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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------------------
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only
(as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HEXCEL CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
HEXCEL CORPORATION
5794 WEST LAS POSITAS BOULEVARD
PLEASANTON, CALIFORNIA 94588
January 22, 1996
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Hexcel Corporation, to be held at the offices of Chemical Bank, 11th Floor (Room
A), 270 Park Avenue, New York, New York, on February 21, 1996 at 11:00 a.m.,
local time.
As explained in greater detail in the accompanying Proxy Statement, Hexcel
has entered into agreements with Ciba-Geigy Limited and Ciba-Geigy Corporation
which provide for Hexcel to acquire Ciba's Composites Business, which includes
Ciba's composites, structures and interiors, fabrics, laminates, prepregs,
adhesive films, honeycomb core, sandwich panels and fabricated components
businesses. In exchange for the Ciba Composites Business, Hexcel will (i) issue
to Ciba new shares of Hexcel common stock (currently estimated at approximately
18,019,133 shares based on the 18,091,354 shares of Hexcel common stock
outstanding as of December 27, 1995) such that Ciba would own 49.9% of the
Hexcel common stock outstanding after the issuance of such shares, (ii) pay to
Ciba $25 million in cash and (iii) issue to Ciba an amount of senior
subordinated debt due 2003 (callable, in whole or in part, at the option of
Hexcel at any time without penalty), bearing interest at a rate of 9% per annum
for the first year, increasing by 0.50% per annum thereafter, in an aggregate
principal amount of approximately $43 million, subject to adjustment to reflect
relative changes prior to the closing in certain liabilities of Hexcel and
Ciba's Composites Business, the working capital of Hexcel and Ciba's Composites
Business and certain other valuation factors.
The agreements also contemplate the execution at closing of an agreement
that will contain certain standstill and governance provisions designed to
restrict Ciba's ability to control Hexcel and to protect Hexcel's public
stockholders. Pursuant to those provisions, immediately after closing, Hexcel's
Board of Directors will consist of 10 directors, including four directors
designated by Ciba, John J. Lee (Hexcel's current Chief Executive Officer, who
will also become Chairman of the Board), Juergen Habermeier (the current
President of Ciba's Composites Business and a Vice President of Ciba-Geigy
Corporation, who will resign from such positions and become President and Chief
Operating Officer of Hexcel) and four additional directors who are independent
of Ciba. The provisions also (i) require the approval of at least one non-Ciba
director and, so long as Ciba retains a 40% voting interest in Hexcel, at least
one Ciba director for the taking of any action by the Board of Directors, (ii)
impose certain limitations on Ciba's ability to acquire or dispose of additional
shares of Hexcel common stock and (iii) provide certain protections to Hexcel's
public stockholders in connection with any future acquisition of Hexcel.
The closing of the transaction with Ciba is conditioned upon, among other
things, the approval by Hexcel's stockholders of (i) the issuance to Ciba of
approximately 18,019,133 new shares of Hexcel common stock such that Ciba would
own 49.9% of the outstanding Hexcel common stock after the issuance of such
shares and (ii) an amendment to Hexcel's certificate of incorporation increasing
the authorized number of shares of Hexcel common stock from 40 million to 100
million. You will be asked to approve these actions at the Annual Meeting.
<PAGE>
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY (WITH ONE DIRECTOR ABSENT) APPROVED
THE CIBA TRANSACTION AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PROPOSALS
TO ISSUE THE SHARES OF HEXCEL COMMON STOCK TO CIBA AND TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF HEXCEL COMMON STOCK. Your Board of Directors believes that
the strategic rationale for this combination is compelling, both in terms of
geographic reach and product line fit, and will position Hexcel as a major
global presence in the structural materials industry.
At the Annual Meeting, stockholders will also be asked to consider and vote
upon the election of nine directors to the Board of Directors of Hexcel. As
explained in greater detail in the accompanying Proxy Statement, four of the
director nominees have agreed that, if the acquisition of Ciba's Composites
Business is consummated, they will resign from the Board of Directors effective
immediately upon consummation of such transaction. After those resignations, the
number of Hexcel directors will be increased from nine to ten, and four
designees of Ciba, together with Dr. Habermeier, will be appointed to the Board
of Directors of Hexcel. YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE
ELECTION OF EACH OF THE DIRECTOR NOMINEES.
In addition, at the Annual Meeting you will be asked to approve Hexcel's
Amended and Restated Incentive Stock Plan and ratify the appointment of Deloitte
& Touche LLP as Hexcel's independent auditors for the fiscal year ended December
31, 1995. YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH OF THESE
PROPOSALS.
Details of the Ciba transaction and other important information concerning
Ciba's Composites Business, Hexcel and the other items of business scheduled for
the Annual Meeting, are provided in the accompanying Proxy Statement. Please
give this material your careful attention.
Your vote is important regardless of the number of shares you own. In view
of the importance of the matters to be considered at the Annual Meeting, we urge
you to read the enclosed Proxy Statement and other materials carefully and then
to complete, sign and date the enclosed proxy card and return it promptly in the
enclosed postage-paid return envelope, whether or not you plan to attend the
meeting. Your prompt cooperation and continued support of Hexcel are greatly
appreciated.
Sincerely,
/s/ JOHN J. LEE
John J. Lee
CHIEF EXECUTIVE OFFICER
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HEXCEL CORPORATION
5794 WEST LAS POSITAS BOULEVARD
PLEASANTON, CALIFORNIA 94588
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 21, 1996
---------------------
An Annual Meeting of Stockholders of Hexcel Corporation, a Delaware
corporation ("Hexcel"), will be held at the offices of Chemical Bank, 11th Floor
(Room A), 270 Park Avenue, New York, New York, on February 21, 1996 at 11:00
a.m., local time, for the following purposes:
1. To approve the issuance of a number of new shares (the "Hexcel
Shares") of Hexcel's common stock, par value $.01 per share ("Hexcel
Common") (currently estimated at approximately 18,019,133 shares based on
the 18,091,354 shares of Hexcel's common stock outstanding as of December
27, 1995), representing 49.9% of the issued and outstanding shares of Hexcel
Common after giving effect to the issuance of the Hexcel Shares, to be
issued in connection with the proposed acquisition (the "Acquisition") by
Hexcel of the global composites, structures and interiors, fabrics,
laminates, prepregs, adhesive films, honeycomb core, sandwich panels and
fabricated components businesses of Ciba-Geigy Limited, a Swiss corporation
("Ciba"), and Ciba-Geigy Corporation, a New York corporation and wholly
owned subsidiary of Ciba ("CGC"), pursuant to the Strategic Alliance
Agreement, dated as of September 29, 1995, among Ciba, CGC and Hexcel;
2. To approve an amendment to Hexcel's certificate of incorporation
(the "Common Stock Amendment") increasing the number of authorized shares of
Hexcel Common from 40,000,000 to 100,000,000;
3. To elect nine directors to Hexcel's Board of Directors;
4. To approve Hexcel's Amended and Restated Incentive Stock Plan;
5. To ratify the appointment of Deloitte & Touche LLP as Hexcel's
independent auditors for the fiscal year ended December 31, 1995; and
6. To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
In the event that the issuance of the Hexcel Shares and the Common Stock
Amendment are not approved, the Acquisition will not be consummated. The
Acquisition and other important matters relating to the business to be conducted
at the Annual Meeting are described in the attached Proxy Statement, which you
are urged to read carefully.
Hexcel's Board of Directors has fixed the close of business on December 27,
1995 as the record date (the "Record Date") for the determination of
stockholders entitled to notice of and to vote at the Annual Meeting.
Accordingly, only holders of record of Hexcel Common at the close of business on
the Record Date shall be entitled to vote at the Annual Meeting, either by proxy
or in person. A list of such stockholders will be available for inspection at
the offices of Hexcel's counsel, Skadden, Arps, Slate, Meagher & Flom, located
at 919 Third Avenue, New York, New York 10022, at least ten days prior to the
Annual Meeting and will also be available for inspection at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, please complete, sign
and date the enclosed proxy card and return it promptly using the enclosed
pre-addressed, postage-paid return envelope. If you attend the Annual Meeting,
you may vote in person if you wish, even if you have previously returned your
proxy card. Your prompt attention is appreciated.
By order of the Board of Directors
/s/ RODNEY P. JENKS, JR.
Rodney P. Jenks, Jr.
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
January 22, 1996
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND COMPLETE THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
PRE-ADDRESSED, POSTAGE-PAID RETURN ENVELOPE.
<PAGE>
HEXCEL CORPORATION
5794 WEST LAS POSITAS BOULEVARD
PLEASANTON, CALIFORNIA 94588
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PROXY STATEMENT
---------------------
This Proxy Statement is being furnished to the stockholders of Hexcel
Corporation, a Delaware corporation ("Hexcel"), in connection with the
solicitation of proxies by Hexcel's Board of Directors (the "Board of
Directors") for use at the Annual Meeting of Stockholders of Hexcel to be held
at the offices of Chemical Bank, 11th Floor (Room A), 270 Park Avenue, New York,
New York, on February 21, 1996 at 11:00 a.m., local time. At the Annual Meeting,
stockholders will be asked to consider and vote on (i) the approval of the
issuance of a number of new shares (the "Hexcel Shares") of Hexcel's common
stock, par value $.01 per share ("Hexcel Common") (currently estimated at
approximately 18,019,133 shares based on the 18,091,354 shares of Hexcel's
common stock outstanding as of December 27, 1995), representing 49.9% of the
issued and outstanding shares of Hexcel Common after giving effect to the
issuance of the Hexcel Shares, to be issued in connection with the proposed
acquisition (the "Acquisition") by Hexcel of the composites, structures and
interiors, fabrics, laminates, prepregs, adhesive films, honeycomb core,
sandwich panels and fabricated components businesses (collectively, the "Ciba
Composites Business") of Ciba-Geigy Limited, a Swiss corporation ("Ciba"), and
Ciba-Geigy Corporation, a New York corporation and wholly owned subsidiary of
Ciba ("CGC"), pursuant to the Strategic Alliance Agreement, dated as of
September 29, 1995, among Ciba, CGC and Hexcel (the "Strategic Alliance
Agreement"); (ii) the approval of an amendment to Hexcel's certificate of
incorporation (the "Common Stock Amendment") increasing the number of authorized
shares of Hexcel Common from 40,000,000 to 100,000,000; (iii) the election of
nine directors to Hexcel's Board of Directors; (iv) the approval of Hexcel's
Amended and Restated Incentive Stock Plan (the "Incentive Stock Plan"); (v) the
ratification of the appointment of Deloitte & Touche LLP as Hexcel's independent
auditors for the fiscal year ended December 31, 1995; and (vi) such other
business as may properly come before the Annual Meeting and any adjournment or
postponement thereof.
Upon the terms and subject to the conditions of the Strategic Alliance
Agreement, Hexcel will acquire the Ciba Composites Business in exchange for (i)
the Hexcel Shares, (ii) $25 million in cash (the "Cash Price") and (iii)
increasing rate senior subordinated notes due 2003 (callable, in whole or in
part, at the option of Hexcel at any time without penalty), bearing interest at
a rate of 9% per annum for the first year, increasing by 0.50% per annum
thereafter, in an initial aggregate principal amount of approximately $43
million, subject to adjustment to reflect relative changes prior to the closing
of the Acquisition (the "Closing") in certain liabilities of Hexcel and the Ciba
Composites Business, the working capital of Hexcel and the Ciba Composites
Business and certain other items affecting the relative equity values of Hexcel
and the Ciba Composites Business (the "Senior Subordinated Notes"). See "THE
ACQUISITION -- The Strategic Alliance Agreement -- Principal Amount of the
Senior Subordinated Notes."
All information contained in this Proxy Statement relating to Hexcel and its
subsidiaries has been supplied by Hexcel, and all information relating to Ciba,
its subsidiaries and the Ciba Composites Business has been supplied by Ciba.
This Proxy Statement and the accompanying form of proxy card are first being
mailed to stockholders of Hexcel on or about January 22, 1996. The date of this
Proxy Statement is January 22, 1996.
No person has been authorized to give any information or to make any
representation other than those contained in this Proxy Statement in connection
with the solicitation of proxies made hereby and, if given or made, such
information or representation must not be relied upon as having been authorized
by Hexcel or any other person. The delivery of this Proxy Statement shall not
under any circumstances create an implication that there has been no change in
the affairs of Hexcel since the date hereof or that the information herein is
correct as of any time subsequent to the date hereof.
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TABLE OF CONTENTS
<TABLE>
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AVAILABLE INFORMATION..................................................... 5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 5
SUMMARY................................................................... 6
General................................................................. 6
The Acquisition......................................................... 7
Recommendations of the Board of Directors............................... 9
Opinion of Hexcel's Financial Advisor................................... 9
Absence of Appraisal Rights............................................. 9
Certain Regulatory Matters.............................................. 9
Certain Federal Income Tax Consequences of the Acquisition.............. 9
Accounting Treatment.................................................... 9
Interests of Certain Persons in the Acquisition......................... 10
The Annual Meeting...................................................... 10
Summary Historical and Pro Forma Financial Information.................. 12
Market Price Data and Dividends......................................... 16
THE MEETING............................................................... 17
General................................................................. 17
Matters to Be Considered at the Meeting................................. 17
Record Date; Voting at the Meeting...................................... 17
Absence of Appraisal Rights............................................. 18
Proxies................................................................. 18
Recommendations of the Board of Directors............................... 18
THE ACQUISITION........................................................... 19
General................................................................. 19
Background of the Acquisition........................................... 20
Recommendations of the Board of Directors; Hexcel's Reasons for the
Acquisition............................................................ 25
Opinion of Hexcel's Financial Advisor................................... 27
Interests of Certain Persons in the Acquisition......................... 33
Certain Regulatory Matters.............................................. 34
Certain Federal Income Tax Consequences of the Acquisition.............. 35
Stock Exchange Listing.................................................. 35
Accounting Treatment.................................................... 35
The Strategic Alliance Agreement........................................ 35
The Governance Agreement................................................ 44
The Senior Subordinated Notes........................................... 49
Agreement Governing United States Employment Matters.................... 52
Other Agreements........................................................ 53
New Revolving Credit Facility........................................... 54
Certain Business Combinations........................................... 56
UNAUDITED PRO FORMA FINANCIAL INFORMATION................................. 56
</TABLE>
2
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
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CIBA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE CIBA COMPOSITES BUSINESS..................... 70
Results of Operations................................................... 70
Net Sales and Gross Profit.............................................. 71
Impact of Foreign Exchange Fluctuations................................. 73
Selling, General and Administrative Expenses............................ 73
Research and Development................................................ 74
Amortization and Write Down of Purchased Intangibles.................... 74
Restructuring Expenses.................................................. 74
Interest................................................................ 74
Income Taxes............................................................ 75
Minority Interest in Danutec............................................ 75
Financial Resources and Liquidity....................................... 75
Effect of Inflation..................................................... 77
BUSINESS INFORMATION CONCERNING HEXCEL.................................... 77
BUSINESS INFORMATION CONCERNING THE CIBA COMPOSITES BUSINESS.............. 78
Marketing and Sales..................................................... 79
Products................................................................ 80
Services & Support...................................................... 80
Research and Development................................................ 81
Manufacturing........................................................... 81
Competition............................................................. 82
Patents, Trademarks, and Licenses....................................... 82
Employees............................................................... 83
Properties.............................................................. 83
Capital Stock........................................................... 83
Environmental Matters................................................... 83
Legal Proceedings....................................................... 83
AMENDMENT TO THE CERTIFICATE OF INCORPORATION............................. 84
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 86
Principal Stockholders.................................................. 86
Stock Beneficially Owned by Directors and Officers...................... 87
NOMINEES FOR ELECTION AS DIRECTORS OF HEXCEL.............................. 88
MEETINGS AND STANDING COMMITTEES OF THE BOARD OF DIRECTORS................ 89
DIRECTORS AND EXECUTIVE OFFICERS OF HEXCEL................................ 90
EXECUTIVE COMPENSATION.................................................... 93
Summary Compensation Table.............................................. 93
Options................................................................. 94
Deferred Compensation................................................... 95
Employment and Other Agreements......................................... 95
Compensation Committee Report on Executive Compensation................. 97
Compensation Committee Interlocks and Insider Participation............. 99
Compensation of Directors............................................... 99
Compensation of Senior Executives Following the Acquisition............. 99
Performance Graph....................................................... 101
</TABLE>
3
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
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THE INCENTIVE STOCK PLAN.................................................. 102
General................................................................. 102
Description of the Principal Features of the Plan....................... 102
Certain Federal Income Tax Consequences................................. 103
Plan Benefits........................................................... 105
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 105
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934...... 106
RATIFICATION OF APPOINTMENT OF HEXCEL'S INDEPENDENT AUDITORS.............. 106
OTHER MATTERS............................................................. 106
STOCKHOLDER PROPOSALS..................................................... 106
INDEX TO FINANCIAL STATEMENTS............................................. F-1
ANNEX A -- OPINION OF BEAR, STEARNS & CO. INC............................. A-1
ANNEX B -- STRATEGIC ALLIANCE AGREEMENT, INCLUDING SELECTED EXHIBITS AND
AMENDMENTS............................................................... B-1
ANNEX C -- FORM OF GOVERNANCE AGREEMENT................................... C-1
ANNEX D -- FORM OF AMENDED AND RESTATED INCENTIVE STOCK PLAN.............. D-1
</TABLE>
4
<PAGE>
AVAILABLE INFORMATION
Hexcel is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports and other information may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10007 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of all or any part of such materials also may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, reports,
proxy statements and other information concerning Hexcel may be inspected at the
offices of the New York Stock Exchange ("NYSE"), 20 Broad Street, New York, New
York 10005 and at the offices of the Pacific Stock Exchange ("PSE"), 115 Sansome
Street, San Francisco, California 94104.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission by Hexcel
(Commission File No. 1-8472) pursuant to the Exchange Act, are incorporated by
reference in this Proxy Statement:
(1) Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
(2) Quarterly Reports on Form 10-Q for the fiscal quarters ended April 2,
1995, July 2, 1995 and October 1, 1995.
(3) Current Reports on Form 8-K dated January 12, 1995, January 23, 1995,
February 9, 1995, July 14, 1995 and October 13, 1995.
(4) All documents subsequently filed by Hexcel pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the Annual Meeting or any
adjournment or postponement thereof.
Any statement incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Proxy Statement to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this Proxy
Statement.
THIS PROXY STATEMENT INCORPORATES BY REFERENCE DOCUMENTS RELATING TO HEXCEL
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (NOT
INCLUDING EXHIBITS TO SUCH DOCUMENTS OTHER THAN EXHIBITS SPECIFICALLY
INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER OF HEXCEL COMMON TO WHOM THIS PROXY STATEMENT IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST. REQUESTS FOR SUCH DOCUMENTS SHOULD BE
DIRECTED TO RODNEY P. JENKS, JR., VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY,
HEXCEL CORPORATION, 5794 WEST LAS POSITAS BOULEVARD, PLEASANTON, CALIFORNIA
94588, TELEPHONE NUMBER (510) 847-9500.
5
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT, THE ANNEXES HERETO AND THE MATERIALS INCORPORATED BY REFERENCE
HEREIN. UNLESS OTHERWISE DEFINED HEREIN, CAPITALIZED TERMS USED IN THIS SUMMARY
HAVE THE RESPECTIVE MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS PROXY STATEMENT.
UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES TO HEXCEL AND CIBA SHALL
INCLUDE THEIR RESPECTIVE SUBSIDIARIES, REFERENCES TO CIBA SHALL INCLUDE THE CIBA
COMPOSITES BUSINESS AND REFERENCES TO MANAGEMENT SHALL BE REFERENCES TO THE
MANAGEMENT OF HEXCEL. STOCKHOLDERS ARE URGED TO READ THIS PROXY STATEMENT AND
THE ANNEXES HERETO IN THEIR ENTIRETY.
GENERAL
Hexcel has entered into agreements with Ciba and CGC which provide for
Hexcel to acquire the Ciba Composites Business in exchange for (i) the Hexcel
Shares, (ii) the Cash Price and (iii) the Senior Subordinated Notes.
HEXCEL
Hexcel is an international developer and manufacturer of honeycomb, advanced
composites and reinforcement fabrics. Hexcel's products are used in commercial
aerospace, space and defense, recreation, general industrial and other markets.
Hexcel was incorporated under the laws of the State of California in 1948 and,
in 1983, was re-incorporated in the State of Delaware. Its principal executive
offices are located at 5794 West Las Positas Boulevard, Pleasanton, California
94588. The telephone number at such address is (510) 847-9500. On December 6,
1993, Hexcel filed a voluntary petition for relief under Chapter 11 of the
federal Bankruptcy Code and operated thereafter as a debtor in possession. On
January 10, 1995, the First Amended Plan of Reorganization proposed by the
debtor in possession and the Official Committee of Equity Security Holders,
dated as of November 7, 1994 (the "Plan of Reorganization"), was confirmed by
the United States Bankruptcy Court for the Northern District of California (the
"Bankruptcy Court"). The Plan of Reorganization designated 10 classes of claims
and two classes of equity interests, taking into account the differing natures
and priorities of such claims and interests under the Bankruptcy Code, and set
forth the treatment of each such class of claims and equity interests. Following
the satisfaction of the conditions contained in the Plan of Reorganization, on
February 9, 1995 (the "Effective Date"), the Plan of Reorganization became
effective in accordance with the terms of the Bankruptcy Court's January 10,
1995 order. From and after the Effective Date, Hexcel has operated its business
and used, acquired and disposed of its property free of any restrictions of the
federal Bankruptcy Code. Further, as of the Effective Date, all property of the
estate in bankruptcy was revested in Hexcel free and clear of all claims and
interests of holders of claims and equity interests, except as provided in the
Plan of Reorganization.
THE CIBA COMPOSITES BUSINESS
The Ciba Composites Business is an operating division of Ciba that consists
of Ciba's global composites, structures and interiors, fabrics, laminates,
prepregs, adhesive films, honeycomb core, sandwich panels and fabricated
components businesses. The Ciba Composites Business supplies lightweight,
high-strength materials and structures for use in the aircraft manufacturing and
airplane industries, sports and leisure applications, wind energy and railway,
shipping and other surface transportation industries. The principal executive
offices of the Ciba Composites Business are located at 5115 East La Palma
Avenue, Anaheim, California 92807. The telephone number at such address is (714)
779-9000.
ADDITIONAL INFORMATION
For additional information regarding the business of Hexcel and the Ciba
Composites Business, see "AVAILABLE INFORMATION," "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE," "BUSINESS INFORMATION CONCERNING HEXCEL" and
"BUSINESS INFORMATION CONCERNING THE CIBA COMPOSITES BUSINESS."
6
<PAGE>
THE ACQUISITION
EFFECTS OF THE ACQUISITION
Hexcel will, upon the terms and subject to the conditions of the Strategic
Alliance Agreement, acquire the Ciba Composites Business. In exchange, Hexcel
will pay or issue to Ciba or a subsidiary thereof (i) the Hexcel Shares, (ii)
the Cash Price and (iii) the Senior Subordinated Notes. Upon consummation of the
Acquisition and after giving effect to the issuance of the Hexcel Shares, Ciba
will own 49.9% of the issued and outstanding shares of Hexcel Common. As more
fully described under "THE ACQUISITION -- The Strategic Alliance Agreement," the
Strategic Alliance Agreement also contemplates certain post-closing transactions
that may result in the payment and/or receipt of additional amounts by Hexcel.
CONDITIONS TO THE ACQUISITION
The Strategic Alliance Agreement provides that the obligations of the
parties to consummate the Acquisition are subject to certain conditions
including, among others, the receipt of certain regulatory approvals, approval
by the requisite vote of Hexcel's stockholders of the issuance of the Hexcel
Shares and the Common Stock Amendment, the listing of the Hexcel Shares on the
NYSE, the sale by Hexcel of its United States resins business (which was
completed on October 30, 1995), the absence of any material adverse change in
the business, assets or financial condition of the Ciba Composites Business or
Hexcel, as the case may be, and Hexcel's obtaining adequate financing on
commercially reasonable terms to pay the Cash Price, to provide for the
operation of the combined business after the Closing and for certain other
specified purposes. See "THE ACQUISITION -- The Strategic Alliance Agreement --
Conditions."
THE GOVERNANCE AGREEMENT
Pursuant to the Strategic Alliance Agreement, Hexcel and Ciba will enter
into a governance agreement (the "Governance Agreement") at the Closing. The
Governance Agreement will contain certain standstill and governance provisions
designed to restrict Ciba's ability to control Hexcel and to protect Hexcel's
public stockholders. Pursuant to such provisions, upon consummation of the
Acquisition, the number of directors on Hexcel's Board of Directors will be
increased to 10, initially including four directors designated by Ciba (the
"Ciba Directors"), John J. Lee (Hexcel's current Chief Executive Officer, who
will also become Chairman of the Board), Juergen Habermeier (the current
President of the Ciba Composites Business and a current Vice President of CGC,
who will resign from such positions and become President and Chief Operating
Officer of Hexcel) and four additional directors who are currently directors of
Hexcel and are independent of Ciba (such directors, together with any other
directors who are also independent of Ciba, being "Independent Directors").
Accordingly, for purposes of the Governance Agreement, Mr. Lee will be deemed an
Independent Director, and Dr. Habermeier, based on his current relationship with
Ciba and his employment by Hexcel following the Acquisition, will be deemed to
be neither an Independent Director nor a Ciba Director. The Governance Agreement
also (i) requires the approval of at least one Independent Director for the
taking of any action by the Board of Directors, (ii) imposes certain limitations
on Ciba's ability to acquire or dispose of additional shares of Hexcel Common
and any other securities of Hexcel or any subsidiary of Hexcel entitled to vote
generally in the election of directors of Hexcel or such subsidiary of Hexcel
(collectively, "Hexcel Voting Securities") and (iii) provides certain
protections to Hexcel's public stockholders in connection with any future
acquisition of Hexcel. In addition, the Governance Agreement provides that (i)
so long as Ciba beneficially owns Hexcel Voting Securities representing at least
40% of the total voting power of Hexcel, the approval of at least one Ciba
Director is required for the Board of Directors to take any action and (ii) so
long as Ciba beneficially owns Hexcel Voting Securities representing at least
33% of the total voting power of Hexcel, the approval of a majority of the Ciba
Directors is required for the taking of certain significant actions, including
certain significant (a) mergers, consolidations or other business combinations
involving Hexcel, (b) sales, transfers, leases or other dispositions of assets,
businesses or operations of Hexcel, (c) issuances of equity securities or
securities convertible into or exchangeable for equity securities (other than
pursuant to customary employee or director stock option or incentive
compensation or similar plans and other
7
<PAGE>
than transactions solely among Hexcel and its subsidiaries) and (d) capital
expenditures and capital expenditure programs. The Governance Agreement also
provides Ciba with certain contractual preemptive rights in connection with
certain issuances of Hexcel Voting Securities. See "THE ACQUISITION -- The
Governance Agreement." In making its determination to approve the Acquisition
and recommend that stockholders approve the issuance of the Hexcel Shares and
the Common Stock Amendment, the Board of Directors considered the degree of
control that Ciba would have over the combined company in light of its 49.9%
voting interest, as limited by the numerous provisions of the Governance
Agreement restricting Ciba's ability to exercise such control and providing
significant protections to Hexcel's public stockholders. See "THE ACQUISITION --
Recommendations of the Board of Directors; Hexcel's Reasons for the
Acquisition."
POTENTIAL BENEFITS AND SYNERGIES EXPECTED TO RESULT FROM THE ACQUISITION
- Hexcel's historic strength in North America and Ciba's historic strength
in Europe would give the combined company geographic diversity and a more
geographically balanced customer base, with an equally strong presence in
North America and Europe. Hexcel would, therefore, be better positioned to
participate in the aircraft industry and non-aerospace markets in both
geographic regions.
- As a result of the Acquisition, the greater financial and operational
capabilities of the combined company in Asia would enhance Hexcel's
ability to build a presence in the rapidly growing Asian aerospace market.
- The Ciba Composites Business' Heath Tecna business unit, which fabricates
aircraft components, would provide Hexcel with the opportunity to
participate in the trend of airframe manufacturers to outsource component
fabrication, creating new business opportunities while securing a
continuing demand for materials manufactured by the combined company and
used in the fabrication of such components.
- The Acquisition would present the potential for capacity elimination. In
this regard, both Hexcel and Ciba invested in capacity expansion during
the 1980s boom in the military and commercial aerospace markets. With the
decline in military expenditures following the end of the Cold War and the
downturn in commercial aerospace demand due to a decline in airline
profitability and constraints on market growth, both companies have been
left with excess manufacturing capacity. Given the similarity of the two
businesses and the fact that certain of Hexcel's facilities are located in
the same geographic areas as facilities which are to be acquired from
Ciba, the combined business would be able to eliminate excess capacity and
overhead that could not be eliminated by either company on a stand-alone
basis, thereby obtaining better utilization of plants and improved
profitability.
- The Acquisition would provide Hexcel access to the research and
development capabilities of the Ciba Composites Business, some of which
are currently not possessed by Hexcel. This would assist Hexcel in
developing new markets and applications for its products.
- The Acquisition may enhance the technological capabilities of the combined
company, in that both Hexcel and the Ciba Composites Business have
developed product and process technologies that can enhance each other's
activities, potentially reducing product cost and offering new
applications to existing customers.
- The significant increase in the size and scope of Hexcel's business would
provide certain benefits, such as increased purchasing power with
suppliers and a more important supply position with customers (through the
ability to offer new products and product line extensions).
- The benefits of a strong relationship with Ciba, including the opportunity
for Hexcel to obtain more attractive financing and insurance terms than
would be available to Hexcel absent Ciba's significant stake in Hexcel.
8
<PAGE>
- The combined management, manufacturing, research and development,
marketing and other capabilities of Hexcel and the Ciba Composites
Business, which would equip Hexcel to better serve the needs of its
customers as those customers face changes in their own markets and
products.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
Your Board of Directors believes that the Acquisition is fair to and in the
best interests of Hexcel and its stockholders. At a September 29, 1995 meeting,
the Board of Directors unanimously (with one director absent) approved the
Acquisition and the Board of Directors unanimously recommends that stockholders
of Hexcel vote for the approval of the issuance of the Hexcel Shares and the
Common Stock Amendment, each of which is a condition to the consummation of the
Acquisition. Your Board of Directors considered many factors, including the
opinion of Hexcel's financial advisor, Bear, Stearns & Co. Inc. ("Bear
Stearns"), in reaching its conclusion to approve the Acquisition and to
recommend that stockholders vote for approval of the issuance of the Hexcel
Shares and the Common Stock Amendment. See "THE ACQUISITION -- Recommendations
of the Board of Directors; Hexcel's Reasons for the Acquisition."
OPINION OF HEXCEL'S FINANCIAL ADVISOR
Bear Stearns, Hexcel's financial advisor in connection with the Acquisition,
has rendered its written opinions dated September 29, 1995 and the date of this
Proxy Statement, each to the effect that, as of the dates of such opinions and
subject to certain matters set forth therein, the Acquisition is fair, from a
financial point of view, to the stockholders of Hexcel. The full text of Bear
Stearns' opinion dated the date of this Proxy Statement is attached as Annex A
to this Proxy Statement. Stockholders are urged to read Bear Stearns' opinion in
its entirety. See "THE ACQUISITION -- Opinion of Hexcel's Financial Advisor."
ABSENCE OF APPRAISAL RIGHTS
The provisions of the General Corporation Law of the State of Delaware (the
"GCL") regarding appraisal rights are not applicable in connection with the
Acquisition.
CERTAIN REGULATORY MATTERS
Certain U.S. federal and foreign regulatory requirements must be complied
with before the Acquisition is consummated in order to permit Hexcel to conduct
the Ciba Composites Business as currently conducted by Ciba and to permit Ciba
to own 49.9% of the Hexcel Common. Accordingly, Hexcel and Ciba are currently
seeking approval to retain certain security clearances and continue to conduct
certain defense related businesses from the United States Department of Defense
and the Departement de Securite in France. Hexcel and Ciba are also seeking
antitrust approvals in certain European countries. The waiting period with
respect to the Acquisition and the issuance of the Hexcel Shares under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), has expired. In addition, requisite approvals have been received from the
applicable antitrust authorities in Belgium and Italy, and Hexcel has received a
favorable determination from the Committee on Foreign Investment in the United
States ("CFIUS") regarding certain United States national security related
matters. See "THE ACQUISITION -- Certain Regulatory Matters" and "THE
ACQUISITION -- The Strategic Alliance Agreement -- Conditions."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION
Neither Hexcel's stockholders nor Hexcel will recognize any gain or loss
from the Acquisition for United States federal income tax purposes. Hexcel and
its subsidiaries will have an aggregate cost basis in the acquired assets and
the stock of the acquired subsidiaries that together comprise the Ciba
Composites Business equal to the aggregate fair market value of the
consideration paid therefor.
ACCOUNTING TREATMENT
The Acquisition will be accounted for by the purchase method in accordance
with Accounting Principles Board Opinion No. 16 -- "Business Combinations" ("APB
Opinion No. 16"). The consideration, including the Cash Price, the fair market
value of the Senior Subordinated Notes and the fair
9
<PAGE>
market value of the Hexcel Shares, plus any transaction costs to be capitalized,
will be compared to the current fair value of the identifiable net assets
acquired, and the difference will be allocated to goodwill and amortized on a
straight-line basis over such periods as are permitted by United States
generally accepted accounting principles ("U.S. GAAP" or "GAAP"). See "UNAUDITED
PRO FORMA FINANCIAL INFORMATION."
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
In considering the recommendations of the Board of Directors, stockholders
should be aware that certain members of the Board of Directors have interests in
the Acquisition that are in addition to the interests of Hexcel's stockholders
generally. See "THE ACQUISITION -- Interests of Certain Persons in the
Acquisition."
If the Incentive Stock Plan is approved by Hexcel's stockholders, each
director will receive a nonqualified stock option to purchase 40,000 shares of
Hexcel Common with an exercise price of $4.75 per underlying share (the fair
market value of Hexcel Common on April 4, 1995, based on the closing price per
share of Hexcel Common on the NYSE Composite Tape on such date). Consummation of
the Acquisition will constitute a "change of control" for purposes of such
options, thereby triggering the immediate vesting and exercisability of all such
options. See "THE INCENTIVE STOCK PLAN." As of January 18, 1996, the closing
price per share of Hexcel Common on the NYSE Composite Tape was $11.
In addition, Mr. John J. Lee, Hexcel's current Chief Executive Officer, will
serve as Chairman of the Board and Chief Executive Officer of Hexcel following
the Closing pursuant to a yet to be negotiated employment agreement. It is
expected that such agreement will provide for Mr. Lee to receive compensation
and benefits including salary, bonus and long-term incentive compensation such
as stock options. Such employment agreement is also expected to provide for the
preservation of the economic benefits to Mr. Lee of certain compensatory
arrangements provided for in the Plan of Reorganization and in Mr. Lee's Interim
Employment Agreement. See "EXECUTIVE COMPENSATION -- Compensation of Senior
Executives Following the Acquisition."
Pursuant to the terms of the Strategic Alliance Agreement, the certificate
of incorporation and bylaws of Hexcel will, for a period of six years following
the Closing, continue to contain provisions with respect to indemnification of
Hexcel's directors and officers contained therein as of the date of the
Strategic Alliance Agreement. In addition, Hexcel will be required, for a period
of six years after the Closing, to provide liability insurance for certain
directors and officers for acts or omissions occurring at or prior to the
Closing. See "THE ACQUISITION -- The Strategic Alliance Agreement --
Indemnification."
THE ANNUAL MEETING
TIME, DATE AND PLACE
The Annual Meeting will be held on February 21, 1996 at 11:00 a.m., local
time, at the offices of Chemical Bank, 11th Floor (Room A), 270 Park Avenue, New
York, New York.
RECORD DATE; SHARES ENTITLED TO VOTE
Hexcel stockholders of record at the close of business on December 27, 1995
(the "Record Date") are entitled to notice of and to vote at the Annual Meeting
and any adjournment or postponement thereof.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
At the Annual Meeting, stockholders will consider and vote upon (i) the
issuance of the Hexcel Shares, (ii) the Common Stock Amendment, (iii) the
election of nine directors to Hexcel's Board of Directors, (iv) the approval of
Hexcel's Incentive Stock Plan, (v) ratification of the appointment of Deloitte &
Touche LLP as Hexcel's independent auditors for the fiscal year ended December
31, 1995 and (vi) such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof. See "THE MEETING."
10
<PAGE>
VOTING RIGHTS
On the Record Date, there were 18,091,354 shares of Hexcel Common issued and
outstanding. Each share of Hexcel Common is entitled to one vote on all matters
presented at the Annual Meeting. On the Record Date, there were 2,294 holders of
record of Hexcel Common.
Approval of each of the issuance of the Hexcel Shares and the Incentive
Stock Plan requires the affirmative vote of a majority of the votes cast on each
such proposal, provided that the total number of votes cast on each such
proposal represents more than 50% of the shares of Hexcel Common entitled to
vote thereon. The affirmative vote of a majority of the outstanding shares of
Hexcel Common is required for approval of the Common Stock Amendment. The
election of directors requires a plurality of the votes cast at the Annual
Meeting. Ratification of the appointment of Deloitte & Touche LLP as Hexcel's
independent auditors requires the affirmative vote of a majority of the votes
present in person or represented by proxy at the Annual Meeting.
11
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
HEXCEL -- HISTORICAL
The summary historical financial information of Hexcel set forth below has
been derived from the audited consolidated financial statements of Hexcel for
the fiscal years ended December 31, 1990, 1991, 1992, 1993 and 1994 and from the
unaudited consolidated financial statements of Hexcel for the nine fiscal months
ended October 2, 1994 and October 1, 1995, respectively. The summary historical
financial information for the nine fiscal months ended October 2, 1994 and
October 1, 1995 is derived from unaudited financial statements which, in the
opinion of Hexcel's management, include all adjustments necessary for the fair
presentation of such information. Results for interim periods are not
necessarily indicative of results for the full year. The following summary
information is qualified in its entirety by, and should be read in conjunction
with, Hexcel's consolidated financial statements and the related notes thereto
for the applicable periods.
<TABLE>
<CAPTION>
NINE FISCAL MONTHS ENDED
------------------------ FISCAL YEAR ENDED DECEMBER 31,
OCTOBER 1, OCTOBER 2, -----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
----------- ----------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY STATEMENT OF OPERATIONS DATA:
Net sales................................ $ 257,544 $ 237,080 $ 313,795 $ 310,635 $ 352,987 $ 355,601 $ 350,493
Cost of sales............................ (208,806) (199,631) (265,367) (263,090) (285,088) (284,875) (284,346)
----------- ----------- --------- --------- --------- --------- ---------
Gross margin............................. 48,738 37,449 48,428 47,545 67,899 70,726 66,147
Marketing, general & administrative
expenses................................ (35,630) (34,441) (45,785) (52,510) (62,053) (54,797) (55,444)
Restructuring expenses................... -- -- -- (46,600) (23,000) -- --
Other income (expenses).................. 600 (8,146) 4,861 (12,780) 2,992 -- 2,317
----------- ----------- --------- --------- --------- --------- ---------
Operating income (loss).................. 13,708 (5,138) 7,504 (64,345) (14,162) 15,929 13,020
Interest expenses........................ (6,702) (7,086) (11,846) (8,862) (8,196) (10,870) (9,779)
Bankruptcy reorganization expenses....... (3,361) (11,945) (20,152) (641) -- -- --
Benefit (provision) for income taxes..... (2,503) (1,369) (3,586) (6,024) 6,375 54 (1,321)
----------- ----------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations.............................. $ 1,142 $ (25,538) $ (28,080) $ (79,872) $ (15,983) $ 5,113 $ 1,920
----------- ----------- --------- --------- --------- --------- ---------
----------- ----------- --------- --------- --------- --------- ---------
Income (loss) per share from continuing
operations.............................. $ 0.08 $ (3.50) $ (3.84) $ (10.89) $ (2.20) $ 0.72 $ 0.27
----------- ----------- --------- --------- --------- --------- ---------
----------- ----------- --------- --------- --------- --------- ---------
Cash dividends per share................. -- -- -- -- $ 0.44 $ 0.44 $ 0.44
----------- ----------- --------- --------- --------- --------- ---------
----------- ----------- --------- --------- --------- --------- ---------
Weighted average shares outstanding...... 14,958 7,310 7,310 7,330 7,272 7,146 7,010
----------- ----------- --------- --------- --------- --------- ---------
----------- ----------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
OCTOBER 1, -----------------------------------------------------
1995 1994 1993 1992 1991 1990
----------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Current assets...................................... $ 126,071 $ 148,352 $ 134,710 $ 160,001 $ 213,699 $ 209,519
Non-current assets.................................. 98,988 95,105 128,532 150,659 146,275 142,745
----------- --------- --------- --------- --------- ---------
Total assets........................................ $ 225,059 $ 243,457 $ 263,242 $ 310,660 $ 359,974 $ 352,264
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
Current liabilities................................. $ 110,174 $ 171,307 $ 72,965 $ 79,305 $ 78,545 $ 80,632
Long-term liabilities............................... 68,226 78,035 169,524 125,206 137,106 128,454
Shareholders' equity (deficit)...................... 46,659 (5,885) 20,753 106,149 144,323 143,178
----------- --------- --------- --------- --------- ---------
Total liabilities and shareholders' equity
(deficit).......................................... $ 225,059 $ 243,457 $ 263,242 $ 310,660 $ 359,974 $ 352,264
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
</TABLE>
12
<PAGE>
THE CIBA COMPOSITES BUSINESS -- HISTORICAL
The summary historical financial information of the Ciba Composites Business
set forth below has been derived from the audited combined financial statements
of the Ciba Composites Business for each of the two years ended December 31,
1993 and 1994, and from the unaudited combined financial statements of the Ciba
Composites Business for the nine months ended September 30, 1994 and 1995,
respectively. The summary historical financial information for the nine months
ended September 30, 1994 and 1995 is derived from unaudited financial statements
which, in the opinion of the management of the Ciba Composites Business, include
all adjustments necessary for the fair presentation of such information. Results
for interim periods are not necessarily indicative of results for the full year.
The following summary information is qualified in its entirety by, and should be
read in conjunction with, the Ciba Composites Business' combined financial
statements and the related notes thereto for the applicable periods.
Historical financial information of the Ciba Composites Business is not
available for periods prior to 1993 due to significant variances in the
accounting records maintained by Ciba with respect to the Ciba Composites
Business from the International Accounting Standards which were adopted by Ciba
in 1993. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE CIBA COMPOSITES BUSINESS."
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED DECEMBER
SEPTEMBER 30, 31,
-------------------- --------------------
1995 1994 1994 1993
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
SUMMARY STATEMENT OF OPERATIONS DATA:
Net sales.......................................................... $ 252,310 $ 209,927 $ 292,611 $ 271,258
Cost of sales...................................................... (207,767) (179,570) (249,717) (244,247)
--------- --------- --------- ---------
Gross profit....................................................... 44,543 30,357 42,894 27,011
Selling, general and administrative and research and development
expenses.......................................................... (41,365) (38,333) (53,417) (53,713)
Amortization and writedowns of purchased intangibles............... (3,090) (3,842) (10,219) (5,734)
Restructuring expenses............................................. (2,300) -- (1,600) (7,722)
Other income (expenses)............................................ (936) (364) 2,979 (241)
--------- --------- --------- ---------
Operating loss..................................................... (3,148) (12,182) (19,363) (40,399)
Interest expenses.................................................. (740) (961) (1,193) (2,236)
Minority interest.................................................. (1,220) (808) (891) (245)
Benefit (provision) for income taxes............................... (3,898) (2,134) (2,843) 962
--------- --------- --------- ---------
Loss from continuing operations.................................... $ (9,006) $ (16,085) $ (24,290) $ (41,918)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
SEPTEMBER 30, --------------------
1995 1994 1993
------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Current assets............................................................... $ 148,358 $ 137,013 $ 121,252
Non-current assets........................................................... 206,516 215,407 241,032
------------- --------- ---------
Total assets................................................................. $ 354,874 $ 352,420 $ 362,284
------------- --------- ---------
------------- --------- ---------
Current liabilities.......................................................... $ 67,941 $ 63,166 $ 63,011
Long-term liabilities........................................................ 29,704 58,070 54,506
Minority interest............................................................ 7,585 5,048 3,676
Owner's equity............................................................... 249,644 226,136 241,091
------------- --------- ---------
Total liabilities and owner's equity......................................... $ 354,874 $ 352,420 $ 362,284
------------- --------- ---------
------------- --------- ---------
</TABLE>
The Ciba Composites Business was a combination of wholly owned divisions and
subsidiaries of Ciba during all of the periods for which summary historical
financial information is presented. Consequently, per share data is not
applicable and has not been presented.
13
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION AND COMPARATIVE UNAUDITED PER SHARE
DATA
The summary unaudited pro forma financial information and comparative
unaudited per share data set forth below has been derived from, and should be
read in conjunction with, the historical financial information of Hexcel and the
Ciba Composites Business and the unaudited pro forma financial information
contained elsewhere or incorporated by reference in this Proxy Statement. The
summary unaudited pro forma financial information presents (a) combined
operating statement data of Hexcel and the Ciba Composites Business, giving
effect to the Acquisition as if it had occurred on January 1, 1994, and (b)
combined balance sheet data of Hexcel and the Ciba Composites Business, giving
effect to the Acquisition as if it had occurred on October 1, 1995. The pro
forma adjustments, which are described in the notes to the unaudited pro forma
financial information included elsewhere in this Proxy Statement, account for
the Acquisition as a purchase of the Ciba Composites Business by Hexcel. The
Ciba Composites Business was a combination of wholly owned divisions and
subsidiaries of Ciba during all of the periods for which comparative unaudited
per share data is presented. Consequently, per share data is not applicable for
the Ciba Composites Business and has not been presented below.
The summary unaudited pro forma financial information and the comparative
unaudited per share data is not necessarily indicative of the financial position
or operating results that would have occurred had the Acquisition been
consummated on the dates indicated, nor is it necessarily indicative of future
operating results or financial position. Management expects that significant
costs will be incurred in connection with combining the operations of Hexcel and
the Ciba Composites Business, including costs of eliminating excess
manufacturing capacity and redundant administrative and research and development
activities, as well as the various costs of consolidating the information
systems and other business activities of the two companies. Some of the costs
associated with combining the two businesses, including certain costs to
eliminate redundant administrative and research and development activities, will
be incurred during the first year following the Closing. The anticipated
resulting benefits are expected to be realized shortly thereafter. However,
other costs, including many of the costs to eliminate excess manufacturing
capacity, are expected to be incurred over a period of as much as three years
following the Closing. This is attributable, in part, to aerospace industry
requirements to "qualify" specific equipment and manufacturing facilities for
the manufacture of certain products. Based on Hexcel's experience with previous
plant consolidations, these qualification requirements necessitate an approach
to the consolidation of manufacturing facilities that will require two to three
years to complete. Accordingly, the costs and anticipated future benefits of
eliminating excess manufacturing capacity are long-term in nature.
Although management has completed a preliminary plan for combining the two
businesses, the nature, timing and extent of certain long-term consolidation
activities is dependent on factors which are not within the control of
management and which are not reliably estimable at the present time. These
factors include, among others: (i) the requirement that the Board of Directors
and management of the combined company review and approve consolidation
activities, which cannot occur until after the Acquisition is consummated; (ii)
future conditions in the aerospace and defense markets, including the number of
commercial aircraft built each year (the "Build Rate") and the level of
component fabrication outsourcing by airframe manufacturers, as well as the
extent of growth in Asian and other aerospace markets; (iii) potential
regulatory requirements and constraints, particularly in Europe; (iv) the
combined company's ability to develop and market commercially attractive product
enhancements and applications; and (v) the production capabilities and marketing
strategies of the combined company's competitors, as well as the possible
consolidation or expansion of competing businesses. Management currently
estimates that the cash costs of combining the two businesses, net of expected
proceeds from asset sales, could range from $25 million to $45 million.
Management notes, however, that such costs could vary significantly from current
estimates due to the uncertainty associated with the factors discussed above, as
well as other factors, including that certain activities such as the
consolidation of manufacturing facilities will require two or three years to
complete, thereby resulting in the potential for significant modifications in
the nature, timing and extent of certain long-term consolidation efforts.
14
<PAGE>
The cash expenditures necessary to combine the two businesses are expected
to occur over a period of as much as three years following the Closing. The
amount and timing of these expenditures will be determined, in part, by the
factors described above and management's resulting evaluation of the probable
economic and competitive benefits to be gained from specific consolidation
activities. Although management anticipates that the benefits to be realized
from planned consolidation activities should be appropriate in relation to the
level of associated costs, there can be no assurance that any such benefits will
actually be realized.
In light of the foregoing, no effect has been given to the costs of
combining the two businesses, or to the operating, financial and other benefits
that may be realized from the combination, in the accompanying pro forma
financial information.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NINE FISCAL FISCAL YEAR
MONTHS ENDED ENDED
OCTOBER 1, DECEMBER 31,
1995 1994
-------------- ------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
SUMMARY STATEMENT OF OPERATIONS DATA:
Net sales.......................................................................... $ 507,256 $ 602,734
Operating income (loss)............................................................ $ 14,529 $ (470)
Loss from continuing operations.................................................... $ (5,017) $ (43,625)
Loss per share from continuing operations.......................................... $ (0.15) $ (1.72)
Weighted average shares outstanding................................................ 32,980 25,332
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER
1, 1995
--------------
(IN THOUSANDS)
<S> <C>
SUMMARY BALANCE SHEET DATA:
Current assets..................................................................... $ 258,674
Non-current assets................................................................. 256,418
--------------
Total assets....................................................................... $ 515,092
--------------
--------------
Current liabilities................................................................ $ 124,747
Long-term liabilities.............................................................. 203,319
Shareholders' equity............................................................... 187,026
--------------
--------------
Total liabilities and shareholders' equity......................................... $ 515,092
--------------
--------------
</TABLE>
COMPARATIVE UNAUDITED PER SHARE DATA
<TABLE>
<CAPTION>
NINE FISCAL MONTHS ENDED FISCAL YEAR ENDED
OCTOBER 1, 1995 DECEMBER 31, 1994
------------------------ ------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
HEXCEL COMBINED HEXCEL COMBINED
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Income (loss) per share from continuing operations................ $ 0.08 $ (0.15) $ (3.84) $ (1.72)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Cash dividends per share.......................................... -- -- -- --
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average shares outstanding............................... 14,958 32,980 7,310 25,332
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 1, 1995
------------------------
HISTORICAL PRO FORMA
HEXCEL COMBINED
----------- -----------
<S> <C> <C>
Book value per share.............................................. $ 2.58 $ 5.18
----------- -----------
----------- -----------
Shares outstanding................................................ 18,094 36,116
----------- -----------
----------- -----------
</TABLE>
15
<PAGE>
Between February 9, 1995 and April 6, 1995, Hexcel issued an additional
10,800 shares of Hexcel Common in connection with a subscription rights offering
and standby purchase agreement pursuant to the Plan of Reorganization. As a
result of this increase in the number of outstanding shares, the weighted
average shares used in computing Hexcel's historical net income (loss) per share
increased from 7,310 for the fiscal year ended December 31, 1994, to 14,958 for
the nine fiscal months ended October 1, 1995. Accordingly, the weighted average
number of shares used in computing pro forma net loss per share increased from
25,332 for the fiscal year ended December 31, 1994, to 32,980 for the nine
fiscal months ended October 1, 1995.
MARKET PRICE DATA AND DIVIDENDS
Hexcel Common is listed and traded on the NYSE and PSE under the symbol
"HXL." The following table sets forth the high and low sales prices of Hexcel
Common on the NYSE Composite Tape for the quarters indicated. No dividends on
Hexcel Common were declared or paid during such periods. From December 6, 1993
to February 9, 1995, Hexcel operated as a debtor in possession under the
protection of Chapter 11 of the federal Bankruptcy Code.
<TABLE>
<CAPTION>
HEXCEL COMMON
--------------------
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal year ended December 31, 1993:
First Quarter....................................................................... $ 9 3/4 $ 7 3/4
Second Quarter...................................................................... 11 1/4 9 1/4
Third Quarter....................................................................... 10 3/4 5 1/2
Fourth Quarter...................................................................... 8 1/4 2 1/8
Fiscal year ended December 31, 1994:
First Quarter....................................................................... 4 1/4 2 3/4
Second Quarter...................................................................... 4 3
Third Quarter....................................................................... 6 3
Fourth Quarter...................................................................... 5 3/4 4
Fiscal year ended December 31, 1995:
First Quarter....................................................................... 6 5/8 4 1/4
Second Quarter...................................................................... 7 1/4 4 1/2
Third Quarter....................................................................... 12 1/4 7 1/4
Fourth Quarter...................................................................... 11 1/4 8 1/4
Fiscal year ending December 31, 1996:
First Quarter (through January 18, 1996)............................................ 11 1/8 10 1/2
</TABLE>
On July 11, 1995, the last full trading day prior to the public announcement
of the execution of a non-binding letter of intent between Ciba and Hexcel
relating to the Acquisition (the "Letter of Intent"), the closing price per
share of Hexcel Common on the NYSE Composite Tape was $7 7/8.
On September 29, 1995, the last full trading day prior to the public
announcement of the execution of the Strategic Alliance Agreement, the closing
price per share of Hexcel Common on the NYSE Composite Tape was $10 5/8.
On January 18, 1996, the most recent practicable date prior to the printing
of this Proxy Statement, the closing price per share of Hexcel Common on the
NYSE Composite Tape was $11.
Hexcel last paid a quarterly dividend of 11 cents per share in the fourth
quarter of 1992. The Board of Directors stopped declaring dividends in the first
quarter of 1993, and the payment of dividends is currently prohibited by
Hexcel's existing U.S. revolving credit agreement.
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THE MEETING
GENERAL
This Proxy Statement is being furnished to holders of Hexcel Common in
connection with the solicitation of proxies by the Board of Directors for use at
the Annual Meeting to be held at the offices of Chemical Bank, 11th Floor (Room
A), 270 Park Avenue, New York, New York, on February 21, 1996 at 11:00 a.m.,
local time, and at any adjournment or postponement thereof. Each copy of this
Proxy Statement is accompanied by a form of proxy for use at the Annual Meeting.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Annual Meeting, holders of Hexcel Common will vote upon (i) the
issuance of the Hexcel Shares to Ciba; (ii) the Common Stock Amendment; (iii)
the election of nine directors to Hexcel's Board of Directors; (iv) approval of
the Incentive Stock Plan; (v) ratification of the appointment of Deloitte &
Touche LLP as Hexcel's independent auditors for the fiscal year ended December
31, 1995; and (vi) such other matters as may properly be brought before the
Annual Meeting and any adjournment or postponement thereof.
RECORD DATE; VOTING AT THE MEETING
The Board of Directors has fixed the close of business on December 27, 1995
as the Record Date. This Proxy Statement and the enclosed proxy card are being
mailed on or about January 22, 1996 to holders of record of Hexcel Common as of
the close of business on the Record Date. On the Record Date, there were
18,091,354 shares of Hexcel Common issued and outstanding held by 2,294
stockholders of record.
The presence, either in person or by proxy, of the holders of a majority of
the outstanding shares of the Hexcel Common entitled to vote at the Annual
Meeting will constitute a quorum for purposes of the Annual Meeting.
Approval of each of the issuance of the Hexcel Shares and the Incentive
Stock Plan requires the affirmative vote of a majority of the votes cast on each
such proposal, provided that the total vote cast on each such proposal
represents more than 50% of the shares of Hexcel Common entitled to vote
thereon. The affirmative vote of a majority of the outstanding shares of Hexcel
Common is required for approval of the Common Stock Amendment. The election of
directors requires a plurality of the votes cast at the Annual Meeting.
Ratification of the appointment of Deloitte & Touche LLP as Hexcel's independent
auditors requires the affirmative vote of a majority of the votes present in
person or represented by proxy at the Annual Meeting.
Under the rules of the NYSE, brokers who hold shares in "street name" have
the authority to vote on certain matters when they do not receive instructions
from beneficial owners. Brokers that do not receive such instructions are
entitled to vote on the election of directors and the ratification of the
appointment of Deloitte & Touche LLP as Hexcel's independent auditors for the
fiscal year ending December 31, 1995. Under applicable Delaware law, in
determining whether the proposal to elect directors has received the requisite
vote, abstentions and broker non-votes will be disregarded and will have no
effect on the outcome of the vote. In determining whether the proposal to ratify
the appointment of independent auditors has received the requisite vote,
abstentions and broker non-votes will be counted and have the same effect as a
vote against the proposal. With respect to the proposals to approve the issuance
of the Hexcel Shares, the Common Stock Amendment and the Incentive Stock Plan,
brokers may not vote shares held for customers without specific instructions
from such customers. In determining whether the proposals to approve the
issuance of the Hexcel Shares and the Incentive Stock Plan have been approved,
abstentions will be counted and will have the same effect as a vote against the
proposals and broker non-votes will be disregarded and will have no effect on
the outcome of the votes. In determining whether the proposal to approve the
Common Stock Amendment has received the requisite number of affirmative votes,
abstentions and broker non-votes will be counted and will have the same effect
as votes against the proposal.
17
<PAGE>
ABSENCE OF APPRAISAL RIGHTS
Provisions of the GCL with respect to appraisal rights are not applicable in
connection with the Acquisition.
PROXIES
All shares of Hexcel Common which are entitled to vote and are represented
at the Annual Meeting by properly executed proxies received prior to or at the
Annual Meeting and which have not been revoked, will be voted at the Annual
Meeting in accordance with the instructions indicated on such proxies. If no
instructions are indicated, such proxies will be voted as follows:
FOR approval of the issuance of the Hexcel Shares,
FOR approval of the Common Stock Amendment,
FOR the election of each of the nominees to Hexcel's Board of Directors,
FOR approval of the Incentive Stock Plan and
FOR ratification of the appointment of Deloitte & Touche LLP as Hexcel's
independent auditors for the fiscal year ended December 31, 1995.
If any other matters are properly presented for consideration at the Annual
Meeting, the persons named in the enclosed proxy card and acting thereunder will
have discretion to vote on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Hexcel, at or before the taking of the vote at the Annual
Meeting, a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Hexcel before the taking of the vote at the
Annual Meeting or (iii) attending the Annual Meeting and voting in person.
Notice of revocation or subsequent proxy should be sent so as to be delivered to
Hexcel Corporation, 5794 West Las Positas Boulevard, Pleasanton, California
94588, Attention: Secretary, or hand delivered to the Secretary of Hexcel, at or
before the taking of the vote at the Annual Meeting.
The costs of soliciting proxies will be paid by Hexcel. Hexcel has retained
Georgeson & Company, Inc. ("Georgeson") to aid in the solicitation of proxies at
a fee of $5,000 plus expenses. In addition to solicitation by use of the mails,
proxies may be solicited by directors, officers and employees of Hexcel and
representatives of Georgeson in person or by telephone, telegram or other means
of communication. Such directors, officers and employees of Hexcel will not be
additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation. Arrangements will also be made
with custodians, nominees and fiduciaries for the forwarding of proxy
solicitation materials to beneficial owners of shares held of record by such
custodians, nominees and fiduciaries, and Hexcel will reimburse such custodians,
nominees and fiduciaries for reasonable expenses incurred in connection
therewith.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends a vote FOR the issuance of the
Hexcel Shares, a vote FOR the Common Stock Amendment, a vote FOR the election of
each of the nominees to Hexcel's Board of Directors, a vote FOR the Incentive
Stock Plan and a vote FOR the ratification of the appointment of Deloitte &
Touche LLP as Hexcel's independent auditors for the fiscal year ended December
31, 1995. See "THE ACQUISITION," "AMENDMENT TO THE CERTIFICATE OF
INCORPORATION," "NOMINEES FOR ELECTION AS DIRECTORS OF HEXCEL," "THE INCENTIVE
STOCK PLAN" and "RATIFICATION OF APPOINTMENT OF HEXCEL'S INDEPENDENT AUDITORS."
18
<PAGE>
THE ACQUISITION
THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS OF THE ACQUISITION. THIS
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE STRATEGIC ALLIANCE
AGREEMENT, A COPY OF WHICH IS ATTACHED HERETO AS ANNEX B, THE FORM OF THE
GOVERNANCE AGREEMENT, A COPY OF WHICH IS ATTACHED HERETO AS ANNEX C, THE FORM OF
DISTRIBUTION AGREEMENT (THE "DISTRIBUTION AGREEMENT") AND THE AGREEMENT
GOVERNING UNITED STATES EMPLOYMENT MATTERS (THE "EMPLOYMENT MATTERS AGREEMENT"),
COPIES OF WHICH ARE INCLUDED IN ANNEX B AS EXHIBITS TO THE STRATEGIC ALLIANCE
AGREEMENT, AND THE OTHER INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT. STOCKHOLDERS ARE URGED TO READ SUCH AGREEMENTS AND INFORMATION IN
THEIR ENTIRETY.
GENERAL
The Acquisition is to be effected pursuant to the terms and conditions of
the Strategic Alliance Agreement, the Employment Matters Agreement, the
Governance Agreement, the Distribution Agreement, an indenture governing the
Senior Subordinated Notes (the "Indenture") and the other ancillary agreements
(collectively with the Employment Matters Agreement, the Governance Agreement,
the Distribution Agreement and the Indenture, the "Ancillary Agreements") to be
entered into pursuant to the Strategic Alliance Agreement. The Strategic
Alliance Agreement provides that Hexcel will acquire the assets and assume the
liabilities of, and acquire the stock of subsidiaries comprising a part of, the
Ciba Composites Business, other than certain excluded assets and liabilities, in
exchange for which Hexcel will pay or issue to Ciba or a subsidiary thereof (i)
the Hexcel Shares, (ii) the Cash Price and (iii) the Senior Subordinated Notes.
The Senior Subordinated Notes will be due in 2003 (callable, in whole or in
part, at the option of Hexcel at any time without penalty) and will bear
interest at the rate of 9% per annum for the first year, increasing by 0.50% per
annum thereafter. See "-- The Strategic Alliance Agreement -- Principal Amount
of the Senior Subordinated Notes."
The Acquisition is conditioned upon, among other things, approval by
Hexcel's stockholders of each of the issuance of the Hexcel Shares and the
Common Stock Amendment. The Closing will take place on the second business day
following the satisfaction or waiver of all conditions to the Acquisition set
forth in the Strategic Alliance Agreement or as otherwise agreed by the parties.
See "-- The Strategic Alliance Agreement -- Conditions."
If the Acquisition is consummated, the Board of Directors will be
reconstituted to consist of ten directors, initially including four Ciba
Directors, the Chairman of the Board and Chief Executive Officer of Hexcel, the
President and Chief Operating Officer of Hexcel and four additional Independent
Directors. The parties have agreed that John J. Lee (the current Chief Executive
Officer of Hexcel) will be appointed Chairman of the Board and Chief Executive
Officer of Hexcel and Dr. Habermeier (the current President of the Ciba
Composites Business and a current Vice President of CGC) will resign from such
positions and be appointed President and Chief Operating Officer of Hexcel upon
consummation of the Acquisition. For purposes of the Governance Agreement, Mr.
Lee will be deemed an Independent Director and Dr. Habermeier, based on his
current relationship with Ciba and his employment by Hexcel following the
Acquisition, will be deemed to be neither an Independent Director nor a Ciba
Director. In order to permit the appointment of the four Ciba Directors and Dr.
Habermeier, Messrs. Franklin S. Wimer, Joseph L. Harrosh, Robert L. Witt and
Peter D. Wolfson, current directors of Hexcel and nominees for election to the
Board of Directors, will resign from the Board of Directors and the size of the
Board of Directors will be increased by one upon consummation of the
Acquisition. Thus, the Board of Directors immediately following consummation of
the Acquisition will initially consist of (i) four Ciba Directors, including
John M.D. Cheesmond, Stanley Sherman, Joseph T. Sullivan and Hermann Vodicka,
(ii) the Chairman of the Board and Chief Executive Officer of Hexcel, John J.
Lee, (iii) the new President and Chief Operating Officer of Hexcel, Juergen
Habermeier, and (iv) four additional Independent Directors, Marshall S. Geller,
Peter A. Langerman, George S. Springer and Frederick W. Stanske, all of whom are
current directors of Hexcel and nominees for election to the Board of Directors.
Pursuant to the Governance Agreement, the
19
<PAGE>
number of Ciba Directors will decrease, and the number of Independent Directors
will correspondingly increase, if the percentage of the total voting power of
Hexcel beneficially owned by Ciba decreases below certain threshold levels. See
"-- The Governance Agreement."
BACKGROUND OF THE ACQUISITION
Beginning in the fourth quarter of 1992 and continuing through 1993, there
was a general deterioration of the global aerospace and defense markets and a
deep economic recession in Europe, which adversely affected Hexcel, depleted its
sources of cash and left it without adequate financing to fund its operations
and restructuring program. In May 1993, John J. Lee was elected as an
independent director of Hexcel, and in July 1993, he was appointed Co-Chief
Executive Officer and Chairman of the Board of Hexcel and was asked to
accomplish, if possible, a consensual reorganization of Hexcel. During the fall
of 1993, management focused its efforts on (i) obtaining alternative sources of
financing from banks and equity investors and/or (ii) pursuing a transaction
with an industry participant as a means to resolve Hexcel's liquidity crisis. In
this regard, Mr. Lee and Stephen C. Forsyth, then General Manager of Hexcel's
Resins Business and Export Marketing, made contacts with all of the major
participants in the structural materials industry, including Ciba, during the
fall of 1993. Having been unable to secure additional financing or arrange a
satisfactory transaction with an industry participant that would have resolved
Hexcel's liquidity crisis, management and the Board of Directors concluded that
a consensual reorganization was not a viable alternative to a reorganization
under the protection of the federal Bankruptcy Code. This conclusion was reached
after considering the impact of a bankruptcy reorganization on Hexcel's
customers, suppliers, employees and stockholders, and in recognition of the
disruption that bankruptcy proceedings would have on Hexcel's operations. At the
time, however, Hexcel was 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
Hexcel's then ongoing restructuring programs. Consequently, on December 6, 1993,
Hexcel filed a voluntary petition for relief under Chapter 11 of the federal
Bankruptcy Code.
The downturn in 1992 and 1993 of the global aerospace and defense markets
and the overall economic recession also adversely affected the Ciba Composites
Business and the composites industry in general. As a result, beginning in 1993
and continuing in 1994, Dr. Habermeier and other members of the senior
management of the Ciba Composites Business and Ciba internally evaluated the
needs of the Ciba Composites Business and the possibility of strategic product
line acquisitions and other strategic combinations that would strengthen the
Ciba Composites Business. As a result, in August 1994, Ciba successfully
negotiated the acquisition of substantially all of the advanced materials
business of BP Chemicals, Inc. ("BP Chemicals") in the United States.
Thereafter, in December 1994, Heini Lippuner, the Chairman of the Executive
Committee of Ciba, contacted representatives of CS First Boston Corporation ("CS
First Boston"), Ciba's financial advisor in connection with the Acquisition, to
assist Ciba in evaluating from publicly available information other potential
strategic transactions to strengthen the Ciba Composites Business. At various
times from January through March 1995, John M.D. Cheesmond of Ciba, Stanley
Sherman of CGC and Juergen Habermeier and Richard Klug of the Ciba Composites
Business met with representatives of CS First Boston to evaluate the possibility
of various strategic transactions for the Ciba Composites Business.
At the time of the Hexcel bankruptcy filing, Hexcel's business primarily
consisted of honeycomb, advanced composites, reinforcement fabrics and resins.
Following a strategic review of its products and markets which was completed in
1994, Hexcel concluded that there was little interrelationship between its
resins business and its core businesses of honeycomb, advanced composites and
reinforcement fabrics. During the spring of 1994, Mr. Forsyth and Franklin S.
Wimer (then a Hexcel consultant) visited Ciba in Basle, Switzerland to discuss
the divestiture of Hexcel's European and United States resins businesses. During
the meeting, Messrs. Forsyth and Wimer also inquired if Ciba would be interested
in a broader transaction as part of Hexcel's emergence from federal bankruptcy
protection. Ciba declined to pursue a transaction with Hexcel at that time. On
December 29, 1994, Hexcel
20
<PAGE>
sold its European resins business to Axson S.A., a French corporation. The sale
of Hexcel's U.S. resins business, which was a condition to the Closing, was
subsequently completed with an unaffiliated third party on October 30, 1995.
On February 9, 1995, Hexcel's Plan of Reorganization became effective. With
the emergence of Hexcel from federal bankruptcy protection, Ciba determined that
it was appropriate to consider a transaction with Hexcel in its analysis of
possible strategic transactions involving the Ciba Composites Business.
In April 1995, Dr. Habermeier and Mr. Lee spoke by phone regarding a
possible transaction, and Dr. Habermeier advised Mr. Lee that he was going to
propose to Ciba's Executive Committee that Ciba enter into discussions with
Hexcel concerning a possible strategic combination of Hexcel with the Ciba
Composites Business. On April 24, 1995, Ciba's Executive Committee agreed to
authorize Dr. Habermeier and the management of the Ciba Composites Business to
pursue discussions concerning the possibility and formulation of a proposal for
a strategic combination with Hexcel, although any such proposal would be subject
to further review and approval by Ciba. On April 26, 1995, Dr. Habermeier wrote
to Mr. Lee to advise him of such authorization.
In anticipation of discussions regarding, among other things, the possible
structure of a business combination and related legal issues, Hexcel and Ciba
negotiated and executed a Confidentiality Agreement, dated as of May 1, 1995
(the "Confidentiality Agreement"), relating to, among other things, the
information to be provided by each party to the other in the course of their
discussions about a possible transaction.
Thereafter, various telephone discussions, preliminary negotiations and
initial exchanges of information between representatives and advisors of Ciba
and Hexcel took place, culminating on May 5, 1995, when Messrs. Geller,
Langerman, Lee and Forsyth, representatives of Hexcel, met with Dr. Habermeier
and Messrs. Cheesmond, Sherman and Klug, representatives of Ciba and the Ciba
Composites Business, regarding the possible combination of the Ciba Composites
Business with Hexcel. At this meeting, the Ciba representatives presented Ciba's
views of the strategic alternatives for the Ciba Composites Business, the
potential for a strategic alliance with Hexcel and the possible structure of
such a transaction. Ciba's proposal included the acquisition by Hexcel of the
assets of the Ciba Composites Business in exchange for shares of Hexcel Common,
with representation of Ciba on the Board of Directors commensurate with Ciba's
percentage ownership of Hexcel Common. Ciba also expressed its view that the
aggregate consideration to be received by Ciba should be based on the relative
equity values of the two businesses. Hexcel's representatives concluded that
Ciba should make the same presentation to the Board of Directors as soon as
possible.
At a meeting of the Board of Directors held on May 8, 1995, Messrs. Geller,
Langerman and Lee recommended to the Board of Directors that it consider a
proposal to negotiate a possible combination of Hexcel with the Ciba Composites
Business. Messrs. Cheesmond and Sherman, who were invited to address the Board
of Directors at such meeting and present the proposal discussed at their May 5,
1995 meeting with Messrs. Geller, Langerman, Lee and Forsyth, then described the
Ciba Composites Business and the complementary strengths of the Ciba Composites
Business and Hexcel's business, pointing to potential growth opportunities and
synergies. Mr. Cheesmond also noted Ciba's desire promptly to pursue a strategic
transaction in the structural materials industry. Representatives of Bear
Stearns were also present and discussed with the Board of Directors the process
by which the relative values of the two businesses and an efficient structure
for the proposed transaction could be determined. The Board of Directors then
discussed (i) the terms of the Ciba proposal, (ii) possible alternatives to a
transaction with Ciba (including a combination with one or more other industry
participants or, instead, growing internally without engaging in any strategic
transaction) and the possible implications of such alternatives and (iii) the
potential impact on Hexcel of the consolidation of other companies in the
structural materials industry resulting from industry-wide over capacity, as
well as potential consolidation opportunities and trends in the foreseeable
future. Following such discussion, the Board of Directors concluded, in light of
its prior discussions on the likely strategic direction of the business and its
initial deliberations concerning Ciba's proposal, and subject to
21
<PAGE>
confirmatory due diligence and the negotiation of satisfactory terms with Ciba,
that alternatives to the proposed transaction with Ciba were inferior to the
Acquisition for the following reasons, among others, (i) the transaction with
Ciba offered Hexcel the ability to strengthen all of its existing product lines
(I.E., honeycomb, prepregs and fabrics), while other possible transactions only
offered the potential to strengthen one product line; (ii) other possible
transactions would only strengthen Hexcel's market position in the United
States, whereas the proposed transaction with Ciba would permit Hexcel to
address its relatively weaker market position in Europe and enhance Hexcel's
ability to build a presence in the rapidly growing Asian aerospace market; (iii)
the proposed Ciba transaction would enhance Hexcel's ability to capitalize on
opportunities created by market changes resulting from the increasing trend of
commercial aircraft builders subcontracting to others the manufacture of
aircraft components that contain materials produced by Hexcel and the Ciba
Composites Business; and (iv) given the compelling economic and strategic
rationale for the proposed transaction with Ciba, pursuing such transaction was
preferable to not engaging in any strategic transaction at all. The Board of
Directors then authorized management to proceed with a preliminary review of the
relative values of the two businesses and a preliminary due diligence review of
the Ciba Composites Business. The Board also authorized the engagement of Bear
Stearns to act as Hexcel's financial advisor in connection with the Acquisition.
On May 16, 1995, Messrs. Klauser and Klug of Ciba, Messrs. Lee and Forsyth
of Hexcel, and representatives of Bear Stearns and CS First Boston met to
consider how Ciba and Hexcel should analyze and determine the relative values of
Hexcel and the Ciba Composites Business.
On June 2, 1995, Messrs. Cheesmond, Sherman and Klug of Ciba, Messrs. Lee,
Forsyth, Meehan and Pensky of Hexcel, and representatives of Bear Stearns and CS
First Boston met to discuss Hexcel's and Ciba's preliminary thoughts on relative
valuation, having had the opportunity to review then available financial
information. Based on this meeting, the preliminary due diligence that had been
completed at the time and further discussions, Hexcel and Ciba preliminarily
concluded that the two businesses were of similar size, sold approximately the
same products, operated in the same markets and were likely to have roughly the
same long-term enterprise values. The parties also agreed that, subject to the
confirmation of their respective preliminary financial reviews during the due
diligence process, the valuation discussions should include a review of
valuation differences such as the differences between the debt and certain
non-operating liabilities of Hexcel as an independent company compared with that
of the Ciba Composites Business as an operating division of Ciba. Ciba also
requested that its percentage ownership of Hexcel Common resulting from the
Acquisition approximate 49.9% to reflect the parties' expectation that the
long-term enterprise value of the Ciba Composites Business would be roughly the
same as that of Hexcel and the desire of both parties that Ciba's equity
interest be less than 50% even if the Ciba Composites Business had a greater
relative equity value than Hexcel. The parties also preliminarily agreed that
any adjustments necessary to account for relative balance sheet differences
(such as debt and certain non-operating liabilities) between the two businesses
should be made through the payment of other consideration such as cash,
preferred stock or debt and not through a change in the number of Hexcel Shares.
A telephonic meeting of the Board of Directors was held on June 7, 1995 to
discuss, in addition to a variety of matters unrelated to the Acquisition, the
status of discussions between the parties concerning the Acquisition and related
due diligence. Bear Stearns participated in this telephonic meeting by briefly
discussing certain valuation matters, including a preliminary analysis using
valuation techniques substantially identical to those described under "--
Opinion of Hexcel's Financial Advisor." Such analysis was, however, (i)
preliminary in nature, (ii) based on unverified information, (iii) prepared
prior to the completion of Bear Stearns' and Hexcel's due diligence and (iv)
superseded in its entirety by the analyses described in detail under "-- Opinion
of Hexcel's Financial Advisor." Accordingly, the Board of Directors considered
Bear Stearns' preliminary analysis only for purposes of deciding to proceed with
Hexcel's negotiations with Ciba and not for purposes of approving the
Acquisition and making its recommendations to stockholders.
22
<PAGE>
On June 9, 1995, Messrs. Cheesmond, Sherman, Habermeier and Klug of Ciba,
Messrs. Lee and Forsyth of Hexcel, and representatives of Bear Stearns and CS
First Boston met to review the various valuation differences discussed at prior
meetings. After discussion, it was concluded that, based upon the then available
historical financial information of the two businesses, additional consideration
would be paid by Hexcel to Ciba in respect of these valuation differences. The
amount of such additional consideration was estimated at that time to be
approximately $80 million, plus an amount (of as much as approximately $17
million) to be determined relating to Hexcel's unfunded pension obligation and
unfunded post-retirement benefits. Finally, the parties agreed that, in light of
the progress made, full due diligence activities and negotiations should
commence as soon as possible.
During a meeting of the Board of Directors on June 19, 1995, certain members
of senior management made a preliminary presentation to the Board of Directors
regarding the structure and status of the proposed transaction with Ciba.
Representatives of Bear Stearns also made a preliminary presentation to the
Board of Directors, which included analyses employing valuation techniques and
methodologies substantially identical to those described in detail under "--
Opinion of Hexcel's Financial Advisor." As with Bear Stearns' June 7, 1995
analysis, the June 19, 1995 analyses were based on information known at that
time and prior to the completion of Bear Stearns' and Hexcel's due diligence,
were superseded in their entirety by the analyses described in detail under "--
Opinion of Hexcel's Financial Advisor" and were not relied upon by the Board of
Directors in approving the Acquisition and making its recommendation to
stockholders. The Board of Directors then discussed and reviewed a wide range of
issues including, among others, (i) the strategic rationale and synergies which
could result from the Acquisition, including those discussed at the May 8, 1995
Board of Directors meeting; (ii) a preliminary relative valuation analysis of
Hexcel and the Ciba Composites Business prepared by Bear Stearns; and (iii) the
various alternatives available to Hexcel to finance the Acquisition (including a
possible high-yield debt financing). For many of the reasons discussed at or
prior to the May 8, 1995 Board of Directors meeting, the directors determined
that the various alternatives to the Ciba proposal were inferior. Accordingly,
following such presentations and discussion, the Board of Directors authorized
management to continue to pursue the proposed transaction with Ciba. In
addition, the Board of Directors authorized management to attempt to negotiate a
mutual "no-shop" agreement with Ciba for the period prior to the signing of
definitive agreements for the Acquisition. The Board of Directors determined
that such a "no-shop" agreement would be advisable (i) in order to ensure that
Ciba would not negotiate another transaction with a third party and thereby
cause Hexcel to incur needless expense; (ii) because Ciba had indicated that its
willingness to proceed would be conditioned on such an agreement; and (iii)
because of the positive impact the Board of Directors expected from consummation
of the proposed transaction with Ciba.
In July 1995, Hexcel and Ciba decided, in light of the need to involve a
substantial number of people in the due diligence process, to negotiate, execute
and publicly announce the Letter of Intent. On July 11, 1995, Hexcel and Ciba
entered into the Letter of Intent, which set forth the principal terms and
conditions of the Acquisition, including, among other things, the consideration
to be paid by Hexcel in the Acquisition, the composition of the Board of
Directors following the consummation of the Acquisition, certain standstill
provisions applicable to Ciba's ownership of Hexcel Common, restrictions on
Ciba's rights in connection with third-party offers to acquire Hexcel, the
granting of certain registration rights to Ciba and the principal conditions to
the Acquisition. In addition, the Letter of Intent contained a "no-shop"
provision which prohibited, until August 14, 1995, Hexcel and Ciba and their
respective affiliates and agents from soliciting, initiating or encouraging the
submission of, or discussing, negotiating or accepting any proposal from any
other person relating to any transaction inconsistent with the Acquisition. On
July 12, 1995, Hexcel and Ciba issued a press release announcing the execution
of the Letter of Intent. On August 16, 1995, in light of unanticipated delays in
completing definitive documentation, the "no-shop" provision contained in the
Letter of Intent was extended to September 22, 1995.
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From July to September 1995, representatives of Hexcel and Ciba and their
respective legal and financial advisors continued to conduct business,
financial, accounting and legal due diligence, to discuss legal and valuation
issues and to negotiate the terms of the Strategic Alliance Agreement and the
Ancillary Agreements.
During subsequent negotiations between the parties in late September, the
final terms of the Acquisition were discussed and agreed upon. As part of the
final negotiations, the parties reviewed the recent financial performance and
projections of Hexcel and the Ciba Composites Business. Based on this review it
was determined that the expectations regarding the near-term financial
performance of the Ciba Composites Business had declined relative to Hexcel. In
light of this relative decline and Ciba's desire to maintain its equity
ownership at 49.9%, the parties agreed that the appropriate adjustment for this
development would be to reduce the initial aggregate principal amount of the
Senior Subordinated Notes by $10 million from the amount previously contemplated
and to reflect such reduction in the Strategic Alliance Agreement.
A meeting of the Board of Directors was then held on September 29, 1995 to
consider the Acquisition. At such meeting, Hexcel's legal advisors made detailed
presentations concerning the material terms of the Acquisition (see "--
General," "-- Certain Regulatory Matters," "-- The Strategic Alliance
Agreement," "-- The Governance Agreement," "-- The Senior Subordinated Notes,"
"-- Agreement Governing United States Employment Matters" and "-- Other
Agreements"). In addition, Bear Stearns made a presentation to the Board of
Directors which included: (i) a summary of the principal terms of the
Acquisition; (ii) a summary of the material operational and financial benefits
resulting from the Acquisition (see "-- Recommendations of the Board of
Directors; Hexcel's Reasons for the Acquisition"); (iii) summaries of the
business, operating performance and financial condition of each of the Ciba
Composites Business and Hexcel (see "AVAILABLE INFORMATION," "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE," "BUSINESS INFORMATION CONCERNING HEXCEL,"
"BUSINESS INFORMATION CONCERNING THE CIBA COMPOSITES BUSINESS" and "INDEX TO
FINANCIAL STATEMENTS"); and (iv) the analyses prepared by Bear Stearns in
connection with the Acquisition (see "-- Opinion of Hexcel's Financial
Advisor"). Representatives of Bear Stearns also reviewed various aspects of the
proposed transaction with Hexcel's directors, including the implied relative
enterprise and equity values of the Ciba Composites Business and Hexcel. Bear
Stearns then delivered to the Board of Directors its written opinion to the
effect that, based on the matters set forth therein, the Acquisition was fair,
from a financial point of view, to the stockholders of Hexcel. See "-- Opinion
of Hexcel's Financial Advisor."
Following a discussion of the Acquisition and the presentations made to the
Board of Directors at the September 29, 1995 meeting, the Board of Directors
unanimously (with one director absent) approved the Acquisition, the issuance of
the Hexcel Shares and the Common Stock Amendment. Following the meeting, the
parties executed the Strategic Alliance Agreement and the Employment Matters
Agreement, and issued a press release announcing the execution of such
agreements.
In November 1995, Hexcel and the Ciba Composites Business exchanged updated
financial information, including third quarter operating results, relating to
their respective businesses. In light of a decline in recent earnings and
near-term earnings estimates of the Ciba Composites Business relative to Hexcel
as reflected in such updated financial information, Hexcel and Ciba agreed on
December 12, 1995 to a reduction in the aggregate consideration to be paid by
Hexcel in the Acquisition. Such reduction has been reflected in an amendment to
the Strategic Alliance Agreement, dated as of December 12, 1995, providing for a
$5 million reduction in the initial aggregate principal amount of the Senior
Subordinated Notes from approximately $48 million to approximately $43 million,
subject to adjustment in accordance with the original terms of the Strategic
Alliance Agreement. Except for the adjustments currently contemplated by the
Strategic Alliance Agreement, the parties do not expect to make further changes
in the initial aggregate principal amount of the Senior Subordinated Notes. See
"-- The Strategic Alliance Agreement -- Principal Amount of the Subordinated
Notes."
A telephonic meeting of the Board of Directors was held on January 19, 1996
for purposes of approving the form and content of this Proxy Statement,
authorizing the mailing of this Proxy Statement to Hexcel's stockholders and
setting the time, date and place for the Annual Meeting. Bear Stearns was
present at the meeting to confirm its analyses as described in detail under "--
Opinion of
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Hexcel's Financial Advisor" and to inform the Board of Directors that it would
issue its written opinion dated the date of this Proxy Statement to the effect
that the Acquisition is fair, from a financial point of view, to the
stockholders of Hexcel. A copy of such opinion is included as Annex A to this
Proxy Statement.
See "-- Opinion of Hexcel's Financial Advisor" for additional information
concerning relative valuation, valuation differences and related matters.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS; HEXCEL'S REASONS FOR THE ACQUISITION
The Board of Directors has determined that the terms of the Acquisition are
fair to and in the best interests of Hexcel and its stockholders. Based on its
consideration of the various factors discussed below, the Board of Directors
believes that the businesses of Hexcel and the Ciba Composites Business are
complementary and that the combined company will have the technology, product
breadth and geographic reach to meet customer needs on a worldwide basis.
Accordingly, the Board of Directors unanimously (with one director absent)
approved the Acquisition and the issuance of the Hexcel Shares in connection
therewith. The Board of Directors unanimously recommends approval of the
issuance of the Hexcel Shares and the Common Stock Amendment by Hexcel's
stockholders.
In reaching this determination and making its recommendations, the Board of
Directors considered the factors and information set forth below.
(a) Information concerning Hexcel's and the Ciba Composites Business'
respective businesses, financial condition, results of operations,
cash flows, competitive positions, managements and prospects before and
after giving effect to the Acquisition.
(b) The terms and conditions of the Strategic Alliance Agreement, the
Governance Agreement and the other Ancillary Agreements.
(c) The degree of control that Ciba would have over the combined company
in light of its 49.9% voting interest, as limited by the numerous
provisions of the Governance Agreement restricting Ciba's ability to
exercise such control and providing significant protections to Hexcel's
public stockholders. See "-- The Governance Agreement."
(d) The financial analyses and opinions presented to the Board of
Directors by Bear Stearns, including the fact that Bear Stearns had
rendered its written opinions to the Board of Directors, each to the effect
that, as of the dates of such opinions and based upon the matters stated
therein, the Acquisition is fair, from a financial point of view, to
Hexcel's stockholders. See "-- Opinion of Hexcel's Financial Advisor."
(e) The regulatory approvals required for the Acquisition, and that such
approvals are not expected to interfere with the business or
operations of the combined company and are likely to be obtained without
undue delay.
(f) Certain potential benefits and synergies expected to result from the
Acquisition, such as:
- Hexcel's historic strength in North America and Ciba's historic
strength in Europe would give the combined company geographic
diversity and a more geographically balanced customer base, with an
equally strong presence in North America and Europe. Hexcel would,
therefore, be better positioned to participate in the aircraft
industry and non-aerospace markets in both geographic regions.
- As a result of the Acquisition, the greater financial and
operational capabilities of the combined company in Asia would
enhance Hexcel's ability to build a presence in the rapidly growing
Asian aerospace market.
- The Ciba Composites Business' Heath Tecna business unit, which
fabricates aircraft components, would provide Hexcel with the
opportunity to participate in the trend of airframe manufacturers
to outsource component fabrication, creating new business
opportunities while securing a continuing demand for materials
manufactured by the combined company and used in the fabrication of
such components.
- The Acquisition would present the potential for capacity
elimination. In this regard, both Hexcel and Ciba invested in
capacity expansion during the 1980s boom in the military and
commercial aerospace markets. With the decline in military
expenditures following the ending of the Cold War and the downturn
in commercial aerospace demand due to a decline in airline
profitability and constraints on market growth,
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both companies have been left with excess manufacturing capacity.
Given the similarity of the two businesses and the fact that
certain of Hexcel's facilities are located in the same geographic
areas as facilities which are to be acquired from Ciba, the
combined business would be able to eliminate excess capacity and
overhead that could not be eliminated by either company on a
stand-alone basis, thereby obtaining better utilization of plants
and improved profitability.
- The Acquisition would provide Hexcel access to the research and
development capabilities of the Ciba Composites Business, some of
which are currently not possessed by Hexcel. This would assist
Hexcel in developing new markets and applications for its products.
- The Acquisition may enhance the technological capabilities of the
combined company, in that both Hexcel and the Ciba Composites
Business have developed product and process technologies that can
enhance each other's activities, potentially reducing product cost
and offering new applications to existing customers.
- The benefits of a strong relationship with Ciba, including the
opportunity for Hexcel to obtain more attractive financing and
insurance terms than would be available to Hexcel absent Ciba's
significant stake in Hexcel.
- The combined management, manufacturing, research and development,
marketing and other capabilities of Hexcel and the Ciba Composites
Business, which would equip Hexcel to better serve the needs of its
customers as those customers face changes in their own markets and
products.
(g) Certain risks and costs typically associated with business
combinations like the Acquisition, including risks associated with
combining different corporate cultures and management information systems,
risks associated with rationalizing the two businesses and the ordinary
course of business risks of the Ciba Composites Business to which Hexcel
would become subject as a result of the Acquisition.
(h) The fact that, regardless of the proposed transaction with Ciba, a
strategic transaction with an industry participant would likely be an
important factor in the long-term success of Hexcel, given trends in
industry consolidation, the need to eliminate excess capacity within the
industry and the need to achieve critical mass to compete effectively on a
global basis.
In addition, the Board of Directors considered the fact that the principal
amount of the Senior Subordinated Notes, and therefore the amount of
consideration to be paid to Ciba in the Acquisition, will be based, in part, on
the price (the "Danutec Price") that Ciba is able to negotiate with PCD Polymere
Gesellschaft m.b.H. ("PCD") for PCD's 49% equity interest (the "PCD Equity") in
Danutec Werkstoff Gesellschaft m.b.H., an Austrian corporation and 51% owned
subsidiary of Ciba ("Danutec"). Pursuant to the Strategic Alliance Agreement,
100% of the equity interest in Danutec (the "Danutec Equity") will be delivered
to Hexcel either at the Closing or within one year of the Closing if Ciba is
successful in its efforts to purchase the PCD Equity from PCD. In making its
determination, the Board of Directors considered that: (i) due to the nature and
extent of Ciba's continuing interest in Hexcel, Ciba would be motivated to
negotiate the best possible Danutec Price; (ii) the amount payable by Hexcel in
respect of the Danutec Price would be capped at $9 million; (iii) due to the
fact that Ciba and Hexcel would share equally that portion of the Danutec Price
between $7 million and $11 million, Ciba would be further motivated to negotiate
the best possible Danutec Price; and (iv) Ciba was unlikely to be successful in
negotiating a Danutec Price of less than $7 million. Ciba currently anticipates
purchasing the PCD Equity from PCD for approximately $12.5 million in late
January 1996, pursuant to a definitive purchase agreement, the terms of which
are subject to approval by the boards of PCD and its parent entity, entered into
with PCD on December 20, 1995. Because there can be no assurance that Ciba will
actually purchase the PCD Equity, the Board of Directors also considered the
potential impact of Ciba's inability to acquire the PCD Equity and deliver the
Danutec Equity to Hexcel. See "-- The Strategic Alliance Agreement -- General --
Danutec" and "-- The Strategic Alliance Agreement -- Principal Amount of the
Senior Subordinated Notes."
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The Board of Directors also recognized that following the Acquisition,
Hexcel's working capital needs would increase substantially and that, as a
result, Hexcel would need to increase its borrowing capacity. In this regard,
the Board of Directors considered Hexcel's need to refinance certain of its
existing debt and expand its borrowing capacity with a new global revolving
credit facility. See "-- New Revolving Credit Facility."
After carefully considering each of the foregoing factors, the Board of
Directors concluded that, on balance, such factors overwhelmingly support the
Board of Directors' approval of the Acquisition and its decision to recommend
that Hexcel's stockholders approve the issuance of the Hexcel Shares and the
Common Stock Amendment. In view of the wide variety of factors considered in its
evaluation of the Acquisition, the Board of Directors did not find it
practicable to, and did not, assign any relative or specific weights to the
various factors considered. Moreover, individual directors may have given
differing weights to different factors.
OPINION OF HEXCEL'S FINANCIAL ADVISOR
The Board of Directors selected Bear Stearns to act as its financial advisor
in connection with the Acquisition and to analyze the terms of the Acquisition
(including the consideration to be paid to Ciba) as negotiated by Hexcel and
Ciba for purposes of rendering an opinion as to the fairness, from a financial
point of view, of the Acquisition to the stockholders of Hexcel.
Bear Stearns has rendered its opinions to the effect that, based on the
matters set forth therein, the Acquisition is fair, from a financial point of
view, to the stockholders of Hexcel. Bear Stearns' written opinion dated the
date of this Proxy Statement is included as Annex A to this Proxy Statement. No
limitations were imposed on Bear Stearns by the Board of Directors with respect
to the investigations made or the procedures followed by Bear Stearns in
rendering its opinions. The description of opinions, as set forth below, is
qualified by reference to the full text of the opinion of Bear Stearns included
as Annex A to this Proxy Statement. Hexcel stockholders are urged to read
carefully the full text of Bear Stearns' opinion for a description of the
assumptions made, factors considered and limitations on the review undertaken by
Bear Stearns. Bear Stearns' opinion addresses only the fairness of the
Acquisition from a financial point of view to the stockholders of Hexcel and
does not constitute a recommendation to any stockholder of Hexcel as to how such
stockholder should vote at the Annual Meeting.
INFORMATION AND MATERIALS CONSIDERED
In the course of advising the Board of Directors and rendering its opinions,
Bear Stearns has, among other things: (i) reviewed this Proxy Statement; (ii)
reviewed Hexcel's Annual Reports to Stockholders and Annual Reports on Form 10-K
for the fiscal years ended December 31, 1992 through December 31, 1994, and its
Quarterly Reports on Form 10-Q for the periods ended April 2, 1995, July 2, 1995
and October 1, 1995; (iii) reviewed certain operating and financial information,
including projections, provided to Bear Stearns by Hexcel's management relating
to Hexcel's business and prospects; (iv) met with certain members of Hexcel's
senior management to discuss its operations, historical financial statements and
future prospects, the relative quality of Hexcel's and the Ciba Composites
Business' plant and equipment and research and development pipeline and the
benefits anticipated by Hexcel's management to be realized by Hexcel as a result
of the Acquisition; (v) visited Hexcel's facilities in Casa Grande, Arizona;
Lyon, France; Pleasanton, California; and Welkenraedt, Belgium; (vi) reviewed
the Ciba Composites Business' audited financial statements for the fiscal years
ended December 31, 1993 and December 31, 1994, and its unaudited financial
statements for the six month period ended June 30, 1995 and the three and nine
month periods ended September 30, 1995; (vii) reviewed certain operating and
financial information, including projections, provided to Bear Stearns by the
Ciba Composites Business' management relating to the Ciba Composites Business'
business and prospects; (viii) met with certain members of the Ciba Composites
Business' senior management to discuss its operations, historical financial
statements and future prospects; (ix) visited the Ciba Composites Business'
facilities in Anaheim, California; Duxford, England; and Decines, France; (x)
reviewed the historical prices and trading volume of Hexcel Common; (xi)
reviewed publicly available financial data and stock market performance data of
companies which Bear Stearns
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deemed generally comparable to Hexcel and the Ciba Composites Business; (xii)
reviewed certain mergers and acquisitions data within the aerospace and
specialty chemicals industries; and (xiii) conducted such other studies,
analyses, inquiries and investigations as Bear Stearns deemed appropriate.
In the course of its review, Bear Stearns has relied upon and assumed the
accuracy and completeness of the financial and other information provided to it
by Hexcel and the Ciba Composites Business. With respect to Hexcel's and the
Ciba Composites Business' projected financial results and potential synergies
that could be achieved upon consummation of the Acquisition, Bear Stearns has
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of Hexcel and the
Ciba Composites Business as to such matters. Bear Stearns has not assumed any
responsibility for the information or projections provided to it and has further
relied on the assurances of the managements of Hexcel and the Ciba Composites
Business that they are unaware of any facts that would make the information
provided to Bear Stearns incomplete or misleading. In arriving at its opinions,
Bear Stearns has not performed or obtained any independent appraisal of the
assets of Hexcel or the Ciba Composites Business. Bear Stearns' opinions are
necessarily based upon the economic, market and other conditions as in effect
on, and the information made available to it as of, the dates of its opinions.
Bear Stearns further assumed that the Acquisition would be accounted for in
accordance with the purchase method of accounting under the requirements of APB
Opinion No. 16.
LIMITATIONS OF ANALYSES
The following summarizes the material analyses performed by Bear Stearns for
purposes of rendering its opinions to the Board of Directors. This summary does
not purport to be a complete description of the analyses performed or the
matters considered by Bear Stearns in arriving at its opinions. The preparation
of a fairness opinion involves various determinations as to the most relevant
methods of financial analysis and the application of those methods to the
particular circumstances of a transaction and, therefore, is not necessarily
susceptible to partial analysis. Bear Stearns believes that its analyses must be
considered as a whole and that selecting portions of the analyses or of the
summary set forth above, without considering the analyses as a whole, could
create an incomplete view of the processes underlying Bear Stearns' opinions. In
performing its analyses, Bear Stearns made numerous estimates and assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Hexcel, Ciba and the
Ciba Composites Business. Since such estimates are inherently subject to
uncertainty, none of Hexcel, Ciba, the Ciba Composites Business, Bear Stearns or
any other person assumes any responsibility for their accuracy. The analyses
were prepared solely for purposes of providing Bear Stearns' opinions as to the
fairness of the Acquisition to Hexcel's stockholders and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. In arriving at its opinions, Bear Stearns considered the
results of all its analyses as well as several important qualitative factors,
including those described below.
SUMMARY OF ANALYSES
In rendering its opinions, Bear Stearns considered, among other things, the
historical and projected future financial performances of the Ciba Composites
Business and Hexcel, as well as the cost and capital synergies expected to
result from the Acquisition. In addition, Bear Stearns considered a variety of
qualitative factors related to the Acquisition, including: (i) the opportunity
for Hexcel to increase its customer, market and geographic diversification; (ii)
the ability of Hexcel to participate in certain markets and with certain
products not currently available to Hexcel; (iii) the opportunity to improve the
overall quality of Hexcel's plant and equipment and research and development
pipeline; (iv) the advantages to Hexcel associated with increased business size
and scope in its dealings with customers, suppliers and sources of capital; and
(v) the benefits to Hexcel associated with a strong affiliation with Ciba.
The estimates of future financial performance for Hexcel and the Ciba
Composites Business were provided by their respective managements. Such
estimates were based on numerous assumptions
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involving the markets in which the businesses compete, general business and
economic conditions and other matters which are beyond the control of the Ciba
Composites Business and Hexcel. With respect to the Ciba Composites Business,
such assumptions included forecasted trends in the aerospace industry and
commercial aircraft build rates, stable energy prices, a modest level of general
price inflation, a constant dollar to Swiss franc exchange rate, growth in the
use of composite products, pressure to lower prices by original equipment
manufacturers ("OEMs"), growth in new markets for wind energy and transportation
applications and the relatively higher margins provided by such applications
relative to other honeycomb products. With respect to Hexcel, such assumptions
included anticipated commercial aircraft build rates and related product
shipments, recent trends in product sales to particular markets, expected trends
in market demand, the impact of identified process improvements and material
yield opportunities, the level of marketing, general and administrative support
activities, estimated investments in research and development efforts, the
utilization of net operating loss carryforwards for income tax purposes and
modest changes in overall price levels.
Because the aerospace industry is the largest market for both Hexcel and the
Ciba Composites Business, Build Rates will have a significant impact on future
financial performance. Both Hexcel and the Ciba Composites Business separately
track the forecasted Build Rates of major commercial aircraft manufacturers as a
basis for estimating future financial performance. In developing the estimates
of future financial performance provided to Bear Stearns, Hexcel and the Ciba
Composites Business discussed their respective assumptions concerning the future
annual Build Rates to be used for purposes of providing such estimates. These
Build Rate assumptions reflected anticipated growth in estimated commercial
aircraft Build Rates after the sharp decline seen from 1992 to 1995. Such growth
is anticipated to be driven by, among other things, the successful introduction
of the new Boeing 777 aircraft, the new version of the Boeing 737 aircraft
expected to be introduced into service in late 1997 and the continued success of
the Airbus A-330 and A-340 aircraft. Because Hexcel and the Ciba Composites
Business generally deliver materials and components used in the manufacture of
commercial aircraft up to 15 months in advance of the time that a finished
aircraft is delivered by the aircraft manufacturer, the Build Rates forecasted
by commercial aircraft manufacturers are adjusted by Hexcel and the Ciba
Composites Business to reflect, among other things, their anticipated component
manufacturing rates for a given year.
Although Hexcel and the Ciba Composites Business estimated that there will
be growth in demand for commerical aircraft based on expected Build Rates for
the aircraft programs identified above, Hexcel and the Ciba Composite Business
do not anticipate, and the estimates of future financial performance provided to
Bear Stearns did not reflect, any resurgence in the military aerospace market.
With regard to the commercial industrial and recreational markets in which
Hexcel and the Ciba Composites Business operate, no significant changes in
recent market trends are anticipated and, as a result, no such changes were
reflected in the estimates of future financial performance provided to Bear
Stearns.
Because the assumptions made by Hexcel and the Ciba Composites Business in
connection with providing estimates of future financial performance to Bear
Stearns are based on Build Rate estimates provided by independent third parties
and involve a number of factors that are outside the control of Hexcel and the
Ciba Composites Business, there can be no assurance that such assumptions will
prove to be accurate or that actual trends will not differ materially from those
assumed.
Bear Stearns used several standard valuation methodologies to derive
consolidated relative enterprise values for the Ciba Composites Business and
Hexcel. In determining the appropriate multiples of operating cash flow and, as
a result, the consolidated enterprise values of each company, Bear Stearns
considered several quantitative and qualitative factors related to the Ciba
Composites Business and Hexcel. In this regard, Bear Stearns considered Hexcel's
management's assessment of the level of technology, the extent of the research
and development pipeline, the quality of plant and equipment, the strength of
customer relationships, the position within a particular market and the depth of
management possessed by each company.
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After considering such factors, Bear Stearns conducted financial analyses
which included (i) an operating cash flow multiple analysis and (ii) a
discounted cash flow analysis to determine the relative enterprise values of the
Ciba Composites Business and Hexcel. Bear Stearns also conducted searches for
mergers and acquisitions data within the aerospace and specialty chemicals
industries to determine if there were similar transactions involving comparable
businesses. Bear Stearns was unable to identify any transactions that were
comparable for valuation purposes to the Acquisition. Accordingly, Bear Stearns
determined that an analysis of comparable merger and acquisition transactions
did not provide sufficient information to derive any meaningful conclusions.
Bear Stearns also performed a pro forma merger analysis to analyze the expected
impact of the Acquisition on Hexcel. After determining relative enterprise
values for Hexcel and the Ciba Composites Business, Bear Stearns considered the
debt and certain non-operating liabilities of each business as well as other
valuation differences in order to arrive at the relative equity values for the
two companies.
QUANTITATIVE ANALYSES
DETERMINATION OF RELATIVE ENTERPRISE VALUES
OPERATING CASH FLOW MULTIPLE ANALYSIS. Bear Stearns performed an analysis
of the relative enterprise values of the Ciba Composites Business and Hexcel
using multiples of estimated 1995 and 1996 operating cash flows. Bear Stearns
determined that appropriate 1995 multiples were 6.5x earnings before interest,
taxes, depreciation and amortization ("EBITDA") for the Ciba Composites Business
and 5.5x EBITDA for Hexcel. Appropriate operating cash flow multiples for 1996
estimated earnings were determined by Bear Stearns to be 6.0x EBITDA for the
Ciba Composites Business and 5.0x EBITDA for Hexcel.
Bear Stearns ascribed different operating cash flow multiples to the
earnings of the Ciba Composites Business and Hexcel as a result of its analysis
of certain quantitative and qualitative factors related to the Ciba Composites
Business and Hexcel. See "-- Summary of Analyses" and "-- Qualitative Analysis."
In determining the appropriate multiples, Bear Stearns also considered public
trading multiples for comparable companies as well as operational and business
issues specific to the Ciba Composites Business and Hexcel. Based on its
operating cash flow multiple analysis, Bear Stearns determined implied relative
enterprise values of approximately 54% for Hexcel and 46% for the Ciba
Composites Business based on both 1995 and 1996 estimated EBITDA. The EBITDA
estimates for 1995 and 1996 were developed based on managements' projections, as
adjusted in connection with the due diligence process.
DISCOUNTED CASH FLOW ANALYSIS. Bear Stearns performed a discounted cash
flow analysis of the projected unleveraged free cash flow of Hexcel and the Ciba
Composites Business for the fiscal years ending December 31, 1996 through
December 31, 2000. Such analysis was based upon certain operating and financial
assumptions, forecasts and other information provided by the respective
managements of Hexcel and the Ciba Composites Business, as adjusted in
connection with the due diligence process. In conducting its discounted cash
flow analysis, Bear Stearns assumed a discount rate of 13.0% and terminal
multiples of 5.5x and 6.0x EBITDA for Hexcel and the Ciba Composites Business,
respectively. The different terminal multiples were the result of Bear Stearns'
analysis of certain quantitative and qualitative factors related to the Ciba
Composites Business and Hexcel. See "-- Summary of Analyses" and "-- Qualitative
Analysis." The reduced difference in the multiples ascribed to the two
businesses (0.5x versus 1.0x in the case of the operating cash flow multiples
analysis discussed above) reflects Bear Stearns' assessment that the difference
between the various qualitative and quantitative factors considered by Bear
Stearns in connection with determining respective multiples will lessen over
time. The discounted cash flow analysis resulted in approximately equal implied
relative enterprise values for Hexcel and the Ciba Composites Business over a
five-year valuation horizon.
Based on the results of the operating cash flow multiple analysis and the
discounted cash flow analysis, Bear Stearns determined that the implied relative
enterprise value of Hexcel was greater than that of the Ciba Composites
Business.
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As a result of the relative decline in the expectations regarding the
near-term financial performance of the Ciba Composites Business and Ciba's
request that it hold 49.9% of the Hexcel Common outstanding after the issuance
of the Hexcel Shares, Hexcel and Ciba included a $10 million enterprise
valuation adjustment in the original terms of the Strategic Alliance Agreement
to compensate Hexcel for the relatively lower enterprise value of the Ciba
Composites Business at the time the Strategic Alliance Agreement was entered
into. As discussed under "Background of the Acquisition," Hexcel and Ciba agreed
on December 12, 1995 to amend the Strategic Alliance Agreement to include an
additional $5 million enterprise valuation adjustment to take into account the
decline in recent earnings and near-term earnings estimates of the Ciba
Composites Business relative to Hexcel as reflected in the updated financial
information exchanged in November 1995. The $10 million and $5 million valuation
adjustments are reflected in the provisions of the Strategic Alliance Agreement
that determine the principal amount of the Senior Subordinated Notes to be
issued to Ciba in respect of the relative equity valuation differences discussed
below under "Determination of Relative Equity Values."
After analyzing the impact of the aggregate $15 million in valuation
adjustments discussed above and after reflecting such adjustments as an increase
in the enterprise value of the Ciba Composites Business, Bear Stearns determined
that the adjusted implied relative enterprise values were approximately 51% for
Hexcel and 49% for the Ciba Composites Business.
DETERMINATION OF RELATIVE EQUITY VALUES
Given the roughly equal adjusted enterprise values of the two businesses
after giving effect to the foregoing adjustments, equivalent relative equity
values were arrived at by compensating Ciba for the excess of debt and certain
non-operating liabilities of Hexcel over those of the Ciba Composites Business.
In this regard, Bear Stearns analyzed the relative equity valuation differences
between the two companies and determined the amount of such excess debt and
non-operating liabilities to be $94.8 million. This determination was made by
reference to the July 2, 1995 balance sheet of Hexcel and the June 30, 1995
balance sheet of the Ciba Composites Business, before certain other adjustments
for additional valuation differences identified and agreed to by the parties
during the negotiation and due diligence process. Such other adjustments
totalled $11.8 million and served to reduce the $94.8 million figure referred to
above, and consequently the amount of additional consideration to be paid to
Ciba in the Acquisition, to $83 million (subject to further adjustment in
accordance with the terms of the Strategic Alliance Agreement). The $11.8
million of other adjustments included (i) $5.6 million related to the present
value of certain incremental tax net operating loss carryforwards of Hexcel;
(ii) $4.9 million related to the amount of the discount from face value of
Hexcel's publicly traded convertible subordinated debt as determined by the
market price of such debt in September 1995; and (iii) $1.3 million related to
an expected future tax refund due to Hexcel. Accordingly, Bear Stearns
determined, after giving effect to the $15 million in valuation adjustments
discussed above, that the equity value of the Ciba Composites Business exceeded
that of Hexcel by approximately $68 million, corresponding to the negotiated $25
million Cash Price and approximately $43 million (subject to adjustment in
accordance with the Strategic Alliance Agreement) of Senior Subordinated Notes
to be paid to Ciba in the Acquisition.
PRO FORMA MERGER ANALYSIS
Bear Stearns' analysis of the pro forma financial effects of the
Acquisition, including the impact of the Acquisition on Hexcel's forecasted
earnings per share and book and market capitalization, was based upon financial
forecasts provided to Bear Stearns by senior management of Hexcel and the Ciba
Composites Business as adjusted by Bear Stearns to reflect information gained
during the due diligence process. Bear Stearns' pro forma financial analysis
assumed, among other things, that the Acquisition: (i) will provide Ciba, in the
aggregate, consideration in the form of the Hexcel Shares and additional
consideration in the form of the Cash Price and Senior Subordinated Notes, of
approximately $68 million determined as discussed under "Determination of
Relative Equity Values" and subject to adjustment in accordance with the terms
of the Strategic Alliance Agreement, (ii) will be accounted for under the
purchase method of accounting and (iii) will result in the realization of
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certain strategic, operational and financial benefits anticipated by Hexcel and
the Ciba Composites Business senior management. The adjustments to the
approximately $68 million of additional consideration to be paid to Ciba that
are provided for in the Strategic Alliance Agreement are intended to reflect
changes in the relative equity values of Hexcel and the Ciba Composites Business
between the signing of the Strategic Alliance Agreement and the date of the
Closing (the "Closing Date") and are not expected to affect Bear Stearns'
analyses or opinions. See "-- Adjustments to the Principal Amount of the Senior
Subordinated Notes."
As a result of the Acquisition, total debt as compared to capitalization
will decrease from approximately 65% to approximately 50% and total debt as
compared to equity will decrease from approximately 200% to approximately 110%.
The results of the pro forma merger analysis suggest that the Acquisition will
be dilutive to Hexcel's 1996 earnings per share; however, the estimated cost
savings combined with a projected increase in the Ciba Composites Business'
earnings relative to those of Hexcel, suggest that the Acquisition will be
accretive to Hexcel's earnings per share in fiscal 1997 and 1998. Although Bear
Stearns' pro forma merger analysis is dependent upon the ability of both Hexcel
and the Ciba Composites Business to realize certain projected operating
performance assumptions as well as many of the strategic, operating and
financial benefits, including cost savings, anticipated from the Acquisition by
the senior managements of Hexcel and the Ciba Composites Business, there can be
no assurance that such operating performance, benefits or cost savings will
actually be realized. As discussed under "UNAUDITED PRO FORMA FINANCIAL
INFORMATION," estimates of potential synergies and related costs are preliminary
and subject to significant change. Accordingly, there can be no assurance that
the Acquisition will actually be accretive to earnings per share in fiscal 1997
and 1998, if ever.
QUALITATIVE ANALYSIS
Bear Stearns also considered several important qualitative factors related
to the Acquisition. The most significant of these factors were:
- The increases in the geographic diversification of Hexcel's business as
well as a more diversified customer base, particularly with respect to
certain large European aerospace manufacturers, including Airbus
Industries with whom Hexcel does not have a substantial market position.
- The ability of Hexcel to participate in certain markets and with certain
products not currently available to it. The most significant relates to
the Ciba Composites Business' Health Tecna business unit which produces
finished aircraft interiors for commercial aircraft manufacturers. Given
the high cost structure of many of the commercial aircraft manufacturers,
combined with their strategic shift toward system integration, the
outsourcing of aircraft interior construction is expected to increase.
- The significant improvement in the overall quality of Hexcel's plant and
equipment and research and development pipeline.
- The significant increase in the size and scope of Hexcel's business also
provides benefits to Hexcel. Such benefits include increased purchasing
power with suppliers and becoming a more important supplier to Hexcel's
customers (through the ability to offer new products and product line
extensions).
- The opportunities associated with becoming a larger and better capitalized
company, with greater access to capital markets, thereby providing
increased operating and financial flexibility in an industry undergoing
continued consolidation.
- The benefits associated with a strong affiliation with Ciba, which include
the ability to access existing Ciba relationships to obtain more
attractive financing and insurance terms.
RENDERING OF FAIRNESS OPINION
Based on Bear Stearns' evaluation of the various information and materials
it considered and on the quantitative and qualitative analyses it performed,
taken as a whole, and subject to the limitations and qualifications set forth
herein, Bear Stearns concluded, and rendered its written opinions to the
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Board of Directors to the effect, that the Acquisition is fair, from a financial
point of view, to the stockholders of Hexcel. Bear Stearns' written opinion
dated the date of this Proxy Statement is included as Annex A to this Proxy
Statement.
ADJUSTMENTS TO THE PRINCIPAL AMOUNT OF THE SENIOR SUBORDINATED NOTES
The Strategic Alliance Agreement provides for certain adjustments to the
negotiated $43 million initial aggregate principal amount of the Senior
Subordinated Notes. These adjustments are intended to take into account relative
changes in the balance sheets of Hexcel and the Ciba Composites Business and
other valuation differences between the signing of the Strategic Alliance
Agreement and the Closing Date, and to adjust for such changes on a
dollar-for-dollar basis. See "-- The Strategic Alliance Agreement -- Principal
Amount of the Senior Subordinated Notes." Because such adjustments are intended
to reflect changes in the relative equity values of Hexcel and the Ciba
Composites Business, they are not expected to affect Bear Stearns' analyses or
opinions.
SELECTION OF AND FEES PAYABLE TO BEAR STEARNS
The Board of Directors selected Bear Stearns based upon the experience,
expertise and reputation of its members as investment bankers and professionals
in the securities industry, as well as its experience in transactions similar to
the Acquisition. Bear Stearns is a nationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and valuations for corporate and other purposes. In the
ordinary course of its trading and brokerage activities, Bear Stearns may trade
the stock of Hexcel for its own account and for the accounts of customers and
Bear Stearns may, at any time, hold a long or short position in such stock.
Pursuant to a letter agreement, dated as of June 28, 1995, as amended,
Hexcel has agreed to pay Bear Stearns (i) an initial fee of $100,000, (ii) a fee
of $350,000 upon delivery of Bear Stearns' opinion in connection with the
Acquisition and (iii) upon consummation of the Acquisition, an additional fee of
$950,000. Hexcel has also agreed to reimburse Bear Stearns, upon request from
time to time, for reasonable out-of-pocket expenses up to an aggregate of
$50,000 incurred by Bear Stearns in connection with the Acquisition, including
the reasonable fees and disbursements of counsel and of other consultants and
advisors retained by Bear Stearns, and to indemnify Bear Stearns and certain
related persons against certain liabilities in connection with the engagement of
Bear Stearns, including certain liabilities under the federal securities laws
related to or arising from such engagement.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
In considering the recommendations of the Board of Directors with respect to
the Acquisition, stockholders should be aware that certain members of the Board
of Directors have interests that are in addition to the interests of
stockholders of Hexcel generally. The Board of Directors was aware of these
interests and considered them, among other factors, in approving the
Acquisition.
Upon stockholder approval of the Incentive Stock Plan, nonqualified stock
options to purchase 40,000 shares of Hexcel Common granted to each director as
of April 4, 1995, with an exercise price of $4.75 per underlying share (the fair
market value of Hexcel Common on April 4, 1995, based on the closing price of
Hexcel Common on the NYSE Composite Tape on such date) will become effective.
Such options will be exercisable as to one-third of the shares subject thereto
upon such stockholder approval and an additional one-third of the shares on each
of April 4, 1996 and April 4, 1997. However, consummation of the Acquisition
will constitute a "change of control" for purposes of such options, thereby
triggering the immediate vesting and exercisability of all such options as of
the Closing Date. See "THE INCENTIVE STOCK PLAN." As of January 18, 1996, the
closing price per share of Hexcel Common on the NYSE Composite Tape was $11.
In addition, Mr. Lee will serve as Chairman of the Board and Chief Executive
Officer of Hexcel following the Closing pursuant to a yet to be negotiated
employment agreement. It is expected that such agreement will provide for Mr.
Lee to receive compensation and benefits including salary, bonus
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and long-term incentive compensation such as stock options. Such agreement is
also expected to provide for the preservation of the economic benefits to Mr.
Lee of certain compensatory arrangements provided for in the Plan of
Reorganization and Mr. Lee's Interim Employment Agreement. See "EXECUTIVE
COMPENSATION -- Compensation of Senior Executives Following the Acquisition" for
a description of certain terms of the employment agreement expected to be
entered into with Mr. Lee upon consummation of the Acquisition.
Pursuant to the terms of the Strategic Alliance Agreement, the certificate
of incorporation and bylaws of Hexcel will continue, for a period of six years
following the Closing, to contain provisions with respect to indemnification of
Hexcel's directors and officers contained therein as of the date of the
Strategic Alliance Agreement. In addition, Hexcel will be required, for a period
of six years after the Closing, to provide liability insurance for certain
directors and officers covering acts or omissions occurring at or prior to the
Closing. See "THE ACQUISITION -- The Strategic Alliance Agreement --
Indemnification."
CERTAIN REGULATORY MATTERS
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Acquisition may not be consummated unless certain
information has been furnished to the FTC and the Department of Justice (the
"DOJ") and specified waiting period requirements have been satisfied. On July
24, 1995, the notification and report forms required pursuant to the HSR Act
were filed by each of Ciba and Hexcel with the DOJ and the FTC for review in
connection with the Acquisition. A request for additional information was made
by the DOJ on August 23, 1995. On September 25, 1995, prior to any submission of
additional information by Hexcel or Ciba, the DOJ withdrew its request for
additional information and the HSR Act waiting period expired. There are no
further federal governmental antitrust approvals required in the United States.
At any time before or after the Closing, however, the FTC or the DOJ could take
action under the antitrust laws with respect to the Acquisition, including
seeking to enjoin the consummation of the Acquisition or seeking the divestiture
by Hexcel of all or any part of the assets of the Ciba Composites Business. The
obligations of Ciba and Hexcel to consummate the Acquisition are conditioned
upon, among other things, there being no temporary restraining order,
preliminary or permanent injunction or other order by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Acquisition. Each party has agreed to use all commercially reasonable
efforts to have any such injunction or order lifted.
In addition, Hexcel and Ciba conduct operations or have sales in a number of
foreign countries where regulatory filings or approvals may be required or
recommended in connection with the consummation of the Acquisition. Such
approvals have been received from the applicable antitrust authorities in
Belgium and Italy. Certain other of these filings or approvals may not be
completed and certain of such filings or approvals may not be made or obtained
for a substantial period of time. Based on available information, neither Hexcel
nor Ciba believes that any delay in consummating the Acquisition will result
from the laws of any foreign jurisdiction because, as a matter of practice, such
filings and approvals often are not made or obtained prior to effectiveness of a
transaction occurring outside the foreign country. Based on available
information, Hexcel and Ciba also believe that the Acquisition can be effected
in compliance with all applicable foreign laws. However, no assurances can be
given that a foreign jurisdiction will not attempt to impose conditions
(including the divestiture of assets) on the operations of Hexcel or the Ciba
Composites Business or that might otherwise have a material effect on Hexcel or
the Ciba Composites Business.
The Acquisition was submitted for review to CFIUS pursuant to the Defense
Production Act of 1950, as amended, in order to obtain from CFIUS a
determination that the Acquisition presents no issues of national security
sufficient to prevent the consummation of the Acquisition. Hexcel has obtained
such determination from CFIUS. Discussions are currently ongoing with the United
States Defense Investigative Service to obtain clearances for Hexcel to continue
to perform certain classified work following the Acquisition. See "-- The
Strategic Alliance Agreement -- Conditions."
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The transfer to Hexcel at Closing of the shares of stock of Brochier, S.A.,
a French corporation and wholly owned subsidiary of Ciba ("Brochier"), pursuant
to the terms of the Strategic Alliance Agreement, requires the prior approval of
the Direction du Tresor in France, which includes the consent of the Departement
de Securite of the Ministry of National Defense of the French government. Ciba
is in the process of seeking such approval. Such approval is also a condition to
the Closing. See "-- The Strategic Alliance Agreement -- Conditions."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION
Neither Hexcel's stockholders nor Hexcel will recognize any gain or loss
from the Acquisition for United States federal income tax purposes. Hexcel and
its subsidiaries will have an aggregate cost basis in the acquired assets and
stock of the acquired subsidiaries that together comprise the Ciba Composites
Business equal to the aggregate fair market value of the consideration paid
therefor.
STOCK EXCHANGE LISTING
Hexcel has agreed in the Strategic Alliance Agreement to use all
commercially reasonable efforts to cause the Hexcel Shares to be approved for
listing on the NYSE at the time of Closing. Such approval for listing on the
NYSE is a condition to Ciba's obligation to consummate the Acquisition. Hexcel
also intends to use its reasonable efforts to cause the Hexcel Shares to be
approved for listing on the PSE at the time of Closing. The Hexcel Shares have
not yet been approved for listing on the NYSE or the PSE.
ACCOUNTING TREATMENT
The Acquisition will be accounted for by the purchase method in accordance
with APB Opinion No. 16. The purchase price, including the Cash Price, the fair
market value of the Senior Subordinated Notes and the fair market value of the
Hexcel Shares, plus any transaction costs to be capitalized, will be compared to
the current fair value of the identifiable net assets acquired, and the
difference will be allocated to goodwill and amortized on a straight-line basis
over such periods as are permitted by GAAP. See "UNAUDITED PRO FORMA FINANCIAL
INFORMATION."
THE STRATEGIC ALLIANCE AGREEMENT
THE FOLLOWING SUMMARY OF THE STRATEGIC ALLIANCE AGREEMENT IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE COPY OF THE STRATEGIC ALLIANCE AGREEMENT
INCLUDED IN THIS PROXY STATEMENT AS ANNEX B. STOCKHOLDERS ARE URGED TO READ THE
STRATEGIC ALLIANCE AGREEMENT IN ITS ENTIRETY.
GENERAL
THE ACQUIRED ASSETS. The Strategic Alliance Agreement provides, among other
things, that Ciba will sell, assign and transfer to Hexcel (i) all right, title
and interest of Ciba and its subsidiaries in and to assets that relate
exclusively or primarily to the Ciba Composites Business (with certain
exclusions) and (ii) good, valid and marketable title in and to all capital
stock or other equity interests (the "Contributed Shares") in Composite
Materials Limited, a United Kingdom company and wholly owned subsidiary of Ciba
("CML"), Brochier, Salver S.r.l., an Italian corporation and wholly owned
subsidiary of Ciba ("Salver"), Danutec (subject to the prior occurrence of the
Danutec Closing (as defined below)) and Confection et Diffusion de Stores et
Rideaux, a French corporation and indirect wholly owned subsidiary of Ciba
("CDSR" and together with CML, Brochier, Salver and, subject to the prior
occurrence of the Danutec Closing, Danutec, the "Divested Subsidiaries"), each
of which is engaged predominantly in the Ciba Composites Business ((i) and (ii)
being collectively, the "Acquired Assets"). In exchange for the Acquired Assets,
Hexcel will (i) assume the liabilities that relate exclusively or primarily to
the Ciba Composites Business (with certain exclusions) (the "Assumed
Liabilities") and (ii) pay or deliver to Ciba or a subsidiary thereof (a) the
Cash Price, (b) the Senior Subordinated Notes and (c) the Hexcel Shares.
DANUTEC. In the event that Ciba does not acquire the PCD Equity by the
Closing Date, the Contributed Shares will not include the Danutec Equity unless
and until the Danutec Closing occurs. If Ciba acquires the PCD Equity prior to
the Closing Date or within one year after the Closing Date, the closing of the
sale and transfer of the Danutec Equity to Hexcel (the "Danutec Closing") will
take
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place on the Closing Date or on the fifth business day following (i) the
consummation of an agreement between Ciba and PCD (a "Danutec Agreement")
relating to the sale to Ciba of the PCD Equity if no pre-merger notification is
filed under the Austrian Cartel Act, (ii) receipt of a confirmation from the
Austrian Cartel Court resulting in a clearance of the transactions contemplated
by the Danutec Agreement if a pre-merger notification is filed under the
Austrian Cartel Act or (iii) at such other time as shall be agreed among the
parties. The consideration to be paid by Hexcel to Ciba for the PCD Equity will
be based upon the Danutec Price and will be paid in an additional principal
amount of up to $9 million (corresponding to a Danutec Price of $11 million or
more) of Senior Subordinated Notes. See "-- Principal Amount of the Senior
Subordinated Notes." The Danutec Price will be determined by arm's-length
negotiations between Ciba and PCD for the PCD Equity. Ciba currently anticipates
purchasing the PCD Equity from PCD for approximately $12.5 million in late
January 1996, pursuant to a definitive purchase agreement, the terms of which
are subject to approval by the boards of PCD and its parent entity, entered into
with PCD on December 20, 1995. If, however, Ciba does not acquire the PCD Equity
by the first anniversary of the Closing Date, Ciba will retain the Danutec
Equity and the assets and liabilities of Danutec and will, on the first
anniversary of the Closing Date, pay to Hexcel $11 million in cash plus interest
from the Closing Date at the rate in effect from time to time under the Senior
Subordinated Notes. There can be no assurance that Ciba will actually purchase
the PCD Equity and subsequently transfer the Danutec Equity to Hexcel.
THE DEFERRED ASSETS. Pursuant to the Distribution Agreement, certain assets
that relate to the Ciba Composites Business, but which are located in the
Excluded Jurisdictions (as defined in the Strategic Alliance Agreement) (the
"Deferred Assets") will not be acquired by Hexcel on the Closing Date, but will
be acquired by Hexcel at various times subsequent to the Closing Date. The
Deferred Assets primarily consist of inventory and certain fixed assets, which
are not in the aggregate expected to be material to the financial position of
the combined company. As described under "-- Principal Amount of the Senior
Subordinated Notes," the initial principal amount of the Senior Subordinated
Notes will be reduced by the net book value of the Deferred Assets that are
current assets plus $457,500 related to a facility in South Africa. Upon the
earlier of (i) the first anniversary of the Closing Date or (ii) the date of the
final sale and transfer of the Deferred Assets to Hexcel under the Distribution
Agreement, Hexcel will pay to Ciba an additional principal amount of Senior
Subordinated Notes (the "Deferred Consideration") equal to the aggregate value
of the Deferred Assets sold to Hexcel pursuant to the Distribution Agreement
after the Closing Date (which is currently expected to be approximately $7
million to $10 million, determined based on currently available information and
in accordance with the terms of the Distribution Agreement). See "-- The
Distribution Agreement."
PRINCIPAL AMOUNT OF THE SENIOR SUBORDINATED NOTES
The Strategic Alliance Agreement sets forth the negotiated $48,029,000
initial aggregate principal amount of the Senior Subordinated Notes to be issued
to Ciba, which will bear interest from the date of the Closing, and provides for
such initial aggregate principal amount to be adjusted as follows: (i) increased
by (a) the Danutec Price if such price is $7 million or less, (b) $7 million
plus 50% of the amount by which the Danutec Price exceeds $7 million if the
Danutec Price does not exceed $11 million or (c) $9 million if the Danutec Price
exceeds $11 million; (ii) decreased or increased, as the case may be, by the
amount by which Hexcel's working capital immediately prior to the Closing
exceeds or is less than, as the case may be, Hexcel's working capital at July 2,
1995; (iii) increased or decreased, as the case may be, by the amount by which
the Ciba Composites Business' working capital immediately prior to the Closing
exceeds or is less than, as the case may be, the Ciba Composites Business'
working capital at June 30, 1995; (iv) decreased by the net book value as of the
Closing Date of the Deferred Assets that are current assets plus $457,500; (v)
to the extent certain prepaid taxes are not included as current assets of the
Ciba Composites Business in the calculation of the Ciba Composites Business'
working capital, increased by an amount equal to such prepaid taxes; (vi) to the
extent that certain transfer taxes paid by Hexcel are not included as current
assets of Hexcel in the calculation of Hexcel's working capital, decreased by an
amount equal to such transfer taxes; and (vii) increased by the amount, if any,
by which the result obtained by subtracting (a) the total of certain
individually
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scheduled Ciba Composites Business items as well as certain reserves for
non-operating liabilities that would represent future cash expenses of the Ciba
Composites Business from (b) the total of certain individually scheduled Hexcel
items as well as certain reserves for non-operating liabilities that would
represent future cash expenses of Hexcel, exceeds $83,029,000 or decreased by
the amount, if any, by which $83,029,000 exceeds such result. The purpose of the
foregoing adjustments to the principal amount of the Senior Subordinated Notes
is to take into account relative changes in (i) certain balance sheet items of
Hexcel and the Ciba Composites Business and (ii) other valuation differences
between the date of the signing of the Strategic Alliance Agreement and the
Closing Date, and to adjust for such changes on a dollar-for-dollar basis.
As discussed under "-- Background of the Acquisition," (i) the negotiated
$48,029,000 initial aggregate principal amount of the Senior Subordinated Notes
reflects a $10 million valuation adjustment agreed to by Hexcel and Ciba during
the final negotiations of the original terms of the Strategic Alliance Agreement
and (ii) Hexcel and Ciba further agreed on December 12, 1995 to amend the
Strategic Alliance Agreement to reflect an additional $5 million reduction in
the initial aggregate principal amount of the Senior Subordinated Notes from
$48,029,000 to $43,029,000. These adjustments were agreed to in light of the
decline in recent earnings and near-term earnings estimates of the Ciba
Composites Business relative to Hexcel.
As discussed under "-- The Strategic Alliance Agreement -- General --
Danutec," Ciba currently anticipates purchasing the PCD Equity for $12.5
million, which would correspond to a $9 million adjustment in the aggregate
principal amount of the Senior Subordinated Notes.
Based on third quarter 1995 balance sheet information for Hexcel and the
Ciba Composites Business and after taking into account the $15 million in
initial aggregate principal amount adjustments discussed above, the initial
aggregate principal amount of the Senior Subordinated Notes would have been
approximately $42.4 million at October 1, 1995. See "UNAUDITED PRO FORMA
FINANCIAL INFORMATION." Hexcel anticipates that any differences from such amount
will result primarily from relative changes in the working capital of Hexcel and
the Ciba Composites Business.
REPRESENTATIONS AND WARRANTIES
The Strategic Alliance Agreement contains various customary representations
and warranties of each of Hexcel, Ciba and CGC, relating to, among other things:
(i) due organization and similar corporate matters; (ii) due authorization,
execution, delivery and the enforceability of the Strategic Alliance Agreement
and the Ancillary Agreements (subject, in the case of Hexcel, to the approval by
the requisite vote of the holders of Hexcel Common entitled to vote for the
issuance of the Hexcel Shares and the Common Stock Amendment); (iii) the absence
of certain conflicts, violations, breaches, defaults, termination events, liens
or consent, approval or filing requirements as a result of the execution and
delivery of the Strategic Alliance Agreement and the Ancillary Agreements; (iv)
absence of undisclosed liabilities; (v) compliance with applicable laws,
regulations, rules and orders, permits and authorizations; (vi) the absence of
litigation which, (x) if adversely determined, would be reasonably likely to
result in a material adverse effect, (y) seeks to enjoin, prevent, alter or
materially delay the Acquisition, or (z) alleges criminal action or inaction
with respect to Hexcel or the Ciba Composites Business; (vii) the insured status
of the material properties and businesses of Hexcel and the Ciba Composites
Business; (viii) validity and enforceability of and absence of default or breach
under material contracts; (ix) the conduct of each of Hexcel and the Ciba
Composites Business in the ordinary course of business and the absence of
changes and events that would reasonably be expected to have a material adverse
effect since June 30, 1995 (in the case of the Ciba Composites Business) or July
2, 1995 (in the case of Hexcel); (x) the timely filing of tax returns and the
payment of taxes relating to the Ciba Composites Business (including the
Divested Subsidiaries) and Hexcel and the absence of deficiencies asserted by
taxing authorities with respect to income taxes or other material taxes; (xi)
compliance with environmental laws and related matters; (xii) compliance with
cost accounting standards, federal acquisition regulations and federal
acquisition supplemental regulations applicable to contracts with governmental
entities related to the United States federal government;
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(xiii) the useable and saleable condition of inventory and the methods used for
valuing of such inventory; (xiv) possession of and compliance with permits
necessary to manufacture products; (xv) the absence of material products
liability claims or proceedings; (xvi) certain matters related to foreign
employee benefit plans; (xvii) the validity and absence of infringement of
intellectual property; (xviii) brokers, finders, consultants or other
intermediaries employed in connection with the Acquisition; (xix) certain
matters related to accounts receivable; and (xx) certain matters related to
collective bargaining agreements and other labor relations matters.
The Strategic Alliance Agreement contains certain additional representations
and warranties of Hexcel relating to the following: (i) capital structure prior
to and after the Acquisition; (ii) interests held by Hexcel; (iii) certain
filings with the Commission; (iv) investment intent of Hexcel with respect to
the Contributed Shares; and (v) good and marketable title to or valid leasehold
interests in the assets of Hexcel and its subsidiaries and compliance with
material leases.
The Strategic Alliance Agreement contains certain additional representations
and warranties of Ciba and CGC, respectively, relating to the following; (i) the
financial statements of the Ciba Composites Business; (ii) due authorization,
valid issuance and ownership of good and marketable title in and to the
Contributed Shares by Ciba, free and clear of any liens and all other
limitations or restrictions; (iii) good and marketable title to or valid
leasehold interests in the Acquired Assets and the Deferred Assets; (iv) good
and marketable title to the real and personal properties required for the
conduct of the Ciba Composites Business and compliance with all material leases
relating exclusively or primarily to the Ciba Composites Business; (v) the
condition of the Acquired Assets and Deferred Assets and the sufficiency of the
Acquired Assets and Deferred Assets to carry on the Ciba Composites Business;
and (vi) Ciba's and CGC's investment intent with respect to the Hexcel Shares.
None of the representations and warranties contained in the Strategic
Alliance Agreement, the Ancillary Agreements or any instrument delivered
pursuant to the Strategic Alliance Agreement will survive the Closing and no
indemnification will be provided by Hexcel or Ciba and CGC, as the case may be,
in respect of any breach of such representations and warranties.
CERTAIN COVENANTS
CONDUCT OF BUSINESS. Hexcel has agreed that, until the Closing Date, except
as expressly provided in the Strategic Alliance Agreement or as Ciba may
otherwise reasonably agree, Hexcel will and will cause each of its subsidiaries
to (i) conduct its business in the ordinary course of business consistent in all
material respects with past practice, (ii) use all commercially reasonable
efforts to preserve intact its business organizations and relationships with
third parties and to keep available the services of its current employees and
(iii) not sell or otherwise dispose of any of its assets except pursuant to
existing contracts and commitments or in the ordinary course of business
consistent in all material respects with past practice. Hexcel has further
agreed that, until the Closing, neither Hexcel nor its subsidiaries will,
without the prior written consent of Ciba: (i) issue (other than upon exercise
of outstanding stock options, upon conversion of outstanding convertible debt or
pursuant to Hexcel's Plan of Reorganization), authorize for issuance (except for
the Common Stock Amendment), sell or purchase any capital stock or other
securities of Hexcel or its subsidiaries or grant any options (other than
employee or director stock options, the grant of which was authorized prior to
September 29, 1995 and disclosed to Ciba or that are granted to newly hired
employees in the ordinary course of business); (ii) declare any dividends on its
capital stock; (iii) split, reclassify, issue or authorize for issuance any
other securities in respect of its capital stock; (iv) subject to certain
exceptions, incur or guarantee any indebtedness for borrowed money or make any
loans to or investment in any other person other than Hexcel or any direct or
indirect wholly owned subsidiary of Hexcel, other than pursuant to existing
contracts and non-material loans, advances or extensions of credit to employees,
customers or suppliers in the ordinary course of business consistent with past
practice; (v) take any action that would result in any representation or
warranty made by Hexcel in the Strategic Alliance Agreement or any Ancillary
Agreement becoming untrue or any of the conditions to the Closing not being
satisfied; (vi) acquire or agree to acquire any business or any corporation or
other business
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entity or any assets that are material to Hexcel and its subsidiaries, taken as
a whole, except for purchases of inventory in the ordinary course of business;
(vii) mortgage or otherwise encumber or sell, lease or otherwise dispose of any
of its properties or assets except in the ordinary course of business consistent
with past practice; (viii) enter into, modify, amend or terminate any material
contract; (ix) make any new capital expenditure which is individually in excess
of $100,000 or which when taken together with all other new capital expenditures
is in excess of $500,000; (x) make any material tax election or settle or
compromise any material liability for taxes not accrued or reserved for; (xi)
pay, discharge or satisfy certain claims, liabilities and obligations; (xii)
amend its certificate of incorporation (except for the Common Stock Amendment)
or bylaws; (xiii) with respect to employees outside the United States, adopt or
amend in any material respect or terminate any employee benefit plan, except as
required by law; (xiv) with respect to employees outside the United States, make
any material change in the compensation or benefits paid to any employee or
enter into any new employment agreement except in the ordinary course of
business consistent with past practice; (xv) make any change in any accounting
method other than those required by GAAP; (xvi) enter into an agreement to
settle any material lawsuit; or (xvii) authorize, commit to or agree to take any
of the foregoing actions.
Ciba and CGC have agreed that, until the Closing, except as expressly
provided in the Strategic Alliance Agreement or as Hexcel may otherwise
reasonably agree, Ciba and CGC will and Ciba will cause each of its subsidiaries
to (i) conduct the Ciba Composites Business in the ordinary course of business
consistent in all material respects with past practice, (ii) use all
commercially reasonable efforts to preserve intact the business organizations
and relationships with third parties of the Ciba Composites Business and to keep
available the services of the current employees of the Ciba Composites Business,
(iii) not sell or otherwise dispose of any of any Acquired Assets or Deferred
Assets or any parts thereof except pursuant to existing contracts and
commitments or in the ordinary course of business consistent in all material
respects with past practice and (iv) notify Hexcel as to any event of
condemnation or casualty affecting any of the Acquired Assets or Deferred Assets
promptly. Ciba and CGC have further agreed that, until the Closing, that neither
Ciba nor CGC will, without the prior written consent of Hexcel (in each case to
the extent related to the Ciba Composites Business): (i) issue, authorize for
issuance, sell or purchase any capital stock or other securities of Ciba; (ii)
declare any dividends on its capital stock (other than dividends of cash and
marketable securities); (iii) split, reclassify, issue or authorize for issuance
any other securities in respect of its capital stock; (iv) subject to certain
exceptions, incur or guarantee any indebtedness for borrowed money or make any
loans to or investment in any other person other than any Divested Subsidiary,
pursuant to existing contracts and non-material loans, advances or extensions of
credit to employees, customers or suppliers in the ordinary course of business
consistent with past practice; (v) take any action that would result in any
representation or warranty made by Ciba or CGC in the Strategic Alliance
Agreement or any Ancillary Agreement becoming untrue or any of the conditions to
the Closing not being satisfied; (vi) acquire or agree to acquire any business
or any corporation or other business entity or any assets that are material to
the Ciba Composites Business taken as a whole, except for purchases of inventory
in the ordinary course of business consistent with past practice and the
purchase of the minority interest in Danutec; (vii) mortgage or otherwise
encumber or sell, lease or otherwise dispose of any of the Acquired Assets or
the Deferred Assets or, in the case of a Divested Subsidiary, any of its
properties or assets; (viii) enter into, modify, amend or terminate any material
Acquired Contract (as defined in the Strategic Alliance Agreement); (ix) make
any new capital expenditure relating to the Ciba Composites Business which is
individually in excess of $100,000 or which when taken together with all other
new capital expenditures is in excess of $500,000; (x) make any material tax
election or settle or compromise any material liability for taxes not accrued or
reserved for; (xi) pay, discharge or satisfy certain claims, liabilities and
obligations that are Assumed Liabilities; (xii) amend the certificate of
incorporation or bylaws of any Divested Subsidiary; (xiii) with respect to
employees outside the United States, adopt or amend in any material respect or
terminate any pension or benefit plan relating to employees of the Ciba
Composites Business outside the United States except as required by law; (xiv)
with respect to employees outside the United States, make any material change in
the compensation or benefits paid to any employee or enter into
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any new employment agreement except in the ordinary course of business
consistent with past practice; (xv) make any change in any method of accounting
other than those required by GAAP; (xvi) enter into an agreement to settle any
material lawsuit; or (xvii) authorize, commit to or agree to take any of the
foregoing actions.
INTELLECTUAL PROPERTY LICENSES. The Strategic Alliance Agreement contains
certain covenants providing for the cross-licensing of certain intellectual
property (primarily patents) of Ciba that will either be transferred to Hexcel
at Closing or be retained by Ciba following the Closing. Such covenants provide
for Hexcel or Ciba, as the case may be, to grant to the other certain
royalty-free and royalty-bearing licenses generally designed to allow (i) Hexcel
to conduct the Ciba Composites Business in substantially the same manner as
conducted by Ciba prior to the Closing and (ii) Ciba to conduct its
non-composites businesses in substantially the same manner after the Closing as
conducted prior to the Closing, in each case, recognizing that the licensed
intellectual property has application in both the Ciba Composites Business and
in Ciba's non-composites businesses.
OTHER COVENANTS. Each of Hexcel, Ciba and CGC has agreed that (i) they will
negotiate in good faith and agree upon mutually acceptable terms of the
Ancillary Agreements and, at the Closing, execute and deliver the Ancillary
Agreements and (ii) if, prior to Closing, a major original equipment
manufacturer enters into a contract with CGC that constitutes part of the
Acquired Assets and relates to certain interiors programs and/or the
manufacturing of secondary composites for such manufacturer in the People's
Republic of China (a "Special OEM Contract"), Hexcel, Ciba and CGC will promptly
negotiate in good faith the terms of a royalty agreement providing for the
payment to Ciba or CGC of a royalty with respect to sales under such contract.
Such royalty agreement will be mutually agreed upon in good faith by the parties
based upon certain factors, including the anticipated level of profitability and
estimated capital expenditures associated with such Special OEM Contract.
In addition, each of Hexcel, Ciba and CGC has agreed to certain customary
covenants, including, among others, covenants relating to access to information,
taking of actions to comply with legal requirements and obtain requisite
approvals/consents, post-closing cooperation, further assurances and
supplemental disclosure.
CONDITIONS
The obligations of Hexcel and Ciba to consummate the transactions
contemplated to occur at the Closing are subject to the satisfaction or waiver
of the following conditions, among others: (i) the receipt of all necessary
consents and approvals of, or expiration of applicable waiting periods imposed
by, any governmental entity, including those relating to antitrust and security
clearance or similar matters; (ii) no statute, rule, regulation, executive
order, court order or other order issued by a governmental entity, preventing
the consummation of the transactions contemplated by the Strategic Alliance
Agreement or any Ancillary Agreement; (iii) approval by the requisite vote of
Hexcel's stockholders of issuance of the Hexcel Shares and the Common Stock
Amendment; (iv) approval of the Hexcel Shares for listing on the New York Stock
Exchange; and (v) Hexcel's receipt of adequate financing on commercially
reasonable terms in order to (a) deliver the Cash Price at the Closing, (b)
support the operations of Hexcel and its subsidiaries assuming the Acquisition
is consummated, and (c) to the extent desired by Hexcel, repay certain currently
outstanding indebtedness of Hexcel and its subsidiaries.
The obligation of Hexcel to consummate the transactions contemplated to
occur at the Closing are subject to the following additional conditions: (i) the
accuracy as of the Closing Date of Ciba's and CGC's representations and
warranties; (ii) no pending suit, action or proceeding by any governmental
entity (x) challenging or seeking to restrain or prohibit the transactions
contemplated by the Strategic Alliance Agreement or any Ancillary Agreement or
seeking to obtain any damages in connection with the transactions contemplated
by the Strategic Alliance Agreement or any Ancillary Agreement that would
reasonably be expected to have a material adverse effect on Hexcel or the Ciba
Composites
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Business, (y) seeking to prohibit or limit the ownership or operation by Hexcel,
Ciba or both of them of a material portion of the business or assets of Hexcel
or the Ciba Composites Business, or (z) seeking to prohibit Hexcel from
exercising its rights under the Governance Agreement; (iii) the performance and
compliance by Ciba, CGC and each of Ciba's other subsidiaries of their
obligations and covenants; (iv) the receipt by Hexcel of certain customary
opinions of counsel; (v) the receipt by Hexcel of reasonably satisfactory bills
of sale and other conveyancing documents; (vi) the execution and delivery by
Ciba and CGC of all Ancillary Agreements; and (vii) the receipt of such other
documents as Hexcel or its counsel may reasonably request.
The obligations of Ciba, CGC and the Divested Subsidiaries to consummate the
transactions contemplated to occur at the Closing are subject to the following
additional conditions: (i) the accuracy as of the Closing Date of Hexcel's
representations and warranties; (ii) no pending suit, action or proceeding by
any governmental entity (w) challenging or seeking to restrain or prohibit the
transactions contemplated by the Strategic Alliance Agreement or any Ancillary
Agreement or seeking to obtain any damages in connection with the transactions
contemplated by the Strategic Alliance Agreement or any Ancillary Agreement that
would reasonably be expected to have a material adverse effect on the Ciba
Composites Business or Hexcel, (x) seeking to prohibit or limit the ownership or
operation by Hexcel, Ciba or both of them of a material portion of the business
or assets of Hexcel or the Ciba Composites Business, (y) seeking to impose
limitations on the ability of Ciba to acquire or hold the Hexcel Shares, or (z)
seeking to prohibit Ciba or any subsidiary thereof that holds Hexcel Common from
exercising its rights under the Governance Agreement; (iii) the performance and
compliance by Hexcel of its obligations and covenants; (iv) the sale by Hexcel
of its United States resins business (which was completed with an unaffiliated
third party on October 30, 1995); (v) the receipt by Ciba of certain customary
opinions of counsel; (vi) the execution and delivery by Hexcel of all Ancillary
Agreements; and (vii) the receipt of such other documents as Ciba or its counsel
may reasonably request.
NO SOLICITATION OF ALTERNATIVE TRANSACTIONS
The Strategic Alliance Agreement provides that neither Ciba nor Hexcel will,
nor will they permit any of their respective subsidiaries to, nor will they
permit any officer, director or employee of, or any investment banker, attorney
or other advisor or representative of either of them or their respective
subsidiaries to, (i) solicit or initiate or facilitate or endorse or encourage
the submission of any proposal that constitutes, or may reasonably be expected
to lead to, any transaction other than those contemplated by the Strategic
Alliance Agreement and the Ancillary Agreements which would or could reasonably
be expected to impede, interfere with, prevent or materially delay, or dilute
the benefits to Ciba or Hexcel, of such transactions (an "Interfering
Transaction"), or (ii) participate in any discussions or negotiations regarding,
or furnish to any person any information with respect to, or take any other
action to expedite any inquiries or the making of any proposal that constitutes,
or may reasonably be expected to lead to, any Interfering Transaction; provided,
however, that, prior to the receipt of the approval of the stockholders of
Hexcel of the issuance of the Hexcel Shares and the Common Stock Amendment, if
in the opinion of the Board of Directors of Hexcel or Ciba, as the case may be,
based on the advice of counsel, failure to so act would be inconsistent with the
fiduciary duties of Hexcel or Ciba or their respective boards of directors, as
the case may be, to stockholders under applicable law, Hexcel or Ciba, as the
case may be, may, in response to an unsolicited proposal relating to an
Interfering Transaction, furnish information to any person pursuant to a
confidentiality agreement.
In addition, the Strategic Alliance Agreement provides that the Board of
Directors will not (i) withdraw or modify, or propose to withdraw or modify, in
a manner that would prevent the stockholders from voting on, and approving if
the requisite vote is obtained, the issuance of the Hexcel Shares or the Common
Stock Amendment, its approval or recommendation of the transactions contemplated
by the Strategic Alliance Agreement and the Ancillary Agreements, (ii) approve
or recommend, or propose to approve or recommend, an Interfering Transaction or
(iii) negotiate or approve or authorize entering into any preliminary or
definitive agreement or understanding with
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respect to an Interfering Transaction. The Strategic Alliance Agreement also
provides that the boards of directors of Ciba and CGC will not (i) withdraw or
modify, or propose to withdraw or modify, the approval or recommendation by such
boards of directors of the transactions contemplated by the Strategic Alliance
Agreement or the Ancillary Agreements, (ii) approve or recommend, or propose to
approve or recommend, any Interfering Transaction or (iii) negotiate or approve
or authorize entering into any preliminary or definitive agreement or
understanding with respect to any Interfering Transaction.
EXPENSE REIMBURSEMENT; ALTERNATIVE TRANSACTION FEE
The Strategic Alliance Agreement provides that expenses incurred in
connection with the Strategic Alliance Agreement and the transactions
contemplated thereby will generally be borne by the party incurring such
expense. If, however, the stockholders of Hexcel fail to approve the issuance of
the Hexcel Shares and the Common Stock Amendment or if the Strategic Alliance
Agreement is terminated (other than due to the fault of Ciba or its
subsidiaries) prior to the stockholder meeting taking place and if, prior to
such vote or termination, Hexcel received a proposal for or became aware of an
Interfering Transaction (a "Trigger Event"), Hexcel will reimburse Ciba for its
out-of pocket expenses incurred in connection with the Strategic Alliance
Agreement and the Ancillary Agreements up to a maximum of $1,000,000. If during
the 12 months following a Trigger Event, Hexcel consummates, becomes a party to,
or enters into an agreement relating to, a transaction that is or would have
been an Interfering Transaction, then promptly after Hexcel consummates such
transaction, Hexcel will pay Ciba an alternative transaction fee of $1,000,000.
TERMINATION
The Strategic Alliance Agreement may be terminated and the transactions
contemplated thereby abandoned (i) by mutual written consent, (ii) by Hexcel or
Ciba, as the case may be, if the conditions to such party's obligation become
incapable of fulfillment and have not been waived or (iii) by Hexcel or Ciba if
the Closing has not occurred by April 1, 1996.
AMENDMENTS AND WAIVERS
The Strategic Alliance Agreement may be amended at any time by an instrument
in writing signed on behalf of each of the parties. The parties may waive
compliance by any other party with any term or provision that may legally be
waived by an instrument in writing signed on behalf of the waiving party.
INDEMNIFICATION
RELATING TO THE ACQUISITION. Ciba has agreed to indemnify and hold harmless
Hexcel, its subsidiaries and their affiliates and their respective officers,
directors, employees, stockholders, agents and representatives against any loss,
liability, claim, damage or expense (including reasonable legal fees and
expenses) as incurred, for or on account of or arising from or in connection
with or otherwise with respect to (i) any assets of Ciba other than Acquired
Assets or liabilities of Ciba other than Assumed Liabilities; or (ii) any breach
of any covenant of Ciba or CGC contained in the Strategic Alliance Agreement or
in any Ancillary Agreement to be performed after the Closing. Hexcel has agreed
to indemnify and hold harmless Ciba, CGC, their affiliates and their respective
officers, directors, employees, stockholders, agents and representatives against
any loss, liability, claim, damage or expense (including reasonable legal fees
and expenses), as incurred, for or on account of or arising from or in
connection with or otherwise with respect to (i) any Acquired Assets or Assumed
Liabilities or (ii) any breach of any covenant of Hexcel contained in the
Strategic Alliance Agreement or in any Ancillary Agreement to be performed after
the Closing.
DIRECTORS AND OFFICERS. The Strategic Alliance Agreement provides that the
certificate of incorporation and bylaws of Hexcel will continue to contain the
provisions with respect to indemnification of directors, officers, employees and
other agents of Hexcel contained therein as of the date of the Strategic
Alliance Agreement, which provisions will not be amended, repealed or otherwise
modified for a period of six years following the Closing in any manner that
would adversely affect the rights of
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individuals who at any time prior to the Closing were directors or officers of
Hexcel in respect of actions or omissions occurring at or prior to the Closing,
except for such modifications as are required by applicable law. From and after
the Closing, Hexcel is generally required to indemnify, to the fullest extent
permitted by Delaware law, the officers and directors of Hexcel as of the date
of the Strategic Alliance Agreement and their respective heirs and personal and
legal representatives (collectively, the "Indemnified Individuals") against all
losses (including reasonable fees and expenses of counsel) arising out of any
claim based in whole or in part on the fact that such person was a director or
officer at Hexcel at or prior to the Closing. For six years after the Closing,
Hexcel is generally required to provide directors' and officers' liability
insurance ("D&O Insurance") for the Indemnified Individuals (i) in an amount no
less than that currently in effect or such greater amount as is hereafter
maintained, (ii) with other terms no less favorable than those currently in
effect and (iii) with an insurance carrier of comparable or better financial
condition than Hexcel's current D&O Insurance carrier.
NON-COMPETITION AND NON-SOLICITATION; CONFIDENTIALITY
The Strategic Alliance Agreement provides that, for a period of five years
following the Closing Date, Ciba and its subsidiaries may not engage in
activities or businesses that compete with the development, manufacture,
marketing, distribution or sale on a worldwide basis of composites, including
structures and interiors, fabrics, panels, laminates, prepregs, adhesive films,
honeycomb core, sandwich panels and fabricated components, in each case as
conducted on the Closing Date (the "Composites Field"). Ciba may, however,
develop, manufacture, market, distribute and/or sell adhesive films, resins
systems, additives and pigments for use in the Composites Field, except that
such adhesive films and resins systems may not include any specific adhesive
films or prepreg formulations (or derivations thereof) used by the Ciba
Composites Business on or prior to the Closing Date, unless such adhesive films
or resins systems have been sold by Ciba and its subsidiaries to third parties
prior to the Closing Date. Notwithstanding the above, Ciba or its subsidiaries
may (x) own less than an aggregate of 5% of any class of stock or 10% in value
of any instrument of indebtedness of a person engaged in the Composites Field or
(y) acquire a person which engages in the Composites Field if such activities
account for less than 10% of such person's consolidated annual revenues,
provided that Hexcel is promptly offered the opportunity to purchase the
business of such person in the Composites Field on commercially reasonable
terms. In addition, the Strategic Alliance Agreement provides that, without the
prior written consent of Hexcel, Ciba will not (x) solicit or recruit any
employees of Hexcel who were employees of the Ciba Composites Business on the
Closing Date, or (y) solicit or encourage any employees of Hexcel who were
employees of the Ciba Composites Business on the Closing Date to leave the
employment of Hexcel other than those released or terminated by Hexcel or any of
its affiliates or voluntarily terminated prior to such solicitation or
recruitment.
The Strategic Alliance Agreement also provides that, for a period of five
years from the Closing Date, Hexcel and its subsidiaries may not engage in
activities or businesses that compete with the research, development,
manufacture, marketing, distribution or sale on a worldwide basis of syntactics
and liquid and/or paste adhesives as conducted on the Closing Date (the
"Polymers Field") except (x) in the research, development and manufacture of
products in the Polymers Field for internal use in the products that Hexcel
researches, develops, manufactures, markets, distributes and sells; (y) to
continue the development, manufacture, marketing, distribution and sale of
existing products in the Polymers Field manufactured at Hexcel's Casa Grande,
Arizona, Livermore, California and Welkenraedt, Belgium facilities (or such
facilities, if any, as to which the manufacture of such products may be
relocated) solely for the use or sale of such products as auxiliaries to, or in
combination with, Hexcel's products in the Composites Field; and (z) to
incorporate products in the Polymers Field as intermediate products into
prepregs, panels, parts and honeycomb. The Strategic Alliance Agreement further
provides that, for a period of five years from the Closing Date, Hexcel and its
subsidiaries will not, without the prior written consent of Ciba or any of its
affiliates (other than Hexcel or its subsidiaries) (x) solicit or recruit any
employees of Ciba or its subsidiaries who are employees of Ciba's worldwide
Polymers Division or (y) solicit or encourage any employees of Ciba's worldwide
Polymers Division to leave the employment of Ciba or any of its subsidiaries
other than such employees who are
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released or terminated by Ciba or any of its subsidiaries or voluntary
terminated prior to such solicitation or recruitment. Notwithstanding the above,
Hexcel may (x) own less than an aggregate of 5% of any class of stock or less
than 10% in value of any instrument of indebtedness of a person engaged in the
Polymers Field or (y) acquire a person which engages in the Polymers Field if
such activities account for less than 10% of such person's consolidated annual
revenues, provided that Ciba is promptly offered the opportunity to purchase the
business of such person in the Polymers Field on commercially reasonable terms.
For a period of ten years following the Closing Date, Hexcel and Ciba agree
to hold confidential and proprietary information and technology disclosed as a
result of the Acquisition in strict confidence and to make no use of such
information and technology, except that (i) Hexcel may make use of such
information (x) in the Composites Field and (y) (A) in the research, development
and manufacture of products in the Polymers Field for internal use in the
products that it researches, develops, manufactures, markets, distributes and
sells; (B) to continue the development, manufacture, marketing, distribution and
sale of existing products in the Polymers Field manufactured at Hexcel's Casa
Grande, Arizona, Livermore, California and Welkenraedt, Belgium facilities (or
such facilities, if any, as to which the manufacture of such products may be
relocated) solely for the use or sale of such products as auxiliaries to, or in
combination with, Hexcel's products in the Composites Field; and (C) to
incorporate products in the Polymers Field as intermediate products into
prepregs, panels, parts and honeycomb, and (ii) Ciba may make use of such
information (x) outside the Composite Field and (y) to develop, manufacture,
market, distribute and/or sell adhesive films, resins systems, additives and
pigments for use in the Composites Field, except that such adhesive films and
resins systems may not include any specific adhesive films or prepreg
formulations (or derivations thereof) used by the Ciba Composites Business on or
prior to the Closing Date, unless such adhesive films or prepreg formulations
have been sold by Ciba and its subsidiaries to third parties prior to the
Closing Date.
Notwithstanding the foregoing, the Strategic Alliance Agreement further
provides that nothing contained therein shall prevent (i) the worldwide
Polymers, Additives or Pigments Divisions of Ciba from conducting their
respective businesses in all respects as conducted immediately prior to the
Closing or (ii) Hexcel from conducting the respective businesses of the Ciba
Composites Business and Hexcel in all respects as conducted immediately prior to
the Closing.
THE GOVERNANCE AGREEMENT
THE FOLLOWING SUMMARY OF THE GOVERNANCE AGREEMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE COPY OF THE GOVERNANCE AGREEMENT INCLUDED IN THIS
PROXY STATEMENT AS ANNEX C. STOCKHOLDERS ARE URGED TO READ THE GOVERNANCE
AGREEMENT IN ITS ENTIRETY.
GENERAL
The Strategic Alliance Agreement provides that Hexcel and Ciba will enter
into the Governance Agreement at the Closing. The Governance Agreement contains
certain standstill and governance provisions designed to restrict Ciba's ability
to control Hexcel and to protect Hexcel's public stockholders. Pursuant to such
provisions, upon consummation of the Acquisition, the number of directors on
Hexcel's Board of Directors will be increased to 10, initially including four
Ciba Directors, John J. Lee (Hexcel's current Chief Executive Officer, who will
also become Chairman of the Board), Juergen Habermeier (the current President of
the Ciba Composites Business, who will resign from such position and become the
President and Chief Operating Officer of Hexcel) and four additional Independent
Directors. For purposes of the Governance Agreement, Mr. Lee will be deemed an
Independent Director and Dr. Habermeier, based on his current relationship with
Ciba and his employment by Hexcel, will be deemed not to be either an
Independent Director or a Ciba Director. The Governance Agreement also (i)
requires the approval of at least one Independent Director for the taking of any
action by the Board of Directors, (ii) imposes certain limitations on Ciba's
ability to acquire or dispose of additional Hexcel Voting Securities and (iii)
provides certain protections to Hexcel's public stockholders in connection with
any future acquisition of Hexcel. The Governance Agreement also provides that,
so long as Ciba beneficially owns certain specified percentages of the total
voting power of
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Hexcel, (i) the approval of at least one Ciba Director is required for the Board
of Directors to take any action and (ii) the approval of a majority of the Ciba
Directors is required for the taking of certain significant actions. The
Governance Agreement further provides Ciba with certain contractual preemptive
rights upon certain issuances of Hexcel Voting Securities.
CORPORATE GOVERNANCE
Pursuant to the terms of the Governance Agreement, upon consummation of the
Acquisition, four current directors of Hexcel will resign in order to permit the
appointment of the four Ciba Directors to fill the vacancies thereby created.
The initial Ciba Directors are expected to be John M.D. Cheesmond, Stanley
Sherman, Joseph T. Sullivan and Hermann Vodicka. The increase in the number of
directors from nine to ten creates an additional vacancy, which will be filled
by the appointment of Juergen Habermeier, who will serve as Hexcel's President
and Chief Operating Officer following the Closing. The remaining Directors will
be Marshall S. Geller, Peter A. Langerman, George S. Springer and Frederick W.
Stanske, all of whom are current directors of Hexcel. Thereafter, the
composition of the slate of nominees presented to the stockholders of Hexcel for
election to the Board of Directors (the "Slate") will be determined as follows:
(i) if Ciba beneficially owns Hexcel Voting Securities representing 30% or more
of the total voting power of Hexcel (as defined in the Governance Agreement),
the Slate will consist of such nominees that, if elected, would result in the
Board of Directors consisting of four Ciba Directors, the Chairman and Chief
Executive Officer of Hexcel (the "Chairman"), the President and Chief Operating
Officer of Hexcel (the "President") and four additional Independent Directors;
(ii) if Ciba beneficially owns Hexcel Voting Securities representing less than
30% but at least 20% of the total voting power of Hexcel, the Slate will consist
of such nominees that, if elected, would result in the Board of Directors
consisting of three Ciba Directors, the Chairman, the President and five
additional Independent Directors; (iii) if Ciba beneficially owns Hexcel Voting
Securities representing less than 20% but at least 15% of the total voting power
of Hexcel, the Slate will consist of such nominees that, if elected, would
result in the Board consisting of two Ciba Directors, the Chairman, the
President and six additional Independent Directors; and (iv) if Ciba
beneficially owns Hexcel Voting Securities representing less than 15% but at
least 10% of the total voting power of Hexcel, the Slate will consist of such
nominees that, if elected, would result in the Board of Directors consisting of
one Ciba Director, the Chairman, the President and seven additional Independent
Directors. Independent Director nominees will be designated by majority vote of
the then incumbent Independent Directors (including the Chairman or the
President, if he or she is an Independent Director).
In addition, Hexcel has agreed that so long as Ciba beneficially owns Hexcel
Voting Securities representing 40% or more of the total voting power of Hexcel,
each committee of the Board of Directors of Hexcel will consist of the same
number of Ciba Directors as Independent Directors. At all other times, Ciba's
representation on such committees will be at least proportionate to its
representation on the Board of Directors, unless the committee is comprised of
three members or less, in which case at least one Ciba Director will serve on
such committee.
So long as Ciba beneficially owns Hexcel Voting Securities representing 40%
or more of the total voting power of Hexcel, neither the Board of Directors nor
any committee of the Board of Directors will take any action, including the
approval of any action or inaction by officers, agents or employees of Hexcel,
without the affirmative vote of at least one Ciba Director and one Independent
Director. So long as Ciba beneficially owns Hexcel Voting Securities
representing 33% or more of the total voting power of Hexcel, the Board of
Directors will not authorize, approve or ratify any of the following actions
without the approval of a majority of the Ciba Directors: (i) any merger,
consolidation, acquisition or other business combination involving Hexcel or any
subsidiary if the value of the consideration paid or received by Hexcel in such
individual transaction or the aggregate consideration paid or received by Hexcel
in transactions approved by the Board of Directors during the prior 12 months
exceeds the greater of (x) $75 million or (y) 11% of Hexcel's total consolidated
assets; (ii) any sale, transfer, lease or other disposition of any assets,
business or operations of Hexcel or any of its subsidiaries, if the value of the
assets, business or operations so disposed exceeds the greater of (x) $75
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million or (y) 11% of Hexcel's total consolidated assets; (iii) any issuance by
Hexcel or any significant subsidiary of Hexcel of equity securities (other than
pursuant to customary employee or director stock option or incentive
compensation or similar plans and other than transactions solely among Hexcel
and its subsidiaries) or any other securities convertible into, exchangeable for
or exercisable for equity securities if the aggregate net proceeds to Hexcel of
such issuance or of such issuance when added to the aggregate net proceeds of
all such issuances approved by the Board of Directors during the prior 12 months
exceeds the greater of (x) $75 million or (y) 11% of Hexcel's total consolidated
assets; and (iv) any new capital expenditure program or any capital expenditure
that is not part of a capital expenditure program previously approved by the
Board of Directors, if the amount or anticipated amount of such program or
expenditure or of such program or expenditure when added to the aggregate amount
of capital expenditures not so approved by the Board of Directors during the
prior 12 months exceeds the greater of (x) $50 million or (y) 7% of Hexcel's
consolidated assets.
Under the terms of the Governance Agreement, Ciba has agreed that, until the
percentage of the total voting power of Hexcel beneficially owned by Ciba falls
below either (i) 15% if and so long as there is on file with the Commission any
statement showing beneficial ownership by any person other than Ciba of 10% or
more of the total voting power of Hexcel, or (ii) 10% in all other cases, in any
election of directors or any meeting of stockholders of Hexcel called expressly
for the removal of directors, so long as the Board of Directors includes (and
will include after any such removal) the Ciba Directors, each of Ciba and any
subsidiary of Ciba that holds Hexcel Voting Securities (each, a "Ciba Entity")
will be present for purposes of establishing a quorum and will vote all of its
Hexcel Voting Securities (x) in favor of any nominee or director selected or
removed in accordance with the terms of the Governance Agreement and (y)
otherwise against the removal of any director designated in accordance with the
terms of the Governance Agreement. In any other matter submitted to the vote of
the stockholders of Hexcel, Ciba and each Ciba Entity will be present for
purposes of establishing a quorum and will vote
all of its Hexcel Voting Securities either, at the discretion of Ciba, (i) as
recommended by the Board of Directors or (ii) in proportion to the votes cast
with respect to the Hexcel Voting Securities not beneficially owned by Ciba or
the Ciba Entities, except that Ciba and each Ciba Entity will be free to vote
all of its Hexcel Voting Securities entitled to vote in its sole discretion on
the following matters submitted to stockholders so long as such matters were not
submitted to stockholders at the request of Ciba or any of its affiliates (other
than Hexcel): (A) any amendment to the certificate of incorporation of Hexcel;
(B) any merger, consolidation, acquisition or other business combination
involving Hexcel or any of its subsidiaries; (C) any sale, lease, transfer or
other disposition of the business operations or assets of Hexcel; (D) any
recapitalization, restructuring or similar transaction or series of transactions
involving Hexcel or any significant subsidiary of Hexcel; (E) any dissolution or
complete or partial liquidation or similar arrangement of Hexcel; (F) certain
issuances of equity securities or securities convertible into, exchangeable for
or exercisable for equity securities; and (G) entering into any material joint
venture, collaboration or partnership by Hexcel or any of its subsidiaries.
The Governance Agreement provides that the bylaws of Hexcel shall be amended
to reflect certain provisions of the Governance Agreement. Such bylaw provisions
may not be amended during the term of the Governance Agreement without Ciba's
written consent. In addition, Hexcel will not be permitted to adopt or implement
any takeover defense measures applicable to Ciba or any of its affiliates.
Except as required by applicable law, rule or regulation, the Governance
Agreement provides that Hexcel will not approve or recommend to its stockholders
certain transactions or take certain other actions (other than those expressly
contemplated by the Governance Agreement or those that affect Ciba, each
non-Ciba stockholder and each director at the same time in the same manner) that
would (i) impose limitations on the legal rights of Ciba or its affiliates as a
stockholder of Hexcel, (ii) deny any benefit to Ciba or its affiliates other
than proportionately as a holder of any Hexcel Voting Securities, (iii)
otherwise materially adversely affect or discriminate against Ciba or its
affiliates as stockholders of Hexcel or (iv) restrict the right of any Ciba
Director to vote on any matter as such director believes appropriate in light of
his or her duties as a director or in the manner in which a Ciba Director may
participate in his or her capacity as a director in deliberations or discussions
at meetings of the Board of Directors or any committee thereof, except with
respect to (i) entering into contractual
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or other business relationships with Ciba or any of its affiliates (other than
in their capacity as stockholders of Hexcel), (ii) disputes with Ciba or any of
its affiliates (including disputes under the Governance Agreement), (iii)
interpretation or enforcement of the Governance Agreement or any other agreement
with Ciba or any of its affiliates or (iv) any other matter involving an actual
or potential conflict of interest due to such director's relationship with Ciba
or any of its affiliates.
STANDSTILL
Under the terms of the Governance Agreement, Ciba has agreed that, except as
provided in the Governance Agreement, it will not, directly or indirectly, (i)
purchase or otherwise acquire any beneficial ownership of Hexcel Voting
Securities; (ii) enter into, propose to enter into, solicit or support any
merger or business combination or similar transaction involving Hexcel or any of
its subsidiaries or purchase, acquire, propose to purchase or acquire or support
the purchase or acquisition of any portion of the business or assets of Hexcel
(except in the ordinary course of business or in nonmaterial amounts); (iii)
initiate or propose any security holder proposal without the approval of the
Board of Directors or make, or in any way participate in, any "solicitation" of
"proxies" (as such terms are used in the proxy rules of the Commission) or seek
to advise or influence any person or entity with respect to the voting of any
Hexcel Voting Securities or request or take any action to obtain any list of
securityholders for such purposes with respect to any matter other than those
with respect to which Ciba may vote in its sole discretion under the Governance
Agreement (or, as to such matters, solicit any person in a manner that would
require the filing of a proxy statement under Regulation 14A of the Exchange
Act); (iv) form, join or otherwise participate in a group formed for the purpose
of acquiring, holding, voting, disposing of or taking any action with respect to
Hexcel Voting Securities which would be required under Section 13(d) of the
Exchange Act to file a statement on Schedule 13D with the Commission; (v)
deposit any Hexcel Voting Securities in a voting trust or enter into any voting
agreement with respect thereto; (vi) seek representation on the Board of
Directors, remove a director or seek a change in the size or composition of the
Board of Directors; (vii) make any request to amend or waive the provisions of
the Governance Agreement referred to in this paragraph which would require
public disclosure; (viii) disclose any intent, purpose, plan, arrangement or
proposal inconsistent with the foregoing (including any such intent, purpose,
plan, arrangement or proposal that is conditioned on or would require the
waiver, amendment, nullification or invalidation of any of the foregoing) or
take any action that would require public disclosure of any such intent,
purpose, plan, arrangement or proposal; (ix) take any action challenging the
validity or enforceability of the foregoing; or (x) assist, advise, encourage or
negotiate with respect to or seek to do any of the foregoing.
The Governance Agreement permits Ciba to purchase or otherwise acquire
beneficial ownership of Hexcel Voting Securities in open market purchases so
long as after giving effect to such purchases or acquisitions the percentage of
the total voting power of Hexcel beneficially owned by Ciba does not exceed the
greater of (A) 49.9% until the third anniversary of the Closing or 57.5%
thereafter, and (B) the highest percentage of the total voting power of Hexcel
beneficially owned by Ciba immediately following any action by Hexcel that
increases the percentage of the total voting power of Hexcel beneficially owned
by Ciba due to a reduction in the amount of Hexcel Voting Securities outstanding
as a result of such action.
BUYOUT TRANSACTION
The Governance Agreement provides that, notwithstanding the standstill
provisions described above, at any time after the fifth anniversary of the
Closing, Ciba may propose, participate in, support or cause the consummation of
a tender offer, merger, sale of substantially all of Hexcel's assets or similar
transaction (a "Buyout Transaction"), including a Buyout Transaction with Ciba
or any of its affiliates, if each non-Ciba stockholder is entitled to receive
upon consummation of such Buyout Transaction consideration that is (i) approved
by (x) a majority of the Independent Directors acting solely in the interest of
the non-Ciba stockholders after the receipt of an opinion of a independent
nationally recognized investment banking firm retained by them or (y) a majority
in interest of the
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non-Ciba stockholders by means of a stockholder vote solicited pursuant to a
proxy statement containing the information required by Schedule 14A under the
Exchange Act (it being understood that the Independent Directors will,
consistent with their fiduciary duties, be free to include in such proxy
statement, if applicable, the reasons underlying any failure by them to approve
a Buyout Transaction by the requisite vote, including whether a fairness opinion
was sought by the Independent Directors and any opinions or recommendations
expressed in connection therewith) and (ii) is fair from a financial point of
view to the non-Ciba stockholders in the opinion of an independent nationally
recognized investment banking firm (including such a firm retained by Ciba).
ISSUANCE OF ADDITIONAL SECURITIES
If, at any time after the Closing for so long as Ciba is entitled to
designate one or more nominees for election to the Board of Directors, Hexcel
issues any additional Hexcel Voting Securities for cash (other than issuances of
Hexcel Voting Securities in connection with employee or director stock option or
incentive compensation or similar plans), Ciba will, pursuant to the Governance
Agreement, have the option to purchase an amount of such Hexcel Voting
Securities that would allow Ciba to beneficially own the same percentage of the
total voting power of Hexcel as Ciba beneficially owned immediately prior to
such issuance for the same consideration and otherwise on the same terms as were
applicable to such issuance by Hexcel.
THIRD PARTY OFFERS
In the event that Hexcel becomes the subject of a bona fide offer to enter
into a Buyout Transaction by a person other than Ciba or any of its affiliates
or any other person acting on behalf of Ciba or any of its affiliates (a "Third
Party Offer") that is made after the third anniversary of the Closing and that
is approved by two-thirds of the Independent Directors, Ciba will, within 10
days after receipt of notice of such event, either (i) offer to acquire the
Hexcel Voting Securities not beneficially owned by Ciba (the "Other Shares") on
terms at least as favorable to the holders of the Other Shares (the "Other
Holders") as those contemplated by such Third Party Offer or (ii) support such
Third Party Offer (or an alternative Third Party Offer providing greater value
to the Other Holders) by voting and causing each Ciba Entity to vote all its
Hexcel Voting Securities eligible to vote thereon in favor of such Third Party
Offer or, if applicable, tendering or selling and causing each Ciba Entity to
tender or sell all its Hexcel Voting Securities to the person making such Third
Party Offer. In the event that Hexcel becomes the subject of a Third Party
Offer, Ciba may not support or vote in favor of such Third Party Offer or tender
or sell its Hexcel Voting Securities to the person making such Third Party Offer
unless such Third Party Offer is approved by (x) a majority of the Independent
Directors acting solely in the interest of the Other Holders or (y) a majority
in interest of the Other Holders in a stockholder vote solicited pursuant to a
proxy statement containing the information required by Schedule 14A under the
Exchange Act (it being understood that the Independent Directors will,
consistent with their fiduciary duties, be free to include in such proxy
statement, if applicable, the reasons underlying any failure by them to approve
a Buyout Transaction by the requisite vote, including whether a fairness opinion
was sought by the Independent Directors and any opinions or recommendations
expressed in connection therewith).
TRANSFER RESTRICTIONS
Except in connection with a Third Party Offer that has been approved by the
Independent Directors or the Other Holders in accordance with the Governance
Agreement, Ciba will not, and will not permit any Ciba Entity to, sell, transfer
or otherwise dispose of any Hexcel Voting Securities except (i) transfers solely
among Ciba and its wholly owned subsidiaries, (ii) in accordance with the volume
and manner-of-sale limitations of Rule 144 under the Securities Act and
otherwise subject to compliance with the Securities Act or (iii) in a registered
public offering or a non-registered offering subject to an applicable exemption
from the registration requirements of the Securities Act, and in the case of
clauses (ii) and (iii), in a manner calculated to achieve a Broad Distribution
(as defined in the Governance Agreement).
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In addition, the Governance Agreement provides that Ciba will not (i) permit
any subsidiary of Ciba that is not wholly owned to become a Ciba Entity or (ii)
dispose of any of the capital stock of any Ciba Entity except to another direct
or indirect wholly owned subsidiary of Ciba. This provision does not, however,
prohibit Ciba from effecting (i) a pro rata distribution of the capital stock of
a Ciba Entity to Ciba's stockholders or (ii) a sale in a manner calculated to
achieve a Broad Distribution of up to 20%, of the equity securities of a Ciba
Entity if (x) such distribution or sale has a bona fide business purpose (other
than the sale or distribution of such Hexcel Voting Securities), (y) the Hexcel
Voting Securities beneficially owned by such Ciba Entity do not constitute a
material portion of the total assets of such Ciba Entity and (z) in the case of
a pro rata distribution to Ciba's stockholders, such Ciba Entity agrees in
writing to be bound by the terms and provisions of the Governance Agreement to
the same extent that Ciba would be if it beneficially owned the Hexcel Voting
Securities beneficially owned by such Ciba Entity.
TERMINATION; EXTENSION
On the tenth anniversary of the Closing Date, or at the end of any
subsequent renewal period, if the percentage of the total voting power of Hexcel
beneficially owned by Ciba is greater than 10% but less than 100%, Ciba will
have the option to (i) extend the Governance Agreement for an additional
two-year period, in which case so long as Ciba beneficially owns Hexcel Voting
Securities representing 25% or more of the total voting power of Hexcel, on one
occasion during such two-year period Ciba may require Hexcel to solicit in good
faith a Buyout Transaction in which Ciba, the Ciba Entities and the Other
Holders receive the same consideration per Hexcel Voting Security or (ii)
undertake to sell a sufficient number of Hexcel Voting Securities so that the
percentage of total voting power of Hexcel beneficially owned by Ciba falls
below 10% during the subsequent 18 months pursuant to one or more registered or
non-registered offerings calculated to achieve a broad distribution. If Ciba has
exercised its option to require Hexcel to solicit a Buyout Transaction as
described above, Ciba and the Ciba Entities may vote in favor of or tender or
sell their Hexcel Voting Securities pursuant to any Third Party Offer made as a
result of or during such solicitation so long as the Third Party Offer offers
the same consideration to all Hexcel stockholders. Unless Hexcel has accepted
another Third Party Offer providing at least equivalent value to all Hexcel
stockholders, Hexcel will not take any action to interfere with Ciba's right to
vote in favor of or tender into such a Third Party Offer, provided, however,
that Hexcel will remain free to pursue alternative Third Party Offers that
provide for at least equivalent currently realizable value to Hexcel
stockholders (including Ciba and the Ciba Entities) as such previously proposed
Third Party Offer.
The Governance Agreement will automatically terminate at any time that Ciba
beneficially owns Hexcel Voting Securities representing either 100% or less than
10% of the total voting power of Hexcel.
THE SENIOR SUBORDINATED NOTES
GENERAL
The Senior Subordinated Notes will be issued under the Indenture to be
entered into between Hexcel and a trustee (the "Trustee"). The Senior
Subordinated Notes will be issued to Ciba and/or certain subsidiaries of Ciba
after the Closing and the Deferred Closings pursuant to the Strategic Alliance
Agreement.
The principal terms of the Indenture are the subject of a substantive
agreement between Ciba and Hexcel. As noted elsewhere herein, Hexcel is
currently negotiating a new revolving credit facility. See "-- New Revolving
Credit Facility." Notwithstanding the agreement between Ciba and Hexcel
concerning the principal terms of the Indenture, it is possible that the
prospective lenders under the new revolving credit facility will require certain
changes to the terms of the Indenture as a condition to entering into such
facility. Accordingly, although it is expected that the Indenture will contain
terms substantively as described below, the final terms of the Indenture may
differ from those described below.
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TERMS OF THE SENIOR SUBORDINATED NOTES
The Senior Subordinated Notes will be general unsecured obligations of
Hexcel, in an aggregate principal amount to be determined in accordance with the
Strategic Alliance Agreement. See "-- The Strategic Alliance Agreement --
Principal Amount of the Senior Subordinated Notes." The Senior Subordinated
Notes will bear interest initially at a rate of 9% per annum, payable
semiannually, from the Closing Date. On each anniversary of the Closing Date,
the rate of interest will increase by 0.50%. Interest on the Senior Subordinated
Notes will be computed on the basis of a 360-day year of twelve 30-day months.
Hexcel will pay interest on overdue principal at the rate then borne by the
Senior Subordinated Notes and will pay interest on overdue installments at the
same rate to the extent lawful. The Senior Subordinated Notes will mature in
2003, but are callable, in whole or in part, at the option of Hexcel at any time
without penalty (see "-- Optional Redemption" below).
SUBORDINATION
The payment of the principal of and interest on the Senior Subordinated
Notes will be subordinated in right of payment, to the extent set forth in the
Indenture, to the prior payment in full of all Senior Indebtedness (as defined
in the Indenture) of Hexcel. The Indenture also will provide that, under certain
circumstances, Hexcel will be prohibited from making any payment in respect of
the Senior Subordinated Notes if Hexcel is in default on any Senior
Indebtedness.
OPTIONAL REDEMPTION
Hexcel may redeem the Senior Subordinated Notes in whole or in part from
time to time at a redemption price equal to 100% of the principal amount of the
Senior Subordinated Notes to be redeemed, plus accrued interest to the date
fixed for redemption. Hexcel is not required to make mandatory redemption or
sinking fund payments. The terms of the new revolving credit facility expected
to be entered into in connection with the Acquisition are expected to include
certain restrictions on the redemption of the Senior Subordinated Notes. See "--
New Revolving Credit Facility."
CHANGE OF CONTROL
Under certain circumstances, upon a "change of control" of Hexcel (as
defined in the Indenture), any holder of the Senior Subordinated Notes (except,
under certain circumstances, Ciba) will have the right to cause Hexcel to
repurchase all or any part (in integral multiples of $1,000) of the Senior
Subordinated Notes of such holder at a repurchase price equal to 101% of the
principal amount of the Senior Subordinated Notes to be repurchased plus accrued
interest to the date of repurchase. Because the timing of a change of control,
if one ever occurs, is unpredictable, it is not possible at this time to assess
Hexcel's ability to pay the repurchase price of the Senior Subordinated Notes if
a change of control were to occur. Moreover, the terms of the new revolving
credit facility expected to be entered into in connection with the Acquisition
are expected to prohibit such payments to holders of Senior Subordinated Notes.
See "-- New Revolving Credit Facility."
For purposes of the Indenture, a change of control will occur if: (i) (a)
any person other than (x) Ciba or its affiliates or (y) an underwriter engaged
in a firm commitment underwriting in connection with a public offering of Hexcel
Voting Securities, is or becomes the beneficial owner, directly or indirectly,
of more than 35% of the total voting power of Hexcel and (b) Ciba and its
affiliates beneficially own, directly or indirectly, in the aggregate, a lesser
percentage of the total voting power of Hexcel than such other person
beneficially owns and do not have the right or ability by voting power, contract
or otherwise to elect or designate for election a majority of the board of
directors; (ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together with
any new directors whose election by the Board of Directors or whose nomination
for election by the stockholders of Hexcel was approved pursuant to the
Governance Agreement or by a vote of 66 2/3% of the directors of Hexcel then
still in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors then in office; or
(iii) Hexcel sells, conveys, leases or otherwise transfers all or substantially
all its assets to any person pursuant to a transaction in which any holder of
Hexcel Voting Securities immediately prior to such transaction beneficially
owns, directly or indirectly, a lesser amount of the voting stock of the person
that acquired such assets immediately after such transaction.
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CERTAIN COVENANTS
The Indenture contains covenants which, among other things, restrict
Hexcel's ability to undertake certain actions, including Hexcel's ability to (i)
incur indebtedness to the extent that Hexcel's Consolidated Coverage Ratio (as
defined in the Indenture) does not exceed 2.0 to 1.0, subject to certain
exceptions set forth in the Indenture; (ii) pay dividends, redeem its capital
stock, retire its subordinated obligations and make investments (collectively,
"Restricted Payments"), unless (x) a Default (as defined in the Indenture) is
not pending and would not result therefrom, (y) Hexcel could incur indebtedness
under the Consolidated Coverage Ratio test and (z) the aggregate amount of
Restricted Payments do not exceed $15,000,000 plus 50% of Consolidated Net
Income (as defined in the Indenture) (minus 100% of any deficit), plus net cash
proceeds from the sale of stock plus the amount by which Hexcel and its
subsidiaries reduce their indebtedness; (iii) permit its subsidiaries to enter
agreements that restrict their ability to declare dividends, subject to
customary exceptions; (iv) sell assets and stock of its subsidiaries in excess
of $1,000,000 except for certain permitted sales, provided that Hexcel may under
certain circumstances be obligated to reduce indebtedness or offer to purchase
Senior Subordinated Notes with the proceeds of such permitted sales; (v) enter
into certain transactions with Affiliates (as defined in the Indenture) in
excess of $100,000, subject to certain exceptions; (vi) issue stock of its
subsidiaries and sell the stock of its subsidiaries accounting for 5% or more of
Hexcel's Consolidated Net Income unless all such shares are sold; and (vii)
enter into certain consolidation or merger transactions with or into or transfer
all or substantially all of its assets into another person, provided that as
long as Ciba or its affiliates own at least 33% of the Hexcel Common and any
Senior Subordinated Notes, the provisions of this covenant shall not apply.
EVENTS OF DEFAULT
"Events of Default" under the Indenture include, among other things: (i) the
failure to pay interest when due and the continuation of such failure for a
period of 30 days; (ii) the failure to pay principal when due or to redeem or
purchase when required pursuant to the Indenture; (iii) the failure to comply
with the limitations contained in the Indenture on mergers and transfers of
assets; (iv) the breach of certain covenants, if such breach continues for 30
days after receipt of a notice of default in the case of a default under certain
circumstances or 60 days after receipt of a notice of default in the case of a
default under certain other circumstances; (v) the failure to pay indebtedness
of Hexcel or a subsidiary of Hexcel within any applicable grace period after
final maturity or upon acceleration, if such indebtedness is in excess of
$10,000,000, (vi) the bankruptcy of Hexcel or any Significant Subsidiary (as
defined in the Indenture); and (vii) the entry by a court of competent
jurisdiction of a judgment that is in excess of $10,000,000 in excess of
applicable insurance coverage and is not discharged, waived or stayed within 60
days following the entry of such judgment.
Hexcel is currently negotiating the terms of a new revolving credit
facility, which is expected to include default provisions that would be
triggered by a change of control or other event causing a default or requiring
the repurchase of Senior Subordinated Notes under the Indenture. It is not
possible at this time to assess Hexcel's ability to repay amounts outstanding
under such credit facility and/or repurchase the Senior Subordinated Notes if
such an event were to occur. Accordingly, such an event could have a material
adverse effect on Hexcel.
In light of certain expected provisions of the new revolving credit facility
discussed under "-- New Revolving Credit Facility," Ciba has agreed to hold all
of the Senior Subordinated Notes for the entire three-year term of such
facility.
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AGREEMENT GOVERNING UNITED STATES EMPLOYMENT MATTERS
THE FOLLOWING SUMMARY OF THE EMPLOYMENT MATTERS AGREEMENT IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE COPY OF THE EMPLOYMENT MATTERS AGREEMENT WHICH
IS INCLUDED AS AN EXHIBIT TO ANNEX B OF THIS PROXY STATEMENT. STOCKHOLDERS ARE
URGED TO READ THE EMPLOYMENT MATTERS AGREEMENT IN ITS ENTIRETY.
GENERAL
On September 29, 1995, Hexcel entered into the Employment Matters Agreement.
The Employment Matters Agreement provides that Hexcel shall offer employment to
those individuals employed by CGC exclusively or principally in connection with
the Ciba Composites Business as conducted in the U.S. as of the Closing Date.
All such employees hired by Hexcel (the "Composites Employees") shall become
employees of Hexcel immediately following the Closing Date. In addition, under
the terms of the Employment Matters Agreement, Hexcel must include the
Composites Employees (except for certain employees of Heath Tecna Aerospace
Division of CGC ("Heath Tecna")) in its employee benefit plans, policies and
compensation arrangements immediately following the Closing Date, at a level
that is substantially comparable to that provided for similarly situated
employees of Hexcel.
Pursuant to the terms of the Employment Matters Agreement, except as
otherwise agreed to by Hexcel and CGC, Hexcel will assume and become bound by
the collective bargaining agreement between Heath Tecna and the IAM District
Lodge Number 160, Local Lodge 1103 (the "Heath Tecna CBA"), including any
obligation thereunder to contribute to any multi-employer pension or welfare
benefit plan. In addition, Hexcel has agreed to assume sponsorship of certain of
CGC's pension plans as listed in the Employment Matters Agreement (collectively,
the "Assumed Plans"). Hexcel has agreed to indemnify, defend and hold harmless
CGC and its subsidiaries from any loss, liability, claim, damage or expense
arising from or in connection with any claim asserted after the Closing Date
made by the collective bargaining unit or any representative thereof relating to
any act on or after the Closing Date.
On November 28, 1995, Hexcel and CGC agreed to amend the Employment Matters
Agreement to eliminate the requirement that Hexcel assume and become bound by
the Heath Tecna CBA. Hexcel does not currently intend to assume or become bound
by the Heath Tecna CBA.
REPRESENTATIONS AND WARRANTIES
The Employment Matters Agreement contains certain representations and
warranties of CGC relating to its employment matters, including, among other
things, that each of CGC's "employee pension benefit plans" (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("Pension Plans"), "employee welfare benefit plans" (as defined in
ERISA) ("Welfare Plans") and each other plan, arrangement or policy relating to
stock options, stock purchases, deferred compensation, severance, fringe
benefits or other employee benefits has been administered in accordance with its
terms and applicable law and that no conditions exist or events have occurred
(unless otherwise disclosed) that may cause a material liability to Hexcel. In
addition, the Employment Matters Agreement contains similar representations and
warranties of Hexcel in respect of its employee benefit plans and arrangements.
COVENANTS
CGC has agreed that until the Closing Date, it will not, without the prior
written consent of Hexcel, (i) adopt or amend in any material respect or
terminate any Assumed Plan (except as required by law) or change any actuarial
or other assumption used to calculate funding obligations with respect to any
such Assumed Plan (except to the extent that failure to make such change would
result in noncompliance with GAAP, ERISA or the Internal Revenue Code of 1986,
as amended (the "Code")); (ii) grant to any employee of the Ciba Composites
Business as conducted in the U.S. any stock option or material increase in
compensation; or (iii) take any action that would result in any representation
or warranty contained in the Employment Matters Agreement becoming untrue. In
addition, Hexcel has agreed that, until the Closing Date, it will not, without
the prior written consent of CGC, (i) adopt or amend in any material respect or
terminate any Hexcel benefit plan (except as required by law) or change any
actuarial or other assumption used to calculate funding obligations with respect
to any
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Hexcel benefit plan (except to the extent that failure to make such change would
result in noncompliance with GAAP, ERISA or the Code); (ii) grant any stock
options (except to the extent permitted in Section 4.01(b)(i) of the Strategic
Alliance Agreement) or material increase in compensation, or (iii) take any
action that would result in any representation or warranty of Hexcel contained
in the Employment Matters Agreement becoming untrue.
TERMINATION
The Employment Matters Agreement provides that it shall be considered
terminated if the Strategic Alliance Agreement is terminated pursuant to its
terms.
MODIFICATION AND AMENDMENT
On or prior to the Closing Date, the parties have the right to request
modification of the terms of the Employment Matters Agreement, upon the receipt
of which the other party shall negotiate in good faith a possible amendment to
such provision with the requesting party.
OTHER AGREEMENTS
The Strategic Alliance Agreement provides that agreements substantially
similar to those described below will be entered into on or prior to Closing.
THE REGISTRATION RIGHTS AGREEMENT
Hexcel and Ciba will enter into a registration rights agreement (the
"Registration Rights Agreement") providing for Hexcel to prepare and, not later
than 60 days prior to March 1, 1998, file with the Commission a "shelf"
registration statement or, if Hexcel is not then so eligible, a registration
statement covering the shares of Hexcel Common beneficially owned by Ciba
(either, a "Registration Statement").
The Registration Rights Agreement is expected to provide, in accordance with
the Letter of Intent, for Ciba's shares of Hexcel Common to become eligible for
sale by Ciba pursuant to a Registration Statement in four equal annual
installments commencing on March 1, 1998, with shares eligible for sale
thereunder in any year, but not sold in such year, continuing to be eligible for
sale thereunder in subsequent years. The Registration Rights Agreement is also
expected to contain customary provisions with respect to blackout periods
(during which Ciba would not be permitted to sell), payment of expenses,
selection of underwriters and indemnification.
THE DISTRIBUTION AGREEMENT
THE FOLLOWING SUMMARY OF THE DISTRIBUTION AGREEMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FORM OF THE DISTRIBUTION AGREEMENT WHICH IS
INCLUDED AS AN EXHIBIT TO ANNEX B OF THIS PROXY STATEMENT. STOCKHOLDERS ARE
URGED TO READ THE DISTRIBUTION AGREEMENT IN ITS ENTIRETY.
At the Closing, Hexcel and Ciba will enter into the Distribution Agreement,
which is intended to facilitate an orderly transfer of certain portions of the
Ciba Composites Business to Hexcel. Pursuant to the Distribution Agreement,
certain affiliates of Ciba located in the Excluded Jurisdictions (as defined in
the Distribution Agreement) (the "Distributors") will provide certain
distribution services for the Divested Subsidiaries after the Closing under the
same terms and conditions as such services are currently provided by the
Distributors to the Ciba Composites Business. The Distributors will use their
reasonable efforts to solicit and serve customers for the Ciba Composites
Business. The Distribution Agreement provides that the Divested Subsidiaries
will continue to supply the Distributors with composite materials on the same
terms and conditions as currently provided.
The Distributors agree not to, without the prior consent of Hexcel (which
shall not be unreasonably withheld), transfer key employees providing services
to the Ciba Composites Business to any other businesses of Ciba or its
subsidiaries. The Distribution Agreement terminates on December 31, 1996, but
may be terminated earlier for one or more specified Distributors by Hexcel upon
two months written notice. Upon termination of the Agreement, Hexcel and/or the
Divested Subsidiaries will acquire certain current assets of the respective
Distributors used in the Ciba Composites Business at net book value and certain
other assets for a fixed price as provided therein in exchange for additional
53
<PAGE>
Senior Subordinated Notes (in an aggregate principal amount currently estimated
at $7 million to $10 million). See "-- The Strategic Alliance Agreement --
General -- The Deferred Assets." In addition, upon termination, the Distributors
will allow Hexcel and the Divested Subsidiaries to employ the employees working
for the Distributors in connection with the Ciba Composites Business. In this
regard, Hexcel will be obligated to either offer employment to such employees or
be responsible for finding alternative employment for them. If Hexcel fails to
offer employment to one or more of such employees within three months
thereafter, Hexcel will contribute to the severance costs associated with such
employees, an amount up to the amount specified by law and if no such law
exists, an amount to be agreed to by the parties, which amount will not exceed
one year's total compensation for each such employee.
TRANSITIONAL SERVICES AGREEMENTS
At the Closing, Hexcel and Ciba will enter into certain transitional
services agreements pursuant to which Ciba or a subsidiary of Ciba will provide
for a transitional period following the Closing certain services to Hexcel in
respect of the Ciba Composites Business. In no event will the prices of such
services charged to Hexcel be greater than the lesser of (i) Ciba's or its
subsidiary's cost of providing such services and (ii) the historically allocated
cost at which such services were provided to the Ciba Composites Business as
operated by Ciba and its subsidiaries prior to the Closing.
AGREEMENTS RELATING TO THE TRANSFER OF THE CIBA COMPOSITES BUSINESS IN THE
UNITED KINGDOM
The Ciba Composites Business at Duxford in Cambridgeshire, U.K. was,
effective July 4, 1995, transferred to CML pursuant to a hive-down agreement
between Ciba-Geigy plc, a United Kingdom company ("Ciba UK") and CML (formerly
Euromaterials Limited, a United Kingdom company), dated as of July 5, 1995 (the
"Hive-Down Agreement"). The Strategic Alliance Agreement anticipates that the
shares of CML, which are owned by Ciba, will be transferred to Hexcel at the
Closing. See "-- The Strategic Alliance Agreement."
Pursuant to the Hive-Down Agreement, all assets and liabilities relating to
the Ciba Composites Business at Ciba UK were transferred by Ciba UK to CML.
Because the site at Duxford is used both by CML in connection with the Ciba
Composites Business and by Ciba UK in connection with other Ciba businesses, it
is necessary to divide the site. Subject to finalization of the land transfer
documents, that part of the site at Duxford which is used by CML to conduct the
Ciba Composites Business will be transferred to CML. Ciba UK will provide
certain indemnities in connection with environmental matters relating to the
land that will be transferred to CML. Various agreements will also be entered
into between Ciba UK and CML relating to, among other things, the sharing of the
Duxford site and its facilities and restrictions on subsequent transfers of real
property at the Duxford site.
SUPPLY AND TOLLING AGREEMENTS
Ciba and Hexcel will enter into certain agreements regarding (i) Ciba's
supply to Hexcel of certain raw materials necessary for the conduct of Hexcel's
business following the Acquisition and (ii) certain toll manufacturing
arrangements pursuant to which Ciba and Hexcel will toll manufacture products
for each other.
NEW REVOLVING CREDIT FACILITY
GENERAL
Hexcel recognized that following the Acquisition, its working capital needs
would increase substantially and that, as a result, Hexcel would need to
increase its borrowing capacity. In this regard, Hexcel and certain of its
subsidiaries expect to enter into a new credit agreement (the "Credit
Agreement") with an administrative agent and issuing bank, a syndication agent,
and certain other financial institutions, as lenders (the "Lenders"). Under the
Credit Agreement, the Lenders are expected to provide Hexcel and certain of its
subsidiaries, subject to the consummation of the Acquisition and the issuance of
the Senior Subordinated Notes, with a 3-year secured revolving credit facility
in a principal amount of at least $160 million (the "New Revolving Credit
Facility"). As of January 18,
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<PAGE>
1996, commitments had been received, subject to the negotiation of mutually
satisfactory definitive documentation, for a $160 million credit facility.
However, subject to the approval of the Lenders thereunder, the principal amount
of the New Revolving Credit Facility may be as much as $175 million.
Under the New Revolving Credit Facility, the Lenders are expected to make
revolving loans and swing line loans to Hexcel and certain of its subsidiaries
and issue standby and documentary letters of credit for the account of Hexcel.
Borrowings under the New Revolving Credit Facility are expected to be used to
refinance certain existing indebtedness of Hexcel and its subsidiaries
(including all indebtedness outstanding under Hexcel's existing U.S. revolving
credit facility), pay the Cash Price to Ciba, pay the transaction costs and
expenses associated with the Acquisition and provide financing to Hexcel and its
subsidiaries for working capital and general corporate purposes following the
Acquisition. Borrowings under the New Revolving Credit Facility are expected to
be guaranteed by certain subsidiaries of Hexcel.
The New Revolving Credit Facility is expected to terminate on the third
anniversary of the consummation of the Acquisition. At that time, all amounts
outstanding thereunder would be due and payable, together with all accrued
interest thereon to such date, unless Hexcel extends the term of the New
Revolving Credit Facility with the consent of all the Lenders.
INTEREST
Borrowings under the New Revolving Credit Facility are expected to bear
interest, at the option of Hexcel, at (i) a publicly announced base rate per
annum or (ii) the applicable LIBOR plus 0.40% per annum for interest periods, at
the option of Hexcel, of one, two, three or six months.
SECURITY
The obligations of Hexcel and its subsidiaries under the New Revolving
Credit Facility are expected to be secured by a pledge of the stock of certain
of Hexcel's subsidiaries, to the extent permitted by law.
MANDATORY REPAYMENT
The New Revolving Credit Facility is expected to require Hexcel and its
subsidiaries to repay the borrowings thereunder and permanently reduce the New
Revolving Credit Facility by the amount of the net cash proceeds received by
Hexcel and its subsidiaries from certain asset sales and the incurrence of
certain debt obligations.
CERTAIN COVENANTS
The New Revolving Credit Facility is expected to impose various financial
and operating covenants upon Hexcel and its subsidiaries. The principal
financial covenants are expected to (i) limit the ability of Hexcel and its
subsidiaries to place liens on, or otherwise encumber, their assets or incur
indebtedness, and (ii) require Hexcel and its subsidiaries to maintain minimum
fixed coverage ratios, minimum tangible net worth and maximum leverage ratios,
in each case as agreed upon by Hexcel and the Lenders. The terms of the New
Revolving Credit Facility are also expected to include certain restrictions on
payments by Hexcel in respect of its equity securities or subordinated
indebtedness (including the Senior Subordinated Notes).
EVENTS OF DEFAULT
The New Revolving Credit Facility is expected to contain certain events of
default, including, among others: (i) default in repayment of the loans to the
Lenders as such loans become due; (ii) breach (in any material respect) of the
representations and warranties made by Hexcel and its subsidiaries to the
Lenders under the New Revolving Credit Facility; (iii) breach of covenants
contained in the documents relating to the New Revolving Credit Facility; (iv)
cross defaults to other material indebtedness of Hexcel and its subsidiaries
such as, among other things, the Senior Subordinated Notes; (v) material adverse
change in the condition (financial or otherwise), property, performance or
prospects of Hexcel and its subsidiaries; (vi) change of control (to be defined)
of Hexcel and/or
55
<PAGE>
certain of its subsidiaries; (vii) failure of Ciba to own, directly or
indirectly, at least 40% of the voting stock of Hexcel; (viii) failure of Ciba
to hold, directly or indirectly, at any time all of the Senior Subordinated
Notes; and (ix) certain events of insolvency or bankruptcy with respect to
Hexcel or certain of its subsidiaries. Ciba has agreed to hold all of the Senior
Subordinated Notes during the entire three-year term of the New Revolving Credit
Facility. See "-- The Senior Subordinated Notes." Although the Governance
Agreement imposes certain limitations on the manner in which Ciba is permitted
to dispose of Hexcel Voting Securities, there can be no assurance that Ciba will
continue to own, directly or indirectly, at least 40% of the voting stock of
Hexcel. See "-- The Governance Agreement." Ciba's failure to own, directly or
indirectly, at least 40% of the voting stock of Hexcel during the term of the
New Revolving Credit Facility could have a material adverse effect on Hexcel.
CERTAIN BUSINESS COMBINATIONS
Section 203 of the GCL prohibits certain transactions between a Delaware
corporation and an "interested stockholder," which is defined therein as a
person who, together with any affiliates and/or associates of such person,
beneficially owns, directly or indirectly, 15 percent or more of the outstanding
voting shares of a Delaware corporation. This provision prohibits certain
business combinations (defined broadly to include mergers, consolidations, sales
and other dispositions of assets having an aggregate value in excess of 10
percent of the consolidated assets of the corporation, and certain transactions
that would increase the interested stockholder's proportionate share ownership
in the corporation) between an interested stockholder and a corporation for a
period of three years after the date the interested stockholder acquired its
stock unless: (i) the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder is approved by the
corporation's board of directors prior to the date the interested stockholder
acquired shares, (ii) the interested stockholder acquired at least 85 percent of
the voting stock of the corporation in the transaction in which it became an
interested stockholder, or (iii) the business combination is approved by a
majority of the board of directors and by the affirmative vote of two-thirds of
the votes entitled to be cast by disinterested stockholders at an annual or
special meeting.
The Acquisition, pursuant to which Ciba will acquire beneficial ownership of
more than 15% of the outstanding voting shares of Hexcel, has been approved by
the Board of Directors and, thus, the provisions of Section 203 of the GCL will
not apply to Ciba with respect to Hexcel.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information combines the
condensed balance sheets and statements of operations of Hexcel and the Ciba
Composites Business after giving effect to the Acquisition. The unaudited pro
forma condensed combined balance sheet as of October 1, 1995 gives effect to the
Acquisition as if it had occurred on October 1, 1995. The unaudited pro forma
condensed combined statements of operations for the nine fiscal months ended
October 1, 1995 and the fiscal year ended December 31, 1994 give effect to the
Acquisition as if it had occurred on January 1, 1994. The pro forma adjustments
account for the Acquisition as a purchase of the Ciba Composites Business by
Hexcel, and are based upon the assumptions set forth in the accompanying notes.
The following unaudited pro forma financial information has been prepared
from, and should be read in conjunction with, the historical financial
statements and the related notes thereto for the applicable periods of Hexcel,
which are incorporated by reference in this Proxy Statement, and of the Ciba
Composites Business, which are contained elsewhere in this Proxy Statement. See
"INDEX TO FINANCIAL STATEMENTS." The following information is not necessarily
indicative of the financial position or operating results that would have
occurred had the Acquisition been consummated on the dates indicated, nor is it
necessarily indicative of future operating results or financial position.
Management expects that significant costs will be incurred in connection with
combining the operations of Hexcel and Ciba Composites Business, including costs
of eliminating excess manufacturing capacity and redundant administrative and
research and development activities, as well as the various costs of
consolidating the information systems and other business activities of the two
companies.
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<PAGE>
Some of the costs associated with combining the two businesses, including
certain costs to eliminate redundant administrative and research and development
activities, will be incurred during the first year following the Closing. The
anticipated resulting benefits are expected to be realized shortly thereafter.
However, other costs, including many of the costs to eliminate excess
manufacturing capacity, are expected to be incurred over a period of as much as
three years following the Closing. This is attributable, in part, to aerospace
industry requirements to "qualify" specific equipment and manufacturing
facilities for the manufacture of certain products. Based on Hexcel's experience
with previous plant consolidations, these qualification requirements necessitate
an approach to the consolidation of manufacturing facilities that will require
two to three years to complete. Accordingly, the costs and anticipated future
benefits of eliminating excess manufacturing capacity are long-term in nature.
Although management has completed a preliminary plan for combining the two
businesses, the nature, timing and extent of certain long-term consolidation
activities is dependent on factors which are not within the control of
management and which are not reliably estimable at the present time. These
factors include, among others: (i) the requirement that the Board of Directors
and management of the combined company review and approve consolidation
activities, which cannot occur until after the Acquisition is consummated; (ii)
future conditions in the aerospace and defense markets, including Build Rates
and the level of component fabrication outsourcing by airframe manufactures, as
well as the extent of growth in Asian and other aerospace markets; (iii)
potential regulatory requirements and constraints, particularly in Europe; (iv)
the combined company's ability to develop and market commercially attractive
product enhancements and applications; and (v) the production capabilities and
marketing strategies of the combined company's competitors, as well as the
possible consolidation or expansion of competing businesses. Management
currently estimates that the cash costs of combining the two businesses, net of
expected proceeds from asset sales, could range from $25 million to $45 million.
Management notes, however, that such costs could vary significantly from current
estimates due to the uncertainty associated with the factors discussed above, as
well as other factors, including that certain activities such as the
consolidation of manufacturing facilities will require two to three years to
complete, thereby resulting in the potential for significant modifications in
the nature, timing and extent of certain long-term consolidation efforts.
The cash expenditures necessary to combine the two businesses are expected
to occur over a period of as much as three years following the Closing. The
amount and timing of these expenditures will be determined, in part, by the
factors described above and management's resulting evaluation of the probable
economic and competitive benefits to be gained from specific consolidation
activities. Although management anticipates that the benefits to be realized
from planned consolidation activities should be appropriate in relation to the
level of associated costs, there can be no assurance that any such benefits will
actually be realized.
In light of the foregoing, no effect has been given to the costs of
combining the two businesses, or to the operating, financial and other benefits
that may be realized from the combination, in the accompanying pro forma
financial information.
57
<PAGE>
HEXCEL CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
AS OF OCTOBER 1, 1995
-----------------------------------------------
HISTORICAL PRO FORMA
-------------------- ------------------------
CIBA ADJUSTMENTS
HEXCEL COMPOSITES (SEE NOTE 2) COMBINED
-------- ---------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current assets:
Cash and equivalents.................................. $ -- $ 4,528 $ (4,528)(a) $ --
Accounts receivable................................... 66,207 68,592 (6,779)(b) 128,020
Inventories........................................... 55,155 68,067 (1,291)(c) 121,931
Prepaid expenses and other assets..................... 2,725 7,171 (3,157)(d) 6,739
Net assets of discontinued operations................. 1,984 -- -- 1,984
-------- ---------- ------------- --------
Total current assets................................ 126,071 148,358 (15,755) 258,674
-------- ---------- ------------- --------
Net property, plant and equipment....................... 83,526 155,916 (45,500)(e) 193,942
Intangible assets, net.................................. 6,269 46,053 (3,586)(f) 48,736
Investments and other assets............................ 9,193 4,547 -- 13,740
-------- ---------- ------------- --------
Total assets........................................ $225,059 $ 354,874 $ (64,841) $515,092
-------- ---------- ------------- --------
-------- ---------- ------------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term
liabilities.......................................... $ 45,532 $ 12,541 $ (52,901)(g) $ 5,172
Accounts payable...................................... 22,303 32,686 (467)(h) 54,522
Accrued liabilities................................... 42,339 22,714 -- 65,053
-------- ---------- ------------- --------
Total current liabilities........................... 110,174 67,941 (53,368) 124,747
-------- ---------- ------------- --------
Senior Subordinated Notes, payable to Ciba.............. -- -- 41,200(i) 41,200
Other long-term liabilities, less current maturities.... 68,226 29,704 64,189(j) 162,119
Minority interest....................................... -- 7,585 (7,585)(k) --
-------- ---------- ------------- --------
Shareholders' equity:
Common stock.......................................... 181 -- 180(l) 361
Additional paid-in capital............................ 111,257 -- 142,020(l) 253,277
Accumulated deficit................................... (72,040) -- (1,833)(m) (73,873)
Minimum pension obligation adjustment................. (137) -- -- (137)
Cumulative currency translation adjustment............ 7,398 -- -- 7,398
Invested capital...................................... -- 249,644 (249,644)(n) --
-------- ---------- ------------- --------
Total shareholders' equity.......................... 46,659 249,644 (109,277) 187,026
-------- ---------- ------------- --------
Total liabilities and shareholders' equity.......... $225,059 $ 354,874 $ (64,841) $515,092
-------- ---------- ------------- --------
-------- ---------- ------------- --------
</TABLE>
The accompanying notes are an integral part of these unaudited
pro forma condensed combined financial statements.
58
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- PURCHASE PRICE SUMMARY AND RELATED ALLOCATION
The purchase price to be paid by Hexcel for the Ciba Composites Business is
comprised of the following components:
<TABLE>
<S> <C>
18,022 Hexcel Shares, valued at $8.00 per share (1)...................... $ 144,200
Senior Subordinated Notes payable to Ciba in 2003, bearing annual
interest beginning at 9.0% and increasing by 0.5% per year (2).......... 41,200
Cash Price to be paid to Ciba (3)........................................ 25,000
Estimated fees and expenses in connection with the Acquisition (3)....... 6,000
---------
Total purchase price (4)............................................. $ 216,400
---------
---------
</TABLE>
The allocation of the total purchase price to the net assets of the Ciba
Composites Business is based upon the estimated fair values of the net assets
acquired, and is summarized as follows:
<TABLE>
<S> <C>
Cash and equivalents (5)................................................. --
Accounts receivable (6).................................................. $ 62,052
Inventories (7).......................................................... 66,776
Prepaid expenses (6)..................................................... 4,014
Net property, plant & equipment (8)...................................... 110,416
Intangible assets, net (9)............................................... 1,000
Investments and other assets (6)......................................... 4,547
Current liabilities (10)................................................. (57,463)
Other long-term liabilities, less current maturities (10)................ (20,242)
Minority interest (4).................................................... --
Shareholders' equity (11)................................................ 2,000
Excess of purchase price over net tangible assets acquired (12).......... 43,300
---------
Total purchase price (4)............................................. $ 216,400
---------
---------
</TABLE>
- ------------------------
(1) The Strategic Alliance Agreement provides that Hexcel will issue the Hexcel
Shares to Ciba. The aggregate value of these shares is determined by
multiplying the discounted market price per share by the number of shares
issued. The market price per share is determined by reference to the prices
at which Hexcel Common was trading on the NYSE during a reasonable period
before and after December 12, 1995, the date upon which Hexcel and Ciba
amended the aggregate amount of consideration to be paid by Hexcel in the
Acquisition by agreeing to reduce the initial aggregate principal amount of
the Senior Subordinated Notes by $5 million. The market price is then
discounted to reflect the illiquidity of the Hexcel Shares caused by the
size of the holding, the contractual restrictions on transferring such
shares and, accordingly, limitations on the price Ciba could realize, the
contractual limitation on the price per share Ciba could realize in certain
types of transactions, the fact that such shares are "restricted
securities" within the meaning of the Securities Act and various other
factors. A description of certain of these restrictions is contained under
"THE ACQUISITION -- The Governance Agreement."
For purposes of the unaudited pro forma financial information, a discounted
market price of $8.00 per share is used. The discounted market price is
based on a market price of $10.00 per share during a reasonable period
before and after December 12, 1995 and a discount rate of 20%. The
discounted market price of the shares to be issued is used in determining
the total purchase price because the discounted market price of Hexcel
Common is more reliably measurable than the fair value of the assets
acquired and the liabilities assumed.
The discount rate of 20% is based, in part, on a review of academic studies
concerning restricted securities and related illiquidity discounts.
Management believes that the Hexcel Shares are
59
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- PURCHASE PRICE SUMMARY AND RELATED ALLOCATION (CONTINUED)
restricted securities because (i) such shares may only be sold pursuant to
an effective registration statement or an applicable exemption from the
registration requirements of the Securities Act and (ii) the Governance
Agreement imposes numerous additional restrictions on the sale of such
shares. See "THE ACQUISITION -- The Governance Agreement." Management
recognizes that the Hexcel Shares represent a significant block of Hexcel
Common, to which a "control" or "influence" premium theoretically might be
attributed. Management notes, however, that the Governance Agreement
imposes extensive limitations on the degree of control that Ciba can
exercise over Hexcel and also imposes prohibitions on Ciba's ability to (i)
realize a premium on the Hexcel Shares over and above that which must be
paid to the non-Ciba stockholders or (ii) acquire substantial additional
shares of Hexcel Common without payment of a full control premium to the
non-Ciba stockholders. Accordingly, management believes that the
limitations and prohibitions imposed by the Governance Agreement fully
negate any "control" or "influence" premium that might otherwise offset the
liquidity discount attributable to the Hexcel Shares. In determining the
amount of the illiquidity discount, management also considered Hexcel's
earnings history, Hexcel's revenues and the fact that Hexcel Common is
traded on the NYSE.
(2) The Strategic Alliance Agreement provides that Hexcel will issue Senior
Subordinated Notes payable to Ciba in an aggregate principal amount to be
determined at the Closing Date, in accordance with a specified formula.
Based on the formula included in the Strategic Alliance Agreement, the pro
forma aggregate principal amount of the Senior Subordinated Notes
determined as of October 1, 1995 is approximately $42,400. (Such amount is
estimated as follows: $43,029 (i) increased by $9,000 for the Danutec Price
(see (4) below), (ii) increased by $4,659 for the decline in the adjusted
net working capital of Hexcel from July 2, 1995 to October 1, 1995, (iii)
decreased by $4,593 for the decline in the adjusted net working capital of
the Ciba Composites Business from July 2, 1995 to October 1, 1995, and (iv)
decreased by $9,695 for certain net assets of the Ciba Composites Business
retained by Ciba at the Closing and other adjustments.) However, the actual
aggregate principal amount of the Senior Subordinated Notes to be issued at
the close of the transaction may be higher or lower.
The fair value of the Senior Subordinated Notes as of October 1, 1995, is
estimated to be $41,200, which is $1,200 lower than the pro forma aggregate
principal amount. The $1,200 discount reflects the absence of certain call
protection provisions from the terms of the Senior Subordinated Notes and
the difference between the stated interest rate on the Senior Subordinated
Notes and the estimated market rate for debt obligations of comparable
quality and maturity. The initial stated interest rate is 9.0% per year,
increasing in annual increments of 0.5% from the date of issuance until the
Senior Subordinated Notes mature in the year 2003.
(3) The Cash Price and the estimated fees and expenses in connection with the
Acquisition are to be financed with the proceeds of the New Revolving
Credit Facility. The New Revolving Credit Facility is expected to be a
three-year facility in a principal amount of at least $160,000 secured by
the capital stock of certain of Hexcel's subsidiaries. The New Revolving
Credit Facility is expected to (i) fund the Cash Price, (ii) provide for
the working capital requirements of the combined company, and (iii) provide
for the refinancing of certain outstanding indebtedness of Hexcel,
including indebtedness under Hexcel's existing U.S. revolving credit
facility and certain other European credit facilities. See "THE ACQUISITION
-- New Revolving Credit Facility."
Hexcel is currently in negotiations with potential lenders regarding the
New Revolving Credit Facility. As of January 18, 1996, commitments had been
received, subject to the negotiation of mutually satisfactory definitive
documentation, for a $160 million credit facility. However, subject to the
approval of the Lenders thereunder, the principal amount of the New
Revolving
60
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- PURCHASE PRICE SUMMARY AND RELATED ALLOCATION (CONTINUED)
Credit Facility may be as much as $175 million. The receipt of adequate
financing on commercially reasonable terms is one of the conditions to the
consummation of the Acquisition. See "THE ACQUISITION -- The Strategic
Alliance Agreement -- Conditions."
(4) Ciba currently anticipates purchasing the minority interest in Danutec for
approximately $12,500 prior to the Closing Date, pursuant to a definitive
purchase agreement, the terms of which are subject to approval by the
boards of PCD and its parent entity, entered into on December 20, 1995.
Accordingly, the acquisition of the Danutec Equity by Hexcel has been
reflected in the estimated pro forma purchase price and purchase price
allocation as of October 1, 1995, and the minority interest in Danutec has
been eliminated on a pro forma basis. See "THE ACQUISITION -- The Strategic
Alliance Agreement -- General -- Danutec."
In the event that Ciba does not purchase the minority interest in Danutec,
and the Danutec Equity is not transferred to Hexcel, the estimated purchase
price for the Ciba Composites Business would be reduced by approximately
$20,000. The resulting adjustment to the purchase price allocation would
include the elimination of the net assets of Danutec, which totaled
approximately $13,800 as of October 1, 1995. See "THE ACQUISITION -- The
Strategic Alliance Agreement -- Principal Amount of the Senior Subordinated
Notes."
(5) Under the terms of the Strategic Alliance Agreement, the cash and cash
equivalents of the Ciba Composites Business are retained by Ciba.
(6) The fair values of accounts receivable, prepaid expenses and investments
and other assets acquired in the purchase of the Ciba Composites Business
are estimated to equal respective net book values. Under the terms of the
Strategic Alliance Agreement, a portion of the Ciba Composites Business'
accounts receivable and prepaid expenses are retained by Ciba.
(7) The fair value of inventories acquired in the purchase of the Ciba
Composites Business is estimated to equal aggregate current sales value
less estimated selling costs. Under the terms of the Strategic Alliance
Agreement, a portion of the Ciba Composites Business' inventories is
retained by Ciba.
(8) The fair value of the property, plant and equipment acquired in the
purchase of the Ciba Composites Business is estimated to be $45,000 lower
than the respective net book value. The estimated fair value, which is
based on a preliminary review of the production facilities and equipment of
the Ciba Composites Business, reflects the fact that certain of these
assets are expected to (i) duplicate capabilities or productive capacities
already possessed by Hexcel or (ii) be in excess of the combined company's
needs, and consequently, the expected future use indicates a lower value of
such assets to the acquiror than to the Ciba Composites Business. This
estimate is subject to modification in connection with further analysis. In
addition, under the terms of the Strategic Alliance Agreement, a portion of
the Ciba Composites Business' property, plant and equipment will be
retained by Ciba.
(9) The fair value assigned to intangible assets reflects the capitalization of
estimated fees and expenses incurred in connection with securing the New
Revolving Credit Facility.
(10) The fair values of the current and long-term liabilities assumed by Hexcel
in connection with the purchase of the Ciba Composites Business are
estimated to equal the respective net book values. Under the terms of the
Strategic Alliance Agreement, some of the liabilities of the Ciba
Composites Business as of October 1, 1995 are not assumed by Hexcel.
(11) The estimated fees and expenses incurred in connection with issuing the
Hexcel Shares to Ciba are deducted from shareholders' equity.
61
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- PURCHASE PRICE SUMMARY AND RELATED ALLOCATION (CONTINUED)
(12) The excess of purchase price over net tangible assets acquired will be
allocated to identifiable intangible assets and goodwill pursuant to an
analysis and valuation of those assets in accordance with the provisions of
APB Opinion No. 16. Such analysis and valuation has not yet been performed.
Accordingly, for purposes of the unaudited pro forma financial information,
the excess of purchase price over net tangible assets acquired has been
treated as a single intangible asset, with a 20-year life. While the values
and estimated lives of various intangible assets resulting from the final
purchase allocation will vary from these pro forma assumptions, management
does not expect these variances to be material to the unaudited pro forma
financial information contained herein.
Hexcel intends to evaluate and measure any future impairment to the
intangible assets, including goodwill, acquired in connection with the
purchase of the Ciba Composites Business in accordance with the provisions
of Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" ("SFAS 121"). SFAS 121 requires that the recoverability of long-lived
assets to be held or used, including intangible assets, be assessed when
events or circumstances indicate that the value of those assets may be
impaired. That assessment, determined by reference to the estimated
undiscounted future cash flows resulting from the use of the assets, will
be based on each group of assets within each of Hexcel's strategic business
units.
The purchase price allocation does not reflect any liabilities for the costs
of consolidating the business operations of the Ciba Composites Business and
Hexcel.
62
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2 -- PRO FORMA ADJUSTMENTS
<TABLE>
<S> <C> <C>
(a) Adjustment to eliminate the cash and cash equivalents of the Ciba Composites
Business which are retained by Ciba........................................ $ (4,528)
---------
---------
(b) Adjustment to reflect the following:
Elimination of the Ciba Composites Business' accounts receivable which are
retained by Ciba......................................................... $ (6,540)
Elimination of trade account balances between Hexcel and the Ciba
Composites Business...................................................... (239)
---------
Net adjustment.......................................................... $ (6,779)
---------
---------
(c) Adjustment to reflect the following:
Elimination of the Ciba Composites Business' inventories which are
retained by Ciba......................................................... $ (2,191)
Difference between net book value and estimated fair value of acquired
inventories.............................................................. 900
---------
Net adjustment.......................................................... $ (1,291)
---------
---------
(d) Adjustment to reflect the elimination of the Ciba Composites Business'
prepaid expenses and other assets which are retained by Ciba............... $ (3,157)
---------
---------
(e) Adjustment to reflect the following:
Elimination of the Ciba Composites Business' property, plant and equipment
which is retained by Ciba................................................ $ (500)
Difference between net book value and estimated fair value of acquired
property, plant and equipment............................................ (45,000)
---------
Net adjustment.......................................................... $ (45,500)
---------
---------
(f) Adjustment to reflect the following:
Capitalization of estimated fees and expenses incurred in connection with
securing the New Revolving Credit Facility............................... $ 1,000
Excess of purchase price over net tangible assets acquired (to be
allocated to identifiable intangible assets and goodwill)................ 43,300
Less: Existing intangible assets of the Ciba Composites Business
(comprised of identifiable intangible assets and goodwill)............... (46,053)
---------
Net adjustment to intangible assets resulting from the allocation of the
purchase price......................................................... (1,753)
Write-off of capitalized debt issuance costs in connection with the
extinguishment of existing debt obligations with proceeds from the New
Revolving Credit Facility................................................ (1,833)
---------
Net adjustment.......................................................... $ (3,586)
---------
---------
</TABLE>
63
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2 -- PRO FORMA ADJUSTMENTS (CONTINUED)
<TABLE>
<S> <C> <C>
(g) Adjustment to reflect the following:
Elimination of current liabilities of the Ciba Composites Business which
are not assumed by Hexcel................................................ $ (10,250)
Extinguishment of existing debt obligations with proceeds from the New
Revolving Credit Facility................................................ (42,651)
---------
Net adjustment.......................................................... $ (52,901)
---------
---------
(h) Adjustment to reflect the following:
Elimination of current liabilities of the Ciba Composites Business which
are not assumed by Hexcel................................................ $ (228)
Elimination of trade account balances between Hexcel and the Ciba
Composites Business...................................................... (239)
---------
Net adjustment.......................................................... $ (467)
---------
---------
(i) Adjustment to reflect the issuance of the Senior Subordinated Notes payable
to Ciba.................................................................... $ 41,200
---------
---------
(j) Adjustment to reflect the following:
Elimination of long-term liabilities of the Ciba Composites Business which
are not assumed by Hexcel................................................ $ (9,462)
Net borrowings under the New Revolving Credit Facility to extinguish
existing debt obligations................................................ 42,651
Net borrowings under the New Revolving Credit Facility to finance the cash
payment to Ciba.......................................................... 25,000
Net borrowings under the New Revolving Credit Facility to finance
estimated fees and expenses in connection with the Acquisition........... 6,000
---------
Net adjustment.......................................................... $ 64,189
---------
---------
(k) Adjustment to reflect the elimination of the minority interest in Danutec... $ (7,585)
---------
---------
(l) Adjustments to reflect the following:
Issuance of Hexcel common stock to Ciba -- par value...................... $ 180
---------
---------
Issuance of Hexcel common stock to Ciba -- value in excess of par......... $ 144,020
Deduction of the estimated fees and expenses incurred in connection with
issuing Hexcel common stock to Ciba...................................... (2,000)
---------
Net adjustment.......................................................... $ 142,020
---------
---------
(m) Adjustment to reflect the write-off of capitalized debt issuance costs in
connection with the extinguishment of existing debt obligations with
proceeds from the New Revolving Credit Facility............................ $ (1,833)
---------
---------
(n) Adjustment to eliminate Ciba's investment in the Ciba Composites Business... $(249,644)
---------
---------
</TABLE>
64
<PAGE>
HEXCEL CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THE NINE FISCAL MONTHS ENDED OCTOBER 1, 1995
-------------------------------------------------------
HISTORICAL PRO FORMA
------------------------- ---------------------------
ADJUSTMENTS
CIBA (SEE NOTE
HEXCEL COMPOSITES 2) COMBINED
------------ ---------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............................................................... $257,544 $ 252,310 $(2,598)(a) $ 507,256
Cost of sales........................................................... (208,806) (207,767) 5,349(b) (411,224)
------------ ---------- ----------- -------------
Gross margin............................................................ 48,738 44,543 2,751 96,032
Marketing, general and administrative expenses.......................... (35,630) (41,365) -- (76,995)
Amortization of intangible assets....................................... -- (3,090) 1,218(c) (1,872)
Restructuring expenses.................................................. -- (2,300) -- (2,300)
Other income (expenses)................................................. 600 (936) -- (336)
------------ ---------- ----------- -------------
Operating income (loss)................................................. 13,708 (3,148) 3,969 14,529
--
Interest expenses....................................................... (6,702) (740) (2,342)(d) (9,784)
Bankruptcy reorganization expenses...................................... (3,361)(e) -- -- (3,361)(e)
Minority interest....................................................... -- (1,220) 1,220(f) --
------------ ---------- ----------- -------------
Income (loss) from continuing operations before income taxes............ 3,645 (5,108) 2,847 1,384
Provision for income taxes.............................................. (2,503) (3,898) -- (g) (6,401)
------------ ---------- ----------- -------------
Income (loss) from continuing operations.............................. 1,142 (9,006) 2,847 (5,017)
Loss from discontinued operations....................................... (468) -- -- (468)
------------ ---------- ----------- -------------
Net income (loss)................................................. $ 674 $ (9,006) $ 2,847 $ (5,485)
------------ ---------- ----------- -------------
------------ ---------- ----------- -------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Net income (loss) per share and equivalent share:
Primary and fully diluted:
Continuing operations............................................... $ 0.08 $(0.15)
(0.03)
Discontinued operations............................................. (0.01)
------------ -------------
Net income (loss)................................................. $ 0.05 $(0.16)
------------ -------------
------------ -------------
Weighted average shares and equivalent shares........................... 14,958(h) 32,980(h)
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these
unaudited pro forma condensed combined financial statements.
65
<PAGE>
HEXCEL CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THE FISCAL YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------------
HISTORICAL PRO FORMA
-------------------------- ---------------------------
ADJUSTMENTS
CIBA (SEE NOTE
HEXCEL COMPOSITES 2) COMBINED
------------- ---------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............................................................... $ 313,795 $ 292,611 $(3,672)(a) $ 602,734
Cost of sales........................................................... (265,367) (249,717) 7,337(b) (507,747)
------------- ---------- ----------- -------------
Gross margin............................................................ 48,428 42,894 3,665 94,987
Marketing, general and administrative expenses.......................... (45,785) (53,417) -- (99,202)
Amortization and write-downs of intangible assets....................... -- (10,219) 7,724(c) (2,495)
Restructuring expenses.................................................. -- (1,600) -- (1,600)
Other income............................................................ 4,861(i) 2,979(i) -- 7,840(i)
------------- ---------- ----------- -------------
Operating income (loss)................................................. 7,504 (19,363) 11,389 (470)
--
Interest expenses....................................................... (11,846) (1,193) (3,535)(d) (16,574)
Bankruptcy reorganization expenses...................................... (20,152)(e) -- -- (20,152)(e)
Minority interest....................................................... -- (891) 891(f) --
------------- ---------- ----------- -------------
Income (loss) from continuing operations before income taxes............ (24,494) (21,447) 8,745 (37,196)
Provision for income taxes.............................................. (3,586) (2,843) -- (g) (6,429)
------------- ---------- ----------- -------------
Income (loss) from continuing operations.............................. (28,080) (24,290) 8,745 (43,625)
Loss from discontinued operations....................................... (1,890) -- -- (1,890)
------------- ---------- ----------- -------------
Net income (loss)................................................. $ (29,970) $ (24,290) $ 8,745 $ (45,515)
------------- ---------- ----------- -------------
------------- ---------- ----------- -------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Net loss per share and equivalent share:
Primary and fully diluted:
Continuing operations............................................... $(3.84) $(1.72)
(0.26)
Discontinued operations............................................. (0.07)
------------ -------------
Net income........................................................ $(4.10) $(1.79)
------------ -------------
------------ -------------
Weighted average shares and equivalent shares........................... 7,310(h) 25,332(h)
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these
unaudited pro forma condensed combined financial statements.
66
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
NOTE 1 -- PRO FORMA TREATMENT OF DANUTEC
The combined financial statements of the Ciba Composites Business include
the accounts of Danutec, in which Ciba currently owns a 51.0% equity interest.
Ciba currently anticipates purchasing the minority interest in Danutec for
approximately $12,500 prior to the Closing Date pursuant to a definitive
purchase agreement, the terms of which are subject to approval by the boards of
PCD and its parent entity, entered into with PCD on December 20, 1995.
Consequently, the accompanying unaudited pro forma condensed combined statements
of operations include the operating results of Danutec for the periods
presented. Elimination of the minority interest in the operating results of
Danutec has been reflected as a pro forma adjustment. See "THE ACQUISITION --
The Strategic Alliance Agreement -- General -- Danutec."
In the event that Ciba does not purchase the minority interest in Danutec,
and Danutec is not transferred to Hexcel, then the operating results of the Ciba
Composites Business would exclude the operating results of Danutec. Danutec
sales included in the accompanying unaudited pro forma condensed combined
statements of operations were approximately $34,500 for the nine fiscal months
ended October 1, 1995, and $34,100 for the fiscal year ended December 31, 1994.
Danutec net income included in the accompanying unaudited pro forma condensed
combined statements of operations was approximately $400 and $700 for the same
respective periods.
NOTE 2 -- PRO FORMA ADJUSTMENTS
<TABLE>
<CAPTION>
NINE FISCAL
MONTHS ENDED FISCAL YEAR
OCTOBER 1, ENDED
1995 DECEMBER 31, 1994
-------------- -----------------
<S> <C> <C> <C>
(a) Adjustments to eliminate sales between Hexcel and the Ciba Composites
Business............................................................... $ (2,598) $ (3,672)
------- --------
(b) Adjustments to reflect the following:
Elimination of cost of sales between Hexcel and the Ciba Composites
Business............................................................. $ 2,200 $ 3,133
Reduction in depreciation costs resulting from the purchase price
adjustment to the net property, plant and equipment of the Ciba
Composites Business.................................................. 3,149 4,204
------- --------
Net adjustments..................................................... $ 5,349 $ 7,337
------- --------
------- --------
(c) Adjustments to reflect the following:
Amortization of capitalized fees and expenses incurred in connection
with securing the New Revolving Credit Facility (3-year amortization
period).............................................................. $ (248) $ (330)
Amortization of the excess of purchase price over net tangible assets
acquired (20-year amortization period)............................... (1,624) (2,165)
Less: Amortization and write-downs of the existing intangible assets
of the Ciba Composites Business...................................... 3,090 10,219
------- --------
Net adjustments..................................................... $ 1,218 $ 7,724
------- --------
------- --------
</TABLE>
67
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
NOTE 2 -- PRO FORMA ADJUSTMENTS (CONTINUED)
<TABLE>
<CAPTION>
NINE FISCAL
MONTHS ENDED FISCAL YEAR
OCTOBER 1, ENDED
1995 DECEMBER 31, 1994
-------------- -----------------
(d) Adjustments to reflect the following:
<S> <C> <C> <C>
Estimated interest expense on borrowings under the New Revolving
Credit Facility (assumed interest rate of 6.2%)...................... $ (3,121) $ (3,641)
Reduction in interest expense attributable to the extinguishment of
existing liabilities with the proceeds from the New Revolving Credit
Facility (actual interest rates ranging from 3.6% to 13.0%).......... 3,570 3,828
Estimated interest expense on the Senior Subordinated Notes payable to
Ciba (assumed market interest rate of 11.0%)......................... (3,399) (4,532)
Elimination of interest expense on liabilities of the Ciba Composites
Business which are not assumed by Hexcel (various actual interest
rates)............................................................... 608 810
------- --------
Net adjustments..................................................... $ (2,342) $ (3,535)
------- --------
------- --------
</TABLE>
(e) On February 9, 1995, Hexcel emerged from bankruptcy reorganization
proceedings which had begun on December 6, 1993. In connection with those
proceedings, Hexcel incurred bankruptcy reorganization expenses of $3,361
during the nine fiscal months ended October 1, 1995, and $20,152 during the
fiscal year ended December 31, 1994. Although the resolution of certain
bankruptcy-related issues, including the final settlement of disputed claims
and professional fees, resulted in expenses being incurred after February 9,
1995, Hexcel does not expect to incur any bankruptcy-related expenses
subsequent to October 1, 1995.
(f) Adjustments to reflect the following:
<TABLE>
<CAPTION>
NINE FISCAL
MONTHS ENDED FISCAL YEAR
OCTOBER 1, ENDED
1995 DECEMBER 31, 1994
-------------- -----------------
<S> <C> <C> <C>
Elimination of the minority interest in the operating results of the
Ciba Composites Business............................................. $ 1,220 $ 891
------- --------
------- --------
</TABLE>
(g) The income tax consequences of the cumulative pro forma adjustments are
estimated to be zero. This is due to the fact that the pro forma combined
company incurred losses from continuing operations before income taxes for
both of the periods presented, and no income tax benefits relating to these
losses have been recognized. Furthermore, Hexcel has sufficient net
operating loss carryforwards for income tax purposes to substantially
eliminate any tax liabilities arising from pro forma adjustments.
(h) The Strategic Alliance Agreement provides that Hexcel will issue shares of
its common stock to Ciba such that Ciba will own 49.9% of the Hexcel Common
outstanding after the issuance of such shares. As of October 1, 1995, the
approximate number of shares to be issued to Ciba would have been 18,022 and
the resulting number of shares outstanding would have been 36,116.
Between February 9, 1995 and April 6, 1995, Hexcel issued an additional
10,800 shares of common stock in connection with a subscription rights
offering and standby purchase agreement pursuant to the Plan of
Reorganization. As a result of this increase in the number of outstanding
68
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
NOTE 2 -- PRO FORMA ADJUSTMENTS (CONTINUED)
shares, the weighted average shares used in computing Hexcel's historical
net income (loss) per share increased from 7,310 for the fiscal year ended
December 31, 1994, to 14,958 for the nine fiscal months ended October 1,
1995. Accordingly, the weighted average number of shares used in computing
pro forma net loss per share increased from 25,332 for the fiscal year ended
December 31, 1994, to 32,980 for the nine fiscal months ended October 1,
1995
(i) During the fiscal year ended December 31, 1994, Hexcel recognized other
income of $4,861. This amount was largely comprised of $15,900 of income
related to the sale of the Chandler, Arizona manufacturing facility and
related assets and technology, less an $8,000 provision to reflect the cost
of restructuring a joint venture and a $2,900 provision for bankruptcy claim
adjustments. Each of these items is nonrecurring.
During the fiscal year ended December 31, 1994, the Ciba Composites Business
recognized other income of $2,700 related to the sale of its Miami, Florida
facility. This income is nonrecurring.
69
<PAGE>
CIBA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
THE CIBA COMPOSITES BUSINESS
(ALL DOLLAR AMOUNTS IN TABLES ARE STATED IN MILLIONS.)
THE FOLLOWING DISCUSSION IS BASED UPON AND SHOULD BE READ IN CONJUNCTION
WITH THE COMBINED FINANCIAL STATEMENTS OF THE CIBA COMPOSITES BUSINESS,
INCLUDING THE NOTES THERETO, THE SUMMARY HISTORICAL FINANCIAL INFORMATION OF THE
CIBA COMPOSITES BUSINESS AND THE BUSINESS INFORMATION CONCERNING THE CIBA
COMPOSITES BUSINESS, INCLUDED ELSEWHERE HEREIN.
RESULTS OF OPERATIONS
The discussion and tables that follow are for historical statements of
operations for the Ciba Composites Business on a worldwide basis for the nine
month periods ended September 30, 1995 and September 30, 1994 and for the years
ended December 31, 1994 and December 31, 1993. The historical financial
statements for each such period have been prepared on a basis which reflects the
historical financial statements of the Ciba Composites Business as if it were a
stand-alone company owning certain assets, liabilities and subsidiaries,
notwithstanding that it is currently operated as a division by each of Ciba and
CGC, and in several European jurisdictions on a stand-alone basis through
certain foreign subsidiaries of Ciba, all as more fully described below and in
the discussion set forth in the Section entitled "BUSINESS INFORMATION
CONCERNING THE CIBA COMPOSITES BUSINESS."
Prior to January 1, 1993, the accounting records maintained by Ciba with
respect to the Ciba Composites Business varied significantly from the
International Accounting Standards which were adopted by Ciba in 1993. These
variances affected a number of categories in the reported financial statements,
including: inventories, cost of goods sold, plant and equipment, intangible
assets, retirement plans, restructuring charges, income taxes, currency
translation and financial reporting classifications. Due to the scope of these
variances, it is not possible for financial statements for the Ciba Composites
Business to be prepared in accordance with U.S. GAAP or International Accounting
Standards for any period, or at any date prior to, January 1993.
The inability of Ciba to provide 1992 financial statements and 1990 and 1991
summary financial information for the Ciba Composites Business should not
prevent the stockholders of Hexcel from obtaining a realistic understanding of
the business operations and performance of the Ciba Composites Business. The
aerospace market and non-aerospace industrial markets served by the Ciba
Composites Business are the same as those served by Hexcel. The downturn in the
aerospace market which occurred during 1992 and 1993 resulted in significant
restructuring of the operations of the Ciba Composites Business, commencing in
1993 and continuing in 1994. The management of the Ciba Composites Business
believes that the financial statements of the Ciba Composites Business for the
year ended December 31, 1993, the year ended December 31, 1994 and the
nine-month period ended September 30, 1995 included herein are more
representative of current business operations and financial performance of the
Ciba Composites Business as they exist today than earlier data would be. In the
opinion of management of the Ciba Composites Business financial information from
1990 through 1992 would not provide significant additional insight relating to
the business of the Ciba Composites Business to be acquired by Hexcel due to the
significant changes that have taken place in the market since 1992.
For example, for the year ended December 31, 1992, net sales for the Ciba
Composites Business were approximately $380 million. A major factor affecting
such sales performance was the peaking in the aerospace market in the first half
of 1992 of commercial aircraft production build rates. In the second half of
1992, however, the aerospace build rates began to decrease, with the decrease
becoming steeper every month. The build rates, as well as expansion and
modernization programs, suffered because the airline travel industry worldwide
was depressed due to sluggish economic conditions. Market conditions over the
past two years reflect a more cautious approach at the airlines with respect
70
<PAGE>
to expansion plans. As a result, in the years ended December 31, 1994 and
December 31, 1993, the only full year periods for which audited financial
statements of the Ciba Composites Business prepared in accordance with U.S. GAAP
are available, the Ciba Composites Business had net sales of $292.6 million and
$271.3 million, respectively.
Levels of employment at the Ciba Composites Business provide further
evidence of the significant difference between the market place in 1992 and the
current market. At the beginning of the 1992 year, the Ciba Composites Business
employed on a worldwide basis approximately 3,300 people. At the end of 1992, as
the downturn in the aerospace market became steeper, the Ciba Composites
Business reduced its staffing on a world-wide basis to approximately 3,018
employees, which included a significant reduction of approximately 150 employees
in the Ciba Composites Business' United States operations in the fourth quarter
of 1992. By comparison, on a world-wide basis, the Ciba Composites Business as
of September 30, 1995 had 2,322 employees.
Similarly, reflecting the industry downturn, although capital spending in
1992 continued at the previous year's level of around $19 million, capital
spending in 1993 and 1994 were approximately $12 million and $8 million,
respectively.
Management of the Ciba Composites Business believes that the foregoing
examples illustrate why the financial information with respect to the Ciba
Composites Business for 1993, 1994 and the first nine months of 1995 included in
this Proxy Statement more accurately reflect the current market conditions in
the composites materials business and the business operations and financial
performance of the Ciba Composites Business than would financial information as
of December 31, 1992 and the year then ended, and render data with respect to
1992 and periods prior thereto of limited relevance to stockholders of Hexcel in
assessing whether to approve the issuance of the Hexcel Shares and the Common
Stock Amendment.
NET SALES AND GROSS PROFIT
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1994.
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 % CHANGE
------------------- ------------------- -------------
<S> <C> <C> <C>
Net sales.................................................... $ 252.3 $ 209.9 20.2%
Gross profit................................................. $ 44.5 $ 30.4 46.4%
Gross profit %............................................... 17.7% 14.5% 22.1%
Net loss..................................................... $ 9.0 $ 16.1 44.1%
</TABLE>
The Ciba Composites Business' net sales for the first nine months of 1995
showed a 20% improvement compared to the same period in 1994. This sales growth
reflects an increase in sales in both the aerospace and non-aerospace industrial
markets. An increase of 15% in sales to the aerospace market from $153 million
for the nine month period ended September 30, 1994 to $176 million for the nine
month period ended September 30, 1995 is due mainly to a recovery in sales to
traditional customers and ongoing revenue related to the acquisition from BP
Chemicals in August 1994 of certain structures programs for the U.S. market
previously conducted by BP Chemicals' Advanced Materials Division ("BPAM"). A
32% increase in sales to the non-aerospace industrial market from $57 million
for the nine month period ended September 30, 1994 to $75 million for the nine
month period ended September 30, 1995 was realized due to the Ciba Composites
Business' greater penetration into the non-aerospace industrial market, with the
largest growth being attributed to the sports and leisure markets in Europe and
Asia. Other segments of the non-aerospace industrial market which showed
improvement over this period included fabrics, transport and energy sectors. See
"BUSINESS INFORMATION CONCERNING THE CIBA COMPOSITES BUSINESS" for a more
detailed discussion of the products of the Ciba Composites Business sold in
these non-aerospace industrial markets.
The combination of stronger sales and cost reductions resulted in gross
profits improving from 14.5% of sales for the first nine months of 1994 to 17.7%
for the same period in 1995.
71
<PAGE>
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993 % CHANGE
----------------- ----------------- -------------
<S> <C> <C> <C>
Net sales....................................................... $ 292.6 $ 271.3 7.9%
Gross profit.................................................... $ 42.9 $ 27.0 58.9%
Gross profit %.................................................. 14.7% 10.0% 47.0%
Loss before cumulative effect of accounting changes............. $ 24.3 $ 41.9 42.0%
Net loss........................................................ $ 24.3 $ 49.0 50.4%
</TABLE>
For the year ended December 31, 1994, the Ciba Composites Business recorded
a net loss of $24.3 million on net sales of $292.6 million, representing an
improvement from the same period in 1993 where a net loss of $49.0 million was
realized on net sales of $271.3 million. The improvement in net sales was due
primarily to the acquisition of BPAM and also to gains in the non-aerospace
industrial market, such as the sports and leisure markets in Europe and Asia and
the energy market in Europe. These positive factors more than offset a decline
in the Ciba Composites Business' net sales to the aerospace market for the year.
The decline in aerospace sales resulted from a continuing reduction in build
rates for the Ciba Composites Business' largest customer (Boeing). This decline
was somewhat offset by an increase in sales to some of Ciba Composites Business'
other aerospace customers and non-aerospace customers.
Gross profits improved from 10.0% in 1993 to 14.7% in 1994, as a result of
cost reductions and an 8% increase in sales.
The Ciba Composites Business' net loss for the year declined from 1993 to
1994, driven by a combination of higher sales, successful cost containment
efforts (largely realized from earlier restructurings) and a gain of $2.7
million realized from the sale of the company's honeycomb core facility in
Miami. There were also charges of $7.1 million related to the adoption of new
accounting standards for post employment and post retirement benefits other than
pensions, which affected 1993 profitability. The preceding items, which caused
an improvement from 1993 to 1994, were partially offset by price increases on
selected raw materials and a $5.1 million impairment write-off of intangibles
relating to acquired contract manufacturing programs due to a reduction in
aircraft build rates.
Sales in 1993 were affected by a significant fall off in demand from all of
the company's major customers due to a major reduction in aircraft build rates.
During 1993 the three major producers of commercial aircraft saw both their
deliveries and order books shrink considerably. Gross profit was negatively
affected by a low level of sales and production inefficiencies resulting from
restructuring of personnel at manufacturing facilities. The Ciba Composites
Business also had substantial restructuring charges amounting to $7.7 million in
1993 incurred in integrating its European activities, streamlining its workforce
and downsizing of headquarters operations.
The bulk of the increase in net sales from the year ended December 31, 1993
to the year ended December 31, 1994 and from the nine month period ended
September 30, 1994 to the nine month period ended September 30, 1995 is due to
an increase in volume including sales related to the BPAM acquisition, growth in
wind energy and snow board sales in Europe, and growth in new industrial
application sales. Selling prices over the period have been relatively flat. Net
sales have also had a slight increase due to exchange rate fluctuations. See "--
Impact of Foreign Exchange Fluctuations."
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NET SALES BY GEOGRAPHIC REGION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
US...................................... $ 113.8 45% $ 139.8 48% $ 136.1 50%
Europe.................................. $ 129.6 51% $ 143.1 49% $ 127.5 47%
Other Countries......................... $ 8.9 4% $ 9.7 3% $ 7.7 3%
--------- --------- ---------
$ 252.3 $ 292.6 $ 271.3
--------- --------- ---------
--------- --------- ---------
</TABLE>
The shift in regional net sales between the year ended December 31, 1993 and
the year ended December 31, 1994 resulted from a 12% improvement in net sales in
Europe and 26% in other countries, against a smaller improvement of 3% in the
United States. The build-rate reduction in the American aerospace market had
affected a greater amount of net sales in the United States. The same did not
happen in European and other countries, where almost 50% of net sales were in
the non-aerospace industrial markets.
Most of Ciba's foreign sales take place in Western Europe and other
developed economies. This is consistent with the fact that a large portion of
the sales are to aerospace OEMs or major subcontractors. As a result, Ciba is
exposed to normal business risks associated with doing business in highly
developed industrial nations. These risks are managed in the same way similar
risks are managed in the United States.
IMPACT OF FOREIGN EXCHANGE FLUCTUATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995, YEAR ENDED DECEMBER 31, 1994, AND YEAR
ENDED DECEMBER 31, 1993.
Due to the fact that half of the Ciba Composites Business' net sales occur
outside the United States, the sales trends, as noted above, have also been
influenced by exchange rate fluctuations over the period. In 1993, the U.S.
dollar yearly average strengthened against all major European currencies. These
changes affected the Ciba Composites Business' net sales relative to the prior
year as follows: France (- $4.8 million), U.K. (- $4.3 million), Austria (- $1.7
million), Germany (- $1.0 million), and Italy (- $1.0 million). The total
negative effect to net sales, due to the general strengthening of the exchange
rate, was $12.9 million. The movement of the U.S. dollar in 1994 against
European currencies was more mixed, resulting in a net negative effect on net
sales relative to 1993 of $0.9 million broken down as follows: Austria (+ $0.7
million), U.K. (+ $0.5 million), France (+ $2.7 million), Germany (- $2.4
million), Italy (- $0.5 million). The total positive effect in the nine month
period ended September 30, 1995 relative to 1994 was approximately $13.7
million, broken down as follows: Germany (+ $3.9 million), Austria (+ $4.6
million), France (+ $4.2 million), U.K. (+ $0.7 million) and Italy (+ $.3
million).
The Ciba Composites Business does not hedge currency risks. While Ciba does
engage in certain currency hedging, the effects of such hedging are not
reflected in the Ciba Composites Business financial statements because neither
the costs nor benefits of such activities are allocated to the Ciba Composites
Business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
NINE MONTHS ENDED SEPTEMBER 30, 1995, YEAR ENDED DECEMBER 31, 1994, AND YEAR
ENDED DECEMBER 31, 1993.
Selling, general and administrative expenses were $34.2 million, $45.5
million and $47.8 million, for the first nine months of 1995, and the full years
of 1994 and 1993, respectively. As a percentage of sales, these expenses show a
positive trend over the period, going from a high of 18% of sales in 1993 down
to 16% in 1994 and finally 14% for the first nine months of 1995. This trend
reflects the improvement in sales as well as the impact of restructuring
activities.
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RESEARCH AND DEVELOPMENT
NINE MONTHS ENDED SEPTEMBER 30, 1995, YEAR ENDED DECEMBER 31, 1994, AND YEAR
ENDED DECEMBER 31, 1993.
Research and development expenses were $7.2 million, $7.9 million and $5.9
million, for the first nine months of 1995, and for the full years of 1994 and
1993, respectively. For these foregoing periods, expenses, as a percentage of
sales, were 2.8%, 2.7% and 2.2%, respectively. This increase in research and
development expenses is due to investments in research and development to
develop products and retain new customers for new non-aerospace industrial
markets, such as transport and energy markets.
AMORTIZATION AND WRITE DOWN OF PURCHASED INTANGIBLES
NINE MONTHS ENDED SEPTEMBER 30, 1995, YEAR ENDED DECEMBER 31, 1994, AND YEAR
ENDED DECEMBER 31, 1993.
Intangible assets arose from the purchase of Reliable Manufacturing Co. in
1979 and Heath Tecna Aerospace Co. in 1988. An impairment loss was recognized in
1994 on the contract manufacturing programs, due to reductions in aircraft build
rates. This resulted in a loss of $5.1 million.
RESTRUCTURING EXPENSES
NINE MONTHS ENDED SEPTEMBER 30, 1995, YEAR ENDED DECEMBER 31, 1994 AND YEAR
ENDED DECEMBER 31, 1993.
From the year ended December 31, 1993 through the nine month period ended
September 30, 1995, the Ciba Composites Business reduced its workforce
substantially in anticipation of lower sales to aerospace customers and in an
effort to reduce administrative overhead. Personnel reductions for the nine
month period ended September 30, 1995 and the years ended December 31, 1994 and
December 31, 1993 were 198 personnel, 121 personnel and 558 personnel,
respectively. In addition, the Ciba Composites Business consolidated production
facilities in Europe and formed a separate European business unit to focus on
the requirements of European customers in both aerospace and non-aerospace
industrial markets. In the United States, additional business units were also
formed for aerospace and industrial structures and aerospace interiors, for the
purpose of achieving more efficient operations better sized to serve the weaker
aerospace market. Restructuring costs covering both personnel expenses
(involving severance, relocation, etc.) and equipment and facility expenses
(relocation costs and write-offs) were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
RESTRUCTURING COSTS SEPTEMBER 30, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
- ------------------- ------------------ ----------------- -----------------
<S> <C> <C> <C>
Personnel.......... $2.3 $1.6 $5.9
Equipment/facility... -- -- 1.8
--- --- ---
Total.............. $2.3 $1.6 $7.7
--- --- ---
--- --- ---
</TABLE>
INTEREST
NINE MONTHS ENDED SEPTEMBER 30, 1995, YEAR ENDED DECEMBER 31, 1994, AND YEAR
ENDED DECEMBER 31, 1993
Interest expense amounted to $0.7 million, $1.2 million and $2.2 million for
the first nine months of 1995, and the full years of 1994 and 1993,
respectively. These expenses are comprised of interest on mortgage debt which
will be retired in 1999 and interest on certain long term debt to affiliates
which fluctuates based on three and six month French and Italian LIBOR rates.
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<PAGE>
INCOME TAXES
NINE MONTHS ENDED SEPTEMBER 30, 1995, YEAR ENDED DECEMBER 31, 1994, AND YEAR
ENDED DECEMBER 31, 1993.
Income taxes have been presented here as if the Ciba Composites Business was
a separate taxable entity. The tax effect of the resulting operating loss
carryforwards has been reflected as deferred tax assets with related valuation
allowances, based upon management's assessment of the Ciba Composites Business'
likelihood of realizing the benefit of such operating loss carryforwards through
future stand-alone taxable income. In actual practice, the Ciba Composites
Business has not operated as a separate taxable entity and the operating loss
carryforwards of the Ciba Composites Business have generally been utilized to
offset taxable income of Ciba and its respective local group companies in
various countries in the year incurred. As of December 31, 1994, net operating
loss carryforwards of approximately $4.8 million, $1.4 million and $0.2 million
are available to offset certain future taxable income in Italy, France and
Austria, respectively. For the first nine months of 1995 and the full year of
1994, the losses of the Ciba Composites Business before income taxes generated a
provision for income taxes of $3.9 million and $2.8 million, respectively, due
to certain profitable foreign operations. Losses generated for the full year of
1993 resulted in a tax benefit of $1.0 million.
MINORITY INTEREST IN DANUTEC
Danutec, which has headquarters in Linz, Austria, is a joint venture in
which Ciba owns 51%. The other partner is PCD, which is part of the
government-owned Austrian Industries organization. On December 20, 1995, Ciba
entered into a definitive purchase agreement, the terms of which are subject to
approval by the boards of PCD and its parent entity, with PCD for the
acquisition of PCD's 49% interest in Danutec for $12.5 million.
FINANCIAL RESOURCES AND LIQUIDITY
NINE MONTHS ENDED SEPTEMBER 30, 1995, YEARS ENDED DECEMBER 31, 1994 AND
1993.
The Ciba Composites Business' capital requirements have historically been
funded through intercompany borrowings and contributions from Ciba and its
subsidiaries. After consummation of the Acquisition (see "THE ACQUISITION"), the
Ciba Composites Business will be combined with Hexcel and will no longer have
access to funding from Ciba and its subsidiaries. Instead, it will need to rely
on internally generated cash flow and the resources and liquidity of Hexcel and
Hexcel's affiliates.
Historically, due to the seasonality of the Ciba Composites Business' sales
(i.e., higher net sales in the second quarter) and corresponding increased
working capital requirements to fund accounts receivable, the Ciba Composites
Business has required funding support from Ciba affiliates in the form of loans
or capital investments during the second and third quarter time frame. The peak
business cycle occurs near the end of the second quarter, particularly in Europe
in anticipation of the summer slowdown. Collections in the second half of the
year allow the Ciba Composites Business to generate positive cash flows from
operations for the full year period.
Net cash used by operating activities decreased from $10.1 million in the
nine months ended September 30, 1994 to $4.8 million in the nine months ended
September 30, 1995 due primarily to a decline in net losses partially offset by
increases in accounts receivable. Higher accounts receivable at the end of the
nine month periods in 1995 and 1994, respectively, reflect not only the growth
in sales that occurred during these periods but also the fact that, due to the
moderate seasonality of the business, receivables historically typically peak at
this point in the cycle and decline as collections are made by year end. A $7.1
million increase in inventory for the nine month period 1994 resulted from a
build up of inventory relating to sales in new industrial markets. Operating
cash benefited from a decrease in prepaid expenses and other current assets of
$1.9 million and $1.5 million, and a decrease in other long term assets of $.5
million and $3.1 million for the nine month 1995 and 1994 periods, respectively.
For the first nine months of 1995, although other long-term liabilities
increased by $2.2 million, accrued liabilities decreased by $4.8 million. For
the same period in 1994 cash was provided from both an increase in accrued
liabilities of $2.5 million and an increase in other long-term liabilities of
$1.6 million.
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<PAGE>
Cash flow from investing activities for the first nine months of 1995 was
affected by the Ciba Composites Business' use of $7.7 million in cash to
purchase certain property, plant and equipment. For the same period in 1994, the
Ciba Composites Business used $4.3 million in cash for investments in certain
property, plant and equipment and $4.6 million in cash was expended for the BPAM
acquisition.
Cash flow from financing activities for the first nine months of 1995 was
affected by equity contributions from Ciba of $34.8 million and additional
borrowings of $7.8 million that largely offset loan payments of $34.5 million.
For the same period in 1994, equity contributions from Ciba of $22.8 million
more than offset payments on borrowings of $7.4 million.
Net cash provided by operating activities decreased by $3.9 million from
December 31, 1993 to December 31, 1994 primarily due to an increase in accounts
receivable during this period (reflecting both the increase in sales and initial
longer payment terms extended to new European customers). Lower depreciation in
1994 was more than offset by an increase in amortization during that period due
to the recognition of a $5.1 million impairment loss for intangibles relating to
aircraft related contract manufacturing programs. In 1994 efforts to control
inventory levels resulted in a decline of $1.3 million despite an increase in
sales. In 1993 similar efforts to control assets resulted in a decrease of $16.1
million in accounts receivable and $10 million in inventories. Operating cash
flow also benefited from a $3.2 million decrease in prepaid expenses and other
current assets in 1993 and a decrease in long term assets of $3.7 million and
$3.6 million, respectively, for 1994 and 1993. With the increase in sales in
1994, accounts payable also increased by $3.8 million. In 1994 cash increased
due to an increase of $4.2 million for accrued liabilities and $1.3 million for
other long term liabilities. In 1993 a decrease of $3.5 million in other
long-term liabilities was somewhat offset by an increase of $1.1 million in
accrued liabilities.
Cash used in investing activities in 1994 reflected $7.7 million used to
purchase certain property, plant and equipment and $4.7 million expended for the
BPAM acquisition offset in part by the divestiture of the Ciba Composites
Business' Miami facility for $8.5 million. Cash used in investing activities in
1993 reflected $12.3 million used to purchase certain property, plant and
equipment.
In 1994 cash used in financing activities reflected payments on borrowings
of $10.4 million that significantly exceeded equity contributions from Ciba of
$4.7 million. In 1993, payments on borrowings of $3.6 million and equity
distributions to Ciba of $1.5 million were largely offset by proceeds from
borrowings of $4.2 million.
On a stand-alone basis, the Ciba Composites Business' current ratio improved
from 1.9 in 1993 to 2.2 in 1994, and remained at 2.2 at September 30, 1995. In
addition, the total owner's equity and long term debt due to affiliates for 1993
and 1994 are $275.7 million and $263.6 million, respectively, and amount to 76%
and 75% of total assets for each of those years. At September 30, 1995, owner's
equity and long term debt due to affiliates amount to 73% of total assets.
The working capital practices of the Ciba Composites Business (and much of
the composites materials industry) are tied in large part to the payment
practices of the aerospace industry in general. The Ciba Composites Business'
customers are, typically, large original equipment manufacturers. Goods are
generally built to order based on forecasted schedules generated in advance. As
a result, significant amounts of inventory are not carried to meet rapid
delivery requirements. In general, the Ciba Composites Business' customers do
not request extended payment terms of their vendors. The Ciba Composites
Business' customers generally pay in varying periods not generally in excess of
U.S. or European practice, as the case may be. Merchandise is not returnable.
Historically, the backlog of orders has ranged between $50 million - $150
million based on the timing of contract awards and completion. The backlog of
orders was $141 million at September 30, 1995 and $84 million at September 30,
1994. Of the September 30, 1995 backlog, $87 million in orders are not expected
to be filled by December 31, 1995. The Ciba Composites Business' backlog has not
historically been affected significantly by seasonality.
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<PAGE>
EFFECT OF INFLATION
Inflation has not had a material effect on the revenues or operating results
of the Ciba Composites Business during the nine month period ended September 30,
1995 or the full year periods ended December 31, 1994 and December 31, 1993,
respectively.
BUSINESS INFORMATION CONCERNING HEXCEL
Hexcel is an international developer and manufacturer of honeycomb, advanced
composites and reinforcement fabrics. Hexcel's materials are used in commercial
aerospace, space and defense, recreation, general industrial and other markets.
Hexcel has been the world leader in developing and manufacturing honeycomb
(a lightweight, cellular structure composed generally of hexagonal cells nested
together, similar in appearance to a cross-sectional slice of a beehive) for
almost 50 years. The largest markets for Hexcel's honeycomb are the commercial
and military aerospace markets. Non-aerospace honeycomb applications include
high-speed trains and mass transit vehicles (doors, partitions, ceilings, floors
and external structures), energy absorption products, athletic shoe components,
automotive components (screens for mass air flow controllers in fuel injection
systems, protective head and knee restraints), portable military shelters and
military support equipment, marine vessel compartments (bulkheads, water
closets, doors, floor panels, partitions, furniture and bunks), business machine
cabinets, exterior building cladding and air conditioning systems.
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 to produce a
"prepreg." 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).
Hexcel produces woven fabrics without resin impregnation from the same
fibers Hexcel uses to make advanced composites. These fibers include
S-2-Registered Trademark- and E-type fiberglass, high strength carbon fibers,
impact resistant Kevlar, electrically conducive
Thorstrand-Registered Trademark-, temperature resistant ceramic and quartz
fibers, and a variety of other specialty fibers. Hexcel sells such 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.
In addition to exporting from the U.S., Hexcel serves international markets
through three European operating subsidiaries located in Belgium, France and the
United Kingdom. Each of these subsidiaries maintains manufacturing and marketing
facilities. Hexcel also maintains sales liaison (or representation) offices in
Australia and Brazil. All Hexcel materials, with the exception of classified
U.S. military materials, are marketed throughout the world.
The Boeing Company ("Boeing") and Boeing subcontractors accounted for
approximately 22% of Hexcel's 1994 sales. The loss of this business, which
Hexcel does not anticipate, could have a material adverse effect on sales and
earnings. Management believes that a strong relationship with Boeing and its
subcontractors is important to Hexcel's presence in commercial aerospace
markets.
For additional information regarding the business of Hexcel, see "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
77
<PAGE>
BUSINESS INFORMATION CONCERNING THE CIBA COMPOSITES BUSINESS
The Ciba Composites Business develops, markets, manufactures and supports,
on a worldwide basis, a broad line of composite materials and composite parts
for aircraft structures, other industrial structures and cabin interiors. The
Ciba Composites Business markets its products either to OEMs or subcontractors
or as spares or retrofit products to end users.
Ciba has been active in the composites industry for nearly 50 years. The
business grew internally and through acquisitions and was focused on the supply
of advanced materials to the aerospace industry. The principal acquisitions were
Aero Research Ltd., an English corporation ("Aero"), in 1947, Orbitex Inc., a
Nevada corporation ("Orbitex"), in 1974, Reliable Manufacturing Inc., a
California corporation ("Reliable"), Deco Manufacturing Inc., a California
corporation ("Deco"), and the composites business of J. Brochier et Fils, a
French corporation, in 1979. In 1994, assets consisting of substantially all of
the U.S. advanced materials business of BP Chemicals were acquired. A further
series of acquisitions was made between 1985 and 1990 as part of a strategic
move to diversify into structural composites (Heath Tecna Aerospace Company, a
Delaware corporation ("Heath Tecna"), Panel Air Corporation, a California
corporation ("Panel Air"), and Salver) and into materials for non-aerospace
applications (a 51% equity interest in Danutec). Orbitex, Reliable, Deco, Heath
Tecna and Panel Air were all previously merged into CGC and are currently
operated together with the advanced materials business as part of the U.S.
Composites Division of CGC, which in turn is part of the worldwide operations of
the Ciba Composites Business. The composites business acquired from J. Brochier
et Fils is currently operated as Brochier, a stand-alone wholly-owned subsidiary
of Ciba. Salver continues to operate on a stand-alone basis as a wholly-owned
subsidiary of Ciba. As noted above in the discussion under "THE ACQUISITION --
The Strategic Alliance Agreement," the shares of stock of Brochier and Salver
will be transferred to Hexcel at Closing. The Ciba Composites Business in the
United Kingdom (including the aerospace business resulting from the prior
acquisition of Aero) is currently conducted on a stand-alone basis by CML. The
shares of stock of CML will be transferred to Hexcel at Closing. Elsewhere, the
Ciba Composites Business is operated country-by-country on a divisional basis
through various Ciba group companies. From an operational point of view, the
foregoing stand-alone subsidiaries and divisional operations, together with the
51% equity interest in Danutec, form the Ciba Composites Business. For a
discussion of the treatment of Danutec in connection with the Acquisition, see
"THE ACQUISITION -- The Strategic Alliance Agreement -- General."
The Ciba Composites Business' product range consists of prepregs, fabrics,
adhesives, honeycomb core, sandwich panels, structures and aircraft interiors.
The principal market segments served by the composite materials business
units are aerospace, sports and leisure, marine, surface transportation, energy
and a variety of other industrial applications. The structural components and
interiors business units are focused almost entirely on commercial aerospace.
Although products are sold in over forty countries worldwide, the major market
areas are in the U.S. and in Western Europe.
The Ciba Composites Business seeks to offer its products at competitive
prices through long-term contracts with major customers and by teaming with
customers to develop new technologies and business processes that will reduce
the total delivered cost of the customer's product. Approximately 45% of the
Ciba Composites Business' revenue comes from long-term supply arrangements. A
limited inventory of standard products is maintained for immediate supply but,
in general, the business environment is one of "make to order."
The Ciba Composites Business' manufacturing activities cover a wide range of
operations from chemical processing to engineering and component assembly.
Composite materials are produced in the U.S. and in Europe. Interior
products are made exclusively in the U.S. Structural products are made in the
U.S. and in Italy. The Ciba Composites Business' worldwide headquarters are
located in Anaheim, California.
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MARKETING AND SALES
The Ciba Composites Business markets its products directly to customers in
the aerospace market and in the non-aerospace industrial markets which include
the sports and leisure, surface transportation and energy sectors. Distributors
are used in certain countries to offer a limited range of stock products for
small order quantity customers. As discussed under "THE ACQUISITION -- Other
Agreements -- Distribution Agreement," the Distribution Agreement will be
entered into at Closing to provide for an orderly transfer of certain assets of
Ciba affiliates that act as distributors for the Ciba Composites Business in the
Excluded Jurisdictions. The Ciba Composites Business' customers are primarily
the major U.S. and European commercial aerospace companies plus a wide range of
companies in the non-aerospace industrial markets. The Ciba Composites Business
reaches its target markets through sales offices in 19 countries around the
world. The Ciba Composites Business primarily views direct contacts with
customers as the principal channel used to promote its products.
The Ciba Composites Business believes that its customers evaluate composites
industry suppliers on product performance, consistency of quality, marketing and
technical service support. The Ciba Composites Business believes that sales to
major companies result directly from strategic relationships. Following
competitive bids, contracts may be awarded on a sole source basis covering a
specified number of years, although generally the awards are annual. Contracts
based on prime source and second source suppliers are quite common. Prime source
contracts provide the supplier with the majority of a customer's requirements
(usually 60%-80%). Second source contracts covering 20%-40% are given to a
competitor or competitors. Most OEMs use this process in awarding work although
there is a trend starting for single source awards. In general, pricing and
terms on multi-year contracts are based on a fixed price and an accepted
escalation formula. The revenue share attributable to long-term contracts varies
between the various businesses. The structures business often requires long term
sourcing agreements due to the very high start-up activities and costs incurred
on such programs. The US Materials business generates 50% of its revenue from
long-term contracts while the EuroMaterials operations have a smaller
percentage, approximately 20%, of revenue generated from long-term contracts.
Contracts with customers (including both private and governmental customers) are
typically renegotiated or reexamined on an annual or biennial basis, and
contracts with durations of five or more years are uncommon. The Ciba Composites
Business' aerospace customers generally require high quality products from all
of their suppliers. The Ciba Composites Business seeks to distinguish itself
from its competitors by offering a broad range of products, by providing
responsive customer service and technical support, by being a global company and
by teaming with customers on joint programs.
The Ciba Composites Business focuses on advanced composites with custom
tailored products which meet the technical specifications but offer other
advantages such as lower weight, higher strength and corrosion resistance. The
Ciba Composites Business believes that emphasizing product qualification for new
business opportunities, while at the same time seeking to maximize sales of
existing products is a key strategy for continuing competitiveness because
customers tend to qualify a maximum of two suppliers for each particular
qualification. New product qualification entails a rigorous and lengthy testing
of both the product supplied and the final component made. In addition, the
manufacturing and quality systems at the production site are also qualified. Any
process or site location change will also require a requalification program to
be carried out by the supplier. Qualification costs are usually borne by the
supplier and can, for aerospace products, be quite significant. The OEM usually
limits the number of qualified suppliers for a given product line.
The Ciba Composites Business seeks to maintain relationships with major OEM
customers at all levels of the business. One benefit of the Ciba Composites
Business' in-depth knowledge of its customers is the opportunity to bid for work
formerly done in-house by OEMs that is now being subcontracted. The Ciba
Composites Business seeks growth opportunities through international sourcing
arrangements in the aerospace industry and in supporting its customers offload
supply requirements.
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Sales to Boeing, the largest customer of the Ciba Composites Business,
account for approximately 20% of 1994 revenue. The loss of Boeing as a customer
would have a material adverse effect on the Ciba Composites Business. In the
commercial aerospace industry, Boeing had a 60% market share in 1994. Management
of the Ciba Composites Business believes that a strong relationship with Boeing
and its subcontractors is critical for success in aerospace composites.
Materials customers frequently change delivery schedules and orders. These
unfulfilled orders can be, and often are, rescheduled at will. Order
cancellation is not a frequent occurrence. In most cases, where orders have been
canceled, incurred costs can usually be recovered.
The Ciba Composites Business operates within a single industry segment,
structural materials. The Ciba Composites Business sells these materials
throughout the world. The net sales, intradivision transfers, operating loss
(income) and identifiable assets for each geographic area for 1993 and 1994 are
shown in Note 13 to the Audited Financial Statements of the Ciba Composites
Business included elsewhere herein. See "INDEX TO FINANCIAL STATEMENTS."
PRODUCTS
The Ciba Composites Business markets a broad range of composite materials
covering structural adhesives, honeycomb core, structural fabrics and fabric
shapes, prepregs, sandwich panels, interiors, structures, and other bonded
assemblies. Each of the Ciba Composites Business' products has to be qualified
by each customer to that customer's own specification requirements.
The following is a brief description of the significant product types
produced by the Ciba Composites Business:
-Structural adhesives are formulated resin systems in a film form which are
used in metallic and composite bonding applications.
-Honeycomb products are supplied in either metallic (aluminum), or
non-metallic (aramid or glass) forms and are used in the fabrication of
sandwich structures.
-The fabrics business consists of structural fabrics for composite
applications and coated fabrics for solar protection.
-Prepregs are products consisting of high performance reinforcement fibers
and formulated resins which have structural properties not found in either
of the constituent materials. The principal prepreg products are based on
graphite, aramid or glass fibers with epoxy or phenolic resin systems.
-Sandwich panels and laminates are products made from combinations of
honeycomb, adhesives, prepregs and other skin products with the honeycomb
forming the central part of the sandwich. These panels have a wide range of
industrial applications, such as floor boards for aircraft, trains and
buses, aircraft galley compartments, bulkheads and room dividers for yachts
and other vessels and as oil rig living modules.
The composite structures business focuses on specific market areas for
aircraft wing and fuselage parts such as fairings, radomes, access doors and
wing panels. The major customers are the aircraft OEMs. In the non-aerospace
industrial market, product applications include hand-held missile launch tubes,
truck chassis fairings and wind blades.
The interiors product range includes stowbins, sidewalls, lavatories and
class dividers and is sold either to aircraft OEMs who use the products for
their own fabrication or directly to airlines as retrofit products.
SERVICES & SUPPORT
The Ciba Composites Business believes that prompt, high quality customer
service and technical support are important factors that customers evaluate as
part of the vendor selection process.
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In the materials business units, the area sales engineers are given
responsibility for coordinating the entire business activity for a particular
account. Technical service and product management support are provided as a
central service. Electronic data interchange has been introduced for a few
customers to cover day-to-day business activity. There are plans to extend this
service.
In the structures and interiors businesses, there is frequent contact
between the Ciba Composites Business staff and the customers for each stage of
the procurement program. Technicians for the Ciba Composites Business usually
are present at the customer's location for the initial article installation on a
new program.
Distributorships are not widely used by the Ciba Composites Business.
RESEARCH AND DEVELOPMENT
The Ciba Composites Business' research and development activities are
concentrated in the individual business units, with only a small materials
science group focusing, for the division, on more fundamental research issues.
The Ciba Composites Business' research and development expenses were $5.9
million in 1993, $7.9 million in 1994 and, $7.2 million for the first nine
months of 1995. For the foregoing periods, these expenses, as a percentage of
divisional sales, were 2.2%, 2.7% and 2.8% of sales, respectively.
The Ciba Composites Business recently implemented several product
development programs and has been pursuing an increasing number of joint
projects with customers and suppliers. Generally, when Ciba enters into such
joint development projects, each member of the team is responsible for the costs
it incurs. Customer sponsored research and development has not been material.
Over the past few years, primarily at the request of customers, the Ciba
Composites Business has been emphasizing cost effective design and manufacturing
technologies rather than advanced product innovations.
MANUFACTURING
The Ciba Composites Business manufactures its products using one or more of
the following processes: resin formulation, web coating, weaving, fiber
impregnation with coated resin, laminate strip making, honeycomb web production
and honeycomb sandwich panel pressing. All products receive final product
assurance testing as well as in-process quality control tests for certain raw
materials and intermediates.
The manufacturing activities of the composite structures and interiors
businesses consist of material preparation and lay up, component curing,
machining, trimming, painting and final assembly. All products then receive
finished product assurance testing as well as in-process control. The Ciba
Composites Business sub-contracts only a small portion of its business,
primarily in tooling.
Composite materials production is carried out in Anaheim (California), Lyon
(France), Linz (Austria), Isando (South Africa) and Duxford (the United
Kingdom). Interior products are produced in the cities of Kent and Bellingham,
both in the State of Washington, with structural products being made in Kent and
in Brindisi (Italy).
The Ciba Composites Business procures substantially all raw materials,
components and sub-assemblies on a purchase order basis. Every effort is made to
maintain long-term supply agreements with suppliers. Due to the cost of
qualification of new raw material sources, the Ciba Composites Business uses
sole source suppliers for many of its programs. In some circumstances, customers
may also specify the raw material source. Ciba's Polymers Division provided
approximately $12 million in resins to the Ciba Composites Business in 1994 and
is currently expected to reach a similar level in 1995. Pursuant to the Supply
and Tolling Agreements, that level of sales is expected to continue or increase
after the Closing. In addition, Ciba's Polymers Division provided approximately
$5.6 million in resins to Hexcel in 1994 and is estimated to have provided a
similar amount in 1995. As a result of the downturn in the advanced materials
marketplace, a number of vendors, including some sole-
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sourced suppliers, have exited the market, causing significant difficulties in
finding alternative materials. In some other circumstances there has been a
shortage of a few selected raw materials due to industry wide capacity shortage.
To date, these shortages have not had a material adverse impact on the results
of operations of the Ciba Composites Business.
The composite materials production policy is a combination of "make to
forecast" and "make to order." The structures and interiors businesses are
entirely "make to order" operations. The aerospace business tends to be much
more predictable with longer lead times being acceptable, whereas non-aerospace
customers expect short lead times. Employees in the production areas are
generally trained to perform multiple tasks, permitting flexibility in the
production operation. Shift work patterns are frequently adjusted to cope with
changes in demand and temporary labor is also used where appropriate.
Throughout the manufacturing operations, in-line process control is carried
out. Products are also subjected to finished goods assurance testing and/or
component final inspection. For structures and interiors parts, a customer
inspector may also be part of the finished product clearance procedure.
Statistical Process Control ("SPC") is also used as a means toward controlling
the process. All the EuroMaterials sites are certified to ISO 9001 standard
while the United States locations are approved to Boeing's D1-9000 requirements.
COMPETITION
Listed below are the leading companies that compete with the Ciba Composites
Business. The companies are grouped alphabetically within each product category:
<TABLE>
<S> <C> <C>
- - Prepregs: Cytec, DuPont, Fiberite, Hercules, Hexcel, Mitsubishi, Toray
- - Adhesives: B.F. Goodrich, Cytec, Dexter Hysol, 3M
- - Honeycomb Core: Alcore, EuroComposites, Hexcel, M.C. Gill, Plascore, Showa,
Schutz
- - Sandwich Panels: EuroComposites, General Veneer, Hexcel, M. C. Gill, Nordam,
Teklam
- - Fabrics: Clark Schwebel, Fiberite, Hexcel, J.P. Stevens,
Porcher/Burlington, Toho, Toray and many other competitors
not specifically involved in the composites industry.
- - Interiors: Aircraft Interior Manufacturers, Buderus-Sell, C&D Plastics,
Jamco, Nordam and others.
- - Structures: DuPont, Mitsubishi, and, more generally, all aerospace
subcontractors, E.G., Alenia, Bombardier/Shorts, Fuji Heavy
Industries, Kawasaki Heavy Industries, Mitsubishi Heavy
Industries, Northrup-Grumman and Rockwell. The Ciba
Composites Business is a niche supplier in this market
segment.
</TABLE>
See also the discussion of competitive conditions in "-- Marketing and
Sales," above.
PATENTS, TRADEMARKS, AND LICENSES
The Ciba Composites Business holds over seventy patents with ten
applications pending. The Ciba Composites Business believes that its continued
success will depend primarily on the technical expertise and creative skills of
its employees rather than on the ownership of patents, copyrights or trademarks.
The Ciba Composites Business has entered, and will continue to enter, into
licensing arrangements with other companies having or asserting rights to
technologies, if the Ciba Composites Business concludes that such licensing
arrangements are necessary or desirable. The Ciba Composites Business has no
significant income arising from any trademark or patent license agreement. The
patents, trademarks and licenses of the Ciba Composites Business expire at
various intervals, and the expiration of any individual patent, trademark or
license is not expected to have a material adverse effect on the Ciba Composites
Business.
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EMPLOYEES
As of September 30, 1995, the Ciba Composites Business on a worldwide basis
had approximately 2,322 full time employees and 96 temporary employees. Included
in the full time employee headcount are 109 people in a non-composites toll
manufacturing operation in Duxford and 35 sales representatives in countries
throughout the world.
Certain employees in Kent, Linz and Lyon are represented by separate labor
unions relating to their employment with the Ciba Composites Business or are
subject to a collective bargaining agreement. The Ciba Composites Business has
never experienced a work stoppage due to labor difficulties. The Ciba Composites
Business believes that its employee relations generally are good.
PROPERTIES
The Ciba Composites Business has manufacturing operations in five countries.
A 300,000 sq. ft. facility houses the US Materials business in Anaheim. The
structures business comprises 510,000 sq. ft. of owned property and 270,000 sq.
ft of leased property in Kent, as well as two owned buildings totaling 110,000
sq. ft. in Brindisi. The interiors business is located in a 160,000 sq. ft.
owned plant and 25,000 sq. ft. of leased space in Bellingham, as well as a
130,000 sq. ft. leased building in Kent. The EuroMaterials business owns and
conducts operations on property at Duxford (380,000 sq. ft. owned), Lyon
(200,000 sq. ft. owned and 30,000 sq. ft. leased) and Linz (170,000 sq. ft.
owned and 17,000 sq. ft. leased). There is also a facility (6,000 sq. ft. owned)
in Isando, South Africa which produces honeycomb sandwich panels.
Capacity utilization varies between the different business units. The US
Materials business has considerable underutilized capacity and within its
current buildings has available free space. In the EuroMaterials business,
selective investment is taking place to provide additional capacity for
specialty fabrics and industrial prepregs. The three European locations all have
adequate land available for further building expansion.
The Structures business facility in Brindisi currently is able to
accommodate new programs. Over the past two years, the Kent site has been
consolidated. However, management of the Ciba Composites Business believes there
is ample leasing opportunity in the Kent area for nearby industrial buildings
should this be necessary. Additional shifts can also be introduced to provide
additional capacity with the existing plant.
The Interiors business in Kent can accommodate significant build rate
increases without any additional capital investment costs. The current building
in Bellingham for retrofit interiors production is close to achieving floor
space saturation but owned space is available to double the current plant size.
CAPITAL STOCK
The Ciba Composites Business is a wholly-owned division of Ciba and,
consequently, it has no shares of capital stock that trade in any U.S. or
foreign market.
ENVIRONMENTAL MATTERS
Compliance with environmental laws has not historically had a material
effect on capital expenditures, earnings or competitive position. Further
discussion of environmental matters is included in "-- Legal Proceedings."
LEGAL PROCEEDINGS
The Anaheim facility of the Ciba Composites Business generated hazardous
waste that was sent to the Omega Chemical Corporation, a spent solvent recycling
and treatment facility in Whittier, California (the "Omega Site"), permitted
under authority of the Resource Conservation and Recovery Act ("RCRA"). During
1993, the Omega Site was subject to a RCRA inspection, and the owners and
operators of the site were required to undertake various corrective measures,
which they have allegedly failed to perform. On May 9, 1995, over 100 entities
identified as potentially responsible
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parties ("PRPs")(collectively, the "Initial PRP Group"), not including Ciba,
received an administrative order pursuant to the Federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") from the U.S.
Environmental Protection Agency ("EPA"), requiring abatement of conditions that
allegedly created a threat to human health and the environment, and the
commencement of investigation and testing of soil and surface water at the Omega
Site. On September 5, 1995, an additional approximately 50 parties (the
"Additional PRPs"), including Ciba, received a PRP notice letter regarding the
Omega Site and an amended administrative order pursuant to CERCLA from the EPA.
The amended administrative order requires that both the members of the Initial
PRP Group and the Additional PRPs (collectively, the "current PRP Group") comply
with the EPA's additional removal requirements, including further soil sampling,
groundwater sampling, and the disposal of contaminated soil, debris and
equipment. The EPA alleges that Ciba sent approximately 97 tons of waste to the
Omega Site for treatment between approximately March 1987 and August 1988. The
EPA's data indicate that approximately 17,800 tons of waste were sent to the
Omega site between 1982 and 1992, of which approximately 2,100 tons are not
allocable to specific parties. Ciba understands that past costs, which were paid
by the Initial PRP Group, totalled approximately $3.1 million and that the cost
of the additional work is estimated at $360,000. Based on the preliminary
information currently available, although it is not possible to estimate with
any certainty the magnitude of the aggregate liability of the Current PRP Group
arising from the EPA's additional removal requirements, the management of the
Ciba Composites Business does not believe that any share of liability that may
be attributable to the Ciba Composites Business could reasonably be anticipated
to have a material adverse effect on the financial condition, results of
operations or liquidity of the Ciba Composites Business.
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
Pursuant to Hexcel's certificate of incorporation as in effect on the Record
Date, Hexcel's authorized capital stock consists of 40,000,000 shares of Hexcel
Common and 1,500,000 shares of Hexcel Preferred. As of the Record Date, there
were 18,091,354 shares of Hexcel Common issued and outstanding and no shares of
Hexcel Preferred issued and outstanding. Giving effect to the issuance of the
Hexcel Shares, Hexcel would have approximately 36,110,487 (based on the number
of shares outstanding on the Record Date) shares of Hexcel Common outstanding
and an additional 1,096,444 shares of Hexcel Common reserved for issuance upon
the exercise of outstanding stock options and the conversion of Hexcel's 7%
Convertible Subordinated Debentures due 2011.
On September 29, 1995, the Board of Directors approved the Common Stock
Amendment, which, if approved by the stockholders of Hexcel, will increase the
number of authorized shares of Hexcel Common from 40,000,000 to 100,000,000
shares. Stockholder approval of the Common Stock Amendment is a condition to the
consummation of the Acquisition. See "THE ACQUISITION -- Strategic Alliance
Agreement -- Conditions."
The Board of Directors of Hexcel believes that it is in the best interests
of Hexcel to increase the number of authorized shares of Hexcel Common. In
addition to satisfying a condition to the consummation of the Acquisition,
stockholder approval of the Common Stock Amendment will provide Hexcel with
flexibility in the future by assuring that there will be sufficient authorized
but unissued shares of Hexcel Common available for financing requirements,
possible acquisitions, and other corporate purposes without the necessity of
further stockholder action at any special or annual meeting. Other than (i)
pursuant to the Acquisition; (ii) in connection with employee and director stock
options and other compensation programs (see "EXECUTIVE COMPENSATION"); and
(iii) in connection with the conversion of Hexcel's 7% Convertible Subordinated
Debentures, there are no current plans to issue any shares of Hexcel Common.
From time to time, however, Hexcel reviews potential acquisition transactions,
some of which could involve the issuance of Hexcel Common as acquisition
consideration.
An issuance of Hexcel Common could be used as an anti-takeover device by
making it more difficult for a person to acquire control of Hexcel. The
increased available unissued shares of Hexcel
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Common authorized by the Common Stock Amendment would enable Hexcel to take
certain actions, if Hexcel so determined, to dilute both the stock ownership of
a person seeking control of Hexcel and the voting power of all stockholders
generally. Such issuance may discourage or render more difficult a takeover or
other transaction which the holders of some or a majority of shares of Hexcel
Common might believe to be in their best interest or in which such holders might
receive a premium for their shares of Hexcel Common over the then market price
of such shares.
When issued, the additional shares of Hexcel Common authorized by the Common
Stock Amendment will have the same rights and privileges as the shares of Hexcel
Common currently authorized. Holders of Hexcel Common have no preemptive rights
(other than Ciba's contractual preemptive rights under the Governance Agreement,
see "THE ACQUISITION -- The Governance Agreement") and, accordingly, holders of
Hexcel Common (other than Ciba) would not have any preferential right to
purchase any of the additional shares of Hexcel Common if and when such shares
are issued.
Under the provisions of the GCL, a board of directors generally may issue
authorized but unissued shares of common stock without stockholder approval. A
substantial number of authorized but unissued shares of Hexcel Common not
reserved for specific purposes allows Hexcel to take prompt action with respect
to corporate opportunities that develop, without the delay and expense of
convening a special meeting of stockholders. The issuance of additional shares
of Hexcel Common by Hexcel may, depending on the circumstances under which any
such shares are issued, cause a dilution of voting rights, net income, and net
book value per share of Hexcel Common. Should the Common Stock Amendment be
adopted, it is not the present intention of the Board of Directors to seek
stockholder approval prior to any issuance of additional shares of Hexcel Common
unless otherwise required by law or the rules of any securities exchange or
inter-dealer quotation system on which the shares may be listed at the time. For
example, the New York Stock Exchange, on which the Hexcel Common trades,
currently requires specific stockholder approval in several instances, including
certain transactions where the present or potential issuance of shares could
result in an increase in the number of shares of Hexcel Common outstanding by
20% or more.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE COMMON
STOCK AMENDMENT.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
As of January 18, 1996 Hexcel knows of no person (or "group" as contemplated
by Section 13(d)(3) of the Securities Exchange Act of 1934) who beneficially
owns more than 5% of the outstanding shares of Hexcel Common, except as follows:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF PERCENTAGE OF PERCENTAGE OF
SHARES BEFORE SHARES AFTER OUTSTANDING OUTSTANDING SHARES
GIVING EFFECT GIVING EFFECT SHARES BEFORE AFTER GIVING EFFECT
TO THE TO THE GIVING EFFECT TO TO THE
ADDRESS ACQUISITION ACQUISITION THE ACQUISITION ACQUISITION (5)
- ------------------------------------------------ -------------- -------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Mutual Series Fund, Inc. (1) 3,575,606 3,575,606 19.7% 9.9%
Heine Securities Corporation
Michael Price
51 John F. Kennedy Parkway
Short Hills, NJ 07078
State of Wisconsin Investment Board (2) 1,591,613 1,591,613 8.8% 4.4%
P.O. Box 7842
Madison, WI 53702
Elliot Associates, L.P. (3) 1,064,088 1,064,088 5.9% 2.9%
Westgate International, L.P.
Martley International, Inc.
712 Fifth Avenue
36th Floor
New York, NY 10019
Ciba-Geigy Limited (4) 0 18,019,133 -- 49.9%
Ciba-Geigy Corporation
CH 4002
Basle, Switzerland
</TABLE>
- ------------------------
(1) Information with respect to Mutual Series Fund, Inc. ("Mutual Series"),
Heine Securities Corporation and Michael Price is based on information
provided in Amendment No. 3 to Schedule 13D, filed with the Commission on
April 7, 1995 on behalf of those parties. Includes 40,000 shares of Hexcel
Common issuable upon the exercise of options granted to Peter A. Langerman.
See "-- Stock Beneficially Owned by Directors and Officers -- Note 2." Such
shares are treated as outstanding for purposes of calculating the percentage
of outstanding shares owned.
(2) Information with respect to the State of Wisconsin Investment Board is based
on information provided in Amendment No. 1 to Form 13F for the quarter ended
June 30, 1995, filed with the Commission on August 29, 1995.
(3) Information with respect to Elliott Associates, L.P., Westgate
International, L.P. and Martley International, Inc. is based on information
provided in Amendment No. 2 to Schedule 13D, filed with the Commission on
April 17, 1995 on behalf of those parties.
(4) Upon consummation of the Acquisition, Ciba will acquire 49.9% of the Hexcel
Common. See "THE ACQUISITION."
(5) Assumes that 36,110,487 shares of Hexcel Common will be outstanding
following consummation of the Acquisition, based on the 18,091,354 shares of
Hexcel Common outstanding as of the Record Date.
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STOCK BENEFICIALLY OWNED BY DIRECTORS AND OFFICERS
Based on information supplied by those persons, beneficial ownership of
shares of Hexcel Common by the individually named directors and executive
officers, and by all directors and executive officers as a group, as of January
18, 1996, is as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
NUMBER OF SHARES NUMBER OF SHARES OUTSTANDING OUTSTANDING SHARES
BEFORE GIVING AFTER GIVING SHARES BEFORE AFTER GIVING EFFECT
EFFECT TO THE EFFECT TO THE GIVING EFFECT TO TO THE
NAME ACQUISITION (5) ACQUISITION (5) THE ACQUISITION ACQUISITION (6)
- --------------------------------- ----------------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Marshall S. Geller 109,000 109,000 (1) (1)
Joseph L. Harrosh 563,400 563,400 3.1% 1.6%
Peter A. Langerman (2) 3,575,606 3,575,606 19.7% 9.9%
John J. Lee (3) 267,988 267,988 1.5% (1)
George S. Springer 40,500 40,500 (1) (1)
Frederick W. Stanske (4) 314,800 314,800 1.7% (1)
Franklin S. Wimer 50,000 50,000 (1) (1)
Robert L. Witt 60,597 60,597 (1) (1)
Peter D. Wolfson 40,985 40,985 (1) (1)
William P. Meehan 13,000 13,000 (1) (1)
Rodney P. Jenks, Jr. 13,000 13,000 (1) (1)
Gary L. Sandercock 71,861 71,861 (1) (1)
Thomas J. Lahey 53,478 53,478 (1) (1)
All Officers and Directors as a
group (16 persons) 5,218,874 5,218,874 28.0% 14.2%
</TABLE>
- ------------------------
(1) Less than 1%.
(2) 3,535,606 of such shares are beneficially owned by Mutual Series, Heine
Securities Corporation and Michael Price. The remaining 40,000 shares are
issuable upon the exercise of stock options issued to Mr. Langerman as
compensation for his services as a director of Hexcel. Mr. Langerman is an
Executive Vice President of Mutual Series and serves on the Board of
Directors at the request of Mutual Series. In accordance with the internal
policies of Mutual Series, Mr. Langerman has agreed to provide the net
economic benefit to him of such directors' stock options to Mutual Series
for the benefit of its fund investors. Mr. Langerman disclaims beneficial
ownership of the shares of Hexcel Common issuable upon exercise of such
directors' stock options.
(3) See "EXECUTIVE COMPENSATION -- Compensation of Senior Executives Following
the Acquisition" for a discussion of certain equity-based compensation
expected to be granted to Mr. Lee following the Acquisition.
(4) 274,800 of such shares are beneficially owned by Fisher Investments, Inc.,
of which Mr. Stanske is a Vice President.
(5) Includes shares issuable upon the exercise of stock options that are
currently exercisable or that will become exercisable within 60 days. Such
shares are held as follows: Geller (40,000); Harrosh (40,000); Langerman
(40,000); Lee (40,000); Springer (40,000); Stanske (40,000); Wimer (40,000);
Witt (41,619); Wolfson (40,000); Meehan (13,000); Jenks (13,000); Sandercock
(60,875);
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Lahey (44,200); and all other executive officers (40,342). Shares issuable
upon the exercise of stock options that are currently exercisable or that
will become exercisable within 60 days are treated as outstanding for
purposes of computing the percentage of outstanding shares.
(6) Assumes that 36,110,487 shares of Hexcel Common will be outstanding
following consummation of the Acquisition, based on the 18,091,354 shares of
Hexcel Common outstanding as of the Record Date.
NOMINEES FOR ELECTION AS DIRECTORS OF HEXCEL
The Restated Certificate of Incorporation and Restated Bylaws of Hexcel,
each as in effect on the Record Date, provide that the number of directors of
Hexcel shall be not less than eight nor more than fifteen, with the exact number
to be determined from time to time by the Board of Directors. Pursuant to the
Plan of Reorganization, Hexcel's Board of Directors was reconstituted to consist
of nine directors, plus an additional seat for a new Chief Executive Officer of
Hexcel, who would join the Board immediately upon the commencement of his or her
employment with Hexcel. Accordingly, the Board of Directors is currently
comprised of nine directors.
The Board of Directors has nominated the following persons for election as
directors of Hexcel, all of whom are current directors of Hexcel: Marshall S.
Geller; Joseph L. Harrosh; Peter A. Langerman; John J. Lee; Dr. George S.
Springer; Frederick W. Stanske; Franklin S. Wimer; Robert L. Witt; and Peter D.
Wolfson. For biographical information on such nominees, see "DIRECTORS AND
EXECUTIVE OFFICERS OF HEXCEL." Unless otherwise directed on the enclosed proxy,
the persons named in the enclosed form of proxy will vote such proxy for the
election of such nominees. In case any nominee becomes unavailable for election
or declines to serve for any reason, an event management does not anticipate,
the persons named in the proxy will have the right to use their discretion to
vote for an alternative or alternatives designated by the Board of Directors. No
family relationship exists between any nominee and any of the other directors,
executive officers or other nominees. Management has no reason to expect that
any of these nominees will fail to be a candidate at the Annual Meeting and
therefore has not chosen a substitute for any nominees.
In the event that the foregoing nominees are elected as directors of Hexcel
and the Acquisition is consummated, Franklin S. Wimer, Joseph L. Harrosh, Robert
L. Witt and Peter D. Wolfson will resign from their positions as directors of
Hexcel and the number of directors constituting the Board of Directors will be
increased to ten, each effective immediately upon consummation of the
Acquisition. Pursuant to the Restated Bylaws of Hexcel and in accordance with
the Strategic Alliance Agreement and the Governance Agreement, upon the
consummation of the Acquisition, the persons listed below shall be appointed as
directors of Hexcel, pursuant to the terms of the Governance Agreement. See "THE
ACQUISITION -- The Governance Agreement." The information indicated below has
been furnished to Hexcel by the respective individuals.
John M.D. Cheesmond, age 46, has served as Senior Vice President and Head of
Regional Finance and Control of Ciba since 1994. From 1991 through 1993, Mr.
Cheesmond served as Vice President -- Planning, Information and Control at Ciba
Vision Corp.
Dr. Juergen Habermeier, age 54, has served as the President of the Ciba
Composites Business since 1989. He has also served as a Vice President of CGC
since 1989.
Stanley Sherman, age 57, has served as a director and Vice President --
Finance & Information Services of CGC since 1991. From 1986 through 1991, Mr.
Sherman served as Vice President -- Corporate Planning of CGC. Mr. Sherman is
currently a member of the Corporate Governance and Finance Committees of CGC.
Dr. Joseph T. Sullivan, age 55, has served as a director and Senior Vice
President of CGC since 1986. He is currently a member of the Corporate
Governance and Finance Committees of CGC.
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Hermann Vodicka, age 53, has served as President of the Polymers Division
and a member of the Executive Committee of Ciba since 1993. Effective April 25,
1996, Mr. Vodicka will become Chairman of the Executive Committee of Ciba. He is
currently the Chairman of the Board of METTLER-TOLEDO, a leading worldwide
manufacturer of scales and balances and a wholly owned subsidiary of Ciba. From
1988 through 1993, Mr. Vodicka was President and Chief Executive Officer of
METTLER-TOLEDO.
MEETINGS AND STANDING COMMITTEES OF THE
BOARD OF DIRECTORS
During 1995, there were 14 meetings of the Board of Directors and 14
meetings in the aggregate of the four standing and other special committees of
the Board. The Board of Directors has established the following standing
committees: Executive Compensation Committee; Audit Committee; Nominating
Committee; and Advanced Programs (Technology) Committee. The Board of Directors
may establish other special or standing committees from time to time. Members of
the committees serve at the discretion of the Board of Directors. Overall
attendance at the Board of Directors and committee meetings was approximately
98% in 1995. Each of the incumbent directors attended or participated in at
least 75% of the aggregate number of Board of Directors and applicable committee
meetings in 1995.
On behalf of the Board of Directors, the Audit Committee reviews, with the
independent auditors and with management as deemed necessary, the financial
statements, the results of the annual audit and internal accounting control
matters. It also recommends to the Board of Directors the selection of auditors.
While the Audit Committee is concerned with the accuracy and completeness of
Hexcel's financial statements and matters relating thereto, it is not in a
position to, nor does it in any sense professionally evaluate the quality of the
independent audit. It is believed that the Audit Committee's activities serve a
useful function in providing ongoing review on behalf of the Board of Directors
but they in no way alter the traditional roles and responsibilities of Hexcel's
management and independent auditors with respect to the accounting and control
functions and financial statements. The current members of the Audit Committee
are Messrs. Wimer (Chairman), Geller, Langerman and Witt. During 1995, the Audit
Committee held two meetings.
The Executive Compensation Committee makes recommendations to the Board of
Directors on matters pertaining to direct remuneration of Hexcel's executive
officers and to the management structure relating to Hexcel's executive
officers. The Executive Compensation Committee makes grants of stock options to
non-officer key employees and makes recommendations to the Board of Directors
for grants of stock options and awards of restricted stock to executive
officers. The current members of the Executive Compensation Committee are
Messrs. Langerman (Co-Chairman), Harrosh (Co-Chairman) and Witt. During 1995,
the Executive Compensation Committee held five meetings.
The Nominating Committee recommends nominees for the Board of Directors. The
Nominating Committee does not solicit stockholder recommendations for
nomination. The current members of the Nominating Committee are Messrs.
Langerman (Co-Chairman), Wolfson (Co-Chairman), Lee and Harrosh. During 1995,
the Nominating Committee held one meeting.
The Advanced Programs (Technology) Committee was created in 1988 to oversee
programs relating to government contracts, some of which are classified. The
current members of the Advanced Programs Committee are Messrs. Springer
(Chairman) and Witt. The Advanced Programs Committee held one meeting in 1995.
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DIRECTORS AND EXECUTIVE OFFICERS OF HEXCEL
CURRENT DIRECTORS AND EXECUTIVE OFFICERS
Listed below are the executive officers and directors of Hexcel as of
January 18, 1996, the positions held by them and a brief description of their
business experience. There are no family relationships among any of Hexcel's
executive officers or directors.
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED A
DIRECTOR OR
NAME AGE OFFICER POSITION WITH HEXCEL
- --------------------------- --- ----------- -----------------------------------------------------------
<S> <C> <C> <C>
John J. Lee 59 1993 Chief Executive Officer; Director
Stephen C. Forsyth 40 1994 Vice President -- International Operations
Rodney P. Jenks, Jr. 45 1994 Vice President, General Counsel and Secretary
Thomas J. Lahey 55 1991 Vice President -- Worldwide Sales
William P. Meehan 60 1993 Vice President -- Finance, Chief Financial Officer &
Treasurer
Robert A. Petrisko 41 1993 Vice President -- Technology
Gary L. Sandercock 54 1989 Vice President -- Manufacturing
Wayne C. Pensky 40 1993 Controller and Principal Accounting Officer
Marshall S. Geller 56 1994 Co-Chairman of the Board; Director
Joseph L. Harrosh 55 1995 Director
Peter A. Langerman 40 1995 Co-Chairman of the Board; Director
Dr. George S. Springer 62 1993 Director
Frederick W. Stanske 37 1994 Director
Franklin S. Wimer 59 1995 Director
Robert L. Witt 55 1995 Director
Peter D. Wolfson 42 1995 Director
</TABLE>
Hexcel's Board of Directors was reconstituted as of February 9, 1995, the
effective date of the Plan of Reorganization, to consist of the following eight
persons, all of whom were designated in accordance with the terms of the Plan of
Reorganization: John J. Lee and Peter A. Langerman, who were designated by
Mutual Series, Joseph L. Harrosh, Robert L. Witt and Peter D. Wolfson, who were
designated by the Official Committee of Equity Security Holders in Hexcel's
Chapter 11 case (the "Equity Committee"), and Dr. George S. Springer, Franklin
S. Wimer and Marshall S. Geller, who were designated by joint selection of the
Equity Committee and Mutual Series. Upon the consummation of the rights offering
conducted pursuant to the Plan of Reorganization, Frederick W. Stanske was
appointed in accordance with the Plan of Reorganization by joint selection of
the Equity Committee and Mutual Series to serve on the Board.
The following biographies of the executive officers and directors are based
on information provided by them.
John J. Lee, age 59, has been a director of Hexcel since May of 1993,
Chairman of the Board and Co-Chief Executive Officer of Hexcel from July 1993 to
December 1993, Chairman of the Board and Chief Executive Officer of Hexcel from
January 1994 to February 9, 1995, and Chief Executive Officer since February 9,
1995. Mr. Lee has served as a director of XTRA Corporation, a transportation
equipment leasing company, since 1990, and Chairman of the Board, President and
Chief Executive Officer of Lee Development Corporation, a merchant banking
company, since 1987. Mr. Lee has been a Trustee of Yale University and an
advisor to The Clipper Group, a private investment partnership, since 1993. From
July 1989 through April 1993, Mr. Lee served as Chairman of the Board and Chief
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<PAGE>
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 and as
President and Chief Operating Officer of Tosco from 1990 through April 1993. Mr.
Lee is also a director of Aviva Petroleum Corp. and various privately-held
corporations.
Stephen C. Forsyth, age 40, has served as Vice President -- International
Operations of Hexcel since October 1994 and General Manager of Resins Business
and Export Marketing from 1989 to 1994. Mr. Forsyth joined Hexcel in 1980 as
European Business Development Manager, was named Managing Director of European
Specialty Chemicals in 1982 and assumed the additional responsibility of
Hexcel's European Resins Business in 1986.
Rodney P. Jenks, Jr., age 45, has served as Vice President, General Counsel
and Secretary of Hexcel since March 1994. Prior to joining Hexcel in 1994, Mr.
Jenks was a partner in the law firm of Wendel, Rosen, Black, Dean & Levitan,
where he continues to serve as counsel.
Thomas J. Lahey, age 55, has served as Vice President -- Worldwide Sales of
Hexcel since April 1993, Vice President -- Advanced Composites from 1992 to
1993, General Manager of Advanced Composites from 1991 to 1992 and General
Manager of Advanced Products from 1989 to 1991. Prior to joining Hexcel 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.
William P. Meehan, age 60, has served as Vice President -- Finance and Chief
Financial Officer of Hexcel since September 1993, and Treasurer of Hexcel since
April 1994. Prior to joining Hexcel in 1993, Mr. Meehan served as President and
Chief Executive Officer of Thousand 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. Petrisko, Ph.D., age 41, has served as Vice President --
Technology of Hexcel since September 1993. From 1989 to 1993, he was manager of
the signature technology group at Hexcel's Chandler facility, and director of
aerospace technology. Dr. Petrisko joined Hexcel in 1989, after serving as a
Research Specialist with Dow Corning Corporation from 1985 to 1989.
Gary L. Sandercock, age 54, has served as Vice President -- Manufacturing of
Hexcel since April 1993, Vice President -- Reinforcement Fabrics of Hexcel from
1989 to 1993, General Manager of the Trevarno Division of Hexcel from 1985 to
1989 and other manufacturing and general management positions from 1967 to 1985.
Mr. Sandercock joined Hexcel in 1967.
Wayne C. Pensky, age 40, has served as Controller of Hexcel since July 1993.
Prior to joining Hexcel in 1993, Mr. Pensky served as a partner and Service Line
Director at Arthur Andersen & Co., an accounting and consulting firm, where he
was employed from 1979.
Dr. George S. Springer, age 62, has been a director of Hexcel since January
1993. 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 University's faculty in 1983.
Peter A. Langerman, age 40, became a director of Hexcel on February 9, 1995
and Co-Chairman of the Board of Hexcel since February 1995. He is also a
director and the Executive Vice President of Mutual Series Fund, Inc., a
diversified open-end management investment company registered under the
Investment Company Act of 1940 and a research analyst with Heine Securities
Corporation, an investment advisor. Mr. Langerman has been the Executive Vice
President of Mutual Series since March 1988 and has been a research analyst at
Heine Securities since 1986. Mr. Langerman is currently a director of Sunbeam
Company, Inc. and various privately-held corporations.
Franklin S. Wimer, age 59, became a director of Hexcel on February 9, 1995.
He is also the President and principal of UniRock Management Corporation
("UniRock"), a private merchant
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<PAGE>
banking firm based in Denver, Colorado. Mr. Wimer has been with UniRock since
January of 1987. UniRock has acted as Hexcel's strategic consultant since
December 27, 1993. Mr. Wimer is currently Chairman of the Board of Vista
Restaurants, Inc., a 12-unit Perkins Family Restaurant franchisee, and a
director of RAMI, Inc., Denver Paralegal Institute, Stainless Fabrication
Company, Inc., and Western Filter Company.
Marshall S. Geller, age 56, has been a director of Hexcel since August of
1994 and Co-Chairman of the Board of Hexcel since February 1995. He has also
been Chairman, Chief Executive Officer and founding partner at Geller & Friend
Capital Partners, Inc. a merchant banking firm, since November 1995. From 1990
to November 1995, Mr. Geller was a Senior Managing Partner of Golenberg &
Geller, Inc., a merchant banking firm. From 1988 to 1990, he was Vice Chairman
of Gruntal & Company, an investment banking firm. From 1967 until 1988, he was a
Senior Managing Director of Bear, Stearns & Co., Inc., an investment banking
firm. Mr. Geller is currently a director of Players International, Value Vision
International, Inc., Styles on Video, Inc., and various privately-held
corporations and charitable organizations.
Joseph L. Harrosh, age 55, became a director on February 9, 1995. He is also
a private investor. He has also been the Chairman of the Board of Tri-City
Sporting Goods Inc. since 1971.
Frederick W. Stanske, age 37, served as a director of Hexcel from August
1994 to February 1995 and was reappointed a director in April 1995. He is also
Vice President of Fisher Investments, Inc., an investment advisory firm.
Robert L. Witt, age 55, became a director of Hexcel on February 9, 1995. He
is a private investor and consultant. From 1985 to 1993, he served as a director
of Hexcel, and from 1988 to 1993, he served as the Chairman of the Board of
Directors. From 1986 to 1993, he was the Chief Executive Officer of Hexcel and
held other offices with Hexcel dating back to 1969. He is a director of Bay View
Federal Bank, World Air Holdings, Inc. and The Dentists Company.
Peter D. Wolfson, age 42, became a director of Hexcel on February 9, 1995.
He is also an attorney and member of Pryor, Cashman, Sherman & Flynn, a law
firm. From 1993 to October 1995, Mr. Wolfson was an attorney and member of the
firm of Marcus Montgomery Wolfson P.C., a law firm. From 1989 through 1993, Mr.
Wolfson was a member of the law firm of Milgrim Thomajan & Lee P.C., which in
1992 changed its name to Varet Marcus & Fink P.C.
DIRECTORS AND EXECUTIVE OFFICERS FOLLOWING THE ACQUISITION
Following the Acquisition, (i) Messrs. Lee (Chairman), Cheesmond, Geller,
Habermeier, Langerman, Sherman, Springer, Stanske, Sullivan and Vodicka will
serve as directors of Hexcel, (ii) Mr. Lee will also serve as Chief Executive
Officer of Hexcel, (iii) Dr. Habermeier will also serve as President and Chief
Operating Officer of Hexcel, (iv) Mr. Forsyth will serve as Senior Vice
President, Finance and Administration of Hexcel, (v) Messrs. Meehan, Pensky and
Jenks (until his successor is appointed) will continue to serve in their present
offices of Hexcel and (vi) David Wong, currently Hexcel's Director of Special
Projects, will serve as Vice President, Corporate Affairs of Hexcel.
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the total annual compensation paid or accrued
by Hexcel to or for the account of each of the Chief Executive Officer and the
four most highly compensated executive officers of Hexcel for the fiscal year
ended December 31, 1995.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL --------------------------
COMPENSATION (1)(2) RESTRICTED SECURITIES
-------------------- STOCK UNDERLYING ALL OTHER
SALARY BONUS AWARDS OPTIONS/SARS COMPENSATION
NAME & PRINCIPAL POSITION YEAR ($) ($)(6) ($)(7) (#) ($)(8)
- ---------------------------------------- --------- --------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
John J. Lee (3) ........................ 1995 400,000 -- -- 40,000 4,500
Chief Executive Officer 1994 453,333 350,000 -- -- 6,448
1993 160,005 -- -- -- 51,675
William P. Meehan (4) .................. 1995 200,000 -- -- 39,000 4,500
Vice President and Chief Financial 1994 240,000 125,000 -- -- 6,517
Officer 1993 86,461 -- -- -- --
Rodney P. Jenks, Jr. (5) ............... 1995 180,000 -- -- 39,000 4,500
Vice President, General Counsel and 1994 159,252 41,440 -- -- 3,877
Corporate Secretary 1993 -- -- -- -- --
Gary L. Sandercock ..................... 1995 145,386 -- -- 33,000 5,902
Vice President -- Manufacturing 1994 140,004 50,000 -- -- 6,488
1993 140,004 -- 35,706 15,000 6,236
Thomas J. Lahey ........................ 1995 144,927 -- -- 33,000 4,500
Vice President -- Worldwide Sales 1994 139,008 50,000 -- -- 6,322
1993 139,008 -- 35,706 15,000 6,255
</TABLE>
- ------------------------
(1) Annual compensation includes amounts earned in the fiscal year, whether or
not deferred.
(2) Aggregate perquisite values do not exceed the lesser of $50,000 or 10% of
reported salary and bonuses for each year.
(3) Mr. Lee served as a consultant in July and August 1993 and as an employee
commencing September 1, 1993.
(4) Mr. Meehan's employment with Hexcel commenced on August 23, 1993.
(5) Mr. Jenks' employment with Hexcel commenced on February 2, 1994.
(6) Bonuses for 1995 have not yet been determined and will be paid in 1996.
Bonuses for 1994 include consummation and employee retention bonuses earned
during Hexcel's Chapter 11 case and approved by the Bankruptcy Court, which
were paid in 1995.
(7) Restricted stock is subject to certain restrictions requiring that the
executive remain in Hexcel's employ for a period of five years before being
entitled to receive all of the shares issued. The executive does not pay
cash for the shares issued. The shares are non-transferable while
restricted; however, the holder is entitled to vote the shares and receive,
without restrictions, all dividends and distributions, except dividends or
distributions in stock or other shares which then become similarly
restricted. The restrictions all terminate upon the executive's retirement,
death or disability. If employment terminates otherwise during the
restricted period, the unvested shares are forfeited to Hexcel without
payment of any consideration. The restrictions on the restricted stock will
lapse in varying percentages between three and five years following
issuance. In the above table, the restricted stock is valued as of the date
of grant. At December 31, 1995, Messrs. Lee, Meehan and Jenks held no
restricted shares; Mr. Sandercock held
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5,924 restricted shares valued at $66,645 and Mr. Lahey held 4,543
restricted shares valued at $51,109; in each case, based on the closing
price of $11.25 per share of Hexcel Common on the NYSE Composite Tape on
December 29, 1995.
(8) All Other Compensation for fiscal year 1995 consists of estimated
contributions by Hexcel to the Salaried Employees' Retirement Plan and, for
Mr. Sandercock, also includes a $1,402 reimbursement for income taxes
attributable to the personal use of an automobile leased by Hexcel. Fiscal
years 1994 and 1993 also include accruals under the Executive Deferred
Compensation Plan. Such amounts are not included for fiscal year 1995
because such accruals will be based, in part, on bonus payments in respect
of fiscal year 1995, the amounts of which have not yet been determined.
Additional disclosure regarding benefits under the Executive Deferred
Compensation Plan is provided below under "EXECUTIVE COMPENSATION --
Deferred Compensation."
OPTIONS
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM (2)
OPTIONS/SARS EMPLOYEES IN EXERCISE EXPIRATION --------------------
NAME GRANTED (#) (1) FISCAL YEAR PRICE ($/SH) DATE 5%($) 10%($)
- --------------------------------- ------------------- ------------- ------------- ---------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
John J. Lee...................... 40,000 5.08 4.75 April 5, 2005 119,490 302,811
William P. Meehan................ 39,000 4.95 6.38 June 7, 2000 68,744 151,907
Rodney P. Jenks, Jr.............. 39,000 4.95 6.38 June 7, 2000 68,744 151,907
Gary L. Sandercock............... 33,000 4.19 6.38 June 7, 2000 58,168 128,537
Thomas J. Lahey.................. 33,000 4.19 6.38 June 7, 2000 58,168 128,537
</TABLE>
- ------------------------
(1) All options granted subject to stockholder approval of Hexcel's Incentive
Stock Plan. See "THE INCENTIVE STOCK PLAN."
(2) The amounts shown in these columns are the potential realizable value of
options granted at assumed rates of stock price appreciation (5% and 10%)
set by the executive compensation disclosure provisions of the proxy rules,
and have not been discounted to reflect the present values of such amounts.
The assumed rates of stock price appreciation are not intended to forecast
the future stock price appreciation of the Hexcel Common.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN
OPTIONS/SARS AT FISCAL THE MONEY OPTIONS/SARS AT
YEAR END (#) (1) FISCAL YEAR END ($)(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------------------------------------ ----------------------- --------------------------
<S> <C> <C>
John J. Lee ................................................ 13,333/26,667 86,665/173,336
William P. Meehan........................................... 13,000/26,000 63,375/126,750
Rodney P. Jenks, Jr......................................... 13,000/26,000 63,375/126,750
Gary L. Sandercock.......................................... 60,875/22,000 67,356/107,250
Thomas J. Lahey............................................. 44,200/22,000 56,388/107,250
</TABLE>
- ------------------------
(1) Includes options granted subject to stockholder approval of Hexcel's
Incentive Stock Plan as follows: Mr. Lee (40,000); Mr. Meehan (39,000); Mr.
Jenks (39,000); Mr. Sandercock (33,000); and Mr. Lahey (33,000). See "THE
INCENTIVE STOCK PLAN."
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DEFERRED COMPENSATION
EXECUTIVE DEFERRED COMPENSATION PLAN (1)(2)
ANNUAL RETIREMENT INCOME
<TABLE>
<CAPTION>
YEARS OF SERVICE (2)
----------------------------------------------------------------------------
REMUNERATION 10 15 20 25 30 35
- ----------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 125,000.......................... $ 18,750 $ 28,125 $ 37,500 $ 46,875 $ 56,250 $ 65,625
150,000.......................... 22,500 33,750 45,000 56,250 67,500 78,750
175,000.......................... 26,250 39,375 52,500 65,625 78,750 91,875
200,000.......................... 30,000 45,000 60,000 75,000 90,000 105,000
250,000.......................... 37,500 56,250 75,000 93,750 112,500 131,250
300,000.......................... 45,000 67,500 90,000 112,500 135,000 157,500
350,000.......................... 52,500 78,750 105,000 131,250 157,500 183,750
400,000.......................... 60,000 90,000 120,000 150,000 180,000 210,000
450,000.......................... 67,500 101,250 135,000 168,750 202,500 236,250
500,000.......................... 75,000 112,500 150,000 187,500 225,000 262,500
550,000.......................... 82,500 123,750 165,000 206,205 247,500 288,750
600,000.......................... 90,000 135,000 180,000 225,000 270,000 315,000
650,000.......................... 97,500 146,250 195,000 243,750 292,500 341,250
700,000.......................... 105,000 157,500 210,000 262,500 315,000 367,500
750,000.......................... 112,500 168,750 225,000 281,250 337,500 393,750
800,000.......................... 120,000 180,000 240,000 300,000 360,000 420,000
850,000.......................... 127,500 191,250 255,000 318,750 382,500 446,250
900,000.......................... 135,000 202,500 270,000 337,500 405,000 472,500
950,000.......................... 142,500 213,750 285,000 356,250 427,500 498,750
1,000,000......................... 150,000 225,000 300,000 375,000 450,000 525,000
</TABLE>
- ------------------------
(1) Executive Deferred Compensation Plan: This retirement plan consists of
individual agreements between Hexcel and certain key executive employees
designated by the Board of Directors. The agreements provide an annual
retirement income to these key employees of 1.5% of their cash compensation,
including salary and bonuses, for each year they are covered under the plan.
Each agreement also requires Hexcel to continue to cover the key executive
under Hexcel's group medical and dental insurance plans and to provide life
insurance for so long as the executive is receiving payments under the
agreement and has not attained the age of 75.
(2) Benefits are payable monthly, as a life annuity (with a minimum of 120
monthly payments), commencing upon the later of the executive's attainment
of age 65 or retirement. However, Hexcel has the right to consent to the
executive's request for a different form of benefit payment, including a
lump sum payment. The benefits provided under the Executive Deferred
Compensation Plan are not offset by Social Security or any other amounts.
(3) As of the end of the 1995 fiscal year, estimated credited years of service
are as follows: Mr. Lee -- 1-1/3 years; Mr. Meehan -- 2 years; Mr.
Sandercock -- 6 years; and Mr. Lahey -- 3-3/4 years. Mr. Jenks does not
participate in the plan.
EMPLOYMENT AND OTHER AGREEMENTS
1. INTERIM EMPLOYMENT AGREEMENT AND CONSULTING AGREEMENT WITH MR. LEE
By authorization of the Bankruptcy Court dated as of September 21, 1994,
Hexcel was authorized to enter into an employment agreement (the "Interim
Employment Agreement") with Mr. Lee dated as of September 1, 1994 providing for
his continued employment as Chairman and Chief Executive Officer of Hexcel at an
annual salary of $400,000. Mr. Lee also participates in certain specified
benefit programs and is entitled to expense reimbursement. During the term of
the Interim Employment Agreement, Mr. Lee is not entitled to receive any Board
of Directors fees, but remains eligible to participate in, and have his service
during the term credited towards, Hexcel's Directors' Retirement Plan.
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<PAGE>
The Interim Employment Agreement contemplates that Mr. Lee would resign as
an officer of Hexcel and be retained as a consultant to Hexcel for strategic
planning pursuant to certain pre-negotiated terms for a period of two years. The
consulting agreement would be subject to termination at the end of the first
year by resolution of the Board of Directors delivered to Mr. Lee not earlier
than 60 days and not later than 30 days prior to the end of the first year. The
compensation provided to Mr. Lee as a consultant would be as follows: base
compensation (salary and fees) of $180,000 per year during the first year, and
$230,000 during the second year, plus the benefits provided to him in the
Interim Employment Agreement. In addition, there would be a bonus opportunity
determined by the Board of Directors. Pursuant to the terms of the consulting
agreement, Mr. Lee would also receive stock options for 113,379 shares of Hexcel
Common. Such options would have an exercise price of $5.05 per underlying share
of Hexcel Common and would vest in equal monthly installments over the two-year
term of the consulting agreement, subject to being fully vested upon an early
termination thereof (other than for cause or voluntary resignation) and would be
exercisable until the later of three years following the date of grant or one
year after expiration of the consulting agreement. See "-- Compensation of
Directors."
If the Acquisition is consummated, Mr. Lee will not resign as an officer of
Hexcel and, as a result, will not be retained as a consultant pursuant to the
consulting agreement contemplated by the Interim Employment Agreement and the
Plan of Reorganization. Rather, Mr. Lee would continue to serve as Chief
Executive Officer and would also be appointed Chairman of the Board pursuant to
a new, yet to be negotiated, five-year employment agreement expected to be
entered into at Closing. See "-- Compensation of Senior Executives Following the
Acquisition." If, on the other hand, the Acquisition is not consummated, it is
anticipated that the Board of Directors would recommence its search for a new
Chief Executive Officer and that Mr. Lee would resign upon the appointment
thereof and be retained as a consultant pursuant to the consulting agreement
contemplated by the Interim Employment Agreement and Plan of Reorganization.
2. INTERIM EMPLOYMENT AGREEMENT WITH MR. MEEHAN
Hexcel entered into an interim employment agreement with Mr. Meehan for the
term commencing on February 9, 1995 and ended June 30, 1995. Mr. Meehan received
compensation during the term based on an annual salary of $200,000, along with a
consummation bonus of $125,000 which was paid shortly after the effective date
of the Reorganization Plan. Mr. Meehan also participated in the benefit plans
available to other employees of Hexcel. As of the date of this Proxy Statement,
Mr. Meehan continues to be employed by Hexcel on an at-will basis on the same
terms as the interim employment agreement.
3. SEVERANCE AGREEMENTS WITH MESSRS. SANDERCOCK AND LAHEY
In January 1995, Hexcel entered into severance agreements with Messrs.
Sandercock and Lahey providing each of them with severance benefits upon certain
terminations of their employment with Hexcel. Such agreements provide for a
severance payment equal to (i) one year of annual base salary (as in effect on
the date of termination) plus (ii) an amount equal to any bonus paid within the
12 month period immediately prior to the date of termination upon a termination
of employment by Hexcel (other than for "cause", as defined in the severance
agreements) or upon a termination of employment by either executive for "good
reason" (as defined in the severance agreements).
4. EXECUTIVE DEFERRED COMPENSATION AND CONSULTING AGREEMENTS
This program consists of individual agreements between Hexcel and certain
key executives designated by the Board of Directors. Messrs. Lee, Meehan,
Sandercock and Lahey participate in this program. The agreements provide an
annual retirement income to these key executives of 1.5% of their salary and
bonuses for each year they are covered under the program. The retirement
benefits are payable monthly, as a life annuity (with a minimum of 120 monthly
payments); however, Hexcel has the right to consent to the executive's request
for a different form of benefit payment, including a lump sum payment. Each
agreement also requires Hexcel to continue to cover the key executive under
Hexcel's group medical and dental insurance plans and to provide life insurance
for so long as the
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executive is receiving payments under the agreement and has not attained the age
of 75. The retirement benefits commence upon the later of the executive's
attainment of age 65 or retirement. Additional information about these
agreements is contained in the Executive Deferred Compensation Plan table above.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of Hexcel (the
"Committee") reviews and authorizes the salaries and bonuses of the executive
officers of Hexcel as well as all grants of stock options to purchase shares of
Hexcel Common and other incentive compensation awards. During the fiscal year
ended December 31, 1995, the Committee performed a review of compensation levels
and arrangements for all of the executive officers of Hexcel in order to develop
overall compensation objectives and design a compensation program that would
assist Hexcel in meeting such objectives.
OBJECTIVES
The Committee's primary objective is to retain the most qualified employees
and to insure that they are provided proper incentives to have Hexcel prosper
over the long term. In establishing the components and levels of compensation
for its executive officers, the Committee seeks (i) to maintain compensation at
levels that are competitive with the other companies in a comparator group
composed of companies in the aerospace and manufacturing industries (the
"Comparator Group") so that Hexcel can attract and retain highly qualified
executives and (ii) to provide financial incentives in order to align the
interests of executive officers more closely with those of the stockholders of
Hexcel and to motivate such executives to increase stockholder value by
improving corporate performance and profitability.
COMPONENTS OF EXECUTIVE COMPENSATION
CASH COMPENSATION
Cash compensation is generally comprised of base salary and bonus. Base
salaries are, generally, competitive with other companies in the Comparator
Group. In determining the appropriate base salaries of its executive officers,
the Committee considers those factors that it deems most relevant at the time,
including the levels of base salary provided to executive officers in the
Comparator Group as well as each executive officer's individual performance,
subjectively determined, in respect of the preceding fiscal year. In respect of
the past fiscal year, Hexcel's emergence from bankruptcy reorganization and
improving financial condition were significant factors affecting cash
compensation. In this regard, certain executive officers were awarded modest
increases in base salary during 1995. The Committee granted such increases in
recognition of the fact that base salaries had been frozen for two years and
that certain executive officers had been assigned additional responsibilities
without commensurate increases in salary.
Hexcel has historically provided performance-based bonus opportunities to
executive officers contingent on the success of Hexcel. However, in light of
Hexcel's bankruptcy reorganization, no such bonuses were granted in 1994. In
lieu of such bonuses, the Committee authorized cash "stay-on" bonuses in 1994
for executive officers and key employees of Hexcel. For fiscal 1995, the
Committee will grant discretionary cash bonuses in an as yet undetermined amount
to certain executive officers and other key employees, payable in 1996. In
determining the appropriate amount of the 1995 cash bonuses, the Committee will
consider certain factors, including Hexcel's financial performance in fiscal
1995 and each executive officer's and other key employees' individual
performance, subjectively determined, in fiscal 1995.
EQUITY COMPENSATION
Equity compensation is comprised of stock options and other stock-based
awards; however, grants of such awards have been limited in the past fiscal year
by virtue of the bankruptcy reorganization. No stock options or stock awards
were granted in 1994. Stock options were granted to certain executive officers
and other key employees of Hexcel under the Incentive Stock Plan in 1995. Such
options were granted subject to stockholder approval of the Incentive Stock
Plan. See "THE INCENTIVE STOCK PLAN." Stock option grants reflect the
Committee's desire to provide a meaningful equity incentive
97
<PAGE>
for the executive to have Hexcel prosper over the long term. Stock option grants
are also determined in consideration of individual performance as well as each
executive officer's personal contribution to the success of Hexcel.
CHIEF EXECUTIVE OFFICER COMPENSATION
Effective as of September 1, 1994, Hexcel entered into the Interim
Employment Agreement with Mr. Lee which was agreed to by the Equity Committee
and the Board of Directors of Hexcel and authorized by the Bankruptcy Court. The
Interim Employment Agreement provides for Mr. Lee's continued employment as
Chief Executive Officer at an annual salary of $400,000, a reduction from his
prior year's salary. The Interim Employment Agreement also provides Mr. Lee (i)
certain employment benefits (e.g., medical coverage) and (ii) a monthly stipend
of $5,000 for office space for Mr. Lee in the New York metropolitan area.
In addition, in November 1994, the Committee approved a consulting agreement
with Mr. Lee that would be effective upon the selection of his successor and a
stock option to purchase approximately 0.625% of the reorganized Hexcel's fully
diluted common stock. As part of the confirmation of the Plan of Reorganization
in February 1995, the Bankruptcy Court, the Equity Committee and the Board of
Directors approved the consulting agreement and the option.
Mr. Lee received no other compensation during 1994. Mr. Lee was paid a
Reorganization Bonus of $350,000 upon the confirmation of the Plan of
Reorganization as compensation for the services rendered by him to Hexcel during
the bankruptcy period. This bonus, along with bonuses to a number of other key
employees, was approved by Hexcel's Board of Directors and by the Equity
Committee in November 1994 and by the Equity Committee and the Bankruptcy Court
in February 1995.
COMPENSATION OF EXECUTIVE OFFICERS GENERALLY
The procedure for determining executive officer compensation is as follows.
The Chief Executive Officer of Hexcel (the "CEO") recommends the level of
compensation of each executive officer to the Committee based on such subjective
criteria as the compensation of executives at corporations of similar size and
operations, years of service to Hexcel, the amount of time and travel the
position requires, the effort put forth during the past year, the results of
Hexcel and the function for which the individual was responsible and the desire
to encourage the long-term commitment of the executive. The Committee considers
each of these factors in determining whether to approve or modify the CEO's
recommendation. With respect to new executives, the CEO and the Committee also
take into consideration the results of any arm's-length negotiations between the
Company and such executive. In addition, as part of the compensation package of
each executive, the CEO recommends, and the Committee considers, the grant of
stock options and other incentive compensation to each executive based on the
above factors.
DEDUCTIBILITY OF COMPENSATION
Due to recent changes in tax law, the deductibility of compensation for
corporate tax purposes of certain compensation paid to individual executive
officers of Hexcel in excess of $1 million in any year may be restricted. The
Committee will, in general, seek to qualify compensation paid to its executive
officers for deductibility although the Committee believes it is appropriate to
retain flexibility to authorize payments of compensation that may not qualify
for deductibility if, in the Committee's judgment, it is in Hexcel's best
interest to do so.
The Compensation Committee
Joseph L. Harrosh
Peter A. Langerman
Robert L. Witt
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following current or former directors were members of the Executive
Compensation Committee of the Board of Directors during 1995: Gary Depolo, Cyrus
Holley and Marshall Geller (from January 1, 1995 through February 9, 1995) and
John J. Lee, an officer of Hexcel (from February 28, 1995 through August 1,
1995).
During 1995, Mr. Lee was also a member of the compensation committee of XTRA
Corporation. Mr. Lewis Rubin, a former director of Hexcel, also served as
President and Chief Executive Officer of XTRA Corporation. Mr. Rubin did not
serve on the Executive Compensation Committee of Hexcel.
COMPENSATION OF DIRECTORS
Except for Mr. Lee, the only director who is a salaried employee of Hexcel,
directors are compensated for services as directors in the amount of $20,000 per
year. In addition, each Co-Chairman of the Board of Directors is paid an
additional $2,000 per month. Directors are also paid $1,000 for each board
meeting and $750 for each committee meeting they attend. Mr. Lee, who was
employed by Hexcel for a portion of 1993 and all of 1994, received the annual
and meeting compensation for directors for the period during 1993 when he was a
director but not an employee.
In addition, directors may participate in the Directors' Retirement Plan. A
director who has served as a director for at least 5 years, and during which
period does not accrue other Hexcel retirement benefits, is entitled, on
retirement, to a total retirement benefit equal to 50% of his or her annual
compensation as a director, averaged for the three years prior to retirement,
multiplied by the number of years he or she served on the Board while not
accruing other Hexcel retirement benefits, payable over a period not to exceed
10 years. The amount and term of payment is subject to adjustment in certain
events. None of the current directors are currently entitled to receive benefits
under the Plan.
Furthermore, pursuant to the Incentive Stock Plan, each director has been
granted, subject to stockholder approval, an option to purchase 40,000 shares of
Hexcel Common and will be entitled to receive options to purchase an additional
2,000 shares of Hexcel Common on each anniversary of the approval by the Board
of Directors of the Incentive Stock Plan during such director's service on the
Hexcel Board of Directors. See "THE INCENTIVE STOCK PLAN."
In accordance with the internal policies of his employer, Mutual Series, Mr.
Langerman has agreed to provide the net economic benefit to him of such
directors' compensation to Mutual Series for the benefit of its fund investors.
Mr. Lee became Co-Chief Executive Officer on August 1, 1993 and an employee
on September 1, 1993. During July and August, 1993, he was paid $43,500 in
consulting fees by Hexcel, which amount is set forth in a footnote to the
Summary Compensation Table. As an employee, he received compensation in amounts
set forth in the Summary Compensation Table, in accordance with the provisions
of his employment agreements described above.
COMPENSATION OF SENIOR EXECUTIVES FOLLOWING THE ACQUISITION
COMPENSATION OF SENIOR EXECUTIVES GENERALLY
Following the Acquisition, Hexcel anticipates that, subject to regular
review by the Compensation Committee, compensation of its senior executives
generally will consist of the following components: (i) base salary, (ii) cash
bonuses and grants of equity-based compensation (such as stock options or other
stock-based awards) under Hexcel's annual and long-term bonus and stock
incentive plans as in effect from time to time, (iii) participation in the
short-term option and performance accelerated restricted stock unit programs
described below, (iv) participation in Hexcel's Executive Deferred Compensation
Plan and (v) participation, where appropriate, in all other employee benefit
plans maintained from time to time by Hexcel. Hexcel anticipates that
equity-based compensation generally will represent a significant percentage of
total compensation for its senior executives following the Acquisition.
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<PAGE>
SHORT-TERM OPTION PROGRAM
Upon consummation of the Acquisition, Hexcel anticipates establishing a
short-term option program (the "Short-Term Option Program") under its Incentive
Stock Plan. See "THE INCENTIVE STOCK PLAN." Participants in the Short-Term
Option Program will be granted options (the "Short-Term Options") to purchase
shares of Hexcel Common, which Short-Term Options are expected to (i) have an
exercise price per share equal to the fair market value of Hexcel Common on the
date of exercise, (ii) have a term of 90 days, (iii) be immediately exercisable
and (iv) provide for additional grants to the participant, on each date that the
participant exercises Short-Term Options, of options (the "Reload Options") to
purchase two shares of Hexcel Common for each Short-Term Option so exercised.
The Reload Options are expected to (i) have an exercise price per share equal to
the fair market value of Hexcel Common on the date of grant, (ii) have a term of
seven to ten years and (iii) become exercisable with respect to one-third of the
shares of Hexcel Common covered thereby on each of the first, second and third
anniversaries of the date of grant, subject to earlier vesting upon the
attainment of certain performance goals and subject to certain holding period
requirements with respect to the shares of Hexcel Common acquired upon exercise
of the Short-Term Options. It is expected that no more than 100,000 Short-Term
Options will be granted to any one participant under the Short-Term Option
Program.
PERFORMANCE ACCELERATED RESTRICTED STOCK UNITS
Upon consummation of the Acquisition, Hexcel anticipates establishing a
performance accelerated restricted stock units program (the "PARS Program")
under the Incentive Stock Plan. The performance accelerated restricted stock
units ("PARS") to be issued under the PARS Program are expected to vest on a
date to be determined at the time of grant, subject to accelerated vesting at a
rate determined by the achievement of certain performance goals to be specified.
COMPENSATION OF THE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
Subject to the negotiation and execution of a definitive agreement and the
approval of the Board of Directors following the Closing, it is expected that
Mr. Lee will serve as Chairman of the Board and Chief Executive Officer of
Hexcel following the Acquisition pursuant to a five-year employment agreement
(the "New Lee Agreement") expected to be entered into on the Closing Date. The
New Lee Agreement is expected to provide for (i) an annual base salary of
$400,000, subject to annual review by the Compensation Committee, (ii) a
supplemental executive retirement plan intended to provide Mr. Lee an annual
retirement benefit, which when added to his other Hexcel retirement benefits,
will be equal to approximately 50% of the average annual cash compensation paid
to him during the term of his employment with Hexcel and (iii) Mr. Lee's
participation, where appropriate, in all other components of senior executive
compensation discussed above under "Compensation of Senior Executives
Generally," including a grant of 100,000 Short-Term Options under the Short-Term
Option Program and 200,000 PARS under the PARS Program. Mr. Lee's PARS are
expected to vest on the seventh anniversary of the date of grant or earlier,
subject to and at a rate determined by the achievement of certain specified
performance goals.
The New Lee Agreement is also expected to provide for the grant to Mr. Lee
of (i) options to purchase 200,000 shares of Hexcel Common under the Incentive
Stock Plan, which options are expected to (a) be granted on the Closing Date,
(b) have an exercise price per share equal to the fair market value of Hexcel
Common on the Closing Date, (c) have a term of seven to ten years and
(d) become exercisable with respect to one-third of the shares of Hexcel Common
covered thereby on each of the first, second and third anniversaries of the
Closing Date, subject to earlier vesting upon the attainment of certain
performance goals.
It is expected that the options and PARS to be granted to Mr. Lee will
provide for immediate acceleration of vesting upon the occurrence of a change in
control (to be defined) of Hexcel and in certain other circumstances. See "THE
INCENTIVE STOCK PLAN."
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<PAGE>
Finally, the New Lee Agreement is expected to preserve the economic benefits
to Mr. Lee of certain compensatory arrangements provided for in the Plan of
Reorganization and in Mr. Lee's Interim Employment Agreement. In this regard,
the Plan of Reorganization and Interim Employment Agreement provide for (i) the
grant to Mr. Lee of an option to purchase 113,379 shares of Hexcel Common with
an exercise price of $5.05 per share and vesting in equal installments over a
two-year period from the date of grant and (ii) a discretionary bonus in an as
yet undetermined amount relating to Mr. Lee's fiscal 1995 performance as Chief
Executive Officer. In exchange for the preservation of these benefits in the New
Lee Agreement, Mr. Lee will forego the two-year consulting agreement provided
for in the Plan of Reorganization and Interim Employment Agreement. See "--
Employment and Other Agreements."
PERFORMANCE GRAPH
The following graph indicates Hexcel's total return to its stockholders
during the past five years, as compared to the total returns of the Standard &
Poor's 500 Composite Stock Price Index and Media General Financial Services'
("Media General") Aerospace Components Stock Price Index.
HEXCEL CORPORATION
TOTAL SHAREHOLDER RETURN ANALYSIS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HEXCEL S&P 500 MEDIA GEN. AEROSPACE
<S> <C> <C> <C>
12/90 $100.00 $100.00 $100.00
12/91 114.28 130.34 123.17
12/92 92.62 140.25 135.27
12/93 40.05 154.32 169.09
12/94 45.06 156.42 166.64
12/95 132.29 214.99 231.39
</TABLE>
<TABLE>
<CAPTION>
MEDIA GENERAL
AEROSPACE
DATE HEXCEL S&P 500 COMPONENTS**
- --------------------------------------------------------------------------- --------- --------- --------------
<S> <C> <C> <C>
December 1990.............................................................. $ 100.00 $ 100.00 $ 100.00
December 1991.............................................................. 114.28 130.34 123.17
December 1992.............................................................. 92.62 140.25 135.27
December 1993.............................................................. 40.05 154.32 169.09
December 1994.............................................................. 45.06 156.42 166.64
December 1995.............................................................. 132.29 214.99 231.39
</TABLE>
- ------------------------
Assumes $100 invested at the close of trading on the last trading day preceding
the first day of the fifth preceding fiscal year in Hexcel Common, the S&P 500
Composite Stock Price Index and Media General's Aerospace Components Stock Price
Index, with quarterly reinvestment of dividends.
**Data provided by Media General
101
<PAGE>
THE INCENTIVE STOCK PLAN
THE FOLLOWING DESCRIPTION OF THE INCENTIVE STOCK PLAN IS QUALIFIED IN ITS
ENTIRETY BY THE COMPLETE TEXT OF THE INCENTIVE STOCK PLAN, A COPY OF WHICH IS
ATTACHED HERETO AS ANNEX D. STOCKHOLDERS ARE URGED TO READ THE INCENTIVE STOCK
PLAN IN ITS ENTIRETY.
GENERAL
On October 25, 1994, the Board of Directors adopted the Long-Term Incentive
Stock Plan (the "Prior Plan") subject to the confirmation of the Plan of
Reorganization, which occurred on February 9, 1995, and stockholder approval.
The Board of Directors adopted the 1995 Directors' Stock Option Plan on April 4,
1995, also subject to stockholder approval. The Incentive Stock Plan, which
amends and restates the Prior Plan and the 1995 Directors' Stock Option Plan
into a combined plan and increases the number of shares available under the
combined plan, was adopted by the Board of Directors on September 29, 1995,
subject to stockholder approval of the Incentive Stock Plan. The Board of
Directors has determined that the Incentive Stock Plan is necessary to enable
Hexcel to provide meaningful equity incentives to attract, motivate and retain
directors, officers, employees and consultants of Hexcel.
DESCRIPTION OF THE PRINCIPAL FEATURES OF THE PLAN
AUTHORIZED SHARES
The Incentive Stock Plan authorizes an aggregate of 3,000,000 shares of
Hexcel Common that may be subject to awards, subject to adjustment as provided
in the Incentive Stock Plan.
PURPOSE
The purpose of the Incentive Stock Plan is to benefit the stockholders of
Hexcel by enabling Hexcel and its subsidiaries to attract, retain and provide
incentives to the most highly qualified employees, officers, directors and
consultants.
ADMINISTRATION
The Incentive Stock Plan will be administered by the Committee or such other
committee of the Board of Directors as may be designated by the Board of
Directors from time to time. The Committee has the authority to make
determinations with respect to the participation of employees, officers and
consultants in the Incentive Stock Plan and the terms of all awards granted
under the Incentive Stock Plan (other than awards granted to directors, as
described below). The Committee has the authority to establish, among other
things, vesting schedules, performance criteria, post-termination exercise
provisions and all other material terms and conditions of awards and has the
authority to accelerate the time at which any award becomes exercisable. The
Committee has the authority to interpret and construe the provisions of the
Incentive Stock Plan.
ELIGIBILITY
Any employee, officer, director or consultant of Hexcel or its subsidiaries
selected by the Committee is eligible to receive an award under the Incentive
Stock Plan; however, a director shall not be eligible to receive an award
(except for formula awards described below) if he is a current or former (within
one year) member of the Committee or a current or former (within one year)
member of a committee administering any other executive compensation plan of
Hexcel or any subsidiary (unless such plan does not permit participation by
directors). A total of 214 individuals, including 9 directors, 9 executive
officers and approximately 196 other employees of Hexcel are currently eligible
to participate in the Incentive Stock Plan.
DISCRETIONARY AWARDS
The Incentive Stock Plan provides for grants of a variety of awards,
including stock options, stock options in lieu of compensation elections, stock
appreciation rights, restricted shares, and other stock-based awards. Stock
options may be either "incentive stock options" which qualify under Section 422
of the Code ("ISOs") or "nonqualified stock options" which do not qualify under
Section 422 of the Code ("NQSOs").
102
<PAGE>
FORMULA AWARDS
The Incentive Stock Plan provides that on April 4, 1995, each director shall
have been automatically issued an NQSO to purchase 40,000 shares of Hexcel
Common. Any person who has become or will become a director for the first time
after April 4, 1995 who is not also a full-time employee of Hexcel or any
subsidiary will be granted as of the date of his election or appointment as a
director an NQSO to acquire 40,000 shares of Hexcel Common. In addition, on
April 4, 1996 and on each anniversary of such date through and including April
4, 2000, each director who is not also a full-time employee of Hexcel or any
subsidiary will be granted an NQSO to acquire 2,000 shares of Hexcel Common. All
options described in this paragraph will be granted automatically with an
exercise price equal to the fair market value of a share of Hexcel Common on the
date of grant and with a term of ten years. Such options will be exercisable as
to one-third of the shares subject thereto upon grant and as to an additional
one-third of the shares on each of the first and second anniversaries of the
date of grant. Upon the occurrence of a "change in control" of Hexcel (as
defined in the Incentive Stock Plan), each outstanding option described in this
paragraph will become fully exercisable. The Acquisition will constitute a
"change in control" for this purpose and the options of each current director
will become fully exercisable immediately upon the Closing.
AMENDMENT AND TERMINATION
The Incentive Stock Plan may from time to time be terminated, modified or
amended by the affirmative vote of the holders of a majority of the outstanding
shares of Hexcel Common present or represented and entitled to vote at a duly
held stockholders meeting. The Board of Directors may at any time terminate the
Incentive Stock Plan or from time to time make such modifications or amendments
to the Incentive Stock Plan as it may deem advisable; PROVIDED, HOWEVER, that
the Board of Directors may not make any amendments to the Incentive Stock Plan
which require stockholder approval under applicable law, rule or regulation
unless the same shall be approved by the requisite vote of Hexcel's
stockholders. Notwithstanding the foregoing, no termination, modification or
amendment to the Incentive Stock Plan may adversely affect the rights conferred
by an award under the Incentive Stock Plan without the consent of the recipient
thereof. In addition, the provisions of the Incentive Stock Plan with respect to
formula awards may not be amended more than once every six months, other than to
comport with changes in the Code, ERISA or the rules thereunder.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a brief summary of certain United States federal
income tax consequences under current federal income tax laws relating to awards
under the Incentive Stock Plan. This summary is not intended to be exhaustive
and, among other things, does not describe state, local or foreign income and
other tax consequences. ACCORDINGLY, PARTICIPANTS IN THE INCENTIVE STOCK PLAN
SHOULD CONSULT THEIR RESPECTIVE TAX ADVISORS IN DETERMINING THE TAX CONSEQUENCES
OF SUCH PARTICIPATION.
NONQUALIFIED STOCK OPTIONS
An optionee will not recognize any taxable income upon the grant of an NQSO
and Hexcel will not be entitled to tax deduction with respect to such grant.
Upon exercise of an NQSO, the excess of the fair market value of the Hexcel
Common on the exercise date over the exercise price will be taxable as
compensation income to the optionee and will be subject to applicable
withholding taxes. Hexcel will generally be entitled to a tax deduction at that
time in the amount of such compensation income. The optionee's tax basis for the
Hexcel Common received pursuant to the exercise of an NQSO will equal the sum of
the compensation income recognized and the exercise price.
Upon the sale or other disposition of Hexcel Common received upon the
exercise of an NQSO, any appreciation or depreciation after the exercise date
generally will be taxed as capital gain or loss and will be long-term capital
gain or loss if the holding period for such Hexcel Common (which begins upon
such exercise) is more than one year.
103
<PAGE>
INCENTIVE STOCK OPTIONS ("ISO")
An optionee will not recognize any taxable income at the time of grant or
timely exercise of an ISO and Hexcel will not be entitled to a tax deduction
with respect to such grant or exercise. Exercise of an ISO may, however, give
rise to taxable compensation income subject to applicable withholding taxes, and
a corresponding tax deduction to Hexcel, if the ISO is not exercised on a timely
basis (generally, while the optionee is employed by Hexcel or one of its
subsidiaries or within 90 days after termination of employment) or if the
optionee engages in a "disqualifying disposition" as described below. The excess
of the fair market value, on the date of the exercise of an ISO, of the Hexcel
Common acquired pursuant to the exercise of the ISO over the exercise price
constitutes an item of tax preference for purposes of the federal alternative
minimum tax.
A sale or exchange by an optionee of Hexcel Common acquired upon the
exercise of an ISO more than one year after the transfer of such Hexcel Common
to such optionee and more than two years after the date of grant of the ISO
generally will result in any difference between the net sale proceeds and the
exercise price being treated as long-term capital gain or loss to the optionee.
If such sale or exchange takes place within two years after the date of grant of
the ISO or within one year from the date of transfer of Hexcel Common to the
optionee, such sale or exchange will generally constitute a "disqualifying
disposition" of such Hexcel Common that will have the following results: any
excess of (i) the lesser of (a) the fair market value of the Hexcel Common at
the time of exercise of the ISO and (b) the amount realized on such
disqualifying disposition of the Hexcel Common over (ii) the exercise price of
such ISO will be taxable as compensation income to the optionee, subject to
applicable withholding taxes, and Hexcel will be entitled to a tax deduction in
the amount of such compensation income. Any further gain or loss after the date
of exercise generally will qualify as capital gain or loss and will not result
in any deduction by Hexcel.
STOCK APPRECIATION RIGHTS
The amount of any cash received upon the exercise of a stock appreciation
right ("SAR") will be includible in the grantee's ordinary income and Hexcel
generally will be entitled to a deduction for such amount. Upon disposition of
any stock received upon exercise of an SAR, the grantee will recognize capital
gain or loss, which will be long-term or short-term depending on the period
elapsed since the date of such exercise, equal to the difference between the
amount realized on such disposition and the fair market value of the Hexcel
Common on the date the SAR was exercised.
RESTRICTED SHARES
If restricted shares are awarded to a participant in accordance with the
terms of the Incentive Stock Plan, generally no income will be recognized by
such participant at the time the award is made. Generally, such participant will
be required to include in his ordinary income, as compensation, the fair market
value of such restricted shares upon the lapse of the forfeiture provisions
applicable thereto, less any amount paid therefor. The participant may, however,
within 30 days after acquiring the shares, elect to be taxed immediately upon
receipt of such shares rather than when the forfeiture provisions lapse. If such
election is made, the participant will recognize ordinary income in the taxable
year of his award in an amount equal to the fair market value of such restricted
shares (determined without regard to the restrictions which by their terms will
lapse) at the time of receipt, less any amount paid therefor. Absent the making
of the election referred to in the preceding sentences, any cash dividends or
other distributions paid with respect to restricted shares prior to the lapse of
the applicable restrictions will be includible in the participant's gross income
as compensation at the time of receipt. In each case, Hexcel will be entitled to
a deduction in the same amount as the participant realizes compensation income.
104
<PAGE>
PLAN BENEFITS
Except as set forth on the table below, awards under the Incentive Stock
Plan will be granted at the sole discretion of the Committee and performance
criteria may vary from year to year and from participant to participant.
Compensation paid and other benefits granted to certain executive officers of
Hexcel for the 1994 fiscal year are set forth elsewhere herein. See "EXECUTIVE
COMPENSATION." See also "EXECUTIVE COMPENSATION -- Compensation of Senior
Executives Following the Acquisition" for a discussion of the short-term option
and PARS programs expected to be established under the Incentive Stock Plan
following the Acquisition.
NEW PLAN BENEFITS
HEXCEL CORPORATION INCENTIVE STOCK PLAN
<TABLE>
<CAPTION>
NUMBER
NAME AND POSITION OF UNITS
- ------------------------------------------------------------------------------------------------------- ---------
<S> <C>
John J. Lee -- Chief Executive Officer, Director (1)................................................... 40,000
William P. Meehan -- Vice President and Chief Financial Officer........................................ 39,000
Rodney P. Jenks, Jr. -- Vice President, General Counsel and Corporate Secretary........................ 39,000
Gary L. Sandercock -- Vice President, Manufacturing.................................................... 33,000
Thomas J. Lahey -- Vice President, Worldwide Sales..................................................... 33,000
All Executive Officers as a Group...................................................................... 298,850
All Non-Executive Directors as a Group................................................................. 320,000
All Non-Executive Officer Employees as a Group......................................................... 168,330
</TABLE>
- ------------------------
(1) See "EXECUTIVE COMPENSATION -- Compensation of Senior Executives Following
the Acquisition" for a description of certain additional equity-based
compensation expected to be granted under the Incentive Stock Plan if the
Acquisition is consummated and the Incentive Stock Plan is approved by
stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE INCENTIVE
STOCK PLAN.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 2, 1994, Rodney P. Jenks, Jr. became an employee of Hexcel and
on March 11, 1994, he became Vice President, General Counsel and Secretary of
Hexcel. Prior to becoming an employee of Hexcel, Mr. Jenks was a partner in the
law firm of Wendel, Rosen, Black & Dean ("Wendel, Rosen"), which, during 1995,
provided legal services to Hexcel for which it was paid $293,002 (some of which
was paid in respect of services rendered in 1994). Upon becoming an employee of
Hexcel, Mr. Jenks resigned as a partner and currently serves as counsel to the
law firm. In the first quarter of 1996, Mr. Jenks expects to return to Wendel,
Rosen as a partner. Wendel, Rosen currently provides limited legal services to
Hexcel and is expected to continue to provide such services to Hexcel after Mr.
Jenks returns to the firm.
UniRock Management Corporation ("UniRock") was a strategic planning
consultant to Hexcel. Franklin S. Wimer, a director of Hexcel and chairman of
the Audit Committee, is a principal of UniRock. Hexcel paid $458,954 to UniRock
in 1995 for consulting services rendered during 1994 and 1995, which amount
includes a success fee of $291,721 which was earned by UniRock during Hexcel's
bankruptcy reorganization.
Marcus Montgomery Wolfson P.C. ("MMW") was counsel to the Equity Committee.
From 1993 until October 1995, Peter D. Wolfson was a member of MMW. Pursuant to
the federal bankruptcy laws and by order of the Bankruptcy Court, MMW was paid
$603,675 in 1995 for services rendered during 1994 and 1995.
105
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires Hexcel's directors and executive
officers, and persons who own more than ten percent of a registered class of
Hexcel's equity securities, to file with the Commission initial reports of
ownership and reports of changes in ownership of Hexcel Common Stock and other
equity securities of Hexcel. Executive officers, directors, and greater than ten
percent stockholders are required by Commission regulation to furnish Hexcel
with copies of all Section 16(a) forms they file. To Hexcel's knowledge, based
solely on review of the copies of such reports furnished to Hexcel and written
representations that no other reports were required, for the fiscal year ended
December 31, 1995, all Section 16(a) filing requirements applicable to its
executive officers, directors and greater than ten percent stockholders were
complied with (other than a Form 3 relating to the Hexcel Shares that was
inadvertently filed late by Ciba on October 23, 1995).
RATIFICATION OF APPOINTMENT OF
HEXCEL'S INDEPENDENT AUDITORS
The Board of Directors of Hexcel has appointed Deloitte & Touche LLP to act
as independent auditors for Hexcel and its consolidated subsidiaries for the
fiscal year ended December 31, 1995. Deloitte & Touche LLP has been Hexcel's
independent auditors for the last three fiscal years and has advised Hexcel that
the firm does not have any direct or indirect financial interest in Hexcel or
any of its subsidiaries, nor has such firm had any such interest in connection
with Hexcel during the past five years other than its capacity as Hexcel's
independent auditors. A representative of Deloitte & Touche LLP is expected to
be present at the Annual Meeting and will have an opportunity to make a
statement if he desires to do so and will be available to answer appropriate
questions from stockholders.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP TO SERVE AS HEXCEL'S INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995.
OTHER MATTERS
As of the date of this Proxy Statement, the management of Hexcel does not
know of any other matters to be presented for action by the stockholders at the
Annual Meeting. However, if any other matters not known are brought before the
Annual Meeting, proxies will be voted at the discretion of the proxy holders
according to their discretion and best judgment.
STOCKHOLDER PROPOSALS
Hexcel expects to hold its next Annual Meeting of Stockholders in May 1996.
Any proposal that a Hexcel stockholder intends to present at such Annual Meeting
of Stockholders must be submitted to the Secretary of Hexcel at its principal
executive offices a reasonable time prior to Hexcel's solicitation of proxies
for such meeting in order to be considered for inclusion in the proxy statement
relating thereto.
106
<PAGE>
INDEX TO FINANCIAL STATEMENTS
COMBINED FINANCIAL STATEMENTS OF
THE CIBA COMPOSITES BUSINESS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Combined Balance Sheets -- September 30, 1995 (unaudited), December 31,
1994 and 1993............................................................................................. F-3
Combined Statements of Operations -- For the Nine Months Ended September 30, 1995 and 1994 (unaudited) and
for the Years Ended December 31, 1994 and 1993............................................................ F-4
Combined Statements of Owner's Equity -- For the Nine Months Ended September 30, 1995 (unaudited) and for
the Years Ended December 31, 1994 and 1993................................................................ F-5
Combined Statements of Cash Flows -- For the Nine Months Ended September 30, 1995 and 1994 (unaudited) and
for the Years Ended December 31, 1994 and 1993............................................................ F-6
Notes to Combined Financial Statements, December 31, 1994 and 1993......................................... F-7
Notes to Combined Financial Statements, September 30, 1995 (unaudited)..................................... F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Ciba-Geigy Limited
We have audited the accompanying combined balance sheets of Ciba Composites
(a division of Ciba-Geigy Limited) as of December 31, 1994 and 1993, and the
related combined statements of operations, owner's equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits 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, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Ciba Composites as
of December 31, 1994 and 1993, and the combined results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
As discussed in Note 10 to the combined financial statements, in 1993, the
U.S. Group Company changed its methods of accounting for postretirement benefits
other than pensions and for postemployment benefits.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Newport Beach, California
August 17, 1995
F-2
<PAGE>
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
COMBINED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
SEPTEMBER 30, ----------- -----------
1995
-------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash................................................................... $ 4,528 $ 7,990 $ 5,467
Accounts receivable, net of allowance for doubtful accounts of $1,905,
$3,378 and $3,078 in 1995, 1994 and 1993, respectively................ 68,592 53,024 44,447
Inventories............................................................ 68,067 66,672 63,280
Prepaid expenses and other current assets.............................. 7,171 9,327 8,058
------------- ----------- -----------
Total current assets................................................. 148,358 137,013 121,252
Property, plant and equipment, net....................................... 155,916 161,153 171,739
Intangibles, net of accumulated amortization of $18,966 and $15,878 and
$32,784 in 1995, 1994 and 1993, respectively............................ 46,053 49,143 59,348
Other assets............................................................. 4,547 5,111 9,945
------------- ----------- -----------
Total assets......................................................... $ 354,874 $ 352,420 $ 362,284
------------- ----------- -----------
------------- ----------- -----------
LIABILITIES AND OWNER'S EQUITY:
Current liabilities:
Accounts payable....................................................... $ 32,686 $ 29,249 $ 26,179
Accrued liabilities.................................................... 22,714 25,050 18,658
Short-term debt........................................................ 1,626 2,730 4,473
Short-term debt due to affiliates...................................... 10,250 5,302 11,128
Current portion of long-term debt...................................... 230 487 2,298
Current portion of obligations under capital leases.................... 435 348 275
------------- ----------- -----------
Total current liabilities............................................ 67,941 63,166 63,011
Long-term debt........................................................... 1,358 1,775 1,913
Long-term debt due to affiliates......................................... 9,462 37,493 34,581
Long-term capital lease obligations...................................... 4,435 4,372 4,100
Other long-term liabilities.............................................. 14,449 14,430 13,912
------------- ----------- -----------
Total liabilities.................................................... 97,645 121,236 117,517
------------- ----------- -----------
Commitments and contingencies
Minority interest........................................................ 7,585 5,048 3,676
------------- ----------- -----------
Owner's equity:
Invested capital....................................................... 249,644 226,136 241,091
------------- ----------- -----------
Total liabilities and owner's equity................................. $ 354,874 $ 352,420 $ 362,284
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-3
<PAGE>
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------ ------------------------
1995 1994 1994 1993
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales..................................................... $ 252,310 $ 209,927 $ 292,611 $ 271,258
Cost of sales................................................. 207,767 179,570 249,717 244,247
----------- ----------- ----------- -----------
Gross profit.............................................. 44,543 30,357 42,894 27,011
----------- ----------- ----------- -----------
Operating (income) expenses:
Selling, general and administrative expenses................ 34,207 32,958 45,515 47,804
Research and development expense............................ 7,158 5,375 7,902 5,909
Amortization and write-downs of purchased intangibles....... 3,090 3,842 10,219 5,734
Restructuring expense....................................... 2,300 1,600 7,722
Gain on sale of facility.................................... (2,700)
Other, net.................................................. 936 364 (279) 241
----------- ----------- ----------- -----------
Total operating expenses.................................. 47,691 42,539 62,257 67,410
----------- ----------- ----------- -----------
Operating loss............................................ 3,148 12,182 19,363 40,399
Other expense:
Interest expense............................................ 740 961 1,193 2,236
Minority interest........................................... 1,220 808 891 245
----------- ----------- ----------- -----------
Loss before income taxes and cumulative effect of
accounting changes....................................... 5,108 13,951 21,447 42,880
Provision (benefit) for income taxes.......................... 3,898 2,134 2,843 (962)
----------- ----------- ----------- -----------
Loss before cumulative effect of accounting changes....... 9,006 16,085 24,290 41,918
Cumulative effect of accounting changes....................... 7,077
----------- ----------- ----------- -----------
Net loss.................................................. $ 9,006 $ 16,085 $ 24,290 $ 48,995
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE>
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
COMBINED STATEMENTS OF OWNER'S EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
<TABLE>
<S> <C>
Balance, December 31, 1992....................................................... $ 294,364
Capital distributions, net....................................................... (1,547)
Translation adjustments.......................................................... (2,731)
Net loss..................................................................... (48,995)
---------
Balance, December 31, 1993....................................................... 241,091
Capital contributions, net....................................................... 4,676
Translation adjustments.......................................................... 4,659
Net loss..................................................................... (24,290)
---------
Balance, December 31, 1994....................................................... 226,136
Capital contributions, net (unaudited)........................................... 30,714
Translation adjustments (unaudited).............................................. 1,800
Net loss (unaudited)......................................................... (9,006)
---------
Balance, September 30, 1995 (unaudited).......................................... $ 249,644
---------
---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE>
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
---------------------- ----------------------
1995 1994 1994 1993
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net loss
Adjustments to reconcile net loss to net cash provided by
operating activities:........................................... $ (9,006) $ (16,085) $ (24,290) $ (48,995)
Cumulative effect of accounting changes........................ 7,077
Depreciation................................................... 11,165 11,477 15,866 19,961
Amortization and write-downs of purchased intangibles.......... 3,090 3,842 10,221 5,737
Minority interest.............................................. 1,220 808 891 245
Restructuring provisions and write-downs of property, plant and
equipment..................................................... 2,386 2,194 3,924 604
Gain on sale of facility....................................... (2,700)
Changes in assets and liabilities, net of effects from
acquisition:
(Increase) decrease in trade receivables..................... (13,617) (12,686) (6,009) 16,128
(Increase) decrease in inventories........................... 441 (7,094) 1,272 10,025
(Increase) decrease in prepaid expenses and other current
assets...................................................... 1,877 1,479 (776) 3,197
Decrease in other long-term assets........................... 525 3,077 3,739 3,585
Increase (decrease) in accounts payable...................... (283) (1,216) 3,820 178
Increase (decrease) in accrued liabilities................... (4,778) 2,497 4,248 1,061
Increase (decrease) in other long-term liabilities........... 2,192 1,636 1,265 (3,450)
---------- ---------- ---------- ----------
Net cash provided (used) by operating activities........... (4,788) (10,071) 11,471 15,353
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment............ 405 262 8,518 576
Purchases of property, plant and equipment..................... (7,695) (4,272) (7,685) (12,280)
Acquisition of business........................................ (4,600) (4,680)
---------- ---------- ---------- ----------
Net cash used by investing activities...................... (7,290) (8,610) (3,847) (11,704)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from borrowings....................................... 7,800 56 4,288
Payments on borrowings......................................... (34,522) (7,435) (10,415) (3,636)
Equity contributions (distributions)........................... 34,802 22,786 4,676 (1,547)
---------- ---------- ---------- ----------
Net cash provided (used) by financing activities........... 8,080 15,351 (5,683) (895)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Effect of exchange rate changes on cash.......................... 536 421 582 (263)
---------- ---------- ---------- ----------
Net change in cash......................................... (3,462) (2,909) 2,523 2,491
Cash at beginning of period...................................... 7,990 5,467 5,467 2,976
---------- ---------- ---------- ----------
Cash at end of period............................................ $ 4,528 $ 2,558 $ 7,990 $ 5,467
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Cash paid (received) during the year for:
Income taxes................................................... $ (69) $ 517
---------- ----------
---------- ----------
Interest....................................................... $ 1,595 $ 2,289
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE>
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
1. BASIS OF PRESENTATION:
The accompanying financial statements include the combined worldwide
accounts of the Ciba Composites Division (the "Division") of Ciba-Geigy Limited
(the "Parent" or "Owner"), a publicly-traded company based in Switzerland. The
financial statements include the accounts of (1) corporate entities wholly or
majority-owned indirectly by the Parent (principally in France, Austria and
Italy) and (2) divisional accounts which have historically operated as business
units of wholly-owned, multi-product line subsidiaries of the Parent (the "Group
Companies"), principally in the United States, United Kingdom, South Africa and
Germany. The minority interest represents a third party's 49.0% ownership of the
Austrian corporate entity.
The Division's primary business is manufacturing, marketing, and
distributing composite materials, including prepregs, fabrics, honeycomb and
fabricated structural interiors, panels, and parts for the commercial aerospace
industry.
The Division's financial statements include the assets, liabilities,
revenues and expenses which are specifically identifiable with the Division, as
well as certain allocated expenses for services that have historically been
performed by the corporate headquarters of the Group Companies. These expenses
are allocated using various methods dependent upon the nature of the service.
The Division's management believes that these allocations are based on
assumptions that are reasonable under the circumstances; however, these
allocations are not necessarily indicative of the costs and expenses that would
have resulted if the Division had been operated as a separate entity.
The net cash position of certain of the Group Companies has been managed
through a centralized treasury system. Accordingly, transfers of cash within the
treasury system are recorded through intercompany accounts, which are reflected
as a component of Owner's Equity in the accompanying balance sheets. In
addition, intercompany balances arising from purchase and sale transactions with
other Parent affiliates and allocated charges for services have been treated as
the equivalent of cash transactions in the accompanying financial statements and
are included as a component of Owner's Equity. There is no direct interest cost
allocation to the Division with respect to Group Company borrowings, and
accordingly, the Statements of Operations do not include any allocated financing
costs. Debt payable to third parties and affiliates outside of the Division, and
related interest expense, is reflected in accordance with their terms.
All significant transactions within the combined Division have been
eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR:
The U.S. Group Company's fiscal years consist of a fifty-two or fifty-three
week period, ending the last Friday of December. The 1994 and 1993 fiscal years
consisted of a fifty-two and fifty-three week period, respectively for the U.S.
Group Company. The remaining Division's entities have fiscal years ending
December 31. For purposes of financial statement presentation, all fiscal
year-ends are referred to as December 31.
INVENTORIES:
Inventories are stated at the lower of cost or market. Cost is determined
using various methods including average cost and the first-in, first-out (FIFO)
basis.
Continued
F-7
<PAGE>
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Depreciation is determined
using the straight-line method applied over the estimated useful lives of the
respective assets, which range from 3 to 50 years. It is the Division's policy
to periodically review the estimated lives of assets and, where appropriate,
revise the estimated lives to reflect technological changes in the industry.
Upon sale or retirement of depreciable assets, the cost and related
accumulated depreciation are removed from the accounts and any resultant gain or
loss is included in operations.
INTANGIBLES:
The excess of cost over the fair value of net assets (goodwill), and
identifiable intangible assets of acquired companies is being amortized on a
straight-line basis over a forty-year period. Identifiable intangible assets are
capitalized at acquisition and are amortized on a straight-line basis over their
estimated useful lives, ranging from twelve to forty years. The Division
evaluates the realizability of intangibles based upon the projected,
undiscounted net cash flows related to the intangibles. The Division recorded an
impairment loss of $5,097 in 1994 for certain identifiable intangibles which
consisted of contracted manufacturing programs. The loss was measured using
projected discounted cash flows and is included in "Amortization and write-downs
of purchased intangibles" in the Combined Statements of Operations.
REVENUE RECOGNITION:
Revenue is recognized at the time products are shipped.
INCOME TAXES:
Income taxes are calculated in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". This
statement requires that deferred income taxes reflect the impact of temporary
differences in bases of assets and liabilities recognized for financial
reporting purposes and amounts recognized for tax purposes.
TRANSLATION OF FOREIGN CURRENCIES:
The functional currency in all significant foreign locations is considered
to be the local currency. The translation of the applicable foreign currencies
into U.S. dollars is performed for balance sheet accounts using exchange rates
in effect at the balance sheet date and for revenue and expense accounts using
an average exchange rate during the year. Gains or losses resulting from
translation are reflected in Owner's equity. Aggregate foreign currency
transaction gains and losses are included in determining results from
operations.
3. RESTRUCTURING EXPENSE AND GAIN ON SALE OF FACILITY:
In 1994 and 1993, the Division incurred approximately $1,600 and $7,700,
respectively, in restructuring charges. These charges are primarily due to the
consolidation of certain facilities and consisted principally of personnel
related expenses and the costs of consolidating these facilities.
In December 1994, the Division sold its Miami, Florida facility for $8,000
in cash resulting in a net gain of approximately $2,700 which is included as
such in the accompanying Statement of Operations.
Continued
F-8
<PAGE>
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
4. ACQUISITIONS:
In August 1994, the Division acquired certain assets and customer contracts
from a British Petroleum Chemicals Division for total consideration of
approximately $4,700. The revenues and results of operations of the acquired
business are not significant and are included in the Combined Statements of
Operations from the date of acquisition.
5. INVENTORIES:
The components of inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Raw materials................................................................. $ 20,523 $ 19,532
Work-in-process............................................................... 41,492 38,306
Finished goods................................................................ 4,657 5,442
--------- ---------
Total..................................................................... $ 66,672 $ 63,280
--------- ---------
--------- ---------
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
Land....................................................................... $ 15,150 $ 14,979
Buildings and improvements................................................. 93,020 93,312
Buildings and equipment under capital leases............................... 5,776 5,036
Machinery and equipment.................................................... 154,940 157,679
Construction in progress................................................... 1,210 3,536
----------- -----------
270,096 274,542
Less, accumulated depreciation and amortization............................ 108,943 102,803
----------- -----------
$ 161,153 $ 171,739
----------- -----------
----------- -----------
</TABLE>
7. INTANGIBLES:
Intangibles consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Contracted manufacturing programs............................................. $ 20,779 $ 47,890
Customer relationships........................................................ 25,237 25,237
Goodwill...................................................................... 19,005 19,005
--------- ---------
65,021 92,132
Less, accumulated amortization................................................ 15,878 32,784
--------- ---------
$ 49,143 $ 59,348
--------- ---------
--------- ---------
</TABLE>
Continued
F-9
<PAGE>
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
7. INTANGIBLES (CONTINUED)
Intangible assets arose principally from the acquisition of Reliable
Manufacturing Co. in 1979 (goodwill of $3,285) and Heath Tecna Aerospace Co. in
1988. Changes in contracted manufacturing programs in 1994 resulted from an
impairment writedown of $5,097 due to reductions in aircraft build rates and a
corresponding adjustment of cost and accumulated amortization of $22,014.
8. DEBT:
Short-term debt includes commercial paper, bank overdrafts, loans and other
short-term debt outstanding in Europe with maturities of one year or less.
Interest rates for this debt ranged from approximately 5.7%-8.6% in 1994 and
6.8%-12.0% in 1993.
Short-term debt due to affiliates consists of a noninterest bearing
overdraft facility at one of the Division's operating units.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Mortgage payable in quarterly installments at an interest rate of 6.5% and due
in 1999........................................................................ $ 684 $ 811
Other........................................................................... 1,578 3,400
--------- ---------
2,262 4,211
Less, current portion........................................................... 487 2,298
--------- ---------
Long-term debt.............................................................. $ 1,775 $ 1,913
--------- ---------
--------- ---------
</TABLE>
Long-term debt to affiliates consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Loans payable, due in 1998, at floating interest rates based on the six-month
French LIBOR rate............................................................ $ 8,697 $ 7,870
Loan payable, with no stated maturity date or interest rate................... 4,317 4,067
Loan payable, with no stated maturity date, at a floating interest rate based
on the three-month Italian LIBOR rate........................................ 2,175 1,553
Advances from affiliate, with no stated maturity date or interest rate........ 22,304 21,091
--------- ---------
Long-term debt to affiliates.............................................. $ 37,493 $ 34,581
--------- ---------
--------- ---------
</TABLE>
The six-month and three-month LIBOR rates at December 31, 1994 were 6.6% and
9.1%, respectively.
Continued
F-10
<PAGE>
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
8. DEBT (CONTINUED)
Aggregate maturities of Long-term debt at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
AFFILIATES OTHER
--------- ---------
<S> <C> <C>
1995........................................................................... $ 487
1996........................................................................... 835
1997........................................................................... 322
1998........................................................................... $ 8,697 340
1999........................................................................... 164
2000 and beyond................................................................ 28,796 114
--------- ---------
$ 37,493 $ 2,262
--------- ---------
--------- ---------
</TABLE>
9. EMPLOYEE BENEFITS:
Approximately 20% of the United States employees participate in a separate
trusteed pension plan (the "U.S. Plan"). The U.S. Plan is a noncontributory
defined benefit pension plan covering certain salaried employees. Benefits are
based on employees' years of service and average of the highest consecutive five
years' compensation in the ten years before retirement. The U.S. Group Company's
funding policy is to make the minimum annual contribution required by applicable
regulators.
Net periodic pension cost for 1994 and 1993, for the U.S. Plan described
above, includes the following:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Service cost -- benefits earned during the period............................... $ 706 $ 518
Interest cost on projected benefit obligation................................... 561 547
Actual return on plan assets.................................................... (5) (1,022)
Net amortization and deferral................................................... (639) 445
--------- ---------
Net periodic pension cost................................................... $ 623 $ 488
--------- ---------
--------- ---------
</TABLE>
Continued
F-11
<PAGE>
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
9. EMPLOYEE BENEFITS (CONTINUED)
The actuarial present value of benefit obligations and funded status of the
U.S. Plan as of December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Benefit obligations:
Vested benefits............................................................... $ 4,956 $ 6,512
Non-vested benefits........................................................... 288 416
--------- ---------
5,244 6,928
Projected compensation increases................................................ 2,002 1,558
--------- ---------
Projected benefit obligation.................................................... 7,246 8,486
Plan assets at fair value....................................................... 7,332 7,400
--------- ---------
Plan assets in excess of (less than) projected benefit obligation........... 86 (1,086)
Unrecognized prior service cost................................................. 200 214
Unrecognized net (loss) gain.................................................... (724) 932
--------- ---------
Pension (liability) asset................................................... $ (438) $ 60
--------- ---------
--------- ---------
</TABLE>
Assumptions used in developing the projected benefit obligation were as
follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Discount rate..................................................................... 8.50% 7.25%
Rate of increase in compensation.................................................. 5.50% 5.50%
Expected long-term rate of return on plan assets.................................. 9.00% 9.00%
</TABLE>
The majority of the remaining employees participate in various
multi-employer pension plans. These plans include various pension plans
sponsored by Group Companies and are accounted for as multi-employer plans.
Accordingly, the Combined Statements of Operations include an allocation of
$2,502 and $3,414 in 1994 and 1993, respectively, for the costs associated with
the employees who participate in such plans. Included in the costs for 1994 is a
curtailment gain of $600 related to the sale of the Miami facility.
Additionally, no assets and liabilities have been reflected in the Combined
Balance Sheets related to the various multi-employer pension plans since it is
not practicable to segregate these amounts.
The Division also has an Investment Savings Plan for U.S. employees.
Division contributions to the plan were approximately $450 and $477 during 1994
and 1993, respectively.
10. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS:
The Division has various postretirement plans that provide healthcare
benefits to retired salaried and hourly employees and their dependents. Certain
of these plans require employee contributions at varying rates. Not all
employees are eligible to receive benefits, with eligibility depending on the
plan in effect at a particular location.
Total postretirement benefit expense of $164 and $813 is included in the
Combined Statement of Operations for 1994 and 1993, respectively. Included in
the expense for 1994 is a curtailment gain of
Continued
F-12
<PAGE>
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
10. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
$318 related to the sale of the Miami facility. Assets and liabilities have not
been reflected in the Combined Balance Sheets relating to Group Company plans,
as it is not practical to segregate these amounts.
Effective January 1, 1993, the U.S. Group Company changed its method of
accounting for postretirement benefits other than pensions from the
pay-as-you-go method to the accrual method as required by Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS No. 106"). This standard requires the accrual of the
expected costs of postretirement medical and other nonpension benefits during an
employee's period of service. Similar accounting methods were adopted by other
Division entities prior to 1993.
The cumulative effect of adopting SFAS No. 106 as of January 1, 1993,
resulted in a charge of $6,006 to 1993 earnings, with no related income tax
benefit. The effect of the change on the 1993 loss before income taxes was an
increase, additional expense, of approximately $422.
Effective January 1, 1993, the U.S. Group Company also elected to adopt
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS No. 112"). SFAS No. 112 establishes accounting
standards for employers who provide certain benefits to former or inactive
employees after employment but before retirement.
Previously, postemployment benefits, for the U.S. Group Company, were
recognized on the pay-as-you-go method. The cumulative effect of the change in
accounting for postemployment benefits was $1,071, which represented the
unfunded accumulated postemployment benefit obligations as of January 1, 1993.
There was no related income tax benefit in connection with the election. The
effect of the change on the 1993 loss before income taxes was an increase of
approximately $33. Similar accounting methods were adopted by other Division
entities prior to 1993. Total postemployment benefit expense was $778 and $154
for 1994 and 1993, respectively.
11. INCOME TAXES:
For purposes of the Combined Statements of Operations, income taxes have
been provided on a stand-alone basis, as if the Division was a separate taxable
entity.
The effective income tax provision (benefit) rate on the loss before income
taxes differed from the United States federal statutory rate for the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1994 1993
--------- ----------
<S> <C> <C>
Benefit at the U.S. federal statutory rate................................... $ (9,096) $ (13,873)
Tax effect of net operating losses not recognized............................ 8,606 13,411
Foreign tax (benefit)........................................................ 2,843 (962)
Goodwill amortization........................................................ 442 442
Other........................................................................ 48 20
--------- ----------
Provision (benefit) for income taxes..................................... $ 2,843 $ (962)
--------- ----------
--------- ----------
</TABLE>
Continued
F-13
<PAGE>
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
11. INCOME TAXES (CONTINUED)
The tax effects of temporary differences which gave rise to deferred income
tax assets and liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1993
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Postretirement/postemployment benefits.................................... $ 3,023 $ 2,975
Environmental reserve..................................................... 1,746 1,829
Intangibles............................................................... 679
Restructuring reserve..................................................... 625
Inventory reserve......................................................... 621 714
Other reserves............................................................ 2,207 2,126
Net operating losses...................................................... 87,163 83,269
---------- ----------
Total deferred income tax assets........................................ 96,064 90,913
---------- ----------
Deferred income tax liabilities:
Depreciation.............................................................. (11,560) (13,197)
Intangibles............................................................... (1,570)
Revenue recognition....................................................... (5,106) (6,048)
---------- ----------
Total deferred income tax liabilities................................... (16,666) (20,815)
---------- ----------
Subtotal................................................................ 79,398 70,098
Valuation allowance....................................................... (79,541) (68,781)
---------- ----------
Net deferred income tax (liability) asset............................... $ (143) $ 1,317
---------- ----------
---------- ----------
</TABLE>
Deferred income tax assets of $1,391 and $2,623 at December 31, 1994 and
1993, respectively, are included in other assets in the Combined Balance Sheets.
Deferred income tax liabilities of $1,534 and $1,306 at December 31, 1994
and 1993, respectively, are included in other long-term liabilities in the
Combined Balance Sheets.
Operating loss carryforwards of non-corporate Divisional entities
(principally the United States of approximately $217 million) have generally
been utilized to offset Group Company taxable income in the year incurred.
However, for purposes of these combined financial statements, the tax effect of
such operating loss carryforwards have been reflected as deferred tax assets
with related valuation allowances, based upon management's assessment of the
Division's likelihood of realizing the benefit of such operating loss
carryforwards through future stand-alone taxable income.
The Division has net operating loss carryforwards, of which approximately
$4,800, $1,400 and $200 are available to offset certain future taxable income in
Italy, France and Austria, respectively.
Continued
F-14
<PAGE>
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
11. INCOME TAXES (CONTINUED)
These operating loss carryforwards expire as follows:
<TABLE>
<S> <C>
1996....................................................... $ 150
1997....................................................... 1,500
1998....................................................... 2,150
1999....................................................... 1,550
Thereafter................................................. 1,050
</TABLE>
12. COMMITMENTS AND CONTINGENCIES:
SELF-INSURANCE:
The Division is partially self-insured for workers' compensation, general
liability and property insurance risks, subject to specific retention levels.
Self-insurance costs are accrued based upon the aggregate of the estimated
liability for reported claims and estimated liabilities for claims incurred but
not reported.
LITIGATION:
The Division is involved in legal proceedings which are in various stages of
development and involve various uncertainties which can affect the eventual
outcome of the issues. While it is difficult to predict what the eventual
resolution of these issues will be, the Division believes, on the basis of the
facts presently known, that these actions will not have a material adverse
effect on the Division's financial condition or results of operations.
ENVIRONMENTAL COSTS:
In connection with an acquisition of one of the Division's operating
facilities, the Division entered into an agreement with the previous owner
whereby the Division agreed to share one-half the operating cost for groundwater
treatment and monitoring facilities which had been ordered by regulatory
authorities prior to the date of acquisition. The Division's share of annual
cost sharing is estimated at $250. While the ultimate period of treatment and
monitoring required by regulatory authorities is not determinable, the Division
estimated the minimum period at twenty years. The Combined Balance Sheets
include reserves of approximately $4,500 and $4,700 as of December 31, 1994 and
1993, respectively, related to these costs. Charges against these reserves
totaled approximately $200 and $300 in 1994 and 1993, respectively.
In the normal course of its business, the Division is subject to
environmental regulations in jurisdictions in which the Division has facilities
and, accordingly, the Division may be required to incur either remediation or
capital improvement costs in the future. Management of the Division believes
that the amounts of such costs, if any, will not have a material adverse effect
on the Division's financial condition or results of operations.
LEASE OBLIGATIONS:
The Division leases certain equipment and facilities under capital leases
and noncancelable operating leases expiring at various dated through 2012.
Continued
F-15
<PAGE>
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum annual lease payments under such leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1995........................................................................... $ 670 $ 1,685
1996........................................................................... 670 1,477
1997........................................................................... 670 917
1998........................................................................... 337 711
1999........................................................................... 308 561
Thereafter..................................................................... 5,726 281
--------- -----------
8,381 $ 5,632
-----------
-----------
Amounts representing interest.................................................. 3,661
---------
Present value of net minimum lease payments.................................... 4,720
Less, current portion...................................................... 348
---------
Long-term portion.......................................................... $ 4,372
---------
---------
</TABLE>
Lease expense was $1,883 and $1,724 in 1994 and 1993, respectively.
CONCENTRATION OF CREDIT RISK:
The Division operates in one principal industry segment.
Substantially all of the Division's business is in the commercial aerospace
industry. In 1994 and 1993, one customer accounted for 20% and 29%,
respectively, of the net sales of the Division.
EXCHANGE RATES:
Certain items included on the Division's Combined Balance Sheets originating
from non-U.S. transactions are subject to fluctuations in the applicable
exchange rates between the transaction and settlement dates.
F-16
<PAGE>
CIBA COMPOSITES
(A Division of Ciba-Geigy Limited)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
December 31, 1994 and 1993
(In Thousands of Dollars)
13. SEGMENT INFORMATION:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Net sales:
United States............................................................ $ 139,831 $ 136,141
Europe................................................................... 143,071 127,469
Other geographic regions................................................. 9,709 7,648
----------- -----------
Total net sales........................................................ $ 292,611 $ 271,258
----------- -----------
----------- -----------
Intra-division transfers/sales between geographic areas (eliminated in
combination):
United States............................................................ $ 3,702 $ 2,077
Europe................................................................... 9,702 7,782
----------- -----------
Total intra-divisional transfers/sales................................. $ 13,404 $ 9,859
----------- -----------
----------- -----------
Operating loss (income):
United States............................................................ $ 26,940 $ 32,766
Europe................................................................... (4,684) 8,482
Other geographic regions................................................. (2,614) (1,090)
----------- -----------
Total operating loss................................................... $ 19,642 $ 40,158
----------- -----------
----------- -----------
Identifiable assets:
United States............................................................ $ 199,470 $ 222,874
Europe................................................................... 148,476 135,658
Other geographic regions................................................. 4,474 3,752
----------- -----------
Total identifiable assets.............................................. $ 352,420 $ 362,284
----------- -----------
----------- -----------
</TABLE>
Transfers between geographic areas are recorded at amounts generally above
cost. Operating (income) loss consists of total net sales less cost of sales and
operating expenses. The United States' operating loss and identifiable assets
include certain amounts related to the administration of worldwide Division
operations.
Export sales to unaffiliated customers by geographic area are as follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Europe........................................................................ $ 15,639 $ 14,225
North America................................................................. 9,946 7,461
Other......................................................................... 6,746 6,123
--------- ---------
$ 32,331 $ 27,809
--------- ---------
--------- ---------
</TABLE>
14. RELATED PARTY TRANSACTIONS:
Certain expenses reflected in the Statements of Operations include allocated
amounts of $2,836 and $2,048 in 1994 and 1993, respectively. These charges are
principally for legal, human resource, accounting and treasury functions
performed for the Division.
Continued
F-17
<PAGE>
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
14. RELATED PARTY TRANSACTIONS: (CONTINUED)
Through the normal course of business, the Division conducts transactions
with affiliates. Such transactions in 1994 and 1993 are summarized as follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Purchases of products......................................................... $ 12,212 $ 10,816
Interest expense, net......................................................... 810 1,471
Other expense (income)........................................................ 541 (147)
</TABLE>
The Division purchases certain raw materials from affiliates at cost. For
purposes of the accompanying financial statements, a mark-up above cost was
added to such purchases which adjustment increased the loss from operations in
1994 and 1993 by $4,355 and $3,573, respectively.
The Division has various financing arrangements with affiliates as discussed
in Note 8.
F-18
<PAGE>
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying financial statements have been prepared from the unaudited
worldwide accounts of the Ciba Composites Division (the "Division") of
Ciba-Geigy Limited (the "Parent" or "Owner"), a publicly-traded company based in
Switzerland. In accordance with generally accepted accounting principles, these
statements reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods presented.
All such adjustments are of a normal recurring nature.
The financial statements include the accounts of (1) corporate entities
wholly or majority-owned indirectly by the Parent located in the United Kingdom,
France, Austria and Italy and (2) divisional accounts which have historically
operated as business units of wholly-owned, multi-product line subsidiaries of
the Parent, (the "Group Companies"), principally in the United States, South
Africa and Germany. The United Kingdom operation became a corporate entity
wholly-owned by the Parent effective July 1995. The minority interest represents
a third party's 49.0% ownership of the Austrian corporate entity.
The Division's primary business is manufacturing, marketing, and
distributing composite materials, including prepregs, fabrics, honeycomb and
fabricated structural interiors, panels, and parts for the commercial aerospace
industry.
The Division's financial statements include the assets, liabilities,
revenues and expenses which are specifically identifiable with the Division, as
well as certain allocated expenses for services that have historically been
performed by the corporate headquarters of the Group Companies. These expenses
are allocated using various methods dependent upon the nature of the service.
The Division's management believes that these allocations are based on
assumptions that are reasonable under the circumstances; however, these
allocations are not necessarily indicative of the costs and expenses that would
have resulted if the Division had been operated as a separate entity.
The net cash position of certain of the Group Companies has been managed
through a centralized treasury system. Accordingly, transfers of cash within the
treasury system are recorded through intercompany accounts, which are reflected
as a component of Owner's equity in the accompanying balance sheets. In
addition, intercompany balances arising from purchase and sale transactions with
other Parent affiliates and allocated charges for services have been treated as
the equivalent of cash transactions in the accompanying financial statements and
are included as a component of Owner's equity. There is no direct interest cost
allocation to the Division with respect to Group Company borrowings, and
accordingly, the Statements of Operations do not include any allocated financing
costs. Debt payable to third parties and affiliates outside of the Division, and
related interest expense, is reflected in accordance with their terms.
All significant transactions within the combined Division have been
eliminated.
The results of operations for the nine-month periods ended September 30,
1995 and 1994 are not necessarily indicative of the results that can be expected
for a full year.
Continued
F-19
<PAGE>
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
2. INVENTORIES:
The Components of inventories at September 30, 1995 are as follows:
<TABLE>
<S> <C>
Raw materials............................................................ $ 26,648
Work-in-process.......................................................... 36,680
Finished goods........................................................... 4,739
---------
Total................................................................ $ 68,067
---------
---------
</TABLE>
3. RELATED-PARTY TRANSACTIONS:
As disclosed in Note 1, in July 1995, the Parent contributed the net assets
of its United Kingdom Composite Division to a new wholly-owned corporate entity
in the United Kingdom. As part of this transaction, debt of the Division owed to
affiliates amounting to approximately $22,000 was repaid and approximately
$3,900 of fixed assets previously carried on the Division's accounts were
transferred to an affiliate of the Division.
During 1995, long-term debt due to affiliates approximating $6,500 was
repaid with a similar amount being borrowed from an affiliate on a short-term
basis.
4. RESTRUCTURING EXPENSE:
During the nine-month period ended September 30, 1995, the Division provided
$2,300 for personnel costs associated with continued workforce reductions.
5. CONTINGENCIES:
SELF-INSURANCE:
The Division is partially self-insured for workers' compensation, general
liability and property insurance risks, subject to specific retention levels.
Self-insurance costs are accrued based upon the aggregate of the estimated
liability for reported claims and estimated liabilities for claims incurred but
not reported.
LITIGATION:
The Division is involved in legal proceedings which are in various stages of
development and involve uncertainties which can affect the eventual outcome of
the issues. While it is difficult to predict what the eventual resolution of
these issues will be, the Division believes, on the basis of the facts presently
known, that these actions will not have a material adverse effect on the
Division's financial condition or results of operations.
ENVIRONMENTAL COSTS:
In the normal course of its business, the Division is subject to
environmental regulations in jurisdictions in which the Division has facilities
and, accordingly, the Division may be required to incur either remediation or
capital improvement costs in the future. Management of the Division believes
that the amounts of such costs, if any, will not have a material adverse effect
on the Division's financial condition or results of operations.
Continued
F-20
<PAGE>
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
5. CONTINGENCIES: (CONTINUED)
EXCHANGE RATES:
Certain items included on the Division's Combined Balance Sheets originating
from non-U.S. transactions are subject to fluctuations in the applicable
exchange rates between the transaction and settlement dates.
6. INCOME TAXES:
The Division's loss before income taxes generated a provision for income
taxes due to certain profitable foreign operations.
7. SUBSEQUENT EVENT:
In September 1995, the Parent signed a definitive agreement to combine the
Division with Hexcel Corporation. According to the provisions of the agreement,
the Parent will receive approximately 49.9% of the combined equity in exchange
for the Division. The Parent will also receive additional consideration as part
of the transaction. The closing of the transaction is expected in the first
quarter of 1996.
F-21
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OPINION OF HEXCEL'S FINANCIAL ADVISOR
DATED JANUARY 22, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1
<PAGE>
[LOGO] January 22, 1996
Hexcel Corporation
5794 W. Las Positas Boulevard
Pleasanton, California 94588-8781
Attention: Mr. John J. Lee
Chief Executive Officer
Dear Sirs:
We understand that Hexcel Corporation ("Hexcel"), Ciba-Geigy Limited
("Ciba-Geigy") and Ciba-Geigy Corporation have entered into an agreement dated
September 29, 1995, as amended as of December 12, 1995 (the "Strategic Alliance
Agreement"), pursuant to which Hexcel will acquire Ciba-Geigy's global
composites, structures and interiors businesses ("Ciba Composites") from
Ciba-Geigy for consideration consisting of newly issued shares constituting
49.9% of Hexcel common stock plus cash and debt securities of approximately $68
million (the "Transaction"). The Transaction is subject to a governance
agreement (the "Governance Agreement") and standstill arrangements under which
Ciba-Geigy's degree of Board control, voting rights and liquidity are
significantly constrained. You have provided us with the proxy statement in
substantially the form to be sent to the shareholders of Hexcel (the "Proxy
Statement"), which includes the Governance Agreement and the Strategic Alliance
Agreement.
You have asked us to render our opinion as to whether the Transaction is fair,
from a financial point of view, to the shareholders of Hexcel.
In the course of our analysis for rendering this opinion, we have:
1. reviewed the Proxy Statement;
2. reviewed Hexcel's Annual Reports to Shareholders and Annual Reports on
Form 10-K for the fiscal years ended December 31, 1992 through December
31, 1994, and its Quarterly Reports on Form 10-Q for the periods ended
April 2, July 2 and October 1, 1995;
3. reviewed certain operating and financial information, including
projections, provided to us by Hexcel management concerning Hexcel's
business and prospects;
4. met with certain members of Hexcel's senior management to discuss its
operations, historical financial statements and future prospects, the
relative quality of Hexcel's and Ciba Composites' plant and equipment and
research and development and the benefits anticipated by Hexcel's
management to be realized by Hexcel as a result of the Transaction;
5. visited Hexcel's facilities in Casa Grande, Arizona; Lyon, France;
Pleasanton, California; and Welkenraedt, Belgium;
A-2
<PAGE>
6. reviewed Ciba Composites' Audited Financial Statements for the fiscal
years ended December 31, 1993 and December 31, 1994, and its Unaudited
Financial Statements for the six month period ended June 30 and the three
and nine month periods ended September 30, 1995;
7. reviewed certain operating and financial information, including
projections, provided to us by Ciba Composites management relating to
Ciba Composites' business and prospects;
8. met with certain members of Ciba Composites' senior management to
discuss its operations, historical financial statements and future
prospects;
9. visited Ciba Composites' facilities in Anaheim, California; Duxford,
England; and Decines, France;
10. reviewed the historical prices and trading volume of the common shares
of Hexcel;
11. reviewed publicly available financial data and stock market performance
data of companies which we deemed generally comparable to Hexcel and Ciba
Composites;
12. reviewed certain mergers and acquisitions data within the aerospace and
specialty chemicals industries; and
13. conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy and
completeness of the financial and other information provided to us by Hexcel and
Ciba Composites. With respect to Hexcel's and Ciba Composites' projected
financial results and potential synergies which could be achieved upon
consummation of the Transaction, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of Hexcel and Ciba Composites as to the expected
future performance of Hexcel and Ciba Composites, respectively. We have not
assumed any responsibility for the information or projections provided to us and
we have further relied upon the assurances of the managements of Hexcel and Ciba
Composites that they are unaware of any facts that would make the information or
projections provided to us incomplete or misleading. In arriving at our opinion,
we have not performed or obtained any independent appraisal of the assets of
Hexcel and Ciba Composites. Our opinion is necessarily based on economic, market
and other conditions, and the information made available to us, as of the date
hereof.
Based on the foregoing, it is our opinion that the Transaction is fair, from a
financial point of view, to the shareholders of Hexcel.
We have acted as financial advisor to Hexcel in connection with the Transaction
and will receive a fee for such services, payment of a significant portion of
which is contingent upon the consummation of the Transaction.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ PAUL A. ABECASSIS
Managing Director
A-3
<PAGE>
ANNEX B
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STRATEGIC ALLIANCE AGREEMENT
DATED AS OF
SEPTEMBER 29, 1995
AMONG
CIBA-GEIGY LIMITED,
CIBA-GEIGY CORPORATION
AND
HEXCEL CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
B-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I
ESTABLISHMENT OF THE ALLIANCE
SECTION 1.01. Contribution of Transferred Business................................................. B-4
SECTION 1.02. Transferred Business Consideration................................................... B-6
SECTION 1.03. Assumption of Certain Liabilities.................................................... B-6
SECTION 1.04. Allocation of Transferred Business Consideration..................................... B-7
ARTICLE II
THE CLOSINGS
SECTION 2.01. Closing.............................................................................. B-8
SECTION 2.02. Transactions To Be Effected at the Closing........................................... B-8
SECTION 2.03. The Deferred Closings................................................................ B-9
SECTION 2.04. Principal Amount of Subordinated Debt................................................ B-9
SECTION 2.05. Danutec.............................................................................. B-12
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of Ciba............................................... B-13
SECTION 3.02. Representations and Warranties of Hexcel............................................. B-24
ARTICLE IV
COVENANTS
SECTION 4.01. Conduct of Business.................................................................. B-32
SECTION 4.02. Access to Information................................................................ B-36
SECTION 4.03. Legal Requirements................................................................... B-36
SECTION 4.04. No Solicitation...................................................................... B-36
SECTION 4.05. Agreement Regarding Non-Assignable Contracts......................................... B-37
SECTION 4.06. Transfer Taxes....................................................................... B-37
SECTION 4.07. Use of Names......................................................................... B-38
SECTION 4.08. Insurance............................................................................ B-39
SECTION 4.09. Post-Closing Cooperation............................................................. B-39
SECTION 4.10. Bulk Transfer Laws................................................................... B-41
SECTION 4.11. Supplies............................................................................. B-41
SECTION 4.12. Certain Ancillary Agreements......................................................... B-41
SECTION 4.13. Intellectual Property Licenses....................................................... B-41
SECTION 4.14. Directors' and Officers' Indemnification............................................. B-43
SECTION 4.15. Distribution Agreement............................................................... B-44
SECTION 4.16. Local Agreements..................................................................... B-44
SECTION 4.17. NYSE Listing......................................................................... B-44
SECTION 4.18. Stockholder Approval; Proxy.......................................................... B-44
SECTION 4.19. New Board of Directors............................................................... B-45
SECTION 4.20. Subsequent Agreement Royalty......................................................... B-45
SECTION 4.21. Financial and Insurance Expertise.................................................... B-45
SECTION 4.22. Transfer of Intercompany Debts....................................................... B-46
SECTION 4.23. Supplemental Disclosure.............................................................. B-46
SECTION 4.24. Non-Competition and Related Matters.................................................. B-46
</TABLE>
B-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
ARTICLE V
<S> <C> <C>
CONDITIONS PRECEDENT
SECTION 5.01. Conditions to Each Party's Obligation................................................ B-49
SECTION 5.02. Conditions to the Obligation of Hexcel............................................... B-49
SECTION 5.03. Conditions to the Obligation of Ciba and CGC......................................... B-50
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
SECTION 6.01. Termination.......................................................................... B-51
SECTION 6.02. Amendments and Waivers............................................................... B-52
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. Indemnification by Ciba.............................................................. B-52
SECTION 7.02. Indemnification by Hexcel............................................................ B-52
SECTION 7.03. Losses Net of Insurance, etc......................................................... B-53
SECTION 7.04. Termination of Indemnification....................................................... B-53
SECTION 7.05. Indemnification Procedures........................................................... B-53
SECTION 7.06. Indemnification Procedures for Tax Claims; Tax Returns............................... B-54
SECTION 7.07. Adjustment to Transferred Business Consideration..................................... B-55
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Notices.............................................................................. B-55
SECTION 8.02. Interpretation....................................................................... B-56
SECTION 8.03. Nonsurvival of Representations and Warranties........................................ B-56
SECTION 8.04. Severability......................................................................... B-56
SECTION 8.05. Counterparts......................................................................... B-57
SECTION 8.06. Entire Agreement; No Third Party Beneficiaries....................................... B-57
SECTION 8.07. Governing Law........................................................................ B-57
SECTION 8.08. Consent to Jurisdiction.............................................................. B-57
SECTION 8.09. Publicity............................................................................ B-57
SECTION 8.10. Expenses............................................................................. B-57
SECTION 8.11. Assignment........................................................................... B-58
</TABLE>
B-3
<PAGE>
STRATEGIC ALLIANCE AGREEMENT dated as of September 29, 1995,
among CIBA-GEIGY LIMITED, a Swiss corporation ("Ciba"), CIBA-GEIGY
CORPORATION, a New York corporation and a wholly-owned subsidiary
of Ciba ("CGC"), and HEXCEL CORPORATION, a Delaware corporation
("Hexcel").
WHEREAS Ciba (directly and indirectly through its Subsidiaries) and Hexcel
are each engaged worldwide in the development, manufacture, marketing, sale and
distribution of composites, including structures and interiors, fabrics,
laminates, prepregs, adhesive films, honeycomb core, sandwich panels and
fabricated components (the "Business");
WHEREAS Ciba and Hexcel each would like to have a continuing interest in the
Business;
WHEREAS Ciba and Hexcel are aware of their respective and complementary
strengths in the Business and wish to enhance their respective businesses and
view a strategic alliance as an attractive opportunity;
WHEREAS Hexcel and Ciba will at the Closing (as defined below) enter into an
agreement in the form attached hereto as Exhibit A (the "Governance Agreement")
with respect to board representation, voting and other matters relating to the
relationship between Hexcel and Ciba following the Closing;
WHEREAS the capitalized terms used herein shall have the meanings specified
in Appendix A hereto.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
ESTABLISHMENT OF THE ALLIANCE
SECTION 1.01. CONTRIBUTION OF TRANSFERRED BUSINESS. (a) Upon the terms and
subject to the conditions of this Agreement, at the Closing Ciba and CGC shall
sell, assign, transfer, convey and deliver to Hexcel, in the manner set forth in
Section 2.02, and Hexcel shall purchase and accept from Ciba and CGC good, valid
and marketable title in and to the Contributed Shares, and all right, title and
interest of Ciba and/or any of its Subsidiaries in and to the other business,
properties, assets, goodwill and rights of Ciba and/or any of its Subsidiaries
of whatever kind and nature, real or personal, tangible or intangible (including
any identifiable and severable portions of the foregoing (financial assets being
deemed severable for purposes of this clause)), other than the Excluded Assets,
that are owned, held or used by Ciba and/or any of its Subsidiaries on the
Closing Date and that relate exclusively or primarily to, arise exclusively or
primarily out of or are used exclusively or primarily in connection with, the
Transferred Business, but, in the case of such assets that are severable, only
to the extent that such assets relate to, arise out of or are used in connection
with the Transferred Business (collectively, the "Acquired Assets"), in each
instance free and clear of any and all Liens and free of any and all other
limitations and restrictions (other than the shares of Brochier, the transfer of
which is subject to regulation by the Direction du Tresor and the approval of
the Departement de Securite in France) other than Permitted Liens. It is
understood and agreed that the following assets are deemed to relate exclusively
or primarily to, arise exclusively or primarily out of or be used exclusively or
primarily in connection with the Transferred Business:
(i) the Scheduled Real Property;
(ii) the Acquired Inventory;
(iii) the Acquired Equipment;
(iv) the Accounts Receivable;
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(v) the Acquired Intellectual Property;
(vi) the Acquired Permits;
(vii) the Acquired Contracts;
(viii) the Business Tax Returns;
(ix) the Contributed Shares (other than the Danutec Shares);
(x) 100% of the equity interest in Danutec (the "Danutec Equity"), if at
or prior to the Closing or the Danutec Closing, as the case may be, Ciba
and/or its Subsidiaries shall have acquired, pursuant to a Danutec
Agreement, the 49% of the Danutec Equity they do not currently own; and
(xi) the Books and Records.
(b) Notwithstanding anything herein to the contrary, from and after the
Closing, Ciba and each of its Subsidiaries shall retain all their respective
right, title and interest in and to, and there shall be excluded from the sale,
conveyance, assignment or transfer to Hexcel hereunder, and the Acquired Assets
shall not include, the following (collectively, the "Excluded Assets"):
(i) all rights of Ciba or its Subsidiaries (other than the Divested
Subsidiaries) under this Agreement, the Ancillary Agreements and any other
agreements, instruments and certificates delivered in connection with this
Agreement;
(ii) copies of all records prepared by Ciba and/or any of its
Subsidiaries and counsel and advisors thereto in connection with the sale of
the Acquired Assets contemplated hereby;
(iii) all rights, claims, demands and judgments to the extent relating
to, arising out of or used in connection with the Excluded Liabilities;
(iv) Ciba's Continuing Business;
(v) the Excluded Contracts;
(vi) any assets of any employee benefit plan of Ciba and/or its
Subsidiaries (other than the Divested Subsidiaries) except such assets of
employee benefit plans as are being transferred pursuant to the Employment
Matters Agreement or any other Ancillary Agreement;
(vii) the Income Tax Claims;
(viii) all Tax Returns of Ciba and/or any of its Subsidiaries (other than
the Business Tax Returns);
(ix) except as provided in Section 4.07, all rights to the Ciba
Tradenames or any variations, abbreviations, acronyms or derivations
thereof, including any such rights owned by or licensed to any Divested
Subsidiary;
(x) if the Danutec Equity is not transferred to Hexcel and/or its
designated Subsidiary or Subsidiaries at Closing, the Danutec Shares and the
business and assets of Danutec (until the Danutec Closing, if any, upon
consummation of which in accordance with this Agreement, the Danutec Equity
and the business and assets of Danutec shall be deemed to be Acquired
Assets);
(xi) the Deferred Assets (until the applicable Deferred Closing, upon
consummation of which in accordance with this Agreement and the Distribution
Agreement, the applicable Deferred Assets shall be deemed to be Acquired
Assets);
(xii) all assets and properties of Ciba UK (other than assets and
properties set forth on Schedule 1.01(b) hereto); and
(xiii) the Excluded Stock.
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SECTION 1.02. TRANSFERRED BUSINESS CONSIDERATION. In consideration of the
sale, assignment, transfer, conveyance and delivery to Hexcel of the Acquired
Assets, and in consideration of establishing an alliance with Ciba, (x) on the
Closing Date Hexcel shall assume the Assumed Liabilities, (y) in accordance with
Sections 1.04(a) and 2.02(b) on the Closing Date Hexcel shall pay and deliver or
cause to be paid and delivered to Ciba and CGC $25 million (the "Cash Price")
and the Hexcel Shares and (z) Hexcel shall deliver Subordinated Debt and, if
applicable, interest thereon, in each case, as provided in Section 2.04(g) (the
amounts in (y) and (z), together with Hexcel's assumption of the Assumed
Liabilities, being the "Transferred Business Consideration").
SECTION 1.03. ASSUMPTION OF CERTAIN LIABILITIES. (a) Upon the terms and
subject to the conditions of this Agreement, at the Closing, Hexcel shall assume
and shall pay, perform and discharge or cause to be paid, performed and
discharged when due, all liabilities or obligations whatsoever, whether arising
before or after the Closing and whether known or unknown, fixed or contingent
(including any identifiable and severable portions of the foregoing (financial
liabilities and obligations being deemed severable for purposes of this
clause)), other than Excluded Liabilities, relating exclusively or primarily to
or arising exclusively or primarily out of the Transferred Business or the
Acquired Assets, but, in the case of obligations or liabilities that are
severable, only to the extent such liabilities or obligations relate to or arise
out of the Transferred Business or the Acquired Assets (the "Assumed
Liabilities"). It is understood and agreed that the following liabilities and
obligations shall be deemed to relate exclusively or primarily to or arise
exclusively or primarily out of the Transferred Business or the Acquired Assets:
(i) all obligations and liabilities of Ciba or its Subsidiaries under
the Acquired Contracts;
(ii) the Accounts Payable;
(iii) all obligations and liabilities with respect to any and all
products sold or serviced (whether or not under warranty) by the Transferred
Business at any time, including obligations and liabilities for and with
respect to any refunds, adjustments, allowances, repairs, exchanges, returns
and warranty, merchantability, products liability (including with respect to
personal injury caused by the use or operation of products sold or serviced
by the Transferred Business) and other claims;
(iv) except as specifically provided otherwise in the UK Agreements, any
other Ancillary Agreement or a Danutec Agreement, all obligations and
liabilities arising as a result of Ciba or any of its past or present
Subsidiaries, or any predecessor in interest thereof, being the owner or
occupant of, or the operator of the activities conducted at, the Scheduled
Real Property sites at any time, including all obligations and liabilities
arising out of any Environmental Law (including those arising under CERCLA
or from off-site waste disposal from the Scheduled Real Property sites) and
all other obligations or liabilities relating to personal injury or property
damage involving the Scheduled Real Property sites;
(v) except as otherwise provided in the Employment Matters Agreement or
any other Ancillary Agreement, all obligations and liabilities relating to
employees of the Transferred Business;
(vi) the Other Tax Liabilities and, to the extent of the amount provided
or reserved for or accrued in the balance sheet of the Transferred Business
as of the Closing Date, the Income Tax Liabilities of the Divested
Subsidiaries (other than Danutec, if the Danutec Equity is not delivered to
Hexcel at Closing) (collectively, the "Assumed Tax Liabilities"); and
(vii) except as provided in any Ancillary Agreement or in Section
1.03(c), all other obligations of the Divested Subsidiaries (other than
Danutec, if the Danutec Equity is not delivered to Hexcel at Closing) of any
kind, whether arising before or after the Closing and whether known or
unknown, fixed or contingent.
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(b) Notwithstanding anything herein to the contrary, Hexcel shall have no
liability or obligation hereunder relating to or arising out of the following
liabilities and obligations of Ciba and its Subsidiaries, including, if
applicable, any such liabilities and obligations of the Divested Subsidiaries
(the "Excluded Liabilities"), all of which are excluded from the Assumed
Liabilities, shall not be assumed by Hexcel hereunder and shall remain the
liabilities and obligations of Ciba and its Subsidiaries (other than the
Divested Subsidiaries):
(i) any obligation or liability relating to or arising out of any of the
Excluded Assets to the extent such obligation or liability relates to the
Excluded Assets, or the realization of benefits of any of the Excluded
Assets;
(ii) the Income Tax Liabilities other than those described in Section
1.03(a)(vi) (the "Excluded Tax Liabilities");
(iii) any obligation or liability involving a claim for products
liability relating to or arising out of products of the Transferred Business
sold prior to the Closing to Ciba or its Subsidiaries, other than products
resold by Ciba or its Subsidiaries to third parties (including as a
component of another product);
(iv) any obligation or liability involving a claim for damages caused by
asbestos included in or used in the manufacture of products of the
Transferred Business that relates to or arises out of products sold or
manufactured prior to the Closing;
(v) any obligation or liability relating to or arising out of an event
occurring prior to the Closing Date for which Ciba or any of its
Subsidiaries has coverage under the following (i) AAV-- Policy #0015P-5883,
(ii) Lloyd's of London Policy #576-A7A1018, (iii) Winterthur Policy
#3095089, (iv) USAIG Policy #51HL2-1224 and (v) CIGNA--Policy #ATP014520;
(vi) all liabilities and obligations for which Ciba or CGC has expressly
assumed or retained responsibility pursuant to this Agreement or any
Ancillary Agreement;
(vii) all liabilities and obligations relating to the Satellite Personnel
(other than as provided in the Distribution Agreement); and
(viii) any obligations or liabilities relating to or arising out of any
employee benefit plan of Ciba and/or its Subsidiaries (other than the
Divested Subsidiaries) except such obligations or liabilities as are being
transferred pursuant to the Employment Matters Agreement or any Ancillary
Agreement.
(c) Notwithstanding anything herein (including Section 1.03(a)(vii)) or in
any agreement relating to the "hive-down" of assets and liabilities (including
agreements relating to the Duxford property transfer) by Ciba-Geigy PLC ("Ciba
UK") to Composite Materials Limited ("CML") (the "Hive Down Agreements"), (i)
the principles set forth in Section 1.03(a) and (b) as to the allocation of
particular liabilities among Assumed Liabilities and Excluded Liabilities shall
govern the allocation of liabilities between Ciba UK on the one hand and CML on
the other hand and (ii) any and all covenants contained herein that provide for
the taking of actions by the parties which are intended to give effect to the
allocation of liabilities among Assumed Liabilities and Excluded Liabilities
shall apply to the allocation of liabilities between Ciba UK on the one hand and
CML on the other hand.
SECTION 1.04. ALLOCATION OF TRANSFERRED BUSINESS
CONSIDERATION. (a) Schedule 1.04 sets forth the agreed upon allocation of the
consideration (the "Allocation Statement").
(b) The Allocation Statement shall be revised in accordance with applicable
law from time to time jointly by the parties hereto to reflect any adjustment of
the consideration (i) pursuant to Section 2.04, (ii) as a result of any Deferred
Closing or the Danutec Closing or (iii) for Tax purposes.
(c) Hexcel and CGC shall treat the acquisition of Acquired Assets, including
when applicable the Deferred Assets and the Danutec Equity, as an "applicable
asset acquisition" under Section 1060 of
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the Code. CGC shall prepare Form 8594 under Section 1060 of the Code relating to
the transactions contemplated by this Agreement based on the Allocation
Statement. Hexcel and CGC shall file, or cause the filing of, such Form with
each relevant Taxing Authority.
(d) Hexcel and Ciba and their respective Subsidiaries shall file and cause
to be filed all Tax Returns, and execute such other documents as may be required
by any Taxing Authority, in a manner consistent with the Allocation Statement as
revised from time to time and shall refrain from taking any position
inconsistent with the Allocation Statement as revised from time to time with any
Taxing Authority.
ARTICLE II
THE CLOSINGS
SECTION 2.01. CLOSING. The closing of the sale and transfer of the
Acquired Assets and the other transactions contemplated hereby (other than the
transactions contemplated to occur at any Deferred Closing or the Danutec
Closing) (herein referred to as the "Closing") shall take place at the offices
of Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, New
York 10019, at 10:00 a.m. on the second business day following the satisfaction
or waiver of the conditions set forth in Article V, or at such other time, date
and place as shall be fixed by agreement among the parties hereto.
SECTION 2.02. TRANSACTIONS TO BE EFFECTED AT THE CLOSING. At the Closing:
(a) Ciba and/or its Subsidiaries shall deliver to Hexcel or its designated
Subsidiary or Subsidiaries, in a manner to be agreed upon by the parties in good
faith prior to Closing, (i) such appropriately executed and acknowledged (if
necessary) deeds as to real property substantially in the form attached hereto
as Exhibit E ("Real Property Deeds"), bills of sale, assignments and other
instruments of transfer relating to the Acquired Assets in form and substance
(x) as to real property, suitable for filing or recordation and (y) in each
case, otherwise reasonably satisfactory to Hexcel and its counsel, (ii) a duly
executed copy of each Ancillary Agreement and (iii) such other documents as
Hexcel or its counsel may reasonably request to demonstrate satisfaction or
waiver of the conditions and compliance with the agreements set forth in this
Agreement or as a condition to the issuance of owner's title insurance policies
(with exceptions for the Permitted Liens) to be obtained by Hexcel with respect
to the fee-owned Scheduled Real Property; and
(b) Hexcel shall deliver to Ciba or its designated Subsidiary or
Subsidiaries, in a manner to be agreed upon by the parties in good faith prior
to Closing, (i) the Transferred Business Consideration (other than the
Subordinated Debt, which shall be delivered in accordance with Section 2.04(g)
and allocated in accordance with Section 1.04), including the Cash Price, which
shall be delivered by wire transfer in immediately available funds to an account
or accounts designated in writing by Ciba at least two business days prior to
the Closing Date, which Transferred Business Consideration shall be allocated in
accordance with Section 1.04, (ii) a duly executed copy of each Ancillary
Agreement and (iii) such other documents as Ciba or its counsel may reasonably
request to demonstrate satisfaction or waiver of the conditions and compliance
with the agreements set forth in this Agreement.
(c) No later than 60 business days prior to Closing, Hexcel shall designate
which Trademarks or Patents that are Acquired Intellectual Property with respect
to which Hexcel wishes requisite filings to be made to record transfer with
Governmental Entities in the United States at or prior to Closing, and within 60
days after Closing Hexcel shall designate any Trademarks or Patents that are
Acquired Intellectual Property with respect to which Hexcel wishes requisite
filings to be made to record transfer with Governmental Entities, and Ciba shall
prepare all necessary documents in connection therewith and shall promptly make
all such filings; PROVIDED, HOWEVER, that in each case Hexcel shall pay all
transfer taxes and filing fees in connection therewith.
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SECTION 2.03. THE DEFERRED CLOSINGS. (a) The closings of the sale and
transfer of the Deferred Assets (the "Deferred Closings") shall take place at
the offices of Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New
York, New York 10019, at 10:00 a.m., in each case, on the earlier of (x) the
fifth business day following the delivery by Hexcel of notice of its intention
to purchase any of the Deferred Assets as provided in the Distribution
Agreement, or (y) the date of termination of the Distribution Agreement as to
any of the Deferred Assets, or at such other time, date and place as shall be
fixed by agreement among the parties hereto.
(b) At each Deferred Closing, Ciba and/or its Subsidiaries shall deliver to
Hexcel, in a manner to be agreed upon by the parties in good faith prior to each
such Deferred Closing, (i) such appropriately executed and acknowledged (if
necessary) real property deeds (with respect to South African real property) in
form and substance reasonably satisfactory to the parties hereto, bills of sale,
assignments and other instruments of transfer relating to the applicable
Deferred Assets in form and substance (x) as to real property, suitable for
filing or recordation and (y) in each case, otherwise reasonably satisfactory to
Hexcel and its counsel and (ii) such other documents as Hexcel or its counsel
may reasonably request to demonstrate satisfaction or waiver of the conditions
and compliance with the agreements set forth in this Agreement and the
Distribution Agreement or as a condition to the issuance of owner's title
insurance policies (with exceptions for Permitted Liens) obtained by Hexcel with
respect to the South African real property.
(c) At each Deferred Closing, Hexcel shall deliver to Ciba or its designated
Subsidiary or Subsidiaries, (i) an undertaking to pay the applicable Deferred
Consideration in additional Subordinated Debt on the earlier of (x) the first
anniversary of the Closing Date or (y) the date of the final sale and transfer
of Deferred Assets under the Distribution Agreement (the "Deferred Consideration
Payment Date"), which Deferred Consideration shall be allocated in accordance
with Section 1.04 and (ii) such other documents as Ciba or its counsel may
reasonably request to demonstrate satisfaction or waiver of the conditions and
compliance with the agreements set forth in this Agreement and the Distribution
Agreement.
(d) At each Deferred Closing, Hexcel shall assume any and all obligations
and liabilities (including any identifiable and severable portions of the
foregoing (financial liabilities and obligations being deemed severable for
purposes of this clause) relating exclusively or primarily to or arising
exclusively or primarily out of the applicable Deferred Assets, but, in the case
of such obligations or liabilities that are severable, only to the extent such
obligations or liabilities relate to such Deferred Assets, and all such
obligations and liabilities shall immediately thereafter be deemed to constitute
Assumed Liabilities for the purposes of this Agreement.
(e) On the Deferred Consideration Payment Date, Hexcel shall deliver to Ciba
or its designated Subsidiary or Subsidiaries Subordinated Debt in aggregate
principal amount equal to the aggregate amount of Deferred Consideration payable
in respect of all Deferred Closings (including any Deferred Closing occurring on
or before the Deferred Consideration Payment Date) as evidenced by the
undertakings referred to in Section 2.03(c), which Subordinated Debt shall bear
interest from the Deferred Consideration Payment Date.
SECTION 2.04. PRINCIPAL AMOUNT OF SUBORDINATED DEBT. (a) (i) Within 75
days after the Closing Date, Ciba shall prepare and deliver to Hexcel a
statement (the "Ciba Statement"), certified by a duly authorized signatory of
Ciba, setting forth (A) the components of Working Capital (as defined below)
immediately prior to the Closing ("Closing Working Capital") of the Transferred
Business, in no less detail than, and determined in accordance with U.S. GAAP
applied on a basis consistent with, the balance sheet of the Transferred
Business as of June 30, 1995 included in Schedule 3.01(c) (the "Balance Sheet"),
(B) if the Danutec Equity is delivered to Hexcel at Closing, the total
consideration paid by Ciba and its Subsidiaries for equity securities of Danutec
purchased after the date hereof and on or prior to the Closing Date pursuant to
a Danutec Agreement (the "Danutec Price"), (C) the amounts as of the Closing
corresponding to individual items set forth on Schedule 2.04(a1), increases
after June 30, 1995 in reserves relating to Assumed Tax Liabilities (other than
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deferred Tax liabilities) for taxable periods ending on or prior to December 31,
1994) and any other reserves for non-operating liabilities that would represent
future cash expenses of the Transferred Business, all as would be properly
reflected on the balance sheet of the Transferred Business as of the Closing
Date prepared in accordance with U.S. GAAP on a basis consistent with the
Balance Sheet (the "Ciba Closing Items"), (D) the amount of Taxes with respect
to the Transferred Business paid by Ciba or its Subsidiaries prior to the
Closing that, absent the Closing, would have been payable after the Closing
("Prepaid Taxes"), (E) the book value on the Closing Date of the Deferred Assets
that are Current Assets and the book value of Current Liabilities relating
thereto and (F) a certificate of Ciba that the Ciba Statement has been prepared
in compliance with the requirements of this Section 2.04. Schedule 2.04(a2) sets
forth the proper calculation of Working Capital of the Transferred Business as
of the date of the Balance Sheet determined in accordance with this Section
2.04.
(ii) Hexcel shall cooperate with Ciba in connection with the preparation
of the Ciba Statement and shall, to the extent reasonably requested by Ciba,
provide Ciba and its advisors access during normal business hours to the
personnel, properties, books and records of Hexcel and its Subsidiaries
relating to the Transferred Business for such purpose; PROVIDED, HOWEVER,
that Ciba shall have the primary responsibility and authority for preparing
the Ciba Statement.
(iii) During the thirty-day period following Hexcel's receipt of the
Ciba Statement, Hexcel and its advisors shall be permitted to review the
working papers relating to the Ciba Statement. Ciba shall and shall cause
its advisors to cooperate with Hexcel and Hexcel's advisors in connection
with such review. The Ciba Statement shall become final and binding upon the
parties on the thirtieth day following delivery thereof, unless Hexcel gives
written notice of its disagreement with the Ciba Statement ("Hexcel Notice
of Disagreement") to Ciba prior to such date. Any Hexcel Notice of
Disagreement shall (A) specify in reasonable detail the nature of any
disagreement so asserted and (B) be accompanied by a certificate of Hexcel
that it has complied with the covenants set forth in this Section 2.04. If a
Hexcel Notice of Disagreement is received by Ciba in a timely manner, then
the Ciba Statement (as revised in accordance with clause (I) or (II) below)
shall become final and binding upon Ciba and Hexcel on the earlier of (I)
the date Ciba and Hexcel resolve in writing any differences they have with
respect to the matters specified in the Hexcel Notice of Disagreement or
(II) the date any disputed matters are finally resolved in writing by the
Accounting Firm (as defined below).
(b) (i) Within 75 days after the Closing Date, Hexcel shall prepare and
deliver to Ciba a statement (the "Hexcel Statement"), certified by an officer of
Hexcel, setting forth (A) the components of Closing Working Capital of Hexcel in
no less detail than, and determined in accordance with U.S. GAAP applied on a
basis consistent with, the balance sheet of Hexcel as of July 2, 1995 included
in Hexcel's quarterly report on Form 10-Q for the quarter ended July 2, 1995
(the "Hexcel Balance Sheet"), (B) the amounts as of the Closing Date
corresponding to individual items set forth in Schedule 2.04(b1), increases
after June 30, 1995 in reserves for Taxes (other than deferred Tax liabilities)
relating to taxable periods ending on or prior to December 31, 1994 and any
other reserves for non-operating liabilities that would represent future cash
expenses of Hexcel, all as would be properly reflected on the balance sheet of
Hexcel as of the Closing Date prepared in accordance with U.S. GAAP on a basis
consistent with the Hexcel Balance Sheet (the "Hexcel Closing Items"), (C) the
amount of Transfer Taxes paid by Hexcel pursuant to Section 4.06 (directly or by
reimbursement to Ciba) on or prior to the Closing Date and (D) a certificate of
Hexcel that the Hexcel Statement has been prepared in compliance with the
requirements of this Section 2.04. Schedule 2.04(b2) sets forth the proper
calculation of Working Capital of Hexcel as of the date of the Hexcel Balance
Sheet determined in accordance with this Section 2.04.
(ii) During the thirty-day period following Ciba's receipt of the Hexcel
Statement, Ciba and its advisors shall be permitted to review the working
papers relating to the Hexcel Statement. Hexcel shall and shall cause its
advisors to cooperate with Ciba and Ciba's advisors in connection with such
review. The Hexcel Statement shall become final and binding upon the parties
on the thirtieth day following delivery thereof, unless Ciba gives written
notice of its disagreement with
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the Hexcel Statement ("Ciba Notice of Disagreement") to Hexcel prior to such
date. Any Ciba Notice of Disagreement shall (A) specify in reasonable detail
the nature of any disagreement so asserted and (B) be accompanied by a
certificate of Ciba that it has complied with the covenants set forth in
this Section 2.04. If a Ciba Notice of Disagreement is received by Hexcel in
a timely manner, then the Hexcel Statement (as revised in accordance with
clause (I) or (II) below) shall become final and binding upon Hexcel and
Ciba on the earlier of (I) the date Ciba and Hexcel resolve in writing any
differences they have with respect to the matters specified in the Ciba
Notice of Disagreement or (II) the date any disputed matters are finally
resolved in writing by the Accounting Firm (as defined below).
(c) During the thirty-day period following the delivery of a Hexcel or Ciba
Notice of Disagreement, Hexcel and Ciba shall seek in good faith to resolve in
writing any differences which they may have with respect to the matters
specified in such Notice of Disagreement. During such period each of Hexcel or
Ciba, as the case may be, and its advisors shall have access to the working
papers of the other party and its advisors prepared in connection with such
Notice of Disagreement. At the end of such thirty-day period, Hexcel and Ciba
shall each submit, in the form of a written brief, any and all matters that
remain in dispute and that were properly included in such Notice of Disagreement
to such nationally recognized independent public accounting firm (the
"Accounting Firm") as shall be agreed upon by the parties hereto in writing for
final and binding review and resolution. Hexcel and Ciba shall jointly request
that the arbitration be conducted in accordance with procedures established by
the Accounting Firm. Hexcel and Ciba agree that judgment may be entered upon the
determination of the Accounting Firm in any court having jurisdiction over the
party against which such determination is to be enforced. The cost of such
review and resolution (including the fees and expenses of the Accounting Firm
and reasonable attorneys' and accountants' fees and expenses of the parties)
pursuant to this Section 2.04 shall be borne by Hexcel and Ciba in inverse
proportion as they may prevail on the merits of the matters resolved by the
Accounting Firm, which proportionate allocations shall also be determined by the
Accounting Firm at the time the determination of the Accounting Firm is rendered
thereon. Except as set forth in the immediately preceding sentence, the parties
shall bear their own costs and expenses (including attorneys' and accountants'
fees and expenses) in connection with the matters contemplated by this Section
2.04.
(d) The principal amount of the Subordinated Debt shall be $48,029,000
adjusted as follows:
(i) if the Danutec Equity is delivered to Hexcel at Closing, the
principal amount shall be increased by an amount equal to (x) the Danutec
Price if the Danutec Price is $7 million or less, (y) $7 million plus 50% of
the amount by which the Danutec Price exceeds $7 million if the Danutec
Price does not exceed $11 million or (z) $9 million if the Danutec Price
exceeds $11 million (the amount of such increase being hereinafter referred
to as the "Danutec Amount");
(ii) the principal amount shall be decreased or increased, as the case
may be, by an amount equal to the amount by which the Closing Working
Capital of Hexcel exceeds or is less than, as the case may be, the Working
Capital of Hexcel reflected on the Hexcel Balance Sheet;
(iii) the principal amount shall be increased or decreased, as the case
may be, by an amount equal to the amount by which the Closing Working
Capital of the Transferred Business exceeds or is less than, as the case may
be, the Working Capital of the Transferred Business reflected on the Balance
Sheet;
(iv) the principal amount shall be decreased by the net book value of the
Deferred Assets that are set forth in the Ciba Statement plus $457,500;
(v) to the extent any amount of Prepaid Taxes is not included as a
Current Asset (as defined below) in the calculation of Closing Working
Capital of the Transferred Business, the principal amount shall be increased
by an amount equal to the amount of such Prepaid Taxes;
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(vi) to the extent any amount of Transfer Taxes paid by Hexcel pursuant
to Section 4.06 (directly or by reimbursement to Ciba) on or prior to the
Closing Date is not included as a Current Asset in the calculation of
Closing Working Capital of Hexcel, the principal amount shall be decreased
by an amount equal to such Transfer Taxes; and
(vii) the principal amount shall be increased by the amount, if any, by
which the result of subtracting the total amount of Ciba Closing Items from
the total amount of Hexcel Closing Items exceeds $83,029,000 or shall be
decreased by the amount, if any, by which $83,029,000 exceeds such result.
(e) The term "Working Capital" shall mean Current Assets minus Current
Liabilities. The terms "Current Assets" and "Current Liabilities" shall mean the
current assets and current liabilities (other than any such assets or
liabilities that are included in the adjustment required by 2.04(d)(vii)),
respectively, of Hexcel or the Transferred Business, as the case may be,
calculated in accordance with U.S. GAAP on a basis consistent with (x) in the
case of the Transferred Business, the Balance Sheet and (y) in the case of
Hexcel, the Hexcel Balance Sheet; PROVIDED, (i) Current Assets and Current
Liabilities of the Transferred Business shall not include any amounts in respect
of Excluded Tax Assets or Excluded Tax Liabilities and (ii) for purposes of
calculating Working Capital of the Transferred Business as of the date of the
Balance Sheet, cash, cash equivalents and marketable securities shall be deemed
to be zero; PROVIDED FURTHER that, if the Danutec Equity is not delivered to
Hexcel at the Closing, no amounts relating to Danutec shall be included in any
component of Closing Working Capital of the Transferred Business or Working
Capital of the Transferred Business on the date of the Balance Sheet. The
parties agree that the adjustment regarding Working Capital contemplated by this
Section 2.04 is intended to show the change in Working Capital from the dates of
the Balance Sheet and Hexcel Balance Sheet to the Closing Date, and that such
change can only be measured if each calculation is done in the same way, using
the same methods, at both dates. Accordingly, in the event that the resolution
of any dispute relating to the calculation of any component of Working Capital
as of any particular date results in a change in the way that, or the method by
which, such component of Working Capital was calculated, a corresponding change
shall be made in the way that, or the method by which, such component of Working
Capital is calculated as of any other date.
(f) Except as required by applicable law or U.S. GAAP, Hexcel agrees that
following the Closing and until the final resolution of the principal amount of
the Subordinated Debt pursuant hereto it shall not take any actions with respect
to the accounting books and records of the Transferred Business that are not
consistent with the past practices of the Transferred Business that would have
any effect on the determination or verification of the determination of the
principal amount of the Subordinated Debt. Without limiting the generality of
the foregoing, except as required by applicable law or U.S. GAAP, no changes
shall be made in any reserve or other account existing as of the date of the
Balance Sheet except as a result of events occurring after the date of the
Balance Sheet and, in such event, only in a manner consistent with past
practices. In the event that Hexcel is required under applicable law or U.S.
GAAP to take such an action or make such a change that affects either the
Balance Sheet or the Ciba Closing Statement, as the case may be, a corresponding
adjustment shall be made in the other.
(g) Hexcel shall, within 2 business days after the Hexcel Statement and the
Ciba Statement become final and binding on the parties, issue and deliver to
Ciba and/or its Subsidiaries an aggregate principal amount of Subordinated Debt
calculated in accordance with Section 2.04(d) and bearing interest accruing from
the Closing Date (which interest shall be paid in cash to the extent that any
interest payment date with respect to such Subordinated Debt has passed).
SECTION 2.05. DANUTEC. (a) If Ciba does not deliver the Danutec Equity to
Hexcel and/or its designated Subsidiary or Subsidiaries at Closing, Ciba shall
either (x) prior to the first anniversary of the Closing Date, deliver the
Danutec Equity to Hexcel at the Danutec Closing (as defined below) or (y) on the
first anniversary of the Closing Date, pay $11 million to Hexcel in immediately
available
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funds by wire transfer to an account or accounts designated by Hexcel at least
two business days prior to the first anniversary of the Closing, together with
interest thereon from the Closing Date through the first anniversary of the
Closing Date at the applicable interest rate in effect from time to time under
the Indenture.
(b) If Ciba does not deliver the Danutec Equity to Hexcel at Closing but
consummates a transaction pursuant to a Danutec Agreement, the closing of the
sale and transfer of the Danutec Equity to Hexcel (the "Danutec Closing") shall
take place at the offices of a notary public mutually acceptable to the parties
in Vienna, Austria on the fifth business day following (i) the consummation of
such Danutec Agreement if no pre-merger notification is filed under the Austrian
Cartel Act, (ii) receipt of a confirmation from the Austrian Cartel Court
resulting in a clearance of the transaction if a pre-merger notification is
filed under the Austrian Cartel Act or (iii) at such other time, date and place
as shall be fixed by agreement among the parties.
(c) At the Danutec Closing, Ciba and Hexcel shall execute and deliver (i)
the notarial deed required under Austrian law for the transfer of the Danutec
Equity to Hexcel and (ii) such other documents as Hexcel and its counsel may
reasonably request to demonstrate satisfaction or waiver of the conditions and
compliance with the agreements set forth herein, in each case, in form and
substance reasonably satisfactory to Hexcel and its counsel.
(d) At the Danutec Closing, Hexcel shall deliver to Ciba or its designated
Subsidiary or Subsidiaries (i) Subordinated Debt in an aggregate principal
amount equal to the Danutec Amount and bearing interest from the date of the
Danutec Closing, which amount shall be allocated in accordance with Section
1.04, and (ii) such documents, in form and substance reasonably satisfactory to
Ciba and its counsel, as Ciba and its counsel shall reasonably request to
demonstrate satisfaction or waiver of the conditions and compliance with the
agreements set forth herein.
(e) At the Danutec Closing, Hexcel shall assume any and all obligations and
liabilities (other than Excluded Liabilities) relating to Danutec which are of
the sort that would have been Assumed Liabilities had the Danutec Equity been
delivered to Hexcel at Closing, whether or not such liabilities or obligations
existed at Closing.
(f) If, following the Danutec Closing, any environmental remediation is
determined to be reasonably necessary (after good faith consultation with Ciba)
(i) with respect to any Danutec property as a result of events occurring prior
to the Danutec Closing or (ii) with respect to any property as a result of the
operations of Danutec prior to the Danutec Closing, Ciba's sole obligation with
respect to such remediation shall be to pay Hexcel an amount equal to 50% of the
first $2.5 million of costs incurred by Danutec in connection with all such
remediation, notwithstanding that such costs are Assumed Liabilities hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF CIBA. Ciba and CGC (with
respect to themselves and, where applicable, the Subsidiaries of Ciba) hereby
represent and warrant to Hexcel as follows:
(a) ORGANIZATION, STANDING AND POWER; STRUCTURE. (i) NON-U.S. Each of Ciba,
the Divested Subsidiaries and any other non-U.S. Subsidiary of Ciba that owns
Acquired Assets or Deferred Assets or that conducts the Transferred Business is
a legal entity duly organized, validly existing and, where applicable, in good
standing under the laws of the jurisdiction in which it is organized, has the
requisite power and authority and all material governmental licenses,
authorizations, consents and approvals required to own the Acquired Assets
and/or the Deferred Assets owned by it and to carry on the operations of the
Transferred Business as now being conducted by it and is duly qualified to do
business as a foreign corporation and, where applicable, is in good standing in
each jurisdiction in which the character of the property owned or leased by it
or the nature of its activities
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make such qualification necessary, except for those jurisdictions in which the
failure to be so qualified would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Ciba has heretofore
made available to Hexcel true and complete copies of the respective certificate
of incorporation and by-laws (or similar organizational documents) of Ciba and
each Divested Subsidiary, in each case as amended through the date of this
Agreement. Such organizational documents are in full force and effect, and no
other organizational documents are applicable to or binding on such entities.
None of such entities is in violation of any provision of its certificate of
incorporation or by-laws (or similar organizational documents).
(ii) U.S. CGC is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York, has the requisite
corporate power and authority and all material governmental licenses,
authorizations, consents and approvals required to own the Acquired Assets
owned by it and to carry on the operations of the Transferred Business as
now being conducted by it and is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character
of the property owned or leased by it or the nature of the activities make
such qualification necessary, except for those jurisdictions in which
failure to be so qualified would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. CGC has heretofore
made available to Hexcel true and complete copies of its certificate of
incorporation and by-laws, as amended through the date of this Agreement.
Such organizational documents are in full force and effect, and no other
organizational documents are applicable to or binding on CGC. CGC is not in
violation of any provision of its certificate of incorporation or by-laws.
(iii) Schedule 3.01(a) sets forth (x) for Ciba, CGC, each Divested
Subsidiary and each other Subsidiary of Ciba that owns Acquired Assets or
Deferred Assets or that conducts the Transferred Business, the countries in
which such entity manufactures products or retains employees, sales
representatives or distributors that are part of the Transferred Business,
and, for each such country, a brief description of the nature of those
activities and the approximate number on the date hereof of such entity's
employees that are employees of the Transferred Business and (y) for each
Excluded Jurisdiction, a brief description of the nature of the activities
related to the Deferred Assets located in such jurisdiction and the
approximate number on the date hereof of employees engaged exclusively or
primarily in such activities ("Satellite Personnel").
(b) AUTHORITY. (i) NON-U.S. Ciba and, to the extent applicable, each of its
Subsidiaries has all requisite power and authority to execute each of this
Agreement and the Ancillary Agreements and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all requisite action on the part of Ciba and, to the extent
applicable, each of its Subsidiaries, and the execution and delivery of the
Ancillary Agreements and the consummation of the transactions contemplated
thereby will be authorized by all necessary corporate action on the part of Ciba
and, to the extent applicable, each of its Subsidiaries prior to the Closing,
and do not and will not require the approval of the stockholders of Ciba or any
of its Subsidiaries, other than such approvals as have heretofore been obtained.
This Agreement has been duly executed and delivered by Ciba and constitutes, and
each Ancillary Agreement when duly executed and delivered by Ciba and, to the
extent applicable, any of its Subsidiaries will constitute, legal, valid and
binding obligations of Ciba and, to the extent applicable, any such Subsidiary
enforceable against each of them in accordance with their respective terms
(subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other similar laws affecting creditors' rights
generally from time to time in effect, and subject, as to enforceability, to
general principles of equity regardless of whether such enforceability is
considered in a proceeding in equity or at law). Except as set forth on Schedule
3.01(b), none of Ciba or any of its Subsidiaries is a party to, bound by or
subject to any agreement or restriction that would materially restrict or impede
Hexcel from exercising its full rights under, and enjoying the full benefits
contemplated by, this Agreement and the Ancillary Agreements. The execution and
delivery by Ciba of this Agreement do not, and the execution and delivery by
Ciba and, to the extent applicable,
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any of its Subsidiaries of the other Ancillary Agreements will not, and the
consummation by Ciba and its Subsidiaries of the transactions contemplated
hereby and thereby and the compliance by Ciba and its Subsidiaries with the
terms hereof and thereof will not, (i) violate any law, judgment, order, decree,
statute, ordinance, rule or regulation applicable to Ciba or any of its
Subsidiaries, (ii) conflict with any provision of Ciba's or any of its
Subsidiaries' certificate of incorporation or by-laws (or similar organizational
documents), (iii) except as set forth on Schedule 3.01(b), conflict with or
result in the breach or termination of any provision of or constitute a default
(with or without the giving of notice or the lapse of time or both) under, or
require any consent under or give rise to any right of termination, cancellation
or acceleration or the loss of any benefit under any Contract to which any of
them is a party or by which any of them or any of their respective assets or
properties is bound, (iv) except as set forth on Schedule 3.01(b), require any
consent, approval, order, authorization or other action of, or the registration,
declaration or filing with, any Governmental Entity or any other Person or (v)
except as set forth on Schedule 3.01(b), result in the creation or imposition of
any Lien on any of their respective properties or assets other than, in the case
of clauses (i), (iii), (iv) and (v), any such conflicts, violations or Liens,
the existence of which or consents the lack of which could not reasonably be
expected to (x) have a Material Adverse Effect, (y) prevent the consummation of
any of the transactions contemplated by this Agreement and the Ancillary
Agreements or (z) materially impair Ciba's or, to the extent applicable, any of
its Subsidiaries' ability to perform its obligations under this Agreement or any
Ancillary Agreement, except (A) for the filing of a premerger notification and
report form by Ciba under the HSR Act and any filings required pursuant to
applicable antitrust and competition law statutes and regulations in each of the
Applicable Jurisdictions, (B) for compliance with and filings under Section
13(d) of the Exchange Act, (C) for the filing of a notice pursuant to the
Exon-Florio Amendment, (D) the consent of the Departement de Securite pursuant
to the Demande d'Autorisation with the Direction du Tresor in France, and (E) as
otherwise set forth on Schedule 3.01(b).
(ii) U.S. CGC has all corporate power and authority to execute each of
this Agreement and the Ancillary Agreements and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Employment Matters Agreement and the consummation of
the transactions contemplated hereby and thereby have been duly authorized
by all necessary corporate action on the part of CGC, and the execution and
delivery of the other Ancillary Agreements and the consummation of the
transactions contemplated thereby will be authorized by all necessary
corporate action on the part of CGC prior to the Closing, and do not and
will not require the approval of the stockholder of CGC, other than such
approvals as have heretofore been obtained. This Agreement and the
Employment Matters Agreement have been duly executed and delivered by CGC
and constitute, and each other Ancillary Agreement when duly executed and
delivered by CGC will constitute, legal, valid and binding obligations of
CGC enforceable against it in accordance with their respective terms
(subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other similar laws affecting creditors'
rights generally from time to time in effect, and subject, as to
enforceability, to general principles of equity regardless of whether such
enforceability is considered in a proceeding in equity or at law). Except as
set forth on Schedule 3.01(b), CGC is not a party to, bound by or subject to
any agreement or restriction that would materially restrict or impede Hexcel
from exercising its full rights under, and enjoying the full benefits
contemplated by, this Agreement and the Ancillary Agreements. The execution
and delivery by CGC of this Agreement and the Employment Matters Agreement
do not, and the execution and delivery by CGC of the other Ancillary
Agreements to which it will be a party will not, and the consummation by CGC
of the transactions contemplated hereby and thereby and the compliance by
CGC with the terms hereof and thereof will not, (i) violate any law,
judgment, order, decree, statute, ordinance, rule or regulation applicable
to CGC, (ii) conflict with any provision of CGC's certificate of
incorporation or by-laws, (iii) except as set forth on Schedule 3.01(b),
conflict with or result in the breach or termination of any provision of or
constitute a default (with or without the giving of notice or the lapse of
time or both) under, or require any consent under or give rise to any right
of termination,
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cancellation or acceleration or the loss of any benefit under any Contract
to which it is a party or by which it or any of its assets or properties is
bound, (iv) except as set forth on Schedule 3.01(b), require any consent,
approval, order, authorization or other action of, or the registration,
declaration or filing with, any Governmental Entity or any other Person or
(v) except as set forth on Schedule 3.01(b), result in the creation of any
Lien on any of the properties or assets of CGC, other than, in the case of
clauses (i), (iii), (iv) and (v), any such conflicts, violations or Liens,
the existence of which or consents the lack of which could not reasonably be
expected to (x) have a Material Adverse Effect, (y) prevent the consummation
of any of the transactions contemplated by this Agreement and the Ancillary
Agreements or (z) materially impair CGC's ability to perform its obligations
under this Agreement or any Ancillary Agreement, except (A) for the filing
of a premerger notification and report form by Ciba under the HSR Act and
any filings required pursuant to applicable antitrust and competition law
statutes and regulations in each of the Applicable Jurisdictions, (B) for
compliance with and filings under Section 13(d) of the Exchange Act, (C) for
the filing of a notice pursuant to the Exon-Florio Amendment, (D) for the
consent of the Departement de Securite pursuant to the Demande
d'Autorisation with the Direction du Tresor in France, and (E) as otherwise
set forth on Schedule 3.01(b).
(c) FINANCIAL INFORMATION; UNDISCLOSED LIABILITIES. The financial
statements of the Transferred Business, including the notes thereto (except, in
the case of unaudited quarterly statements, as would be permitted for use on
Form 10-Q), which are attached as Schedule 3.01(c) hereto (the "Financial
Statements"), have been prepared in accordance with U.S. GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present the consolidated financial position of the
Transferred Business as of the dates thereof and the consolidated results of
operations of the Transferred Business for the periods then ended (subject, in
the case of any unaudited statements, to normal year-end audit adjustments).
Except as set forth on the Balance Sheet, the Transferred Business has no
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise), other than liabilities and obligations incurred in the ordinary
course of business and consistent with past practice since the date of the
Balance Sheet that, individually or in the aggregate, have not had and would not
reasonably be expected to have a Material Adverse Effect.
(d) COMPLIANCE WITH APPLICABLE LAWS. Each of Ciba and each of its
Subsidiaries has complied, and except as set forth on Schedule 3.01(h)(1) all
the Scheduled Real Property is in compliance, with all laws, regulations, rules,
orders, statutes, ordinances, Permits and authorizations of all Governmental
Entities applicable to it which relate to the Transferred Business, except where
the failure to so comply would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect and, except as set forth in
Schedule 3.01(d), neither Ciba nor any of its Subsidiaries has received any
written notice of any such failure to so comply. Neither Ciba nor any of its
Subsidiaries has received any written notice that any investigation or review by
any Governmental Entity with respect to or otherwise relating to the Transferred
Business is pending or that any such investigation or review is contemplated,
except where the outcome of such investigation or review would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
This paragraph (d) does not relate to Tax laws, laws relating to employee
benefits and Environmental Laws for which Section 3.01(m), the Employment
Matters Agreement and Section 3.01(w) and Section 3.01(n), respectively, are
applicable in lieu of this paragraph (d).
(e) LITIGATION; DECREES. Schedule 3.01(e) sets forth a list of certain
lawsuits, claims, actions, investigations and proceedings. Except as set forth
in Schedule 3.01(e), there is no suit, claim, action, investigation or
proceeding pending or, to the knowledge of Ciba or any of its Subsidiaries,
threatened against Ciba or any of its Subsidiaries that (i) if adversely
determined would, individually or in the aggregate, be reasonably likely to
result in a Material Adverse Effect, (ii) in any manner challenges or seeks to
enjoin, prevent, alter or materially delay the transactions contemplated hereby
or (iii) alleges criminal action or inaction with respect to the Transferred
Business, the Acquired Assets or the Deferred Assets. Neither Ciba nor any of
its Subsidiaries is bound by or subject to any judgment, order,
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injunction, rule, decree, writ, determination or award of any Governmental
Entity or arbitrator having, or which, individually or in the aggregate, have or
would reasonably be expected to have, a Material Adverse Effect or which would
prevent, alter or materially delay the transactions contemplated hereby.
(f) CONTRIBUTED SHARES. Except for the Austrian Shares Contract, the
Contributed Shares are owned by Ciba, free and clear of any and all Liens and
free of any and all other limitations or restrictions and Ciba has sufficient
power and right to sell, assign, transfer, convey and deliver the Contributed
Shares to Hexcel, free and clear of any and all Liens and free of any and all
other limitations or restrictions (other than the shares of Brochier, the
transfer of which is subject to regulation by the Direction du Tresor and the
approval of the Departement de Securite in France). The Contributed Shares are
duly authorized, validly issued and outstanding, fully paid and nonassessable,
and were not issued in violation of any preemptive or other right of any person
to acquire such securities. Except for the interest in Danutec owned by PCD
Polymere Gesellschaft m.b.H., the Contributed Shares constitute all the capital
stock of or other equity interests in the Divested Subsidiaries. Except for the
right to purchase the Danutec Shares or wind up Danutec pursuant to the Austrian
Shares Contract, there are no (i) securities of Ciba or any of its Subsidiaries
or affiliates convertible into or exchangeable for capital stock of, other
voting securities of or other equity interests in any Divested Subsidiary or
(ii) securities, options, warrants, calls or other rights or obligations that
require Ciba or any of its Subsidiaries or affiliates to issue, deliver or sell
additional shares of capital stock of or other voting securities of or other
equity interests in (or securities convertible into or exchangeable for the
same) any Divested Subsidiary. None of the Divested Subsidiaries has any
interest in any other entity, including subsidiaries, joint ventures or
partnerships. Upon transfer to Hexcel of the Contributed Shares, Hexcel will
have good and marketable title to the Contributed Shares, free and clear of any
and all Liens and free of any and all other limitations or restrictions
(including any restriction on the right to vote, sell or otherwise dispose of
such Contributed Shares) (other than the shares of Brochier, the transfer of
which is subject to regulation by the Direction du Tresor and the approval of
the Departement de Securite in France). There are no outstanding bonds,
debentures, notes or other indebtedness having the right to vote on any matters
on which stockholders of any Divested Subsidiary may vote. Neither the
Contributed Shares nor any shares of capital stock of any Divested Subsidiary
have been issued in violation of, and none of the Contributed Shares or such
shares of capital stock are subject to, any purchase option, call, right of
first refusal, preemptive, subscription or similar rights under any provision of
applicable law, the certificate of incorporation or by-laws or comparable
governing instruments of any Divested Subsidiary or, except pursuant to the
Austrian Shares Contract, any contract, agreement or instrument to which any
Divested Subsidiary is subject, bound or a party or otherwise. Except as set
forth on Schedule 3.01(f), there are no outstanding warrants, options, rights,
"phantom" stock rights, agreements, convertible or exchangeable securities or
other commitments (other than this Agreement) (i) pursuant to which any Divested
Subsidiary is or may become obligated to issue, sell, purchase, refund or redeem
any shares of its capital stock or other securities of or equity interests in a
Divested Subsidiary or (ii) that give any Person the right to receive any
benefits or rights similar to any rights enjoyed by or accruing to the holders
of shares of capital stock of any Divested Subsidiary. Except as set forth on
Schedule 3.01(f), there are no equity securities of any Divested Subsidiary
reserved for issuance for any purpose.
(g) TITLE TO ACQUIRED ASSETS AND DEFERRED ASSETS. Either Ciba or a
Subsidiary of Ciba has good, valid and marketable title to all the Acquired
Assets and the Deferred Assets and has good and marketable title to, or valid
leasehold interests in all the personal property and assets reflected in the
Balance Sheet or thereafter acquired, except for assets sold or otherwise
disposed of for fair value since that date in the ordinary course of business
consistent with past practice and not in violation of this Agreement, in each
case free and clear of any and all Liens and free of any and all other
limitations or restrictions, except (i) as disclosed in Schedule 3.01(g) or on
the Balance Sheet or in the notes thereto and (ii) for Permitted Liens. Ciba or
CGC has sufficient power and authority to sell, assign, transfer, convey and
deliver the Acquired Assets and the Deferred Assets to Hexcel, free and clear of
any and all Liens and free of any and all other limitations or restrictions,
except for Permitted Liens.
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Each Divested Subsidiary has good, valid and marketable title to all its assets
free and clear of any and all Liens and free of any and all other limitations or
restrictions except for Permitted Liens. This paragraph (g) does not relate to
real property, interests in real property or leasehold interests in real
property or Intellectual Property, as to which Section 3.01(h) and Section
3.01(i), respectively, shall be applicable in lieu of this Section 3.01(g).
(h) REAL PROPERTY. (i) Ciba or one of its Subsidiaries has good, marketable
and insurable title to, or valid leasehold interests in, or other rights to use,
all the real property required for the conduct of the Transferred Business
(including the real property interests comprising a part of the Acquired Assets
and the Deferred Assets) as currently conducted and all the real property or
interests therein reflected in the Balance Sheet or thereafter acquired, except
for real property or interests therein sold or otherwise disposed of for fair
value since the date of the Balance Sheet or the ordinary course of business
consistent with past practice and not in violation of this Agreement, in each
case free and clear of any and all Liens of any kind and free of any and all
other limitations and restrictions except for (A) Permitted Liens, (B)
easements, covenants, rights-of-way, claims and other encumbrances or
restrictions of record, none of which, either individually or in the aggregate,
materially detract from the value of the property or materially interfere with
the current use of the property, (C) zoning, building and other similar
restrictions, none of which, either individually or in the aggregate, materially
detract from the value of the property or materially interfere with the current
use of the property, (D) unrecorded easements, covenants, rights-of-way or other
restrictions, none of which, either individually or in the aggregate, materially
detract from the value of the property or materially interfere with the current
use of the property, (E) any conditions that may be shown by a current, accurate
survey or physical inspection of any Scheduled Real Property made prior to
Closing and (F) Liens disclosed in Schedule 3.01(h)(1) or 3.01(h)(2) or in the
Balance Sheet or in any notes thereto, none of which items set forth in clauses
(A) through (E) above, individually or in the aggregate, have had or would
reasonably be expected to have a Material Adverse Effect.
(ii) Ciba and each of its Subsidiaries has complied in all respects with
the terms of all material leases to which it is a party and the subject of
which relates exclusively or primarily to, arises exclusively or primarily
out of or is used exclusively or primarily in connection with the
Transferred Business, and each of the Divested Subsidiaries has complied in
all respects with the terms of all material leases to which it is a party.
To the knowledge of Ciba or any of its Subsidiaries all such leases are in
full force and effect, all rents and additional rents due thereunder have
been paid in full when due through the date hereof, and the tenant
thereunder enjoys peaceful and undisturbed possession under all such
material leases.
(iii) Schedule 3.01(h)(1) sets forth a complete description of all real
property and interests in real property directly or indirectly owned in fee
simple by Ciba or any of its Subsidiaries that relate exclusively or
primarily to, arise exclusively or primarily out of or that are used
exclusively or primarily in connection with the Transferred Business, and
all real property and interests in real property owned directly or
indirectly in fee simple by a Divested Subsidiary. Schedule 3.01(h)(2) sets
forth a complete list of all real property and interests in real property
leased, subleased or otherwise occupied pursuant to a written instrument by
Ciba or any of its Subsidiaries that relate exclusively or primarily to,
arise exclusively or primarily out of or that are used exclusively or
primarily in connection with the Transferred Business, except for real
property and interests in real property leased by a Divested Subsidiary.
(iv) At the date of this Agreement there has been no actual or, to the
knowledge of Ciba, threatened condemnation or taking by eminent domain of
any portion of the properties listed in Schedules 3.01(h)(1) and 3.01(h)(2).
(v) There are no Persons other than Ciba or any of its Subsidiaries that
have a possessory interest pursuant to a written agreement with Ciba or any
of its Subsidiaries in any of the properties listed in Schedules 3.01(h)(1)
and 3.01(h)(2), except as set forth on such schedules.
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(i) INTELLECTUAL PROPERTY. To Ciba's knowledge, except as set forth on
Schedule 3.01(i), no Acquired Intellectual Property, no Intellectual Property
licensed pursuant to the Trademark License Agreement and no Intellectual
Property otherwise licensed pursuant to Section 4.13 (A) has, in whole or in
part, lapsed, been declared invalid or been abandoned, dedicated or disclaimed
or (B) is being infringed by any Person, in each case, which could reasonably be
expected to have a Material Adverse Effect. To Ciba's knowledge, except as
disclosed in Schedule 3.01(i) (A) neither Ciba nor any of its Subsidiaries
during the five years preceding the date of this Agreement has been sued,
charged in writing or threatened with respect to, or been a defendant in, any
claim, suit, action or proceeding including a claim of infringement by Ciba or
such Subsidiary of any Intellectual Property which, if successful, could
reasonably be expected to have a Material Adverse Effect and (B) to Ciba's
knowledge, the conduct of the Transferred Business does not infringe the valid
intellectual property rights of any other Person in any way that could
reasonably be expected to have a Material Adverse Effect.
(j) INSURANCE. Schedule 3.01(j) sets forth a complete and correct list of
all insurance policies (including a brief summary of the nature and terms
thereof) providing coverage in respect of the Transferred Business, the Acquired
Assets or the Deferred Assets. All the material properties and businesses
constituting any part of the Acquired Assets or the Deferred Assets are insured
for Ciba's, CGC's or a Divested Subsidiary's benefit, and will be so insured
until the Closing or the applicable Deferred Closing, as the case may be. Except
as set forth on Schedule 3.01(j), the coverage provided by such policies is
adequate and sufficient in nature, scope and amount in accordance with
applicable prudent risk management practices. All such policies currently in
effect are in full force and effect, no notice of termination, cancellation or
reservation of rights has been received with respect to any such policy, there
has not been any failure to present any claim or give any notice under any such
policy in a timely manner or in the manner or detail required by such policy,
and there is no default with respect to any such policy, except for such as
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Except as set forth on Schedule 3.01(j) or as otherwise
disclosed to Hexcel prior to the date of this Agreement, neither Ciba nor any of
its Subsidiaries self-insures or has self-insured any material risks with
respect to the Transferred Business, the Acquired Assets or the Deferred Assets.
(k) CONTRACTS. Schedule 3.01(k) sets forth a list of each of the following
Acquired Contracts:
(i) any collective bargaining Contract;
(ii) any Contract with any employee involving aggregate future
obligations in excess of $100,000;
(iii) any Contract entered into in the ordinary course of business
which involves payment or receipt in the future of aggregate amounts in
excess of $5,000,000;
(iv) any Contract entered into other than in the ordinary course of
business which involves payment or receipt in the future of aggregate
amounts in excess of $500,000;
(v) any credit agreement, loan agreement, indenture, guarantee, note,
mortgage, security agreement, loan commitment, evidence of indebtedness
or other Contract relating to the borrowing or lending of funds in excess
of $500,000;
(vi) any contract granting to any Person a preferential right to
purchase any of the Acquired Assets or the Deferred Assets (other than
sales of inventory in the ordinary course of business);
(vii) any Contract with respect to the discharge, transportation,
removal or storage of effluent, waste, pollutants or hazardous
substances;
(viii) any Contract containing a covenant not to compete or similar
provisions relating to any aspect of the Business or a covenant or other
provision restricting the development, manufacture, marketing or
distribution of products or services within the scope of the Business;
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(ix) any Contract for the lease of land, buildings, equipment or other
property that is material to the Transferred Business;
(x) any Contract relating to Intellectual Property that is material
to the Transferred Business (including any such Contract that restricts
the use of such Intellectual Property);
(xi) any Contract limiting or restricting the voting, acquisition or
disposition of any equity securities of or other equity interests in any
of the Divested Subsidiaries;
(xii) any Contract evidencing any Lien on the Acquired Assets or the
Deferred Assets (other than Liens created in the ordinary course of
business); and
(xiii) any Contract involving aggregate future obligations in excess of
$50,000 or involving material non-monetary obligations relating to the
Transferred Business, the Acquired Assets or the Deferred Assets between
or among Ciba and/or any of its Subsidiaries, on the one hand, and Ciba
and/or any of its Subsidiaries or affiliates, on the other hand.
True, complete and correct copies of all the Contracts listed on Schedule
3.01(k) (including any amendments thereof or waivers with respect thereto) have
been made available to Hexcel (other than (x) purchase orders and invoices to
customers and suppliers of the Transferred Business using standard forms made
available to Hexcel and (y) employment agreements pursuant to standard forms
agreements made available to Hexcel). Except as set forth on Schedule 3.01(k),
each of the material Acquired Contracts is a valid and binding agreement of
Ciba, CGC or a Divested Subsidiary, as the case may be, and is in full force and
effect and enforceable in accordance with its terms (subject to applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other similar laws affecting creditors' rights generally from time to time in
effect, and subject, as to enforceability, to general principles of equity,
regardless of whether such enforceability is considered in a proceeding in
equity or at law), and neither Ciba nor any of its Subsidiaries nor, to the
knowledge of Ciba or any of its Subsidiaries, any other party thereto is in
default or breach in any material respect under the terms of any such material
Acquired Contract, nor, to the knowledge of Ciba or any of its Subsidiaries, has
any event or circumstance occurred that, with or without notice or lapse of time
or both, would constitute any material event of default or give rise to any
right of termination, cancellation or acceleration or the loss of any benefit or
require any consent thereunder other than as set forth on Schedule 3.01(k).
Except as set forth on Schedule 3.01(k), neither the execution and delivery of
this Agreement and the Ancillary Agreements nor the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements will
cause any breach of a material Acquired Contract or, with or without notice or
lapse of time or both, result in any default, require any consent or give rise
to any right of termination, cancellation or acceleration or the loss of any
benefit under any material Acquired Contract (including benefits that may be
exercised only upon consummation of a transaction of the type contemplated by
this Agreement and the Ancillary Agreements). All Contracts involving aggregate
future obligations of $50,000 or less relating to the Transferred Business, the
Acquired Assets or the Deferred Assets between or among Ciba and/or any of its
Subsidiaries, on the one hand, and Ciba and/or any of its Subsidiaries or
affiliates, on the other hand, do not, in the aggregate, involve aggregate
future obligations in excess of $1,000,000. Except as disclosed on Schedule
3.01(k), neither Ciba nor any of its Subsidiaries, as the case may be, has
received any written or, to its knowledge, oral notice of termination or
cancellation of or notice of an intent to terminate or cancel any material
Acquired Contract. No material Acquired Contract is the subject of or, to the
knowledge of Ciba or any of its Subsidiaries, has been threatened to be made the
subject of any arbitration, suit or legal proceeding. With respect to any
material Acquired Contract that will by its terms terminate as of a particular
date unless renewed or unless an option to extend is exercised, neither Ciba nor
any of its Subsidiaries has received any written or, to its knowledge, oral
notice, or otherwise has knowledge that any such material Acquired Contract will
not be, or is not likely to be, so renewed or that any such extension option
will not be, or is not likely to be, so exercised. Except as set forth on
Schedule 3.01(k)
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or as would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect, each of the foregoing representations and
warranties as to material Acquired Contracts is also true and correct as to the
other Acquired Contracts.
(l) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in Schedule
3.01(l), from the date of the Balance Sheet to the date hereof, Ciba and its
Subsidiaries have conducted the Transferred Business in the ordinary course of
business consistent in all material respects with past practice, and there has
not been any development or event or series of events that would reasonably be
expected to have a Material Adverse Effect.
(m) TAXES. Except as set forth in Schedule 3.01(m), (i) each of the
Divested Subsidiaries has timely filed, in correct and complete form after
giving effect to any applicable extensions, all Tax Returns relating to Income
Taxes or any other material Taxes required to be filed by it and paid all Taxes
required to be paid by it, (ii) each of Ciba and its Subsidiaries (other than
the Divested Subsidiaries) has timely filed, in correct and complete form, after
giving effect to any applicable extensions, all Tax Returns relating to Income
Taxes and other material Taxes of the Transferred Business and required to be
filed by it, and paid all such Taxes required to be paid by it, and (iii) no
Taxing Authority is asserting or is expected to assert any deficiency against
Ciba or its Subsidiaries with respect to Taxes described in (i) or (ii) above.
(n) ENVIRONMENTAL MATTERS. Except as set forth in Schedule 3.01(n) and, in
each case of clauses (A) through (H) below, except (i) where the failure to so
comply, (ii) where such actual or alleged liability or (iii) to the extent that
such statements, if untrue, would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect:
(A) the Transferred Business has secured and is in compliance with all
Environmental Permits and is in compliance with all Environmental Laws;
(B) since June 30, 1990, neither Ciba nor any of its Subsidiaries has
received any written communication from a Governmental Entity that alleges
that the Transferred Business is not in compliance with any Environmental
Law or Environmental Permits;
(C) there are no writs, injunctions, decrees, orders or judgments
outstanding, or any actions, suits, proceedings or investigations pending
or, to the knowledge of Ciba or any of its Subsidiaries, threatened,
relating to compliance by the Transferred Business with, or liability of the
Transferred Business under, any Environmental Law;
(D) there are no Liens attached, asserted, or, to the knowledge of Ciba
or any of its Subsidiaries, threatened against any of the Scheduled Real
Property pursuant to any Environmental Law;
(E) there have been no releases or, to the knowledge of Ciba or any of
its Subsidiaries, threatened releases (as those terms are defined under
Environmental Law) of Hazardous Substances on, from or adjacent to any of
the Scheduled Real Property which could reasonably be expected to give rise
to liability under any Environmental Law;
(F) with respect to the Transferred Business, neither Ciba nor any of
its Subsidiaries has received a request for information or has been named a
potentially responsible party regarding any Federal National Priority List
site (as that term is defined under Environmental Law) or any other disposal
site pursuant to any similar Environmental Law;
(G) there are no other liabilities under any Environmental Law with
respect to the Transferred Business; and
(H) following the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements, all Environmental Permits will be
transferable upon appropriate notification to relevant Governmental
Entities.
(o) BROKERS. Except for CS First Boston Corporation, whose fees will be
paid by Ciba, there is no investment banker, broker, finder, financial advisor
or other intermediary that has been retained by or
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is authorized to act on behalf of Ciba or any of its Subsidiaries who might be
entitled to any fee or commission in connection with the transactions
contemplated by this Agreement or the Ancillary Agreements.
(p) SUFFICIENCY OF ACQUIRED ASSETS AND DEFERRED ASSETS. The Acquired
Assets, the Deferred Assets and the assets of the Divested Subsidiaries (i)
together with the rights and services to be provided pursuant to the Ancillary
Agreements are sufficient for the conduct of the Transferred Business by Hexcel
in substantially the same manner as it is currently conducted and (ii) are in
the aggregate, in good and useable condition and, to the extent applicable, in
good working order, ordinary wear and tear excepted.
(q) INVESTMENT INTENT; SECURITIES ACT. Ciba, CGC and, to the extent
applicable, any other Subsidiary of Ciba are acquiring the Hexcel Shares for
their own account (not as a nominee or agent) for investment and not with a
present view to, or for sale in connection with, any distribution or resale
thereof or any granting of a participation therein. Ciba and CGC, on behalf of
themselves and any other Subsidiary of Ciba that will own Hexcel Shares,
acknowledge and understand that (i) the Hexcel Shares may not be transferred
unless they are subsequently registered under the Securities Act or an exemption
from such registration is available, (ii) the Hexcel Shares will be subject to
the restrictions on transfer, voting agreements and other restrictive provisions
of the Governance Agreement and (iii) will contain an appropriate restrictive
legend consistent with the foregoing.
(r) ACCOUNTS RECEIVABLE. All Accounts Receivable included in the Acquired
Assets or, if applicable, the Deferred Assets represent sales actually made in
the ordinary course of business and represent legal, valid and binding
obligations of the obligors thereon. The Financial Statements contain, as of
their respective dates, adequate and sufficient reserves for bad debts in
respect of Accounts Receivable calculated in accordance with U.S. GAAP applied
on a consistent basis.
(s) INVENTORY. All Inventory included in the Acquired Assets and the
Deferred Assets is of a quality and quantity useable and saleable in the
ordinary course of business. All Inventory of the Transferred Business is valued
in the Balance Sheet at lower of cost or market, with obsolete or below-standard
quality materials having been written off and with adequate and sufficient
reserves for inactive and surplus Inventory calculated in accordance with U.S.
GAAP applied on a consistent basis.
(t) PRODUCT MANUFACTURING. With respect to each product of the Transferred
Business, Ciba and/ or its Subsidiaries (i) have obtained all applicable Permits
(other than as set forth on Schedule 3.01(n)) necessary for the manufacture,
distribution, sale and marketing of such products, except for such Permits the
lack of which would not reasonably be expected to have a Material Adverse
Effect, and (ii) are in material compliance with the terms and conditions of all
such Permits in each jurisdiction in which such products are manufactured,
distributed, sold or marketed. All products of the Transferred Business have
been manufactured in full compliance with applicable product specifications.
(u) PRODUCT LIABILITY. Except as set forth on Schedule 3.01(u), there are
not presently pending, or to the knowledge of Ciba or any of its Subsidiaries,
threatened any civil, criminal or administrative actions, suits, demands,
claims, hearings, notices of violation, investigations, proceedings or demand
letters relating to any alleged hazard or alleged defect in design, manufacture,
materials or workmanship, including, without limitation, any failure to warn or
alleged breach of express or implied warranty or representation, relating to any
product manufactured, distributed or sold by or on behalf of the Transferred
Business that would reasonably be expected to have a Material Adverse Effect.
Schedule 3.01(u) sets forth a true and complete list of (i) all matters referred
to in the preceding sentence since January 1, 1992 and (ii) all material product
recalls, material reworks or material post-sale warnings ("Recalls") and all
investigations, considerations or decisions made by Ciba or any of its
Subsidiaries, or to the knowledge of Ciba or any of its Subsidiaries, by any
other person concerning a Recall relating to any product manufactured,
distributed or sold by or on behalf of the Transferred Business, in each case,
since January 1, 1992. The Financial Statements contain, as of their respective
dates, adequate and sufficient reserves for product warranty related expenses
and product returns.
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(v) COST ACCOUNTING STANDARDS. Except as set forth on Schedule 3.01(v),
Ciba and its Subsidiaries have (and are not aware of any allegation that they
have not) accounted for all Acquired Contracts (or subcontracts relating
thereto) with Governmental Entities related to the United States Federal
government in accordance with the Cost Accounting Standards applicable thereto
and have adhered in all material respects with all Federal Acquisition
Regulations, all Federal Acquisition Supplemental Regulations and all other
relevant cost accounting requirements.
(w) FOREIGN BENEFIT PLANS. (i) FRANCE. Except for the Retraite Maison
covering one employee of Brochier, there are no contractual employee benefit
plans covering any employees of Brochier. Brochier has complied in all material
respects with all its obligations under the Retraite Maison. All employees of
Brochier are subject to a "Convention Collective". Brochier has complied in all
material respects with all requirements of law applicable thereto and under the
governing documents of such Convention Collective.
(ii) ITALY. There are no contractual employee benefit plans covering
any employees of Salver. All employees of Salver are subject to a
"Convenzione Collectiva". Salver has complied in all material respects with
all requirements of law applicable thereto and under the governing documents
of such Convenzione Collectiva.
(iii) GENERAL. Each employee benefit plan relating to employees of the
Transferred Business employed in Austria or the Excluded Jurisdictions is in
compliance in all material respects with all requirements of law applicable
thereto and the respective requirements of the governing documents of such
plan. Neither Ciba nor any of its Subsidiaries has incurred any liability
(nor, to the knowledge of Ciba or any of its Subsidiaries, does any
condition exist or has any event occurred that presents a material risk that
any such liability will be incurred) with respect to any employee benefit
plan relating to employees of the Transferred Business employed outside the
United States or the United Kingdom (other than for contributions not yet
due) that, when aggregated with other such liabilities, would result in a
material liability to the Transferred Business. Each employee benefit plan
relating to employees of the Transferred Business employed outside the
United States or the United Kingdom is fully and properly funded in
accordance with, and the assets thereof are held by a Person authorized to
hold such assets under, applicable law and regulation and the governing
documents of such plan.
(x) LABOR RELATIONS. Except as set forth in Schedule 3.01(x), no collective
bargaining agreement is being negotiated by Ciba or any of its Subsidiaries with
respect to the Transferred Business. Except as set forth in Schedule 3.01(x), to
the knowledge of Ciba or any of its Subsidiaries, there are no activities or
proceedings of any labor union to organize any of the employees of the
Transferred Business. There is no labor dispute, strike or work stoppage against
the Transferred Business pending or, to the knowledge of Ciba or any of its
Subsidiaries, threatened, except for such disputes, strikes or work stoppages
that would not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect.
(y) NO OTHER REPRESENTATIONS. Except for the representations and warranties
expressly set forth in this Section 3.01, none of Ciba, CGC or any other Person
makes any express or implied representation or warranty on behalf of Ciba or any
of its Subsidiaries. HEXCEL ACKNOWLEDGES THAT, SHOULD THE CLOSING OCCUR, HEXCEL
WILL ACQUIRE THE ACQUIRED ASSETS AND THEREAFTER ACQUIRE THE DEFERRED ASSETS, IN
EACH CASE WITHOUT ANY REPRESENTATION OR WARRANTY AS TO MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE, IN AN "AS IS" CONDITION AND ON A "WHERE IS"
BASIS, EXCEPT AS OTHERWISE EXPRESSLY REPRESENTED OR WARRANTED HEREIN. The
provisions of the immediately preceding sentence do not apply to the Contributed
Shares (it being understood that no representations or warranties other than
those expressly set forth herein are implied with respect to the Contributed
Shares).
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SECTION 3.02. REPRESENTATIONS AND WARRANTIES OF HEXCEL. Hexcel hereby
represents and warrants to Ciba and CGC as follows:
(a) ORGANIZATION, STANDING AND POWER. Hexcel and each of its Subsidiaries
is a legal entity duly organized, validly existing and, where applicable, in
good standing under the laws of the jurisdiction in which it is incorporated,
has the requisite corporate power and authority and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now being conducted and is duly qualified to do business as a
foreign corporation and, where applicable, is in good standing in each
jurisdiction in which the character of the property owned or leased by it or the
nature of the activities make such qualification necessary, except for those
jurisdictions in which failure to be so qualified would not, individually or in
the aggregate, reasonably be expected to have a Hexcel Material Adverse Effect.
Hexcel has heretofore delivered to Ciba true and complete copies of the
certificate of incorporation and by-laws (or similar organizational documents)
of Hexcel and each of its Subsidiaries, in each case as amended through the date
of this Agreement. Such organizational documents are in full force and effect,
and no other organizational documents are applicable to or binding on such
entities. None of such entities is in violation of any provision of its
certificate of incorporation or by-laws (or similar organizational documents).
(b) AUTHORITY. Hexcel and, to the extent applicable, each of its
Subsidiaries has all corporate power and authority to execute this Agreement and
the Ancillary Agreements and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Employment
Matters Agreement and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action on the
part of Hexcel and, to the extent applicable, each of its Subsidiaries, subject
only to approval of (x) the issuance of the Hexcel Shares and (y) an amendment
to the certificate of incorporation of Hexcel increasing the authorized number
of shares of Hexcel Common to 100,000,000 (the "Required Amendment"), in each
case by the requisite vote of the holders of Hexcel Common entitled to vote
thereon, and the execution and delivery of the other Ancillary Agreements and
the consummation of the transactions contemplated thereby will be authorized by
all necessary corporate action on the part of Hexcel and, to the extent
applicable, each of its Subsidiaries prior to the Closing. This Agreement and
the Employment Matters Agreement have been duly executed and delivered by Hexcel
and constitute, and each other Ancillary Agreement when duly executed and
delivered by Hexcel and, to the extent applicable, any of its Subsidiaries will
constitute a legal, valid and binding obligation of Hexcel and, to the extent
applicable, any such Subsidiary enforceable against each of them in accordance
with their respective terms (subject to applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and other similar laws affecting
creditors' rights generally from time to time in effect, and subject, as to
enforceability, to general principles of equity regardless of whether such
enforceability is considered in a proceeding in equity or at law). Except as set
forth on Schedule 3.02(b), none of Hexcel or any of its Subsidiaries is a party
to, bound by or subject to any agreement or restriction that would materially
restrict or impede Ciba or CGC from exercising its full rights under, and
enjoying the full benefits contemplated by, this Agreement and the Ancillary
Agreements. The execution and delivery of this Agreement and the Ancillary
Agreements by Hexcel and, to the extent applicable, any of its Subsidiaries do
not and will not, and the consummation by Hexcel and, to the extent applicable,
any of its Subsidiaries of the transactions contemplated hereby and thereby, and
the compliance with the terms hereof and thereof by Hexcel and, to the extent
applicable, any of its Subsidiaries will not (i) violate any law, judgment,
order, decree, statute, ordinance, rule and regulation applicable to it, (ii)
conflict with any provision of Hexcel's or, to the extent applicable, any of its
Subsidiaries' certificate of incorporation or by-laws (or similar organizational
documents), (iii) except as set forth on Schedule 3.02(b), conflict with or
result in the breach or termination of any provision or constitute a default
(with or without the giving of notice or the lapse of time or both) under, or
require any consent under or give rise to any right of termination, cancellation
or acceleration or the loss of any benefit under any Contract to which it is a
party or by which it or any of its properties or assets is bound, (iv) except as
set forth on Schedule 3.02(b), require any consent, approval, order,
authorization or other action of, or the registration, declaration or filing
with, any Governmental Entity or any other Person, or (v) except as
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set forth on Schedule 3.02(b), result in the creation or imposition of any Lien
on any of its assets or properties other than, in the case of clauses (i),
(iii), (iv) and (v), any such conflicts, violations or Liens the existence of
which or consents the lack of which could not reasonably be expected to (x) have
a Hexcel Material Adverse Effect, (y) prevent the consummation of any of the
transactions contemplated by this Agreement and the Ancillary Agreements or (z)
materially impair Hexcel's or, to the extent applicable, any of its
Subsidiaries' ability to perform its obligations under this Agreement or any
Ancillary Agreement, except (A) for the filing of a premerger notification and
report form by Hexcel under the HSR Act and any filings required pursuant to
applicable antitrust and competition law statutes and regulations in each of the
Applicable Jurisdictions, (B) for compliance with and filings under Sections
13(a) and 14(a) of the Exchange Act, (C) for the filing of a notice pursuant to
the Exon-Florio Amendment, (D) for consent of the Departement de Securite
pursuant to the Demande d'Autorisation with the Direction du Tresor in France,
(E) for the filing of a Special Security Agreement and a related request for a
National Interest Determination and all approvals of the United States Defense
Investigative Service required in connection therewith and (F) as otherwise set
forth on Schedule 3.02(b). At a meeting duly called and held, the Board of
Directors of Hexcel duly and unanimously adopted a resolution recommending that
the stockholders of Hexcel approve the issuance of the Hexcel Shares and the
Required Amendment.
(c) CAPITALIZATION OF HEXCEL AND ITS SUBSIDIARIES. On the date hereof, the
authorized capital stock of Hexcel consists of 40,000,000 shares of Hexcel
Common, of which 18,093,903, are duly authorized and validly issued and
outstanding, fully paid and nonassessable and 1,500,000 shares of Hexcel
Preferred, of which none are issued and outstanding. On the Closing Date the
number of shares of Hexcel Common authorized for issuance will be 100,000,000
and, subject to stockholder approval, the number of shares of Hexcel Preferred
authorized for issuance will be 20,000,000. Except for Hexcel Common there are
no shares of capital stock or other equity securities of Hexcel outstanding.
Schedule 3.02(c) sets forth for each material Subsidiary of Hexcel the amount of
its authorized capital stock, the amount of its outstanding capital stock and
the amount of such stock owned by Hexcel. All the outstanding shares of capital
stock of each material Subsidiary of Hexcel have been duly authorized and
validly issued and are fully paid and nonassessable. Except as set forth in
Schedule 3.02(c), there are no shares of capital stock or other equity
securities of any material Subsidiary of Hexcel outstanding that are not owned
by Hexcel or a wholly owned Subsidiary of Hexcel. Neither the Hexcel Common nor
any shares of capital stock of any Subsidiary of Hexcel have been issued in
violation of, and none of the Hexcel Common or such shares of capital stock are
subject to, any purchase option, call, right of first refusal, preemptive,
subscription or similar rights under any provision of applicable law, the
certificate of incorporation or by-laws of Hexcel or the comparable governing
instruments of any Subsidiary of Hexcel, or any contract, agreement or
instrument to which Hexcel or any Subsidiary of Hexcel is subject, bound or a
party or otherwise. Except as set forth in Schedule 3.02(c), there are no
outstanding warrants, options, rights, "phantom" stock rights, agreements,
convertible or exchangeable securities or other commitments (other than this
Agreement) (i) pursuant to which Hexcel or any Subsidiary of Hexcel is or may
become obligated to issue, sell, purchase, refund or redeem any shares of
capital stock or other securities of or equity interest in Hexcel or any
Subsidiary of Hexcel or (ii) that give any Person the right to receive any
benefits or rights similar to any rights enjoyed by or accruing to the holders
of shares of capital stock of Hexcel or any Subsidiary of Hexcel. The Hexcel
Shares have been or will be prior to Closing duly and validly authorized and
when issued and delivered in accordance with the provisions of this Agreement
will be duly and validly issued, fully paid and nonassessable. The Indenture and
the Subordinated Debt have been or will be prior to Closing duly and validly
authorized and when executed and delivered in accordance with the provisions of
this Agreement will constitute legal, valid and binding obligations of Hexcel
enforceable against Hexcel in accordance with their terms (subject to applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other similar laws affecting creditors' rights generally from time to time in
effect, and subject, as to enforceability, to general principles of equity
regardless of whether such enforceability is considered in a proceeding in
equity or at law). Except as set forth in Schedule 3.02(c), there are no equity
securities of Hexcel or any Subsidiary of Hexcel reserved for issuance for any
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purpose. Except as set forth in Schedule 3.02(c), Hexcel has good and valid
title, directly or through one or more wholly owned subsidiaries, to all the
outstanding shares of capital stock of each material Subsidiary of Hexcel, free
and clear of any Liens. Except as set forth in Schedule 3.02(c), there are no
outstanding bonds, debentures, notes or other indebtedness having the right to
vote on any matters on which stockholders of Hexcel or any Subsidiary of Hexcel
may vote.
(d) EQUITY INTERESTS. Except for the Subsidiaries of Hexcel and as set
forth in Schedule 3.02(d), Hexcel does not directly or indirectly have any
material interest in any other entity, including subsidiaries, joint ventures or
partnerships.
(e) SEC DOCUMENTS; UNDISCLOSED LIABILITIES. Hexcel has filed all required
reports, schedules, forms, statements and other documents with the SEC since
December 31, 1992 (the "SEC Documents"). As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Act, or the Exchange Act, as the case may be, applicable to such SEC
Documents, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of Hexcel included in the SEC Documents as of their respective dates
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with U.S. GAAP (except, in the case of
unaudited statements, as permitted for use on Form 10-Q) applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and fairly presented the consolidated financial position of Hexcel and
its Subsidiaries as of the dates thereof and the consolidated results of
operations of Hexcel and its Subsidiaries for the periods then ended (subject,
in the case of any unaudited statements, to normal year-end audit adjustments).
Except as set forth in the Hexcel Balance Sheet, neither Hexcel nor any of its
Subsidiaries has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise), other than liabilities and obligations
incurred in the ordinary course of business consistent with past practice since
the date of such balance sheet that, individually or in the aggregate, have not
had and would not reasonably be expected to have a Hexcel Material Adverse
Effect.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in Schedule
3.02(f), from the date of the Hexcel Balance Sheet to the date hereof, Hexcel
and its Subsidiaries have conducted their business in the ordinary course of
business consistent in all material respects with past practice, and there has
not been any development or event or series of events that would reasonably be
expected to have a Hexcel Material Adverse Effect.
(g) BROKERS. Except for Bear, Stearns & Co. Inc., whose fees will be paid
by Hexcel, there is no investment banker, broker, finder, financial advisor or
other intermediary that has been retained by or is authorized to act on behalf
of Hexcel or any of its Subsidiaries who might be entitled to any fee or
commission in connection with the transactions contemplated by this Agreement or
the Ancillary Agreements.
(h) INVESTMENT INTENT. Hexcel and, to the extent applicable, any Subsidiary
of Hexcel is purchasing and acquiring the Contributed Shares for its own account
(not as a nominee or agent) for investment and not with a present view to, or
for sale in connection with, any distribution or resale thereof or any granting
of a participation therein. Hexcel acknowledges, on behalf of itself and its
Subsidiaries, and understands that the Contributed Shares may not be transferred
unless they are subsequently registered under the Securities Act or an exemption
from such registration is available.
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(i) COMPLIANCE WITH APPLICABLE LAWS. Each of Hexcel and its Subsidiaries
has complied with all laws, regulations, rules and orders, statutes, ordinances,
Permits and authorizations of all Governmental Entities applicable to it except
where the failure to so comply would not, individually or in the aggregate,
reasonably be expected to have a Hexcel Material Adverse Effect and, except as
set forth in Schedule 3.02(i), neither Hexcel nor any of its Subsidiaries has
received any written notice of any such failure to so comply. Except as set
forth on Schedule 3.02(i), neither Hexcel nor any of its Subsidiaries has
received any written notice that any investigation or review by any Governmental
Entity is pending or that any such investigation or review is contemplated,
except where the outcome of such investigation or review would not, individually
or in the aggregate, reasonably be expected to have an Hexcel Material Adverse
Effect. This paragraph (i) does not relate to Tax laws, laws relating to
employee benefits and Environmental Laws for which Section 3.02(o), the
Employment Matters Agreement and Section 3.02(v) and Section 3.02(p),
respectively, are applicable in lieu of this paragraph (i).
(j) LITIGATION; DECREES. Schedule 3.02(j) sets forth a list of certain
lawsuits, claims, actions, investigations and proceedings. Except as set forth
in Schedule 3.02(j), there is no suit, claim, action, investigation or
proceeding pending or, to the knowledge of Hexcel or any of its Subsidiaries,
threatened against Hexcel or any of its Subsidiaries that (i) if adversely
determined would, individually or in the aggregate, be reasonably likely to
result in an Hexcel Material Adverse Effect, (ii) in any manner challenges or
seeks to enjoin, prevent, alter or materially delay the transactions
contemplated hereby or (iii) alleges criminal action or inaction. Except as set
forth on Schedule 3.02(j), neither Hexcel nor any of its Subsidiaries is subject
to any judgment, order, injunction, rule, decree, writ, determination or award
of any Governmental Entity or arbitrator having, or which, individually or in
the aggregate, have or would reasonably be expected to have, a Hexcel Material
Adverse Effect or which would prevent, alter or materially delay the
transactions contemplated hereby.
(k) PROPERTIES. (i) Hexcel or a Subsidiary thereof has good, marketable and
insurable (in the case of real property) title to, or valid leasehold interests
in, or other rights to use all the real and personal properties and assets
required for the conduct of the business of Hexcel and its Subsidiaries as
currently conducted and has good and marketable title to, or valid leasehold
interests in, all the properties and assets reflected on the Hexcel Balance
Sheet or thereafter acquired, except for assets sold or otherwise disposed of
for fair value since the date of such balance sheet in the ordinary course of
business consistent with past practice and not in violation of this Agreement,
in each case free and clear of any and all Liens of any kind and free of any and
all other limitations and restrictions except for (A) Hexcel Permitted Liens,
(B) easements, covenants, rights-of-way, claims and other encumbrances or
restrictions of record, none of which, either individually or in the aggregate,
materially detract from the value of the property or materially interfere with
the current use of the property, (C) zoning, building and other similar
restrictions, none of which, either individually or in the aggregate, materially
detract from the value of the property or materially interfere with the current
use of the property, (D) unrecorded easements, covenants, rights-of-way or other
restrictions, none of which, either individually or in the aggregate, materially
detract from the value of the property or materially interfere with the current
use of the property, (E) any conditions that may be shown by a current, accurate
survey or physical inspection of any such property made prior to Closing and (F)
Liens disclosed in Schedule 3.02(k) or in the Hexcel Balance Sheet or in the
notes thereto, none of which items set forth in clauses (A) through (F) above,
individually or in the aggregate, have or would reasonably be expected to have a
Hexcel Material Adverse Effect.
(ii) Hexcel and each of its Subsidiaries has complied in all respects
with the terms of all material leases to which it is a party. To the
knowledge of Hexcel and its Subsidiaries, all such leases are in full force
and effect and all rents and additional rents due thereunder have been paid
in full when due through the date hereof. Hexcel or a Subsidiary thereof
enjoys peaceful and undisturbed possession under all such material leases.
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(iii) At the date of the Agreement there has been no actual or, to the
knowledge of Hexcel, threatened condemnation or taking by eminent domain of
any of its real property or any real property in which it has an interest.
(iv) There are no Persons other than Hexcel or any of its Subsidiaries
that have a possessory interest pursuant to a written agreement with Hexcel
or any of its Subsidiaries in any of its real property.
(v) This paragraph (d) does not relate to Intellectual Property, as to
which Section 3.02(l) shall be applicable in lieu of this Section 3.01(k).
(l) INTELLECTUAL PROPERTY. (i) Schedule 3.02(l) sets forth a complete list
of all Intellectual Property (other than Know-how) owned by Hexcel or its
Subsidiaries that is material to its business (collectively, the "Hexcel
Material Intellectual Property"). To Hexcel's knowledge, except as disclosed in
Schedule 3.02(l), no Hexcel Material Intellectual Property (A) has, in whole or
in part, lapsed, been declared invalid, or been abandoned, dedicated or
disclaimed or (B) is being infringed by any Person, in each case, which could
reasonably be expected to have a Hexcel Material Adverse Effect.
(ii) To Hexcel's knowledge, except as disclosed in Schedule 3.02(l) (A)
neither Hexcel nor any of its Subsidiaries during the five years preceding
the date of this Agreement has been sued, charged in writing or threatened
with respect to, or been a defendant in, any claim, suit, action or
proceeding including a claim of infringement by Hexcel or such Subsidiary of
any Intellectual Property which, if successful, could reasonably be expected
to have a Hexcel Material Adverse Effect and (B) to Hexcel's knowledge, the
conduct of its business does not infringe the valid intellectual property
rights of any other Person in any way that could reasonably be expected to
have a Hexcel Material Adverse Effect.
(m) INSURANCE. Schedule 3.02(m) sets forth a complete and correct list of
all insurance policies (including a brief summary of the nature and terms
thereof) providing coverage in respect of Hexcel and its Subsidiaries. All the
material properties of Hexcel and its Subsidiaries are insured for Hexcel's or
its Subsidiaries' benefit, and will be so insured until the Closing. The
coverage provided by such policies is adequate and sufficient in nature, scope
and amount in accordance with applicable prudent risk management practices. All
such policies currently in effect are in full force and effect, no notice of
termination, cancellation or reservation of rights has been received with
respect to any such policy, there has not been any failure to present any claim
or give any notice under any such policy in a timely manner or in the manner or
detail required by such policy, and there is no default with respect to any such
policy, except for such as would not, individually or in the aggregate,
reasonably be expected to have a Hexcel Material Adverse Effect. Except as set
forth on Schedule 3.02(m) or as otherwise disclosed to Ciba prior to the date of
this Agreement, neither Hexcel nor any of its Subsidiaries self-insures or has
self-insured any material risks.
(n) CONTRACTS. Schedule 3.02(n) sets forth each of the following Contracts
to which Hexcel or any of its Subsidiaries is a party or by which any of them is
bound:
(i) any collective bargaining Contract;
(ii) any Contract with any employee involving aggregate future
obligations in excess of $100,000;
(iii) any Contract entered into in the ordinary course of business which
involves payment or receipt in the future of aggregate amounts in excess of
$5,000,000;
(iv) any Contract entered into other than in the ordinary course of
business which involves payment or receipt in the future of aggregate
amounts in excess of $500,000;
(v) any credit agreement, loan agreement, indenture, guarantee, note,
mortgage, security agreement, loan commitment, evidence of indebtedness or
other Contract relating to the borrowing or lending of funds in excess of
$500,000;
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(vi) any contract granting to any Person a preferential right to purchase
any assets of Hexcel or its Subsidiaries (other than sales of inventory in
the ordinary course of business);
(vii) any Contract with respect to the discharge, transportation, removal
or storage of effluent, waste, pollutants or hazardous substances;
(viii) any Contract containing a covenant not to compete or similar
provisions or a covenant or other provision restricting the development,
manufacture, marketing or distribution of products or services;
(ix) any Contract for the lease of land, buildings, equipment or other
property that is material to the business of Hexcel and its Subsidiaries;
(x) any Contract limiting or restricting the voting, acquisition or
disposition of any equity securities or other equity interests of Hexcel or
any of its Subsidiaries;
(xi) any Contract relating to Intellectual Property that is material to
the business of Hexcel and its Subsidiaries (including any such Contract
that restricts the use of Intellectual Property); and
(xii) any Contract evidencing any Lien on any of the assets of Hexcel or
any of its Subsidiaries (other than Liens created in the ordinary course of
business).
True, complete and correct copies of all the Contracts listed on Schedule
3.02(n) (including any amendments thereof or waivers with respect thereto) have
been made available to Ciba (other than (x) purchase orders and invoices to
customers and suppliers using standards forms made available to Ciba and (y)
employment agreements pursuant to standard form agreements made available to
Ciba). Except as disclosed on Schedule 3.02(n), each of the material Contracts
is a valid and binding agreement of Hexcel or a Subsidiary thereof, as the case
may be, and is in full force and effect and enforceable in accordance with its
terms (subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other similar laws affecting creditors' rights
generally from time to time in effect, and subject as to enforceability, to
general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law), and neither Hexcel nor any of
its Subsidiaries nor, to the knowledge of Hexcel or any of its Subsidiaries, any
other party thereto is in default or breach in any material respect under the
terms of any such Contract, nor, to the knowledge of Hexcel or any of its
Subsidiaries, has any event or circumstance occurred that, with or without
notice or lapse of time or both, would constitute any material event of default
or give rise to any right of termination, cancellation or acceleration or the
loss of any benefit or require any consent thereunder other than as set forth on
Schedule 3.02(n). Except as set forth on Schedule 3.02(n), neither the execution
and delivery of this Agreement and the Ancillary Agreements nor, the
consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements by Hexcel will cause any breach of a material Contract or,
with or without notice or lapse of time or both, result in any default, require
any consent or give rise to any right of termination, cancellation or
acceleration or the loss of any benefit under any material Contract (including
benefits that may be exercised only upon consummation of a transaction of the
type contemplated by this Agreement and the Ancillary Agreements). Except as
disclosed on Schedule 3.02(n), neither Hexcel nor any of its Subsidiaries has
received any written or, to its knowledge, oral notice of termination or
cancellation of or notice of an intent to terminate or cancel any material
Contract. No material Contract is the subject of or, to the knowledge of Hexcel
or any of its Subsidiaries, has been threatened to be made the subject of any
arbitration, suit or legal proceeding. With respect to any material Contract
that will by its terms terminate as of a particular date unless renewed or
unless an option to extend is exercised, neither Hexcel nor any of its
Subsidiaries has received any written or, to its knowledge, oral notice, or
otherwise has knowledge that any such material Contract will not be, or is not
likely to be, so renewed or that any such extension option will not be or is not
likely to be so exercised. Except as set forth on Schedule 3.02(n) or as would
not, individually or in the aggregate, reasonably be expected to have a Hexcel
Material Adverse Effect, each of the foregoing representations and warranties as
to material Contracts is also true and correct as to the other Contracts.
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(o) TAXES. Except as disclosed on Schedule 3.02(o), (i) each of Hexcel and
its Subsidiaries has timely filed, in correct and complete form after giving
effect to any applicable extensions, all Tax Returns relating to Income Taxes
and other material Taxes required to be filed by it and paid all Taxes required
to be paid by it, (ii) no Taxing Authority is asserting or is expected to assert
any deficiency against Hexcel or its Subsidiaries with respect to any Taxes
described in (i) above and (iii) the accruals for Taxes reflected in the
consolidated financial statements of Hexcel as of December 31, 1994 adequately
provide for the liability of Hexcel and its Subsidiaries for Taxes as of that
date and (iv) Hexcel's aggregate net operating loss for U.S. Federal income Tax
purposes as of December 31, 1994 was approximately $48 million.
(p) ENVIRONMENTAL MATTERS. Except as set forth in Schedule 3.02(p) and, in
each case of clauses (A) through (G) below, except (i) where the failure to so
comply, (ii) where such actual or alleged liability or (iii) to the extent that
such statements, if untrue, would not, individually or in the aggregate,
reasonably be expected to have a Hexcel Material Adverse Effect:
(A) Hexcel and its Subsidiaries have secured and are in material
compliance with all Environmental Permits and are in material compliance
with all Environmental Laws;
(B) since June 30, 1990, neither Hexcel nor any of its Subsidiaries has
received any written communication from a Governmental Entity that alleges
that Hexcel or its Subsidiaries is not in compliance with any Environmental
Law or Environmental Permits;
(C) there are no writs, injunctions, decrees, orders or judgments
outstanding, or any actions, suits, proceedings or investigations pending
or, to the knowledge of Hexcel or any of its Subsidiaries, threatened,
relating to compliance by Hexcel or its Subsidiaries with, or liability of
Hexcel or any of its Subsidiaries under, any Environmental Law;
(D) there are no Liens attached, asserted, or, to the knowledge of
Hexcel or any of its Subsidiaries, threatened against any property of Hexcel
or any of its Subsidiaries pursuant to any Environmental Law;
(E) there have been no releases or, to the knowledge of Hexcel or any of
its Subsidiaries, threatened releases (as those terms are defined under
Environmental Law) of Hazardous Substances on, from or adjacent to any
property of Hexcel or its Subsidiaries which could reasonably be expected to
give rise to material liability under any Environmental Law;
(F) neither Hexcel nor any of its Subsidiaries has received a request
for information or has been named a potentially responsible party regarding
any Federal National Priority List site (as that term is defined under
Environmental Law) or any other disposal site pursuant to any similar
Environmental Law; and
(G) there are no other material liabilities under any Environmental Law.
(q) COST ACCOUNTING STANDARDS. Except as set forth on Schedule 3.02(q),
Hexcel and each of its Subsidiaries have (and are not aware of any allegation
that they have not) accounted for all their Contracts (or subcontracts relating
thereto) with Governmental Entities related to the United States Federal
government in accordance with the Cost Accounting Standards applicable thereto
and have adhered in all material respects with all Federal Acquisition
Regulations, all Federal Acquisition Supplemental Regulations and all other
relevant cost accounting requirements.
(r) ACCOUNTS RECEIVABLE. All accounts receivable of Hexcel and any of its
Subsidiaries represent sales actually made in the ordinary course of business
and represent legal, valid and binding obligations of the obligors thereon. The
financial statements set forth in the SEC Documents contain, as of their
respective dates, adequate and sufficient reserves for bad debts in respect of
such accounts receivable calculated in accordance with U.S. GAAP applied on a
consistent basis.
(s) INVENTORY. All Inventory of Hexcel and any of its Subsidiaries is of a
quality and quantity useable and saleable in the ordinary course of business.
All such Inventory is valued in the Hexcel
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Balance Sheet at lower of cost and market, with obsolete or below-standard
quality materials having been written off and with adequate and sufficient
reserves for inactive and surplus Inventory calculated in accordance with U.S.
GAAP applied on a consistent basis.
(t) PRODUCT MANUFACTURING. With respect to each product of Hexcel and any
of its Subsidiaries, Hexcel or such Subsidiary (i) has obtained all applicable
Permits (other than as set forth on Schedule 3.01(p)) necessary for the
manufacture, distribution, sale and marketing of such products, except for such
Permits the lack of which would not reasonably be expected to have a Hexcel
Material Adverse Effect, and (ii) is in material compliance with the terms and
conditions of all such Permits in each jurisdiction in which such products are
manufactured, distributed, sold or marketed. All products of Hexcel and any of
its Subsidiaries have been manufactured, in full compliance with applicable
product specifications.
(u) PRODUCT LIABILITY. Except as set forth on Schedule 3.02(u), there are
not presently pending, or to the knowledge of Hexcel or any of its Subsidiaries,
threatened any civil, criminal or administrative actions, suits, demands,
claims, hearings, notices of violation, investigations, proceedings or demand
letters relating to any alleged hazard or alleged defect in design, manufacture,
materials or workmanship, including, without limitation, any failure to warn or
alleged breach of express or implied warranty or representation, relating to any
product manufactured, distributed or sold by or on behalf of Hexcel that would
reasonably be expected to have a Hexcel Material Adverse Effect. Schedule
3.02(u) sets forth a true and complete list of (i) all matters referred to in
the preceding sentence since January 1, 1992 and (ii) all Recalls and all
investigations, considerations or decisions made by Hexcel or any of its
Subsidiaries, or to the knowledge of Hexcel or any of its Subsidiaries, by any
other person concerning a Recall relating to any product manufactured,
distributed or sold by or on behalf of Hexcel or any of its Subsidiaries, in
each case, since January 1, 1992. The financial statements of Hexcel included in
the SEC Documents contain, as of their respective dates, adequate and sufficient
reserves for product warranty related expenses and product returns.
(v) FOREIGN BENEFIT PLANS. Each employee benefit plan relating to employees
of Hexcel employed outside the United States is in compliance in all material
respects with all requirements of law applicable thereto and the respective
requirements of the governing documents of such plan. Neither Hexcel nor any of
its Subsidiaries has incurred any liability (nor, to the knowledge of Hexcel or
any of its Subsidiaries, does any condition exist or has any event occurred that
presents a material risk that any such liability will be incurred) with respect
to any such plan relating to such employees (other than for contributions not
yet due) that, when aggregated with other such liabilities, would result in a
material liability to Hexcel and its Subsidiaries taken as a whole. Each
employee benefit plan relating to employees of Hexcel employed outside the
United States is fully and properly funded in accordance with, and the assets
thereof are held by a Person authorized to hold such assets under, applicable
law and regulation and the governing documents of such plan.
(w) LABOR RELATIONS. Except as set forth in Schedule 3.02(w), no collective
bargaining agreement is being negotiated by Hexcel or any of its Subsidiaries.
Except as set forth in Schedule 3.02(w), to the knowledge of Hexcel or any of
its Subsidiaries, there are no activities or proceedings of any labor union to
organize any of the employees of Hexcel or any of its Subsidiaries. There is no
labor dispute, strike or work stoppage against Hexcel or any of its Subsidiaries
pending or, to the knowledge of Hexcel or any of its Subsidiaries, threatened,
except for such disputes, strikes or work stoppages that would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(x) NO OTHER REPRESENTATIONS. Except for the representations and warranties
expressly set forth in this Section 3.02, neither Hexcel nor any other Person
makes any express or implied representation or warranty on behalf of Hexcel or
any of its Subsidiaries.
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ARTICLE IV
COVENANTS
SECTION 4.01. CONDUCT OF BUSINESS. (a) From and after the date of this
Agreement and until the Closing (or, if the Danutec Equity is not delivered to
Hexcel at the Closing, with respect to Danutec, until the earlier of (x) the
Danutec Closing and (y) the first anniversary of the Closing), except as
expressly provided in this Agreement or as Hexcel shall otherwise reasonably
agree, Ciba and CGC shall and Ciba shall cause each of its Subsidiaries (other
than CGC) to (i) conduct the Transferred Business in the ordinary course of
business consistent in all material respects with past practice; (ii) use all
commercially reasonable efforts to preserve intact the business organizations
and relationships with third parties of the Transferred Business and to keep
available the services of the current employees of the Transferred Business and
(iii) not sell, assign, transfer, lease, license or otherwise dispose of any
Acquired Assets or Deferred Assets or any parts thereof except (A) pursuant to
existing Contracts and commitments (including the Austrian Shares Contract) or
(B) in the ordinary course of business consistent in all material respects with
past practice and (iv) notify Hexcel as to any material event of condemnation or
casualty affecting any of the Acquired Assets or Deferred Assets promptly after
the occurrence thereof. In addition, until the Closing (or, if the Danutec
Equity is not delivered to Hexcel at the Closing, with respect to Danutec, until
the earlier of (x) the Danutec Closing and (y) the first anniversary of the
Closing), Ciba shall not permit any Divested Subsidiary to do any of the
following, and Ciba and CGC (to the extent related to the Transferred Business)
shall not do any of the following, in each case without the prior written
consent of Hexcel:
(i) issue, authorize the issuance of, sell, purchase, redeem or
otherwise acquire (or waive any restrictions on any third party from taking
any such action with respect to) any capital stock, bonds, debentures, notes
or other securities, or authorize any stock option plan or amendment thereto
or grant any options (including employee stock options), "phantom" stock or
similar contractual rights, warrants or other rights or commitments
entitling any Person to require the issuance, delivery, sale, refunding or
redemption of any capital stock, bonds, debentures, notes or other
securities (or that give any Person the right to receive the benefits or
other similar rights enjoyed by or accruing to holders of capital stock) or
amend the terms of any such securities or agreements outstanding as of the
date hereof;
(ii) declare, set aside or pay any dividends on, or make any other
distributions in respect of, its capital stock or the Transferred Business
(other than dividends or other distributions of cash, cash equivalents and
marketable securities);
(iii) split or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock;
(iv) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities, guarantee any debt
securities of another Person, enter into any "keep well" or other agreement
to maintain any financial statement condition of another Person or enter
into any arrangement having the economic effect of any of the foregoing, in
any such case to the extent such action would create an Assumed Liability,
or make any loans, advances or capital contributions to, or investments in,
any other Person, other than (A) any Divested Subsidiary, (B) pursuant to
existing Contracts as set forth on Schedule 4.01(a)(iv) and (C) non-material
loans, advances or extensions of credit to employees, customers or suppliers
in the ordinary course of business consistent with past practice;
(v) take any action that would result in any of the representations and
warranties of Ciba or CGC set forth in this Agreement or any Ancillary
Agreement becoming untrue or any of the conditions to the Closing not being
satisfied;
(vi) acquire or agree to acquire (x) by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation,
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partnership, joint venture, association or other business organization or
division thereof or (y) any assets that are material, individually or in the
aggregate, to the Transferred Business taken as a whole, except (A)
purchases of inventory in the ordinary course of business consistent with
past practice and (B) the purchase of any interest in Danutec pursuant to a
Danutec Agreement;
(vii) mortgage or otherwise encumber or subject to any Lien (other than
Permitted Liens) or, except in the ordinary course of business consistent
with past practice, sell, lease or otherwise dispose of (x) any of the
Acquired Assets or Deferred Assets or (y) in the case of a Divested
Subsidiary, any of its properties or assets;
(viii) enter into, modify, amend or terminate any material Acquired
Contract or waive, release or assign any material rights or claims or fail
to take any action necessary to preserve the benefits of any material
Acquired Contract;
(ix) make or agree to make any new capital expenditure relating to the
Transferred Business which is individually in excess of $100,000 or which
when taken together with all other new capital expenditures relating to the
Transferred Business is in excess of $500,000;
(x) make any material Tax election or settle or compromise any material
liability for Taxes other than to the extent the amount of such settlement
or compromise is less than or equal to the amount of the accruals or
reserves for Taxes on the Balance Sheet;
(xi) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise) that
are Assumed Liabilities, other than the payment, discharge or satisfaction,
in the ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved against in
the Balance Sheet or incurred after the date thereof in the ordinary course
of business consistent with past practice;
(xii) amend, or cause or permit to be amended, the certificate of
incorporation or by-laws (or similar organizational documents) of any
Divested Subsidiary;
(xiii) (A) adopt or amend in any material respect or terminate any pension
or benefit plan relating to employees of the Divested Subsidiaries, or (B)
adopt, amend or terminate any pension or benefit plan relating to employees
of the Transferred Business employed outside the United States (other than
employees of the Divested Subsidiaries) other than any adoption, amendment
or termination that would not individually or in the aggregate reasonably be
expected to have a Material Adverse Effect, in either case, except as
required by law, or change any actuarial or other assumption used to
calculate funding obligations with respect to any such plan (except to the
extent that failure to make such change would result in noncompliance with
U.S. GAAP, the Code or other applicable law), or change the manner in which
contributions to any such plan are made or the basis upon which such
contributions are determined, except as required by law;
(xiv) make any material change in the compensation or benefits of, or
enter into or amend in any material respect any employment agreement with
respect to, any employee (or any director of a Divested Subsidiary) of the
Transferred Business outside the United States, except in the ordinary
course of business consistent with past practice or, if applicable, as may
be required under existing agreements;
(xv) make any change in any method of accounting or accounting practice
or policy other than those required by U.S. GAAP;
(xvi) enter into an agreement to settle any material lawsuits, claims,
actions, investigations or proceedings; or
(xvii) authorize any of, or commit or agree to take any of, the foregoing
actions.
(b) From and after the date of this Agreement and until the Closing, except
as expressly provided in this Agreement or as Ciba shall otherwise reasonably
agree, Hexcel shall and shall cause each of its
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Subsidiaries to (i) conduct its business in the ordinary course of business
consistent in all material respects with past practice, (ii) use all
commercially reasonable efforts to preserve intact its business organizations
and relationships with third parties and to keep available the services of its
current employees, (iii) not sell, assign, transfer, lease or license or
otherwise dispose of any of its assets or any parts thereof except (A) pursuant
to existing Contracts and commitments or (B) in the ordinary course of business
consistent in all material respects with past practice and (iv) notify Ciba as
to any material event of condemnation or casualty affecting any of the
properties or assets of Hexcel or any of its Subsidiaries promptly after the
occurrence thereof. In addition, until the Closing, Hexcel shall not and shall
not permit any of its Subsidiaries to do any of the following without the prior
written consent of Ciba:
(i) issue (other than (x) upon exercise of outstanding stock options or
stock options which are permitted to be granted hereunder, (y) upon
conversion of outstanding convertible debt or (z) up to 39,604 shares of
Hexcel Common pursuant to Hexcel's plan of reorganization), authorize the
issuance of, sell, purchase, redeem or otherwise acquire (or waive any
restrictions on any third party from taking any such action) any capital
stock, bonds, debentures, notes or other securities of Hexcel or its
Subsidiaries or authorize any stock option plan or any amendment thereto
(other than Hexcel's Amended and Restated Incentive Stock Plan in
substantially the form previously disclosed to Ciba) or grant any options
(other than employee or director stock options the grant of which has been
authorized and disclosed to Ciba prior to the date hereof (even if such
grant is subject to stockholder approval) or that are granted to newly hired
employees (other than directors or executive officers) in the ordinary
course of business in amounts consistent with past practice), "phantom"
stock or similar contractual rights, warrants or other rights or commitments
entitling any Person to require the issuance, delivery, sale, refunding or
redemption by Hexcel or any of its Subsidiaries of any capital stock, bonds,
debentures, notes or other securities of Hexcel or its Subsidiaries (or that
give any Person the right to receive the benefits or similar rights enjoyed
by or accruing to holders of shares of capital stock of Hexcel or any of its
Subsidiaries) or amend the terms of any such securities or agreements
outstanding as of the date hereof;
(ii) declare, set aside or pay any dividends on, or make any other
distributions in respect of, its capital stock;
(iii) split or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock;
(iv) except for drawings on existing working capital facilities in the
ordinary course of business, incur any indebtedness for borrowed money or
guarantee any such indebtedness of another Person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of
Hexcel or any of its Subsidiaries, guarantee any debt securities of another
Person, enter into any "keep well" or other agreement to maintain any
financial statement condition of another Person or enter into any
arrangement having the economic effect of any of the foregoing, or make any
loans, advances or capital contributions to, or investments in, any other
Person, other than (A) Hexcel or any direct or indirect wholly owned
Subsidiary of Hexcel, (B) pursuant to existing Contracts as set forth on
Schedule 4.01(b)(iv) and (C) non-material loans, advances or extensions of
credit to employees, customers or suppliers in the ordinary course of
business consistent with past practice;
(v) take any action that would result in any of the representations and
warranties of Hexcel set forth in this Agreement or any Ancillary Agreement
becoming untrue or any of the conditions to the Closing not being satisfied;
(vi) acquire or agree to acquire (x) by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or
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(y) any assets that are material, individually or in the aggregate, to
Hexcel and its Subsidiaries taken as a whole, except purchases of inventory
in the ordinary course of business consistent with past practice;
(vii) mortgage or otherwise encumber or subject to any Lien (other than
Hexcel Permitted Liens) or, except in the ordinary course of business
consistent with past practice, sell, lease or otherwise dispose of any of
its properties or assets;
(viii) enter into, modify, amend or terminate any material Contract or
waive, release or assign any material rights or claims or fail to take any
action necessary to preserve the benefits of any material Contract;
(ix) make or agree to make any new capital expenditure which is
individually in excess of $100,000 or which when taken together with all
other new capital expenditures is in excess of $500,000;
(x) make any material Tax election or settle or compromise any material
liability for Taxes other than to the extent the amount of such settlement
or compromise is less than or equal to the amount of the accruals or
reserves for Taxes on the Hexcel Balance Sheet;
(xi) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with their terms, of
liabilities reflected or reserved against in the Hexcel Balance Sheet or
incurred after the date of the Hexcel Balance Sheet in the ordinary course
of business consistent with past practice;
(xii) except for the Required Amendment, the authorization of an
additional 18,500,000 shares of Hexcel Preferred and except as contemplated
by the Governance Agreement, amend its certificate of incorporation or
by-laws (or similar organizational documents);
(xiii) adopt or amend in any material respect or terminate any pension or
benefit plan relating to employees of Hexcel or any of its Subsidiaries
employed outside the United States, except as required by law, or change any
actuarial or other assumption used to calculate funding obligations with
respect to any such plan (except to the extent that failure to make such
change would result in noncompliance with U.S. GAAP, the Code or other
applicable law), or change the manner in which contributions to any such
plan are made or the basis upon which such contributions are determined,
except as required by law;
(xiv) make any material change in the compensation or benefits of, or
enter into or amend in any material respect any employment agreement with
respect to, any employee or director of Hexcel or any of its Subsidiaries
outside the United States, except in the ordinary course of business
consistent with past practice or, if applicable, as may be required under
existing agreements;
(xv) make any change in any method of accounting or accounting practice
or policy other than those required by U.S. GAAP;
(xvi) enter into an agreement to settle any material lawsuits, claims,
actions, investigations or proceedings; or
(xvii) authorize any of, or commit or agree to take any of, the foregoing
actions.
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SECTION 4.02. ACCESS TO INFORMATION. Each of Hexcel and Ciba shall, and
shall cause each of their respective Subsidiaries to, afford to the other party
and to the officers, employees, accountants, counsel, financial advisors and
other representatives of such other party, reasonable access during normal
business hours during the period prior to the Closing, to all their respective
properties, books, Contracts, commitments, personnel and records (in the case of
Ciba, only to the extent relating to the Transferred Business or the
transactions contemplated by this Agreement and the Ancillary Agreements) and,
during such period, each of Hexcel and Ciba shall, and shall cause each of their
respective Subsidiaries to, furnish promptly to the other party (a) a copy of
each report, schedule, registration statement and other document filed by it
during such period pursuant to the requirements of Federal, state or foreign
securities laws and (b) all other information concerning its business,
properties and personnel (in each case with respect to Ciba, only to the extent
relating to the Transferred Business or the transactions contemplated by this
Agreement and the Ancillary Agreements) as such other party may reasonably
request. Each of Hexcel and Ciba acknowledge that the information being provided
to it in connection with the transactions contemplated hereby is subject to the
Confidentiality Agreement, the terms of which are incorporated herein by
reference. No investigation pursuant to this Section 4.02 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereunder.
SECTION 4.03. LEGAL REQUIREMENTS. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties shall use all
commercially reasonable efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, and to assist and cooperate with the other parties
in doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement and the Ancillary Agreements, including (i) the
obtaining of all necessary actions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including the prompt filing of (A) the premerger notification and report form
under the HSR Act and any filings required pursuant to applicable antitrust and
competition law statutes and regulations in each of the Applicable
Jurisdictions, (B) a notice pursuant to the Exon-Florio Amendment, (C) all
materials requested by the Departement de Securite pursuant to the Demande
d'Autorisation with the Direction du Tresor in France, (D) the filing of a
Special Security Agreement and a related request for a National Interest
Determination and all approvals of the United States Defense Investigative
Service required in connection therewith and (E) any other filings necessary
with Governmental Entities, if any) and the taking of all reasonable steps as
may be necessary to obtain any approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity, (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or any of the Ancillary Agreements or the
consummation of the transactions contemplated by this Agreement or the Ancillary
Agreements, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed and (iv)
the execution and delivery of any additional instruments necessary to consummate
the transactions contemplated by, and to fully carry out the purposes of, this
Agreement and the Ancillary Agreements.
SECTION 4.04. NO SOLICITATION. (a) Neither Ciba nor Hexcel shall, nor
shall they permit any of their respective Subsidiaries to, nor shall they
authorize or permit any officer, director or employee of, or any investment
banker, attorney or other advisor or representative of, either of them or their
respective Subsidiaries to, (i) solicit or initiate, or facilitate or endorse or
encourage the submission of, any Interfering Transaction, (ii) participate in
any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to expedite any inquiries
or the making of any proposal that constitutes, or may reasonably be expected to
lead to, any Interfering Transaction PROVIDED, that, prior to the receipt of
Hexcel stockholder approval of (x) the issuance of the Hexcel Shares and (y) the
Required Amendment, if in the opinion of the Board of Directors of Hexcel or
Ciba, as the case may be, based on the advice of outside counsel, such failure
to act would be inconsistent with the fiduciary duties of Hexcel or Ciba or
their respective boards of directors, as the case may be, to stockholders under
applicable law, Hexcel or Ciba, as the case may be, may, in response
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to an unsolicited proposal relating to an Interfering Transaction, and subject
to compliance with Section 4.04(c) below, furnish information with respect to it
to any Person pursuant to a confidentiality agreement. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding sentence by any officer of Hexcel or Ciba or any of their
respective Subsidiaries or any investment banker, attorney or other advisor or
representative of Hexcel or Ciba or any of their respective Subsidiaries, acting
on behalf of Hexcel or Ciba or any of their respective Subsidiaries, shall be
deemed to be a breach of this Section 4.04(a) by Hexcel or Ciba, as the case may
be. For purposes of this Agreement, "Interfering Transaction" means any
transaction, other than the transactions contemplated by this Agreement and the
Ancillary Agreements, the consummation of which prior to the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements would
or could reasonably be expected to impede, interfere with, prevent or materially
delay, or which would or could reasonably be expected to materially dilute the
benefits to Ciba or Hexcel, as the case may be, of the transactions contemplated
hereby or by the Ancillary Agreements.
(b) The Board of Directors of Hexcel shall not (i) withdraw or modify, or
propose to withdraw or modify, in a manner that would prevent the stockholders
of Hexcel from voting on, and approving if the requisite vote is obtained, the
issuance of the Hexcel Shares or the Required Amendment, the approval or
recommendation by such Board of Directors of the transactions contemplated
hereby or by the Ancillary Agreements, (ii) approve or recommend, or propose to
approve or recommend, any Interfering Transaction or (iii) negotiate or approve
or authorize entering into any preliminary or definitive agreement or
understanding with respect to any Interfering Transaction.
(c) The boards of directors of Ciba and CGC shall not (i) withdraw or
modify, or propose to withdraw or modify, the approval or recommendation by such
boards of directors of the transactions contemplated hereby or by the Ancillary
Agreements, (ii) approve or recommend, or propose to approve or recommend, any
Interfering Transaction or (iii) negotiate or approve or authorize entering into
any preliminary or definitive agreements or understanding with respect to any
Interfering Transaction.
(d) Hexcel and Ciba and CGC shall promptly advise each other of the
existence of any request for information or of any proposal for an Interfering
Transaction, or any inquiry with respect to, or which could reasonably be
expected to lead to, any Interfering Transaction.
(e) Nothing contained in this Section 4.04 shall prohibit Hexcel from making
any recommendation with respect to the transactions contemplated hereby or any
disclosure to Hexcel's stockholders if, based on advice of outside counsel, such
disclosure or recommendation is required by applicable fiduciary duties, law or
stock exchange rules.
SECTION 4.05. AGREEMENT REGARDING NON-ASSIGNABLE CONTRACTS. If any
Acquired Contract (i) is not assignable without the consent of any party
thereto, (ii) may by its terms be terminated or cancelled upon assignment or
(iii) is not by its terms assignable, Ciba and Hexcel shall use all commercially
reasonable efforts to obtain the consent of any required parties thereto to
effect such assignment. If any such consent or approval can not be obtained,
Ciba shall use all commercially reasonable efforts (not involving the
expenditure of money (other than incidental fees and expenses) or the giving of
financial accommodations) to secure an arrangement reasonably satisfactory to
Hexcel to provide Hexcel the benefits that it would have received and to subject
Hexcel to the obligations it would have owed, in each case, under such Acquired
Contract following the Closing as if such consent or approval had been obtained.
SECTION 4.06. TRANSFER TAXES. Ciba and Hexcel shall cooperate and shall
cause their respective Subsidiaries to cooperate in timely making and filing all
Tax Returns as may be required to comply with the provisions of any Transfer Tax
laws. To the extent legally able to do so, Hexcel and Ciba shall deliver or
cause to be delivered to each other exemption certificates satisfactory in form
and substance to each other with respect to Transfer Taxes if such delivery
would reduce the amount of Transfer Taxes that would otherwise be imposed. To
the extent permitted by law, Hexcel shall pay
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when due, all Transfer Taxes, and Hexcel shall reimburse Ciba for any Transfer
Taxes paid by Ciba and its Subsidiaries within ten days of Ciba's written
request, which request shall include a calculation of such Transfer Taxes and
evidence of payment thereof. Hexcel shall provide to Ciba, within 10 days of
Hexcel's payment of a Transfer Tax, a statement setting forth the amount of such
Transfer Tax, the calculation thereof and evidence of payment thereof.
SECTION 4.07. USE OF NAMES. (a) Following the Closing, Hexcel shall have
the right to continue to use existing inventories of the following materials
bearing Ciba Tradenames for the periods specified below:
(i) quotation forms, order acknowledgments, purchase orders, invoices,
shipping documents, letterhead, business cards and similar stationary sent
to third parties for a period not to exceed 90 days following the Closing
Date (and with respect to those of Danutec for a period not to exceed 90
days following the Danutec Closing, if any); PROVIDED, HOWEVER, that Hexcel
shall overlabel or make such other changes to such documents as is necessary
to reflect correct payment instructions;
(ii) packaging, labeling, containers, brochures, technical data sheets
and similar product related materials for a period of not more than twelve
months following the Closing Date (and with respect to those of Danutec for
a period of not more than twelve months following the Danutec Closing, if
any); and
(iii) internal documents and forms used in the day-to-day conduct of the
business for a period of up to twelve months following the Closing Date (and
with respect to those of Danutec for a period of up to twelve months
following the Danutec Closing, if any); PROVIDED that in no event shall
Hexcel distribute any such internal documents to any third party.
(b) Hexcel shall use reasonable efforts to replace Ciba Tradenames on
buildings, cars, trucks and other fixed assets as soon as possible, but in any
event shall replace the same within 180 days following the Closing Date (and
with respect to Danutec within 180 days following the Danutec Closing, if any).
(c) (i) Following the Closing Date, Hexcel shall not place any orders for
advertising copy using any of the Ciba Tradenames. Orders for advertising copy
made prior to the Closing Date (or, with respect to Danutec, the date of the
Danutec Closing) may be completed, provided that publication of such advertising
is completed prior to 180 days following the Closing Date (and with respect to
Danutec prior to 180 days following the Danutec Closing, if any).
(ii) For a period of 180 days following the Closing Date (and with
respect to Danutec for a period of 180 days following the Danutec Closing,
if any), Hexcel shall have the right to use Ciba Tradenames in association
with Hexcel Trade Names in advertising media solely for the purpose of
communicating to customers the consummation of the transactions contemplated
by this Agreement and the Ancillary Agreements; PROVIDED, HOWEVER, that any
such use shall be subject to the prior review and approval of Ciba, not to
be unreasonably withheld.
(d) (i) Hexcel and the Ciba Distributors (as defined below) shall use their
respective commercially reasonable efforts to cause the orderly sale of all
existing inventory constituting Deferred Assets and bearing Ciba Tradenames by
each Subsidiary of Ciba conducting the Transferred Business in the Excluded
Jurisdictions under the Distribution Agreement (each, a "Ciba Distributor") as
soon as reasonably practicable and consistent with past practice for such Ciba
Distributors. Thereafter, subject to subparagraph (iii) below, Hexcel shall
supply, in accordance with the Distribution Agreement, the respective Ciba
Distributors with products that do not bear any Ciba Tradename.
(ii) Each Ciba Distributor continuing to serve as a distributor of
products of the Transferred Business following the Closing shall be entitled
to use the Ciba Tradenames in association with existing products only until
the earliest to occur of (A) the date on which all existing inventory of
such Ciba Distributor bearing any Ciba Tradename (including any additional
inventory supplied
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in accordance with subparagraph (iii) below) has been sold; (B) the date of
termination of the Distribution Agreement with respect to such Ciba
Distributor; or (C) the first anniversary of the Closing Date.
(iii) Hexcel may supply directly or indirectly to any Ciba Distributor
additional inventory bearing any Ciba Tradename in volumes consistent with
past practice in effect prior to Closing for a period not to exceed 90 days
following the Closing Date. If a Danutec Closing occurs after the Closing
Date, Danutec shall be permitted to use inventory bearing Ciba Tradenames
until the earlier to occur of (x) the exhaustion of Danutec's existing
inventory as of the date of the Danutec Closing or (y) 90 days following the
Danutec Closing. In the event that any Ciba Distributor is terminated as a
distributor of products of the Transferred Business prior to the first
anniversary of the Closing Date, any successor distributor engaged by Hexcel
to distribute products of the Transferred Business in the territory formerly
serviced by such Ciba Distributor shall be entitled to use the Ciba
Tradenames in association with such products until the earlier of (A) the
date on which all the then existing inventory of the Ciba Distributor
transferred to the new distributor has been sold by such new distributor,
(B) 90 days from the date of such engagement by Hexcel, or (C) the first
anniversary of the Closing Date.
(e) Notwithstanding any other provision of this Agreement, Hexcel agrees
that Ciba and CGC shall have no responsibility for claims by third parties
arising out of, or relating to, the use by Hexcel of any Ciba Tradename, and
Hexcel agrees to indemnify and hold harmless Ciba, CGC and each of their
respective Subsidiaries and their directors, officers and employees from any and
all claims that may arise out of the use thereof by Hexcel or any affiliate of
Hexcel whether or not in accordance with this Agreement.
SECTION 4.08. INSURANCE. From and after the Closing, Hexcel shall secure
insurance with respect to the Business, including the Transferred Business, with
coverages and amounts customary in the industry in accordance with applicable
prudent risk management practices.
SECTION 4.09. POST-CLOSING COOPERATION. (a) After the Closing, upon
reasonable written notice, Hexcel and Ciba shall furnish or cause to be
furnished to each other and their respective accountants, counsel and other
representatives access, during normal business hours, to such information
(including records pertinent to the Transferred Business), personnel and
assistance relating to the Transferred Business and the transactions
contemplated hereby and by the Ancillary Agreements as is reasonably necessary
for financial reporting and accounting matters, the preparation and filing of
any Tax Returns, reports or forms, the defense of any Tax claim or assessment,
the pursuit of any adjustment or refund of Taxes, the calculation of any
deferred Tax items, the giving of testimony or the preparation and defense or
prosecution of any actions or proceedings (other than actions or proceedings in
which Ciba and Hexcel are adverse parties) and for any other reasonable purpose
relating to the transactions contemplated by this Agreement and the Ancillary
Agreements. Such assistance shall include cooperation in responding to audit
reports made by Taxing Authorities regarding or relating to the Transferred
Business and, at the request of the party being audited, participation in audits
relating to the Transferred Business. The reasonable fees and expenses (except
de minimis fees and expenses) incurred in connection with any cooperation and
assistance provided pursuant hereto shall be reimbursed to the party providing
such cooperation and assistance by the party receiving such cooperation and
assistance. Hexcel shall retain the books and records included in the Acquired
Assets and the Deferred Assets for a period of seven years after the Closing or
such longer period as may be required by applicable law. Ciba shall retain the
books and records relating to the Transferred Business that are Excluded Assets
for a period of seven years after the Closing or such longer period as may be
required by applicable law. After the end of such period, in the event Hexcel or
Ciba determines to dispose of such books or records, Hexcel or Ciba, as the case
may be, shall give 30 days' prior written notice to such effect to the other
party and give the other party at the other party's cost and expense, reasonable
opportunity to remove and retain all or any part of such books or records as the
other party may select.
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(b) Ciba and CGC shall use all commercially reasonable efforts to facilitate
and effect the implementation of the transactions contemplated hereby and by the
Ancillary Agreements and, for such purpose but without limitation, Ciba and CGC
shall execute and deliver to Hexcel promptly at and after the Closing such
assignments, Real Property Deeds (and other similar real property deeds in South
Africa), bills of sale, consents and other instruments as Hexcel or its counsel
may reasonably request as necessary for such purpose.
(c) In the event that after the Closing, a Deferred Closing or the Danutec
Closing, as the case may be, Ciba, CGC or Hexcel becomes aware that any Acquired
Assets or Deferred Assets were not transferred to Hexcel by Ciba or any of its
Subsidiaries at the Closing, a Deferred Closing or the Danutec Closing, as the
case may be, Ciba and CGC or Hexcel shall promptly notify the other to that
effect and Ciba and CGC shall transfer such Acquired Assets or Deferred Assets
to Hexcel or its designated Subsidiary or Subsidiaries. In the event that after
the Closing, a Deferred Closing or the Danutec Closing, Hexcel, Ciba or CGC
becomes aware that any assets that are not Acquired Assets were transferred to
Hexcel at the Closing, a Deferred Closing or the Danutec Closing, Hexcel or Ciba
and CGC shall promptly notify the other to that effect and Hexcel shall transfer
such assets to Ciba or its designated Subsidiary or Subsidiaries.
(d) From time to time after the Closing, as and when requested by a party
hereto, the party receiving such request shall execute and deliver, or cause to
be executed and delivered, all such documents and instruments and shall take, or
cause to be taken, all such further or other actions (including pursuant to the
provisions of Sections 4.03, 4.05 and 4.19), as the party receiving such request
reasonably deems necessary or desirable to consummate the transactions
contemplated by this Agreement and the Ancillary Agreements.
(e) Effective on the Closing Date, each of Ciba and CGC hereby constitutes
and appoints Hexcel and its successors, legal representatives and assigns the
true and lawful attorneys of Ciba and CGC with full power of substitution, in
the name of Ciba and CGC or Hexcel, but on behalf of and for the benefit of
Hexcel and its successors, legal representatives and assigns, and at the expense
of Hexcel: (i) to demand and receive from time to time any and all the Acquired
Assets and, after a Deferred Closing, the relevant Deferred Assets and to make
endorsements and give receipts and releases for and in respect of the same and
any part thereof; (ii) to institute, prosecute, compromise and settle any and
all proceedings at law, in equity or otherwise that Hexcel and its successors,
legal representatives or assigns may deem proper in order to collect, assert or
enforce any claim, right or title of any kind in or to the Acquired Assets and,
after a Deferred Closing, the relevant Deferred Assets; (iii) to defend or
compromise any or all actions, suits or proceedings in respect of any of the
Acquired Assets and, after a Deferred Closing, the relevant Deferred Assets,
other than actions, suits or proceedings with respect to which indemnification
is provided by Ciba and CGC pursuant to Section 4.10 or Article VII (except as
provided in Section 7.06) and (iv) to do all such acts and things in relation to
the matters set forth in the preceding clauses (i) through (iii) as Hexcel and
its successors, legal representatives or assigns shall deem desirable. Each of
Ciba and CGC hereby agrees that the appointment hereby made and the powers
hereby granted are coupled with an interest and are and shall be irrevocable.
Ciba shall deliver to Hexcel at the Closing an acknowledged power of attorney to
the foregoing effect executed by Ciba and CGC.
(f) Effective upon the Closing Date, Hexcel and its Subsidiaries shall have
the right to receive and open all mail, packages and other communications
addressed to Ciba or any of its affiliates that are delivered to Hexcel or any
of its Subsidiaries and they shall have the right to retain all such
communications which relate exclusively or primarily to the Transferred
Business. Ciba and CGC agree promptly to deliver to Hexcel any such mail,
packages or other communications delivered directly or indirectly to Ciba or any
of its affiliates. Hexcel shall promptly deliver to Ciba all mail, packages and
other communications delivered to Hexcel or any of its Subsidiaries that do not
relate exclusively or primarily to the Transferred Business. Hexcel shall have
the right and authority to collect, for its own account, all receivables and
other items which shall be transferred or are intended to be transferred to
Hexcel as provided in this Agreement, and to endorse with the name of Ciba or
any
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of its Subsidiaries any checks or drafts received on account of any such
receivables or other items, and Ciba or CGC shall promptly transfer or deliver
to Hexcel any cash or other property received directly or indirectly by Ciba or
any of its Subsidiaries or affiliates in respect of such receivables and other
items.
SECTION 4.10. BULK TRANSFER LAWS. Hexcel hereby waives compliance by Ciba
and its Subsidiaries with the provisions of any so-called "bulk transfer law" of
any jurisdiction in connection with the sale of the Acquired Assets and the
Deferred Assets to Hexcel. Ciba and CGC shall indemnify and hold harmless Hexcel
against any and all liabilities (other than the Assumed Liabilities) that may be
asserted by third parties against Hexcel as a result of noncompliance with any
such bulk transfer law; PROVIDED, HOWEVER, that nothing herein shall prevent
Ciba or CGC from contesting any such liabilities in good faith.
SECTION 4.11. SUPPLIES. Except as set forth in Section 4.07, Hexcel shall
not use stationery, purchase order forms, signage, invoices, receipts, or
advertising and promotional materials, training and service literature and
materials or other similar materials that state or otherwise indicate thereon
that the Transferred Business or any part thereof is a division or unit of Ciba
or any of its Subsidiaries.
SECTION 4.12. CERTAIN ANCILLARY AGREEMENTS. Prior to the Closing, the
parties hereto shall negotiate in good faith and agree upon mutually acceptable
terms of (i) an assignment and assumption agreement relating to the transactions
contemplated hereby and by the Ancillary Agreements (the "Assignment and
Assumption Agreement"), (ii) a registration rights agreement relating to the
sale of the Hexcel Shares as contemplated by the letter of intent dated July 11,
1995 between Hexcel and Ciba (the "Registration Rights Agreement"), (iii)
certain supply and tolling agreements (the "Supply and Tolling Agreements"),
(iv) the Trademark License Agreement for the Trademark "Redux", (v) transitional
services agreements (which, unless otherwise agreed, shall reflect prices that
do not exceed the historically allocated cost at which such services were
provided to the Transferred Business as operated by Ciba prior to the Closing)
for the United States, the United Kingdom and France (the "Transitional Services
Agreements"), (vi) an agreement regarding employees of the Transferred Business
in the United Kingdom (the "UK Employment Matters Agreement"), (vii) certain
agreements relating to the sharing of the Duxford site and CML (together with
the Hive-Down Agreements, the "UK Agreements") and (viii) the Indenture. At the
Closing, Hexcel and Ciba (or, as applicable, their Subsidiaries) will execute
and deliver such agreements.
SECTION 4.13. INTELLECTUAL PROPERTY LICENSES. For use in this Section
4.13, "Composite Products" shall mean composites, including structures and
interiors, fabrics, laminates, prepregs, adhesive films, honeycomb core,
sandwich panels and fabricated components.
(a) At Closing, Ciba and CGC shall grant to Hexcel pursuant to a Trademark
license agreement in form and substance reasonably satisfactory to Ciba, CGC and
Hexcel (the "Trademark License Agreement"), a paid-up, perpetual, royalty-free,
non-exclusive, license, without the right to grant sublicenses, under the
Trademark "Redux".
(b) (i) At Closing, Hexcel shall be deemed to have granted to Ciba and its
Subsidiaries a paid-up, perpetual, royalty-free, non-exclusive license (without
the right to grant sublicenses except to customers that purchase products from
Ciba) under all currently existing Patents set forth on Schedule 4.13(b)(i) to
sell products, other than Composite Products, for the manufacture and sale by
Ciba's customers of products (including Composite Products) in any field
including the Composites Field.
(ii) At Closing, Ciba shall be deemed to have granted to Hexcel and its
Subsidiaries a paid-up, perpetual, royalty-free, non-exclusive license
(without the right to grant sublicenses except to have products licensed
under the Patents set forth on Schedule 4.13(b)(ii) made for Hexcel for
internal use by Hexcel in the manufacture and sale of Composite Products) to
make, have made, use and sell products licensed under the Patents set forth
on Schedule 4.13(b)(ii) for the manufacture and sale of Composite Products.
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(iii) At Closing, Ciba shall be deemed to have granted to Hexcel and its
Subsidiaries a paid-up, perpetual, royalty-free, non-exclusive license, with
the right to grant sublicenses, to make, use and sell products under the
Patents set forth on Schedule 4.13(b)(iii).
(c) After Closing, Hexcel shall, upon request, grant to Ciba and its
Subsidiaries a perpetual, nonexclusive license (without the right to grant
sublicenses except to customers that purchase products from Ciba) to sell
products other than Composite Products for the manufacture and sale by Ciba's
customers of products (including Composite Products) for use in any field
including the Composites Field, bearing a commercially reasonable royalty to be
mutually agreed upon under the Patents set forth on Schedule 4.13(c).
(d) After Closing, Ciba shall, upon request, grant to Hexcel and its
Subsidiaries a perpetual, non-exclusive license (without the right to grant
sublicenses except to have products licensed under the Patents set forth on
Schedule 4.13(d) made for Hexcel for internal use by Hexcel in the manufacture
and sale of Composite Products) to make, have made, use and sell products
licensed under the Patents set forth on Schedule 4.13(d) for the manufacture and
sale of Composites Products, bearing a commercially reasonable royalty to be
mutually agreed upon.
(e) In the event that (i) the conduct of the Transferred Business as
conducted on the Closing Date would infringe any Patents developed by the
Polymers or Composites Divisions of Ciba as existing on the Closing Date of Ciba
or its Subsidiaries that are not Acquired Intellectual Property or utilize any
Know-how as existing on the Closing Date of Ciba or its Subsidiaries that is not
Acquired Intellectual Property and (ii) Hexcel provides written notice to Ciba
specifying the relevant Patent or Know-how, Ciba or CGC shall thereupon be
deemed to have granted Hexcel as of the Closing Date a non-exclusive, paid-up,
perpetual, royalty-free license (without the right to grant sublicenses except
to have products licensed hereunder made for Hexcel for internal use by Hexcel
in the manufacture and sale of Composite Products) in order to continue to
conduct the Transferred Business as conducted on the Closing Date under such
Patents and utilizing such Know-how.
(f) In the event that (i) the conduct of Ciba's business, excluding the
manufacture of Composite Products, by the Transferred Business as conducted on
the Closing Date would infringe any Patent or utilize any Know-how that is
Acquired Intellectual Property as existing on the Closing Date and (ii) Ciba or
CGC provides written notice to Hexcel specifying the relevant Patent or
Know-how, Hexcel shall thereupon be deemed to have granted to Ciba and CGC as of
the Closing Date a non-exclusive, paid-up, perpetual, royalty-free license
(without the right to grant sublicenses except to customers that purchase
products from Ciba) to sell product other than Composite Products for the
manufacture and sale by Ciba's customers of products (including Composite
Products) in any field including the Composites Field in order to conduct such
business, under such Patents or utilizing such Know-how.
(g) In the event that (i) the conduct of the Transferred Business relating
solely to the sale of resin systems for resin transfer molding ("RTM")
applications as conducted on the Closing Date would infringe any Patents
developed by the Polymers Division or Composites Divisions of Ciba as existing
on the Closing Date of Ciba or its Subsidiaries that are not Acquired
Intellectual Property or utilize any Know-how as existing on the Closing Date of
Ciba or its Subsidiaries that is not Acquired Intellectual Property and (ii)
Hexcel provides written notice to Ciba specifying the relevant Patent or
Know-how, Ciba or CGC shall thereupon be deemed to have granted Hexcel as of the
Closing Date a non-exclusive, paid-up, perpetual, royalty-free license, with the
right to grant sublicenses, in order continue to conduct the Transferred
Business as conducted on the Closing Date under such Patents and utilizing such
Know-how.
(h) In the event that (i) the conduct of Ciba's business relating solely to
the sale of resin systems for RTM applications as conducted by the Polymers
Division of Ciba or its Subsidiaries on the Closing Date would infringe any
Patent or utilize any Know-how that is Acquired Intellectual Property as
existing on the Closing Date and (ii) Ciba or CGC provides written notice to
Hexcel specifying the
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relevant Patent or Know-how, Hexcel shall thereupon be deemed to have granted to
Ciba and CGC as of the Closing Date a non-exclusive, paid-up, perpetual,
royalty-free license, with the right to grant sublicenses, in order to conduct
such business under such Patents or utilizing such Know-how.
(i) After Closing, in the event that (i) Ciba or CGC determines that a
Patent on Schedule 4.13(c) should be on 4.13(b)(i) because the conduct of Ciba's
business, excluding the manufacture of Composite Products, by the Transferred
Business as conducted on the Closing would infringe such Patent designated on
Schedule 4.13(c) and (ii) Ciba or CGC provides written notice to Hexcel
specifying the relevant Patent, Hexcel shall thereupon be deemed to have granted
to Ciba and CGC as of the Closing Date a non-exclusive, paid-up, perpetual,
royalty-free license (without the right to grant sublicenses except to customers
that purchase product from Ciba) to sell products other than Composite Products
for the manufacture and sale by Ciba's customers of products (including
Composite Products) in any field including the Composites Field in order to
conduct such business outside the Composites Field, under such Patent.
(j) After Closing, in the event that (i) Hexcel determines that a Patent on
Schedule 4.13(d) should be on Schedule 4.13(b)(ii) because the conduct of the
Transferred Business as conducted on the Closing Date would infringe such Patent
designated on Schedule 4.13(d) and (ii) Hexcel provides written notice to Ciba
specifying the relevant Patent, Ciba or CGC shall thereupon be deemed to have
granted Hexcel as of the Closing Date a non-exclusive, paid-up, perpetual,
royalty-free license (without the right to grant sublicenses except to have
product licensed hereunder made for Hexcel for internal use by Hexcel in the
manufacture and sale of Composite Products) in order to continue to conduct the
Transferred Business as conducted on the Closing Date under such Patents.
SECTION 4.14. DIRECTORS' AND OFFICERS' INDEMNIFICATION. The certificate of
incorporation and by-laws of Hexcel shall continue to contain the provisions
with respect to indemnification contained therein as of the date hereof, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years following the Closing in any manner that would adversely affect the
rights thereunder of individuals who at any time prior to the Closing were
directors or officers of Hexcel in respect of actions or omissions occurring at
or prior to the Closing, except for such modifications as are required by
applicable law. From and after the Closing, Hexcel shall indemnify, defend and
hold harmless the officers and directors of Hexcel as of the date hereof and
their respective heirs and personal and legal representatives (collectively, the
"Indemnified Individuals") against all losses, expense, claims, damages,
liabilities, costs or expenses (including, without limitation, reasonable fees
and expenses of counsel selected by the Indemnified Individuals; PROVIDED that
Hexcel shall in no event be responsible for the fees and expenses of more than
one counsel for all Indemnified Individuals in respect of any particular Claim
(as defined below) or group of related Claims, unless an Indemnified Individual
shall have reasonably concluded that there may be legal defenses available to
him that are not available to, and that are in conflict with, other Indemnified
Individuals in respect of such Claim or Claims, in which case Hexcel shall be
responsible for the reasonable fees and expenses of one counsel for such
Indemnified Individual) arising out of or in connection with any civil,
criminal, administrative or investigative claim, action, suit, proceeding or
investigation based in whole or in part on the fact that such person was a
director or officer of Hexcel at or prior to the Closing (each a "Claim"), in
each case to the fullest extent permitted under Delaware law (and shall pay the
costs and expenses incurred by such Indemnified Individuals in connection with
or relating to such Claim (including fees and expenses of counsel as provided
above) upon presentation of statements in advance of the final disposition of
any such matter to the fullest extent permitted under Delaware law, subject to
receipt of the Indemnified Individual's undertaking to repay such advances
following a final and nonappealable decision by a court of competent
jurisdiction that such repayment is required). For six years after the Closing,
Hexcel shall provide directors' and officers' liability insurance ("D&O
Insurance") for the Indemnified Individuals in respect of actions or omissions
occurring at or prior to the Closing (i) in an amount no less than that
currently in effect or such greater amount as shall hereafter be maintained for
the benefit of Hexcel's directors, (ii) with other terms no less favorable than
those currently in effect and (iii) with an insurance carrier of comparable or
better financial condition than
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Hexcel's current D&O Insurance carrier, it being understood that the provision
of such D&O Insurance shall not relieve Hexcel of its indemnification
obligations pursuant to this Section 4.14. Notwithstanding the foregoing, if at
any time Hexcel does not maintain D&O Insurance for its then current directors,
the D&O Insurance referred to in the preceding sentence for the Indemnified
Individuals need only be maintained to the extent it is available on
commercially reasonable terms. The provisions of this Section 4.14 shall, to the
maximum extent permitted by law, be binding upon the successors and assigns of
Hexcel.
SECTION 4.15. DISTRIBUTION AGREEMENT. At Closing, Hexcel and Ciba shall
execute the Distribution Agreement, which relates to the Deferred Assets and the
distribution, sales, marketing and receivables collection services currently
provided to the Transferred Business in the Excluded Jurisdictions by the Ciba
Distributors.
SECTION 4.16. LOCAL AGREEMENTS. Prior to the Closing or, if applicable,
any Deferred Closing or the Danutec Closing, the parties to this Agreement shall
negotiate in good faith and agree upon for relevant jurisdictions other than the
United States such agreements and arrangements consistent with the terms hereof
as are necessary to effectuate the transactions contemplated hereby and by the
Ancillary Agreements including conveyancing agreements and legally required
arrangements regarding employees. In the event of any inconsistency between the
provisions of any such local agreement and this Agreement, the provisions of
this Agreement shall govern in all instances.
SECTION 4.17. NYSE LISTING. Hexcel shall use all commercially reasonable
efforts to cause the Hexcel Shares to be listed on the New York Stock Exchange
at the time of the Closing, subject only to official notice of issuance.
SECTION 4.18. STOCKHOLDER APPROVAL; PROXY. (a) Hexcel shall hold a vote of
its stockholders to approve the matters described in paragraph (b) below at an
annual meeting of stockholders duly called and held for that purpose as soon as
practicable.
(b) Hexcel shall prepare, file with the SEC and mail to its stockholders a
proxy statement that complies as to form in all material respects with all
relevant provisions of the Exchange Act relating to the solicitation of proxies
for the approval of (i) the issuance of the Hexcel Shares, (ii) (A) the Required
Amendment and (B) an amendment to the certificate of incorporation of Hexcel to
increase the number of shares of Hexcel Preferred authorized for issuance to
20,000,000, (iii) the election of the slate of nominees to be directors of
Hexcel described in Section 4.19, (iv) Hexcel's amended and restated incentive
stock plan, (v) the ratification of the appointment of Hexcel's independent
auditors and (vi) such other business as may properly come before the annual
meeting. Hexcel covenants that on the date filed with the SEC and on the date
first sent or given to stockholders such proxy statement shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances in which they were made, not misleading, except that Hexcel
makes no such covenant as to information supplied by Ciba or any of its
Subsidiaries or affiliates in writing expressly for inclusion therein. Ciba
shall cooperate with Hexcel in the preparation of such proxy statement and, in
that connection, shall provide for use in such proxy statement such information
with respect to Ciba, CGC, the Divested Subsidiaries, any of their respective
affiliates, the Transferred Business, the Acquired Assets and the Deferred
Assets as is reasonably necessary for (i) such proxy statement to comply as to
form in all material respects with the relevant provisions of the Exchange Act
and (ii) for such proxy statement not to contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
in which they were made, not misleading, in each case, solely with respect to
Ciba, CGC, the Divested Subsidiaries, any of their respective affiliates, the
Transferred Business, the Acquired Assets or the Deferred Assets. Ciba covenants
that on the date such proxy statement is filed with the SEC and on the date such
proxy statement is first given or sent to Hexcel's stockholders such information
provided in writing by Ciba or any of its Subsidiaries or affiliates for use
therein shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or
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necessary in order to make the statements related thereto contained in such
proxy statement, in light of the circumstances in which they were made, not
misleading. Hexcel and Ciba, as the case may be, shall each promptly correct any
information provided by it or any of its Subsidiaries or affiliates for use in
such proxy statement, if and to the extent that such information shall have
become false or misleading in any material respect, and Hexcel further agrees to
take all commercially reasonable steps necessary to amend or supplement such
proxy statement and to cause such proxy statement as so amended or supplemented
to be filed with the SEC and disseminated to Hexcel's stockholders, in each case
as and to the extent required by the Exchange Act. Ciba and its counsel shall be
given a reasonable opportunity to review and comment upon the proxy statement
and all amendments and supplements thereto prior to their filing with the SEC or
dissemination to Hexcel's stockholders. Hexcel shall provide Ciba and its
counsel in writing with any comments Hexcel or its counsel may receive from the
SEC or its staff with respect to the proxy statement promptly after the receipt
of such comments.
SECTION 4.19. NEW BOARD OF DIRECTORS. (a) The slate of directors to be
presented to stockholders of Hexcel in accordance with Section 4.18 is expected
to be Marshall S. Geller, Joseph L. Harrosh, Peter A. Langerman, John J. Lee,
George S. Springer, Frederick W. Stanske, Franklin S. Wimer, Peter D. Wolfson
and Robert L. Witt.
(b) On the Closing Date, Hexcel shall cause to be delivered to Ciba (i) duly
signed resignations, effective immediately after the Closing, of Messrs.
Harrosh, Wimer, Wolfson and Witt in order to permit the appointment of John M.D.
Cheesmond, Stanley Sherman, Joseph T. Sullivan and Hermann Vodicka to fill the
vacancies thereby created in accordance with the Governance Agreement and (ii)
such other resignations as may be necessary permit Ciba's nominees to become
directors and committee members in accordance with the Governance Agreement, and
Hexcel shall take such other action as is necessary to accomplish the foregoing.
Immediately following the appointment of such Ciba nominees, the number of
directors constituting Hexcel's Board of Directors shall be fixed at ten and
Juergen Habermeier shall be appointed to fill the remaining vacancy in
accordance with the Governance Agreement. On the Closing Date, Ciba shall cause
to be delivered to Hexcel duly signed resignations (from the applicable boards
of directors and committees thereof), effective immediately after the Closing,
of the directors of each of the Divested Subsidiaries.
SECTION 4.20. SUBSEQUENT AGREEMENT ROYALTY. If prior to Closing, a major
original equipment manufacturer enters into an agreement with CGC that would
constitute an Acquired Contract with respect to certain interiors programs
and/or the manufacturing of secondary composites for such manufacturer in the
Peoples Republic of China, Hexcel and Ciba shall promptly negotiate in good
faith the terms of a royalty agreement or agreements providing for the payment
to Ciba or CGC of a royalty with respect to sales under such Contract or
Contracts on terms to be mutually agreed upon in good faith by the parties
hereto based upon the anticipated profitability of such Contract or Contracts to
Hexcel and the level of capital expenditures that will be required for Hexcel to
perform its obligations thereunder.
SECTION 4.21. FINANCIAL AND INSURANCE EXPERTISE. (a) For a period of 12
months after the Closing, Ciba shall provide its knowledge and expertise to
Hexcel to assist Hexcel in securing sources of financing adequate to support the
operations of Hexcel assuming that the transactions contemplated by this
Agreement and the Ancillary Agreements are consummated, PROVIDED that in no
event shall Ciba be under any obligation to provide any financial support or
accommodation whatsoever (whether as obligor, guarantor or otherwise) to Hexcel
or any of its Subsidiaries or any other party in connection with securing such
financing.
(b) For a period of 24 months after the Closing in accordance with the
provisions of the Transitional Services Agreements, Ciba shall provide its
knowledge and expertise to Hexcel to assist Hexcel in obtaining insurance
coverage consistent with prudent risk management principles, at a rate of $200
per hour, with respect to the operations of Hexcel assuming that the
transactions contemplated by this
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Agreement and the Ancillary Agreements are consummated, PROVIDED that in no
event shall Ciba be under any obligation to provide any financial support or
accommodation whatsoever in connection with obtaining such insurance coverage.
SECTION 4.22 TRANSFER OF INTERCOMPANY DEBTS. Ciba shall, at the applicable
closing, with respect to all indebtedness existing as of the date of this
Agreement of any Divested Subsidiary (other than Accounts Payable incurred in
the ordinary course of business) that is owed to Ciba or any of its Subsidiaries
(other than another Divested Subsidiary), cause all such intercompany
indebtedness to be transferred to Hexcel and all documents evidencing such
indebtedness to be included as Acquired Contracts.
SECTION 4.23. SUPPLEMENTAL DISCLOSURE. (a) Ciba and Hexcel shall have the
continuing obligation until the Closing promptly to notify each other with
respect to any matter hereafter arising or discovered that, if existing or known
at the date of this Agreement, would have been required to be set forth or
described in such Schedules hereto and to provide each other with revised
Schedules reflecting any such matter, PROVIDED, that no such revision shall have
any effect for purposes of determining the satisfaction of the conditions set
forth in Article V hereto.
(b) Ciba and Hexcel shall promptly notify each other of, and furnish each
other with any information that may reasonably be requested with respect to, the
occurrence to Hexcel's or Ciba's knowledge, as the case may be, of any event or
condition or the existence to Hexcel's or Ciba's knowledge, as the case may be,
of any fact that would cause any of the conditions to the other party's
obligation to consummate the transactions contemplated by this Agreement and the
Ancillary Agreements not to be fulfilled.
SECTION 4.24. NON-COMPETITION AND RELATED MATTERS. (a) Notwithstanding any
other provision of this Agreement to the contrary, for a period of five years
from the Closing Date, Ciba and its Subsidiaries shall not, directly or
indirectly:
(i) engage in activities or businesses that compete with the
development, manufacture, marketing, distribution or sale on a worldwide
basis of composites, including structures and interiors, fabrics, laminates,
prepregs, adhesive films, honeycomb core, sandwich panels and fabricated
components, in each case as conducted on the Closing Date (the "Composites
Field"), PROVIDED, HOWEVER, that Ciba and its Subsidiaries shall retain the
right to develop, manufacture, market, distribute and/or sell adhesive
films, resins systems, additives and pigments for use in the Composites
Field, except that such adhesive films and resins systems shall not include
any specific adhesive films or prepreg formulations (or derivations
thereof), whether or not patented, used by the Transferred Business on or
prior to the Closing Date, unless such adhesive films or prepreg
formulations have been sold by Ciba and its Subsidiaries to third parties
prior to the Closing Date; and
(ii) engage in any of the following without the prior written approval
of Hexcel or any of its relevant affiliates (other than Ciba or its
Subsidiaries): (A) soliciting or recruiting any employees of Hexcel who were
employees of the Transferred Business on the Closing Date, and (B)
soliciting or encouraging any employees of Hexcel who were employees of the
Transferred Business on the Closing Date to leave the employment of Hexcel
other than any employees of Hexcel who were employees of the Transferred
Business on the Closing Date that are released or terminated by Hexcel or
any of its affiliates or voluntarily terminated prior to such solicitation
or recruitment. Ciba and CGC acknowledge that the services performed by the
employees of the Transferred Business are of a character giving them a
special, unique and extraordinary value and that Hexcel would not have
entered into this Agreement if Ciba and CGC had not agreed to a five-year
restriction on their ability to solicit for employment employees of the
Transferred Business.
(iii) Ciba and CGC acknowledge that the five year non-competition and
no-solicitation covenants provided for in this Section 4.24(a) are
reasonable covenants under the circumstances. Moreover, it is the desire and
intent of the parties that the provisions of such covenants shall be
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enforceable to the fullest extent permissible under the laws and public
policies applied in each jurisdiction in which enforcement is sought.
Accordingly, the parties agree that, should a court or administrative body
subsequently determine that the terms of such covenants are greater than
reasonably necessary to protect Hexcel's interests, the parties will request
that such court or administrative body reform such covenants specifying the
greatest time period and/or geographic area that would not render such
covenants unenforceable. Ciba and CGC specifically agree that in the event
of a breach or threatened breach by them or any of their Subsidiaries or
Affiliates of the covenants provided for in this Section 4.24(a), Hexcel
would suffer irreparable injury and shall be entitled to seek equitable
relief by way of temporary or permanent injunction or any other equitable
remedies, and that such relief may be granted without the necessity of
proving actual damage, Ciba and CGC further agree that the foregoing
provision regarding equitable relief shall not diminish Hexcel's right to
also claim and recover monetary damages.
(b) Notwithstanding anything to the contrary contained in this Section 4.24,
Hexcel hereby agrees that the provisions set forth in Section 4.24(a) shall not
be deemed breached as a result of (x) the ownership by Ciba or any of its
Subsidiaries of less than an aggregate of 5% of any class of stock or 10% in
value of any instrument of indebtedness of a Person engaged, directly or
indirectly, in the Composites Field or (y) the acquisition by Ciba or any of its
Subsidiaries of a Person which engages, directly or indirectly, in the
Composites Field if such activities account for less than 10% of such Person's
consolidated annual revenues; provided that Hexcel is offered the opportunity to
purchase, promptly following the consummation of such acquisition and on
commercially reasonable terms, the business of such Person in the Composites
Field.
(c) (i) Hexcel acknowledges, as a result of the transactions contemplated by
this Agreement and because of the sharing of common facilities with, and the
cooperation and access of employees of the Transferred Business prior to the
Closing to, businesses of Ciba other than the Transferred Business, that Hexcel
will acquire or have access to a substantial amount of confidential and
proprietary information and technology belonging to Ciba and its Subsidiaries
relating to areas outside the Composites Field. Hexcel acknowledges that such
information and technology is and will remain proprietary to Ciba and CGC, and
Hexcel agrees and agrees to cause Hexcel's present and future Subsidiaries as
well as its and their respective employees, agents and representatives to hold
such information and technology in strict confidence for a period of ten years
from the Closing and during said period to make no use of such information and
technology except in manufacturing for, and teaching customers solely in, the
Composites Field and except as set forth in the proviso to Section 4.24(e)(i).
(ii) Ciba and CGC acknowledge they may be in possession of a substantial
amount of confidential and proprietary information and technology belonging
to the Transferred Business relating to the Composites Field. Ciba and CGC
acknowledge that such information and technology is and will remain
proprietary to Hexcel, and Ciba and CGC agree and agree to cause their
respective present and future Subsidiaries as well as its and their
respective employees, agents and representatives to hold such information
and technology in strict confidence for a period of ten years from the
Closing and during said period to make no use of such information and
technology except in manufacturing for, and teaching customers solely
outside of the Composites Field and except as set forth in the proviso in
Section 4.24(a)(i).
(d) The provisions set forth in this Section 4.24 relating to confidential
or proprietary information shall not apply (or shall cease to apply) with
respect to information and technology that:
(i) is or hereafter becomes generally available to the public otherwise
than through breach of this Section 4.24; or
(ii) has been received from a third party who did not acquire it
directly or indirectly from a party hereto.
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(e) In order to further protect the use of the proprietary information
referred to in paragraph (c)(i) above, for a period of five years from the
Closing Date, Hexcel and its Subsidiaries shall not, directly or indirectly:
(i) engage in activities or businesses that compete with the research,
development, manufacture, marketing, distribution or sale on a worldwide
basis of syntactics and liquid and/or paste adhesives as conducted on the
Closing Date (the "Polymers Field"); PROVIDED, HOWEVER, that Hexcel and its
Subsidiaries shall be permitted to (x) research, develop and manufacture
products in the Polymers Field for internal use in the products that it
researches, develops, manufactures, markets, distributes and sells; (y)
continue the development, manufacture, marketing, distribution and sale of
existing products in the Polymers Field manufactured at Hexcel's Casa
Grande, Arizona, Livermore, California and Welkenraedt, Belgium facilities
(or such facilities, if any, as to which the manufacture of such products
may be relocated) solely for the use or sale of such products as auxiliaries
to, or in combination with, Hexcel's products in the Composites Field; and
(z) incorporate products in the Polymers Field as intermediate products into
prepregs, panels, parts and honeycomb; and
(ii) engage in any of the following without the prior written approval
of Ciba or any of its affiliates (other than Hexcel or its Subsidiaries):
(A) soliciting or recruiting any employees of Ciba or its Subsidiaries who
are employees of Ciba's worldwide Polymers Division ("Polymers Employees"),
and (B) soliciting or encouraging any Polymers Employees to leave the
employment of Ciba or any of its Subsidiaries other than any Polymers
Employees who are released or terminated by Ciba or any of its Subsidiaries
or voluntarily terminated prior to such solicitation or recruitment. Hexcel
acknowledges that the services performed by the employees of Ciba and CGC
(other than employees of the Transferred Business) are of a character giving
them a special, unique and extraordinary value and that Ciba and CGC would
not have entered into this Agreement if Hexcel had not agreed to a five-year
restriction on its ability to solicit for employment such employees.
(iii) Hexcel acknowledges that the five year non-competition and
no-solicitation covenants provided for in this Section 4.24(e) are
reasonable covenants under the circumstances. Moreover, it is the desire and
intent of the parties that the provisions of such covenants shall be
enforceable to the fullest extent permissible under the laws and public
policies applied in each jurisdiction in which enforcement is sought.
Accordingly, the parties agree that, should a court or administrative body
subsequently determine that the terms of such covenants are greater than
reasonably necessary to protect Ciba's and CGC's interests, the parties will
request that such court or administrative body reform such covenants
specifying the greatest time period and/or geographic area that would not
render such covenants unenforceable. Hexcel specifically agrees that in the
event of a breach or threatened breach by it or any of its Subsidiaries or
Affiliates of the covenants provided for in this Section 4.24(e), Ciba and
CGC would suffer irreparable injury and shall be entitled to seek equitable
relief by way of temporary or permanent injunction or any other equitable
remedies, and that such relief may be granted without the necessity of
proving actual damage, Hexcel further agrees that the foregoing provision
regarding equitable relief shall not diminish Ciba's or CGC's right to also
claim and recover monetary damages.
(f) Notwithstanding anything to the contrary contained in this Section 4.24,
Ciba and CGC agree that the provisions set forth in Section 4.24(e) shall not be
deemed breached as a result of the (x) ownership by Hexcel or any of its
Subsidiaries of less than an aggregate of 5% of any class of stock or 10% in
value of any instrument of indebtedness of a Person engaged, directly or
indirectly, in the Polymers Field, or (y) the acquisition by Hexcel or any of
its Subsidiaries of a Person which engages, directly or indirectly, in the
Polymers Field if such activities account for less than 10% of such Person's
consolidated revenues; provided that Ciba is offered the opportunity to
purchase, promptly following the consummation of such acquisition and on
commercially reasonable terms, the business of such Person in the Polymers
Field.
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(g) Notwithstanding anything herein to the contrary, nothing in this
Agreement shall prevent (x) the worldwide Polymers Division, Additives Division
and Pigments Division of Ciba from conducting their respective businesses in all
respects as conducted immediately prior to the Closing Date and (y) Hexcel from
conducting in all respects the Transferred Business or the business of Hexcel,
in each case, as conducted immediately prior to the Closing Date.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.01. CONDITIONS TO EACH PARTY'S OBLIGATION. The obligation of
Hexcel and Ciba to consummate the transactions contemplated to occur at the
Closing shall be subject to the satisfaction prior to the Closing of each of the
following conditions, each of which may be waived only if it is legally
permissible to do so:
(a) HSR AND OTHER APPROVALS. Any applicable waiting period under the HSR
Act relating to the transactions contemplated hereby shall have expired or been
terminated, and all other material authorizations, consents, orders or approvals
of, or regulations, declarations or filings with, or expirations of applicable
waiting periods imposed by, any Governmental Entity necessary for the
consummation of the transactions contemplated hereby, including filings and
consents required pursuant to applicable antitrust and competition law statutes
and regulations in each of the Applicable Jurisdictions, shall have been
obtained or filed or shall have occurred.
(b) NO LITIGATION, INJUNCTIONS, OR RESTRAINTS. No statute, rule,
regulation, executive order, decree, temporary restraining order, preliminary or
permanent injunction or other order enacted, entered, promulgated, enforced or
issued by any Governmental Entity or other legal restraint or prohibition
preventing the consummation of the transactions contemplated by this Agreement
or any Ancillary Agreement shall be in effect.
(c) SECURITY APPROVALS. All necessary authorizations, consents, orders or
approvals shall have been obtained from all relevant Governmental Entities with
respect to security clearance and other similar matters in any relevant
jurisdiction, including all those necessary to retain existing security
clearances and continue to conduct activities subject thereto as currently
conducted (including any requisite consent of the Departement de Securite in
France and of the Defense Investigative Service in the United States).
(d) STOCKHOLDERS VOTE. The issuance of the Hexcel Shares and the Required
Amendment shall have been approved by the requisite vote of Hexcel's
stockholders.
(e) NYSE LISTING. The Hexcel Shares shall have been approved for listing on
the New York Stock Exchange, subject only to official notice of issuance.
(f) ADEQUATE FINANCING. Hexcel shall have obtained adequate financing on
commercially reasonable terms in order to (x) deliver the Cash Price at the
Closing, (y) to support the operations of Hexcel and its Subsidiaries assuming
the transactions contemplated by this Agreement and the Ancillary Agreements are
consummated and (z) to the extent desired by Hexcel, to repay currently
outstanding indebtedness of Hexcel and its Subsidiaries under the Citibank
Revolver and to refinance the BNP Reimbursement Agreement.
SECTION 5.02. CONDITIONS TO THE OBLIGATION OF HEXCEL. The obligation of
Hexcel to consummate the transactions contemplated to occur at the Closing shall
be subject to the satisfaction or waiver thereof prior to the Closing of each of
the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Ciba and CGC and, if applicable, any other Subsidiary of Ciba set forth in this
Agreement, the Employment Matters Agreement and the UK Employment Matters
Agreement that are qualified as to materiality shall be true and correct, and
those that are not so qualified shall be true and correct in all material
respects, as of the date of this Agreement and as of the time of the Closing as
though made at and as of such
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time, except to the extent such representations and warranties expressly relate
to an earlier date (in which case such representations and warranties that are
qualified as to materiality shall be true and correct, and those that are not so
qualified shall be true and correct in all material respects, on and as of such
earlier date) and Hexcel shall have received a certificate signed by authorized
officers of Ciba and CGC to such effect.
(b) NO LITIGATION. There shall not be pending by any Governmental Entity
any suit, action or proceeding (or by any other Person any suit, action or
proceeding which has a reasonable likelihood of success), (A) challenging or
seeking to restrain or prohibit the transactions contemplated by this Agreement
or any Ancillary Agreement or seeking to obtain in connection with the
transactions contemplated by this Agreement or any Ancillary Agreement any
damages that would reasonably be expected to have a Hexcel Material Adverse
Effect or a Material Adverse Effect or (B) seeking to prohibit or limit the
ownership or operation by Hexcel, Ciba or both of them or any of their
respective Subsidiaries of any material portion of the business or assets of
Hexcel or the Transferred Business, or to compel Hexcel, Ciba or both of them or
any of their respective Subsidiaries to dispose of or hold separate any material
portion of the business or assets of Hexcel or the Transferred Business or (C)
seeking to prohibit Hexcel from exercising its rights under or otherwise
enjoying the benefits of the Governance Agreement.
(c) PERFORMANCE OF OBLIGATIONS OF CIBA, CGC AND THE DIVESTED
SUBSIDIARIES. Ciba, CGC and each of Ciba's other Subsidiaries shall each have
performed or complied in all material respects with all obligations and
covenants required to be performed or complied with by them under this Agreement
and the Employment Matters Agreement prior to the Closing, and Hexcel shall have
received a certificate signed by authorized officers of Ciba and CGC to such
effect.
(d) OPINION OF CIBA'S COUNSEL. Hexcel shall have received an opinion dated
the Closing Date of Cravath, Swaine & Moore (who may rely as to certain matters,
including questions of law of foreign countries, on local counsel retained by
Ciba or counsel who are employees of Ciba or its Subsidiaries), counsel to Ciba
and CGC, reasonably satisfactory to Hexcel and its counsel.
(e) BILLS OF SALE; DEEDS. Ciba, CGC and each of Ciba's other Subsidiaries,
as applicable, shall have delivered to Hexcel bills of sale or other
conveyancing documents conveying the personal property, in each case in form and
substance reasonably satisfactory to Hexcel and its counsel, and Real Property
Deeds for the real property included in the Acquired Assets.
(f) ANCILLARY AGREEMENTS. Ciba, CGC and each of Ciba's other Subsidiaries,
as applicable, shall have executed and delivered all Ancillary Agreements.
(g) OTHER DOCUMENTS. Ciba, CGC, the Divested Subsidiaries and each of
Ciba's other Subsidiaries, as applicable, shall have furnished to Hexcel such
other documents relating to their corporate existence and authority (including
copies of resolutions of the respective boards of directors thereof), absence of
Liens, receipt of all necessary permits and waivers in respect of material
Contracts and such other matters as Hexcel or its counsel may reasonably
request.
(h) MATERIAL ADVERSE CHANGE. There shall not have been any development or
event or series of events occurring since the date of this Agreement that would
reasonably be expected to have a Material Adverse Effect.
SECTION 5.03. CONDITIONS TO THE OBLIGATION OF CIBA AND CGC. The obligation
of Ciba, CGC and the Divested Subsidiaries to consummate the transactions
contemplated to occur at the Closing shall be subject to the satisfaction or
waiver thereof prior to the Closing of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Hexcel set forth in this Agreement and the Employment Matters Agreement that are
qualified as to materiality shall be true and correct, and those that are not so
qualified shall be true and correct in all material respects, as of the date of
this Agreement and as of the time of the Closing as though made at and as of
such
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time, except to the extent such representations and warranties expressly relate
to an earlier date (in which case such representations and warranties that are
qualified as to materiality shall be true and correct, and those that are not so
qualified shall be true and correct in all material respects, on and as of such
earlier date), and Ciba shall have received a certificate signed by an
authorized officer of Hexcel to such effect.
(b) NO LITIGATION. There shall not be pending by any Governmental Entity
any suit, action or proceeding (or by any other Person any suit, action or
proceeding which has a reasonable likelihood of success), (A) challenging or
seeking to restrain or prohibit the transactions contemplated by this Agreement
or any Ancillary Agreement or seeking to obtain in connection with the
transactions contemplated by this Agreement or any Ancillary Agreement any
damages that would reasonably be expected to have a Material Adverse Effect or a
Hexcel Material Adverse Effect, (B) seeking to prohibit or limit the ownership
or operation by Hexcel, Ciba or both of them or any of their respective
Subsidiaries of any material portion of the business or assets of Hexcel or the
Transferred Business, or to compel Hexcel, Ciba or both of them or any of their
respective Subsidiaries to dispose of or hold separate any material portion of
the business or assets of Hexcel or the Transferred Business, (C) seeking to
impose limitations on the ability of Ciba to acquire or hold, or exercise full
rights of ownership of, the Hexcel Shares, including the right to vote the
Hexcel Shares on all matters properly presented to the stockholders of Hexcel
(other than those limitations provided for in the Governance Agreement) or (D)
seeking to prohibit Ciba or any Ciba Entity (as defined in the Governance
Agreement) from exercising its rights or otherwise enjoying the benefits of the
Governance Agreement.
(c) PERFORMANCE OF OBLIGATIONS OF HEXCEL. Hexcel shall have performed or
complied in all material respects with all obligations and covenants required to
be performed or complied with by Hexcel under this Agreement and the Employment
Matters Agreement prior to the Closing, and Ciba shall have received a
certificate signed by an authorized officer of Hexcel to such effect.
(d) OPINION OF HEXCEL'S COUNSEL. Ciba shall have received an opinion dated
the Closing Date of Skadden, Arps, Slate, Meagher & Flom (who may rely as to
certain matters, including questions of law of foreign countries, on local
counsel retained by Hexcel or counsel who are employees of Hexcel or its
Subsidiaries) counsel to Hexcel, reasonably satisfactory to Ciba and its
counsel.
(e) ANCILLARY AGREEMENTS. Hexcel shall have executed and delivered all
Ancillary Agreements.
(f) OTHER DOCUMENTS. Hexcel shall have furnished to Ciba and CGC such other
documents relating to Hexcel's or its Subsidiaries' corporate existence and
authority (including copies of resolutions of the respective boards of directors
of Hexcel and its Subsidiaries), absence of Liens, receipt of all necessary
permits and waivers in respect of material Contracts and such other matters as
Ciba or its counsel may reasonably request.
(g) SALE OF HEXCEL'S U.S. RESINS BUSINESS. Hexcel shall have consummated
the sale to a Person other than Hexcel or its Subsidiaries of its United States
resins business.
(h) MATERIAL ADVERSE CHANGE. There shall not have been any development or
event or series of events occurring since the date of this Agreement that would
reasonably be expected to have a Material Adverse Effect.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
SECTION 6.01. TERMINATION. (a) Notwithstanding anything to the contrary in
this Agreement, this Agreement and the Employment Matters Agreement may be
terminated and the transactions contemplated hereby and thereby abandoned at any
time prior to the Closing, (i) by mutual written consent of Ciba and Hexcel,
(ii) by Ciba if any of the conditions set forth in Sections 5.01 or 5.03 shall
have become incapable of fulfillment, and shall not have been waived by Ciba;
(iii) by Hexcel, if any of the conditions set forth in Sections 5.01 or 5.02
shall become incapable of fulfillment,
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and shall not have been waived by Hexcel or (iv) by Ciba or Hexcel, if the
Closing does not occur on or prior to April 1, 1996; PROVIDED, HOWEVER, that the
party seeking termination pursuant to clauses (ii) or (iii) is without fault in
connection with the applicable condition or conditions having become incapable
of fulfillment and is otherwise in material compliance with this Agreement and
the Employment Matters Agreement.
(b) In the event of termination by Ciba or Hexcel pursuant to this Section
6.01, written notice thereof shall forthwith be given to the other party and the
transactions contemplated by this Agreement and the Employment Matters Agreement
shall thereupon be terminated, without further action by either party. If the
transactions contemplated by this Agreement and the Employment Matters Agreement
are terminated as provided herein:
(i) (A) Hexcel shall promptly return to Ciba all documents and other
material received from Ciba or its Subsidiaries relating to the transactions
contemplated hereby and (B) Ciba and CGC shall promptly return to Hexcel all
documents and other material received from Hexcel or its Subsidiaries
relating to the transactions contemplated hereby, in either case, whether
obtained before or after the execution hereof, and
(ii) (A) all confidential information received by Hexcel with respect to
the businesses of Ciba or its Subsidiaries and (B) all confidential
information received by Ciba and CGC with respect to the business of Hexcel
or its Subsidiaries shall be treated in accordance with the Confidentiality
Agreement, which shall remain in full force and effect notwithstanding the
termination of this Agreement.
(c) If this Agreement is terminated and the transactions contemplated hereby
are abandoned as described in this Section 6.01, this Agreement and the
Employment Matters Agreement shall become null and void and of no further force
and effect, except for the following provisions of this Agreement (i) Section
4.02 relating to the confidentiality of certain information and data, (ii) this
Section 6.01, and (iii) Section 8.10 regarding certain expenses. Nothing in this
Section 6.01 shall be deemed to release any party from any liability for any
breach by such party of the terms and provisions of this Agreement or the
Employment Matters Agreement.
SECTION 6.02. AMENDMENTS AND WAIVERS. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto. Hexcel or Ciba and CGC may, by an instrument in writing signed on behalf
of such party or parties, waive compliance by the other party or parties with
any term or provision (other than any provisions that may not be legally waived)
of this Agreement that they were or are obligated to comply with or perform.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. INDEMNIFICATION BY CIBA. Except to the extent that specific
indemnification provisions contained in any Ancillary Agreement provide for
indemnification with respect to any particular matter that is different than the
indemnification provided for hereunder with respect to such matter, Ciba shall
indemnify Hexcel, its Subsidiaries and their affiliates and their respective
current and future officers, directors, employees, stockholders, agents and
representatives against, and shall hold them harmless from, any loss, liability,
claim, damage or expense (including reasonable legal fees and expenses), as
incurred (payable quarterly upon written request), for or on account of or
arising from or in connection with or otherwise with respect to (i) any Excluded
Assets or Excluded Liabilities; or (ii) any breach of any covenant of Ciba or
CGC contained in this Agreement or in any Ancillary Agreement to be performed
after the Closing.
SECTION 7.02. INDEMNIFICATION BY HEXCEL. Except to the extent that
specific indemnification provisions contained in any Ancillary Agreement provide
for indemnification with respect to any particular matter that is different than
the indemnification provided for hereunder with respect to such matter, Hexcel
shall indemnify Ciba, CGC, their affiliates and their respective current and
future
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officers, directors, employees, stockholders, agents and representatives
against, and shall hold them harmless from, any loss, liability, claim, damage
or expense (including reasonable legal fees and expenses), as incurred (payable
quarterly upon written request), for or on account of or arising from or in
connection with or otherwise with respect to (i) any Acquired Assets or Assumed
Liabilities or (ii) any breach of any covenant of Hexcel contained in this
Agreement or in any Ancillary Agreement to be performed after the Closing.
SECTION 7.03. LOSSES NET OF INSURANCE, ETC. The amount of any loss,
liability, claim, damage or expense for which indemnification is provided under
Section 4.07(e), Section 4.10 or this Article VII shall be net of any amounts
recovered or recoverable by the Person indemnified pursuant to this Article VII
(the "Indemnified Party") under insurance policies with respect to such loss,
liability, claim, damage or expense and shall be (i) increased to take account
of any net Tax cost incurred by the Indemnified Party and arising from the
receipt or accrual of indemnity payments hereunder (grossed up for such
increase) and (ii) reduced to take account of any net Tax benefit realized by
the Indemnified Party and arising from the incurrence or payment of any such
loss, liability, claim, damage or expense. Any indemnification payment hereunder
shall initially be made without regard to this paragraph and shall be reduced by
any such insurance proceeds and increased or reduced, as the case may be, to
reflect any such net Tax cost (including gross-up) or net Tax benefit only after
the Indemnified Party has actually realized such cost or benefit. For purposes
of this Agreement, an Indemnified Party shall be deemed to have "actually
realized" a net Tax cost or net Tax benefit to the extent that, and at such time
as, the amount of Taxes payable by such Indemnified Party is increased above or
reduced below, as the case may be, the amount of Taxes that such Indemnified
Party would be required to pay but for the receipt of the indemnity payment or
the incurrence or payment of such loss, liability, claim, damage or expense.
SECTION 7.04. TERMINATION OF INDEMNIFICATION. The obligations to indemnify
and hold harmless any party pursuant to Sections 7.01, 7.02, 4.07(e) and 4.10
and the Indemnified Individuals pursuant to Section 4.14 shall not terminate.
SECTION 7.05. INDEMNIFICATION PROCEDURES. With respect to third party
claims (other than Tax Claims), all claims for indemnification by any
Indemnified Party hereunder shall be asserted and resolved as set forth in this
Section 7.05. In the event that any third party claim or demand for which an
indemnifying party, Ciba, CGC or Hexcel as the case may be (an "Indemnifying
Party"), may be liable to any Indemnified Party hereunder is asserted against or
sought to be collected from any Indemnified Party, such Indemnified Party shall
promptly, but in no event more than 15 days following such Indemnified Party's
receipt of such claim or demand, notify the Indemnifying Party of such claim or
demand and the amount or the estimated amount thereof to the extent then
feasible (which estimate shall not be conclusive of the final amount of such
claim and demand) (the "Claim Notice"); PROVIDED, HOWEVER, that failure to give
such notification shall not affect the indemnification provided hereunder except
to the extent the Indemnifying Party shall have been actually prejudiced as a
result of such failure. The Indemnifying Party shall have 45 days from the
effective date (determined in accordance with Section 8.01) of the Claim Notice
(the "Notice Period") to notify the Indemnified Party (a) whether or not the
Indemnifying Party disputes the liability of the Indemnifying Party to the
Indemnified Party hereunder with respect to such claim or demand and (b) whether
or not it desires to defend the Indemnified Party against such claim or demand.
All costs and expenses incurred by the Indemnifying Party in defending such
claim or demand shall be the liability of, and shall be paid by, the
Indemnifying Party. Except as hereinafter provided, in the event that the
Indemnifying Party notifies the Indemnified Party within the Notice Period that
it desires to defend the Indemnified Party against such claim or demand, the
Indemnifying Party shall have the right to defend the Indemnified Party by
appropriate proceedings and shall have the sole power to direct and control such
defense; PROVIDED, HOWEVER, that the Indemnified Party shall have the right to
employ separate counsel (including local counsel), and the Indemnifying Party
shall bear the reasonable fees, costs and expenses of such separate counsel if
(i) the use of counsel chosen by the Indemnifying Party to represent the
Indemnified Party would present such counsel with a conflict of interest, (ii)
the actual or potential
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defendants in, or targets of, any such action include both the Indemnified Party
and the Indemnifying Party and the Indemnified Party shall have reasonably
concluded that there may be legal defenses available to it and/or other
Indemnified Parties that are different from or additional to those available to
the Indemnifying Party, (iii) the Indemnifying Party shall not have employed
counsel to represent the Indemnified Party within a reasonable time after notice
of the institution of such action or (iv) the Indemnifying Party shall authorize
the Indemnified Party to employ separate counsel at the expense of the
Indemnifying Party and PROVIDED, FURTHER, that the Indemnifying Party shall not
settle or otherwise dispose of any claim or demand without the prior written
consent of the Indemnified Party (i) if as a result thereof the Indemnified
Party could become subject to injunctive or other equitable relief or the
business of the Indemnified Party could be adversely affected in any nonmonetary
manner or (ii) such settlement or disposition does not include as an irrevocable
and unconditional term thereof a release of all liabilities in respect of such
claim or demand in favor of the Indemnified Party. If any Indemnified Party
desires to participate in any such defense it may do so at its sole cost and
expense. The Indemnified Party shall not settle a claim or demand for which it
is indemnified by the Indemnifying Party without the written consent of the
Indemnifying Party (which consent shall not be unreasonably withheld). If the
Indemnifying Party elects not to defend or ceases to defend the Indemnified
Party against any such claim or demand, whether by not giving the Indemnified
Party timely notice as provided above or otherwise, then the amount of any such
claim or demand, or, if the same be contested by the Indemnified Party, then
that portion thereof as to which such defense is unsuccessful (and the
reasonable costs and expenses pertaining to such defense, including attorneys'
fees) shall be the liability of the Indemnifying Party hereunder. To the extent
the Indemnifying Party shall direct, control or participate in the defense or
settlement of any third party claim or demand, the Indemnified Party will give
the Indemnifying Party and its counsel reasonable access to, during normal
business hours, the relevant business records and other documents, and shall
permit them to consult with the employees and counsel of the Indemnified Party.
The Indemnified Party and the Indemnifying Party shall each use all commercially
reasonable efforts in the defense of all such claims or demands.
SECTION 7.06. INDEMNIFICATION PROCEDURES FOR TAX CLAIMS; TAX RETURNS. With
respect to Tax Claims (as defined below), all claims for indemnification by any
Indemnified Party hereunder shall be asserted and resolved as set forth in this
Section 7.06. In the event that any written claim or demand for which an
Indemnifying Party would be liable to any Indemnified Party hereunder is
asserted against or sought to be collected from any Indemnified Party by a
Taxing Authority (a "Tax Claim"), such Indemnified Party shall promptly, but in
no event more than 15 days following such Indemnified Party's receipt of such
Tax Claim, notify the Indemnifying Party of such Tax Claim with a Claim Notice;
PROVIDED, HOWEVER, that failure to give such Claim Notice shall not affect the
indemnification provided hereunder except to the extent the Indemnifying Party
shall have been actually prejudiced as a result of such failure. The
Indemnifying Party shall have the Notice Period to notify the Indemnified Party
(a) whether or not the Indemnifying Party disputes the liability of the
Indemnifying Party to the Indemnified Party hereunder with respect to such Tax
Claim and (b) whether or not it desires to participate in or control (as the
case may be) the defense of the Indemnified Party against such Tax Claim. All
costs and expenses incurred by the Indemnifying Party in participating in or
controlling such Tax Claim shall be a liability of, and shall be paid by, the
Indemnifying Party. The Indemnified Party shall control any proceedings relating
to such Tax Claim; PROVIDED, HOWEVER, that if Ciba or any of its Subsidiaries is
the Indemnifying Party, and a Tax Claim relates to a Tax Return of Ciba or its
Subsidiaries (other than a separate Tax Return of a Divested Subsidiary), then
Ciba shall control any proceedings relating to such Tax Claim. The party
controlling a proceeding relating to a Tax Claim shall permit the other party to
participate in such proceeding and shall not settle such Tax Claim without the
written consent of the other party, which consent shall not be unreasonably
withheld. The Indemnified Party and the Indemnifying Party shall cooperate in
contesting or otherwise resolving any Tax Claim, and each shall give the other
reasonable access to, during normal business hours, any relevant business
records and other documents, and shall permit the other to consult with the
employees and counsel of the other. If Hexcel or Ciba or their respective
Subsidiaries would or might
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be entitled to a refund from a Taxing Authority and under the terms of this
Agreement the party receiving such refund would be required to pay such refund
to the other party, then the parties shall cooperate in using their reasonable
efforts to obtain such refund and the party receiving such refund shall promptly
forward it to the party entitled to it. Hexcel shall prepare and file all Tax
Returns of or with respect to each of the Divested Subsidiaries and the other
Acquired Assets, which relate to taxable periods beginning after the Closing
Date or transactions that occur after the Closing Date. Ciba shall prepare and
file all Tax Returns of or with respect to each of the Divested Subsidiaries and
the other Acquired Assets which relate to taxable periods ending on or before
the Closing Date. Ciba and Hexcel shall jointly prepare and Hexcel shall file
all Tax Returns of or with respect to each of the Divested Subsidiaries and the
other Acquired Assets which relate to taxable periods including (but not ending
on) the Closing Date.
SECTION 7.07. ADJUSTMENT TO TRANSFERRED BUSINESS CONSIDERATION. Ciba and
Hexcel shall treat any indemnity payment under this agreement as an adjustment
to the Transferred Business Consideration for Tax purposes, unless a final
determination causes any such payment not to be treated as an adjustment to the
Transferred Business Consideration for United States Federal Income Tax
purposes.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. NOTICES. All notices and other communications hereunder
shall be in writing (including fax) and shall be sent, delivered or mailed,
addressed, or faxed:
(a) if to Hexcel, to:
Hexcel Corporation
5794 West Las Positas Boulevard
Pleasanton, CA 94588
(T) (510) 847-9500
(F) (510) 734-8611
Attention of Rodney P. Jenks, Esq.
with a copy to:
Alan C. Myers, Esq.
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
(T) (212) 735-3780
(F) (212) 735-2001
(b) if to Ciba to:
Ciba-Geigy Limited
CH 4002
Basle, Switzerland
(T) (41) 61 697-4750
(F) (41) 61 697-8253
Attention of Mr. John M. D. Cheesmond
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with a copy to:
Ciba-Geigy Limited
CH 4002
Basle, Switzerland
T (41) 61 696-5107
F (41) 61 696-4677
Attention of Dr. Peter Rudolf
(c) if to CGC:
Ciba-Geigy Corporation
520 White Plains Road
P.O. Box 2005
Tarrytown, NY 10591-9005
(T) (914) 785-2041
(F) (914) 785-2025
Attention of John J. McGraw, Esq.
with a copy to:
Philip A. Gelston, Esq.
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
(T) (212) 474-1548
(F) (212) 474-3700
Each such notice, request or other communication shall be given (i) by hand
delivery, (ii) by nationally recognized courier service or (iii) by fax, receipt
confirmed. Each such notice, request or communication shall be effective (A) if
delivered by hand or by nationally recognized courier service, when delivered at
the address specified in this Section 8.01 (or in accordance with the latest
unrevoked written direction from the party to whom such notice is delivered) and
(B) if given by fax, when such fax is transmitted to the fax number specified in
this Section 8.01 (or in accordance with the latest unrevoked written direction
from the party to whom such notice is transmitted), and the appropriate
confirmation is received.
SECTION 8.02. INTERPRETATION. When a reference is made in this Agreement
to a Section, Appendix, Schedule or Exhibit, such reference shall be to a
Section, Appendix, Schedule or Exhibit of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "included", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". All accounting terms not defined in this
Agreement shall have their meanings under U.S. GAAP.
SECTION 8.03. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement, the Ancillary Agreements or
any instrument delivered pursuant to this Agreement shall survive the Closing.
This Section 8.03 shall not limit any covenant or agreement of the parties which
by its terms contemplates performance after the Closing.
SECTION 8.04. SEVERABILITY. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or entity
or any circumstance, is found to be invalid or unenforceable in any
jurisdiction, (a) a suitable and equitable provision shall be substituted
therefor in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision and (b) the
remainder of this Agreement and the application of such provision to other
persons, entities or circumstances
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shall not be affected by such invalidity or unenforceability, nor shall such
invalidity or unenforceability affect the validity or enforceability of such
provision, or the application thereof, in any other jurisdiction.
SECTION 8.05. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall,
taken together, be considered one and the same agreement, it being understood
that both parties need not sign the same counterpart.
SECTION 8.06. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the Ancillary Agreements (a) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof and thereof (other than
the Confidentiality Agreement, which shall not be affected by any provisions of
this Agreement) and (b) are not intended to confer upon any person other than
the parties hereto (and the Indemnified Individuals pursuant to Section 4.14)
any rights or remedies hereunder or thereunder, including any employees of the
Transferred Business pursuant to any provisions of this Agreement or the
Employment Matters Agreement.
SECTION 8.07. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.
SECTION 8.08. CONSENT TO JURISDICTION. Each of Hexcel, Ciba and CGC
irrevocably submits to the exclusive jurisdiction of the United States District
Court for the Southern District of New York located in the borough of Manhattan
in the City of New York, or if such court does not have jurisdiction, the
Supreme Court of the State of New York, New York County, for the purposes of any
suit, action or other proceeding arising out of this Agreement or any
transaction contemplated hereby. Each of Hexcel, Ciba and CGC further agrees
that service of any process, summons, notice or document by U.S. registered mail
to such party's respective address set forth in Section 8.01 (as it may be
changed from time to time) shall be effective service of process for any action,
suit or proceeding in New York with respect to any matters to which it has
submitted to jurisdiction as set forth above in the immediately preceding
sentence. Each of Hexcel, Ciba and CGC irrevocably and unconditionally waives
any objection to the laying of venue of any action, suit or proceeding arising
out of this Agreement or the transactions contemplated hereby in (a) the United
States District Court for the Southern District of New York or (b) the Supreme
Court of the State of New York, New York County, and hereby further irrevocably
and unconditionally waives and agrees not to plead or claim in any such court
that any such action, suit or proceeding brought in any such court has been
brought in an inconvenient forum.
SECTION 8.09. PUBLICITY. Except as may be required by applicable law,
rule, regulation or legal process, so long as this Agreement is in effect, none
of Ciba, CGC, Hexcel or any of their respective Subsidiaries or affiliates shall
issue or cause the publication of any press release or other public announcement
with respect to the transactions contemplated by this Agreement or any Ancillary
Agreement without the consent of the other party, which consent shall not be
unreasonably withheld or withdrawn.
SECTION 8.10. EXPENSES. (a) Whether or not the Closing takes place, all
costs and expenses incurred in connection with this Agreement, the Ancillary
Agreements and the transactions contemplated hereby and thereby shall be borne
by the party incurring such expense, except as set forth in the next paragraph.
(b) Notwithstanding the foregoing, if (i) the stockholders of Hexcel in a
vote at the meeting of stockholders called pursuant to Section 4.18 fail to
approve the issuance of the Hexcel Shares and/or the Required Amendment or if
this Agreement is terminated by Hexcel pursuant to Section 6.01(a)(iv) (other
than due to the fault of Ciba or any of its Subsidiaries) prior to such meeting
taking place and prior to such vote or termination Hexcel received a proposal
for or became aware of an Interfering Transaction (a "Trigger Event"), Hexcel
shall reimburse Ciba for the out-of-pocket
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expenses (including fees and expenses of legal counsel and of CS First Boston
Corporation) incurred by Ciba or any of its Subsidiaries in connection with this
Agreement and the Ancillary Agreements or the matters contemplated hereby and
thereby up to a maximum of $1,000,000 and (ii) if during the period ending 12
months after any Trigger Event Hexcel consummates, becomes a party to or enters
into an agreement relating to or publicly announces, a transaction that is or if
consummated prior to termination of this Agreement would have been an
Interfering Transaction, then promptly after Hexcel consummates such
transaction, Hexcel shall pay Ciba an alternative transaction fee of $1,000,000.
SECTION 8.11. ASSIGNMENT. Neither this Agreement nor any of the rights or
obligations hereunder shall be assigned by any of the parties hereto without the
prior written consent of each of the other parties, except that after the
Closing any party may assign all its rights and obligations to a corporate
successor by merger, consolidation or comparable transaction of all or
substantially all of the assets of such party, PROVIDED that such party shall in
no event be released from its obligations hereunder without the prior written
consent of each of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns. Any purported
assignment of this Agreement other than in accordance with this Section 8.11
shall be null and void and of no force or effect.
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IN WITNESS WHEREOF, Ciba, CGC and Hexcel have each caused this Agreement to
be signed by their respective officers thereunto duly authorized, all as of the
date first written above.
CIBA-GEIGY LIMITED,
by /s/ HERMANN VODICKA
Name: Hermann Vodicka
Title: President of Polymers Division
CIBA-GEIGY LIMITED,
by /s/ JOHN M.D. CHEESMOND
Name: John M.D. Cheesmond
Title: Senior Vice President, Head of
Regional Finance and Control
CIBA-GEIGY CORPORATION,
by /s/ STANLEY SHERMAN
Name: Stanley Sherman
Title: Vice President -- Finance and
Information Services
HEXCEL CORPORATION,
by /s/ JOHN J. LEE
Name: John J. Lee
Title: Chief Executive Officer
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APPENDIX A
As used in the Agreement, the following terms shall have the following
meanings:
"ACCOUNTING FIRM" shall have the meaning set forth in Section 2.04.
"ACCOUNTS PAYABLE" shall mean all accounts payable owed by Ciba or any of
its Subsidiaries on the Closing Date that relate exclusively or primarily to, or
arise exclusively or primarily out of the Transferred Business.
"ACCOUNTS RECEIVABLE" shall mean all accounts receivable of Ciba or any of
its Subsidiaries on the Closing Date that relate exclusively or primarily to, or
arise exclusively or primarily out of the Transferred Business.
"ACQUIRED ASSETS" shall have the meaning set forth in Section 1.01(a).
"ACQUIRED CONTRACTS" shall mean (a) all Contracts to which Ciba or any of
its Subsidiaries (other than a Divested Subsidiary) is a party or by which Ciba
or any of its Subsidiaries (other than a Divested Subsidiary) is bound that (A)
relate exclusively or primarily to, arise exclusively or primarily out of or are
used exclusively or primarily in connection with the Transferred Business or (B)
that are listed on Schedule 3.01(k) and (b) subject to Section 1.03(c), all
Contracts to which any Divested Subsidiary is party or by which any Divested
Subsidiary is bound.
"ACQUIRED EQUIPMENT" shall mean all equipment of Ciba or any of its
Subsidiaries, other than equipment included in the Excluded Assets, that relates
exclusively or primarily to, arises exclusively or primarily out of, or is used
exclusively or primarily in connection with, the Transferred Business.
"ACQUIRED INTELLECTUAL PROPERTY" shall mean (i) all Intellectual Property
(other than Trademarks and the Ciba Tradenames) owned by Ciba or any of its
Subsidiaries that relates exclusively or primarily to, arises exclusively or
primarily out of or is used exclusively or primarily in connection with, the
Transferred Business (other than the patent application on Schedule
4.13(b)(ii)), and (ii) all Trademarks set forth in Schedule 3.01(i).
"ACQUIRED INVENTORY" shall mean all Inventory held by Ciba or any of its
Subsidiaries at any location that relates exclusively or primarily to, arises
exclusively or primarily out of or is used exclusively or primarily in
connection with, the Transferred Business.
"ACQUIRED PERMITS" shall mean all Permits owned or held by Ciba or any of
its Subsidiaries that relate exclusively or primarily to, arise exclusively or
primarily out of or are used exclusively or primarily in connection with, the
Transferred Business.
An "AFFILIATE" of any Person shall mean any other Person that directly or
indirectly, through one or more intermediaries, Controls, is Controlled by, or
is under common Control with, such first Person. "CONTROL" shall have the
meaning specified in Rule 12b-2 under the Exchange Act as in effect on the date
hereof.
"ALLOCATION STATEMENT" shall have the meaning set forth in Section 1.04.
"ANCILLARY AGREEMENTS" shall mean the Governance Agreement, the Trademark
License Agreement, the Registration Rights Agreement, the Transitional Services
Agreements, the Employment Matters Agreement, the UK Employment Matters
Agreement, the Indenture, the Distribution Agreement, the Assignment and
Assumption Agreement, the Supply and Tolling Agreements and the UK Agreements.
"APPLICABLE JURISDICTIONS" shall mean Austria, Belgium, Germany, Italy and
the United Kingdom.
"ASSIGNMENT AND ASSUMPTION AGREEMENT" shall have the meaning set forth in
Section 4.12.
"ASSUMED LIABILITIES" shall have the meaning set forth in Section 1.03(a).
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"ASSUMED TAX LIABILITIES" shall have the meaning set forth in Section 2.04.
"AUSTRIAN SHARES CONTRACT" shall mean the Shareholders Agreement (also
referred to as the Syndication Agreement) dated as of January 1, 1990 and
amended as of August 1, 1994 between Ciba and PCD Polymere Gesellschaft m.b.H.
"BALANCE SHEET" shall have the meaning set forth in Section 2.04.
"BNP REIMBURSEMENT AGREEMENT" shall mean the Amended and Restated
Reimbursement Agreement dated February 1, 1995 between Hexcel and Banque
Nationale de Paris covering seven letters of credit in principal amount of $15.7
million.
"BOOKS AND RECORDS" shall mean all books, ledgers, files, invoices,
customers' and suppliers' lists and operating records relating exclusively or
primarily to, arising exclusively or primarily out of, or used exclusively or
primarily in connection with the Transferred Business.
"BUSINESS" shall have the meaning set forth in the recitals to the
Agreement.
"BUSINESS TAX RETURNS" shall mean (i) any Tax Returns filed by or on behalf
of any Divested Subsidiary (including the relevant portions of any unitary,
combined, consolidated or similar Tax Returns), (ii) any Tax Returns of Ciba and
its Subsidiaries relating exclusively or primarily to Taxes attributable to the
Transferred Business and (iii) the copies of the portions of Tax Returns not
described in (ii) above that relate to the Transferred Business.
"CASH PRICE" shall have the meaning set forth in Section 1.02.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act, as amended.
"CGC" shall mean Ciba-Geigy Corporation, a New York corporation and a wholly
owned subsidiary of Ciba.
"CIBA" shall mean Ciba-Geigy Limited, a Swiss corporation.
"CIBA CLOSING ITEMS" shall have the meaning set forth in Section 2.04.
"CIBA'S CONTINUING BUSINESS" shall mean all businesses, operations and
affairs of any kind or nature of Ciba and any of its Subsidiaries other than the
Transferred Business.
"CIBA DISTRIBUTOR" shall have the meaning set forth in Section 4.07.
"CIBA NOTICE OF DISAGREEMENT" shall have the meaning set forth in Section
2.04.
"CIBA STATEMENT" shall have the meaning set forth in Section 2.04.
"CIBA TRADENAMES" shall mean any names owned or used by Ciba or any of its
Subsidiaries other than names set forth on Schedule 3.01(i).
"CIBA UK" shall have the meaning set forth in Section 1.03(c).
"CITIBANK REVOLVER" shall mean the Credit Agreement dated as of February 8,
1995 among Hexcel, the lenders and issuing banks thereunder and Citicorp USA,
Inc., as agent, and related agreements.
"CLAIM" has the meaning set forth in Section 4.14.
"CLAIM NOTICE" shall have the meaning set forth in Section 7.05.
"CLOSING" shall have the meaning set forth in Section 2.01.
"CLOSING DATE" shall mean the date of the Closing.
"CLOSING WORKING CAPITAL" shall have the meaning set forth in Section 2.04.
"CML" shall have the meaning set forth in Section 1.03(i).
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"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPOSITE PRODUCTS" shall have the meaning set forth in Section 4.13.
"COMPOSITES FIELD" shall have the meaning set forth in Section 4.24.
"CONFIDENTIALITY AGREEMENT" shall mean the Confidentiality Agreement dated
as of May 1, 1995, between CGC and Hexcel.
"CONTRACTS" shall mean all contracts, leases, indentures, agreements,
commitments and all other legally binding arrangements, whether in existence on
the date hereof or subsequently entered into, including any and all amendments
thereto.
"CONTRIBUTED SHARES" shall mean all capital stock of or other equity
interests in any Divested Subsidiary owned directly or indirectly by Ciba.
"COPYRIGHT" shall mean copyrights in works (including computer programs)
published or unpublished, whether registered or capable of being registered, and
such rights as may exist through marking or publication.
"CURRENT ASSETS" shall have the meaning set forth in Section 2.04.
"CURRENT LIABILITIES" shall have the meaning set forth in Section 2.04.
"DANUTEC" shall mean Danutec Werkstoff Gesellschaft m.b.H., an Austrian
corporation.
"DANUTEC AGREEMENT" shall mean any agreement between Ciba or any of its
Subsidiaries and Petrochemie Danubia GesmbH relating to the sale to Ciba or any
of its Subsidiaries of the 49% interest in Danutec not owned by Ciba on the date
hereof and which provides for the consummation of such sale on or prior to the
first anniversary of the Closing Date.
"DANUTEC AMOUNT" shall have the meaning set forth in Section 2.04.
"DANUTEC CLOSING" shall have the meaning set forth in Section 2.05.
"DANUTEC EQUITY" shall have the meaning set forth in Section 1.01(x).
"DANUTEC PRICE" shall have the meaning set forth in Section 2.04.
"DANUTEC SHARES" shall mean the 51% equity interest of Ciba-Geigy AG in
Danutec.
"DEFERRED ASSETS" shall mean the assets of or held by the Ciba Distributors
that relate exclusively or primarily to, arise exclusively or primarily out of
or are used exclusively or primarily in connection with, the Transferred
Business and that are located in the Excluded Jurisdictions.
"DEFERRED CLOSINGS" shall have the meaning set forth in Section 2.03.
"DEFERRED CONSIDERATION" shall mean the amount payable by Hexcel for any
Deferred Assets calculated in accordance with the Distribution Agreement.
"DEFERRED CONSIDERATION PAYMENT DATE" shall have the meaning set forth in
Section 2.03(e).
"DISTRIBUTION AGREEMENT" shall mean the distribution agreement between Ciba
and Hexcel dated the Closing Date substantially in the form attached hereto as
Exhibit C.
"DIVESTED SUBSIDIARY" shall mean CML, Brochier S.A., a French corporation
("Brochier"), Salver S.r.1., an Italian corporation ("Salver"), Confection et
Diffusion de Stores et Rideaux ("CDSR"), a French corporation and Danutec.
"EMPLOYMENT MATTERS AGREEMENT" shall mean the agreement governing United
States employment matters dated as of the date of this Agreement between Hexcel
and CGC and attached hereto as Exhibit D.
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"ENVIRONMENTAL LAWS" shall mean any applicable federal, state, local or
foreign treaty, law (including applicable principles of common and civil law),
statute, ordinance, rule, regulation, permit, license, code, order, judgment,
writ, common law, decree, standard or injunction enacted, promulgated or issued
by any Governmental Entity relating to (i) the presentation, protection and
cleanup of the environment, including the air, the ground, surface soils, and
surface and subsurface waters and natural resources, (ii) soil and ground water
contamination and (iii) health and safety of persons or property and exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labelling, release or disposal of, Hazardous Substances.
"ENVIRONMENTAL PERMITS" means all permits, licenses or authorizations from
any Governmental Entity required under Environmental Laws for the operation of
the Transferred Business or the business of Hexcel, as the case may be.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"EXCLUDED ASSETS" shall have the meaning set forth in Section 1.01(b).
"EXCLUDED CONTRACT" shall mean any Contract to which Ciba or any of its
Subsidiaries is a party or by which Ciba or any of its Subsidiaries is bound and
which is not an Acquired Contract.
"EXCLUDED JURISDICTIONS" shall mean Australia, Denmark, Finland, Germany,
Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Norway, Singapore,
Spain, South Africa, Sweden, Switzerland, Taiwan, Thailand, The Netherlands, The
Peoples Republic of China and Vietnam.
"EXCLUDED LIABILITIES" shall have the meaning set forth in Section 1.03(b).
"EXCLUDED STOCK" shall mean all capital stock and other equity interests,
other than the Contributed Shares, held by Ciba and its Subsidiaries in any
Person.
"EXCLUDED TAX ASSETS" shall mean any current assets of the Transferred
Business attributable to Taxes of CGC (except to the extent any such current
asset will actually benefit Hexcel or its Subsidiaries after the Closing).
"EXCLUDED TAX LIABILITIES" shall have the meaning set forth in Section
1.03(b).
"EXON-FLORIO AMENDMENT" shall mean Section 721 of the Defense Production Act
of 1950, as amended, and the rules and regulations promulgated thereunder.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section 3.01(c).
"GOVERNANCE AGREEMENT" shall mean the governance agreement between Ciba and
Hexcel dated the Closing Date in substantially the form attached hereto as
Exhibit A.
"GOVERNMENTAL ENTITY" shall mean any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign.
"HAZARDOUS SUBSTANCES" means all explosive or radioactive substances or
wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or
gaseous wastes, including petroleum or petroleum distillates, asbestos or
asbestos containing materials, polychlorinated biphenyls ("PCBs") or
PCB-containing equipment, radon gas, and all other substances or wastes
regulated pursuant to any Environmental Law.
"HEXCEL" shall mean Hexcel Corporation, a Delaware corporation.
"HEXCEL BALANCE SHEET" shall have the meaning set forth in Section 2.04.
"HEXCEL COMMON" shall mean the common stock of Hexcel Corporation, par value
$0.01 per share.
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"HEXCEL MATERIAL ADVERSE CHANGE" shall mean any material adverse change in
the business, assets, financial condition or results of operations of Hexcel and
its Subsidiaries taken as a whole, other than changes relating to the economy in
general or changes relating to the Business' industry in general.
"HEXCEL MATERIAL ADVERSE EFFECT" shall mean any effect causing a Hexcel
Material Adverse Change.
"HEXCEL MATERIAL INTELLECTUAL PROPERTY" shall have the meaning set forth in
Section 3.02(l).
"HEXCEL NOTICE OF DISAGREEMENT" shall have the meaning set forth in Section
2.04.
"HEXCEL PERMITTED LIENS" shall mean (A) mechanics', carriers', workmen's,
repairmen's, and other like Liens arising or incurred in the ordinary course of
business and which would not, individually or in the aggregate, reasonably be
expected to have a Hexcel Material Adverse Effect, (B) Liens for Taxes,
assessments and other governmental charges that are not yet due and payable, or
that may thereafter be paid without penalty, or that are being contested in good
faith by appropriate proceedings (which proceedings are listed on Schedule
3.02(o)), (C) Liens under lien retention agreements entered into in the ordinary
course of business and which would not, individually or in the aggregate,
reasonably be expected to have a Hexcel Material Adverse Effect, (D)
imperfections of title and other encumbrances that are not substantial in
character or amount and do not materially detract from, or interfere with the
use of the assets of Hexcel and its Subsidiaries in its business as currently
conducted and (E) Liens imposed pursuant to the Citibank Revolver.
"HEXCEL PREFERRED" shall mean the preferred stock, no par value, of Hexcel.
"HEXCEL SHARES" shall mean shares of Hexcel Common, representing 49.9% of
the issued and outstanding shares of Hexcel Common after giving effect to the
issuance thereof.
"HIVE-DOWN AGREEMENTS" shall have the meaning set forth in Section 1.03(c).
"HEXCEL STATEMENT" shall have the meaning set forth in Section 2.04.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"INCOME TAX" shall mean all Federal, state, local, foreign or other Taxes
imposed upon or measured by net income.
"INCOME TAX CLAIMS" shall mean all rights to claims for refunds of Income
Taxes with respect to liabilities for Income Taxes relating to the Transferred
Business for any taxable period ending on or before the Closing Date or the
portion ending on the Closing Date of any taxable period that includes (but does
not end on) such date.
"INCOME TAX LIABILITIES" shall mean (i) with respect to the Divested
Subsidiaries, any Income Taxes for any taxable period ending on or before the
Closing Date, and any Income Taxes for any portion of any taxable period that
includes but does not end on the Closing Date (determined as if such taxable
period ended as of the close of business on the Closing Date) and (ii) with
respect to Acquired Assets (other than the Divested Subsidiaries and assets held
by the Divested Subsidiaries) sold by Ciba or any of its Subsidiaries, all
obligations or liabilities of Ciba or any of its Subsidiaries for Income Taxes
attributable to the Transferred Business accruing, or with respect to the
activities of the Transferred Business occurring, on or before the Closing Date
(in each case described in (i) and (ii) above, other than Income Taxes resulting
from any action taken by Hexcel or its affiliates after or concurrent with the
Closing (other than the acquisition of the Acquired Assets, Danutec Equity and
Deferred Assets)).
"INDEMNIFIED INDIVIDUALS" has the meaning set forth in Section 4.14.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 7.03.
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"INDEMNIFYING PARTY" shall have the meaning set forth in Section 7.05.
"INDENTURE" shall mean the Subordinated Debt indenture between Hexcel and
the trustee to be named therein for the Subordinated Debt, which shall include
terms substantially similar to the summary terms attached hereto as Exhibit B.
"INTELLECTUAL PROPERTY" shall mean throughout the world (i) Patents, (ii)
Trademarks, (iii) Trade Names, (iv) Know-how, (v) shop rights and (vi)
copyrights.
"INTERFERING TRANSACTION" shall have the meaning set forth in Section 4.04.
"INVENTORY" means all raw materials, work in process, finished goods,
supplies, parts and other inventories.
"KNOW-HOW" shall mean all trade secrets, know-how (including product
know-how and use and application know-how), formulas, processes, product
designs, specifications, quality control procedures, manufacturing, engineering
and other drawings, technology, technical information, safety information, lab
journals, engineering data and design and engineering specifications, research
records, market surveys and all promotional literature, customer and supplier
lists and similar data.
"LIEN" shall mean any mortgage, claim, charge, lien, security interest,
easement, right-of-way, pledge or other encumbrance.
"MATERIAL ADVERSE CHANGE" shall mean any material adverse change in the
business, assets, financial condition or results of operations of the
Transferred Business taken as a whole, other than changes relating to the
economy in general or changes relating to the Business' industry in general.
"MATERIAL ADVERSE EFFECT" shall mean any effect causing a Material Adverse
Change.
"NOTICE PERIOD" shall have the meaning set forth in Section 7.05.
"OTHER TAX LIABILITIES" shall mean all obligations and liabilities for Taxes
attributable to the Transferred Business (other than Income Tax Liabilities).
"PATENTS" shall mean patents (including all reissues, divisions,
re-examinations, continuations, continuations in part and extensions thereof),
patent applications and patent disclosures docketed and all other patent rights.
"PCBS" shall have the meaning set forth in the definition of Hazardous
Substances.
"PERMITS" shall mean all permits, licenses, franchises, approvals and
authorizations by Governmental Entities.
"PERMITTED LIENS" shall mean (A) mechanics', carriers', workmen's,
repairmen's, and other like Liens arising or incurred in the ordinary course of
business and which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, (B) Liens for Taxes, assessments and
other governmental charges that are not yet due and payable or that may
thereafter be paid without penalty, or that are being contested in good faith by
appropriate proceedings (which proceedings are disclosed in Schedule 3.01(m)),
(C) Liens under lien retention agreements entered into in the ordinary course of
business and which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect and (D) imperfections of title (other
than title to real property) and other encumbrances that are not substantial in
character or amount and do not materially detract from, or interfere with the
use of, the Acquired Assets and the Deferred Assets in the Transferred Business
as presently conducted.
"PERSON" shall mean any individual, group, corporation, partnership, joint
venture, trust, business association, organization, Governmental Entity or other
entity.
"POLYMERS EMPLOYEES" shall have the meaning set forth in Section
4.24(e)(ii).
"POLYMERS FIELD" shall have the meaning set forth in Section 4.24(e)(i).
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"PREPAID TAXES" shall have the meaning set forth in Section 2.04.
"REAL PROPERTY DEEDS" shall have the meaning set forth in Section 2.02(a).
"RECALLS" shall have the meaning set forth in Section 3.01(u).
"REGISTRATION RIGHTS AGREEMENT" shall have the meaning set forth in Section
4.12.
"REQUIRED AMENDMENT" shall have the meaning set forth in Section 3.02(b).
"RTM" shall have the meaning set forth in Section 4.13.
"SATELLITE PERSONNEL" shall have the meaning set forth in Section 3.01(a).
"SCHEDULED REAL PROPERTY" shall mean all real property, leaseholds and other
interests in real property of Ciba or its Subsidiaries listed in Schedule
3.01(h)(1) or 3.01(h)(2), in each case together with Ciba's and its
Subsidiaries' right, title and interest in all buildings, improvements, fixtures
and all other appurtenances thereto and all easements, rights of way, licenses,
privileges, zoning and development rights and other rights and benefits
thereunto belonging to the extent used in connection with the Transferred
Business, including all surveys, plans, specifications and other architectural
and engineering drawings and all condemnation awards and insurance proceeds
payable to Ciba and/ or any of its Subsidiaries with respect to such interests
for casualties or takings occurring between the date hereof and the Closing Date
or, in respect of South Africa, the Deferred Closing Date.
"SEC" shall mean the Securities and Exchange Commission.
"SEC DOCUMENTS" shall have the meaning set forth in Section 3.02(e).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SUBORDINATED DEBT" shall mean the subordinated notes of Hexcel to be issued
under the Indenture in the aggregate principal amounts and on the dates provided
in Sections 2.03(e), 2.04(g) and 2.05.
"SUBSIDIARY" shall mean, with respect to any Person, as of any date of
determination, any other Person as to which such Person owns, directly or
indirectly, or otherwise controls, more than 50% of the voting shares or other
similar interests.
"SUPPLY AND TOLLING AGREEMENTS" shall have the meaning set forth in Section
4.12.
"TAX" or "TAXES" shall mean all Federal, state, local, foreign or other
governmental taxes, assessments, duties, fees, levies or similar charges of any
kind, including all income, environmental, excise, property, occupation, use,
intangibles, sales, registration, value added, payroll, employment and other
withholding taxes, and including all interest, penalties and additions imposed
with respect to such amounts.
"TAX CLAIM" shall have the meaning set forth in Section 7.06.
"TAX RETURN" shall mean any return (including information returns), report,
declaration or statement relating to Taxes or otherwise required to be filed
with any Taxing Authority, including any schedule or attachment thereto or
amendment thereof.
"TAXING AUTHORITY" shall mean any governmental or quasi-governmental body
exercising any taxing authority or any other body exercising Tax regulatory
authority.
"TRADEMARK LICENSE AGREEMENT" shall have the meaning set forth in Section
4.13.
"TRADEMARKS" shall mean trademarks and service marks, registrations thereof,
pending applications therefor and such unregistered rights as may exist through
use.
B-66
<PAGE>
"TRADE NAMES" shall mean trade names, brand marks, trade dress, brand names,
logos and all other names and slogans or product goodwill for which no trademark
registration has been obtained and for which no application is pending.
"TRANSFERRED BUSINESS" shall mean the global composites division of Ciba and
CGC consisting of the development, manufacture, marketing, sale and distribution
on a world-wide basis of composites, including structures and interiors,
fabrics, laminates, prepregs, adhesive films, honeycomb core, sandwich panels
and fabricated components, other than to the extent, if any, such activities are
conducted on the Closing Date by the worldwide Polymers Division, Additives
Division or Pigments Division of Ciba.
"TRANSFERRED BUSINESS CONSIDERATION" shall have the meaning set forth in
Section 1.02.
"TRANSFER TAXES" shall mean all transfer, documentary, sales, use,
registration, value-added and other similar Taxes (including all applicable real
estate transfer Taxes and real property transfer gains Taxes) and related
amounts incurred as a result of the transfer of the Acquired Assets, Danutec
Equity or Deferred Assets to Hexcel or its designated Subsidiaries pursuant to
this Agreement.
"TRANSITIONAL SERVICES AGREEMENTS" shall have the meaning set forth in
Section 4.12.
"TRIGGER EVENT" shall have the meaning set forth in Section 8.10.
"UK AGREEMENTS" shall have the meaning set forth in Section 4.12.
"UK EMPLOYMENT MATTERS AGREEMENT" shall have the meaning set forth in
Section 4.12.
"U.S. GAAP" shall mean United States generally accepted accounting
principles.
B-67
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(This page has been left blank intentionally.)
B-68
<PAGE>
AMENDMENT dated as of December 12, 1995, to the STRATEGIC
ALLIANCE AGREEMENT dated as of September 29, 1995 (the
"Agreement"), among CIBA-GEIGY LIMITED, a Swiss corporation
("Ciba"), CIBA-GEIGY CORPORATION, a New York corporation and a
wholly-owned subsidiary of Ciba ("CGC"), and HEXCEL CORPORATION, a
Delaware corporation ("Hexcel").
WHEREAS Hexcel, Ciba and CGC desire to amend the Agreement in certain
respects; and
WHEREAS the capitalized terms used but not defined herein shall have the
meanings specified in the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
contained herein and in the Agreement and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
Section 1. AMENDMENTS. (a) The introductory clause to Section 2.04(d) of the
Agreement shall be deleted and replaced by the following:
"The principal amount of the Subordinated Debt shall be $43,029,000 adjusted
as follows:"
(b) The definition of Ancillary Agreements in Appendix A shall be deleted
and replaced with the following:
" "ANCILLARY AGREEMENTS" shall mean the Governance Agreement, the Trademark
License Agreement, the Registration Rights Agreement, the Transitional
Services Agreements, the Employment Matters Agreement, the UK Employment
Matters Agreement, the Subordinated Debt, the Indenture, the Distribution
Agreement, the Assignment and Assumption Agreement, the Supply and Tolling
Agreements and the UK Agreements."
(c) Section 1.03(b)(v) of the Agreement shall be deleted and replaced with
the following:
"(v) any obligation or liability relating to or arising out of an event
occurring prior to the Closing Date for which Ciba or any of its
Subsidiaries has coverage under AAU lead policy #001 SP-6127 or its
predecessor policies."
Section 2. EFFECT. This Amendment shall be deemed for all purposes to be a
part of the Agreement, which shall remain in full force and effect in all
respects as amended hereby.
IN WITNESS WHEREOF, Ciba, CGC and Hexcel have each caused this Amendment to
be signed by their respective officers thereunto duly authorized, all as of the
date first written above.
CIBA-GEIGY LIMITED,
by /s/ JOHN M.D. CHEESMOND
Name: John M.D. Cheesmond
Title: Senior Vice President --
Finance and Information
Services
CIBA-GEIGY LIMITED,
by /s/ J. MANSER
Name: J. Manser
Title: Group Treasurer
B-69
<PAGE>
CIBA-GEIGY CORPORATION,
by /s/ STANLEY SHERMAN
Name: Stanley Sherman
Title: Vice President -- Finance and
Information Services
HEXCEL CORPORATION,
by /s/ JOHN J. LEE
Name: John J. Lee
Title: Chief Executive Officer
B-70
<PAGE>
EXHIBIT C
TO THE STRATEGIC ALLIANCE AGREEMENT
DISTRIBUTION AGREEMENT (this "Agreement"), dated as of
[ ], 1995, among HEXCEL CORPORATION, a Delaware corporation
("Hexcel"), BROCHIER S.A., a French corporation ("Brochier"),
COMPOSITE MATERIALS LIMITED, a United Kingdom corporation ("CML"),
SALVER, S.r.1., an Italian corporation ("Salver", together with
Brochier and CML, the "Hexcel Subsidiaries"), and CIBA-GEIGY
LIMITED, a Swiss corporation ("Ciba").
WHEREAS, Ciba and Hexcel have entered into a Strategic Alliance Agreement
dated as of September 29, 1995 (the "SAA") pursuant to which Ciba and Hexcel
have agreed to combine the transferred business with Hexcel's business;
WHEREAS, in connection with the SAA, the Hexcel Subsidiaries desire Ciba to
continue to have Ciba's affiliates act as distributors for products of the
Transferred Business in the territories referred to on Schedule 1 attached
hereto (the "Distributors");
WHEREAS, Hexcel and Ciba are interested in a smooth transition of the
Transferred Business to Hexcel; and
WHEREAS, Ciba is willing to have its affiliates provide their services as
Distributors for products of the Transferred Business.
NOW, THEREFORE, in consideration of the undertakings set forth herein and
for other good and valuable consideration the receipt and sufficiency of which
are hereby acknowledged, the parties hereto have therefore agreed as follows:
SECTION 1. Terms not specifically defined herein shall have the meaning
assigned to them in the SAA.
SECTION 2. (a) Ciba commits that the affiliates of Ciba listed in Schedule
1 hereto shall continue to act as Distributors for products of the Transferred
Business in the countries listed in Schedule 1 under the terms and conditions at
which they have cooperated with the Transferred Business during the six-month
period immediately prior to the date of this agreement. The Distributors shall
act as independent distributors and are in no way authorized to bind Hexcel
and/or the Hexcel Subsidiaries.
(b) In the event that Danutec is acquired by Hexcel on or before December
31, 1996, Danutec shall be deemed to be a Hexcel Subsidiary under this Agreement
entitled to all the rights and benefits thereof.
(c) A list of the employees currently working for each Distributor in
connection with the Transferred Business (the "Employees") is attached hereto as
Schedule 2.
SECTION 3. (a) The Distributors shall use all commercially reasonable
efforts to continue to solicit and serve customers for the Transferred Business
by using the assets and employees dedicated to the Transferred Business at
present and reflected in the Balance Sheet. The Distributors shall also provide
the necessary administrative support and related services.
(b) The Hexcel Subsidiaries shall use all commercially reasonable efforts to
continue to supply the Distributors.
(c) The Distributors shall report to Hexcel via the existing regional
management structure of the Transferred Business.
(d) The Distributors shall continue to provide budgets, latest estimates,
monthly reports and one-year plans in the format and in accordance with the
timetable to be agreed with Hexcel and the Hexcel Subsidiaries.
B-71
<PAGE>
(e) The Distributors shall continue monthly third party sales reporting as
per the Ciba Form G02 currently used, including the end of month Ciba "quick"
report.
(f) The Distributors shall visit customers regularly and provide to Hexcel
and the appropriate Hexcel Subsidiaries reports on key customers and assist the
personnel of Hexcel and the Hexcel Subsidiaries in obtaining access to
customers.
(g) The Distributors shall manage local stocks, consignment stocks and the
assets of the Transferred Business in the countries listed on Schedule I hereto
in the best interest of Hexcel and the Hexcel Subsidiaries in accordance with
the direction of the regional management structure of the transferred business.
SECTION 4. Hexcel and all the Hexcel Subsidiaries shall provide the
Distributors with price lists for the products of the transferred business to be
handled by the Distributors and use their commercially reasonable efforts to
fulfill all orders of the Distributors as requested in accordance with the terms
hereof and at list prices. Hexcel, the Hexcel Subsidiaries and the regional
management structure of the transferred business together with the Distributors
shall coordinate dealing with key customers in the countries.
SECTION 5. (a) The Distributors shall not, without the prior agreement of
Hexcel, which agreement shall not be unreasonably withheld, transfer key
employees providing services to the Transferred Business hereunder to other
businesses of the Ciba Group.
(b) The Hexcel Subsidiaries shall ship orders either to the Distributors or,
if requested, directly to customers.
(c) The Distributors shall not provide customers with warranties exceeding
the warranties provided to the Distributors by Hexcel and the Hexcel
Subsidiaries.
SECTION 6. (a) This Agreement shall become effective on the Closing Date
and shall remain in effect until December 31, 1996. Hexcel shall be entitled to
give two (2) months written notice effective at the end of any calendar month to
terminate this Agreement for one or more specified Distributors at any time.
(b) Upon termination of this Agreement in its entirety or for specified
Distributors, Hexcel and/ or the Divested Subsidiaries shall acquire the
Inventory and Fixed Assets of the Distributor(s) which constitute the Deferred
Assets. Such Inventory shall consist of those products of the Transferred
Business purchased from the Hexcel Subsidiaries by the Distributor(s). Such
Inventory shall be acquired by the Hexcel Subsidiaries at a purchase price equal
to the landed cost of such Inventory to the Distributor(s). Fixed Assets shall
consist of the assets listed on Schedule 3 hereto. Such fixed assets shall be
transferred to the Hexcel Subsidiaries free of charge, with the exception of the
fixed assets in South Africa for which Hexcel shall pay Ciba U.S.$457,500.
(c) Upon termination of this Agreement in its entirety or with respect to
one or more specified Distributors, Hexcel and/or the Hexcel Subsidiaries shall
have the right to offer and where by law obliged to actually offer employment to
the relevant Employees. Employment shall be offered on compensation and benefit
terms that are reasonably competitive considering the country involved, then
prevailing economic conditions, the industry sector in which the relevant
Employees are engaged and the relevant Employees' skills and experience. Prior
to employment by Hexcel or any of the Hexcel Subsidiaries, the Distributor(s)
(or if applicable, Ciba) shall fully vest the relevant Employees in any pension
scheme or other employee benefit program in which such Employees have
participated and Distributor(s) (of if applicable, Ciba) shall retain any and
all liabilities with respect thereto. If Hexcel and the Hexcel Subsidiaries fail
to offer employment to one or more of such Employees and within three (3) months
thereafter the applicable Distributor(s) terminates the employment of any such
Employee, then Hexcel shall contribute an amount up to the amount specified by
law and if no such law exists an amount to be agreed to by the parties, which
amount shall not exceed one year's
B-72
<PAGE>
total compensation for the respective Employee(s). Except as otherwise provided
in this Agreement, Hexcel shall treat all Employees no less favorably than other
employees of Hexcel who are employed in comparable positions in comparable
locations.
(d) Hexcel and the Hexcel Subsidiaries shall be free to negotiate either an
extension of this Agreement or one or more new agreements with any of the
Distributors.
(e) Sections 8.07 and 8.08 of the SAA are incorporated by reference herein
and shall be deemed to constitute part of this Agreement.
SECTION 7. NOTICES. All notices and other communications hereunder shall be
in writing (including fax) and shall be sent, delivered or mailed, addressed, or
faxed:
(a) if to Hexcel or any of the Hexcel Subsidiaries, to:
Hexcel Corporation
5794 West Las Positas Boulevard
Pleasanton, CA 94588
(T) (510) 847-9500 (x4257)
(F) (510) 847-9727
Attention of Stephen C. Forsyth
and
Mr. Rodney P. Jenks
(T) 510 847-9500 (x4383)
(F) 510 734-8611
(b) if to Ciba to:
Ciba-Geigy Limited
CH 4002
Basle, Switzerland
(T) (41) 61 696-5107
(F) (41) 61 696-4677
Attention of Dr. Peter Rudolf
Each such notice, request or other communication shall be given (i) by hand
delivery, (ii) by nationally recognized courier service or (iii) by fax, receipt
confirmed. Each such notice, request or communication shall be effective (A) if
delivered by hand or by nationally recognized courier service, when delivered at
the address specified in this Section 7 (or in accordance with the latest
unrevoked written direction from the party to whom such notice is delivered) and
(B) if given by fax, when such fax is transmitted to the fax number specified in
this Section 7 (or in accordance with the latest unrevoked written direction
from the party to whom such notice is transmitted), and the appropriate
confirmation is received.
B-73
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Distribution
Agreement to be duly executed by their respective authorized officers as of the
date first above written.
HEXCEL CORPORATION,
by
------------------------------------
Name:
Title:
CIBA-GEIGY LIMITED,
by
------------------------------------
Name:
Title:
COMPOSITE MATERIALS LIMITED,
by
------------------------------------
Name:
Title:
BROCHIER, S.A.,
by
------------------------------------
Name:
Title:
SALVER, S.r.1.,
by
------------------------------------
Name:
Title:
B-74
<PAGE>
EXHIBIT D
TO THE STRATEGIC ALLIANCE AGREEMENT
AGREEMENT
GOVERNING UNITED STATES EMPLOYMENT MATTERS
DATED AS OF SEPTEMBER 29, 1995 AMONG
CIBA-GEIGY CORPORATION
AND
HEXCEL CORPORATION
B-75
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1. DEFINITIONS......................................................... B-77
ARTICLE 2. REPRESENTATIONS AND WARRANTIES REGARDING BENEFIT PLANS AND LABOR
MATTERS............................................................ B-78
2.1 CGC Representation and Warranties.............................. B-78
2.2 Hexcel Representations and Warranties.......................... B-80
2.3 Covenants by CGC............................................... B-83
2.4 Covenants by Hexcel............................................ B-83
2.5 Strategic Alliance Agreement................................... B-84
ARTICLE 3. U.S. TRANSFERRED BUSINESS EMPLOYEES................................. B-84
3.1 General........................................................ B-84
ARTICLE 4. EMPLOYEE BENEFIT PLANS AND ARRANGEMENTS............................. B-84
4.1 General........................................................ B-84
4.2 Back Service Credit............................................ B-85
4.3 Pension Plans.................................................. B-85
4.4 Savings Plans.................................................. B-85
4.5 Medical and Dental Plans....................................... B-86
4.6 Disability..................................................... B-87
4.7 Severance...................................................... B-87
4.8 Workers' Compensation.......................................... B-87
4.9 Vacation Pay................................................... B-87
ARTICLE 5. COLLECTIVE BARGAINING AGREEMENT..................................... B-87
ARTICLE 6. TERMINATION, MODIFICATION AND AMENDMENT............................. B-87
6.1 Termination.................................................... B-87
6.2 Modification and Amendment..................................... B-87
ARTICLE 7. NO THIRD-PARTY RIGHTS............................................... B-88
ARTICLE 8. INDEMNIFICATION..................................................... B-88
ARTICLE 9. NOTICES............................................................. B-88
ARTICLE 10. CAPTIONS............................................................ B-88
ARTICLE 11. ASSIGNMENT AND WAIVER............................................... B-88
11.1 Assignment.................................................... B-88
11.2 Waiver........................................................ B-88
ARTICLE 12. APPLICABLE LAW...................................................... B-89
ARTICLE 13. FURTHER ASSURANCES.................................................. B-89
ARTICLE 14. CONSENT TO JURISDICTION............................................. B-89
ARTICLE 15. SEVERABILITY........................................................ B-89
ARTICLE 16. SCHEDULES........................................................... B-89
ARTICLE 17. COUNTERPARTS........................................................ B-89
ARTICLE 18. POST-CLOSING ACCESS TO BOOKS AND RECORDS............................ B-89
</TABLE>
B-76
<PAGE>
AGREEMENT GOVERNING EMPLOYMENT MATTERS dated as of September 29, 1995,
between CIBA-GEIGY CORPORATION, a New York corporation ("CGC") and HEXCEL
CORPORATION, a Delaware corporation ("Hexcel").
WHEREAS, CGC and Hexcel (collectively the "Parties"), together with
Ciba-Geigy Limited, have entered into the Strategic Alliance Agreement, dated as
of even date herewith; and
WHEREAS, to effectuate the intent of the Parties relating to employment and
employee benefits matters with respect to certain United States employees of
CGC, the Parties wish to enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, representations
and warranties herein contained, the parties hereby agree as follows:
ARTICLE 1. DEFINITIONS
Unless specifically provided otherwise, each term used in this Agreement has
the same meaning specified or referred to in Appendix A of the Strategic
Alliance Agreement, or as otherwise set forth below:
"ASSUMED PLAN" -- See Section 2.1.
"CGC" -- shall mean Ciba-Geigy Corporation.
"CGC AFFILIATE" -- See Section 2.1.
"CGC INVESTMENT SAVINGS PLAN" -- See Section 4.4.
"CGC PLANS" -- See Section 2.1.
"CLOSING" -- See Section 2.01 of the Strategic Alliance Agreement.
"CLOSING DATE" -- shall mean the date of the Closing.
"ERISA" -- shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"FSA" -- See Section 4.5.
"HEATH TECNA" -- shall mean the Heath Tecna Aerospace Division of CGC.
"HEATH TECNA SALARIED SAVINGS PLAN" -- See Section 4.4.
"HEATH TECNA TRUST" -- See Section 4.4.
"HEATH TECNA UNION SAVINGS PLAN" -- See Section 4.4.
"HEXCEL" -- shall mean Hexcel Corporation; provided that, for purposes of
Articles 3 through 5, Hexcel shall include any Hexcel Affiliate, where
appropriate.
"HEXCEL BENEFIT PLANS" -- See Section 2.2.
"HEXCEL AFFILIATE" -- See Section 2.2.
"HEXCEL DEFINED BENEFIT PLAN" -- See Section 2.2.
"HEXCEL HOURLY PENSION PLAN" -- See Section 4.3.
"HEXCEL HOURLY SAVINGS PLAN" -- See Section 4.4.
"HEXCEL SALARIED SAVINGS PLAN" -- See Section 4.4.
"HEXCEL'S PLANS" -- See Section 4.1.
"MULTI-EMPLOYER PLAN" -- shall mean any plan described in Section 4001(a)(3)
of ERISA, as well as any multi-employer Welfare Plan maintained pursuant to a
collective bargaining agreement.
"PBGC" -- See Section 2.2.
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<PAGE>
"PENSION PLAN" -- See Section 2.1.
"PROHIBITED TRANSACTION" -- See Section 2.1.
"RELATED EMPLOYER" -- See Section 2.1.
"REPORTABLE EVENT" -- See Section 2.1.
"STRATEGIC ALLIANCE AGREEMENT" -- The Strategic Alliance Agreement dated as
of September 29, 1995, between Ciba-Geigy Limited, Ciba-Geigy Corporation and
Hexcel Corporation.
"U.S. TRANSFERRED BUSINESS" shall mean the portion of the Transferred
Business conducted by CGC in the United States.
"U.S. TRANSFERRED BUSINESS EMPLOYEE" -- See Section 3.1.
"WELFARE PLAN" -- See Section 2.1.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES REGARDING BENEFIT PLANS AND LABOR
MATTERS
2.1 CGC REPRESENTATION AND WARRANTIES.
(a) Schedule 2.1(a) sets forth a list of each "employee pension benefit
plan" (as defined in Section 3(2) of ERISA) (hereinafter a "Pension Plan"),
"employee welfare benefit plan" (as defined in Section 3(1) of ERISA)
(hereinafter a "Welfare Plan"), and each other plan, arrangement or policy
(written or oral) relating to stock options, stock purchases, deferred
compensation, severance, fringe benefits or other employee benefits, in each
case maintained or contributed to, or required to be maintained or contributed
to, by CGC or any other person or entity that, together with CGC, is treated as
a single employer under Section 414 of the Code (a "CGC Related Employer" and,
together with CGC and its Subsidiaries, a "CGC Affiliate") for the benefit of
employees of the U.S. Transferred Business (collectively the "CGC Plans")
(Schedule 2.1 lists only material plans with respect to non-United States
employees and does not include any foreign governmental or governmental mandated
plans). Schedule 2.1 also sets forth each CGC Plan (other than a Multi-Employer
Plan) as to which any obligations thereunder are assumed or transferred to
Hexcel or a Hexcel Plan (the "Assumed Plans"). CGC has delivered to Hexcel true,
complete and correct copies of (1) each Assumed Plan (or, in the case of any
unwritten Assumed Plans, descriptions thereof) and amendments thereto, (2) the
most recent annual report on Form 5500 filed with the Internal Revenue Service
with respect to each Assumed Plan (if any such report was required by applicable
law), (3) the most recent summary plan description (or similar document) for
each Assumed Plan for which such a summary plan description is required by
applicable law or was otherwise provided to plan participants or beneficiaries
and (4) each trust agreement and insurance or annuity contract relating to any
Assumed Plan.
(b) Each Assumed Plan has been administered in all material respects in
accordance with its terms. All CGC Affiliates and all Assumed Plans are in
compliance in all material respects with the applicable provisions of ERISA, the
Internal Revenue Code of 1986, as amended (the "Code"), and all other applicable
laws in respect of such Assumed Plans. There are no investigations, proceedings,
suits or claims (other than claims in the ordinary course) against or involving
any Assumed Plan or asserting any rights to or claims for benefits under any
Assumed Plan that could give rise to any material liability, and, to the
knowledge of CGC, there are not any facts that could give rise to any material
liability in the event of any such investigation, claim, suit or proceeding.
(c) All contributions to, and payments from, the Assumed Plans that may have
been required to be made in accordance with the terms of the Assumed Plans and
any applicable laws or agreements have been timely made or accrued (where
appropriate and permissible).
B-78
<PAGE>
(d) Each Assumed Plan that is intended to be a tax-qualified plan has been
the subject of a determination letter from the Internal Revenue Service to the
effect that such Assumed Plan is qualified and its related trust is exempt from
Federal income taxes under Sections 401(a) and 501(a), respectively, of the
Code; no such determination letter has been revoked, and, to the knowledge of
CGC, revocation has not been threatened; no event has occurred and no
circumstances exist that would adversely affect the tax-qualification of such
Assumed Plan; and such Assumed Plan has not been amended since the effective
date of its most recent determination letter in any respect that might adversely
affect its qualification, materially increase its cost or require security under
Section 307 of ERISA. CGC has delivered to Hexcel a copy of the most recent
determination letter received with respect to each Assumed Plan for which such a
letter has been issued, as well as a copy of any pending application for a
determination letter. CGC has also identified to Hexcel those Assumed Plan
amendments as to which a favorable determination letter has not yet been
received. No event has occurred that could subject any Assumed Plan to tax under
Section 511 of the Code.
(e) To the best of CGC's knowledge: (1) no "prohibited transaction" (as
defined in Section 4975 of the Code or Section 406 of ERISA) (hereinafter a
"Prohibited Transaction") has occurred that involves the assets of any Assumed
Plan; (2) no Prohibited Transaction has occurred that could subject any CGC
Affiliate, any employees of a CGC Affiliate, a trustee, administrator or other
fiduciary of any trust created under any Assumed Plan to the tax or sanctions on
Prohibited Transactions imposed by Section 4975 of the Code or Title I of ERISA;
(3) no Assumed Plan has been terminated or has been the subject of a "reportable
event" (as defined in Section 4043 of ERISA and the regulations thereunder)
(hereinafter a "Reportable Event"); and (4) no CGC Affiliate, any employees of a
CGC Affiliate, any trustee, administrator or other fiduciary of any Assumed Plan
or any agent of any of the foregoing has, in respect of any such Plan, engaged
in any transaction or acted in a manner that could, or has failed to act so as
to, subject any CGC Affiliate, trustee, administrator or other fiduciary to any
liability for breach of fiduciary duty under ERISA or any other applicable law.
(f) No Assumed Plan is a "defined benefit pension plan" (as defined in
Section 3(35) of ERISA.
(g) All "group health plans" (as such term is defined in Section 5000(b)(1)
of the Code) maintained by any CGC Affiliate and applicable to employees of the
U.S. Transferred Business, have been operated in material compliance with the
group health plan continuation coverage requirements of Section 4980B of the
Code and Section 601 of ERISA, to the extent such requirements are applicable.
(h) No condition exists and no event has occurred with respect to a
Multi-Employer Plan applicable to employees of the U.S. Transferred Business, to
which any CGC Affiliate is required to contribute, that presents a material risk
of any CGC Affiliate incurring any liability under Title IV of ERISA.
(i) During the period beginning on January 1, 1995 and ending on the date of
this Agreement, there has been no change in the manner in which contributions to
any Assumed Plan are made or the basis on which such contributions are
determined.
(j) (1) Schedule 2.1(j) contains a list of all collective bargaining
agreements to which CGC is a party covering employees of the U.S. Transferred
Business. CGC has delivered to Hexcel true, complete and correct copies of each
agreement. Except as set forth in the collective bargaining agreements listed in
Schedule 2.1(j), no union claims to represent or is seeking to represent any
unit of employees of the U.S. Transferred Business to the best of CGC's
knowledge.
(2) CGC is not a party to, or subject to, any consent decree, settlement
agreement, conciliation agreement or any other arrangement with any
governmental body or current employee relating to claims of unfair labor
practices, employment discrimination, or other claims relating to employment
practices or policies of the U.S. Transferred Business which has any current
material effect (or could have a future material effect) on the employment
practices and policies of the U.S. Transferred Business.
B-79
<PAGE>
(3) Since January 1, 1992, there has not occurred or, to the best
knowledge of CGC, been threatened, any strikes, slowdowns, work stoppages or
other similar disruptive labor activities with respect to employees of the
U.S. Transferred Business.
(4) With respect to employees of the U.S. Transferred Business, CGC
Affiliates (i) have complied in all material respects with all applicable
laws regarding labor, employment and employment practices, terms and
conditions of employment, occupational safety and health and wages and
hours, including, without limitation, any bargaining or other obligations
under the National Labor Relations Act and federal immigration laws; (ii)
are not parties to or bound by any oral contract concerning employment, or
any affirmative action plan established pursuant to any local, state or
federal law or order of any Governmental Body or court; and (iii) have not
been issued any deficiency letters by any governmental body or entered into
any settlement agreements, conciliation agreements or letters of commitment
with any governmental body concerning such employees which could reasonably
be expected to have a Material Adverse Effect on the U.S. Transferred
Business. Except as set forth in Schedule 2.1(j), there is no other material
action, suit, proceeding, dispute, claim or investigation pending or, to the
knowledge of CGC, threatened arising exclusively or primarily out of or in
connection with employees of the U.S. Transferred Business that are to be
assumed by Hexcel pursuant to Section 1.03(a)(v) of the Strategic Alliance
Agreement.
(5) CGC has made available to Hexcel with respect to employees of the
U.S. Transferred Business (i) the name and total compensation of each
officer and employee (other than as described in clause (iv) below); (ii)
any employment agreements currently in effect; (iii) the amount of any
significant wage or salary increases or bonuses granted by CGC to such
persons since January 1, 1994; and (iv) the wage or salary rates for
non-salaried and non-executive salaried employees. Schedule 2.1(j) sets
forth the name of each officer or employee described in (i) above. None of
such persons has given notice to CGC to cancel or otherwise terminate such
person's employment relationship with CGC.
(k) There is no amount that could be received (whether in cash or property
or the vesting of property) as a result of any of the transactions contemplated
by the Strategic Alliance Agreement by any employee of the U.S. Transferred
Business who is a "disqualified individual" (as such term is defined in proposed
Treasury Regulation Section 1.280G-1) under any employment, severance or
termination agreement, other compensation arrangement or CGC Plan currently in
effect that would be characterized as an "excess parachute payment" (as such
term is defined in Section 280G(b)(1) of the Code).
2.2 HEXCEL REPRESENTATIONS AND WARRANTIES.
(a) (i) Schedule 2.2(a) is a list of each Pension Plan, Welfare Plan and
each other plan, arrangement or policy (written or oral) relating to stock
options, stock purchases, deferred compensation, severance, fringe benefits or
other employee benefits, in each case maintained or contributed to, or required
to be maintained or contributed to, by Hexcel, any of its Subsidiaries or any
other person or entity that, together with Hexcel, is treated as a single
employer under Section 414 of the Code (an "Hexcel Related Employer" and,
together with Hexcel and its Subsidiaries, an "Hexcel Affiliate") for the
benefit of present or former officers, employees, agents, directors or
independent contractors of any Hexcel Affiliate in the United States (all the
foregoing being herein called "Hexcel Benefit Plans"). Hexcel has delivered to
CGC true, complete and correct copies of (1) each Hexcel Benefit Plan (or, in
the case of any unwritten Hexcel Benefit Plans, descriptions thereof) and
amendments thereto, (2) the most recent annual report on Form 5500 filed with
the Internal Revenue Service with respect to each Hexcel Benefit Plan (if any
such report was required by applicable law), (3) the most recent summary plan
description (or similar document) for each Hexcel Benefit Plan for which such a
summary plan description is required by applicable law or was otherwise provided
to plan participants or beneficiaries and (4) each trust agreement and insurance
or annuity contract relating to any Hexcel Benefit Plan.
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(b) Each Hexcel Benefit Plan has been administered in all material respects
in accordance with its terms. All Hexcel Affiliates and all Hexcel Benefit Plans
are in compliance in all material respects with the applicable provisions of
ERISA, the Code, and all other applicable laws in respect of such Plans. There
are no investigations, proceedings, suits or claims (other than claims in the
ordinary course) against or involving any Hexcel Benefit Plan or asserting any
rights to or claims for benefits under any Hexcel Benefit Plan that could give
rise to any material liability, and, to the knowledge of Hexcel, there are not
any facts that could give rise to any material liability in the event of any
such investigation, claim suit or proceeding.
(c) (1) All contributions to, and payments from, the Hexcel Benefit Plans
that may have been required to be made in accordance with the terms of the
Hexcel Benefit Plans and any applicable laws or agreements have been timely made
or accrued (where appropriate and permissible);
(2) there has been no application for or waiver of the minimum funding
standards imposed by Section 412 of the Code with respect to any Hexcel
Benefit Plan that is a Pension Plan (hereinafter an "Hexcel Pension Plan");
and
(3) no Hexcel Pension Plan had an "accumulated funding deficiency"
within the meaning of Section 412(a) of the Code as of the end of the most
recently completed plan year.
(d) Each Hexcel Pension Plan that is intended to be a tax-qualified plan has
been the subject of a determination letter from the Internal Revenue Service to
the effect that such Hexcel Pension Plan is qualified and its related trust is
exempt from Federal income taxes under Sections 401(a) and 501(a), respectively,
of the Code; no such determination letter has been revoked, and, to the
knowledge of Hexcel, revocation has not been threatened; no event has occurred
and no circumstances exist that would adversely affect the tax-qualification of
any Hexcel Pension Plan; and each such Hexcel Pension Plan has not been amended
since the effective date of its most recent determination letter in any respect
that might adversely affect its qualification, materially increase its cost or
require security under Section 307 of ERISA. Hexcel has delivered to CGC a copy
of the most recent determination letter received with respect to each Hexcel
Pension Plan for which such a letter has been issued, as well as a copy of any
pending application for a determination letter. Hexcel has also provided to CGC
all Hexcel Pension Plan amendments as to which a favorable determination letter
has not yet been received. No event has occurred that could subject any Hexcel
Pension Plan to tax under Section 511 of the Code.
(e) Schedule 2.2(e) discloses the extent to which to the best of Hexcel's
knowledge: (1) any Prohibited Transaction has occurred that involves the assets
of any Hexcel Benefit Plan; (2) any Prohibited Transaction has occurred that
could subject any Hexcel Affiliate, any of their employees, or, to the knowledge
of Hexcel, a trustee, administrator or other fiduciary of any trust created
under any Hexcel Benefit Plan to the tax or sanctions on Prohibited Transactions
imposed by Section 4975 of the Code or Title I of ERISA; (3) any Hexcel Pension
Plan has been terminated or has been the subject of a Reportable Event; and (4)
any Hexcel Affiliate, any of its employees, or to the knowledge of Hexcel, any
trustee, administrator or other fiduciary of any Hexcel Benefit Plan or any
agent of any of the foregoing has engaged in any transaction or acted in a
manner that could, or has failed to act so as to, subject any Hexcel Affiliate,
any trustee, administrator or other fiduciary to any liability for breach of
fiduciary duty under ERISA or any other applicable law.
(f) Except as set forth in Schedule 2.2(f), as of the most recent valuation
date for each Hexcel Pension Plan that is a "defined benefit pension plan" (as
defined in Section 3(35) of ERISA and including both qualified and nonqualified
plans) (hereinafter an "Hexcel Defined Benefit Plan"), there was not any amount
of unfunded benefit liabilities under any such Hexcel Defined Benefit Plan, and
Hexcel is not aware of any facts or circumstances that would materially change
the funded status of any such Hexcel Defined Benefit Plan. Hexcel has furnished
to CGC the most recent actuarial report or valuation with respect to each Hexcel
Defined Benefit Plan. The information supplied to the
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actuary by any Hexcel Affiliate for use in preparing those reports or valuations
was complete and accurate in all material respects and Hexcel has no reason to
believe that the conclusions expressed in those reports or valuations are
incorrect.
(g) No Hexcel Affiliate has incurred any liability to a Pension Plan (other
than for contributions not yet due) or to the Pension Benefit Guaranty
Corporation (other than for the payment of premiums not yet due) that, when
aggregated with other such liabilities, would result in a material liability to
any Hexcel Affiliate, which liability has not been fully paid as of the date
hereof.
(h) No Hexcel Affiliate has (a) engaged in a transaction described in
Section 4069 of ERISA that could reasonably subject Hexcel to liability at any
time after the date hereof or (b) acted in a manner that could, or failed to act
so as to, result in material fines, penalties, taxes or related charges under
(x) Section 502(c), (i) or (l) of ERISA, (y) Section 4071 of ERISA or (z)
Chapter 43 of the Code.
(i) Except as disclosed in Schedule 2.2(i), no condition exists and no event
has occurred with respect to a Multi-Employer Plan, to which Hexcel or any
Hexcel Affiliate is required to contribute, that presents a material risk of a
complete or partial withdrawal or any Hexcel Affiliate incurring any liability
under Title IV of ERISA.
(j) The list of Welfare Plans in Schedule 2.2(j) discloses whether each
Welfare Plan is (i) unfunded, (ii) funded through a Welfare Benefit Fund or
other funding mechanism or (iii) insured. All "group health plans" (as such term
is defined in Section 5000(b)(1) of the Code) maintained by any Hexcel
Affiliate, have been operated in material compliance with the group health plan
continuation coverage requirements of Section 4980B of the Code and Section 601
of ERISA to the extent such requirements are applicable.
(k) During the period beginning on January 1, 1995 and ending on the date of
this Agreement, there has been no change (a) in any actuarial or other
assumption used to calculate funding obligations with respect to any Hexcel
Pension Plan or (b) in the manner in which contributions to any Hexcel Pension
Plan are made or the basis on which such contributions are determined.
(l) Except as set forth in Schedule 2.2(l), no compensation payable by any
Hexcel Affiliate to any of their employees under any existing contract, Hexcel
Benefit Plan or other employment arrangement or understanding (including by
reason of the transactions contemplated hereby) will be non-deductible under
Section 162(m) of the Code.
(m) (1) Schedule 2.2(m) contains a list of all collective bargaining
agreements to which Hexcel and its Subsidiaries are a party covering employees
of Hexcel and its Subsidiaries in the United States. Hexcel has delivered to CGC
true, complete and correct copies of each agreement. Except as set forth in the
collective bargaining agreements listed in Schedule 2.2(m), no union claims to
represent or is seeking to represent any unit of employees of Hexcel and its
Subsidiaries in the United States to the best of Hexcel's knowledge.
(2) Except as set forth in Schedule 2.2(m), Hexcel and its Subsidiaries
are not a party to, or subject to, any consent decree, settlement agreement,
conciliation agreement or any other arrangement with any governmental body
or current or former employee relating to claims of unfair labor practices,
employment discrimination, or other claims relating to employment practices
or policies of Hexcel and its Subsidiaries which has any current material
effect (or could have a future material effect) on the employment practices
and policies of Hexcel and its Subsidiaries in the United States.
(3) Since January 1, 1992, there has not occurred or, to the best
knowledge of Hexcel, been threatened, any strikes, slowdowns, work stoppages
or other similar disruptive labor activities with respect to employees of
Hexcel and its Subsidiaries.
(4) Except as set forth in Schedule 2.2(m), Hexcel and its Subsidiaries
(i) have complied in all material respects with all applicable laws
regarding labor, employment and employment practices, terms and conditions
of employment, occupational safety and health and wages and
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hours, including, without limitation, any bargaining or other obligations
under the National Labor Relations Act and federal immigration laws; (ii)
are not parties to or bound by any oral contract concerning employment, or
any affirmative action plan established pursuant to any local, state or
federal law or order of any governmental body or court; (iii) are not
parties to any agreements or arrangements or subject to any requirement that
in any manner restrict Hexcel and its Subsidiaries from relocating,
consolidating, merging or closing, in whole or in part, any portion of their
operations subject to applicable law; and (iv) have not been issued any
deficiency letters by any governmental body or entered into any settlement
agreements, conciliation agreements or letters of commitment with any
governmental body concerning such employees which have any present material
effect (or could have any future material effect) on Hexcel and its
Subsidiaries.
(5) Hexcel and its Subsidiaries have made available to CGC (i) the name
and total compensation of each officer and employee in the United States
(other than as described in clause (iv) below); (ii) any employment
agreements currently in effect; (iii) the amount of any significant wage or
salary increases or bonuses granted by Hexcel and its Subsidiaries to such
persons since January 1, 1994; and (iv) the wage or salary rates for
non-salaried and non-executive salaried employees in the United States.
Schedule 2.2(m) sets forth the name of each officer or employee described in
(i) above. None of such persons has given notice to Hexcel and its
Subsidiaries to cancel or otherwise terminate such person's employment
relationship with Hexcel and its Subsidiaries.
(n) Except as set forth on Schedule 2.2(n), no current or former employee of
Hexcel or any of its Subsidiaries will be entitled to any additional benefits or
any acceleration of the time of payment or vesting of any benefits under any
Hexcel Benefit Plan or any other contract, arrangement or understanding as a
result of the transactions contemplated by the Strategic Alliance Agreement. Any
amount that could be received (whether in cash or property or the vesting of
property) as a result of any of the transactions contemplated by the Strategic
Alliance Agreement by any employee, officer or director of Hexcel or any of its
affiliates who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or Benefit Plan
currently in effect would not be characterized as an "excess parachute payment"
(as such term is defined in Section 280G(b)(1) of the Code).
2.3 COVENANTS BY CGC. From the date of this Agreement and until the
Closing Date, CGC shall not, without the prior written consent of Hexcel (which
consent shall not be unreasonably withheld),
(a) adopt or amend in any material respect or terminate any Assumed Plan,
except as required by law, or change any actuarial or other assumption used to
calculate funding obligations with respect to any such Assumed Plan (except to
the extent that failure to make such change would result in noncompliance with
GAAP, ERISA, or the Code) or change the manner in which contributions to any
Assumed Plan are made or the basis of which such contributions are determined,
except as required by law;
(b) grant to any employee of the U.S. Transferred Business any stock option
or material increase in compensation, except in the ordinary course of business
consistent with past practices or as may be required under existing agreements;
or
(c) take any action that would result in any representations and warranties
of CGC set forth in this Agreement becoming untrue, except as required by law.
2.4 COVENANTS BY HEXCEL. From the date of this Agreement and until the
Closing Date, neither Hexcel nor any Subsidiary shall, without the prior written
consent of CGC (which consent shall not be unreasonably withheld),
(a) adopt or amend in any material respect or terminate any Hexcel Benefit
Plan, except as required by law, or change any actuarial or other assumption
used to calculate funding obligations with respect to any Hexcel Pension Plan
(except to the extent that failure to make such change would
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result in noncompliance with GAAP, ERISA or the Code) or change the manner in
which contributions to any Hexcel Pension Plan are made or the basis of which
such contributions are determined, except as required by law;
(b) grant any stock options (except to the extent permitted under Section
4.01(b)(i) of the Strategic Alliance Agreement) or material increase in
compensation (except in the ordinary course of business consistent with past
practices or as may be required under existing agreements); or
(c) take any action that would result in any representations and warranties
of Hexcel set forth in this Agreement becoming untrue, except as required by
law.
2.5 STRATEGIC ALLIANCE AGREEMENT. Except to the extent inconsistent with
the terms of this Agreement, the provision of the Strategic Alliance applicable
to Representations and Warranties (e.g., Article 5 and Section 8.03) are
incorporated herein.
ARTICLE 3. U.S. TRANSFERRED BUSINESS EMPLOYEES
3.1 GENERAL.
(a) Hexcel shall offer employment to all individuals employed by CGC
exclusively or principally in connection with the U.S. Transferred Business who
continue to be employees of CGC as of the Closing Date (including those
employees receiving salary continuation benefits under any CGC short-term
disability or salary continuation program and active employees on military
service or other approved absences; provided that such employees are reasonably
expected to return to active service). Subject to the prior written consent of
CGC (which consent shall not be unreasonably withheld) and in accordance with
applicable laws, Hexcel may require certain employees of the U.S. Transferred
Business to sign confidentiality agreements as a condition of hiring. Except as
set forth in Schedule 3.1(a) or otherwise disclosed to Hexcel, CGC shall use
reasonable efforts to keep available the services of the current employees of
the U.S. Transferred Business as of the signing date and no such employee shall
be involuntarily terminated or transferred by CGC without the prior written
consent of Hexcel (which consent shall not be unreasonably withheld).
(b) All such employees hired by Hexcel shall become Hexcel's employees
immediately following the Closing Date (the "U.S. Transferred Business
Employees"). In the event any U.S. Transferred Business Employee who is
receiving short-term disability or salary continuation benefits as of the
Closing Date becomes entitled to long-term disability benefits prior to his/her
return to active employment, such employee will be covered under CGC's long-term
disability plan at CGC's expense. Except as otherwise provided in this
Agreement, Hexcel shall treat all U.S. Transferred Business Employees no less
favorably than other employees of Hexcel who are in comparable positions in
comparable locations. Those individuals employed by CGC whose employment is
deemed by CGC to be principally but not exclusively with the U.S. Transferred
Business are set forth on Schedule 3.1(b).
ARTICLE 4. EMPLOYEE BENEFIT PLANS AND ARRANGEMENTS
4.1 GENERAL.
(a) Except as provided in Article 5, Hexcel shall cover the U.S. Transferred
Business Employees under its own employee benefit plans, policies and
compensation arrangements immediately following the Closing Date ("Hexcel's
Plans"). Except as provided in Section 4.1(b) or Article 5, or unless otherwise
agreed by the parties, Hexcel will provide such U.S. Transferred Business
Employees with a level of compensation and benefits that is substantially
comparable to that provided to similarly situated employees of Hexcel from time
to time (including any nonqualified plans, deferred compensation arrangements
and/or stock options).
(b) Notwithstanding anything in this Article or Article 5 to the contrary,
if Hexcel so elects and notifies CGC in writing prior to December 1, 1995,
Hexcel shall provide such U.S. Transferred Business Employees who immediately
prior to the Closing Date were employed by Heath Tecna with a level of
compensation and benefits that is substantially comparable to that provided by
CGC to such
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employees immediately prior to the Closing Date (including but not limited to
pension plans, welfare plans, and vacation policies). If Hexcel so elects,
Hexcel shall immediately following the Closing Date enroll such employees in
such comparable employee benefit plans, including a defined benefit pension plan
that is substantially comparable to the Heath Tecna Company Retirement Plan.
Notwithstanding anything to the contrary in this Article, Hexcel shall not be
required to enroll such employees in any retiree medical program sponsored or
maintained by Hexcel. If Hexcel does not so elect, the provisions of Section
4.1(a) apply, except with respect to retiree medical benefits.
(c) Effective as of the Closing Date, the benefits and participation of the
U.S. Transferred Business Employees in CGC's Plans shall be limited to benefits
accrued as of the Closing Date, and no further benefit accruals shall occur by
reason of their continued employment with Hexcel. Except as otherwise provided
in this Agreement, CGC shall be responsible for all benefits accrued as of the
Closing Date.
4.2 BACK SERVICE CREDIT. To the extent permitted by law, Hexcel shall
cause Hexcel's Plans to give the U.S. Transferred Business Employees full credit
for service recognized by CGC's Plans for all purposes other than benefit
accrual under any defined benefit plan.
4.3 PENSION PLANS.
(a) HEXCEL. Except as provided in Section 4.1(b), or unless otherwise agreed
by the parties, effective immediately following the Closing Date and subject to
the provisions of Section 4.2 above:
(1) any hourly paid U.S. Transferred Business Employee who is not
eligible to participate in a Multi-Employer Plan pursuant to Article 5 shall
be eligible to participate in the Hexcel Corporation Hourly Employees
Pension Plan or such successor plan applicable to similarly situated
employees of Hexcel (the "Hexcel Hourly Pension Plan") as of the first entry
date he/she meets the applicable eligibility requirements; and
(2) any salaried U.S. Transferred Business Employee shall be eligible to
participate in any pension plan covering similarly situated salaried
employees of Hexcel as of the first entry date he/ she meets applicable
eligibility requirements.
(b) CGC. CGC shall retain and be responsible for all assets and liabilities
relating to the U.S. Transferred Business Employees under the (1) Pension Plan
for Salaried Employees of Ciba-Geigy Corporation and Certain Affiliated
Corporations and (2) Heath Tecna Aerospace Company Retirement Plan. The accrued
benefit of each U.S. Transferred Business Employees under these Plans shall be
fully vested and nonforfeitable as of the Closing Date. The benefits of U.S.
Transferred Business Employees shall be limited to benefits accrued as of the
Closing Date and no further benefit accruals shall occur by reason of their
continued employment with Hexcel.
4.4 SAVINGS PLANS. Unless otherwise agreed by the parties, effective
immediately following the Closing Date, and subject to the provisions of Section
4.2 above (1) any hourly paid U.S. Transferred Business Employee who is not an
"Eligible Employee" under the Heath Tecna Aerospace Company Voluntary Savings
Plan for Union Employees (the "Heath Tecna Union Savings Plan") shall be
immediately eligible to participate in the Hexcel Corporation Hourly Employees
Retirement Savings Plan or such successor plan applicable to similarly situated
employees of Hexcel (the "Hexcel Hourly Savings Plan") and (2) any salaried U.S.
Transferred Business Employee who is not an "Eligible Employee" under the Heath
Tecna Aerospace Company Voluntary Savings Plan for Salaried Employees (the
"Heath Tecna Salaried Savings Plan") shall be immediately eligible to
participate in the Hexcel Corporation Salaried Employees Retirement Program or
such successor plan applicable to similarly situated employees of Hexcel (the
"Hexcel Salaried Savings Plan"). Hexcel shall deliver to CGC prior to the
Closing Date certified copies of the current plan document and any trust
agreement which serves as the funding medium for each of Hexcel's Savings Plans
(to the extent not previously delivered), along with the currently effective
favorable determination letter from the IRS with respect to the Hexcel's Savings
Plans (if available). In the absence of such a favorable determination letter
with respect to an Hexcel Savings Plan, Hexcel shall disclose to CGC that the
Hexcel Savings Plan has
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been timely submitted to the Internal Revenue Service, that Hexcel will make any
changes required by the IRS and that Hexcel knows of no reason why the Plan is
not qualified under Section 401(a) of the Code and that the related trust is not
exempt from federal income tax under Section 501(a) of the Code.
Unless otherwise agreed by the parties, effective immediately following the
Closing Date, Hexcel shall adopt and be substituted for CGC as the sponsoring
employer of the Heath Tecna Union Savings Plan, the Heath Tecna Salaried Savings
Plan and the Heath Tecna Aerospace Company Voluntary Savings Plan Trust (the
"Heath Tecna Trust"). Except as otherwise provided in this Agreement, CGC shall
have no further liability with respect to the Heath Tecna Plans and Trust.
Subject to any appropriate review of Hexcel's Savings Plans and Trust
(including investments thereunder) and following receipt of the current Hexcel
Savings Plan documents, a reasonable period after the Closing Date, and not less
than 30 days following the filing with the IRS of any required notices, CGC
shall cause the trustee under the CGC Investment Savings Plan to transfer the
assets and all liabilities representing the account balances of the U.S.
Transferred Business Employees under the Investment Savings Plan for Salaried
Employees of Ciba-Geigy Corporation (the "CGC Investment Savings Plan") to the
trustee of the applicable Hexcel Savings Plan, determined as of a valuation date
no earlier than 30 days prior to the actual date of transfer. Hexcel shall cause
Hexcel's Savings Plans to accept such transferred assets and benefit
liabilities. The assets to be transferred shall be in the form of cash and any
notes representing loans to the U.S. Transferred Business Employees made by the
CGC Investment Savings Plan. After the Closing Date, subject to the ultimate
transfer of the assets as required herein, Hexcel and Hexcel's Savings Plans
shall be responsible for any benefits to which U.S. Transferred Business
Employees were entitled under the CGC Investment Savings Plan, the Heath Tecna
Union Savings Plan and the Heath Tecna Salaried Savings Plan as of the Closing
Date, and to which any such employees shall thereafter become entitled under
Hexcel's Savings Plans. The account balance of each employee of the U.S.
Transferred Business as of the Closing Date attributable to the Assumed Plans
shall be fully vested and nonforfeitable as of such date.
4.5 MEDICAL AND DENTAL PLANS.
(a) Except as provided in Section 4.1(b) or Article 5, or unless otherwise
agreed by the parties, Hexcel shall enroll the U.S. Transferred Business
Employees and their dependents in medical and dental plans (including any
flexible spending accounts, hereinafter referred to as a "FSA") immediately
following the Closing Date which are substantially comparable to the plans
covering similarly situated employees of Hexcel, without a waiting period, and
shall waive all restrictions and limitations for pre-existing conditions under
said plans (other than any pre-existing condition that was not waived by the CGC
Plan). After the Closing Date, CGC shall no longer have any responsibility for
the payment of health care benefits provided with respect to the U.S.
Transferred Business Employees and their dependents, including any legally
mandated continuation of health care coverage for such employees and their
dependents who have a loss of health care coverage due to a qualifying event
after the Closing Date.
(b) After the Closing Date, except as provided below or to the extent
otherwise required by law or a binding obligation with an employee, Hexcel will
be responsible for post-retirement welfare benefits with respect to the U.S.
Transferred Business Employees (and the dependents of such employees) who retire
after the Closing Date under any of Hexcel's Plans. CGC will only be responsible
for post-retirement welfare benefits with respect to any U.S. Transferred
Business Employees who were eligible to receive such benefits based on their age
and service as of the Closing Date. To the extent a U.S. Transferred Business
Employee is eligible for post-retirement benefits under both CGC's and Hexcel's
Plans, such individual must elect prior to Closing to be covered by the Hexcel
Plan and absent such election shall be covered by the CGC Plan.
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4.6 DISABILITY. Except as provided in Section 4.1(b) or Article 5, or
unless otherwise agreed by the parties and effective immediately following the
Closing Date, Hexcel shall enroll the U.S. Transferred Business Employees in
disability plans which are substantially comparable to plans covering other
similarly situated employees of Hexcel, without a waiting period, and shall
waive all restrictions and limitations regarding pre-existing conditions under
such plans (other than any pre-existing condition that was not waived by the CGC
Plan). After the Closing Date, except to the extent otherwise provided in
Section 3.1(b) or required by law, CGC shall no longer have any responsibility
for the payment of disability benefits provided for the U.S. Transferred
Business Employees, whether or not the condition which gave rise to the salary
continuation obligation occurred before the Closing Date.
4.7 SEVERANCE. Except as provided in Section 4.1(b) or Article 5, or
unless otherwise agreed by the parties and effective immediately following the
Closing Date, Hexcel shall cover the U.S. Transferred Business Employees with a
severance pay policy or arrangement which is substantially similar to policies
and arrangements covering similarly situated employees of Hexcel. After the
Closing Date, except to the extent otherwise required by law or a binding
obligation with an employee, CGC will not be responsible for severance benefits
of any U.S. Transferred Business Employee whose employment is terminated after
the Closing Date.
4.8 WORKERS' COMPENSATION. Hexcel shall be responsible for U.S.
Transferred Business Employees eligible for workers' compensation after the
Closing Date, unless such claim relates solely to an event that occurred prior
to the Closing Date. Hexcel shall, at its sole cost and expense, administer
(including defending, settling and paying awards) any workers' compensation
claims brought against Hexcel or CGC by any U.S. Transferred Business Employee
after the Closing that relates to an occurrence (including, without limitation,
an aggravation of an injury which occurred prior to the Closing Date) which took
place after the Closing Date.
4.9 VACATION PAY. CGC shall be responsible for the accrued vacation pay of
any U.S. Transferred Business Employee as of the Closing Date.
ARTICLE 5. COLLECTIVE BARGAINING AGREEMENT
Notwithstanding anything to the contrary in this Agreement and except as
otherwise may be agreed by the parties, Hexcel shall assume and be bound by the
Agreement Between Heath Tecna and the IAM District Lodge Number 160, Local Lodge
1103 (the "IAM CBA"), including any obligation thereunder to contribute to any
Multi-Employer Plan. Hexcel shall become a successor employer to any such
collective bargaining agreement, either by operation of law or fact, and shall
also be substituted as the contributing employer under any Multi-Employer Plan
and any Welfare Plan described in the collective bargaining agreement. CGC shall
continue to be responsible for any and all obligations and liabilities arising,
accruing or attributable to service with CGC before the Closing Date, or
asserted to exist as of the Closing Date with respect to any such collective
bargaining agreement. Hexcel shall indemnify, defend and hold harmless CGC
Affiliates and their agents from, and shall reimburse CGC Affiliates and their
respective agents, for any loss, liability, claim, damage or expense (including
reasonable legal fees and expenses) arising from or in connection with any claim
asserted after the Closing Date made by the collective bargaining unit or any
representative thereof relating to any act on or after the Closing.
ARTICLE 6. TERMINATION, MODIFICATION AND AMENDMENT
6.1 TERMINATION. This Agreement shall be considered terminated if the
Strategic Alliance Agreement is terminated pursuant to Section 6.01 of the
Strategic Alliance Agreement.
6.2 MODIFICATION AND AMENDMENT. On or prior to the Closing Date, the
parties shall have the right to request modification of one or more provisions
of this Agreement, including any Schedule hereto. In the event that either party
makes such a request, the other party shall negotiate in good faith a possible
amendment to such provision with the requesting party. Any such amendment agreed
to by the parties shall be reflected in a written amendment to this Agreement,
duly executed by the
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parties hereto. This Agreement shall constitute a legally binding commitment of
the parties until so amended, after which it shall constitute a legally binding
commitment as so amended. CGC or Hexcel may, by an instrument in writing signed
on behalf of such party, waive compliance by the other party with any term or
provision of this Agreement that such other party was or is obligated to comply
with or perform.
ARTICLE 7. NO THIRD-PARTY RIGHTS
No person or entity other than the parties hereto, including, but not
limited to any former or present employee of CGC or any CGC Affiliates or of
Hexcel (including any assignee or beneficiary thereof) shall have any rights
with respect to any obligation of any entity under this Agreement, and nothing
in this Agreement, expressed or implied, is intended to confer on any such
employee any rights or remedies.
ARTICLE 8. INDEMNIFICATION
Except to the extent inconsistent with Article 5, the indemnification
provisions of the Strategic Alliance Agreement are incorporated herein.
ARTICLE 9. NOTICES
All notices and other communications hereunder shall be in writing and
deemed given when (a) delivered by messenger, (b) sent by telecopier (with
receipt confirmed), provided that a copy is mailed by registered or certified
mail, postage prepaid, return receipt requested, or (c) when received by the
addressee, if sent by Express Mail, Federal Express or other express delivery
service (receipt requested), in each case to the appropriate addresses or
telecopier numbers set forth below (or to such other addresses and telecopier
numbers as a party may designate as to itself by notice to the other party):
If to CGC, to it at:
Ciba-Geigy Corporation
520 White Plains Road
P.O. Box 2005
Tarrytown, NY 10591-2199
Telephone: (914) 785-2000
Telecopy: (914) 785-2199
Att: John J. McGraw, Esq.
If to Hexcel, to it at:
Hexcel Corporation
5794 West Las Positas Boulevard
Pleasanton, California 94588
Telephone: (510) 847-9500
Telecopy: (510) 734-8611
Att: Rodney P. Jenks, Esq.
ARTICLE 10. CAPTIONS
The headings contained in this Agreement, including the Tables of Contents
and Schedules, are for reference purposes only and shall not affect the meaning
or interpretation of this Agreement.
ARTICLE 11. ASSIGNMENT AND WAIVER
11.1 ASSIGNMENT. All of the terms and provisions of this Agreement shall
be binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and permitted assigns. This Agreement
shall not be assignable or transferable by either party.
11.2 WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
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ARTICLE 12. APPLICABLE LAW
To the extent not preempted by the laws of the United States of America,
this Agreement shall be construed in accordance with the internal laws of the
State of New York, without giving effect to the principles of conflicts of laws
thereof.
ARTICLE 13. FURTHER ASSURANCES
Each party agrees that it will execute and deliver, or cause to be executed
and delivered, on or after the date of this Agreement, all such other
instruments and will take all reasonable actions as the other party may
reasonably request from time to time in order to effectuate the provisions and
purposes of this Agreement.
ARTICLE 14. CONSENT TO JURISDICTION
The Consent to Jurisdiction provisions of the Strategic Alliance Agreement
(Section 8.08 thereof) are incorporated herein.
ARTICLE 15. SEVERABILITY
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof. If any provision of this
Agreement, or the application hereof to any person, entity or any circumstance,
is found to be invalid or unenforceable in any jurisdiction, (a) a suitable and
equitable provision shall be substituted therefor in order to carry out, so far
as may be valid and enforceable, the intent and purpose of such invalid or
unenforceable provision and (b) the remainder of this Agreement and the
application of such provision to other persons, entities or circumstances shall
not be affected by such invalidity or unenforceability, nor shall such
invalidity or unenforceability affect the validity or enforceability of such
provision, or the application thereof, in any other jurisdiction.
ARTICLE 16. SCHEDULES
The disclosure of any matter in any Schedule to this Agreement shall be
deemed to be a disclosure for all purposes of this Agreement to which such
matter could reasonably be expected to be pertinent, but shall expressly not be
deemed to constitute an admission by CGC or Hexcel, or to otherwise imply, that
any such matter is material for purposes of this Agreement.
ARTICLE 17. COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be
considered an original, but all of which together shall constitute the same
instrument.
ARTICLE 18. POST-CLOSING ACCESS TO BOOKS AND RECORDS
CGC shall, upon reasonable notice and during normal business hours, allow
Hexcel, its representatives and outside attorneys full and complete access to
its books, records and information relevant to (a) any employment or employee
benefits claims asserted against Hexcel or any Hexcel Plan or (b) any government
investigation or inquiry concerning employment or employee benefit matters.
Hexcel shall, upon reasonable notice and during normal business hours, allow
CGC, its representatives and outside attorneys full and complete access to its
books, records and information relevant to (a) any employment or employee
benefits claims asserted against CGC or any CGC Plan or (b) any government
investigation or inquiry concerning employment or employee benefits matters.
Each party hereto shall grant the other party's reasonable requests to photocopy
any such books, records and information for the purposes herein stated. The
obligations in this Article 18 shall survive the Closing Date and shall remain
in effect for a period of five years following the Closing Date. Nothing in this
Article 18 shall be construed as limiting either party's access to the other
party's books, records and information pursuant to subpoena or any other lawful
means.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of
the date first above written.
CIBA-GEIGY CORPORATION
By: /s/ STANLEY SHERMAN
Name: Stanley Sherman
Title: Vice President -- Finance
& Information Services
HEXCEL CORPORATION
By: /s/ JOHN J. LEE
Name: John J. Lee
Title: Chief Executive Officer
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<PAGE>
AMENDMENT DATED NOVEMBER 22, 1995 TO AGREEMENT GOVERNING EMPLOYMENT MATTERS
dated as of September 29, 1995 (the "Agreement") between CIBA-GEIGY CORPORATION,
a New York corporation ("CGC"), and HEXCEL CORPORATION, a Delaware corporation
("Hexcel"). CGC and Hexcel agree to amend the Agreement as follows:
(a) DEFINITIONS. Unless specifically provided otherwise, each term used in
this Amendment has the same meaning specified or referred to in Appendix A of
the Strategic Alliance Agreement or in Article I of the Agreement.
(b) AMENDMENT. Article 5 of the Agreement shall be deleted in its entirety
and replaced by the following:
ARTICLE 5. COLLECTIVE BARGAINING AGREEMENT
Notwithstanding anything to the contrary in this Agreement and except as
otherwise may be agreed by the parties, Hexcel shall not be required to assume
or be bound by, and shall have no obligation or liability under (unless and
until Hexcel, in its sole discretion, decides to assume and so assumes on the
Closing Date), the Collective Bargaining Agreement between Heath Tecna and the
IAM District Lodge Number 160, Local Lodge 1103 (the "IAM CBA"), including any
obligation thereunder to contribute to any Multi-Employer Plan. In any event,
CGC shall continue to be responsible for any and all obligations and liabilities
arising, accruing or attributable to service with CGC prior to the Closing Date
or asserted to exist as of the Closing Date with respect to the IAM CBA. At
Hexcel's request, CGC shall allow employees of the U.S. Transferred Business to
participate with Hexcel and its representatives in the planning, discussions and
negotiations concerning the modification of the terms and conditions of the
Heath Tecna collective bargaining unit's employment or the terms of the IAM CBA;
provided however, that CGC may provide reasonable restrictions on the employees
who are to participate and on the parameters of their participation.
(c) AMENDMENT. The following shall be deleted in its entirety from
Schedule 2.1(a) of the Agreement: "Blue Cross of Washington and Alaska (Union
Medical Plan) and the Group Health Cooperative of Puget Sound (Union HMO)."
(d) MISCELLANEOUS. Except as specifically provided in this Amendment, the
terms of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment effective as of
the date first above written.
CIBA-GEIGY CORPORATION HEXCEL CORPORATION
By: /s/ STANLEY SHERMAN By: /s/ JOHN J. LEE
Name: Stanley Sherman Name: John J. Lee
Title: VP & CFO Title: CEO
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ANNEX C
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOVERNANCE AGREEMENT
DATED AS OF
[ ], 1996
BETWEEN
CIBA-GEIGY LIMITED
AND
HEXCEL CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<C> <S> <C>
Section 1.01 Definitions............................................................ C-3
</TABLE>
ARTICLE II
CORPORATE GOVERNANCE
<TABLE>
<C> <S> <C>
Section 2.01 Board of Directors..................................................... C-6
Section 2.02 Ciba Board Representation.............................................. C-6
Section 2.03 Designation of Slate................................................... C-6
Section 2.04 Committee Membership................................................... C-6
Section 2.05 Resignations and Replacements.......................................... C-7
Section 2.06 Approvals.............................................................. C-7
Section 2.07 Solicitation and Voting of Shares...................................... C-8
Section 2.08 Certificate of Incorporation and By-Laws; Anti-Takeover Measures....... C-9
</TABLE>
ARTICLE III
STANDSTILL
<TABLE>
<C> <S> <C>
Section 3.01 Standstill............................................................. C-10
Section 3.02 Ciba Right to Maintain Position........................................ C-11
Section 3.03 Third Party Offers..................................................... C-11
</TABLE>
ARTICLE IV
TRANSFER RESTRICTIONS
<TABLE>
<C> <S> <C>
Section 4.01 Restrictions........................................................... C-12
Section 4.02 Legends................................................................ C-12
Section 4.03 Effect................................................................. C-13
</TABLE>
ARTICLE V
EXTENSION AND TERMINATION
<TABLE>
<C> <S> <C>
Section 5.01 Ciba Election.......................................................... C-13
</TABLE>
ARTICLE VI
MISCELLANEOUS
<TABLE>
<C> <S> <C>
Section 6.01 Notices................................................................ C-13
Section 6.02 Interpretation......................................................... C-15
Section 6.03 Severability........................................................... C-15
Section 6.04 Counterparts........................................................... C-15
Section 6.05 Entire Agreement; No Third Party Beneficiaries......................... C-15
Section 6.06 Further Assurances..................................................... C-15
Section 6.07 Governing Law; Equitable Remedies...................................... C-15
Section 6.08 Consent to Jurisdiction................................................ C-15
Section 6.09 Amendments; Waivers.................................................... C-16
Section 6.10 Assignment............................................................. C-16
</TABLE>
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<PAGE>
GOVERNANCE AGREEMENT dated as of [ ],
1996, between CIBA-GEIGY LIMITED, a Swiss corporation ("Ciba"),
and HEXCEL CORPORATION, a Delaware corporation ("Hexcel").
WHEREAS Hexcel, Ciba and Ciba-Geigy Corporation, a New York corporation
("CGC"), are parties to a Strategic Alliance Agreement dated as of September 29,
1995 (the "Strategic Alliance Agreement") and upon consummation of the
transactions contemplated therein (the "Transactions"), Ciba will Beneficially
Own approximately 49.9% of the Total Voting Power of Hexcel (as such terms are
defined below); and
WHEREAS the parties hereto wish to further establish the nature of their
strategic alliance and set forth their agreement concerning the governance of
Hexcel following consummation of the Transactions as well as certain matters
relating to Ciba's ownership of Voting Securities (as such term is defined
below).
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
contained herein and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.01. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
An "AFFILIATE" of any Person means any other Person that directly or
indirectly, through one or more intermediaries, Controls, is Controlled by, or
is under common Control with, such first Person. "CONTROL" has the meaning
specified in Rule 12b-2 under the Exchange Act as in effect on the date of this
Agreement.
"ASSOCIATE" has the meaning set forth in Rule 12b-2 under the Exchange Act
as in effect on the date of this Agreement.
Any Person shall be deemed to "BENEFICIALLY OWN", to have "BENEFICIAL
OWNERSHIP" of, or to be "BENEFICIALLY OWNING" any securities (which securities
shall also be deemed "BENEFICIALLY OWNED" by such Person) that such Person is
deemed to "beneficially own" within the meaning of Rule 13d-3 under the Exchange
Act as in effect on the date of this Agreement.
"BOARD" means the board of directors of Hexcel.
"BROAD DISTRIBUTION" means a distribution of Voting Securities that, to the
knowledge, after due inquiry, of the Person on whose behalf such distribution is
being made, will not result in the acquisition by any other Person of any such
Voting Securities to the extent that, after giving effect to such acquisition,
such acquiring Person would hold in excess of the greater of (x) 5% of the Total
Voting Power of Hexcel or (y) if such acquiring Person is an institutional
investor eligible to file a Statement on Schedule 13G (or any successor form)
with respect to its investment in Hexcel, 7% of the Total Voting Power of
Hexcel.
"BUYOUT TRANSACTION" means a tender offer, merger, sale of all or
substantially all Hexcel's assets or any similar transaction that offers each
holder of Voting Securities (other than, if applicable, the Person proposing
such transaction) the opportunity to dispose of all Voting Securities
Beneficially Owned by each such holder or otherwise contemplates the acquisition
of all (but not less than all) Voting Securities Beneficially Owned by each such
holder.
"CGC" has the meaning set forth in the recitals to this Agreement.
"CHAIRMAN" means the Chairman of the Board and Chief Executive Officer of
Hexcel.
"CIBA" has the meaning set forth in the recitals to this Agreement.
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"CIBA DIRECTORS" means Ciba Nominees who are elected or appointed to serve
as members of the Board in accordance with this Agreement.
"CIBA ENTITY" means any Subsidiary of Ciba that holds Voting Securities.
"CIBA NOMINEES" means such Persons as are so designated by Ciba, as such
designations may change from time to time in accordance with this Agreement, to
serve as members of the Board pursuant to Section 2.02 hereof.
"CLOSING DATE" means the date of the closing of the Transactions.
"CUSTOMARY ACQUISITION/CONTROL PREMIUM" means the aggregate realizable value
for all Voting Securities (including Voting Securities owned by Ciba or any Ciba
Entity), assuming a sale of Hexcel in its entirety in a transaction or series of
related transactions to a third party or parties on an arm's length basis in a
controlled auction process designed to maximize shareholder value by attracting
all possible bidders, including Ciba and its affiliates.
"ELECTION DATE" means the tenth anniversary of the Closing Date and, if Ciba
exercises its right to extend this Agreement for one or more successive two year
periods thereafter pursuant to Section 5.01(a)(i), the date on which each such
extension period expires.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"GOVERNMENTAL ENTITY" means any court, administrative agency, regulatory
body, commission or other governmental authority, board, bureau or
instrumentality, domestic or foreign and any subdivision thereof.
"GROUP" has the meaning set forth in Section 13(d) of the Exchange Act as in
effect on the date of this Agreement.
"HEXCEL" has the meaning set forth in the recitals to this Agreement.
"HEXCEL COMMON" means the common stock of Hexcel, par value $0.01 per share.
"INDEPENDENT DIRECTOR" means a director of Hexcel who is not a Ciba Director
and who (i) is not and has never been an officer, employee or director of Ciba
or any affiliate (other than Hexcel) or associate of Ciba and (ii) has no
affiliation or compensation, consulting or contractual relationship with Ciba or
any of its affiliates (other than Hexcel) such that a reasonable person would
regard such director as likely to be unduly influenced by Ciba or any of its
affiliates (other than Hexcel).
"OTHER HOLDERS" means the holders of the Other Shares.
"OTHER SHARES" means Voting Securities not Beneficially Owned by Ciba or any
Ciba Entity.
"PERSON" means any individual, group, corporation, firm, partnership, joint
venture, trust, business association, organization, Governmental Entity or other
entity.
"PRESIDENT" means the President and Chief Operating Officer of Hexcel.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
dated as of the date hereof between Ciba and Hexcel.
"REQUISITE CONSIDERATION" means consideration that is (i) approved by (x) a
majority of the Independent Directors acting solely in the interests of the
Other Holders, after the receipt of an opinion of an independent nationally
recognized investment banking firm retained by them or (y) a majority in
interest of the Other Holders by means of a Stockholder Vote solicited pursuant
to a proxy statement containing the information required by Schedule 14A under
the Exchange Act (it being understood that the Independent Directors shall,
consistent with their fiduciary duties, be free to include in such proxy
statement, if applicable, the reasons underlying any failure by them to approve
a Buyout Transaction by the requisite vote, including whether a fairness opinion
was sought by the
C-4
<PAGE>
Independent Directors and any opinions or recommendations expressed in
connection therewith) and (ii) in the opinion of an independent nationally
recognized investment banking firm (including such a firm retained by Ciba),
fair to the Other Holders from a financial point of view. In connection with the
retention of any investment banking firm referred to herein, the Independent
Directors shall instruct such investment banking firm, unless the Independent
Directors conclude, after consultation with their outside legal and financial
advisors, that such instructions are not appropriate, to (a) value Hexcel's
businesses taking into account a premium for control and (b) assume for purposes
of such opinion that the Other Holders are entitled to their proportionate part
of a Customary Acquisition/ Control Premium.
"REQUISITE DISTRIBUTION" means a public offering registered under the
Securities Act or a non-registered distribution conducted pursuant to an
applicable exemption from registration under the Securities Act, in each case
that is conducted in a manner calculated to achieve a Broad Distribution.
"SEC" means the Securities and Exchange Commission or any successor
Governmental Entity.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"SIGNIFICANT SUBSIDIARY" has the meaning set forth in Rule 1-02 of
Regulation S-X under the Securities Act as in effect on the date of this
Agreement.
"STANDSTILL PERIOD" means the five-year period commencing on the Closing
Date.
"STOCKHOLDER VOTE" means as to any matter to be presented to holders of
Voting Securities, a vote at a duly called and held annual or special meeting of
the holders of Voting Securities entitled to vote on such matter.
"STRATEGIC ALLIANCE AGREEMENT" has the meaning set forth in the recitals to
this Agreement.
"SUBSIDIARY" means, with respect to any Person, as of any date of
determination, any other Person as to which such Person owns, directly or
indirectly, or otherwise controls, more than 50% of the voting shares or other
similar interests.
"THIRD PARTY OFFER" means a bona fide offer to enter into a Buyout
Transaction by a Person other than Ciba or any of its affiliates or any other
Person acting on behalf of Ciba or any of its affiliates that does not treat
Ciba or any Ciba Entity differently than the Other Holders.
"TOTAL VOTING POWER OF HEXCEL" means the total number of votes that may be
cast in the election of directors of Hexcel if all Voting Securities outstanding
or treated as outstanding pursuant to the final sentence of this definition were
present and voted at a meeting held for such purpose. The percentage of the
Total Voting Power of Hexcel Beneficially Owned by any Person is the percentage
of the Total Voting Power of Hexcel that is represented by the total number of
votes that may be cast in the election of directors of Hexcel by Voting
Securities Beneficially Owned by such Person. In calculating such percentage,
the Voting Securities Beneficially Owned by any Person that are not outstanding
but are subject to issuance upon exercise or exchange of rights of conversion or
any options, warrants or other rights Beneficially Owned by such Person shall be
deemed to be outstanding for the purpose of computing the percentage of the
Total Voting Power represented by Voting Securities Beneficially Owned by such
Person, but shall not be deemed to be outstanding for the purpose of computing
the percentage of the Total Voting Power represented by Voting Securities
Beneficially Owned by any other Person.
"TRANSACTIONS" has the meaning set forth in the recitals to this Agreement.
"VOTING SECURITIES" means Hexcel Common and any other securities of Hexcel
or any Subsidiary of Hexcel entitled to vote generally in the election of
directors of Hexcel or such Subsidiary of Hexcel.
C-5
<PAGE>
ARTICLE II
CORPORATE GOVERNANCE
SECTION 2.01. BOARD OF DIRECTORS. The Board shall consist of ten members,
two of whom shall be the Chairman and the President.
SECTION 2.02. CIBA BOARD REPRESENTATION. (a) If Ciba Beneficially Owns 30%
or more of the Total Voting Power of Hexcel determined in accordance with
Section 2.02(e), the parties hereto shall exercise all authority under
applicable law to cause any slate of directors presented to stockholders for
election to the Board to consist of such nominees that, if elected, would result
in the Board consisting of four Ciba Directors, the Chairman, the President and
four additional Independent Directors.
(b) If Ciba Beneficially Owns less than 30% but at least 20% of the Total
Voting Power of Hexcel determined in accordance with Section 2.02(e), the
parties hereto shall exercise all authority under applicable law to cause any
slate of directors presented to stockholders for election to the Board to
consist of such nominees that, if elected, would result in the Board consisting
of three Ciba Directors, the Chairman, the President and five additional
Independent Directors.
(c) If Ciba Beneficially Owns less than 20% but at least 15% of the Total
Voting Power of Hexcel determined in accordance with Section 2.02(e), the
parties hereto shall exercise all authority under applicable law to cause any
slate of directors presented to stockholders for election to the Board to
consist of such nominees that, if elected, would result in the Board consisting
of two Ciba Directors, the Chairman, the President and six additional
Independent Directors.
(d) If Ciba Beneficially Owns less than 15% but at least 10% of the Total
Voting Power of Hexcel determined in accordance with Section 2.02(e), the
parties hereto shall exercise all authority under applicable law to cause any
slate of directors presented to stockholders for election to the Board to
consist of such nominees that, if elected, would result in the Board consisting
of one Ciba Director, the Chairman, the President and seven additional
Independent Directors.
(e) In order to determine (x) the number of Ciba Nominees to be included in
any slate of directors to be presented to stockholders for election to the Board
and (y) the percentage of the Total Voting Power of Hexcel Beneficially Owned by
Ciba for purposes of Sections 2.04 and 2.06, Ciba shall be deemed to
Beneficially Own a percentage of the Total Voting Power of Hexcel that is no
more than (1) 49.9% of the Total Voting Power of Hexcel (or such greater
percentage as Ciba in fact hereafter Beneficially Owns in accordance with the
terms of this Agreement) less (2) the percentage of the Total Voting Power of
Hexcel represented by any Voting Securities disposed of by Ciba or any Ciba
Entity since the Closing.
SECTION 2.03. DESIGNATION OF SLATE. Any Ciba Nominees that are included in
a slate of directors pursuant to Section 2.02 shall be designated by Ciba, and
any Independent Director nominees who are to be included in any slate of
directors pursuant to Section 2.02 shall be designated by majority vote by the
then incumbent Independent Directors (including the Chairman and the President
if he or she is an Independent Director). Hexcel's nominating committee shall
nominate each person so designated. The initial Ciba Nominees shall be John M.
D. Cheesmond, Stanley Sherman, Joseph T. Sullivan and Hermann Vodicka. The
initial Chairman shall be John J. Lee. The initial President shall be Juergen
Habermeier. Upon consummation of the Transactions, the number of directors
constituting the entire Board will be fixed at ten and a sufficient number of
the then serving members of the Board will resign in order to permit the
appointment of the initial Ciba Nominees and the initial President to fill the
vacancies thereby created. The remaining members of the Board shall be Marshall
S. Geller, Peter A. Langerman, George S. Springer and Frederick W. Stanske.
SECTION 2.04. COMMITTEE MEMBERSHIP. Ciba Directors shall serve on each
committee of the Board, including the finance, audit, nominating, and
compensation committees of the Board. So long as Ciba Beneficially Owns 40% or
more of the Total Voting Power of Hexcel determined in accordance with Section
2.02(e), each committee of the Board shall consist of the same number of Ciba
Directors
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<PAGE>
as Independent Directors. At all other times, each such committee shall be
comprised such that Ciba's representation on such committee is at least
proportionate to its representation on the Board unless the committee is
comprised of three members or less, in which case at least one Ciba Director
shall serve.
SECTION 2.05. RESIGNATIONS AND REPLACEMENTS. (a) If at any time a member
of the Board resigns (pursuant to this Section 2.05 or otherwise) or is removed,
a new member shall be designated to replace such member until the next election
of directors. If consistent with Section 2.02 the replacement director is to be
a Ciba Director, Ciba shall designate the replacement Ciba Director. If the
former member was the Chairman or President, the replacement Chairman or
President, respectively, shall be the replacement. Except as set forth in
paragraph (c) below, if consistent with Section 2.02, the replacement director
is to be an Independent Director (other than the Chairman or President), the
remaining Independent Directors (including the Chairman and the President if he
or she is an Independent Director) shall designate the replacement Independent
Director.
(b) Subject to paragraph (c) below, if at any time the percentage of the
Total Voting Power of Hexcel Beneficially Owned by Ciba decreases to a point at
which the number of Ciba Nominees entitled to be nominated to the Board in
accordance with this Agreement in an election of directors presented to
stockholders would decrease, within 10 days thereafter Ciba shall cause a
sufficient number of Ciba Directors to resign from the Board so that the number
of Ciba Directors on the Board after such resignation(s) equals the number of
Ciba Nominees that Ciba would have been entitled to designate had an election of
directors taken place at such time. Ciba shall also cause a sufficient number of
Ciba Directors to resign from any relevant committees of the Board so that such
committees are comprised in the manner contemplated by Section 2.04 after giving
effect to such resignations. Any vacancies created by the resignations required
by this Section 2.05(b) shall be filled by Independent Directors.
(c) If at any time the percentage of the Total Voting Power of Hexcel
Beneficially Owned by Ciba decreases as a result of an issuance of Voting
Securities by Hexcel, Ciba may notify Hexcel that Ciba intends to acquire a
sufficient amount of additional Voting Securities in accordance with this
Agreement necessary to maintain its then current level of Board representation
within 90 days, PROVIDED, HOWEVER, that if during such period (or any extension
under this proviso), Ciba is prohibited from purchasing Voting Securities in
order to comply with applicable law or refrains from such purchases at Hexcel's
request, such period shall be extended by the number of days during which Ciba
is so prohibited or so refrains. In such event, until the end of such period
(and thereafter if Ciba in fact restores its percentage of the Total Voting
Power of Hexcel during such period and provided that Ciba continues to maintain
the requisite level of Beneficial Ownership of Voting Securities in accordance
with Section 2.02) the Board shall continue to have the number of Ciba Directors
that corresponds to the percentage of the Total Voting Power of Hexcel
Beneficially Owned by Ciba prior to such issuance of Voting Securities by
Hexcel.
SECTION 2.06. APPROVALS. (a) So long as Ciba Beneficially Owns 40% or more
of the Total Voting Power of Hexcel determined in accordance with Section
2.02(e), neither the Board nor any committee of the Board shall take any action,
including approval, authorization or ratification of any action or inaction by
officers, agents or employees of Hexcel, without the affirmative vote of at
least one Ciba Director and one Independent Director.
(b) The Board shall not authorize, approve or ratify any of the following
actions without the approval of a majority of the Ciba Directors (x) so long as
Ciba Beneficially Owns 33% or more of the Total Voting Power of Hexcel
determined in accordance with Section 2.02(e) and, if Ciba's percentage
ownership of the Total Voting Power of Hexcel is reduced below 33% as so
determined by an issuance of Voting Securities by Hexcel, until 10 business days
after Hexcel notifies Ciba in writing of such issuance, and (y) during the
90-day period following an issuance of Voting Securities by Hexcel that causes
Ciba to Beneficially Own less than 33% of the Total Voting Power of Hexcel as so
determined if Ciba shall have notified Hexcel within 10 business days after
Ciba's receipt of a written notification of
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such issuance that Ciba intends to acquire a sufficient amount of Voting
Securities within such 90-day period so that it will Beneficially Own at least
33% of the Total Voting Power of Hexcel determined in accordance with Section
2.02(e) by the end of such 90-day period:
(i) any merger, consolidation, acquisition or other business combination
involving Hexcel or any Subsidiary of Hexcel if the value of the
consideration to be paid or received by Hexcel in any such individual
transaction or in such transaction when added to the aggregate value of the
consideration paid or received by Hexcel in all other such transactions
approved by the Board during the prior 12 months exceeds the greater of (x)
$75 million or (y) 11% of Hexcel's total consolidated assets;
(ii) any sale, transfer, assignment, conveyance, lease or other
disposition or any series of related dispositions of any assets, business or
operations of Hexcel or any of its Subsidiaries if the value of the assets,
business or operations so disposed exceeds the greater of (x) $75 million or
(y) 11% of Hexcel's total consolidated assets;
(iii) any issuance by Hexcel or any Significant Subsidiary of Hexcel of
equity securities (other than pursuant to customary employee or director
stock option or incentive compensation or similar plans and other than
transactions solely among Hexcel and its Subsidiaries) or of any bonds,
debentures, notes or other securities convertible into, exchangeable for or
exercisable for equity securities if the aggregate net proceeds to Hexcel of
such issuance or of such issuance when added to the aggregate net proceeds
of all such issuances approved by the Board during the prior 12 months
exceeds the greater of (x) $75 million or (y) 11% of Hexcel's total
consolidated assets; and
(iv) any new capital expenditure program or any capital expenditure that
is not part of a capital expenditure program previously approved by the
Board, if the amount or anticipated amount of such program or expenditure or
of such program or expenditure when added to the aggregate amount of capital
expenditures not so approved by the Board during the prior 12 months exceeds
the greater of (x) $50 million or (y) 7% of Hexcel's total consolidated
assets.
SECTION 2.07. SOLICITATION AND VOTING OF SHARES. (a) Hexcel shall use
reasonable efforts to solicit from the stockholders of Hexcel eligible to vote
for the election of directors proxies in favor of the Board nominees selected in
accordance with Section 2.02.
(b) Except as provided in Section 3.03, until the percentage of the Total
Voting Power of Hexcel Beneficially Owned by Ciba falls below either (x) 15% if
and so long as there is on file with the SEC any Statement on Schedule 13D or
13G (or any comparable successor form) showing Beneficial Ownership by any
Person (other than Ciba or the Ciba Entities) of 10% or more of the Total Voting
Power of Hexcel or (y) 10% in all other cases, (A) in any election of directors
or at any meeting of the stockholders of Hexcel called expressly for the removal
of directors, so long as the Board includes (and will include after any such
removal) the Ciba Directors contemplated by Section 2.02, Ciba shall and shall
cause any Ciba Entity to be present for purposes of establishing a quorum and
shall vote and shall cause any Ciba Entity to vote all its Voting Securities
entitled to vote (1) in favor of any nominee or director selected in accordance
with Section 2.02 and (2) otherwise against the removal of any director
designated in accordance with Section 2.02 and (B) in any other matter submitted
to stockholders, Ciba shall and shall cause any Ciba Entity to be present for
purposes of establishing a quorum and shall vote and shall cause any Ciba Entity
to vote all its Voting Securities entitled to vote either, at the discretion of
Ciba, (1) as recommended by the Board or (2) in proportion to the votes cast
with respect to the Other Shares; PROVIDED, HOWEVER, that, except as provided in
Section 3.03, Ciba and any Ciba Entity shall be free to vote all its Voting
Securities entitled to vote in its sole discretion on the following matters
submitted to stockholders so long as such matters were not submitted to
stockholders, without the concurrence of the Board (or if with such concurrence
so long as such concurrence is
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not obtained by Ciba in violation of this Agreement), at the request of Ciba or
any of its affiliates (other than Hexcel) or at the request of any Person acting
on behalf of Ciba or any of its affiliates (other than Hexcel):
(i) any amendment to Hexcel's certificate of incorporation (provided,
however, that Ciba and any Ciba Entity shall vote against any such amendment
that is inconsistent with Section 4.14 of the Strategic Alliance Agreement);
(ii) any merger, consolidation, acquisition or other business
combination involving Hexcel or any Subsidiary of Hexcel;
(iii) any sale, lease, transfer or other disposition of the business
operations or assets of Hexcel;
(iv) any recapitalization, restructuring or similar transaction or series
of transactions involving Hexcel or any Significant Subsidiary of Hexcel;
(v) any dissolution or complete or partial liquidation or similar
arrangement of Hexcel or any Significant Subsidiary of Hexcel;
(vi) any issuance of equity securities (other than pursuant to customary
employee or director stock option or incentive compensation or similar plans
and other than transactions solely among Hexcel and its Subsidiaries
approved by the Board in accordance with this Agreement) or of any bonds,
debentures, notes or other securities convertible into, exchangeable for or
exercisable for equity securities; and
(vii) entering into any material joint venture, collaboration or
partnership by Hexcel or any Subsidiary of Hexcel.
SECTION 2.08. CERTIFICATE OF INCORPORATION AND BY-LAWS; ANTI-TAKEOVER
MEASURES. (a) The by-laws of Hexcel shall be amended as of the Closing Date to
include each of the provisions set forth in Annex A hereto and such provisions
shall not thereafter be amended during the term of this Agreement except with
Ciba's written consent. Hexcel and Ciba shall each take or cause to be taken all
lawful action necessary to ensure at all times that Hexcel's certificate of
incorporation and by-laws are not at any time inconsistent with the provisions
of this Agreement.
(b) Hexcel shall not adopt or implement any takeover defense measures
applicable to Ciba or any of its affiliates, including the institution or
amendment by Hexcel or any of its Subsidiaries of any stockholders rights plan
or similar plan or device, or any change of control matters (including
provisions in future agreements or collaborations (i) that contain any
restrictions on Ciba by virtue of its Beneficial Ownership of Voting Securities
or (ii) that would subject Ciba or Hexcel to any adverse effect if Ciba
increased the Total Voting Power of Hexcel Beneficially Owned by it in
accordance with this Agreement).
(c) Except as required by applicable law, rule or regulation, Hexcel shall
not approve or recommend to its stockholders any transaction or approve,
recommend or take any other action (other than those expressly contemplated by
this Agreement and other than those that affect Ciba and each Other Holder or
each director at the same time in the same manner) that would (1) impose
limitations on the legal rights of Ciba or its affiliates or associates as a
stockholder of Hexcel, including, any action that would impose restrictions
based upon the size of security holding, nationality of a securityholder, the
business in which a securityholder is engaged or other considerations applicable
to Ciba or its affiliates or associates and not to stockholders generally, (2)
deny any benefit to Ciba or its affiliates or associates, proportionately as a
holder of any class of Voting Securities, (3) otherwise materially adversely
discriminate against Ciba, its affiliates or associates as stockholders of
Hexcel or (4) restrict the right of any Ciba Director to vote on any matter as
such director believes appropriate in light of his or her duties as a director
or the manner in which a Ciba Director may participate in his or her capacity as
a director in deliberations or discussions at meetings of the Board or any
committee thereof, except with respect to (i) entering into contractual or other
business relationships with Ciba
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or any of its affiliates (other than in their capacity as stockholders of
Hexcel), (ii) disputes with Ciba or any of its affiliates (including disputes
under this Agreement), (iii) interpretation or enforcement of this Agreement or
any other agreement with Ciba or any of its affiliates or (iv) any other matter
involving an actual or potential conflict of interest due to such director's
relationship with Ciba or any of its affiliates.
ARTICLE III
STANDSTILL
SECTION 3.01. STANDSTILL. (a) Except as otherwise expressly provided in
this Agreement (including this Section 3.01, Section 2.02 or Section 3.03) or as
specifically approved by a majority of the Independent Directors (so long as
such approval was not obtained by Ciba in violation of this Agreement), neither
Ciba nor any of Ciba's controlled affiliates shall, directly or indirectly, (i)
by purchase or otherwise, acquire, agree to acquire or offer to acquire
Beneficial Ownership of any Voting Securities or direct or indirect rights or
options to Beneficially Own Voting Securities (including any voting trust
certificates representing such securities), (ii) enter, propose to enter into,
solicit or support any merger or business combination or similar transaction
involving Hexcel or any of its Subsidiaries, or purchase, acquire, propose to
purchase or acquire or solicit or support the purchase or acquisition of any
portion of the business or assets of Hexcel or any of its Subsidiaries (except
(x) for purchases or acquisitions in the ordinary course of business and (y) for
proposals to purchase or acquire a nonmaterial portion of the assets of Hexcel
or any of its Subsidiaries that are not required to be publicly disclosed),
(iii) initiate or propose any securityholder proposal without the approval of
the Board granted in accordance with this Agreement or make, or in any way
participate in, any "solicitation" of "proxies" (as such terms are used in the
proxy rules promulgated by the SEC under the Exchange Act) to vote, or seek to
advise or influence any Person with respect to the voting of, any Voting
Securities or request or take any action to obtain any list of securityholders
for such purposes with respect to any matter other than those upon which Ciba
and the Ciba Entities may vote in their sole discretion under Section 2.07 (or,
as to such matters, solicit any Person in a manner that would require the filing
of a proxy statement under Regulation 14A of the Exchange Act), (iv) form, join
or in any way participate in a group (other than a group consisting solely of
Ciba and its affiliates) formed for the purpose of acquiring, holding, voting or
disposing of or taking any other action with respect to Voting Securities that
would be required under Section 13(d) of the Exchange Act to file a Statement on
Schedule 13D with respect to such Voting Securities, (v) deposit any Voting
Securities in a voting trust or enter into any voting agreement or arrangement
with respect thereto (other than this Agreement), (vi) seek representation on
the Board, the removal of any directors from the Board or a change in the size
or composition of the Board, (vii) make any request to amend or waive any
provision of this Section 3.01, which request would require public disclosure
under applicable law, rule or regulation, (viii) disclose any intent, purpose,
plan, arrangement or proposal inconsistent with the foregoing (including any
such intent, purpose, plan, arrangement or proposal that is conditioned on or
would require the waiver, amendment, nullification or invalidation of any of the
foregoing) or take any action that would require public disclosure of any such
intent, purpose, plan, arrangement or proposal, (ix) take any action challenging
the validity or enforceability of the foregoing or (x) assist, advise, encourage
or negotiate with any Person with respect to, or seek to do, any of the
foregoing.
(b) Nothing in this Section 3.01 shall (i) prohibit or restrict Ciba from
responding to any inquiries from any shareholders of Hexcel as to Ciba's
intention with respect to the voting of any Voting Securities Beneficially Owned
by Ciba so long as such response is consistent with the terms of this Agreement;
(ii) prohibit the purchase or other acquisition of Beneficial Ownership of any
Voting Securities, including pursuant to Section 3.02 or in open market
purchases, so long as after giving effect to such purchase or other acquisition
the percentage of the Total Voting Power of Hexcel Beneficially Owned by Ciba
does not exceed the greater of (A) 49.9% until the third anniversary of the
Closing, or 57.5% thereafter, and (B) the highest percentage of the Total Voting
Power of Hexcel Beneficially Owned by Ciba immediately following any action by
Hexcel (including a purchase by
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Hexcel of Voting Securities) that increases the percentage of the Total Voting
Power of Hexcel Beneficially Owned by Ciba due to a reduction in the amount of
Voting Securities outstanding as a result of such action; (iii) restrict the
right of each Ciba Director on the Board or any committee thereof to vote on any
matter as such individual believes appropriate in light of his or her duties as
a director or committee member or the manner in which a Ciba Nominee may
participate in his or her capacity as a director in deliberations or discussions
at meetings of the Board or as a member of any committee thereof; (iv) prohibit
Ciba from Beneficially Owning Voting Securities issued as dividends or
distributions in respect of, or issued upon conversion, exchange or exercise of,
securities which Ciba is permitted to Beneficially Own under this Agreement; (v)
prohibit any officer, director, employee or agent of Ciba and its Subsidiaries
from purchasing or otherwise acquiring Voting Securities so long as he or she is
not a member of a group that includes Ciba or any of its affiliates or is not
otherwise acting on behalf of Ciba or any of its affiliates; or (vi) prohibit
Ciba or any of its affiliates from disclosing in accordance with its obligations
(if any) under the federal securities laws or other applicable law its desire
(if any) that Hexcel become the subject of a Buyout Transaction.
(c) After the Standstill Period, nothing in this Section 3.01 shall prohibit
or restrict Ciba or its affiliates from proposing, participating in, supporting
or causing the consummation of a Buyout Transaction, including a transaction
with Ciba or any of its affiliates, if all Other Holders are entitled to receive
Requisite Consideration upon consummation of such Buyout Transaction.
SECTION 3.02. CIBA RIGHT TO MAINTAIN POSITION. Hexcel hereby grants to
Ciba the following irrevocable option:
If, at any time after the Closing for so long as Ciba shall be entitled to
designate one or more Ciba Nominees for election to the Board, Hexcel shall
issue for cash any additional Voting Securities (except for any issuances
described in the following sentence), then Hexcel shall notify Ciba of such
issuance and the price and terms thereof, and Ciba shall have the option, for a
period of 45 days after receipt of such notice, to purchase from Hexcel an
Amount (as defined below) of such Voting Securities for the same consideration
per security and on the same terms as were applicable to such issuance by
Hexcel. The foregoing option shall not apply to any issuance of Voting
Securities in connection with employee or director stock option or incentive
compensation or similar plans. An "Amount" shall mean the smallest number of
securities that would allow Ciba to Beneficially Own the same percentage of the
Total Voting Power of Hexcel as Ciba Beneficially Owned immediately prior to
such issuance.
SECTION 3.03. THIRD PARTY OFFERS. (a) In the event that Hexcel becomes the
subject of a Third Party Offer that is made after the third anniversary of the
Closing and that is approved by two-thirds of the Independent Directors,
promptly after such approval, Hexcel shall deliver a written notice to Ciba,
briefly describing the material terms of such Third Party Offer. Ciba shall,
within 10 business days after receipt of such notice, either (i) offer to
acquire the Other Shares on terms at least as favorable to the Other Holders as
those contemplated by such Third Party Offer (in which event Hexcel shall
endorse such offer by Ciba rather than such Third Party Offer; PROVIDED,
HOWEVER, that if Hexcel becomes the subject of another Third Party Offer that
provides for greater currently realizable value to Hexcel's stockholders
(including Ciba and the Ciba Entities) than such previously proposed Third Party
Offer, Hexcel shall be free to pursue such newly proposed Third Party Offer; and
PROVIDED, FURTHER, that such newly proposed Third Party Offer shall be subject
to Ciba's rights pursuant to this Section 3.03(a)(i) and obligations pursuant to
Section 3.03(a)(ii)) or (ii) confirm in writing that it will support, and at the
appropriate time Ciba shall actually support, such Third Party Offer (or an
alternative Third Party Offer providing greater currently realizable value to
all Other Holders) by voting and causing each Ciba Entity to vote all its Voting
Securities eligible to vote thereon in favor of such Third Party Offer or, if
applicable, tendering or selling and causing each such Ciba Entity to tender or
sell all its Voting Securities to the Person making such Third Party Offer.
(b) In the event that Hexcel becomes the subject of a Third Party Offer,
neither Ciba nor any of the Ciba Entities may support such Third Party Offer,
vote in favor of such Third Party Offer or tender or sell its Voting Securities
to the Person making such Third Party Offer unless such Third Party Offer is
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approved by (x) a majority of the Independent Directors acting solely in the
interest of the Other Holders or (y) a majority in interest of the Other Holders
in a Stockholder Vote solicited pursuant to a proxy statement containing the
information required by Schedule 14A under the Exchange Act (it being understood
that the Independent Directors shall, consistent with their fiduciary duties, be
free to include in such proxy statement, if applicable, the reasons underlying
any failure by them to approve such Third Party Offer by the requisite vote,
including whether a fairness opinion was sought and any opinions or
recommendations expressed in connection therewith).
(c) Notwithstanding Section 3.03(b), if Ciba has exercised the right to
require Hexcel to solicit a Buyout Transaction pursuant to Section 5.01, Ciba
and the Ciba Entities may vote in favor of or tender or sell their Voting
Securities pursuant to any Third Party Offer made as a result of or during such
solicitation so long as such Third Party Offer offers the same consideration to
all Hexcel stockholders. Unless Hexcel shall have accepted another Third Party
Offer providing at least equivalent value to all Hexcel stockholders, Hexcel
shall not take any action to interfere with Ciba's right to vote in favor of or
tender into such a Third Party Offer (it being understood that Hexcel shall
remain free to pursue alternative Third Party Offers that provide for at least
equivalent currently realizable value to Hexcel's stockholders (including Ciba
and the Ciba Entities) as such previously proposed Third Party Offer).
ARTICLE IV
TRANSFER RESTRICTIONS
SECTION 4.01. RESTRICTIONS. (a) Except in connection with a Third Party
Offer that has been approved by the Independent Directors or the Other Holders
in accordance with Section 3.03 or as provided in Section 3.03(c), Ciba shall
not, and shall not permit any Ciba Entity, directly or indirectly, to sell,
transfer or otherwise dispose of any Voting Securities except (i) transfers
solely among Ciba and its wholly owned Subsidiaries, (ii) in accordance with the
volume and manner-of-sale limitations of Rule 144 under the Securities Act
(regardless of whether such limitations are applicable) and otherwise subject to
compliance with the Securities Act or (iii) in a registered public offering or a
non-registered offering subject to an applicable exemption from the registration
requirements of the Securities Act, in the case of clauses (ii) and (iii), in a
manner calculated to achieve a Broad Distribution.
(b) Ciba shall not sell, transfer or otherwise dispose of any of the capital
stock of any Ciba Entity, except to another direct or indirect wholly owned
Subsidiary of Ciba; PROVIDED, HOWEVER, that nothing in this Agreement shall
prohibit Ciba from effecting (x) a pro rata distribution to Ciba's stockholders
or (y) a sale in a manner calculated to achieve a Broad Distribution of up to
20%, of the equity securites of a Ciba Entity if (1) such distribution or sale
has a bona fide business purpose (other than the sale or distribution of Voting
Securities), (2) the Voting Securities Beneficially Owned by such Ciba Entity do
not constitute a material portion of the total assets of such Ciba Entity and
(3) in the case of clause (x), such Ciba Entity agrees in writing to be bound by
the terms and provisions of this Agreement to the same extent that Ciba would be
bound if it Benefically Owned the Voting Securities Beneficially Owned by such
Ciba Entity. Ciba shall not permit any Subsidiary of Ciba that is not a direct
or indirect wholly owned Subsidiary of Ciba to become a Ciba Entity.
SECTION 4.02. LEGENDS. (a) Except as set forth in paragraph (b) below,
during the term of this Agreement all certificates representing Voting
Securities Beneficially Owned by Ciba shall bear an appropriate restrictive
legend indicating that such Voting Securities are subject to restrictions
pursuant to this Agreement and that such Voting Securities were not issued
pursuant to a public offering registered pursuant to the Securities Act.
(b) Upon any transfer or proposed transfer of Beneficial Ownership by Ciba
or any Ciba Entity of any Voting Securities to any Person other than Ciba or a
Ciba Entity that is permitted pursuant to this Agreement, Hexcel shall, upon
receipt of timely notice and such certificates, opinions and other
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documentation as shall be reasonably requested by Hexcel, cause certificates
representing such transferred Voting Securities to be issued not later than the
time needed to effect such transfer (x) without any restrictive legend if upon
consummation of such transfer such Voting Securities are no longer "restricted
securities" as defined in Rule 144 under the Securities Act or (y) without any
reference to this Agreement if upon consummation of such transfer such Voting
Securities continue to be "restricted securities".
SECTION 4.03. EFFECT. Any purported transfer of Voting Securities that is
inconsistent with the provisions of this Article IV shall be null and void and
of no force or effect.
ARTICLE V
EXTENSION AND TERMINATION
SECTION 5.01. CIBA ELECTION. (a) If the percentage of the Total Voting
Power of Hexcel Beneficially Owned by Ciba on any Election Date is greater than
10% but less than 100%, Ciba shall take either of the following actions on such
Election Date:
(i) extend this Agreement for an additional two year period, in which
case so long as Ciba Beneficially Owns 25% or more of the Total Voting Power
of Hexcel, on one occasion during each such two-year period Ciba may require
Hexcel to solicit in good faith a Buyout Transaction in which Ciba, the Ciba
Entities and the Other Holders receive the same consideration per Voting
Security (in which event the provisions of this Agreement shall continue in
full force and effect until the consummation of such a Buyout Transaction);
or
(ii) undertake to sell a sufficient number of Voting Securities so that
the percentage of the Total Voting Power of Hexcel Beneficially Owned by
Ciba falls below 10% during the subsequent 18 months pursuant to one or more
Requisite Distributions (in which event the provisions of this Agreement
shall continue until the percentage of the Total Voting Power of Hexcel
Beneficially Owned by Ciba falls below 10%).
(b) If at any time in accordance with this Agreement the percentage of the
Total Voting Power of Hexcel Beneficially Owned by Ciba is either (x) 10% or
less or (y) 100%, this Agreement shall automatically terminate.
(c) If either party to this Agreement is in breach of or violates any
material obligation under this Agreement and fails to cure such breach or
violation within 60 days after delivery of written notice from the other party
specifying such breach and requesting its cure, such other party may terminate
its obligations under this Agreement.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. NOTICES. All notices, requests and other communications
hereunder shall be in writing (including fax) and shall be sent, delivered or
mailed, addressed, or faxed:
(a) if to Hexcel, to:
Hexcel Corporation
5794 West Las Positas Boulevard
Pleasanton,CA 94588
(T) (510) 847-9500
(F) (510) 734-8611
Attention of Rodney P. Jenks, Esq.
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with a copy to:
Alan C. Myers, Esq.
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
(T) (212) 735-3000
(F) (212) 735-2000
(b) if to Ciba, to:
Ciba-Geigy Limited
CH 4002
Basle, Switzerland
(T) (41) 61 697-4750
(F) (41) 61 697-8253
Attention of Mr. John M.D. Cheesmond
with copies to:
Ciba-Geigy Corporation
520 White Plains Road
P.O. Box 2005
Tarrytown, NY 10591-9005
(T) (914) 785-2000
(F) (914) 785-2844
Attention of Mr. Stanley Sherman and
Attention of John J. McGraw, Esq.
and
Ciba-Geigy Limited
CH4002
Basle, Switzerland
(T) (41) 696-5107
(F) (41) 696-4677
Attention of Dr. Peter Rudolf
and
Philip A. Gelston, Esq.
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
(T) (212) 474-1548
(F) (212) 474-3700
Each such notice, request or other communication shall be given (i) by hand
delivery, (ii) by nationally recognized courier service or (iii) by fax, receipt
confirmed. Each such notice, request or communication shall be effective (A) if
delivered by hand or by nationally recognized courier service, when delivered at
the address specified in this Section 6.01 (or in accordance with the latest
unrevoked written direction from such party) and (B) if given by fax, when such
fax is transmitted to the fax number specified in this Section 6.01 (or in
accordance with the latest unrevoked written direction from such party), and the
appropriate confirmation is received.
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SECTION 6.02. INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "included", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
SECTION 6.03. SEVERABILITY. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or entity
or any circumstance, is found to be invalid or unenforceable in any
jurisdiction, (a) a suitable and equitable provision shall be substituted
therefor in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision and (b) the
remainder of this Agreement and the application of such provision to other
Persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.
SECTION 6.04. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall,
taken together, be considered one and the same agreement, it being understood
that both parties need not sign the same counterpart.
SECTION 6.05. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement together with the Registration Rights Agreement and the Strategic
Alliance Agreement (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof and (b) is not intended to confer upon any
Person, other than the parties hereto and, solely with respect to the proviso in
Section 2.07(b)(i), the Indemnified Individuals (as defined in the Strategic
Alliance Agreement), any rights or remedies hereunder.
SECTION 6.06. FURTHER ASSURANCES. Each party shall execute, deliver,
acknowledge and file such other documents and take such further actions as may
be reasonably requested from time to time by the other party hereto to give
effect to and carry out the transactions contemplated herein.
SECTION 6.07. GOVERNING LAW; EQUITABLE REMEDIES. This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of law. The parties hereto agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties hereto shall be entitled to equitable
relief, including in the form of injunctions, in order to enforce specifically
the provisions of this Agreement, in addition to any other remedy to which they
are entitled at law or in equity.
SECTION 6.08. CONSENT TO JURISDICTION. Each party hereto irrevocably
submits to the exclusive jurisdiction of the United States District Court for
the Southern District of New York located in the borough of Manhattan in the
City of New York, or if such court does not have jurisdiction, the Supreme Court
of the State of New York, New York County, for the purposes of any suit, action
or other proceeding arising out of this Agreement or any transaction
contemplated hereby. Each party hereto further agrees that service of any
process, summons, notice or document by U.S. registered mail to such party's
respective address set forth in Section 6.01 shall be effective service of
process for any action, suit or proceeding in New York with respect to any
matters to which it has submitted to jurisdiction as set forth above in the
immediately preceding sentence. Each party hereto irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (a) the United States District Court for the Southern District of New
York or (b) the Supreme Court of the State of New York, New York County, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
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SECTION 6.09. AMENDMENTS; WAIVERS. (a) No provision of this Agreement may
be amended or waived unless such amendment or waiver is in writing and signed,
in the case of an amendment, by the parties hereto, or in the case of a waiver,
by the party against whom the waiver is to be effective; PROVIDED that no such
amendment or waiver by Hexcel shall be effective without the approval of a
majority of the Independent Directors. Notwithstanding any provision herein to
the contrary, if a majority of the Independent Directors determine in good faith
to do so, such Independent Directors may seek to enforce, in the name and on
behalf of Hexcel, the terms of this Agreement against Ciba.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 6.10. ASSIGNMENT. Neither this Agreement nor any of the rights or
obligations hereunder shall be assigned by either of the parties hereto without
the prior written consent of the other party, except that either party may
assign all its rights and obligations to the assignee of all or substantially
all of the assets of such party, PROVIDED that such party shall in no event be
released from its obligations hereunder without the prior written consent of the
other party. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered, all as of the date first set forth above.
CIBA-GEIGY LIMITED,
by
___________________________________
Name:
Title:
HEXCEL CORPORATION,
by
___________________________________
Name:
Title:
C-16
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ANNEX D
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HEXCEL CORPORATION
INCENTIVE STOCK PLAN
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HEXCEL CORPORATION
INCENTIVE STOCK PLAN
I. PURPOSE
This Incentive Stock Plan (the "Plan") is an amendment and restatement of
the Hexcel Corporation Long-Term Incentive Plan and the Hexcel Corporation 1995
Directors' Stock Option Plan which combines the two Plans and increases the
number of shares available under the Plans. The Plan is intended to attract,
retain and provide incentives to Employees, officers, Directors and consultants
of the Corporation, and to thereby increase overall shareholders' value. The
Plan generally provides for the granting of stock, stock options, stock
appreciation rights, restricted shares, other stock-based awards or any
combination of the foregoing to the eligible participants.
II. DEFINITIONS
(a) "Award" includes, without limitation, stock options (including Director
Options and incentive stock options within the meaning of Section 422(b) of the
Code) with or without stock appreciation rights, dividend equivalent rights,
stock awards, restricted share awards, or other awards that are valued in whole
or in part by reference to, or are otherwise based on, the Common Stock ("other
Common Stock-based Awards"), all on a stand alone, combination or tandem basis,
as described in or granted under this Plan.
(b) "Award Agreement" means a written agreement setting forth the terms and
conditions of each Award made under this Plan.
(c) "Board" means the Board of Directors of the Corporation.
(d) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(e) "Committee" means the Executive Compensation and Organization Committee
of the Board or such other committee of the Board as may be designated by the
Board from time to time to administer this Plan.
(f) "Common Stock" means the $.01 par value common stock of the Corporation.
(g) "Corporation" means Hexcel Corporation, a Delaware corporation.
(h) "Director" means a member of the Board.
(i) "Director Option" means a stock option granted pursuant to Section VII
hereof to a Director.
(j) "Director Optionee" means a recipient of an Award of a Director Option.
(k) "Employee" means an employee of the Corporation or a Subsidiary.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(m) "Fair Market Value" means the closing price for the Common Stock as
reported in publications of general circulation for the New York Stock Exchange
Composite Transactions on such date, or, if there were no sales on the valuation
date, on the next preceding date on which such closing price was recorded;
provided, however, that the Committee may specify some other definition of Fair
Market Value with respect to any particular Award.
(n) "Participant" means an Employee, officer, director or consultant who has
been granted an Award under the Plan.
(o) "Plan Year" means a calendar year.
(p) "Subsidiary" means any corporation or other entity, whether domestic or
foreign, in which the Corporation has or obtains, directly or indirectly, a
proprietary interest of more than 50% by reason of stock ownership or otherwise.
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III. ELIGIBILITY
Any Employee, officer, Director or consultant of the Corporation or
Subsidiary selected by the Committee is eligible to receive an Award pursuant to
Section VI hereof; PROVIDED, HOWEVER, a Director shall not be eligible to
receive such an Award if he is (i) a member of the Committee; (2) a member of a
committee administering any other stock option, stock appreciation, stock bonus
or other stock plan of the Corporation or any Subsidiary unless such plan does
not permit participation by Directors; or (3) a former (within one year) member
of the Committee or any committee administering any other such plan. Directors
described in Section VII(a) hereof are eligible to receive Awards of Director
Options pursuant to Section VII.
IV. PLAN ADMINISTRATION
(a) Except as otherwise determined by the Board, the Plan shall be
administered by the Committee. The Board, or the Committee to the extent
determined by the Board, shall periodically make determinations with respect to
the participation of Employees, officers, Directors and consultants in the Plan
and, except as otherwise required by law or this Plan, the grant terms of
Awards, including vesting schedules, price, restriction or option period,
dividend rights, post-retirement and termination rights, payment alternatives
such as cash, stock, contingent awards or other means of payment consistent with
the purposes of this Plan, and such other terms and conditions as the Board or
the Committee deems appropriate which shall be contained in an Award Agreement
with respect to a Participant.
(b) The Committee shall have authority to interpret and construe the
provisions of the Plan and any Award Agreement and make determinations pursuant
to any Plan provision or Award Agreement which shall be final and binding on all
persons. No member of the Committee shall be liable for any action or
determination made in good faith, and the members shall be entitled to
indemnification and reimbursement in the manner provided in the Corporation's
Certificate of Incorporation, as it may be amended from time to time.
(c) The Committee shall have the authority at any time to provide for the
conditions and circumstances under which Awards shall be forfeited. The
Committee shall have the authority to accelerate the vesting of any Award and
the time at which any Award becomes exercisable.
V. CAPITAL STOCK SUBJECT TO THE PROVISIONS OF THIS PLAN
(a) The capital stock subject to the provisions of this Plan shall be shares
of authorized but unissued Common Stock and shares of Common Stock held as
treasury stock. Subject to adjustment in accordance with the provisions of
Section XI, and subject to Section V(c) below, the maximum number of shares of
Common Stock that shall be available for grants of Awards under this Plan shall
be 3,000,000.
(b) The grant of a restricted share Award shall be deemed to be equal to the
maximum number of shares which may be issued under the Award. Awards payable
only in cash will not reduce the number of shares available for Awards granted
under the Plan.
(c) There shall be carried forward and be available for Awards under the
Plan, in addition to shares available for grant under paragraph (a) of this
Section V, all of the following: (i) any unused portion of the limit set forth
in paragraph (a) of this Section V; (ii) shares represented by Awards which are
cancelled, forfeited, surrendered, terminated, paid in cash or expire
unexercised; and (iii) the excess amount of variable Awards which become fixed
at less than their maximum limitations.
VI. DISCRETIONARY AWARDS UNDER THIS PLAN
As the Board or Committee may determine, the following types of Awards and
other Common Stock-based Awards may be granted under this Plan on a stand alone,
combination or tandem basis:
(a) STOCK OPTION. A right to buy a specified number of shares of Common
Stock at a fixed exercise price during a specified time, all as the Committee
may determine.
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(b) INCENTIVE STOCK OPTION. An Award which may be granted only to
Employees in the form of a stock option which shall comply with the requirements
of Code Section 422 or any successor section as it may be amended from time to
time. The exercise price of any incentive stock option shall not be less than
100% of the Fair Market Value of the Common Stock on the date of grant of the
incentive stock option Award. Subject to adjustment in accordance with the
provisions of Section XI, the aggregate number of shares which may be subject to
incentive stock option Awards under this Plan shall not exceed the maximum
number of shares provided in paragraph (a) of Section V above. To the extent
that Code Section 422 requires certain provisions to be set forth in a written
plan, said provisions are incorporated herein by this reference.
(c) STOCK OPTION IN LIEU OF COMPENSATION ELECTION. A right given with
respect to a year to a Director, officer or key Employee to elect to exchange
annual retainers, fees or compensation for stock options.
(d) STOCK APPRECIATION RIGHT. A right which may or may not be contained in
the grant of a stock option or incentive stock option to receive the excess of
the Fair Market Value of a share of Common Stock on the date the option is
surrendered over the option exercise price or other specified amount contained
in the Award Agreement.
(e) RESTRICTED SHARES. A transfer of Common Stock to a Participant subject
to forfeiture until such restrictions, terms and conditions as the Committee may
determine are fulfilled.
(f) DIVIDEND OR EQUIVALENT. A right to receive dividends or their
equivalent in value in Common Stock, cash or in a combination of both with
respect to any new or previously existing Award.
(g) STOCK AWARD. An unrestricted transfer of ownership of Common Stock.
(h) OTHER STOCK-BASED AWARDS. Other Common Stock-based Awards which are
related to or serve a similar function to those Awards set forth in this Section
VI.
VII. FORMULA AWARDS UNDER THIS PLAN
In addition to Awards that may be granted pursuant to Section VI hereof,
Director Options shall be granted as provided below:
(a) GRANTS OF DIRECTOR OPTIONS.
(i) As of April 4, 1995, each Director shall be granted an Option to
acquire 40,000 shares of Common Stock upon the terms and subject to the
conditions set forth in the Plan and this Section VII. With respect to any
individual who becomes a Director after April 4, 1995 who is not also a
full-time employee of the Corporation or any Subsidiary (provided such
individual has not previously received a grant pursuant to this Section
VII(a)(i)), such individual shall be granted as of the date of his election
or appointment as a Director a Director Option to acquire 40,000 shares of
Common Stock upon the terms and subject to the conditions set forth in the
Plan and this Section VII.
(ii) On April 4, 1996 and on each anniversary of such date through and
including April 4, 2000, each Director who is not on such date also a
full-time employee of the Corporation or any Subsidiary shall be granted a
Director Option to acquire 2,000 shares of Common Stock upon the terms and
subject to the conditions set forth in the Plan and this Section VII.
(iii) If on any date when Options are to be granted pursuant to Section
VII(a)(i) or (ii) the total number of shares of Common Stock as to which
Director Options are to be granted exceeds the number of shares of Common
Stock remaining available under the Plan, there shall be a PRO RATA
reduction in the number of shares of Common Stock as to which each Director
Option is granted on such day.
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(b) TERMS OF DIRECTOR OPTIONS.
The terms of each Director Option granted under this Section VII shall
be determined by the
Board consistent with the provisions of the Plan, including the following:
(i) The purchase price of the shares of Common Stock subject to each
Director Option shall be equal to the Fair Market Value of such shares on
the date such option is granted.
(ii) Each Director Option shall be exercisable as to one-third of the
shares subject thereto immediately upon the grant of the option and as to an
additional one-third of such shares on the first and second anniversary of
the date of such grant.
(iii) Shares of Common Stock obtained upon exercise of a Director Option
may not be sold until six months after the date such option was granted.
(iv) Each Director Option shall expire ten years after the granting
thereof. Each Director Option shall be subject to earlier expiration as
expressly provided in Section VII(c) hereof.
(c) DISABILITY, DEATH OR TERMINATION OF DIRECTOR STATUS; CHANGE IN CONTROL.
(i) If a Director Optionee ceases to be a Director for any reason other
than his disability or death, each Director Option held by him to the extent
exercisable on the effective date of his ceasing to be a Director shall
remain exercisable until the earlier to occur of (i) the first anniversary
of such effective date and (ii) the expiration of the stated term of the
Director Option; PROVIDED, HOWEVER, that if the Director Optionee is
removed, withdraws or otherwise ceases to be a Director due to his fraud,
dishonesty or intentional misrepresentation in connection with his duties as
a Director or his embezzlement, misappropriation or conversion of assets or
opportunities of the Corporation or any Subsidiary, all unexercised Director
Options held by the Director Optionee shall expire forthwith. Each Director
Option held by the Director Optionee to the extent not exercisable on the
effective date of his ceasing to be a Director for any reason other than his
disability or death shall expire forthwith.
(ii) If a Director Optionee ceases to be a Director as a result of his
disability or death, each Director Option held by him to the extent that the
Director Option is exercisable on the effective date of his ceasing to be a
Director shall remain exercisable by the Director Optionee or the Director
Optionee's executor, administrator, legal representative or beneficiary, as
the case may be, until the earlier to occur of (x) the third anniversary of
such effective date and (y) the expiration of the stated term of the
Director Option. Each Director Option held by the Director Optionee to the
extent not exercisable on the effective date of his ceasing to be a Director
as a result of his disability or death shall expire forthwith.
(iii) In the event of a Change in Control (as hereinafter defined) while
a Director Optionee is a Director, each Director Option held by the Director
Optionee to the extent not then exercisable shall thereupon become
exercisable. If a Change in Control occurs on or before the effective date
of a Director Optionee's ceasing to be a Director, the provisions of this
subsection (iii) shall govern with respect to the exercisability of the
Director Options held by him as of the date on which the Director Optionee
ceases to be a Director and the provisions of subsection (i) or (ii) of this
Section VII(c) shall govern with respect to the period of time during which
such Director Options shall remain exercisable. For purposes of this
subsection (iii), "Change in Control" means:
(A) An acquisition by any person (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the
"Exchange Act")) who is not as of the date of consummation of the
Corporation's 1995 rights offering to shareholders of the Corporation the
beneficial holder of at least 10% of the Corporation's then outstanding
common stock, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (x) the then
outstanding common stock (the "Outstanding Corporation Common Stock") or
(y) the combined voting power of the then outstanding common stock
entitled to vote generally in the election of directors (the "Outstanding
Corporation Voting Securities"); excluding, however, the following: (1)
any acquisition of
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Outstanding Corporation Common Stock by the Corporation, (2) any
acquisition of Outstanding Corporation Common Stock by any employee
benefit plan (or related trust) sponsored or maintained by the
Corporation or any corporation controlled by the Corporation or (3) any
acquisition of Outstanding Corporation Common Stock by any person
pursuant to a transaction which complies with clauses (1), (2) and (3) of
subSection (C) of this definition; or
(B) A change in the composition of the Board such that the
individuals who, as of the effective date of the Plan, constitute the
Board (such Board shall be hereinafter referred to as the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board; PROVIDED, HOWEVER, for purposes of this definition, that any
individual who becomes a Director subsequent to such effective date,
whose election, or nomination for election by the Corporation's
stockholders, was approved by a vote of at least a majority of those
individuals who are Directors and who were also members of the Incumbent
Board (or deemed to be such pursuant to this proviso) shall be considered
as though such individual were a member of the Incumbent Board; but,
PROVIDED FURTHER, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a person or legal
entity other than the Board shall not be so considered as a member of the
Incumbent Board; or
(C) The approval by the stockholders of the Corporation of a
reorganization, merger or consolidation or sale or other disposition of
all or substantially all of the assets of the Corporation ("Corporate
Transaction"); excluding, however, such a Corporate Transaction pursuant
to which (1) all or substantially all of the individuals and entities who
are the Beneficial Owners, respectively, of the Outstanding Corporation
Common Stock and Outstanding Corporation Voting Securities immediately
prior to such Corporate Transaction will beneficially own, directly or
indirectly, more than 60% of, respectively, the outstanding common stock,
and the combined voting power of the then outstanding common stock
entitled to vote generally in the election of directors, as the case may
be, of the company resulting from such Corporate Transaction (including,
without limitation, a corporation which as a result of such transaction
owns the Corporation or all or substantially all of the Corporation's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior
to such Corporate Transaction, of the Outstanding Corporation Common
Stock and Outstanding Corporation Voting Securities, as the case may be,
(2) no person (other then the Corporation, any employee benefit plan (or
related trust) sponsored or maintained by the Corporation or any
corporation controlled by the Corporation or such corporation resulting
from such Corporate Transaction) will beneficially own, directly or
indirectly, 20% or more of, respectively, the outstanding shares of
common stock of the corporation resulting from such Corporate Transaction
or the combined voting power of the outstanding voting securities of such
corporation entitled to vote generally in the election of directors
except to the extent that such ownership existed with respect to the
Corporation prior to the Corporate Transaction and (3) individuals who
were members of the Incumbent Board will constitute at least a majority
of the board of directors of the corporation resulting from such
Corporate Transaction; or
(D) The approval by the stockholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
VIII. AWARD AGREEMENTS
Each Award under the Plan shall be evidenced by an Award Agreement setting
forth the terms and conditions of the Award and executed by the Corporation and
Participant.
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IX. OTHER TERMS AND CONDITIONS
(a) ASSIGNABILITY. Unless provided to the contrary in any Award, no Award
shall be assignable or transferable except by will, by the laws of descent and
distribution and during the lifetime of a Participant, the Award shall be
exercisable only by such Participant. No Award granted under the Plan shall be
subject to execution, attachment or process.
(b) TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP. Except as provided in
Section VII(c) with respect to Director Options, the Committee shall determine
the disposition of the grant of each Award in the event of the retirement,
disability, death or other termination of a Participant's employment or other
relationship with the Corporation or a Subsidiary.
(c) RIGHTS AS A STOCKHOLDER. A Participant shall have no rights as a
stockholder with respect to shares covered by an Award until the date the
Participant is the holder of record. No adjustment will be made for dividends or
other rights for which the record date is prior to such date.
(d) NO OBLIGATION TO EXERCISE. The grant of an Award shall impose no
obligation upon the Participant to exercise the Award.
(e) PAYMENTS BY PARTICIPANTS. The Committee may determine that Awards for
which a payment is due from a Participant may be payable: (i) in U.S. dollars by
personal check, bank draft or money order payable to the order of the
Corporation, by money transfers or direct account debits; (ii) through the
delivery or deemed delivery based on attestation to the ownership of shares of
Common Stock with a Fair Market Value equal to the total payment due from the
Participant; (iii) pursuant to a broker-assisted "cashless exercise" program if
established by the Corporation; (iv) by a combination of the methods described
in (i) through (iii) above; or (v) by such other methods as the Committee may
deem appropriate.
(f) WITHHOLDING. Except as otherwise provided by the Committee, (i) the
deduction of withholding and any other taxes required by law will be made from
all amounts paid in cash and (ii) in the case of payments of Awards in shares of
Common Stock, the Participant shall be required to pay the amount of any taxes
required to be withheld prior to receipt of such stock, or alternatively, a
number of shares the Fair Market Value of which equals the amount required to be
withheld may be deducted from the payment.
(g) RESTRICTIONS ON SALE AND EXERCISE. With respect to officers and
directors for purposes of Section 16 of the Exchange Act, and if required to
comply with rules promulgated thereunder, (i) no Award providing for exercise, a
vesting period, a restriction period or the attainment of performance standards
shall permit unrestricted ownership of Common Stock by the Participant for at
least six months from the date of grant, and (ii) Common Stock acquired pursuant
to this Plan (other than Common Stock acquired as a result of the granting of a
"derivative security") may not be sold for at least six months after
acquisition.
(h) MAXIMUM AWARDS. The maximum number of shares of Common Stock that may
be issued to any single Participant pursuant to options under this Plan is equal
to the maximum number of shares provided for in paragraph (a) of Section V.
X. TERMINATION, MODIFICATION AND AMENDMENTS
(a) The Plan may from time to time be terminated, modified or amended by the
affirmative vote of the holders of a majority of the outstanding shares of the
capital stock of the Corporation present or represented and entitled to vote at
a duly held stockholders meeting.
(b) The Board may at any time terminate the Plan or from time to time make
such modifications or amendments of the Plan as it may deem advisable; provided,
however, that the Board shall not make any amendments to the Plan which require
stockholder approval under applicable law, rule or regulation unless the same
shall be approved by the requisite vote of the Corporation's stockholders.
(c) No termination, modification or amendment of the Plan may adversely
affect the rights conferred by an Award without the consent of the recipient
thereof.
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(d) Notwithstanding anything herein to the contrary, the provisions of
Section VII shall not be amended more than once every six months, other than to
comport with changes in the Code, the Employee Retirement Income Security Act,
or the rules thereunder.
XI. RECAPITALIZATION
The aggregate number of shares of Common Stock as to which Awards may be
granted to Participants, the number of shares thereof covered by each
outstanding Award, and the price per share thereof in each such Award, shall all
be proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a subdivision or consolidation of shares
or other capital adjustment, or the payment of a stock dividend or other
increase or decrease in such shares, effected without receipt of consideration
by the Corporation, or other change in corporate or capital structure; provided,
however, that any fractional shares resulting from any such adjustment shall be
eliminated. The Committee may also make the foregoing changes and any other
changes, including changes in the classes of securities available, to the extent
it is deemed necessary or desirable to preserve the intended benefits of the
Plan for the Corporation and the Participants in the event of any other
reorganization, recapitalization, merger, consolidation, spin-off, extraordinary
dividend or other distribution or similar transaction.
XII. NO RIGHT TO EMPLOYMENT
Except as provided in Section VII with respect to Director Options, no
person shall have any claim or right to be granted an Award, and the grant of an
Award shall not be construed as giving a Participant the right to be retained in
the employ of, or in the other relationship with, the Corporation or a
Subsidiary. Further, the Corporation and each Subsidiary expressly reserve the
right at any time to dismiss a Participant free from any liability, or any claim
under the Plan, except as provided herein or in any Award Agreement issued
hereunder.
XIII. GOVERNING LAW
To the extent that federal laws do not otherwise control, the Plan shall be
construed in accordance with and governed by the laws of the State of
California.
XIV. SAVINGS CLAUSE
This Plan is intended to comply in all aspects with applicable laws and
regulations, including, with respect to those Employees who are officers or
directors for purposes of Section 16 of the Exchange Act, Rule 16b-3 under the
Exchange Act. In case any one more of the provisions of this Plan shall be held
invalid, illegal or unenforceable in any respect under applicable law and
regulation (including Rule 16b-3), the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby
and the invalid, illegal or unenforceable provision shall be deemed null and
void; however, to the extent permissible by law, any provision which could be
deemed null and void shall first be construed, interpreted or revised
retroactively to permit this Plan to be construed in compliance with all
applicable laws (including Rule 16b-3) so as to foster the intent of this Plan.
XV. EFFECTIVE DATE AND TERM
The Hexcel Corporation Long-Term Incentive Plan and the Hexcel Corporation
1995 Directors' Stock Option Plan became effective as of February 9, 1995, and
April 4, 1995, respectively. The effectiveness of each such plan as incorporated
in this amendment and restatement is subject to approval by stockholders of the
Corporation. Awards granted under either plan prior to such approval by the
stockholders shall be subject to such approval. The Plan shall terminate on
February 8, 2005. No Awards shall be granted after the termination of the Plan.
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HEXCEL CORPORATION
5794 WEST LAS POSITAS BOULEVARD
PLEASANTON, CALIFORNIA 94588
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF HEXCEL CORPORATION
The undersigned stockholder of Hexcel Corporation ("Hexcel") hereby
appoints Marshall S. Geller, Peter A. Langerman and John J. Lee and each of
them, the lawful attorneys and proxies of the undersigned, each with powers of
substitution, to vote all the shares of Common Stock of Hexcel held of record by
the undersigned on December 27, 1995 at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held at the offices of Chemical Bank, 11th Floor
(Room A), 270 Park Avenue, New York, New York, on February 21, 1996 at 11:00
a.m., local time, and at any and all adjournments or postponements thereof, with
all the powers the undersigned would possess if personally present, upon all
matters set forth in the Notice of Annual Meeting of Stockholders and the Proxy
Statement dated January 22, 1996, receipt of which is hereby acknowledged.
Shares represented by all properly executed proxies will be voted in
accordance with the instructions appearing on the proxy and in the discretion of
the proxy holders as to any other matter that may properly come before the
Annual Meeting. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED
FOR ITEM 1, FOR ITEM 2, FOR EACH OF THE NOMINEES SET FORTH IN ITEM 3, FOR ITEM
4, FOR ITEM 5, AND IN THE DISCRETION OF THE PROXY HOLDERS AS TO ANY OTHER MATTER
THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING OF STOCKHOLDERS.
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/\ FOLD AND DETACH HERE /\
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Please mark
your votes as /X/
indicated in
this example
1. Approval of the issuance of a number of new shares (the "Hexcel Shares") of
Common Stock of Hexcel (currently estimated at approximately 18,019,133
shares based on the 18,091,354 shares outstanding as of December 27, 1995),
representing 49.9% of the issued and outstanding shares of Common Stock
after giving effect to the issuance of the Hexcel Shares, to be issued in
connection with the proposed acquisition by Hexcel of the Ciba Composites
Business, as described in the Proxy Statement.
FOR AGAINST ABSTAIN
/ / / / / /
2. Approval of an amendment to Hexcel's Certificate of Incorporation
increasing the number of authorized shares of Common Stock of Hexcel from
40,000,000 to 100,000,000.
FOR AGAINST ABSTAIN
/ / / / / /
3. ELECTION OF DIRECTORS (check one box only):
FOR all nominees WITHHOLD
listed below (except AUTHORITY
as marked to the to vote for all
contrary). nominees listed below.
/ / / /
Marshall S. Geller John J. Lee Franklin S. Wimer
Joseph L. Harrosh George S. Springer Robert L. Witt
Peter A. Langerman Frederick W. Stanske Peter D. Wolfson
INSTRUCTION: To withhold authority to vote for any individual nominee(s), write
the name(s) of the nominee(s) below:
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4. Approval of Hexcel's Amended and Restated Incentive Stock Plan.
FOR AGAINST ABSTAIN
/ / / / / /
5. Ratification of the appointment of Deloitte & Touche LLP as Hexcel's
independent auditors for the fiscal year ended December 31, 1995.
FOR AGAINST ABSTAIN
/ / / / / /
DATED:_________________________,
1996
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Signature(s)
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Please sign as name(s) appear on this proxy, and date this proxy. If a joint
account, each joint owner must sign. If signing for a corporation or partnership
or as agent, attorney or fiduciary, please indicate the capacity in which you
are signing.
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/\ FOLD AND DETACH HERE /\
HEXCEL CORPORATION
YOUR VOTE IS IMPORTANT TO US, PLEASE FILL IN, DATE AND SIGN YOUR PROXY AND
RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE PROVIDED FOR YOUR CONVENIENCE.
<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 and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1994. These financial statements are the responsibility of Hexcel's
management. Our responsibility is to express an opinion on these financial
statements baseed 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 audited 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 consolidated financial statements present fairly, in
all material respects, the financial position of Hexcel Corporation and
subsidiaries at December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, on
January 12, 1995, the U.S. Bankruptcy Court entered an order dated January
10, 1995 confirming Hexcel's plan of reorganization which became effective on
February 9, 1995. The terms of the plan of reorganization are more fully
described in Notes 2 and 3.
As discussed in Note 9 to the consolidated financial statements, in
order to comply with certain financial ratio covenants of the revolving
credit facility Hexcel is required to achieve certain higher levels of
financial performance.
As discussed in Note 1 to the consolidated financial statements, in 1992
Hexcel changed its method of accounting for postretirement benefits other
than pensions to conform with Statement of Financial Accounting Standards No.
106 and in 1993 changed its method of accounting for income taxes effective
January 1, 1993 to conform with Statement of Financial Accounting Standards
No. 109.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Oakland, California
February 24, 1995
