisdiction of the Federal Energy Regulatory Commission (the "FERC"). Pursuant to the Interstate Commerce Act, the All American System is subject to FERC regulation as to tariffs, annual reporting requirements and other operating matters. In accordance with current laws and the regulations of the FERC, the All American System has filed with the FERC tariffs for transportation services being offered to shippers desiring to transport crude oil through the All American System or portions thereof. The All American System will file an Annual Report on FERC Form No. 6 with the FERC in March of 1998 in respect of its activities during 1997. The All American System is also subject to the jurisdiction of the California Public Utilities Commission (the "Cal PUC") in respect of certain of its California intrastate transportation services. The Celeron Gathering System is a proprietary intrastate gathering pipeline system and, as such, is not subject to the general jurisdiction of the FERC or to the jurisdiction of the Cal PUC. GENERAL BUSINESS INFORMATION SOURCES AND AVAILABILITY OF RAW MATERIALS The principal raw materials used in Goodyear's products are synthetic and natural rubber. Goodyear purchases substantially all of its requirements for natural rubber in the world market. Synthetic rubber accounted for approximately 55%, 54% and 54% of all rubber consumed by Goodyear worldwide during 1997, 1996 and 1995, respectively. The Company's plants located in Beaumont and Houston, Texas, supply the major portion of its synthetic rubber requirements in the United States. The major portion of the synthetic rubber used by Goodyear outside the United States is supplied by third parties. The principal raw materials used in the production of synthetic rubber are butadiene and styrene purchased from independent suppliers and isoprene purchased from independent suppliers or produced by Goodyear from purchased materials. Nylon and polyester yarn, substantial quantities of which are processed in Goodyear's textile mills, and wire for radial tires, a portion of which is produced by Goodyear, are used in significant quantities by Goodyear. Other important raw materials used by Goodyear are carbon black, pigments, chemicals and bead wire. Substantially all of these raw materials are purchased from independent suppliers, except for certain chemicals which Goodyear manufactures. Goodyear purchases most of the materials and supplies it uses in significant quantities from several suppliers, except in those instances where only one or a few qualified sources are available. As in 1997, Goodyear anticipates the continued availability (subject to possible spot shortages) of all such materials during 1998. Goodyear uses substantial quantities of chemicals and fuels in the production of tires and other rubber products, synthetic rubber and latex and other products. Supplies of chemicals and fuels have been and are expected to continue to be adequate for the Company's manufacturing plants. Natural rubber and certain other raw material prices decreased during 1997. In general, the Company does not anticipate significant changes in raw material prices during 1998, although most commodity materials are likely to continue to be subject to some price volatility. PATENTS AND TRADEMARKS Goodyear owns approximately 1,773 patents issued by the United States Patent Office and approximately 6,776 patents issued or granted in other countries around the world, and also has licenses under numerous patents of others, covering various improvements in the design and manufacture of its products and in processes and equipment for the manufacture of its products. 9 12 Goodyear also has approximately 431 applications for United States Patents pending and approximately 4,827 patent applications on file in other countries around the world. While Goodyear considers that such patents, patent applications and licenses as a group are of material importance, it does not consider any one patent, patent application or license, or any related group of them, to be of such importance that the loss or expiration thereof would materially affect its business considered as a whole or the business of any of its Industry Segments. Goodyear owns and uses approximately 1,020 different trademarks, including several using the word "Goodyear". These trademarks are protected by approximately 6,850 registrations worldwide. Goodyear also has approximately 1,000 trademark applications pending in the United States and other jurisdictions. While Goodyear believes such trademarks as a group are of importance, the only trademarks Goodyear considers material to its business are those using the word "Goodyear". Goodyear believes all of its significant trademarks are valid and will have unlimited duration as long as they are adequately protected and appropriately used. BACKLOG Goodyear does not consider its backlog of orders to be material to, or a significant factor in, evaluating and understanding any of its Industry Segments or its business considered as a whole. GOVERNMENT BUSINESS The total amount of Goodyear's business during 1997 under contracts or subcontracts which were subject to termination at the election of the United States Government amounted to approximately .6% of Goodyear's consolidated net sales for 1997. The amount of business under such contracts or subcontracts during 1996 was 1.1% of consolidated net sales for 1996. The amount of business under such contracts or subcontracts during 1995 was .6% of consolidated net sales for 1995. RESEARCH AND DEVELOPMENT Goodyear expends significant amounts each year on research for the development of new, and the improvement of existing, products and manufacturing processes and equipment. Goodyear maintains substantial research and development centers for tires and related products in Akron, Ohio, and Colmar-Berg, Luxembourg; tire technical centers in Cumberland, Maryland, and Tsukuba, Japan; and tire proving grounds in Akron, Ohio, San Angelo, Texas, Mireval, France, and Colmar-Berg, Luxembourg. Goodyear operates significant research and development facilities for other products in Akron, Ohio, Lincoln, Nebraska, Marysville, Ohio, and Orsay, France. During the years ended December 31, 1997, 1996, 1995, 1994 and 1993 Goodyear expended, directly or indirectly, $384.1 million, $374.5 million, $369.3 million, $341.3 million and $320.0 million, respectively, on research, development and certain engineering activities relating to the design, development, improvement and modification of new and existing products and services and the formulation and design of new manufacturing processes and equipment and improvements to existing processes and equipment. Goodyear estimates that it will expend approximately $410 million for research and development activities during 1998. EMPLOYEES At December 31, 1997, Goodyear employed approximately 95,302 people throughout the world. Of the approximately 38,830 persons employed in the United States at December 31, 1997, approximately 11,467 were covered by a master collective bargaining agreement, dated May 9, 1997, with the United Steel Workers of America, A.F.L.-C.I.O.-C.L.C ("USWA"), which agreement will expire on April 19, 2003, and approximately 8,778 were covered by other contracts with the USWA and various other unions. 10 13 COMPLIANCE WITH ENVIRONMENTAL REGULATIONS Goodyear is subject to extensive regulation under environmental and occupational health and safety laws and regulations concerning, among other things, air emissions, discharges to waters and the generation, handling, storage, transportation and disposal of waste materials and hazardous substances. Goodyear has a continuing program to ensure its compliance with Federal, state and local environmental and occupational safety and health laws and regulations. During 1997, 1996, 1995, 1994 and 1993, Goodyear made capital expenditures aggregating approximately $16.6 million, $12.5 million, $17.4 million, $11.7 million, and $13.4 million, respectively, for environmental improvement and occupational safety and health compliance projects in respect of its facilities worldwide. Goodyear presently estimates that it will make capital expenditures for pollution control facilities and occupational safety and health projects of approximately $10.0 million during 1998 and approximately $10.3 million during 1999. In addition, Goodyear expended approximately $67.8 million during 1997, and Goodyear estimates that it will expend approximately $75.7 million during 1998 and approximately $69.8 million during 1999, to maintain and operate its pollution control facilities and conduct its other environmental and occupational safety and health activities, including the control and disposal of hazardous substances, which amounts are expected to be sufficient to comply with applicable existing environmental and occupational safety and health laws and regulations and are not expected to have a material adverse effect on Goodyear's competitive position in the industries in which it participates. At December 31, 1997, Goodyear had reserved $71.2 million for anticipated costs associated with the remediation of numerous waste disposal sites and certain other properties and related environmental activities. In the future Goodyear may incur increased costs and additional charges associated with environmental compliance and cleanup projects necessitated by the identification of new waste sites, the impact of new and increasingly stringent environmental laws, such as the Clean Air Act, and regulatory standards and the availability of new technologies. INFORMATION ABOUT GEOGRAPHICS SEGMENTS AND INTERNATIONAL OPERATIONS Financial information relating to Goodyear's "Geographic Segments" for each of the three years in the period ended December 31, 1997 appears in Note 17, captioned "Business Segments", and in the tabulation captioned "Geographic Segments" at Note 17 of the Notes to Financial Statements set forth in Item 8 of this Annual Report, at pages 48 and 50, respectively, and is incorporated herein by specific reference. The Company, through its foreign subsidiaries, engages in manufacturing or sales operations in most countries in the world, including manufacturing operations in 28 foreign countries. Foreign sales represented approximately 47%, 47% and 45% of total sales and foreign operating income represented approximately 53%, 181% (59% if determined before giving effect to the $755.6 million writedown of the Oil Transportation Segment assets), and 56% of total operating income in 1997, 1996 and 1995, respectively. Goodyear's foreign manufacturing operations consist primarily of the production of tires. Industrial rubber and certain other products are also manufactured in certain of the Company's foreign plants. Goodyear also participates in joint ventures in various countries. Goodyear and Pacific Dunlop Limited each have a 50% equity interest in South Pacific Tyres, an Australian partnership, and South Pacific Tyres N.Z. Limited, a New Zealand company, which entities operate five tire manufacturing plants, 20 retread plants and a chain of approximately 523 retail outlets in Australia, New Zealand and Papua - New Guinea. Other joint venture interests of the Company include: (1) a 50% interest in Nippon Giant Tire Co., Ltd., which manufactures earthmover tires in Japan; and (2) a 50% (43.2% net equity) interest in South Asia Tires Limited, which owns a tire manufacturing facility under construction near Bombay, India, which was substantially completed in 1997. In addition to the ordinary risks of the marketplace, the Company's foreign operations and the results thereof in some countries are affected by price controls, import controls, labor 11 14 regulations, tariffs, extreme inflation or fluctuations in currency values. Furthermore, in certain countries where Goodyear operates (primarily countries located in Central and South America), transfers of funds from foreign operations are generally or periodically subject to the availability of foreign exchange in the host country and other related restrictive governmental regulations. ITEM 2. PROPERTIES. Goodyear manufactures its products in 82 manufacturing facilities located around the world. There are 33 plants in the United States and 49 plants in 28 other countries. TIRES SEGMENT MANUFACTURING FACILITIES. The Company owns (or leases with the right to purchase at a nominal price) and operates the following manufacturing facilities used by the Tires Segment. UNITED STATES: Manufacturing facilities having an aggregate of 18.1 million square feet of floor space, as follows: (1) Tire plants at Akron, Ohio; Danville, Virginia; Fayetteville, North Carolina; Freeport, Illinois; Gadsden Alabama; Lawton, Oklahoma; Topeka, Kansas; Tyler, Texas; and Union City, Tennessee; (2) Steel tire wire plant at Asheboro, North Carolina; (3) Textile mills at Cartersville, Georgia; and Decatur, Alabama; (4) Tread rubber plants at Greenville, Texas; Radford, Virginia; Social Circle, Georgia; and Spartanburg, South Carolina; and (5) tire mold plants at Statesville, North Carolina; and Stow, Ohio. CANADA: Tire plants having an aggregate of 1.9 million square feet of floor space located at Medicine Hat, Alberta; Napanee, Ontario; and Valleyfield, Quebec. EUROPE: Manufacturing facilities having an aggregate of 11.6 million square feet of floor space, as follows: (1) Tire plants at Amiens, France; Fulda and Phillippsburg, Germany; Cisterna di Latina, Italy; Colmar-Berg, Luxembourg; Casablanca, Morocco; Adapazari and Ismit, Turkey; Wolverhampton, England; Debica, Poland; and Uitenhage, South Africa; and (2) three plants at Colmar-Berg, Luxembourg, for the the manufacture of tire fabric, steel tire cord and molds and machines. LATIN AMERICA: Tire plants having an aggregate of approximately 8.2 million square feet of floor space located at: Hurlingham, Argentina; Americana and Sao Paulo, Brazil (also tubes, tire molds, tire fabric and fabric dipping); Santiago, Chile (also tubes); Cali, Columbia; Guatemala City, Guatemala; Mexico City, Mexico; Lima, Peru; and Valencia, Venezuela. ASIA: Tire plants having an aggregate of approximately 3.5 million square feet of floor space located at: Dalian, China; New Delhi, India; Bogor, Indonesia; Kuala Lumpur, Malaysia; Manila and Marikina, Philippines; Taipei, Taiwan; and Bangkok, Thailand. GENERAL PRODUCTS SEGMENT MANUFACTURING FACILITIES. The Company owns (or leases with the right to purchase at a nominal price) and operates the following manufacturing facilities having an aggregate of approximately 6.7 million square feet of floor space: UNITED STATES: (1) Synthetic rubber and rubber chemicals plants at Bayport, Beaumont, and Houston, Texas; and Niagara Falls, New York; (2) hose products plants at Hannibal, Missouri; Lincoln, Nebraska (also power transmission products); Mt Pleasant, Iowa; Norfolk, Nebraska; and Sun Prairie, Wisconsin; (3) conveyor belting plants at Marysville, Ohio; and Spring Hope, North Carolina; (4) air springs plant at Green, Ohio; (5) molded rubber products plant at St. Marys, Ohio; (6) automotive parts plant at Logan, Ohio; and (7) specialty resins plant at Akron, Ohio. CANADA: (1) Hose products plants at Collingwood, Ontario; and St. Alphonse de Granby, Quebec; (2) conveyor belting plant at Bowmanville, Ontario; (3) power transmission products plant at Owen Sound, Ontario; and (4) a molded rubber products plant at Quebec City, Quebec. EUROPE: Chemical plant at LaHarve, France; engineered products plant at Kranj, Slovenia; and conveyor belting and power transmission and hose products plant at Uitenhage, South Africa. 12 15 LATIN AMERICA: (1) Conveyor belting and power transmission and hose products plants at Sao Paulo, Brazil; Santiago, Chile; and Valencia, Venezuela; (2) air springs plant at Maua, Brazil; (3) hose products plant at Tinaquillo, Venezuela; and (4) hose products and air springs plant at San Luis Potosi, Mexico. ASIA: Conveyor belting plant at Bayswater, Australia; and hose products plant at Qingdao, China. The manufacturing facilities of Goodyear are, when considered in the aggregate, modern and adequately maintained. Goodyear's capital expenditures for new plant and equipment and for expansion, modernization and replacement of existing plants and equipment and related assets aggregated $699.0 million in 1997, $617.5 million in 1996, $615.6 million in 1995. Of said amounts, $343.2 million in 1997, $301.4 million in 1996 and $347.9 million in 1995 were expended on facilities located in the United States. The Company estimates that its capital expenditures during 1998 will total approximately $700 million to $800 million. During 1997, Goodyear's worldwide tire production facilities were operated at approximately 90% (excluding the effect of the 19 day strike) of rated capacity and its other manufacturing facilities were operated at approximately 87% of rated capacity. Giving effect to plant expansions and modernizations recently completed or presently underway or planned, the Company's manufacturing facilities are generally expected to have production capacity sufficient to satisfy presently anticipated demand for the Company's tires and other products. Goodyear also owns substantial interests in plants located in Australia (tires and retreading), India (tires), Japan (earthmover tires) and New Zealand (tires and retreading). In addition to its manufacturing facilities, the Company owns and operates rubber plantations in Indonesia. The Company also owns and operates research and development facilities and technical centers in Akron, Ohio, Colmar-Berg, Luxembourg, Lincoln, Nebraska, Marysville, Ohio, and Orsay, France and tire proving grounds in Akron, Ohio (82 acres), Mireval, France (450 acres), and San Angelo, Texas (7,243 acres). The Company also operates tire technical centers in Cumberland, Maryland, and Tsukuba, Japan, and a tire proving ground in Colmar-Berg, Luxembourg. The Company operates approximately 882 retail outlets for the sale of its tires to consumers in the United States and approximately 444 retail outlets in other countries. Worldwide, the Company also operates approximately 119 retreading facilities and approximately 209 warehouse and distribution facilities. Substantially all of these facilities are leased. The Company does not consider any one of these leased properties to be material to its operations. For additional information regarding leased properties, see Note 6, "Properties and Plants," and Note 8, "Leased Assets," of the Notes to Financial Statements set forth in Item 8 of this Annual Report at pages 40 and 43, respectively. Reference is made to the information set forth in Item 1 under the caption "Oil Transportation" beginning at page 7, which includes a brief description of, and other information regarding, the All American System and the Celeron Gathering System. ITEM 3. LEGAL PROCEEDINGS. At March 1, 1998, Goodyear was a party to the following material legal proceedings, as defined in the Instructions to Item 103 of Regulation S-K: (A) Since January 19, 1990, a series of 65 civil actions have been filed against Registrant in the United States District Court for the District of Maryland relating to the development of lung disease, cancer and other diseases by former employees of The Kelly-Springfield Tire Company ("Kelly"), formerly a wholly-owned subsidiary of Registrant, alleged to be the result of exposure to allegedly toxic substances, including asbestos and certain chemicals, while working at the Cumberland, Maryland tire plant of Kelly, which was closed in 1987. The plaintiffs allege, among other things, that Registrant, as the manufacturer or seller of certain materials, negligently failed to warn Kelly employees of the health risks associated with their employment at the Cumberland plant and failed to implement procedures to preserve their health and safety. 13 16 The plaintiffs in these civil actions are seeking an aggregate of $650 million in compensatory damages and $6.46 billion in punitive damages. On March 5, 1997, the court granted Registrant's motion for summary judgment and issued an Order and Judgment dismissing all of these civil actions with prejudice. On April 7, 1997, the plaintiffs appealed the Order and Judgement of the court to the United States Court of Appeals for the Fourth Circuit. (B) On June 7, 1990, a civil action, Teresa Boggs, et al. v. Divested Atomic Corporation, et al., was filed in United States District Court for the Southern District of Ohio by Teresa Boggs and certain other named Plaintiffs on behalf of themselves and a class comprised of certain other persons who reside near the Portsmouth Uranium Enrichment Complex, a facility owned by the United States Government as a part of the United States Department of Energy ("DOE") and located in Pike County, Ohio (the "Portsmouth Plant"), against Divested Atomic Corporation ("DAC"), the successor by merger of Goodyear Atomic Corporation ("GAC"), Registrant and Martin Marietta Energy Systems, Inc. ("MMES"). GAC had operated the Portsmouth Plant pursuant to a series of contracts with the DOE for several years until November 16, 1986, when MMES assumed operation of the Portsmouth Plant. The Plaintiffs allege that the past and present operators of the Portsmouth Plant, GAC (then a wholly-owned subsidiary of Registrant) and MMES, contaminated certain areas near the Portsmouth Plant with radioactive or other hazardous materials, or both, causing property damage and emotional distress. Plaintiffs seek $300 million in compensatory damages, $300 million in punitive damages and unspecified amounts for medical monitoring and cleanup costs. (C) On January 13, 1995, a civil action, Gregory Tire, et al. v. Goodyear, et al. (Cause No. 95-00409), was filed in the 192nd Judicial District Court, Dallas County, Texas, against Registrant (and two employees of Registrant) by 22 tire dealers located in Texas who are or were customers of Registrant, either as independent dealers or franchisees. The complaint alleges, among other things, that in the course of Registrant's commercial relationships and dealings with the plaintiffs, Registrant violated the Texas Business Opportunities Act and the Texas Deceptive Trade Practices Act, breached its fiduciary duty to the plaintiffs, breached its covenants of good faith and fair dealings with the plaintiffs, violated the Texas Free Enterprise Act, violated the Texas Antitrust Act, breached certain contracts with the plaintiffs and committed common law fraud. The plaintiffs are seeking unspecified compensatory damages, exemplary damages equal to the greater of $230 million or 10% of Registrant's net worth and injunctive and other relief. (D) On March 15, 1995, a civil action, Orion Tire Corporation, et al. vs. Goodyear, et al. (Cause No. SA CV 95-221), was filed in the United States District Court for the Central District of California, against Registrant, Goodyear International Corporation, a wholly-owned subsidiary of Registrant ("GIC"), and five individuals, including Samir G. Gibara, Chairman of the Board, Chief Executive Officer and President of Registrant, by Orion Tire Corporation ("Orion"), a California corporation, China Tire Holdings Limited, a Bermuda corporation ("China Tire"), and China Strategic Holdings Limited, a Hong Kong corporation ("China Strategic"). The plaintiffs alleged, among other things, that, in connection with Registrant's acquisition of a 75% interest in a tire manufacturing facility (the "Dalian Facility") in Dalian, People's Republic of China, in 1994, Registrant and GIC engaged in tortious interference with certain alleged contractual relationships of plaintiffs involving the Dalian Facility, committed tortious interference with certain prospective economic advantages of the plaintiffs, violated the California Cartwright Act by engaging in an unlawful combination and conspiracy in restraint of trade and committed trade libel and defamation by making oral defamatory and written libelous statements concerning the plaintiffs to various parties. In addition, all defendants were alleged to have engaged in a civil conspiracy to induce the entities which owned the Dalian Facility to breach their contracts with the plaintiffs and to have engaged in civil racketeering. On motion made by Registrant, the court dismissed all individual defendants from the proceeding for lack of jurisdiction, dismissed all claims made by China Strategic and most of the claims made by Orion and China Tire. The remaining claims of Orion and China Tire are that Registrant and GIC allegedly (i) engaged in conduct which constituted tortious interference with the prospective economic advantage of Orion 14 17 by allegedly wrongfully obstructing and interfering with Orion's alleged prospective business ventures involving the Dalian Facility and (ii) committed trade libel and defamation in respect of Orion and China Tire by knowingly publishing untrue statements regarding Orion and China Tire to various officials of the Dalian Facility and various governmental bodies in the People's Republic of China. The plaintiffs are seeking more than $1.0 billion in actual damages and more than $3.0 billion in exemplary damages from Registrant and GIC, and such further relief as the court may deem appropriate. (E) In March of 1997, Registrant filed a civil action, Goodyear v. Chiles Power Supply Inc., d/b/a Heatway Systems (Case No. 5:97CV0335), in the United States District Court for the Northern District of Ohio, Eastern Division, against Chiles Power Supply Inc. ("Heatway") seeking (i) to collect $2.3 million due for Entran 3 hose sold and delivered to Heatway and (ii) to obtain a declaratory judgment to the effect that Registrant's obligations in respect of Entran 2 hose sold to Heatway in the past are limited by Registrant's standard written terms and conditions of sale. Heatway has counterclaimed, alleging that all Entran 2 hose sold to it is defective and that Heatway has been damaged as a result. Heatway is seeking an unspecified amount of damages. (F) Since April 1, 1995, Goodyear has received two subpoenas issued in connection with an industry-wide investigation being conducted by the Cleveland, Ohio, office of the Antitrust Division of the United States Department of Justice into possible violations of Section 1 of the Sherman Act by tire manufacturers. The subpoenas call for the production of documents to a Federal grand jury sitting in Cleveland. Goodyear is cooperating fully with the Department of Justice in the investigation. (G) In addition to the legal proceedings described above, various other legal actions, claims and governmental investigations and proceedings covering a wide range of matters were pending against Registrant and its subsidiaries at March 1, 1998, including claims and proceedings relating to several waste disposal sites that have been identified by the USEPA and similar agencies of various States for remedial investigation and cleanup, which sites were allegedly used by Goodyear in the past for the disposal of industrial waste materials. Registrant, based on available information, does not consider any such action, claim, investigation or proceeding to be material, within the meaning of that term as used in Item 103 of Regulation S-K and the instructions thereto. Registrant, based on available information, has determined with respect to each legal proceeding pending against Registrant and its subsidiaries at March 1, 1998, either that it is not reasonably possible that Goodyear has incurred liability in respect thereof (or, if reasonably possible, that the nature and amount thereof has been disclosed in Note 18 to the Financial Statements set forth at Item 8 to, at page 51 of, this Annual Report) or that any liability ultimately incurred will not exceed the amount, if any, recorded in respect of such proceeding at December 31, 1997, by an amount which would be material relative to the consolidated financial position, results of operations or liquidity of Goodyear, although, in the event of an unanticipated adverse final determination in respect of certain proceedings, Goodyear's consolidated net income for the period during which such determination occurs could be materially affected. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matter was submitted to a vote of the security holders of the Registrant during the calendar quarter ended December 31, 1997. ITEM 4(A). EXECUTIVE OFFICERS OF REGISTRANT. Set forth below, in accordance with Instruction 3 to Item 401(b) of Regulation S-K, are: (1) the names and ages of all executive officers (including executive officers who are also directors) of the Registrant as of March 1, 1998, (2) all positions with the Registrant presently held by each such person and (3) the positions held by, and principal areas of responsibility of, each such person during the last five years. 15 18 NAME POSITION(S) HELD AGE ------- ------------------ ----- SAMIR G. GIBARA CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER 58 AND PRESIDENT AND DIRECTOR Mr. Gibara served in various managerial capacities after joining Goodyear in 1966. Mr. Gibara was elected a Vice President of Registrant on October 6, 1992, serving in that capacity as the executive officer responsible for strategic planning and business development and as the acting Vice President of Finance and the principal financial officer of Registrant. On May 3, 1994, Mr. Gibara was elected an Executive Vice President of Registrant and, in such capacity, was the executive officer responsible for the North American Tire Operations of Registrant. Effective April 15, 1995, Mr. Gibara was elected President and Chief Operating Officer of Registrant. Mr. Gibara was elected President and Chief Executive Officer of Registrant effective January 1, 1996, and Chairman of the Board, Chief Executive Officer and President effective July 1, 1996. Mr. Gibara is the principal executive officer of Registrant. Mr. Gibara has been a director of Registrant since April 15, 1995. WILLIAM J. SHARP PRESIDENT, GLOBAL SUPPORT OPERATIONS 56 Mr. Sharp served in various tire production posts until elected, effective April 1, 1991, an Executive Vice President of Registrant for worldwide product supply, serving in that capacity, as the executive officer of Registrant responsible for Goodyear's tire manufacturing and distribution operations and research, development and engineering activities until October 1, 1992, when he became the executive officer of Registrant responsible for the operations of Registrant's subsidiaries in Europe. Effective January 1, 1996, Mr. Sharp was elected Registrant's President, Global Support Operations, and, as such, he is the executive officer of Registrant having corporate responsibility for Goodyear's research and development, manufacturing, purchasing, materials management, quality assurance, and environmental and health and safety improvement activities worldwide. Mr. Sharp has been an employee of Goodyear since 1964. ROBERT W. TIEKEN EXECUTIVE VICE PRESIDENT 58 AND CHIEF FINANCIAL OFFICER Mr. Tieken joined Goodyear on May 3, 1994, when he was elected an Executive Vice President and the Chief Financial Officer of Registrant. Prior to joining Goodyear, Mr. Tieken had been employed by the General Electric Company for 32 years, serving in various financial management posts, including Vice President, Finance and Information Technology of General Electric Aerospace from 1988 to April of 1993. From April of 1993 through April of 1994, Mr. Tieken was the Vice President of Finance of Martin Marietta Corporation, which acquired General Electric Aerospace in April of 1993. Mr. Tieken is the principal financial officer of Registrant. EUGENE R. CULLER, JR EXECUTIVE VICE PRESIDENT 59 Mr. Culler served in various capacities until August 2, 1988, when he was elected an Executive Vice President of Registrant, serving in that capacity as the executive officer of Registrant responsible for Goodyear's North American Tire Operations until September 30, 1990. Mr. Culler was the President of Goodyear Canada Inc., a wholly-owned subsidiary of Registrant, from October 1, 1990 to April 15, 1995. Mr. Culler was again elected an Executive Vice President of Registrant effective April 15, 1995, and, as such, he is the executive officer responsible for Goodyear's North American Tire Operations. Mr. Culler has been an employee of Goodyear since 1961. NISSIM CALDERON VICE PRESIDENT 64 Dr. Calderon served in various research management posts until April 7, 1986, when he was elected a Vice President of Registrant. He is the executive officer of Registrant responsible for Goodyear's research programs. Dr. Calderon has been an employee of Goodyear since 1962. 16 19 NAME POSITION(S) HELD AGE ------- ------------------ ----- JAMES BOYAZIS VICE PRESIDENT AND SECRETARY 61 Mr. Boyazis joined Goodyear in 1963, serving in various posts until June 2, 1987, when he was elected a Vice President and the Secretary of Registrant. He is also the Associate General Counsel of Registrant. JESSE T. WILLIAMS, SR. VICE PRESIDENT 58 Mr. Williams served in various human resources posts until August 2, 1988, when he was elected a Vice President of Registrant. Mr. Williams was responsible for corporate compliance with equal employment opportunity laws and regulations until July 1, 1991, when he became the executive officer of Registrant responsible for Goodyear's human resources, diversity, safety and workers' compensation activities and for compliance with the various equal employment opportunity, workplace safety and other employment laws and regulations. Mr. Williams was the executive officer of Registrant responsible for Goodyear's compensation and employment practices from March 1, 1993 through October 31, 1995. Effective November 1, 1995, Mr. Williams became the executive officer of Registrant responsible for Goodyear's human resources policy, employment practices and systems. Mr. Williams has been an employee of Goodyear since 1962. JOHN P. PERDUYN VICE PRESIDENT 58 Mr. Perduyn served in various public relations posts until he was elected a Vice President of Registrant effective June 1, 1989. He is the executive officer of Registrant responsible for Goodyear's public affairs activities. Mr. Perduyn has been an employee of Goodyear since 1970. RICHARD P. ADANTE VICE PRESIDENT 51 Mr. Adante served in various engineering and management posts until April of 1990, when he was appointed Vice President for merchandise distribution and control. Mr. Adante was elected a Vice President effective April 1, 1991. He is the executive officer of Registrant responsible for materials management. Mr. Adante has been an employee of Goodyear since 1966. H. CLAY ORME VICE PRESIDENT 58 Mr. Orme served in various manufacturing management posts until he was elected a Vice President of Registrant effective September 1, 1992,. He is the executive officer of the Registrant responsible for Goodyear's worldwide manufacturing, corporate engineering and product distribution operations. Mr. Orme has been an employee of Goodyear since 1962. GARY A. MILLER VICE PRESIDENT 51 Mr. Miller served in various management and research and development posts until he was elected a Vice President of Registrant effective November 1, 1992. He is the executive officer of Registrant responsible for Goodyear's purchasing operations. Mr. Miller has been an employee of Goodyear since 1967. MIKE L. BURNS VICE PRESIDENT 56 Mr. Burns served in various human resources posts until appointed Director of Organization Development and Training in 1986. He was elected a Vice President of Registrant effective March 1, 1993. He is the executive officer of Registrant responsible for Goodyear's human resources and total quality systems. Mr. Burns has been an employee of Goodyear since 1965. 17 20 NAME POSITION(S) HELD AGE ------- ------------------ ----- GEORGE E. STRICKLER VICE PRESIDENT 50 Mr. Strickler served in various accounting, treasury and financial posts until August of 1988, when he became the principal financial officer of the Tire Division. Mr. Strickler was a Vice President and the Comptroller of Registrant from September 1, 1993 to May 31, 1996. Since June 1, 1996, Mr. Strickler has served as a Vice President of Registrant and is the executive officer of Registrant responsible for the financial functions of Goodyear's North American Tires operations. Mr. Strickler has been an employee of Goodyear since 1969. JAMES C. WHITELEY VICE PRESIDENT 50 Mr. Whiteley served in various quality control and quality assurance managerial posts until appointed Director of Tire Quality Assurance on June 1, 1990. He was elected a Vice President of Registrant on November 2, 1993, serving as the executive officer of Registrant responsible for product quality and safety. Effective July 1, 1995, Mr. Whiteley became the executive officer of Registrant responsible for product quality and safety and environmental and occupational health and safety improvement and government compliance programs. Mr. Whiteley has been an employee of Goodyear since 1969. RICHARD W. HAUMAN VICE PRESIDENT AND TREASURER 51 Mr. Hauman served in various financial management posts around the world until he was elected an Assistant Treasurer of Registrant on August 15, 1988. He was elected a Vice President and the Treasurer of Registrant on October 4, 1994. Mr. Hauman is the executive officer of Registrant responsible for Goodyear's worldwide treasury operations, risk management activities and pension asset management. Mr. Hauman has been an employee of Goodyear since 1968. RICHARD J. STEICHEN VICE PRESIDENT 53 Dr. Steichen served in various research and development posts until August 1, 1991, when he was appointed Director of Technology Management. On November 1, 1992, Dr. Steichen was appointed the General Manager of Technology and Quality Assurance of South Pacific Tyres, a joint venture company 50% owned by Goodyear, serving in that capacity until November 30, 1994. Dr. Steichen was elected a Vice President of Registrant effective December 1, 1994. Dr. Steichen is the executive officer of Registrant responsible for Goodyear's worldwide tire technology activities. Dr. Steichen has been an employee of Goodyear since 1973. C. THOMAS HARVIE VICE PRESIDENT AND GENERAL COUNSEL 54 Mr. Harvie joined Goodyear on July 1, 1995 as a Vice President and the General Counsel of Registrant. Prior to joining Goodyear, Mr. Harvie was a Vice President and the Associate General Counsel of TRW Inc. from 1989 through June 1995. Mr. Harvie had been employed by TRW Inc. for 20 years in various capacities in the TRW Inc. law department. LEE N. FIEDLER VICE PRESIDENT 56 Mr. Fiedler served in various chemical sales and marketing positions and managerial posts until October 1, 1991, when he became the President and Chief Executive Officer of The Kelly-Springfield Tire Company, formerly a wholly-owned subsidiary of Registrant. Since January 1, 1996, he has served as the President of the Kelly-Springfield Division. He was elected a Vice President of Registrant on November 5, 1996 and is the executive officer of Registrant responsible for Kelly-brand and private-brand tire operations. Mr. Fiedler has been an employee of Goodyear since 1963. 18 21 NAME POSITION(S) HELD AGE ------- ------------------ ----- SYLVAIN G. VALENSI VICE PRESIDENT 55 Mr. Valensi served in various finance, sales and marketing positions until 1985, when he was appointed Director of Sales and Marketing for the European region. In November 1993, he was named President and Chief Executive Officer of Goodyear France S.A., a wholly-owned subsidiary of Registrant. On February 1, 1996, Mr. Valensi was appointed Vice President of Goodyear's European region. On November 5, 1996, Mr. Valensi was elected a Vice President of Registrant and in that capacity serves as the executive officer of Registrant responsible for the Goodyear's operations in Europe, Africa and the Middle East. Mr. Valensi has been an employee of Goodyear since 1965. JOSEPH M. GINGO VICE PRESIDENT 53 Mr. Gingo served in various research and development and managerial posts until elected a Vice President of Registrant effective November 1, 1992, serving in that capacity as the executive officer of Registrant responsible for Goodyear's worldwide tire technology activities until January 1, 1995, when he was appointed Vice President of Goodyear's Asia region. On November 5, 1996, Mr. Gingo was elected a Vice President of Registrant and, in that capacity, is the executive officer of Registrant responsible for Goodyear's operations in Asia. Mr. Gingo has been an employee of Goodyear since 1966. JOHN C. POLHEMUS VICE PRESIDENT 53 Mr. Polhemus served in various managerial positions in Goodyear's international operations until June 1, 1991, when he was appointed Managing Director and President of Goodyear do Brasil Produtos de Borracha Ltda, a wholly-owned subsidiary of Registrant. On April 10, 1995, Mr. Polhemus was appointed Vice President for the Latin America region. On November 5, 1996, Mr. Polhemus was elected a Vice President of Registrant and, in that capacity, is the executive officer of Registrant responsible for Goodyear's Latin American operations. Mr. Polhemus has been an employee of Goodyear since 1969. TERRY L. PERSINGER VICE PRESIDENT 53 Mr. Persinger joined Goodyear in 1966, serving in various research and development and managerial positions until May 16, 1989, when he was appointed Vice President and General Manager of the Polyester Division. He served in that capacity until December 1992, when the Polyester Division was sold to Shell Oil Company. Mr. Persinger left Goodyear and joined Shell at that time. He rejoined Goodyear effective January 1, 1995, when he was appointed Vice President and General Manager of Engineered Products. On November 5, 1996, Mr. Persinger was elected a Vice President of Registrant and, in that capacity, is the executive officer of Registrant responsible for Goodyear's Engineered Products operations. DENNIS E. DICK VICE PRESIDENT 58 Mr. Dick served in various research and development and production posts until elected a Vice President of Registrant on April 9, 1984, serving as the executive officer of Registrant responsible for Goodyear's general products technology management activities worldwide until October 1991, when he was appointed Vice President and General Manager of Goodyear's Chemical Division. On November 5, 1996, Mr. Dick was elected a Vice President of Registrant and in that capacity the executive officer of Registrant responsible for Goodyear's Chemical Division. Mr. Dick has been an employee of Goodyear since 1964. 19 22 NAME POSITION(S) HELD AGE ------- ------------------ ----- JOHN W. RICHARDSON VICE PRESIDENT 52 Mr. Richardson served in various financial management posts until he was appointed General Manager and Finance Director of Goodyear Great Britain Limited on November 1, 1990. Mr. Richardson was appointed General Auditor of Goodyear on February 1, 1993, serving in that post until appointed Vice President and Comptroller on June 1, 1996. He was elected Vice President Corporate Finance of Registrant on November 5, 1996 and in that capacity is the principal accounting officer of Registrant. Mr. Richardson has been an employee of Goodyear since 1967. CLARK E. SPRANG VICE PRESIDENT 55 Mr. Sprang served in various financial posts until appointed Finance Director for Europe on July 1, 1990, serving in that post until September 1, 1993, when he was appointed Vice President Business Development. Mr. Sprang was elected a Vice President of Registrant on November 5, 1996 and in that capacity is the executive officer of Registrant responsible for Goodyear's business development activities. Mr. Sprang has been an employee of Goodyear since 1966. No family relationship exists between any of the above named executive officers or between said executive officers and any other director or nominee for director of Registrant. Each executive officer is elected by the Board of Directors of Registrant at its annual meeting to a term of one year or until his or her successor is duly elected, except in those instances where the person is elected at other than an annual meeting of the Board of Directors in which event such person's tenure will expire at the next annual meeting of the Board of Directors unless such person is reelected. The next annual meeting of the Board of Directors is scheduled to be held on April 6, 1998. PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The principal market for Registrant's Common Stock is the New York Stock Exchange (Stock Exchange Symbol GT). Registrant's Common Stock is also listed on the Chicago Stock Exchange and the Pacific Exchange. Overseas listings include the Amsterdam, Paris and Swiss Stock Exchanges. Information relating to the high and low sale prices of Registrant's Common Stock and the dividends paid on such shares during 1997 and 1996 appears under the caption "Quarterly Data and Market Price Information" in Item 8 of this Annual Report, at page 53, and is incorporated herein by specific reference. The first quarter 1998 cash dividend, to be paid on March 16, 1998 to shareholders of record at February 17, 1998, was $.30 per share. At February 17, 1998, there were 29,078 record holders of the 156,818,027 shares of the Common Stock of Registrant then outstanding. Approximately 8,310,815 shares of the Common Stock of Registrant were beneficially owned by approximately 35,062 participants in four Employee Savings Plans sponsored by Registrant and certain of its subsidiaries. The Northern Trust Company is the Trustee for said Employee Savings Plans. 20 23 ITEM 6. SELECTED FINANCIAL DATA.
YEAR ENDED DECEMBER 31, - -------------------------------------------------------------------------------------------------------------- (IN MILLIONS, EXCEPT PER SHARE)........... 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- Net Sales................................. $13,155.1 $13,112.8 $13,165.9 $12,288.2 $11,643.4 Income before Extraordinary Items and Cumulative Effect of Accounting Changes...................... 558.7 101.7 611.0 567.0 488.7 Extraordinary Items -- Early Extinguishment of Debt............ -- -- -- -- (14.6) Cumulative Effect of Change in Accounting for Postemployment Benefits................. -- -- -- -- (86.3) --------- --------- --------- --------- --------- Net Income................................ $ 558.7 $ 101.7 $ 611.0 $ 567.0 $ 387.8 ========= ========= ========= ========= ========= Per Share of Common Stock: Income before Extraordinary Items and Cumulative Effect of Accounting Changes...................... $ 3.58 $ .66 $ 4.02 $ 3.75 $ 3.33 Extraordinary Items -- Early Extinguishment of Debt............ -- -- -- -- (.10) Cumulative Effect of Change in Accounting for Postemployment Benefits................. -- -- -- -- (.59) --------- --------- --------- --------- --------- Net Income - basic........................ $ 3.58 $ .66 $ 4.02 $ 3.75 $ 2.64 ========= ========= ========= ========= ========= Net Income - diluted...................... $ 3.53 $ .65 $ 3.97 $ 3.70 $ 2.58 ========= ========= ========= ========= ========= Dividends Per Share....................... $ 1.14 $ 1.03 $ .95 $ .75 $ .575 Total Assets.............................. $ 9,917.4 $ 9,671.8 $ 9,789.6 $ 9,123.3 $ 8,436.1 Long Term Debt............................ $ 844.5 $ 1,132.2 $ 1,320.0 $ 1,108.7 $ 1,065.9 Shareholders' Equity...................... $ 3,395.5 $ 3,279.1 $ 3,281.7 $ 2,803.2 $ 2,300.8
Notes: (1) See "Principles of Consolidation" at Note 1 ("Accounting Policies") to the Financial Statements at page 37. (2) Net Income in 1997 included net after-tax charges of $176.3 million, or $1.13 per share-basic, for rationalizations. (3) Net Income in 1996 included net after-tax charges of $573.0 million, or $3.69 per share-basic, for the writedown of the All American Pipeline System and related assets and other rationalizations. 21 24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS CONSOLIDATED NET SALES Sales in 1997 were $13.16 billion, compared to $13.11 billion in 1996 and $13.17 billion in 1995. Net income in 1997 was $558.7 million or $3.58 per share-basic, compared to $101.7 million or $.66 per share-basic in 1996 and $611.0 million or $4.02 per share-basic in 1995. Diluted earnings per share were $3.53, $.65 and $3.97 in 1997, 1996 and 1995, respectively. All subsequent per share amounts in this discussion refer to basic earnings per share. Net income in 1997 included net after-tax charges of $176.3 million or $1.13 per share for rationalizations of manufacturing and other activities, as discussed below. Net income in 1996 included net after-tax charges of $573.0 million or $3.69 per share related to the writedown of the All American Pipeline System and related assets and other rationalization actions. Worldwide tire unit sales in 1997 were 5.0% higher than 1996 and 10.7% higher than 1995. Unit sales of other automotive and industrial rubber products were higher in both 1997 and 1996. Tire unit sales in 1997 rose on increased replacement volume in all regions and higher original equipment volume in North America, Europe and Latin America. In 1996, tire unit sales rose on higher volume in Europe and Asia, although original equipment volume decreased in North America and Latin America. Revenues in 1997 were favorably impacted by higher tire unit sales and the acquisition of manufacturing and distribution operations in South Africa, but decreased due primarily to continued worldwide competitive pricing pressures and the adverse effect of currency translations on international results. Revenues in 1996 decreased despite higher tire unit sales, due primarily to continued competitive pricing pressures worldwide and the strengthening of the U.S. dollar in 1996 versus various foreign currencies. COST OF GOODS SOLD Cost of goods sold in 1997 was 76.4% of sales, compared to 76.5% in 1996 and 76.7% in 1995. Raw material costs in 1997 decreased from 1996's level, which was also lower than the level reached in 1995. Worldwide raw material costs are not expected to increase significantly in 1998. Labor costs increased in both 1997 and 1996, due in part to U.S. wage agreements which provided for wage and benefit improvements. Manufacturing costs were adversely affected in 1997 by a 19-day strike against the Company by the United Steel Workers of America, A.F.L.-C.I.O.-C.L.C. (USWA) at 10 U.S. tire and engineered products manufacturing facilities. Costs in 1996 reflected lower levels of capacity utilization resulting from reductions in production schedules in North America and Europe to align inventory with market requirements. Manufacturing costs in both 1997 and 1996 benefited from efficiencies achieved as a result of ongoing cost containment measures. The Company's research and development expenditures, all of which were included in cost of sales, were $384.1 million, $374.5 million and $369.3 million in 1997, 1996 and 1995, respectively. Research and development expenditures in 1998 are expected to approximate $410 million. SAG Selling, administrative and general expense (SAG) in 1997 was 14.4% of sales, compared to 14.4% in 1996 and 14.7% in 1995. SAG in 1997 was adversely affected by the acquisition of 22 25 the South African subsidiary, but benefited in 1997 and 1996 from lower employment levels in the U.S. which reduced compensation and benefit costs, and the favorable impact of ongoing worldwide cost containment measures. RATIONALIZATIONS AND OTHER ACTIONS As a result of continued competitive conditions in the markets served by the Company, a number of rationalization actions were approved in 1997 to reduce costs and focus on the core tire and general products businesses. These actions, the timing of which resulted in part from the finalization of labor contract negotiations in the U.S., included the optimization, downsizing or consolidation of certain production facilities, consolidation of distribution operations and withdrawal of support from the worldwide Formula 1 racing series. In connection with these actions, obligations under certain leases and other contracts were accrued, other assets were written off and over 3,000 associates will be released. The approval of these actions resulted in a charge of $265.2 million ($176.3 million after tax or $1.13 per share), of which $52.5 million related to non-cash writeoffs and $212.7 million related to future cash outflows, primarily for associate severance costs. The actions are anticipated to be substantially completed during 1998-1999, and are expected to result in annual pretax savings of approximately $200 million when completed. In December 1996, industry developments occurred indicating that the quantities of off-shore California, onshore California and Alaska North Slope crude oil expected to be tendered in the future to the All American Pipeline System and related assets (the System) for transportation would be below prior estimates and that volumes of crude oil expected to be tendered to the System for transportation to markets outside of California in the future would be significantly lower than previously anticipated. As a result management determined that the future cash flows expected to be generated by the System would be less than its carrying value. In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company reduced the carrying value of the System to $420 million, determined using the present value of expected future cash flows from the System, and recorded a charge of $755.6 million ($499.3 million after tax or $3.21 per share). Rationalization and other actions undertaken in 1996 included the closure of the Greece tire manufacturing facility, the discontinuance of PVC production at Niagara Falls, New York, and other worldwide consolidations and workforce reductions. Charges related to these actions totaled $148.5 million ($95.3 million after tax or $.62 per share). The Company also recorded net gains in 1996 totaling $32.1 million ($21.6 million after tax or $.14 per share) related to the sale of business property in Asia, a portion of an investment in an Asian plantation and the loss on the anticipated sale of a U.S. manufacturing facility. FOREIGN CURRENCY EXCHANGE Foreign currency exchange increased pretax income by $34.1 million in 1997, compared to pretax charges of $7.4 million in 1996 and $17.4 million in 1995. The improvement in 1997 and 1996 was due primarily to the Company's currency exposure management strategies, primarily related to the impact of the strengthening of the U.S. dollar versus various European and Asian currencies. INCOME TAXES The Company's effective tax rate was 28.6%, 12.5% and 32.7% in 1997, 1996 and 1995, respectively. The substantial reduction in 1996 was caused primarily by the writedown of the All American Pipeline System and related assets. Net income in 1997 and 1996 benefited from lower U.S. taxes on foreign source income. For further information, refer to the note to the financial statements No. 15, Income Taxes. 23 26 YEAR 2000 The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a temporary inability to process transactions or engage in similar normal business activities. The Company has determined that modification of much of its software will be required so that its computer systems will properly utilize dates beyond December 31, 1999. The Company believes that with timely modifications to its existing software and conversions to new software, by both the Company and its significant suppliers and customers, the Year 2000 Issue will not have a material impact on the Company's operations. Both Company associates and third parties have been utilized to reprogram and test software for Year 2000 modifications. The cost of modifications and related testing is estimated to be $60-$90 million, of which $16 million was charged to cost of goods sold in 1997. Hardware and software acquisitions that are made as an indirect result of the Year 2000 Issue will be capitalized under the Company's normal capitalization practices. Year 2000 costs are being funded through operations. NEW ACCOUNTING STANDARDS The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related Information." The standard defines a segment as a component of an enterprise about which separate financial information is available and which is regularly evaluated by the chief operating officer. This standard requires financial information about segments to be reported on the basis that is used internally for evaluating segment performance. Upon the Company's adoption of SFAS 131, the reported segments of the Company will be more reflective of its strategic business unit organizational structure. SFAS 131 is effective for fiscal years beginning after December 15, 1997 and requires segment disclosures in interim periods beginning in the second year after adoption. The Company has not yet determined the effect, if any, on consolidated segment operating income resulting from the adoption of this standard. SEGMENT INFORMATION Segment operating income was $1,044.4 million, $366.4 million and $1,221.1 million and segment operating margin was 7.9%, 2.8% and 9.3% of sales in 1997, 1996 and 1995, respectively. Segment operating income in 1997 was reduced by the previously mentioned charges of $265.2 million related to rationalizations in manufacturing and other areas. Segment operating income in 1996 was reduced by the previously mentioned charges of $755.6 million related to the writedown of the oil transportation segment assets and $158.7 million related to workforce reductions, consolidation of operations and the closure and sale of manufacturing facilities. INDUSTRY SEGMENTS TIRES Sales in 1997 were $11.27 billion, compared to $11.20 billion in 1996 and $11.26 billion in 1995. Unit sales increased in 1997 in both the original equipment and replacement markets in North America and all international regions. Revenues in 1997 were adversely affected by worldwide competitive pricing pressures and the effects of currency translation on international results. Sales in 1997 also reflected reduced demand in the U.S. resulting from strikes against certain vehicle production facilities. 24 27 Revenues decreased in 1996 despite higher tire unit sales, due primarily to reduced unit sales to original equipment vehicle manufacturers in North America and Latin America, competitive pricing pressures worldwide and unfavorable translation due to the strengthening of the U.S. dollar versus various foreign currencies. Additionally, revenues in 1996 were adversely affected by lower sales in natural rubber operations due to lower market prices, and lower service and other sales at Company-owned retail outlets. The following table presents changes in Company tire unit sales:
1997 vs. 1996 1996 vs. 1995 --------------------------------------------------------------------- U.S. 1.9% (.7)% International 8.2 12.6 Worldwide 5.0 5.4 ---------------------------------------------------------------------
Operating income in 1997 of $780.4 million decreased 12.6% from $893.3 million in 1996 and 22.0% from $1,000.2 million in 1995. Operating income in 1997 and 1996 was reduced by rationalization charges of $259.2 million and $131.9 million, respectively. Operating income in 1997 reflected lower raw material costs and the effects of ongoing cost containment measures, but was adversely affected by increased costs resulting from the previously mentioned strike against the Company. Operating income in 1996 was favorably impacted by higher tire unit sales, lower raw material costs and lower SAG, but was adversely affected by lower revenues and increased costs resulting from lower levels of capacity utilization to reduce inventory. GENERAL PRODUCTS Sales in 1997 were $1.80 billion, compared to $1.78 billion in both 1996 and 1995. Sales in engineered products increased in 1997 and 1996 on higher unit volume of automotive and industrial rubber products resulting in part from acquisitions of manufacturing and distribution operations. Sales in chemical products decreased in 1997 and 1996 due to lower selling prices and reduced volume. Operating income in 1997 of $208.2 million increased 27.8% from $162.9 million in 1996 and 25.7% from $165.6 million in 1995. Operating income in 1997 and 1996 was reduced by rationalization charges of $6.0 million and $26.8 million, respectively. Operating income in engineered products increased in 1997 and 1996 due primarily to higher unit volume, improved productivity and ongoing cost containment measures. Engineered products operating income in 1997 and 1996 was reduced by rationalization charges of $6.0 million and $15.2 million, respectively. Operating income in chemical products increased in 1997 due primarily to lower manufacturing costs and a more favorable product mix. Chemical operating income in 1996 was favorably impacted by lower raw material prices, but decreased due primarily to $11.6 million of rationalization charges. The Company reached an agreement in principle in January of 1998 to sell its Calhoun, Georgia latex processing facility. The sale of this facility is not expected to have a material effect on the Company's financial position, results of operations or liquidity. A gain is expected to be recorded upon completion of the sale. OIL TRANSPORTATION Sales in 1997 were $89.8 million, decreasing 29.4% from $127.2 million in 1996 and 29.2% from $126.8 million in 1995. Sales for this segment consist of tariffs charged by the All American Pipeline System (the System) and revenues, net of acquisition costs, resulting from various crude oil gathering, purchasing and selling activities. 25 28 Operating income in 1997 was $55.8 million, compared to an operating loss of $689.8 million in 1996 and operating income of $55.3 million in 1995. The operating loss in 1996 was due to a charge of $755.6 million resulting from the previously discussed writedown of the carrying value of the System and related assets. Sales and operating income in 1997 reflected lower throughput and average distance transported and reduced spreads in crude oil purchasing, selling and exchanging activities. Margins were favorably impacted by lower depreciation expense resulting from the writedown. Sales increased and operating income was favorably affected in 1996 by improved results in crude oil purchasing, selling and exchanging activities, which resulted in part from higher market prices. Acquisition costs associated with gathering, purchasing and selling activities amounted to $918 million, $808 million and $496 million in 1997, 1996 and 1995, respectively. Crude oil purchasing and selling activities increased in 1996, due primarily to higher prices and other market conditions. GEOGRAPHIC SEGMENTS U.S. OPERATIONS U.S. sales in 1997 were $6.92 billion, decreasing 1.3% from $7.01 billion in 1996 and 4.6% from $7.25 billion in 1995. Unit sales of tires and engineered products in the U.S. were higher in 1997, although revenues were adversely affected by competitive pricing pressures, reduced volume in chemical products, lower revenues in oil transportation activities and the previously mentioned strikes against certain vehicle production facilities. Sales decreased in 1996 due primarily to reduced unit sales to original equipment vehicle manufacturers, competitive tire pricing pressures in the replacement market and lower sales of chemical products. Operating income was $491.2 million in 1997, compared to an operating loss of $296.7 million in 1996 and operating income of $543.9 million in 1995. Operating income in 1997 was reduced by rationalization charges of $113.6 million. Operating income in 1996 included charges of $845.3 million related to the writedown of the All American Pipeline System and rationalization charges. Operating income in 1997 reflected lower raw material costs, lower SAG and the effects of ongoing cost containment measures. Operating income in 1996 was adversely affected by lower original equipment tire unit sales and pricing pressures in the replacement tire market, but was favorably impacted by improved volume in engineered products, lower raw material costs, lower SAG and improved trading results in oil transportation activities. INTERNATIONAL OPERATIONS International sales in 1997 were $6.24 billion, increasing 2.3% from $6.10 billion in 1996 and 5.4% from $5.92 billion in 1995. International operating income in 1997 was $553.2 million, decreasing 16.6% from $663.1 million in 1996 and 18.3% from $677.2 million in 1995. Operating income in 1997 and 1996 was reduced by rationalization charges of $151.6 million and $69.0 million, respectively. EUROPE In Europe, sales in 1997 of $3.16 billion increased 3.3% from $3.06 billion in 1996 and 10.9% from $2.85 billion in 1995. Operating income in 1997 was $214.9 million, decreasing 28.8% from $302.0 million in 1996 and 32.3% from $317.2 million in 1995. Operating income in 1997 and 1996 was reduced by rationalization charges of $95.1 million and $29.4 million, respectively. 26 29 Sales in Europe increased in 1997 on higher unit sales, and results were favorably impacted by the acquisition of a majority interest in tire and engineered products manufacturing and distribution operations in South Africa. Sales increased in 1996 due primarily to higher tire unit sales and the acquisition of a majority ownership interest in a tire manufacturing facility in Poland. Sales in both 1997 and 1996 were adversely affected by competitive pricing pressures and the strengthening of the U.S. dollar versus European currencies. Operating income in Europe in 1997 decreased due primarily to the previously mentioned rationalization charges, competitive pricing pressures and the effects of currency translation. Operating income also decreased in 1996 due to the previously mentioned rationalization charges, but was favorably affected by increased revenues, lower raw material costs, and productivity improvements. LATIN AMERICA In Latin America, sales in 1997 were $1.58 billion, compared to $1.53 billion in 1996 and $1.54 billion in 1995. Operating income in 1997 was $224.2 million, decreasing 8.8% from $246.0 million in 1996 and 6.1% from $238.8 million in 1995. Operating income in 1997 and 1996 was reduced by rationalization charges of $44.5 million and $24.0 million, respectively, and in 1996 also included costs totaling $6.5 million related to improvements in manufacturing efficiencies. Sales in Latin America increased in 1997 on higher unit sales of tires and engineered products. Sales decreased slightly in 1996, reflecting competitive pricing pressures and unchanged tire unit sales. Operating income in Latin America benefited in both 1997 and 1996 from lower raw material costs, improved productivity and the effects of ongoing cost containment measures. ASIA In Asia, sales in 1997 of $772.7 million decreased 8.6% from $845.4 million in 1996 and 7.3% from $833.2 million in 1995. Operating income in Asia in 1997 was $65.3 million, decreasing 34.3% from $99.3 million in 1996 and 27.5% from $90.1 million in 1995. Operating income in 1997 was reduced by rationalization charges of $8.0 million. Sales and operating income in Asia in 1997 reflected higher tire unit sales, but decreased due primarily to the devaluation of Asian currencies versus the U.S. dollar, severe economic turmoil and competitive pricing conditions in many countries in the region and lower results in natural rubber operations. Sales and operating income in Asia in future periods may be adversely affected by continued devaluation of local currencies versus the U.S. dollar and economic turmoil in the region. Operating income in 1997 was favorably impacted by lower raw material costs and the effects of ongoing cost containment measures. Sales increased in 1996 due primarily to higher tire unit sales, and operating income rose on lower raw material costs and improved productivity. Sales and operating income of the Asia segment reflect the results of the Company's majority-owned tire business and other operations in the region, principally the engineered products and natural rubber businesses. 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. The following table presents the sales and operating income of the Company's Asian segment together with 100% of the sales and operating income of SPT: 27 30
(In millions) 1997 1996 1995 -------------------------------------------------------------- Net Sales: Asia Segment $ 772.7 $ 845.4 $ 833.2 SPT 744.2 814.1 743.7 -------- -------- -------- Total $1,516.9 $1,659.5 $1,576.9 Operating Income: Asia Segment $ 65.3 $ 99.3 $ 90.1 SPT 63.5 75.8 71.5 -------- -------- -------- Total $ 128.8 $ 175.1 $ 161.6
CANADA In Canada, sales in 1997 of $725.8 million increased 8.3% from $670.2 million in 1996 and 5.7% from $686.5 million in 1995. Operating income for 1997 was $48.8 million, compared to $15.8 million in 1996 and $31.1 million in 1995. Operating income in 1997 and 1996 was reduced by rationalization charges of $4.0 million and $13.8 million, respectively. Sales and operating income in Canada increased in 1997 on higher unit sales of tires and engineered products and lower raw material costs and SAG. Sales and operating income in 1996 decreased on lower tire unit sales volume. For further information relating to industry and geographic segments, refer to the note to the financial statements No. 17, Business Segments. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES Working Capital -- Cash provided by operating activities increased to $1,067.8 million in 1997 from $897.5 million in 1996, reflecting in part the favorable effects of the Company's ongoing cost containment measures. Operating cash flows were used primarily for capital expenditures and debt retirement, as discussed below. Working capital requirements during 1997 increased for accounts receivable and inventories, resulting from higher unit sales of tires and other automotive and industrial rubber products. The Company has fixed the cost of certain raw materials in future periods, which is anticipated to result in reduced volatility in working capital requirements. Pensions -- The Company's domestic pension funding practice since 1993 has been to fund, from operations, amounts in excess of the requirements of federal laws and regulations. During the five years ended December 31, 1997 the Company funded a total of $689.3 million, and the major domestic pension plans were fully funded at that date. For further discussion of pensions, refer to the note to the financial statements No. 11, Pensions. INVESTING ACTIVITIES Cash used in investing activities was $804.0 million during 1997. Capital expenditures were $699.0 million, of which amount $322.9 million was used on projects to increase capacity and improve productivity and the balance was used for tire molds and various other projects. Capital expenditures are expected to approximate $700-$800 million in 1998. At December 31, 1997, the Company had binding commitments for land, buildings and equipment of $137.2 million.
(In millions) 1997 1996 1995 ------------------------------------------------------------- Capital Expenditures $699.0 $617.5 $615.6 Depreciation 469.3 460.8 434.9 -------------------------------------------------------------
28 31 Other investing activities in 1997 included acquisitions of majority ownership interests in tire and engineered products manufacturing and distribution operations in South Africa, retreading operations in the U.S. and engineered products manufacturing operations in Slovenia and Venezuela. Investing activities also included the sale of the Jackson, Ohio automotive trim plant and natural rubber operations in Guatemala. FINANCING ACTIVITIES Cash used in financing activities was $205.8 million during 1997. Debt levels decreased, reflecting in part the increased cash provided by operating activities. Cash was used in 1997 for the redemption of all $118.4 million of the Company's 10.26% promissory notes and the repurchase of common shares of the Company, as discussed below.
(Dollars in millions) 1997 1996 1995 ------------------------------------------------------------- Consolidated Debt $1,351.2 $1,376.7 $1,546.7 ------------------------------------------------------------- Debt/Debt+Equity 28.5% 29.6% 32.0% -------------------------------------------------------------
At December 31, 1997, the fair value of the Company's fixed rate debt amounted to a liability of $595.8 million, compared to its carrying amount of $571.3 million. The Company estimates that a 100 basis point decrease in market interest rates at December 31, 1997 would have changed the fair value of the Company's fixed rate debt to a liability of $626.8 million at that date. Interest Rate Management -- The Company actively manages its fixed and floating rate debt mix, within defined limitations, using refinancings and unleveraged interest rate swaps. The Company enters into fixed and floating interest rate swaps to alter its exposure to the impact of changing interest rates on consolidated results of operations and future cash outflows for interest. Fixed rate swaps are used to reduce the Company's risk of increased interest costs during periods of rising interest rates. Floating rate swaps are used to convert the fixed rates of long term borrowings into short term variable rates. Interest rate swap contracts are thus used by the Company to separate interest rate risk management from the debt funding decision. At December 31, 1997 and 1996, the interest rate on 62% of the Company's debt was fixed by either the nature of the obligation or through the interest rate contracts. At December 31, 1997, the fair value of the Company's interest rate contracts amounted to a liability of $.8 million, compared to their carrying amount of a $.5 million liability. The Company estimates that a 10% decrease in variable market interest rates at December 31, 1997 would have changed the fair value of outstanding contracts to a $2.2 million liability at that date. The sensitivity to changes in interest rates of the Company's fixed rate debt and interest rate contracts was determined with a valuation model based upon net modified duration analysis. Foreign Currency Exchange Management -- 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 December 31, 1997. These contracts reduce exposure to currency movements affecting existing foreign currency denominated assets, liabilities and firm commitments. The contract maturities match the maturities of the currency positions. The Company estimates that a 10% change in foreign exchange rates at December 31, 1997 would have changed the fair value of the contracts by $15.0 million. Changes in the fair value of forward exchange contracts are substantially offset by changes in the fair value of the hedged positions. The sensitivity to changes in exchange rates of the Company's foreign currency positions was determined using current market pricing models. 29 32 CREDIT SOURCES Substantial short term and long term credit sources are available to the Company globally under normal commercial practices. At December 31, 1997, there were worldwide credit sources totaling $3.42 billion, of which $2.07 billion were unused. In addition, the Company maintains a commercial paper program, whereunder the Company may have outstanding up to $550 million at any time. Included in the Company's credit sources are two credit facility agreements with 28 domestic and international banks, consisting of a $900 million four year revolving credit facility and a $300 million 364-day revolving credit facility. The $900 million four year revolving credit facility agreement provides that the Company may borrow at any time until July 15, 2001, when the commitment terminates and any outstanding loans mature. The Company pays a commitment fee ranging from 7.5 to 15 basis points on the entire amount of the commitment and a usage fee of 15 to 30 basis points on amounts borrowed. The $300 million 364-day credit facility agreement provides that the Company may borrow until July 13, 1998, on which date the facility commitment terminates, except as it may be extended on a bank by bank basis. If a bank does not extend its commitment if requested to do so, the Company may obtain from such bank a two year term loan up to the amount of such bank's commitment. The Company pays currently a commitment fee of 8 basis points on the entire amount of the commitment and would pay a usage fee of 22 basis points on amounts borrowed. There were no borrowings outstanding under these agreements at December 31, 1997. OTHER FINANCING ACTIVITIES Throughout 1997, the Company sold certain domestic accounts receivable under continuous sale programs whereby, as these receivables were collected, new receivables were sold. Under these agreements, undivided interests in designated receivable pools are sold to purchasers with recourse limited to the receivables purchased. At December 31, 1997 and 1996, the outstanding balance of receivables sold under these agreements amounted to $550 million. The Board of Directors of the Company approved a three-year share repurchase program in 1997, whereunder the Company may acquire up to $600 million of outstanding Common Stock of the Company. The program is designed to give the Company better flexibility in funding future acquisitions and to optimize shareholder value. During 1997, 1,478,200 shares were repurchased under this program at an average cost of $53.06. For further discussion of financing activities, refer to the note to the financial statements No. 7, Financing Arrangements and Financial Instruments. Funds generated by operations, together with funds available under existing credit arrangements, are expected to exceed the Company's currently anticipated cash requirements. 30 33 ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. INTEREST RATE MANAGEMENT The Company actively manages its fixed and floating rate debt mix, within defined limitations, using refinancings and unleveraged interest rate swaps. The Company enters into fixed and floating interest rate swaps to alter its exposure to the impact of changing interest rates on consolidated results of operations and future cash outflows for interest. Fixed rate swaps are used to reduce the Company's risk of increased interest costs during periods of rising interest rates. Floating rate swaps are used to convert the fixed rates of long term borrowings into short term variable rates. Interest rate swap contracts are thus used by the Company to separate interest rate risk management from the debt funding decision. At December 31, 1997 and 1996, the interest rate on 62% of the Company's debt was fixed by either the nature of the obligation or through the interest rate contracts. At December 31, 1997, the fair value of the Company's interest rate contracts amounted to a liability of $.8 million, compared to their carrying amount of a $.5 million liability. The Company estimates that a 10% decrease in variable market interest rates at December 31, 1997 would have changed the fair value of outstanding contracts to a $2.2 million liability at that date. At December 31, 1997, the fair value of the Company's fixed rate debt amounted to a liability of $595.8 million, compared to its carrying amount of $571.3 million. The Company estimates that a 100 basis point decrease in market interest rates at December 31, 1997 would have changed the fair value of the Company's fixed rate debt to a liability of $626.8 million at the date. The sensitivity to changes in interest rates of the Company's fixed rate debt and interest rate contracts was determined with a valuation model based upon net modified duration analysis. FOREIGN CURRENCY EXCHANGE MANAGEMENT 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 December 31, 1997. These contracts reduce exposure to currency movements affecting existing foreign currency denominated assets, liabilities and firm commitments. The contract maturities match the maturities of the currency positions. The Company estimates that a 10% change in foreign exchange rates at December 31, 1997 would have changed the fair value of the contracts by $15.0 million. Changes in the fair value of forward exchange contracts are substantially offset by changes in the fair value of the hedged positions. The sensitivity to changes in exchange rates of the Company's foreign currency positions was determined using current market pricing models. 31 34 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX CONSOLIDATED FINANCIAL STATEMENTS--FINANCIAL STATEMENT SCHEDULES
Page ---- Report of Independent Accountants............................................................... 32 Consolidated Statement of Income -- years ended December 31, 1997, 1996 and 1995............................................................... 33 Consolidated Balance Sheet -- December 31, 1997 and 1996........................................ 34 Consolidated Statement of Shareholders' Equity -- years ended December 31, 1997, 1996 and 1995............................................................... 35 Consolidated Statement of Cash Flows -- years ended December 31, 1997, 1996 and 1995............................................................... 36 Notes to Financial Statements................................................................... 37 Supplementary Data (unaudited).................................................................. Financial Statement Schedules................................................................... FS-1
REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of The Goodyear Tire & Rubber Company In our opinion, the consolidated financial statements listed in the index on this page present fairly, in all material respects, the financial position of The Goodyear Tire & Rubber Company and Subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP Cleveland, Ohio February 2, 1998 32 35 Consolidated Statement of Income
(Dollars in millions, except per share) Year Ended December 31, 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------- Net Sales $13,155.1 $13,112.8 $13,165.9 =========================================================================================================================== Cost of Goods Sold 10,045.9 10,026.7 10,093.6 Selling, Administrative and General Expense 1,889.5 1,890.1 1,936.9 Asset Writedown and Other Rationalizations (Note 2) 265.2 872.0 -- Interest Expense (Note 13) 119.5 128.6 135.0 Other (Income) and Expense (Note 3) 24.5 22.6 21.0 Foreign Currency Exchange (34.1) 7.4 17.4 Minority Interest in Net Income of Subsidiaries 44.6 43.1 36.2 - --------------------------------------------------------------------------------------------------------------------------- Income before Income Taxes 800.0 122.3 925.8 United States and Foreign Taxes on Income (Note 15) 241.3 20.6 314.8 =========================================================================================================================== Net Income $ 558.7 $ 101.7 $ 611.0 =========================================================================================================================== Net Income Per Share -- Basic $ 3.58 $ .66 $ 4.02 -- Diluted $ 3.53 $ .65 $ 3.97 =========================================================================================================================== Average Shares Outstanding -- Basic 156,225,112 155,051,802 152,118,861 -- Diluted 158,169,534 156,778,058 153,949,022 - --------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of this financial statement.
33 36 Consolidated Balance Sheet
(Dollars in millions) December 31, 1997 1996 - --------------------------------------------------------------------------------------------------------------------------- Assets Current Assets: Cash and cash equivalents $ 258.6 $ 238.5 Accounts and notes receivable (Note 4) 1,733.6 1,706.0 Inventories (Note 5) 1,835.2 1,774.2 Prepaid expenses and other current assets 336.5 306.3 - --------------------------------------------------------------------------------------------------------------------------- Total Current Assets 4,163.9 4,025.0 =========================================================================================================================== Long Term Accounts and Notes Receivable 190.4 216.2 Investments in Affiliates, at equity 124.6 140.3 Other Assets 145.6 163.0 Deferred Charges 1,143.2 1,059.4 Properties and Plants (Note 6) 4,149.7 4,067.9 - --------------------------------------------------------------------------------------------------------------------------- Total Assets $9,917.4 $9,671.8 =========================================================================================================================== Liabilities Current Liabilities: Accounts payable-- trade $1,177.8 $1,096.7 Compensation and benefits 782.7 742.5 Other current liabilities 421.8 300.4 United States and foreign taxes 362.0 382.1 Notes payable to banks (Note 7) 440.2 218.1 Long term debt due within one year 66.5 26.4 - --------------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 3,251.0 2,766.2 =========================================================================================================================== Compensation and Benefits 1,945.7 1,988.1 Long Term Debt (Note 7) 844.5 1,132.2 Other Long Term Liabilities 224.5 264.9 - --------------------------------------------------------------------------------------------------------------------------- Minority Equity in Subsidiaries 256.2 241.3 =========================================================================================================================== Total Liabilities 6,521.9 6,392.7 =========================================================================================================================== 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, 156,588,783 (156,049,974 in 1996) 156.6 156.1 Capital Surplus 1,061.6 1,059.4 Retained Earnings 2,983.4 2,603.0 Accumulated Other Comprehensive Income (806.1) (539.4) - --------------------------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 3,395.5 3,279.1 =========================================================================================================================== Total Liabilities and Shareholders' Equity $9,917.4 $9,671.8 =========================================================================================================================== The accompanying notes are an integral part of this financial statement.
34 37 Consolidated Statement of Shareholders' Equity
Accumulated Other Comprehensive Income ------------------------ Common Stock Foreign Minimum Total ------------ Capital Retained Currency Pension Shareholders' (Dollars in millions, except per share) Shares Amount Surplus Earnings Translation Liability Equity - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 (after deducting 44,271,227 treasury shares) 151,407,285 $151.4 $ 918.5 $2,194.5 $(421.7) $(39.5) $2,803.2 ================================================================================================================================== Comprehensive income: Net income for 1995 611.0 Foreign currency translation (60.0) Minimum pension liability (net of tax of $6.6) 13.2 Total comprehensive income 564.2 Cash dividends 1995-- $.95 per share (144.5) (144.5) Common stock issued from treasury: Dividend Reinvestment and Stock Purchase Plan 105,028 .1 4.2 4.3 Stock compensation plans 2,011,998 2.0 52.5 54.5 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1995 (after deducting 42,154,357 treasury shares) 153,524,311 153.5 975.2 2,661.0 (481.7) (26.3) 3,281.7 ================================================================================================================================== Comprehensive income: Net income for 1996 101.7 Foreign currency translation (26.7) Minimum pension liability (net of tax of $4.1) (4.7) Total comprehensive income 70.3 Cash dividends 1996-- $1.03 per share (159.7) (159.7) Common stock issued from treasury: Dividend Reinvestment and Stock Purchase Plan 91,310 .1 4.3 4.4 Stock compensation plans 2,434,353 2.5 79.9 82.4 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1996 (after deducting 39,628,694 treasury shares) 156,049,974 156.1 1,059.4 2,603.0 (508.4) (31.0) 3,279.1 ================================================================================================================================== Comprehensive income: Net income for 1997 558.7 Foreign currency translation (269.6) Minimum pension liability (net of tax of $1.6) 2.9 Total comprehensive income 292.0 Cash dividends 1997-- $1.14 per share (178.3) (178.3) Common stock acquired (1,478,200) (1.5) (76.9) (78.4) Common stock issued from treasury: Dividend Reinvestment and Stock Purchase Plan 56,399 .1 3.1 3.2 Stock compensation plans 1,960,610 1.9 76.0 77.9 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 (after deducting 39,089,885 treasury shares) 156,588,783 $156.6 $1,061.6 $2,983.4 $(778.0) $(28.1) $3,395.5 ================================================================================================================================== The accompanying notes are an integral part of this financial statement.
35 38 Consolidated Statement of Cash Flows
(Dollars in millions) Year Ended December 31, 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 558.7 $101.7 $ 611.0 =========================================================================================================================== Adjustments to reconcile net income to cash flows from operating activities: Depreciation 469.3 460.8 434.9 Deferred tax provision (30.7) (238.5) 58.0 Asset writedown -- 755.6 -- Rationalizations and other provisions 233.6 110.0 -- Asset sales (5.8) (32.1) -- Accounts and notes receivable (101.7) (106.2) (84.4) Inventories (107.1) (5.5) (344.3) Accounts payable-- trade 115.4 (66.3) 159.5 Domestic pension funding (43.0) (72.8) (252.5) Other assets and liabilities (20.9) (9.2) 70.6 - --------------------------------------------------------------------------------------------------------------------------- Total adjustments 509.1 795.8 41.8 Total cash flows from operating activities 1,067.8 897.5 652.8 =========================================================================================================================== CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (699.0) (617.5) (615.6) Short term securities acquired (38.6) (97.2) (30.6) Short term securities redeemed 40.8 86.2 41.4 Asset dispositions 37.6 45.9 8.9 Asset acquisitions (127.1) (99.8) (52.8) Other transactions (17.7) (8.5) (35.3) - --------------------------------------------------------------------------------------------------------------------------- Total cash flows from investing activities (804.0) (690.9) (684.0) =========================================================================================================================== CASH FLOWS FROM FINANCING ACTIVITIES: Short term debt incurred 298.8 195.5 542.3 Short term debt paid (150.5) (606.6) (414.3) Long term debt incurred 39.2 312.4 141.5 Long term debt paid (217.7) (35.2) (101.0) Common stock issued 81.1 86.8 58.8 Common stock acquired (78.4) -- -- Dividends paid (178.3) (159.7) (144.5) - --------------------------------------------------------------------------------------------------------------------------- Total cash flows from financing activities (205.8) (206.8) 82.8 =========================================================================================================================== Effect of Exchange Rate Changes on Cash and Cash Equivalents (37.9) (29.6) (34.2) - --------------------------------------------------------------------------------------------------------------------------- NET CHANGE IN CASH AND CASH EQUIVALENTS 20.1 (29.8) 17.4 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 238.5 268.3 250.9 - --------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of the Period $ 258.6 $238.5 $ 268.3 ===========================================================================================================================
Information about Noncash Investing Activities--In the first quarter of 1997 the Company acquired a 60% equity interest in a South African tire and industrial rubber products business, and assumed $29 million of debt under the terms of the purchase agreement. In the first quarter of 1996, the Company increased its ownership of a Polish tire manufacturer from 32.7% to 50.8% by purchasing original issue shares of this tire manufacturer. This investment, which had been accounted for using the equity method, is now accounted for as a consolidated subsidiary. Information in the Consolidated Statement of Cash Flows is presented net of the effects of these transactions. The accompanying notes are an integral part of this financial statement. 36 39 Notes to Financial Statements NOTE 1. ACCOUNTING POLICIES A summary of the significant accounting policies used in the preparation of the accompanying financial statements follows: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of all majority-owned subsidiaries. All significant intercompany transactions have been eliminated. The Company's investments in 20% to 50% owned companies in which it has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method. Accordingly, the Company's share of the earnings of these companies is included in consolidated net income. Investments in other companies are carried at cost. REVENUE RECOGNITION Substantially all revenues are recognized when finished products are shipped to unaffiliated customers or services have been rendered, with appropriate provision for uncollectible accounts. In conformance with oil industry practice, revenues resulting from sales of crude oil purchased from third parties are recognized net of the related acquisition costs. CONSOLIDATED STATEMENT OF CASH FLOWS Cash and cash equivalents include cash on hand and in the bank as well as all short term securities held for the primary purpose of general liquidity. Such securities normally mature within three months from the date of acquisition. Cash flows associated with items intended as hedges of identifiable transactions or events are classified in the same category as the cash flows from the items being hedged. INVENTORY PRICING Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method for a significant portion of domestic inventories and the first-in, first-out (FIFO) method or average cost method for other inventories. Refer to Note 5. PROPERTIES AND PLANTS Properties and plants are stated at cost, with the exception of the All American Pipeline System and related assets, which are stated at fair value as of December 31, 1996. Depreciation is computed using the straight line method. Accelerated depreciation is used for income tax purposes, where permitted. Refer to Note 6. DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instrument contracts are utilized by the Company to manage interest rate and foreign exchange risks. The Company has established a control environment which includes policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. Company policy prohibits holding or issuing derivative financial instruments for trading purposes. To qualify for hedge accounting, the contracts must meet defined correlation and effectiveness criteria, be designated as hedges and result in cash flows and financial statement effects which substantially offset those of the position being hedged. Amounts receivable or payable under derivative financial instrument contracts, when recognized, are reported on the Consolidated Balance Sheet as both current and long term receivables or liabilities. Interest Rate Contracts -- The differentials to be received or paid are recognized in income over the life of the contracts as adjustments to Interest Expense. Foreign Exchange Contracts -- As exchange rates change, gains and losses on contracts designated as hedges of existing assets and liabilities are recognized in income as Foreign Currency Exchange, while gains and losses on contracts designated as hedges of net investments in foreign subsidiaries are recognized in Shareholders' Equity as Foreign Currency Translation Adjustment. Gains and losses on contracts designated as hedges of identifiable foreign currency firm commitments are not recognized until included in the measurement of the related foreign currency transaction. 37 40 Notes to Financial Statements (continued) Gains and losses on terminations of hedge contracts are recognized as Other (Income) and Expense when terminated in conjunction with the termination of the hedged position, or to the extent that such position remains outstanding, deferred as Prepaid Expenses or Deferred Charges and amortized to Interest Expense or Foreign Currency Exchange over the remaining life of that position. Derivative financial instruments that the Company temporarily continues to hold after the early termination of a hedged position, or that otherwise no longer qualify for hedge accounting, are marked-to-market, with gains and losses recognized in income as Other (Income) and Expense. Refer to Note 7. STOCK-BASED COMPENSATION Compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. Compensation cost for stock appreciation rights and performance equity units is recorded annually based on the quoted market price of the Company's stock at the end of the period. Refer to Note 9. ADVERTISING COSTS Costs incurred for producing and communicating advertising are generally expensed when incurred. Costs incurred under the Company's domestic cooperative advertising program with dealers and franchisees are recorded subsequent to the first time the advertising takes place, as related revenues are recognized. Refer to Note 14. INCOME TAXES Income taxes are recognized during the year in which transactions enter into the determination of financial statement income, with deferred taxes being provided for temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. Refer to Note 15. ENVIRONMENTAL CLEANUP MATTERS The Company expenses environmental expenditures related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. Expenditures which extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. The Company determines its liability on a site by site basis and records a liability at the time when it is probable and can be reasonably estimated. The Company's estimated liability is reduced to reflect the anticipated participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially capable of paying their respective shares of the relevant costs. The estimated liability of the Company is not discounted or reduced for possible recoveries from insurance carriers. Refer to Note 18. FOREIGN CURRENCY TRANSLATION Financial statements of international subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and a weighted average exchange rate for each period for revenues, expenses, gains and losses. Where the local currency is the functional currency, translation adjustments are recorded as a separate component of Shareholders' Equity. Where the U.S. dollar is the functional currency, translation adjustments are recorded in income. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes to financial statements. Changes in such estimates may affect amounts reported in future periods. PER SHARE OF COMMON STOCK Basic earnings per share has been computed based on the average number of common shares outstanding. Diluted earnings per share reflects the increase in average common shares outstanding that would result from the assumed exercise of outstanding stock options, calculated using the treasury stock method. All earnings per share amounts in these notes to financial statements are basic earnings per share. RECLASSIFICATION Certain items previously reported in specific financial statement captions have been reclassified to conform with the 1997 presentation. 38 41 Notes to Financial Statements (continued) NOTE 2. ASSET WRITEDOWN AND OTHER RATIONALIZATIONS (In millions) 1997 1996 1995 - ----------------------------------------------------------- Asset writedown $ -- $755.6 $-- Rationalizations and other provisions 265.2 148.5 -- Asset sales -- (32.1) -- - ----------------------------------------------------------- $265.2 $872.0 $-- =========================================================== 1997 Rationalizations and Other Provisions -- As a result of continued competitive conditions in the markets served by the Company, a number of rationalization actions were approved in 1997 to reduce costs and focus on the core tire and general products businesses. These actions, the timing of which resulted in part from the finalization of labor contract negotiations in the United States, included the optimization, downsizing or consolidation of certain production facilities, consolidation of distribution operations and withdrawal of support from the worldwide Formula 1 racing series. In connection with these actions, obligations under certain leases and other contracts were accrued, other assets were written off and over 3,000 associates will be released. The approval of these actions resulted in a charge of $265.2 million ($176.3 million after tax or $1.13 per share), of which $52.5 million related to non-cash writeoffs and $212.7 million related to future cash outflows, primarily for associate severance costs. The actions are anticipated to be substantially completed during 1998-1999. At December 31, 1997 the remaining balance of these provisions on the Consolidated Balance Sheet totaled $201.9 million. 1996 Asset writedown -- In December 1996, industry developments occurred indicating that the quantities of off-shore California, onshore California and Alaska North Slope crude oil expected to be tendered in the future to the All American Pipeline System and related assets (the System) for transportation would be below prior estimates and that volumes of crude oil expected to be tendered to the System for transportation to markets outside of California in the future would be significantly lower than previously anticipated. As a result management determined that the future cash flows expected to be generated by the System would be less than its carrying value. In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company reduced the carrying value of the System to $420 million, determined using the present value of expected future cash flows from the System, and recorded a charge of $755.6 million ($499.3 million after tax or $3.21 per share). Rationalizations and other provisions -- As part of a rationalization plan the Company recorded charges totaling $148.5 million ($95.3 million after tax or $.62 per share) related to worldwide workforce reductions, consolidation of operations and the closing of manufacturing facilities. At December 31, 1997 and 1996, the remaining balance of these provisions totaled $49.6 million and $110.0 million, respectively, and was recorded in Current Liabilities. Asset sales -- During 1996 the Company recorded net gains totaling $32.1 million ($21.6 million after tax or $.14 per share) related to the sale of business property in Asia, a portion of an investment in an Asian plantation and the loss on the anticipated sale of a U.S. manufacturing facility. NOTE 3. OTHER (INCOME) AND EXPENSE (In millions) 1997 1996 1995 - ------------------------------------------------------------ Interest income $(23.0) $(28.5) $(27.3) Financing fees and financial instruments 41.4 39.7 48.3 Miscellaneous 6.1 11.4 -- - ----------------------------------------------------------- $ 24.5 $ 22.6 $ 21.0 =========================================================== Interest income consists of amounts earned on deposits, primarily from funds invested in time deposits in Latin America and Europe, pending remittance or reinvestment in the region. Financing fees and financial instruments consists primarily of fees paid under the Company's domestic accounts receivable continuous sale programs. Refer to Note 4. NOTE 4. ACCOUNTS AND NOTES RECEIVABLE (In millions) 1997 1996 - ------------------------------------------------------------- Accounts and notes receivable $1,783.1 $1,764.1 Allowance for doubtful accounts (49.5) (58.1) - ------------------------------------------------------------- $1,733.6 $1,706.0 ============================================================= Throughout the year, the Company sold certain domestic accounts receivable under a continuous sale program. Under the program, undivided interests in designated receivable pools were sold to the purchaser with recourse limited to the receivables purchased. At December 31, 1997 and 1996, the level of net proceeds from sales under the program was $550 million. The balance of the uncollected portion of receivables sold under that and other agreements was $576.2 million and $569.9 million at December 31, 1997 and 1996, respectively. Fees paid by the Company under these agreements are based on certain variable market rate indices and are recorded as Other (Income) and Expense. 39 42 Notes to Financial Statements (continued) NOTE 5. INVENTORIES (In millions) 1997 1996 - ------------------------------------------------------------------------- Raw materials $ 307.0 $ 288.4 Work in process 87.1 77.2 Finished product 1,441.1 1,408.6 - ------------------------------------------------------------------------- $1,835.2 $ 1,774.2 ========================================================================= The cost of inventories using the last-in, first-out (LIFO) method (approximately 37.6% of consolidated inventories in 1997 and 1996) was less than the approximate current cost of inventories by $380.3 million at December 31, 1997 and $406.9 million at December 31, 1996. NOTE 6. PROPERTIES AND PLANTS
1997 1996 - -------------------------------------------------------------------------------------------------------------------------------- Capital Capital (In millions) Owned Leases Total Owned Leases Total - -------------------------------------------------------------------------------------------------------------------------------- Properties and plants, at cost: Land and improvements $ 293.1 $ 3.7 $ 296.8 $ 308.2 $ 3.7 $ 311.9 Buildings and improvements 1,347.5 33.4 1,380.9 1,331.5 37.3 1,368.8 Machinery and equipment 6,442.4 49.8 6,492.2 6,251.4 58.8 6,310.2 Pipeline 504.3 -- 504.3 503.1 -- 503.1 Construction in progress 559.8 -- 559.8 509.7 -- 509.7 - -------------------------------------------------------------------------------------------------------------------------------- 9,147.1 86.9 9,234.0 8,903.9 99.8 9,003.7 Accumulated depreciation (5,013.8) (70.5) (5,084.3) (4,856.0) (79.8) (4,935.8) - -------------------------------------------------------------------------------------------------------------------------------- $ 4,133.3 $ 16.4 $ 4,149.7 $ 4,047.9 $ 20.0 $ 4,067.9 ================================================================================================================================
The weighted average useful lives of property used in arriving at the annual amount of depreciation provided are as follows: buildings and improvements, 18 years; machinery and equipment, 11 years; pipeline, 37 years. NOTE 7. FINANCING ARRANGEMENTS AND FINANCIAL INSTRUMENTS SHORT TERM DEBT AND FINANCING ARRANGEMENTS At December 31, 1997, the Company had short term uncommitted credit arrangements totaling $1.45 billion, of which $.86 billion were unused. These arrangements are available to the Company or certain of its international subsidiaries through various international banks at quoted market interest rates. There are no commitment fees or compensating balances associated with these arrangements. In addition, the Company maintains a commercial paper program, whereunder the Company may have up to $550 million at any one time outstanding. No commercial paper was outstanding at December 31, 1997. A short term credit facility agreement is available whereunder the Company may from time to time borrow and have outstanding until December 31, 1998 up to U.S. $50 million at any one time with an international bank. Under the terms of the agreement, the Company may repay U.S. dollar borrowings in either U.S. dollars or a predetermined equivalent amount of certain available European currencies. Borrowings are discounted at rates equivalent to 12.5 basis points over a three month reserve adjusted LIBOR. A commitment fee of 8 basis points is paid on the $50 million commitment (whether or not borrowed). There were no borrowings outstanding under this agreement at December 31, 1997. The average amount outstanding under a similar agreement during 1997 was $40.9 million. The Company had outstanding short term debt amounting to $589.2 million at December 31, 1997. Domestic short term debt represented $178.0 million of this total with a weighted average interest rate of 6.03% at December 31, 1997. The remaining $411.2 million was short term debt of international subsidiaries with a weighted average interest rate of 7.29% at December 31, 1997. Of these debt obligations, which by their terms are due within one year, $149.0 million were classified as long term at December 31, 1997. Such obligations are supported by the availability under the revolving credit agreements discussed on the following page, and it is the Company's intent to maintain them as long term. 40 43 Notes to Financial Statements (continued) LONG TERM DEBT AND FINANCING ARRANGEMENTS At December 31, 1997, the Company had long term credit arrangements totaling $1.97 billion, of which $1.21 billion were unused. The following table presents long term debt at December 31:
(In millions) 1997 1996 - ------------------------------------------------------------- Promissory notes: 12.15% due 1998-2000 $ -- $ 10.0 10.26% due 1999 -- 118.4 Swiss franc bonds: 5.375% due 2000 115.2 124.0 5.375% due 2006 108.6 116.8 6-5/8% Notes due 2006 249.1 249.0 Bank term loans due 1998-2001 182.2 218.0 Other domestic and international debt 243.6 308.5 - ------------------------------------------------------------- 898.7 1,144.7 Capital lease obligations 12.3 13.9 - ------------------------------------------------------------- 911.0 1,158.6 Less portion due within one year 66.5 26.4 - ------------------------------------------------------------- $844.5 $1,132.2 =============================================================
At December 31, 1997, the fair value of the Company's long term fixed rate debt amounted to $595.8 million, compared to its carrying amount of $571.3 million ($687.5 million and $657.2 million, respectively, at December 31, 1996). The difference was attributable primarily to the Swiss franc bonds in 1997 and the promissory notes and the Swiss franc bonds in 1996. The fair value was estimated using quoted market prices or discounted future cash flows. The fair value of the Company's variable rate debt approximated its carrying amount at December 31, 1997 and 1996. The 6-5/8% Notes due 2006 have a face amount of $250 million and are reported net of unamortized discount. The bank term loans due 1998 through 2001 are comprised of a $30 million agreement bearing interest at 6.5% and various other agreements which provide for interest at floating rates based upon LIBOR plus or minus a fixed spread. The weighted average rate in effect under the terms of the floating rate agreements at December 31, 1997 was 5.97%. Of these agreements, one $50 million agreement allows the bank to convert the loan to a stated fixed interest rate of 6.55% at annual dates prior to maturity in 2001. The Company is a party to two revolving credit facility agreements, each with 28 domestic and international banks, consisting of a $900 million four year revolving credit facility and a $300 million 364-day revolving credit facility. The $900 million four year credit facility agreement provides that the Company may borrow at any time until July 15, 2001, when the commitment terminates and any outstanding loans mature. The Company pays a commitment fee ranging from 7.5 to 15 basis points on the entire amount of the commitment (whether or not borrowed) and a usage fee on amounts borrowed (other than on a competitive bid or prime rate basis) ranging from 15 to 30 basis points. These fees may fluctuate within these ranges quarterly based upon the Company's performance as measured by defined ranges of leverage. During 1997 commitment and usage fees were 10 and 20 basis points, respectively. The $300 million 364-day credit facility agreement provides that the Company may borrow until July 13, 1998, on which date the facility commitment terminates, except as it may be extended on a bank by bank basis. If a bank does not extend its commitment if requested to do so, the Company may obtain from such bank a two year term loan up to the amount of such bank's commitment. The Company pays a commitment fee of 8 basis points on the entire amount of the commitment (whether or not borrowed) and a usage fee of 22 basis points on amounts borrowed (other than on a competitive bid or prime rate basis). Under both the four year and the 364-day credit facility agreements, the Company may obtain loans bearing interest at reserve adjusted LIBOR or a defined certificate of deposit rate, plus in each case the applicable usage fee. In addition, the Company may obtain loans based on the prime rate or at a rate determined on a competitive bid basis. The facility agreements each contain certain covenants which, among other things, require the Company to maintain at the end of each fiscal quarter a minimum consolidated net worth and a defined minimum interest coverage ratio and establishes a limit on the aggregate amount of consolidated debt the Company and its subsidiaries may incur. There were no borrowings outstanding under these agreements at December 31, 1997. Other domestic and international debt consisted of the previously mentioned reclassified short term bank borrowings, current maturities of long term debt totaling $5.8 million and other floating and fixed rate Deutschemark and U.S. dollar bank term loans maturing in 1998-2002, with a weighted average interest rate of 6.76% at December 31, 1997. 41 44 Notes to Financial Statements (continued) 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 swaps contracts are thus used by the Company to separate interest rate risk management from the debt funding decision. At December 31, 1997 and 1996, the interest rate on 62% of the Company's debt was fixed by either the nature of the obligation or through the interest rate contracts. Floating rate contracts with notional principal amounts of $110 million were sold to retain the above mentioned 62% fixed/floating ratio. Contract information and weighted average interest rates follow:
December 31, December 31, (Dollars in millions) 1996 Matured Sold 1997 - --------------------------------------------------------------------------------------------------------------------------- Fixed rate swap contracts: Notional principal amount $275.0 $125.0 -- $150.0 Pay fixed rate 8.00% 9.00% -- 7.16% Receive variable LIBOR 5.63 5.65 -- 5.80 Average years to maturity 1.87 2.15 Fair value:(unfavorable) $ (3.0) $ (.8) Carrying amount: (liability) (1.2) (.5) Floating rate swap contracts: Notional principal amount $110.0 -- $110.0 -- Pay variable LIBOR 5.57% -- 5.75% -- Receive fixed rate 6.24 -- 6.24 -- Average years to maturity 6.67 -- Fair value: (unfavorable) $ (.9) -- Carrying amount: asset 1.0 -- - -------------------------------------------------------------------------------------------------------------------------
Current market pricing models were used to estimate the fair values of interest rate swap contracts. Weighted average information during the years 1997, 1996 and 1995 follows:
(Dollars in millions) 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------- Fixed rate contracts: Pay fixed rate 7.46% 8.85% 8.95% Receive variable LIBOR 5.74 5.66 6.23 Notional principal $191 $244 $416 Floating rate contracts: Pay variable LIBOR 5.63% 5.52% 6.06% Receive fixed rate 6.24 6.41 6.69 Notional principal $ 66 $144 $ 50 - ---------------------------------------------------------------------------------------------------------------------------
The annual aggregate maturities of long term debt and capital leases for the five years subsequent to 1997 are presented below. Maturities of debt supported by the availability of the revolving credit agreements have been reported on the basis that the commitments to lend under these agreements will be terminated effective at the end of their current terms.
(In millions) 1998 1999 2000 2001 2002 - --------------------------------------------------------------------------------------------------------------------------- Debt incurred under or supported by revolving credit agreements $ -- $ -- $ -- $155.0 $ -- Other 66.5 30.2 206.3 58.8 1.9 - --------------------------------------------------------------------------------------------------------------------------- $66.5 $30.2 $206.3 $213.8 $1.9 ===========================================================================================================================
Refer to Note 8, Leased Assets for additional information on capital lease obligations. 42 45 Notes to Financial Statements (continued) FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS In order to reduce the impact of changes in foreign exchange rates on consolidated results of operations and future foreign currency denominated cash flows, the Company was a party to various forward exchange contracts at December 31, 1997 and 1996. 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, including the annual coupon payments. The carrying amounts of these contracts (excluding the Swiss franc contracts) totaled $2.5 million and $14.7 million at December 31, 1997 and 1996, respectively, and were recorded in Accounts and Notes Receivable. The carrying amounts of the Swiss franc contracts totaled $76.0 million and $93.0 million at December 31, 1997 and 1996, respectively, and were recorded in Long Term Accounts and Notes Receivable. A summary of forward exchange contracts in place at December 31 follows: 1997 1996 - ----------------------------------------------------------- Fair Contract Fair Contract (In millions) Value Amount Value Amount - ----------------------------------------------------------- Buy currency: Swiss franc $218.2 $151.0 $238.9 $151.0 U.S. dollar 61.4 60.7 44.4 44.5 German mark 96.4 96.4 -- -- British pound 16.6 16.6 -- -- All other 27.7 28.5 35.9 36.5 - ----------------------------------------------------------- $420.3 $353.2 $319.2 $232.0 =========================================================== Contract maturity: Swiss franc 10/00 - 3/06 10/00 - 3/06 All other 1/98 - 12/98 1/97 - 7/97 - ----------------------------------------------------------- Sell currency: Belgian franc $212.4 $215.3 $231.5 $243.4 German mark 121.6 121.6 136.5 140.4 British pound 30.9 30.8 -- -- U.S. dollar -- -- 33.4 33.4 All other 82.9 84.0 92.8 92.4 - ----------------------------------------------------------- $447.8 $451.7 $494.2 $509.6 =========================================================== Contract maturity 1/98 - 12/98 1/97 - 7/97 - ----------------------------------------------------------- Current market pricing models were used to estimate the fair values of foreign currency forward contracts. The contract maturities match the maturities of the currency positions. The fair value of these contracts and the related currency positions are subject to offsetting market risk resulting from foreign currency exchange rate volatility. The counterparties to the Company's interest rate swap, currency exchange and forward exchange contracts are substantial and creditworthy multinational commercial banks or other financial institutions which are recognized market makers. Neither the risks of counterparty nonperformance nor the economic consequences of counterparty nonperformance associated with these contracts are considered by the Company to be material. NOTE 8. LEASED ASSETS Net rental expense charged to income follows: (In millions) 1997 1996 1995 - ----------------------------------------------------------- Gross rental expense $245.2 $258.4 $281.1 Sublease rental income (53.5) (49.6) (50.0) - ----------------------------------------------------------- $191.7 $208.8 $231.1 =========================================================== The Company enters into capital and operating leases primarily for its vehicles, data processing equipment and its wholesale and retail distribution facilities under varying terms and conditions, including the Company's sublease of some of its domestic retail distribution network to independent dealers. Many of the leases provide that the Company will pay taxes assessed against leased property and the cost of insurance and maintenance. While substantially all subleases and some operating leases are cancelable for periods beyond 1998, management expects that in the normal course of its business nearly all of its independent dealer distribution network will be actively operated. As leases and subleases for existing locations expire, the Company would normally expect to renew the leases or substitute another more favorable retail location. Estimated minimum future lease payments, net of anticipated sublease revenue, follow: Capital Operating Sublease (In millions) Leases Leases Revenue - ----------------------------------------------------------- 1998 $ 2.2 $148.3 $ 43.8 1999 2.3 126.7 36.5 2000 2.0 101.0 27.8 2001 2.6 66.4 18.8 2002 1.8 53.8 11.9 2003 and thereafter 9.8 183.7 20.1 - ----------------------------------------------------------- $20.7 $679.9 $158.9 =========================================================== Present value of net minimum lease payments $11.5 $532.2 =========================================================== 43 46 Notes to Financial Statements (continued) NOTE 9. STOCK COMPENSATION PLANS The Company's 1987 Employee Stock Option Plan, the 1989 Goodyear Performance and Equity Incentive Plan and the 1997 Performance Incentive Plan of The Goodyear Tire & Rubber Company provide for the granting of stock options and stock appreciation rights (SARs). For options granted in tandem with SARs, the exercise of a SAR cancels the stock option; conversely, the exercise of the stock option cancels the SAR. The 1987 Plan terminated on April 10, 1989, and the 1989 Plan terminated on April 14, 1997, except with respect to grants and awards then outstanding. The 1997 Plan empowers, and the 1989 Plan authorized, the Company to grant from time to time to officers and other key employees of the Company and subsidiaries restricted stock, performance grants and other stock-based awards authorized by the Compensation Committee of the Board of Directors, which administers the 1997 Plan. The 1997 Plan will expire by its terms on December 31, 2001, except with respect to grants and awards then outstanding. Stock options and related SARs granted during 1997 generally have a maximum term of ten years and vest pro rata over four years. Performance units (PUs) granted during 1997 are based on cumulative net income per share of the Company's Common Stock over a three year performance period ending December 31, 2000. To the extent earned, 50% of the PUs will be paid in cash (subject to deferral under certain circumstances) and 50% will be automatically deferred for at least 5 years in the form of units, each equivalent to a share of the Company's Common Stock and payable in cash, shares of the Company's Common Stock or a combination thereof at the election of the participant. Assuming that there will be full utilization of the shares of the Company's Common Stock available for awards during the term of the 1997 Plan, 15,000,000 shares of the Company's Common Stock would be available for issuance pursuant to grants and awards made through December 31, 2001. Stock-based compensation activity for the years 1997, 1996 and 1995 follows:
1997 1996 1995 ----------------------------------------------------------------------------------- Shares SARs Shares SARs Shares SARs - --------------------------------------------------------------------------------------------------------------------------- Outstanding at January 1 8,277,689 1,052,799 7,327,626 793,371 7,749,660 782,446 Options granted 1,919,325 375,967 3,388,041 538,780 1,731,725 229,200 Options without SARs exercised (1,759,202) -- (2,212,106) --- (1,857,190) -- Options with SARs exercised (189,805) (189,805) (189,359) (189,359) (86,325) (86,325) SARs exercised (38,968) (38,968) (82,700) (82,700) (62,950) (62,950) Options without SARs expired (35,080) -- (25,113) -- (49,100) -- Options with SARs expired (9,745) (9,745) (7,293) (7,293) (4,700) (4,700) SARs expired -- -- -- -- (900) (64,300) Restricted stock granted -- -- -- -- 10,000 -- Restricted stock issued -- -- -- -- (10,000) -- Performance equity units granted 111,788 -- 148,650 -- 8,963 -- Performance equity shares issued (26,619) -- (43,753) -- (64,591) -- Performance equity units cancelled (23,239) -- (26,304) -- (36,966) -- =========================================================================================================================== Outstanding at December 31 8,226,144 1,190,248 8,277,689 1,052,799 7,327,626 793,371 =========================================================================================================================== Exercisable at December 31 3,019,753 331,713 3,733,699 361,963 5,033,729 482,296 =========================================================================================================================== Available for grant at December 31 13,008,945 1,055,957 2,908,914 ===========================================================================================================================
Weighted average option exercise price information for the years 1997, 1996 and 1995 follows:
1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------- Outstanding at January 1 $40.22 $33.96 $31.34 Granted during the year 63.50 47.05 34.75 Exercised during the year 36.04 31.27 29.71 Outstanding at December 31 46.86 40.22 33.96 Exercisable at December 31 38.51 35.25 32.30 - ---------------------------------------------------------------------------------------------------------------------------
Significant option groups outstanding at December 31, 1997 and related weighted average price and life information follows:
Grant Date Options Outstanding Options Exercisable Exercise Price Remaining Life (Years) - --------------------------------------------------------------------------------------------------------------------------- 12/2/97 1,895,925 -- $63.50 10 12/3/96 1,697,703 439,003 50.00 9 1/9/96 1,429,407 345,883 44.00 8 1/4/95 1,034,672 406,521 34.75 7 1/4/94 772,750 772,750 44.25 6 All other 1,038,787 1,003,735 28.62 4 - ---------------------------------------------------------------------------------------------------------------------------
44 47 Notes to Financial Statements (continued) Options in the 'All other' category were outstanding at prices ranging from $11.25 to $52.50. All options and SARs were granted at an exercise price equal to the fair market value of the Company's common stock at the date of grant. Weighted average fair values at date of grant for grants in 1997, 1996 and 1995 follow: 1997 1996 1995 - ---------------------------------------------------------- Options $22.03 $18.58 $17.17 Performance equity units 63.50 47.02 34.75 - ---------------------------------------------------------- The above fair value of options at date of grant was estimated using the Black-Scholes model with the following weighted average assumptions: 1997 1996 1995 - ---------------------------------------------------------- Expected life (years) 5 5 5 Interest rate 5.82% 5.69% 7.80% Volatility 25.6 33.6 43.0 Dividend yield 1.68 1.65 2.34 - ---------------------------------------------------------- The fair value of performance equity units at date of grant was equal to the market value of the Company's common stock at that date. Stock-based compensation costs reduced income as follows: (In millions, except per share) 1997 1996 1995 - ------------------------------------------------------------- Pretax income $10.2 $6.8 $8.7 Net income 6.1 4.1 5.2 Net income per share .04 .03 .03 - ------------------------------------------------------------- The following table presents the pro forma reduction in income that would have been recorded had the fair values of options granted in each year been recognized as compensation expense on a straight line basis over the vesting period of the grant. The pro forma effect on income is not representative of the pro forma effect on income in future years because it does not take into consideration grants made prior to 1995. (In millions, except per share) 1997 1996 1995 - ------------------------------------------------------------- Pretax income $18.6 $12.5 $6.0 Net income 15.9 10.7 5.2 Net income per share .10 .07 .03 - ------------------------------------------------------------- NOTE 10. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS The Company and its subsidiaries provide substantially all domestic associates and associates at certain international subsidiaries with health care and life insurance benefits upon retirement. The life insurance and certain health care benefits are provided by insurance companies through premiums based on expected benefits to be paid during the year. Substantial portions of the health care benefits for domestic retirees are not insured and are paid by the Company. Net periodic benefit cost follows: (In millions) 1997 1996 1995 - -------------------------------------------------------------- Service cost -- benefits earned during the period $ 22.1 $ 22.9 $ 21.2 Interest cost 154.5 155.2 152.7 Net amortization 1.9 5.0 (1.7) - -------------------------------------------------------------- $178.5 $183.1 $172.2 ============================================================== The following table sets forth the funded status and amounts recognized on the Company's Consolidated Balance Sheet at December 31, 1997 and 1996: (In millions) 1997 1996 - ------------------------------------------------------------ Actuarial present value of accumulated benefit obligation: Retirees $(1,309.2) $(1,303.4) Vested active plan participants (515.3) (516.4) Other active plan participants (257.4) (259.1) - ------------------------------------------------------------ Accumulated benefit obligation in excess of plan assets (2,081.9) (2,078.9) Unrecognized net loss 312.0 286.2 Unrecognized prior service cost (38.7) 6.1 - ------------------------------------------------------------ Accrued benefit cost recognized on the Consolidated Balance Sheet $(1,808.6) $(1,786.6) ============================================================ 1997 1996 - ----------------------------------------------------------------------- Assumptions: U.S. International U.S. International - ----------------------------------------------------------------------- Discount rate 7.5% 5.0% - 15.0% 7.75% 5.0% - 8.5% Rate of increase in compensation levels 4.0 2.5 - 14.0 4.5 2.5 - 5.75 - ----------------------------------------------------------------------- An 8% annual rate of increase in the cost of health care benefits for retirees under age 65 and a 5.75% annual rate of increase for retirees 65 years and older is assumed in 1998. These rates gradually decrease to 5% in 2010 and remain at that level thereafter. To illustrate the significance of a 1% increase in the assumed health care cost trend, the accumulated benefit obligation would increase by $22.9 million at December 31, 1997, and the aggregate service and interest cost by $2.7 million for the year then ended. 45 48 Notes to Financial Statements (continued) NOTE 11. PENSIONS The Company and its subsidiaries provide substantially all associates with pension benefits. The principal domestic hourly plan provides benefits based on length of service. The principal domestic plans covering salaried associates provide benefits based on career average earnings formulas. Associates making voluntary contributions to these plans receive higher benefits. Other plans provide benefits similar to the principal domestic plans as well as termination indemnity plans at certain international subsidiaries. The Company's domestic funding practice since 1993 has been to fund amounts in excess of the requirements of Federal laws and regulations. During the five years ended December 31, 1997, the Company funded $689.3 million to its domestic pension plans, which were fully funded at that date. Net periodic pension cost follows:
(In millions) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------- Service cost-benefits earned during the period $ 97.2 $ 92.7 $ 83.2 Interest cost on projected benefit obligations 253.1 237.2 221.1 Actual return on plan assets (568.3) (402.9) (427.8) Net amortization and deferrals 352.2 208.0 279.3 - ------------------------------------------------------------------------------------------------------------------------- $ 134.2 $ 135.0 $ 155.8 =========================================================================================================================
The following table sets forth the funded status and amounts recognized on the Company's Consolidated Balance Sheet at December 31, 1997 and 1996. At the end of 1997 and 1996, assets exceeded accumulated benefits in certain plans and accumulated benefits exceeded assets in others. Plan assets are invested primarily in common stocks and fixed income securities.
1997 1996 ------------------------------------------------------------------ Assets Exceed Accumulated Assets Exceed Accumulated Accumulated Benefits Accumulated Benefits (In millions) Benefits Exceed Assets Benefits Exceed Assets - -------------------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefit obligation $(2,860.5) $(213.1) $(2,463.6) $(225.7) Accumulated benefit obligation $(3,142.0) $(258.9) $(2,709.4) $(270.6) Projected benefit obligation $(3,272.7) $(323.7) $(2,838.8) $(340.0) Plan assets 3,506.5 60.8 3,021.4 60.8 - -------------------------------------------------------------------------------------------------------------------------- Projected benefit obligation less than (in excess of) plan assets 233.8 (262.9) 182.6 (279.2) Unrecognized net (gain) loss (106.3) 82.1 (1.6) 79.2 Unrecognized prior service cost 377.7 1.7 344.6 (.6) Unrecognized net (asset) obligation at transition (5.4) 16.3 (7.3) 21.7 Adjustment required to recognize minimum liability -- (50.9) -- (55.0) - -------------------------------------------------------------------------------------------------------------------------- Pension asset (liability) recognized on the Consolidated Balance Sheet $ 499.8 $(213.7) $ 518.3 $(233.9) ==========================================================================================================================
1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- Assumptions: U.S. International U.S. International U.S. International - ----------------------------------------------------------------------------------------------------------------------- Discount rate 7.5% 3.0% - 12.0% 7.75% 3.0% - 12.0% 7.75% 3.0% - 12.0% Rate of increase in compensation levels 4.0 0 - 10.5 4.5 0 - 10.5 4.5 0 - 10.5 Expected long term rate of return on plan assets 9.5 4.0 - 12.0 9.0 5.0 - 12.0 9.0 5.0 - 12.0 - ----------------------------------------------------------------------------------------------------------------------
During 1997, the Company recognized curtailment losses of $19.5 million as part of a charge for rationalizations and other provisions. Refer to Note 2. For plans that are not fully funded, the Company is required to offset the adjustment required to recognize minimum liability on the Consolidated Balance Sheet with an intangible asset, up to the amount of unrecognized prior service cost plus unrecognized obligations at transition that remain at December 31 of each year. Liability amounts in excess of these two items are offset by a separate reduction in Shareholders' Equity, net of tax. Accordingly, Shareholders' Equity was reduced by $28.1 million at December 31, 1997, compared to $31.0 million at December 31, 1996. Certain international subsidiaries maintain unfunded plans consistent with local practices and requirements and at December 31, 1997, these plans accounted for $71.6 million of the Company's accumulated benefit obligation, $80.9 million of its projected benefit obligation and $23.0 million of its minimum pension liability adjustment ($76.6 million, $88.2 million and $23.4 million, respectively, at December 31, 1996). 46 49 Notes to Financial Statements (continued) NOTE 12. SAVINGS PLANS Substantially all domestic associates are eligible to participate in one of the Company's six savings plans. Under these plans associates elect to contribute a percentage of their pay. In 1997, most plans provided for the Company's matching of these contributions (up to a maximum of 6% of the associate's annual pay or, if less, $9,500) at the rate of 50%. Company contributions were $40.6 million, $38.0 million and $38.2 million for 1997, 1996 and 1995, respectively. NOTE 13. INTEREST EXPENSE Interest expense includes interest and amortization of debt discount and expense less amounts capitalized as follows: (In millions) 1997 1996 1995 - ---------------------------------------------------------- Interest expense before capitalization $125.7 $134.0 $140.1 Less capitalized interest 6.2 5.4 5.1 - ---------------------------------------------------------- $119.5 $128.6 $135.0 ========================================================== The Company made cash payments for interest in 1997, 1996 and 1995 of $131.7 million, $141.0 million and $136.4 million, respectively. NOTE 14. ADVERTISING COSTS Advertising costs for 1997, 1996 and 1995 were $244.1 million, $249.8 million and $246.7 million, respectively. NOTE 15. INCOME TAXES The components of Income before Income Taxes, adjusted for Minority Interest in Net Income of Subsidiaries, follow: (In millions) 1997 1996 1995 - ---------------------------------------------------------- U.S. $198.9 $(569.0) $271.4 Foreign 601.1 691.3 654.4 - ---------------------------------------------------------- 800.0 122.3 925.8 Minority Interest in Net Income of Subsidiaries 44.6 43.1 36.2 - ---------------------------------------------------------- $844.6 $ 165.4 $962.0 ========================================================== A reconciliation of Federal income taxes at the U.S. statutory rate to income taxes provided follows: (Dollars in millions) 1997 1996 1995 - --------------------------------------------------------------- U.S. Federal income tax at the statutory rate of 35% $295.6 $ 57.9 $336.7 Adjustment for foreign income taxed at different rates (31.3) (23.7) (21.3) Other (23.0) (13.6) (.6) - -------------------------------------------------------------- United States and Foreign Taxes on Income $241.3 $ 20.6 $314.8 ============================================================== Effective tax rate 28.6% 12.5% 32.7% ============================================================== The components of the provision for income taxes by taxing jurisdiction follow: (In millions) 1997 1996 1995 - ----------------------------------------------------------- Current: Federal $ 58.9 $ 23.5 $ 42.1 Foreign income and withholding taxes 212.6 230.4 219.3 State .5 5.2 (4.6) - ----------------------------------------------------------- 272.0 259.1 256.8 Deferred: Federal (36.1) (254.1) 19.8 Foreign 7.4 20.3 32.9 State (2.0) (4.7) 5.3 - ----------------------------------------------------------- (30.7) (238.5) 58.0 - ----------------------------------------------------------- United States and Foreign Taxes on Income $241.3 $ 20.6 $314.8 =========================================================== Temporary differences and carryforwards which give rise to deferred tax assets and liabilities at December 31, 1997 and 1996 follow: (In millions) 1997 1996 - ------------------------------------------------------------------------ Postretirement benefits other than pensions $ 704.9 $ 700.4 Rationalizations and other provisions 108.0 31.6 Accrued environmental liabilities 30.1 38.2 General and product liability 49.6 56.5 Alternative minimum tax credit carryforwards 63.2 55.0 Operating loss carryforwards 22.5 19.8 Workers' compensation 52.1 54.8 Vacation and sick pay 70.8 73.0 Other 34.6 95.0 - ------------------------------------------------------------------------ 1,135.8 1,124.3 Valuation allowance (15.8) (21.4) - ------------------------------------------------------------------------ Total deferred tax assets 1,120.0 1,102.9 Total deferred tax liabilities -- depreciation (452.8) (445.6) -- pensions (181.6) (184.8) - ------------------------------------------------------------------------ Total deferred taxes $ 485.6 $ 472.5 ======================================================================== The Company made net cash payments for income taxes in 1997, 1996 and 1995 of $262.6 million, $238.5 million and $243.8 million, respectively. No provision for Federal income tax or foreign withholding tax on retained earnings of international subsidiaries of $1,540.0 million is required because this amount has been or will be reinvested in properties and plants and working capital. It is not practicable to calculate the deferred taxes associated with the remittance of these investments. NOTE 16. RESEARCH AND DEVELOPMENT Research and development costs for 1997, 1996 and 1995 were $384.1 million, $374.5 million and $369.3 million, respectively. 47 50 Notes to Financial Statements (continued) NOTE 17. BUSINESS SEGMENTS The Tires segment is the principal industry segment, which involves the development, manufacture, distribution and sale of tires and related products in original equipment and replacement markets throughout most regions of the world. Related products and services include tubes, retreads, automotive repair services and merchandise purchased for resale. The General products segment involves the manufacture and sale of various engineered rubber and chemical products throughout most regions of the world, principally in the U.S., Latin America and Europe. These products include belts, hose, molded and extruded rubber products, tank tracks, organic chemicals used in rubber and plastic processing, synthetic rubber, rubber latices and other products. The Oil transportation segment consists primarily of the All American Pipeline System, a common carrier crude oil pipeline extending from California to Texas. This segment, which also includes a crude oil gathering pipeline in California, crude oil storage facilities, linefill and related assets, also engages in various crude oil gathering, purchasing and selling activities. Segment sales consist of tariffs charged by the All American Pipeline System and revenues, net of acquisition costs, resulting from various crude oil gathering, purchasing and selling activities. Acquisition costs associated with these activities amounted to $918 million, $808 million and $496 million for 1997, 1996 and 1995, respectively. Operating income for each industry and geographic segment consists of total revenues less applicable costs and expenses. Transfers between industry segments were not material. Inter-geographic sales were at cost plus a negotiated mark up. Portions of the items described in Note 2, Asset Writedown and Other Rationalizations were charged to the operating income of both the industry and geographic segments in 1997 and 1996 as follows:
INDUSTRY SEGMENTS General Oil (In millions) Tires Products Transportation Total - --------------------------------------------------------------------------------------------------------------------------- 1997 Rationalizations and other provisions $259.2 $ 6.0 $ -- $265.2 =========================================================================================================================== 1996 - --------------------------------------------------------------------------------------------------------------------------- Asset writedown $ -- $ -- $755.6 $755.6 Rationalizations and other provisions 131.9 16.6 -- 148.5 Asset sales -- 10.2 -- 10.2 - --------------------------------------------------------------------------------------------------------------------------- $131.9 $ 26.8 $755.6 $914.3 =========================================================================================================================== GEOGRAPHIC SEGMENTS United Latin (In millions) States Europe America Asia Canada Total - --------------------------------------------------------------------------------------------------------------------------- 1997 - --------------------------------------------------------------------------------------------------------------------------- Rationalizations and other provisions $113.6 $95.1 $ 44.5 $ 8.0 $ 4.0 $265.2 =========================================================================================================================== 1996 - --------------------------------------------------------------------------------------------------------------------------- Asset writedown $755.6 $ -- $ -- $ -- $ -- $755.6 Rationalizations and other provisions 79.5 29.4 24.0 1.8 13.8 148.5 Asset sales 10.2 -- -- -- -- 10.2 - --------------------------------------------------------------------------------------------------------------------------- $845.3 $29.4 $ 24.0 $ 1.8 $ 13.8 $914.3 ===========================================================================================================================
The following items have been excluded from the determination of operating income: interest expense, foreign currency exchange, equity in net income of affiliates, minority interest in net income of subsidiaries, corporate revenues and expenses and income taxes. Corporate revenues and expenses were those items not identifiable with the operations of a segment. Corporate revenues were primarily from the sale of miscellaneous assets. Corporate expenses were primarily central administrative expenses. Identifiable assets of industry and geographic segments represent those assets that were associated with the operations of each segment. Corporate assets consist of cash and cash equivalents, prepaid expenses and other current assets, long term accounts and notes receivable, deferred charges and other assets. At December 31, 1997, $122.0 million or 45.2% ($99.8 million or 39.3% at December 31, 1996) of the Company's cash, cash equivalents and short term securities were concentrated in Latin America, primarily Brazil and $33.1 million or 12.2% ($64.6 million or 25.5% at December 31, 1996) were concentrated in Asia. Dividends received by the Company and domestic subsidiaries from its international operations for 1997, 1996 and 1995 were $323.3 million, $158.7 million and $139.0 million, respectively. 48 51 Notes to Financial Statements (CONTINUED) INDUSTRY SEGMENTS
(In millions) 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------- Net Sales to Unaffiliated Customers Tires $10,357.7 $10,211.0 $10,104.5 Related products and services 911.6 993.3 1,157.8 - -------------------------------------------------------------------------------------------------------------------------- Total Tires 11,269.3 11,204.3 11,262.3 General products 1,796.0 1,781.3 1,776.8 Oil transportation 89.8 127.2 126.8 - -------------------------------------------------------------------------------------------------------------------------- Total Net Sales $13,155.1 $13,112.8 $13,165.9 ========================================================================================================================== Income (Loss) Tires $ 780.4 $ 893.3 $ 1,000.2 General products 208.2 162.9 165.6 Oil transportation 55.8 (689.8) 55.3 - -------------------------------------------------------------------------------------------------------------------------- Operating Income 1,044.4 366.4 1,221.1 ========================================================================================================================== Interest expense (119.5) (128.6) (135.0) Foreign currency exchange 34.1 (7.4) (17.4) Equity in net income of affiliates 18.7 19.1 19.0 Minority interest in net income of subsidiaries (44.6) (43.1) (36.2) Corporate revenues and expenses (133.1) (84.1) (125.7) - -------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes $ 800.0 $ 122.3 $ 925.8 ========================================================================================================================== Assets Tires $ 6,413.5 $ 6,270.6 $ 6,050.8 General products 848.4 815.1 791.7 Oil transportation 561.8 605.6 1,356.3 - -------------------------------------------------------------------------------------------------------------------------- Identifiable Assets 7,823.7 7,691.3 8,198.8 ========================================================================================================================== Corporate assets 1,969.1 1,840.2 1,407.0 Investments in affiliates, at equity 124.6 140.3 183.8 - -------------------------------------------------------------------------------------------------------------------------- Total Assets $ 9,917.4 $ 9,671.8 $ 9,789.6 ========================================================================================================================== Capital Expenditures Tires $ 581.6 $ 500.6 $ 494.5 General products 115.2 112.9 116.4 Oil transportation 2.2 4.0 4.7 - -------------------------------------------------------------------------------------------------------------------------- Total Capital Expenditures $ 699.0 $ 617.5 $ 615.6 ========================================================================================================================== Depreciation Tires $ 382.5 $ 351.6 $ 329.6 General products 69.6 63.1 59.1 Oil transportation 17.2 46.1 46.2 - -------------------------------------------------------------------------------------------------------------------------- Total Depreciation $ 469.3 $ 460.8 $ 434.9 ==========================================================================================================================
49 52 Notes to Financial Statements (CONTINUED) GEOGRAPHIC SEGMENTS
(In millions) 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------- Net Sales to Unaffiliated Customers United States $ 6,920.8 $ 7,009.9 $ 7,249.6 Europe 3,160.8 3,059.8 2,853.7 Latin America 1,575.0 1,527.5 1,542.9 Asia 772.7 845.4 833.2 Canada 725.8 670.2 686.5 - -------------------------------------------------------------------------------------------------------------------------- Total Net Sales $13,155.1 $13,112.8 $13,165.9 ========================================================================================================================== Inter-Geographic Sales United States $ 345.5 $ 359.3 $ 408.4 Europe 109.2 59.2 90.1 Latin America 158.0 170.2 172.5 Asia 542.0 674.1 815.9 Canada 325.0 316.8 297.3 - -------------------------------------------------------------------------------------------------------------------------- Total Inter-Geographic Sales $ 1,479.7 $ 1,579.6 $ 1,784.2 ========================================================================================================================== Revenue United States $ 7,266.3 $ 7,369.2 $ 7,658.0 Europe 3,270.0 3,119.0 2,943.8 Latin America 1,733.0 1,697.7 1,715.4 Asia 1,314.7 1,519.5 1,649.1 Canada 1,050.8 987.0 983.8 Adjustments and eliminations (1,479.7) (1,579.6) (1,784.2) - -------------------------------------------------------------------------------------------------------------------------- Total Revenue $13,155.1 $13,112.8 $13,165.9 ========================================================================================================================== Operating Income (Loss) United States $ 491.2 $ (296.7) $ 543.9 Europe 214.9 302.0 317.2 Latin America 224.2 246.0 238.8 Asia 65.3 99.3 90.1 Canada 48.8 15.8 31.1 - -------------------------------------------------------------------------------------------------------------------------- Total Operating Income $ 1,044.4 $ 366.4 $ 1,221.1 ========================================================================================================================== Assets United States $ 3,992.9 $ 3,915.6 $ 4,703.6 Europe 1,943.6 1,800.0 1,719.9 Latin America 849.5 765.1 683.0 Asia 524.8 688.6 576.9 Canada 512.9 522.0 515.4 Identifiable Assets 7,823.7 7,691.3 8,198.8 Corporate assets 1,969.1 1,840.2 1,407.0 Investments in affiliates, at equity 124.6 140.3 183.8 - -------------------------------------------------------------------------------------------------------------------------- Total Assets $ 9,917.4 $ 9,671.8 $ 9,789.6 ==========================================================================================================================
50 53 Notes to Financial Statements (CONTINUED) Sales and operating income of the Asia segment reflect the results of the Company's majority-owned tire business and other operations in the region, principally the engineered products and natural rubber businesses. 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. The following table presents the sales and operating income of the Company's Asian segment together with 100% of the unaudited sales and operating income of SPT: (In millions) 1997 1996 1995 - ----------------------------------------------------------- Net Sales: Asia Segment $ 772.7 $ 845.4 $ 833.2 SPT (unaudited) 744.2 814.1 743.7 - ----------------------------------------------------------- Total (unaudited) $1,516.9 $1,659.5 $1,576.9 =========================================================== Operating Income: Asia Segment $ 65.3 $ 99.3 $ 90.1 SPT (unaudited) 63.5 75.8 71.5 - ----------------------------------------------------------- Total (unaudited) $ 128.8 $ 175.1 $ 161.6 =========================================================== NOTE 18. COMMITMENTS AND CONTINGENT LIABILITIES At December 31, 1997, the Company had binding commitments for investments in land, buildings and equipment of $137.2 million and off-balance-sheet financial guarantees written of $83.6 million. At December 31, 1997, the Company had recorded liabilities aggregating $71.2 million for anticipated costs, including legal and consulting fees, site studies, the design and implementation of remediation plans, post-remediation monitoring and related activities, related to various environmental matters, primarily the remediation of numerous waste disposal sites and certain properties sold by the Company. The amount of the Company's ultimate liability in respect of these matters may be affected by several uncertainties, primarily the ultimate cost of required remediation and the extent to which other responsible parties contribute, and is expected to be paid over several years. Refer to Note 1, Accounting Policies, Environmental Cleanup Matters for additional information. At December 31, 1997, the Company had recorded liabilities aggregating $125.5 million for potential product liability and other tort claims, including related legal fees expected to be incurred, presently asserted against the Company. The amount recorded was determined on the basis of an assessment of potential liability using an analysis of pending claims, historical experience and current trends. The Company has concluded that in respect of any of the above described liabilities, it is not reasonably possible that it would incur a loss exceeding the amount already recognized with respect thereto which would materially affect the Company's financial condition, results of operations or liquidity. The Company is a party to several related lawsuits involving employment matters. There exists a reasonable possibility that the Company will not prevail in these cases. Although sufficient uncertainties exist in these cases to prevent the Company from determining the amount of its liability, if any, the ultimate exposure is not expected to exceed $90 million at December 31, 1997. Various other legal actions, claims and governmental investigations and proceedings covering a wide range of matters are pending against the Company and its subsidiaries. Management, after reviewing available information relating to such matters and consulting with the Company's General Counsel, has determined with respect to each such matter either that it is not reasonably possible that the Company has incurred liability in respect thereof or that any liability ultimately incurred will not exceed the amount, if any, recorded at December 31, 1997 in respect thereof which would be material relative to the consolidated financial position, results of operations or liquidity of the Company. However, in the event of an unanticipated adverse final determination in respect of certain matters, the Company's consolidated net income for the period in which such determination occurs could be materially affected. 51 54 Notes to Financial Statements (CONTINUED) NOTE 19. PREFERRED STOCK PURCHASE RIGHTS PLAN In June 1996, the Company authorized 7,000,000 shares of Series B Preferred Stock ("Series B Preferred") issuable only upon the exercise of rights ("Rights") issued under the Preferred Stock Purchase Rights Plan adopted on, and set forth in the Rights Agreement dated, June 4, 1996. Each share of Series B Preferred issued would be non-redeemable, non-voting and entitled to (i) cumulative quarterly dividends equal to the greater of $25.00 or, subject to adjustment, 100 times the per year amount of dividends declared on Goodyear Common Stock ("the Common Stock") during the preceding quarter and (ii) a liquidation preference. Under the Rights Plan, each shareholder of record on July 29, 1996 received a dividend of one Right per share of the Common Stock. Each Right, when exercisable, will entitle the registered holder thereof to purchase from the Company one one-hundredth of a share of Series B Preferred Stock at a price of $250 (the "Purchase Price"), subject to adjustment. The Rights will expire on July 29, 2006, unless earlier redeemed at $.001 per Right. The Rights will be exercisable only in the event that an acquiring person or group purchases, or makes -- or announces its intention to make -- a tender offer for, 15% or more of the Common Stock. In the event that any acquiring person or group acquires 15% or more of the Common Stock, each Right will entitle the holder to purchase that number of shares of Common Stock (or in certain circumstances, other securities, cash or property) which at the time of such transaction would have a market value of two times the Purchase Price. If the Company is acquired or a sale or transfer of 50% or more of the Company's assets or earnings power is made after the Rights become exercisable, each Right (except those held by an acquiring person or group) will entitle the holder to purchase common stock of the acquiring entity having a market value then equal to two times the Purchase Price. In addition, when exercisable the Rights under certain circumstances may be exchanged by the Company at the ratio of one share of Common Stock (or the equivalent thereof in other securities, property or cash) per Right, subject to adjustment. The Rights Plan replaced the rights plan adopted in 1986, whereunder rights to purchase Series A $10.00 Preferred Stock were issued and expired without being exercisable on July 28, 1996. 52 55 Supplementary Data (Unaudited) QUARTERLY DATA AND MARKET PRICE INFORMATION
(In millions, except per share) Quarter --------------------------------------------------------------- 1997 First Second Third Fourth Year - --------------------------------------------------------------------------------------------------------------------------- Net Sales $3,233.2 $3,315.5 $3,322.2 $3,284.2 $13,155.1 Gross Profit 772.2 782.7 777.4 776.9 3,109.2 =========================================================================================================================== Net Income $ 170.4 192.2 $ 194.1 $ 2.0 $ 558.7 =========================================================================================================================== Net Income Per Share -- Basic $ 1.09 $ 1.23 $ 1.25 $ .01 $ 3.58 -- Diluted $ 1.08 $ 1.22 $ 1.22 $ .01 $ 3.53 =========================================================================================================================== Average Shares Outstanding - -- Basic 156.4 155.8 156.2 156.5 156.2 - -- Diluted 158.0 157.7 158.3 158.6 158.2 Price Range of Common Stock:* High $ 55-7/8 $ 63-3/8 $ 69-3/4 $ 71-1/4 $ 71-1/4 Low 50-5/8 49-1/4 60-5/8 58-5/8 49-1/4 =========================================================================================================================== Dividends Per Share .28 .28 .28 .30 1.14 ===========================================================================================================================
The 1997 fourth quarter included a net after-tax charge of $176.3 million or $1.13 per share-basic for rationalizations.
Quarter -------------------------------------------------------------- 1996 First Second Third Fourth Year - --------------------------------------------------------------------------------------------------------------------------- Net Sales $3,245.5 $3,329.5 $3,267.7 $3,270.1 $13,112.8 Gross Profit 764.3 795.2 758.9 767.7 3,086.1 =========================================================================================================================== Net Income(Loss) $ 151.8 $ 187.9 $ 170.2 $ (408.2) $ 101.7 =========================================================================================================================== Net Income (Loss) Per Share -- Basic $ .98 $ 1.22 $ 1.09 $ (2.63) $ .66 -- Diluted $ .97 $ 1.20 $ 1.09 $ (2.63) $ .65 Average Shares Outstanding - -- Basic 154.3 155.1 155.3 155.7 155.1 - -- Diluted 156.2 157.1 156.7 155.7 156.8 Price Range of Common Stock:* High $ 53 $ 53 $ 49-1/8 $ 52-1/4 $ 53 Low 42-3/4 46-7/8 41-1/2 43-1/8 41-1/2 =========================================================================================================================== Dividends Per Share .25 .25 .25 .28 1.03 ===========================================================================================================================
The 1996 fourth quarter included a net after-tax charge of $572.2 million or $3.68 per share-basic for the writedown of the All American Pipeline System and related assets and other rationalizations. *New York Stock Exchange - Composite Transactions 53 56 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information required by Item 401 of Regulation S-K in respect of directors of Registrant is, pursuant to General Instruction G(3) to Form 10-K, incorporated herein by specific reference to the text set forth under the caption "Election of Directors" at pages 3 through 6, inclusive, of Registrant's Proxy Statement, dated February 26, 1998, for its Annual Meeting of Shareholders to be held on April 6, 1998 (the "Proxy Statement"). For information regarding the executive officers of Registrant, reference is made to Part I, Item 4(A), at pages 15 through 20, inclusive, of this Annual Report. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Based solely on a review of copies of reports on Forms 3, 4 and 5 received by Registrant, or on written representations from certain directors and officers that no updating Section 16(a) forms were required to be filed by them, Registrant believes that no director or officer of Registrant filed a late report or failed to file a required report under Section 16(a) of the Exchange Act during or in respect of the year ended December 31, 1997, except that: (1) Mr. L. N. Fiedler, a Vice President of Registrant, filed an amendment, dated January 13, 1998, to his Form 4 for December 1997, dated January 5, 1998, to correct the reporting of his holdings of Common Stock to reflect a gift of 42 shares of Common Stock made on December 23, 1997; (2) Mr. R. W. Hauman, a Vice President and the Treasurer of Registrant, filed amendments, each dated January 5, 1998, to his Form 4 for June 1997 and his Form 4 for September 1997 to correct an administrative error in the reporting of his holdings of Common Stock; and (3) Mr. G. A. Miller, a Vice President of Registrant, filed Amendments, each dated February 6, 1998, to his Form 4 for November 1997 and December of 1997 to correct an administrative error in the calculation of his holdings of Common Stock. To the knowledge of Registrant, no person owned 10% or more of any class of Registrant's equity securities registered under the Exchange Act. ITEM 11. EXECUTIVE COMPENSATION. Information required by Item 402 of Regulation S-K in respect of management of Registrant is, pursuant to General Instruction G(3) to Form 10-K, incorporated herein by specific reference to the text set forth in the Proxy Statement under the caption "Executive Officer Compensation", at pages 9 through 17, inclusive, of the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information required by Item 403 of Regulation S-K relating to the ownership of Registrant's Common Stock by certain beneficial owners and management is, pursuant to General Instruction G(3) to Form 10-K, incorporated herein by specific reference to the text set forth in the Proxy Statement under the caption "Beneficial Ownership of Common Stock" at pages 7 and 8 of the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information required by Item 404 of Regulation S-K relating to certain transactions by and relationships of management is, pursuant to General Instruction G(3) to Form 10-K, incorporated herein by specific reference to the text set forth in the Proxy Statement under the caption "Executive Officer Compensation" at pages 9 through 17, inclusive, of the Proxy Statement. 54 57 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. A. LIST OF DOCUMENTS FILED AS PART OF THIS REPORT: 1. FINANCIAL STATEMENTS: See Index on page 32 of this Annual Report. 2. FINANCIAL STATEMENT SCHEDULES: See Index To Financial Statement Schedules attached to this Annual Report at page FS-1. The Financial Statement Schedule at page FS-1 is by specific reference hereby incorporated into and made a part of this Annual Report. 3. EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION S-K: See the Index of Exhibits at pages X-1 through X-6, inclusive, which is by specific reference hereby incorporated into and made a part of this Annual Report. The following exhibits, each listed in the Index of Exhibits, are or relate to compensation plans and arrangements of Registrant:
EXHIBIT DESCRIPTION FILED AS EXHIBIT ------- ------------- ------------------ 10(a) 1997 Performance Incentive Plan of The 10.1 to Form 10-Q for Goodyear Tire & Rubber Company the quarter ended (the "1997 Plan") June 30, 1997 10(b) 1989 Goodyear Performance and Equity A to Form 10-Q for Incentive Plan ("1989 Plan") quarter ended March 31, 1989 10(c) Forms of Stock Option Grant Agreements 10.1 to this Annual under the 1997 Plan in respect of Stock Report on Form 10-K Options and SARs granted December 2, 1997 10(d) Performance Recognition Plan 10.1 to Form 10-K for adopted as of January 1, 1996 year ended December 31, 1995 10(e) Form of Performance Grant Agreement 10.2 to this Annual Report under 1997 Plan dated December 2, 1997 on Form 10-K 10(f) Forms of Stock Option Grant Agreements 10.3 to Form 10-K for year under 1989 Plan in respect of options and ended December 31, 1996 SARs granted December 3, 1996 10(g) Form of Stock Option Grant Agreement G to Form 10-K for year under 1989 Plan in respect of options ended December 31, 1993 granted January 4, 1994 10(h) 1987 Employees' Stock Option Plan B to Form 10-Q for quarter ended March 31, 1987 10(i) Form of Performance Equity Grant 10.2 to Form 10-K for year Agreement for 1994 under 1989 Plan ended December 31, 1996 (as amended December 3, 1996) 10(j) Goodyear Supplementary Pension Plan A to Form 10-Q for (as amended) quarter ended March 31, 1990 10(k) Form of Performance Equity Grant 10.4 to Form 10-K for year Agreement for 1995 under 1989 Plan ended December 31, 1996 (as amended December 3, 1996) 10(l) Goodyear Employee Severance Plan A-II to Form 10-K for year ended December 31, 1988
55 58
EXHIBIT DESCRIPTION FILED AS EXHIBIT ------- ------------- ------------------ 10(m) Forms of Stock Option Grant Agreements 10.3 to Form 10-K for year under 1989 Plan in respect of options and ended December 31, 1995 SARs granted January 9, 1996 10(n) Form of Performance Equity Grant 10.5 to Form 10-K for year Agreement for 1996 under 1989 Plan ended December 31, 1996 (as amended December 3, 1996) 10(o) Form of Performance Equity Grant 10.6 to Form 10-K for year Agreement for 1997 under 1989 Plan ended December 31, 1996 10(p) Forms of Stock Option Grant Agreements G to Form 10-K for year under 1989 Plan in respect of options and ended December 31, 1994 SARs granted January 4, 1995 10(r) Deferred Compensation Plan for Executives B to Form 10-Q for quarter ended September 30, 1994 10(s) 1994 Restricted Stock Award Plan for B to Form 10-Q for Non-employee Directors quarter ended June 30, 1994 10(t) Outside Directors' Equity 10.3 to this Annual Report Participation Plan (as amended) on Form 10-K
B. REPORTS ON FORM 8-K: No Current Report on Form 8-K was filed by Registrant with the Securities and Exchange Commission during the quarter ended December 31, 1997. 56 59 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS ANNUAL REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE GOODYEAR TIRE & RUBBER COMPANY (Registrant) Date: March 6, 1998 By /s/ SAMIR G. GIBARA -------------------------- Samir G. Gibara, Chairman of the Board, Chief Executive Officer and President PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS ANNUAL REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. Date: March 6, 1998 /s/ SAMIR G. GIBARA -------------------------- Samir G. Gibara, Chairman of the Board, Chief Executive Officer and President and Director (Principal Executive Officer) Date: March 6, 1998 /s/ ROBERT W. TIEKEN --------------------------- Robert W. Tieken, Executive Vice President (Principal Financial Officer) Date: March 6, 1998 /s/ JOHN W. RICHARDSON --------------------------- John W. Richardson, Vice President (Principal Accounting Officer)
( John G. Breen, Director ) ( William E. Butler, Director ) ( Thomas H. Cruikshank, Director ) ( William J. Hudson, Jr., Director ) ( Gertrude G. Michelson, Director ) Date: March 6, 1998 ( Steven A. Minter, Director ) By /s/ ROBERT W. TIEKEN ( Agnar Pytte, Director ) -------------------- ( George H. Schofield, Director ) Robert W. Tieken, Signing as ( William C. Turner, Director ) Attorney-in-Fact for the ( Martin D. Walker, Director ) directors whose names appear opposite. Katherine G. Farley, Director
A Power of Attorney, dated December 2, 1997, authorizing Robert W. Tieken to sign this Annual Report on Form 10-K for the fiscal year ended December 31, 1997 on behalf of certain of the directors of the Registrant is filed as Exhibit 24 to this Annual Report. 57 60 FINANCIAL STATEMENT SCHEDULES ITEMS 8 AND 14(a)(2) OF FORM 10-K FOR CORPORATIONS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 ---------- INDEX TO FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENT SCHEDULES: SCHEDULE NO. PAGE NUMBER -------------- -------------- Valuation and Qualifying Accounts ......... II FS-1 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Financial statements and schedules relating to 50 percent or less owned companies, the investments in which are accounted for by the equity method, have been omitted as permitted because, considered in the aggregate as a single subsidiary, these companies would not constitute a significant subsidiary. ================================================================================ SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS Year Ended December 31, ================================================================================
(In Millions) 1997 - ------------------------------------------------------------------------------------------------------------------ Additions Translation Balance at charged Deductions adjustment Balance beginning (credited) from during at end of Description of period to income reserves period period - ------------------------------------------------------------------------------------------------------------------ Deducted from accounts and notes receivable: For doubtful accounts $58.1 $20.5 $(25.3) $(3.8) $49.5 Valuation allowance-- deferred tax assets 21.4 (5.6) -- -- 15.8 1996 - ------------------------------------------------------------------------------------------------------------------ Deducted from accounts and notes receivable: For doubtful accounts $ 56.2 $ 19.3 $(18.9)(a) $ 1.5 $58.1 Valuation allowance -- deferred tax assets 29.7 (8.3) -- -- 21.4 1995 - ------------------------------------------------------------------------------------------------------------------ Deducted from accounts and notes receivable: For doubtful accounts $ 54.0 $ 19.5 $(17.5)(a) $ .2 $56.2 Valuation allowance -- deferred tax assets 68.9 (34.7) (4.5) -- 29.7
- ---------- Note: (a) Accounts and notes receivable charged off. FS-1 61 THE GOODYEAR TIRE & RUBBER COMPANY ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1997 INDEX OF EXHIBITS(1)
EXHIBIT TABLE ITEM EXHIBIT NO. (2) 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, dated December 20, 1954, and Certificate of Amendment to Amended Articles of Incorporation of The Goodyear Tire & Rubber Company, dated April 6, 1993, and Certificate of Amendment to Amended Articles of Incorporation of Registrant dated June 4, 1996, three documents comprising Registrant's Articles of Incorporation as amended through March 5, 1998 (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, File No. 1-1927). (b) Code of Regulations of The Goodyear Tire & Rubber Company, adopted November 22, 1955, and amended April 5, 1965, April 7, 1980, April 6, 1981 and April 13, 1987 (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 4.1(B) to Registrant's Registration Statement on Form S-3, File No. 333-1955). 4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES (a) Conformed copy of Rights Agreement, dated as of June 4, 1996, between Registrant and First Chicago Trust Company of New York, Rights Agent (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 1 to Registrant's Registration Statement on Form 8-A dated June 11, 1996 and as Exhibit 4(a) to Registrant's Current Report on Form 8-K dated June 4, 1996, File No. 1-1927). (b) Specimen nondenominational Certificate for shares of the Common Stock, Without Par Value, of the Registrant; one certificate, First Chicago Trust Company of New York as transfer agent and registrar (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 4.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, File No. 1-1927).
--------------- (1) See Part IV, Item 14, Part A.3. (2) Pursuant to Item 601 of Regulation S-K. X-1 62
EXHIBIT TABLE ITEM EXHIBIT NO. (2) DESCRIPTION OF EXHIBIT NUMBER PAGE ------- ---------------------- ------ ---- 4 (c) Conformed Copy of Revolving Credit Facility Agreement, dated as of July 15, 1994, among Registrant, the Lenders named therein and Chemical Bank, as Agent (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit A to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, File No. 1-1927). (d) Conformed Copy of Replacement and Restatement Agreement, dated as of July 15, 1996, among Registrant, the Lenders named therein and The Chase Manhattan Bank (formerly Chemical Bank), as Agent, relating to the Revolving Credit Facility Agreement dated as of July 15, 1994 among Registrant, the Lenders named therein and Chemical Bank (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 4.5 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, File No. 1-1927). (e) 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 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, 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. 4.1 X-4-1 (g) Form of 6-5/8% Note Due 2006, dated December 9, 1996, issued by Registrant in aggregate principal of $250,000,000 (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 4.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No, 1-1927). Information concerning Goodyear's long-term debt is set forth at Note 7, captioned "Financing Arrangements and Financial Instruments", at the sub-caption "Long Term Debt and Financing Arrangements", in the Financial Statements set forth at Item 8 of this Annual Report and is incorporated herein by specific reference. In accordance with paragraph (iii) to Part 4 of Item 601 of Regulation S-K, the agreements and instruments defining the rights of holders of long term debt of Registrant in respect of which the total amount of securities authorized thereunder does not exceed 10% of the consolidated assets of Registrant and its subsidiaries are not filed herewith. The Registrant hereby agrees to furnish a copy of any such agreement or instrument to the Securities and Exchange Commission upon request.
--------------- (2) Pursuant to Item 601 of Regulation S-K. X-2 63
EXHIBIT TABLE ITEM EXHIBIT NO. (2) DESCRIPTION OF EXHIBIT NUMBER PAGE ------- ---------------------- ------ ---- 10 MATERIAL CONTRACTS (a) 1997 Performance Incentive Plan of The Goodyear Tire & Rubber Company, as adopted by the Board of Directors on February 4, 1997, and approved by shareholders on April 14, 1997 (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, File No. 1-1927). (b) 1989 Goodyear Performance and Equity Incentive Plan of Registrant, as adopted by the Board of Directors of Registrant on December 6, 1988, and approved by the shareholders of Registrant on April 10, 1989 (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit A to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1989, File No. 1-1927). (c) Forms of Stock Option Grant Agreements in respect of options 10.1 X-10.1-1 granted December 2, 1997 under the 1997 Performance Incentive Plan of Registrant: Part I, form of Grant Agreement for Incentive Stock Options; Part II, form of Grant Agreement for Non-Qualified Stock Options; and Part III, form of Grant Agreement for Non-Qualified Stock Options and tandem Stock Appreciation Rights. (d) Performance Recognition Plan of Registrant adopted effective January 1, 1996 (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 1-1927). (e) Form of Performance Unit Grant Agreement in respect of grants 10.2 X-10.2-1 made on December 2, 1997 in respect of 1998 under the 1997 Performance Incentive Plan of Registrant. (f) Forms of Stock Option Grant Agreements in respect of options and SARs granted December 3, 1996 under the 1989 Goodyear Performance and Equity Incentive Plan; Part I, form of Agreement for Incentive Stock Options, Part II, form of Agreement for Non-Qualified Stock Options, and Part III, form of Agreement for Non-Qualified Stock Options and Tandem Stock Appreciation Rights (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-1927). (g) Form of Stock Option Grant Agreement under the 1989 Goodyear Performance and Equity Incentive Plan in respect of options granted January 4, 1994 (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit G to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993, File No. 1-1927).
--------------- (2) Pursuant to Item 601 of Regulation S-K. X-3 64
EXHIBIT TABLE ITEM EXHIBIT NO. (2) DESCRIPTION OF EXHIBIT NUMBER PAGE ------- ---------------------- ------ ---- 10 (h) 1987 Employees' Stock Option Plan of Registrant (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit B to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1987, File No. 1-1927). (i) Form of Performance Equity Grant Agreement in respect of grants made on January 4, 1994 under the 1989 Goodyear Performance and Equity Incentive Plan, as amended December 3, 1996 (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-1927). (j) Goodyear Supplementary Pension Plan, as amended May 1, 1990 (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit A to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1990, File No. 1-1927). (k) Form of Performance Equity Grant Agreement in respect of grants made on December 6, 1994 in respect of 1995 under the 1989 Goodyear Performance and Equity Incentive Plan, as amended December 3, 1996 (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 10.4 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-1927). (l) Goodyear Employee Severance Plan, as adopted by the Board of Directors of Registrant on February 14, 1989 (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit A-II to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988, File No. 1-1927). (m) Forms of Stock Option Grant Agreement granted January 9, 1996 under the 1989 Goodyear Performance and Equity Incentive Plan; Part I, Form of Agreement for Incentive Stock Options, Part II, Form of Agreement for Non-qualified Stock Options, and Part III, Form of Agreement for Non-qualified Stock Options and tandem Stock Appreciation Rights (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 1-1927). (n) Form of Performance Equity Grant Agreement in respect of grants made January 9, 1996 under the 1989 Goodyear Performance and Equity Incentive Plan, as amended December 3, 1996 (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-1927).
--------------- (2) Pursuant to Item 601 of Regulation S-K. X-4 65
EXHIBIT TABLE ITEM EXHIBIT NO. (2) DESCRIPTION OF EXHIBIT NUMBER PAGE ------- ---------------------- ------ ---- 10 (o) Form of Performance Equity Grant Agreement in respect of grants made on December 3, 1996 in respect of 1997 under the 1989 Goodyear Performance and Equity Incentive Plan (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-1927). (p) Forms of Stock Option Grant Agreements in respect of options and SARs granted January 4, 1995 under the 1989 Goodyear Performance and Equity Incentive Plan; Part I, form of Agreement for Incentive Stock Options, Part II, form of Agreement for Non-Qualified Stock Options, and Part III, form of Agreement for Non-Qualified Stock Options and tandem Stock Appreciation Rights (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit G to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 1-1927). (q) Conformed copy of Consolidated Receivables Sale Agreement [$550,000,000 Facility], dated as of November 15, 1996, among Registrant, Asset Securitization Cooperative Corporation and Canadian Imperial Bank of Commerce (incorporated by reference, field with the Securities and Exchange Commission as Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 File No. 1-1927). (r) The Goodyear Tire & Rubber Company Deferred Compensation Plan for Executives, as adopted effective October 4, 1994 (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit B to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, File No. 1-1927). (s) 1994 Restricted Stock Award Plan for nonemployee Directors of Registrant, as adopted effective June 1, 1994 (incorporated by reference, filed with the Securities and Exchange Commission as Exhibit B to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, File No. 1-1927). (t) Outside Directors' Equity Participation Plan, as adopted February 10.3 X-10.3-1 2, 1996 and amended February 3, 1998.
--------------- (2) Pursuant to Item 601 of Regulation S-K. X-5 66
EXHIBIT TABLE ITEM EXHIBIT NO. (2) DESCRIPTION OF EXHIBIT NUMBER PAGE ------- ---------------------- ------ ---- 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS. (a) Statement setting forth the Computation of Earnings 11 X-11-1 Per Share. 12 STATEMENT RE COMPUTATION OF RATIOS. (a) Statement setting forth the Computation of Ratio of 12 X-12-1 Earnings to Fixed Charges. 21 SUBSIDIARIES (a) List of subsidiaries of Registrant at March 5, 1998. 21 X-21-1 23 CONSENTS OF EXPERTS AND COUNSEL (a) Consent of Price Waterhouse LLP, independent accoun- 23 X-23-1 tants, to incorporation by reference of their report set forth on page 32 of this Annual Report in certain Registration Statements on Forms S-3 and S-8. 24 POWER OF ATTORNEY (a) Power of Attorney, dated December 2, 1997, authorizing 24 X-24-1 Robert W. Tieken, C. Thomas Harvie, John W. Richardson, Richard W. Hauman, James Boyazis, or any one or more of them, to sign this Annual Report on behalf of certain directors of Registrant. 27 FINANCIAL DATA SCHEDULE 27 X-27-1 99 ADDITIONAL EXHIBITS (a) Registrant's definitive Proxy Statement dated February 26, 1998 (portions incorporated by reference, filed with the Securities and Exchange Commission, File No. 1-1927).
--------------- (2) Pursuant to Item 601 of Regulation S-K. X-6 EX-4.1 2 EXHIBIT 4.1 1 Exhibit 4.1 ================================================================================ INDENTURE Between THE GOODYEAR TIRE & RUBBER COMPANY and CHEMICAL BANK, as Trustee -------- Dated as of March 15, 1996 -------- DEBT SECURITIES ================================================================================ X-4.1-1 2 THE GOODYEAR TIRE & RUBBER COMPANY Certain Sections of This Indenture Relating to ---------------------------------------------- Sections 310 Through 318, Inclusive, of the ------------------------------------------- Trust Indenture Act of 1939. ---------------------------- Trust Indenture Act Section Indenture Section --------------------------- ----------------- 310 (a)(1) 6.09 (a)(2) 6.09 (a)(3) Not Applicable (a)(4) Note Applicable (b) 6.08 6.11 311 (a) (b) 6.13 6.13 312 (a) 7.01 7.02(a) (b) 7.02(b) (c) 7.02(c) 313 (a) 7.03(a) (b) 7.03(a) (c) 7.03(a) (d) 7.03(b) 314 (a) 7.04 (a)(4) 1.01 10.05 (b) Not Applicable (c)(1) 1.02 (c)(2) 1.02 (c)(3) Not Applicable (d) Not Applicable (e) 1.02 315 (a) 6.01 (b) 6.02 (c) 6.01 (d) 6.01 (e) 5.14 316 (a) 1.01 (a)(1)(A) 5.02 5.12 (a)(2)(B) 5.13 (a)(2) Not Applicable (b) 5.08 (c) 1.04(c) 1 X-4.1-2 3 317 (a)(1) 5.03 (a)(2) 5.04 (b) 10.04 318 (a) 1.07 NOTE:This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. X-4.1-3 4 TABLE OF CONTENTS
Page ---- ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.01. Definitions ..................................................................................1 SECTION 1.02. Compliance Certificates and Opinions .........................................................7 SECTION 1.03. Form of Documents Delivered to Trustee .......................................................8 SECTION 1.04. Acts of Holders; Record Dates ................................................................8 SECTION 1.05. Notices, Etc., to Trustee and Company .......................................................10 SECTION 1.06. Notice to Holders; Waiver ...................................................................10 SECTION 1.07. Conflict with Trust Indenture Act ...........................................................11 SECTION 1.08. Effect of Headings and Table of Contents ....................................................11 SECTION 1.09. Successors and Assigns ......................................................................11 SECTION 1.10. Separability Clause .........................................................................11 SECTION 1.11. Benefits of Indenture .......................................................................11 SECTION 1.12. Governing Law ...............................................................................11 SECTION 1.13. Legal Holidays ..............................................................................11 ARTICLE TWO SECURITY FORMS SECTION 2.01. Forms Generally .............................................................................11 SECTION 2.02. Form of Face of Security ....................................................................12 SECTION 2.03. Form of Reverse of Security .................................................................13 SECTION 2.04. Form of Legend for Global Securities ........................................................16 SECTION 2.05. Form of Trustee's Certificate of Authentication .............................................16 ARTICLE THREE THE SECURITIES SECTION 3.01. Amount of Securities Issuable; Issuable in Series ...........................................17 SECTION 3.02. Denominations ...............................................................................19 SECTION 3.03. Execution, Authentication, Delivery and Dating ..............................................19 SECTION 3.04. Temporary Securities ........................................................................20 SECTION 3.05. Registration, Registration of Transfer and Exchange .........................................20 SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities ............................................22 SECTION 3.07. Payment of Interest; Interest Rights Preserved ..............................................22 SECTION 3.08. Persons Deemed Owners .......................................................................23 SECTION 3.09. Cancellation ................................................................................23 SECTION 3.10. Computation of Interest .....................................................................24
(i) X-4.1-4 5
ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 4.01. Satisfaction and Discharge of Indenture .....................................................24 SECTION 4.02. Application of Trust Money ..................................................................25 ARTICLE FIVE REMEDIES SECTION 5.01. Events of Default ...........................................................................25 SECTION 5.02. Acceleration of Maturity; Rescission and Annulment ..........................................26 SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee .............................26 SECTION 5.04. Trustee May File Proofs of Claim ............................................................27 SECTION 5.05. Trustee May Enforce Claims Without Possession of Securities .................................27 SECTION 5.06. Application of Money Collected ..............................................................28 SECTION 5.07. Limitation on Suits .........................................................................28 SECTION 5.08 Unconditional Right of Holders to Receive Principal, Premium and Interest ...................................................................28 SECTION 5.09. Restoration of Rights and Remedies ..........................................................29 SECTION 5.10. Rights and Remedies Cumulative ..............................................................29 SECTION 5.11. Delay or Omission Not Waiver ................................................................29 SECTION 5.12. Control by Holders ..........................................................................29 SECTION 5.13. Waiver of Past Defaults .....................................................................29 SECTION 5.14. Undertaking for Costs .......................................................................29 SECTION 5.15. Waiver of Stay or Extension Laws ............................................................30 ARTICLE SIX THE TRUSTEE SECTION 6.01. Certain Duties and Responsibilities .........................................................30 SECTION 6.02. Notice of Defaults ..........................................................................30 SECTION 6.03. Certain Rights of Trustee ...................................................................30 SECTION 6.04. Not Responsible for Recitals or Issuance of Securities ......................................31 SECTION 6.05. May Hold Securities .........................................................................31 SECTION 6.06. Money Held in Trust .........................................................................31 SECTION 6.07. Compensation and Reimbursement ..............................................................31 SECTION 6.08. Disqualification; Conflicting Interests .....................................................32 SECTION 6.09. Corporate Trustee Required; Eligibility .....................................................32 SECTION 6.10. Resignation and Removal; Appointment of Successor ...........................................32 SECTION 6.11. Acceptance of Appointment by Successor ......................................................33 SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business .................................34 SECTION 6.13. Preferential Collection of Claims Against Company ...........................................34 SECTION 6.14. Appointment of Authenticating Agent .........................................................34
(ii) X-4.1-5 6
ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 7.01. Company to Furnish Trustee Names and Addresses of Holders ...................................36 SECTION 7.02. Preservation of Information; Communications to Holders ......................................36 SECTION 7.03. Reports by Trustee ..........................................................................36 SECTION 7.04. Reports by Company ..........................................................................36 ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 8.01. Company May Consolidate, etc., Only on Certain Terms ........................................37 SECTION 8.02. Successor Corporation to be Substituted .....................................................37 SECTION 8.03. Opinion of Counsel to be Given Trustee ......................................................37 ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 9.01. Supplemental Indentures Without Consent of Holders ..........................................38 SECTION 9.02. Supplemental Indentures With Consent of Holders .............................................38 SECTION 9.03. Execution of Supplemental Indentures ........................................................39 SECTION 9.04. Effect of Supplemental Indentures ...........................................................39 SECTION 9.05. Conformity with Trust Indenture Act .........................................................39 SECTION 9.06. Reference in Securities to Supplemental Indentures ..........................................40 ARTICLE TEN COVENANTS SECTION 10.01. Payment of Principal, Premium and Interest .......................................................40 SECTION 10.02. Maintenance of Office or Agency ..................................................................40 SECTION 10.03. Vacancy in the Office of Trustee .................................................................40 SECTION 10.04. Money for Securities Payments to be Held in Trust ................................................41 SECTION 10.05. Limitation on Secured Indebtedness ...............................................................41 SECTION 10.06. Limitation on Sale and Lease-back Transactions ...................................................43 SECTION 10.07. Existence ........................................................................................43 SECTION 10.08. Statement by Officers as to Default. .............................................................43 SECTION 10.09. Waiver of Certain Covenants ......................................................................43 ARTICLE ELEVEN
(iii) X-4.1-6 7
REDEMPTION OF SECURITIES SECTION 11.01. Applicability of Article .........................................................................44 SECTION 11.02. Election to Redeem; Notice to Trustee ............................................................44 SECTION 11.03. Selection by Trustee of Securities to be Redeemed ................................................44 SECTION 11.04. Notice of Redemption .............................................................................44 SECTION 11.05. Deposit of Redemption Price ......................................................................45 SECTION 11.06. Securities Payable on Redemption Date ............................................................45 SECTION 11.07. Securities Redeemed in Part ......................................................................45 ARTICLE TWELVE SINKING FUNDS SECTION 12.01. Applicability of Article .........................................................................46 SECTION 12.02. Satisfaction of Sinking Fund Payments with Securities ............................................46 SECTION 12.03. Redemption of Securities for Sinking Fund ........................................................46 ARTICLE THIRTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 13.01. Applicability of Article; Company's Option To Effect Defeasance or Covenant Defeasance ...........................................................46 SECTION 13.02. Defeasance and Discharge .........................................................................47 SECTION 13.03. Covenant Defeasance ..............................................................................47 SECTION 13.04. Conditions to Defeasance or Covenant Defeasance ..................................................47 SECTION 13.05. Deposited Money and U.S. Government Obligations to be Held in Trust ...............................................................................49 SECTION 13.06. Reinstatement ....................................................................................49 ARTICLE FOURTEEN IMMUNITY OF SHAREHOLDERS, OFFICERS AND DIRECTORS SECTION 14.01. Exemption from Individual Liability ..............................................................50 Testimonium .....................................................................................................50 Signatures and Seals ............................................................................................50 Acknowledgements ................................................................................................51
NOTE:This Table of Contents shall not, for any purpose, be deemed to be a part of the Indenture. (iv) X-4.1-7 8 INDENTURE dated as of March 15, 1996, between THE GOODYEAR TIRE & RUBBER COMPANY, a corporation duly organized and existing under the laws of the State of Ohio (herein called the "Company"), having its principal offices at 1144 East Market Street, Akron, Ohio 44316-0001, and CHEMICAL BANK, a banking corporation duly organized and existing under the laws of the State of New York, as Trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness (herein called the "Securities"), to be issued in one or more series as in this Indenture provided. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of series thereof, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.01. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; (d) Unless the context otherwise requires, any reference to an "Article" or "Section" refers to an Article or a Section, as the case may be, of this Indenture; and (e) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act", when used with respect to any Holder, has the meaning specified in Section 1.04. 1 X-4.1-8 9 "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Attributable Debt" means, as to any particular lease under which any Person is at the time liable, at any date as of which the amount thereof is to be determined, the total net amount of rent required to be paid by such Person under such lease during the remaining term thereof (excluding renewals at the option of lessee), discounted from the respective due dates thereof at a rate per annum equal to the lesser of (i) prevailing market interest rate, at the date as of which the amount of such discounted net rent is being or to be determined, on United States Treasury obligations having a maturity substantially equal to the average term of all payments due under such lease, plus 3%, or (ii) weighted average rate per annum interest rate borne by Outstanding Securities at the date as of which the amount of such discounted net rent is being or to be determined. The net amount of rent required to be paid under any such lease for any such period shall be the amount of the rent payable by the lessee, reduced by the amount of any income from any sublease under such lease, with respect to such period, excluding amounts required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water rates and similar charges and contingent rents such as those based on sales. In the case of any lease which is terminable by the lessee upon the payment of a penalty, such net amount shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 6.14 to act on behalf of the Trustee to authenticate Securities of one or more series. "Board of Directors" means either the Board of Directors of the Company or any duly authorized committee of that board or any directors or officers of the Company to whom such board of directors shall have delegated its authority to act hereunder. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification and delivered to the Trustee. "Business Day", when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law or executive order to close. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its President or a Vice President and by its Treasurer, its Comptroller, an Assistant Comptroller, an Assistant Treasurer, its Secretary or an Assistant Secretary and delivered to the Trustee. "Company Sale" has the meaning specified in Section 8.01. 2 X-4.1-9 10 "Consolidated Assets of the Company and Subsidiaries" means, as at the date as of which any determination is being or to be made, the total consolidated assets of the Company and Subsidiaries as shown on the consolidated balance sheet of the Company for the then most recently ended fiscal quarter of the Company (as such consolidated balance sheet is filed with the Securities and Exchange Commission pursuant to the Exchange Act). "Consolidated Subsidiary" means, as at the date as of which any determination is being or to be made, each Subsidiary included in the Company's consolidated statement of income and consolidated balance sheet for the then most recently completed fiscal quarter of the Company. "Corporate Trust Office" means the office of the Trustee in the Borough of Manhattan, the City of New York, at which at any particular time its corporate trust business shall be principally administered. "corporation" means a corporation, association, company, joint-stock company or business trust. "Defaulted Interest" has the meaning specified in Section 3.07. "Defeasible Covenant" has the meaning specified in Section 13.03. "Depositary" means, with respect to the Securities of any series issuable or issued in whole or in part in the form of one or more Global Securities, the Person designated as Depositary for such series by the Company pursuant to Section 3.01, which Person shall be a clearing agency registered under the Exchange Act; and, if at any time there is more than one such Person, "Depositary", as used with respect to the Securities of any series, shall mean the Depositary with respect to the Securities of such series. "Dollars", "dollars", "U.S.$", or "$" shall mean lawful money of the United States of America. "Dollar Equivalent" shall mean, in respect of any amount of any currency, and as at the date and time as of which any determination thereof is being or to be made, that number of Dollars into which such amount of currency may be converted on such date, which shall be equal to the product of (a) the principal amount of such currency (expressed in standard units of such currency) multiplied by (b) the prevailing spot rate for exchanging such currency into Dollars as quoted on page "Spot" of the Reuter System (or on a comparable page of the Telerate System or the Bloomberg Business Information System) as at such date and time as of which the determination of Dollar Equivalent is being or to be made, or, if no rate is quoted in respect of such currency on the Reuter System (or the Telerate System or the Bloomberg Business Information System, as applicable) display designated page "Spot" (or such comparable page, as applicable) as at such date and time, the prevailing spot rate for exchanging such currency into Dollars in the New York City foreign currency exchange market (or, if a more substantial and liquid market for the exchange of such currency, the London currency exchange market or the currency exchange market in the principal financial center of such currency) as at such date and time. "Event of Default" has the meaning specified in Section 5.01. "Exchange Act" means the Securities Exchange Act of 1934 and any successor act thereto, in each case as amended from time to time. "Expiration Date" has the meaning specified in Section 1.04(c). "Funded Debt" of any Person means, as at any date as of which any determination thereof is being or to be made, any Indebtedness of such Person that by its terms (i) will mature more than one year after the date it was issued, incurred, assumed or guaranteed by such Person, or (ii) will mature one year or less after the date it was issued, incurred, assumed or guaranteed which at such date of determination may be renewed or extended at the election or option of such Person so as to mature more than one year after such date of determination. 3 X-4.1-10 11 "GAAP" means generally accepted accounting principles in the United States. "Global Security" means a Security bearing the legend prescribed in Section 2.04 (or such legend as may be specified as contemplated by Section 3.01 for such Securities) evidencing all or part of a series of Securities, authenticated and delivered to the Depositary for such series or its nominee and registered in the name of such Depositary or nominee. "Holder" means a Person in whose name a Security is registered in the Security Register. "Indebtedness" of any Person means, as at the date as of which any determination thereof is being or is to be made and in respect of any Person, (without duplication and excluding in the case of the Company and the Restricted Subsidiaries intercorporate debt solely between the Company and a Restricted Subsidiary or between Restricted Subsidiaries) all (i) indebtedness of such Person for borrowed money, (ii) obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (iii) obligations of such Person to pay the deferred purchase price of property or services under conditional sales or other similar agreements which provide for the deferral of the payment of the purchase price for a period in excess of one year following the date of such Person's receipt and acceptance of the complete delivery of such property and/or services, and (iv) obligations of such Person as lessee under leases which obligations are, in accordance with GAAP, recorded as capital lease obligations. Whenever any determination of the amount of Indebtedness is required or permitted to be, or is otherwise being or to be, made for any purpose under this Indenture, the amount of any such Indebtedness denominated in any currency other than Dollars shall be calculated at the Dollar Equivalent of such Indebtedness as at the date as of which such determination of the amount of Indebtedness is being or to be made, except that, if all or any portion of the principal amount of any such Indebtedness which is payable in a currency other than Dollars is hedged into Dollars, the principal amount of such hedged Indebtedness, or the hedged portion thereof, shall be deemed to be equal to the amount of Dollars specified in, or determined pursuant to, the applicable hedging contract. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument, and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. The term "Indenture" shall also include the terms of particular series of Securities established as contemplated by Section 3.01. "interest", when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after maturity. "Interest Payment Date", when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security. "Lien" means, with respect to an asset of any Person, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, other than for (i) taxes or any other obligation or liability imposed under any law or regulation of the United States of America, any State thereof or any political subdivision, department, agency, bureau or instrumentality of any thereof, or (ii) mechanics', materialmen's, repairmen's or other similar liens incurred in the ordinary course of business, or (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset. "Maturity", when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Notice of Default" means a written notice of the kind specified in Section 5.01(d). "Officers' Certificate" means a certificate signed by the Chairman of the Board, the President or a Vice President, the Chief Financial Officer or the Comptroller of the Company and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company and delivered to the Trustee. One of the officers 4 X-4.1-11 12 signing an Officers' Certificate given pursuant to Section 10.08 shall be the principal executive, financial or accounting officer of the Company. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company. "Original Issue Discount Security" means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.02. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (a) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (b) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (c) Securities as to which defeasance has been effected pursuant to Section 13.02; and (d) Securities which have been paid pursuant to Section 3.06 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; provided, however, that, in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given, made or taken any request, demand, authorization, direction, notice, consent, waiver or other action hereunder, (i) the principal amount of an Original Issue Discount Security that shall be deemed to be Outstanding shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon acceleration of the Maturity thereof pursuant to Section 5.02, (ii) the principal amount of a Security denominated in one or more foreign currencies or currency units shall be the Dollar Equivalent, determined in the manner provided as contemplated by Section 3.01 on the date of original issuance of such Security, of the principal amount (or, in the case of an Original Issue Discount Security, the Dollar Equivalent on the date of original issuance of such Security of the amount determined as provided in (i) above) of such Security and (iii) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other action, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of or any premium or interest on any Securities on behalf of the Company. "Person" means any individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. 5 X-4.1-12 13 "Place of Payment", when used with respect to the Securities of any series, means the place or places where the principal of and any premium and interest on the Securities of that series are payable as specified as contemplated by Section 3.01. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.06 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Regular Record Date" for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 3.01. "Responsible Officer", when used with respect to the Trustee, means any officer in the Corporate Trust Office of the Trustee or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Property" means any manufacturing plant or equipment owned by the Company or a Restricted Subsidiary which is used primarily to manufacture tires or other automotive products and is located within any one or more of the States of the United States of America, but shall not include (i) tire retreading plants, facilities or equipment, (ii) manufacturing plants, facilities or equipment which, in the opinion of the Board of Directors, are not of material importance to the total business conducted by the Company and its Subsidiaries, taken as a whole, (iii) plants, facilities or equipment which, in the opinion of the Board of Directors, are used primarily for transportation, marketing or warehousing, or (iv) any gas or oil pipeline or related assets. "Restricted Subsidiary" means a Subsidiary engaged primarily in manufacturing tires or other automotive products (i) substantially all the assets of which are located within, and substantially all the operations of which are conducted within, any one or more of the States of the United States of America, and (ii) which has assets in excess of 5% of the total amount of Consolidated Assets of the Company and Subsidiaries, as shown on the consolidated balance sheet for the then most recently ended fiscal quarter of the Company; except that such term shall not include any Subsidiary the principal business of which is financing accounts receivable, leasing, owning and developing real estate, engaging in transportation activities, or engaging in distribution and related activities. "Secured Indebtedness" means Indebtedness of the Company or any Restricted Subsidiary secured by a Lien on Restricted Property, but excluding Indebtedness which is either (i) outstanding on March 15, 1996 and is secured by one or more Liens existing on that date, including any renewals or extensions thereof, or (ii) not Funded Debt. "Securities" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. "Security Register" and "Security Registrar" have the respective meanings specified in Section 3.05. 6 X-4.1-13 14 "Shareholders' Equity" means, at any date as of which any determination thereof is being or to be made, the sum of the stated capital, capital surplus and retained earnings of the Company and its Subsidiaries at such date, determined on a consolidated basis in accordance with GAAP. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.07. "Stated Maturity", when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable. "Subsidiary" means a Person (other than an individual or a government or any agency or political subdivision thereof) more than 50% of the outstanding voting interest of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries, or the Company, in accordance with GAAP, otherwise consolidates as a Subsidiary of the Company. "Successor Company" has the meaning specified in Section 8.01. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "U.S. Government Obligations" has the meaning specified in Section 13.04. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president"; but shall not include any assistant vice president. "Yield to Maturity", when used with respect to any Original Issue Discount Security, means the yield to maturity, if any, set forth in the prospectus supplement relating thereto, which shall be equal to the yield to maturity, if any, set forth on the face of such Security. SECTION 1.02. COMPLIANCE CERTIFICATES AND OPINIONS. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirements set forth in this Indenture. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; 7 X-4.1-14 15 (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.03. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. In any case where several matters are required to be certified by, or covered by, an opinion of any specified Person, such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.04. ACTS OF HOLDERS; RECORD DATES. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. Without limiting the generality of the foregoing, a Holder, including a Depositary that is a Holder of a Global Security, may make, give or take, by a proxy, or proxies, duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other Act provided or permitted in this Indenture to be made, given or taken by Holders, and a Depositary that is a Holder of a Global Security may provide its proxy or proxies to the beneficial owners of interest in any such Global Security. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and 8 X-4.1-15 16 date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The Company may, in the circumstances permitted by the Trust Indenture Act, fix any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other Act, or to vote on any action, authorized or permitted by this Indenture to be given, made or taken by Holders of Securities of such series, provided that the Company may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If not set by the Company prior to the first solicitation of a Holder of Securities of such series made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 7.01) prior to such first solicitation or vote, as the case may be. With regard to any record date for action to be taken by the Holders of one or more series of Securities, only the Holders of Securities of such series on such date (or their duly designated proxies) shall be entitled to give or take, or vote on, the relevant action. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of the relevant series on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of any Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 1.06. The Trustee may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration referred to in Section 5.02, (iii) any request to institute proceedings referred to in Section 5.07(b) or (iv) any direction referred to in Section 5.12, in each case with respect to Securities of such series. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of such series on such record date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company's expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 1.06. With respect to any record date set pursuant to this Section, the party hereto which set such record date may designate any day as the "Expiration Date" and from time to time may change the Expiration Date to any earlier or later day; provided that no such change shall be effective unless notice of the proposed new Expiration Date is given to the other party hereto in writing, and to each Holder of Securities of the relevant series in the manner set forth in Section 1.06, on or prior to the existing Expiration Date. If an Expiration Date is not designated with 9 X-4.1-16 17 respect to any record date set pursuant to this Section, the party hereto which set such record date shall be deemed to have initially designated the 180th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date. (d) The ownership of Securities shall be proved by the Security Register. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (f) Without limiting the foregoing, a Holder entitled hereunder to give or take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents, each of which may do so pursuant to such appointment with regard to all or any different part of such principal amount. SECTION 1.05. NOTICES, ETC., TO TRUSTEE AND COMPANY. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with: (a) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, or (b) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, or dispatched for delivery (prepaid by the sender) by an overnight courier service with written evidence of delivery required, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument, marked "Attention: Vice President and General Counsel", or at any other address previously furnished in writing to the Trustee by the Company. SECTION 1.06. NOTICE TO HOLDERS; WAIVER. Where this Indenture provides for any notice to Holders, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder entitled to receive such notice, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. SECTION 1.07. CONFLICT WITH TRUST INDENTURE ACT. If any provision hereof limits, qualifies or conflicts with a provision of the Trust indenture Act that is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. 10 X-4.1-17 18 SECTION 1.08. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.09. SUCCESSORS AND ASSIGNS. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.10. SEPARABILITY CLAUSE. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.11. BENEFITS OF INDENTURE. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.12. GOVERNING LAW. This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York. SECTION 1.13. LEGAL HOLIDAYS. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Securities (other than a provision of the Securities of any series which specifically states that such provision shall apply in lieu of this Section)) payment of interest or principal (and premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity; provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be. ARTICLE TWO SECURITY FORMS SECTION 2.01. FORMS GENERALLY. The Securities of each series shall be in substantially the form set forth in this Article, or in such other form as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistent herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 3.03 for the authentication and delivery of such Securities. The Trustee's certificates of authentication shall be in substantially the form set forth at Section 2.05. The definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officer or officers of the Company executing such Securities, as evidenced by their execution of such Securities. SECTION 2.02. FORM OF FACE OF SECURITY. 11 X-4.1-18 19 [Insert any legend required by the Internal Revenue Code and the regulations thereunder.] THE GOODYEAR TIRE & RUBBER COMPANY ---------------------------- No. $__________ The Goodyear Tire & Rubber Company, a corporation duly organized and existing under the laws of the State of Ohio (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to _____________________, or registered assigns, the principal sum of _______________ Dollars on __________, ___ [if the Security is to bear interest prior to Maturity, insert-, and to pay interest thereon from __________ or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semiannually on _________ and _________ in each year, commencing ________ , at the rate of ___% per annum, until the principal hereof is paid or made available for payment] [if applicable, insert-, and (to the extent that the payment of such interest shall be legally enforceable) at the rate of ___% per annum on any overdue principal and premium and on any overdue installment of interest]. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the ________ or ________ (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture]. [If the Security is not to bear interest prior to Maturity, insert-- The principal of this Security shall not bear interest except in the case of a default in payment of principal upon acceleration, upon redemption or at Stated Maturity and in such case the overdue principal of this Security shall bear interest at the rate of % per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such default in payment to the date payment of such principal has been made or duly provided for. Interest on any overdue principal shall be payable on demand. Any such interest on any overdue principal that is not so paid on demand shall bear interest at the rate of % per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such demand for payment to the date payment of such interest has been made or duly provided for, and such interest shall also be payable on demand.] Payment of the principal of (and premium, if any) and [if applicable, insert any such] interest on this Security will be made at the office or agency of the Company maintained for that purpose in such coin or currency of [the United States of America] [insert other currency, if applicable] as at the time of payment is legal tender for payment of public and private debts [if applicable, insert-; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register]. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. 12 X-4.1-19 20 Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: THE GOODYEAR TIRE & RUBBER COMPANY By ----------------------------------------- [Seal] Attest: - -------------------------------------------- SECTION 2.03. FORM OF REVERSE OF SECURITY. ---------------------------- This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of March 15, 1996 (herein called the "Indenture"), between the Company and Chemical Bank, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof[, limited in aggregate principal amount to $ ]. [If applicable, insert--The Securities of this series are subject to redemption upon not less than 30 days' notice by mail, [if applicable, insert--(1) on __________ in any year commencing with the year ____ and ending with the year ____ through operation of the sinking fund for this series at a Redemption Price equal to 100% of the principal amount, and (2)] at any time on or after __________, 19__], as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): if redeemed [on or before ________, ___%, and if redeemed] during the 12-month period beginning __________ of the years indicated, 13 X-4.1-20 21 Redemption Redemption Year Price Year Price ---- ---------- ---- ---------- and thereafter at a Redemption Price equal to ___% of the principal amount, together in the case of any such redemption [if applicable, insert-- (whether through operation of the sinking fund or otherwise)] with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] [If applicable, insert--the Securities of this series are subject to redemption upon not less than 30 days' notice by mail, (1) on ________ in any year commencing with the year ____ and ending with the year ________ through operation of the sinking fund for this series at the Redemption Prices for redemption through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below, and (2) at any time [on or after ________], as a whole or in part, at the election of the Company, at the Redemption Prices for redemption otherwise than through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below: If redeemed during the 12-month period beginning - -------- of the years indicated, Redemption Price Redemption Price for for Redemption Redemption Otherwise Through Operation Than Through Operation Year of the Sinking Fund of the Sinking Fund - ---- ------------------- ------------------- and thereafter at a Redemption Price equal to ___% of the principal amount, together in the case of any such redemption (whether through operation of the sinking fund or otherwise) with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Date referred to on the face hereof, all as provided in the Indenture.] [Notwithstanding the foregoing, the Company may not, prior to ________ redeem any Securities of this series as contemplated by [Clause (2) of] the preceding paragraph as a part of, or in anticipation of, any refunding operation by the application, directly or indirectly, of moneys borrowed having an interest cost to the Company (calculated in accordance with generally accepted financial practice) of less than ___% per annum.] [The sinking fund for this series provides for the redemption on ________ in each year beginning with the year _____ and ending with the year of ____ [not less than $ ________ ("mandatory sinking fund") and not more than] $ ________ aggregate principal amount of Securities of this series. Securities of this series acquired or redeemed by the Company otherwise than through [mandatory] sinking fund payments may be credited against subsequent [mandatory] sinking fund payments otherwise required to be made [if applicable, insert--in the inverse order in which they become due].] [If the Security is subject to redemption. insert--In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.] [If applicable, insert--This Security is not subject to redemption prior to maturity.] 14 X-4.1-21 22 [If applicable, insert--The Indenture contains provisions for defeasance at any time of [(a)] (the entire indebtedness evidenced by this Security] [and (b)] [certain restrictive covenants,] [in each case] upon compliance by the Company with certain conditions set forth therein, which provisions apply to this Security.] [If the Security is not an Original Issue Discount Security, insert--If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.] [If the Security is an Original Issue Discount Security, insert--If an Event of Default with respect to Securities of this series shall occur and be continuing, an amount of principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. Such amount shall be equal to [--insert formula for determining the amount]. Upon payment [if applicable, insert--(i)] of the amount of principal so declared due and payable [if applicable, insert--and (ii) of interest on any overdue principal and overdue interest (in each case to the extent that the payment of such interest shall be legally enforceable)], all of the Company's obligations in respect of the payment of the principal of and interest, if any, on the Securities of this series shall terminate.] The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of all series to be affected (voting as a single class). The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registerable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $ __________ and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner 15 X-4.1-22 23 hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. SECTION 2.04. FORM OF LEGEND FOR GLOBAL SECURITY. Unless otherwise specified as contemplated by Section 3.01 for the Securities evidenced thereby, any Global Security authenticated and delivered hereunder shall bear a legend in substantially the following form: "THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE TRANSFERRED, WHETHER IN WHOLE OR IN PART, TO, OR REGISTERED OR EXCHANGED FOR SECURITIES REGISTERED IN THE NAME OF, ANY PERSON OTHER THAN THE DEPOSITARY OR A NOMINEE THEREOF AND NO SUCH TRANSFER MAY BE REGISTERED, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. EVERY SECURITY AUTHENTICATED AND DELIVERED UPON REGISTRATION OF TRANSFER OF, OR IN EXCHANGE FOR OR IN LIEU OF, THIS SECURITY SHALL BE A GLOBAL SECURITY SUBJECT TO THE FOREGOING, EXCEPT IN SUCH LIMITED CIRCUMSTANCES." SECTION 2.05. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION. The Trustee's certificates of authentication shall be in substantially the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. CHEMICAL BANK, as Trustee by ----------------------------------- Authorized Officer 16 X-4.1-23 24 ARTICLE THREE THE SECURITIES SECTION 3.01. AMOUNT OF SECURITIES ISSUABLE; ISSUABLE IN SERIES. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is FIVE HUNDRED MILLION DOLLARS ($500,000,000). The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution and, subject to Section 3.03, set forth, or determined in the manner provided, in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series: (1) the title of the Securities of the series (which shall distinguish the Securities of the series from Securities of any other series); (2) the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 3.04, 3.05, 3.06, 9.06 or 11.07 and except for any Securities which, pursuant to Section 3.03, are deemed never to have been authenticated and delivered hereunder); (3) the Person to whom any interest on a Security of the series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest; (4) the date or dates on which the principal of the Securities of the series is payable; (5) the rate or rates at which the Securities of the series shall bear interest, if any, the date or dates from which such interest shall accrue, the Interest Payment Dates on which any such interest shall be payable and the Regular Record Date for any interest payable on any Interest Payment Date; (6) the place or places where the principal of and any premium and interest on Securities of the series shall be payable; (7) the period or periods within which, the price or prices at which and the terms and conditions upon which any Securities of the series may be redeemed, in whole or in part, at the option of the Company; (8) the obligation, if any, of the Company to redeem or purchase Securities of the series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; (9) if other than denominations of $l,000 and any integral multiple thereof, the denominations in which Securities of the series shall be issuable; (10) if the currency, currencies or currency units in which payment of the principal of and any premium and interest on any Securities of the series shall be other than the currency of the United States of America, such currency, currencies or currency units and the manner of determining the equivalent thereof in the currency of the United States of America for purposes of the definition of "Outstanding" in Section 1.01; 17 X-4.1-24 25 (11) if the amount of payments of principal of or any premium or interest on any Securities of the series may be determined by reference to an index or formula, the manner in which such amounts shall be determined; (12) if the principal of or any premium or interest on any Securities of the series is to be payable, at the election of the Company or a Holder thereof, in one or more currencies or currency units other than that or those in which the Securities are stated to be payable, the currency, currencies or currency units in which payment of the principal of and any premium and interest on Securities of such series as to which such election is made shall be payable, and the periods within which and the term and conditions upon which such election is to be made; (13) if other than the principal amount thereof, the portion of the principal amount of Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 5.02; (14) the application, if any, of either or both of Section 13.02 and Section 13.03 to the Securities of the series; (15) whether the Securities of the series shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the Depositary or Depositaries for such Global Security or Global Securities and any circumstances other than those set forth in Section 3.05 in which any such Global Security may be transferred to, and registered and exchanged for Securities registered in the name of, a Person other than the Depositary for such Global Security or a nominee thereof and in which any such transfer may be registered; (16) if other than as specified in Section 5.01, the Events of Default applicable with respect to the Securities of the series; (17) if other than as specified in Section 5.02, the Events of Default the occurrence of which would permit the declaration of the acceleration of maturity pursuant to Section 5.02; (18) any addition to or change in the covenants set forth in Article Ten which applies to Securities of the series, and any other covenant or warranty included for the benefit of Securities of the series in addition to (and not inconsistent with) those included in this Indenture for the benefit of Securities of all series, or any other covenant or warranty included for the benefit of Securities of the series in lieu of any covenant or warranty included in this Indenture for the benefit of Securities of all series, or any provision that any covenant or warranty included in this Indenture for the benefit of Securities of all series shall not be for the benefit of Securities of such series, or any combination of such covenants, warranties or provisions; and (19) any other term of the series (which terms shall not be inconsistent with the provisions of this Indenture, except as permitted by Section 9.01(e)). All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to the Board Resolution referred to above and (subject to Section 3.03) set forth, or determined in the manner provided, in the Officers' Certificate referred to above or in any such indenture supplemental hereto. If any of the terms of a series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of such series. 18 X-4.1-25 26 SECTION 3.02. DENOMINATIONS. The Securities of each series shall be issuable in registered form without coupons in such denominations as shall be specified as contemplated by Section 3.01. In the absence of any such provisions with respect to the Securities of any series, the Securities of such series shall be issuable in denominations of $1,000 and any integral multiple thereof. SECTION 3.03. EXECUTION, AUTHENTICATION, DELIVERY AND DATING. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities. If the form or terms of the Securities of the series have been established in or pursuant to one or more Board Resolutions as permitted by Sections 2.01 and 3.01, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating: (a) if the form of such Securities has been established by or pursuant to Board Resolution as permitted by Section 2.01, that such form has been established in conformity with the provisions of this Indenture; (b) if the terms of such Securities have been established by or pursuant to Board Resolution as permitted by Section 3.01, that such terms have been established in conformity with the provisions of this Indenture; and (c) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee. Notwithstanding the provisions of Section 3.01 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Officers' Certificate otherwise required pursuant to Section 3.01 or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the time of authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued. Each Security shall be dated the date of its authentication. 19 X-4.1-26 27 No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature of an Authorized Officer, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 3.09, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. SECTION 3.04. TEMPORARY SECURITIES. Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series may be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor one or more definitive Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series and tenor. SECTION 3.05. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. The Company shall cause to the kept at the Corporate Trust Office a register (the register maintained in such office and in any other office or agency of the Company in a Place of Payment being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security of any series at the office or agency in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor. At the option of the Holder, Securities of any series may be exchanged for other Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor, upon surrender of the securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. 20 X-4.1-27 28 No service charge shall be made to a Holder for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.04, 9.06 or 11.07 not involving any transfer. The Company shall not be required (a) to issue, register the transfer of or exchange Securities of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of that series selected for redemption under Section 11.03 and ending at the close of business on the day of such mailing or (b) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. If the Securities of any series (or any series and specified tenor) are to be redeemed in part, the Company shall not be required (i) to issue, register the transfer of or exchange Securities of that series (or that series and tenor, as the case may be) during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of that series selected for redemption under Section 11.03 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. The provisions of Clauses (1), (2), (3) and (4) below shall apply only to Global Securities: (1) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (2) Notwithstanding any other provision in this Indenture, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered in the name of any Person other than the Depositary for such Global Security or a nominee thereof unless (A) such Depositary (i) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered under the Exchange Act, (B) there shall have occurred and be continuing an Event of Default with respect to such Global Security or (C) there shall exist such circumstances, if any, in addition to or in lieu of the foregoing as have been specified for this purpose as contemplated by Section 3.01. (3) Subject to Clause (2) above, any exchange of a Global Security for other Securities may be made in whole or in part, and all Securities issued in exchange for a Global Security or any portion thereof shall be registered in such name as the Depositary for such Global Security shall direct. (4) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Section, Section 3.04, 3.06, 9.06 or 11.07 or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Security, unless such Security is registered in the name of a Person other than the Depositary for such Global Security or a nominee thereof. Upon the occurrence in respect of any Global Security of any series of any one or more of the conditions specified in clause (2) of the preceding paragraph or such other conditions as may be specified as contemplated by Section 3.01 for such series, such Global Security may be exchanged for Securities registered in the names of, and the transfer of such Global Security may be registered to, such Persons (including Persons other than the Depositary with respect to such series and its nominees) as such Depositary shall direct. Notwithstanding any other provision of this Indenture, any Security authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, any Global Security shall also be a Global Security and shall bear the legend specified 21 X-4.1-28 29 in Section 2.04 except for any Security authenticated and delivered in exchange for, or upon registration of transfer of, a Global Security pursuant to the preceding sentence. SECTION 3.06. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (a) evidence to their satisfaction of the destruction, loss or theft of any Security and (b) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 3.07. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED. Except as otherwise provided as contemplated by Section 3.01 with respect to any series of Securities, interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (a) or (b) below: (a) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the 22 X-4.1-29 30 receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities of such series at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (b). (b) The Company may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange or which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 3.08. PERSONS DEEMED OWNERS. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of and any premium and (subject to Section 3.07) any interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 3.09. CANCELLATION. All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be disposed of as directed by a Company Order, which shall be effected consistent with such Company Order in accordance with the standard procedures of the Trustee. The Trustee shall deliver a certificate of each such disposal to the Company. SECTION 3.10. COMPUTATION OF INTEREST. Except as otherwise specified as contemplated by Section 3.01 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months. ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 4.01. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture shall upon Company Request cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture when: 23 X-4.1-30 31 (a) either: (i) all Securities theretofore authenticated and delivered (other than (x) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.06 and (y) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.04) have been delivered to the Trustee for cancellation; or (ii) all such Securities not theretofore delivered to the Trustee for cancellation (A) have become due and payable, or (B) will become due and payable at their Stated Maturity within one year, or (C) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (A), (B) or (C) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and any premium and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (b) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.07, the obligations of the Trustee to any Authenticating Agent under Section 6.14 and, if money shall have been deposited with the Trustee pursuant to subclause (ii) of clause (a) of this Section, the obligations of the Trustee under Section 4.02 and the last paragraph of Section 10.04 shall survive. SECTION 4.02. APPLICATION OF TRUST MONEY. Subject to the provisions of the last paragraph of Section 10.04, all money deposited with the Trustee pursuant to Section 4.01 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and any premium and interest for whose payment such money has been deposited with the Trustee. ARTICLE FIVE REMEDIES SECTION 5.01. EVENTS OF DEFAULT. "Event of Default", wherever used herein with respect to Securities of any particular series, means any one of the following events (whatever the reason for such Event of 24 X-4.1-31 32 Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) default in the due and punctual payment of any installment of interest upon any of the Securities of that series as and when the same shall become due and payable and continuance of such default for a period of 30 days; or (b) default in the due and punctual payment of the principal of (or premium, if any, on) any of the Securities of that series at Maturity; or (c) default in the deposit of any sinking fund payment, when and as due by the terms of a Security of that series; or (d) failure on the part of the Company duly to observe or perform any other of the covenants or agreements on the part of the Company set forth in the Securities of that series or in this Indenture (other than those set forth exclusively in the terms of Securities of any series other than that series, or those which have been included in this Indenture for the benefit of Securities of any series other than that series) continued for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee, or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Securities of that series at the time Outstanding, a written notice specifying such failure and requiring the same to be remedied and stating that such notice is a "Notice of Default" hereunder; or (e) the entry of a decree or order by a court having jurisdiction in the premises granting relief in respect of the Company in an involuntary case under any applicable Federal or state bankruptcy, insolvency, reorganization or other similar law adjudging the Company as being bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or state Law, or appointing a receiver, liquidator, custodian, assignee, trustee, sequestrator (or other similar official) of the Company, or of substantially all of its properties, or ordering the winding up or liquidation of the affairs of the Company, and the continuance of any such decree or order unstayed and in effect for a period of 90 consecutive days; or (f) the institution by the Company of proceedings to be adjudicated as being bankrupt or insolvent, or the consent by the Company to the institution of bankruptcy or insolvency proceedings against it, or the filing by the Company of a petition or answer or consent seeking reorganization or relief under any applicable Federal or state bankruptcy, insolvency, reorganization or other similar law, or the consent by the Company to the filing of any such petition or to the appointment of a receiver, liquidator, custodian, assignee, trustee, sequestrator (or other similar official) of the Company, or of any substantial part of its properties, or the making by the Company of an assignment for the benefit of creditors, or the admission by the Company in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or (g) any other Event of Default provided with respect to Securities of that series. SECTION 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If one or more of the Events of Default specified in Section 5.01 shall have occurred and be continuing with respect to any particular series of Securities, then in each and every such case, unless the principal of all the Securities of that series shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Securities of that series then Outstanding hereunder, by notice in writing to the Company (and to the Trustee if given by Holders), may declare the principal amount (or, if the Securities of that series are Original Issue Discount Securities, such amount of principal as may be specified by the terms of that series) of all the Securities of that series to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable. 25 X-4.1-32 33 Notwithstanding the foregoing, at any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in the principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declarations and its consequences if: (1) the Company has paid or deposited with the Trustee a sum sufficient to pay: (A) all overdue interest on all Securities of that series, (B) the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon at the rate or rates prescribed therefor in such Securities, (C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate or rates prescribed therefor in such Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and other amounts due to Trustee under Section 6.07; and (2) all Events of Default with respect to Securities of that series, other than the non-payment of the principal of (and premium, if any) and accrued interest on the Securities of that series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE. The Company covenants that if: (a) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (b) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof, the Company will, upon written demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and any premium and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and premium and on any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and other amounts due to Trustee under Section 6.07. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. 26 X-4.1-33 34 SECTION 5.04. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of any judicial proceeding relative to the Company (or any other obligor upon the Securities), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized: (i) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding; and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07. No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided, however, that the Trustee may vote on behalf of the Holders for the election of a trustee in bankruptcy or similar official and may be a member of a creditors' or other similar committee. SECTION 5.05. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 5.06. APPLICATION OF MONEY COLLECTED. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or any premium or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: (a) First: To the payment of all amounts due the Trustee under Section 6.07; and (b) Second: To the payment of the amounts then due and unpaid for principal of and any premium and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and any premium and interest, respectively. SECTION 5.07. LIMITATION ON SUITS. No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless 27 X-4.1-34 35 (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series; (b) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (c) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. SECTION 5.08. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and any premium and (subject to Section 3.07) any interest on such Security on the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 5.09. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 5.10. RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.06, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.11. DELAY OR OMISSION NOT WAIVER. No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or By-Law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. 28 X-4.1-35 36 SECTION 5.12. CONTROL BY HOLDERS. The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Securities of such series, provided that: (a) such direction shall not be in conflict with any rule of law or with this Indenture, and (b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 5.13. WAIVER OF PAST DEFAULTS. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past default hereunder with respect to such series and its consequences, except a default: (a) in the payment of the principal of or any premium or interest on any Security of such series, or (b) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 5.14. UNDERTAKING FOR COSTS. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit in the manner and to the extent provided in the Trust Indenture Act, having due regard to the merits and good faith of the claims or defenses made by such party litigant, but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Security on or after the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date); provided that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Company. SECTION 5.15. WAIVER OF STAY OR EXTENSION LAWS. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE SIX THE TRUSTEE SECTION 6.01. CERTAIN DUTIES AND RESPONSIBILITIES. The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the 29 X-4.1-36 37 performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 6.02. NOTICE OF DEFAULTS. If a default occurs hereunder with respect to Securities of any series, the Trustee shall give the Holders of Securities of such series notice of such default as and to the extent provided by the Trust Indenture Act; provided, however, that in the case of any default of the character specified in Section 5.01(d) with respect to Securities of such series, no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. SECTION 6.03. CERTAIN RIGHTS OF TRUSTEE. Subject to the provisions of Section 6.01: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel and the written advice of such counsel or any opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) the Trustee shall not be charged with knowledge of any default or Event of Default with respect to the Securities of any series for which it is acting as Trustee unless either (1) a Responsible Officer shall 30 X-4.1-37 38 have actual knowledge of such default or Event of Default or (2) written notice of such default or Event of Default shall have been given to the Trustee by the Company or any other obligor on such Securities or by any Holder of such Securities; and (i) The Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion of rights or powers conferred upon it by this Indenture. SECTION 6.04. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. The recitals contained in this Indenture and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. Neither the Trustee nor the Authenticating Agent makes any representation as to the validity or sufficiency of this Indenture or of the Securities. The Trustee or any Authenticating Agent shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 6.05. MAY HOLD SECURITIES. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.08 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. SECTION 6.06. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. SECTION 6.07. COMPENSATION AND REIMBURSEMENT. The Company agrees: (a) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (c) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. SECTION 6.08. DISQUALIFICATION; CONFLICTING INTERESTS. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. To the extent permitted by the Trust Indenture Act, the Trustee shall not be deemed to have a conflicting interest by virtue of being a trustee under this Indenture with respect to Securities of more than one series. SECTION 6.09. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000 and its Corporate Trust Office is in the Borough of Manhattan, New York, New York, or, with the written consent of the Company, the United States or any State or Territory thereof or the District of Columbia, and subject to supervision or examination by Federal or State authority. 31 X-4.1-38 39 If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 6.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.11. (b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 6.11 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (c) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with Section 6.08 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 6.09 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged as being bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purposes of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by a Board Resolution may remove the Trustee with respect to all Securities, or (ii) subject to Section 5.14, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 6.11. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 6.11, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 6.11, 32 X-4.1-39 40 any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series to all Holders of Securities of such series in the manner provided in Section 1.06. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. SECTION 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. (a) In case of the appointment hereunder of a successor Trustee with respect to all Securities, every successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. (b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one of more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. (c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be. (d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 6.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any 33 X-4.1-40 41 corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 6.13. PREFERENTIAL COLLECTION OF CLAIM AGAINST COMPANY. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). SECTION 6.14. APPOINTMENT OF AUTHENTICATING AGENT. The Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon original issue and upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 3.06, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or state authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. 34 X-4.1-41 42 The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 6.07. If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. CHEMICAL BANK, as Trustee By: -------------------------------------- As Authenticating Agent By: -------------------------------------- Authorized Officer 35 X-4.1-42 43 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 7.01. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS. The Company will furnish or cause to be furnished to the Trustee: (a) semi-annually, not later than 15 days after each Regular Record Date for each series of Securities at the time outstanding, a list for each series of Securities, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Securities of such series on such Regular Record Date (or on a date to be determined pursuant to Section 3.01 for any series of Original Issue Discount Securities); and (b) at such other times as the Trustee may request in writing, within 15 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 10 days prior to the time such list is furnished; excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar, if it is acting as such. SECTION 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.01 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar, if it is acting as such. The Trustee may destroy any list furnished to it as provided in Section 7.01 upon receipt of a new list so furnished. (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and privileges of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION 7.03. REPORTS BY TRUSTEE. (a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. To the extent that any such report is required by the Trust Indenture Act with respect to any 12-month period, such report shall cover the 12-month period ending May 15 and shall be transmitted by the next succeeding July 15. (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when any Securities are listed on any stock exchange. SECTION 7.04. REPORTS BY COMPANY. The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. 36 X-4.1-43 44 ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 8.01. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. Nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of the Company with or into any other Person, or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or shall prevent any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety to any other Person authorized to acquire and operate the same (with each of the foregoing transactions referred to as a "Company Sale"); provided, however, (a) the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety (the "Successor Company") shall be a corporation, shall be organized and validly existing under the laws of the United States of America, any state thereof or the District of Columbia, and (b) the Company hereby covenants and agrees that, as a condition precedent to any such consolidation, merger, sale or conveyance, the due and punctual payment of the principal of (and premium, if any) and interest, if any, on all of the Securities, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company shall be expressly assumed by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee, by the Successor Company. Nothing contained in this Indenture or in any of the Securities shall prevent the Company from merging into itself any other Person or acquiring by purchase or otherwise all or any part of the property of any other Person. SECTION 8.02. SUCCESSOR CORPORATION TO BE SUBSTITUTED. In case of any such Company Sale, such Successor Company shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the Company. Such Successor Company thereupon may cause to be signed, and may issue either in its own name or in the name of The Goodyear Tire & Rubber Company or in the name of any corporation which previously shall have become the Company in accordance with the provisions of this Article any or all of the Securities issuable hereunder, which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such Successor Company instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver, any Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Securities which such Successor Company thereafter shall cause to be signed and delivered to the Trustee for that purpose; and, thereafter the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. All of the Securities of a particular series so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities of such series theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date or the execution hereof. SECTION 8.03. OPINION OF COUNSEL TO BE GIVEN TRUSTEE. The Trustee, subject to Sections 6.01 and 6.03, may receive an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale or conveyance and any such assumption complies with the provisions of this Article. 37 X-4.1-44 45 ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (a) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or (b) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or (c) to add any additional Events of Default for the benefit of the Holders of all or any series of Securities (and if such Events of Default are to be for the benefit of less than all series of Securities, stating that such additional Events of Default are expressly being included solely for the benefit of such series); or (d) to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to permit or facilitate the issuance of Securities in uncertificated form; or (e) to add to, change or eliminate any of the provisions of this Indenture in respect of one or more series of Securities, provided that any such addition, change or elimination (i) shall neither (A) apply to any Security of any series created prior to the execution of such supplemental indenture and entitled to the benefit of such provision nor (B) modify the rights of the Holder of any such Security with respect to such provision or (ii) shall become effective only when there is no such Security outstanding; or (f) to secure the Securities pursuant to the requirements of Section 10.05; or (g) to establish the form or terms of Securities of any series as permitted by Sections 2.01 and 3.01; or (h) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.11(b); or (i) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided that such action pursuant to this clause (i) shall not adversely affect the interests of the Holders of Securities of any series in any material respect. SECTION 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of all series affected by such supplemental indenture (voting as a single class), by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures 38 X-4.1-45 46 supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of each such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (a) change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.02, or change any Place of Payment where, or the coin or currency in which, any Security or any premium or interest thereon is payable or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or (b) reduce the percentage in principal amount of the outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (c) modify any of the provisions of this Section or Section 5.13 or Section 10.09, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby, provided, however, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in this Section and Section 10.09, or the deletion of this proviso, in accordance with the requirements of Sections 6.11(b) and 9.01(h). A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.04. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes, and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.05. CONFORMITY WITH TRUST INDENTURE ACT. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. SECTION 9.06. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES. Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall 39 X-4.1-46 47 if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for outstanding Securities of such series. ARTICLE TEN COVENANTS SECTION 10.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay or cause to be paid the principal of and any premium and interest on the Securities of that series in accordance with the terms of the Securities and this Indenture. Interest on Securities shall be payable without presentment of such Securities and only to the registered Holders thereof determined as provided in Section 3.07. The Company shall have the right to require a Holder, in connection with the payment of the principal of and any premium and interest on a Security, to present at the office or agency of the Company at which such payment is made a certificate, in such form as the Company may from time to time prescribe, to enable the Company to determine its duties and liabilities with respect to any taxes, assessments or governmental charges which it may be required to deduct or withhold therefrom under any present or future law of the United States of America or of any state, county, municipality or taxing or withholding authority therein, and the Company shall be entitled to determine its duties and liabilities with respect to such deduction or withholding on the basis of information contained in such certificate or, if no such certificate shall be so presented, on the basis of any presumption created by any such law and shall be entitled to act in accordance with such determination. SECTION 10.02. MAINTENANCE OF OFFICE OR AGENCY. So long as any Securities remain outstanding, the Company will maintain in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment, where Securities of that series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. SECTION 10.03. VACANCY IN THE OFFICE OF TRUSTEE. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Article Six, a Trustee, so that there shall at all times be a Trustee hereunder. SECTION 10.04. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST. If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of or any premium or interest on any of the Securities of that series, segregate and hold in trust for 40 X-4.1-47 48 the benefit of the Persons entitled thereto a sum sufficient to pay the principal and any premium and interest so becoming due until such sum shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, prior to each due date of the principal of or any premium or interest on any Securities of that series, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Act and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company shall cause each Paying Agent for any series of Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (a) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and (b) during the continuance of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment in respect of the Securities of that series, and upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent for payment in respect of the Securities of that series. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent, and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of or any premium or interest on any Security of any series and remaining unclaimed for two years after such principal, premium or interest has become due and payable shall be paid to the Company on Company Request or (if then held by the Company) shall be discharged from such trust, and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 10.05. LIMITATION ON SECURED INDEBTEDNESS. The Company will not, nor will it permit any Restricted Subsidiary to, issue, assume or guarantee any Secured Indebtedness if such Secured Indebtedness is secured by a Lien upon Restricted Property of the Company or a Restricted Subsidiary without in any such case effectively providing, concurrently with the issuance, assumption or guarantee of any such Secured Indebtedness, that the Securities of any series then or thereafter outstanding (together with, if the Company shall so determine, any other Indebtedness of the Company or such Restricted Subsidiary ranking equally and ratably with such Securities and then existing or thereafter created) shall be secured by such Lien equally and ratably with any and all such Secured Indebtedness; provided, however, that the foregoing shall not apply to: (a) any Lien on Restricted Property of any corporation if such Lien is in existence at the time such corporation becomes a Restricted Subsidiary; 41 X-4.1-48 49 (b) any Lien on Restricted Property if such Lien is in existence at the time of acquisition by the Company or a Restricted Subsidiary of such Restricted Property; (c) any Lien on Restricted Property to secure the payment of all or any part of the purchase price (or other acquisition cost) of such Restricted Property or to secure any Indebtedness incurred (prior to, at the time of, or within one year after, the acquisition by the Company or a Restricted Subsidiary of such Restricted Property) for the purpose of, or in connection with, financing all or any part of the purchase price (or other acquisition cost) thereof; (d) any Lien on property of a corporation if such Lien was in existence prior to the time such corporation is merged into or consolidated with the Company or a Restricted Subsidiary or prior to the time of a sale, lease or other disposition of the properties of a corporation or firm as an entirety or substantially as an entirety to the Company or a Restricted Subsidiary; (e) any Lien securing Secured Indebtedness owing by any Restricted Subsidiary to the Company or to any other Restricted Subsidiary; (f) any Lien on Restricted Property in favor of the United States of America or any State thereof, or any department, agency or instrumentality or political subdivision of the United States of America or any State thereof, or in favor of any other country, or any political subdivision thereof, to secure partial, progress, advance or other payments, or performance of any other obligations, pursuant to any contract or statute or to secure any Indebtedness incurred for the purpose of financing all or any part of the purchase price or cost of construction of the Restricted Property subject to such Lien, including, without limiting the generalities of the foregoing, Liens to secure pollution control or industrial revenue bonds or other types of financings; (g) any Lien on personal property (other than manufacturing equipment); or (h) any extension or renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any Secured Indebtedness or any Lien referred to in clauses (a) through (g), inclusive, of this Section 10.05; provided, however, that the principal amount of Secured Indebtedness secured by the Lien shall not exceed the principal amount of Secured Indebtedness so secured at the time of such extension, renewal or replacement, and that such extension, renewal or replacement Lien shall be limited to all or a part of the Restricted Property which secured the Lien so extended, renewed or replaced (plus improvements on such Restricted Property). Notwithstanding the foregoing provisions of this Section 10.05, the Company or any one or more Restricted Subsidiaries may issue, assume or guarantee Secured Indebtedness that would (but for the provision of clauses (a) through (h), inclusive, of the preceding paragraph) otherwise be subject to the foregoing restrictions in an aggregate amount which, together with the aggregate principal amount of all other such Secured Indebtedness of the Company and Restricted Subsidiaries outstanding at the time of such issuance, assumption or guarantee (but excluding Secured Indebtedness permitted by clauses (a) through (h), inclusive, of the preceding paragraph), does not at such time exceed 15% of the Shareholders' Equity of the Company as at the last day of the then most recently ended fiscal quarter of the Company, as reported on the applicable consolidated balance sheet of the Company. 42 X-4.1-49 50 SECTION 10.06. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. So long as the Securities of any Series are Outstanding, the Company will not, and will not permit any Restricted Subsidiary to, enter into any arrangement, directly or indirectly, with any Person providing for the leasing by the Company or a Restricted Subsidiary of any Restricted Property owned at the date hereof, which Restricted Property has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person where funds have been or are to be advanced to such Person subject to a Lien on the Restricted Property to be leased (a "Sale and Leaseback Transaction"), unless (a) the Company or such Restricted Subsidiary would be entitled, pursuant to the provisions of Section 10.05, to incur Secured Indebtedness secured by a Lien on the Restricted Property to be leased in an amount equal to the Attributable Debt with respect to such Sale and Leaseback Transaction without equally and ratably securing the Outstanding Securities, or (b) the Company or such Restricted Subsidiary shall apply an amount equal to the proceeds from the sale of such Restricted Property to the retirement, within 120 days of the effective date of any such Sale and Leaseback Transaction, of Funded Debt of the Company or such Restricted Subsidiary; provided, however, that this Section 10.06 shall not prevent the Company or any Restricted Subsidiary from: (a) entering into any Sale and Leaseback Transaction not involving a lease with a term of more than three years, or (b) entering into any Sale and Leaseback Transaction in respect of any Restricted Property owned at the date hereof by the Company or a Restricted Subsidiary, if such Sale and Leaseback Transaction is entered into within 180 days after the later of the acquisition, completion of construction or commencement of operation of such Restricted Property. SECTION 10.07. EXISTENCE. Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises to carry on its business; provided, however, that nothing in this Section 10.07 shall prevent (a) any consolidation or merger of the Company, or any conveyance, transfer or lease of its property and assets substantially as an entirety, permitted by Article Eight, or (b) the liquidation or dissolution of the Company after such conveyance, transfer or lease of its property and assets substantially as an entirety permitted by Article Eight. SECTION 10.08. STATEMENT BY OFFICERS AS TO DEFAULT. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of Sections 10.01 to 10.07, inclusive, and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. SECTION 10.09. WAIVER OF CERTAIN COVENANTS. The Company may omit in any particular instance to comply with any term, provision or condition set forth in Sections 10.05 to 10.07, inclusive, with respect to the Securities of any series if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities of such series shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. 43 X-4.1-50 51 ARTICLE ELEVEN REDEMPTION OF SECURITIES SECTION 11.01. APPLICABILITY OF ARTICLE. Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 3.01 for Securities of any series) in accordance with this Article. SECTION 11.02. ELECTION TO REDEEM; NOTICE TO TRUSTEE. The election of the Company to redeem any Securities shall be evidenced by a Board Resolution or in any other manner specified, as contemplated by Section 3.01 for such Securities or series of Securities. In the case of any redemption at the election of the Company of less than all the Securities of any series, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date, of the principal amount of Securities of such series to be redeemed and, if applicable, of the tenor of the Securities to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction. SECTION 11.03. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED. If less than all the Securities of any series are to be redeemed in accordance with this Article (unless all of the Securities of such series and of a specified tenor are to be redeemed), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to the minimum authorized denomination for Securities of that series or any integral multiple thereof) of the principal amount of Securities of such series, provided that the unredeemed portion of the principal amount of any Security shall be in an authorized denomination or a denomination larger than the minimum authorized denomination for Securities of that series. If less than all of the Securities of such series and of a specified tenor are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee from the Outstanding Securities of such series and specified tenor not previously called for redemption in accordance with the preceding sentence. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 11.04. NOTICE OF REDEMPTION. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: (a) the Redemption Date, (b) the Redemption Price and accrued interest, if any, (c) if less than all the Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption of any Securities, the principal amounts) of the particular Securities to be redeemed and, if less than all the Outstanding Securities of any series 44 X-4.1-51 52 consisting of a single Security are to be redeemed, the principal amount of the Security to be redeemed, (d) that on the Redemption Date the Redemption Price and accrued interest, if any, will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date, (e) the place or places where such Securities are to be surrendered for payment of the Redemption Price and accrued interest, if any, and (f) that the redemption is for a sinking fund, if such is the case. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company and shall be irrevocable. SECTION 11.05. DEPOSIT OF REDEMPTION PRICE. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.04) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date. SECTION 11.06. SECURITIES PAYABLE ON REDEMPTION DATE. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that, unless otherwise specified as contemplated by Section 3.01, installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, required as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.07. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and any premium shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security. SECTION 11.07. SECURITIES REDEEMED IN PART. Any Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Security Registrar so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Security Registrar shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series and of like tenor, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. 45 X-4.1-52 53 ARTICLE TWELVE SINKING FUNDS SECTION 12.01. APPLICABILITY OF ARTICLE. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series except as otherwise specified as contemplated by Section 3.01 for Securities of such series. The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a "mandatory sinking fund payment", and any payment in excess of such minimum amount provided for by the terms of Securities of any series is herein referred to as an "optional sinking fund payment". If provided for by the terms of Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 12.02. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series. SECTION 12.02. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES. The Company (1) may deliver outstanding Securities of a series (other than any previously called for redemption) and (2) may apply as a credit Securities of a series which have been redeemed either at the election of the Company pursuant to the term of such Securities or through the application of permitted optional sinking fund payments pursuant to the term of such Securities, in each case in satisfaction of all or any part of any sinking fund payment with respect to the Securities of such series required to be made pursuant to the terms of such Securities as provided for by the term of such series; provided that such Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. SECTION 12.03. REDEMPTION OF SECURITIES FOR SINKING FUND. Not less than 60 days prior to each sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities of that series pursuant to Section 12.02 and will also deliver to the Security Registrar any Securities to be so delivered. Not less than 60 days before each such sinking fund payment date, the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 11.03 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 11.04. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 11.05, 11.06 and 11.07. ARTICLE THIRTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 13.01. APPLICABILITY OF ARTICLE; COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE. If pursuant to Section 3.01 provision is made for either or both of (a) defeasance of the Securities of a series under Section 13.02, or (b) covenant defeasance of the Securities of a series under Section 13.03, then the provisions of such Section or Sections, as the case may be, together with the other provisions of this Article Thirteen, shall be applicable to the Securities of such series, and the Company may at any time elect (such election to be evidenced by a Board Resolution), with respect to the Securities of such series, either to effect such defeasance pursuant to Section 13.02 (if applicable) or to effect such covenant defeasance pursuant to Section 13.03 (if applicable) in respect of the Outstanding Securities of such series upon compliance with the conditions set forth below in this Article Thirteen. 46 X-4.1-53 54 SECTION 13.02. DEFEASANCE AND DISCHARGE. Upon the Company's exercise of the above option applicable to this Section, the Company shall be deemed to have been discharged from its obligations with respect to the Outstanding Securities of such series on and after the date the conditions precedent set forth below are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Securities of such series and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of outstanding Securities of such series to receive, solely from the trust fund described in Section 13.05 as more fully set forth in such Section, payments of the principal of (and premium, if any) and interest on such Securities when such payments are due, (B) the Company's obligations with respect to such Securities under Sections 3.04, 3.05, 3.06, 10.02 and 10.04 and such obligations as shall be ancillary thereto, (C) the rights, powers, trusts, duties, immunities and other provisions in respect of the Trustee hereunder and (D) this Article Thirteen. Subject to compliance with this Article Thirteen, the Company may exercise its option under this Section 13.02 notwithstanding the prior exercise of its option under Section 13.03 with respect to the Securities of such series. Following a defeasance, payment of the Securities of such series may not be accelerated because of the occurrence and continuance of an Event of Default. SECTION 13.03. COVENANT DEFEASANCE. Upon the Company's exercise of the above option applicable to this Section and after the date the conditions set forth below are satisfied, the Company shall be released from its obligations under Section 10.05 and Section 10.06 and under any additional or substitute covenant established with respect to the Securities of any series pursuant to Section 3.01(18) if the Securities of such series have been determined pursuant to Section 3.01 to be subject to this provision (with Section 10.05, Section 10.06 and any such additional or substitute covenant referred to herein as a "Defeasable Covenant"), and the occurrence of an event specified in Section 5.01(d) with respect to such Defeasable Covenant shall not be deemed to be an Event of Default with respect to the Outstanding Securities of such series (hereinafter, "covenant defeasance"). For this purpose, such covenant defeasance means that, with respect to the Outstanding Securities of such series, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Defeasable Covenant whether directly or indirectly by reason of any reference elsewhere herein to any such Defeasable Covenant or by reason of any reference in any such Defeasable Covenant to any other provision herein or in any other document, but the remainder of this Indenture and such Securities shall be unaffected thereby. Following a covenant defeasance, payment of the Securities of such series may not be accelerated because of an Event of Default specified in Section 5.01(e) or Section 5.01(f) or by reference to Section 5.01(d) and such Defeasable Covenant. SECTION 13.04. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE. The following shall be the conditions precedent to application of either Section 13.02 or Section 13.03 to the outstanding Securities of such series: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 6.09 who shall agree to comply with the provisions of this Article Thirteen applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to the benefit of the Holders of such Securities, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, without reinvestment, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, the principal of (and premium, if any) and interest on the Outstanding Securities of such series on the Maturity of such principal, premium, if any, or interest and any mandatory sinking fund payments or analogous payments applicable to the Outstanding Securities of such series on the due dates thereof. Before such a deposit, the Company may make 47 X-4.1-54 55 arrangements satisfactory to the Trustee for the redemption of Securities at a future date or dates in accordance with Article Eleven, which shall be given effect in applying the foregoing. For this purpose, "U.S. Government Obligations" means securities that are (x) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (y) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as amended) as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. (2) No Event of Default or event which with notice or lapse of time or both would become an Event of Default with respect to the Securities of such series shall have occurred and be continuing (A) on the date of such deposit or (B) insofar as subsections 5.01(e) and (f) are concerned, at any time during the period ending on the 91st day after the date of such deposit or, if longer, ending on the day following the expiration of the longest preference period applicable to the Company in respect of such deposit (it being understood that the condition in this Clause (B) shall not be deemed satisfied until the expiration of such period). (3) Such defeasance or covenant defeasance shall not (A) cause the Trustee for the Securities of such series to have a conflicting interest as defined in Section 6.08 or for purposes of the Trust Indenture Act with respect to any securities of the Company or (B) result in the trust arising from such deposit constituting, unless it is qualified as, a regulated investment company under the Investment Company Act of 1940, as amended. (4) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound. (5) Such defeasance or covenant defeasance shall not cause any Securities of such series then listed on any registered national securities exchange under the Exchange Act to be delisted. (6) In the case of an election under Section 13.02, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (y) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the outstanding Securities of such series will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. (7) In the case of an election under Section 13.03, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Outstanding Securities of such series will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. 48 X-4.1-55 56 (8) Such defeasance or covenant defeasance shall be effected in compliance with any additional terms, conditions or limitations which may be imposed on the Company in connection therewith pursuant to Section 3.01. (9) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 13.02 or the covenant defeasance under Section 13.03 (as the case may be) have been complied with. SECTION 13.05. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to the provisions of the last paragraph of Section 10.04, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee collectively, for purposes of this Section 13.05, the "Trustee") pursuant to Section 13.04 in respect of the Outstanding Securities of such series shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (but not including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities, of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the money or U.S. Government Obligations deposited pursuant to Section 13.04 or the principal and interest received in respect thereof. Anything herein to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 13.04 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance, as the case may be, with respect to such Securities. SECTION 13.06. REINSTATEMENT. If the Trustee or the Paying Agent is unable to apply any money in accordance with Section 13.05 by reason of any order or judgment or any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under the Securities of such series shall be revived and reinstated as though no deposit had occurred pursuant to this Article Thirteen until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 13.05; provided, however, that, if the Company makes any payment of principal of (and premium, if any) or interest on any such Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money so held in trust by the Trustee or the Paying Agent. 49 X-4.1-56 57 ARTICLE FOURTEEN IMMUNITY OF SHAREHOLDERS, OFFICERS AND DIRECTORS SECTION 14.01. EXEMPTION FROM INDIVIDUAL LIABILITY. No recourse under or upon any obligation, covenant or agreement of this Indenture, or of any Security, or for any claim based thereon or otherwise in respect thereof, shall be had against any shareholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or indirectly or through the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations of the Company, that no such liability whatever shall attach to, or is or shall be incurred by, the shareholders, officers or directors, as such, of the Company or of any successor corporation, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Securities or implied therefrom, and that any and all such liability, either at common law or in equity or by constitution or statute is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of the Securities. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. THE GOODYEAR TIRE & RUBBER COMPANY By /s/Richard W Hauman ------------------------------------- Name: Richard W Hauman, Title: Vice President and Treasurer [Seal] Attest: /s/J Boyazis - -------------------------- CHEMICAL BANK By: /s/Frank J Grippo ------------------------------------- Name: Frank J Grippo, Title: Vice President [Seal] Attest: /s/Glen G McKeever - -------------------------- 50 X-4.1-57 58 STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On the 3rd day of July , 1996 before me personally came Frank J. Grippo, to me known, who, being by me duly sworn, did depose and say that he is a Vice President of Chemical Bank (to be known as The Chase Manhattan Bank beginning July 15, 1996), a banking corporation described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. /s/ Robert J Stanislaro ------------------------------------- Notary Public [Notarial Seal] ROBERT J. STANISLARO Notary Public, State of New York No. 43-4968897 Qualified in Richmond County Certificate Filed in New York County Commission Expires July 2, 1998 STATE OF OHIO ) ) ss.: COUNTY OF SUMMIT ) On the 18th day of June , 1996 before me personally came Richard W. Hauman, to me known, who, being by me duly sworn, did depose and say that he is a Vice President and the Treasurer of The Goodyear Tire & Rubber Company, the corporation described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. /s/Tina M Diller ------------------------------------- Notary Public [Notarial Seal] TINA M. DILLER, Notary Public Residence - Summit County State Wide Jurisdiction, Ohio My Commission Expires January 2, 1999 51 X-4.1-58 59 THE GOODYEAR TIRE & RUBBER COMPANY OFFICERS' CERTIFICATE --------------------- Robert W Tieken, Executive Vice President and Chief Financial Officer, and Richard W Hauman, Vice President and Treasurer, of The Goodyear Tire & Rubber Company, an Ohio corporation (the "Company", pursuant to Sections 2.01, 3.01 and 3.03 of the Indenture, dated as of March 15, 1996 (the "Indenture"), between the Company and Chase Manhattan Bank (formerly Chemical Bank), as Trustee (the "Trustee"), each hereby certifies to the Trustee that: I. In accordance with resolutions adopted by the Board of Directors of the Company on January 9, 1996 (the "Board Resolutions") and with resolutions adopted by the Special Finance Committee of the Board of Directors of the Company on December 3, 1996 (the "Committee Resolutions"), the Company has established a series of Securities (as defined in the Indenture) for issuance, authentication and delivery pursuant to the Indenture. Capitalized terms used herein shall have the meaning specified in the Indenture unless otherwise defined herein. Such series of Securities shall have the following terms and conditions: 1. The series of Securities shall be known as the 6 5/8% Notes due 2006 (herein the "Notes"). 2. The aggregate principal amount of Notes which may be authenticated and delivered under the Indenture (other than pursuant to Sections 3.04, 3.05, 3.06, 3.09 or 11.07 of the Indenture and other than any Notes which, pursuant to Section 3.03 of the Indenture, are deemed never to have been authenticated and delivered under the Indenture) is $250,000,000.00. 3. Interest on the Notes shall be paid to The Depository Trust Company, provided that the Company may pay interest by check mailed to the address of the Person entitled thereto at such address as shall appear in the Security Register at the relevant Interest Payment Date. 4. The principal amount of the Notes shall be payable on December 1, 2006. 5. The interest rate to be borne by the Notes shall be 6 5/8% per annum, payable from December 9, 1996, commencing on June 1, 1997, and on each June 1 and December 1 thereafter to and including December 1, 2006 ("Interest Payment Dates") and the Regular Record Date (as defined in the Indenture) in respect of each Interest Payment Date shall be the May 15 immediately preceding 1 X-4.1-59 60 a June 1 Interest Payment Date and the November 15 immediately preceding a December 1 Interest Payment Date. Interest will be computed as provided in Section 3.10 of the Indenture. 6. The payment of the principal of and any premium and interest on the Notes shall be payable at the office or agency of the Company, New York, New York; provided that the Company may, at its option, make payment of interest by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register at the relevant Interest Payment Date. 7. The Notes are subject to redemption, as a whole at any time or in part from time to time, at the sole election of the Company, upon not less than 30 or more than 60 days prior notice by mail to the Trustee at a Redemption Price equal to the greater of (1) 100% of their principal amount, and (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the Redemption Date, on a semiannual basis, at the Treasury Rate (as defined herein) plus ten basis points (.10%), plus in each case accrued interest thereon to the Redemption Date calculated on the basis of a 360-day year consisting of twelve 30-day months. As used herein and in the Notes, the term: (a) "Treasury Rate" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date; (b) "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes; (c) "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company; (d) "Comparable Treasury Price" means, with respect to any Redemption Date, (A) the average of the Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such Quotations; (e) "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any Redemption Date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third business day preceding such Redemption Date; and (f) "Reference Treasury Dealer" means each of Chase Securities Inc., Morgan Stanley & Co. Incorporated and their respective successors and, at the option of the Company, additional Primary Treasury Dealers; provided, however, 2 X-4.1-60 61 that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer. If money sufficient to pay the redemption price of and accrued interest on all Notes (or the portions thereof) to be redeemed on the Redemption Date is deposited with the Trustee on or before the Redemption Date and certain other conditions are satisfied, on and after such date interest will cease to accrue on such Notes (or such portions thereof) called for redemption. 8. There shall be no provision obligating the Company to redeem or purchase the Notes pursuant to any sinking fund or analogous provisions or at the option of the Holder thereof. 9. The Notes are issuable in denominations of $1,000 and any integral multiple thereof. The Notes will be represented by one or more global securities (collectively, the "Global Securities") registered in the name of Cede & Co., a partnership nominee of The Depository Trust Company, New York, New York (the "Depositary"), or another nominee of the Depositary. The Global Securities may be transferred, in whole and not in part, only to the Depositary or another nominee of the Depositary. The Depositary will credit, on its book-entry registration and transfer system, the respective principal amounts of the Notes represented by such Global Securities to the accounts of institutions that have accounts with the Depositary or its nominee ("participants"). Ownership of beneficial interests in the Global Securities will be limited to participants or persons that may hold interests through participants. Ownership of interest in such Global Securities will be shown on, and the transfer of those ownership interests will be effected through, records maintained by the Depositary (with respect to participants' interests) and such participants (with respect to the owners of beneficial interests in such Global Securities). So long as the Depositary, or its nominee, is the registered holder and owner of the Global Securities, the Depositary or such nominee, as the case may be, will be considered the sole owner and holder of the Notes for all purposes under the Indenture. The Global Securities are exchangeable for Notes in definitive form of like tenor as such Global Securities in denominations of $1,000 and in any greater amount that is an integral multiple thereof if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for the Global Securities or if at any time the Depositary ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, (ii) the Company in its discretion at any time determines not to have all of the Notes 3 X-4.1-61 62 represented by the Global Securities and notifies the Trustee thereof, or (iii) an Event of Default has occurred and is continuing with respect to the Notes. 10. The Notes shall be denominated in, and the principal of and interest and premium, if any, on the Notes shall be payable only in, United States Dollars. 11. The Redemption Price in respect of the Notes shall be determined as follows: That amount equal to the greater of (1) 100% of the principal amount, and (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption, on a semiannual basis, at the Treasury Rate (as defined herein) plus ten basis points (.10%), plus in each case accrued interest thereon to the Redemption Date. As used herein, the term: (a) "Treasury Rate" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date; (b) "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes; (c) "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company; (d) "Comparable Treasury Price" means, with respect to any Redemption Date, (A) the average of the Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such Quotations; (e) "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any Redemption Date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third business day preceding such Redemption Date; and (f) "Reference 4 X-4.1-62 63 Treasury Dealer" means each of Chase Securities Inc., Morgan Stanley & Co. Incorporated and their respective successors and, at the option of the Company, additional Primary Treasury Dealers; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer. 12. The principal of and any premium or interest on the Notes shall be payable only in United States Dollars. 13. The entire principal amount of the Notes shall be payable upon the declaration of acceleration of the Maturity of the Notes pursuant to Section 5.02 of the Indenture in the manner and with the effect provided in the Indenture. 14. Sections 13.02 and 13.03 of the Indenture shall apply to the Notes. 15. The Notes shall be issuable in the form of, and will be represented by one or more, global securities (collectively, the "Global Securities") registered in the name of Cede & Co., a partnership nominee of The Depository Trust Company, New York, New York (the "Depositary"), or a nominee of the Depositary. The Global Securities may be transferred, in whole and not in part, only to the Depositary or another nominee of the Depositary. The Depositary will credit, on its book-entry registration and transfer system, the respective principal amounts of the Notes represented by such Global Securities to the accounts of institutions that have accounts with the Depositary or its nominee ("participants"). Ownership of beneficial interests in the Global Securities will be limited to participants or persons that may hold interests through participants. Ownership of interests in such Global Securities will be shown on, and the transfer of those ownership interests will be effected through, records maintained by the Depositary (with respect to participants' interests) and such participants (with respect to the owners of beneficial interests in such Global Securities). So long as the Depositary, or its nominee, is the registered holder and owner of the Global Securities, the Depositary or such nominee, as the case may be, will be considered the sole owner and the holder of the Notes for all purposes under the Indenture. The Global Securities are exchangeable for Notes in definitive form of like tenor as such Global Securities in denominations of $1,000 and in any greater amount that is an integral multiple thereof if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for the Global Securities or if at any time the Depositary ceases to be a clearing agency 5 X-4.1-63 64 registered under the Securities Exchange Act of 1934, as amended, (ii) the Company in its discretion at any time determines not to have all of the Notes represented by the Global Securities and notifies the Trustee thereof, or (iii) an Event of Default has occurred and is continuing with respect to the Notes. 16. The Events of Default applicable to the Notes are set forth at clauses (a), (b), (d), (e) and (f) of Sections 5.01 of the Indenture; clauses (c) and (g) of Section 5.01 of the Indenture shall not apply to the Notes. 17. Section 5.02 of the Indenture shall apply without variation, except that clauses (c) and (g) of Section 5.01 of the Indenture shall not be operative with respect to, and shall not apply to, the Notes or to Section 5.02 of the Indenture. 18. There shall be no addition to or change in the covenants set forth in Article Ten of the Indenture which shall be operative in respect of or apply to the Notes; there shall be no other covenant or warranty included for the benefit of the Notes in addition to those included in the Indenture for the benefit of all Securities of all series issued or to be issued pursuant to the Indenture; there shall be no other covenant or warranty included for the benefit of the Notes and there shall be no provision that any covenant or warranty included in the Indenture for the benefit of all Securities issued pursuant to the Indenture shall not be for the benefit of the Notes, or any combination of such covenants, warranties or provisions. 19. There are no other terms of the Notes which are not otherwise specified for all Securities issued pursuant to the Indenture. 20. The terms and conditions of the Notes are set forth in the form of Global Note attached to this certificate as Annex A. IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 9th day of December, 1996. /s/Robert W Tieken ------------------------------ Robert W Tieken, Executive Vice President and Chief Financial Officer /s/Richard W Hauman ------------------------------ Richard W Hauman, Vice President and Treasurer 6 X-4.1-64 65 Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, inasmuch as the registered owner hereof, Cede & Co., has an interest therein. ANNEX A THIS NOTE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE TRANSFERRED, WHETHER IN WHOLE OR IN PART, TO, OR REGISTERED OR EXCHANGED FOR SECURITIES REGISTERED IN THE NAME OF, ANY PERSON OTHER THAN THE DEPOSITARY OR A NOMINEE THEREOF AND NO SUCH TRANSFER MAY BE REGISTERED, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. EVERY SECURITY AUTHENTICATED AND DELIVERED UPON REGISTRATION OF TRANSFER OF, OR IN EXCHANGE FOR OR IN LIEU OF, THIS SECURITY SHALL BE A GLOBAL SECURITY SUBJECT TO THE FOREGOING, EXCEPT IN SUCH LIMITED CIRCUMSTANCES. THE GOODYEAR TIRE & RUBBER COMPANY 6 5/8% NOTE DUE 2006 CUSIP 382550 AC 5 No. GNS1-1 $250,000,000.00 THE GOODYEAR TIRE & RUBBER COMPANY, a corporation duly organized and existing under the laws of the State of Ohio (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & Co., or registered assigns, the principal sum of TWO HUNDRED FIFTY MILLION DOLLARS ($250,000,000.00) on December 1, 2006, and to pay interest thereon from December 9, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semiannually on June 1 and December 1 in each year, commencing June 1, 1997, at the rate of 6 5/8% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the May 15 or November 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Notes of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest on this Note will be made at the office or agency of the Company maintained for that purpose in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: December 9, 1996 THE GOODYEAR TIRE & RUBBER COMPANY By ---------------------------------------- [Seal] Robert W Tieken, Executive Vice President Attest: James Boyazis, Secretary This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE CHASE MANHATTAN BANK, as Trustee by ---------------------------------- Authorized Officer X-4.1-65 66 This Note is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of March 15, 1996 (herein called the "Indenture"), between the Company and The Chase Manhattan Bank (formerly Chemical Bank), as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all Indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Note is one of the series designated on the face hereof as the Company's 6 5/8% Notes due 2006, limited in aggregate principal amount to $250,000,000.00 (herein referred to as the "Notes"). The Notes are subject to redemption, as a whole at any time or in part from time to time, at the sole election of the Company, upon not less than 30 or more than 60 days' notice by mail to the Trustee at a Redemption Price equal to the greater of (1) 100% of the principal amount, and (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the Redemption Date, on a semiannual basis, at the Treasury Rate (as defined herein) plus ten basis points (.10%), plus accrued interest thereon to the Redemption Date. As used herein, the term: (a) "Treasury Rate" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date; (b) "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes; (c) "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company; (d) "Comparable Treasury Price" means, with respect to any Redemption Date, (A) the average of the Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such Quotations; (e) "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any Redemption Date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third business day preceding such Redemption Date; and (f) "Reference Treasury Dealer" means each of Chase Securities Inc., Morgan Stanley & Co. Incorporated and their respective successors and, at the option of the Company, additional Primary Treasury Dealers; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer. If money sufficient to pay the redemption price of and accrued interest on all Notes (or the portions thereof) to be redeemed on the Redemption Date is deposited with the Trustee on or before the Redemption Date and certain other conditions are satisfied, on and after such date interest will cease to accrue on such Notes (or such portions thereof) called for redemption. In the event of redemption of this Note in part only, a new Note or Notes of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness evidenced by this Security and (b) certain restrictive covenants, in each case upon compliance by the Company with certain conditions set forth therein, which provisions apply to this Note. If an Event of Default with respect to the Notes of this series shall occur and be continuing, the principal of the Notes of this Series may be declared due and payable in the manner and with the effect provided in the Indenture. "Event of Default" means any one of the events specified at clauses (a), (b), (d), (e) and (f) of Section 5.01 of the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of all series to be affected (voting as a single class). The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Note at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note is registerable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Notes of this series will be represented by one or more global securities (collectively, the "Global Security") registered in the name of The Depository Trust Company, New York, New York (the "Depositary"), or a nominee of the Depositary. So long as the Depositary, or its nominee, is the registered holder and owner of this Global Note, the Depositary or such nominee, as the case may be, will be considered the sole owner and holder of the Notes for all purposes under the Indenture. The Global Security may be transferred, in whole and not in part, only to the Depositary or another nominee of the Depositary. The Depositary will credit, on its book-entry registration and transfer system, the respective principal amounts of the Notes represented by such Global Security to the accounts of institutions that have accounts with the Depositary or its nominee ("participants"). Ownership of beneficial interests in a Global Security will be limited to participants or persons that may hold interests through participants. Ownership of interests in such Global Security will be shown on, and the transfer of those ownership interests will be effected through, records maintained by the Depositary (with respect to participants' interests) and such participants (with respect to the owners of beneficial interests in such Global Security). The Global Security are exchangeable for Notes in definitive form of like tenor as such Global Security in denominations of $1,000 and in any greater amount that is an integral multiple thereof if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for this Global Security or if at any time the Depositary ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, (ii) the Company in its discretion at any time determines not to have all of the Notes of this series represented by a Global Security and notifies the Trustee thereof, or (iii) an Event of Default has occurred and is continuing with respect to the Notes. Any Note that is exchangeable pursuant to the preceding sentence is exchangeable only for Notes of this series. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. EX-10.1 3 EXHIBIT 10.1 1 EXHIBIT 10.1 Part I THE GOODYEAR TIRE & RUBBER COMPANY INCENTIVE STOCK OPTION GRANT AGREEMENT TOM TIRE 000-00-0000 Key Employee 1 Eagle Drive Akron, OH 12345 The Directors of The Goodyear Tire & Rubber Company (the "Company") desire to encourage and facilitate ownership of the Common Stock of the Company (the "Common Stock") by key employees and to provide for additional compensation based on appreciation of the Common Stock, thereby providing incentive to promote continued growth and success of the Company's business. Accordingly, the 1997 Performance Incentive Plan of The Goodyear Tire & Rubber Company (the "Plan") was adopted effective April 14, 1997. A copy of the Plan is attached. You have been granted Incentive Stock Options for the purchase of Common Stock as follows: Stock Option Plan 1997 Plan Incentive Stock Option Grant 980000 Date of Grant 12/02/97 Option Price $63.50 Total Number of Shares Granted 0000 Your option shares become exercisable as follows: ____ on December 2, 1998 25% ____ on December 2, 2000 75% ____ on December 2, 1999 50% ____ on December 2, 2001 100% - ------------------------------------ The Goodyear Tire & Rubber Company December 2, 1997 Receipt of this Grant Agreement and a copy of the Plan is acknowledged: - -------------------------------------------- ----------------- Optionee Date X-10.1-1 2 ISO Grant Agreement (Cont'd) December 2, 1997 Part I - INCENTIVE STOCK OPTIONS 1. These Incentive Stock Options for the number of shares of Common Stock indicated on the preceding page (the "Incentive Stock Options") are granted to you under and are governed by the terms and conditions of the Plan and this Grant Agreement. Your execution and return of the enclosed copy of page one of this Grant Agreement acknowledging receipt of the Incentive Stock Options granted herewith constitutes your agreement to and acceptance of all terms and conditions of the Plan and this Grant Agreement. You also agree that you have read and understand this Grant Agreement. 2. You may exercise the Incentive Stock Options granted pursuant to this Grant Agreement through (1) a cash payment in the amount of the full option exercise price of the shares being purchased (a "cash exercise"), (2) a payment in full shares of Common Stock having a Fair Market Value (as defined in the Plan) on the date of exercise equal to the full option exercise price of the shares of Common Stock being purchased (a "share swap exercise"), or (3) a combination of the cash exercise and share swap exercise methods. Any exercise of these Incentive Stock Options shall be by written notice to the Company stating the number of shares of Common Stock to be purchased and the exercise method, accompanied with the payment, or proper proof of ownership if the share swap exercise method is used. You shall be required to meet the tax withholding obligations arising from any exercise of Incentive Stock Options. 3. As further consideration for the Incentive Stock Options granted to you hereunder, you must remain in the continuous employ of the Company or one or more of its subsidiaries from the Date of Grant to the date or dates the Incentive Stock Options become exercisable as set forth on page one of this Grant Agreement before you will be entitled to exercise the Incentive Stock Options granted. The Incentive Stock Options you have been granted shall not in any event be exercisable after your termination of employment except for Retirement, death, or Disability. 4. In the event of your Retirement, the Incentive Stock Options, to the extent they are exercisable, or they become exercisable pursuant to Section 9 hereof, shall remain exercisable for the first three months following the date of your Retirement as Incentive Stock Options and the remainder of the exercise period as Non-Qualified Stock Options. In the event of your death while an employee of the Company or one or more of its subsidiaries, the Incentive Stock Options shall remain exercisable as described at paragraph 9 below as Incentive Stock Options up to one year after the date of death. In the event of your Disability while an employee of the Company or one or more of its subsidiaries, the Incentive Stock Options then outstanding which are or become exercisable as aforesaid shall be exercisable by you up to one year after the date of your Disability as Incentive Stock Options and during the then remaining portion of the aforesaid exercise period as Non-Qualified Stock Options. Page 2 of 5 X-10.1-2 3 ISO Grant Agreement (Cont'd) December 2, 1997 PART II - NON-QUALIFIED STOCK INVESTMENT OPTIONS 5. A Non-Qualified Stock Investment Option will be automatically granted to you, immediately upon any satisfaction by you of the conditions specified below, on the following terms and conditions: Date of Grant: The date of your exercise, at any time prior to January 1, 2005, of an Incentive Stock option granted herein by tendering shares of Common Stock in payment of all or a portion of the exercise price of such Incentive Stock Option. Number of Common Shares Subject to Option: The number of shares of Common Stock you tendered in the exercise of such Incentive Stock Option. Option Price Per Share: The Fair Market Value (as defined in the Plan) of the Common Stock on the date you exercised such Incentive Stock Option by tendering shares of Common Stock. Exercise Period: 100% exercisable at any time during the period beginning on the first anniversary of its date of grant and ending on December 2, 2007. 6. The Non-Qualified Stock Investment Options are granted under and are governed by the terms and conditions of the Plan and this Grant Agreement. The number of shares of Common Stock subject to each grant is determined by the number of shares of Common Stock you tender to the Company in your exercise of an Incentive Stock Option granted pursuant to this Agreement. The Option price per share of the Non-Qualified Stock Investment Option shall be the Fair Market Value (as defined in the Plan) of Common Stock on the date you exercise an Incentive Stock Option as aforesaid. In order to accept this Option grant, you must tender shares of Common Stock in the exercise of an Incentive Stock Option prior to January 1, 2005. 7. You may exercise the Non-Qualified Stock Investment Options granted pursuant to this Grant Agreement through (1) a cash payment in the amount of the full option exercise price of the shares being purchased (a "cash exercise"), (2) a payment in full shares of Common Stock having a Fair Market Value (as defined in the Plan) on the date of exercise equal to the full option exercise price of the shares of Common Stock being purchased (a "share swap exercise"), or (3) a combination of the cash exercise and share swap exercise methods. Any exercise of these Non-Qualified Stock Investment Options shall be by written notice to the Company stating the number of shares of Common Stock to be purchased and the exercise method, accompanied with the payment, or proper proof of ownership if the share swap exercise method is used. You shall be required to meet the tax withholding obligations arising from any exercise of Non-Qualified Stock Investment Options. 8. As further consideration for each Non-Qualified Stock Investment Option granted to you hereunder, you must remain in the continuous employ of the Company or one or more of its subsidiaries for twelve months following the Date of Grant in respect thereof (as defined at paragraph 5 above) before you will be entitled to exercise such Non-Qualified Stock Investment Option. Any Non-Qualified Stock Investment Option granted shall not in any event be exercisable after your termination of employment except for Retirement (as defined in the Company's Retirement Plan for Salaried Employees), death, or Disability (as defined in the Company's Retirement Plan for Salaried Employees). Page 3 of 5 X-10.1-3 4 ISO Grant Agreement (Cont'd) December 2, 1997 Part III - GENERAL PROVISIONS 9. In the event of your death, Retirement or Disability during the ten-year exercise period on any date which is more than six (6) months after the Date of Grant of the Incentive Stock Options specified on the first page of this Grant Agreement, or more than six (6) months after the Date of Grant of Non-Qualified Stock Investment Options specified at paragraph 5 of this grant agreement, the Options shall become immediately exercisable and, except as provided below in the event of your death, shall be exercisable by you for the remainder of the term of the Option grant. In the event of your death during the exercise period, the Options may be exercised up to one year after date of death by the person or persons to whom your rights in the options passed by your will or according to the laws of descent and distribution. The Options terminate automatically and shall not be exercisable by you from and after the date on which you cease to be an employee of the Company or one of its subsidiaries for any reason other than your death, Retirement or Disability. Nothing contained herein shall restrict the right of the Company or any of its subsidiaries to terminate your employment at any time, with or without cause. 10. The Options shall not in any event be exercisable after the expiration of ten years from the Date of Grant specified on the first page of this Grant Agreement and, to the extent not exercised, shall automatically terminate at the end of such ten-year period. 11. Certificates for the shares of Common Stock purchased will be deliverable to you or your agent, duly accredited to the satisfaction of the Company, at the principal office of the Company in Akron, Ohio, or at such other place acceptable to the Company as may be designated by you. 12. In the event you Retire or otherwise terminate your employment with the Company or a subsidiary and within 18 months after such termination date you accept employment with a competitor of, or otherwise engage in competition with, the Company, the Committee, in its sole discretion, may require you to return, or (if not received) to forfeit, to the Company the economic value of the Options granted hereunder which you have realized or obtained by your exercise at any time on or after the date which is six months prior to the date of your termination of employment with the Company. Additionally, if you have retired from the Company, all Options granted to you hereunder which you have not exercised prior to your competitive engagement shall be automatically cancelled. 13. Each Option granted is not transferable by you otherwise than by will or the laws of descent and distribution, and is exercisable during your lifetime only by you. 14. All rights conferred upon you under the provisions of this Grant Agreement are personal and, except under the provisions of paragraph 13 of this Grant Agreement, no assignee, transferee or other successor in interest shall acquire any rights or interests whatsoever under this Grant Agreement, which is made exclusively for the benefit of you and the Company. Page 4 of 5 X-10.1-4 5 ISO Grant Agreement (Cont'd) December 2, 1997 PART III - GENERAL PROVISIONS (Cont'd) 15. Any notice to you under this Grant Agreement shall be sufficient if in writing and if delivered to you or mailed to you at the address on record in the Executive Compensation Department. Any notice to the Company under this agreement shall be sufficient if in writing and if delivered to the Executive Compensation Department of the Company in Akron, Ohio, or mailed by registered mail directed to the Company for the attention of the Executive Compensation Department at 1144 East Market Street, Akron, Ohio 44316-0001. Either you or the Company may, by written notice, change the address. This agreement shall be construed and shall take effect in accordance with the laws of the State of Ohio. 16. Each Option may be exercised only at the times and to the extent, and is subject to all of the terms and conditions, set forth in this Grant Agreement, and in the Plan, including any rule or regulation adopted by the Committee. Page 5 of 5 X-10.1-5 6 EXHIBIT 10.1 Part II THE GOODYEAR TIRE & RUBBER COMPANY NON-QUALIFIED STOCK OPTION GRANT AGREEMENT TOM TIRE 000-00-0000 Key Employee 1 Eagle Drive Akron, OH 12345 The Directors of The Goodyear Tire & Rubber Company (the "Company") desire to encourage and facilitate ownership of the Common Stock of the Company (the "Common Stock") by key employees and to provide for additional compensation based on appreciation of the Common Stock, thereby providing incentive to promote continued growth and success of the Company's business. Accordingly, the 1997 Performance Incentive Plan of The Goodyear Tire & Rubber Company (the "Plan") was adopted effective April 14, 1997. A copy of the Plan is attached. You have been granted Non-Qualified Stock Options for the purchase of Common Stock as follows: Stock Option Plan 1997 Plan Non-Qualified Stock Option Grant 98000 Date of Grant 12/02/97 Option Price $63.50 Total Number of Shares Granted 0000 Your option shares become exercisable as follows: ____ on December 2, 1998 25% ____ on December 2, 2000 75% ____ on December 2, 1999 50% ____ on December 2, 2001 100% - ---------------------------------- The Goodyear Tire & Rubber Company December 2, 1997 Receipt of this Grant Agreement and a copy of the Plan is acknowledged: - ---------------------------------- --------------- Optionee Date X-10.1-6 7 NQ Grant Agreement (Cont'd) December 2, 1997 PART I - NON-QUALIFIED STOCK OPTIONS 1. These Non-Qualified Stock Options for the number of shares of Common Stock indicated on the preceding page (the "Non-Qualified Stock Options") are granted to you under and are governed by the terms and conditions of the Plan and this Grant Agreement. Your execution and return of the enclosed copy of page one of this Grant Agreement acknowledging receipt of the Non-Qualified Stock Options granted herewith constitutes your agreement to and acceptance of all terms and conditions of the Plan and this Grant Agreement. You also agree that you have read and understand this Grant Agreement. 2. You may exercise the Non-Qualified Stock Options granted pursuant to this Grant Agreement through (1) a cash payment in the amount of the full option exercise price of the shares being purchased (a "cash exercise"), (2) a payment in full shares of Common Stock having a Fair Market Value (as defined in the Plan) on the date of exercise equal to the full option exercise price of the shares being purchased (a "share swap exercise"), or (3) a combination of the cash exercise and share swap exercise methods. Any exercise of these Non-Qualified Stock Options shall be by written notice to the Company stating the number of shares of Common Stock to be purchased and the exercise method, accompanied with the payment, or proper proof of ownership if the share swap exercise method is used. You shall be required to meet the tax withholding obligations arising from any exercise of Non-Qualified Stock Options. 3. As further consideration for the Non-Qualified Stock Options granted to you hereunder, you must remain in the continuous employ of the Company or one or more of its subsidiaries from the Date of Grant to the date or dates the Non-Qualified Stock Options become exercisable as set forth on page one of this Grant Agreement before you will be entitled to exercise the Non-Qualified Stock Options granted. The Non-Qualified Stock Options you have been granted shall not in any event be exercisable after your termination of employment except for Retirement, death, or Disability. PART II - NON-QUALIFIED STOCK INVESTMENT OPTIONS 4. A Non-Qualified Stock Investment Option will be automatically granted to you, immediately upon any satisfaction by you of the conditions specified below, on the following terms and conditions: Date of Grant: The date of your exercise, at any time prior to January 1, 2005, of a Non-Qualified Stock Option granted herein by tendering shares of Common Stock in payment of all or a portion of the exercise price of such Non-Qualified Stock Option. Number of Common Shares Subject to Option: The number of shares of Common Stock you tendered in the exercise of such Non-Qualified Stock Option. Option Price Per Share: The Fair Market Value (as defined in the Plan) of the Common Stock on the date you exercised such Non-Qualified Stock Option by tendering shares of Common Stock. Exercise Period: 100% exercisable at any time during the period beginning on the first anniversary of its date of grant and ending on December 2, 2007. Page 2 of 4 X-10.1-7 8 NQ Grant Agreement (Cont'd) December 2, 1997 PART II-NON-QUALIFIED STOCK INVESTMENT OPTIONS (Cont'd) 5. The Non-Qualified Stock Investment Options are granted under and are governed by the terms and conditions of the Plan and this Grant Agreement. The number of shares of Common Stock subject to each grant is determined by the number of shares of Common Stock you tender to the Company in your exercise of a Non-Qualified Stock Option granted pursuant to this Agreement. The Option price per share of the Non-Qualified Stock Investment Option shall be the Fair Market Value (as defined in the Plan) of the Common Stock on the date you exercise a Non-Qualified Stock Option as aforesaid. In order to accept this Non-Qualified Stock Investment Option Grant, you must tender shares of Common Stock in the exercise of a Non-Qualified Stock Option prior to January 1, 2005. 6. You may exercise the Non-Qualified Stock Investment Options granted pursuant to this Grant Agreement through (1) a cash payment in the amount of the full option exercise price of the shares being purchased (a "cash exercise"), (2) a payment in full shares of Common Stock having a Fair Market Value (as defined in the Plan) on the date of exercise equal to the full option exercise price of the shares of Common Stock being purchased (a "share swap exercise"), or (3) a combination of the cash exercise and share swap exercise methods. Any exercise of these Non-Qualified Stock Investment Options shall be by written notice to the Company stating the number of shares of Common Stock to be purchased and the exercise method, accompanied with the payment, or proper proof of ownership if the share swap exercise method is used. You shall be required to meet the tax withholding obligations arising from any exercise of Non-Qualified Stock Investment Options. 7. As further consideration for each Non-Qualified Stock Investment Option granted to you hereunder, you must remain in the continuous employ of the Company or one or more of its subsidiaries for twelve months following the Date of Grant in respect thereof (as defined at paragraph 4 above) before you will be entitled to exercise such Non-Qualified Stock Investment Option. The Non-Qualified Stock Investment Options you have been granted shall not in any event be exercisable after your termination of employment except for Retirement (as defined in the Company's Retirement Plan for Salaried Employees), death, or Disability (as defined in the Company's Retirement Plan for Salaried Employees). III - GENERAL PROVISIONS 8. In the event of your death, Retirement or Disability during the ten-year exercise period on any date which is more than six (6) months after the Date of Grant of the Non-Qualified Stock Options specified on the first page of this Grant Agreement or more than six (6) months after the Date of Grant of Non-Qualified Stock Investment Options specified at paragraph 4 of this Grant Agreement, the Options shall become immediately exercisable and, except as provided below in the event of your death, shall be exercisable by you for the remainder of the term of the Option grant. In the event of your death during the exercise period, the Options may be exercised up to one year after date of death by the person or persons to whom your rights in the options passed by your will or according to the laws of descent and distribution. The Options terminate automatically and shall not be exercisable by you from and after the date on which you cease to be an employee of the Company or one of its subsidiaries for any reason other than your death, Retirement or Disability. Nothing contained herein shall restrict the right of the Company or any of its subsidiaries to terminate your employment at any time, with or without cause. Page 3 of 4 X-10.1-8 9 NQ Grant Agreement (Cont'd) December 2, 1997 PART III - GENERAL PROVISIONS (Cont'd) 9. The Options shall not in any event be exercisable after the expiration of ten years from the Date of Grant specified on the first page of this Grant Agreement and, to the extent not exercised, shall automatically terminate at the end of such ten-year period. 10. Certificates for the shares of Common Stock purchased will be deliverable to you or your agent, duly accredited to the satisfaction of the Company, at the principal office of the Company in Akron, Ohio, or at such other place acceptable to the Company as may be designated by you. 11. In the event you Retire or otherwise terminate your employment with the Company or a subsidiary and within 18 months after such termination date you accept employment with a competitor of, or otherwise engage in competition with, the Company, the Committee, in its sole discretion, may require you to return, or (if not received) to forfeit, to the Company the economic value of the Options granted hereunder which you have realized or obtained by your exercise at any time on or after the date which is six months prior to the date of your termination of employment with the Company. Additionally, if you have retired from the Company, all Options granted to you hereunder which you have not exercised prior to your competitive engagement shall be automatically cancelled. 12. Each Option granted is not transferable by you otherwise than by will or the laws of descent and distribution, and is exercisable during your lifetime only by you. 13. All rights conferred upon you under the provision of this Grant Agreement are personal and, except under the provisions of paragraph 12 of this Grant Agreement, no assignee, transferee or other successor in interest shall acquire any rights or interests whatsoever under this Grant Agreement, which is made exclusively for the benefit of you and the Company. 14. Any notice to you under this Grant Agreement shall be sufficient if in writing and if delivered to you or mailed to you at the address on record in the Executive Compensation Department. Any notice to the Company under this agreement shall be sufficient if in writing and if delivered to the Executive Compensation Department of the Company in Akron, Ohio, or mailed by registered mail directed to the Company for the attention of the Executive Compensation Department at 1144 East Market Street, Akron, Ohio 44316-0001. Either you or the Company may, by written notice, change the address. This agreement shall be construed and shall take effect in accordance with the laws of the State of Ohio. 15. Each Option may be exercised only at the times and to the extent, and is subject to all of the terms and conditions, set forth in this Grant Agreement, and in the Plan, including any rule or regulation adopted by the Committee. Page 4 of 4 X-10.1-9 10 EXHIBIT 10.1 Part III THE GOODYEAR TIRE & RUBBER COMPANY NON-QUALIFIED STOCK OPTION/TANDEM STOCK APPRECIATION RIGHTS GRANT AGREEMENT TOM TIRE 000-00-0000 Key Employee 1 Eagle Drive Akron, OH 12345 The Directors of The Goodyear Tire & Rubber Company (the "Company") desire to encourage and facilitate ownership of the Common Stock of the Company (the "Common Stock") by key employees and to provide for additional compensation based on appreciation of the Common Stock, thereby providing incentive to promote continued growth and success of the Company's business. Accordingly, the 1997 Performance Incentive Plan of The Goodyear Tire & Rubber Company (the "Plan") was adopted effective April 14, 1997. A copy of the Plan is attached. You have been granted Non-Qualified Stock Options for the purchase of Goodyear Common Stock and tandem Stock Appreciation Rights as follows: Stock Option Plan 1997 Plan Non-Qualified Stock Option/SAR 980000 Date of Grant 12/02/97 Option Price $63.50 Number of Shares Granted -0- The Company shall determine whether or not you may exercise the Stock Option or the SARs at the time you notify the Company of your intent to exercise all or part of this grant. Your option shares become exercisable as follows: ____ on December 2, 1998 25% ____ on December 2, 2000 75% ____ on December 2, 1999 50% ____ on December 2, 2001 100% - ---------------------------------- The Goodyear Tire & Rubber Company December 2, 1997 Receipt of this Grant Agreement and a copy of the Plan is acknowledged: - -------------------------------- -------------- Optionee Date X-10.1-10 11 NQ/SAR Grant Agreement (Cont'd) December 2, 1997 1. These Non-Qualified Stock Options for the number of shares of Common Stock indicated on the preceding page (the "Options") and the Stock Appreciation Rights granted in tandem with the Options (the "SARs") are granted to you under and are governed by the terms and conditions of the Plan and this Grant Agreement. Your execution and return of the enclosed copy of page 1 of this Grant Agreement acknowledging receipt of the Options and SARs granted herewith constitutes your agreement to and acceptance of all terms and conditions of the Plan and this Grant Agreement, including a recognition of the Company's right to specify whether or not you may exercise either the Options or the SARs at the time you notify the Company of your intent to exercise. You also agree that you have read and understand this Grant Agreement. 2. If the Company approves the exercise of an Option, you may exercise the Non-Qualified Stock Options granted pursuant to this Grant Agreement through (1) a cash payment in the amount of the full option exercise price of the shares being purchased (a "cash exercise"), (2) a payment in full shares of Common Stock having a Fair Market Value (as defined in the Plan) on the date of exercise equal to the full option exercise price of the shares being purchased (a "share swap exercise"), or (3) a combination of the cash exercise and share swap exercise methods. Any exercise of these Non-Qualified Stock Options shall be by written notice to the Company stating the number of shares of the Common Stock to be purchased and the exercise method, accompanied with the payment, or proper proof of ownership if the share swap exercise method is used. You shall be required to meet the tax withholding obligations arising from any exercise of Non-Qualified Stock Options. 3. If the Company approves the exercise of the SARs, written notice must be given to the Company stating the number of shares in the Options in respect of which the SARs are being exercised. In due course, you will receive payment in cash in an amount equal to the difference between the Fair Market Value (as defined in the Plan) of one share of the Common Stock on the date of exercise of the SARs and the Option Exercise Price per Share specified in respect of the Options times the number of shares in respect of which the SARs shall have been exercised. Such payment shall be subject to reduction for withholding taxes. 4. As further consideration for the Non-Qualified Stock Options and SARs granted to you hereunder, you must remain in the continuous employ of the Company or one or more of its subsidiaries from the Date of Grant to the date or dates the Non-Qualified Stock Options and SARs become exercisable as set forth on page one of this Grant Agreement before you will be entitled to exercise the Non-Qualified Stock Options and SARs granted. The Non-qualified Stock Options and SARs you have been granted shall not in any event be exercisable after your termination of employment except for Retirement (as defined in the Company's Retirement Plan for Salaried Employees), death, or Disability (as defined in the Company's Retirement Plan for Salaried Employees). 5. In the event of your death, Retirement or Disability during the ten-year exercise period on any date which is more than six (6) months after the Date of Grant specified on the first page of this Grant Agreement, the Options and SARs shall become immediately exercisable and, except as provided below in the event of your death, shall be exercisable by you for the remainder of the term of the Option/SAR grant. In the event of your death during the exercise period, the Options and SARs may be exercised up to one year after date of death by the person or persons to whom your rights in the options passed by your will or according to the laws of descent and distribution. The Options and SARs terminate automatically and shall not be exercisable by you from and after the date on which you cease to be an employee of the Company or one of its subsidiaries for any reason other than your death, Retirement or Disability. Nothing contained herein shall restrict the right of the Company or any of its subsidiaries to terminate your employment at any time, with or without cause. Page 2 of 3 X-10.1-11 12 NQ/SAR Grant Agreement (Cont'd) December 2, 1997 6. The Options and SARs you have been granted shall not in any event be exercisable after the expiration of ten years from the Date of Grant specified on the first page of this Grant Agreement and, to the extent not exercised, shall automatically terminate at the end of such ten-year period. 7. Certificates for shares of the Common Stock purchased will be deliverable to you or your agent, duly accredited to the satisfaction of the Company, at the principal office of the Company in Akron, Ohio, or at such other place acceptable to the Company as may be designated by you. 8. In the event you Retire or otherwise terminate your employment with the Company or a subsidiary and within 18 months after such termination date you accept employment with a competitor of, or otherwise engage in competition with, the Company, the Committee, in its sole discretion, may require you to return, or (if not received) to forfeit, to the Company the economic value of the Options or SARs which you have realized or obtained by your exercise of the Options or SARs granted hereunder at any time on or after the date which is six months prior to the date of your termination of employment with the Company. Additionally, if you have retired from the Company, all Options or SARs which are granted to you hereunder and which you have not exercised prior to your competitive engagement shall be automatically cancelled. 9. Each Option and SAR are not transferable by you otherwise than by will or the laws of descent and distribution, and are exercisable during your lifetime only by you. 10. All rights conferred upon you under the provisions of this Grant Agreement are personal and, except under the provisions of paragraph 9 of this Grant Agreement, no assignee, transferee or other successor in interest shall acquire any rights or interests whatsoever under this Grant Agreement, which is made exclusively for the benefit of you and the Company. 11. Any notice to you under this Grant Agreement shall be sufficient if in writing and if delivered to you or mailed to you at the address on record in the Executive Compensation Department. Any notice to the Company under this agreement shall be sufficient if in writing and if delivered to the Executive Compensation Department of the Company in Akron, Ohio, or mailed by registered mail directed to the Company for the attention of the Executive Compensation Department at 1144 East Market Street, Akron, Ohio 44316-0001. Either you or the Company may, by written notice, change the address. This Grant Agreement shall be construed and shall take effect in accordance with the laws of the State of Ohio. 12. Each Option and/or SAR may be exercised only at the times and to the extent, and is subject to all of the terms and conditions, set forth in this Grant Agreement, and in the Plan, including any rule or regulation adopted by the Committee. 13. Your purchase of shares of Common Stock pursuant to the Options shall automatically reduce by a like number the shares subject to the SARs and, conversely, your exercise of any SARs shall automatically reduce by a like number the shares of the Common Stock available for purchase by you under the Options. 14. In agreeing to accept this grant, you clearly acknowledge that The Goodyear Tire & Rubber Company assumes no responsibility for any regulatory or tax consequences that arise from either the grant or exercise of the Options or the SARs, whether under U.S. or foreign law, rules, regulations or treaties. 15. Prior to the exercise of an Option or SAR, written notice must be given to the Company of your intent to exercise. The Company will then advise you whether or not you may exercise a Stock Option or an SAR and upon receiving such advice you may then exercise the Stock Option or the SAR. Page 3 of 3 X-10.1-12 EX-10.2 4 EXHIBIT 10.2 1 EXHIBIT 10.2 THE GOODYEAR TIRE & RUBBER COMPANY GRANT AGREEMENT PERFORMANCE UNIT GRANT [NAME AND ADDRESS OF GRANTEE] Dear : --------------------- The Directors of The Goodyear Tire & Rubber Company (the "Company") desire to encourage and facilitate ownership of the Common Stock of the Company (the "Common Stock") by key employees and to provide for additional compensation based on the appreciation of the Common Stock, thereby providing incentive to promote the continued growth and success of the Company's business. Accordingly, the 1997 Performance Incentive Plan of The Goodyear Tire & Rubber Company was adopted effective April 14, 1997 (the "Plan"). A copy of the Plan is attached. At the December 2, 1997 meeting of the Compensation Committee of the Board of Directors, you were awarded a Performance Unit Grant (each Unit equivalent in value to one share of Common Stock) as follows: Date of Grant . . . . . . . . . . . . . . 12-2-97 Number of Units Granted . . . . . . . . . Performance Period. . . . . . . . . . . . 1-1-98 through 12-31-00 The number of Performance Units specified above (the "Units") which you will earn at the end of the three-year Performance Period specified above (the "Performance Period") will be determined by and contingent upon the extent to which Performance Goals are achieved. The number of Units actually earned may be adjusted between 0 and 150% of the number of Units stated above, depending on the level of achievement of Performance Goals. Payment of the Units earned will be made as provided under the General Terms and Conditions. The Performance Measure, Performance Goals and Distribution Schedule for the Performance Period for your Performance Unit Grant are described at Annex A. - ---------------------------------- The Goodyear Tire & Rubber Company December 2, 1997 Grant Agreement received and agreed to: - -------------------------- Grantee Date: -------------------- X-10.2-1 2 GRANT AGREEMENT --------------- (continued) General Terms and Conditions 1. The Performance Unit Grant for the number of Units specified above is granted to you under, and governed by the terms and conditions of, the Plan and this Grant Agreement. Your execution and return of the enclosed copy of this Grant Agreement constitutes your agreement to, and acceptance of, all terms and conditions of the Plan and this Grant Agreement. You also agree that you have read and understand the provisions of the Plan, this Grant Agreement and Annex A. 2. All rights conferred upon you under the provisions of this Grant Agreement are personal to you and, no assignee, transferee or other successor in interest shall acquire any rights or interests whatsoever under this Grant Agreement, which is made exclusively for the benefit of you and the Company except by will or the laws of descent and distribution. 3. As further consideration for the Units granted to you hereunder, you must remain in the continuous employ of the Company or one or more of its subsidiaries until December 31, 2000, the end of the Performance Period. Any Units earned will be prorated in the event of your death, Retirement (as defined in the Plan) or Disability (as defined in the Plan) or layoff prior to completion of the Performance Period. Any proration is based on the last day you worked. Nothing contained herein shall restrict the right of the Company or any of its subsidiaries to terminate your employment at any time, with or without cause. 4. You will forfeit the right to receive any distribution or payment under this Grant if you enter into a relationship either as an employee, consultant, agent or in any manner whatsoever with an entity that sells products in competition with products sold by the Company and its subsidiaries within six months after the earlier of (1) the date you receive your distribution of Units earned or (2) the date you cease to be an employee of the Company or one of its subsidiaries. 5. The number of Units earned will be paid as follows: (a) Each Unit earned will be valued at a dollar amount equal to the Fair Market Value of the Common Stock (as defined below) on December 31, 2000, (the "Unit Value"). (b) The Company will pay to you an amount equal to 50% of the Unit Value multiplied by the total number of Units earned, less such withholding and payroll taxes as the Company shall determine to be necessary or appropriate, in cash in February of 2001; provided, however, that notwithstanding the foregoing, you may elect, by delivering a written notice of your election to the Company not later than December 31, 1999, to defer receipt of all or a specified whole percentage of the aforesaid 50% of Units earned until the Optional Deferral Date (as defined below), in which event the amount you elect to defer (which shall be equal to the product of UE x .5UV x 2 X-10.2-2 3 PDE, where UE equals the number of Units earned, UV equals the Unit Value and PDE equals the percentage, expressed as a decimal, of the Units earned you elect to defer) will be credited in February of 2001 to an account maintained in the records of the Company (the "Optional Deferred Amount") and will be converted into Deferral Units. The number of Deferral Units will be determined by dividing the Optional Deferred Amount by the Fair Market Value of the Common Stock (as defined below) on December 31, 2000. The amount of such deferral will be reduced, if necessary, to pay such tax, payroll and other withholding obligations as the Company shall determine to be necessary or appropriate. (c) The balance of the Unit Value of each Unit earned, which shall be equal to 50% of the Unit Value, shall be multiplied by the total number of Units earned (the "Mandatory Deferred Amount") and credited in February of 2001 to an account maintained in the records of the Company. The Mandatory Deferred Amount will be converted into Deferral Units (as defined below). The number of Deferral Units will be determined by dividing the Mandatory Deferred Amount by the Fair Market Value of the Common Stock (as defined below) on December 31, 2000. The amount of such deferral will be reduced, if necessary, to pay such tax, payroll and other withholding obligations as the Company shall determine to be necessary or appropriate. (d) Notwithstanding the foregoing, the Compensation Committee of the Board of Directors may, at its sole election, at any time and from time to time require that the payment of the entire, or any portion of the, Unit Value of any number of the Units earned shall be deferred until the Optional Deferral Date, or such later date as it shall deem appropriate, in order for the Company to conform to the requirements of Section 162(m) of the Internal Revenue Code (the "Required Deferral Amount"). Any Required Deferral Amount so deferred will be credited to an account maintained in the records of the Company and will be converted into Deferral Units, the number of which shall be determined by dividing each amount so deferred by the Fair Market Value of the Common Stock on the date of such deferral. 6. As used herein, the term: (1) "Deferral Unit" means an equivalent to a hypothetical share of the Common Stock; (2) "Fair Market Value of the Common Stock" means, in respect of any date on or as of which a determination thereof is being or to be made, the average of the high and low per share sale prices of the Common Stock on the New York Stock Exchange Composite Transactions Tape on such date or, if the Common Stock was not traded on such date, the next preceding day on which the Common Stock was traded on the New York Stock Exchange; (3) "Dividend Equivalent" means, with respect to each dividend payment date for the Common Stock, an amount equal to the cash dividend per share of Common Stock which is payable on such dividend payment date; (4) "Mandatory Deferral Date" means the earlier of (x) the tenth business day of the January next following the fifth anniversary of the last day of the Performance Period, or (y) the Optional Deferral Date; (5) "Mandatory Deferral Unit" means each Deferral Unit resulting from the Mandatory Deferral Amount, including Dividend Equivalents credited in respect thereof; (6) "Optional 3 X-10.2-3 4 Deferral Date" means the later of (i) the first business day of the seventh month following the month during which you cease to be employed by the Company, or one of its subsidiary companies, for any reason (whether Retirement, Disability, death, layoff, voluntary termination or otherwise) or (ii) the tenth business day of the calendar year following the calendar year during which you ceased to be an employee of the Company, or one of its subsidiary companies, for any reason whatsoever; (7) "Optional Deferral Unit" means each Deferral Unit resulting from any Optional Deferred Amount or converted from a Mandatory Deferral Unit pursuant to Section 8 of this Grant Agreement, including Dividend Equivalents credited in respect thereof; and (8) "Required Deferral Unit" means each Deferral Unit resulting from any Required Deferred Amount, including Dividend Equivalents credited in respect thereof. All computations relating to Deferral Units, fractions of shares of Common Stock and Dividend Equivalents will be rounded, if necessary, to the fourth decimal place. 7. Each Deferral Unit will be credited with one Dividend Equivalent on each date on which cash dividends are paid on shares of the Common Stock (and each fraction of a Deferral Unit shall be credited with a like fraction of a Dividend Equivalent). Dividend Equivalents (and fractions thereof, if any) will be automatically translated into Deferral Units by dividing the dollar amount of such Dividend Equivalents by the Fair Market Value of the Common Stock on the date the relevant Dividend Equivalents are accrued to your account. The number of Deferral Units (and any fractions thereof) resulting will be credited to your account (in lieu of the dollar amount of such Dividend Equivalent) and shall continually be denominated in Deferral Units until converted for payment as provided in this Grant Agreement. 8. The Mandatory Deferral Units credited to your account shall be automatically deferred until the Mandatory Deferral Date. If the Mandatory Deferral Date occurs before you cease to be an employee of the Company, or one of its subsidiary companies, you may elect, by delivering a written notice of your election to the Company not later than December 31, 2004, to defer receipt of all or a specified whole percentage of the Mandatory Deferral Units credited to your account until the Optional Deferral Date, whereupon such Mandatory Deferral Units will become Optional Deferral Units. 9. On the Mandatory Deferral Date, to the extent you have not elected to further defer payment of all or a portion of the Mandatory Deferral Units until the Optional Deferral Date in the manner provided above (and unless payment of all or a portion of your Mandatory Deferral Units have been further deferred until the Optional Deferral Date pursuant to the conversion thereof into Required Deferral Units), the whole Mandatory Deferral Units in your account will be converted, at your election (which election shall be made in writing on or before the June 30, 2005), into (1) a like number of shares of the Common Stock, (2) a dollar amount determined by multiplying the number of Deferral Units credited to your account by the Fair Market Value of the Common Stock on the Mandatory Deferral Date, or (3) a combination of shares of the Common Stock and cash in accordance with your election (which shall be expressed as a percentage of the Deferral Units to be paid in shares of the Common Stock). In accordance with your election, within five business days following the Mandatory Deferral Date you will be paid (a) such number of shares of the Common Stock, (b) such amount of cash, or (c) the elected combination of shares of Common Stock and cash, the amounts of which shall be determined in accordance with the 4 X-10.2-4 5 preceding sentence. If you did not make a timely election as to the form of payment, you will receive payment in shares of the Common Stock. Any fraction of a Deferral Unit will be paid to you on the relevant date in cash, the amount of which shall be calculated in the manner specified above. 10. If you have duly elected to receive payment of all or a specified percentage of your Deferral Units on the Optional Deferral Date (or if payment of any of the Deferral Units has been deferred until the Optional Deferral Date pursuant to the conversion thereof into Required Deferral Units), you may elect, at the time and in the manner specified below, to receive such Deferral Units in (1) a lump sum on the fifth business day following the Optional Deferral Date, or (2) in a series of not less than five (5) or more than ten (10) annual installments commencing on the fifth business day following the Optional Deferral Date, or (3) a specified percentage of your Deferral Units on the fifth business day following the Optional Deferral Date and the balance of your Deferral Units in installments as specified in clause (2) of this sentence. 11. On the Optional Deferral Date (to the extent you have not elected to receive payment in installments), the whole Deferral Units then in your account (which have not been designated for payment in installments) will be converted at your election (which election shall be made in writing on or before the last day of the seventh month prior to the month during which the Optional Deferral Date occurs), into (1) a like number of shares of the Common Stock, or (2) a dollar amount determined by multiplying the number of whole Deferral Units credited to your account by the Fair Market Value of the Common Stock on the Optional Deferral Date, or (3) a combination of shares of the Common Stock and cash in accordance with your election (which shall be expressed as a percentage of the Deferral Units to be paid in shares of the Common Stock). In accordance with your election, within five business days following the Optional Deferral Date you will be paid (a) such number of shares of the Common Stock, (b) such amount of cash, or (c) the elected combination of shares of Common Stock and cash, the amounts of which shall be determined in accordance with the preceding sentence. If you did not make an election as to the form of payment on or before the required date, you will receive payment in shares of the Common Stock. Any fraction of a Deferral Unit will be paid to you on the relevant date in cash, the amount of which shall be calculated in the manner specified above. 12. If you desire to receive payment of your Deferral Units or a portion thereof in annual installments, you may elect (by delivering to the Company a written notice of your election, which shall specify the number of annual installments, not later than December 31 of the calendar year which is two calendar years prior to the year during which the Optional Deferral Date occurs) to receive all, or a specified whole percentage of, the Deferral Units in your account (which would otherwise be scheduled for distribution on the Optional Deferral Date) in not less than five (5) or more than ten (10) annual installments, payable commencing on the fifth business day following the Optional Deferral Date and thereafter on the fifth business day following each anniversary thereof until paid in full. You may also elect (in writing on or before the last day of the seventh month prior to the month during which the Optional Deferral Date occurs) to receive payment in shares of the Common Stock, cash or any combination of Common Stock and cash (expressed as a percentage of the Deferral Units to be paid in shares of the Common Stock. Each installment shall be in an 5 X-10.2-5 6 amount equal to the total number of Deferral Units credited to your account on the Optional Deferral Date, or on the anniversary thereof which is the fifth business day prior to the date such installment is due and payable, as the case may be, divided by the number of annual installments remaining (including the annual installment then being calculated for payment) to be paid. In respect of each installment, the number of Deferral Units payable shall, in accordance with your election, be converted into (1) a like number of shares of the Common Stock, (2) a dollar amount determined by multiplying the number of whole Deferral Units credited to your account by the Fair Market Value of the Common Stock on the relevant anniversary of the Optional Deferral Date (or the Optional Deferral Date in the case of the first installment), or (3) the elected combination of shares of the Common Stock and cash, the amounts of which shall be determined in the manner specified above. Any fraction of Deferral Unit will be paid to you on the relevant date in cash, the amount of which shall be calculated in the manner specified above. 13. You will be required to satisfy all Federal, state and local tax and payroll withholding obligations, and any other withholding obligations, arising in respect of any distribution of shares of the Common Stock or cash to you. To the extent there is sufficient cash available, such withholding obligations will be deducted from your distribution. To the extent the amount of cash to be distributed is not sufficient to satisfy all withholding obligations, you will be required to pay such withholding obligations as a condition to your receipt of any distribution of shares of the Common Stock. 14. In the event of your death at any time prior to the Mandatory Deferral Date, your account balance will be paid in cash in a lump sum on the later of (a) the fifth business day following the Mandatory Deferral Date or (b) the fifth business day of the calendar year following the calendar year during which your date of death occurs. In the event of your death at any time following the Mandatory Deferral Date and prior to the distribution of your account, the entire balance of your account shall be paid in cash on the anniversary of the Mandatory Deferral Date next following your date of death. 15. In the event of any stock dividend, stock split, recapitalization, merger, split-up, spin-off or other change affecting the Common Stock of the Company, the Deferral Units in your account shall be adjusted in the same manner and proportion as the change to the Common Stock. 16. Any notice to you under this Grant Agreement shall be sufficient if in writing and if delivered to you or mailed by registered mail directed to you at the address on record in the Executive Compensation Department. Any notice to the Company under this Grant Agreement shall be sufficient in writing and if delivered to the Executive Compensation Department of the Company in Akron, Ohio, or mailed by registered mail directed to the Company for the attention of the Executive Compensation Department at 1144 East Market Street, Akron, Ohio 44316-0001. Either you or the Company may, by written notice, change the address. 6 X-10.2-6 7 ANNEX A PERFORMANCE MEASURE The Performance Measure is Cumulative Net Income Per Share. The Performance Goals are based on the Cumulative Net Income Per Share of Goodyear Common Stock during the period January 1, 1998 through December 31, 2000. MINIMUM PERFORMANCE GOAL FOR PAYMENT In order for there to be a distribution under this Grant, the Cumulative Net Income Per Share shall be at least $14.69 for the three-year period beginning January 1, 1998. PERFORMANCE GOALS AND UNIT DISTRIBUTION SCHEDULE Unit distributions are payable 50 percent in shares of the Company's Common Stock and 50 percent in cash, except as may be otherwise provided in, or as may be otherwise elected in accordance with, the Grant Agreement.
Cumulative Net Income Unit Distribution Per Share As a Percentage of 1/1/98 - 12/31/00 Units Granted ----------------------------- --------------------------- $ 16.69 150% 16.44 140 16.19 130 15.94 120 15.69 110 15.44 100 15.19 90 14.94 85 14.69 80 less than 14.69 0
7 X-10.2-7 EX-10.3 5 EXHIBIT 10.3 1 EXHIBIT 10.3 THE GOODYEAR TIRE & RUBBER COMPANY OUTSIDE DIRECTORS' EQUITY PARTICIPATION PLAN (AS ADOPTED FEBRUARY 2, 1996 AND AMENDED FEBRUARY 3, 1998) 1. PURPOSE. The purpose of the Plan is to enable The Goodyear Tire & Rubber Company (the "Company") to (a) attract and retain outstanding individuals to serve as non-employee directors of the Company, (b) further align the interests of non-employee directors with the interests of the other shareholders of the Company by making the amount of the compensation of non-employee directors dependent in part on the value and appreciation over time of the Common Stock of the Company, and (c) permit each non-employee director to defer receipt of all or a portion of his or her annual retainer until after retirement from the Board of Directors of the Company. 2. DEFINITIONS. As used in the Plan, the following words and phrases shall have the meanings specified below: "ACCOUNT" means any of, and "ACCOUNTS" means all of, the Equity Participation Accounts and the Retainer Deferral Accounts maintained in the records of the Company for Participants. "ACCRUAL" means any dollar amount credited to an Account, including Special Accruals, Quarterly Accruals, Retainer Deferral Accruals, Dividend Equivalents and Interest Equivalents. "BENEFICIARY" means the person or persons designated by a Participant pursuant to Section 12. "BOARD" means the Board of Directors of the Company. "COMMITTEE" means the Compensation Committee of the Board. "COMMON STOCK" means the Common Stock, without par value, of the Company. "CONVERSION DATE" means, with respect to each Account of each Retired Outside Director, the later of (i) the first business day of the seventh month following the month during which such Retired Outside Director terminated his or her service as a member of the Board, or (ii) the fifth business day of the calendar year following the calendar year during which such Retired Outside Director terminated his or her service as a member of the Board. "DIVIDEND EQUIVALENT" means, with respect to each dividend payment date for the Common Stock, an amount equal to the cash dividend per share of Common Stock which is payable on such dividend payment date. "EQUITY PARTICIPATION ACCOUNT" means a bookkeeping account maintained by the Company for a Participant to which Quarterly Accruals and Dividend Equivalents are credited in respect of Outside Directors through the Conversion Date (and, with respect to each Outside Director serving as a Director on February 2, 1996, a Special Accrual will be credited) and Interest Equivalents are credited subsequent to the Conversion Date, which Account shall be denominated in Units until the Conversion Date and, thereafter, shall be denominated in dollars. -1- X-10.3-1 2 "FAIR MARKET VALUE OF THE COMMON STOCK" means, in respect of any date on or as of which a determination thereof is being or to be made, the average of the high and low per share sale prices of the Common Stock on the New York Stock Exchange Composite Transaction Tape on such date. "INTEREST EQUIVALENT" has the meaning assigned in Section 11(c). "OUTSIDE DIRECTOR" means and includes each person who, at the time any determination thereof is being made, is a member of the Board and who is not and never has been an employee of the Company or any subsidiary or affiliate of the Company. "PARTICIPANT" means and includes, at the time any determination thereof is being made, each Outside Director and each Retired Outside Director who has a balance in his or her Accounts. "RETAINER" means with respect to each Outside Director the retainer fee payable to such Outside Director by the Company, plus all meeting attendance fees payable by the Company to such Outside Director, in respect of a calendar quarter. "RETAINER DEFERRAL ACCOUNT" means a bookkeeping account maintained by the Company for a Participant to which Retainer Accruals and Dividend Equivalents are credited through the Conversion Date and Interest Equivalents are credited subsequent to the Conversion Date, which Account shall be denominated in Units until the Conversion Date and, thereafter, shall be denominated in dollars. "RETIRED OUTSIDE DIRECTOR" means an Outside Director who has terminated his or her service as a member of the Board and is entitled to receive distribution of the cash balance of his or her Account or Accounts as provided in Section 10. "PLAN" means The Goodyear Tire & Rubber Company Outside Directors' Equity Participation Plan, the provisions of which are set forth herein. "QUARTERLY ACCRUAL" has the meaning assigned in Section 7. "RETAINER DEFERRAL ACCRUAL" has the meaning assigned in Section 8. "SPECIAL ACCRUAL" has the meaning assigned in Section 7. "UNIT" means an equivalent to a hypothetical share of Common Stock, which is the denomination into which all dollar Accruals (other than Interest Equivalents) to any Account are to be translated. Upon the Accrual of any dollar amount to any Account on or prior to the Conversion Date thereof, such dollar amount shall be translated into Units by dividing the dollar amount of such Accrual by the Fair Market Value of the Common Stock on the day on or as of which such Accrual to the Account is made or, if not made on a trading day, on the trading day next following the date of the Accrual. Units, and the translation thereof from dollars, shall be calculated and recorded in the Accounts rounded to the fourth decimal place. "YEAR OF SERVICE" means, with respect to each Outside Director, the twelve month period commencing with the date of the individuals' election as an Outside Director or any anniversary thereof. -2- X-10.3-2 3 3. EFFECTIVE DATE. The Plan is adopted on, and is effective on and after, February 2, 1996. 4. ELIGIBILITY. Each person who serves as an Outside Director at any time subsequent to February 1, 1996 is eligible to participate in the Plan. 5. ADMINISTRATION. Except with respect to matters expressly reserved for action by the Board pursuant to the provisions of the Plan, the Plan shall be administered by the Committee, which shall have the exclusive authority except as aforesaid to take any action necessary or appropriate for the proper administration of the Plan, including the full power and authority to interpret the Plan and to adopt such rules, regulations and procedures consistent with the terms of the Plan as the Committee deems necessary or appropriate. The Committee's interpretation of the Plan, and all actions taken within the scope of its authority, shall be final and binding on the Company and the Participants. 6. EQUITY PARTICIPATION ACCOUNTS. There shall be established and maintained by the Company an Equity Participation Account with respect to each Outside Director to which Accruals shall be made from time to time in accordance with the provisions of the Plan. 7. (A) QUARTERLY ACCRUALS. On the first date of each calendar quarter, commencing July 1, 1998, the Company shall credit $2,500 ($2,000 in respect of each quarter during the period beginning April 1, 1996 and ended on June 30, 1998) to the Equity Participation Account of each Outside Director who is then a member of the Board of Directors and served as a member of the Board for the entire calendar quarter ended immediately prior to such day (each a "Quarterly Accrual"). (B) SPECIAL ACCRUALS. On February 2, 1996, the Company shall credit to the Equity Participation Account of each Outside Director then serving as a member of the Board of Directors a special, one-time credit (a "Special Accrual"), the amount of which shall be determined in accordance with the following formula: SP = [FRPA - FQC] divided by 1.01943N where, SP is the dollar amount of the Special Accrual in respect of a participating Outside Director at February 2, 1996; FRPA is the future value of an annuity at age 70 under the Retirement Plan for Outside Directors (as provided by Watson Wyatt and based on the UP-1984 mortality table) that would be needed to provide a lifetime annuity at age 70 assuming the benefit increases 3% per year starting in 1997. FQC is the future value of quarterly accruals, calculated on the value at age 70 of $2,000 quarterly accruals to the Equity Participation Account of the participating Outside Director starting April 1, 1996, assuming a compound annual growth rate of 8%. N is the number of quarters until the Outside Director retires having attained age 70. (C) TRANSLATION OF ACCRUALS INTO UNITS. Each Accrual (other than Interest Equivalents) to an Equity Participation Account shall be translated into Units by dividing the dollar amount thereof by the Fair Market Value of the Common Stock on the day as of which such Accrual is made, or, if the date on or as of which such Accrual is made is not a trading day, on the next fol- -3- X-10.3-3 4 lowing trading day. Upon such translation of an Accrual into Units, the resulting number of Units shall be credited to the relevant Equity Participation Account (in lieu of the dollar amount of such Accrual) and such Accrual shall continue to be denominated in such number of Units until the Conversion Date for such Account, when the Units will be converted into a dollar amount equal to the product of (i) the number of Units credited to such Account on such Conversion Date, multiplied by (ii) the Fair Market Value of the Common Stock on such Conversion Date. 8. RETAINER DEFERRAL ACCOUNTS. Each Outside Director may, at his or her sole election, defer receipt of 25%, 50%, 75% or 100% of his or her Retainer payable in respect of and during any calendar year by electing to have such amount credited to his or her Retainer Deferral Account (herein referred to as a "Retainer Account Accrual"). Each deferral election, if any, shall be made by an Outside Director annually, must be in respect of an entire calendar year and shall be made not later than June 30th of the year prior to the calendar year in respect of which such election is being made. The dollar amount of each Retainer Account Accrual shall be translated (in the manner specified in Section 7(C)) into Units on the date such Retainer Account Accrual is credited to the relevant Retainer Deferral Account, which shall be the day on which the payment of such portion of the Retainer would have been made absent the election of the Outside Director to defer the payment of all or a portion thereof. Upon such translation into Units, the resulting number of Units shall be credited to the relevant Retainer Deferral Account (in lieu of the dollar amount of such Accrual) and such Accrual shall continue to be denominated in such number of Units until the Conversion Date, when the Units will be converted into a dollar amount equal to the product of (i) the number of Units credited to such Retainer Deferral Account on such Conversion Date, multiplied by (ii) the Fair Market Value of the Common Stock on such Conversion Date. 9. DIVIDEND EQUIVALENTS. With respect to each Account, from to time through the relevant Conversion Date each Unit in such Account shall be credited with a Dividend Equivalent at the same time as cash dividends are paid on shares of the Common Stock. Dividend Equivalents credited to each Account shall be automatically translated into Units by dividing the dollar amount of such Dividend Equivalents by the Fair Market Value of the Common Stock on the date the relevant Dividend Equivalent is accrued to such Account. The number of Units resulting shall be credited to such Account (in lieu of the dollar amount of such Accrual) and such Accrual shall be denominated in Units until the Conversion Date. 10. ELIGIBILITY FOR BENEFITS. (A) Equity Participation Accounts. Each Retired Outside Director shall be entitled to receive the balance of his or her Equity Participation Account in accordance with the provisions of Section 11 of the Plan, unless the Board of Directors acts to reduce the amount of, or to deny the payment of, the Equity Participation Account of such Retired Outside Director; PROVIDED, HOWEVER, that the Board of Directors shall not have the authority to reduce the amount of, or to deny the payment of, the Equity Participation Account of any Outside Director who terminates his or her service on the Board of Directors if (i) prior to such termination of service, the Retired Outside Director either (x) had five or more years of service and had attained age 70, or (y) had ten or more years of service and had attained age 65, or (ii) such termination was due to the death of the Outside Director. Notwithstanding the foregoing, the Board may at any time deny the payment of, or reduce the amount of, the Equity Participation Account of any Participant if, in the opinion of the Board, such Participant has engaged in an act of misconduct or otherwise engaged in conduct contrary to the best interest of the Company. (B) Retainer Deferral Accounts. Each Retired Outside Director shall be entitled to receive the balance, if any, of his or her Retainer Deferral Account in accordance with the provisions of Section 11 of the Plan. -4- X-10.3-4 5 11. PAYMENT OF ACCOUNTS. (a) All distributions of Equity Participation Accounts and Retainer Deferral Accounts to Participants shall be made in cash. (b) In the case of each Retired Outside Director, the Units credited to his or her Equity Participation Account and Retainer Deferral Account, respectively, shall, on the Conversion Date for such Retired Outside Director, be converted to a dollar denominated amount by multiplying the number of Units in each of the Accounts by the Fair Market Value of the Common Stock on such Conversion Date. (c) From and after the Conversion Date until paid, the balance (expressed in dollars) of the Equity Participation Account, and, if any, of the Retainer Deferral Account, of each Retired Outside Director shall be credited monthly until paid with "Interest Equivalents", which shall be equal to one twelfth (1/12th) of the product of (x) the dollar balance of such Account, multiplied by (y) the sum (expressed as a decimal to six places) of the rate equivalent to the prevailing annual yield of United States Treasury obligations having a maturity of ten years (or, if not exactly ten years, as close to ten years as possible without exceeding ten years) at the Conversion Date, plus one percent (1%). (d) The Accounts of each Retired Outside Director will be paid in ten (10) annual installments commencing on the fifth business day following the Conversion Date with respect to such Accounts, and thereafter on each anniversary of such Conversion Date; each installment to be in an amount equal to the total dollar balance of such Accounts on the fifth business day prior to the date such annual installment is due and payable divided by the number of installments remaining (including the annual installment then being calculated for payment) to be paid. (e) The Committee may, in its sole discretion, elect to pay the Equity Participation Account or the Retainer Deferral Account, or both, of any Retired Outside Director in a lump sum or in fewer than ten installments. In the event that the Committee shall elect to make a lump sum payment of an Account of any Retired Outside Director (or to make payment thereof in fewer than ten annual installments), the payment of such lump sum shall be made (or such installments shall commence) on the fifth business day following the Conversion Date in respect of such Retired Outside Director. (f) In the event of the death of an Outside Director, the entire balance of his or her Accounts shall be eligible for payment which shall be made in a lump sum on the Conversion Date for his or her Accounts. (g) In the event of the death of a Retired Outside Director, the entire balance of his or her Account(s) shall be paid on the Conversion Date for his or her Accounts (if it has not occurred) or on the next occurring anniversary thereof. 12. DESIGNATION OF BENEFICIARY. A Participant may designate a person or persons (the "Beneficiary") to receive, after the Participant's death, any remaining benefits payable under the Plan. Such designation shall be made by the Participant on a form prescribed by the Committee. The Participant may at any time change or revise such designation by filing a new form with the Committee. The person or persons named as beneficiary in the designation of beneficiary form duly completed and filed with the Company bearing the most recent date will be the Beneficiary. All payments due under the Plan after the death of a Participant shall be made to his or her Beneficiary, except that (i) if the Participant does not designate a Beneficiary or the Beneficiary predeceases the Participant, any remaining benefits payable under the Plan after the Participant's death shall be paid to the Participant's estate, and (ii) if the Beneficiary -5- X-10.3-5 6 survives the Participant but dies prior to receiving the benefits payable under the Plan, the benefits under the Plan shall be paid to the Beneficiary's estate. 13. AMENDMENT AND TERMINATION. The Board may at any time, or from time to time, amend or terminate the Plan; provided, however, that no such amendment or termination shall reduce Plan benefits which accrued prior to such amendment or termination without the prior written consent of each person entitled to receive benefits under the Plan who is adversely affected by such action; and, provided further, that the Plan shall not be amended more frequently than once every six months, other than to comply with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules promulgated thereunder. 14. PLAN UNFUNDED, RIGHTS UNSECURED. The Plan is unfunded. Each Account under the Plan represents only a general contractual conditional obligation of the Company to pay in cash the balance thereof in accordance with the provisions of the Plan. 15. ASSIGNABILITY. All payments under the Plan shall be made only to the Participant or his or her duly designated Beneficiary (in the event of his or her death). Except pursuant to Section 12 or the laws of descent and distribution and except as may be required by law, the right to receive payments under the Plan may not be assigned or transferred by, and are not subject to the claims of creditors of, any Participant or his or her Beneficiary during his or her lifetime. 16. CHANGE IN THE COMMON STOCK. In the event of any stock dividend, stock split, recapitalization, merger, split-up or other change affecting the Common Stock of the Company, the Units in each Account shall be adjusted in the same manner and proportion as the change to the Common Stock. 17. QUARTERLY STATEMENTS OF ACCOUNTS - VALUATION. Each calendar quarter the Company will prepare and send to each Participant a statement reporting the status of his or her Account or Accounts as of the close of business on the last business day of the prior calendar quarter. To the extent an Account is denominated in Units, the value of the Units will be reported at the Fair Market Value of the Common Stock on the relevant valuation date. 18. NO OTHER RIGHTS. Neither the establishment of the Plan, nor any action taken thereunder, shall in any way obligate the Company to nominate an Outside Director for re-election or continue to retain an Outside Director on the Board or confer upon any Outside Director any other rights in respect of the Company. 19. SUCCESSORS OF THE COMPANY. The Plan shall be binding upon any successor to the Company, whether by merger, acquisition, consolidation or otherwise. 20. LAW GOVERNING. The Plan shall be governed by the laws of the State of Ohio. -6- X-10.3-6 EX-11 6 EXHIBIT 11 1 EXHIBIT 11 THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE Set forth below are computations, made in accordance with subparagraph (b)(11) of Item 601 of Regulation S-K of the Securities and Exchange Commission, of earnings per share of the Common Stock, without par value, of Registrant for each of the three years ended December 31, 1997, 1996 and 1995, respectively: (DOLLARS IN MILLIONS, EXCEPT PER SHARE)
1997 1996 1995 ---------- ----------- ----------- Basic: Net Income............................................ $558.7 $101.7 $611.0 Weighted average number of common shares outstanding.......................................... 156,225,112 155,051,802 152,118,861 Basic earnings per share.............................. $3.58 $.66 $4.02 Diluted: Net Income............................................ $558.7 $101.7 $611.0 Adjusted average number of common shares outstanding.......................................... 158,169,534 156,778,058 153,949,022 Diluted earnings per share............................ $3.53 $.65 $3.97
The foregoing computations do not reflect any significant potentially dilutive effect Registrant's Preferred Stock Purchase Rights Plan could have in the event such Rights become exercisable and any shares of either Series B Preferred Stock or Common Stock of Registrant are issued upon the exercise of such Rights. Reference is made to the Note 19, captioned "Preferred Stock Purchase Rights Plan", in the Notes to Financial Statements set forth in Item 8 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997, at page 52. X-11-1 EX-12 7 EXHIBIT 12 1 EXHIBIT 12 THE GOODYEAR TIRE & RUBBER COMPANY AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions) YEAR ENDED DECEMBER 31, EARNINGS 1997 1996 1995 1994 1993 -------- --------- --------- ---------- ---------- Income before income taxes, extraordinary items and cumulative effect of accounting changes $ 800.0 $122.3 $ 925.8 $ 865.7 $ 784.9 Add: Amortization of previously capitalized interest 11.0 11.6 11.7 10.2 10.1 Minority interest in net income of consolidated subsidiaries with fixed charges 45.1 45.9 30.1 16.9 19.0 Proportionate share of fixed charges of investees accounted for by the equity method 6.5 5.1 5.3 2.5 2.3 Proportionate share of net loss of investees accounted for by the equity method 0.1 2.7 0.5 0.2 0.3 ----------- ------- --------- ---------- ---------- Total additions $ 62.7 $ 65.3 $ 47.6 $ 29.8 $ 31.7 Deduct: Capitalized interest $ 6.2 $ 5.4 $ 5.1 $5.7 $5.0 Minority interest in net loss of consolidated subsidiaries 3.6 4.4 3.3 0.3 0.3 Undistributed proportionate share of net income of investees accounted for by the equity method -- -- 0.2 7.2 4.0 ----------- ------- --------- ---------- ---------- Total deductions $ 9.8 $ 9.8 $ 8.6 $ 13.2 $ 9.3 TOTAL EARNINGS $ 852.9 $177.8 $ 964.8 $ 882.3 $ 807.3 =========== ======= ========= ========== ========== FIXED CHARGES Interest expense $ 119.5 $128.6 $ 135.0 $ 129.4 $ 162.4 Capitalized interest 6.2 5.4 5.1 5.7 5.0 Amortization of debt discount, premium or expense 0.1 0.3 0.4 0.7 0.4 Interest portion of rental expense 63.3 69.5 77.0 83.0 83.7 Proportionate share of fixed charges of investees accounted for by the equity method 6.5 5.1 5.3 2.5 2.3 ----------- ------- --------- ---------- ---------- TOTAL FIXED CHARGES $ 195.6 $208.9 $ 222.8 $ 221.3 $ 253.8 =========== ======= ========= ========== ========== TOTAL EARNINGS BEFORE FIXED CHARGES $1,048.5 $386.7 $1,187.6 $1,103.6 $1,061.1 =========== ======= ========= ========== ========== RATIO OF EARNINGS TO FIXED CHARGES 5.36 1.85 5.33 4.99 4.18
SUPPLEMENTAL INFORMATION - Income before income taxes, extraordinary items and cumulative effect of accounting changes in 1996 was reduced by a charge of $755.6 million related to the writedown of the All American Pipeline System and related assets. Excluding this charge, the ratio of earnings to fixed charges for 1996 would have been 5.45. X-12-1 EX-21 8 EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT (1)(2)(3) The subsidiary companies of The Goodyear Tire & Rubber Company at March 5, 1998, and the places of incorporation or organization thereof, are:
PLACE OF INCORPORATION NAME OF SUBSIDIARY OR ORGANIZATION --------------------- ------------------ All American Pipeline Company Texas Belt Concepts of America, Inc. Delaware Brad Ragan, Inc North Carolina Celeron Corporation Delaware Celeron Gathering Corporation Delaware Celeron Trading & Transportation Company Delaware Cosmoflex, Inc. Delaware Divested Atomic Corporation Delaware Divested Companies Holding Company Delaware Divested Litchfield Park Properties, Inc. Arizona The Kelly-Springfield Tire Corporation Delaware Goodyear International Corporation Delaware The Goodyear Rubber Plantations Company Ohio Goodyear Western Hemisphere Corporation Delaware Murphy's Inc., Sales and Service California Wingfoot Corporation Delaware Wingfoot Ventures Seven Inc. Delaware Wingfoot Ventures Eight Inc. Delaware Wingfoot Ventures Nine Inc. Delaware Wingfoot Ventures Ten Inc. Delaware Compania Anonima Goodyear de Venezuela Venezuela Compania Goodyear del Peru, S.A. Peru Compania Hulera Goodyear--Oxo, S.A. de C.V. Mexico Contred (Proprietary) Limited South Africa Corporacion Industriales Mercurio, S.A. de C.V. Mexico Dakia Partners AB Sweden Deutsche Goodyear GmbH Germany Deutsche Goodyear Holdings GmbH Germany Goodyear Australia Limited Australia Goodyear Canada Inc. Canada Goodyear Chemicals Europe S.A. France Goodyear Dalian Ltd. People's Republic of China Goodyear de Chile S.A.I.C. Chile Goodyear de Colombia S.A. Colombia Goodyear do Brasil Produtos de Borracha Ltda Brazil Goodyear Broker's Limited Bermuda Goodyear Espanola S.A. Spain Goodyear Export, S.A. Bermuda Goodyear Export Sales Corporation Barbados Goodyear France (Pneumatiques) S.A. France Goodyear Finance Holding S.A. Luxembourg Goodyear Great Britain Limited England Goodyear Hellas S.A.I.C. Greece Goodyear Holding Co. Venezuela
X-21-1 2
PLACE OF INCORPORATION NAME OF SUBSIDIARY OR ORGANIZATION --------------------- ------------------ Goodyear India Limited India Goodyear Italiana S.p.A. Italy Goodyear Jamaica Limited Jamaica Goodyear Lastikleri Turk Anonim Sirketi Turkey Goodyear Malaysia Berhad Malaysia Goodyear Maroc S.A. Morocco Goodyear (Nederland) B.V. Netherlands Goodyear New Zealand, Ltd. New Zealand The Goodyear Orient Company Pte Limited Singapore Goodyear Portuguesa, Limited Portugal Goodyear Philippines Inc. Philippines Goodyear Qingdao Engineered Elastomers Company Ltd. People's Republic of China Goodyear S.A. France Goodyear S.A. Luxembourg Goodyear Singapore Pte Limited Singapore Goodyear South Africa (Proprietary) Limited South Africa Goodyear (Suisse), S.A. Switzerland Goodyear Taiwan Limited Republic of China Goodyear (Thailand) Limited Thailand Goodyear Zimbabwe (Private) Limited Zimbabwe Gran Industria de Neumaticos Centroamericana, S.A. Guatemala Granford Manufacturing, Inc. Canada Gummiwerke Fulda GmbH Germany Neumaticos Goodyear S.A. Argentina Nippon Goodyear Kabushiki Kaisha Japan Philippine Rubber Project Company, Inc. Philippines P.T. Goodyear Indonesia Indonesia P.T. Goodyear Sumatra Plantations Indonesia S.A. Goodyear N.V. Belgium Svenska Goodyear Aktiebolag Sweden TC Debica S.A. Poland Tredcor (Proprietary) Limited South Africa Wingfoot Insurance Company Limited Bermuda
--------------- (1) Each of the 77 subsidiaries named in the foregoing list conducts its business under its corporate name and, in a few instances, under a shortened form of its corporate name or in combination with a trade name. (2) Each of the 77 subsidiaries named in the foregoing list is directly or indirectly wholly-owned by Registrant, except that in respect of each of the following subsidiaries Registrant owns the indicated percentage of such subsidiary's equity capital: Brad Ragan, Inc. 74.5%; Compania Goodyear del Peru S.A., 78%; Goodyear Dalian Ltd., 75%; Goodyear India Limited, 74.0%; Goodyear Jamaica Limited, 60%; Goodyear Lastikleri Turk Anonim Sirketi, 57.4%; Goodyear Malaysia Berhad, 51%; Goodyear Maroc S.A., 55%; Goodyear Qingdao Engineered Elastomers Company Ltd., 60%; Goodyear Taiwan Limited, 75.5%; Goodyear (Thailand) Limited, 63.1%; Gran Industria de Neumaticos Centroamericana, S.A., 75.8%; P.T. Goodyear Indonesia, 85%; Goodyear Philippines Inc., 69%; and TC Debica S.A., 50.8%. (3) In accordance with paragraph (ii) of Part 22 of Item 601(b) of Regulation S-K, the names of approximately 95 subsidiaries have been omitted from the foregoing list. The unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary, as defined in the applicable regulations. X-21-2 EX-23 9 EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-3 (Nos. 333-1955 and 33-8111) and in the Registration Statements on Forms S-8 (Nos. 333-29993, 33-65187, 33-65185, 33-65183, 33-65181, 33-31530, 33-17963, 2-79437 and 2-47905) of The Goodyear Tire & Rubber Company of our report dated February 2, 1998 appearing on page 32 of this Form 10-K. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP Cleveland, Ohio March 6, 1998 X-23-1 EX-24 10 EXHIBIT 24 1 EXHIBIT 24 THE GOODYEAR TIRE & RUBBER COMPANY POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors of THE GOODYEAR TIRE & RUBBER COMPANY, a corporation organized and existing under the laws of the State of Ohio (the "Company"), hereby constitute and appoint ROBERT W TIEKEN, C THOMAS HARVIE, JOHN W RICHARDSON, RICHARD W HAUMAN and JAMES BOYAZIS, and each of them, their true and lawful attorneys-in-fact and agents, each one of them with full power and authority to sign the names of the undersigned directors to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for its fiscal year ended December 31, 1997, and to any and all amendments, supplements and exhibits thereto and any other instruments filed in connection therewith; provided, however, that said attorneys-in-fact shall not sign the name of any director unless and until the Annual Report shall have been duly executed by the officers of the Company then serving as the chief executive officer of the Company, the principal financial officer of the Company and the principal accounting officer of the Company; and each of the undersigned hereby ratifies and confirms all that the said attorneys-in-fact and agents, or any one of them, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have subscribed these presents this 2nd day of December, 1997. /s/ JOHN G. BREEN /s/ WILLIAM E. BUTLER - --------------------------------------- ---------------------------------------- John G. Breen, Director William E. Butler, Director /s/ STEVEN A. MINTER /s/ THOMAS H. CRUIKSHANK - --------------------------------------- ---------------------------------------- Steven A. Minter, Director Thomas H. Cruikshank, Director /s/ AGNAR PYTTE /s/ WILLIAM J. HUDSON, JR. - --------------------------------------- ---------------------------------------- Agnar Pytte, Director William J. Hudson, Jr., Director /s/ GEORGE H. SCHOFIELD /s/ GERTRUDE G. MICHELSON - --------------------------------------- ---------------------------------------- George H. Schofield, Director Gertrude G. Michelson, Director /s/ WILLIAM C. TURNER /s/ MARTIN D. WALKER - --------------------------------------- ---------------------------------------- William C. Turner, Director Martin D. Walker, Director
X-24-1 EX-27 11 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FOR THE GOODYEAR TIRE AND RUBBER COMPANY AND SUBSIDIARIES EXTRACTED FROM THE CONSOLIDATED STATEMENT OF INCOME AND THE CONSOLIDATED BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 259 0 1,783 50 1,835 4,164 9,234 5,084 9,917 3,251 845 0 0 157 3,239 9,917 13,155 13,155 10,046 10,046 0 0 120 800 241 559 0 0 0 559 3.58 3.53 This schedule shall not be deemed filed for purposes of Section 11 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934.
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