HEXCEL CORP /DE/, 10-K, 1994-04-15

HEXCEL CORP /DE/
10-K, 1994-04-15
METAL FORGINGS & STAMPINGS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
__________________________

FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 1993
or
/ / Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to __________
Commission File Number 1-8472
__________________________

HEXCEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 94-1109521
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
5794 W. Las Positas Boulevard
Pleasanton, California 94588-8781
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
Registrant's telephone number, including area code: (510) 847-9500
Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
COMMON STOCK NEW YORK STOCK EXCHANGE
COMMON STOCK PACIFIC STOCK EXCHANGE

Securities registered pursuant to Section 12(g) of the Act:
7% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2011

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 (or for such shorter period that the
registrant was required to file such reports), 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, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value as of April 8, 1994 of voting stock held by
nonaffiliates of the registrant: $27,411,851.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
of reorganization confirmed by a U.S. Bankruptcy Court.
Yes X No (Note: To date, no plan confirmed, no securities distributed)
----- -----
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.

Class Outstanding at April 8, 1994
----- ----------------------------
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COMMON STOCK 7,309,827

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DOCUMENTS INCORPORATED BY REFERENCE:
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS (TO THE EXTENT SPECIFIED
HEREIN) - PART III.
- -------------------------------------------------------------------------------

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PART I

ITEM 1. BUSINESS.

GENERAL DEVELOPMENT OF BUSINESS

Hexcel Corporation (herein referred to as the "Parent Company" or the
"Parent"), founded in 1946, was initially incorporated in California in 1948,
and reincorporated in Delaware in 1983. Hexcel Corporation and subsidiaries
(herein referred to as "Hexcel" or the "Company") is an international developer
and manufacturer of honeycomb, advanced composites, reinforcement fabrics and
resins. Hexcel materials are used in commercial aerospace, space and defense,
general industrial and other markets.

RESTRUCTURING AND BANKRUPTCY REORGANIZATION
In December 1992, the Company initiated a worldwide restructuring program
designed to improve facility utilization and determine the proper workforce
requirements to support future business levels. The Company recorded a $23.5
million charge for this program in the fourth quarter of 1992. The
restructuring was necessary due to anticipated protracted weakness in the
aerospace industry and the need to make aggressive cost reductions to operate
profitably at lower sales levels. Restructuring actions began in 1993 and
included commencement of the closure of the Graham, Texas plant, personnel
reductions at all remaining manufacturing facilities, and a worldwide
reorganization of sales, marketing and administration.

During the third quarter of 1993, Hexcel conducted a further evaluation of
the adequacy of the restructuring program and existing reserves in light of
declining business conditions in the Company's primary markets, including
commercial aerospace. As a result of this evaluation and the continuing decline
in aerospace sales, the Company significantly expanded the original
restructuring program and recorded an additional restructuring charge of $50.0
million in the third quarter of 1993. The expanded restructuring is a response
to deeper than anticipated declines in the aerospace market, and includes
additional staff reductions, further consolidation of facilities and write-downs
of impaired assets. The Company recorded another $2.6 million charge in the
fourth quarter in connection with the expanded restructuring program.

In order to fund the restructuring program and improve its capital
structure, the Company needed substantial additional financing and a
restructuring of its U.S. and European debt. Negotiations with existing senior
U.S. lenders to obtain this financing and restructure the Company's domestic
obligations were undertaken early in 1993 and continued throughout most of the
year. Alternative sources of debt and equity financing were also pursued. The
Company did secure the commitment of credit facilities for its Belgian
subsidiary through March 16, 1994. However, the Company was unable to obtain a
consensus among the senior U.S. lenders on a debt restructuring plan for its
U.S. operations.

With the Parent Company operating at critically low levels of cash, without
any remaining credit availability, having extended payments to trade vendors,
and needing additional financing to meet operating requirements and fund the
restructuring program, Hexcel Corporation filed a voluntary petition for relief
under the provisions of Chapter 11 of the federal bankruptcy laws on December 6,
1993. The Chapter 11 filing allows the Parent Company to prepare and present to
the U.S. Bankruptcy Court (or "Bankruptcy Court") a plan to reorganize its
operations and financial obligations while under bankruptcy protection.

Bankruptcy proceedings are limited solely to Hexcel Corporation (a Delaware
corporation, the "Parent Company" or "Parent"), which directly owns and operates
substantially all of the Company's U.S. assets and operations. The Company's
joint ventures and European subsidiaries are not included in the

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bankruptcy proceedings and, as such, are not subject to the provisions of the
federal bankruptcy laws or the supervision of the Bankruptcy Court. However,
the Parent Company is generally unable to provide direct financial support
outside of the normal course of business to joint ventures and subsidiaries
without Bankruptcy Court approval. Hexcel Corporation has obtained a debtor-in-
possession revolving line of credit of up to $35.0 million to finance operations
and restructuring activities during bankruptcy reorganization. This credit
facility is expected to provide the Parent Company with adequate financing while
it remains under bankruptcy protection.

Further discussion of the restructuring program and bankruptcy
reorganization is included in this Form 10-K in "Management Discussion and
Analysis," which begins on page 28, and in Notes 2, 3 and 6 to the Consolidated
Financial Statements, which begin on page 43.

HEXCEL S.A.
The downturn in the worldwide aerospace business and difficult economic
conditions in Europe have resulted in poor financial performance by Hexcel S.A.,
the Company's wholly-owned Belgian subsidiary. This subsidiary has experienced
a 40% sales decline and significant operating losses over the past two years.
Sales are not expected to improve in 1994, and interest costs and restructuring
actions continue to consume cash. Hexcel S.A. is also investigating alleged
product claims which could require additional cash outlays.

Hexcel S.A. is currently in negotiations with its existing lenders
regarding the commitment of credit facilities which expired beginning on March
16, 1994. Four of the five existing lenders have agreed to a stand still until
April 30, 1994, subject to the Parent Company making satisfactory progress
toward obtaining authorization from the Bankruptcy Court to invest additional
funds and recapitalize Hexcel S.A. Discussions with the fifth lender are
continuing. There is no assurance that the Bankruptcy Court will authorize the
investment of additional funds or the recapitalization of Hexcel S.A., or that
the existing lenders will continue to extend their short-term credit agreements
for any specified length of time. As a result, Hexcel S.A.'s ability to
continue as a going concern is subject to its obtaining the needed financing, as
well as resolving alleged product claims and successfully implementing required
restructuring initiatives.

Hexcel S.A. is an integral component of the Company's worldwide
competitiveness, particularly in commercial aerospace. If Hexcel S.A. is unable
to continue as a going concern, management believes that this would have a
material adverse effect on the Company's U.S. and international operations.

INDUSTRY SEGMENT

Hexcel operates within a single industry segment, structural materials.
The Company sells these materials in the United States and international
markets. The net sales, income (loss) before income taxes, identifiable assets,
capital expenditures, and depreciation and amortization for each geographic area
for the past three years are shown in Note 17 to the Consolidated Financial
Statements included in this Form 10-K.

BUSINESS

HONEYCOMB
Hexcel has been the world leader in developing and manufacturing honeycomb
for over 45 years. Honeycomb is a unique, lightweight, cellular structure
composed generally of hexagonal cells nested together, similar in appearance to
a cross-sectional slice of a beehive. The hexagonal shape of the cells gives
honeycomb a high strength-to-weight ratio when used in "sandwich" form, and a
uniform resistance to

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crushing under pressure. These characteristics are combined with the physical
properties of the material from which the honeycomb is made to meet various
engineering requirements.

The Company produces honeycomb from a number of metallic and non-metallic
materials. Most metallic honeycomb is made of aluminum and is available in a
selection of alloys, cell sizes and thicknesses. Non-metallic honeycomb
materials include fiberglass; graphite; thermoplastic; Nomex-R-, a non-flammable
aramid fiber paper; Kevlar-R-, an aramid fiber; and several other specialty
materials.

Hexcel sells honeycomb in standard blocks and sheets of honeycomb core.
The Company adds value to standard honeycomb core by contouring and machining it
into complex shapes to meet customer specifications. In addition, honeycomb is
fabricated into bonded panels and final bonded assemblies. In bonded sandwich
panel construction, sheets of aluminum, stainless steel, resin-impregnated
reinforcement fiber "skins" or other laminates are bonded with adhesives to each
side of a honeycomb core. Bonded panels are many times stronger and stiffer
than solid or laminated structures of equivalent weight. Use of an autoclave
allows Hexcel to manufacture parts requiring the high temperature and pressure
necessary to produce complex bonded assemblies.

The largest markets for Hexcel honeycomb are the commercial and military
aerospace markets. Advanced processing is used in the production of aircraft
components such as wing flaps, ailerons and helicopter rotor blades. Specific
applications include control surfaces (movable parts such as rudders, flaps,
spoilers and speed brakes that control the direction or speed of an airplane);
engine nacelles, cowlings, pylons and nozzles; fairings (flap track and
wing-to-body); interiors (walls, floors, partitions and luggage bins); landing
gear doors and access doors; wings, wing tips, wing leading edge and trailing
edge panels; horizontal stabilizers; radomes; electromagnetic shielding and
absorption; and satellite components.

Non-aerospace general industrial honeycomb applications include high-speed
trains and mass transit vehicles (doors, walls, ceilings, floors and external
structures); energy absorption products; athletic shoe components; clean room
facilities (walls and ceilings); automotive components (air flow controllers in
fuel injection systems, protective head and knee restraints); portable military
shelters and military support equipment; naval vessel compartments (bulkheads,
water closets, doors, floor panels, partitions and bunks) and business machine
cabinets.

The Company operates seven honeycomb manufacturing and advanced processing
facilities worldwide, including the Graham, Texas facility which is scheduled to
be closed by the end of 1994.

ADVANCED COMPOSITES
Advanced composites combine high performance reinforcement fibers with
resins to form a composite material with exceptional structural properties not
found in the fibers or resins alone. Hexcel impregnates reinforcement fabrics,
and fibers aligned into unidirectional tapes, with resins. The Company then
partially cures the material under heat and pressure to produce a "prepreg."

In addition to standard S-2-R- and E- type fiberglass, Hexcel produces
advanced composite materials from a variety of commercially available fibers.
Graphite fiber exhibits high strength and stiffness relative to weight and is
sold principally for aerospace and recreational uses. Kevlar is exceptionally
resistant to impact and is used extensively in new generation aircraft and in
various armor and protection applications. Quartz and ceramic fibers are
resistant to extremely high temperatures and are used in various aerospace and
general industrial applications. Electrically and thermally conductive
Thorstrand-R- is used mainly by the aerospace industry. Resin systems include
epoxy, polyester, bismaleimide, phenolic, cyanates and polyimide.

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Advanced composites are sold to several markets including transportation
(commercial and private aircraft, mass transit, freight and passenger vehicles);
space and defense (military aircraft, naval vessels, space vehicles, defense
systems and military support equipment); recreation (athletic shoes, fishing
rods, bicycles, tennis rackets, baseball bats, golf clubs, surfboards, snow skis
and racing cars); general industrial (utility surge arrestors, antennae and
insulative rods for electrical repairs); and medical (orthotics and
prosthetics).

Net sales of honeycomb and advanced composites, sold separately and
together as bonded structures, were $217.7 million in 1993, $253.9 million in
1992, and $263.2 million in 1991. The decline in 1993 was due mainly to a
significant drop in commercial and military aerospace business.

REINFORCEMENT FABRICS
Hexcel produces woven fabrics without resin impregnation from the same
fibers the Company uses to make advanced composites. These fibers include S-2
and E- type fiberglass, high strength carbon fibers, impact resistant Kevlar,
electrically conductive Thorstrand, temperature resistant ceramic and quartz
fibers, and a variety of other specialty fibers.

The Company sells reinforcement fabrics for use in numerous applications.
These include aerospace, marine (commercial and pleasure boats), printed circuit
boards, metal and fume filtration systems, ballistics protection, decorative
window coverings, automotive, insulation, recreation, civil engineering
(architectural wraps), and other general and industrial applications.

The Company entered into a strategic alliance with Owens-Corning Fiberglas
Corporation in July 1993. The joint venture combined the weaving and
stitchbonding technology of Hexcel Knytex with the worldwide reinforcement glass
fiber manufacturing, marketing and distribution capabilities of Owens-Corning.
The Knytex joint venture is a global market leader in the design and manufacture
of stitchbonded, multi-layer reinforcement fabrics. The stitchbonded materials
may be multiple layers of fabrics or fibers with varying orientations.

The Company entered into a joint venture with Fyfe Associates Corporation
in October 1992. Hexcel-Fyfe will sell and apply high-strength architectural
wrap for the seismic retrofitting and strengthening of bridges and other
structures.

Net sales of reinforcement fabrics were $93.0 million in 1993, $99.2
million in 1992 and $92.4 million in 1991. As a result of the joint venture
with Owens-Corning that started July 1, 1993, the Company's 1993 sales only
reflect Hexcel Knytex sales for six months of $7.0 million.

RESINS
Resins consist of formulated epoxy and polyurethane products used in
aerospace, electronics, automotive, medical devices and other general industrial
applications. Applications for resin products include machinable tooling
boards, fastcast resins, laminating resins for wet lay-up of boats,
encapsulating materials for electronic circuits, adhesives and surface coatings.
The Company has commenced discussions with interested parties for the sale of
the Resins business, although no agreement has yet been reached.

Net sales of resins were $27.9 million in 1993, $33.2 million in 1992 and
$31.0 million in 1991.

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PRODUCTS AND PROCESSES, RESEARCH AND DEVELOPMENT

Hexcel spent $8.7 million in 1993, $10.5 million in 1992 and $10.6 million
in 1991 for research and development of products and markets. This represented
2.6% of net sales in 1993, and 2.7% of sales in each of 1992 and 1991. These
expenditures were expensed as incurred. Hexcel materials rely primarily upon
technology derived from the field of polymer chemistry.

RAW MATERIALS

The Company purchases all raw materials used in production. Aluminum and
several other key raw materials are available from relatively few sources. If
these materials were no longer available, which Hexcel does not anticipate, such
an occurrence could have a material adverse effect on operations.

ENVIRONMENTAL MATTERS

Environmental control regulations have not had a significant adverse effect
on overall operations. A discussion of environmental matters is included in
"Item 3. Legal Proceedings" beginning on page 10 of this Form 10-K.

MARKETS AND CUSTOMERS

Hexcel materials are sold for a broad range of uses. The table on page 37
of this Form 10-K entitled "Market Summary" displays the percentage distribution
of net sales by market since 1989.

The Boeing Company and Boeing subcontractors accounted for approximately
19% of 1993 sales. The loss of this business, which the Company does not
anticipate, could have a material adverse effect on sales and earnings. Sales
to U.S. government programs, including some of the sales to The Boeing Company
and Boeing subcontractors noted above, were 16% of sales in 1993.

Hexcel commercial aerospace and space and defense sales are substantially
dependent upon the level of activity within each industry as well as the
acceptance by each industry of the Company's aerospace materials and services.
Considerations of aircraft performance have led to the increased use of
honeycomb and advanced composite materials in aircraft manufacture, particularly
in newer models and development programs. However, the Company must
continuously demonstrate the cost benefits of its products for aerospace
applications.

Commercial aerospace activity fluctuates in relation to two principal
factors. First, the number of revenue passenger miles flown by the airlines
affects the size of the airline fleets and generally follows the level of
overall economic activity. The second factor, which is less sensitive to the
general economy, is the replacement and retrofit rates for existing aircraft.
These rates, resulting mainly from obsolescence, are determined in part by
Federal Aviation Administration regulations as well as public concern regarding
aircraft age, safety and noise. Also, these rates may by affected by the desire
of airlines for higher payloads and more fuel efficient aircraft, which in turn
is influenced by the price of fuel.

Commercial aircraft build rates, based on the number of aircraft delivered,
declined by more than 20% from 1992 to 1993. Major aircraft builders have
announced significant personnel reductions which began

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in 1993 and are expected to continue through 1994 into 1995. Based on current
projections of aircraft build rates, the commercial aerospace market will likely
continue to decline at least until 1995.

The Company believes activity within the military aerospace industry
fluctuates in relation to world tensions and the attitudes of the current
Administration and Congress toward defense spending. Since 1987, the aircraft
procurement budget of the U.S. Department of Defense has declined by more than
40%. Political changes in Eastern Europe, the former Soviet Union, and the
Middle East, combined with strong U.S. political sentiment toward reduced
defense spending indicate that military procurement will continue to decline
through 1994 and beyond.

Company sales to space and defense markets, particularly military
aerospace, continue to decline. In 1993, space and defense sales decreased to
$55.8 million from $59.4 million in 1992 and $67.3 million in 1991. Hexcel
believes the space and defense markets for its products will continue to shrink
and is currently evaluating the Company's future involvement in these markets.
Further discussion of the military aerospace business is included in this Form
10-K under "Management Discussion and Analysis."

The B-2 program, which began in the mid - 1980s, has accounted for a
significant portion of the Company's recent space and defense sales. Program
delays and scheduling changes began in 1989, and orders stabilized in 1992 and
1993 far below the level anticipated when the program began. Production volumes
under the program are expected to decline in 1994, and the outlook beyond 1994
is extremely uncertain. Originally, the Company expected to generate
approximately $500 million in revenues over the life of the B-2 program. As a
result of substantially lower orders, revenues are now expected to total
approximately $100 million, most of which has already been earned.

B-2 program reductions have resulted in substantial underutilized capacity
at the Chandler, Arizona plant. For 1993, the Company negotiated to bill the
current unabsorbed fixed costs to the prime contractor contingent upon
government acceptance of this billing practice. In 1992 and 1991, the Company
deferred unabsorbed fixed costs of $2.0 million and $2.4 million, respectively.
Hexcel filed a claim for equitable relief associated with this program in
connection with the underutilized capacity at the Chandler and other plants.
Management believes, based upon advice of counsel, that the Company will realize
at least the cumulative amount deferred.

Hexcel contracts to supply materials for military and some commercial
projects contain provisions for termination at the convenience of the U.S.
government or the buyer. The Company is subject to U.S. government cost
accounting standards, which are applicable to companies with more than $25
million (increased from $10 million in November 1993) of government contract or
subcontract awards each year.

The Company, as a defense subcontractor, is subject to U.S. government
audits and reviews of negotiations, performance, cost classifications,
accounting and general practices relating to government contracts. The Defense
Contract Audit Agency reviews cost accounting and business practices of
government contractors and subcontractors including Hexcel. The Company has
been engaged in discussions of a number of cost accounting issues which could
result in claims by the government. Some of these issues have already been
resolved and management believes, based on available information and the
Company's assertion of a right of offset among individual issues, that it is
unlikely the remaining items in the aggregate will have a material adverse
effect on the earnings or financial position of the Company. Further discussion
of government contract matters is included in "Item 3. Legal Proceedings" of
this Form 10-K.

The Company has a facility security clearance from the United States
Department of Defense. A portion of the Company's sales and other revenues in
1993 was derived from work requiring this clearance.

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Continuation of this clearance requires that the Company remains free from
foreign ownership, control or influence (or "FOCI"). Management does not
believe there is presently any substantial risk of FOCI that will cause the
facility security clearance to be revoked.

MARKETING

A staff of salaried market managers, product managers and salespeople
market Hexcel products directly to customers. The Company also uses independent
distributors and/or manufacturer representatives for certain products and
markets, including reinforcement fabrics and resins.

BACKLOG

The backlog of orders for aerospace materials to be filled within 12 months
was $61.6 million at December 31, 1993, $100.5 million at December 31, 1992 and
$118.8 million at December 31, 1991. A major portion of the backlog is
cancelable without penalty. Aerospace backlog continued to decline for a number
of reasons, primarily the shrinking commercial and military aerospace market.
In addition, the aerospace industry is gradually moving toward "just-in-time"
inventory delivery and shorter lead time requirements to reduce investment in
inventory and the effect of order cancellations.

Orders for aerospace materials generally lag behind the award of orders for
new aircraft by a considerable period. Thus, the level of new aircraft
procurement normally will not have an impact on aerospace orders received by
Hexcel for about one to three years, depending on the nature of the product,
manufacturer and delivery schedules.

Backlog for non-aerospace materials amounted to $29.1 million at December
31, 1993 compared with $16.8 million at December 31, 1992 and $20.2 million at
December 31, 1991. Most of the Company's backlog is expected to be filled
within six months. Markets for the Company's products outside aerospace are
generally highly competitive requiring stock for immediate sale or shorter lead
times for delivery. The backlog for non-aerospace markets increased as the
Company developed new applications for existing products and the economy in the
U.S. began to recover in the second half of 1993.

INTERNATIONAL OPERATIONS

In addition to exporting from the United States, Hexcel serves
international markets through four European operating subsidiaries located in
Belgium, France and the United Kingdom. Each of these subsidiaries maintains
manufacturing and marketing facilities. Hexcel also maintains sales offices in
Australia, Brazil, Germany, Italy, Japan and Spain. Hexcel is a 50% partner in
a joint venture formed in 1990 with Dainippon Ink and Chemicals (or "DIC") for
the production and sale of Nomex honeycomb, advanced composites and decorative
laminates for the Japanese market. All Hexcel materials, with the exception of
classified U.S. military materials, are marketed throughout the world.

The table on page 37 of this Form 10-K entitled "Market Summary" displays
the amount of international net sales and the percentage of international sales
to total net sales since 1989. Note 17 to the Consolidated Financial Statements
included in this Form 10-K shows various financial data for international
operations since 1991.

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JOINT VENTURES

The Company has entered into three joint ventures since 1990, including the
one with DIC discussed above. These joint ventures are discussed in "Management
Discussion and Analysis" in this Form 10-K.

DISCONTINUED OPERATIONS

In November 1990, the Company announced plans to sell the fine chemicals
business with operations in Zeeland, Michigan and Teesside, England. On March
31, 1992, the Company sold the Zeeland, Michigan fine chemicals business. On
January 31, 1994, the Company sold its Teesside, England business. See Note 14
to the Consolidated Financial Statements included in this Form 10-K for further
discussion.

The fine chemicals business is accounted for as discontinued operations.
Financial data, employees and properties related to the business have been
segregated, and the information in this report reflects continuing operations
only.

COMPETITION

In the production and sale of its materials, the Company competes with
numerous U.S. and international companies on a worldwide basis, many of which
are considerably larger than Hexcel in size and financial resources. For
example, the Company competes with one major international manufacturer of
honeycomb, advanced composites, reinforcement fabrics and resins, as well as
several other major companies on specific products. The Company also competes
with many smaller U.S. and international manufacturers.

The broad markets for Hexcel products are highly competitive. The Company
has focused on both specific markets and specialty products within markets to
gain market share. Hexcel materials compete with substitute structural
materials, including building materials such as structural foam, metal, wood and
other engineered material. Depending upon the material and markets, relevant
competitive factors include price, delivery, service, quality and product
performance.

Although the markets for Hexcel honeycomb materials are highly competitive,
management knows of no other manufacturer that has produced and sold as much
non-paper honeycomb as Hexcel during the last five years. While industry
statistics are not available, management believes on the basis of market
research that Hexcel currently produces and sells the largest share of metallic
and non-metallic honeycomb used in the world. Hexcel continues to maintain this
competitive edge through the development of new honeycomb materials for the
markets it serves.

PATENTS AND KNOW-HOW

Management believes the ability to develop and manufacture materials is
dependent upon the know-how and special skills within the Company. In addition,
the Company has obtained and presently owns a number of patents, patent
applications, and patent and technology licenses. It is Hexcel policy to
enforce the proprietary rights of the Company. To that end, the Company has
several patent infringement lawsuits pending. In 1992, the Company received a
favorable judgment for patent infringement and misappropriation of trade secrets
which resulted in a gain of $3.0 million. Management believes the

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patents and know-how rights currently owned are adequate for the conduct of
business. In the opinion of management, however, no individual patent or
license is of material importance.

EMPLOYEES

At February 28, 1994, Hexcel employed 2,340 full-time employees compared
with 3,050 at December 31, 1992. Of these employees, 1,830 were in
manufacturing and the remainder were administrative, sales, engineering,
marketing, research and clerical personnel. 77 employees at one domestic plant
have union affiliations. Management believes that labor relations in the
Company are generally satisfactory.

ITEM 2. PROPERTIES.

Hexcel owns manufacturing plants and sales offices located throughout the
United States and in several other countries as noted below. The corporate
offices and principal corporate support activities for the Company are located
in leased facilities in Pleasanton, California. The central research and
development laboratories for the Company are located in Dublin, California.

The following table lists the manufacturing plants by geographic location,
approximate square footage and principal products.

MANUFACTURING PLANTS

Approximate
Plant Location Square Footage Principal Products
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United States:
Casa Grande, Arizona 210,000 Non-metallic honeycomb, advanced honeycomb processing, advanced composites
Chandler, Arizona 158,000 Non-metallic honeycomb, advanced honeycomb processing, advanced composites
Chatsworth, California 42,000 Resins, tooling systems
Livermore, California 150,000 Advanced composites
Lancaster, Ohio 42,000 Advanced composites
Pottsville, Pennsylvania 100,000 Advanced honeycomb processing
Graham, Texas 250,000 Metallic honeycomb
Seguin, Texas 170,000 Woven reinforcement fabrics
Burlington, Washington 50,000 Advanced honeycomb processing

International:
Welkenraedt, Belgium 205,000 Metallic and non-metallic honeycomb, advanced composites
Swindon, England 20,000 Non-metallic honeycomb processing
Les Avenieres, France 373,000 Woven reinforcement fabrics, advanced composites
St. Ouen l'Aumone, France 100,000 Resins, tooling systems

</TABLE>

The Company leases the land on which the Burlington, Washington plant is
located; the 20,000 square foot Swindon, England plant; and 18,000 square feet
of the Les Avenieres, France plant.

In April 1993, the Company announced the closing of the Graham, Texas
facility and the consolidation of the Graham operations into other plants. Even
after the Graham closure, management believes the

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Company has more facilities and production capacity than required by either
current or projected sales levels. See "Management Discussion and Analysis"
in this Form 10-K for further discussion.

The above table does not include the 145,000 square foot plant at Teesside,
England, which was sold on January 31, 1994. This plant was used for the
production of fine chemicals.

Certain of the properties secure loans made to the Company. In addition,
substantially all U.S. equipment and fixtures, along with other business
property, secure the debtor-in-possession financing (see Note 6 to the
Consolidated Financial Statements included in this Form 10-K).

ITEM 3. LEGAL PROCEEDINGS.

On December 6, 1993, the Parent Company filed for protection under the
provisions of Chapter 11 of the federal bankruptcy laws. For further
discussion, see Items 1, "Business," and 7, "Management Discussion and Analysis
of Financial Condition and Results of Operations," and Note 2 to the
Consolidated Financial Statements included in this Form 10-K.

Hexcel Corporation is involved in other court proceedings and claims
incidental to Company business. As a result of the Chapter 11 filing, lawsuits
in which Hexcel Corporation is named as a defendant are stayed as to the
Company.

In December 1988, employees of Lockheed Corporation working with epoxy
resins and composites on classified programs filed suit against Lockheed and its
suppliers (including Hexcel Corporation) claiming various injuries as a result
of exposure to these products. Plaintiffs have filed for punitive damages which
are uninsured. The first trial of the cases of 15 plaintiffs resulted in a
mistrial and a retrial commenced in February 1994. However, Hexcel Corporation
will not participate due to the bankruptcy stay.

During December 1992, four shareholders commenced three actions against
Hexcel Corporation and certain of its officers in the U.S. District Court for
the Northern District of California. These three cases, MARTIN WEBER AND LEO
BRANDSTATTER V. ROBERT L. WITT, DAVID M. WONG AND HEXCEL CORPORATION; GRETCHEN
DOUGLAS V. ROBERT L. WITT ET AL; and ANN TAXIER V. ROBERT L. WITT, DAVID G.
SCHMIDT AND HEXCEL CORPORATION, allege that the defendants violated sections
10(b) and 20(a) of the Securities and Exchange Act of 1934 and related Rule 10b-
5 by allegedly issuing false public disclosures regarding the business of the
Company. These three suits purport to be class actions; two are on behalf of
purchasers of Hexcel common stock between October 19 and December 11, 1992, and
the third is on behalf of those who acquired stock between February 4 and
December 11, 1992. The actions seek unspecified damages, rescission,
unspecified injunctive relief and reimbursement of costs and attorneys fees. On
February 5, 1993, the Court consolidated the three lawsuits into one action, IN
RE HEXCEL CORPORATION SECURITIES LITIGATION. While management believes there
are meritorious defenses to the claims, a tentative settlement was reached among
all parties prior to the Chapter 11 filing which would avoid costly and
unproductive litigation. This matter, including the tentative settlement, has
been stayed by bankruptcy proceedings.

In July 1992, Hexcel Corporation was joined in a lawsuit initiated in
October 1990 in Alameda County Superior Court concerning a dispute over a real
estate transaction between F&P Properties and Donald and Suzanne Smith (F&P
PROPERTIES V. SMITH, ET AL). This action concerns, in part, responsibility for
clean-up and investigation costs associated with an abandoned waste disposal
site located near Company manufacturing facilities in Livermore, California.
The Parent Company sold this property to the Smiths in 1979, and the Smiths, in
turn, sold it to F&P Properties in 1985. A global settlement has been
negotiated

<PAGE>

but was not signed by the Parent Company prior to the Chapter 11 filing. This
matter, including the negotiated settlement, has been stayed by bankruptcy
proceedings.

Hexcel Corporation has been named as a potentially responsible party with
respect to several disposal sites that it does not own or possess and are
included on the Environmental Protection Agency's Superfund National Priority
List ("NPL"). Also, pursuant to the New Jersey Environmental Responsibility and
Clean-Up Act, Hexcel Corporation signed an administrative consent order to pay
for clean-up of a manufacturing facility it formerly operated in Lodi,
New Jersey. Hexcel Corporation is the account party on a $4.0 million letter of
credit issued in relation to that facility in favor of the State of New Jersey,
and believes that the ultimate allowed claim against it for such clean-up and
for reimbursement with respect to the amount that may be paid under such letter
of credit, should not exceed $4.0 million, however the ultimate cost of
remediation at the Lodi site will depend on developing circumstances.

The Livermore, California plant has been delisted from the NPL, however
Hexcel must comply with a state clean-up order which will cause it to incur
environmental costs.

Contingent and unliquidated claims may be asserted against Hexcel
Corporation for unexpended clean-up costs that may hereafter be expended by
third parties. Such claims may be direct claims asserting joint and several
liability against Hexcel Corporation for the entire future clean-up cost
associated with certain Superfund and other sites that may hereafter be expended
by others. Contingent claims for reimbursement or contribution may also be
asserted against Hexcel Corporation by other potentially responsible parties for
future clean-up costs for Superfund and other sites that may hereafter be
expended by others.

Hexcel cannot estimate, with any degree of confidence, the costs associated
with these sites due to uncertainties relating to: (1) the nature and extent of
the remediation necessary at these sites; (2) the allocation of liability among
responsible parties associated with these sites; (3) the opportunities for cost
recovery from other parties and insurance companies; and (4) whether the
bankruptcy proceedings will act to limit the Company's liability associated with
these sites.

Further, Hexcel Corporation is unable to determine at this time the amount
of these potential claims, including environmental claims, because an order
entered in Hexcel Corporation's Chapter 11 case permits proofs of claim to be
filed on or before April 28, 1994. Nor is Hexcel Corporation able to determine
at this time the amount of claims that will be allowed for costs already
expended by others including costs for clean-up work, although it believes that
its liability is not material in amount.

Under the federal bankruptcy laws, contingent or unliquidated clean-up
claims may be estimated in Hexcel Corporation's Chapter 11 case for the purpose
of confirming a plan of reorganization. The amount of liability of Hexcel
Corporation with respect to a particular claim of that character, as estimated
by the Bankruptcy Court, may, by virtue of the federal bankruptcy laws, be the
maximum amount of the allowed claim of such a claimant even if such contingent
or unliquidated claim later becomes fixed and liquidated. Contingent claims for
reimbursement or contribution that may be filed against Hexcel Corporation may
be disallowed under the federal bankruptcy laws if it is determined by the
Bankruptcy Court that the claimant and Hexcel Corporation are both liable on the
claim of a creditor.

The last day for the filing of claims in Hexcel Corporation's Chapter 11
case is April 28, 1994, although it is possible that the Bankruptcy Court could
permit the late filing of a proof of claim by a creditor that establishes
excusable neglect for not filing a timely proof of claim. The maximum liability
on all contingent and unliquidated claims, and the outcome of proceedings under
the federal bankruptcy laws or estimation and disallowance of contingent or
unliquidated claims, cannot be predicted at this time.

<PAGE>

In 1993, the Company became aware of an aluminum honeycomb sandwich panel
delamination problem with panels produced by its wholly-owned Belgian
subsidiary, Hexcel S.A., and installed in rail cars in France and Spain.
Certain customers have alleged that Hexcel S.A. is responsible for the problem
but the subsidiary has not been named in any lawsuits at this time. Hexcel S.A.
is investigating these claims and the availability of any insurance coverage.

Cost accounting issues and a voluntary disclosure regarding charging
practices could result in future claims under U.S. government contracts. A
discussion of U.S. government contracts is included in "Markets and Customers"
on page 5 of this Form 10-K. The Company is cooperating with the U.S.
government in all investigations of which the Company has knowledge; however,
management is unable to predict whether legal proceedings will result.

Management believes, based on available information, that it is unlikely
any of these items will have a material adverse effect on the earnings or
financial position of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.

Listed below are the executive officers of the Company as of April 11, 1994,
the positions held by them and a brief description of their business experience.
There are no family relationships among any of the Company's executive officers:

OFFICER POSITIONS WITH COMPANY AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ----- -------------------

John J. Lee 57 1993 Chairman of the Board of Directors and
Chief Executive Officer since January
1994; Chairman and Co-Chief Executive
Officer from July to December 1993;
Director since May 1993. Mr. Lee has
been the Chairman of the Executive
Committee of XTRA Corporation, a
transportation equipment leasing
company, since 1990, and the Chairman
of the Board, President and Chief
Executive Officer of Lee Development
Corporation, a merchant banking
company, since 1987. Mr. Lee has also
been a Trustee of Yale University
since 1993. From July 1989 through
April 1993, Mr. Lee served as Chairman
of the Board and Chief Executive
Officer of Seminole Corporation, a
manufacturer and distributor of
fertilizer. From April 1988 through
April 1993, Mr. Lee served as a
Director of Tosco Corporation, a
national refiner and marketer of
petroleum products. Mr. Lee also
served as President and Chief
Operating Officer of Tosco from 1990
through April 1993.

<PAGE>

OFFICER POSITIONS WITH COMPANY AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ----- -------------------

Donald J. O'Mara 56 1991 Director since January 1994; President
and Chief Operating Officer since
March 1993; Vice President - Honeycomb
and Advanced Products from 1991 to
1993. From 1987 to 1991, Mr. O'Mara
served as managing director of
Sprague-Brooks Associates. He was
Vice President and Chief Operating
Officer of Gates Learjet Corporation
from 1984 to 1987.

Robert D. Krumme 56 1993 Director and Vice Chairman since January
1994; Vice President, General Counsel
and Secretary from September 1993 to
January 1994. Mr. Krumme has been
President of The Corporate Management
Group since 1989 and, prior to joining
the Company in 1993, was a senior
corporate executive officer and
general counsel of three public
companies. Mr. Krumme served as
General Counsel of The Gillette
Company from 1990 - 1991, as Vice
President and General Counsel of
Ingersoll-Rand Company from 1986 -
1988 and, prior to 1986, as Senior
Vice President and General Counsel and
in other executive positions of
Cluett, Peabody & Co, Inc. for more
than 15 years.

Rodney P. Jenks, Jr. 43 1994 Vice President, General Counsel and
Secretary of the Company since March
1994. Prior to joining the Company in
1994, Mr. Jenks was a partner in the
law firm of Wendel, Rosen, Black, Dean
& Levitan, from 1985.

Thomas J. Lahey 53 1989 Vice President - Worldwide Sales since
April 1993; Vice President - Advanced
Composites from 1992 to 1993; General
Manager of Advanced Composites from
1991 to 1992; General Manager of
Advanced Products from 1989 to 1991.
Prior to joining the company in 1989,
Mr. Lahey held the position of
Executive Assistant to the President
of Kaman Aerospace Corporation in 1987
and 1988, and was a Vice President of
Grumman Corporation from 1985 to 1987.

<PAGE>

OFFICER POSITIONS WITH COMPANY AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ----- -------------------

William P. Meehan 58 1993 Vice President - Finance and Chief
Financial Officer of the Company since
September 1993, and Treasurer of the
Company since April, 1994. Prior to
joining the Company in 1993, Mr.
Meehan served as President and Chief
Executive Officer of Thousands Trails
and NACO, a membership campground and
resort business, from 1990 through
1992. From 1986 through 1989, Mr.
Meehan served as Vice President-
Finance and Chief Financial Officer of
Hadco Corporation.

Robert A. Penezic 56 1979 Vice President - Administrative
Operations since 1986; Vice President
of Human Resources from 1979 to 1986.
Mr. Penezic joined the Company in
1979.

Robert A. Petrisko 39 1993 Vice President - Technology since
September 1993. Mr. Petrisko joined
the Company in 1989, after serving as
a Research Specialist with Dow Corning
Corporation from 1985 to 1989.

Gary L. Sandercock 52 1989 Vice President - Manufacturing since
April 1993; Vice President -
Reinforcement Fabrics from 1989 to
1993; General Manager of the Trevarno
Division from 1985 to 1989; other
manufacturing and general management
positions from 1967 to 1985. Mr.
Sandercock joined the Company in 1967.

William K. Woodrow 46 1993 Vice President - Marketing and Business
Development since March 1993. Prior
to joining the Company in 1993, Mr.
Woodrow served as Director of
Corporate Marketing of Raychem
Corporation from 1990 to 1992, and was
Division Manager of Chemelex-
Industrial Division from 1988 to 1990.

Wayne C. Pensky 38 1993 Controller since July 1993. Prior to
joining the Company in 1993, Mr.
Pensky served as Service Line Director
at Arthur Andersen & Co., where he was
employed from 1979.

<PAGE>

PART II

ITEM 5. MARKET FOR COMMON STOCK OF REGISTRANT AND RELATED STOCKHOLDER MATTERS.

Hexcel common stock is traded on the New York and Pacific Stock Exchanges.
The range of high and low sales prices of Hexcel common stock on the New York
Stock Exchange Composite Tape is contained in Note 18 to the Consolidated
Financial Statements included in this Form 10-K and is incorporated herein by
reference.

The Company paid a quarterly dividend of 11 cents per share in 1992 and
1991. Payments of future cash dividends were suspended effective with the first
quarter of 1993. The debtor-in-possession credit line prohibits any payment of
dividends. On December 6, 1993, there were 2,294 holders of record of Hexcel
common stock.

ITEM 6. SELECTED FINANCIAL DATA.

The information required by Item 6 is contained on page 27 of this Form 10-
K under "Selected Financial Data" and is incorporated herein by reference.

ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The information required by Item 7 is contained on pages 28 to 36 of this
Form 10-K under "Management Discussion and Analysis" and is incorporated herein
by reference.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The information required by Item 8 is contained on pages 43 to 72 of this
Form 10-K under "Consolidated Financial Statements and Supplementary Data" and
is incorporated herein by reference. The reports of independent public
accountants for the years ended December 31, 1993, 1992 and 1991 are contained
on pages 40 to 42 of this Form 10-K under "Independent Auditors' Reports" and
"Report of Independent Public Accountants" and are incorporated herein by
reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Not Applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

1. Directors

<PAGE>

Listed below are the directors of the Company as of April 11, 1994, the
positions with the Company held by them and a brief description of each
director's prior business experience. There are no family relationships among
any of the Company's directors:

DIRECTOR POSITIONS WITH COMPANY AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ----- -------------------

Thomas R. Brown 56 1981 Director; Chairman of the Insurance and
Environmental Committee; member of the
Audit Committee. Mr. Brown is
Chairman of the Board and Co-Chief
Executive Officer of California
Casualty Management Co., Vice
President and director of California
Casualty & Life Insurance Co., and
Chairman of the Board of the other
corporations of the California
Casualty Group. Mr. Brown is also a
director of University National Bank
& Trust Co. and CorVel Corporation.
The California Casualty Group
specializes in group sponsored
personal lines, property/casualty
insurance and workers' compensation.

Gary L. Depolo 57 1990 Director; Chairman of the Executive
Compensation and Organization
Committee; member of the Audit
Committee. Mr. Depolo is a retired
Executive Vice President of
Transamerica Corporation and served on
the Board of Directors of several of
Transamerica's subsidiary companies.
Mr. Depolo is also a director of Alta
Bates Corporation and California
Health Systems. Transamerica
Corporation is a financial services
organization which engages primarily
in lending, leasing, real estate
services and insurance.

John L. Doyle 62 1974 Director; Former Co-Chief Executive
Officer and Vice Chairman (July 1993
to December 1993); Chairman of the
Advanced Programs and Technology
Committee; member of the Nominating
Committee. Mr. Doyle is a retired
Executive Vice President of Hewlett-
Packard Co. Mr. Doyle is also a
director of Analog Devices, Inc. and
Tab Products. Hewlett-Packard Co.
manufactures electronic computation
equipment and measuring instruments.

<PAGE>

DIRECTOR POSITIONS WITH COMPANY AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ----- -------------------

Cyrus H. Holley 57 1991 Director; member of the Advanced
Programs and Technology Committee;
member of the Executive Compensation
and Organization Committee. Mr.
Holley is a retired Executive Vice
President and Chief Operating Officer
of Engelhard Corporation. Mr. Holley
is also a director of Atlantic Energy,
Inc. and UGI Corporation. Engelhard
Corporation is a provider of specialty
chemical products, engineered
materials and precious metal
management services. Mr. Holley
currently operates Management
Consulting Services which provides
strategic planning services to the
business and education communities. He
also serves as a director of the
National Association of Partners in
Education.

Robert D. Krumme 56 1994 Director and Vice Chairman since January
1994; Vice President, General Counsel
and Secretary from September 1993 to
January 1994. Mr. Krumme has been
President of The Corporate Management
Group since 1989 and, prior to joining
the Company in 1993, was a senior
corporate executive officer and
general counsel of three public
companies. Mr. Krumme served as
General Counsel of The Gillette
Company from 1990 - 1991, as Vice
President and General Counsel of
Ingersoll-Rand Company from 1986 -
1988 and, prior to 1986, as Senior
Vice President and General Counsel and
in other executive positions of
Cluett, Peabody & Co, Inc. for more
than 15 years.

<PAGE>

DIRECTOR POSITIONS WITH COMPANY AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ----- -------------------

Charles A. Lynch 66 1994 Director; Chairman of the Restructuring
Committee. Chairman of Greyhound
Lines, Inc., since 1991, and since
1989, Chairman of Market Value
Partners Company, a firm that invests
in and manages developing and
underperforming companies. Mr. Lynch
also serves on the board of directors
of Pacific Mutual Life Insurance,
Nordstrom, Inc., Syntex Corporation,
Mid-Peninsula Bank and Fresh Choice,
Inc. From 1988 through 1989 Mr. Lynch
served as President and Chief
Executive Officer of Levolor
Corporation. From 1986 through 1988
Mr. Lynch served as Chairman and Chief
Executive Officer of DHL Airways, Inc.
From 1978 through 1986 Mr. Lynch
served as Chairman and Chief Executive
Officer of Saga Corporation.

Donald J. O'Mara 56 1994 Director since January 1994; President
and Chief Operating Officer since
March 1993; Vice President - Honeycomb
and Advanced Products from 1991 to
1993. From 1987 to 1991, Mr. O'Mara
served as managing director of
Sprague-Brooks Associates. He was
Vice President and Chief Operating
Officer of Gates Learjet Corporation
from 1984 to 1987.

<PAGE>

DIRECTOR POSITIONS WITH COMPANY AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ----- -------------------

Lewis Rubin 56 1993 Director; Chairman of the Audit
Committee; member of the Nominating
Committee. Mr. Rubin has been
President and Chief Executive Officer
of XTRA Corporation, a transportation
equipment leasing company, since 1990.
From February 1988 to March 1990, Mr.
Rubin served as President of Lewis
Rubin Associates, a consulting firm
advising the transportation equipment
industry. Prior to February 1988, Mr.
Rubin served as Chairman, President
and Chief Executive Officer of Gelco
CTI Container Services, a subsidiary
of Gelco Corporation, a diversified
international management services
corporation, and as Executive Vice
President of Gelco Corporation. Mr.
Rubin is also a Director of Oneita
Industries, Inc.

George S. Springer 60 1993 Director; member of the Advanced
Programs and Technology Committee;
member of the Nominating Committee.
Dr. Springer is Professor and Chairman
of the Department of Aeronautics and
Astronautics and, by courtesy,
Professor of Mechanical Engineering
and Professor of Civil Engineering at
Stanford University. Dr. Springer
joined Stanford's faculty in 1983.

(a) EXECUTIVE OFFICERS

Information concerning the executive officers of the registrant is
contained in "Item 4A. Executive Officers of the Registrant" beginning on page
12 of this Form 10K and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

The information required in Item 11 will be contained in the definitive
Proxy Statement of the Company. Such information is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required in Item 12 will be contained in the definitive
Proxy Statement of the Company. Such information is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

On March 11, 1994, Mr. Rodney P. Jenks, Jr. became Vice President, General
Counsel and Secretary of the Company. Prior to becoming an officer of the
Company, Mr. Jenks was a partner in the law firm of Wendel, Rosen, Black, Dean &
Levitan which, during 1993 and to date in 1994, provided legal services to

<PAGE>

the Company for which it was invoiced $92,011. Upon becoming an officer of the
Company, Mr. Jenks resigned as a partner and currently serves as counsel to the
law firm. Although the law firm continues to provide limited legal services to
the Company (none of which are performed by Mr. Jenks), it is anticipated that
these services will be less extensive during 1994 than during 1993. There are
no currently proposed related transactions or any other related transactions
during the prior fiscal year that require disclosure in this Form 10-K report.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

a. FINANCIAL STATEMENTS
The consolidated financial statements of the Company, notes thereto,
financial statement schedules, independent auditors' report, and report of
independent public accountants are listed on page 38 of this Form 10-K and are
incorporated herein by reference.

b. REPORTS ON FORM 8-K
Current Report on Form 8-K dated December 9, 1993 related to the Registrant
filing a voluntary petition for relief under the provisions of Chapter 11 of the
federal bankruptcy laws in the United States Bankruptcy Court for the Northern
District of California, Oakland Division on December 6, 1993.

c. EXHIBITS

EXHIBIT NO. DESCRIPTION
- ----------- -----------

3. 1. Restated Certificate of Incorporation of Hexcel Corporation(6)

2. Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock(6)

3. Certificate of Increase of Authorized Number of Shares of Series A
Junior Participating Preferred Stock(7)

4. Amended and Restated Bylaws of Hexcel Corporation dated as of
August 30, 1993

4. 1. Certificate of Incorporation of Hexcel Corporation, Articles 5
through 10 (See Exhibit 3-1)

2. Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock (Exhibit 3-2)

3. Certificate of Increase of Authorized Number of Shares of Series A
Junior Participating Preferred Stock (See Exhibit 3-3)

4. Amended and Restated Bylaws of Hexcel Corporation, Sections 3
through 11, 13 through 16, and 46 (See Exhibit 3-4)

<PAGE>

EXHIBIT NO. DESCRIPTION
- ----------- -----------

5. Amendment to Bylaws of Hexcel Corporation (See Exhibit 3-4)

6. Rights Agreement dated as of August 14, 1986, between Hexcel
Corporation and Manufacturers Hanover Trust Company, as Successor
Rights Agent(6)

7. Amendment No. 1 dated October 18, 1988 to Rights Agreement between
Hexcel Corporation and the Bank of California, N.A.

8. Amendment No. 2 dated November 19, 1990 between Hexcel Corporation
and Manufacturers Hanover Company, as successor Rights Agent(4)

9. Amendment No. 3 dated December 18, 1990 between Hexcel Corporation
and Manufacturers Hanover Company, as successor Rights Agent(5)

10. Exemplar of Indenture between Hexcel Corporation and The Bank of
California, N.A., Trustee, dated October 1, 1988

11. Loan Agreement and Indentures-Industrial Development Bonds. These
instruments are not filed herewith; the registrant agrees to
furnish a copy of such instruments to the Commission upon request

10. Material Contracts:

1. A. Note Agreement, as amended, dated December 9, 1977, $8,000,000
8-3/4% Notes

B. Amendments dated April 25, 1978, April 30, 1980, January 6,
1981, April 12, 1981, May 13, 1981, August 21, 1981, March 15,
1982 and September 1, 1982, December 31, 1983, July 24, 1986 and
August 25, 1986, to Note Agreement dated December 9, 1977,
$8,000,000 8-3/4% Notes

2. Consent Agreement dated March 31, 1993, relating to Amended and
Restated Credit Agreement dated March 31, 1993, among Hexcel
Corporation and the Banks named therein and Wells Fargo Bank, N.A.,
as Agent(7)

3. Amended and Restated Credit Agreement dated March 31, 1993, among
Hexcel Corporation and the Banks named therein and Wells Fargo
Bank, N.A., as Agent(7)

4. Letter of Credit and Reimbursement Agreement dated March 1, 1988,
between Hexcel Corporation and Banque Nationale de Paris(7)

5. Letter of Credit and Reimbursement Agreement dated December 1,
1989, between Hexcel Corporation and Banque Nationale de Paris(3)

A. Amendment No. 1 to Letter of Credit and Reimbursement Agreement
dated October 12, 1988, between Hexcel Corporation and Banque
Nationale de Paris

<PAGE>

EXHIBIT NO. DESCRIPTION
- ----------- -----------

B. Amendment No. 2 to Letter of Credit and Reimbursement Agreement
dated July 1, 1992, between Hexcel Corporation and Banque
Nationale de Paris

C. Amendment No. 3 to Letter of Credit and Reimbursement Agreement
dated April 15, 1993, between Hexcel Corporation and Banque
Nationale de Paris

6. Note Agreement dated as of October 1, 1988, between Hexcel
Corporation and Principal Mutual Life Insurance Company,
$30,000,000 10.12% Senior Notes Due October 1, 1998

7. Letter of Credit Reimbursement Agreement dated as of November 1,
1991, among Hexcel Corporation and Barclays Bank PLC

8. Letter of Credit Reimbursement Agreement dated as of April 28,
1992, among Hexcel Corporation and Barclays Bank PLC as amended
March 31, 1993

9. Debtor in Possession Credit Agreement dated as of December 8, 1993,
and amended January 3, 1994 and March 25, 1994, and amended
April 11, 1994 by and between Hexcel Corporation and The CIT
Group/Business Credit, Inc.

10. Executive Compensation Plans and Arrangements

A. Stock Option Plans

(1) 1988 Management Stock Program(1)

(2) Amendments to 1988 Management Stock Program(1)

(3) 1988 Restricted Stock Agreement - Sample Agreement(1)

(4) 1988 Directors' Discounted Stock Option Agreement - Sample
Agreement(1)

(5) 1988 Discounted Stock Option Agreement - Sample Agreement(1)

(6) 1988 Employees Nonqualified Stock Option Agreement - Sample
Agreement(2)

(7) 1988 Officers' Nonqualified Stock Option Agreement - Sample
Agreement(1)

B. Exemplar of Executive Deferred Compensation Agreement

C. Exemplars of Incentive Plans(6)

D. Exemplars of Contingency Employment Agreement

E. Directors' Retirement Plan(7)

<PAGE>

EXHIBIT NO. DESCRIPTION
- ----------- -----------

F. Employment Agreement dated September 28, 1993 between Hexcel
Corporation and John J. Lee

G. Employment Agreement dated September 28, 1993 between Hexcel
Corporation and John L. Doyle

11. Statement Regarding Computation of Per Share Earnings

18. Preferability letter regarding change in accounting for inventories -
Deloitte & Touche

21. Subsidiaries of Registrant

23. Consents of Experts and Counsel

1. Independent Auditors' Consent - Deloitte & Touche

2. Consent of Independent Public Accountants - Arthur Andersen & Co.

_______________

(1) Incorporated by reference to the Registration Statement of registrant on
Post-Effective Amendment No. 1 to Form S-8 filed on May 11, 1988, No. 33-
17025, pursuant to the Securities Act of 1933

(2) Incorporated by reference to the Registration Statement of registrant on
Form S-8 filed on May 2, 1989, No. 33-28445, pursuant to the Securities Act
of 1933

(3) Incorporated by reference to the Annual Report of registrant on Form 10-K
for the year ended December 31, 1989, filed pursuant to Section 13 of the
Securities Exchange Act of 1934.

(4) Incorporated by reference to the Current Report of registrant on Form 8-K
dated November 19, 1990, filed pursuant to Section 13 of the Securities
Exchange Act of 1934.

(5) Incorporated by reference to the Current Report of registrant on Form 8-K
dated December 18, 1990, filed pursuant to Section 13 of the Securities
Exchange Act of 1934.

(6) Incorporated by reference to the Annual Report of registrant on Form 10-K
for the year ended December 31, 1991, filed pursuant to Section 13 of the
Securities Exchange Act of 1934.

(7) Incorporated by reference to the Annual Report of registrant on Form 10-K
for the year ended December 31, 1992, filed pursuant to Section 13 of the
Securities Exchange Act of 1934.

<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
PLEASANTON, STATE OF CALIFORNIA.
HEXCEL CORPORATION

APRIL 11, 1994 By: /s/ JOHN J. LEE
___________________________________
John J. Lee, Chief Executive Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE TITLE DATE
--------- ----- ----

JOHN J. LEE Chairman of the Board of April 11, 1994
______________________ Directors and Chief Executive
(John J. Lee) Officer
(PRINCIPAL EXECUTIVE OFFICER)

WILLIAM P. MEEHAN Vice President and Chief Financial April 11, 1994
______________________ Officer
(William P. Meehan) (PRINCIPAL FINANCIAL OFFICER)

WAYNE C. PENSKY Controller April 11, 1994
______________________ (CONTROLLER AND PRINCIPAL
(Wayne C. Pensky) ACCOUNTING OFFICER)

THOMAS R. BROWN Director April 11, 1994
______________________
(Thomas R. Brown)

GARY L. DEPOLO Director April 11, 1994

______________________
(Gary L. Depolo)

JOHN L. DOYLE Director April 11, 1994
______________________
(John L. Doyle)

CYRUS H. HOLLEY Director April 11, 1994
______________________
(Cyrus H. Holley)

ROBERT D. KRUMME Director April 11, 1994
______________________
(Robert D. Krumme)

CHARLES A. LYNCH Director April 11, 1994
______________________
(Charles A. Lynch)

<PAGE>

SIGNATURE TITLE DATE
--------- ----- ----

DONALD J. O'MARA Director April 11, 1994
______________________
(Donald J. O'Mara)

LEWIS RUBIN Director April 11, 1994
______________________
(Lewis Rubin)

GEORGE S. SPRINGER Director April 11, 1994
______________________
(George S. Springer)

<PAGE>
Exhibit 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference of our report dated April 11,
1994 (which report contains explanatory paragraphs regarding the uncertainties
of Hexcel Corporation's bankruptcy proceedings, substantial doubt about Hexcel
Corporation's ability to continue as a going concern, uncertainties regarding
the future operations of Hexcel Corporation's wholly-owned Belgian subsidiary,
Hexcel S.A., a change in accounting for postretirement benefits other than
pensions, a change in accounting for income taxes and a change in accounting for
domestic honeycomb and fabric inventories) appearing in this Annual Report on
Form 10-K for the year ended December 31, 1993, in the following Registration
Statements of Hexcel Corporation:

- - No. 33-9763 on Form S-3 for the Dividend Reinvestment Plan,

- - No. 33-49478 on Form S-8 for the 1988 Management Stock Program.

DELOITTE & TOUCHE

Oakland, California
April 11, 1994

______________________________

Exhibit 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the inclusion of
our report dated February 4, 1992, in this Annual Report on Form 10-K for the
year ended December 31, 1993 of Hexcel Corporation and the incorporation by
reference of our report in the Registration Statement on Form S-3 for the
Dividend Reinvestment Plan, filed on October 28, 1986, No. 33-9763 and in the
Registration Statement on Form S-8 for the 1988 Management Stock Program, filed
on July 10, 1992, No. 33-49478.

ARTHUR ANDERSEN & CO.

San Francisco, California
April 11, 1994

<PAGE>

SELECTED FINANCIAL DATA

The following table summarizes selected financial data for continuing
operations(a) as of, and for, the five years ended December 31.

(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
- ----------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 338,568 $ 386,289 $ 386,584 $ 382,743 $ 373,540
Gross margin 56,452 76,954 81,220 78,078 77,546
Restructuring expenses 52,600 23,500 -- -- --
Depreciation and amortization 15,840 15,734 15,421 13,305 16,342
Interest 9,135 8,695 11,433 10,712 8,501
Benefit (provision) for
income taxes (6,201) 6,349 174 (1,580) (1,073)
Income (loss) from
continuing operations (86,456) (17,706) 4,771 2,856 2,104
- ----------------------------------------------------------------------------------------------------------------
Working capital(b) $ 54,658 $ 69,337 $ 105,744 $ 105,701 $ 102,348
Total assets(b) 268,361 310,850 343,306 341,938 318,777
Long-term liabilities(c) 169,948 125,630 140,317 131,543 112,531
Shareholders' equity 20,753 106,149 144,323 143,178 134,943
Capital expenditures 6,542 17,093 14,728 23,800 22,507
- ----------------------------------------------------------------------------------------------------------------
Amounts per share:
Income (loss) from
continuing operations(d) $ (11.79) $ (2.43) $ 0.67 $ 0.41 $ 0.30
Cash dividends paid -- 0.44 0.44 0.44 0.44
Shareholders' equity 2.84 14.55 20.16 20.29 19.35
- ----------------------------------------------------------------------------------------------------------------
Weighted average shares
and equivalent shares 7,330 7,272 7,146 7,010 6,958
Shares outstanding at
year-end 7,310 7,296 7,158 7,057 6,975
- ----------------------------------------------------------------------------------------------------------------
Ratios:
Gross margin 16.7% 19.9% 21.0% 20.4% 20.8%
Long-term liabilities to
total capital 89.1% 54.2% 49.3% 47.9% 45.5%
Return on average assets (29.9)% (5.4)% 1.4% 0.9% 0.7%
Return on beginning equity (81.4)% (12.3)% 3.3% 2.1% 1.6%
Interest coverage(e) N/A N/A 1.4 1.4 1.4
- ----------------------------------------------------------------------------------------------------------------

<FN>

(a) THE DATA EXCLUDE DISCONTINUED OPERATIONS, THE EXTRAORDINARY ITEM AND THE
CUMULATIVE EFFECTS OF ACCOUNTING CHANGES. SEE THE CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES FOR FINANCIAL INFORMATION RELATED TO THESE ITEMS.
(b) THE DATA EXCLUDE NET ASSETS OF DISCONTINUED OPERATIONS.
(c) LONG-TERM LIABILITIES AS OF DECEMBER 31, 1993 INCLUDE LIABILITIES SUBJECT TO
DISPOSITION IN BANKRUPTCY REORGANIZATION.
(d) PRIMARY AND FULLY DILUTED NET INCOME (LOSS) PER SHARE FOR ALL FIVE YEARS
WERE THE SAME BECAUSE THE FULLY DILUTED COMPUTATION WAS ANTIDILUTIVE.
(e) INTEREST COVERAGE RATIO IS COMPUTED BY DIVIDING INTEREST INTO INCOME (LOSS)
BEFORE BENEFIT (PROVISION) FOR INCOME TAXES PLUS INTEREST.

</TABLE>

<PAGE>

MANAGEMENT DISCUSSION AND ANALYSIS

RESTRUCTURING AND BANKRUPTCY REORGANIZATION

The Company initiated a worldwide restructuring program in December 1992
and, accordingly, recorded a restructuring charge of $23.5 million. The
restructuring was necessary due to several factors including a precipitous drop
in aerospace build rates during the fourth quarter of 1992, anticipation of
protracted weakness in the aerospace industry and the need to make aggressive
cost reductions to operate profitably at lower sales levels. The initial
restructuring program included reductions in excess manufacturing capacity and
personnel, and a worldwide reorganization of sales, marketing and
administration. In addition to the realignment and reduction of personnel in
the U.S. and Europe, this program provided for the closure of the Graham, Texas
honeycomb plant, which was announced in April 1993. The Company began moving
manufacturing processes shortly thereafter, and expects the Graham facility to
be closed completely during the second half of 1994.

During the third quarter of 1993, Hexcel conducted a further evaluation of
the adequacy of the restructuring program and existing reserves in light of
declining business conditions in the Company's primary markets, including
commercial aerospace. As a result of this evaluation and the continuing decline
in aerospace sales, the Company significantly expanded the original
restructuring program and recorded an additional restructuring charge of $50.0
million in the third quarter of 1993. The expanded restructuring is a response
to deeper than anticipated declines in the aerospace market, and includes
additional staff reductions, further consolidation of facilities in the U.S. and
Europe, and write-downs of impaired assets. During the fourth quarter of 1993,
an additional charge of $2.6 million was recorded in connection with the
expanded restructuring program.

Even after the Graham closure is complete, the Company has more production
capacity than required for either current or projected sales levels, and needs
to close additional facilities. The 1993 restructuring charges include the
estimated costs of such closures, and the Company is currently evaluating which
facilities to close. This process is complicated by the uncertain outlook for
several product lines as well as aerospace industry requirements to "qualify"
specific equipment and locations for the manufacture of certain products. These
qualification procedures increase the complexity, cost and time of moving
equipment while continuing to serve existing customers.

Of the total of $76.1 million in 1993 and 1992 restructuring charges,
approximately $40 million relates to noncash asset write-downs. These write-
downs reflect expected losses on the disposition of facilities as well as the
impairment of assets caused by the changed business environment. Based on
current restructuring plans, estimated cash outlays for remaining restructuring
activities as of December 31, 1993 are approximately $18 million. See Note 3 to
the Consolidated Financial Statements for additional discussion.

In order to fund the restructuring program and improve its capital
structure, the Company needed substantial additional financing and a
restructuring of its U.S. and European debt. Negotiations with existing senior
U.S. lenders to obtain this financing and restructure the Company's domestic
obligations were undertaken early in 1993 and continued throughout most of the
year. Alternative sources of debt and equity financing were also pursued. The
Company did secure commitments of credit facilities for its Belgian subsidiary
through March 16, 1994, but was unable to obtain a consensus among the senior
U.S. lenders on a debt restructuring plan for U.S. operations.

<PAGE>

The failure of these negotiations left the Company with insufficient cash
availability to meet operating requirements and continue the restructuring
program, as discussed further under "Financial Condition and Liquidity" below.
As a result, on December 6, 1993, Hexcel Corporation filed a voluntary petition
for relief under the provisions of Chapter 11 of the federal bankruptcy laws.
The bankruptcy proceedings are limited to the U.S. parent company, Hexcel
Corporation, which directly owns and operates substantially all U.S. assets and
operations. The bankruptcy proceedings limit Hexcel Corporation's ability to
provide direct financial support outside of the normal course of business to its
joint ventures and international subsidiaries without the approval of the U.S.
Bankruptcy Court. Furthermore, certain actions, including actions outside of
the normal course of business, must be approved by the Bankruptcy Court. For a
further discussion of the effect of bankruptcy on the Company and its rights and
obligations under Chapter 11, see Note 2 to the Consolidated Financial
Statements included in this Form 10-K.

The Company incurred $0.6 million in costs associated with bankruptcy
proceedings in December of 1993. Legal and professional fees to be incurred as
a result of bankruptcy proceedings are expected to be significant.

RESULTS OF OPERATIONS

The 1993 loss from continuing operations was $86.5 million or $11.79 per
share. This compares with a loss from continuing operations of $17.7 million in
1992 and income from continuing operations of $4.8 million in 1991. The net
loss for 1993, including discontinued operations and the cumulative effects of
accounting changes, was $86.0 million or $11.73 per share. The net loss was
$29.3 million in 1992 and net income was $4.3 million in 1991.

The 1993 loss from continuing operations includes additional restructuring
charges of $52.6 million for a major expansion of the restructuring program
begun in December 1992. The loss also includes other expenses of $12.8 million
for the write-down of certain assets and increases in reserves for warranties
and environmental matters on property previously owned. The impairment of
assets was due primarily to the bankruptcy proceedings, continued changes in
business conditions and depressed real estate prices on property held for sale.
In addition, the Company recorded a $10.9 million reserve in 1993 to reflect the
adverse impact of the bankruptcy proceeding of Hexcel Corporation and ongoing
operating losses on the potential realization of deferred income tax benefits.
The 1992 results include a $23.5 million restructuring charge and other income
of $3.0 million from the settlement of a patent infringement case, as well as a
$1.4 million gain from the settlement of interest rate swap agreements.

During the fourth quarter of 1993, the Company changed to the first-in,
first-out ("FIFO") method of accounting for substantially all inventories. The
FIFO method provides a more meaningful presentation of the Company's financial
position by reflecting inventories at more recent costs, which provides more
relevant information about the Company's business condition. The effect of this
change on domestic honeycomb and fabric inventories, which were previously
valued using the last-in, first-out method, has been applied to prior years by
retroactively restating the consolidated financial statements as required by
generally accepted accounting principles. In 1993, the Company recorded a one-
time, cumulative benefit of $4.5 million from the adoption of a new accounting
standard for income taxes. In 1992, the Company recorded a one-time charge of
$8.1 million to reflect the adoption of a new accounting standard for
postretirement benefits. 1992 results also include an extraordinary gain of
$1.0 million on the redemption of $7.3 million of convertible subordinated
debentures at a discount. Losses from discontinued operations, which have now
been sold, totaled $4.0 million, $4.5 million and $0.5 million in 1993, 1992 and
1991, respectively.

<PAGE>

The downturn in the worldwide commercial aerospace business, which
accelerated in the fourth quarter of 1992, continued throughout 1993. This
downturn, which is not expected to reverse in 1994, has been a major factor in
the declining sales and substantial operating losses experienced by the Company
since the end of 1992. The ongoing decline in military procurement, including
military aerospace orders, has also contributed to the deterioration in the
Company's operating results. Furthermore, while non-aerospace markets in the
U.S. stabilized during 1993, general economic conditions in Europe did not
improve. Many of the markets the Company serves within Europe remain depressed,
although some markets such as electrical products strengthened during the year.

Headcount reductions from December 31, 1992 to February 28, 1994, have
totaled 710 people, to 2,340 employees at February 28, 1994.

SALES

Sales from continuing operations were $338.6 million in 1993, compared
with $386.3 million in 1992 and $386.6 million in 1991. The 12% decline from
1992 to 1993 is primarily attributable to the downturn in the worldwide
commercial aerospace market, which accelerated during the fourth quarter of
1992. Sales in the fourth quarter of 1993 of $80.3 million were down 9% from
the fourth quarter of 1992, and were 17% less than fourth quarter sales two
years ago. Customers within the aerospace market have responded to lower build
rates for commercial aircraft by canceling orders, delaying shipments and
reducing inventories to match future operating levels. The military aerospace
market has also been in decline, reflecting Administration and Congressional
pressure to reduce military spending. The Company continued to pursue other
markets for its products during the year.

Sales in the U.S. were $193.6 million in 1993, down 10% from $216.2
million in 1992. The decline in U.S. sales was attributable to the decline in
the commercial and military aerospace markets. Sales to the U.S. recreation
market increased, but fabrics sales were lower due to the transfer of the
Company's Knytex operations to a corporate joint venture with Owens-Corning on
June 30, 1993. Knytex sales of $7.0 million during the first half of the year
are included in the consolidated sales total, while second half sales are not.

International sales were $144.9 million for 1993 compared with $170.1
million in 1992. Decreased aerospace sales were only partially offset by
improved sales to the recreation and electrical markets. In addition, sales to
the European architectural market were weak as the construction industry,
especially in Germany, remained in a deep recession. Part of the international
sales decline is due to currency exchange rates. The Belgian and French francs
declined approximately 7% against the dollar from 1992 to 1993; accordingly,
sales from the Company's primary international subsidiaries were reduced when
translated into U.S. dollars.

Sales in 1992 were essentially unchanged from 1991. U.S. sales increased
by $5.7 million which neutralized a corresponding international sales decrease.
The U.S. sales increase was due mainly to graphite honeycomb shipments in early
1992. The international sales decline was attributable to depressed aerospace
sales in Europe.

COMMERCIAL AEROSPACE SALES
Worldwide sales of $132.6 million in 1993 were down 20% from sales of
$166.4 million in 1992. The commercial aerospace market began to deteriorate in
1992 and the slow-down continued throughout 1993.

<PAGE>

Reacting to order cancellations from many airlines, major aircraft manufacturers
announced a series of build rate reductions worldwide. Additionally, most of
these manufacturers announced significant personnel reductions and initiated
ongoing efforts to reduce inventories and shorten production lead times. These
actions indicate that this is not a temporary decline in the commercial
aerospace market.

Declining build rates and associated inventory reductions have resulted in
the cancellation and delay of orders for several of the Company's aerospace
products. While sales of individual products, such as graphite honeycomb and
certain composites products, have increased in response to the production of new
wide-bodied aircraft, the majority of products sold to the commercial aerospace
market declined. The shrinking commercial aerospace market has intensified
competition among suppliers for remaining business. This has resulted in price
pressure and margin declines on competitive products which the Company provides
to this market.

SPACE AND DEFENSE SALES
Worldwide sales in 1993 decreased to $55.8 million from $59.4 million in
1992. This decline continues a trend which began in 1988 when sales to the
space and defense market exceeded $100.0 million. The Company expects this
trend to continue and is currently evaluating its future involvement in these
markets. The disposition of the current Administration and Congress is toward a
general reduction in military spending, and several of the military aerospace
programs in which the Company has participated in the past, including the B-2
program, are being reduced or eliminated. For further discussion of the
Company's space and defense business, see "Markets and Customers" in this Form
10-K.

GENERAL INDUSTRIAL AND OTHER SALES
Worldwide sales were $150.1 million in 1993 compared with $160.5 million
in 1992. For the first time in recent Company history, sales to general
industrial markets exceeded sales to the commercial aerospace market. Products
provided to non-aerospace customers included honeycomb, advanced composites,
reinforcement fabrics and resins. Sales of new products introduced within the
last three years continued to grow, as did sales to Reebok for use in athletic
shoes. The sale of honeycomb panels for trains built for the Channel Tunnel
peaked in 1993 following project delays in 1992. Demand for graphite composite
tape used in golf club shafts rose as manufacturers pursued improved
performance, and fabric sales to the electrical market increased as demand for
circuit boards grew. Sales of material for ballistic purposes, such as
bulletproof vests, increased as a result of the receipt of three large
contracts.

The formation of the corporate joint venture with Owens-Corning reduced
sales of stitchbonded fabrics in the U.S. as sales during the second half of the
year went to the joint venture. Decorative fabric sales declined, primarily in
Europe, because of the slump in the construction industry. Hexcel's penetration
of the U.S. decorative market is still in the embryonic stage. Resin product
sales declined nearly 16% to $27.9 million in 1993. Approximately two-thirds of
resin product sales are in Europe, and most of the sales decline was due to
currency exchange rates. U.S. resin sales also declined due to general
aerospace and other industry trends. The Company has commenced discussions with
interested parties for the sale of the Resins business, although no agreement
has yet been reached.

The Company continues to focus on the development of products for the
general industrial, recreation, transportation, and other non-aerospace markets.
Increased sales to these markets are needed to lessen the Company's dependence
on commercial aerospace and space and defense markets.

<PAGE>

GROSS MARGIN

Gross margin for 1993 declined to 16.7% from 19.9% in 1992 and 21.0% in
1991. The gross margin decline resulted primarily from lower sales volumes and
continued pricing pressures due to industry overcapacity in aerospace markets.
The 12% sales decline in 1993 created additional excess capacity for the
Company. Although the closure of the Company's Graham, Texas plant began in
April 1993, the impact of reduced manufacturing overhead costs did not begin to
materialize until the fourth quarter. The Graham closure will not be completed
until the second half of 1994. For a period of time, the Company was required
to maintain overlapping overhead while manufacturing processes were being
transferred to other plants. In addition, many of the new products developed
for non-aerospace markets have not commanded premium prices due to strong
competition. At the same time, shrinking aerospace markets have generated
increased competition for remaining business which has created pricing pressures
on competitive products.

MARKETING, GENERAL AND ADMINISTRATIVE (M,G&A) EXPENSES

M,G&A expenses decreased $10.3 million from 1992 to 1993, a decline of
14%. M,G&A expenses were 18.2% of sales in 1993, 18.6% in 1992 and 16.9% in
1991. The decrease in 1993 was a result of significant headcount reductions
made during the year in an effort to mitigate the effects of declining sales.
These headcount reductions were achieved through a reorganization of sales and
administrative functions to reduce redundancies and inefficiencies. In
addition, the Company restricted spending due to its tight cash position,
particularly in the second half of the year.

M,G&A expenses increased by $6.6 million from 1991 to 1992 because of
several significant expenses, including bad debt write-offs and legal and
environmental reserves.

M,G&A expenses include research and development expenses which were $8.7
million in 1993 or 2.6% of sales, approximately the same level as in 1992 and
1991. Successful research and development activities are critical to the
Company's future, and the need to invest in effective research and development
must be balanced against the need to reduce expenditures.

INTEREST

1993 interest expenses were $9.1 million, 5% higher than in 1992.
Excluding a $1.4 million gain in 1992 from the settlement of interest rate swap
agreements, interest expenses actually declined by 9% from 1992 to 1993. This
decline is attributable to lower average interest rates on variable rate debt,
as well as the full-year benefit from the repurchase of $7.3 million of
convertible subordinated debentures during the second quarter of 1992. In
addition, borrowings under the U.S. revolving credit agreement were limited to
$12.0 million throughout the year. Interest reductions were partially offset by
additional borrowings by Hexcel S.A., the Company's Belgian subsidiary, to
finance losses and restructuring activities.

1992 interest expenses of $8.7 million were 24% lower than in 1991. In
addition to the $1.4 million gain noted above, 1992 expenses benefited from
declining interest rates and the reduction of $19.3 million in debt from the
cash proceeds from the sale of the U.S. fine chemicals business in 1991.

<PAGE>

Capitalized interest was $0.2 million in 1993, $0.3 million in 1992, and
$1.1 million in 1991. The decline in interest capitalization reflects the
reduction in long-term capital projects undertaken by the Company.

INCOME TAXES

Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." The
cumulative effect of adopting this standard was the recognition of a deferred
income tax benefit of $4.5 million, which was recorded in the first quarter of
1993. During 1993, substantial uncertainty developed as to the realization of
the deferred income tax benefits recognized in connection with SFAS 109. As a
result, the Company recorded a $10.9 million adjustment to the valuation
allowance to reduce the recorded value of these benefits to zero as of December
31, 1993. The adjusted valuation allowance reflects the Company's assessment
that the bankruptcy proceedings of Hexcel Corporation and ongoing operating
losses have impaired the realization of deferred income tax benefits. See Note
13 to the Consolidated Financial Statements for additional discussion.

The 1993 tax provision was computed in accordance with SFAS 109. The
recognition of a $6.2 million provision on an $80.3 million loss from continuing
operations before taxes reflects the valuation allowance noted above. The 1992
and 1991 tax benefits of $6.3 million and $0.2 million, respectively, were
computed in accordance with Accounting Principles Board Opinion No. 11 ("APB
11"), which was superseded by SFAS 109. The effective rate of these tax
benefits were 26% and 4%, respectively, and reflect the impact of 1992 operating
losses and international tax incentives and credits, to the extent allowable by
APB 11.

HEXCEL S.A. (BELGIUM)

The restructuring program initiated by the Company in 1992 and expanded in
1993 includes certain actions at Hexcel S.A., a wholly-owned Belgian subsidiary.
Due to depressed European business conditions, particularly in the aerospace
industry, Hexcel S.A. has been operating at a loss. Furthermore, interest costs
are consuming cash as are the restructuring activities necessary to return the
subsidiary to profitability. Hexcel S.A. is also investigating alleged product
claims which could require additional cash outlays.

Hexcel S.A. is currently in negotiations with its existing lenders
regarding the commitment of credit facilities which expired beginning on March
16, 1994. Four of the five existing lenders have agreed to a stand still until
April 30, 1994, subject to the Parent Company making satisfactory progress
toward obtaining authorization from the Bankruptcy Court to invest additional
funds and recapitalize Hexcel S.A. Discussions with the fifth lender are
continuing. There is no assurance that the Bankruptcy Court will authorize the
investment of additional funds or the recapitalization of Hexcel S.A., or that
the existing lenders will continue to extend their short-term credit agreements
for any specified length of time. As a result, Hexcel S.A.'s ability to
continue as a going concern is subject to its obtaining needed financing, as
well as resolving alleged product claims and successfully implementing required
restructuring initiatives.

<PAGE>

JOINT VENTURES AND DIVESTITURES

The Company entered into a joint venture with Owens-Corning in June 1993.
The venture is a strategic alliance which combines the stitchbonding capability
of Hexcel with the reinforcement glass manufacturing, marketing and distribution
expertise of Owens-Corning to produce and market stitchbonded fabrics worldwide.
The venture began operations in July 1993 after the Company sold 50% of the
Knytex business to Owens-Corning and contributed the remaining 50% to the
venture. The Company received proceeds of $4.5 million and recorded a gain of
approximately $1.5 million related to the sale. The Company owns 50% of the
Knytex venture, which had revenues during the six months ended December 31, 1993
of $6.8 million.

The Company entered into a joint venture with Fyfe Associates in October
1992. Hexcel-Fyfe will sell and apply high strength architectural wrap for the
seismic retrofitting and strengthening of bridges and other structures. The
major January 17, 1994 earthquake in Los Angeles demonstrated the capability of
the product, as certain test sites near the epicenter survived with no damage.
The Company owns 40% of the venture, and Fyfe Associates owns the remainder.
Revenues of the venture were not significant in 1993 or 1992.

In 1990, the Company entered into a joint venture with Dainippon Ink and
Chemicals for the production and sale of Nomex honeycomb, advanced composites
and decorative laminates for the Japanese market. Construction of a
manufacturing facility in Komatsu, Japan began in 1992. The facility began
production of material for qualification in 1993 with the qualification process
expected to run through 1994. The Company owns 50% of this venture.

In March 1992, the Company sold the fine chemicals business located in
Zeeland, Michigan. In January 1994, the Company sold the fine chemicals
business located in Teesside, England, which completes the divestiture of
discontinued operations. See Note 14 to the Consolidated Financial Statements
for additional discussion.

FINANCIAL CONDITION AND LIQUIDITY

EVENTS LEADING TO BANKRUPTCY REORGANIZATION
As a result of the $30.6 million loss from continuing operations before
income taxes in the fourth quarter of 1992, which included a $23.5 million
restructuring charge, the Company was not in compliance with certain financial
covenants of its U.S. revolving bank credit and other U.S. financing agreements.
In March 1993, the Company entered into a new revolving credit agreement which
reduced the amount available for borrowing from $35.0 million to the amount then
borrowed of $12.0 million; shortened the maturity of the facility by two years
to March 15, 1994; required the Company to provide by July 31, 1993 collateral
consisting of substantially all U.S. assets; and revised certain financial
covenants. Due to operating losses incurred during the first half of 1993, and
the inability to proceed with a planned acquisition, the Company was not in
compliance as of June 30, 1993 with the revised financial covenants which had
included the benefits of this acquisition. Waivers for noncompliance of a
financial covenant and the covenant to provide collateral were obtained from the
U.S. lenders through September 15, 1993.

Operating losses continued during the third quarter of 1993 and, as a
result of no additional borrowing capacity under existing U.S. credit
agreements, the Company was required to extend U.S. trade payables from $9.5
million at December 31, 1992 to $23.9 million as of August 31, 1993. Ongoing
negotiations with the existing senior U.S. lenders failed to produce an
agreement, and the September 15, 1993 waiver

<PAGE>

deadline expired with the Company in noncompliance. No additional waivers were
granted although negotiations continued. The Company was able to finance its
activities during September and October primarily as a result of receiving
approximately $9.6 million from the accelerated collection of amounts due under
long-term contracts and the settlement of a terminated contract.

Restructuring costs and operating losses continued in the fourth quarter
and the Company was required to reduce its accounts payable as a result of more
restrictive credit terms imposed by many suppliers. The resulting consumption
of cash was partially offset by efforts to control spending, reduce accounts
receivable and inventory levels, limit restructuring actions to those items
already in progress and limit capital expenditures to minimum levels. The
Company's trade vendors were becoming increasingly concerned over the protracted
extension of their payments and reports of the Company's financial distress, as
well as the lack of an agreement with the senior U.S. lenders to restructure
outstanding debt and obtain additional financing.

By mid-November, the Parent Company was operating at critically low levels
of cash without any remaining credit availability, having extended payments to
trade vendors. As discussed on page 28, negotiations with existing senior U.S.
lenders and other potential investors ultimately failed, and the Parent Company
filed a voluntary petition for relief under the provisions of Chapter 11 of the
federal bankruptcy laws on December 6, 1993.

Federal bankruptcy laws prohibit Hexcel Corporation from paying almost all
prepetition liabilities without the approval of the Bankruptcy Court. The
effect of this prohibition was to increase the amount of available cash between
December 6 and the end of the year, as Hexcel Corporation continued to generate
cash proceeds from product sales without satisfying prepetition debts. This was
partially offset by many vendors requiring cash in advance for purchases. As of
December 31, 1993, the Company had cash and equivalents of approximately $12.9
million, including $7.9 million in the U.S.

Prior to the Chapter 11 filing, Hexcel Corporation arranged for a debtor-
in-possession revolving credit line from The CIT Group / Business Credit, Inc.
On January 28, 1994, the Bankruptcy Court granted final approval for the use of
this credit facility. The amount available for borrowing is based on the
outstanding balance of eligible U.S. receivables and inventories, up to a
maximum of $35.0 million. This credit line is secured by substantially all of
the Company's U.S. assets, enjoys superpriority over virtually all other claims,
and is subject to a number of financial covenants and restrictions. As of
December 31, 1993, the Company had not borrowed against this credit line. The
Company believes it will begin to borrow against this facility during the second
quarter of 1994.

The Company expects that the debtor-in-possession revolving line of credit
will be sufficient to finance the Parent Company's operations and restructuring
activities while it remains under bankruptcy protection. This credit facility
expires in two years or upon confirmation of a plan of reorganization, at which
time all outstanding borrowings become immediately due and payable.
Consequently, the Company must secure long-term postconfirmation financing in
connection with the reorganization of Hexcel Corporation.

HEXCEL S.A..
As noted under "Hexcel S.A. (Belgium)" above, the Company's Belgian
subsidiary is currently in negotiations with existing lenders regarding the
commitment of credit facilities which expired beginning on March 16, 1994. If
Hexcel S.A. is unable to obtain needed financing, it may be unable to continue
as a going concern for a reasonable period of time.

<PAGE>

CURRENT FINANCIAL CONDITION AND LIQUIDITY
Total credit lines, excluding U.S. credit lines subject to bankruptcy
reorganization, were approximately $63.8 million at December 31, 1993. $35.0
million of this total was the debtor-in-possession revolving line of credit, and
the remaining $28.8 million was comprised of various credit lines extended to
the Company's European subsidiaries, including Hexcel S.A., of which $7.2
million was available for borrowing by those subsidiaries for their activities.
The debtor-in-possession credit line cannot be used to provide direct financial
support outside of the normal course of business to joint ventures or European
subsidiaries without the prior consent of the Bankruptcy Court.

Operating activities including capital expenditures and restructuring
charges, but before working capital changes, consumed $23.5 million of cash in
1993, $11.0 million in 1992, and $1.7 million in 1991. The consumption of cash
in 1993 and 1992 was offset by working capital improvements of $28.1 million in
1993 and $25.0 million in 1992. Much of the net increase in cash in 1993
occurred shortly after the bankruptcy filing, as prepetition obligations were
stayed by the Bankruptcy Court, while December 1993 accounts receivable
collections were strong. The working capital improvements in 1993 were due to
lower accounts receivable and inventory levels from declining sales and improved
working capital controls, as well as the deferral of payments on U.S. accounts
payable during the year. The Company also obtained cash from additional
borrowings on European credit lines and from the proceeds from the sale of 50%
of the Knytex operation to Owens-Corning. In 1992, the Company used the
proceeds from the sale of the U.S. fine chemicals business of $19.3 million to
pay down debt.

Working capital from continuing operations decreased to $54.7 million at
the end of 1993 from $69.3 million at the end of 1992 and $105.7 million at the
end of 1991. The 1993 reduction is primarily attributable to continuing sales
declines, working capital controls and asset write-downs, partially offset by
the increase in cash and the reclassification of short-term prepetition
obligations to non-current liabilities subject to disposition in bankruptcy
reorganization. The 1992 working capital reduction was largely due to the
sudden sales decline in the fourth quarter and the implementation of working
capital controls throughout the year. Most of the reduction occurred in
accounts receivable and inventory.

Capital expenditures were $6.5 million in 1993 compared with $17.1 million
in 1992 and $14.7 million in 1991. The substantial decline in capital spending
during 1993 reflects the ongoing effort to conserve cash which began early in
the year. The Company has limited capital spending to outlays required by
regulatory requirements and the replacement and upgrade of essential existing
equipment. Until Hexcel Corporation emerges from bankruptcy proceedings and
adequate long-term financing is in place, the Company does not expect capital
expenditures to significantly increase above 1993 spending levels.

Cash requirements to complete the current restructuring program are
expected to total approximately $18 million. Funding for these costs will come
from the debtor-in-possession revolving line of credit while in bankruptcy
proceedings, and funding after bankruptcy proceedings will be provided as part
of the reorganization plan.

<PAGE>

MARKET SUMMARY

The following tables summarize net sales by market and by international
operations for continuing operations(a) for the five years ended December 31.

Net Sales by Market

- ------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial aerospace 39% 43% 44% 44% 41%
General industrial and
other 45% 42% 39% 38% 35%
Space and defense 16% 15% 17% 18% 24%
- ------------------------------------------------------------------------------------------
100% 100% 100% 100% 100%
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
International Operations
- ------------------------------------------------------------------------------------------
International net sales(b) $ 144,927 $ 170,118 $ 176,094 $ 174,636 $ 151,839
Percentage of net sales 43% 44% 46% 46% 41%
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------

<FN>

(a) THE DATA EXCLUDE DISCONTINUED OPERATIONS. SEE THE CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES FOR FINANCIAL INFORMATION ON DISCONTINUED OPERATIONS.
(b) NET SALES OF INTERNATIONAL SUBSIDIARIES AND U.S. EXPORTS, IN THOUSANDS.

</TABLE>

<PAGE>

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Description Page
- --------------------------------------------------------------------------------
Management Responsibility for Financial Statements 39
Independent Auditors' Report 40 - 41
Report of Independent Public Accountants 42
Consolidated Financial Statements:
Consolidated Statements of Operations:
Three years ended December 31, 1993 43
Consolidated Balance Sheets: December 31, 1993 and 1992 44
Consolidated Statements of Shareholders' Equity:
Three years ended December 31, 1993 45
Consolidated Statements of Cash Flows:
Three years ended December 31, 1993 46
Notes to the Consolidated Financial Statements 47 - 68
Financial Statement Schedules for the three years ended
December 31, 1993:
V. Property, Plant and Equipment 69
VI. Accumulated Depreciation and Amortization of Property,
Plant and Equipment 70
IX. Short-Term Borrowings 71
X. Supplementary Income Statement Information 72
Exhibit 11. Statement Regarding Computation of Per Share
Earnings (Unaudited) 73

Financial statement schedules other than those listed above have been
omitted because they are not applicable, not required, or the required
information is included in the consolidated financial statements or notes
thereto.

38
<PAGE>

MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS

Hexcel management has prepared and is responsible for the consolidated
financial statements and the related financial data contained in this report.
These financial statements were prepared in accordance with generally accepted
accounting principles. Management uses its best judgment to ensure that such
statements reflect fairly the consolidated financial position, results of
operations and cash flows of the Company.

The Company maintains accounting and other control systems which management
believes provide reasonable assurance that financial records are reliable for
purposes of preparing financial statements and that assets are safeguarded and
accounted for properly. Underlying this concept of reasonable assurance is the
premise that the cost of control should not exceed benefits derived from
control.

The Audit Committee of the Board of Directors reviews and monitors the
financial reports and accounting practices of the Company. These reports and
practices are reviewed regularly by management and by the independent auditors,
Deloitte & Touche, in connection with the audit of the Company's financial
statements. The Audit Committee, composed solely of outside directors, meets
periodically, separately and jointly, with management and the independent
auditors.

JOHN J. LEE
- -------------------------------
(John J. Lee)
CHIEF EXECUTIVE OFFICER

WILLIAM P. MEEHAN
- -------------------------------
(William P. Meehan)
CHIEF FINANCIAL OFFICER

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and
Shareholders of Hexcel Corporation:

We have audited the accompanying consolidated balance sheets of Hexcel
Corporation (Debtor-in-Possession) and subsidiaries (collectively the "Company")
as of December 31, 1993 and 1992, and the related consolidated statements of
operations, shareholders' equity and cash flows for the years then ended. Our
audits also included the financial statement schedules for the years ended
December 31, 1993 and 1992 listed in the index on page 38. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such 1993 and 1992 consolidated financial statements
present fairly, in all material respects, the financial position of Hexcel
Corporation and subsidiaries at December 31, 1993 and 1992, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles. Also, in our opinion, such 1993
and 1992 financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information shown therein.

We also audited the adjustments described in Note 4 that were applied to
restate the 1991 financial statements to give retroactive effect to the change
in the method of accounting for domestic honeycomb and fabric inventories to the
first-in, first-out method from the last-in, first-out method. In our opinion,
such adjustments are appropriate and have been properly applied.

As discussed in Notes 1 and 2, Hexcel Corporation has filed for
reorganization under Chapter 11 of the Federal Bankruptcy Code. The
accompanying consolidated financial statements do not purport to reflect or
provide for the consequences of the bankruptcy proceedings. In particular, such
consolidated financial statements do not purport to show (a) as to assets, their
realizable value on a liquidation basis or their availability to satisfy
liabilities; (b) as to prepetition liabilities, the amounts that may be allowed
for claims or contingencies, or the status and priority thereof; (c) as to
shareholder accounts, the effect of any changes that may be made in the
capitalization of the Company; or (d) as to operations, the effect of any
changes that may be made in its business. The outcome of these matters is not
presently determinable. Accordingly, the consolidated financial statements do
not include adjustments that might result from the ultimate outcome of these
uncertainties.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 1,2,3 and 6,
the Company's recurring losses from operations and future need for new financing
raise substantial doubt about its ability to continue as a going concern. The
Company's ability to continue as a going concern is dependent upon its ability
to (a) return to profitability based on a successful implementation of its plan
for restructuring operations and (b) obtain new financing when needed to repay
anticipated borrowings against the U.S. debtor-in-possession line of

<PAGE>

credit, which are necessary to pay for restructuring activities. Any
borrowings against the U.S. debtor-in-possession line of credit are due upon
the earlier of December 1995 or confirmation by the U.S. Bankruptcy Court of
a plan of reorganization. Management's plans concerning these matters are also
discussed in Note 1. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.

As discussed in Note 16 to the consolidated financial statements, Hexcel
S.A. (a Belgium company), a wholly-owned subsidiary of Hexcel Corporation, is
experiencing substantial operating and financial difficulties. Additionally,
Hexcel Corporation is unable to provide direct financial support outside of the
normal course of business to this subsidiary without U.S. Bankruptcy Court
approval, which raises substantial doubt about Hexcel S.A.'s ability to continue
as a going concern. The ultimate outcome of these uncertainties is not
presently determinable. Accordingly, the consolidated financial statements do
not include adjustments that might result from the ultimate outcome of these
uncertainties.

As discussed in Note 1 to the consolidated financial statements, the
Company (1) in 1992 changed its method of accounting for postretirement benefits
other than pensions to conform with Statement of Financial Accounting Standards
No. 106, (2) in 1993 changed its method of accounting for domestic honeycomb and
fabric inventories from the last-in, first-out method to the first-in, first-out
method, and (3) changed its method of accounting for income taxes effective
January 1, 1993 to conform with Statement of Financial Accounting Standards No.
109. The 1992 and 1991 consolidated financial statements have been
retroactively restated for the change in accounting for domestic honeycomb and
fabric inventories.

DELOITTE & TOUCHE
Oakland, California
April 11, 1994

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of Hexcel Corporation:

We have audited the consolidated statement of operations, shareholders'
equity, and cash flows of Hexcel Corporation and subsidiaries for the year ended
December 31, 1991 prior to the restatement (and, therefore, are not presented
herein) for the change in accounting for certain inventories from the last-in,
first-out ("LIFO") to the first-in, first-out ("FIFO") method as described in
Note 4 to the restated consolidated financial statements. These consolidated
financial statements and the schedules referred to below are the responsibility
of Hexcel's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedules based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Hexcel Corporation and subsidiaries for the year ended December 31,
1991 in conformity with generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index on
page 38 are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. The
schedules for the year ended December 31, 1991 have been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

ARTHUR ANDERSEN & CO.

San Francisco, California
February 4, 1992

42
<PAGE>
<TABLE>
<CAPTION>

HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

Net sales $ 338,568 $ 386,289 $ 386,584
Cost of sales (282,116) (309,335) (305,364)
- ------------------------------------------------------------------------------------------------------------------------------------
Gross margin 56,452 76,954 81,220
Other operating costs and expenses:
Marketing, general and administrative expenses (61,551) (71,806) (65,190)
Restructuring expenses (52,600) (23,500) --
Other income (expenses) (12,780) 2,992 --
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (70,479) (15,360) 16,030
Interest expenses (9,135) (8,695) (11,433)
Bankruptcy reorganization expenses (641) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes (80,255) (24,055) 4,597
Benefit (provision) for income taxes (6,201) 6,349 174
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations (86,456) (17,706) 4,771

Discontinued operations:
Losses during phase-out period, net of benefit for income taxes
of $383 in 1993, $1,139 in 1992 and $546 in 1991 (4,039) (4,472) (508)
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item and cumulative effects
of accounting changes (90,495) (22,178) 4,263

Extraordinary item:
Gain on redemption of convertible subordinated debentures,
net of provision for income taxes of $492 in 1992 -- 956 --
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effects of accounting changes (90,495) (21,222) 4,263

Cumulative effects of accounting changes:
Postretirement benefits other than pensions, net of
benefit for income taxes of $4,148 in 1992 -- (8,052) --
Income taxes 4,500 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (85,995) $ (29,274) $ 4,263
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------

Net income (loss) per share and equivalent share:
Primary and fully diluted:
Continuing operations $ (11.79) $ (2.43) $ 0.67
Discontinued operations (0.55) (0.62) (0.07)
Extraordinary item -- 0.13 --
Cumulative effects of accounting changes 0.61 (1.11) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (11.73) $ (4.03) $ 0.60
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares and equivalent shares 7,330 7,272 7,146
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

<PAGE>

HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

- ----------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1993 1992
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 12,877 $ 2,449
Accounts receivable 67,595 78,803
Inventories 47,284 61,074
Prepaid expenses 4,562 9,623
Net assets of discontinued operations -- 3,541
- ----------------------------------------------------------------------------------------------------
Total current assets 132,318 155,490
- ----------------------------------------------------------------------------------------------------
Property, plant and equipment:
Land 4,660 6,223
Buildings 62,020 67,806
Equipment 167,802 179,912
- ----------------------------------------------------------------------------------------------------
234,482 253,941
Less accumulated depreciation 119,814 115,670
- ----------------------------------------------------------------------------------------------------
Net property, plant and equipment 114,668 138,271
- ----------------------------------------------------------------------------------------------------
Investments and other assets 21,375 20,630
- ----------------------------------------------------------------------------------------------------
Total assets $ 268,361 $ 314,391
- ----------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term liabilities $ 24,632 $ 21,925
Accounts payable 12,816 20,587
Accrued liabilities 40,212 40,100
- ----------------------------------------------------------------------------------------------------
Total current liabilities 77,660 82,612
- ----------------------------------------------------------------------------------------------------
Long-term notes payable and capital lease obligations 5,168 95,569
Deferred liabilities 44,848 30,061
Liabilities subject to disposition in bankruptcy reorganization 119,932 --
- ----------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $0.01 par value, authorized 20,000 shares,
shares issued and outstanding of 7,310 in 1993 and 7,296 in 1992 73 73
Additional paid-in capital 62,562 62,292
Retained earnings (accumulated deficit) (42,744) 43,251
Minimum pension obligation adjustment (646) --
Cumulative currency translation adjustment 1,508 533
- ----------------------------------------------------------------------------------------------------
Total shareholders' equity 20,753 106,149
- ----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 268,361 $ 314,391
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

44
<PAGE>

HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

- -----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED COMMON STOCK RETAINED MINIMUM CUMULATIVE
DECEMBER 31, ---------------------- ADDITIONAL EARNINGS PENSION CURRENCY
1993, 1992 AND 1991 OUTSTANDING PAID-IN (ACCUMULATED OBLIGATION TRANSLATION
(IN THOUSANDS) SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT ADJUSTMENT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>

BALANCE, JANUARY 1, 1991 7,057 $ 71 $ 59,968 $ 74,519 -- $ 8,620
Net income -- -- -- 4,263 -- --
Common stock issued for employee and
shareholder stock plans 101 1 964 -- -- --
Cash dividends on common stock -- -- -- (3,102) -- --
Currency translation adjustment -- -- -- -- -- (981)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1991 7,158 72 60,932 75,680 -- 7,639
Net loss -- -- -- (29,274) -- --
Common stock issued for employee and
shareholder stock plans 138 1 1,360 -- -- --
Cash dividends on common stock -- -- -- (3,155) -- --
Currency translation adjustment -- -- -- -- -- (7,106)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992 7,296 73 62,292 43,251 -- 533
Net loss -- -- -- (85,995) -- --
Common stock issued for employee and
shareholder stock plans 14 -- 270 -- -- --
Minimum pension obligation adjustment -- -- -- -- $ (646)
Currency translation adjustment -- -- -- -- -- 975
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 7,310 $ 73 $ 62,562 $ (42,744) $ (646) $ 1,508
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, (In thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash flows from continuing operations:
Income (loss) from continuing operations $(86,456) $(17,706) $4,771
Reconciliation to net cash provided by continuing operations:
Depreciation and amortization 15,840 15,734 15,421
Provision for deferred taxes 5,127 (6,265) 2,234
Restructuring and other expenses 65,380 23,500 --
Gain from settlement of interest rate swap -- (1,361) --
Changes in assets and liabilities:
Decrease in accounts receivable 7,865 19,191 56
(Increase) decrease in inventories 5,014 15,772 (83)
(Increase) decrease in prepaid expenses (1,990) 2,045 1,105
(Increase) decrease in other long-term assets 40 (2,076) (5,147)
Increase (decrease) in accounts payable and accrued liabilities 16,892 (12,009) (1,983)
Decrease in other long-term liabilities (1,468) (5,043) (4,247)
Decrease in restructuring accrual (15,438) (665) --
Increase in accrued bankruptcy reorganization expenses 366 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 11,172 31,117 12,127
Net cash used by discontinued operations (498) (2,986) (5,505)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 10,674 28,131 6,622
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (6,542) (17,093) (14,728)
Proceeds from equipment sold 764 752 220
Investments in joint ventures (1,750) (500) (450)
Proceeds from sale of business 4,500 -- --
Proceeds from disposal of discontinued operations 500 19,262 --
Proceeds from settlement of interest rate swap agreements -- 1,818 --
Other -- -- 156
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (2,528) 4,239 (14,802)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt -- 21,904 54,346
Payments of long-term debt, including current maturities (4,375) (43,801) (43,327)
Repurchase of convertible subordinated debentures -- (5,487) --
Proceeds (payments) of short-term debt, net 7,229 (3,135) (2,996)
Principal payments of capital lease obligations (494) (510) (598)
Proceeds from issuance of common stock for employee and
shareholder stock plans 270 1,361 965
Cash dividends paid -- (3,155) (3,102)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 2,630 (32,823) 5,288
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and equivalents (348) 982 130
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 10,428 529 (2,762)
Cash and equivalents at beginning of year 2,449 1,920 4,682
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 12,877 $ 2,449 $ 1,920
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

BASIS OF ACCOUNTING
The consolidated financial statements include the accounts of Hexcel
Corporation and subsidiaries (the "Company"), after elimination of intercompany
transactions and accounts. On December 6, 1993, Hexcel Corporation (a Delaware
corporation, the "Parent Company" or "Parent") filed a voluntary petition for
relief under the provisions of Chapter 11 of the federal bankruptcy laws (see
Note 2). Consequently, the consolidated financial statements have been prepared
in accordance with Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code," issued by the American Institute
of Certified Public Accountants in November 1990.

The consolidated financial statements do not purport to reflect or provide
for the potential consequences of the bankruptcy proceedings of Hexcel
Corporation. In particular, the consolidated financial statements do not
purport to show (a) as to assets, their realizable value on a liquidation basis
or their availability to satisfy liabilities; (b) as to prepetition liabilities,
the amounts that may be allowed for claims or contingencies or the status and
priority thereof; (c) as to shareholder accounts, the effect of any changes that
may be made to the capitalization of Hexcel Corporation; or (d) as to
operations, the effect of any changes that may be made in its business. The
outcome of these matters is not presently determinable. Accordingly, the
consolidated financial statements do not include adjustments that might result
from the ultimate outcome of these uncertainties.

The consolidated financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the consolidated
financial statements, during the years ended December 31, 1993 and 1992, the
Company incurred losses from continuing operations of $86,456 and $17,706,
respectively. These losses include accrued expenses of $52,600 and $23,500,
respectively, for a major restructuring of the Company's operations, which has
not yet been completed (see Note 3). In addition, Hexcel Corporation filed a
voluntary petition for relief under the provisions of Chapter 11 of the federal
bankruptcy laws on December 6, 1993, and has been operating as a debtor-in-
possession since that date. While the Company believes it has adequate
financing to operate in bankruptcy for a reasonable period of time (see Note 6),
its ability to successfully continue operations is dependent upon, among other
things, confirmation of a plan of reorganization that will enable Hexcel
Corporation to emerge from bankruptcy proceedings, obtaining adequate
postconfirmation financing to fund restructuring and working capital
requirements, successfully implementing the restructuring program, and
generating sufficient cash from operations and financing sources to meet
obligations. Management believes that the Company should be able to
restructure its existing debt and obtain adequate postconfirmation financing
in connection with the confirmation of a plan of reorganization, but there is
no assurance that such restructuring or financing will occur. These factors
among others may indicate that the Company will be unable to continue as a
going concern for a reasonable period of time.

The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.

CASH AND EQUIVALENTS
The Company invests excess cash in investments with original maturities of
less than three months. The investments consist of Eurodollar time deposits and
are stated at cost, which approximates market

<PAGE>

value. The Company considers such investments to be cash equivalents for
purposes of the statements of cash flows.

ACCOUNTS RECEIVABLE
Accounts receivable were net of reserves for doubtful accounts of $1,490 at
December 31, 1993 and 1992.

PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Repairs and
maintenance are charged to expense as incurred; replacements and betterments are
capitalized. Interest expense associated with major long-term construction
projects is capitalized. Capitalized interest was $227 in 1993, $298 in 1992
and $1,083 in 1991.

The Company depreciates property, plant and equipment over estimated useful
lives. Accelerated and straight-line methods are used for financial statement
purposes. The estimated useful lives range from 10 to 40 years for buildings
and improvements and 3 to 20 years for machinery and equipment.

RESEARCH AND DEVELOPMENT COSTS
Research and development costs of $8,745 in 1993, $10,457 in 1992 and
$10,614 in 1991 were expensed as incurred, and are included in marketing,
general and administrative ("M,G&A") expenses in the consolidated statements of
operations.

CURRENCY TRANSLATION
The assets and liabilities of European subsidiaries are translated into
U.S. dollars at year-end exchange rates, and revenues and expenses are
translated at average exchange rates during the year. Cumulative currency
translation adjustments are included in shareholders' equity. Realized gains
and losses are reflected in net income.

EARNINGS PER SHARE
Net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares and dilutive common share
equivalents (stock options) outstanding during each year. The computation on
the fully diluted basis, which considers the exercise of stock options and the
conversion of the convertible subordinated debentures, was antidilutive in 1993,
1992 and 1991.

ACCOUNTING CHANGES
During the fourth quarter of 1993, the Company changed to the first-in,
first-out ("FIFO") method of accounting for substantially all inventories (see
Note 4). The effect of this change on domestic honeycomb and fabric
inventories, which were previously valued using the last-in, first-out ("LIFO")
method, has been applied to prior years by retroactively restating the
consolidated financial statements as required by generally accepted accounting
principles.

Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes" (see
Note 13). The cumulative effect of this accounting change has been reflected in
the consolidated statement of operations for the year ended December 31, 1993.

Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting for
Postretirement Benefits Other than Pensions" (see Note 12). The cumulative
effect of this accounting change has been reflected in the consolidated
statement of

<PAGE>

operations for the year ended December 31, 1992.

RECLASSIFICATIONS
Certain prior year amounts in the consolidated financial statements and
notes have been reclassified to conform to the 1993 presentation.

NOTE 2 - BANKRUPTCY REORGANIZATION

On December 6, 1993, Hexcel Corporation filed a voluntary petition for
relief under the provisions of Chapter 11 of the federal bankruptcy laws in the
United States Bankruptcy Court for the Northern District of California (the
"Bankruptcy Court"). Since that date, Hexcel Corporation has continued business
operations as debtor-in-possession under the supervision of the Bankruptcy
Court. Substantially all of the U.S. assets and operations of the Company are
directly owned and operated by the Parent, and are subject to bankruptcy
protection. The joint ventures and European subsidiaries of Hexcel Corporation
are not included in the bankruptcy proceedings and, as such, are not subject to
the provisions of the federal bankruptcy laws or the supervision of the
Bankruptcy Court. However, the Parent Company is generally unable to provide
direct financial support outside of the normal course of business to its joint
ventures and subsidiaries without Bankruptcy Court approval.

All transactions outside of the Parent Company's ordinary course of
business are subject to the approval of the Bankruptcy Court. A committee of
unsecured creditors and a committee of equity security holders have been
appointed and these committees will participate in the bankruptcy process,
including the confirmation of a plan of reorganization.

Federal bankruptcy laws prohibit Hexcel Corporation from paying almost all
prepetition liabilities without the approval of the Bankruptcy Court. The
Parent Company has received approval to pay or otherwise honor certain
prepetition obligations, including employee wages and benefits. Accordingly,
these obligations have been included in the appropriate liability captions of
the consolidated balance sheet as of December 31, 1993. Most other prepetition
liabilities, including trade accounts and notes payable, have been reflected as
"liabilities subject to disposition in bankruptcy reorganization" on the basis
of the expected amount of allowed claims. Additional prepetition claims may
arise from the rejection of executory contracts, including leases, and from the
determination by the Bankruptcy Court (or agreed to by parties in interest) of
allowed claims for contingencies and other disputed amounts.

Under Chapter 11, the Parent Company is prohibited from paying interest on
most prepetition debt. However, the Parent Company continues to record interest
expense on all interest-bearing obligations, and the resulting liability is
included in liabilities subject to disposition in bankruptcy reorganization.
Professional fees and other costs directly related to bankruptcy proceedings are
expensed as incurred, and reflected in the consolidated statement of operations
for the year ended December 31, 1993 as "bankruptcy reorganization expenses."
Interest income earned by the Parent Company subsequent to the Chapter 11 filing
is reported as a reduction of bankruptcy reorganization expenses.

Liabilities incurred in the normal course of business after the petition
date are not subject to bankruptcy protection or disposition and have been
reflected accordingly in the consolidated financial statements. These
postpetition liabilities are generally paid in accordance with contract terms,
and the Parent Company has obtained debtor-in-possession financing to facilitate
such payments (see Note 6).

<PAGE>

Substantially all of the Parent Company's liabilities as of the petition
date are subject to settlement under a plan of reorganization to be voted upon
by creditors and equity security holders and confirmed by the Bankruptcy Court.
In the event a plan of reorganization is approved by the Bankruptcy Court,
continuation of the business after reorganization is dependent upon the success
of future operations and the ability to meet obligations as they become due. As
a result of the reorganization proceedings, the Parent Company may have to sell
or otherwise dispose of assets and liquidate or settle liabilities for amounts
other than those reflected in the consolidated financial statements. Further, a
plan of reorganization could materially change the amounts currently recorded in
the consolidated financial statements. The consolidated financial statements do
not give effect to all adjustments to the carrying value of assets, or amounts
and classification of liabilities, that might be necessary as a consequence of
these bankruptcy proceedings.

The following condensed financial statements for Hexcel Corporation, the
debtor-in-possession, as of December 31, 1993 and 1992 and for the years ended
December 31, 1993, 1992 and 1991, have been prepared using the equity method to
account for investments in subsidiaries:

CONDENSED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------
1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 70,449 $ 88,856
Property, plant and equipment, net 80,389 94,595
Investments in and advances to subsidiaries 35,466 48,196
Investments and other assets 20,920 18,923
- -----------------------------------------------------------------------------------------------
Total assets $ 207,224 $ 250,570
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Current liabilities $ 22,938 $ 33,118
Long-term notes payable and deferred liabilities 41,101 111,303
Liabilities subject to disposition in bankruptcy reorganization 122,432
Shareholders' equity 20,753 106,149
- -----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 207,224 $ 250,570
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------

</TABLE>

Investments in and advances to subsidiaries includes intercompany
investments, loans, and trade balances. As of December 31, 1993, $1,828 of the
total represents investments in and advances to Hexcel S.A., the Company's
wholly-owned Belgian subsidiary (see Note 16).

Liabilities subject to disposition in bankruptcy reorganization includes
$2,500 payable to a European subsidiary.

CONDENSED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 215,871 $ 248,790 $ 245,445
Cost of sales and MG&A expenses (226,679) (245,590) (241,754)
Restructuring charges and other expenses (49,124) (14,978) --
- --------------------------------------------------------------------------------------------------------------
Operating income (loss) (59,932) (11,778) 3,691
Equity in earnings (losses) of subsidiaries (14,057) (8,341) 5,310
Interest and bankruptcy reorganization expenses (4,745) (2,849) (5,545)
Benefit (provision) for income taxes (7,722) 5,262 1,315
- --------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations (86,456) (17,706) 4,771
Discontinued operations (4,039) (4,472) (508)
Extraordinary item -- 956 --
Cumulative effects of accounting changes 4,500 (8,052) --
- --------------------------------------------------------------------------------------------------------------
Net income (loss) $ (85,995) $ (29,274) $ 4,263
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------

</TABLE>

<PAGE>

Net sales include sales to subsidiaries for the years ended December 31,
1993, 1992 and 1991 of $10,061, $12,359 and $19,601, respectively.

Equity in earnings (losses) of subsidiaries include restructuring charges
and other expenses of $16,256 and $5,530 in 1993 and 1992, respectively.

CONDENSED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) from continuing operations $ (86,456) $ (17,706) $ 4,771
Depreciation and amortization 10,118 10,774 10,529
Restructuring and other expenses 49,124 19,805 --
Equity in (earnings) losses of subsidiaries 14,057 8,341 (5,310)
Changes in assets and liabilities 14,025 12,587 527
Other 8,799 (10,384) (2,964)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 9,667 23,417 7,553
Net cash used by discontinued operations (498) (2,986) (5,505)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,169 20,431 2,048
- --------------------------------------------------------------------------------------------------------------
Capital expenditures (4,694) (11,051) (9,966)
Proceeds from disposal of discontinued operations 500 19,262 --
Other 3,484 1,508 (135)
- --------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (710) 9,719 (10,101)
- --------------------------------------------------------------------------------------------------------------
Issuance of long-term debt -- 21,000 54,346
Payments of long-term debt (1,457) (46,980) (43,327)
Other 884 (4,170) (5,302)
- --------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (573) (30,150) 5,717
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 7,886 -- (2,336)
Cash and equivalents at beginning of year -- -- 2,336
- --------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 7,886 $ -- $ --
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------

</TABLE>

NOTE 3 - RESTRUCTURING AND OTHER EXPENSES

RESTRUCTURING
In December 1992, the Company initiated a worldwide restructuring program
designed to improve facility utilization and determine the proper workforce
requirements to support projected reduced levels of business in 1993 and beyond.
The Company recorded a charge for this program of $23,500 in the fourth quarter
of 1992.

In April 1993, the Company announced the closing of the Graham, Texas
facility and the consolidation of Graham operations into other plants. The
estimated costs of this closure were included in the 1992 restructuring charge.
The Graham closure is expected to be completed in the second half of 1994.

In September 1993, the Company announced plans to significantly expand the
restructuring program in response to the expected further decline in the
Company's principal markets, commercial and military aerospace. Accordingly,
the Company recorded a charge of $50,000 in the third quarter of 1993. This
expansion includes deeper cuts in overhead and further consolidation of
facilities in the United States and Europe. During the fourth quarter of 1993,
an additional charge of $2.6 million was recorded in connection with the
expanded restructuring program. The 1993 and 1992 restructuring charges
included

<PAGE>

approximately $40,000 of non-cash write-downs related to facility closures and
the impairment of certain assets due to declining sales and the changed business
environment.

The total of $76,100 in restructuring charges taken in 1992 and 1993 and
the remaining balance of accrued restructuring charges at December 31, 1993
consist of:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Accrued
Total Restructuring
Restructuring Liabilities at
Expenses 12/31/93
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Estimated costs to close and relocate facilities:
Asset write-downs $ 25,200 $ 21,600
Cash costs, net of expected sales proceeds 11,800 7,300
Estimated employee severance costs (excluding severance
related to the closure of facilities) 15,900 5,700
Asset write-downs due to changed business conditions 14,700 3,700
Estimated cash costs of various other restructuring actions 8,500 5,300
- -----------------------------------------------------------------------------------------------
$ 76,100 $ 43,600
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------

</TABLE>

Accrued restructuring liabilities include $20,910 and $14,835 in accrued
liabilities at December 31, 1993 and 1992, respectively, and $22,690 and $8,000
in deferred liabilities at December 31, 1993 and 1992, respectively.

OTHER EXPENSES
In addition to the above restructuring charges, the Company recorded
$12,780 ($12,638 in the fourth quarter) of other expenses in 1993. The $12,638
includes write-downs of certain assets and increases in reserves for warranties
and environmental matters on property previously owned. The impairment of
assets was due primarily to bankruptcy proceedings, continued changes in
business conditions and depressed real estate prices on property held for sale.

Other expenses in 1993 also include approximately $4,000 of costs in the
first nine months of 1993 offset by a similar amount of gains. The costs were
associated primarily with the terminated negotiations for the acquisition of a
business, securities litigation costs, the settlement of a threatened proxy
contest, and a reserve for anticipated loss on the disposition of property. The
mitigating gains include a $1,541 gain from the sale of 50% of the Knytex
stitchbonded business to Owens-Corning to form a new joint venture, and
approximately $2,000 in gains from the settlement of insurance claims and a
terminated contract.

Other income in 1992 consisted of $2,992 from the final settlement of a
patent infringement lawsuit.

<PAGE>

NOTE 4 - INVENTORIES

Inventories at December 31, 1993 and 1992 were:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 14,717 $ 17,299
Work in progress 11,570 16,881
Finished goods 20,056 24,933
Supplies 941 1,961
- ---------------------------------------------------------------------------
Total inventories $ 47,284 $ 61,074
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------

</TABLE>

Inventories are valued at the lower of cost or market. During the fourth
quarter of 1993, the Company changed to the first-in, first-out method of
accounting for substantially all inventories. Previously, domestic honeycomb
and fabric inventories were valued using the last-in, first-out method and all
other inventories were valued at the lower of average cost or market. The FIFO
method provides a more meaningful presentation of the Company's financial
position by reflecting inventories at more recent costs. The Company believes
that the disclosure of inventories at recent costs provides more relevant
information about the Company's current business condition. The change to the
FIFO method conforms substantially all inventories of the Company to the same
accounting method.

The effect of the change in accounting method from LIFO to FIFO was to
increase the loss from continuing operations and net loss for the year ended
December 31, 1993 by $233 or $0.03 per share. This change has been applied to
prior years by retroactively restating the consolidated financial statements as
required by generally accepted accounting principles. The effect of this
restatement was to increase retained earnings as of January 1, 1991 by $3,526.
The restatement increased the 1992 loss from continuing operations and net loss
by $440 or $0.06 per share, and increased the 1991 income from continuing
operations and net income by $130 or $0.02 per share. The cumulative and
current-year effects of changing from the average cost method to the FIFO method
are not material and are included in the 1993 results.

NOTE 5 - INVESTMENTS AND OTHER ASSETS

Investments and other assets as of December 31, 1993 and 1992 were:

- ---------------------------------------------------------------------------
1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C>
Investments in joint ventures $ 5,950 $ 900
Long-term notes receivable, net of reserves 1,665 2,708
Intangibles, net of accumulated amortization 5,156 8,098
Other assets 8,604 8,924
- ---------------------------------------------------------------------------
Total investments and other assets $ 21,375 $ 20,630
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------

</TABLE>

Investments in joint ventures consist of a 50% interest in Knytex Company,
L.L.C., which is jointly owned and operated with Owens-Corning Fiberglas
Corporation; a 50% interest in DIC-Hexcel Limited, which is jointly owned and
operated with Dainippon Ink and Chemicals, Inc.; and a 40% interest in Hexcel-
Fyfe, L.L.C., which is jointly owned and operated with Fyfe Associates
Corporation. These investments are accounted for by the equity method. Equity
in earnings for the years ended December 31, 1993 and 1992 were not material to
the consolidated financial statements.

<PAGE>

Knytex Company, L.L.C. was formed on June 30, 1993 when the Company sold
50% of the Hexcel Knytex business to Owens-Corning and contributed the remaining
50% to the joint venture. The Company received proceeds of $4,500 and
recognized a gain of $1,541 from the sale.

Reserves for long-term notes receivable totaled $3,400 as of December 31,
1993. There were no reserves as of December 31, 1992.

NOTE 6 - DEBTOR-IN-POSSESSION FINANCING

Prior to the Chapter 11 filing, Hexcel Corporation arranged for a debtor-
in-possession revolving line of credit of up to $35,000 from The CIT Group /
Business Credit, Inc. On January 28, 1994, the Bankruptcy Court granted final
approval for use of this credit facility. As of December 31, 1993, Hexcel
Corporation had not borrowed under this revolving line of credit.

The debtor-in-possession credit line is available to finance the normal
business operations and restructuring activities of Hexcel Corporation. This
credit facility cannot be used to finance joint ventures, European subsidiaries,
or any transaction outside of the ordinary course of business without the prior
consent of the Bankruptcy Court. The amount available for borrowing is based on
the outstanding balance of eligible U.S. receivables and inventories, as defined
in the credit agreement, up to a maximum of $35,000. Any borrowings against the
U.S. debtor-in-possession line of credit are due upon the earlier of December
1995 or confirmation by the Bankruptcy Court of a plan of reorganization.

Interest on outstanding borrowings is computed at an annual rate of 1% in
excess of the prime rate of the Bank of America. In addition, a commitment fee
of 0.5% per annum is charged on the unused portion of the facility.

The debtor-in-possession credit line is secured by substantially all of the
U.S. assets of Hexcel Corporation, as well as 65% of the shares of stock of
substantially all European subsidiaries. Under the terms of the facility and
the provisions of federal bankruptcy laws, the security interest of The CIT
Group / Business Credit, Inc. has superpriority over virtually all prepetition
claims and most Chapter 11 administrative expense claims.

The revolving line of credit is subject to a number of financial covenants
and other restrictions. Hexcel Corporation must maintain minimum levels of
cumulative earnings before interest, taxes, depreciation, and amortization. In
addition, the Parent Company is subject to limitations in permitting the
creation of liens, incurring lease obligations, extending trade credit to
European subsidiaries, and incurring capital expenditures. Certain business
activities, investments and guarantees are also restricted, and the payment of
dividends is prohibited.

NOTE 7 - NOTES PAYABLE

Since September 15, 1993, Hexcel Corporation has been out of compliance
with substantially all of its prepetition debt obligations. Payment and
enforcement of most of these obligations is stayed by federal bankruptcy laws
for the duration of bankruptcy proceedings. Furthermore, the ultimate
disposition of these debts is subject to confirmation of a plan of
reorganization by the Bankruptcy Court. Accordingly, the outstanding principal
and accrued interest on all prepetition debt obligations has been included in
liabilities

<PAGE>

subject to disposition in bankruptcy reorganization in the consolidated balance
sheet as of December 31, 1993.

The debt obligations of Hexcel Corporation's European subsidiaries are not
subject to the provisions of the federal bankruptcy laws and have not been
stayed. However, $15,574 of the outstanding debt of Hexcel S.A., a Belgian
subsidiary, as of December 31, 1993 is pursuant to credit facilities with
European banks, commitments for which expired on March 16, 1994. Hexcel S.A. is
currently in negotiations with these banks to extend these credit facilities
(see Note 16). The debt of Hexcel S.A. is secured by substantially all of that
subsidiary's assets, which totaled $32,340 at December 31, 1993.

Total credit lines, excluding U.S. credit lines subject to disposition in
bankruptcy reorganization, were $63,792 at December 31, 1993. $35,000 of this
total was a debtor-in-possession revolving line of credit from The CIT Group /
Business Credit, Inc. (see Note 6). The remaining $28,792 was comprised of
various credit lines extended to the Parent Company's European subsidiaries,
$7,168 of which was available for borrowing by those subsidiaries. The debtor-
in-possession credit line cannot be used to provide direct financial support
outside of the normal course of business to joint ventures or European
subsidiaries without the prior consent of the Bankruptcy Court, and the credit
lines of European subsidiaries are unavailable to finance the activities of the
Parent Company.

Notes payable and capital lease obligations at December 31, 1993 and 1992
were:

- -----------------------------------------------------------------------------------------------
1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
U.S.:
U.S. revolving credit agreement $ 12,000 $ 12,000
Note payable originally due 1994 750 --
10.12% senior notes originally due 1998 30,000 30,000
7% convertible subordinated debentures originally due 2011 25,625 25,625
Obligations under IDB variable rate demand notes
originally due through 2024 15,890 15,944
Various notes payable originally due through 2007 2,181 2,825
Capital lease obligations (see Note 8) 929 1,068
- -----------------------------------------------------------------------------------------------
Total U.S. notes payable and capital lease obligations 87,375 87,462
- -----------------------------------------------------------------------------------------------
International:
Various short-term notes payable of Hexcel S.A. (see Note 16) 15,574 14,374
Various other short-term notes payable 5,905 2,608
Various notes payable due through 1997 6,296 10,519
Capital lease obligations (see Note 8) 2,025 2,531
- -----------------------------------------------------------------------------------------------
Total international notes payable and capital lease obligations 29,800 30,032
- -----------------------------------------------------------------------------------------------
Total notes payable and capital lease obligations 117,175 117,494
Less amount subject to disposition in bankruptcy
reorganization (see Note 9) (87,375) --
- -----------------------------------------------------------------------------------------------
Total notes payable and capital lease obligations, net $ 29,800 $ 117,494
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------

Notes payable and current maturities of long-term liabilities, net $ 24,632 $ 21,925
Long-term notes payable and capital lease obligations, net 5,168 95,569
- -----------------------------------------------------------------------------------------------
Total notes payable and capital lease obligations, net $ 29,800 $ 117,494
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------

</TABLE>

<PAGE>

The 7% convertible subordinated debentures are subject to disposition in
bankruptcy reorganization (see Note 9). Prior to the commencement of bankruptcy
proceedings, these debentures were redeemable by the Company under certain
provisions, with mandatory redemption scheduled to begin August 1, 1997 through
annual sinking fund requirements. The debentures were convertible prior to
maturity into common stock of the Company at $31.87 per share, subject to
adjustment under certain conditions. During the second quarter of 1992, the
Company repurchased $7,315 of the subordinated debentures on the open market.
The repurchase resulted in an extraordinary gain of $956 after taxes.

The Company has various industrial development bonds ("IDB") outstanding,
guaranteed by bank letters of credit for fees of 0.375% to 0.50%. These
obligations are subject to disposition in bankruptcy reorganization (see Note
9). The interest rates on the bonds are variable and averaged 2.5% in 1993,
2.9% in 1992 and 4.8% in 1991.

Excluding obligations subject to disposition in bankruptcy reorganization,
installments due on long-term notes payable for the years 1994 through 1997 are
$2,774, $2,337, $962 and $223, respectively. There are no installments due
after 1997.

Interest payments were $9,529 in 1993, $11,689 in 1992 and $12,449 in 1991.

The fair value of the Company's long-term debt is not presently
determinable due to Hexcel Corporation's bankruptcy proceedings (see Note 2) and
the uncertainties surrounding Hexcel S.A., a wholly-owned subsidiary (see Note
16).

NOTE 8 - LEASING ARRANGEMENTS

Assets, accumulated depreciation and related liability balances under
capital leasing arrangements as of December 31, 1993 and 1992 were:

- -----------------------------------------------------------------------------------------------
1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Property, plant and equipment $ 6,640 $ 6,958
Less accumulated depreciation (2,710) (2,583)
- -----------------------------------------------------------------------------------------------
Net property, plant and equipment $ 3,930 $ 4,375
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------

Capital lease obligations $ 2,954 $ 3,599
Less current maturities (527) (504)
- -----------------------------------------------------------------------------------------------
Long-term capital lease obligations 2,427 3,095
Less amount subject to disposition in bankruptcy
reorganization (see Note 9) (781) --
- -----------------------------------------------------------------------------------------------
Long-term capital lease obligations, net $ 1,646 $ 3,095
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------

</TABLE>

Certain sales and administrative offices, data processing equipment and
manufacturing facilities are leased under operating leases. Federal bankruptcy
laws allow Hexcel Corporation to affirm or reject prepetition leases on a lease-
by-lease basis. The Parent Company is currently evaluating prepetition lease
obligations to determine which obligations to affirm and which to reject. The
rejection of one or more

<PAGE>

leases may give rise to additional claims against the Parent Company which are
not currently reflected in the accompanying consolidated financial statements.

Rental expenses under operating leases were $3,541 in 1993, $5,053 in 1992
and $4,410 in 1991.

Future minimum lease payments as of December 31, 1993 were:

- -----------------------------------------------------------------------------------------------
Type of Lease
-----------------------

Payable during years ending December 31: Capital Operating
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
1994 $ 840 $ 3,467
1995 613 2,760
1996 458 2,249
1997 458 1,670
1998 458 910
1999 and thereafter 1,649 1,733
- -----------------------------------------------------------------------------------------------
Total minimum lease payments 4,476 12,789
Less amount subject to potential rejection under
the federal bankruptcy laws (see Note 9) (1,629) (9,494)
- -----------------------------------------------------------------------------------------------
Total minimum lease payments not subject to potential rejection $ 2,847 $ 3,295
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------

</TABLE>

Total minimum capital lease payments include $823 of imputed interest.

NOTE 9 - LIABILITIES SUBJECT TO DISPOSITION IN BANKRUPTCY REORGANIZATION

Liabilities subject to disposition in bankruptcy reorganization as of
December 31, 1993 were:

- -----------------------------------------------------------------------------------------------
1993
- -----------------------------------------------------------------------------------------------
<S> <C>
Accounts payable $ 21,676
Accrued liabilities, including prepetition interest 9,057
U.S. revolving credit agreement 12,000
10.12% senior notes originally due 1998 30,000
7% convertible subordinated debentures originally due 2011 25,625
Obligations under IDB variable rate demand notes originally due through 2024 15,890
Various U.S. notes payable and capital lease obligations 3,860
Accrued postpetition interest on prepetition debt 1,824
- -----------------------------------------------------------------------------------------------
Total liabilities subject to disposition in bankruptcy reorganization $ 119,932
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------

</TABLE>

Liabilities subject to disposition in bankruptcy reorganization consisted
of the estimated prepetition claims of Hexcel Corporation creditors as of
December 31, 1993. The Parent Company is in the process of confirming the
nature and amount of existing claims, and the bar date for the filing of
additional claims is April 28, 1994. Until the Parent Company receives and
completes a reconciliation of all proofs of claim submitted by creditors, the
recorded liability is subject to revision. Furthermore, the recorded liability
does not include any amounts for claims that may arise from the rejection of
executory contracts, including leases.

<PAGE>

The industrial development bonds are guaranteed by irrevocable bank letters
of credit (see Note 7). The bondholders have the right to draw upon the letters
of credit, at which time the issuing bank would then become an unsecured
creditor of the Parent Company.

The satisfaction of liabilities subject to disposition in bankruptcy
reorganization is subject to confirmation of a plan of reorganization by the
Bankruptcy Court. Such liabilities may be settled for amounts other than those
reflected in the consolidated financial statements.

NOTE 10 - SHAREHOLDERS' EQUITY AND STOCK OPTION AND PURCHASE PLANS

SHAREHOLDERS' EQUITY
A shareholder rights plan was adopted, effective September 1986 and amended
in October 1988, November 1990 and December 1990, that provides for the issuance
of two-thirds of one right for each outstanding share of common stock and
equivalent. The rights become exercisable if a person or a group acquires 25%
or more of the outstanding shares of the Company. The rights also become
exercisable, at the option of the Board of Directors, if a person or group
acquires 10% or more of the outstanding shares and is designated as an "adverse
party" by the Board of Directors. The rights expire on September 19, 1996.
Each right allows the purchase, for $180 (adjustable), of one one-hundredth of a
share of Series A Junior Participating Preferred Stock or, in certain events
involving an acquisition or change in control of the Company, stock or assets
worth twice the exercise price. The Company reserves 200,000 preferred shares
for the plan. The Company has authorized preferred stock of 450,000 shares.
None was outstanding as of December 31, 1993 and 1992.

Cash dividends declared and paid per common share were $0.44 in 1992 and
1991. The Board of Directors suspended dividend payments beginning in 1993.
Dividend payments are currently precluded by bankruptcy proceedings and the
debtor-in-possession credit line.

STOCK OPTION AND PURCHASE PLANS
Stock option data for the two years ended December 31, 1993 were:

- -------------------------------------------------------------------------------------------------------------------------
NUMBER OPTION PRICE EXPIRATION
OF SHARES PER SHARE DATES
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at January 1, 1992 601,777 $ 7.56 - 32.06 1992 - 2001
Options granted 156,400 12.13 2002
Options exercised (55,438) 10.44 2001
Options expired or canceled (68,565) 10.44 - 29.38 1992 - 2002
- -------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1992 634,174 7.56 - 32.06 1997 - 2002
Options granted 275,200 9.13 - 12.31 2003
Options exercised -- -- --
Options expired or canceled (375,899) 10.44 - 32.06 1997 - 2003
- -------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1993 533,475 $ 7.56 - 32.06 1998 - 2003
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1993 359,725 $ 7.56 - 32.06 1998 - 2002
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------

</TABLE>

At December 31, 1993 and 1992, the total number of shares reserved for
issuance under stock option plans including shares granted and shares available
for grant was 955,662 and 908,771, respectively. Options vest one year from the
date of grant and expire 10 years after such grant date.

<PAGE>

Prior to the Chapter 11 filing, employees meeting certain criteria could
purchase common stock of the Company under a non-qualified employee stock
purchase plan. The subscription price of the stock was 83.33% of the average of
the high and low sales prices on the New York Stock Exchange on the quarterly
purchase dates. The Board of Directors canceled this plan effective December 5,
1993.

Under a restricted stock plan implemented in 1988, the Company may grant
shares of restricted common stock to senior executives in amounts and with
restrictions as the Company may determine. The restricted shares vest in three
to seven years from date of grant. Holders of the restricted stock are entitled
to vote and receive all dividends. Effective December 5, 1993, the Board of
Directors suspended future grants under this plan indefinitely. As of December
31, 1993 and 1992, the Company had outstanding a total of 44,939 and 65,494
shares of restricted stock, respectively.

Under a discounted stock option plan implemented in 1988, officers may
exchange all or a portion of incentive bonuses for common stock options. The
Company granted no discounted stock options in 1993 and 1992.

NOTE 11 - RETIREMENT PLANS

The Company has various retirement and profit sharing plans covering
substantially all employees. The net cost of these plans was $2,330 in 1993,
$2,880 in 1992, and $2,481 in 1991.

In the United States, the Company maintains a defined contribution plan
comprised of a 401(k) plan covering essentially all domestic employees and a
profit sharing plan covering all domestic salaried employees. The Company also
has defined benefit pension plans for substantially all U.S. hourly employees
and U.K. employees, which have not been affected by the bankruptcy proceedings
of the Parent Company. The Company also has defined benefit retirement plans
for senior executives and directors. The European subsidiaries, except for
those in the United Kingdom, participate in government retirement plans which
cover all employees of those subsidiaries.

Under the 401(k) plan, the Company makes matching contributions equal to
50% of the contributions of the employees, not to exceed 3% of base wages.
Contributions to the salaried profit sharing plan are based on a formula which
approximates 12% of consolidated income before provision for income taxes less
certain adjustments as defined. Contributions to the 401(k) plan were $1,130
for 1993, $1,593 for 1992, and $1,637 for 1991. There were no contributions to
the salaried profit sharing plan for 1993, 1992 and 1991.

The defined benefit pension plans are career average pension plans.
Benefits are based on years of service and the annual compensation of the
employee. The funding policy for the pension plans is to contribute the minimum
amount required by applicable regulations. Benefits for the executive and
director retirement plans are based on years of service and annual compensation,
and the Company does not fund these plans.

Net cost for the defined benefit pension and retirement plans for the years
ended December 31, 1993, 1992 and 1991 consisted of:

- --------------------------------------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 749 $ 832 $ 794
Interest cost on projected benefit obligation 713 803 693
Return on assets - actual (1,385) (157) (1,576)
Net amortization and deferral 1,123 (191) 933
- --------------------------------------------------------------------------------------------------------------
Net cost $ 1,200 $ 1,287 $ 844
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------

</TABLE>

Assumptions used in the accounting were:

</TABLE>

The funded status and amounts recognized for the defined benefit pension
and retirement plans at December 31, 1993 and 1992 were:

- --------------------------------------------------------------------------------------------------------------
1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ 8,480 $ 7,203
Non-vested benefits 1,530 1,123
- --------------------------------------------------------------------------------------------------------------
Accumulated benefit obligations $ 10,010 $ 8,326
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date $ 11,056 $ 9,512
Less plan assets at fair value, primarily listed stocks (5,358) (5,526)
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Projected benefit obligations in excess of plan assets 5,698 3,986
Unrecognized net loss (1,693) (485)
Unrecognized prior service costs (339) (395)
Unrecognized net transition obligation being recognized
over 15 years (352) (398)
Adjustment required to recognize minimum pension obligation 1,337 --
- --------------------------------------------------------------------------------------------------------------
Defined benefit liability $ 4,651 $ 2,708
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------

</TABLE>

Statement of Financial Accounting Standards No. 87, "Employers' Accounting
for Pensions," requires the recognition of a minimum pension obligation on the
balance sheet. The minimum pension obligation adjustment of $646 included in
shareholders' equity at December 31, 1993 is necessary to reflect the minimum
obligation for the Company's pensions plans and results primarily from lowering
the assumed discount rates to 7% in 1993.

NOTE 12 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company has various postretirement benefit plans covering substantially
all U.S. employees retiring on or after age 58 who have rendered at least 15
years of service. The plans include health care and life insurance coverage for
retirees and their dependents. The Company continues to fund benefit costs on a
pay-as-you-go basis and, for 1993, 1992 and 1991, made benefit payments of $576,
$352 and $604, respectively. On an interim basis, the Bankruptcy Court has
approved the continued funding of postretirement benefits up to approximately
$50 per month. Accordingly, the liability for accrued

<PAGE>

postretirement benefits other than pensions has been included in deferred
liabilities in the consolidated balance sheet as of December 31, 1993.

Under the health care plan, annual coverage is provided up to a maximum of
50% of plan costs for each retiree and covered dependent. Under the life
insurance plan, annual coverage is provided equal to 65% of the final base pay
of the retiree until the age of 70. Upon reaching 70 years of age, life
insurance coverage is reduced.

Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." This statement requires the Company to accrue the
expected cost of postretirement benefits as employees render service. This is a
significant change from prior policy of recognizing these costs on the cash
basis. The cumulative effect, as of January 1, 1992, of changing to the accrual
basis was a noncash charge of $8,052 after taxes. In addition, the Company
recorded noncash expenses of $924 and $997 in 1993 and 1992, respectively.

The defined postretirement benefit obligations included in deferred
liabilities at December 31, 1993 and 1992 were:

- -----------------------------------------------------------------------------------------------
1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 7,946 $ 7,288
Fully eligible active plan participants 1,573 1,336
Other active plan participants 6,471 4,573
- -----------------------------------------------------------------------------------------------
15,990 13,197
Unrecognized net loss (2,046) --
- -----------------------------------------------------------------------------------------------
Defined postretirement benefit liability $ 13,944 $ 13,197
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------

</TABLE>

Net defined postretirement benefit costs for the years ended December 31,
1993 and 1992 were:

- -----------------------------------------------------------------------------------------------
1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Service cost - benefits earned during the year $ 400 $ 367
Interest cost on accumulated postretirement benefit obligation 1,100 982
- -----------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 1,500 $ 1,349
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------

</TABLE>

Two health care cost trend rates were used in measuring the accumulated
postretirement benefit obligation. The assumed indemnity health care cost trend
in 1994 was 13.0% for participants less than 65 years of age and 9.0% for
participants 65 years of age and older, gradually declining to 6.0% for both age
groups in the year 2001. The assumed HMO health care cost trend in 1994 was
10.0% for participants less than 65 years of age and 7.0% for participants 65
years of age and older, gradually declining to 6.0% and 5.0%, respectively, in
the year 2001.

The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7% in 1993 and 8.25% in 1992.

If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefit obligation as of December 31, 1993 would be
increased by 6.3%. The effect of this change on the sum of the service cost
and interest cost would be an increase of 4.9%.

<PAGE>

NOTE 13 - INCOME TAXES

The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," effective January 1, 1993. The cumulative effect
of adopting SFAS 109 was the recognition of $4,500 of income, which was recorded
in the first quarter of 1993. In connection with the adoption of SFAS 109, the
Company established a valuation allowance of $4,693 against its deferred income
tax assets.

During 1993, substantial uncertainty developed as to the realization of the
Company's deferred income tax assets. As a result, the Company increased the
valuation allowance against those assets to $41,313 as of December 31, 1993,
which reduced the net deferred income tax assets to zero. The increase to the
valuation allowance reflects the Company's assessment that the bankruptcy
proceedings of Hexcel Corporation and ongoing operating losses have jeopardized
the realization of deferred income tax assets.

Income (loss) before income taxes and the tax benefit (provision) for
income taxes from continuing operations for the years ended December 31, 1993,
1992 and 1991 were:

- --------------------------------------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) before income taxes:
United States $ (64,717) $ (14,179) $ (655)
International (15,538) (9,876) 5,252
- --------------------------------------------------------------------------------------------------------------
Total income (loss) before income taxes $ (80,255) $ (24,055) $ 4,597
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------

Benefit (provision) for income taxes:
Current:
U.S. $ (234) $ (64) $ 2,804
International (177) 375 (463)
- --------------------------------------------------------------------------------------------------------------
Total current (411) 311 2,341
- --------------------------------------------------------------------------------------------------------------
Deferred:
U.S. (6,598) 5,233 (1,632)
International 808 805 (535)
- --------------------------------------------------------------------------------------------------------------
Total deferred (5,790) 6,038 (2,167)
- --------------------------------------------------------------------------------------------------------------
Total benefit (provision) for income taxes $ (6,201) $ 6,349 $ 174
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------

</TABLE>

A reconciliation of the tax benefit (provision) to the U.S. federal
statutory income tax rate of 34% for the years ended December 31, 1993, 1992 and
1991 was:

- --------------------------------------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Benefit (provision) at U.S. federal statutory rate $ 27,287 $ 8,179 $ (1,563)
U.S. state taxes, less federal tax benefit (104) (130) (117)
Impact on tax rates of international tax structure -- 1,154 950
Impact of different international tax rates,
adjustments to income tax accruals and other 3,236 2,292 904
Limitation on recognition of tax benefits
for operating losses -- (5,146) --
Valuation allowance (36,620) -- --
- --------------------------------------------------------------------------------------------------------------
Total benefit (provision) $ (6,201) $ 6,349 $ 174
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------

</TABLE>

<PAGE>

The Company paid income taxes of $203 in 1993, $468 in 1992, and $434 in
1991. The Company has made no U.S. income tax provision for $12,390 of
undistributed earnings of international subsidiaries as of December 31, 1993.
Such earnings are considered to be permanently reinvested. The additional U.S.
income tax on these earnings, if repatriated, would be offset in part by foreign
tax credits.

Deferred income taxes result from temporary differences between the
recognition of items for income tax purposes and financial reporting purposes.
Principal temporary differences as of December 31, 1993 and January 1, 1993
were:

- -----------------------------------------------------------------------------------------------
12/31/93 1/1/93
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Accelerated depreciation and amortization $ (15,115) $ (14,969)
Accrued restructuring charges 20,080 8,463
Net operating loss carryforwards 9,520 1,700
Reserves and other, net 24,360 10,071
Valuation allowance (41,313) (4,693)
- -----------------------------------------------------------------------------------------------
Total deferred tax assets (liabilities) $ (2,468) $ 572
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------

</TABLE>

As of December 31, 1993, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $20,000 and net operating loss
carryforwards for international income tax purposes of approximately $8,000.
The federal tax carryforwards, which are available to offset future taxable
income, expire at various dates through the year 2008. However, the Company's
net operating loss carryforwards may be reduced or subject to annual limitations
if Hexcel Corporation experiences an "ownership change" as defined by federal
income tax laws. Such a change might occur as a result of market activity in
the Parent Company's equity securities or in connection with a plan of
reorganization involving the issuance or exchange of equity securities.

NOTE 14 - DISCONTINUED OPERATIONS

In November 1990, the Company announced plans to sell the fine chemicals
business. On March 31, 1992, the Company sold the U.S. fine chemicals business
located in Zeeland, Michigan. The divestiture resulted in a loss of $798 after
taxes. The Company used the proceeds of $19,262 from the sale to repay debt.
On January 31, 1994, the Company sold the European fine chemicals business
located in Teesside, England, completing the divestiture of discontinued
operations. The sale generated net cash proceeds of approximately $500, which
was received in 1993.

The 1993 loss from discontinued operations included a $2,800 write-down of
European assets recorded in the third quarter, while the 1992 loss included an
accrual of $2,300 for estimated future losses.

NOTE 15 - SIGNIFICANT CUSTOMERS

The Boeing Company and Boeing subcontractors accounted for approximately
19% of 1993 sales, 15% of 1992 sales and 18% of 1991 sales. Sales to U.S.
government programs, including some of the sales to The Boeing Company and
Boeing subcontractors noted above, were 16% of sales in 1993, 15% of sales in
1992 and 17% of sales in 1991.

<PAGE>

NOTE 16 - CONTINGENCIES

HEXCEL S.A. (BELGIUM)
The consolidated financial statements include the accounts of Hexcel S.A.,
the Company's wholly-owned Belgian subsidiary, after elimination of intercompany
transactions and accounts. As of December 31, 1993, Hexcel S.A. had total
assets of $32,340 and total liabilities of $38,711. For the year ended December
31, 1993, Hexcel S.A. generated net sales of approximately $38,000 and a net
loss of approximately $13,000.

Due to depressed European business conditions, particularly in the
aerospace industry, Hexcel S.A. has been operating at a loss. Furthermore,
interest costs and restructuring activities are consuming cash, and Hexcel S.A.
is investigating alleged product claims which could require additional cash
outlays. The subsidiary is currently in negotiations with it lenders regarding
the commitment of credit facilities which expired beginning on March 16, 1994.
Four of the five existing lenders have agreed to a stand still until April 30,
1994, subject to the Parent Company making satisfactory progress toward
obtaining authorization from the Bankruptcy Court to invest additional funds and
recapitalize Hexcel S.A. Discussions with the fifth lender are continuing.
There is no assurance that the Bankruptcy Court will authorize the investment of
additional funds or the recapitalization of Hexcel S.A., or that the existing
lenders will continue to extend their short-term credit agreements for any
specified length of time. Without such additional investment, Hexcel S.A. may
be in violation of statutory minimum capital requirements.

Hexcel S.A.'s ability to continue as a going concern is subject to its
obtaining needed financing, as well as resolving alleged product claims and
successfully implementing required restructuring initiatives. The above factors
among others may indicate that Hexcel S.A. will be unable to continue as a going
concern for a reasonable period of time. The consolidated financial statements
do not include any adjustments relating to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities that
might be necessary should Hexcel S.A. be unable to continue as a going concern.

LITIGATION AND OTHER CONTINGENCIES
The Company is involved in litigation arising from business activities. In
addition, the Company is subject to certain Government inquiries, including
reviews of business practices and cost classifications and a civil suit. The
Company is cooperating with the Government in all such inquiries of which the
Company has knowledge. However, management is unable to predict the legal
proceedings that could result from these inquiries.

During December 1992, three lawsuits alleging violations of federal
securities laws by the Company and certain officers were filed. The Court
consolidated the three lawsuits into one action. Although management believes
there were meritorious defenses to the claims, Hexcel Corporation negotiated a
tentative settlement with the plaintiffs prior to the Chapter 11 filing to avoid
costly and unproductive litigation. This matter, including the tentative
settlement, has been stayed by bankruptcy proceedings.

In July 1992, the Company was joined in a lawsuit concerning a dispute over
a real estate transaction. This action concerned, in part, cleanup and costs
associated with an abandoned waste disposal site which the Company sold in 1979.
Hexcel Corporation negotiated a global settlement, which was not signed prior to
the Chapter 11 filing. This matter, including the negotiated settlement, has
been stayed by bankruptcy proceedings.

Hexcel Corporation has provided a $4,000 back-up letter of credit in
connection with environmental claims on property previously owned. As a result
of the Chapter 11 filing, this letter of credit may be

<PAGE>

invoked, in which case the issuing bank would become an unsecured creditor of
Hexcel Corporation pending resolution of the dispute.

The Company is self-insured against claims associated with sudden and
accidental environmental damage and environmental impairment damage. Certain
current and former facilities are the subjects of environmental investigations
or claims. In addition, the Company has been named as a potentially responsible
party in several superfund sites.

Management believes, based on available information, that it is unlikely
any of these items will have a material adverse effect on the earnings or
financial position of the Company.

The Company has filed a claim for equitable relief with a major military
customer in connection with underutilized capacity at the Chandler, Arizona
plant. A deferral of unabsorbed fixed costs increased profits before taxes by
$2,000 in 1992 and $2,428 in 1991 and was recorded as a long-term asset at
December 31, 1993 and 1992. Management believes, based upon the advice of
counsel, the Company ultimately will realize the cumulative amount deferred. In
1993, the customer agreed to pay for a portion of the unabsorbed fixed costs
incurred during the year, contingent upon government acceptance of this billing
practice. Accordingly, no additional costs were deferred in 1993.

NOTE 17 - BUSINESS SEGMENT REPORTING

The Company operates within a single business segment, structural
materials. The following table summarizes certain financial data for continuing
operations by geographic area as of December 31, 1993, 1992, and 1991 and for
the years then ended:

- ---------------------------------------------------------------------------
1993 1992 1991
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales:
United States $ 193,641 $ 216,171 $ 210,490
International 144,927 170,118 176,094
- ---------------------------------------------------------------------------
Consolidated $ 338,568 $ 386,289 $ 386,584
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Income (loss) before income taxes:
United States $ (61,818) $ (10,743) $ 2,725
International (18,437) (13,312) 1,872
- ---------------------------------------------------------------------------
Consolidated $ (80,255) $ (24,055) $ 4,597
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Identifiable assets:
United States $ 169,621 $ 194,925 $ 199,569
International 98,740 115,925 143,737
- ---------------------------------------------------------------------------
Consolidated $ 268,361 $ 310,850 $ 343,306
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Capital expenditures:
United States $ 4,694 $ 11,044 $ 9,966
International 1,848 6,049 4,762
- ---------------------------------------------------------------------------
Consolidated $ 6,542 $ 17,093 $ 14,728
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Depreciation and amortization:
United States $ 10,118 $ 10,774 $ 10,530
International 5,722 4,960 4,891
- ---------------------------------------------------------------------------
Consolidated $ 15,840 $ 15,734 $ 15,421
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------

</TABLE>

<PAGE>

The above data exclude discontinued operations, the extraordinary gain and
the cumulative effects of accounting changes.

International net sales consist of the net sales of international
subsidiaries, sold primarily in Europe, and U.S. exports.

To compute income (loss) before income taxes, the Company allocated
administrative expenses to International of $2,899 in 1993, $3,436 in 1992 and
$3,380 in 1991.

<PAGE>

NOTE 18 - QUARTERLY DATA (UNAUDITED)

Quarterly financial data for the years ended December 31, 1993 and 1992 were:

- -----------------------------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993
Net sales $ 89,291 $ 92,839 $ 76,179 $ 80,259
Gross margin 14,129 16,858 12,468 12,997
Loss from continuing operations (3,126) (2,303) (51,596) (29,431)
Loss from discontinued operations (178) (186) (3,675) --
Cumulative effect of accounting
change 4,500 -- -- --
Net income (loss) 1,196 (2,489) (55,271) (29,431)
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share and
equivalent share:
Primary and fully diluted:
Continuing operations $ (0.43) $ (0.31) $ (7.02) $ (4.03)
Discontinued operations (0.02) (0.03) (0.50) --
Cumulative effect of accounting
change 0.61 -- -- --
Net income (loss) 0.16 (0.34) (7.52) (4.03)
- -----------------------------------------------------------------------------------------------------------------------------
Dividends per share -- -- -- --
Market price:
High $ 9.75 $ 11.25 $ 10.75 $ 8.25
Low 7.75 9.25 5.50 2.13
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------

1992
Net sales $ 100,600 $ 102,756 $ 94,405 $ 88,528
Gross margin 20,410 22,669 20,193 13,682
Income (loss) from continuing
operations 1,849 1,086 2,086 (22,727)
Loss from discontinued operations (1,889) (263) (298) (2,022)
Extraordinary gain -- 956 -- --
Cumulative effect of accounting
change (8,052) -- -- --
Net income (loss) (8,092) 1,779 1,788 (24,749)
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share and
equivalent share:
Primary and fully diluted:
Continuing operations $ 0.25 $0.15 $ 0.29 $ (3.12)
Discontinued operations (0.26) (0.04) (0.04) (0.28)
Extraordinary gain -- 0.13 -- --
Cumulative effect of accounting
change (1.11) -- -- --
Net income (loss) (1.12) 0.24 0.25 (3.40)
- -----------------------------------------------------------------------------------------------------------------------------
Dividends per share $ 0.11 $ 0.11 $ 0.11 $ 0.11
Market price:
High 14.50 14.13 13.00 12.38
Low 10.50 10.50 10.50 7.50
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------

</TABLE>

<PAGE>

Results for each quarter of 1993 and 1992 were restated to reflect the
change in accounting for domestic honeycomb and fabric inventories from the
last-in, first-out method to the first-in, first-out method. The retroactive
application of this accounting change to prior periods is required by generally
accepted accounting principles.

The Company adopted SFAS 109, "Accounting for Income Taxes," effective
January 1, 1993 (see Note 13). The cumulative effect of adopting SFAS 109 was
the recognition of income of $4,500 in the first quarter of 1993.

Results for the second quarter of 1993 include approximately $4,000 of
other expenses offset by a similar amount of gains (see Note 3).

In the third quarter of 1993, the Company recorded a $50,000 restructuring
charge for the additional costs of the expanded restructuring program (see Note
3).

During the fourth quarter of 1993, the Company recorded an additional
restructuring charge of $2,600 and other expenses of $12,638 (see Note 3).

The Company adopted SFAS 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions," effective January 1, 1992 (see Note 12). The
cumulative effect of adopting SFAS 106 was a noncash charge of $8,052 after
taxes in the first quarter of 1992.

Results for the first quarter of 1992 also include a litigation gain of
$2,288. The Company recognized an additional gain of $704 in the second quarter
of 1992 from this suit.

In the second quarter of 1992, the Company repurchased convertible
subordinated debentures which resulted in an extraordinary gain of $956 after
taxes (see Note 7).

In the third quarter of 1992, the Company agreed to terminate interest rate
swap contracts which resulted in a gain of $1,361.

In December 1992, the Company initiated a restructuring program which
resulted in a charge of $23,500 (see Note 3).

Quarterly data for 1993 and 1992 reflect certain reclassifications made in
1993.

68
<PAGE>

HEXCEL CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(In thousands)

OTHER*
BALANCE AT CHANGES -
BEGINNING ADDITIONS SALES AND ADD BALANCE AT
CLASSIFICATION OF YEAR AT COST RETIREMENTS (DEDUCT) END OF YEAR
-------------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1993:
Land . . . . . . . . . . . . . $ 6,223 $ -- $ (7) $ (1,556) $ 4,660
Buildings. . . . . . . . . . . 64,465 1,441 (179) (6,725) 59,002
Machinery and
equipment. . . . . . . . . . 154,753 4,111 (4,081) (10,733) 144,050
Office equipment . . . . . . . 24,022 529 (1,842) 51 22,760
Vehicles . . . . . . . . . . . 1,137 24 (80) (89) 992
Leasehold
improvements . . . . . . . . 3,341 437 (660) (100) 3,018
---------- ---------- ---------- ---------- ----------
$ 253,941 $ 6,542 $ (6,849) $ (19,152) $ 234,482
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------

Year ended December 31,
1992:
Land . . . . . . . . . . . . . $ 6,087 $ 85 $ -- $ 51 $ 6,223
Buildings. . . . . . . . . . . 61,668 3,602 (39) (766) 64,465
Machinery and
equipment. . . . . . . . . . 152,411 10,141 (4,905) (2,894) 154,753
Office equipment . . . . . . . 22,193 2,706 (730) (147) 24,022
Vehicles . . . . . . . . . . . 1,144 86 (160) 67 1,137
Leasehold
improvements . . . . . . . . 3,159 473 (117) (174) 3,341
---------- ---------- ---------- ---------- ----------
$ 246,662 $ 17,093 $ (5,951) $ (3,863) $ 253,941
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------

Year ended December 31,
1991:
Land . . . . . . . . . . . . . $ 5,889 $ 83 $ -- $ 115 $ 6,087
Buildings. . . . . . . . . . . 60,028 3,366 (767) (959) 61,668
Machinery and
equipment. . . . . . . . . . 152,558 9,386 (7,194) (2,339) 152,411
Office equipment . . . . . . . 21,636 1,702 (975) (170) 22,193
Vehicles . . . . . . . . . . . 1,336 76 (265) (3) 1,144
Leasehold
improvements . . . . . . . . 3,039 115 -- 5 3,159
---------- ---------- ---------- ---------- ----------
$ 244,486 $ 14,728 $ (9,201) $ (3,351) $ 246,662
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
<FN>

* Consist principally of the revaluation of certain foreign assets to reflect
current exchange rates under SFAS No. 52 and certain transfers between
categories, as well as asset write-downs in connection with 1993 restructuring
charges and other expenses.

</TABLE>

<PAGE>

HEXCEL CORPORATION AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
(In thousands)

OTHER*
BALANCE AT CHANGES -
BEGINNING ADDITIONS SALES AND ADD BALANCE AT
CLASSIFICATION OF YEAR AT COST RETIREMENTS (DEDUCT) END OF YEAR
-------------- ---------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1993:
Buildings. . . . . . . . . . . $ 19,281 $ 2,858 $ (152) $ (2,443) $ 19,544
Machinery and
equipment. . . . . . . . . . 77,463 9,677 (2,869) (3,115) 81,156
Office equipment . . . . . . . 15,448 2,277 (1,401) (124) 16,200
Vehicles . . . . . . . . . . . 803 116 (35) (72) 812
Leasehold
improvements . . . . . . . . 2,675 307 (667) (213) 2,102
--------- --------- --------- --------- ---------
$ 115,670 $ 15,235 $ (5,124) $ (5,967) $ 119,814
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

Year ended December 31,
1992:
Buildings. . . . . . . . . . . $ 17,505 $ 2,348 $ (89) $ (483) $ 19,281
Machinery and
equipment. . . . . . . . . . 73,273 9,643 (2,723) (2,730) 77,463
Office equipment . . . . . . . 13,760 2,497 (604) (205) 15,448
Vehicles . . . . . . . . . . . 744 136 (89) 12 803
Leasehold
improvements . . . . . . . . 2,352 461 (115) (23) 2,675
--------- --------- --------- --------- ---------
$ 107,634 $ 15,085 $ (3,620) $ (3,429) $ 115,670
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

Year ended December 31,
1991:
Buildings. . . . . . . . . . . $ 15,388 $ 2,697 $ (621) $ 41 $ 17,505
Machinery and
equipment. . . . . . . . . . 71,811 9,037 (5,372) (2,203) 73,273
Office equipment . . . . . . . 11,892 2,764 (733) (163) 13,760
Vehicles . . . . . . . . . . . 818 141 (205) (10) 744
Leasehold
improvements . . . . . . . . 1,942 391 -- 19 2,352
--------- --------- --------- --------- ---------
$ 101,851 $ 15,030 $ (6,931) $ (2,316) $ 107,634
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
<FN>

</TABLE>

<PAGE>

HEXCEL CORPORATION AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM NOTES PAYABLE
(IN THOUSANDS)

WEIGHTED MAXIMUM AVERAGE WEIGHTED
AVERAGE AMOUNT AMOUNT AVERAGE
BALANCE AT INTEREST RATE OUTSTANDING OUTSTANDING INTEREST RATE
END OF AT END OF DURING THE DURING THE DURING THE
PERIOD PERIOD PERIOD PERIOD PERIOD
---------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1993:
Notes Payable $ 21,479 6.6% $ 37,493 $ 30,832 8.8%

Year ended December 31,
1992:
Notes Payable $ 16,982 10.1% $ 52,333 $ 22,980 9.9%

Year ended December 31,
1991:
Notes Payable $ 17,318 9.8% $ 32,062 $ 17,638 9.1%

</TABLE>

<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In thousands)

YEARS ENDED DECEMBER 31,
---------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Maintenance and repairs. . . . . . . . . . . . $13,498 $10,778 $9,547
Taxes, other than payroll and income taxes . . 3,805 3,628 4,170

</TABLE>

<PAGE>

EXHIBIT 11

STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS - UNAUDITED

The Company reports net income (loss) per share data on primary and fully
diluted bases. Primary net income (loss) per share is based upon the weighted
average number of outstanding common shares and common equivalent shares from
stock options. Fully diluted net income (loss) per share is based upon (a) the
weighted average number of outstanding common shares and common equivalent
shares from stock options and adjusted for the assumed conversion of the 7%
convertible subordinated debentures and (b) net income (loss) increased by the
expenses on the debentures. Computations of net income (loss) per share on the
primary and fully diluted bases for 1993, 1992, and 1991 were:

PRIMARY NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE
- ---------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA) 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) from continuing operations $(86,456) $(17,706) $ 4,771
Loss from discontinued operations (4,039) (4,472) (508)
Extraordinary gain -- 956 --
Cumulative effects of accounting changes 4,500 (8,052) --
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) $(85,995) $(29,274) $ 4,263
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 7,330 7,254 7,113
Weighted average common equivalent shares from stock options -- 18 33
- ---------------------------------------------------------------------------------------------------------------
Weighted average common shares and equivalent shares 7,330 7,272 7,146
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Primary net income (loss) per share and equivalent share from (1):
Continuing operations $ (11.79) $ (2.43) $ 0.67
Discontinued operations (0.55) (0.62) (0.07)
Extraordinary gain -- 0.13 --
Cumulative effects of accounting changes 0.61 (1.11) --
- ---------------------------------------------------------------------------------------------------------------
Primary net income (loss) per share and equivalent share (1) $ (11.73) $ (4.03) $0.60
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE
- ---------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA) 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations $(86,456) $(17,706) $ 4,771
Loss from discontinued operations (4,039) (4,472) (508)
Extraordinary gain -- 956 --
Cumulative effects of accounting changes 4,500 (8,052) --
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) (85,995) (29,274) 4,263
Debenture interest and issuance costs 1,213 1,330 1,364
- ---------------------------------------------------------------------------------------------------------------
Adjusted net income (loss) $(84,782) $(27,944) $ 5,627
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 7,330 7,254 7,113
Weighted average common equivalent shares
Stock options -- 18 33
7% convertible debentures 804 881 1,034
- ---------------------------------------------------------------------------------------------------------------
Weighted average common shares and equivalent shares 8,134 8,153 8,180
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Fully diluted net income (loss) per share and equivalent share from (1):
Continuing operations $ (11.79) $ (2.43) $ 0.67
Discontinued operations (0.55) (0.62) (0.07)
Extraordinary gain -- 0.13 --
Cumulative effects of accounting changes 0.61 (1.11) --
- ---------------------------------------------------------------------------------------------------------------
Fully diluted net income (loss) per share and equivalent share (1) $ (11.73) $ (4.03) $ 0.60
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
<FN>
(1) For 1993, 1992 and 1991, the primary and fully diluted net income (loss)
per share were the same because the fully diluted computation was
antidilutive.

</TABLE>

73
<PAGE>

C. EXHIBITS

EXHIBIT NO. DESCRIPTION

3. 1. Restated Certificate of Incorporation of Hexcel Corporation(6)

2. Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock(6)

3. Certificate of Increase of Authorized Number of Shares of Series
A Junior Participating Preferred Stock(7)

4. Amended and Restated Bylaws of Hexcel Corporation dated as of
August 30, 1993

4. 1. Certificate of Incorporation of Hexcel Corporation, Articles 5
through 10 (See Exhibit 3-1)

2. Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock (Exhibit 3-2)

3. Certificate of Increase of Authorized Number of Shares of Series
A Junior Participating Preferred Stock (See Exhibit 3-3)

4. Amended and Restated Bylaws of Hexcel Corporation, Sections 3
through 11, 13 through 16, and 46 (See Exhibit 3-4)

5. Amendment to Bylaws of Hexcel Corporation (See Exhibit 3-4)

6. Rights Agreement dated as of August 14, 1986, between Hexcel
Corporation and Manufacturers Hanover Trust Company, as Successor
Rights Agent(6)

7. Amendment No. 1 dated October 18, 1988 to Rights Agreement
between Hexcel Corporation and the Bank of California, N.A.

8. Amendment No. 2 dated November 19, 1990 between Hexcel
Corporation and Manufacturers Hanover Company, as successor
Rights Agent(4)

9. Amendment No. 3 dated December 18, 1990 between Hexcel
Corporation and Manufacturers Hanover Company, as successor
Rights Agent(5)

10. Exemplar of Indenture between Hexcel Corporation and The Bank of
California, N.A., Trustee, dated October 1, 1988

11. Loan Agreement and Indentures-Industrial Development Bonds.
These instruments are not filed herewith; the registrant agrees
to furnish a copy of such instruments to the Commission upon
request

10. Material Contracts:

1. A. Note Agreement, as amended, dated December 9, 1977,
$8,000,000 8-3/4% Notes

<PAGE>

B. Amendments dated April 25, 1978, April 30, 1980, January 6,
1981, April 12, 1981, May 13, 1981, August 21, 1981, March
15, 1982 and September 1, 1982, December 31, 1983, July 24,
1986 and August 25, 1986, to Note Agreement dated December
9, 1977, $8,000,000 8-3/4% Notes

3. Amended and Restated Credit Agreement dated March 31, 1993,
among Hexcel Corporation and the Banks named therein and Wells
Fargo Bank, N.A., as Agent(7)

4. Letter of Credit and Reimbursement Agreement dated March 1, 1988,
between Hexcel Corporation and Banque Nationale de Paris(7)

5. Letter of Credit and Reimbursement Agreement dated December 1,
1989, between Hexcel Corporation and Banque Nationale de Paris(3)

A. Amendment No. 1 to Letter of Credit and Reimbursement
Agreement dated October 12, 1988, between Hexcel Corporation
and Banque Nationale de Paris

B. Amendment No. 2 to Letter of Credit and Reimbursement
Agreement dated July 1, 1992, between Hexcel Corporation and
Banque Nationale de Paris

C. Amendment No. 3 to Letter of Credit and Reimbursement
Agreement dated April 15, 1993, between Hexcel Corporation
and Banque Nationale de Paris

6. Note Agreement dated as of October 1, 1988, between Hexcel
Corporation and Principal Mutual Life Insurance Company,
$30,000,000 10.12% Senior Notes Due October 1, 1998

7. Letter of Credit Reimbursement Agreement dated as of November 1,
1991, among Hexcel Corporation and Barclays Bank PLC

8. Letter of Credit Reimbursement Agreement dated as of April 28,
1992, among Hexcel Corporation and Barclays Bank PLC as amended
March 31, 1993

9. Debtor in Possession Credit Agreement dated as of December 8,
1993, and amended January 3, 1994 and March 25, 1994, and amended
April 11, 1994 by and between Hexcel Corporation and The CIT
Group/Business Credit, Inc.

10. Executive Compensation Plans and Arrangements

A. Stock Option Plans

<PAGE>

(1) 1988 Management Stock Program(1)

(2) Amendments to 1988 Management Stock Program(1)

(3) 1988 Restricted Stock Agreement - Sample Agreement(1)

(4) 1988 Directors' Discounted Stock Option Agreement -
Sample Agreement(1)

(5) 1988 Discounted Stock Option Agreement - Sample
Agreement(1)

(6) 1988 Employees Nonqualified Stock Option Agreement -
Sample Agreement(2)

(7) 1988 Officers' Nonqualified Stock Option Agreement -
Sample Agreement(1)

B. Exemplar of Executive Deferred Compensation Agreement

C. Exemplars of Incentive Plans(6)

D. Exemplars of Contingency Employment Agreement

E. Directors' Retirement Plan(7)

F. Employment Agreement dated September 28, 1993 between Hexcel
Corporation and John J. Lee

G. Employment Agreement dated September 28, 1993 between Hexcel
Corporation and John L. Doyle

11. Statement Regarding Computation of Per Share Earnings

18. Preferability letter regarding change in accounting for inventories -
Deloitte & Touche

21. Subsidiaries of Registrant

23. Consents of Experts and Counsel

1. Independent Auditors' Consent - Deloitte & Touche

2. Consent of Independent Public Accountants - Arthur Andersen & Co.

- ---------------

(1) Incorporated by reference to the Registration Statement of registrant on
Post-Effective Amendment No. 1 to Form S-8 filed on May 11, 1988, No. 33-
17025, pursuant to the Securities Act of 1933

<PAGE>

(2) Incorporated by reference to the Registration Statement of registrant on
Form S-8 filed on May 2, 1989, No. 33-28445, pursuant to the Securities Act
of 1933

(3) Incorporated by reference to the Annual Report of registrant on Form 10-K
for the year ended December 31, 1989, filed pursuant to Section 13 of the
Securities Exchange Act of 1934.

(4) Incorporated by reference to the Current Report of registrant on Form 8-K
dated November 19, 1990, filed pursuant to Section 13 of the Securities
Exchange Act of 1934.

(5) Incorporated by reference to the Current Report of registrant on Form 8-K
dated December 18, 1990, filed pursuant to Section 13 of the Securities
Exchange Act of 1934.

(6) Incorporated by reference to the Annual Report of registrant on Form 10-K
for the year ended December 31, 1991, filed pursuant to Section 13 of the
Securities Exchange Act of 1934.

(7) Incorporated by reference to the Annual Report of registrant on Form 10-K
for the year ended December 31, 1992, filed pursuant to Section 13 o

<PAGE>

EXHIBIT 3.4
AMENDMENT TO BYLAWS

HEXCEL CORPORATION

RESTATED BY-LAWS

AS OF AUGUST 30, 1993

INDEX

- -------------------------------------------------------------------------------
SECTION SUBJECT PAGE
- -------------------------------------------------------------------------------

OFFICES
<S> <C>
1. Principal Office. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

STOCKHOLDERS

3. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4. Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
5. Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6. Adjourned Meetings and Notice Thereof . . . . . . . . . . . . . . . . 2
7. Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
8. Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
9. Action Without Meeting. . . . . . . . . . . . . . . . . . . . . . . . 3
10. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
11. List of Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . 3
11.1. Business of Annual Meetings . . . . . . . . . . . . . . . . . . . . . 4

DIRECTORS

12. Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
13. Number of Directors . . . . . . . . . . . . . . . . . . . . . . . . . 5
14. Election, Term of Office and Vacancies. . . . . . . . . . . . . . . . 5
15. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
16. Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
17. Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
18. Committees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
19. Inspection of Records and Properties. . . . . . . . . . . . . . . . . 7
20. Time and Place of Meetings and Telephone Meetings . . . . . . . . . . 7
21. Call. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
22. Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
23. Meeting Without Regular Call and Notice . . . . . . . . . . . . . . . 8
24. Action Without Meeting. . . . . . . . . . . . . . . . . . . . . . . . 8
25. Quorum and Required Vote. . . . . . . . . . . . . . . . . . . . . . . 8
26. Committee Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . 8
27. Interested Directors. . . . . . . . . . . . . . . . . . . . . . . . . 8
28. Honorary Advisors to the Board. . . . . . . . . . . . . . . . . . . . 9
29. Employee Compensation Measures. . . . . . . . . . . . . . . . . . . . 9
</TABLE>

(i)

<PAGE>

- -------------------------------------------------------------------------------
SECTION SUBJECT PAGE
- -------------------------------------------------------------------------------

OFFICERS

30. Titles and Relation to Board of Directors . . . . . . . . . . . . . . 10
31. Election, Term of Office and Vacancies. . . . . . . . . . . . . . . . 10
32. Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
33. Salaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
34. Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . 10
35. Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . . . 10
36. President and Vice Presidents . . . . . . . . . . . . . . . . . . . . 11
37. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(a) Record of Corporate Proceedings . . . . . . . . . . . . . . . 11
(b) Record of Shares. . . . . . . . . . . . . . . . . . . . . . . 11
(c) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(d) Additional Powers and Duties. . . . . . . . . . . . . . . . . 11
38. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
39. Other Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

40. Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
41. Transfers of Shares of Capital Stock. . . . . . . . . . . . . . . . . 12
42. Registered Shareholders . . . . . . . . . . . . . . . . . . . . . . . 12
43. Lost or Destroyed Certificates. . . . . . . . . . . . . . . . . . . . 12
44. Record Date and Closing of Stock Books. . . . . . . . . . . . . . . . 12
45. Transfer Agents and Registrars. . . . . . . . . . . . . . . . . . . . 13

AMENDMENTS

46. Adoption of Amendments. . . . . . . . . . . . . . . . . . . . . . . . 13
47. Record of Amendments. . . . . . . . . . . . . . . . . . . . . . . . . 13

CORPORATE SEAL

48. Form of Seal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

MISCELLANEOUS

49. Checks, Drafts, Etc . . . . . . . . . . . . . . . . . . . . . . . . . 13
50. Contracts, Etc.; How Executed . . . . . . . . . . . . . . . . . . . . 14
51. Representation of Shares of Other Corporations. . . . . . . . . . . . 14
52. Inspection of By-Laws . . . . . . . . . . . . . . . . . . . . . . . . 14
53. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
54. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
55. Construction and Definitions. . . . . . . . . . . . . . . . . . . . . 14

(ii)

<PAGE>

RESTATED
BY-LAWS OF HEXCEL CORPORATION
(FORMERLY HEXCEL MERGER CORPORATION)
A DELAWARE CORPORATION
AS OF AUGUST 30, 1993

OFFICES

1. PRINCIPAL OFFICE. The principal office for the transaction of the
business of the Corporation is hereby fixed and located at 5794 W. Las Positas
Boulevard, Pleasanton, California. The Board of Directors is hereby granted full
power and authority to change the place of said principal office.

2. OTHER OFFICES. The registered office in the State of Delaware is
hereby fixed and located at the Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware. The Board of Directors is hereby granted full power and
authority to change the place of said registered office within the State of
Delaware. Branch or subordinate offices may at any time be established by the
Board of Directors at any place or places where the Corporation is qualified to
do business.

STOCKHOLDERS

3. PLACE OF MEETINGS. Stockholders' meetings shall be held at the
principal office for the transaction of the business of this Corporation, or at
such other place as the Board of Directors shall, by resolution, appoint.

4. ANNUAL MEETINGS. The annual meetings of stockholders shall be held on
any day and at any time during the months of April or May in each year as
determined by resolution of the Board of Directors. At such meetings directors
shall be elected, reports of the affairs of the Corporation shall be considered,
and any other business may be transacted which is within the powers of the
stockholders.

Written notice of each annual meeting shall be mailed to each stockholder
entitled to vote, addressed to such stockholder at his address appearing on the
books of the Corporation or given by him to the Corporation for the purpose of
notice. If a stockholder gives no address, notice shall be deemed to have been
given if sent by mail or other means of written communication addressed to the
place where the principal executive office of the Corporation is situated, or if
published at least once in some newspaper of general circulation in the county
in which said office is located. All such notices shall be mailed, postage
prepaid, to each stockholder entitled thereto not less than ten (10) days nor
more than sixty (60) days before each annual meeting. Such notices shall
specify the place, the day, and the hour of such meeting, the names of the
nominees for election as directors if directors are to be elected at the
meeting, and

<PAGE>

those matters which the Board of Directors intends to present for action by the
stockholders, and shall state such other matters, if any, as may be expressly
required by statute.

5. SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose or purposes, may be called at any time by the Board of Directors, the
Chairman of the Board, the President, or by a committee of the Board of
Directors which has been duly designated by the Board of Directors and whose
powers and authority, as provided in a resolution of the Board of Directors or
in the By-Laws of the Corporation, include the power to call such meetings, but
such special meetings may not be called by any other person or persons;
provided, however, that if and to the extent that any special meeting of
stockholders may be called by any other person or persons specified in any
provisions of the Certificate of Incorporation or any amendment thereto, or any
certificate filed under Section 151(g) of the Delaware General Corporation Law
designating the number of shares of Preferred Stock to be issued and the rights,
preferences, privileges and restrictions granted to and imposed on the holders
of such designated Preferred Stock, as permitted by Section 5 of the Certificate
of Incorporation, then such special meeting may also be called by the person or
persons in the manner, at the times and for the purposes so specified. Except
in special cases where other express provision is made by statute, notice of
such special meeting shall be given in the same manner as for an annual meeting
of stockholders. Said notice shall specify the general nature of the business
to be transacted at the meeting. No business shall be transacted at a special
meeting except as stated in the notice sent to stockholders, unless by the
unanimous consent of all stockholders represented at the meeting, either in
person or by proxy. Upon written request to the Chairman of the Board, the
President, the Secretary or any Vice President of the Corporation by any person
(but not the Board of Directors) entitled to call a special meeting of
stockholders, the person receiving such request shall cause a notice to be given
to the stockholders entitled to vote that a meeting will be held at a time
requested by the person calling the meeting not less than thirty-five (35) nor
more than sixty (60) days after the receipt of the request.

6. ADJOURNED MEETINGS AND NOTICE THEREOF. Any stockholders' meeting,
annual or special, whether or not a quorum is present, may be adjourned from
time to time by the vote of a majority of the shares, the holders of which are
either present in person or represented by proxy thereat, but in the absence of
a quorum no other business may be transacted at such meeting.

Notice of an adjourned meeting need not be given if (a) the meeting is
adjourned for thirty (30) days or less, (b) the time and place of the adjourned
meeting are announced at the meeting at which the adjournment is taken, and (c)
no new record date is fixed for the adjourned meeting. Otherwise, notice of the
adjourned meeting shall be given as in the case of an original meeting.

7. VOTING. Except as provided below or as otherwise provided by the
Certificate of Incorporation or by law, a stock- holder shall be entitled to one
vote for each share held of record on the record date fixed for the
determination of the stockholders entitled to vote at a meeting or, if no such
date is fixed, the date determined in accordance with law. If any share

<PAGE>

is entitled to more or less than one vote on any matter, all references herein
to a majority or other proportion of shares shall refer to a majority or other
proportion of the voting power of shares entitled to vote on such matter. The
Board of Directors, in its discretion, or the officer presiding at a meeting of
stockholders, in his discretion, may require that any votes cast at such
meeting, including a vote for directors, be by written ballot. Except as
provided in the preceding sentence, the election of directors shall not be by
ballot, unless, before the voting for directors begins, a stockholder entitled
to vote for directors at the meeting demands that voting for directors be by
written ballot.

8. QUORUM. A majority of the shares entitled to vote, represented in
person or by proxy, constitutes a quorum for the transaction of business. No
business may be transacted at a meeting in the absence of a quorum other than
the adjournment of such meeting, except that if a quorum is present at the
commencement of a meeting, business may be transacted until the meeting is
adjourned even though the withdrawal of stockholders results in less than a
quorum. If a quorum is present at a meeting, the affirmative vote of a majority
of the shares represented at the meeting and entitled to vote on any matter
shall be the act of the stockholders unless the vote of a larger number is
required by law, the Certificate of Incorporation or these By-Laws. If a quorum
is present at the commencement of a meeting but the withdrawal of stockholders
results in less than a quorum, the affirmative vote of the majority of shares
required to constitute a quorum shall be the act of the stockholders unless the
vote of a larger number is required by law, the Certificate of Incorporation or
these By-Laws. Any meeting of stockholders, whether or not a quorum is present,
may be adjourned by the vote of a majority of the shares represented at the
meeting.

9. ACTION WITHOUT MEETING. No action shall be taken by the stockholders
except at an annual or special meeting of stockholders.

10. PROXIES. A stockholder may be represented at any meeting of
stockholders by a written proxy signed by the person entitled to vote or by such
person's duly authorized attorney-in-fact. A proxy must bear a date within
three (3) years prior to the meeting, unless the proxy specifies a different
length of time. A revocable proxy is revoked by a writing delivered to the
Secretary of the Corporation stating that the proxy is revoked or by a
subsequent proxy executed by, or by attendance at the meeting and voting in
person by, the person executing the proxy.

11. LIST OF STOCKHOLDERS. The Secretary of the Corporation shall prepare
and make, at least ten (10) days before every meeting of the stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.

<PAGE>

11.1. BUSINESS OF ANNUAL MEETINGS. Except to the extent, if any,
specifically provided to the contrary in the Certificate of Incorporation or
these By-Laws, to be properly brought before the annual meeting, all business
must be either (a) specified in the notice of annual meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought before the annual meeting by or at the direction of the Board
of Directors, or (c) otherwise properly brought before the annual meeting by a
stockholder. In addition to any other applicable requirements, for business to
be properly brought before any annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation, not
less than 60 days nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 70 days' notice or prior public disclosure of
the date of the annual meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received by the Secretary not later than the
close of business on the 10th day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure of the date of
the annual meeting was made, whichever first occurs. A stockholder's notice to
the Secretary shall set forth with respect to each matter the stockholder
proposes to bring before the annual meeting (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and record address
of the stockholder proposing such business, (iii) the class and number of shares
of the Corporation that are beneficially owned by the stockholder, and (iv) any
material interest of the stockholder in such business.

The Chairman of the annual meeting shall, if the facts warrant, determine
and declare to the meeting that the business was not properly brought before the
meeting in accordance with the provisions of this Section 11.1, and any such
business not properly brought before the meeting shall not be transacted.

DIRECTORS

12. POWERS. Subject to limitations of the Certificate of Incorporation, of
the By-Laws, and of the General Corporation Law of Delaware as to action to be
authorized or approved by the stockholders, and subject to the duties of
directors as prescribed by the By-Laws, all corporate powers shall be exercised
by or under the ultimate direction of, and the business and affairs of the
Corporation shall be managed by, the Board of Directors. Without prejudice to
such general powers, but subject to the same limitations, it is hereby expressly
declared that the directors shall have the following powers:

(a) To select and remove all of the other officers, agents and
employees of the Corporation, prescribe such powers and duties for them as may
not be inconsistent with law, with the Certificate of Incorporation or the
By-Laws, fix their compensation and require from them security for faithful
service.

<PAGE>

(b) To conduct, manage and control the affairs and business of the
Corporation, and to make such rules and regulations therefor not inconsistent
with law, or with the Certificate of Incorporation, or the By-Laws, as they may
deem best.

(c) To change the principal office for the transaction of the business
of the Corporation from one location to another as provided in Section 1 hereof;
to fix and locate from time to time one or more subsidiary offices of the
Corporation as provided in Section 2 hereof; to designate any place for the
holding of any stockholders' meeting or meetings; and to prescribe the forms of
certificates of stock, and to alter the form of such certificates from time to
time, as in their judgment they may deem best, provided such certificates shall
at all times comply with the provisions of law.

(d) To authorize the issuance of shares of capital stock of the
Corporation from time to time, upon such terms as may be lawful.

(e) To borrow money and incur indebtedness for the purposes of the
Corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations, or other evidences of debt and securities therefor.

13. NUMBER OF DIRECTORS.

(a) Except as provided in Subsection 6.1 of the Certificate of
Incorporation and in any certificate filed pursuant to Section 151(g) of the
General Corporation Law of Delaware designating the number of shares of
Preferred Stock to be issued and the rights, preferences, privileges and
restrictions granted to or imposed on the holders of such designated Preferred
Stock, as permitted by Section 5 of the Certificate of Incorporation, the
authorized number of directors of this Corporation shall be not less than eight
(8) nor more than fifteen (15). The exact number of directors shall be fixed
from time to time by an amendment to Subsection (b) of this Section duly adopted
by the Board of Directors or by the holders of 75% of the shares of the
Corporation.

(b) Subsection (a) of this Section provides for an indefinite number
of directors and requires this Subsection, from time to time, to specify the
exact number. Pursuant thereto it is hereby specified that this Corporation
shall have nine (9) directors.

14. ELECTION, TERM OF OFFICE AND VACANCIES.

(a) Except as provided in Subsections 6.2(a) and 6.2(b) of the
Certificate of Incorporation and in Subsection 14(b) below, the Board of
Directors shall be and is divided into three classes, Class I, Class II and
Class III, as nearly equal in number of directors as possible, with the term of
office of the directors of one class expiring each year. Each director shall
serve for a term ending on the date of the third annual meeting following the
annual meeting at which such director was elected; provided, however, that the
directors first elected to Class I shall

<PAGE>

serve for a term ending on the date of the annual meeting next following the end
of the calendar year 1983, the directors first elected to Class II shall serve
for a term ending on the date of the second annual meeting next following the
end of the calendar year 1983, and the directors first elected to Class III
shall serve for a term ending on the date of the third annual meeting next
following the end of the calendar year 1983. In the event of any change in the
authorized number of directors, the Board of Directors shall apportion any newly
created directorships to, or reduce the number of directorships in, such class
or classes as shall, so far as possible, equalize the number of directors in
each class. If, consistently with the rule that the three classes shall be as
nearly equal in number of directors as possible, any newly created directorship
may be allocated to one of two or more classes, the Board of Directors shall
allocate it to the available class whose term of office is due to expire at the
latest date following such allocation. Notwithstanding any of the foregoing,
each director shall serve for a term continuing until the annual meeting of the
stockholders at which the term of the class to which he was elected expires and
until his successor is elected and qualified or until his earlier death,
resignation or removal.

Except as provided in the Certificate of Incorporation and in
Subsection 14(b) hereof, any vacancies in the Board of Directors for any reason,
and any newly created directorships resulting from any increase in the number of
directors, may be filled by the Board of Directors, acting by a majority of the
directors then in office, although less than a quorum; and any directors so
chosen shall hold office until the next election of the class for which such
directors shall have been chosen, and until their successors shall be elected
and qualified.

(b) Notwithstanding any provisions of Subsection 6.2 (a) or any other
provision of Section 6 of the Certificate of Incorporation or the provisions of
Sections 13, 14 and 15 hereof, whenever the holders of any one or more classes
or series of Preferred Stock issued by the Corporation shall have the right,
voting separately by class or series, to elect directors at any annual or
special meeting of stockholders, the election, term of office, filling of
vacancies, removal and other features of such directorships shall be governed by
the terms of the Certificate of Incorporation applicable thereto, and by the
terms of any certificate filed pursuant to Section 151(g) of the General
Corporation Law of Delaware designating the number of shares of Preferred Stock
to be issued and the rights, preferences, privileges and restrictions granted to
and imposed on the holders of such designated Preferred Stock, as permitted by
Section 5 of the Certificate of Incorporation, and such directors so elected
shall not be divided into classes pursuant to Section 6.2 (a) of the Certificate
of Incorporation or Section 14 (a) hereof unless expressly provided by such
terms.

15. REMOVAL. Except as provided in the Certificate of Incorporation
and in Subsection 14(b) hereof, a director may be removed from office at any
time, but only for cause, and only by the affirmative vote of the holders of a
majority of the shares entitled to vote at an election of directors. No
reduction in the number of directors shall have the effect of removing any
director prior to the expiration of his term.

<PAGE>

16. RESIGNATION. Any director may resign by giving written notice to
the Chairman of the Board, the President, the Secretary or the Board of
Directors. Such resignation shall be effective when given unless the notice
specifies a later time. The resignation shall be effective regardless of whether
it is accepted by the Corporation.

17. COMPENSATION. If the Board of Directors so resolves, the
directors, including the Chairman of the Board, shall receive compensation and
expenses of attendance for meetings of the Board of Directors and of committees
of the Board. Nothing herein shall preclude any director from serving the
Corporation in another capacity and receiving compensation for such service.

18. COMMITTEES. The Board of Directors may, by resolution adopted by
a majority of the authorized number of directors, designate one or more
committees, each consisting of two or more directors, to serve at the pleasure
of the Board. In the absence or disqualification of any member of a committee
of the Board, the other members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board to act in the place of such
absent or disqualified member. The Board may designate one or more directors as
alternate members of a committee who may replace any absent member at any
meeting of the committee. To the extent permitted by resolution of the Board of
Directors, a committee may exercise all of the authority of the Board to the
extent permitted by Section 141(c) of the General Corporation Law of Delaware.

19. INSPECTION OF RECORDS AND PROPERTIES. Each director may inspect
all books, records, documents and physical properties of the Corporation and its
subsidiaries at any reasonable time. Inspections may be made either by the
director or the director's agent or attorney. The right of inspection includes
the right to copy and make extracts.

20. TIME AND PLACE OF MEETINGS AND TELEPHONE MEETINGS. Immediately
following each annual meeting of stockholders, the Board of Directors shall hold
a regular meeting for the purposes of organizing the Board, election of officers
and the transaction of other business. The Board may establish by resolution
the times, if any, other regular meetings of the Board shall be held. All
meetings of directors shall be held at the principal executive office of the
Corporation or at such other place as shall be designated in the notice for the
meeting or in a resolution of the Board of Directors. Directors may participate
in a meeting through use of conference telephone or similar communications
equipment, so long as all directors participating in such meeting can hear each
other.

21. CALL. Meetings of the Board of Directors, whether regular or
special, may be called by the Chairman of the Board, any Chief Executive
Officer, the President, the Secretary, or any two directors.

22. NOTICE. Regular meetings of the Board of Directors may be held
without notice if the time of such meetings has been fixed by the Board.
Special meetings shall be held

<PAGE>

upon four days' notice by mail or 48 hours' notice delivered personally or by
telephone, telegraph [or confirmed facsimile], and regular meetings shall be
held upon similar notice if notice is required for such meetings. Neither a
notice nor a waiver of notice need specify the purpose of any regular or special
meeting. Notice sent by mail or telegram shall be addressed to a director at
his business or home address as shown upon the records of the Corporation, or at
such other address as the director specifies in writing delivered to the
Corporation, or if such an address is not so shown on such records and no
written instructions have been received from the director, at the place in which
meetings of directors are regularly held. Such mailing, telegraphing, delivery
[or transmittal], as above provided, shall be due, legal and personal notice to
such director. If a meeting is adjourned for more than 24 hours, notice of the
adjourned meeting shall be given prior to the time of such meeting to the
directors who were not present at the time of the adjournment.

23. MEETING WITHOUT REGULAR CALL AND NOTICE. The transactions of any
meeting of the Board of Directors, however called and noticed or wherever held,
are as valid as though had at a meeting duly held after regular call and notice
if a quorum is present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting or an approval of the minutes of the meeting. For such purposes, a
director shall not be considered present at a meeting if, although in attendance
at the meeting, the director protests the lack of notice prior to the meeting or
at its commencement.

24. ACTION WITHOUT MEETING. Any action required or permitted to be
taken by the Board of Directors may be taken without a meeting, if all of the
members of the Board individually or collectively consent in writing to such
action.

25. QUORUM AND REQUIRED VOTE. A majority of the directors then in
office shall constitute a quorum for the transaction of business, provided that
unless the authorized number of directors is one, the number constituting a
quorum shall not be less than the greater of one-third of the authorized number
of directors or two directors. Except as otherwise provided by the Certificate
of Incorporation or these By-Laws, every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present is the act of the Board. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
directors, if any action taken is approved by at least a majority of the
required quorum for such meeting. A majority of the directors present at a
meeting, whether or not a quorum is present, may adjourn the meeting to another
time and place.

26. COMMITTEE MEETINGS. The principles set forth in Sections 20
through 25 of these By-Laws shall apply to committees of the Board of Directors
and to actions by such committees.

27. INTERESTED DIRECTORS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other

<PAGE>

corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose
if (a) the material facts as to his or their relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of Directors
or the committee, and the Board of Directors or committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors may be less
than a quorum; or (b) the material facts as to his or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (c) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified by the Board of Directors, a committee thereof
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.

Subject to the provisions of the above paragraph, the Corporation may
lend money to, or guarantee any obligation of, or otherwise assist any officer
or other employee of the Corporation or of any of its subsidiaries, including
any officer or employee who is a director of the Corporation or any of its
subsidiaries, whenever, in the judgment of the directors, such loan, guaranty or
assistance may reasonably be expected to benefit the Corporation. The loan,
guaranty or other assistance may be with or without interest, and may be
unsecured, or secured in such manner as the Board of Directors shall approve,
including, without limitation, a pledge of shares of stock of the Corporation.
Nothing in this Section contained shall be deemed to deny, limit or restrict the
powers of guaranty or warranty of any corporation at common law or under any
statute.

28. HONORARY ADVISORS TO THE BOARD. The Board of Directors may
appoint one or more Honorary Advisors, who shall hold such position for such
period, shall have such authority and perform such duties as the Board of
Directors may specify, subject to change at any time by the Board of Directors.
An Honorary Advisor to the Board shall not be a director for any purpose or with
respect to any provision of these By-Laws or of the General Corporation Law of
Delaware, and shall have no vote as a director. However, an Honorary Advisor to
the Board shall receive the same compensation and expense reimbursement as a
director for attendance at directors' meetings.

29. EMPLOYEE COMPENSATION MEASURES. No director shall vote upon any
employee compensation measure in which he has a direct personal interest and any
vote cast on such measures by such a director shall be nullified and deemed
void. Directors having such an interest may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such a measure. The term
"employee compensation measures" shall include, without limitation, salary,
bonus, stock options, stock purchase plans, retirement benefits, etc., but shall
not include directors' fees and compensation as referred to in Section 17.

<PAGE>

OFFICERS

30. TITLES AND RELATION TO BOARD OF DIRECTORS. The officers of the
Corporation shall include one or more Chief Executive Officers, a President, a
Secretary and a Treasurer. The Board of Directors may also choose a Chairman of
the Board, one or more Vice Chairmen of the Board, a Chief Financial Officer, a
General Counsel, and one or more Vice Presidents, Assistant Secretaries,
Assistant Treasurers or other officers. All officers shall perform their duties
and exercise their powers subject to the direction of the Board of Directors.
In the absence of appointment by the Board of Directors, any Chief Executive
Officer shall have the right and power to appoint an Executive Vice President,
one or more additional Vice Presidents, one or more Assistant Secretaries and
one or more Assistant Treasurers, all of whom shall perform their duties and
exercise their powers subject to the direction of any Chief Executive Officer,
subject to the overriding direction of the Board of Directors. No Vice
President, Assistant Secretary or Assistant Treasurer shall be appointed for a
term of office exceeding the term of office of the President, Secretary or
Treasurer, respectively. Any number of offices may be held by the same person.

31. ELECTION, TERM OF OFFICE AND VACANCIES. At its regular meeting
after each annual meeting of stockholders, the Board of Directors shall choose
the officers of the Corporation. No officer need be a member of the Board of
Directors except the Chairman of the Board. The officers shall hold office
until their successors are chosen, except that the Board of Directors may remove
any officer at any time. If an office becomes vacant for any reason, the
vacancy shall be filled by the Board.

32. RESIGNATION. Any officer may resign at any time upon written
notice to the Corporation without prejudice to the rights, if any, of the
Corporation under any contract to which the officer is a party. Such
resignation shall be effective when given unless the notice specifies a later
time. The resignation shall be effective regardless of whether it is accepted
by the Corporation.

33. SALARIES. The Board of Directors shall fix the salaries of the
Chairman of the Board, any Vice Chairman and any Chief Executive Officer and may
fix the salaries of other employees of the Corporation including the other
officers. If the Board does not fix the salaries of the other officers, any
Chief Executive Officer shall fix such salaries.
34. CHAIRMAN OF THE BOARD. The Chairman of the Board shall, if
present, preside at all meetings of the Board of Directors, and exercise and
perform such other powers and duties as may be from time to time assigned to him
by the Board of Directors or prescribed by the By-Laws.

35. CHIEF EXECUTIVE OFFICER. Unless otherwise determined by the Board
of Directors, any Chief Executive Officer shall be deemed general manager of the
Corporation, and shall, in the absence of a Chairman of the Board, preside at
all meetings of the Board of Directors and stockholders, shall be ex officio a
member of any committees of the Board, shall effectuate orders and resolutions
of the Board of Directors and shall exercise such other powers and perform such
other duties as the Board of Directors shall prescribe.

<PAGE>

36. PRESIDENT AND VICE PRESIDENTS. In the absence or disability of
any Chief Executive Officer, the President (and in the absence or disability of
the President, the Vice President, if any, (or if more than one, the Vice
Presidents in order of their rank as fixed by the Board of Directors or, if not
so ranked, the Vice President designated by the Board of Directors)) shall
perform all the duties of any Chief Executive Officer, and when so acting shall
have all the powers of, and be subject to all the restrictions upon, the
President. The President and Vice Presidents shall have such other powers and
perform such other duties as from time to time may be prescribed for them
respectively by the Board of Directors or the By-Laws.

37. SECRETARY. The Secretary shall have the following powers and
duties:

(a) RECORD OF CORPORATE PROCEEDINGS. The Secretary shall attend all
meetings of the Board of Directors and its committees and shall record all votes
and the minutes of such meetings in a book to be kept for that purpose at the
principal executive office of the Corporation or at such other place as the
Board of Directors may determine. The Secretary shall keep at the Corporation's
principal executive office the original or a copy of the By-Laws, as amended.

(b) RECORD OF SHARES. Unless a transfer agent is appointed by the
Board of Directors to keep a share register, the Secretary shall keep at the
principal executive office of the Corporation a share register showing the names
of the stockholders and their addresses, the number and class of shares held by
each, the number and date of certificates issued, and the number and date of
cancellation of each certificate surrendered for cancellation.

(d) ADDITIONAL POWER AND DUTIES. The Secretary shall exercise such
other powers and perform such other duties as the Board of Directors or any
Chief Executive Officer shall prescribe.

38. TREASURER. Unless otherwise determined by the Board of Directors,
the Treasurer of the Corporation shall be its chief financial officer, and shall
have custody of the corporate funds and securities and shall keep adequate and
correct accounts of the Corporation's properties and business transactions. The
Treasurer shall disburse such funds of the Corporation as may be ordered by the
Board of Directors, taking proper vouchers for such disbursements, shall render
to any Chief Executive Officer and directors, at regular meetings of the Board
of Directors or whenever the Board may require, an account of all transactions
and the financial condition of the Corporation and shall exercise such other
powers and perform such other duties as the Board of Directors or any Chief
Executive Officer shall prescribe.

39. OTHER OFFICERS. The other officers, if any, of this Corporation
shall perform such duties as may be assigned to them by the Board of Directors,
except as otherwise provided in Section 30.

<PAGE>

40. CERTIFICATES. A certificate or certificates for shares of the
capital stock of the Corporation shall be issued to each stockholder when any
such shares are fully paid up. All such certificates shall be signed by the
Chairman of the Board, any Vice Chairman, any Chief Executive Officer, the
President or a Vice President and the Secretary or Assistant Secretary. Any
signature on the certificate may be by facsimile.

41. TRANSFERS OF SHARES OF CAPITAL STOCK. Transfers of shares shall be
made only upon the transfer books of this Corporation, kept at the office of the
Corporation or transfer agents designated to transfer such shares, and before a
new certificate is issued, the old certificate shall be surrendered for
cancellation.

42. REGISTERED SHAREHOLDERS. Registered stockholders only shall be
entitled to be treated by the Corporation as the holders in fact of the shares
standing in their respective names and the Corporation shall not be bound to
recognize any equitable or other claim to or interest in any share on the part
of any other person, whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of Delaware.

43. LOST OR DESTROYED CERTIFICATES. The Corporation may cause a new
stock certificate to be issued in place of any certificate previously issued by
the Corporation alleged to have been lost, stolen or destroyed. The Corporation
may, at its' discretion and as a condition precedent to such issuance, require
the owner of such certificate to deliver an affidavit stating that such
certificate was lost, stolen or destroyed, or to give the Corporation a bond or
other security sufficient to indemnify it against any claim that may be made
against it, including any expense or liability, on account of the alleged loss,
theft or destruction or the issuance of a new certificate.

44. RECORD DATE AND CLOSING OF STOCK BOOKS. The Board of Directors
may fix a time, in the future, not more than sixty (60) nor less than ten (10)
days prior to the date of any meeting of stockholders, nor more than sixty (60)
days prior to the date fixed for the payment of any dividend or distribution, or
for the allotment of rights, or when any change or conversion or exchange of
shares shall go into effect, as a record date for the determination of the
stockholders entitled to notice of and to vote at any such meeting, or entitled
to receive any such dividend or distribution, or any such allotment of rights,
or to exercise the rights in respect to any such change, conversion, or exchange
of shares, and in such case except as provided by law, only stockholders of
record on the date so fixed shall be entitled to notice of and to vote at such
meeting or to receive such dividend, distribution, or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the Corporation after any record date fixed as
aforesaid. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting unless the Board of Directors fixes a new record date. The Board of
Directors shall fix a new record date if the adjourned meeting takes place more
than thirty (30) days from the date set for the original meeting.

<PAGE>

45. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint
one or more transfer agents or transfer clerks, and one or more registrars, who
shall be appointed at such times and places as the requirements of the
Corporation may necessitate and the Board of Directors may designate.

AMENDMENTS

46. ADOPTION OF AMENDMENTS. New By-Laws of this Corporation may be
adopted or these By-Laws may be amended or repealed by a vote of either a
majority of directors of the Corporation or a majority of the shares of the
Corporation; provided, however, that, except as specifically provided in Section
13, the provisions set forth in Sections 5, 9, 13(b), 14, 15, and 46 shall not
be adopted, amended or repealed, nor shall any other By-Law be adopted, amended
or repealed which will have the effect of modifying or permitting the
circumvention of such By-Laws unless such adoption, amendment or repeal is
approved by the affirmative vote of not less than 75% of the shares of the
Corporation.

47. RECORD OF AMENDMENTS. Whenever an amendment or new
By-Law is adopted, it shall be copied in the Book of By-Laws with the original
By-Laws, in the appropriate place. If any By-Laws or By-Law is repealed, the
fact of repeal with the date of the meeting at which the repeal was enacted or
written assent was filed shall be stated in said book.

CORPORATE SEAL

48. FORM OF SEAL. The corporate seal shall be circular in form, and
shall have inscribed thereon the name of the Corporation, the date of its
incorporation and the word "Delaware".

MISCELLANEOUS

49. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for
payment of money, notes, or other evidences of indebtedness, issued in the name
of or payable to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time shall be determined by
resolution of the Board of Directors.

50. CONTRACTS, ETC.; HOW EXECUTED. The Board of Directors, except as
otherwise provided in these By-Laws, may authorize any officer or officers, or
agent or agents, to enter into any contract or execute any instrument in the
name of and on behalf of the Corporation, and such authority may be general or
confined to specific instances; and unless so authorized by the Board of
Directors, no officer, agent, or employee shall have any power or authority to
bind the Corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or for any amount.

51. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chairman of
the Board, any Chief Executive Officer, the President or any Vice President and

<PAGE>

the Secretary or Assistant Secretary of this Corporation are authorized to vote,
represent, and exercise on behalf of this Corporation all rights incident to and
all shares of any other corporation or corporations standing in the name of this
Corporation. The authority herein granted to said officers to vote or represent
on behalf of this Corporation any and all shares held by this Corporation in any
other corporation or corporations may be exercised either by such officers in
person or by any other person authorized so to do by proxy or power of attorney
duly executed by said officers.

52. INSPECTION OF BY-LAWS. The Corporation shall keep in its
principal office for the transaction of business the original or a copy of these
By-Laws as amended or otherwise altered to date, certified by the Secretary,
which shall be open to inspection by the stockholders at all reasonable times
during office hours.

53. DIVIDENDS. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, and may be
paid in cash, in property, or in shares of the capital stock. Before payment of
any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.

54. FISCAL YEAR. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.

55. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise
requires, the general provisions, rules and construction, and definitions
contained in the General Corporation Law of Delaware shall govern the
construction of these By-Laws. Without limiting the generality of the foregoing,
the masculine gender includes the feminine and neuter, the singular number
includes the plural and the plural number includes the singular, and the term
"person" includes a corporation as well as a natural person.

<PAGE>

SECRETARY'S CERTIFICATE

THIS IS TO CERTIFY:

That I am the duly elected, qualified and acting Secretary of HEXCEL
CORPORATION, a Delaware corporation, and that the above and foregoing Restated
By-Laws were adopted as the By-Laws of said Corporation on the _____ day of
____________, 1993, by the directors of said corporation.

IN WITNESS WHEREOF, I have hereunto set my hand this _____ day of
____________, 1993.

_____________________________
Robert D. Krumme, Secretary

<PAGE>

EXHIBIT 4.7
Amendment No. 1

AMENDMENT NO. 1 TO RIGHTS AGREEMENT
-----------------------------------

AMENDMENT NO. 1, dated as of October 18, 1988, to the Rights Agreement
dated as of August 14, 1986 (the "Rights Agreement"), between Hexcel
Corporation, a Delaware corporation (the "Company"), and The Bank of California,
a California banking corporation, as Rights Agent (the "Rights Agent").
WHEREAS, the Company and the Rights Agent entered into the Rights
Agreement specifying the terms of the Rights (as defined therein);
WHEREAS, the Company and the Rights Agent desire to amend the Rights
Agreement in accordance with Section 26 of the Rights Agreement;
NOW, THEREFORE, in consideration of the premises and mutual agreements
set forth in the Rights Agreement and this Amendment, the parties hereby agree
as follows:
1. Section 1(c)(iii) of the Rights Agreement is amended by inserting
the following at the end of said Section:

<PAGE>

"PROVIDED, however, that nothing in this paragraph (c) shall cause a
person engaged in business as an underwriter of securities to be the
"Beneficial Owner" of, or to "beneficially own," any securities
acquired through such person's participation in good faith in a firm
commitment underwriting until the expiration of forty days after the
date of such acquisition."

2. Section 3(a) of the Rights Agreement is amended to change the
reference to Rule 14e-2(a) to Rule 14d-2(a). Section 3(a) of the Rights
Agreement is also amended by adding immediately after the words "(ii) the close
of business on the tenth business day" and before the words "after the date
that" the following parenthetical clause:

"(or such later date as may be determined by the Company's Board of
Directors)"

3. Section 7(c) of the Rights Agreement is amended by inserting the
following at the end of said Section:

"Notwithstanding the provisions of this Section 7(c), if, for any
reason, the provision permitting holders of Rights to pay the Purchase
Price by delivery of shares of Common Stock is held by a court of
competent jurisdiction or authority to be invalid or violative of any
rule under the Exchange Act or if the Board, on the advice of counsel,
determines that there is a reasonable likelihood that such provision
will be held to be invalid or will violate the rules under the
Exchange Act, holders of Rights shall be required to pay the Purchase
Price in cash as provided in clause (x) above. The Company reserves
the right to require, prior to the occurrence of an event described in
Section 11(a)(ii) or Section 13(a), that, upon any

<PAGE>

exercise of Rights, a number of Rights be exercised so that only whole
shares of Preferred Stock will be issued."

4. Section 11(a)(ii)(B) of the Rights Agreement is amended to read
in its entirety as follows:

"(B) any Person (other than the Company, any employee benefit plan of
the Company or of any Subsidiary of the Company, or any Person or
entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan), alone or together with its
Affiliates and Associates, shall, at any time after the Rights
Dividend Declaration Date, become the Beneficial Owner of 25% or more
of the shares of Common Stock then outstanding, unless the event
causing the 25% threshold to be crossed is a transaction set forth in
Section 13(a) hereof or is an acquisition of shares of Common Stock
pursuant to a tender offer or an exchange offer for all outstanding
shares of Common Stock at a price and on terms determined by at least
a majority of the members of the Board of Directors who are not
officers of the Company and who are not representatives, nominees,
Affiliates or Associates of an Acquiring Person, after receiving
advice from one or more investment banking firms, to be (a) at a price
which is fair to stockholders (taking into account all factors which
such members of the Board deem relevant including, without limitation,
prices which could reasonably be achieved if the Company or its assets
were sold on an orderly basis designed to realize maximum value) and
(b) otherwise in the best interests of the Company and its
stockholders, or"

5. Section 11(a)(ii) of the Rights Agreement is amended so that the
first parenthetical clause following Section 11(a)(ii)(C) shall read as follows:

"(except as provided below, in Section 7(e) hereof and in Section
23(c) hereof)"

<PAGE>

6. Section 13(b) of the Rights Agreement is amended by inserting the
following at the end of said Section:

"If, for any reason, the Rights cannot be exercised for Common Stock of the
Company or such Principal Party, then a holder of Rights will have the
right to exchange his Rights for cash from the Company or such Principal
Party in an amount equal to the number of shares of such Common Stock he
would otherwise be entitled to purchase times 50% of the then current
market price, as determined pursuant to Section 11(d)(i) hereof, of such
stock of such Principal Party or the Company. If, for any reason,
including, without limitation, if such Principal Party is an individual,
private partnership or private company, the foregoing formulation cannot be
applied to determine the cash amount into which the Rights are
exchangeable, then the Board of Directors of the Company, based upon the
advice from one or more investment banking firms, shall determine such
amount reasonably and with utmost good faith to the holders of Rights. Any
such determination shall be binding and final."

7. Section 14(b) of the Rights Agreement is amended so that the
first parenthetical clause shall read as follows:

"(other than, except as provided in Section 7(c) hereof, fractions
which are integral multiples of one one-hundredth of a share of
Preferred Stock)"

8. Section 23(a) of the Rights Agreement is amended by inserting the
following at the end of said Section:

"In addition, the Board of Directors of the Company may redeem all but
not less than all of

<PAGE>

the then outstanding Rights at the Redemption Price, following the
occurrence of a Stock Acquisition Date (but prior to the occurrence of
a Triggering Event), in connection with any event specified in Section
13(a) which (i) treats all holders of Common Stock alike and (ii) does
not involve (other than as a holder of Common Stock being treated like
all other such holders) an Acquiring Person or an Affiliate or
Associate of an Acquiring Person or any other Person in which such
Acquiring Person, Affiliate or such Associate has any interest, or any
other Person acting directly or indirectly on behalf of or in
association with any such Acquiring Person, Affiliate or Associate.
The Company may, at its option, pay the Redemption Price in cash,
shares of Common Stock (based on the "current market price", as
defined in Section 11(d) hereof, of the Common Stock at the time of
redemption) or any other form of consideration deemed appropriate by
the Board of Directors."

9. Section 23 of the Rights Agreement is amended by adding the
following new Section 23(c):

"(c)(i) Subject to the limitations of applicable law, the Board
of Directors of the Company may, at its option, at any time after the
occurrence of a Section 11(a)(ii) Event, exchange all or part of the
then outstanding and exercisable Rights (which shall not include
Rights that have become void pursuant to the provisions of Section
7(e) hereof) for shares of Common Stock at an exchange ratio of one
share of Common Stock per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the
date hereof (such exchange ratio being hereinafter referred to as the
"Exchange Ratio"). Notwithstanding the foregoing, the Board of
Directors shall not be empowered to effect such exchange at any time
after any Person (other than the Company, any subsidiary of the
Company, any employee benefit plan of the Company or any such
subsidiary, or any entity holding Common Stock for or pursuant to

<PAGE>

the terms of any such plan), together with all Affiliates and
Associates of such Person, becomes the Beneficial Owner of 50% or more
of the Common Stock then outstanding.

(ii) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to this Section
23(c) and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter
of a holder of such Rights shall be to receive that number of shares
of Common Stock equal to the number of of such Rights held by such
holder multiplied by the Exchange Ratio. The Company shall promptly
give public notice of any such exchange; PROVIDED, HOWEVER, that the
failure to give, or any defect in, such notice shall not affect the
validity of such exchange. The Company promptly shall mail a notice of
any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such
notice of exchange will state the method by which the exchange of the
Common Stock for Rights will be effected and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any
partial exchange shall be effected pro rata based on the number of
Rights (other than Rights which have become void pursuant to the
provisions of Section 7(e) hereof) held by each holder of Rights.

(iii) In any exchange pursuant to this Section 23(c), the
Company, at its option, may substitute shares of Preferred Stock (or
equivalent preferred stock, as such term is defined in Section 11(b)
hereof) for Common Stock exchangeable for Rights, at the initial rate
of one one-hundredth of a share of Preferred Stock (or equivalent
preferred stock) for each share of Common Stock, as appropriately
adjusted to reflect adjustments in the voting rights of the shares of
Preferred Stock pursuant to the terms

<PAGE>

thereof, so that the fraction of a share of Preferred Stock delivered in
lieu of each share of Common Stock shall have the same voting rights as
one share of Common Stock.

(iv) In the event that there shall not be sufficient shares of Common
Stock or Preferred Stock issued but not outstanding or authorized but
unissued to permit any exchange of Rights as contemplated in accordance
with this Section 23(c), the Company shall take all such action as may be
necessary to authorize additional shares of Common Stock or Preferred Stock
for issuance upon exchange of the Rights.

(v) The Company shall not be required to issue fractions of shares
of Common Stock or to distribute certificates which evidence fractional
shares of Common Stock. In lieu of such fractional shares of Common Stock,
the Company shall pay to the registered holders of the Right Certificates
with regard to which such fractional shares of Common Stock would otherwise
be issuable an amount in cash equal to the same fraction of the current
market value of a whole share of Common Stock. For the purposes of this
Section 23(c)(v), the current market value of a whole share of Common Stock
shall be the closing price of a share of Common Stock (as determined
pursuant to Section 11(d) hereof) for the Trading Day immediately prior to
the date of exchange pursuant to this Section 23(c)."

10. Section 30 of the Rights Agreement is amended by inserting the
following at the end of said Section:

"Without limiting the foregoing, if any provision requiring that a
determination be made by less than the entire Board of Directors (or
at a time or with the concurrence of a group of directors consisting
of less than the entire Board) is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable,
such determination shall then

<PAGE>

be made by the Board in accordance with applicable law and the
Company's Certificate of Incorporation and By-laws."

11. The term "Agreement" as used in the Rights Agreement shall be
deemed to refer to the Rights Agreement as amended hereby-

12. The foregoing amendment shall be effective as of the date hereof
and, except as set forth herein, the Rights Agreement shall remain in full force
and effect and shall be otherwise unaffected hereby.

13. This Amendment may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and their respective corporate seals to be hereunto affixed,
all as of the day and year first above written.

HEXCEL CORPORATION

By /s/ John O'Flaherty
-----------------------------------
Name: John O'Flaherty
Title: Vice President

THE BANK OF CALIFORNIA

By /s/ Alice M. Alvarado
------------------------------------
Name: Alice M. Alvarado
Title: Trust Officer

<PAGE>

EXHIBIT 4.10

INSTRUMENT OF RESIGNATION,
APPOINTMENT AND ACCEPTANCE

INSTRUMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE (this
"Instrument" ) entered into as of the 1st day of October, 1988 among Hexcel
Corporation, a Delaware corporation (the "Issuer"), The Bank of California,
N.A., a national banking association incorporated under the laws of the United
States ("BCAL"), and Bankers Trust Company of California, N.A., a national
banking association incorporated under the laws of the United States,
("Bankers").

W I T N E S S E T H

WHEREAS, the Issuer and BCAL entered into a certain Indenture dated as
of August 1, 1986 (the "Indenture") with respect to the issuance of
$35,000,000.00 principal amount of 7% Convertible Subordinated Debentures Due
2011 (the "Securities"), $34,950,000.00 of which are outstanding;

WHEREAS, BCAL has been acting as Trustee under the Indenture;

WHEREAS, Section 9.10 of the Indenture provides that BCAL may resign
at any time and be discharged of the trust created by the Indenture by giving
written notice thereof to the Issuer and by mailing notice of resignation to the
holders of Securities;

WHEREAS, BCAL, pursuant to the provisions of Section 9.10 Of the
Indenture, has given such written notice to the Issuer on the 9th day of March,
1988, a copy of which is attached hereto as Exhibit A, and has mailed such
notice of its resignation as Trustee under the Indenture to the security holders
in accordance with the provisions of the Indenture, a copy of which is attached
hereto as Exhibit B, which resignation shall create a vacancy in the office of
the Trustee;

WHEREAS, Section 9.10 of the Indenture further provides that the
Issuer shall promptly appoint a successor Trustee to fill the vacancy in the
office of Trustee under the Indenture;

WHEREAS, the Issuer wishes to appoint Bankers as successor Trustee
under the Indenture;

WHEREAS, Bankers is willing to accept such appointment as successor
Trustee on the terms and conditions set forth herein and under the Indenture;
and

<PAGE>

WHEREAS, Bankers is qualified and eligible to act as successor Trustee
under the Indenture.

NOW, THEREFORE, pursuant to the provisions of the Indenture and in
consideration of the covenants herein contained, it is agreed among the Issuer,
BCAL and Bankers as follows:

1. The Issuer hereby accepts the resignation of BCAL as Trustee and,
pursuant to the authority vested in it by Section 9.10 of the Indenture and by
resolution of its board of directors dated 23 August 1988, a copy of which is
attached as Exhibit D, hereby appoints Bankers as successor Trustee under the
Indenture, with all the estate, properties, rights, powers, trusts, duties and
obligations heretofore vested in BCAL as Trustee under the Indenture. BCAL's
resignation as Trustee and Bankers' appointment and acceptance as successor
Trustee, shall be effective as of the opening of business on the date first
above written upon the execution and delivery hereof by each of the parties
hereto.

2. The Issuer hereby designates the corporate trust office of BCAL
presently located at 400 California Street, San Francisco, CA 94145 as the
office or agency of the Issuer in San Francisco, California where the Securities
may be presented for exchange, conversion, registration of transfer and payment
and as the office where notices and demands to or upon the Issuer in respect of
the Indenture or Securities may be served.

3. The Issuer represents and warrants that:

(a) It is validly organized and existing under the laws of the
state of its incorporation;

(b) the Securities were validly and lawfully issued;

(c) it has performed or fulfilled each covenant, agreement and
condition on its part to be performed or fulfilled under the Indenture;

(d) it has no knowledge of the existence of any default, or Event
of Default (as defined in the Indenture), or any event which upon notice or
passage of time or both would become an Event of Default, under the Indenture;

(e) it has not appointed any paying agents under the Indenture
other than BCAL and The Bank of California New York Trust Company;

<PAGE>

(f) it will continue to perform the obligations undertaken by it
under the Indenture; and

(g) promptly after the execution and delivery of this Instrument,
it will mail or cause to be mailed to each security holder a Notice of
Appointment of Successor Trustee, a form of which is attached hereto as Exhibit
c.

4. BCAL represents and warrants to Bankers that:

(a) It has made, or promptly will make available to Bankers
originals of all documents relating to the trust created by the Indenture and
all information in the possession of its Corporate Trust Department relating to
the administration and status thereof and will furnish to Bankers any of such
documents or information Bankers may select;

(b) to the best of the knowledge of the Officers of BCAL assigned
to its Corporate Trust Department, no default, or Event of Default (as defined
in the Indenture), or any event which upon notice or lapse of time or both would
become an Event of Default under the Indenture, exists;

(d) no covenant or condition contained in the Indenture has been
waived by BCAL or by the security holders of the percentage in aggregate
principal amount of the Securities required by the Indenture to effect any such
waiver.

BCAL further agrees to indemnify Bankers and save Bankers harmless
from and against any and all costs, claims, liabilities, losses or damages
whatsoever (including reasonable fees and disbursements of counsel, auditors or
other agents or experts) to the extent not otherwise reimbursed by the Issuer to
Bankers, which Bankers may suffer or incur as a result of, or arising out of,
Bankers' accepting the appointment and acting as successor Trustee or any other
duties or obligations under the Indenture, but in each case only to the extent
that such costs, claims, liabilities, losses or damages arise out of or are as a
result of or are in connection with or are alleged to arise out of or to be the
result of or to be in connection with BCAL'S actions or omissions in the
performance by BCAL of its duties as Trustee.

BCAL agrees in addition to indemnify Bankers and save Bankers harmless
from any and all costs, claims, liabilities, losses or damages (including
reasonable fees and disbursements of counsel, auditors or other EXPERTS) arising
out of or as a result of or in connection with any omissions from or
inaccuracies in the registry books relating to the Securities

<PAGE>

("Securities Register"). BCAL agrees to investigate from time to time as Bankers
may reasonably request, at the expense of the Issuer or, if the Issuer fails to
pay, at the expense of BCAL, the completeness or accuracy of any information in
the Securities Register which relates to any transaction occurring prior to the
appointment of Bankers as Trustee for the Securities.

5. Bankers represents that it is qualified and eligible to act as
Trustee under the provisions of the Indenture.

6. Bankers hereby accepts its appointment as successor Trustee under
the Indenture and accepts the trust created thereby, and assumes all rights,
powers, duties and obligations of the Trustee under the Indenture. Bankers will
perform said trust and will exercise said rights, powers, duties and obligations
upon the terms and conditions set forth in the Indenture.

7. BCAL hereby accepts the designation of its corporate trust office
as the office or agency of the Issuer in San Francisco, California where the
Securities may be presented for exchange, conversion, registration of transfer
and payment and as the office where notices and demands to or upon the Issuer in
respect of the Indenture or the Securities may be served. In accepting such
appointment as paying agent of the Issuer, BCAL further agrees to execute and
deliver to Bankers an instrument pursuant to Section 6.04 of the Indenture.

8. Pursuant to the written request of Bankers and the Issuer hereby
made, BCAL, upon payment of its outstanding charges, receipt of which is hereby
acknowledged, confirms, assigns, transfers and sets over to Bankers, as
successor Trustee under the Indenture, upon the trust expressed in the
Indenture, any and all moneys and all the rights, powers, trusts, duties and
obligations which BCAL now holds as trustee under and by virtue of the
Indenture.

9. The Issuer, for the purpose of more fully and certainly vesting
in and confirming to Bankers, as successor Trustee under the Indenture, said
rights, powers, duties, trusts and obligations, at the request of Bankers,
hereby joins in the execution hereof.

10. The Issuer and BCAL hereby agree, upon the request of Bankers, to
execute, acknowledge and deliver such further instruments of conveyance and
assurance and to do such other things as may be required for more fully and
certainly vesting and confirming in Bankers all of the properties, rights,
powers, duties and obligations of BCAL as Trustee under the Indenture.

<PAGE>

11. Terms not otherwise defined in this Instrument shall have the
definitions given thereto in the Indenture.

12. The effect and meaning of this Instrument and the rights of all
parties hereunder shall be governed by, and construed in accordance with, the
laws of the State of California.

13. This Instrument may be simultaneously executed in any number of
counterparts. Each such counterpart so executed shall be deemed to be an
original, but all together shall constitute but one and the same instrument.

IN WITNESS WHEREOF, Hexcel Corporation has caused this Instrument to
be executed and acknowledged by one of its officers duly authorized, its
corporate seal to be affixed hereunto, and the same to be attested by its
secretary or one of its assistant secretaries; BcAL has caused this Instrument
to be executed and acknowledged by one of its vice presidents, its corporate
seal to be affixed hereunto, and the same to be attested by one of its assistant
secretaries; and Bankers Trust Company of California, N.A. has caused this
Instrument to be executed and acknowledged by one of its vice presidents, its
corporate seal to be affixed hereunto, and the same to be attested by one of its
assistant secretaries, as of the day and year first above written.

HEXCEL CORPORATION
[Seal]

By:
----------------------------
Its: Vice President
Attest:

- -------------------------------
Its: Assistant Secretary

THE BANK OF CALIFORNIA, N.A.
[Seal]

By:
----------------------------
Its: Vice President

Attest:

- -------------------------------
Its:

<PAGE>

BANKERS TRUST COMPANY OF
CALIFORNIA, N .A.

[Seal]

By:
----------------------------
Its: Vice President

Attest:

- -------------------------------
Its:

<PAGE>

EXHIBIT A

March 9, 1988

Hexcel Corporation
Attention: Mr. Christopher Ward
630 California Street
San Francisco, CA 94108

Re: NOTICE OF RESIGNATION OF TRUSTEE,
$34,950,000 Principal Amount
HEXCEL CORPORATION
7% Convertible Subordinated Debentures Due 2011

Dear Chris:

NOTICE IS HEREBY GIVEN, pursuant to Section 9.10 of the Indenture (the
"Indenture") dated as of August 1, 1986, by and between Hexcel Corporation and
The Bank of California, N.A., as Trustee, that The Bank of California, N.A. has
resigned as Trustee because of the existence of a conflict of interest as
defined in Section 9.08 of the Indenture. The Bank of California, N.A.,
however, will continue to act as Paying Agent, Transfer Agent and Registrar for
subject Debentures.

Such resignation as Trustee shall take effect immediately upon appointment of a
successor trustee pursuant to Section 9.10 of the Indenture.

Very truly yours,

The Bank of California, N.A., as Trustee

BY: _______________________________
Assistant Vice President

<PAGE>

EXHIBIT B

NOTICE OF RESIGNATION
OF TRUSTEE

To the Holders of

7% Convertible Subordinated Debentures Due 2011
Issued by Hexcel Corporation

NOTICE IS HEREBY GIVEN that, pursuant to Section 9.10 of the Indenture
dated as of August 1, 1986, under which the above mentioned Debentures were
issued, the undersigned has resigned as Trustee effective October 1, 1988.

THE BANK OF CALIFORNIA, N.A.

Dated:___________________, 1988

<PAGE>

EXHIBIT C

NOTICE OF APPOINTMENT
OF SUCCESSOR TRUSTEE

To the Holders of

7% Convertible Subordinated Debentures Due 2011
Issued by Hexcel Corporation

NOTICE IS HEREBY GIVEN that Hexcel Corporation (the "Company") has
received a notice of resignation from The Bank of California, N.A. as Trustee,
under the Indenture dated as of August 1, 1986 (the "Indenture"), such
resignation to be effective October 1, 1988.

NOTICE IS HEREBY FURTHER GIVEN that pursuant to Section 9 .10 of the
Indenture, the Company has appointed Bankers Trust Company of California, N.A.,
as successor Trustee under the Indenture. Bankers Trust Company of California,
N.A. has, pursuant to Section 9.11 of the Indenture, accepted such appointment
to be effective October 1, 1988. The address of the Corporate Trust and Agency
Group West office of the Bankers Trust Company of California, N.A., successor
Trustee is 50 Fremont Street, San Francisco, California 94105.

NOTICE IS HEREBY FURTHER GIVEN that pursuant to Section 6.02 of the
Indenture, the Company has designated The Bank of California, N.A. as its paying
agent and its office or agency in the city of San Francisco, California where
said Securities may be presented for exchange, conversion, registration of
transfer or payment as provided in the Indenture and where notices and demands
to or upon the Company in respect of the Securities and the Indenture may be
served. The address of The Bank of California, N.A. is 400 California Street,
San Francisco, CA 94104. The Company's designated office or agency in the city
of New York, New York remains The Bank Of California New York Trust Company
whose address is 20 Exchange Place, New York, NY 10005. Securities being sent to
such offices or agencies for exchange, conversion, registration of transfer or
payment should be sent to the following address:

<PAGE>

BY MAIL BY HAND

1. The Bank of 1. The Bank of
California, N.A. California, N.A.
400 California Street 400 California Street
San Francisco, CA 94104 San Francisco, CA 94104

2. The Bank of California 2. The Bank of California
New York Trust Company New York Trust Company
20 Exchange Place 20 Exchange Place
New York, NY 10005 New York, NY 10005

HEXCEL CORPORATION

Dated: ________________, 1988

<PAGE>

RESOLUTION RE SUCCESSOR TRUSTEE
INDENTURE DATED AUGUST 1, 1986

The following is a true copy of resolutions duly adopted on the 23rd
of August, 1988, by the Board of Directors of Hexcel Corporation.

"RESOLVED, that any officer of this Company is hereby authorized to
accept the resignation of the Bank of California, N.A. as Trustee under the
Company's Indenture, dated as of August 1, 1986, to appoint the Bankers Trust
Company of California, N.A., as successor Trustee under said Indenture and to
appoint the Bank of California, N.A. as paying agent and the Company's office or
agency in San Francisco, California for the payment of, registration of, and
services of notices in connection with, the Securities under said Indenture; and

"FURTHER RESOLVED, that any officer of this Company is hereby
authorized to enter into such agreements and other instruments as may be
necessary or desirable to effectuate the appointment of Bankers Trust Company of
California, N.A. as successor Trustee and The Bank of California, N.A. as paying
agent and the Company's said agent under said Indenture; and

"FURTHER RESOLVED, that any officer of this Company is hereby
authorized to accept the resignation of any such successor Trustees under the
Company's Indenture dated August 1, 1986 and to appoint further successor
Trustees and/or paying agents and to enter into such agreements and other
instruments as may be necessary or desirable to effectuate such appointments
under said Indenture hereafter.

HEXCEL CORPORATION

/s/ David Wong
-----------------------------------
David Wong, Assistant Secretary

<PAGE>

EXHIBIT 10.1(a)

1COMPOSITE CONFORMED COPY

- -------------------------------------------------------------------------------

HEXCEL CORPORATION

NOTE AGREEMENT

Dated December 9, 1977

$8,000,000 8-3/4% Notes Due June 1, 1997

- -------------------------------------------------------------------------------

<PAGE>

TABLE OF CONTENTS

NOTE AGREEMENT

PAGE

SECTION 1. PURCHASE AND SALE OF NOTES 1

1.1 Issue of Notes 1
1.2 The Closing 2
1.3 Purchase for Investment 2
1.4 Other Agreement 2
1.5 Failure to Deliver 3
1.6 Expenses 3

SECTION 2. WARRANTIES AND REPRESENTATIONS 4

2.1 Subsidiaries 4
2.2 Corporate Organization and Authority 4
2.3 Business, Property and Indebtedness 4
2.4 Financial Statements 5
2.5 Full Disclosure 5
2.6 Pending Litigation 6
2.7 Title to Properties 6
2.8 Patents and Trademarks 6
2.9 Sale is Legal and Authorized 6
2.10 No Defaults 7
2.11 Governmental Consent 7
2.12 Taxes and Renegotiation 7
2.13 Use of Proceeds 8
2.14 Private Offering 8
2.15 Earnings Coverage 9
2.16 Compliance with Law 9
2.17 Restrictions on Company and Subsidiaries 10
2.18 ERISA

SECTION 3. CLOSING CONDITIONS 11

3.1 Opinions of Counsel 11
3.2 Distributions 11
3.3 Warranties and Representations True
as of Closing Date 11
3.4 Compliance with this Agreement 11
3.5 Officers' Certificate 11
3.6 Legality 12
3.7 Other Closing 12

<PAGE>

3.8 Proceedings Satisfactory 12
3.9 Completion of Information Certificate 12
3.10 Insurance Certificate 12

SECTION 4. PURCHASER'S SPECIAL RIGHTS 13

4.1 Direct Payment 13
4.2 Delivery Expenses 13
4.3 Issue Taxes 13

SECTION 5. PREPAYMENTS 13

5.1 Required Prepayments 13
5.2 Options to Prepay 14
5.3 Notice of Optional Prepayment 15
5.4 Partial Prepayment Pro Rata 16
5.5 Surrender of Notes on Prepayment 16

SECTION 6. REGISTRATION; SUBSTITUTION OF NOTES 16

6.1 Registration of Notes 16
6.2 Exchange of Notes 16
6.3 Replacement of Notes 17
6.4 Repurchase Right 17

SECTION 7. COMPANY BUSINESS COVENENTS 19

7.1 Payment of Taxes and Claims 19
7.2 Maintenance of Properties and Corporate
Existence 19
7.3 Payment of Notes and Maintenance of
Office 20
7.4 Disposal of Shares of a Subsidiary 21
7.5 Sale of Assets; Ski Division; Merger 23
7.6 Liens and Encumbrances 25
7.7 Funded Debt 26
7.8 Restricted Obligations 27
7.9 Consolidated Net Working Capital 28
7.10 Distributions 28
7.11 Restricted Investments 29
7.12 Guaranties 31
7.13 ERISA Compliance 31
7.14 Transactions with Affiliates 31
7.15 Tax Consolidation 32
7.16 Sale or Discount of Receivables 32
7.17 Sale and Leaseback Transactions 32
7.18 Acquisition of Notes 33

ii.

SECTION 8. INFORMATION AS TO COMPANY 33

<PAGE>

8.1 Financial and Business Information 33
8.2 Officers' Certificates 37
8.3 Accountants' Certificates 37
8.4 Inspection 38

SECTION 9. EVENTS OF DEFAULT 38

9.1 Nature of Events 38
9.2 Default Remedies 40
9.3 Annulment of Acceleration of Notes 41

SECTION 10. INTERPRETATION OF THIS AGREEMENT 42

10.1 Terms Defined 42
10.2 Accounting Principles 54
10.3 Directly or Indirectly 54
10.4 Governing Law 55
10.5 Principal Amount 55

SECTION 11. MISCELLANEOUS 55

11.1 Notices 55
11.2 Reproduction of Documents 55
11.3 Survival 56
11.4 Successors and Assigns 56
11.5 Amendment and Waiver 56
11.6 Duplicate Originals 57

Exhibit A 8-3/4 % Note due June 1, 1997
Exhibit B List of Subsidiaries, Corporate Affiliates
and Indebtedness
Exhibit C Description of Company Counsel's Closing
Opinion
Exhibit D Description of Special Counsel's Closing
Opinion
Exhibit E Legality Certificate
Exhibit F Information Certificate

iii.
[Bankers Life]

<PAGE>

HEXCEL CORPORATION
650 California Street
San Francisco, California 94108

NOTE AGREEMENT

$8,000,000

8-3/4% Notes due June 1, 1997

December 9, 1977

Bankers Life Company

In the case of all payments on account of the Notes in
accordance with Section 4.1, by:

crediting (in the form of federal funds bank
wire transfer) its
Account No. 014752
in Iowa-Des Moines National Bank
Des Moines, Iowa 50304
with sufficient information with such wire transfer
to identify the payor of such funds, the obligations
to which they relate, and any apportionment
between principal and interest;

in the case of all other communications;

711 High Street
Des Moines, Iowa 50307
Attention: Investment Department
Securities Division

Dear Sirs:

Hexcel Corporation (the "Company"), a California
corporation, hereby agreed with you as follows:

SECTION 1. PURCHASE AND SALE OF NOTES

1.1 ISSUE OF NOTES.

The Company will authorize the issue of $8,000,000 in aggregate
principal amount of 8-3/4% notes due 1997 (herein called the "Notes"). Each
Note will be in the amount of $100,000 or an integral multiple thereof (except

<PAGE>

as may be necessary to reflect any principal amount not evenly divisible by
$100,000); will bear interest on the unpaid principal balance thereof from the
date of the Note at the rate of 8-3/4% per annum (except as set forth to the
contrary in Section 7.7(d)), payable semi-annually on the first day of December
and the first day of June in each year, commencing with the payment date next
succeeding the date of the Note, until the principal amount thereof shall be due
and payable, and thereafter will bear interest at the rate of 9-3/4% per annum;
and will mature on June 1, 1997. The Notes will be in the form of the Note set
out in Exhibit A to this Agreement.

1.2 THE CLOSING.

The Company hereby agrees to sell to you and you hereby agree to
purchase from the Company, in accordance with the provisions of this Agreement,
$4,000,000 in aggregate principal amount of Notes at 100% of the principal
amount thereof. Your purchase shall be made at a closing to be held on December
15, 1977. The date of the closing is herein called the "Closing Date." The
closing will be held at the office of McCutchen, Doyle, Brown & Enersen, Three
Embarcadero Center, San Francisco California 94111. At the closing the Company
will deliver to you a single Note in the principal amount of your purchase,
dated the Closing Date and payable to you, against payment in funds immediately
available in San Francisco.

1.3 PURCHASE FOR INVESTMENT.

You represent to the Company that you are purchasing the Notes for
your own account for investment and with no present intention of distributing
the Notes or any part thereof, but without prejudice, however, to your right at
all times to sell or otherwise dispose of all or any part of the Notes under a
registration under the Securities Act of 1933, as amended, (at your expense,
unless otherwise agreed in writing by the Company) or under an exemption from
such registration available under such Act.

1.4 OTHER AGREEMENT.

Simultaneously with the execution and delivery of this Agreement,
the Company is entering into an agreement (the "Other Agreement") with [name of
the other Purchaser] (the "Other Purchaser") (you and the Other Purchaser being
herein called the "Purchasers"), which agreement is identical to

<PAGE>

this Agreement except as to the identity of the Purchaser, and your obligations
hereunder are subject to the execution and delivery of the Other Agreement. The
obligations of each Purchaser shall be several and not joint and you shall not
be liable or responsible for the acts or defaults of the Other Purchaser.

1.5 FAILURE TO DELIVER

If at the closing the Company fails to tender to you the Note to be
purchased by you or if the conditions specified in Section 3 have not been
fulfilled, you may thereupon elect to be relieved of all further obligations
under this Agreement. Nothing in this Section shall operate to relieve the
Company from any of its obligations hereunder or to waive any of your rights
against the Company.

1.6 EXPENSES

Whether or not the Notes are sold, the Company will pay all expenses
relating to this Agreement, including but not limited to:

(a) the cost of reproducing this Agreement and the Notes;

(b) the reasonable fees and disbursements of your special
counsel;

(d) the cost of delivering to your home office, insured to
your satisfaction, the Note purchased by you at the closing;

(e) all expenses relating to any amendments, waivers or
consents pursuant to the provisions hereof;
and

(f) any amounts owing to Dean Witter & Co. Incorporated or
any other brokerage or finder's fee in connection with the transactions
contemplated by this Agreement.

The obligations of the Company under this Section 1.6 shall survive the payment
or prepayment of the Notes and the termination of this Agreement.

<PAGE>

SECTION 2. WARRANTIES AND REPRESENTATIONS

The Company warrants and represents to you that:

2.1 SUBSIDIARIES.

Exhibit B to this Agreement states (1) the name of each of the
Subsidiaries, its jurisdiction of incorporation and the percentage of its Voting
Stock owned by the Company and each other Subsidiary and (2) the name of each of
the Company's corporate or joint venture Affiliates (other than Subsidiaries)
and the nature of the affiliation. The Company and each Subsidiary has good and
marketable title to all of the shares it purports to own of the stock of each
Subsidiary, free and clear in each case of any Lien. All such shares have been
duly issued and are fully paid and non-assessable.

2.2. CORPORATE ORGANIZATION AND AUTHORITY.

The Company, and each Subsidiary,

(a) is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation,

(b) has all requisite power and authority and all necessary
licenses and permits to own and operate its Properties and to carry on its
business as now conducted and as presently proposed to be conducted, and

(c) has duly qualified and is authorized to do business and
is in good standing as a foreign corporation in each jurisdiction in which both
(1) such qualification is necessary and (2) either (i) its sales in the most
recent fiscal year of the Company exceeded $50,000 or (ii) assets owned or
leased by it with an aggregate fair market value in excess of $50,000 are
located.

2.3 BUSINESS, PROPERTY AND INDEBTEDNESS.

(a) The Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1976 and its Current Report on Form 8-K dated
April 4, 1977 filed by the Company with the Securities and Exchange Commission
and previously delivered to you correctly describe the general nature of
the business and principal Properties of the Company and the Subsidiaries.

(b) Exhibit B to this Agreement correctly lists all Funded
Debt and Current Debt of the Company and its Subsidiaries outstanding at the
date hereof.

<PAGE>

2.4 FINANCIAL STATEMENTS

(a) The consolidated balance sheets of the Company and the
Subsidiaries as of December 31 in each of the years from 1972 to 1976,
inclusive, and the related consolidated statements of income, stockholders'
equity and changes in financial position for each of the fiscal years ended on
such dates, all accompanied by reports thereon containing opinions without
qualification, except as there- in noted, by Arthur Andersen & Co., independent
certified public accountants, and the consolidated balance sheet of the Company
and the Subsidiaries as of September 30, 1977 (un- audited) and the related
consolidated statements of income and changes in financial position for the
three- and nine-month periods ended on such date, copies of which have been
delivered to you, have been prepared in accordance with generally accepted
accounting principles (except for the omission of footnotes from such unaudited
statements) consistently applied, and present fairly the financial position of
the Company and the Subsidiaries as of such dates and the results of their
operations and changes in their financial position for such periods. If
footnotes were included in such unaudited statements in accordance with
generally accepted accounting principles, the facts disclosed in such footnotes
would not include a material adverse change from the facts disclosed in the
footnotes to the above-mentioned financial statements at December 31, 1976 and
for the fiscal year then ended. These consolidated financial statements include
the accounts of all Subsidiaries of the Company for the respective periods
during which a subsidiary relationship has existed.

(b) Since December 31, 1976, there has been no change in the
business, prospects, profits, Properties or condition (financial or other) of
the Company or any of its Subsidiaries except changes in the ordinary course of
business, none of which individually or in the aggregate has been materially
adverse, and the acquisition of the Company's Zeeland, Michigan plant on the
terms described in its Current Report on Form 8-K dated April 4, 1977 filed with
the Securities and Exchange Commission.

2.5 FULL DISCLOSURE.

The financial statements referred to in Section 2.4 do not, nor does
this Agreement or any written statement furnished to you by or on behalf of the
Company in connection with the negotiation of the sale of the Notes, contain any
untrue statement of a material fact or omit a material fact necessary to make
the statements contained therein or herein not misleading. There is no fact
which

<PAGE>

the Company has not disclosed to you in writing which materially affects
adversely, or which, so far as the Company can now foresee, will materially
affect adversely, the Properties, business, prospects, profits or condition
(financial or other) of the Company and its Subsidiaries or the ability of the
Company to perform this Agreement.

2.6 PENDING LITIGATION.

Other than the OSHA and EPA matters described to you in a letter or
even date herewith, there are no proceedings pending, or to the knowledge of the
Company threatened, against or affecting the Company or any Subsidiary in any
court or before any governmental authority or arbitration board or tribunal
which involve the possibility of materially and adversely affecting the
financial position or results of operations of the Company and the Subsidiaries
on a consolidated basis for or at the end of the current or any past or future
accounting period. Such letter fairly presents the present status of such OSHA
and EPA matters and fairly assesses the likelihoods of the possible outcomes of
such matters. Neither the Company nor any Subsidiary is in default with
respect to any order of any court, governmental authority or arbitration board
or tribunal.

2.7 TITLE TO PROPERTIES.

The Company, and each Subsidiary, has good and marketable title in
fee simple (or its equivalent under applicable law) to all the real Property,
and has good title to all the other Property, it purports to own, including that
reflected in the most recent balance sheet referred to in Section 2.4 (except as
sold or otherwise disposed of in the ordinary course of business), free from
Liens not permitted by Section 7.6.

2.8 PATENTS AND TRADEMARKS.

The Company, and each subsidiary, owns or possesses all the patents,
trademarks, service marks, trade names, licenses and rights with respect to the
foregoing necessary for the present and planned future conduct of its business,
without any known conflict with the rights of others.

2.9 SALE IS LEGAL AND AUTHORIZED.

The sale of the Notes by the Company and compliance by the Company
and each Subsidiary with all of the provisions of this Agreement and of the
Notes:

<PAGE>

(a) are within the corporate powers of the Company and each
Subsidiary; and

(b) are legal and will not conflict with, result in any
breach of any of the provisions of, constitute a default under, or result in the
creation of any Lien upon any Property of the Company or any Subsidiary under
the provisions of, any agreement, charter instrument, by-law or other instrument
to which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any Property of any of them may be bound.

2.10 NO DEFAULTS.

No event has occurred since December 31, 1976, and no condition
exists (whether as a result of an event occurring before, on or after such
date), which constituted or constitutes a Default or any Event of Default, or
which would have constituted or would constitute a Default, or Event of Default
if this Agreement had been in force from December 31, 1976. Neither the Company
nor any Subsidiary is in violation in any material respect of any term of any
agreement, charter instrument, by-law or other instrument to which it is a party
or by which it may be bound.

2.11 GOVERNMENTAL CONSENT.

Neither the nature of the Company or of any Subsidiary, or of any of
their respective businesses or Properties, nor any relationship between the
Company or any Subsidiary and any other Person, nor any circumstance in
connection with the offer, issue, sale or delivery of the Notes is such as to
require a consent, approval or authorization of, or filing, registration or
qualification with, any governmental authority on the part of the Company as a
condition to the execution and delivery of this Agreement or the offer, issue,
sale or delivery of the Notes.

2.12 TAXES AND RENEGOTIATION.

(a) All tax returns required to be filed by the Company or
any Subsidiary in any jurisdiction have in fact been filed, and all taxes,
assessments, fees and other governmental charges upon the Company or any
Subsidiary, or upon any of their respective Properties, income or franchises,
which are due and payable have been paid. The United States income tax
liability of the Company and the Subsidiaries has been finally determined by the
Internal Revenue Service, and has been satisfied, for all taxable years through
the taxable year ended December 31, 1973. Neither the Company nor any Subsidiary
knows of any proposed additional tax assessment against. it.

<PAGE>

(b) The provisions for taxes on the books of the Company and
each Subsidiary are adequate for all open years, and for its current fiscal
period. The amount of the reserve for federal income taxes reflected in the
consolidated balance sheet of the Company and its Subsidiaries at December 31,
1976 is an adequate provision for such Federal income taxes, if any, as may be
payable by the Company and its Subsidiaries for the taxable years 1974 through
1976.

(c) The liabilities, if any, of the Company and the
Subsidiaries under the Renegotiation Act of 1948 or 1951, as amended, have been
finally determined by the Renegotiation Board, and have been satisfied, for all
fiscal years through the fiscal year ended December 31, 1974. Neither the
Company nor any Subsidiary has received a renegotiation report, other than any
renegotiation report which has been finally disposed of prior to December 31,
1976. There is no matter pending before the Renegotiation Board or any Regional
Renegotiation Board involving the Company or any Subsidiary. No reserve for
renegotiation is necessary in the consolidated balance sheet of the Company and
the Subsidiaries at December 31, 1976 in order for such balance sheet to fairly
present the financial position of the Company and the Subsidiaries at such date.

2.13 USE OF PROCEEDS.

The Company will apply all the proceeds from the sale of the Notes
for the repayment of bank borrowings. None of the transactions contemplated in
this Agreement (including, without limitation thereof, the use of the proceeds
from the sale of the Notes) will violate or result in a violation of Section 7
of the Securities Exchange Act of 1934, as amended, or any regulations issued
pursuant thereto, including, without limitation, Regulations G, T and X of the
Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II.
Neither the Company nor any Subsidiary owns or intends to carry or purchase
any "margin security" within the meaning of said Regulation G, including margin
securities originally issued by it. None of the proceeds from the sale of the
Notes will be used to purchase or carry (or refinance any borrowing the proceeds
of which were used to purchase or carry) any "security" within the meaning of
the Securities Exchange Act of 1934, as amended.

2.14 PRIVATE OFFERING.

Neither the Company nor Dean Witter & Co., Incorporated (the only
Person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection

<PAGE>

with the offering or sale of the Notes or any similar Security of the Company)
has offered any of the Notes or any similar Security of the Company for sale to,
or solicited offers to buy any thereof from, or otherwise approached or
negotiated with respect thereto with, any prospective purchaser, other than you
and six other institutional investors, each of whom was offered a portion of the
Notes at private sale for investment. The Company agrees that neither the
Company nor anyone acting on its behalf will offer the Notes or any part thereof
or Securities of the same or similar class (within the meaning of Rule 146 of
the Securities and Exchange Commission) for issue or sale to, or solicit any
offer to acquire any of the same from, anyone so as to bring the issuance and
sale of the Notes within the provisions of Section 5 of the Securities Act of
1933, as amended. The Company agrees not to issue any Securities within six
months after any original issuance of the Notes or any part thereof, if such
issuance would bring the issuance and sale of the Notes within the provisions of
such Section 5.

2.15 EARNINGS COVERAGE.

The net earnings available for fixed charges of the Company and
subsidiary institutions, consolidated as required pursuant to Section 81(2) of
the New York Insurance Law, for the period of the five fiscal years most
recently audited have averaged per year not less than one and one-half times
their average consolidated fixed charges for such year. As used in this
Section, the terms "net earnings available for fixed charges", "subsidiary
institutions" and "fixed charges" have the meanings stated in Exhibit E.

2.16 COMPLIANCE WITH LAW.

As to all matters other than the OSHA and EPA matters described to
you in a letter of even date herewith, neither the Company nor any Subsidiary is
aware of (duly diligent investigation having been made with respect thereto):

(a) any violation of any laws, ordinances, governmental
rules or regulations to which it is subject;

(b) any failure to obtain any licenses, permits, franchises
or other governmental authorizations necessary to the ownership of its
Property or to the conduct of its business; or

<PAGE>

which violation or failure to obtain might materially and adversely affect the
financial position or results of operations of the Company and the Subsidiaries
on a consolidated basis for or at the end of the current or any past or future
accounting period. Such letter fairly presents the present status of such OSHA
and EPA matters and fairly assesses the likelihoods of the possible outcomes of
such matters.

2.17 RESTRICTIONS ON COMPANY AND SUBSIDIARIES.

Neither the Company nor any Subsidiary is a party to any contract or
agreement, or subject to any charter or other corporate restriction, which
materially and adversely affects the business of the Company and its
Subsidiaries. Neither the Company nor any Subsidiary is a party to any contract
or agreement which restricts the right or ability of such corporation to incur
Funded Debt, other than this Agreement and the Loan Agreement dated February 11,
1976 between the Company and Wells Fargo Bank, National Association, as amended
by Amendment to Loan Agreement dated April 1, 1977. Neither the Company nor any
Subsidiary has agreed or consented to cause or permit in the future (upon the
happening of a contingency or otherwise) any of its Property, whether now
owned or hereafter acquired, to be subject to a Lien not permitted by Section
7.6.

2.18 ERISA

(A) RELATIONSHIP OF VESTED BENEFITS TO PENSION ASSETS. The
present value of all benefits vested under all "employee pension benefit plans,"
as such term is defined in Section 3 of ERISA, maintained by the Company or any
Subsidiary, as from time to time in effect (herein called the "Pension Plans"),
did not as of December 31, 1975, the last annual valuation date, exceed the
value of the assets of the Pension Plans allocable to such vested benefits.

(b) PROHIBITED TRANSACTIONS. Neither any of the Pension
Plans nor any trust created thereunder, nor any "disqualified person" has
engaged in a "prohibited transaction," as such terms are defined in Section 4975
of the Internal Revenue Code of 1954, as amended, which could subject the
Pension Plans or any of them, any such trust, or any trustee or administrator
thereof, or any party dealing with the Pension Plans or any such trust to the
tax or penalty on prohibited transactions imposed by said Section 4975.

10.

<PAGE>

(c) REPORTABLE EVENTS. Neither any of the Pension Plans nor
any such trust have been terminated nor have there been any "reportable events",
as that term is defined in Section 4043 of ERISA, since September 2, 1974.

(d) ACCUMULATED FUNDING DEFICIENCY. None of the Pension
Plans has incurred any "accumulated funding deficiency," as such term is defined
in Section 302 of ERISA (whether or not waived), since the effective date
specified by Section 306 of ERISA.

SECTION 3. CLOSING CONDITIONS.

Your obligation to purchase and pay for the Note to be delivered to
you at the closing shall be subject to the following conditions precedent:

3.1 OPINIONS OF COUNSEL.

You have received from Messrs. Wendel, Lawlor, Rosen & Black,
counsel for the Company, and Messrs. McCutchen, Doyle, Brown & Enersen, your
special counsel, the closing opinions described in Exhibits C and D to this
Agreement.

3.2 DISTRIBUTIONS.

The Company shall not, after December 31, 1976, have declared, made
or incurred any liability to make Distributions in respect of the Equity
Securities of the Company aggregating more than $1,000,000.

3.3 WARRANTIES AND REPRESENTATIONS TRUE AS OF CLOSING DATE.

The warranties and representations contained in Section 2 shall
(except as affected by transactions contemplated by this Agreement) be true in
all material respects on the Closing Date with the same effect as though made on
and as of that date.

3.4 COMPLIANCE WITH THIS AGREEMENT.

The Company shall have performed and complied with all agreements
and conditions contained herein which are required to be performed or complied
with by the Company before or at the closing.

3.5 OFFICERS' CERTIFICATE.

You shall have received a certificate dated the Closing Date and
signed by the President or a Vice President

11.

<PAGE>

and the Treasurer or an Assistant Treasurer of the Company, certifying that the
conditions specified in Sections 3.2, 3.3 and 3.4 have been fulfilled.

3.6 LEGALITY.

The Notes shall on the Closing Date qualify as a legal investment
for insurance companies under Section 81(2) (b) of the New York Insurance Law
and you shall have received a certificate in the form of Exhibit E to this
Agreement, or such other evidence as you may reasonably request, to establish
compliance with this condition.

3.7 OTHER CLOSING.

Simultaneously with the closing of your purchase, the Other
Purchaser shall have purchased a like principal amount of Notes and the Company
shall have received payment therefor.

3.8 PROCEEDINGS SATISFACTORY.

All proceedings taken in connection with the sale of the Notes and
all documents and papers relating thereto shall be satisfactory to you and your
special counsel. You and your special counsel shall have received copies of
such documents and papers as you or they may reasonably request in connection
therewith or as a basis for your special counsel's closing opinion, all in form
and substance satisfactory to you and your special counsel.

3.9 COMPLETION OF INFORMATION CERTIFICATE.

The Company shall have completed and delivered to you the
Information Certificate in the form of Exhibit F to this Agreement, with a copy
of the Company's most recent audited annual financial statements attached
thereto, which certificate and statements you have informed the Company may be
used as a basis for filings which you may be required to make with certain
regulatory bodies and with the National Association of Insurance Commissioners.

3.10 INSURANCE CERTIFICATE.

The Company shall have delivered the written opinion of its
independent insurance broker or advisor, dated the Closing Date, to the effect
set forth in Section 7.2(b).

12.

<PAGE>

SECTION 4. PURCHASER'S SPECIAL RIGHTS

4.1 DIRECT PAYMENT.

Notwithstanding anything to the contrary in this Agreement or the
Notes, the Company will pay all amounts payable with respect to any Notes held
by you, any nominee or affiliate of yours, or any institutional holder of 6-1/4%
or more in principal amount of Notes at the time outstanding, (without any
presentment or surrender of such Notes and without any notation of such payment
being made thereon) by crediting before 12:00 noon, local time at the place of
receipt, by federal funds bank wire transfer, the account of such holder in any
bank in the United States as may be designated in writing by such holder, or in
such other manner or to such other address in the United States as may be
designated in writing by such holder, or in such other manner or to such other
address in the United States as may be designated in writing by such holder.
Each holder of a Note to which this Section 4.1 applies agrees that in the event
it shall sell or transfer any such Note (a) it will, prior to the delivery of
such Note (unless it has already done so), make a notation thereon of all
principal, if any, prepaid on such Notes and will also note thereon the date to
which interest has been paid on such Note, and (b) it will promptly notify the
Company of the name and address of the transferee of any such Note so
transferred.

4.2 DELIVERY EXPENSES.

If you surrender any Note to the Company pursuant to this Agreement,
the Company will pay the cost of delivering to or from your home office from or
to the Company, insured to your satisfaction, the surrendered Note and any Note
issued in substitution or replacement for the surrendered Note.

4.3 ISSUE TAXES.

The Company will pay all taxes in connection with the issuance and
sale of the Notes and in connection with any modification of the Notes and will
save you harmless without limitation as to time against any and all liabilities
with respect to all such taxes. The obligations of the Company under this
Section 4.3 shall survive the payment or prepayment of the Notes and the
termination of this Agreement.

SECTION 5. PREPAYMENTS.

5.1 REQUIRED PREPAYMENTS.

(a) In additional to paying the entire outstanding principal
amount and the interest due on the Notes

13.

<PAGE>

on the maturity date thereof, the Company will prepay, and there shall become
due and payable, $500,000 principal amount of the Notes on June 1 in each year
beginning on June 1, 1982 and ending June 1, 1996, inclusive. Each such
prepayment shall be at 100% of the principal amount prepaid, together with
interest accrued thereon to the date of prepayment.

(b) The Company's exercise of any prepayment option in Section
5.2(a) or Section 5.2(b), or the acquisition of any Notes by the Company, shall
not reduce or otherwise affect its obligation to make any prepayment required by
Section 5.1(a).

5.2 OPTIONS TO PREPAY.

(a) OPTION TO PREPAY AT PAR. The Company may, at the time
of any payment pursuant to Section 5.1(a), upon notice as provided in Section
5.3, prepay an additional principal amount of Notes equal to the amount required
to be paid at that time, or any lesser amount in an integral multiple of
$50,000, at 100% without premium, such prepayment to be together with interest
accrued to each such prepayment date on the principal amount so prepaid;
PROVIDED, however, that not more than $2,650,000 in aggregate principal amount
of Notes may be prepaid pursuant to this Section 5.2(a). Such optional
prepayment right shall not be cumulative and all or any part of such prepayment
option not exercised as to any particular date shall thereupon cease and lapse
and be of no further force or effect.

(b) OPTION TO PREPAY AT A PREMIUM. Subject to Section
5.2(c), the Company may prepay the Notes in whole or part at any time, in
integral multiples of $50,000, at the applicable percentage set out below of the
principal amount then being prepaid together with accrued interest on the
principal amount so prepaid to the prepayment date:

IF PREPAYMENT IS MADE DURING
THE 12-MONTH PERIOD BEGINNING PERCENTAGE OF
JUNE 1 IN THE YEAR PRINCIPAL AMOUNT
----------------------------- ----------------
1977 108.75%
1978 108.29%
1979 107.83%
1980 107.37%
1981 106.91%
1982 106.45%
1983 105.99%
1984 105.53%
1985 105.07%
1986 104.61%

14.

<PAGE>

1987 104.15%
1988 103.69%
1989 103.23%
1990 102.77%
1991 102.31%
1992 101.85%
1993 101.39%
1994 100.93%
1995 100.47%
1996 100.00%

(c) REFUNDING LIMITATION. Notwithstanding the provisions of
Section 5.2(b), none of the Notes may be prepaid pursuant to Section 5.2(b)
prior to June 1, 1987 as a part of a refunding or anticipated refunding
operation by the application, directly or indirectly, to such prepayment of
funds borrowed by the Company or any Subsidiary or Affiliate having (1) an
effective interest cost of less than 8-3/4% per annum, or (2) as of the date of
the proposed prepayment, a Weighted Average Life to Maturity less than the then
remaining Weighted Average Life to Maturity of the Notes.

(d) "WEIGHTED AVERAGE LIFE TO MATURITY" of any indebtedness
for borrowed money means as at the time of the determination thereof the number
of years obtained by dividing the then Remaining Dollar-Years of such indebted-
ness by the then outstanding principal amount of such indebtedness. The term
"Remaining Dollar-Years" of any indebtedness for borrowed money means the amount
obtained by (1) multiplying the amount of each then remaining sinking fund,
serial maturity or other required repayment, including repayment at final
maturity, by the number of years (calculated at the nearest one-twelfth) which
will elapse between the date of proposed prepayment and the date of that
required repayment and (2) totaling all the products obtained in (1).

5.3 NOTICE OF OPTIONAL PREPAYMENT.

The Company will give notice of any optional prepayment of the Notes
to each holder of the Notes not less than 30 days nor more than 60 days before
the date fixed for prepayment, specifying (a) such date, (b) the Section of this
Agreement under which the prepayment is to be made, (c) the principal amount of
the holder's Notes to be prepaid on such date, and (d) the premium, if any, and
accrued interest applicable to the prepayment. Such notice of prepayment shall
also certify all facts which are conditions precedent to any such prepayment.
Notice of prepayment having been so given, the aggregate principal amount of the

15.

<PAGE>

Notes specified in such notice, together with the premium, if any, and accrued
interest thereon, shall become due and payable on the prepayment date.

5.4 PARTIAL PREPAYMENT PRO RATA.

If there is more than one holder of the Notes, the aggregate
principal amount of each required or optional partial prepayment of the Notes
shall be allocated in units of $1,000 or integral multiples thereof among the
holders of the Notes at the time outstanding in proportion, as nearly as
practicable, to the respective unpaid principal amounts of the Notes then
outstanding held by them, with adjustments, to the extent practicable, to
equalize for any prior prepay- ments not in such proportion. For the purpose of
this Section 5.4 only, any Notes reacquired by the Company shall be deemed to be
outstanding and the Company shall be deemed to be the holder thereof.

5.5 SURRENDER OF NOTES ON PREPAYMENT.

Subject to Section 4.1, upon any partial prepayment of a Note, such
Note shall, at the option of the holder thereof, be either (a) surrendered to
the Company pursuant to Section 6.2 in exchange for a new Note in a principal
amount equal to the principal amount remaining unpaid on the surrendered Note,
or (b) made available to the Company for notation thereon of the portion of the
principal so prepaid. In case the entire principal amount of any Note is
prepaid, such Note shall be surrendered to the Company for cancellation and
shall not be reissued, and no Note shall be issued in lieu of the prepaid
principal amount of any Note.

SECTION 6. REGISTRATION; SUBSTITUTION OF NOTES

6.1 REGISTRATION OF NOTES.

The Company shall cause to be kept at its office, maintained
pursuant to Section 7.3, a register for the registration and transfer of the
Notes. The names and addresses of the holders of the Notes, the transfer
thereof and the names and addresses of the transferees of the Notes shall be
registered in the register. The Person in whose name any Note shall be
registered shall be deemed and treated as the owner and holder thereof for all
purposes of this Agreement, and the Company shall not be affected by any notice
of knowledge to the contrary.

6.2 EXCHANGE OF NOTES.

Upon surrender of any Note at the office of the Company maintained
pursuant to Section 7.3, the Company,

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at the request of the holder thereof, will execute and deliver, at the Company's
expense (except as provided below), new Notes in exchange therefor, in
denominations of at least $100,000 (except as may be necessary to reflect any
principal amount not evenly divisible by $100,000), in an aggregate principal
amount equal to the unpaid principal amount of the surrendered Note. Each such
new Note shall be payable to such Person as such holder may request and shall be
substantially in the form of the Note set out in Exhibit A. Each such new Note
shall be dated and bear interest from the date to which interest has been paid
on the surrendered Note or dated the date of the surrendered Note if no interest
has been paid thereon. The Company may require payment of a sum sufficient to
cover any stamp tax or governmental charge imposed in respect of any transfer.
The Company shall not, however, have any obligation to exchange Notes pursuant
to this Section 6.2, if such exchange would be a transfer in violation of the
Securities Act of 1933 as amended.

6.3 REPLACEMENT OF NOTES.

Upon receipt by the Company of evidence reasonably satisfactory to
it of the ownership of and the loss, theft, destruction or mutilation of any
Note and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (PROVIDED, if the holder of the Note
is an insurance company, its own agreement of indemnity shall be
deemed to be satisfactory), or

(b) in the case of mutilation, upon surrender for
cancellation thereof,

the Company at its expense will execute and deliver in lieu thereof, a new Note
of like tenor, dated and bearing interest from the date to which interest has
been paid on such lost, stolen, destroyed or mutilated Note or dated the date of
such lost, stolen, destroyed or mutilated Note if no interest has bene paid
thereon.

6.4 REPURCHASE RIGHT.

(a) NOTICE TO COMPANY. You agree that, if no Default or
Event of Default exists, you will give the Company notice as set forth in this
Section 6.4 of any proposed transfer of a Note, or a portion of the principal
amount thereof, for a cash consideration other than a transfer among you, your
nominees and your affiliates. Such notice may be given orally (by telephone or
in person) to the President of chief financial officer of the Company or, if

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your call is during business hours and neither is then available, to any person
willing to take a message for either such person. Such notice may, at your
option, also be given by written or telegraphic means delivered to the Company,
which shall be considered given upon its receipt by the Company. In any case
such notice shall state the principal amount of notes proposed to be
transferred, the name of the proposed transferee and the amount of the cash
consideration.

(b) REPURCHASE BY COMPANY. If, within 72 hours of your notice
pursuant to Section 6.4(a), you receive telegraphic notice from the Company that
the Company thereby exercises its right to repurchase pursuant to this Section
6.4, then, if no Default or Event of Default then exists or would exist
following such repurchase, the Company shall have the right (and upon your
receipt of such notice, the Company shall have the obligation) to purchase not
less than the entire principal amount proposed to be transferred in a
transaction described in Section 6.4(a) for the same cash consideration as set
forth in your notice to the Company. Such 72-hour period shall include
Saturdays, Sundays and business holidays, but if it contains fewer than 8 hours
between 9:00 a.m. and 5:00 p.m. on a day or days which are not a Saturday,
Sunday or business holiday in San Francisco, California, it shall be extended
until 8 such hours have accumulated after your notice pursuant to Section
6.5(a). The Company will pay the purchase price in immediately available funds
as set forth in Section 4.1 within 192 hours after your notice pursuant to
Section 6.4(a). The Company's giving of such notice and its payment of the
purchase price shall constitute its certification, as of the times of such
notice and payment, that no Default or Event of Default exists or will exist
following such repurchase. Such 192-hour period shall not include Saturdays,
Sundays or busi- ness holidays in San Francisco, California.

(c) GENERAL. Your obligation to give notice pursuant to Section
6.4(a), and to sell Notes to the Company pursuant to Section 6.4(b), is personal
to you, your nominees and your affiliates, and is not binding on any successor
owner of the Notes. If you give notice of a proposed transfer to the Company
pursuant to Section 6.4(a), and the Company does not exercise its rights (or
comply with any obligations) under Section 6.4(b) as to such transfer, then,
without further notice to or purchase right in the Company, you may transfer
Notes in the principal amount and to the transferee set forth in your notice to
the Company pursuant to Section 6.4(a) within 3 months after such notice, at any
price which is not lower than 97% of the proposed price set forth in such
notice.

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SECTION 7. COMPANY BUSINESS COVENANTS

The Company covenants that on and after the date of initial issue of
the Notes, so long as any of the Notes are outstanding:

7.1 PAYMENT OF TAXES AND CLAIMS.

The Company and each Subsidiary will pay, before they become
delinquent,

(a) all taxes, assessments and governmental charges or
levies imposed upon it or its Property, and

(b) all claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other like Persons which, if
unpaid, might result in the creation of a Lien upon its Property.

PROVIDED that items of the foregoing description need not be paid while being
contested in good faith and by appropriate proceedings and PROVIDED FURTHER that
for all purposes of this Agreement reserve shall be created in an amount such
that an ultimate liability in excess of the reserved amount is, in the opinion
of management of the Company, not likely and PROVIDED FURTHER that the owning
company's title to, and its right to use, its Property is not materially
adversely affected thereby. In the case of any item described in clause (a) or
(b) above involving in excess of 1% of Con- solidated Net Worth, the adequacy of
the reserve shall be supported by the written opinion of two officers of the
Company and the appropriateness of the proceedings shall be supported by the
written opinion of two officers of the Company and the appropriateness of the
proceedings shall be supported by the written opinion of independent counsel
familiar with the matter, which opinion shall also state that, although such
counsel cannot predict the outcome of such matter, the opinion of management as
to the adequacy of the reserve is not, in the judgment of such counsel,
unreasonable.

7.2 MAINTENANCE OF PROPERTIES AND CORPORATE EXISTENCE.

The Company and each Subsidiary will:

(a) PROPERTY -- maintain its Property in good condition and
make all necessary renewals, replacements, additions, betterments and
improvements thereto;

(b) INSURANCE -- maintain, with financially sound and
reputable insurers, insurance with respect to its

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Properties and business against such casualties and contin-gencies, of such
types (including public liability, larceny, embezzlement or other criminal
misappropriation insurance) and in such amounts as is reasonable and prudent,
affording in each case protection that is, in the opinion of the Company's
independent insurance broker or advisor, not materially less than that
customarily carried by established corporations engaged in the same or a similar
business and similarly situated;

(c) FINANCIAL RECORDS -- keep true books of records and
accounts in which full and correct entries will be made of all its business
transactions, and will reflect in its financial statements adequate accruals and
appropriations to reserves, all in accordance with generally accepted accounting
principles;

(d) CORPORATE EXISTENCE AND RIGHTS -- do or cause to be done
all things necessary (i) to preserve and keep in full force and effect its
existence, rights and franchises and (ii) to maintain each Subsidiary as a
Subsidiary, except as otherwise permitted by Section 7.4 or
7.5(d);

(e) COMPLIANCE WITH LAW -- not be in violation of any laws,
ordinances, or governmental rules and regulations to which it is subject and
will not fail to obtain any licenses, permits, franchises or other governmental
authorizations necessary to the ownership of its Properties or to the conduct of
its business, which violation or failure to obtain might materially adversely
affect the business, prospects, profits, Properties or condition (financial or
other) of the Company and the Subsidiaries, PROVIDED that nothing in this
Section 7.2(e) shall preclude the Company or any Subsidiary from contesting an
asserted violation in good faith and by appropriate proceedings if an
appropriate reserve is created (and supported by written opinions, if required)
on the same terms and conditions as set forth in Section 7.1; and

(f) EXISTING NATURE OF BUSINESS -- not engage in any
business if as a result thereof the general nature of the business, taken on a
consolidated basis, which would then be engaged in by the Company and the
Subsidiaries would be substantially changed from the general nature of the
business engaged in by the Company and the Subsidiaries on the date hereof as
described in Section 2.3.

7.3 PAYMENT OF NOTES AND MAINTENANCE OF OFFICE.

The Company will punctually pay or cause to be paid the principal and interest
(and premium, if any) to become due in

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respect of the Notes according to the terms thereof and will maintain an office
in the State of California where notices, presentations and demands in respect
of this Agreement or the Notes may be made upon it. Such office shall be
maintained at 650 California Street, San Francisco, California 94108 until such
time as the Company shall notify the holders of the Notes in writing of any
change of location of such office within such State.

7.4 DISPOSAL OF SHARES OF A SUBSIDIARY.

(a) Neither the Company nor any Subsidiary will sell or
otherwise dispose of any Equity Security of a Subsidiary, nor will any
Subsidiary issue, sell or otherwise dispose of, or repurchase or otherwise
reacquire, any shares of its own Equity Securities, if the effect of the
transaction (on any assumption as to the exercise or nonexercise of any options,
warrants or other exercisable Securities) would be to reduce the proportionate
interest of the Company and its Wholly-Owned Subsidiaries in the outstanding
Equity Securities of the Subsidiary whose Equity Securities are the subject of
the transaction.

(b) The restrictions of Section 7.4(a) shall not apply to
the issue of directors' qualifying shares.

(c) The restrictions of Section 7.4(a) shall not apply to
the transfer at one time of the entire investment (whether represented by Equity
Securities, debt, claims or otherwise) of the Company and its other Subsidiaries
in a Subsidiary, if all of the following conditions are met:

(1) the Disposition Value of the Subsidiary, together
with the Disposition Value of any other Subsidiary whose Equity
Securities are being simultaneously disposed of pursuant to this Section
7.4(c) and the Disposition Value of any assets being simultaneously
disposed of, does not exceed 15% of Consolidated Net Tangible Assets at
the end of the Measuring Period;

(2) the Disposition Value of the Subsidiary, together
with the Disposition Value of assets previously or simultaneously
disposed of by the Company and all Subsidiaries (other than in the
ordinary course of business) since the beginning of the Measuring Period
and the Disposition Value of all Subsidiaries whose Equity Securities
have previously or simultaneously been disposed of pursuant to this
Section 7.4(c) since the beginning of the Measuring Period, does not
exceed 20% of Consolidated Net Tangible Assets at the end of the
Measuring Period;

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were owned, at any time within the 24 months prior to the determination of
"Disposition Value", by the Company or another Subsidiary (unless, in the case
of ownership by another Subsidiary, such assets at all times during such period
constituted substantially all the assets of such other Subsidiary).

(e) "MEASURING PERIOD" shall mean the eight most recent full
quarterly fiscal periods of the Company for which financial statements have been
prepared and delivered pursuant to Section 8.1(a), or such lesser number of such
quarterly periods as commence after December 31, 1976.

(f) For purposes of Section 7.4(c), Equity Securities of a
Subsidiary disposed of in compliance with such Section shall not also be
considered "assets" of the owning company.

7.5 SALE OF ASSETS; SKI DIVISION; MERGER.

(a) SALE OF ASSETS. Neither the Company nor any Subsidiary
will, except in the ordinary course of business, sell, lease, transfer or
otherwise dispose of, assets, PROVIDED that the foregoing restrictions shall not
apply to any sale, lease, transfer or other disposition from a Subsidiary to the
Company or a Wholly-Owned Subsidiary; and PROVIDED FURTHER that the foregoing
restrictions shall not apply to the transfer at one time of the Company's or the
Subsidiary's entire interest in such assets, if all of the following conditions
are met:

(1) the Disposition Value of such assets, together with
the Disposition Value of any other assets being simultaneously disposed
of and the Disposition Value of any Subsidiary whose Equity Securities
are being simultaneously disposed of pursuant to Section 7.4 (c), does
not exceed 15% of Consolidated Net Tangible Assets at the end of the
Measuring Period;

(2) the Disposition Value of such assets, together
with the Disposition Value of assets previously or simultaneously
disposed of by the Company and all Subsidiaries (other than in the
ordinary course of business) since the beginning of the Measuring
Period and the Disposition Value of all Subsidiaries whose Equity
Securities have been previously or simultaneously disposed of pursuant to
Section 7.4(c) since the beginning of the Measuring Period, does not
exceed 20% of Consolidated Net Tangible Assets at the end of the
Measuring Period;

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(3) The transfer is not directly or indirectly to an
Affiliate or to a Person any part of whose Equity Securities or other
ownership interest or Funded Debt or Current Debt is owned directly or
indirectly by an Affiliate;

(4) in the opinion of the Company's Board of Directors,
the transfer is for fair value and is in the best interests of the
Company; and

(5) immediately after the consummation of the
transaction, and after giving effect thereto, no Default or Event of
Default would exist.

(b) For purposes of Section 7.5(a), Equity Securities of a
Subsidiary disposed of in compliance with Section 7.4(c) shall not also be
considered "assets" of the owning company. The disposition of cash as a
Distribution or Investment is governed by Sections 7.10 and 7.11, respectively,
and not by Section 7.5(a).

(c) SKI DIVISION. The limitations of Sections 7.5(a) (1)
and (2) shall not apply to the disposition of the assets comprising the ski
division of the Company, substantially as such division exists on the date
hereof, if both of the following conditions are met:

(1) such disposition is consummated on or before
September 30, 1978; and

(2) the fair market value of the consideration received
in such disposition is not less than 90% of the amount at which such
assets would be shown on a balance sheet of the Company at the date of
disposition (without, however, giving effect to any write-down of such
assets after December 31, 1976 other than normal depreciation and normal
amortization).

For purposes of paragraph (2) above, the "fair market value of the consideration
received" shall include assumptions of current liabilities and Funded Debt of
the Company if, in connection with the disposition transaction, the Company and
the Subsidiaries cease to be liable in respect thereof (whether by law, contract
or otherwise) and which is not secured after such transaction by a Lien (created
pursuant to law, contract or otherwise) on any Property of the Company or any
Subsidiary; but no other type of assumption shall be included in the "fair
market value of the consideration received." In the event of a disposition
pursuant to this Section 7.5(c), Sections 7.4(c)(2) and 7.5(a)(2)

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shall be applied to simultaneous or subsequent dispositions as though the
disposition pursuant to this Section 7.5(c) had not occurred.

(d) MERGER AND CONSOLIDATION. Neither the Company nor any
Subsidiary will consolidate with or merge into any other Person or permit any
other Person to consolidate with or merge into it (except that a Subsidiary may
consolidate with or merge into the Company or a Wholly-Owned Subsidiary);
PROVIDED that the foregoing restriction does not apply to the merger of
consolidation of the Company with another corporation, if:

(1) the corporation which results from such merger or
consolidation ("the surviving corporation") is organized under the laws
of the United States or a jurisdiction thereof;

(2) the due and punctual payment of the principal of
and premium, if any, and interest on all of the Notes, according to their
tenor, and the due and punctual performance and observance of all the
covenants in the Notes and this Agreement to be performed or observed by
the Company, are expressly assumed in writing by the surviving
corporation;

(3) after giving effect to the proposed merger or
consolidation, the surviving corporation will be in compliance with
Section 7.2(f); and

(4) immediately after the consummation of the
transaction, and after giving effect thereto, no Default or Event of
Default would exist.

7.6 LIENS AND ENCUMBRANCES.

Neither the Company nor any Subsidiary will (i) cause or permit or
(ii) agree or consent to cause or permit in the future (upon the happening of a
contingency or otherwise), any of its Property, whether now owned or hereafter
acquired, to be subject to a Lien except:

(a) reservations, exceptions, encroachments, easements,
rights of way, covenants, conditions, restrictions, leases and other
similar title exceptions or encumbrances affecting real Property PROVIDED
they do not in the aggregate materially detract from the value of said
Properties or materially interfere with their use in the ordinary conduct
of the owning company's business;

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(b) statutory Liens in favor of Persons furnishing services
or materials securing obligations which are not yet due and payable;

(c) Liens on Property of a Subsidiary, PROVIDED such Liens
secure only obligations owing to the Company or a Wholly-Owned
Subsidiary; and

(d) Liens securing Restricted Obligations complying with
Section 7.8.

7.7 FUNDED DEBT.

(a) INCURRENCE OF SENIOR FUNDED DEBT. Neither the Company
nor any Subsidiary will incur or in any manner become liable in respect of any
Senior Funded Debt unless, after giving effect thereto and any transactions
concurrent therewith, Consolidated Net Tangible Assets would be at least equal
to 250% of Consolidated Senior Funded Debt.

(b) INCURRENCE OF FUNDED DEBT. Neither the Company nor any
Subsidiary will incur or in any manner become liable in respect of any Funded
Debt unless, after giving effect thereto and any transactions concurrent
therewith, Consolidated Net Tangible Assets would be at leasst equal to 225% of
Consolidated Funded Debt.

(c) MAINTENANCE OF CONSOLIDATED NET TANGIBLE ASSETS. The
Company will maintain Consolidated Net Tangible Assets in an amount at least
equal to the greater of (1) 250% of Consolidated Senior Funded Debt or (2) 225%
of Consolidated Funded Debt.

(d) SENIOR FUNDED DEBT PRIOR TO JULY 1, 1980.
Notwithstanding anything therein to the contrary, Sections 7.7(a) and (c) shall
be applied, until and including June 30, 1980, as though the figure "250%" read
"225%" in each instance in which it appears, PROVIDED that in the event
Consolidated Net Tangible Assets at the end of any fiscal quarter to and
including the quarter ended June 30, 1980 is less than 250% of Consolidated
Senior Funded Debt, then, notwithstanding anything herein or in the Notes to the
contrary, the unpaid principal amount of the Notes shall bear interest during
such fiscal quarter at the rate of 8-7/8% per annum (computed on the basis of a
360-day year of twelve 30-day months), payable (to the extent in excess of
interest at the rate of 8-3/4% per annum) within 45 days of the end of such
fiscal quarter. Nothing in this Section 7.7(d) shall limit or otherwise affect
the obligation of the

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Company to make payments of interest (based on the rate of 8-3/4% per annum) on
June 1 and December 1 in each year as set forth in the Notes.

7.8 RESTRICTED OBLIGATIONS.

(a) Neither the Company nor any Subsidiary will incur or in
any manner become or remain liable in respect of any Restricted Obligations
unless, after giving effect to any incurrence or becoming liable and any
transactions concurrent therewith, the aggregate principal amount of all
Restricted Obligations is not greater than 20% of Consolidated Net Tangible
Assets.

(b) "RESTRICTED OBLIGATION" means:

(1) any obligation secured by a Lien on Property of the
Company or any Subsidiary of a type not described in Caluse (a), (b) or
(c) of Section 7.6;

(2) the amount of any Excess Subsidiary Guaranties; and

(3) any unsecured Funded Debt incurred by any Domestic
Subsidiary, or in respect of which any Domestic Subsidiary is in any
manner liable, other than Funded Debt held by the Company or any
Wholly-Owned Subsidiary.

(1) the aggregate amount from time to time of all
Guaranties by the Company of the obligations of any Subsidiary for
borrowed money exceeds

(2) the lesser of (x) $1,000,000 or (y) 3% of
Consolidated Net Tangible Assets.

(d) For purposes of Section 7.8 (a), in computing the
aggregate amount of Restricted Obligations,

(1) any duplication as to Restricted Obligations which
are described in both clause (1) and clause (2) or (3) of Section 7.8(b),
and as to any Restricted Obligation described in Clause (3) and any
Guaranty of it (to the extent of Excess Subsidiary Guaranties), shall be
eliminated; and

(2) no Restricted Obligation of the Company described
in clause (1) of Section 7.8(b)

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shall be eliminated on the ground that it is held by a Subsidiary.

(e) Nothing in this Section 7.8 shall be construed to permit
any obligation which is impermissible under any other provision of this
Agreement.

7.9 CONSOLIDATED NET WORKING CAPITAL.

(a) MAINTENANCE OF CONSOLIDATED NET WORKING CAPITAL. The
Company will maintain Consolidated Net Working Capital in an amount not less
than $8,000,000.

(b) CURRENT RATIO. The Company will maintain Consolidated
Current Assets at not less than 150% of Consolidated Current Liabilities.

(c) "CONSOLIDATED CURRENT ASSETS" at any date means the
amount at which the current assets of the Company and all Subsidiaries would be
shown on a consolidated balance sheet at such date but excluding any amount on
account of assets which do not constitute Consolidated Net Tangible Assets.

(d) "CONSOLIDATED CURRENT LIABILITIES" at any date means the
amount at which their current liabilities would be shown on such balance sheet.

(e) "CONSOLIDATED NET WORKING CAPITAL" means Consolidated
Current Assets minus Consolidated Current Liabilities.

7.10 DISTRIBUTIONS.

(a) Neither the Company nor any Subsidiary will declare or
make or incur any liability to make any Distribution in respect of any Equity
Security of the Company if, immediately after giving effect to the proposed
Distribution:

(1) the sum of Distributions in respect of its Equity
Securities (valued immediately after such action, as provided in the
definition thereof) for the period subsequent to December 31, 1976 would
exceed

(2) the sum of (i) $2,000,000, plus (ii) 95% of
Consolidated Net Income for the period from January 1, 1977 through the
most recent quarterly fiscal period of the Company, plus (iii) the
aggregate net proceeds received by the Company in cash from the
sale of Nonredeemable Equity Securities subsequent to

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the Closing Date, plus (iv) the aggregate principal amount of
indebtedness of the Company (other than bank indebtedness converted after
any failure to pay interest or principal thereof when due according to
its original terms or after any acceleration of the stated maturity
thereof) for money borrowed by the Company converted into or exchanged
for Nonredeemable Equity Securities subsequent to the Closing Date.

(b) The Company will not authorize a Distribution in respect
of any Equity Security of the Company which is not payable within 90 days of
authorization.

(c) Neither the Company nor any Subsidiary will authorize or
make a Distribution in respect of any Equity Security of the Company if after
giving effect to the proposed Distribution a Default or an Event of Default
would exist.

7.11 RESTRICTED INVESTMENTS.

(a) Neither the Company nor any Subsidiary will make or
authorize any Restricted Investment if, immediately after giving effect to the
proposed Restricted Investment, the amount of Restricted Investments of the
Company and all Subsidiaries (valued immediately after such action, as provided
in the definition thereof) would exceed 10% of Consolidated Net Worth.

(b) "RESTRICTED INVESTMENTS" means all investments, made in
cash, by delivery of Property or through the issuance of any Security, by the
Company or any Subsidiary (x) in any Person, whether by acquisition of an
Equity Security, indebtedness or other obligation or Security, or by loan,
advance or capital contribution, or otehrwise, or (y) in any Property (items (x)
and (y) herein called "Investments"), except the following:

(1) Investments in one or more Subsidiaries or any
corporation which concurrently with such Investment becomes a Subsidiary;

(2) Property to be used by the Company or a Subsidiary
in the ordinary course of a line of business permitted by Section 7.2(f);

(3) current assets arising from the sale of goods and
services in the ordinary course of business of the Company and the
Subsidiaries;

(4) Investments in direct obligations

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of the United States of America or any agency thereof or obligations
guaranteed by the United States of America, PROVIDED that such
obligations mature within one year from the date of acquisition thereof;

(5) Investments in direct obligations of a state of the
United States or any agency thereof or obligations guaranteed by any such
state, PROVIDED such obligations are given the highest rating by Standard
and Poor's or Moody's Investors Service, Inc. and mature within one year
from the date of acquisition thereof;

(6) Investments in certificates of deposit maturing
within one year from the date of acquisition issued by a bank or trust
company organized under the laws of the United States or any state
thereof having capital, surplus and undivided profits aggregating at
least $100,000,000; and

(7) Investments in commercial paper given the highest
rating by Standard and Poor's or Moody's Investors Service, Inc. and
maturing not more than 270 days from the date of creation thereof.

Investments shall be valued at cost less any net return of capital through the
sale or liquidation thereof or other return of capital thereon. In the case of
Investments received in exchange for a Subsidiary whose Equity Securities have
disposed of pursuant to Section 7.4(c) or assets disposed of pursuant to Section
7.5, such cost shall be considered to be, in the case of a Subsidiary described
in the first sentence of Section 7.4(d), the Disposition Value of the
Subsidiary, or, in the case of assets (or a Subsidiary not so described), the
net depreciated book value of such assets as would be shown on a balance sheet
at the date of disposition. In the case of such an exchange in which
consideration in addition to Investments is received, the cost otherwise
attributable to the Investment pursuant to the immediately preceding sentence
shall be reduced (but not below zero) by (i) the amount of cash received, (ii)
the fair market value of any Property received which does not constitute a
Restricted Investment, and (iii) the amount of current liabilities and Funded
Debt of the Company and the Subsidiaries as to which, in connection with the
exchange transaction, the Company and all Subsidiaries cease to be liable
(whether by law, contract or otherwise) and which is not secured after such
transaction by a Lien (created pursuant to law, contract or otherwise) on any
Property of the Company or any Subsidiary; but such cost so attributable shall
not be reduced by any other amounts.

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(c) Any corporation which becomes a Subsidiary after the
date hereof shall be deemed to have made, at the time it becomes a Subsidiary,
all Restricted Investments of such corporation existing immediately after it
becomes a Subsidiary.

7.12 GUARANTIES.

The Company will not become or be liable in respect of any Guaranty
unless its agreed potential liability is limited to a sum certain. No Subsidiary
will become or be liable in respect of any Guaranty except (i) the endorsement
in the ordinary course of business of negotiable instruments for deposit or
collection and (ii) the Guaranty by a Foreign Subsidiary of obligations of the
Company.

7.13 ERISA COMPLIANCE.

Neither the Company nor any Subsidiary will itself, or will permit
(to the extent within the power of the Company) any Person to:

(a) engage in any "prohibited transaction," as such term is
defined in Section 4975 of the Internal Revenue Code of 1954, as amended,
in respect of any Pension Plan maintained by it, or any trust created
thereunder;

(b) incur any "accumulated funding deficiency," as such term
is defined in Section 302 of ERISA, in respect of any Pension Plan
maintained by it, whether or not waived and without giving effect to any
extension of any amortization period granted by the Secretary of Labor;
or

(c) terminate any such Pension Plan or trust in whole or in
part in a manner which could result in the imposition of a Lien on the
Property of the Company or any Subsidiary pursuant to Section 4068 of
ERISA.

7.14 TRANSACTIONS WITH AFFILIATES.

Neither the Company nor any Subsidiary will enter into any
transaction (or, in the case of related transactions, any group of
transactions), including, without limitation, the purchase, sale or exchange of
Property or the rendering of any service, with any Affiliate (or any Person who
will become an Affiliate in such transaction or group of transactions) except in
the ordinary course of and pursuant to the reasonable requirements of the
Company's or such Subsidiary's business

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nad upon fair and reasonable terms no less favorable to the Company or such
Subsidiary than would obtain in a comparable arm's-length transaction (or group
of transactions, as the case may be) with a Person not an Affiliate.

7.15 TAX CONSOLIDATION.

The Company will not file or consent to the filing of any
consolidated income tax return with any Person other than a Subsidiary.

7.16 SALE OR DISCOUNT OF RECEIVABLES.

Neither the Company nor any Domestic Subsidiary will discount or
sell with recourse, or sell for less than the greater of the face value or
market value thereof, any of its notes receivable or accounts receivable. No
Foregin Subsidiary will (i) discount, or sell for less than the greater of the
face value or market value thereof, any of its notes receivable or accounts
receivable except in the ordinary course of business; or (ii) sell any of its
notes receivable or accounts receivable with recourse.

7.17 SALE AND LEASEBACK TRANSACTIONS.

(a) Neither the Company nor any Subsidiary will, more than
180 days after completion of construction (as to unimproved real estate acquired
for the purpose of constructing substantial improvements) or its original
acquisition by any of them (as to other Property), dispose of Property which
immediately after such disposition is leased or otherwise made available to the
Company or nay Subsidiary for a period of 36 months or more (or as to which such
leasing or making available is contemplated at the time of disposition) if the
net book value of the Property involved in any single transaction (after
depreciation, obsolescence, amortization, valuation and other proper reserves)
at the date of the last balance sheet prepared pursuant to Section 8.1(b)
exceeds the greater of (i) $1,500,000 or (ii) 7% of Consolidated Net Worth.

(b) The limitations of Section 7.17(a) shall not apply to
any disposition of motor vehicles, data processing equipment or fork lifts and
similar materials handling equipment.

(c) Nothing in this Section 7.17 shall be construed to
permit any disposition, FundedDebt or Lien which is impermissible under any
other provision of this Agreement.

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7.18 ACQUISITION OF NOTES.

Neither the Company nor any Subsidiary nor any Affiliate will,
directly or indirectly, acquire or make any offer to acquire any Notes (other
than pursuant to Section 6.4) unless the Company or such Subsidiary or Affiliate
has offered to acquire Notes, pro rata, from all holders of the Notes and upon
the same terms. In case the Company acquires any Notes, such Notes shall
thereafter be cancelled and no Notes shall be issued in substitution therefor.

SECTION 8. INFORMATION AS TO COMPANY

8.1 FINANCIAL AND BUSINESS INFORMATION.

The Company will deliver to you, if at the time you or any nominee
or any affiliate of yours holds any Notes, and to each other institutioinal
holder of the then outstanding Notes:

(a) QUARTERLY STATEMENTS -- as soon as practicable after
the end of each quarterly fiscal period in each fiscal year of the Company, and
in any event within 45 days thereafter, duplicate copies of:

(1) a consolidated balance sheet of the Company and the
Subsidiaries at the end of such quarter, and

(2) consolidated statements of income and changes in
financial position of the Company and the Subsidiaries for such quarter
and (in the case of the second and thrid quarters) for the portion of the
fiscal year ending with such quarter,

setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, and accompanied by a certificate executed
on behalf of the Company by an authorized financial officer to the effect that
such financial statements fairly present the results of the period and the
financial position of the Company and the Subsidiaries and reflect, in the
opinion of management, all adjustments necessary to a fair statement of the
results of the period and the financial condition of the Company and the
Subsidiaries. Such statements shall be presented in at least the detail of the
interim statements referred to in Section 2.4(a), or of quarterly reports on
Securities and Exchange Commission Form 10-Q (or successor form), whichever is
more detailed as to a particular item. Such quarterly statements may omit
footnotes if the facts disclosed in such footnotes would not include a material
adverse change from the facts disclosed in the footnotes to the most recent
annual audited statements delivered pursuant to Section 8.1(b) but shall include
any footnotes reasonably necessary to disclose any such material adverse change.

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(b) ANNUAL AUDITED STATEMENTS -- as soon as practicable
after the end of each fiscal year of the Company, and in any event within 90
days thereafter, duplicate copies of:

(1) a consolidated balance sheet of the Company and the
Subsidiaries at the end of such year, and

(2) consolidated statements of income, stockholders'
equity and changes in financial position of the Company and the
Subsidiaries for such year,

setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and accompanied by an opinion thereon of
the accountants named in Section 2.4 or other independent certified public
accountants of recognized United States national standing selected by the
Company, which opinion shall contain no qualification other than

(x) qualifications with respect to the effect of
uncertainties concerning future events, the outcome of which is not
susceptible of reasonable estimation at the date of the opinion
and

(y) (in the event such accountants do not maintain an
office in the jurisdiction in question) a statement that such accountants
have relied on the reports of other independent certified public
accountants (or the equivalent qualification in such jurisdiction) with
respect to the examination of Foreign Subsidiaries,

and shall state that such financial statements fairly presents the financial
position of the companies being reported upon and the results of their
operations and changes in financial position and have been prepared in
accordance with generally accepted accounting principles consistently applied
(except for changes in application in which such accountants concur) and that
the examination of such accountants in connection with such financial statements
has been made in accordance with generally accepted auditing standards, and
accordingly included such tests of the accounting records and such other
auditing procedures as were considered necessary in the circumstances;

(c) ANNUAL SUBSIDIARY STATEMENTS -- as soon as practicable
after the end of each fiscal year of the Company, and in any event within 90
days thereafter, duplicate copies of:

(1) a balance sheet of each Subsidiary at the end of
such year, and

(2) a statement of income of each Subsidiary for such
year,

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setting forth in each case in comparative form the figures for the the previous
fiscal year, all in reasonable detail and accompanied by a certificate executed
on behalf of the Company by a principal financial officer to the effect that
such financial statements of each Subsidiary fairly present the results of the
period and its financial position.

(d) INSURANCE -- as soon as practicable after the end of
each fiscal year of the Company, and in any event within 90 days thereafter,
duplicate copies of written opinions of the Company's independent insurance
broker or advisor to the effect set forth in Section 7.2(b);

(e) OPINIONS OF INDEPENDENT COUNSEL -- as soon as
practicable after the end of each fiscal year of the Company, and in any event
within 90 days thereafter, duplicate copies of all written opinions of
independent counsel required pursuant to Section 7.1 or 7.2(e);

(f) AUDIT REPORTS, ETC. -- promptly upon receipt thereof,
one copy of each other audit report submitted to the Company or any Subsidiary,
and of any written report submitted to the audit committee, the board of
directors or shareholders of the Company, by independent accountants in
connection with any annual, interim or special audit made by them of the books
of the Company or any Subsidiary (other than any audit performed solely to
determine contractual obligations or solely pursuant to the Renegotiation Act of
1948 or 1951, as amended), as to any portion of which designated by the Company
in writing (prior to or contemporaneously with its delivery to you) as
confidential you agree to take reasonable precautions against disclosure so long
as such portion does not otherwise become public;

(g) SEC AND OTHER REPORTS -- promptly upon their becoming
available, one copy of each financial statement, report, notice or proxy
statement sent by the Company or any Subsidiary to stockholders generally, and
of each regular or periodic report and any registration statement, prospectus or
written communication (other than transmittal letters and routine comment
letters relating to quarterly and annual reports and proxy statements filed by
the Company) in respect thereof filed by the Company or any Subsidiary with, or
received by such Person in connection therewith from, any securities exchange or
the Securities and Exchange Commission or any successor agency;

(h) ERISA -- immediately upon becoming aware of the
occurrence of any (i) "REPORTABLE EVENT," "PROHIBITED TRANSACTION," as such term
is defined in Section 4975 of the Internal Revenue Code of 1954, as amended, in
connection with any Pension Plan or any trust created thereunder, a written
notice specifying the nature thereof, what action the Company is taking or
proposes to take with respect thereto, and, when known, any action taken by the
Internal Revenue Service or Department of Labor with respect thereto;

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(i) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- immediately
upon becoming aware of the existence of any condition or event which constitutes
a Default or an Event of Default, a written notice specifying the nature and
period of existence thereof and what action the Company is taking or proposes to
take with respect thereto;

(j) NOTICE OF CLAIMED DEFAULT -- immediately upon becoming
aware that the holder of any Note has given notice or takne any other action
with respect to a claimed Default or Event of Default, or that the holder of any
evidence of indebtedness or other Security of the Company or any Subsidiary (or
any evidence of indebtedness or other Security secured by any Property of the
Company or any Subsidiary) has given notice or taken any other action with
respect to a claimed default or event of default thereunder, a written notice
specifying the notice given or action taken by such holder and the nature of the
claimed Default, Event of Default, default or event of default and what action
the Company is taking or proposes to take with respect thereto; and

(k) REQUESTED INFORMATION -- with reasonable promptness,
such other data and information as from time to time may be reasonably requested
in writing. It is hereby agreed that any request for a statement of changes in
financial position of a Subsidiary for a year for which a statement of income is
prepared pursuant to Section 8.1(c), prepared and certified as set forth in such
Section, shall be considered reasonable.

8.2 OFFICERS' CERTIFICATES.

Each set of financial statements delivered to you or any other
institutional holder of the Notes pursuant to section 8.1(a) or (b) will be
accompanied by a certificate executed on behalf of the Company by (i) the
President or a Vice President, and (ii) an authorized financial officer of the
Company, setting forth:

(a) COVENANT COMPLIANCE -- the information (including
detailed calculations and reconciliations with the published financial
statements of the Company) required in order to establish whether the Company
was in compliance with the requirements of Sections 7.4 through 7.18 during the
period covered by the income statement then being furnished; and

(b) EVENT OF DEFAULT -- that the signers have reviewed the
relevant terms of this Agreement and have made, or caused to be made under their
supervision, a review of the transactions and conditions of the Company and its
Subsidiaries from the beginning of the accounting period covered by the income
statements being delivered therewith to the date of the certificate and that
such review has not disclosed the existence during such period of any condition
or event which constitutes a Default or an Event of Default or, if any such
condition or event existed or

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exists, specifying the nature and period of existence thereof and what action
the Company has taken or proposes to take with respect thereto.

8.3 ACCOUNTANTS' CERTIFICATES.

Each set of annual financial statements delivered pursuant to
Section 8.1(b) will be accompanied by a certificate of the accountants who
certify such financial statements, stating that they have reviewed Sections 7
and 10 of this Agreement and stating further, whether, in making their audit,
such accountants have become aware of any condition or event which then
constitutes a Default or an Event of Default, and, if any such condition or
event then exists, specifying the nature and period of existence thereof. Such
certificate may state that it relates only to accounting matters.

8.4 INSPECTION.

The Company will permit any of your representatives, while you or
any nominee or affiliate of yours holds any Note, or the representatives of any
other insurance, bank, pension fund or other similar institutional beneficial
holder of the Notes, at your or such holder's expense, to visit and inspect any
of the Properties of the Company or any Subsidiary, to examine all their books
of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers and independent public accountants (and by this
provision the Company authorizes said accountants to discuss the finances and
affairs of the Company and the Subsidiaries) all at such reasonable times and
places and as often as may be reasonably requested, and subject to the Company's
receipt of any necessary national security or customer confidentiality
clearances in the case of restricted production areas. You agree that you will
take reasonable precautions against disclosure of any information disclosed to
you pursuant to your request as to which the Company has given you written
notice (prior to or contemporaneously with its disclosure to you) of its
confidential nature, so long as such information does not otherwise become
public.

SECTION 9. EVENTS OF DEFAULT

9.1 NATURE OF EVENTS.

An "Event of Default" shall exist if any of the following occurs and
is continuing:

(a) PRINCIPAL OR PREMIUM PAYMENTS -- the Company fails to
make any payment of principal or premium on any Note on or before the date such
payment is due;

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(b) INTEREST PAYMENTS -- the Company fails to make any
payment of interest on any Note on or before five days after the date such
payment is due;

(c) PARTICULAR COVENANT DEFAULTS -- the Company or any
Subsidiary fails to perform or observe any covenant contained in Section 7.4
through 7.10, inclusive, 7.12, 7.18, 8.1(i) or 8.1(j);

(d) OTHER DEFAULTS -- the Company or any Subsidiary fails to
comply with any provision of this Agreement other than those referred to in
Section 9.1(a), (b) or (c), and such failure continues for more than 30 days
after the facts which constitute such failure shall first become known to the
President, any Vice President, the Treasurer, the chief financial officer, the
Controller, any Assistant Treasurer or the Secretary of the Company or, insofar
as such facts relate to a Subsidiary, to any such officer of such Subsidiary.
In the case of any Vice President of the Company whose responsibilities relate
solely to one of the operating divisions of the Company, such 30-day period
shall commence, if the facts which constitute such failure relate to such
operating division, when such facts shall first become known to such Vice
President, and, in all other cases, when such Vice President shall first become
aware of such facts and also that such facts constitute a Default.

(e) WARRANTIES OR REPRESENTATIONS -- any warranty,
representation or other statement by or on behalf of the Company contained in
this Agreement or in any instrument furnished in compliance with or in reference
to this Agreement is false or misleading at the time made in any material
respect;

(f) DEFAULT ON INDEBTEDNESS OR OTHER SECURITY -- the Company
or any Subsidiary fails to make any payment due on any indebtedness or other
Security issued by the Company or any Subsidiary or in respect of which the
Company or any Subsidiary is liable or which is secured by any Property of the
Company or any Subsidiary; or any event shall occur or any condition shall exist
in respect of any such indebtedness or other Security, or under any agreement
securing or relating to such indebtedness or other Security, the effect of which
is and continues to be (i) to cause (or permit any holder of such indebtedness
or other Security or a trustee to cause) such indebtedness or other Security, or
a portion thereof, to become due prior to its stated maturity or prior to tis
regularly scheduled dates of payment, or (ii) to permit a trustee or the holder
of any Security (other than common stock of the Company or any Subsidiary) to
elect a majority of the directors on the Board of Directors of the Company or
such Subsidiary;

(g) INVOLUNTARY BANKRUPTCY PROCEEDINGS -- a receiver,
liquidator or trustee of the Company, or any Subsidiary, or of any of the
Property of either, is appointed by court order and such order remains in effect
for more than 30 days; or the

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Company, or any Subsidiary, is adjudicated bankrupt or insolvent; or any of the
Property of either is sequestered by court order and such order remains in
effect for more than 30 days; or a petition is filed against the Company or any
Subsidiary under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction,
whether now or hereafter in effect, and is not dismissed within 30 days after
such filing;

(h) VOLUNTARY PETITIONS -- the Company, or any Subsidiary,
files a petition in voluntary bankruptcy or seeking relief under any provision
of any bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether now or
hereafter in effect, or consents to the filing of any petition against it under
any such law, PROVIDED that the filing of a petition in voluntary bankruptcy by
a Foreign Subsidiary in the jurisdiction of its incorporation after payment of
all its obligations, as part of a plan of orderly liquidation and not for
purposes of relief from creditors, shall not constitute an Event of Default;

(i) ASSIGNMENTS FOR BENEFIT OF CREDITORS, ETC. -- the
Company or a Subsidiary makes an assignment for the benefit of its creditors, or
admits in writing its inability to pay its debts generally as they become due,
or consents to the appointment of a receiver, trustee or liquidator of the
Company, or a Subsidiary, or of all or any part of the Property of either; or

(j) UNDISCHARGED FINAL JUDGMENTS -- final judgment or
judgments for the payment of money aggregating in excess of $50,000 is or are
outstanding against one or more of the Company and the Subsidiaries and any one
of such judgments has been outstanding for more than 30 days from the date of
its entry and has not been discharged in full or stayed.

9.2 DEFAULT REMEDIES.

(a) ACCELERATION. If an Event of Default exists, the holder
or holders of more than 33-1/3% in principal amount of the Notes then
outstanding (exclusive of Notes then owned by the Company, any Subsidiaries and
any Affiliates) may exercise any right, power or remedy permitted to such holder
or holders by law, and shall have, in particular, without limiting the
generality of the foregoing, the right to declare the entire principal and all
interest accrued on all the Notes then outstanding to be, and such Notes shall
thereupon become, forthwith due and payable, without any presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived.
The Company will forthwith pay to the holder or holders of all the Notes then
outstanding the entire principal of and interest accrued on the Notes, and (to
the extent permitted by law), in the event such holder or holders in its or
their discreetion give the Company written notice of such

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declaration 18 or more days prior to its stated effectiveness and it is not
sooner cured, a premium in the amount which would be payable if the Company then
had elected to prepay the Notes at a premium pursuant to Section 5.2(b),
PROVIDED that during the existence of an Event of Default described in Section
9.1(a) or 9.1(b) and irrespective of whether the holder or holders of more than
33-1/3% in principal amount of Notes then outstanding have declared all the
Notes to be due and payable pursuant to this Section 9.2(a), any holder of Notes
who or which has not consented to any waiver with respect to such Event of
Default may, at his or its option, by notice in writing to the Company, declare
the Notes then held by such holder to be, and such Notes shall thereupon become,
forthwith due and payable together with all interest accrued thereon without any
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, and the Company shall forthwith pay to such holder the
entire principal of and interest accrued on such Notes, and (to the extent
permitted by law), if such holder in its discretion has given such 18-day notice
and the default is not sooner cured, a premium in the amount which would be
payable if the Company then had elected to prepay the Notes at a premium
pursuant to Section 5.2(b).

(b) NONWAIVER AND EXPENSES -- No course of dealing on the
part of any holder of the Notes nor any delay or failure on the part of any
holder of the Notes to exercise any rights shall operate as a waiver of such
right or otherwise prejudice such holder's rights, powers and remedies. If the
Company fails to pay when due the principal, premium or interest on any Note, or
fails to comply with any other provision of this Agreement, the Company will pay
to the holders of the Notes, to the extent permitted by law, such further
amounts as shall be sufficient to cover the cost and expenses, including but not
limited to reasonable attorneys' fees, incurred by such holders in collecting or
attempting to collect any sums due on the Notes or in otherwise enforcing or
attempting to enforce any of their rights.

9.3 ANNULMENT OF ACCELERATION OF NOTES.

If a declaration is made pursuant to Section 9.2(a) by any holder or
holders of the Notes, then and in every such case, the holders of 66-2/3% or
more in aggregate principal amount of the Notes then outstanding (exclusive of
Notes then owned by the Company, any Subsidiaries and any Affiliates) may, by
written instrument filed with the Company, rescind and annul such declaration,
and the consequences thereof, PROVIDED that at the time such declaration is
annulled and rescinded:

(a) no judgment or decree has been entered for the payment
of any monies due pursuant to the Notes or this Agreement;

(b) all arrears of interest upon all the Notes and all other
sums payable under the Notes and

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under this Agreement [except any principal, interest or premium on the
Notes which has become due and payable by reason of such declaration
under Section 9.2(a)] shall have been duly paid; and

(c) each and every other Default and Event of Default shall
have been waived pursuant to Section 11.5 or otherwise made good or
cured,

and PROVIDED FURTHER that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right consequent
thereon.

SECTION 10. INTERPRETATION OF THIS AGREEMENT

10.1 TERMS DEFINED.

As used in this Agreement, the following terms have the respective
meanings set forth below or set forth in the Section following such term:

AFFILIATE -- a Person (other than a Subsidiary) (1) which directly
or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, the Company, (2) which beneficially owns or
holds 10% or more of any class of the Voting Stock of the Company or (3) 10% or
more of the Voting Stock (or in the case of a Person which is not a corporation,
10% or more of the equity interest) of which is beneficially owned or held by
the Company or a Subsidiary. The term "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.

CAPITALIZED LEASE -- any lease that is required to be capitalized on
a balance sheet in accordance with Statement of Financial Accounting Standards
No. 13, or any accounting standard which is a successor to such Statement, as in
effect on the date of determination. For purposes of this Agreement, the
obligations outstanding under a Capital Lease at any date shall be the amount
determined pursuant to such Statement or successor standard.

CLOSING DATE -- Section 1.2.

CONSOLIDATED CURRENT ASSETS -- Section 7.9(c).

CONSOLIDATED CURRENT LIABILITIES -- Section 7.9(d).

CONSOLIDATED FUNDED DEBT -- Funded Debt of the Company and the
Subsidiaries on a consolidated basis.

CONSOLIDATED NET INCOME -- for any period means net earnings after
income taxes of the Company and the Subsidiaries

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determined on a consolidated basis (adjusted proportionately for any minority
interest in any Subsidiary) for such period, but excluding the following items,
in each case net of any related income tax:

(1) any gain arising from the sale of capital assets;

(2) any loss arising from the disposition or other removal
from service of capital assets, to the extent of capital gains
during the current or the prior two fiscal years of the Company
(other than any capital gains occurring before January 1, 1977)
which were excluded from Consolidated Net Income pursuant to clause
(1) above and to which no other capital loss has previously been
thus applied;

(3) any gain arising from any write-up of assets;

(4) earnings of any Subsidiary accrued prior to the date it
became a Subsidiary;

(5) earnings of any Person, substantially all the assets of
which have been acquired in any manner (including, without
limitation, by merger or such Person's becoming a Subsidiary),
realized by such Person prior to the date of such acquisition;

(6) net earnings of any Person (other than a Subsidiary) in
which the Company or any Subsidiary has an ownership interest in
excess of the smaller of the following amounts: (i) cash
Distributions by such Person actually received by the Company or
such Subsidiary in such period (irrespective of when earned); or
(ii) net earnings of such Person during the five most recent fiscal
years of the Company (or such lesser number of such fiscal years as
commence after December 31, 1976), less the amount of any prior
Distributions by such Person during or since such five-year (or
lesser) period;

(7) net losses of any Person (other than a Subsidiary), but
only to the extent of any net earnings of such Person in the last
three fiscal years of the Company (other than any net earnings
accruing prior to January 1, 1977) which were excluded from
Consolidated Net Income pursuant to clause (6) above and to which no
other net losses of such Person have previously been thus applied;

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(8) any portion of the net earnings of any Subsidiary which
is and remains unavailable for payment of dividends to the Company
for any reason other than the accrual of an income tax with respect
to such payment or mere inadvisability as a business matter (in the
case of Foreign Subsidiaries domiciled outside Western Europe and
Domestic Subsidiaries), or (in the case of Foregin Subsidiaries
domiciled in Western Europe) by reason of obligations or limitations
assumed by such Subsidiary in connection with the incurrence of
Funded Debt or Current Debt or by reason of impairment of capital or
insolvency under the laws of the jurisdiction in which such
Subsidiary is incorporated;

(9) the earnings of any Person to which assets of the
Company shall have been sold, transferred or disposed of, or into
which the Company shall have merged, prior to the date of such
transaction; and

(10) any gain arising from the acquisition of any Securities
of the Company or any Subsidiary.

In applying capital losses to capital gains pursuant to clause (2) above, losses
shall first be applied to any available gains of the current period and then to
any available gains of prior periods in chronological order beginning with the
earliest prior period with any available capital gains. In applying net losses
to net earnings pursuant to clause (7) above, net losses shall be applied to
any available net earnings of prior periods in chronological order beginning
with the earliest prior period with any available net earnings. Consolidated Net
Income for any period shall include cash distributions received in such period
from a Person (other than a Subsidiary) in the amount which is the smaller of
those described in (i) and (ii) of clause (6) above notwithstanding that the
distributed amount was earned by such Person in a prior period [subject,
however, to the limitations of (ii) of clause (6)]. In the event any net
earnings of any Subsidiary excluded pursuant to clause (8) above cease to be
unavailable for the payment of dividends for any of the reasons set forth in
such clause (8) within any of the five full fiscal years of the Company
following the fiscal year in which such unavailable earnings were accrued, the
amount of such excluded net earnings shall be included in Consolidated Net
Income for the period within which they so cease to be unavailable.

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CONSOLIDATED NET TANGIBLE ASSETS -- at any date means:

(1) Consolidated Total Net Assets at such date;

minus

(2) any amounts included in Consoldiated Total Net Assets
on account of:

(A) deferred organization expense, preoperating
expenses and deferred charges other than (i) those
for prepaid or deferred insurance, rent and taxes and
(ii) those which are current assets;

(B) patents, copyrights, trademarks, trade names,
franchises, good will, experimental expense and
other similar intangibles;

(D) Foreign Assets, to the extent the amount
included in Consolidated Total Net Assets on account
of Foreign Assets exceeds 25% of Consolidated Total
Net Assets;

minus

(3) Consolidated Current Liabilities;

minus

(4) minority interests in Subsidiaries (adjusted
proportionately to reflect the exclusion of certain write-ups from
the definition of Consolidated Total Net Assets and the exclusion
of the items listed in paragraph (2) above from Consolidated Net
Tangible Assets).

CONSOLIDATED NET WORKING CAPITAL -- Section 7.9(e).

CONSOLIDATED NET WORTH -- at any date means

(1) Consolidated Net Tangible Assets at such date

minus

(2) the amount at which the liabilities (other than
minority interests in Subsidiaries and capital stock and surplus) of
the Company and the Subsidiaries would be shown on a consolidated
balance sheet at such date, and including as liabilities all

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reserves for contingencies and other potential liabilities, but
not including any liability deducted in the calculation of
Consolidated Net Tangible Assets pursuant to clause (3) of the
definition of such term.

CONSOLIDATED SENIOR FUNDED DEBT -- Senior Funded Debt of the
Company and the Subsidiaries on a consolidated basis.

CONSOLIDATED TOTAL NET ASSETS -- at any date means the net book
value (after deducting related depreciation, obsolescence, amortization,
valuation and other proper allowances) at which the assets of the Company and
all Subsidiaries would be shown on a consolidated balance sheet at such date,
but excluding any write-up of assets after December 31, 1976.

CURRENT DEBT -- with respect to any Person means all liabilities
for borrowed money (whether as the original obligor, pursuant to an assumption
or Guaranty, as a partner or joint venturer, or otherwise) and all liabilities
secured by any Lien existing on Property owned by such Person (whether or not
such liabilities have been assumed), which, in either case, are payable on
demand or within one year from the creation thereof, except:

(1) any such liabilities which are renewable or extendible
at the option of the debtor to a date more than one year form the
date of creation thereof, and

(2) any such liabilities which, although payable within one
year, constitute payments required to be made on account of
principal of indebtedness expressed to mature more than one year
from the date of creation thereof.

DEFAULT -- an event or condition the occurrence of which would,
with the lapse of time or the giving of notice or both, become an Event of
Default.

DISPOSITION VALUE -- Section 7.4(d).

DISTRIBUTION -- in respect of any corporation means:

(1) dividends or other distributions on Equity Securities
of the corporation (except payments of principal and interest of
Senior Funded Debt and required payments of principal and interest
of Subordinated Funded Debt and except distributions in
Nonredeemable Equity Securities); and

(2) optional payments of principal or interest of
Subordinated Funded Debt; and

45.

<PAGE>

(3) the redemption or acquisition of Equity Securities
(except when solely in exchange for Nonredeemable Equity
Securities), PROVIDED that required redemptions or repurchases or
payments of principal of Redeemable Equity Securities shall not
constitute Distributions to the extent that the aggregate net
proceeds received by the Company in cash from the sale of Redeemable
Equity Securities subsequent to the Closing Date exceeds the
aggregate amount of required redemptions or repurchases or payments
of principal of Redeemable Equity Securities made subsequent to such
date and prior to the time of determination.

DOMESTIC SUBSIDIARY -- a Subsidiary organized under the laws of the
United States, its territories or possessions, or Canada, or a jurisdiction
thereof, and which conducts substantially all of its business and has
substantially all its Property within the United States, its territories or
possessions, or Canada.

EQUITY SECURITY -- an equity Security of any class (whether or
not preferred), and any instrument or Security entitling the holder to
purchase any such Security or exchangeable for or convertible into any such
Security.

ERISA -- means that Employee Retirement Income Security Act of
1974, as amended from time to time.

EVENT OF DEFAULT -- Section 9.1.

FOREIGN ASSETS -- assets located outside the United States, its
territories or possessions, or Canada, and notes, receivables and other
obligations due from, or any Investments in, any Person domiciled outside the
United States, its territories or possessions, or Canada, other than accounts
receivable, not exceeding in the aggregate at any one time 15% of Consoldiated
Net Worth of the Company at the end of the most recent period for which
financial statements have been delivered pursuant to Section 8.1, arising in the
ordinary course of business out of exports from the United States by the Company
or a Domestic Subsidiary, none of which remain unpaid more than 120 days after
delivery of the realted export goods to the carrier or more than 30 days after
the due date thereof.

FOREIGN SUBSIDIARY -- any Subsidiary other than a Domestic
Subsidiary.

FUNDED DEBT -- with respect to any Person, means without duplication

(1) its liabilities (whether as the original obligor,
pursuant to an assumption, as a partner or joint venturer or
otherwise) for borrowed money, other than Current Debt;

46.

<PAGE>

(2) its liabilities under any Guaranty of an obligation
of a Person which is not the Company or a Subsidiary;

(3) in the case of any Guaranty of an obligation of a
Subsidiary which is not a Wnholly-Owned Subsidiary, the same
proportion of its liabilities under such a Guaranty as the
proportion of the outstanding Equity Securities of such
Subsidiary which are not legally and beneficially owned by
the Company and its Wholly-Owned Subsidiaries;

(4) liabilities secured by any Lien existing on
Property owned by such Person (whether or not such
liabilities have been assumed), other than Current Debt; and

(5) any other obligations (other than deferred taxes
and minority interests in Subsidiaries) which are required by
generally accepted accounting principles to be shown as
liabilities on its balance sheet and which are payable or
remain unpaid more than one year from the creation thereof.

GUARANTY -- by any Person shall mean all obligations of such Person
guaranteeing or in effect guaranteeing any indebtedness, divident or other
obligation of any other Person (the "primary obligor") in any manner, directly
or indirectly, including obligations incurred through an agreement, contingent
or otherwise, by such Person:

(1) to purchase such indebtedness or obligation or any
Property or assets constituting security therefor;

(2) to advance or supply funds

(i) for the purchase of payment of such
indebtedness or obligation, or

(ii) to maintain working capital or other
balance sheet condition or any income statement condition or
otherwise to advance or make available funds for the purchase or
payment of such indebtedness or obligation;

(3) to lease Property or to purchase Securities or
other Property or services primarily for the purpose of assuring the
owner of such indebtedness or obligation of the ability of the primary
obligor to make payment of the indebtedness or obligation; or

47.

<PAGE>

(4) otherwise to assure the owner of the
indebtedness or obligation of the primary obligor against loss in
respect thereof.

"Guaranty" shall not, however, include any liability on endorsements made in the
ordinary course of business of negotiable instruments for deposit or collection.
For purposes of this Agreement, the amount of a Guaranty shall be the maximum
agreed potential liability under the Guaranty, except in the case of a Guaranty
of obligations for borrowed money, in which case it shall be the sum of the
principal amount outstanding from time to time and (if covered by the Guaranty)
the amount of any overdue interest.

INVESTMENTS -- Section 7.11(b).

LIEN -- any interest in Property securing an obligation owed to, or
a claim by, a Person other than the owner of the Property, whether such interest
is based on the common law, statute or contract, and including but not limited
to

(1) the security interest lien arising from a mortgage,
encumbrance, pledge, conditional sale or trust receipt; or

(2) a lease, consignment or bailment for security
purposes; or

(3) the lessor's interest in Property subject to a
Capitalized Lease.

The term "Lien" shall include reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restriction, leases and other
title exceptions and encumbrances affecting Property. For the purposes of this
Agreement, the Company or a Subsidiary shall be deemed to be the owner of any
Property which it has leased pursuant to a Capitalized Lease or which it has
acquired or holds subject to a conditional sale agreement, lease or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person for security purposes. In the case of a Lien which
is being contested as permitted by Section 7.1, the amount required to be
reserved by such provision shall, for purposes of this Agreement, be considered
the amount secured by such Lien. If the amount so required to be reserved is
zero, such Lien shall be considered a Lien securing a Restricted Obligation in
the amount of zero.

MEASURING PERIOD -- Section 7.4 (e).

NONREDEEMABLE EQUITY SECURITY -- any Equity Security other than
a Redeemable Equity Security.

NOTES -- Section 1.1.

48.

<PAGE>

OTHER AGREEMENT -- Section 1.4.

OTHER PURCHASER -- Section 1.4.

PENSION PLANS -- Section 2.18(a).

PERSON -- an individual, partnership, joint venture, corporation,
trust or unincorporated organization, and a government or agency or political
subdivision thereof.

PROPERTY -- any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.

PURCHASERS -- Section 1.4.

REDEEMABLE EQUITY SECURITY -- any Equity Security which constitutes
indebtedness of the issuing corporation or which the issuing corporation is
obligated to repurchase or redeem or which is redeemable at the option of the
holder.

RESTRICTED INVESTMENTS -- Section 7.11(b)

SECURITY -- shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.

SENIOR FUNDED DEBT -- (i) any Funded Debt of the Company other than
Subordinated Funded Debt; and (ii) any Funded Debt of any Subsidiary.

SUBORDINATED FUNDED DEBT -- unsecured Funded Debt of the Company for
money borrowed which (i) has, at the time of incurrence or issuance, a Weighted
Average Life to Maturity not less than 90% of the then remaining Weighted
Average Life to Maturity of the Notes, and (ii) is issued under an indenture or
other instrument containing provisions for the subordination of such
indebtedness (to which appropriate reference shall be made in the instruments
evidencing such indebtedness) substantially as follows (the term "debentures"
being, for convenience, used in the provisions set forth below to designate the
instruments issued to evidence Subordinated Funded Debt and the term "this
Indenture" to designate the indenture or other instrument under which the
debentures are issued):

"All debentures issued under this Indenture shall be issued
subject to the following provisions and each person holding any debenture
whether upon original issue or upon transfer or assignment thereof accepts and
agrees to be bound by such provisions."

"All debentures issued hereunder and any coupons thereto
appertaining shall, to the extent and in the manner hereinafter set forth, be
subordinated and subject in right to the prior payment in full of superior
indebtedness as defined in this Section. For the purposes of this Section, the
term superior

49.

<PAGE>

indebtedness' shall mean (a) all evidences of indebtedness issued by Hexcel
Corporation (the "Company") pursuant to certain Note Agreements with various
note purchasers dated December 9, 1977 providing for the issuance of 8-3/4%
promissory notes in the aggregate principal amount of $8,000,000, and as said
Note Agreements or promissory notes may have been or may hereafter be amended,
modified or supplemented, with or without notice to the holders of the
debentures, (b) all other indebtedness of the Company for borrowed money unless
by the terms of the instrument creating or evidencing such indebtedness it is
provided that such indebtedness is not superior in right of payment to the
debentures or to other indebtedness which is pari passu with, or subordinated
to, the debentures, and (c) any deferrals, renewals or extensions of any such
superior indebtedness, or debentures, notes or other evidences of indebtedness
issued in exchange for such superior indebtedness."

"No payment on account of principal, premium, if any, sinking
funds, or interest on the debentures shall be made unless full payment of
amounts then due for principal, premium, if any, sinking funds, and interest on
superior indebtedness has been made or duly provided for in money or money's
worth in accordance with its terms. No payment on account of principal,
premium, if any, sinking funds, or interest on the debentures shall be made if,
at the time of such payment or immediately after giving effect thereto: (i)
there shall exist a default in the payment of principal, premium, if any,
sinking funds or interest with respect to any superior indebtedness, or (ii)
there shall have occurred an event of default (other than a default in the
payment of principal, premium, if any, sinking funds or interest) with respect
to any superior indebtedness, as defined therein or in the instrument under
which the same is outstanding, permitting the holders thereof to accelerate the
maturity thereof and written notice of such occurrence shall have been given to
the Company by the holder or holders of such superior indebtedness and such
event of default shall not have been cured by waiver or shall not have ceased to
exist. Notwithstanding the foregoing, the Company may make and the Trustee may
receive and shall apply any payment in respect of the debentures (for principal,
premium, if any, sinking funds, or interest) if such payment was made prior to
the occurrence of any of the contingencies specified in clauses (i) and (ii)
above."

"Upon (i) any acceleration of the principal amount due on the
debentures or (ii) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to creditors upon
any dissolution or winding-up or total or partial liquidation or reorganization
of the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all principal, premium, if any, and interest
due or to become due upon all superior indebtedness shall first be paid in full,
or payment thereof provided for in money or money's worth in accordance with its
terms, before any payment is made on account of the principal of, premium, if
any, or interest on the indebtedness evidenced by the debentures, and upon any
such dissolution or winding-up or liquidation or reorganization any payment or
distribution of

50.

<PAGE>

assets of the Company of any kind or character, whether in cash, property or
securities, to which the holders of the debentures or the Trustee under this
Indenture would be entitled, except for the provisions hereof, shall be paid by
the Company or by any receiver, trustee in bankruptcy, liquidating trustee,
agent or other person making such payment or distribution, or by the holders of
the debentures or by the Trustee under this Indenture if received by them or it,
direct to the holders of superior indebtedness (pro rata to each such holder on
the basis of the respective amounts of superior indebtedness held by such
holder) or their representatives, to the extent necessary to pay all superior
indebtedness in full, in money or money's worth, after giving effect to any
concurrent payment or distribution to or for the holders of superior
indebtedness, before any payment or disstribution is made to the holders of the
indebtedness evidenced by the debentures or to the Trustee under this
Indenture."

"In the event that, contrary to the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, shall be received by the Trustee or the holders of the
debentures before all superior indebtedness is paid in full, or provisions made
for such payment, in accordance with its terms, such payment or distribution
shall be held in trust for the benefit of, and shall be paid over or delivered
to, the holders of such superior indebtedness or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any of such supeerior indebtedness may have
been issued, as their respective interest may appear, for application to the
payment of all superior indebtedness in full in accordance with its terms, after
giving effect to any concurrent payment or distribution to or for the holders of
such superior indebtedness."

SUBSIDIARY -- a corporation of whose Voting Stock the Company and
its Wholly-Owned Subsidiaries own at least a majority, or, if greater than a
majority, such proportion as is necessary to elect a majority of its corporate
directors (or Persons performing similar functions), and of each of whose
classes of other Equity Securities the Company and its Wholly-Owned Subsidiaries
legally and beneficially own the same proportion as its Voting Stock.

VOTING STOCK -- Securities of any class or classes of a corporation
the holders of which are ordinarily, in the absence of contingencies, entitled
to elect a majority of the corporate directors (or Persons performing similar
functions).

WEIGHTED AVERAGE LIFE TO MATURITY -- Section 5.2(d).

WHOLLY-OWNED SUBSIDIARY -- any Subsidiary, all of the Equity
Securities (except directors' qualifying shares) of which are owned by the
Company or the Company's other Wholly-Owned Subsidiaries.

51.

<PAGE>

10.2 ACCOUNTING PRINCIPLES.

Where the character or amount of any asset or liability or item of
income or expense is required to be determined or any consolidation or other
accounting computation is required to be made for the purposes of this
Agreement, this shall be done in accordance with generally accepted accounting
principles at the time in effect, to the extent applicable, except where such
principles are inconsistent with the express requirements of this Agreement. For
purposes of determining the character or amount of any asset, liability or item
of income or expense under this Agreement, a reserve created pursuant Section
7.1 and 7.2(e), to the extent a corresponding liability reserve would not be
created in accordance with generally accepted accounting principles, shall be
given the same effects as a corresponding liability reserve created in
accordance with such principles would be given in accordance with such
principles.

10.3 DIRECTLY OR INDIRECTLY.

Where any provision in this Agreement refers to action to be taken
by any Person, or which such Person is prohibited from taking, such provision
shall be applicable whether such action is taken directly or indirectly by such
Person, including actions taken by or on behalf of any partnership in which such
Person is a general partner.

10.4 GOVERNING LAW.

This Agreement and the Notes shall be governed by and construed in
accordance with California law.

10.5 PRINCIPAL AMOUNT.

For purposes of any provision of this Agreement which refers to the
principal amount of any obligation (other than a Capitalized Lease) which does
not separately express principal and interest shall be considered principal.

SECTION 11. MISCELLANEOUS

11.1 NOTICES.

(a) All communications under this Agreement or under
the Notes shall be in writing and shall be mailed by first class mail, postage
prepaid,

(1) if to you, at your address shown at the
beginning of this Agreement, marked for attention as there indicated, or
at such other address as you may have furnished the Company in writing,
or

52.

<PAGE>

(2) if to the Company, at its address shown at the
beginning of this Agreement, or at such other address as it may have furnished
in writing to you and all other holders of the Notes at the time outstanding.

(b) Any notice so addressed and mailed by registered
or certified mail shall be deemed to be given when so mailed.

11.2 REPRODUCTION OF DOCUMENTS.

This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications which may hereafter
be executed, (b) documents received by you at any closing of your purchase of
the Notes (except the Notes themselves), and (c) financial statements,
certificates and other information previously or hereafter furnished to you, may
be reproduced by you by any photographic, photostatic, microfilm, micro-card,
miniature photographic or other similar process and you may destroy any original
document so reproduced. The Company agrees and stipulates that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and that any enlargement, facsimile or further reproduction
of such reproduction shall likewise by admissible in evidence.

11.3 SURVIVAL.

All warranties, representations, and covenants made by the Company
herein or in any certificate or other instrument delivered by it or on its
behalf under this Agreement shall be considered to have been relied upon by you
and shall survive the delivery to you of the Notes regardless of any
investigation made by you or on your behalf. All statements in any such
certificate or other instrument shall constitute warranties and representations
by the Company hereunder.

11.4 SUCCESSORS AND ASSIGNS.

This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties, PROVIDED that your commitment to
purchase Notes pursuant hereto shall inure only to the benefit of the Company as
it presently exists and is not subject to assignment. The provisions of this
Agreement are intended to be for the benefit of all holders, from time to time,
of the notes, and shall be enforceable by any such holder, whether or not
express assignment to such holder of rights under this Agreement has been made
by you or your successor or assign.

11.5 AMENDMENT AND WAIVER.

(a) REQUIREMENTS. This Agreement may be amended, and the
observance of any term or condition of this Agreement may be waived,

53.

<PAGE>

with (and only with) the written consent of the Company and the holders of at
least 66-2/3% in principal amount of the Notes at the time outstanding
(exclusive of Notes then owned by the Company, any Subsidiary or any Affiliate);
PROVIDED that no such amendment or waiver of any of the provisions of Sections 1
through 4 hereof shall be effective as to you unless consented to by you in
writing; and PROVIDED FURTHER, that no such amendment or waiver shall, without
the written consent of the holders of all the Notes at the time outstanding, (i)
subject to Sections 9.2 and 9.3, change the amount or time of any prepayment or
payment of principal or premium or the rate or time of payment of interest, (ii)
amend Section 9 hereof, or (iii) amend this Section 11.5.

(b) SOLICITATION OF NOTEHOLDERS. So long as any outstanding
Notes are owned by you, the Company will not solicit, request or negotiate for
or with respect to any proposed waiver or amendment of any of the provisions of
this Agreement or the Notes unless each holder of the Notes (irrespective of the
amount of Notes then owned by it) shall be informed thereof by the Company and
shall be afforded the opportunity of considering the same and shall be supplied
by the Company with sufficient information to enable it to make an informed
decision with respect thereto. Executed counterparts or true and correct copies
of any waiver or consent effected pursuant to the provisions of this Section
11.5 shall be delivered by the Company to each holder of outstanding Notes
forthwith following the date on which the same shall have been executed and
delivered by the holder or holders of the requisite percentage of outstanding
Notes. The Company will not, directly or indirectly, pay or cause to be paid
any remuneration, whether by way of supplemental or additional interest, fee or
otherwise, to any holder of the Notes as consideration for or as an inducement
ot the entering into by any holder of the Notes of any waiver or amendment of
any of the terms and provisions of this Agreement unless such remuneration is
concurrently paid, on the same terms, ratably to the holders of all of the Notes
then outstanding.

(c) BINDING EFFECT. Any such amendment or waiver shall apply
equally to all the holders of the Notes and shall be binding upon them and upon
each future holder of any Note and upon the Company whether or not such Note
shall have been marked to indicate such amendment or waiver. No such amendment
or waiver shall extend to or affect any obligation not expressly amended or
waived or impair any right consequent thereon.

11.6 DUPLICATE ORIGINALS.

Two or more originals of this Agreement may be signed by the
parties, each of which shall be an original but all of which together shall
constitute one and the same instrument.

54.

<PAGE>

If this Agreement is satisfactory to you, please so indicate by
signing the acceptance at the foot of a counterpart of this Agreement and return
such counterpart to the Company, whereupon this Agreement will become binding
between us in accordance with its terms.

Very truly yours,

HEXCEL CORPORATION

By: /s/ Harvie M. Merrill
-------------------------------
President

ACCEPTED:

[Separate Note Agreements were
entered into by the Company and
each Note Purchaser listed below:

BANKERS LIFE COMPANY

By: /s/ R. W. Ehrle
--------------------------------
Title: R. W. Ehrle,
Senior Vice President

CONNECTICUT MUTUAL LIFE
INSURANCE COMPANY

By: /s/ Raymond J. Hollworth
---------------------------------
Title: Raymond J. Hollworth,
Senior Investment Officer]

<PAGE>

EXHIBIT A

HEXCEL CORPORATION

8-3/4% Note Due June 1, 1997.

No. R- San Francisco, California
--------------------------

$ , 19
----------------------------- ----------------- ----

Hexcel Corporation (the "Company"), a California corporation, for
value received, hereby promises to pay to ______________________ or registered
assigns the principal sum of ______________________________ Dollars
($___________) on June 1, 1997; and to pay interest (computed on the basis of a
360-day year of twelve 30-day months) on the unpaid principal balance thereof
from the date of this Note at the rate of 8-3/4% per annum (except as set forth
below), semi-annually on the first day of June and the first day of December in
each year, commencing with the payment date next succeeding the date hereof,
until the principal amount hereof shall become due and payable; and to pay on
demand interest on any overdue principal (including any overdue prepayment of
principal) and premium, if any, and (to the extent permitted by applicable law)
on any overdue installment of interest, at the rate of 9-3/4% per annum.

Payments of principal, premium, if any, and interest shall be made in
such coin or currency of the United States of America as at the time of payment
is legal tender for the payment of public and private debts by check mailed and
addressed to the registered holder hereof at the address shown in the register
maintained by the Company for such purpose, or, at the option of the holder
hereof, in such manner and at such other place in the United States of America
as the holder hereof shall have designated to the Company in writing.

This Note is one of an issue of Notes of the Company issued in an
aggregate principal amount limited to $8,000,000 pursuant to the Company's Note
Agreements with Bankers Life Company and Connecticut Mutual Life Insurance
Company dated December 9, 1977, and is entitled to the benefits thereof. As
provided in such Agreements, this Note is subject to prepayment, in whole or in
part, in certain cases without premium and in other cases with a premium as
specified in said Agreements. The Company agrees to make required prepayments on
account of said Notes in accordance with the provisions of said Agreements.

This Note is a registered Note and is transferable only by surrender
thereof at the principal office of the Company in San Francisco, California,
duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder of this Note or his attorney duly authorized in
writing.

Under certain circumstances, as specified in Section 7.7(d) of said
Agreements, this Note may, prior to July 1, 1980, bear interest at the rate of
8-7/8% per annum.

<PAGE>

Under certain circumstances, as specified in said Agreements, the
principal of this Note may be declared due and payable in the manner and with
the effect provided in said Agreements.

This Note and said Agreements are governed by and are to be construed
in accordance with California law.

HEXCEL CORPORATION

(CORPORATE SEAL) By:
-------------------------
President

By:
-------------------------
Treasurer

<PAGE>

EXHIBIT 10.1(b)

HEXCEL CORPORATION
650 California Street
San Francisco, California 94108

$8,000,000 8-3/4% Notes Due June 1, 1997
Amendment Agreement

August 21, 1981

The Bankers Life
711 High Street
Des Moines, IA 50307

Attention: Bond Department

Gentlemen:

We refer to the Note Agreement (the "Note Agreement") dated December 9, 1977, as
amended on April 25, 1978, April 30, 1980, January 6, 1981, April 2, 1981, and
May 13, 1981, between you and us.

As a result of Hexcel's sale of its Ski Division and concurrent investment in
Hanson Industries on February 13, 1981, the Company is in violation of Section
7.11(f) of the amended Note Agreement. Therefore, a new amendment is requested
for subsection (f) of Section 7.11.

The requested amendment substitutes for subsection (f) a new subsection (f) to
7.11 as follows:

"7.11(f) SKI DIVISION. Section 7.11(a) shall not prohibit the acquisition
of notes and/or securities of Hanson Industries, if

"(1) after giving effect to such investment the amount of Restricted
Investments of the Company and all Subsidiaries (valued immediately after such
acquisition, as provided in the definition thereof) would not exceed (i) 10% of
Consolidated Net Worth plus (ii) $1,300,000; and

"(2) the foregoing subparagraph (1) to the contrary notwithstanding, so
long as the amount of Restricted Investments of the Company and all Subsidiaries
(valued from time to time after such acquisition, of notes and/or securities of
Hanson Industries, as provided in the definition thereof) is greater than 10% of
Consolidated Net Worth, the Company shall not make or authorize any Restricted
Investment (other than such acquisition) or any increase in any Restricted
Investment above the amount permitted by 7.11(e)(1) or 7.11(f)(1)."

<PAGE>

The Bankers Life -2- August 21, 1981

The requested amendment also amends the definition of Consolidated Net Tangible
Assets (p. 46) by adding a new subparagraph (5) which shall read, "minus (5) the
amount by which the Company's Restricted Investments exceed 10% Consolidated Net
Worth or $2,500,000, whichever is less."

This amendment will also delete the new subsection (e) to Section 7.7 which was
added by the amendment dated April 30, 1980.

This Amendment Agreement amends no provisions of the Note Agreement other than
Section 7.11 and does not waive compliance with any provision of the Note
Agreement, as amended hereby. The Note Agreement, as amended hereby, is hereby
approved, confirmed and ratified.

If the foregoing amendment is satisfactory to you, please so indicate by signing
the acceptance at the foot of a counterpart of this Amendment Agreement and
return such counterpart to the Company, whereupon this Amendment Agreement will
become binding between us in accordance with its terms.

Very truly yours,

HEXCEL CORPORATION

By: _________________________
D. T. Divird, Treasurer

Accepted:

THE BANKERS LIFE

By: _______________________________
Title:

<PAGE>

HEXCEL CORPORATION
650 California Street
San Francisco, California 94108

$8,000,000 8-3/4% Notes Due June 1, 1997
Amendment Agreement

August 21, 1981

Connecticut Mutual Life Insurance Company
140 Garden Street
Hartford, CT 06115

Attention: Bond Department

Gentlemen:

We refer to the Note Agreement (the "Note Agreement") dated December 9, 1977, as
amended on April 25, 1978, April 30, 1980, January 6, 1981, April 2, 1981, and
May 13, 1981, between you and us.

The requested amendment substitutes for subsection (f) a new subsection (f) to
7.11 as follows:

"7.11(f) SKI DIVISION. Section 7.11(a) shall not prohibit the acquisition
of notes and/or securities of Hanson Industries, if

<PAGE>

Connecticut Mutual Life -2- August 21, 1981

This amendment will also delete the new subsection (e) to Section 7.7 which was
added by the amendment dated April 30, 1980.

Very truly yours,

HEXCEL CORPORATION

By: _________________________
D. T. Divird, Treasurer

Accepted:

CONNECTICUT MUTUAL LIFE
INSURANCE COMPANY

By: _______________________________
Title: Investment Officer

<PAGE>

$8,000,000 8-3/4% Notes Dues June 1, 1996
Amendment Agreement

July 24, 1986

Principal Mutual Life Insurance
Company (Bankers Life Company)
Bond Department
711 High Street
Des Moines, Iowa 50507

ATTN: Mr. James K. Hovey, Jr.

Gentlemen:

We refer to the Note Agreement (the "Note Agreement") dated December 9, 1977, as
amended on April 25, 1978; April 30, 1980; January 6, 1981; April 2, 1981; May
13, 1981; August 21, 1981; March 15, 1982; September 1, 1982; and December 31,
1983 between you and us. Capitalized terms used without definition in this
Amendment Agreement have the meanings ascribed to them in the Note Agreement.

Hexcel Corporation desires to issue up to $35,000,000 of Convertible
Subordinated Debentures Due 2011 in a domestic public offering. A copy of the
Preliminary Prospectus dated July 18, 1986 is enclosed which describes such
proposed debenture issue. Therefore, an amendment is requested for Section
7.7(b)(c) - FUNDED DEBT.

The requested amendment substitutes for Section 7.7(b)(c) a new Section
7.7(b)(c) as follows:

"Section 7.7 - FUNDED DEBT.

(b) INCURRENCE OF FUNDED DEBT. Neither the Company nor any Subsidiary
will incur or in any manner become liable in respect to any Funded Debt unless,
after giving effect thereto and any transactions concurrent therewith,
Consolidated Net Tangible Assets would be at least equal to the following
percentages of Consolidated Funded Debt in each of the applicable periods:

August 1, 1982 - December 31, 1987 200%
January 1, 1988 - June 1, 1996 225%

(c) INCURRENCE OF DOMESTIC FUNDED DEBT. Neither the Company nor any
Domestic Subsidiary will incur or in any manner become liable in respect of any
Domestic Funded Debt unless, after giving effect thereto and any transactions

<PAGE>

Principal Mutual Life Insurance
Company (Bankers Life Company)
July 24, 1986
Page Two

concurrent therewith, Domestic Net Tangible Assets would be at least equal to
the following percentages of Domestic Funded Debt in each of the applicable
periods:

June 1, 1983 - May 31, 1988 160%
June 1, 1988 - June 1, 1996 180%."

This Amendment Agreement amends no provisions of the Note Agreement other than
Section 7.7(b)(c) and does not waive compliance with any provision of the Note
Agreement as amended hereby. The Note Agreement, as amended hereby, is hereby
approved, confirmed and ratified. The Amendment Agreement will become effective
only when identical Amendment Agreements are executed by the holders of 66-2/3%
in principal amount of the Notes at the time outstanding and copies of such
Amendment Agreements are received by the Company and by it delivered to each of
the holders of the Notes (this provision of the Agreement is no longer
applicable since Bankers Life Company is the sole Note holder).

If the foregoing amendment is satisfactory to you, please do indicate by signing
the acceptance at the foot of a counterpart of this Amendment Agreement and
return such counterpart to the Company, whereupon this Amendment Agreement will
become binding between us in accordance with its terms.

Very truly yours,

HEXCEL CORPORATION

By: __________________________
C. J. Ward, Treasurer

ACCEPTED:

THE PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
(BANKERS LIFE COMPANY)

By: ___________________________
Title: Dewain A. Sparrgrove
Second Vice President-Securities Investment

By: ___________________________
Title: James K. Hovey
Assistance Director-Securities Investment

<PAGE>

$8,000,000 8-3/4% Notes Dues June 1, 1996
Amendment Agreement

August 15, 1986

Principal Mutual Life Insurance Company
(formerly known as Bankers Life Company)
Investment Department, Securities Division
711 High Street
Des Moines, Iowa 50309

ATTN: Mr. James K. Hovey
Assistant Director, Securities Investment

Gentlemen:

We refer to the Note Agreement (the "Note Agreement") dated December 9, 1977, as
amended on April 25, 1978; April 30, 1980; January 6, 1981; April 2, 1981; May
13, 1981; August 21, 1981; March 15, 1982; September 1, 1982; December 31, 1983
and July 24, 1986, between you and us. Capitalized terms used without
definition in this Amendment Agreement have the meanings ascribed to them in the
Note Agreement.

Hexcel Corporation desires to invest its excess cash in certain tax advantaged
instruments. Therefore, an amendment is requested for Section 7.11(b). -
Restrictive Investments.

The requested amendment amends Section 7.11(b) by adding two new subsections (9)
and (10) as follows:

"Section 7.11(b) - RESTRICTIVE INVESTMENTS

(9) Investments in insurance maturing within one year or having a floating
rate of interest and guaranteed by a bank or trust company organized under
the laws of the United States or any state thereof having capital, surplus
and undivided profits aggregating at least $100,000,000.

(10) Investments in money market cumulative preferred stocks (floating
rate dividend) which have a rating of at least A by Standard & Poors or Al
by Moody's Investors Services, Inc.

This Amendment Agreement amends no provisions of the Note Agreement other than
Section 7.11(b) and does not waive compliance with any provision of the Note
Agreement as amended

<PAGE>

Principal Mutual Life Insurance Company
(formerly known as Bankers Life)
August 15, 1986
Page Two

hereby. The Note Agreement, as amended hereby, is hereby approved, confirmed
and ratified. The Amendment Agreement will become effective only when identical
Amendment Agreements are executed by the holders of 66-2/3% in principal amount
of the Notes at the time outstanding and copies of such Amendment Agreements are
received by the Company and by it delivered to each of the holders of the Notes
(this provision of the Agreement is no longer applicable since Principal Mutual
Life Insurance Company (formerly known as Bankers Life Company) is the sole Note
holder).

Very truly yours,

HEXCEL CORPORATION

By: __________________________
C. J. Ward, Treasurer

ACCEPTED:

PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
(FORMERLY KNOWN AS BANKERS LIFE COMPANY)

By: ___________________________
Title: ________________________

<PAGE>

HEXCEL CORPORATION

650 California Street
San Francisco, California 94108

$8,000,000 8-3/4% Notes Due June 1, 1997
Amendment Agreement

April 2, 1981

We refer to the Note Agreement (the "Note Agreement" dated December 9, 1977 as
amended on January 6, 1981 between you and us relating to the captioned issue.
Capitalized terms used without definition in this Amendment Agreement have the
meanings ascribed to them in the Note Agreement.

As a result of Hexcel's sale of its Ski Division and concurrent investment in
Hanson Industries on February 13, 1981, the Company is in violation of Section
7.11 (f) of the amended Note Agreement. Therefore, a new amendment is requested
for subsection (f) of Section 7.11.

The requested amendment is as follows:

"(f) SKI DIVISION. Section 7.11(a) shall not prohibit the acquisition by
the Company of notes and/or securities of Hanson Industries if

"(1) after giving effect to such acquisition, the amount of Restricted
Investments of the Company and all Subsidiaries (valued immediately after such
acquisition, as provided in the definition thereof) would not exceed (i) 10% of
Consolidated Net Worth plus (ii) $700,000; and

"(2) so long as the amount of Restricted Investments of the Company and all
Subsidiaries (valued form time to time after such acquisition, of notes and/or
securities of Hanson Industries, as provided in the definition thereof) is
greater than 10% of Consolidated Net Worth, the Company shall not make or
authorize any Restricted Investment (OTHER THAN SUCH ACQUISITION)"

<PAGE>

Very truly yours,

HEXCEL CORPORATION

By:___________________________
D. T. Divird, Treasurer

Accepted:

BANKERS LIFE COMPANY

By:____________________________________
Name: Robert E. Wilkins
Title: Vice President-Fixed Income Securities

By:____________________________________
Name:
Title: Director-Securities Investment

<PAGE>

HEXCEL CORPORATION

650 California Street
San Francisco, California 94108

$8,000,000 8-3/4% Notes Due June 1, 1997
Amendment Agreement

April 2, 1981

As a result of Hexcel's sale of its Ski Division and concurrent investment in
Hanson Industries on February 13, 1981, the Company is in violation of Section
7.11 (f) of the amended Note Agreement. Therefore, a new amendment is requested
for subsection (f) of Section 7.11.

The requested amendment is as follows:

"(f) SKI DIVISION. Section 7.11(a) shall not prohibit the acquisition by
the Company of notes and/or securities of Hanson Industries if

<PAGE>

Very truly yours,

HEXCEL CORPORATION

By:___________________________
D. T. Divird, Treasurer

Accepted:

CONNECTICUT MUTUAL LIFE INSURANCE COMPANY

By:____________________________________
Title: Assistant Investment Officer

<PAGE>

HEXCEL CORPORATION
650 California Street
San Francisco, California 94108

$8,000,000 8-3/4% Notes Due June 1, 1997
Amendment Agreement

January 6, 1981

Dear Sirs:

We refer to the Note Agreement (the "Note Agreement") dated December 9, 1977
between you and us relating to the captioned issue. Capitalized terms used
without definition in this Amendment Agreement have the meanings ascribed to
them in the Note Agreement.

Hexcel proposes to sell its Ski Division to Hanson Industries. In connection
with this sale, we request that Section 7.11 of the Note Agreement be amended as
set forth below. In order to induce you to enter into this Amendment Agreement,
we hereby represent and warrant that any materials sent to you do not contain
any untrue statement of a material fact or omit a material fact necessary to
make the statements contained therein not misleading.

The requested amendment adds a new subsection (f) to Section 7.11, as follows:

"(f) Ski Division> Section 7.11(a) shall not prohibit the acquisition by the
Company of notes and/or securities of Hanson Industries if

"(2) so long as the amount of Restricted Investments of the Company and all
Subsidiaries (valued from time to time after such acquisition, of notes and/or
securities of Hanson Industries, as provided in the definition thereof) is
greater than 10% of Consolidated Net Worth, the Company shall not make or
authorize any Restricted Investment (other than such acquisition)."

<PAGE>

ratified.

If the foregoing amendment is satisfactory to you, please so indicate by signing
the acceptance at the foot of a counterpart of this Amendment Agreement and
return such counterpart to the Company, Whereupon this Amendment Agreement will
become binding between us in accordance with its terms.

Very truly yours,

HEXCEL CORPORATION

By_________________________
Treasurer

Accepted:

CONNECTICUT MUTUAL LIFE INSURANCE COMPANY

By___________________
Title:

<PAGE>

HEXCEL CORPORATION
650 California Street
San Francisco, California 94108

$8,000,000 8-3/4% Notes Due June 1, 1997
Amendment Agreement

January 6, 1981

Dear Sirs:

The requested amendment adds a new subsection (f) to Section 7.11, as follows:

"(f) Ski Division> Section 7.11(a) shall not prohibit the acquisition by the
Company of notes and/or securities of Hanson Industries if

This Amendment Agreement amends no provisions of the Note Agreement other than
Section 7.11 and does not waive compliance with any provision of the Note
Agreement, as amended hereby. The Note

<PAGE>

Agreement, as amended hereby, is hereby approved, confirmed and ratified.

If the foregoing amendment is satisfactory to you, please so indicate by signing
the acceptance at the foot of a counterpart of this Amendment Agreement and
return such counterpart to the Company, Whereupon this Amendment Agreement will
become binding between us in accordance with its terms.

Very truly yours,

HEXCEL CORPORATION

By_________________________
Treasurer

Accepted:

BANKERS LIFE COMPANY

By___________________
Title:

By_______________________

<PAGE>

$8,000,000 8-3/4% Notes Due June 1, 1997
Amendment Agreement

March 15, 1982

Connecticut Mutual Life Insurance Company
140 Garden Street
Hartford, Connecticut 94108

Attention: Bond Department

Gentlemen:

We refer to the Note Agreement (the "Note Agreement") dated December 9, 1977, as
amended on April 25, 1978, April 30, 1980, January 6, 1981, April 2, 1981, May
13, 1981, and August 21, 1981, between you and us.

Hexcel Corporation desires to place in trust and arbitrage funds from certain
tax-exempt industrial and pollution control revenue notes. Therefore, an
amendment is requested for Section 10.1, Terms Defined. The requested amendment
adds a new paragraph (E) to subsection (2), of the defined term Consolidated Net
Tangible Assets as follows:

"(E) investment of monies in capital funds of the following bond or notes
held in trust by Mellon Bank, N.A. until disbursement:

(1) $4,500,000 Industrial Development Revenue Bond, Series 1981
(Hexcel Corporation) issued by the Industrial Development
Authority of the City of Casa Grande, Arizona.

(2) $1,000,000 Pollution Control Revenue Bond, (Hexcel Corporation
Project) 1981 Series A, issued by the California Pollution
Control Financing Authority.

(3) $1,000,000 Industrial Development Revenue Note, Series 1981
(Hexcel Corporation) issued by the Young County #1 Industrial
Development Corporation.

(4) $5,500,000 Industrial Development Revenue Note, Series 1981
(Hexcel Corporation) issued by the Guadalupe-Blanco River
Authority Industrial Development Corporation.

(5) $7,000,000 Economic Development Revenue Note, Series 1981 (Hexcel
Corporation) issued by the Economic Development Corporation of
the County of Ottawa, Michigan.

<PAGE>

(6) $2,000,000 Industrial Development Revenue Note, Series 1981
(Hexcel Corporation) issued by the City of Lancaster, Ohio."

The amendment also substitutes for subsection (2) a new sub-section (2) to the
defined term, Funded Debt as follows:

"(2) its liabilities under any Guaranty of an obligation of a person which
is not the Company or a Subsidiary, other than the monies in the
capital fund of the following bonds or notes held in trust by Mellon
Bank, N.A. until disbursement for qualified capital expenditures:

(Monies in the capital fund of these following notes or bonds no
longer held in trust will be included in the calculation of Funded
Debt):

(a) $4,500,000 Industrial Development Revenue Bond, Series 1981
(Hexcel Corporation) issued by the Industrial Development
Authority of the City of Casa Grande, Arizona.

(b) $1,000,000 Pollution Control Revenue Bond, (Hexcel Corporation
Project) 1981 Series A, issued by the California Pollution
Control Financing Authority.

(c) $1,000,000 Industrial Development Revenue Note, Series 1981
(Hexcel Corporation) issued by the Young County #1 Industrial
Development Corporation.

(d) $5,500,000 Industrial Development Revenue Note, Series 1981
(Hexcel Corporation) issued by the Guadalupe-Blanco River
Authority Industrial Development Corporation.

(e) $7,000,000 Economic Development Revenue Note, Series 1981 (Hexcel
Corporation) issued by the Economic Development Corporation of
the County of Ottawa, Michigan.

(f) $2,000,000 Industrial Development Revenue Note, Series 1981
(Hexcel Corporation) issued by the City of Lancaster, Ohio."

This Amendment Agreement amends no provisions of the Note Agreement other than
Section 10.1, Defined Terms, and does note waive compliance with any provision
of the Note agreement, as amended hereby. The Note Agreement, as amended
hereby, is hereby approved, confirmed and ratified. The Amendment Agreement
will become effective only when identical Amendment Agreements are executed by
holders of 66-2/3% in principal amount of the Notes at the time outstanding and
copies of such Amendment Agreements are received by the Company and by it
delivered to each of the holders of the Notes.

If the foregoing amendment is satisfactory to you, please so indicate by signing
the acceptance

<PAGE>

at the foot of a counterpart of this Amendment Agreement and return such
counterpart to the Company, hereupon this Amendment Agreement will become
binding between us in accordance with its terms.

Very truly yours,

HEXCEL CORPORATION

By:_____________________________
Title: D. T. Divird, Treasurer

Accepted:

Connecticut Mutual Life Insurance Company

By:_____________________________
Title: Donald W. Chamberlain, Senior Investment Officer

<PAGE>

$8,000,000 8-3/4% Notes Due June 1, 1997
Amendment Agreement

March 15, 1982

Bankers Life Company
711 High Street
Des Moines, Iowa 50507